Little Black Stretchy Pants

by Chip Wilson

  Later, as upper management changed, many of the new people didn’t want to carry on the tradition of working in the stores. In fact, many of the people in upper management didn’t even see most of the stores. The Board would not consider chartering a plane to have our senior people visit ten stores in a few days, and the connection between stores and head office was weakening. Short-term expense savings and public optics became more important than ensuring the model was working or that we would invest in the health of our highly-paid, very busy, top staff.

  But I loved working in the stores, either working as an Educator or in the change rooms once a week, so I never lost my ability to know just by touch or sight the state of our quality.

  Recently, there were a lot of subtle things I was noticing, especially in the change rooms. Our Guests didn’t seem to have the right facial expressions when they were trying things on, or they weren’t coming out to show other people how they looked in front of a mirror. Maybe the elastic in the waistband didn’t fit quite as well as it used to, maybe it was the stretch of the fabric. At the cash registers, Guests weren’t buying three items at a time anymore—they were buying two. The prices were getting too high, the quality was dropping, and we had competition.

  The trouble was, this unquantifiable instinctual knowledge was almost impossible for me to verbalize to the Board. I knew something was happening, but as the stock value kept increasing, my communication had little sway.

  When I first raised my concerns to the Board, I tried to be proactive and positive about it. In September 2012, I wrote a lengthy message to Michael Casey.43 There were several issues—many related to our culture and quality-control—that I brought forward for Michael’s attention.

  Once again, I proposed a “king or queen of Luon,” since Luon was the main fabric we used and 75 percent of everything we sold. This was something I’d asked Christine to take on, but she’d turned it down.

  I still strongly believed we needed to have somebody who was the third-highest paid person in the company, and whose sole responsibility was eating, breathing, living, and loving our Luon fabric, and keeping a close eye on every yard of Luon we made.

  Leaving on a Jet Plane

  Perhaps I was a starter of businesses, while other people were meant to be the operators of existing companies. Perhaps creative founders were destructive and disruptive. Perhaps the lululemon business philosophy wasn’t supposed to work in a bigger company. If so many Directors were telling me I was wrong, then maybe I needed to step out of the company and let Christine prove her long-term value.

  I could no longer look the employees in the eye. They knew I was not upholding the culture of integrity and openness by which I had led them. I had told them it was my job to protect them and I couldn’t fulfill my promise. I was confused as to how I had lost the power to fulfill on our vision. Worse, I didn’t know how to reverse my loss of influence.

  Our children were young, so Shannon and I decided to move the family to Sydney, Australia. We would be able to pursue mindfulness as a potential brand since the concept had been turned down by lululemon’s Directors. In any case, I set aside my dreams for lululemon and chose to focus on my family. If the directors were correct in their view that Christine was running a great company and I was a deterrent by interfering, then we would all benefit by having me far away.

  On the other hand, if our investment in people and processes was in tatters and a disaster was imminent, then the proof would reveal itself soon.

  ____________________

  42 Jim Collins, “Level 5 Leadership: The Triumph of Humility and Fierce Resolve.” Harvard Business Review, January 2001, accessed: September 28, 2017, hbr.org/2001/01/level-5-leadership-the-triumph-of-humility-and-fierce-resolve-2.

  43 Author’s personal records, September 3, 2012, message to Michael Casey, re. September 3, 2012 board package.

  Chapter 27:

  Quality Issues

  Down Under

  By the summer of 2012, I was living in Australia with my family.

  Looking back on it now, Shannon says, “We could do it, so why not? Our time in Australia was one of the best things we ever did.”

  Being in Australia gave me time to switch gears from business to being a full-time dad. My wife and I assisted with my boys’ surfing lessons, helped with their homework, and read them stories.

  The company at that time was worth about $12 billion, so it put Shannon’s and my net worth at about $4 billion. I was also still Chairman of the Board. I was obviously very interested in lululemon’s performance in the market because every time the stock went up or down a dollar, our net worth went up or down $40 million.

  Since our departure, Shannon and I had stepped away from much of what was happening at the company. I hadn’t been a part of any of the changes to the lululemon product, or the restructuring of the business, but even from afar I could see their struggles.

  There was a dichotomy between the company’s short-term incentive plan and my own plan as a long-term stockholder with a fifty-year outlook. A CEO’s personal wealth lies in their ability to sell their options on a high and to inflate their personal brand to negotiate the maximum compensation at their next job. Christine and Bob had both done this. Bob at least had been transparent about it. When Christine did it, it caught me off-guard, and it hurt.

  In Good to Great, Jim Collins illustrates how every change to a best process has the flywheel move more slowly. Lululemon developed systemic atrophy, moving it from great to good. A company of lululemon’s size is made up of thousands of processes. If one process changes then someone must know how to change the three pieces that fit into it. If a CEO changes twenty processes—but doesn’t change the three contributing processes—then the system breaks.

  Trouble Getting Closer

  As 2012 turned to 2013, our sales were continuing to increase 30 percent a year.44

  In mid-March 2013, the so-far unquantifiable problems in our quality came to a very public head.

  “Lululemon Has A See-Through Yoga Pants Problem.”45 That was the headline in the Corporate Intelligence section of the Wall Street Journal on March 18th. On the same day, Business Insider ran a story with this title: “Lululemon Pulls Stretchy Black Pants Because They’re Too Sheer.”46 Then the CBC ran this a day later: “Lululemon Recalls Pants For Being See-Through.”47

  Similar stories ran in the National Post, the Globe & Mail, the Daily Mail, Bloomberg, and Forbes, among many others. We had to announce a massive recall of our signature women’s Luon pants, based on the now-infamous transparency problem. Women’s Luon pants made up 17 percent of our total inventory, and the recall was likely going to cost $60 million in lost sales.48

  Jill Chatwood recalls: “I was on maternity leave, travelling in Australia with my husband and children. We stopped in for a visit at the house that Chip and Shannon were renting. It was clear to me that Chip had some concerns with how the product team was operating. I confirmed for him that quality was not as strong a focus as it had been in the past and that I too was concerned.

  “Lo and behold, within weeks of that conversation, it was discovered that the consistency and quality of our key fabric, Luon, was compromised. The ‘sheer pants’ emergency was in full swing. Pressure to make the numbers was winning out over commitment to quality.”

  A lifetime of research into how to make best-in-the-world non-transparent black stretch pants all came undone in an instant.

  Christine blamed Eclat Textile, who had grown to become our number one fabric and manufacturing partner and fired our Chief Product Officer.49

  The sheerness issue was our fault, plain and simple. I was mortified for lululemon. Solving sheerness was the functional reason that I started lululemon in 1998. And, amid this uproar, conversation of other big quality issues that I had previously brought forward evaporated entirely.

  Around this same time, we received an email from Lucy Lee Helm, general counsel for Starbucks. I was a carbon-copy recipient, as was Micha
el Casey. The letter was addressed to Christine, and summarized Starbucks’s concerns about a recent interview Christine had given with ABC’s Katie Couric only a few weeks earlier:

  Dear Christine,

  On behalf of Starbucks, I want to express our deep concern about your troubling comments on the “Breaking the Glass Ceiling” segment of the nationally syndicated Katie Couric television show. What we heard you say about Starbucks personnel practices, and your own career opportunities with Starbucks, are disparaging and simply untrue.

  During the course of your interview with Ms. Couric, you described your experiences at Starbucks and, specifically, that the company gave you jobs that “nobody else knew how to do” and that the company “tried to sideline you when you had children.” You described one experience in which you perceived you were treated differently than a male colleague and agreed with Ms. Couric that that was a “fairly typical moment” in your Starbucks experience. Your comments imply that your considerable success at the company was somehow limited based upon your gender.

  This characterization is not only inaccurate and untruthful but disparaging of Starbucks and its partners. Starbucks appreciates your many contributions during your employment with the company but frankly you, too, were provided with significant opportunities. Indeed, you progressed significantly in your career at Starbucks over 20 years, from administrative assistant to senior executive levels. You had many leadership roles and received opportunities for learning and advancement across the organization. To suggest that Starbucks somehow mistreated you or failed to accommodate your schedule because of your gender is a serious distortion of the record and one that does a great disservice to Starbucks, its partners, and its legacy of progressive personnel practices. And it does not accurately reflect the career path you achieved at Starbucks, which you have successfully leveraged to “catapult” to an impressive position at lululemon.

  Starbucks would prefer to avoid a debate or dispute with you over your statements. But we cannot allow inaccurate, misleading and frankly disparaging comments about the company, its partners, and its human resource practices to go unanswered.

  Sincerely,

  Lucy Lee Helm

  Executive Vice President, General Counsel and Secretary

  cc: Howard Schultz

  Dennis J. Wilson

  Michael Casey50

  With Michael Casey as one recipient of the letter, I thought the support of Christine would finally collapse. After all, the number one job of a board is to hire a CEO and ensure a CEO succession pipeline is in place. I think the Board was afraid that firing the CEO would draw publicity that would adversely affect lululemon’s short-term share price and possibly their reputations.

  A meeting was held in Sydney, Australia. At the end of the meeting, the Board asked me to come back to Canada to try to help fix the problems. With our Chief Product Officer gone, the lululemon product team also phoned my wife Shannon asking her to come back and help.

  Asking us to come back was the Board’s directive to Christine. She was to make space for us in the company, because of all the challenges they were facing. Shannon and I agreed right away. We would absolutely go back. We were lululemon’s biggest cheerleaders—as we always will be.

  Returning to Vancouver

  Once we were back on the ground, it only took us a few weeks before we’d found out everything we needed to know.

  Our hearts sank when we realized lululemon had sold 95 percent of the samples we’d collected from around the world in the last thirty years. These were samples we used to visually show designers a possible future inspiration in a new form.

  Still, it was good to be back. I don’t think we were alone in feeling that way. Legacy people—those who truly understood the company—were happy to see us, and we were so glad to see them. The Design team was excited for the business to be potentially design-led once again.

  “I was focused on keeping the business going,” says Michelle Armstrong, “so I didn’t even notice the circumstances that brought Chip and Shannon home early. My team and I were incredibly grateful when they came into the office to support us. Our merchandising team was so excited to learn the original Operating Principles from Chip, as many of them were new to the company and had not grown up with him leading the product team. Shannon had an incredible talent for giving feedback in meetings, and her sense of taste and perspective was highly-valued.”

  Deanne Schweitzer says: “When we called Chip and told him we had a massive quality issue in our signature fabrics, I assume he felt that his company was being fucked up and he needed to get back ASAP and fix it. We had also gone from a culture of responsibility and accountability to a lot of finger-pointing.

  “I was in a new role for the company at the time, SVP of Women’s. When Chip and Shannon came into the office, I personally welcomed their expertise. They were both attending our design meetings and grounding us in what made a lululemon product. Shannon would also attend fittings with the designers, which was just as valuable. The designers loved her perspective, and I loved the extra set of eyes.

  “Prior to their sabbatical, Chip had written Operating Principles for the company. Many people had never worked with him before, and they were thrilled when he presented all the Operating Principles. The Product team felt energized after those presentations.

  “None of this went over well with Christine. As an executive at the time, I felt the tension between Chip and Christine when Chip returned. Without saying anything, I also felt I was placed on an unspoken ‘Chip team.’ It was a stressful time.”

  “It was very clear that upper management was not happy to have Chip and Shannon back on the scene,” says Jill Chatwood. “This was the beginning of the end for Christine. There was an awkward divide because you were on Chip’s team or Christine’s team and you really didn’t get to decide which team you were on. The division at the top caused fractures within the product team. The environment was tense, with direction and redirection occurring daily.”

  A few days later, in mid-April 2013, I had a conversation with Christine herself. I had no plan going into this conversation. It was just five o’clock in the evening, the end of the workday, and she and I were in her office. I was just trying to re-establish a working relationship with her. As I saw it, we needed to clear the air.

  In some ways, this difficult, cut-the-shit conversation had been a long time in the making. We had once had a good working relationship, where we’d both brought different strengths to the table. But a lot had changed since then, and the time had come to clear the air.

  Finally, I looked at her and said, “Christine, you put a lot of good things in place for lululemon, but you never had a vision for the company. Other than a three-year operational, strategic plan, who are we? We’ve got competition growing every day, how are we different from them?”

  I summed up by saying, “In my mind, you’re a world-class chief operations officer. But you’re a terrible CEO.”

  She just cried and turned away—a reaction I thought was unprofessional and likely fake. I just disengaged and went home. To be frank, I wasn’t sure I believed her emotions. I thought she’d cried wolf one too many times whenever pressure was being put on her.

  Charade or not, the next day, Christine announced her resignation to the Board.

  ____________________

  44 “Lululemon Athletica Inc.,” Morningstar, accessed: August 10, 2018, financials.morningstar.com/ratios/r.html?t=LULU.

  45 Tom Gara, “Lululemon Has A See-Through Yoga Pants Problem,” The Wall Street Journal, March 18, 2013, blogs.wsj.com/corporate-intelligence/2013/03/18/lululemon-has-a-see-through-yoga-pants-problem/.

  46 Kim Bhasin, “Lululemon Pulls Stretchy Black Pants Because They’re Too Sheer,” Business Insider, March 18, 2013, www.businessinsider.com/lululemon-see-through-yoga-pants-2013-3.

  47 The Canadian Press, “Lululemon Recalls Pants for Being See-through,” CBC, March 19, 2013, https://www.cbc.ca/news/business/lululemon-rec
alls-pants-for-being-see-through-1.1347288.

  48 Stephanie Clifford. “Recall Is Expensive Setback for Maker of Yoga Pants.” The New York Times, March 21, 2013, www.nytimes.com/2013/03/22/business/lululemon-says-yoga-pants-mishap-will-be-costly.html?_r=0.

  49 Kim Bhasin, “Lululemon Supplier Fires Back: Those Recalled Yoga Pants Were Not ‘Problematic’,” Business Insider, March 19, 2013, www.businessinsider.com/lululemon-supplier-see-through-yoga-pants2013-3.

  50 Author’s personal records, April 2, 2013, letter from Lucy Lee Helm to Christine Day (cc: Michael Casey, Chip Wilson, Howard Schultz)

  Chapter 28:

  Damage Control

  The CEO Resigns

  Christine’s statement that she wanted out came as a jolt to the Board. Succession planning had not been focused on, and the board ultimately convinced Christine not to resign and to stay on—at least for an interim period—avoiding any public announcement that would have caused further jitters to an already jittery Wall Street and enabling the Board to quietly begin a CEO search.

  Had she been removed immediately, I believe the company could have rebounded from the quality issues quickly, but the Board wasn’t willing to take that chance.

  I thought Delaney Schweitzer was ready to be the CEO. We just had to hire a world class COO to support her brilliance. The Board did not agree.

  Another possible solution would’ve been to make me interim CEO, as it seemed we were in the same situation as when Bob Meers went AWOL. When Howard Schultz returned to Starbucks, the analysts and Wall Street were all aghast, since by their metric-driven standards, Howard was unsophisticated and didn’t know what he was doing. The same went for me, apparently. The Board was scared of Wall Street’s reaction to the return of an opinionated founder.

  Either way, the Board was fucked, and they knew it. Because the Directors’ reputations were on the line, they bent over backwards for Christine until they could fill the gap.