What’s in store for REI in 2021 and beyond?

As tumultuous and transformative as 2020 was for REI due to Covid-19, the company’s latest announcements—coupled with developments occurring outside its control—indicate this year could also be pivotal for the outdoor retail giant.

Last week, REI said it will open a new corporate satellite office in Issaquah, Washington, and implement a work-from-home policy for its corporate employees.

The move was understandable and expected, given the recent coronavirus-driven changes at the retailer. It also came about five months after REI unloaded its sparkling yet unused headquarters in Bellevue, Washington, to help cope with the financial ravages of the pandemic.

In September, REI sold its custom-built 400,000-square-foot campus for $390 million to Facebook after listing the property just a month earlier. The co-op had begun construction of the headquarters complex in 2018 but never moved in—as it hoped to do last summer—due to the pandemic both upending how work got done and undoing the need for expansive office space.

REI said its new Issaquah location “is the first of several planned satellites around the Puget Sound area. The co-op will use this first satellite location to test technology and prototype digital and physical spaces that unlock collaboration for people spread across a variety of locations.” REI said it is testing a “hybrid work model” that will allow employees to work from home up to five days per week.

“We believe the future of work is much more fluid,” Chris Putur, REI’s executive vice president of technology and operations, said in a statement. “We’re building the future around the work that needs to get done, and creating flexible, agile, and inclusive ways to deliver innovation for our customers—and we no longer believe we need a traditional office model to do so.”

“A year like no other”

The “future of work” will look decidedly different at REI, but what else is in store for the $3 billion-a-year co-op? One thing we know is that the post-pandemic world portends change for the retailer—much of it, perhaps, unwelcome.

Due to the weakness of its revenue last year, REI announced that it didn’t post a profit in 2020 and therefore would not be issuing dividends for members.

“2020 was a year like no other—at the co-op and around the world,” Vivienne Long, vice president of marketing, began her email last week to REI’s membership explaining the situation. “Many organizations would say that the past year was among the most difficult years in their history. The same is true for our co-op.”

Long cited the co-op’s numerous challenges last year and said that because REI “didn’t earn a profit in 2020, we don’t have those profits to provide to members in the form of a dividend.”

Receiving an annual dividend is a rite of spring for REI members, who then use their credit toward purchasing even more gear. A win-win for consumers and the co-op. The amount each member receives is based primarily on how much they spent at the co-op the previous year.

Instead, REI said members will “receive a member reward equivalent to what your dividend would have been: 10 percent back on your eligible full-price purchases in 2020.”

That REI Co-op didn’t earn a profit in 2020 isn’t surprising, and while we won’t know the financial details of REI’s 2020 calendar year until it publishes its annual report in the spring (usually in April), it’s obvious the company endured some monumentally tough sledding amid Covid-19.

Thankfully for REI, it strode into the pandemic on solid financial ground. Last April, the co-op reported 2019 sales grew 12.3 percent year over year to reach a record $3.1 billion, though a net income of $21 million marked a 55.3 percent decrease from $47.1 million the previous year, in part because the company reinvested profits in a variety of outdoor causes.

REI also posted 3.5 percent comparable growth in store traffic and added eight new stores, bringing the co-op’s total to 160 in the U.S. (now up to 168).

The evolving retail landscape

The 2020 picture won’t be nearly as rosy for REI. Covid-19 took a toll on the co-op, as it did for almost every retailer, and REI enacted a series of measures as it faced temporary store closures last spring and summer due to state-mandated lockdowns. 

However, fetching a nice price for its headquarters last fall should help soften the blow, as will widespread interest in all manner of outdoor activities that has sparked record gear and apparel sales.

But the outdoor marketplace is evolving as sellers move online to meet consumers’ shifting demands. 

REI could face increased competition from specialty retailers, which collectively posted decent 2020 numbers despite the pandemic and now project a brighter-than-expected future. And the co-op will soon face a potentially significant foe when Pittsburgh-based Dick’s Sporting Goods opens its new outdoor concept, Public Lands, later this year.

While Dick’s will start small with just two stores, both of which are slated to take over former Field & Stream locations in Pittsburgh and Columbus, Ohio, the company has savvy leadership in place after tapping industry veteran Todd Spaletto of Wolverine World Wide and The North Face fame to lead, and perhaps scale, this outdoor retail effort.

How much of a threat Dick’s poses to REI remains to be seen, but the big-box chain has the capital and the clout to expand its footprint and take market share from competitors of all sizes.

We’ll have a clearer picture of REI’s future in the coming months. In the meantime, be sure to read much, much more about the retailer in “Goliath’s Reckoning,” Marc Peruzzi’s exhaustive look at the company’s past, present, and future, which first appeared in the most recent edition of our print magazine.