Lost Arrow Inc.

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Lost Arrow Inc.

259 W. Santa Clara Street
Ventura, California 93001-2545
U.S.A.
(805) 643-8616
Fax: (805) 653-6355
Web site: http://www.patagonia.com

Private Company
Incorporated: 1973 as Great Pacific Iron Works
Employees: 550
Sales: $130 million (1997 est.)
SICs: 5699 Miscellaneous Apparel & Accessory Stores

Lost Arrow Inc. is the holding company for the highly successful Patagonia brand of outdoor equipment and clothing. The company’s founder, Y von Chouinard, is a legendary rock climber and mountaineer. Chouinard designed or redesigned most of the standard equipment used by climbers today, including the ice axe, carabiners, and pitons. The company operates a small number of free-standing Patagonia stores in the U.S. and abroad, and sells its line through roughly 1,200 dealers in the U.S., Europe, and Japan. The company has been a design leader in several areas, pioneering specialized synthetic fabrics as well as bold, bright colors widely imitated by other outdoor apparel manufacturers. For many years Patagonia also ran a ballyhooed catalog business. The catalog defied every marketing rule, yet was notably profitable. The company is rare in its intense dedication to environmental preservation. One percent of all sales is given to environmental groups yearly. The company is privately held, with only three stockholders—founder Yvon Chouinard, his wife, Malinda, and former Patagonia general manager Kris McDivitt Tompkins.

Early History

The company began quite haphazardly, as a way for its founder to make enough money to back his passion for rock climbing. Chouinard, of French-Canadian descent, was born in Maine in 1938. At the age of eight he moved with his family from Maine to Burbank, California. He had formerly attended a school where only French was spoken, and he spoke no English. He was thrust into a regular English language public school, where he floundered. Chouinard credits his early school experience with shaping him into a loner. Though he excelled at athletics, he was uncomfortable with team sports and did not like to perform in front of people. In high school he became fascinated with falconry, and learned to climb or rapel down cliffs to reach falcon nests. After a scary rapelling accident, he decided to learn to climb up the cliffs instead. He had a great natural talent for climbing, and even as a teenager made daunting solo ascents of rock faces that had not been climbed before. After high school, Chouinard attended a junior college and studied geography, but climbing was his vocation. The equipment used then for climbing was mostly imported from Europe. A basic piece of equipment all climbers use are called pitons— metal spikes that can be wedged into the rock to hold the rope. Before Chouinard, pitons were made out of malleable iron. They were soft enough that they could be easily fitted into cracks of irregular shape. Chouinard met a Swiss blacksmith who was also a dedicated rock climber, and who had made his own pitons out of old car axles. The tough, unmalleable steel alloy the blacksmith used seemed to Chouinard to make the pitons much safer. They would not bend or come out of the rock if a climber fell. So Chouinard learned blacksmithing from a book, and began making his own pitons out of chrome-molybdenum steel. He made them on a portable coal forge, and sold them from his car at various favorite rock climbing sites. In 1957 Chouinard borrowed a little over $800 from his parents and bought a forging die. He set himself up in a shed behind his parents’ house in Burbank and manufactured aluminum carabiners—D-ring shaped pieces of climbers’ harness. This backyard venture became Chouinard Equipment.

Chouinard Equipment’s first mail-order catalog came out in 1964. It was only a one-page list of equipment and prices, with advice not to expect speedy delivery during the climbing season. As demand for his climbing equipment grew, Chouinard moved his workshop to a shed near the beach in Ventura, California (because Chouinard was also fond of surfing), and he took on a partner, Thomas Frost. Frost was also an avid climber, and he had a degree in aeronautical engineering. Frost’s exper tise allowed the company to take on more complicated designs, and to make more pieces by machine. Sales in the first few years were only several thousand dollars, and Chouinard and his employees took off frequently to climb. But the company grew in spite of itself. The quality of Chouinard’s products was clearly better than that made in Europe (European manufacturers subsequently changed their designs and materials to match Chouinard’s), and even though the cost was substantially more, climbers were happy to pay. Sales doubled each year from 1966 to 1972, and the catalog became more impressive. The catalog was full of climbing instructions, discussions of the ethics of removing your pitons from the rock versus leaving them in, quotations from diverse sages, and in-depth descriptions of each piece of equipment. It resembled a book more than a commercial catalog, and the 1972 catalog was even reviewed in The American Alpine Journal book review section, because it was considered the finest literature available on climbing.

Expansion in the 1970s

Chouinard Equipment incorporated in 1973, changing its name to Great Pacific Iron Works. There were still only about a dozen employees, many of them climbers with little business background. Chouinard also enticed some fine craftsmen to join the company, bringing in artisans from Korea and Mexico. The catalog grew both in its distribution and complexity. The company printed 10,000 catalogs in 1972, and by 1976 it was distributing over 35,000. By 1977, sales stood at around $2 million. The company’s market share was enviable. In the 1970s, Great Pacific Iron Works had an estimated 80 percent share of the U.S. climbing equipment market and was an unchallenged leader.

The company was run extremely informally. Chouinard’s wife and nephew worked for the company, and many employees were attracted to Great Pacific Iron Works because of its location near a prime surfing beach. Chouinard himself was notorious for not being at his desk. He ran the company from afar while fly fishing in Idaho or climbing in Argentina. The ethos of the company was that it was selling equipment for outdoors enthusiasts, made by outdoors enthusiasts. Many of Chouinard’s ideas for new equipment and designs came from his actual needs while on his adventures, and he seemed to have an uncanny ability to rethink items others only made do with. His innovations ranged from comfort to life-saving safety, and the Great Pacific Iron Works catalog listed items from the non-sagging, cool mesh fishing vest to the Chouinard-Frost ice axe, which had revolutionized ice climbing.

The company really began to grow when the catalog began offering clothing as well as equipment. Chouinard’s focus had been on extremely durable clothing, such as shorts made from a heavy-duty corduroy imported from England. In the mid-1970s, Great Pacific began selling rugby shirts and shorts, also imported from England. They proved extremely popular, and other new clothing sold well, too. The catalog introduced jackets made from a synthetic fleece material. The synthetic, called pile, was offered as an improvement over wool, because it was lighter weight and quicker to dry. This was the first of the technologically advanced materials that became a hallmark of the company. In 1976 Chouinard consolidated the clothing part of his business into a separate company, named Patagonia after the remote region of Argentina. Clothing made from the new pile material soon accounted for more than half of all Patagonia’s sales. The climbing equipment business continued under the original name, Chouinard Equipment. This was sold in 1989, after insurance costs drove it into Chapter 11.

Mass Popularity in the 1980s

By the end of the 1970s, sales were several million dollars annually, but the company was still run quite casually. Chouinard hired a financial manager, Steve Peterson, in 1978. Peterson attempted to analyze the company’s finances by breaking it down into separate product lines, and trying to determine which items were responsible for how much profit. This kind of basic accounting had not been done before—money simply came and went. Peterson tried to bring other changes to the company, such as establishing a board of directors with people on it from larger companies. Chouinard, the founder, resisted these changes, and essentially was uninterested in the financial aspect of the business. Peterson was succeeded by another chief financial officer, Galliano Mondin, in 1986. Mondin struggled, like his predecessor, to bring order to the company’s finances. It was a difficult job to begin with, given the company’s uncorporate culture, and it was perhaps made more difficult since Patagonia was experiencing rocketing growth. Sales grew from the two or three million in the late 1970s to about $24 million in 1986. By 1988, sales had quadrupled, to $96 million. The bank that handled the company’s accounts, Security Pacific, apparently made do with Patagonia’s slapdash record-keeping because the company was clearly growing and profitable. Even founder Chouinard, ever aloof from finances, apparently became personally interested in managing the company’s growth a little more closely, on the theory that the more the company made, the more it could give away. Chouinard had instituted a tithing program, giving away one percent of sales to various environmental causes, and he was very interested in using his company to influence people’s treatment of the earth. Consequently, Chouinard hired a former ski resort president, Pat O’Donnell, as CEO in 1988, and O’Donnell hired a new CFO with experience in apparel, as well as a former Marshall Field executive to take over the catalog operation.

But the hiring did not stop there. As these three attempted to rein in the company, Chouinard hired more designers, and let them hire more designers, or hire their friends, and the founder continued to bring in people he had met surfing or elsewhere. Payroll and other costs burgeoned at the end of the 1980s, despite the advice of the new executives from more traditional business backgrounds. Many of the employees had uncommon dedication to the company, calling themselves “Patagoniacs,” and the company was clearly a great place for creative, individualistic people to work. Workers were encouraged to take off in the middle of the day to jog, surf, or play volleyball, and their input on the clothes and equipment was of utmost value.

The untraditional nature of Patagonia encouraged almost cultish admiration for the company and its products. The catalog was perhaps the best example of the mindset of the company, and the image the Patagonia brand projected. The catalog was full of text, written like a letter to a friend rather than descriptions of products. An essay on Flaubert was not out of place in the catalog. Photos of products were often supplied by customers, and in most cases it was not possible to see the clothing very clearly. The distinctive Patagonia label, with its mountain silhouette, would most certainly not be visible. The catalog advertised Patagonia’s toll-free numbers for rock climbing or kayaking advice. The number to call to order clothes, however, was not toll-free, and notoriously hard to find. An interview with the catalog’s marketing manager in a 1988 Inc. article has her huffing that the catalog’s copy would never imply that customers should buy something. The title of the Inc. article is aptly “The Anti-Marketers.” Almost every aspect of the catalog went against the grain of traditional marketing advice. And yet the Patagonia catalog was one of the most successful mail-order businesses in the country.

Patagonia’s popularity boomed beyond its earliest customer core of outdoor enthusiasts. By the early 1990s, many dedicated Patagonia fans were people who only wanted to look like outdoor adventurers. The clothes had a high reputation for quality, which was matched by high price. By the early 1990s, many manufacturers had successfully imitated Patagonia style and materials, and were selling comparable garments for much less. As leaner economic times sagged retail markets by 1991, Patagonia found itself with a huge domestic backlog and a bloated payroll. Though its international business was still growing, the U.S. market was stagnant. The company’s bank shortened its line of credit, and later required an immediate cash payment of $2.5 million on an earlier loan. In July 1991, the company had to resort to selling inventory below cost, and 20 percent of the work force was let go. The next catalog announced a new, pared-down stock. It was now not necessary to sell “volleyball shorts,” just shorts would do. Instead of five ski pant styles, customers were given a choice between only two. Overall, the number of items for sale dropped by 40 percent. The catalog distribution was also curtailed. Chouinard at first announced that he wanted to halt the catalog altogether, but it was eventually cut back to two mailings a year instead of four. Chouinard also announced in various interviews that he wanted to halt the company’s growth altogether. He was more interested in ecology than in business, and he did not want his company to get any bigger.

Readjustment in the Mid-1990s

Despite its founder’s dire talk, Patagonia continued to prosper. After the drastic measures taken in 1991, the company seemed under better control. Hiring was no longer indiscriminate, though the workers who were retained were still given some of the most generous benefits in the country, with a subsidized child care center adjoining the company cafeteria, and of course surfing breaks. The company opened more retail stores in the U.S. and abroad. In 1995 a Patagonia store opened in a fashionable district in Manhattan, alongside some of the city’s most trendy retailers. Sales in 1995 were actually the company’s best ever, close to $154 million. Though other retailers copied its products and even the style of its catalog, a cachet still clung to the Patagonia brand. And the company still innovated successfully, marketing for example clothing made from a fleece fabric derived from recycled soda bottles. In 1996 President Clinton praised the company for its extensive benefits for workers and their families, and the New York Times ran a profile of Patagonia lauding it for its high percentage (nearly 60 percent) of women in top-paying managerial positions. The company continues to give generously to environmental funds, and is a standout in the garment industry for monitoring contractors for labor law violations. Patagonia seems to have negotiated a tricky boundary, becoming broadly popular but without losing its core mission, which is not primarily to make money.