REI -- Working Out

Based in Kent, Washington, REI steadily built itself into a nearly US$ 1 billion outfit, with retail sales topping $887 million in 2004. The company has been opening new stores at an accelerating pace over the last few years and now has about eighty of them spread across the US, most populously in the West and Northwest. REI (Recreational Equipment, Inc.) is also a retail "cooperative" with 2.5 million active members who get an annual kickback that usually amounts to about ten percent of their purchases over the preceding year.

"We're all either involved in the outdoors or aspire to be involved in the outdoors," says Betty Fujikado, head of the agency that handles REI's minimal advertising, mostly for store openings. "It's a great lifestyle brand, where we've been able to remind people how much they like the outdoors -- and that we can help them enjoy it."

At each store, managers go out of their way to recruit and retain employees who are true outdoors enthusiasts and who end up "selling" REI largely on the basis of their authentic experience in and enthusiasm for outdoor activities, their deep knowledge of the equipment that REI sells, and their ability to size up and influence members and other customers there in the store.

"The best comments that we get back from customers is about their interaction with our employees," says Atsuko Tamura, senior vice president of strategy, marketing and communications at REI. "They're the best at developing those relationships and the trust that builds the loyalty that customers have for REI."

Fujikado explains that, "internally, [employees are] expected to live the brand. Employees go out and take long bike rides at lunch or are doing running or outdoor yoga just to make sure they get out and enjoy themselves." REI employees, she says, "really live their outdoor lifestyles and understand them. They're there not just to make a sale but to help customers learn about the outdoors and get out and enjoy it as much as they can."

Collaboration and cooperation among employees, up and down the organizational chart, also are prized values within REI. One way their importance is communicated is the fact that headquarters executives continually scheme to come up with ways to allow sales-floor employees to spend more time with customers. Also underscoring the importance of this ethos is the fact that REI salespeople don't work on a commission basis.

"We don't believe in commissions," Tamura says. "We have explored the idea of commissions, but as a culture, we said, 'No way. We don't want to compete with each other in the store.' It may be a healthy way to encourage more sales, but most of us believe that it would put employees in a position where it would make it more difficult for them to give the right kind of service to the customer."

However, REI is all for the idea of its stores competing with one another to ring up more sales. Inter-store competition is a major component of a relatively new employee-bonus program called Excels. Individual employees' rewards are based on how the company performs financially as well as how high their particular store performs against the others.

Several years ago, the company also made a bit of its marketing reputation by becoming a trailblazer in "experiential" retailing. The idea was to make a visit to an REI store more than just a shopping expedition by lending some extra, participative excitement to it that would engender more customer enthusiasm for a particular piece of equipment, whet their interest in a type of outdoor activity or simply create another type of positive association with the brand.

At its prototype stores -- at up to about 100,000 square feet, they are several times larger than REI's typical 20,000-square-foot outlet -- in its flagship hometown of Seattle, in Denver, and in Minneapolis, REI came up with some features that enabled customers to experience at least a slice of some of the most popular outdoor activities that are supplied by REI.

One much talked-about feature of these stores, for example, is a climbing wall, called the Pinnacle, on which customers can test out various pieces of equipment that REI carries in the store. Another experiential innovation is an indoor trail for testing hiking boots. In Denver, REI even went so far as to install a "cold-weather room" in which the temperatures are subzero and through which icy artificial winds blow, helping customers test out parkas and other cold-weather apparel.

But lately, REI executives have been rethinking and actually overhauling the way they and their stores approach the idea of experiential marketing. One thought is that perhaps providing in-store experiences is a notion that already has enjoyed its heyday, not only in REI's biggest stores but also for other major exemplars of this trend from the late nineties, such as Nike's (NKE) Niketown stores. It's clear enough to REI's leadership, in any event, that at least the novelty of this approach has worn off.

"We don't want to be a gimmicky retailer," Tamura explains. "We don't want to have features that amount to bright, shiny objects that don't necessarily add to the REI experience overall. We know we don't necessarily have to open a new store, for example, with a big bang similar to what we've done in some of these larger stores. We're right in the middle of figuring out what that means, what that next logical evolution of what experiential retailing would be. It might mean leveraging technology more. We might focus more on the education of the consumer through product information as well as putting product descriptions in language that is informative yet more inspirational. This might go right down to how we do our in-store signage and labeling too."

One thing is for sure as REI shifts its strategy: The company is making sure that each one of its stores is becoming more and more identified with local activities that enhance appreciation of the outdoors and also with a more holistic environmental ethos that plays to the earth-stewardship sensibilities of most of its membership base. This connection is amplified by the fact that about 70 percent of REI's actual giving to charitable causes is directed by local store management.

These emerging priorities are manifesting themselves in several other ways at neighborhood REI stores. For one thing, more of them are holding clinics and classes for customers who want to learn more about or actually how to do various outdoor activities. The company also has been offering REI Adventures, in which REI serves as the travel agent and tour guide for real outdoor excursions such as a ten-day whitewater-rafting trip, an expedition up Kenya's Mt. Kilimanjaro or a week-long bike tour through Tuscany.

In an extension of the main idea behind REI Adventures, in its San Francisco Bay Area stores REI is experimenting with a concept called REI Outdoors, through which it plans to strengthen identification of its brand with genuine outdoor activities in the local market area. This involves initiatives such as a store's partnering with a local trail-guide club, where an REI employee might lead a daylong adventure, or a backpacking trip for the weekend.

"While REI Adventures is more aspirational," Tamura explains, "REI Outdoors will provide local relevance to the community in which we have stores and make them and the brand more inviting. And we want to be interactive in a sense that connects people not just to what they experience in the store but also connects them to the activity that they bought the stuff for."

REI's annual membership fee is $15; this fee opens up the company, its merchandise, its marketing and the brand to customers in many new ways. The company sends regular direct mailings and e-mail blasts to members highlighting sales and other promotions. Members also receive regular communications about workshops and classes that REI is holding at the store. REI frequently solicits members' opinions on various issues. It consistently reminds members that a significant portion of the company's profits go to fund outdoors-protection efforts.

And once a year, members receive a rebate on their purchases for the previous 12 months, which amounts to about ten percent of the total of their purchase receipts. The idea is similar to how some credit cards, such as Discover, give customers rebates on their purchases. REI's concept has a strong impact with consumers, because of the greater percentages involved and because of the company's cooperative structure.

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