Being a cooperative lets REI skip Black Friday

Outdoor retailer is not beholden to shareholders

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Outdoor retailer REI made an announcement Monday that may have sounded like sacrilege to retail industry veterans. It will be closed this year on Black Friday, shutting its doors on retail’s holiest of days and paying its employees for a day off. Some hailed it as an unprecedented move, especially at a time when many other retailers have turned even Thanksgiving itself into a day of holiday shopping.

It was savvy marketing, a generous employee benefit and an external display of the brand’s principles all rolled into one. It’s also an example of something REI can do because it’s one of the country’s few large retail cooperatives and not a publicly traded company.

A cooperative, roughly defined, is a business that’s owned not by shareholders but by members — people who use the business, such as its shoppers, producers or employees. In cooperatives, profits are treated as a surplus and are redistributed to members or reinvested in the business. And because the governing principle is to run the business in the best interests of their members, rather than shareholders, cooperatives tend to think in longer time horizons than the quarter-to-quarter whims of Wall Street.

“That basic structure frees up the business to do things that don’t really make sense in conventional market terms,” says Erbin Crowell, executive director for the Neighboring Food Co-op Association. He teaches a class on co-ops at the University of Massachusetts, Amherst.

While many people associate co-ops with crunchy organic farms or local health food stores, there are 40,000 such businesses in the United States in 14 different industries, ranging from large agricultural cooperatives such as Land O’Lakes and Ocean Spray to “purchasing co-ops” such as Ace Hardware and True Value Hardware that count location owners as their members.

The National Cooperative Business Association says 42 million Americans rely on electricity cooperatives for their power, and that the fastest-growing type are worker cooperatives, in which workers own and control the business.

REI is a consumer co-op, and the largest in the country. Like some credit unions and food co-ops, its membership base is composed of its customers. Yet, though REI has held that structure for 75 years, it’s something the outdoor retailer is increasingly showcasing — due in part to a growing desire among Americans to spend money at companies that share their values.

“A lot of people know we are a co-op, but don’t know what that means,” said Ben Steele, the chief creative officer of REI, in an interview with The Washington Post. “We really wanted, in this moment in time, to have something that emphasizes how this organization is different.”

And so, the same day REI made its Black Friday announcement, it also launched a new logo, one that includes the word “co-op” for the first time since 1983. The outdoor retailer, Steele says, is “shining a light on the co-op (aspect of its brand) that frankly had gone unsung for a little while.” Last year, it also rolled out an in-store line of apparel called REI Co-Op, and it is currently looking for ways to get members to participate more in its philanthropic efforts.

REI’s members, of which there are more than 5.5 million, pay a one-time $20 fee to join. In return, they receive discounts on in-store services, trips and classes the company offers; they have access to a credit card that gives money back on spending; and they receive a dividend each year that’s equal to 10 percent of the purchases they made on full-priced items. Last year, REI paid out $123 million in dividends — though they function more like credits, since members must use those funds within two years on REI merchandise.

Another way cooperatives are different from public companies is that each member can cast one vote in the election of the board of directors. In a public company, directors are elected by shareholders, yet the number of votes each shareholder gets is based on the size of his or her stock holdings. At REI, individuals members can also self-nominate for a seat, though a nominating committee puts together the final slate of candidates.

Crowell watched REI’s announcement with interest, noting the positive response on its Facebook page. Even if REI is not as dependent on Black Friday as other retailers, and even if more and more consumers are doing their holiday shopping online or on other days, this decision created a notable benefit for REI’s employees and its brand, he says.

“Even if an observer called it a marketing strategy,” Crowell said, “it’s a really intriguing one that points to the fundamental difference between co-ops and traditional public corporations.”