Internal analysis - Operations Management Supplier relations Down from 200 to 41 Suppliers chosen based environmental values Lower product defect rates due to eco-friendly suppliers Dealers/ suppliers must join the One Percent for the Planet Production Focused on reducing footprint of production process COGS: 1/3 manurfacturing, 2/3 raw materials - 85% of production outsourced outside NA Order 2000-5000 units/order Lower return rates than industry standards Distribution - Distribution center/service center in Reno, Nevada 900-1,000 dealers (competition has 4000 dealers) Small single store retailers and national chains

Internal analysis - Operations Management Risk evaluation Operating risk: shortage of inventory caused by inability to satisfy existing demand Cost/ Expenses $3.8 million for eco-friendly commitment in 2009 $100k annually on field testing $350k to repair 12k garments/yr = $29 per garment Less than 1% revenues on marketing 1% revenues on environmental causes $200k in kind donations to eco-causes

Internal analysis – Customer analysis Target market 38 year old with household income of $160,000 “dirtbags” Customer acquisition Communicates its eco-friendly efforts Great PR for its eco-causes Ads for Patagonia promote their eco-causes, not their product.  difficult to know what they sell Customer retention Near 100% satisfaction guaranteed Customer contributions to environment

Internal analysis – Customer growth & Innovation Creating a partnership with their customers for commitment to extended product life ensures long-term relationship with customer base Product Innovation 1% of revenues for R&D with raw materials testing lab More durable fabric and 100% recyclable zippers Patents for synchilla, capilene, and chlorine free wool lined in wet suit Industry leader: created many fabrics adopted across industry Product categories: Sportwear Technical outerwear: insulation and technical shells Technical knits: base layers with fabric treatment Hard goods: packs, accessories

Internal analysis – Social responsibility Environmental commitment every building owned by Patagonia has solar panels, energy efficient lighting, natural heating and cooling systems. Mostly vegetarian and organic cafeteria for staff self-imposed enviro tax of 1% Eco-friendly suppliers/dealers Recycle program for customers to reduce overconsumption Plans for product lifecycle initiative

Internal analysis – HR & Corporate Culture Human Resources Dirtbag employees Eco-friendly staff 1,400 employees 53% employed 6+ years, less than 5% turnover Voted best company to work for 10k resumes received for 100 jobs Corporate Culture Surf conditions written on board daily Employees take time off work if tide is up Vegetarian/organic cafeteria Eco-friendly office buildings 2 month paid leave to work on environmental causes of their choice $2000 subsidy for buying a hybrid car Bail money for those arrested in nonviolent activism for enviro causes

Internal analysis – Leadership & Management Family atmosphere Off-site meetings in the mountain or ocean Climbing together on weekends Travelling to Patagonia, Chile, to help create a national park On site childcare Mat and pat leave for parents Management Owned by Lost Arrow, holding company owned by Yvon and Malina Major turnover of CEOs in 90s and 2000s Private company = easy to maintain sustainability Board: Yvon, Malinda, 2 kids, Kristine McDivitt Tompkins Board drives change, CEO manages day to day

Internal analysis – Sales & Marketing Annual growth of 6% in net sales 4 sales channels: Wholesale: $145 million in 2010 Retail: $100 million with 65% margins. 33% of sales offering 80% of product. 26 retail stores in US, 52 total. Catalog/internet 23% with only 69% ad space (competition has 90-95% ad space). Objective: 10% growth in the next 5 years Marketing Less than 1% of revenues for marketing Lots of free PR AmEx spent $3 million on a Patagonia commercial Offered to donate $10 per protesters picketing

Internal analysis – Competitive advantage The most socially responsible company of its industry The only company to repair products Setting industry standards with product innovation Patents for product creations Lots of free PR

Internal analysis – Strengths & Weaknesses R&D lab Industry leader in product innovation Most eco-friendly company in industry Good HR practices/corporate culture/ leadership High quality products Private company Free PR Weaknesses Too specialized, niche target market Governance Size, they’re relatively small compared to competitors Inventory management issues: shortage, inability to supply demand Brand awareness