Designed to Sell

Every couple of years in the 1960s, 70s and 80s, Gordon and Carole Segal traveled to Italy, where they imbibed on carefully roasted Italian coffee brewed into lattes, espressos and cappuccinos.

The Segals instinctively knew Americans would enjoy such high-end coffee products. So, the Segals, who founded the Crate and Barrel retail conglomerate in Chicago, imported different machines, saucers and cups from Italian manufacturers and stocked the shelves in their stores, expecting a new retail trend to emerge in America.

Instead, every set met the same fate. Customers were not interested, and the machines and sets ended up on the discount racks.

“Luckily for us, Starbucks came along and educated the world on better coffee and espresso, and of course now we do a very good job in espresso machines,” Gordon Segal said. “You can be too early. And we were too early.”

Segal has often been ahead of the curve when it comes to retail trends in his 45 years as the chief executive officer of Crate and Barrel.

Segal’s keen eye for design in retail products has helped grow Crate and Barrel into a retail empire with 160 stores, 7,000 employees, a bustling Internet and catalog business and more than $1 billion in annual sales.

Many of his product decisions are made at the Segals’ low-profile weekend home in Wisconsin’s rolling Kettle Moraine near East Troy (see accompanying story).

Along the way, Segal has had some missteps, but he believes it is important to fail in business, because failure helps people learn and improve. In the case of the espresso machines, Segal learned that sometimes product launches must wait until the consumer is ready.

“You can be a leader, but you can lead too far,” Segal said, chuckling at the memory. “Back then, I was the king of espresso cup and saucer markdowns.”

Crate and Barrel continues to set the stage for trends in contemporary and classic house wares, kitchen wares and furniture with its stores in 28 U.S. markets.

The company has launched CB2, a less expensive and more modern version of Crate and Barrel, which now has three locations, and Segal recently invested in The Land of Nod, a Northbrook, Ill.-based furnishing and decorating store for children, to round out its offerings.

The company will also expand outside of the United States next year with its first Canadian store in Toronto.

Today, Crate and Barrel is viewed by consumers as a trendsetter. Often, products introduced in the company’s stores, catalog and Web site are later imitated in color, design and innovation by other stores that sell house wares.

Segal compares that scenario with the creations of fashion designers trickling down to mainstream clothiers in similar flare at lower prices for the masses.

“It’s funny. We put something out and it does not sell for us, and we see someone copying us six or nine months later,” Segal said. “They think if Crate and Barrel sells it, it is great. It must be a big winner. They think we walk on water, and the truth is, we don’t.”

Crate and Barrel was one of the founding fathers of the stand-alone house wares retail industry. When the Segals opened their first store in 1962 and subsequently expanded throughout the 70s, the budding company was in its own Midwestern “Blue Ocean,” with no competition.

Segal says there are no barriers to copying and no barriers to entry in the retail industry.

“We have many stores that are copies of us or have evolved from us,” Segal says. “We showed people that you could sell beautiful home furnishings and kitchen wares and make a living at it, and we have a great deal of competitors that have come along and do a very good job of doing it.”

Products at Crate and Barrel are created by designers mainly in the United States and Europe, in addition to the products created by the company’s in-house design division.

“My wife and I were critical in setting the tonal quality of what look and style represented Crate and Barrel,” Segal says. “We were attracted to certain manufacturers and suppliers who had a certain style and look: simple, well-made, good colors, nice comfortable design, products that were utilitarian. We did not want to buy objects of art. We wanted to buy something you use every day. We didn’t want to buy something of a type we would take out twice a year for company. We wanted it to be something you would use on your kitchen table with your family or friends every day.”

The Segals began developing their retail concept by traveling through Scandinavia, Northern Europe and Italy.

The concept of classic, comfortable, utilitarian design transcends time and place and continues to make Crate and Barrel’s products popular among consumers.

“The tonal quality certainly has been the same,” Segal said of the products. “Colors change, materials change, certainly suppliers had to change as the world shifted and handmade products were harder to get out of Europe. All of this took place but we still maintained the same look and style and feel, as if you walked into our Crate and Barrel store 30 years ago. It just matured. And we pride ourselves on this. Always evolving, always growing, always changing, but still fresh, clean, well-designed product that is comfortable and easy to use.”

Not only do the stores remain similar to the way they looked 30 years ago, but Crate and Barrel continues to carry designs that have been popular since the day the first store opened, Segal said. For instance, the Arzberg teapot has been on the shelves since 1962 and is still considered by Segal to be one of the most beautiful pieces that Crate and Barrel sells. Some glassware designs have been carried by Crate and Barrel since the late 1960s.

Crate and Barrel’s value system, both in the ways it conducts business and the products it offers, is to focus on providing good quality at a fair price. Although the company plans to continue expanding with new stores, it has no plans to saturate the market, Segal said.

The first Wisconsin location for a Crate and Barrel store opened its doors in 2005 at Mayfair Mall in Wauwatosa. Many Milwaukee-area shoppers were excited and wondered what took so long for the store to come here. However, now that it is here, don’t expect a second location. The only metro areas with more than one Crate and Barrel store are highly congested and expansive to the extent that it would take a resident more than 30 minutes to get to a Crate and Barrel, Segal said.

The Mayfair store is within 25 minutes of most if not all of metro Milwaukee area residents. In addition, Crate and Barrel never opens a second store in a market like Milwaukee unless the existing location is so busy it can no longer offer customers the quality and experience the company thrives upon, Segal said.

Even at the top, challenges abound at Crate and Barrel, with hits and misses on the store shelves, and with more manufacturers of handmade goods being forced to close their doors due to increased costs and with the uncertainty of the Internet.

Crate and Barrel has been a strong catalog company for many years and jumped on the Internet with an e-commerce site in 1999. Since then, it has become harder to determine the habits of customers and the tendencies of potential customers, Segal said.

“It is very hard today to decipher compared to the old days what is working and what is not working in the store, vs. the Internet, vs. catalog,” Segal said. “But you must be multi-channel and you must put up with the complexity of multi-channel and you must solve the problems of multi-channel.”

Crate and Barrel’s majority shareholder, German-based Otto GmbH & Co. KG, the world’s largest mail order company, has been a help in these types of transitions, Segal said.

Even after 45 years of being at the top, with a solid company value system and well-defined design and quality benchmarks, Crate and Barrel is always looking out for the next serendipitous moment like the one that came along with Howard Schultz, chairman of Seattle-based Starbucks Corp.

In other words, what will be the next “espresso machine moment” in retail?

“The challenges in retail never go away,” Segal says. “There are always new ideas and new good stores and new issues, and new competition.”

 
Crate and Barrel

Founded:  962 by Gordon and Carole Segal
Headquarters: Northbrook, Ill.
Leadership: Gordon Segal, chief executive officer
Locations: 160
Subsidiaries: CB2 and The Land of Nod
Employees: 7,000
Annual sales: More than $1 billion
Web site: www.crateandbarrel.com

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