Arc’Teryx: consistently producting THE cutting edge activewear and gear
Actually listening to what your customers want and investing in the R&D to make that happen can lead to continued long term financial success.
Mission: build the finest products possible
Arc’Teryx is a very well-run company. Their operating and business models are aligned. Their obsessive, cutting edge R&D process is applied to all market segments to make sure they are meeting customer aspirations and needs. Their mission is “to build the finest products possible by merging unrivaled designs with the best quality, highest performing materials and assembling them in the most innovative and most durable manner for the intended use”.
R&D: key to the business and operating strategies
COMPANY HISTORY
Arc’Teryx began in 1989 by making high-end climbing harnesses and has grown to become the market leader in pioneering material and process technologies used in their shell jackets, base layers, backpacks, harnesses, footwear and, most recently, fashionable streetwear. The first technological advancement was eliminating the climbing harness buckles to avoid webbing-strap slippage. Then, creation of form-fitting foam harness enhanced safety and comfort. This new foam led them tangentially into backpack pads, straps and belts. From there, they became the go-to R&D partner for key textile innovators such as W.L. Gore (Gore-Tex®) and Malden Mills (Polartec®). Working with the Gore team, Arc’Teryx invented fusing (instead of sewing) seams on Gore-Tex® jackets. The process avoided needle puncture so that seams no longer leaked. Arc’Teryx’s testing obsession earned them the trust of these leading textile partners. R&D remains at the core of their business and operating strategies. A new segment designs gear jointly with the US military, complementing their internally developed LEAF line sold to the Army Special Forces, US Marines, and Navy Seals.
OPERATING MODEL
The care and concern for R&D flows through to product development, sourcing, human resources, sales planning, marketing, IT and customer service. Sales growth has necessitated global manufacturing partners. Factories are carefully screened. It takes an average of 4 years for a commitment to a new supplier. Their production and quality staffs fly around the world teaching suppliers proprietary handling, bonding, sewing and construction.
New product design input comes from material and construction engineers as well as traditional designers. Small pieces of a jacket may have 11 different folds just to make sure the jacket is absolutely waterproof. Products are thoroughly tested, tweaked, and continuously re-tested in all weather conditions before they are released as final designs. Employees ARE customers. Employee and professional athlete product testing is one of the most critical parts of the R&D process. As the Amer head of apparel, Vincent Wauters, describes: “when I came here I saw that people have that special ‘fire’ in their eyes and I still believe it is the people that drive the success of the business. Each product has a ‘family’ which takes care of the product from the very beginning: the designer, the pattern maker and the sewer. We also do the product testing ourselves, and produce the most premium products here in Vancouver”. The process is very expensive but maintains mission focus. Good luck getting anyone to answer the phone on a powder day.
Although Arc’Teryx was acquired by the Adidas-owned Salomon Group in 2001 and Amer Sports in 2005, operating independence has persisted. It’s surprising that they were not forced to change their operating model. 30% annual growth keeps parent organizations at bay. This allowed them to keep their people, product development, sourcing, human resources, sales planning, marketing, IT and customer service separate.
FUTURE BUSINESS PLAN
Most recently, Arc’Teryx is trying to serve their active customer through more fashionable yet still functional streetwear and footwear. Says company president Tyler Jordan, “we try to create product with some inherent truth in terms of the design or the function, but at a certain point, I became aware that a lot of people were buying Arc’teryx products without much intention of wearing them in the back country […] wouldn’t it be even better if we focused on what they are actually going to use it for?” This led to a high-end menswear line Veilance, Arc’Teryx shoes and an everyday line called 24. The team never rushes new products but waits for perfection before launching. Customers understand and expect this. The company continues investing in R&D to drive international and e commerce sales. Wauters claims “growth comes from consumer centric product excellence, in store excellence, distribution coverage expansion and investing in brand awareness”. Plans are to grow organically by responding to changing customer needs. They stand by the mentality that it’s not a great design until the user says it is.
Sources:
http://www.arcteryx.com/Home.aspx?language=EN
https://www.flickr.com/photos/mkwilliams/sets/72157622070413952
http://www.amersports.com/news/2014/01/29/arc-teryx-growing-with-confidence
http://www.epictv.com/brand/arcteryx/media/603223
http://www.whiteblaze.net/forum/showthread.php/113918-Arc-teryx-Customer-Service
Plus personal experience working with Arc’Teryx as a manufacturer of soft goods
Ali – I agree this is a great business. I wrote about Patagonia, which I think has done an equally good job but by focusing on their value proposition around sustainability and quality vs. R&D and technology in active wear. I think the question for both of these businesses, along with Canada Goose (which is one of BainCap’s portfolio companies) is – what happens when shareholders, parent companies, etc. ask for continued growth beyond the core business model and brand? Will Patagonia’s casual clothing provide growth? Will Arcteryx need to move beyond tech-based products? Is there a ceiling to what these business can do in terms of growth before betraying their original mission and value proposition? When I was in high school North Face represented the ideal technology and value proposition for cold weather gear, but today I feel the brand is diluted – how will these other players continue to differentiate and maintain their core customers is the key question for me.