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The Container Store Boosts Bet That Smaller Stores Will Make Chain More Profitable

Storage and Organizational Retailer To Add 76 Small-Format Locations to Pipeline

Photo Courtesy of Kevin Brown.

The Container Store had its most profitable year yet with consolidated net sales reaching $1.1 billion, the first time the retailer surpassed $1 billion in annual sales in its history. While the revenue's getting bigger, its average store size is set to shrink.

But the company wants to increase its market share of the storage and organizational sector and plans to grow sales to $2 billion by fiscal year 2027, President and CEO Satish Malhotra told investors during an earnings call this week for the retailer's fiscal year that ended April 2.

The Container Store, based in the Dallas area, plans to add 76 small-format stores over the next six years, adding to its existing plans to open 100 small-format stores, for a total of roughly 170 new stores, Malhotra told investors. The company had 94 stores that average 25,000 square feet as of April 2.

The small-format stores are expected to total an average of 12,500 square feet of retail space with a cash investment of $3 million for each store, executives told investors. In the first year, the Container Store anticipates $5 million in revenue, or $400 per square foot, from each new small-format store, according to an investor presentation.

The smaller-format stores, which are about half the size of a traditional store, come as the Container Store has been studying how to maximize productivity of its operations.

"This growth coupled with our more productive store base, and disciplined expense management is expected to result in low double digit operating margins over time as inflationary headwinds abate," said Malhotra, who has been in his position for about a year and was previously chief retail and chief operating officer at Sephora.

The Container Store's first small-format store is scheduled to open this fall in Colorado Springs, Colorado. The retailer's second small-format store, in Salem, New Hampshire, is scheduled to open months after the Colorado Springs location.

The Container Store also plans to add a new distribution hub and two new wood manufacturing facilities to its real estate portfolio by fiscal year 2027. A spokesman told CoStar News that the locations for the distribution hub and manufacturing facilities have not been selected.

The Container Store's strategy also includes deepening relationships with its customers with the launch of new brands and expanding its customer loyalty program, as well as strengthening and improving operations.

"With only 5% of total market share today, we are confident in the opportunity ahead to grow sales to $2 billion by fiscal 2027," Malhotra said, adding there's a $20 billion addressable market for storage and organizational needs. "We are excited to return to store growth."

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