Mounting Expenses
While I was waiting for lululemon athletica to become profitable, the costs associated with running a retail operation were beginning to mount.
The ratio of revenue to expenses wasn’t yet in our favour. I had to weigh out what I could afford. Something that fell by the wayside was theft insurance. Area break-ins were common – especially on weekends – but surveillance cameras were not, so I took a cost-effective approach. Saturday nights became camp-out nights on the second floor with my boys.
“Brett and I did security for my dad when we were 10 and 12 years old,” says JJ. “Of course, Dad made sure it didn’t feel that way. We were just having fun and spending quality time together. Other little kids camped in their backyards. We did it amongst Boogie Pants and Y Bras in the store. What we’d have done if someone had broken in, I’m not sure. The sight of my dad barreling out of a tent would probably have made them take off in a hurry.”
We’d move the clothing aside, set up a tent and sleep at the store before going for breakfast the following morning. This wasn’t strange for JJ and Brett because they’d been raised in the retail business and had spent considerable time at Westbeach.
I had no choice but to bring them with me on Saturdays and Sundays, but they didn’t seem to mind. They’d hang off me as I interacted with customers or make forts out of boxes while I worked in the warehouse. The operations of the business became ingrained in them – from logistics to sales to branding. They took it all in from an early age, and at last, I found myself spending quality time with them.
A Pivotal Moment
Lululemon’s lead designer, Shannon, and I were walking down the street and we saw a girl coming towards us wearing what appeared to be a pair of Boogie Pants. As we both knew, the lululemon logo was on the back waistband and so as the girl passed, we both turned around to look. As luck would have it, the girl also turned around to look at us. There was no telling what she must have thought of a couple who turned around seemingly to stare at her behind.
By the summer of 1999, women were wearing lululemon as they shopped, walked their dogs, or sat in cafés with their friends. Lululemon wasn’t just in yoga studios – it was on the street. Somehow, we’d made clothing that women wanted to wear for yoga – and to wear after yoga. Any reservations I’d had about making clothes for a new, niche sport suddenly evaporated. Yoga was not only gaining in popularity, but lululemon had also made the leap into streetwear.
Enough signs pointed in the right direction to make me feel I had to hold on and grow organically without the drug of conventional advertising. The question I asked myself, as my cash dwindled, was: how?
Ambassadors & Product Testers
I had developed a strong relationship with my first instructor, Fiona Stang, and, as lululemon became a hub of yoga culture in Vancouver, a handful of other yoga instructors in the city joined us. This included people like Eoin Finn, a Vancouver-based philosopher who’d been a leading figure in the yoga movement since the late ’80s. I kept coming back to the invaluable information and ideas these instructors offered, always asking questions and getting their input on our designs.
It quickly became a synergistic relationship. We supported one another and believed in what we were creating. We not only believed, but our livelihoods also depended on yoga picking up momentum. These yoga instructors had started to act as spokespeople for lululemon. I decided at this point that lululemon would never set up its own yoga studios as it was not our job to compete with our best partners and brand builders.
As Fiona recalls: “People ask me what it was like to be one of the first lululemon testers. I don’t really remember it being that official. It was like, my friend Chip is starting a yoga clothing company, and he’s asking me to test designs and tell him what I think. I loved the clothing and was happy to share my thoughts about it, but mainly it just seemed very natural and fun.”
I decided I would formalize the relationship by asking these leaders to become brand testers, providing them with new designs in return for their invaluable feedback in regularly scheduled design meetings. As time passed, the testers became known as Ambassadors. They realized how serious we were
about perfecting the products. They recognized we were listening to what they said, and they saw the results of their feedback in the designs themselves.
The Ambassador program was also a unique marketing opportunity. We would photograph our ambassadors and put the pictures in the local newspaper with the name of the ambassador’s yoga studio. . . and then we’d put a small lululemon logo at the edge of the picture. The first goal was to make the Ambassadors’ businesses work. The second goal was to provide just enough financial love to the media publications to facilitate an occasional editorial piece on lululemon.
Old-school marketers would not have understood our desire to build an authentic tribe with community-based yoga, but within a short period of time, people wanted to be part of the Ambassador team. This all contributed to maven yogis vouching for the lululemon brand and creating an underground surge on our way to the tipping point. Slowly we were getting more people up the stairs and into our world.
The reality of the world was that religion was dead - even more so in Canada than in the US. The rise of social interaction from Sunday morning workout classes and coffee became the new way people were coming together over a common vision of health to laugh and exchange ideas with each other. The Athletic high and athletic community were producing the new “Peace of Mind” people had formerly gotten from Sunday service. At this point, I realized “Athletics” was the new “Church” and was creating a fundamental shift in the fabric of society.
Hemming
I thought about the inconvenience of purchasing pants, washing them, shrinking them, and then taking them to a tailor before they could even be worn. I wanted to eliminate that need entirely. I surmised that Super Girls did not have time to go to another business, try on the pants again and get their pants hemmed. Of course, women are particular about the exact length of pant and need the pant to be 100 percent functional for a yoga class. I wanted someone to buy a lululemon product and wear it beautifully the first time.
If Japan had seamstresses in each store, I wanted hemmers in ours. I took that one level higher and hired not just hemmers, but design graduates fresh out of school. Not only could they sew and hem, but they could also create. Starting with Amanda Dunsmoor, I’d set up a studio where the designers could work but also talk to customers.
If the store got too busy, the designers came into the sales area to help. They’d interact with customers and then create, create, create. This approach replaced traditional buyer statistics. It laid the foundation for lululemon to listen to its Guests and Ambassadors and to create amazing new products that directly reflected their feedback. Neither statistical sales printouts nor algorithms tell buyers what shade of purple a customer would have preferred or what size they would have bought if it had been in stock. The recognition of what big data will not tell buyers is a key differentiator of why lululemon was to rise above its competitors.
Over the years, these early insights became cultural practices that included company-wide design calls, product testing in local communities, and design meetings based on climate, lifestyle, and the popular athletics of that region.
I refused to allow algorithms or past metrics to dominate lululemon’s line plan. My fear of becoming an old school American public apparel retailer was palpable.
Design Meetings
Through our early days, focus groups and design meetings remained a critical part of our growing success. With the second-floor location, these meetings were another way of bringing people in to see where our store was. We’d have sushi, I’d give each participant a $100 gift certificate, and we would ask a series of questions that prompted an open dialogue.
This customer perspective – whether I agreed with it or not – helped to move lululemon ahead of its competitors, because the information I was listening for was about the future. I designed meetings with Guests and then separate meetings with Ambassadors and then again with store Educators. On the day I left running the design department 12 years later, we were running 150 future driven design meetings a year.
I welcomed negative feedback and made sure we invited people who had made complaints. Design meetings gave us a face-to-face platform to disseminate information to Guests and Ambassadors, who spread it to their clients. I also held meetings with the store Educators, which gave me a third and equally important viewpoint with which to work.
Focus groups and design meetings were some of the very best branding exercises for lululemon because during these interactions, I would be asked very pointed questions about the business. Sometimes I’d have a good explanation for why something was the way it was. Other times the question would flag a need for follow-up or change.
Despite these rapid innovations, business was growing too slowly. I had a lot riding on whether lululemon could hang on through those first few months. The wholesale prospect crossed my mind more frequently as lululemon struggled to remain profitable.
A New Approach to Wholesale
I was always thinking about how to get the product on more people more quickly. I knew anyone who wore our product would be an instant convert and would tell six other people within a week. I visited the venerable Glencoe Sports Club in oil-rich Calgary with a new branding idea.
I proposed they sell eight of our main pieces in their shop. It was a wholesale agreement in which I would make no profit. I would move through styles at break-even and build up my production base to get to economy-of-scale and get my costs down. This was part of my developing break-even marketing mantra.
I suggested I control all buying and fulfill inventory as quickly as they could sell it. I knew how in-demand our clothing would be at a place like the Glencoe and also how profitable it would be for the club. Lululemon would get in front of the perfect high-end customer, and the Glencoe could make millions of dollars.
Unfortunately, this meant butting heads with the merchant system the Glencoe (and all other retail stores) already had in place. The buyers, whose job it was to curate clothing (and other wholesale items), wanted the product, but they weren’t willing to give up the ego of their job or look at a new model. They didn’t understand lululemon was a design-led company because they had never dealt with one before.
Once a brand matures, the Midwestern North American consumer buys in heavy and deep. The natural evolution of styles moving from the coast to the inner continent warps sale metrics, and merchant-led buyers, wrongly direct the designers to make more of what is selling. While overbuying for these Midwestern North American consumers, companies lose their focus to deliver market-leading styles for the trendsetters of the next year.
(As a 2019 example, the lululemon men’s line created too many nine-inch inseam shorts that cater only to golfers and Midwest Americans. If you looked at world’s trendiest beaches – Tulum, Jose Ignazio, Kits Beach, St. Tropez, Ibiza – you’d see that no one had been wearing nine-inch inseams for the past three years. Five to seven-inch inseams were the standard on these beaches).
To us, design would always trump every other system – even old-school merchants and buyers.
Selling a Stake to Employees
Another attempt to enhance cash flow was to get employees to work the same hours, or produce the same services, for less money upfront. In exchange, I’d offer them a small piece of equity in the company. I viewed a one percent stake in lululemon as a way to motivate my staff by giving them a sense of ownership while reducing my wage expenses.
I made this offer to five people. Of the five, only the sole male in the group, Anthony Redpath, took my offer. Anthony was a friend and a photographer who had been shooting a lot of promotional material for us.
“There was a point when Chip was starting to have cash flow concerns,” says Anthony. “He was on his own, and he was stretching himself to make it work. His idea was to offer one percent of the company if I agreed to work for cost. He thought he would keep the company for 10 years and eventually sell it for
$10 million. It was only me who bought in. Nobody ever dreamed lululemon would actually get to where it is now.”
Every little bit helped but deferring Anthony’s payment would not make a precarious situation better. I needed to think of other ways to avoid a financial meltdown, but I felt like I was running low on options. While disheartened that I was running up against the same old issues that had exhausted me at Westbeach, I had enough reasons to be optimistic about lululemon to make me feel that I needed to find a solution. If I could just make it through the next few months, I was sure we would reach critical mass.
Running out of Money
I don’t think I’ve ever been driven by money or profit. I’ve been driven by the beauty of a process, and that’s what I was perfecting with lululemon. My worst fear, at the time, was seeing the little money I had left disintegrate while waiting for lululemon to turn cash positive. I had taken another loan and maximized the equity of my house with nowhere else to go.
One option I considered was taking on a partner. I was happy to have the autonomy of going it alone with lululemon after some of the partnership issues I’d had with Westbeach. I liked the clarity that a single vision, core values, and quality control provided my new brand.
On the other hand, having a partner on board had huge advantages, including shared risk, an infusion of capital, and expertise in other areas of business.
My friend, Dave Halliwell, had been helping me off and on in an advisory position. I approached Dave with a partnership proposal. Dave believed in lululemon, he told me, but needed to think about it before giving me an answer.
I had reservations about this. Not reservations about Dave – a great guy who would be a strong addition to the company – but about taking on a partner altogether. I didn’t know if I was offering a partnership opportunity because it would take off some pressure, or if I was choosing an easy way out by reverting to a familiar formula. Was I losing confidence in what I’d learned, or was I doing what I had to do to give the company the time it needed to grow?
Dave’s expertise was wholesale. I was unsure about how to evaluate the importance of a financial infusion from Dave, knowing that with him as a partner, we’d likely go back into a wholesale model. I loathed wholesaling, but time was running short.
Then, in the fall of 1999, six months after lululemon had opened its doors, an unexpected lifeline presented itself. Morrow, the company that had purchased Westbeach from us two years earlier, was forced to sell the company at a loss to Wyndcrest Partners. Wyndcrest was based out of West Palm Beach, Florida, but they brought Westbeach back to Vancouver. They also contacted me to ask if I was interested in taking the CEO position.
I had stumbled on the perfect solution to my issues. The company I had founded, grown, learned from, sold, worked for, and then left, wanted to hire me back to run it. I could then funnel the salary they offered back into lululemon – the company that Westbeach had moulded me to create – and keep it going while being patient and letting word-of-mouth about our quality reach a critical mass.
A New Option
While returning to Westbeach felt like a step backwards, there was no question in my mind that it was a means to an important end. I took the job, but it would also take me away from day-to-day operations at lululemon. I would have to separate myself from lululemon to be fair to my new employer.
If I left to run Westbeach, I would need people at lululemon I could rely on to execute the vision I had laid out. I wanted people with the same energy, enthusiasm, and belief I had in what we were doing.
I only had a few part-time people and Amanda Dunsmoor as our designer. As I departed lululemon, our little company would live or die by the hands of the few people running the business in my absence. Amanda was doing great work in her design role, but I asked her to come to Westbeach with me.
Part of me knew I’d be walking into a company that needed to recreate itself, and I would benefit from
having a talented, dependable ally. Snowboarding and snowboard apparel were Amanda’s passions. I felt sure that bringing Amanda back to Westbeach with me was the right decision for Westbeach, even though it meant creating a void at the very heart of lululemon.
I also wanted to help pivot Amanda away from lululemon because she didn’t enjoy working the retail part of the store. Loving being an Educator and working on the floor is a big part of what would make lululemon great.
Shannon and Jackie
Fortunately, I’d recently interviewed a young woman named Shannon Gray. Shannon had two small entrepreneurial ventures of her own. I’d received hundreds of design portfolios, but Shannon’s was the first I had ever seen that included work with stretch fabrics. She’d been making stage clothing for bodybuilders, male and female.
Here I was, a 41-year-old divorced male with two children who had worked with 14- to 18-year-old boys for 20 years, and in walks Shannon – the perfect Super Girl. She was 24, highly educated, a top athlete, and passionate about goals, athletics, and apparel design. Frankly, I was taken aback. I thought to myself, “she is going to make some man a very lucky husband someday; too bad it won’t be me.”
The designs in her portfolio were great. She had been a competitive swimmer and later competed on the Canadian water polo team, so she understood everything I was thinking about rashing and how stretch fibres functioned and moved from an athlete’s viewpoint.
She told me she’d initially gone to get a degree in science. That’s what her parents wanted, but she more or less snuck out and got a fine arts degree on her own. From there she went into teaching, hated it, and went back to school for her design degree. What I liked about her was how she knew what she wanted to do; she knew her calling. I wasn’t dealing with someone who was just figuring out what they wanted to do.
Shannon was the first person I called when the opportunity to go back to Westbeach presented itself. I contacted her about a week before I left for Westbeach and told her I needed her to start immediately. She could still only commit a limited number of hours, but her strong design eye and unique energy were exactly what we needed. Shannon accepted the offer.
Around that same time, I also hired a woman named Jackie Slater, first as a designer, then to lead our production. In turn, Jackie and Shannon took on some people to help them with weekend shifts. Amanda and I gave them an intensive crash course in what lululemon was all about.
As Shannon says: “Jackie Slater had just been hired when I got an emergency call from Chip on a Sunday night. He met us at the store with the keys and showed us the layout and merchandising and talked us through the sales. There wasn’t even a cash register. We just added stuff up on a calculator and wrote out the receipts. It was like starting over, just Jackie and me. We were both brand new when Chip left. I was still substitute teaching high school in Surrey.
“There was so little money,” Shannon adds, “that anyone working had to be motivated by pure love and passion, or pure desperation. Most of us in those early days were united in this intense belief in lululemon. Jackie and I did almost everything. She was mostly concerned with production, and I was working on design. I remember doing anything I could, from making patterns on my kitchen table during the night to working the floor selling all day.” With Shannon and Jackie at the helm, I felt that lululemon was in good hands.
It was tough for me to step away at such a critical time, but I wanted authentic word-of-mouth growth, and it would take time.
Back to Westbeach
Returning to my first company was not without its challenges. The new owners recognized that I had a significant history with the company and a lot to offer, but the people working there had their own inertia and were not interested in change. Westbeach needed change as it had still failed to be profitable. Many employees were new people who had no idea who I was. The experience felt very different than it had when I was an owner.
The snowboarding business was in crisis and needed command-and-control leadership to right a sinking ship. There was no time to enroll employees in a shared vision, but I needed them to align with me if we were going to move forward together powerfully. The company was between a rock and a hard place, and in hindsight, a “bottom-up” leader like me may not have been what this “top-down” company needed at the time.
Despite challenges at Westbeach, I had faith in the way I’d left things at lululemon. Shannon’s and Jackie’s jobs were to fulfill the vision and maintain quality. I believed if I gave them the tools and space to feel creative, motivated, and empowered, good things would happen.
“Chip was out of the picture, and it was really our business to run and make a go of,” says Shannon. “We had a lot of power to make decisions and steer the product line. We chose fabrics and decided how many pieces to make. Chip gave us an incredible amount of freedom. We were so excited that when we hired people, they quickly picked up on our enthusiasm. People saw a future in the company, so it was a great fit for those with an entrepreneurial and business drive. Lululemon was wide open, especially for women with an education who wanted to see where the company could go.”
This is an important point about the founding of lululemon. Except for my own part in it, the company in its earliest days was run by smart, independent Super Girls, for smart, independent Super Girls. We seemed to be the only people that believed in the possibility and greatness of that demographic.
I stepped back and tried to look at things more critically, to ask questions that needed asking. Was the yoga market strong? It was. I felt the yoga movement was still gaining momentum. We were in the right place at the right time.
Was our product great? Yes. There was no question in my mind that we were the best in the world. Anyone who put on the clothes confirmed that. Jackie and Shannon had built on the foundational concepts and refined the designs beautifully.
We had to get people in the door to make purchases, and it was becoming increasingly apparent to us all that the upstairs location on West 4th was making this a serious challenge. The traffic up the stairs to the store was low, and consequently, so was our sales volume.
I made tough, long-term decisions that were affecting our short-term survival. Not going for the easy money of wholesale, not looking for comfort in a partnership, and not running any conventional advertising campaigns. I could certainly see the downside of my choices. Without wholesale, the exposure of the products was minimal. If a customer didn’t find our store, they would not find the clothes anywhere else.
Before I allowed myself to consider wholesale – to depreciate myself and go against all I knew to be wrong – I made a commitment to think laterally and exhaust all other possible options.
But the more I dwelled on it, the more it seemed there were none.
The Superstar Sports Experiment, Part One
It seemed I had too much money wrapped up in perfect, unsold inventory, but not enough cash to continually deliver new designs to ensure the customers I already had would return. The bottom line was that there was more cash going out of our bank account than into it.
If we explored wholesale, our product would reach more people. The revenue from wholesaling would create money to outfit a new location and help with the higher rent costs. From Dave Halliwell’s viewpoint, one hand would wash the other.
It didn’t take long to put together a sizable wholesale deal with a company called Superstar Sports and with many other cross-Canada yoga studios. This helped seed the market so that when we did grow, we had brand awareness. Superstar had 30 stores and stocked a wide variety of sporting goods, but mostly Nike.
Superstar looked good – and that had to count for something. We increased production and stretched our resources to the limit. Everyone put in extra time to fill our first wholesale order. Wholesale was not the option I’d wanted to go with, but we were desperate. With the Superstar deal, it seemed we had a lifeline...if only for the time being.