Creative Crate & Barrel stacks up as retail winner

By ignoring conventional wisdom (and lots of unsolicited advice), Gordon Segal has built Crate & Barrel into a retail success that has transformed the way many Americans decorate their homes.

While other housewares retailers chased the design craze of the moment, Segal has returned over and over again to the same European suppliers and design philosophy: clean-lined, Scandinavian-inspired, colorful.

When investment bankers urged Segal to go public so that he could expand quickly, Segal moved slowly and stayed private. It took him 33 years to open a Crate & Barrel store in New York City.

The payoff for Segal's independence: $850 million in estimated sales this year and a 40-year winning streak almost unparalleled in modern American retailing.

Oh, yes, there was one year when sales at the Northbrook, Ill.-based home-accessories chain rose only 10 percent, instead of the usual 18 to 20 percent. When it comes to business setbacks, that's about it — and it's not much.

"A lot of shopping isn't fun. Shopping at Crate & Barrel is fun. That's one of the key reasons they've been successful and sustained that success," said Leonard Berry, professor of marketing at Texas A&M University.

Crate & Barrel has one store in Bellevue and plans to open a store next year at University Village in Seattle. But as the chain celebrates its 40th anniversary this year, a watershed event looms.

Segal is 64, and his handpicked heir apparent, President Barbara Turf, is in her late 50s. Even though Segal has no current plans to retire, a new generation of Crate & Barrel leaders soon will have to come to the fore.

The question: Can anyone fill the big shoes left by Segal and Turf? They have worked together to shape Crate & Barrel's vision almost since the company was started in a former elevator factory.

One thing appears likely: The next leader won't be a Segal.

The Segals' younger son, Robert, is an artist and fabric designer at Marimekko, the Finnish textile company. Daughter Katie Frekko is an attorney in Washington, D.C. Chris Segal, the older son, gave it a try but left the company several years ago and is working in the investment field.

If a leadership vacuum ever develops, it likely won't last long.

Crate & Barrel's majority owner — German cataloguer Otto Versand — may not keep its hands off the chain after Segal is gone. Segal sold 70 percent of the company in early 1998, giving him access to more financial resources without having to go public.

Yet Crate & Barrel is such a product of Segal's imagination and energy that it is hard to imagine the place without him.

The mood at a Crate & Barrel is cool and calming. Glittering martini glasses are stacked by the dozens in columns illuminated by warm halogen lights. Furniture groupings are accented by vintage books and hatboxes.

Dusty glasses or fingerprint smudges are major no-nos. Employees spend hours painstakingly wiping glasses clean before the merchandise is put on the shelves. The flutes or highballs are dusted regularly and wiped clean again when a customer buys them.

Such fastidiousness is time-consuming and expensive from a labor standpoint, notes Sid Doolittle, retail consultant with Chicago's McMillan/Doolittle.

It's also unusual. In most department stores, china and crystal are displayed one place setting at a time. The bulk of the inventory is packed away.

"Gordon has substantially changed the category he is in," Doolittle said. "He went in with a fashion statement in a utilitarian category."

Crates, of course

The fashion statement even extends to Crate & Barrel's signature black-and-white boxes. The boxes, along with Crate's catalog, raised the chain's visibility so effectively that Segal avoided using traditional forms of advertising for years.

The attention to detail comes from Segal. When he was showing a group of reporters around the soon-to-be-opened Chicago flagship a few years ago, he stopped to peel a stray piece of masking tape off a door. A little while later he paused to pick up a tiny ball of paper from the floor.

The fussiness is part of what makes Segal tick.

"We always cleaned everything. We're neurotically neat," Segal said. "We say it takes three years to make a manager neurotic enough to run things."

In the beginning, there were just the Segals, a young married couple who met at Northwestern University.

Gordon, the son of a Chicago restaurant owner, had made a two-month trip to Europe after college. He fell in love with the European style of living — the way they linger over a meal, the way they care about quality over quantity.

"I said to Carol, 'This is the way I want to live my life.' They weren't in business just to make money."

Carol, the daughter of a dentist in Calumet City, Ill., shared Segal's design taste and eagerness for a new challenge.

Married in 1961, a year after they graduated from college, the two honeymooned in the Virgin Islands, where they discovered a housewares store on St. Thomas run by a Danish man.

The Segals were enchanted by the beautiful wooden bowls and trays he carried. They also were amazed at the well-made stainless-steel flatware he sold for $2.95 a place setting.

The couple asked him where he got such weighty utensils at such a low price. The storeowner said he traveled to Denmark on buying trips, and European manufacturers found their way to his store.

It started with dishes

The seed was planted. At home one night, while the Segals washed German porcelain plates they had bought as seconds in New York, they talked about the kind of elegant housewares emporium they wanted to open in Chicago.

Gordon spent the next six months scouting for the right location. Both of them called on trade commissioners from Sweden, Denmark and Germany.

The German consulate in Chicago sent over a representative from Wusthof, the knife maker. An Austrian salesman stopped by with a selection of stainless flatware.

By December 1962, the first Crate & Barrel debuted. It's become part of retail legend now, but the Segals couldn't afford display shelves so they used burlap and the packing crates the goods came in.

"We had forgotten to buy a cash register," Segal remembers. "We didn't know anything about retail."

But the satisfaction registered right away. "I am changing some tiny element of people's lives," Segal said. "That's the enormous gratification of retail. People don't realize how gratifying it can be."

Segal's vision of what Crate & Barrel design stood for guided his every buying decision. (Carol pulled back after their first child was born in the mid-1960s but has always been her husband's sounding board.)

Segal became known for zeroing in on a few items in a supplier's line and ignoring the rest.

When Segal's team finds something they like, they go for it, buying in quantity. They're also loyal. Crate & Barrel has been buying French jelly-jar glasses from the same supplier since 1973.

Even though Segal doesn't do the buying anymore, his taste still reigns most of the time.

If Segal sees an item in the store that "just isn't us," he will ask that it be taken out of the store or not reordered, even if it was selling well.

"His passion for product is unequaled," said Arthur Martinez, former chief executive officer of Sears.

"He is a businessman, sure. But at the start of every day and at the end of every day, he is committed and engaged with his product in a way that most retail executives aren't. It's just the man."

Segal didn't succeed just because he had an eye for style.

He is extremely cautious, always fretting, never wanting to make a wrong move. One of his favorite sayings is "Stay humble; stay nervous," and he does.

What has Segal got to be nervous about these days?

"We're on the knife's edge. If we become too much of a business, we end up being boring. If we are too creative, we become an art museum," he said.

That attitude has saved him, retail experts say, from the error most successful retailers make at one time or another — overexpansion.

But Segal's intense need to control risk has limited growth and allowed some Crate & Barrel wannabes to get a foothold in moderately large cities not on his radar screen.

Opening 117 stores in four decades is hardly a record-setting pace.

Meanwhile, Pottery Barn has grown to a chain of more than 200 stores, and Pier I, founded in California the same year as Crate & Barrel, has more than 900 stores in 48 states. It has plans to open 100 more during its current fiscal year.

Budget-oriented chain

Segal has shown the same restraint with the one new chain he has created: CB2, a less expensive version of Crate & Barrel designed to appeal to budget-minded young people.

After almost three years, there is still one CB2. The delay in a rollout prompted some to claim the prototype a failure. When a retailing newsletter gave the store a lackluster review, Segal was on the phone taking issue with the critique.

"I don't think I have a thin skin, but we're very sensitive about our culture," Segal said.

"We work so hard to do it right. I don't mind criticism. I mind stupid criticism."

As for the delay in rolling out CB2, Segal said he just wanted to make sure the formula was right. After last year's big jump in sales, Segal is convinced.

Two new stores for the Chicago area are in the works, and plans are being made to bring CB2 to Boston, Washington and New York. Eventually the chain might number 100 stores or more.

Crate & Barrel's other growth vehicle is Land of Nod, an upscale children's furniture and accessories catalog in Wheeling, Ill., that Crate bought 50 percent of two years ago.

With Crate's assistance and financial support, Land of Nod is rolling out its first stores.

Concerned about consistency

But as Crate & Barrel's expansion picks up speed, it could become more difficult to keep the company's famous consistency intact.

Crate has had remarkable continuity in its management ranks. Many employees have been with the company for decades. Only three of 13 people in a photo of Crate & Barrel's management team in 1984 are no longer with the company.

Such longevity is virtually unheard of in retailing, and experts often cite it as one of the keys to the chain's long-running success.

Even so, Turf, Crate's president since 1996, may never become CEO. She says she doesn't care and won't hang on indefinitely waiting for it to happen.

"I don't have the desire to be CEO to have the company run differently. I feel like I run my own merchandising show," Turf said, adding, "I think you can overstay. I don't want to walk in here when I'm in my 80s."

Otto Versand might have its own ideas about who carries on.

Martin Zaepfel, the Otto Versand executive to whom Segal reports and also the chief executive officer of Spiegel Group, said his company is too smart to meddle with Crate & Barrel's success.

Of course, Michael Otto, chief executive officer of Otto Versand, promised the same kind of hands-off approach when his family bought control of Spiegel in 1982.

Work in progress

Spiegel, parent of Redmond-based Eddie Bauer, did enjoy lots of freedom until the Downers Grove, Ill.-based company stumbled in the late 1990s. After a few years of ongoing setbacks, Otto dispatched Zaepfel to turn Spiegel around. That's still a work in progress.

Those who know Segal are positive he ensured autonomy for Crate & Barrel as part of the sale. And Segal said there's no reason to worry German business rigidity could undermine Crate & Barrel's tightly knit, creative culture.

But if Crate & Barrel ever goes into decline, the temptation to take control might be too great to resist.

For now, Segal said he has no plans to retire, and he isn't worried about hanging around too long. Spouse Carol agrees that's the right course.

"I always say the business was our first child," she said. "This is not just a job for Gordon. It's his life."