REI deep dive, Selling on Amazon, CRUA - Company insights

Derek’s Deep Dive into The Outdoors: Chapter 2.

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“There are always flowers for those who want to see them.”

– Henri Matisse

In this chapter:

• Amazon for outdoors products - is it effective?

• Deep Dive - understanding how REI does business, and its history

• Wholesale vs D2C - Profit and Loss / Income Statements compared from our experience - Pt 2 of 2 - Compare Operating Expenses

• CRUA insight, week 18

• Who’s killing it on social?

REI Deep dive

Recreational Equipment, Inc is a really interesting company, even if you’re not interested in the outdoors industry. Founded in Seattle, Washington in 1938 by Lloyd and Mary Anderson, the back story is very similar to that of Patagonia. The Andersons, both starting on their climbing careers, had imported an Ice Axe from Europe, and decided that they would like to help others acquire top notch equipment for less. But one key difference is that they set it up in the form of a co-operative, with twenty one others. All reputedly paid one dollar to join the co-op that year. Interestingly, it wasn’t until 1956 that the co-op was actually formally incorporated, as a non profit.

Those early years were very modest, and the co-op didn’t take on its very first full time employee until 1955 - Jim Whittaker, who went on to serve as CEO through the 1960’s. But what a shrewd piece of recruiting that was, as Whittaker became the first American to climb Mt Everest in May 1963. REI benefitted from the PR, hitting seven figure gross revenues for the first that in the same year. During this time and right into the 1980 REI stuck with the serious climbing niche, and earned a sound reputation among the real mountaineering community.

The board changed during the 80’s and so did the focus. Recognizing the possibility of leveraging the trust that the brand had built over decades, the net widened. REI started to stock camping and other more mainstream outdoor activity equipment.

While REI began the 70’s with $5m in annual sales, the 80’s began at $50m. So healthy, if not atmospheric growth. By the start of the 90’s revenues were at $230m, with 23 retail stores. By the end of the 90’s Wally Smith, the fourth president and CEO, had overseen the launch of the internet store and opened the flagship store in Seattle. They also began dabbling in the ‘outlet’ store, which survives today. The new century began with 61 stores, five million members and nearly $700m in sales. Two new CEO’s took their seats during the noughties. First Denis Madsen, and five years later Sally Jewell who would later become Secretary of the Interior during the Obama administration. This was an interesting development, and shows that the board was aware and in tune with political influence in its appointments - its safe to assume! And perhaps political leaning. Then again, one doesn’t make an omelet without cracking a few eggs.

Today Eric Artz, who took over the hot-seat from Jerry Stritzke in 2019, watches over a $3.8B consumers cooperative and 15,000 employees. Despite record sales in 2022, the company posted a net loss of $164m. However that was reflective of the overall industry.

OK, some interesting facts and insights. Firstly, the ownership.

“As a consumers' cooperative, REI is owned by its members, who are also its shareholders. When customers purchase a membership at REI, they become co-owners of the company and have the opportunity to vote for the board of directors and receive an annual dividend based on their purchases. This structure allows REI to prioritize the needs and interests of its members, rather than outside shareholders.”

REI was the originator of the ‘anti’ Black Friday ‘Opt Outside’ movement, where it closes its stores annually on one of the busiest shopping days of the year, and encourages its employees and members to do something outdoors. Genius! And remember you can still shop online at REI.com

REI put its money where its mouth is, as Jerry Stritzke the president and CEO resigned in 2019, “…after an investigation into a “personal and consensual relationship” between the CEO and the head of “another organization in the outdoor industry,” according to a statement from the company. It wasn’t clear whether the organization was an REI supplier or other partner.”

It’s clear that certain standards are expected internally, which is refreshing. I visited the HQ a couple of times, trying to get CRUA product into REI (I failed!). But I did get the vibe of the place. It seemed real. Yes, you have an office building trying hard to project an outdoors feel and authenticity. It didn’t possess the ‘flip-flop feel’ of Yeti’s HQ, but it was chilled, albeit in a slightly more corporate kind of way. They are clearly in the business of making money first, but are trying to do some good.

The REI board sold their almost new corporate campus in Bellevue, WA shortly after covid, frankly, for the cash. The official reason was new work habits, and leaning into remote working, but the Co-Op needed to shore up the balance sheet post pandemic. And it’s hard to blame them. But the building of this campus was huge for them and engrained in their minds for years. Even when I visited in years before. So seeing them make this decision was very difficult. But also would instill confidence in the internal corporate governance. The sale to Facebook completed in Sep 2020 for a sum of $390m.

Conclusion:

As I mentioned at the outset, this is a standout from the other deep-dives I’ve done. Co-Op models are notoriously hard to scale to this kind of size and it’s testament to the early structures, and the cohesion that has been maintained. That I admire. Also, like Yeti and Patagonia, it has done a super job of maintaining its authenticity. Naive, it is not. And it will need to be nimble in the years ahead. Legacy outdoor focused brick and mortar stores will be challenged like never before, and only the adaptable will survive. See Bass Pro vs Cabela’s.

I think REI will be OK. It has nearly 90 years of experience in the bank.

CRUA insight, week 18

OK, it has been an interesting week. April is finishing strong, and we’re pretty much at revenue target for the month, with a much lower marketing %. Most of our digital spend is not aimed at building our newsletter list and we’re getting sign-ups for c. $1.50 each on Meta. Also hoping to offset quite a bit of that through referral on SparkLoop. We’re really focusing on our

Passing marketing budget on

Seedrs; We’re delighted to announce that we’ve hit our minimum equity crowdfunding target this week. This has been our hardest raise. The market is cautious, and we expected to be further along by now. But it’ll put us in a good place into 2025. We’re hoping to add approx. $100k more before closing. Take a look:

New product launching on Kickstarter; We’re launching a lighter version of our bestselling combos on Kickstarter next month. This isa risk, as we hope to cannibalize our current range. But I think that we mitigated that risk by consulting with our community. While the air beam tech and its convenience are appealing to some, others are more weight/bulk and price conscious. So we’re addressing these pain-points. Hence we’re confident of widening the net rather than any cannibalization. We launch on May 14th.

While we’d have gone heavy on digital spend in previous campaigns, this time we aren’t. It’s much more of an organic campaign, working with existing audiences, and collaborations. So, like above, we’re able to pass savings on.

We’re in the pre-launch phase now which is important. KS facilitates us building a landing page on the platform. That gives us the chance to familiarize non Kickstarter traffic with the platform. Here it is:

Fingers crossed for a successful campaign, which nowadays is a 6 figure min, over 30 days, which is the optimum duration when not running a lot of ads.