Kmart’s family roots

Raised to be frugal, S.S. Kresge parlayed a novelty store into a powerful national chain. Unfortunately for his heirs, he did not give up the reins until he was 99.

By Mike Henning

Born to modest means, Sebastian Sperling Kresge was taught to count his pennies. He worked as a farmer, teacher, and tin salesman before taking a half-interest in a Detroit novelty store. In 1899 he bought out his partner and opened Kresge & Wilson with his brother-in-law. Several stores later he bought out his brother-in-law, too, changing the store name to S.S. Kresge Co.

Kresge believed that working people would pay no more for an item than he would pay himself. That notion, plus the “five-and-dime” concept begun in the 1870s by Winfield Woolworth, guided his pricing policy. But he also believed in impulse buying. To encourage it, he implemented the revolutionary idea of putting unpackaged merchandise out where people could see and touch it. He introduced a radical store design that lured people with cheap prices, placing 5-cent items out on the sidewalk to pull in shoppers. Inside, goods were grouped according to their uses—clothing on one wall, paper goods on another, soaps here, metalware there. The counters were loaded with 5-cent goods too—another impulse opportunity. There were over 11,000 different items in one store.

Detroit was booming thanks to production of the automobile, but workers were paid little, and they flocked to Kresge’s. By 1912 Kresge had 85 stores in several states with annual sales of more than $10 million.

Inflation due to World War I forced Kresge to raise prices. By the mid-1920s he had introduced his “colored fronts”: Stores painted with red fronts sold items at 10 cents or less; stores with green fronts sold items from 25 cents to $1. Often the stores were next door to each other.

Through imaginative merchandising and a philosophy of “Time is money, so work,” Kresge’s fortune grew. In 1924 he formed the Kresge Foundation with $1.6 million of his company stock. He was also divorced that year from his long-time wife, Anna Harvey, mother of their five children; one of the grounds was that he was a penny pincher. Anna reaped $410 million in the settlement. Kresge would marry twice again.

Kresge was an innovative employer, too. He was among the first to offer his employees sick pay, paid vacation, Christmas bonuses, profit sharing, and merit promotions—all smart investments, in his view. Although frugal with his family, S.S. gave generously to causes he believed in, but vowed never to give a penny to a pastor who smoked. He attributed his longevity to the fact that he never smoke or drank. A stern Methodist, he almost single-handedly supported a National Vigilance Committee to enforce Prohibition after passage of the 18th Amendment.

S.S. Kresge Co. expanded continually until the 1950s, when America’s first discount houses emerged. They specialized in certain lines of goods, such as housewares or clothing, and undersold the variety stores. Supermarkets also cut into Kresge’s business. Under the guidance of company president Harry Cunningham, Kresge Co. responded in 1962 with its first discount department store—Kmart—located in Garden City, Michigan. By 1966 there were 162 Kmarts nationwide.

“S.S.,” as his workers called Kresge, had always planned to live to 100. His mother had, and an aunt had reached 104. He fell short of his goal by nine months, dying in October 1966—just 3 1/2 months after turning over the chairmanship of the Kresge Co. board to his 66-year-old son, Stanley. Stanley was already set to retire, though, and soon departed. Nonfamily executives took over and grew Kmart rapidly; it accounted for 95 percent of Kresge Co. sales by 1977, when the company name was changed to Kmart Corp.

Today, there are more than 2,100 Kmart stores in North America and overseas, with 300,000 employees. Sales are more than $34 billion a year. Net income has fluctuated, however, and Kmart has reported a loss for two of the last six years. Current chairman and CEO Floyd Hall is in a vicious fight for the life of Kmart with other national chains.

Unfortunately for his heirs, Kresge did not see fit to pass control of his company until he was 99. Apparently, he had little trust in his son—or anyone for that matter—to run his beloved company. Stanley was clearly demoralized, too old to muster the drive to suddenly lead a national company. No grandchildren had been trained either. Family influence has since diminished dramatically. The family holds no executive positions and has limited representation on the board. Several massive public stock offerings have diluted its ownership significantly, too.

Obviously for S.S., who often worked 20 hour days, business came first and family second. He summed up his hard working business philosophy best in his later years, when asked to give a speech to a crowd assembled for the dedication of the Kresge Hall at Harvard Business School. Kresge rose and said, “I never made a dime talking,” and sat back down.

 

Mike Henning is founder of the Henning Family Business Center, an educational and consulting firm in Effingham, IL, and author of two books on family business.