FAR EASTERN UNIVERSITY

Makati City

Master in Business Administration

LULULEMON:
TURNING LEMONS INTO LEMONADE

SUBMITTED TO:
DEAN ANDRES C. SAN MATEO
Professor

PREPARED BY:
ROWENA DELA CRUZ BAUTISTA

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR ETHICS AND

CORPORATE RESPONSIBILITY
Introduction
- An athletic apparel company intended for individuals with active lifestyles
- Has deep roots in the yoga community and is one of the few businesses to
offer apparel for this specific market
- Based in Vancouver, British Columbia, Canada and operates its clothing
stores in numerous countries throughout the world
- The apparel store offers product lines that include fitness pants, shorts, tops,
and jackets for activities such as yoga, running, and other fitness programs
- It operates in three segments; corporate-owned and corporate operated
retails stores, a direct to consumer e-commerce website, and wholesale
avenues
- The company operates more than 350 stores predominantly in the United
States, Canada, Australia, New Zealand, and Singapore
- It has grown rapidly in the last 20 years and is expected to continue its growth
strategy well into the foreseeable future
- It has also established a subsidiary geared toward youth call Iviva Athletica

Company Background
- Lululemon was founded by Denis “Chip” Wilson in 1998 in British Columbia,
Canada
- After 2 decades in surf, skate, and snowboard business, he started to look for
a change
- Wilson fell in love with yoga after attending the first commercial yoga class
and felt incredible during and after the exercise
- With passion for technical athletic fabric, he realized that the current cotton
clothing being used for power yoga was inappropriate and unpractical since
movements required breathability, flexibility, and stretchiness that an
individual could pour sweat into during exercise
- With this in mind, Wilson created a design studio for his new clothing
- Struggling to pay rent, the design studio become a yoga studio during the
night hours
- Yoga instructors were asked to wear the new products and provide feedback
on the clothing
- The first store opened in November 2000, in the beach area of Vancouver,
British Columbia
- The business grew quickly as products were popular among customers and
the staff was eager to learn, expand, and challenge themselves.
- While the company initially focused on women as the target market, it has
since expanded with products for men

Lululemon name
- The name is a created word that has neither roots nor meaning
- It is believed that Wilson selected the name because he enjoys the sound of
the three Ls when word is spoken
- The logo, which is actually a stylized letter A, was a logo intended for the
brand name Athletically Hip, which was not selected as the company’s name

Strong Mission
- Had a strong mission that embraced a healthy and active lifestyle
 - Inspired by author and philosopher Ayn Rand
- Wilson modeled Lululemon with the intent that involves “elevating the world
from mediocrity to greatness”
- The company’s mission statement reads “Creating components for people to
live longer, healthier, fun lives”
- In order to anchor its mission statement, it has adopted seven core values:
quality, product, integrity, balance entrepreneurship, fun and greatness

Company Culture
- It operates with a decentralized corporate culture wherein store managers are
provided much control over the operations of their stores
- Employees are recruited and hired based on their level of commitment and
how well they fit into the corporate culture
- To bring its mission into fruition, Lululemon refers to its employees as
“educators” to acknowledge the crucial role they play in helping customers
obtain a healthy and active lifestyle

Community Commitment
- They are focused heavily on community involvement and interaction with local
enthusiasts
- Nearly all stores host in-house events on a nightly or weekly basis, with
classes ranging from beginner and advanced yoga to goal setting and self
defense workshops
- Events and workshops generally occur after store hours on the salesroom
floor after racks and products have been removed

Operations
- Lululemon does not offer discounts but sells approximately 95% of its
products at full price
- It also sells products at higher prices than its competitors, reflecting the value
of its products
- It operates on the concept of scarcity to encourage customers to buy
immediately
- Its store shelves often have fewer products than the shelves can hold, and
many products have quick life cycle times such as six-week life cycles
- Customers are therefore encouraged to purchase the product before it is
gone, which is thought to be a major influence in Lululemon’s success

Positive Ethical Practices

Contributions to Communities
- Lululemon continues its mission to help customer live a better life
- It defines having a better life as living healthier, leading to a longer and more
adequate life
- Has developed a manifesto to describe its way of business: “We are
passionate about sweating every day and we want the world to know it”
Relationship with Employees
- Lululemon recognizes that customer satisfaction is only as good as the
employees that provide it
 - Therefore, the company strives to make its employees into ambassadors for
the brand
- The hiring process at Lululemon is extensive as the firm only wants to hire
those who believes will be the right fit with its company culture
- Applicants may go through more than one interview, and those that get farther
in the process are often asked to attend yoga classes where the recruiters
can see how they interact with others
- When an applicant is chosen as an employee, he or she will undergo 30
hours of training and also spend 3 weeks working on the floor
- To encourage healthy living and incentivize employees, the company offers
staff free fitness classes
- It also tries to help employees find the right balance between family and work
- The company frequently sends merchandising tips to sales employees and
encourages them to take responsibility and ownership of the store
- Lululemon believes in hiring managers internally, which motivates lower-level
employees because they know they have a good chance of becoming a
leader
- Approximately 70% of Lululemon managers are internal hires
- Employee satisfaction at Lululemon appears to be high; in exit interviews,
90% of employees claim they would recommend to their friends to work at
Lululemon
- It also offers its employees unique perks such as group hikes or exercise
sessions to help its employees bond with one another
- After a year of employment, Lululemon sends employees to the Landmark
Forum, a 3-day self-improvement program at a cost of $500 (or Php27,000 at
$1: Php 54 exchange rate) per employee
- Lululemon strives to get its employees inspired by encouraging them to
develop their personal goals, which are then hung in the stores. It has also
created the “Fund a Goal” program for high-performing employees. This
incentive pays for the employees to achieve one of the goals on their lists
- In 2017, it was ranked as number 76 on Forbes list of America’s Best
Employers

Controversies
Founder Denis “Chip” Wilson
- Wilson has been criticized for controversial statements he made, which
eventually lead to his ouster as Chairman of the Board
- Known to do things without informing top management such as printing out
tote bags with the phrase “Who Is John Galt?” from Ayn Rand’s Atlas
Shrugged book
- A former CEO felt pressured by Wilson to attend the Landmark Forum which
Wilson highly supports
- In an interview in 2009 for Canada’s National Post Business magazine, he
admitted to having chosen the company name because “it’s funny to watch
[Japanese] say it”
- He also stated on a blog his opinion that the rise in divorce rates and breast
cancer among “Power Women” was due to a combination of smoking, taking
birth control pills, and the additional stress which came from taking on career
responsibilities once held mostly by men
 - Another highly controversial statement of Wilson involves his opinions
regarding child labor laws. He argues that “third-world children should be
allowed to work in factories because it provides them with much-needed
wages”
- He claimed this can help lead citizens of these countries out of poverty. The
practice of child labor is a hot-button issue in the Western world because of
the poor working conditions and rampant abuse worldwide
- This support of child labor has angered critics, who believe Lululemon might
be exploiting children in developing countries
- These lead to his resignation as Chairman of the Board
- Later challenged the board, claiming that the current board was not aligned
with Lululemon’s core values, during a shareholders’ meeting in 2014 voting
against the chairman and another director who eventually were both reelected
- A few months later, he sold 27% stake to a private equity organization Advent
International, who in turn received 2 seats at the board

Misleading Advertising
- It claimed that its pants VitaSea products were made of seaweed that had
health benefits for women who wore them which unleashed a storm of
criticism for the company
- Canada’s Competitive Bureau challenged Lululemon not due to the content of
the VitaSea product but rather the company’s claim s about the product’s
health benefits in which the bureau ordered the company to remove all such
labeling

Corporate Culture
- Wilson admits that the firm tries to hire employees with the type A
personalities, or those with more competitive personalities who are concerned
with achievement and personal improvement
- New hires read books selected by Wilson that he felt were critical to personal
development
- Employees are also required to write out their goals for the next 10 years,
which are then posted in Lululemon stores
- Employees are encouraged to exercise regularly and remain close-knit
- Some have question how this competitive culture obsessed with greatness fits
in yoga tradition based on Buddhist and Hindu philosophies
- Ayn Rand’s teachings and promotion of “rugged individualism” directly
contradict the philosophy that underlies yoga
- The donation of the company to the Dalai Lama center was also criticized
saying the Dalai Lama should not be associated with a profit-making
organization
- However, the company claims that the donation fits well with its vision of min-
body-heart
- The murder of an employee in 2011 was attributed by others to the corporate
culture as being “cultish” and “competitive” arguing that the culture creates an
environment where employees are pressured to live up to company
standards.
 - Although this in itself is not the reason for the murder, critics have sometimes
charged Lululemon with having unethical corporate culture promoting
competition over promotion
-

Too Sheer Yoga Pants

- Lululemon suffered a huge blow in March of 2013 when it had to recall 17% of
its pants for being too sheer
- The company lost $2 billion in market value
- The recall resulted in large shortages, which impacted the financial results
and drove the stock price down
- The scandal resulted in the resignation of CEO Christine Day
- Wilson defended his product by suggesting that women’s bodies are to blame
for the fabric’s sheerness and their tendency for pilling
- He also claims that many women buy pants that are too small for them, which
wears them out
- Critics viewed this as a sexist comment exacerbating the issue at hand

Customer Privacy
- Known for wanting to avoid collecting large amounts of customer information
through big data techniques
- It desires to have a close and open relationship with customers through
listening to customers as they shop in the store
- Lululemon prefers training retail employees to eavesdrop on their customers
than spending money on marketing software that tracks purchase or sending
out survey requests
- The former CEO, Christine Day, once posed as a customer in order to listen
to complaints and observe shopping habits
- She also had stores set up their clothes-folding tables next to the fitting rooms
so employees could better overhear any complaints

Define the Problem

Public Image: How significant it is to a company, its customers and its effect on
sustainability

The following are areas that needs to be addressed in order to answer the problem
above:
1. Company’s mission-vision
2. Employees view on its company culture
3. Public image of its leaders and how they react to company issues
4. Customer service information collecting method

Identify the Stakeholders and Get the Facts

Key Stakeholders Vested Interest
Shareholders/ Investors Return on investment/ profit
Employees Ambassadors, career development,
incentives “Fund a Goal program”,
healthy lifestyle
Existing Customers Yoga appropriate clothing, healthy
 lifestyle
Potential Customers Additional market

Controversies in Clothing Industry

With the aid of the internet through social media, customers are becoming more and
more critical on what they buy – price, quality, brand. Any of these 3 being sacrificed,
may earn the eerie of an irate customer, post a negative review online and that may
throw your product in the sinkhole.

Customers, nowadays, are also critical on issues affecting a brand name. Recent
controversies tell us that people are very touchy when it comes to 1) Religion 2)
Cultural/ Historical Misappropriation 3) Racism 4) Sexism 5) Body Shaming 6)
Psychological Dimensions such as Depression/ Anorexic/ Bulimic

Identify Alternatives
 Revisit company mission-vision – Does the current ways of working of the
company reflect its mission-vision? Is it still appropriate?
 Reevaluate company culture – Is it really suffocating? Are the current
employees still happy?
 Public Image consultant for its leaders in handling company issues – Does the
company need to hire one? Additional training for leaders on public relations?
 Invest in a more logical and accurate data gathering of customer information

Evaluate Alternatives
Alternatives Pro Con
Revisit company mission- By doing so, the company If changes are identified,
vision can better implement this may affect current
strategies that are aligned operations or strategy of
to their mission-vision the company
Reevaluate company This will serve as a gauge This will take time on the
culture if the company’s culture is part of the employees
really contributing to the
pressure on employees to
perform higher than
expected
Public Image consultant This will minimize if not Hiring consultant will
for its leaders in handling eliminate statements by definitely slash some fund
company issues its leaders that may affect from the company
the public’s opinion or
view about the company
Invest in a more logical It will ensure a more This will also involve a
and accurate data logical and accurate way sum of money
gathering of customer of gathering data without
information software the need to eavesdrop.
This will lessen the
anxiety of customers
knowing that employees
are actually listening to
their conversation and
using such information
 without their consent

Make A Decision
Among the four alternative courses of action I will implement the last 2 options – hire
a public image consultant and invest in data gathering software.

I believe that among the alternatives, these two will have a great impact on the public
image of the company thus affecting its sustainability and future operations of the
company.

Implementation Plan of the Decision

The implementation will need to be discussed with the board since this will involve
budget for implementation such as hiring additional employee as consultant and
acquiring software for the customer information and feedbacking.

Method of Evaluation
Before the Decision
Leaders making Eavesdropping on
controversial comments customers for information
and feedback
No No
Is it Legal?

No No
Is it Moral?

No No
Is it Ethical?

After the Decision

Hiring a public consultant Acquiring a customer
information collecting
software
Yes Yes
Is it Legal?

Yes Yes
Is it Moral?

Yes Yes
Is it Ethical?