By Jinjoo Lee
What kind of leader does it take to turn around an ailing brand? Lululemon is about to become the next case study.
Activist Elliott Investment Management is betting that it takes a leader with managerial chops. It recently has taken a roughly $1 billion stake in Lululemon and is pushing for Jane Nielsen, a former Ralph Lauren chief financial and operating officer, to take the top job at the athletic apparel company. Lululemon announced two weeks ago that its chief executive officer, Calvin McDonald, would step down.
It is a good entry point for the activist investor. Lululemon's shares look cheap at about 17 times forward earnings, about half its 10-year average. That is quite a bargain for a brand that, for much of the past decade, commanded a multiple higher than sportswear giant Nike and luxury conglomerate LVMH. Even though its operating margins have compressed lately below 20%, the company remains highly profitable with margins that look more like luxury stocks than apparel brands.
Nielsen certainly has a good track record. Retail analysts praise her discipline at Ralph Lauren, where she oversaw a strategy of cutting down the number of products to restore brand focus and prestige. "She was willing to make hard decisions to get smaller to get better," notes Simeon Siegel, equity analyst at Guggenheim Partners. Laurent Vasilescu of BNP Paribas said in a note that the research team used to refer to her as "The Sheriff" during Ralph Lauren's turnaround for her operational discipline. During Nielsen's tenure at Ralph Lauren, the company's shares more than doubled.
Will the same approach work at Lululemon? In some ways, its problems appear similar. Over the past several years, the company has reached beyond its core yoga audience to keep top-line growth going. This inevitably has led to flops, including at-home fitness gadget company Mirror, which has been discontinued, a foray into footwear, an assortment of loungewear that even its own CEO called "stale" and most recently, a head-scratching decision to add Mickey Mouse and NFL logos onto its apparel. A dose of discipline wouldn't hurt.
But perhaps what Lululemon really needs is a fresh pair of creative eyes. The brand has hit the right notes before, even when it seemed like the new products were a reach. The so-called "ABC pants," stretchy work trousers for men, were a hit. So were the line of belt bags that went viral among young consumers.
Sometimes it takes a creative type to revive a brand. Gap is the most recent example: Since its new CEO started two years ago with a focus on reviving the company's design and creative culture, comparable sales quickly returned to growth and its shares have gained 190%. Abercrombie & Fitch is another example, with shares up 10-fold since CEO Fran Horowitz started in 2017. Both leaders have product and design-focused backgrounds.
Of course, a good CEO could still cultivate the right creative culture, whatever his or her background. Even though Lululemon refreshed its creative leadership two years ago, the first products designed by the new creative leader will only hit shelves next spring, making it difficult to assess where the company's design strategy stands. The company has said that it is working to cut the design-to-market timeline.
Business discipline is all well and good. But fashion brands also need a certain intangible pull. Whoever the new CEO is, Lululemon needs a fresh creative strategy.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
(END) Dow Jones Newswires
December 22, 2025 05:30 ET (10:30 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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