Authors: David Halberstam
Ferkauf had started out by working with his father, who had owned two luggage stores in midtown Manhattan. Harry Ferkauf was a skilled salesman, good at working the customers. He was, however, cautious and conservative—as befit an immigrant who had been hit hard by the Depression. In 1931 he had been forced to close his first venture—a small company that manufactured leather briefcases. The first of his two modest stores that followed was Terminal Luggage, on Lexington Avenue near Grand Central, below street level:
TWO STEPS DOWN WILL SAVE YOU TWICE AS MUCH
read the sign.
His first years were terribly difficult: The store survived, not so much on sales but because his father’s one employee, Frank Tomasini, was a terrific repairman. Things got so bad that Harry Ferkauf could not pay Tomasini; that did not seem to bother the repairman, who came in anyway, worked as hard as ever, and then went out to eat at a soup kitchen. As the Depression eased, business began to pick up and in 1937 Harry opened a second store. It was not long before his young son began to work at the store with him.
One of their best customers was an executive at Texaco, and one day Harry Ferkauf casually asked him about the possibility of a summer job for his son. “Harry, you know how I feel about you and Gene,” the man replied, “but Texaco doesn’t hire Jews.” From that day Gene Ferkauf knew that if he was to be a success, he would have to do it on his own; the world’s great companies were not interested in the likes of him.
When Gene Ferkauf graduated from high school, his father gave him the keys to the better of the two stores. There was no discussion of college. But Gene was soon bored. There was, he thought, a certain hopelessness in sitting there every day waiting for customers to come to him. It was too passive a life. Gene knew there were other kinds of luggage stores in that area—discount stores. He was intrigued by the energy of the combative, aggressive men who ran them. They took their fate into their own hands. His father, on the other hand, was from the old school: a gentleman who ironed his tie and pants every day, then brushed his suit carefully before putting it on. Gene hated wearing suits. “Can’t you get a second suit?” Harry would say. “How many suits does a person need?” Gene would answer. Harry often came into the store after 11
A.M.
, and if there was a matinee he wanted to see, he might take the afternoon off. His sense of honor was invested in the store: He took a belt from the belt rack and then went to the cash register and rang up two dollars. “Why did you do that?” his son asked. “It’s your store. You can do anything you want here.” “If you’re good to your store, it’ll be good to you,” Harry answered.
Harry Ferkauf was good with people. The art of conversation came naturally to him. His son was almost pathologically shy and lacked that skill. Because of that, Gene soon began to think of trying to run a discount house. There was a formula to this: The discounters took the wholesale price, added 10 percent for handling, and doubled this to get the going retail price. Then they took 25 percent off. When he went into the Army for World War Two, he retained this vision of a different, more active store. Waiting in the Philippines for the
coming invasion of Japan, he would talk with his old high school friend Joe Swillenberg about this idea.
By 1946, he was back in New York and discounting his luggage. He printed up cards that gave the store’s name and address and promised major discounts, and then he started dropping them off at office buildings. The other merchants in the area complained to his father. Harry regarded discounters as the enemy: They were crude, and he felt they undermined the legitimacy of serious businessmen like himself.
Daily arguments began to arise between father and son. By no account, including his own, was Gene Ferkauf very pleasant in these struggles. “Why are you doing this?” his father would say. “There’s no need for it. The store is profitable enough as it is.” The more his father complained, the more merchandise Gene Ferkauf added to his discount list. Soon there were pens, watches, gloves, and then small appliances. The other merchants continued to complain: “Harry, what’s Gene doing? Why is he doing this to us?” The son, of course, remained adamant: “Pop, I don’t care, forget about it, forget what they say. Just leave me alone.”
The arguments became worse: “Who sent for you?” Gene would say to his father. “Stay in your own store.” “Don’t have such a big mouth,” Harry would answer. Now Gene not only discounted, he was determined to give a bigger discount than anyone had ever given before. It worked. People began to pour into the little store on their lunch hour. Soon he was doing more than $500 a day in business. His father was doing $50. One day in April 1948, Harry came in the door. It was a beautiful day. “Why don’t you take the day off and see a movie?” Harry said. With that, Gene threw the keys on the floor and quit.
Years later, he regretted his behavior toward his father. “I was the bad guy in all of that,” he said. Harry died within a year; he had been sick for some time, but Gene always believed he had expedited his father’s death. Still, he remembered that on the day he quit, he had done $500 in business
before lunch.
Going out on his own terrified Gene. He had a wife and a baby daughter. He had never been to college, and in that period more and more people his age seemed to have gone there or were going there under the GI bill. He pondered either opening his own store or entering Macy’s training program. In the back of his mind were his father’s words: Never work for anyone else, but if you do, at least work on commission. Don’t be a salary man. Sitting by the outdoor skating rink in Rockefeller Center, Gene realized that he was terrified
of failure, that he had no prospects and he had better do something. He gave himself a pep talk. Everyone else, he told himself, was back from the war and
doing something.
All the other veterans were getting on with their lives. Sign a lease for a store and show you can do it, he told himself. That afternoon he rented a small store at 6 East 46th Street, one flight up, for $440 a month. It was in the Grand Central Station area, which was the heart of the city in this age before airplanes. Later that day, he learned he had been accepted into Macy’s training program.
He spent $1,500 of his $4,000 savings to fix up the store; the rest went to inventory. When he told his father about the new store, Harry was heartbroken. It was a betrayal, in his eyes. “How could you do this to me?” he asked. Harry wouldn’t even talk about it (yet, unbeknownst to Gene, his father guaranteed the notes on his first store). His first employee was Murray Beilenson, a friend from the quartermasters’ corps in the army. He had accounting skills, which Ferkauf lacked. Ferkauf and his wife blanketed the office buildings in the area with thousands of his new cards, which promised discounts of 33
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percent on all major brands. One advantage he had in those early days, he realized later, was that the city was so focused commercially around Grand Central. Gene had a simple philosophy: He was going to take discounting further than it had ever been taken before. If he could make a one-dollar profit selling a refrigerator, he said at the beginning, then he would do it, because he could make a million dollars by selling a million of them.
On opening day he was terrified. But people poured into the store: On the first day, he sold $3,000 worth of goods. Sometimes Ferkauf seemed to be waiting on four people at a time. A few days later, his father looked in and asked what kind of daily volume he was doing. “Three thousand a day,” the son said. “You’ve done it,” his father said, pleased in spite of all their differences. In that first Christmas season he averaged $13,000 a day; he could scarcely believe his own success.
If Gene Ferkauf seemed to have broken with his father almost overnight and then surpassed him with his vision and fearlessness, there was nothing unusual about that; it was typical of this postwar generation of Americans, who were more flexible and more ambitious than their parents. They were willing to try different, less traditional careers and go after greater rewards, to marry people from different ethnic and religious backgrounds, to pull up stakes and move across the nation if necessary. America was becoming ever more the land of the new, a nation that revered the young, forgot the
past: People routinely changed careers and moved to different parts of the country.
Ferkauf thrived on the madness of those early days. There were never enough clerks. Ferkauf and Beilenson would lug the appliances up the stairs themselves. Sometimes, the customers even helped. “Don’t you carry cameras?” one customer asked on a Tuesday, and by Wednesday they carried cameras. The customers would line up in the morning and only a certain number would be let in at the same time. During the holiday season, the line would stretch all the way to Fifth Avenue. Ferkauf and his buddies were working so hard they sometimes could not get home at night; after closing late, they would spend the next three or four hours hauling appliances upstairs to be ready for morning. They grabbed a few hours’ sleep at a midtown hotel and then, still groggy, came back to work early in the morning. The pressure was so enormous that Ferkauf found he couldn’t eat, so he took to drinking milk all day long. He had to wear gloves to protect his hands while carrying packages and untying the string that bound them.
Within a year he dominated the discount trade. If a large appliance at most stores cost around $300, at Korvettes it was, more often than not, $210—the $200 Ferkauf paid for it, plus the $10 profit he made. It was a cash business—all cash in the register and then money into the bank. Pure instinct carried him. In that first year, he did $1 million worth of business, of which $80,000 was profit, and turned over his inventory thirty times—figures that most storeowners couldn’t even dream about at the time. If other discount stores gave a 25 percent markdown, Ferkauf made his a straight 33
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percent. It soon became a hard policy that if he couldn’t give a third off an item, he wouldn’t handle it. He gave this discount even if his profit was only a dollar or two or even nothing at all. It was the volume that mattered, he knew; if he could establish his image as the top discounter in the region, he would get the volume, and with that came the profits. His biggest draw turned out to be large appliances, because with his discount, customers could save $100 or so off the list price. It turned out, though, that the small appliances—toasters, hair dryers, juicers (“small apples,” in the lingo of the business)—were what carried the store.
If there were limitations on his business, they were of space and time. He promptly solved this by working out a deal with a distributor. He would buy sixty washing machines from the distributor, provided that the distributor keep them at his warehouse. That way the appliance would never even see Ferkauf’s store—it was the distributor’s
job to make the delivery. The manufacturers were going crazy. Some pleaded with him to raise his prices; some even refused to sell to him. But one day a holdout salesman walked into the store and Ferkauf waved before him a check for $10,000. “Take it, it’s yours. Ship me anything you want,” he shouted. To a salesman, the commission on a sum like that was irresistible, and he promptly shipped a large order of Zenith radios.
The success of Korvettes was like nothing anyone had ever seen before. Ferkauf expanded quickly, despite the arguments of his buddies, who pleaded with him to be content with what he already had. “Gene, we’re already doing so well,” one of them said. “Why take a chance?” He refused to listen. The vendors were nervous, too. Ferkauf, to be sure, had done well as a small-time operator, but could a man so volatile, a man who was always shouting run a large store? They doubted it. One vendor told him, “Gene, if you open one more store, we can’t ship to you anymore.” “So we’ll go to Westinghouse,” Ferkauf told him.
By 1951 he opened his second store, on Third Avenue between 42nd and 43rd, on the site of a former cafeteria. The third store was in White Plains, the fourth between Fifth and Sixth avenues in Rockefeller Center, and the fifth in Hempstead. Then came the Carle Place store in Westbury and the new age of Korvettes. Here was the prototype for the future. Opening day was set for December 2, 1953.
On that first day over a thousand people showed up, completely overwhelming the salespeople. In those first few weeks, the employees were not even allowed to leave the premises for lunch; if they did, they wouldn’t be able to get back inside because the crowds were so large. Instead, Ferkauf sent runners out to bring back hundreds of sandwiches and cups of coffee, which the salespeople would gulp down in the dingy basement. (Years later, Ferkauf marveled at the brilliant success of Toys “R” Us, a chain that had drawn from many of his ideas and yet added an innovative twist of its own: self-service—letting the customer pick up the goods and bring them back to the counters themselves.)
On that first day, they did a staggering $138,000 worth of business. From December 2 to Christmas, they did $2 million in sales. In the next year, the Westbury store grossed $28 million. Ferkauf was one of the big boys now. Each store seemed bigger and handsomer than the last, and the formula still worked. He was expanding into the suburbs almost exclusively now—New Jersey, Connecticut, and Pennsylvania, as well as New York. In the fall of 1956
Fortune
magazine did a long article on Ferkauf and Korvettes, and it showed
a memorable graph: In six years, starting in 1950, the total sales had gone up 2,650 percent.
In December 1955, needing money to fund his continuous expansion, Ferkauf took the company public. The stock opened at 10, and Ferkauf and his family kept 40.4 percent, or 502,420 shares. As the stock soon ascended above 60, he had an odd sense of being rich without being rich. All of this was just some kind of voodoo, he thought. It was not real. Sometimes a small voice in his head would tell him that he was worth $30 or $40 million, but if anything, that aspect of his success—all the money and all the things it could buy—intimidated him. He had little time for the niceties that came with wealth. There were more orders to fill and more stores to open. In 1956, he built three giant stores on the Carle Place model and then in the next few years he undertook the greatest expansion in the history of American retailing. Korvettes erected twenty-five stores in three years. At the same time, he was closing the old, small stores in the city. By decade’s end E. J. Korvettes had total annual sales of $157.7 million.