Chapter 15
The Buffett Store
Despite his eagerness to expand his company to Boise, Bill couldn’t find time to go look at real estate. Instead, he relied on a realtor to make suggestions. After looking at demographic figures and reviewing recommended sites on an aerial map, Bill settled on a 22-acre site in Meridian, a Boise suburb. The location sounded like a prime spot for an R.C. Willey store: it was on a main street, about one half mile from the freeway. He bought the land for $2 million without even looking at it.
After the sale closed, Bill finally visited Boise to inspect the property. He was pretty disappointed. Located in a valley, the land had previously been a horse pasture. Bill had always tried to erect R.C. Willey stores on hilltops or in locations that offered great visibility. He feared that a store wouldn’t stand out on this site.
“Let’s look for another piece of land,” he told his team. “I’ll just keep this land and sell it when I can.”
For the next month, representatives from R.C. Willey searched for a more suitable site. But they came up empty. The spot they had was the best one available. Itching to break ground, Bill decided to start building on the low-lying horse pasture. Before long, though, he realized he had the perfect site after all. By the summer of 1999 the building was up—a gigantic white structure with attractive blue awnings. The store was visible from every direction and was by far the most attractive building in the area. It was like having an eye-catching billboard just off the highway.
“As disappointed as I was in the beginning,” Bill said, “I was elated at how attractive the building turned out.”
The building was so impressive that people started showing up to shop before it was open. Bill informed Buffett that before announcing the grand opening, he planned to hold a soft opening—a preopening with little advance advertising and promotion.
For Bill, it was all about being prepared. He had learned the hard way that the last situation a retail store wants is not being ready to handle a sudden rush of customers. Bill never forgot what had happened when the R.C. Willey store ran its first newspaper advertisement in Ogden’s Standard Examiner back in 1955. The ad was pretty generic and touted Hotpoint appliances. Nonetheless, it brought more than twenty new customers to the store within a 48-hour period. At that time, Bill was the only salesman on the floor and was used to seeing fewer than twenty customers come through his doors every week; he quickly found himself unable to attend to all the new shoppers.
As a precaution, Bill explained to Buffett that the company had adopted a method known as a “soft opening” for testing a new store’s systems, from computers to warehouse delivery. Also, the sales force had an opportunity to become familiar with the merchandise, the check-out procedures, and all the important facets of customer service. In essence, a soft opening is like a dress rehearsal, ensuring that all the glitches and jitters are worked out before attracting a large opening day crowd.
“You only get one chance to make a first impression on customers,” Bill said. “If a customer has a disappointing experience on his first visit, it takes, on average, seven years to get him back.”
The concept made perfect sense to Buffett. He had seen instances where huge grand-opening crowds absolutely overwhelmed the sales force, resulting in an overall bad experience for everyone—sales potentials weren’t realized, employees were frustrated, and customers didn’t return. A soft opening, Buffett agreed, was a wise idea.
On August 25, 1999, the Boise store opened its doors to the public for the first time. Even though it wasn’t the grand opening and employees were testing and fine-tuning their systems, the store still did more than $157,000 in sales the first day. Accessories alone—such as lamps, pictures, and plaques—accounted for $17,000 in sales.
Following the first day, R.C. Willey trucks drove through the night, transporting replacement merchandise from the Salt Lake City distribution hub to Boise. When the doors opened on the second day, the store was completely restocked. At the end of the first week, Buffett called for an update. Bill reported sales had exceeded $1 million.
A few weeks later the store held its much-hyped grand opening. Buffett flew to Idaho, bringing along Irv Blumkin and other executives from the Nebraska Furniture Mart. A slew of dignitaries turned out for the ribbon cutting ceremony, led by the mayor of Boise. Before cutting the ribbon, Buffett told a story.
“When Bill wanted to build this store I was very skeptical,” he told the crowd. “Then after I opened it and found out how well it was doing, I immediately had a counter-revelation and decided it was so successful that it must have been my idea. I’m really glad that Bill didn’t talk me out of it.”
The audience roared. For Bill, the moment couldn’t have been better. “It was one of the highlights of my life,” he said. “The greatest investment mind of the world was pleased with our achievement. It was a thrill to work with Warren and to see this turn into a very successful venture.”
The grand opening came off without a hitch. The place was mobbed with customers, but the employees were ready and shoppers came away with an overall positive shopping experience.
While in Boise, Buffett took time out of his schedule to meet with a group of business students. Whenever R.C. Willey had a grand opening for a new store, Buffett agreed he would speak to the business students at a university in the nearby community. At Boise State he addressed an overflow crowd of students. In his remarks, he predicted that the stock market’s high-tech bubble was highly overvalued. The problem, he said, was that the high-tech stocks were trading at extraordinary high multiples, yet they had an unproven track record and very few tangible assets.
Bill had invited a friend to attend Buffett’s speech. The friend was a banker whose stockbroker had been trying to persuade him to place some of his portfolio in the high-tech area. After listening to Buffett, the banker instructed his broker to cancel all scheduled high-tech stock purchases.
Eventually, the high-tech bubble did burst and Bill received a call from the banker. “I’m eternally grateful to you and Warren,” he said. “That lecture saved me a little over a quarter of a million dollars.”
With the Boise store flourishing, Bill and Buffett continued to talk almost daily, reviewing sales figures. When the sales figures exceeded $4 million after one month, Bill felt confident enough to sell the store to Berkshire.
“I think you ought to buy the Boise store,” Bill told Buffett.
“That would be great,” Buffett said. “But I’m going to pay you interest.”
“No,” Bill said, “we had a deal and interest wasn’t included.”
“Bill, we’ve never had an argument,” Buffett said. “But we’re going to have an argument over this.”
Bill proposed a compromise. Buffett would pay four percent commission on sales from the last week of August through the end of November. Then Buffett would reimburse Bill for the cost of the land and the building, enabling Berkshire to take ownership of the store by December 1—just in time for the busiest shopping and delivery month of the year.
“That’s not really fair to you,” Buffett said. “But if that’s what you want to do, that’s fine.”
In December, Bill received a check from Buffett for $368,000, representing the four-percent commission on sales delivered for the first three months.
In its first year, the Boise store generated $50 million in sales, nearly doubling the expectations set by Buffett. He was so impressed that he featured the success story in his annual Chairman’s Letter, issued to Berkshire Hathaway shareholders at the annual meetings in Omaha. Under the heading, “A Managerial Story You Will Never Read Elsewhere,” he wrote the following:
Here’s a remarkable story from last year: It’s about R.C. Willey, Utah’s dominant home furnishing business, which Berkshire purchased from Bill Child and his family in 1995. Bill and most of his managers are Mormons, and for this reason R.C. Willey’s stores have never operated on Sunday. This is a difficult way to do business: Sunday is the favorite shopping day for many customers. Bill, nonetheless, stuck to his principles—and while doing so built his business from $250,000 of annual sales in 1954, when he took over, to $342 million in 1999.
Bill felt that R.C. Willey could operate successfully in markets outside of Utah and in 1997 suggested that we open a store in Boise. I was highly skeptical about taking a no-Sunday policy into a new territory where we would be up against entrenched rivals open seven days a week. Nevertheless, this was Bill’s business to run. So, despite my reservations, I told him to follow both his business judgment and his religious convictions.
Bill then insisted on a truly extraordinary proposition: He would personally buy the land and build the store—for about $9 million as it turned out—and would sell it to us at his cost if it proved to be successful. On the other hand, if sales fell short of his expectations, we could exit the business without paying Bill a cent. This outcome, of course, would leave him with a huge investment in an empty building. I told him that I appreciated his offer but felt that if Berkshire was going to get the upside it should also take the downside. Bill said nothing doing: If there was to be failure because of his religious beliefs, he wanted to take the blow personally.
The store opened last August and immediately became a huge success. Bill thereupon turned the property over to us—including some extra land that had appreciated significantly—and we wrote him a check for his cost. And get this: Bill refused to take a dime of interest on the capital he had tied up over the two years.
If a manager has behaved similarly at some other public corporation, I haven’t heard about it. You can understand why the opportunity to partner with people like Bill Child causes me to tap dance to work every morning.
A footnote: After our “soft” opening in August, we had a grand opening of the Boise store about a month later. Naturally, I went there to cut the ribbon (your Chairman, I wish to emphasize, is good for something). In my talk I told the crowd how sales had far exceeded expectations, making us, by a considerable margin, the largest home furnishings store in Idaho. Then, as the speech progressed, my memory miraculously began to improve. By the end of my talk, it all had come back to me: Opening a store in Boise had been my idea.
“Bill, how come you are never satisfied?”
The question stung Bill. It came from a teary-eyed R.C. Willey salesman in 1971 after the company had experienced the most successful year in its history. Although pleased, Bill made a point to stress to the sales force that there were a number of areas that could be improved, which would enable the store to do even better the following year. That’s what prompted the tough question.
The salesman’s query bothered Bill for a long time, particularly since he liked and admired the salesman so much. But ultimately Bill concluded the employee was right—Bill could never be fully satisfied. He was convinced the company could always do better. In the salesman’s own mind, the sales force was doing a terrific job, and so he got upset when Bill challenged him to do better.
“You can only stand on the laurels of what you did yesterday for a few minutes,” Bill said. “Then you have the challenges of tomorrow.”