NEW YORK (Reuters) – Lululemon Athletica Inc, best known for their ultra-expensive and barely there yoga workout pants, stepped out of the courtroom drama victorious Friday morning, beating a shareholder lawsuit that accused 11 executives and directors of purposefully using low-quality material on their high-end goods. Shareholders accused the men of failing to disclose the sheerness of the pants, more specifically the black Luon yoga pants variety, which ended in a costly recall in 2013. The lawsuit petitioned the U.S. District Judge Katherine Forrest to give the plaintiffs an estimated $2 billion in damages, but the defense’s ability to convince the judge was as flimsy as the clothing they were complaining about.
The shareholders also accused Lululemon of magnifying their ability to ensure adequate quality control, as well as camouflaging plans to oust its chief executive, Christine Day, who no longer works for the company. Both lawsuits were summarily thrown out by Judge Forrest as well. The judge wrote on Friday that the plaintiffs’ “narrative requires the court to stretch allegations of, at most, corporate mismanagement into actionable federal securities fraud.” The judge then added, “This is not the law.”
Attorneys and representatives for both the plaintiff and Lululemon did respond to requests for comments.
The lawsuit might have gone in favor of Lululemon, but the backlash in loss of sales from the media attention has left them scrambling to keep their place at the top. Competition from rival yoga attire companies such as Sweaty Betty and Lorna Jane have been tugging at their ankles while the growing market for such wear appearing in department stores such as Macy’s and The Gap has expanded into a majority of their stores, bearing a cheaper price tag than Lululemon’s can match. Their biggest threat by far however is expected to come from Athleta, which will open some 35 stores this year, tripling its locations to 100 stores in just two years.
“Lululemon has had clear sailing up until now. They were the gorilla in this category,” spoke senior vice president of Marvin Traub Associates Kelsey Scroggins.
But recently Lululemon stock shares have fallen 35 percent below their 52-week high. Still, they managed to triple their profits of two years earlier, breaking the $1 billion mark and making it the top retailer in the specialty women’s activewear market in the United States, which pulls in $14.5 billion annually. Chief Executive Laurent Potdevin admitted to investors last march that Lululemon is “not the only game in town anymore.”
Not one to lose its competitive edge even amidst a shaming lawsuit, Lululemon’s international expansion is underway, and the chain’s first men’s stores will open by 2016, though investors fear that not focusing on American customers, which make up 2/3 of Lululemon’s profit, will be a costly mistake. YouGov BrandIndex, which calculates buyer perception of items on a scale of minus 100 to plus 100, doesn’t help ease worries as their rating for Lululemon was -8, well below the +15 before the problems began.
Lululemon has since made plans to add another 100 stores to their 170 U.S. locations and the fans of the company show their support.
“If I have to buy new pants, I’m going to buy Lululemon,” said Jennifer Stephens Acree, 44, from Los Angeles who praises the pants’ fit and quality of material over those of rivals.
The cases are in the U.S. District Court, Southern District of New York. They are In re: Lululemon Securities Litigation, No. 13-04596; Canty v. Day et al, No. 13-05629; and Federman v. Day et al, No. 13-05977.