From $5,000 to a Billion-Dollar Brand

Blakely had $5,000 in savings, no fashion experience, and a patent application she had mostly written herself. 

Twenty-one years later, Blackstone valued Spanx at $1.2 billion.

What Blakely paid monthly to run the website that took Spanx’s first Oprah orders in November 2000, built from a scan of the product packaging.

Here’s what you’ll learn: 

The idea began with a pair of ruined pantyhose. 

She wanted her cream pants to look smooth, without underwear lines or bulges showing through. So she wore tight, stretchy pantyhose underneath to hold everything in. But she was wearing shoes that showed her toes, and she didn’t want the pantyhose covering her feet. 

So she cut the feet off the pantyhose.

But then the cut edges kept curling upward and bunching up as she moved, so she had to keep pulling them back down.

She had never worked in fashion or retail, and (by her own account) never taken a business class.

She treated the problem as research before starting anything. 

So she moved to Atlanta, set aside her $5,000 in savings and spent two years planning while she kept her day job as fax machine saleswoman. 

After seven straight nights at the Georgia Tech library reading hosiery patents, she asked a Neiman Marcus sales associate whether customers would buy footless pantyhose. The associate said many were already making their own.

The people who made hosiery were harder to convince. Mills made hosiery to be seen on a leg, and she was asking for a garment meant to be hidden. 

She cold-called mills and was told no repeatedly. So started showing up in person. 

She finally hit her lucky break in Highland Mills in Charlotte, North Carolina. She was turned away at first, and two weeks later the manager called back. His daughters would not let him pass up the invention.

The rest of the setup was cheap. She wrote her own patent from a Barnes & Noble textbook to avoid about $3,000 in legal fees, then found a lawyer to help complete the application. Today it’s listed as U.S. Patent No. 6,276,176. 

The name began as Spanks, and she swapped the K for an X after reading that made-up words sold better. 

By the summer of 2000 she had a product, a supplier, a name and cherry-red packaging. What’s missing? The budget for advertising and connections to buyers at brick-and-mortar stores decided what products moved.

That fall, Blakely paid her own way to Dallas for a ten-minute meeting with a Neiman Marcus buyer. She could tell partway through that the buyer was not convinced.

…so she asked her to come to the bathroom and showed her the before-and-after on her own white pants. Neiman Marcus, then, introduced Spanx in seven stores.

But here’s what allowed the product to sell better.

The packaging was cherry red, with a cartoon mascot and copy written the way she would talk to a friend. This helped it stand out from the boring beige boxes competitors had.

Even more, Blakely took over morning staff meetings at department stores to argue that Spanx belonged beside womenswear and shoes instead of on the hosiery floor. 

One time, she put red Spanx packages on a rack she bought from Target and placed it near a register at Neiman Marcus. The staff thought it was allowed until they saw her on camera. 

Of course, shelf positioning will only get you so far. You need to tell people about your product.

And so Blakely sent samples to Oprah Winfrey’s longtime stylist. 

In November 2000 Winfrey named Spanx one of her Favorite Things. 

Blakely quit her sales job two weeks before the show aired. Spanx had no website, so she scanned a copy of the packaging into a page and ran the online business for $18 a month. Sales were $4 million in the first year and $10 million in the second. The company was profitable from the start.

To keep the momentum going, Blakely brought in Laurie Ann Goldman as a consultant. She was a ten-year Coca-Cola veteran who had run its licensing division in 54 countries. Goldman became CEO shortly after. 

Goldman wrote the company’s first business plan over the founder’s objection that it would stunt creativity. She also implemented a spending rule: spend only on things that make money. 

Advertising failed that test because nobody could measure the return. 

So how do you run a successful business without advertising?

Simple: Stores supplied the floor space and the foot traffic, factories supplied the production, and Spanx paid for design, packaging and the people to place it. It was often the most expensive brand on the shapewear rack.

By 2012 Spanx sold 200 products through 11,500 department stores, boutiques and online shops in 40 countries with a team of 125. The products were manufactured in 15 countries, with the cotton gussets still hand-sewn in North Carolina. 

And to drive the point home, Spanx did not pay for advertising until 2016.

Unfortunately, the growth did not compound. 

The New York Times reported in June 2021 that Spanx had hired Goldman Sachs to explore a sale. The bank put operating earnings at $50 million to $80 million on revenue of $300 million to $400 million. Forbes pointed out that the revenue range was barely above the $250 million reported for 2012 and below analyst estimates from as early as 2015, and it described sales as stagnant for years.

The market around Spanx was also shifting. U.S. shapewear sales fell 23% between July 2019 and July 2020, as weddings, galas and graduations were canceled. 

Additionally, they lost ground to Skims, which launched in September 2019. They reportedly took in $145 million in 2020 revenue, and had raised $154 million at a $1.6 billion valuation by April 2021. It’s hard to compete against like Kim Kardashian. 

Spanx had also moved off the department store floor. About 70% of sales now came through direct-to-consumer channels, even though the company had once depended on department stores and other wholesale partners.

In the end, Blackstone’s closed the acquisition in November 2021 at a $1.2 billion valuation. It was later reported that Spanx had about $400 million in sales and $80 million in EBITDA at the time, which put the price at roughly 15 times earnings.

Not bad for something that never took investors or venture capital!

Key takeaways to consider…

$4 million - Spanx's sales in its first year, followed by $10 million in its second year, with the company profitable from the start

2016 - Year Spanx first paid for advertising, after 16 years of relying on press, endorsements, and word of mouth

$1.2 billion - Spanx's valuation when Blackstone completed its majority investment in November 2021

70% - Share of Spanx sales generated through direct-to-consumer channels in 2021

23% - Decline in U.S. shapewear sales between July 2019 and July 2020

$18 - What Blakely paid monthly to run the website that took Spanx’s first Oprah orders in November 2000, built from a scan of the product packaging.