Fwd: HBS - Apr 2019
Andy Cheung
From: Andy Cheung <Andy....@microsoft.com>
Date: Thu, Apr 25, 2019 at 10:44 AM
Subject: HBS - Apr 2019
To: repl...@gmail.com <repl...@gmail.com>
HBS - Apr 2019
Wednesday, April 24, 2019
11:57 PM
http://courseware.hbs.edu/public/lululemon/
Case: Leadership, Culture, and Transition at lululemon
1. What did Advent International and Highland Capital see in Lululemon?
a. Owns the vertical: design, manufacture, retail their clothing
b. Cult phenomenon: people were crazy about the company
c. See the opportunity to scale by putting the infrastructure in place for expansion in new markets while keeping the authenticity and culture of the company in tact
d. Product is unique and different. Lulu's product line is functionally different than others. Their apparel feels better and the sales team have more enthusiasm and love for their job than other retail stores
e. Lulu had the capability to expand beyond the Canadian border: sales per sq ft were some of the highest in retail in Canada, the payback was exceptional
f. Operated under the radar for 4-5 years to try/fail/succeed to reach $1,900/$2K sq foot sales before other big brands copied their biz model.
g. Invested $225MM in 2005
2. What aspects of Lululemon’s organization architecture have been keys to its success to date?
o R&D relies heavily on feedback from guests and athletes. Designers hold design meetings (focus groups) with leading athletes and community, and talk to educators. Design feedback chalk board in fit rooms to collect fit back from guests and get forwarded to design team. Monthly product calls where design teams, the field, the merchants, productions, allocators, planners talk about what's working and what not.
o Everyone works on the floor at least once a week. The closer to the guests, the better they can make decisions.
o Recruits fitness enthusiasts and yoga instructors from community around the store to serve as product testers, called "ambassadors" to provide product feedback to the company, and serve as word of mouth marketing
3. What happened to Bob Meers?
a. Financially motivated to take on the CEO job (big equity).
b. Chip liked Bob because of the Reebok's failure in entering the women's athletic market and thought he could brought learnings to lulu
c. Bob became the defecto CEO and thus weakened the negotiating stand of his contract as CEO
d. Not sensitive to lulu's own culture and values people share since he came from a big company
e. Provided key guidance to lulu to scale: recognized the supply chain couldn't support the growth, so he brought in production team and buying team, setting up the allocation functions, which are essential to traditional retail business. The problem is how far do you go before becoming everybody else and lose your own culture and value.
f. Categorized people based on his view of their performance and realized he didn't have his A people, so he hired 6 or 7 people from outside under him which isn't the model of lulu. They wanted install their way of culture (responsibility and integrity) but after a year, lulu staff found they knew more than what these outsiders did. They're nice people, but they didn't know how to do things the lulu way.
g. Doesn't have long term thinking. He set goal to open 35 stores and would do so no matter what. The company focused on numbers defined by wall street instead of growing organically (grow with the right people)
h. Stores in malls in Canada are the most successful stores but Chip followed a sequence of building stores leading to this outcome. Bob opened stores in malls first in US, resulting in high cost and no demand in the recession.
i. Bob hit his goal of the stock price and he left at the end of his contract
j. Bob took the fast route to scale the company by bringing in outsiders and gave direct express directions to people to work on areas owned by other people. It led to 3 separate functions -- production, merchant, design -- and created tension among teams. People think it's personal and new people are taking over, and not about things need to change and why.
4. What are the most important performance gaps facing Christine as she takes over as CEO?
a. Hostile leadership style - A lot of things lack explanation. It was a mission to get things accomplished quickly.
b. Disempowered management team - people didn't feel empowered. They couldn't work cross functionally because they only knew what Bob told them to do
5. What should Christine do as she takes over? What must change and must not change? Where should she start?
a. Communication and empowerment
b. Create a management team that's capable of solving problems and leading the future of the company.
Lululemon Profile
· 1998 - Chip Wilson founded as specialty retailer that designs, manufactures, and sell yoga-inspired athletic apparel
· 2005 - privately held $40MM startup with less than 20 stores in Canada.
· 2008 - publicly traded $350MM company with close to 100 stores with 56 in US. 3000 employees. Day became CEO in mid 2008
· Board wants build a $1B company by opening more stores and getting ready to launch an eCommerce operation
· Day tasks:
o Build a management team to grow from a founder to a professionally managed company
· Strategy
o Calls their sales staff "educators" whose job is not to sell clothes but to educate "guests" as they refer to their customers about the technical features of the gourmets
o Choose vertical model instead of wholesale model as the corporate strategy because they need to educate customers why their design is better and why it costs double the price of the wholesale
o Create differentiation by maintaining the quality and the attention to details of the gourmets to create the barrier between them and the wholesale
· Challenges
o Slowing economy. Recession due to financial crisis
o Real estate
· Underperforming stores due to mismanagement of the real estate strategy resulting in high-cost locations in many new US markets with little to no demand
· Poor construction supervision at many sites resulted in escalating costs and quality concerns
o Inventory Systems
· Struggled to implement new inventory systems to keep pace with the demands of its expanding marketplace
o People
· Rapid growth comes at a cause. People weren't aligned causing the whole company slowed down. Cross-functional barriers had eroded the sense of teamwork resulting in an inability to achieve compromise
· To scale up, key leaders were brought in from outside but these leaders weren't onboard correctly (e.g. have not gone through training, not oriented the future direction of the company, hadn't taken time to build key relationships) and made decisions without considering the consequence to the brand. They were treated as outsiders by the original leaders. They questioned whether it's the right place for them, couldn't get work done. Communications were breaking down.
Christine Day Profile
· Joined lululemon as SVP of Retail in Jan 2008
· 20 years at Starbucks
Other people
https://www.linkedin.com/in/delaney-schweitzer-01984bb8/?originalSubdomain=ca
https://www.linkedin.com/in/eric-petersen-682a07/?originalSubdomain=ca
Created with Microsoft OneNote 2016.
Ken Cheung
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