Business

11.04.13

Container Store Lets Loose in IPO

It’s the year of the IPO and popular organization retailer The Container Store just cashed in.

In tech, the cloud may be all the rage when it comes to storage. But apparently the physical storage business is still holding hold its own.

This past year has seen a lot of hot initial public offerings. And last Friday’s IPO by the Container Store, the big box retailer of small and medium-sized plastic boxes, was no exception. A retailer that specializes in storage items and organizing materials, the Container Store is well-known to millenials attempting to organize their college dorm rooms or seeking to create more elbow room in their cramped first apartments.

So when the retailer priced its initial 12.5 million shares at $18 a share, investors piled in. Shares more than doubled on the first day of trading, closed at $36. This booming initial IPO comes after many successful low-tech offerings this year, from companies such as Potbelly, Sprouts Farmers Market and Noodles & Co. The Container Store says it will use the $225 million raised from the IPO to pay dividends to owners.

So why are investors so keen on a store that at its core sells boxes and shelves?

Despite losing money in each of the past three years—$45.1 million, $30.7 million and $0.1 million in fiscal 2010, fiscal 2011 and fiscal 2012, respectively—investors think the company is primed for serious growth. The retailer currently operates 61 stores nationwide, but it believes it could grow to at least 300 (six of which are due by 2014). The Container Store also has a track record of attracting ever-greater numbers of customers after it opens new outlets. It has seen thirteen consecutive quarters of same store sales growth (although that growth has slowed). And finally, it’s online and call center presence is still nascent. Despite 84 percent growth between 2008 and 2012, The Container Store said in its SEC filing that website and call center orders only account for 5.4 percent of total sales. That leaves a significant amount of room to grow in what is becoming a major focus for all retailers.

Another reason for investors’ initial crush has to do with The Container Store’s lack of a direct competitor. While Target, Bed, Bath & Beyond, Crate & Barrel and others sell shelves and boxes, The Container Store is the only major retailer that focuses solely on products related to organizing and storage. And the company does have a loyal customer base.

TCS Chart

TCS data by YCharts

There’s something else that is compelling about The Container Store. It’s employees really seem to enjoy working there. In its prospectus, the company noted that the company boasts an “average full-time employee turn-over rate of approximately 10% annually, compared to the retail industry average of over 100%.” And according to Fortune, hourly salespeople earn a whopping average salary of $46,925, which is about double the industry average. Sometimes happy employees in a store can lead to happy customers.

There are some potential pitfalls other than the ones previously mentioned. Bigger competitors (like Walmart or Costco) could decide they want a piece of the Container Store’s business. And the Container Store isn’t exactly a social media powerhouse.At the moment, it has only 245,281 likes on Facebook and 23,447 Twitter followers. It does have a competitive following on Pinterest (comparable to Wal-Mart and Crate & Barrel) which is important for retailers.

Of course, at the end of the day, The Container Store faces the same challenges all physical retailers face: a sluggish recovery, an indebted consumer, and the stiff online competition. But for the moment, as the chart at the top of the story shows, it seems you can do quite well selling real storage containers.