As a young man, Lululemon founder Chip Wilson was an avid reader. He’d pore over books, magazines and newspapers. And he’d start to notice trends. He’d pick up on the atoms of information floating in the universe, and soon after, he’d realise he had seen the beginnings of a movement long before it came into being. It was his gift, he thought.
It was this instinct that led him to launch Lululemon, the brand widely considered to be the “founding father” of the activewear movement, way back in 1998.
You see, when Wilson was young, he was a competitive swimmer. But he couldn’t fit into the athletic clothing on the market, so he started to think about apparel generally.
Then, he realised his talent for swimming was causing people to pay attention to him — and, interestingly, to what he was wearing. Other swimmers would wear what Wilson was wearing, presumably with the hope that by dressing like him, they could swim like him.
At some point, Wilson realised Nike’s method of sponsoring athletes had merit.
So, in 1979, Wilson launched Westbeach Snowboard Ltd, an apparel company that sold surf, skate and snowboard clothing. These sports were starting to gain mainstream popularity, and it seemed the perfect time for someone to introduce a fashion element. Wilson even launched a snowboarding competition to help showcase his gear on the big stage.
The gamble worked. In 1997, Wilson sold Westbeach for US$15 million.
In 1998, Wilson began taking yoga classes — and again he noticed something that piqued his interest. “At that time, everyone wore their worst clothing to the gym,” he once told CNN Business’ Vanessa Yurkevich. He also realised yoga was a wildly popular form of exercise and so he seized on this new opportunity. Lululemon was born.
It’s safe to say Chip Wilson didn’t invent yoga pants, but he did reinvent them.
Lululemon’s yoga pants were made from a fabric dubbed “luon.” Luon is a trademarked, original mix of nylon and Lycra. Finally, yoga devotees had a pant that accounted for the sweating and stretching that yoga entails. Luon is moisture-wicking, which helps with the sweat, and it allows for a four-way stretch. The bonus? Luon is “cottony soft.”
Which brings us to Lululemon’s next point of difference: yoga devotees finally had a pant that fused function with fashion. Their attire effortlessly transitioned from the yoga mat to the supermarket, and soon, women were wearing Lululemon attire in social settings.
Activewear, as we know it, was born.
Meanwhile, Lululemon was also setting trends behind the scenes.
The Canadian-born company is known for its vertical retail model, which means it designs, produces, and sells its own products, without using wholesalers or third parties. Lululemon has full control over its inventory, allowing it to satisfy its customer base efficiently.
Speaking of customers, Wilson ensured Lululemon identified its base early. “If you start making something for everybody, then you make something for nobody,” Wilson said.
Lululemon’s target customer was a 32-year-old professional woman. She was athletic, naturally. She travelled. Moreover, she was fashionable.
With that ideal in mind, Wilson assembled a focus group of customers dubbed the Super Girls — and when they talked, Lululemon listened. In fact, as Wilson wrote in his recent memoir, Little Black Stretchy Pants, he “refused to allow algorithms or metrics to run Lululemon.” For Wilson, how customers interacted with the brand is what led decision-making.
The customer-first approach helped Lululemon gain attention, and a few years after launch, in November 2000, the company opened its first store in Vancouver, Canada.
From there, the company skyrocketed. In 2005, Wilson decided to bring in investors to help guide the company’s initial public offering (IPO). Wilson also stepped down as CEO as part of the process. In July 2007, Lululemon launched its IPO, raising US$327.6 million.
The company has not been without its controversy. Wilson has put his foot in it, to say the least, on a few occasions. He was known for saying Lululemon did not make clothes for plus-size women because it was a “money loser.” Perhaps most notoriously, during an interview for Bloomberg TV in November 2013, he said, “[Lululemons] don’t work for some women’s bodies.”
Fast forward to today, Lululemon appears, for all intents and purposes, to be a thriving business.
Wilson is no longer involved in the day-to-day running of Lululemon. The company brought in Calvin McDonald as CEO in July 2018, after ousting Laurent Potdevin. McDonald has plenty of experience, having served as president and CEO of Sephora’s Americas division.
McDonald is testing a loyalty program at Lululemon, aiming to capitalise on the brand’s devoted customer base. The program charges members US$128 a year for curated brand experiences, free shipping, and a pair of pants or shorts, among other benefits.
Meanwhile, Lululemon continues to be a market leader in activewear or “sports leisure.” and is expanding rapidly on a global scale. About 72 per cent of its market is within the United States, almost 19 per cent remains in Canada, and the rest of the world (around 9 per cent) makes up the remainder.
Lululemon enters into each new market with a strategy at front of mind. It cultivates relationships with prominent yoga and athletic figures in each community and enlists them as brand ambassadors. This gives the company a chance to educate and build its potential customer base in each market before it officially puts down roots.
As always, it comes back to the customer. In fact, although that “ideal” customer, the original Super Girl still exists, Lululemon has actually rolled out a men’s line in recent years.
While the case for Lululemon has plenty of zest, there are, of course, risks. Lululemon has competition in companies such as Nike and Under Armour, both of which are targeting the growing activewear market.
Despite the risks, we’re not sour (sorry!) on Lululemon.
The Spaceship Universe Portfolio currently invests in Lululemon.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.
