By Matt Wiebe
SEATTLE, WA—Recreational Equipment Inc. reported a record year in 2010 with an all-time high operating income due in part to its growing bike business.
The outdoor chain, which sells bikes at all but one of its 114 stores, saw 2010 sales reach $1.66 billion and operating income hit $115.4 million.
Though REI doesn’t break out its bike business, REI divisional merchandise manager for cycling/multisport Brian Foley said it’s a segment that has grown steadily since 2000 when the company targeted it as a division to grow.
Foley said REI’s bike sales account for 15 percent of its overall business. And while the company is committed to specialty bike brands—and sees itself as a specialty retailer—its bike business breaks down quite differently.
“Bike sales account for about half the business of an IBD; at REI our bike sales are a small portion of our bike business. We have very strong apparel, accessory and car-rack business,” Foley said.
He also points out the differences in the demographics of its bike customer—largely made up of families, women and a wide ethnic mix. “We offer women’s-only bike maintenance classes, and women’s only rides. They are a big cycling customer of ours,” he said.
Many IBDs don’t carry kids bikes or stock a limited selection, citing competition from Wal-Mart, Target and other mass retailers. But family, especially kids bike sales, are another big cycling segment for REI, Foley said.
One category of rider REI doesn’t pursue are enthusiast racers, the bread-and-butter customer of boutique bike shops.
“Sure we have racers shopping our stores, but they are not a customer we go after, they tend to shop only bikes,” Foley said. “REI is camping, hiking, water and winter sports. We target outdoor customers who also cycle.”
REI’s own Novara brand and Electra are the only bike brands sold in every store. Cannondale, Dahon, E-Moto, GT, Marin, Raleigh, Scott, Surley and Swobo are carried only in stores that these suppliers specify. For these brands, REI helps them reach a broader customer base with a specific product.
“We’re not in every REI, only in those shops that meet our needs as a supplier. But they pay their bills on time and take advantage of every program we offer, like early payment and other discounts. They are a great customer,” said Adrian Montgomery, Scott’s marketing director. “They are not a shop for a competitive road racer, but their mix of outdoor interests and bikes brings us a different customer than a bike shop.”
Raleigh’s vice president of product and marketing, Chris Speyer, agrees that the bike consumer REI attracts is often different than the one that walks into a bike shop.
“REI is not our largest customer, but they are very easy to work with. We treat them just like a regular dealer,” Speyer said. “They reach out to bike buyers who don’t have established patterns of bike shopping, and if any retailer is poised to capitalize on gas prices pushing people to look for alternative transportation, they are it.”
That observation is not lost on REI. Foley thinks the bike market is realizing that more customers are seeing the value in bikes as transportation as well as recreation. And REI is adjusting its in-house product lines to reflect this trend.
“We are developing a Novara cargo bike line now. We expect to begin targeting this long-wheelbase market,” Foley said. “We know how many racks and panniers we sell. We know the market is there.”
The positioning REI gives its Novara line of bikes depends on category. In commodity segments—$800 hardtail mountain bikes or Tiagra/105 road bikes—Novara models are value-oriented offerings. In smaller segments like on- and off-road touring or commuters, the lines are spec’d up market. “Touring bikes is something we have offered for years, and something missing from most bike lines and shops. So we have Novara there,” Foley said.
REI’s popular Expert Advice offerings already show people how to pack panniers for shopping and carrying cargo in addition to touring and offer commuting advice.
“It gets back to the fact that our customers are different than the average bike shop, so we need to develop products for them. And urban and transportation bike sales are growing,” Foley said.
REI’s tailored approach to in-house product development and product selection has proven successful over the past decade.
In its latest financial report, REI posted a gain of 14 percent in 2010 sales over 2009. Operating income was up 15 percent. Store-on-store sales in 110 locations grew 8.1 percent last year, after falling 3.5 percent in 2009. But it was direct sales—online and catalog—that made the difference, growing 22.9 percent. The company opened four new stores last year, and plans to open seven in 2011.
Cycling business grew, but slightly less than the overall business, according to Foley.
“Because some of the other divisions had some hot products last year, cycling grew at a slightly slower rate than the company overall,” Foley said. “But cycling has been growing strongly.”
As a co-op, its members benefit from its success. REI distributed $94.3 million in refunds to its 4.4 million active members.
In 2010 REI granted more than $3.7 million to non-profit organizations as a whole, including a $100,000 donation to Bikes Belong, $25,000 to IMBA and $20,000 to Adventure Cycling.
For local outreach programs the company provided over $400,000 in grants, some of which went to local bicycle initiatives.