REI Looks to Keep Soul and Build Profits
By George Anderson
When Recreational Equipment Inc. (REI) was begun as a co-op n 1938 by some friends in Seattle who enjoyed mountain-climbing, it was never intended to be a retail juggernaut.
Move ahead to 2005 and REI is not only a force in the outside recreation business ($1 billion in sales last year), but many credit it with having virtually created the $18 billion market.
While REI continues to enjoy success and grow, the company has sought to be true to the ideals of its founders: showing respect for nature, its customers, employees and vendors.
It has also tried (some suggest unsuccessfully) to go into areas without hurting smaller independents that serve the same market.
Sally Jewell, CEO at REI, told The Associated Press, “When REI goes into a community, more people play outside. We’re not looking to take business from the little guy. When we go into a market, we’re looking to make that market bigger.”
The real enemy for REI and other retailers in this space, said Ms. Jewell, is the couch. Getting people off of it and outside exercising is the goal and while many are engaging in a variety of outdoor activities, there are many more laying about watching television, playing video games and other even less taxing pursuits, such as napping.
Some today question whether REI can still lay claim to being a co-op.
Michael Hodgson, co-owner of the outdoor retail trade journal Specialty News, told AP, “I would argue vehemently that it’s not a co-op.”
Mr. Hodgson says the limited participation by members in how the company is run and the day-to-day workings of management suggest REI is a corporation and not a co-op.
REI’s Jewell disagreed. “Others may assume you have to be small and a poorly run business to be a co-op. People vote with their dollars.”
To become an REI member, consumers pay a one-time $15 fee. The membership fee entitles them to an annual dividend matching 10 percent of their purchases at the company’s stores or web site. The company currently has 2.8 million members and it paid out more than $50 million in dividends last year.
A few vendors have expressed concern about the influence that REI has in the marketplace.
Fred Hugelmeyer, president of the Outdoor Industry Association, dismissed that view. He said, for example, REI has worked with its vendors to avoid them having to use cheap sweatshop labor to meet the co-op’s needs.
“With their size comes great responsibility. They take that very seriously,” he said.
Moderator’s Comment: Is it possible for companies to maintain their ideals and become hugely successful at the same time? Does having clearly communicated
corporate values (internally and externally) increase, decrease or have little to no impact on a retailer’s bottom line performance? –
George Anderson – Moderator
I’m an REI member as well, and have used my dividend enthusiastically every year. But I would agree that REI isn’t any more of a co-op than, say, Costco. I get a rebate from Costco, too, and Costco makes a similar effort to solicit from its members the brands and types of products they’d like to see in their stores.
But whether REI is more corp. than co-op isn’t as important as the kind of store REI is, and I feel REI stays true to its mission of helping people get outdoors. The clinics, the in-house climbing walls, the knowledgeable staff that actually participates in the activities they sell equipment for, all contribute to the sense that you are buying from fellow enthusiasts. That’s what makes it feel like a co-op.
I have been a member of REI since 1975. REI is different in many ways most business organizations of its size: it puts a higher priority on the needs of all stakeholders (it is less oriented to “profits at any cost” mentality). But REI faces the same problems every organization faces: its espoused values are in conflict with the some of its business practices and processes.
Our data shows that 100% of organizations (including churches, clubs, and families) have this same problem. It does not matter if an organization is successful or not, large or small, co-operative or corporation or church. This is the Master System at work, again: that an organization’s practices do not entirely mesh with its espoused values is High-Intensity Information because it is embarrassing information. This information is blocked, distorted, ignored, and minimized. This is unnecessary: it is entirely possible for an organization’s practices to perfectly correspond to its espoused values.
REI cannot know, on its own, how its practices are in conflict with its values. If REI management were to read those words, it would quite possibly be outraged. The Master System again. The Master System’s control of an organization cannot be avoided.
This conflict (and unawareness of it) has a huge impact on profitability. Our research shows that some of the most common effects of this conflict are: poor corporate decisions, weak strategy, lost productivity due to resentment and turnover, weak and inefficient processes. For example, our data shows that every retail organization in the US operates at 69% efficiency or worse. REI falls into this category.
The Master System is not affected by how clearly the espoused values are communicated. This has no affect on bringing actual practices and processes into correspondence with values. The only way to bring practices into alignment with espoused values is to see how they are NOT in alignment, and the only way to do this is to measure and map the Master System’s operations. We find that the role of espoused values in organizations is highly overrated, particularly in the consulting world that assists with the crafting of mission and vision statements. We have never seen an instance where a statement of values changed significantly how an organization operated, especially in solving its wicked problems. We HAVE seen roughly 600 examples where a statement of fine-sounding values was drafted with a definite ignoring of actual practices that did not fit.
REI has a wonderful opportunity to make significant improvements in many areas that it has so far left untouched. This is unlikely to happen, however: most organizations we have studied, especially the ones who judge themselves as successful, find such a suggestion quite insulting. Constant improvement and open self-assessment are part of REI’s espoused values, but this is a good example where these values will likely not be followed.
I think L.L.Bean enthusiasts would disagree with the assertion that REI virtually invented this category. What about the original Abercrombie and Fitch? (Not the current unethical incarnation but the one that Teddy Roosevelt shopped)
The key to operation with standards and ethics has little to do with mission statements and written policies and much to do with real leaders operating in an environment that allows them to respect and reward their people…typically this is not a publicly held company where pressures to grow and increase bottom line generally trump values. Privately held organizations such as Crate & Barrel sacrifice growth for what is, to them, more important objectives such as quality, service, and citizenship. Maybe REI’s unique ownership affords the opportunity to do so as well.
Can you keep your values and be successful? Yes. Can you keep your values and be “hugely” successful? It’s doubtful, depending on your definition of “hugely”. Does having clearly communicated corporate values help? Not if you don’t demonstrate them every day in everything you do. I’m sure Enron, et. al. had great values statements. Didn’t seem to help them.
Question: Where is a billion dollars not a lot of money? Answer: In the retail business. Compared to many other retailers, REI is modestly sized. And it certainly didn’t invent the category, nor is it close to monopolizing it. It is able to act upon its ideals by earning decent margins. And it earns decent margins by acting upon its ideals. But one doesn’t guarantee the other, since many businesses have ideals but don’t or can’t act upon them and many businesses have great margins but don’t act upon any recognizable ideals except greed. The real enabler: quality of the management.
First there is a huge difference between having ‘values’ and having ‘value statements’ in the same way that there’s a difference between having ‘vision’ and having a ‘vision statement’. The statements come easy the living is hard.
Not only CAN a businesses make money while living out its higher purpose – it MUST do so. You lose your ‘soul’ and you’ll soon lose everything. Here’s 7 signs that your company is losing its soul:
1) You have the phrase ‘shareholder value’ in the vision statement.
2) There’s graffiti on the “Our People are our Greatest Resource” poster.
3) Executive bonuses go up when the actual performance of the company goes down.
4) Your boss starts talking like a motivational speaker.
5) You start referring to your company’s advertising as ‘propaganda.’
6) You have to rework the books for the meeting with the bank.
7) You increasingly drive into work asking yourself, “Why am I doing this?”
Does the question really ask if it depends on what your values are in the first place? Or that you have to have them when you state them? Or does it mean to ask if there are an acceptable ‘set’ of values that are being measured, thus if you fit this set of values, can you be successful? Even more, do you need values at all?
Take for example Wal-Mart – I think that one could argue that they do actually have a very clear ‘set’ of stated values that they communicate internally. I think they have another set of values that they spend millions upon millions each year communicating to the investment community and to the public at large. Just one example would be their blitz of ads across contested communities to convince the marketplace that they are a good citizen and will benefit the community. Have their words matched up with their actions? Have they been a good citizen? I think that would depend on who is measuring – wouldn’t it? One might argue that they have been hugely successful – couldn’t they? Did it matter?
On the other hand, Costco has a pretty good ‘set’ of values also. That would be from my measure. Wall Street has loudly disagreed. Costco does a very good job of communicating them internally and to the employment marketplace. They don’t, however, from my view, spend anything either monetarily or in their efforts communicating them externally. Did they need to? Did it matter? One might also ask yourself whether or not they have been hugely successful as well.
Values are a funny thing. We all have them. We all have different ones. Some have the same – some have a mix of the differences. In the end, we all measure them and define them differently.
One might ask the question, is it better to communicate your values in deed rather than in word? One might ask if they are of value to the consumer or to the marketplace in general, and if your deeds matched your words, would they know already?
It certainly seems to me that spending time focusing on ‘them’ [your values], delivering upon them and in the spirit of them, would lead to great success. It certainly is easier than spending time and effort trying to dispel perception with communications. I think that if we each submitted a list of those retailers we ‘perceived’ had values, we might find that most, if not all, simply lived them and carried them out in spirit.
Depends on whether you practice what you preach. After all, it really is tough to stop practice perverting principles.
To answer the question whether it’s possible for companies to maintain their ideals and become hugely successful at the same time is easier than ever. All one needs to do is look at successful retailers such as Starbucks, Apple Stores, and, of course REI! Each of these great organizations has built their businesses with clearly defined ideals an an absolute commitment to maintaining those ideals. And yes, each of these companies is quite profitable.
Presence of a clear and cogent code of values in and of itself is no guarantee that those values will be represented and promulgated by the organization. Absence of a statement of company values or principles, however, is a guarantee that the company will not adhere to a value code.
REI seems like one of the good actors in this regard. Of course, it operates in a category – outdoor recreation – that aligns well with environmentalism, health, and multicultural tolerance. So its code of values may be less significant than the message it sends by being what it is.
Ironically, outdoor gear is increasingly manufactured from “technical” fabrics (i.e. artificial fibers and coatings) by workers in third world countries. Prices on tents, packs and hiking shoes are astonishingly competitive these days. If REI is in fact holding the line against exploitation of manufacturing workers overseas, it deserves our wholehearted support.
Don’t waste time debating whether or not REI is a co-op. They are a member owned business, therefore they are a cooperative, period.
I believe REI has worked hard to make the world a better place. I also believe that they have a heavy responsibility to balance competition from low price outdoor retailers with the need to promote sustainable produced products like those made with organic fiber. Personally, I wish they would do more on this agenda item. Professionally I think it’s good business and a huge opportunity.
Yes, it is possible. One only needs to look at Starbucks. Agree or disagree with its approach; one cannot argue that they are hugely successful, have created an entire market virtually on their own and have tried to hold true to their community involvement and corporate ideals. Most convincingly to me is that they spend more on employee health benefits than they do on coffee beans. In fact, they provide full health benefits to any employee who works at least 20 hours per week.
I suggest you all read “Let My People Go Surfing” by Yvon Chouinard, the founder and Chairman of Patagonia (the company, not the place…)
I’m not an avid camper or outdoorsman, but every time I visit an REI store I think I should be.
The staff are advocates and very helpful. The store environment is excellent. The products they carry are first-rate.
Few other retailers create a selling environment that makes you want to become more involved with what they sell.
People “join” as associates or consumers of passionate environments they believe in. The passion draws in people without hobbies, or with hobbies that are no longer practical for them (such as bar hopping after getting married).
It probably doesn’t matter if it’s a for profit company and you couldn’t say it’s easier to make this happen if you’re not or there would be a lot more co-ops.