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CHAPTER TWO

Woo Your Biggest Fans (Because They’re Absolutely Worth It)

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Chapter Overview

For most companies, their top 1 or 2 percent of customers contribute 20 to 30 percent of sales through direct purchases. These same customers advocate purchases through word-of-mouth endorsements to their friends, families, and colleagues and indirectly generate the next 50 percent of sales. These customers—your biggest fans—can make the difference between profit and loss. If you can win and hold the top position in their heads, you can drive growth and prosperity. But few companies collect the data needed to see and take advantage of this phenomenon.

We are currently working with a leading luxury department store. It happened to have these data in its customer files. A little analysis showed that 14 percent of the store’s customers were driving 50 percent of sales.¹ We then conducted a detailed purchasing and advocacy survey. We found that these fanatical frequent shoppers endorsed the retailer with their friends. They said: “It has style,” “It has service,” “It has unique goods.” They invited their friends on a shopping trip: “Go visit with me next Saturday,” they said.

These customers obviously had a different relationship with this retail brand than other customers. So how do you woo such loyal customers?

Headline: Fanatical Fans Create the Bedrock for a Successful Brand

Your most loyal customers set the stage for continuous volume growth. If you listen to them, they can help you define how far afield you can extend. If you track them and induce them to introduce you to their friends and family, they can be your surest route to growth. If you forsake them at any point, they can, like jilted lovers, go from being fanatical fans to fanatical detractors. They will tell you in clear language what is a sin and what is unacceptable behavior. But don’t turn away. You need to listen, question, listen again, and test.

How do you capture these people’s hearts and minds? The most important element is getting the right salespeople on your selling floor. Those people are your link to them. We found that 10 percent of the luxury retailer’s sales staff had a relationship with 90 percent of the best 14 percent of the store’s customers. In other words, a small number of staff members knew how to build relationships, while the vast majority had no relationships. So give the people on your sales team the tools, training, incentives, and encouragement they need, and you can win. Earn their loyalty and trust. Understand their motivations. Pay them for superior performance. Help them explain your value. Help them offer details about the technical and functional benefits of your product. Don’t leave it to chance that your story is told with enthusiasm, energy, and zeal.

In this chapter, we profile two companies with high concentrations of sales generated by a small percentage of their consumers. One is Whole Foods Market, the natural and organic food retailer. The other is The Container Store, the personal-storage retailer. We look at how they do this, and we lay out the case for concentrating your resources on understanding and catering to the few. We believe this is the surefire road to growth and profitability.

Headline: Texas Boys Made Good

What’s the probability that two twentysomething Texans going to the University of Texas at Austin end up as housemates and drop out of college? UT admissions-office statistics suggest that dropout rates could be as high as 20 percent. What’s the probability that the two would later start single-site retailers with a superniche focus and turn them into Best Companies to Work For and multimillion-dollar chain stores? Could be 1 out of 100,000. What’s the probability that both companies would have a single supplier help them with a third or more of their sourcing and allow them to concentrate their value added on retailing, not sourcing? Could be 1 out of 300,000. And what’s the probability that both become multimillionaires and philanthropists and take up the challenge of what each of them calls conscious capitalism? Could be 1 out of 1,000,000.

That’s exactly what happened to John Mackey and Kip Tindell, both now in their early sixties. Mackey is cofounder of Whole Foods Market, and Tindell is cofounder of The Container Store. They both still lead their “start-ups” and act as the most passionate of apostles for their concepts. From the start, both recognized that fanatical fans would move their purchases to them and that success would reverberate in the market. Mackey needed to reach people who believed that they are what they eat. Tindell needed to reach people who believed that their personal efficiency and productivity could be enhanced by an organized life.

They both intuitively recognized that they needed to sell to the premium segments of the consumer market and that they were not directly substituting for existing consumption behaviors. They needed to create engagement, interest, and learning with their customers. They knew that they needed to do this on the store floor, not with big image advertising campaigns. Coincidentally, they both use similar words and phrases about “purpose,” “servant leadership,” living wages, worker engagement, supplier loyalty, and consumer advocacy, education, and enrollment. Not every word is the same, but they share the same binding brand insights.

Whole Foods Market

As John Mackey tells his story, he was “just a kid who wanted to open one store and earn a living” when he created the grocery company that would morph into the still fast-growing Whole Foods Market, the eighth-largest food retailer in the United States, with sales of $14.2 billion.² “We were not thinking grandiose,” he told us. “We just wanted to survive.”

When Mackey started his company in 1978—calling it SaferWay, a play on the name of the big California retailer Safeway—he wanted to help people buy organic and healthy foods. The company became successful beyond his imagination, but only after it abandoned the theory of “holy foods”—that is, of not permitting food that it deemed unhealthy inside its store. Mackey describes this as a compromise aimed at a bigger promise: nudging an informed population to buy better food over time.

“We didn’t sell caffeine. We didn’t sell meat. And we didn’t do any business,” he laments. In the end, he “figured out that the best way to go was to offer lots of choices for people and attempt to educate. We made the decision not to be ‘Holy Foods Market.’” After this, the company found very engaged consumers and sufficient traffic to expand.

In 1980, Mackey did his first merger and opened a 10,000-square-foot Whole Foods Market.³ Since then, the company has grown regionally through acquisitions. Its IPO took place in 1992. With shares as currency, Mackey was able to snap up regional healthy-grocery stores. The company bought Wellspring Grocery in North Carolina, Bread and Circus in Massachusetts, Mrs. Gooch’s in California, Fresh Fields in Maryland, and Wild Oats Markets in Colorado. “We learn and grow from every acquisition. We’ve done 22 acquisitions, and 25 percent of our stores were acquired,” he says. The secret has been to “inject [Whole Foods’s] DNA into the values, mission, team structure, compensation, and empowerment. And … leave everything else on its own.” The company’s 12-region structure allows decentralized decisions on buying, stocking, merchandising, and promotions.

When the company went public in its fourteenth year of operations, when it had 12 stores, Mackey was asked how big he thought the market opportunity was. He guessed about 100 stores. Today, Whole Foods has around 400 stores, and there are more to come: it is starting to experiment with small-footprint stores with a limited assortment for lower-income consumers in urban markets. Mackey says the company is now thinking about 1,200 stores for the United States.

Mackey’s success means that a great deal has been written about the company. In fact, like many entrepreneurs, he has written his own book, Conscious Capitalism: Liberating the Heroic Spirit of Business, a grand plan for business to do good—to help suppliers, workers, and customers. But the lessons from Whole Foods Market go beyond that theme. For us, the big one is the focus on consumers—and how to woo them.

“We are not oriented to achieving an arbitrary goal,” Mackey explains to us. “We are not just trying to have a relationship with consumers. We are a purpose-driven company. We are trying to serve customers as best we can. We believe if we take care of our customer, the business will flourish.”

Whole Foods Market is much more than just a grocer. It is a lifestyle provider. It tells its consumers, explicitly and implicitly, that you can learn by shopping.

Headline: Have a Set of Core Principles and Wear Your Values on Your Sleeve

A year after opening, Mackey says, a flood almost destroyed the company. But consumers, suppliers, and employees worked tirelessly to reopen the store. “The flood was a near-death experience. Stakeholders saved us,” he says, still grateful for the help. “They pitched in. Team members worked for free. Banks loaned us more money.”

Ever since, Mackey has promoted a stakeholder philosophy in which the company balances the needs of customers, team members, shareholders, suppliers, and communities. He can get a little heavy at times, especially when he’s talking about balancing the “collective fate and soul of the company.”

But, like many of the companies profiled in this book, Whole Foods Market has developed a defined list of core values:

We sell the highest-quality natural and organic products available.

We satisfy, delight, and nourish our customers.

We support Team Member happiness and excellence.

We create wealth through profits and growth.

We serve and support our local and global communities.

We practice and advance environmental stewardship.

We create ongoing win-win partnerships with our suppliers.

We promote the health of our stakeholders through healthy eating education.⁴

The values are an important part of the Whole Foods Market brand. Good food, healthy food, education, and the environment are easy messages to remember. When we interviewed staff members in the stores, they got these values—and they could restate them. They said that the company lives by them.

“Businesspeople are mistrusted as selfish and greedy,” Mackey says. “Business needs to talk with a new language: create value for all stakeholders, not just investors. It is not a zero-sum game. In business, it is about making trade-offs that are mutually beneficial. Create value for customers, suppliers, communities, people—no one losing.”

Headline: Go Beyond Profits, Align with Your Customers’ Interests, Pick a Big-Picture Issue, Then Educate Them—For Whole Foods, It’s the Health of the Nation

According to Mackey, 50 years ago, Americans spent 25 percent of their income on food and 4 percent on health care. Today, he says, they spend 8 percent on food and 20 percent on healthcare. And the result is that 69 percent of Americans are overweight. We later checked, and his numbers are approximately right—enough to make the point. He says that Americans are fat and sick.

To reverse the trend, the United States needs a different approach. “You need to know how to cook. Cook beans. Eat in bulk. Buy produce in season,” he says. “I’m vegan. Spend nothing on health care. It’s about consciousness.”

Whole Foods Market doesn’t follow the “holy foods” philosophy. As Mackey explained: “We need to tread carefully about imposing our own personal choices on our consumers.” For instance, Whole Foods Market does stock meat. But it seeks to sell fresh, wholesome, and safe food. Its products are evaluated, and suppliers are told to provide products that are free of artificial preservatives, colors, flavors, and sweeteners and hydrogenated fats.

The company has developed a private-label brand called 365 Everyday Value. Private labels can be very profitable, and Whole Foods Market has been able to invest in locally grown produce, sourcing from more than 2,000 local farms. It promotes animal welfare on farms and ranches and rates its suppliers of beef, pork, chicken, and turkey. It is perhaps not surprising that the big corporate food and beverage companies are largely absent from Whole Foods Market.

Also, Whole Foods Market is big on customer education. One of its healthy-eating education programs includes a focus on—no pun intended—whole foods: everything that is unprocessed and pure. It’s about emphasizing plant-based nutrition for its phytonutrients and fiber; healthy fats from nuts, seeds, and avocados; and nutrient-rich foods, including beans and whole grains.

The program lines up ways in which consumers can “prep for success,” such as cooking big batches, roasting vegetables, and preparing dishes like lentil chili. On its website, there are even menu ideas for every day of the week. Also, there are shopping lists for produce, grains, beans, and nuts aimed at making healthy choices fast and easy.

Historically, Mackey has not been a big believer in using conventional paid media to engage consumers. Marketing is 0.4 percent of sales. Whole Foods Market has focused primarily on earned media and community nonprofit partnerships. It publishes 1,000 messages per day, and it has 4 million Twitter followers; this makes Whole Foods Market the number one retail brand on Twitter.⁵ Also, most stores have community meeting rooms and cooking schools for events. In these spaces, it stages brand development events to bring people to the store—but not to shop. The goal is to encourage consumers to become part of the Whole Foods Market family. As the company hit its thirty-fifth anniversary, it turned to advertising to complement its public and community relations tactics and to take control of its own message as it continues to grow.

Now Mackey is coauthoring a book on diet and nutrition along with a couple of medical doctors who are on the staff of Whole Foods Market. Mackey himself has adopted the so-called Engine 2 Diet philosophy. This is a diet devised by a former Texas firefighter who wanted to help those in his unit become fitter and stronger and avoid heart disease. It emphasizes fruits, vegetables, whole grains, beans, nuts, and seeds; plant protein; healthy fats; complex carbs; vitamins and minerals; and fiber. It calls for no animal protein, no extra oil, no added sugar, and low fat.

The new book will go beyond the elaborate website where you can download recipes, learn about the “dirty dozen” most important organic vegetables, and receive promotional offers. It is a how-to book on how to shop and eat in a healthy way. “We’ve cracked the code, and we’ll wake people up,” he says. His target is to lower the incidence of Type 2 diabetes and cardiovascular disease.

Headline: Make Your Stores Come Alive: Whole Foods Market Does This with Fresh, Prepared, on-the-Go Lifestyle Food

Before the glorious merchandising of Whole Foods Market, health food stores were often dull and dreary. Whole Foods Market changed this. If you shop its flagship store in Austin, Texas, you have a full 80,000 square feet to wander. Customers call it Foodie Heaven and the Holy Mecca of Whole Foods.

In the store, there is a wine cellar, a glass walk-in beer freezer, a sushi bar, a sit-down Italian trattoria that serves shrimp pasta, a BBQ stand, a 72-variety cookie bar, a sweets area serving gelato, a taco bar, a sandwich stand, an opulent selection of salads, a create-your-own bulk trail mix section, a chocolate fountain, and extensive indoor and outdoor seating. At lunchtime and most weeknights around dinnertime, the store is packed.

Mackey is very proud of the store design and the “beauty” of the latest-generation stores. “The cost of beauty is a little bit more expensive. We create beautiful and wonderful experiences for consumers. We need to nourish our bodies with healthy foods. We need to nourish with things that are beautiful. Plato had it perfect. We nurture our souls.”

During a pre-Thanksgiving store visit, you could take free samples of food and wine, including pricey Veuve Clicquot champagne, shrimp, hot vegetarian entrees, cookies, cakes, and gelato. People were having a party in the store and using the sample day as a “free meal.” But for Whole Foods Market, it probably was not just a free meal. Few people were just sampling. Most of them were using the “trial” product to test a menu for their actual Thanksgiving feast.

Some 66 percent of total sales are perishables. This is a substantially different mix from a normal grocery store’s. In an expansion of its “fresh” strategy, Whole Foods Market recently began stocking “fresh” brewed beer. It is looking to take share from brewpubs, craft beers, and global brands such as Budweiser. It’s a classic Whole Foods Market move: the niche attack. It takes the premium market in a category and delivers best-in-class product.

The economics of high service are greatly enhanced by high-volume sales. The Austin store, with more than $80 million in annual sales at a single site, is an economic miracle in grocery retailing: such big, beautiful, high-velocity stores are a brand trademark. In the Whole Foods Market world, consumers rate the company every day on its selection and the freshness of its avocados, apples, bananas, blueberries, blackberries, leeks, mushrooms, fish, meat, bread, and—most important— prepared food.

Headline: Get the Right People on Board, Hire Full-Timers, Promote from Within, Teach Collaboration and Cooperation, and Emphasize Engagement and Values

“This is a cool place to work,” said one checkout person, a long-haired, slender young man in his early twenties with a ponytail and tattoos down his arm. “I make suggestions to people based on what they are buying. I hear what they need and want. Good people shop here. I feel like I am making a contribution to their lives.”

This same checkout person suggested that our mix of prepared foods was “too green.” Next time, he said, we should throw in a slightly different vegetable mix, including red, orange, and purple vegetables. “The more you mix it up,” he encouraged, “the healthier you will be.”

Having the right people in the store is critical to Whole Foods Market’s success. How does it recruit?

Mackey says that his culture attracts its own kinds of people. “We are a meritocracy. We post all positions. We do group interviews. How do you get ahead at Whole Foods? You start off as a cashier, then you become an associate team leader, then you transfer to another team. If you are good, you become a team leader, then a store team leader. Next step up is a regional VP and then a regional president.”

Mackey says that hiring is done by the team. “You can always fool one person. At the senior level, I am involved in promotions. We are looking for people who have a high degree of emotional intelligence. In our company, relationships really matter. We want people with empathy and self-awareness— servant leaders.”

He continues: “If you answer the question, ‘Why do you want this job?’ by saying, ‘It’s the next place to go,’ that’s a bad answer. The right answer is about helping Whole Foods [and] servant leadership. The best leaders are not trying to line their pockets. Compensation should not be the primary driver. Top jobs pay better at Walmart.”

The company says it has a salary cap that limits total cash compensation for any team member, including executives, to 19 times the average annual wage of all full-time employees. This translates into an effective cap of $750,000. That’s a lot lower than the ratio at any peer Fortune 250 company, where the ratio can be as high as 400 or more to 1. Mackey himself takes a $1 annual salary and no cash bonuses or stock option awards. Nevertheless, he still holds 800,000 shares worth around $40 million after substantially reducing his total holdings over the years.

But if Walmart offers higher wages for the upper-level jobs, Whole Foods Market does pay above market to get better people, retain them, and prevent unionization. Mackey is a big believer in taking care of employees. He commits to full-time work hours: more than 70 percent of the company’s staff members are on the full-time payroll. Also, there are good benefits: health care is free for 10-year veterans and $10 per paycheck for employees after a half year of full-time employment. Employees who opt in to testing low for cholesterol and blood pressure and using no nicotine receive higher store discounts on purchases through the company’s “Healthy Discount Incentive Program.”

Whole Foods Market’s recruiting materials underscore Mackey’s messages: “Whole Foods Market attracts people who are passionate—about great food, about the communities they live in, about how we treat our planet and our fellow humans—and who want to bring their passion into the workplace and make a difference. Our Team Members make us who we are by being who they are. Not only are our Team Members the secret to our continued success, they have also made us one of Fortune’s ‘100 Best Companies to Work For’ every year since the list’s inception. As the saying goes around here, without our Team Members, ‘We’re just four walls and food.’”⁶

Headline: Get It Right and Your Apostles Will Articulate the Concept and Spread the Word

We asked one particular consumer who participated in our omnibus survey to describe Whole Foods Market and healthy food in a staccato riff—with a ring of discipleship and a tone of confidence. Without batting an eyelash, Andy, a sophisticated fiftysomething single New Yorker, fired off the following:

Healthy food delivers all your needed calories, balanced protein, carbohydrates, and fats. I had a midlife health crisis and Whole Foods helped me come back. They taught me that healthy food is nutritious and appetizing. It is composed largely of fresh foods, not processed, without added sugar and salt. It delivers the right combinations of antioxidants to prevent disease. It is composed of fats that are not saturated and not high in cholesterol. It gives you a sense of fullness and leaves you light and active. Virtually anything I buy at the prepared foods bar at Whole Foods qualifies. I eat it at the store in the upstairs café. Healthy food leaves you slim, happy, and feeling good about yourself. A healthy food is natural, has no additives, and is free of pesticides. Examples of healthy foods include all fruits, vegetables, lean meats, beans, whole-grain wheat, and exotic unprocessed carbohydrates like quinoa and whole-grain pasta.

This consumer credits Whole Foods Market with helping him make a lifestyle shift.

“All my adult life, I worked hard,” Andy says. “I traveled a lot. I ate what was available. Whole Foods opened my eyes to better nutrition. Now when I travel, with their network of stores, I can get good food fast. I can choose what looks good to me. And I can do it for well under $25. Cheaper than any restaurant with a wait staff. And if I buy it and eat it at Whole Foods, there are no dishes and there is no one waiting for a tip.”

Other consumers in our survey offered similar praise:⁷

“I enjoy the organic and non-GMO brands they have stocked. I love that they have a juice bar and healthy ready-to-eat meals.”

“Whole Foods does not allow [just] any type of product to hit the shelf. They actually consider what is in the product.”

“I like the variety of environmentally sound, gluten-free products.”

“There’s a lot less junk food [than at other grocery stores].”

“There’s an integrity and honesty about its offerings.”

In our survey, Whole Foods Market was rated as providing “high-quality produce and prepared foods.” Its other top attributes are “trust,” “clean stores,” and “a knowledgeable and friendly staff.” Also, consumers eagerly acknowledge the company’s social responsibility. Whole Foods Market is lauded for making consumers feel healthy, helping them do something good for themselves, and making them feel smart for making good decisions.⁸

These words are important. This is because the apostle connection is almost always spread by word of mouth.

And they are evidence that Whole Foods Market has effectively wooed its customers.

Headline: It Doesn’t Matter Whether Someone Is Rich or Poor—Every Consumer Has the Potential to Be an Apostle

Most Whole Foods Market consumers are not poor. They are, overwhelmingly, female and top-tier in income. Also, because many Whole Foods Market stores were built near college campuses, many consumers are 18 to 25 years old. The typical apostle customer spends a whopping $3,643 per year—and converts an average of six consumers who spend about two-thirds of this amount.⁹

But Mackey does not want his company to be nicknamed “Whole Paycheck.” He maintains that all kinds of people can do all their grocery shopping at Whole Foods Market. He says that the healthiest diet in the world is not very expensive— “$3 to $4 a day.”

For this reason, Mackey and co-CEO Walter Robb are on a quest for better value, more accessibility, and price competitiveness. The company is also on a quest for new consumers: single households with boomers, single millennials, and young families on the go.

Whole Foods Market has pioneered a new urban-market format with lower prices on high-visibility goods. It has taken this proposition to markets such as Detroit and Broad Street in New Orleans, and will soon take it to the south side of Chicago in Engelwood. In these inner cities, Whole Foods Market has value-engineered its stores, investing less capital, scheduling less labor, and seeding cooperation with the local community while maintaining the same strict quality standards.

The idea, which Robb has championed, is to bring high-quality, healthy, affordable food to lower-income communities with limited access to fresh food, to offer educational resources on diet and nutrition, and to put a new platform for growth in place. There are no $400 bottles of wine in these stores.

If they are successful, these stores could provide another few hundred locations for Whole Foods Market and really increase its chances of achieving broad-based nutritional improvements. If they can do it without margin degradation, then they would substantially increase the company’s share value.

It won’t be an easy challenge. As part of our research, we talked to inner-city Whole Foods Market consumers. They understand the concept—but they still think the lower-priced product mix is pricier than that of traditional grocery companies. “I get that it’s more expensive to have natural chicken and organic products,” said Stacey, a 32-year-old African American woman. “But it hurts my pocketbook. I have to make trade-offs. There are no bargains here. But it is fresh and we know they care about us.”

Headline: The Lessons of Whole Foods Market

As with all successful companies, competitors have put Whole Foods Market in their firing sights. Most of the top 10 grocers in the United States have increased their organic, natural, and “healthy” eating selections. They have amped up prepared foods. They have pointed to lower prices on popular baskets of goods. They have increased communication budgets and efforts at “emotional” connection.

But none of them has been able to duplicate the brand aura of Whole Foods Market. They have been unwilling to reject suppliers for bad natural practices. They have been unwilling to impose salary caps and force “egalitarianism” as a company philosophy. Their efforts at food health education and breadth of assortment have largely fallen short. Whole Foods Market’s stores have advantages in several areas:

Frequency of shopping by core consumers

Velocity of goods in its prepared foods sections

One-stop shopping for healthy products

Advocacy by core consumers

Seeding of behaviors from the college population when people graduate and move on to become “young family/heavy grocery” consumers

Expect to see continued innovation at Whole Foods Market, including advanced home delivery options, a loyalty program, and emphasis on mobile apps with shopping lists, recipes, meal plans, and electronic coupons. If Mackey is right and lower, more competitive prices lead to volume growth, expect to see more direct competition with traditional grocers.

Whole Foods Market delivers high profit and high cash flow as a result of its price premiums. It has a superior mix of prepared foods sold at a higher-than-average grocery margin. This formula is driven by the strength of its brand. Consumers trust Whole Foods Market, and they swear by the various private-label products, especially 365.

There are three types of consumers at a Whole Foods Market. The most valuable is the full-service shopper, who buys 90 percent of her groceries and prepared foods at Whole Foods Market and spends a lot—$250 a week or more. The second most valuable is the single “no cook” consumer, who uses Whole Foods Market as a caterer, shopping for dinner and other food items several times a week. This consumer spends $100 a week or so. The last segment is the occasional user, who might prefer the company’s quality and reputation, but is unwilling to pay the price premium to get Whole Foods Market’s products on a regular basis.

Whole Foods Market has enjoyed steady same-store sales growth of 6 to 15 percent for every year in the last decade except the Great Recession years of 2008 and 2009, when even affluent consumers suffered a substantial decline in wealth.

Operating margin is now close to 7 percent—four times the amount of other grocers’. Sales per square foot are close to $1,000 per year—more than twice as high.¹⁰ These economics allow Whole Foods Market to pay more, dress up its stores, sample new high-margin goods, invest in new recipes and demonstrations, and carefully expand the range of goods it carries.

Growth of the Whole Foods Market brand is dependent on increasing consumers’ food IQ—and encouraging consumers to spend 20 percent of their income on healthy, longevity-inducing fresher foods. If the food IQ revolution continues to catch fire, Whole Foods Market has a long runway for growth.

The Container Store

The Container Store is the place where you can get your life under control—organize your clothing, your kitchen, your paperwork, and your children’s toys; find wrapping paper for your gifts; learn to save time; and know where everything is. When launched in 1978, it was a category killer against a class of trade where competitors had small sections. CEO Kip Tindell’s first store was 1,600 square feet, with stacks and stacks of products to help people organize their closets, kitchens, baths, offices, garages, and laundry.

“We were scared,” Tindell tells us. “We were wondering what would happen if we opened and nobody came. People were very skeptical before we opened. They asked, ‘Who would come to a store to buy empty boxes?’” The company was a bit of a family affair. Sharon Tindell, the chief merchant, is Kip’s wife. His former boss at a paint store, Garrett Boone, was cofounder. Friends and family members invested around $35,000. Nobody believed he was making an investment in a business that would deliver close to $1 billion in sales. Most of those who invested did so grudgingly. They did not believe that a store that sold “empty boxes” would really be successful. But Tindell’s contagious enthusiasm and relentless asking convinced them to say yes to his request for funding.

Tindell focused his marketing on the top-tier social elite in Dallas. It was an unexpected success. First-day sales were $550, according to Tindell, although one-third of the takings came from Boone’s sister.

Early on, growth was hard and the rollout was slow. The young entrepreneur had limited capital, and expansion was largely self-financed. Hundreds of competitors sold storage products, including Sears, Macy’s, and the local hardware store. But The Container Store flourished. The market “got” it.

Over time, by word of mouth, wealthy suburban and urban women told their friends, “Get your life in order at The Container Store; let them help you get organized.” And a brand built on a modern need was created.

Tindell’s plunge opening was in New York City, where success proved the applicability of the concept in tight urban markets as well as in spacious suburban America. Today, he believes that the brand value proposition is even more valuable when space is expensive and time is constrained. Consumers have more goods to store, and when they get good organization, they can squeeze in even more.

In this way, Tindell has wooed his customers. They now go to The Container Store en masse to organize their lives.

Headline: Build a Culture Your Customers and Employees Can Identify With, and Write Down and Memorialize a Set of Foundation Principles

Tindell says that The Container Store’s goal is to become the best retail store in America. That’s audacious.

At the start, he decided that the brand would stand for dramatically better service, one-stop shopping for storage and organization solutions, and a sales force that would be able to understand customer needs and translate them into relationships built on value. He was intent on generating a virtuous circle in which consumers got pleasure and time, he delivered high velocity per square foot, and the product had enough uniqueness to be a draw.

But Tindell, like many other founders in this book, attributes The Container Store’s success to the “culture” of the company. About 10 years after he launched the company, Tindell found himself in a position where he could no longer personally drive decisions at every store. He needed to provide his new organization with a framework on which people could base their decisions and that would facilitate bringing new associates on board. The company had grown so large that he no longer knew everyone personally. He decided that he needed to write down and memorialize the principles for which he wanted the company to be known. One night, he called all the employees of his new Houston store to the manager’s house for a brainstorming session. The output of that session later became the feedstock for the company’s Seven Foundation Principles.¹¹ These principles are intended to guide employee behavior. They substitute for the thick books of regulations that look like telephone directories that some retailers use to regulate employee behavior.

Here, we provide these principles and annotate them with our interpretation:

1. One great person equals three good people. If you find a single great employee and can train her, her productivity and performance can equal the power of three other good employees. You can pay this employee twice as much as someone else and still have lower labor costs. If she knows she is making top dollar and having fun while working in an environment that respects and cares for her, you will enjoy turnover as low as 10 percent per year. (That’s a tenth of the turnover that many retailers experience in floor-level sales positions.)

Tindell says, “Talent is the whole ball game.” How do you get employees to engage? He says it comes from hiring, training, and incentives. The Container Store looks for people who can sell a solution—and that requires listening skills, creativity, imagination, and resources. Only 3 percent of applicants are hired. Then, each new employee is given 80 hours of training before being allowed to sell anything. In their first year, full-time associates receive a total of 263 hours of training.¹² There is a full development program—skills assessments, performance reviews, training videos, and coaching. Finally, associates make twice as much money as salespeople working elsewhere.

2. Communication is leadership. Leaders lead by talking and engaging. They are visible and present. They share facts and engage employees in challenges. Tindell says that you need to empower people, give them tools, ignite their talent, and explain goals.

3. Fill the other guy’s basket to the brim—making money then becomes an easy proposition. This one says: “Don’t try to take the last dime from your suppliers. Get them on your side. See how to create win-wins.” More than half of the goods sold by The Container Store are exclusive merchandise. That is the result of custom manufacturing—which comes from positive interactions with suppliers. Tindell talks about trying to enrich everyone in the entire supply chain rather than squeezing vendors dry. He calls this “creatively crafting” a mutually beneficial relationship.

4. The best selection, service, and price. The Container Store has pursued this principle by offering 10,000 products, the best sales advice on the floor, and “better, best, exceptional” pricing (as opposed to the retail industry standard of “good, better, best”). Tindell likes to say, “We sell the hard stuff,” meaning that most of the goods sold at The Container Store require explanation, customer engagement, and encouragement. He has an uncanny way of avoiding direct competition. “You can’t showroom solutions and proprietary products [when consumers price them on the Internet],” he says.

5. Intuition does not come to an unprepared mind—you need to train before it happens. As already noted, The Container Store provides first-year sales employees with almost 300 hours of formal on-the-job training. Most retailers provide less than one day, and most of that is simply the mechanics of checkout. This company has a huge investment in associates’ learning from day one.

6. Man in the desert selling. Tindell says that employees are there to discover the customer’s problems. As a result, they are expected to go way beyond providing a glass of water to someone who just came in from the desert. He likes to illustrate this by saying: “They need a hat, an umbrella, some lotion, some slippers, a chair, an ice machine—and maybe even a margarita!”

Tindell calls this a “solution-based,” not “items-based,” form of retail. It’s aimed at solving the entire problem and thinking beyond the immediate need. It demands a different kind of salesperson—and this sets The Container Store apart from its rivals. Tindell says that no competitors want to engage in this personnel-intensive form of retail.

7. Generate an air of excitement. Tindell says that the goal is to entertain and engage customers and create memorable shopping experiences. “We make shopping fun—like going to Disney World, the time of their life.” He says he knows customers who are “dancing in their closets [because] they are so happy with their products.”

Headline: Create a Sense of Theater, Make Your Concept Visible for All to See, and Provide Your Customers with an Oasis

If you go into The Container Store, you will immediately understand how the concept has developed over 30 years. Just before Christmas, we visited a flagship store in Manhattan immediately south of Bloomingdales. On a cold midweek December morning, the store was packed. Brightly colored gift wrap and packing materials dominated half of the first floor. The rest of the floor was dedicated to Elfa closet designs, to which consumers could just say, “I’ll take it.”

Closet price points varied from under $1,000 to $4,000. Each model closet was fully furnished with neat clothing, socks, and shoes and used The Container Store’s value-add storage accessories—racks, shelves, doors, hooks, and sliders. It was obvious that you could buy pieces or mix and match, but the brand was presented as a visual takeaway. In a single second, busy New Yorkers could imagine their own closets before and after The Container Store treatment. The staff members on the floor are happy to come to your home to take exact measurements and design your closets or storage areas for any need. The Container Store gladly provides turnkey solutions.

One consumer who was shopping the gift wrap section could not keep herself from smiling ear to ear. “This is the best selection of wrapping paper I have ever seen,” she told us. “All my gifts will be beautiful and perfect. I came in to browse kitchen gadgets and storage, and I’m walking out with 10 rolls of gift wrap, ribbons, and bows. I’ll come back and maybe buy that dream $3,000 closet. That’s what I need for Christmas.”

According to Tindell, his customer is busy and educated. She has a household income of roughly $130,000. He says that 30 percent of customers deliver a full 83 percent of sales. Also, she spends much more when she shops without her husband or partner. “Husbands are bad for The Container Store,” he says with a grin. “When they are present, ‘dwell time’ is lower.” He claims that husbands make it a directed shop, and after the immediate need is satisfied, the couple is walking out of the store.

The Container Store tells customers that they deserve an organized oasis that is easy to maintain—“a solution that is beautiful and functional.” For $75, you can get a “Contained Home” consultation directly in your home.¹³ Staff members provide a personalized organization plan. They will sort, stage, and organize space for $75 per hour. If you spend $500, you get a $75 credit. The Container Store is happy to provide an installer, who will also paint. It’s a big and appealing promise for people on the go: “Organize, transition space, downsize, unpack.”

Headline: The Lessons from The Container Store

Invent in a category where you are passionate. Become the category expert. Continuously build out your offering. Deliver at multiple price points. Improve your initial offering: “value engineer” and deliver premium product. Weed out everything that’s not moving—or improve it. Engage suppliers in your success and show them that an alignment with you delivers growth beyond anything they can get with all their other partners.

The Container Store’s value proposition is simple: under one roof, you can buy everything you need to get organized at home. You can get advice from highly trained and motivated salespeople. They will take you from chaos to organization with the click of an order book.

The company focuses on affluent, busy, space-constrained adults. The target customer is 30-plus, with money to spend on saving time. Closets, kitchens, and garages—these are the starting spaces. But everything in the home is a potential target for The Container Store.

Typically, customers spend a lot of money when they first seek The Container Store’s help. After that, they visit periodically to get updates and improvements. A great customer will spend upwards of $2,000 on that first big step. If they are satisfied, customers become fanatical fans—apostles—and then systematically work through the rest of their home. They rely on The Container Store for other services as well, including seasonal and personal gifts.

Tindell says that you need to give customers a reason to come to a brick-and-mortar store, especially in this digital age. If you don’t, they will rely on online purchasing. “That’s the best protection against large online merchants. It’s hard to sell solutions over the Internet. It’s easier to design a closet in a store. Most people don’t want to create a solution online.”

The Container Store landed on a concept that has a big-ticket initial sale followed by a stream of ancillary purchases. The “organization addicts” concept can be duplicated in other businesses. Look for a way to lock in a broader category definition of what you do. Understand the challenges your consumers are facing in a more holistic way. Solve the underlying problem, not the symptom of the day. Build a service function that continuously provides input into unrealized new product opportunities.

Great brands like The Container Store and Whole Foods Market are founded on the following:

A unique value proposition.

The needs of a tightly defined target consumer.

The apostle model, in which success with a few consumers drives the base load volume: the net present value of the purchases of apostle consumers is very high, in excess of $10,000, and they are likely to influence others.

Your biggest fans can become your greatest source of value. Identify them. Serve them. Ask deeply and with meaning, “How are we doing?” Do it every day. And do it quantitatively. Talk to your critics and work like mad to woo them back. Every complaint is a gift—but only if you respond to it. Every compliment is a chance to drive a referral and an endorsement. Every employee should be encouraged to close out his shift with answers to a simple question: “What was the most memorable suggestion, complaint, or point of praise from customers today?”

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One Conclusion

Innovate, don’t follow. Create the enterprise with the tremendous engagement of your consumers and your store team from day one. Build loyalty through a magnetic supply chain in which all links are aligned—suppliers, employees, and consumers. Build the brand value proposition on the basis of offering unique value and exclusive goods, saving consumers time, and providing them with emotional benefits. Fearlessly compete against bigger, incumbent companies, because the chances are that initially they will not see you. Never rest on your laurels. Eventually other companies will see your success and try to imitate a few elements of your innovation. But if you are ahead, you have time and can create layers of advantage. Stay true to your heart: compromises are brand dilutive. Create beautiful stores and products that capture your consumers’ imagination and surprise them. Aim for complete consumer delight.

Three Takeaways

1. Your core consumer is crucial. At the root of every successful brand is a core consumer who really “gets” it. These consumers are willing to live and die by what you produce. They are willing to tell their friends about you—and they do this in their own words. Assuming that they are a substantial population, they will be at the heart of your future as a retail empire. You must cater to their needs and understand their new requirements.

2. Set the price to earn a decent return. When you create—or re-create—a category, the pricing rules are open. You can set them. You need to establish a target total velocity of sales per store and revenues per square foot. Your average margin has to deliver economic success. Don’t look at wannabe brands that sit in your space for pricing guidelines. Be ruthless in getting pricing premiums for superior products. Be careful to articulate the value you add and the differences you offer, in terms of emotional and technical features. Consumers will pay for technical, functional, and emotional benefits. Give them hooks and explanations, and they will repeat your messages.

3. Expand relentlessly. Once you have a successful business model, your job is to fill the space quickly and expand geographically—into every possible market, with every possible consumer. Whole Foods Market and The Container Store demonstrate that your physical presence can create market expansion opportunities. Stores in overlapping geographies actually build the brand. Store density establishes you as a player. You can have years of runway ahead of you. Think expansion, not cannibalism.