REI was forced to take another bite at the downsizing apple this week as the company reports that it will make another series of layoffs even as the business comes closer to its pre-dividend operating income and free cash flow goal.

Company CEO Eric Artz sent a letter to all company employees on Wednesday, January 8, 2025, that the company plans to shutter its Experiences business, effective this week, impacting 428 people who were informed of the company’s decision earlier in the day.

In a conversation with SGB Executive prior to the distribution of the employee letter, Artz said that the move was necessary for profitability reasons as the company returns to expected operating levels.

REI’s Experiences business, which provides access to outdoor adventure experiences nationwide, apparently served the needs of less than one-half of one percent of the retailer’s members. Artz told SGB that of 25 million co-op members, over 8.5 million engaged with the retailer in 2024 but only 40,000 utilized the Experiences platform.

The closure of the REI Experiences business will affect 180 full-time employees and 248 part-time employees, who are primarily guides serving the business.

In a follow-up statement to SGB, REI said that 43 percent of the full-time employees (77 staff) are considered headquarters, and 57 percent (103 employees) are considered fleet and dispersed across the regions.

“For headquarters staff, there are some employees who live and work outside of Washington State but are classified as headquarters based on their role,” a company spokesperson wrote in the REI note, while outlining the following terms:

  • All full-time employees whose job was eliminated will continue to receive a regular salary through March 9, 2025, and remain active on benefits through the end of March. The affected employees will also be eligible to receive separation benefits, including severance, healthcare continuation of coverage (COBRA), and outplacement service support.
  • Shared employees (employees who split time between Experiences and REI retail stores) will talk with their store manager on Wednesday, January 8, to learn what options exist for them to continue employment in a store capacity based on their employment status and ability to meet the necessary availability standards.
  • Part-time REI employees will remain benefits-eligible through January 2025 and eligible for a severance payment.
  • All impacted employees will receive a Summit payout for 2024, depending on actual co-op performance vs. plan, and remain eligible for future roles at the co-op.

“The reality is a thriving co-op requires a sustainable economic model that is capable of investing at the appropriate level to fully fund our most critical strategic ambitions,” Artz shared in his letter to employees. “While we are still in the process of finalizing 2024 results, our preliminary financials indicate we will be close to breakeven for both Pre-Dividend Operating Income (PDOI) and Free Cash Flow (FCF).”

Artz said the 2024 results will represent a “significant improvement over 2023,” driven by the company’s “focus on increasing full-price sales mix and gross margin, effectively managing inventory to improve in-stocks and inventory turns and carefully managing costs to optimize our spending” as he thanked all that were part of the efforts to deliver the improvements last year.

Artz also laid out the financial realities and economics of REI’s Experiences business, which he said served less than 0.4 percent of all co-op members while generating operating expenses significantly higher than the income created by the business.

“When we look at the all-up costs of running this business, including costs like marketing and technology, we are losing millions of dollars every year and subsidizing Experiences with profits from other parts of the business. Even at our peak in 2019—our best year for Experiences ever—we did not generate a profit,” he explained.

Artz said company management has gone through many iterations and explored multiple options to keep the Experiences business up and running and to preserve jobs.

“We’ve held out as long as possible, but the fact remains that Experiences is an unprofitable business for the co-op, and we must adjust course,” he emphasized in his letter. “Every path to profitability we explored would have required us to invest more time, effort and focus away from parts of the business that reach significantly more customers, drive more positive financial outcomes, and have greater impact on our mission to get people outside.”

So what does this mean to the REI business overall? The CEO said the company will redirect the resources saved into three key areas:

  • Driving growth in REI’s priority activities (Camp and Backpack, Run, and Hike and Outside Life) in service of our core customers and best members.
  • Investing in tools to help the company more effectively manage inventory, which will improve sales and profitability by driving improvements in in-stocks and locally relevant assortments.
  • Continuing to enhance the customer experience online and in stores through investments in areas including personalization and visual merchandising.

“Our roots are in the gear and apparel we sell and the outdoor moments they enable,” Artz reinforced. “This has been the core of our business for 86 years—and I believe when we stay focused on what we do best, we can and will succeed.”

Focusing on the Core
“Given the current business landscape and our strategic priorities, we must invest selectively, focusing our efforts in the areas that align most closely with our long-term commercial goals and set us up to deliver on our mission and purpose for another 86 years, Artz continued in his letter to employees. “We continue to believe there is a role for REI in outdoor education and expertise. However, we need to reexamine and rework how we deliver classes and education to ensure they’re relevant to our customers, aligned to our mission and financially viable.”

Artz said the company is funding a small team to innovate and test in this area in 2025 and emphasized that REI continues to believe in the importance of local community-building.

“We will continue to invest in local marketing and customer engagement, and the local marketing team will move back into the marketing organization to unify similar bodies of customer-facing work,” Artz said.

His remarks do not mean that the retailer will centralize the marketing functions currently conducted at the local or regional level, Artz confirmed in his conversation with SGB, but rather represent a reporting structure change.

Commitment to Customers and Partners
“This week, we will also begin updating customers and partners,” the CEO said. Customers currently booked on trips and day programs will receive a full refund of all costs paid to REI, and we will work to address any associated non-refundable expenses as appropriate. Artz continued to say that the company would begin informing partners this week and work with them to terminate existing contracts.

“As a cooperative, we are organized to drive a healthy, profitable business that allows us to serve our members, our employees and society, and fully fund commitments like the annual Member Reward, employee profit-sharing and support for nonprofits,” Artz wrote in his letter to employees. He noted that REI management would share more about the company’s long-term plans next month.

“Our goal must always be the long-term financial health of the co-op, and while today’s decision is a difficult one, it is necessary,” the CEO closed. “Reinvesting our resources into these core areas will enable us to drive healthy, profitable growth for the co-op in the future.”

Image courtesy REI