With $1.2 billion in sales and no long-term debt in 2006, outdoor equipment retailer Recreational Equipment (REI) finds itself in a pretty exclusive retailing crowd. Within this elite group are Chico's FAS and American Eagle Outfitters -- two of the market's 10 best stocks of the past decade.
Even though REI is organized as a private consumer co-op and isn't publicly traded, it would serve us well to study the company's success -- it can help teach us how to identify a great retail stock early in its growth stage.
According to REI president and CEO Sally Jewell, REI has a goal of serving its members for the next "hundred years and beyond." To accomplish this while staying true to its roots of environmental stewardship, REI is making large investments in green power and is constructing a distribution center in Bedford, Penn., using green building methods.
Additionally, REI is small, which means it has plenty of room to grow. Although it has been in business since 1938, it only operates 90 stores in 26 states, so it's still unknown in many parts of the country. While many small retailers expand at an almost reckless pace in order to gain presence, REI prudently spends months preparing for each new store location to maintain brand value and gauge community interest. Despite only adding six new stores in 2006, revenue still grew 15%.
Moreover, REI has been selected as one of Fortune magazine's 100 best companies to work for every year since 1998, landing it a spot in Fortune's "hall of fame" alongside First Horizon National (NYSE: FHN ) , JM Smucker (NYSE: SJM ) , and Whole Foods (Nasdaq: WFMI )
One of the benefits of working at REI is that, like CDW (Nasdaq: CDWC ) , Genentech (NYSE: DNA ) , and Men's Wearhouse (NYSE: MW ) , REI offers paid sabbaticals to its employees. This allows employees to travel for extended periods of time and learn more about the outdoor lifestyle. As a result of such benefits, REI employee turnover is well below the industry average, which keeps training costs down and builds customer loyalty.
Finally, REI is a growing and reputable name in the $46 billion active outdoor recreation gear industry. Even though there are only 90 brick-and-mortar stores, REI.com is the Internet's largest outdoor store.
With a (very) long-term business plan, lots of room for growth, solid financials, and dominant positioning in a profitable niche, REI would be a great stock to own if it was publicly traded. In fact, it possesses some of the criteria that Fool co-founder Tom Gardner and the Motley Fool Hidden Gems team look for when they recommend stocks to subscribers.
Find the next great stock
One of the more recent Hidden Gems picks is another outdoor store, which, like REI, has a strong position in the outdoor market. What's more, the family co-founders maintain a strong presence and own 30% of the outstanding shares, which should align their interests closely with shareholders.
To find out the name of this company, or to learn about the other companies that have helped the service beat the market by 35 percentage points, click here for your free 30-day trial to the service.
This article was originally published on March 1, 2007. It has been updated.
Todd Wenning's random '90s movie of the week is Necessary Roughness, starring Sinbad and Scott Bakula. Todd does not own shares of any company mentioned. American Eagle Outfitters, Whole Foods, and CDW are Motley Fool Stock Advisor picks. First Horizon is an Income Investor choice. The Fool's disclosure policy is ready to partaaay.