Is Lululemon’s Chief Product Officer Exit a Big Blow?

Lululemon Athletica Inc. announced a new organizational structure across its product, brand, and merchandise teams following the departure of its acclaimed chief product officer, Sun Choe.

The company does not intend to replace the chief product officer role.

The yoga-themed retailer said in a statement, “The strategic organizational changes are intended to support the company’s near- and long-term growth plans, accelerate product innovation, and further enable its go-to-market strategies.”

Under the new structure, Jonathan Cheung, who only joined Lululemon as global creative director in January, will report to CEO Calvin McDonald and continue to oversee design, innovation, and product development. He previously reported to Choe.

Cheung has more than 30 years of design experience, including a stint as Levi’s SVP of design and design innovation and more recently consulting for brands like Gap, Mattel, Merrell, and Pangaia.

Lululemon also reset its merchandising and brand functions to scale its global and regional go-to-market strategies. Nikki Neuburger, a former Nike veteran who joined Lululemon as chief brand officer in January 2020, becomes chief brand & product activation officer, overseeing merchandising, footwear, and product operations, in addition to her current responsibilities leading brand. Elizabeth Binder, chief merchandising officer, reports to Neuburger.

Choe, who joined Lululemon as SVP of merchandising in December 2016 and has been chief product officer since 2018, is leaving the retailer later this month to pursue another unspecified opportunity.

Lululemon’s sales have grown four-fold over Choe’s tenure, with the chain’s success attributed by many to its string of breakout products. Speaking last year to Yahoo Finance, Adrienne Yih, Barclays’ analyst, said, “They never stop innovating. They never think they have enough. They never think they’re winning enough.”

The departure comes just months after Lululemon warned of a softer consumer in the U.S. and reported slower sales in North America in Q4. McDonald said on an analyst call on March 21, “Within the U.S., we’re navigating what we see as a dynamic retail environment and a consumer that’s a little bit softer. But there are a lot of areas that we are focused on and we know can continue to drive our business, that being product innovation and the unaided awareness, which, in the U.S. is still very, very low.”

Net sales at the company still rose more than 15% in the holiday quarter, with Americas up 9%, but investors have long worried about competition within the athleisure category.

Shares fell 7.2% Wednesday on the news of Choe’s departure and have declined about 40% since the start of the year.

On Thursday, Barclays’ Yih in a note called the resignation an “incrementally negative data point,” cautioning that alterations in current assortments to lure more customers could “take longer to course​-​correct than initially thought.”

Raymond James analyst Rick Patel in a note stated that Choe’s exit added to the “wall of worry” for investors in the near term.

Wedbush’s analyst Tom Nikic said investors are particularly concerned that newcomers such as Alo Yoga and Vuori are causing Lululemon’s U.S. growth to slow. Nikic wrote in a note, “Clearly, the narrative around the company has worsened, and as a result, we no longer think LULU will command the valuation multiples it has achieved in recent years.”

In the press release announcing Choe’s departure, Lululemon’s McDonald said, “We are grateful for Sun’s many contributions to the company over the past seven years, and she leaves us as a stronger, product-led organization with dynamic leaders ready to take us forward. Looking ahead, I am confident in the strength of our Design, Merchandising, and Brand teams, and excited by how the new structure will enable us to solve for the unmet needs of our guests in a more efficient, unique, and powerful way.”