Editor's Note: To celebrate Inc.'s 35th anniversary, Inc.com is showcasing highlights of our coverage of incredible innovators, risk takers, company builders, and thought leaders since 1979. Here, an article from our archives.
The best place to begin is at the beginning," you read upon opening the catalog.
If you've already skimmed the inside cover, you know you're getting the self-told story of the woman who picks the photos -- the alluring, real-life photos -- that the catalog's pages display. If you haven't skimmed it, you don't know what you're reading. But you like it. It's fun. You go on:
"I had been in Bangkok looking at silks for Calvin Klein . . . when I had the impulse to puddle jump up to Katmandu, just to see the place. It was April Fool's Day, and I was in the lobby at the Yak and Yeti sipping a G & T when this guy sits down next to me.
"'My name's Rick Ridgeway, and I'm here doing a story on Mt. Everest National Park for National Geographic.'
"I told him I was there goofing off, so immediately he invites me to join him on his three week trek.
"'I've got wads of rupees in my expense account, and I'll hire you an army of Sherpas. We'll sip Remi Martin in Namche Bazar and dine on yak steak on the Khumbu Glacier.'
"'But the farthest I've ever trekked,' I protested, 'is from a cab on Fifth Avenue into the front entrance of Bergdorf-Goodman."
Turns out she doesn't go (no flat shoes handy), a turn of events to which she attributes her eventual marriage to the fellow and her subsequent employment with the fellow's "buddy Yvon," founder of the company she's now dramatizing with "image photographs." The photos come from everywhere, this Jennifer Ridgeway is telling you. "But we're still waiting for anyone to send to our dream shot. We'll pay triple, maybe even quadruple. What we really need is Dr. Hunter S. Thompson, dressed in a Pataloha Tropical Fish shirt, cigarette holder in mouth and visor down over eyes, shooting pool with Teddy Kennedy.
"Now that's an image shot."
Welcome to Patagonia Inc., where even the catalog seems to go out of its way not to sell the expensive, high-performance outdoor clothes for which the company is best known. It may be the onoy catalog in the mail-order business with toll-free numbers for outdoor guide advice (rock climbing to kayaking), but a toll line for taking orders. Wanna chat? It's our dime. Wanna buy? The tab is yours. Commerce, it's clear, comes second.
With employees, it doesn't even rank that high. For example, a visitor asked marketing manager Shirley Aitchison why you never see the word "new" in the catalog. She reacted as though struck.
"We would never use that word," said Aitchison. "First, if you're one of our customers, then you've gotten the catalog for a while, and you'll know if it's a new item. We don't have to insult your intelligence.
"Second, the word new is too much of a hard sell for us. If you say something is new, you're implying that people should buy it," she adds, "and we would never do that."
Now if this were some small bare-feet-and-flowers operation left over from the '60s, you'd understand Aitchison's attitude. But it isn't. With a projected $70 million in revenues for the year ending June 30, 13-year-old Patagonia is one of the stars of the mail-order universe.
The visitor -- instantly recognizable by the fact that he is the only person in the company's sprawling, yellow-painted compound wearing a tie, let alone a suit -- finds this success intriguing. Aitchison and her colleagues, however, are clearly bored -- and sometimes downright hostile -- when asked about such pedestrian things as sales, earnings, and inventory turns.
Forget numbers. They want to talk about the quality and technical performance of their clothes -- clothes intended, literally, to meet the rigors of climbing K or of sailing the Atlantic in a one-person boat. (Activities routinely undertaken by some of Patagonia's most dedicated customers.)
And they want to talk about art, specifically the design and makeup of their catalog, which to their credit could be the most spectacular ever assembled by a mail-order merchant. The catalot, it turns out, is also the perfect expression of the company. Through it, Patagonia speaks not only to its patrons but to itself. Catalog as employee training manual. As corporate manifesto.
It is our guidebook to Patagonia's soul.
As the Yak and Yeti scene attests, the catalog is, to say the least, different -- but then so is the rest of Patagonia. The company does almost no advertising. It limits the number of stores that may sell its clothes, and it steadfastly refuses to broaden its line. If the company can't exploit the latest in technology to make an item that can stand up to strenuous outdoor activities, then the item doesn't get made. And if that means Patagonia -- named after the region at the tip of South America -- won't be the next Limited, or even the next Esprit, so be it. Nobody professes to care. "This company does not exist for the sole purpose of making money," says president Kristine McDivitt.
But ironically, this seemingly antibusiness bias has produced something every company wants and few have achieved: focus. Patagonia employees know what is considered important -- producing high-quality, extremely durable clothing that you could wear to scale Kilimanjaro (even if 60% of the customers will come no closer to the climb than dreaming about it over a glass of Chardonnay). And equally important, it tells the staff what not to worry about: being the lowest-cost producer or revving up sales.
At the center of this company culture is the catalog. It is the twice-yearly reflection of what Patagonia believes. ("Function first. Everything else springs from that.") While employees talk of quality, utility, and performance, it is the catalog that spreads the word through text, charts, and diagrams. There are two product-free pages on fabric specs and the question of "breath-ability"; another on the technical makeup of Capilene underwear. And of course there are the brief "essays," such as the one that opens this story and that probably says more about "Patagonia-ness" than would any layout of clothes. It, too, is part of focus: Patagonia as state of mind.
Odd? Yes, but extremely effective. Customers write. They send pictures by the thousands. And Lord, how they buy. Patagonia's average order is believed to be well over twice the dollar amount of L. L. Bean's. "Their customers are different," says a company head who once thought long and hard about trying to acquire Patagonia. "It's almost a cult."
If it is, then there must be lots of chief executive officers who's like one of their own. Managerial roles may not come more enviable than the one held by Patagonia founder and chairman Yvon Chouinard (see box below). Chouinard annually spends better than six months out of town -- sometimes far out of town (Antarctica, Bhutan, Belize). Yet Patagonia employees are so clear about the founder's vision that his presence seems strong even when he's gone.
Can it last? Or does a culture like Patagonia's suffer under the weight of its growth, which lately has been rapid?
Over the past three years, sales have grown at a more than 25% compound annual rate, with profits rising nearly 30% a year. But there are signs that the business conditions that helped the company flourish may not persist. Even Chouinard seems edgy. On one hand, he talks about future growth and an increasing responsiveness to trends. On the other, he suggests he will freeze the company as is -- ignoring the fashion gods. "There is no way you can anticipate what someone else will want. You must do things that please you."
It's an attitude that shows up in everything Patagonia does, and so far, it's worked. Consider the fall 1987 catalog. There isn't a product displayed until page six. Instead, it begins with a discussion of a nineteenth-century writer.
"In January of 1854, the novelist Gustave Flaubert wrote to his mistress, he lovely Louise Colet, about an idea she had for a new fashion magazine. In his letter, he railed against all the bad things brought about by the industrial revolution. . . . "we must raise our voices against . . . cheap stoves, imitation luxury, imitation pride . . . ugliness has assumed gigantic proportions. . . . Styles must always say something; they must express to the greatest extent possible, the soul of the wearer."
Why haul out texts from French Lit. 305? It seems a handful of loyal customers had written to say Patagonia's clothing had become "too brash." Instead of the traditional grays, browns, and greens -- colors that made the wearer appear at one with nature -- Patagonia'a clothing was now sporting reds, blues, and oranges. The customers feared Patagonia had gone -- gasp! -- trendy.
The staff discussed it and decided a response was called for. So two full pages were spent on the Flaubert essay, which pointed out that clay, minerals, trout, and flowers come in anything but earth tones. The essay concludes: "It is hoped that [our] styles will somehow express th soul of their wearers and the colors will remain somewhat irreverent, light-hearted, and, yes, blended to the earth."
Considering the cost of the lost selling space, isn't this a bit precious in a catalog that tuns up to $1.50 a copy to produce?
No, says catalog editor Nora Gallagher, who wrote the essay. "We write the catalog copy as if we were writing a letter to a friend," Gallagher says. And indeed, the tone is congenial and amusing. To describe how comfortable Patagonia garments would keep a wearer, there are ratings on a "Patagonia warmth scale, [which is] based on the Pakistani Curry Scale in London restaurants: one is mildest, six is warmest." And "friends" obviously go back a ways. An earlier catalog pictured McDivitt applying nail polish to her toes; the faol '87 catalog features McDivitt skiing. The caption: "Remember her with the painted toes? Kristine McDivitt in Hokkaido, Japan."
If Patagonia is going to be true to this pen-pal approach, says Gallagher, it must answer a friend's objection to the use of flashy colors before it can even think about selling anything. And so the Flaubert essay.
Gallagher looks baffled when the visitor asks if this isn't an unusual way to sell clothes. After all, by the time Patagonia gets around to showing its wares, Lands' End has already offered potential customers 17 different turtlenecks and L.L. Bean has presented 10 completely different product lines. Her response? "If I ever thought that writing copy for the catalog was part of sales, I'd go find another job."
Gallagher's comments come as no surprise to the people down the hall in the 16-person art department. (The art department at INC. -- which publishes six times as often -- numbers only three.) They, too, are equally horrified by the mention of commerce.
"Nobody has ever told me to make this picture bigger because we want to sell more of the item or make this one smaller because our margins are less," says one. "We don't do things that way."
True. Patagonia's catalog gives prominent display to a $16 pair of socks that may -- if the company is lucky -- generate 100 orders this year. There is a beautiful layout for a rainwear jacket that might be discontinued, and, up until recently, you had to search the catalog to find the phone number for placing orders.
The sound you hear is Leon Leonwood Bean spinning in his grave.
Instead of following the rules of direct marketing (see box, "Rules Made to Be Broken," page 62), rules "guaranteed" to get some mythical customer reaching for his telephone and major credit card, Patagonia's 400 employees design the catalog and the merchandise it contains by focusing on what the company believes to be important. And that, when you talk to employees, translates to this: they do their jobs with just one customer in mind, themselves. They make no pretense about it.
"After all the standards are met, we have fun," reads the catalog copy. "We play with color, of course, but also texture, weave, and pattern. In the end, we make clothes to satisfy us. We wear them."
And further on: "Our customers tend not to be generic in any way, so why should they meet a standard size chart. Our 'Medium' therefore is Ric Hatch, the Southern California sales representative for Patagonia. Ric's in good shape -- he likes to run -- but he's not a fitness monster."
"Employee as customer" is not some abstract notion. It's literally true. Customers -- almost always educated and guiltlessly self-indulgent -- often become so intrigued by Patagonia's clothes and its ethos that they find their way to Ventura, central casting's idea of a California surfing town, to learn more. There they discover staffers roller-skating outside the offices, or involved in vicious games of volleyball, or heading off, often during working hours, in their Toyotas and Hondas for the two-minute ride to the beach. It's an appealing sight, and many of the people who come to visit end up getting jobs.
But even when they don't go on the payroll, Patagonia's customers pitch in. They help create both the catalog and the gear within. They suggest ideas for new products -- the company logged some 1,000 product suggestions last year and acted on about 60% of them -- and they supply most of the photographs used in the catalog.
Photo editor Ridgeway thumbs through a list of submissions to show how this works. She selects a photo of a young blonde skier, who could be -- if she is not already -- a model. The shot shows her flying down a mountain. Her hair is streaming behind her, she is smiling, and the Patagonia label is visible on her jacket.
It's a wonderful picture, and one that was never even seriously considered for the catalog.
"It's just too perfect, isn't it?" asks Ridgeway. "It looks fake, even if it isn't."
The photographer, like everyone else who sent in one of the more than 25,000 pictures Patagonia receives a year, gets back a six-page brochure that contains recommendations to remember when taking pictures for the catalog.
Among the dos: "We like shots with people wearing Patagonia clothes that are used. You can even submit shots with people wearing clothes worn to rags." Among the don'ts: "[No] macho hero shots. We don't like man overcoming mountain, jungle, ocean, etc. We also don't like man overcoming deer, elk, moose, bear, etc. Remember who our customer is: When he is a fisherman, he is a catch and release fly fisherman, so no dead fish. If he is a trucker, he is a long haul trucker, no short haulers."
"The idea is to show people having fun," says Ridgeway. "We want to capture the things they do in our clothing."
That often means action shots: people climbing, boating, hiking. And if that produces a good picture in which you can't tell if there's a Patagonia product or not, that's OK. "Sometimes the product identification gets pretty subtle," says Ridgeway.
Think about what is going on here. Customers are creating the selling environment they want, an environment that couldn't get any more low key. And then the work force not only accepts this environment but revels in it. It's the ultimate extension of the current wisdom that says get close to your customer. Patagonia's work force couldn't get any closer. Customers and employees are one and the same.
They're about the same age -- mid-thirties -- and have the same interests. Almost every employee is in shape, conscious about what he or she eats -- yogurt, granola, and tea seem to be the staples of the company cafeteria -- and engages in some kind of vigorous exercise. (Mountain climbing, surfing, sailing, and horseback riding appear to be the four most preferred.) They even wear the same clothes. A recent visitor found more than half the employees wearing Patagonia designs.
All this makes marketing simple. You don't need focus groups or surveys. "We are our customers," says Chouinard.
So you market by telling your staff to design the clothes they want, then sell them in a way they're comfortable with. And if that means making a climbing jacket of material that costs $10 a yard wholesale, while a competitor might use materials priced 66% less, fine. If you can obtain a prettier catalog by having it printed in Japan instead of down the street, that's fine, too.
This is not exactly the kind of thinking that wins you high marks at Harvard Business School.
And yet the numbers, which even Patagonia executives claim to ignore, would warm the heart of the most hardened M.B.A. In addition to the rapid rise in both sales and profits, aftertax margins are about 7%, close to the industry average. aNot bad for a company run by a man who swears he likes business no more today than when he began, and he hated it then.
Despite the protests -- and, more remarkably, given that he's at headquarters less than half of every year -- it's hard to imagine Patagonia without Chouinard. Consider how the clothes are created.
They are invented, explains the essay titled "Unfashion," because "we get hungry. We want something we can't find. Yvon Chouinard reached into his closet last fall for a corduroy shirt and found an old one that was finally not fit for public display. So he asked R&D to make a good cord shirt. We get inspired: Yvon brought back a patch of cloth from Bhutan and asked R&D if they could copy it in flannel. . . ."
Photographs of Chouinard or his kids appear in the fall '87 catalog no fewer than six times. And he is mentioned countless times more. But that's only fair. He's the source of the company's focus -- his life a kind of grail for Patagonia employees and customers alike.
Chouinard, now 49, has been fascinated by climbing for more than 30 years, although, like Patagonia, it is something he backed into. As a teenager, he became intrigued with falconry, and the only way to obtain birds to train was to climb up into mountains and take them from their nests. After a while, he set up a small blacksmith's shop behind his parents' house where he started to make climbing tools -- first for himself and then for friends. By 1972 that hobby had become a company. Eventually, clothing was added -- at first Chouinard imported it, today it is all subcontracted -- and what became Patagonia was born.
It was, he says, a mixed blessing. "I am not a businessman. I don't like it. I'd rather be doing something with my hands." Being a manager, says Chouinard, "is not what I do well."
What he has done well, by style and example, is exactly what the textbooks say the CEO should do: imbue his company with his vision.
To a visitor used to dealing with more traditional companies, that's surprising. What's even more surprising is that Chouinard plans to fiddle with the very things that have made him a success. He won't say what's triggered his shift, but you can make some educated guesses.
A general economic downturn, should one come, might make it hard for consumers to justify spending $160 for a foul-weather jacket, even if it allows you "to move your arms freely, whether you're grinding through America's Cup finals or reeling in a Mahi Mahi on a trolling line." Chouinard rejects this theory, claiming Patagonia would thrive in a recession because goods of lasting quality are valued.
Still, some analysts wonder whether the company's recent surge was just the result of its functional gear becoming faddish among nonsportsmen. And fads, of course, fade. In 1981, at the height of a preppy boom, L.L. Bean's sales increased 43%. Two years later, they were up just 6%.
So a fickle public represents an ever-present potential problem. Ironically, so does too much success.
While the company already faces competition from the likes of R.E.I., continued good times have begun to attract far larger competitors looking to expand.
The Timberland Co., best known for its durable shoes, recently told Patagonia's retailers it will sell similar lines of clothing. Lands' End is already offering a jacket that could fit nicely in the company's line.
And even former customers are becoming competitors. Chouinard says Patagonia will be limiting its relationship with L.L. Bean -- which has carried and sold Patagonia labels for years -- because Bean has copied some of his products. Indeed, the cover of Bean's Winter Values 1988 catalog features a jacket that looks eerily similar to one longtime staple in the Patagonia line. Bean has no comment.
Can Patagonia cope with increased competition and a serious slowdown in the economy?
Chouinard says yes.
He has a two-part strategy. It begins with overseas expansion. Patagonia, which now has six stores -- five in the United States, one in France -- plans to open as many as three more per year for the foreseeable future, but only one per year in the States. "We should have more of a presence overseas," says Chouinard. "Half of our goods are imported, and this will get us closer to the source. Also, that's where trends start. You see something in France today, and three years later it's here. We're in the fashion business, and we should know what's happening."
Certainly that's one way to stay ahead of the competition. But how exactly does it square with a short essay in the catalog that says trendy is the last thing Patagonia wants to be?
"[Our] designs will not be obviously fashionable. We don't want our customers to be victims of fad. We want to make clothes that won't go into fashion and therefore won"t go out."
It's a minor inconsistency, true, but unusual in a company that seems otherwise so well focused. Are the retailers that are starting to nip at Patagonia's heels responsible?
The competition apparently has the company's attention. "We felt our classic jacket had been copied a few too many times since its inception, so we've given it a slight face lift," reads one catalog description. And later on: "This wool is a much beefier Shetland and has more loft than the ones you may have settled for laterly." This sounds a little fiestier than the old Patagonia, which hovered happily above the fray.
Part two of Chouinard's strategy is a profit push. The move overseas could help, especially given the weak dollar. Repatriating more valuable currencies in the United States can go a long way toward increasing profits. But Chouinard wants to go further.
"Right now, we're averaging pretax margins of between 6% and 8%, and I think we can move that up to between 8% and 10%," he says. "That may not sound like much, but as sales get bigger, it becomes significant." One percent of the $16 million in sales Patagonia recorded in 1983 is $160,000. One percent of the $70 million it expects to report for they year ending in July is 338% more.
To get there, Patagonia will have to make some changes. For one thing, people who leave won't necessarily be replaced. "We're overstaffed; we are way too fat," Chouinard concedes. "That will change." While there won't be layoffs, he talks about a job freeze and the need for the existing staff to do more, such as better maintain product standards.
"Poor quality cost us $800,000 last year -- in returns, repairs, and clothes we had to blow out as seconds," Chouinard says. "That's a lot of money."
There will be more mundane changes as well. For example, Patagonia now has a purchasing department. "Everyone was buying their own supplies, and not paying much attention to price," says Chouinard. "Now, if you need a new typewriter, you go to purchasing and they'll buy it."
But can you make these changes without upsetting the culture that helped build your company? Employees take great pride in Patagonia executives being housed in a central area known as the corral (having them together "keeps them out of trouble," says one worker). And they boast about the things that make Patagonia different, if not unique. Ten percent of pretax profits go to support various ecology groups; if employees can keep up with their work, they are encouraged to go surfing or horseback riding on company time; and Patagonia's day-care facility may be one of the prettiest in corporate America. Can all this -- and the freedom to do their jobs with only one customer, themselves, in mind -- coexist with memos to purchasing about buying new typewriters?
Chouinard thinks so. But company culture, especially one as important as Patagonia's, is a fragile thing. And altering course won't be easy.
"We have a joke," says McDivitt, "that begins, how many Patagonia employees does it take to change a light bulb?
"The answer is 16. Four to learn everything there is to know about filament technology, 2 to design a special pair of gloves that are perfect for light bulb changing, and . . .
"The fact is, we can't do things any other way. We've tried on occasion. We once decided to make a basic shirt for women, and we put the darts in the back." The company, she says, "just can't do anything simply."
But this failing has long been associated with brilliant marketing. It has reinforced Patagonia's urge to specialize, to be focused. And in the process, it has helped the company gather loyal customers who know exactly what the company stands for. Patagonia's stress on fundamental quality, permanent values, and a special lifestyle ensures its wonderful positioning.
So Chouinard may face an interesting dilemma. He has defined the company so well that he could be boxed in. If the economy causes sales to falter, or the fashion cognoscenti move on to flashier clothes, or larger retailers decide he has become big enough to bother with, he could have trouble fighting back without destroying the culture that has made his company so strong.
Chouinard listens politely to this argument and says, in essence, hogwash.
He sees no problem squaring the move to become more efficient with the company culture.
"We run a business," he states. "The people here will adjust. This is not paradise."
True, but how well is that understood by all the people who take time off in the middle of the day to go jogging through the streets of Ventura or chat with colleagues over coffee about upcoming four-week trips down the Yangtze?
As for increased competition?
"Only if we run out of [product] ideas will we ever run into trouble," Chouinard says. "And we have no shortage of ideas."
"Clothes like these," reads the catalog, "are actually among the most difficult to make. . . . You can end up in the design equivalent of no man's land -- a place where, judging by what's on the market, a lot of manufacturers get stuck."