Crate & Barrel in 1985: A Startup On Display
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"The missing ingredient in most stores is the enthusiastic encouragement from the boss to attain and improve quality standards of merchandise and service. When the boss gets excited, so does everyone else in a retail organization." --Stanley Marcus, Quest for the Best
Gordon Segal was getting excited. And when the boss of Crate & Barrel gets excited, so does everyone else in his retail organization -- particularly those within a 20-foot radius of its main power source. On one warm July morning, this included about 40 employees from Crate's six Boston-area stores, squeezed in among the candy-striped beach umbrellas and picnic-to-go paraphernalia massed on the main floor of the Harvard Square emporium. The troops had turned out for a bit of inspirational oratory from the old field marshal himself, and he was not about to disappoint the faithful.
"There are no promises in this business," Segal declaimed, halfway through a rousing sermon on The State of Crate, 1985. "No guarantees that we'll succeed. Me, I'm afraid all the time. I'm afraid we'll get too arrogant. I'm afraid we'll get too snobbish. I'm afraid we'll take our competition for granted. When you're in retail, you learn to run with a little fear."
With that he took off, running not with fear but with a $20 beverage dispenser cradled in his hands. Clutching the container to his bosom, Segal darted nimbly from saleswoman to store manager, stopping only to remind his young charges that their main mission -- indeed, their sole professional purpose in life -- was to sell fine housewares and accessories, and to sell them with enthusiasm. Although no clear route lay open among the racks of beach chairs and beer glasses, Segal flew on, apparently navigating by some peculiar form of echolocation. The effect was utterly mesmerizing. Crate employees who had handled the same piece of merchandise a hundred times themselves were suddenly leaning forward to lay hands on it, as if it were the Ark of the Covenant and they, the lost tribe of Israel. One had the distinct feeling that had Segal elected to auction off his prop, $20 bills would have filled the air like confetti.
"We must never, ever lose sight of what we are, "he continued, pausing to swap the beverage dispenser for a blue lawn candle. "We're not a distribution company, and we're not a computer company. We're a sales company." Segal held the candle aloft. "See this?" he said. "Ten or 12 years ago, two women were sitting on a beach in the south of France when they happened to notice a piece of rope with a glob of wax attached to it that had washed up in the surf. Because they had imagination -- because they saw the possibilities in that glob of wax -- today they own the biggest candle factory in France." He thrust it forward like a matador taking a stab at a hardcharging bull. "And that's what you people have to have. Imagination. This is a business built on personality. Personality and imaginative merchandising. You're selling a candlelit dinner by poolside, not a piece of wax on a stick. You're selling romance, not flatware."
He spread his arms dramatically. "This is theater, people," Segal thundered, "and you'd better be into it, because you're the stars!"
His soliloquy finished, the boss asked his supporting cast to "speak your minds." For a moment, they simply stood there, tongue-tied: How could they improvise dialogue that wouldn't sound woefully anticlimactic? Finally, though, after a few routine queries about Crate's imminent expansion into San Francisco and Houston, one woman decided to speak hers with enough imagination to suggest that she realized Crate & Barrel's future inventory wasn't just going to wash up on some beach in Nice.
How, she asked, did the $50-million-a-year company intend to underwrite this "major period of expansion" that Segal had so boldly outlined? Could it finance the growth itself? Would such established regions as Boston and Chicago suffer from Crate's great push westward? Segal thought for a moment before answering.
"Well," he said, "there are always rumors around that we're going public. And it's true that the risks tend to multiply geometrically as you grow. As it happens, private venture capital and going public are two alternatives we're constantly looking at. But retailing is a very fickle business. You can't guarantee earnings will be up 10% every year, and the investment community doesn't always understand that."
He stopped to tell a couple of stories. One involved a Young Presidents' Organization group outing on a U.S. Navy aircraft carrier in the Pacific Ocean. The other alluded to disappointing sales returns on a recent mail-order catalog of his. In both instances, he said, bottom-line concerns over duplication of manpower or shortfall in revenues tended to cloud the more important goals of training personnel for actual combat, or, in Crate's case, of having the managerial flexibility to profit from error.
"That's the issue I have with going public," he offered. "That we're simply not that good, that we'll make mistakes. Hey, I want to make mistakes."
He has not made many. Since 1962, when the first housewares shop opened in a defunct elevator factory in Chicago's Old Town district, Segal's stores, now 17 in number, have set standards of design and merchandising that have been the envy of -- and often the prototype for -- dozens of competitors and quasi competitors, large and small. To anyone who has shopped for or sold housewares during the past 20 years, the "Crate look" is instantly familiar: glassware, dinnerware, flatware, and cookware piled floor to ceiling in drill formation; bolts of hanging fabric, acres of rough-sawed pine; potted plants, soft background music, hot spotlights, cool colors; theme displays in primary tones; signs in bold Helvetica lettering offering running commentary on a product's origin, function, and/or value. Every bit as palpable as the Crate look, however, is the Crate aura, an aura enveloping both the company and the man.
"Gordon doesn't deal much with the media," points out Ronald Fippinger, managing director of the National Housewares Manufacturers Association, "but his influence on this industry is enormous. He really helped create the whole gourmet-cookware craze in this country. And he certainly woke up the department stores to the fact that they weren't providing a high enough degree of service."
The toasts to Crate are as ubiquitous as the crystal on the store's shelves. John Gabbert, chief executive officer of Room & Board Inc., a Minneapolis-based furniture and accessories chain with two links in Chicago -- Crate's home city -- observes that while Crate does almost everything well, "they're the very best at product presentation. They're just known for that." One Dallas retailer told the Chicago Tribune that he holds his sales-training sessions outside Crate's front windows. His sole complaint: "My people manage to copy [Crate] for two days, and then it falls apart because they can't keep it up." And Stanley Marcus, retired chairman of Neiman-Marcus, the store that practically invented upscale retailing, flatly declares that Gordon Segal is "one of the great merchants of this century."
"I don't know what made him this way," says Marcus, who befriended Segal 20 years ago and later convinced him to open a pair of outlets in Dallas. "Maybe Gordon was born hungry, maybe he's always had the natural enthusiasm to do what he does. I do know that plenty of people have tried to copy Gordon, but nobody's really caught up with him.
"The big difference between them and most department stores," adds Marcus, "is that Crate is merchandise-oriented, whereas department stores are merchandising-oriented. Gordon makes a profit, but profit is not his first priority. He just plain loves to display his wares, and that kind of love is contagious."
The passion reflected in Crate's signature displays -- "we put the stockroom in the showroom and lit everything with spotlights," is how one old-timer describes the method -- is the same ardor that drove Gordon and his wife, Carole, to take a fling at importing back in the early 1960s. He had been in restaurants and real estate, she in teaching, but neither felt wed to a career. On a honeymoon trip to the Caribbean, they marveled at the variety of elegant, functional housewares available: items like French copper and German cutlery, which, if sold back home at all, were found only in "gourmet" shops, usually at several hundred percent above cost. Some months later, Gordon was doing the dishes (Arzberg dinnerware, a personal favorite) when he looked up from the suds and said to himself, "Hmmm, why not?"
"I was always interested in things like history and foreign affairs," Segal said one morning, sitting in his office at Crate's new $6-million Northbrook, Ill., headquarters, "so [launching] this seemed more like an adventure than a business. Carole and I had absolutely no experience in retail. We were so green, we forgot to buy a cash register until three days after we opened our first store. At that point, we had one employee and $17,000 in capital. But we also had this burning desire to learn."
The learning process reached both sides of the Atlantic Ocean and both ends of the vendor-customer equation. At first, the Segals and their company, Euromarket Designs Inc., were content to import quality items they had seen and used themselves. Taking advantage of the newly opened Saint Lawrence Seaway, they had everything shipped directly to Chicago. The more they sold, however, the more curious they became about the anonymous craftspeople whose work they so admired. In 1964, what became known as the Marco Polo Effect took hold, and Gordon and Carole were off on a personal buying tour of the Continent. They quickly found that most small European manufacturers were loath to deal with a couple of footloose Americans following in the often muddied footsteps of department-store buyers.
"It wasn't exactly the Ugly American syndrome," offers Segal, "but we ran into a lot of horror stories about department stores placing large orders, manufacturers expanding production to meet those orders, and then, zap. No reorder. Or no more buyer, because he'd been transferred to another department. It was a tremendous liability for them. Europeans tend to deal more on trust than Americans do. Our first challenge was to win their confidence, even if that meant paying them several visits before we bought anything. We spent two entire days with Gerard Hofmann, a wonderful French potter living down on the Cote d'Azur, and got nowhere. On the third day, he finally agreed to sell [to us] -- probably just so we'd leave him alone."
The Segals threw the Old Town store together in a scant two weeks; the name was a derivative of the open-shipping-container-and-dyed-burlap look they improvised out of necessity. Customers found them -- one regular shopper was designer Mies van der Rohe's daughter, who often carried Crate stemware home to her papa. (If Gordon were into tattoos, van der Rohe's adage, "God is in the details," would be a strong contender for his chest.) But Gordon didn't always understand what they were up to. He could talk for an hour about a Bengt Bengtner goblet and not seem to care particularly if he sold one, six, or none. About half of the store's initial inventory went out the front door at cost: ignorance, not charity. Crate's revenue curve, moreover, was a picture of consistency; sales his $8,000 the first month, half that the next, half that the next.
Ah, but at least it wasn't Boring. In fact, the excitement was just starting. In 1965, with their customer base and pricing procedures more solidly established, Crate's proprietors were threatened with loss of their Old Town lease. Gordon again improvised an unusual deal -- Crate would put up a new building, lease it back from the landlord, and finally would buy it 15 years later -- that foreshadowed a string of advantageous lease arrangements he would hammer out over the next two decades. In 1968, with the company grossing $500,000 a year, Crate opened a second store, Plaza Del Lago, in suburban Wilmette. The third store appeared in Oak Brook, in 1971. With each expansion, says Segal, they were "betting the company."
"Crate was highly leveraged all the way," he explains. "We'd never sought outside capital, in part because we wanted to keep the business small and exciting. We really did want to have fun with this thing." Contending that it wasn't until the opening of the Michigan Avenue, Chicago, store, in 1975, that "we finally got recognized," he mentions that his first bank wanted Crate to put up half the $300,000 cost of the Oak Brook expansion itself. Their response? "We found another lender."
Crate found other sources of inspiration as well. In 1966, Gordon and designer Lon Habkirk flew to Boston to look over Design Research. Founded by architect Benjamin Thompson, DR, as it was known familiarly, was the archetype of everything Segal aspired to: a clean, contemporary-looking, European-flavored design store specializing in imported housewares and furniture. As described in a Harvard Business School case study, DR "conveyed a glimpse at a lifestyle that was both gracious and yet conducive to the demands of modern society. . . . The results were a shopping experience unique for its time."
Habkirk, creative director of the Crate & Barrel Furniture store in Cambridge, Mass., the only furniture outlet in the company chain, remembers the exposure to DR as being "enormously influential" on the Chicago operation.
"We went there because we were considering handling Marimekko," says Habkirk, referring to the fashionable line of clothing and fabrics that Thompson imported from Finland, "but both of us fell in love immediately. The genius of Ben Thompson was that he wasn't a retailer, so he didn't approach [retailing] in a conventional way at all. Beautiful women stood at the front door handing out fresh oranges. There were fresh flowers everywhere. It was retailing, yes, but it was retailing with spirit. Eventually we took the whole idea and translated it into a reproducible formula."
The formula they developed was not pure DR, however. DR featured top-ticket items and one-of-a-kind imports, but despite average sales of $236 a square foot, the store was unprofitable. Segal concentrated on building his business through volume buys and low margins, importing directly from manufacturers to keep prices 30% to 40% below comparable merchandise. Coupled with favorable suppliers' contracts, these measures committed Crate to a policy of setting one fair price on a piece of merchandise and holding it, not jacking it up or knocking it down as customer response might dictate. Volume was ensured through imaginative advertising and even more imaginative display techniques. Carole Segal was a singular force in the latter regard. Until she left the company in 1965 to start a family, her touch was evident everywhere. In 1979, she opened Foodstuffs, a food store with a Crate-like merchandising approach; it may become the family's next great retail venture. And Habkirk himself influenced Crate's display concept after a sabbatical with the Peace Corps in Afghanistan from 1967 to '70. Traveling throughout Asia, he was struck by the merchandising at open-air bazaars, where vendors hung racks of copper pots "like piles of jewels." Like Segal, he was convinced that shoppers would buy more readily if they didn't see one precious vase or pot sitting on a shelf "like some museum piece."
But the real key to reproducing the formula, and probably the missing element most responsible for DR's demise, was cultivating a sales force that could grow into a management team. Hiring bright young people was rarely a problem; keeping them motivated -- and therefore employed -- was. Segal, who worked the floor in one store or another for the first 10 years himself, was fully capable of leading by example, but his personal elan meant only so much to a group of college grads with ambitions of their own. In a low-paying, labor-intensive field like retail, these people would either burn out, get hired awat for better money, or rebel against managers brought in from outside the company. Whatever course the erosion took, it would doom even the most modest of Crate's growth plans.
So Segal developed an alternative strategy. Grow slowly, adding no more than a store or two a year until recently. Expand only in cities that appeal to employees. ("I love New York," he volunteers, "but I've never particularly wanted the hassle of doing business there.") Build up a respectable catalog business. (Crate's now accounts for about 10% of sales.) Finally, hire full-time people with the express aim of moving them into management positions. One such early hire was Barbara Turf, now Crate's executive vice-president in charge of merchandising and advertising. A former schoolteacher, Turf started 18 years ago working part time in sales. Soon, she was managing the Oak Brook store; about 13 years ago, she began traveling overseas on regular merchandise missions. During 1970, a watershed year, Turf helped hire and train a core group of new staffers, 60% of whom are senior company executives today.
"The key people skills -- love of customer, love of staff -- are what keep this place going," says Turf. "Anyone who doesn't see them as important has either left the company or thinks we're all crazy."
The fact that Turf, like Carole Segal, began her career as an educator is more than a matter of coincidence. Crate's management structure is top-heavy with people -- mostly women -- who came out of classrooms, where the fine arts of patience and communication are prized skills. In significant ways, too, Crate's stores function as showroom and schoolroom: Many have blackhborads over the cash register listing the names of cargo ships, their destinations, points of origin, and merchandise on board.Salespeople are expected to be able to lecture knowledgeably on, among other things, the differences among stoneware, earthenware, and faience as compared with porcelain. As the four-part, 140-page Crate Employees' Guide puts it, "We knew that to be truly successful we would need to develop an educational philosophy towards out customer. Our stores had to be a place where customers could come and have discussions with intelligent personnel about our merchandise, creating a relationship which would certainly carry a longer impact that either our advertising or our displays."
Carol Sapoznik, Boston regional manager and Crate's first bona fide management trainee -- she joined the company in 1971 -- traveled the typical corporate path of salesperson, stockperson, and store secretary and bookkeeper. One of her current duties is helping to implement a training program that embraces all full-time employees with at least one month's service. Although individual store managers do all their own hiring, says Sapoznik, responsibility for training is divided between instore counseling and a companywide continuing-education program.
"At the corporate level," she explains, "it's a three-phase system. The first we call Fundamentals of Selling. In groups of 10 or so, new employees meet at our warehouse facilities for a one-day workshop in issues like corporate structure and philosophy, salesmanship role-playing, add-on sales, how the buyers find new products, and so on. The atmosphere is meant to be loose and fun. Everyone is encouraged to ask basic questions like, 'Why do we sell this item?' or, 'How do I get promoted?' in a completely unrestricted forum.
"The second," she says, "focuses on product information. In Boston, we do this in four weekly sessions, and it involves part-time people as well as full-timers. One week we might do gourmet, the next dinnerware and glassware; one way or another, though, we cover every product category in the store. And the third [phase] is Design. Ray Aronson [Crate's corporate designer] put together a terrific slide-show lecture for us on merchandising philosophy, traffic flow, the effects of high and low crates, waterfall stacking, window displays, et cetera. The idea is to promote awareness of every single element involved in Crate's overall success."
Thorough as it is, any training effort relies heavily on sound hiring judgment at the outset. According to Lon Habkirk: "Gordon always says he can't make happy people, he can only hire happy people. He doesn't want any 'victims' working here." In that vein, Crate looks for recruits with a high self-image and, perhaps, a family background in retail, or experience in teaching, or -- talk about intense, service-oriented businesses -- restaurants. What the company doesn't want, particularly, are refugees from department-store training programs, where the yardsticks of responsibility and achievement are apt to be very different from Crate's.
"The atmosphere in this company is competitive," Sapoznik avers, "but not that competitive. People understand they have the chance to advance, to assume a lot of responsibility, but they have to be motivated themselves. Unlike department stores, all of our people are in management training.We don't have clerks working the floor. We put our best people on the front line, and that's where we're different. In a department store, you can always spot the buyers and managers. They're the ones who won't come over and ring up your sale."
Sapoznik recalls being invited in by the Harvard group doing the postmortem on DR. "They asked me how long I'd been doing sales and pricing," she says, "and I said, 'Forever.' If a truck pulls in, I help unload it. If a store needs sweeping, I pick up a broom. Gordon's the same way."
Further testimony to Crate's work ethic and corporate culture comes from Pat Eckerstrom, the assistant corporate designer in Chicago. Ten years ago, just out of college, she started as a secretary in the Wilmette store -- despite "never having typed a letter in my life." Having proved her mettle at Crate, she was hired away by a homeremodeling retailer at one and a half times her $9,000 annual salary; within a year she was back with Segal. The main lesson learned during her time away was how dreary retail could be when indifferent people sold inferior merchandise to an undiscriminating clientele.
"Bigger businesses entail bigger problems in finance, labor relations, building programs, employee training, executive development. The ultimate solution often leads in the direction of public ownership, either through the marketing of capital stock or merger. The moment an entrepreneur of fine quality takes in one outside partner or three thousand stockholders, the quality of his business can be affected, for the shareholders invest for three reasons only: security, dividends, and growth. They are notoriously unsentimental about their investments." --Stanley Marcus
Segal's conservative growth philosophy has not shielded Crate from change. He may be cautious about diluting the formula, but he is not a passive participant in the marketplace. By opening more warehouse outlets, the company has protected its flanks from the charge of discount stores. By emphasizing more seasonal inventory, it has attacked the department stores where they live. The whole scale is expanding. "Before it was, 'Here's this wonderful item, don't you want to buy it?" notes one employee. "Now it's, 'Here are all these wonderful items, don't you want to buy them all right now?" Among the swelling numbers: 600 employees, 250 overseas manufacturers, 100 domestic manufacturers, more than 8,000 individual items for sale, a 136,000-square-foot corporate office and central warehouse able to handle 3,000 mail-order pieces a day, a $1.5-million computerized point-of-sale information system that sweeps each store's register on a daily basis. With this expansion has come more pressure from below to hike salaries and commissions, along with more discussion about stock offerings -- a good way to reward longtime workers, think some. It has also raised the question of growth by acquisition or merger, a strategy Segal claims to have considered and rejected.
Bette Gandelman, retailing specialist in the Chicago office of Harris Bank, concentrates on lending to companies in merchandising, with emphasis on closely held companies. Most of her clients, including Crate & Barrel, fall in an annual revenue range of $25 million to $200 million; most suffer a retail environment that seldom supports consistent growth in both sales and profitability. Crate became a Harris client in 1983, when Gandelman's division put together $7 million worth of industrial revenue bonds to finance the Northbrook complex. She was an avid customer long before that. "You couldn't live around here and not notice their growth," says Gandelman, "particulary if you're a working woman. Crate has distinctive designs and an incredibly high level of service, certainly much higher than most department stores. They were a name in Chicago with tremendous visibility, someone we'd been following a long time."
Among the institutional concerns at Harris is whether fast-growth companies can take what is essentially a local business and expand it: That is, can you take, say, a distinctive-looking store in Chicago and open one just like it in Houston and have it still look distinctive? Another worry is, distinctive or not, can the brain trust behind the store work as well with numbers as it does with merchandise -- and vice versa? On neither score has Crate appeared to have been a cause of great concern. The company profit picture, says Gandelman, is impressive, but to the company's chief lender, depth of managerial talent is even more impressive.
"Most of our customers reach a hurdle point they have to get over, particularly when the founder's still around doing everything," she explains. "Many can't delegate authority. Others tend not to hire people who're better than they are. Not Crate, Gordon has done an excellent job bringing in new people. If you cloned Gordon you couldn't find a better merchandiser, but he can let go, too."
Letting go but keeping the faith -- "the religion," Segal calls it -- is, as Stanley Marcus suggests, the most difficult balancing act in retailing.
"One advantage is if you know [the dimensions of] the problem, you have a chance of beating it," says Marcus. "And Gordon may have more of a chance than most, because he's selling a restricted product line. Gordon's smart. If anybody can do it, he can."
And if anyone can do it with enthusiasm, Segal and his staff can. From the earliest days in Old Town, the play's been the thing. Lon Habkirk, who has been associated with Segal for 20 years now, sees that attitude as the boss's greatest legacy.
"Ultimately," says Habkirk, "this isn't serious for him. It's a grand game, and he plays it better than anyone, but it's still a game to Gordon. I remember when I was pushing him to take a chance [with] the Michigan Avenue store. It was way beyond anything we'd done, and as I was working on it one day, Gordon stood next to me and started talking about how he'd bet the company on the store's making it. Well, that scared the hell out of me. I mean, here I'd been pushing him to do it, and now the whole business was riding on the deal. He saw I was upset, so he stopped talking and pulled back. Then he got this big grin on his face and said, 'Hey, if we fail -- so what? We'll do something else."
Habkirk smiles. "I've gone off to do other things myself," he says, "but I don't know anyone who's left crate to open another store and been truly happy."