The Container Store Elfa: The year was late 2020, and due to a populace that was largely confined to their homes, home shops were thriving. Retailers like Wayfair, Bed Bath & Beyond, and The Home Depot prospered because the COVID-19 pandemic gave renovating furniture, decor, and other things of the home that made life at home more joyful fresh importance.
It was the same at The Container Store, which specialises in organising your house. While sales decreased by over 28% in the first quarter of 2020, when most businesses were shutting their doors, the retailer immediately bounced back at the end of 2020, and sales increased in the first half of 2021. The Container Store had 20.5% increase by the third quarter, which ended the day after Christmas in 2020. Sales increased by 30.4% in the final quarter, which was even better.
It was in this setting that Satish Malhotra succeeded departing CEO Melissa Reiff as CEO. Since then, the home market has cooled off; The Container Store’s two most recent quarters showed year-over-year sales declines, but Malhotra doesn’t think the present market is particularly concerning.
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The Importance Of Education
The Container Store is well called because a large portion of what it sells are containers for holding various objects, but the company is actually trying to convince customers that organisation is important. When the company purchased Closet Works for $21.5 million last year, it placed a significant wager on closet organisation in an effort to expand its custom closet services.
Even though total comps declined 4.3%, the company’s Custom Spaces division reported comps climbed 2.1% in the most recent quarter. The possibility, though, is far greater for Malhotra than just closets.
He claims that practically any space can be organised by The Container Store; buyers only need to be aware that it’s a possibility. When Malhotra joined The Container Store and had the business renovate his wardrobe, he had firsthand experience with that.
“I came in just to get my wardrobe organised, and my in-home designer was like, ‘Well, what are you doing here?'” They created a fireplace nook for us when I said, “Well, this is a fireplace nook.” What are you doing there, I asked.
They constructed our entertainment space and said, “That’s my space.” How is your garage coming along? How is your pantry coming along? said Malhotra. You can accomplish a lot if you have the creativity and a support system, such as one of our in-home designers.
Expanding the ‘happy place’
The practical aspect of increasing sales is education, but other factors influence purchases as well. Because it typically stems from the consumer’s need to feel a particular way—confident, beautiful, or healthy, for example—beauty is frequently referred to as an emotional buy.
Malhotra asserts that the concept of organisation may also be emotionally charg since “having an organised life has a transformative impact on your life.”
Among the best instances of this are The Container Store’s partnerships with Marie Kondo and the “The Home Edit” TV stars.
Kondo’s Netflix series, “Tidying Up with Marie Kondo,” focused on finding things that make you happy and finding comfort by organising what you already have and getting rid of the excess.
The ability to essentially alter your possessions made the Marie Kondo unlock quite potent. Malhotra added, “It gave you permission to say, ‘It’s OK to let go.
The Container Store: A Bleak Near-Term Outlook
- Traffic volumes experienced a decline in March and April, impacting outlook views.
- There has been a reduction in average tickets, according to CEO Satish Malhotra.
- Container Store has moved too far from its core business of containers into completely unrelated products.
- The critical metric of accounts payable as a percentage of inventory continues to worsen, indicating vendors require stricter terms.
The Container Store Group (NYSE:TCS), a specialty retailer, is still having trouble, and their fiscal year 2019 outlook numbers are really terrible. Although it is not now in a significant financial bind, if things do not change drastically, it may soon join the long list of “former retailers.” After the recent stock decline,
I added TCS to my watch list. However, unless I see some indication that management is managing their product lines well, it will just be on my watch list, not my current holdings. I give TCS a neutral/hold rating.
Moving Too Far From Their Core Specialty – Containers
Products that are not truly link to The Container Store’s main business are constantly being add. “Single serve coffee maker, sleek desk lamps, vintage fans, and essential oil diffusers,” according to management, will be add.
This, in my opinion, is a grave error. It is very dangerous to add too many items that are too unrelated to their primary container business. Controlling inventories for them is challenging. TCS will lose clients if they run out of goods or if there are significant delays in fulfilling orders due to inventory problems.
Customers can believe that they have a poor or limited selection if they offer a few types or models of each new product, which is the customer mindset that they certainly must avoid. They do provide a sizable selection in their container market.
I like to use a consumer company’s goods or services in addition to looking at their financial statements. To better understand a retailer’s business strategy, I like to conduct genuine in-person and online purchases.
The Container Store has evolved into a general retailer that sells practically everything but the kitchen sink rather than continuing to specialise on selling containers and goods that are directly related to them.
I believe that switching from a reputable specialised merchant is a severe business model error. It should return to emphasising containers more.