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How Lululemon got kicked in the (butt-baring) pants
After a pants recall, Wall Street is wondering whether the yoga emperor has any clothes
 
By one measure, Lululemon is the world's third most profitable retailer.
By one measure, Lululemon is the world's third most profitable retailer. Kevork Djansezian/Getty Images

Lululemon Athletica is having a tough week. The Vancouver-based maker of yoga-wear reported fourth-quarter results that beat analysts' expectations, but it's still taking a beating over a recall of some pants that were "too sheer" for comfort.

Lululemon is one of the world's most profitable retailers, placing third behind Apple and Tiffany & Co. when ranked by sales per square foot and sales per store, according to USA Today. But its stock plunged by more than 5 percent Tuesday after the luxury retailer announced a recall of its flagship black yoga pants for having too much "sheerness."

"The ingredients, weight, and longevity qualities of the pants remain the same but the coverage does not, resulting in a level of sheerness in some of our women's black Luon bottoms that falls short of our very high standards," the company said in a statement.

While Lululemon is offering refunds to affected customers, it also said it anticipated a yoga pants "shortage" until new stock arrives, leading the company to reduce its first-quarter revenue forecast by more than $20 million, said Adam Clark Estes at the Atlantic Wire.

And how do customers know if their pants are, ahem, a lemon?

"The truth of the matter is the only way you can actually test for the issue is to put the pants on and bend over," CEO Christine Day said today on a conference call with analysts. "Just putting the pants on themselves doesn't solve the problem. It passed all of the basic metric tests and the hand-feel is relatively the same, so it was very difficult for the factories to isolate the issue, and it wasn't until we got in the store and started putting it on people that we could actually see the issue."

Day drew snickers over the "bend over" test, but she's also earned the ire of brand loyalists, who say they want the former Starbucks executive fired.

"Day has ruined everything special about Lululemon. The bulletproof quality, the fit, the femininity, the Lululemoness of the product," writes Carolyn Beauchesne, a blogger who runs Lululemon Addict and once told Business Insider she's spent more than $15,000 on the brand's products. Day "is a one-trick pony who grew the company through expansion."

This latest snafu, says Sapna Maheshwari at Bloomberg, "is a challenge for the retailer, which is able to sell $98 yoga pants and $64 tank tops because of its carefully cultivated reputation for quality."

And it's not the first time Lululemon has faced quality control issues. Last July, it apologized to customers after complaints arose over dye-bleeding in some of its garments.

"When consumers expect consistent high quality products, even the smallest misstep can lead to major blowback for a company," says Brian Davis at Ad Age. Look at what happened with Apple Maps, for instance. "Sales didn't nosedive and the company continued to sell iPhones, but the quality of the brand was called into question and major competitors, principally Samsung, were able to gain some ground on the once unyielding tech giant."

On the other hand, the yoga pants gaffe has drawn tremendous attention, which Lululemon might use "to squeeze this lemon into LuluLemonade," said Gary Stibel at Ad Age. Remember, for instance, the disastrous Tylenol recall of 1982, or Coca Cola's failed replacement of Coke with New Coke. Both fiascos ultimately led to increased popularity for the brands.

"In the event that Lululemon aspires to be more than just a women's yoga brand, this incident has already attracted attention from future users who are not current consumers or even brand-aware," Stibel said. "Lululemon can correct processes that permitted this accident to happen, but also capitalize on the newfound attention that could help get the brand into totally new space."

 
Sergio Hernandez is business editor of The Week's print edition. He has previously worked for The DailyProPublica, the Village Voice, and Gawker.

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