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Analyst’s Take: The Value of Retail Experience and Athleisure Breaks a Sweat

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Last week I shared a 2006 Fortune article on Eddie Lampert, the hedge fund manager who is the chairman and CEO of Sears. Here’s an article on the same topic from today’s New York Times. No one, including the experts quoted in the article, denies that Lampert is a very smart person, and as No. 309 on the Forbes 400, he certainly has very concrete proof of his capabilities. Nonetheless, he’s not perfect, and the article discusses some of the mistakes he made at Sears—notably, as I pointed out last week, his lack of experience in, and respect for people with experience in, retail.

Here’s the pull quote: “He [Lampert] seemed to think he was smarter than anyone in the retail business, but he had no idea how to run the company from Day 1,” [former Sears Canada CEO and current Columbia Business School professor] Mr. [Mark] Cohen said. “One thing I teach is that core competencies are the basis for success or failure. Lampert had no experience in retail, and no management competency whatsoever.”

The article also discusses some of the ways in which Lampert’s interests may not have always been fully aligned with Sears’ shareholders.

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On to the next debacle. I feel like I would be remiss if I didn’t address the apparent puncturing of the athleisure bubble and Lululemon’s highly disappointing guidance for the first quarter. There is a category issue here for sure. Just about the only places one cannot wear yoga pants are to a funeral or on an airplane (if you are flying for free). This has been true for some time, and most American women have drawers groaning with athleisure clothing, and are now buying primarily replacement items.

The primary way to stimulate demand of replacement items is with fashion, and some of the fashion issues in the category are clearly company-specific. LULU has, in my opinion, a markdown/off-price strategy that encourages its merchants to be risk averse. The company’s markdown strategy in the full price stores is, to say the least, idiosyncratic, with markdowns often mixed in with full-price merchandise, so that you have to actually look at price tags to see if anything is marked down.

The company has an extraordinarily low number of outlet stores—sales through outlets and warehouse sales are part of the 8 percent total net revenue in “other net revenue” last year—showrooms, temporary locations, wholesale and license and supply arrangements (e.g., leggings with the SoulCycle logo) are also included in this category. Without a traditional safety valve, merchants have a strong incentive to take very little risk, hence “not enough color” in Q1, only the latest of many such issues at the company.

This article may be relevant, as perhaps a CEO with a traditional apparel background might have helped the company avoid some of its current woes.

Faye Landes, co-founder and general partner of Back to the Future Ventures, advises emerging consumer and retail companies on strategy, branding and fundraising. She was one of Wall Street’s leading consumer and retail analysts for over 20 years and was widely recognized for her ability to anticipate sweeping trends, such as the widespread adoption of activewear. She has frequently appeared on CNBC, Bloomberg TV and other media outlets and has presented at industry conferences all over the world. Read her “Analyst’s Take” column here weekly.

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