REI's Dedication to Sustainability Bolsters Consumer Loyalty

REI Co-op has long advocated for the protection of the great outdoors, a practice that has helped cultivate a fiercely dedicated clientele now 18 million members strong.

Now the retailer, known for selling outdoor and athletic gear ranging from tents to camping stoves to bikes to yoga mats, is tapping into customers’ growing concerns about sustainability by beefing up two relatively new areas of its business: gear rental and the online resale of secondhand items between Co-op members.

REI Chief Executive Eric Artz, who took the reins in May after earlier stints as the chain’s interim CEO, former operations chief, and finance chief, is, among other initiatives, slowly moving toward building an online marketplace where members can sell gently-used gear to one another. (The business is still small but will double in 2019, the company says. In all, some 300,000 of its members will purchase used gear this year online or in stores.)

While opening a resale shop for members sounds like it would cut into REI’s sales, Artz says the online marketplace is fully aligned with the wishes of REI members, who are both the company’s customers and owners by virtue of the co-op structure. Reselling items instead of disposing of them is an environmentally-friendly practice.

“The idea of community and collective impact is core to what the Co-op is,” Artz told Fortune at REI’s store in Manhattan’s SoHo district. “One of the biggest threats we face is climate change.” And that, he adds, threatens the very foundation of demand for his stores’ products in the long term.

Last year, the cooperative rang up $2.78 billion in sales, up 6% from 2017, and the membership ranks grew by 1 million people. Much of REI’s success can be attributed to the leadership and direction being in tune with the co-op consumers.

Rivals in the $50 billion outdoor industry, including Patagonia and VF Corp.’s The North Face, are similarly beating the drum for better protection of the outdoors. Turns out these virtuous stands are also smart business. (Two years ago, Patagonia sued President Trump over a move that would significantly shrink Bears Ears National Monument in Utah.)

REI is also in the process of vastly expanding its rental program, notably in categories like skiing and camping, at 115 of its approximately 160 stores. The potential of the rental market is a key driver in Artz’s growth plan: a raft of new stores with many of them focused on specific sports.

Over the next five years, REI might add another 100 locations, Artz says, but they won’t all be typical REI stores, measuring in at 20,000-square-feet per pop. For example, a smaller REI store open since September in North Conway, N.H. caters to people heading into the White Mountains. The store’s biggest focus: ski equipment rentals.

Artz, who competes in triathlons, also sees opportunity in better serving athletes who favor sports where specialty stores dominate, notably cycling and running. The opportunity includes building communities that keep customers frequenting one store over the others. For instance, REI offers classes on bike repair which helps build traffic to its physical stores and online shop, which pulls in 30% of the company’s sales.

All the while, REI continues to cultivate its environmentalism cred. This coming Black Friday, the chain, as it’s done every year for the last five, will once again close stores and abstain from processing online orders. And, for the first time, REI will encourage shoppers and workers spending the day away from retail’s annual holiday season bacchanal to head out into their communities to pick up litter and plastic bottles.

REI has never been a promotional retailer so Black Friday is not the bonanza it is for a chain like Macy’s. Yet however much this could be dismissed as marketing, this move has enormous upside: customer and shopper loyalty.

What’s more, as a private company, REI has more leeway to sit out a big sales push like Black Friday.

“I get to think about generations, not quarters,” Artz says. He adds: “Black Friday is not what we’re about. We stand for something more, we stand for the outdoors.”