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Lululemon CEO--Old And New--"Stress" High End Product Success

When you're stressed, do you hit the bar or hit the gym? Do you drink whiskey or wheatgrass?

Lululemon Athletica's incoming CEO Christine Day says that one strategic advantage of the high-priced yoga wear line is that during an economic downturn, people choose things to relieve that stress--like working out.

I guess we'll see whether or not that theory plays out during this consumer slowdown. For now though Lululemon's sales seem to be strong. I interviewed Incoming CEO Day and outgoing CEO Bob Meers yesterday following the companies' fourth quarter earnings.

As I promised yesterday, here's a transcript of the highlights from parts of our interview.

MB: Lululemon's quarterly revenue doubled, same store sales are strong. How are you bucking the trend in this tough consumer environment?

Bob Meers: We cater to a macrotrend, healthy living, exercise, stress reduction, and the influence a woman has on her community...all of that is benefiting us. We're serving an underserved market with great product that gives value as opposed to price. We have a unique retail position.

MB: You've got a problem that many retailers would love to have! Air freight charges were higher than you expected because you had to deliver more product to stores to refill sold-out items. Longer term, what are you doing to fix inventory management and are you seeing any geographical difference in the level of demand in the U.S.?

Bob Meers: The U.S. is uniform in demand, so we're not seeing a geographical difference. I think you're correct in that it is a class A problem..the air freight. We're not going to plan inventory to support 41 percent comp increases yet our stores are small with small backrooms so replenishment is critical to us. Our guests expect us to service their needs and provide a guest experience. I'd much rather steal marketshare for our company and service guests than not deliver product. What we are doing to solve the problem from the warehouse to the store, is implement a new ERP system that increases visibility to store sales and create a better supply chain in North America.

MB: Today you announced a new CEO--Christine Day who will take over for you in June. The buzz had been that Lulu was looking for a female executive. Why is gender important to this role?

Bob Meers: In my estimation, hiring the target customer gives us a better view into the future and servicing the demand that is going to be created. Christine has a unique qualification. I do believe Starbucks had a similar kind of growth. Obviously, I hope we have the same growth issues that they did. Christine was involved in writing the training problem and creating the real estate strategy and putting the operational metrix in place. I do believe that she has the international background to help our company. Now combine that with the fact that she is our target customer and understands staying in touch with generation relevance of what the customer is demanding--that puts us in good shape.

Christine Day: I also think that in the retail business a lot of the field leadership is female. So having a female leader very very important.

MB: The price point of your products is relatively high. Have you considered lowering prices or adding more moderately priced product to your assortment to cater to today's tighter consumer budgets?

Bob Meers: I don't get cavalier about pricing. But I get adamant about innovation and value. If you take a look at our product, the value comes and it lasts longer. It performs for what it is designed for. It is innovation in fit and we give value added in-store service such as free hemming and free fitting.

Christine Day: I think there are opportunities still being so new. Efficiency is still an opportunity for us. I think we have room in the middle of the margin and we're priced appropriately for premium product, which is the place that we want to be.

MB: You said on the conference call that Lululemon is still looking for more executives to join and mentioned that there will be someone brought on board soon. A "she." What does Lulu need?

Bob Meers: We've been courting Christine for over 2 years to see the light. We knew that she had the background and experience and leadership qualities. We're also actively looking for senior talent in areas of planing and merchandising visual display and logistics...someone with strong apparel industry knowledge and experience to compliment Christine..we need to bring in the right kind of talent level in distribution and supply chain management. Christine is going to want to play a role in that process...we've been holding off on job offers. She'll make those herself.

MB: You've mentioned that Christine's Starbucks heritage is key. What is it about that business that translates to this business?

Christine Day: I feel very fortunate to be joining at an early growth stage. Having had all the lessons and experiences that I did at Starbucks. I think managing a culture-oriented organization in a high growth mode is a unique situation and that's one of the experiences that I have had. I think the real estate strategy and how we do that is critical. To be in a place where we're opening 25-35 stores a year is a great space. There are great real estate opportunities in North America. ...(we need) to make sure that we have appropriate numbers of assistant managers, so that people who are growing internally have that experience to absorb the culture and absorb what's unique and have that pipeline ready....

Now we're hiring managers 6 months in advance if we do do it externally. We're doing things like implementing show rooms 12 months in advance [of a store opening] to use them [these locations] as a bellwether to that market. But that person will ultimately be one of our community leaders or be a store manager. That's how you keep the culture secure while growing and setting up a store for success... Starbucks does grassroots field marketing and they do not advertise in the TV market.. they use that community based model.

Questions? Comments? retaildetail@cnbc.com

Retail

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