Assignment Questions Scenario:
Patagonia Ryan Gellert’s outdoor sports clothing business views revenue growth as only one of three equal “missions”. His California-based company, Patagonia, once advertised on “Black Friday,” America’s busiest shopping day, urging its adventurous customers not to buy one of its products.
The group’s latest idea is Worn Wear, an initiative encouraging customers to send their old garments to other fans of the brand, who then won’t have to buy new clothes they don’t need. Is this a mission or a business? You’ve guessed by now that Patagonia is not publicly listed on any stock market. Maybe Gellert is lucky that he gets to run only the European part.
Patagonia was founded in 1973 by Yvon Chouinard, a Canadian with a business making pitons for climbers. The company, still owned by Chouinard and his wife Malinda, designs clothes for outdoor sports ranging from skiing to rock-climbing, outsourcing production. It sells its products in 68 shops bearing the Patagonia name, including 24 in Europe, ranging from ski resorts such as Chamonix to a surf store in San Sebastian, Spain, and cities from Munich to Milan and Dublin. Gellert says it will turn over more than $600m (£396m) globally this year.
“Patagonia is a unique brand within the outdoor active lifestyle space. There’s a technical product piece and quality product piece, but there’s also a really strong set of values that are captured in the mission statement and the company charter. “In North America and Japan, the brand has been present for many years and through continuing to tell its stories and being consistent in its mission, people have really started to respond. “That has fuelled the growth. As it gets dwelt on in the marketplace, people really understand what it’s about. It has really proved to resonate.”
Ah yes, back to those values. Patagonia was founded with a triple mission to “build the best products, do no unnecessary harm and to use business to inspire solutions to the environmental crisis” It is a founding member of One Per Cent for the Planet, a group to which it donates 1pc of annual gross revenues (about $6m last year) to charities working on sustainability issues. The missions, say Gellert, are inseparable from the Patagonia brand, which is perhaps best known in America for the “Don’t buy this jacket” full-page advertisement the company took in The New York Times in 2011. “That was probably the most high-profile example of us staking out our position, as everyone was getting out their credit cards ready to go shopping and buy a lot of stuff that they didn’t need,” says Gellert. “It was pretty impactful.” What was the effect on sales? An increase, smiles Gellert. So people ignored the message? “They seemed to,” he replies. “But there was a lot of discussion around the ad and it generated a lot of interest. “It’s complex, but there’s certainly a part of me that believes that for every Patagonia item sold, that’s people making a decision to purchase something that’s an alternative to traditional brands and businesses. I think there’s something positive there.”
The Worn Wear initiative takes this further by “celebrating the repair and extension of life of existing products”. Patagonia has teamed up with eBay to create a network of people passing on clothes the company made years ago. It has also invested in Yerdle, a start-up US company enabling the exchange and recycling of used goods. Part of the Worn Wear initiative is an “iron-clad guarantee” that Patagonia will replace or repair old products and seek to ensure that they are recycled.
The company also has a Worn Wear van that drives around North America, offering free clothing repairs, including for items not made by Patagonia.
“It’s about thoughtful consumption,” says Gellert, “encouraging people to think about what it is they truly believe they really need and to purchase things that they need and avoid purchasing things that they don’t. “I know all this can sound like marketing, and there’s a brandbuilding element to it, for sure. But the impetus here really is to encourage people to be very thoughtful about what they buy, how long they use it and what they do with it at the end of its life.”
Do American capitalists think the company is mad? “A little bit,” laughs Gellert. “But I think it goes to the company being owned by the same people that founded it, and them not needing the money or much to exist on.”
Patagonia’s biggest rival, The North Face, is vastly different, belonging to VF Corporation, a Nasdaq-quoted US group that also owns the Lee, Wrangler and Timberland fashion brands and has a stock market capitalisation of $31bn. The North Face has also been a lot more successful in Europe than Patagonia. “The North Face has been an example of a brand from North America that has built a very substantial business in Europe,” admits Gellert. “But we’re not seeking to replicate that model. We’ve got a unique brand and we measure how we’re doing against things other than just growth.” Indeed, Gellert sees growth as “a by-product of doing well in running the business the way that we run it”. Patagonia is registered in California as a “benefit corporation,” allowing it to codify its commitment to the environment and society at large.
In 1996, Patagonia claimed to be the first clothing company to launch products in pesticide-free organic cotton. It is also moving into organic food, with Patagonia Provisions offering products in the US from ethically-sourced salmon to Tibetan soup. Gellert is still striving to improve Patagonia’s position in Europe, however. “The people who know Patagonia in Europe and the UK are often very passionate about the brand,” he says, “but there are not nearly enough people that we have communicated with there and that’s something we’re going to address. Our European turnover is about €60m. I would like to see our business in Europe come closer to 20pc of the global turnover of the brand.”
Gellert has made several senior European hires and says Patagonia will be “focusing storytelling around key markets and key stories and working to reintroduce the brand”. The company has decentralised its European footprint, moving its HQ to Amsterdam from Annecy, France, and opening offices and showrooms across Europe, including a trade and dealer services showroom off Oxford Street. There will also be more shops. “We’ll be opening three to five stores in markets throughout Europe over the next 24 months,” says Gellert. “But it’s going to be very thoughtful expansion, not a significant bump up.” Patagonia faces even more of a challenge in the UK, where it has no shops, having previously sold through a partner store in Covent Garden. It currently distributes in Britain through 140 independent stores, including Ellis Brigham Mountain Sports, Snow + Rock, and shooting equipment shop Farlows of Pall Mall. Will there be a London Patagonia-branded store? “We don’t have plans currently, but we will definitely do another store in London. It’s just a question of when,” says Gellert.
You have been hired by Patagonia as a consultant to help develop a strategic plan for its growth and expansion. You are expected to write a report to summarise your research findings on the given tasks below
- Critically analyse the external environment and industry competition within the outdoor active lifestyle clothing industry. (35 marks)
- Using relevant frameworks, critically discuss Patagonia’s resources and competencies as well as how they can be utilized in gaining competitive advantage in the outdoor active lifestyle clothing industry. (20 marks)
- Critically evaluate the degree to which Patagonia’s current mission statement can support its growth and expansion strategies. Reframe the mission statement for a new strategic change if required. (10 marks)
- In light of the analysis done in Task 1, 2 and 3, construct a SWOT analysis of Patagonia and recommend changes (providing justifications) to its current business-level strategy if required. If changes are not required, provide justifications for retaining the current strategy. (20 marks)
- As a part of the assessment, all students should answer the Employability Skills Self-Assessment Survey in Week 1 and 10. (5 marks)
- Referencing (Harvard) (10 marks) Assignment Guide for Model Answers 1. The external environment affects the competition actions and responses firms take to outperform competitors and earn above-average returns.
The External Environment
The Industry Environment
Firms understand the external environment by acquiring information about competitors, customers, and other stakeholders to build their own base of knowledge and capabilities. On the basis of the new information, firms take actions, such as building new capabilities and core competencies as the basis for better serving their stakeholders’ needs.
- Resources, capabilities and core competencies are the foundation of competitive advantage. Resources are bundled to create organizational capabilities. In turn, capabilities are the source of firm’s core competencies, which are the basis of establishing competitive advantage. Module Code Module Title Autumn 2017 Coursework Brief GSM LONDON Page 7 of 18 Components of and Internal Analysis
- 21 st century organisations are inclined either merge or make acquisitions as a means of achieving growth and expansion plans. A good answer will consider the likely competitors that are suitable for VF Corp. to acquire as well as provide justification for the feasibility and viability of the strategic choice. Furthermore, a good answer will develop a consistent argument either in favour of against VF Corp. conducting acquisitions. Factors such as the timing, stages, process etc of acquisition should be included in a good answer.
- A business-level strategy is a strategy through which the firm operates. How will VF Corp. go about gaining access to needed and potentially scarce resources in the new market? At business level, firms select from among the generic strategies of cost leadership, differentiation, focused cost leadership, focused differentiation and integrated cost leadership/differentiation. Five modes of entry into international markets are available to firms.