Kip Tindell, chief executive of the Container Store, is one of the ground-floor forces behind the home storage/organizing phenomenon.
Opened in 1978, his first tiny Dallas store transformed milk crates and metal egg cages into shabby-chic home storage units and demonstrated how steel wire shelving brings a sense of order to cluttered kitchens and closets. More than 1,000 copycat home-organization stores vanished as the business moved to discounters like Target and Ikea. But the Container Store maintained a compound annual growth rate of 20 percent for three decades, hitting $650 million in sales in 2010.
Aside from compelling goods, Tindell thinks the big reason is a company philosophy that puts employees at the top of the food chain.
In 2010, the average Container Store employee earned $47,000. Jobs went to only one in 50 applicants and annual turnover is 3 percent in a low-wage industry where 120 percent is the norm. For 12 years, the company made Fortune's list of the 100 best companies to work for.
In an interview condensed by staff writer Mark Albright, Tindell talked about his unconventional approach and why the 49-store chain has endured while others stumbled.
Let's get this out of the way. When does Tampa get a Container Store?
We're very well into doing it. We will be in the West Shore area within two years. It may be our first store in a mall. We already have a lot of online customers.
You contend employees come first because business should not be a zero-sum game. What do you mean?
Too many businesses today are based on driving prices lower by screwing over somebody: pounding suppliers or squeezing employees. We're the opposite. We put employees first, radically. We observe the three-in-one rule. One great employee is equal to three mediocre ones or 27 poor ones. So we're picky and willing to pay for the best because no one is overqualified. We steer away from people with deep-seated insecurities. We invest 263 hours in training in every employee the first year. If you take care of them, they will take care of your customer better than anybody else.
How about compensation?
We don't have commissioned salespeople and no store employees earn six figures yet. But several are close. We award bigger raises than those 2 or 3 percent ones because I want people mildly tickled about getting a raise. Not clicking their heels. But mildly tickled. Treating suppliers fairly is how they help us compete on price with discount giants. The economist Milton Friedman was wrong. If the employees and suppliers are ecstatic, the shareholders should be, too.
One of your commitments is to communicate down to the sales floor everything about the business except pay. Why?
People get weird when they learn what others earn. But we go out of our way to communicate everything else about business to our employees. Nothing makes people feel important to an organization more than knowing everything. Nothing alienates them more than being excluded from what's really going on. I regard keeping them out of the loop as a selfish act. Our challenge is getting them to drop tribal habits and be part of a team.
How does it happen?
When I make a board presentation, we show the exact same PowerPoint to everybody. In stores, we have at least two huddles a day to make sure everybody is on the same page. We willingly have endless meetings even though they force us to get home later. We get people from all departments in the discussion. I call it whole-brain thinking because some of our best ideas come from people not directly involved. We started precutting the Elfa shelving at the factory after the controller thought our 60-year women associates had trouble using the bolt cutters. I don't want to generalize, but 18 of our 21 top executives are women, and they seem to communicate better than men.
Every employee can design a $300 to $5,000 closet system, yet your average sale is $55 and four items. How does that work?
We train our people to ask and design solutions to customers' problems. So if you just pick up one thing and leave, they think they've failed.
How did engaged employees help you survive competition and the recession when sales dropped for the first time in 2008 before rebounding to a 9 percent gain the past 12 months?
Their loyalty and engagement was the difference between us and failed rivals. I was worried when our sales dropped 12 percent until I found out Crate & Barrel was down 25 percent and Williams-Sonoma by 35 percent. We froze salaries and 401(k) contributions for a while. But we did not lay anybody off or close one store.
As a high school student, you met one of your co-founders when the two of you worked in the paint department at a Montgomery Ward. Any advice for someone trying to create a chain that lasts?
Start something original. That way no one else will understand the heart and soul of it. We had a blast mixing paint, and Garrett (Boone) had a master's in history and no interest in teaching. We only had $35,000 (much of it from a third partner who was an architect) and spent two years developing the first store. We started with homemade furniture, but I wanted a more exciting shopping experience discovering functional products you didn't realize could help you. We fell in love with the clean, functional design from Elfa, a Swedish company that makes wire shelving you've seen on the wall of every hot dog stand and hospital. We later bought the company. We chased down industrial organization fixtures that are well made and durable, and retailed them for the first time as home storage.
Were suppliers willing?
Some didn't want to sell to us. An Erie, Pa., company that made the best dairy crate anywhere wouldn't budge until I said, "You can sell to us or keep watching people steal your products from the back of supermarkets." Today we are their biggest customer.
How did your wife, Sharon, become chief buyer?
She was a young landscape architect who needed a graceful way to leave a job where she had design issues with a boss. So we said she needed to help the family business. It was to be temporary, but she turned into a better merchant than any of us.
You believe companies committed to some larger mission have a better chance of enduring. How?
Whole Foods is passionate about helping people eat better. Herb Kelleher, who was a mentor of mine, truly believed his Southwest Airlines made it more affordable to travel around the country. The Container Store helps people save space and time. Feeling organized, knowing where things are and spending less time searching for stuff — that's huge when people feel so stressed multitasking that they cannot accomplish anything.
John Mackey, the libertarian founder and chief executive of Whole Foods Natural Markets, was your roommate at the University of Texas. Did you two talk about retail?
No. It was mostly about women and existentialism like Nietzsche. He was a philosophy major. I wanted to be, but my father refused to pay for it, so I majored in English. John moved into a co-op to get closer to a girl who was a big believer in organics and healthy eating. She led him to the food business. Years later, we talked about our amazingly similar business philosophies, what we call conscious capitalism. Now I'm a member of the Whole Foods board.
Leonard Green & Partners, a private equity firm that owns Sports Authority and is buying BJ's Warehouse, bought majority interest in the Container Store in 2009 so you could expand the business. You're opening 11 stores over the next two years. How has Green been?
They pledged not to touch our culture or way of doing business. They haven't. They recognize we're not altruists. This stuff actually works better.
Mark Albright can be reached at email@example.com or (727) 893-8252.