Why Lululemon's Sheer Yoga Pants Problem Turned Into A Full-Fledged Fiasco

The recall quickly turned into a crisis. Customers were outraged, the company's shares plunged, and the retailer got into a public spat with its supplier.

Products are recalled all the time, from peanut butter to cars to apparel.

So why was Lululemon's recall a full-on fiasco?

First, Lululemon's strategy relies on very tight inventories. The stores only stock a few of every item. This creates the illusion of scarcity, and allows the retailer to sell 95 percent of its merchandise at full price, according to CEO Christine Day.

When inventories are tight to begin with, recalling a large percentage of yoga pants results in a shortage. That means that customers could possibly walk in expecting to shell out $98 for yoga pants, and walk out empty handed.

That leads us to the second problem: Lululemon's increasing competition.

The company made a name for itself by providing the best yoga gear on the market. But since then, deep-pocketed competitors like Nike and Gap have gotten in the game, threatening Lululemon's dominance.

If customers can't get yoga pants at Lululemon, they're likely to go somewhere else instead, which gives other retailers a chance to gain market share.

This is also Lululemon's fourth quality-control problem in the past year. Past issues included bleeding dyes and too-bright fabric.

While Lululemon is working to pinpoint the problem, it hasn't fixed it yet, and analysts fear there could be more.

Still, one recall isn't make-or-break for Lululemon. We'll see the real results of the blunder in three months when Lululemon reports earnings.