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."
