Lululemon shares fall 6% due to leggings scandal. Why isn't the retailer believed?

Shares of sportswear maker Lululemon Athletica have fallen sharply after the company suspended online sales of its Get Low collection in North America due to customer complaints. The situation has renewed questions about the retailer's quality control and product strategy. The problems with the new line coincided with a period of management instability. With the departure of the current CEO and the search for a new CEO, the market is questioning Lululemon's ability to regain trust and maintain its brand status.

Shares of sportswear retailer Lululemon Athletica fell almost 6.5% in trading on January 20, amid reports that it has suspended online sales of its Get Low collection in North America. The decision was made after buyers complained that the leggings' material was too transparent, Reuters reported. At the pre-market on January 21, the company's securities added about 0.2%.

The Get Low collection remains available in physical stores in North America, as well as in other countries, the agency said. According to the company's representative, the management now needs to "better deal with the first customer feedback and further develop product communication". Lululemon expects to return the line to online distribution in the near future, Investing.com writes .

2024 has already been forced to withdraw its Breezethrough leggings - both in stores and on its website - just weeks after launch due to quality complaints.

The suspension of sales of the Get Low collection came amid several serious challenges for Lululemon at once, Reuters notes. In late December, founder Chip Wilson launched a proxy fight at the company, which is a corporate conflict in which shareholders try to change leadership or strategy. Willson nominated three candidates with strong product and brand experience to the board, saying the current board is incapable of providing continuity and earning shareholder trust.

The company is under additional pressure from activist investor Elliott Management, which acquired a stake worth about $1 billion in December and is working with former Ralph Lauren top executive Jane Nielsen to consider her as a potential CEO candidate. The incumbent - Calvin McDonald - will step down in January.

In addition, Lululemon is facing increased competition in the sportswear market, as well as concerns about ongoing quality control issues, Investing.com points out. Investors are also concerned about a possible negative impact on revenue due to the limited availability of products in digital channels, which are becoming increasingly important for retail sales, the publication emphasizes.

"The company has had problems with product development for some time. That's something the new CEO will have to deal with," Morningstar analyst David Schwartz said in comments to Reuters.

"We are concerned about Lululemon's protracted quality control difficulties," said analysts at Raymond James, as quoted by The Wall Street Journal. In their assessment, failures like the current one underscore the low transparency of the company's business turnaround process.

Tellingly, the problems affect Lululemon's key product, leggings, Jefferies analysts pointed out. "For a brand that has historically relied on technological superiority to justify premium pricing, repeated failures in a core category call into question the stability and strength of Lululemon's innovation engine," they emphasized. And each new quality failure increases the risk that consumers will reallocate spending to Lululemon's competitors, the analysts added.

This article was AI-translated and verified by a human editor