REI, reporting losses and laying off executives, could benefit from a cold winter

SEATTLE — After last year’s poor financial results, in which it lost $311 million, REI has one big goal this year: breaking even.

The Issaquah-based cooperative was performing well in mid-2024, according to an internal memo from CEO Eric Artz obtained by the Seattle Times. As of the end of July, REI had met its earnings targets and was in a “solid position,” Artz wrote.

However, revenue has been declining over the past few months and REI is expected to generate more than $1.5 billion in revenue in the last 18 weeks of the year, according to the memo.

REI’s problems stem from a broad slump in retail sales, bloated executive positions and a warmer winter last year that battered the outdoor apparel industry. The co-op had a good year in 2021, but has reported net losses in the two years since.

Recent financial results suggest that REI cannot rely on staggering revenue growth to help maintain profitability, as sales have fluctuated between $3.7 billion and $3.85 billion over the past three years.

“We also know that we are not consistently performing at the highest level and at the level we need to in order to thrive in today’s marketplace,” Artz wrote.

He said the co-op’s brand is strong and its community outreach is leading in the industry. But, he continued, “these things don’t translate into the traffic and sales we need to grow, gain market share, and capture every customer moment possible.”

REI faces the same headwinds that other apparel and sporting goods retailers face, and 2024 has not been kind to them. A common barrier for traditional retailers is e-commerce, which has exploded during the pandemic.

But according to Morningstar analyst David Swartz, these retailers are also struggling to sell online. Most of the retailers it manages, including Nike, Lululemon, Dick’s Sporting Goods and parent company The North Face VF, have had a disappointing year so far.

In addition to sportswear and outdoor companies, other retailers such as Seattle-based Macy’s and Nordstrom have seen profitability decline over the past five years.

Nordstrom’s off-rack discount stores are doing well and the company will open more stores next year, but sales at its main stores aren’t showing much growth. Members of the Nordstrom family plan to rebrand, offering to take the company private and keep its finances away from the prying eyes of Wall Street.

Meanwhile, Macy’s is downsizing and closing 150 stores by early 2027.

“The sports and outdoor apparel market is not as strong and hasn’t been for most of the year,” Swartz said. “Companies had hoped that the situation would improve mid-year, but this did not happen.”

Nike recently replaced its CEO after a period of slow growth, and Lululemon’s stock price is half its usual price as sales growth slows in North America. Dick’s Sporting Goods is performing well, but its sales growth hasn’t matched the boom in 2021, when outdoor retailers benefited from Americans having more time on their hands and fresh stimulus checks.

“I don’t know if there’s one factor, I think it’s a combination of many factors,” Swartz said. “There have been high interest rates, which are falling and providing certainty for next year, and inflation, which is doing the same. Companies are also trying to limit discounting to improve profitability.

However, for outdoor clothing companies, one of the main factors behind last year’s poor performance was a warmer winter. The North Face and its parent company VF had less revenue in fiscal 2024, which ended in March, than in fiscal 2023.

According to the National Oceanic and Atmospheric Administration, last winter was the warmest on record. This was felt acutely in states like Washington, where ski resorts had a muddy, delayed start to the season. These conditions are affecting sales for companies like The North Face, as retailers don’t want to buy goods they will later have to discount because of the shortened ski season.

“There is a slight concern that climate change will impact these winters, resulting in reduced product sales,” Swartz said. “I think REI would benefit from a colder, snowier winter this year.”

Artz said last year’s cold weather shopping season got off to a historically slow start, and the company was “taking several steps to create our own weather.”

To catch up on sales, REI is increasing its marketing dollars and reassessing whether it can sustain sales throughout the holiday season. He also takes a second look at his inventory. Artz wrote that REI is buying more “hot brands” like Arc’teryx and Vuori, as well as more REI Outlet products.

“We have increased our marketing investments to drive traffic and are currently testing various sales offers for our members,” REI said in an emailed statement. “These experiments will provide rapid insight, and we are prepared to scale successful initiatives quickly. Additionally, we are focused on adapting our product range to meet the needs of our members and customers by the end of the year.”

But Artz says REI needs to start with leadership positions to finish the year strong. REI will flatten a leadership structure that it believes has not been as effective as it should be because of too many layers between the top of the chain and the more than 16,000 employees below.

“We need to bring leaders closer to the work to be better guides and advocates for the work, myself included,” he said.

At least six executives have left REI since last year, four of whom left over the summer. Two of the vacant positions, chief customer officer and chief supply chain officer, will be eliminated.

REI’s former chief customer officer, Ben Steele, left in late August after 10 years. Former supply chain director Sylvia Wilks left in July after two years.

In its emailed statement, the co-op said it is actively recruiting for the position of director of marketing and director of merchandising.

As a result of the management shake-up, a relatively new face in REI’s management ranks was promoted. Cameron Janes, who left Amazon’s retail division in January 2022 to join REI as chief commercial officer, is currently chief operating officer.

He will continue in his commercial responsibilities, running digital and physical stores, and will take over the fulfillment and logistics teams.

Janes joined REI among a number of employees from corporate America. As of 2022, REI shares leadership roles with people from Chipotle, Bed Bath & Beyond and Levi Strauss.

“With a strong foundation of leadership, REI remains confident in its long-term direction and ability to achieve our goals,” REI said in a statement.