Patagonia's sustainability strategy don t buy our products

IMD790 06.10.2015

PATAGONIA’S SUSTAINABILITY STRATEGY: DON’T BUY OUR PRODUCTS

Postdoctoral Research Fellow Zahir Dossa prepared this case under the supervision of Professor Francisco Szekely as a basis for class discussion rather than to illustrate either effective or ineffective handling of a business situation.

On the busiest weekend for retailers in the US, Patagonia’s 2011 New York Times ad stood out. Above a picture of one of Patagonia’s highest grossing fleece jackets were the bold words: “DON’T BUY THIS JACKET.” To reinforce its message, Patagonia detailed precisely why consumers should make smarter buying decisions to purchase only what they need in order to decrease the impact of consumerism on the environment.

Growth, which was commonly accepted as a goal for most 1. organizations, allowed companies to scale their impact and further their missions. Patagonia, a sustainability leader in the clothing and apparel sector, made a bold effort to reject this claim. Ironically, or perhaps not, the advertisement was met with a 30% increase in sales.

Although many CEOs would be satisfied with this outcome, 2. Yvon Chouinard, who founded Patagonia in 1973, was not like most CEOs. A sustainability pioneer, Chouinard was one of the first of a group of CEOs to commit 10% of their companies’ profits or 1% of their sales (whichever was greater) towards charitable initiatives. He also propelled the organic cotton industry during the 1990s to improve Patagonia’s supply chain.

His latest move was meant to address the environmental impact of consumer purchases and to curb the growing level of consumerism that was negatively impacting the global economy. While the advertisement was profitable, it was not necessarily sustainable, which was Chouinard’s primary objective.

Place yourself in the shoes of Yvon Chouinard. What would you do moving forward in light of the recent developments? Should he continue challenging consumerism? Moreover, how can Patagonia curb the negative impacts of consumerism on the environment and what sustainability innovation should it promote? And can companies include a challenge to consumerism in their sustainability strategies and remain profitable?

Copyright © 2015 by IMD - International Institute for Management Development, Lausanne, Switzerland (www.imd.org). No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior written permission of IMD.

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 2 - IMD-7-1735

Founding Patagonia

Yvon Chouinard, an avid rock climber, became well known in the sport for his various ascents in North America during the 1960s, including the first ascent of various mountain faces1 as well as improving upon the previous ascents of many others. One of his biggest contributions to the sport was improving upon the material used to make pitons – the metal spikes rock climbers use to anchor themselves in the event of a fall. In 1957, Chouinard purchased a forge to produce his pitons in the Yosemite Valley. Based on his early success selling pitons during his spare time, he went on to found Chouinard Equipment, Ltd. He soon expanded the business line to include other climbing equipment.

Enchanted by nature through his climbs, Chouinard soon realized the negative impact rock climbing had on mountain surfaces. Pitons, in particular, which were 70% of Chouinard’s business at the time, caused permanent damage when they were hammered into the rock face. Consequently, Chouinard opted to abandon his highly profitable piton business for a more environmentally friendly alternative – his first step on the sustainability journey that would ultimately define him. With the help of his partner, Tom Frost, he developed “hexes,” which could be wedged into the pre-existing cracks of mountains. These hexes, which he branded as Hexentrics, became a strong foundation for “clean climbing” – a name Chouinard helped coin.

Chouinard developed a variety of improvements to climbing equipment throughout the 1960s and 1970s, innovating upon crampons (foot spikes to improve traction), rock hammers, ice screws and ice axes. To legally protect itself, Chouinard Equipment filed for bankruptcy in 1989 and was reestablished as Black Diamond Equipment, Ltd.

However, Chouinard was most famous for the clothing and apparel company that he started in 1973. Ironically, Chouinard accidentally happened upon the clothing industry after reselling shirts he had purchased on a trip to Scotland in 1970. Based on his rapid success in reselling clothing, he decided to focus his efforts on Patagonia.

1% for the Planet

From the outset, Chouinard attempted to craft an admirable organization – one that positively impacted its employees and the environment. From a cafeteria that offered healthy food options (particularly vegetarian ones) to on-site child-care in the early 1980s, Patagonia soon became a pioneer in championing workplace sustainability. However, it was the environmental focus of Chouinard and Patagonia that was most notable. In addition to being a great company for employees, Chouinard decided he wanted to be a great company for the environment.

In 1986, Chouinard committed the company to dedicating 1% of sales or 10% of profits (whichever was greater) to environmental initiatives. While the most obvious use of funds would be towards charitable initiatives, Chouinard realized the added impact his own organization and its employees could make. He therefore used a portion of the allotted funds to pay employees to work on local environmental projects, thereby leveraging their skills and expertise.

1 Many of Chouinard’s first ascents were on the “North face” of a mountain, which are generally the most challenging faces to climb in the Northern Hemisphere.

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 3 - IMD-7-1735

Although the contribution of 1% of all sales or 10% of all profits seemed like a best practice among sustainable companies, very few had committed to it in 2015, and even fewer did so almost 30 years earlier. In fact, the initiative was formalized when Chouinard collaborated with Craig Mathews, the owner of Blue Ribbon Flies, to form 1% for the Planet in 2002. By 2012, the initiative had raised over $100 million through its 1,200 members across 48 countries.1 Partnering with businesses, artists, media conglomerates and others, 1% for the Planet not only created a culture of contributing towards the environment but also raised awareness about the importance of the environment to businesses and consumers alike.

Organic Cotton and Footprint Chronicles

Chouinard, more than anyone, would agree that sustainability is not a zero-sum game. That is, an organization is not sustainable if the good it does is offset by its negative impacts or vice versa; instead, a sustainable organization ensures that all aspects of the organization have a positive impact on society, the environment and the economy. Five years after committing a percentage of its sales and profits to environmental stewardship initiatives, Patagonia commissioned a study to determine the impact of its current operations, particularly the environmental impacts of the major clothing fibers it used in 1991. Although the petroleum-based products were suspected of being the most damaging to the environment, the conventional 100% cotton it sourced was in fact most harmful. This was primarily due to the chemicals used to defend cotton against pests. These chemicals quickly contaminated the air, soil and water tables, causing higher rates of cancer and defects in human and wildlife populations.

Cotton accounted for 20% of Patagonia’s sourced material; switching to an organic source would be very expensive for Patagonia. Farming of certified organic cotton was a much more labor-intensive process, from managing the fields to processing the cotton once it was harvested. In 1994, after learning about the negative impacts of conventional cotton, Chouinard and other managers decided that no cost was too great to do the right thing. They therefore committed themselves to eliminating conventional cotton from Patagonia’s line by 1996. To minimize the negative impact on customers, they agreed to decrease their markup so that customers only saw a 2% increase over conventional cotton.

Patagonia paid 300% more for cotton in 1996 than it paid in 1995, and it was forced to decrease its cotton-based products from 91 styles to 66.2 Patagonia also shared the results of their study with other larger retailers, like Nike, to help grow the organic cotton industry and improve the environmental impact of clothing companies.

Evolving from the research it conducted on cotton sourcing, Patagonia completed lifecycle analyses on every material it used and published its entire supply chain for the public to view. In an interview with Inc., Chouinard noted:

… it takes 185 gallons of water to grow the cotton to make a T-shirt. And it makes a difference where the water comes from. Is it from a dam that has displaced lots of people and destroyed a river? Once we determine that, we try to buy cotton from areas where it rains. Then we publish all of that information on our website. It’s called the Footprint Chronicles. My goal is that this approach will become standardized, and clothing will be graded based on working conditions, biodiversity, and carbon footprint. I think this is going to change the apparel business the same way that organic standards have changed farming. 3

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 4 - IMD-7-1735

Patagonia’s interactive map on its website allowed people to view the precise textile mills, factories and farms from which it sourced each of its raw materials (refer to Exhibit 1). By clicking on one of the pinned facilities, you could get the precise address of the facility, the length of its relationship with Patagonia, a description of what makes the facility socially responsible, along with demographics.4

Companies have been extremely careful for the most part about sharing how they impact the environment; erring on the side of caution, they focus on their achievements and positive outcomes. However, as Jill Dumain, the director of environmental strategy at Patagonia, proclaimed, “Anybody in the environmental field knows, if you aren’t talking about what’s wrong, you’re not telling the whole story.” Chouinard expanded, “You don’t have to be worried about telling everybody about the bad things that you’re doing. As long as you say that we’re working on these things. But if you try to be dishonest, try to hide it, it is going to come back and bite you in the [expletive].”5 Patagonia therefore has explicitly stated the negative externalities that are caused by specific articles of clothing, along with the positive aspects that it has achieved.

Since transitioning all cotton to organic cotton, Patagonia has switched to Fair Trade certified sewing (to ensure all sewing employees earn fair wages).6 It also collaborates with Nature Conservancy and Ovis 21 to responsibly source merino wool,7 and it uses 100% traceable down8 to ensure that down is from birds that are not force fed or live-plucked.

Common Threads and Worn Wear

The organic cotton movement was an important one in shaping the way Patagonia began to think about environmental sustainability. By focusing inwards on how it was contributing to environmental degradation, Patagonia was able to reduce its environmental footprint. However, Chouinard believed that there was more that the company could do. When it came to plastics, there was a system for plastic bottles and other goods to be cleaned, melted and recycled back into the supply chain. Cotton, however, was different because it was difficult to break down garments into their original raw materials so that they could be re-processed.

However, there was a long-standing practice of handing down clothes and reusing them. Chouinard and Patagonia executives therefore began investigating how they could encourage customers to reuse their older clothing items that were not worn or no longer fit. In 2005, Patagonia launched the Common Threads Recycling Program, or simply Common Threads.

The first part of the Common Threads initiative was to encourage customers to fix damaged clothing. Patagonia published do-it-yourself repair guides to assist customers in repairing their clothing.9 From replacing a zipper (refer to Exhibit 2) to patching a hole, Patagonia spared no detail in assisting customers through each repair. It also estimated the time and difficulty of each job. If customers felt that their repair was too difficult or time-consuming, they could sending their garment to Patagonia’s repair facility –the largest garment repair facility in North America – and pay a fair wage to have their article of clothing repaired.

The second aspect of the Common Threads program was to create a second-hand market for Patagonia garments that were not worn or no longer fit. Customers could sell their used clothing on a storefront that was a collaboration between Patagonia and eBay or directly on Patagonia’s site (refer to Exhibit 3). If customers were unable to sell their articles of clothing, they could post them on Yerdle and earn Yerdle dollars that they could then use to purchase other garments (new or used). Finally, Patagonia payed the shipping costs for

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 5 - IMD-7-1735

garments that were beyond repair; it then broke them down and repurposed them. Through this latter program, Patagonia has recycled 82 tons of clothing.10

To help its Common Threads initiative further, Patagonia created “Worn Wear,” a program branded as “Better than New” (refer to Exhibit 4). Patagonia collected thousands of videos and pictures from its customers around the globe who were wearing their Patagonia garments with pride (refer to Exhibit 5). People could quickly peruse “The Stories We Wear” section on Patagonia’s site and learn how people treasured their worn Patagonia wear (refer to Exhibit 6).11 For instance, someone could learn how Jasper’s parents purchased a kid’s trucker hat at a garage sale for 10 cents. Despite the paint stains, Jasper was still wearing the hat nearly every day, four years later. His parents, Allison and Chad, shared the following:

Not only has this hat been to beautiful places in the great outdoors, it is a hat that has enjoyed watching our son simply be a kid: digging countless holes to the center of the earth, watching balsa wood plane crashes, constructing fairy houses throughout our national forest, learning to first ride his balance bike and then mastering his pedal bike, floating homemade stick-and-leaf rafts down a stream, steering a toy vintage metal fire truck towards the latest “fire” and [our] personal favorite – his first day of preschool. 12

Most of the stories and videos described how customers had fixed their garments over time, from stitching to duct taping and super gluing them. While most companies would encourage customers to repeat their purchases or even hide the wearing down of items over time, Patagonia prided itself and its customers on waste-free purchases.

Don’t Buy This Jacket

Patagonia continued its efforts to reduce consumerism and environmental waste with its most significant effort being the “Don’t Buy This Jacket” campaign that was featured in the Black Friday edition of the New York Times in 2011 (refer to Exhibit 7). American consumers had historically spent more on Black Friday, which begins at midnight following Thanksgiving Thursday, than any other day of the year. Over the course of the Thanksgiving weekend, the National Retail Foundation expected approximately 45% of the US population to visit stores over the Thanksgiving Weekend (which begins with Black Friday).13

Patagonia therefore found Black Friday to be the opportune time to feature its efforts to curb consumerism and environmental waste. Under a Patagonia fleece “R2 Jacket,” the following was printed on the advertisement:

It’s Black Friday, the day in the year retail turns from red to black and starts to make real money. But Black Friday, and the culture of consumption it reflects, puts the economy of natural systems that support all life firmly in the red. We’re now using the resources of one- and-a-half planets on our one and only planet.

Because Patagonia wants to be in business for a good long time – and leave a world inhabitable for our kids – we want to do the opposite of every other business today. We ask you to buy less and to reflect before you spend a dime on this jacket or anything else.

Environmental bankruptcy, as with corporate bankruptcy, can happen very slowly, then all of a sudden. This is what we face unless we slow down, then reverse the damage. We’re running short on fresh water, topsoil, fisheries, wetlands – all our planet’s natural systems and resources that support business, and life, including our own.

The environmental cost of everything we make is astonishing. Consider the R2® Jacket shown, one of our best sellers. To make it required 135 liters of water, enough to meet the daily needs

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 6 - IMD-7-1735

(three glasses a day) of 45 people. Its journey from its origin as 60% recycled polyester to our Reno warehouse generated nearly 20 pounds of carbon dioxide, 24 times the weight of the finished product. This jacket left behind, on its way to Reno, two-thirds its weight in waste.

And this is a 60% recycled polyester jacket, knit and sewn to a high standard; it is exceptionally durable, so you won’t have to replace it as often. And when it comes to the end of its useful life we’ll take it back to recycle into a product of equal value. But, as is true of all the things we can make and you can buy, this jacket comes with an environmental cost higher than its price.

There is much to be done and plenty for us all to do. Don’t buy what you don’t need. Think twice before you buy anything. Go to patagonia.com/CommonThreads or scan the QR code below. Take the Common Threads Initiative pledge, and join us in the fifth “R,” to reimagine a world where we take only what nature can replace.

The “fifth ‘R’” mentioned in the ad referred to “reimagine,” which Patagonia championed in addition to the four other R’s: reduce, repair, reuse, recycle. Very few companies had the audacity to tell consumers to think twice about their purchase decisions and to buy less. Even fewer companies explained in excruciating detail the negative environmental impact of a single product. Most intriguing was that Patagonia did not boast about its industry-leading environmental and sourcing practices.

As Annie Leonard stated in The Story of Stuff:

… recycling is what we do when we’re out of options to avoid, repair, or reuse the product first. That’s why I am so impressed with Patagonia for starting its Common Threads Initiative with the real solution: Reduce. Don’t buy what we don’t need. Repair: Fix stuff that still has life in it. Reuse: Share. Then, only when you’ve exhausted those options, recycle. 14

Continuing the Sustainability Journey

Despite Patagonia’s efforts, sales increased by approximately 30% after its “Buy Less” campaign.15 As Chouinard joked during an interview, “I know it sounds crazy, but every time I have made a decision that is best for the planet, I have made money.” 16 Some critics have pointed towards Patagonia’s efforts, particularly in the “Buy Less” campaign as a strategic marketing ploy to increase profitability through branding sustainability. While Patagonia’s rich history suggests that their intention has always been to improve their impact on the environment, branding sustainable practices can be an effective way to subsidize or even profit from sustainable initiatives.

However, a core aspect behind Patagonia’s sustainability program was that it was constantly evolving. From its 1% for the Planet initiative, to its involvement in jump-starting the organic cotton industry, to the Common Threads and “Don’t Buy this Jacket” campaign, Patagonia was constantly leading the charge as a sustainability pioneer. The chief driver for this constant sustainability innovation was Chouinard.

Place yourself in his shoes and develop a strategy for Patagonia moving forward. What should its next big initiative be to continue its sustainability innovation in the retail sector? Specifically, how can it achieve the goal of curbing consumerism to decrease the negative environmental footprint to which it contributes?

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 7 - IMD-7-1735

Exhibit 1 Footprint Chronicles

Source: Company website, (accessed October 1, 2015)

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 8 - IMD-7-1735

Exhibit 2 Worn Wear Repair Guide

Replacing the Slider on a Coil Zipper

Source: Company website, (accessed October 1, 2015)

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 9 - IMD-7-1735

Exhibit 3 Common Threads Better Than New

Source: Company website, (accessed June 2, 2015)

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 10 - IMD-7-1735

Exhibit 4 Common Threads Patagonia + eBay

Source: ebay website,

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 11 - IMD-7-1735

Exhibit 5 Worn Wear

A Film about the Stories We Wear

Source: “Worn Wear: A Film About the Stories We Wear.” Presented by Patagonia, (accessed October 1, 2015).

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 12 - IMD-7-1735

Exhibit 6 Worn Wear

The Stories We Wear

Source: Company website, (accessed October 1, 2015)

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 13 - IMD-7-1735

Exhibit 7 Worn Wear

The Stories We Wear

Source: Nudd, Tim. “Ad of the Day: Patagonia The brand declares war on consumerism gone berserk, and admits its own environmental failings.” Adweek, November 28, 2011. (accessed October 6, 2015).

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

- 14 - IMD-7-1735

References

1 1% for the Planet website, (accessed October 2, 2015). 2 “Patagonia and Organic Cotton: A Case Study.” Patagonia (accessed October 2, 2015). 3 Welch, L. “The Way I Work: Yvon Chouinard, Patagonia.” Inc., March 12, 2013 (accessed October 2, 2015). 4 “The Footprint Chronicles.” Patagonia, 2014 (accessed October 2, 2015). 5 “Why Patagonia Tells Customers Its Coats are Toxic.” BloombergBusiness, September 25, 2013, (accessed June 13, 2015). 6 “Fair Trade Certified.” Patagonia, 2015 (accessed October 2, 2015). 7 Marcario, R. “Patagonia to Cease Purchasing Wool from Ovis 21.” Patagonia, August 17, 2015. (accessed October 2, 2015). 8 “To Assure Sound Animal Welfare, Patagonia® Down Products Use Only 100% Traceable Down.” Patagonia (accessed October 2, 2015). 9 “Worn Wear: Do-It-Yourself Repair Guides By IFIXIT.” Patagonia (accessed October 2, 2015). 10 “Worn Wear: Never in the Landfill.” Patagonia (accessed October 2, 2015). 11 “Worn Wear: The Stories We Wear.” Patagonia (accessed October 2, 2015). 12 “Worn Wear: The Stories We Wear.” Patagonia http://wornwear.patagonia.com/post/ 124252435950/jasper-his-10-cent-hat-allison-chad (accessed October 2, 2015). 13 Soergel, Andrew. “Everything You Always Wanted to Know About Thanksgiving With Leftovers.” US News and World Report, November 27, 2014 (accessed June 2, 2015). 14 Leonard, Annie. “The Story of Stuff: How Our Obsession with Stuff is Trashing the Planet, Our Communities, and Our Health – And a Vision for Change.” New York: Simon and Schuster, 2010. 15 Stock, Kyle. “Patagonia’s ‘Buy Less’ Plea Spurs More Buying.” BloombergBusiness, August 28, 2013 (accessed October 2, 2015). 16 Welch, L. “The Way I Work: Yvon Chouinard, Patagonia.” Inc., March 12, 2013 (accessed October 2, 2015).

This document is authorized for use only by melissa markley (mmarkley@depaul.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.