Lululemon: a lulu of a story

The Trademark Blog noted this fascinating NYT story:

Lululemon, which has received positive media coverage for its fabrics, … says the VitaSea clothing, made from seaweed fiber supplied by a company called SeaCell, reduces stress and provides anti-inflammatory, antibacterial, hydrating and detoxifying benefits.

There is one problem with its VitaSea claims, however. Some of them may not be true.

The New York Times commissioned a laboratory test of a Lululemon shirt made of VitaSea, and reviewed a similar test performed at another lab, and both came to the same conclusion: there was no significant difference in mineral levels between the VitaSea fabric and cotton T-shirts.

In other words, the labs found no evidence of seaweed in the Lululemon clothing…..

When told about the findings, Lululemon’s founder said he could not dispute them.

“If you actually put it on and wear it, it is different from cotton,” said Dennis Wilson, Lululemon’s founder, chief product designer and board chairman. “That’s my only test of it,” said Mr. Wilson, known as Chip.

The shirt tested by The Times was labeled as being made of 70 percent cotton, 6 percent spandex and 24 percent of the seaweed fiber.

The Times commissioned its test after an investor who is shorting Lululemon’s stock — betting that its price will fall — provided Chemir’s test results to The Times. ….

The tests raise obvious questions about Lululemon’s marketing. Consumers generally pay more for high-tech sportswear, and companies like Lululemon are trying to capitalize on interest in organic materials.

…. Lululemon executives said that they had not independently tested the VitaSea material to see whether it lived up to the claims on Lululemon’s tags. Instead, it trusted the claims of its suppliers, executives said.

…. Analysts said it is the responsibility of the companies to test all of their products.

“It’s frankly up to the companies to do sporadic product quality tests to make sure everything is being manufactured to the parameters they set,” said Sharon Zackfia, an analyst who covers Lululemon at William Blair & Co., an investment firm based in Chicago. “At the end of the day, it’s Lululemon’s name on the line.”

…. SeaCell is owned by a German company called Smartfiber. Smartfiber provides scientific documents on its Web site about the effects of the SeaCell fibers, but it also says on its site that SeaCell assumes no liability for that information’s accuracy.

…. One customer outside a Lululemon store in Chicago said he would not stop buying VitaSea clothing, even if tests disproved Lululemon’s claims.

“I couldn’t care less, because it is so comfortable,” said David Wilkinson, 49.

So much here! First, perhaps someone should have asked a lawyer, not an analyst: If the paper’s report is correct, then by making material, explicitly false (seaweed content) and admittedly unsubstantiated (health) claims Lululemon is violating the law, and pretty much anyone – the FTC, the state AG, a competitor, or a customer – could come after them for it. In the US, too, Smartfiber’s disclaimer might not help it much. One could argue that it sells its products to sophisticated businesses, not end customers, but clearly the customers aren’t all that sophisticated about seaweed, as opposed to standard clothing components like cut or color – their particular expertise can help them neither with evaluating evidence about seaweed’s health effects nor in testing for the presence of seaweed. I wouldn’t let Smartfiber off the hook if its claims are, in fact, false – but since the relevant laws are strict liability, I have no particular sympathy for Lululemon either.

Second, the use of the media by the short-seller is of interest. I had not thought of short-sellers as consumer protection advocates, but I guess they are when it helps them, just as they question companies’ representations to the stock market. And in fairness to Lululemon, I should point out that most of the clothes listed on its site aren’t VitaSea; there is no indication in the report that its other clothes are not what they say.

Third, the statement from the satisfied customer demonstrates that false advertising can change preferences and that counterspeech does not restore the system. As I discuss in my forthcoming article on dilution, people hate to feel like dupes; once we’ve made a purchase, we often convince ourselves that we had really good reasons to do so, and even corrective information just gets us to elaborate an explanation of why we were still right. I’ve got nothing against the satisfied customer; it’s just that he could still have been satisfied if Lululemon hadn’t made false claims, polluting the information environment and making it harder to trust everyone in the world of new, green-type claims.