lululemon athletica (LULU): Where is John Galt?
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lululemon athletica, inc. (LULU) is in crisis, a state in which it has found itself repeatedly over the years.
Potentially, never have shareholders suffered management fumbling its way into so many own goals.
LULU Crisis #1
The first own goal, in 2011, certainly seemed a one-off, never to be repeated.
LULU Founder Chip Wilson, a devotee of Ayn Rand’s objectivist bible Atlas Shrugged, is a man that has never been accused of lightness in the cranial light bulb department.
This marketing idea came to him, apparently, while wincing as a wrongly proportioned woman walked past him wearing his company’s gift to mankind – the yoga pants legging.
Let it be written, he said, and so it was done. “Who is JOHN GALT?” was painted neatly onto tens of thousands of LULU’s iconic reusable shopping bags.
When I heard, I asked my wife to make sure she got one. The bag, not the leggings.
I knew they would not be long for this world. Again, the bag, not the leggings.
Because my habit is to poke bears, I framed it, and it hangs in my conference room to this day.
Yoga and Ayn Rand. They do not belong together in the same sentence let alone a tight proper noun phrase.
So what was the infamous question – and opening line - from Atlas Shrugged doing on that bag?
Most importantly, it was offending the heck out of lululemon’s core customers, that subset of homo sapiens with nary a Y chromosome aged 25-45 years who practice both yoga and progressive politics at the very same time.
NPR’s Guy Raz interviewed The Globe and Mail’s Sports Business columnist Simon Houpt in November 2011.
Guy Raz: So, I wonder if this is sort of a, actually a smart way to get more business, right, because you might get all these objectivists all of a sudden taking up yoga.
Simon Houpt: That’s entirely possible. However, at least at the moment, it does seem – the evidence suggests that lululemon has severely alienated its core constituency.
The press had barely finished blaming the Great Financial Crisis on that randy Ayn, a former confidant of the late Alan Greenspan (March 6, 1926 – June 22, 2026).
The company published a short explanatory defense of its Galt bags:
Who is John Galt?
Lululemon’s neon-lit manifesto has always been a reflection of our core values, our culture, and our beliefs. Our vision is to elevate the world from mediocrity to greatness. We believe that independent creativity and free will are critical for quality of life.
In Atlas Shrugged, Ayn Rand describes a society where people work and reside in government-controlled environments that are tightly regimented. Without realizing it, this control created a society of mediocrity; propagating a cycle of listless, uninspired existing as opposed to living.
The character John Galt encouraged all of the world’s innovators and intelligent minds to go on strike from the increasingly controlling government in order to create a vacuum of brilliance, proving that independent creativity and free-will is critical for quality of life.
Lululemon founder, Chip Wilson, first read Atlas Shrugged when he was 18 years old. Only later, looking back, did he realize the impact the book’s ideology had on his quest to elevate the world from mediocrity to greatness (it is not coincidental that this is lululemon’s company vision).
Our ‘Who is John Galt?’ bags were designed to look at the persistence of mediocrity in our society. We want to challenge our community to think about their own individual choice, responsibility, and the power of free will.
What do you think? Have you read Atlas Shrugged? Does your individual excellence elevate those around you?
No matter. It was a public relations disaster.
LULU Crisis #2
A few years later, the flagship skin-tight yoga pants are found to be transparent – a wholly undesirable trait for pants, especially in the seat thereof.
In a Bloomberg TV “Street Smart” clip, Chip Wilson unfortunately blamed women’s bodies:
Frankly, some women’s bodies just don’t actually work [for the yoga pants]. It’s more really about the rubbing through the thighs, how much pressure is there over a period of time, how much they use it.
A few months later, in a Forbes interview, Chip again planted his foot in his mouth, saying “you don’t want certain customers coming in.” He also described the models in lululemon’s own ad spots as “sickly.”
The progressive set that makes up LULU’s customers balked. LULU’s gross margins cratered from nearly 56% to just ~48%, leading to an “investment year.” LULU shares fall steeply as well.
LULU’s management, in conference calls and in regulatory filings, cited needed investment in “product quality” and “supply chain.” This seemed remarkable for a company that reputedly had already achieved both high product quality and flexible supply chain architecture.
With revenue still rising but same store sales flatlining, net income and free cash flow were falling.
On top of this, President Trump enacted a new law with mandatory tax on LULU’s overseas operations. This would cost the company 250 basis points of gross margin.
As shares languished, LULU’s infamous CEO carousel continued to spin. A management void developed. It was as if no one is in charge. The stock fell more.
Wait a sec, this now sounding as if LULU went through something similar to today’s crisiss back in the mid 2010s.
That is becuase it did.