Crate and Barrel

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Crate and Barrel

725 Landwehr Road
Northbrook, Illinois 60062
U.S.A.
(708) 272-2888
Fax: (708) 272-5366

Private Company
Incorporated: 1962
Employees: 2,500
Sales: $225 million
SICs: 5719 Miscellaneous Home Furnishings Stores; 5712 Furniture Stores; 5947 Gift, Novelty, and Souvenir Shops

Crate and Barrel is an innovative nationwide chain of retail home furnishings stores. Although not among the largest companies in its industry, Crate and Barrel receives a great deal of attention and is widely regarded as a trendsetter in style and retail display. A Crate and Barrel store typically serves as a stockroom and a showroom at the same time. Housewares are displayed in large quantities, often stacked like items in a supermarket, and are bathed in dramatic lighting. The company, which also goes by the corporate name Euromarket Designs Inc., is based in Northbrook, Illinois, a suburb of Chicago. Crate and Barrel currently has about 47 retail outlets, five of which sell primarily furniture. Furniture accounts for roughly 15 percent of the company’s sales. A significant share of sales also comes from the company’s catalogue operations.

Crate and Barrel was founded in 1962 by Gordon and Carole Segal. Gordon Segal had recently graduated from Northwestern University and was working as a real estate agent, while Carole was a schoolteacher. According to company lore, Gordon was inspired to open a store while doing the dishes at home one day. While he stood admiring the beauty of the piece of imported German china dripping in his hand, Segal mulled the fact that reasonably priced but classy items for the kitchen were not readily available to the Chicago consumer. With the St. Lawrence Seaway newly opened, the Segals got the idea to have European goods shipped straight to Chicago, where they could be sold directly to the public. In this way, importers and wholesalers could be bypassed, allowing the fledgling merchants to keep prices in check. With their life savings of $12,000, plus $5,000 borrowed from Gordon’s father, a successful Chicago restaurateur and caterer, the Segals went into business in spite of their complete lack of experience in either importing or retailing.

The first Crate and Barrel store was opened in a former elevator factory in Old Town, an area of Chicago in the process of gentrification. The store was put together in a mere two weeks. By opening day, Crate and Barrel consisted mainly of a big room, one employee, and a bunch of merchandise. Even the cash register had not yet arrived. With no tables or display cases available, the goods, mainly plates, glassware and cookware, were stacked on overturned packing crates and barrels. From the necessity of the company’s humble beginning came the chain’s now-household name. The Segals’ inexperience showed in the first few months of operation. In the first month, the store sold $8,000 worth of merchandise. The following month, however, this figure was cut in half. Sales fell by 50 percent again the month after that.

As customers began to discover Crate and Barrel, the Segals became interested in a broader range of products than those that they had seen and used personally and had had shipped in quantity to Chicago. In 1964, they took their first European buying trip in order to make direct contact with the independent and often small craftspeople and manufacturers that would be the sources of their merchandise for years to come. Another key to the company’s early survival was Gordon Segal’s ability to concoct unique and advantageous leasing agreements with landlords. For example, in 1965, as the first Crate and Barrel was thriving in the Old Town location, the company found itself faced with the possibility of losing its lease. Segal was able to patch together a deal with the landlord in which Crate and Barrel would build a new home and rent it back from the landlord. Under the agreement, Crate and Barrel would then purchase the building in 15 years. 1965 also marked the departure of Carole Segal from the operation. The driving force in the company’s early stylistic innovations, Carole left to attend graduate business courses, as well as study gourmet cooking. In 1979, she started a store of her own called Foodstuffs, a high-end food store with a merchandising approach similar to that of Crate and Barrel.

In 1966, Segal and Lon Habkirk, a designer who would remain affiliated with the company for at least twenty more years, traveled to Boston to study a store called Design Research. Design Research, the creation of architect Ben Thompson, dealt in imported housewares and furniture. In Design Research, Segal saw the clean, modern, Euro-look that he sought for his store, and was heavily influenced by Thompson’s unorthodox retail approach. Design Research, however, sold expensive and rare items, and had trouble turning a profit in spite of a high dollar per square foot sales ratio. Segal realized that Crate and Barrel must focus more on keeping prices lower through volume buying. His goal was to keep prices 30 percent to 40 percent lower than those of similar merchandise at other retail outlets by keeping profit margins low and importing goods directly from the manufacturer.

By 1968, Crate and Barrel had annual sales of around $500,000. That year, a second store was opened at the Plaza del Lago shopping center in Wilmette, an upscale suburb of Chicago. As the company grew, Crate and Barrel began to face the problem of developing a reliable management team in an industry with traditionally low pay and high employee turnover. Segal’s solution was to hire young college graduates into sales positions with the explicit goal of eventually moving them into management roles. Segal also aimed to create an environment conducive to keeping employees around, partly by expanding only to cities that were hospitable to workers, avoiding rough-and-tumble markets like New York. This strategy paid off handsomely in employee loyalty. In 1970, for instance, a core of new staff members was brought on board. 15 years later, nearly two-thirds of this group held senior executive positions with the company.

Oak Brook, another affluent Chicago suburb, became home to Crate and Barrel’s third store in 1971. By the middle of the 1970s, the chain was beginning to receive widespread attention for its unique marketing style and the quality of its wares. This attention was boosted by the 1975 opening of a new store at a highly visible location on Michigan Avenue in Chicago. Over the course of the next few years, Crate and Barrel began its nationwide expansion, propelled by its sterling reputation among the growing class of young adults with money to spend, otherwise known as “yuppies.” The first non-Chicago markets into which the chain expanded were Boston and Dallas, and the stores were usually placed in upscale malls. Soon thereafter, San Francisco and Washington D. C. were added to the list. In 1981, Crate and Barrel tried its hand at retail furniture sales for the first time. One of the company’s Boston stores was converted into a furniture outlet at that time. This Boston location was used as a test subject as Segal considered the possibility of expanding further into furniture retailing. This way, he could experiment with different approaches and product lines without risking a heavy commitment to the furniture business. Ten years later, furniture sales were contributing about one-fifth of the company’s revenue.

In 1983, Crate and Barrel raised $7 million through Harris Bank industrial revenue bonds to finance a new 136,000-square-foot complex in Northbrook, Illinois, another suburb of Chicago. The complex would house the corporate headquarters and a central warehouse. The chain had grown to 17 stores by 1985. That year, these stores generated about $50 million in sales and employed 600 workers (twice as many during peak periods). Revenue was growing at a rate of 20 percent a year. The merchandise sold at Crate and Barrel stores across the United States was supplied by about 350 different manufacturers, many of them small independents. Of these, 250 were located overseas. In addition, the company had developed a vibrant mailorder operation, which by this time was processing about 3,000 pieces each day.

In the middle part of the 1980s, Crate and Barrel found that the tastes of its customers had become somewhat more expensive. This was most apparent in the furniture operations. When the company first began to sell furniture, the emphasis was on glass, chrome, and black leather, in keeping with the clean, basic look of its tabletop merchandise. It soon became clear that its young, relatively affluent constituency wanted more classic, comfortable furniture and was willing to pay higher prices for it. This trend away from sleek and toward warm then seeped into the kitchen, where the demand for painted dinnerware and hand-decorated glassware began to increase. Meanwhile the catalogue business continued to thrive. Although the mail-order operation was costly to run (50,000 orders a year were required just to break even), direct mail had the helpful side effect of boosting in-store sales. In fact, sales at the stores generally grew by as much as 20 percent during a month that immediately followed a catalogue mailing.

Crate and Barrel doubled its sales over the next few years, passing the $100 million mark in 1989. By this time, the chain was 27 stores in size. Los Angeles and Houston had been added to the carefully selected group of markets into which Crate and Barrel had ventured. The company’s second furniture store was launched in 1989, this time on home turf, as an extension of its Plaza del Lago store in Wilmette, Illinois. The Wilmette furniture store was an immediate hit, generating $1,000 in sales per square foot, triple what was considered good in an industry that was in the midst of a lengthy slump. The success of the Wilmette furniture operation led to the announcement later that year of a second planned furniture outlet in the Chicago area, this one an expansion of the chain’s Oakbrook Center accessories location.

In 1990, Crate and Barrel opened a new flagship store on a ritzy stretch of Michigan Avenue in Chicago. The building was designed by John Buenz, whose firm (Solomon Cordwell Buenz & Associates) had been designing Crate and Barrel stores since 1976. The exterior of the four-story, 45,000-square-foot structure showed lots of glass and metal, reflecting the clean, modern feel of the standard Crate and Barrel interior. Two floors of the new outlet were to be devoted to furniture. This was a bold move, in light of the fact that furniture had not been sold successfully on this pricey stretch of Michigan Avenue for many years, including failed attempts by such well-known retailers as John M. Smyth and Marshall Field’s. For that year, sales were about $150 million. 1990 also marked the closing of the oldest operating Crate and Barrel store, the 5,000-square-foot outlet on Wells that had opened in 1965 just down the street from the original Old Town store. This store was replaced by a new 10,000-square-foot location about a mile away, to be used primarily as an outlet for end-of-season and close-out merchandise.

By the early 1990s, Crate and Barrel had tapped into the Minneapolis and San Diego markets with new store locations. Four new stores were added in 1991, bringing the chain’s total to 34. The company had over 1,000 employees by this time. Merchandise sold at the various Crate and Barrel stores came from at least 25 different countries, although most of the furniture was manufactured in the United States. In 1992, the company entered the Florida market for the first time, opening stores in Palm Beach Gardens and Boca Raton. Sales at Crate and Barrel reached $170 million that year.

Although many stores sell more dishes and sofas than Crate and Barrel does, few are as well respected among retail chains. Crate and Barrel’s reputation for quality and class results from a combination of elements: a unique presentational style whose success has bred a legion of mimics; a steady plan for growth that is ambitious in scope while modest enough in its rate to succeed; and a keen insight into the evolving tastes of its target market, not to mention an ability to put merchandise that matches those tastes on the shelves. Virtually every decision that Segal and his company have made seems to have worked.

As long as the company remains in his control, Crate and Barrel seems likely to continue its winning ways.