SEATLLE — After a poor financial showing last year in which it lost $311 million, REI has one big goal this year: break even.
The Issaquah-based co-op was faring well halfway through 2024, according to an Aug. 24 internal memo from CEO Eric Artz obtained by The Seattle Times. As of the end of July REI had hit its profit targets and was in a “solid position,” Artz wrote.
But revenue has been softening over the past few months and REI has to deliver more than $1.5 billion in revenue over the final 18 weeks of the year, the memo said.
REI’s problems stem from a broad sales slump in the retail industry, bloated executive ranks and a warmer winter last year that plagued the outdoor apparel industry. The co-op had a solid 2021 but has posted net losses in the two years since then.
Recent financial results suggest REI can’t rely on eye-popping revenue growth to help with profitability as sales have fluctuated between $3.7 billion and $3.85 billion for the past three years.
“We also know we have not been consistently operating at our best, and at the level we must, to grow in today’s marketplace,” Artz wrote.
He said the co-op’s brand is strong and its community outreach leads the industry. But, he continued, “those things aren’t translating into the traffic and sales that we need them to — to grow, to take market share, to win every possible customer moment.”
REI is facing the same obstacles other apparel and sporting goods retailers are grappling with, and 2024 has not been kind to them. A common foil to traditional retailers has been e-commerce, which exploded during the pandemic.
But those brick-and-mortar retailers are struggling to sell online too, according to Morningstar analyst David Swartz. Most of the retailers he covers, like Nike, Lululemon, Dick’s Sporting Goods and The North Face parent company VF, have had a disappointing year so far.
Outside of the sportswear and outdoor apparel companies, other retailers like Macy’s and Seattle-based Nordstrom have reported dwindling profitability over the past five years.
Nordstrom’s discount Rack stores are doing well and the company is opening more of them over the next year but the sales at its main stores aren’t showing robust growth. Members of the Nordstrom family have a plan to turn the brand around by offering to take the company private and keep financials away from the prying eyes of Wall Street.
Meanwhile Macy’s is downsizing, closing 150 stores by early 2027.
“The sportswear and outdoor market is not that strong and it hasn’t been for most of the year,” Swartz said. “Companies were hoping for a turnaround midway through the year but that didn’t happen.”
Nike recently replaced its CEO following a slow growth period, and Lululemon’s stock price is about half of what is used to be as sales growth in North America has slowed down. Dick’s Sporting Goods has been doing well but its sales growth isn’t matching the boom time of 2021, when outdoor retailers were benefiting from Americans with more time on their hands and fresh stimulus checks.
“I don’t know that there’s one factor, I think it’s a combo of things,” Swartz said. “There were high interest rates, which are coming down and providing confidence for next year and inflation which is doing the same. Companies are also trying to cut down on discounting to improve profitability.”
But for outdoor apparel companies one of the biggest factors for last year’s poor performance was a warmer winter. The North Face and its parent company VF had less revenue in its 2024 fiscal year, which ended in March, than in its 2023 fiscal year.
Last winter was the warmest on record in the U.S., according to the National Oceanic and Atmospheric Administration. That was felt acutely in states like Washington where ski resorts had slushy starts to a delayed season. Those conditions affect the sales for companies like The North Face, as retailers don’t want to buy inventory they’ll later have to discount due to a shortened ski season.
“There’s a small worry that climate change will affect these winters, leading to less products being sold,” Swartz said. “This year, I think REI would benefit from a colder and snowier winter.”
Artz said last year had a historically slow start to the cold-weather shopping season and the company is “taking several actions to create our own weather.”
To pick up those lagging sales numbers, REI is bumping up marketing dollars and re-evaluating when it holds sales throughout the holiday season. It’s also taking another look at its inventory. Artz wrote that REI is buying more “hot brands” like Arc’teryx and Vuori as well as more REI Outlet product.
“We’ve increased our marketing investment to drive traffic and are currently testing a variety of sales offerings for our members,” REI said in an emailed statement. “These experiments will provide rapid insights, and we are prepared to scale successful initiatives quickly. Additionally, we are focused on aligning our inventory to match the demands of our members and customers through the end of the year.”
But to finish the year strong, Artz contends REI needs to start with the executive ranks. REI will be flattening the leadership structure, which he said has not been as effective as it should be due to too many layers between the top of the chain and the more than 16,000 employees below them.
“We need to get leaders closer to the work, to be better guides and supporters of the work, including me,” he said.
At least six executives have left REI since last year, four of whom departed over the summer. Two of the unfilled roles, chief customer officer and chief supply chain officer, will be eliminated.
REI’s former chief customer officer, Ben Steele, left at the end of August after 10 years. The former chief supply chain officer Sylvia Wilks left in July after two years.
The co-op said in its emailed statement that it is actively recruiting for a chief marketing officer and a chief merchandising officer.
In the leadership shuffle, a relatively new face among REI’s executive ranks gained a promotion. Cameron Janes, who decamped from Amazon’s physical retail organization in January 2022 to join REI as chief commercial officer, is now the chief operating officer.
He’ll be keeping his commercial responsibilities leading digital and physical stores and will absorb the fulfillment and logistics teams.
Janes came to REI amid a string of hires from corporate America. Since 2022, REI has filled out executive roles with people from Chipotle, Bed Bath & Beyond and Levi Strauss.
“With a strong leadership foundation, REI remains confident in its long-term direction and ability to achieve our goals,” REI said in its statement.
