Judith Karp, an attorney representing a chain of outdoor stores that is in Chapter 11 and owes Patagonia $500,000, echoes that notion. "The last three years have been a nightmare for the outdoor-gear industry," she says. Increased competition, decreased snowfall, a bruising white-collar recession, and the Persian Gulf War have hit all suppliers hard. "Patagonia's not down and out, but there's no way it can be sitting pretty." Karp adds that given the thin margins and long credit terms in the garment business, getting stuck with an excess of inventory can be ruinous to profitability. "I wouldn't be surprised if it had a loss in each of the last two years."
Patagonia insiders recall certain cash-strapped months in 1991 when the company "lost a lot of its independence" to the banks. Asked about that, Chouinard simply replies, "We got caught in the squeeze between Security Pacific and Bank of America." Asked if the company has been able to maintain its profitability, Chouinard says, "We don't talk about profit."
Patagonia's growth -- and profitability -- have been largely fueled by periodic technical breakthroughs that have produced revolutionary fabrics the company has been able to use exclusively for a short time. The latest -- and hottest -- was a fleecelike fabric that Patagonia trademarked "Synchilla." The company's exclusive on this fabric lasted two years, ending in 1987. Since then competitors have knocked off Synchilla with a vengeance. Meanwhile, fleecelike products still account for about 60% of Patagonia's sales, says Pat O'Donnell. The company acknowledges that future fabric breakthroughs will be evolutionary. Nonetheless, Chouinard says: "We're sitting on tons of good ideas that we're not going to do. We'll do only the killer ideas."
Patagonia's decision to stop sending its catalog via direct mail seems curious, since the catalog -- unreliant on middlemen -- enjoys the highest margins of any of Patagonia's operations. (The company won't say what those margins are, nor will it say how much of total sales the catalog accounts for.) Wayne Badovinus, head of Eddie Bauer, says that once a catalog stops prospecting for new customers, "you are effectively out of the catalog business" because the existing customer list dries up quickly. Chouinard's strategy is to stick to the high and counterintuitive road -- to slow sales and increase profit, to throttle back on the catalog, to keep traveling while "educating" employees about the lack of job mobility within a company in which they have no equity stake. If he can finesse all this he will have accomplished a masterstroke.
Mike Graham, founder of Sole Survivor, a Ventura-based sportswear company that previously contracted with Patagonia, believes that apparel makers can't abandon top-line growth in the '90s as consumers grow increasingly more value conscious. Volume, he believes, is half the answer.
On the other end of the equation lie the challenges of protecting niche markets while continuing to realize operating efficiencies. Notes Annelle Beebe, a former Patagonia employee and cofounder of Ojai International, another Ventura-based apparel company: "Patagonia needs its high margins to run the company the way it exists, with the day care, the nice building, the generous benefits. In this economy, that's tough. I think they're feeling the pressure. We have some of the same dealers, and we hear from them that Patagonia sells a product for $60 while ours is $35 to $40."
Steve Peterson, for one, simply says Patagonia lacks the fiscal and operating discipline to run lean -- and stay that way. "Cutting off growth and fine-tuning profitability is hard because that takes good, rigorous management. That's not possible at Patagonia. They won't accept the ramifications of such a course of action. It just won't happen."
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The End of Charisma
Time's passage has a curious -- and refreshing -- habit of proving many central ideas very wrong. The earth was once flat; the earth once lay at the center of the universe. In Patagonia's case, a small example comes to mind: its environmental audit revealed that cotton, that most natural and wholesome of fibers, taxes the environment heavily in its progress from seed to $59 button-down shirt.
In the '90s a central belief of business will be turned on its head. The success of many businesses and endeavors of the '80s became identified with the personalities of their leaders and founders. From Ronald Reagan to Jim Bakker to Donald Trump, a hallmark of the '80s was the phenomenon of the charismatic leader.
But from that brand of leadership arose a corrosiveness -- a toxicity, even -- generated by the ego of the leader, the adulation of the led. Pat O'Donnell believes this is a fate that entrapped and befell Patagonia. "I used to tell Yvon he was like Elvis Presley: 'You'll be dead, and people at Patagonia will still be asking, What would Yvon think of this design?' "
The companies that survive the '90s will not just scrap the corrosive cult of personality. They will be run by employees encouraged to think for themselves -- on the job and about the causes in which they believe. These companies will be run by managers who walk the shop floor day in and day out. They will be run by people who ultimately respect business as a force for social change, and don't just look at it as a necessary evil to that end. For now Patagonia, held hostage by its considerable image and elaborately constructed -- and constricting -- ideology, does not fit that model.
Yvon Chouinard touts his company as a model for the future, when, in fact, its time may already have passed.
