Borsheims blossoms under Buffett's control

Share On Facebook

Immediately he bought 80% of the shares in Borsheims in 1989 Warren Buffett gave instruction to “forget that it happened, and just keep doing what you were doing.” That’s it, there was no further instruction according to Donald Yale, a director.  No discussion on crucial matters such as growth plans or management hierarchy and decision-making or how they might boost profits.  Just carry on doing what you are doing, using your initiative and Berkshire will be in it for the long-haul supporting you all the way.

©

“Borsheim’s new links to Berkshire will change nothing in the way this business is run.  All members of the Friedman family will continue to operate just as they have before; Charlie and I will stay on the sidelines where we belong.  And when we say “all members,” the words have real meaning.  Mr. and Mrs. Friedman, at 88 and 87, respectively, are in the store daily.  The wives of Ike, Alan, Marvin and Donald all pitch in at busy times, and a fourth generation is beginning to learn the ropes.

“It is great fun to be in business with people you have long admired.  The Friedmans, like the Blumkins, have achieved success because they have deserved success.  Both families focus on what’s right for the customer and that, inevitably, works out well for them, also.  We couldn’t have better partners.” (Buffett’s 1988 letter to shareholders)

The support of Berkshire has been a great blessing.  As well as the extra publicity, Borsheims has benefitted from the cash backing and credit-worthiness of Berkshire (one of only a handful of AAA-rated companies), giving it enormous buying power.  It can prepay for bulk purchases thereby obtain the lowest prices (it’s very rare for jewelers to pay upfront).

Buffett ranked Borsheim’s along with the The Sainted Seven – those Berkshire controlled businesses with economic characteristics ranging from good to superb, and managers ranging from superb to superb:

“In the past, we have labeled our major manufacturing, publishing and retail operations ‘The Sainted Seven.’ With our acquisition of Borsheim’s early in 1989, the challenge was to find a new title both alliterative and appropriate. We failed: Let’s call the group ‘The Sainted Seven Plus One.’

“[With] Borsheim’s, The Buffalo News, Fechheimer Bros., Kirby, Nebraska Furniture Mart, Scott Fetzer Manufacturing Group, See’s Candies, World Book… most of these managers have no need to work for a living; they show up at the ballpark because they like to hit home runs. And that’s exactly what they do.” (1989 Letter)

Shortly after the purchase Ike was invited to a very special gathering of Buffett’s investing friends – those who run value-orientated funds based on Benjamin Graham’s principles:

“A story will illustrate why I enjoy Ike so much: Every two years I’m part of an informal group that gathers to have fun and explore a few subjects. Last September, meeting at Bishop’s Lodge in Santa Fe, we asked Ike, his wife Roz, and his son Alan to come by and educate us on jewels and the jewelry business.

“Ike decided to dazzle the group, so he brought from Omaha about $20 million of particularly fancy merchandise. I was somewhat apprehensive – Bishop’s Lodge is no Fort Knox – and I mentioned my concern to Ike at our opening party the evening before his presentation. Ike took me aside. “See that safe?” he said. “This afternoon we changed the combination and now even the hotel management doesn’t know what it is.” I breathed easier. Ike went on: “See those two big fellows with guns on their hips?  They’ll be guarding the safe all night.” I now was ready to rejoin the party. But Ike leaned closer: “And besides, Warren,” he confided, “the jewels aren’t in the safe.”

“How can we miss with a fellow like that – particularly when he comes equipped with a talented and energetic family, Alan, Marvin Cohn, and Don Yale. NFM and Borsheim’s follow precisely the same formula for success: (1) unparalleled depth and breadth of merchandise at one location; (2) the lowest operating costs in the business; (3) the shrewdest of buying, made possible in part by the huge volumes purchased; (4) gross margins, and therefore prices, far below competitors’; and (5) friendly personalized service with family members on hand at all times.” (Buffett’s 1989 Letter)

As Borsheims grew it managed to keep its operating costs at about 18% of sales, less than half that of a typical competitor.

Sadly, in 1991

………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

 

CLICK HERE TO REGISTER FOR FREE ON ADVFN, the world's leading stocks and shares information website, provides the private investor with all the latest high-tech trading tools and includes live price data streaming, stock quotes and the option to access 'Level 2' data on all of the world's key exchanges (LSE, NYSE, NASDAQ, Euronext etc).

This area of the ADVFN.com site is for independent financial commentary. These blogs are provided by independent authors via a common carrier platform and do not represent the opinions of ADVFN Plc. ADVFN Plc does not monitor, approve, endorse or exert editorial control over these articles and does not therefore accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at ADVFN.com is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by ADVFN.COM and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Authors may or may not have positions in stocks that they are discussing but it should be considered very likely that their opinions are aligned with their trading and that they hold positions in companies, forex, commodities and other instruments they discuss.

Leave A Reply

 
Do you want to write for our Newspaper? Get in touch: newspaper@advfn.com

By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions

P: V: D:20190619 05:32:55