This time, Lululemon’s “naked pants” by design

The company turns to innovation and a focus on clothes for athletes.

Lululemon Athletica is at a turning point.

It’s been two years since the active-wear company brought in Laurent Potdevin as chief executive officer. His task: cut the waste and expense of designing, making and distributing its garments, and rebuild customer trust after the 2013 recall of $98 yoga pants that became sheer when the wearer bent over.

Now Potdevin is staking the company’s future on innovation, including pants that make women feel naked when they wear them.

The CEO is looking to improve profit margins while beating back growing competition in a niche market where clothing trends may be turning against Lululemon. Potdevin’s goal is to cement the retailer’s reputation as the top-quality athletic-apparel maker, justifying its higher prices, and change its perception to a brand worn by top athletes as well as wealthy women saluting the sun in metropolitan yoga studios.

“Everyone’s got a magic number for what they’re willing to pay for quality,” said Bridget Weishaar, a Chicago-based analyst with Morningstar Inc. “It’s not like your option is Lululemon or Old Navy. You can trade down just a very little bit and still get a really good product.”

The growth of athleisure — workout clothes worn on the street — expanded the market for companies such as Lululemon, Weishaar said. When shoppers go back to wearing denim and blazers, Lululemon could be left with fewer customers willing to fill their closets with expensive workout gear.

Potdevin doesn’t seem worried. Sales at stores open at least a year and online have grown in the past five quarters.

Athleisure may be a fad, but customers’ focus on health and mindfulness won’t change, he said in an interview on Lululemon’s Vancouver, British Columbia, campus, where conference rooms are named for ski ranges and yoga styles. Potdevin said he meditates twice a day.

Lululemon argues that competition from heavy hitters such as Nike and Under Armour, as well as athleisure upstarts Express Inc. and Urban Outfitters Inc., will drive consumers to seek better quality and lead them to Lululemon. But making clothes for serious athletes is challenging, said Camilo Lyon, a New York-based analyst for Canaccord Genuity Inc.

Now the focus is on innovation, Potdevin said. Whitespace, the company’s research-and-development center, has tested apparel in extreme environments in Alaska and has a lab on the Vancouver campus that can replicate different climates. The company invested in a team of 35 people who work as long as five years on new designs and measuring factors such as sweat and laundering.

Whitespace helped conceive the new pants whose buttery soft fabric mimics the feeling of being naked. Customer response has been strong — same-store sales of women’s bottoms grew 27 percent last quarter from the same period a year earlier.

Lululemon employs Noble Biomaterials’s X-Static technology, which uses the natural antimicrobial properties of silver to stop garments from smelling bad after a workout. But the company’s competitors can do that, too, and do it cheaper. An “anti-stink” tank top at Lululemon costs $48, while Athleta’s version of an “unstinkable” tank costs $44 and is often on sale for half that.