Expanding REI wants to maintain homespun qualities Robust success: Since 1938, Recreational Equipment Inc. has worked to build customer loyalty. Amid rapid growth today, that goal remains intact.

Retailing

April 14, 1996|By SEATTLE TIMES

SEATTLE -- In the shadow of Interstate 5, the Northwest institution known simply as REI is quietly building its catbird seat.

The new flagship store for Kent, Wash.-based Recreational Equipment Inc., under construction in Seattle, symbolizes the robust success and continued expansion of the nation's largest consumer cooperative -- a company that operates 44 stores in 20 states and has elevated the sale of kayaks and carabiners to a $448 million business that's still growing.

Look closer, and the new project symbolizes still more.

Behind the steel superstructure, there are rustic wooden beams and an enormous stone fireplace.

In the midst of the kind of heady growth that has been known to spoil other companies, these touches point to a conscious effort to preserve REI's rough-hewn soul and its simple, homespun ethic of customer service and quality gear at a fair price.

The challenge REI faces in remaining true to its roots is at the crux of a current debate over how much REI's board of directors should be paid.

At issue is not just money but whether REI's continued success will alter the formula that has made it so popular.

REI has come a long way since that first day of summer in 1938, when six mountain climbers, including founders Lloyd and Mary Anderson, tossed $1 each into a kitty to purchase climbing equipment.

The group formed a cooperative, which used the one-time membership fee (now $15) to purchase equipment in bulk. At year's end, any money remaining was returned to the members -- a process that continues today in the form of a dividend based on each member's annual purchases. In 1995, the company returned $25.8 million to its members in dividends.

That kind of loyalty to customers has spurred loyalties of its own. Though anyone can shop at REI, members account for about 85 percent of sales. And as an employer, REI experiences only about 25 percent turnover.

The company has been noted twice in the book "The 100 Best Companies to Work for in America."

Though REI's growth came well before the boom in outdoor recreation that began in the 1990s, the company benefited greatly from the surge in popularity that suddenly made the sale of hiking boots, mountain bikes and other "human-powered" recreational equipment a $10 billion business, according to figures from the Outdoor Recreation Coalition of America (ORCA), an industry trade association.

As a result, 1992 to 1994 "were record years for REI," said Wally Smith, REI's 48-year-old president, chief executive officer and an REI "lifer" who worked his way up from the mail room. Sales climbed 15 percent to 17 percent a year during that period.

That type of success made REI the nation's sixth-largest sporting-goods and sports-apparel retailer in 1994, behind the likes of Foot Locker, L. L. Bean and Eddie Bauer, according to Sportstyle, an industry trade magazine.

Last year, REI added 272,000 members for a total of almost 1.4 million worldwide. About 30,000 live in Japan and take advantage of the company's thriving mail-order business, which was named one of the top-five mail-order businesses in the nation by Consumer Reports in 1995.

Plans continue for adding retail outlets this year -- a second store in Phoenix and one in Houston.

And then there's the flagship store. The two-floor, 100,000-square-foot building, slated to open in September, will be twice the size of the former car-dealership building that REI has occupied since 1962. It will include a 65-foot climbing wall, a 250-person auditorium, a 100-seat cafe and a parking garage.

Though company officials won't say how much the project will cost, construction permits total about $13 million.

The string of successes is not to say that REI escaped the downturn in retail sales that hurt most of the industry in 1995.

Sales for the co-op and its four manufacturing subsidiaries grew just 3 percent last year, after an almost 18 percent increase the previous year.

A number of factors contributed to the growth-rate decline, including a national drop in consumer spending and a market flooded with cheap sporting goods -- small and "big box" sporting-goods retailers were liquidating merchandise to stay afloat.

Some say the overall market for outdoor recreational clothing and equipment may have leveled off, or at least stabilized.

Judy Leand, managing editor for Sportstyle, forecast moderate growth of "about 3 (percent) or 4 percent" for the industry as a whole in 1996. But Mr. Smith said he's confident REI can return to "the usual goal" of 11 percent to 15 percent growth.

That may not be as difficult as it sounds, given what many describe as REI's unique "niche" in the industry. As a large company that focuses on only five sports -- camping, climbing, cycling, paddling and skiing -- REI is able to combine the economies inherent to the big-box retailers, with the unique equipment and know-how of specialty stores.

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