REI's Co-op Business Model Produces Record Results

The cooperative, or co-op, business model foreshadowed the rise of the triple bottom line and corporate social responsibility (CSR) as core organizational values and the basis for strategic growth. Way back in 1938, an outdoor-loving, mountain-climbing Washington state couple adopted a consumer co-op business model to create REI. Twenty-three people each paid $1 to join.

A lot has changed since then, but REI stays true to the co-op business model and the values instilled in it by the organization's founders, Lloyd and Mary Anderson. Posting a 9 percent year-over-year increase, REI's annual revenue rose to a record-high $2.2 billion in 2014. With some 945,000 people joining the consumer co-op last year, the ranks of REI's active members swelled to a new high of 5.5 million.

Today, REI provides much more than good deals on high-quality outdoor equipment to co-op members. The REI Outdoor School offers a wide and expanding range of outdoor education and training courses. Growing numbers of REI members are also getting out and experiencing the outdoors by joining in outdoor adventures offered by REI Adventures.

That's not all. The annual dividend REI pays to co-op members based on their annual purchases rose to $168 million last year. And, as the company announced in a press release, “As part of [its] mission to give back to the outdoor community, REI will invest almost $8 million in nonprofits and new projects to create access to inspirational outdoor places.”

A record-setting year

REI is the largest consumer co-op in the U.S. Co-op members pay a one-time fee of $20 for a lifetime membership. Besides a growing range of outdoor products and services, co-op membership entitles them to an annual 10 percent cash dividend based on their eligible annual purchases. Whether the dividend is paid in any given year depends on actual results and management's judgment.

“Our momentum reflects the appeal of life outdoors. We have focused hard on giving our members great gear and expertise,” REI CEO Jerry Stritzke said of last year's record-setting performance results. "Our stores and digital business are doing well, demand for experiences and adventures is up, and we are saying a big thank you by investing more in the work our nonprofit partners do for our members and the outdoor community.”

REI's efforts to stay true to the core business values and love of the outdoors expressed by its founders are evident even in small details of its 138 retail outlets across 33 states. Door handles in each and every one take the form of the first product the founding couple offered co-op members: an ice axe that, in those days, cost $3.50, REI's head of public affairs, Alex Thompson, told 3p in an interview.

A sense of community in promoting outdoor life

When asked if there are any trade-offs to REI's co-op business model – in terms of revenue growth or raising capital for expansion, for example – Thompson said management “doesn't really think about [these attributes] in terms of trade-offs. The co-op model works well for us. We're experiencing steady growth, and we're increasing the level of our community investments.”

All this is in-line with REI's core mission of providing more people with greater access to the outdoors and promoting environmental and social stewardship, Thompson added. “A life spent outdoors is a life well-lived – that's really our North Star,” he said.

Furthermore, REI's consumer co-op business model affords management the “flexibility to think a lot about ways of better serving our members. Even more importantly, it gives us the ability to think and plan long-term instead of on a quarterly basis.”

More broadly, REI finds that the co-op business model and the values of environmental and social stewardship serve as an effective antidote to the “spiritual” crisis now afflicting capitalism. As Thompson said:

“The idea that executives need to think hard about innovation, sustainability, and social and environmental responsibility is remarkable. This organization was designed and built for that, and it's been going strong for three-quarters of a century.”

REI's community investments

Zooming in on REI's community investments, Thompson pointed out that REI works with some 300 nonprofit organizations around the country. In addition to a community investment and relations specialist working out of REI's Seattle headquarters, local community specialists “are involved in making the right decisions by assuring that investment dollars flow through to local organizations and projects.”

The core values of community and environmental responsibility are represented at the highest level of the organization, Thompson noted. “There's an enormous sense of shared responsibility for how we show up and invest in projects that make participating in outdoor life possible,” he told us. Its community investments, Thompson added, “are as much a part of our strategic goals as is financial and economic performance.”

Taking a step back to gain a view as to how these values underly and inform REI's success as a business, Thompson highlighted four measures that are often cited by CEO Jerry Stritzke:

• Are we compelling to members and engaging them?


• Are we running the business well?


• Are we a great place to work for people who love the outdoors?


• Are we influencing and advocating for the outdoors?

Highlighting its ongoing commitment to advocating for the outdoors, REI is marking the centennial anniversary of the U.S. National Park Service in 2016 through “a multi-year, multi-million partnership with the National Park Foundation.”

On March 30 REI announced that it will introduce five new REI Adventures' travel destinations in U.S. National Parks and donate 10 percent of proceeds from park trips to the foundation. In total, the five new REI Adventure trips brings the total number REI organizes in U.S. National Parks to 35.

For more on how the co-op business model comes into play at REI, check out the infographic below.

*Image credits: REI