Who Should Lululemon’s Next CEO Be?

Activist investor Elliott Management, after acquiring a sizeable stake in Lululemon’s stock, suggested Jane Nielsen, former CFO and COO at Ralph Lauren, as an ideal candidate to replace current CEO Calvin McDonald.

Last week, Lululemon announced that McDonald, its CEO for the past seven years, will step down at the close of the current fiscal year as the yoga-themed retailer faces slower growth, new competition, and rising costs.

According to the Wall Street Journal, Elliott has been working with Nielsen on the Lululemon opportunity for months. Sources told the publication that Elliot, who left Ralph Lauren at the end of March, sees her as a “retail pro that can help revitalize the Lululemon brand.”

While at Ralph Lauren, shares more than doubled, and profit margins significantly improved as the sportswear-maker scaled back discounting. Before joining Ralph Lauren in 2016, Nielsen was the CFO at Coach, where the brand subsequently closed underperforming stores and rationalized inventories to revive sales growth.

Nielsen said in a statement to the WSJ, “Lululemon is one of the most powerful brands in retail, defined by exceptional products, deeply engaged communities and significant global potential. I would welcome the chance to discuss this opportunity with the Lululemon board.”

One fan of the potential hire is Needham analyst Tom Nikic, who said in a note following news of Elliott’s investment, “Given her immense success at RL and Coach, we think she could help reinvigorate LULU if she were to come aboard.”

Asked on the retailer’s third-quarter analyst call last week on what qualities Lululemon was looking for in its next CEO, CFO Meghan Frank said the board is focused on “a leader with experience in growth and transformation.”

Lululemon Mulls New CEO Philosophy

Following news of McDonald’s soon departure, Chip Wilson — Lululemon’s founder and a major shareholder — said the retailer needs an “infusion of new skills to get back to being a product-first company.”

In a Heard on the Street column entitled, “What Does Lululemon Need: Discipline or Inspiration?,” Jinjoo Lee speculated on whether Lululemon would benefit from a disciplinarian, such as Nielsen. She pointed to some considered missteps by Lululemon in recent years, including the acquisition of at-home fitness platform Mirror, its risky extensions into footwear and loungewear, and questionable tie-ups with Mickey Mouse and the NFL.

However, Lee added that turnarounds at Gap and Abercrombie & Fitch have been led by CEOs with strong product and design backgrounds. She noted that Lululemon scored hits beyond women’s leggings with ABC men’s trousers and belt bags. She wrote, “Sometimes it requires a creative type to revive a brand.”

A Bloomberg article stated that Lululemon’s primary challenge will be rebuilding brand heat with upstarts such as Alo Yoga and Vuori taking share, although Lululemon’s current management believes increasing the frequency and breadth of new styles will return its U.S. business to growth.