Lululemon's Tensions After Sheer Pants Fiasco Drove Out CEO, Fortune Says

Problems at Lululemon (NASDAQ:LULU) extend far beyond the sheer-fabric fiasco that caused the 218-store yoga-apparel chain problems earlier this year, Fortune reported in a story for its Sept. 16 issue.

In the wake of that supply-chain problem, the relationship between founder and chairman Dennis "Chip" Wilson and departing CEO Christine Day "has soured beyond restoration," according to the magazine, adding, "The tension at the top is palpable."

Part of the problem, Chip Wilson told the magazine, is that one of the reasons he started Lululemon was precisely to avoid the problem of sheer yoga pants, which he noticed at his first yoga class when his fellow students' pants became see-through after they bent over to roll up their mats. Another issue is how the chain handled the problem once it became public: Instead of a thorough apology, the chain earnestly pointed out that the transparency could be spotted only if customers put on the pants and bent over.

The complaint rate about sheerness jumped from 1 percent to 12 percent, and the recall involving a core product—the yoga pants represent 17 percent of Lululemon's inventory—could cost the company up to $67 million in revenue this year. "You really can't make mistakes, especially when you're charging $100 for a pair of pants you're going to sweat in," said Morningstar analyst Jaime Katz.

But along with supply-chain problems, everything else at the company was stretched too thin as well, with minimal investments in finance, IT and HR. Former executives told Fortune that Lululemon still lacks a rigorous manufacturing model, is understaffed in its production department and is short on employees who have expertise in the technical aspects of clothing manufacturing, such as quality control and raw materials. The company is working to add those strengths to its bench.

For more:

- See this Fortune story

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