Why Gap wins in Lululemon's pants crisis
The company's Athleta stores are the apparel maker's most formidable competitor, and they'll definitely pick up some market share.
Gap's Athleta chain has been opening stores near Lululemon locations and undercutting Lululemon on prices. Athleta sells yoga pants and leggings for between $59 and $79, while Lululemon pants go for $98 to $108. Athleta also has a better selection.
Why would anyone pay $100 for yoga pants? Lululemon used to be known for high quality and comfort. But this month, it said it will recall about 17% of its women's pants for unacceptable sheerness.
"The truth of the matter is the only way that you can actually test for the issue is to put the pants on and bend over," CEO Christine Day said earlier this month on a conference call, as my colleague Aimee Picchi reported.
The recall will cost Lululemon an estimated $12 million to $17 million in revenue in the first quarter and $45 million to $50 million for the rest of the year, Associated Press reports. Lululemon's inventory and sterling reputation have taken hits as well.
That leaves a new opening for Athleta, Nike (NKE) and Under Armour (UA). "You can't afford to be potentially inviting your customer to go somewhere else, especially in this environment," Sam Poser, an analyst with Sterne Agee, told The New York Times.
It doesn't take much to lose a customer these days, and having your underwear exposed to the world during a downward dog probably ranks high on the list of customer no-nos. Gap will undoubtedly take advantage of Lululemon's crisis and seize some market share. The only question is how much.
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Reports say the generous benefactor behind the huge gratuities is a former PayPal executive.
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