Patagonia - Driving Sustainable Innovation by Embracing Tensions Part 2

Case Discussion Questions 1. How would you describe Patagonia’s supply chain and innovation strategy? What are the pros and cons of such a strategy? 2. What are the tensions for Patagonia around DWR and who are the stakeholders associated with each of these tensions? 3. Is Patagonia’s search for a drop-in DWR substitute an impediment to disruptive innovation? 4. Is Patagonia’s focus on quality, in this case water repellency, constraining its ability to rethink its products? Should Patagonia change its quality/durability standards for different products lines (Super Alpine vs. Board Shorts)? 5. What will really change the textile industry to adopt more sustainable solutions? What influence do brands primarily have over global supply chains? What role do consumers have? How can a relatively small company like Patagonia move massive companies like DuPont/Chemours? How can it move the entire ecosystem away from environmentally damaging practices? 6. In what instances have Patagonia attempted to transform its supply chain and the broader industry but did not succeed? Why do you think the company failed? Exhibit 1: General Company Timeline “1957: Yvon Chouinard begins making climbing hardware in his parents’ backyard in Burbank, California. 1966: Chouinard moves operations to Ventura (to be near Rincon and other SoCal surf breaks) and enters into an eight-year partnership with Tom Frost. 1973: Patagonia is incorporated. Chouinard and Frost convert an abandoned slaughterhouse in Ventura into offices, warehouse, and a mountain shop. Some of the first “software” includes Foamback Raingear, Stand-Up Shorts, and the Ultima Thule Pack. 1977: New Product: Pile Jacket. 1979: The “layering concept,” which Patagonia made famous, is introduced with polypropylene baselayers, bunting fleece midlayers, and Foamback shells. 1982: New Product: Baggies clothing. 1984: New Ventura headquarters opens with childcare center, café, and sand volleyball court. New Product: H2No Plus and Featherweight shells, Reefwalkers. 1985: Tithing program begins: Patagonia donates 10% of annual profits (later 1% of sales) toward preserving and restoring the natural environment. New Products: Synchilla fleece, Capilene baselayers, Shelled Synchilla Jacket, Synchilla Snap-T pullover. 1998: New Product: Bomber Jacket. 1989: First environmental essays appear in catalog. Patagonia, along with Kelty, REI, and The North Face, establishes The Conservation Alliance—outdoor business giving back to the outdoors. New Products: SST Jacket, Retro Pile, Down Sweater. 1991: Life-cycle analysis commissioned on four fibers: cotton, wool, polyester, and nylon. New Product: One-Piece Suit. 1992: In-house environmental-assessment program begins. 1993: Recycled soda bottles used to make PCR Synchilla fleece. New Products: PCR (Post-Consumer Recycled) Synchilla Super Alpine gear, Super Pluma gear. 1996: Patagonia stops using conventionally grown cotton, adopting 100% organic cotton for all cotton products. 1998: Patagonia included in Fortune Magazine’s 100 Best Companies to Work for list for the first time. New Products: 100% Organic Cotton Jeans, snowboard-specific shells. 1999: Time magazine names Yvon Chouinard a Hero for the Planet. Patagonia becomes first commercial customer in California to buy all of its electricity from renewable wind energy. New Product: Patagonia and Malden launch Polartec Regulator insulation. 2000: Patagonia teams with bluesign® to begin reducing environmental harm, improve consumer and occupational health & safety, and optimize the efficient use of resources in making our fabrics. 2001: Yvon Chouinard and Craig Matthews of Blue Ribbon Flies co-found 1% for the Planet. 2004: New Product: Edge (snowsport) line. 2005: Common Threads Garment Recycling Program launched. Yvon Chouinard publishes Let My People Go Surfing: The Education of a Reluctant Businessman. Solar panels installed on Ventura campus to offset a portion of electricity use. New Products: Ready Mix Jacket receives Outside magazine’s Gear of the Year Award. 2007: Patagonia Reno Service Center receives a GOLD level LEED certification for environmental responsibility, resource efficiency, occupant comfort, and community sensitivity. The Footprint Chronicles and Patagonia Books launched. New Products: Primo Down Jacket, Rubicon Rider Jacket, Down Sweater Hoody. 2008: New Products: Better Sweater garments, Re-Tool Snap-T garments. 2010: 180◦ South published. New Products: M10 Jacket & Pants, Torrentshell Jacket & Pants. 2011: Don’t Buy This Jacket ad runs on Black Friday in New York Times. New Products: Gore Alpine and Snow shells and pants, Ultralight Down Pullover. 2012: Patagonia becomes California’s first B-Corp. Patagonia Provisions launches first product: salmon jerky. Patagonia Books publishes The Responsible Company: What We’ve Learned from Patagonia’s First 40 Years, by Yvon Chouinard & Vincent Stanley. New Products: Powslayer, River Crampons & Rock Grip Aluminum Bar Wading Boots. 2013: Capilene and Merino Performance Baselayer products relaunched with bluesign®-approved fabrics; merino wool sustainably sourced from the grasslands of Patagonia. Snow collection revamped with new and revised designs, best available fabrics and technology, and women’s specific fit. New environmental campaign: The Responsible Economy. New Product: Untracked Jacket. Launched $20 Million & Change Fund to invest in eco-friendly startups. Created a new holding company called Patagonia Works, dedicated to using business to solve the environmental crisis (included Patagonia, Inc., Patagonia Media, and Patagonia Provisions).” Source: Quoted directly from Patagonia’s timeline hanging on the company’s wall, with a few additions by the case writer. Exhibit 2: Patagonia and Social Responsibility in the Supply Chain Timeline “1973 to 1990 We try to work with factories that share our values of quality and integrity. Our belief is that ‘you can’t make good products in a bad factory.’ We work with clean, well-run factories that have skilled, experienced workers and a low turnover rate. 1990 As we grow we recognize the need to test these assumptions and begin to formalize our contractor review process. In 1990 we ask our contract managers and Quality team to begin reviewing the factories they visit, both for product quality and working conditions. We make the decision not to work with any factory we can’t visit. 1991 We unveil a ‘contractor relationship assessment’ at our first supplier conference, to which we invite representatives from every factory we work with. The assessment is a scorecard kept with each factory to rate its performance in different areas. We ask factory managers to do the same. If we give a factory a low mark in one area and the factory scores itself high, the difference becomes the subject of conversation and focus. Our approach is informal, but our demands for high quality largely keep us on the responsible side of social compliance. Mid-1990s We begin contracting with third-party auditors to visit and assess potential new factories. Though audits are but a snapshot in time, they do give an idea of a factory’s work conditions and management systems. They’re also a good way to initiate discussions about change. 1996 A human-rights organization reveals that Wal-Mart sells Kathie Lee Gifford clothing made under license by a Honduran sweatshop employing 13- and 14-year-old girls who work 20-hour days for 31 cents an hour. The work originally had been contracted to a reputable U.S. manufacturer. But to meet strong sales demand, that factory subcontracted the work to another business that in turn subcontracted to the Honduran factory. After a public outcry, Kathie Lee Gifford, to her credit, joined the anti-sweatshop movement. Both Gifford and Patagonia were invited to take part in President Clinton’s ‘No Sweat Initiative.’ As a result of what we learned, we created a more formal process for our company and became founding members of the Fair Labor Association (FLA), an independent multi-stakeholder verification and training organization that audits our factories. Early 2000s After these several steps forward, we take a step back when we begin sourcing products in new factories that can produce them at a lower cost. The number of factories we work with balloons, and some of these subcontract work to other factories we know nothing about. We lose track of whom we do business with and what working conditions are like in many of our factories. For a while we drop out of the FLA. 2002 We hire a manager of social responsibility to monitor social compliance throughout our supply chain and begin to work again with the FLA. We educate Patagonia employees about factory workplace issues to help them understand how their own actions can unwittingly cause factory workers to suffer longer workweeks, hurry-up pressure and greater stress. Late 2000s We expand our brand collaboration efforts in auditing, special engagements (with local third-party experts to help solve specific problems within a factory), and information sharing. Three of our cut-and-sew suppliers (with a total of eight factories) are now FLA members (and thus are held to the same high membership standards Patagonia must meet). We work more closely with our factories and become more familiar with their supply chain. To strengthen individual relationships and increase transparency within our supply chain, we reduce the number of primary factories we work with by 50 percent. 2007 We launch The Footprint Chronicles®, which traces the social and environmental impact of our products. We ask Verité, an international nonprofit social auditing, training and capacity-building organization, to train the 75 employees who visit our suppliers’ factories to fully understand Patagonia’s Workplace Code of Conduct. We conduct internal refresher sessions annually for both new and seasoned employees. 2010 We elevate the Social Responsibility Manager position to a high-level Director of Social and Environmental Responsibility. This integrates social and environmental work at the factory level. We identify all subcontractors and now audit close to 100 percent of our cut-and-sew factories, including subcontractor locations. Patagonia helps gather the top leaders in the apparel industry, non-governmental organizations, academia and the U.S. Environmental Protection Agency for an inaugural meeting to determine the feasibility of working together to create an index of social and environmental performance. As of 2015, there will be more than 100 members of the Sustainable Apparel Coalition, which represent a third of all clothing and footwear sold on the planet. The Coalition’s aim: ‘An apparel industry that produces no unnecessary environmental harm and has a positive impact on the people and communities associated with its activities.’ 2011 We begin auditing raw-materials suppliers in December. We implement a new, cutting-edge humantrafficking detection tool. We hold our first internal training on human trafficking in the supply chain to all of our product supply chain staff. We launch our California Transparency in Supply Chains disclosure late in 2011. We launch our formalized Responsible Purchasing Practices per Fair Labor Association requirements of our Sourcing team. 2012 Our audits of raw-materials suppliers reveal that labor brokers charge migrant workers from Asian countries up to $7,000 to get a job in Taiwanese fabric mills that supply Patagonia. We identify the audit results as red flags for human trafficking. The practice is considered an acceptable part of doing business by our suppliers, though brokers regularly charge above legal limits. Transportation, work visas and other essentials are included. But paying that kind of money for a factory job is an almost impossible burden for workers already struggling to make a living. In an effort to understand the social and environmental impacts of our supply chain, we launch a revised and even more transparent Footprint Chronicles website. 2013 Early in the year, we strengthen our Code of Conduct, which outlines responsible practices for our supply chain, to include a living-wage component and implement policies to consider the living-wage rate in our costing formulas. These efforts are part of short-, medium- and long-term strategies to address living wages in our supply chain. We begin to execute our short, medium and long-term strategy to eradicate human trafficking in Taiwan. We host a one-day brand forum in San Francisco to which we invite some 40 brands to talk about human trafficking in the supply chain. 2014 Partnering with Verité, an NGO dedicated to ensuring people around the world work under safe, fair and legal conditions–we conduct in-depth migrant worker assessments with four of our suppliers in Taiwan. We set out to develop a new standard, institute changes in our supply chain, repay current workers, and share our recommended standards with other companies that want to eradicate similar practices by their suppliers. In May we begin selling Fair Trade Certified™ apparel. We start small with ten women’s sportswear styles sewn in three factories in India owned by Pratibha Syntex. As of spring 2015, we offer 33 styles–21 made in a Fair Trade Certified sewing facility and 12 made with Fair Trade Certified cotton. For every Fair Trade Certified item produced for Patagonia, we pay a community-development premium. The money goes into an account controlled by the cooperative of farmers or association of factory workers who decide how best to use it. The funds are designated for social, economic and environmental development projects. For example, cotton farmers may choose to use the money for agricultural improvements, rainwater catchment systems or to build a school or a health clinic. Workers in Fair Trade factories may invest in healthcare for their children, bicycles for easier transit to and from work or a cash bonus that can get them closer to a living wage. All workers in the factories and farms that make our Fair Trade Certified clothing benefit from the funds, whether they work directly on Patagonia products or not. 2015 We are invited to present our work on human trafficking to the White House Forum on Combating Human Trafficking in Supply Chains, led by Secretary of State John Kerry. We require our suppliers in Taiwan to stop charging labor-broker fees for foreign workers hired after June 1. We also mandate that currently employed workers be repaid fees that exceeded the legal amount. Our factory partners commit to partnering with us to eliminate human rights issues in our supply chain and we are pleased to see their strong overall commitment to doing right by their workers. Representatives of Taiwan’s Ministry of Labor Workforce Development Agency now provide training to our suppliers on the practice of direct hiring. And, because this form of human trafficking is not confined to the island of Taiwan, we apply our new migrant worker standard to our entire tier 1 (mill level) supply chain (but have not found the same issues outside Taiwan). We also make the standard publicly available to any company that would like to adopt it.” Source: Quoted directly from http://www.patagonia.com/us/patagonia.go?assetid=67580. Exhibit 3: Select Supply Chain and Innovation Initiatives Recycled Polyester In 1993, Patagonia began making recycled polyester from post-consumer recycled (PCR) plastic soda bottles, becoming the first outdoor clothing manufacturer to transform trash into clothing. That year, the company was the first outdoor clothing manufacturer to adopt fleece (fleece was made from polyester) made from plastic soda bottles into its line. According to the company: “Using recycled polyester lessens Patagonia’s dependence on petroleum as a source of raw materials. It also curbed discards, thereby prolonging landfill life and reducing toxic emissions from incinerators. It helps to promote new recycling streams for polyester clothing that is no longer wearable. And it causes less air, water, and soil contamination compared to using non-recycled polyester.” 45 Recycled polyester was one of the industry adoption and scaling successes of Patagonia: “It’s still not as far as we’d like it, but it’s a lot farther than when we started it,” said Dumain. “And that’s okay, because organic food took a long time too—40 or 50 years.” By 2015, the company was still in the process of searching for a similar success story with recycled nylon (nylon is more difficult to recycle than polyester due to the difficulty of separating the two molecules it is made of). Third Party Social Audits In the mid-1990s, Patagonia began to contract with third-party auditors to visit and assess potential new factories. This process was informal until two former Patagonia employees were invited to take part in President Clinton’s “No Sweat Initiative” in 1996. The company then created a more formal process and became founding members of the Fair Labor Association (FLA), an independent multi-stakeholder verification and training organization that audited factories. 46 Organic Cotton In 1996, Patagonia decided to only use organically grown cotton, after introducing its first organic cotton clothing in 1992.47 In the late 1980s, Patagonia had learned that employees at a Boston store became sick after breathing the air in the store’s basement. The company learned that the finish on the cotton clothes (formaldehyde) caused the illnesses and such pesticides were used to grow cotton. A life-cycle analysis 48 of the company’s fibers in 1991 led to the discovery that conventional cotton was more environmentally damaging 49 than petroleum-based synthetic fibers used to make its fleeces. On the other hand, organically grown cotton used methods that supported biodiversity and healthy ecosystems, improved the quality of soil, and often used less water. Organic farming was more time consuming, required more knowledge and skill, and cost more, however. 50 45 http://www.patagonia.com/us/patagonia.go?assetid=2791. http://www.patagonia.com/us/patagonia.go?assetid=67580. Conventional cotton accounts for 25 percent of the world’s insecticide use. Pesticides used on cotton are among the most hazardous and children are particularly vulnerable to pesticide-related health problems. Other issues are soil erosion and ecosystem damage. 48 A method used to assess environmental impacts associated with all the stages of a product’s life from raw material extraction through materials processing, manufacturing, distribution, use, repair and maintenance, and disposal/recycling). 49 “In the mid-1990s, the cotton industry used 25 percent of the insecticides and pesticides used in worldwide agriculture. In California, the average acre of conventionally farmed cotton required 300 pounds of synthetic fertilizer and 13 pounds of other chemicals during the course of one growing season,” from Chuck Culp and Justin Purnell, “Making the Ecosystem Part of Your Ecosystem: Patagonia Moves to Organic Cotton,” paper, October 6, 2012. 50 http://www.patagonia.com/us/patagonia.go?assetid=2077. 46 47 Sustainable Apparel Coalition/Higg Index In 2000, Ridgeway helped to found the Sustainable Apparel Coalition (SAC), along with a group of leading apparel, footwear brands, and other institutions such as Adidas, Duke University, Levi Strauss, Nike, Gap, H&M, Nordstrom, Target, Walmart, and the Environmental Protection Agency (amongst others). The SAC collaborated to reduce environmental and social impacts of apparel and footwear products sold around the world by: “leading the industry toward a shared vision of sustainability built on an industrywide index for measuring and evaluating apparel and footwear product sustainability; spotlighting promising technological innovations; and identifying opportunities for improving current social and environmental practices throughout the supply chain by collaborating to establish consistent expectations for brands, retailers, and manufacturers.” 51 The Higg Index was the outcome and allowed SAC members to measure and evaluate the sustainability of their products and identify areas for improvement. Ridgeway said on the Index: “It’s web-based and it allows us to see any of the facilities that we select to partner with to manufacture our products and where they are amongst the entire world. So you get immediate benchmarking to measure the sustainability of the social justice effort in the facility. And you can see where they stack up against everybody else. That’s really helped us out a lot….We can concentrate our capacity on the areas where there’s the most harm or where we’re weakest and we can manage and reduce those impacts and the footprints.” 52 On a practical basis, however, Freeman at Patagonia said that while the company was conducting life-cycle assessment by using the Higg Index and working with SAC, he called the process, “painfully slow.” Dwyer said that the Higg Index was the most robust index in the industry, although it could be “burdensome.” Dyeing and Finishing: bluesign® In the 2000s, Patagonia “went deeper into the chemicals that go into the fabrics and trims used in our clothes.” 53 In 2007, the company became the first brand to officially join the network of bluesign® System Partners, a Swiss-based company that developed an environmental protocol for dyeing and finishing processes. Patagonia worked with bluesign® technologies to evaluate and reduce resource consumption in materials supply chains and to assist bluesign® technologies to approve chemicals, processes, materials, and products that are safe for the environment, workers, and end customers. By 2015, there were over 400 brands, manufacturers, and chemical suppliers who were bluesign® system partners. Textile manufacturers that were bluesign® system partners, “agree at the outset to establish management systems for improving environmental performance in five key areas of the production process: resource productivity, consumer safety, water emissions, air emissions, and occupational health and safety. System partners regularly report their progress in energy, water, and chemical usage and are subject to onsite audits.” 54 Fabric that passed bluesign’s® criteria was labeled bluesign® to indicate that the methods and materials conserved resources and minimized impacts on people and the environment. “They are essentially a third-party that we outsource this work to and they screen our mills and then we can buy bluesign®-certified fabrics,” said Dumain. 51 http://www.skollfoundation.org/apparel-industry-leaders-launch-sustainable-apparel-coalition/. http://www.planetexperts.com/rick-ridgeway-sustainable-apparel-patagonias-renegade-culture/. “Our DWR Problem,” Patagonia Blog, http://www.thecleanestline.com/2015/09/our-dwr-problem-updated.html. 54 http://www.patagonia.com/us/patagonia.go?assetid=68401. 52 53 Common Threads Garment Recycling Program Patagonia’s clothes are “guaranteed for life,” or a “de facto way of caring for the environment,” according to Dumain. She said: “Looking into the life cycle of products and making things that last longer is good for the environment. Although some might see it as counter-intuitive—after all, most businesses aim to sell more, not fewer products.” 55 This type of thinking inspired Patagonia’s “Common Threads Garment Recycling Program” in 2005 with the goal of making all of Patagonia’s clothes recyclable within five years. Since 2005, the company has taken back over 82 tons of clothing for recycling. 56 In 2011, Patagonia launched the “Common Threads Initiative,” an extension of the original program as a partnership with its customers to reduce consumption and its resultant environmental harm. The program started out in recycling, but then eventually evolved into the five R’s for consumers: Reduce, Repair, Reuse, Recycle, and Reimagine. The program first asked customers to not buy anything they did not need, but if they did need it, Patagonia’s hope was that they bought what lasted a long time and to repair, reuse, or resell what they did not wear anymore, and recycle. As part of this initiative, in 2011, Patagonia launched its “Don’t Buy This Jacket” campaign in the New York Times on Black Friday to encourage customers to buy fewer, higher-quality goods. The ad told consumers not to buy one of Patagonia’s popular jackets because it took so much water and energy to make the jackets and to not buy things that they did not need. Dumain said: “What we’re doing is trying to get people to think of the supply chain behind the product. We can make the biggest impact in the countries that make our products.” 57 The company also sold its product with tags that read, “Don’t buy this jacket.” Patagonia’s revenue actually increased 30 percent from its previous year’s Black Friday and Chouinard believed that the rise in sales was from new customers that shifted from other brands. 58 In return, the company committed to make products that lasted and to help repair (at a nominal price) something that broke or needed repair. In 2014, the company mended 24,710 products, for example. The company also formed a partnership with eBay to launch a new marketplace for customers to buy and sell used Patagonia items. This union was the first time a major retail brand actively encouraged customers to buy and sell used products on eBay. If a Patagonia product could not be repaired, the customer could return it and the company would recycle it into something new or repurpose what couldn’t yet be recycled. Patagonia paid for postage or customers could drop the product off at the closest Patagonia retail store. Transparency: Footprint Chronicles In 2007, Patagonia launched its Footprint Chronicles, which allowed customers to track individual products from their sources on the company’s website via a map with highlighted factories in the company’s supply chain and factory audit results. The Footprint Chronicles traced the environmental and social impacts of products, according to Dumain: “When we started to talk about what challenges us as a company, what our obstacles are, it was uncomfortable. It’s not easy to be transparent. But being open with our customers has built trust with them like nothing else can; if you only see the good side of all the issues facing companies today, you’re not seeing the whole picture. The initial outside feedback to the site was one of amazement that we would publicly call out our own shortcomings and problems. But people liked when we told them about the ‘bad’ because then they really allowed us to address our problems head-on.” 59 Dumain added: “This was a way to put out there that we are not perfect.” 60 55 Jill Dumain, “It is Time to Reimagine a Sustainable World,” Patagonia keynote at Doing Good and Doing Well Conference, 2015. http://www.patagonia.com/us/reuse-recycle. Jill Dumain, “It is Time to Reimagine a Sustainable World,” Patagonia keynote at Doing Good and Doing Well Conference, 2015. 58 http://groundswell.org/the-bottom-line-patagonia-north-face-and-the-myth-of-green-consumerism/. 59 Michelle Camp, “An Interview with Patagonia’s Director of Environmental Strategy,” SAGE, October 17, 2013. 60 Jill Dumain, https://www.youtube.com/watch?v=vVQ6ghRva38. 56 57 100 Percent Traceable Down In 2011, Patagonia embarked on a project to examine every link in its down supply chain to verify sound animal welfare. The company completed its Traceable Down Standard in 2014 to ensure that all Patagonia down could be traced back to birds that were never force-fed or live-plucked. The auditing process included physical inspections of the entire supply chain that were performed by an independent, third-party traceability expert. In 2014, the company’s entire down supply chain shifted to 100 percent Traceable Down. Fair Trade Certified™ Apparel In 2014, Patagonia began to sell Fair Trade Certified™ apparel, starting with 10 women’s sportswear styles sewn in three factories in India. By spring 2015, the company offered 33 styles—21 were made in a Fair Trade Certified™ sewing facility and 12 made with Fair Trade Certified™ cotton. According to the company: “With clothing, Fair Trade means cotton farmers and apparel factory workers can improve their livelihoods, and you get great products grown and sewn with care….For every Fair Trade Certified™ item produced for Patagonia, we pay a community-development premium. The money goes into an account controlled by the cooperative of farmers or association of factory workers who decide how best to use it [social, economic, and environmental development projects].” Denim Supply Chain In 2015, Patagonia announced that its new denim collection was aggregating many of the company’s supply chain practices discussed above by changing the way denim was made and raising the bar for environmental and human rights practices, “using innovative, environmentally friendlier dye, Fair Trade Certified™ sewing practices, and 100 percent organic cotton grown without pesticides, herbicides, or synthetic fertilizers. According to the company: “Typically, denim production involves the use of dangerous chemicals to grow conventional cotton; dyeing it produces millions of gallons of wastewater; and too often, jeans are sewn in factories where workers may not be treated fairly.” 61 Instead, Patagonia’s new dyeing and manufacturing process used dyestuffs that bonded more easily to cotton, “minimizing the resource-intensive and environmentally destructive indigo dyeing, rinsing, and garment-washing process used to create traditional denim.” 62 By reducing the environmental impact of the denim supply chain, the company estimated that it would use 84 percent less water, 30 percent less energy, and emit 25 percent less CO2 than conventional synthetic indigo denim dyeing processes. Beyond dyeing, because its jeans used organic cotton, no chemical or synthetic fertilizers, poisonous pesticides or herbicides would be used, as well as no sandblasting, bleaching, and stonewashing jeans. The company launched with six denim styles, while expanding its Fair Trade clothing styles from 33 in spring 2015 to 192 in the fall of 2015. To reach customers, the company launched its “Because Denim is Filthy Business” campaign across all channels. 61 62 http://www.patagoniaworks.com/press/2015/7/29/patagonia-sets-out-to-change-the-filthy-business-of-denim. http://www.patagoniaworks.com/press/2015/7/29/patagonia-sets-out-to-change-the-filthy-business-of-denim. Exhibit 4: Organic Cotton Case Study In 1996, the company decided only to use organically grown cotton. At the time, cotton products represented 20 percent of Patagonia’s $100 million in sales. And the company was entering into organic cotton as other early companies such as Gap, Esprit, and Levi’s began to discontinue their lines of organic cotton clothing because of weak consumer demand. “This was an important step for us,” said Dumain, “but not without its challenges: organic cotton represents only one percent of all the cotton grown in the world and it’s more expensive.” 63 Organic cotton farmers couldn’t spray their crops with chemicals for weeds or buy expensive harvesters for cotton defoliation (versus using chemicals that do not clog harvesters). Other challenges related to organic cotton were limited financing, no fertilizers in land preparation, and no fungicide-treated seeds. 64 At the time, NGOs had also approached Patagonia about switching to organic cotton. Patagonia started working with organic fabric vendors but that posed challenges since they weren’t up to Patagonia’s quality standards. The company then decided to bring organic cotton into its supply chain through vendors that knew how to work with Patagonia. Patagonia introduced its first organic cotton sweatshirt in 1992, and then evolved into a few more products like socks and belts. The organic cotton sweatshirt failed for many reasons, but the company’s Board voted in 1994 that all of Patagonia’s cotton products would be 100 percent organic cotton by 1996. In Spring 1995, the company switched all of its T-shirts to 100 percent organically grown cotton and the first time the company took the choice away from the consumer in terms of organic cotton T-shirts. Dumain recalled: “From 1994 to Spring 1996, we either had to convert the fabric or drop it, so our first selling season of 100 percent organic cotton, we dropped about one third of our cotton styles from production [due to the switch to organic] because we couldn’t make them in the same quality we had prior. As a result, our inventory contracted causing an immediate impact, only because we had fewer products to sell. But we were quickly able to rebuild up to where we were before and within three years, we were making better products than we were before. We’ve developed stronger relationships deep in our supply chain and found we could impact product development in a whole new and exciting way.” 65 Initially, the company lost 30 percent of its cotton sales over a period of two years due to lower sales (the team decided that the retail price of organic clothing would not exceed a two percent increase over conventional cotton products from the prior season). 66 Some good vendors “walked away from us too,” said Dumain. “We gave ourselves time by lowering margins and increasing price a little to recover. Are other companies willing to do that? I’m not sure.” Dumain continued: “We ended up building up these supply chains and we had a ton of product development. That was an unforeseen good consequence of that move—as a very small cotton user, we suddenly could spin whatever yarn we wanted. We were doing blends of all these different combinations for performance attributes, which we could never do in conventional cotton because we were never able to go to a spinning mill to ask them to spin something. That was amazing to get to know our supply chain that far back and have the ability to dictate what they were doing. Our design team also got really good because we were only given 20 colors for organic cotton for our flannels, not thousands like in conventional cotton.” 63 Jill Dumain, “It is Time to Reimagine a Sustainable World,” Patagonia keynote at Doing Good and Doing Well Conference, 2015. Op. cit., Culp and Purnell. Michelle Camp, “An Interview with Patagonia’s Director of Environmental Strategy,” SAGE, October 17, 2013. 66 Op. cit., Culp and Purnell. 64 65 Chouinard said on the cotton shift: “It was a nightmare, but we did it. Since then, we have not used a single bit of non-organic cotton. My company basically exists to put into practice what all the smart people are saying we have to do to save this planet. We can take all the risk, and we can show corporate America it’s really not a risk at all.” 67 At the time, the company freely shared its information and best practices with other companies such as Timberland, Marks & Spencer, and Nike to help other companies make the switch to organic cotton. “In the early days, we did everything we could,” said Dumain. Dumain discussed early efforts to scale organic cotton: “We helped start the Organic Exchange [which became Textile Exchange], we talked to competitors, we shared our sources, I physically sent swatches to competitors, and were completely transparent on where our supply was coming from, what spinners were appropriate for what end-uses of product, etc.” Once the Organic Exchange was developed, Patagonia stepped back a little due to bandwidth issues and competitive issues and allowed the Organic Exchange to do the type of work it had been doing. Some smaller companies adopted organic cotton, and Nike developed a blended model in 1998 where cotton products featured 3 percent organic cotton. However there wasn’t enough supply to fulfill the company’s demand. “This was an interesting model that Nike did to bring more stability to farmers in that blended model and it didn’t shift their margins,” said Dumain. Levis started an Eco Line in 2006 with 100 percent organic jeans but stopped selling the product in 2008. The company continued to use some organic cotton but was “shooting for greater impact,” according to Michael Kobari, vice president for social and environmental sustainability at Levi’s. 68 Companies such as Levi’s, H&M, Adidas, and Nike joined nonprofit Better Cotton Initiative, which focused on sustainable agriculture techniques, water use, and economic and labor issues. The organization’s initiatives in cotton farms in India and Pakistan have reduced chemical use and water consumption by a third, resulting in a product called Better Cotton, sometimes blended with organic cotton. Kobari said: “We want to shift the way cotton is grown around the world.”69 However, organic cotton did not scale in the industry for many reasons. Eric Neuron, Director of Strategic Product said: “Organic cotton is something we celebrate internally and externally, but the reality is that it’s a shrinking percentage of the overall cotton industry globally and it’s shrinking faster and faster and there’s all sorts of reasons like GMOs and how we define what organic is, which makes it shrink faster. From an eco-innovation standpoint, it’s just changing supply—moving industry which is like moving a mountain— that’s the challenge. There’s not a lot of innovation in it.” Growth in cotton production was mainly driven by the growth in genetically modified Bt cotton which had higher yields and didn’t require as many pesticides as conventional cotton (Bt produces a protein that paralyzes the larvae of some harmful insects, including the cotton bollworm). Neuron said: “Organic cotton became a shrinking percentage of the whole due to the growth in GMO and it’s a function of production yields with GMO—they can grow more on the same acreage of land. If demand goes up for organic cotton, then perhaps production will go up, but at a premium.” Helena Barbour, Business Unit Director of Sportswear added: “With organic cotton, we haven’t shifted a half a percent as the percentage of cotton production worldwide. We’re still at one percent, where we were 30 percent years ago. It’s kind of disheartening.” Dumain, who also felt disheartened, did mention that organic cotton has grown in an absolute number, however, which was a little more encouraging. However, Dumain and Patagonia still felt that conventional cotton had numerous issues: “For us as a company, we go back to the toxicity issue and conventional agriculture has a lot. When we first started on organic cotton, GMO cotton was 1 percent too, but now its 99 percent. There are two kinds of GMO 67 68 69 Michele Chandler, “Yvon Chouinard: Patagonia’s Secret Is In its Supply Chain,” Stanford Graduate School of Business, December 13, 2011. Alexandra Zissu, “In Eco-Jeans, the Green Becomes Harder to Spot,” The New York Times, June 5, 2011. Ibid. cotton—one that has insecticide in it called Bt Cotton and one that is Roundup ready. 70 But Roundup is about to be named a carcinogen. Those things start to add up—the toxicity in our environment that people don’t take seriously enough.” Dumain said that GMO cotton has “won” because seed companies like Monsanto had the money and resources versus decentralized small cotton farmers who did not. Seed companies often gave away their seeds to get people to use it and they provided a lot of technical support. The key difference between scaling organic cotton versus DWR-related products was the agricultural base of cotton, said Dumain: “With agricultural products, you have a decentralized supply chain—all these little farmers all around the world who are trying to survive. This is different from recycled polyester where you have large fiber companies who have resources that are centralized across a large production range. These cotton farmers just don’t and neither did the wool ranchers in Argentina. For recycled polyester, there’s some traction and market penetration, but it has taken a long time and a lot of resources from the synthetic polymer companies and we don’t have that in agriculture.” Another challenge was the commoditization of the cotton industry, which made it difficult to trace where cotton was coming from. Graves said that there was a consumer disconnect too: “Part of the challenge is that consumers don’t think of buying organic cotton for health reasons—even though they should—because we have focused on the environmental issues around conventional cotton.” Others externally and internally said that yields were a factor. Freeman said: “Some say it’s crop yields—we can’t get organic cotton to be as successful economically than conventional cotton. Given the choice, Ralph Lauren will choose conventional cotton. When you look at H&M, Zara, Uniqlo, they have very inexpensive T-shirts—certainly no one is talking about organic cotton there.” But Dumain didn’t buy the yield argument: “The one thing that drives me nuts is when companies say that there’s not enough organic cotton to satisfy their needs. I think it makes companies nervous to market a portion of the line next to the bad stuff. My experience is that consumers don’t really care about that—you have conventional lettuce next to organic lettuce. I think there’s a way to build a market in terms of supply if there’s the demand.” Dumain also felt that companies didn’t know their supply chains well enough to implement organic cotton. “There’s also complexities with agriculture and subsidies. A farmer is a farmer more so than a cotton farmer. If they can make more money selling peanuts or tomatoes, they might go that direction if they can. The group in Texas that only farms organic cotton that has stayed consistent for 20 years doesn’t have options because they are a dryland farmer and can’t shift to more water-hungry crops. The Texas co-op has tried to get more farmers to convert but it’s a risky notion when you don’t have a guaranteed customer.” Dumain felt that if a company was committed to organic cotton, they could work with a specific farmer so that the farmer would have somewhere to sell the cotton. Patagonia stopped working with other companies to adopt organic cotton approximately a decade ago and left most of that work to the Textile Exchange. “The fact that we’re coming on our 20 years of organic cotton, we’re reassessing it,” said Dumain. “We haven’t been in that missionary role for a while. I personally got fatigued after a while because I kept on hitting a wall. My role also changed from materials into the environmental department so it shifted my focus away from organic cotton.” In the meantime, Ridgeway said that there were two opportunities related to cotton and farming: “One is scaling organic cotton and getting the rest of the industry to adopt and the other which was regenerative farming. 71” 70 Roundup Ready crops are genetically modified to be resistant to the herbicide Roundup (so that the Roundup can be sprayed to kill weeds, but not the plants). Regenerative farming is a sub-sector of organic farming focused on regenerating unhealthy soils (through high percentages of organic matter in soils, minimum tillage, biodiversity, composting, mulching, crop rotation, cover crops, and green manures). 71