Crate & Barrel Has a New CEO

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Here\’s a fascinating development in retailing: Replace a good merchant with another good merchant. What a concept. Crate & Barrel, the iconic lifestyle home furnishings retail chain announced over the past few days the departure of current CEO Needa Montgomery and her successor Janet Hayes, a former Williams Sonoma veteran with a good pedigree.

As so many big retailing companies bring in operations and financial types to run their businesses, what\’s happening at Crate is a refreshing reminder that if the store isn\’t merchandised right, nothing else really matters all that much. It\’s a lesson that C&B\’s owner, German-based Otto Group, apparently learned the hard way, having had a series of operations-based leaders before Montgomery…with suitably dismal results.

Sonoma Successes

Hayes, who was most recently president of the namesake housewares retail chain at Sonoma until last August, brings a strong resume, including Pottery Barn Kids and Teen, and prior to that time with Nike, Gap and Macy\’s. Her departure from W-S was never truly explained outside the company even after six years heading up the flagship brand there.

[callout]“My passion for great brands with meaningful heritage makes this an extraordinary opportunity. I am equally humbled and energized to lead the company into a new phase of transformation and growth.”[/callout]

But Sonoma has garnered a reputation for being one of the savviest retailing organizations, not just in home, but throughout the industry. With a near 50/50 balance between in-store and online sales (actually slightly tipped towards e-com, a ratio probably more so during the pandemic), the company has been in the forefront of omnichannel operations. It has aggressively combined back-office functions so one inventory can serve both businesses and has gotten quite proficient at cross-merchandising with its multiple brands.

Sonoma also has a heritage of balancing merchandising and operations going back to its founding. Chuck Williams was a cooking aficionado who started a small store in northern California to sell the kind of cookware and kitchen gadgets he couldn\’t find elsewhere. Years later Howard Lester took over running the business side and was the first retailer I ever interviewed who not only used the word \”algorithm\” but also knew what it meant. Sonoma also groomed an executive named Gary Friedman who has gone on to make RH one of the most exciting and successful retailers in the home business.

Great Crate…and Then Not

Crate & Barrel had a similar heritage but lost it along the way. Founded by the legendary Gordon Segal in 1962 with much the same premise as Williams, the store focused not just on the kitchen but also furniture, textiles and decorative accessories. As such, it combined what Sonoma eventually built with separate nameplates including Pottery Barn and West Elm.

Segal took his time growing C&B so it never reached the broad scale of his chief competitor, but it too was an early adapter of combing physical stores with direct-to-consumer, first through catalogs and later online. He eventually sold the company to Otto, a privately held concern that is a global powerhouse in e-commerce but largely unknown in U.S. retailing.

When he retired, Segal turned over the Crate reigns to his number-two, Barbara Turf, and she continued with his plans. But a fatal illness eventually took her away from the business and thus began a series of ill-fitting CEO choices, even including bringing back a very retired Segal for a short stint. Through this period the company fell behind its competition on multiple fronts, from merchandising to expansion to product development to match the aging of its core customers. Crate stores were remarkably unchanged for years and CB2, the spin-off division, was a hodgepodge of ill-fitting merchandise mixes and stale presentation, in-store and online.

Montgomery Makes Her Mark

It wasn\’t until Montgomery, an Otto executive, took over Crate in August of 2017 that the retailer got back on track. Under her leadership, it was able to recapture the merchandising flare that was Segal\’s trademark and there were a number of initiatives she can claim responsibility for:

  • The nascent CB2 division, started under Segal but left to languish for years as the similarly positioned West Elm grew and developed, was rebooted (something, to be fair, probably already in the works before her arrival) with a more sophisticated and upscale merchandising mix to reflect the aging of its core millennial customer base. Today, if anything, it is more stylish and on-trend than West Elm…and probably big-sister Crate too.
  • Not that the core Crate brand was ignored either. Its furniture offerings, which had gotten very predictable and safe, also took a more stylish turn, once again syncing with its older Gen X and Baby Boomer customers. Stores were better cross-merchandised and color – a rarity in the old Crate mix – provided a welcome accent to the selling floor.
  • Across both nameplates the company under Montgomery brought in a number of outside design and brand names, something simply not done before. These ranged from Gwyneth Paltrow\’s Goop to westside Los Angeles retailer Fred Segal (no relation to Gordon) to Lenny Kravitz to GQ magazine. These collaborations have allowed the company to show designs and products for limited runs that don\’t necessarily fit its core design aesthetic.
  • Design services have also taken a higher profile over the past few years. Earlier this year it opened its first Crate & Barrel Design Studio in Pasadena, CA, an extension of its existing interior design program. Pottery Barn and RH are also moving into this area in a larger way but neither has opened a dedicated retail storefront just for design services.
  • Last year Montgomery opened up the first in-store restaurant in a Crate store in Chicago, its headquarters city, a full-service place called The Table at Crate. Again, other retailers, most notably RH, are incorporating hospitality into their retail stores but with its kitchen and cookware offerings it would seem to be a more natural extension for Crate.

Since the company\’s performance numbers are not available as a private concern it is impossible to see how financially successful it has been under Montgomery. Last year, it unfortunately gave up its flagship store on Michigan Avenue in Chicago, citing the high cost of rent in that prime location…which is now a Starbucks. And it has still moved slowly to expand physical locations under both brands, something that might be seen now as a smart move given retail shutdowns this year.

A New CEO, a New Agenda?

Montgomery\’s future plans are not known, nor for that matter is the agenda Hayes is inheriting. In the release announcing her appointment, Sergio Bucher, a member of the executive board of the Otto Group and chairman of the supervisory board of Crate and Barrel, said \”She will help us strengthen the position of Crate and Barrel as a design-led, lifestyle company in the market.\”

Hayes herself said, \”My passion for great brands with meaningful heritage makes this an extraordinary opportunity. I am equally humbled and energized to lead the company into a new phase of transformation and growth.\”

Exactly what the transformation entails is the big question. One can expect more restaurants or at least hospitality services, most probably in high-profile locations. The entire design services area is likely to be another priority as the company\’s core customers mature and want – not to mention are now able to afford – better and more integrated design solutions. Based on the efforts of its prime competitors, both chains like Pottery Barn and RH as well as independent furniture stores like Nebraska Furniture Mart all of which are moving more aggressively in this area, Crate is still somewhat behind the curve here. The California Design Studio was barely open before it shut down due to the pandemic so one would think the concept will need to be tested further before the company decides to expand it.

Under Hayes both nameplates will likely continue to offer varied catalog and print marketing efforts, something that was initiated under her predecessor and something that Williams Sonoma has gotten quite good at over the past few years. Its near 50/50 balance of e-com and in-store sales is certainly something it will want to keep, a barometer that is the envy of so many store-bound legacy retailers.

Whether there will be more physical stores remains to be seen. Certainly, it\’s a buyer\’s market for retail real estate but the company\’s judicious expansion strategy is unlikely to be radically changed. In what turned out to be farewell interview only a week or so before announcing she was leaving, Montgomery talked to Business Insider about how the company was thinking about its stores and strategy in light of the changes caused by the pandemic. \”We may just see a more permanent shift in behavior, and that will lead us to think about, what does the store need to look like? And what should we be fulfilling through the store of the future? Maybe it\’s going to be virtual; maybe it\’s by appointment, alongside the traditional shopping experience. I do think that we will have to think about the footprint of the store going forward,\” she said. \”We will really challenge ourselves around reinventing and reimagining that experience,\” she said.
It\’s a task that now falls to her successor, Janet Hayes.

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