The Superstar Sports Experiment, Part Two
We got word from Superstar that our product was selling well, and we just had to wait for our payments to come in.
Over breakfast, shortly after getting this good news, I read a newspaper article describing bankruptcy proceedings that had started against Superstar Group. The same Superstar Group in possession of lululemon product worth $30,000. There’s no way to describe how this felt – especially finding out in this way. Losing the receivables from Superstar was a devastating blow.
Hoping to salvage something, anything, for lululemon, I attended Superstar Group’s bankruptcy meeting. The room was packed with representatives from companies that, like mine, stood to lose money. Everyone there wanted to secure a piece of the bankruptcy pie for themselves. Initially, I held hope that we might be paid out in the proceedings, but it didn’t turn out that way. We never saw a single cent from Superstar. For a young start-up like lululemon, it was a huge hit.
A year and a half later, the same owner of Superstar, who’d essentially walked away with everyone’s money, formed the corporation that opened Nike retail franchises in British Columbia. I must say it hurt having someone use my money to compete against me.
I was frustrated that I hadn’t listened to my gut instinct. I had ignored the learning I’d gained from Westbeach, and the results had been disastrous. I promised myself, this was one mistake I would never make again. If I could somehow pull lululemon out of this mess, I would stick to my guns.
Now that the Superstar money had vaporized, it looked like we would have to defer the cost of moving to a new location until our financial outlook improved. I realized it would be impossible to keep going until the unknown point when we had more cash. Now, more than ever, we needed a new space to generate sales volume that would dig us out of the hole in which we’d landed, but the cost of moving felt prohibitive.
Still, it was move or die. At least housing prices in Vancouver were skyrocketing. This meant I could take out another equity loan on my house – it was the only way we could afford to move the store.
2103 West 4th Avenue
I had been keeping an eye out for any good space on West 4th Avenue. Ultimately, we didn’t have to look far. In November 2000, an excellent location opened right across the street. We could see into its front windows from our own.
The new spot was a former electronics store. It was rundown and in bad shape. Wires were hanging everywhere, and the walls were covered in ugly pegboard. We only had $20,000 available, and we would need to spend every last cent moving in and getting the new store into a somewhat workable condition. We wanted to set up before Christmas, and it was already November.
“Ugly,” says Shannon. “The new space was just really ugly. Since we were operating on such a tight budget, we couldn’t do that much to fix it up. The plan was to paint it white and put in new carpet. We didn’t have enough money to pay professionals to do the work, so we did it ourselves. We closed the store for four days which, for a small start-up business, was a long time to have our doors closed. We pulled all-nighters trying to get it finished. One day, an Australian guy who was backpacking across Canada poked his head in to see if all these people frantically working needed some help. We pulled him inside and gave him a paintbrush.”
My day job as the CEO of Westbeach had taken me away from the original lululemon store for the better part of a year. Now, the four-day period we needed to move our little company across the street and renovate our new store coincided with a European business trip. Shannon, Jackie, Dave, and some people they’d hired took on the bulk of the move. I wished I could’ve been there with them, pitching in on the work.
“We rented a five-ton cube van with a driver and a motorized tailgate,” Dave recalls. “There was a big posse of us, store employees and friends. We moved everything over in three trips – fixtures, rolls of fabric, sewing machines, the entire stock of inventory, cash desk, et cetera. The truck and driver cost us $200, and I remember I tipped him $40.”
When the crew finally moved the inventory over, it was immediately clear the space was too big. We had an empty second floor. I’d chosen to stop selling other brands at our new locale, choosing instead to focus solely on lululemon. I knew it was the right choice, but once we had our products in the new store, it looked distressingly sparse.
After devoting so much to wholesale production, we had little inventory. At a push, we could only fill half of the main floor store. I knew I wanted the store to feel like a busy “kitchen party,” so I built a huge moving wall on wheels that expanded the store on weekends and shortened the store during the week. We had moveable change rooms so we could add or subtract those for traffic too.
The familiar elements of today’s lululemon stores didn’t exist in that first street-level location, but it did solidify a deep faith in being able to create something from nothing. It was teamwork for a higher purpose. We brought over our community boards from the old store and made do with bits and pieces of furniture that I’d found at distress sales. Shannon’s design/pattern making table was made from an old door on blocks. To her credit, the fit of the garments was perfect even though she had to keep moving patterns to avoid drawing over holes in the door.
By the time we were ready to open the doors, we’d completed a marathon, bare-bones renovation.
It felt surreal to return from my European business trip and find that the store into which we had poured all our faith, experience, and belief had changed completely.
My one indulgence was commissioning a massive mural for the outside wall of the store’s building. It depicted a silhouette of Fiona Stang, my first yoga teacher, in Warrior Two pose. I could see it from blocks away as I approached. Lululemon was now a visible player in Kitsilano. This was a new beginning.
Then, right before Christmas, Westbeach fired me.
It had been hard coming back to Westbeach, much harder than I’d thought it would be. I was just starting to understand what it was to be a manager. I was just learning how to align others with a vision effectively.
As CEO of Westbeach, I had only a few options. I could license the Westbeach brand to a company in Europe or move it into direct vertical retail and get out of wholesale altogether. A vertical retail shift of a wholesaler like Westbeach would have meant two tough, unprofitable years shutting down wholesale and opening stores.
I would have lost my economy-of-scale production with the loss of wholesale, without enough sales coming from the retail stores. Opening our own stores would cost money we didn’t have. Westbeach needed an entirely different structure – almost a complete reinvention of the company.
Then there was a move at the ownership level. Westbeach merged with Sims Skateboards. Although Sims was a major force in its own scene, skateboarding was also in a period of decline. If it would survive, Sims, like Westbeach, had to consider mergers and acquisitions. The merger was with Westbeach. The two brands now eliminated a lot of redundant warehousing and administrative processes.
They also eliminated one of two $100,000 CEO positions. That was me. Merry Christmas.
It was a weird position in which to find myself. The Superstar Sports fiasco had set lululemon back tens of thousands of dollars in product. Our move to the new store cost another $20,000. Westbeach had just let me go. I had borrowed $200,000 against my house to start lululemon, and I’d borrowed the final
$200,000 to keep it afloat. It suddenly seemed like everything was on the verge of falling apart...but it turned out to be the best possible scenario.
First, Westbeach let me go with a healthy severance package – half of my annual salary. That quick infusion of cash couldn’t have come at a better time.
Second, I wasn’t the right CEO for Westbeach. Lululemon represented exactly the work environment
I wanted; Westbeach had no budget to change, and it was the antithesis of the future I had envisioned.
Third – and most importantly – I could now give lululemon my full attention. The $20,000 store move had paid off immediately, and business was growing by the day, particularly as Christmas drew nearer. I could now turn my focus to marketing and possibly, expansion.
Now that I’d returned, Shannon, who had been the de facto CEO in my absence, was concerned that her days of creative freedom in steering lululemon were over. “I’d been having such a great time,” she says, “enjoying an incredible amount of autonomy . . . but now the boss was coming back.”
In my absence, Shannon had done a phenomenal job of driving powerful forward momentum in design. The vibe she and Jackie had created and promoted in the store was exactly what I wanted. Plus, I knew it was important for our success that they felt personally invested in the company. Shannon and I made extra money on the side by designing outerwear jackets for another Vancouver company called Aritzia and setting them up with Asian manufacturing.
I could understand how they felt about my return, so I stressed to Shannon and Jackie that they were still in control of day-to-day operations. I wanted to focus my energies on marketing and growth, not looking over their shoulders in the store, micromanaging everything. I was choosing a leadership style of mentoring and training. My job was to develop people in the culture and get out of their way. I adhered to the concepts of Michael E. Gerber’s book, The E Myth: Why Most Businesses Don’t Work and What to Do About It. I developed Operating Principles and processes that would allow employees to operate independently with conceptual self-imposed parameters so I could focus on the future of the business. Because our training and development program was implemented at the beginning, we could grow exponentially faster than other companies. My belief was employees didn’t need adult supervision - they wanted intellectual stimulation and the opportunity to be great.
Farewell to Dave
Now that I had the time to flesh out my ideas, I knew one thing I wanted to prove was our business philosophy. I didn’t want to take shortcuts, but it was all a big risk.
After our busy Christmas period ended, I wanted to have a serious talk with Dave Halliwell about our partnership. Even though he had done a massive amount for the company in my absence, he had never committed to an official partnership. He’d been “thinking about it” for months.
For both our sakes, I told Dave he had to make his choice by January.
With Christmas right around the corner, lululemon was appearing in several articles about hot gift-giving options. One article mentioned a bra Shannon had designed from a brand new innovation that recycled pop bottles. The bra hit it big that Christmas.
The bra was a peripheral item in our inventory as our focus was on our Lycra clothing. But, the interest the bra generated was a perfect marketing vehicle for introducing our clothes to new customers. The people who came in the door looking for the fleecy bra inevitably left with one of our signature garments.
Meanwhile, I felt we’d finally perfected our fabric and trademarked it as something called Luon – a proprietary blend of nylon and Lycra. We trademarked the name for reasons similar to ones held by those who trademarked Gore-Tex and Velcro. Many competitors may use a similar product or invention, but if you’re the first define a category and trademark it, then it builds a moat around the brand, and the name becomes synonymous with the entire industry.
I sensed lululemon was very, very different in the apparel world and I continually considered how to build a wider and deeper moat that would make future competition difficult.
In January, as promised, Dave Halliwell and I sat down for a meeting about his future with lululemon. I could tell right away it was a “no.” The decision wasn’t easy for Dave. He told me that although he be- lieved deeply in what we were doing and was more optimistic than ever about the direction the company was going, he was saying no to our partnership.
I didn’t have to, but I wanted to remunerate Dave for his passion and commitment to our success. In 2001, I paid Dave $60,000 or $5,000 per month over a year. This amount was a fortune for lululemon at the time, but Dave’s work had been a vital part of our success.
We parted ways on good terms.