Lululemon Athletica inc. (LULU) CEO Resignation Raises Questions

Is yoga just a trend in North America, or does it have as much staying power as it has had in Eastern nations? That’s a question Lululemon Athletica inc. (NASDAQ:LULU) CEO Christine Day likely asked herself as she announced her resignation on June 10.

Maybe Christine senses that this yoga hype is about as long-lasting as Pilates or Tae Bo; remember those?  She provided little explanation for her resignation, but it comes at a time when apparel companies need to be diversified to stay relevant. That’s something Lululemon Athletica inc. (NASDAQ:LULU) lacks.

On the record

Christine commented to Macleans magazine that, “The plans have been laid for the next five years and a vision for the next 10. I feel that the timing is now right to bring in the next CEO candidate who will drive that 10-year vision…” The statement is very vague and doesn’t give an indication of where Christine thinks the brand is going.

However, it doesn’t look like yoga is fading anytime fast. The company increased revenue by about 37% from fiscal 2012 to fiscal 2013. And the cost of selling all that yoga gear is relatively stable–the company reported last year a profit margin of nearly 20%. The company even announced on June 13 the planned addition of a men’s store by 2013. That sounds like a confident company that would be well-prepared for any trend change.

Yoga, fast fading fad?

Yoga looks most certainly like a fad, but the inevitable death of yoga doesn’t necessarily mean Lululemon Athletica inc. (NASDAQ:LULU) is tossed aside like dirty laundry. The company would surely introduce clothes for whatever other fad comes along, but it is the successful execution of such merchandise, coupled with diversification, that will make or break the apparel company. After all, Nordstrom, Inc. (NYSE:JWN) and Foot Locker, Inc. (NYSE:FL) have managed to keep their market performance alive despite changing trends.

The Nordstrom way: diversification

As one of the world’s most popular fashion retailers, Nordstrom has kept its brand current–but it has also diversified. The company owns a credit segment featuring a federal savings bank, a private label credit card, a Nordstrom, Inc. (NYSE:JWN) debit card and two VISA credit cards. However, the brand has mostly achieved its long-term success based on its ability to understand trends. This adds up to a company that has everything needed for long-term success. The management team consists of visionaries — a component Lululemon Athletica inc. (NASDAQ:LULU) will have to add soon — the business model is sound, and the work culture has been reported as positive.