Discovering Vertical Retail
Before our first season, many people told me I was making a huge mistake by opening my own lemonade-stand style booth – as modest as it was – in the outdoor 8th Avenue Mall. I kept hearing that the clothing business was tough. But, to me, it seemed simple. I bought the fabric, I oversaw the production of the garments, I brought them to the booth, and when Cindy wasn’t available, I did the selling myself.
What I didn’t realize at the time was that I was inventing vertical retailing.
Because I had my own stores, my margins (something about which I was just learning) must have been huge, but there was no vertical model with which to compare it. The whole process seemed so simple. I got paid every day instead of waiting for wholesale payments to come 60 days after shipping.
However, I still had a wide variety of costs to deal with on my own. The booth and the labour, for starters, but also the production.
My economics degree finally came to good use. I knew a profitable business would need critical mass and economy-of-scale production. Unless I could make a minimum of 500 to 2,000 units of a style at a time, I couldn’t get the production price low enough to resell and make a profit. It didn’t matter if I made any money because I knew I was in it for the long run. I needed to learn everything about business I didn’t yet know. In life, there’s no performance without action.
The Bank is in a Lot of Trouble
In 1980, at the end of our first summer, Cindy went off to university (she was studying architecture at the University of British Columbia), and I closed the booth for winter and planned for the next season. We’d made a little money (about $5,500) that season.
I needed to buy about $20,000 of fabric for next season’s production. I was continuing to loan money from my oil job to Westbeach, and I knew that if I spent all my money on fabric, it would leave me unable to pay our sewing costs – one of Westbeach’s first production challenges.
In search of a solution, I went to Josephine Terratiano and asked her to do the sewing over the winter, with a promise to pay her the following summer once that inventory sold. This was a big thing to ask. It hinged on authenticity, trust, and the sense of family I’d developed with Josephine – the personal aspects of a business relationship that can’t always be captured through formal agreements.
However, it was also advantageous for Josephine because I could purchase double the fabric and she got to sew twice as much as I otherwise would’ve been able to buy, which meant she was due twice as much money when the time came to pay her. Ultimately, it was beneficial for both parties.
Meanwhile, as we moved through fall into winter, I continued at Dome. Here I was sitting up in the Dome Tower on the 30th floor, working on multi-million-dollar contracts, with the little Westbeach booth closed for the winter. Dome was a good job, but I stayed mindful of my goal to leave the company and be working for myself by age 30, with the longer-range goal of retiring by 40.
Suddenly, in a flash, I saw my future life if I stayed at Dome. I would become a VP, I would be married, move to the suburbs, have a couple of kids, retire at 60, become a serious cyclist, and then die. I said to myself, “Great, Chip, that’s one life, and there is no point in living it again. Let’s live a new life.” I believed in that moment that I had just gained 15,000 days of life.
My mother, having been a child of the Depression, was anxious. “When Chip went into business for himself, I was scared,” she says. “I mean, I was scared for him because I didn’t know where it would lead, but it taught him a lot of things. Going from the petroleum industry into the clothing business is a huge hurdle.”
My dad puts it more bluntly: “I think Chip was kind of bored at Dome. I think he knew it wasn’t the direction he wanted to go.”
With Westbeach, I was always learning and challenged because I was encountering a brand-new situation every day of my life. I never knew what would happen next or what I would learn. Whereas, when you’re in business for someone else – in my case, Dome – there is always that fixed progression through the ranks, through the years, until you reach a prescribed end.
Dome Petroleum ended up as the largest bankruptcy in Canadian history. It was a company built on a deck of cards. I was a fortunate beneficiary as I spent two-and-a-half years with Dome when the company was in exponential growth and two-and-a-half years when the company was in bankruptcy, working under bank protection.
I promised myself I never wanted to owe banks money and be under their control. However, I loved a quote that came from the circumstances: “If you owe the bank $2 million and you can’t pay up, you are in a lot of trouble. If you owe the bank $20 billion and you can’t pay up, the bank is in a lot of trouble.”
The Second Season in Business
As we moved into the spring of 1981, Westbeach underwent a small expansion. I added another lemonade-stand booth in Calgary and an outlet in Edmonton. The Edmonton location was a ski shop (this was the advent of the pop-up store concept we would later perfect at lululemon). The ski shop closed during the summertime, which made it ideal for a seasonal retail venture like Westbeach.
That summer, having a booth only allowed customers to buy our products, not try them on. If we were going to continue to grow, we would need a store with change rooms. The demand was there. Westbeach was growing. We hadn’t yet reached our critical production mass, but I had no doubt we had created something that didn’t otherwise exist.
My partner, however, did not share this belief.
As the summer of 1981 ended, I said goodbye to Cindy as she headed back to school. We were about to embark on another year of a long-distance relationship. In those days, there was no email or internet to keep us connected. Long-distance phone calls were expensive, which made you constantly consider how much time you could afford to talk, and snail mail, even then, seemed slow and archaic.
The conditions were there for Cindy and I to grow in different directions, so we ended both our personal and business relationship. Separating the business part was messy; Cindy had not been involved in the accounting and hadn’t been aware that Westbeach was worth negative $20,000 due to a personal loan I had provided.
The Third Season in Business
Despite the painful breakup with Cindy, my faith in the demand for Westbeach remained steadfast. I still believed I could be the best in the world at something. I was seeing a West Coast way of life manifesting itself into an athletic style far different from that of Europe or the East Coast. This style could be described as the “hoodie” look and is the genesis of the apparel worn by Silicon Valley techies today. Still, the term “lifestyle clothing” had not yet been coined. Neither had the word “extreme” in the context of describing extreme sports.
Then, in the summer of 1982, I finally moved Westbeach into an actual storefront. The shop was formerly a ’70s upscale hippie store called The Strawberry Experiment, a well-known downtown Calgary retail location 40 feet from where my booth had been. The previous store owner had poured a lot of money into the place, adding a glass floor over a fish tank, strobe lights, and shag carpeting – the works. I worked hard to enhance the unique, retro vibe of the place, to give customers a feeling they wouldn’t get in other clothing stores.
On a trip to Mexico City, I had gone into a discount store that sold beautiful clothing. I bought $5,000 worth of clothing, brought it back to Calgary, and it sold out immediately. I went back again and bought $15,000 worth and turned it around with the same results. When I went back a third time, the store had shut down. Little did I know at the time, but I was buying Guess clothing when the brand was near its genesis and had huge brand pull. Guess was unavailable in Canada or the US, and female shoppers knew something I didn’t. The brand was a great driver of people to our fledgling store.
I also hired two women, Kathy and Cathy, to cover the sales and management of the store. I’d met Kathy and Cathy when they were working at Calgary’s first cappuccino café, a place called Bagels & Buns. It was on 17th Avenue, right below the spot where my dad’s family had lived in the ’40s.
I would go to this café every Saturday and Sunday to read newspapers and get the only cappuccino in town. As I watched Kathy and Cathy’ efficiency behind the counter, they struck me as some of the most amazing workers I’d ever seen – highly responsible, smart, motivated, and great with customers.
Kathy and Cathy were exactly the people I wanted in Westbeach’s new store. As a learning experience, hiring them gave me my first brush with interviewing, training, and developing employees. I had no training myself, and I could only pass on the little I knew of my business philosophy. There were no books I could read that would have taught me how to do vertical retailing. Wholesale was a much “safer” option to address overhead and many other operating costs.
One of these wholesale deals was with Scott Sibley, the guy I’d become friends with during my first few months at Dome. A year or so earlier, Scott had left Dome to start a business in Vancouver with a man named Richard Mellon.
“I followed my passion and headed out to the West Coast to get into the sailboat business,” Scott explains.
Unfortunately for Scott and Richard, the small sailboat business was going through a downturn at the time. The market for parts was drying up. “To get some cash rolling through the company,” says Scott, “we looked at adding soft goods. That was where Chip came in. We arranged it so he would send us a bunch of inventory – shorts and T-shirts – on consignment. With this new focus on soft goods, we changed the name of the store to California BC.”
There was a huge demand for Westbeach apparel in Vancouver, and soon, California BC became my biggest wholesale customer.
The Shift in Men’s Apparel
In 1982, there was about to be a major shift in men’s apparel. This would take Westbeach to the next level. Standard men’s shorts were tight, with a short inseam – no more than three inches. If you had a dime in the pocket of those shorts, someone could read the date through the fabric.
Meanwhile, I’d been making baggy shorts for myself, with a 9 or 10-inch inseam. For a man of my size, I preferred semi-loose, longer shorts, of the kind I’d seen on businessmen in Bermuda during my global travel. I’d also seen how Australian surf-inspired shorts and hoodies were emerging as casual clothing in California.
Then, by the early ’80s, Quiksilver (which was making surf wear for actual surfers), made shorts with a small waist and a large bum-to-thigh ratio, which mirrored the physical build surfers have from all their squatting. This was functional apparel, built for an athletic requirement.
As I became involved with many Vancouver athletic companies, I would call this design concept the “Vancouver Fit” as the pattern shape was the opposite used by streetwear companies who use the average unathletic North American body measurements as their proxy.
Because shorts designed specifically for an athletic body looked so good, girls everywhere wanted their boyfriends to wear the same shorts. As with other trends, I sensed what was happening on the West Coast would make its way to the rest of the world. There was an opportunity here for me if I could figure out how to take advantage of it.
My first opportunity came when I visited the Quiksilver warehouse in California. The general manager showed me some unsellable inventory of men’s pants they’d brought in from Australia. The pants were made with wild-patterned fabric that was popular in Australia, but was too loud for conservative Americans.
I offered to buy 1,000 pants for $1 dollar apiece. The Quiksilver GM accepted this offer, happy enough just to get rid of the pants. I shipped the pants back to Canada and had them cut into long shorts, then priced them at $45 each. They had the look of the surf shorts I thought would soon take over. Sure enough, the shorts sold out in a week.
The fast-selling Quiksilver pants-turned-shorts proved that a market existed for long, colorful surf-in- spired street shorts. I created a new design by adopting Quiksilver’s fit, which included a very low rise in the front and a high rise in the back. The low front rise meant the fabric wouldn’t double over when crouching and the high back meant no plumber’s crack. It was a massive innovation in athletic apparel. These modifications worked perfectly, but the next hurdle was finding Hawaiian-patterned fabric to offset the old look of solid colors. I couldn’t afford to buy the right fabric, not in the 2,000 or 3,000-metre volumes I needed to make money. If I couldn’t buy the fabric, I had to think of an alternative.
As I considered the problem, I thought about my mother. Along with all the other sewing she did, she’d also always been good at quilting. This, I realized, was the solution. I went around to all the discount fabric stores, bought up all the discounted, brightly colored end rolls of fabric I could find, cut them into squares, and had the seamstress quilt them together.
“When Chip was a kid, he used to help me put my quilts together in the sewing room, but I never thought those moments we had would turn into a career,” my mother remembers.
The quilted fabrics gave me the crazy, bright look I wanted – but the shorts lacked stability since they were put together using multiple small pieces of material. The solution to this problem was to create a black cotton underlay.
As an unexpected side effect, the black underlay not only solved the stability problem – it also made the shorts reversible. You could have the wild patterns on one side, or you could turn them inside out and have a pair of plain black shorts, all in one garment. This thinking was the genesis of how I looked at all future designs. I discovered that when a consumer understood a garment was reversible, they subconsciously recognized them as two-for-one and halved the price in their mind.
Finally, I designed the shorts to be big enough to fit me. From a functional, technical standpoint, I hated the skin-tightness of the men’s shorts in style at the time. I wanted something in which I could move much more freely. I wanted to create an anti-ball-crushing garment (I perfected this with lululemon’s menswear).
As Josephine Terratiano says, “Every time Chip came here, he had so many crazy ideas. He kept saying, ‘Josephine, I have to have something different because young people, they go crazy and they spend money.’ We used to make reversible shorts, $100 each. He said, ‘Maybe some people they cannot buy these shorts ’cause they can’t spend money but the young people, they go crazy.’”
Still, I knew that few men in Calgary, as conservative as they were, would buy wild-colored surf shorts, so I rebranded them as barbeque shorts. I felt confident the regular guy just needed the right excuse to buy something that was usually out of his comfort zone. From this lesson, I learned that the naming of a product is a critical piece of sales success.
And that summer of 1982, people did go crazy for this new line of barbecue shorts.
These long, loose, anti-ball-crushing shorts gave men a clothing option they’d never had before. People were buying the shorts as quickly as I could make them, often four or five pairs at a time. They were, I realized, purchasing the shorts not just for themselves, but to send to friends and relatives all over the world, who couldn’t get them anywhere else.
At last, I was the best in the world at something.