The lululemon Change Case
Prepared by Change Consulting Group
Ellena, Gilbreath, Haack, Hardy, & Irish
University of Southern California
CMGT 508
lululemon Change Case | CCG 1
Executive Summary
Lululemon is facing many challenges due to changes made by the previous
executives of the organization. These challenges include culture changes (decentralized
manufacturing, aloof executive team), decreased revenue (large drops in store sales),
increased competition (larger scale, lower cost), pressure to please stockholders
(misaligned growth initiatives), a lack of trust between employees (executive
mismanagement), and infrastructure problems (slow manufacturing, high shipping fees,
costly store leases) that all require swift and strategic action in order to combat decreased
revenue, failing infrastructure, increased competition, and lack of interorganizational trust
and communication (Tushman, 2010). To do so, lululemon will need to realign store and
corporate growth strategies with earlier practices. These actions include halting U.S.
growth until local community relations can be improved, holding sponsored events such
as marathons, creating video and social media outreach programs, giving stock to
employees, requiring executive management training about culture, strategy, and goals,
maintaining the established pricing strategy, continuing growth once revenue stabilizes,
diversifying the customer base, and making founder Chip Wilson Chief Culture Officer.
Through these strategic recommendations, we intend to solve lululemon’s cultural,
strategic, financial, and infrastructure problems that arose from the prior leadership,
which led to the problems now facing lululemon.
Business Environment
With new CEO Christine Day taking strategic control of the organization, there
are many positive and negative factors that are currently surrounding lululemon. From an
overview perspective, the organization is experiencing large-scale geographic growth as
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well as communication, cultural, and relationship issues that had not existed within the
organization until former CEO Bob Meers took the lead of lululemon (Tushman, 2010).
When Meers was instructed to turn lululemon into a $1 billion business, he began rapidly
expanding the lululemon empire without maintaining the culture (Martin, 1992) that had
been curated so identifiably by founder Chip Wilson and was such an important asset to
the organization (Tushman, 2010).
Within the market, lululemon is now facing threats from external forces such as
new competitors and suppliers that threaten lululemon’s profits, revenue, and growth
(Porter, 2008). And while lululemon still maintains the highest quality standards in its
industry (Tushman, 2010), some of the competition may have an advantage with regard
to scale, production, and supply chain distribution (Tushman, 2010).
Lululemon suffers from decreased profits within many of their new stores,
bringing the average sales per square foot from a high point of $1,710 in 2007 to $1,451
in 2008, as well as a decrease in comp store sales from 24% to 3% (Tushman, 2010).
Much of this can be blamed on the rapid expansion under the former CEO, inconsistency
in culture reinforcement (Martin, 1992), external forces such as new competitors (Porter,
2008), lack of communication and collaboration with communities (Grams, 2012), and
communication problems with store managers (Tushman, 2010).
Lastly among lululemon’s current business environment is a decentralized
marketing structure that has yielded both bright spots (Show up nude) and learning
moments (“Show us your balls”) in the company’s history (Tushman, 2010). This
decentralized marketing is crucial to the success of localized lululemon store managers,
lululemon Change Case | CCG 3
as well as to the “entrepreneurial” nature of lululemon’s culture. However, now that
lululemon is publicly traded, this could be a potential area of concern.
Changes Confronting lululemon
Currently, lululemon faces several organizational changes as a result of the
leadership of previous CEO, Bob Meers (Tushman, 2010). These crucial changes and
resulting challenges could lead to continued decline if not addressed soon. As the
organization has gone public, there is now increased pressure to satisfy shareholders with
an aggressive growth strategy. As a result, the prior and more successful growth strategy
(Tushman, 2010) has become completely absent from lululemon’s growth strategy in the
U.S. This has led to decreased revenue in U.S. locations that are locked into leases at a
high cost. Further, because of this rapid growth, the lululemon infrastructure
(manufacturing and supply chain) cannot meet demands. Additionally, lululemon faces
threats from external forces (Porter, 2012) and “red oceans” (Kim & Maubogne, 2004)
including increased competition in yoga gear at lower prices, as well as an overall
economic recession leading to lower profits in the retail market since in 2009. And
lastly, due to the rapid growth strategy and externally recruited senior level executives
who did not understand or choose to acknowledge the existing lululemon culture, a lack
of trust and communication has developed between lululemon store managers, corporate
offices, and a tenured manufacturing team that has been displaced by another
decentralized manufacturing team. These new cross-functional barriers eroded the sense
of teamwork causing misalignment in culture and growth strategies (Tushman, 2010).
Strategy, Mission & Culture
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Lululemon’s mission is creating “components for people to live longer, healthier,
more fun lives” (lululemon, 2006). This is laid out in their core values, which include
quality, product, integrity, balance, entrepreneurship, greatness, and fun (Tushman,
2010).
As explored by Kim and Mauborgne, an organization must create a blue ocean to
avoid overcrowded industries (2004) by producing a good or service to fill a void in the
current market--to find “uncontested market space” (Kim & Mauborgne, 2004, p.1).
lululemon’s current strategy works to establish a blue ocean by creating a happier and
healthier world by growing within communities, gaining the trust of customers and
employees, and educating the world on a higher quality product and a more active
lifestyle. It requires subtle growth, in-depth knowledge of the community and its people
and culture, and products that exceed competition and expectations. This detailed strategy
is mapped out with clear, concise language, and should work to motivate and inspire
employees and lead to organizational success (Collis & Rukstad, 2008).
The culture at lululemon is, in part, defined by its manifesto, which is also used
on lululemon’s retail shopping bags and other collateral throughout the organization
(Appendix B; Tushman, 2010). It builds off of lululemon’s core values by using fun and
unique statements, while encouraging employees to be themselves, to have fun, to value
friends and family, to exercise, and to value life. The manifesto, along with reinforcement
in the form of on-the-job yoga classes, rigorous but fun new hire orientation, deep
community involvement, and creative freedom in stores (Tushman, 2010) creates a
culture in which employees are motivated to participate and grow (Tushman, 2010;
Grams, 2012).
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Recommendations Moving Forward
In order to move forward and improve upon the current situation, lululemon needs
to realign store and corporate growth strategies with earlier practices, reimplement Chip
Wilson’s culture and vision that had once been such a source of positive growth within
the organization (Martin, 1992; Grams, 2012), and find unique ways that will allow
lululemon to maintain the strategy and culture that has been so important to its growth,
while adapting to shifts in the marketplace (Kotter, 2006; Heath & Heath, 2010;
Mintzberg, 1994) and overcoming growing external threats (Porter, 2008). In order to do
this, the following strategic steps must be taken.
(1) lululemon should halt growth instantly in the U.S. and focus on reproducing
prior growth strategies in existing markets by appealing to community athletes, yoga
teachers, and college students. In doing so, lululemon will avoid red oceans and can
concentrate on the tactics used to create a blue ocean market (Kim & Mauborgne, 2004).
In essence, this means that lululemon would use their cultural and community strategies
to continue expanding their brand into areas with little to no competition, while avoiding
heavily saturated areas of existing product offerings and competition from outside
competitive forces (Porter, 2008; Kim & Mauborgne, 2004).
(2) lululemon should consider sponsoring events in existing U.S. locations that
are not performing well, such as marathons, yoga events, and health seminars. Through
these events, lululemon can create broad participation in the brand building process at the
community level. This helps guide the culture and lifestyle that lululemon wants to
promote, while allowing the community to help shape that culture in their own terms
(Grams, 2012), which leads to our next point.
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lululemon Change Case | CCG
(3) Contributing to an Ad-free Brand effort fosters community and ownership
over the brand among stakeholders (Grams, 2012). Building on this idea of Ad-free
branding, lululemon should consider increasing marketing to the communities around
their existing stores by offering free yoga video giveaways, along with developing a
YouTube channel. This will develop stronger community ties through social media,
allowing the community to interact with, guide, and enjoy lululemon on their terms,
while increasing grassroots growth (Grams, 2012).
(4) To improve employee relations, lululemon should give stock to employees to
promote feelings of ownership and entrepreneurship - which had traditionally been
characteristics lululemon valued in their employees and their culture (Tushman, 2010;
Martin, 1992). This would help build trust, communication, and passion within the
organization which diminished during the period of rapid growth while Meers was CEO.
(5) Executive management training should be required in order to ensure top
managers are consistently aligned with lululemon’s strategy, culture, and goals, even in
the face of a constantly shifting marketplace. Consistency among management is
important to avoid the loss of lululemon culture, as well as the deterioration of workplace
relationships that have stood firm in the past (Tushman, 2010; Martin, 1992).
Furthermore, by creating a deep level of understanding of the core values and vision of
lululemon, top management can allow strategy to seamlessly emerge as markets and
competition shifts (Mintzberg, 1994; Moore & Lenir, 2011), while maintaining the goals
and beliefs of the brand.
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(6) Despite economic recession, lululemon should maintain the established
pricing strategy, as it distinguishes lululemon as an elite brand with the highest quality.
This will help reinforce the “elite” status of the product in the mind of their target and
core customers, without any specific marketing (Tushman, 2010; Grams, 2012).
(7) Once sales per square foot reach prior levels of success, lululemon can
continue original Canadian growth strategy in U.S. markets, and perhaps expand into
Latin America, Europe and Asia using the same growth strategy. This will help
lululemon reach untapped markets with less competition (Kim & Maubogne, 2004) while
continuing to overcome increasing external threats (Porter, 2008).
(8) Lululemon should diversify its customer base, as males make up only one
tenth of sales. (Moore, 2011). Furthermore, they can enter new markets by catering to
children, creating new opportunities for blue oceans (Hutchins, 2012; Collis & Rukstad,
2008; Kim & Maubogne, 2004).
(9) Lastly, we suggest that Chip Wilson, founder of lululemon, be given the title
of Chief Culture Officer of the organization. It was Wilson’s initial vision that made
lululemon such a success. By giving Wilson a title that more clearly defines his role
within the organization, he may be able to work alongside the new CEO as CCO to create
consistency and alignment of the lululemon brand, while guiding strategy and culture for
decades to come (Martin, 1992).
Potential Areas of Resistance to Change
As lululemon evolves, as with most changes, there are some expectations of
resistance throughout the organization (Block, 2011; Kotter, 2006). Shareholders may
have some concerns at first because of the continued low sales in U.S. stores. Low
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lululemon Change Case | CCG
morale, lack of communication and a recent shift in lululemon culture may cause
turnover among store managers. Executive management may be worried about the
decision to re-stabilize and slow down growth in the U.S., as well as many outstanding
issues in the supply chain. The key is to find the right way to help guide lululemon
employees along the path to change (Kotter, 2006; Block, 2011). We make the following
recommendations to help overcome this likely resistance.
First, “create a sense of urgency” (Kotter, 2006, pg. 130) by transparently
informing employees about the current financial state of lululemon. Next, gather a
coalition of long time and new employees that are excited about the changes that are
going to be made (Kotter, 2006). Ideally, this should be led by someone in management,
including Day or Wilson. Once the coalition is created, spread the message throughout
the organization about the changes that are going to be made through outlets such as
emails, town hall meetings, and in-person discussions, while empowering employees to
participate in these changes (Kotter, 2006). As the changes begin ramping up, ensure that
the organization celebrates any changes that move the company in the right direction,
both in corporate offices, as well as at the store level (Kotter, 2006). Finally, continue
promoting these new changes and the impact they will have on the organization, even
when management believes the change has become permanent (Kotter, 2006). This is
highly important to ensure that the new culture, strategy, and guiding principles become
highly integrated into the organization. Without this reinforcement, lululemon may slip
back into the dire financial situation it is currently involved in now (Kotter, 2006).
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References
Block, P. (2011). Flawless consulting: A guide to getting your expertise used (3rd ed.).
San Francisco, CA: Pfeiffer Publishing.
Collis, D.J., & Rukstad, M. G. (2008). Can you say what your strategy is? Harvard
Business Review, 86(4), 82-90. Boston, MA: Harvard Business Publishing
Grams, C. (2012). The Ad Free Brand: Secrets to building successful brands in a digital
world.
Heath, C., & Heath, D. (2010). Switch: How to change things when change is hard. New
York, NY: Crown Publishing.
Hutchins, A. (2012, 09/10; 2012/10). Lululemon stretches out.125, 53. Retrieved from
http://ic.galegroup.com.libproxy.usc.edu/ic/whic/MagazinesDetailsPage/Magazines
DetailsWindow?displayGroupName=Magazines&disableHighlighting=false&search
_within_results=&prodId=WHIC&action=2&catId=&documentId=GALE%7CA302
110831&userGroupName=usocal_main&jsid=c18551d4b8ceed495db625aa0661c52
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Lululemon. (2006). Lululemon Athletica. Retrieved November 1, 2012 from
www.lululemon.com
Kotter, J.P., & Rathgeber, H. (2006). Our iceberg is melting: Changing and succeeding
under any conditions. New York, NY: Macmillan.
Kim, W.C., & Maubogne, R. (2004). Blue ocean strategy. Harvard Business Review,
82(10),
76-84. Boston, MA: Harvard Business Publishing.
Martin, J. (1992). Cultures in organizations: Three perspectives. New York: Oxford
University Press.
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Martell, A., (2012). Lululemon rises on earnings, vows to defend patents. Retrieved on
October 18, 2012 from: http://www.reuters.com/article/2012/09/07/us-lululemonearnings-idUSBRE8860I820120907.
Mintzberg, H. (1994). Fall and rise of strategic planning. Harvard Business Review.
Boston, MA: Harvard Business Publishing.
Mintzberg, H., Ahlstrand, B., & Lampel, J. (2005). What’s in a word? In Strategy bites
back: It’s far more, and less, than you ever imagined. Upper Saddle River, NJ:
Pearson.
Moore, R. (2011, March 19). Paying up for quality: lululemon athletica. MSN Money.
Retrieved from http://money.msn.com/top-stocks/post.aspx?post=65d52292c835-4983-b7bb-c22bcc9d26b8
Moore, K., & Lenir, P. (2011, June 21). Mintzberg’s better way to do corporate strategy.
Forbes.com.
Porter, M. (2008). The five competitive forces that shape strategy. Harvard Business
Review, 86(1), 78-93. Boston, MA: Harvard Business Publishing.
Sutherland, J. (2012, August 22). Why the gap is stalking lululemon. Retrieved from
http://www.canadianbusiness.com/article/94408--why-the-gap-is-stalkinglululemon
Tushman, M., Page, R., & Ryder, T. (2010). Leadership, Culture, and Transition at
lululemon
[Multimedia case]. HBS No. 410-705. Boston, MA: Harvard Business
Publishing.
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Appendix A: Letter of Agreement
October 17, 2012
Dear Ms. Day,
As graduate students of the USC Annenberg School for Communication, we have
established ourselves as research consultants with a focus on organizational
communication and change. We are writing you to express interest in engaging a shortterm partnership with lululemon that would allow us (Change Consulting Group) to study
the current communication processes, culture, infrastructure and growth strategy of your
organization.
Our primary concentration will be on lululemon’s growth into the U.S. market
and subsequent declining sales and revenue. Within the established partnership between
your organization and our team, we propose to achieve the following objectives:

Assess the growth strategy of lululemon prior to Bob Meers as CEO and compare
it to the growth strategy into the U.S. under the leadership of Bob Meers

Understand the infrastructure changes that occurred with the addition of 35 stores
including manufacturing and supply chain

Review the communication strategies that occurred across departments in the
corporate office and among store owners as lululemon spread into U.S. markets

Review the locations that were selected for lululemon stores in the U.S. and the
reasoning behind the selection

Prepare and present management with a report of findings and recommendations,
including an outline of communication and strategic missteps that may have led to
the loss in revenue and organization-wide decline in trust and communication,
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lululemon Change Case | CCG

Determine a course of action and recommendations on how to correct and
overcome revenue, culture and infrastructure issues
Approach
After a brief meeting to ensure all participating members are in agreement with regards to
the scope of this research project, the following will be executed by the student research
team:

Review strategic moves of lululemon into new Canadian markets prior to Bob
Meers against strategic moves of lululemon into new U.S. markets under the
direction of Meers

Review all emails, letters, and other forms of communication which were used to
inform employees of the growth strategy of Bob Meers

Review infrastructure processes including manufacturing and supply chain to
meet the demands of U.S. locations

Thoroughly review the lululemon location selections of Bob Meers in the U.S.
and compare those selections to the lululemon growth strategy prior to Meers

Give an anonymous survey to all corporate employees to check the pulse of the
organizational culture and how it compares between now and prior to Meers, as
well as to understand what changed internally under his leadership

Aggregate all data and develop a strategy to help overcome current revenue,
culture and infrastructure issues
Study Plan and Cost
There is no charge for consulting and research services to lululemon. The purpose
of this study is to understand how a major shift in organizational culture and strategy can
lululemon Change Case | CCG 13
affect organizations like lululemon, and how we, as students, can help an organization
such as lululemon overcome these growth and cultural issues as they expand into new
markets and grow as a company. We expect this communication and consultation process
to be beneficial to all parties involved, and will provide meaningful opportunity to
improve on current and future transitions such as the one that is currently taking place.
All findings and recommendations are for academic and lululemon use only, and will not
be released to the public. Furthermore, all surveyed and interviewed parties will be kept
strictly anonymous.
Thank you in advance for your time and cooperation, and I look forward to
working with lululemon on this consulting project. Should you have any questions and/or
concerns, please feel free to contact us via the information provided below.
Sincerely,
Change Consulting Group
Ellena. Gilbreath. Haack. Hardy. Irish.
_______________________
Client Signature
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_____________
Date
Appendix B: lululemon
Manifesto
lululemon Change Case | CCG 15