The Container Store Faces Challenge to Conscious Capitalism
"Some say that by being public, our culture will change for the worse. But this is not going to happen. Instead, we’ll continue to grow our yummy culture."
That’s what Melissa Reiff, president of The Container Store, told Forbes following her company’s successful initial public offering debut on Nov. 1. On that day, shares rose as high as $35, almost twice its $18 IPO price.
The reference to "yummy culture" that defines the retailer’s "employee-first mantra" was highlighted in a letter to potential investors from chairman, CEO and co-founder Kip Tindell in its IPO prospectus.
Mr. Tindell also touched on the concept of "the customer dance" that validates the Container Store’s customer service efforts, insights into selection and price, and "Conscious Capitalism," or creating businesses that simultaneously creates value for all stakeholders: employees, customers, vendors, communities and shareholders. His college roommate, Whole Foods’ John Mackey, is also a Conscious Capitalism proponent.
But Mr. Tindell particularly stressed the benefits of an employee-first focus, which he claims "defies conventional business wisdom." Indeed, the letter got the most attention for taking on the late American economist Milton Friedman and the belief that shareholders’ interests should come first.
Wrote Mr. Tindell, "With all due respect to Milton, at The Container Store we have found that if you take better care of the employees than anybody else, they really will take better care of the customers than anybody else."
Mr. Tindell also told CNBC that going public will make it easier for the retailer to reward employees with stock options. Forty percent already own stock, including many part timers. The IPO money largely went to its largest shareholder, Leonard Green & Partners.
Container Store’s strong start as a public company was traced to the healthy crop of consumer sector IPOs this year, its streak of 13 consecutive quarters of positive comps, and its unique, customer-first positioning. It operates 62 stores, and sees room to reach 300 in the U.S.
A more bearish view came from stories pointing to a recent slowing rate of sales in the first half of 2013. Questions also linger around the competitive threats to storage/organization categories despite its vaunted staff.
In his letter, Mr. Kindall wrote that he trusted "the most sophisticated investors" would understand that culture will continue to drive the value of The Container Store.
He adds, "When we asked our employees to describe in a word The Container Store’s culture, they shared things like love, passion, family, sweet, security, support, mindful, magical and matchless. Love and sweet and mindful — in business? Now that warms my heart and is something we’re incredibly proud and passionate about."
- Interview With Container Store President Melissa Reiff – Forbes
- The Container Stores IPO Prospectus – Securities & Exchange Commission
- Container Store CEO on Its ‘Yummy Culture’ and ‘The Customer Dance’ – The Wall Street Journal (sub. required)
- Container Store CEO disses late economist Milton Friedman – Chicago Tribune (tiered sub.)
Discussion Questions
Does The Container Store face any risks to its culture by going public? Does being public or private make a difference when it comes to store associates’ performance and company morale?
Let us pray that the Tindell mindset will prevail!
Sadly, the moment one starts living for quarterly results and investors get upset because share value came in one cent below expectations, it is a very small step to a mindset of ’employees and customers be damned’. The prospect of most investors understanding the role of culture on profitability is on the agenda just below establishing world peace.
The Container Store is among a rare breed of retailers with a laser-like focus on being purpose-driven. Over the course of its growth as a private entity, the company has demonstrated its staying power – a testament to just how deeply ingrained its culture has become across its footprint of stores and associates.
As a brand solidly rooted in an inspiring and aspirational set of values and principles which clearly resonate with employees and customers alike, my bet is operating as a public company will come with little risk.
It’s all about corporate management, not going public or staying private. As long as Tindall and Reiff are managing the company, shoppers can expect a terrific customer experience, and associates will be treated with respect.
It’s up to senior management to preserve the culture. As some say, culture is defined by how those at the top act and behave. Costco does just fine preserving their culture and it’s a competitive advantage for them. So it can be done.
I had the honor of interviewing Melissa Reiff for my new book “On Fire at Work: How Legendary Leaders Ignite Passion in their People without Burning Them Out.” She is as committed to her employees as anyone I have ever met. When the economy tanked in 2008, retailers were laying off people in masses. Melissa and her team held true to their core and not one employee in any store was laid off. She is the real deal, folks.
The Container Store was founded on the principles of conscious capitalism and it’s not going to abort those standards to bend to the whims of shareholders. Those who buy stock in TCS should do so with eyes wide open knowing that this brand is all about employees-before-shareholders. That’s precisely the reason this stock will become a blue-chipper in short order.
The Container Store is one of my favorite studies. Not only are they employee driven; they have always been committed to the vendors who supply and serve them. This is a unique organization from the top down or bottom up. All one has to do is visit their corporate offices outside of Dallas and you will immediately see why this is a company sticking to the principles that got them to this point successfully.
As long as pleasing Wall Street doesn’t require new focuses, they are good to go. We’ll see!
If I’m an investor in this IPO (and I’m not), show me the quarterly results. That’s the culture I’m really interested in. How you get there, and the company culture you’re trying to maintain, is pretty much incidental. That’s just the way it works when you go public.
I really do appreciate the philosophy of putting employees above customers and shareholders with the expectation that a happy employee will ensure happy customers which in turn should keep share-holders happy too. This may be a sound strategy, but investors invest to make a profit. When a company goes public, it will attract all kinds of investors (not necessarily just “sophisticated” ones). Investors will want to keep employees of the companies they invest in happy too, but not at the expense of their profits and returns. That’s just the way it goes.
In my opinion being privately held gives a company a big advantage with morale compared to being public. I believe the CEO has the best intentions. However Wall Street has a strong hand changing attitudes.