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February 6, 2011


Why Patagonia Stays in Business

college_tsujiisan.jpg Copyright JFS

Lecturer: Takayuki Tsujii, General Manager of Patagonia Japan

Today, I would like to discuss the reasons Patagonia, Inc., went into business, and offer examples of previous business decisions that were turning points for the company. I would also like to talk about how the company's mission statement (philosophy) was built through these experiences, and where the company stands in operating based on this philosophy. I hope to explain through these experiences why the company has stayed in business and how this is related to sustainability.

Birth of Patagonia

Patagonia's founder, Yvon Chouinard, a rock-climbing lover, started to make pitons by himself in the late 1950s, and this was how the company started in business. Mr. Chouinard turned 72 years old in 2010 and is in very good health. He stays in his office one third of the year, and for the rest of the year, gives lectures, visits the sites of environmental activities, or goes fly-fishing or surfing.

Pitons are tools for rock climbing; they are hammered into crevices and roped to ensure safety. In the U.S., soft iron pitons imported from Europe were used at that time, but these were not suitable for American rock faces, which include a lot of granite. In addition, after those pitons are hammered in, they are not removed, and climbers therefore need to carry many of them. Mr. Chouinard set his eyes on the steel used in airplane propellers produced by The Boeing Company, and studied himself how to blacksmith, made new pitons and began selling them. The chrome-molybdenum steel pitons, which were more expensive than soft iron pitons, but are reusable, immediately became popular among climbers. By the beginning of the 1970s, they had grown to have the largest share of this niche market in the USA.

Some time later, Mr. Chouinard went rock climbing and noticed substantial damage to the rock face as a result of the insertion and removal of his pitons. Mr. Chouinard was shocked at the damage caused by his product, and completely stopped the sale of pitons, his mainstay product, beginning development of new tools that were less damaging to rock faces. These were called "chocks" and depending on the size of the crack, can be wedged by hand rather than hammered into rocks. He continued to improve these tools, which were considered to have lower reliability and safety in Europe, and with his friends, he succeeded in climbing the difficult Half Dome rock face at Yosemite National Park without hammering in new pitons. This increased customer support for chocks to replace pitons and his business steadily grew. This was the first time the company was forced to choose simple profits or social responsibility.

Working on Environmental Issues through Business

Since the late 1970s, the company has also sold clothing for climbing, and has since expanded to other outdoor clothing, developing new materials in the process. For example, although not widely known, fleece, which is now so commonly seen, was first developed by Patagonia.

The company steadily developed in the 1980s releasing a series of groundbreaking products; however, as a result of the major recession in the USA in 1990s, it was forced to lay off 120 of its 600 employees. Because it was a small company, these employees included Mr. Chouinard's rock climbing friends and relatives, and laying off these people was very painful. Mr. Chouinard then spoke to a famous business consultant. When he said that he wanted to solve environmental issues through business, he was told that if this was true, he should immediately sell the business. Mr. Chouinard was even more confused by this and faced another tough decision; why he was keeping the business. He had a firm conviction that he had to do something about environmental issues. In fact, in 1973, he directly assisted in the protection activities for the Ventura River, which runs past the company's headquarters, by renting rooms and phones. In 1985, he began to donate one percent of the company's sales to smaller grass-roots environmental groups (a so-called "environmental tax"). Although these donations were never large, they now amount to 40 million dollars, and include annual donations to over 1,000 groups, including some based in Japan.

At the same time, Mr. Chouinard visited the wilderness in the Patagonia area of South America, taking more than a dozen of the company's top executives, and they camped out to thoroughly discuss the reasons for staying in business and the company's philosophy or raison d'etre. They eventually decided not to quit, and to contribute to solving environmental issues through the business. The basis of the company's current mission statement, "Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis," was slowly built up from this point. Since then, for every business decision, Patagonia goes back to this mission statement. In the Japan office, for example, before we conduct an event, we discuss how it will contribute to our mission.

Shift to Organic Supply Chain

As I mentioned earlier, Patagonia had continued its direct and financial support as a company; however, the company has not fully understood the environmental impact of its products. This is why in 1991, they decided to check on the carbon footprints of every process from the manufacture, transportation, sale, consumption and disposal of the polyester, nylon, cotton and wool used in the products.

As you can imagine, the results showed that all four fibers burdened the environment. Although the company expected that petroleum-based polyester and nylon would have a higher environmental impact, the data for cotton were particularly surprising, as despite the assumption that a natural fiber would have a lower environmental burden, it was associated with a huge environmental impact.

The area used for cotton cultivation accounts for only 1 to 3 percent of the area used for grain production, but the large amounts of agricultural and other chemicals used can be very harmful to the people involved. Massive amounts of pesticide are used to protect cotton from a number of natural enemies, while chemical defoliants, which can have a significant impact on the human body, are used to eliminate leaves that slow down harvesting by machines. Farmers therefore have to wear masks for toxic gas, similar to those used by special counterterrorism units. Upon learning this, Mr. Chouinard and the top executives at the time decided to shift to organic cotton, despite the cost almost doubling due to a lack of supply and the risk to 20 percent of the company's overall sales.

To be certified as organic cotton, three-year continuous organic farming is usually required, and costs such as labor are much higher, and there are no guarantees of good demand. Cotton farmers face a large risk when shifting to organic farming methods. The company therefore encouraged farmers to shift to organic farming, and was not concerned whether the operation was certified, but instead promising continuous support as long as farmers were willing to shift to organic production. As 20 percent of the company's sales depended on this project, the policy of not worrying about certification involved several risks. However, the company's goal was not "green consumption," which is a method of sales promotion. The company instead focused on increasing the supply of organic cotton in cooperation with the supply chain, and succeeded in seamlessly shifting all of the company's cotton products to organic by 1996.

Sales of the organic cotton products during the first year were drastically lower, in part due to recession of the 1990s, but from the next year, they started gaining customer support and their sales were recovered. The shift to organic cotton helped the company realize that the environmental viewpoint should be added to their traditional quality definitions for comfort, durability, color and design.

Since then, the number of companies interested in organic cotton has steadily increased. In particular, Nike, Inc. inspected a farm in Texas together with a supervisor from Patagonia, and Patagonia introduced the vendors and supply chains for clothing fabrics. Nike subsequently shifted 1 percent of their cotton products at the time to organic sources, and because the scale of a company such as Nike is far larger than that of Patagonia, from the standpoint of companies supporting farmers to shift to organic production, even a 1 percent shift can have a significant impact.

What we learned through such events is by sharing such business decisions with our customers and our peers, we can help to overcome various problems. We believe that continuing such activities will undoubtedly alter the capitalist business model.

We Aim to Make a Difference in the Way Business is Conducted

Here is another example of Patagonia's relationship with other companies. Wal-Mart Stores, Inc. has developed into the world's second-largest retail company with the catchphrase "Every Day Low Prices." Some people may misunderstand this statement, but I believe the company can be considered representative of companies that promote the notion of "mass consumption" and "mass disposal." However, as the owner and management executives of the company learned about various resources and environmental issues around 2005, including peak oil, they started to realize that keeping their traditional business model would be difficult.

When 15 top executives from Wal-Mart visited the headquarters of Patagonia around that time, Patagonia introduced them to the mission statement and actual business conditions. Up to that point, Wal-Mart believed that buying large quantities of low-price goods was the job of buyers. At a corporate meeting in October 2008, however, they were required to thoroughly consider the social responsibility and environmental consciousness of suppliers, and how buying products would impact the environment and human health.

Wal-Mart is now the largest consumer of organic cotton, and this position is reflected by the slogan "Save money. Live better." They also actively promote compact fluorescent bulbs, which are considered to have a lower environmental burden, in the American market, where incandescent light bulbs, which have a much greater environmental burden, are mainly used. Some estimations have shown that this management policy change has led to a saving of over 60 million incandescent light bulbs.

Of course, I do not think that this change in Wal-Mart policy was solely due to Patagonia, but there is no doubt that Patagonia had an influence. When a small company, such as Patagonia, throws a stone into a big lake, it ripples out and eventually it influences the capitalist system itself. This is an image of the goals we would like to accomplish through business.

Reaping profits is not our final goal. Paradoxically, however, to have this ripple effect, we need to produce results under existing business conditions. This means that we need to make a profit. If people believe that management policies that aim to reduce environmental costs are unprofitable, others will not adopt them. Having a small, but solid business model, in which we consider environmental issues as a significant element of management decisions, and in which we can make a profit, is the only way forward. I would like to think that this is the reason Patagonia has stayed in business. Thus, conducting daily business while bringing values such as heartiness, honesty and environmental consciousness into the business world, in which maximizing profit has long been the only goal, can be considered to be a very significant pilot program.


Takayuki Tsujii, General Manager of Patagonia Japan
Born in 1968 in Tokyo. Worked at Nippondenso Co. (current name: Denso Corp.) upon graduating from university. After leaving the company, completed graduate studies at Graduate School of Social Sciences, Waseda University. Then joined a Patagonia's store located in Shibuya, Tokyo in 1999 as a part-time staff. Became a full-time staff in 2000, worked at the Kamakura store, and then transferred to the Marketing Department of the company. Established new projects such as the "Pro Sales Program" and the "Ambassador Program."
He then managed the Wholesale team as the Director, later appointed as Vice General Manager, and has been the General Manager since March 2009.
His hobbies include sea kayaking, snowboarding, surfing, futsal, and reading.