REI: A Beacon for Sustainable Business

For many intrepid outdoor explorers, Recreational Equipment, Inc. (REI) is the go-to place for buying quality, performance clothing and equipment. But does a business with passion for the outdoors really walk the walk, taking into consideration climate change as it structures its operations?

For many intrepid outdoor explorers, Recreational Equipment, Inc. (REI) is the go-to place for buying quality, performance clothing and equipment. But does a business with this level of passion for the outdoors really walk the walk, taking into consideration climate change as it structures its operations? The answer is YES.

Embracing the Role of Environmental Steward

As the effects of climate change ripple across the world, businesses face operational challenges grappling with physical effects as well as regulatory impacts. Companies like REI that depend on selling physical products that need to be manufactured, stored, and transported are vulnerable to cost spikes due to climate change. Rising fuel costs, increased emission regulation, and resource scarcity (and associated price hikes) can significantly impact the growth and viability of retail distributors, including REI.

REI was founded in 1938 as a cooperative (co-op), and remains to this day collectively owned by its outdoor enthusiast members. REI positions itself as “dedicated to inspiring, educating and outfitting its members and the community for a lifetime of outdoor adventure and stewardship.” (1) Stewardship is not just an aspiration; stewardship is at the core of REI’s operations. While many firms establish environmental programs as peripheral to core operations, REI VP Alex Thompson sees things differently:

We see sustainability work as an end, in and of itself. If the business can be healthier as a result of that work, that is a very good thing because we get to invest more money back into the outdoors and into our efforts. (2)

REI’s position as a leader in sustainable practices exerts pressure to make continued efforts in the area and constantly reassess its operations — and even more so as the threat of climate change looms.

Current Initiatives

REI puts emphasis on sustainable practices throughout its organization, in both corporate and in core operations of distribution and retail. REI has placed a strong emphasis on reducing the entire operation’s environmental impact through several initiatives.

Green building has been a core focus area for REI since its first flagship store in Seattle. This is clear in REI’s new distribution center in Goodyear, AZ, which is the first LEED Platinum and Net Zero Energy-designated distribution facility in the United States.(3) The facility features solar panels that provide all electricity for the building, cooling systems that minimize electricity and water use, equipment that shuts off when not actively transporting goods, picking systems that allow for low headcount (reducing demand on building facilities) and reduced lighting needs (since automated machines can operate without lights), and native desert landscaping around the facility that minimizes water use while also boosting employee happiness.(4) This distribution center furthers REI’s position as a leader in sustainable business practices by demonstrating that an operationally efficient and sustainably built facility is possible — an example that extends to other players in the retail distribution industry.(3)

REI has also implemented programs to identify, track, and reduce its greenhouse gas emissions, renewable energy use, waste reduction, and paper usage throughout its operations. Each year, REI produces a stewardship report that details its year-over-year improvements in environmental efficiency.(5) These roll up to internal initiatives to reach climate-neutral, no Freon-based HVAC, and zero waste-to-landfill by 2020.(6)

In addition to operational waste reductions, REI also manages its waste through used gear resale programs. REI’s retail outlets regularly hold Garage Sales to resell returned gear, and REI recently rolled out pilot programs to offer used gear online.(7)

(Natural) Disaster Looms

While many of REI’s initiatives and sustainable practices will protect the business from cost risks relating to regulations and resource scarcity, REI does not appear to address disruption risk due to natural disasters. With a US-based distribution and retail network, REI faces a growing rate of extreme weather events that pose high risk of damaged public infrastructure. In order to respond to these types of events, REI needs to proactively set up contingency plans and disaster management. REI could also explore leaner inventory or establish geographically diversified distribution networks to mitigate local disruptions. Any unmanaged disruption to the supply chain for REI could result in significant impacts to its sales and earnings.

Sustainable as a Sustainability Business?

Overall, REI’s emphasis on environmental responsibility has positioned the co-op as a leader in the realm of climate-conscious business practices. The company has led by example in its operations as well as in its mission, educational programs, and non-profit donations beyond what is discussed here.

However, as REI looks to the future, a few questions remain:

  • Can REI continue to grow and expand its business with truly industry-leading sustainable practices? Is the focus on green operations a competitive disadvantage for REI?
  • Looking more closely at its carbon-neutral initiative, is REI responsible for offsetting its suppliers’ carbon footprints? Should REI drop products that are not manufactured sustainably? How far does REI’s responsibility extend?

(800 words)


References

Featured image: REI. 2017. REI Distribution Center. Image. http://newsroom.rei.com/multimedia/photos/rei-distribution-center/.

  1. “REI Company Overview”. 2017. REI. https://www.rei.com/about-rei/business.html.
  2. “#Businesscase: REI Proves Values-First Approach Leads To Longevity | Sustainable Brands”. 2017. Sustainablebrands.Com. http://www.sustainablebrands.com/news_and_views/walking_talk/news_deeply/businesscase_rei_proves_values-first_approach_leads_longevit.
  3. 24/7. 2017. “System Report: Sustainable Distribution At REI – Supply Chain 24/7”. Supplychain247.Com. http://www.supplychain247.com/article/systems_report_sustainable_distribution_at_rei.
  4. “REI’s Newest Distribution Center Is A Model Of Sustainability – DC Velocity”. 2017. Dcvelocity.Com. http://www.dcvelocity.com/articles/20160822-reis-newest-distribution-center-is-a-model-of-sustainability/.
  5. “2016 Stewardship Report.” 2017. Rei.Com. https://www.rei.com/stewardship/report/2016.pdf.
  6. “REI Stewardship Core Practices At REI”. 2017. REI. https://www.rei.com/stewardship/core-practices.
  7. “Adventure Reincarnation: Outdoor Gear Giants Now Sell Used Goods”. 2017. Sierra Club. https://www.sierraclub.org/sierra/adventure-reincarnation-outdoor-gear-giants-now-sell-used-goods.

 

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14 thoughts on “REI: A Beacon for Sustainable Business

  1. Thought-provoking piece about the steps REI has taken to address climate change in its operations and how the company thinks about sustainability and its relationship to the organization’s mission.

    Although REI’s investments in energy-efficient buildings, environmental reports and a gear recycling program may represent substantial progress relative to other retailers, I would be curious to know how REI has improved the sustainability of its core manufacturing business. I suspect that very few REI SKUs are produced in factories owned or operated by REI, and if they are indeed outsourcing their production, I would hope that a business so closely associated with sustainability has significantly reduced the carbon footprint of its sourcing and manufacturing processes.

    I also believe that there may be a marketing opportunity for REI to invest not only in responsible enjoyment of the outdoors but in sustainable cities as well. The activity of outdoor exploration that drives REI’s business is fundamentally related to how humankind engages with nature, which is not confined to the untouched forests and mountaintops that most people associate with REI. By investing in sustainable urban development through philanthropy or new product lines geared toward environmentally-conscious city dwellers, REI can associate itself with a more holistic view of sustainability.

  2. REI represents itself as truly committed to the environment and the author mentions that their leadership sees sustainability independent from its impact positive or negative on the business. This is in some senses inspiring. It is exciting to see an organization lead the way with a LEED Platinum distribution facility but what is the impact of this location on delivery emissions and transport costs? I think overall REI is in a unique position to push forward as they are a CO-OP and not tied to large shareholders focused on profits. Therefore, they should look at carbon neutral policies across their supply chain.

  3. While REI’s sustainability practices are admirable, similar to Ryu, I wonder what they are doing (if anything) to ensure that their suppliers and SKUs are produced in sustainable factories or by sustainable brands. For example, REI carries brands like Patagonia (known for sustainability). Under Armour, and Nike, over whom they likely have very little influence. However, for some smaller brands, REI may have the opportunity to spread their sustainability practices and enforce stricter standards on the products they will carry.

    I imagine this problem is pervasive for any retail distributor who focuses on sustainability. While the effort of the distributor is admirable, it is hard to separate fully their own practices from those of the brands they carry in-store.

  4. I find the question of REI’s responsibility for its suppliers’ carbon footprints a curious one. It seems to be there is no right or wrong answer here, but rather, simply one of whether or not REI believes it should or should not, and if its members agree. If one looks at it from a macro angle, there is the much larger question of any business’s responsibility for its suppliers’ carbon footprints. Legally they do not. and the markets certainly don’t believe so either. Even if the current consumer zeitgeist is one which believes in some sort of moral obligation, at a larger scale, either regulations or investors will always win the battle. Consumers are generally satisfied with the impression that a company is sustainably conscious, rather than actually demanding that they be so. Everlane is an excellent example of a company which uses marketing to imply that is has a transparent, sustainable, and ethical supply chain even though in actuality its supply chain is far less transparent, less auditable than many fast fashion major retailers.

    This leads to a larger question regarding the issue of scaling. While REI and its owners (cooperative members) can choose to be sustainable, what does that imply about the larger issue of sustainability for companies generally? REI is an upscale retailer of limited scale, and its impact on global sustainability is de minimis in itself. Can sustainability be scaled? At some point on the consumer spectrum, price matters more than sustainability. Where is that point, but more importantly, what can REI do once it hits that point? Meanwhile, for public companies, sustainability is only possible up until it has a material impact on growth and profits. Is our society doomed to only enact sustainability measure that have a positive impact on short-term growth and earnings?

  5. Great questions to think about for REI as it progresses through a challenging time for brick and mortar retail. I don’t think their emphasis on green is necessarily a competitive disadvantage because the typical REI shopper doesn’t shop on price alone. Arguably the green emphasis induces shoppers to the store that would otherwise go elsewhere. Their primary focus on outdoor equipment makes environmental concerns a clear complement. Surely in isolation, you could see that green efforts effect the bottom line, but if using cheaper, traditional energy sources turns away customers, aren’t they making the right move?

  6. I found REI’s sustainable business very interesting, but I noticed that its COOP structure underpins its susteinability-centered business model. In order to expand their sustainable practice to normal profit-oriented companies, REI has more roles to play.
    For example, REI can provide sustainablity consultanting service to other manufacturers, transferring its knowhow and setting industrial standard by expanding their sustainability practices.
    REI can also work closely with government and regulators, and give guidance to industrial sustainablity policies by demonstrating its practices and possibly working on pilot projects with other manufacrures in order to stirke best balance between profitability and sustainability with the currently available technologies.

  7. Great piece, Tiffany! I think REI is extremely well positioned in the outdoor retail segment precisely due to its sustainability focus. When we talk about sustainability, we tend to narrow it down to environment, but what is really striking about REI is their focus on people (their employees, their customers, and society at large). This is a key differentiator, which I think gives them a competitive advantage (rather than disadvantage) as they continue to focus on sustainability.

    Additionally, while REI does not have governance over their suppliers, I heard their former CEO speak at HBS about how they have worked with suppliers, particularly on their packaging practices. They are aiming to reduce plastic use and minimize waste. This may seem a small action, but for a company that sells over $2.5 Billion (https://www.rei.com/content/dam/documents/pdf/Financial%20Statements/REI%20Financial%20Statements%202016.pdf), even small/incremental improvements can be quite significant.

    That being said, manufacturing and retail as a whole have a very long way to go in terms of achieving sustainable production and supply chain. Unfortunately, it’s my opinion that the primary driver of that is consumer behavior, constantly demanding low prices and turning a blind eye to production standards.

  8. Enjoyed this article! As @lwang’s comment referenced as well, it struck me as I read this that this prioritization of sustainability is a unique luxury of a privately held company. And that once a company goes public, they can only pursue social aims through CSR or to the degree that those aims also drive business outcomes. This constraint makes me wonder about the degree to which the private sector will be able to contribute to addressing climate change. In the longer term, virtually every company will be affected by climate change, but in the near term many will not. The pressures of short-termism fueled by quarterly reporting and high near term executive compensation may prevent huge portions of private sector players from acting on climate change until their is an immediate, apparent threat to their bottom line.

  9. Superb article highlighting REI’s effort to be a leader in sustainability. While I do think REI can continue to expand while incorporating its current sustainability principles, it is worth discussing the company’s implicit bias for consumption and overall orientation on sustainability. As a retailer, REI is focused on selling consumers more “stuff,” whether they need it or not. In the worst case scenario, REI uses its environmental policy as a marketing charade to make consumers feel good about themselves as they amass more and more and more things. In the best case scenario, REI is providing goods to consumers who truly need and demand these products, and at least REI is doing this in a way that incorporates sustainable practices.

    I was very interested in REI’s “Garage Sale” program. An expansion of this would be a true commitment to sustainability. Why make more things, incurring environmental costs, when society and repair and reuse clothing? Patagonia, as noted above for its sustainable leadership, also has a “Worn Wear” line of reused clothing (http://www.patagonia.com/reuse-recycle.html).

  10. Great paper, it is great to an organization such as REI taking such massive steps towards ensuring they are taking steps to reduce their impact on the environment. As a leader in the outdoor industry, it is not surprising that REI is altering it’s business model to address the contribution to climate change made by the operation of the business – though hopefully the actions that REI takes is more than just a marketing scheme to make it appear as if they are doing something. Additionally, it will be interesting to see how global sales and revenues are impacted, and what the response will be from the market. Fortunately for REI, they are a private company who is not responsible for returning value to their shareholders thus allowing REI to make decisions based on collective good and not worried about the increases in CAPEX and OPEX due to measures taken to monitor and mitigate climate change, and the subsequent impact to the value of the company.

  11. Great to hear about these encouraging initiatives REI is undertaking to ensure they have an eco-friendly supply chain. Regarding your question about whether sustainable practices are a source of competitive disadvantage – I don’t think this is the case as (i) consumers value sustainable business strategies and (ii) while these investments are intensive on the front end, I believe they save costs (e.g., energy, regulatory, etc.) over time in the long run

  12. Thanks for the great read Tiffany! Being a company that sells the outdoor/nature experience, it makes sense that they would need to champion the sustainability issue.

    While their efforts to date are commendable, I would echo Darrin that they can only truly close the loop by bringing sustainability to all the products being sold in the stores. Along with having sustainable products, they can also play a huge role in consumer education around climate changes and sustainability. Their access to relevant customers and their ability to influence their outdoor gear and outdoor behavior decisions puts them in a position of responsibility in my opinion. The point of tension, as with any sustainability initiative, will be the acceptance of these approaches by the suppliers and traditional customers and its subsequent effect on the top and bottom line.

  13. Thank you for an interesting read, Tiffany! Retailers benefit tremendously from the world’s growing consumption culture, so I believe REI and other retailers should therefore be held accountable for making their operations as sustainable as possible. I was impressed to learn that REI holds used product re-sales (IKEA should give this a shot), given ultimately reduces new purchases and therefore REI’s sales.

    I believe that REI and other retailers should extend their sustainability missions to include the whole value chain, including upstream suppliers, as you’ve mentioned, as well as consumers downstream. I think that brands and retailers should also influence how people think about their own consumption behavior. For example, one of REI’s suppliers, Patagonia, ran a campaign telling consumers, “don’t buy this jacket,” asking them to think twice before buying new goods (https://www.patagonia.com/blog/2011/11/dont-buy-this-jacket-black-friday-and-the-new-york-times/). I’m glad REI is supportive, made possible given they are co-op without public investors. I hope they come up with even more creative solutions in the future.

  14. The customer promise that REI provides is reliable gear at reasonable prices, which attracts a variety of customers who love the outdoors. There’s an inherent level of responsibility for protecting the outdoors that comes with REI wanting to exist in 50 years –
    if there’s no nature to observe and appreciate, REI no longer has a reason to exist. In an age where consumers are gravitating towards online retail, there may be a strong competitive advantage to certifying suppliers as environmentally conscious.

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