Lululemon Athletica INC Case Stusy

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Introduction

There are different forces that determine performance of the business. These are both internal and external. Success of the business does not only depend on selling quality goods and services or having a good relationship with customers. In as much as business operators strive to ensure that they have come up with strong market strategies, they need to also ensure that they have good nonmarket strategies. This is through ensuring that they have good relationship with the government, media as well as other non-governmental institutions (Brennan, 2007, para. 2). This is because; these parties significantly determine business performance. In case of any anomalies in a business, the media becomes the first to communicate the issue to the public. This may affect business performance. On the other hand, every business has to comply with government regulations to be allowed to operate. There are different steps taken by management in ensuring that their organizations have established viable market and nonmarket strategies. This paper aims at looking at some of the issues that have rocked Lululemon Athletica Inc. and the nonmarket and market strategies that were taken by the management to mitigate their effects on the business.

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Brief history of Lululemon Athletica Inc

Lululemon Company was established in 1998 as a response to women participation in sports. Dennis Wilson the founder had a strong belief that yoga was the ultimate way of improving and maintaining athletics as a sport. He had previously entered into sportswear business by establishing Westbeach sports in 1979. The first Lululemon shop was opened in Vancouver. This comprised of a design studio and a retail store. The store shared space with a hatchling yoga-studio. By the year 2008, the company had rapidly grown to comprise forty Lululemon athletica stores spread across Canada. The shop had also approximately thirty eight showrooms and stores in United States and seven stores in Australia (Brennan, 2007, para. 3-5). Currently, the company is in the midst of expansion with an aim of establishing sixty showrooms and stores in Canada. The company has a subsidiary company by the name OQOQO. This is responsible of producing clothes made from sustainable materials. The subsidiary company has a distribution store situated in Vancouver. Its brand was introduced to the main company’s brand in 2009 during establishment of Iviwa athletica; a subsidiary company responsible of producing sportswear for girls aged between six and twelve years.

In the wake of 2005, the company sold 48% minority interest to Advent International in collaboration with Highland Capital Partners. As a result, Lulemon got a new chief executive officer in the name of Robert Meers, a former CEO of Reebok. At the moment 42 % of the company is still owned by Dennis Wilson, its founder, while the retail staff owns 10% of the company as stocks and shares. Expansion of its services to Japan led to it partnering with Descente to facilitate in manning its operations in the country. This expansion was only short-lived as this market was closed down to enable the company concentrate on the more promising North American market. Initially sold as yogawear, the company’s brand is currently termed by its users as one of the best fitting which can be worn on different occasions. They argue that its clothes can be worn to and from the gym, at home as well as on airplanes (Canadian Press, 2007, para. 1).

Issues

For many years, the company has been credited for manufacturing quality sportswear. This has been the reason why it has managed to expand its operations to foreign markets. Its reputation has earned it contracts with different institutions such as Olympics organizing committees to produce Olympics clothes. However, there have been two issues that have resulted to the company’s reputation getting weak in the public. The company was rocked by two controversies which include Vitasea fabric controversy and Olympics clothing controversy (Canadian Press, 2007, para. 2-4). The two controversies led to the company suffering from public politics, regulatory scrutiny and public perception issues.

Public perception

Some of the popular clothlines manufactured by Lululemon were said to come from vitasea fabric which is said to infuse vitamins and amino acid minerals into skin the moment the clothe gets into contact with the body. Once the wearer sweats, his or her sweat reacts with the minerals in the fabric releasing them to person’s skin. These minerals, vitamins and amino acids are believed to moisturize and de-stress human skin. This has been the reason why most consumers have opted to use the company’s products with an aim of benefiting from these minerals. Since the company announced that its clothes are manufactured from fabrics made from seaweeds, its sales volume went up. However, this was until an investor in Vancouver decided to prove the company wrong by providing a laboratory test results on vitasea clothes that the company claimed to be manufactured from seaweeds (Constantineau, 2009, para. 1-3). This led to New York Times also initiating investigations on the matter.

It is from these allegations, that the company’s reputation turned sour in the public. Previously, the company had experienced high sales in all its products. With these reports reaching the public, they started doubting the company’s products. This led to most of them opting to use products from other companies. It is general that most consumers are loyal to organizations that have for a long time maintained their brand. This had been the reason why most consumers were reluctant to question the products offered by Lululemon Company. Consumers were willing to pay a lot of money for the products just to enjoy the benefits of the minerals claimed to be contained in these sportswear. After New York Times conducted a second test on the clothes, it reported to have not detected presence of any seaweed components in them. This made the public feel to have been betrayed (Constantineau, 2009, para. 4-6). Most of them had the perception that the company had for all those years used false claims to exploit them.

To make the matters worse, the company did not make swift action to respond to the issue. When asked, the company’s executive admitted that they had not conducted any test on their garments to ascertain that they contained the seaweeds. Instead, the company trusted their suppliers who claimed to supply them with fabrics containing seaweeds. This made the public doubt the company’s integrity. They felt that the company had taken the opportunity of them not being mindful of ensuring that their clothes really contained seaweed minerals to charge them high. For the company, it argued that their fabrics felt different from others making them trust their suppliers. It is the responsibility of every company to ascertain the quality of products it offers. Failure by Lululemon to ensure that their products contained seaweeds components made the public perceive it to have abdicated its responsibilities at their expense (Fong, 2007, para. 3). Customers like Dale Morris claimed that they would never pick pricey products from the company if it is realized that the company had been using false to offer its products at a higher price. The company’s shares were found to lose value. At one time, they were found to drop by nine percent. The public took it as a marketing strategy devised by the company only to lure them purchase its products.

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Information

The issue went on air after an investor presented a laboratory test results conducted on the company’s clothes regarding the seaweed minerals contained in the clothes. The investor claimed to have not detected presence of seaweed minerals in vitasea clothes that the company claimed to contain seaweed minerals. This led to New York Times ordering for investigations to be made to determine whether the laboratory test was right. The issue also reached the regulatory agency in the country which requested the company to stop further educating the public about seaweed benefits till its clothes were proved to contain the minerals. It is after New York Times got the news that this information reached the public (New York Times, 2007, para. 3-5). Lululemon was ordered to remove all labels in its vitasea clothes that indicated presence of seaweed minerals. The public felt to have been betrayed by the company leading to them declining to purchase the company’s shares. Attempts to reach the company management for enquiries proved futile when no one was willing to respond to the matter. However, when the management surfaced, its CEO did not object the allegations. He agreed that the company had never conducted any test on its products. This is because they trusted their suppliers who claimed to provide them with fabrics containing seaweed minerals.

Interest

There were different parties who had interest in this issue. To start with, the public heavily relied on the company’s products with an aim of benefiting from seaweed minerals and nutrients said to be contained on clothes. This was the reason why they were willing to pay more for the product. News that these clothes did not contain the minerals draw public interest as they hoped to know whether the company had been exploiting them for all that time. Despite most of them claiming to have different experiences on wearing the company’s clothes, they wished to know the truth. The company having been directly implicated with the saga had interest in the issue as it tried to look for means to reverse the situation and retain its customers. There were speculations that if it turned out that the company had been using lies to sell its products at higher prices, then its image would be poor in the public leading to decrement in sales volume (Inwood, 2009, para. 2). This led to the company seeking for ways to exonerate themselves from the blame. Lululemon feared that the issue would affect other branches outside Canada. For them, the company that supplied them with the materials was to blame for claiming to offer fabrics containing seaweed.

The issue also affected SeaCell Company being responsible of supplying the fibre. On realizing that the fibre did not contain seaweed as it claimed, its relationship with Lululemon would go soar. Lululemon would cease trusting them. This is not the only company that SeaCell supplied with fibre. Its relationship with other companies would also not be business as usual. In return, the company’s sales volume would be drastically affected. It is the responsibility of the regulatory agency to ensure that all products sold by organizations meet specific standards. This is the reason why the states bureau responded to the matter by requesting the company to stop further advertisement of the clothes until they were certified. Failing to ensure that these clothes had minerals as the company claimed would have sent an impression that the bureau was abdicating its responsibilities. Health Canada has the responsibility of ensuring health safety of the public. This is the reason why it responded by requesting the company to back up its claims that the clothes had health benefits to those who wore them.

Institutions

There are numerous institutions that were implicated with this matter. Some of them were directly implicated while others were indirectly implicated. The matter directly implicated Lululemon Company as it was the distributor of the products. The matter determined the future of the company. This is because it would determine how the company’s customers would relate with it in future. Lack of the company to come up with measures to respond to the matter would lead to it losing a lot of customers. Its brand; which had dominated the market for a long time would also be affected. For many years, the company had been selling clothes without Canada bureau taking the initiative to ensure that they really met the standards indicated in their labels. It is the responsibility of this institution to ensure that companies offer quality products. The agency can be blamed for letting the company exploit the public for many years. Health Canada; the institution responsible of ensuring safety of public health also let the public down (Shaw, 2007, para. 2-5). Despite the company claiming that its clothes had health benefits, the institution did not make an attempt to find out the truth. Were it not for the investor and subsequent laboratory tests conducted by New York Times, the institution would have never responded to this issue. If by any chance the clothes happened to contain harmful minerals, the public would have already suffered. SeaCell Company, the main supplier of fabrics was also affected by the matter. This is the company that claimed to supply materials containing seaweed. It claimed that its materials were tested for the minerals before being supplied. This is the main reason that made Lululemon make little effort of testing their clothes (Strauss & Waldie, 2007, para. 4). They believed in their suppliers.

Public politics

Due to Lululemon’s strong brand, it earned itself a contract to manufacture sportswear to be used in Olympics. According to the Olympics organizing committee, the company was expected to develop sportswear that effectively supported the Canadian team that was to represent the country in the games. It is the tendency of Canadians to purchase merchandise from local companies as a way of showing their support to local athletes. To their surprise, Lululemon developed sportswear of different colors representing Germany, Canada and United States who are expected to send representatives in the games. This move led to public politics. The company was seen to take advantage of the events to enrich itself at the expense of Canadian athletes. This led to people lobbying for public not to buy the garments (Fong, 2007, para. 4-7). They claimed that buying the products would not support the games neither will it contribute in improving the success of Canadian athletics team.

Information

The matters arise after Olympics organizing committee found that Lululemon had not developed clothes based on their standards. According to Lululemon management team, they claimed to have not violated any Olympics regulations. However, the committee accused them for using the opportunity to make profit at the expense of the athletics team. This led to them informing the public that the sportswear would not facilitate in supporting the national team and thus buying them would only benefit the company.

Interest

It was the aim of the Olympics organizing committee to support the national team. Thus it was interested in ensuring that the right sportswears were produced. The public supports the national team through buying sportswear from local manufacturers. They aimed at buying products from Lululemon in bid to support the national team. Thus, they were interested in ensuring that they have contributed towards the success of their national team.

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Institutions

Two institutions were involved in this issue. These are Lululemon Company and Olympics organizing department. The committee trusted that Lululemon would manufacture good sportswear. This is after having witnessed its performance in sportswear industry for many years.

Regulatory scrutiny

The matter led to the company becoming under scrutiny. Canadian bureau of standards took the matter in hand and ordered the company to ensure that it has tested all its products to ensure that they really contained seaweed minerals as their labels indicated. The company was required to always have scientific proof when making its claims. Health Canada also threw its weight on pressurizing Lululemon to clarify its claims. It is convention in the country that whenever a company claims to sell products with health benefits, they have to be approved by Health Canada for the sake of safety and health of the public. The company was required to remove all the labels in their clothes until they were ascertained to have the minerals. The company was subjected to removing all references to the vatasea technology that were conveyed by its websites and store advertisements (New York Times, 2007, para. 2). The company had established a team of staffs who were responsible of educating the public on the benefits of seaweed minerals and nutrients. This team was required to stop further education until their claims were proved. Despite the bureau being satisfied that the clothes contained the exact amount of seaweed fibre as per their labels, it required the company to support its unconfirmed claims that the clothes had some health benefits to those who wore them.

Market and nonmarket strategies

To conserve the company’s brand and retain consumer loyalty, the company responded to the issue by terminating its education about seaweed benefits. Most of their clothes still contained labels indicating that they had seaweed minerals and nutrients. The company did as it was requested by regulatory agency and covered all the labels. As it was its responsibility to ensure that it offered quality products, it did not like to follow up the matter with their fabric supplier. In stead, the management assumed the blame and promised to respond quickly. This led to media not propagating the matter to levels that could be difficult for the company to handle. Had it denied the allegations and stick to claim that its products really contained the minerals, New York Times would have used its tests to prove to the public that its claims were false (Taylor, 2007, para. 3). This would have cost the company dearly.

The management also took the initiative and conducted a test on its clothes. Their results contradicted those initially released by New York Times. They found the clothes to contain seaweeds. However, the company did not see the need for pushing the matter further. Instead, it relied on its brand name and loyal customers in ensuring that its relationship with consumers was not compromised by the issue. There are customers who claimed not to have been aware of availability of such minerals in the clothes. Some claimed that they bought the clothes due to their comfort and whether they did not contain the minerals could not deter them from using the products. Some customers decided to forgive the company and continued buying its products.

Lululemon Company has developed a website that is devoted to company’s corporate social responsibility. The company perceives its social responsibility as a product of exercising and advocating for individual responsibility. This is achieved through encouraging its staffs to be responsible. It has advocates who are responsible of passing corporate philosophy to staffs. It has established a charitable program where the community has the mandate to decide local charities to be supported by the company.

Leaders responsibilities

In response to the matter, the company’s chief executive officer commented on the company’s philosophy. He said that the company was devoted to ensuring that it has always met its consumers’ interest at all costs. Meers understood that the matter would affect organizations performance as it had already compromised public perception of the company. As a result, it required swift action from the management to revive consumer loyalty. The management demonstrated leadership by accepting to assume the responsibility. It agreed that the company conducted no test on its clothes as it trusted its supplier. It went to an extent of recalling all their staffs that were responsible of educating the public on seaweed benefits (Vancouver Sun, 2007, para. 2-6). The management accepted to do away with advertisements in its websites that touched on seaweed as well as covering all labels in its clothes. Accepting to cooperate with the regulatory agency in doing investigations on the matters led to the company winning public loyalty. This is because consumers realized that the company regretted the action and was willing to look for ways to ensure that such incidence did not happen again. After the company conducted an independent test on the clothes, it realized that they contained seaweed minerals. However, this did not make the management confront New York Times for its allegations that its test found no traces of seaweed components in clothes. Instead, they looked for ways to strengthen their relationship with consumers.

Conclusion

The vitasea controversy almost cost Lululemon Company. This is because it affected public perception about the company’s management. As some consumers felt to have been cheated by the company, it was difficult to convince them to continue using products from the company. This event affected the company’s shares in the stock market as the public declined to buy them. However, response from the management led to the public rejuvenating its trust in the company. Eventually, the company’s shares picked up again in the market. There were consumers who decided to let the matter go and continued using the company’s products. This reflected the benefits of integrating marketing and non-marketing strategy in business management. As the management had created strong image of the company’s brand in the public, it was difficult for most of the consumers to abruptly stop using their products. They had already developed the notion that no other company offered quality sportswear than Lululemon.

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The decision by the management to comply with the regulatory agency instructions led to the issue not getting too serious (Vancouver Sun, 2007, para. 1-5). They accepted too stop advertising their clothes and educating their consumers about seaweed until it was found that their clothes contained the minerals. This helped in ensuring that the company continued with its sales as the agency conducted its investigations. The management had no intention of questioning its supplier about the issue. This could have affected their relationship, subsequently, affecting the company’s performance in the market. The move to assume the responsibility and look for measures to mitigate its effects helped the company continue with its clothes production.

Being the duty of every company to ensure that it offers quality products to its consumers, Lululemon ought to ensure that it conducts laboratory test on its clothes to support its claims. This would ensure that they are sure of what they advertise on their clothes. In return, the company would be in a position to answer questions emerging in such incidences. Consequently, the company would manage o develop and retain strong brand in the public.

References

Brennan, M. (2007). Lululemon Shareholders Turning Sour On Stock? Web.

Canadian Press. (2007). Lululemon earnings up despite seaweed flap. Web.

Constantineau, B. (2009). Vanoc says new Lululemon clothing line violates Olympic ‘sportsmanship’. Web.

Fong, P. (2007). Lululemon hits back with its own lab tests: Company says shirts do contain seaweed. Web.

Inwood, D. (2009). Lululemon irks Olympic officials with ‘rogue’ clothing line. Web.

New York Times. (2007). ‘Seaweed’ Clothing has none, test show. Web.

Shaw, H. (2007). Lululemon says tests confirm seaweed content claim. Web.

Strauss, M. & Waldie, P. (2007). Lululemon ditches tags touting health benefits. Web.

Taylor, S. (2007). Lululemon stock sinks on seaweed report, rebounds. Web.

Vancouver Sun. (2007). Lululemon fans unfazed by clothing controversy. Web.

Vancouver Sun. (2007). Lululemon weathering seaweed scandal. Web.

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