REI’s new CEO has a plan to turn around the beloved retailer—by going back to its roots

The Seattle area co-op under her predecessor Eric Artz had signed onto a letter by a number of outdoor focused companies backing Doug Burgum with “strong support”, saying it wanted a “seat at the table.” But in his first months on the job, Burgum has called for extracting natural resources from pristine land in Alaska, building housing on public lands and supporting the coal industry, ideas that are anathema for many REI members and employees.

Just shy of two weeks into her tenure as CEO, Laughton posted a video on Instagram saying that “our public lands are under attack.” “Let me be clear, signing that letter was a mistake,” she said. REI’s original position had angered many customers and employees, something it cannot afford at a fraught time for the retailer given the rough patch it going through both in terms of challenges to its business and its often tense relations with store employees, known as Green Vests for the trademark clothing they wear.

“One way to show your values is to show action,” Laughton tells Fortune in her first national media interview as CEO ahead of REI’s annual impact and financial results reports. “At a time our public lands are under threat and values like diversity and inclusion are under threat, we are being clear that we believe those values are essential to our business.”

In recent years, REI, a co-op beloved for its planet-friendly earnestness, store workers always eager to talk camping gear, and advocacy of the outdoors, has slumped, reporting net losses in 2023 and 2022 and sales down 2.4% in 2023. On Thursday, REI, however, reported sales rebounded 6.3% to $3.53 billion last year, but still reported a third annual net loss in a row, which it said stemmed from paying members their annual dividend and costs like advocacy and employee incentives.

Adding to the pressure on the company, some 11 stores in its nearly 200-location fleet have voted to unionize in recent years. As detailed by Fortune last summer, some workers, including some former executives, have worried that REI was becoming too corporate. In recent years the company hired many executives from major retailers, lost many long time insiders, and its board has included executives from companies like ExxonMobil and McKinsey. Board directors serve three-year terms. Nine people sit on the company’s board along with the CEO.

REI’s management and board were dealt a blow on Thursday when their slate of three directors failed to receive the minimum required number of votes to be elected to the board. Their seats will remain vacant until the board fills them. “This victory was only possible because REI members and REI workers stood together to send a resounding message that it is time for the co-op to return to its core values,” the union said in a statement. REI management said it was “disappointed with the outcome.” 

Ahead of Thursday’s annual meeting, the union made clear it would keep the heat on even with Artz out and Laughton in, encouraging employees who are members and therefore can vote to withhold their support in the board elections for REI’s slate of candidates.

The union left a comment on the Instagram video post about the Burgum endorsement reversal saying “So glad to see the new CEO stepping up and taking accountability! Time for a new way forward. Mary Beth, we hope to see you at the bargaining table soon. It’s been 3 years – it’s time to negotiate.” (Laughton says she is “really committed” to negotiating in good faith.)

In a letter to staff on Thursday, Laughton recognized the frictions and laid out some initial steps to improve relations and communications between the rank-and-file and management and the board. “All have made it clear to me that we have a lot going for us. This community values the
outdoors, believes in the co-op, and wants to help shape a thriving future,” she wrote. “But I’ve also heard that we have some work to do to regain the full trust of our community.”

And so it falls on Laughton not to only steer REI, which stands for Recreational Equipment Inc, through a period of tough competition and an uncertain consumer environment, but also extract it from its existential angst.

Repairing relations with the “secret sauce”

Laughton has spent the first two months listening to co-op members (one doesn’t have to be a member to shop there) to understand both what they want from REI as a company in terms of values, but also what they want to buy from it. She’s also getting to know employees, and has visited dozens of stores for a lay of the land. The specifics of her turnaround plan, like new stores, in-store experience, brand assortment, e-commerce features are still to come.

But Laughton, who first became an REI member in the 1990s, says her overarching theme is that REI has to get back to what made it beloved by outdoor enthusiasts in the first place (it was started in 1938 by mountain climbers looking to pool money to get deals on equipment).

“One of the first things is focusing on returning to our roots and putting our members at the center of everything we do,” she says. And calling the Green Vests, REI’s “secret sauce,” Laughton says she wants to keep REI “an incredible place” to work.

At the same time, the two first c-suite appointments since she became CEO have their roots in Corporate America. Her new chief financial officer, Shannon Damen is a former colleague of Laughton’s from Athleta, and new merchandising chief in Kristin Shane is an alum of The Guitar Center, PetSmart and Target.

Laughton makes no apologies for picking top executives from outside REI. “I do need retail experts to help me to lead the future of this brand,” she says, noting that like her, these executives have an “authentic passion” for the outdoors. The CEO cites hiking and kayaking among her most beloved outdoor activities. She also noted that REI has a combination of long-time executives and the newer executives from retail’s giants.

Though she says REI being a co-op gives it an edge—it also has a downside. Every year, members get a dividend, which the company now prefers to call a “member reward”—a store credit equal to 10% of what they spent on full price items the year before. REI has historically given back amounts equivalent to about 70% of profits each year in the form of dividends, employee bonuses, and investments in the outdoor sector. That generosity is core to its mission but it makes REI’s cost structure higher than that of many rivals, giving it less room to maneuver during its turnaround.

And so while Laughton is adamant about enhancing REI’s advocacy and values-based ethos, she sees the need to be pragmatic about it.

“We have to make sure we’re making profits in order to continue to live our values and our purpose,” she says.