Research & Recommendation Report

Rosa [email protected]

Memorandum

July 5, 2018 To: Jessica Belluomini From: Rosa Subject: Recommendations for Improving Lululemon Athletica’s Code of Ethics After reviewing other companies’ code of ethics, I came to the conclusion that Lululemon should improve its code of ethics in order to better benefit our employees and our vendors’ employees and to improve our image. I wanted to inform you about potential changes we could incorporate into our code of ethics and their potential effects. These changes are listed below: • Effectively define harassment and discrimination in our code of ethics – many successful companies, such as Adidas, provide examples of discrimination and harassment in their code of ethics while we do not. We should provide clear examples of this behavior in order to help better prevent it. • Mandate fair wages for our vendors’ employees – while we mandate that our vendors pay their employees at least at their respective local minimum wages, we should also mandate that these wages be fair. Current competitors, such as Nike, already make this demand in their code of ethics. • Sign the 2018 Accord on Fire and Building Safety in Bangladesh – we currently have some of our products manufactured in Bangladesh, however we have refused to sign a prominent accord designed to protect Bangladeshi laborers’ rights. We should sign this accord and feature it in our code of ethics. Personally, I feel that these changes will help better benefit our internal employees and our vendors’ employees. Furthermore, these changes will improve our image in the eyes of consumers. An improvement of our image is critical since we operate in a very competitive market, and more and more consumers are now placing emphasis on a company’s ethical standards when choosing products. Please let me know if you would like more information about going forward with these steps. I look forward to hearing from you.

1

Rosa

LULULEMON ATHLETICA 1818 Cornwall Avenue, Vancouver B.C. V6J 1C7

RECOMMENDATIONS

FOR IMPROVING LULULEMON ATHLETICA’S

CODE OF ETHICS

2

Table of Contents Executive Summary ..................................................................................................................... 3-4

Research .......................................................................................................................................... 5

Introduction ................................................................................................................................. 5 Market Analysis .......................................................................................................................... 5 Human Resources Proposal ......................................................................................................... 7 Potential Impacts of Changes ...................................................................................................... 8

Works Cited .................................................................................................................................. 10

3

Executive Summary Title: Recommendations for Improving Lululemon Athletica’s Code of Ethics

Purpose of Report

The purpose of this report is to inform upper level Human Resources management of ways to

improve Lululemon Athletica’s Code of Ethics for both the company’s internal employees and

vendors. This report will discuss 1) the state of the athletic apparel market, 2) a proposal for

Lululemon Athletica to improve its code of ethics, 3) the effects of these improvements.

Market Analysis

Lululemon is currently a player in the athletic apparel market. This market has seen significant

growth driven by multiple factors, including growing health consciousness and expanding

middle classes in developing economies. However, even though there are high barriers to entry,

this market is very saturated and competitive. As a result, Lululemon constantly needs to

improve itself to remain competitive.

Human Resources Proposal

In order to remain competitive in the athletic apparel market and in order to benefit Lululemon’s

employees, I recommend that Lululemon update its code of ethics in order to provide better

protection for its internal employees and its vendors’ employees. These updates should focus on

providing better clarity on what constitutes discrimination/harassment and stricter guidelines for

how vendors treat their employees.

4

Impacts of the Human Resources Proposal

These updates to Lululemon’s code of ethics should not only provide a better environment for

the company’s internal employees and its vendors’ employees but will also help drive sales

growth for Lululemon. Consumers, particularly young and female consumers, place significant

emphasis on a company’s ethical standards when choosing products. By improving its ethical

standards through updates to its code of ethics, Lululemon will potentially attract more

consumers and increase sales growth.

5

Research

Introduction

Since its founding in 1998, Lululemon Athletica has grown significantly and achieved

great popularity. However, Lululemon is a player in a very tight market, and as a result,

constantly needs to find ways to improve in order to remain competitive. There are multiple

ways Lululemon can improve, one of which being through improving its code of ethics. I

recommend that Lululemon update its code of ethics in order to better protect both its internal

employees and the employees of its vendors. Improvements of Lululemon’s code of ethics will

benefit workers, improve Lululemon’s image, and potentially increase the company’s sales.

Market Analysis

The athletic apparel market, which includes everything from yoga gear to workout

clothes, has seen significant growth these past few years and will likely continue to see more.

Lululemon, which is already a strong player in this market, will benefit greatly from the growth

and expansion of this market.

One significant reason for why the athletic apparel market is growing is the fact that there

is growing health consciousness. This increase in health consciousness translates to greater

motivation to exercise, which subsequently leads to greater demand for athletic apparel. This

increase in health mindfulness is not just contained to the US and other Western nations. This

trend has also been seen in many developing countries with expanding middle classes as well.

Another reason for why this market is growing is the rise of the concept of “athleisure”.

“Athleisure” is the trend in which consumers wear athletic clothes for everyday tasks instead of

just for athletic tasks. This new trend is partially driven by the fact that athletic clothes are

6

typically very comfortable and light in nature. The third reason for why this market is growing is

the myriad of product innovations within the athletic apparel market. For example, wearable

technology, such as fitness trackers, are becoming more prominent in athletic clothes, and

athletic clothes are steadily becoming more comfortable and form-fitting. These improvements

will drive consumer interest and help sustain the growth of the athletic apparel market. These

factors, among many others, will increase the athletic apparel market size dramatically.

According to a Statista report, the athletic apparel market is even estimated to generate almost

$189 billion in revenue by 2020.

However, there are some risks in the athletic apparel market. Despite the fact that the

barriers to entry are generally higher for the athletic apparel market than for the general apparel

market (Mostly because of the high research and development costs that are needed to produce

adequate athletic wear), the athletic apparel market is still very saturated. A myriad of both

established and start-up clothing brands want to take advantage of the “athleisure” market, which

is a component of the athletic apparel market. These brands include Tory Burch, H&M, GAP,

Victoria’s Secret, and many more. Even gyms and work-out companies, such as SoulCycle, are

forming their own clothing lines. This intense saturation within the athletic apparel market has

put strain on the players within it. However, some of the players within the market seem to have

effective plans to maintain strong positions. For example, Lululemon is responding to the

competition by further expanding its line for men and by opening more stores in Asia and

Europe. However, there are other ways Lululemon could respond to the competition, such as

through their Human Resources functions.

7

Human Resources Proposal

Lululemon can improve in many aspects in order to perform well in the athletic apparel

market. One way that the company can improve is through their Human Resources functions. I

recommend that Lululemon update its code of ethics in order to create a healthier environment

within the company and to ensure better care for their vendors’ employees. If Lululemon were to

revise its code of ethics, it would help increase its appeal to consumers, which can lead to

increased sales, and help prevent the company from suffering from incidents that could reduce

investors’ confidence in the company.

Lululemon should update its code of ethics in order to create a more comfortable

environment for its internal employees, whether they be full-time or part-time. One way

Lululemon could improve its code of ethics is by including examples of discrimination and

harassment in it. As of now, Lululemon doesn’t have any examples of discrimination and

harassment within its code of ethics. However, some of its competitors, such as Adidas, do

feature examples in their code of ethics. If Lululemon were to provide more examples of

discrimination/harassment within its code of ethics, it would provide more clarity on what

defines appropriate behavior to its employees. By doing so, Lululemon would create a safer

environment for its employees and help prevent embarrassing scandals that could diminish

investors’ confidence in the company.

Lululemon should also revise its code of ethics in order to strengthen its requirements on

how vendors treat their employees. For example, Lululemon mandates that its vendors pay their

workers at least at the local minimum wage. However, Nike mandates that all of their vendors

pay their workers at least the local minimum wage and make an effort towards realizing a just

wage for their workers. As a result, I would recommend that Lululemon make the same demand

8

toward its vendors, even if it means that more costs will be transferred to Lululemon. Another

example of how Lululemon can improve its code of ethics is in regard to its stance toward

improving the rights of laborers around the world. Lululemon, which has some products

manufactured in Bangladesh, has refused to sign the 2018 Accord on Fire and Building Safety in

Bangladesh, an accord designed to ensure factory safety in Bangladesh, despite the fact that

dozens of other prominent competitors, including Adidas, H&M, Zara, Calvin Klein, & Puma,

have signed it. I recommend that Lululemon sign this accord and emphasize the importance of it

in its code of ethics.

Potential Impacts of Changes

Although these changes to the code of ethics may appear to be trivial, they can have a huge

impact in enhancing Lululemon’s image and popularity and therefore help the company maintain

a strong position within a saturated market. These changes are critical as consumers, especially

young consumers, can place great importance on a company's ethics when deciding to purchase

products from the company. In 2016, Morgan Stanley Research conducted a study of 1000

consumers in the United Kingdom in order to gain insight on their shopping habits with

prominent clothing retailers. According to the study, 51% of the respondents claimed that a

company’s ethics is a somewhat or very important factor when they choose between different

clothing retailers. The study also revealed that female customers typically care more about ethics

than male consumers and that young consumers place more consideration on ethics than older

consumers. These findings are extremely relevant to Lululemon, who caters heavily to young

female consumers. These findings suggest that if Lululemon were to adopt the recommended

changes to its code of ethics, there may be an increase in sales, leading to the company having a

stronger position in the apparel market. Furthermore, these changes can help prevent Lululemon

9

from suffering from embarrassing harassment/discriminations scandals that can lead to investors

having less confidence. Most importantly, these changes will lead to better protection for all of

Lululemon’s employees and create a safer environment for them.

10

Works Cited

“Adidas Code of Conduct.” Adidas, Adidas, 2018.

“Do Consumers Care About Ethical Retailing?” Morgan Stanley, Morgan Stanley, 29 July 2016

“Frequently Asked Questions.” Nike, Nike, 2018.

“Global Code of Business Conduct and Ethics.” Lululemon, Lululemon, 2018.

Keehn, Jon. “Athletic Wear Is Leading the Pack in the Apparel Industry.” Capital Group, Capital

Group.

Tabuchi, Hiroko. “Products and Competition Stretch Market for 'Athleisure' Clothing.” The New

York Times, The New York Times, 21 Dec. 2017.

“Total Revenue of The Global Sports Apparel Market from 2012 to 2024 (in Billion U.S.

Dollars) *.” Statista, Statista, 2018.

“Vendor Code of Ethics.” Lululemon, Lululemon, 2018.

Wright, Beth. “Who Has Signed the New Bangladesh '2018 Accord' – Update.” Just - Style, 2

Aug. 2018.