Patagonia — A Better Way

Patagonia's logo

Anyone interested in business can learn from the clothing manufacturer, Patagonia. Patagonia has been a family business owned by husband, Yvon, and wife, Malinda, Chouinard since its inception.

Not Your Typical Business Executives

Yvon never wanted to be a businessman; born in Maine and growing up in California, his passion was rock climbing, He started as a teen and spent most of his 20’s traveling around climbing anywhere he could.

In the 1950s, climbers used European pitons. These frustrated Yvon, and in 1957 he bought a used forge and other equipment and became a blacksmith. His pitons were superior to any on the market.

On climbing trips, he sold them to other climbers for $1.50 each out of the trunk of his car. In those days, he lived on $0.50 to $1.00 a day. He had no luxuries and even scrimped on food.

On one trip to the Rockies, he ate canned cat tuna in addition to oatmeal, potatoes, squirrels and porcupines. He chose the cat food because it tasted better than dog food.

Chouinard Equipment Tin ShedIn 1966, Yvon moved his blacksmith business to a tin shed behind an abandoned warehouse in Ventura, California.  Within a few short years the company became the largest supplier of climbing equipment in America.

Steel pitons damaged the rocks, and in 1972, Yvon introduced replaceable aluminum chocks, which were far better for the rocks than the steel pitons.

His business, Chouinard Equipment, was not making much money, so Yvon had to supplement his income. During his climbing trips to Europe, Yvon came across corduroy, which he used for making shorts. In Scotland, he found shirts that climbers loved, and he started importing and selling them.

Yvon and Malinda were now in the clothing business. They turned the first floor of their abandoned warehouse into a store. Soon sales picked up, and they converted the upstairs into a factory where they made their own garments.

As the clothing business grew, it needed a name. Yvon and his friends had climbed peaks in Patagonia — a region in the southern part of South America. He really liked the region and named his company after it.

The Triple Bottom Line: Planet, People, Profits

Despite humble beginnings, Patagonia has grown into one of the largest in its niche.

Yvon’s focus has been protecting the environment. His wife, Malinda, has focused on caring for Patagonia’s employees. The company’s simple mission statement reflects both:

Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.

Here’s how this statement is reflected in their products, their employees and their customers.

Planet

Patagonia’s goal is to produce the best clothing it can while not harming the environment. It starts with the materials used.

  • In 1993 they started to use fleece made from recycled plastic soda bottles.
  • In 1994, they realized 25% of all toxic pesticides in farming was used in the growing of cotton. The company committed to switching to only using organic cotton in their garments by 1996. They did this even though organic cotton cost 50% to 100% more and made their clothing more expensive.
  • In 2015, they found a South American wool supplier was treating their sheep inhumanely; Patagonia stopped doing business with them.

Yvon always wanted to make products only when customers needed them. So, customers have always been urged to think twice before buying a product. The company also encourages customers to donate used products to a charity or sell them.

On Black Friday in 2011, Patagonia took out a full-page ad in the New York Times with the headline, “Don’t Buy This Jacket.” In the ad, they explained the cost to the environment of making its top-selling fleece jacket and urged readers to think twice about buying it or any other piece of clothing.

Patagonia does all it can to save the environment. In addition to switching to organic cotton and using recycled products in its manufacturing process, it has donated to environmental causes regularly from the start.

Initially, they gave 10% of their profits to environmental causes. In 1985, they increased it to 1% of their sales. In 2002, Yvon and another businessman, Craig Matthews, started an organization, 1% for the Planet. Currently, there are 1,200 members in 48 countries.

In May 2013, Patagonia started Tin Shed Ventures, a corporate venture capital fund that invests in start-ups focused on building renewable energy infrastructure, practicing regenerative organic agriculture, conserving water, diverting waste and creating sustainable materials.

None of the money from 1% for the Planet goes to Tin Shed Ventures. Tin Shed Ventures invests in operations that positively impact the environment and will be profitable long-term. From 1985 to 2016, the company has donated $74 million to environmental causes.

In November of 2016, Patagonia decided to give 100% of its global retail and online Black Friday sales to nonprofits working on environmental issues. They projected $2 million in sales that day. Sales totaled $10 million.

Yvon, Malinda and Patagonia also have helped or partnered with many other organizations focused on issues supporting workers, the community and the environment.  Here are just a few:

People

From the start, the goal was to hire independent, environmentally conscious outdoors people and teach them business. Malinda was committed to treating them well:

  • Work/life balance is a hallmark at the company.
  • There are child care centers, now called Child Development Centers, for their employees at their headquarters and in Reno. Malinda was instrumental in opening the first center in 1985.
  • Employees set their own work hours. The only parameters are the Child Development Centers close at 5 p.m. and all the employees have to be gone by 8 p.m. when the buildings are locked. Buildings are also locked on weekends.
  • Since the beginning, one policy at its headquarters has been when the surf is good, workers can stop working and go surfing. They can also go for a bike ride. Field trips for rock climbing or to learn fly fishing are also options.
  • Both mothers and fathers can take paid parental leave for up to 2 months.
  • The company also pays 100% of employee health insurance costs.

Employee turnover rate is low — 25% compared to the industry average of 43%. For every job opening, the company averages 900 applications.

In 2011, internal audits found Taiwanese labor brokers were actually human traffickers. They were charging workers $7,000 for jobs in factories supplying materials to Patagonia. Many workers also had to pay a monthly fee to keep their jobs. Patagonia quickly stopped doing business with the brokers.

Patagonia’s ironclad guarantee on their products states:

“We guarantee everything we make. If you are not satisfied with one of our products at the time you receive it, or if one of our products does not perform to your satisfaction, return it to the store you bought it from or to Patagonia for a repair, replacement or refund. Damage due to wear and tear will be repaired at a reasonable charge.”

 Their adherence to this guarantee is rigid. If a customer is not satisfied with a product at any time, they can return it. If a product wears out, the company will repair it. If a customer damages a product, Patagonia will repair it for a nominal fee.

Profits

Today Patagonia is a great success story, but like most businesses, the company has had its ups and downs. Patagonia faced bankruptcy twice:

  • In the 1970’s when they got a supply of poorly made rugby shirts from a Hong Kong factory.
  • During the recession of 1991, when their line of credit dried up. They couldn’t get loans they needed and had to lay off 120 employees.

In the past decade, Patagonia has quadrupled its profits and revenues, and today the company is debt free.

Yvon and Malinda are billionaires, but you wouldn’t know it by their lifestyles:

  • They fly coach so they can redirect money to environmental causes.
  • They take very little money out of the business.
  • They have two grown children, Fletcher and Claire, who have regular jobs in the company.

Over the years, Yvon has turned down offers to sell Patagonia. He knew the company’s devotion to people and environmental causes would not continue, but there is a plan in place to ensure the company remains in the family after Yvon dies.

About Andrew Clarke

Andrew Clarke is President of Ground Floor Partners. Over the past twenty years he has advised hundreds of small businesses on strategy, marketing, real estate and finance. He is passionate about small business, social and environmental justice, and is a proud member of the American Sustainable Business Council, Food and Water Watch, Green America, Food Consultants Group, and the American Planning Association.

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