Garrett Boone, 63, prefers to wear bow ties. Kip Tindell, 54, leans toward the less-formal look of a traditional necktie. But both men share similar management styles in running The Container Store, which specializes in storage and organization products.
“We’re fun-we dance at parties,” said Boone, co-chairman of the 39-store, Coppell, Texas-based chain. “That’s sort of our role and our approach to running the business.”
Fun has taken the company a long way. Since opening its first store in Dallas in 1978, the retailer has grown sales at an impressive 15% to 20% clip annually. Considered a jewel tenant, The Container Store is extremely selective about locations and has never pursued growth for growth’s sake. And while a number of copycat stores have cropped up over the years, none have taken off.
The Container Store attributes a good deal of its success to its unique workplace culture, which has won the chain universal acclaim and landed it repeatedly on “best places to work” lists. Believing that a happy work force translates into happy customers, the company offers a family-friendly work environment and wages significantly above the industry average.
In February, Boone and Tindell announced they had hired a financial advisor to explore strategic options, including the sale of the company. They pledged to seek a single majority investor that would agree to three startling limitations: keep the current management of Boone, Tindell, chief merchandising officer Sharon Tindell, 51, president Melissa Reiff, 52, and all of the company’s VPs in place; maximize value for all shareholders including employees, customers and vendors; and preserve the workplace culture.
Kip Tindell has talked to Chain Store Age twice before, each time outlining plans for growth that included such strategies as urban and international expansion.
“The Container Store has had this wonderful fairy-tale existence, and our urban growth has, I think, prepared us [to take the company to other countries],” Tindell told senior editor katherine Field in a 2005 interview. “We are pretty serious about going international.”
Recently, Tindell’s partner and co-founder Garrett Boone talked on the record with CSA for the first time, unveiling the pair’s newly announced plan to achieve growth and maximize shareholder value not via more aggressive or international expansion-at least not yet-but through a sale of their company- lock, stock and basket. In seeking a sale, current ownership is looking to provide its original investors with liquidity while keeping its existing management structure and culture in place.
Chain Store Age: Your strategy for selling the company falls outside the customary, in that you are trying to preserve the company’s structure and culture, under different ownership. How will you do that?
Garrett Boone: First, we realized that we needed the best help in the country, and we engaged J.P. Morgan. Rob Holmes is the head of North America Merger and Acquisition for J.P. Morgan. He lives in Dallas, and he and his team not only know our company, but they know the retail market better than anybody in the country.
CSA: So J.P. Morgan has expressed complete confidence that it can achieve your goal of finding a buyer that will keep the current culture as is?
Boone: Yes. And we are absolutely confident that we can do what we’re setting out to achieve, which as you say is different- and it is pretty extraordinary.
We are setting our standards high and we feel that we can do what it is that we have said we’re going to do, which is maximize value for shareholders—we have an obligation to do that—but also make sure that we maintain, and even improve, the culture of the company by allowing the management team to continue to run the business, having the operational control that they need, and also enhance our ability to share the future of the company with the management and employees.THE CONTAINER STORE
Headquarters: Coppell, TexasAnnual sales (est. 2006): $500+millionNumber of stores: 39Area of operations: 15 states and Washington, D.C.
CSA: Will you sell the company only to someone who embraces the current culture?
Boone: Yes. Because anyone who doesn’t embrace our culture would be a lousy investor. Everything we do is built upon the culture. How in the world would we otherwise have been able to create an environment where people love to come to work? I’ll bet I talked to five people just yesterday who said to me, “It’s amazing that every time I go in your stores the people are so helpful and they really seem to enjoy what they’re doing.” If we didn’t have that strong culture, we wouldn’t have that strong effort in the store. And if we didn’t have that effort, we wouldn’t be a profitable company. And who would want to buy it?
We can find that person who provides maximum value for shareholders, but also at the same time appreciates the culture and knows that they need to do those things that help protect and enhance our culture.
One of our principles is to fill the other guy’s basket to the brim, because making money then becomes an easy proposition. We’re going to apply that to this transaction.
CSA: How will J.P. Morgan gauge just the right type of buyer?
Boone: They know everybody out there. They know individuals, they know strategic partners and businesses, they know the financial world. We’ve been around for nearly 30 years and we’ve met and talked to an awful lot of people. As a kind of pre-qualifier, we know that we can narrow the list down to people who are serious about buying the company and who will accept the parameters we’ve set.
CSA: What has prompted the sale? If you’re turning equity into capital, what is the strategic purpose?
Boone: It’s a very good time for retail transactions. There’s a lot of interest in retail; in fact, there’s a lot of money available for deals of all kinds. We feel the market conditions are extraordinarily ripe and the climate is right for us to achieve our three goals: maximum shareholder value, protecting the culture and the people, and allowing the operational control of the current management team to go forward. We feel that we can use the leverage of the good market, plus the leverage of our brand— our brand is at an all-time high, certainly with our opening stores in major media markets like New York and Los Angeles and Boston—to accomplish a sale in such a way that we cannot only do what we’ve done in the past but actually get better doing it.Private Equity’s Sweet Spot
Talk about perfect timing—The Container Store’s decision to put itself on the selling block comes amid a frenzy of billiondollar buyouts by cash-rich private-equity firms. In March, Dollar General Corp. agreed to be acquired by private-equity firm Kohlberg Kravis Roberts & Co. in a deal valued at $7.3 billion. In other recent deals, private-equity consortiums bought Yankee Candle and Lord & Taylor in October, and GNC in March. Claire’s Stores is expected to join the list soon.
Industry experts agree that for private-equity firms, cash has never been more accessible and the retail sector has never been hotter. Retail chains make attractive targets, experts say, because they generally generate positive, year-round cash flow, have little debt on the balance sheet, and often own some or all of their real estate.
Sometimes it takes a sale of the company to do what it is we want to do, because we can work into our agreement with the new buyer all the things that we think are important to enhance and protect the culture.
CSA: Will this strictly be a capital acquisition or would you consider accessing resources of another company through a merger of some type?
Boone: We’re open. That will involve a discussion with the potential buyer. We’re going to be talking with individuals and strategic buyers, which would be primarily retailers, and then also financial buyers.
CSA: What time frame have you outlined for the sale and new-ownership transition process?
Boone: We would like to have this completed by the end of summer. That’s not a lot of time, but we want to get it over with!
CSA: What safeguards will you build into the selection criteria to guarantee preservation of workplace culture?
Boone: A lot of this we’ll work out in discussions with the buyer. We need to make sure that we [the seller and the buyer] mutually understand our business, understand what makes it extraordinarily profitable—and we’ve been extraordinarily profitable since the beginning—and make sure that there’s an understanding with the buyer about what is critical toward continuing this. Our goal is to finish the transaction in such a way that customers and employees and vendors don’t sense a difference, other than seeing that we’re actually getting better. We want the transaction to be a non-event in terms of what the employees perceive and what the shareholders and vendors perceive as well.
CSA: What’s most beneficial to the long-term plan of the company—preserving the culture or raising capital?
Boone: Preserving the culture, because profitability’s ability to grow, and the ability to create a best-place-to-work environment all flow from that. Our long-term goal is to be considered the best retailer in America. I don’t know how in the world you know whether or not you have achieved that. I guess you don’t ever know, so you keep on working really hard every day to get there.