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What if REI became an Outdoor Recreation Utility?

This is a highly speculative article about the future of outdoor manufacturing and retailing, building on my research on environmental sustainability  in the outdoor industry and over 20 years of professional experience in product development and product management.

If you’re not familiar with REI (Recreational Equipment Inc.), they are a major outdoor retailer in the United States, comparable to Mountain Equipment Corporation (MEC) in Canada. REI is the largest consumer cooperative in the United States with over 100 retail locations and 3,700,000 active members. Members benefit  by from discounts and receive an annual dividend each year based on their previous year’s purchases.

Share of Wallet

REI’s membership model lends itself to the establishment of long-term relationships with customers that lowers its marketing costs and increases the percentage of its members outdoor spending that it can capture, often called share of wallet.

If you examine REI’s product and service mix they have progressively expanded the amount of outdoor revenue they can capture from consumers by not only selling gear, but running outdoors schools and renting a wide range of expensive winter gear from skis to mountaineering boots and crampons.

Utility Based Pricing and Sustainability

A number of outdoor manufacturers have started or will announce take-back programs this year for recycling used outdoor gear. While this has clear environmental benefits for everyone, they’re also motivated to get you to stay with their brand when it’s time for you to buy a new pack, tent, or sleeping bag. So when you recycle a piece of gear, they’re going to give you a discount on new gear, because it is less expensive for them to retain your loyalty than to pay for the advertising to recapture you later on.

Which leads me to the strategic gorilla in the closet. What if, a big retailer like REI initiated gear recycling programs across all of the products that it carried? Even better, what if they stopped charging you for individual pieces of gear altogether, and offered an all you can eat gear subscription program for an annual fee? In essence, REI would become a utility, like the power or water company, supplying you with whatever gear you need for an annual base fee, with extra fees for more extreme forms of recreation.

The big idea here is that REI might be able to better implement it’s sustainability objectives if it priced gear along a subscription model instead of discrete purchases. I admit that this is a radical thought, but I think the writing is already on the wall, and it’s just up to the MBAs to make the numbers work.

If REI offered an annual gear subscription program, they could reduce the environmental impact of a large portion of the gear used by individuals by requiring that it be returned for refurbishment or recycling. From a sustainability standpoint, this sounds like a home run. Consumers get to upgrade their gear each year and REI can recycle the old gear or redistribute it via gear banks to not-for-profit youth organizations and charities, thereby creating more future customers.

The Average Outdoor Consumer 

I think it’s a good bet that REI knows exactly what gear the average outdoor household purchases each year (if you’re reading this blog you’re probably not average.) Based on purchase history, they probably already track the age of each member of a household and can predict the purchases they will make in future years.

So it wouldn’t be a stretch for REI to start offering annual gear subscriptions to certain segments of their consumer base, like boy scouts, cross-country skiers, recreational kayakers, and so on. It wouldn’t be a stretch at all. They know exactly what gear you are likely to buy or want.

The fact is outdoor enthusiasts spend a lot of money each year on gear. I bet a lot of parents or single parent households would happily spend $1,000 dollars per year per child for an annual gear subscription that supplies them with new clothing and gear as they grow and their activity preferences change. This would be good for REI because it locks the household into an annual relationship and dis-incents consumers from purchasing anything outside the REI relationship.

Competing with REI

If REI were to move some of its existing customers onto a subscription based billing model, there are few companies that could compete with them. Most outdoor manufacturers, for example, do not carry a wide enough range of products to satisfy all of the needs of an outdoor consumer, like REI. REI also has the additional advantage of having many retail outlets for distribution, which would be key to executing this type of model, because people need to try on new clothing and gear.

The companies that would feel the most impact from this new pricing model would be the larger outdoor industry manufacturers, like Marmot or The North Face, who sell their products indirectly through multi-tiered distribution channels. REI already competes against them with their private labeled products, but the level of channel conflict would potentially increase if REI decided to push their private labelled products over those of the name brands. Smaller outdoor manufacturers and cottage industry brands would probably be less impacted because they sell to niche enthusiasts.

Conclusion

Moving the American public away from discrete gear purchases and possessions to what is in essence a continuous rental or gear lease model would be a huge re-education effort. But I think this idea has a lot of merit from a sustainability perspective by encouraging closed loop take-back programs across all outdoor brands. I bet REI could also make it work, particularly for segments of their membership, where the revenue model could offset advertising and marketing expenses.

What do you think?

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7 comments

  1. A yearly gear fee? Great concept. A couple of additional points from my own experience working with kids.

    My wife and I always had a "clothing budget" for each kid that was dispersed each year. We used it as a way to both budget and to help each kid plan their purchases throughout the year. It was their first exposure to major money and planning. In my situation if my kids were inclined to buy a large portion of their budget funds for outdoor gear/clothing then I'm 100% sure they (and me) would have gone for a yearly plan.

    Also, when my kids were in elementary school there was the annual ritual of the "ski & skate swap". It was prohibitively expensive to attempt to purchase new the skates, skis, snowboards and boots each kid would need each year. So at least in my world (middle class southern NH) there was already a proven concept for used equipment without the "used stigma".

    Lastly, both my kids gravitated to an "eco" approach to clothing in general. They were always shopping at Goodwill and were always on the lookout for free or inexpensive "vintage" bargains. In their world, the concept of recycling as part of the purchase would be easy to understand.

    So, Earlylite, if REI does go into the subscription model then I guess I heard it here first.

  2. great post! the subscription model works very well with digital assets, but i wonder how well it does with a physical asset that depreciates as fast as clothing.

    i would worry that rather than truly deliver on the sustainable/eco goals – it would actually have the reverse affect and produce a higher churn of gear usage, most of which would be wasteful.

    while most consumers today probably buy a rain jacket that they wear for 4-5 years before it starts to bug then enough to get a new one – they have the easy option to just get a brand new one every year – if they need it or not.

    agreed, there are some segments – like kids that will have to re-purchase each year due to outgrowing stuff; but i think the average usage for a typical consumer on a given bit of gear spans into years.

    i wonder also if a subscription approach would have the "bottomless fries" greed effect. such that people want to get the most of their subscription value each year and churn often – of re-loan gear to others.

    really good food for thought tho'…

  3. Brett – You raise a good point about needless consumption, but I bet with a little thought on how to package the plans you could prevent that from happening.

    For example:

    1. maybe you are given an allowance and need to stay within it each year, but you can hang onto prior year's equipment or

    2. maybe the subscription model should be viewed more as a lease, where you need to hang onto the gear for 3 years and return it in good condition.

    3. Or the subscription model is recast as a rental model for shorter term use.

    4. you pay a lower annual fee for older equipment that has been returned after a year or two of use by other people.

    In the latter 3 cases, there could even be a reduction in the number of gear units required to satisfy a user segment because multiple people use the gear during it's lifetime.

  4. As an operations guy, my guess is that the whole scenario would work best if there was certainty on how the products flowed through from purchase to recycle. The new stuff must be returned to predictably supply the used channel and repurchased to meet the forecasts that REI must provide to their manufacturers.

  5. Zilla – exactly. There are definitely some supply chain benefits here. Manufacturers get more predictability about quantities which means less waste. Plus there is a guaranteed take-back process that enables closed loop recycling. From the logistics side, delivery trucks to REI now go back to the manufacturers full of old gear instead of empty.

  6. good point on mitigating the potential for waste with some creative caps. will be interesting to see if anyone implements something like this.

  7. Interesting concept. Unfortunately, you grossly overestimate REI’s innovation, business acumen, and actual commitment to sustainability. It is a for profit enterprise that has found that the appearance of stewardship is good business. It would take a much more efficient and committed organization to implement this.

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