Lululemon Names TOMS’s Potdevin CEO Amid Challenges

Lululemon Athletica Inc. is looking to Laurent Potdevin, an outsider who hasn’t run a major retail chain, to lead the yoga-wear seller at a time when it needs to smooth out operations and expand its international presence.

Potdevin, 46, most recently president of TOMS Shoes Inc., will replace Christine Day as chief executive officer in January, Vancouver-based Lululemon said yesterday in a statement. Founder Chip Wilson will step down as chairman before the company’s annual meeting June.

Potdevin’s experience at TOMS, which gives a pair of shoes to a needy child for every pair it sells, makes him a cultural fit for a company like Lululemon, and his five years as CEO of Burton Snowboards suggests he understands manufacturing technical products, analysts said. Yet Lululemon’s challenges of branching out internationally and maintaining quality amid rapid sales growth may be on a scale he hasn’t seen before.

“The biggest issue is the supply chain,” Anna Andreeva, an analyst at Oppenheimer & Co. in New York, said in a phone interview. “Some criticism has been international expansion, or lack thereof. Definitely a lot of of their growth depends on international expansion.”

She rates the shares market perform, the equivalent of a hold.

Lululemon got 95 percent of its $1.37 billion in revenue in its most recent fiscal year from the U.S. and Canada. As of Aug. 4, the company had 26 stores in Australia and New Zealand plus a handful of showrooms elsewhere, compared with 200 locations in the U.S. and Canada.

The shares fell 1.7 percent to $69.12 at the close in New York yesterday and have slid 9.3 percent this year, compared with a 26 percent gain in the Standard & Poor’s 500 Index.

International Business

Potdevin, who’s credited with building TOMS’s management team and expanding its international business, said he isn’t planning major changes to Lululemon’s strategy and called its products “outstanding and beautiful.” Still, the company has opportunities to innovate its “fit, function, fabric” while expanding into different categories and creating a better gender balance, he said.

“The way you continue to position the brand and keep its momentum is to continue to focus on great technical, beautiful products,” Potdevin, who started his career in 1991 at luxury-goods maker LVMH Moet Hennessy Louis Vuitton SA, said in a phone interview. “I’ve been fortunate over the past 20 years to be involved with exceptional global, iconic brands or iconic brands on the way to being global. Lululemon has all the elements of being an iconic, global brand.”

Wilson Involvement

Potdevin may be expanding that brand with decreased involvement from the man who created it. Wilson, whose presence analysts said scared off previous CEO candidates, is ceding the chairman role to Michael Casey, the board’s lead director. Wilson still is Lululemon’s largest investor and will retain a seat on the board.

Wilson, 57, founded Lululemon in 1998 after taking a yoga class and used unconventional methods, such as local brand “ambassadors” and free yoga sessions, to amass a cult-like following in the U.S. and Canada. He owned about 28 percent of the shares outstanding, according to a September filing.

Omar Saad, an analyst at ISI Group in New York, said last month that the perception of Wilson’s involvement in the business may be hindering the search for Day’s successor.

Wilson came under fire last month after saying in an interview on Bloomberg Television that Lululemon’s pants “don’t work for some women’s bodies.” He apologized a week later.

“Chip was viewed as a liability, and I think that turned off a couple of potential CEO hires,” Andreeva said.

Beyond Yoga

Day, who took over as CEO in 2008, had been moving beyond yoga as Gap Inc. and Macy’s Inc. boost assortments of competing products. Those pressures, coming as consumers pull back on non-essential purchases amid the unsteady economy, have slowed Lululemon’s once-meteoric growth. Revenue in the first two quarters of Lululemon’s current fiscal year rose 22 percent and 21 percent, compared with 37 percent growth for the previous year.

Day, 51, announced plans to retire in June, about three months after the company said it would recall some shipments of its black Luon pants because they were too sheer and didn’t meet its standards. Just weeks after the recall, Lululemon said Chief Product Officer Sheree Waterson was stepping down. Lululemon named Tara Poseley, who had worked at Kmart and Bebe Stores Inc., as product chief in October.

Preventing similar missteps will be among Potdevin’s main challenges, said Corinna Freedman, an analyst at Wedbush Securities in New York. She rates Lululemon neutral, the equivalent of a hold.

“I don’t think the Street really knows the extent of Laurent’s capabilities,” Freedman said in an interview. “Fortunately, he has what they’re saying is a very strong background in operations, and I think that’s very important for a company that’s transitioned from a high-growth mode.”

Before it's here, it's on the Bloomberg Terminal.