Recreational Equipment, Inc. History

Address:

6750 South 228th Street
Kent, Washington 98032
U.S.A.

Telephone: (253) 395-3780
Fax: (253) 395-4352

Member-Owned Cooperative
Incorporated: 1938
Employees: 6,500
Sales: $887.8 million (2004)
NAIC: 451110 Sporting Goods Stores; 448140 Family Clothing Stores; 454113 Mail-Order Houses

Company Perspectives:

REI offers quality gear, clothing and footwear selected for performance and durability in muscle-powered outdoor recreation, including hiking, climbing, camping, bicycling, paddling and winter sports. All products sold by REI are backed by a 100 percent guarantee.

Key Dates:

1938:: A group of climbers led by Lloyd Anderson forms Recreational Equipment, Inc. (REI).
1944:: REI opens its first retail location.
1953:: REI hires its first full-time employee.
1967:: THAW, a product-testing subsidiary, is formed.
1975:: A second REI store is opened, debuting in Berkeley, California.
1979:: Jerry Horn, a former merchandise executive for Sears, is named president, ushering in a period of rapid expansion.
1987:: The first store on the East Coast, located in Reading, Massachusetts, opens.
1996:: A new flagship store in Seattle is opened.
2000:: A store is opened in Japan and closed the following year.
2005:: Sally Jewell is named president of the 77-store cooperative.

Company History:

Recreational Equipment, Inc. (REI) is one of the nation's largest consumer cooperatives, selling sports apparel, outdoor sporting equipment, and mountain climbing gear. REI sells its apparel and gear through a chain of 77 stores, a web site, and through a mail-order catalog business. The cooperative is owned by its more than 1.7 million member-customers who receive annual patronage dividends in proportion to their spending. In addition to its involvement with outdoor clothing and equipment, REI operates a full-service adventure travel company named REI Adventures.

Early History

When a group of Pacific Northwest mountain climbers searched for a way to get their hands on highly coveted Swiss ice axes, their solution was the formation of REI, an enterprise destined to become one of the largest consumer cooperatives in the United States. At the time of REI's formation in 1938, serious mountain climbers in the region were in need of quality, European-manufactured mountaineering equipment, but there was little they could do individually to bridge the 5,000-mile gap separating Seattle and the epicenter of European mountaineering manufacturing. Swiss ice axes and other European-manufactured mountain climbing equipment were unavailable in Seattle during the 1930s, forcing area climbers to use inferior mountaineering equipment while their European counterparts enjoyed the advantages of quality equipment designed for serious use. To open up a distribution conduit from Europe to the Pacific Northwest a group of 23 Seattle, Washington climbers led by Lloyd Anderson took collective action and turned to the roots of the modern cooperative movement for the philosophical backbone to support their group effort.

Anderson, an engineer who served as REI's president during the cooperative's first three decades of existence, looked to England for a way to import Swiss ice axes to the United States. His research uncovered the Rochdale Equitable Partners Society, an organization established in Rochdale, England, during the 19th century that was widely regarded as the progenitor of the modern cooperative movement. From the Rochdale Cooperative, Anderson adopted the principles that would guide REI, creating a cooperative whose membership was open to all, with each active member receiving one vote and annual dividends in proportion to patronage. After paying a modest, one-time membership fee, customers became owners of the cooperative and received a percentage of the amount they spent on merchandise each year, a percentage that was determined by the cooperative's annual profit total. Organized as such, REI represented a bold experiment in the retail industry, an enterprise with an egalitarian perspective pursuing socialist, utopian objectives that were conspicuously out of place in the fast-paced, profit-crazed retail world. The concept worked, however, succeeding in an industry littered with failed businesses whose strategies were more in line with capitalist ideals.

Not surprisingly, REI's development into one of the country's largest consumer cooperatives and into one of the nation's largest retailers was a slow, gradual process. The object was not to create a flourishing chain of retail outlets, but to create a way for Seattle climbers to obtain state-of-the-art European climbing equipment at the best prices possible. The cooperative, in fact, did not operate a retail location until six years after its formation. Initially, REI operated out of Lloyd Anderson's house in West Seattle, but public demand for mountaineering hardware led to the establishment of the cooperative's first store in 1944, a modest operation comprising three shelves situated in the back of a gas station in downtown Seattle.

From this milestone in the company's history, the arrival of the next turning point was nine years away, occurring in 1953 when REI hired its first full-time employee to manage the cooperative's sole store. The store by this point was collecting $72,000 a year in sales, and its stewardship fell to a young local climbing enthusiast named Jim Whittaker, who, along with his twin brother, Lou, had spent his life scaling the myriad mountains dotting the Pacific Northwest. Whittaker joined REI a decade before he became the first American to reach the summit of Mt. Everest, an achievement that earned the inveterate mountain man worldwide fame and local acclaim and drew attention to REI, Whittaker's place of employment (off the mountains) for a quarter of a century. Whittaker's involvement with REI led to the beginning of a new era in the cooperative's history, bringing to a close the decades of Anderson's presidency and marking the beginning of REI's development into a retail giant.

Expansion Beginning in the 1970s

Anderson served as REI's president from its founding year to 1971, overseeing the establishment of the company's first store in 1944 and its relocation to Seattle's Capitol Hill neighborhood in 1962. His departure in 1971 paved the way for Whittaker's ascendancy to the cooperative's presidency and years of unprecedented growth for the sleepy, one-store enterprise. Under Whittaker's leadership, the cooperative diversified and expanded. A product-testing subsidiary named THAW, which was formed in 1967, was built into a clothing manufacturing subsidiary during Whittaker's tenure in the 1970s. A second store was established in Berkeley, California, in 1975, making its debut 31 years after the first store opened its doors. After this lengthy gap separating store openings, Whittaker waited a mere year before opening REI's third store, establishing it in Jantzen Beach, Oregon. Quickly, REI was transforming into a regional retail powerhouse under Whittaker's directorship, executing a common evolutionary leap expected of many retail corporations but not necessarily of a consumer-owned cooperative. For years, certain members of REI's board of directors (elected by active customer-owners) had been growing alarmed at the changes taking place, changes that, according to some, were altering the philosophical foundation upon which REI had been created. As the 1970s progressed, the rancor intensified, pitting a faction of rebellious board members against their president, Jim Whittaker. The resolution of this dispute set the stage for the most prolific growth in REI's history, marking a definitive juncture in the story of the cooperative's life.

Essentially, the philosophical battle waged during the 1970s hinged on the central issue of growth, on whether REI would follow Whittaker's ambitious expansion plans or the desires of those board members who wanted to preserve the cooperative's more simplistic roots. It was a struggle in which Whittaker did not want to participate. Whittaker quit in 1979, later telling a Forbes reporter, "A lot of board members were against growth; they wanted it to be the same little store." Whittaker went on to found a new manufacturer of mountain gear, a company whose merchandise was marketed under the "Because It's There" label, but his departure did not signal a return to the more supine years of REI's past. Instead, the cooperative entered the 1980s fully committed to the scale of expansion proposed by Whittaker.

In the election to decide Whittaker's successor, the proponents of no growth lost out to those who clamored for expansion, paving the way for a new president whose professional background determined REI's future. Elected to replace Whittaker was Jerry Horn, a former merchandise executive for Sears who joined REI and immediately began preaching strategic planning. The focus on strategic planning worked wonders for REI's profitability, boosting annual patronage dividends considerably. Horn added a line of children's apparel, replaced the cooperative's full-time clerks with more inexpensive seasonal workers, and in 1981 acquired Mountain Safety Research (MSR), a manufacturer of backpacking stoves, helmets, carabiners, and other mountaineering equipment. In a few short years Horn could point to tangible evidence in support of his work. Patronage dividends increased from a depressed 5 percent when he joined the company to 12 percent by the early 1980s, an increase that validated the shouts for growth during Whittaker's tenure.

Horn resigned from REI in June 1983, opting to leave the cooperative to run a stockholder-owned campsite company. Horn left a rapidly growing company supported by seven stores and a mail-order catalog business that generated roughly 25 percent of the cooperative's annual revenue volume. Sales by this point had marched upward at a 26 percent annual pace for the past three decades, rising to $72 million by 1982, while annual profits neared $9 million, the bulk of which was divided among the cooperative's 465,000 customer-owners. To take charge of this flourishing retail enterprise, the cooperative's board elected 36-year-old Wally Smith to replace Horn, a selection that augured more growth for REI. Smith, whose childhood dream was to become a stockbroker, joined REI as a summer worker in 1965, becoming the first manager of the cooperative's Berkeley store when it opened a decade later. Before being elected as the cooperative's fourth president, Smith earned a business degree from the University of Washington. He then proceeded to use his educational training to orchestrate REI's expansion.

By the time Smith was settling into his new position at REI, the cooperative was selling not only a variety of climbing equipment, apparel items, and sleeping bags, but also items that had little to do with the objectives first articulated by Lloyd Anderson during the 1930s. REI, through its seven retail outlets and the more than five million catalogs it distributed each year, was a purveyor of signed and numbered art reproductions and gourmet popcorn by the time Smith took the helm. To charges that REI was developing into an organization that bore little resemblance to the cooperative formed nearly a half century earlier, Smith expressed no remorse. "The demand for backpacking goods peaked in the 1970s," he explained to a reporter from Forbes just after assuming REI's presidential duties. "What responsible company doesn't change with the times?"

Four years after being elected president, Smith had quickly established a legacy of expansion at REI. In 1987, the cooperative operated 17 stores, up substantially from the seven stores Smith inherited in 1983. Expansion on the East Coast was started during the year with the establishment of a store in Reading, Massachusetts, and ambitious expansion scheduled for the immediate future promised to strengthen the cooperative's national presence significantly. Sites selected for REI stores in 1988 (the cooperative's 50th anniversary year) included San Francisco, San Diego, Atlanta, Philadelphia, and California's San Fernando Valley, part of a five-year plan that called for the opening of between 15 and 20 25,000-square-foot stores.

1990s: Growth and a New Flagship Store

Fueled by this prodigious expansion, annual sales swelled to more than $200 million by the end of the decade, reaching $231 million by the beginning of the 1990s. The cooperative's subsidiary operations, THAW and MSR, had also recorded encouraging growth during the 1980s, adding to the luster of the REI organization as it prepared for the decade ahead. THAW's sales volume increased 166 percent during the 1980s, while MSR, one-quarter the size of THAW, registered more prolific growth, increasing its sales volume an astounding 453 percent. By 1990, there were 22 stores spread across 13 states; a year later there were 27 stores scattered throughout 16 states extending from Alaska to New York. Eight years after Smith's election, REI's membership rolls included more than two million registered members, more than 900,000 of whom were designated as active members--twice the number during Smith's inaugural year.

Growth on all fronts necessitated the construction of a state-of-the-art 400,000-square-foot distribution center in Sumner, Washington, in 1991, evidence that the onset of a national economic recession was having little effect on REI. The cooperative, in fact, performed admirably during an economic downturn that devastated many retailers throughout the country. In 1992, when REI operated 32 stores in 18 states and announced plans to double in size by the end of the decade, the cooperative posted record sales, a feat duplicated in 1993, when REI acquired tent manufacturer Walrus, Inc., and again in 1994. The most remarkable news of the early 1990s, however, was the cooperative's announcement in 1993 that it would relocate its flagship Capitol Hill store and construct a modern store more suited to the needs of the company during the 1990s and the decades ahead.

Since its establishment in 1962, the Capitol Hill store had grown along with the cooperative, but in helter-skelter fashion. As the cooperative grew, the flagship store expanded, swallowing up adjoining buildings along Pike Street and eventually snaking its way through five levels of retail space measuring 37,000 square feet. By the early 1990s, Smith and REI's board had decided the time had come for a new store, a store that would put an end to the nightmares of parking near Pike Street and make a bold statement about the future of REI.

As designs were being developed for the new store, REI continued to experience heartening growth. In 1994, REI operated 40 stores in 18 states, generated $432 million in sales, and ranked as the sixth largest sports apparel retailer in the United States. After two years of registering record sales and averaging 16 percent annual growth during the worst of economic times for retailers, projections for 1995 were justifiably optimistic. In 1995, however, expectations collided with reality. Anticipating growth during the year in excess of 15 percent, Smith was chagrined to record a modest gain in sales of 2.8 percent. Any disappointment stemming from 1995's lackluster sales performance was swept away the following fall when REI celebrated the grand opening of its new flagship store among throngs of disbelieving customers.

REI's new Seattle store opened in September 1996 after more than three years of planning. Measuring nearly 100,000 square feet, the new store contained 80,000 square feet of retail space, or more than twice the space of the cooperative's old and shuttered Capitol Hill store. Aside from increased retail space and an onsite, multilevel parking garage, there were numerous features that put the store in a class of its own and quickly made it a destination point for tourists visiting the Pacific Northwest. On the 1.2-acre site occupied by the flagship store, 21,000 square feet was set aside for native Northwest flora and a pond and waterfall charged with recirculated rainwater. Winding its way through the REI park was a 470-foot outdoor mountain-bike trail for customers to test bikes before purchase. Inside, the store featured a Rain Room that showered water on customers trying on waterproof clothing, a camp-stove-testing and water-filter-testing area next to the store's campsite and stream, and the most eye-catching of all the new features and interactive displays gracing the store, the 110-ton, 65-foot REI Pinnacle, the tallest free-standing indoor climbing structure in the world. Housed in a glass enclosure that offered summit views of the Puget Sound, the Olympic Mountains, and downtown Seattle, the indoor climbing rock accommodated as many as 15 climbers at a time and represented one of the most effective marketing tools for the store.

REI Entering the 2000s

As REI prepared for the late 1990s, there was much to be celebrated. The opening of the new flagship store proved to be a rousing success, fueling confidence in the future. Although some charged that the cooperative had strayed from its roots by opening a store of such scale and grandiosity, others maintained that REI had merely built upon the foundation created by Lloyd Anderson to produce an enterprise capable of competing and growing during the 1990s and the century ahead. Whatever the feelings of the nearly 1.4 million customer-owners composing the cooperative's membership during the mid-1990s, the spectacle of the new flagship store pointed to the continued evolution of the principles first established by Anderson in 1938.

If the advocates of a less expansion-minded REI were troubled by the cooperative's actions in the mid-1990s, the growth of the retailer during the ensuing decade offered little solace. REI grew robustly at the close of the century, scoring success and registering notable failures as it flirted with $1 billion in sales. REI established a presence on the Internet the same month the Seattle flagship opened, adding a discount site, REI-Outlet.com, in 1998. The following year, the company began building toward one of the boldest moves in its history when it launched a Japanese-language web site. The launch of the site set the stage for the greatest geographic leap in the cooperative's history, leading to the opening of a store in suburban Tokyo in April 2000. The establishment of a retail store in Japan, where the cooperative had built a base of more than 80,000 members during the 1990s, could have ushered in an era of international expansion but the experiment failed quickly. In June 2001, after discovering that outdoor enthusiasts represented a niche market in Japan, REI announced it was liquidating merchandise at the Tokyo store and shutting down its Japanese-language web site.

The entry into Japan proved to be a mistake--not the only misstep taken by the cooperative--but on the whole the story was one of growth. REI operated 59 stores in 14 states by the end of the 1990s, a total that grew in subsequent years by establishing stores in clusters. In 2000, for example, the company opened its fifth store in the Bay Area, establishing a 22,000-square-foot store in Fremont, California. In late 2003, REI opened a store in Durham, the third store in North Carolina. By the end of 2004, there were 77 stores operating under the REI banner. Sales for the year nearly reached $890 million, a 10 percent increase from the total collected in 2003. Profits in 2004 made a more impressive leap, increasing 32 percent to reach $25 million. The financial totals were noteworthy not only because they reflected a vibrant retailer but also because they marked a turning point. In 2004, Dennis Madsen, an REI employee of 39 years, announced his intention to retire as president and chief executive officer the following year, paving the way for new leadership as the cooperative plotted its future course.

Sally Jewell was tapped to replace Madsen as the day-to-day leader of REI. A University of Washington graduate, Jewell spent nearly two decades in the banking industry before becoming REI's chief operations officer in 2000. Jewell officially occupied the presidential post in April 2005, announcing in an April 19, 2005 interview with Tacoma's News Tribune, "It's great to have an avocation become a vocation." Looking ahead, Jewell planned to continue to expand by clustering stores in new markets, employing the same expansion strategy used by Madsen. She also embraced a merchandising strategy that emphasized clothes and gear developed for short excursions in the outdoors. Looking ahead, Jewell, through a gradual process, intended to brand the stores according to their local market, seeking to make an REI store reflect the distinguishing characteristics of its particular market. "We want a regional feel with a national presence," she remarked in her interview with the News Tribune.

Principal Subsidiaries: THAW; REI Adventures; REI Foundation.

Principal Competitors: L.L. Bean, Inc.; Patagonia; The Sports Authority, Inc.; Bass Pro Outdoor World.

Recreational Equipment, Inc. History

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Key Dates:

Company History:

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