BUS FP3030 JohnsonValerie Assessment 1

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Market Environment and Research (REI)

Assessment 1-1

Market Environment and Research (REI)

Lloyd and Mary Anderson founded Recreational Equipment, Inc. (REI) in Seattle, Washington in 1938, along with a group of climbers, opening the first retail store in 1944. The Andersons worked from their West Seattle garage before public demand spurred the move to a larger location (REI, 2016). Their mission was to get affordable, high quality outdoor equipment from Europe into the hands of US enthusiast. Also offered are travel services so customers can participate REI adventures in other countries (REI, 2016). Since its inception, the store has become synonymous with affordable high end gear for outdoor recreation.

U.S. Economy

Brand loyalty is the cornerstone of REIs market. So in order to keep old customers and attract new ones, they have created a membership program that offers unique discounts and special offers (Stock, 2015). Membership allows customers to earn up to 10% back annually on purchases and a lifetime membership is a mere one-time fee of $20 (REI, 2016). This approach of high quality, low price and excellent customer appreciation is part of the reason why sales were not as impacted during an inflated American economy. Sales may not have been poor during an inflated economy, but this does not mean that REI is immune to feeling the effects of the downturn of the American economy.

When prices increase ahead of salaries, people can find it difficult to survive the increase and this translates into less disposable income to spend on recreational activities (Kleinhenz, 2015). REI has felt the impact of the economy, but have done so without heavy loss. They also have managed to outperform other S&P 500 retailers during America’s recession period (Hoover’s, Inc., 2016). A reason for this is due to product markup being limited to only two percent. Couple this with their membership program offering a 10% back on purchases and all but guarantees that REI is far more affordable when compared to their counterparts (Stock, 2015).

The membership program was first introduced by REI and it was the model that has influenced the programs of many other businesses (Stock, 2015). REI encourages their customers to take time to enjoy outdoor leisure and with their pricing model, they make it affordable to do so even in a down economy. REI caters to all types of leisure activities that do not necessarily incur much cost, so customers feel secure when spending money with REI. This affordability has REI to maintain a slow but increased revenue in times of the inflation (Hoover’s, Inc., 2016).

Global Economy

Fluctuations in currency exchange rates can have an impact the costs of goods imported into the country. Because REI relies heavily on product import, a weak or a strong American economy can affect these prices. When the U.S. economy is under inflation, the American dollar is not as strong. This market drives up import prices, but changes when the economy, and the currency, is strong (Kleinhenz, 2015). If import prices increase for REI products, the rise in retail prices will keep most customers away.

As the market changes and import prices decrease, so do retail prices and lower prices mean more sales. A prolonged decrease in sales alerts REI to cut back on their expenses. Their business model may include contingencies to aggressively manage expense should the need arise. This could include closing some retail stores and keeping the bulk of their retail sales online because this decreases overhead expenses. Implementing a model such as this, however, results in laying off staff and adding to the stagnation of growth of the overall economy.

Legal and Regulatory Environment

All businesses must be compliant with all state and federal legal and regulatory guidelines. One of the most notable is information security. The Privacy Act of 1974, “establishes a code of fair information practices that governs the collection, maintenance, use, and dissemination of information about individuals that is maintained in systems of records by federal agencies. (DOJ, 2015).” Confidential information security is not only limited to customers of businesses, but to employees as well. The Privacy Act extends to employee information that can also be compromised when security is a concern.

REI also has to ensure that they are following federal labor laws also when considering actions that effect their employees. The U.S. has an entire department that spells out how long employees can work and sets the minimum allowable wage to paid to employees. Employees are entitled to a safe work environment and pay for overtime (DOL). Unfair labor practices can damage the image of REI and the company can incur hefty fines and penalties if they don’t comply with federal standards.

Another leg of regulatory law that REI must adhere to is that of product safety. Unsafe products can do catastrophic damage to a company’s image as well as sales and revenue. Businesses can face serious consequences when they fail to adhere to safety standards and fail to inform the public that their product may cause harm if used. REI works closely with the Consumer Product Safety Commission in order to maintain product and customer safety (REI, 2016). Product recalls, when necessary, help ensure that customers are getting the quality products that they expect from REI.

Technological Forces

Advances in technology has made it easy for REI to expand as importing and exporting has become easier and travelling around the world can be done in faster than when the company first began. Technology is one of the many tools that REI uses to conduct business in the United States and internationally. Advertising on social media sites has also allows the company to reach more people and increase sales. Technological advancements also produce new and innovative products in REI’s lineup. Adherence to their constant initiative to keep up to date with technology has caused REI to be able to serve their customers in a more timely and effective manner.

REI has also branched out into Environmental Technology, such as using solar energy and a green energy initiative that has cut costs and provided the company with “tax incentives, utility rebates and overall reduction in energy costs (Dusto, 2013).” Implementing these initiatives has saved REI approximately 1.7 million kilowatts of electricity in one year. This impressive amount of energy saved is “enough to run 5 retail locations (Dusto, 2013).” REI has demonstrated that technology has helped cut costs, increased the product quality and services provided to customers.

Secondary Information Sources

A comprehensive plan of action and a well-constructed marketing plan is what REI, or any business, needs to stand out and be successful in their chosen industry. When it comes to developing a successful business strategy, secondary information sources are useful tools. A well-developed marketing strategy encompasses all the activities a business need in order to be successful. The National Sporting Goods Association (NSGA) and the Sports and Fitness Industry Association (SFIA) are great sources for REI to take advantage of as they both cater to sports and outdoor adventure businesses (SFIA, 2016).

These sources provide information on how the industry is performing and what advancements companies are deploying to run their business successfully (SFIA, 2016). These sources are packed with well researched information that can help REI make the most out of their marketing strategy. Using source examples regarding product demand, product promotion, price point, where product is selling well and profit margins can make for more realistic and predictable future sales.

The value of secondary sources of information to a business’ economic success is priceless. Having the scoop on new industry specific trends and challenges are always a boost to economic success. Secondary sources help businesses network which can lead to growth and expansion. They can even provide industry specific educational opportunities from trade shows, annual conferences and summits to keep businesses up to date with industry development (NSGA, 2015).

Publications, online resources and other tools assist businesses develop their websites, provide business solutions, configure shipping options, develop consumer financing and lines of credit. There are also management specific publications that teach operations management, employee benefits and retention, legal protection, leadership, organizational communication and more (NSGA, 2015). All of these sources together give REI what it needs to keep overhead down, prices low and employees satisfied and limit employee turnover. Secondary information sources foster economic stability for REI and encourage industry growth.

References

Recreation Equipment, Inc. (REI). (2016). REI. Retrieved 13July2016 from https://www.rei.com/

Hoover’s, Inc. (2016). Recreational Equipment, Inc. Retrieved 13July2016 from http://www.hoovers.com

Stock, K. (2015). REI’s Crunchy Business Model Is Crushing Retail Competitors. Retrieved 14July2016 from http://www.bloomberg.com/news/articles/2015-03-27/rei-s-crunchy-business-model-is-crushing-retail-competitors

Department of Justice. (2015). Privacy Act of 1974. Retrieved 15Jul2016 from https://www.justice.gov/opcl/privacy-act-1974

United States Department of Labor. (Unknown). Retrieved 15Jul2016 from https://www.dol.gov/

Dusto, A. (2013, August 14). For REI, a more efficient data center means big savings. Retrieved 15July2016 from https://www.internetretailer.com/2013/08/14/rei-more-efficient-data-center-means-big-savings

National Sporting Goods Association (NSGA). (2015). About NSGA. Retrieved from https://www.nsga.org/about/

Sports & Fitness Industry Association (SFIA). (2016). About SFIA Overview. Retrieved from https://www.sfia.org/about/overview




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