Tight resources factor in Tokyo REI closing

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Recreational Equipment Inc.'s decision to close its Tokyo store after just 14 months was testimony to the company's limited resources and the fact executives lost confidence that they understood Japan's retail market.

That the REI store in suburban Tokyo turned out to be located in the wrong part of Japan heavily contributed to the fact that 145 employees - 116 in Japan and 29 in Kent - will lose their jobs as a result of the store's closure later this year, after the company completes its liquidation sale.

Some of those jobs are associated with REI's Japanese Web site, which will shut down July 8.

REI counts only 23,000 active customers in Japan, and the performance of the store in Machida City played a large role in the $11.4 million loss the company posted last year - the first loss ever acknowledged by the 63-year-old buyers' cooperative.

Dennis Madsen, REI's chief executive, is in Japan this week, telling store employees they created a great store that simply didn't work.

"I think Tokyo, as a market, moved away from us in ways that were hard to predict when we put it in," said spokesman Mike Collins. "We recognized that the store was not achieving its performance goals, and that we needed to take a hard look at that. We had overhead costs that a single store and Web site couldn't support. The projections of when it would be profitable got too far out and required too much investment to feel that keeping the store open was a prudent move to take."

REI, which had sales last year of $698 million, used the announcement of the closure to unveil an executive-restructuring plan. Chief financial officer Brad Johnson, who has a background in real estate, will direct REI's distribution, real-estate, finance and information-services functions. Sally Jewell, chief operating officer, will direct marketing and merchandising divisions, as well as REI's retail and direct-sales operations.

In cost-cutting moves over the past year, REI has laid off about 400 employees. About 200 of them worked at Thaw, the fleece-manufacturing company in south Seattle that closed in November.

Robert T. Nelson can be reached at 206-464-2996.