REI Co-op’s decision to shut down its Experiences business and lay off 428 employees caught many in the outdoor industry off guard.
Aside from the fact that that piece of the retail chain’s operations has been in existence for nearly 40 years, the decision to shut it down coincides with more consumers looking to travel and enjoy outdoor pursuits. Industry observers weighed in Thursday about how the closure of REI’s Experiences could potentially impact the brand and the industry.
REI Co-op reported $3.76 billion in revenue in 2023, a 2.4 percent decrease from 2022. It reported a $311 million net loss in 2023. The company has more than 190 stores across the U.S. and 15,000 globally. This year six stores are slated to open, including two that will be relocations, according to a REI Co-op spokesperson. As for whether further layoffs are scheduled, the spokesperson said Thursday, “No additional broad rounds of layoffs are planned.”
REI has faced other headaches, too, as of late, including a recent walkout by ski shop workers in REI’s SoHo store in Manhattan, due to safety concerns.
Two years after unionizing, a contract is still being hammered out. The REI spokesperson said “the collective bargaining process — especially when negotiating a first contract — can be lengthy. Both parties have been engaged in numerous negotiations and have reached tentative agreements on various topics. REI remains steadfast in our commitment to this process and to finding a mutually beneficial agreement with our stores that have chosen union representation.”
As some areas of the U.S. are facing changing weather patterns, outdoor retailers and manufacturers have been working to try to maintain their footing. In June, the outdoor chain Eastern Mountain Sports filed Chapter 11. Last month L.L. Bean reduced its corporate headquarters team by about 2.5 percent — upward of 50 people. Despite those cuts, the outdoor apparel market is expected to reach $66.37 billion in 2032 compared to $35.2 billion in 2023.
As for REI, Nate Pund, global head of the active lifestyle investment banking team at Houlihan Lokey, said, “I understand the decision and the need to save [money], shed costs and return to profitability. But I am concerned that this may be a poor decision in the long term in terms of [offering] broader member experiences and being a differentiator of what REI is.”
Matt Powell, founder of Spurwink River, said competitors like L.L. Bean, which offers adventurous outings, will “absolutely” try to capture some of the market that has now been freed up. “Sure, there’s an opportunity out there for someone in the travel business to step in.”
Whether such a venture is worth the investment is the question, he said. Experiences only serviced 40,000 customers last year — 0.04 percent of all 24 million co-op customers. “Forty thousand is not zero, but it’s a very small portion of the overall co-op,” Powell said,
As REI chief executive officer Erik Artz said Wednesday, the costs of running this business, including marketing and technology, resulted in the loss “of millions of dollars” every year and required subsidizing Experiences with profits from other parts of the business. During its more than 40-year existence, Experiences catered to nearly one million people.
Powell dose not expect the news of the layoffs to be something that consumers will dwell on, unless it affects their personal experience with the retailer. All bookings for REI Adventure trips that were scheduled to depart on or after Jan. 15 will be canceled, and the company said in an online post that refunds will be issued to the original form of payment.
Taking a wider view of how the climate is impacting the outdoor industry, he noted that in the outdoor specialty sector, half of the apparel business is generated by outerwear. In addition, half of the overall business including equipment is made up of apparel and footwear. Powell said, “That’s all very related to cold weather and snow. As the climate has changed away from that, the industry really has to change its model.”
L.L. Bean also sell apparel, footwear, accessories and gear, and offers adventurous outings.
PHOTO COURTESY
Highlighting how post-pandemic consumers’ visits to national and state parks in the U.S. have gone “way up” and numerous ski resorts now offer multiple year-round activities, Powell said, “People are getting out and recreating more in the spring and fall. The outdoor industry hasn’t figured out how to connect with those consumers in those seasons, when the activity [rates] are the greatest.”
Walter Shepard, who leads BCE’s retail and apparel practice, chalked up REI’s layoffs as “a must-be-done” decision, and said that it really makes sense, given the limited number of people using Experiences. “In hindsight, this was and always was going to be a loss leader in terms of trying to reinforce the value and value proposition of selling merchandise. When a business is not healthy, you have to make tough decisions unfortunately,” he said.
A Dick’s Sporting Goods store. Some locations offer in-store climbing walls.
Courtesy Photo
Given the limited competition of outdoor retailers of REI’s size, Shepard said, “There will always be a consumer there for REI. Dick’s [Sporting Goods] is an incomparable big competitor, but beyond that there aren’t a lot of retailers that do what REI does.”
Retail analyst Bruce Winder said “the fragility of the U.S. consumer” could have been a factor in REI’s decision. The question is whether this decision will impact the brand negatively, not in terms of dollars and cents — though that could happen too — but from an image perspective, Winder said.
“It’s a pretty bold move because REI positions itself as a really high-end outdoor store. Getting rid of the service may save the company money, but does it damage its image and take away its credibility. That’s the gamble that the CEO is taking. There are a lot of companies out there that have different products and divisions that don’t make money, but they create a halo effect for the whole brand,” he said.
The end of REI Adventures also seems to run counter to retailers’ decade-long quest for the experiential and consumers spending more money on experiences and travel than on products, Winder said. Speculating that the demand was not there for REI or people’s interest in other pursuits like wine tasting, Winder said, “It’s a surprising development.”
