Patagonia Case Solution

The purpose of this report is to present a strategic plan for Patagonia. This report is structured such that background about the company is first presented. External analysis is carried out first, looking at the industry and market. Analytical tools are also used for the external analysis; PESTEL and Porter's Five Forces. An internal analysis is then carried out using the VRIO framework, Value Chain Analysis, and an analysis of the key financial ratios of the organization. The findings of these analyses are then summarized in the SWOT analysis. Lastly, strategic recommendations are made for Patagonia along with evaluation and the implementation plan for these.

2. About the Company

Patagonia, Inc. is a company that is based in California, United States of America. It was founded in 1973 by Yvon Chouinard and has been in the business of producing and selling outdoor clothing for more than 40 years. The organization employs about 1000 people. It is known for its commitment to the environment and its work towards sustainability.

Its core values include it aiming towards building the best product for its customers. It also has the core value of not causing unnecessary harm to any individual or entity, where it works towards bringing good in society. Its most important core value is the use of business to protect nature, where it actively works to preserve and improve the environment. Lastly, the organization wants to be not bound by convention, which means that it wants to come up with new and novel ways of doing things. Its mission is to be in the business of saving the home planet.  

3. External Environment Analysis

This section will look at the different factors in the external environment of Patagonia, where these factors are presented, and their implications for the business of Patagonia are then discussed. The industry and market are first looked at, followed by looking at the factors in the macro-environment; PESTEL factors. The factors in the task environment are then discussed under Porter's Five Forces, with competition being looked at under the competitive rivalry part of this model.

Industry and Market

Patagonia part of the apparel industry in the United States. This industry is large, and the United States apparel industry happens to be the largest in the world in terms of revenue. The apparel market had store-based retail revenue of $292 billion in 2016. The exports of apparel amounted to $22.1 billion in 2017. As of March 2020, the industry employed about 105,000 employees. The number of employees in this sector have been declining, which were about 482,000 in 2000. The average weekly hours put in by workers remains the same, with being almost around 36 hours per employee for a week. The establishments in the apparel sector are all owned by the private sector. The number of establishments has been decreasing in the industry, with these being about 8000 in 2009 and currently were 6700 by the end of 2019.

The trends in the industry can be explained by a number of producers outsourcing their production to other countries with lower costs of inputs. This is seen by the decreasing number of employees and establishments within this sector. There has also been a rise in the use of technology and capital equipment within the industry. The majority of the work that had been done by manual labour is now being carried out by computers and machines. This explains why the number of employees in the industry has dropped drastically.

The entities involved in the apparel industry include manufacturers, retailers, wholesalers, importers, exporters, brand owners, raw material suppliers, channel members for processing raw materials, and support service providers that include consultants, marketing agencies, etc. The industry is comprised of many segments, and the segment that Patagonia operates in is the outdoor apparel segment.

The local market for US apparel is large, with the majority of the sales made through store-based retailing, which amounted to about $189.1 billion in 2017. The second-largest, in terms of sales, has been the e-commerce fashion retail, which amounted to about $68 billion in 2017. There are many segments in the market, and the one that Patagonia operates in is the outdoor apparel segment. Some of the products that Patagonia sells come under the fashion segment as well. The outdoor apparel segment is expected to grow at a 4% CAGR and reach a value of $17 billion by 2025. The high growth in the market is fuelled by the increasing awareness among people for health and fitness. With the growth in health problems in the country, people are now opting for a healthy lifestyle. This requires them to purchase outdoor apparel rather than fashion apparel. Other drivers include rising disposable incomes and consumer spending, but this driver is no longer relevant due to the Coronavirus Crisis.

The figures available for the outdoor apparel market have been from researches conducted prior to the Coronavirus (COVID-19) outbreak. By the end of 2019, the disease was reported in the Hubei province of China, which was identified as a virus. Since then, this virus that has been called COVID-19 or more commonly known as the Coronavirus, has turned into a pandemic and spread rapidly around the globe. As of 10th April 2020, there were around 1.56 million confirmed cases of this virus and around 95,000 deaths. 

The virus has an impact on the economies around the world, including the United States'. This is discussed in the economic factors under the PESTEL analysis. The virus will have a negative impact on the fashion industry in the future, which is currently uncertain. The retail stores have closed down all over the country, and sales have halted. Large retailers, including Patagonia, have also closed their online stores as the virus spreads. The sector will be hit by a reduction in revenue as consumer spending and incomes drop. The sector will also see rising unemployment as production is cut down due to lower demand. Logistics may be curbed for a time. The apparel sector will be impacted less than that of the manufacturing of durable goods, for which the demand is expected to decline significantly.