The economy has been going strong as of late, but I wonder what the “fall back” plan is if there is another recession. I think that in this particular industry it’s important to have a rainy day fund because discretionary spending could decline significantly. The luxury additions are top notch and I imagine attract a lot of customers – but I wonder how often they will need to be updated to maintain the influx of customers? Also, is a lot of their business repeat customers and if so is there a loyalty program in place to help retain them?
The location and focus on elegance pair perfectly with the operating model. Also, I imagine that human capital plays a critical role in tying together the business and operating models. Luxury customers are looking for a very smooth and refined experience, which I think requires quite a bit of training to get the staff up to that high expectation level. Also, with so many hotel/casino’s in Las Vegas I would be curious to see if there is an over or under abundance of workers.
Great write up! It’s a very interesting phenomenon that a company who advertises to a certain customer base that wants high performance outdoor apparel then becomes a wildly popular luxury brand. This shift speaks to something that is happening in the athletic apparel industry at large, with Nike and others becoming more focused on being a “lifestyle brand”, in part because people simply don’t dress up as much as they used to and want comfortable clothing. With two conflicting customer bases, one a group of wealthy people who aren’t particularly outdoorsy, and the other a group of hard core outdoors adventurers – I could see a conflict between the two. People buy brands in part because they want to be seen in that brand, and with conflicting customer bases you could lose the image of what the company stands for.
I wonder if this shift to a larger customer base will stress the capacity to meet demand. Patagonia works with specific groups of external suppliers, who must meet stringent criteria and I think it will be difficult to quickly expand and police this network as it demand increases (especially with their desire to stay away from too much overtime). Not meeting demand could eventually drive away customers.
A key advantage, that Meghan mentioned is the work environment for employees. Volunteer days, grants, bike to work weeks, employee runs and internship programs are all appealing things that Patagonia offers to employees (http://www.patagonia.com/us/patagonia.go?assetid=1963). This is critical to keeping and recruiting talent that drive to built the best products possible in a sustainable way. This environment will attract employees who genuinely believe in company’s mission of quality and responsibility.
TJ’s is awesome and you made a lot of interesting points regarding their business and operating model. One thing I have noticed (and several others have said to me) is that TJ’s is often out of certain items, which with their relatively small number of SKU’s I find to be very surprising. I wonder if that points to more systemic problems or is an outlier. In my opinion, the optimal number of products consumers want to see is 4 to 6, not too many to be overwhelmed, but enough to give them options. I sometimes wonder if they have mastered the problem of giving enough options while still maximizing their limited shelf space. I would be curious to know if they do A-B testing at various stores to determine the best product mix. I also wonder if customers flock to the store because they love one particular item that only TJ’s sells? It’s pretty likely that if you buy something at TJ’s, with it’s abundance of private label items, that it might not be available elsewhere (in my case it’s their hummus). I see that as a big advantage over some of it’s competitors, where most of the items they sell are available at multiple retailers.