Innovation in a Box

"We like to do things the hard way," noted Sharon Tindell, chief merchandising officer and a co-founder of The Container Store, in summing up a corporate mantra that involves reinventing the wheel almost every day.

Reinvention permeates every aspect of the $600 million-plus specialty retailer's business. It is applied to processes that range from the development of original store merchandise and award-winning personnel practices to creation of proprietary technologies that address unique, competitive needs. It also forms the foundation upon which Coppell, Texas-based Container Store developed its first-of-a-kind retail concept back in 1978.

Then, Sharon Tindell, along with partners Kip Tindell (chairman and CEO) and Garrett Boone (now chairman emeritus), launched a store in which they assigned household storage uses to products selected from the Thomas Register of OEM components and other commercial resources. Consumers quickly caught on.

Today, whether a problem involves storing data or storing sweaters, the retailer frequently applies a proprietary solution. Depending on the scenario, this allows it to be highly efficient or to differentiate from the hordes of competitors that have sprung up over the years. But whatever the challenge, nobody uses the word "impossible." Nor are Container Store executives concerned over whether or not a concept has yet been tried by another retailer.

"The first thing many retailers ask is, 'Who is doing this?'" says chief technology officer Tom Birmingham. "We never ask that. We'll do something if we think it's right. Many companies would also say it is difficult to do certain things. We do something based on whether or not it's right for the business. This philosophy applies to everything and has gotten us where we are today."

The Container Store uses a combination of branded and proprietary technologies. Most proprietary products are what John Thrailkill, vice president of stores, labels "creative resources" in that they address issues intrinsic to the retailer and cannot be bought on the general market. Technology systems that deal with everyday functions often come from standard vendors. "Anything that gives us a strategic advantage we design from scratch. Other things, like payroll, we outsource," he adds.

Key home grown initiatives include a full service POS system, which was installed this past summer. This joined two-year-old proprietary software that allows consumers to "assemble" modular closet systems and automatically order and arrange delivery while in stores. These systems are tied to real time inventory visibility solutions, also developed in-house.

Maximizing Investments
As part of "doing things the hard way," The Container Store does not invest lightly in anything. It expects maximum returns from every dollar. While it operates only 41 locations in key markets, its stores are among the most profitable in the retail industry. Emphasis is on moderate and upscale products.

IT executives receive consistent, actionable feedback on problems and solutions from all areas of business. "The conversation starts with the end user," says Thrailkill. "The beauty comes when we are visiting with employees and discussing their experiences on the back end or with customers."

These types of discussions lead the retailer to develop many of its proprietary products. The opening of two Manhattan stores over the past five years, for example, created challenges and forced the retailer to "accelerate some new ideas," says Thrailkill. Sales at each high volume location are about $20 million annually-roughly twice what other stores generate.

The new touch screen POS system was two years in the making, says Thrailkill. It replaced a 10-year-old, supermarket-oriented product. While the older product was "still functional," the fickleness and high service demands of Manhattan consumers called for a system with more capabilities.

"The new system accommodates combinations of transactions that wouldn't be possible through most retailers' systems, such as cash returns," he adds. "Manhattan customers change their minds a lot. They'll plan a closet system in white and decide they want platinum. They'll ask to make changes. We can do that in a single transaction." Enhancements are made to the product every 60 days.
The popularity of delivery in Manhattan spurred internal development of Go Shop! Scan & Deliver in 2005. The system functions somewhat like a gift registry in that customers point a hand-held scanner at products they wish to purchase and have delivered. Same day delivery is offered anywhere in Manhattan for $15. Scheduled deliveries are made until 2:00 a.m.

Store hosts inform customers of the service when they enter. Assisted by an associate, customers who opt for Go Shop! enter their credit card number and relevant information into the Go Shop! system. During shopping, product photos are displayed on the scanner's screen. When done, customers return to the Go Shop! area to complete the sale. Go Shop! can segment items the shopper may want to take home immediately as part of the same transaction. It also can split deliveries to multiple addresses and arrange delivery outside of Manhattan though standard carriers. Customers who opt for delivery, says Thrailkill, spend 10 times as much as others.

Go Shop!, along with the retailer's e-commerce site, distribution center and all stores, is tied in to a real time inventory system. Customers immediately learn how many items are in stock-this is particularly important with the retailer's exclusive brand of elfa modular closet systems. If a product is out-of-stock, Go Shop! reserves it and indicates when it will arrive, says Sonya Connelly, store manager of training at the Sixth Avenue Manhattan location. Delivery transactions represent more than 30 percent of the two Manhattan stores' total sales.

Go Shop!-along with the inventory system-is linked to the elfa Design Center, which also is proprietary. Four years ago, the Design Center replaced a labor-intensive grid paper design function. Company wide, more than 25 percent of total sales come from elfa closet organization products.

Customers, who provide closet dimensions and type (walk-in, etc.), work with a design center employee to choose rods, drawers, racks and other closet components. The Design Center can take into account obstructions, such as columns or cables. The average closet system, says Connelly, costs several hundred dollars. The Design Center is used in all stores.

On the back end, The Container Store is working on a replenishment system. It began this project three years ago. Part of this proprietary system was created by John Galt Solutions. To date, 40 percent of The Container Store's vendors, which represent about 60 percent of total volume, are on the system. More than 85 percent of products can be forecasted as far ahead as a year.

"We have every piece perfectly planned," says Birmingham. "This allows us to carry more distinct products. We can tell the customer there are three in the store, two coming on a truck tomorrow, another 20 in the DC and 50 more in a vendor shipment that will come to the DC in three days. They will be on the truck and you can have them on this date. You can also see other stores' inventory. In the call center, they can also sell anything in a store. It's really powerful." Everything is shipped out of a Dallas distribution center. The retailer stocks about 10,000 SKUs; about half are private label or exclusives.

Vendor Technologies
Technologies offered by traditional vendors play a major role in the retailer's business. In many instances, they are used to monitor functions or to keep track of various pieces of information.

Later this year, for example, the retailer will implement a store labor solution from Kronos. Birmingham says the product will take sales goals for particular days and allocate labor coverage for the next several weeks. In addition to creating appropriate staffing levels, it will ensure that people with the right skills are working at the right times.

In its 725,000 square foot distribution center, The Container Store has been using RedPrairie's labor management software since 2006. The product helps define labor standards for various tasks, including what needs to be done and how long each step should take. Expectations are communicated to employees. Thrailkill says the product has had a "huge impact" on performance and consistency. The Container Store moved into its present Dallas/Fort Worth area DC in 2004.

Last year, The Container Store also installed flat panel screens from Symon. Scattered throughout the DC, these wall-mounted screens make real-time information regarding the status of various tasks visible to employees. Screens keep employees abreast of each other's progress. They let workers know what tasks they need to execute, where they may be falling behind and where there may be a problem. "It shows if they are falling short," says Thrailkill. "A supervisor can then go investigate any bottle neck and help the employee solve the problem or ask for another employee's assistance."

On the data side, the retailer uses MicroStrategy to convert large volumes of merchandise data into actionable information for buyers. Buyers can access SKU data via an extranet and segment inventory purchased by store, time and product.
A Buxton/SAS system allows the retailer to create "predictive" marketing models based on consumer demographics and purchasing histories, says Thrailkill. "There is a huge correlation between the number of departments and categories that a customer shops and the frequency," he adds. The retailer does about 60 targeted direct mail pieces annually; certain pieces go to certain customers.

Looking ahead, The Container Store plans to keep innovating, just as it has done for 30 years. Even when the company was up for sale, it bucked convention by continuing to invest in key technology areas. The Container Store was purchased by Los Angeles-based Leonard Green & Partners in 2007. Leonard Green also owns stakes in David's Bridal and Petco. The Tindells continue to manage the business.

Under the new owners, there are no plans to generate quick cash by putting a store on every corner. Thrailkill says Leonard Green wants the company to maintain its traditional 15 to 20 percent annual growth rate (roughly one to two new stores annually). The sale, he said, resulted simply from the Boone family's and other private owners' desires to liquify investments. "There wasn't a cash infusion in this," he adds. "We didn't-and still don't-need outside capital to accomplish our goals.

By continuing to innovate on every front, The Container Store also can maintain and grow its competitive edge. Today, most mass retailers offer household storage products. But few companies have been able to compete in the mid and upscale sectors that The Container Store specializes in. And none have been able to offer the breadth and depth of sub-categories and assortments that The Container Store carries.

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