Container Store fills IPO with Silicon Valley hype
By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Container Store has filled its initial public offering with Silicon Valley hype. Selling boxes is a commoditized affair. That‚Äôs why Kip Tindell, the chief executive, hawks cult-like self-improvement instead. He talks of the company‚Äôs ‚Äúyummy‚ÄĚ employee-centered culture. But paying Container Store‚Äôs backer Leonard Green & Partners and its executives a dividend with the proceeds of going public shows a hard-headed capitalism.
It‚Äôs not hard to find other places to buy storage boxes, drawers and coat hangers. And rivals have sprung up, attempting to take a bite out of the U.S. chain‚Äôs revenue growth ‚Äď about 11.5 percent per annum over the past two years. The need to outdo the competition may explain why profits from operations have been spotty over the past five years.
In a letter in the IPO document filed with regulators, Tindell tries to set Container Store apart from its imitators, writing that the company‚Äôs culture is ‚Äúyummy.‚ÄĚ The Californian-sounding philosophy espoused by the Texas-based firm mixes American salesmanship with vaguely Asian-themed platitudes. A customer may simply be thirsting for shoe storage but the store has to offer ‚Äúman in the desert selling‚ÄĚ ‚Äď not just a drink of water ‚Äď as it gives ‚Äúthe gracious gift of organization.‚ÄĚ The goal is to make a customer ‚Äúdo a little dance every time she opens that closet door in the morning.‚ÄĚ
Suppliers aren‚Äôt left out, with Container Store aiming to ‚Äúfill their baskets to the brim‚ÄĚ in mutually beneficial relationships. But Tindell waxes most lyrical about the company‚Äôs employees. Milton Friedman championed the maximization of shareholder returns, he writes. ‚ÄúWell, with all due respect to Milton,‚ÄĚ continues the CEO, ‚ÄúAt the Container Store we have found that if you take better care of the employees than anybody else, they really will take better care of the customers than anybody else.‚ÄĚ That‚Äôs ‚Äúconscious capitalism.‚ÄĚ
But the IPO structure would make any advocate of shareholder value proud. The company will pay preferred stock holders including Leonard Green and the company‚Äôs executives a dividend with the proceeds of the offering, currently slated to run up to $200 million. If underwriters sell the typical slug of extra shares, that cash will be used to reduce debt. No word of a bonus for employees or investment in the business. There‚Äôs plenty for ‚ÄúMilton‚ÄĚ to like in Container Store‚Äôs California dreaming.