The Patagonia Business Model In A Nutshell

Patagonia is an American clothing retailer founded by climbing enthusiast Yvon Chouinard in 1973, who saw initial success by selling reusable climbing pitons and Scottish rugby shirts. Over time Patagonia also became a fashion brand for its focus on slow fashion. Indeed, the company sells high-priced clothing items built to last, which it will repair for free.

Background

Patagonia, Inc. is an American clothing company selling primarily outdoor clothing and associated equipment.

Based in California, the company was founded by climbing enthusiast Yvon Chouinard in 1973.

Chouinard began rock climbing in 1953 as a 14-year-old Southern California Falconry Club member.

His passion was instilled in him by the leaders of the club, who taught him how to rappel down cliffs to view falcon nests.

As he grew older, he met members of the Sierra Club who would regularly meet in Yosemite.

Chouinard was also an environmentalist who wanted to climb without leaving his equipment embedded in the rock face.

He figured that a reusable piton was the answer, but no such product existed on the market.

So he decided to design and then produce one himself, using an old coal-fired forge salvaged from a junkyard.

The reusable pitons were a hit in the climbing community, so Chouinard began selling them under the company name Chouinard Equipment.

By 1970, Chouinard had become the largest supplier of climbing hardware in the United States.

Patagonia then began selling rugby shirts, bivouac sacks, gloves, hats, and mittens after Chouinard returned from a climbing trip to Scotland.

The first store opened in 1973 in Ventura, California, as the company shifted to developing innovative activewear made from synthetic fibers with an environmental slant.

Further product line expansion saw Patagonia branch into sleeping bags, camping gear, surfwear, athletic equipment, and backpacks.

Today, Patagonia has approximately $1 billion in annual revenue with more than 50 stores globally.

Patagonia revenue generation

Patagonia makes money by manufacturing and selling clothing to consumers for a profit.

However, the company is unique among its peers. It enjoys high brand equity but encourages people not to buy its clothing despite remaining a for-profit organization.

Patagonia promotes anti-consumerism, fair trade, charity, and environmental stewardship and actively embodies its values to build consumer trust.

Let’s look at how these values help the company make money.

Highly durable clothing

Patagonia sells high-quality, long-lasting clothing to consumers.

While profit margins on individual items are higher, the company does not subscribe to the planned obsolescence strategy many clothes retailers today.

To further its environmental values, Patagonia also holds regular Worn Wear events across the US, where customers receive free help repairing old clothing.

Alternatively, shoppers can pick an item from a selection of pre-worn clothing and fix it themselves.

These events solidify the connection between Patagonia and its target audience. It also assures customers that their warranties will be honored.

Advertising and marketing

Through its advertising campaigns, Patagonia believes that less is more. In other words, it actively encourages consumers to buy less clothing.

The Patagonia Common Threads Initiative advocates sustainability and anti-consumerism, with a message on the company website stating that:

“We design and sell things made to last and be useful. But we ask our customers not to buy from us what you don’t need or can’t really use. Everything we make – everything anyone makes – costs the planet more than it gives back.”

Patagonia is also famous for its “Don’t Buy This Jacket” campaign to push back against sales such as Black Friday and encourage consumers to be more thoughtful about their purchases.

B-Corp certification

Patagonia became a Benefit Corp (B-Corp) almost as soon as it was possible to do so in California.

A B-Corp is a socially and/or environmentally responsible company that can write associated values into their articles of incorporation.

In more general terms, Patagonia is accountable for metrics beyond just profit and loss.

To that end, Patagonia donates 1% of total revenue to charities promoting conservation and sustainability.

It also makes its operations’ manufacturing and distribution footprints freely available online.

This certification increases operating costs and certainly reduces revenue, but embodying these values helps Patagonia resonate with a target audience who then become more motivated to purchase Patagonia products.

Giving away Patagonia

Yvon Chouinard, a rock climber, who turned into a billionaire thanks to the success of Patagonia, always had a strange relationship with money.

Indeed, as he never set to become a billionaire, he could never accept that status.

Chouinard evaluated various options to enable Patagonia to be true to its mission to the environment.

He could not find one that fit from a legal standpoint; therefore, he created a path for the company which had never been explored before.

As Chouinard passed away, he left a letter to give away his company!

A move that has probably never happened before in the story of capitalism.

As shared by Patagonia, Chouinard wrote a letter to explain his rationale:

As Chouinard explained, he never set to become a businessman:

“I never wanted to be a businessman. I started as a craftsman, making climbing gear for my friends and myself, then got into apparel. As we began to witness the extent of global warming and ecological destruction, and our own contribution to it, Patagonia committed to using our company to change the way business was done.”

Further explaining that, after evaluating all the possible options, of which none worked, Patagonia’s founder decided to organize the company in this manner:

“Here’s how it works: 100% of the company’s voting stock transfers to the Patagonia Purpose Trust, created to protect the company’s values; and 100% of the nonvoting stock had been given to the Holdfast Collective, a nonprofit dedicated to fighting the environmental crisis and defending nature. The funding will come from Patagonia: Each year, the money we make after reinvesting in the business will be distributed as a dividend to help fight the crisis.”

Thus, Patagonia will be owned by two non-profit organizations: the Patagonia Purpose Trust and the Holdfast Collective.

The Patagonia Purpose Trust will hold 100% of the voting stocks. Thus, the organization will decide the brand’s strategic direction.

On the other hand, the Holdfast Collective focused on environmental causes, will take 100% of non-voting stocks. This means it will take the dividends generated by the brand to re-invest it into environmental causes.

Thus, on the one hand, you get a non-profit (Patagonia Purpose Trust) with the sole scope of keeping Patagonia’s brand on track to its long-term mission.

And on the other hand, you get a non-profit (Holdfast Collective) with the sole scope of re-investing Patagonia’s profits toward environmental causes.

Key takeaways:

Patagonia is an American clothing retailer emphasizing activewear and associated equipment. It was founded in 1973 by Yvon Chouinard, who saw initial success by selling reusable climbing pitons and Scottish rugby shirts.
Patagonia makes money by selling clothing items for a profit. But in reality, its revenue generation strategy is far more nuanced. The company sells high-priced clothing items built to last, which it will repair for free.
Patagonia promotes anti-consumerism by encouraging consumers to purchase thoughtfully during sales events such as Black Friday. As a B-Corporation, it also donates to charity and is transparent about its impact on the environment. Demonstrating the change, it wants to see in the world further strengthens Patagonia’s brand image and equity. Consumers with similar values become proud to wear and promote the Patagonia brand.