LAS VEGAS — Homogenization is what ails the shopping center industry today, according to Gordon Segal, founder and CEO of Crate and Barrel, who shared his company’s success story at the ICSC Spring Convention held here May 20-23. And at the root of the problem is "development dentistry," a tenant selection process he believes needs corrective surgery.
Too many developers are more interested in filling the holes in their centers with uninspiring retailers that provide attractive base rents than assembling a collection of retailers that make shopping a wonderful experience, Segal contends. This phenomenon is driven in part by consolidation and a capital-conscious industry.
"Many developers who just fill up space say, ‘We’re so proud that we’re 90% leased and we’re just coming out of the ground.’ And when you look down the list of tenants, you’re very surprised at how ordinary the list is. The economics may work for the short term, but is it really going to be a great retail attraction over the long term?" Segal asked.
"When you walk into these malls, you sort of think of it as development dentistry. ‘We have a [tenant] spot here to the left, we have a spot here to the right,’ Segal continued. "The developers are not thinking about what the combination of stores is and what the shopping experience is for the lady who walks into them. Is it different, or can she go five miles down the road and find the exact same kind of shopping experience? And then we wonder why the malls have less productivity than they used to have."
In contrast, Europe enjoys more productivity at its shopping malls and department stores because considerable attention is given to the selection of retailers. Such attention to detail translates into higher consumer interest, according to the energetic CEO, who repeated the word "passion" no less than 10 times in his speech.
When Segal speaks — in this case as part of a luncheon keynote address to several hundred attendees of the ICSC Spring Convention here last Tuesday — people listen because his rise to the top of the industry is a compelling story. From humble beginnings at a 1,700 sq. ft. store in Chicago’s Old Town neighborhood, he and his wife, Carole, have grown the business dramatically. Today, Northbrook, Ill.-based Crate and Barrel operates more than 80 stores in 15 major U.S. markets and is one of the most respected housewares retailers in the industry (see timeline).
"I see too many malls today that have become very boring because they all look alike as you walk from one mall to the another," Segal said. "And every once in a while you come across a wonderful specialty mall, or a wonderful shopping mall, and you can see that the ownership and management has taken special care in finding merchants from New York, Los Angeles, Milan or London. They have gone out of their way to find a special store that makes their place have a personality and a belief."
When Segal and his wife opened their first store in 1962, not in their wildest dreams did they ever imagine that they would parlay their idea of selling quality and creative home furnishings at affordable prices into a chain of stores. Their vision was straightforward: to make their customers’ homes more beautiful than they were before entering Crate and Barrel.
Armed with $17,000, the young couple spent about $7,000 to convert part of an old elevator factory in Chicago’s Old Town neighborhood into a 1,700 sq. ft. retail space, nailing up crating lumber on the walls and spilling products out of their packing crates and barrels for display.
"We didn’t know anything about retail," Segal recalled. "I had grown up in the restaurant business, so I knew about service but not about retail. We didn’t know a market from a markdown. We didn’t know anything about importing. In fact, if we weren’t 23 and totally lacking wisdom, we would never have done this. You just go ahead with your passions, and you rush forward without a great deal of thought," Segal reflected.
The newlyweds, bored in their first careers, had a passion for tasteful home furnishings, but they had little money to spend. They figured other young couples were in the same boat, so they traveled to Europe in search of wonderful contemporary design that they could purchase and in turn sell to their customers. They met small craftsmen in Europe and visited glass factories in Sweden, France and Belgium.
The concept of going directly to a factory in Europe to purchase product and bring the product directly to the consumer, and thereby avoid a wholesaler, was unique in the early 1960s. Typically, imported goods found their way into specialty stores via a wholesaler after entering U.S. cities such as New York, Baltimore or San Francisco.
"We were truly a counter-culture story of the 1960s," Segal said. "We literally turned over packing crates, stacked up the merchandise and went into business. We just thought that was nothing special. Of course, everyone walked in and was amazed that these two young kids were starting this business, that we could find French pottery and Swedish glass and Danish flatware and bring it to a small, little street in Chicago called Old Town. It was really crazy, when I think back, that we felt that we could import product into a little 1,700 sq. ft. store."
Learning from the masters
Over time, Segal and his wife watched and absorbed ideas from the great retailers on the small streets of Paris, Milan (Italy) and Copenhagen (Denmark). These retailers had a masterful sense of how to use lighting and color to add to the beauty of their stores. "I remember to this day one day Carole and I were in Paris. We walked along the Rue de Sienne. We walked past a store that was all green. It sold green apparel, green upholstery, green glasses and green plastics. The theme of the store was color, it wasn’t about product. I said, ‘Carole, can you imagine that?’ It’s just about color.’"
Early on, the couple decided that Crate and Barrel would not only endeavor to be unique in finding great product but also in how it displayed quality merchandise. That means every cup handle is turned to the right and every glass is sparkling, for example.
The couple has long held the philosophy that good design should be practical and functional so that Crate and Barrel products don’t sit in a cupboard locked away. Whether it was candlelight, a nice platter or a beautiful vase, the product was purchased for the express purpose of being used. "It had to be utilitarian, it had to be comfortable. It had to be product that we would love to have in our homes, and we wanted our customers to have in their homes," Segal said.
In the late 1960s, Segal had a revelation that occurred as he was going door-to-door at the behest of his wife to collect donations for a charity in his tony neighborhood of Wilmette, Ill. He saw nice homes and nice cars, but upon entering the houses he saw furniture that was less than appealing.
"I said, ‘Carole, you have no idea how you inspired me. I went into more homes that I thought would be beautiful that were so ugly, and we have so far to go and so little time to do it.’ In the late 1960s and early 1970s, America had so little good taste and so little home furnishings. People would spend a lot of money on the outside of their homes and their cars, but very little on the intricacies of their homes," Segal said.
The couple has tried to imbue their passion for great merchandise into every phase of the company’s operations. Every display is carefully executed and every piece of merchandise is carefully edited, according to Segal. He believes that a specialty retailer has a point of view vs. a department store, which tries to be all things to all people. "We’re editors, we’re selectors. We make it easier for the consumer to find a particular variety of product. If you like French traditional, you don’t come to Crate and Barrel. If you want contemporary, you might come to us or any of our competitors, but you know what we stand for."
Growing a business
Segal insists that the growth of his business didn’t stem from a passion to make a lot of money. Instead, he subscribed to the European philosophy, which was to create a great product or service from which the business is rewarded a profit. He prefers to refer to the company as a family business rather than a corporate environment.
"I heard Stanley Marcus (the eldest son of the founder of retailer Neiman Marcus), whom I’ve so admired, say: ‘Retail is easy. If you take care of the customer, then he’ll come back. If you take care of the product, he doesn’t come back.’ It’s as simple and as hard as that."
Crate and Barrel prides itself on designing beautiful store displays, which are difficult to copy. It also works diligently to find products from smaller, out-of-the way factories that make beautiful products at prices shoppers can afford — no easy task for a buyer. Segal contends that it’s much easier to direct buyers to scour the world in search of expensive, beautiful items or inexpensive items of less quality. It’s that middle ground that’s tricky, but Segal relishes the challenge.
"That is how we inspire our people to work harder than the next person. We just don’t want you to do it the easy way. If it were easy, everyone would do it. And in a sense, that philosophy has bode us well. It is not hard to go to all the big trade shows and buy from the same vendors as everyone else does. But how does that separate you? How does that make you more unique? It doesn’t."
Words of advice for developers
Segal implores developers to think of themselves as retailers vs. real estate people because they are trying to sell product to consumers. He also advises the shopping center development industry as a whole to focus more on developing great merchandising techniques and less on making returns on investment. The rush for a quick return can cloud the ultimate goal, he believes.
"The question should be how do we put together this wonderful aggregation of stores that people are going to love to come to? It’s not how big you make the mall, it’s not how much marketing or advertising, it’s not splashing your name over the front of the buildings," Segal said. "It’s really about those merchants who are going to make the shopping experiences unique and different in the markets you’re in."
In other words, it’s all about passion.
TIMELINE: Crate and Barrell milestones
* 1962 First store opens in Chicago's Old Town;
* 1967 Crate and Barrel mails its first catalogue;
* 1971 First store in major shopping center, Oak Brook, Ill.;
* 1977 First store outside of Chicago, 1045 Massachusetts Ave. and Faneuil Hall in Boston;
* 1982 First store in the South, North Park and Galleria in Dallas;
* 1985 California expansion begins, Grant Street in San Francisco;
* 1990 Flagship Michigan Avenue store opens in Chicago;
* 1995 Madison Avenue store opens in Manhattan, Crate and Barrel enters New York market with four complete home furnishings stores;
* 1998 Crate and Barrel partners with Otto Versand of Hamburg, Germany, the world's largest mail-order company;
* 1999 Crate and Barrel launches its Web site;
Source: Crate and Barrel corporate Web site, www.crateandbarrel.com