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How Tough Is The Container Store Group?

By Natalie O'Reilly - Jan 13, 2014 at 12:18PM

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

Despite its small size, The Container Store Group (TCS 0.13%) 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 (WMT 0.11%), Target (TGT 1.26%), and Bed, Bath & Beyond (BBBY -9.94%), 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.

  

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$119.20 (0.11%) $0.13
Target Corporation Stock Quote
Target Corporation
TGT
$155.36 (1.26%) $1.93
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
$8.70 (-9.94%) $0.96
The Container Store Group, Inc. Stock Quote
The Container Store Group, Inc.
TCS
$7.90 (0.13%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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