America’s Most Unlikely Business Guru

Monday, April 30th, 2012

The 1972 Chouinard catalog shaped the sport of climbing and changed the business of selling climbing equipment. Yvon Chouinard had taught himself how to blacksmith, and his pitons were the best in the business — until he decided that pitons were destroying the rock faces he loved, and he issued his “clean climbing” manifesto, which launched a whole new product line.

He and his wife own the entirety of his company, Patagonia, which brought in $414 million in sales last year — very little of it from climbing equipment:

The evolution of Patagonia into a clothing company began in the 1970s, when Chouinard — then a world-class mountain climber and a designer of mountaineering equipment — started importing durable rugby shirts and corduroy knickers for his climber pals to wear. Soon enough, Patagonia was designing its own line of clothes. Soon after that, sales of the clothes far outstripped sales of the climbing gear. This is how Yvon Chouinard became an accidental apparel mogul. This truly hit home when fashion models in New York City started wearing Patagonia fleece vests. He had no idea why, and didn’t really care. But he realized his life had changed.

Most corporate social responsibility (CSR) initiatives may do good, but few play to a company’s strengths:

Chouinard got his books in order. He vowed to run the company debt-free, which he now does. Then he looked at everything Patagonia made, shipped or processed, and resolved to do it all more responsibly. He changed materials, switching in 1996 from conventional to organic cotton — despite the fact that it initially tripled his supply costs — because it was less harmful to the environment. He created fleece jackets made entirely from recycled soda bottles. He vowed to create products durable enough and timeless enough that people could replace them less often, reducing waste. He put “The Footprint Chronicles” up on Patagonia’s website, exhaustively cataloging the environmental damage done by his own company. He now takes responsibility for every item Patagonia has ever made — promising either to replace it if the customer is dissatisfied, repair it (for a reasonable fee), help resell it (Patagonia facilitates exchanges of used clothes on its website), or recycle it when at last it’s no longer wearable.

To be sure, these initiatives also serve as effective branding. Part of Patagonia’s appeal stems from its commitment to the environment. Consider the clever reverse psychology of its recent advertising. Last November, on Black Friday — the unofficial American holiday of consumer gluttony — Patagonia took out a full-page ad in the “New York Times” with the bold-face headline “Don’t Buy This Jacket.” Below a picture of the fleece jacket in question, the ad copy listed, in grueling detail, how much water was wasted and carbon emitted in the course of its construction.

“I’ve never seen a company tell customers to buy less of its product,” marvels Harvard Business School professor Forest Reinhardt. “It’s a fascinating initiative. Yvon has the confidence to pull it off.” In fact, Chouinard says the ad boosted Patagonia sales — though he argues it didn’t drive more overall consumption, but rather stole existing customers from his competitors.

Reinhardt co-authored a Harvard Business School case study of Patagonia in 2010. Like many of the other business-school professors I spoke with about Patagonia, he seemed genuinely impressed by Chouinard. Which is logical: In one sense, Patagonia’s current success stems from classic business-school principles. The brand has maximized what B-school types refer to as WTP, or willingness to pay. Patagonia’s perceived quality and do-gooder aura convince customers that its goods are worth a higher price.

It’s not just the marketplace Chouinard is affecting — it’s the workplace. His flex-time policies allow workers to come and go whenever they want — say, when waves are high at the nearby surf point — as long as deadlines are met. There’s a yoga room available any time of day (I walked in on the head menswear designer meditating there at around 11 a.m. on a Tuesday.) At the prodding of Chouinard’s wife, Malinda, Patagonia was one of the first companies in California to provide on-site, subsidized day care. Even the chief bean counter, COO and CFO Rose Marcario, seems spiritually fulfilled. In previous jobs at other companies, she says, “I might have looked for ways to defer taxes in the Cayman Islands. Here, we are proud to pay our fair share of taxes. It’s a different philosophy. My life is more integrated with my work because I’m trying to stay true to the same values in both.”

Skeptics argue that this kind of feel-good stuff could never work at a giant, publicly listed corporation, or at one that doesn’t charge eye-popping prices for its gourmet gear. But when Chouinard counseled Walmart on sustainability, the retail behemoth found it actually saved money through environmental initiatives, like reducing its packaging and water consumption. “We are very focused on lowering prices for our customers,” says Fox. “There were some investments we needed to make at the beginning, but the returns were quick enough that it came back in a reasonable time frame.”

Similarly, Levi Strauss — with more than 10 times the annual revenue of Patagonia — has embraced Chouinard’s efforts to set data-driven benchmarks for improving apparel makers’ environmental practices. Levi’s has spent the past 18 months redesigning processes to save 45 million gallons of water, along with the energy that would have heated that water. This is not simply altruism. While the company won’t share specific numbers, “the business savings costs are real,” says Michael Kobori, Levi’s V.P. of social and environmental sustainability.

It says something about the way that people and organizations think that bottom-line oriented firms won’t make money-saving “green” changes in order to save money but only as a side-effect of being “forced” to examine their environmental impact.

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