REI Co-op logged a net loss of $34.5 million in 2020, and sales on a Pro-forma basis were down 8 percent. However, the retailer exceeded its pandemic-adjusted targets and finished the year in a strong financial position, said Kelley Hall, REI SVP and CFO, in an interview with SGB Executive. Sales have also seen a resurgence since the initial pandemic-driven store closures, and momentum has continued into 2021.
“We started 2020 strong, and that enabled us to pivot quickly to meet the pandemic in a people-first way,” said Hall. “We were one of the first retailers to proactively close our stores and one of the last to reopen. That length of time is about 75 days where our retail stores were closed to customers, and what we did then was a pivot, so even though we ended the year with no profit, we emerged in a strong financial position coming out of 2020, and we outperformed our expectations once we were able to start to get our stores back open.”
Strong growth online helped to partially offset the lost sales due to store closures and in-store restrictions. Retail revenue was down about 28 percent, while digital demand was up about 58 percent.
According to its annual financial statement, net sales in the year ended January 2 fell 11.9 percent to $2.75 billion from $3.12 billion. On a Pro-forma basis, sales were down 8.0 percent to $2.87 million from $3.12.
Pro-forma results exclude the financial impact of the 2020 Co-op member reward of $112.4 million that reduced sales. On February 25, REI reported that it did not profit in 2020 and wouldn’t pay out its regular annual dividend to members. However, the Co-op said that a special reward would be paid to members because the year ended better than expected.
Hall said the shutdown of REI’s adventure travel business due to the pandemic also impacted revenue. But the eight percent adjusted decline mainly reflected the store’s closures. Hall said, “Overall, given the 75 days of closure, it’s still a pretty good outcome, but we were not quite able to make it up completely.”
She added that REI saw “good strength” in its business as stores reopened and the chain “finished the year strong, and we’re off to a good start for 2001.”
The momentum, she noted, has been boosted by several categories seeing “exceptionally strong” gains in the stay-at-home economy. Among summer/early fall assortments, cycle sales grew at about five times the rate compared to 2019, while camp furniture was up four times and watercraft ahead two times. As REI transitioned into its winter mix, snowshoes were up about four times and cross country ski sales were up three times over the prior year. Hall said, “A lot of the categories where people were able to get out near home were up substantially year-over-year and that that drove the stronger than anticipated performance despite the pandemic-store closures.”
She also said REI was fortunate to have established “pretty strong” online business and distribution centers, seen as essential, were able to remain open. Hall said, “That helped us continue to serve our customers but just not at the same pace as having both stores and online open.”
The loss of $34.5 million in the year compares with a profit of $21.0 million in 2019.
The loss reflected several factors, including COVID-19-related investments in health and safety protocols and PPE for staff in stores and at distribution centers and safety measures put in place to protect customers. Related investments included new offerings like virtual outfittings and curbside pickup that rolled out within weeks.
REI also continued to make investments in its business, including opening seven REI stores and its first two used gear pop-ups. It currently has 168 locations.
For its own nearly 15,000 employees, investments included $36.4 million in employee retirement and incentives, including retail pay adjustments to reward efforts during the pandemic.
“We could not be more proud of both our retail and our distribution center employees and then all of the folks that support them, working from home or working from their kitchen tables,” said Hall. “We’re so proud of the hard work of our employees, especially on the retail distribution center side who serve our customers every day and helped us achieve all that we have this past year.”
REI also invested $6.3 million in 461 non-profit partners as part of its long-term efforts to increase access to and stewarding the outdoors. In 2019, investments in non-profits totaled $8.1 million.
From a balance sheet perspective, REI ended the year with $715.9 million in cash on, up from $189.8 million at the close of 2019.
Hall said REI’s cash position benefited in part by its efforts to streamline inventory levels as the pandemic emerged. Inventories ended the year down 15.1 percent to $454.6 million. The CFO said, “As it turns out, we might have liked to have had more inventory, but at the time, we make conscious choices to ensure the health of our balance sheet.”
REI’s cash position also benefited from net proceeds of just over $414 million realized from the sale of headquarters buildings in Bellevue and Kent in Oregon. Last August, REI announced it was shifting to a less centralized approach to its headquarters presence, focusing on smaller satellite offices in the Seattle area and remote work. The new structure promises to offer flexibility for employees and to shrink its carbon footprint.
Hall said REI is still working through setting up satellite locations, with progress still challenged by COVID risks around gatherings. Hall said, “We’re engaging with our employees to ensure that we are coming up with the solution that works well for them and works well for the Co-op. What’s great about it is it opens up the possibilities for how we work differently going forward.”
REI also remains committed to philanthropic and advocacy efforts and accelerated many areas outlined in its 2020 Impact Report. The report details its completion of a 14-year commitment to be carbon neutral in its operations in 2020 and the launch of a climate platform that would see the Co-op cut its carbon footprint by more than half over the next decade.
In July 2020, REI outlined an initial set of commitments towards racial equity and has since formed an external BIPOC Advisory Council, completed internal audits, and worked on building a long-term racial equity working plan. A six-month retail pilot is being launched to increase Black and African American representation in its workforce and partner with the American Alpine Club, Peace Peloton and Adaptive Adventures to improve DEI in the outdoors.
“It’s critically important to us,” Hall said of making the outdoors more inclusive. “If we think about the regenerative power of time spent outside and the health benefit, we want to make sure we’re using our voice to make everyone feel welcome being outdoors. That’s why you’re hearing us increase the volume there because we think there’s so much benefit to be had, and we want to make sure it feels safe for everyone to be outside.”
REI also announced the launch of its Cooperative Action Network, which invites members, employees and customers to join a grassroots advocacy network in support of a more sustainable and equitable future for the outdoors. The network is designed to help individuals write to members of Congress, sign a petition, submit a public comment to take other steps to address issues facing the outdoors. Said Hall, “It’s a new platform for us to mobilize our 220-million-member community towards the things that matter to the co-op like fighting climate change and advancing racial equity.”
Another increased priority in recent years is used gear. The ongoing pilot of the two used gear pop-ups located near Manhattan Beach, CA and Conshohocken, PA complement its online trade-in program that gives members a way to share gently used outdoor gear and apparel at more accessible price points. REI doubled used gear sales online last year, although it’s still a small portion of overall sales.
“We’ve seen great early success,” said Hall. “It’s an opportunity for an entry point for folks who may be looking to try a new activity, and an expensive new piece of gear might be out of reach for them. They can get quality gear at a more reasonable price. And used gear has about half the carbon footprint of buying new, and it keeps it out of the landfill.”
REI also updated its Product Impact Standards and heightened requirements for how REI and its more than 1,000 vendor partners address carbon reduction, inclusive marketing practices and cultural designs in their products. As part of these standards, all REI Co-op brand products are now certified Climate Neutral in addition to products from over 30 other certified brands.
Like many other retailers, REI this year faces challenges restocking, particularly in categories seeing outsized demand such as cycling and paddling. Hall said REI continues to work closely with vendors to replenish supply as demand remains high as people continue to gravitate to outdoor activities outdoors amid the pandemic.
“This enthusiasm for the outdoors is great because it’s brought a lot of people to discover the outdoors or rediscover the outdoors,” said Hall. “We are seeing our business has continued to be strong into this year, and we’re working hard to serve that customer demand.”
Photo courtesy REI, Kelley Hall
