Super Sweaty Leggings: The Battle Between Lululemon’s Founder and Its Board of Directors Just Got Hotter

The proxy war at Lululemon Athletica (LULU) just got a lot more aggressive.

Days after the company announced a new CEO, which the market reacted to poorly, resulting in a 12% drop in shares, founder Chip Wilson issued a scathing letter to shareholders. He accused the board of “brand harvesting” and claimed they had destroyed $17 billion in shareholder value. 

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The board has also this week issued accusations that Wilson’s family formed a competing company while he served as a director and that he recently provided rivals Alo and Vuori with “his playbook.”

The battle is intensifying ahead of the upcoming shareholder vote on June 11, and both sides are making it personal.

A Founder Scorned

Wilson, who owns 8.6% of Lululemon but hasn’t held a formal position since exiting the board in 2015, is pushing to install three independent directors ahead of the company’s June 11 annual meeting. He believes the current board doesn’t understand the premium brand he built, and their mismanagement has turned a cultural icon into “just” another struggling apparel company.

“Your investment in lululemon athletica inc. is in trouble,” Wilson wrote to shareholders on Wednesday. “The current Board of Directors of lululemon simply does not understand this business and, as a result, shareholders have suffered.”

Lululemon shares have plunged 49% over the past 12 months and 65.9% over less than two years, making it one of the worst-performing stocks among peers. The company has reported flat or declining same-store sales in the Americas for eight consecutive quarters.

But the board isn’t backing down. In a proxy statement filed Monday, Lululemon urged shareholders to reject Wilson’s nominees and vote for the current slate, then detailed what it views as conflicts of interest.

Team Chip: Brand Harvesting Is Killing Lululemon 

Wilson’s case centers on what he calls “brand harvesting,” pointing to decisions that eroded Lululemon’s premium positioning in pursuit of short-term revenue growth. A partnership with Disney (DIS) is one of the more egregious examples that he believes has diluted the brand.

“Disney is a mass-market brand that is not at all aligned with the lululemon brand, nor does Disney target the same demographics as lululemon,” Wilson wrote. “This ill-advised partnership was a blatant move to grab short-term revenue growth through channel expansion.”

Jefferies analyst Randal Konik agreed: “While we understand how the Disney collaboration occurred (the LULU CEO is also on the Disney board), we don’t understand how this collaboration fits into the LULU brand at all.”

Wilson also criticized the board's governance structure, noting that four directors share substantial professional overlap with Lead Director David Mussafer’s private equity firm, Advent International. “Leadership of the Board is also well outside of public company best practices, as there remains a Lead Director and an independent Chair of the Board. Both positions are held by members of the Advent network.”

Regarding the CEO hire that tanked the stock last week, Wilson said: “Now more than ever, the next CEO needs brand and product support on the Board to help attract leading talent and deliver a turnaround. Unfortunately for Heidi and shareholders, this support is clearly not currently represented on the Board.”

He further alleged that the board demanded he put millions of dollars into an escrow account to cover a “hypothetical, potential future breach of the non-disparagement” clause to settle the proxy fight. “The Board’s self-interest and personal history have prevented any actual productive talks,” he wrote.

Team Board: Wilson Is Helping the Competition

The board’s response was equally pointed, providing a detailed background on Wilson’s tenure and departure.

According to the proxy statement, Wilson’s wife and son formed a competing company while Wilson was still on the Lululemon board. He also allegedly violated a support agreement by publicly airing personal grievances in a book and criticizing the company in media interviews.

The board also accused Wilson of providing competitors Alo and Vuori with “his playbook.” Both brands have been eating away at Lululemon’s share in the U.S. market, offering similar premium athleisure products with more nimble distribution and faster product cycles.

As recently as two weeks ago, Wilson created a new venture in the technical apparel space, the board noted.

“The board of directors does not endorse any of Mr. Wilson’s nominees,” the statement reads. The company emphasized that shareholders who already signed Wilson’s proxy card “have every legal right to change their vote.”

Who Wins? Or Is This Just Round One?

Wilson makes a compelling case on several fronts:

The board has overseen a 65.9% decline in shareholder value over less than two years while the S&P 500 Index ($SPX) nearly doubled The Disney partnership compromised the brand’s premium positioning for short-term revenue growth Eight consecutive quarters of flat or declining North American sales signal fundamental problems the board hasn’t fixed

But the board raises legitimate concerns about Wilson’s credibility:

His family allegedly formed a competing company while he still served as a director He recently launched a new technical apparel venture and allegedly shared his “playbook” with competitors Alo and Vuori His actions suggest potential conflicts between his stated goal of saving Lululemon and his own business interests

The proxy vote on June 11 will be close, as activist investor Elliott Investment Management holds a significant stake and reportedly prefers former Ralph Lauren (RL) executive Jane Nielsen as CEO over Heidi O’Neill. Its vote could determine the outcome.

What's certain is that Lululemon can't afford months of public warfare while North American sales decline and competitors gain market share. The company needs either a clear winner who can execute a turnaround or a settlement that brings fresh perspectives to the board without the ongoing conflict.

Right now, it’s getting neither. Two sides are making increasingly personal accusations while shares decline and customers turn to brands with clearer visions.

As Wilson himself wrote: “Like a plane crash, declines rarely happen because of a single failure. It’s a series of mistakes.”

Whether this proxy fight resolves those mistakes or makes them worse is yet to be seen.

On the date of publication, Justin Estes did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

 

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