Lululemon, Take Heart: 3 Companies That Bounced Back

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Christine Day, CEO, lululemon athletica, speaks to reporters following a lunch at the Toronto Region Board of Trade in Toronto, Ontario, Friday, February 15, 2013. Photographer: Aaron Harris
Aaron Harris, Getty ImagesChristine Day, CEO, lululemon athletica, speaks to reporters on Feb. 15, 2013.
Lululemon athletica (LULU) was on top of the world.

The retailer of upscale yoga and fitness apparel saw sales soar 37 percent in its latest fiscal year, fueled by an impressive 16 percent spike in comparable store sales. Lulu's bottom line was even hotter, as diluted earnings skyrocketed 46 percent for the fiscal year ending on Feb. 3.

Then came the sheer yoga pants.

An imported shipment of the company's iconic black Luon pants proved to be embarrassingly see-through. The chagrined retailer didn't catch the mistake in time and after complaints started pouring in, it was forced into a recall.

There's always a scapegoat, and after originally pinning the blame on its Taiwanese supplier, Lulu offered up a sacrificial lamb of its own by showing its chief product officer the door.

The yoga retailer had it all, but then it had one controversy too many. But it's not the only company that has suffered from potentially corporate-destructing mistakes.

There's no such thing as 'too big to falter'

It often takes just a simple mistake to unravel a killer brand. Have you seen the saga playing out at J.C. Penney (JCP) these days? CEO Ron Johnson is now ex-CEO Ron Johnson after making the fatal blunder of assuming that it could wean customers off of sales and coupons.

There is no company that is too big to falter the moment that consumers turn. If you don't believe that, pull up the stock chart for tech giant Apple (AAPL) just after its Apple Maps fiasco during the iPhone 5 launch. Ouch!

Let's look at a few other big brands that consumers turned on before winning back the public. That may be doing well now, Lululemon, take heart.

Chipotle Mexican Grill (CMG)
Few burrito rollers have the same kind of fanatical following as Chipotle. The "food with integrity" mantra strikes a chord with young diners, but the model featuring quality eats pieced together quickly on a fast-moving assembly line is what keeps customers from bolting when they see the long lines.

Despite the lunchtime queues that snake their way to the counter, Chipotle has courted controversy before. In 2011 it came under fire for hiring and then firing undocumented workers. In 2012 Chipotle was taken to task for its practice of rounding off bills to the nearest nickel at some of its high-volume eateries to keep the queue at the register moving quickly.

Hiring illegal immigrants at a time when the country's unemployment rate was high? Angering the other side of the argument after unceremoniously letting them go? Deliberately overcharging some customers, even if it was just by a penny or two?

Carnitas-craving customers have forgiven Chipotle.

Netflix (NFLX)
Shares of Netflix have more than tripled since bottoming out last summer, but today's market darling is the same one that almost didn't make it past the Qwikster debacle of 2011.

As well as Netflix is rolling these days -- and it is, with 33.2 million streaming subscribers worldwide -- it certainly didn't seem as if Netflix would ever bounce back after telling its DVD-loving customers that it didn't want them anymore. The Qwikster plan involved keeping Netflix only for its streaming business. Disc-based renters would be sent to an entirely different website to man separate queues.

Irate consumers fired back. Netflix nixed Qwikster a few weeks later, but the damage seemed to be permanent. Netflix suffered a sequential dip in subscribers. But the slide lasted for only a quarter. In time, video-hungry fans learned to accept Netflix's apology.

Starbucks (SBUX)
Barista, there's a crushed beetle in my strawberry Frappuccino!

Starbucks survived a doozy last year. It was caught using cochineal extract -- a crushed Latin American beetle -- for the red dye found in a few of its menu options. There were many chains using the creepy food coloring at the time, but Starbucks moved to eliminate its use by last summer.

The transition is complete. Now no one seems to care that Starbucks was serving dead bugs in some of its menu items. Starbucks stores are posting healthy sales growth.

Questionable hiring and charging practices didn't kill Chipotle. Making its best-paying customers feel unwelcome didn't unplug Netflix. Serving up crushed bugs didn't leave consumers pouring out their Starbucks mugs.

Today's fallen darlings will have a chance to rise again.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Apple, Chipotle Mexican Grill, Lululemon Athletica, Netflix and Starbucks. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, Netflix and Starbucks.


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