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Lululemon founder Chip Wilson calls for new board, chief executive

Clothes are displayed in a Lululemon Athletica retail store in New York Thursday.

BRENDAN MCDERMID/REUTERS

Yoga fans strive for a state called "nirodha," where the mind is still and totally focused on a single goal. Lululemon Athletica Inc. founder Chip Wilson was approaching nirodha Thursday, totally focused on replacing the yoga-wear retailer's chief executive officer and board after the company warned Wednesday that this year's results will be below expectations, triggering a 23-per-cent stock-price decline.

Mr. Wilson, who owns 14.6 per cent of Lululemon and saw his net worth slashed by approximately $275-million (U.S.) on Thursday, is dramatically escalating his long-running war of words over the retailer's strategy. His latest broadside comes after CEO Laurent Potdevin said sales are slowing due to consumer concerns with design – Mr. Potdevin said Lululemon athletic wear doesn't come in enough colours – and the company faces increasing competition from rival retailers and clothing lines. Lululemon's stock price dropped $15.54 on Thursday, closing at $50.76.

"Sometimes, things need to get broken before they get fixed. Today, we saw that Lululemon is broken," Mr. Wilson said in an interview. "I believe in this company, I believe we have the best business model, but the company needs to move quickly and embrace change … and the Politburo in China is quicker to embrace change than the board of directors."

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Mr. Wilson said he is not interested in returning to Lululemon, which he founded in 1998, but does have concrete ideas on products and strategy that the company can implement, which he would be willing to share. He said that in hindsight, he wishes he had structured Lululemon with a dual-class share structure that would have allowed him to maintain control while partly cashing in on the chain's success. He also said the staggered election of directors on Lululemon's board makes it difficult for shareholders to influence governance.

Mr. Wilson stepped down as Lululemon's CEO in 2013 and left the board of directors in 2015. He is now a philanthropist and adviser to a private casual clothing chain, Kit and Ace, run by his wife and son.

As part of a grassroots activist-investor campaign, Mr. Wilson started putting up posters in the bus stop outside Lululemon's Vancouver head office last year that argue for a shakeup at the company. The current poster suggests, in strong terms, that the company needs to broaden its product mix by acquiring Under Armour. The poster Mr. Wilson wants to put up next flatly suggests Mr. Potdevin and the board be replaced. The advertising agency responsible for the bus-shelter ads, Outfront Media Inc., refused to run the latest poster.

Mr. Wilson runs a blog, called Elevate Lululemon, and on Thursday he wrote an open letter that said: "A small-minded management team endorsed by directors with no insight into the operations of Lululemon has missed the big picture. They've squandered the momentum and the opportunity to get bigger and better."

"The Lulu CEO now has to scramble to save his reputation. The board members should all quit and competent people who truly understand why Lululemon succeeded in the first place should take over," said Mr. Wilson in his blog. Lululemon did not return a request for comment Thursday on Mr. Wilson's comments.

Analysts were also critical of Lululemon's strategy after Wednesday's release of financial results. They raised concerns over the company's growth prospects when shoppers are moving to blue jeans and away from yoga gear. Analysts also questioned whether the company is keeping pace with rivals who have introduced competing clothing lines. Macquarie Capital analyst Laurent Vasilescu said in a report that on a relative basis, Lululemon's spending on marketing lags rivals such as Nike Inc., Adidas AG and Under Armour Inc.

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About the Author
Business Columnist

Andrew Willis is a business columnist for the Report on Business at The Globe and Mail, based in Toronto.He has been in business communications and journalism for three decades. More

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