Originally created 11/30/03

Container store is seen as a strategic category killer

NEW YORK - The Container Store is a pack rat's dream, selling hundreds of boxes, bins, containers, racks, jars and shelves - basically, items that will help consumers store, package and organize.

The retailer, little known outside of the communities where its 30 stores are located, has followed a strategy known as niche marketing as it focused on storage merchandise for all its 25 years. In the process it has avoided the temptation many merchants have to over-expand. And the privately held company has followed another path somewhat uncharacteristic of American retailers, growing very slowly and deliberately.

Yet The Container Store is willing to take a gamble, and so it recently opened a huge store in Manhattan, which, with its high rent, is one of the toughest places for retailers to turn a profit.

"When we opened our first store in Dallas, we joked that that was the worst place to open a store because people were not short on space," chairman Garrett Boone said. "We've always wanted to come to New York because we know people need us here."

Analysts say the appeal of The Container Store is its vast selection within a narrow merchandise category. Instead of a handful of clear plastic bins in a few sizes, the company stocks a variety of bins in different colors and many sizes.

The company divides its cheerfully arranged stores into sections according to rooms of a house: closets, kitchen, garage, bath. There is merchandise that will appeal to children, such as backpacks and brightly colored crates. And there is a big section devoted to seasonal items - right now it is stocked with boxes, bags, paper, ribbons and other holiday essentials.

"They have a beautifully executed category-killer strategy," said Jorge Leis, a partner specializing in retail for Bain & Co., a consulting firm. "They are extremely focused on their product line and specialize in high-end goods. They invest a lot back into their company and in employee training so turnover is much lower than others in the industry."

Mr. Leis said this is one reason why the company has few direct rivals.

But The Container Store does face competition from discounters Wal-Mart Stores Inc. and Target Corp., which have a less varied inventory but are able to price their own more cheaply.

"They should not lose sight of the fact that they need to provide value," said Madison Riley, a strategist at Kurt Salmon Associates.

Some analysts believe the company must rethink its strategy of conservative expansion if it wants to stay a category killer.

"In order for them to remain in that position and own the concept, they have to grow," says Wendy Liebman, the president of WSL Strategic Retail, a marketing and retail consulting firm. "They need to be in more places because there are an awful lot of people selling similar stuff. They need to do this without overextending themselves and yet they need to get to the people who need them most. Otherwise, they will lose their position as the specialists and someone else will take this opportunity from them."

Not everyone thinks aggressive growth would be beneficial to the company.

Mr. Leis suggested that the company might want to go public, but that would carry some risk.

"They would be under tremendous pressure to grow faster and might have to abandon their breadth versus depth strategy across the country," he said.

The company's founders say they have no plans to sell stock. "We've grown at about 25 percent a year and have been able to attract and retain great people," Mr. Boone said. "If we grew at 40 to 50 percent, we would not be able to do that."


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