‘They’re reevaluating everything’: Why outdoor retailers REI and Patagonia continue to struggle
Outdoor retailers are closing stores and pursuing layoffs as they adjust to changing consumer trends around recreational activities.
In January, REI closed its Experiences business, which included adventure travel, day trips, classes and other events, due to high costs and unprofitability. The retailer laid off more than 400 employees because of this, after laying off more than 350 people a year before while citing declines in outdoor specialty retail and facing a net loss of $311 million in 2023. Dick’s Sporting Goods also appears to be scaling back outdoor subsidiaries that had been a growth effort for the company; its subsidiary Public Lands recently reduced its store count from eight to three, and the company also shuttered three Moosejaw stores it acquired in 2023 from Walmart, Retail Dive reported. Meanwhile, Patagonia laid off 90 customer service workers in June and 41 people in October.
“We are getting more right than wrong, but we aren’t meeting the high standards we set for ourselves,” Patagonia CEO Ryan Gellert said on LinkedIn in October. “While we remain profitable, we are vulnerable to the same economic headwinds many companies in our industry are facing.”
“As you know, the state of the business — and our industry — has become increasingly challenging and highly promotional,” REI CEO Eric Artz said in a note to staff following its layoffs in January 2024. “While the U.S. as a whole has avoided entering a recession (by definition, two consecutive quarters of total U.S. market decline), outdoor specialty retail has experienced four quarters of decline — and that trend has been worsening. While we were able to outperform this trend for much of the last year, it caught up to us in Q4 and we now expect conditions to remain very challenging throughout 2024.”
Outdoor retailers face a few challenges right now. One is that the industry experienced an influx of new customers who were introduced to outdoor activities like camping or hiking during the pandemic and bought gear for the first time. For many of these customers, their gear is still holding up, or they don’t feel the need to upgrade, making comp sales growth more challenging for outdoor retailers. Retailers have also had to adjust to an influx in outdoor activities from casual participants who may not buy as much high-end gear generally.
An additional headwind — though one that isn’t unique to the outdoor space — is that some shoppers’ budgets are squeezed more in critical spending areas like rent and groceries, leading them to pull back from buying apparel and gear.
“A lot of outdoor retailers right now are in planning mode,” Kassi Socha, director analyst at Gartner, told Modern Retail. “They’re reevaluating everything from their loyalty programs to their omnichannel experiences to prepare and adjust for the future of what their retail sector looks like.” She also said athleisure and new activities such as pickleball continue to drive growth in the space, regardless of other shoppers who have held back.
Outdoor retailers have had to adjust to a significant change in their customer base. More than 22 million more Americans participated in outdoor recreation in 2023 than in 2019, according to the Outdoor Industry Association. But simultaneously, people are participating in these activities less frequently than in previous years, signaling a more casual crowd.
Kelly Davis, director of research for the Outdoor Industry Association, said this reflects a large surge in people who take part in outdoor activities more out of mental health motivations as well as a dropoff in more serious participants.
“We’ve still seen year-over-year increases in sales, but a lot of it is goods that are better focused on casual participation — the people that hike maybe five to eight times a year, even casual campers that might go camping a few times a year,” Davis said. “We’re seeing more products aimed at that casual consumer selling better in the market than the high-end gear that’s focused on core participants.”
That’s reflected in changes in the sales mix. Between 2022 and 2023, sales of casual clothing like sweatpants, knit shirts and other casual pants led growth in the apparel category, according to OIA. Meanwhile, sales of insulated cups, mugs and tumblers grew 84% during that same time period.
Davis said independent specialty retailers, especially, struggled after 2021. She said this may have been from the fact that these shops did not properly handle the influx of casual new participants. Those customers “went back to Dick’s and REI, where they felt more engaged and had their beginner questions answered with dignity and respect, and got the gear that they wanted,” she said. That may be changing, however, as, she added, sales have shifted back toward independent retailers in recent months.
She advised outdoor retailers to focus on engaging with everyone who walks through the door, regardless of their experience level. “Let’s not try and sell people $1,000 worth of gear every time they walk through the door,” she said. “It’s building that relationship that will help them trust, buy more gear and participate more, and that relationship will carry them through their journey.”
Gartner’s Socha said the outdoor retailers who will succeed are the ones who strengthen their merchandising and omnichannel customer experience while also making leadership adjustments in areas such as marketing and digital. Because many of these retailers carry similar merchandise, she said they need to find ways to differentiate themselves. “That takes adding service capabilities, adding new merchandising categories and continuing to not just do business as usual,” she said.