Read the case below and answer the questions that follow: You must also use the

Read the case below and answer the questions that follow:
You must also use the following source for an in-text citation:
Julia Horowitz, “Lululemon Nosedives 21%: Its Spring Leggings are Boring,” CNN Money, March 30, 207, http://money.cnn.com/2017/03/29/investing/lululemon-shares-drop/ (accessed May 26, 2017)
INTRODUCTION
Lululemon Athletica is an athletic apparel company intended for individuals with active lifestyles. The organization has deep roots in the yoga community and is one of the few businesses to offer apparel for this specific market. Lululemon is 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. These segments consist of corporate-owned and corporate-operated retail 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. Lululemon 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 called Iviva Athletica.
Store growth and expansion into other countries has allowed Lululemon to achieve financial success with revenues of $2.3 billion. While financially stable, the organizational structure has seen changes with the hiring of a new CEO. Lululemon hired Laurent Potdevin in early 2014 hoping to appoint a worthy and experienced industry professional. The company also wanted to distance itself from negative headlines circling around former CEO Denis “Chip” Wilson. Potdevin was once the CEO at Toms and has worked in the industry for over 20 years.
There is no question that Lululemon has seen great success in recent years. From its conception in 1998, the organization has grown tremendously in markets across the globe. However, Lululemon’s success has also been tainted by controversy, negative publicity, and questionable ethical decisions. This case will detail the issues and controversies circling this organization and identify how Lululemon has managed these issues. In addition, we provide information regarding the positive ethical decisions that have been made throughout Lululemon’s history.
ETHICAL RISKS AND CHALLENGES
Despite Lululemon’s strong mission statement and core values, Lululemon has faced much controversy over its history. Founder and former CEO Chip Wilson has also been criticized for controversial statements he made, which eventually helped lead to his ouster as Chairman of the Board. There have also been questions regarding whether Lululemon’s corporate culture—with its strong emphasis on greatness and competitiveness—is necessarily healthy for employees.
MISLEADING ADVERTISING
In 2007 the New York Times cast doubt on the authenticity of Lululemon’s VitaSea line of products. Lululemon claimed that its VitaSea products were infused with seaweed, which had medicinal properties including stress relief. In November 2007, The New York Times
Lululemon claimed that its VitaSea products were infused with seaweed, which had medicinal properties including stress relief. In November 2007, The New York Times released an article claiming that it had tested VitaSea products and could not find seaweed fiber in the product. This claim unleashed a storm of criticism.
Lululemon responded by refuting the claims of The New York Times. It cited independent tests performed the previous year. It also responded to the accusations by stating that a lab in Hong Kong had performed different tests on the product throughout the year, all of which confirmed that the products contained everything that it advertised.
However, Canada’s Competition Bureau challenged Lululemon, not due to the content of the VitaSea product but rather the company’s claims about the product’s health benefits. The bureau believed that these claims of health benefits from seaweed were unsubstantiated and ordered Lululemon to remove all such labeling.
Corporate Culture
As mentioned earlier, Wilson founded his company based upon the values of Ayn Rand. The notion of striving for greatness resonated with Wilson after having read Rand’s book Atlas Shrugged at the age of 18. Since then, he has utilized the concept as a way to market his brand. This idea of “greatness” contributes to a competitive organizational culture. Wilson admits that the firm tries to hire employees with Type A personalities, or those with more competitive personalities who are concerned with achievement and personal improvement. New hires read books selected by Chip 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 questioned how this competitive culture obsessed with greatness fits in with the yoga tradition based on Buddhist and Hindu philosophies. Both ideologies promote the notion of ridding one’s self of the Ego. The Ego is seen as a source of suffering, and Buddhism is based on the absolution of suffering. Enlightenment is achieved when the Ego has been successfully removed. There are specific postures used to accomplish this, and it can take years of practice. On the other hand, one of the criticisms of Lululemon goes back to Ayn Rand’s teachings and their promotion of “rugged individualism,” the elevation of mediocrity to greatness, and the relentless pursuit of happiness. Despite it being a business, some believe that these “individual” teachings do not belong in the yoga clothing industry because they directly contradict the Vedic philosophy that underlies yoga. Others have claimed that Lululemon’s corporate culture is almost “cultish” in its style. When Lululemon donated $750,000 to the Dalai Lama Center for Peace and Education, it received both praise and criticism. While the Dalai Lama Center’s chairman cited the company’s generosity, critics believed 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 mind-body-heart.
In March 2011, an employee of a Lululemon store located in Bethesda, Maryland, was brutally murdered by her coworker after hours. It is believed the employee had observed the coworker trying to steal clothing from Lululemon. After the store closed, the coworker lured the employee back into the store and brutally murdered her. She then attempted to make the scene look as if two masked men had broken in and harmed them. After the truth was revealed, the coworker was sentenced to life in prison without parole.
Lululemon and many others attribute this brutality as a random act of violence. However, those who describe the corporate culture as “cultish” and “competitive” argue that the culture creates an environment where employees are pressured to live up to company standards. Although this in itself is certainly not the reason for the murder, critics have sometimes charged Lululemon with having an unethical corporate culture promoting competition over collaboration.
Too-Sheer Yoga Pants
A major ethical problem for Lululemon occurred in March 2013, when it released black Luon yoga pants that become sheer when the wearer would bend over. The company instituted a massive recall which comprised 17 percent of all the women’s pants sold in their stores. Even more damaging, The New York Post released a statement from a customer who claimed that she had to demonstrate the sheerness of her yoga pants by bending over in the store so the associate could check. Lululemon immediately released a statement saying that such conduct was not company policy and that they would accept returns from customers with no questions asked.
The recall resulted in large shortages, which impacted financial results and drove the stock price down. The company lost $2 billion in market value. Certain styles of Lululemon pants have also been accused of pilling, which occurs when fiber in the pants balls up. After the recall of the too-sheer yoga pants, investors attempted to sue Lululemon, claiming that they purposefully hid defects in the pants. However, the lawsuit was dismissed the next year.
The scandal resulted in the resignation of CEO Christine Day. A few months later, in November 2013, Chip 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. When questioned about whether Lululemon is truly a clothing retailer for everybody, Wilson stated that the product is appropriate for all sizes but that some people simply misuse the product. Critics viewed this as a sexist comment, exacerbating the issue at hand. Perhaps in an attempt to make a joke, a store in Bethesda, Maryland, featured a poem on its window: “Cups of Chai, Apple Pie, Rubbing Thighs.” A photo of the poem was shared on Twitter. The company apologized and the poem was removed. In the midst of consumer outrage, Wilson stepped down as Chairman of the Board.
POSITIVE ETHICAL PRACTICES
Despite the criticisms launched against Lululemon, the mission to help customers live a better life continues. Lululemon defines having a better life as living healthier, leading to a longer and more adequate life. Its mission to elevate humanity from mediocrity to greatness demonstrates that it wants consumers and employees to achieve their maximum potential. This is not too different from Abraham Maslow’s concept of self-actualization. Lululemon 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. Breathing deeply, drinking water, and getting outside also top the list of things we can’t live without. Get to know our manifesto and learn a little more about what lights our fire.”
This manifesto clearly shows the backbone of Lululemon and the way it does business. The manifesto strives toward providing greatness to the people that use Lululemon products. The higher prices Lululemon charges are a sign of excellence and the belief that it is selling more than just clothing to the customers. It is a belief that the customer is buying a lifestyle that comes with the Lululemon brand and the set of values that Lululemon is conveying in the manifesto. As a result, Lululemon has gained a large following and clientele that believe in its products.
Contributions to Communities
Lululemon takes its responsibilities to communities seriously. It recognizes that community involvement will not only help gain new customers but also promote its mission of creating a healthier lifestyle. For these reasons, Lululemon holds free weekly yoga classes taught by fitness professionals. Lululemon shoppers who have attended the free yoga classes can get a 15 percent discount on their purchases.
Additionally, while the practice of secretly observing customers might be controversial in some ways, it also demonstrates Lululemon’s commitment toward meeting customer needs. Lululemon believes that customer relationships are not based on technology but rather on more basic marketing techniques like simply talking with the customer. The Lululemon culture encourages employees to establish strong connections with their customers, which is why the company emphasizes that its employees are “educators.” By listening carefully to customer concerns as they shop, Lululemon gets an immediate picture of problems that the company can address. For instance, one time when the CEO was in a Lululemon store she overheard many complaints that a certain type of knit sweater had sleeves that were too tight. Based on this information, she canceled future orders. It is clear that Lululemon is willing to make quick product changes in response to customer feedback.
CONCLUSION
Lululemon focuses much of its efforts on the legacy that it will leave behind (the legacy it is creating now for future generations). Throughout the years, Lululemon has created a culture of promoting a healthy lifestyle, which can be achieved through healthy eating, yogi tradition, and in-store fitness classes. The company stresses a culture in which employees, customers, and other stakeholders can achieve greatness. As a result, the organization has seen rapid success and growth during the last decade. However, the company has been hit by a number of scandals, requiring it to rebuild its reputation and adopt new leadership.
In addition to these ethical issues, Lululemon and its competitors seem to be facing a slowdown in the apparel and athletic wear industry. This slowdown has investors concerned. CEO Laurent Potdevin maintains that the slower sales were the result of a drab product assortment that consumers did not find aesthetically appealing. He believes Lululemon is well on its way to correcting these issues, including releasing more colorful clothes in the future. Whether this will help jumpstart sales again has yet to be determined. Lululemon must also be vigilant as its success has attracted major competitors like Nike and Under Amour into the industry.
The changes that Lululemon has implemented demonstrate that the organization is willing to make difficult decisions to do the right thing. If Lululemon continues to put stakeholders first and refuses to deviate from its values, it is likely to avoid similar ethical issues in the future. A strong values-based corporate culture will help Lululemon remain a successful company with a reputation for both ethical behavior and quality products. In addition, most companies the size of Lululemon have an effective ethics and compliance program to help build an ethical culture. Based on past issues that the company has faced, it appears that it is time to embrace a more proactive approach to managing ethics and social responsibility.
QUESTIONS FOR DISCUSSION
1. How has Lululemon handled various ethical issues that it has faced over the last few years?
2. How has the ethical culture of Lululemon impacted its relationship with customers and employees?
3. To avoid negative publicity and ethical challenges, what steps should Lululemon take to improve its stakeholder relationships?