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Sheertex’s pantyhose are a hit, but how cheap do they have to get before they take over the mass market?

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Laurence Philomene/The Globe and Mail

Katherine Homuth once gleaned this nugget of wisdom from a podcast: Improving a company by 5% a year causes everything to break internally. “And when you’re trying to grow like us—100%-plus every year—you break everything all the time,” she says.

Homuth is founder and CEO of Sheertex Holdings Corp., which is trying to break a lot of things with its flagship product: unbreakable sheer pantyhose. They’re not made from nylon, but rather the same tough polymer used in bulletproof vests and climbing gear. Sheertex’s revenues were US$5.6 million in 2019, US$11.8 million in 2020 and US$26.8 million in 2021. The forecast for 2022 is to more than double sales again.

So what’s breaking right now? “The way we operate this part of the warehouse will break this summer,” says vice-president of operations Gordon Hensley during a visit to Sheertex’s headquarters in Montreal’s Saint-Michel neighborhood. He’s pointing at a second-floor space stacked with boxes of product, ready to ship. It’s as full as it was during the peak season in October.

“The space for raw materials is currently breaking,” chimes in chief operating officer Zak Homuth, the CEO’s husband, adding: “Knitting is going to break soon.” The company has 96 machines on order to bolster the 116 already in operation one floor below. The 60-person head-office part of the building is full, and Sheertex is hiring, “so we’ve currently broken that,” says Katherine. The studio near reception—where at this very moment a model in the company’s signature sheer black tights is posing for photos that will likely end up in one of the company’s ubiquitous Instagram ads—is booked solid. The parking situation, adds Zak, “is painful.” He needs to secure another multipurpose facility by July, but vacancy rates are tight. “And those aren’t even the decisions we’re worried about,” says Katherine. The trio giggles with a resigned “you-just-have-to-laugh-at-it” vibe.

It’s been five years since Katherine Homuth, then 26, decided to manufacture sheer tights that didn’t run. She thought it would be straightforward: Find a tough yarn, hire an overseas manufacturer to make the things, then ship them directly to customers, like any e-commerce business. She ultimately decided to make them herself, which required figuring out how to do something groundbreaking with material that hadn’t been used in pantyhose, persuade financiers to back an upstart with no textile experience in a stagnant category and, of course, win over customers. “It’s been a brutal fight the whole way,” says Michael Helander, who sits on Sheertex’s board.

But the company has built a loyal fan base with its run-proof tights and claims 80% of customers surveyed have forsaken other brands since trying theirs. Sheertex also says that more than half the people who bought their tights in 2019 have purchased again.

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Sheertex has an impressive roster of financial backers, including prominent female angel investors Michele Romanow and Eva Lau, two cleantech venture funds, and Canadian fashion icons Joe Mimran and Chip Wilson. “We invested in Katherine because she is technical and has business savvy,” says Wilson, the billionaire founder of Lululemon Athletica, who put in US$5 million this year. Her product, he says, “will save women time and money, and it’s in a niche market Sheertex can be best in the world at.”

But the biggest name in Homuth’s corner is Swedish retail giant H&M Group. Its Co:Lab investment arm led a $101-million financing in April backed by Export Development Canada, Wilson and existing investors. (H&M’s share was $62.5 million.) For Homuth, who eventually wants to see her product distributed through bricks-and-mortar outlets worldwide, the investment was validation that she’s on to something big. For H&M, it was a signal to both the fashion and financial markets that it’s serious about cutting down on the amount of its fast-fashion apparel that ends up in landfills.

But Homuth still has a lot to prove. The key challenge: scaling up while slashing costs. Sheertex, which originally sold its pantyhose at the high-end price of US$99, has managed to wrestle its costs down from US$75 a pair in 2019 to between US$15 and US$20 now. That allowed it to introduce a US$29 version this year—a major step toward broadening its appeal. But to become a nylon-killer and conquer the US$16-billion sheer hosiery market, she figures she’ll have to get the unit cost down to five bucks. “Once we hit a point where you can make these for the price of a regular pair of tights,” she says, “there becomes absolutely no reason anyone would ever buy or make anything else.”

Even her most ardent supporters aren’t sure she can do it. A big reason is that material amounts to 70% of her costs. Sure, she can save on automation, but how much more can she squeeze out elsewhere? “Her big challenge will be making money,” says Mimran. “At the end of the day, a lot of these companies continue to grow, but they can’t get their economics to work.”

The presentation was not going well. It was October 2018, and Homuth was speaking to a roomful of investors and tech veterans at the Creative Destruction Lab (CDL), an accelerator program housed at the University of Toronto’s Rotman School of Management. Every startup needed at least one sponsor to support them or they’d be booted out.

In the previous 18 months, Homuth had gotten her tights to near-commercial readiness. She’d raised US$190,000 in a Kickstarter campaign, gone through Silicon Valley accelerator Y Combinator and secured US$4 million in seed financing. Production was starting in a garage in Bracebridge, Ont. Nonetheless, she says, “everyone in the room thought hosiery was a terrible mistake.” CDL types liked to fund transformational scientific breakthroughs, not old-school consumer-product e-commerce. They thought her raw material would be better used elsewhere, like the space industry.

“There wasn’t much excitement in that room,” says Helander, a CDL mentor. “Somebody called it a failed consumer product company before it had even shipped its first product,” since Homuth had temporarily halted new orders due to quality issues. Nobody put up a hand to keep her in CDL past the first session.

It wasn’t the first or last time Homuth would face doubters. The Mississauga native had sold her e-commerce startup, ShopLocket, in 2014 and dabbled for a few years looking for her next big thing. One idea was to launch a consumer product that would solve a real problem. She remembered her grandmother, after dealing with yet another run, declaring that someone needed to reinvent pantyhose. Homuth had her own “pantyhose graveyard,” a drawer of torn tights. In early 2017, she asked a friend in the fashion industry if anyone had ever made indestructible ones. The answer was no. She decided to explore further.

Pantyhose were originally created in 1953 by Ethel Gant, the pregnant wife of a North Carolina knitting-factory owner in search of something to attach her stockings to, since girdles were out. But the nylon originals that became fashionable in the 1960s were fragile and frustrating, and remained so. Sales started declining around the same time Sex and the City made bare legs and open-toed shoes popular—from a billion units in 1995 to 245 million in 2017, the year Homuth started poking around. But sheer hosiery still generated US$15.8 billion in global sales that year, according to Euromonitor International. Homuth thought it was a big enough market to pursue.

She ordered fibre samples and did a simple strength test: wrapping the yarn around her finger and yanking. It had to be thin enough for tights, but “if it snapped coming off the spool, it probably wouldn’t make indestructible ones,” she says. Dozens of samples failed.

Undaunted, Homuth looked beyond traditional yarns to industrial fibres. That’s how she found ultra-high-molecular-weight polyethylene (UHMWPE). The material was thick, white and not stretchy; when she did the yank test, “it hit the mark of indestructibility I was looking for,” she says. “It nearly cut my finger off.”

But it was hard to work with. She shipped some to a Chinese hosiery factory to make a sample textile and got an angry note back: It had broken their machine. She was told never to call again. The sample looked like cheesecloth.

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Nonetheless, she showed it to Mimran. “Well, this is terrible,” he recalls telling Homuth. “I can’t get involved in this.” But she worked with a supplier to make the fibre fine and stretchy enough for hosiery. “You’re still not there,” Mimran told her after seeing the next prototype. But he admired her tenacity and decided to invest—even though she knew little about manufacturing, yarn or textile development. Plus, she was manufacturing at a 2,000-square-foot factory near Lake Muskoka, where she’d just moved. “Imagine how wild that is,” says Mimran, who remembers thinking, You’re putting up a lot of hurdles in front of yourself.

As Homuth refined the product through successive prototypes, she came to appreciate the material more and more: It made sheer, lightweight tights that were antimicrobial, water resistant and cool to the touch. But the polymer was undyeable and could only be coloured when it was made; further dyeing only stuck to the other materials woven into the tights.

Despite encountering production issues—including the fact that the yarn jammed the knitting machines, requiring them to be modified—she was determined to produce them herself. While UHMWPE was off-patent, the process to turn it into hosiery would require novel, proprietary processes that would form the basis of Sheertex’s intellectual property. She felt she couldn’t trust that to a contract manufacturer. (Sheertex has one patent and has filed for five more covering the unique features of its products, materials and processes, and it works hard to maintain trade secrecy around its manufacturing methods.)

Homuth had accomplished all this only to get a cold reception at CDL. But Helander soon began to have second thoughts about not raising his hand on her behalf. “The roomful of men probably thought this was a super-niche market and had no concept of what the value proposition actually meant to the customer and the opportunity for disruption,” he says now. (Homuth adds that even women investors were initially hesitant.) Helander called CDL staff. Homuth was back in.

Sheertex began shipping tights in December 2018 under the brand name Sheerly Genius. Time Magazine hailed them as an invention of the year. By May 2019, sales had reached US$250,000 a month. At the final CDL session that spring, Eva Lau of Two Small Fish Ventures told the room she’d bought nearly $1,000 worth of Sheertex products, loved their durability and had kicked herself for not investing earlier. “I think that opened many eyes,” says Lau.

CDL investors lined up to back Sheertex’s next financing, a US$10-million round that closed in September 2019. The lead was ArcTern Ventures, a Toronto cleantech fund. Sheertex’s durability gave it circular-economy cachet: Every pair sold kept multiple pairs of flimsy nylons out of landfills. “We had been looking at opportunities in sustainable fashion,” says ArcTern managing partner Murray McCaig. “I don’t think Sheertex necessarily saw itself as an environmental company, but we certainly did.”

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That’s the same rationale for H&M, which first invested in 2020 before leading the big round this spring. The retailer has set a goal of using recycled and sustainably sourced inputs by 2030. “The fact that Sheertex is clearly and successfully addressing the problem of durability within a specific product space aligns perfectly with the wider industry issues we are tackling and actively looking to address ourselves,” says Nanna Andersen, head of H&M Co:Lab. “As we try to lead the way to a circular business model, more resilient products will be an important part of that.” Sheertex products are already on sale at H&M’s COS banner, making it a key partner in Sheertex’s global expansion. “We see ourselves as an obvious fit for sustainability in terms of taking a disposable product and making it non-disposable,” Homuth says.

She doesn’t plan to stop with tights: Sheertex is expanding into other categories, including socks and shapewear, and hopes to license its fabric to other clothiers, like Gore-Tex does. “With a person like Katherine, the first innovation is rarely the last, and we believe in her long-run ability to drive change in apparel,” says Lululemon’s Wilson. “She’s a category killer with no competition.”

Back in 2019, however, Homuth’s ambition was rubbing up against the life she wanted to build in Ontario’s cottage country. One of those dreams had to give. All the talent, support and infrastructure was in Montreal, Canada’s garment capital. She’d regularly have to bring in mechanics and seamstresses from Montreal, and would fly there herself to dye the tights and then return to Muskoka to dry them at a local laundromat. There were other logistical headaches: One batch that cost $50,000 to make was ruined when her Montreal consultant tried a new finishing process. FedEx lost another shipment of 1,000-plus units.

“Our first set of challenges were all around, ‘Okay, you’re capping out on warehouse space, and are we really staying in Muskoka?’” says McCaig. “We all knew we’d need to leave.”

Homuth learned Gildan Activewear was shuttering operations at a 115,000-square-foot Montreal plant that made Secret pantyhose and offshoring production. It was a bit dated but came with knitting and sewing machines on the cheap. She signed a lease in September 2019 and kept on Gildan’s employees. “If I had access to the kind of information I have now, taking over this factory when we did was probably the most illogical financial decision,” she admits. “On a spreadsheet, it made no sense. Luckily, I had no spreadsheets at the time. It was like, ‘Yup, looks good. Let’s do it.’”

Sheertex relocated that fall. Toward the end of 2019—pantyhose sales are heaviest in the last quarter—revenue topped US$1 million a month for the first time, and Sheertex raised another US$30 million led by U.S. cleantech fund G2 Venture Partners.

Then came the pandemic. The company shut down for two months; the recent raise and government wage supports helped. A bigger problem was whether home-bound women would buy pantyhose again. To keep the factory running, it shifted to making face masks, which accounted for 40% of sales in August 2020. Global pantyhose sales, meanwhile, plummeted by 14% in 2020 to 5.7 billion pairs, according to Euromonitor. But Sheertex kept growing, and that’s before a return to “normal” for the category when pantyhose customers return to offices en masse.

“There’s this love-hate relationship with how far we’ve come,” says Homuth. “If I’d known how hard it would be, I don’t think I would have done this. But we never would have gotten to where we are. Ignorance allowed us to make some leaps no one else would have made. I’m still pretty ignorant as to how hard it’s going to be.”

When his wife leased the Gildan plant in Montreal, Zak Homuth was skeptical. He felt the place was “terrifyingly huge and old and crappy” and “a boondogglish use of money.” Parts of it should be boarded up, he told Katherine—a critique she says left her “a bit dazed.”

That was in fall 2019. The computer engineer and entrepreneur was living “happily in the forest” at their Lake Muskoka property with their two Great Danes. He’d just left the U.S. software company that had bought his startup (Upverter, which made a program for hardware engineers) and was overseeing a home reno. Katherine had told him she was moving to Montreal. He didn’t plan to follow.

That wasn’t unusual for the couple, who’d been together since 2011. They were both strong-willed people who’d spent months living in different cities while building their startups. They could be brutally frank with each other—Zak has a blunt manner and a gruff, booming voice reminiscent of actor Seth Rogen—but also supportive. It was Zak who’d encouraged Katherine not to shut down Sheertex when poor customer reviews followed its first shipment. They were both entrepreneurs and knew the drill: Expect the unexpected and adapt.

So when a worried Katherine called Zak in early November 2019, he did what she asked: Get on a plane to Montreal ASAP.

In just over two years, she’d turned a simple idea into a fast-growing business selling a product consumers loved and fashionistas lauded. But it was expensive to scale a manufacturing operation. She needed to raise more money—soon.

Katherine was heading to New York and asked Zak to “babysit” the factory. She promised to show him the ropes but was already gone when he arrived. The place was in chaos. She’d hired 60 people one day in October, but simply hiring a throng of workers wasn’t going to solve any of her problems, says Katherine. There were waste issues: 70% of the expensive polymer didn’t survive the pantyhose-making process and was repurposed into lower-value scrunchies and headbands. There was little management structure. Sheertex had “knowing-what-to-do problems,” Katherine says. She didn’t even know her gross margins.

Zak found Katherine’s on-site consultant and made himself useful. The couple like to joke that ever since that day, Zak hasn’t been allowed to leave.

Despite lacking textile experience, Zak was technically savvy and immediately set about fixing problems. He developed detailed instructions for each of the one-time Gildan operators to ensure they didn’t just push buttons and produce too much of any particular size, style or colour. He developed software, and mapped out plans to add sensors and tablets to machines that would pinpoint every bit of data in the process and root out inefficiencies. In early 2020, he became chief operating officer.

Since Zak came on board, the factory has reduced waste—raw material that doesn’t go into pantyhose—to 10%. That has meant dropping nude-coloured tights for now, where waste was higher, to focus on sheer black. Sheertex made 500,000 pairs last year, with plans to triple that in 2022. But its “pilot factory,” as Zak calls Canada’s largest hosiery plant, will likely hit capacity within a few years, and plans are afoot to move into a vast, purpose-built factory in 2025 with annual capacity to make hundreds of millions of pairs.

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He has help. At the behest of Sheertex’s board, the company last year recruited a “grown-up” veteran operations leader in Gordon Hensley. He has overseen lean-operating auto plants for Magna and others, and describes his job as “trying to create flow,” largely through automation. Each pair of pantyhose, individually or in a batch, is now touched by humans seven times throughout the production process. Hensley’s goal is to cut that to two. Last year, 1% of tights were assembled using automation. The goal is 25% this year and eventually 80%.

Sheertex has been installing large gusset line closer machines (GLCs) that, once loaded manually, handle four tasks previously done by human operators, including cutting leggings and sewing in gussets (the reinforced crotch part). The plant is putting three GLCs into service and plans to install six to nine more in the next year. Getting GLCs “to play nicely with our materials is still a work in progress,” Zak reports. Hensley is more optimistic: “We’re very close to having these running the way they’ll always be running going forward,” he says.

Hensley also hopes to automate quality control, now handled by five people who eyeball each finished pair. But Sheertex stresses its 98-person manufacturing staff will grow, not shrink, from present levels.

Automation can only get Sheertex so far, however. Material accounts for 70% of costs. If Homuth wants to reach her US$5-a-pair goal and maintain gross margins around 50%, spending has to come down. Zak acknowledges that cutting material waste and finding efficiencies from scale will only go so far.

The answer, Katherine says, is vertical integration: “Our goal is that everything that goes into the product in the next 10 years is something we make ourselves from raw material. We’re dedicating the next few years to optimizing our supply chain. Effectively that means getting closer to the source. It allows us to cut our costs directly.” How will she do that? She won’t say publicly, at least not yet. And she knows it’s not going to be easy.

“When you talk to us five to 10 years from now,” she says, “the hardest things we’ll have done will be what we do on this cost journey. We want to be the only ones who can produce this at parity with nylon. That’s what we’re focused on more than anything else.”

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