Container Store’s Kip Tindell Explains The New Paradigm of Conscience Capitalism

Steve Pomeranz: Kip Tindell is not a household name, but his store is becoming a national icon.  Which store?  Well, I’m talking about The Container Store.  That big box store that satisfies all of our minor, major, and latent OCD needs.  Kip Tindell has been at the helm of The Container Store since it first opened its doors in Dallas in 1978, and he is the Chairman and CEO. But why talk about another big box store?  Well, The Container Store is different, and it’s not run like your typical business.  So to find out what is different, I’ve asked Kip to join me today to discuss his new book, Uncontainable: How Passion, Commitment, and Conscious Capitalism Built a Business Where Everyone Thrive.  Kip Tindell, welcome to the show.

Kip Tindell: Thanks, Steve.  Very happy to be here.  Appreciate you having me on.

Steve Pomeranz: So take us back a little ways when you and John Mackey, the founder of Whole Foods Market, were housemates and you met your partner Garrett Boon.  Tell us how that all kind of came about.

Kip Tindell: Well, John Mackey—in fact, I was at John’s ranch just this past weekend—John’s the co-founder of Whole Foods, of course, and he and I… it’s just crazy, but we were college roommates at the University of Texas.  Somehow we both went off later and immediately after school and started retail businesses.

Of course, The Container Store and Whole Foods are very very different companies.  But we do share an almost identical business philosophy in terms of servant leadership, conscious capitalism. You know, we put employees first and believe in our young quirky employee-first culture that if you truly, I mean, if you take better care of your employees really better than anyone else does, that employee really will take better care of the customer than anybody else. And if those two people are ecstatic, your shareholder’s going to be ecstatic, too.  Lo and behold, John is attempting to do something or has done something that is very very similar to that. So John and I don’t agree on politics, we don’t agree on a lot, but we agree on almost all business philosophies, and we’re still good friends after all these years.  I was with him this past weekend.

Now Garrett Boon and John Mullen and I got together, along with the help of some other people, and spent a year or two or maybe even a little more, investigating the concept of things for your domicile, for your home, or office that are functional in that they save space and even more importantly, save time.

I think Whole Foods has had the tail wind of people becoming more and more conscious about eating better.  I think The Container Store has had the tail wind of we’re all so crazy multi-tasking, can’t get it all done, insane, you know, and so you have no choice but to be reasonably well-organized in order to get half of what you want to get done in life done.

Steve Pomeranz: Kip, let me stop you for a second.  You know that all makes a lot of sense today, but in 1978 selling empty boxes—that must’ve been thought of, especially you’re out of Texas, I would think people would think, “What are you really thinking there, Kip?”.  You know?  What were you thinking back in 1978?

Kip Tindell: Well, we loved these products.  It was driven by the products.  We loved the fact that it got you organized.  We were aware of a certain zen quality to be reasonably well-organized even then.  We had a foggy notion that it saved you time.  Clear cut it saved you space.  There was no product.  It was Gray Line and Rubbermaid and maybe two or three vendors that sold a few of these things.  So we had to sell products that had never been sold before in retail, commercial, and industrial products.  A leaf-burner that would be great to hold the swimming pool balls and toys and what not and it was great because you could see through it and tell exactly where that soccer ball is on the bottom and that type of thing.  Egg collecting baskets as a gardening tool kind of thing.  So we got very excited about the product, opened a tiny little sixteen hundred square foot store, dedicated to storage and organization.  We overcame people like my father’s friends that said that “Now you boys are gonna open a store that sells what?  Empty boxes?”.  It was kind of embarrassing.

Steve Pomeranz: Exactly.

Kip Tindell: You know, we believed in our concept and about, oh, just several weeks after opening that first tiny little store in Dallas, the president of Rubbermaid came in and went crazy over the store and loved it.  Stanley Marcus came in and went nuts over the store.  We started to get really important business people that we admired to give us the encouragement. As very young entrepreneurs, without that kind of encouragement, I’m not sure we would’ve had the self-confidence to do it.  But when you have Stanley Marcus and the CEO of Rubbermaid telling you that you’re doing a good thing, that helps.

Steve Pomeranz: How much did it cost for you to get started?  What was the initial outlay to start the first store?

Kip Tindell: We had thirty-five thousand dollars in capital to start the business with and thirty-five thousand dollars was not very much money in 1978 either.

Steve Pomeranz: Yeah.

Kip Tindell: I don’t think we ever spent more than about half of that.  We were so worried about running out of cash.  We were very difficult for the vendors to deal with because we would order about six of everything and then reorder it about twice a week.

Steve Pomeranz: This is Kip Tindell I’m speaking with.  He has a new book called Uncontainable: How Passion, Commitment, and Conscious Capitalism Built a Business Where Everyone Thrives. He is the Founder, Chairman, and CEO of The Container Store.

When did you know, what number store was it that you knew that this was really going to work?  Now that’s question number one.  Number two, did you benefit from technology and the change in materials?  Thinking way back when you had Rubbermaid, you know, things were kind of heavy and clunky and today there’s so many new materials that are lighter and stronger.  But first question, when did you know you were going to have a hit?

Kip Tindell: Well, I think the first day with that tiny little first store was mostly friends and family, but by the end of the first week, the store was so busy that we were contemplating issuing numbers like then, Baskin and Robbins did, where you could get in the door when somebody else left.  We never really went through the entrepreneurial terror of “Are we going to make it or not?”.  Three or four days in, we knew we had something, and I would think that when a musician goes to the studio and records one of the all-time great hits, they know it.

They know it before they leave the studio.  We had that feeling and that excitement, and then it was just a matter of, we kept doubling the size of the store. We were sort of philosophically opposed to opening a second store because we weren’t sure we could do the same excellence with that.  Eventually, we got over that, and we did two stores.  By golly, that second store was just as good as the first store, so then there were more.  But you know, we still only have seventy stores in thirty-five years.  They are all twenty-five thousand square feet now and the first one was sixteen hundred square feet.  We’re still kind of committed to cautious excellence and not just expanding to be expanding.

Steve Pomeranz: So you went from running a store where it was a question of bringing goods in from the back door and putting them on the shelves, treating customers well, and having them fly off the shelves from the front door, but now you’re also in the business of trying to find the right people, especially growing this fast, and this is, I think, where there is a demarcation between your philosophies and many of the other philosophies we see in today’s world, how you treat your employees.  First of all, let me say that you pay your employees more.  Tell us about that.

Kip Tindell: Yeah, well, we pay our employees more.  We, corny as it sounds, we love our employees more.  We train them more.  The average retail company spends eight hours of formal training for each first-year employee.  We’re right at three hundred hours of formal first-year employee training.  The average full-time salaried person on the sales floor makes about forty-eight thousand dollars a year, which is about double industry average.  We try to pay fifty to one hundred percent above industry average and, particularly for those people closest to the customer, that’s closer to double.  We don’t pay the CEO fifty to one hundred percent above industry average.  In fact, I make below industry average.  I did get the vice presidents at industry average.  We really try to pay the sales people well.

Our payroll philosophy and our hiring philosophy is that one great person is equal to three good people.  So if you believe that one great is equal to three good, hire only great people, train them, pay them, develop them, and something else happens.  Great people are more productive, so the business wins.  Great people can help a customer better, so the customer wins.  Who do you like working with?  Great engaged people or mediocre people help you attract other great people because I want to go to work in the morning and work with great people, and I bet everybody does.  So people join this company and they never leave.  Great people that have been here for years.  I’m telling you, if you go into the store nearest you, the person that comes up to wait on you, has probably been there for four, eight, or sixteen years.  That’s exciting.

Steve Pomeranz: So the idea of being in retail as a career is something that I think is somewhat different than many other retailers, this idea that you can actually make a career here.  This is not for the bubble gum chewing teenager who needs a summer job.  You’re really trying.  I mean a three hundred hour committed to training is a lot.  If you had a lot of turnover that would be extremely expensive, right?

Kip Tindell: Yeah, you couldn’t do it.  That’s why it’s not done in retail.  The industry average of turnover in retail is triple digit.  Over one hundred percent of [inaudible 00:09:59] average retail employee in America does not even make it through the year.  We’re at ten percent.  We lose people occasionally to, you know what we lose them to?  We lose them to love.  The significant other, you know, something like that.  But ten percent is a pretty great number in this day and age.  We’re very proud of that.

Steve Pomeranz: You know you mentioned lov but it’s funny when I was reading the book, I was thinking of love “LUV” which is the symbol for Southwest Airlines.  I have interviewed the CEO there as well, and he tells a story—very quickly—of how one of the top pilots came to see them and this guy had all kinds of awards, he had been in the military, and he was just one of the best pilots.  But they ended up not hiring him because he was really quite arrogant and mean to the secretary before he got in to see the person who he was talking to, and they said: “This is not the culture that we want”.  So, do you think from time to time that you’re modeling yourself with Southwest Airlines?  Is there a similarity there in your mind?

Kip Tindell: I wouldn’t say that we’re modeling after Southwest Airlines, but I consider Herb Kelleher, the Founder, to be a friend and really a mentor, and I’ve learned a lot from him.  We’re both very conscious capitalist companies.  Our company is based on a set of foundation principals which the book goes into a lot.

Steve Pomeranz: Yeah, I’d like to hear some of those.

Kip Tindell: Of conscious capitalism and then in Herb’s.  You know, Southwest Airlines, Whole Foods, Costco, Google, these are companies that have practiced this conscious capitalism thing.  In fact, the reason I was at John Mackey’s ranch this weekend was to have a conscious capitalism board meeting with a lot of similar other people.  But you’re right, Southwest Airlines is a great example of that.  You can feel it when you’re on the plane.  The flight attendants are a lot more engaged, a lot happier, and treat you a lot better, don’t they, than they do for most airlines.  It works well because that makes them want to stay.  It makes me want to fly their airline.  I think it’s true that no airline long-term has been as profitable as Southwest Airlines.

Steve Pomeranz: Yeah, I agree.

Kip Tindell: Same with Whole Foods.  They’ve done great.  Same reasons.

Steve Pomeranz: You have mentioned the term conscious capitalism.  What does that really mean when you say that term?  You were at a board meeting about conscious capitalism.  What is conscious capitalism?

Kip Tindell: Well, conscious capitalism, John Mackey and a guy named Rajendra Sisodia wrote the book on conscious capitalism.  It’s entitled Conscious Capitalism.  My book Uncontainable has a great deal to do with conscious capitalism.  But there’s several ways to, in kind of shorthand, talk about conscious capitalism.  Maybe the easiest way is to just say that despite what you may have been told when you were a child, business is not a zero-sum game.  Someone doesn’t have to lose in order for you to win in business.  In fact, it’s quite the opposite.  The real money is being made by people who form win-win synergistic relationships with their employees, with their vendors, with really all of their stakeholders.

You know, a lot of people think that the management team should focus first and foremost on the shareholder.  Shareholders are very very very important, but there are more stakeholders than just the shareholder.  Your employees are a stakeholder.  Your vendors are a stakeholder.  Your community is a stakeholder.  And so if you optimize the needs of all of the stakeholders rather than just focusing entirely on the shareholder, you magically wind up with a happier and more profitable shareholder.

Steve Pomeranz: So, substitute the word stakeholder for shareholder and it broadens the field of all those who have a stake in your success?

Kip Tindell: Yes.  That’s called a stakeholder model which is really key to what conscious capitalism is all about.  We talked about it earlier.  Take better care of your employee than anybody else, she’ll take better care of your customer than anybody else.  When those two people are ecstatic, your shareholder is going to be ecstatic, too. If you focus only on the shareholder, often times your employees and your customers won’t be that happy.  The magic’s lost and the shareholder won’t be happy either.  So, you know, that’s why employees come to work for The Container Store and never leave.  That’s why customers don’t like The Container Store but love The Container Store.  That type of magic, Costco’s a pretty good example.  Costco pays its average employee just about double what its nearest competitor does and yet they do much better financially.

Steve Pomeranz: They’re very profitable as well too. What is on the horizon for The Container Store in 2015?

Kip Tindell: We are opening a lot of stores.  We’re opening, I believe, it’s ten stores this coming year.  It’s twelve percent square footage growth we’ve committed to.  That’s a lot.  Twelve percent square footage growth per year.  We started out with ten and now we’re saying twelve.  Our new stores are doing great.  We’re so excited about them.  There’s not that much retail real estate development going on in the country right now.

Steve Pomeranz: Right.

Kip Tindell: It’s kind of mediocre, except that I wish there was more.  But we’re still able to be at great locations and open twelve percent per year.  We’ve discovered that we don’t have to have all of our stores in New York and Chicago and L.A.  And Dallas and Atlanta.  We’ve been opening new stores like Raleigh and Charlotte and Nashville and that sort of middle-level market and those stores—well, first of all, they cost less than they do.  You know the best location in Indianapolis, it would cost less than it does in L.A.  And the sales buy-in is surprisingly close, so those stores are as, or even more profitable, than the big market.  So that’s opened up hundreds of additional potential locations for us.

Probably the biggest merchandising initiative we’ve ever done is our TCS closets where Alpha—most people know our Alpha closet system, it’s shelving and sort of mostly wire.  Great closet and entry organization.  But now we’re doing more of a built-in version of that.  It’s a little bit higher end.  A lot of older, little bit higher end customer might want this in their master bedroom and Alpha in their guest room.  So it’s more solid.  Not exactly wooden.  That’s a huge thing.  I think what happened was we want you to buy Alpha because Alpha is a company that we like so much that we actually bought the factory.  Now we’re saying, you know what, whatever she wants.  If she wants Alpha, she wants this TCS closet.  We’re also finally doing something the customer’s been asking for for twenty years.  We’ll come to your home and do it for you.  We’ll design it with you.  We’ll rotate the closet for you.  We’ll install it.  That’s pretty gigantic, too.  Those are two of the biggest things we’re doing along with what we call Pop.

After thirty-six years we’re finally doing a loyalty program.  A frequency program.  When you sign up for the Pop program, Perfectly Organized Perks, you become a POP star.  That has been hugely successful.  [crosstalk 00:16:46] You know, I mean, you want credit for your purchases and your frequency to your favorite store.  [crosstalk 00:16:52] I know I’m that way. I get frustrated at people that don’t have it.  I don’t know why it took us thirty-five years to do it, but we finally have done it.  People like it.

Steve Pomeranz: Well, Kip, I’d like to keep talking but, unfortunately, we are out of time.  My guest, Kip Tindell, CEO, Chairman, and Founder of The Container Store and his new book, Uncontainable: How Passion, Commitment, and Conscious Capitalism Built a Business Where Everyone Thrives is a great read.  Thank you so much for joining us, Kip.

Kip Tindell: Thank you, Steve.  So much enjoyed it.