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Patagonia
Patagonia aims to grow its market share in the outdoor apparel industry by convincing consumers to buy less through sustainability initiatives. As a privately owned company focused on environmental stewardship, Patagonia differs strategically from industry leader The North Face, which prioritizes shareholder returns. While The North Face focuses on defending its dominant position, Patagonia works to educate consumers and shift some industry power towards more sustainable practices.
Patagonia
- 1. Can Patagonia growby convincing you to buy less?
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- 6. Patagonia| A casestudy in the outdoor apparel industry
- 7. “I know it soundscrazy, but every time I have made a decision that is best for the planet, I have made money” Yvon Chouinard
- 8. US Outdoor Apparel|Competitive Landscape
- 9. Key Insights 34% ofoutdoor consumers live in cities, and those consumers tend to be young, ethnically diverse, active, and spend the most on outdoor gear 17% of outdoor consumers are Hispanic - one of the fastest growing demographic groups in the country In the United States, there are 198 million adults between the ages of 18-65 and of those, 60% qualify themselves as outdoor consumers. Outdoor consumers are defined as people who: • Spend at least one hour per week outdoors • Participated in traditional or non-traditional outdoor activity at least once in the past year • Purchase apparel, footwear, equipment, and/or technology for outdoor activities US Outdoor Apparel| Industry Overview
- 10. Performance Apparel: $36.5Billion Outdoor Apparel: $5.6 Billion Outdoor Sportswear: $22 Billion Sportswear Industry in the US: $64 Billion Sportswear Sales 2014 US Outdoor Apparel| Industry Overview
- 11. US Outdoor Apparel|Industry Overview
- 12. Company Comparison| Patagoniavs The North Face Challenger| Patagonia • Privately owned| strategic direction heavily influenced by original owner • Shareholder of 1 • Small but growing market share|above average industry growth • Controlled growth in line with founding philosophy • Sustainability & Quality Incumbent| The North Face • Stable of Brands| One of many brands by VF Corporation • Returns for Shareholders • Dominant Player|nearly 50% of market share • Blurring market categories| active/performance/outdoor wear • Performance and Brand Recognition
- 13. Industry Five Forces|US Outdoor Apparel
- 14. Five Forces| IndustryRivalry High Challenger| Patagonia • Focus on Quality Environmental Impact and Innovation • Founder of 1% for the Planet • Educating rather than promoting product (customers and competitors) • Yvon Chouinard - “company philosopher” Incumbent| The North Face • Focus on shareholders (as part of VF) • Collaboration, creativity, operational excellence and financial discipline • Funds to finance cutting-edge ideas / internal projects (innovation centers / Going Outside) • Economies of scale • Highly competitive market (>45 brands mentioned) • Quality driven segment • Smaller companies with strong double-digit growth (Acquisitions) • Smallest market within Sports apparel (9%) • Sales forecast for next five years +14.3%
- 15. Five Forces| NewEntrants Low Incumbent| The North Face • Economies of scale • Collaboration amongst companies owned by VF • Difficulty with brand awareness • Low costs to adapt production (i.e. Nike) • Steady growth 2009 - 2014 (+10%) • Attractive and growing market Challenger| Patagonia • Educating competitors / new entrants
- 16. Five Forces| SubstitutesMedium Incumbent| The North Face • Having ability to cross-sell • Vast pool of knowledge across other products / brands • Means for rigorous customer research • R & D • Other Brands • Crossover appeal vs dedicated apparel Challenger| Patagonia • Keeping primary focus on quality • Innovate in raw-materials to ensure durability • Differentiate in products (i.e. Surfware, Fishing etc) • R & D
- 17. Five Forces| SuppliersHigh • Many suppliers refuse to adapt to environmental friendly production • Limited awareness of eco-friendly production Challenger| Patagonia • Reducing suppliers (200 down to 41) to remove power from suppliers (reducing number of products) • Educating suppliers • Demanding social and environmental standards (participation in 1% for the Planet / Bluesign Technology • No sacrifice on quality Incumbent| The North Face • Economies of scale • Flexibility as part of VF • Demanding new technology
- 18. Five Forces| CustomersHigh • Specific targeted customer group/segment • Spoilt for choices • High disposable income • Demand for high quality products • Willing to pay for quality Challenger| Patagonia • Educating customers to buy smart • Accepting Customer’s power Incumbent| The North Face • Specific Marketing
- 19. Industry Five Forces|US Outdoor Apparel
- 20. Company Comparison| Resources Incumbent|The North Face Defend Market Position; Grow Margin; Maximise Shareholder Returns • Brand & Marketing • Economies of Scale & Scope • Knowledge & Experience • Innovation Challenger| Patagonia Grow Market Share (Responsibly); Change Consumer Behaviours • Brand & Marketing • Employees • Recycling initiatives • Innovation
- 21. The North Face|Overview “Never Stop Exploring” 1960’s| Climber & Trekker equipment 1980’s| expansion into swimming & skiwear Branding| Amateur & Professional athletes Sponsorship| the Ski Challenge, Ultra Trail du Mont Blanc, Winter X Games, US Winter OIympic Team (Sochi 2014) 1990’s| expansion into leisure apparel in face of lagging results, including bankruptcy 2000| acquired by VF Corporation Distribution| 55 retail, 20 outlet + department & specialist stores 2014 Revenue| $2B (^7%) San Francisco| 1968
- 22. The North Face|Resources Brand & Marketing| Brand association with races & events, as well as athletes; blurring market categories Economies of Scale & Scope| VF’s supply procurement, logistics, distribution, innovation, quality assurance, & customer service Knowledge & Experience| Employee & business-unit experience across VF companies, across multiple markets Innovation| Direct access to athletes via sponsorship, VF’s technical apparel innovation centre
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- 24. Patagonia| Resources Brand &Marketing| Patagonia’s Mission Statement: “Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environment crisis. Employees| Essential that employees share the company’s values. Employees are chosen based on ‘dirtbag’ characteristics, environmental concern and entrepreneurial spirit rather than traditional academic or business credentials Recycling Initiatives| Introducing the Common Threads Initiative - Reduce, Repair, Reuse, Recycle, Reimagine Innovation| Industry leader in technological innovation. Regular investment in R&D, maintaining a laboratory to develop and test raw materials.
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- 26. Can Patagonia growby convincing you to buy less? Proposition| Patagonia in US Outdoor Apparel Industry
- 27. Incumbent vs Challenger|Strategic Approaches Patagonia believes that it can achieve it’s goal to grow market share via reduced consumption per capita by shifting some of the industry power from competitors to consumers Incumbent: • Defend/Maintain Market position • Not looking to change the market • Effectively deploying resources • Incremental gains • Given size, may have difficulty pivoting Challenger: • Not looking to be better than market leader/follow strategy • Goal is to change market around The North Face and other companies • Looking to give some power back to customers and suppliers • Single Owner - greater decision making freedom