Updated: Canada law enforcement agency moves against company, which agrees to pull “therapeutic and performance” claims from clothing tags.
EARLIER this week, I wrote about how a short-seller had inspired The New York Times to conduct lab tests that found no evidence of seaweed content in clothing sold by Lululemon athletica (NASDAQ:LULU).
In the prospectus for its IPO a few months ago, the company claimed that its VitaSea line of clothing contains a special seaweed fiber that “releases amino acids, minerals and vitamins directly into the skin.”
After initially saying nothing about The Times story and seeing its stock falter, the company last night issued a news release that is so full of spin that it could have been issued by a company that makes cigarettes or which denies that the world’s climate is changing.
The news release earned the company such headlines as Lululemon says tests verify fabric’s properties and Lululemon CEO says new seaweed clothing tests should clear company’s name.
However, my reading of the company’s release is that it simply says that the clothing does contain a fiber which is derived from seaweed, but the company is no longer repeating its claims that the clothing “releases amino acids, minerals and vitamins directly into the skin.”
This is an important point because the tests by the labs unconnected to the company found, to quote The Times, that “there was no significant difference in mineral levels between the VitaSea fabric and cotton T-shirts.”
So yes, the fiber that is remotely derived from seaweed may be in the material used to make these expensive clothes, but it doesn’t have any added benefits beyond regular cotton, at least none that the company is willing to repeat in its news release today.
Lululemon management faces a reputation crisis. They had a simple choice. Tell people the truth as they know it, admit where they screwed up, ask for forgiveness, and explain how they will change things going forward.
Or they could try to spin their way out the mess with cleverly worded news releases that try to cloud the truth in ways reminiscent of the foil chaff the military uses to confound radar.
Unfortunately, they’ve chosen the wrong approach, one that is entirely inconsistent with the brand image on which much of the company’s value is based.
Update: Told you so. Several hours after my piece ran, and a full trading day after its earlier attempt to spin the story in its favor by skirting the issues, Canada’ competition authorities moved against Lululemon, which is effectively admitting it can’t back up its VitaSea claims.
The company on Friday night issued a release saying it has agreed to a Competition Bureau of Canada action requiring Lululemon to “remove references to the therapeutic and performance attributes of the VitaSea technology.”
Thank goodness at least one group of regulators took action. Here’s the Bureau’s release explaining the reasons they moved against Lululemon.
So that means Lululemon’s IPO prospectus from July contained false information. That could cause some trouble for the company with the SEC and potentially the plaintiffs bar.
And did company management know about the Competition Bureau action before they issued the first release 24 hours earlier in which they said: “We absolutely stand behind our products, our processes and refute any claims in recent press reports to the contrary.”
This company needs some serious PR help.
Dominic (bio & disclosures) is IR Web Report‘s founder and an online investor relations consultant. He advises leading public companies and investor relations service providers worldwide on using the web for disclosure, engagement and profile building. You can contact him via the contacts page.
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