Chief Investment Strategist, The Freeport Society
I have a confession.
I wear Lululemon pants almost daily.
No. I’m not wearing their skintight yoga leggings for yuppie women.
But I am wearing their office-appropriate men’s pants.
And they’re comfortable, dammit.
Don’t judge me. Buy a pair of their ABC chinos. You’ll understand.
My pants, and the company, were on my mind recently when I read Lululemon founder Chip Wilson’s response to the company’s “diversity and inclusion thing,” in his words.
Wilson founded Lululemon Althetica Inc. (LULU) in 1998 and has had no authority at the company since stepping down as Chairman in 2013. But he still owns about 8% of the company and has never been shy about sharing his opinions… even about Lululemon’s customers.
In a recent interview with Forbes, Wilson lamented that the company was trying to become “everything to everybody.” Yet, “the definition of a brand is that you’re not everything to everybody,” he said. “You’ve got to be clear that you don’t want certain customers coming in.”
I may be one of those customers he doesn’t want coming in. I’m under no illusions that a middle-aged investment writer with a beer gut is the brand ambassador he’s looking for. But that’s fine. I won’t take it personally.
And this isn’t the first time Wilson has criticized his customers…
It was his comment that Lululemon’s leggings might not work for “some women’s bodies” back in 2013 that got him kicked off the board of directors.
But the man has a point.
While Lululemon Athletica has exploded in size in the decade since Wilson left the company – its revenues are up sixfold – it’s far less profitable in terms of return on assets.
When Wilson left, the company was generating annual returns on assets of 30%. In recent years, it’s been about half that, as you can see in this chart.
Lululemon is still a growing and profitable company. But it should tread carefully on its diversity, equity, and inclusion (DEI) efforts.
DEI has been in the news of late, due in no small part to the epic meltdown over “context-dependent decisions” by the heads of three of the world’s most prestigious universities last month. Apparently, calling for genocide is being inclusive… as is plagiarism! What could be more inclusive, after all, than including your colleague’s work without crediting them?
Definitely, the company should always remember the fall of Victoria’s Secret & Co. (VSCO), as I discussed here. The company committed brand suicide a few years ago by embracing “body positivity” and prominently displaying plus-sized lingerie models who didn’t exactly look like Gisele Bündchen.
That went about as well as you might expect.
Few women look like Gisele Bündchen. I’m not sure that even Gisele Bündchen ever really looked like Gisele Bündchen without the aid of Photoshop. But that was the point. The brand was popular precisely because it wasn’t realistic.
Revenues have been sliding ever since, and the Victoria’s Secret stock price is down by about two-thirds since 2021. It’s hard to see where the company goes from here. Once a brand loses its cachet, it’s done.
Make Them “Happy” or Make Us Money?
DEI initiatives might make activists and public relations consultants happy. But companies don’t exist to make these nebulous “stakeholders” happy. They exist for the novel idea of actually making money for their shareholders.
If a company can use DEI to expand its market and boost its bottom line, great! Go for it. But profit must be the focus and DEI needs to be a means to that end. Anything else is, in Warren Buffett’s words, “asinine.”
Unfortunately, I don’t see this nonsense disappearing any time soon. While the DEI name is falling out of favor, the same consultants will just end up peddling the same B.S. under a new acronym or alphabet soup abbreviation.
As I commented on the ESG climate lobby, DEI has evolved into an industry with its own set of perverse incentives that resemble a mafia protection racket.
All of those DEI consultants have a vested interest in continuing to collect their paychecks, so they’ll keep pushing companies to make loud and ostentatious displays of inclusiveness… even if it means destroying a brand with “body positive” models.
Let them. It’s a free country, and they’re at liberty to run their companies into the ground any way they see fit.
But we’re also free to look past this nonsense and focus on companies that put their investors first. They’re the ones that will help us grow our wealth. I have already added seven such companies to our Freeport Investor model portfolio. To learn how to get their ticker symbols and my research supporting their inclusion, watch this special presentation here.
To life, liberty, and the pursuit of wealth.