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Interview with: Milton Berman
Interviewed by: Louis Marchiafava
Date: March 21, 1979
Archive Number: OH 251.1
LM: March 21, 1979 interview with Mr. Berman. Mr. Berman, I’d like to begin the interview from the very basic beginning—your birth—where, when, family, background and so on.
MB: I was born in Rochester, New York in 1907 to a lower middle-income family. My father was a tailor. Rochester at that time was one of the clothing headquarters in the country, with many fine clothing factories there. They’ve since lost that. We also had a retail store in the family to supplement his income, which really was run by my mother—a very small store that sold men’s furnishings and some clothing. We had three children in the family. I was the youngest. And like most, or many, Jewish immigrant families, a great deal of importance was placed on securing the proper education for the children. So despite the limited income we enjoyed, all three of us went on to college, including my sister, and we graduated from college. My brother and I went on to graduate school—he to law school and I to business school. What else would you like me to tell you? Am I talking loudly enough?
LM: That’s fine. I believe it should be doing well. What was the curriculum at Harvard Business School at that time? What did they emphasize?
MB: Well, it was a straight business curriculum. We took such things as business administration, accounting, marketing, retailing. The school had an extraordinary dean—his name was Wallace B. Donham—and a faculty which was mind blowing. Arthur Stone Dewing in finance, a man named Melvin Copeland in marketing, a man named Malcolm McNair in retailing. These were really giants. I had gone to the University of Rochester, which was then a fine, small, Baptist-controlled college. The change from Rochester to Harvard was inspiring. A whole new world was opening up for me. It made the University of Rochester and my undergraduate work seem almost parochial as I came to these minds.
LM: And your work as an undergraduate had been in the humanities? Is that correct?
MB: Yes, I majored in English Literature—Shakespeare, Thomas Hardy. And I don’t mean to minimize the University of Rochester, but it was a different league. As a matter of fact, my Shakespeare professor at the University of Rochester, Dr. John Rothwell Slater was undoubtedly one of the great Shakespearean scholars of this century, but you don’t think of many others like that at the University of Rochester. Now the university has become a much larger university and has gone on to do better things since then, I think. And I mentioned the fact that it was a Baptist-controlled university because that explains certain things about the university.
LM: 05:02.1 Such as?
MB: Well, it was narrow and not broad.
LM: So Harvard provided a complete—?
MB: Yeah, it made a different person out of me. It meant a sacrifice for my family and for me to go to Harvard. I had to borrow money to go to Harvard, which they were gracious enough to loan me. I learned how to handle my expenses, and my parents gave me some money. I earned my way through the University of Rochester, but at Harvard I did not work. I had a nest egg of money which I attempted to husband, and I worked very hard. I had objectives. I think I have to confess that I wanted to make the Harvard Business Review. The Harvard Business Review was automatically the top 20 students by grade out of a class of 600 were elected to the Harvard Business Review. I decided to make it, and I did. And surely that was helpful to me in my efforts to get a job in the Depression Era in 1931, when you just had a terribly difficult time getting a job at any price.
LM: What years did you study at Harvard?
MB: I entered in 1929 and was graduated in 1931. Things were very, very rough then. I went to work at what was then regarded that year as a high salary of 30 dollars a week at Jordan Marsh and then suffered over the next 3 months three pay cuts, which reduced my salary to around 24 dollars. I was attempting to pay off my debt to Harvard. It so happened these pay cuts seemed to come at a time when I was getting promoted, and I finally reached the point where I said, “Hey, don’t give me any more promotions. I can’t afford it.”
LM: How did you happen to come into the job at Marsh?
MB: Well, it was— At Harvard then and now, they had a rather active placement bureau. Companies would come to visit the second-year students, interview them, and presumably their purpose was to find the talent they wanted so that they could make job offers. Now, believe me, in the spring of 1931 those visits were not plentiful. I had very few interviews, but Jordan Marsh was right in Boston, of course. I was interviewed by them and invited to meet with Edward Mitton, who was part of the family which had control of the business almost since its inception, and he is the man who made me this magnificent offer of 30 dollars a week. Plus, the opportunity to work with a very bright, young man as a staff assistant for a while, and that was really why I took the job. That bright, young man played a very important role in my business life, subsequently. It was he who, a good many years later, invited me to come to A&S—Abraham and Straus. He became the chief executive officer of Abraham and Straus, and I rose with him at A&S in subsequent years. I guess that’s how. I did have other offers, but this one appealed to me most.
LM: 09:29.0 What practical experience did you get at Marsh in the retail business? What were your actual duties?
MB: What practical experience did I get where?
LM: At Marsh?
MB: At Jordan Marsh?
MB: Oh, boy. I came in, as I told you, as a staff assistant to a bright, young divisional merchandise manager and worked right with him and his buyers. A divisional merchandise manager supervises a group of buyers. We were both young. He was just getting married. We didn’t mind working nights on things we were putting together. As the Depression deepened, the company could not afford the luxury of staff assistants in training posts, so after 6 or 8 or 10 months, I was moved into an assistant buyership. I think that’s when I got my first pay cut. I had been promised a raise after 6 months, but it was a dreadful period. Then I became a buyer in Jordan Marsh’s basement, buying for a group of departments. And within 2 years I was made a buyer of the upstairs glove department, and I began to travel to Europe every year and touring the glove markets of the world as a rather young man, buying large quantities of merchandise. In those days you had to buy— Because I was in a market that was involved with imports, you had to buy a substantial percentage of your merchandise needs in advance. This was exciting, it was interesting, and it offered potential for growth and for profits for the company. In addition, because—as you think back to the primitiveness of operations in those days—in the 30s—we didn’t have computers. We didn’t have fancy control— We had to invent them, develop them. So this was enormously important in my development. While I was there—I had mentioned Edward Mitton to you earlier in this chat, extraordinary merchant. He became the head of the company, but never got away from the merchandising. And as a child, his parents and grandparents who were running the business used to take him to Europe every year with them, and he had a love for traveling in Europe and abroad. Well, let me tell you a story. We can cut it out if it’s too long. I remember one day the war was breaking out. Our markets were closing down in gloves. By this time I was married, and my family was starting to come along. A lot of the gloves we used to import used to come from Germany and Czechoslovakia, in addition to France and Italy and England. And because of the Nazi atrocities, the American public was beginning to protest certain kinds of merchandise. There was a feeling of revulsion, for example, towards German merchandise, and a lot of stores were either curtailing their purchases of German merchandise or eliminating them, because in New York, where there was a large Jewish population, the protests were very visible. So we were losing our markets. We lost Germany. We lost Czecho. That knocked out most of the European fabric gloves, which were quite important then. One day, in our import office in New York, I saw a dirty, little sample of a glove from Brazil, and it was badly made, the quality of the fabric was not high, whereas the gloves we brought in from Germany and Czecho were made—the good ones—from long-staple Egyptian cotton. These weren’t that fine. But I could tell by touching it and feeling it that it was made on a Simplex Machine, which was made in Germany, and therefore I suspected that there was such a machine in South America in Brazil. I showed this dirty sample to Edward. He said, “Where did you get that?” And I told him I asked them if I could have it. “What do you want to do?” I said, “What do you think I should do?” He said, “I think the same thing you do; you ought to fly down to Brazil and see if you can find that.” So I made arrangements. Now, you have to do some homework—you know. The gloves were badly made. They obviously didn’t have the right kinds of metal dyes. I found out where they were made. They were making these metal dyes in America by this time, and I ordered a whole set of them. They were quite heavy. I say that because when I flew down, I took only one size with me on the plane. The others I put on a boat for transportation across because they were quite heavy. I went into a factory. We were developing techniques in this country to find out what the latest manufacturing techniques were. And then I arranged to meet someone in South America who could speak my language and who could speak their language and who had some familiarity because he worked in one of our European offices with the problem. I flew down to Brazil. It took me 4 days. You know—planes—there were no jet planes. Planes did not fly at night, so you flew from New York to Miami, one day; Miami to Trinidad, two days; Trinidad to Belem, three days; Belem to Rio, four days. And then on to Sao Paolo and sought a man named Alberto (s/l Portolano) who made the glove. I walked in and asked him if he knew my friend Domonico (s/l Portolano) of Naples, and he threw his arms around me. It was his cousin. I used to do business with Domonico in Naples. Anyway, there was a machine. We went there; we bought the output of the machine. We had some very exciting experiences developing them. I opened the package of the metal dye, and he got down on his knees and kissed(?) me. He had never seen it. I had to teach him how they make those things. And this became the beginning of a very exciting experience in which Jordan Marsh was able to confound its competition by producing something that wasn’t available because of what was happening in the war. I’ve taken a long time to answer your question as to how I got experience, but the way to get experience when later on you were directing people in approaches to developing and exploiting business. Then I was promoted to become a— After that happened, obviously Edward Mitton was impressed by this good fortune and what we were able to accomplish, and I was promoted to a divisional merchandise managership, running all the street floor(?) departments at Jordan Marsh. And subsequently, Sidney Solomon came after me to get me to go to Abraham and Straus.
LM: 18:57.5 Before we get too far advanced, there is one question I wanted to ask you. I noticed in researching your background that you also worked for a brief time for Macy’s.
MB: Yeah. That was interesting. It was part of the practice at the Harvard Business School, which was then and is now a 2-year course, to suggest to the students that during their summer vacation they go to work for a company which could throw some light on whether or not they wish to pursue that particular field. I applied for and did receive a job—25 dollars a week—on the Macy’s Summer Executive Training Squad. Now, Macy’s at that time was at the height of its brilliance. It was the first store in this country to do 100 million dollars a year. It was full of brilliant people, and I wanted that experience. Well, when I got to Macy’s, after two days of training they stuck a white flower in my lapel and told me to go to the fifth floor. I was a section manager, greeting the customers and taking them to where they wanted to go and listening to their complaints. After 6 or 8 weeks of that, I requested from my boss an opportunity to move around and learn some other things. He explained to me that Macy’s was in business to make a profit. They were paying me 25 dollars a week, they had taught me a job, and for this brief summer period this is what they expected me to do. I understood that later. I didn’t protest too much then. I was at least part of the atmosphere when some of the giants of our field in the late ‘20s and early ‘30s—Kenneth Collins, the brilliant man who headed publicity there; a woman named Fitzgibbon, who later became head of Gimbels publicity. She was the one that dreamed up “It’s smart to be thrifty” and some of those great slogans. And it was at that time a great institution. It subsequently lost position, but that’s all. I stayed there the full summer and returned to Harvard to finish my second year.
LM: 21:55.6 During the time that you were at Marsh—
MB: Jordan Marsh, right?
LM: Right, Jordan Marsh. What was the role of credit in the retail business? How had it changed, or had it indeed by that time taken on any significant changes?
MB: That’s an interesting question. Credit did not play nearly as significant a role then as it does today. We had the 30-day charge account. We did have an account for big-ticket purchases. I’ve forgotten the name that we used in those days. But the revolving credit had not yet been invented, where you come into a department store, and they say we will give you 300 dollars in credit. Go out and buy 300 worth of merchandise, and then you will pay X dollars per month and keep it revolving. One of the people who was most important in the development of that concept which has become the big thing in credit—not only in department stores, but in all the credit operations going on—was Mr. Fred Lazarus, Jr., the founder of Federated. He was the one who played a key role in that development in department stores of revolving credit. We call it different things.
(Break in tape)
MB: Revolving credit has become enormously important. A store like Foley’s does about 60 percent of its total business on credit, the vast bulk of which is in revolving credit. I can—just so that you have things in perspective—in 1978 at Federated, the regular charge, which is a 30-day charge, did 21 percent of their total business in regular charge. Revolving budget, which is what I’ve been talking about, we did over 29 percent of our total business in revolving budget. And in installment credit—that’s the big-ticket, hard goods—we did 10 percent, for a total of 58 percent of our business in credit. I was reading you monthly statistics. The annual statistics are not much different—21 percent for regular charge, 29 percent for revolving budget, and 8 percent for installment, for a total of 58.4 percent of the total Federated business in credit. And some divisions would do more than that. The very high-priced stores—let’s say I. Magnin on the coast—they did probably 70-75 percent of their business on credit. So you see, it’s become a very important thing. And revolving credit, which is relatively new, has become the largest single part of the credit business.
LM: What is the timeframe for revolving credit? What are we talking about? When did it really begin to play an important role?
MB: Well, I’m going to guess now. I think 20 years ago—20-25 years ago—it was started and it grew and grew and grew. And every year now, the 30-day credit goes down as a percentage and the revolving credit goes up. One of the things the chief executive officer has to be concerned about—you of course know that with revolving credit we make a substantial income. With 30-day credit we make zero income from it. You have to wonder why it is going this way. You have to wonder whether your own credit executives— Everybody’s trying to do a good job for their area of the business. Are they handling new applications for credit in such a way that customers are steered away from the 30-day business into the revolving? They swear and cross their hearts that they do not do so. Now, some fine stores no longer make a separation between the two. They have what they call the option account. You have an account, and if you don’t pay your bill then in 30 days—bingo—it becomes a revolving and they charge you credit. We don’t do that. There are certain legal problems here in Texas and enormous expenses to start all over again and get your people all to sign a piece of paper that they are accepting a revolving credit. But there is no question in my mind that the department store business could not have grown as it has grown without the credit technique developments. One of the early people who had the vision to see this was Fred Lazarus, Jr.
LM: 27:49.5 Was there much opposition to the idea at the time?
MB: No. No, we were all looking for ways to do more business. You understand that if you don’t have competent credit people, you can lose your tail. You can allow people to get so heavily in debt they can’t pay you. We now have all kinds of controls, and we submit all kinds of reports to corporate so they can see that we are on top of our credit problems. Really, we are somewhat careful. We run a low, low credit loss. We don’t want to overload our customers beyond what they can handle. The problem is becoming increasingly complicated because everybody now has all these things, so it’s hard to know; are they loading themselves up elsewhere? You sound as though you’re interested in credit as a business phenomenon. Are you?
LM: Yes, I think it’s an extremely important concept that’s been put into operation. I think it’s probably—as you have already said—completely revised the whole concept of the retail business. There is no question about it. You’ve also pointed out some of the dangers of it, and undoubtedly I think we’ve seen some of the results of some of that indiscreet credit in the economy now. So, yes, I am interested. To get back to your career with the Straus Company—
MB: Abraham and Straus.
LM: Right, Federated. Let’s just review when did you begin there and how were you brought into the company?
MB: 29:48.5 Well, I went to work for Abraham and Straus on October 1, 1945. Six or eight months prior to that, Sidney Solomon began to woo me. He’s the man for whom I went to work when I first came to A&S who had since moved down—I’m sorry. I first worked for him when I went to the Jordan Marsh Company. He had moved on to Abraham and Straus, and by the time I came there, he was the general merchandise manager—vice president and general merchandise manager. He came to visit me in Boston to talk to me about “getting into the big leagues,” getting into the place where you could fight Macy’s for a share of the market. I listened, and I did not make a decision to come at that time; although I had great respect, admiration, and affection for Sid. By the way, his younger son is now deputy mayor of New York for economics, and I don’t think he’s paid for it. He is part of Lehman Brothers Kuhn Loeb and has been a big success in banking, especially on the retailing end of banking. I’m sure that if his father were alive to see this happen, he would be very proud of his son, Pete Solomon. I read about him. I get a sweet letter from him on very rare occasions.
(End of tape 01)
(Start tape 02)
MB: A very bad decision was made by Edward Mitton—bad in my judgment, not in his necessarily. I felt it was outrageously wrong because of nepotism, and it diminished the rest of us. I made it very clear that I would not take this. They kept passing my protest up the line until I finally got to Edward Mitton. He felt that his decision was correct, so I called Sidney Solomon and said, “You ever fill that job?” He said, “Come on down here.” And that’s how I happened to go to A&S. Is that clear?
LM: Yes, it is.
MB: I think that’s one of the reasons that we have always had a policy forbidding nepotism—written. No child of a member of our operating committee may come on to our executive training squad.
LM: How would you describe the expansion of your knowledge of the business while there?
MB: AT A&S?
LM: Uh-hunh (affirmative).
MB: 1:41.0 Well, it was a different ballgame. I’m not going to go into all the details. The problems of building a business in Brooklyn as opposed to Manhattan, the problems of getting your business share of the publicity and hype that goes on when you’re in Brooklyn as opposed to Manhattan, it was just reporter’s laziness. It’s tough to go across the river when you can go to Macy’s and Gimbels. All the stuff you used to read about was Macy’s and Gimbels. We were much larger than Gimbels. We were much more important than Gimbels, but you almost never read about us. The only people that loved us were the customers. I came there in about the same capacity I had at Jordan Marsh. I was a divisional merchandise manager for fashion accessories and small wares. And after 3 years, Walter Rothschild asked me to come and visit him. Walter Rothschild was the head of the business—the grandson of the founder of the business—a fine, very wise man. He told me that they had decided to appoint me vice president and general merchandise manager in charge of everything I had at that time, plus all of the home furnishings. And when I told him that my knowledge of home furnishings was zilch, he said, “That’s just fine. We want some new approaches here, and we think you can do them.” So I entered a whole new world of furniture, television, radios, and house wares, all of which had been foreign to my previous experience, but I had some very good divisional merchandise managers to work with. So A&S became—because of a whole group of people, including Walter Rothschild, who was away a good deal— When I became general merchandise manager, Sidney Solomon became general manager under Walter Rothschild. We had a team that was just full of piss and vinegar. They were full of vigor and fight. It was fascinating to watch that team take away from Macy’s, who was no longer what it had been. We took away Brooklyn from them completely.
LM: What was the contributing factor to that success, besides the aggressiveness?
MB: A great team with some very sound principles—long-range principles. And I like to think that some of those great principles were brought to Foley’s by me, and that’s the reason I was sent down here. Because there’s no question in my mind that during the ‘50s, A&S became the outstanding department store operation in America. With this great team of people, it grew unbelievable and its profits were great. Of course, we’re now coming into the period where the whole branch store movement began.
LM: That was my next question. I was going to ask you if during this time you had experienced in branching—into establishing branches.
MB: Can I tell you something, though. It has no relevance to anything, but to me it is a fascinating story.
MB: 06:16.4 It just happened recently. I mentioned Walter Rothschild, Sr., to you, who was a wise man, a great yachtsman. He loved to sail. He had a 55-foot yacht called (s/l Avante). I remember that he had loaned it to the United States government in World War II. I recently got a letter—2 weeks ago—addressed to this building from a man named Smith. And on his stationary, (unintelligible). And the letter read something like this: Dear Mr. Berman, I wonder if you could help me. During World War II, Mr. Walter Rothschild loaned his beautiful 55-foot sailing yacht to the United States government. I was in charge of a fleet of these sailing ships, one of which was Mr. Rothschild’s. I was the commander. By the way, this man was in (unintelligible). After the way, Mr. Rothschild commissioned me to write a book called Avante Goes to War, with beautiful illustrations, and I did. He distributed this book to his friends. I no longer have my copy of the book, and I don’t even have my original manuscripts. Could you put me in touch with anyone in his family in the hopes that I could copy it? As one gets older, this kind of thing becomes more precious. Well, I was intrigued with this letter, so I called Mr. Smith on the phone. I could tell by his voice that he was an older man. I said, “Mr. Smith, how did you know I knew Mr. Rothschild?” He said, “Well, you’re with Federated, and I figured you’d know him.” I said, “You didn’t know that I knew him very well and worked under him?” “No.” I said, “How did you get my address here?” He said, “I called Foley’s.” “Had you ever met me, Mr. Smith?” “Well, I’ve seen you, and I’ve said hello to you at the yacht club in Captain Davis’ office.” So I said, “Well, I’ll tell you what I’m going to do. I’m going to call Mr. Rothschild’s son and see what we can do. But tell me, what were you doing with these beautiful sailing ships? Weren’t they sitting ducks for the enemy? You said in your letter they were listening posts.” He said, “Well Mr. Berman, a submarine would not wish to disclose its location just to destroy one of my beautiful sailing ships because it would be very dangerous.” Well, I did talk to Gil(?) Rothschild, Walter Rothschild’s son, and he’s going to try to get him a book. That has nothing to do with our story, but to me it’s a wonderful little story about something that comes up like that. Where were we before I distracted you?
LM: Well, I was just about move you into Foley’s and find out how you happened to come here. What were the conditions that led to your—?
MB: Well, it’s an interesting thing. We have to move on now to 1963. By this time, I had taken over all of the upstairs merchandising at A&S. My associate had moved on to another place with Federated, so I had taken over all his. Together, we had built an organization there—together with Sidney Solomon. Walter Rothschild had died. Walter Rothschild’s son was coming up in the business. A&S was the pride and joy of Federated, and Federated, as they always do, wanted to spread some of that talent around to other divisions to try to achieve the same kind of results. So Ralph Lazarus came to me in perhaps December of 1963. He asked me to meet him at a hotel in Manhattan and just started to talk. He said that he had asked his staff to study everybody in Federated to select the person that should take over Foley’s to get Foley’s rolling again. Problems had developed between Foley’s and corporate. It depends on who you listen to as to whose fault it was, and it almost doesn’t matter. When corporate loses confidence in the division head and vice versa, instead of doing things you argue. Foley’s had 12:50 become encircled. Gulfgate had opened. The (s/l Post Stone) area had opened. Foley’s had made a decision in the ‘50s—and believe me, corporate was up to its neck in that decision—to expand the downtown store and pour millions of dollars into the store, and therefore Foley’s was reluctant to branch aggressively as perhaps they should have done. You had previously asked me what happened at A&S with branches, and we never got to it because I distracted you. A&S was, in addition to having a brilliant organization—which it had—very fortunate. First we picked up a small branch by default. When our next door neighbor was going broke—(s/l Lozier’s)—and a group of speculators bought it, they came to A&S and said, “Do you want this branch?” And we took it to give our people experience. But then we opened (s/l Hampstead), our first branch. Never visualized— We thought we could do 12 million dollars the first year. The first year we did 20, and it took off like that. It changed the whole complexion of A&S. We now became a factor. Together with Bloomingdales, we became bigger than Macy’s, and we were far larger than Bloomingdales. We learned a great deal about running the kinds of branches that can be the most successful. You see those branches of Foley’s here that are inspired by the same approach. I guess I should go back to what happened when Ralph Lazarus chatted with me. I told you—you know—the decision to build Foley’s downtown—expanded—had a lot to do with Foley’s reluctance to branch. In the long history, if you go back now, perhaps that wasn’t so bad. But at that time, our growth was stymied. So Ralph talked to me. He said, “I’ve asked my staff to make this study. When they get all through, they’re going to tell me it should be Milt Berman. I’m going to ask you to go down there now. I want you to look it over. I will arrange for you to be received. We will make up some excuse that you’re on your way to Mexico. But I want you to get a feel of the pulse of that store.” Well, at that time I was 56 years old. I think my salary was 100,000 dollars, which in those days was a lot of money. And he clearly indicated to me that I was well paid by Federated standards and the reason for my coming down wouldn’t be money; it would be facing up to a newer, interesting challenge of getting a business moving again, if we can borrow from JFK. I came down, and there were certain things very, very clear; we were being outflanked. We had a wonderful downtown business and still have, but Jesus Christ! We had to go out to where the people were going. So I came back and talked some more. I was troubled by my wife’s health. I had only one child still in school. I told Ralph what I saw, and if I did come down it would only be with the understanding that I would be allowed to branch as quickly as I thought the organization was ready to take on this responsibility. And he kind of reluctantly agreed to that because, in a sense, I was saying to him, “Some of your prerogatives are coming to me, and you’re going to agree now.” And I guess you could do that when you’re 56 years old and you’re not looking for a job and they’re asking you to take over (inaudible). I came down and found a very good group of people. We did not have the wholesale firings that frequently take place. Many of them are still here. Many of them have grown. I did bring (s/l Stu Artin). I hired him 2 or 3 weeks after I accepted the job. I interviewed a number of people. I knew him. He had been with certain Federated divisions, and we’d had meetings. We’d meet our counterparts—you know—and others. I knew he was bright and attractive and would work well with me. I brought him down. He is now our chairman and CEO.
(Break in tape)
MB: 19:08.8 I found Lasker Meyer, manager of our relatively small Sharpstown branch store. He is now the president of Foley’s. (s/l Bill Shifick) was here then as vice president for operations and control. He’s still there. I could name person after person, some of whom were not too highly regarded by Federated. But we decided that we would decide for ourselves about the potential of these people. And those people, once we got them together—once we reviewed with them—we listened to them and we talked with them and we put together a credo of what Foley’s was and what Foley’s wanted to become and how we were going to do it. We went out hammer and tongs then. We opened branches. I came down here in the beginning of ’64, and in ’66 we opened Almeda. In ’67, ten months later, we opened Northwest. Federated tried to dissuade us from moving that fast, but we felt we had some ground to make up. Both of these stores were hits. Now we have a big business. Now we are one of the prides of Federated by virtue of how our business has grown and how our profits have grown.
LM: How did you decide to move into these areas? What led you to select these locations?
MB: Well, let me say first that Foley’s Federated had already purchased the land in Almeda before I came down here, but Federated was discouraging Foley’s because of this unfortunate relationship from pursuing that path. They were goosing them about the downtown business in which they had made this big investment. Now, how do we decide? Federated has what is called an Area Research Department, where they have expert people come down and study the directions in which a city is growing and pinpoint locations and come up with estimates and projections of how much business a Foley’s could do. Given the quality of Foley’s management, given the size store Foley’s will build, given the numbers of people within a 15-minute driving range, given the average income of those people, how much business you’ll do. That is the most important factor in our decision as to when and where to open a store. Now in those years—in the intervening years—we at Foley’s have developed our own research people working with the area research people. They work very closely together. So we modify some of their projections, and we’re constantly plotting ahead as to where and when we will go. And an interesting thing is happening in Houston now. Houston’s total reputation as one of the growing areas of the country—that outside developers all over the country are streaming in and they have their own research people. They are taking options on lands, and they are sometimes forcing our hand. Whereas, by virtue of the fact that we are the largest retail operation—and many, many people in Houston will say, “We want to know where Foley’s is going. We’re going to go with them because we know there will be traffic.” I think of one place—I won’t mention it now—where we really weren’t ready to go. We had other fish to fry. But all of a sudden, by virtue of an outside developer, a shopping center was put together.
LM: 24:09.7 Frank Sharp—Sharpstown?
MB: No, that was a long time ago. I’m talking now.
LM: Oh, okay.
MB: A shopping center was put together, and we have to go whether we like it or not just to protect our position. The Frank Sharp deal was a very interesting deal, and Sharpstown became an enormous store. Its volume is the largest of any single store in the state of Texas—the Sharpstown store. It passed the downtown store either last year or the year before. I’ve forgotten. But it is the largest single store, and we have recently announced we are expanding it again. The Sharpstown store, last year, did more than 70 million dollars in business. That is considerably more than all of Foley’s was doing when I came down here in ’64. Now the dollars are different, of course. These are not ’64 dollars. But it gives you an idea of the kind of dynamic growth we’ve enjoyed.
LM: There’s so many aspects to this; it’s fascinating. While we’re on the subject of Sharpstown, can we trace the establishment of the Foley’s branch there? How did it come about?
MB: It came about because—and I wasn’t here—you know.
MB: 25:32.8 Because Frank Sharp owned this land, and Frank Sharp knew that he had to have a very strong magnet. Frank Sharp came to Foley’s and made a proposal to Foley’s Federated that was highly desirable from an occupancy point of view. By that I mean a cost. And that’s how it happened. The area research indicated that it was a good location. Frank Sharp was very anxious to have Foley’s. And if the poor man didn’t get into such terrible troubles later, he would be extremely wealthy now. The Sharpstown Center is now owned by a man named Fisher(?), and he has just announced that he’s building a second level to the mall in connection to Foley’s and that he’s bringing a large J.C. Penny’s store into the Sharpstown Mall. And Foley’s and he have insisted that we do other things to ease the congestion there, such as changes in how you get off and on the southwest freeway and signal lights and improve the access and egress. We want to avoid some of the problems they have at Galleria.
LM: But in the initial stages, Frank Sharp did come to Foley’s?
MB: Oh, yes.
LM: And offer—make a special offer?
MB: A very special offer to get Foley’s. He knew he wanted Foley’s.
LM: Can you say what that special offer was?
MB: I’m not going to, no. But he did make a very special offer to Foley’s. Let’s say they came out with a very low occupancy cost as a result of that, and then when the business soared as it did, beyond anybody’s dreams— I don’t think anybody visualized—anybody—that in 1978 the value of that store would pass 70 million dollars. Now we know that very shortly it will pass 100 when we expand that one store.
LM: While we are on the subject of Sharpstown and the establishment of branches, I came across a very interesting statement you made in—let’s see. Let me find it. Yes. It was made in 1967 in a speech to the American Marketing Association. You said, “We resisted all the deals that were offered by developers, and there were plenty of those.” And you didn’t expand on it. Of course, that aroused my curiosity. Can you expand on it now?
MB: 28:43.4 Yeah. There are various points of view. A developer will come to you with a second- and third-class location either by virtue of the road system or the demographics, but he owns the land and he wants you to come in, because if you come in he knows he can get other people who will pay him rent on a minimum basis and then on a percentage and he’s got something for himself. If these are national chains, he can go to a bank and get everything he needs and wrap up the deal. We have always tried— And some people do that because they get from this developer—they get him to pay for their fixtures and everything else. We would rather buy our own fixtures. We would rather run an occupancy cost to get the top location. I can still remember in the early days when we were negotiating for our Northwest store. In those days, Federated did not have a subsidiary—a real estate subsidiary. They do now. The negotiating now is carried out by the Federated realty experts. The division used to play an important role in the negotiation. Area Research had pointed out four different locations for us for our Northwest store, and one was primary. We could see by the road formation why it was primary. We had a hell of a time getting it. We finally— We bought it, by the way, at a very high price—in those days a high price. There were two brothers, and their family had received this land as a land grab because of their ancestors’ participation in the Mexican War. The family had held onto it all that time. But we insisted on fighting for the primary location, and there was no question in our minds. We spent 2 or 3 million dollars more than we might otherwise have spent.
(End tape 02)
(Start tape 03)
LM: Side three, continuing interview with Mr. Berman.
MB: But had we done the other thing, we wouldn’t have a 50-million-dollar-plus business at Northwest today. There are some people who go the other route. They let the developer build their store and do everything else for them and take the other approach—a smaller investment. We always try and reach for the stars in our business.
LM: Can you think offhand of any locations that you were approached to open a branch that you outright rejected?
MB: Well, yes. I don’t mind even mentioning this—that we were pushed by Federated, for example, in my first year here to take over Fedway, which was a division of Federated, now our business, in Corpus Christie. I rejected it out of hand. We had too much to do in Houston. We were approached by a developer—and Federated encouraged us—to open in Beaumont. We felt that was a limited business at that time, and that it would interfere with our maximizing this dynamic growing Houston market. We know we were right. We have now reached the stage where we are actively pursuing remote locations. As you may or may not know, within a few months Foley’s will open its first remote store in Austin, Texas. And Foley’s is actively studying other cities to expand its business while it continues to expand in the Houston area. Of course, everything I tell you presupposes there is going to be gasoline around so that the customers can get to Foley’s stores. And that’s an interesting thing. You build big regional centers; will customers drive that far if gasoline is rationed?
LM: 02:27.0 But certainly in the areas that Foley’s now has branch stores there are substantial residential areas anyway?
LM: So that would probably minimize that risk.
MB: Well, but our stores are regional stores. Our Almeda store draws a great deal of business from Galveston County. Will they come that far? I don’t know. Lord knows, I hope we can solve our energy problem so that we don’t have to find out.
LM: There was another interesting comment you made at another meeting. See, I have the advantage of having read all your speeches and now being able to ask you these questions. In 1968 you projected possible problems by noting that the buying public will have increased 8 percent over 1966 and suburban departments and discount floor areas will have jumped by 35 percent over 1966 through other companies moving in. How has that projection proved—? Has it been a valid one?
MB: It’s an interesting thing. Foley’s continued to dramatically increase its share of the Houston market year after year after year. Not only its share of the department store or federal reserve—you know what the federal reserve figures are—but of the total GAF. That’s the total ball of wax that the Department of Commerce gets out, until about 12 months ago when that increased share of the market did not continued. And it has provoked many of us. We think we see something happening. The amount of retail space opening up in this town—and I’m thinking almost more of strip centers. You just drive out Westheimer someday. Mile after mile after mile—and for the most part, ugly looking strip centers. Have you ever driven along 1960?
LM: Yes, I have.
MB: 04:50.9 From 45 west, it’s a huge, vast strip center. We think that the amount of space that has opened up in these strip centers is inevitably taking a larger share from all of these smaller stores of the total pie. There’s another thing that has been happening. Foley’s opens a store at Greenspoint. And by the way, it’s a Federated shopping center. Federated Realty developed it. So we open a store of 200,000 square feet, which is now being expanded to 300,000 square feet because the store was sensationally successful. So now we have in that center, Sears, Penney’s, Lord&Taylor’s, Montgomery Ward, and next year Joske’s, together with hundreds of thousands of square feet of smaller stores. Well, think that through. You open a store which will be 300,000 square feet—and just pick a figure out of the air. Other people have opened 1,700,000 square feet. Almost automatically you’ve lost share, haven’t you? It’s an interesting thing. Now, there may be something to the fact that if you go pick a place like New York, where we have two major stores—A&S and Bloomingdales—their share of the market is nothing like Foley’s. I hate to use the word dominant because the FTC doesn’t like that word. But in smaller cities, it’s easier to grab a huge share of the market. It’s inconceivable in a city like New York or Chicago to grab that same share of the market. It’s too stretched out. There are too many things. Am I coming across to you?
MB: That’s what we think.
LM: With the expansion into the suburbs, what do you see the role of the downtown area being now? Has it changed since when you first came?
MB: Yes, it’s changed. Even in these short 15 years it’s changed. Fifteen years ago there were family expeditions coming downtown to buy furniture, to buy a lot of the important things. There were not nearly so many possibilities in the suburbs. The downtown store, which last year did more dollars of business in any previous year of its history and is projected to do more this year, we think, is a viable, profitable, good potential. It’s an 11:30-2:30 business, and you have to learn how to operate it. People don’t make these kinds of suburban—why should they? They can go to Sharpstown. They can go to Greenspoint. They can see Foley’s enormous assortments in our branch stores. But we have this wonderful, beautiful, captive audience downtown. And every day we read about new office buildings going up. What a joy it is to see these secretaries at noon carrying these yellow Foley’s bags. If you walk around you’ll see them all over the place. That store, between 11:30 and 2:30, is a joy. And the Foley people have been smart enough to avoid some of the mistakes other department stores have made. We know we’ve got something good downtown. We know that we have to be smart enough to fine-tune that business to appeal to these customers, and they’ve done it. If you ever go near that drug department downtown, we run that drug department on a fiercely competitive basis. Our markup was 25 percent last year. Most department stores have abandoned this business because it’s not highly profitable. Foley’s about breaks even on its total drug business, but we bring tens of thousands of people into our stores. When we started the ticket centers, which we did 14 years ago, we did that really as a service. We knew that we couldn’t make any money—didn’t want to make any money on it. You may or may not have noticed the ads in last Sunday’s paper announcing the termination of those ticket centers. They will be closing at the end of this month. Foley’s took a graceful bow. It’s been wonderful fun, we’ve enjoyed doing it, but the truth of the matter is, as we expanded and expanded and expanded—as we faced the difficulty of breaking up these higher tickets into more and more locations so that this store had a better location seats(?) than that store—as we therefore had to move into a computerized setup, which sharply curtailed the small amount of money we were making—as our losses escalated so that in 1978 our losses on the ticket centers were a quarter of a million dollars, and more importantly, because for a big business like us, a quarter of a million can be tolerated—as the quality of the ticket customer changed from the family oriented to the rock concert kids who were destroying our stores physically—cutting them up, slashing furniture—we said, “The hell with this. These are not our customers, these kids that you see lying on the sidewalk when you come in in the morning, waiting for the store to open because they want to get to a rock concert.” They rush in and destroy the store and rush out. So our people ran these ads with a graceful goodbye. We’re closing the centers as of 2 weeks from now and getting out. And I think that’s one of the great things about Foley’s. We’re an ever-changing thing. We think we know what we should stay with and what we should not stay with.
LM: 12:40.1 While we’re on the subject of changes, what was the image of Foley’s, and how did you go about changing that image if indeed you wanted to change it?
MB: I think its image was basically what we wanted with certain changes. If you try to describe Foley’s and try to be completely objective—and if I said to you, “What’s one word in the customer’s mind that would describe Foley’s—only one word?” I think you’d have to say “more.” Foley’s has more than anybody else of almost anything. Yes, and we kept it that way, but—A—we’ve traded it up. And it had a good image in ’64, because the public wasn’t conscious of the fact that we—yet—that we weren’t moving fast enough to ensure our future in the suburbs. We were; we saw what was coming. Once we got the business moving, we then did all the things that so many people that have been successful in our business have done. They are not all— By any means, we didn’t invent them. We began to split up the departments so that there were more buyers specializing, and as we grew and grew and grew, we could afford to do that. One of the secrets of Foley’s success, and it is a pride to Federated, is that we have been able to, so far, control our expense rate. The thing that has hurt department stores around the country is that their expenses have escalated on them as a percentage of sales—not only payroll, but non-payroll, and in recent years, more importantly, non-payroll expenses. I’m talking about occupancy, I’m talking about taxes, I’m talking about publicity costs, and so forth. As the expenses escalated, enormous pressure was on them to increase gross margin. And that’s what I meant before when I said a lot of stores have abandoned the drug business. They’ve abandoned the television and appliance business. They’ve abandoned the record business. They’re picking businesses with very low margins, fiercely competitive. We haven’t had to. We haven’t had to because of our enormous productivity of space and our tremendous productivity of people—by people. We have figures comparing our productivity per person with other Federated divisions. I get reports—I still do. You see, I was a director of Federated, and I was then elected—when I retired—a director emeritus. They send me, from Federated, the statistics that interest me about the total business. And because of what we’ve been able to do productivity wise with space and people, we’ve been able to maintain an outstanding expense rate which has not forced us out of these other businesses that so many other stores have been forced out of. I don’t know. I’m getting into details with you.
LM: 16:44.0 That’s what I want, details. How does one keep up the productivity of his personnel?
MB: Well, you do that by smart management. Let me take productivity as space first. In 1977, the last year for which we have seen figures so far, Foley’s Sharpstown store had the highest productivity per square foot of any store in all of Federated and AMC—number one. Interestingly enough, in that same year—in the first year of Foley’s Greenspoint, we were number five in productivity of space. I think our people have developed selling machines which grind out, and that has helped us in many, many ways. Once you do that—once you get high productivity per square foot—it’s easy to see how you get high productivity for your sales people. For example, if you’ve got lots of action going on, you don’t have one person stuck in that corner. You’ve got your people being occupied by customers. Another very important factor is Foley’s distribution center. I like to give credit—I don’t know whether you’ve ever seen it. It’s on the Gulf Freeway. It’s an enormous facility. It’s a mechanized facility with goods rolling in one end off of freight cars and trucks and moving on overhead, depending on whether it’s hanging goods or flat goods, and being processed and then being shipped coming out the other end, either being shipped to the stores or being shipped to customers. And I like to give credit to Bill (s/l Shifick) for conceptualizing much of that. As far as I know, no other department store in America has been able to achieve the kinds of efficiencies which Foley’s has achieved in its distribution center. It’s gone through our business, and that’s such an important thing. If a department store screws up its distribution center, it’s gone. I know of one division, which I won’t name—one division of Federated that got into severe trouble with a distribution center they built, and it’s almost ruined that store expense wise and therefore profit wise. Is this coming through to you?
LM: 19:45 Yes. I understand. The explanation you’ve just given perhaps is the answer to how Foley’s has met the challenge of the chains of discount houses.
MB: That’s correct. We have aggressively fought, and we’ve set up policies whereby we have a shopping staff—you know—who read all the ads. They rush down to the departments and they demand—sometimes there are fights. The buyer says, “Well, they advertised that, but try and buy it.” But we are very aggressive in meeting prices, and we can do it for just the reason you said; we’ve got a damn good expense rate.
LM: The distribution system—well, perhaps it’s a strong word to use—the backbone of your ability to compete with the—
MB: It is a strong factor. There are many, many others. As you know, we have in all of our stores these point-of-sale devices. Instead of cash registers we now have electronic sale devices. And with these devices we know, in each part of each store, the number of transactions we have each half hour of the day, which helps our people position sales people in the right places. Your transactions will vary. Your furniture transactions, for example, quite likely would be in the evening when husband and wife can be together. But your handbag transactions—you know—she doesn’t need her husband for that. She’s there at a different time of day. But given that kind of information, a well-managed store will position its people at the places they should be. And to a person not in our business, it’s a little difficult for them to understand that in large numbers, people tend to repeat their behavior. We project—we plan our business— When Christmas falls on a Tuesday, our research people, among other things, go back to the last year Christmas fell on a Tuesday. And that showed them the percentage of purchases made each day that year so that they knew that year that 6 or 7 or 8 days before became the peak day. People tend to repeat themselves. They do the same thing. In all probability, based on changes which you make—you may have opened new branch stores which have affected each other and other branch stores and downtown—but they’ll do the same damn thing over again. This is the kind of projection that Foley’s and other stores—this is not unique. You see, what you’re looking at here is a daily sales estimate for period two in 1979. That means March. Here are the stores, the total division. These are other stores. And what you are looking at is ’77 adjusted, ’78 adjusted, and a research estimate for the day. Now, what does that adjusted mean? That’s very complicated. Last year was a 53-week year, which happens every 6 years, so we adjust it so that we’re up against the same period. Now you’re up against another big problem here. Last year, Easter was in March. This year Easter is in April. By and large, if last year 2 weeks before Easter was the peak shopping day, it will tend to be this year too. But the calendar has changed so your people have to make that adjustment. Let me show you. We’re not that close. Because of these changes and other changes, our research department projected that we would do 5,532,000 this year in the first week against 6,200,000 last year and 5,100,000 the year before. Well, we didn’t; we did 5,841,000. We missed by 300,000 dollars, you see. Based on these projections, our people then go out and plan the peoples they will need. Other people are projecting when the merchandise is coming in, when it’s going to land, so they can figure and plan how many people to have in our distribution center to process the merchandise, to mark the merchandise. Everybody has their job to do to come out with an efficient thing.
LM: 25:39.2 Fantastic. When you first came to Foley’s, you were not satisfied, I believe, with the advertising policies of the company. Is that a leading question?
MB: I wonder why you say that. What made you ask that question?
LM: Because in one of your talks you expressed—without going into too much detail—dissatisfaction with the amount of money put into advertising and the results you were apparently getting from it.
MB: Well, there were things about our advertising that displeased me. I felt like we were spending too much money on advertising, number one. Number two, we were doing something which was not an uncommon practice—was not and is not today an uncommon practice—of which I disapproved because of my own training. We were loading for advertising. Now, what does that mean? I will use and example which is not necessarily so. Your buyer goes into the New York market, and she wants to have an ad. She has a limited advertising budget. So she says to her manufacturer, “I need some money for advertising. You just told me the price of these bags is 9 dollars. I want you to bill me 10 dollars. I’m going to write on the bill ‘one dollar advertising allowance.’ I’ll tell my boss that I persuaded you to give me this money for advertising so it doesn’t come out of his advertising budget.” This is called loading. I don’t like it. You, as management, lost control of the amount of money on advertising. If you spend it on advertising, show it; don’t conceal it. Besides, what you’re doing is— And frequently, the manufacturer is holding your money. So it was this kind of practice that we eliminated. And in case you think this is so extraordinary, you may have read recently in all the publicity about Sears Roebuck and all their troubles that they built up this special fund for the same kind of nonsense—overcharging the stores—to a billion dollars. Their central office overcharged their stores, and it got up to a billion dollars so they could fool around the same way. I really believe if you’re going to run an efficient business, show your costs where they are. Make a decision as to how much you’re going to spend on advertising. Don’t Mickey Mouse it this way. Now maybe that is what I meant. I think we also made a lot of changes in our advertising. I was interested in trying to let our public know that we were going to be competitive on these hard-to-get things. We then set up a special approach which we called—and I brought it from A&S and participated with the A&S people in its development there—Operation C. The C stands for “competition,” where you picked out those tough things and you ran ads on them. You shopped everybody to make sure your prices were right as they could be, and then you banged ads even if they were below cost to let people know that you had them. That’s another thing I might have been talking about. I don’t know.
LM: 30:12.8 I’m sure you were speaking about the whole problem of advertising when you made that statement.
MB: I was also aware of the fact that at that time we were not doing enough fashion advertising. We were always a pretty hard-hitting store. We do now a lot of fashion advertising which has been developed by our people. They run what they call “fashion-essential ads,” which the department—and sometimes there is more than one department—are presenting a fashion idea, and their bosses will not necessarily charge that ad to their department but spread it across a division on the theory that what they are doing is good for all.
(End of tape 03)
(Start tape 04)
LM: There are a few stores in the Houston area which, at least in their self-image and their ads, consider themselves style leaders. Perhaps Sakowitz might be an example of that. When you were talking just a moment ago about focusing your advertising on certain areas—on developing a fashion line—were you speaking of the competition against such stores as Sakowitz?
MB: We compete against everybody. Sakowitz is a fashion store, and they, I think, do a good job about making a fashion presentation in the papers. Neiman Marcus is a fashion store, and they do a good job in their presentation—Saks Fifth Avenue. Foley’s has to be much more than that. We don’t abdicate—you know—we really don’t care whether we sell a few more 500-dollar dresses. That isn’t our bag. Foley’s goes after the great big market—everything except the very, very top and the very, very bottom. But it’s important for us to make fashion presentations in our ads because all the middle people and upper-middle people buy from us not at the prices in these fashion essentials necessarily, but because we have a fashion authority, they feel better about buying our goods from us that they buy. Our role is different from the stores you mentioned. As I was talking to you, I was reminded of a case in business school almost 50 years ago, the Ingersoll Watch Case. You won’t remember, but the Ingersoll watch used to be a dollar, and it was the largest-selling watch there was. They got an idea that they wanted to bring out a 5-dollar watch. They ran ads on this new Ingersoll 5-dollar watch, and it was a flop. Guess what happened? The dollar watches from Ingersoll (unintelligible) because this experiment—and they didn’t anticipate this—added quality authority to the Ingersoll dollar watch. In a way, that’s what I’m talking about. Hi, David. If we’re going to talk about the business itself, what Foley’s did over the years was to expand aggressively into the suburbs. We spent a great deal of money in new plants. Some of our people developed some ingenious and innovative ideas. Our Memorial City store exemplifies things that we brought back from European concepts of building a store. Perhaps a customer wouldn’t notice it, but that Memorial City store is built with columns which are 64 feet apart as opposed to 32 feet apart in our other branch stores. That concept we picked up from the fair buildings in Dusseldorf, where some of us visited. The whole flexibility approach of moveable walls, many of which hang from an electrified grid, the concept came from a department store in Zurich. We started with that base—the name of the Zurich store is Globus—we felt we needed because the department store business is show business which expands and contracts. We needed the ability to expand and contract departments without benefit of carpenters and electricians, and we were able to achieve that. The penalty that we paid for our 64-foot, separated columns was that we couldn’t afford to go up in the air with the store, so we had to go out. That department store, with 267,000 square feet on one level—because we had to expand it shortly after we opened it, as we seemed to have done with so many of our stores—is probably the largest physical department store on one level in the United States. It’s been a most interesting store. With the Memorial City store, and even more with the Greenspoint store, Foley’s began to suffer for the first time something that we had heard about but never really suffered before—transfer. These stores really cut into our Northwest store as the markets overlapped. We have now reached the point in the positioning of our stores where it’s impossible for us to build additional branch stores without suffering transfer from existing branch stores in downtown. Nevertheless, as you know, I told you that we have the Federated board’s blessing for the largest expansion in our history which is planned to take place over the next years. We shall be building many new stores in locations, many of which have already been determined. I’ll now go on to what you asked me to talk about; how do you set policies to control a business? It seemed to me that when I came down here that we had a problem of communications at Foley’s and that the first thing we had to do was to get together with our people and learn from them and bring to them certain ideas, and then put down on paper what we wanted to be—first what we were now, then what we wanted to be, and then a plan for getting there. And we did put it down on paper. We did it with the participation of a great many people, and we passed it out to our people. And then, we planned a series of meetings, where we met with each department manager and the divisional manager and the pyramid head. We asked the department manager, who had prepared for the meeting with his division manager, to tell us what he or she was going to do in that department to achieve the total goal so that management would have an opportunity to listen to and to participate in the planning, and also to make the department managers understand the kind of a business we were running. We knew if we were going to grow, that it could not grow as a top-down business the way we wanted it to. Ideas and concepts had to bubble up. Foley’s is great in that direction. These young kids, they come up with really wonderful ideas. Sure, some of them are screwy and they have to say, “Hold out. Let’s sit on that for a few months.” But many of the things that they have done and have come up with have worked out to the total advantage of the business. And the business grew. We added more stores. We added more people. It couldn’t be as personal a business as it used to be. All of us have our own approaches to the business. I think you know a little bit about Foley’s Holy Hour. And because I like to, and because I think it’s important for me and the business, I always walked through the store, every day I was in Houston, from top to bottom, stopping and chatting with people, asking them questions about their business. Yes, I’m being friendly. You may find that paternalistic, but the people—it seemed to mean something to them that their chairman would know a little bit about them. And I must say that in very recent years I’ve regretted the fact that there are so many of these youngsters, particularly attractive young females, that I really didn’t know. There were just too many, thousands. But nevertheless, I continued to walk through the downtown store to see what we were doing and how we were doing it and what was the attitude of the people. I always found it very helpful to me, and I think it was helpful to the business. This is kind of a manner of style—of personal style—and I have been amused to learn that a lot of people outside of the business were familiar with this quirk of mine. It got to be rather well-known that walk of mine through the total store every day. In recent months—shortly before my retirement, as my bad leg got worse—it wasn’t quite as easy for me, but nevertheless, I continued to do it. I don’t know if I covered what you wanted me to cover. What else do you have in mind?
LM: 11:32.0 Concerning your relationship with Federated, you were allowed a great deal of personal responsibility in the decisions that were made. I assume that from the conversation we have had thus far. But were there meetings where the members of Federated would sit down with you?
MB: Yes, there were. What you said was accurate. You must remember that I’d been around a long time, and after I had been at Foley’s a few years, I was elected to the board of directors. So I participated with the other directors in top management decisions. I think perhaps more than some other divisions, as a result of my seniority—let’s call it that—that we were allowed a degree of autonomy that divisions with younger people were not allowed and may not even had wanted. I think that was good for Foley’s. I think it helped us grow as rapidly as we grew. Nevertheless, we would discuss. I certainly welcomed the advice of corporate management. We obviously couldn’t undertake a 100-million-dollar expansion program without spelling out what we were going to do with the money and how the returns would get back to the shareholders. We wanted to do that. We did it. But it is possible that as Federated is developing now with younger people coming up in corporate management— You must remember, I’ve had a relationship with the chairman and the president of Federated that goes back many, many years. The president and I knew each other so well that we didn’t even have to talk about things. I began to spell something out and he’d say, “Go ahead. I know what you’re talking about. I’ve watched you and worked with you.” Well, it will be quite that way perhaps in the future, but there are some very bright some people coming up at corporate. And also, as planning techniques become more sophisticated, as the computer moves more and more into the business, certain other things go out of the business. To me, they were the fun things, the human parts of it. But ostensibly, with this enormous investment we’re making in this sophisticated apparatus, we should get good results. At least I hope so, as one who would like to continue to live in the manner to which I have become accustomed. I guess to some extent that will depend on how well Federated does in the future.
LM: When you first came to Foley’s, did you meet any resistance from leadership already here who kind of viewed business in a different sense? You were an organizational man—a corporate man—and perhaps some of the people that were here in the earlier days—
MB: It was a kind of friendly resistance. I still remember what they used to say. I heard; they didn’t say it to me. “Let’s hear what Mount Olympus has to tell us about that.” But I think we overcame that by making it a participative management. My technique, for better or worse, happens to be one of asking questions and almost forcing the executive to come up with the answer. Let me give you a specific example. On one of my very first days there, as I was coming up the escalator to the housewares floor, I saw an enormous pile of detergent—ALL. Are you familiar with the product?
LM: Oh, yes.
MB: 16:17.3 With a big sign on top of it and a buyer standing next to it. We very possibly were having a sale. I don’t know. This was part of the housewares department. I had met the buyer. I stopped and chatted with him. I said, “That’s quite a dramatic display you’ve got at the top of the escalator.” He also had an ad on it, and that is what I had spotted. I was a little bit prepared mentally to ask the question, “You going to sell a lot of that?” “I’m going to sell 40,000 dollars worth.” “What did we pay for that?” Well, we paid so much. “How much is your inward freight?” It comes to so much. “Well, that’s 40 pounds. No customer takes that with them, do they? We have to deliver that, don’t we? Do you know what it costs to deliver that?” “No.” “Why don’t you sit down with our research director and put all this down on paper—what your cost is, what your inward freight is, what your delivery cost is—because it’s all delivery. No one is going to drag a 40-pound package with them. Then put in your other expenses, and after you have figured out how much money we’re making on this, let me know what you think we ought to do.” Well, there never again was a display of ALL, and there never again was an ad on ALL. This is the approach which I would have always preferred, and the buyer himself made the decision. I didn’t make it; he made the decision. When he looked at it in a slightly different way, by the time he got through adding his inward freight and his delivery cost, he was already underwater on the item. He was already spending more than he was getting from the customer. And all his other expenses had to be added on too. And this is a way to run a business. It is a way. There are other ways, very successful ways.
LM: Has there been a serious turnover in top management at Foley’s?
MB: We have one of the most stable top managements in all of America. Our divisional merchandise manager’s staff, which is a key staff, is the envy of the industry. It has created problems for us because when you have a very stable divisional manager’s staff there are not enough openings are for the buyers. But these people are pros. You realize that for the first 34 years of Federated’s ownership of Foley’s there were only two chief executive officers? That’s extraordinary in our business where changes are made all the time. We were able to help some by exporting talent to other Federated divisions. The president of Rike’s in Dayton, Ohio, came from Foley’s. That’s Jim Nelson. The chairman of the Boston store—of Milwaukee—came from Foley’s. That’s (s/l Orren Bradley). The personnel director of I. Magnum came from Foley’s. We have exported talent and thereby made openings. The chairman of Sanger Harris, Don Stone, came from Foley’s. And one of the marks of a well-run division is your ability to develop talent that you can export to other Federated divisions—one—helping the morality of your own division and—two—presumably helping Federated by giving them bright, well-trained people. And we have a load of talent in that store. We have supplied Sanger Harris—well, after Don Stone went there he badly needed a general merchandise manager. One of the first things he did was break his promise not to come back to us for people by asking for Don McNaught. We gave him Don McNaught, who was one of his two general merchandise managers. Then he came back and he needed some branch store managers. We supplied Bill May. Now this is good for our people too, especially with a very stable divisional manager organization that we had, which was choking up. The opening of movements—and our people— All department store people tend to be very aggressive. They’re pushy. That’s the way they are made. Do you have a feeling now of what I’m talking about?
LM: Yes, I do. What is the general educational background of top management?
MB: 21:59.7 Well, Foley’s is unusual in that—I’m talking about Foley’s as it was when I was there—the chairman and the president were both humanities graduates. I went on to graduate school to do business, but (s/l Stu Arten) was a graduate who majored in English Literature at the University of Michigan, and I majored in English Literature at the University of Rochester. By and large that’s not so. By and large a lot of people want business oriented people. I would prefer to have people who are educated in the humanities with some business administration. One of the interesting experiences I had in the last 6 months was talking to the graduate school at your Jones School—a bunch of brilliant youngsters who were quite provocative in the questions that they presented. I think you have a copy of that talk that I gave to them.
MB: They reacted vivaciously.
LM: So it is becoming more specialized now, it would see.
MB: The Jones School.
LM: Well, the Jones School and training in general for top management. It seems to me to be becoming more and more specialized. You mentioned yourself the top management when you first came were both from a background in humanities, but that’s not the case any longer.
MB: Probably not.
LM: 23:31.7 I’m asking you, really.
MB: I think you’re right. I think you’re right.
LM: Well, I have one last question to close off the interview. It was one that you brought to my mind before we even began the interview, and that was the background of the sale of Foley’s by George Cohen. You said it was an interesting set of circumstances.
MB: Oh, yeah. I think you know the circumstances, do you not, of how the business was bought by Mr. Lazarus from Mr. Cohen, or don’t you?
LM: No, I would like it for the record—for you to go over it. It may provide some new information.
MB: Fred Lazarus, Jr., the founder, had a son, Ralph, who was out here at Ellington Air Force Base during World War II. Ralph is the current chairman and chief executive officer of the corporation. And when daddy came down to visit his son, he used to walk around Foley’s—walk around Houston—and he didn’t see a first-class department store here. He sensed that Houston had a future. So he had some of his staff people come down and look the place over.
LM: Excuse me, what year is this?
MB: It was 1943 in the fall, when he used to visit. And by 1945 he was ready with his plan. He had the agreement with the Federated board of directors, and he took an option on the current downtown location of Foley’s. And then, he went down to Foley Brothers, as it was then called, catty-corner across from the Rice Hotel, and he went up to Mr. George Cohen’s office—who owned Foley’s and he asked to see him. And when he came in, he said, “Mr. Cohen, I am Mr. Lazarus of Federated, and I’d like to talk to you about buying your business.” And Mr. Cohen replied— By the way, I got this story right from the horse’s mouth from Mr. Fred Lazarus, Jr. He told me the story several times. He was very proud of it. Mr. Cohen said, “It’s not for sale.” And Mr. Lazarus said, “I’m sorry to hear that because I’m going to build a department store here, and this is the land I own. This is where I’m going to build it, and I’d like it to be a Foley’s store. But if I can’t have yours, I’m going to build one anyway.” Mr. Cohen listened and said, “Sit down.” And they made a deal. As part of the deal, Mr. Lazarus picked up some realty. There was a church where that F.W. Woolworth is now. I think he made almost enough money, Mr. Lazarus, on the realty to pay him for what he had bought Foley’s for, and then he got started. Now what I wanted to tell you, and to me it was— Federated set up a foundation for tax purposes which was called The Foley Foundation, and they transferred the Foley downtown plan to the foundation. They paid rent through the foundation into this foundation, and there were three trustees appointed to the foundation. You may know some of them—Dillon Anderson, who is deceased; (s/l Edward Tam), who is deceased, and Tommy Anderson, who is still alive. And they were the trustees all through the years. And they served until they died or until we closed the foundation. It was written into the original clause, when you bought it back, the tax decisions would decide that. But these three gentlemen, they were fine gentlemen, and they enjoyed giving this money frequently to their favorite charities. As a matter of fact, when the foundation was breaking up, I used a little muscle, which I wasn’t supposed to do, to make sure that the TSU got a chunk of 20,000 dollars, which is now going to be the basis of a new field house for their athletes. I don’t know if you’ve ever seen the condition that those athletes have to contend with over there. I was invited over, and I was interested. Every year we would have our Christmas luncheon for these trustees, and we used to give them a very nice present for their work. And they always came. I invited Max Levine as the previous chief executive officer. I always invited George Cohen, but he never came. And one year—a few years ago—all of a sudden he accepted. I was shocked. He came, and it was in December. And then, I called on him out of courtesy, and I thought he would wave me away, but he got up and he talked for about 20 minutes. And it was a justification of why George Cohen sold the business. You must understand that the Meyer brothers were bitterly hurt when he sold the business, and he had not told them anything about it. They felt they had given their lives to the business. He owned it to be sure, but he was married to their sister. He explained to the people why he sold the business to justify himself, and then he sat down. And 10 days later we all went to his funeral. It’s almost as though he knew he was going to die, and he wanted to make a statement justifying his action. That’s the story I wanted to tell you.
LM: I’m very glad you did. That’s very interesting—very interesting. I see we’re just about out of tape. I want to take the last minute or so to thank you very much for you contribution of valuable time to do this.
MB: I enjoyed it. I enjoyed talking to you and meeting you.
LM: It’s been extremely useful.
MB: Not at all.
LM: An excellent contribution.
MB: Invite me to your new library.
LM: You will get an invitation, I assure you.
MB: Thank you so much.
LM: Thank you very much.
(End of interview 31:03.3)