REI is the largest professional outdoor retailer in the United States. In 2022, its revenue will increase by 3% year-on-year to a record US$3.85 billion. It operates 181 stores in 42 states in the United States and has more than 23 million members.
The full name of REI is Recreational Equipment Incorporated Cooperative (REI Co-op), which is also literally translated as Leisure Equipment Company.
In addition to the scale, what makes people more curious is its unique "cooperative model" (Co-op). In this model, members and shareholders have close rights, not only to participate in profit distribution but also to elect board members.
Dennis Madsen, who served as the company's president and CEO in the early 21st century, described this model sharply when accepting the Harvard Business Review: We are a cooperative; we are owned by members, and we only need to pay a membership fee once. Of course, employees are important to corporate culture, but our members are just as important. If your company is owned by third-party investors, they will be very focused on stock price and earnings per share and will do whatever it takes to generate profits and achieve growth. But when members take ownership, their interest is not only related to financial numbers. Of course, profitability is still very important if you want to survive in the long run.
"The competition in the outdoor retail industry is very fierce. We must strictly operate this business like traditional organizations and enterprises and control income and expenditure. However, our different focus on profits is that we pay more attention to the medium and long term rather than reaching a certain number in the short term, so I'm not worried about how profitable this quarter is compared to last quarter, but I'm focused on providing consumers with high-quality products and services. Of course, this is very friendly to our customers."
This article will start with this unique business model and give you an in-depth understanding of this outdoor retail giant that is still little known in China.
23 founders adhere to the "cooperative model" to this day. $224 million in 2022 rebates for members and co-elect board members. Implement the big store strategy; the store is the social center for members. The profit is meager, and the performance fluctuates after the epidemic. 23 founders adhere to the "cooperative model" to this day.
In 1935, Lloyd and Mary Anderson, a couple of outdoor sports enthusiasts in Seattle, USA, needed a high-quality ice axe, which cost 20 dollars in a local ski store and was imitated from Austria, which was a lot of money at the time.
Instead, they ordered an ice ax direct from Austria and used Mary's German skills to translate the product guide, all for $3.50, including postage.
Friends who are also climbers all know about this, and they actively hope to get involved and make this a career. So in 1938, Lloyd and Mary Anderson and 21 local adventurers in the Seattle area formally established REI, each paying a $1 lifetime membership fee when they joined. A lifetime membership is now $30.
As the number of members increased, Lloyd consolidated the mission of the cooperative in a written announcement in 1938, committing to expanding the membership scale and ensuring that member purchases were more affordable, minimizing administrative costs, and hiring members as staff. With affordable membership fees, everyone who loves outdoor sports can join.
In 1955, American mountaineer Jim Whittaker, who was also a member, was hired as the first full-time employee of REI. He also served as CEO in the 1960s. It is worth mentioning that Jim Whittaker was the first person to ascend Mount Everest. Leveraging his fame, in 1964 his revenue topped $1 million for the first time.
Today, REI has more than 23 million lifetime members and has been steadily increasing at an annual rate of 1 million in the past few years. For REI, their goal is 50 million members. $224 million in 2022 rebates for members and co-elect board members.
Compared with members of other retailers or brands, REI is most praised for giving members "10% annual eligible shopping rebates", and the total amount of rebates in 2022 will reach 224 million US dollars, which to some extent achieves a profit distribution similar to that of shareholders.
In addition to shopping rebates, members can also enjoy a fixed 33% rental discount, a fixed 20% discount on bicycle and snow shop services, and of course a series of services such as free standard delivery (no minimum purchase amount required), an exclusive second-hand equipment trading business, and so on.
However, the best embodiment of the "cooperative model" is that REI's board members are elected by the members, and they oversee the company's operations. The board of directors can have up to 14 members for a three-year term.
In March of this year, REI announced the latest personnel adjustment, and Apple Musni was appointed as the new Chief People Officer. As a key player in shaping the company's culture, Apple Musni describes the "co-op" as such: a passionate purpose to awaken a lifelong love of the outdoors in all and a belief that the outdoors is something that should be enjoyed by all.
Implement the big store strategy; the store is the social center for members.
Since its development, REI has sold products covering outdoor clothing, shoes, equipment, tents, accessories, etc. Related sports include cycling, mountaineering, ice and snow skiing, etc. According to the official website, REI has a total of 1,000 cooperative brand products on the shelves, including 2 REI own brands and 1 REI and West Elm joint brand. Among them, there are more than 30 brands with more than 100 products on the shelves.
Cooperative brands include international big brands such as Adidas, Arc'teryx, Columbia, The North Face, etc.; emerging brands such as Hoka One One, On Running, etc.; mountaineering-related brands such as Black Diamond, Sea to Summit, Mountain Hardwear, etc.; brands related to ice and snow sports such as Icebreaker, Obermeyer, Dakine, etc.; and brands related to cycling sports such as Bontrager, Pearl Izumi, Shimano, etc.
In terms of offline stores, REI adopts a large-store strategy. The store area is generally 25,000 square feet (about 2,300 square meters), and one-third of the area is used for experiential public spaces. REI store positioning allows members to gather together to "plan and share outdoor adventures or just drink coffee" and is no longer limited to the display and sales of outdoor products but is dominated by "experience, education, consultation, and community".
The profit is meager, and the performance fluctuates after the epidemic.
It is not difficult to guess that under this "benefit sharing" model, REI's profitability will not be too high.
Looking at the two years before the epidemic, in 2018 and 2019, REI's net profit margins were only 1.7% and 0.7%, respectively, and in 2020, when the epidemic broke out, it fell into a loss.
However, the outbreak of the epidemic has made more people choose to embrace nature and outdoor life, driving REI's sales revenue to increase by 36% in 2021, and its net profit has also reached a record high of 98 million US dollars. But in 2022, sales growth slowed sharply to 2.9%, and the company also fell into a net loss of up to 165 million US dollars.
Amid the ups and downs in performance, company president and CEO Eric Artz said in a recent statement: "We continue to stand by our commitment to rewarding our members, and as a cooperative, we are fortunate to have made this long-term choice. However, we remain focused on returning to a path to sustainable profitability to ensure a healthy long-term future. According to the data of the Outdoor Foundation, among the residents over 6 years old, the number of people participating in outdoor sports will reach 160 million in 2020, and the participation rate will reach 52.9% (a year-on-year increase of 2.2 percentage points); the number of camping participants in 2021 is expected to be 5690 million, with a participation rate of 18.6% (a year-on-year increase of 2.8 percentage points).
The development situation of the outdoor sports market is gratifying.