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the lunch

Illustration of Christine Day, chief executive officer of Lululemon Athletica Inc.ANTHONY JENKINS/The Globe and Mail

Christine Day arrived at fast-growing yoga wear chain Lululemon Athletica Inc. with a mandate to right a culture that had strayed from its founder's collaborative roots.

Chip Wilson, founder and chairman of the Vancouver-based retailer, was drawn to Ms. Day's co-operative approach to managing employees, a welcome contrast to the top-down management style of the previous CEO. But Mr. Wilson quickly found that her collaborative blueprint didn't necessarily mean she was a soft touch. While Mr. Wilson was racing ahead with new ideas, Ms. Day had to rein in the visionary creative force behind Lululemon and convince him to back off.

It wasn't easy for Mr. Wilson to give up control of his retail "baby" to another "step-parent," Ms. Day says, as she orders a mid-morning yoga-friendly green tea instead of a planned full brunch. (She had eaten poached eggs and mixed berries at an investor breakfast meeting, clad in her Lululemon black stretch yoga pants and blazer.)

"Chip is an idea-a-minute guy and he'd pursue all of them tomorrow and that would set the organization off on so many different things," Ms. Day says, after sliding into a plush booth in the restaurant of the ritzy new Shangri-La Hotel on a working trip to Toronto.

"And so I'd have to say, 'Okay Chip, here's the deal: I can carry 20 balls and you can say, 'I love the shiny one,' and I'll figure out how to put it in. But something's got to come off. You can't run around the other side of me and say, 'You dropped this ball.' You've got to trust that I'm always going to make the right decision about what's needed now.'"

Ms. Day's handling of Mr. Wilson following a bumpy time internally under predecessor Robert Meers, underscores her vision of running a company: encouraging grassroots participation and delegating decision-making, while staying in control – and never being a pushover.

Her attitude, which borrows from the playbook of premium café giant Starbucks Corp., where she rose up the ranks for almost 20 years, shows up in more than just her dealings with Mr. Wilson. She gives store managers leeway to make local decisions on things like store displays. (In 2011, a downtown Toronto store mounted controversial signs in its window to protest Mayor Rob Ford's anti-bicycle stance with "More Bike, Less Ford.")

And Lululemon's head office has taken similar controversial stances. Both Ms. Day and Mr. Wilson share a passion for author Ayn Rand and her brand of hard-core libertarianism, even though it doesn't necessarily jibe with many yoga practitioners' view of the world. Ms. Day found that out in the fall of 2011, when the company emblazoned its shopping bags with the question: "Who is John Galt?" a reference to Ms. Rand's novel Atlas Shrugged , which rails again government and advocates self-interest as a key ingredient to a better world. Lululemon's link to Rand's theory of objectivism offended some its customers, but Ms. Day says the philosophy is about hard work and being accountable for oneself, and she doesn't shy away from the criticism the Rand references generated. "I'm not going to get hung up on those few people who don't get it, if they've not done the work," she says.

Her approach to managing is also reflected in her attitude to customers: While CEOs generally dread criticism, she takes it in stride, viewing it as part of being an edgy retailer taking calculated risks and responding quickly to comments in the stores, on social media and in online product reviews. She uses the information for future merchandise planning instead of conventional market research.

It's an approach that has defied the company's doubters, taking the apparel retailer to industry-leading status ($2,050 in sales per square foot) and sending its stock, at $71.97, to four times the $18 a share it traded at when it went public in 2007.

Now, as she plows ahead with global expansion in an increasingly crowded field, Ms. Day is feeling the heat to keep producing $100 yoga pants that are technically advanced enough to fight off low-cost copycat rivals, while responding to shareholders' escalating financial expectations, and overseeing her brand of "entrepreneurial capitalism." It's about building a company that can grow fast while remaining nimble.

When Ms. Day arrived at Lululemon in early 2008, it was suffering not only from growing pains – keeping shelves stocked to keep up with high demand for its products – but also from Mr. Meers' top-down management style, Mr. Wilson says.

Mr. Meers, a retired CEO of Reebok International, was hired in late 2005 to give Lululemon more structure. But because of his "big testosterone-type of male" personality, he failed to mesh with Lululemon's culture of "co-operation and empowerment," resulting in "a culture clash within the upper echelons of the company," Mr. Wilson says.

Ms. Day says that after Mr. Meers left, it was hard for Mr. Wilson to trust that another CEO would get the results he was looking for. "I've had to really carve my own space and he's had to be willing to let go. But I think it's been a far more graceful transition than a lot of companies go through with founders, and in large part that's because of him and in large part it's because of me and my commitment to creating companies based on the same values that he has."

They saw eye to eye on their first meeting, set up by a mutual friend and member of the Lululemon board of directors who had done consulting for Starbucks. Both were passionate about entrepreneurial capitalism. At Lululemon, it meant elevating an athletic wear retailer to a purveyor of healthy living; at Starbucks, it was transforming pricey cafés into go-to meeting places.

At the time of Ms. Day's appointment as CEO, Mr. Wilson said he wanted a woman to head the company. Today, however, he says he was looking for someone that fit with Luluemon's culture and "it was a bonus that she was a woman."

Ms. Day, 50, has made key decisions through her career that helped her land in that top spot. Her first job was in financial services, marketing private placement offerings to wealthy investors in the early eighties. In 1986, she helped businessman Howard Schultz do his own offering for a start-up coffee company and she subsequently became its third employee. Eventually, it acquired the then-fledgling Starbucks and, as she says, she put her future in the hands of a man who "believed people would spend $2.50 for a cup of coffee when you could get drip coffee at 7-Eleven for 50 cents."

After having helped Starbucks expand globally, and headed its Asia-Pacific division, she reached a peak, but realized she couldn't go further and replace Mr. Schultz as CEO.

"I would have been unhappy with myself if I had not pushed it to the next level but I couldn't do it there and I knew that." She took a sabbatical in 2007 to spend time with her three children, now 13, 24 and 26, and husband Pat.

His career decisions helped her climb the ladder. He left his senior job at Boeing after 20 years to stay home with their youngest, Connor, after he was born and she had taken a six-month leave. "He wanted to do something else because I think he saw how much I loved what I was doing and he didn't love what he was doing," she says. He subsequently bought a boat dealership, which he sold when she decided to join Lululemon.

Ms. Day makes a point of visiting stores, a key part of her collaborative style. Just a few weeks ago, when she visited the Whistler shop, she got an earful. Her staff had been bombarded with complaints about a new $52 lightweight tank top which replaced the same top in a heavier weight fabric, making customers feel as if they were paying a premium for a lesser product.

Ms. Day learned an important lesson. The retailer had intentionally lightened the top's fabric because yoga enthusiasts were perspiring in their classes, and more stores were opening in southern climates, she says. "We didn't do a good enough job of explaining why we made the shift. We're in the business of sweaty pursuit, so it's the right decision for us from a technical aspect."

Ms. Day decided to introduce a "why we changed this" tag for revamped products, as well as to reinstate the former, heavier tank top at the same price.

That experience is a vivid demonstration of the benefit of customer feedback, however negative, she says. "If they aren't out there complaining, I'd actually worry more because it says they've found something else."

Lululemon learned from other product stumbles in the past year. It ditched its loose-fitting "still" pants only to end up bringing them back months later because customers were so upset they were gone. It had to get colour experts to advise it after the dyes in its neon-coloured clothing bled. In the holiday season, it found some prices had crept too high, and earlier in the year it had to drop prices on items in its "what the fluff" running line to, for example, $158 for a jacket from $198, after customer resistance.

"I thought we were trading a little too much on brand and not enough on value," she explains.

Even Jennifer Black, retail analyst at Jennifer Black & Associates in Lake Oswego, Ore., and a big fan of Lululemon, says some recent styles at the retailer lack inspiration. She doesn't like some of the brighter-coloured pants, which can be unflattering to some women, and some of the jackets and tank tops are too short. As a result she's concerned that some of the merchandise won't resonate with key customers, which could lead to price markdowns, which cut profit.

Ms. Day says store staff – educators, in the company's parlance – mingle enough with customers to pick up any vibes. She says she doesn't invest in market research to track trends because "it will only answer what is, in a lot of ways, not what could be. As an innovative, disruptive company, I'm far more interested in what could be, what's needed, than I am in what is. By the time there's evidence, somebody else is already doing it."

Tracking copy-cat competitors is a bigger priority. Last summer, Lululemon sued Calvin Klein for allegedly copying one of its pants (they settled last fall.) "As long as they're doing an imitator strategy and they're competing with us only on price, I don't really care," she says, proudly showing off the Lululemon pants she's wearing by rolling up her top a tad to demonstrate the stretchy waistband.

"What would get me, or keep me up at night, is if they innovated something I think we should have, or start to really differentiate themselves in a way that resonates so we lost our ability to be a market disruptor. Or if they create a product that is so great that it is the peak and pinnacle. None of them have been able to so far – knock on wood."

Editor's Note: The U.S. stock price, instead of the Canadian price, was listed in an earlier version of this article.