>>View online

Thanks for subscribing to SatPost.

Today, we are talking about the innovation behind Lululemon’s yoga pants.

Also this week:

• A spooky iPhone camera glitch
• Why is Finland the happiest country?

PS. There will be no email the next two weekends (December 16th and 23rd) but I’ll be back with a “best of the 2023” issue at year-end (December 30th). See you all soon and have a great next few weeks. 

Business folk love talking about “the problem to solve” concept, which states that a customer isn’t buying a product (a drill) but a solution to a problem (making a hole).

A very salient example of this is Lululemon yoga pants.

What problem did they solve? The "camel-toe problem". This is how Lululemon’s founder Chip Wilson describes the pants in his memoir Little Black Stretchy Pants: The Unauthorized Story of Lululemon.

Those who know Wilson from his public gaffes — which I’ll discuss later — may think the “camel-toe” framing is another slip up.

After reading the book, the framing makes a lot of sense.

Prior to founding Lululemon in 1998, Wilson spent 18 years building an athletic wear brand called Westbeach, which was a leader in technical apparel for surfing, skateboarding and snowboarding.

When Wilson took on the yoga industry, there was a massive need for female athletic apparel that looked good but also performed well.

Wilson’s framing of the “camel toe problem” should be read as an insider assessment of an industry. Think of a doctor talking about how to fix a broken leg. Or a lawyer talking about the tax implications of setting up a new corporation.

Lululemon yoga pants were the solution for the demographic of upwardly mobile female professionals who needed pants that could be worn in many different contexts.

Wilson explains in his memoir:

"I believed in my gut this pant innovation would affect people's behaviour and the way they lived their lives. […] Solving the camel-toe problem was probably the key invention. Without that solve, the pants couldn't be worn on the street. [Customers] valued time above all else. If they could go to a yoga class and then to coffee and then shopping without needing to change between activities, I could save them 45 minutes a day."

Solving the “camel-toe problem” has proven very very lucrative.

Lululemon IPO’d in 2007 and currently sells $10B+ a year of apparel with a public market valuation of $60B+. Wilson has been uninvolved with the brand since 2015 but remains its single-largest individual shareholder (8%) and has a net worth of ~$8B, which includes large real estate holdings and a stake in Finnish sports conglomerate Amer (which owns Atomic, Arc'teryx, Salomon, and more).

The entire athleisure industry which started with Lululemon is worth $100B+ (including apparel from Nike, Adidas, Athleta, Alo, Sweaty Betty, Fabletics etc).

With that preamble, today’s newsletter will explore Wilson’s journey including:

• The Westbeach story
• The female athletic opportunity
• Lululemon solves the “camel toe problem”
• Vertical retailing
• The next trend

The Westbeach story

Chip Wilson was born in 1955 in San Diego, California. His mother was American and his father was Canadian, which is the reason why Wilson moved to Calgary when he was 5.

Wilson’s dual-citizenship came in handy when he put his university career on hold to spend two years working on the Alaskan oil pipelines. He sacrificed his social life to save $150k ($600k in 2023) and spent his free time reading over 100 books. Before graduating from university at the age of 25, Wilson used a portion of that money to travel the world, where he experienced beach cultures in the Caribbean and Brazil.

By the early-1980s, Wilson returned to Calgary where he worked for an oil company by day and ran an apparel business on the side (author’s note: I was also born in Calgary but — as of this e-mail send — am not a billionaire).

Why apparel? Well, Wilson comes from an athletic family. His father — a PE teacher — was once named Calgary’s “Male Athlete of the Year”. Meanwhile, his mother was a seamstress and taught him how to sew.

This interest in athletic apparel manifested itself as a retail brand called Westbeach, which would soon become a full-time gig. The name alluded to Wilson’s “subconscious need to get back to the West Coast”. Over nearly two decades — in what Wilson called an “18-year MBA” — Westbeach rode the wave for a number of popular sports (selling gear for surfers then skateboarders, and then snowboarders).

Wilson’s experience during this period laid a clear foundation for the future creation of Lululemon:

1. Trend-spotting: Westbeach was always at the forefront of the “next” sport:

• • For surfing, Wilson brought the California surf look to Canada.
  • For skateboarding, Wilson built skate ramps behind his home and inside stores.
  • For snowboarding, Wilson relocated to Vancouver — which is 90-minutes from Whistler — and bet the company on the winter sport. Westbeach became one of the few successful global snowboard brands by the early 1990s (as a sign of this change, the company’s name went from Westbeach Surf to Westbeach Snowboard).

2. Functional: Wilson’s high school swimming days introduced him to the importance of functional apparel. Female swimmers on the school team had “constant complaints of strap location and rashes developing under their armpits from thousands of stroke rotations”. When Westbeach sold gear for surf, skateboard or snowboard, the functionality of the apparel was always the key consideration. Example: North American men’s beach shorts in the early 1980s were tight and short (aka “the John Stocktons”). Conversely, Australian surfers wore looser and longer shorts with “a large bum-to-thigh ratio, which mirrored the physical build surfers had from all their squatting” (pioneered by the Quicksilver brand).

3. And Fashionable: Performance was key and it turned out that proper-fitting athletic clothes also looks good because it is shaped to the body (as Wilson found out with proper surf gear, “girls everywhere wanted their boyfriends to wear the same shorts”). Wilson’s transition from surf-to-skateboarding emphasized this combo of functional and fashionable. Skaters wanted long shorts as a fashion statement but also because the extra fabric protected their knees from scraping. Snowboarders loved expressing their personality through clothes but the technical requirements were also very high (sudden drops in temperature are potentially life-threatening on the mountains).

4. Community: The markets that Wilson entered all had die-hard members. These weren’t just sports, they were lifestyles. The clothes was often worn on the street and served as a sign of membership in the group. Wilson found that snowboarding gear was often worn in Japan by people that didn’t even snowboard but just liked the look (and having an attractive street look to woo casual buyers was important because it drove manufacturing volume). 

You’re probably thinking, “if Wilson was so ahead of the curve, Westbeach must have been the greatest success ever.”

There were two hitches with Wilson’s trend foresight. Firstly, he was often too early. The very first sport he tried to break into was triathlons — functional apparel that could handle swimming, running and biking — but the market in the 1980s was tiny.

Secondly, new sports trends attracted a lot of competition and the market always consolidated to a handful of players with the deepest pockets. Wilson was able to time the snowboarding hype cycle quite well: the sport was growing in the 1990s but a slowdown in the Japanese economy in 1996 — which accounted for 30% of Westbeach’s revenue — led him to sell the company.

Throughout its entire existence, Westbeach had to juggle its business between wholesale and retail. Wilson needed the volume of wholesale to keep manufacturing costs down and provide cash flow to finance his branded retail storefronts.

However, wholesaling is a relatively conservative business. Distributors typically want more of what already works, whereas Wilson wanted to innovate and test more functional gear. Wholesale also tends to have lower price points, as the retail stores have to add their own margin on top. Lower price points also mean less appetite for technical innovation, which typically costs more.

In 1997, Wilson reached the end of the road with the Westbeach business. He and his two partners sold the brand to an Oregon-based snowboard company called Morrow for $15m. After paying back bankers and extinguishing debt, Wilson walked away with $800,000 at the age of 42. That was his payday for 18 years of grinding with a below-market salary of $40,000 a year.

Crucially, the $800,000 was enough of a cushion to give him time to find the next trend.

The huge female athletic opportunity

Before Lululemon, the state of female athletic gear was sad.

The most prominent line of clothing was Reebok’s partnership with Jane Fonda in the 1980s. Fonda made a series of home workouts that became one of the best-selling VHS tapes of all time (think leotards and leg warmers).

None of this gear was about performance, though. Like the rest of the fashion industry, Reebok x Jane Fonda was all about appearance, according to Wilson:

"The problem was athletic designers didn’t exist in 1998…100% of designers coming out of schools focused on runway fashion or wedding dresses…Designers were first and foremost aesthetically driven. Apparel function was uninteresting to high fashion designers because hidden technology could not be seen on fashion runways."

Wilson did credit one technical fashion improvement for his future yoga brand:

"In the ’80s and ’90s, a term was coined called ‘visible panty line’. On that note, I want to acknowledge the person who invented the ‘thong underwear’ as a solve for this major female complaint. Without the thong being invented, I doubt Lululemon and street technical apparel would have grown as it did."

The Jane Fonda trend had long faded when Wilson tried his first yoga class in 1997. The class was tucked away in the back of a gym and Wilson — who weighed over 200lbs — stood out like a sore thumb.

The session proved to be an ah-ha moment and Wilson knew immediately that yoga was the next big trend. However, there was one difference compared to his previous trend spotting: this was a female-first sport (whereas surfing, skating and snowboarding had been primarily male).

Wilson’s discovery of yoga in Vancouver in the late 1990s also coincided with a changing demographic trend:

"That year, I also read a statistic that said 60 percent of the graduates from North American universities were women. I was stunned. When I’d attended University in the ’70s, it seemed like our graduating class was only about 20 percent female. Before 1998, a common assumption was that most women in North America would get married, then pregnant, and leave the job market before the age of 24—that was the case with many of my friends. But, because I’d read articles about eliminating poverty in Africa through educating women to affect lower birth rates, I saw a different future. I believed that a new demographic of highly-educated women would have fewer children and wait much longer to have then."

This is the group for which Wilson wanted to solve the “camel-toe problem”. Could he create clothing that was performative and be worn all day? Such apparel could save a working woman 30-60 minutes a day by reducing the need to change clothes between work, errands and gym activities.

Outside of mountaineering companies, few people were thinking about technical athletic apparel. Even Nike and Adidas, primarily footwear companies, sold workout clothes that didn't meet the standard (Wilson notes that many had in-seams in the shorts, which could lead to chafing). And this lack of attention was happening in the highly profitable male apparel market. The female apparel market was even more overlooked.

How many people in the world were even considering female technical apparel?

Wilson definitely was.

Lululemon solves the “camel toe problem”

For those that don’t know, Vancouver is a fitness-first city (and one of the few locations where you can ski and hit the beach in the same day). Wilson built Westbeach in an area called Kitsilano, which he believes is “one of the most concentrated areas for sports apparel retail in the world.”

In the late 1990s, Kitsilano also had a high concentration of yoga practitioners compared to the rest of North America.

However, the yoga attire was woefully unfit for the job. It usually consisted of dance tights and whatever oversized t-shirt was at the bottom of the hamper. The problem with dance tights was that the material was too thin and designed for only the "fittest" of bodies.

Meanwhile, old cotton t-shirts were not breathable and would get very smelly quickly after a workout.

As he had done with the snowboard community, Wilson immersed himself in the yoga crowd — which was predominantly female — to gain a better understanding of the market and find solutions for problems such as fabric transparency, camel-toe bumps, sweat, and smell.

There were materials that could solve these problems, but Wilson was looking for something that still had the feel of cotton and did not feel too constrictive.

Wilson ultimately created a performance fabric called Luon, which is 86% nylon and 14% lycra (lycra — a spandex type material — keeps the shape while nylon is for coverage; and the fabric is preshrunk and stretchy).

The synthetic Luon fiber felt like cotton, fit extremely well and was thick. Wilson says he used 2x the fabric that is found in dance tights. It was algo great for sweat wicking and had odour-fighting properties.

Another key requirement for the souped-up yoga pants was the prevention of chafing and rashing. “I knew damp, snug clothing combined with repetitive movement always resulted in chafing,” writes Wilson. This was a problem he first dealt with during his high school swimming days.

Aside from sweat-wicking fabric, Wilson discovered an innovative textile manufacturing technique from Japan that addressed the chafing problem.

It was called “flat-seam sewing”, which provides both aesthetic and performance benefits:

"Refining the fabric took over six months. During this time, I also made a major purchase—two Japanese flat-lock sewing machines for a total price of $80,000. With the flat-lock machines, I could cut labour time down to about six minutes per pant. It was almost like using a robot. I had expensive fabric, expensive machines but low labour costs. With robot type machines, I could match the price of Asian manufacturing in Canada.

Before flat seaming, all seams were ugly, so fashion designers hid them. With beautiful flat seam technology, I could pull the seams outside as a functional solution to prevent rashes. By making seams visible on the outside of the garment, I inadvertently discovered that I could use these seam lines to accentuate the female body. I believe this seam idea changed fashion design for the next 20 years."

Here is a visual of the flat-seam stitch, which is also one of the most secure ways to sew fabric (since you are sewing all the fabric down and there are no loose ends).

Seeing the potential for performative yoga attire that could be worn all day, Wilson purchased two flat-seam machines (this was 20% of his $800k Westbeach payout and Wilson would later have to re-mortgage his house to keep the business going).

So, that’s the origin of the product. What about the name?

Well, let’s start by saying that Wilson is known for shooting from the hip and speaking his mind. This is how the “public gaffes” happen, including the origin story for the name “Lululemon.” The story goes that the Japanese language does not have the letter “L” so locals can’t pronounce it, which is why Wilson wanted to have a lot of “L”s in the name as a way to sound exotic.

Without any more context, that does not sound not great!!!!

Here’s the context: Wilson had previously owned a skateboarding brand in Japan called "Homeless". When he decided to shut it down, a Japanese businessperson attempted to purchase it from him. Why? Because the name had the letter "L", which made it sound and seem very Western (as someone that lived in Asia, I can confirm that random Western brands attain cult status for random reasons…as long as they are Western).

Ultimately, Wilson kept playing around with alliterations that began with “L” and stumbled onto “Lululemon”. While the word “lemon” is a negative in the auto industry, it conveys the idea of freshness in other industries. The Vancouver yoga community also liked the name, so there you go.

The only other real contending name was “Athletically Hip”, which is kind of whack (but Wilson did end up using the “A” from a logo designed for that name in Lululemon’s logo).

Vertical retailing

With everything in place, Wilson rolled out the brand with all the learnings he had from Westbeach.

The main move was to control the entire experience by becoming a vertical retailer, which meant manufacturing the products, storing the inventory, owning the storefronts and hiring across all roles.

This approach is much more operationally complex than the wholesale model, in which Wilson was able to match overseas manufacturers to a network of retail distributors.

However, wholesaling has a lot of downsides that irked Wilson:

Lack of innovation: “With the wholesale model, great technology is impossible. When I made a stretch, black, first layer snowboard pant for women at Westbeach in 1996, it cost $40 to make, and we sold it to snowboard shops for $80. The shops would sell it to the customers for $160. I knew if I changed to a vertical model, I could bring the cost of the pant to $30 and sell it inside my own retail stores for $90. At $90, I was sure I could sell thousands!”

Cash flow issues: “Retailers rarely paid on schedule—or sometimes went bankrupt—which meant the manufacturer had difficulty planning their budget.”

Markdowns: “Another danger of wholesaling is the loss of control over markdowns. Too many discounts on products can cheapen the value of full-priced items.”

Since Luon was a great new apparel technology, it was worthwhile for Wilson to run his own retail storefronts and be able to charge a decent price for what was superior athletic gear (and keep way more margin). On the textile manufacturing front, Vancouver was a great location because of its relative proximity to Asia and also because of the presence of many Asian immigrants with textile backgrounds.

As a former wholesaler, Wilson knew the pain of managing cash flow and stated that the "key to vertical retailing" was paying suppliers within five days of receiving the invoice. These suppliers provided him with preferential service and early access to new technologies.

Another important aspect of the "vertical retailing" model was the staffing of stores. He referred to these employees as "educators" because they helped customers understand the technical benefits of Luon and Lululemon yoga pants. Wilson could only guarantee this level of service in his own stores (I know Lululemon gets roasted for its $100+ pant pricing, but the quality is kind of worth it; as a Vietnamese grocer used to tell me "buy cheap, buy twice"). 

Wilson also leaned into the “community” of yoga to market the brand. Lululemon spent virtually no money in the early days on marketing and relied on word-of-mouth. Later, the brand partnered with “ambassadors” – who are local athletic celebrities – to spread the word (in comparison, Nike cuts multi-million dollar deals with the world’s biggest athletes).

Speaking of “community”, the first standalone store opened in Kitsilano in 2000 before expanding to major Canadian markets (such as Toronto). The brand expanded down south in 2003 and now two-thirds of its 650+ stores are in the United States.

And that is how the $100B athleisure market was born (Wilson prefers to call it “streetnic” — as in “street” and “technical” — but I think athleisure slaps and the terminology has definitely stuck).

The next trend

Prior to reading Wilson’s bio, the most I knew about him was from an infamous 2013 incident. During a Bloomberg interview addressing a product recall on Lululemon pants that became “see-through” (“sheerness” in technical parlance), Wilson said:

“Frankly, some women’s bodies just don’t actually work [for the yoga pants]. It’s more really about the rubbing through the thighs, how much pressure is there over a period of time, how much they use it.”

Many interpreted it as “overweight women shouldn’t wear Lululemon” and the gaffe lead to his exit from Lululemon’s board. He has been uninvolved with the business since 2015 but remains its largest shareholder with an 8% stake.

It is obviously easy to craft a coherent explanation afterwards for a gaffe.

Wilson does so in his book and here are my 3 thoughts on the “sheerness” incident:

Wilson gaffed for sure: As an executive — he was Lululemon chair at the time — your job is to manage investors and customers. Every word can be taken out of context so you do have to be careful with how you talk about the product.

Early victim of cancel culture: Wilson had very little social media or direct-to-audience access. If you want to shoot from the hip, you must have the communication channels available to explain any perceived gaffes. The entire "sheerness" narrative was controlled by business media and possibly board members who wanted him out. The "Little Black Stretchy Pants" book is actually freely available online and is one way that Wilson is attempting to re-frame the narrative.

Wilson was talking about the technical nature of the pants: The "sheerness" controversy arose because Lululemon's manufacturing partner in Taiwan overproduced the fabric during a period of rapid expansion and quality control standards fell. Many female consumers were using Lululemon as shapewear, similar to Spanx, rather than for athletic purposes. Wilson explains that the issue was with sizing (e.g. choosing one or two sizes too small), which caused the see-through effect.

“Lululemon pants, and Luon fabric, specifically, were designed for athletic use, not compression,” writes Wilson. “Women wanted to reframe their bodies while also training and sweating to improve their bodies. I could sense something was happening to the integrity of the pants, but the real information was emerging slowly and only after women had owned the pants for six months or more.”

Based on the many decades that Wilson focussed on the technical aspects of apparel, I think it is fair to consider his comments in the context of fabric integrity (it was just worded very very poorly).

Lululemon ultimately released a line of tighter-fitting body suits and technical underwear that met the shapewear standards.

Wilson believes that Lululemon would be much bigger if he had been around to usher it into the next trend: mindfulness and meditation (in a separate interest, Wilson has invested $100m+ into research to find a cure for facioscapulohumeral muscular dystrophy, which he has dealt with for over 30 years).

Either way, Lululemon has seen serious growth over the past decade: revenue is up 5x while the market cap has jumped from $8B to $60B+, more than Adidas (~$40B) but still trailing Nike (~$170B). The sales drivers include more products (accessories, jackets, shirts), e-commerce (which is basically vertical retailing online), and expansion into China (Lululemon’s designation as a Canadian company has semi-shielded it from the US-China trade wars).

The most impressive growth lever is probably a male-specific line of pants called ABCs. What is the "problem to be solved" for these items? The answer is right in the acronym: Anti-Ball Crushing (ABC) pants.

The genesis of these pants actually dates back to Wilson’s surfing days. Remember: prior to long surf shorts, it was tight “who likes short shorts” gear. In technical nomenclature, these shorts “crushed your balls”.

The ABCs came out in 2014 and have been a huge hit: menswear now accounts for 25% of Lululemon's $10B+ in annual sales.

It is incredibly impressive when you think about the female-first reputation of Lululemon’s brand. Even I initially balked at buying the ABC pants but my wife got them for me a few years ago and — holy great balls of fire — they are insanely comfortable (and the pockets are perfectly designed for your smartphone).

Can’t recommend them enough.

And yes, they have thus far solved the ball-crushing problem for everyday use.

Links and Memes

iPhone camera snafu: A few weeks ago, UK actress Tessa Coates posted this photo on Instagram. She is trying on a wedding dress and her arm poses are different from three angles.

Coates says the spooky photo was due to failure in the iPhone camera. Apple uses computational photography, which basically means it applies software and machine learning to every snap.

Apple Insider writes “The iPhone camera doesn’t realize it was taking a photo of a mirror, so it treated the three versions of Coates as different people. Coates was moving when the photo was taken, so when the shutter was pressed, many differing images were captured in that instant. Apple's algorithm stitches the photos together, choosing the best versions for saturation, contrast, detail, and lack of blur.”

I posted this explanation on X and it went viral but many people called “BS”. Jon Gruber — one of the world’s top Apple observers — believes the image comes from panoramic mode and that Coates did it as a publicity stunt. You decide.

***

Why is Finland the happiest country? The Guardian says one big reason is the country’s sauna obsession. Finland has 3.3m saunas for a population of 5.5m. I’m not good at math but that sounds like one sauna for every two people. I can’t speak to the methodology of ranking “happiest country in the world”, but will say that the post-sauna high is one of the greatest feelings in the world.

Oh, and I have a good Finnish sauna story: in 2016, I flew to Helsinki with a few buddies. We looked up the most popular public sauna on TripAdvisor and went there. It was mid-day, so not too busy. Maybe half-a-dozen older (60+) Finnish gentlemen getting their sweat on. As soon as we step in, one guy looked our way and I could see what he was thinking: “let’s put these kids to the test”.

They start dumping water on the stones. It really starts sizzling and they all chuckle. I tried to save face but only lasted a few minutes in the scorching heat. That old Finnish guy still lives rent-free in my head. What a legend!

***

-> Cybertruck breakdown: Jason Camissa did a 28-minute video on Cybertruck including details on the battery, stainless steal exterior, 48V volt system and the wild steer-by-wire capability. This was the best of all Cybertruck content I’ve seen. Hollywood-calibre production and top-notch info. (Hagerty Channel / YouTube)

-> Google released its AI model Gemini: Alphabet CEO Sundar Pichai has an interesting demo of the “multi-modal” advances that are broadly on-par with OpenAI (fancy way of saying the AI can handle images, voices and texts as inputs and outputs). It looks like Google will slow roll it out through existing products (Search, G-Mail, Workspace, Bard chatbot) and future hardware releases.

The demo is worth watching with one caveat: Google admits that it staged the video by using selective cuts, mis-representing the prompts it gave and showing the AI “recognize” videos when it was really looking at images. I know marketing always has shenanigans but the Gemini model is actually pretty good on key benchmarks…no need to fudge, ugh 🤦🏽.

On a separate note: Google co-founder Sergey Brin was one of the 700+ contributors on Gemini and worked with the team basically every day and was often pair coding. Dude is worth $100B+ but still came out of retirement to put in some work. Respect.

-> Bearly AI Update: The AI-powered research app I'm building will save you hours of work with reading, writing and speech-to-text tools. It has access to leading AI models including Anthropic, Stability and OpenAI. We will add Google as soon as the API is available and they answer my unsolicited cold emails. In the meantime, try one month of the Bearly AI Pro Plan for FREE by using code SATPOST1

-> McDonald’s launched a space-themed concept called CosMc. It is one location in Illinois testing out cafe-like items with a focus on beverages. It’ll start as a test kitchen but — if the concept pops off — could it be a future Starbucks competitor? (Wolf Report)

...and here them wild X posts:

The X platform’s new chatbot (Grok) was rolled out to paying users. It’s meant to have more personality and have “spicier” takes than other chatbots. There’s a long game ahead, but Grok passed this one question with flying colors.

Taylor Swift became the first musician to be named Time’s Person of the Year. The article is a solid write-up including this nugget on her 6-month pre-concert workout routine: “Every day I would run on the treadmill, singing the entire set list out loud. Fast for fast songs, and a jog or a fast walk for slow songs.” (FYI: the sets are over 3 hours long!)

Finally, here’s a glorious Time meme for you Succession fans.

Written by me, Trung Phan.

Workweek Media Inc. 
1023 Springdale Road, STE 9E
Austin, TX 78721

Want to ruin my day? Unsubscribe.