The Snowball

by Alice Schroeder

  Two years later, she still spoke hardly any English. Feeling isolated, the Blumkins decided they had to live in a place where Rose could converse in Russian and Yiddish, so they moved to Omaha, a town filled with 32,000 immigrants drawn by the railroads and packinghouses.9

  Isadore rented a pawnshop. “You never hear of a pawnshop going broke,” he said.10 Rose stayed home and had three more children, Louis, Cynthia, and Sylvia. Sending fifty dollars at a time back to Russia, she brought ten of her relatives to America. Unlike her husband, she still didn’t speak much English. “I was too dumb,” she said. “They couldn’t drill it in me with a nail. The kids teached me. When my Frances started kindergarten, she says, ‘I’ll show you what an apple is, what a tablecloth, what a knife.’”11 But the store struggled and the family almost did go broke during the Depression. Then Rose took charge. I know what to do, undersell the big shots, she told her husband. “You buy an item for three dollars and sell it for $3.30. Ten percent over cost!” When the old-fashioned suits they carried weren’t selling, Rose handed out ten thousand circulars all over Omaha, saying their store would outfit a man for five dollars from head to toe—underwear, suit, tie, shoes, and straw hat. They took in $800 in a single day, more than they had made the entire year before.12 The store branched into jewelry, used fur coats, and furniture. Then Rose drove the department stores crazy when she started underselling them on new fur coats on consignment.13 But she had a philosophy: “It’s better to have them hate you than to feel sorry for you.”

  Soon customers started asking her for more furniture. At first she accompanied them to wholesalers and bought for them at ten percent over her cost. She noticed that, unlike pawnbroking, selling furniture was a “happy business,” so in 1937 she borrowed $500 from a brother to open a store called Blumkin’s in a basement near her husband’s pawnshop. But the furniture wholesalers didn’t want her as a customer, because their dealers complained that she was underselling them. So Rose went to Chicago, found one sympathetic man, and ordered $2,000 worth of merchandise from him on thirty days’ credit. The time came due and she was short, so she sold her own house furnishings cheap to pay off the debt. “When my kids came home, they cried like somebody will die,” she recalled. “Why I took away the beds and the refrigerator? The whole house, an empty house? I told them, they were so nice to me I can’t stand it not to keep my promise.”14 That night she took a couple of mattresses from the store for the family to sleep on. “The next day I brought in a refrigerator and stove,” she said, “and the kids quit crying.” 15

  In school the other children picked on her son, Louie, for having a pawn-broker as a father. He found it painful but ignored their taunts, worked in the store after school, remained a good student, and became an all-American diver at Tech High while delivering sofas until midnight. His mother by now had established the Nebraska Furniture Mart and moved to larger quarters. In a side business, she sold and rented out Browning automatic shotguns during hunting season. Louie’s favorite job was testing the guns by firing them into cinder blocks in the family’s basement.16

  By the time the United States entered World War II in 1941, Louie had enrolled at the University of Nebraska, but he dropped out to enlist in the service after only a few semesters, still just a teenager. During the war, he and his mother wrote each other every day. His mother was discouraged, and he urged her not to quit.17 Because the big wholesalers refused to sell to the Nebraska Furniture Mart, Rose had become a furniture “bootlegger,” traveling on trains all over the Midwest to buy overstock merchandise at five percent over wholesale from stores like Macy’s and Marshall Field’s. “They could see she knew what she was doing,” says Louie. “They were fond of her and would say, here’s this dining-room set that just came in. It wasn’t easy or cheap, but she got it.” Rose said, “The more [the wholesalers] boycotted me, the harder I worked.”18 You don’t own the country, the country belongs to everyone, was her attitude.19 She developed a lasting hatred of big shots. “When you’re down they spit on you,” she said. “When you start making some dollars they start paying attention. Phooey. Who needs them? Give me the middle class and I’ll be happy.” Her slogan was “Sell cheap and tell the truth, don’t cheat nobody, and don’t take no kickbacks.”20 When she made a sale, she also told the employees, “Deliver it before they change their minds!”21

  Louie won a Purple Heart at the Battle of the Bulge. After the war, he came straight home to Omaha in 1946 and went back to work. He learned everything about merchandising: buying, pricing, inventories, accounting, delivery, display. To Rose, nobody was as good as Louie. Ruthless with her employees, she screamed at them at the top of her lungs: “You worthless golem! You dummy!” But after his mother fired them, Louie would hire them back.

  Four years later, the store was prospering, but then the Korean War began, and sales started to sink. Rose decided to give the business a boost by adding carpet to her line. She went to Marshall Field’s in Chicago and told them she was buying carpet for an apartment building; they sold her three thousand yards of Mohawk carpet for $3.00 a yard. She retailed it for $3.95, half the standard price, although the fact that she had lied to Marshall Field’s seemed to bother her for years afterward.22

  Rose had managed to launch a successful carpet business by giving her customers a better price than the other carpet dealers. But carpet maker Mohawk filed a lawsuit to enforce their minimum-pricing policies—under which manufacturers required all their retailers to charge a minimum price—and sent three lawyers to court. Rose showed up alone. “I say to the judge, ‘I don’t have any money for a lawyer because nobody would sell to me. Judge, I sell everything ten percent above cost, what’s wrong? I don’t rob my customers.”23 The trial lasted only an hour before the judge threw the case out. The next day, he went out to the Furniture Mart and bought $1,400 worth of carpet.

  But even though the Furniture Mart was selling carpet, furniture sales were depressed due to the war; Rose still couldn’t pay her suppliers. Finally a friendly Omaha banker, Wade Martin, asked her what was wrong. “I don’t know what I’m going to do,” she said, “I can’t eat the merchandise.”24 He loaned her $50,000 for ninety days, but Rose couldn’t sleep worrying about how she was going to pay it back. She hit upon the idea of renting the Omaha City Auditorium and cramming it with sofas and dinettes and coffee tables and TV sets. Master merchandisers, she and Louie took out an ad in the paper that was strictly truthful, yet played on wartime scarcity.

  This is It! The Sale of Sales! Shortages? Malarky! We can’t eat ’em! We must sell ’em! We’ve been shipped so much merchandise this past 60 days, we have no warehouse room. Yes, we’re overloaded, and how! We can’t eat ’em and usually couldn’t sell as much in six months. So we’ve staged the largest sale ever of its type ever held in this area…45,000 square feet filled with the most unheard of savings of famous brand merchandise.

  It drew as many people as if the circus had come to town.25 The Furniture Mart sold a quarter of a million dollars’ worth of furniture in three days. Omaha now knew that Rose Blumkin and the Furniture Mart meant discount furniture, and “From that day, I never owed anybody a penny,” she said.26

  That same year, Isadore died of a heart attack. Rose and Louie kept on going. Gradually, “Mrs. B” was becoming a name that everybody knew in Omaha. People came into the store at every stage of their lives: when they got married, when they bought their first house, when they had a baby, when they got a big promotion. The Blumkins bought in huge quantities, cut expenses to the bone, and sold at ten percent above their cost. When a tornado tore the roof off their huge new West Side suburban store in 1975, she and Louie moved everything to their remaining downtown store without hesitation. “If you have the lowest price, they will find you at the bottom of a river,” she said. They did. When a fire burned down the store, she gave the firefighters free TV sets.27

  “Everything Mrs. B knew how to do, she would do fast. She didn’t hesitate and there was no second-guessin
g. She’d buy five thousand tables or sign a thirty-year lease or buy real estate or hire people. There was no looking back. She just swung. You got about two inches outside the perimeter of her circle of competence, she didn’t even want to talk to you about it. She knew exactly what she was good at, and she had no desire to kid herself about those things.”

  By the early 1980s, Rose and Louie Blumkin had built the largest furniture store in North America. Its three acres sold over $100 million of furniture a year under one roof, ten times the volume of stores of similar size.28 From then on, sales grew every single year, in good economies or bad, whether Omaha grew or shrank.29 The prosperous, established home furnishing retailers in Omaha who had been her competitors when she started had vanished. Other retailers came into the city and tried to compete with the Mart. Rose cased their showrooms, she and Louie created discount campaigns, and they broke them financially and drove them away. The Mart captured half the business in the metropolitan area—more than Sears, Montgomery Ward, Target, and all the other furniture and appliance retailers combined. Customers began to arrive from Iowa, Kansas, and the Dakotas.

  “She grew her own town. Her retailing circle just kept spreading out farther and farther, and her parking lot was full of cars from a hundred or more miles away.”30

  Rose became known as Mrs. B, even to her family. She awoke at five a.m., ate only fruits and vegetables, and never touched liquor. A few gray hairs appeared around the edges of her lacquered black bun, but it stayed firmly in place as she raced around the store with the energy of a young woman, shouting or slicing her arms through the air for emphasis. As her bargaining position grew stronger, she brooked no sympathy for her suppliers. “Seven dollars? We go bankruptcy tomorrow should we pay that,” she sniffed at one’s demand.31 The wholesalers who had formerly snubbed her now kneeled at her feet. She loved it. “If you want to sell her twenty-three hundred end tables, she will know in a minute what she can pay, how fast she can move them…and she’ll buy them from you. She’ll wait until just before your plane is going to leave in some blizzard when you have to get the hell out of Omaha and can’t afford to miss your flight. She will be very tough in dealing with you.”32

  She was hard at it six and a half days a week. “It’s mine habit,” she said. In her mind, the showroom was her home. Her daughter, Cynthia Schneider, who decorated her mother’s house, had arranged the furniture “just as you would find in the store” because “it’s the only way we could be sure she would be comfortable.”33 The lampshades remained covered in plastic. Price tags dangled from some of the furniture. “I only use the kitchen and bedroom,” said Mrs. B. “I can’t wait until it gets daylight, so I can get back to the business.”

  On Sunday afternoons—the only time all week she wasn’t at the store—she drove around town with Louie. “I go shop the windows,” she said. “I plan an attack on the shopkeepers, thinking, ‘How much hell can I give them?’”34 All her work, she said, was inspired by her “diamond mother,” who had run a grocery in Russia. She never forgot waking in the night to find her mother doing laundry and baking bread at three a.m. “She would carry a hundred pounds of flour twenty blocks for three cents’ profit,” she said. “It broke my heart.”35 And so, Rose’s soft spot was refugees and immigrants. She sometimes put them to work in the bookkeeping department, telling them, “You don’t need English to count.”36

  In 1982, the Omaha World-Herald interviewed her. She said that over the years the family had rejected several offers to buy her company. “Who could afford to buy a store this big?” One of the offers, she told Louie, was Berkshire’s. Buffett had talked to her a few years earlier and she’d told him: “You’ll try to steal it.”37

  A year later, Buffett heard that the Blumkins were negotiating with a company in Hamburg, Germany, that operated the largest furniture store in the world, a model similar to theirs. The Blumkins were selling! “You don’t have to be very smart to figure out it’s a good idea to go into partnership with Mrs. B,” Buffett said.38

  Maybe this time they were serious. Twenty-some-odd years before, on yet another occasion, Rose had summoned Buffett to her store downtown, indicating that she was thinking of selling. He really wanted to buy the Furniture Mart for Berkshire. He had walked in to find a short, squat woman lecturing a group of men lined up against the wall: her grandsons and sons-in-law and nephews. She turned to Buffett. “‘See all these guys next to me?’ she said. ‘If I sell it to you, you can fire them. These people are a bunch of bums, and they are all related to me and I can’t fire them. But you can fire them. They’re bums, bums, bums.’

  “She went on like this for an hour, literally. The word ‘bums’ recurred many, many times.” The relatives, long used to Rose, stood, impassive. “Then she dismissed me. I had served my purpose.”

  It was too bad; he would have liked to buy the store.39

  “She thought the only one who was worth anything was Louie, and he was perfect.” When she was pleased with Louie, as she usually was, she told him, “Oy, oy, oy, oy, it’s beautiful, you did such a good job.”40

  If the Blumkins had talked themselves into selling, now was the time. Mrs. B had had two knee replacements, ceding most of the day-to-day operations to Louie. But she was still running the carpet department. “Something about carpet fascinated her,” said Louie.41 If somebody needed carpet for a nine-by-twelve room, she priced it out, added the tax, and gave the buyer a discount for being a good customer, all calculated within seconds in her head. And she still made occasional forays into the furniture department, often enough that the family could never be sure if even their own furniture was safe. Once, Rose called her daughter and told her to “empty the baby chest,” because she had a customer. “When I made up my mind,” she said, “I didn’t want to wait for nothing. That’s mine habit.”42 Nevertheless, it was Louie to whom Buffett talked. Louie said, “You should meet my sons Ron and Irv, who’ll be running the store someday.”

  Buffett invited Ron and Irv to come to his office for a visit, and struck up a relationship with them. He sent Louie a letter, explaining his thoughts on the pros and cons of their selling to Berkshire. The Blumkins should be in no hurry to sell, he wrote, dealing with them as honestly as anyone possibly could. If “you decide not to sell now, you are very likely to realize more money later on. With that knowledge you can deal from strength and take the time required to select the buyer you want.”

  Then he laid out what he really had to offer. They could sell to another furniture company, he wrote, or to somebody in a similar business. But “such a buyer—no matter what promises are made—usually will have managers who feel they know how to run your business operations, and sooner or later, will want to get into hands-on activity…. They will have their own way of doing things and, even though your business record undoubtedly will be far better than theirs, human nature at some point will cause them to believe that their methods are superior.”

  Then there is “the financial maneuverer, usually operating on large amounts of borrowed money, who plans to resell either to the public or to another corporation as soon as the time is favorable,” he wrote. “If the sole motive of the owners is to cash their chips and put the business behind them, either of these types of buyers is satisfactory…. But if the sellers’ business represents the creative work of a lifetime and remains an integral part of their personality and sense of being, both of these types of buyers have serious flaws.

  “Any buyer will tell you that he needs you and, if he has any brains, he most certainly does need you. But a great many, for the reasons mentioned above, don’t subsequently behave in that manner. We will behave exactly as promised, both because we have so promised, and because we need to.”

  Buffett explained that if he bought, he wanted the Blumkins to stay on as partners. If they looked back with regret, the deal would be a disappointment for everyone, including him. He told Louie that he would get involved in only two things: capital allocation and selecting and compensating
the “top man.”

  Buffett had something else to offer. He was not German. The German company had offered well over $90 million, but to Mrs. B, who had traveled 9,000 miles across Asia to escape the pogroms, selling to a German company was anathema. The Blumkins agreed to sell the company to Berkshire, so Buffett drove out to the 200,000-square-foot store to make a deal. There he found the eighty-nine-year-old Rose gunning the motor of her three-wheeled golf cart and racing around the store, roaring at her employees, “You’re all good for nothing! I wouldn’t give a nickel for all of you!” while Louie and her three sons-in-law looked on.43

  “I don’t even want to take inventory,” said Buffett. “I’ll take your word, Mrs. B, whatever you say you got.”

  Mrs. B looked at her sons-in-law, who stood against a wall. One of them was taller than her by at least a foot. “Norman’s been married to Frances forty-one years,” she said. “Jerry’s been married to Sylvia thirty-six years. Charles was married to Cynthia thirty-nine years ago. I told those boys, ‘I don’t take return merchandise!’”

  Her daughters owned twenty percent of the stock and had sent their husbands to sign off on the deal. The sons-in-law were not dumb and knew that they’d get far more money from the Germans. “And she snarled at them, Just tell me how much more you think you’re going to get and I’ll give it to you. She wanted to divide up the money and get them out of there so it would be Louie’s company, and they stood there against the wall, quivering. They wanted to go. And then she said the price was fifty-five million dollars for ninety percent of the company.” Mrs. B had said, “I don’t understand stock.” She wanted cash. “They stood there mute, but they were also thinking, as soon as this sale goes through, we get the money, we’re getting the hell out of here.

  “She really liked and trusted me. She would make up her mind about people and that was that.” Buffett knew she made decisions about everything once and for all and in the blink of an eye, so he wasn’t taking much risk, but, “I told Mrs. B after she signed, I said, ‘If you change your mind on this it’s okay with me.’ I would never say that to any other seller in the world, but I just felt that this was just such a part of her, if there was any reason she decided she didn’t want to do it after—I didn’t want her to feel bound. And she said, ‘I don’t change my mind.’