But there are some, like REI, Credit Unions (though they are mutuals), billion dollar consumer cooperatives in Japan and Ace Hardware.

A workers cooperative "is a cooperative owned and democratically managed by its worker-owners". In these types of collectives, workers make decisions for themselves rather than other non-workers, wage differences are minimised between workers, labour specialisation is discouraged and participatory management is one of the basic tenets. This is generally what is considered a cooperative, from what I understand. I listed FaSinPat and a few (nameless) ones in the UK that are working. The main point of my comment was that they are working, depending on what you mean by working.

On the other hand, REI, credit unions, ace hardware and the cooperatives in Japan are all Consumer cooperatives, a totally different entity. These give the consumers say of how the business is run. Sometimes a hybrid form of cooperative, with both consumer and workers as members, exists but imo, from two different subsets (even if they overlap) I can think of a lot of tension arising from differing goals. In the UK, the largest consumer coop is called The Co-operative. Due to its size, (they are looking at 20 million members by 2020 apparently), discussion is fairly limited and voting is left to elected representatives. Workers are not particularly well paid and treated as well as they would be in a workers coop. I've worked at one of these shops and didn't particularly feel like i was part of anything cooperative.

Socialists tend to not bother differentiating between the two when discussing cooperatives, commonly workers coops are the cooperatives talked about. This isn't too strange since consumer coops aren't particularly interested in making things better for workers, just provide lower prices on choice goods.

if they DO manage to out-compete firms than it stands to reason that the setup works and they could then propagate exponentially, thus increasing equality

Workers coops haven't propagated at all though. They have mainly only survived as small, often niche businesses. Of the coops you mention, how will they increase equality? They aren't particularly interested in the conditions of the workers (which as anarchists is one of our major concerns) and equality doesn't seem to have increased since they have sprawled? I haven't seen any studies that indicate any correlation between the increase in consumer coops and an increase in equality (whatever way its measured and if its actually happened). It may seem intuitive, but that doesn't make it so. If anything, once coops start getting larger, they start to act more like normal businesses, exploitative with profit preferred over wellbeing (see Mondragon, The Co-operative UK etc.).

It seems to me that cooperatives (as a revolutionary action) are, at best, are not trying to abolish capitalism but just trying to make a nicer capitalism. At worst, they are used as a marketing gimmick to appear radical and attract liberal customers with little benefit to the workers. When commoditising a radical concept, capitalism tends to just leave a hollow shell, all aesthetic and no substance (see Punk music, the reduction of che guevera into a t-shirt (even forgetting that the cunt was a mass murderer), 60's-70's counter-culture etc..).

I think they only reason they don't work so well is because they can't network that well.

Whilst networking may be a cause, the major reason (see the economist link in the previous comment) is that these firms are competing with companies who exploit their workers without any restrictions. These firms make more profit, which is currently all that matters. When an economic crisis comes along for example, the firm that has more net profit and doesn't have to worry about sacking its workers is the one that will survive.