More layoffs hit REI

REI often feels like a foundational pillar of the outdoor industry. Along with key companies like Patagonia, The North Face, and others, they’re often at the center of shaping consumer relationships with popular brands, gear trends, and more. They’ve led on unique marketing PR around Black Friday (I have my own opinions about that one), DEI initiatives, and more. Their brick-and-mortar locations have been an invaluable resource for decades.

But…things aren’t so rosy for REI at the moment. Over the last few years they’ve been struggling with profitability, dealing with unhappy employees pushing for unionization at various stores, and most recently had another large layoff.

More layoffs

The most recent layoff appears to be affecting the ‘lead’ roles across all stores, and employees are reporting that 250+ people were laid off yesterday. It’s being communicated as an organizational restructuring for cost and efficiency.

Why are employees trying to unionize?

There are a few key concerns leading to unionization efforts. Most seem to stem from a lack of clarity around guaranteed hours, desire for wage increases, and poor management + working conditions at some stores. Reporting from NPR describes “schedules so inconsistent that a part-timer might get 14 hours one week, then 24 hours the next and four the following”. Eight stores have successfully voted to unionize thus far.

Is there anyone not in favor of unionization?

While popular, the efforts aren’t universally supported by store employees. Working conditions and perceptions of REI corporate/management can vary wildly store-to-store. Detractors tend to be unconvinced that unionization will be able to fundamentally change the dynamics at play — namely that REI is primarily a seasonal retail business, with staffing needs that fluctuate wildly. Some feel that many union supporters are new, younger workers that often end up leaving anyways.

And, REI, obviously. They feel that they’ve already invested heavily in employee benefits and that union efforts are detrimental overall. They’ve been heavily criticized for efforts seen as union-busting.

Will unionization help employees?

Absolutely, in some ways (see below image). However, it won’t prevent situations like these layoffs. If profitability is an issue right now, then unionization is actually more likely to cause layoffs like this by continuing to increase operating costs through raises and additional benefits.

There seems to be a thought that unionization or boycotts can ‘send a message’ to REI leadership and force them to cede to employee demands. While I empathize, there are greater forces at play here — REI is working with severe economic headwinds. Interest rates and inflation are rising, and people are spending less or looking for more affordable options. Dicks just closed 11 of Moosejaw’s 14 stores. In 2022, struggling MEC sold to a private equity firm. While everyone can and should advocate for better treatment of employees, it feels like small potatoes compared to the hurricane of existential market forces that REI is currently struggling to weather. Layoffs happen, but it will have to be seen whether this one was well executed or not.

Is REI profitable?

No. REI has struggled to reach profitability in recent years despite record sales. REI reported losses of $176 million in 2022 after a profit of $97 million in 2021, largely bolstered by the pandemic-related surge in outdoor recreation. The CEO cited a $50 million investment in employee compensation as well as $92 million toward employee retirement and bonuses for the loss. It’s somewhat confusing, as revenue doesn’t appear to be an issue, but the cost of goods plus operational and administrative expenses were also significantly increased, contributing to the net loss.

In February 2022, REI laid off 176 employees at its corporate headquarters in Seattle, approximately 8% of HQ staff.

What’s next?

A layoff of this magnitude that affects so many long-tenured employees is likely to have a large effect on the internal culture at REI. It might be a relatively small percentage overall (around 2%), but this wasn’t a cut of under-performing employees — it feels more like an algorithmic (or consulting company recommended) cut to “easily” save some money on payroll and shift the percentage of in-store staff towards less experience and lower pay brackets.

It will also indicate to remaining employees that hard work and loyalty doesn’t necessarily pay off at REI.

There’s a very real concern that the quality of the in-store experience at REI will continue to degrade. The recent cuts seem to be targeted at at experienced employees with a focus on cost-cutting — it’s likely that those workers will be replaced with new, less experienced seasonal workers at a lower cost. Sound familiar? It’s not a new strategy for retail – see Bed Bath & Beyond, Circuit City, Sports Authority, etc. One has to hope that they’re not on the same long, inevitable slide as those companies.

How do you compete?

It is tougher and tougher for brick and mortar to compete with online retailers. Some employees have noticed an uptick in the number of sales at REI, but this is likely due to constantly having to compete with other options that almost always have the same gear in stock for 20% less.

Consumers are increasingly comfortable shopping primarily online, especially as they grow in experience. For a long time, REI has sold a premium product — knowledgable in-store staff that will invest time in coaching you through the ins and outs of camping, backpacking, and more. It’s a value primarily tied to less experienced consumers. I’d venture to guess that with the proliferation of outdoor content on Youtube, social media, blogs and more, the average REI customer is showing up to a store more educated than ever, diminishing the need for that in-store hand-holding (not that it isn’t valuable).

I grew up with REI being one of the only options for outdoor gear. But now, as I’ve grown older and more experienced, it’s more of a convenience rather than a go-to. If I need to swing by the store on a Friday to grab some small things, I will. But if I’m making a larger purchase decision, I typically research and buy online from the cheapest place.

It’s increasingly possible that REI is selling a premium retail product that…simply isn’t in demand anymore. We’ll have to wait and see what their 2023 revenue reporting shows.

‍