DEI and Leggings: Lululemon Faces Lawsuit Over DEI Efforts and Poor Leggings Launch

This past Monday, in the Southern District of New York, Lululemon Athletica Inc. was served a shareholder lawsuit that claimed the company’s failure to integrate a diversity program and failure to successfully launch leggings significantly impacted the company’s stock price [1]. 

Lululemon is an athletic apparel retailer that operates around 500 locations globally. In October of 2020, the company announced an “Impact Agenda,” which set various goals, including investing in wellbeing programs by 2025, paying full equity for its employees by 2022, and making 100% of its products with sustainable materials by 2030 [2]. Additionally, Lululemon expanded its “Inclusion, Diversity, Equity, and Action” (“IDEA”) team and pledged funding each year towards diversity and inclusion development [3]. While these initiatives were seemingly progressive, an article published by Business of Fashion in 2023 unveiled the truth regarding IDEA. The article included accounts from 14 Lululemon employees who collectively described the company as “a culture unwelcoming of Black people” [4]. This article caused lots of public backlash towards the company and even led to a decrease in its stock price. 

In addition to these concerns with IDEA, the complaint highlights issues with the company’s inventory allocation methods. As stated in the complaint, “...the Company’s common stock fell an additional $24.74 per share, or approximately 9%, from a closing price of $272.06 per share on July 24, 2024, to a closing price of $247.32 per share on July 25, 2024” [5]. This drop in stock happened after the company announced that the inventory allocation problems would require delaying the launch of their “Breezethrough” leggings. Lululemon had failed to promptly disseminate accurate information about the company's finances and present/future prospects so that the stock price would reflect an accurate amount. This misconduct is what led shareholder James Wong to file this complaint in the first place.

Ultimately, the lawsuit alleges that the defendants made false statements regarding the company's diversity program and inventory allocation problems, both in the media and in its annual reports to the Securities and Exchange Commission. The suit claims the defendants engaged in multiple forms of securities fraud, violated their fiduciary duties, unjustly enriched themselves, and misused corporate assets [6]. The complaint requests that the court award both compensatory and punitive damages against the individual defendants, holding them jointly and severally liable. It also seeks an accounting from the defendants, along with the accrual of interest. Additionally, the complaint calls for an order directing Lululemon to implement measures to prevent similar misconduct from occurring in the future.

Sources:

1. Bernie Pazanowski, Lululemon Sued Over Diversity Program, Launch of Leggings Line Bloomberg Law (2024), https://news.bloomberglaw.com/securities-law/lululemon-sued-over-diversity-program-launch-of-leggings-line (last visited Nov 24, 2024). 
2. Samantha McDonald, Lululemon Wants to Achieve Full Pay Equity for Gender and Race by 2022 Footwear News (2020), https://footwearnews.com/business/retail/lululemon-impact-agenda-pay-equity-diversity-1203070807/ (last visited Nov 24, 2024). 
3. Id.
4. Sheena Butler-Young, At Lululemon, Being Black is “Off-brand” The Business of Fashion (2023), https://www.businessoffashion.com/articles/workplace-talent/lululemon-diversity-and-inclusion-2023/ (last visited Nov 24, 2024). 
5. Wong v. McDonald et al, Docket No. 1:24-cv-08752 (S.D.N.Y. Nov 18, 2024), Court Docket
6. Id.