The Container Store’s Prepack Chapter 11: From Organization to Reorganization

Welcome to the 152nd Pari Passu Newsletter. 

After two deep dives into healthcare with Bausch and Better Health, it’s time to return to where restructurings run deep: retail.

Earlier in June, we explored the case of Tupperware, a food container company whose dependence on direct selling lost relevance as consumers shifted towards online retail. Today, we are looking at another storage brand that also failed to adapt to changing consumer preferences: The Container Store. 

The Container Store pioneered storage and organization solutions for households. However, its reliance on an in-store shopping model and the commoditized nature of its products left it vulnerable as consumers increasingly preferred online retail. Through The Container Store’s bankruptcy, we will understand how the failure to adapt business model and liquidity strain ultimately led to its distress. 

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The Container Store Overview

Founded in 1978, The Container Store (TCS) is a pure play retailer providing premium storage and organization solutions. The company positions itself in the higher end of the market by offering both standardized organization products and highly customized solutions [1]. Its product assortment includes standard organization items such as clothes hangers, shoe organizers, and modular drawers (generally priced between $10 and $25), to premium custom closets through its Elfa line (pricing ranges from $100 to $10,000) [2]. Approximately 50% of sales come from private label or proprietary products that are exclusive to TCS, reinforcing its brand differentiation and product exclusivity [3].

The Container Store’s branding emphasizes its role as a premium provider of home organization, catering primarily to affluent households seeking tailored, design oriented storage solutions. This premium positioning is supported by its customized product offerings, strong customer service model, and selective approach to store expansion. The company typically operates in A+ real estate locations in affluent trade areas [1]. As of September 2024, TCS operates 102  stores across 34 states, with an average store size of approximately 24,000 square feet (or 18,000 selling square feet) [4]. 

Founding History 

In the 1970s, storage and organization did not exist as a retail category. Manufacturers only supplied corrugated and other storage products for industrial or commercial applications, rather than for household use. At this time, if consumers wanted to get boxes for personal use, they would have to find used ones from the back rooms of grocery or department stores. While small plastic products such as Tupperware were already on the market for consumers, large scale plastic containers were not an available option for consumers. Larger plastic boxes were fragile and lacked the durability and design needed for household organization. The idea of a dedicated retail use for storage and organization solutions was, at the time, unheard of.

Kip Tindell, a recent college graduate, Garrett Boone, a master’s student, and architect John Mullen recognized this gap in the market and saw an opportunity. They believed that American households needed practical, affordable, and attractive ways to organize their belongings, reduce clutter, and save time in daily life. In 1978, the three partners opened the first Container Store in Dallas, Texas. The store’s initial assortment included a wide mix of products, such as milk bottle crates, Metro shelving, wicker baskets, and Lucite canisters, which had previously never been available to consumers at traditional retailers. The concept quickly gained traction: within two weeks of opening, the store was thriving, fueled by word of mouth recommendations that spread quickly throughout the neighborhood [5]. The Container Store’s debut effectively marked the creation of storage and organization as a retail category, and the company remains the only pure play retailer of organizational products in the United States today. 

Following its early success, The Container Store entered a period of rapid growth throughout the 1980s and 1990s. They opened new stores in other states such as Georgia, Illinois, and Colorado, with each expansion reinforcing the company’s ability to scale its operations. The Houston store opening, for example, received customer demand three to four times higher than what the founding team had anticipated [5]. This overwhelming response affirmed the receptivity to the company’s founding concept, and the scaling of operations laid the foundation for The Container Store’s core operating principles. 

In this period, The Container Store began to shape its branding as more than just a seller of organizational items. The company cultivated its branding as a problem solving retailer, offering not just products but rather a way for customers to be in control of their lives, save time, and reduce stress through thoughtful organization. This brand promise was reinforced by the company’s highly trained sales staff. Employees were encouraged to spend a lot of time with customers, often sitting down to design tailored storage solutions that addressed individual household needs. The combination of curated product mix and customer centric service distinguished The Container Store and positioned it firmly in the premium segment.

In 1999, The Container Store acquired Elfa International AB, a Swedish manufacturer of wire drawer and shelving systems, which had been the most successful product line since the company’s founding [6]. The acquisition gave The Container Store control over a critical supplier and secured access to one of its most differentiated product categories. The Elfa brand quickly became and remains synonymous with the company’s customized closet offerings today. 

In July 2007, the private equity firm Leonard Green & Partners acquired a majority stake in The Container Store, providing external capital to support the continuous scaling of the business [7]. Terms of the deal were not disclosed. Six years later, in 2013, the company completed an initial public offering on the New York Stock Exchange at 12.5mm shares and an offering price between $17 and $18, representing a $827mm valuation. They ultimately raised $225mm, constituting a 27% stake, with Leonard Green & Partners retaining a controlling interest. This interest continued until 2021, when LGP reduced their ownership below 50% [8].

Business Model 

The Container Store operates a dual-channel business model across physical retail stores and e-commerce platforms. While online sales have become increasingly important in recent years, the company’s model is still deeply rooted in its in store experience, given that sales associates play a central role in designing and selling customized storage solutions. The Container Store generates revenue across two primary operating segments: 

The Container Store Segment (95% of revenue): encompasses both custom spaces and general merchandise. Custom spaces include fully owned and manufactured shelving systems and wood and metal based organization products. These are tailored to customer demands for specific areas of the home such as closets, kitchens, garages, and bathrooms. These products are often sold as complete projects with installation services. Some Elfa products are also sold in this segment. On the other hand, general merchandise consists of more standardized organizational products, spanning over ten thousand items. These products include categories such as bins, baskets, drawers, and modular storage systems.

Elfa Segment (5% of revenue): Elfa designs and manufactures component based shelving and drawer systems, as well as sliding doors, which are then sold through The Container Store segment in the United States. Its products are highly customizable and are used across closets, kitchens, offices, garages, and other areas of the home. While The Container Store is Elfa’s exclusive distributor in the U.S., Elfa products are also sold through other retailers in approximately 30 countries, with a concentration in Northern Europe.

Despite The Container Store launching their website in 2000 and recent initiatives to grow online sales, only 28% of FY 2023 revenue was generated online, with the rest still coming from physical stores [3]. Peers to The Container Store vary widely in their online versus physical store sales mix. For example, Home Depot generates 10% of sales online and IKEA generates 26%, whereas Williams-Sonoma generates 66%. This reflects the company’s long standing emphasis on in person customer service and key value propositions being tied to its in store experience. As a result, customer loyalty is high, with the average customer having a fifteen year tenure with the company. The company’s 102 stores are positioned in urban centers where there is strong demand for home projects and customizations. 

Employee Programs 

Supporting this focus on personalized in store experience, The Container Store invests heavily in employee training and development. The company employs 3,800 people, 2,900 of which work in store locations [4]. Full-time employees receive over 200 hours of training in customer service, compared to the low to mid double digit training hours typical in retail [5]. This extensive preparation allows associates across different stores to deliver consistent recommendations for customer projects, reinforcing the company’s reputation for expertise and reliability.

The company further differentiates itself by offering wages nearly double the retail industry average. In addition, The Container Store has historically sought to align employee incentives with ownership. Its 2013 IPO was driven in large part by a desire to give equity to employees. At the time of the offering, the company implemented a direct to share program through which employees received a 14% equity stake, which is far above the typical 2% allocation [5]. These initiatives have helped the company maintain an annual employee turnover rate of less than 10%, compared to an industry average closer to 30%. However, these practices also contribute to structurally higher SG&A expenses, which account for more than 50% of revenue [4].

Supply Chain and Vendors 

Another unique aspect of The Container Store’s business model is its supplier network. Despite the fact that the company does not maintain long term contracts with vendors, most of their vendor relations are very long standing. Notably, eighteen of its top 20 vendors have supplied products for at least ten years, and many of these relationships are exclusive to The Container Store. These long standing arrangements are partially rooted in the company’s founding years, when Kip Tindell and his partners had to personally convince manufacturers to supply their industrial and commercial products to them for retail use. By educating suppliers on the differences in consumer facing sales and negotiating favorable terms, the founders built trust and established partnerships that remain central to the business today [9].

From a geographic perspective, The Container Store sources approximately 47% of its products domestically and 53% internationally, with around one third of imported goods coming from China [4]. All products flow through one of the company’s two distribution centers, which manage both retail inventory and direct to consumer order fulfillment. In addition, the company operates its own manufacturing facility in Illinois (known as C Studio), which produces wood based custom space offerings.

Path to Distress 

The broader changes in consumer retail habits and the growing competitiveness of the storage and organization category laid the foundation for The Container Store’s recent struggles. Beginning in the mid 2010s, the retail environment shifted significantly. American consumers began to redefine what they considered to be good customer service. Surveys showed that many cited Amazon as delivering strong customer experience, despite the lack of any direct human interaction. This stood in contrast to The Container Store’s model: the average customer drove around 25 minutes to reach a store, and sales associates were expected to spend significant time in conversation with each shopper to recommend personalized solutions. Consumers increasingly favored retailers where purchases could be completed in minutes and shipped directly to their homes, reducing the perceived value of The Container Store’s in-person expertise. As a result, the company began to lose customers making smaller purchases, typically items under $25, to diversified retailers that offered faster and more convenient alternatives.

A second challenge was the highly commoditized nature of The Container Store’s product set. While the company had pioneered the specialty storage and organization category, its standard organizational items were highly replicable, leaving little protection or sustainable moat from competitors. Major retailers such as Target, Home Depot, Williams Sonoma, and IKEA increasingly captured market share by offering comparable products, often at lower prices, with greater convenience and faster delivery. In a 2024 interview, The Container Store’s founder acknowledged that even when customers discovered products at The Container Store, they could frequently find similar items on Amazon or at other large scale retailers and have them delivered directly to their homes [5]. These competitors also benefited from streamlining SKUs, focusing on high turnover products, and minimizing inventory complexity. In contrast, The Container Store’s value proposition required maintaining a comprehensive and diverse inventory, which contributed to elevated SG&A costs and historically necessitated significant inventory build up ahead of key holiday periods.

The combination of shifting consumer preferences and commoditized products began to materially weaken financial performance post-pandemic. While COVID-19 was a strong tailwind that made The Container Store’s performance peak in 2021, much of this demand was pulled forward, leaving a weaker post-pandemic retail environment. With fewer home sales, greater price sensitivity, and availability of similar products from mass retailers, consumer receptivity to The Container Store’s premium positioning declined. As a result, free cash flow quickly turned negative at ($169mm), and ($121mm) for 2022 and 2023 respectively [10]. 

On top of operational challenges and negative cash flow generation, capital structure pressures further compounded the company’s issues. The Container Store initially raised its ABL Facility and Term Loan Facility in April 2012, with multiple amendments and extensions over the years. With negative cash flow generation straining liquidity, further ABL drawdowns led to higher interest expense, which rose to $6mm in Q2 2024. On an annualized basis, this is $24mm, representing a level of interest burden higher than that of 2019 to 2023.  With only $66mm of cash on hand, cash burn of roughly $300mm, and an upcoming $250mm maturity, liquidity was becoming increasingly constrained. Additionally, maturity walls were starting to be a concern. With the springing maturity of its ABL in October 2025 and the prepetition term loan maturing in January 2026 [11], an event of default could occur as early as June 2025 if covenant conditions were not met. 

These challenges soon began to be reflected in the public markets and with creditors. In March 2024, S&P downgraded The Container Store’s term loan and issuer rating to B-, pushing the company into non-investment grade territory [12]. In May 2024, the NYSE issued a delisting warning due to failure to meet minimum market capitalization requirements, and in November 2024 Moody’s followed with a downgrade [13]. At the same time, vendor confidence deteriorated, limiting the company’s ability to purchase on credit and further straining liquidity. An Ad Hoc Group of term loan holders was also formed, advised by Greenhill, in anticipation of negotiating restructuring terms and addressing the company’s mounting debt.

Pre-Filing Restructuring Efforts

Due to the trend of operating losses and liquidity reduction, The Container Store began to evaluate strategic alternatives in parallel to these developments. In Q1 2024, the company considered refinancing its revolving credit facility, given upcoming maturity walls by the end of 2025. However, due to a continued trend of negative levered free cash flow and the term loan trading in the low to mid 60s during this period, The Container Store was unable to generate market interest for a refinancing of their ABL.

In Q2 2024, the company also fell out of compliance with the leverage ratio covenant under its Term Loan Credit Agreement. To address the breach, The Container Store had to enter into Amendment No. 9 to its prepetition facility, which waived the covenant but added stricter conditions, including a requirement that the company complete a qualified amendment or refinancing transaction that is approved by the Term Loan lenders. The amendment also tightened documentation to limit The Container Store’s ability to incur additional indebtedness [11]. 

In late October 2024, the company issued a formal going concern statement, disclosing concerns regarding its ability to continue operations in the foreseeable future. Around the same time, Amit Agarwal, a Florida-based investor and former patent attorney, accumulated more than 18% of The Container Store’s common stock, which had a $31mm market capitalization at the time (far from the IPO market capitalization of $820mm). In response, the company adopted a poison pill provision to mitigate the risk of an activist strategy. Under this provision, if any shareholder or group acquires 20% or more of the company’s shares, all other shareholders would be entitled to purchase additional shares at a 50% discount, effectively diluting the influence of the largest shareholder [14]. 

Strategic Investment and Partnership with Beyond 

Another major operational turnaround effort that was attempted in October 2024 was an equity investment or out of court sale. The Container Store tried to look for investment opportunities. The company reached out to 40 strategic investors and 26 financial sponsors, and ultimately received one offer from Beyond, the parent of Bed Bath & Beyond and Overstock. On October 15th 2024, Beyond announced a strategic partnership with Beyond. Through this partnership, The Container Store co-branded with Bed Bath & Beyond in some of TCS’ store spaces, featuring Bed Bath & Beyond’s product assortment for kitchens and bedrooms. Beyond also contributed its loyalty program, payment solutions, and customer analytics platform to enhance The Container Store’s sales conversion and reduce Customer Acquisition Costs. Additionally, The Container Store’s proprietary Custom Spaces lines, like Elfa and Preston, were integrated across Beyond’s e-commerce banners and licensed stores globally [15]. 

On top of the operational partnership, the proposal also included a $40mm investment through a convertible preferred equity transaction, which would in exchange provide. Beyond, with a 40% equity stake in The Container Store [16]. The conversion was priced at ~$17, implying a $60mm valuation, which is 93% down from the IPO market capitalization of $820mm [17]. The transaction was subject to several conditions, including the amendment or refinancing of the revolving credit facility in a manner that was “commercially acceptable” to Beyond. 

However, the deal was not structured as a complete sale to Beyond, meaning The Container Store would not have been able to fully repay its funded debt even if the transaction had closed. When this limitation became clear, The Container Store retained Houlihan Lokey in September 2024 to engage with the AHG of lenders [11]. By November, the transaction was in jeopardy due to The Container Store’s inability to satisfy the required financing terms. The two parties agreed that, absent acceptable financing by January 31st, 2025, either party could terminate the agreement. Despite the AHG’s efforts to offer amendment and refinancing proposals, Beyond ultimately rejected all financing alternatives. As a result, the proposed investment failed to go through.

After several unsuccessful out-of-court efforts, including attempts to extend ABL maturities and to pursue a full sale to repay creditors, The Container Store was running out of options and time to address their problems. By December 2024, continued negative free cash flow had reduced cash on hand to ~$12mm, and they can only draw an additional $10mm of the ABL before triggering a 1.0x FCCR covenant test that occurs when the lesser of (a) borrowing base, and (b) aggregate commitment minus amount drawn,  is lower than $10mm [21, 22]. Combined with the looming maturities that can trigger a default in June 2025, the lack of viable refinancing path, and a delisting from the NYSE, the company ultimately filed for Chapter 11 protection. 

Prepack Chapter 11

The Container Store filed a prepack Chapter 11 on December 22nd, 2024. A prepackaged Chapter 11 is a specific type of Chapter 11 that is filed alongside a restructuring support agreement (RSA) and demonstrates that the debtor has already obtained sufficient creditor voting for the plan to be confirmed, prior to filing. The company’s capital structure prior to filing consisted primarily of the $80mm ABL facility and $163mm term loan: 

The only impaired class of creditors entitled to vote on the plan were the term loan lenders. The prepack was supported by over 90% of term loan lenders, with a fast turnaround at a 35 day timeline to confirmation. Confirmation is the date when a company officially emerges from bankruptcy under the terms of its plan and officially becomes the reorganized entity. From a corporate structure perspective, all The Container Store entities, manufacturing entities, and gift card subsidiaries were debtors. All Elfa entities did not file as debtors to this prepack. 

The Container Store required incremental liquidity to fund operations during Chapter 11, which made the DIP financing critical in this process The DIP term loan facility totaled $115mm, consisting of a $40mm new money loan (FIFO DIP term loan) and a $75mm roll up of prepetition term loans (FISO DIP term loan). In addition, another $140mm DIP ABL facility was backstopped by certain lenders, who received a put option premium equal to 5% of the aggregate FIFO DIP commitment [19]. All prepetition term loan lenders had the right to participate in the DIP. Upon emergence, DIP lenders received 64% of the reorganized equity, and Prepetition Term Loan Holders received 36% of the reorganized equity [11]. From a recovery standpoint, the ABL was repaid in full in cash. Term loan holders, who also funded the entire DIP facility, received 100% of the new equity, equating to an estimated recovery of ~5% to 18% [11]. 

Interestingly, the $26mm of unsecured claims, which consisted entirely of obligations to trade vendors and landlords, was projected by the debtor to be paid or otherwise satisfied in the ordinary course, regardless of whether such claims were granted priority treatment. Typically, under the absolute priority rule in Chapter 11, unsecured creditors would be entitled to zero recovery given that the secured creditors were impaired. However, this treatment was agreed upon and approved by the court, likely driven by several factors: first, the absolute size of the claims was relatively modest compared to its secured claims; second, the company’s long term trade relationships were considered essential to the ongoing operations, as 50% of TCS sales come from proprietary vendor-supplied products; and third, the term loan lenders, who were taking the keys of the business had an aligned  interest in maintaining operational stability. In a similar manner, the $12mm of accrued lease obligations were also preserved, with the debtor continuing to perform under these leases throughout the bankruptcy process [11]. 

This outcome creates an interesting in-court precedent where unsecured trade claims were prioritized despite secured creditor impairment, showing how the value of essential vendor relations can lead to a favored treatment in-court. However, this may represent a precedent that is particularly unique to The Container Store due to its exclusive vendor arrangements: its vendors are all on short term contracts but have supplied them consistently for over ten years. This contrasts with more commoditized vendor relations that may simply receive no recovery in a Chapter 11. 

Another interesting aspect of the filing was the U.S. Trustee’s objection to the use of non-consensual third party releases. The U.S. Trustee noted that the debtor was releasing claims held by Class 5 and Class 9 creditors, the Subordinated Claims and Existing Equity Interests, who were expected to receive no recovery and therefore had no voting rights on the plan. For context, in Chapter 11s, creditors who are either paid in full or receive no recovery do not vote, on the assumption that they are deemed to accept or reject the plan respectively. 

The U.S. Trustee argued that opt out clauses are not sufficient to establish the required consent, citing the Purdue rulings [23]. For context, in the Supreme Court’s decision in Harrington v. Purdue, the Court held that the Bankruptcy Code does not authorize non-consensual third party releases in Chapter 11 plans. This means that when bankrupt companies owe claimants like vendors or tort claims, a plan cannot force those claimants to give up their claims unless they explicitly agree to this release. However, the Court did not define what constitutes consent, which resulted in different interpretations across regional courts. The Container Store therefore responded that the Southern District of Texas recognizes properly drafted opt out clauses as a valid form of consent, in alignment with the court’s precedents like Robertshaw and Pacific Lumber [24]. They also emphasized that the process was effective, showing that they received 165 release opt out forms and that the remainder were deemed to have accepted the release [24]. Judge Perez ultimately overruled the objection and confirmed the plan.

In total, the restructuring converted $163mm of prepetition debt into equity and repaid $26mm of unsecured trade claims and $11mm in lease obligations. Given the simplicity of the capital structure, The Container Store was able to execute a relatively straightforward debt for equity exchange with its largest creditor class. Post emergence, The Container Store obtained an exit ABL facility of $140mm, secured by receivables and eligible inventory, maturing two years from the petition date at a rate of SOFR + 4.25%. The company also emerged with a $75mm Term Loan B due April 2029 (representing the roll up) and $20mm in new money exit financing maturing January 2029 [11]. This structure effectively extended The Container Store’s maturity wall by three years, providing additional time for an operational turnaround.

Future of The Container Store 

Since its emergence from bankruptcy on January 28th, 2025, The Container Store is now privately held by its term loan lenders. In April 2025, the company implemented workforce reductions of approximately 2%, primarily affecting corporate roles, and has announced a temporary pause on capital projects as it seeks to reorient its operations and strategic priorities post bankruptcy [20]. Given its status as a privately operating company, there is limited public information available. However, according to the RSA solicitation document, The Container Store projects a multi year operational turnaround, with top line growth forecasted at seven percent, six percent, and ten percent year over year from 2026 through 2028, largely driven by the expansion of its customized solutions segment and the planned opening of nine new stores (a 9% expansion to the current 102 stores). Operating income is projected to turn positive in 2026 from revenue growth and SG&A reduction from 54% to 50% of revenue [11]. These financial projections are more focused on top line recovery without incorporating major assumption changes on net working capital management or cash conversion efficiency.

The Container Store’s bankruptcy highlights the risks of failing to adapt strategically to evolving consumer preferences and competitive dynamics. While the company was an innovator in the consumer storage and organization category, the replicability of its products and its slow response to digital retail and shifting consumer habits drove significant operational decline in recent years. Similar to other retail restructuring like Tupperware and Bed Bath & Beyond, The Container Store’s Chapter 11 illustrates the challenges that brick and mortar retailers continue to face as e-commerce reshapes consumer behavior. 

However, while Chapter 11 is frequently used as a tool to reject uneconomic leases and obligations in retail bankruptcies, The Container Store’s unsecured lease and vendor claims were relatively modest and key to their operations. As a result, the company’s filing was focused primarily on achieving a debt restructuring, and the use of a prepackaged Chapter 11 allowed The Container Store to secure broad lender support and exit bankruptcy quickly. 

Moving forward, The Container Store’s performance will depend on its ability to restructure operations and adapt to a digitally driven retail environment, while balancing its founding brand as a premium provider of storage and organizational solutions.

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