DWang

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REI: Helping Consumers Explore the Outdoors
DWang
Posted on December 9, 2015 at 7:25 pm
REI has become the largest Outdoor Specialty Retailer, built on an old school cooperative business model.

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On December 14, 2015, DWang commented on M.O.M – A Star in Retail :

Sabrina – thanks for sharing! In your post, you stated that Omnichannel is one of Macy’s core strategies. Do you know how the shift to Omnichannel has affected their bottom line? I know many retailers are struggling with the shift, because the unit economics with shipping are very challenging, especially in a time when companies are still paying the fixed costs of opened stores. Given Art’s post about receiving 3 boxes for one order (which is not that uncommon for retailers), I am very curious about their bottom line profitability.

On December 14, 2015, DWang commented on Camden City School District :

Hi Kate – thanks for sharing! This is a fascinating post. In your post, you mention the “unique needs of students in a city like Camden”. I’d be curious to know if you had anything specific or more details to share. I agree with many points you brought up. Many believe cities like Camden are short of money, but I am with you, I believe there is a much deeper rooted problem.

On December 14, 2015, DWang commented on Success of SF Express in China :

Hi Clay – Super interesting post! I was intrigued by the part of the post that discusses SF’s plan to expand into the retail space. Do you agree with this expansion plan? This would be quite innovative when considering the US market, but wasn’t sure if this is something you feel would be successful in China. Thanks!

On December 14, 2015, DWang commented on REI: Helping Consumers Explore the Outdoors :

Hi Margo –

Thanks for the question! I had a similar concern. As the retail landscape gets more competitive, especially with increased online price transparency at time of purchase. There are three moves that REI has made that I believe will make their model defendable:
1. Private Label. On these labels, REI can produce direct at a cheap price (given large quantities) and offer very competitive prices. It will also be very hard for consumers to directly price match on these items
2. Brand and Loyalty. I believe REI has a built a very loyal customer base through their co-op model. From the return policy, to the mission of the brand, I believe many REI shoppers have a deep belief in the brand and will be less likely to switch.
3. Longitudinal Data. REI must be very smart on the behaviors of consumers given a membership database with extensive history, before loyalty cards became the lure for consumer data. I think this allows REI to predict and out-perform the competition on understanding how to capture consumer while maintaining margin.

In terms of your specific concern about REI going in the red, we don’t have to worry about that! There is a clause in their dividend agreement that only allows them to max dividends at operating income in any given year. Consumers may be upset, however there is minimal financial risk posed

On December 14, 2015, DWang commented on REI: Helping Consumers Explore the Outdoors :

Hi Anthony –

Thanks for the question! The membership sales are important because a significant percent of REI operating costs are fixed (i.e., Store costs, Website management). The product gross margin are actually 43%. The more that REI can scale it’s membership base to drive sales, the more then burden of these fixed costs can be distributed. In addition, membership sales are ~10% of Pre-Tax Operating profits, which go straight to the bottom line. Hope that answers your question! Thanks! Danielle