Case Study

Sara Chambers knew yoga before it was chic. Seventeen years ago, while other women shaped up with Jane Fonda, Chambers was standing on her head, twisting her torso, bending her back -- and starting her own company, Hugger Mugger Yoga Products. Working out of her Salt Lake City home, Chambers made formfitting shorts, synthetic mats, wooden blocks, and other equipment for enlightenment seekers. It was a classic niche business, small but profitable, which suited Chambers, a laid-back mother of two who still finds time to do yoga every day, just fine.

These days, however, life as a yoga entrepreneur is no longer quite so mellow. Thanks to high-profile partisans like Madonna and Sting, yoga has graced the covers of Time and Newsweek, and is now offered by most gyms and health clubs. Nationwide, some 15 million people have attended yoga classes, and serious practitioners spend about $1,500 a year on instruction, apparel, and equipment, according to Yoga Journal, an industry magazine. In the old days, Chambers says, "if you said 'yoga,' people had this picture of somebody sitting in the lotus position staring at a candle." Now, she says, "you say yoga and everyone knows what it is."

Where Hugger Mugger once had the yoga market virtually to itself, it now competes with dozens of start-ups, with names like Gaiam, Spri, and Barefoot Yoga, peddling their own mats, clothes, and props. Even mega-brands Nike and Reebok have rolled out their own yoga products. "With the crash of the Internet, there's a real back-to-basics for people and yoga is a natural fit with that," says Pete Gilmore, merchandise director at the New Hampshire-based retail chain Eastern Mountain Sports, which carries a full line of yoga products, all of them by Hugger Mugger. "The growth curve is very steep right now."

For Chambers, that means confronting a problem that would puzzle even the wisest Zen sage, not to mention some of the savviest minds in business: How does Hugger Mugger, with 40 employees and revenue of about $7.5 million, compete in the new, feverish environment? Does it stick with business as usual or does it go after the growth?

It's not a question Chambers ever imagined having to face. She stumbled into the yoga business in the mid-1980s, when a doctor suggested that her husband try the ancient Indian practice to treat a back injury. Yoga, as it happened, was a revelation for both of them. There was just one problem: Traditional fitness clothing never quite fit right. So Chambers, a skilled seamstress and designer, took to her sewing machine and made a pair of shorts, equipped with elastic to hug the leg during inside-out and upside-down poses. Soon enough, word spread and in January 1986, Hugger Mugger -- named for the elastic in the shorts -- was born.

With two sewing machines and a roll of synthetic mats imported from Germany, Chambers, then 33, began making custom-sized shorts and yoga mats, selling them via mail order to the then-small community of teachers and studios. Noticing that traditional mats lost their stickiness after heavy use, she began formulating her own, higher-quality mats. "They innovate and design more specifically for yoga users," says Charlotte Bell, a yoga teacher and Hugger Mugger customer for the past 17 years. "They have their eye on what's going to work for people."

Other yogis apparently agreed, and sales at Hugger Mugger had begun to grow 50% annually. The company moved three times to bigger, more industrial spaces and grew to 30 employees. Unexpected things began to happen. Orders for shorts and mats came in from celebrities like Jerry Seinfeld, John McEnroe, and Oprah Winfrey, and Hugger Mugger products appeared on episodes of ER and Party of Five.

Chambers was caught unprepared. She lacked branding skills and a marketing budget. Nor did she have the experience or contacts to pitch for shelf space in national chain stores. Suddenly, Hugger Mugger was scrambling to keep up, as larger companies and energetic start-ups pounced on mass-market consumers, many of whom had discovered yoga for the first time.

Sensing that her company was getting too complex for her to run herself, Chambers enlisted David Chamberlain, a marketing pro, a veteran of Quaker Oats and Shaklee and current CEO of Stride Rite (as well as a Hugger Mugger customer), to join her company as managing partner in exchange for a chunk of equity. Chamberlain knew Hugger Mugger faced a potentially lucrative opportunity. But it first had to deal with a host of tricky questions. Should the company push its mats on the shelves of large retail chains, such as Target and Wal-Mart? Could it extend the brand to other parts of the fitness industry? And would going mainstream sacrifice the company's hard-earned reputation with its core customers, yoga's old school?

The Decision

Hugger Mugger entered the mass retail market with a new, lower-cost brand called YogaBasics, which sells at chain stores like Linens 'n' Things and Big 5 Sporting Goods. Sales of the line have more than doubled over the past two years. Hugger Mugger-labeled products, by contrast, can only be purchased via catalog, online, in studios, and in specialty stores. "At a time when there is a lot of change, we need to maintain our technical leadership and maintain our quality," Chamberlain says. YogaBasics now accounts for 20% of the company's annual sales of about $7.5 million.

Still, after soaring for years, the company's annual growth rate has begun to level off at about 30%. So Chambers and Chamberlain hired 50 independent sales reps and increased the company's marketing budget by 30%. They've also increased the frequency of catalog mailings to four times a year and changed their look -- often dedicating whole pages to artful, serene photographs of yogis in mid-pose. "What we've done is continued to really move forward with the platform Sara's built, working with the teachers to figure out how they've used the products and what they find works for them," says Chamberlain.

But striking the balance between serving the new mass-market crowd and Hugger Mugger's traditional, hard-core yogi constituency hasn't been easy, says Rodger Lee, the company's vice president of sales. "We are trying to respond to the larger market, but we don't want to be part of that rip-off mentality," he says. Eric Johnson, who joined Hugger Mugger as CEO in 2002, adds that the company is focusing on longevity rather than taking advantage of the yoga craze. "It could be a temporary boom," he says. "We are interested in the long-term health of Hugger Mugger. We intend to still be here."

The Experts Weigh In

David Abrutyn

IMG, a New York-based sports marketing firm
Vice President

Fair or not, sometimes David does not win out against Goliath. At the end of the day, an exit strategy may present itself. And at the end of the day, it makes sense to sell out. They have to look at who might be interested in buying them, someone in a related field who has the distribution built in, the retail relationships built in, and the financial wherewithal to put the funding in to grow the company from where they are. They certainly don't want to be perceived as somebody whom the market's passed by. But creating a buyer is not the easiest thing in the world. It's important to have a board of advisers who are schooled in selling in the industry.

Gary Erickson

Clif Bar Inc.
Owner and CEO

For a small company trying to remain competitive, it's sometimes difficult to resist the pull of "what the other guys are doing." The challenge will be to stay in touch with the changing needs of its customers and maintain that innovative edge to support them. Now more then ever, consumers want to support companies they trust and that are honest with them. I think the past year has shown us that the size of the company and its quarterly earnings don't necessarily guarantee winning in the end. In the case of Hugger Mugger, I think they made the right decision not to jump on the bandwagon and risk losing their authenticity.

Stephen Hoch

The Wharton School, University of Pennsylvania
Professor of marketing

Sports is one of those things where there are lots of fads. I think Hugger Mugger can benefit from the big boys investing and growing in the market. The thing I'd be worrying about is if the bottom falls out, and she's built all this infrastructure and inventory. I would say they are just getting themselves, potentially, into a situation in which they are operating without the capability of really delivering. They don't know how much of a fad this is. It seems to me that the popularity of different sports is reasonably volatile. Something can become really popular; then it's just a fad and it's replaced by something else. There are lots of substitutes for yoga. I'd say that taking it slow and easy would be the best way to go.