Editor’s note: This article originally appeared in the March, 1948 edition of Fortune.
With the passing of the great merchant families—Filene, Wanamaker, Bloomingdale, Marshall Field, etc.—that laid the foundations of American retailing, hardly a major U.S. store is now run by men who bear the store’s name. A few families, notably the Gimbels and the Strauses, are still prominent in retailing; but their merchant members have dwindled as their families shrank or some of their descendants wandered into other fields. Certainly none has proliferated like the great Lazarus family of Ohio, every one of whose working members for four generations has stuck close to the family trade. And the leader of this merchant clan is the driving, ambitious little man with the gently rolling voice, Fred Lazarus Jr.
At sixty-three, Fred Lazarus has moved far beyond the family’s Ohio scene to the presidency of Federated Department Stores, Inc. In that post he runs, much as a small boy would lead a herd of elephants, a retail empire whose seven major units—Filene’s in Boston, Abraham & Straus in Brooklyn, Bloomingdale’s in Manhattan, the F. & R. Lazarus Co. in Columbus, Ohio, and its Cincinnati subsidiary, Shillito’s, the resplendent new Foley’s in Houston, and recently acquired Halliburton’s in Oklahoma City—last year piled up a total volume of over $300 million, almost as much as the May Co.’s seven stores, which constitute the most nearly comparable U.S. department-store chain. But the basis of his strength and the interest of his heart still lie with the Lazari.
In the search for a word to describe Fred Lazarus, several—dominance, economy, ambition—jostle for attention, but all have to be qualified until they seem bled white of meaning. Dominance is certainly a major characteristic, yet Fred Lazarus cannot even dominate the stores that comprise Federated; one does not, from a distance, dominate the managements of stores whose volume runs in the neighborhood of $65 million (like Bloomingdale’s and Abraham & Straus) or $70 million (like Filene’s). One of his major objectives is economy, but that does not necessarily mean lower prices to the consumer. And most of his very extensive ambition is not for himself.
And yet, supplied with the proper modifiers and prepositions, the words do make sense. Fred Lazarus Jr. is a man whose natural bent is to dominate the retail life, or at least the department-store life, of any community he touches; his basic method is to handle goods or generate services with the greatest possible economy, while selling those goods and services just as dear as the next man; and most of his ambition is for the remarkably able and prolific family he heads, the family that the retail world always speaks of in the plural as “the Lazari,” the family whose American business history began with Fred Jr.’s grandfather and shows no sign of reaching its apogee.
Fred Jr.’s passion for dominance is one characteristic that cannot be attributed to heredity, for it was alien to the Lazari before him. Old Simon Lazarus, who came from Prussia in 1851 and set up a small men’s clothing store in Columbus, Ohio, certainly had no such ideas. And Simon’s two sons, Fred Sr. and Ralph, who incorporated the store and gave it the initials it bears today, were content to be moderately successful merchants and let the store grow with the town. When Fred Jr. left Ohio State University in 1902 after three months, owing to the coincident illness of his uncle Ralph and his father, F. & R. Lazarus had a volume of less than $500,000 and, except for women’s shoes and hose, still sold only men’s clothing.
The drive for dominance began with Fred Jr.’s generation. In the midst of the panic of 1907 he and his older brother Simon went to their father and proposed that the time had come to undertake a major expansion. (The two younger brothers, Robert and Jeffrey, were respectively six and nine years younger than Fred, and did not become fully active in the business until after the first world war.) Fred Sr., who had been turning over command of the business to his sons, gave his assent; and the result was the completion in 1909 of an imposing new six-story building, which contained the first department-store passenger escalator in the U.S.* The existing Lazarus business could fill only three floors of the new building; the rest was held for expansion.
How Fred Lazarus went about that expansion is a key to his nature. Each new department was jockeyed into a solidly dominant position before another was added, and to achieve that dominance Fred Lazarus was willing to take long chances. The first year the store carried toilet articles it managed to lose about $10,000 on a business of $10,000. “Hell,” he said to brother Simon, “we can’t lose much more if we do $100,000.” And the next year the toilet-goods business went up to $110,000, the loss down to $4,000. As a result of this step-by-step procedure F. & R. Lazarus did not become a complete department store until years after the second of its three major units was completed in 1926.
Today F. & R. Lazarus so overshadows Columbus retail life that comparisons with other stores are pointless. Last year its volume was about $45 million, probably six times that of its nearest competitor. Lazarus’ basement, in fact, is the second largest store in Columbus, with annual sales that exceed $9 million. And the 40 per cent of the store’s business drawn from outside Columbus probably makes it the dominant store in towns as far distant as Marietta, 150 miles away on the Ohio River. Hardly another American store has achieved a similar dominance in its trading area. Compared to Lazarus, Macy’s has barely scratched the surface.
Down the middle
A store of the size and strength of F. & R. Lazarus must be a middle-class store, and Fred Lazarus has always set his sights for the exact center of the middle-class trade. He does not attempt to elevate the general taste level (“I’m not sure it’s desirable”); rather, he tries to follow the demands of his customers as a spotlight follows an actor across a stage. He grants that there may also be fun and profit in running a store whose merchandise is selected according to management’s concept of good taste; but, he comments with finality, “You can’t be a dominant store the Lord & Taylor way.”
Of course, F. & R. Lazarus must carry lines both above and below its middle-class market. Essentially, however, these are but fighting outposts designed to protect the real heart of its business from shifts in public taste, or from competitive attempts at muscling in. “The Lazarus approach,” said an executive of another large national retail organization, “is one of sheer force. They use no tricks, no finesse. Like Macy’s they want a bigger tent than anybody else, and more monkeys and more elephants. The bigger the better—that’s Fred! Big!”
But bigness and dominance have a price. A store that has achieved the position of F. & R. Lazarus must compete with everyone, and on everyone’s terms. It must strive to provide the goods and services of the small, high-priced specialty shop, lest customers lose the all-important habit of going to Lazarus for everything. It must compete toe to toe with the chains in the field of low-priced women’s wear. It must run an extensive music department at little or no profit, because the dominant store must by definition be the complete store. It must (as Lazarus does) carry work clothes at a loss, to match prices with Sears, Penney, and the like. It must undertake community activities at a cost far exceeding any hope of immediate return. It is the target of promotional sharpshooting by everybody, and the object of community dissatisfactions with retailing, prices, living standards, and what not.
For all that, the advantages of dominance are both tangible and enormous. A store like Lazarus can pick and choose among national brands, since no competitor can offer anything like a comparable volume to the manufacturer. (Other Columbus retailers are bitter about their difficulty in securing merchandise lines—or in keeping them if Lazarus grows covetous.) Perhaps even more important is the question of stocks. “We have a million dollars worth of merchandise as against their $7 million,” complained one Columbus merchant. “We might have fifty size-fourteen dresses, but they have 150.” As a result the average housewife feels that she has not shopped the town unless she goes to Lazarus: “We might as well go to Lazarus first, we’ll end up there anyway,” is a standard Columbus shopping phrase. Such advantages relieve the dominant store of any need to undersell its competitors.
Concealed from the customer are other substantial benefits of size and dominance. The dominant store need not carry five or six times the advertising of its competitors just because it does five or six times the business. Therefore F. & R. Lazarus can get by on a newspaper advertising outlay amounting to a little more than 1 per cent of its total sales, about a third less than the average large department store. The larger volume means a lower cost of executive personnel per transaction and per sales dollar as compared with its competitors. And of enormous psychological importance to Fred Lazarus is the right of the dominant store to set the pace: when F. & R. Lazarus decided on payment for overtime, shorter hours, or other changes, its competitors usually found it necessary to follow suit.
Family outpost
The John Shillito Co. in Cincinnati, of which Fred Lazarus was President from its purchase in 1928 until late 1947, is a prime example of how quickly the Lazari can build a dominant store, given a few breaks. Founded in 1830, Shillito’s had the prestige of being the oldest store west of the Alleghenies; Fred Lazarus’ mother bought her trousseau there. But the third Shillito generation had so lost interest in retailing that the prestige was virtually gone and the store had slipped from first to fourth in Cincinnati, with a 1927 volume of about $4 million.
Yet the possibilities seemed good for marching Shillito’s back up the hill. The growth factors in Cincinnati were encouraging, and the competition (H. & S. Pogue and Rollman’s were then the city’s two largest stores) did not look overly aggressive. There was also, however, a family reason for the purchase. Simon Lazarus, in charge of personnel and community relations, and Fred, already beginning to concentrate on finance and store operations, had a firm grip on the Columbus store. When brother Robert took over the merchandising function, there was no place with sufficient scope for the fourth brother, Jeffrey. Shillito’s was the place.
Shillito’s revival can be measured only against the low estate to which the store had fallen when it was bought, for $2,500,000, in 1928. It took $75,000, and the use of wire brushes, just to clean and paint it. Many of its departments were leased to outside managers, the first floor was a mass of special bargain counters, and there was no true basement store, in the sense of a fairly complete department store selling lower-priced merchandise in the same lines that were sold upstairs. Store hours were from ten to four, since some genius had noticed that the bulk of sales seemed to fall within those hours. And the store’s cooniest promotion was to advertise on Saturday, the best shopping day of the week, the values to be offered on Shillito’s regular dollar day the following Monday.
Fred and Jeffrey pitched into this mess by spending three-quarters of a million dollars refurbishing the store in the first four months, establishing a basement, taking back some of the leased departments, and quickly cleaning out the poorer merchandise. (Too quickly, in Jeffrey Lazarus’ opinion; for Shillito’s lost some low-income trade that it took years to regain.) The goal was to build a Cincinnati equivalent of F. & R. Lazarus. To this end they even made the mistake of trying to run both stores with the same staff of executives and merchandise men, who spent half the week in Columbus and half in Cincinnati. Nevertheless, Shillito’s sales jumped 50 per cent (to over $6 million) by 1929, and they never fell back to pre-Lazarus levels even in the depths of the depression.
Shillito’s rapid rise in the thirties was a typical Lazarus department-by-department drive for dominance. The best piece-goods business in Cincinnati, for example, was in the pleasantly relaxed hands of H. & S. Pogue, on which Shillito’s came down like a wolf on the fold. First, all buying of piece goods was shifted to a style basis. As soon as a fabric sold well, it was reordered in the same price range and in those lower and higher as well. Department-wide sales were replaced by sharp promotions on single important items like percales, and Shillito’s shaved its average piece-goods markup to a point about 5 per cent below its competition—a price that Fred and Jeffrey Lazarus were quite willing to pay in the fight for dominance. The result was the capture of most of the middle and lower-middle piece-goods business. And the same methods across many departments—picking the soft spots and trading a little margin for much more volume—made Shillito’s the No. 1 store in Cincinnati by 1939.
Other Cincinnati merchants admit (and Fred Lazarus agrees) that their sleepiness contributed greatly to Shillito’s growth. Pogue’s was not aggressively operated, and felt more at home in its higher-priced lines; while Rollman’s, an Allied Stores subsidiary, was both torn by internal dissension and burdened with a crippling lease. As a result there were plenty of fumbles for Fred Lazarus to pounce upon. “And every ball we fumbled he picked up and ran with,” was the rueful tribute of another Cincinnati store boss. At the war’s end Shillito’s volume was crowding $30 million—about a third of Cincinnati’s total department-store sales, and probably more than its next two competitors put together. But by that time Fred Lazarus was occupied with larger concerns.
Co-op to holding company
The figurative ancestor of Federated was the Associated Merchandising Corp., then known as the Retail Research Association. Set up in 1916 under the leadership of Lincoln Filene, it consisted of fourteen non-competitive stores (including F. & R. Lazarus), which agreed to the unheard-of practice of exchanging figures on costs, prices, markups, volume, and other operating problems. This brought Fred Lazarus into continuing contact with such merchants as Louis Kirstein of Filene’s, Felix Fuld of Bamberger’s, Oscar Webber of J. L. Hudson in Detroit, and Walter Rothschild of Abraham & Straus. And it was only natural that the member stores should think of one another whenever the talk drifted toward mergers and combinations, as it always did in the late twenties.
The prime movers in the formation of Federated were Filene’s in Boston, Abraham & Straus in Brooklyn, and Bloomingdale’s in Manhattan. Only then was F. & R. Lazarus approached, in search of regional diversification. For the Lazarus family the merger had the advantage that, if the young generation of Lazari should lack interest or ability in retailing, the new corporation could secure competent outside management to run the Lazarus stores. But the one objective sought by all the participants in this 1929 merger was risk spreading. The stocks of the individual stores would be traded for Federated stock at a ratio computed on the basis of past earnings; but Federated itself was to be nothing more than a paper holding company. Each store was to operate on its own, as in the past.
The shortcomings of this form of organization became apparent during the war. First was the problem of how Federated could most profitably reinvest its earnings, which were quite satisfactory during the war and showed every sign of climbing through the roof when price controls were lifted. All the Federated units, and the eastern stores in particular, were physically so hemmed in that expansion of their main buildings was always costly and difficult, sometimes impossible. The same funds could better be used in buying new stores or going outside the department-store field entirely. But how could any such program be carried out, when each individual Federated store was immersed in its own problems and there was no Federated central office which could take on the new load?
To Fred Lazarus, a second problem was also apparent: the two Lazarus-operated western stores, because of their rapid growth, had been providing a disproportionate share of Federated’s sales and earnings. When Federated was formed in 1929, Lazarus and Shillito’s were responsible for about 16 per cent of the volume and about 22 per cent of the total profits of all the stores. During the war years the same two stores accounted for some 28 per cent of the volume and over a third of the profits. In the original merger the Lazarus family turned in about two shares of Lazarus stock for every Federated share. This ratio was subsequently adjusted so that by late 1945 a holdout minority stockholder in F. & R. Lazarus would have got 1.1 Federated shares for every Lazarus share he turned in. But the holdings of the Lazari had already been converted on a far less advantageous basis.
Both these factors—plus the undoubted ability of each store to stand on its own feet—led Fred Lazarus to conclude that Federated must become either a great deal more than it had been, or a great deal less. At the time he would probably have preferred the latter; and there were earnest discussions in 1943 and 1944 looking toward the complete breakup of Federated. But any such breakup would still have left Federated stockholders with holdings in every store, and the Bloomingdale family not only was adamantly opposed to dissolution but also had enough stock to prevent it. Therefore Fred Lazarus swung adroitly to the alternative of setting up a new and stronger Federated central office, an event that finally occurred in June, 1945. It was, under the circumstances, about as close as he could come to taking the famous advice of Pudd’nhead Wilson.*
It is symbolic of Fred Lazarus’ position, and of the character of the central office he runs, that Federated’s most important operating group is called the Advisory Committee.* Its function is continuous scrutiny of economic prospects, sales, and detailed operating data, on the basis of which it sets performance standards and recommends procedures for the individual stores. Fred Lazarus likes to call this “putting a picture on the wall,” and the mildness of the phrase is apt in the sense that the store managements are free to disagree with Advisory Committee recommendations. But the store executive who follows his own course must do considerable explaining if the results do not satisfy the central office.
President by indirection
Finance is the field where Fred Lazarus has made his most obvious contribution and met with the least resistance from the individual units. When Federated was wholly decentralized, each store ran its own finances just as it did its own merchandising, and the resulting loose ends were as plentiful as one might expect. For example, no Federated store employed a full-time tax expert—the one field in American business where a dollar saved is really a dollar earned. “Until a couple of years ago,” says Fred, “none of us ever made it his business to look at a Federated balance sheet and say, ‘Item A is good, B is bad, C is fair, etc.”‘
Such a look convinced him that at least two items were bad, the amount of Federated assets tied up in real estate and banking and the size of its long-term debt. Therefore, in the closing months of 1947, Federated carried off a number of neat real-estate deals, buying the land and buildings of several Federated stores where they were not already owned, selling them outright to insurance companies or foundations, and leasing them back for long periods. There were no tax savings involved to arouse Treasury suspicions, for the properties were sold at cost. But the new leases provide an operating economy of about $600,000 a year in the case of Filene’s and Abraham & Straus alone. Then Federated sold to local banks about $6 million worth of installment accounts receivable. The effect of these moves will be apparent this spring when Federated releases its balance sheet (for the fiscal year ending January 31, 1948), which is expected to show a long-term debt reduction from about $22 million last year down to some $14 million.
A second area of major concern to the central office is the depth of the individual store managements. The objective has been to free the top managers of each store from line duties, thus enabling them to concentrate on long-range problems; and to this end a number of second-line executives have been promoted. For Fred Lazarus believes that such freedom is essential, and is largely responsible for his own value to Federated.
Merchandising is one field the Federated central office generally leaves alone, except for such large questions as the desirable level of stock and commitments. However, it is a field in which Fred Lazarus has at least one major innovation to his credit. It is the technique of “size selling” (see picture on page 115), by which garments of a single size but covering a wide price range are displayed and sold together. He stumbled on the idea at the Galeries Lafayette in Paris in 1927, and lifted it for use at F. & R. Lazarus a few years later. The obvious advantages—among them the ease of customer choice, the opportunity to sell a higher-priced article, and the invaluable customer contacts developed by a salesclerk who sells only one size—have led to its wide adoption across the U.S.
Between finance and merchandising is the great field of department-store organization and operation, the key to department-store costs. Of course, Fred Lazarus does not try to control the operations of the individual stores from his Cincinnati office; rather, he nags them for results. The outcome of this process varies widely among the stores. Lazarus and Shillito’s, built in Fred’s own image, seem responsive, while the eastern stores clearly hang back.
There are significant differences between Federated’s western units and those in the East, which have nothing like the same degree of dominance. Filene’s, though dominant in many of the lines it carries, is not a complete department store because it lacks nearly all the hard goods; and its highly successful bargain basement (specializing in fire sales, close-outs, and similar promotions) is the antithesis of the usual Federated basement operation, which is really a low-priced store-within-a-store. Bloomingdale’s is not and can never hope to be the dominant store in New York. Instead, it must trade on its magnificent East Side location, trying to match its stocks and styling to the taste of a rather sophisticated group of customers. Abraham & Straus, solidly established in New York’s bedroom borough with a volume greater than the next two Brooklyn stores combined, is the closest eastern approximation of the great Lazarus middle-class stores. But even Abraham & Straus must deal with community problems of crowding, transportation, etc., alien to the western stores. Considerations like these, to which must be added the jealousy of managements that have enjoyed complete independence, often lead the eastern stores to look askance at many a Lazarus innovation.
Take, for example, his favorite complaint about the position of the traditional department-store buyer, who at Lazarus and Shillito’s has been renamed “department manager.” It is more than a change in name, for with the new title has come much greater responsibility for the costs incurred by his department and for the supervision of sales on the floor. The cost angle grew from Fred’s observation that the traditional buyer often generates unforeseen expenses (warehousing, storage, handling, etc.) for which he is not held accountable. And the insistence on sales contact with the public is in keeping with his dictum, “You don’t have to be smart in this business—just sensitive.”
The eastern store managers reply that this may be very well for midwestern stores whose buyers get to the major markets only two or three times a year; but the eastern buyer must be out most of the time looking for the right merchandise. Commented Abraham & Straus President Walter Rothschild, in a handsomely mixed metaphor, “When you get all through, there are several ways of skinning a cat—and some of them are sacred cows.” The irony of Fred Lazarus’ position is that, as President of Federated, he must use persuasion on the managements of stores that Federated owns from roof to cellar.
The inflexibility of the average department store often prevents the adoption of improvements whose virtues are clear to everyone. As the major planner of the Columbus store, Fred saw to it that the service building was cheek by jowl with the two main selling buildings, and so connected that most reserve stocks could be stored on the floors on which they were sold. The gain in economical handling of merchandise is obvious—but next to impossible under the real-estate conditions of Boston or New York. Nearly every Federated store must bear some such burden: Shillito’s cannot install escalators because of the type of construction in its old main building, Abraham & Straus is plagued by varying floor levels, and Bloomingdale’s is chopped up by fire walls. One is tempted to conclude that anyone can have splendid ideas about department-store efficiency; the hard part is finding a store where they can be applied.
Dream store
Few merchants ever have the opportunity to build a major department store embodying every feature they believe a store should have. Fred Lazarus had that chance in the new Foley’s in Houston, which he made into a reinforced-concrete personification of his kind of retailing.
Fred first saw Houston in 1941 when he went to visit his son Ralph, stationed at nearby Ellington Field. He promptly ordered studies made of the city’s growth factors, which was a waste of time. For anyone could see that Houston, with the ship channel that has made it the fifth U.S. port, its great chemical industry built on nearby oil, gas, and sulfur, its growing steel industry, and its hinterland rich in oil, wheat, meat, and cotton, was one of the most wildly expanding cities in North America. It had a population of some 400,000, and so much private wealth that anyone making less than $30,000 a year was hardly considered a member of the middle class. “Some crazy fools around here,” said one cautious Houstonian, “think this will be the fourth biggest city in the country by 1950. Why, it’ll take at least until 1951 or 1952.” Yet the largest Houston department store, Foley Brothers Dry Goods Co., was limping along on a volume of less than $7 million in 1943.
Any recounting of the story of Foley’s must make it seem that Fred Lazarus got a number of fortunate breaks. He did, but he earned them by taking the chances, paying the prices, putting on the pressure that the others would not. Many a merchant saw the opportunity for a big department store in Houston—and did nothing about it. George Cohen, who owned Foley Brothers, said flatly that he was not interested in selling, and Fred Lazarus had to assemble a square block on Houston’s Main Street before Cohen capitulated, in May, 1945, for $3,500,000 worth of Federated stock.
At this point Fred Lazarus raised his volume goal for the new store from $10 million to $20 million, since he could use the existing Foley’s as a nucleus. And he and Max Levine, who had been promoted from the basement of the Columbus store to run Foley’s, crammed personnel and merchandise into the old store regardless of cost, so that there would be the largest possible organization and sales volume to transfer to the new store. Before it opened in October, 1947, Foley’s volume was running at the rate of $17 million a year.
Considering the construction difficulties—there was a seventy-seven-day general building-trades strike, and toward the end plasterers and electricians were being flown in by plane from all over the country—the wonder is that it opened at all. As it was, the new building finally cost $16 a square foot against an original estimate of $8. And the real-estate deals were so numerous (twelve in all) and so complicated that at one point Federated had $5 million tied up in Houston property before the new store was even begun. But on balance they were profitable because of one deal involving the old First Presbyterian Church, located in downtown Houston a block from the site of the new store. Along with Foley’s came an option on the church property for $1,250,000. Fred exercised the option and resold it to Woolworth for $3,050,000, a price that Houstonians love to refer to as “$2,000 a front inch.” The sale was made in a telephone conversation that went something like this:
“How much do you want for that Houston site?”
“Still $3 million.”
“Dammit, Mr. Lazarus, that’s robbery.”
“I know it is.”
“We won’t pay it.”
“Then what did you call me for?”
“Well…”
“Now look here, we’ve created the value on that piece of property. We’ve made it a good merchandising site. We’re not going to sell it and let somebody else cash in on it.”
“All right, the hell with it. We’ll take it.”
Fred Lazarus considers it “the strangest conversation I’ve ever had.”
The new store opened with the usual tarantaras on Monday, October 20, 1947, having moved from the old site since the close of business Saturday night. There were the standard mishaps: at the last moment Fred would not permit the garage, where purchases may be delivered direct to the shopper’s car, to be opened the same day as the store, since he felt that every car in southeast Texas would make a beeline for it; and the sales clerks were so entranced by the chutes, conveyer belts, and general air of mechanization that a number of parcels were dumped down the incinerator.
Few people on that crammed, excited opening day caught the basic idea of Foley’s, because most of the evidence is out of sight. All its important features—the conveyer belt that moves incoming goods from the receiving dock to the marking and examining room; the unattended wheeler-lift elevators that carry a hand truck of merchandise to the proper floor and automatically roll it off; the perimeter stockrooms next to the building’s skin, instantly accessible to the departments they serve; the chute-conveyer systems that move wrapped packages from any selling floor to the delivery trucks; the nearly windowless exterior and low ceilings, for economical air conditioning in Houston’s blistering summers—all are designed first and foremost as parts of an efficient machine. “Don’t get me wrong,” says Fred Lazarus, “we tried to add the looks afterward, and I think we did. But we didn’t sacrifice one single bit of efficiency for the sake of looks.”
Foley’s shows promise of unusual operating results, though payroll costs are still high—about 16 per cent of sales as compared with 14 per cent at F. & R. Lazarus, which has none of Foley’s mechanization. But Fred is confident that the Foley figure can be driven down to 13 per cent; and eventually he hopes to see Foley’s reach the unusual personnel ratio of one salesclerk to every non-selling employee, as compared with the common two-to-three or even one-to-two ratio. He has recouped Federated’s $13,200,000 building outlay by selling the store to the new Foley Brothers Foundation and then leasing it back for $650,000 per year, less than 2 ½ per cent of current sales. Those sales are now running at a $27-million annual rate, and producing a net profit (before taxes) that amounted for November, 1947, to about 11 per cent.
Fred Lazarus already considers Foley’s to be Houston’s dominant store, with a volume several million higher than the two Sears units that are its nearest rivals. But sweeter still is the prospect of increasing that dominance. For Foley’s could probably handle $50 million sales a year, at present prices, without increasing its plant by an inch. And when the original plans were drawn, Fred saw to it that the foundations and columns were heavy enough to support six more stories on top of the present six. The space is there for the extra passenger and freight elevators, the extra receiving docks, the additional boilers and machinery. If he does not live to see them built, perhaps a later generation of Lazarus merchants will.
All for fun?
“In two years Federated has made a major acquisition, built a new store, and broadened the management of every store. And why did I take this load on at sixty? Because it’s fun! I like distribution, helping to organize stores that in turn organize themselves. I wouldn’t take anything for the fun of creating Foley’s and energizing it.”
That is Fred Lazarus’ answer to the blunt question of why, at his age and with his ample personal means, he drives himself at his brutal pace. The answer is not wholly satisfying. Fred Lazarus’ deepest interest and concern is for his family, which a long-time associate calls “the nearest thing to a clan that I know in American business,” and within which exists complete unity and trust. “I’ve always had the conviction of the solidarity of this family,” Fred says. “When Si and I were married, we always felt that nothing should interfere with that solidarity.” (Indeed, Fred and Simon were so attuned to one another that “when they talked it sounded like shorthand,” according to son Ralph.) “We four brothers grew up in the business,” Fred continues. “None of us ever had any outside hobbies.”
For Fred no less than the other brothers, that statement appears untrue. He was one of retailing’s spokesmen in Washington during the war, helped to found numerous retail organizations, is active in charities, enjoys travel and deep-sea fishing, plays golf with a competence that is remarkable in view of his hand tremor (the legacy of a childhood illness), and will take any given number of drinks. But he does have what one friend described as “a feminine curve of interest”—that is, his concern for the family and for his close business associates is extremely high, but beyond that it slopes off rapidly.
One unusual characteristic of Fred’s generation of Lazari is its business balance: their specialties have always complemented one another. Simon, before his death late in 1947, was remarkably effective in carrying the Columbus store’s heavy burden of community relations, as well as building its personnel; and Robert and Jeffrey were able merchandisers. Together they formed a perfect testing board for all Fred’s ideas. “I wish I had a board of directors with that balance,” was the tribute paid by the head of a competing store.
The Lazarus family shows no sign of losing its cohesion. So many of the young Lazari are working in Federated—Ralph and Charles as Vice Presidents of F. & R. Lazarus, Maurice as Vice President of Foley’s, Fred III as Vice President of Shillito’s, and young Simon as a lawyer in the central office—that the use of the family name is growing rare; they are known as “Mr. Ralph,” or “Mr. Fred,” or “Mr. Chuck.” There are still four sons in the fourth generation who are not yet of working age. But it appears likely that enough of them will become retailers to continue the somewhat alarming geometric progression that produced one Lazarus merchant in the first American generation, two in the second, and four in the third.
Although Fred Lazarus is acutely sensitive to the dangers of nepotism, he cannot avoid the widespread impression that all the top jobs seem preempted for the family. Fortunately, the Lazarus-operated stores have always encouraged promotion from within; thanks largely to brother Simon, 320 of the 336 executives at F. & R. Lazarus came up through the store. But that does not alter the fact, as Fred Lazarus admits, that “a Lazarus in Columbus or Cincinnati simply has a better chance than a fellow named Smith.”
Fred has met this by seeing that any young Lazarus who expressed an interest in the family business got a bellyful of it at an early age, so that he could soon discover whether he really liked retailing. But the saving fact has been the solid ability of the younger Lazari; there is not a free rider among them. And while they may not—yet—have produced another Fred Lazarus, several show signs of developing to store-president stature.
What Fred Lazarus will do in Federated in the immediate future is not too hard to guess. The Federated group is continuing to increase not only its dollar volume but its unit transactions as well, and net profit for the twelve months ending November 1, 1947, was down by less than 7 per cent, as compared with a 28 per cent drop for Allied and 26 per cent for Macy’s. The slightest tremor in price levels will find all Federated units ready to take their markdowns, for experience in three major depressions has convinced Fred that a merchant who is quick enough can make money on the down side of the market. And he has tucked away a LIFO inventory cushion somewhere in excess of $6 million to avert any inventory losses.
Thus shipshape, he is considering the purchase of new stores all the time (only last year he was outbid by Macy’s on the John Taylor Dry Goods Co. of Kansas City). He insists that Federated prefers medium-sized midwestern and western cities as locations, but he would not hesitate to dicker for a large eastern store. However, since all Federated stores are A.M.C. members, he is limited to the purchase of other A.M.C. stores, or to cities without A.M.C. representation. For A.M.C. allows only one member store per city, and would not permit some Federated units to be within and some without the A.M.C. fold.
In the distant future his problems loom larger. Today Federated is composed of a number of strong units loosely tied to a driving personality, who is striving to make them even stronger. Fred Lazarus is trying to build a chain of dominant stores, which may prove to be a contradiction in terms. A true store chain is able to achieve undoubted operating economies, plus merchandising advantages, from its standardized and carefully thought-out form of organization. But a dominant store must play up to its community in such a way as to inhibit the use of these methods of chain operation. The centrifugal forces within Federated are likely to become more powerful with every increase in the number and strength of its stores; and the day may come when those forces take control, as they came so close to doing in 1943 and 1944.
There is plenty for Fred Lazarus to do outside Federated, if he should ever want to let go. It is traditional for the older generation to watch with mingled pride and misgivings the progress of the younger. The nine fourth-generation sons will take plenty of watching. If that is not enough, there are already (“as of last night,” says Fred) eighteen young Lazari, including nine boys, in the fifth generation. And after that—
*The crude original device was removed a few years later. The present one, installed by Westinghouse, is ostentatiously called an “electric stairway” because the word “escalator” belongs to Otis.
*”Put all your eggs in one basket and—WATCH THAT BASKET.”
*In addition to Fred Lazarus, it consists of the heads of the four largest stores (Harold Hodgkinson of Filene’s, James Schoff of Bloomingdale’s, Walter Rothschild of Abraham & Straus, and Robert Lazarus of F. & R. Lazarus) plus three outsiders: Paul Mazur of Lehman Brothers (Federated’s underwriter from the beginning), Walter Heymann of the First National of Chicago, and onetime Macy executive Oswald Knauth.
Four generations of the Lazari
Simon Lazarus left Germany as a result of the Jewish segregation laws of 1848, an early foreboding of the Hitler era, and in 1851 set up his little men’s clothing store in Columbus, Ohio. The later Lazari are descended from his son, Fred Sr., whose brother Ralph was so much a misogynist that he blanched at the thought of a woman secretary. In their day the two brothers sought business by running nonsense advertisements and keeping a large live alligator in the basement.
Nut until Fred Jr.’s generation did F. & R. Lazarus emerge as a leading Ohio institution and the family as leading merchants. Of the fourth generation, Simon practiced law in Cincinnati for a time and Maurice had ideas about entering government service; but both are now securely within the fold. The fourth-generation picture omits Robert’s and Jeffrey’s four sons, who are not yet of working age. Unless the law of averages goes berserk, they too should become Lazarus merchants. And there are already eighteen children in the fifth generation.
Foley’s moves more merchandise with fewer people
The plan of the new Foley’s, shown in the surrounding pictures and diagram, is based on the simple principles of moving goods without muscles, and keeping goods and customers strictly apart until the right moment. The heavy dark lines and arrows in the diagram at the left show the flow of incoming merchandise from the time it hits the receiving dock in the garage, pictured at the top of the opposite page. From there it moves under the street by conveyer (opposite page, center) to the receiving and marking room, and thence by freight elevator or wheeler-lift to the perimeter stockrooms, which rim each upper floor (see picture at right). Because of the easy accessibility of stockroom from selling floor, salesclerks can instantly replenish “forward stock” from reserves, as well as perform nearly all other stockroom duties during slack hours.
Outgoing parcels move in two ways: (1) bulky packages by freight elevator, as indicated by the broken gray lines, and (2) lighter packages along the solid gray lines down the package chutes (a second chute is not shown) to a basement conveyer belt, which again carries them under the street to the basement of the garage. At the sorting ring (see bottom of opposite page) they are separated for home delivery, mailing, or delivery direct to customers’ parked cars. The garage, which also houses the power plant, has space for 550 cars. As in the garages at Columbus and Cincinnati, its parking charges enable the garage to pay for itself.
Foley’s, seen through the shopper’s eye
- Raymond Loewy Associates, which designed Foley’s interior, did a handsome job on the Men’s Grill, whose walls are covered with billiard-table felt. Because hard drinkers and temperance societies flourish alike in Texas, the store is afraid to serve even the beer and wines permitted by law.
- The amount of merchandise open to customer’s sight and touch in the mural-capped main-floor corner below gives it the “bulk look” characteristic of all Federated stores.
- The “Tex-Teen” shop (opposite page, above) is the ultimate extension of Fred Lazarus’ idea of size selling—grouping together by size garments in a wide price range. Here not only dresses but suits, skirts, blouses, hats, and accessories are bought by a single buyer, then displayed together for the teenage trade.
- Passenger traffic at Foley’s is almost entirely by escalator (opposite page, below). The four elevators are so tucked away in a corner that they are seldom used except by those who can’t master escalators—or can’t abide them.
