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This interview was conducted during Berkshire Hathaway's 2005 annual shareholders meeting. I thought that it might be of interest here.
Philip Durell: First, I'd like to ask you if you could tell us a little bit about your background before you came to Borsheim's.
Susan Jacques: I took a long, circuitous route to get to Omaha, Neb. I was born and raised in Zimbabwe (which was called Rhodesia up until 1980). My father was British, my mother was Australian. They met and married in Southern India in 1958 -- and the new country on the horizon was either Kenya or Rhodesia in the colonial world, and my father looked at both and decided Rhodesia was where he'd like to move his family to, and I was born the following year. And, born and raised there, my parents had a family business there, and I graduated high school. Not knowing what I wanted to do -- didn't particularly want to go on to college because I didn't know what I would study, and my mother insisted that I took a one-year secretarial course because "you could always be a secretary, you can always fall back on that." And, now that I actually type on a computer I'm delighted to have my typing skills, because I can do it a little faster. But I went through a year's secretarial course in Bristol where I got a job as junior secretary at Scottish Jewelers, which was supposed to be the largest jewelry company in Rhodesia at the time.
Philip Durell: That is pretty interesting because when I was six month's old, I went out to Kenya.
Susan Jacques: Oh did you?
Philip Durell: Nairobi. My father was stationed in Nairobi with the RAF for two years.
Susan Jacques: Oh fun.
Philip Durell: Apparently, I could speak Swahili before English! (Laughter.) There you go. So, how did you get connected with Borsheim's?
Susan Jacques: After working at Scottish Jewellers, the political situation in Rhodesia was tenuous at the time, in the late '70s, and so my father took his three daughters and put us in England for a year. And I worked for EMI Leisure Hotels, the hotel division of EMI Leisure, when I was in London. And then I came back to Rhodesia, and went back to Scottish Jewelers, and they had another secretarial position open, or they had a position in marketing open, and I said "Well, I'm young and foolish and I don't know the difference" so I joined the marketing department and soon realized this was fascinating, it had great potential, and now I knew what I actually probably wanted to study. And so my parents agreed to send me to the Gemological Institute of America, the GIA, in Santa Monica, Calif., to get the graduate gemology program. And there was a young gentleman who sat in front of me and his name was Alan Friedman, and his father, Ike Friedman, owned a jewelry store in Omaha, Neb., called Borsheim's. We became good friends, and then I worked in a grading laboratory doing -- it was right at the boom time of investment diamonds and gemstones, and I worked in a grading certification laboratory in Southern California for about a year and a half. And Alan and I kept in touch. They cut us back because of the "boom bust" -- not too dissimilar to the tech bust of 2000. You know, gold went to $800 an ounce, silver $60 an ounce, and they cut us back to a four-day week, and when they cut us back to a three-day week, I was debating how I was going to make my apartment rent payment and my car payment. And Alan and I were chatting one day and he said, "Why don't you come to Omaha?" And I said I had no desire to live in Omaha. (Laughter.) I am living in Southern California, and I am loving it but, you know, I will come for one year and get some retail experience. In August of 1982, I packed up my belongings in my car and drove to Omaha. And, I started working here, and here I am, 23 years later, still working here.
Philip Durell: From your one year sabbatical? (Laughter.) So, you mentioned Ike Friedman. I'd like you to tell me about the effect that he's had on your career, and your life.
Susan Jacques: Ike was a remarkable, remarkable genius in our industry. He was a great mentor to me for nine years until he passed away. I was very blessed to work really close beside him. Working with his customers, I became very intimately involved in a lot of the buying for the store. I had the gemological knowledge, as did his son Alan, and we were a great team. And Ike just had a tremendous way. I learned so much about how to treat your customer, how to take care of your customer, and, really, just the opportunity to showcase the finest and the best things to great people, commemorating significant occasions in their life.
Philip Durell: That's pretty good. You have just one store?
Susan Jacques: One single store in Omaha, Neb.
Philip Durell: So, just for the benefit of our members, I wonder if you could just tell us how Borsheim's manages to be so successful with just one store. How does it operate?
Susan Jacques: Ike was the impetus that really grew this business to being one of the largest independently owned jewelry stores in the United States. And he did that through his remarkable merchantability to buy extraordinarily well, tied again to that same period in our industry. Ike was very well known as being a single stop destination that you could go to with your line. A lot of our manufacturers over-produced at that time. Not too dissimilar again to the tech bubble that everyone thought was going to last a long time. People were taking out huge loans and buying inventory and making inventory, and then when it bust, it was a very different story. And a lot of those people needed to offload the inventory that they had. Instead of peddling it through fifty states, trying to sell it to people, they could come to Omaha, Neb., and Ike could buy everything they had at ten cents on the dollar or twenty cents on the dollar and write them a check. And what helped, really, was the Borsheim's price, which we, again, still continue to offer today. Tremendous value, exceptional service, and selection. The selection that we have in the store has not been beaten by any store in the country. And so, for us, the single store -- there is so much benefit to having everything under one roof -- all of our expertise, all of our inventory. And ours is a very portable product, thankfully, unlike, the Nebraska Furniture Mart company that builds a second store -- it is very difficult to pick up a sofa and get it to the next destination. We can put a small ring, or a bracelet, or a necklace in a box and through mail, get it anywhere in the country overnight, and it will be where it needs to be by the following morning. And so, the portability of our inventory results in the fact that we can very successfully just maintain our one location in Omaha.
Philip Durell: How do you measure success at Borsheim's?
Susan Jacques: Satisfied customers.
Philip Durell: That's the only measure?
Susan Jacques: There are many, many criteria, but the most important is creating advocates with our customers within their communities because that drives additional business to us continually. That helps us, regardless of how much marketing Avery (the marketing director) wants to do, putting fabulous ads in national magazines. You are fishing in a very big pond. It is much, much easier to have an extraordinarily happy customer, satisfied customer, refer friends and family, and continually through a grass roots effort, build the business and that's what we continually do.
Philip Durell: OK, that's good. So, what percentage of sales occur on the Berkshire Hathaway shareholders weekend?
Susan Jacques: The weekend is not finished, so I'm not quite sure yet, nor is the -- historically, 2003, it was 8% of our annual revenue in the four-day weekend. Last year, we had a 73% increase over 2003 in our weekend sale.
Philip Durell: Oh, my gosh.
Susan Jacques: It was 15% of our annual revenue last year. And this year, we are beating last year's numbers, and we are going to have a record weekend so we are very thrilled about it.
Philip Durell: OK, so how much interaction do you have with Warren (Buffett)?
Susan Jacques: You know, I am very blessed to be one of the managers that report to Warren, and I have to tell you, you couldn't have a more exceptional boss if you tried. I have the ability to visit with him as little or as much as I like. I get a one-page letter in January, giving me my goals for the year, and anytime I have a question -- anytime I may have a question about a customer, you know, "I'm a good friend of Warren's" -- we hear that a lot. I may have a business question. I may have a question about a capital acquisition. We are about to do a large remodel -- he is always readily available, as much as I need to speak with him.
Philip Durell: So, when he gives you the one page at the beginning of January, what are the major topics that he refers to?
Susan Jacques: There are usually only one, two, or three. There aren't very many. Inventory is always a goal for us because it is a capital investment that he has in this business. And so, inventory and managing the inventory very well is a goal that we usually always have, together with our operating expenses. The moat that we've built around this business, that keeps us extraordinarily competitive with most of our national competitors, is the fact that we run on an operating expense-to-sales ratio that is significantly below what our competitors are able to do. By having a single store in Omaha, Neb., where our operating expense-to-sales ratio is between 20% and 21% -- the national average is 45% to 55% -- we are starting to make money long before most of our competitors are able to make money. On a sustained, long-term basis, we can continue that, day in and day out. And that is a huge success.
Philip Durell: That is Warren's durable competitive advantage.
Susan Jacques: Absolutely. And we can continue that. If I build a 50,000-square-foot store on Madison Avenue, that equation is thrown out of the window. There is no way that we can do it.
Philip Durell: So, you told me a lot of the advantages of being so close to Kiewit Plaza. Tell me, are there any disadvantages?
Susan Jacques: I know of none. I have been extraordinarily blessed. I have been in this position for ten years, and I have to tell you, it is an extraordinary blessing and privilege to be able to say that you report to Warren Buffet, that you've got Warren Buffet as a boss. The integrity, the honesty, the trustworthiness of the man matches the ethics of this business so well, and you know, there is no negative that I can even think of, and truly there is no negative. It is the best that could be.
Philip Durell: That kind of picked out my next question.
Susan Jacques: Sorry! (Laughter.)
Philip Durell: I was going to ask you the guiding principles that you use in running your business, what Warren uses, what you use.
Susan Jacques: The same things. Truly, I mean, I am very, very blessed that I love to come to work every single morning. And being passionate about your business is what it's about. And I laughed when Warren said that yesterday at the annual meeting because that is truly what I think. I think very much like Warren with respect that if you are unhappy doing what you are doing, you've got one life to lead. Find what is it you do -- want to do -- in life, and go do it. I tell people that, you know, perhaps they are unhappy in what they are doing or within the organization, or feel that, you know, this isn't -- find what it is you want to do. You have one chance at this. And do you know what? There are great opportunities out there. This is obviously perhaps not the right fit. But being passionate, loving what you're doing -- I'm a people person. I love to make people happy. And, you know what, we get the privilege of being invited into the most significant occasions in our customers' life, whether they are celebrating the birth of a child, or whether they are about to get engaged, or they are celebrating 50 years of marriage together. We had a couple recently celebrating 63 years of marriage together. You know, those are huge, momentous times in people's lives, and they buy tokens to commemorate those. Those tokens are very often very durable heirlooms that they can then pass on to their family.
Philip Durell: You know, that is beautiful. So, do you have any -- what would you say is your biggest challenge at Borsheim's, for the future?
Susan Jacques: Our current biggest challenge is space, and we are in negotiations to do a remodel, taking additional square footage in the same center that we are currently at. The Internet is a challenge. There is no question that the Internet is a formidable competitor. But, just as I relayed to you the importance of the emotion of that purchase, much of that can't be translated, and the Internet is trying to commoditize a very emotional pattern of purchase, and there are some that will transfer over and be able to make that -- to a tremendous amount of the consumers, they want to be able to touch it, see it, and buy into that emotion as they are making the purchase.
Philip Durell: Do you use the Internet as a distribution channel at all?
Susan Jacques: We do. We have an e-commerce division that is successful. It is huge for our Bridal Registry division -- our table top division, we do sell jewelry on it. We utilize the site also for our diamonds. We have some of our loose diamond inventory registered on there. And we use that as a guide for consumers, locally primarily. Not necessarily as a national. But for customers that happen to be intimidated when they walk into our store -- having a security officer with a gun on his hip greeting you at the front door is not exactly the same as having the Wal-Mart greeter, a 75-year-old retired man, who says "Hi, my name is Charlie." (Laughter.) And it is a double-edged sword, because it is vitally important that our customers are very safe when they are in our organization. And it is also vitally important that our assets are secure. With our national presence, that's something that we always keep in mind. But a lot of that tends to translate to, you know, you read about celebrities buying their purchases here. Confidentiality is an extraordinarily big part of our business and so we do not discuss who buys what. If the customer once says something, and it is picked up in print in some way, you know, that is how people find out. That celebrity standard, the big names, Warren Buffett owns the store, sometimes translates through to an intimidation where people feel they couldn't afford to buy what Borsheim's has to offer.
Philip Durell: Actually that leads right into my next question because I live in Vancouver, Canada. You know, in a couple of years it is my 10th wedding anniversary, and I might be intimidated to say to my wife "Come into Borsheim's," but if you have a catalogue on the Internet giving some idea of what she might be able to get, or what I might be able to afford, then, she would be less intimidated. (Laughter.)
Susan Jacques: Absolutely. It is a barrier breaker for us and that's really a lot of what it is about, because we know that within our marketplace, we are extraordinarily competitively priced. And they can shop the stores in which they do have a comfort level. If they walk into a large mall, and there are eight jewelry stores, and they are all on center court, and four on each corner, because of the way that those are designed, they are designed to be very open and welcoming. They have less of an intimidation. Here, they have to go through a fairly upscale mall, they've got to walk past a security officer. And so, when they come in the door there, they can get a general idea without feeling too intimidated. They are walking into a very massive "wow" place when they walk into the store. This jewelry store is like no other jewelry store in the United States. And there is an intimidation factor; we understand that. And we work very hard to counteract that as often as we possibly can, but our physical catalogue that we put out every year is a great way to do that. We try to make sure that we represent that we are not a high-end store, and we're not a medium-end store, and we're not a low-end store. We cater to customers. We want our customers who walk in the store to become advocates for us in the local community, to think of us for every gift they ever want to buy. If it is a $20 wedding gift they want to buy, to a wedding where they don't even know the bride and groom, but "boy, I got invited anyway," they can send that gift and they know that they can get it from us. If they want to spend $3,000 on a diamond anniversary gift, they know they can buy it here. We don't ever want to send them anywhere else to purchase a gift. And so the philosophy we have is with our broad selection. It's broad in all categories. It's broad in inexpensive, moderately priced, and high-end purchases.
Philip Durell: Yes, that did surprise me -- what I could get in the crush on Friday evening (during the cocktail party at Borsheim's for Berkshire shareholders). You know, I looked at some of the prices, and I thought there was some very reasonably priced stuff if you just wanted to get a little trinket to take home, because you've been away or something.
Susan Jacques: The thing that we work very, very hard on is -- thanks to the Berkshire account that we have, we are extraordinarily cash-rich. So that when we go to market, when we work with our vendors, we do everything in our power to own our inventory at the very best price we can own it at. And so, consequently, we will prepay orders if we have to. I mean, they can work with our money for eight weeks if they need to. There are very few people in the jewelry industry that do that. Most people try to draw out their payments as long as they can. So our vendors, if we prepay an entire order, we're not paying for that cash. It is generating very little return, currently, at cash.
Philip Durell: Exactly, 1%.
Susan Jacques: So, if we can "lend" them that money up ahead of time, to get them to produce our order faster, at a better price, we own our inventory better. And again, coupled with our operating expense ratio, we are able to sell at even better prices. And so the Borsheim's price is a very big part of our success.
Philip Durell: It's quite an old-fashioned system, paying up front?
Susan Jacques: It's very old-fashioned. People look at me -- my friends in the industry -- and think I am out of my mind. But it's a formula that has worked incredibly well for us.
Philip Durell: Well, I was going to ask you. Talking about friends in the industry, is there any synergy, or any competition either way, with (Helzberg Diamonds and Ben Bridge Jeweler), the other Berkshire-owned jewelers.
Susan Jacques: There is great friendship. There is competition between Helzbergs and us because we are in the same market. There are four stores in our market. Ben Bridges is not in our market. But I am very close friends with the CEOs of both those companies and a lot of our staff have interactions. Avery has interaction with the marketing directors, and CFOs have interactions. We took a road trip down -- a couple of years ago now -- down to Helzbergs and spent an entire day. Our entire executive management team went down and spent an entire day immersed with them to see how their operation works. And they'll come back and do it vice versa -- and if I've got issues, concerns, industry concerns. A lot of them I know, also, because I serve on a number of industry boards, and they serve on the same boards. But ours is a competitive industry, but we are also very, very friendly and like to help one another. There aren't too many people that I truly deem as my competitor. Sure, we go to head to head on a sale occasionally. But a lot of these people, we have independent jewelers that come in frequently. We have a huge independent jeweler coming next Friday to tour our operation and spend the day, meeting my folks and visiting. If they can learn something from our operation, I don't feel threatened. I don't feel that somebody is going to take the exact same -- people have tried the "super store" environment and that's the way it is going. There is great consolidation. I have friends that used to have five stores that are currently going to one big central store, that are liking the idea, because I believe that it is a very successful -- it is a very simple model -- but I don't know that you need to have -- sometimes your fragmentation is the cause of your demise.
Philip Durell: What are your other distribution channels for your products? You've got your own store, you've got the Internet, and you've got your catalogue?
Susan Jacques: Telephone sales.
Philip Durell: Telephone sales?
Susan Jacques: We do a phenomenal amount of business by email and telephone. The technology that we now can deal with has really simplified our business tremendously. If you are recommended to me by a very good customer, and they assure me that you're a reliable client for me to have, we will send inventory to people in their homes, or in their offices, for them to look at. You call me because you have your 10th wedding anniversary and you say, "I really don't know what she likes. I've got an idea -- I think it's this." What we used to do, we would put six pieces in a box and would ship it to you and you take a look at them, you choose one, hopefully you'd show your partner one, and he'd buy one as well, and you'd ship four back to us. And we do a tremendous amount of business that way. The Internet has assisted in that we no longer have to ship out as much inventory because we can email pictures back and forth. We can give them a good idea as to what it is they are looking at. They can narrow their selection. We're happy to then send the selection out, but we no longer have to send the extreme selection that we used to send. Somebody calls; we used to send 12 diamond necklaces because we didn't know what they wanted to look at. Now we can say, "Focus it. Tell me your top three candidates." And we'll ship those out. We do a lot of that. It's not something we promote heavily for security reasons. You know, we definitely qualify the customers before we start sending blank packages out to people that just happen to call up and say that they're Warren's best friend.
Philip Durell: Well, I'm not Warren's best friend. (Laughter.) I think I should end there and say thank you very, very much for your time.
Susan Jacques: My pleasure.
Philip Durell: It's probably your busiest weekend of the year, apart from year-end.
Susan Jacques: But you know, it's quite all right. It's Christmas in four days (Laughter), is what it is -- a concentrated Christmas in May. And you know what? It's fabulous. We love the opportunity to show people our store -- to all of the shareholders -- and it's a great way for us again to meet new people from all around the world and all around the United States and for them to go back, again, advocates for their communities. And hopefully encourage them to buy from us.
Philip Durell: Well, you have one convert, anyway.
Susan Jacques: (Lots of laughter.) Well, thank you. I appreciate it. My pleasure. Delighted to meet you, too. Have a wonderful, wonderful weekend.
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