This Hot IPO May Leave You Cool


Late last month, high-end tea and tea-accessory retailer Teavana (NYS: TEA) went public to much fanfare, scoring a hefty 64% first-day jump in its stock price. As a former employee and avid loose-tea drinker, I want to believe in Teavana's potential to become a great public company. But a few things keep nagging at me, and they all boil down to corporate culture.

At the Fool, we care a lot about how employees feel toward their company, because they're the channel through which that company reaches its customers. A business like Teavana -- where the average customer spends $36 per visit on highly discretionary products -- needs to deliver a remarkable customer experience. Teavana only stands a chance to turn impulse buyers into tea fanatics if its employees believe in the company's mission.

Heaven, without Harmony
So what's Teavana doing wrong? It starts with a disconnect between the company's stated mission and the goals set for employees. According to Teavana's website, the company aims to be "a heaven of tea ... [describing] the experience each customer has with our tea and our staff."

But at Teavana, hourly employees are paid a base wage, plus a pay-for-performance bonus that can make up a significant portion of total compensation. This creates intense competition for sales, which threatens the harmonious atmosphere Teavana espouses.

Perhaps management has a high-pressure, numbers-driven concept of heaven. Or, more likely, Teavana's leadership doesn't realize that incentives shape the environment that salespeople create. Without adjustments to these incentives, I don't see how Teavana can possibly create the "heavenly" surroundings it's aiming for.

Competition on all fronts
The company's emphasis on bean-counting translates directly to customer experience. A quick scan of customer reviews scattered about the Internet reveals widespread irritation at Teavana empoyees' aggressive sales tactics.

Management needs to step back and realize what the strategy boils down to: bringing together $10-an-ounce tea and $100 gadgets with new customers to whom the product concept is totally foreign. In addition, Teavana faces the uphill battle of convincing Starbucks (NYS: SBUX) -loyal Americans to consider an alternative beverage at a much higher price.

On the accessories side of the business, many of Teavana's teapots, thermoses, and kettles can be purchased at retailers Williams-Sonoma (NYS: WSM) , Bed Bath and Beyond (NAS: BBBY) , and even Amazon (NAS: AMZN) , often at lower prices.

It seems obvious that the recipe for success at Teavana must involve patient salespeople who are dedicated to easing customers into the "tea lifestyle" in a way that's gentle on their wallets -- at least at first. Judging by customer feedback, I'm not getting the impression that Teavana has mastered this particular aspect of the business yet.

The Foolish bottom line
As Teavana finds its footing as a public company, management will be forced to divert even more of its attention to making its quarterly numbers. With the company's already shaky culture, further disregard for the core driver of the business - positive interactions with customers -- might be enough to throw a wrench in Teavana's rapid growth. I'll be keeping an eye on Teavana, and until I see evidence that management is addressing these issues, I'm going to pass up TEA in favor of a good ol' cup of joe.

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At the time thisarticle was published Elizabeth Moran doesn't own shares of any of the companies mentioned. The Motley Fool owns shares of Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Starbucks,, and Bed Bath & Beyond. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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