How Kit and Ace plans to become the Lululemon of streetwear

From Canadian Business: The wife and son of Lululemon founder Chip Wilson are looking to stand out in the retail industry with its ace in the hole


 
Co-founders Shannon and JJ Wilson of Kit and Ace. (Liam Mogan for Canadian Business)

Co-founders Shannon and JJ Wilson of Kit and Ace. (Liam Mogan for Canadian Business)

This story first appeared on Canadian Business. Read this story there.

There’s a casual ease between J.J. and Shannon Wilson that you seldom see among business partners. Maybe it’s the nothing-can-surprise-me experience of having lived under the same roof or the knowledge that whatever happens to their business, the upstart clothing brand Kit and Ace, they’ll always be in each other’s lives. They might phrase things differently—J.J., with his ball cap tipped strategically off-centre, is the glib one; Shannon, dressed in calming white, is more careful in her choice of words—but they’re comfortable with those differences, as if willing to acknowledge what they’re doing is a truly joint venture.

“We actually work together really well. There’s a known history that we can work together well,” says Shannon, who is J.J.’s stepmother (and, at 42, only 16 years his senior) through her marriage to his father, Lululemon Athletica founder Dennis “Chip” Wilson. The pair even worked together at Chip’s yoga brand. “I think we have a shared aesthetic. We can share that aesthetic and take it to different areas of the company, trusting that we’re working toward the common goal.”

A year ago, Kit and Ace was just the two of them. Now the seller of casual basics—T-shirts, wraps and men’s pants made of soft, slouchy fabrics—has 240 employees, seven stores in Canada and the U.S., and sites selected for 10 more. It has teams working toward rollouts in the United Kingdom, Japan and Australia. “We’ve gotten such a great response to our product. It’s really what fuels us to keep growing,” says Shannon. “We have some aggressive growth plans. We’re hoping to go to 30 stores in the next 12 months.”

Rare is the retail startup capable of such meteoric growth. But then, Kit and Ace has a number of things going for it, not least of which is the unfathomable fortune Chip amassed as Lululemon’s founder. To date, the Wilsons have reportedly invested $7 million in Kit and Ace, and arranged for debt financing of up to $300 million by 2019. It also has founders who know their way around the Canadian retail landscape. Shannon, a clothing designer by training, was the lead designer at Lululemon from 1999 to 2003. (She created the bum-flattering Groove pants that established the brand.) J.J., who serves as Kit and Ace’s chief brand officer, has a surprisingly lengthy resumé for a 26-year-old, including stints with Holt Renfrew, private equity company Advent International and menswear brand Wings + Horns. More important, he says, was the education gleaned from sitting at the Wilson family dinner table. “I have a lifelong legacy of listening and watching,” he says.

But the company’s ace in the hole, as Shannon and J.J. see it, is a proprietary material called Technical Cashmere—which blends the fine wool with natural and synthetic fibres to give it the durability and practicality to be washed and worn often. With Lululemon, Shannon and Chip remade workout clothes into something to be worn on the street; now the Wilsons are planning to make the kind of casual fashions people wear all day but with the technical advantages of athletic gear. “A lot of brands are going into ‘athleisure.’ We’re going in the opposite direction,” Shannon says. “We’re taking what we’ve learned in athletics and are applying it in a luxury fabric for streetwear, but building it for movement.”

Whether that’s a large distinction or a little one doesn’t exactly matter, at least when it comes to scribbling out the business case for Kit and Ace. Being “self-financed,” as Shannon puts it, the company has no need to explain itself to bankers or private equity partners before opening new stores. The only people the chain will need to explain itself to are the clothes-buying public.

Kit and Ace’s Toronto location on Queen St. West (Liam Mogan for Canadian Business)

Kit and Ace’s Toronto location on Queen St. West (Liam Mogan for Canadian Business)

The first Kit and Ace store opened last July in Vancouver’s historic Gastown neighbourhood. A kind of less-is-more minimalism, similar to that of an Apple store, rules within its walls. As at all Kit and Ace outlets, a large, heavy table sits in the middle, meant for everything from laying out the clothes for customers to hosting dinner parties for the local “creative community.” All around it, with space to breathe, hang T-shirts, pullovers, underwear, scarves and men’s pants in varying shades of white, grey and navy, leavened only by the colourful pop art commissioned from local artists on the walls. The cut of the clothing, too, is without flourish, mostly absent collars or lapels or even buttons, seemingly meant for people with no dress code to follow. You can only begin to rationalize the premium price tags—a simple women’s tank top starts at $68, and something with sleeves is in the three digits—when you feel the softness of the fabric, which is more like an ultra-plush cotton than wool.

Technical Cashmere’s roots go back to 2012, a period when Chip and Shannon were taking a break from Lululemon and living in Australia. That was when Shannon began thinking about what an admittedly well-off woman like herself wanted to be wearing—not for doing anything active, but every day. “When thinking about luxury, for me, cashmere always comes to mind,” she says. The material has drawbacks, though. “It pills. It bends out of shape. You have to dry clean it,” she says. So Shannon set her mind to building new properties into it. Working with an Italian textile mill, she interwove it with cotton, elastane and nylon to make a fabric that was as cosy as cashmere but also flexible and machine washable.

There are differing accounts of what exactly happened next. They agree insofar as on at least one occasion, Chip brought the Technical Cashmere—they were calling it Qemir—to the Lululemon board, which rejected it. In February 2014, Shannon teamed up with J.J. to form Kit and Ace. They set about putting a supply chain in place. “Part of the design team travelled to Mongolia and Inner Mongolia [part of China] to actually meet with the [cashmere goat] farmers,” she recalls. “We travelled for about four hours through these rolling hills to find these herders. They’re still really nomadic. They’ve got their yurts and they follow their herds. We met with some farmers, and they had tea with us and showed us how to comb the goats,” she says. “And then we all got a turn.”

The name Kit and Ace is a reference to the brand’s “aspirational muses”: the young woman, Kit—short for Shannon and Chip’s beloved Kitsilano neighbourhood in Vancouver where, a few years ago, they built a waterfront home now assessed at $57 million—and her hunky beau, Ace. You can imagine them to be fit, good looking, spiritually balanced, financially secure. The sales clerks at the Gastown store appear not far off this ideal. Each employee’s business card states his or her title, plus the suffix “and other stuff,” an explicit reminder that working on a startup involves going beyond one’s job description.

Like Lululemon, Kit and Ace focuses on design and retail; the job of actually manufacturing the clothes is contracted out to woollen mills and factories in Asia and Italy. Another key value-added activity that’s kept in house is brand management. “I think the way the world works now, especially with digital, [is that] you can say ‘brand,’ but it touches what our offices look like, what our online experience is like, what our visuals show up like, who we hire, how they’re talking to our customers, what our e-commerce customer care is like,” J.J. says. “There’s a lot of other stuff.” Still, the formula is by now a familiar one for the Wilson family. Freed from the fetters of other people’s money, their main challenge is to ensure the concept resonates with consumers the way their past ventures did.

J.J. (his Instagram handle is @mrjohnjamesw), wasn’t even born yet when his dad-to-be launched Westbeach, a surf and skateboard shop in Calgary, in 1979. Growing up in the 1990s, he watched as Chip rode the wave of beach and ski bum culture, flogging jackets, sweatshirts and board shorts from here to Japan. Selling out near the zenith of that zeitgeist, Chip took a few years off, got hooked on yoga and, in 1998, opened a store just up the hill from his flagship Westbeach outlet in Kitsilano, selling stretchy pants and tank tops for yoga enthusiasts. The radical dude had grown up and gone Zen.

But, even then, Chip knew what a big deal Lululemon could be. In a TEDx talk, Darrell Kopke, general manager from 2001 to 2009, recalled a strategy session in Wilson’s house in early 2002 when the managers set their sights on mighty Nike as their competition, a growth trajectory that required raising money. Wilson sold 48% of the company in 2005 to private equity firms including Advent International—where J.J. would later intern, spending a summer serving on a team analyzing consumer retail businesses—and the group took the company public in 2007. From then on, he would have a gradually escalating series of clashes with hired CEOs, other shareholders and the board, culminating in a showdown last summer that was resolved when Advent agreed to acquire half his equity stake for US$845 million (he retains 14% of the company) and he resigned as chairman. This February, while expressing renewed confidence in Lulu­lemon’s direction and leadership, Chip resigned from the board of directors, saying in a statement: “I will now have more opportunity to work with my wife and son as they grow their new business, Kit and Ace. I am so excited for Kit and Ace because it is where street clothing is going. Shannon and J.J. have caught the next wave.” The resignation of his directorship removed any formal conflict of interest between Wilson’s relationships with his old company and new, an important consideration given that, while the companies’ products and markets are distinct, Kit and Ace is in large part populated with recent and past Lululemon employees.

Related: How Lululemon’s boardroom squabbles are a sign of a corporate culture war

Indeed, the organization’s biggest constraint is not financial or finding retail locations, as would be the case for most startups, but finding people. “We have 26 positions currently listed on our job site and more are going up every day. It’s really finding the best people to fill those roles,” Shannon says. More than any other lesson she took away from Lululemon is the importance of creating a strong talent pipeline, she says. “You need strong people who can take control and hire their own staff.”

One of those hires was Kopke, who serves as Kit and Ace’s CEO. A business iconoclast in his own right, Kopke is the author of The Generous Leader and co-founder of Institute B, an accelerator for so-called B corps (social benefit corporations). “By 2020, Kit and Ace will be a global brand, and we’ll be on four or five continents with flagship stores and e-commerce—a complete omni-channel experience,” he proclaims in a video on the company website aimed at prospective recruits. “In five years, we will be a billion-dollar company.”

Not everyone is convinced of that. “Although I was excited when the brand was announced, I was disappointed in it,” says Emily Salsbury, acting executive director of the School of Retailing at the University of Alberta. Salsbury says she bought one of the brand’s Technical Cashmere garments and it pilled after only a few washes. “I was disappointed with the quality, the price point and the nature of the business—you know, the announcement that, ‘We’re going to be a billion-dollar company.’ It’s just not the humble beginnings that we all look for in retail. As consumers, we like to feel that we’re part of the story.”

Salsbury also questions the Wilsons’ claims of a rapturous sales response, saying her own inquiries with staff members tell a different story. The demographic that can afford an $88 Gwynn Crop T-shirt and also has the physique to look good in it is a small one, she argues (the same goes for the market for accessories such as $65 candles that are “supposed to smell like Vancouver”). And if sales did take off, she says, retailers such as Zara or Aritzia could “jump on that category and come out with a competing product in two weeks.”

In crossing over into streetwear, Kit and Ace will compete against labels with deeper experience in fashion aesthetics than Lululemon ever encountered, others warn. “From a fashion perspective, there’s not a lot to get excited about right now,” says Sarah Bancroft, editor-in-chief at VitaminDaily.com and Vita magazine. “It’s kind of boring. There aren’t a lot of colours. I keep looking for something directional,” she says, adding that the chain has yet to offer customers a complete outfit. Still, Bancroft points out, “Lululemon started out that way too.”

Raymond Shoolman, a consultant with Dig360 Consulting and a former executive with Murray Goldman and Hugo Boss Canada, is likewise inclined to wait and see how Kit and Ace builds on its Technical Cashmere platform (it’s reportedly introducing a technical silk blend later this year). “There’s lots of challenges when you do something this quickly,” he says. In business less than a year, Kit and Ace managers can’t go back and compare same-store sales or track repeat business. They are therefore likely to encounter inventory management hiccups. But Shoolman doesn’t discount the family’s history in and knowledge of retail—nor its financial ability to weather the setbacks. “The worst that can happen is they’ll make some mistakes,” he says. “Part of you says, ‘Oops, maybe it’s too soon, too quickly.’ On the other hand, they have a lot of experience, they know their market really well, and you have to give them the benefit of the doubt.”

In terms of corporate culture, Kit and Ace seems inclined to operate with a certain level of trial and error. “Oftentimes, by the time the ink is dry on strategy, it requires adaptation. For that reason, I am not a fan of elaborate business plans,” notes Kopke in an email. “Spending too much time on strategy is more often a risk avoidance exercise than a practical experience.” Referring to the company’s plans for the next five years as “intentions,” Kopke says he aims to build an organization “that constantly adapts to changing market conditions and feedback. The bottom line is that strategy means nothing without execution.”

There remains a lot of speculation as to Chip’s role and what he meant when he said he would be “work[ing] with my wife and son as they grow their new business.” In an email, J.J. attempts to clarify: “At the moment and for the foreseeable future, Shannon and I view Chip as both a mentor and adviser to us in running Kit and Ace. He has no direct responsibilities in the day-to-day operations.” Or, as Shannon told the Vancouver Sun when it asked a similar question: “Advice is different from input. I don’t have to take it.”

Still, Chip proved unable to sit back and be a silent partner in Lululemon when the company he controlled wavered from his vision. In a New Yorker piece in February, coinciding with the New York launch of Kit and Ace, he was very much in the picture, boasting, “I think we’re probably the family that knows more about technical retail apparel than any other three people on the planet.”

When asked whom he reports to, Kopke responds: “I report to the owners, the Wilson family.” However the future of Kit and Ace is to unfold, you can bet they’ll sort it out the way family businesses usually do—quietly and respectfully (if not always democratically), and with a common end goal in mind. The private nature of the enterprise ensures only the Wilsons and their senior managers know whether it is meeting its ambitious sales targets, and they have the wherewithal to go a long time without expecting a return on their investment. The family has proven it knows a thing or two about spotting the buds of consumer trends before they flower and creating high-growth organizations, too. “My title is ‘creative director and other stuff,’” Shannon says. “The ‘other stuff’ is that I understand a company that moves at this cadence; therefore, I understand what systems need to be put in place to sustain this growth and build on it.”


 

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