By Clint Engel -- Furniture Today, November 12, 2001
At the recent grand-opening preview of R.C. Willey's Henderson, Nev., store, legendary investor and Berkshire Hathaway Chairman Warren Buffett took time out for a press conference and an interview with Furniture/Today's Clint Engel. Buffett offered his thoughts — blended with his well-known wit and wisdom — on everything from future plans in furniture to the Internet threat to the Nebraska-Oklahoma football game. Here are some highlights:
It has been less than a stellar year for the industry. How are your furniture stores performing?
Buffett: Our stores are doing well. I would say on a same-store basis they would be probably flat to up maybe 1%, which is less than in previous years, but considering what's going on in the economy and what I see in the rest of the industry, our stores have done very well. I think we've gained market share in every market we're in.… I flew out here today with the Blumkin family (of Nebraska Furniture Mart) and the first week after Sept. 11 I believe we were off 11%. But since that time it's come back strong. October is running very strong.
Are you looking at investing in other furniture stores?
Buffett: We have looked in the past, but it's very hard to find any that would be at the quality we've got, frankly. We've got really five operations counting the (Homemakers store in Iowa) and there aren't many like that in the country. It's not that we wouldn't be interested because we've had good experience in the furniture business ... but there's nothing at all on the griddle right now. What we will do, and I'll give you a little news in this regard … we will have another store in Las Vegas….
You can judge the quality of the stores by whether I claim them my idea. Before this opened, this could have been Bill (Child's) idea or Scott (Hymas') idea (both are R.C. Willey executives), but I was hanging back. And then the figures started coming in and those guys didn't have anything to do with it. And I'll say this, prematurely: The second store is my idea, too.
What's the timeline for opening the second store?
Buffett: I would say that you want to find the right piece of land ... and that sometimes can be done quite quickly and sometimes it takes it takes many months. You can't have an exact timeline, but I'm 71, so I don't even buy green bananas. We've got to keep things moving! I would think it would be very likely we would be underway in a year.
Do you have any concerns about the Las Vegas economy in opening new stores here?
Buffett: Not really. We don't really think that way.... We're going to operate in all kinds of economic environments over a 10-, 20-, 30-, 50-year period. And the thing to do is be where you should be. Get there with the right people. Get there with the right facilities, the right location. That's so much more important than whether, overall, there's 6% unemployment or 3% unemployment at the time you open.… When you've got a winning formula, you don't want to sit around and wait for just the right time.
Why did you decide to expand first to Boise and then Las Vegas?
Buffett: Well, we actually debated between Boise and Las Vegas. We didn't know how it would work when we left Utah. And we felt that (Boise) was a smaller market. It was easier, in a sense, to learn (not only learn but we prospered in the process). But it was a scale model, in a sense, and this is a ramp up, in effect.
With the acquisition of Homemakers and its Woodmarc subsidiary and the purchase of Shaw Inds., you entered the manufacturing side of the home furnishings industry. Will we see more, perhaps bigger, moves from you on the manufacturing side?
Buffett: I would say it's very unlikely. I wouldn't rule anything out, but it's not anything we've been going out to do. We've been approached over a 10-year period by, I don't know if it's a half a dozen or how many — just from time to time — and they really haven't been something we've wanted to do.
Furniture retailing is not an easy business.… Everything you do, your competitors can see what you're doing and they try to copy it and top you and all this sort of thing. So you need terrific people who are passionate about their business to succeed in retailing.
I would say that manufacturing is a somewhat different business. For a domestic manufacturer I think, in many cases, there is a significant import problem over time. … Furniture manufacturers to some extent in certain areas are in that position where they're competing against a whole different cost structure and that's tough. I tried that a few times and had my head handed to me.
Can you predict a score for the Nebraska-Oklahoma football game?
Moving on to something more serious.
Buffett: There's nothing more serious than Nebraska football. We have divorces in Nebraska where the husband tells the wife, "You keep the kids. I want the tickets."
Considering the situation we have in this country with terrorists, do you feel being an American icon, you may be a target? Are you taking any extra precautions?
Buffett: I would not be a big target. It's such a low probability. I don't worry about that sort of thing very much.... Over the years I've had a few threats from time to time. We had a guy run an ad (in the newspaper) seeking an accomplice to kidnap me. That was not the brightest guy in the world.
Was he from Oklahoma?
Buffett: I think he was. I think he was actually an all-American. But I'm not the type that worries a lot about that.
What is it about this industry — one that some consider slow moving and barely profitable — that attracted you in the first place?
Buffett: Well, it's a very, very basic business. There's no question five, 10, 20, 50 years from now that people are going to be buying things for their homes. And they are going to be buying where they get great selection, where they get great prices, where they get great service, where they have (confidence in the) people they deal with.... So the industry isn't going away, and it's a big industry. And it's also a business, where when you have talented people you can extrapolate those talents by opening additional stores.
We have in the various operations, people who are very successful in somewhat different ways. They have a lot of common qualities and somewhere their own personalities project themselves into their business styles. If you look at Jordan's in New England, it's a somewhat different operation (from R.C. Willey, but it's) enormously successful…. It is a culture that works, and you don't want to try and mix them up or homogenize them. To have someone in Omaha say now we've got this thing that works for R.C.Willey and now we're going to have all four places or five places do it, would be crazy.
These are individual enterprises. They're successful. They earn decent returns on capital. They have the opportunity to employ more capital at decent rates and that's a very good business.
After going into Boise and now Las Vegas, are you looking at any other markets?
Buffett: Yeah. You bet we are.
Any in particular?
Buffett: We'll figure out what makes the most sense.… We like the idea of a reasonable proximity to our home base and we like a market where we think we can become No. 1 very promptly. Berkshire has the No. 1 position I think in six states now.
Do you regard the Internet as a potential competitor?
Buffett: I worried more about it a couple of years ago. Any method of getting goods to the customer is potential competition, and in the end, the customer will do what's best for them. You cannot fight the customer. You have to figure out — and preferably ahead of time — what they like, what they want. … I would say that the Internet has had great trouble in doing that….
The Internet has the advantage (in that customers) don't have to go to the store, but it has some significant disadvantages. One being that everybody who has tried it has bled to death financially. But keep looking at everything.
Do you believe there will be renewed focus on the home following the terrorist attacks, and if so, does the industry stand to profit from it?
Buffett: I wouldn't expect anything vastly different in either direction. To a very high percentage of people, their home is enormously important … but I don't seen the expenditures on the home as a percentage of total consumer expenditures changing a lot in one direction or the other over the next decade or so.
Are they any other excellent furniture stores out there?
Buffett: There's probably one or two. I don't usually do too much looking. Usually they come to us.… If you asked me if there's likely to be one (acquisition) in the next 10 years, there's likely to be one in the next 10 years. Is there likely to be one in the next one year, probably not.
What are the key qualities you're looking for in a future industry investment?
Buffett: It gets back to durable competitive advantage. It means that if you're No. 1 in Omaha like Nebraska Furniture Mart is, you can expect to be No. 1 ten years from now. Whatever ingredients have produced that leadership position are going to be maintained or enhanced. But that's a judgment we make in any business. That isn't peculiar to furniture. And then you want people that you're going to be compatible with that you think are very able and honest. When you find it — and you don't find it very often — but when you find that, then you've got a deal.Related Links
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