by Chip Wilson
I wondered how I could have been so short-sighted as not to ensure that I got the final say on the history of lululemon. He who wins the war writes the truth, and the truth that Harvard got was wrong.
I went to Harvard to present my issues with the case study, and they were receptive to my concerns. They were embarrassed by the inaccuracies, so they let me record two additional videos to set the record straight (having said that, I saw the case study presented in Vancouver in 2016, and the new videos were not included).
The people at Harvard explained that they’d needed a senior executive at lululemon to sign off on the case study. Christine was the person who’d signed off.
Trimming Expenses, Raising Prices
Christine was adding value to lululemon’s stock by trimming expenses and testing the upper limits of what we could charge for our product. I believed this created “bad profit.” Our hedgehog, as you may recall, was to have the best black stretch athletic pants. The company priority was changing incrementally to became about quarterly expectations set by the public stock analysts.
For the first time, I wasn’t entirely sure Christine and I were pulling in the same direction. It seemed we were cutting costs and increasing prices for the wrong reasons.
As a long-term shareholder, I believed all we had to do to keep our “first in market” advantage was to continually increase quality and keep prices low enough to make it uneconomical for competitors. Our vertical model was unbeatable. We would become a mediocre company only if our quality failed or we increased prices too much. If we increased prices, competitors would enter the market, take market share, and we would make less money.
Advent had sold down their position and needed to attend to other investments. In their parting words, Advent implored lululemon to pursue international as soon as possible. They said we needed to be first in market with our global product. We had invented the break-even showroom/pop-up concept, and we could softly enter Europe and Asia. This would have meant an investment now for future growth with no projected return for at least five years. This was not good for short-term financial reporting.
Gap Athleta, Nike, and Under Armour
In 2010, I believed we owned streetnic (athleisurewear), even with other brands circling in on what we were doing. The Gap was floundering, but it made a great move by buying the infant online competitor Athleta in 2008 for $150 million and adding bricks and mortar stores to build out the Athleta brand.
Athleta didn’t concern me as I saw them as a Microsoft compared to our Apple. Lululemon and Apple had that undeniable, unquantifiable cool factor in their designs, technology, product, and branding.
I didn’t mind having Athleta in the market. The Gap was a merchandiser-lead business where decisions were made based on past spreadsheet numbers rather than instant customer feedback. I knew spreadsheets and algorithms showed a big opening in the market. The older women’s market was underserved, and Athleta took this position. I knew their consumer was not iconic as a brand driver, and, in my opinion, Athleta would never be a market leader.
In general, I observed that older women preferred looser clothing and were typically larger in size. This meant a 30 to 40 percent increase in fabric with far less profit than lululemon.
There were also the wholesalers Nike and Under Armour to consider. As of 2010, Nike was a footwear company trying to understand apparel, and Under Armour was still making garments with big logos for impressionable teenage boys and insecure men. I knew wholesalers would be very good competitors if they could use their model to produce huge volume and low margin (think of the McDonald’s hamburger model). Huge volumes meant they could take away production space from lululemon’s fabric and mill suppliers.
For a brief period, I even considered buying Under Armour.
For a few years after our IPO, lululemon was worth about twice as much as Under Armour, maybe even three times as much. About 85 percent of our sales went to a female market. Under Armour, meanwhile, was almost all male and did not appeal to the female market. Had we been able to take the Under Armour male brand and market it through the lululemon business philosophy, the result would have been a formidable opponent to Nike.
However, after a meeting with Under Armour CEO Kevin Plank in 2008, I couldn’t see Kevin’s macho philosophy working with that of the Super Girls. Lululemon stood for soft, rounded edges. We stood for yoga, mindfulness, and for everybody winning. Under Armour, I thought, had an in-your-face image of winning at all costs, male chauvinism, and leaving everybody else in the dust. With those things in mind, I did not pursue the thought of a merger.
In any case, I didn’t see Nike or Under Armour as a major concern for the moment as the expense of developing and running apparel retail stores was not in our competitors’ area of expertise.
As 2010 ended, I was thinking more about traditional media advertising than ever before—just because we hadn’t advertised in the past didn’t mean we shouldn’t do so in the future, especially with the changing horizon. Lululemon was still an underground brand, known mainly to its customers and employees (and competitors), but not as well-known to the world.
If Nike used its worldwide network, it would appear to Asians or Europeans that Nike was first in the market. I thought lululemon needed to build three hundred to four hundred small breakeven community pop-up stores around the world and/or start buying traditional media to inexpensively put our stake in the ground and flex our global e-commerce muscle. We had perfected the pop-up model; all we had to do was put it into action.
Anna Wintour and Jacques Levy
Around that time, Shannon and I had a meeting with Anna Wintour from Vogue Magazine at her office in New York. We were introduced by our Director, Brad Martin, the former CEO of Saks. We tried to paint a picture for her of how West Coast technical athletic apparel was starting to dominate fashion.
To provide a couture-related context, I asked Anna to imagine a future where wedding dresses would be made with stretch fabrics and have silver threads for anti-microbial stink control and mesh venting for breathability.
More and more, people were demanding the comfort and functionality of athletic wear in everything they wore, but the fashion scene hadn’t yet caught on to this paradigm shift. The fashion scene had always had a very cyclical relationship with itself—the same designers were covered by the same journalists with the same advertisers, year after year.
For the last twelve years, I’d purposely pushed all fashion conversation out of the lululemon dialogue. That meant we were still a mystery to fashion experts.
During our meeting, Anna rightly stated that the mass consumer knew nothing about lululemon and that our success existed only in our own mind.
We needed to advertise in a big, big way, Anna told me. People needed to know about lululemon before multiple competitors could water down the idea that lululemon had invented a movement—before they could make us just one of many. I’d seen this exact same thing happen in the surf, skate, and snowboard industry, when the market became oversaturated. I wanted lululemon to be known as the inventor of the streetnic business, and I wanted us to be recognized globally. I knew old-school media would attract thousands of unpaid editorials and result in exponential future sales.
There was a little part of me that wondered if Anna was just trying to sell advertising space in Vogue, but I had no problem agreeing with her premise, and I couldn’t deny the point she’d made.
Then, in early 2011, a man named Jacques Levy joined our Board of Directors. Jacques had served as CEO of Sephora and had twenty-five years’ experience in the high-end retail industry. Unfortunately, Jacques would not be with us long—he lost a battle with cancer less than a year after he joined our Board—but in the time we had him, he repeated what I’d heard from Anna: lululemon needed to advertise and bring our message to the masses.
As I mentioned earlier in the book, a personal mandate of mine holds that when I hear something three times, I must do it—almost as if hearing
something three times is a sign. Hearing about big advertising first from Anna, then from Jacques, then more and more from my own subconscious as I considered the changing market, prompted me to act. I approached our CEO and Board of Directors and told them the authentic community way our brand was built had worked for a long time, but we now had to double down. We needed to continue our community branding, but also advertise in a big way. The rest of the world needed to know who we were. We needed to invest now so we could own the future.
The Fearful Board
Grassroots networking and word-of-mouth promotion had worked for lululemon for ten years. Not only had it worked, but it had also contributed to the company’s unprecedented success. But, I couldn’t convince the Board to continue widening the moat around our stronghold.
I could not prove advertising would work. This was the second inkling I had that something was wrong. I had always done well at knowing the right time to venture into something new for the future of the company.
Lululemon had a strong Board and CEO. It was the perfect combination as far as share ownership and distribution went. I owned 30 percent and $2 billion of the stock. My 30 percent represented the company’s voice for brand, vision, and innovation on the Board. The other Board members represented audit, compensation, governance… or in Christine’s position, operations.
Michael Casey, the lead independent Director, delivered the message: If I couldn’t prove the unknown future, then my advertising idea had zero validity.
I sensed something very amiss. I knew lululemon had a financial wizard in Michael Casey as the lead independent Director. I also knew he believed his job was to secure the money lululemon had in the bank whereas I wanted to use the free cash to make money for our shareholders. I was okay with Michael being fearful and cautious, as that’s what the company needed to balance out the Board’s diversity. But, I wondered if the Board was truly diverse.
It occurred to me that the combination of a security-driven lead director and a CEO-operator was not synergistic for the company. I believe the decision to not step up advertising cost lululemon $5 billion in market value over the next five years.
Who is John Galt?
Lululemon might not have been investing in big advertising, but that didn’t mean we couldn’t ask the world one compelling question: “Who is John Galt?”
John Galt was an idea I raised at a creative meeting with twelve people and our CEO, Christine Day, in early 2011. The focus of the meeting was to up the ante on lululemon’s shopping bags. The bags had successfully displayed our Manifesto for many years, but perhaps the time had come to think of something new.
I’d read Atlas Shrugged when I was nineteen and working on the pipeline, but I’d also reread it when I was fifty. It was as I reread the book all those years later that I recognized how much influence the book had had on my life. I’d absorbed the characters uncompromising quest to make a quality product, their love of their employees, their passion, and their refusal to make money off the backs of other people. I was fascinated by the convergence of both self-interest and providing for the world.
Not long before this creative meeting, Christine and I had done a joint interview. We laughed during the interview because we both said the one person we would want to have dinner with was the author, Ayn Rand.
At the meeting in 2011, I mentioned that Atlas Shrugged had been an important book for me in laying the foundations of lululemon’s culture. I thought this book represented the perfect Super Girl philosophy.
I proposed we might allude to Atlas’s influence on our iconic bags. I loved subtle branding. Only highly-educated, well-read people and Super Girls would understand if we put “Who is John Galt?” on the side of our bags. This was the kind of marketing no other company would think of doing. The brand team agreed.
A 1991 poll by the Library of Congress and Book of the Month Club found that Atlas Shrugged was the second most influential book after the Bible. Another poll conducted in 2007 found that 8.1 percent of adult Americans had read it. Almost none of the young women who worked for us had read it or even heard of it. This was surprising because if there was anywhere a woman could look for inspiration to be great in business, it was in protagonist Dagny Taggart.
Christine loved the idea of putting the John Galt question on our bags. A few months later, the new bags came into circulation in all of our stores. I thought of this as both a branding strategy and a way to start a philosophical conversation. It would also help us to solidify the people who “got it” as our core customers.
To supplement the bag’s release, we added this explanation to our community blog: “Many of us choose mediocrity without even realizing it. Why do we do this? Because our society encourages mediocrity. It is easier to be mediocre than to be great. Our bags are visual reminders for ourselves to live a life we love and conquer the epidemic of mediocrity. We all have a John Galt inside of us, cheering us on.”
Although I loved Rand’s work, I did not realize how politically divisive she was in the United States. With the 2012 US election on the horizon, right-wing political factions were using Atlas Shrugged as a touchstone. This gave the left wing (who I am sure had not read it) all the reason to hate the book, as well as the rest of Rand’s work. Many people seemed to think there was an incongruity between a brand influenced by yoga and Rand’s objectivism.
I didn’t see it that way. Lululemon’s philosophy is about building people up, influencing everyone around you to be great, and elevating the world. Atlas’s Dagny Taggart is a driven, professional female in her thirties—someone in whom lululemon’s ideal customer might see herself reflected.
I also noticed that the loudest complaints seemed to come from people who were not striving for greatness or fighting to do something extraordinary. These people were the antithesis of our iconic customer.
To build a brand, our CEO and directors needed to understand that strong resistance on social media from non-customers actually creates real brand value. Core customers don’t want to be lumped in with the loud naysayers, so their loyalty only increases.
Meanwhile, the media had a wide swath of analyses of the bag. The Globe & Mail acknowledged the “lively conversation” the bag had stirred up, while Slate and Forbes pointed out Ayn Rand’s status as a Tea Party heroine.40
Overall, I was happy with the chatter, but this was also the beginning of social media. Suddenly, anyone with a computer was an expert on any given subject. Endless political debate aside, we were doing something right. We’d sparked a conversation, and we were marketing our brand in our unique way.
Many of our Directors did not understand our unique branding. Our branding emanated from my experience in the surf, skate, and snowboard industry where brands were created by being anti-establishment. This created a “tribe” who then created a social movement that others wanted to emulate (this is not really different from the luxury company whose advertised tribe is jet-setting models whose lives are unattainable by 99 percent of their customers). These are the subtleties of how word-of-mouth branding works, as described in the book The Tipping Point41.
Christine’s reaction to this was nothing but weird.
In the Board meeting, in front of the Directors, Christine told the Board she had never seen the shopping bags and had never given approval. The idea that Christine didn’t know was unthinkable. I had to take time to check in with myself to ensure I had not made up a story.
I thought it best to talk to the brand team to be sure I wasn’t going crazy.
When I brought up Christine’s position to lead Director Michael Casey, I could sense he didn’t believe me. The scenario was bizarre, and so, I thought the whole thing must be was a crazy one-off. My integrity took a hit, and the John Galt bags were removed from the stores.
In my opinion, that recall was damaging to our brand because our Super Girls could sense weakness in our stand for greatness. The people from the creative meeting wondered why I didn’t stand up for them and why Christ
ine had thrown us all under the bus. I couldn’t explain myself.
Christine stood firm in her story and was rewarded with accolades for managing a stable company and a wildcard founder. It seemed the love for a rising stock value compelled the Board to err on the side of caution. Over the next several months, she went on to tell the media the same story she’d told the Board. She maintained that she had no oversight or agreement on the production of the shopping bags.
In seeing this, the culture at lululemon changed immediately. The company culture shifted to one where people wanted nothing more than to look good, protect their asses, and embrace mediocrity. Christine had ensured that the employees had no direct access to the Directors, and the Directors were determined not to interfere or examine such things under the guise of good governance. I was speaking for the employees at the board level, but I sensed I had lost influence.
The culture of integrity was being abused at the highest level.
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32 Dominic Wiseman and Mark Barton, “Where Boards Fall Short,” Harvard Business Review, December 19, 2014, hbr.org/2015/01/where-boards-fall-short.
33 Ibid.
34 Ibid.
35 Ibid.
36 Ibid.
37 Ibid.
38 Ibid.
39 Michael Tushman, Ruth Page, and Tom Ryder, “Leadership, Culture, and Transition at Lululemon, Multimedia Case.” Harvard Business Review, hbr.org/product/leadership-culture-and-transition-at-lululemon-mul/an/410705-MMC-ENG.
40 Simon Houpt, “Lululemon’s Ayn Rand Bag Irks Some (Others Shrugged),” The Globe and Mail, November 15, 2018, updated, May 8, 2018, www.theglobeandmail.com/report-on-business/industry-news/marketing/lululemons-ayn-rand-bag-irks-some-others-shrugged/article4200710/; Molly Worthen, “Who Is John Galt and Why Is He on Lululemon Bags?”Slate, November 18, 2011, http://www.slate.com/articles/double_x/doublex/2011/11/ayn_rand_groupies_yoga_enthusiasts_and_the_american_genius_for_self_absorption_.html; Todd Essig, “Occupy Your Yoga Pants: Lululemon’s Toxic Mix of Commerce and Ideology,” Forbes, November 21, 2011, https://www.forbes.com/sites/toddessig/2011/11/21/occupy-your-yoga-pants-lululemons-toxic-mix-of-commerce-and-ideology/#611893935848.
