REI Releases New Standards for All Suppliers
REI has just announced a new set of rigorous standards for all of its suppliers to meet. The new standards relate to their new green agenda where they will require every supplier to meet them in order to sell products in their stores. Some of the standards will take effect immediately while others will have to be in place by 2020. REI is a part of the outdoor sporting and clothing industry and has set qualifications that restrict more damage to the environment. By 2020 they will no longer sell sunscreens that contain oxybenzone which bleach coral reefs and all clothes and tents will be free of harmful flame-retardant chemicals.
The outdoor-equipment industry has been trying with mixed results to match its environmental impact with the values of many of its customers so this is a large step forward. “This is the first time I have seen a retailer create standards like this for all of their suppliers,” said Adam Siegel, the senior vice president of research, innovation and sustainability at RILA. REI Chief Executive Jerry Stritzke calls the standards “maybe one of the most transformative things” the 80 year-old co-op has done.
In 2017 the consumer-owned co-op reported $2.62 billion in sales. With these sales figures it follows that a lot of companies would want to maintain positive relationships with REI and keep their products on their shelves. According to Andrew Winston, an advisor for a number of multinational companies on sustainability practices, REI’s standards are uncommonly clear. These new standards are so explicit because REI believes that’s what consumers want to see. There are a number of companies that release statements of sustainability that are very vague in their goals or what new standards they want but REI has chosen to be explicit in order to guarantee change.
REI has decided to set two tiers of standards. The first being those that are mandatory and the second being those that are “preferred attributes” including a number of rigorous certifications, business practices and material choices. REI plans to promote products that meet these attributes, giving suppliers extra incentive to comply with them.
As consumers are becoming more aware of certain certifications and are valuing more and more certain fair trade and sustainable products REI wants to meet these expectations. This will help improve REI’s image and by default the image of the products supplied to REI. As a result it should be in the best interest for suppliers to comply with these new standards regardless. That being said, there is a chance REI’s strong stance could cause it to lose some of its suppliers. Those that are incapable or unwilling to meet the standards will no longer do business with REI. The question becomes how much power does REI have over its suppliers. Large companies like Walmart are often able to dictate needs to suppliers and receive compliance so if REI is making immediate changes and strict standards they clearly feel that they can effect change in their own suppliers.
How do you think suppliers feel about these standards? Do you think REI could receive new suppliers from this as some new sustainable suppliers can make their way onto REI’s shelves?
https://www.seattletimes.com/business/retail/rei-rolls-out-rigorous-new-sustainability-standards-for-suppliers/
https://www.marketwatch.com/story/rei-issues-new-rules-for-suppliers-as-clothing-industry-embraces-green-agenda-2018-04-10
I think it will be interesting to see how this plays out for REI. I imagine they will lose numerous suppliers due to these new standards. Some suppliers will not be able to comply with these standards and some will not want to. It will also be interesting to see if any suppliers need to incur additional costs to meet these standards. If they do, their costs will go up, and so will REI’s, which will lead to an increase in the price the customer pays. Some customers may be willing to make that sacrifice in order to have products that are at a higher standard, but some customers may look elsewhere for their purchases. I will be curiously watching if REI’s costs go up, or what direction their sales go (up or down) as a result of these changes.
Like Zach comments, it will be very interesting to see what the future of REI looks like due to these changes. Needless to say, my Dad will not be happy. He is a huge customer and fan of REI; he loves the wide variety of products that they offer, both high quality and low quality brands. Like most customers I have to imagine, my Dad goes to REI knowing that he will be able to find whatever he needs for the outdoors. If some suppliers are not able to provide for REI due to the standard changes, then the product selection shrinks. If my Dad finds that he can not purchase whatever he needs for the outdoors, he will certainly find somewhere else to shop.
The recent trends concerning the outdoor clothing industry have been very interesting, and I am glad to see REI stepping their game up even further. For instance, one of Patagonia’s (one of REI’s main suppliers) core competencies is their transparency within the supply chain. The company, back in 2010, shared with Walmart how to more sustainably use cotton for their white t-shirts for free. Yvonne Chouinard, the founder of the company, felt that sharing his secrets with a company that has such a massive impact on the environment was one of the best moments of his entire life. Many outdoor clothing suppliers for REI feel the same way, and its smart for REI to enforce it.
The one issue that REI and its suppliers will always run into as they continue to innovate and become more sustainable is how to limit costs. Being environmentally friendly rarely comes cheap, so it’s important that these outdoor clothing companies can maintain their margins in the supply chain. So far, they have done an excellent job and many consumers are thrilled with the impact.
http://www.adweek.com/digital/what-wal-mart-learned-from-patagonia/
I find it very interesting how companies can use sustainability within their supply chain. Today in my Ethics class we were talking about how companies such as Walmart are shifting towards more green initiatives. Walmart has installed solar panels on 8% of their stores while not raising any prices. Their reasoning for this is because the solar panels actually save them money on energy. However, it is easy for Walmart to have the capital to invest in solar panels readily available, whereas a company such as REI might have a harder time.
https://www.youtube.com/watch?v=_9Zbzh0IgHk&t=10s
Because of the new standards REI is enacting for suppliers, the company will definitely lose some of their suppliers with this Green Initiative. This will result in REI having to look for new suppliers to fill in this gap in inventory. Their inventory levels as a result will be much lower than the normal levels, causing many potential new problems and increased costs to the company.
On the other hand, REI is trying to align customer values with every aspect of their business, including their suppliers’ business practices. Some customers will appreciate REI working to better the standards of everyone involved in their business. I am very interested to see how this new implementation turns out, as customers will ultimately pay the consequences as their product selection with REI will decrease.
I agree with the other comments so far, in that I’m not totally sure how this initiative will play out, but I don’t think this is too much of a stretch for REI. Companies like Patagonia have certainly set a standard for how organizations can be eco-friendly and still profitable, and furthermore, I think a decent amount of outdoor clothing/recreation companies that would supply to REI in the first place are fairly conscious of the environment, or at the very least have plans in place to be more conscious. Plus, as Brandon notes, although some are effective immediately, a lot of these restrictions will take place starting in 2020. Thus, companies have almost 2 years to make any necessary adjustments, which by no means will be easy or cheap, but I think with the trend of all companies shifting towards greater environmental awareness, these restrictions may simply expedite this process.
I think that as REI attempts to limit its suppliers, the company will be hurt significantly. Placing these standards on suppliers that are not universally held limitations by other companies like REI will narrow the amount of suppliers willing to cooperate with REI. As a result, the prices of REI’s retail goods will be more expensive and could draw away consumers looking for more affordable items. I think instead, REI should attempt to communicate with their suppliers and other retailers to use better, environmentally friendly practices. This way, if other retailers also use more expensive suppliers, REI will not be as substantially affected by a change in demand due to price increases. More importantly, I think REI in the first few years at least, should be flexible and lenient in these Green Initiative standards. By being more lenient, the company will not experience such a shock to inventory and can slowly adapt to more desired practices as they correspondingly accommodate inventory levels.
It may be interesting to see how these changes to the supply chain affect the prices paid by consumers in the store and the profits of the company. If suppliers cooperate with the new restrictions they may do so with the stipulation that they can charge higher prices to REI. REI may then be tasked with the decision of whether to increase the prices they are charging customers or have the increased costs lower their profits. In my opinion REI should pass any increased costs they face onto the consumer. The store is already considered a luxury brand and therefor customers shopping there would be more likely to pay higher prices. Their customers will also likely be impressed by the move towards a more green supply chain and as a result be willing to pay a higher price.
Interesting point, Brandon. I never thought about the balance of power between suppliers and retailers. With REI, I believe it was a necessary decision to ‘go green’. As you mentioned in your post, the new standards give REI a more environment conscious appeal which can only benefit its brand as a whole. The standards are going to be harder to maintain on the supplier’s end, but how much will REI increase sales with its new green agenda? Will the cost of increasing the standards more suppliers out-weigh the revenue produced from the environmental conscious market share?
The supply chain strategy is designing a firm’s supply chain based on the competitive priorities of the firm’s operations strategy. The ultimate goal is to reduce costs while increasing performance. REI holds a large amount of inventory, so they must focus on things like customer service, ordering cost, setup costs, etc. How will going green effect costs of manufacturing is the bottom line and if those costs are going to cover the revenue generated from its new, environment friendly brand.
This is a very powerful and clear message by REI in order to continue their dominance in the outdoor gear department. REI has a large and controlling market share in this industry for a long time with Challengers such as EMS and other large sporting good chains going out of business or filing for bankruptcy. The message of being sustainable and green is central to the idea of the sports recreation retailer and its customers. I do believe that REI holds enough market power in order to shift suppliers for the industry to tailor their products to REI’s new standards as that will now be the high quality good that all consumers will desire in the marketplace regardless. REI has made its needs clear to suppliers and if they are intelligent they will begin shifting their production so that in a few years when the transition has been completed they will be ready to supply new goods.
fitness goods. Focusing their operational strategy on supplying more environmentally friendly supply chain operations would make sense since their goods are for usage in outdoor activities. I believe that this is a switch that REI’s customers will be able to afford as REI is already a company with high prices, but the quality of the goods are apparent. Now the quality of the supply chain, which is the interrelated processes that produce services and products for a customer, will increase even more and probably attract more customers. I believe that by redesigning their supply chain, it now aligns with the goals of the customers who are purchasing their products. They need a healthy environment to continue producing goods for the outdoors.