Heading Into the Holidays, Negative PR Tampers Foot Traffic at lulu

lululemon athletica reported a drop in foot traffic to stores in the third quarter, likely due to the PR firestorm over founder Chip Wilson's controversial comments concerning women's thigh sizes as a contributor to its highly public material quality problems, according to CFO John Currie.

"It would be naÏve to think that the company-specific issues that we've been dealing with this year, from the Luon setback to the recent negative PR issues, have not also had some impact," he explained.

Despite the decline in visitors, lulu has prepared to be in a better position for the holiday season this year, compared with 2012. "We came into the holiday season better equipped to handle high traffic volumes during peak periods, with handheld POS units for line busting," Curried said. "In our high-volume stores, we rolled out mobile ecommerce devices to draw on ecommerce inventory when the store is out of a guest's size or color."

lulu also has tailored its assortment to reflect "that this is actually a gift giving season," noted Currie, with the inclusion of lower-priced items such as mitts that are performing well so far this season and a better range of products in the "key gift giving range" of roughly $100.

"That's where there was a real void in our pricing architecture last year," he added.

To tie into the holiday season and help to ameliorate the recent negative PR, lulu's new "No Humbug" aims to reestablish the connection with community. "We've allocated funds to each store to just surprise and delight the guest in whatever creative way they want to," explained Currie. "It's not discounts, but just sending somebody home to visit their parents for Christmas, or whatever else they come up with. Just random acts of kindness, because that's who we are, and just trying to connect with the communities again."

Managing the supply chain
In addition to hiring new CEO Laurent Potdevin to replacing outgoing chief Christine Day, lulu also has identified key executives to round out the leadership team. Jennifer Battersby joins the company as senior vice president of product operations with Steve Berube as senior vice president of logistics and distribution Tara Poseley coming on board as chief product officer.

The sourcing and supply chain has its hands full with keeping close tabs on quality and ensuring that quality problems remain a thing of the past. "We've enhanced our back end quality control filters at the distribution centers to ensure faulty product does not make it to our stores, and the result is that some styles have been rejected by our quality filters and not released to stores," said Currie.

The company has partnered with a second supplier of its popular Luon and will have a third vendor up and running by spring.

Currie emphasized that sourcing improvements are being applied to all products and styles, and not limited to just the Luon fabric that launched lulu's first PR crisis this year. "Luon is definitely our most complicated fabric, and that's where our focus has been," he revealed. "But I think we're already seeing improvements there with the second supplier, and the third one coming on, and also with our new 28-gauge Full On Luon …

"It's an across the board initiative that impacts all of our fabrics and products," he continued.

Tech projects and ecommerce
Starting in 2014, lulu will begin a "significant systems implementation project" that will address and optimize product flow, which will streamline segmenting products by climate and enable strategic markdown optimization, according to Currie. The eeffcts of that project won't be seen until 2015, he added.

lulu's bright spot has come through ecommerce, which saw its highest penetration, 16.3 percent, in the third quarter. "More and more our guest is shopping both channels," said Currie. "There's a shift, to some extent, from stores to ecommerce."

Because the company buys for the ecommerce channel as a standalone store and fulfills from its own distribution centers, it's relatively easy to shift inventory that was designated for stores into the ecommerce channel as a means of managing excess stock, Currie explained.

Despite the intense loyalty of many lulu customers, the company has no near-future plans to establish a true loyalty program. Instead, the brand is focusing on digital and mobile as avenues to connect with customers.

"I think there's lots of opportunities to improve our execution there in the future that may or may not look like a typically loyalty program," said Currie. "But definitely we're looking at how we can evolve in that area."
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