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Warren Buffett bought Helzberg Diamonds in 1995 for – I estimate – around $165m – $183m in Berkshire shares (the precise number of shares has never been revealed). There are lessons for today’s investors in understanding what made this company so appealing to Buffett. Today I describe the company’s development leading up to the Berkshire Hathaway purchase. Tomorrow’s newsletter describes the deal-making process (it took almost a year to reach agreement)
The foundation
Russian immigrant Morris Helzberg, grandfather of Barnett Jr, opened a small jewelry store in Kansas City in 1915. All five children not only helped-out but were involved in decision making – there was a family tradition of long discussions. Shockingly, within two years Morris had a serious stroke making him unfit to work. Eldest son, Morton, was in dentistry school and another, Gilbert, was soon to fight in the First World War. That left two girls and 14-year-old Barnett.
Barnett Sr – the father of Barnett Jr who sold to Buffett in 1995 – had already shown a great deal of enthusiasm about the business and so the family decided that he was to take over. One problem: he still had to attend school. The solution was that an uncle would run the store during the day, and when Barnett got out of school at 3 o’clock he took over. It was assumed that when Gilbert returned to the USA he would take over.
But Barnett was having a whale of a time. He had a natural talent for retail. A born salesman he was full of exciting plans. In 1920, now all of 17, he opened his own store in a more expensive location in Kansas City while Gilbert ran the original shop. It wasn’t long before Barnett’s grander place was out-selling Gilbert’s, and so Gilbert shut his store and joined Barnett.
His son, Barnett, Jr., was given summer work when 15. He says he was a rather timid child, but soon grew to love building relationships with customers and the thrill of selling. Sadly, Gilbert Helzberg died in a motor accident in 1934, just as the firm was expanding as far as Wichita. By 1940 the chain of five stores was the largest in the Midwest and when Barnett, Jr joined full-time in 1956, after graduating in business from the University of Michigan, the company was set for a period of rapid expansion throughout the Midwest.
The Barnett Junior years
In 1962, when Barnett became President of the firm aged 29, it had 39 shops. Things seemed to be going well in the 1960s, but there was a flaw: the majority of the stores were located in downtown districts whereas people were now flocking to the new suburban shopping malls. Barnett Jr remembers this period with feelings of fear and regret because Helzberg came close to complete business failure following its strategic wrong turn. It was stranded with high downtown costs, dwindling customer flow and cash crises. He decided to close the older stores caus………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
