This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greenberg: What Ails the Container Store?

By: Herb Greenberg | 07/09/14 - 12:55 PM EDT

(This was originally published on Herb Greenberg's Reality Check.)

"For those who care, my wife has been a lover of TCS for years. She notices a HUGE hit to attitude, service since IPO. Not in a good way."
-- A tweet I sent out on June 19

NEW YORK (TheStreet) -- Whenever a retailer with a good concept goes public, the challenge is to balance the need to feed the street with protecting what made it so special.

Between blaming the weather and now an overall "retail funk," that appears to be at least part of the story behind what's ailing The Container Store (TCS).

The company, of course, doesn't come out and say that. The Container Store is, based on its earnings call commentary, a culturally "gosh" and "over-the-moon delighted" kind of company. It's the epitome of rah-rah and, and if you go to glassdoor.com and read what employees say, the term "cult-like" comes up more than once.

But as a public company, The Container Store no longer has the luxury of opening stores when and where it wants -- or even keeping its lauded "culture," known as being among the best places to work, intact.

Greenberg: Maybe It Wasn't the Weather After All?

Greenberg: A Reminder That Fraud Is Alive and Well

As a private company, it needed to keep its eye on cash flow. As a public company, it needs to show growth -- and lots of it.

And that's where things may currently be getting dicey.

Four things struck out to from the call:

1. The focus on new store growth. New-store acceleration always seems to be the case for retailers that go public. To hear CEO Kip Tindell tell it, "We're even more excited about the experience of our newest stores. Never before, still, have our new stores contributed so much to the profitability of the Company." The trick, of course, is turning that into same-store sales growth, and so far on the same-store sales front, the trend is not The Container Store's friend.

2. The company says that "for some darn reason" its higher-end customers aren't shopping at The Container Store as frequently. Maybe it's because they've bought what they can buy or they have multiple choices to buy from, including online. Or maybe, just maybe, it's because, in California at least, where the company initially rolled out its POP Star frequent-customer promotion, their skin crawls each time they go to the register and they're asked "Are you a POP Star?" (I know my wife's does. And she finds the promotions less attractive than they were when the company was private. Yes, she's a focus group of one, but historically she has been a good focus group of one. And rather than their new POPs program, which tries to gives discounts on things you may not want or need, she misses their old November promotion that gave a $15 gift card for every $100 in purchases.)

3. This comment from Tindell in response to a question about whether the company should promote more to increase traffic: "We're looking at that. We're looking at SG&A reduction. We're looking at limited impact gross margin, more price promotion. We're doing everything that we've learned to be able to do in our careers when we get a little unexpected patch of sluggish sales." That's a mouthful, but did he say "SG&A reduction"? Indeed he did, and in a company that pays its part-timers a premium to minimum wage, that could hit the "attitude" and "service" thing I mentioned in the tweet. So far, SG&A has been running at around 50% of revenue, depending on the quarter. Key for investors: Will the company use that to goose earnings at the expense of the customer experience?

4. As traffic continues to fall, the company can't be any more effusive about how the average ticket continues to rise. Sounds good on the surface, but the average ticket can only increase so much -- whether it's the result of higher pricing (not sustainable) or upsell by salespeople. Obviously, based on overall results, something in that mix isn't working.

Reality: The Container Store had a good thing going on a small scale. Whether it can expand nationally, in the face of existing competition like Bed, Bath & Beyond (BBBY), without losing what made it so great, remains to be seen. So far, not so good.

-- Written by Herb Greenberg in San Diego

Follow @herbgreenberg

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.

Markets

DOW 17,157.98 +126.84 0.74%
S&P 500 2,001.45 +17.32 0.87%
NASDAQ 4,552.6340 +33.7320 0.75%

Herb's Tweets

Brokerage Partners

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Breakout Stocks

Bryan Ashenberg, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Options Profits

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
Top Rated Stocks Top Rated Funds Top Rated ETFs