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Room & Board Plays Impossible To Get


By all conventional standards, Room & Board should be bigger than it is. The Minneapolis-based furniture retailer, which runs just nine stores, has a devoted base of customers who rave about its hip design and customer service on message boards and blogs. Its sleek styles, priced between the highbrow midcentury classics at retailer Design Within Reach (DWRI) and the flat-pack furniture from Ikea, are often featured in magazines alongside brands several times its size. It's popular among private equity and venture capital investors, too: Founder John D. Gabbert says he receives at least one overture a month. But investors haven't been able to persuade Gabbert to take their money. "We don't want to grow faster," he says. "So the conversations are usually incredibly short."

Why would a hot retailer shun the fast track? Gabbert believes it's the best way to maintain the company's customer-focused culture. He also worries faster growth would strain his ability to work with the small U.S. manufacturers that supply Room & Board with about 85% of its products.

Gabbert's interest in working with those American manufacturers was just one reason he left his father's traditional furniture business in 1980. In addition to sourcing, Gabbert disagreed with his father over employee pay, and wanted to target niche customers interested in modern designs. The company Gabbert went on to build was Room & Board, which now has "an almost mystical status" among dealmakers as a company that has yet to exploit its niche, says Neil Stern, a senior partner at retail consultancy McMillan/Doolittle. He compares its reputation to that of companies like the Container Store, which sold a majority stake to a private equity firm this summer.

Passing up outside financing is one way Room & Board rejects conventional ways of doing business. Unlike most furniture retailers, it doesn't pay commissions. The private company, which had $208 million in sales last year, sends out just one catalog a year plus a "cata-zine" featuring real customers' homes. And it is so careful to preserve its high-touch strategy that it only launched online purchasing on Aug. 21.

CHALLENGING WORKERS

Controlling growth keeps Room & Board small enough to expose store employees to other facets of the operation. New store employees spend time in the warehouse putting together furniture; many go to Minneapolis or local call centers to man phones. Call-center representatives spend three months working in stores before taking customer calls. Many workers do "ride-alongs" with delivery drivers, visiting customers' homes. "The cross-training of associates is really leading-edge," says Paula Rosenblum, a managing partner with Retail Systems Research and a former executive at Domain Home Fashions.

That exposure also helps address a potential problem. Because of Room & Board's measured approach, it risks losing aspiring store managers who might have to wait years to run their own store. To keep them engaged, employees are given the chance to do more than just sell. Many become responsible for a store's wellness programs, payroll, or software needs; some even travel to meet with buyers. New York store manager Lee Testa admits it can be hard to convey to new employees how they'll be able to grow within their jobs, especially given the industry's tradition of promoting people into higher-volume stores. Says Testa: "We try to have a flat structure and to offer opportunities for people to be challenged."

A slow approach to store expansion doesn't mean Room & Board isn't growing. In 2006 same-store sales in its average 35,000-square-foot locations rose 17%, the second-highest in the industry, according to Furniture/Today, which pegs the median for the largest retailers at 4.6%. Its two most recent stores, in New York and San Francisco, have already doubled staff to meet strong sales.

Will Gabbert follow the lead of the Container Store, which long eschewed selling a majority stake? Not if it means faster growth. "The trade-offs are just too great," he says.

By Jena McGregor


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