Photo by Jake Ingle on Unsplash
June 5, 2024
Can Free Events Help REI Overcome Its Challenges Amid Financial Losses?
Earlier this year, REI Co-op expanded its camping opportunities by acquiring 20 acres of land near the Grand Canyon National Park to create a new Signature Camp. Set to open in spring 2025 and operate from April to October annually, the campground will feature 10 tents on platforms, a communal fire pit, picnic areas, a storage shed, and modern amenities like flushable toilets and hot showers.
Now, REI Co-op is gearing up for a summer of outdoor adventure with over 300 free classes and events scheduled nationwide on Saturday, June 15. Anticipating nearly 6,000 participants, these Opt Outside events will feature diverse activities such as hiking, paddling, and other outdoor programs aimed at highlighting “how the co-op supports its members and broader outdoor community with resources, expertise, and inspiration.”
REI will also offer a curated selection of popular in-store workshops and guided tours led by experienced staff, guides, and community partners. In certain locations, the event will include appearances by influencers like Adina Crawford and organizations such as Adaptive Adventures and Latino Outdoors.
REI’s Opt Outside movement extends beyond a single day, embodying a lifestyle and core value of the co-op. The dedicated Opt Outside page provides year-round access to virtual and in-person resources. Last year alone, REI facilitated over 4,800 day experiences for more than 38,200 participants across 14 communities.
In addition to local activities, REI offers 150 adventure travel trips throughout North America, including new itineraries celebrating Black joy in nature in partnership with Outdoor Afro, Inc. Regular introductory classes on activities like hiking and camping further enhance the co-op’s offerings.
This summer, REI is also expanding partnerships with Hipcamp and Strava to enhance outdoor experiences. The “Summer of Magic Campout Series” with Hipcamp will surprise participants with free campouts during peak weekends, while upcoming challenges on Strava will engage fitness enthusiasts in new ways.
But how effective and profitable are these events and experiences?
REI has long enjoyed the loyalty of millions of members, turning it into a national retailer. However, recent years have brought challenges, including fierce competition and declining sales, resulting in a $311 million net loss for 2023, the second consecutive year of financial losses.
CEO Eric Artz emphasized the need for adaptability while maintaining the company’s commitment to environmental causes. Despite financial setbacks, REI continues to champion climate change awareness and aims to diversify its customer base by opening more stores and appealing to a broader audience, including women and people of color.
The retailer is undergoing significant changes, phasing out its own footwear and partnering with leading brands to expand its running product offerings. This shift has led to mixed reactions. Some employees and customers feel REI is becoming more like an online retailer, while others appreciate the focus on diverse, everyday outdoor activities and apparel.
As a co-op, REI’s members are also its owners, contributing to its community-centric approach. In 2023, REI returned $200 million to its 24 million members, highlighting its commitment to member benefits despite financial losses. However, this model also pressures the company to balance profitability with member and employee satisfaction.
Employee sentiment has been affected by recent layoffs and a budding labor movement, with workers in 10 REI stores unionizing. Concerns over reduced hours and shifts toward more seasonal staffing have added to the dissatisfaction. Despite these challenges, REI has increased investments in employee wages, healthcare, and benefits.
The U.S. running shoe market, worth over $10 billion and growing at 3.5%, presents a substantial opportunity for REI to improve its financial performance. The company’s focus on running aims to drive profitability and strengthen its market position, with sales in the category already growing at a double-digit pace.
By phasing out its own branded footwear and partnering with brands like On Running, Hoka, Salomon, and Brooks, REI aims to meet the needs of its many running customers. This move includes introducing Asics to its catalog for the first time.
According to Fan Zhou, REI’s general manager of footwear and running, the company’s approach involves expanding its running product range, training sales associates, and engaging the running community through events and marketing. “About half the people who come to us for hiking or biking supplies are also runners. And we estimate we were only serving about 50% of those active runners. So there’s a big opportunity to grow this space,” Zhou explained.
Nine new running-focused stores will open in cities like Denver and Chicago, featuring a broader selection of running products and hosting community events such as sponsored running clubs.
Board chair Beth Newlands Campbell emphasized the need for profitability, and the new running focus is a key initiative to counter recent losses and drive future growth.
Discussion Questions
How can REI measure the success of initiatives like Signature Camps, events like Opt Outside, and partnerships with organizations like Outdoor Afro in terms of customer engagement and financial performance?
How can REI balance its environmental activism and community values with the need for profitability in a competitive retail landscape?
What are the potential long-term impacts of REI’s shift toward partnering with leading running brands and phasing out its own footwear line on the company’s brand identity and customer loyalty?
Poll
Loading …BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Perry Kramer
Managing Partner, Retail Consulting Partners
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
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A big problem for REI is that the market for outdoor products is shrinking. Part of this is because there was a big pull forward of demand during the pandemic, which has shifted the purchase cycle. Part is because of financial pressures which have seen consumers cut back on new gear and make do with existing products for longer. As a more expensive and focused specialist player, REI has been hit harder than most. It has also suffered, to a degree, from some defection to cheaper alternatives like Sierra among non-members buying general outerwear. Against this backdrop there is a sense that REI has not adapted quickly enough; it’s a good business but not the nimblest of organizations. That failure, and some investments in wages, have pushed it into the red. Does holding free events help to change this? No, not entirely – but it may aid the customer erosion problem at least in the short term, and it’s something REI should be doing to cement its authority in the outdoor category.
The free events are great but REI’s category and brand shift puts it in an uncharacteristic also-ran stance (pardon the pun). Why should REI defensively attack the crowded running category, going all-in with brands that are near ubiquitous at this point? REI’s business model is well-meaning but incongruent with knee-jerk trend chasing. By contrast, the event marketing and experiential campaigns are in-brand and on-point to support a diversity of active lifestyles.
Free events will not hurt REI, and these events will help to bring new consumers into the stores, and create some buzz, but these events will not be a large enough factor to reverse financial issues.
Financial challenges at REI are complex. The business was hurt by the pandemic, and never fully recovered. It is also a business affected by a struggling economy with record inflation and very high interest and debt on credit cards. There are also “cheaper” alternatives that have come into the marketplace.
My concern for REI is that they were complacent with their business model, and possibly waited too long to pivot and make modifications. Db
I believe it will be how they communicate and market these free events to the general public or only for their reward members? I was sad to see that they are walking away from one of their own brand products.. I hope this is not a trend for them. From my experience, I like their stores (I bought my mountain bike there) but to Neil’s post, I think recreation outdoors has taken a backseat due to financial constraints.
REI is working hard to live by their values, and sometimes doing so doesn’t produce the best financial outcomes. If success is measured in part by sign-ups and attendance at their events, then it is definitely making progress. The types of outdoor activities they are creating is what building long-term loyalty is all about. However, ultimately, the company must be sustainably profitable if it hopes to continue to serve and grow their community in the long run. Living your values and being profitable do not need to mutually exclusive, but you still need to watch the bottom line and their decision to shift toward partnering with leading running shoe brands could potentially be one. They need to find other ways to improve their financial performance.
Today’s other topic raised the issue of how we measure intangible things, and I think the same problem is at work here: by conventional accounting rules, I wouldn’t be surprised if their outreach efforts look like failures…they cost money, and can only reach a tiny fraction of the customer base. But that’s really not the point is it? the point is to differentiate the retailer and – hopefully – turn the participants into brand ambassadors. Their less focused – i.e. more political – marketing is even more problematic; while it seems very much on-brand, it’s hard to sustain a major retailer on just that …the idea that activism needs to be balanced against results, rather than contributing to them, seems bassackwardish. (Admittedly those are Dennis’ words, not REI’s. but it’s hard to not draw the same inference.)
Anything REI can do to get people interested in doing business with them is crucial. REI has to find ways to get its members/customers to re-engage and do more business. Be it camps, in-store activities, product line changes, etc., REI is in a precarious place and must find ways to get people into the store. Free events, changes in merchandise, and more, could help, but leadership must find a new formula that works.
I’m a big fan of REI. I admire their active social consciousness, applauded when they closed for Black Friday, probably wouldn’t try an outside experience, and like (I bet) 90% of their shoppers will get on the web and run a price compare on anything expensive that REI is selling vs. the competition. And in the end will buy that item from the lowest price reputable web site. No retailer is going to win selling undifferentiated product that is widely distributed. REI has a good reputation, a great in store experience, but needs to develop their own product brand. He/She who owns the Brand “owns” the customer. (well as much as loyalty is still a thing).
I admire REI and the activities they sponsor and promote. But, after two years of significant losses and a likely third in 2024, they clearly are taking thier eye off the ball. Expanding the campgrounds and free activities cannot attract the number of new customers they must to turn the bottom line around.
If they are also going to focus on the running cohort, I am sure they understand running is not all sneakers. The running market is vastly larger than the outdoor market. What can they do to attract runners? It must be more than just offering sneakers.
REI is a unique retailer with a strong brand promise and loyal customers. But like other retailers, they need to constantly review and refresh their strategy and assortment. I was a regular shopper when our children were young and we were camping and spending a lot of time outdoors. I’m still a semi-regular shopper, but less inclined for big ticket items. My wife and I have been on a local excursion with REI (hiking and brewery visit – why not?). It’s not a surprise that they’ve been affected by the post-pandemic impact and current economy challenges, but I wouldn’t view these as long-term issues. Their focus on supporting their customers in spending more time outdoors makes perfect sense, but I can’t agree with heightened emphasis on the general running market – that’s not their consumer (unless we’re talking trail running). Finally, they have a very broad assortment, and there are always racks with discounted items – I suspect improved assortment management would yield significant benefits.
Free events and even paid events that are immersive will help. However it is a long term help not a quick fix. Orvis, and several other similar retailers have had great success with immersive events driving loyalty and alignment with customer values. Moving away from there own band of footwear, if done correctly, will allow them to focus on product development and customer acquisition. However they need to have a clear transition plan for customers who are loyal to their footwear as loosing any customers in a shrinking market is a real challenge.
All the activities in the article sound great. The activities are totally in line with the core values of the brand. But…the core values of the brand are not drawing enough paying customers to begin with. So how will these activities help recapture and grow market share…??? I don’t have a local REI, so I can’t speak to season-in/season-out execution. I don’t think environmental activism is a reason to NOT shop a retailer. But in this case it’s not enough to create a compelling draw. The activities described are totally consistent with the existing brand promise, but that promise is not working at the scale it needs to in order to create a profitable business. Opting out of their own differentiating private label shoes to carry more nationally distributed brands is understandable on the one hand, but still does not create a uniquely compelling draw. A “me too” execution, even on the best of national brands, is not a game changer.
Jeff, your “Buts” tell the story.
REI is suffering from a cycle that is not in its favor right now. How many people need rock climbing gear to begin with? Why is so much floor space devoted to bikes? How many pairs of hiking boots does one need, after all? So putting, say Hokas on the shelf is going to make things right? Now you are just another shoe store. I like the free classes, if that succeeds your are inoculating new and existing customers with a desire for different parts of the store.
In conclusion I believe things will turn around a bit for them, my gut tells me the market is somewhat saturated.
REI’s steps to bring more people to the outdoors feels like the right play now, because if implemented well, they can show everyone how easy and inexpensive being in the outdoors can be. Their future success doesn’t have to require immediate purchases of tents, and cooking or climbing gear – only that entry into the outdoors starts with simpler items like good shoes, socks, headwear. Running in the outdoors and running shoes also fits this narrative.
In the short-term, REI can measure this by offering participants bounce backs to deals in the store, discounts, and perks. Shoppers need to find savings and deals in this economy. Over the long haul, REI must also remind and engage that they are experts, will answer questions and help customers dive deeper.
I was an REI shopper – recently the staff in the retail stores have become rude and act like they don’t care about customers. I was at a Midwest location and asked about a shoe size and if it was in stock. I was told that a clerk would check for me. No clerk ever showed up – the cashier had a really bad attitude. I went to the LL Bean store in the same shopping center. I am taking a long break from going back to REI.