by Chip Wilson
Friends are more important than money.
Live near the ocean and inhale the pure salt air that flows over the water. Vancouver will do nicely.
Do not use cleaning chemicals on your kitchen counters. Try vinegar and lemon. Someone will inevitably make a sandwich on your counter.
Stress is related to 99% of all illnesses.
Don’t trust that an old-age pension will be sufficient.
Do yoga so you can remain active in physical sports as you age.
Observe a plant before and after watering and notice the benefits water can have on your body and your brain.
You ALWAYS have a choice and the conscious brain can only hold one thought at a time. Utilize your freedom to choose.
Just like you did not know what an orgasm was before you had one, nature does not let you know how great children are until you have them. Children are the orgasm of life.
Lululemon athletica was formed to provide people with components to live a longer, healthier and more fun life. If we can produce products to keep people active and stress free, we believe the world will be a better place.
DO IT NOW. The world is changing AT SUCH A RAPID rate that waiting to implement changes will result in you being two steps behind.
Will you choose a life of a glass-half-empty or a glass-half-full?
Take various vitamins. You never know what small mineral can eliminate the bottleneck to everlasting health.
Nature leads us to mediocrity for safety and reproduction. Average is as close to the bottom as it is to the top.
Dance, sing, floss, and travel.
Visualize your eventual demise. It has an amazing effect on how you live for the moment.
Calgary
In late 2002, my cousin Russ Parker came from Calgary to see the lululemon store in Kitsilano. After showing him around, Russ told me he wanted a franchise.
“Although I had been considering a couple of business opportunities,” says Russ, “I knew within a day of seeing lululemon in operation that it was something I wanted to be involved in. The electricity was palpable, and I loved the vibe in the store. People were communicating with each other in the office in an open, honest way you rarely observe in an office environment. I wanted in.”
This time, I also brought on a lawyer to help me make my franchise agreements just right—including an easy buyout. The buyout clause stated I could buy back the franchise for four times the profit and pay for all depreciated leaseholds and inventory at cost. This meant no negotiations in a buyout; it also meant that I could buy the sales of the franchises for four times profit and the public market would give me ten times the profit if we ever went public.
It was a great deal for me, and it was a great deal for Russ—he would stand to make about $10 million over the next five years.
So far, the desire I had to get to five stores quickly to get my production costs down was becoming a reality. Syd Beder was running a very busy store in Toronto, my cousin Russ did extremely well as soon as his Calgary franchise opened, and Shannon’s sister and brother-in-law had started a successful franchise in Victoria. This, I believed, put us in a strong position to open our second Vancouver store.
Naked on Robson Street
Every city has its own premier shopping district. While lululemon’s origins were tied to Kitsilano, Vancouver’s shopping mecca was Robson Street. Even though the focus on Robson was high fashion and not athletic apparel, it was almost impossible to run a store in Vancouver and not think about the possibilities Robson offered.
At that time, Robson was one of the most expensive retail areas in the world, primarily due to the value of the Japanese yen and the influx of well-heeled Japanese tourists. We wanted to set up next to the Robson luxury stores with a product that was completely different. A luxury brand is usually defined as a company with impeccable quality, sold at a price available to only a few. At lululemon, we believed we had impeccable quality that could be sold at a price accessible to anyone who appreciated technology and fit.
Luxury customers, meanwhile, could buy “time” in their lives and were consequently often in great shape and very healthy. These wealthy women were unconscious trendsetters who helped to propel the lululemon brand.
On the other end of the spectrum, we already had the hard-core yogis and athletes in community street stores and supplied them with the best-functioning athletic garment in the world. I knew that once people used the best of something, it would be almost impossible for them to use anything else.
We signed a lease on Robson and designed our first professionally-built store. Then I took out an ad in our local weekly newspaper offering a free lululemon outfit to shoppers if they came naked on the store’s opening day. The response was unbelievable. It was so strong that I became concerned there would be a naked riot, and we would be forced to hand out our entire inventory free-of-charge.
I went back to the paper and placed a second ad. This time I clarified that only the first thirty naked Guests would score free clothes. I had forgotten about Vancouver culture, and that given a chance, the whole city would show up naked.
On the day of the opening, at around four o’clock in the morning, people started lining up outside. It was a drizzly, cool October morning in Vancouver, but groups of people were showing up wearing raincoats and nothing else. It was still dark outside, but I could see the numbers were growing. The inside of the store was still swarming with our efforts to get it ready.
Not long after the line formed, the media showed up with trucks and vans. As dawn broke, a large crowd of spectators had assembled. Milestone’s—the restaurant across the street—had a balcony packed with people craning over their breakfasts to get a look at those lining up. Even lululemon’s meek, mild accountant who couldn’t have looked more out of place, had shown up not willing to miss the spectacle.
As we got ready to unlock the front doors, I was very excited… until I got a good look at the group of people clustered by the front door. The first two customers lined up were young girls who couldn’t have been older than fourteen.
I turned from the door and went to find Darrell Kopke in the back. I was verging on panic, thinking about the media and the video cameras filming, the crowd of spectators, and these kids about to strip down. What was supposed to be a funfest was suddenly verging on becoming a PR catastrophe.
After a couple of minutes to assess the situation, I asked Shannon to help greet the naked Guests. We went to the door, opened it up, and stepped out to the crowd. I shouted, “You guys are fantastic—thanks for coming!” The tension broke that instant and there were cheers and clapping. Then we counted off the first thirty naked people over the threshold.
As it turned out, those girls at the front of the line weren’t alone. They were sisters—and they came with their equally naked mother and grandmother.
Dozens of Guests continued to show up naked to the store all day, just because they could do it. Three naked men came in the morning and just didn’t want to leave. It was a little creepy, but we went with it. We had no issues with the police, and this reminded me why I love Vancouver so much. There are plenty of cities in North America where this kind of event in 2002 wouldn’t have gone over nearly as smoothly.
By closing time, it was clear the day had gone phenomenally well. The publicity was worth millions, and so much more fun than a standard press release.
Our store on Robson enjoyed a strong start and did not let up from that first day. The volume of foot traffic on Robson Street brought in tons of new customers and introduced many people to our world. We made use of our prominent store windows and used them to reach our community authentically. We treated every lululemon store window as a living, breathing expression of the empowered team of Educators in that store. It was theirs to create as often as they wanted. Unlike other retailers that had pre-set merchandising and window dressing, we encouraged our stores to be locally relevant and entrepreneurial with the “advertising” that the window represented
for people walking past and into our stores.
The challenge I’d anticipated before opening on Robson was maintaining our ability to do retail our way in a high-fashion environment. People may have come to Robson expecting the usual luxury fashion commission sales pitch, and they would have been surprised when they didn’t get it.
Jenna Hills, one of the first Educators hired at the Robson Street store, says: “Chip would visit a few times a week. He always selected a few Educators to do a walkthrough. Nothing got by him. He was fastidious about approaching every single person in the store with a sense of urgency. Time was a huge value. He gave feedback with clarity and was generous with his love.
“One story I remember was at the end of a monthly staff meeting. Everyone from Vancouver would gather at the West 4th store in the evening after closing. I was sitting on the floor, like we did, when Chip said we couldn’t grow this company without those of us in the room stepping up. He said any one of us could be making $100,000 per year in five years’ time. It was up to us, and the company needed us. I knew it was the truth. It struck me like lightning. Five years later I broke six figures for the first time in my life. At that staff meeting, I was making ten bucks an hour. But I’ll say it anyway—it wasn’t about the money. It was about creating possibility.”
Chapter 18:
The Business of Family
Big News
In early 2003, Shannon and I found out we were going to have a baby of our own. As the news settled in, I felt a tremendous amount of satisfaction with my life. With Shannon as my partner, we had grown a business from nothing. Now, that business was set to provide for the family we were creating.
Shannon was lululemon’s phenomenal designer. In fact, a few months earlier, the owners of Roots had come into our store, asking who our designer was. “My wife,” I told them, and that was the end of that.
Shannon also provided design continuity for the brand, her work representing our original intent. Having a child might lessen Shannon’s involvement in our operations and successful formula, but by then we’d hired and trained great people underneath her (Andrea Murray, Cassandra Tse), and had tried to mitigate against her inevitable absences.
Things at lululemon were going exceptionally well. As an entrepreneur, it’s sometimes hard to believe you’ll ever have a company that’s bringing in enough money to create a rainy-day fund, but lululemon was now in a place where it would do just that. I paid off the debt I had taken on our house. That meant Shannon and I could start our family without financial worry and stress.
Partnering with the Hons
Meanwhile, the lululemon concept was translating smoothly across our locations. The success of the five Canadian stores confirmed we could thrive while doing business our way.
We’d put into place an exclusive manufacturing deal with my friends Frankie and Elky Hon. Their Vancouver factory was working at 80 percent capacity, and they were always scrambling for business. I made them an offer. I said I would guarantee 100 percent production with one fabric for 50 percent of their business.
My 50 percent of the manufacturer’s profit meant I had eliminated yet another middleman. When great factory people like Frankie and Elky do not have to look for business and can focus on efficiency, amazing work can occur. We ended up making $2 million a year profit on the factory, and I continued to build a deeper and wider moat to protect against future competition.
As Frankie says: “We started with very small orders, a hundred pieces at a time. Then Chip’s business bloomed crazily, and Chip suggested an exclusive partnership with us.” Much like my relationship with Josephine Terratiano, my relationship with the Hons grew organically, and, to this day, they’re like family. Eliminating two middlemen by owning our manufacturing and our own stores was a key reason for lululemon’s rise to greatness.
Around the time of this partnership, a man named George Tsogas came in as a consultant to look at our inventory, distribution, and overall logistics. “When I first walked into the office,” says George, “all I remember is this big West Coast dude sitting on a yoga ball, shirtless, in board shorts and flip-flops. His first words were, ‘You’re way too serious, do not wear a suit again to this office.’ That was my first taste of Chip’s unique culture.”
At the time, George was a recent graduate of a Vancouver technology school. He was a young, natural leader who quickly modernized the processes in our warehouses and distribution centres. Not only that, George introduced the people working in the warehouses to our culture—he brought in fitness equipment, personal trainers, and development coaches.
Where there’d previously been high staff turnover in our warehouse, people now stayed for the long-haul. This concept was almost unthinkable for part-time seasonal workers. Over the coming years, George would prove to be a major asset to the company, eventually rising to the position of VP Global Logistics and Distribution. He was one more addition to our core team.
Toronto: Growing Concerns
There was one exception to the excitement—I was developing serious concerns about our Toronto franchise. While Syd Beder understood how to sell, he wasn’t embracing our business philosophy. Contrary to our training, he told the customers how pretty they looked and was attached to the old-school fashion model. He was going about things in his own way. He wasn’t investing in his Educators, and without our training, they were unable to connect with our Guests authentically.
What Syd failed to recognize was that the success of our brand was driven by our people development. No matter what the company’s goals were, the most important objective for lululemon was to remain true to our culture. That culture—and how it related to both our staff and customers—underpinned everything we did. Keeping to our core philosophy was what would give us long-term success.
To me, the culture of the company was so critical that it needed a valuable person to lead it—a person who had a major commitment to training. “A huge focus of this was training people to live great lives,” Delaney remembers. Because she was a poster child for personal success, I asked Delaney Schweitzer to be our first training manager.
The Buy-Out
The Toronto franchise was doing the same sales as Vancouver stores, or about $1,500 to $2,000 per square foot. This was double or triple what most retail stores did, and we were just in our infancy. This provided a hint on the sales multiples we could do if we implemented our business philosophy in Toronto.
Jill Chatwood was one of the first Educators at the Toronto store. As she recollects, “There was always a waiting list for products. At one point, we had a binder with lists of people waiting for certain items to arrive. We would call them and make no promises, simply letting them know we had received new stock. Changing room line-ups were regularly waitlisted for longer than forty-five minutes. We had people on the floor whose jobs were simply to bring up more stock by the armload and hang it up as fast as they could. Every day was like Boxing Day (or American Black Friday).”
I was happy with this. So was Syd. He wanted to sell lululemon clothes, but he didn’t want to run a lululemon store the way I’d intended. Every management issue led to a disagreement. Our communication was broken. Our differences were fundamental.
Part of this was Syd’s refusal to attend the Landmark Forum. Already in his sixties, perhaps Syd felt he’d already learned everything he needed to be successful. His business partner, Alex Morgan, was also disinterested in the course. If the two of them weren’t willing to conduct committed, guided self-improvement, their employees wouldn’t get the opportunity to experience our culture. I experienced a divide between a West Coast athletic concept and an East Coast fashion context. To me, the fashion model was old and dead.
I needed to get the store back to ensure the cultural integrity of our brand. In my mind, without integrity, lululemon was nothing. What had to be done was clear: I needed to buy Syd out of the deal.
I went back to our franchise agreement to acquaint myself with the details of our buyout clau
se, only to discover there wasn’t one. The lack of a buyout clause in my Toronto franchise agreement wasn’t the first time I was responsible for a bad contract.
Syd was a shrewd person, and it would not be easy to come to terms with him. He also knew I could set up five stores around him and put him out of business, but I had better and bigger things to do.
The dollar figure we settled on was $2.5 million. I had sold the franchise to Syd for $25,000 just two years earlier. Even though the number we agreed to was enormous, it was clear the Toronto store with other stores I could quickly build would be enough business to justify the price. I had little alternative but to find the money.
Over the years, I’d learned hard lessons about borrowing money and the downward spiral that can result when financial liabilities overwhelm a company. My days at Westbeach had left me with a strong aversion to debt. But while learning fiscal responsibility had been an essential, valuable lesson for me, I also learned it’s just as important to know when not to be so dogmatic and when to adapt to a new situation. The situation with Syd Beder was shaping up to be one of those times.
I had nothing close to the money I needed to buy back the franchise. I went to my former private equity (PE) partner from Westbeach, Don Steele, whose children were both working at lululemon. I asked Don to buy 30 percent of lululemon for $2.5 million, but he declined as he had too much on his plate. He said with my cash flow I should be able to borrow the $2.5 million from the bank. It was such an unbelievable number I couldn’t believe a bank would lend it to a four-year-old business. It turned out the cash flow from the one Toronto store could cover the loan.
I had paid off the mortgage on my house, but the only way to secure a new loan was putting up the house as collateral. “Geez,” I thought. “Here we go again!” This hit even harder, as the house was now where I lived with my pregnant wife.
