Outside Business Journal

Has REI Grown Too Large?

REI’s ever-expanding ambitions have earned it plenty of fans—and critics—as it’s grown to dominate the outdoor industry. But many feel the retail giant has been made vulnerable by its own hubris. Now that the pandemic has rocked its fortunes, we’re faced with an uncomfortable question: what if the $3 billion co-op isn’t too big to fail?


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In 1930s Seattle, ice axes, the kind you would climb Rainier with, were hard to come by, and expensive. Early ski shops sold knockoffs for $370 in today’s money. So Lloyd and Mary Anderson pooled some cash with a group of climbing friends and used that collective buying power to source finer Austrian axes for an inflation-adjusted $65. There were no retail middlemen. Just like a local farm co-op today, those first co-op members were buying goods at just above wholesale.

As origin stories go, the ice axe has staying power. Even after many decades of REI selling all manner of recreation equipment for pretty much the same retail price as the rest of the outdoor industry, the mystique of the co-op persists. Consumers see value in it.

Today, thanks in large part to its 19 million members, REI is a $3 billion business with 168 stores. It has a similarly grand mission, built around outdoor inclusivity, the protection of public lands, fair treatment of employees, and, increasingly, vendor accountability and sustainability. All of which earn REI well-deserved kudos.

There’s fallout when a business cloaks itself in its own mythology, however. If REI’s climbing-obsessed founders were around today and found themselves in need of an ice axe, they almost certainly wouldn’t walk into an REI to buy one. The box-store feel just doesn’t resonate with core enthusiasts. And besides, REI long ago realized that large-scale success hinged not on serving the most passionate, but rather the most numerous—the masses of outdoor dabblers.

Ironically, that strategy has chipped away at the image behind the ice axe story. Despite REI’s 2019 store opening in North Conway, New Hampshire, local heritage climbing and outdoor shop IME (International Mountain Equipment) is confident that its business will survive as it has since 1974. IME’s future rests in part with the idea that no self-respecting ice climber would buy ice tools from REI. If REI stays in its lane servicing tourists and newbies with its “experiential” shop, so the theory goes, IME will be fine. Other specialty shops across the country hope for the same.

It’s as welcoming as a theme park, but as a business, as a voice, as a consumer experience, as a portal to the outdoors, as a vehicle for the industry to peddle its wares, REI is milquetoast. It doesn’t sell much in the way of high-end gear to elite adventurers, nor, to its credit, does it sell much in the way of shoddy detritus to the bargain-basement crowd. REI does a lot of public good, but never at the risk of offending the public. The shops’ “Green Vests” are often indefatigably friendly, but true expertise—the kind that frequently comes along with sharp-edged personalities—is just as often scarce. If the outdoor industry were a triangle, REI would own the middle 60 percent—as an executive confirmed with me. If REI were a square, it would be blue—the skier’s shape and shade of terminal intermediacy.

In normal times, that warm and fuzzy positioning is either spot-on or total blasphemy, depending on your worldview as a consumer, competitor, vendor, or activist. But these aren’t normal times. The country is suffering through the largest public health crisis and economic threat in a century. How REI weathers the day—and adapts for the future—matters. REI is the single biggest force in the outdoor industry, with the economic health of a thousand vendors and 13,000 REI employees depending on its vigor. As the fallout from 2020 continues to be calculated, it’s high time to reflect on the company and ponder what it is and what it will become.

This is especially true now, as mutterings of REI’s decline— among both vendors and independent retailers—coincide with a ramp-up in competition. Amazon thrives when people stay at home; smaller online outlets have been booming of late; and in December, Dick’s Sporting Goods announced that it’s launching a chain of outdoor shops. And while the rumors of REI’s 2020 struggles are almost certainly overblown, what is indisputable is that the times will fundamentally shift what, when, where, and how consumers buy. As vibrant as REI’s business was in 2019, a record breaker for the company, it isn’t above this societal inflection point. Unlike in banking or the automotive industry, in retail, you’re never too big to fail.

Which begs another question. Is REI simply too big for its britches? Meaning, has the company’s hubris alienated the outdoor industry from which it sprung, and put its future at risk?

Much of what follows consists of the distilled thoughts and comments of REI vendors, current employees, former executives, and outdoor industry observers. Though outdoor industry people are usually outspoken, the desire to protect their businesses and their employees means most of the sources I interviewed have chosen to remain anonymous.

The story includes subjective criticism—from those sources, as well as my own observations after 30 combined years in the outdoor industry, early on as a ski shop manager and buyer, and later as a journalist. What you take from this story is likewise necessarily subjective. If you exclusively believe that REI only soft-peddles the outdoors, pushes too much low-quality product, demands too many concessions from its vendors, and avoids taking the hard positions of a Patagonia to protect revenues, you might need to check your bias. But if you think REI is the simple, benevolent co-op of yesteryear, that any critiques can be waved off as elitism, and that every move REI makes is “for the members” (a common refrain from corporate), you might need to pull the blinders off. The truth is never at the poles.

The Snowball Effect

It’s easy to lob shots like “milquetoast” at REI. By outdoor standards it’s a mammoth corporation in an industry that harbors a powerful specialty retail bias. But REI’s positioning wasn’t always so vanilla. Until at least the 1980s, maybe longer in some markets, REI was vital to core climbers and backpackers. Credit that relevancy to the first store’s proximity to Mount Rainier. The volcano’s glaciated flanks demand more skill and gear than an Appalachian grunt or a Fourteener scramble. The crevasses require ropes. The ice necessitates crampons; the sheer grade, ice axes; the vertical gain, overnight camping. Seattle became the hub of U.S. mountaineering, with REI—and specifically store manager Jim Whittaker, the first American to summit Everest—outfitting generations of alpinists looking to advance their skills on Rainier and the other Ring of Fire summits.

REI’s growth was slow for 40 years. And, says Bob Woodward, the retired founder of OBJ, when the company decided to open new stores it had an unwritten rule about not moving into areas already well-serviced by outdoor shops. Woodward was running the Sierra Designs retail store in Berkeley in 1975 when he heard that REI was coming to town to open its second store. He reached out to REI’s then-executive Wally Smith (later CEO) and happily showed him around Berkeley. Later, Woodward made a handout map of the area so his customers could price-shop REI and other stores. The outfitters would send each other customers. “It was the right kind of competition,” said Woodward, whose Sierra Designs store had an intentionally narrow selection of products. “REI brought more shoppers to the area. Our business grew.” Of course, that policy of giving established specialty shops a wide berth changed. When REI moved to Boulder, Colorado, in 2002, Gary Neptune of Neptune Mountaineering counted four specialty shops that didn’t survive.

Historically, chain retailers are like snowballs: They grow slowly and then all at once, with growth begetting growth. REI started adding new stores in the mid-’70s, and by the ’90s, it ran 26 locations on $260 million in revenue. By 2010 it was 114 stores and $1.6 billion. In the decade since, revenue doubled again, to $3.12 billion with 168 stores. Such growth is in line with the best performers in the outdoor space, like The North Face’s parent company VF Corp., but it’s highly atypical in chain retail today. For perspective, Walmart, the world’s strongest retailer, only grew by 7.8 percent (total revenue) from 2015 through 2019. In ten years, REI’s revenue essentially doubled, with near 100 percent growth.

Still, size alone is not what critics mean when they say REI is too big. To them “too big” means the co-op has lost itself. That it no longer cares about the family-run shops and employees it might displace when it moves to a town like North Conway, New Hampshire, or Appleton, Wisconsin. Growth became a goal in itself. Residents of Santa Fe, New Mexico, witnessed this firsthand when REI arrived in 2008 and the much-loved Sangre de Cristo Mountain Works folded within three years. To many of the people I interviewed, that dynamic is REI’s original sin.

There are other criticisms: By the early aughts, despite its history, REI no longer even pretended to appeal to the core users of the prior millennium. It was then that the climbing gear that had always fronted stores was moved to the back and REI’s discount bikes took their place. In the years since, bikes have given way to apparel and the camping tchotchkes of the comfort class.

Those are just some of the subjective gripes. But what critics of REI’s aggressive growth might not fully understand is how vital such constant expansion is to the chain retail model. Many sustainable small businesses can get by with total revenue growth at exactly the break-even point. Meaning, the new revenue covers rising costs like payroll, rent, and utilities. But with chain retail, those costs are compounded and added to corporate overhead and myriad variables (“known unknowns” in Rumsfeldian), making it incredibly risky to run the knife that close to the bone. In other words, retail is hard, and bigger isn’t always better. One-fifth of all U.S. department stores have closed since 2018.

So can the co-op model sustain REI’s growth? It certainly can’t hurt. In addition to the cash they bring in at sign-up, membership helps lock in customers just like today’s multi-resort season passes lock in skiers. And as co-ops go, REI is unusual because of its footprint. The company is the size of a big corporation, but it’s governed like that local farm share. Co-op members aren’t the equivalent of stockholders or even traditional shareholders. REI is only obligated to pay dividends (points that can be used for future purchases or redeemed for cash) based entirely on how much each member buys over the course of a calendar year. Membership essentially works out to be a 10-percent discount. Because REI’s board of directors is pre-selected by its Nominating and Governance Committee, and then those curated picks are voted on by members, REI co-op members don’t have much influence on the business other than how they buy. New memberships—you only pay once for a lifetime—still give REI a nice cash infusion each year, though. In 2019 a million new members signed on to the tune of $20 million. But it’s the company structure that matters. The co-op is like a for-profit nonprofit: The executives do quite well—in 2015, then-CEO Jerry Stritzke’s total compensation was $3.58 million— and the benefits are great company-wide, but then the extra cash goes back into the business or to worthy causes.

With no stockholders, no multigenerational family nepotism, and no traditional investors to fatten, the co-op is freer than most businesses to invest in growth. As a former REI executive who didn’t want to be identified told me, as long as there’s cash to cover dividends and rising expenses with enough left over to perform some substantial public good (the co-op donated $8.1 million to outdoorsy nonprofits in 2019), the institution is happy.

But even with the benefits of the co-op model, the cushion is small. In 2019, after allocating $210 million in dividends, REI only netted $21 million on $3.12 billion in revenue. For most businesses that would be a startlingly bad return. In 2019, Columbia Sportswear netted approximately $300 million, or 10 percent, on roughly $3 billion in revenue. Apple’s 2019 net was 20 percent. Even though 2019 was quite good for REI, net profits were just under 0.7 percent. That tiny margin speaks to a few things: One, it makes the case that the knife actually is at the bone. Two, it reveals just how vital growth—because it brings more members and more revenue—is to REI’s sustainability. And three, it proves the former executive’s case that REI can be “happy” with a very small net.

In March of 2020, there were doubts that REI, like many retailers, would end the year happy.

REI founders Mary and Lloyd Anderson, 1946. (Photo: Mohai/Seattle Post-Intelligencer Collection/2000. (Photo: Courtesy)

Responding to a Pandemic

Few retailers will come through the pandemic unscathed, but REI has suffered setbacks that caused observers to question the company’s long-term health. First, there was the lockdown, which, because REI sells its in-store inventory online, meant that for a time the company couldn’t physically access that store inventory to send to online shoppers. Then came the news that the glamorous corporate campus that CEO Eric Artz once said “embodies [REI’s] co-op values” was up for sale. When stores reopened, customers took the atypically sparse shelves as a sign of imminent peril. The widely circulated Early Payment Program also unsettled many. In it, REI offered vendors faster payment in exchange for a discount on their invoices, a naked ploy to reduce costs. And then, in fall 2020, the marketing marvel that was #OptOutside’s Black Friday closure was revealed to be more of a boon to REI’s corporate office workers, and more of a shiv to store employees. According to an article in Business Insider, REI adjusts part-timer hours for store employees in such a way that taking advantage of a paid holiday on Black Friday means the employee then forfeits holiday pay on Thanksgiving Day. Employees and former employees I interviewed backed this up. “The cutoff was 24 hours during a holiday week,” an employee told me. “They wouldn’t let a lot of people go a minute over 24 hours.” For a time it looked like an employee revolt was brewing. A Facebook group called REI Employees for Real Change had been vocal about its concerns on pay and how the #OptOutside campaign actually worked. All this news and more gave the appearance that REI was spiraling.

“REI really blew it early on with Covid,” an active REI vendor told me on the condition of anonymity. I’ve condensed the vendor’s thoughts here with permission: “The first thing they did was make a show of announcing that they were paying all their employees to go home for a month or more and not work. But at the same time they quietly came to their vendors and extended their terms [accounts payable]. By sitting on the vendors’ money, it gave the impression that the vendors were paying REI’s employees. The delayed payments came at the same time the vendors were making their own tough decisions about how to scale back hours without losing good people. REI closed stores in mid-March and didn’t open them until the Fourth of July. Then they made a truly bizarre decision. Someone thought it would be a good idea to largely strip the stores of product so customers could socially distance more easily. It looked like a going-out-of-business sale. They reversed course quickly, but it was disconcerting. Later on, they ended up furloughing many of their employees long term. Nearly the entire outdoor industry [vendors] is dependent on REI. In April, everybody I talked to in the industry was like, ‘Oh, fuck. Will REI hold on?’”

We won’t see the financials until spring, so we won’t be able to fully gauge what type of bite the lockdown and instant recession took out of REI. Other than admitting that its travel and casual apparel categories are down, the company will only say that since they reforecasted in March—and several more times in the months since—that they’ve consistently beaten those recalibrated marks. But there’s reason to believe the economic impact was not as severe as it could have been.

Coming off its best year ever in 2019, the company wasn’t starved of cash. Plus, the sale of the unoccupied corporate headquarters infused REI with $390 million, nearly doubling its office investment by some estimates. Another vendor told me that REI was quick to regain control of its inventory when the stores reopened. (REI backs this up.) The company’s widespread scaling back of orders and subsequently sparse shelves reflected not a crisis, but a preemptive measure to keep cash on hand to ride out uncertain times. And the company was fast to reorder where it could. A vendor who saw 25 percent of its REI order cut said the company had backfilled, and now the vendor expected to be down only 12 percent by year end. And by no means was REI alone in cutting its orders early on. Keeping cash on hand was a move replicated by households and businesses globally.

As for the pushback on employee relations, chain-wide raises for store employees announced on December 3 went a long way toward diffusing the situation. And finally, of course, the fact that outdoor recreation was some of the only recreation left to the world certainly helped drive demand.

“I can’t speak specifically to the year end,” said REI’s VP of product, Chris Speyer. “But what I can say is that we have exceeded any expectations we had for where we would end the year. In March we approached the pandemic with a sense of pragmatism. It was a great unknown to all of us. But the business is in a healthy place. That’s not to say we haven’t seen categories like lifestyle and travel suffering. They have not performed as well. We anticipated that. But we’ve been really lucky because we had such a healthy infrastructure. Digital has grown significantly this year. And we’ve seen customers coming back to the stores as well. We’ve also learned a lot. Curbside pickup is an example of how digital and the stores can work together even more than they do.”

To be fair: The disputes with vendors and employees aren’t unusual for a company the size of REI. A former REI executive told me that vendor negotiations in the outdoor world look like child’s play compared to retail at large. Many vendors gladly snatched up the early payment deal, seeing prompt payment as an easy trade for the half-percent discounts. And even a slightly disgruntled employee I spoke with—the worker was upset about #OptOutside, feeling the campaign’s marketing image didn’t match reality—freely admitted that REI’s store workers are treated better than most retail salespeople. At what other chain retailer, the Green Vest asked rhetorically, could a person take the summer off to travel and not lose benefits—and have a promise of a job upon return? REI won’t give a specific number, but since the stores reopened in July, REI says it’s brought “the majority of the employees back from furlough.”

Co-opting the Outdoors

Regardless of how REI weathers the pandemic, critics will continue to say the company’s biggest liability is hubris. That it’s the Icarus of the outdoor industry. Typically this critique is tied to the company’s house-branded products—one of the primary ways, besides leaning on its vendors for discounts, that REI is able to manipulate its margins. Take backpacks, for example. REI sells packs from top brands, but like Whole Foods with cheese doodles, it also competes with those brands with its own line of thinly veiled knockoffs. The products might feature inferior stitching, flimsier fabrics, or a slightly more awkward fit—as an independent pack reviewer told me—but they often allow REI to offer only one value play to consumers: its own.

“REI is famous for bringing in top-of-the-line products in small numbers,” a vendor told me. “I call them ‘show ponies.’ Maybe it’s a tent or a pack or a $750 Gore-Tex Arc’teryx jacket. Customers will walk in, see the jacket chained to the display, check the price tag as their jaw drops, and then turn to the Co-op house brand that has a similar look for a fraction of the price. It happens in camping, bikes, almost everything.”

It’s a retailer first, so it’s no surprise that REI’s history as a manufacturer is checkered. Since it began making its own products in 1988, it’s seen success with many items. Others have bombed. At its best, the house brand supports greater outdoor participation with affordable, functional gear. At its worst, it does just the opposite.

Take the brand’s foray into gravel bikes. Gravel bikes, if you don’t know, are drop-bar road bikes with mountain bike durability and more supple, fatter tires. Built from steel, titanium, or carbon fiber, they’re a joy to ride, transitioning smoothly from tarmac to dirt roads to rough doubletrack. But REI didn’t make its $1,100 ADV 2.1 gravel bike out of any of those chatter-absorbent materials; it used aluminum. Even the press has criticized the bikes as harsh. It’s the type of bike that would turn would-be gravel cyclists away from actually riding dirt. As curators of outdoor gear, REI should recognize that poor gear choices can actually discourage participation.

REI defends its house-branded product on the grounds that it addresses the needs of co-op members and customers. But although much of what it builds is perfectly adequate, in some ways that company line is just cover. In grocery retail, house-brand goods net an extra five to 10 percent. In the outdoor space, a vendor estimated REI is making an extra 30 percent. Beyond the ( justifiably) feel-good messaging about economic inclusivity, REI’s house brand exists to make money. How they build those lines matters, too.

“We had an employee who went to work for REI as a designer,” said a vendor. “We think they told him, ‘You have to make this product to compete with this item at this price.’ REI has sent our own items to our factory and said, ‘Make these.’ It must be so embarrassing for their product teams. How can you feel good about that? They hide behind the co-op thing.”

Dubious expertise is not limited to REI’s house brand. One Green Vest told me that REI intentionally avoids hiring experts because they can intimidate customers. REI denies this, but plenty of observers believe it to be true. “I get it,” said Gary Neptune, who ran Boulder’s Neptune Mountaineering for 40 years. “My wife and I had family friends who said they were intimidated to shop in Neptune. I tried, but you can’t avoid that altogether if you value expert advice.”

In some cases, it appears REI tries to compensate for this lack of authority by buying authenticity. In 2015, REI acquired the Adventure Projects group and, theoretically, the digital communities those mapping sites had tapped into. But it wasn’t long before the sites became muddied by a lack of vision in how to integrate their audiences into REI’s business, and perhaps more importantly, how to speak to core audiences. In 2020, the Adventure Projects founders bought it back (fueling still more rumors about REI’s troubles).

REI’s publishing arm is another example. Uncommon Path is a digital magazine (early issues were print) and an online “content generator,” but it lives in a clouded netherworld. Neither magazine journalism nor pure advocacy, with weird smatterings of REI-boosting advertorial scattered throughout, it’s a platform without a stance. It’s there that you can find normalizing stories about plus-sized white males who like to swim. At best, the content is tepid virtue signaling. At worst, it forgets that the outdoors are aspirational, and that passion is served by passionate storytelling.

Again, much of this is well-intentioned. REI clearly wants to broaden the outdoor market. And as former CEO Jerry Stritzke once articulated quite well, today’s younger shopper doesn’t see the value in or have the expendable income for high-end gear. If REI doesn’t go low enough to appeal to that crowd, there are many that will, and have. Responding to that beginner/intermediate user makes business sense for REI and its vendors; that’s where you’ll find the most customers. And some of the vendors I spoke with don’t even mind getting knocked off as long as the orders keep coming. The upside of what REI can do for a brand and for the outdoor world is just too powerful to discount.

But still: Did REI honestly believe it could build better bikes than Giant, own the digital map-sharing space, out-compete Amazon, make a magazine on par with the rest of the outdoor publishing industry, and build the type of corporate offices that would make Google blush, without making itself vulnerable?

The answer is yes. I guess. I don’t know. It’s also true that corporations like REI need to take risks. Risk-taking makes you nimble. And sometimes risks pay off. One could argue that erstwhile REI competitors like L.L.Bean and EMS didn’t take enough. If REI hadn’t taken a risk on online sales in the past, it wouldn’t have had the digital infrastructure it needed to weather 2020. Nor, without risk, would REI have had the sale of a self-aggrandizing corporate office to help bail it out.

From Myth to Prophesy

So what does the future hold for REI? They say the three fatal words in television commentary are “I don’t know.” And here I am saying it twice in two paragraphs.

Here’s what we do know. REI will survive the pandemic and might even grow as a result of it. There will be a tail to 2020’s rise in participation. And REI’s membership offer is still enticing. It cloaks itself in the myth of the co-op, but really what REI has done better than any outdoor retailer is build a loyalty program that could sustain the company for decades. So too with REI’s willingness to fund outdoor protections and demand change of its vendors. Consumers of the future will expect accountability, and REI is well-positioned to deliver.

Sadly, we also know that 2020 will leave lasting effects. The virulency of Covid-19 trained even those of us who shop locally out of principal to purchase online. Some of those pre-pandemic shopping habits may never come back.

Not to get too Rumsfeldian, but “unknown unknowns” also exist, and history is a guide. I grew up in a family of retailers. Both of my parents moved from chain store management and specialty shop ownership to working as professional liquidators when massive department store chains filed Chapter 11. My parents were gainfully employed until retirement because no chain retail business grows forever. And when growth ends, retail’s slim margins eventually give way and the snowball reverses itself, or simply melts.

Only time will tell if REI can avoid this fate. It’s entirely possible that the department-store feel of generic REIs could lose its appeal, and experiential shops will replace them to drive digital sales. Or that traditional store traffic will return with consumers scarred by too much time at home. It’s conjecture, but perhaps REI will figure out how to avoid the pitfalls of chain retail and lock into sustainable growth. As prophecies go, there’s not much certainty here.

REI is not the quaint co-op it was. It’s hard to justify its co-op status at all. REI is a loyalty club with a wide benevolent streak. Despite the collateral damage it delivers, it’s the most conscious chain retailer I’ve ever heard of. I hope the pandemic—and this story—will prompt REI to self-reflect. If the company addresses its suspect inclinations as well as its altruistic ones, perhaps it will one day again be the kind of store its founders would recognize—only bigger. But at least we can at long last dispel with the REI mythology. As with wooden ice axes, it’s best left above the mantle.

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