Retail
Slow & steady
Crate and Barrel CEO Gordon Segal's slow-but-steady expansion resulted in annual double-digit revenue growth for the housewares chain.
By Morgan Lewis Jr.
Smart Business Chicago | December 2003
The trees outside Crate and Barrel's newest store were vibrant when Gordon Segal visited Cleveland in late October.
Segal was in Ohio to rally his troops for the store's grand opening in a new outdoor mall called Legacy Village. A gorgeous view of intense crimsons, oranges, and yellows lined the back windows of the store, the company's first in the state.
It was obviously autumn outside, but inside it was already looking like Christmas, as Segal, Crate and Barrel's founder and CEO, points out.
"A month ago, this was all browns and oranges. Now it's all reds and blacks," says Segal, pointing to a display of Christmas throw pillows, stockings and dishes. "We have more and more collections of goods come in, so changeability of the store is very important."
Crate and Barrel's evolving store design has been crucial to the upscale housewares and furniture retail chain's success. When it was founded in 1962, dishes, flatware and martini glasses were displayed on the packing crates and barrels in which they arrived. Today, merchandise is meticulously presented, with the highest attention to detail.
In the chain's newest store, "vignettes" of drinking glasses, coffee cups and serving dishes are stacked on six-foot-high shelves and practically glow under track lighting. You'll see design details like unfinished wood ceilings, white brick, cultured stone and corrugated metal wall panels.
"Every store is an evolution," says Segal, seated on a clay-colored leather sofa in the store's furniture collection. "We try and make the collections unique, and we try and make them different. At the same time, we want everything a consistent high quality and comfortable."
Equal attention is given to where Crate and Barrel opens a new store. The chain has 123 stores in 23 markets, with an estimated $800 million in annual sales, although it doesn't reveal exact figures.
The expansion over the chain's 41-year-history is not as rapid as that of competitors like Williams-Sonoma, Pottery Barn or up-and-comer Restoration Hardware. But Segal, who privately owns the business with German mail-order company Otto Versand, isn't interested in rapid growth at the cost of quality.
"We've always made profits, we've always done well, and we've kept the quality consistent," he says. "Its very easy to open stores. It's very hard to run them well."
Entrepreneurial spirit
When Gordon and Carole Segal returned from their Caribbean honeymoon in 1962, Gordon was inspired as he washed a set of Arzberg dishes the couple had bought during the trip.
"How come nobody is selling this dinnerware in Chicago?" he asked his new bride. "I think we should open a store."
And thus the idea behind Crate and Barrel -- to offer European and other contemporary housewares not easily found in the United States for a reasonable price -- was born.
"We thought there had to be other young couples like us with good taste and no money," Segal says. "So I said, 'Wait a minute, there must be a market for this.'"
Both 23 years old, with no retail experience, the Segals opened the first Crate and Barrel with $17,000 in a 1,700-square-foot abandoned elevator factory. The rent and inventory ate up all their start-up funds, so they built shelves using crating lumber and displayed products out of packing crates and barrels, hence the name of the store.
"We were so nave, we were so lacking wisdom. If we would've been any older, any more intelligent, we wouldn't have had the energy or would've had the wisdom not to do this," says Segal, who can now laugh about the couple's youthful hubris. "We had no idea how to price things because the invoices for much of the merchandise hadn't arrived yet, so we wound up selling stuff below what it cost us."
Luckily for the Segals, the St. Lawrence Seaway had opened just a few years earlier, allowing goods to be imported directly to Chicago from foreign markets. Accessible jet travel allowed them to find smaller factories, ateliers and other vendors in new foreign markets.
"All of a sudden, the world was becoming smaller," Segal says. "More direct transportation, quicker means for people to travel. People were getting more worldly, people were getting a better sense of what was going on elsewhere. All of this started happening in the early 1960s."
Suburban sprawl
In 1968, the assassination of Martin Luther King Jr. prompted riots in most major American cities, including on Chicago's West and South sides. Between April 6 and April 8, the city battled widespread looting, violence and arson.
Buildings on Division Street burned to the ground, just six blocks from Crate and Barrel's store on Wells Street.
"With the political issues that were going on at that time, we started getting a little afraid of just having one store in the city," Segal says. "We thought, 'Well, maybe we should have a suburban store.'"
Crate and Barrel's second store opened in the Plaza del Lago shopping center in Wilmette. The chain's first large mall store opened three years later in Oak Brook.
"Those things became so popular that we realized that there was a concept there," Segal says. "People like (design and display director) Ray Arenson started joining us in those days, and they evolved into our store display people, and they figured out how the architecture should work and how things should be built."
Segal was careful not to oversaturate the Chicago market, and the first store outside the Windy City opened in 1977 in downtown Boston. With the arrival of that store, and one later near Harvard Square, Segal diversified the chain's products by offering more furniture, such as living room and bedroom sets.
Initially, he planned to keep furniture and housewares stores separate. But when he brought the furniture concept to Crate and Barrel's flagship store on Michigan Avenue, he decided to combine the two, which was a turning point for the chain.
"This combination of a bigger store, housewares and furniture is what truly made us really, really successful," Segal says. "In this era of a lot of competition, this has brought us a whole level up to where we wanted to be."
Staying consistent
It was Segal's friend and mentor, Stanley Marcus, former CEO of Dallas-based Neiman Marcus, who prompted Crate and Barrel's first store in his city, and the first location west of the Mississippi.
"He liked us a lot," Segal says of Marcus, who died in 2002. "He had such a long-term perspective on what he was building, and he brought such excitement to a retail environment -- certainly a very upper-end retail environment."
Crate and Barrel expanded throughout Dallas, Boston and other existing markets throughout the 1980s and '90s, and tapped new major cities on the West and East coasts and a handful of cities in the Midwest. The chain opens about five stores a year.
"Many of our competitors have more stores than we do," Segal says. "What we've always believed in is we'd rather be the best than be the biggest. We don't have public shares, so we're not trying to make other people rich, we're just trying to satisfy ourselves and satisfy our customers and our staff."
Part of Segal's security in staying private comes from $12.4 billion Otto Versand, the Hamburg-based mail order giant that purchased a majority of Crate and Barrel in 1998. The firm maintains a hands-off policy with most of its 90 subsidiaries, and allows Segal to operate and expand the company under his guidance.
"We don't need to have a public constituency because they have a totally different motivation," Segal says. "We've always decided that we'd be a better company psychologically as a private company rather than a public company."
Customer focus
Perhaps borrowing from his mentor Marcus, who preached customer service throughout his career and later wrote a newspaper column on the subject for the Dallas Morning News, Segal is a strict customer service advocate. He invests in exhaustive employee training, promotes almost exclusively from within and structures each store to include several levels of supervision.
"Gordon Segal is the only retailing executive I have met who purposely seeks to hire school teachers to work as sales associates in the store," wrote Leonard J. Berry, a professor of marketing at Texas A&M University. "Segal has a clear vision of what he wants Crate and Barrel to be."
That vision may look a little different than that from the small abandoned elevator factory run by a husband-and-wife team. But according to Segal, it's actually not that far removed from the original spirit of that quirky shop on Wells Street in Old Town.
"We went into this business to make customers happy, to satisfy their needs," he says. "That's still our mission, 40 years later. That means if somebody buys something and for some reason they don't want it -- they got it home and it didn't look right, they showed it to their spouse and they didn't like it -- all we want when they return something is that it's a joyful experience. As joyful as it is to buy something." How to reach: Crate and Barrel, (847) 272-2888 or www.crateandbarrel.com
