Biz Idea #39 – Compete on Price for Closets

by Byron on February 27, 2012

The Problem:

Semi-custom, quality closets cost a fortune.  There is no reason for shelves and metal brackets to cost anything near what I just paid for them.

The Business

Compete on price with Elfa.  Elfa is (I believe) exclusively distributed in the US by The Container Store’s in-house brand.  Admittedly, they produce a quality closet.  Or, should I say, they produce the makings of a quality closet.  I was a customer this past weekend.  I paid nearly $3000 for everything necessary to make a walk-in closet.  It was important to my wife.

Our closet was previously made up of low-quality metal shelving.  The shelves were attached to the wall in a hundred different places, thereby leaving a hundred different holes behind.  Elfa’s closets attached only at the top of the closet.  They have built a better mousetrap.

My wife was able to take the closet measurements and model the closet on the in-store computer.  She could put in shelves and poles and drawers and tie racks and belt hooks and you name it.  If it exists in a closet, it existed here.

But it cost $3000.  For wood and metal.  Mostly metal.

There is an opportunity to compete directly on price.

Doableness

Enormous undertaking.  You need modeling based on a full-line of everything that could ever make up a closet.  You need suppliers making all of that closet stuff on demand.  You need a website robust enough to make a customer feel comfortable with their purchase, despite the fact that they never see the stuff.  You need a network of installers for customers who don’t want to do the work themselves.  Then, of course, you need to market it.  Nobody ever said a cheaper alternative to elfa would be easy.

It’ll cost $10 million if it costs a buck.

My Thoughts

The Container Store had a sale on Elfa that was over about two weeks ago.  I just missed it.  I could have saved about $1000.  Made me sick.  Why can’t stores just give you their lowest possible price all the time?  (Hint: When there’s enough competition, they will.)

It got me thinking about the margins on these closets.  They weren’t losing money at 30% off.  Moreover, the Container Store is an expensive delivery mechanism.  I was in Bethesda.  The Container Store’s rent there isn’t so cheap.  Take out the stores and distribution network out of the picture and you have even more wiggle room on price.

You can probably sell for 40% less than Elfa and have very good margins.

Competing on price is not usually the way to go.  I have heard some version of the same thing time and again: Someone is always willing to make less than you are.  Translated, this means that having price as a competitive advantage never lasts for too long.  (Just ask Wal-Mart, Amazon is eating their lunch.)

This, however, is likely an exception that proves the rule.  Moreover, you won’t compete only on price.  And the marketplace will continue to get bigger.  Custom closets are a relatively new phenomenon, formerly only available to the wealthy.  Part of capitalism is making luxuries available to many.  This is the case here.

Until someone builds the competitor, Elfa is probably the way to go.  Happy with the purchase, just not the price.

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