Forbes India 15th Anniversary Special

Who's Lululemon's biggest critic? Its founder

Billionaire Chip Wilson, Lululemon's creator and largest individual shareholder, is also its loudest critic. All the current management team can do is shrug

Published: Feb 2, 2017 06:47:58 AM IST
Updated: Jan 31, 2017 02:16:23 PM IST

Who's Lululemon's biggest critic? Its founder
A tale of two CEOs: Lululemon Founder Chip Wilson refuses to give its current chief executive, Laurent Potdevin, any breathing room
Image: Jens Kristian Balle for Forbes

Sitting in a shaded cafe in a cobblestoned neighbourhood in Vancouver, Chip Wilson, the founder of Lululemon Athletica, laments the fate of the company he created. “There’s no innovation,” he says with a sigh, ripping apart a croissant. “Innovation is something that changes the way people are dressing. People get the word ‘innovation’ mixed up with incremental change. The two are entirely different things.”

This coffee shop is Wilson’s private Elba. In 2013, after a 30 percent drop in Lululemon’s stock that coincided with a series of public embarrassments, including a massive product recall and benighted comments about women’s bodies, the company sent Wilson into exile. In stepped a new chief executive, Laurent Potdevin, then the president of Toms Shoes, who quickly changed Lululemon’s management team, product lineup and expansion strategy. In two years he lifted sales by almost 30 percent, to $2.1 billion, sending the stock to $55 a share, up from a June 2014 nadir of $37. But profits are virtually flat, and the stock is way down from its peak of $82 in 2013. It’s been lurching along all fall, losing more than a quarter of its value since September.

All of which gives ammunition to the ousted founder, who retains a big enough stake (15 percent) to remain relevant and exhibits a trait shared by most people who have started something good: The inability to let go of his baby.

Wilson has it bad. As he bicycles atop a leopard-print seat along the Vancouver waterfront, he notices a passing jogger. “That’s Lululemon—those pants.” He spots a second person. “And those shorts.” Then a third. “And that backpack.”

From the time he founded Lululemon in 1998, control was paramount to Wilson. He painstakingly oversaw the yoga-focussed Lycra-and-nylon fabric—a stretchy material as soft as cotton—that put the company in motion and the athleisure industry on the map. Wilson insisted that Lululemon would operate its own stores, meaning higher margins and control over everything. His exacting vision infused company culture, which is partly informed by Werner Erhard’s EST theories of “self-actualisation” and Ayn Rand’s Objectivist principles.

But his control-freak nature clashed with Lululemon’s growth. Wilson had handed off CEO duties before the company’s 2007 IPO, but he feuded with one of his successors over things as mundane as shopping bags and blamed a recall of see-through pants on the way women’s thighs rubbed together—and then fumbled the apology as well. “Chip was a public relations nightmare,” says Barclays analyst Matt McClintock.

Who's Lululemon's biggest critic? Its founder
Lululemon chief executive, Laurent Potdevin
Image: Jens Kristian Balle for Forbes

In came Potdevin, then 46, who says he found “turmoil about the product, turmoil about the founder”. The board bought Potdevin some breathing room by reining in Wilson. It persuaded the founder to sell some of his stake to a private equity firm, agree to a two-year non-disparagement agreement and give up his board seat. Wilson eventually retreated to advise a rival clothing company called Kit and Ace, which his wife and son had founded.

Meanwhile Potdevin searched for new lieutenants. “I had to rebuild the management team to really be in a position to write the next chapter,” he says. One of his most important additions was Stuart Haselden as chief financial officer. Haselden also oversees the supply chain, meaning he guards against any more sheer pants—enforcing more timely orders of materials, a more efficient calendar and stricter testing at factories. Haselden and the other top four executives have all joined Lululemon in the post-Wilson era.

Potdevin has created a fiercely loyal group with virtually no ties to the founder. The only thing that’s the same: Wilson’s insular culture (Atlas Shrugged still adorns company bookshelves). The new human resources chief, Gina Warren, a whispery-voiced ex-Nike executive, likes to refer to the staff as a “collective”.  

Incoming employees get indoctrinated during a gruelling boot camp lasting as long as 60 days. They learn about a corporate structure that asks managers to wholly trust their direct reports’ ability to achieve success in a relatively flat management structure.

“It’s creating the conditions for clarity and then letting people play,” says the new marketing chief, Duke Stump, who acknowledges the similarities to Zappos’s controversial “holacracy”. “It goes sideways at times, but people are creating stuff.”

And it’s also working. Analysts expect Lululemon to hit $2.3 billion in revenue in 2016. One of Potdevin’s successes: Men’s clothing, an area mostly eschewed by Wilson, who imbued Lululemon with an unmistakable feminine orientation (its “A” logo, for instance, resembles the silhouette of a woman’s head and hair). Men’s sales have grown over 20 percent annually in the past three years to roughly $330 million on the strength of products like the chic ABC trousers, designed to be particularly comfortable in the area below a man’s waist. (Its acronym spells out as ‘anti-ball-crushing’.) At its stores, Potdevin has added more male “educators” (its Orwellian term for its in-store sales force) and recruited more male “ambassadors” (its term for local trainers, coaches and yoga instructors who get gear and support in exchange for promoting Lululemon).

But now that the non-disparagement agreement has expired, the 61-year-old Wilson is vocal again. Wall Street, for its part, doesn’t seem to care. “We are starting to see the results of stable management, and we’re going to see what this company can do as a stable company,” says McClintock, the Barclays analyst.

The obvious thing for Wilson to do would be to put his money where his mouth is and buy out Lululemon. He’d need to partner with a private equity firm or some other investor; his $2 billion fortune is well short of Lululemon’s $7.6 billion market cap. But he isn’t keen on launching a takeover attempt. He could also devote all his time to re-creating his Lululemon rocket ride at Kit and Ace, which has sales of an estimated $70 million.

Instead, he seems content to just nag. A few months ago Wilson purchased a large ad at a bus stop outside Lululemon headquarters in Vancouver, directing commuters to check out, where Wilson explains his vision for running the company. “It’s my way of talking to the company, because the type of CEO it has and type of direction it is getting are not long-term-driven,” Wilson says.

Launching a startup in a nascent industry is far different from managing a large company in a mature one. Some founders get that; most don’t. Which leaves Wilson facing what haunts parents everywhere: Filial rejection. “Chip’s the founder, a large shareholder, so he’s certainly entitled to his opinion,” Potdevin says with a shrug. “It’s not a distraction—just noise.”  

(This story appears in the 03 February, 2017 issue of Forbes India. To visit our Archives, click here.)