Rose

Omaha • 1983

Rose Gorelick Blumkin came to Omaha from the tiny village of Shchedrin, in the region of Minsk. Born in 1893, she and her seven brothers slept on straw on the bare floor of a two-room log house because her rabbi father couldn’t afford to buy them a mattress.

“I dreamed all my life, since I was six years old,” she said. “The first dream of mine was to go to America.

“In Russia, they used to have pogroms against the Jews. They’d cut up the pregnant women and take out the kids.… I was six years old when I found out about that. I said, I’m going to America when I grow up.”¹

At thirteen, Rose walked barefoot for eighteen miles to the nearest train station to save the leather soles of her brand-new shoes. She hid under a train seat for three hundred miles to save her money, until she reached the closest town, Gomel. There she knocked on twenty-six doors until the owner of a dry-goods store responded to her proposition. “I’m not a beggar,” the four-foot-ten-inch girl said. “I’ve got four cents in my pocket. Let me sleep in your house and I’ll show you how good I am.” The next morning, “I waited on customer. I rolled out the material and I added it up before anybody picked up a pencil. And at twelve o’clock he asked me if I was going to stay.”²

By age sixteen, she was a manager, supervising six married men. “Don’t worry about the men, Mamma!” she wrote her mother. “They all mind me!”³ Four years later she married Isadore Blumkin, a shoe salesman in Gomel.⁴ That same year, World War I broke out, vigilantes ran amok in Russia, and Rose made up her mind. She sent her husband to America and started saving to go herself. Two years later, the czarist monk Rasputin was killed by revolutionaries in December 1916. Fearing the chaos that would ensue, Rose began her journey to America two weeks later, boarding the Trans-Siberian Railway on a train headed for China.

After seven days a Russian guard stopped her at the border town of Zabaykai’sk. She told the man she was buying leather for the army and promised him a bottle of slivovitz on her return. Either naive or lenient, he let her through the border. She rode through Manchuria to Tientsin, China, on another train. By then Rose had journeyed over nine thousand miles across almost the entire continent of Asia.⁵ From Tientsin she took a boat to Yokohama, Japan. There she found the Ava Maru, a cargo boat carrying peanuts. As the Ava Maru crossed the Pacific on its way to Seattle, she was so sick for most of the six-week journey that she couldn’t eat.⁶

Landing in Seattle after almost three months of travel with a face swollen from illness, Rose was met at the dock by the Hebrew Immigrant Aid Society. The HIAS put a tag around her neck with her name and “Ft. Dodge, Iowa,” and sent her to join her husband, who was working there as a junk peddler. Rose got pregnant right away and gave birth to a daughter, Frances. She didn’t know a word of English.

Two years later, she still spoke hardly any English. Feeling isolated, the Blumkins decided they had to live in a place where Rose could converse in Russian and Yiddish, so they moved to Omaha, a town filled with 32,000 immigrants drawn by the railroads and packinghouses.⁷

Isadore rented a pawnshop. “You never hear of a pawnshop going broke,” he said.⁸ Rose had three more children, Louis, Cynthia, and Sylvia. Sending fifty dollars at a time back to Russia, she brought ten of her relatives to America. Unlike her husband, she still didn’t speak much English. “I was too dumb,” she said. “They couldn’t drill it in me with a nail. The kids teached me. When my Frances started kindergarten, she says, ‘I’ll show you what an apple is, what a tablecloth, what a knife.’ “⁹ But the store struggled and almost did go broke during the Depression. Then Rose took charge. I know what to do, undersell the big shots, she told her husband. “You buy an item for three dollars and sell it for $3.30. Ten percent over cost!” When the old-fashioned suits they carried weren’t selling, Rose handed out ten thousand circulars all over Omaha, offering to outfit a man for five dollars—underwear, suit, tie, shoes, and straw hat. They took in $800 in a single day, more than they had made the entire year before.¹⁰ The store branched into jewelry, fur coats, and furniture. Rose drove the department stores crazy when she started underselling them on new fur coats on consignment.¹¹ But she had a philosophy: “It’s better to have them hate you than to feel sorry for you.”

Soon customers started asking her for more furniture. She saw that, unlike pawnbroking, selling furniture was a “happy business,” so in 1937 she borrowed $500 from a brother to open a store called Blumkin’s in a basement near her husband’s pawnshop. But the furniture wholesalers didn’t want her as a customer, because their dealers complained that she was underselling them. So Rose went to Chicago, found one sympathetic man, and ordered $2,000 worth of merchandise from him on thirty days’ credit. The time came due and she was short, so she sold her own house furnishings cheap to pay off the debt. “When my kids came home, they cried like somebody will die,” she recalled. “Why I took away the beds and the refrigerator? The whole house, an empty house? I told them, they were so nice to me I can’t stand it not to keep my promise.”¹² That night she took a couple of mattresses from the store for the family to sleep on. “The next day I brought in a refrigerator and stove,” she said, “and the kids quit crying.”¹³

Louie worked in the store after school, and became an all-American diver at Tech High while delivering sofas until midnight. His mother by now had established the Nebraska Furniture Mart and moved to larger quarters. In a side business, she sold and rented out Browning automatic shotguns during hunting season. Louie’s favorite job was testing the guns by firing them into cinder blocks in the family’s basement.¹⁴

Louie dropped out of college to enlist in the service during World War II. During the war, he and his mother wrote each other every day. Rose was discouraged, and he urged her not to quit.¹⁵ Because the big wholesalers refused to sell to the Nebraska Furniture Mart, Rose had become a furniture “bootlegger,” traveling on trains all over the Midwest to buy overstock merchandise at five percent over wholesale from stores like Macy’s and Marshall Field’s. “The more [the wholesalers] boycotted me, the harder I worked,” she said.¹⁶ She developed a lasting hatred of big shots. Her slogan was “Sell cheap and tell the truth, don’t cheat nobody, and don’t take no kickbacks.”¹⁷

Louie won a Purple Heart at the Battle of the Bulge. After the war, he came straight home to Omaha in 1946 and went back to work. He learned everything about merchandising: buying, pricing, inventories, accounting, delivery, display. To Rose, nobody was as good as Louie. Ruthless with her employees, she screamed at them at the top of her lungs: “You worthless golem! You dummy!” But after his mother fired them, Louie would hire them back.

Four years later, the store was prospering, but then the Korean War began, and sales started to sink. Rose decided to give the business a boost by adding carpet to her line. She went to Marshall Field’s in Chicago and told them she was buying carpet for an apartment building; they sold her three thousand yards of Mohawk carpet for $3.00 a yard. She retailed it for $3.95, half the standard price, although the fact that she had lied to Marshall Field’s seemed to bother her for years afterward.¹⁸

Rose had managed to launch a successful carpet business by giving her customers a better price than the other carpet dealers. But carpet maker Mohawk filed a lawsuit to enforce their minimum-pricing policies—under which manufacturers required all their retailers to charge a minimum price—and sent three lawyers to court. Rose showed up alone. “I say to the judge, ‘I don’t have any money for a lawyer because nobody would sell to me. Judge, I sell everything ten percent above cost, what’s wrong? I don’t rob my customers.”¹⁹ The trial lasted only an hour before the judge threw the case out. The next day, he went out to the Furniture Mart and bought $1,400 worth of carpet.

But selling carpet wasn’t enough; Rose still couldn’t pay her suppliers. Finally an Omaha banker loaned her $50,000 for ninety days; Rose couldn’t sleep worrying about how she was going to pay it back. She hit upon the idea of renting the Omaha City Auditorium and cramming it with sofas and dinettes and coffee tables and TV sets. Master merchandisers, she and Louie took out an ad in the paper that played on wartime scarcity.

The Furniture Mart sold a quarter of a million dollars’ worth of furniture in three days. Omaha now knew that Rose Blumkin and the Furniture Mart meant discount furniture, and “From that day, I never owed anybody a penny,” she said.²¹

That same year, Isadore died of a heart attack. Rose and Louie kept on going. Gradually, “Mrs. B” was becoming a name that everybody knew in Omaha. People came into the store at every stage of their lives: when they got married, when they bought their first house, when they had a baby. A tornado tore the roof off their huge new West Side suburban store in 1975, and she and Louie moved everything to their remaining downtown store without hesitation. “If you have the lowest price, they will find you at the bottom of a river,” she said. They did. When a fire burned down the store, she gave the firefighters free TV sets.²²

“Everything Mrs. B knew how to do, she would do fast. She didn’t hesitate and there was no second-guessing. She’d buy five thousand tables or sign a thirty-year lease or buy real estate or hire people. There was no looking back. She just swung. You got about two inches outside the perimeter of her circle of competence, she didn’t even want to talk to you about it. She knew exactly what she was good at, and she had no desire to kid herself about those things.”

By the early 1980s, Rose and Louie Blumkin had built the largest furniture store in North America. Its three acres sold over $100 million of furniture a year under one roof, ten times the volume of stores of similar size.²³ The home furnishing retailers in Omaha who had been her competitors when she started vanished. Other retailers came into the city and tried to compete with the Mart. Rose and Louie created discount campaigns that broke them financially and drove them away. Customers began to arrive from Iowa, Kansas, and the Dakotas.

Rose became known as Mrs. B, even to her family. She awoke at five a.m., ate only fruits and vegetables, and never touched liquor. A few gray hairs appeared around the edges of her lacquered black bun, but it stayed firmly in place as she raced around the store with the energy of a young woman. As her bargaining position grew stronger, she brooked no sympathy for her suppliers. “Seven dollars? We go bankruptcy tomorrow should we pay that,” she sniffed at one’s demand.²⁴ The wholesalers who had formerly snubbed her now kneeled at her feet. She loved it. “If you want to sell her twenty-three hundred end tables, she will know in a minute what she can pay, how fast she can move them … and she’ll buy them from you. She’ll wait until just before your plane is going to leave in some blizzard when you have to get the hell out of Omaha and can’t afford to miss your flight.”²⁵

She was hard at it six and a half days a week. “It’s mine habit,” she said. In her mind, the showroom was her home. Her daughter, Cynthia Schneider, who decorated her mother’s house, had arranged the furniture “just as you would find in the store” because “it’s the only way we could be sure she would be comfortable.”²⁶ The lamp shades remained covered in plastic. Price tags dangled from some of the furniture. “I only use the kitchen and bedroom,” said Mrs. B. “I can’t wait until it gets daylight, so I can get back to the business.”

On Sunday afternoons—her only time off—she drove around town with Louie. “I go shop the windows,” she said. “I plan an attack on the shopkeepers, thinking, ‘How much hell can I give them?’ ”²⁷ All her work, she said, was inspired by her “diamond mother,” who had run a grocery in Russia. She never forgot waking in the night to find her mother doing laundry and baking bread at three a.m. And so, Rose’s soft spot was refugees and immigrants. She sometimes put them to work in the bookkeeping department, telling them, “You don’t need English to count.”²⁸

In 1982, the Omaha World-Herald interviewed her. She said that over the years the family had rejected several offers to buy her company. “Who could afford to buy a store this big?” One of the offers was Berkshire’s. She’d told Buffett: “You’ll try to steal it.”²⁹

In 1983, Buffett heard that the Blumkins were negotiating with a company in Hamburg, Germany, that operated the largest furniture store in the world. The Blumkins were selling!

Maybe this time they were serious. Twenty-some-odd years before, on yet another occasion, Rose had summoned Buffett to her store downtown, indicating that she was thinking of selling. He really wanted to buy the Furniture Mart for Berkshire. He had walked in to find a short, squat woman lecturing a group of men lined up against the wall: her grandsons and sons-in-law and nephews. She turned to Buffett. “ ‘See all these guys next to me?’ she said. ‘If I sell it to you, you can fire them. These people are a bunch of bums, and they are all related to me and I can’t fire them. But you can fire them. They’re bums, bums, bums.’

“She went on like this for an hour, literally. The word ‘bums’ recurred many, many times. She thought the only one who was worth anything was Louie, and he was perfect.” The other relatives, long used to Rose, stood, impassive. “Then she dismissed me. I had served my purpose.”³⁰

If the Blumkins had talked themselves into selling, now was the time. Mrs. B had had two knee replacements, ceding most of the day-to-day operations to Louie. But she was still running the carpet department. “Something about carpet fascinated her,” said Louie.³¹ Nevertheless, it was Louie to whom Buffett talked. Louie said, “You should meet my sons Ron and Irv, who’ll be running the store someday.”

Buffett invited Ron and Irv to come to his office for a visit, and struck up a relationship with them. He sent Louie a letter, explaining his thoughts on the pros and cons of their selling to Berkshire.

They could sell to another furniture company, he wrote, or to somebody in a similar business. But “such a buyer—no matter what promises are made—usually will have managers who feel they know how to run your business operations, and sooner or later, will want to get into hands-on activity.”

Then there is “the financial maneuverer, usually operating on large amounts of borrowed money, who plans to resell either to the public or to another corporation as soon as the time is favorable,” he wrote. “If the sellers’ business represents the creative work of a lifetime and remains an integral part of their personality and sense of being, both of these types of buyers have serious flaws.

“Any buyer will tell you that he needs you and, if he has any brains, he most certainly does need you. But a great many, for the reasons mentioned above, don’t subsequently behave in that manner. We will behave exactly as promised, both because we have so promised, and because we need to.”

Buffett explained that he wanted the Blumkins to stay on as partners. He told Louie that he would get involved in only two things: capital allocation and selecting and compensating the “top man.”

Buffett had something else to offer. He was not German. The German company had offered well over $90 million, but to Mrs. B, selling to a German company was anathema. The Blumkins agreed to sell the company to Berkshire. To seal the deal, Buffett drove out to the Mart. There he found the eighty-nine-year-old Rose gunning the motor of her three-wheeled golf cart and racing around the store, roaring at her employees, “You’re all good for nothing! I wouldn’t give a nickel for all of you!” while Louie and her three sons-in-law looked on.³²

“I don’t even want to take inventory,” said Buffett. “I’ll take your word, Mrs. B, whatever you say you got.”

Mrs. B looked at her sons-in-law, who stood against a wall. One of them was taller than her by at least a foot. Her daughters owned twenty percent of the stock and had sent their husbands to sign off on the deal. The sons-in-law were not dumb and knew that they’d get far more money from the Germans. “And she snarled at them, Just tell me how much more you think you’re going to get and I’ll give it to you. She wanted to divide up the money and get them out of there so it would be Louie’s company. And then she said the price was fifty-five million dollars for ninety percent of the company.” She wanted cash.

“She really liked and trusted me. She would make up her mind about people and that was that.” Buffett knew she made decisions about everything once and for all and in the blink of an eye, so he wasn’t taking much risk when, after she signed, “I said, ‘If you change your mind on this it’s okay with me.’ I would never say that to any other seller in the world, but I just felt that this was just such a part of her, if there was any reason she decided she didn’t want to do it after—I didn’t want her to feel bound. And she said, ‘I don’t change my mind.’

“After the deal was done, I said, ‘Mrs. B, I’ve got to tell you something. It’s my birthday today.’ ” Buffett was fifty-three. “And she said, ‘You bought an oil well on your birthday.’ ”

The Blumkins had never had an audit, and Buffett did not ask for one. He did not take inventory or look at the detailed accounts. They shook hands. “We gave Mrs. B a check for fifty-five million dollars and she gave us her word,” he said.³³ Her word was as good as “the Bank of England.” To announce the deal, he held a press conference and showed a video on the company’s history. Mrs. B dabbed at her eyes as the film was shown.³⁴

Buffett had not only found another unusual specimen to add to his collection of interesting personalities. Something about Mrs. B’s indomitable will, history of hardship, and strength of character inspired awe in him.³⁵ “Dear Mrs. B,” he wrote to her. “I have promised Louie and his boys that all members of the family are going to feel good about this transaction five, ten, and twenty years from now. I make you the same promise.”³⁶

Buffett had promised more than that. Mrs. B was used to operating in total control and privacy; she did not want Buffett to throw her financial dress up in the air and show her knickers to the world. He agreed that the accounts of the Mart would not be separately reported when Berkshire Hathaway filed its financial statements with the SEC, as of course was legally required.

Buffett had no worries about getting a waiver from the SEC—or rather getting one of his employees to get the waiver. He was a likable boss who never lost his temper, never changed his mind capriciously, never said a rude word to anyone, never berated or criticized his employees, didn’t second-guess people on their work, and let them do their jobs without interference. He also operated on the assumption that if somebody was smart, they could do anything. Charlie Munger said of him, “Warren doesn’t have stress, he causes it.” Dale Carnegie said to give people a fine reputation to live up to, and Buffett had learned that lesson well. He knew how to Carnegize heroic accomplishments out of his people.

The gist of what he told his employees was something like: “You’re so good, this won’t take you any time at all, and it won’t cost anything to do. And, of course, you’ll have it back to me in the next mail. Because you’re just so damn great at what you do. It would take three people to replace you.”³⁷

Verne McKenzie, who had only just finished mopping up the Blue Chip mess, was assigned the thankless task of convincing the SEC to grant an exception to its rules so that Mrs. B would not suffer the pains of having to unveil her financial secrets to the shareholders of Berkshire Hathaway. He began to go through torture navigating the government’s unsympathetic maze while Buffett offered blithe assurances that he could easily get this done.³⁸ Buffett, meanwhile, had the happy job of diving into a new business and a new collection of people. He grew fond of Louie and “the boys”; he started driving out to 72nd Street at eight-thirty in the evening when the store closed to go out to dinner with them, talking for hours about furniture and merchandising.

Buffett’s affection and admiration for Rose Blumkin ran deep.³⁹ He had plans for her and enlisted Buffett Group member Larry Tisch in his behind-the-scenes machinations. In a virtuoso display of gratitude and showmanship, he had decided to turn the geriatric Rose into Cinderella.

With the help of Tisch, who was a trustee of New York University, he arranged it so that both Creighton University and NYU gave Rose honorary degrees.⁴⁰ At Creighton, the tiny Mrs. B was so overcome that she cried on the stage, saying, “Oy, oy, oy, I never even believe it.”⁴¹ Then she spoke of America, the country that made her dream come true. Her advice to the graduating seniors: “First, honesty,” she said. “Second, hard work. Next, if you don’t get the job you want right away, tell them you’ll take anything. If you’re good, they’ll keep you.”⁴²

In the city for the NYU ceremony, the family took care to keep her from seeing the price of her hotel room, for she had been to New York before and thought anything more than $75 for a hotel room was outrageous.⁴³ She had Louie take her to see Ellis Island and Delancey Street, but getting around the city was a struggle, for she felt cheated by the price of a taxi.⁴⁴ On the morning of commencement, Mrs. B was “robed” with great pomp and circumstance and received her degree alongside Senator Daniel Patrick Moynihan and the poet Octavio Paz.

Despite the august company of the NYU ceremony, when asked which of the two honorary degrees she preferred, Rose did not hesitate. It was Creighton’s. They had bought carpet from her.

Soon after, Berkshire’s auditors conducted the Nebraska Furniture Mart’s first inventory. The store was worth $85 million. Mrs. B, seized with a severe case of remorse after she had sold it for a total value of $60 million, including the share retained by the family, told Regardie’s magazine, “I wouldn’t go back on my word, but I was surprised.… He never thought a minute [before agreeing to the price], but he studies. I bet you he knew.”⁴⁵ Buffett, of course, could not have “known,” not literally. But he had certainly known there was a whopping margin of safety in the price.

Within two years, however, this fairy tale of a story turned ugly. Tired of being yelled at in front of customers and of being called bums, Mrs. B’s grandsons Ron and Irv gradually stopped speaking to her.

Finally, when Mrs. B was ninety-five, “the boys” overruled her on a carpet purchase and she exploded. It was the last straw. “I was the boss. They never told me nothing,”⁴⁶ she said, and quit. She also demanded $96,000 in unused vacation pay on her way out the door.⁴⁷

But sitting at home alone, she acknowledged, was “awful lonely, not to do nothing. I go nuts.”⁴⁸ In ominous newspaper interviews she referred to her grandsons as “dummies” and, shockingly, “Nazis.”⁴⁹ She hinted at solo trips to the North Carolina High Point Market, the furniture industry’s largest trade show. She suddenly arranged to have a warehouse she owned right across the street from the Furniture Mart refurbished. She held a “garage sale” in it, and cleared $18,000 in one day, selling “some of her own things.”⁵⁰ A few months later, “Mrs. B’s Warehouse” was grossing $3,000 a day before it officially opened.

Asked about the impending battle for customers, she snarled to the local paper, “I’ll give it to them.” She put up a sign: “Their price $104, our price $80.”⁵¹ When Bob Brown on ABC’s 20/20 program asked her about the Furniture Mart, she said, “I would it should go up in smoke. I like they should go down to hell.…”⁵²

Some time earlier, Buffett had created a saying. “I would rather wrestle grizzlies than compete with Mrs. B and her progeny.”⁵³ Now Buffett acted as he always did when any of his friends’ relationships broke down. He refused to take sides. Mrs. B thought that was disloyal. “Warren Buffett is not my friend,” she told a reporter. “I made him fifteen million dollars every year, and when I disagreed with my grandkids, he didn’t stand up for me.”⁵⁴ This was torture to Buffett, who couldn’t bear conflict and broken relationships.

Louie, who could do no wrong in his mother’s eyes, made no headway with Rose. “She figured she lost control of this place, and she blew her top,” he says.

After two years, Mrs. B’s Warehouse, while still small, was growing at such a rate that pound for pound, it was trouncing the Mart. Finally Louie intervened again. “Mother,” he said, “you’ve got to sell this thing back to us. There’s no sense competing one against the other.”⁵⁵ And so Rose called Buffett. She missed the Mart. She missed her family. She was lonely in her house, separated from her family. “I was wrong,” she said. Mrs. B told Buffett that she wanted to come back. With a box of See’s Candies under his arm and holding a huge bouquet of pink roses, Buffett went out to see her. He offered her $5 million simply for the use of her name and her lease.

He added one catch: She must sign a noncompete agreement, a contract designed so that she could never again compete with him. This was something he wished he’d done before. The absurdity of imposing a noncompete agreement on a ninety-nine-year-old woman was far from lost on him. Nevertheless, Buffett was taking no chances. The agreement was cunningly written to outlast Mrs. B. If she retired, or quit in a rage or for any other reason, no matter how old she was, for five years afterward she could not compete with Buffett and her relatives. “I thought she might go on forever,” he says. “I needed five years beyond forever with her.”

Mrs. B still could not read or write English. Nevertheless, she signed the noncompete, which had been explained to her, with her characteristic mark. The truce made headlines. “And then I made sure she never got mad,” Buffett says. He set about flattering his new employee unctuously to make her so happy that she would never, ever quit and start the clock running on her noncompete.

On April 7, 1993, the Greater Omaha Chamber of Commerce put her in the inaugural class of its business hall of fame, alongside Buffett. Then Buffett, knees trembling slightly, got up on a stage at the Highland Club and sang in public, for the first time in his life, to Mrs. B on her hundredth birthday. He also donated a million dollars to a local theater she was renovating.

Nobody could believe it. Warren Buffett had given away a million dollars.

Rose felt she owed everything, all her good fortune, to this country for the opportunities it had given her. At family events, she insisted that her favorite song, “God Bless America,” be played every time, sometimes even more than once.

And through all of the hosannas, none of it ever went to Rose Blumkin’s head. “I don’t think I deserve it,” she said, over and over, of the accolades.⁵⁶ But she did.