Business conducted consultants’ recommendations

FOREST RE INHARDT
RAMON CASADESUS-MASANELL
HYUN J I N KIM
Patagonia
[Patagonia] is business conducted
consultants’ recommendations about Ho
It’s okay to be eccentric, as long as yo
In the spring of 2010, Casey She
discussions about the future of the co
a new, radical environmental initiativ
At the time, Patagonia was known
Forbes magazine named it “the d
described how founder Yvon Chou
business.”4 While maintaining an av
its revenues to environmental caus
invested thousands of dollars into
Meanwhile, the company was targeti
Sheahan and executives worried
between committing to sustainabilit
Initiative” would expand existing p
establishing a swap market of used
include telling its customers to buy le
From very early on, Chouinard h
might be responsible for overconsum
a reflection in 19956 and again in a
completely socially responsible,” a
implement this new initiative.8
As Sheahan and executives attem
from consolidating retailers and fa
Chouinard asserted, “I’m kind of lik
afraid of dying, and as soon as you
business.”9
9-
REV: OCTO
____________________________________________________________
Masanell and Research Associate Hyun Jin Kim prepared this case. HBS cas
ot intended to serve as endorsements, sources of primary data, or illustratio
d College. To order copies or request permission to reproduce materials, ca
MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may
ansmitted, without the permission of Harvard Business School.
upside down and inside-out. Everything about it flies i
w to Maximize Profits and Cut Costs. Simply put, it’s radi
— Fortun
ou are rich; otherwise you’re just crazy.
— Yvon Chouinard, Founder of Pat
eahan, CEO of Patagonia, and senior executives wer
ompany. They were wrestling with the challenge of im
ve that was at the forefront of their agenda.
n as a worldwide leader of environmentally responsib
do-no-evil” outdoor-apparel company,3 and Fortun
uinard turned “his passion for the outdoors…into
erage annual growth of 6% in net sales, Patagonia do
ses, provided in-kind donations to environmental
reducing the environmental impact of its product
ing a 10% annual growth in sales for the next five year
that this new initiative could threaten their delicate b
ty while achieving 10% revenue growth. The “Produ
practices such as repairing and recycling old garm
products for its customers. Most radically, the initi
ess and think twice before they purchased a garment.
had been “tormented by the realization” that his ow
mption, and called out to customers to reduce their con
2004 catalog essay.7 He worried that Patagonia coul
and this anxiety motivated Chouinard to push
mpted to carry out Chouinard’s vision, Patagonia face
ast-growing competitors in the outdoor apparel ind
ke a Samurai. They say if you want to be a samurai,
u flinch, you get your head cut off. I’m not afraid o
-711-020
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iative would
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For the exclusive use of G. Balli, 2021.
This document is authorized for use only by Geeta Balli in Business and Society Relationships_Spring 2020-1 taught by JARED PEIFER, CUNY – Baruch College from Jan 2021 to Jul 2021.
711-020 Patagonia
2
Patagonia’s History: a “dirtbag” business
The Beginnings of a Businessman
A world-class mountaineer known for several impressive ascents, Chouinard described himself not
as a businessman, but a “dirtbag,” his term for someone who wandered through “temp jobs and long
summers,” pursuing a life of climbing in Yosemite and surfing in Baja.10 Spurred by the desire to make
stronger, better climbing equipment for himself and his friends, Chouinard started a business making
pitons (pegs used in mountain climbing) in 1957. As demand for his gear grew, the back-of-the-car
operation eventually transformed into Chouinard Equipment. In 1966, Chouinard set up shop in
Ventura, California, for its proximity to surf breaks, and began a partnership with his peer climbers,
Tom and Doreen Frost.11
Chouinard Equipment became the largest supplier of climbing hardware in the United States by
1970, but as Chouinard recalled, “None of us saw the business as an end in itself. It was just a way to
pay the bills so we could go off on climbing trips.”12 Tom and Doreen would work while Chouinard
took six months surfing down the west coast of the Americas, skiing in Chile, and climbing in
Argentina. In return, the next year, Chouinard would watch the business while Tom climbed the
peaks in the Himalayas.13
Patagonia’s Early Years
In 1972, Chouinard Equipment added an apparel line named “Patagonia” after a mountainous
region in Chile and Argentina. Soon after, Chouinard’s partnership with the Frosts came to an end.
Patagonia was established as its own company in 1979, and Kristine McDivitt Tompkins, an avid skiracer
and fellow “dirtbag,” was appointed its first CEO. Lost Arrow Corporation was created in 1984
as a parent company for Chouinard’s businesses.14 During the 1980s, while Chouinard Equipment
experienced legal trouble and was eventually sold, Patagonia grew its sales from $20 million to $100
million and expanded internationally to Europe and Japan.15 Although the early 1990s recession
triggered a sales crunch and layoffs of 20% of its workforce, sales at Patagonia continued to grow,
albeit erratically, throughout the 1990s, at 6.7% compounded annual basis from 1989 to 1999.16 By
2000, the company was grossing about $200 million in net sales. (See Exhibit 1 for Patagonia’s
financials.)
Business Philosophy
Chouinard stated that he would “never be happy playing by the normal rules of business.”17 He
saw business as deserving much of the blame for many of the world’s economic, social, and
environmental problems. However, he believed that business had the potential to alleviate these
problems and inspire positive change. For Chouinard, Patagonia represented an “experiment” to
“challenge conventional wisdom and present a new style of responsible business.”18
Expressing that he wanted to “distance [himself] as much as possible from those pasty-faced
corpses in suits,” Chouinard asserted, “If I had to be a businessman, I had to do it on my own
terms.”19 He firmly believed in Zen philosophy, which he saw as “perfect” for the business world. He
explained, “In Zen archery…you forget about the goal—hitting the bull’s-eye—and instead focus on
all the individual movements involved in shooting an arrow. . . . If you’ve perfected all the elements,
you can’t help but hit the center of the target.” Applying this philosophy to Patagonia, he oriented its
goal away from profits and toward “doing things right.”20
Chouinard also applied to his business important lessons he had learned from climbing the likes of
Yosemite’s El Capitan. In particular, Patagonia’s environmental commitment arose from Chouinard’s
For the exclusive use of G. Balli, 2021.
This document is authorized for use only by Geeta Balli in Business and Society Relationships_Spring 2020-1 taught by JARED PEIFER, CUNY – Baruch College from Jan 2021 to Jul 2021.
Patagonia 711-020
3
own experience observing the damage done to the rocks while climbing. Furthermore, he asserted that
he learned to make business decisions “as risk-free as possible” through climbing, which he saw as
being inherently about risk-management. He described, “You can’t control the event of an avalanche.
But you can study the conditions of your climb, prepare, and train for it.”21 For Chouinard, the same
applied to business.
These principles guided a vision for Patagonia that was articulated in its mission statement:
Patagonia strived to build the best product, cause no unnecessary harm, and use business to inspire and
implement solutions to the environmental crisis.22
Sheahan asserted that “the values of the mission statement [were] entrenched in the walls of
Patagonia, in every employee and every decision.”23 For example, the environmental component of its
mission spurred Patagonia to remove anti-odor chemicals from its products in 1998, due to
environmental and public health concerns. Although the market for anti-odor clothing was growing at
the time, Patagonia did not adopt any anti-odor technology until 2004 when it found an
environmentally benign one made from crushed crab shells.24
Governance
In spring of 2010, Patagonia was Lost Arrow Corporation’s only significant wholly owned
subsidiary, and Yvon and Malinda Chouinard remained Lost Arrow’s only shareholders. Some
observers suggested that the fact that Patagonia was private was a major reason that it could pursue
environmental sustainability, arguing that its sustainable agenda was at the expense of its growth.25
Patagonia committed to the view that its environmental decisions were not at odds with optimal
financial performance.26
Patagonia experienced rapid turnover in senior management throughout the 1990s and 2000s. After
Kristine McDivitt Tompkins’s retirement as CEO in 1993, the position changed hands multiple times.27
In 1999, Michael Crooke was appointed CEO of both Lost Arrow and Patagonia. Crooke left the
company in 2005, and was replaced by Casey Sheahan, a long-time friend of the Chouinards.
Commenting on the turnover, Chouinard explained, “We’ve rushed through a lot of CEOs and a lot of
management teams that didn’t understand what we’re about….The values here are so deep…[and] it
is hard to find a CEO that will grow with the company.”28
Although Chouinard did not occupy any official executive position in the company after he retired
as CEO in 1999,29 he continued to play a large role in all company decisions, from the details of
product development to broad strategies concerning the direction of the company. Chouinard
practiced what he called his MBA theory of management—a “management by absence”—primarily
dedicating his time to climbing, surfing, and wear-testing the clothing and equipment in exotic field
locations.30 Sheahan explained that Chouinard was “the visionary” of the company who traveled the
world and came back with ideas, while Sheahan “translate[d] his vision and execute[d] day-to-day the
scale-up and globalization of the business.”31 Chouinard articulated that “the board [drove] the
change at Patagonia, not the CEO.”32 The board included Yvon and Malinda, their two children, and
Kristine McDivitt Tompkins.
Throughout the late 2000s, Patagonia steadily grew its sales at an average rate of 6% per year.
(Exhibit 2 provides financial data for Patagonia and its competitors, and Exhibit 3 shows Patagonia’s
balance sheet for FY 2010.) Looking to the future, Sheahan expressed a target goal of 10% annual
growth in sales for the next five years. He suggested that better inventory management would spur
increased growth, explaining that Patagonia’s shortage of inventory caused an inability to satisfy the
existing demand for many of its products.33
For the exclusive use of G. Balli, 2021.
This document is authorized for use only by Geeta Balli in Business and Society Relationships_Spring 2020-1 taught by JARED PEIFER, CUNY – Baruch College

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