In the meeting, held virtually and open to all of the company’s 24 million members, an outgoing director touted REI’s record as a “values-based organization,” pointing to the company’s latest work to protect public lands, such as mobilizing customers to pressure the U.S. government to expand Joshua Tree National Park. Executives proudly noted that company carbon emissions had fallen 10% in 2023 compared to the prior year. (In years past, in-person meetings have included land acknowledgements, recognizing that speakers were standing on territory stolen from Native peoples.)

The updates were a reminder of the planet-friendly earnestness that has endeared REI to its millions of customers and thousands of employees, known as Green Vests, for decades. “We are not just about gear, we are about collective impact,” CEO Eric Artz told the meeting.

Only executives were able to speak in the May annual meeting, but the Green Vests, reeling from reduced hours and three recent rounds of layoffs, have been increasingly vocal about their grievances. Over the past two years, staff at 10 of REI’s 187 stores have unionized. Employees have chafed not only at cutbacks but also at what they see as changes in REI’s culture. Artz has implemented more centralized decision-making, conducted a costly overhaul of its e-commerce, and hired a raft of executives from large national retailers—leaving many Green Vests, and industry observers, to wonder whether REI is losing its soul by aping big-box rivals like Cabela’s, Dick’s Sporting Goods, or Walmart. 

For all of REI’s idealism—its website states that “Being a member-owned co-operative allows us to focus on shared values, not share value”—the co-op is colliding with the realities of a tough retail climate, as it struggles with intensifying competition, a cautious consumer, and thin profit margins. The high-touch, eco-conscious ethos that made REI so popular with shoppers and workers is also arguably jeopardizing its future. And as it fumbles toward becoming more efficient, a company that started out selling mountain-climbing equipment finds itself caught between a rock and a hard place. 

Speaking with Fortune in July, Artz dismisses the idea that REI is going corporate. But he argues that REI can live up to its co-op ideals only if it is on solid financial footing and competitive. “The journey I believe we are on is about constantly living up to the essence of how we got here,” he says. “The customers change, as does the global landscape, so we are trying to meet the moment and do what’s right for the long-term health of the co-op.” He adds, “There is no mission without margin.”

An 86-year climb

REI was founded in 1938 in Seattle by recreational climbers Lloyd and Mary Anderson, a married couple who were in search of quality ice axes. Such gear was typically prohibitively expensive, but the Andersons figured out how to order the axes directly from an Austrian supplier—for a fraction of the price they had been paying at nearby ski stores. Other climbers joined their endeavor, pooling money to help the Andersons place larger orders and get even lower prices, and thus the co-op was born. REI further burnished its cred with outdoors enthusiasts when executive James Whittaker became the first American to climb to the summit of Mount Everest, in 1963. He later went on to become CEO. (REI was not always only about the outdoors. In decades past, it even sold men’s suits.)

There are many large business co-ops in the U.S., particularly in the areas of agriculture (Land O’ Lakes), insurance (State Farm), and banking (Navy Federal Credit Union), but REI is by far the largest retailer co-op in the country and the largest one owned by its customers, many of whom are also REI employees.

REI was a purpose-driven company long before PR professionals concocted the term. Promoting the outdoors and protecting lands has been part of its mission since inception. REI has facilitated millions of hours of volunteer work in state and national parks and other natural outdoor spaces, and historically has spent 3% of its annual profits on outdoor stewardship. (In good years, that comes out to a few million dollars: In 2021, for example, REI reported $98 million in profit on close to $4 billion in sales.) 

Over the decades, REI’s purpose has helped it attract particularly committed customers—whether or not they became members—and a very particular class of employee. The sense of mission and freedom to nerd out on the outdoors—chatting with customers about the top hiking trail in Boulder’s Flatiron foothills, or offering technical advice on the best sleeping bag for wintertime camping in Vermont—long made REI a highly desired employer. 

And happy workers often equal happy customers. “Their employees always seem to have answers to my questions and are very helpful,” says Michael Buscher, a customer from Maryland. Buscher recalled a time in 2020 when an employee followed him to the store parking lot to help install a new Yakima rooftop box on his truck before a family road trip. (The employees’ expertise can be truly wide reaching; a few years ago, REI helpfully posted a video on the etiquette of pooping in the woods.)

Pay at REI is competitive by retail standards—and so are perks. Employee discounts, which can reach 50% off REI’s store brands, are a big draw, and so tempting that some Green Vests joke that REI stands for “Recycle Employees’ Income.” Every year, the company has opted to remain closed on Black Friday, the busiest U.S. shopping day of the year, to give workers a day off to enjoy the outdoors.

Sustaining this kind of community isn’t cheap. 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 industry. That generosity makes REI’s cost structure higher than that of many rivals, which in turn endangers it more when business slumps.

REI’s co-op structure may have allowed relatively lackluster operational and cost discipline to creep in, says one outdoors industry expert. “It might be seen as a bit unseemly for them [REI] over the years to be dramatically profitable,” says Eoin Comerford, the former CEO of outdoor retailer Moosejaw and now an advisor to retailers.

Artz acknowledges that being a co-op makes REI tougher to run in some ways. “We have a quadruple bottom line,” he says, referring to REI’s obligations to members, its 15,000 employees, the business, and society. Yet he also dismisses the idea that REI’s status as a co-op might be a hindrance. 

“On the contrary, it’s an advantage,” he says. “We’re here for a purpose,” he continues. “At our stores, you’ll be greeted by a knowledgeable Green Vest and get expert advice, and they believe working here means something more than just selling things,” he says. 

Green Vest unrest

There had been discontent brewing among the Green Vests for years. It picked up steam during the pandemic, when unpredictable and chaotic conditions created stress for frontline workers at all kinds of retailers. Tim Spangler, head of retail and a 28-year REI veteran whom many credited with building the strong Green Vest culture, left in 2021. And early the following year, for the first time in REI’s history, workers at one of its stores—the flagship in New York City’s SoHo neighborhood—began the process that led them to unionize as part of the Retail, Wholesale and Department Store Union. 

Some of the workers' complaints included being classified as “part-time” despite working 32 hours a week—a move they said was an effort by REI to avoid paying benefits—or being under-scheduled outside of the holiday break. More than two years later, REI and the union still haven’t agreed to a contract. 

Claire Chang, an avid hiker and a visual merchandiser who sets up in-store product displays, has worked at REI’s SoHo store since 2017. She was drawn by the prospect of working with people who share her idealism and her belief that companies can be a force for good. But Chang says employee disillusionment got more intense early in the pandemic. “REI does put such an emphasis internally and externally about how they are a different type of company,” she said. “But then we're seeing decision-making that shows that no, actually at the end of the day, they are more similar to big-box companies.”

Part of the problem: A boom in outdoor-gear sales, itself fueled by the pandemic, began to dissipate in 2022, and REI struggled to adjust. Its first big layoff round came in early 2023 with 167 job cuts, followed by 275 later that year, and then 357 job reductions announced in January this year. Altogether the cuts represented a little over 5% of REI’s workforce, and while many of them were at the corporate level, store workers still felt the pain; many saw their hours reduced.

The fact that the layoffs came in several waves added to the frustration: It suggested to many workers that management had underestimated the company’s struggles. Frustrated workers protested REI’s annual anniversary sale this May at two stores, one in Chicago and the other in Cleveland, with work stoppages aimed at embarrassing REI in front of shoppers who could assume a progressive co-op would be friendly to labor organizing. Many workers at stores across the country still wear pins that say, “Ask Me About My Pay Cut.” Says Chang, “The company hasn’t taken care of the soul of the company, which it says is about people, profit, and planet.”  

Artz in particular has become a lightning rod. Some employees have called for his ouster on Reddit threads, with one commentator saying Artz has been subject to “zero accountability for his abject failures.” Artz’s total compensation in 2023 was $2.8 million, with some employees seeing in it proof that REI is just another big corporation. (REI has said its executive pay is in fact lower than what leaders make at similarly sized, publicly traded retailers. Artz’s 2023 compensation was also significantly less than his packages in 2022 and 2021.)

Caught in a bind

Artz and REI face an undeniable challenge: They have to find the sweet spot between transforming REI’s business to keep up with big rivals, while preserving the culture that made it special. 

The pandemic, which initially was great for business, exposed some of REI’s weaknesses vis-à-vis rivals like Dick’s Sporting Goods, with its supply-chain prowess, or Amazon and Walmart, with their formidable e-commerce firepower. 

As lockdowns eased in the second half of 2020, Americans took to the outdoors where they could easily socially distance. They snapped up bikes and camping gear, flocking to chains like REI. The retailer’s net sales ballooned 36% in 2021, to $3.7 billion. (REI in August 2020 sold its lavish, never-used new corporate campus in a Seattle suburb to Meta, a setback that still provided hundreds of millions of needed dollars to the co-op.)

As beloved as REI was, it was not quite a well-oiled retail machine: The surge in demand for goods seemed to catch REI flat-footed. Like its rivals, it fell victim to the Great Bicycle Shortage of 2021; that crunch hurt lots of retailers, but REI sometimes struggled to land inventory more than Dick’s or Walmart did. (In 2022, REI appointed a chief supply-chain officer for the first time.)

Management proceeded to make a wave of decisions based on the assumption that the torrid pace in growth in outdoor-gear spending would continue: It increased wages and invested heavily in e-commerce capabilities, including improved inventory management tech and new distribution centers to speed up delivery. But growth slowed almost as abruptly as it had soared. In 2022 REI’s revenue rose a modest 4%, before slipping 2.4% last year.

(Little relief is on the way: Research firm Circana estimates that the core outdoor market was 24% bigger at $27.8 billion in 2023 than it was in 2019, but that growth is tapering off. What’s more, REI is facing growing competition from the likes of Amazon, which sells plenty of tents, TJX’s Sierra, and the small Public Lands division of Dick’s.)

These factors showed up in REI’s bottom line in 2023. The co-op’s merchandise profit margin last year was 38.7%, down from a historical average in the mid-40s. One cause was that REI had to dramatically discount REI-branded merchandise because of inventory management difficulties, according to a recent analysis by Comerford. 

Adding to the pressure: REI’s high-touch specialty retail model, a selling point with customers, does mean more staff in stores. REI’s payroll was equal to 25% of revenue in 2023, compared to 14% at Dick’s, Comerford found. All the while, REI’s COVID-era pay and benefit hikes, including expanded health insurance coverage and a $50 million outlay in 2022 to raise hourly wages, added weight to cost structure.

Artz has responded to the need to right REI by reshaping his executive team. Most of the senior executive appointments announced in REI’s press releases in the last two years—a new technology chief and the new head of supply chain among them—have come from the outside, from companies including Chipotle, Amazon, Levi Strauss and Bed Bath & Beyond. They’ve replaced long-time REI executives with deep roots in the outdoor-gear industry, including Spangler, the head of retail, and Chris Speyer, a well-regarded former chief merchant.

To be sure, REI has long recruited outsiders. Artz himself came to REI in May 2012 after a stint at Urban Outfitters and 17 years at The North Face parent VF Corp. His predecessor, Jerry Stritzke, had come from Coach. And Sally Jewell, a CEO revered by the REI troops, came from the finance industry. (She left REI in 2013 to become secretary of the interior under President Barack Obama.)

One former REI executive, speaking on condition of anonymity, says that now “suddenly, you have more of an efficiency-driven, big-box retail mindset.” That risks hurting the culture by centralizing decision-making and playing it safe, the executive says; it could erode the outdoor-industry expertise and focus that has long been REI’s secret sauce.

But Artz makes no apologies for bringing in so much new blood. “Any growing healthy organization wants that stimulation from the outside,” he says.

The road to 50 million members

For all its challenges, it is not all doom and gloom at REI. The company recently opened new stores in Ithaca, N.Y., and Glendale, Ariz.; will open new locations in Albany, N.Y., and Loveland, Colo., this week (Aug. 23); and has plans for a new store in Louisville, Ky., in the fall. It is a major seller of hot, expensive brands like Arc'teryx, Vuori, and Rapha; its rental business is growing; and its marketplace for secondhand goods is doing solid business. 

REI remains a leader at making shopping fun, which is more than can be said for many retailers. Its flagship in downtown Denver, for instance, allows customers to test out kayaks in the South Platte River, right outside the store. “Its biggest strength is its specialization on outdoor pursuits and its loyal customers. Because of that, its newest stores are very nicely appointed,” says Neil Saunders, managing director at GlobalData.

And REI stores’ sales per square foot are above the $600 level, or 2.5 times that of Dick’s. That stems from being a specialty retailer with hyper-knowledgeable workers selling expensive gear. 

But REI’s comeback largely hinges on the motivation of Green Vests. So workers’ friction with management and worries about the big-boxing of REI do matter. “The corporatization of REI is in full swing…It is not a co-op as they market, it is a corporation,” lamented one worker in February in a Reddit room.   

One plank of Artz’s growth strategy that has been an irritant to store workers has been his long-held ambition to hit 50 million members by 2030. That’s an extremely ambitious goal given REI’s current tally of 24 million, up only 1.3 million from last year. Many employees have complained that they feel forced to sell memberships even though customers don’t need them to shop at REI (this isn’t Costco). They also feel that selling memberships takes away time from talking gear with customers. (This is not a new irritant: Stritzke got lambasted by employees on a Reddit “Ask me anything” discussion in 2015 over the membership push.)

What’s more, REI’s slow progress in getting to 50 million suggests a worrisome long-term problem that REI has to solve to grow: a clientele that is still overwhelmingly and stubbornly white and older. At a conference last year, an REI executive noted that only 29% of REI members were under 40, and in 2022, 85% of REI members were white compared to 57% of the population.

Artz bristles at the suggestion that his goal is too aggressive—and, in true outdoorsy spirit, he suggests that the journey to 50 million is just as important as the destination. “When and how we get there is less important than building a healthy community that’s thriving,” he says. “A bigger REI with more members equals more impact.”