Patagonia lays off staff and launches a 'business transformation' to set it up for the next 50 years

• Patagonia laid off 41 members of staff on Monday as part of a major business transformation.
• It is the second round of job cuts this year for the sustainable outdoors brand.
• The changes announced on Monday were "only the first step," CEO Ryan Gellert wrote in an internal email.

Patagonia laid off 41 members of staff on Monday and announced a major business transformation aimed at preparing the company for the next 50 years.

It marks the second round of layoffs for the outdoor apparel brand this year after 90 customer services staff were told to relocate or leave the company in June.

"While we remain profitable, we are vulnerable to the same economic headwinds many companies in our industry are facing," CEO Ryan Gellert wrote in a LinkedIn post announcing the changes on Monday.

"Meeting our own standards requires embracing change and focus, and this week begins some major internal changes that are critical for our success in the near term and foundationally important for our next 50 years," he said.

On Monday morning, Gellert also sent an internal email to staff, which Business Insider has seen.

The CEO told staff that the layoffs were "a sad and difficult decision" but were part of the company's transformation for the "next chapter."

In the internal email, Gellert did not specify which teams had been affected by Monday's layoffs but ruled out cuts to the customer experience (CX), retail, warehouse, and international teams. Those laid off were given 22 weeks of pay, increasing with tenure and support to cover health insurance costs for a year.

Two employees that BI spoke to on condition of anonymity said they were still processing the changes and were unsure what this meant.

One of the employees said they believed members of the environmental, communications, and marketing teams had been laid off, which indicated the company was undergoing "strategic" changes.

"The people that are on these teams, a lot of them have been at Patagonia a long time and have believed in this company," the worker said. "It's hard and scary when you have to let those folks go."

Though they were not affected on Monday, retail, CX, and distribution workers who had been talking in chat groups were "nervous" about what would happen in the future, the employee added.

A new structure

The layoffs are just part of a wider company restructuring intended to transform the business and ensure Patagonia's future success.

"Roles across our Ventura and Reno offices are changing. New roles are being created, some are being eliminated and many are evolving," Gellert told staff in the internal email.

The company outlined three key areas of focus for the immediate future: creating higher-quality products, enhancing storytelling, and generating more impact through its grassroots activism and responsible business practices.

Under the new structure, teams were being created and others merged to meet those goals. Gellert told staff to expect more details over the coming days, weeks, and months.

Financial difficulties

On Monday, employees were also provided with an internal FAQ outlining the reasons behind the restructuring, which BI has seen a copy of.

In the document, Patagonia said the changes were not a purely financial decision but acknowledged that the company is "not as profitable as we could be and can't continue to absorb the impact of market challenges."

The brand is not alone in facing challenges around falling sales. US consumers have tapered their spending habits after a post-pandemic shopping boom, and retailers have been struggling across the board.

The next 90 days would be a "critical transition period" that would help Patagonia reduce costs and evolve to stay competitive in "today's dynamic marketplace," the FAQ said.

Lessons learned

Patagonia is well known for its sustainability credentials.

However, it is equally committed to the concept of "stakeholder capitalism" — ensuring employee welfare and rejecting traditional corporate attitudes that view workers as cogs in the machine.

In his book "Let My People Go Surfing," Patagonia's founder Yvon Chouinard called a round of job cuts in 1991 "the single darkest day in the company's history."

"Layoffs are not a pleasant prospect for any company, but for us, the idea was almost unthinkable," Chouinard said.

Although layoffs are rare at the company, in June, Patagonia drew criticism from employees when it gave 90 CX workers the choice between relocating or leaving their jobs. Only four chose to relocate, the company confirmed.

Several employees who spoke to BI about the relocation policy in June said the way it had been handled had worsened the blow. They cited a lack of transparency, workers being shut out of laptops that day, and the lack of time given to make a major life decision.

One CX employee told BI that it was sad to see the brand "fall to the Walmart level. "

This time around, it appears Patagonia has listened to the criticism. In addition to Gellert's email and the FAQ, the company also issued a note titled "Lessons from Layoffs," written by Patagonia's Director of Philosophy, Vincent Stanley.

Stanley further explained the reasoning behind Patagonia's recent layoffs, explaining that the June job cuts had been intended to reduce overstaffing, which had spiked during COVID.

"The combination of payroll swelling with decreased sales has put considerable pressure on the balance sheet," Stanley wrote.

One Patagonia employee said that Stanley's note "was well done."

"Nice that they took the feedback from the last round of layoffs to heart. Depressing that they got to utilize it so soon," a Patagonia employee told BI.

Are you a worker at Patagonia? Contact this reporter in confidence at pthompson@businessinsider.com