The Exchanges

Q So you, um, and so we should foreshadow, there's a foreshadowing here that Shannon eventually becomes your wife. You're now married to Shannon, she's your wife. Um, So you, uh, so Lululemon, like, really launches in, in 98 in this neighborhood in Vancouver, and does it take off right away? Is it just, like, insane, or was it a slow burn?

A It was very slow burn. And, um, and then it was so slow that even when I left for, to run West Beach, we were running out of money. I had a lot of inventory because I needed to make at least five to 600 of every, of our six styles in order to get the price down. So I fell into the trap of wholesaling. And so I, I made a big deal to wholesale to a sporting goods company in Vancouver, and I shipped to them, and they immediately went bankrupt. So that really took the company to the very edge. We had no money to pay payroll again. Um, I was only a couple weeks away from the end of it. Um, we had just decided to move across the street from our second floor into a store on the main floor on Fourth Avenue at 10 dollars a square foot because it was an old beat up electronics store. And then, um, the, another thing from heaven came and it was, they fired me at West beach. Well, and I use that loosely, but they combined with Sims skateboards and the CEO of Sims skateboards became the, the CEO. So they, they let me go with a, um, a severance fee of 50,000 dollars. And if that wasn't for that 50,000 dollars, we never would have been able to finish our store.

AI assessment note: “It was very slow burn. And, um, and then it was so slow”

Q Yeah. And, and so you, and, and these were, like, flower-printed, like, loud Hawaiian, like, I don't know if you've been to Trader Joe's, like those shirts, like, that's what the shorts looked like?

A Yeah, exactly. But, you know, you have to see it in a context that There was nothing like that before. Everything else was that era of brown, rust, off-color okra, yellow, like solid colors. There was no brightness in the world at all that time, so that was a radical look. So I, I started, um, because I couldn't get loud flowered prints in 2000 meters, which is kind of what a person needs to go into business, I started doing what my mom did. She quilted fabric, so I would Get masses of different types of patterns of fabric, and then I would cut them into squares, and then I would quilt them, and then in order to keep the stability of that, I put a backing on it, a black fabric, and then I realized I had reversible shorts, so not only were they long and baggy and reversible, they just really revolutionized shorts, so, and then the skateboarders started taking them on because it kind of covered their knees.

AI assessment note: “Yeah, exactly. But, you know, you have to see it in a context”

Q Wait, wait, explain, explain this to me, because you have these retail stores, and, and they were doing well, but you, you also had a wholesale business, which was losing money?

A Well, it was a quandary, because I needed the volume from wholesale to get to economy of scale production to bring my prices down. And Because my prices were down, my retail stores could make so much money, but I couldn't really make any money in wholesale because, um, if I made something for 20 dollars, then I would have to sell it to Dick's Sporting Goods for 40, and then they would sell it for 80. Where in my own retail stores, then I was putting it in there for 20, and making 80 dollars, so there was a 60 dollar profit in there. And so I kept thinking to myself, how can I Get to economy of scale production, and that was the, you know, the, the big, big driver.

AI assessment note: “I needed the volume from wholesale to get to economy of scale production”

Q All right, so you, you bet everything on this, um, and then you open a store, right?

A Yeah, but it's, uh, you know, I can only get a store on the second floor in the right area on the right street in Vancouver, which is probably got more athletic stores than any place in the world because of, you know, the type of environment we have. But I can't, you know, it's really hard to get people up to the top floor, so the only way I can, I figure out how to do it is to, is to combine my business with Fiona Stang, my yoga teachers, and I had all my clothing on rolling racks, and we'd move it all out to the side and have yoga classes there early in the morning and then at night. That would bring women into yoga, but also see what our clothing was, and then it kind of moved from there.

AI assessment note: “Yeah, but it's, uh, you know, I can only get a store”

Q Where are you making the stuff, by the way? Where's the clothing being made at that point?

A Well, I'm making it in Calgary. I found some Italian couture designers that were, um, you know, again, just like my mother, they were at home, and they weren't working, and they were amazing. So we set up a factory, um, and so if you can imagine, almost everybody else in the apparel industry, I think everybody else basically made clothing, then wholesaled it to somebody else. Not only was I doing my own manufacturing, but I owned my own stores. So I was, Basically taking the profit of two middlemen out of the business. But, you know, the big revenue part of the business was in wholesale, but my wholesale business was losing a million dollars a year, and then I had these two retail stores that were making a million dollars a year.

AI assessment note: “Well, I'm making it in Calgary. I found some Italian couture designers”

Q So did you, what did you do? Did you, did you run back from that yoga class and, like, go back to your house or wherever you were living and start to sketch out ideas?

A Yeah, there was a little bit of that, and I talked to, of course, Fiona Stang, who was the, my yoga instructor, who had kind of dropped out of the New York financial world to become a yoga instructor in Vancouver, and like I did in surf, skate, and snowboarding, I started to use her as a sounding board and as a creative source, because unlike surf, skate, and snowboarding, where I was a boy and I could fit in the clothing, I knew exactly what was going on, I obviously wasn't a woman, and I could see that yoga at that time anyway, it was 99% women, and if I was going to do this, and I was going to transfer my knowledge of what I'd learned in snowboarding Lycra stretch pants into yoga, then I needed some advice.

AI assessment note: “Yeah, there was a little bit of that, and I talked to, of course, Fiona Stang”

Q Okay, so you have, uh, you have this, this company, which, which you decide to call, uh, Lululemon, uh, but by the way, where, where did that name come from?

A Yeah, I probably get asked this once a day, and so, when I had West Beach, I had bought a skateboard brand called Homeless, and with Homeless, I started to, uh, sell that to the Europeans and the Japanese. And it started to occur to me that the five big trading companies in Japan were making North American brand name clothing. In other words, they would come up with their own brand name in order to deliver that to the Japanese customer. But Japanese, those big trading companies would never come up with a name with an L on it because it doesn't exist in the Japanese language. And so what I got was that the young kids Could see through that. And they went, a name with an L in it is more authentic North American. It's not like a, a Japanese knockoff. So it had real value to them. So I started to go, oh, wow, that's really a neat idea. So I, over the next couple of years, I just started doing alliterations in my mind and with L's, but it was a pretty risky name at the time because lemon was really connected with, uh, really bad quality Detroit cars.

AI assessment note: “I just started doing alliterations in my mind and with L's”

Q Yeah, and, and so you, and, and these were, like, flower-printed, like, loud Hawaiian, like, I don't know if you've been to Trader Joe's, like, those shirts, like, that's what the shorts looked like?

A Yeah, exactly, but, you know, you have to see it in a context that there was nothing like that before. Everything else was that era of Brown, rust, off color okra, yellow, like solid colors. There was no brightness in the world at all that time. So that was a radical look. So I, I started, um, because I couldn't get loud flowered prints in 2000 meters, which is kind of what a person needs to go into business. I started doing what my mom did. She quilted fabric. So I would get masses of different types of patterns of fabric, and then I would cut them into squares and then I would quilt them. And then in order to keep the stability of that, I put a backing on it, a black fabric, and then I realized I had reversible shorts, so not only were they long and baggy and reversible, they just really revolutionized shorts, so, and then the skateboarders started taking them on because it kind of covered their knees.

AI assessment note: “Yeah, exactly, but, you know, you have to see it in a context”

Q Wait, because the first time you ran out of money, you were, uh, you were running West Beach, right?

A Right. And I got West Beach, my old company, moved back from, from Salem to Vancouver, and they asked me to run it. And it was like a gift out of heaven because I was, we were really low on money where I didn't want to advertise. I wanted word of mouth to, of the quality of our clothing to be the branding niche because I, I really did believe in the tipping point and it had to come from people. It couldn't come from advertising. So I was again, another incredibly lucky thing. I hired this woman who Shannon Gray was her name. The first person I'd ever seen that had a design portfolio with, uh, using stretch clothing, and within about two weeks, I, after hiring her, I, I left her in charge of Lou Lemon as the CEO for a year, and I went back and ran West Beach.

AI assessment note: “Right. And I got West Beach, my old company, moved back”

Q So did you, what did you do? Did you, did you run back from that yoga class and, like, go back to your house or wherever you were living and start to sketch out ideas?

A Yeah, there was a little bit of that, and I talked to, of course, Fiona Stang, who was the, my yoga instructor, who kind of dropped out of the New York financial world to become a yoga instructor in Vancouver, and like I did in surf, skate, and snowboarding, I started to use her as a sounding board and as a creative source, because unlike surf, skate, and snowboarding, where I was a boy and I could fit in the clothing, I knew exactly what was going on, I obviously wasn't a woman, And I could see that yoga at that time, anyway, it was 99% women, and if I was going to do this, and I was going to transfer my knowledge of what I'd learned in snowboarding Lycra stretch pants into yoga, then I needed some advice.

AI assessment note: “Yeah, there was a little bit of that, and I talked to, of course, Fiona”

Q And you actually sold a, a chunk of stock pretty early on, right?

A Yeah, you know, again, you know, I had advisors that were just giving me advice that was good for them, and not necessarily for me. You know, I really only wanted to sell 30% of the stock to the private equity guys, but I ended up selling 48, so I lost control of the board seats, and I didn't know how to negotiate for them. So, that is important, because as we go public then, um, you know, the advice I got was, hey, Chip, you should sell more of your shares into the marketplace, because the more shares that are out there, the more, The more the institutional investors will be able to get a good chunk of it and be able to hold it for a long time. But the reality of it is, is all these were techniques to have kind of an owner founder dissipate and kind of move into the background and not have the power, so to speak, to control a board. Um, and that's really what I lost and it's, it's my own fault and, but that's what I ended up with.

AI assessment note: “I really only wanted to sell 30%... but I ended up selling 48”

Q And, and, okay, so, okay, so here you are in your, uh, early forties, and, and like, I mean, what were you gonna do?

A Well, actually, my goal was to be financially independent by 40, so I failed in that goal. And, um, you know, was thinking about what I wanted to do, and, and then I, um, and I had this thing, I have always believed in this three times thing, so when I see something three times, and I move, and I move really quickly. So I'd seen a, I'd seen an article in the paper about yoga, I'd seen a poster on a, you know, telephone post with a little rip-off about the yoga class, and Then I overheard a conversation in a coffee shop about yoga, and I went, wow. So I, I went to this yoga class, you know, I, it went from about six to 30 people in 30 days. I was the only guy in the class, um, and it's in a gym, and, you know, of course, I'm always noticing athletic bodies and clothing and how it fits. I mean, I'm really a big data guy around, you know, I look at everybody top to bottom, and I analyze it, and, uh, At the time, the fashion of gyms was to wear your very worst clothing, and mostly because probably 90% of people in gyms were men, and, ah, and you, you know, you knew you were gonna sweat in it, you were gonna get ugly in it, and you just wanted to throw it in the wash afterwards, so nobody thought about athletic clothing being nice.

AI assessment note: “was thinking about what I wanted to do, and, and then I”

Q And, and by the Sort of that time, the mid to late eighties, what were you selling?

A Well, I mean, the beautiful thing is I, when I formed a partnership with my two guys in Vancouver, I moved to Vancouver, and then in, I'd say, eighties, but starting in 83 in Calgary, I'd started to do snowboarding, and I could see snowboarding coming, and snowboarding was going to be way bigger than, ah, surf or skate, and I didn't care about the boards and the boots and the bindings, because for me that was low-margin hard goods, where I knew all the money was to be made in the clothing. Especially for us, because it would take up the other eight months of the year, which we weren't really selling very much. And, uh, snowboard clothing was four or five times the price of surf and skate t-shirts and shorts.

AI assessment note: “I knew all the money was to be made in the clothing.”

Q And were you, were, I mean, what was your vision? Did you think this is gonna, we're gonna take on, we're gonna be the biggest snowboard apparel company in the world?

A Sure. I mean, in, in a, Japan had just exploded. So it was about 30% of all snowboarders business. And, uh, the drive to grow and to grow fast, knowing that what I'd seen in surf and skate, where it started off with three companies, went to 500 and then went down to three again. I knew the same thing was going to happen in snowboarding. So when's the right time to get in? What's the right time to build? What's the right time to invest? And when to get out was always in the back of my mind. And sure enough, you know, probably in 9006 or so, the Japanese yen started to collapse. So we're starting to think that snowboarding wasn't the cool thing to do anymore. And so the market was changing drastically and we still weren't making any money because we were just reinvesting just to keep on top of the competition.

AI assessment note: “the drive to grow and to grow fast, knowing that what I'd seen”