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In terms of managerial decisions nothing really changed when Berkshire Hathaway bought R. C. Willey in 1995. The one exception was that Buffett held a veto over investments in new stores. Bill Child, CEO, told Utah Business that Warren Buffett was a wonderful partner “rather than tell us how to run our business, he gives us a big vote of confidence, 100 percent support and total trust. We don’t have anyone looking over our shoulder. He’s interested in the long haul…If we were to sell every appliance and electronic product we have at a very low margin for the next four years to protect our market share, he would probably not say a thing. He’s the perfect partner.”
Not on a Sunday
Now that R. C. Willey dominated the Utah furniture and electricals market it was natural for Bill to think of ploughing profits into other states. He’d been working on a plan to open a store in Las Vegas where Clark County alone was welcoming about 8,000 new residents each month. Henderson, in Clark County about 16 miles southeast of Las Vegas, had some excellent reasonably priced large sites with good access.
After Child took Buffett on a helicopter tour of the area pointing out the rapid growth in households, he asked what Buffett thought of the prospects.
“We’re not going to go,” Buffett said.
Child was shocked. The plan was all worked out. A new store in Henderson could be more profitable than any store in they had in Utah.
Buffett accepted that closing all stores on a Sunday made sense in Mormon country but in most states Sunday was the biggest trading day for furniture – often one-quarter of the week’s takings. Child could not compromise his principles and therefore proposed that any Henderson store would indeed close on Sundays.
Buffett respected Child’s religious convictions, but it just didn’t make financial sense to him to spend tens of millions on a new store if competitors then go and syphon off customers on Sundays. He told his friend “We’re not going to open on Sunday. But we’re also not going to go into a market where we can’t be successful.”[2]
Child disagreed, but accepted Buffett’s perspective. He could see how difficult it might be for others to understand his vision.
One investment Buffett did agree to, however, was the construction, in 1997, of America’s largest (860,000 sq ft) distribution centre in Salt Lake City which offered an unrivalled capability to supply the Utah stores and customers.
Another tack
Westward expansion to Las Vegas was vetoed, but Child still saw potential elsewhere. He focused on the state to the north of Utah, Idaho. There, Boise was is need of a massive R. C. Willey store, he thought. It too was growing fast and was only 350 miles from the new distribution centre which could restock overnight.
Buffett again said no. He was satisfied with the firm’s performance in Utah, “We’re doing okay” he said.
One morning, Bill was in the shower and decided that he wouldn’t come out until he had thought of a way to convince Buffett to allow him to go ahead with the Boise store. Later that day he telephoned Buffett “I’d like to talk to you about Boise, Idaho”.
Buffett said curtly “We’ve already talked about Boise.”
“Warren, I’m going to make you a proposition you can’t refuse. I will buy the land, and I will build the building, personally. And if we’re not successful in six months, we’ll walk. That guarantees that the company won’t lose a dime” (Bill Child in Benedict, Jeff (2009) How to build a business Warren Buffett would buy: the R.C. Willey story.)
Berkshire could not lose, so Buffett said “Okay. If the store can’t do $30m in the first year, we’ll walk. If the store does $30m, I’ll lease it from you and pay you four percent of gross sales.”
But Bill wasn’t finished in his generosity. He then said that if it is really successful he’ll sell the store to Berkshire at what it cost him, with no interest added.
“Okay” said Buffett.
About two weeks later Buffett called and said that he had been thinking about the proposition and that he could not exploit his friend this way, “There’s no upside for you. It’s all downside.”
“Warren, first of all, I wouldn’t have it any other way. Second, there is some upside. The upside is that if we are successful, you are going to let us go to Las Vegas.” replied Bill.
The store opened in August 1999 and was an instant
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