Fixing REI
Since my family moved to the Seattle area in 2006, REI has kept my family in Gore-tex, bikepacking propane canisters, and a ton of clothing and footwear. Their Seattle flagship store is where my kids first rock-climbed. Their green-vests have helped me purchase a sleeping bag, bike rack, and way too many last-minute gifts (sorry, honey).
REI has been integral to my family’s life in the PNW.
So it's hard to see REI in danger of following Party City, Container Store, Bed, Bath and Beyond and others down the drain:
Outgoing CEO Eric Artz seems to be making good on his march to profitability, but are these the moves that will save REI, or just continue life support? Seems like layoffs, changes to return policies, elimination of experiential programs are short sighted means of expense reduction.
Omnichannel specialty retailers ARE in a tough spot. Mass-market retailers and marketplaces (Amazon, Walmart) are encroaching on upscale product assortment, and from the other direction, direct-from-China products are putting pressure on price. (I recently spent $30 on a Temu bivvy, which was perfect for my 1-2 yearly solo bikepacking trips.)
Maybe their incoming CEO Mary Beth Laughton (from Nike and Gap Brands) has some bright ideas on how to double down on REI’s strengths.
This would be my strategy to fix REI.
(tl;dr don’t be a box retailer, we know what happens to those.)
#1 Turbocharge the Membership Program. REI has given a percentage of sales back to members since its founding in 1938. The program has remained pretty unchanged over the years (as opposed to programs like Amazon Prime, Amex Membership rewards, etc). How about bundling or discounting relevant subscriptions (Strava, Clear, Garmin InReach, America the Beautiful pass) that can be just one click away for 24MM members? How about members-only entries into exclusive races and events? REI has a huge value to leverage with potential partners in exchange for meaningful member benefits. To do this, REI not only needs to pivot from reactive cost-cutting to customer-focused innovation, but develop a culture of LTV-based decisions-making. A greater, more engaged membership base means more customers, more transactions, and greater AOV.
#2 Build Up your House Brands. In bicycles, Co-op (REI’s store brand, formerly Novara) is associated with inexpensive, heavy and bland bikes. In clothing and gear, the REI house brand seems ready-made for sale racks and sale pages, a bland brand with no identity. How about taking a page from Costco’s playbook to create a store brand that consumers respect and value? And even better, it fits with the co-op vibe: “you helped us design it.” House brand product leadership can improve selection, fatten-up product margins and add leverage with vendors.
#3 Invent Outdoor Gear Showrooming: REI’s 190(ish) stores in 42 states offer access to 70% of the population of the US. Taking another page from Costco’s playbook, offer digital and physical merchandising real estate to suppliers and 3P vendors. How about a dirt campsite in the middle of a store? A Zwift bike? Ski boot or running shoe active experiences? A walk-in freezer to test sleeping bags? (Maybe with an an ice bar serving local beers?) REI could have some fun with this! Where else can outdoor gear vendors get this breadth and depth of rich product exposure to in-market enthusiasts?
#4 Invest in Retail Experiences. IKEA and Costco are two retailers who have bucked the trend of going all-in on eCommerce by leveraging their physical locations to differentiate. (If you have not listened to the Aquired (hey Ben Gilbert) episodes on both retailers, do it!) REI recently announced the opposite: an end of REI Experiences, outdoor programs which inevitably resulted in higher customer LTV. REI should be thinking of growing and inventing new, physical demand-generating programs, not whittling them down. These moves would be an about-face from decisions like the shuttering of REI Experiences, which drew backlash from loyal customers.
#5 Leverage and nurture Green-vests like an asset. Leverage the Green-vest resources in the 192 locations to drive not just physical, but digital sales: upselling online customers, answering online questions, creating unique digital content, and other demand-generation activities. Based on my interactions with some great green-vests, I bet many of them could offer greater ROI than folding clothes during slow times. A move like this would be an about-face from recent moves to replace full-time retail staff with part time roles and would drive AOV and repeat purchases.
#6 Operational Excellence. I haven’t seen any radical changes in REI’s physical or digital formats in years, so my guess is REI hasn’t needed to spin up major initiatives quickly, effectively and efficiently for quite some time. Transformational initiatives like these will require strong chops in planning and executing across many areas at once. They require a boldness of vision and a laser-focus on execution. As REI steps up its operational game, other parts of the business will work better, too: supply chain, product search, online advertising.
One last thought: I wonder how much of REI’s corporate structure hampers REIs ability to invest in capital projects. As a co-op, it is owned by its members (who elect the board of directors), not by shareholders, so it can’t raise capital the way public companies can. It’s quite possible REI needs to restructure to be able to fund initiatives like these.
Do you think REI can be fixed? Should it be fixed? Let me know your thoughts here.
