by Chip Wilson
Once a brand matures, the Midwestern North American consumer buys in heavy and deep. This natural evolution warps sale metrics, so buyers in a merchant-led company 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 modern example, lululemon men’s line creates too many 9-inch inseam shorts that work for golfers and Midwest Americans. If you look at world’s trendiest beaches—Tulum, Jose Ignazio, Kits Beach, St. Tropez, Ibiza—you’d see that no one has been wearing 9-inch inseams for the past three years. Five- to seven-inch inseams are 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 one employee, 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 ten 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 with 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 onboard 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 were 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. It kind of blew my mind to think about it all.
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. Working at the company I’d started at an outdoor mall in Calgary two decades prior meant extra money to pour into my new venture, 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 exit Amanda 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. Otherwise, I felt, another mediocre American business would be created. That was not for me.
Shannon and Jackie
Fortunately, I’d recently interviewed a young woman named Shannon Gray. Shannon had a Fine Arts degree, an education degree, an apparel design degree, and 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 forty-one-year-old divorced male with two children who had worked with fourteen-to-eighteen-year-old boys for twenty years—and in walks Shannon. The perfect Super Girl. She was twenty-four, 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 h
ours, but her strong design eye and unique energy were exactly what we needed. To my relief, 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 on 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 these hardships 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 Super Girls.
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 prostitute 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 1
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 sizeable wholesale deal with a company called Superstar Sports and with many other cross-Canada yoga studios. This helped seed the market so when we did grow we had brand awareness. Superstar had thirty 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.
Chapter 14:
Moving On
The Superstar Sports Experiment, Part 2
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.
Lululemon’s small staff, run by Shannon, had bent over backwards to make the production schedule work. We had been far from cash flow positive before wholesaling. 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 B.C. retail franchises. 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 were 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 formerly an electronics store. It was rundown and in bad shape. Wires were hanging everywhere, and the walls were covered in ugly pegboard. $20,000 was all the money 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, paint it white, 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.”
