Adventures in Retailing at REI

Few retailers allow customers to test ride mountain bikes on special indoor trails or let them pour water through different filtration devices before they decide which model to purchase. An open invitation to "try it before you buy it" is just one reason Recreational Equipment, Inc. (REI), stands out in the world of retailing. REI was founded in 1938 by 25 mountain climbers who pooled their buying power to get a better deal on ice axes and other climbing gear. From the start, REI was a consumer cooperative, a retail business that shares some of its profits with members. Today, the Kent, Washington, retailer sells a vast array of outdoor sporting goods and apparel through 80 stores in 27 states, a printed catalog, two websites, and telephone sales.

It also operates REI Adventures, a travel service for those who want to paddle, climb, cycle, ski, hike, or enjoy a combination of outdoor activities while on vacation. REI's store atmospherics are unique, making the shopping experience an adventure in itself. Most stores have a two-story climbing wall that customers are invited to scale when trying out gear before buying. For example, the store in Sandy, Utah, features a 22-foot-high climbing wall modeled after the granite walls of a local canyon. Like other stores in the chain, the Sandy store has demonstration areas devoted to camp stoves, water filter testing, and hiking boots. Surrounding these special areas are acres and acres of items that one employee calls "grown-up toys," from kayaks and canteens to snow shoes and sleeping bags. Store employees are enthusiastic about the merchandise they sell because they share their customers' love of the active life.

"A passion for the outdoors comes first throughout REI and is a natural bond between employees and customers," observes REI's vice president of direct sales. "That passion and commitment to quality are reflected whether you're in an REI store, shopping online, or placing a catalog order on the phone." This may help to explain REI's annual ranking in Fortune magazine's "100 Best Companies to Work for in America." Employees are trained to determine their customers' needs, demonstrate appropriate products, and help customers make informed buying decisions. REI's two retail websites feature page after page of product details, product comparisons, and how-to articles about outdoor sports and equipment. These sites are accessible from Internet kiosks set up in each REI store so that customers can order any of 50,000 products for home delivery. If they prefer, customers can eliminate shipping fees by having online orders sent to any REI store for pickup-an option chosen by more than 30 percent of REI-Outlet.com's customers.

Customers can become members of the REI cooperative by paying a one-time fee of $15. They are then eligible for refund vouchers of up to 10 percent on their total annual purchases from REI stores, catalogs, and websites. They also pay lower prices for equipment rented or repaired in REI stores and for travel packages arranged through REI Adventures. One of REI's core values is its ongoing commitment to protecting the natural environment by donating to nature centers, open-space projects, youth recreation programs, land conservation, and related activities in local communities.

Moreover, as REI's president notes, store employees invest a great deal of "sweat equity" in the local community by volunteering their time to maintain hiking trails, clean up rivers, and preserve the environment in many other ways. The market for outdoor sporting goods and apparel is increasingly competitive. Bass Pro Shops, headquartered in Missouri, targets customers who like fishing, hunting, and boating with a huge catalog. Its 54 U.S. and Canadian stores offer demonstration areas for fishing and other sports, creating a focal point for customers. Cabela's operates 30 similar stores and an online catalog. Eastern Mountain Sports (EMS), headquartered in New Hampshire, operates 80 stores in eastern and midwestern states. In addition, REI competes with many independent stores and chain retailers that carry clothing and gear for the active lifestyle.

Today, REI generates more than $1 billion in revenue and serves nearly 3 million customers yearly. Its stores range in size from 10,000 to 95,000 square feet, so no two stores carry exactly the same merchandise. "Even though we don't have a lot of stores, we have a lot of variety in our stores," says REI's inventory planning manager, "and that creates merchandising challenges for us." REI's solution: Analyze the profitability and sales per square foot of each product category in each store, and then eliminate the weakest categories to make room for the strongest. This helps the retailer manage inventory more efficiently and choose the most profitable assortment for each store.35

Questions for Discussion
1. Why would REI locate many of its stores in freestanding structures rather than in shopping centers?

2. What is the likely effect of REI's consumer cooperative structure on the retailer's ability to build customer relationships?

3. What is REI's retail positioning, and why is it appropriate for the target market?