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.
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?