Can Rei Climb Higher with Networking and the Internet?

Can REI Climb Higher with Networking and the Internet?

With an old-fashioned sensibility and a forward-looking embrace of networking and Internet technology, Recreational Equipment, Inc. (REI) occupies a distinctive position in the retail market. Selling gear and clothing for outdoor recreational activities, REI operates 82 stores throughout the United States, as well as 2 stores on the Web and an adventure-themed travel service. Together, these entities recorded over $1 billion in sales during 2005.

The company was started in 1938 as a cooperative by mountain climbers Lloyd and Mary Anderson and a group of associates to acquire quality climbing gear and other outdoor recreational equipment at affordable prices. Despite the significant expansion and modernization, REI remains a cooperative, with more than 2.8 million members. REI pays out approximately 85% of its total income to cover rebates to cooperative members equaling 10% of their purchases. For 2005, members received a total $43 million in refunds, with over $7 million left unclaimed. Because REI is not a publicly-traded company, it does not have to base its performance on meeting short-term earnings targets and can take a longer-term view of its technology investments. In the history of the company, it has never failed to return a dividend to members. REI has appeared on Fortune magazine's list of the 100 Best Companies To Work For every year since 1998, reaching number nine in 2006.

REI was one of the first retailers to investigate the potential of e-commerce, and by 1996, REI was already doing business over the Web. Two years later, the company's Web store had become a profitable venture. Now, REI.com and REI-OUTLET.com combine with REI's catalog phone sales to account for 17 percent of the company's total annual sales revenue. More importantly, REI has successfully integrated an e-commerce channel into its business without hurting the traditional channels, retail stores and catalog sales.

REI does not attempt to compete on price. Its business strategy emphasizes product selection, staff expertise, extensive product information, and multiple channels working together to provide consumers with the best shopping experience possible. According to Brian Unmacht, REI's senior vice president of sales, distribution, and store development, "The key for REI is to be the place to come for information. We're always working on ways to tie information to the shopping path in a relevant way."

For example, REI was one of the first retailers to employ kiosks in its stores. From these kiosks customers can view products, accessories, styles, and information that may not be available in the physical store in which they are shopping. REI has over 40,000 pages of product information on its Web site, which traditional shoppers can also view from the kiosks when they are in an REI store. The content goes beyond simple choices such as sizes and colors to include detailed advice from experts on everything from how to choose a sleeping bag to how to measure yourself properly to fit a piece of equipment. Stores get credit for online sales made through the kiosks.

As the company grew, REI graduated from low-speed dial-up connections a wide-area network (WAN) and then to a state-of-the art high-availability network based on Cisco Systems networking technology. In 2002 REI installed a Cisco Aironet wireless local-area network (LAN) in every store to provide a platform for applications such as bar-code scanning, shipping, receiving, pricing, and inventory. The wireless implementation resulted from the company's decision to use technology to eliminate inefficiencies that were cutting into profits. Specifically, the company wanted to reduce the amount of time employees needed to spend receiving shipments, integrate shelf stocking with supply chain management operations to reduce errors, and introduce a system by which vendors would ship products directly to stores rather than to distribution centers. Before implementing the wireless LAN, employees in each store spent an average of 48 hours per week in shipping and receiving. After implementing the wireless system, the same work can be performed in 25 to 28 hours. Multiply that by 82 stores and you have major cost savings.

REI is now experimenting with new ways to deliver information to the store floor. It is testing wireless handheld devices that give employees instant access to product information on the Web, wireless cash registers and point-of-sale devices to facilitate quick changes to store layouts, and live two-way videoconferencing based on IP/TV technology that would allow shoppers or sales associates at kiosks to talk to call center agents or product specialists at REI headquarters or other stores. REI has rolled out wireless IP telephony phones in its flagship Seattle store and it is considering using its network to deliver on-demand videos to kiosks to supplement employee training.