Lululemon Not As Strong In
Social Responsibility As You
Might Expect
The Socially Responsible Investor Dec. 22, 2014 9:16 AM ET
Lululemon comes in fairly average for social responsibility.
The company shows leadership in material sourcing, gender leadership, and
hard work values.
The company is weak in its diversity in labor, child labor issues, and
environmental stewardship.
There are a lot of ways to understand and develop socially responsible
investing (SRI). What is "responsible" for each person is vastly different, and
what might be "responsible" to one person may be "irresponsible" to others.
That is the toughest part of investigating companies for SRI. While pure
capitalism to some is the most responsible approach to business, others may
see that this could harm other areas such as environmental stewardship or
economic development. Others may believe too much capital invested into
some socially conscientious programs could hurt profits and investors.
Therefore, we will try to present as much information as we could discover to
render the best opinion we can.
All in all, you should treat this piece as a complementing opinion piece to our
research on the investment side of Lululemon (NASDAQ:LULU). This is the
second part of our two-part series on LULU and will cover the company from
an SRI-standpoint. As we have already noted, we do not see the company as
an outstanding investment from a purely valuation standpoint. Yet, if the
company is outstanding in their social responsibility, we may be interested in
the company.
The criteria we use to examine is the company's overall social responsible
theme, gender equality, employment and diversity, environmental
stewardship, leadership values, and community involvement. With all
research, some areas have more quantifiable parts, while in other areas, there
is not as much. We base our research by taking an aggregate look at leading
think tanks, research firms, and important websites that cover these topics.
We aggregate these into the various topics above to avoid create a more
holistic opinion.
Overview
Overall, our findings were mostly critical of Lululemon. The company does
promote a healthy, active lifestyle as well as lives by a very strong capitalist
mantra. The company's founder Chip Wilson is a devout Ayn Rand capitalist,
and in many ways, he has built a very successful business on the back of
principles about self-responsibility, hard work, and capitalistic ideals. Yet, to
us, there is more to a company than its ability to grow, promote profits, and
work hard. Companies were built as a way to provide jobs and sustainability,
and they are a canvas for growth outside of simple monetary implications.
Social responsibility is about creating more than interesting gadgets and
strong profits. While important to any investment, we also consider those
above criteria as just as important to a company's worthiness. For some
investors, that may not matter. For us, it does. Therefore, we need to judge
accordingly. In many of these areas, LULU does not inspire us or take a
strong leadership role.
One of the leading critiques of the company on many blogs, forums, etc. is
that the company's founder has made both sexist and racist comments. For
example, Wilson noted he named the company based on the fact that it was
funny when Japanese individuals say it because they cannot easily pronounce
the letter "l." Yet, to really understand social responsibility, we have to look at
the whole not just one person. Companies are a swarm of ideas and
individuals, and it is not good research to get stuck on one person's thoughts.
Gender Equality
The company has mixed reviews. The company ranks very low in the 27th
percentile on CSR Hub's Diversity & Labor Rights section, which is quite
weak. The company, though, has a very diverse officer group, in terms of
gender, made up of 50% women. It also was run by Christine Day for many
years as the former CEO. Not that one CEO says everything about a
company's gender equality, but it does show a company that stands for the
best candidate for the job.
The company, though, has made no important lists that we review for gender
equality. It is not an indictment on the firm, but it also shows no leadership
or effort to put this as a priority. To put it quantitatively, think of each
category as a financial metric. The company is simply not at the top of this
financial metric, but there is not staunch criticism of the actual company for
not paving the way for equality.
The company, though, does get poor reviews for a number of comments that
its top leader, Chip Wilson has made about women. Instead of laboring on the
topic, you can see this article, which has sparked a lot of negative comments
from equality experts. He makes comments that are sexist, but this is the
person…not the company. A company is made of many people, but it is
worrisome when its leader and values shaper has these beliefs.
In fact, to counter that, Christine Day wrote a very supportive piece about the
company allowing for equality, which shows a stark contradiction to some
comments made by Wilson.
As an investor interested in social responsibility, this topic is clearly
important. I want to invest into companies that push forward equality in a
responsible way, so some questions about what some leaders think are there.
Overall, though, the company is "average" with very little company-specific
practices but also nothing that shows they are a leader in this area.
Environmental Stewardship
Being green is one part of an entire package and is also only one part of being
an environmental steward. Socially responsible investors look to invest into
companies that support practices to reduce their carbon footprint, invest into
green technologies or environmental safety, and source materials in
environmentally friendly ways.
Lululemon, according to their website, is pushing a green/sustainable
agenda. For example, the company notes:
We understand the importance of reducing our carbon footprint for the
long-term wellbeing of our global communities. Each year we measure our
climate impact, from the carbon footprint of our manufacturing to our
daily operations at our support centres and stores. For the full picture, we
even estimate the emissions created by our guests washing and drying
their lululemon clothes at home. Results show that the largest part of our
footprint occurs before our products even reach our stores (with supplier
energy use, and transportation) and is relative to the growth of our
business. We also learned that the impact of our guests washing and
drying their clothes makes up the second largest part of our overall
footprint, and can be reduced significantly with the adoption of
sustainable laundry practices.
The section even goes on to recommend checking them out at the Carbon
Disclosure Project, which is one of the most respected environmental
stewardship watchdogs in the industry. The company, though, gets an "E"
rating from CDP. "E" is the lowest rating the organization gives. What was
most interesting was LULU's responses to two questions, granted this is the
2012 report. This report, however, is the same one linked on the website and
no report since has been made publicly available.
This is interesting. The company states they have no process for assessing or
managing any risk, and they also have not integrated anything into their
business strategy. Yet, the company has extensive language on their site about
how they care and are promoting sustainability and reducing carbon
emissions. When questioned on actual strategies, the company can only cite
they are working towards it. Again, this report was from 2012, and there are
no further reports available.
There is definitely more to being an environmental steward than just carbon
emissions, and a lot of judgment is made on this alone. To do the best
analysis, there are many other topics to look at such as water, material
sourcing, dealing with waste, etc. It is important to note, though, that we
research quite a few environmental lists that show leaders in various areas,
and they were not on any of these.
The company's 2012 Water Disclosure report also shows the company has no
significant plan in place, but they again are looking into it. The company also
notes that they only judge water stress based on water scarcity, which is very
limiting. Once again, the company states on their website that they have a
plan in place. That plan, though, has not been unveiled or reported in any
reports that are available to the public. So, we cannot say if they have since
the 2012 report developed a comprehensive solution or not, and we will wait
for more information.
One place, though, that the company seems to be a leader is in their stance on
healthy forests and material sourcing to ensure that they are being a steward
to forests. For example, the company is a steward to the Canopy Planet
project. This project aims to end forest fiber being included in apparel
manufacturing. More details:
The companies along with 14 eco-designers are working to craft forestfriendly purchasing policies that track which forests their rayon and
viscose fabrics are from. The group also will work to eliminate
controversial forest fiber from their supply chains…Leading companies
Patagonia, Prana, Quiksilver and Lululemon have already outlined general
sustainable supply chain goals for their materials. The companies also
have committed to work with Canopy to raise awareness of the link
between fashion and forest conservation. For example, Lululemon has
pledged to assess its existing use of forest-sourced fabrics and develop a
plan by December 2014 that will promote the use of fabrics from
responsibly managed sources such as Forest Stewardship Council certified
forests. The company also has pledged to ensure it is sourcing fabrics
outside of ancient forests by 2017, work with vendors to change practices
and encourage the development of alternate fiber sources such as
agricultural residues and recycled fabrics.
It seems, to us, that Lululemon is working to build a better company (in
terms of environmental stewardship) and is aware that they need to make
better plans. The website is a bit misleading in that it notes that they have
plans in place, but the documents that have been submitted suggest
otherwise. Those documents do suggest, however, that tests are going on to
determine actions. We all would like to see a comprehensive written plan. The
company does get high marks for leadership in material sourcing.
As a SRI investor, the company is not a leader here, and the "E" rating from
CDP shows that the company has work to do.
Company Values, Leadership, Community
Lululemon definitely knows its vision and identity, and they promote a
community-based, active lifestyle that in many ways is beneficial. Getting
people more active and more active in their own communities is very positive.
LULU has provided space for yoga instruction and promotes healthy, active
lifestyles. The company uses that to help drive sales, which is a perfect
example of a company both being socially responsible and also promoting
healthy economies. In their values and community involvement, we have to
give the company a lot of credit. Here is the company's stance on elevating
communities.
Leadership promotes a work-hard, self-responsibility mantra that is also
beneficial to society, and we believe that companies that push for each
individual to succeed are those that promote SRI values. Yet, there are some
obvious red flags. The comments that the company's founder has made on
more than one occasion definitely show some signs of weakness. Overall,
though, this area is the hardest to gage with raw data, and we can only make
qualitative statements. Leadership does seem to believe that whomever is the
hardest worker and best candidate is who will be promoted and lead the
company. You can see that in Day's writing and work, which we highly
support.
There are not a lot of companies that are gaging this quantitatively, but the
company was not a member of the Civic 50 that is done each year. From CSR
Hub, the company got a 51 rating for Community and 59 for Governance,
which are average ratings. In comparison to their own industry, though, their
Governance was in the 72nd percentile, which is above average. The company
rated very low in their Community involvement section of CSR Hub when
compared to their industry in the 30-40th percentile for the categories of
Community Development, Human Rights, and Product. Unfortunately,
reasons for that low score were not given.
Overall, once again, the company seems to be mostly average in this area, and
they are not leading their industry or the marketplace.
Employment & Diversity
The company does get quite high marks from CSR Hub when it comes to
employment factors. The company's highest rating at the 90th percentile for
Benefits and Compensation. Yet, in the same group, they get a 27th percentile
for diversity (diversity here refers to ethnicity more often than gender). They
come in at 52nd percentile for training. Employment responsibility is divided
really into three main groups: how do you care for your employees
(compensation/benefits), do you promote diversity in your employment, and
are your employees trained well and treated fairly.
The company, though, does have very strong benefits for actual employees of
Lululemon including free yoga classes, strong health benefits, and even
family members are given free health and wellness packages for classes and
other items. The company pays well, has strong benefits, and they promote
healthful lifestyles with their own employees from the retail level to the
corporate level.
Yet, once again, Wilson has made some very negative remarks about child
labor. The founder noted he supports it, and that it is a benefit to "poor Asian
families." That is not a responsible comment. The numbers are not positive.
The company, as of 2013, had only 3% of manufacturing done in factories in
Canada and was outsourcing to 85 factors mostly in Cambodia and
Bangladesh, which are known for extremely poor working conditions. The
takeaway here is that companies that promote strong factory conditions are
known for it, and they promote the ideals SRI investors want to see. Those
that don't may not or may be promoting good/poor labor conditions. We will
not be able to say from our research. Yet, with a lot of companies, going out of
their way to do this…there are more preferable investments.
Conclusion
Overall, our findings showed that LULU is fairly "average" in their approach
to the tenets of social responsibility investing. The company seems to be
moving in the right direction, which is a positive. The power of SRI is often
not to knock companies for their missteps, but rather, to promote what the
company does well and push them to improve in other areas. The company
seems to be strong in material sourcing, employee benefits, and gender
equality in leadership. There is still work to be done in many other areas.
Given our findings in the first and combined with these findings here, we do
not see much reason to jump into this company. We are curious, though, to
be on the lookout for a more comprehensive laid out strategy has to how the
company is implementing their carbon and water plans.
Disclosure: The author has no positions in any stocks mentioned, and no
plans to initiate any positions within the next 72 hours. The author wrote this
article themselves, and it expresses their own opinions. The author is not
receiving compensation for it (other than from Seeking Alpha). The author
has no business relationship with any company whose stock is mentioned in
this article.