Has The Container Store “Peaked”? Have all of America’s disorganized “neatniks” been served? Do they need to refocus their market?
The Container Store and the challenge of building a business for neatniks
The Container Store has been on a decades-long push to get shoppers to spruce up their closets and cupboards and convince them that a fastidiously arranged home can save time and ease stress.
But recent weakness in sales and sluggish traffic to its stores suggests a hard truth: It’s not easy to build a business on getting America organized. Now, it seems the company sees drawing in more big spenders as their best shot at getting a sales jolt.
The Container Store Group reported Tuesday a net loss of $5.2 million during its most recent quarter, a significantly deeper loss than the $3.6 million seen during the same period last year. The company said the loss reflected headwinds from the strong U.S. dollar, but also reported a 0.9 percent slide in sales at stores open more than a year.
While these results pleasantly surprised investors who had been girding for an even gloomier quarter, the lackluster sales figures underscored one of the retailer’s critical challenges: It has had a hard time luring shoppers to its stores.
The company has said its average customer visits the store only 2.5 times a year, and even its best customers visit about four times a year. While the Container Store declined to disclose its traffic numbers for this quarter, executives have said in recent quarters that a drop-off in store traffic was the culprit for slower sales.
It’s a sign that the Container Store has had trouble making the case to all but the most obsessive neatniks that home storage and organization is a category worth spending on routinely. Since its public trading debut in 2013, the company’s stock has declined about 50 percent, suggesting that investors have cooled on the chain’s potential.
So where does the Container Store go from here? The company says it is thinking of 2015 as an “investment year,” and one of its major efforts is the introduction of a luxury product called TCS Closets that is designed to appeal to a more affluent shopper.
While the Container Store has long sold Elfa modular shelving systems, TCS Closets is a more high-end organization system made with finer materials and finishes. On an April conference call with investors, chief executive Kip Tindell said he imagines a typical TCS Closets buyer is older, wealthier and “will use this in her master bedroom closet and then still use Elfa in the kid’s room and the pantry and the linen closet and the guest room.”
In some ways, it’s a risky gamble: Shoppers have remained somewhat cautious several years after the recession, so it may be tough to convince them that they should splurge on high-quality craftsmanship for an out-of-sight storage area. But the early results of the rollout have shown promise: The retailer says average ticket on TCS Closet purchases so far has been an eye-popping $10,000, dramatically higher than the chain’s average ticket of $60.
[Chief executive Kip Tindell opens the lid on the Container Store]
The company is also piloting a house-call service called Contained Home in which an organizer goes to a customer’s home and helps them design and implement an organization plan. The consultation costs $75 per hour, though the fee is credited back to you if end up buying at least $500 worth of Container Store goods to execute the plan.
The retailer says this, too, has generated a high average ticket of about $2,500. And it seems like a logical evolution for a company that has long placed a premium on customer service. (The retailer has a reputation for having some of the best-paid store workers in all of retail, a strategy executives say is aimed at delivering a top-notch in-store experience for shoppers.)
These new merchandising efforts aren’t the only measure the company is taking to boost sales and traffic. The Container Store is also focused on wringing more store visits and more dollars out of their most loyal customers.
The company says that the top 30 percent of Container Store customers generate about 83 percent of its sales. Its new POP Stars loyalty program, which includes special offers and event invitations, is aimed at giving these already-loyal shoppers more incentive to come to the store even more frequently. It has signed up 2 million people for the program since last July and the company’s analysis has found that participants have increased their shopping frequency at the Container Store since signing up.
In some ways, it’s not surprising that Container Store struggles to achieve more frequent visits from its shoppers. After all, plastic storage bins, garment bags and spice racks are not exactly the kind of goods that consumers are likely to feel the need to update to meet the latest trend.
“Arguably, Container Store is light years ahead of both its direct and indirect competitors: its assortment is better, its merchandising is superior, and its customer service is exceptional,” Neil Saunders, chief executive of retail consultancy Conlumino, wrote in a research note. “However, for many customers storage is a relatively functional category and Container Stores’ points of differentiation are sometimes relatively unimportant and not compelling enough to sway shoppers to use it over rivals.”