What went wrong

For years, REI has grappled with financial issues, exacerbated by changing consumer behaviors, supply chain disruptions, and a retail landscape that has been decimated by ecommerce and brands embracing direct-to-consumer (DTC). In 2022 they reported a loss of $164.7 million, driven largely by increased operating expenses and shifting market dynamics. In 2023 that increased to a net loss of $311 million, attributed to increased investments in employee pay, and member rewards (that number is inclusive of a $169 million differed tax credit). The recent experiences-related layoff also follows multiple rounds of in-store and headquarters layoffs over the last several years.

In a press release announcing the closure, CEO Eric Artz says “Experiences served 40,000 customers in 2024—less than 0.4% of all co-op customers—and costs significantly more to run than it brings in. "When we look at the all-up costs of running this business, including costs like marketing and technology, we are losing millions of dollars every year and subsidizing Experiences with profits from other parts of the business. Even at our peak in 2019—our best year for Experiences ever—we did not generate a profit."

From a purely business perspective, REI’s decision to pull the plug seems a pragmatic one, especially as the company looks to tighten operations, focus on their core retail competency, and return to profitability. I did reach out to REI to request a conversation, but was unfortunately told that Artz wasn't conducting additional interviews (now, I maybe know why).

The activities and experiences space

Activities and experience businesses are notoriously resource-intensive, operating on razor thin margins, even for well-established players. This is true at nearly every scale of the business as well. It's hard to make money on $70 day tours and classes when you have to support a backbone of software, equipment, personnel, permits, marketing, and logistics. There are three primary business models in the space:

Individual operators: The vast majority of operators are small guiding businesses. Depending on scale, they may serve just a few hundred guests per year (or fewer). They may operate all of their own trips, or contract out to larger companies. Many are individual guides who may do this either full-time or on the side. Individual operators tend to be geo-located businesses serving a small geographic area that they know extremely well (and have the permits to guide for). REI both employed individual operators to run their trips and contracted out to others.

Branded providers: Brands like OARS, MT Sobek, G Adventures, Intrepid Travel. While branded providers may work with many different individual operators, they must adhere to a specific set of expectations in line with the parent brand, and the guides often work primarily for a single brand (depending on the type of trip). You see this most often with multi-day tours, but some (like REI) have the infrastructure for day tours as well. Because offerings across companies (and the underlying guides) can largely be the similar, successful brands in the space often target niche audiences or offer unique value propositions. G Adventures focuses on group tours for younger travelers, Flashpack focuses on solo-travelers, and Backroads on cycling/active adventure. Others like Black Tomato, Abercrombie & Kent, and Cookson Adventures are wholly focused on the ultra-luxury experiential travel market. While REI had brand recognition and strong local connections, I think it’s possible some of their other adventure options may have suffered from a lack of differentiation from other, more targeted offerings.

Metasearch/Online Travel Agents (OTAs): This is the model of massive companies like Viator (owned by Trip Advisor), GetYourGuide, Airbnb Experiences, and Peek. Their primary approach is to capture volume, act as the acquisition method for independent operators, and keep operators in their system with software solutions. They don’t usually operate the tours themselves–these platforms are where the vast majority of day tours end up being listed. These companies are heavily VC funded/subsidized (GetYourGuide raised a $194 million Series F in 2023) – utilizing that money to scale operations and software massively in order to capture additional market share and offset operational losses. I’ve seen a few people mention that REI could have taken this approach with the outdoor market, but I think they’re dramatically underestimating the money and effort involved – not to mention that the competencies needed aren’t really part of REI’s overall business strategy.

A loss of soul, in favor of profit?

Proponents of REI's Experiences insist that its purpose was never about profit. It was a moral commitment—a reflection of REI’s connection and commitment to the greater outdoor community. Many of these classes and day tours were vital to local communities, outdoor educators, and the "outdoor curious". The closure feels like breaking an unspoken promise to the outdoorists who trusted REI as a steward of shared community values.

Beyond a moral reasoning, there was an underlying profit motive here as well. Ideally, participants in REI's experiences, who were often less experienced, would go on to grow and mature in various outdoor activities – and spend their money on gear at REI. The classes were a top of the funnel acquisition method for beginner outdoorists–creating positive brand associations for REI and building lifetime customers that would continue to spend money on gear in the months and years to come.

Not every part of a business needs to be directly profitable, and brand marketing plays a crucial role in long-term company strategies. A great example of this is when brands open retail stores in high-traffic, high-visibility locations as “loss leaders” (*cough* Boulder). A loss leader is a business strategy where a company willingly takes a financial hit on a particular product—or in this case, a storefront—because it serves a bigger strategic purpose. While these stores might not turn a profit due to expensive leases and operational costs, their presence helps build brand awareness, foster customer loyalty, and reinforce the brand’s identity.

I wouldn't be surprised if Experiences were historically a strong driver of future gear purchases. However, the “lose money to make money” strategy only work if you’re consistently making money in other places. The landscape is different from a decade ago when REI was one of the few options to purchase needed outdoor gear. Fast forward to today, and options have exploded. Consumer habits have trended away from brick and mortar shopping; participants who may have shopped at REI years ago are now more likely to "shop around" from other brick-and-mortar with a lower price point, online retailers, or DTC options. While a kayaking experience participant may have previously been likely to buy a kayak directly from REI, who’s to say they don’t now go to Amazon? Or Cabelas? Or WalMart? I would be curious to see any data that shows profitability through gear pass-throughs – particularly over time. Did it take into account participants that were already REI customers? How many completely net-new members or sales were being attributed to participation in an REI class or trip? And was that trend consistent, trending up, or trending down?

Ripple effects

Business decisions and moral responsibilities aside, there's no question that the program represented a visceral connection between REI and professional outdoor educators, guides, and burgeoning outdoor participants across the country. The sudden severing of that connection is going to have a consequential backlash.

As I mentioned previously, a large percentage of REI’s trips were subcontracted to local operators (this varied by region), meaning that what’s really “lost” here is the REI association and marketing power. Some offerings will likely live on under their original vendors (MT Sobek has already started re-listing REI trips). That said, those are significant things to lose; the activities industry is built on the back of operators that are small businesses. Partnering with REI, although the requirements to be an approved vendor were often intensive, allowed many guides to spend significantly less time (and money) thinking about acquisition and marketing. The ripple effect of losing consistently driven bookings via REI-marketed and sold trips will be significant. For some, turning off this tap and introducing new costs and marketing needs overnight will be devastating.

Additionally, the loss of REI classes will leave a hole in outdoor education across the country. REI ran or sponsored classes in everything from beginner backpacking to wilderness first aid. There will be an REI sized hole in the opportunities available for people looking to educate themselves in the outdoors or complete required certifications. While 40,000 participants may be a drop in the bucket of total REI customers, it’s still a significant number of people who either relied on REI classes or utilized them for both introductory courses and ongoing outdoor education. REI says that some “In-store workshops, presentations and events are still offered”, although it’s a little unclear as of yet at what level.

What next

It feels a bit like a "damned if you do, damned if you don’t" scenario. REI would likely have faced criticism whether it shuttered Experiences or not. Continuing to run an unprofitable arm of the business risks ongoing losses and operational inefficiencies, giving fuel to people concerned about the co-op’s profitability. On the other hand, shutting it down generated anger from loyal customers and outdoor enthusiasts who saw the product as integral to REI’s mission. It does seem particularly misguided to announce this cut so abruptly, without a more measured approach or phase-out.

Everyone’s an expert. Everyone seems to have “the” solution. Hating on CEOs and “big business” is particularly en vogue right now, and not without merit. But, it’s tougher times for the outdoor industry than many armchair experts may understand. I don't think that means that REI was "right" or "wrong" in this decision, it just means that many businesses are facing hard decisions right now. This wasn’t the first downsizing in the industry, and it won’t be the last, with more uncertainty looming around economic conditions, tariffs, and more. With yesterday's announcement of Artz' retirement and Mary Beth Laughton's appointment to CEO, there will sure to be interesting new developments to follow with REI. Laughton comes from leadership positions at Nike, Athleta, and Sephora – strong digital retail experience but perhaps lacking some of the "core" outdoor ideals that many members desired. Says Laughton: “That [REI's purpose and performance] is a big responsibility – one I embrace with utmost respect for our millions of members and the thousands of employees whose passion for life outside and deep expertise set the co-op apart. I know that we will go further together and cannot wait to join you and build our future.”   For many critics, any change from Artz will be a welcome one, but time will tell.