Public Company and Patagonia

As resources and commoditys decrease, it is harder and harder to make a difference in the world today. Patagonia bides to work hard to do their luck with the resources that be avail satisfactory. Patagonia is a privately held open-air(prenominal)(a) clothing gild based out of Ventura, calcium that gifts yearly gross revenue of approximately $540 whiz jillion million million. Patagonia has developed alfresco(a) app bel that is tradeed towards outdoor sports, travel and each day wear. The put integ measures Its core measure outs into all(prenominal) output that it produces. They be kn stimulate for their innovative designs, and purlieual responsibility.Its high fair play and commitment to the environs has rolld Patagonia on the Deciphers Institutes WorldS Most Ethical Companies hark for SIX consecutive years since the list was first developed In 2007 (Unknown, WOMEN Honorees, 2012). This case analysis pass on examine the history of Patagonia, and Its emplo yment philosophy. Patagonians craft model volition be evaluated as well as the generated live and value of the club. Next, we result examine Patagonians environmental position and its sustainability. The product livelihood style opening night impart be analyzed and how well it worked for the alliance.Patagonians financial assertions atomic number 18 important to determine the achiever of the associations financial goals. Lastly, I will divvy up al nearly littleons that I learned from Patagonia and this case study. History Patagonia was started from angiotensin-converting enzyme entrepreneurs passion. Hypochondriac, initiate of Patagonia, developed a passion for rock climbing. In 1953 his passions brought him west to the San Fernando valley in atomic number 20, where he became an expert at climbing. He k un utilise that he couldnt seek his passion of climbing the focus he cute to beca enjoyment of limited take over climbing gear available.The wholly availabl e climbing ear were pitons, which are metal spikes that were driven Into cracks or seams In the rocks. Pitons are left In the rock, dream uping that a long climb could require hundreds of these tools. After frustration, and financial hardship, Schoolyard became Inspired after meeting a Swiss climber that had crafted his own set of iron pitons. He turned pitons that were stronger than what was modernly on the mart. countersignature of Cinnabars invention spread, and he began selling his pitons out of the back of his car for $1. 50 each.Although the hobby was enough to support him, he a lot lived on less than a dollar day. Drifting along the California coast, climbing in Yosemite, and surfing in Baja, Cinchonas was happy with his lifestyle. By 1966 Cinchonas indomitable to take upner with tom and Doreen Frost to score Cinchonas Equipment. They quickly became the largest supplier in the United States. For tight a decade Cinchonas and Frost do improvements on nearly both cli mbing tool. Tom and Doreen worked with Cinchonas Just to pay the bills. In 1972 Cinchonas Equipment added an outdoor clothes line called Patagonia.Patagonia grew very quickly. Cinchonas and his wife Melinda knew they cute to sell items that would sport a minimal impact on he environment. So they do much(prenominal) a nonher(prenominal) terminations in their air approach that would help the environment such as using total like to make t-shirts. Soon after the government of Patagonia, it became its own company, no longer under the ownership of Cinchonas equipment. However, like galore(postnominal) start-up companies, Patagonia tried to expand too quickly. Growing its sales from $20 million to $ hundred million as well as expanding its services into lacquer and Europe.This wide-scale expansion placed Patagonia into a dire financial situation. The recession that took place in the asss forced the company to lay off about 20% of its staff. Patagonia continued to grow nonw ithstanding some of the financial troubles that they faced (Reinhardt, Cascades, &038 Hymn, 2010). Cinchonas did not allow the recession or the financial troubles of the company to stop his mass for Patagonia. Instead, he chose to go in a more sustainable direction. The company switched to the more high-ticket(prenominal) complete like in 1996, a dotty melodic phrase move considering it change magnitude the firms supply salutes.However, no other company was producing clothes with organic cotton plant wool fiber. He invested in other sustainable materials and decided to make products more durable. This session a risky move be suit companies often rely on consumers coming back to take off exchange products. Plausibly, the more durable the product, the less customers will need to purchase for replacement. However, the exact antagonist occurred consumers were more unstrained to do patronage with Patagonia due to its environmental cognizance and the fact that they could trust Patagonians products to ratiocination a long cartridge holder.Connoisseurships on communication channel Cinchonas commitd Patagonia as an experiment to challenge conventional wisdom and perish a new style of responsible business (Mc allen, 2011). He wanted to stay way from the traditional way of doing business, and concentrate his efforts on doing the remediate thing, rather than on net profit. Doing the right thing for Cinchonas meant ensuring that every decision that was made regarding the business, was environmentally sound and responsible. One decision that he made was to no longer utilise anti-odor technology becaexercising it was not safe for the environment.The emulation Patagonians products were comparable to those of their competitors. Other stores in the industry such as join Face, Marmot Mountain, and Mountain Hardware, all shared the same interest of selling outdoor raiment. However, beca call of caliber, environmental impact, and innovation, Patagoni a is able to charge more for their and some of the top outdoor sportswear companies in the industry during 2009. Patagonians gross profit margin for 2010 was 52. 6%. Whereas the fairish gross profit margin of the other five companies (Columbia Sportswear, V. F.Corporation, Nikkei, and Timberland) was $44. 95%. Not to mention Patagonians 12- month Net Income Growth for 2010 was 42. 5%, which was well higher than the average net income maturement of its competitors at 26. 525% (Reinhardt, Cascades, &038 Hymn, 2010, p. 12). This goes to visual aspect that despite the companys more expensive product, consumers were willing to pay more for higher quality, and items that were environmentally safe. Marketing isnt that important Patagonia used a much diametrical merchandise approach than its competitors, using less than 1% of its sales towards food marketing and advertising.They give way strengthened their differentiate based upon their environmental commitment, and profit sharing with environmental causes (Alienist &038 Door-Near, 2012). As social media becomes more popular, and ads are now a part of what iodine sees when scrolling down their timeline, any companies get free advertising. The company took receipts of this and used it as an outlet to communicate to consumers and the public. Although it would commence given them by chance some advantage, Patagonia did not use its environmental spot as part of their marketing tool.However they educated the public on the impact that their company had on the environment. Doing so attracted more consumers. Patagonia uses its website not Just for selling outdoor apparel but excessively as an educational tool about the environment, and the products that the company uses in its production. The type of information that Patagonia shake off on their website shows that the company has interpreted their business very serious and that they are aware of their environmental responsibility. They use the website not Jus t to sell the items, but to showcase that they items that are produced show corporate responsibility.In addition to the information on their website, Patagonia at times did put out ads for their company. The advertisements were usually very short and included educational messages. They remember that it is more important to show people useful information that will help enhance their lives. In a recent interview Patagonia UP Joy Howard stated that their position is to solve problems in the world, and that advertising is the unused last thing to the company (McAllen, 2011). This goes to show that the company is more focussed on the environmental sustainability than on profitability.Educating consumers about what they are buying and how it affects the environment, sells the product itself. Exhibit Use of organically grown cotton Patagonians concern for the environment also caused them to decide to use organic cotton in their clothing. They wanted to continue to follow their mission t enement of Build the best product, cause no unnecessary trauma, use business to inspire and implement solutions to the environmental crisis (Unknown, Company Info, n. D. ). Cotton is one of the worlds most insect dependent crops, accordingly causing a risk to the environment because of the pesticides that are used.In 1996 Patagonia switched apparel to 100% organic cotton products. They already had clothing that was made with conventional cotton, and made up about 20% of the companys sales, but switching to organic cotton was a risk that they were willing to take. Patagonia was not the first company to use organic cotton. The decision to clothing companies decided to masscel their organic cotton line, so it was perfect timing for Patagonia to drop their line. Although initially Patagonia found success in introducing its organic cotton products, they also faced some challenges.Because of the items and styles that were unavailable for production using organic cotton and because some of the suppliers refused to switch to organic cotton citing lack of supplier alternatives and skepticism about the market likely, Patagonia had to decrease its product line in stage to stay in line with the 100% organic cotton go-ahead that they made. Due to the increased price for organic cotton, the companys equals increased. convergence costs increased 25-30% with the use of the organic cotton. Organic cotton had a drastic decline in production, because costs were higher than normal.In addition, Patagonia struggled to maintain the quality of its product, once they switched. With cotton products making up more than 20% of the companys sales (Reinhardt, Cascades, &038 Hymn, 2010), they were forced to get it right, and to make their product desirable enough to sell. Business Model Does it unfeignedly work? A business model is a model that is designed for the made operation of the equines, identifying customer base, revenue sources, products and details of financing. Patago nia seems to submit a business model that has helped the company be very sure-fire and proceed relevant amongst its customers and competitors.They confirm stayed true to their core values which is to provide quality, integrity, and environmentalism. Since the start- up of Patagonia, they brace never operated under conventionalism, and has continued to stand out from every other outdoor apparel drawstring. Focusing more on environmental sustainability and social responsibility rather Han profits, Patagonia has become the worldwide leader of environmentally responsible business. They have continued to detain innovative in their approach to doing business, as well as in the product development and marketing.Creating and Capturing apprise Achieving Growth, being Profitable, and minimizing ecological expenses are somewhat contradictory goals but in some way Patagonia has been very undefeated at achieving these goals. Their business model is based on making minimum environmental impact but creating products that have create value, without compromising the companys capital. In order to stand apart from ambition, Patagonia has effectively positioned itself as a supplier of superior quality products and has continued to commit itself to derogate its impact on the environment, once again staying true to its core values, and mission statement.On the supply side of the business the company uses activities and relationships along the value chain that provide the finished goods and create value. The company has been able to create value by creating integrity in its product and products executeance. The company shows confidence in the product that they create, by offering warranties and as well s the previse to provide replacement products when items become too worn. They also creates value by using provided quality materials such as organic cotton when manufacturing its products.They have also created value by influencing the customers experience. Patagonians uses catalogs that dont focus so much on selling their product as other companies do, but the catalogs are informational in nature regarding the environment (Wang, 2010). Patagonia also lone(prenominal) works with suppliers responsibility, therefore never compromising the value of the company or its products. Patagonia has also created a social and psychological factor through their advertising, educational messages, donations, and campaigns.This has helped the company capture value because the company differentiated themselves from its competitors and other apparel companies, and it gave consumers the willingness to purchase a product with quality despite the fact that their apparel was more expensive than its competitors. The fact that Patagonia cares about the environment, and customers feel that they give the axe trust their product, consumers are willing to pay more for Patagonians products.Sustainable future Patagonians business model is not one that is begging for consumer s to come in a arches their product on an impulse. In fact their model is designed to do the exact opposite. In 2004 Hypochondriac, wrote in a black Friday ad Dont buy this shirt, unless you need it (Exhibit 1). This statement was not made because Cinchonas doesnt want his items to sell, or doesnt want the business, he made the statement because he wants his consumers to make responsible decisions that will have a authoritative effect on the environment.He helps consumers make those smarter decisions by producing items that last longer and that do not need to be replaced as often. Patagonians Environmental Position Patagonians business model supports environmental position in that the company makes a flip over attempt to focus more on the products that they sell rather than on the profits that they make. They do so by entree such initiatives as their Product life style Initiative where they encourage consumers to center, repair, reuse, and recycle their Patagonia purchased prod ucts.This particular initiative does not focus on profit, it actually costs the company more money, however, they choose to stay focused on acting environmentally responsible, and not causing unnecessary harm to the environment. For the most part, Patagonia has used the same business model since it opens its doors in 1972. Their focus has always been the same, inspire and implement solutions to the environmental crisis (Unknown, Environmental and Social Responsibility, n. D. Over the last 40 years, Patagonia has become a leader in the industry have implemented umpteen environmental and social initiatives such as using all organic cotton in its cotton products since 1996 redefining corporate transparency through its Footprint recital website documenting what is working in the supply chain, whats not, and steps the company is doing to address TTS challenges launching its Common Threads Partnership, which invites customers to take mutual responsibility for the entire life cycle of the companys products through the 5 Ors reduce, repair, reuse, recycle and prevailed becoming the first grease member of the email&160protected system being one of the first California companies to switch to wind force upon deregulation and adding on-site solar energy systems being the first company in California to incorporate as a benefit corporation launching $20 Million &038 Change, a fund to help like-minded responsible start-up companies and Becoming one of he first U. S. Outdoor apparel companies to introduce Fair Trade testify* garments (for total 2014). (Elks, 2013) resources to help the environment and still maintain its integrity as well as follow its mission statement. They have continued to retain as the leading outdoor apparel company with more than $600 million revenue in 2013. Patagonia has not slowed down.Their business model has worked for them over the last 40 years. As times continue to change and other retailers beak up on Patagonians business practices, such as being more environmentally conscience, the use of organically grown cotton, he product eminence threatens the sustainability of Patagonians business model. Other retailers offering a similar product as Patagonia, affects their gross profit margin, therefore causing Patagonia to continue evolve and throw more money to create product differentiation within their system. Patagonians business model does place some pressure on their environmental stance and could cause some conflict in providing high quality products.Although consumers are willing to purchase products from Patagonia at a high price, with initiatives such as the Product Life Cycle, consumers are purchasing less, and Patagonia will overall have more overhead, due the repairs that they are offering their consumers. If consumers arent buying as often, it will be difficult for Patagonia to continue to purchase the high quality materials that they use to produce their garments. Product Lifestyle Initiative Reduce, R epair, Reuse, and Recycle The Product Lifestyle Initiative was a plan by Patagonia to help customers to buy only what they really needed, and encourage them to reduce their consumption.Patagonia would promise to provide their customers with high quality garments, and roved a guarantee that would allow customers to have their items repaired if anything ever happened to them as many times as needed. Once the products are no longer wanted, the customers are asked to facilitate its reuse (Reinhardt, Cascades, &038 Hymn, 2010). The store planned on doing this by creating an online exchange meet. Once all options were exhausted and there is no longer use for the product, customers are asked to recycle their items with Patagonia. In planning for this initiative to take off, the executives acknowledge many obstacles that would hinder the success of the initiative.Analysis of the Initiative As Patagonia stays focused on doing their part to not cause unnecessary harm to the environment and plans to reach and maintain 10% annual growth in sales other a five year timeshare, starting in 2010, their Product Lifestyle initiative would likely hinder the type of above average growth that they are seeking. The initiative is expected to cost $60,000 over the work of the first year of implementation (Reinhardt, Cascades, &038 Hymn, 2010). Although that pith is very small compared to the amount of profit the company makes, sales would drop and cost of labor would increase. Patagonia is one of the only companies that offers to fix damaged items for customers. Through the Product Lifestyle Initiative, they will repair products from other brands, and encourage customers to limit their consumption to only crucial products, (Reinhardt, Cascades, &038 Hymn, 2010, p. 8).The Product Lifestyle Initiative however, it seems as though it will cost more to implement and maintain the initiative, than revenue that will be generated from the initiative. The initiative will cause a higher rat e of product returns, and new team members will need to be hired in order to create a repair department or use a third-party vendor. In 2010 the company was insignificantly staffed to handle the existing returns. In order to accommodate the increase of returns, the stores were told to provide replacement products in order to reduce wait times. Furthermore, in order to increase the percentage of recyclable products from 65% of products in June 2010 to 90% in spring 2011 investment in seek and development would have to increase (Reinhardt, Cascades, &038 Hymn, 2010).All of the things that are involved in this sight of the initiative cost more money for the company, but it does not mean that there would be more profit. The initiative does not seem to generate any venue. Although Patagonia focuses more on the environmental footprint than on profits, realistically, in order for them to stay in business and continue to grow at a steady rate, it is not beneficial for them to implement in itiative that cost a more than they will be able to strike in. The replacement portion of the initiative could increase revenue for the company. Since Patagonia is willing to allow customers to bring in garments purchased from other retailers for repair, they could charge those customers a small fee.Customers who purchased their products directly from Patagonia and are able to provide a except or some certainty of purchase, could get their products repaired for free. For customers who own Patagonia products, but bought them from other sources such as used clothing stores, could still bring in their garments for repair, but at a small fee. The initiative would have no affect on the way that customers purchase products in the store nor customer behavior, but it could potentially have a negative effect on the business if implemented. Although implementing the initiative will promote responsible behavior for customers and the company, it may do more harm than good to gross profit marg in.If the company is serious about go on to grow the company 10% over the five year time frame, they would want to think about how they can implement initiatives that not only help maintain their environmental position, but also that increase their profit. Has Patagonia been successful in achieving its goal of profit? Although Patagonia spends most of its efforts focusing on its environmental responsibility, in order to remain in business and profitable they essential also set financial goals. While focusing on their environmental responsibility, they set a goal to increase sales by 10% annually. Patagonia has been successful at achieving this goal. For 2011 monetary year, Patagonia reported annual sales of $417 million.During the 2012 fiscal year Patagonia recorded its best year financially. They increased their sells by 30% earning $543 million (Shannon, 2013). As of 2012 Patagonia has doubled its revenue and tripled its profits since 2008 (Martin, 2012). They continue to perfo rm financially although not at a consistent rate. However they have come very close to their sales goals each year and some years far exceeding that goal. Patagonia has done many things to continue to remain war-ridden in the outdoors apparel industry. In 2010 Patagonia Cost of goods exchange and the companys sales have not been truly consistent, but they remain successful in their efforts.Although Patagonia has a history of doing well financially, Yves Chicagoan admitted in 2012 that he did not expect the company to continue to grow at the same rate as other retailers are catching on and trying to have some of their philosophy. Richard Jeff, a retail and apparel expert, says that Patagonia is doing things incrementally better (Martin, 2012). Which means that the competition is lurking closely behind. As Meanys catch on to their philosophy, Patagonia will need to be more innovative in its approach in order to continue to grow at a steady rate. What if Patagonia were publically t raded? Some of the most successful organizations are publicly traded. Companies that are publicly traded allow the market to determine the value of the company through daily stock market trading (Unknown, Public Company, 2014).Publicly traded companies have less control over the organization structure and must answer to shareholders on certain decisions. They also give less control to the owner and company founders. Patagonia has an organization structure that is different than any other organization out there. The structure of the organization allows the company to focus on environmental awareness as opposed to profits as most companies. If Patagonia were publicly traded, the dynamic of the organization would be exclusively different. Being a private company, Patagonia is not required to report to stockholders or gain their approval in any way. This is one of the biggest advantages for Patagonia and their business structure.If Patagonia were publicly traded they would have to chan ge the organization Truckee to focus more on the profit, as shareholders would have an interest in the company, and would want to ensure that they are able to profit from any decisions that are made regarding the organization. The decision to use only organically grown cotton may not have been pass had Patagonia been publicly traded, because to shareholders they could see it as a potential risk. They are able to take on greater risk because there is no one to tell them that they cant. As a publicly traded company Patagonia and its founder would have much less control over the business structure, ND every decision would be about how to gain profit. Publicly traded companies have many pressures on them including how quickly the company is expected to grow. The business model would not focus on being responsible.Not to mention as a private company, Patagonia is not required to make their financial information public, as publicly traded companies are. With sales growth reaching an aver age of 6% each year, and the company closely reaching their sales growth goal of 10% the current outline works very well for Patagonia. The decision to utilize organic grown cotton in its garments, has been very successful. Patagonia has been innovative and works diligently to stay ahead in sales as well as it environmental operations. Being a private company has allowed Patagonians decision-makers to not only focus on what they want, but also on what is best for the company.Patagonians market strategy, though exceedingly bold, is sustainable in the sense that eccentric ideas have become their norm. In Cinnabars book Let My People Go Surfing, he said, its okay to be eccentric, as long as you are The sustainability of Patagonia also falls in line with the sustainability of the planet. There are many companies that can learn from Patagonians business model forever in order to remain successful it would be difficult for some of the top retailers to remain competitive in the market sho uld they change and adopt Patagonians practices. Patagonia has built their business and brand around a philosophy instead of around products.Their business strategy has driven up sales to 6% and continues to offer high-quality premier garments. Patagonians business model being much different than its competitors, leaves room for continued growth and innovative ideas. Would other firms choose to follow Patagonians environmental practice? Although Patagonia has been successful in its business approach and environmental practice, it would be difficult for already established firms to successfully fully take on Patagonians environmental practices. All things being equal, if Nikkei and Patagonia were to share their practices, they would reach a Nash equilibrium. Lessons Learned Patagonia continues to focus on the environment and making a difference one step at a time.This action is commendable, especially because they are not following the norm for the industry. With the success of Patag onia I have learned that in order to be successful, you must also do what you are passionate about, and allow everything else to fall into place. That is what Cinchonas did with Patagonia. He was passionate about the environment and the affect that his decisions had on it. Although he wasnt as focused on profits as other organizations, he was able to follow his passion and have the most successful outdoor apparel company in the country. The type of passion that Yves Cinchonas has for the environment and Patagonia can definitely be applied to many aspects in life.