In the context of our business model our number one key process is our Rules and Norms (a complete breakdown of Patagonia’s current business model and a to-be-proposed business model are available for review in Exhibit I). This ethos that started with the founding of Chouinard Equipment continued through the creation of Lost Arrow and indeed Patagonia. Our self-proclaimed “dirtbag” culture has resulted in some unorthodox business practices over the years. We pride ourselves on our efforts to reduce the social and environmental impact of the lifetime of the goods and services we produce. This is something that our competitors recognize but do not focus efforts on; for us it is of the utmost importance. I took this liberty to draft a Customer Value Proposition (CVP) for our current model: “We provide high quality, durable outdoor athletic clothing and accessories that are produced with a high standard for environmental and social impact. We make the products that we want to use.”
To extrapolate on the latter portion of our CVP, we expect our employees to not only share in the environmental and social consciousness that Mr Chouinard has weaved into the culture of Patagonia but we expect employees to be users of our products as well. This gives us an incredible insight into the functionality and durability of our products. This is exemplified in our generous sabbaticals and midday surfing breaks at our corporate headquarters. Additional insight in this regard is provided by our investment in brand ambassadors, who also provide us with the core of our visual marketing in our catalogs, our website, and social media.
In order of volume we move our products through three main channels: wholesale, retail, catalog/internet. In order of profitability the channels are arranged as such retail, catalog/internet, and wholesale. There is an additional product repair arm of Patagonia’s structure that at the moment is not profitable.
Our commitment to the ethical fiber that binds the core of what Patagonia as a brand stands for results in a product that comes at a premium price, however we believe that the money you spend on Patagonia products is a contribution to our commitment for care when it comes to the environments and social spheres within which we operate. So far we have seen success as shown below.
2. Financial Review of Current Business Model
The competition analysis in Exhibit III outlines our industries averages for financial health. It would seem that our “dirtbag” approach to business has boded well for us over the last ten years. While our total market share (annual sales) is far below the industry average over all the company is making money. Our gross profit margin is over 6% higher than the industry average and our pre-tax profit margin is right in line with the industry average.
While Patagonia’s ROE and ROA are below the industry average it is not my much and our debt to equity ratio is far below the industry average. So while we holds more equity and assets on hand than our competitors we has enough liquid cash flow to finance operations without having to incur much debt. Our 12 month revenue growth is trending along with the industry however our 12 month net growth income is nearly 13% higher than our competitors. Thus while we are experiencing growth that is on par with the industry we are experiencing a downward turn in our operating and/or material costs. It should be noted that the information here is of companies who compete in our industry but not exclusively. Columbia is the competitor that competes most directly with our niche in the industry and on every account except for debt/equity our numbers are favorable and even in the case of debt/equity the difference is negligible.
The standards for philanthropy and an ethical purview for production and material sourcing at Patagonia are much higher than the industry...