Katherine Schuler at Boxes & Bins, Inc.

 Katherine Schuler rolled her “tractor seat” chair, a Boxes & Bins (B&B) best seller, closer to her worktable, scanned the project files neatly arrayed in the colorful stacking organizers in front of her, and pondered the challenges facing B&B, which was about to launch a major marketing campaign to counter slow growth and return the firm to profitability. She also considered how she was going to work with B&B’s senior executive team, which she was about to join, to meet those challenges.

Schuler had been at Boxes & Bins, Inc., the premier U.S. retailer of storage and organization products for households and businesses, for over a decade. During that time, she had risen rapidly through the company. In three months, she would become B&B’s senior vice president of marketing. She would succeed Gary Hauer, a cofounder of B&B, who had overseen marketing from B&B’s inception over thirty years ago. Hauer was about to retire, but would remain as honorary chairman of the board. She had worked with him for over a year and knew she would be judged by the standards he had set and by her success in executing a new marketing strategy that met B&B’s growth objectives.

Schuler was concerned that several members of the team had very different opinions about the direction of B&B’s marketing. She also worried about some of the changes that B&B had experienced after its founders sold it to a private equity firm, the Weichel Group, in 2008. B&B was known for its unique merchandise and extraordinary in-store service, which reflected the founders’ understanding of B&B’s core customer and their dedication to selecting “great” employees, whom they rewarded accordingly. Under the Weichel Group, B&B’s top line had grown rapidly, but the company had lost money for the first time. (See Exhibit 1 for an overview of store and financial data for Boxes & Bins).

Katherine Schuler’s Background

After graduating from Miami University in 1993, Katherine Schuler went to work for her father’s sales representative firm, Schuler-Goodnight Associates. Based in Chicago, SG Associates represented 15 manufacturers of gifts and decorative accessories in six Midwestern states. Schuler worked out of a small office/showroom near the arts district in downtown Kansas City. One of her largest accounts was Halls, the retail division of Hallmark Cards. The buyers she called on at Halls liked her so much

that they offered her a retail buying position. Schuler’s father supported her “going on her own,” and she took the job as assistant buyer for housewares in June 1996.

Fortunately, Schuler worked for an experienced retail buyer, who became her mentor. She was a quick study and moved into a buyer’s position in 1998. In 1999, she became a senior buyer for all hard goods at Halls. During this period, she also went to the Bloch School of Business at the University of Missouri, in Kansas City, and received her Executive MBA (EMBA) in 2001.

As a sales representative, Schuler had called on B&B, where she had developed friendships with its buyers and the principals of the company. In 2001, two of B&B’s co-founders, Gary Hauer and John Salzberg, determined that their company needed to increase its management depth. They tried to persuade Schuler to join B&B. She was flattered, but loved her job at Halls and turned them down. Hauer and Salzberg persisted. Finally, in late 2002, Schuler left Halls for B&B.

Schuler Joins Boxes & Bins

After completing B&B’s eight-week training program, Schuler was deployed to a store in Atlanta for several months to ensure that she experienced B&B’s customers, products, and employee-centered culture firsthand. She was then placed in charge of operations for the eight stores in the southeastern region of the United States.

In 2002, B&B’s average store size was approximately 20,000 square feet. Each store generated about

$14 million in sales per year. B&B’s sales per square foot and gross margin were among the highest in retail. Of the eight stores in the southeastern region, however, only two were performing above average when Schuler became regional manager.

Looking back at that time, Schuler commented: “I had never considered an operating position. Gary and John insisted that I take the operations job because they wanted me to understand each part of B&B’s business. I’m not sure if they were testing me, or if they wanted to get a fresh perspective on the challenges in the region. Fortunately, my EMBA program had a strong operations component, and I felt confident that I could improve the performance of the stores.”

Schuler’s experience gave her insight into what had to be done for a store to succeed. She spent considerable time in each store working with the store managers and employees to execute these plans. Merchandise was to be displayed in an orderly fashion, and the store had to be “full.” Special promotions, such as back-to-school, needed to be correctly arrayed in the front and center portion of the stores with proper point-of-sale signage.

One store manager commented, “Katherine has a can-do personality. She brought a spark to our employees that made a big difference. She wasn’t micromanaging or overbearing, but she let us see our store in a fresh light. She never hesitated to assist us with any task. She’d stock shelves, arrange floor merchandise, greet customers, and help them find what they needed. I think we all learned more about sales from just watching her than we could have from any training program the company offers.”

Within a year, seven of the eight stores in Schuler’s region were performing above B&B’s average. Hauer and Salzberg were very pleased, and asked Schuler to return to Kansas City headquarters to assume a senior merchandising (buying) position. This role was more like her experience at Halls. She had six direct reports. B&B sold over 10,000 items from more than 400 manufacturers and distributors. In addition, B&B sold Alena, a line of wire and wooden shelving made by a Polish company that B&B had purchased. Alena was an important sales driver. B&B sold it to a few other retailers that were not direct competitors. Schuler was responsible for kitchen, laundry, office, closet, and garage storage

products, which produced about one-third of B&B’s sales. She reported to Mary Ann Day, senior VP of merchandising. Day was John Salzberg’s wife and had been with B&B since its founding.

Over the next six years, Schuler and Day increased the “fashion” component of the storage and organization products that B&B sold. Schuler also led the team that oversaw B&B’s vendors and its custom product suppliers, helping to implement changes that increased efficiencies and profitability. In 2009, Schuler was promoted to the head of all merchandising, except for the Alena shelving, as Day gradually withdrew from daily involvement in the business.

Boxes & Bins Background

Boxes & Bins pioneered the concept of storage and organization retailing when it opened its first store in Kansas City in 1981. The idea came from Gary Hauer while he and his friends, John Salzberg and Mark Conners, looked for a business venture that would enable them to be their own bosses. Hauer and Salzberg were working in the tool department at Sears. Conners was a struggling architect with whom Hauer had gone to the University of Missouri. The trio had almost decided to start a retail store that sold custom-made furniture when Hauer had a conversation with a young entrepreneur, Ben Helms, a recent Harvard Business School graduate, about another retail possibility. Hauer noticed that Helms had a set of The Thomas Register, a multivolume product directory, on his bookshelf and commented that he was amazed at the incredible array of high-quality products available to industrial buyers. He picked up one of the books and pointed out several items he wished were easy to find, such as baker’s-rack shelving and industrial totes. This conversation was fortuitous, as Helms, who had some experience in the furniture business, pointed out how difficult that industry was and how different and attractive the concept of “industrial goods for the masses” seemed.

Six months later, the first Boxes & Bins opened at the Plaza in Kansas City in a 600-square-foot space. It was immediately successful, as “organizing” struck a chord with the upscale shoppers in the arts district of Kansas City. Within several months, B&B took over another small store next to the original. Within a year, it had moved to a 5,000-square-foot store nearby. B&B evolved quickly, aided by Conners, who successfully interpreted the three partners’ spare and simple aesthetic. After another move to a 12,000-square-foot store at the Plaza, B&B opened around one additional store annually.

The three partners credited the success of B&B to their strong values and clear operating principles. First, they believed that “great” employees were the most crucial element of a great organization. B&B paid considerably more than comparable retailers did to get the best people. Because it had its pick of applicants, it could screen new hires thoroughly in order to ensure that there was a good fit between them and the company. Salzberg jokingly described it as hiring people you would want to take care of your mother. Further, it made sure that new hires started on the floor of a store after receiving eight weeks of training at headquarters and had some type of training or skill session for a week every year they were with B&B. This effort paid off. The company thrived.

B&B’s target customer was affluent, urban, and female. This focus drove merchandise selection, marketing, and store openings. The founders opened stores only in areas where surrounding neighborhoods were characterized by their target demographic. Stores were located in River Oaks in Houston, Buckhead in Atlanta, and Tysons Corner in Washington, D.C., for example. The partners would not open a store until they got the space that they needed (now around 25,000 square feet), in the precise location they felt best served their main customer. As of 2008, B&B had 28 stores in 20 cities.

In 2008, B&B’s founders sold 85% of B&B to the Weichel Group, a private equity firm based in New York. The sale enabled them to cash in on their success and provided a way for key employees to gain 

ownership stakes. The Weichel Group viewed B&B as ideal for rapid growth; it felt the United States could support many more storage stores.

The Weichel Group also felt B&B could support a large line of credit. From its beginning, B&B had operated on the founders’ belief that it should grow only as fast as its earnings would allow. It had taken on debt only twice: to build its present office warehouse and to expand into New York City. The Weichel Group obtained a $400 million line of credit to accelerate the opening of additional stores. This initiative resulted in B&B having 57 stores at the time of the IPO, with plans to open eight more in 2014. The Weichel Group also used the credit line to pay off the founders and pay itself a sizable dividend. These moves had pushed the company’s debt from almost nothing in 2008 to over $368 million in 2013.

As profits slipped at B&B, the principals at the Weichel Group had asserted themselves more in the daily operations of the company. They had been impressed with Schuler and insisted that she become head of marketing. Hauer was to phase out his involvement with the area, as the principals believed that B&B’s marketing strategy and tactics were no longer adequate for B&B’s rapid growth. Schuler would join the executive management team after a period of working closely with Hauer and the marketing group. “I’ve spent my career taking on big challenges,” Schuler remarked to Hauer when he talked with her about the position, “and I can serve B&B well in this role.”

Changes in the Functional Areas at Boxes & Bins

The opening of so many stores had stretched the capabilities of every functional area in B&B. In response, the Weichel Group hired two outsiders in 2012 to lead B&B’s operations and merchandising. Bob Seigel, the new senior vice president of merchandising, had been the senior VP for hard lines at Target,1 and had over twenty-six years of experience with various major retailers. Charles Kresminski was hired to oversee operations as senior vice president. He had been with Dollar Tree2 as its senior supply chain manager for over fifteen years and had over thirty years of retail experience. Because B&B had a policy of promoting from within, many long-time employees were unhappy about the new hires.

Schuler felt that Seigel and Kresminski often did not value her input, although she was not sure why she felt this way. The senior executive team needed consensus around B&B’s new marketing strategy that Hauer and she had been working on, as well as tactical elements, for its efforts to succeed. Because Seigel and Kresminski reported to Hauer and Salzberg, Hauer had received little resistance from them regarding the changes that Schuler and he were working toward. As Hauer moved away from daily involvement at B&B, however, Seigel and Kresminski began to assert themselves more in team meetings. They did not fully support the strategy being put forward, and seemed determined to impose the “way we did it at Target and Dollar Tree” on the organization.

Schuler thought that despite Hauer and Salzberg’s insistence that marketing was one of four equal legs of the “stool” that drove the business, along with merchandising, in-store sales, and operations, the new owners viewed operations and merchandising as more important drivers. Adding to this concern, Schuler knew that B&B’s marketing efforts had not met the new owners’ expectations.

For most of B&B’s history, the marketing department had consisted of a marketing group and an in-house advertising agency. Marketing had been critical to B&B’s efforts to establish a strong brand.

The marketing group had developed the marketing strategy for the stores and the brand, made tactical decisions about the marketing mix, and overseen the website and direct mail catalog. It also worked with B&B’s advertising agency to promote a new store opening and drive business to the stores with various print vehicles that pushed promotional and sale items. This formula had worked well when B&B opened only one store annually and had a narrow target market. In recent years, however, it had proved less effective as the Weichel Group accelerated the opening of new stores into communities where there were fewer affluent households.

A few months prior to the IPO, the Weichel Group had hired DDBH, a national ad agency. Schuler believed that hiring the agency was necessary both to change the marketing strategy and to increase the scale of activities required to drive business into many new stores. Yet she understood why some employees had resisted it.

Schuler reflected on these issues as she walked down the hall to meet with the agency and her staff to finalize the critical back-to-school campaign. Substantial changes were being proposed and would be implemented when the executive team signed off on them. That meeting was only a few days away.

Meeting with DDBH and the Internal Marketing Staff

For the previous eight months, Schuler and her staff had worked closely with the ad agency to create an advertising and promotional campaign. Since B&B’s beginning, its ads had stressed organization, space-saving solutions, and time-saving benefits. It ran various sales and promotions throughout the year that coincided with particular periods, like back-to-school and spring cleaning. Because the team had to finalize the back-to-school program within two weeks, the decision about the marketing strategy and its execution was urgent; everyone felt back-to-school was an ideal time to introduce a campaign.

Deciding what the campaign’s theme should be was more difficult than it had ever been. B&B still targeted affluent, urban females. Nonetheless, its new stores had to draw traffic from broader market segments in order to succeed.

Mike Berlin, DDBH’s creative director, spoke first: “We’ve been working to make B&B’s position in the marketplace more inclusive, more appealing to a wider audience. In many of its newer locations, B&B lacks awareness. We see two possibilities. One would continue with the organizing and storage themes that B&B has used in the past, but bring more digital and social media into this mix. A second would focus primarily on the value added that B&B provides by selling the best merchandise and the widest selection in this market space, and staffing its stores with superb employees who ensure that customers get exactly what they need and have a great in-store experience.”

Ivy Yang, B&B’s director of advertising, commented: “Our traditional campaigns are less effective. Yet, although we need to do something different, especially in our newer stores, we cannot alienate our core customers. The second campaign might satisfy both audiences. Maybe we should also increase our use of promotional discounts in order to convince potential customers to visit our stores.”

“Discounts increase store traffic,” asserted Schuler, “but 20% off key items like Alena requires large increases in volume to justify the lower prices. Consistent discounting also negatively affects B&B’s brand. I know we are all feeling pressure to turn things around, but we cannot just react; we need to establish criteria that ensure this campaign is consistent with the company’s long-run interests.”

The Meeting with the Executive Team

A few days later, Schuler met with Seigel and Kresminski, along with Hauer, Salzberg, and Day to discuss these options. Schuler started the meeting by summarizing the discussion between DDBH and B&B’s internal marketing group. She then proposed a campaign that emphasized the uniqueness and value added of B&B’s merchandise and people.

“How is this going to increase sales in the store?” asked Seigel. “All the other big retailers use print and mailers and email coupons to bring in traffic. Customers care about good deals because they want to save money. This is the way to move tonnage!”

Schuler replied, “Tonnage has never been what Boxes & Bins is about. Our customers could go to Target, but they come to us. They are loyal to our brand because they cannot get what they need at a big-box retailer, or they want the help of our in-store associates to decide what they need. We offer expertise and merchandise that Target cannot replicate. Our campaign should emphasize that. We need to grow, but we can’t be all things to all people.”

Kresminski spoke up: “Katherine, I’ve been in retailing almost since you were born. The world is littered with past great stores that have focused too much on building a brand. Consumers say they want high quality and a good shopping experience, but what they really care about at the end of the day is low prices. The most successful retailers, like Target and Dollar Tree, don’t need to offer a premium experience or the best products, and they pay their associates half what we pay. Marketing has to focus on driving volume in the stores.”

John Salzberg responded: “Both sides have a point. I agree with Bob and Charles that we need to bring in traffic, especially in our newer locations. Yet we also need to build the brand, and our success in doing so depends on us identifying what we do well and getting the attention of potential customers. If we focus only on promotions, the big retailers will eat us for lunch. All of you need to think more about how we can succeed now and in the long run.”

After more tense moments, the meeting ended without a decision about how to proceed. The executive team agreed to meet the next day and choose how to move ahead.

Second Thoughts

After the meeting, Schuler reflected on several issues. She felt terms like “traffic” and “tonnage” showed a fundamental misunderstanding of what had enabled B&B to succeed against its larger competitors. It seemed like there was a focus on growth at any cost just to drive the stock price up, with no acknowledgment of what the wrong sort of growth would mean for B&B in the long run.

Schuler knew that Hauer was uncomfortable with all the changes imposed in the last few years. She suspected it was one reason he was stepping down from B&B’s daily operations. She was uncertain how long Salzburg would stay, and she knew Day might retire.

Schuler felt that success in her new role could help her become president of B&B when Salzberg retired, a goal she had had since graduate school. She was uncertain if she wanted to continue at B&B given the direction the company seemed to be going, yet she also thought that perhaps she was in the best position to lead B&B to future success. She had an incentive to do so, as she had options to buy 10,000 shares of stock at the IPO price. The stock had almost doubled in price within the first week of the IPO, but was now languishing almost 30?low the IPO price.

Schuler wondered how to handle herself in tomorrow’s meeting, and whether she should reach out to Salzberg beforehand and ask for advice. She agreed that B&B had to change, but was unsure how to deal with Seigel and Kresminski. Their “legs of the stool” had to be in sync with marketing. She felt that Seigel neither understood the artful mix of function and fashion that characterized B&B’s merchandise nor cared about the factors that had led to B&B’s success. She was also worried about Kresminski’s attitude toward employees: he just did not think retail floor personnel should be paid very much. He was driving a change away from the high-quality vendors that B&B had always embraced and toward low-cost suppliers. Schuler felt that B&B’s core customer expected, and paid for, the best products and service available.

Schuler rolled around in her chair. Was it possible to get Seigel and Kresminski to understand and embrace what had made B&B so successful? Could a short-term focus on profitability be reconciled with what had made B&B distinctive? Would she feel comfortable being part of that effort? Schuler had turned down numerous offers from other companies over the past few years, and she wondered if it was worth continuing in her current role.

• What factors have made B&B successful and what has recently changed?
• What factors have contributed to Katherine Schuler's success?
• By the end of the case, what are Schuler's key relationships, and how should she manage them?
• If you were Schuler, what would your action plan be for the next six months?
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