NEW YORK (TheStreet)"Just bought 15 shares of #lululemon, Pressure their #yoga pants "mistake" may have been the best marketing move ever." -tweet by Dr. Andy Baldwin yesterday
For all the jokes about yoga pant "transparency" and reasons to use downward dog in headlines and text, the fact remains that Lululemon Athletica (LULU) - Get Report stepped up when faced with what seems to be yet another crisis with its supply chain.
The latest mishap by the luxury athletic apparel company has to do with its popular Luon pants. The Vancouver-based company announced Monday that it had pulled the product off of store shelves and from its Web site because the "sheerness" of the pant did not meet its standards. Lululemon is offering a refund to anyone who bought from the bad batch (product sold after March 1).
"The ingredients, weight and longevity qualities of the pants remain the same but the coverage does not, resulting in a level of sheerness in some of our women's black Luon bottoms that falls short of our very high standards," lululemon said in a press release.
As a result, lululemon "notified guests" that it expects a "shortage" in supply of black Luon pants and crop pants until it can rectify the issue. Further, Lululemon provided an in-depth FAQ about the issue, essentially a customer-targeted press release, on its Web site.
The pants represent approximately 17% of all women's pants in its stores and the recall will significantly affect first-quarter earnings. The company lowered revenue guidance to between 5% and 8% same-store sales growth from 11% same-store sales growth.
Lululemon shares were trading down 0.5% to $63.78 at last look. The stock is down 5.9% over the past month.
Apparently this is not the first setback that lululemon has had with its suppliers - last summer they had some bleeding problems with the bright colors in its swim line and there have been other issues in the past. So it's clear the expanding company is facing growing pains, especially when it comes to its suppliers keeping up with demand and quality control. And it's clear these are issues that must be addressed since investors will want to know that the company's operations are sound.
Wall Street expectations can really push a small company's "internal capacities perhaps way too far that mistakes creep up," says Brian Sozzi, chief equities analyst for independent research firm, NBG, and a contributor for TheStreet's sister Web site RealMoney.com.
But this is not a story about lululemon's supply issues, it's about how the company's swift and transparent action towards the yoga pant sheerness problem was a marketing win, experts say.
Dr. Baldwin's tweet gets to the essence of what's going on here: that if a problem is communicated effectively, it can be a win for the business.
"A recall can be a costly headache for a company, but if it is handled well, it can also be an opportunity to enhance the company's credibility and reputation. It's critical to be transparent and responsive to your customers during challenging situations. That is how you build a trusted and respected brand in the long run. People tend to remember how you made a tough situation right rather than the tough situation itself," says Annie Xu, U.S. general manager of Alibaba.com, a global e-commerce platform.
"I think what they're doing is brilliant," says Bernhard Schroeder, the director of San Diego State University's Lavin Entrepreneurship Center. "It's a hell of an FAQ. Very well done on their part and consistent messaging - the customer is No. 1. Ninety days from now you're going to see the stock price up and maybe even revenue trending up."
"They picked up on this quickly," Schroeder says, adding that lululemon was faced with two choices - either to quietly pull the product or do it publicly, reinforce the brand, its message of quality and hope for a big public relations hit.
"And that's how it's going down in my opinion," he says. "You couldn't script a better marketing move."
"This product 'didn't meet our quality of standards for our brand and so we decided that we may take a short-term hit, but in the long run it will be even better for the brand'. It reinforces for existing customers and all new potential customers" that quality is paramount, Schroeder says. "The way they are addressing it is such a perfect crisis-management move."
Toyota "denied it, never really communicated with its customers and then had to do a massive recall," notes Schroeder. "I think their brand is still hurting from that."
So what should you do if your business runs into a crisis?
"First step, breathe. Sounds silly but it's very important to relax and then evaluate the situation. As a small business owner, you must obtain a thorough understanding of what caused the negative event so that you can clearly articulate those issues to consumers as a means to keep their trust and, ultimately, their business long-term," NBG's Sozzi says. "Jumping to conclusions and putting out statements that will have to be revised repeatedly upon new information will only tarnish your reputation, despite the fact that you think you are offering help."
Sozzi added that he gives lululemon a "solid grade of B+" for its public relations response.
"They clearly articulated the issue to customers on the Lululemon blog and came off as they are hard at work behind the scenes trying to understand what went wrong ... but they were unable to advise the consumer when one of the most popular products in the stores will return, which underscores them missing the ball internally," he says.
Steven Raz, co-founder and managing partner of Cornerstone Search Group says being transparent doesn't just mean to customers. You need to make sure you are communicating to your investors and key stakeholders, suppliers, manufacturers and anyone else that helps the product or service along.
"Everybody is in this together," Raz says.
-- Written by Laurie Kulikowski in New York.
To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.
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