Lululemon Needs a Full Product Overhaul, Widlitz Says

Here to help us break down those Lululemon results is Stacey Widlitz. She is president and founder, SW Retail Advisors. Stacey, Lululemon has so many things that it needs to fix right now, and it doesn't have a CEO yet, a a new permanent CEO. She is incoming, Heidi O'Neill. Do we have any sense of what her plan has to entail here? Yeah. This has been, you know, two years of of product mistakes. When we first started to see that and started seeing the markdowns in December 2024, we put a sell on the stock and recall, the stock was $500 two years ago. So you're looking at a situation here where product has not been fixed. You're looking at a situation where the competition is skyrocketing with Allo and Viore. You're looking at a situation where this brand is trying to be all things to all people. When you go in the stores now, you kinda look around and you feel like there's too much coming at you. It's not focused where the other brands are really focused. So those are some of the things going on. And, again, we had a CEO announced months ago, we've been waiting and waiting and waiting, but the problem had has gotten worse over the months. So we need to hit the ground running with a complete overhaul of of of products here, and that's the main issue. Yeah. And these thing the what what you're identifying sounds like it'll take months to fix at the very least. It's not gonna be, a turnaround immediately. The founder of Lululemon and, key shareholder, Chip Wilson, has been an irritant as well for the company, criticizing strategy from the sidelines. Lululemon did agree to a deal where he can name two directors to the board. Is his input going to be helpful or hurt harmful to the company? So, irritant is a nice way to put it. So but he he has been correct. Right? Because he saw the product missteps. He saw the direction it was going in. So, yes, we have and if you recall last quarter, they talked about the comps turning negative as a result of negative social media and and media pressure from the proxy fight. I mean, shoppers don't really think that way when they're going in the stores. They think about what they see and what they liked. It was a traffic and a conversion issue. That's gotten worse here. So I think, yes, you absolutely do need a refresh here. You need and and they've had a couple new board seats. So you do. You need you need fresh eyes here. You need people who are coming in and saying, you know, we're gonna challenge the status quo here. And certainly when you have a new CEO, there has to be new input, new thought process here because what they've been doing for the last several years has not been working. And if you look at the numbers, not only was North America down double digits, but now international has turned negative. So now you've got a global brand problem. Yeah. We'll see, it's very interesting. As you say, it really is all about what shoppers like and what they don't like. And, certainly, I don't think they like the fact that Lululemon was once again plagued by the issue of see through leggings, which we saw repeatedly this year. And in fact, our Bloomberg Intelligence analyst, Poonam Goyal, pointing to products being the issue for Lululemon. How do you think they're gonna revamp that image with customers moving forward here? It's tough. And, again, the competition is just it has really closed in and is opening stores right across the street from Lulu. Whether that's in London or New York or anywhere you name it, there's a Viore and an Allow opening up across the street. Again, I think it needs a revamp of the younger customer, and it needs to be more focused. There needs to be color and fun, and it needs to be technical at the same time. If you go into some of the competitive stores, it's fun. There's music. There's a vibe. It's you'd want you wanna hang out. You you don't feel the same there. And certainly, if you look at other retail stories like Victoria's Secret today, where the comps are up 9%, huge turnaround in two years, Not only are they getting the under $50,000 shopper, they're getting the over $200,000 shopper. That's where their performance is best. This can be done, and it shows you while everybody likes to put point to gas prices and pressures in the economy that product rules when it comes to these stories. Yeah. Absolutely. I mean, speaking of prices, right, Lulu traditionally has been seen as carrying a bit of a premium over other athletes or brands out there. Do you think that's something that they can still wield in terms of pricing power, or are the product issues really taking over to the point where they may have to start looking at discounting? Well, they have been discounting, and that's been a big problem. So over the past year, you've been looking at gross margins down several 100 basis points. We actually track the amount of items on clearance year over year. I've seen numbers up between 5080% more clearance year over year for the past year, which is why we've had a sell on the stock. And, you know, so the product is not working. They they acknowledge that, and it's very difficult to to clear through that and lean into full price selling when you're trying when you're showing your customer, hey. We've got racks of stuff we're trying to get rid of. That's what the consumer is tempted to purchase. They're trying to lessen their development cycle, which is almost two years at this point. They've started to shrink that and started to try to lean into chasing products that are working. This is all kinda early stage. But, again, it's really hard to break out of this discounting cycle. Yeah. Certainly, the gap has done it, so it can be done. The gap was in that cycle for a good decade and has come out the other side. And that's key. Right? It was in that for a good decade. You, when looking at the incoming CEO, Heidi O'Neill, are are concerned about what she has done and hasn't done during her tenure at Nike. Just sum up for us what your biggest concern is there. I think that, you know, when we look at a CEO coming in from Nike, which over the past two years, we've seen the trajectory of what Nike's been doing, whether it's wholesale or DTC. They're also going through a big margin cleanup because product has not worked and the competition has taken over. So there's been a lot of question marks of what can what can someone from Nike offer that's differentiated, that's out of the box, that comes from such a big global brand that was on a downturn. And, again, you point to something like Victoria's Secret where, you know, Hillary Super who came in was maybe not the obvious choice, but an amazing choice thinking out of the box. And I think when they announced a Nike person coming in, there was a lot of disappointment in, is this the answer? But, you know what, we have to give her a chance to come in and hit the ground running and show us what the product's gonna look like. But, again, that's gonna take six to twelve months to make that happen. Yeah. And she has a pretty big to do list as well. Stacey, thank you so much.