Lululemon's Stringent Return Policy Is Hurting Its Business

The retailer doesn't accept any returns after two weeks, and even then only takes items with original tags that have never been worn.

Meanwhile, Lululemon's biggest competitor, Athleta, offers full refunds any time and for any reason.

Lululemon's business took a hit last month after the company had to recall 17 percent of its pants for being too sheer. While the company eventually identified the problem in its testing process, the brand's value was damaged.

To gain back customers' trust, Lululemon needs to relax its return policy, writes Sterne Agee analyst Sam Poser.

"Despite the fact that managers have discretion to make exceptions, the strict return policy is a reason for a new customer not to make a purchase," Poser wrote in an emailed note.

Customers have complained about the policy in the past.

Take this Yelp review of a customer who said the return policy meant she wouldn't be going back:

"Lululemon- when you wrong a customer and misinform them, it's your job to make it right. Shame on you. You have lost a customer and many future purchases for failing to simply take back the pant so I can purchase the one I originally wanted but was told, incorrectly by your salesperson, doesn't exist."

Disgruntled customers even created an eBay black market for discarded merchandise.

In the past, Lululemon CEO Christine Day stood by her company's return policy, saying that it helped the brand to sell 95 percent of its product at full price by creating the concept of scarcity.

"We aren't Nordstrom," told The Wall Street Journal. "We aren't your personal shopper."

But given its recent competition and quality control issues, Lululemon is going to have to start doing more to appease customers.