The Carpet Woman

Below is an excerpt from the book “Buffett: The Making of an American Capitalist”. This chapter, called “The Carpet Woman” discusses one of Warren Buffett’s most admired partners in his investment portfolio, the elder “Mrs. B” — Rose Blumkin.

One question Buffett always asked himself in appraising a business is how comfortable he would feel having to compete against it, assuming that he had ample capital, personnel, experience in the same industry, and so forth.

It was after such an appraisal that, in the summer of 1983, he strode into the Nebraska Furniture Mart, a sprawling store opposite Ross's Steak House. He made his way through the acres of convertible sofas and dining-room sets to the carpeting department, and there, amid the vast field of powder blues and placid beiges, he spied the store's owner, a woman all of four feet ten inches, and slightly stooped at that. But as measured by Buffett's yardstick, she might have been ten feet tall.

Rose Blumkin, known to Omaha as Mrs. B, was patrolling the store in her golf cart. She motored down the aisle, haranguing an employee and gesturing with her arms with the vigor of a woman half her eighty-nine years. Her cheeks were flushed, and her auburn hair, done up in a bouffant, showed gray only at the temples. Buffett reckoned that he would "rather wrestle grizzlies" than compete against Mrs. B, and that was why he had come.

Speaking deliberately, Buffett asked if she would like to sell the store to Berkshire Hathaway. Mrs. B said, "Yes.

“How much?" Buffett asked.

"Sixty million," Mrs. B spat out.

They shook hands, and Buffett drew up a one-page agreement — Buffet’s biggest acquisition by far. Mrs. B, who could not write in English and barely could read it, made a mark at the bottom. Merely a few days Later, Buffett presented her with a check for go percent (the Blumkin Family kept a minority share). She folded it without a glance and, by way of concluding matters, declared, "Mr. Buffet, we're going to put our competitors through a meat grinder."

So well did Mrs. B incarnate Buffett's business ideal, she seemed to have sprung from the pages of his letters, as though he had invented her to illustrate the plain virtues that he most admired. Mrs. B had the toughness, determination, and common sense that Buffett had seen in his grocer grandfather, in the retailer Ben Rosner, and in other Buffett heroes. Her story was the familiar, and distinctly American, story to which Buffett thrilled. It was a Horatio Alger script, set to the score of Fiddler on the Roof, yet magnified almost beyond belief.

Rose Gorelick was born on the eve of Hanukkah, 1893, in a village near Minsk in czarist Russia. She and seven brothers and sisters slept in one room, on straw. Her father was a rabbi, but his piety was wasted on Rose, who observed that his prayers did not provide the family with a mattress.+ She would awake in the middle of the night to see her mother, who ran a grocery, slaving over an oven baking bread. Hating to see her mother work so hard, she helped her in the store from the age of six. Her other formative experience was of the Cossacks, who now and then would lay siege to the Jews in bloody pogroms.

The Gorelicks had no money for school (Rose never saw the inside of a classroom), but she learned to read and do figures at the home of a rich family. From her mother, she acquired a conviction that begging was ignoble. At thirteen, she talked her way into a job at a dry-goods store in Minsk. At sixteen, she was running the store, a slip of a girl supervising five men. She married Isadore Blumkin in 1914 and saw him off to America, intending to follow. But the war broke out before she could go. In the desperate winter of 1917, with Europe aflame and Russia tottering, she boarded the trans-Siberian railroad. At the Chinese frontier, a Russian guard stopped her. Mrs. B, who did not have a passport, told him she was buying leather for the army, and promised to bring him a bottle of vodka on her return. Then she crossed Manchuria to Japan and gained a berth on a peanut boat. Six weeks later she set foot in Seattle.

In 1919, she and her husband settled in Omaha. Though penniless, she sent for her parents and siblings, who moved in under the same roof. Isadore ran a pawnshop and secondhand-clothing store. To sup. plement this meager living, Mrs. B sold furniture out of her basement. She spoke not a word of English, but her kids, who picked it up al school, taught her.

In 1937, at the age of forty-four, she scratched together $500 and rented a storefront, on Farnam Street, one block east of the original Buffett grocery. Thinking big, she dubbed it Nebraska Furniture Mart. A photo from the time shows a determined face, the black hair drawn in a bun, the jaw set firmly. Her method was her motto: "Sell cheap and tell the truth."

Brand-name manufacturers considered that her ultra low prices were bad for business, and refused to supply her. But Mrs. B was an adroit bootlegger. She would hop a train to Chicago or Kansas City, where retailers such as Marshall Field would sell their excess merchandise to her at a little above their cost. When she was out of stock, she dragged the furniture out of her home. One time, one of her grown daughters got a call from Mama. "Empty the baby's storage chest. I got a customer."

When she applied for credit, the banks would refuse her with a snicker, out of which experience Mrs. B developed an enduring hatred of "big shots." What kept her going was her will. She worked seven days a week, fifty-two weeks a year, never a day off. In addition, she found that she had an affinity for her working and middle-class customers, whom she referred to as "the vunderful American people!' These loyal customers always came up with cash when Mrs. B had bills.

In 1949, Mohawk Carpet Mills hauled her into court, accusing her of violating fair-trade laws.7 Mohawk, a manufacturer, set a minimum retail price on one of its carpets of $7.25 a yard. Mrs. B was charging only $4.95. "So what's wrong with that?" Case dismissed. The next day, the judge walked into Nebraska Furniture Mart and purchased $1,400 worth of carpet.

The next year, Mrs. B couldn't pay her suppliers. A friendly banker gave her a ninety-day $50,000 note. In a desperate bid to stay afloat, she rented a hall, unloaded $250,000 of furniture in three days, and vowed never to borrow again. And so, at age fifty-seven, Mrs. B was on her way.

She was merciless with her staff, including those in her family. "You worthless golem!" she would scream. "You dummy! You lazy!" What saved her from herself was her gentleman son, Louie. Louie was just as keen as his mother, but his manner was mild. When Mrs. B ripped into a salesman, Louie would buck him up. Mrs. B would fire the help; Louie would hire them back. "Mama was very tough," Louie noted. "I liked to smear on the honey." Isadore died, but Louie stayed in the store. Whatever Mrs. B said, he would answer with honey. "Mama, you know best."

Mrs. B's formula was irresistibly simple; she bought in volume, kept expenses bone-trim, and passed on the savings. Typically, she sold at 10 percent above her cost, but was known for making exceptions. When a young couple came in, misty-eyed at the prospect of their very own convertible, Mrs. B, who had memorized the wholesale price of every item, would slash her price on the spot. And that couple would come back.

The Mart became a rite of passage, the coda to weddings, births, promotions. Omahans who had furnished homes at Mrs. B's store would return when they moved, or when their kids moved. Advancing age didn't slow her in the least. When a tornado took her roof off, she kept selling. When a fire scorched the store, she handed out free televisions to the firemen.& Mrs. B never took a vacation. "I never lied," she said. "I never cheated. I never promised I couldn't do. That brought me luck."

Susan Buffett was friendly with the Blumkin family, and Warren heard from her of the wondrous store that was furnishing half of Omaha, Buffett tried to buy it, early in his career, but Mrs. B dismissed his offer as "too cheap."

But the rejection merely stiffened him. He kept a close eye on the store and observed that Mrs. B was running one competitor after another out of business. Driving around town with the writer Adam Smith, in the early seventies, Buffett pointed out the store and reeled Of its operating statistics- the volume, floor space, turnover, and "Why don't you buy it?" Smith wondered.

"It's privately held."

"Oh."

"I might buy it anyway," Buffett added. "Someday."

When the day arrived, Louie and his three sons were running the store. Mrs. B remained its chairman and full-time boss of the carpet department. Buffett, having heard that she was ready to sell, went to see Louie first-to sound him out on price and ensure that he understood Mrs. B's thickly accented English.

Before the sale, Buffett looked at the Furniture Mart's tax returns, which showed that it was earning about $15 million a year pretax. He did none of the usual checking, such as asking for an audit or examining the inventory, receivables, or property titles. The average home buyer probably looks at more pieces of paper than Buffett did in spend. ing $6 million. His approach seems strange in a modern context, but it was in accord with the notion of J. P. Morgan, Sr., that the principal judgments in business are those concerning character. In Buffetts terms, if he couldn't trust the Blumkins, why become their partner?

One was tempted to ask, as so often with Buffett, were things really so simple? The answer is that he had a genius for keeping them simple. In his 1982 letter, just before the deal with Mrs. B, he printed a "Want Ad" describing his criteria for acquisitions. He promised to respond to offers quickly; customarily within five minutes." What Buffett was saying was that he wouldn't pursue a close call. A business had to grab him by the throat-and this the Blumkin business surely did.

The Mart was the biggest furniture store in the country, with $100 million in annual sales. In Omaha, it accounted for an astounding two-thirds of all furniture sales a percentage that leading stores in other markets did not come close to matching. 3 Indeed, department store chains such as Dillard's ($4 billion in annual sales) refused to sell furniture in Omaha because Mrs. B was too tough a competitor. As Buffett might say, she had a toll bridge to the living rooms of Omaha.

The Mart was so dominant that it ferried sofas out-of-state in unmarked trucks so as to avoid angering merchants in other cities. "It somebody else advertises Maytag washers she tears out their ad and puts it on her Maytag washer," Buffett marveled. "It is hell to compete with her."is Don Danly, Buffett's pinball partner, was in Omaha the day of the purchase. After a ritual steak dinner, Buffett took Danly through the Furniture Mart, recounting the saga of "the amazing Blumkins" in exquisite detail. Another visitor, Norman Lear, the Hollywood producer, said, "Warren's admiration for Mrs. B is like a child's. He talks about her the way a small boy would talk about his grandmother."

Since Buffett had no wish to run a store himself, or even to closely supervise one, he wanted managers who would "feel like I do," ready to tap-dance at the start of the workday 6 Mrs. B was a sort of exaggerated version--almost a caricature-of that self-made, self-motivating ideal. Buffett, who had upped his own salary to $100,000 a year, paid $300,000 to Mrs. B. He routinely referred to her as one of his "heroes."

He must have seen in her an unpolished — but in the essentials, quite faithful — rendering of himself. It was not just her obsessive habits (in her nineties, she continued to work every day of the year, ten to twelve hours a day), or her native suspicion of credit (the forty-three-acre store site was unmortgaged), or, as Buffett put it, that she "started with five hundred bucks and put everyone else out of business." It was her utter singularity of purpose. When the Omaha World-Herald inquired as to her favorite movie, Mrs. B replied, "Too busy." Her favorite cocktail? "None. Drinkers go broke." Her hobby, then? “Driving around and spying on competitors.”

A reporter who found Mrs. B at home noted that her living room looked like an extension of the showroom. The twin love seats, the reflecting glass coffee table, the assortment of crystal and brass figurines were arranged as they were in the store. Price tags dangled from the lampshades. Mrs. B didn't spend much time there and never entertained. "I don't like rich society people," she noted. "Rich people are rude to you when you're poor; I don't forget that."

As an unlettered immigrant, she underscored all that Buffett had been writing about the folly of needless complexity. She knew nothing about B-school retailing concepts such as "elasticity," but she could tell Buffett her cash balance down to the penny. Buffett told an audience at Columbia Business School that Mrs. B knew depreciation and accruals "better than anybody in this room," though she did not understand them in accounting terms. In his view, she had a native genius, which consisted of staying focused on the one area of her expertise.

This was very similar to how Buffett saw himself. (At Buffett's prompting, New York University granted Mrs. B an honorary doctorate of commercial science, an honor she shared with Fed chairman Paul Volcker and Citicorp CEO Walter Wriston.) A visitor found her at work on a Sunday afternoon, attired in a sweater and blue pinstriped suit, with a carpet sample in her basket. She had a lively sense of humor and a poignant memory, and vividly described the day that she had seen two of the czar's daughters in Minsk, shortly before they were shot.

When she spied a young woman fingering a rug, she burrowed over to her like a motorized rat. An expression of alertness, bordering on suspicion, was etched onto her face.

"Thirty-nine dollars. It's a beauty."

"I have blues and pinks," the woman said uncertainly.

"It will go with anything."

Mrs. B motored toward the counter. A saleswoman was on the phone with a customer who hadn't paid for a carpet.

"Hang up," Mrs. B volunteered. "Let him go to hell. Got to be ashamed of himself."

The saleswoman was trying to work it out.

"Hang up! No sense talking to him."

The saleswoman was straining to hear the details--something about the wrong color.

"I make my life being honest. Say 'Goodbye and hang up! The guy's going to get a cancer 'cause he's such a crook."