Feb 22, 2009 at 2:00 pm #1234261
Bob, started this thread since we hijacked the other. You said pretty much everything there is to say about the issue, though, and it's interesting because there is so much gray-area. I agree. I would have a hard time returning something after years of use and complaining that it didn't hold up for as long as I thought it would. Also, there's a balancing act for whether gear fails due to defect of design or user-handling. When sold something that is marketed as sturdy or "bombproof", the burden on the user to exercise reasonable care would seem to go down. (Likewise, if one bought a UL tarp or bivy, it would be much higher.)
You said: "Well, several ways. Read, explore on line, published reviews, get opinions from people you respect, see others using it, inspect it carefully, think and analyze, try it out in controlled settings, …." And this is certainly true–however, when one goes to REI and pays the higher price and seeks the advice of the sales rep there, one expects to NOT have to do this type of research and instead rely on the information they impart. In a sense, you are paying a little more to not have to spend the time doing market research. So if their advice fails you, perhaps you are entitled to a return. (With regard to my shoes, I tried on numerous pairs, and was sold the most expensive pair I tried on on the advice of the sales rep. I do not have an indoor space big enough to get any reasonable measure of how a shoe will perform on a hike since I live in a tiny little city apartment.)
To me, the most interesting thing about this topic is how it affects UL gear. Does REI's return policy deter them from carrying UL gear that is intended for specialized circumstances and designed to be used with a very high level of care? Probably. (Just imagine the loss on cuben products, if they ever carried them!)
I'm inclined to think their losses aren't that great, though, since the markup on the products they carry is probably somewhat high (compared to the specialized cottage industry products) and they do recoup some of the cost in the used gear sale. Again, I bet the policy pays for itself in attracting customers who would otherwise buy from cheaper online competitors. This doesn't in anyway justify taking advantage of the policy, though, because at some point, if everyone did so, it would become too expensive to maintain and all would suffer.Feb 22, 2009 at 2:46 pm #1479837
"You said pretty much everything there is to say about the issue" — thanks (I think). That message turned out to be more long-winded than I thought.
I am sure that we all appreciate REI's generous, non-legalistic policy. I am not criticizing their management (as one person thought). On the contrary — I am just anxious that customers not abuse the policy. I would like to think that all would agree with that.
The hard part is understanding what constitutes abuse of the policy. I have the impression that some customers want to transfer all risk to REI. To me, trying to transfer risk that should be the customer's risk is not reasonable and I do not like to see that. Customers need to take responsibility for their own actions and decisions. (As an extreme, consider the one reported by Jed where the customer wrapped his kayak around a rock and returned it!)
"seeks the advice of the sales rep there" — at least for those who are experienced, they should recognize that some sales reps know more than others. I have talked to some sales reps and been glad I did. I have talked to some others and politely disengaged at the first opportunity. If you get the second kind, it is back to the type of research that you were trying to avoid :( (Personally, I would advocate always doing the research first anyway, if only to be able to have a more intelligent discussion with the sales person.)
You may be right on the magnitude of their losses — that is certainly what Sean was saying. Nevertheless, the less they lose the better.
The most important part is what you said at the end: "This doesn't in anyway justify taking advantage of the policy, though, because at some point, if everyone did so, it would become too expensive to maintain and all would suffer.".Feb 22, 2009 at 3:18 pm #1479845
Replying to Dan McHale's posting in the original thread (http://www.backpackinglight.com/cgi-bin/backpackinglight/forums/thread_display.html?forum_thread_id=18931&skip_to_post=147461#147461)
Very interesting, especially coming from someone who has been successful in the business for so long. As I understand it, you are saying that the benefits of having a policy that can be abused are worth more than the downside. OK, I got it.
"Fortunately, most people are good. When things are returned, there is always something to learn from it. REI has learned that a generous return policy accelerates the rate at which people shovel money at them."
My initial reaction is that it would be even better if customers did not abuse the policy. Are you saying that is not so — that the abusing customers themselves spend enough more than they would if they backed off the abuse? Or just that there are few enough abusing customers that the net-net is good.
— MVFeb 22, 2009 at 3:25 pm #1479846
Clearly REI don't have the policy because they are Nice Guys.
It's a business decision. Some people will abuse it, and REI will actually lose money off them. They will break even with other people. And they will make a good amount of money off the folk that never return anything.
Obviously there is no free lunch. The more people abuse the policy, the higher REI prices will have to be to compensate. It's like paying with credit cards at a store — you don't *appear* to be charged for the privilege of paying on credit, but the store has to absorb the 2-3% (or whatever it costs them) and of course that means that prices have to be a little bit higher to compensate.
They wouldn't do it if it actually lost them money as a business… but that doesn't mean that they aren't losing money on individuals who abuse the policy (causing prices to be higher for everyone else).Feb 22, 2009 at 4:09 pm #1479856
What you says agrees with my thinking.
Which leaves us with my original thought: REI is doing the right thing. It would be better for all of us, however, if those who abuse their generous policy would refrain from that abuse.
Perhaps one way for an individual to decide whether he is abusing the policy is to ask himself whether the transaction is costing REI money. If not, then it is probably OK. If it is costing REI money, and if the reason is not REI's fault, then he should stop and seriously consider whether the transaction is abusive.
— MVFeb 22, 2009 at 4:11 pm #1479857
@killerbLocale: Pacific Northwest
As a previous poster on the original thread pointed out, the sell price on retail gear is at least 50% above cost of goods and often much more than that. Which is fortunate for REI, and the customers who legitimately make use of their 100% return policy. Only the high margins on the product allow such a generous policy.
To my mind, any deliberate use of the return policy to "try gear on the trail" and then return it is at best in bad taste, and at worst malicious – fraudulent. Just because a policy exists does not make it right to take maximum advantage of the policy for your own benefit. "Everybody does it" and "I do because I can" are BS.
Costco once had the same return policy on electronics (and everything else)…not quite an apples-to-apples comparison, since Costco runs on very tight margins, but apt enough. For two decades they just absorbed the losses of abusive customers "trying and returning" high ticket electronics. Then finally the hit was too great, so the policy became six months. Then ninety days.
Thanks to the "try that TV for a couple of years" crowd, all Costco customers now have a greatly reduced return privilege on electronics. The same is (maybe) not likely to happen at REI…but it was never going to happen at Costco either.Feb 22, 2009 at 4:28 pm #1479861
Dan McHale hit it right on the nose.
REI knows that its warranty cost is as a percentage of sales. So do car companies, tire companies, etc. When the returns start exceeding that percentage, then the policy will change.Feb 22, 2009 at 5:26 pm #1479873
if REI (or any other retail outlet) was to only increase cost-to-retail percentage by 50% they would lose their horses.
It is most retail markets' common policies to charge cost x3 and many shops (furniture, jewelry, etc..) it is much, much higher.
You can bet that rei is charging their cost, times three. That is what the MSRP is usually based on, from what little knowledge I have of it. If you have a better (easier) description, do tell.
I dont condone cheating a system either, but if the system is clearly outlined, then no cheating is going on. if you disagree with the REI return system and think customers are rat bastards for returning a pack after using it on a weekend trip, then maybe you should consider banning yourself from any REI 'garage sale' so you do not enable this corrupt system to operate. (by 'you' i mean that in a general sense)
have a nice day. MikeFeb 22, 2009 at 5:35 pm #1479875
Poor REI, getting taking advantage of by unscrupulous willy-nilly product returners!!!
What's REI but the Walmart of the camping world? They sell purely outsourced gear, importing it by the boatload from China, Sri Lanka, Pakistan, etc. only to make, what, a few hundred percent profit on what they sell?
As for all their "stewards of the environment" yadda-yadda, even Walmart is "going green". After 10 years, my local REI barely put a few solar panels up a few months ago- Walmart is WAY ahead.
I'm short on interest and sympathy for the economic interests of giants that hold monopolies in outdoor gear markets.
If they have a return policy that is generous, make no mistake it's only because there's something in it for them.Feb 22, 2009 at 5:39 pm #1479879
REI isn't being "ripped off". It's the *customers* who pay to finance the returns system.
With that in mind I think it is selfish for customers to buy an item with the intention of using it and returning it (ie. no intention of keeping it). I have no problem with people who buy and try, and decide they don't like it and so return it. But "borrowing" items (buying with intent to return, because you only need it for a weekend) is pretty selfish. There's a rental service for that sort of thing.Feb 22, 2009 at 5:48 pm #1479884
sorry, Ashley allow me to fix a mistake I made wherein I said "if you disagree with the REI return system and think customers are rat bastards for returning a pack after using it on a weekend trip"
I meant to add that the returned product was not working for the customer after a "real world" test.
yea, using a pack with pre-meditated plan to take advatage by "renting" it so to speak, is just not right. Peace.Feb 22, 2009 at 5:49 pm #1479886
"but if the system is clearly outlined, then no cheating is going on." — If you believe that, then I have a bunch of lawyers who will draw up the next version of the policy so that people do not need to worry about taking it overly literally ….
"maybe you should consider banning yourself from any REI 'garage sale' " — I have never patronized one yet ….Feb 22, 2009 at 5:51 pm #1479887
@beepLocale: Land of 11, 842 lakes
As a point of clarification, REI is not a shareholder type public corporation but rather a cooperative owned by its members. Its size is a testimony to its success from a long way back. While it may be run like a "real" business with all the clumsiness of bigness, it has filled a retailing need for a long, long time with successful results.
I'm not endorsing every product choice or policy of REI. Personally, I'm surprised they are as successful as they are with all the odds stacked against any retailer. They also sell a ton of stuff for which I have little or no interest.
While we may forget, LL Bean has for generations maintained a "no questions asked" return policy that long predates REI's policy.
So, in a market-based economy, if you don't like the company or its operations, then simply shop elsewhere. Like it or not, we "vote" with our shopping dollars.
(steps down from his small soapbox) HYOH!Feb 22, 2009 at 5:53 pm #1479888
"What's REI but the Walmart of the camping world? " — well, for one thing Walmart sells products at a discount; REI sells at MSRP. I suspect that REI wages and benefits are better than Walmart — I do not know that for a fact, but perhaps some of the people reading this who have worked for REI could comment. I am not aware of REI being the burden on their community that Walmart can be.Feb 22, 2009 at 5:55 pm #1479890
Again, the complaint is not REI's policy, I have heard no one complain about that.
The discussion is about the fact that some of us believe some REI customers abuse the policy and we would rather they not do so.Feb 22, 2009 at 5:55 pm #1479891
"– I have never patronized one yet …."
nor have I, Bob. At least we agree on that.Feb 22, 2009 at 5:58 pm #1479892
"REI is not a shareholder type public corporation but rather a cooperative owned by its members."
Uhhhh, you actually believe that it is a cooperative?
That's just clever marketing to sell memberships……which is why your dividend is a percentage of your purchases and not a percentage of company profit.
Just a gimmick, nothing else.Feb 22, 2009 at 6:03 pm #1479894
"As a point of clarification, REI is not a shareholder type public corporation but rather a cooperative owned by its members."
So as a partial owner of REI, what do I get?
OOOOhhhhh yes, the dividend…which roughly equals getting my sales tax back. Which roughly constitutes about 8-10% of the 150%-600% markup on anything you buy there. So consider it only a 140-590% markup.
Now that's lookin' out for people!
Sure they don't have to do this, but if they didn't would they have cultivated the nice-guy/member owned image that has half of the people posting here defending their profits?Feb 22, 2009 at 6:04 pm #1479896
"It is most retail markets' common policies to charge cost x3 and many shops (furniture, jewelry, etc..) it is much, much higher.
You can bet that rei is charging their cost, times three. That is what the MSRP is usually based on, from what little knowledge I have of it. If you have a better (easier) description, do tell."
A simple explanation, as you requested.
There are several calculations that businesses use to analyze their profitabilty. What you are referring to is Gross Profit.
Gross Profit is calculated by Subtracting the Cost of the Good, from the Selling Price. For example if you buy a Widget for $60 and sell it for $100, then your Gross Profit = $100 – $60 = $40. As a percentage, your Gross Profit would be 40% ($40/$100).
To maintain a GP of 40%, you need to multiply the cost of your goods by 1.67. Or $60 X 1.67 = $100.
Last time I checked, U.S. speciality retailers (such as REI) were averaging just under 37% GP. The S&P 500 even less. Most retailers shoot for a GP of 40%.
It has been a long time since I looked at REI's numbers, but they include their financial statements with dividend checks. REI returns about 85% of their profit to their members. This profit is not the GP, but is all the money they make after deducting all their expenses. REI has a rather rare set-up (in today's world). It is a Co-op, which means it pays out most of its profits it's members. This is a lot different than a typical company which pays dividends to shareholders.
– NickFeb 22, 2009 at 6:09 pm #1479898
"I am not aware of REI being the burden on their community that Walmart can be."
If we define driving smaller, self-owned businesses under as "being a burden on one's community", REI certainly fits the bill. I know a shop that was utterly killed by them…Just like all the family-owned businesses killed by Walmart.Feb 22, 2009 at 6:09 pm #1479899
I don't care what they tell you when they ask you to sign up for a membership, it is not a Co-Op in the traditional sense (like the grocery store co-op most people think of when they hear the term.)
There is NO way they return 85 percent of their profit in dividend checks. It's just mathematically impossible. They are giving back only a measly amount on purchases, first of all, and only purchases BY members. (So members don't "profit" at all on purchases by non-members nor on purchases by members who neglect to use their member number.)
Just absurd. Where are you getting this stuff?Feb 22, 2009 at 6:24 pm #1479903
thanks for the info. seems logical. except for your last bit, which Im more inclined to follow Nathan's explanation that this one:
"REI has a rather rare set-up (in today's world). It is a Co-op, which means it pays out most of its profits it's members. This is a lot different than a typical company which pays dividends to shareholders"
the dividend is 10%. I dont know how that constitutes "most of" their profit.Feb 22, 2009 at 6:34 pm #1479908
"If we define driving smaller, self-owned businesses under as "being a burden on one's community", "
I also define it as paying your people so poorly they have to also go on welfare, an giving them such poor benefits that they are a drag on their community, especially health services. Walmart does that; I do not believe that REI does.Feb 22, 2009 at 6:37 pm #1479911
The dividend has nothing to do with the selling price. Some years the dividend can be a lot lower that 10%. It depends on other costs. Also dividends are based on the total purchases made by members… not total purchases, etc. etc.
But it is definitely a Co-op and has to publish financial statements.
BTW, their gross profit is around 56%. Higher than most retailers.
That is because they have also gotten involved with financial services (REI Visa) and their Travel Services probably have no cost of sale, but they are paid a commission from their vendors.Feb 22, 2009 at 6:39 pm #1479912
"That's just clever marketing to sell memberships……which is why your dividend is a percentage of your purchases and not a percentage of company profit."
Ah, but it *is* a percentage of company profit. There is another posting in this thread pointing out that REI distributes about 85% of its profits as dividends.
The distribution is weighted by the amount you shop there … seems as good a way as any to weight it.
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