As The North Face battles Patagonia in outdoors market, it bets tackling climate change will pay off
- The North Face is associated with the great outdoors, but historically was not as transparent or vocal about environmental activism as its closest competitor Patagonia. That's changing.
- Climate is not the only issue where the outdoor apparel and equipment company is wading into politics: it was the first large brand to join the Stop the Hate for Profit Facebook ad boycott.
- Sales are suffering this year, but outdoor activities could emerge from the Covid-19 crisis as a major opportunity for increased business.
The sheep grazing lazily on a ranch in the northeastern-most corner of California probably don't know it, but they're endorsed by The North Face for their role in mitigating climate change. The outdoor apparel behemoth pays a 25% to 30% price premium for the merino wool the animals provide, then weaves it into beanies that sell for $62 — double the price of most of the brand's other hats.
The superiority of the wool, extra soft against your skin, goes beyond its feel: Its purveyors loll on landscapes where carbon-capturing practices are carried out, which aim to enhance the soil's ability to take in more carbon from its surroundings. Carbon farming is one effort environmentalists say can help move the needle on climate change. And support from big businesses, like The North Face — funneled through thousands of dollars per year it pays in price premiums, as well as a separate annual donation to a carbon farm fund — could help speed its widespread adoption.
"The North Face wasn't just trying to find a way to offset its emissions, it saw this as an opportunity to have its supply chain make a difference," says Rebecca Burgess, founder of Fibershed, the nonprofit that connected The North Face with the ranch. She said the ranch's efforts offset about 800 passenger-vehicle emissions per year with its carbon recapturing. In the corporate world, The North Face's backing of such sustainable agriculture exhibits "a very new way of thinking," Burgess said.
In other words, sustainability sells.
Supporting climate-beneficial wool gives The North Face a very specific story to tell customers and investors, who increasingly are hot to spend on environmentally-friendly things. And while The North Face, which is part of VF Corp., has a long legacy of preserving the cornerstone of its brand — the great outdoors — it hasn't been as transparent or vocal about this mission as has its closest competitor, Patagonia, the private southern California clothing company long known for environmental activism.
"One of the fastest-growing brands is Patagonia, and I think its emphasis on sustainability and its very vocal support of environmental issues has helped it," says Matt Powell, sports industry advisor for The NPD Group. "At some point sustainability is just going to be table stakes and won't be a differentiator, but right now the brands who tell the story the best are brands that are going to win."
Today Patagonia, a B Corp. that for more than 30 years has donated 1% of its annual sales to grassroots environmental groups, is winning. It holds the No. 1 spot in the $12 billion outdoor apparel market, according to NPD. The North Face, with its history of marketing more toward technical textile-minded athletes and global ubiquity, is No 2. It's a tight race, says Powell, split between fashion and clear messages about saving the planet: "It's a very fragmented market; the leaders each hold less than 10%."
To gain more market share, The North Face drastically has been scaling sustainability across all its operations, from small pockets in the back end of its supply chain (the sheep) to revamping its largest product line (ThermoBall down-alternative jackets), now made from 100% recycled polyester and insulation.
"The North Face hasn't led with enviro-stories as the primary reason for its being — we've been a bit more conservative — but we're not developing fabrics that don't have a sustainable point of view for the future," says Tim Bantle, global general manager of urban exploration and mountain lifestyle at The North Face. "We know as we position the business around purpose and commit deeply to sustainability in our products, we see the business and the consumers respond."
Climate is not the only political issue where The North Face — whose parent company was founded in 1899 — has become more willing to take a stance in an era where corporations are expected to be agents of social awareness and progress. It was the first large brand to announce it was joining the Stop the Hate for Profit campaign, a temporary boycott of Facebook advertising due to the social media company and its CEO Mark Zuckerberg's stance on regulating hate speech and misinformation on the platform. Patagonia announced a similar stance against Facebook ads later.
The North Face sales, Bantle said, did pick up with the brand's new sustainability efforts, but that was before Covid-19 hit the industry. With 5,300 employees worldwide, The North Face is one of the main revenue drivers for parent company VF Corp. It doesn't break out too much sales detail by brand, but the coronavirus has depressed sales significantly, albeit with some bright spots.
VF recently reported in its fiscal first quarter 2021 earnings (June-end) that The North Face revenue was down 45%. The company had been projecting the brand to see as much as a 9% quarterly sales uptick before the pandemic began. While the digital business for the outdoors brand grew by near-300% in the quarter, and equipment sales — led by tents and sleeping bags — boomed as consumers sought vacations closer to home and more socially distanced, store closures and traditional direct-to-consumer sales swooned. The North Face expects fiscal Q2 to come in at a decline of less than 30%, but it is not issuing formal financial guidance during the crisis.
Of course, Covid-19 has changed things, at least in the short term, for all retailers. The North Face had to close many of its branded stores across the world due to lockdowns, as did retail partners, but many are now reopened.
Longer-term, social distancing and concerns about air travel could contribute to greater interest in outdoor activities closer to home and lead to a sales opportunity for gear companies. "Consumers will be focused on healthy living and social distancing," NPD's Powell said. "Recreating outdoors satisfies both these needs."
The North Face responded to the coronavirus pandemic by creating a fund for workers in the outdoors sector, such as mountain guides. And it donated supplies to health-care and other frontline workers. The company has a higher calling than most when it comes to preserving the planet, but like many of the world's consumer goods companies, its progression plays to the bigger picture of what today's consumers want. According to Nielsen, 73% of U.S. consumers say they would change their consumption habits to reduce their impact on the environment. And more than a third of millennials and younger Gen Z customers — making up a huge percentage of buying power over the coming decades — say they put an effort into finding clothes that are labeled as environmentally-friendly, according to a study from Cotton Inc.
"Our surveys show that especially with the younger customers, they're willing to pay more for sustainable products — it's an important story," Powell said.
VF Corp. CEO Steve Rendle said on the July 31 earnings call with analysts that participation in outdoor activities and consumer interest in outdoor exploration is increasing. And health and wellness "and the pursuit of a more active lifestyle is accelerating."
He said these are likely to be a "mainstay in the post-Covid world" and that could make its more vocal climate position even more timely.
"There's an elevated focus on environmental sustainability that will lead to a greater commitment to combating global climate change," Rendle said on the call. "And there are growing expectations for purpose-driven actions from brands to care for their local communities and address issues relevant to their consumers. But these changes didn't start because of Covid. ... However, there is no doubt that recent events will serve to accelerate these consumer behaviors, leading to a dramatic reorganization of the marketplace," he said.
Wall Street's preference for companies investing in mitigating climate change is shifting, too. In his closely watched annual letter released in January, BlackRock CEO Larry Fink, who helms the world's largest money manager, advocated for sustainable-focused investing strategies. BlackRock plans to increase its sustainably-managed assets to more than $1 trillion over the next decade, while cutting some of its most controversial investments, at least within its actively managed funds — thermal coal companies.
"A lot of other portfolio managers are coming out with that same approach that sustainability risk is a financial risk," says Jessie Curry, manager of sustainable business innovation at the Outdoor Industry Association. "We see companies starting to acknowledge this internally with their shareholders and within their leadership."
Assets in sustainable investment funds recently surpassed the $1 trillion mark for the first time.
Big brands are also collaborating. Along with Patagonia, REI and L.L. Bean, The North Face recently signed on to the OIA's Climate Action Corps, a group effort by outdoor brands to reduce the industry's carbon footprint. Part of this requires members to report greenhouse gas emissions, which VF Corp. has been doing for the past few years. Its most recent sustainability report, released in December, included a blueprint for how it will reduce emissions across its multiple brands, which include Timberland, Vans and JanSport.
The North Face will drive much of this change for VF by concentrating on its supply chain, where material production accounts for 60% to 80% of its products' environmental footprint. It's starting with its synthetic materials, where substituting one man-made fiber for another hasn't impacted clothing performance. In fall 2018, the company rolled out a revamp of its largest product line, ThermoBall. The quilted jackets are now made entirely from recycled materials.
Because no new raw resources are needed to make them, the shift "reduced the line's carbon intensity by 25% right out of the gate," Bantle said, noting that depending on how the jacket is made and where, the carbon footprint can be cut by as much as 75%. "The conversion is one of many that we'll be doing over the next two to three years as we radically increase the type of recycled content across our product lines," he said.
The brand is also one of the few using greener chemistry — no perfluorinated compounds (PFCs) — to coat the outside of its new Futurelight waterproof jackets, part of a line that uses new nanotechnology to enhance breathability. While the upper end of Futurelight jackets, snow bibs and pants — topping out at $750 for a jacket, $650 for snow pants — are aimed at serious athletes, its underlying fabric technology can be applied to other products The North Face wants to be waterproof, including running shoes and tents.
In the recent earnings, the company referred to the "strength" in FutureLight sales despite weakness in broader business conditions. VF Corp. CFO Scott Roe said consumers are now starting to look beyond the first Covid era purchases, tents and sleeping bags, as they increase outdoors spending, including on footwear and outdoor apparel.
"And I think that's where the innovation commitment that we have for each of our brands, most notably The North Face Futurelight continues to expand into more styles," Roe said.
The CFO noted that a price increase on items was not a negative when referring to its Dryzzle Futurelight jacket. "What was historically a $199 price point moved to $229, and we saw exceptional sell-through, specifically with women on that style, giving us confidence."
Bigger impacts on The North Face's supply chain will come from VF's new Denver headquarters' global innovation center, where a brain trust of PhDs, product designers, materials and manufacturing engineers, biomechanical specialists, people with strong sustainability backgrounds and a number of other subspecialties are working on product development opportunities that The North Face has identified with its core athlete constituents. The projects are long range, five or more years out — it's where Futurelight came from — and they're tackling the materials-level innovation that will allow VF Corp. to meet its conservation goals.
The North Face is also doubling down on design efforts to keep its goods in service longer. In 2018, the brand launched a pilot program with the Renewal Workshop in Oregon, a firm that helps clients repair and recreate customers' old or defective frocks. Used pieces of The North Face clothing were remade, resold and kept out of landfills, but a bigger epiphany hit in seeing the designers work with worn-out fabrics and zippers — they were inspired to think about creating more durable things. Launched earlier this year, The North Face's Renewed Design Residency sends a rotating group of designers to the workshop a couple times a year, where they learn to design for more than just aesthetics.
"Our designers are interested in circularity," says Amy Roberts, senior director of communications and corporate social responsibility for The North Face. "We're offering them that expertise in learning how to design, thinking about the life of a garment, keeping it in someone's closet longer."
If nothing else, smaller-scale projects like the Residency and the sourcing of climate-beneficial wool — The North Face's Cali Wool line makes up a tiny percentage of product, aimed at a natural fiber-discriminating customer — will help the brand create clear conservation-based talking points with a wide range of customers, something that the apparel industry at large has failed to do.
"Claims of sustainability can relate to anything from individual lighthouse projects ... to fully-fledged, integrated sustainability strategies — it's no surprise that consumers lack a clear picture of what sustainable fashion is all about," according to the 2019 Apparel CPO Survey from McKinsey & Co., which conducted street interviews about the topic with 16- to 25-year-olds in four big European cities. "Young consumers are unsure about what sustainability means or how to identify which brands or retailers are more sustainable than others," said the report.
With its deep pockets and influential perch at the top of its industry, The North Face thinks it still has the opportunity to lead on this front. "There's a rising awareness around the types of product choices we make across virtually all demographics. In some ways, businesses are just catching up to the latent emotional needs and values of different customers," Bantle said. "We see this poetry occur when we make really good decisions, and there's a pretty well-informed and interested audience."
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