A Lululemon store in Austin, Texas. The Vancouver-based retailer announced last week that chief executive officer Calvin McDonald will step down at the end of January.Brandon Bell/Getty Images
One of the world’s largest activist funds, Elliott Investment Management, has taken a more than US$1-billion stake in Lululemon Athletica Inc. LULU-Q, and is pushing for a CEO candidate to help turn around the embattled athleisure brand.
Vancouver-based Lululemon announced last week that chief executive officer Calvin McDonald, who has led the company since 2018, will step down at the end of January amid a troubling slowdown in its U.S. business. The company acknowledged that it has lost traction with some of its most loyal customers, by failing to keep up with trends and offer new products that would inspire them to keep coming back.
Now Palm Beach, Fla.-based Elliott is pushing to be part of the conversation about the selection of a new CEO, according to a source with knowledge of the matter. The firm is one of Lululemon’s largest investors.
Elliott is working with Jane Nielsen, the former chief operating officer and former chief financial officer at Ralph Lauren, as a possible candidate to replace Mr. McDonald, according to the source, who The Globe and Mail is not naming because they were not authorized to speak publicly about the matter.
Ms. Nielsen spent more than 16 years with beverage giant PepsiCo PEP-Q, before moving into fashion retail, first at Coach COH-N and then Ralph Lauren RL-N, which she left in the spring. She has built a reputation for corporate turnarounds, including playing a strategic role as Ralph Lauren worked to improve the quality of its products and appeal to younger customers.
During her time at Ralph Lauren, the company’s stock price more than doubled, and the retailer significantly increased its profits. The Elliott stake in Lululemon and CEO proposal was first reported by The Wall Street Journal.
Lululemon was a pioneer in the athleisure space, making fitness clothing attractive enough for women to wear for casual activities beyond their workouts or yoga sessions. But competition for shoppers willing to shell out $100 or more for a pair of leggings has grown fierce, and newer brands such as Alo Yoga and Vuori have seen success with fresher styles. In September, Mr. McDonald said the products had “become too predictable.”
The company has faced sharp criticism from its outspoken founder Chip Wilson, who remains a major shareholder. He has accused the leadership of “complacency,” and said the brand has “lost its edge.”
By the time Mr. McDonald’s departure was announced last week, Lululemon’s stock price had dropped by more than 50 per cent this year. The stock has since rallied, and on Thursday, following reports of Elliott’s investment in the company, the stock price rose by more than 5 per cent.
A representative for Elliott Investment Management declined to comment on Thursday. Representatives for Lululemon did not respond to a request for comment.
Elliott is not working with Mr. Wilson, according to the source, and is not asking for changes to the board of directors, as the founder has advocated for. The firm has been interested in Lululemon for some time, preceding the announcement about Mr. McDonald’s departure, the source said. Elliott is hoping to connect Ms. Nielsen with the board and to see her included in the CEO search process now underway.
The team at Elliott that is working on Lululemon is the same one responsible for the firm taking a large stake in Starbucks last year, the source said, and it advocated for a change in leadership there. Amid the mounting pressure, Starbucks replaced its CEO Laxman Narasimhan, hiring Brian Niccol, an industry veteran who had led a turnaround at Chipotle.
The team also took a significant stake in PepsiCo earlier this year and pushed for changes there. This month, the company reached an agreement with Elliott to cut costs across the business, to narrow its product lineup in the U.S., and to reduce prices.
Editor’s note: An earlier version of this story incorrectly said that Elliott Investment Management is based in New York. This version has been corrected.