Patagonia: A Focus on a Sustainable Model
How Patagonia has matched its business model with a sustainable and impact-driven operating model
Patagonia does an excellent job matching its operating model to pursue its business model’s objectives. The business model focuses on growing a core consumer products business but also prioritizes impact in its branding (both social and environmental).
Business Model Overview as a Consumer Goods Business with a Focus on Impact
Patagonia’s business model is manufacturing and selling high quality outdoor clothing products both through distributors and direct to consumers. The business model also focuses on creating social and economic value through its business. Impact and environmentalism is part of the Patagonia brand identity. Patagonia’s mission is to “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”
Operating Model Overview with an Emphasis on Social and Environmental Impact
Patagonia inserts initiatives for impact and social responsibility into its mandate. The following three operating initiatives support its business model highlighting social and economic impact.
- Reporting as a Benefit Corp (B-Corp): Patagonia became a B-Corp in 2012 in California, as soon as it was possible in that state. Becoming a B-Corp allows socially and environmentally committed companies to write those values into their articles of incorporation, and more generally holds companies accountable to impact metrics beyond simply financial gain.
- 1% For the Planet Initiative: Patagonia has pledged 1% of revenues to go to nonprofit charities that promote sustainability and conservation. This further emphasizes its focus on environmental impact.
- Operations Causing No Harm: The company’s facilities and resources are committed to being energy efficient. In addition, consumers can look up the manufacturing and distribution footprints for their products online.
Patagonia’s product design and branding continues to be in line with its original vision and values. The approach to its core products and brand development emphasize the values and ethics of the founding vision.
- Design Thinking through Simplicity: Patagonia has a bias for simplicity and utility as it is “founded by climbers and surfers and their minimalist style.” Products are designed with that spirit in mind through design thinking prioritizing what “climbers and surfers” value.
- Worn Wear Initiative: The initiative emphasizes the ability to repair clothing while highlighting Patagonia’s durability. A camper named Delia drove around the country to repair clothes, including non-Patagonia clothing.
- Anti-Consumerism Marketing: The business markets and advertises against buying products to promote sustainability and promote the values of Patagonia. A famous add read “Don’t Buy This Jacket.” Patagonia has pushed back against consumer trends like Black Friday as well, hoping that consumers will spend more on fewer, more durable products.
Patagonia is a real business with a manufacturing footprint, distributor and retailer relationships, a brick and mortar set of distinct retail stores, and an online presence. The brand is valuable and has grown an estimated $600 million plus in revenue. Yet the business model which emphasizes sustainability and impact in its charter is matched very well with its operating model.
In an age where consumers are more aware of and interested in the impact businesses have on the world, Patagonia’s parallel business and operating models are well positioned to continue to capture loyal, impact-driven customers.
Sources
http://www.patagonia.com/us/patagonia.go?assetid=2047
http://www.patagonia.com/pdf/en_US/bcorp_annual_report_2014.pdf
http://www.newyorker.com/business/currency/patagonias-anti-growth-strategy
Great post Mark. I have been completely taken aback by how prevalent the Patagonia vest is here at HBS…rivalled only by the H sweater. I totally agree this business model is perfectly aligned with a growing base of consumers demanding more social-corporate responsibility before they open their wallets. I wanted to add that Patagonia ‘s focus on ethical practices is spreading across the industry and driving competitors to lift their game when it comes to what and how they produce their products. In 2014 there was the infamous Northface vs. Patagonia Down Smackdown. Northface, previously relatively silent on these topics, announced it would begin selling down (the feathers in its jackets) that complies with its Responsible Down Standard (RDS), which it describes as “the broadest and most comprehensive approach to animal welfare available in the down supply chain”. Patagonia responded by challenging Northface that it did not have the highest assurance of animal-welfare. After a very public debate on this topic, Four Paws, an independent animal-welfare group came down on the side of Patagonia.
The fact that this topic is being publicly debated, that these companies are now competing on ‘Who’s Down is most traceable’? shows a huge shift in their conversation with consumers, the focus of their future strategies and the growth of social-corporate responsibility. Patagonia is well positioned to lead this charge.
As an long-time Patagonia loyalist, I agree with your perspective and would further assert that Patagonia is the original poster child of this joint-ethical / business mission. The founder, Yvon Chouinard, is an absolute legend in sporting and conservation, their products simultaneously evoke a strong association with both quality and environmental values, and to this day I’m still confused how one converts used water bottles into a super comfortable fleece!
My constant question about this business model is how one assesses the trade-offs of growth and conservation. Were it more focused on expansion, presumably the business could have grown far beyond its estimated $600 million revenue through store growth, category expansion, or sub-brands. Conversely, Patagonia could have gone totally non-profit (vs. 1% of revenues) and focused almost exclusively on conservation. The brand and its value are linked intrinsically to this dual-mission so one cannot shift too far to an extreme end of the spectrum, but would be interested to learn how management evaluates the balance between these goals, and see how (or if) this changes once Chouinard is no longer at the helm.
Mr Saadine, Batman would like a Patagonia vest to prep for a Boston winter.
Great post on incorporating socially conscious values into its business model. I am unsure however as to how the brand keeps growing without compromising fairness standards on labor and working conditions given the disintermediated supply chain. With most of apparel being sourced from developing country factories, reputable competitors have struggled to ensure that their brands are manufactured in labor compliant working conditions. A large part of this is driven by growing demand for a particular brand and shorter leads/life cycles for each design. With Patagonia at the brink of such growth, what is the brand doing to ensure equity along its entire supply chain?
Patagonia is a company that I really admire for its commitment to earning a profit in a socially responsible way. Your post and the previous comment made me think about an article I read over the summer regarding Patagonia’s human trafficking reduction effort: http://www.theatlantic.com/business/archive/2015/06/patagonia-labor-clothing-factory-exploitation/394658/. Patagonia uses internal audits to ensure that their supply chain is consistent with their social values, and the 2011 audits found multiple instances of forced labor/human trafficking in their supply chain. Since then, Patagonia has taken several measures to try to reduce human trafficking/forced labor in their supply chain and even invited competitors to a forum to discuss these issues. I am interested to see what actions Patagonia continues to take in this direction and how those actions may alter the operations model. Becoming fully accountable for the supply chain while remaining profitable is a big task, but I think Patagonia has the drive/power to come close to a solution and set an even higher bar for its industry.
Great post Mark. In my opinion, Patagonia is a poster-child for the type of business that stands on its own merits (e.g. fantastic jackets, superb quality, etc.) while embodying the essence of sustainability from the perspective of long-term competitiveness. Namely, we would not see Patagonia jackets and fleeces all over HBS if they were made in a socially and environmentally conscious way but of lower quality materials. My question with businesses that broadly fall into the category of “sustainable” is always how much do people care about the social and environmental impact that a business has vs. the actual product they are buying, and how does the potential negative perception of sustainability (i.e. in terms of quality) impact a consumer’s purchasing decisions? Does that change in a B2B vs. B2C setting? Also, is there a market for a consortium of socially and environmentally responsible consumer-facing businesses that make high quality products that are still affordable, and would consumers turn to it as a source of guidance for when looking to make their purchasing decisions? Perhaps somewhat predictably, I am a big fan of Patagonia and lots of other outdoor brands that have a similar mission and model, including REI, which is where I would most likely come across most of these products. Another thing this made me think of is how important the distribution channel is for these types of products. For instance, there are also tons of flash sale sites that sell outdoors stuff (e.g. steepandcheap) so I wonder whether the distribution channel through which these products are sold impacts consumer behavior.