Lululemon founded by Chip Wilson in the late 1990s is positioned as a leading-edge sports apparel retailer which creates components

for people to live longer, healthier, more fun lives. Their competitive advantages are on three fronts- their value proposition, their view of customers and the vertical retail model which makes them inimitable. Their product, high on fit and function, is the cornerstone of their value proposition. The sales philosophy of Lululemon is unique and not the traditional Connect- Discover Respond model. The key competitors of Lululemon are on two levels. On one hand are the big box wholesalers who offer multi brand products and on the other there are existing women apparel manufacturers like Victoria secrets etc. who want to enter the sporting arena. But Lululemons vertical retail model enables them to control quality and retain their unique product offering at a higher price point. In 2005 when Lululemon was to go public, the board hired Bob Meers with a clear mandate to build scale and system in the company. This is when things started going downhill. He brought in a team of outsiders who neither understood the existing company culture nor were not trained or introduced to the Lululemon way of business. They made decisions that were not aligned to the existing culture which created a lot of tension in the organization. A number of new stores were opened as a part of the expansion strategy which were not integrated into the community as was the practice. Lululemon was struggling to implement new inventory systems to keep pace with the demands of its expanding marketplace. The synergies between various teams were lost as they started to function in silos. The cross functional collaboration that existed was lost in transition. So the ultimate result was a drop in the store sales per square feet from 1710 in FY07 to 1450 in FY08, real estate issues in the United States and inventory problems.

Among the challenges that Day would inherit were cultural changes, drop in revenue, impending competition, mismanagement of real estate strategy and demoralized and fragmented leadership team. To continue the growth strategy and build a billion dollar company, Lululemon must stop its current unproductive growth in the US markets and reproduce the existing growth model in areas where there is loss of revenue. They must appeal to the athletes or other personalities in the communities to facilitate the store integration into the community. Their supply chain issues should be addressed such that their store demands are met on priority. They should consider giving stock options to employees to improve engagement and build trust. It must continue to promote the feeling of entrepreneurship among its store managers and other employees and also bring back cross functional problem solving. The executive management should undergo training the Lululemon way where everyone spends time on the front line so that they integrate better into the culture rather than working aloof. By enabling them to appreciate the core values and vision of Lululemon, they can prepare the firm to take on the emerging competition and at the same time handle the uncertain macroeconomic environment. It should continue to maintain its pricing strategy as that is a source of competitive advantage. Once the retail sales improve, Lululemon must expand geographically using their traditional retail store development model of integrating seamlessly into the community. They should look to target the relatively untapped demographic segment of men and children as well in addition to the 32 year old, unmarried and affluent ladies. The most important aspect of bringing in change would be effective communication of the plans to the employees so that change is managed smoothly, effectively and profitably. They key is to not lose their culture while expanding organically.