REI Co-op reported a loss in 2022, impacted by lower margins but said it made significant investments in its employees, community and other areas. Sales reached $3.85 billion in 2020, up 4.1 percent year-over-year. The co-op said it ended the year with a “strong liquidity and working capital position and continued to invest in its mission of investing in its members, employees and the outdoors.”

“Financially, 2022 was a year of significant investment for the co-op – some planned as we entered the year, while other investments were made as a result of changing market conditions and in service to our people and values,” said Eric Artz, president and CEO, in a public letter the retailer released with the report.

“Throughout 2022, we invested in our people, in our capabilities and in the communities we serve. We invested in membership with new and enhanced offerings and held fast to our commitment to distributing our full Co-op Member Reward to more than 23 million members during a year without profits to fund it. As a co-op, we are in the fortunate position to be able to make long-term choices and investments like this, but we do not do so lightly. We remain focused on a path back to sustainable profitability for the co-op to ensure a healthy long-term future,” continued Artz.

The 4.1 percent increase, as expected, marked a slowdown from the retailer’s growth of 36 percent it had in 2021 as numerous outdoor categories reaped the benefit of consumers spending more time outdoors due to the pandemic. In 2020, sales had an 11.3 percent gain due to shuttered stores during the early stages of COVID-19.

According to REI’s unaudited results, the retailer posted a loss of $164.7 million in the latest year ended December 31, against earnings of $97.7 million a year ago.

Asked what drove the loss, Kelley Hall, executive vice president, chief financial officer, REI, told SGB Media, “We had higher operating expenses in 2022, which increased by 23 percent, due in large part to investments we made in our employees. We committed an additional $50 million toward pay raises for hourly employees and delivered another $92 million toward employee retirement and bonuses. I’d also note that the co-op had a more normalized gross profit level vs. out-sized gross profit performance in 2021.”

Operating expenses grew 22.6 percent to $1.76 million and increased as a percent of sales to 45.6 percent from 38.3 percent.

Payroll-related expenses grew 20.8 percent to $963.8 million and increased as a percent of sales to 25.0 percent from 21.3 percent. Occupancy, general, and administrative expenses increased 24.9 percent to $793.2 million and 20.6 as a percent of sales from 17.0 percent. Advertising expenses, included in occupancy, general and administrative expenses, jumped 78.8 percent to $133.6 million, or 3.5 percent of sales, from $74.7 million, or 2.0 percent, a year ago.

Gross margins eroded to 40.0 percent of sales from 47.0 percent a year ago. Hall said, “Our gross profit margin for 2022 reflects a more normalized mix of full price and off price product sales than 2021. 2022 gross profit margin was also impacted by significantly higher shipping costs. Gross profit margin for 2021 benefitted from industry-wide constrained inventory levels, which drove an above-average level of full price sales.”

Cash, cash equivalents and short-term investments at year-end amounted to $525.8 million against $1.02 billion a year ago. Inventory levels ended the year at $753.1 million, down 21.1 percent from $621.7 million the prior year. Hall said, “Our inventories are healthy and our balance sheet remains in a solid position.”

REI opened five new stores in 2022, including its first in Gretna, NE. It now has 181 locations.

REI Employee Investments 
Higher payroll expenses reflected investments REI made in salaries and benefits to its employees. The company noted that in 2022, it put an additional $50 million toward pay raises for hourly employees and another $92 million toward employee retirement and bonuses. REI said that was the greatest single-year investment the co-op has made in employee compensation. The co-op also launched the REI Access Plan, giving employees medical coverage regardless of hours worked. 

Membership Growth 
REI reported it distributed nearly $224 million to members through co-op member rewards, down slightly from $234 million in 2021. REI also reported it “welcomed 1.3 million members in 2022, bringing its total member count to 23 million.” In December 2021, REI announced it set a goal to have 50 million members by 2030. As part of that effort to accelerate member sign-ups, REI relaunched its member platform in 84 years.

Outdoor Advocacy Investment
The co-op also continued supported the REI Cooperative Action Fund, which issued its first annual report in late 2022, showing donations of nearly $2.9 million in unrestricted funds to 31 nonprofits aligned with its mission during its first 18 months of operation. In the Fund’s founding fiscal years, REI’s total support for the charity’s operations and grantmaking amounted to more than $4.4 million.

Sustainability 
In 2022, REI marked a decade of powering its operations with 100 percent renewable electricity. The co-op committed to sourcing locally generated renewable energy for all its 181 stores. The co-op also continued its commitment to climate neutrality for its directly controlled operations, investing in carbon credits equivalent to over 320,000 metric tons of CO2eq. REI reported it diverted 84 percent of its operational waste from landfills this past year and received a 2022 FSC Leadership Award for supporting responsible forest management and forest conservation.

Photo courtesy REI