June 11, 2013 / 2:54 PM / 6 years ago

Lululemon must look for cultural fit in CEO search

TORONTO (Reuters) - Premium workout wear maker Lululemon Athletica Inc LLL.TO (LULU.O) will not have an easy job replacing Chief Executive Christine Day, the company’s public face who built up the brand to be an international powerhouse over the past half decade.

Christine Day, CEO-designate of Lululemon Athletica, speaks at the Reuters Retail and Consumer Summit in New York in this file photo taken June 17, 2008. REUTERS/Brendan McDermid/Files

Day, who announced her surprise departure plans after markets closed on Monday, was also behind Lulu’s blistering growth rate and its transition from yummy mummy niche to broader, multi-sport appeal.

But the costly quality control problems that tarnished the end of Day’s tenure will also dog her successor even as he, or perhaps more likely she, attempts to adapt to a distinctive Lululemon culture that prides itself on strong community ties and a connection with its fiercely loyal customers.

“Most CEO searches fail because there wasn’t enough analysis and assessment around fit, especially going into a strong corporate culture like Lululemon,” said Bob Damon, president of Americas at executive search agency Korn/Ferry International.

“Just because someone was successful at the Gap, it doesn’t mean that they will be successful at Lululemon. It’s not about what you’ve accomplished as a CEO, it’s about how you have accomplished it.”

Lululemon carved out a lucrative niche with its high-end, fashionable yogawear, reporting quarter after quarter of stunning sales and profit growth.

But a March recall of excessively see-through black pants proved a huge blow, and its latest tepid sales growth forecasts are well below year-ago levels.

The stock sank nearly 18 percent to close at $67.85 on the Nasdaq and C$69.22 in Toronto on Tuesday, its lowest level since April, on concern about the succession plan.

Day, describing quitting as a “personal decision,” said she would step down once Lululemon finds a replacement.

Maurizio Calconi, who leads the retail and consumer practice at Toronto-based IQ Partners search firm, said it will likely take about 12 weeks to compile a short list of candidates and a new CEO could be named by December.

Any applicants can expect a careful vetting by Dennis “Chip” Wilson, who founded Lululemon in 1998 and remains the company’s chairman and largest voting shareholder.

The low-profile Wilson made an uncharacteristic appearance on the company’s press release on Monday, saying he was confident Lulu would find the right person.

Industry sources said possible candidates for Day’s job include: Chanel CEO Maureen Chiquet, Nike vice president Jan Singer, Warnaco Group Inc CEO Helen McCluskey, Victoria’s Secret Direct CEO Bridget Ryan Berman, and Tumi Holdings CEO Jerome Griffith.

Early challenges facing the new incumbent include ever tougher competition from the likes of Under Armour, Nike Inc, and Gap Inc’s Athleta banner.

The new boss must also deal with the supply chain problems that caused the multimillion-dollar recall of Lululemon’s popular black yoga pants, which simply revealed too much when the wearer bent in yoga poses.

The recall was the second serious quality control issue in a year; earlier brightly colored items bled the dyes.

Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm based in New York City, said the supply chain mismanagement represents a fundamental failing.

“These are people (directors) who built other very successful businesses. They know this is nuts. They know how fundamental and stupid this is. How could this happen? That’s their question and there is no answer,” he said.

Belus Capital Advisors chief equities strategist Brian Sozzi said Lululemon will need to pick a new boss carefully from a corporate pool that is dominated by older, male executives.

“Here’s a lady that’s been the face of this company for five years,” he said. “If (the new CEO) is a 60-year-old guy, or a 40-year-old guy, I don’t know if he could share that same affinity, that personal attachment with Lululemon.”

Editing by Janet Guttsman and Leslie Gevirtz

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