Will Investors Put the Lid on the Container Store’s Generous Wages?

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A few years ago, Kip Tindell found himself at a crossroads. Tindell is chief executive officer of the Container Store, the retail company he co-founded in Dallas in 1978. He’s worked with his wife, Sharon, the entire time, and many other executives have been there for decades, too. Tindell likes to fly-fish and daydream. He’s slow-twitch.

Tindell’s ambitions had grown over time. He realized the Container Store, which had been operating in big metropolitan areas, could expand into smaller cities. He also wanted to offer more employees stock in the company. But he was conflicted. “There are only a few things you can do to finance that,” he says. “My dad did not leave me $3 billion.”

The private equity firm Leonard Green & Partners, which bought a majority stake in the Container Store in 2007, let Tindell run the company as he saw fit. Looking for another private equity firm as compatible as Leonard Green would be difficult. “How are we going to find another one that can deal with us?” he wondered. He didn’t want to take on more debt. He ruled out selling the company. “You subjugate your brand and management team, and that’s not good,” he says. He decided the best option was to take the Container Store public.

Tindell began promoting the company to potential investors in October 2013. “Hopefully we’ll get along well with our shareholders,” he told his executives. “We like the longer-term ones better than the shorter-term ones.” The Container Store’s stock began trading on the New York Stock Exchange on Nov. 1 of that year. “I was the guy on the floor who wasn’t smiling when the stock price doubled the first day,” he says. The demands of leading a public company were so intense, he adds, that a few months later he came down with pneumonia.

The Container Store’s sales grew 5.9 percent, to almost $750 million, in its last full fiscal year, which ended March 1, 2014. (It will report its 2014 fiscal year results in April and estimates net sales of $785 million to $795 million and adjusted earnings of $93 million to $96 million.) It has 70 locations in 26 states and about 5,000 employees. It sells 271 kinds of containers for storing food, 77 different hangers, and 57 items to manage power cords. The company hasn’t always been profitable, but it has grown steadily for more than three decades and outlasted all imitators. Its promise is almost existential: an uncluttered life in an otherwise messy world. Tindell says the Container Store eventually could quadruple its number of locations in the U.S., to 300.

Tindell’s personal philosophy, which he refers to as the Foundation Principles (he trademarked the name), is crucial to the company’s identity. He adheres to a model for conducting business without any trade-offs: Pay employees well and treat them with respect; consider suppliers and customers as family; have fun. Sixteen hundred of the Container Store’s employees work full-time in the stores. They receive 263 hours of training their first year, much of it on the job. Store employees earn an average of $48,000 a year, about twice the typical retail salary, and executives are also nicely compensated. The annual turnover rate among store employees is 10 percent, very low for retail.

John Mackey, a college friend of Tindell’s who co-founded Whole Foods Market with a similar perspective on business, calls this conscious capitalism. Companies that practice conscious capitalism are supposed to have a higher purpose. Costco aspires to this ethic, as do public companies such as Zappos.com, Starbucks, and Southwest Airlines. “I enjoy making for myself and the people around me,” Tindell says. “I’m not saying this is the only way to make . I’m saying this is the best way.”

For a while, Tindell seemed to have found the perfect balance between virtue and profitability. The Container Store’s share price closed at $36 that first day of trading. By early January 2014 it was near $46. Since then, as sales at established stores have consistently, though modestly, declined below the company’s estimates, the stock has plummeted. In October, just as Tindell’s book, Uncontainable: How Passion, Commitment, and Conscious Capitalism Built a Business Where Everyone Thrives, was published, the company trimmed its sales and profit forecast. The stock dropped 25 percent. In January the company reported that comparable-store sales fell 3.5 percent from Sept. 1 to Nov. 30, while online sales increased 13 percent. The next day the stock dropped 15 percent to about $18. Currently it’s trading close to $20.

Read more: Will Investors Put the Lid on the Container Store’s Generous Wages?

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