What Lululemon needs from its next CEO

Shareholders are in the dark after the surprise resignation of Christine Day, who delivered five years of store growth and stock price gains.

By Forbes Digital Jun 12, 2013 3:23PM

Lululemon Athletica's (LULU) announcement of CEO Christine Day's resignation surprised Wall Street Monday, sending the stock sharply lower in an after-hours slide that continued Tuesday and shaved nearly a fifth off the company's share price.

During Day's five-plus years at the helm, the retailer of high-end fitness clothing saw annual sales top $1 billion and a 400% gain in its share price. Shareholders are in the dark as to why she resigned, given her seemingly successful handling of a recent crisis when some of the retailer's yoga pants were found to be too sheer.

Now the board faces the task of finding Day's successor.

One thing they should look for is someone with product expertise, says Jason Schloetzer, a professor in Georgetown University's McDonough School of Business.

"There needs to be more of an emphasis on product quality," he says, and he expects the next CEO to have a very different mandate from Day, who hailed from Starbucks (SBUX), which experienced rapid store growth over the past decade. When Day jumped to Lululemon in 2008, a similar trajectory ensued.

"Day's skill set was expansion. Now that expansion has occurred, the new CEO will focus on cleaning up product quality issues and articulating to shareholders a strategy for improving and increasing product offerings," Schloetzer tells Forbes.

Reports also suggest Day was working 18-hour days, and if the board wants someone else to take on that kind of grind it may have to widen its search.

"To find someone who wants to work those hours, the Board's executive search committee will have to find a younger person with less experience and no family obligations," says Columbia Business School Professor Kathryn Harrigan.

Day's resignation comes just three months after the brand's popular yoga pants were pulled from stores for being too sheer, but Harrigan suggests the embarrassing blunder had more to do with the realities of the retail supply chain than mismanagement by Day.

"The fact that you could see through these pants is symptomatic of suppliers trying to meet a price point -- in order for there to be margins, you had to skimp on something," Harrigan adds. Plus the company reacted swiftly and the products are now returning to stores after a three-month absence.

Day intends to remain on board until her replacement is named -- which also runs contrary to any suggestion the board is still furious over the pants debacle -- but it still behooves the company to tap her successor as quickly as possible, given that the uncertainty could leave the company vulnerable to competitors or potential suitors.

Shares of Lululemon dropped 17.5% Tuesday and continued to fall Wednesday, erasing what had been a year-to-date gain through Monday's close.

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