Patagonia: innovation culture and sustainability - a look at their circular business model

Can companies be both profitable and sustainable?

Many of us have heard the phrase “reduce, reuse, recycle” since we were children. Back then, it seemed to apply only to the paper, plastic, and glass we were throwing out. Imagine, however, that you apply this phrase to the whole economy, shifting its structure from one of linearity to circulatory. This is the idea behind the circular economy, one of the most promising answers to climate change.

Explanation of the circular economy model (Source: commonobjective.co)

The Circular Fashion Economy

The circular economy is a consumption model where nothing ends up in the landfill, and nothing is produced from virgin materials. In few industries is developing a circular economy more urgent than in that of apparel: the fashion industry is the second worst polluter in the world after oil. The main issue with the fashion industry is its structure, which is based on continuous growth and the planned obsolescence of products. The fast fashion economy is built on 52 seasons - a clothing cycle that forces consumers to buy every week to stay on trend. Furthermore, once these cheaply-made clothes are no longer trendy, they will also fall apart. It’s possible, however, to function as a responsible, slow fashion business and still make money. And this does not mean having one ‘ethically-sourced cotton’ line per year- it’s about true sustainability and even circularity.

Sustainable Clothing at Patagonia

The fashion industry’s only large company that lives and breathes circularity is Patagonia. According to Rose Marcario, the former CEO of Patagonia,“if a product is totally worn out, we are going to take it and recycle it. If it needs to be repaired, we are going to have a mechanism to repair it. If it can be resold but they don’t want it any more, there’s a mechanism to do that.”

An outerwear B-Corp based in Ventura, California, Patagonia aims to “build the best product, cause no unnecessary harm, use business to inspire, and implement solutions to the environmental crisis.”

A Recycling Strategy

According to Glen Morden, the Head of Product Innovation at Patagonia, in order to achieve this mission, the innovation strategy at Patagonia is based on a two-pronged approach: minimizing the environmental impact of their clothing, and developing the circular economy. Their team generally innovates incrementally on recycled materials in-house, and screens the market for radical new materials that they can employ.

Patagonia has used many of these radical new materials since its founding in 1973, the latest and greatest of which being the lyocell fibres created by REFIBRA. Made from wood from responsibly-managed forests and recycled cotton, lyocell not only minimizes but diverts waste from the waste stream.

Patagonia also sells clothing from materials you would never guess could become clothes: they are the first large company to sell clothing made from recycled plastic bottles, as with the still-iconic Synchilla fleece in 1993. Patagonia also works with Bureo in South America, a company that creates apparel material from discarded fishing nets, which they call NetPlus.

Patagonia makes clothes from recycled materials (Source: bureo.co)

Through constant market screening for new opportunities, and the integrative competencies to easily absorb new partners and new materials into their supply chain, Patagonia delivers some of the most innovative materials in the fashion industry.

Innovating for Circularity

Patagonia innovates not only at the product level, but at the business model level as well. For example, Patagonia practices total supply chain transparency, so that customers understand the environmental impact of their clothes. They have also supported sustainability at the hindrance of profits through their “Do Not Buy This Jacket” marketing campaign and their 1% For the Planet Alliance, where 1% of their sales are donated to sustainability initiatives. Patagonia also offers a service entitled “Worn Wear,” that allows customers to “repair, share, and recycle” broken or used gear. These are highly innovative anti-growth business practices unheard-of in any industry, and effectively designed to fulfill the mission of Patagonia.

Patagonia clearly puts sustainability before profit (Source: Patagonia)

Patagonia even gives away their trade secrets - the technology behind their innovations - in the name of their mission: the 2019 Patagonia Annual Benefit Corporation Report stated that “Patagonia may share proprietary information and best practices with other businesses, including direct competitors, when the board of directors of Patagonia determines that doing so may produce a material positive impact on the environment.”

Unique resources and core competencies allow an organization to gain competitive advantage, while threshold resources simply allow them to compete. Purposefully giving up their trade secrets transforms the core competencies of Patagonia into threshold competencies, another anti-growth business practice designed to further the vision of circularity that defines innovation at Patagonia.

Innovation Resources, Competencies, and Capabilities at Patagonia

Patagonia expertly utilizes its most important resource - its people. Job openings at Patagonia headquarters have 9,000 applicants. They hire the most competitive talent, and they hang on to it: Patagonia has around 4% turnover every year, much lower than the industry average. The organizational culture at Patagonia is highly horizontal and includes many cross-functional teams, two organizational practices that maximize innovation potential during new product development. This development is also driven by their former CEO Rose Marcario who had realized that she wants to work at a place that shares her personal values.

Patagonia also has extensive dynamic capabilities that allow them to capture value in changing market contexts. For example, in 2015, Greenpeace released a study that found toxic perfluorinated compounds (PFCs) in high-altitude lakes around the world. Durable water repellents (DWRs) used in waterproof outerwear at the time were made with PFCs, making them very unsustainable. Patagonia immediately adapted to the change, and transformed their DWRs to a shorter‐chain C6 treatment that bio-degrade more quickly.

Product development at Patagonia is a much longer process than for most apparel companies, where product cycles last around 6 months. For example, it took Patagonia 8 years to develop and integrate the innovative Yulex wetsuit material made from the Arizona Guayule plant into all of their wetsuits. They are a slow fashion company working towards becoming a no-waste company. Patagonia is at the forefront of green innovation, and they have created a circular economy business model for the rest of the world to follow. They also, however, earned $800 million in sales in 2019, proving that innovating for circularity instead of growth can be highly profitable.