“For nearly 40 years, Patagonia has prided itself on selling high-quality, high-performance outdoor apparel to dirt bags.”[1]
From its 1970s roots as a clothier for purist alpinists, the last decade witnessed Patagonia become an unintentional luxury brand. Teasingly called “Patagucci”[2], the company vocally rejects non-utilitarian portrayals of its brand and products. Patagonia’s newfound cult status derives from its mission – to “[b]uild the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”[3] Quality matters, but recent appeal is mostly derived from the company’s multi-faceted commitment to corporate social responsibility.
Patagonia effectively and publicly aligns its business and operating models
to capitalize on consumer demand for responsibly made products.
Business Model: Patagonia manufactures, distributes, and sells responsibly sourced high quality outdoor clothing endorsed by mountaineering professionals at medium to high price points. Its global customer base is an often-overlapping mix of outdoor sports enthusiasts, environmentally conscious buyers, and a large pool of luxury consumers. Its long-standing participation in environmental and trade initiatives create for consumers products that combine a socially conscious ego-expression with a trending brand and quality materials. Patagonia has excelled in capturing this value, sustaining double-digit sales and profit growth since 2008.[4] This is either aided by or in spite of anti-consumerism efforts, such as Patagonia’s recent “Don’t buy this jacket” ad campaign, advocating repair and reuse of its products. Gauging the company’s success targeting these more sophisticated ethos-conscious customers to the exclusion of luxury buyers is challenging. Some doubt the effort’s earnestness – “Don’t buy this jacket” ads preceded a surge in jacket sales.
Operating Model:
Patagonia designs products in the U.S., outsources manufacturing to external suppliers in emerging markets with cheaper labor, and ships finished goods to developed markets for sale. The company screens suppliers through a “4-fold approach”: ethical sourcing, product quality, social responsibility, and environmental compliance. “All 4 areas have equal veto power” says Patagonia.[5] The business model’s credibility (adherence to ethical and environmental business practices) rests on adherence to these commitments within its operating model.
Social responsibility (environmental and labor initiatives, primarily) has become a greater competitive advantage for Patagonia than even product quality. Environmental commitments include sustainably grazed wool, 100% organic cotton, 100% traceable down, environmental audits of factories, and waste management technology.[6]
Patagonia’s labor commitments center around its participation in the Fair Labor Association (FLA). The FLA provides a credible, external third-party auditor and assessor of Patagonia and its suppliers. The FLA audits 5% of the supply chain annually and reaccredits the company every three years to ensure compliance with Patagonia’s own commitments.[7] Failing factories enroll in a “continuous improvement program” to resolve failing metrics.
These audit reports are public. This distinguishes Patagonia from other brands claiming social responsibility without verification. It also broadcasts vulnerability, motivating the company to progress in its stated goals. These efforts enabled Patagonia to successfully petition California for legal status as a Benefit Corporation (or “B-Corp”), providing legal safeguard to certain social commitments beyond profit-maximization.[8]
These models align well. Patagonia placed itself in a virtuous cycle that serves as its greatest competitive advantage. Perceptions of social responsibility increase sales, escalating the risk of non-compliance, which strengthens adherence and self-binding to social commitments, which grow these same perceptions and sales again. The risk here is real – the 2013 FLA audit publicized several failures by Patagonia to adhere to its commitments before eventually recertifying.[9] This business model frequently forces changes in the operating model. Last minute orders are often declined to avoid requiring manufacturer overtime in violation of fair labor commitments.[10] Additionally, efforts to burnish a luxury image have only increased luxury appeal, but have freed more capital for sustainability efforts central to Patagonia’s mission and promise. These long-term investments in socially responsible environmental and labor initiatives are Patagonia’s dearest asset, and have proved its greatest performance advantage.
[1] John Swansburg; Slate, March 15, 2012. http://www.slate.com/articles/life/fashion/2012/03/patagonia_yvon_chouinard_s_company_makes_technical_climbing_gear_how_d_it_catch_on_with_the_rest_of_us_.html
[2] Reena Jana, ZDnet, March 17, 2012.
http://www.zdnet.com/article/patagonias-sales-rise-thanks-to-buyers-it-doesnt-design-for/
[3] Company website. http://www.patagonia.com/us/patagonia.go?assetid=2047
[4] Approximate estimate derived from http://articles.latimes.com/2012/may/24/business/la-fi-patagonia-20120525 and http://www.newyorker.com/business/currency/patagonias-anti-growth-strategy, given that Patagonia is a private company with unpublished financial documents.
[5] Cara Chacon, Director of Social and Environmental Responsibility. http://www.patagonia.com/us/patagonia.go?assetid=67372
[6] Annual Benefit Corporation Report, FY 2013, Patagonia. Found at http://www.patagonia.com/pdf/en_US/bcorp_annual_report_2014.pdf
[7] Patagonia Reaccreditation Report, February 2013, Fair Labor Association.
[8] Annual Benefit Corporation Report, FY 2013, Patagonia.
[9] Patagonia Reaccreditation Report, February 2013, Fair Labor Association.
[10] Cara Chacon, Director of Social and Environmental Responsibility. http://www.patagonia.com/us/patagonia.go?assetid=67372
