LULU STEPS IN DOODOO: QUALITY CONTROL VS BRAND LOYALTY

LULU STEPS IN DOODOO: QUALITY CONTROL VS BRAND LOYALTY -- Lululemon Athletica achieves what Nike hasn't been able to do in 20 years.  Both companies mix styling and advanced fabrics but lululemon lives and dies by yoga just as Nike did with runners for the inital years of their business until the realities of stock price and global markets expanded their focus.

The Vancouver, BC-based yoga apparel company announced yesterday that they were recalling 17% of bottoms on their sales floors due to a fabric issue that created an excessive "level of sheerness in some of our women's black Luon bottoms that fall short of our very high standards."  Lululemon's stock price plummeted almost six percent Tuesday morning to $62.30.  This situation has long-lasting implications for the reputation of the brand.

Lululemon relies on the devotion of its legions of committed yoga practitioners who are the foundation of the business.  However, according to the Financial Post, this is the fourth quality control issue at Lululemon in the last year.  When quality suffers, customers flee.  Passion is the glue that links a target market to a specific brand.  When Phil Knight was building Nike in the 1970s and created the waffle sole, runners knew Nike was as passionate about making their shoes as serious runners were about running.  That link was the catalyst that created a brand/customer partnership that lasted for decades.

Salespeople at Lululemon are called 'Educators' because they are promoted as people who are as in touch with their bodies and yoga as they are with the product on the shelves.  Although at this moment, Lululemon is looking into the cause of the latest problem, it is clear that a serious quality control issue must be addressed.  The fabric issue apparently went undetected all the way through the manufacturing and distribution process and was first recognized with returns or comments from end-users.

Nike has had controversy as well over product origins and manufacturing, however most of these issues occurred after Nike established itself in the market with it's core constituency of runners.  Nike promoted itself as the 'authentic' shoes for serious runners and the running establishment embraced Nike.  This bond helped to keep the reputation of the company intact for decades.

The problems with Lululemon are different because they come at a time when the firm is still building its reputation and also because these issues are about product quality compared with Nike that had to deal instead with product origin and child labor issues.

To appease their loyal customers, Lululemon must announce immediately the factors that caused the problem and announce new quality control procedures to guarantee future quality of all products.  Product displays in-store to demonstrate the integrity of the pants they produce will also help repair the damage.

Another looming issue - according to the company's annual report, the Luon fabric in question is provided by a single manufacturer in Taiwan.  The explanation from Lululemon should also address the single-source issue and the reasons for the business having too much reliance on a single manufacturer.

This is the moment where Lululemon can take a short-term stock hit and repair long-term customer loyalty with a full, honest and introspective assessment of the entire business with concrete steps to redeem trust.  Otherwise, these Lululemons may not so easily be made into Lululemonade.