#450: REI - (Recreational Equipment Incorporated) - Showcases the Principles Creating Customer Loyalty as a Co-Operative

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Hello and welcome to today’s episode of Let’s Talk Loyalty and Loyalty TV. As many of you now know, we’re four years old and we started releasing our Thursday interviews on both video format on our Loyalty TV website, as well as in audio format as we always have done on the letstalkloyalty.com podcast channel. So whether you’re listening or watching right now, we’d love to ask for your support and make sure to watch and share our videos on www.loyalty.tv. 

Now today’s guest joins from a unique and highly inspirational brand focused on four pillars or values that guide everything that they do. REI, or Recreational Equipment Incorporated, is a US based cooperative, which means it’s essentially owned and operated by its 24 million members. My guest is Clay Walton-House, the Divisional Vice President of Membership for REI, who explains the incredible meaning this brings to the whole business, along with a whole new level of meaning to the word loyalty. I hope you enjoy my conversation with Clay Walton-House from REI.

So Clay, welcome to Let’s Talk Loyalty and Loyalty TV. 

Clay: Thank you, Paula. Happy to be here. 

Paula: Great. I hope you’re impressed with the color that I’m wearing Clay. I was trying to decide what color might be appropriate for an outdoor specialist company like you guys. And so there we are. We’re going with the green.

Clay: Green, green is our color as you, as you probably have learned if you spent any time on our website. So, very fitting.

Paula: Thank you, Clay. Great. Listen, it’s an absolutely inspiring story that we’re going to share with our audience today. And very different, I think, to what we typically talk about with, you know, loyalty marketing professionals, you know, when we’re typically talking about things like currencies and promotions and discounts and all that kind of stuff. But this is literally loyalty as an ethos, if I might put it that way. So I’m dying to get into exploring all about the history and the story of what you’re doing. 

But as you know, We always start this conversation trying to understand our favorite loyalty programs. So please kick us off. Tell me, Clay, what is your favorite loyalty program at the moment?

Clay: Well, this is always such a tough question, especially with how quickly the space is changing. So I’m sure many of your listeners know very, very well firsthand. I will, I will have to say Nike as someone who’s worked in this space for quite a while and really admires what they’ve done specifically in terms of integrating membership across a number of different experiential assets.

They’ve built for members, their app ecosystem, the way that they’ve integrated content and community, the way that they use that as a platform for a lot of societal issues you know, to bring interesting content and inspiration to their members. I really think that they represent you know, 1 of the more modern and 1 of the more advanced applications of membership in a omni channel retail model that also has a partner distribution network, which is, of course, an interesting challenge that many retailers face.

Paula: Yeah, and I think what I feel about particularly the Nike model, which is exactly what I feel like with you guys is it almost feels like there’s a higher purpose for the actual program and for the membership. It doesn’t feel like it’s just designed to get me to buy more kit. Like there’s actually like they want to change the physical behavior, which I know is absolutely the ethos of REI as well.

So I can see you nodding away there, Clay. So we are going to have an amazing conversation and please God, if Nike’s watching or listening, we’re dying to get them on the show as well. So open invitation to add to Nike. So thank you for that. 

And you do reference, of course, you’ve been in the industry quite a while, Clay, you have an extraordinary career and background. So do kick us off with telling us exactly how did you get into the loyalty industry? I think you fell in love with it, like lots of us did. So tell us how did all of that happen? 

Clay: I did, but it was somewhat happenstance. So I actually started my career in professional sports. It was a passion play for me. I, I’ve always been a big soccer player and a soccer fan.

So, I actually started started my career in sales and marketing working for the local pacific Northwest Seattle based team called the Seattle Sounders and then moved into the consulting space. And so relatively early on that consulting work was largely customer strategy insights, research, analytics and marketing experience related projects.

I just stumbled in to the loyalty space. Really. I had a chance to work on a couple of very interesting programs. One of Expedia and one at T-Mobile, very, very different industries but really had a chance to kind of delve into, you know, the mechanics of loyalty programs, behavior change. And I think what really appealed to me was this idea of, you know, building more value into a brand’s offering and inspiring loyalty and return.

I felt that at that time in the market, you know, there was a lot of what I would have called stale, tired, fairly boring rewards models, loyalty models in the market that hadn’t really changed a lot, you know, for a decade or more. And lucky for me being a consultant, being an external party, it really gave me an opportunity to gently poke and prod at those models and say, hey, there’s a better way of doing this. You know, there’s a more holistic way of orienting toward adding value for members and driving behavior change and emotional loyalty and response. 

And so spent about 10, 15 years growing a consulting practice that grew from being focused purely on strategy and design work in the loyalty space to really at the end building out end to end solutions for brands across all industries from strategy and design through building mobile app experiences, building web experiences, and then even helping manage the programs.

All of that led me to joining REI which was really just a beautiful you know, right place, right time. I had a long standing relationship with the brand. I knew very well and had always aspired to potentially work there someday. And it just so happened that. At the right moment in my career a role came along that was in the membership team. And here I am. 

Paula: Incredible. And forgive us, you know, there’s a lot of us around the world, Clay, that mightn’t have been familiar with the REI brand, pardon me. So maybe just explain, of course, the acronym first and foremost. The incredible heritage and of course the entire model, because I think that’s something that is particularly unique to REI. So maybe just introduce the business to us before we get into the membership side. 

Clay: Absolutely, I mean, this is one of the primary reasons that I had an interest in joining the brand. So REI stands for Recreational Equipment Incorporated. But what is so interesting about who we are and functionally, I should just first say that, you know, we are a omni channel retailer.

So we operate in the US only. We have 181 stores but, and we’re about a 4 billion retail company. But what is fascinating about REI is that we are a consumer cooperative. And so since 1938, we have been a member based business, and I’ll share a little bit of the origin story here in a minute. 

But what made this project for me so inspiring and such a fun opportunity to be part of is that unlike most organizations where a loyalty program is something born out of a marketing or a digital organization to drive a stickier business model at a cooperative. Membership is literally written into our bylaws. It is legally part of who we are.

Members have rights that are legally enforceable, and it’s a very different philosophy, and it really imbues who we are as an organization, how we think about our mission, and I’ll talk more later about our quadruple bottom line, but the 1st part of that is our members. 

So to me, that was a really fascinating nuance to difference and exciting opportunity to work, you know, an organization where membership is really deeply ingrained and who we are. But also an opportunity to modernize mechanics and drive innovation and growth through a membership model. So, that’s a little bit about what makes a co op unique as it relates to membership. I think what is equally inspiring, perhaps more inspiring is the origin story of the co-op. 

So, in 1938, essentially, what happened was there was a local outdoors community called The Mountaineers still exists great organization, one of the biggest outdoor kind of learning organizations in, in the U. S. and the world really. And The Mountaineers at the time was all about pretty classic outdoor sports, specifically alpinism. So a lot of people in the 1920s and the 1930s were climbing local mountains.

And it was somewhat elitist, and to be part of that club, you really had to kind of be part of that community already, and you had to meet a certain threshold. And the founders of the co op really felt that that was not a very fair and egalitarian model. And so Lloyd and Mary Anderson, a husband and wife couple, started the co op really to improve access to the outdoors.

And felt that a cooperative model that was member based was the best way to do that where members had a voice and what the co op would provide to them. What decisions the co op would make and how the co op would provide value to them in terms of their goals of getting outdoors. So that was really the birth of the organization. It was really about you know, more equal access to the outdoors. And that really is a legacy that we still live into today, even though the business and our work has evolved, of course, dramatically since 1938. 

Paula: And thank goodness for that play. I love that origin story. I can certainly say as someone who has dabbled in the outdoors. When you start initially, or at least for me, it felt very intimidating because, you know, at the end of the day, you know, nature and mountains or oceans, I know different people are attracted by different types of outdoors, but I didn’t have either the equipment or the knowledge or the confidence just to head out the front door.

So there was for me a really important need to kind of connect with people. The way I got into it was, you know, not a million miles away, I guess, in terms of what the co op has done, but for me, it was like, find a challenge, you know, climb this mountain or that mountain. And I did climb quite a few mountains, but the sense of getting together and going outdoors, you know, it, it just, it really took my breath away, actually, in terms of the connections you build with people when you get out of the day to day indoor environment.

Clay: Paula, I think in your own words, you just masterfully described our mission. So, I mean, that is 100 percent exactly what we are about. And I think you hit on some really powerful truths there that we have come to recognize and adopt into our own work over the last, I’d say, maybe 2 decades, which is really just recognizing that the outdoor industry of the past really served a pretty narrow audience and really was a very male oriented, very performance oriented industry. 

And the co op has really seen our work and our mission evolve in recognition of that fact and and really orienting to the outdoors differently in terms of helping to solve accessibility and and welcome you know, inclusion.

And so that’s a huge part of how we orient toward our work today and a big part of the way that we think about membership as well as, you know, unlocking enabling inspiring members of all types to get outdoors or get outside whatever that might mean to them, whether it’s walk in the local park, a local bike ride to work or climbing that mountain, backcountry skiing, rock climbing, whatever it might be. But really trying to make that more open, more accessible. So I think you described that beautifully. Thank you. 

Paula: Oh, I’m very glad, Clay. Absolutely. It’s something I do feel, I think, very passionate about. And one of the kind of insights I think that has resonated with me over the years as I experimented with all these different types of things, I remember like when, for example, triathlons became like this crazy, again, quite elitist outdoor activity in Ireland.

But somebody explained it was actually in many ways connected with the psychology of the economy, because when people feel out of control, perhaps with their career, you know, opportunities, we all remember all of the big cycles we’ve been through, if we’ve been around long enough, but actually to get outdoors gives you something else to focus on.

So the triathlons were the most visible, but again, people like me found other ways to go and again, connect with people, find different ways to be healthier. And given that it’s the depth of summer here in the UAE, I will confess that I’m not very good at getting outdoors, but you’ve inspired me as has a lot of your content actually to make a renewed commitment to that. So I will probably talk to you about that again offline, Clay, because definitely very inspiring. 

So bring us up to date then in terms of the membership numbers. I know it’s been unbelievable growth. So tell us the scale of where the membership is for REI here in 2023. 

Clay: Yeah, we are right around 24,000,000 members at this point. So we have been a growing member community for many, many years now. It’s been quite a story. And of course, getting to that scale being that large means that we, you know struggle with and see a lot of the same opportunities and challenges that many other large retail based businesses do in the for profit retail space.

Right? And so that’s definitely an interesting part of our work is navigating, navigating the duality of being a 4Billion dollar retailer, who is also a consumer cooperative, the largest consumer cooperative in the US. So that’s a very interesting dynamic for us culturally. 

Paula: I can imagine. Absolutely. And I don’t know anything about cooperatives around the world, but I wouldn’t be surprised if you were one of the biggest in the world as well. So plenty of both opportunities and challenges I can imagine as you balance all of these different priorities along the way. So 24 million people.

And at the risk of being rude, I think it’s a counterintuitive model in terms of how you get people to become members. So tell us exactly how the model works, because in some ways it makes no sense. And I know that’s outrageous, but in many ways it’s clearly working. So tell us about the membership model and how people become members and why.

Clay: That’s a great question, and I will try to avoid getting too, too wonky or too detailed on the mechanics of a cooperative business model. But what I will say is that being a cooperative does afford us some flexibility in how we choose to operate because as opposed to being publicly traded, you know, or a stakeholder, shareholder owned in terms of a publicly traded company.

We’re not beholden to increasing a stock price. We’re not beholden to a private venture backed capital. So really we exist to serve our members. And so we, we talk about our quadruple bottom line that I referenced earlier, which is really serving our members, serving our employees. Obviously, the business would be the third part of that quadruple bottom line and then society.

What is the impact we are having on society? Are we a change agent for good in the world? Are we helping improve the quality of lives lived in the world? Or are we somehow degrading that? And so to get back to your question the membership model is very unique. It is not a recurring membership fee. It’s not a subscription. You pay once 30 to become a lifetime member. That’s it. 30 once and you remember for your life.

And so it is an incredibly good deal if you’re talking about it through the lens of what is those 30 get you easily get that money back very quickly if you just take advantage of your benefits with the co op. I’m happy to talk more about that in terms of how we’ve been evolving, evolving the benefits for members, but simply put our business model is not necessarily to try to extract all the monetary value. We can from our members. In fact, it’s the inverse. It is to try to give as much value as we can to members.

And we run a pretty thin business model because of that. We get a lot of our dollars back to members in the form of reward dollars. We have a lot of our dollars back to nonprofit partners and community partners in the communities that we serve as part of our impact on society. And of course, we reinvest large amounts of those dollars as well back into the business to stay sustainable and stay relevant in this modern retail environment that we operate in.

But that does mean that we have been very keen to keep membership accessible to all. And that’s a big part of why the one time fee as you’re asking. 

Paula: And, and I even, of course, looked on the website as well, Clay. And after charging the 30 for the lifetime membership, as you said, it’s not recurring. You then immediately give it back as a 30 gift card. 

Clay: Yes, yes, that’s that’s something that we’ve been testing for a while. And what and what we have found as I think, you know, many organizations do is that it’s really important to bring people back early in their experience of being members. And so that’s a way that we’ve been able to return value very quickly to members, bring them back and get them engaged because, of course, our goal is not simply to sell the membership. Our goal is to create that new member relationship, but then really to earn the loyalty to serve them you know, and all of their outdoor needs as much as we can, you know, as it aligns to our business. And so it’s really about bringing them back early, helping unlock that value for them early as members.

Paula: Thank you for clarifying, Clay, because I could imagine, you know, maybe somebody coming into the organization and just going, why don’t we just eliminate the membership fee? Like, you know, there could be an argument that, you know, let’s just do away with all of that. But to me, there probably is some very clever psychology around the fact that somebody does invest, as you said, an affordable amount in order to become part of this incredible community. 

So even if you are giving it back and they have a transactional mindset around it, I can automatically feel that if I have kind of paid for something, I do feel like I’ve become a member in a way of something that’s more meaningful. Is that fair to say?

Clay: That is absolutely fair to say, and we find that a lot of our work, you know, specifically focused on member acquisition, welcoming new members to the co op really is about understanding that psychology in terms of the perceived value, the relationship to that 30 dollar fee. And for whom is that a relatively easy, you know, choice to make? And for whom is it not? And that’s, that’s certainly something that we talk about quite a bit. 

Paula: I can imagine and fair play because of course I haven’t thought about, you know, for me, 30 dollars is something of course I can afford if I so choose, but there are plenty of people who can’t and going back to your bylaws and the integrity of the intention of your founders. Of course, if somebody wants to head outdoors, they should be able to do that in a very accessible manner. So, absolutely wonderful to hear all of that. 

So, you’ve got your quadruple bottom line. You’ve got your 24 million members. Tell us some of the other cool stuff you’ve been doing in the past couple of years. Because I think there’s a fair bit of innovation going on to digitalize and transform the organization.

Clay: Yeah, absolutely. We were very excited to make… I would say one of the more significant upgrades to membership benefits and we’ve made in decades just about a year and a half ago now. So, last March released some new benefits for members.

I’ll start with one that maybe I’m most excited about, which is what we call our Member Resupply, which is our used gear ecosystem for members. So at the co op, of course, sustainability, yeah, fighting fighting the good fight on climate change is a big part of what we are all about. And so we have a major co op priority to reduce our own product driven carbon footprint over the next decade. 

And a big part of that is really increasing. The circular economy within the co op, and that means enabling members to trade in their use gear, earn credit. You know, to then upgrade to a new product that they may need and allowing another member to then buy that same use gear. So, for us, this is really exciting. We have a long history of running what we used to call garage sales, which many members are they will remember. They will remember it very well. It was very popular with our members, but they were one off events where we would have used gear sales. 

So what we’ve done is we’ve really made that an omnichannel marketplace now where members can trade in that gear online. They can trade it in store. They can buy used gear online. They can buy used gear in the store and it’s always available. And so for us, that was a really big step forward in terms of both our sustainability, priorities, but also adding value for members in a new and unique way that can also lower barriers to getting outside in a sense that, you know, you can find a lot of great, gently used gear at a significantly lower price. And so that does lower the barrier for some for some folks. And that’s a very material thing. So that, for me, it was a really exciting step forward. And I think very unique in the market. When you look at the scale and breadth of what we offer from a used gear standpoint.

Some other things that were really exciting. We have shops in our stores. And so these are outdoor shops that service bikes, service, service snowboards. And we provide a significant member pricing discounts. For members on those services and so that’s another way that we can help people get outdoors that is, you know, above and beyond just selling a product.

So, we have increased the discount that members receive, which also includes some free services. If members have a flat tire on their bike, they can just bring it into the local shop and we will repair it for no charge. If members need to get their skis or snowboards waxed, they can bring it into the shop and we will give them a free hot wax on the skis or snowboards and so we do a lot and that was some new some new improvements enhancements that we made for members recently as well. 

And then I think the 3rd thing I’d highlight is is 1 that you’ve definitely I’m sure seen an industry across other examples of retailers and brands, but we did launch what we call member collection, which is a collection of member only products, and a lot of those are both from really cool partner brands that we work with, like The North Face or Cotopaxi, but it also includes our own in house co op brand product, which really allows us to do some very exciting things like get members involved in the product design process and ensure that their feedback is improving what we’re making for them. And then to use that what we call member made process to influence the product that then fulfills the member collections. And so that’s a really exciting area for us as well. 

Paula: My goodness, I can see you came in determined to make an impact, Clay, with all of that consulting background and all those dull loyalty programs out there. You’re like, okay, this is going to be different. It’s going to be fun. 

Clay: That’s right. That was definitely a big part of the appeal. You’re right.

Paula: For sure. Yeah. And again, hugely reassuring because what I will also confess is I did change, of course, sports and different outdoor activities as I, you know, literally just experimented, I guess.

But if there was a technical issue, like a puncture on the bike, I honestly couldn’t deal with it. You know, I was often lucky enough to have a cycling club around perhaps that would support me, but otherwise I’m just like, Oh God, this is too, too complicated. 

Clay: Exactly. And that’s a huge barrier, you know, to your earlier comments in terms of how outdoors can be very intimidating to people and can really ultimately become a barrier to getting outside and exploring and discovering.

New, new ways of being yourself outdoors. And so you’re right. Our shop services are a key part of how we try to remove some of those functional barriers to owning a bike or getting outdoors on a bike or on skis or snowboards.

Paula:  Amazing. With all of those cool things, Clay we’ve yet to talk about my favorite thing that you do, and nobody will be surprised, I guess, to hear that the fact that REI has such extraordinary content on both YouTube, of course, and I’m sure all of your channels, has absolutely blown us away as a team as we were preparing for this conversation.

The number I saw on YouTube is that you actually have over 136 million views of your content. It’s off the charts. So to me, I have believed in this idea for a long time, that content is a driver of loyalty, not in a traditional way that any points program would do or any coupons. 

But tell us about, I suppose, you know, why did REI realize how powerful content could be? Given that actually ultimately you want people away from their screens, away from YouTube and out in the real world. So what’s the role of the content piece and why do you invest in it so heavily? 

Clay: And so it’s a great question. And I will just say that I, too, share that belief. You know, I think for the, for the co op, for REI, there are two, maybe, primary functions that content plays in terms of the needs that we are meeting for our members or for our future members.

And, and one of those needs is functional. So we really focus a lot and have a long history of expertise at the co op and that, you know, it’s not just about having the product on the shelf. It’s about actually being able to help a member choose the right product for them and being able to advise on the nuances, the technical details and remove some of those barriers that you were talking about earlier.

And so one of the primary roles of content plays. And meeting those needs is really around expertise. How can we share knowledge? How can we make that accessible? How can we help people on their journey? You know, if they’re new to something to become more comfortable and to spend more time outside.

The second functional role it plays is really inspiration. So we know that getting outdoors from many people is a process of kind of dreaming, you know, envisioning yourself out there and doing this thing and that there is this cycle that people go through, you know, that often starts with some kind of inspiration, you know, whether you want to change something about yourself, maybe you want to just get in better physical shape, or maybe you’re stressed and you want to get outdoors for some peace, and some renewal.

We really find that content plays a key role in helping people immerse in that state of inspiration and actually build up the energy to then go do the thing right where you actually get. The payoff physically, emotionally of being outdoors and so those at a very simplistic level. Those are the 2 functional needs that we see content meeting expertise and inspiration.

And for us, it’s really a way to not only serve members, but also to, you know, increase our reach right and become known to people who are not yet members today. And so to your point, I, I do also believe that content drives loyalty. It’s a manifestation of who we are. It’s a way for us to show up in accordance with our values to represent who we are to bring people back when they may not need, you know, to buy something.

But still want to get value from being part of the brand, being part of the co op or at least you know, extracting the value that they can in the form of expertise and inspiration. 

Paula: Yeah. Yeah. Thank you for that, Clay. You know, I think I said to you the last time we met, like the purpose of this show is education and inspiration.

So one thing that I can say with joy that we’ve learned from REI today is that content is a lever of loyalty. And again, it’s one I’m, you know, probably the most passionate about because I feel it’s underappreciated. And certainly the the level and the, the scale of what you guys have done, I suppose is one piece.

But the actual quality of the content is certainly to me, Netflix worthy, like I can absolutely imagine, you know, I’ve seen some of the snowboarders and stunts and, you know, amazingly inspiring people on your YouTube channel where, you know, people I would love to meet, of course. 

And I think you’re absolutely right. There is something about, you know, I suppose just having a model of what maybe we want to become, what we might want to experiment with, what we want to achieve as human beings. That we can start to visualize using the the blessings of the internet, because we all know it can be a crazy place sometime, but you guys seem to be using it super well and very much part of your loyalty strategy.

And even the number actually, I saw also in terms of your new members, like 1. 2 million new members alone joined in 2022, so clearly everything’s working.

Clay: I’d say so, I mean, we, we have ambitious goals for impacting the world in a healthy way and engaging our members in that process. So reaching and increasing the diversity of our member base is really a key goal for us. And so, yes, we’re very excited about welcoming 1. 2, new members a year. And that’s that’s been a key, a key part of our long term ambition in terms of the impact we can have. 

Paula: Incredible. Well, listen, Clay, I hope we can keep the conversation going. I feel like this is the first conversation of many. I think, you know, you’re one of our very first guests that’s going out in both audio and video format.

So really want to thank you for being part of this journey with us because it has been just a roller coaster and just, you guys have been incredibly patient to join us and be part of, you know, I suppose our growth and development and again, inspiring us with your own stories. So thank you for all of that.

I think that’s all the questions I have from my side. Clay, is there anything else that you wanted to mention before we wrap up? 

Clay: No, I don’t think so, Paula. I’ve really enjoyed the conversation and you know, appreciate your expertise and the questions that you ask. And it’s a very fun way to have a meaningful dialogue. Thank you for having me. 

Paula: No problem at all. Clay Walton-House, Divisional Vice President of Membership for REI. Thank you so much from Let’s Talk Loyalty and Loyalty TV. 

Clay: Thank you, Paula.

Paula: This show is sponsored by The Wise Marketer. The world’s most popular source of loyalty marketing news, insights, and research. The Wise Marketer also offers loyalty marketing training through its Loyalty Academy, which has already certified over 500 executives in 38 countries as certified loyalty marketing professionals.

For more information, check out our website thewisemarketer.com and loyaltyacademy.org.

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