Lululemon Athletica Inc. chief executive officer-to-be Christine Day's model is one of patience.
Considering that in its first year as a public company the Canadian yoga brand's earnings more than tripled to $31 million on sales that nearly doubled to $275 million, one might suspect the plan would be to explode the 86-unit chain to the 300-store goal as quickly as possible.
But Day, who will replace Robert Meers as president, ceo and chief operating officer when he retires on June 30, is committed to sticking with the company's slow-but-steady approach to growth. Perhaps taking heed from the recent pains at Starbucks, where she worked for two decades, Day plans to keep store growth to about 35 units a year through 2012, limit wholesale to fitness studios (no big-box retailers in sight) and steer clear of paid advertising and athlete endorsements.
That is not to say the 46-year-old executive doesn't have a lot on her plate. She was brought into the company in January as executive vice president of retail operations with intentions to utilize her skill set growing doors for a public company (her most recent position at Starbucks was president of the Asia Pacific Group). Lululemon went public in July in a $327.6 million initial public offering.
Last year the company focused on entering new markets with its stores, and this year the focus shifted more to filling out existing markets, like New York and Washington. For example, New York currently has one store in Lincoln Center, but Lululemon stores are slated to open in Garden City, N.Y., next month; at Manhattan's 66th Street and Third Avenue in early August; its Union Square in mid-to-late August; Manhasset, N.Y., in September, and New York's SoHo in October — plus a showroom in the Hamptons is in the works. The firm's stores average 2,700 square feet.
"The biggest challenge is building the infrastructure to grow while protecting the branding," Day told WWD during a recent New York visit. "So many right decisions have been made. Any changes to be made are just natural consequences of being run like a family business and then a small business, like the lease terms of the early stores."
Chairman Chip Wilson founded Lululemon in Vancouver in 1998 and opened the firm's first retail door in 2000.
One of the biggest changes Day has made so far is convincing Wilson — who is still hands-on in running the company and has long been against e-commerce — to launch online direct sales in mid-2009. The Web site has added experiences such as an interactive "goal tending" section (goals.lululemon.com) that make the Web site more similar to the retail experience.
"[Meers] was moving toward e-commerce, but I was able to frame it so Chip gets it," Day said. "He has this all-consuming fear that the stores won't be busy if customers can buy online, but we've grown the business enough that the two can exist together and supplement each other. E-commerce can also serve as a bellwether for what markets we should expand into by showing us where there is pent-up demand."
Day declined to project how big e-commerce could be for Lululemon, instead pointing to typical business figures in which e-commerce represents 10 percent of sales — though she added: "We have a lot of pent-up demand."
Such a differential between supply and demand typically is followed by a rush of store openings. But Day is committed to staying in the bounds of approximately 35 a year through 2012, and sticking with the yearlong community building formula the company has developed.
"Our biggest constraint is people, and I won't open a store badly," Day said. "We won't be in such a hurry that we break a great model."
The Lululemon store-opening formula works as follows: A year before the company plans to enter a new community, it opens a small showroom — typically a 1,000-square-foot space with limited retail that hosts community events. Lululemon recruits educators and a store manager to work in the showroom. From the showroom, the company reaches out to top local yoga and Pilates instructors and recruits about 10 as brand "ambassadors," whom it pays in apparel credits to wear and test the merchandise, plus hundreds more to give product feedback. In that first year, Lululemon also funds unlimited yoga classes for its educators, who can fill new classes, encouraging growth in communities. "We call it 'a thousand entrepreneurs, a million touches,'" Day said.
As a result, by the time Lululemon's store arrives in a city, most of the yoga and fitness instructors in town are loyally wearing its products, and the students in the classes have a growing interest in the brand.
Wholesale is used as a pre-branding tool that typically goes into new cities along with the showroom. There are about 1,000 of these accounts and the company adds about 150 doors a year as Lululemon enters new cities. Day plans to keep wholesale limited to yoga, Pilates and fitness studios, like Equinox in New York, avoiding mass distribution.
"We do not view big-box retail as a healthy market," Day said. "You don't have control overpricing, because if their store is doing badly, they can put your product on sale, which can train the customer to wait for a lower price point. You let your brand be defined by someone else."
That's part of the reason Day is rejecting traditional retail outlets for wholesaling. She said Lululemon will do "something else instead," but declined to specify plans.
Day is taking eight months to hammer out the rest of her corporate strategy. This week begins market analysis, looking at alternative channels of distribution, after the first month or so was dedicated to "reconfirming our core."
"It's all about understanding what drives your business," Day explained. "There are certain labor inefficiencies we don't cut out, like tagging the product in the morning, because it's key to socialization and education [of the store staffs]."
Day sees Lululemon's points of differentiation as functional yet stylish design, the fabrics, the products' quality and longevity (designed to last five years) and the retail environment, "which is a social experience first." She pointed to the big tables in the middle of the stores, which she called "a perfect mess — they make the stores' environment less intimidating and more like your best friend's kitchen."
With less than five months at Lululemon under her belt, Day already has adopted the company philosophy. For one, she wears the company dress code (all Lululemon activewear) even to her biggest meetings (the pinstripe capri yoga pants step up the business attire).
Day went through the six-week corporate training just like all the employees who have joined the company since it went public last summer. During the training, Day said she noticed "a lot of things we don't put people through, like design, that everyone needs to see to understand how we differentiate ourselves."
She also works in the stores, like all Lululemon employees are required to do. While she was working in the dressing rooms one day, a customer commented that he'd heard Lululemon had a new ceo, Day recalled, to which she replied: "Yes, I hear she's terrific."
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