Lululemon Not As Strong In Social Responsibility As You Might Expect

| About: Lululemon Athletica (LULU)

Summary

Lululemon comes in fairly average for social responsibility.

The company shows leadership in material sourcing, gender leadership, and hard work values.

The company is weak in its diversity in labor, child labor issues, and environmental stewardship.

There are a lot of ways to understand and develop socially responsible investing (SRI). What is "responsible" for each person is vastly different, and what might be "responsible" to one person may be "irresponsible" to others. That is the toughest part of investigating companies for SRI. While pure capitalism to some is the most responsible approach to business, others may see that this could harm other areas such as environmental stewardship or economic development. Others may believe too much capital invested into some socially conscientious programs could hurt profits and investors. Therefore, we will try to present as much information as we could discover to render the best opinion we can.

All in all, you should treat this piece as a complementing opinion piece to our research on the investment side of Lululemon (NASDAQ:LULU). This is the second part of our two-part series on LULU and will cover the company from an SRI-standpoint. As we have already noted, we do not see the company as an outstanding investment from a purely valuation standpoint. Yet, if the company is outstanding in their social responsibility, we may be interested in the company.

The criteria we use to examine is the company's overall social responsible theme, gender equality, employment and diversity, environmental stewardship, leadership values, and community involvement. With all research, some areas have more quantifiable parts, while in other areas, there is not as much. We base our research by taking an aggregate look at leading think tanks, research firms, and important websites that cover these topics. We aggregate these into the various topics above to avoid create a more holistic opinion.

Overview

Overall, our findings were mostly critical of Lululemon. The company does promote a healthy, active lifestyle as well as lives by a very strong capitalist mantra. The company's founder Chip Wilson is a devout Ayn Rand capitalist, and in many ways, he has built a very successful business on the back of principles about self-responsibility, hard work, and capitalistic ideals. Yet, to us, there is more to a company than its ability to grow, promote profits, and work hard. Companies were built as a way to provide jobs and sustainability, and they are a canvas for growth outside of simple monetary implications.

Social responsibility is about creating more than interesting gadgets and strong profits. While important to any investment, we also consider those above criteria as just as important to a company's worthiness. For some investors, that may not matter. For us, it does. Therefore, we need to judge accordingly. In many of these areas, LULU does not inspire us or take a strong leadership role.

One of the leading critiques of the company on many blogs, forums, etc. is that the company's founder has made both sexist and racist comments. For example, Wilson noted he named the company based on the fact that it was funny when Japanese individuals say it because they cannot easily pronounce the letter "l." Yet, to really understand social responsibility, we have to look at the whole not just one person. Companies are a swarm of ideas and individuals, and it is not good research to get stuck on one person's thoughts.

Gender Equality

The company has mixed reviews. The company ranks very low in the 27th percentile on CSR Hub's Diversity & Labor Rights section, which is quite weak. The company, though, has a very diverse officer group, in terms of gender, made up of 50% women. It also was run by Christine Day for many years as the former CEO. Not that one CEO says everything about a company's gender equality, but it does show a company that stands for the best candidate for the job.

The company, though, has made no important lists that we review for gender equality. It is not an indictment on the firm, but it also shows no leadership or effort to put this as a priority. To put it quantitatively, think of each category as a financial metric. The company is simply not at the top of this financial metric, but there is not staunch criticism of the actual company for not paving the way for equality.

The company, though, does get poor reviews for a number of comments that its top leader, Chip Wilson has made about women. Instead of laboring on the topic, you can see this article, which has sparked a lot of negative comments from equality experts. He makes comments that are sexist, but this is the person…not the company. A company is made of many people, but it is worrisome when its leader and values shaper has these beliefs.

In fact, to counter that, Christine Day wrote a very supportive piece about the company allowing for equality, which shows a stark contradiction to some comments made by Wilson.

As an investor interested in social responsibility, this topic is clearly important. I want to invest into companies that push forward equality in a responsible way, so some questions about what some leaders think are there. Overall, though, the company is "average" with very little company-specific practices but also nothing that shows they are a leader in this area.

Environmental Stewardship

Being green is one part of an entire package and is also only one part of being an environmental steward. Socially responsible investors look to invest into companies that support practices to reduce their carbon footprint, invest into green technologies or environmental safety, and source materials in environmentally friendly ways.

Lululemon, according to their website, is pushing a green/sustainable agenda. For example, the company notes:

We understand the importance of reducing our carbon footprint for the long-term wellbeing of our global communities. Each year we measure our climate impact, from the carbon footprint of our manufacturing to our daily operations at our support centres and stores. For the full picture, we even estimate the emissions created by our guests washing and drying their lululemon clothes at home. Results show that the largest part of our footprint occurs before our products even reach our stores (with supplier energy use, and transportation) and is relative to the growth of our business. We also learned that the impact of our guests washing and drying their clothes makes up the second largest part of our overall footprint, and can be reduced significantly with the adoption of sustainable laundry practices.

The section even goes on to recommend checking them out at the Carbon Disclosure Project, which is one of the most respected environmental stewardship watchdogs in the industry. The company, though, gets an "E" rating from CDP. "E" is the lowest rating the organization gives. What was most interesting was LULU's responses to two questions, granted this is the 2012 report. This report, however, is the same one linked on the website and no report since has been made publicly available.

This is interesting. The company states they have no process for assessing or managing any risk, and they also have not integrated anything into their business strategy. Yet, the company has extensive language on their site about how they care and are promoting sustainability and reducing carbon emissions. When questioned on actual strategies, the company can only cite they are working towards it. Again, this report was from 2012, and there are no further reports available.

There is definitely more to being an environmental steward than just carbon emissions, and a lot of judgment is made on this alone. To do the best analysis, there are many other topics to look at such as water, material sourcing, dealing with waste, etc. It is important to note, though, that we research quite a few environmental lists that show leaders in various areas, and they were not on any of these.

The company's 2012 Water Disclosure report also shows the company has no significant plan in place, but they again are looking into it. The company also notes that they only judge water stress based on water scarcity, which is very limiting. Once again, the company states on their website that they have a plan in place. That plan, though, has not been unveiled or reported in any reports that are available to the public. So, we cannot say if they have since the 2012 report developed a comprehensive solution or not, and we will wait for more information.

One place, though, that the company seems to be a leader is in their stance on healthy forests and material sourcing to ensure that they are being a steward to forests. For example, the company is a steward to the Canopy Planet project. This project aims to end forest fiber being included in apparel manufacturing. More details:

The companies along with 14 eco-designers are working to craft forest-friendly purchasing policies that track which forests their rayon and viscose fabrics are from. The group also will work to eliminate controversial forest fiber from their supply chains…Leading companies Patagonia, Prana, Quiksilver and Lululemon have already outlined general sustainable supply chain goals for their materials. The companies also have committed to work with Canopy to raise awareness of the link between fashion and forest conservation. For example, Lululemon has pledged to assess its existing use of forest-sourced fabrics and develop a plan by December 2014 that will promote the use of fabrics from responsibly managed sources such as Forest Stewardship Council certified forests. The company also has pledged to ensure it is sourcing fabrics outside of ancient forests by 2017, work with vendors to change practices and encourage the development of alternate fiber sources such as agricultural residues and recycled fabrics.

It seems, to us, that Lululemon is working to build a better company (in terms of environmental stewardship) and is aware that they need to make better plans. The website is a bit misleading in that it notes that they have plans in place, but the documents that have been submitted suggest otherwise. Those documents do suggest, however, that tests are going on to determine actions. We all would like to see a comprehensive written plan. The company does get high marks for leadership in material sourcing.

As a SRI investor, the company is not a leader here, and the "E" rating from CDP shows that the company has work to do.

Company Values, Leadership, Community

Lululemon definitely knows its vision and identity, and they promote a community-based, active lifestyle that in many ways is beneficial. Getting people more active and more active in their own communities is very positive. LULU has provided space for yoga instruction and promotes healthy, active lifestyles. The company uses that to help drive sales, which is a perfect example of a company both being socially responsible and also promoting healthy economies. In their values and community involvement, we have to give the company a lot of credit. Here is the company's stance on elevating communities.

Leadership promotes a work-hard, self-responsibility mantra that is also beneficial to society, and we believe that companies that push for each individual to succeed are those that promote SRI values. Yet, there are some obvious red flags. The comments that the company's founder has made on more than one occasion definitely show some signs of weakness. Overall, though, this area is the hardest to gage with raw data, and we can only make qualitative statements. Leadership does seem to believe that whomever is the hardest worker and best candidate is who will be promoted and lead the company. You can see that in Day's writing and work, which we highly support.

There are not a lot of companies that are gaging this quantitatively, but the company was not a member of the Civic 50 that is done each year. From CSR Hub, the company got a 51 rating for Community and 59 for Governance, which are average ratings. In comparison to their own industry, though, their Governance was in the 72nd percentile, which is above average. The company rated very low in their Community involvement section of CSR Hub when compared to their industry in the 30-40th percentile for the categories of Community Development, Human Rights, and Product. Unfortunately, reasons for that low score were not given.

Overall, once again, the company seems to be mostly average in this area, and they are not leading their industry or the marketplace.

Employment & Diversity

The company does get quite high marks from CSR Hub when it comes to employment factors. The company's highest rating at the 90th percentile for Benefits and Compensation. Yet, in the same group, they get a 27th percentile for diversity (diversity here refers to ethnicity more often than gender). They come in at 52nd percentile for training. Employment responsibility is divided really into three main groups: how do you care for your employees (compensation/benefits), do you promote diversity in your employment, and are your employees trained well and treated fairly.

The company, though, does have very strong benefits for actual employees of Lululemon including free yoga classes, strong health benefits, and even family members are given free health and wellness packages for classes and other items. The company pays well, has strong benefits, and they promote healthful lifestyles with their own employees from the retail level to the corporate level.

Yet, once again, Wilson has made some very negative remarks about child labor. The founder noted he supports it, and that it is a benefit to "poor Asian families." That is not a responsible comment. The numbers are not positive. The company, as of 2013, had only 3% of manufacturing done in factories in Canada and was outsourcing to 85 factors mostly in Cambodia and Bangladesh, which are known for extremely poor working conditions. The takeaway here is that companies that promote strong factory conditions are known for it, and they promote the ideals SRI investors want to see. Those that don't may not or may be promoting good/poor labor conditions. We will not be able to say from our research. Yet, with a lot of companies, going out of their way to do this…there are more preferable investments.

Conclusion

Overall, our findings showed that LULU is fairly "average" in their approach to the tenets of social responsibility investing. The company seems to be moving in the right direction, which is a positive. The power of SRI is often not to knock companies for their missteps, but rather, to promote what the company does well and push them to improve in other areas. The company seems to be strong in material sourcing, employee benefits, and gender equality in leadership. There is still work to be done in many other areas.

Given our findings in the first and combined with these findings here, we do not see much reason to jump into this company. We are curious, though, to be on the lookout for a more comprehensive laid out strategy has to how the company is implementing their carbon and water plans.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , Textile - Apparel Clothing, Canada
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here