The next head of Lululemon Athletica Inc. may have more than sheer pants and quality-control snags to grapple with at the fast-growing yoga-wear retailer.
The factories that make its $98 pants and $60 tank tops are increasingly located in places such as Cambodia and Bangladesh, where working conditions and wages have come into question. Labour troubles at a garment factory in Cambodia this spring put the spotlight on sporting goods powerhouse Nike Inc., but Lululemon is also a key – although lower profile – customer of the plant. Just this week, 16 of the factory's workers and their union representatives were charged with inciting violence and damaging property following clashes with police tied to a strike for higher pay.
As Christine Day prepares to step down as chief executive officer of the Vancouver-based Lululemon, her yet-to-be-chosen successor will be charged with ensuring the tension at factories such as the one in Cambodia doesn't tarnish the company's wholesome image.
The stakes are high: awareness of poor working conditions at overseas shops has been heightened in the aftermath of the recent collapse of garment factories in Bangladesh that left 1,129 dead. Some consumers are saying they will not purchase products made overseas, recent research suggests. And Lululemon's aggressive expansion plans mean it will have to contract out even more work to far-flung factories.
"There were some very tragic events in the past quarter in countries where we make our product, including the building collapse in Bangladesh and recent strikes in Cambodia," Ms. Day said last week. "Labour issues can be complex in some of these countries."
Lululemon contracts out work to 85 factories currently, up from 50 last year, and 30 when it went public in 2007, according to company data. Less than 3 per cent of the factories are located in Canada, compared with 36 per cent in 2006, about 50 per cent a year earlier, and 100 per cent when it started in 1998.
With a mission to "elevate the world from mediocrity to greatness," the chain is held to high standards in a fast-shifting supply-chain landscape.
"Consumers have very high expectations now," said David Ian Gray at Vancouver-based retail specialist DIG360 Consulting. His recent consumer research on the Canadian Loblaw Cos. Ltd.'s Joe Fresh clothing, which was produced in one of the ruined Bangladesh factories, found "a strong minority" – 26 per cent – said they would no longer purchase the line in light of the disaster. "When they see these things happen, the brand goes on watch," Mr. Gray said.
Lululemon felt a touch of consumer wrath in late May when one of its Facebook followers criticized the retailer for "slave wages" at the Sabrina (Cambodia) Garment Manufacturing factory where workers went on strike in the spring. The company replied in a posting: "We share your concern about the situation in Cambodia, and are in close contact with our factory partner," adding the plant offers a higher salary than is required by law.
Ms. Day elaborated: "Our vendor partner, Sabrina, who has been highlighted in the press around this issue, actually raised workers' wages ahead of the government mandate and has better benefits than any other factory in Cambodia." She added that the strike is being led by a group of workers who organized a minority union that "has different views from the current majority union."
Labour strikes are becoming more common in Cambodia, according to the Garment Manufacturers' Association in Cambodia. There were 121 strikes in 2012, an increase of 256 per cent from a year earlier. So far in 2013, there have been 48 strikes amid escalating worker demands.
But it's quality, not labour issues, that have pinched Lululemon's bottom line. In March, the retailer was forced to pull its signature stretchy black pants because it deemed they were too see-through, taking a $17.5-million first-quarter hit. The silver lining of the "crisis" is that the retailer learned from it, Ms. Day said. Her staff is now taking more control over its apparel's technical specifications and "not just relying on our factory partners for some of them," she said. "If there were 10 technical specs, we were probably controlling four."
To help prevent mishaps, the chain recently moved to a more standardized sizing of its clothing after finding that its fits were different at different plants, she said. "Every single factory has all the same patterns now." To help ensure more consistency, Lululemon allows for just a half-inch of leeway – or "tolerance" – in clothing sizes, while in the past it allowed for an inch of divergence.
The retailer bumped up its quality-control testing of raw materials and weights of its fabrics, she said. It more than doubled on-site inspections when merchandise arrives at its Vancouver distribution centre, a spokeswoman said.
As for Bangladesh, Ms. Day said only a small percentage of Lululemon's production is located there in just two factories that are in a separate area of the country from where the building collapse occurred. Those factories are in Chittigong where workers are paid about 30 per cent more in wages and with "specific requirements for building safety that reflect international standards," she said.
Two years ago, Lululemon bolstered the number of people who oversee its factories – it now employs nine people, from just one, said Therese Hayes, vice-president of communications and sustainability. They check out factories such as Sabrina a few times a year. Lululemon's sheer pants glitch served as a wake-up call to the retailer to keep even better tabs on its plants. Ms. Day has declared the problem solved, but her successor may have a few other wrinkles to iron out.