Patagonia

Today

Patagonia has about ~$1B in annual sales and ~3,000 employees.

It is one of the larger, though not the largest, outdoor apparel companies in the world.

In 2022, founder Yvon Chouinard and his family transferred their ownership of the company (valued at $3B at the time) to two entities: the Patagonia Purpose Trust which the Chouinards use to control the company, and the non-profit Holdfast Collective which receives all profits and either reinvests these or donates them to environmental causes.

As Chouinard has said, “The earth is our only shareholder.”

How It Started

In 1957, Yvon Chouinard (then primarily a mountain climber) began to make steel climbing pitons out of his parents’ backyard, selling them for $1.50 each. In 1965, he partnered with aeronautical engineer Tom Frost to start Chouinard equipment, which by 1970 had become the largest supplier of climbing gear in the U.S.

The only problem was that the steel pitons damaged rock faces, and as the popularity of climbing grew, this damage began to mount. Chouinard phased out the pitons for aluminium chocks in 1972, and started the Patagonia clothing company the following year.

Then called Great Pacific Iron Works, the company’s sales grew rapidly in the 1980s, as the company pioneered innovations in outerwear like an expanded color palette (from the traditional Army green), and the modern layering system (fleece and Capilene base layers).

But, when Patagonia was forced to lay off 120 people (20%) in the 1991 downturn, Chouinard realized he had drifted, chasing top-line growth while, as he said, “Everything we make pollutes.”

Since that crisis, Chouinard has resolved to use Patagonia as an advocate for the planet. While he refused to call the company “sustainable” (only “responsible”), Patagonia has willingly paid for these values, becoming one of the first companies to switch to organic cotton in 1996, founding the 1% for the Planet movement in 2002, running anti-consumption marketing like its “Don’t buy this jacket” campaign, and donating tens of millions of dollars to environmental campaigns.

So, when he essentially opted out of his wealth in the 2022 trust conversion, the decision had precedent.

Product Structure

While Patagonia’s products do, on balance, nourish humans by helping them connect to the earth, they are also purchases that occur within a reactive consumer economy, especially when Patagonia clothing is over-bought for status reasons.

Part of Patagonia’s product challenge is that, at the level of the product itself, there is little that distinguishes the experience from other outerwear brands that may or may not be managed for maximum shareholder profit.

That said, the fact that Patagonia essentially packages an environmental benefit as an indirect feature of its product (beyond mere “sustainability” marketing) is a novel experiment.

Governance & Financial Structure

The current Patagonia ownership structure is unlike any other large corporation we’re aware of. It has two key parts:

1. Patagonia Purpose Trust: Owns 2% of the company economically, and controls 100% of its voting stock. The beneficiary of the trust is not a person, but a cause, so all trustees must act in service of the earth.
2. Holdfast Collective: Owns 98% of the company economically. All profits are either reinvested in the company, or donated to environmental causes. Intentionally structured as a 501(c)(4) so that it can engage in political advocacy.

Because of the 501(c)(4), the Chouinards receive no tax deduction, however they did avoid a ~$700M potential tax bill that would have come from selling the company outright.

Looking Forward

Patagonia is truly a fascinating case: a bona-fide billionaire gave away almost all of his wealth, while ensuring the company he created works for the benefit of the earth in perpetuity.

Time will tell how the arrangement holds, but the Chouinards have at least made it difficult to unwind.