Euromarket Designs Inc.

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Euromarket Designs Inc.

725 Landwehr Road
Northbrook, Illinois 60062
U.S.A.
Telephone:(847) 272-2888
Toll Free: (800) 967-6696
Fax: (847) 272-5276
Web site: http://www.crateandbarrel.com

Private Company
Incorporated: 1962
Employees: 4,200
Sales: $530 million (1998 est.)
NAIC: 44211 Furniture Stores; 442299 All Other Home Furnishings Stores; 45322 Gift, Novelty, and Souvenir Shops; 45411 Electronic Shopping and Mail-Order Houses

Euromarket Designs Inc. is the official corporate name for the famous Crate and Barrel retail chain of contemporary home furnishings and housewares. In 1999, Crate and Barrel had more than 80 stores in 17 markets in the United States. Based in the Chicago suburb of Northbrook, Illinois, Crate and Barrel is considered a trendsetter in style and retail display, and about one-third of store merchandise is exclusive to Crate and Barrel. The company also offers its wide range of products through a mail-order catalog sent to more than ten million homes across the nation. Mail-order accounts for about ten percent of total company sales, and the fast-growing furniture division contributes nearly 30 percent of Crate and Barrel’s revenues.

Innovative Roots in the 1960s

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. 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 serve as 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. The year 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 20 more years, traveled to Boston to study a store called Design Research. Design Research, the creation of architect Ben Thompson, dealt in imported house-wares and furniture. In Design Research Segal saw the clean, modern, Eurolook 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 had to focus more on keeping prices lower through volume buying. His goal was to keep prices 30 to 40 percent lower than 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. Fifteen years later, nearly two-thirds of this group held senior executive positions with the company.

Expansion and Growing Recognition: 1970s-80s

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 allowed Segal to 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 catalog 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 catalog 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.

Company Perspectives:

At Crate and Barrel, our motto is “stay humble and stay nervous.” We continually challenge ourselves to avoid getting too comfortable. Taking risks and anticipating trends helps us stay a step ahead in the marketplace—it’s a tremendous outlet for the creativity of everyone here, and keeps us all on our toes. We like new ideas, and we keep evolving with the times, which makes it fun to come to work.

Conservative Growth in the Early 1990s

In 1990, with sales at about $150 million, 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. That year 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 closeout 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 more than 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.

Full Speed into the 21st Century

By the mid-1990s Crate and Barrel had about 60 stores scattered across the United States, triple its size since the mid-1980s. The detail-oriented Segal, now in his mid-50s, continued to have his hands in every aspect of Crate and Barrel. In the spring of 1995 Crate and Barrel entered the New York market by unveiling a store on expensive Madison Avenue in Manhattan. The Manhattan store, at about 55,000 square feet, was nearly twice the size of Chicago’s Michigan Avenue flagship store and offered furniture and housewares. Crate and Barrel intended to make a splash and boost its image with the Manhattan store. “We wanted to open a store that had some meaning,” Segal told Chief Executive. “Most retailers are somewhat egomaniacal,” Segal continued. “It’s because you’re competitive by nature—you’re constantly trying to make a more important statement.” Crate and Barrel followed up the Manhattan opening with two new stores in shopping malls in the greater New York area.

Although 1995 had been a poor year for the retail industry overall, Crate and Barrel saw a four percent increase in sales. In early 1996 the traditionally conservative Crate and Barrel began to step up its expansion efforts and announced plans to double its revenues in the next five years. Segal relinquished the role of president, giving the position to longtime employee Barbara Turf, in order to concentrate on accelerating Crate and Barrel’s growth. The chain particularly hoped to expand its furniture business, which contributed about $70 million a year to store sales. Though Crate and Barrel had been selling furniture since 1981, only eight stores offered furniture in early 1996. Plans to open three additional furniture stores in 1996 were in place, however, and the company hoped to expand into uncharted territory as well.

To fuel Crate and Barrel’s growth, the company sold a majority interest to Otto Versand GmbH & Co. in early 1998. Based in Hamburg, Germany, privately held Versand was the largest mail-order company in the world, the parent of about 100 companies, all operating autonomously. Crate and Barrel needed outside assistance to remain competitive in the marketplace, which was becoming increasingly filled with vendors similar to Crate and Barrel. The retailer planned to increase its store openings from about four to six new stores a year to about eight to ten, and the company also intended to continue opening larger-scale, flagship stores in major urban markets. Segal explained in the Wall Street Journal, “The whole marketplace is more dynamic and aggressive. ... You have just got to grow, and our only choices were to go public or find a strategic partner.” Segal chose not to go public because, as he told Fortune, “I’ve talked to too many people who are public who say that if you don’t have to do it—don’t!” Segal also explained that the priority for Crate and Barrel was not to be the largest chain but to be the best, and this was not usually a goal adopted by public companies. The deal with Versand allowed Crate and Barrel to implement its plans to increase its presence from 17 U.S. markets to 30 within five years and to grow its catalog operations, which accounted for about eight percent of sales at the time of Versand’s purchase. Crate and Barrel also planned to boost its store numbers to 150 within five years. The partnership was also beneficial to Versand, which picked up a popular company with, according to Fortune, revenues growing at a rate of 18 percent a year.

Key Dates:

1962:: First Crate and Barrel store opens in Chicago, Illinois.
1967:: Mail-order service commences.
1977:: Crate and Barrel expands beyond Chicago with two stores in Boston.
1981:: Crate and Barrel starts selling furniture in addition to housewares.
1989:: Sales surpass the $100 million mark.
1990:: Company opens flagship store on Michigan Avenue in Chicago.
1995:: Crate and Barrel enters New York market.
1998:: Company partners with Otto Versand GmbH & Co. of Germany, the biggest mail-order company in the world.
1999:: Crate and Barrel web site is launched.

With a boost to its finances as a result of the Versand partnership and a healthy economy stimulating retail sales, Crate and Barrel continued its successful path. In the summer of 1998 the company opened a new, 47,000-square-foot home furnishings store in Chicago. The store had many “firsts,” including a fresh-flower market and a coffee shop. The home store featured furniture and accessories placed in homelike settings to provide customers with furnishing ideas and decorating possibilities. The new Crate and Barrel continued the chain’s recent trend of moving outside of shopping malls; Segal believed convenience was the key to motivating busy shoppers— shoppers too busy to wander around malls. Also in 1998 Crate and Barrel finished construction of a national distribution center in Naperville, Illinois. The company planned to move its catalog operations into the facility in 1999. Crate and Barrel also announced plans to build a new, 110,000-square-foot headquarters in Northbrook. Scheduled to be completed in late 2000, the company said it would move about 200 staff members to the new facility in early 2001. The new headquarters was designed to facilitate the growing staff, which was expected to swell to more than 400 employees over the course of five years.

In 1999 Crate and Barrel’s mail-order operations experienced significant growth, thanks in large part to Versand’s influence. Versand hired consultants to help Crate and Barrel’s mail-order business, and annual catalog sales grew more than 20 percent, from $33 million in 1997 to $40 million in 1998. Crate and Barrel hoped mail-order sales would grow to eventually account for 12 to 15 percent of total sales. In May Crate and Barrel unveiled its e-commerce web site, which allowed online shoppers to make purchases around the clock.

In early 2000 Crate and Barrel planned to open a new store, called CB2, offering basic housewares at lower prices than those found at the increasingly upscale Crate and Barrel stores. CB2 stores, at about half the size of a standard Crate and Barrel, would enable the company to open more stores in more markets, such as college towns. While Crate and Barrel stores had a development period of about three to four years, CB2 stores would require less time and less money to launch. CB2 was also designed to lure customers seeking more affordable items, such as those offered by Crate and Barrel when it first opened its doors in the 1960s.

With revenues increasing steadily and the popularity of Crate and Barrel growing as rapidly as store expansions, the company seemed poised to vault energetically and successfully into the new millennium. More than 80 stores served shoppers across the United States in 1999, and the company announced an interest in expanding internationally in 2000 or 2001. There appeared little reason to doubt that Crate and Barrel could not succeed.