Lululemon Case Study

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Table of Contents
Introduction ............................................................................................................................................ 3
Cross Boarder Expansion and Location Control ...................................................................................... 3
The Cultural Shift and Organizational Tension ....................................................................................... 5
Inventory and Infrastructure .................................................................................................................. 6
Conclusion ............................................................................................................................................... 7
References .............................................................................................................................................. 8



















Introduction
Lululemon was founded in the year 1998 by now Founder and Chairman Chip Wilson as a
speciality retailer which designed, manufactured and sold womens athletic apparel that was
yoga inspired. The company presented a unique blend of culture where employees educated
customers about the technology and research that went into their fabrics and why they were
better than competitors. Employees were valued and the company soon began to expand. The
company had opened a total of 20 stores in Canada by the year 2005 and had become the
most favourite athletic brand with combined revenue of $ 40 million. The company then
under the leadership of Bob (Former Reebok CEO) undertook an aggressive expansion
strategy in Canada and the U.S. By 2008, the company had more than 35 stores and
combined revenue of $350 million. The company however faced several issues and the
companys culture began to fall apart as the new CEO Christine Dale stepped in.
In light of this discussion, the current report is aimed at relying on management accounting
theories and identifying three unique problems that Lululemon is faced with. The report also
attempts to identify causes of these problems and their consequences for the organization.
Cross Boarder Expansion and Location Control
The very first control problem based on management accounting theory that could be
identified in the case consists of controlling locations where Lululemon stores would open in
the U.S.
A management accounting system in literature is defined as system that has been specifically
and uniquely designed for an organization. This system is responsible for the provision of all
necessary information that the organization might need for making decisions. In other words,
management accounting systems in an organization are responsible for the provision of
reliable and accurate information to the organizational management (Broadbent, 2012). In
accordance with the Contingency Theory of Management Accounting, this uniquely designed
accounting management system for an organization is contingent on situational or
circumstantial factors in which a firm is progressing. The theory also suggests that
circumstances in which every organization progresses are distinct and they largely impact
mechanism, adoption and sophistication of effective accounting management system. Six
circumstantial factors have been defined in accordance with the contingency theory. These
include the external environment, mission and strategies, technology, firm interdependence,
business unit and knowledge of observable factors (Carter et al, 2010).

The case clearly explains that Lululemon emerged as a Canadian entrepreneurial venture. On
its way to scaling up, they closely studied the Canadian marketplace and picked up best
possible locations for every store. They were able to do this as they were well versed with
their customers and their needs. However when the company under Bob Meyers aggressive
expansion strategy decided to expand cross borders into the U.S, they had fairly limited
knowledge to operate on. They were new to the American market, did not understand the real
estate in U.S, did not have a very good real estate head in place and they decided to duplicate
the Canadian location model in the U.S. As a result, they ended up with several high cost
locations where product demand was minimal.
This problem can be explained to be framed by the contingency theory in several ways. In
this case, the external environment of the firm was formed by the intersection of taxation
laws, supply chain and distribution of two different countries. Given the complexity of the
external environment, the company was not well equipped and merely ended up following the
advice of local developers in the U.S without adequate research (Parker, 2011).
The corporate strategy and mission of the company at that time had been aggressive
expansion. Bob had been provided express directions from the Lululemon investor board that
he was to deliver 35 stores. Under these express directions, little attention was paid to actual
locations where these stores would be opened and their impact on the company future.
Lululemons technology at the time of its inception could be categorised as small batch
production technology which slowly moved up to large batches as the company expanded.
Under the aggressive expansion strategy however, technological readiness of the company
could not be moved to mass production with the speed of company expansion. Lastly,
Lululemon as a company had been designed on pooled interdependencies and this led to
various cost inefficiencies (Parker, 2011).
The greatest consequence of this control problem for the company could be realised in the
form of a constant revenue loss. Lululemon was trapped with several locations where the
store operating cost was very high. Owing to the fact that there was little to no demand for
the product, this money could not be recovered. Furthermore, these locations had been taken
on long term leases and it was not possible to get out of these leases thereby resulting in a
constant loss of revenue. Lululemons difficulties were escalated by the fact that the revenue
loss came at a time of global economic recession. A bad real estate policy also served to
tarnish the brands image in U.S and the brand was often quoted as a failure. Lululemons
culture could not be maintained in stores with low demand and sales personnel had to press
their products rather than merely educating customers. Lastly, since the real estate strategy
was not well planned out, the companys supply chain and distribution network could not be
established effectively thereby resulting in further cost inefficiencies (Whittle & Mueller,
2010).
The Cultural Shift and Organizational Tension
Another significant control problem that Lululemon experienced was that of a cultural shift
within the organization.
Academic literature presents evidence to the existence of Bourdieus theory of practice. In
this theory, Bourdieu recognised two major elements namely field and habitus. Here field
refereed to overall organizational structure and habitus refereed to knowledgeability of
human agents involved within the organization. Both these elements interact with each other
on a regular basis and impact on each other. Every individual is a part of this field and is able
to include rules and norms of this field into his/her own habitus with the help of knowledge
or experience. Furthermore, the theory also suggests that sources of capital that an individual
has is responsible for defining the overall level of power of the individual. Capital has been
expressed by the theory in terms of economic, cultural and social. Therefore, in accordance
with this theory, the most powerful person in the organization would be the one with most
number of connections, greatest social influence and most access to economic capital
(Bourdieu, 1977).
In this case, the investor board at Lululemon had appointed Bob as the CEO in order to be
able to build proper systems, structure and processes within the organization. Bob realised
that a lot of work needed to be done within a small time frame and this task might not be
possible to properly train and educate the companys existing staff. In this context, Bob
brought in several members from his former company (Reebok) into the management and
started giving them express directions. This in turn started taking away from the original
model on which the company had been built and organizational personnel started taking these
actions personally. This could also be attributed to the fact that very little explanation for any
particular action was given and people only know as much as Bob had told them.
This problem can be explained on the basis of Bourdieus theory of practice in several ways.
When management personnel from Bobs former company came in, they began to change the
manner in which the structure interacted with agents. They started telling people what to do
instead of letting them have their say and participate in the decision making process. This
rules and norms slowly became ingrained in the habitus of agents working in the organization
and this caused a drift away from the original culture. Furthermore, since Bob had access to
most resources in the organization, he was inevitably regarded as the most powerful person in
the organization. This resulted in everyone following his express directions without
questioning any of his strategies or accessing impact of these strategies on the organization in
the long run (Ma & Tayles, 2009).
Consequences of this problem could be realised majorly in the form of internal organizational
tension. Various departments felt that that Bob is taking their functionality away from them
without providing any explanation. They also felt that they were being ruled by outsiders who
had little or no knowledge about core values of the organization. This created organizational
tension. Management teams within the organization could not function in a cross functional
manner as they only had access to specific knowledge. Employees of the organization were
no longer valued the way they had been till now and this resulted in high employee turnover.
Since local store managers and employees were no longer a part of the decision making
process, their responsibility and accountability towards a blunder decreased and the
management no longer was able to hold a single person/ group of people responsible for
something that had gone wrong(Parker, 2011).
Inventory and Infrastructure
A third most significant problem faced by Lululemon might be recognised in the form of lack
of inventory and infrastructure.
In accordance with academic literature, the theory of legitimation crisis has been well
recognised and supported in the field of management accounting. In accordance with this
theory, an organization and the accounting management system within might be treated as a
structure where crisis might be caused as a result of four different factors namely rationality,
economic, motivation and legitimacy. ERP systems in organizations were developed as a
result of increasing popularity of this approach and to be able to deal with uncertainties in
these four areas (Joensson & Lukka, 2006).
In this case Lululemon had been expanding fairly quickly. It had gone from under 20 stores
in a domestic market to approximately 35 stores in both Canada and the U.S under a rapid
expansion plan. This did not give the company enough time or resources to put the required
amount of research in getting the order quantities right, doing demand forecasting and retail
assortment etc. Hot products from the company would therefore vanish from stores in a
matter of three days thereby revealing a huge gap in production and demand.
This problem can easily be explained on the basis of the theory of legitimation crisis. The
theory clearly suggests that an accounting management system in an organization might
experience crisis based on four different factors. In this case, economy of production
contributed to the crisis as production costs were extremely high and this came in addition to
off shore production and a distribution system for two different countries. The idea of
fuelling expansion without first building the required inventory base had appeared legitimate
at first. Motivation levels within the organization were at an all time low as everyone had
been operating only on a limited amount of information thereby resulting in huge
communication gaps which further served to widen the gap between production and demand
(Malmi & Granlund, 2009).
Consequences of this problem could be recognised in the form of a drop in per square foot of
sales even as the company kept expanding. The brands overall image was stained and
customers could no longer trust the brand to fulfil its commitments. Performance and
therefore profit margins of stores dwindled even further thereby increasing the companys
financial losses (Nielsen, 2010).
Conclusion
Looking at the above discussion, it might be concluded that three most significant problems
that Lululemon was faced with consisted of cross border expansion and location control,
cultural shift from its original values and inventory and infrastructure problems. These
problems combined together resulted in severe consequences for the brand including
financial losses, a stained image, higher employee turnover, poor cost recovery and loss of
valuable clients to competitors.
References
Bourdieu, P. (1977). Outline of a Theory of Practice. Cambridge: Cambridge University
Press
Broadbent, J. (2012). Building on foundations: Analysing and developing the work of
Richard Laughlin. Critical Perspectives on Accounting.
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Carter, C., Clegg, S., & Kornberger, M. (2010). Re-framing strategy: power, politics and
accounting. Accounting, Auditing & Accountability Journal, 23(5), 573594.
http://dx.doi.org/10.1108/09513571011054891

Joensson, S., & Lukka, K. (2006). There and Back Again: Doing Interventionist Research in
Management Accounting. In Chapman, C., Hopwood, A., & Shields, M. (Eds.), Handbook of
Management Accounting Research (Vol. 1, pp. 373397)

Ma, Y., & Tayles, M. (2009). On the emergence of strategic management accounting: An
institutional perspective. Accounting and Business Research, 39(5), 473495.
http://dx.doi.org/10.1080/00014788.2009.9663379

Malmi, T., & Granlund, M. (2009). In Search of Management Accounting Theory. European
Accounting Review,18(3), 597620

Nielsen, R. (2010). Practitioner-based Theory Building in Organizational Ethics. Journal of
Business Ethics, 93,401406

Parker, L. D. (2011). Twenty-one years of social and environmental accountability research:
A coming of age. Accounting Forum, 35, 110

Whittle, A., & Mueller, F. (2010). Strategy, enrolment and accounting: the politics of
strategic ideas. Accounting, Auditing & Accountability Journal, 23(5), 626646.
http://dx.doi.org/10.1108/09513571011054918