REI reported a 3.1 percent gain in operating earnings in 2017 on improving gross margins and record sales. The co-op also ramped up sustainability efforts by announcing new rigorous standards that will impact every brand the co-op sells.

Other highlights of the year for the co-op included:

  • Nearly 1 million new members were added to close the year with approximately 17 million, up from 16 million members at the close of 2016;
  • REI distributed $196.3 million in member dividends, nearly flat with $197.3 million distributed in 2016;
  • The company invested $8.8 million in more than 400 non-profits. Through grants, advocacy and stewardship projects, REI impacted more than 1,000 outdoor places across the U.S. In 2016, the retailer invested $9.3 million with more than 300 non-profit partners;
  • Employees received $56.5 million in profit-sharing and employee incentives, about even with $57 million in 2016. The employee count was listed as more than 12,000, the same as last year;
  • REI closed the year with 151 stores in 36 states. Four stores opened during the year in Dillon, CO; Winter Park, FL; Burbank, CA and Rochester, NY.

In his annual letter, REI CEO Jerry Stritzke wrote that the company continues to “view success” based on the ‘quadruple bottom line’ established by the chain’s founders, Mary and Lloyd Anderson, eighty years ago. The four metrics include not only how REI is run as a business, but how the company drives impact for employees, members and society.

“Mary and Lloyd made an uncommon choice when they founded the co-op, and since then, we have traveled an uncommon path,” wrote Stritzke. “The choice to reject a passive life is at the heart of this co-op. As any climber knows, the memory of reaching the peak does not always capture the challenge of the approach. Moments of introspection, discomfort and even failure precede the joy and elation of any goal. What matters is that you choose to experience life and push toward someplace new. The same is true for this special organization.”

Looking ahead, Stritzke said REI will continue on the co-op’s mission of supporting outdoor experiences.

“In today’s language, we are a purpose-led company,” wrote Stritzke. “We awaken a lifelong love for the outdoors because humankind faces a big challenge.”

The challenges were outlined  in the co-op’s The Path Ahead report that came out last November. The reports highlights that humans are on the path to become “the world’s first indoor species,” spending 95 percent of their lives indoors on average.

On Monday, REI also published its annual Stewardship Report and said the co-op was launching baseline Product Sustainability Standards that apply to each of the more than 1,000 brands sold at the co-op.

“We worked in partnership with many of our most trusted brands because together we can create the conditions for positive change,” said Stritzke. “Most importantly, now our members are able more easily to select products with sustainability attributes.”

“We can do all that because REI is thriving,” said Stritzke. “In 2017, we grew to $2.62 billion (up 2.55 percent over 2016) and welcomed nearly 1 million new REI members into our community. More importantly, our increased scale enabled our positive impact. “

Operating income in the year grew to $188.5 million from $181.4 million a year ago. Gross margins improved 60 basis points to 43.5 percent from 42.9 percent in the same period a year ago.

The sales and margin improvement offset an increase in operating expenses by 3.9 percent to $951.7 million, or 36.3 percent of sales, up from 35.8 percent a year ago. Advertising exposes, included in operating expenses, expanded 5.3 percent to $75.4 million from $71.6 million.

Net income fell to $30.5 million from $38.3 million due to higher taxes. The provision for taxes increased to $33.7 million from $21.7 million a year earlier.

In its financial statements, REI said it recorded tax expense of $9.3 million due to the impact of the 2017 Tax Act. The amount reflects the re-measurement of federal net deferred tax assets resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21 percent from 35 percent. REI said the co-op’s blended future expected tax rate is 26 percent, comprised of the newly-enacted 21 percent federal rate and an expected 5 percent state rate.

REI noted that in 2017, nearly 70 percent of the co-op’s profits went back to the outdoor community, supporting employee retirement, helping fund trail work, returning dividends to its members and supporting non-profits that get people into the outdoors.

Among the highlights in supporting the community, #OptOutside, which calls for people to head outdoors instead of shopping on Black Friday, “continues to be a national movement,” said Stritzke. Now in its third year, #OptOutside added a digital search engine that encouraged more than 8 million moments to participate in the event. More than 700 organizations have joined the effort since it started.

REI also launched the #ForceofNature initiative focused on gender equality. More than 2,000 events designed by and for women were hosted.

The co-op was one of the leaders in building a nonpartisan coalition of more than 500 companies that mobilized millions of Americans to protect public lands. Said Stritzke, “We believe our public lands are the foundation of a healthy outdoor life and essential to a strong outdoor economy in communities across America.”

Finally, REI continues to use 100 percent green energy to run the co-ops stores, distribution centers and headquarters. REI grew to this scale over the last 10 years, keeping its energy usage near flat. A net zero energy, LEED Platinum distribution center was built in Arizona, which ranks as one of the world’s most sustainable distribution centers.

The new REI Product Sustainability Standards outline the co-op’s expectations for how brands manage key environmental, social and animal welfare impacts and build on the efforts over the years, advancing sustainability within REI’s own brands. Beyond input from dozens of partner brands across categories, the standards were informed by participation in the Outdoor Industry Association Sustainability Working Group and other key sustainability forums.

Some of the new requirements, such as establishing a manufacturing code of conduct for supply chains, take effect immediately, while others that may take additional time for brands to meet have an implementation deadline of fall 2020 product lines. For example, by 2020, REI will no longer carry any sunscreens or sun-protection products made with oxybenzone–a chemical known to exacerbate bleaching in coral reefs. Each brand is also expected to have a restricted substances list, which specifies which chemical substances are banned or restricted in their products. Other expectations outline key impacts to be managed in specific product categories.

The standards, as well as resources designed to help brands deepen their own sustainability efforts, will be made available to any retailer that wishes to use them. Alongside the standards, REI is debuting a list of preferred sustainability attributes, highlighting brands and products that are manufactured according to social and sustainability best practices.

Shoppers will be able to shop by sustainability attribute, by searching for terms like “organic cotton” to find clothing made with resource-conserving farming practices, or “fair trade,” which promotes safe, healthy working conditions and sustainable livelihoods as products are created and sold.

“We work with more than 1,000 brands, both large and small,” said Matthew Thurston, REI’s director of sustainability, in a statement. “Some, like Prana and Patagonia, are on the leading edge in integrating sustainability into their products and supply chains. Others may have a keen interest in sustainability but lack the resources to fully implement a program. We’re in a unique position to unite our brand partners around a common goal, by sharing best practices and resources that we’ve learned from both our own work and that of the brands we work with.”

Photo courtesy REI