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Chip Wilson’s Kit and Ace chain laying off 20% of head-office staff

Lululemon Athletica Inc's founder Chip Wilson.

BEN NELMS/REUTERS

Kit and Ace is cutting jobs as the upstart casual-clothing retailer works to find its fit in the fickle, increasingly crowded, apparel industry.

The fast-growing Vancouver-based luxury street-wear chain, owned by Lululemon founder Chip Wilson and his family, told staff on Wednesday that it is laying off just over 20 per cent of its roughly 280 head-office employees. The company cut another 35 employees earlier this year.

"We grew so fast to get to economy-of-scale production," Mr. Wilson, 61, said in an interview at his modernist concrete and glass mansion – reported to be Vancouver's most expensive home – alongside his son J. J., 27, who is leaving his executive position with Kit and Ace to serve on its board of directors.

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"We've built [Kit and Ace] to be massive right off the bat, massive resources and people and money. Building a platform and growing really, really fast… we're probably doing in two years now what we did in seven years" at Lululemon.

Still a work-in-progress, Kit and Ace started as an attempt to cater to consumers looking for stylish but practical clothing to wear outside the gym, offering cashmere blended with "technical" fabric that would ensure comfort and machine-washable convenience for "undercover athletes."

Some observers speculated it was an attempt by Mr. Wilson to either show up or compete directly with Lululemon after his very public fallout with the company's board and management over its strategy in an increasingly competitive market. Mr. Wilson insists that Kit and Ace complements Lululemon rather than competes with it.

But in their haste to open stores and get big fast in a retail environment in which the Internet makes it easy for rivals to copy concepts in a heartbeat, Kit and Ace – financed by Mr. Wilson but run initially by his son J.J. and Mr. Wilson's second wife Shannon – encountered a number of growing pains. The Wilsons acknowledged fabric, supplier and employee-engagement problems, while their early estimates of what customers wanted proved inaccurate. They operate stores in Canada, the United States, Britain, Australia and Japan.

After betting on cashmere-blend tops, for example, they discovered it was cashemere-blend pants that were hot sellers, while many accessories, such as hats and gloves, barely moved. Men's wear "is a lot bigger than" anticipated, Mr. Wilson said. But they got some of the sizing wrong. They underestimated the strength of e-commerce, and overestimated overall sales for this year. They now expect to come in at less than $100-million in 2016, compared with their goal of $120-million, Mr. Wilson said.

But a matter-of-fact Mr. Wilson – whose commanding physical stature has been affected by the advancing impacts of muscular dystrophy, causing his back and tricep muscles to weaken substantially – said the retail setbacks are nothing to worry about. He characterized them as typical in retail and in fact a similar experience to what he faced in the early days at Lululemon. The key difference, he said, is that with so many Kit and Ace stores and his high profile, the current Kit and Ace situation is getting more notice.

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In fact, the Wilsons sounded upbeat as they spoke about what is coming next.

In recent months, the company has assembled a deep bench of talent to lead Kit and Ace, starting with president Wendy Bennison, former head of fashion chain Roots Canada Ltd., which Mr. Wilson said he attempted to buy when it was put up for sale last year.

Others who have recently joined the company include Jill Chatwood, a former designer at Lululemon, and Shawna Olsten, a brand specialist who once worked at Quicksilver. Kit and Ace co-founder J.J. is leaving his executive role with Kit and Ace to join the board and work for his father's family holding company, Hold It All Inc.

They are now reviewing the strategy for Kit and Ace, including how much of the company's expected growth will come from e-commerce compared with physical stores. Mr Wilson said it was still too early to determine the mix, but did say he expected lease rates to be substantially lower in the coming years as malls deal with a swath of retailers shutting or shrinking physical locations in the face of growing competition from online sales.

"We think retail rents are going to drop 20 to 40 per cent over the next three years, as leases come up," Mr. Wilson said. Added J.J.: "My prediction is that rents will drop a lot over the next three years, and we don't want to have long-term leases."

Some observers in the retail space question the Wilsons go-fast-no-matter-what strategy, although they applaud their bid to carve out a new niche with Kit and Ace.

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David Ian Gray of retail consultancy DIG 360 in Vancouver said Kit and Ace struggles with teething pains of expanding so quickly and some quality issues, such as pilling of the fabric.

The latest Kit and Ace cutbacks are "a bit of a setback to any hope the Wilsons may have had to take on Lululemon," Mr. Gray said.

Doug Stephens of consultancy Retail Prophet added Kit and Ace needs to have fewer stores but more compelling flagships and an improved e-commerce site. "It's a really tough time to launch an apparel brand."

Not only are the Wilsons determined to get Kit and Ace right, they say they are set to launch four to five brands in the next five years that share a common feature with Lululemon and Kit and Ace – retail concepts based around "technical" clothing products and at least in part on synthetic fabrics that deliver specific performance goals, like Lululemon products.

"The focus is technical performance apparel across multiple categories," J.J. said. Like Lululemon and Kit and Ace, the Wilsons intend to sell the products directly to consumers, not as wholesalers to other retail chains.

Aside from the new retail venture, Mr. Wilson has been an active investor in real estate, spending about $400-million to $500-million for a swath of properties in Vancouver. He is also involved in philanthropic efforts and other initiatives aimed at pursuing mindfulness, which he has encouraged Lululemon to embark on. He has been pushing Whil, a company backed by him that offers "digital mindfulness, yoga and leadership training." It promises subscribers that a few minutes of online meditation each day, led by experienced yoga instructors and lifestyle coaches, will make them more effective and happier.

Meanwhile, Mr. Wilson said that while his Lululemon stock – now roughly 30 per cent of his net worth – was declining in value in recent years, he said he made substantial gains by investing "tens of millions" of dollars in Lululemon competitors Under Armour Inc. and Nike Inc.

But he's committed to the Wilson family business. "If people called me up and they wanted me to mop the floors and the toilet, I would do it," Mr. Wilson said. "I'm there to do whatever needs to get done."

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About the Authors

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine, where he was project co-ordinator of the magazine's inaugural Rich 100 list. More

Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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