I define retirement as being able to get up in the morning and do whatever I want, which often includes work. In this sense, my work, at least for the foreseeable future, will be in real estate. I’ve been enjoying applying the same things I did with clothing – taking functional buildings or run-down areas of Vancouver and Seattle and making them beautiful. I want to make areas into communities that a new generation of thirty-two-year-old single professionals (not just Super Girls but the young men who want to be near them) want to live and work.
My present life allows me not just to be creative, but also to devote a lot of time to my family. I do parking patrol at the school that my three youngest sons attend. I do all the presentations and talks the school asks me to do – usually on business or entrepreneurship or Dragon’s Den-style projects.
The most fun I have is coaching my twelve-year-old twins’ flag football league.
As I have muscular dystrophy (FSHD), I have invested in and am a director of a company called Facio Therapies that is researching and developing treatments for this disorder.
I am in my third “life learning session” during which I will read or listen to one hundred new business, development or experimental fiction novels in 2018/9. I am out to recreate who I am.
I am committed to doubling the value of lululemon and working cooperatively with a diversified board of directors.
My family has more wealth than is possible to fathom. We want to leave the world with a lasting legacy. Our two priorities are:
1. To eliminate poverty in Ethiopia by 2030 though leadership development.
2. To leave a remarkable, active, artistic outdoor space to the tourists and the people of British Columbia to enjoy with their families.
To be blunt, no. A Pulitzer Prize-winning book called Guns, Germs and Steel discusses how modern civilization came to be. As I remember it, the premise is that man started somewhere in Africa and moved north with grains that could be easily grown using beasts of burden. Civilization exploded east through Asia and west to France. Then after a long period, Europeans conquered central and South America with germs (smallpox, etc.) and a few steel guns. The upper East Coast of North America was populated, but because of a lack of hearty grains and no beasts of burden, man’s movement west was very slow. Vancouver, on the North West Coast, may be the youngest major city in the world.
Vancouver was a lumber, mineral, and fishing mecca and these industries dominated an industrialized waterfront. When the world fair came to Vancouver in 1986, Vancouver had a massive, underdeveloped waterfront. City planning, as a concept, had just emerged, and Vancouver was a blank canvas surrounded by snow-capped mountains and an ocean with hundreds of islands. The government developed the waterfront into biking and running paths to meet the demands of a population that commuted differently due to a temperate climate that rarely dips below zero.
Vancouver became Canada’s hippy city, emulating all that had happened in San Francisco in the 1970s. This included everything that came with the drug culture and the surf, skateboard lifestyle. Vancouver created its version of the self-development culture. They discarded retroactive medicine in lieu of a proactive approach. They wanted to find out why people got sick in the first place.
Every civilization creates its own functional form of apparel to match climate and culture. The unspoken psychology of Vancouver is one of work to play. A Vancouverite is always ready to take off work when the snow is deep, or the wind is blowing.
Living here, we’re always able to access Vancouver’s wondrous environment, so dressing in a suit and tie seemed arduous, archaic, and took too long. The business culture of Vancouver is overwhelmingly made up of small entrepreneurial ventures with few major head offices. The only people in suits were those that worked for East Coast conglomerates. West Coast business owners prioritized identifying with their sport when choosing how to dress.
In 1970, Whistler Mountain, the world’s number one ski resort, opened ninety-minutes north of Vancouver and its summer glacier became the world centre for snowboarding. Squamish, thirty minutes north of Vancouver was tagged as the outdoor capital of Canada. Westbeach, lululemon, Mountain Equipment Co-Op and Arc’teryx, whose clothing transitions from sport to the street, began a technical sports apparel boom.
There's a joke that in any bar in Vancouver, Canada, you can sit down next to someone who claims to have founded Greenpeace. In 1986, Vancouver hosted the World’s Fair and the world came to see “Hollywood North,” a tech hub, Canada’s gateway to Asia, an international mecca, and the world’s most livable city.
In 1990, the North Shore of Vancouver was marked as the genesis of mountain biking. The history and legacy of trail building on the North Shore are remarkable. Arguably “The Shore” has inspired and evolved more aspects of mountain biking than any other area in the world.
Like Vancouver, the standard dress of Silicon Valley companies was t-shirts and hoodies. Tech companies emulate garage start-ups and the entrepreneurs who aligned with the core values in surf, skate, and snowboarding.
1998, lululemon was able to emerge as a personal development company largely due to the fact that it is the intersection of everything West Coast. It epitomizes Vancouver. Lululemon’s branding is based on a “social experiment” to fight social health injustices. Lululemon’s stance against the food marketing machines endears it to its Guests. We produced technical athletic apparel while pursuing the idea of “What makes a person great?” as the way to superior profits.
Vancouver has continued its own self-development. In 2000, Vancouver set a goal to become the greenest city in the world. In 2010, the City hosted the winter Olympics and since 2011 has been the home of the TED Conference.
I have been so concerned with integrity because I am so inconsistent with it. I am like a born-again smoker; I must keep talking about it to keep myself in integrity. I learned to define integrity as “as doing what we say we will do when we say we will do it.” and we adopted this definition at lululemon.
What I observed in most companies is that each individual believes they have integrity, but each person also has a different definition of it. Therefore, there is no integrity. With one definition of integrity for lululemon, we all knew what we meant.
A runner’s high, which occurs after thirty-five-minutes of aerobic activity, creates a naturally occurring dopamine drug. The reason drugs are fun is that they dim our past from our thoughts. Future thought is only possible from past experiences, and if we have no past, then we have no future. The only thing left is the present. In the present, we are free to create our lives unconstrained by the past. We have a blank slate, as though we woke up in the hospital from a car crash with amnesia.
Living in the moment allowed lululemon to constantly recreate itself because it never got stuck continuing a process or design just because it worked. As we could recreate designs, business processes, and ourselves daily, we lived our future, now.
A decade ago, Oprah hosted Eckhart Tolle to talk about his book The Power of Now. I laughed while reading The Power of Now because Eckhart is from Vancouver and I think he attended the Landmark Forum then wrote a book about it. So, millions of people have read The Power of Now and, therefore, understand the context of the Landmark Forum. That context being “giving without expectation” and “choosing the present from a created future.” The ideas are not necessarily Eckhart’s or Landmark’s, but rather, an amalgamation of hundreds of books, philosophies, and scientific research. The full effects of the Landmark course were felt taking the course with one hundred people. Participating and understanding other people is to understand that every challenge we have as a human being is universal. No single person is special.
The library was the recommended reading at lululemon, plus a couple of more recent additions that I felt were important to include. The list is divided into three ‘libraries,’ reflecting the intended order of reading:
Good to Great, by Jim Collins
The 7 Habits of Highly Effective People, by Stephen Covey
Psychology of Achievement, by Brain Tracy
The Goal, by Eliyahu M. Goldratt
The Tipping Point, by Malcolm Gladwell
Why We Buy, by Paco Underhill
Execution, by Larry Bossidy and Ram Charan
Atlas Shrugged, by Ayn Rand
The Diamond Cutter, by Geshe Michael Roach
10% Happier, by Dan Harris
Black Box Thinking, by Matthew Syed
Built to Last, by Jim Collins
How I Built This, by Guy Raz (podcast)
As lululemon’s unique culture took shape, a set of linguistic abstractions became a key part of how we communicated. These linguistic abstractions drew their inspiration from my father, my own life experiences, the Landmark Forum, and the lululemon library books. Using them allowed every member of the company, at every level, to understand each other with complete clarity, which was vital to our success. Like the Guttenberg press, the telephone, or email, our common words and phrases allowed for fast, global communication with minimal misunderstanding.
Note: Landmark Worldwide LLC has granted permission to include Landmark’s copyrighted material, some of which exists in its copyrighted form and some of which has been altered for my purpose.
Act. A way of being that was shaped in early childhood. There is a moment perceived as “a period of survival” during which a child’s parents are unavailable to “rescue” them. The child survives through a particular way of being (funny, dominant, blaming, competitive, quiet, etc.), and failing being able to choose differently in the future, they continue to default to that way of acting as an adult .
Being Authentic about Being Inauthentic: Being open and undefended about who I am and how I protect myself, so you can coach me in moments where I revert to my Act.
Being Cause in the Matter. Choosing to take action on the court rather than complaining in the stands.
Being Present. The most powerful way of being. Fully choosing to eliminate the past as though one had amnesia. If there is no past, then there is no future, and all one has is the present. The present is where we are free from social, parental, or self-imposed conditions, and where we can choose to create our present from the future.
By-When Date. The date on which a project or task is promised to be completed.
Choice. A decision made, free from complication from past experiences, and from social, parental, or self-imposed restrictions.
Clearing the Past. When someone’s mind is fully focused on something else, it inhibits the person from listening. The “something else” must be discussed (cleared) for effective communication to occur. There is no point in talking to someone who is incapable of listening. The power in communication always lies with the listener.
Committed Listening. Listening without obligation to act while paying attention to both verbal and non-verbal communication.
Committed Speaking. Communication that includes by-when dates and conditions of satisfaction.
Complaint. A way of speaking in which the speaker has an underlying, unidentified commitment to their position. If their commitment can be identified, the person can take action to move through their complaint.
Condition of Satisfaction. An action or criteria against which completion can be measured.
Creating the Present from the Future. Creating possibility in a way that is informed of our past, not constrained by it.
Giving without Expectation of Return. We believe that the highest form of being is giving to others with no strings attached. Our lives will be great because, through the law of attraction, we will attract like-minded people into our lives.
Hedgehog. An intersection of three circles is where a company finds success. Our three circles are (1) our passion, (2) what we are best in the world at, and (3) our economic engine. (from Good to Great by Jim Collins).
Law of Attraction. We attract people into our lives who are the same type of person that we are: like attracts like. We only have to look to our friends to see who we are, and how we show-up for others.
Looking Good. A protective way of being that is inconsistent with how we declare ourselves to be.
Mission. The functional application of our vision.
Rackets. A recurring way of speaking in which the speaker is unwilling to take responsibility for the situation and unwilling to take action to resolve the situation.
Talking into the Listening. Within a conversation, each person’s position is based primarily on how they were raised and their life’s experiences. For a conversation to be effective, the person speaking must consider the filter through which the listener hears.
Tipping Point. The moment in which a tribe’s brand conviction is so strong, that it emanates out to the entire population and inspires in it a desire to belong.
Tribe. A group of people who, when exposed to a brand, take it on as their own. By nature, tribe members communicate, blog, and live life on a level playing field. There is a shared excitement and deep understanding of the other person. A tribe is small at the start and is not mainstream.
Values. The framework employees use for decision making.
Vision. A declaration of who we are and what we bring to the world.
Winning Formula. A declaration of who we are that was created in a moment when we decided who we could never be (i.e. I will never be the President, but I am a fantastic VP).
Time is Precious. Our every action or communication respects another person’s imminent death.
Manifesto. A collection of thoughts that comprise the soul of the brand.
The theory was that making the absolute best-quality product in the world would attract high-quality employees who would only work for a company that produces quality. The superior quality and service would attract a quality customer who valued their time, was too smart to be sold to, and could not afford to waste time returning deficient products.
The combination of these produces best-in-the-world profits, which then attracts best-in-class private equity firms, directors, investment bankers and finally investors.
In 2004, our general manager, Darrell Kopke, brought in a group of consultants to bring us in line with corporate social responsibility (CSR) standards. After I listened to their pitch, I rejected their proposal, as some of their needs made no sense or were too simplistic and not up to date with how we were running our business. I believed the lululemon people development program outshone CSR foundations.
My belief was to train people in integrity and responsibility, which would enable them to make the best decisions based on lululemon’s vision, mission, and values. I believed too many rules from external consultants would handcuff a smart person from doing the right thing. I also knew we would make mistakes which is part of any business.
For me, the basic tenet of corporate social responsibility dictates that you cannot make quality products without developing employees and factory workers to be great. We always considered their scheduled hours, their family life, their wage, even lighting in the workplace – every component deserves respect. We also considered that what factory workers want is far different than what North American media or socialists think the workers want. The only way to have incredible factory quality is to treat the workers well – from their point of view. This is what sets great companies apart from mediocre ones.
Ocean was the name we gave our thirty-two-year-old highly-educated, professional, condo-owning, travelled, marketing savvy, athletic, fashionable muse. Duke is the name Shannon and I gave our son in 2003 as we were looking for the iconic male to define the lululemon masculine muse. This is what I wrote:
Duke does not have to talk about himself. He has confidence in himself as a good person, and he is smart enough to know others will do the talking for him – good or bad. Duke does not want to win with performance-enhancing drugs because he competes against his own set of morals and goals. Overwhelmingly, he wants to have a nice family, a great business, and decent friends. He doesn't want to die early or walk poorly because of sports injuries in old age. He is a decent person that wins by helping others with no expectation of return. Those he has helped speak highly of him, and they would be willing to drop anything to be part of his team. People will give him business because he has integrity and is humble. He does not dance in the end zones.
Duke’s sport is old English Rugby played with a Canadian or Swedish hockey mentality. He is an “aw shucks” type of guy, much like Steve Nash (NBA) or Markus Naslund (NHL). He is not the biggest nor the fastest, but he is the smartest. He leads his teammates by example and never talks about himself.
Think of the English notion of fair play. Think of rugby players, old-school hockey players, and competitive swimmers. Lululemon must show Duke doing these sports as it differentiates us from Nike and Under Armour.
We must think about what it is to be a Vancouver male. We know hockey. We know rugby better than the rest of North America. The psychology of swimmers has not yet been exposed.
I believe we can connect with events like the Tough Mudder to help define the lululemon male because of its cooperation, athleticism, and teamwork.
Lululemon requires a leader who can manage the innovation pipeline starting with the psychology of the current Duke, and apply it to the brand, to the product and finally educating our Guests via our employees or online.
The way apparel is sized is another make-or-break quality issue for many companies.
Let’s start with the example of Nike shoes. I wear a size 14 shoe. Nike makes an extra set of lace eyelets for a size 14 shoe compared to the number they would for a size 8. But, the same lace length is used in the size 8 and size 14 shoe alike, and it’s not long enough to go through the eyelets and tie up in a size 14. For many years, whenever I bought Nike shoes, I had to go somewhere else to buy longer laces – things like this happen in clothing design and manufacture.
When most apparel companies are making clothing, particularly their first sample of a garment, they’ll make it out of their bestselling size. For men, that might be a 34-inch waist, and for women, that’s often a size 6. Once they’ve got the garment to fit perfectly on the model at the bestselling size, the graders grade the size 6 down to size 0 and up to size 12. My method is to build samples for size 0 and 12 and grade inwards to the best-selling size.
Designers must fit samples on athletes and have athletes do multiple movements to determine if the function and fit works.
My theory is that subtle logoing has real value in that it connects the quality of the garment to the quality of the person. The logo should be discreet enough to be able to walk into a restaurant unnoticed but not so subtle as to not be seen. I wanted the garment to be so beautiful that other people would want to look hard to determine the brand was lululemon. Because I believed no one should look in the mirror and see a logo, I placed the lululemon logo along the belt band at the back of the garment.
Lululemons first big selling pant (called the “groove pant”) had a low-slung fabric belt sewn into the pant. The fabric strip mimicked a low-slung, hippie belt girls would wear in the seventies. The belt was sexy because, as a woman moved, the belt would accentuate the movement of her hips. Because the weave of the fabric smoothed out a woman’s imperfections and because the diamond crotch gusset eliminated camel toe, the pants became acceptable to wear outside the studio.
I made the logo reflective because I connected reflectivity to athletics and function.
The Scuba Hoody was the first time I blew up the stylized “A” from inside the circle of the logo and used it as a design feature on the front of tops. I took this idea into tech tops and tanks. The placement of the logo was discreet because we sewed it into the garment and only the seam line showed. The unknown effect at the time was that it enhanced a woman’s natural body. I liked this because it was exactly what European fashion had done for women for decades.
Women’s long hair covered the logo at the nape of the neck, so we placed the logo on the lower left hip. The logo placement was thought of in response to how stores were built. The logo, hang tag and any specific pocketing or apparel feature was always put on the left side, so the customer knew exactly where to look. When the customer looked for the price and size, they subconsciously saw special features and the logo. Too often, I see special apparel features put on the opposite side of the hang tag, and the customer does not equate the value of the garment to the price.
For men, the logo on the top could be in the middle of the back near the neck because men do not, for the most part, have long hair. Although it was a subtle differentiator from the competition, I wanted some logoing on the front of tops. In the surf industry, surf shorts always had three rows of stitching because crouching when surfing puts tremendous pressure on butt seams. I equated three-row stitching with quality, so, in snowboarding, I started using three bar tacks to reinforce all corners of pocketing. I then took this into lululemon pants. I loved the quality look of the three bar tacks so much that I decided to use it as the front logoing on men’s shirts. The bar tacks on the left side also help me quickly determine which side of the shirt is the front and which is the back.
One of my favourite inventions is the rip out label inside the back neck of shirts where most companies put their logo. If there is one thing that drives me crazy, it’s a stiff label with a sharp corner digging into my neck. Fashion people may put up with this, but not athletes. Athletes shouldn’t have to think about their clothing. It should just perform.
Getting the iconic lululemon pant fabric just right was a challenge. I had developed a thicker version of the fabric at Westbeach as the first layer of girls snowboarding pants. The primary downfall of Lycra was the expense of the fibre.
Expensive Lycra-infused fabric was cut into skinny patterns by dance companies to save money. When stretched far enough, the fabric would appear shiny, transparent, and cheap. I saw solving this problem as a challenge.
So, I used four times the standard amount of Lycra and cut patterns wider. I peached the fabric so microscopic hairs would stick up providing a cottony feel and eliminating the plastic feel of synthetic fabrics. With synthetic fabric, I could build in anti-stink and moisture wicking properties. I also wanted to eliminate rashing, which is arguably the top issue with athletic garments.
I cannot, for the life of me, recall where I learned about flat seaming, but this process eliminated threads and seams that would rub on skin. Seams, I decided, had no place between the legs, under the arms or anywhere there was excessive movement. The stitch would be visible, even colourful, and used to enhance body shape – yet another innovation.
Gore-Tex by then had solidified its name in outerwear, and, even though there were dozens of comparable fabrics in the marketplace, the name Gore-Tex was synonymous with technical outwear and it inspired me to name my fabric.
I branded it Luon (lululemon-nylon). It wasn't long before competitors asked the mills for Luon, which was a great compliment. Once they asked the fabric price, they realized, as wholesalers they couldn’t come close to matching lululemon sell-price. This was our first moat to competition. Competitors didn't know that I cut and preshrunk the fabric in hot water and then a hot dryer. An athlete could buy our clothing, sweat in it, wash it in hot water, dry it on a hot setting, and the garment would remain the same. It was a process that was very difficult to replicate.
In old-school financial statements, brand is categorized under what is spent on traditional media, or in today’s e-commerce world, acquisition of a single customer. These costs are easy for finance people to wrap their minds around and slot in the right place. Management and directors want to see the relationship between brand spend and sales. In most brand companies, the rule of thumb is 10 percent of sales are allocated to brand spend to maintain and grow a brand. At lululemon, the amount was 2 percent because our brand costs were embedded in other departments.
Because brand costs were hidden in random areas of the company it was easy for financial experts to eliminate that which differentiated lululemon the most.
For me, essential hidden brand costs were:
∙ 30 percent of retail leasing costs to locate stores in the right place to drive brand awareness for e-commerce.
∙ Design meetings to authentically connect the sales support centre (head office) with the customer. These meetings require 20 percent more designers, so increase labour costs and travel.
∙ Hiring and paying highly-educated salespeople to be Educators.
∙ Developing reusable shopping bags that promoted lululemon’s social stance on health and longevity.
Inserting quality into garments so they would last five years.
∙ Choosing to hire and train inexperienced executives who were athletes over experienced executives who were non-athletic.
∙ Hiring executives six months before they are required full-time and having them work part-time in the store. Brand value is created as the company evaluates the hire to ensure a cultural fit.
∙ Store designed for speed of shopping, not for fashion outfitting. This values Guests’ time and subconsciously attaches a value to the brand.
∙ Transformation development and ongoing goal-setting training of employees.
We measured every community, branding, and marketing initiative against two things:
1. We spent money on marketing and branding only if people would go to coffee and talk about what we did.
2. We believed the best return on investment was to give a pair of pants to an athlete and then budget time and money to follow up with the athlete to obtain feedback to give that feedback directly to design. A high-end athlete who is part of the solution is very inexpensive and 100 percent authentic. If it cost us $200 to reach one person who influenced two hundred others, then the return was unbeatable.
The six-step quarterly meltdown meeting (described in an FAQ below) ensured the right product was being delivered at the right time. The key is to order only 80 percent of what the demand for a product is, and then use a quick-turn production team to chase best sellers and turn old product into new product.
We never put rolling racks in the store to subconsciously indicate that the items hanging on them were discounted, except for a period between December 26th and January 10th. I believe all shoppers forgive brands for discounting during this period.
Lululemon’s operating procedures revolved around buying just enough quantity to have zero goods on sale. Our buying methods were 98 percent effective, but we did have excess goods when we bought too much of a size, colour, or style. I wanted the website to say, “we bought too much,” instead of, “sale,” or “discount.” “Sale” and “discount” were two words banned at lululemon.
Introduction: The E-Myth
In 1996, I read a simple concept book called, The E-Myth by Michael E. Gerber. The learnings from this book were critical to lululemon’s success. The E-Myth explains to the uninitiated that although it appears entrepreneurs are in control of their lives, nothing could be further from the truth. Most entrepreneurs are growing personally and business-wise at an exponential rate. There is no time for vacation, reflection, or reinvention of their concept.
The E-Myth theory is that a business should be set up as a franchise with all processes documented so an entrepreneur can get hit by a bus or go on holiday and the company would continue to operate without a hitch.
I never thought about franchising, but I was very keen on having a company run as though I could have the time to think about the future. I documented every company operation, from people development to finance, design buying, logistics, store size, and location. I documented how the store was to be set up, from the ratio of cash registers to change rooms, to the quantity of inventory. The final book of lululemon’s operating principles was a testament to twenty years of mistakes and unproven ideas.
As a result, when we chose to grow fast, we flew with few stumbling blocks. The operating principles guided new employees, short term employees filling in for maternity leaves, and people being promoted into new positions.
We were okay with people making mistakes, but one objective of the operating principles was to ensure we wouldn’t make them twice.
The following are a sample of the operating principles (I have over three hundred) that were critical in guiding our rocket ship trajectory. My next book will outline the entire set.
Operating Principles Samples
OP: Every piece of lululemon clothing must be able to be put through a hot water wash and a hot dryer and continue to look new for five years.
WHY? Athletes are busy, and they may want to wear the same clothing the next day. A hot wash and dry is quick and kills all bacteria. As part of our quality guarantee, we promise clothing will not shrink more than 2 percent after being washed hot water and dried in a hot dryer.
HISTORY: Before lululemon, people would buy garments one to two sizes too big, so after a wash, the garments would fit. We decided to make clothing that would continue to look exactly the way it did on the day it was purchased five years later.
OP: Our store pant and short boxes must carry approximately 60 percent black or black-equivalent pieces at all times.
WHY? Our Guests purchase solid black about 80 percent of the time, but we only show 60 percent black in the store boxes, so the Guests see 40 percent of the stock in an item in multiple colours. Most Guests want the perceived freedom to choose a colour, and then buy black. We show enough colour for the customer to have a choice and to make the store vibrant. To keep the black level at 60 percent, the pant wall person needs to be responsible for scanning the pant wall ten times per day and keeping inventory levels perfect.
HISTORY: We found that if we didn’t stock 60 percent black, and we didn’t restock throughout the day, we lost sales because we would run out of stock by two o’clock in the afternoon. The entire concept of the boxes is to know exactly what inventory is on the floor in relation to the back room. We may sell 90 percent black, but the Guest wants choice before choosing black. We merchandise to the psyche of the Guests.
OP: All invoices are paid in seven days.
WHY? With retail stores, the worst thing that can happen to us is not to get delivery of product on time. The first company to pay the factories gets the first delivery, the best seamstresses and tailors, and access to the best technology, all of which is critical to quality-control and innovation.
HISTORY: With Westbeach, I never had enough money to pay on time. As a result, I often got delivery last, the least experienced seamstresses and tailors and was the last to be offered innovation.
OP: Every dollar a garment is discounted takes $10 off the company’s value.
WHY? Guests subconsciously attach more value to full-priced garments and correlate full price to a strong brand.
HISTORY: Customers are trained by merchandisers (who are incentivized by short-term bonuses) to wait for sales and these customers psychologically discount the value of the brand.
OP: We value our customers’ time as though they are making $100/hour.
WHY? We assume our Guests make $100 an hour, and if they are delayed fifteen minutes due to lineups and other delays, they subconsciously add $25 to the purchase price.
HISTORY: Gut feeling
OP: SPRINGERIZE! Take all unsold winter pants and make them into crops and shorts and resell them in the spring. Take all dark-coloured long sleeve shirts, hem them into short-sleeve shirts and screen on a bright graphic.
WHY? To create a business model with zero discounting.
HISTORY: This is just good business.
OP: When naming a new fabric or functional design, budget the required dollars to trademark the name and logo worldwide.
WHY? To create a competitive moat by owning the name, design, or technology.
HISTORY: I noticed that even though there were thirty great fabrics in the world, Gortex owned the outerwear fabric business by trademarking the name of their fabric.
OP: Retail stores must stock enough inventory for a Guest who is driving thirty minutes to the store to have an 80 percent chance of getting what they want (a version of this also applies to e-commerce).
WHY? Subconsciously, a customer will shop more often where they can maximize their time. If a customer cannot find what they want quickly, they are likely to leave and even less likely to return. As this guest experience is repeated, fewer customers will return and the number of visitors declines. A store that is busy is a store more people enter, much in the same way people are attracted to a busy restaurant. Critical mass of inventory will bring more people to the store and consequently, attract new customers that may have otherwise walked by. It is key to be prepared with full inventory so that the store stays busy and customers return.
HISTORY: Gut feeling
OP: Essential Oils. Essential oils are always to be burning, and fresh flowers must be delivered to the store weekly.
WHY? The Guests subconsciously want to stay in a place that appeals to their senses. A pleasant aroma makes everyone happier.
HISTORY: This story is in the book. One day, my yellow lab, Bagels tripped and spilled essential oils over a part of the rug in the store. This turned out to be a stroke of good fortune: the amazing smell lasted for eighteen months, and customers loved the aroma.
My yoga practice was very consistent from 1997 to 2007 when I had a back operation. Yoga was the ultimate challenge. But, at thirty-two, I found out I have facioscapulohumeral muscular dystrophy (FSHD). FSHD comes with an exaggerated curvature of the lower spine, back problems, minimal upper body strength, and poor balance. I stopped being able to surf and do downward dog because I have no triceps and consequently cannot do a push-up. Any yoga but Bikram is near-impossible for me. However, my legs have compensated, and I have replaced yoga with mountain hiking.
1. Good to Great, by Jim Collins
2. The 7 Habits of Highly Effective People, by Dr. Stephen R. Covey
3. The Goal, by Eliyahu Goldratt
4. The Psychology of Achievement, by Brian Tracy
5. Catch 22, by Joseph Heller
6. Atlas Shrugged, by Ayn Rand
7. The Tipping Point, by Malcolm Gladwell
8. Shoe Dawg, by Phil Knight
9. The Prince, by Machiavelli
10 Black Box Thinking: The Surprising Truth about Success – And Why Some People Never Learn from Their Mistakes, by Matthew Syed
11. 10% Happier: How I Tamed the Voice in My Head, Reduced Stress Without Losing My Edge, and Found Self-Help That Actually Works--A True Story, by Dan Harris
12. After On: A Novel of Silicon Valley, by Rob Reid
13. How I Built This, by Guy Raz (NPR podcast series)
14. Middlesex, by Jeffrey Eugenides
15. Goldfinch, by Donna Tartt
16. The Diamond Cutter: The Buddha on Managing Your Business and Your Life, by Geshe Michael Roach
17. Guns, Germs, and Steel, by Jared Diamond
18. Tinker, Tailor, Soldier, Spy, by John le Carré
19. The Lord of the Rings, by J. R. R. Tolkien
20. The Fountainhead, by Ayn Rand
∙ Brains are designed for human survival. For the most part, the brain isn’t concerned with living a phenomenal life. The human being must consciously choose to override a life of mediocrity.
∙ The brain is not necessarily correct about 80 percent of what we think and sense. We give the brain a bit of an idea, and it fills in the blanks. The brain is often not right. The brain connects immediate perception with all past experiences.
∙ If I wasn’t concerned for my survival, with what would I be concerned and dedicate my life?
∙ I know what is going to happen because I start in the future and work backwards.
∙ Integrity is not right or wrong. It just gives workability and performance
∙ The game of life is not looking good for others; the game is making life work.
∙ The individual is a drop of water, and the family is the whole ocean.
∙ Everyone learns differently, and I must find out what is important to other people. It is the key to having people want to work with me.
Lululemon was never about "enhancement" of women’s bodies. We never wanted to fool anyone. We were not a Spanx-like product that could to remould bodies, and we didn’t pad bras to create an illusion. Lululemon was all about being real a human being. We were comfortable with all bodies. This core belief came from a life of competitive swimming, Olympic clothing, and triathlon, where functional tight stretch apparel is a necessity for competition.
The mission statement of “providing people with the components to live a longer, healthier, more fun life” dictated that lululemon was in the longevity business. The mission statement provided designers with a guiding light towards:
1. Athletic performance
2. Function before fashion (or more to the point, function is the fashion)
As lululemon grew exponentially through the second half of the 2000s, finding the right designers became an interesting process.
Big businesses and other large organizations – say, sports franchises – seem to always have three people on top who produce more than the five thousand people below them. This equation is a weird version of Pareto's Principle where, instead of 20 percent delivering 80 percent, it's more like 3 percent delivering 97 percent. With designers, I found there was usually one designer who could create consistently more than twenty others.
To me, that one super-talented designer brought more value to lululemon than a CFO or head of HR. With financial, administrative, and managerial people, systems are in place where specific roles are quantifiable. It’s the opposite for designers, even those who’ve gone to design schools.
Taking it a step further, designers must re-create four to eight times a year and the best can do it effortlessly.
We would find the best designers by setting up labs. In these labs, the idea was to observe multiple designers and see who could consistently recreate. After a designer proved her or himself to have special abilities the designer would be offered employment at the SSC (store support centre).
To make a quality product, employees in sewing factories must be at the top of their game. Food, lighting, and pay must all be superior to make a superior product. For the most part, the best factories in the world are in Asia, and the worst factories are in North America. The Asian factories are new and designed to produce high quantities with the latest and best machines. The factories in North America are, for the most part, old and dingy.
Sewing factories are the primary drivers to bring countries out of poverty. Sewing factories are the first to move into countries with low-cost labour, high unemployment, and poverty. Sewing factories are the first to leave a country for whom poverty is no longer an issue.
In my early days in China in the eighties and nineties, most sewers came from impoverished West China to work on the East Coast factories. These women were leaving their homes, and their goal was to work for five hard years and then go back home and start a business. They wanted to work twelve to fourteen hours a day and seven days a week. Human rights activists used social media to voice their opinion on what they thought working conditions should be. Often, this worked against what the workers wanted. The result is women would work eight hours in one factory, and then walk across the street to work six hours in another.
There is a vast difference between high-quality technical garments and fast fashion cotton garments. Athletic apparel must function, but fast fashion only has to look good on Instagram for one night. Sewers learn their trade in low-cost sewing factories, and, as they become more proficient, they move to technical factories where quality-control and working conditions are superior. New sewers must start somewhere and are happy to have any job that allows them to bring money to their families.
No one wants to see child labour, but if a child is not meant for school as often happens in North America, I would prefer to see that child (if over fourteen) learn a skill, work in a factory, and earn money, rather than wasting away doing nothing. In areas of poverty, we must allow anyone who can and wants to work to be employed. Human rights activists cannot understand the dire straits some families are in and, how happy they are to have any opportunity. All incentives possible must be given to factory owners who are willing to risk setting up in an impoverished part of the world where there is little electricity or transportation. These factory owners will only risk it if they can get inexpensive labour.
After WWII, Japan, Taiwan, and South Korea exported finished garments and were paid in foreign dollars. With foreign dollars, they paid taxes to build foundational infrastructure. China took one billion people out of poverty in the last twenty years with low-cost labour. China’s one-child policy has created a young market who do not have their parents’ drive to work hard. They have two parents, and four grandparents babying them and never have to share attention. This has pushed wages in China too high for clothing production.
Consequently, low-cost labour has now moved to Vietnam, Cambodia, and Ethiopia.
To be a truly design-led company, I knew we had to do things much differently than they were done in wholesale. The vertical retail model works on a nine-month calendar, which let us be a year or even two years ahead of our wholesalers since we didn’t have to make samples and show them to middlemen or fashion magazines. This led to developing something we called ‘the quarterly meltdown meeting,’ which became the single most important meeting at lululemon because it set the direction for every other department.
In descending order, our line plan was built based on a series of rankings from the sales of the last quarter. Each new ranking was built onto the ones listed before it:
1. Inside each category (i.e. pants), we ranked styles in percentages sold from best to worst.
2. We readjusted rankings by what could have sold if we had perfect inventory, delivered at the perfect time.
3. We readjusted again based on what could have sold if we had perfect styles (i.e. the right number of styles in the perfect length, width, or fit).
4. Then we’d readjust the rankings again, using new or old styles to use up any excess liability fabrics or trims. All excess fabric must be used up in the next season’s line plan.
5. From there, we’d readjust to show how a future-focused design team would rearrange the ranking based on their knowledge from working in the stores, leading design meetings, forecasting books, and competitor’s designs. What styles go or remain in the line plan is determined by the head of design and not the buyer. This is a control system. Before the era of lululemon, a buyer was incentivized to order what worked the previous season (buyers are naturally risk-adverse and beholden to finance who wants what is best for accurate financial reporting but not what is best long-term demand). A design-led team might eliminate a good-selling item because the style negatively affects long-term brand value
6. Finally, we’d readjust to show, “What the production manager would change given fabric, factory bottlenecks, import duties, or opportunities.” What if there is only enough fabric for four styles but the line plan asks for fifteen? What factories are easy to work with? What mills can guarantee fabric delivery?
We looked for bottlenecks. For instance, if the factory was using a new sewing technique with few sewers trained in that technique, or few machines that could do it, then there was no point in making many styles using that method. The goal of the meltdown meeting was to deliver product to the warehouse fifteen days before it was required in the stores.
There were also various opportunities to consider. A mill might say they could make one great fabric, and a lot of it, at a really low price because they have excess raw materials. Or a factory may have six lines of sewers who are underemployed because of low demand for specific machines or sewing techniques. The factory with unused capacity can offer a great price.
The meltdown meeting dictated how our line plan was developed, by taking the right amount of past and future information and combining it with what we knew about bottlenecks. There would only be a handful of people in these meetings – the merchant, the designer, the head of product, the CEO and three to five bright store Educators who could give instant validity to this creative process.
Starbucks and lululemon had the same customer. Our customers were willing to pay three times the going rate for better quality. The real estate strategy was simple. Go into every city and build in the same order as the first three Starbucks. Eventually, Wholefoods moved in near our store locations, and then Apple became our neighbour as well.
We fell into pop-up stores purely by accident.
We had small, inexpensive, studios in Toronto and Vancouver that were break-even within three months. The best part was that people were coming to us, which meant we were really connecting with the community.
We would open for three days out of the week and, on the other two, our staff would lead yoga and running classes or hold design meetings. Most importantly, they would research which products our customers liked and where they most wanted to see us open another store. It didn’t even matter where we stationed these pop-up stores – on the second floor of a building, on the seventh floor, or in a back alley. What mattered was that people knew our products, knew they were helping us get them the perfect product for their community and knew we were coming.
Nothing about lululemon’s ability to reinvent retail was traditional because we didn’t know how any other retail company operated. We built a fundamental model for success based on the sales results of small pop-up stores. The sales gave us perfect confidence to spend up to a million dollars to open larger stores. We could pay out the buildout costs of stores in eighteen months.
The economic crisis of 2008 created a perfect time to develop pop-ups. We didn’t want to risk investing a million dollars into a single store when pop-up stores cost us virtually nothing. At worst, a pop-up store broke even. It was the perfect time to develop the market by opening three hundred pop-up stores. We would keep them open for a few years and, if we chose not to pursue opening a larger store, no harm, no foul, the pop-up had cost us next to nothing.
From the data from three hundred stores, we could determine which pop-ups would fail and which would rise to the top and become our next retail stores. That test, combined with tracking where most of our e-commerce sales were coming from, helped us better understand the lululemon market.
Around this time, I wanted to open pop-ups in Europe. I understood that market quite well, having conducted business there for Westbeach. Why not scatter around sixty to eighty pop-up stores? It didn’t matter if we made money from them or not. We had money in the bank, and we had orders with factories we couldn’t cancel as the fabric was already purchased. Given the way the economy was behaving, we had excess inventory – just like when I set up the first lemonade stand for Westbeach in 1980. Whatever sold in Europe could easily pay the salaries of the twenty-two-year-olds fresh out of university.
The board wasn’t on side – especially Tom Stemberg, who had opened a Staples in Germany that performed terribly. But that was an expensive big-box store, and I was talking about something small that was certain to break-even. The success of these pop-ups would cement us as first-in-the-market and set the brand forever. All we had to do was start somewhere.
The board was nervous, and we settled on opening a few pop-ups in the U.S. From my experience in the surf, skate, and snowboarding business, I could feel the competition in the athletic apparel industry coming like a tsunami. It wasn’t even a matter of keeping competitors at bay; it was a matter of taking advantage of this multi-billion-dollar opportunity that was occurring despite the economy.
As a technical designer, there is much that I am proud of having contributed to the world: Triathlete clothing (1979);
1. Technical apparel vertical retail model (1979);
2. The “streetnic” movement (1979);
3. “No smoking” in a retail store (1980);
4. Reversible shorts (1981);
5. Long surf shorts (1981);
6. Dual front chest zippers on jackets to allow for intake-outtake venting and airflow (1989);
7. Vent zippers on inner thighs in snowboard pants (1990);
8. Pop-up stores (1991);
9. Zipper guards at the top of the zipper to solve for neck rashing (1991);
10 .Gator clips on snowboard pants to solve for powder in boots (1991);
11. Sleeve thumbholes to solve for sleeves riding up and for warmth (1992);
12. Chest pockets for cell phones to ensure the wearer could access their phone in two rings (1994);
13. Free in-store hemming to solve for perfect long pants made for taller girls (1998);
14. Flat seaming in stretch pants to solve for rashing (1998);
15. Yoga pant (Groove Pant) featured in the MoMA in 2017 (1998);
16. Matte look in yoga pants to solve for “lightbulb butt” (1998);
17. Diamond gusseted crotch in women’s yoga pants to solve for camel toe (1998);
18. Luon 12 percent Lycra fabric to solve for transparency of women’s tights (1998);
19. Rip out fabric content labels (1999);Retail stores with half-flush toilets and recycling (2000);
20. Removal of inner-thigh seams to eliminate rashing in running shorts (2002);
21. Silver threads sewn into first-layer tops to eliminate bacterial stink (2005);
22. Mindfulness model for business (2012);
23. Denser, thinner threads in athletic tights to solve for athletic compression without pilling (2013).
This award was given to employees who stood for the vision, mission and values of lululemon; those who understood and could easily communicate the linguistic abstraction. The winner of the award was someone who would uphold the development program of transformational development and goal-setting.
Since the Award’s inaugural year in 2009, several winners were instrumental in lululemon’s story. Some notable winners included: Susanne Conrad, Shannon Wilson, Eric Petersen, Chloe-Gow Jarrett, Bree Stanlake, Erin Westelman, Delaney Schweitzer, Deanne Schweitzer, Parker Pearson, Jenna Hills, Marina Hui, Jill Chatwood, Katie Cotter, Bonnie Fung, Carla Anderson, Jesper Nilsson, Cassandra Sze, Carolyn Manning, Celeste Keely, July Ball, Shannon Savage, and Ben Savage.
∙ Lululemon was a social movement as a philosophy.
Women are equal on all accounts.
∙ We were not in the wellness business, we were in the mediocrity to greatness business.
∙ The transformational self-development created a company of people who needed no motivation. Employees became intrinsically motivated to elevate the world by spreading our development system.
∙ We gave no discounts to celebrities.
∙ Digital is exponentially changing the world. Businesses used to morph slowly from one business model to another. This stopped being an option in 2005. Lululemon must keep the cash flow from one old model (yoga) while investing in the new business of running, mindfulness, or technical street apparel. To have two ideas running at the same time requires a higher overhead than the old model. If two models are not operated in parallel, the competition will catch up – which it did.
2011 was a uniquely challenging year. It was also punctuated by a terrible human tragedy that struck one of our US stores. On March 12th, just after eight o’clock in the morning, police arrived at the lululemon store on Bethesda Row in Bethesda, Maryland. There, they found one employee, Jayna Murray, brutally murdered. Another employee, Brittany Norwood, was still alive after having survived an apparent robbery-turned-homicide.
I met Jayna just a few months prior to her death. She was a wonderful and authentic person; as a father, I couldn’t imagine the anguish and heartbreak her parents were experiencing.
The day wore on, and the surviving girl told police that two masked men had broken in, sexually assaulted her, killed Jayna in a horrific way, then left. It was a terrible thing to happen anywhere, but it hit even harder because it was in one of our stores.
Everything we did at lululemon was about making women feel good, powerful, safe, and part of a community. We contributed to the reward offered to find the two assailants, hoping that their arrest would be a first step toward understanding what had happened.
Jayna was laid to rest in her home state of Texas a week after her murder. I attended the funeral. There’s little good that can be said about a funeral where parents are burying their child – it is my worst nightmare as a father.
Over the next several days, I thought about how we would get our employees through this seemingly random act of violence. Fear had rippled through the entire lululemon family.
Then, a week later, the story took a strange turn. Police arrested the surviving lululemon employee – Brittany Norwood – accusing her of having committed Jayna’s murder and then staging an elaborate cover-up. It emerged that Brittany had been stealing from the store, something Jayna had discovered. Brittany had previously worked at another lululemon store where she’d also been suspected of stealing. No theft had ever been proven, and, as there were no definite grounds for her dismissal, the legal system would have interminably tied us up in litigation if we had fired her.
Instead, Brittany was moved to a store where her actions could be better monitored. On the night of the murder, Jayna confronted Brittany with definitive proof that she’d been stealing, and the confrontation turned violent.
I asked myself if there was anything lululemon could have done better to prevent this. We’d put cash-counting procedures in place and had policies to ensure there were at least two people present. We’d implemented systems to ensure the security and safety of our staff. I just couldn’t understand how something like this had happened. Maybe it was a symptom of the world in which we live.
Three-and-a-half months after the murder, the Bethesda store reopened, embracing and showcasing a theme of love in Jayna’s memory. Later that fall, Brittany Norwood’s trial lasted six days before she was found guilty of first-degree murder – the jury deliberated for less than an hour. She was sentenced to life in prison.
During the mid-nineties, besides being introduced to yoga, I’d also been introduced to a different perspective on the environment. I’d come to see that awareness of human impact on the world would only increase as markets in the developing world strove to attain a similar standard of living as the one we enjoy in Canada and the US.
As I thought about environmental awareness and sustainability, I realized recycling, renewable technologies, and energy conservation would be things more and more people would prioritize. When we opened the first lululemon store, we did things that were unheard of in any business. We installed half-flush toilets, used recycled wood floors, and put recycling bins in the stores. These actions were completely aligned with our yoga-inspired Kitsilano culture.
Then, by 2003, I could feel there was a growing demand for organic, ethically-sourced goods, borne from the same awareness about our impact on the planet. Like surfing, skating, snowboarding, and yoga, I could sense people were being pulled toward something. I wanted to address that demographic, so I began to look at organic clothing, something no one was doing in a large-scale way.
I looked at things like soy, hemp, organic cotton, bamboo, even recycled plastic – all materials which don’t use nearly as much land, water, or agro-chemicals as cotton. I liked what I saw and decided that organic clothing was something lululemon should get in front of.
We developed some unique fabrics that integrated natural fibres into the new synthetic fabrics we were already using in our apparel. The initial goal was for each garment to be at least 75 percent natural, organic, or sustainable.
We began a line of organic clothing, and once sales proved there was a strong interest in these garments, I decided the idea was strong enough to exist as its own brand. We called it OQOQO (pronounced oh-co-co). Like lululemon, the brand name was fun to say and pleasing to the ear. Also, because the word used Q’s not followed by U’s, it both looked unique and was easy to trademark. We set up one store near our original lululemon store in Kitsilano.
While we were expanding across Canada and making our first forays into the States, and developing OQOQO as a new brand, we began to find the concept challenging. First, we discovered that organic fabrics are, in fact, worse for the environment than their non-organic synthetic or natural counterparts because it takes too many chemicals to break the fibre down to make it soft.
In addition, we found the only people willing to buy organic fabrics were very thrifty women who were unwilling to pay for quality. We stopped the whole concept.
The only designers I could get involved in OQOQO were people that loved organics.
Very few people had the design savvy to make organic fabrics cool. Shannon and I knew that OQOQO would succeed if it took organic fabrics and paired them with inorganic elements like zippers and bright colours, things that our target market would want to wear. Try as we might, we could not get designers to bridge the gap between organic fabrics and the lululemon customer.
There was also a logic gap that was beginning to undermine the whole initiative. The original intent for OQOQO was to create great clothing that was better for the environment, more sustainable. Cotton goods, including the organic cotton we were using at OQOQO, lasted around eight months to a year. After that time those items were often tossed out.
As time went on, we found that lululemon clothing, which was chiefly comprised of inorganic material, was still looking great and performing perfectly anywhere from six to eight years after it was purchased. To be worthwhile, our OQOQO line would have to be many times more sustainable than typical clothing. It wasn’t. Especially when you consider that the chemicals used to break down and dye soy to make it usable as fabric are little better than the chemicals used to grow cotton.
In any case, we had to shut down OQOQO in early 2009. The recession notwithstanding, part of the problem with getting OQOQO off the ground was timing. As with some other things, whenever we were poised to do an adjunct concept, we would experience an exponential growth spurt in lululemon. We would need all-hands-on-deck to keep pace with the growth. Anything that wasn’t part of our core line was too low a priority, and I didn’t provide the right incentives to have people spend time on a side development.
As the OQOQO experiment ended, we thought about a spin-off that was both truer to our culture and less likely to fall short of the existing technological limitations. After a brainstorming session with the top thirty-five people in the company, we came up with the idea to develop an athletic line for girls.
Unlike with OQOQO, we would be using the same fabric and the same manufacturers as our lululemon products. We had to figure out how to appeal to this different demographic. We had to think about how we would set up a store and how our Educators would interact with people who probably weren’t buying the clothes with their own money. We needed to get a handle on how to make it different from lululemon, while still staying connected to it and sharing the same high standards.
It would not be about yoga. We had to think about what activities it would support. Was it for dancing? Gymnastics? Soccer? Was it going to be for the fourteen-year-old girl, the twelve-year-old girl or the ten-year-old girl?
While we thought about these big questions, I gave the brand a name: Ivivva athletica. Like lululemon and OQOQO before it, the name Ivivva had a similar consonance and sounded feminine, vibrant, and alive. Adding “athletica” connected it to the brand from whence it came.
Ivivva was a good concept, but not great. The issue with separate men’s stores or Ivivva stores is that their consumers shop on weekends and after four o’clock in the afternoon on weekdays. The days are mostly very slow, and this makes it tough to justify retail rents. The solution is to move Ivivva and men’s into the larger lululemon stores where shoppers are mostly women who shop for both their husbands and daughters during the day.
Ivivva was created under the assumption that lululemon’s men’s clothing would be a $1 billion business by 2012. The focus of the company was taken from men and put to the much smaller opportunity of Ivivva, which was wrong.
With the experience of having five boys, I can easily see the similarities between raising a child and building a business. In both cases, the first two years are dreamy and time moves quickly. Then, there are the terrible twos and then the fucking fours. At six, the children can communicate, play is fun, and the child’s (or company’s) growth is fascinating.
As the company or child moves into its teens, it starts to flex its independent muscles. Top executives have their own thoughts and visions for the company. An incremental, almost invisible struggle begins between the founder, executives, directors, and advisors. Everybody becomes an expert, and the vision gets watered down.
The eighteen-year-old rebels. It wants to get out from underneath its parents’ control. It wants the keys to the car but wants the parent to pay for gas and food. The teenager wants no oversight and has no interest in the loving coaching of the parent. The child simply cannot hear the parent, and the child (or the company) look to outside influences (or consultants).
The child and the company feel the parent or founder is impeding their progress. The founder feels the company is being led astray by directors (step-parents) who don’t care about the long-term health of the teenager. The child is taking drugs for short-term highs and enjoying every minute of it. The company is addicted to quarterly reporting. The step-parents, or directors, know something is wrong but do not have the desire or incentive to act like a parent or a company founder. The parent or founder is depressed because he or she sees so much of the eighteen-year-old’s potential going to waste.
The child grows up and begins to appreciate their parents’ love and values by their mid-twenties. She or he will interpret their errant and wild university days as a learning, but it is now time to be effective in life. If the company or child does not come back to the founder or parent, it is because of psychological issues, and the company or child rarely survives in a Darwinian world.
Yes, I have considered it, but I won’t. Lululemon has always had a high valuation, and the multiples it would take to buy it back make the possibility too risky. Lululemon cannot be bought and broken up into different entities to provide more value to the purchaser. The staggered board structure only allows three board positions to open up annually, and that, in my opinion, has inhibited a superior bid. I believe a proxy to change governance at lululemon is a non-starter because 70 percent of lululemon is owned by passive equity groups who would rather sell than get involved in an ownership struggle. The passive investors put no pressure on the company to perform or change the board structure. They vote against poor governance by selling their shares which they have done consistently from 2013 to 2017.
The critical juncture came in 2012/3 when non-solid-colour graphic tights came onto the market. All indications in 2010 showed prints to be the future of tights. Small graphic prints on inexpensive polyester pants solved the same issue as lululemon’s solid-coloured, nylon Luon fabric. Small graphics hid women’s imperfections, and the polyester fabric was a third of the price. Lululemon correctly refused to use polyester fabric because it maintains a bad odour and was against lululemon’s quality principles. Lululemon made only one print in the better quality, more expensive nylon. Lululemon needed to make twenty prints to meet demand and not leave the door open to competition.
In 2014, I wrote out for the board what I thought our specific goals should be:
∙ By December 31, 2015, $40 million would be put into “owning” mindfulness in the marketplace.
∙ By December 31, 2016, we would design, make, and sell more styles of sports bras for women than any other company in the world.
∙ By December 31, 2018, we would have the same sales as Under Armour with double the profit. We would do this by providing a better quality product at a better price. I estimated a $40 million investment would be necessary to make this happen.
∙ 40 percent of our sales will be done through e-commerce by December 31, 2018.
∙ By December 31, 2019, our men’s sales would be 40 percent of sales. We would achieve this through branding, product, and by focusing on “owning” hockey and rugby with technology.
∙ By December 31, 2020, we would put twenty thousand people a year through our transformational employee development program.
∙ By December 31, 2020, we would have a thousand stores worldwide. Of those, four hundred stores would be women/men/Ivivva combined stores and six hundred would be break-even showrooms.
One of the first things ValueEdge examined was the number of top-level executive departures and determined it was more than that of our peer companies. “Resigning is often an unexpected event which causes more disruption in the business than does a departure due to a retirement or promotion.”
The real problem was that lululemon had taken longer than six months to fill these spots, which was simply too long. Further, they were bringing in external people, rather than promoting someone from within.
This proved something I’ve already discussed at length – lululemon had no succession plan for its highest levels. Instead of grooming and developing the next CEO internally, lululemon was driving people away. They were filling these positions with outsiders who would never have the benefit of our original training and development, and who would further water down what was left of our soup. Much of this, I believed, was due to the nominating and governance committee also headed by Michael Casey.
The ValueEdge report lauded lululemon for finally adopting majority voting for board members, but the staggered board structure was still a big problem. Not voting for each director annually, ValueEdge reported, was preventing shareholders from playing a meaningful part in the director election process. This was stopping the board from being refreshed yearly and was contributing to a lack of board accountability. Again, these were more points I’d known for some time.
The report ended with a list of detailed recommendations. Among them, it was recommended the board get more expertise in clothing retail. The current skillsets of the directors – who mostly came from strictly financial backgrounds – was putting lululemon at a disadvantage, since nobody had experience in brand and product management.
Another recommendation was to openly evaluate the potential conflict of interest presented by directors (namely, RoAnn Costin and the late Tom Stemberg) involved with City Sports.
A third recommendation from ValueEdge was to establish management development and succession plans as a way of addressing our senior executive departures. On that same note, ValueEdge strongly suggested lululemon should “allow for more executive positions to be filled with internal candidates” rather than consistently going with outside people whenever a top spot opened up.
Other recommendations included finding systemic causes for the unusually high number of corporate crises lululemon had faced (water in the soup, perhaps?), de-staggering the board to allow for annual elections of all directors, a comprehensive board evaluation process, and disclosing the rationale for the board management structure – or having a means to make the board account for its actions.
Every one of ValueEdge’s findings and recommendations spoke to a multibillion-dollar company wilfully lagging behind its competitors and failing to provide best-in-class practices. I was not surprised. ValueEdge's draft report answered my questions and confirmed much of what I'd suspected about the board.
But by now, my feelings about the board, upper management, and the overall direction of lululemon have moved past the quantifiable aspects of the draft report.