How Tough Is The Container Store Group?

The Container Store has three things going for it despite its small size.

Jan 13, 2014 at 12:18PM

Despite its small size, The Container Store Group (NYSE:TCS) has a lot going for it. After 35 years of company history under its belt and 63 U.S. stores in operation, The Container Store has made a name for itself in more ways than one. Plus, it has gained even more recognition over the past couple months after holding its IPO, in which it doubled its initial share price and raised $225 million.

Despite competition from the likes of Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and Bed, Bath & Beyond (NASDAQ:BBBY), the company has three key strengths that give it an edge.

Filling a market niche
Unlike any other retailer, The Container Store fills one distinct niche for organization solutions at both home or work. Its products include closet and shelving systems, drawer organizers, containers, packing essentials, and many other storage accessories. Similarly, Wal-Mart and Target also sell containers and storage essentials, but in addition sell products such as apparel, electronics, food items, bedding, and more, which The Container Store does not supply.

On the other hand, The Container Store offers a variety of choices for organizing one's kitchen, bathroom, bedroom, living room, office, or garage such as different styles, fabrics, sizes, and shapes unlike other retailers, which have very limited selections. No other retailer out there specializes in home-organization products alone, which makes The Container Store a one-of-a-kind business. Its stores give customers an array of options so that no one is forced to settle for an item that isn't exactly what they want.

A leader in corporate culture and employee happiness
Employees feel empowered and appreciated at The Container Store, and therefore love their jobs. Unlike most of its competitors who train their employees for about 10 hours, The Container Store trains its employees for a minimum of 260 hours, ensuring that they understand the company's many attributes backwards and forwards. 

Employees are also thoroughly educated on the company's seven foundation principles that require workers to be skillful leaders, flexible, enthusiastic, helpful, proud of the company's products, and well informed.  

The Container Store's emphasis on training its employees to be the best in the business, along with providing excellent benefits, has proven worth the extra time and expense, as the company has an outstanding company culture. For instance, the company has an employee turnover rate of 10%, which is fantastic when compared to Wal-Mart and Target, whose employee turnover rates are much higher.  

Furthermore, The Container Store has made Fortune's "Top 100 Best Companies to Work For" list for the past 14 consecutive years, placing 16th on the list in 2013 with 3,865 employees and job growth of 16.3%.  

With its success in employee relations, The Container Store is able to focus its resources on other operations and spend less time interviewing and training new associates. Wal-Mart, in contrast, is trying to repair employee relations, whereas Target is trying to follow the example of The Container Store.

Anyone can sell a container, but there's only one container store
For consumers simply wanting a basic plastic container, Wal-Mart and Target have long been good options. However, for those wanting specialized containers and bins to organize their home, there is only The Container Store. Not only does the company offer more organizing options in stores than competitors, but the company has another leg up on the competition – its Elfa division. Elfa is a Swedish-based division of The Container Store that designs and manufacturers customized closet systems with your choice of shelving and drawer options. Not even at Wal-Mart, Target, or Bed Bath & Beyond can a customer design their own storage contraption to meet their organizational needs in any space within the home or office. 

Company Name

Store Count As Of Oct./Nov. 2013

Q3 FY 2013

Same Store Sales

Q3 FY 2013 Gross Margin

Q3 FY 2013 Net Income

Bed Bath & Beyond

1,491

1.3%

39.2%

$237.2 Million

Container Store Group

63

4.7%

60%

$(9.49) Million

Target 

1,919

0.9%

29.7%

$341 Million

Wal-Mart 

11,096

-0.3%

25.07%

$3.74 Billion

Evidence of this can be seen in the companies' gross profit margins, which recently came in at 60%. This is well above those of its major competitors and proof that The Container Store Group is able to command a premium for its high-end products. It should also be noted that while the company has been experiencing losses recently as it continues its expansion and scales into a larger footprint, the company anticipates profitability in the next few years. 

Foolish takeaway
It is obvious that The Container Store has a winning concept that has yet to be threatened by another company. While The Container Store itself has many competitors that sell basic plastic containers and cloth bins, there truly is only one Container Store that embraces all things organization.

That being said, Foolish investors should do more research on The Container Store to assess whether or not it would be a good fit for their profile. The Container Store does have the potential to grow its stores and net sales, but it will take time. For now, The Container Store's unique concept, employee retention, and Elfa division make up its greatest strengths.

Is the Container Store killing Wal-Mart?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

  

Fool contributor Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond and The Container Store Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers