Why REI is betting big on diversity to help double its membership to 50 million customers

REI Co-op is beloved by millions of outdoors enthusiasts, who turn to the retailer for all manner of sports equipment, from casual hiking boots to white water rafting gear. But its clientele is not particularly diverse, a fact the company is looking to change to reflect shifting U.S. demographics and, ultimately, reach ambitious growth targets.

REI’s sales rose 36% to $3.7 billion in 2021, easily eclipsing 2019 levels after a calamitous pandemic hit to business in 2020. Its membership swelled to 3% as it hit 21.5 million members last year. (REI Co-op members, who own the company, receive an annual dividend that’s essentially a store credit equal to 10% of what they spent at the retailer the year before.)

While the retailer has experienced some membership growth during the pandemic rebound, that figure is still less than half of the ambitious 50 million members goal that REI CEO Eric Artz wants to achieve by 2030. And winning over that many new customers who enjoy the great outdoors will require attracting far more customers from underrepresented communities.

The outdoor goods industry, including REI, has disproportionately catered to white customers for years. To use but one gauge, a 2018 report estimated that Black visitors to national parks accounted for as little as 2% of all visitors, despite being 13% of the total population. Latinx Americans were similarly underrepresented. One study two years ago surmised that factors included a lack of transportation to national parks, insufficient marketing to those groups, and the cost of visiting were among the top reasons. But a growing share of people of color are venturing into the outdoors sector, a shift Artz acknowledges.

“We are looking ahead to the demographics of who is and who will be participating outside in the future,” he told Fortune in an exclusive interview, adding that the time “when we cross over to a non-white majority in this country is not too far ahead.” Currents trends support that. According to the U.S. Census Bureau, the majority-minority switch is projected to take place by 2044.

Some of REI’s diversity efforts have mirrored that of many companies’, such as naming a diversity and social impact chief, Wilma Wallace, last September. It’s also seeking out Black labels to add to its roster, a considerable challenge when only about 1% of outdoor gear brands are owned by entrepreneurs of color. REI says it wants to add 200 brands founded or led by people of color by 2030, which would represent 15% of the labels it carries, though not necessarily 15% of sales.

To that end, the retailer recently launched a new vendor portal for small businesses to reach REI members directly, and committed to investing more than $30 million in the coming years to support 300 founders of color get their businesses of the ground.

The benefits of ditching a lavish HQ

Diversity has not been the only challenge for Artz. In the summer of 2020, REI’s corporate staff was set to move into a swanky new Bellevue, Washington headquarters, which featured two large outdoor courtyards connected by bridges, to better compete with major employers in the Seattle area. Notably, Microsoft, Amazon and Starbucks.

REI scrapped that plan in early 2020, laying off 25% of corporate staff and later selling the campus for $390 million to Facebook. (REI now operates a series of small, leased satellite offices in greater Seattle.)

The upside of no longer having a headquarters is that REI can be flexible in figuring out work-from-home arrangements, Artz says. “We’re in a very advantageous situation because we can work with our employees on what works best for them moving forward. We are not encumbered by facilities.” It also enables REI to recruit talent further afield than its home turf. “We just opened a whole new world of talent for ourselves who for various reasons may not have been able to move to the Seattle area and participate with us,” he says.

While Artz believes the pandemic took a toll on culture and connections between staffers, he cautions that a daily return-to-office mandate won’t necessarily fix the issue. Still, Artz concedes that fewer in-person interactions between headquarter workers and store workers over the past two years has hurt the company’s esprit de corps and created distance between employees and management, especially when meeting for the first time. “We’ve never seen each other’s face, we’re communicating between masks and plexiglass, [and] it affects the way we interact,” he says. That might be one factor behind a recent unionization effort at a REI store in New York City’s SoHo neighborhood.

Employees at the store voted to unionize in early March, catching some observers by surprise given the retailer’s reputation for good working conditions. (One noteworthy perk: no work on Black Friday.) REI struck a conciliatory tone in its press release after the vote, saying it accepted the result— a stark contrast from retailers like Amazon, which is also fighting a unionization drive at some facilities and has sought to overturn votes, claiming irregularities.

For Artz, the episode made him realize that perhaps REI brass wasn’t as in tune with workers as it believed.

“We need to be at a different level of dialogue with our employees than we have been in the past,” he says. “We’re still working with our employees to figure out what looks like in a post-pandemic world.” But one thing is for certain, he notes: diversity will be at the forefront of REI’s future growth strategy.

Never miss a story: Follow your favorite topics and authors to get a personalized email with the journalism that matters most to you.

Read More

Great ResignationDiversity and InclusionCompensationCEO DailyCFO DailyModern Board