How The Container Store Could Put the Lid on Losses

For Satish Malhotra, chief executive officer of The Container Store, clutter is a national issue.

“One-third of Americans can’t even park their car in the garage because it’s full of clutter, and then they end up literally spending money on outside storage, and protecting the clutter more than their cars.”

Malhotra says being organized — which The Container Store provides solutions for — is more than just a time saver or for appearances. “It reduces anxiety and stress and improves relationships,” Malhotra said, sounding like a therapist. “My wife and I argue a lot less because we know where things are. I’m not constantly saying, ‘Where is this? Where is that?’ I’m able to help her more in the kitchen. If she asks me to get the nutmeg spice, it’s labeled in the pantry.”

An organized kitchen, the CEO said, encourages cooking. “Customers are price sensitive, so what better way to save money than cook more at home. And if you have airtight containers, it preserves your food a lot longer than non-airtight containers. We have a new food preservation system that sucks the air out of the container. Food lasts five times longer.”

Dealing With Headwinds

The Container Store, impacted by macro headwinds, the slump in industry-wide home sales and renovations, and consumer uncertainties on the economy, is working to put a lid on its recurring losses while undergoing a “strategic review” by its board, raising the possibility of a restructuring or a sale of the company. It’s also planning to announce a reverse stock split at the annual meeting on Wednesday to avoid being delisted by the New York Stock Exchange because the average closing price of the company’s common stock was less than $1 over a consecutive 30 trading-day period. The stock is currently trading at $0.95.

In the retailer’s fiscal first quarter ended June 29, consolidated net sales were $181.9 million, down 12.2 percent from the year-ago period. Comparable sales decreased 13.7 percent. The net loss was $14.7 million compared to a loss of $11.8 million in the year-ago period.

In the retailer’s fiscal 2023 ended March 30, consolidated net sales were $847.8 million, down 19 percent compared to fiscal 2022. The net loss was $103.3 million, compared to a net loss of $158.9 million in fiscal 2022. The retailer last posted a full-year profit in 2021.

Malhotra told WWD The Container Store is undergoing “a big transformation” largely based on “being explicit around the plethora and the versatility of the systems we have because we’ve invested so much in innovation,” and greater top-of-funnel advertising, for awareness.

“The biggest white space is education. That’s our biggest opportunity. People just don’t know that we are in the custom-based business and that we have this beautiful offering for throughout the home,” Malhotra said, citing organizing systems for dens, bedrooms, kitchens and garages.

Malhotra sat down with WWD for an interview, just after a media presentation of the latest in customizable organizing systems at The Container Store’s 629 Sixth Avenue location between 18th and 19th Streets in Manhattan. He pointed out that the store is unique in the chain, since it doubles as a fulfillment facility for online orders in Manhattan. Products tailored to Manhattan apartments with tight space were added, walls have come down, the lighting will be upgraded, an “everything organizer” for containers and bins will be created, and some general merchandise is being relocated for improved merchandise flow.

“The classic system we have is Elfa,” Malhotra said. “It’s 40 years old. People look at that system more as elevated shelving rather than as a true, customized space. Our job is to continue to educate them in terms of the modularity there and how we offer a variety of systems. Customers love the Elfa system but may not know we offer premium wood, or they don’t know all the features. One of the big changes we made this year was being more overt around all we offer in custom spaces. Hence, the partnership we did with Jason Kelce,” the retired Philadelphia Eagle pro-football center, who promotes The Container Store’s Garage+ system.

Telling the Whole Story

In educating customers, “Rather than having a separate services story, or a separate general merchandise solution story, or a separate custom space, let’s make sure we have a conversation around the system, the solutions and the services all together,” Malhotra said. “I compare it to training. If you want to really get fit, you’re not going to just buy equipment. You’re not going to just eat healthy. You’re not going to just buy athletic apparel that allows you to go out. You need all three to really achieve results, right? With us, you don’t want to just get the system and not the solutions. So we’re being far more integrated” in telling The Container Store story.

Currently, 60 percent of the business is generated by general merchandise sales such as bins, bags, boxes, baskets, office and cleaning supplies; 40 percent by the customizable organizing systems for closets. “My goal is to flip that, as fast as I can over the next two, three years,” Malhotra said.

The company saw a 1.9 percent lift in comp sales for custom organizing systems last quarter, due to a positive response to the recently introduced Garage+ and Decor+ by Elfa launches, and the two-year-old Preston line, which had the best quarter in its history in terms of orders. The Container Store also reported sequential monthly improvement in custom spaces and general merchandise throughout the quarter.

He also cited, as key tactics in the transformation:

Long-term, Malhotra said, “we have ample opportunity to double our fleet of stores, without a doubt. We can easily be 200, 300 stores.” That would include both large format stores, which average 25,000 square feet, and small format stores, averaging 12,000 to 15,000 square feet and functioning as “in-fill” in markets where there are the larger stores. The idea is to make it easier and more convenient for shopping with the in-fill sites.

Expansion Possibilities

There are currently 104 large units, with two more soon to open in Miami and Pembroke, Fla., and eight smaller units. “I still believe in opening big format stores for a new market and then utilizing small formats to in-fill,” Malhotra said. “We’re in about 30 states. There will be opportunities for us to get into new states.” Smaller units have as much space as the larger units for displaying the organizing systems, where the company sees significant growth opportunity. They’re big ticket purchases often running in the thousands of dollars, generating greater margins than general merchandise items.

The stores are stacked high with merchandise, though Malhotra said, “With our general merchandise solutions (bins, baskets and containers) we’ve edited it down to our top sellers so rather than 8,000 to 10,000 skus, the stores will have maybe 4,000. Ten thousand skus — that’s a lot. But we continue to optimize the assortment, looking at productivity as a driver. We’re known for the depth and breadth so we’ll always have the strength and quality of the assortment, but there is an opportunity to further curate and narrow it down so it’s easier for customers” to shop. A container, for example, might be displayed in different areas of the store demonstrating its suitable for different rooms and spaces. Though it’s the same product, each unit displayed counts as one sku. Instead, it could be showcased just once, as a “universal container” in one spot in the store, Malhotra suggested.

Like most retailers, prices at The Container Store have increased to keep up with rising raw material and labor costs. Praised a decade or so ago under former CEO Kip Tindell for its employee training and overall treatment of employees, the company raised its minimum wage to $15 an hour in March 2021. To offset some of the inflation, “We’re working closely with our vendor partners,” the CEO said. Pricing, as well as innovation, are top topics at The Container Store’s annual vendor summits held at the headquarters, in Coppell, Texas, about 20 miles from Dallas.

The Container Store owns, designs and manufactures its organizing systems as well as much of its general merchandise. Also sold are third-party general merchandise like bins from Cambridge, Rubbermaid containers and Koala cleaning products. Having its own design and production teams, Malhotra said, means The Container Store can be faster to market with new products versus working with third parties. Asked if the company is accelerating innovation efforts, he replied, “Absolutely, on both sides of the business — general merchandise solutions as well as our systems.”

However, growth is currently challenging. During the pandemic, several mass retailers were awakened to the possibility of boosting sales by emphasizing products related to storage and organization. “Yes, there’s been competition in the space, but I think you’ll find over a period of time, it won’t work for them because with the products they are providing, it’s without service.

More significantly, the challenge comes from shifting consumer behavior. Americans are not investing in their homes, or buying homes to the degree they did just a few seasons ago because interest rates are high, Malhotra claimed. “[Moreover] there is an element of uncertainty, but the market loves certainty. People love certainty. Once that is achieved, you’ll see first a rebound with investments in the home, and secondly, a rebound with new home purchases as interest rates start to fall.”

Asked if the presidential election campaign has been impacting business, Malhotra said, “I think so. The world is getting more and more complex. There’s a lot that weighs down on the consumer. Definitely, most consumers post-pandemic were traveling and spending money elsewhere. Now there’s this malaise out there.”

Malhotra joined The Container Store in February 2021 as CEO and president. In his first two years, he has overseen the launch of the Organized Insider loyalty program, The Container Store app, the small store format, the company’s first sustainability report, and he supported investment in e-commerce improvements.

Before The Container Store, Malhotra spent 21 years at Sephora Americas, most recently as chief retail officer and chief operating officer with responsibility for leading Sephora’s retail growth by expanding its in-store services and experiences, developing digitally enabled solutions, rolling out off-mall stores and Sephora inside JCPenney stores, though Sephora since pulled out of JCPenney and now operates in most Kohl’s stores. He sees a connection between what The Container Store sells and skin care, in that in both cases, educating the consumer is as important as is providing service in the stores.

He said there are “proven scientific benefits of being organized, and it’s really us educating customers on how to get organized so they can live that great life.…You give us any space, we can come by with our designers and design anything for you that works. It will be a system that works for you, and that’s the most important thing.”

Tidying Up Versus Being Organized

So, is the U.S. a nation of clutter? “I would say yes, and primarily because we are blessed to have a tremendous amount of space,” Malhotra said. “While that may not be true in New York City, generally speaking around the U.S., space abounds. We are a massive country. We have space, and we like to acquire things. Consumers are also increasingly purchasing in bulk, which creates storage issues, Malhotra said.

“If you compare the U.S. with Japan, Japan is far more of a minimalistic country, and they are very well organized because they do not have an abundance with space. What people don’t realize is the impact it has on you, your health, your well-being, your productivity when you have so much clutter. People don’t realize the effects of just consuming and buying and holding on to things. Even in my own life, I would always would buy things, and hold on to them for two reasons. One, because I always thought at some point I might need it and use it. It was never the case. So in my house, we have a one year rule. If we haven’t used it in one year, we give it away, whatever it is.” The giveaway, he suggested, is an opportunity to do something good and feel good about yourself.