Everybody Loves a Bargain

When Eugene Ferkauf decided twelve years ago to set up a small discount luggage shop in Manhattan, he tacked the initials of his first name and that of a friend onto the name of the famed Canadian subchaser known as the corvette. The result (after a slight change to avoid duplication with another firm): the E.J. Korvette Co. Ever since then, Korvette has been steaming ahead with the seaworthy speed and audacity of its namesake. In ten years its sales have rocketed from $2,000,000 to a projected $175 million in 1961, encompassing everything from tacks to TV sets. Today, it is the nation's biggest and fastest growing discount chain, with 14 stores in New York, Connecticut, New Jersey and Pennsylvania, and several others planned. Last week Korvette announced record sales and earnings for the fiscal first half; on a sales jump from $82.4 million to $97 million-- or 18% above the same period last year-the firm raised its earnings from $1.54 to $1.78 a share.

Piped Music & Profits. Korvette has grown so prosperous on the discount boom (the 3,000 U.S. discount stores now account for one-third of all department store sales) that it has taken to calling itself a "promotional department store." In contrast to its overcrowded beginnings, the firm now boasts huge, air-conditioned stores with pastel decorations, piped music, escalators-and almost every product that can be found in an ordinary department store. Unlike most other discounters, Korvette offers a charge plan through a bank, is planning to set up its own charge and credit department. But the basic attraction for buyers has not changed: prices that are 20 to 40% lower than most stores, thanks to a Korvette policy of taking a markup that is only half as big. Says Eugene Ferkauf. now 40: "Everybody loves a bargain."

Ferkauf, who was born in Manhattan, and never got beyond high school, learned his bargain lessons early. He was running one of his father's two luggage stores when he was 16, after a World War II hitch in the Army returned to drum up trade by passing out discount cards to office workers. Then he set up his own luggage store in a Manhattan loft with $4,000 in savings. Korvette soon branched into appliances and other household goods that war-starved consumers were clamoring for, ran up $700,000 in sales the first year. Despite more than 85 legal cases filed against it for price cutting, the firm moved to better quarters, hired more salesmen to sell a wider variety of goods, by 1951 had sales of $2,779,000.

Into the Suburbs. The discount house had always been considered a city operation: it offered its bargains on a take-it-or-leave-it basis to those who did not mind a grubby atmosphere, harried, impatient and often uninformed clerks, and a great deal of jostling. Korvette was among the first to move to the suburbs, where the firm has enjoyed its biggest growth. Though it still has five bustling New York City stores, it is concentrating on suburbia, plans to open four new sub urban stores this year. It has worked hard to create the "department store image" by adding clothing and drugs to its line, now puts whole supermarkets beside its suburban stores as well. Last year Korvette's clothing division sales hit $51 mil lion, its drug division sales $8,000,000, and even its groceries netted it 1%, the same return made by the A. & P. Korvette has many of its drugs and clothing made to its own specifications, sometimes offers loss leaders below cost.

To make both bargains and profits possible, Korvette minds the pennies.

Each of its employees sells $40,000 in merchandise a year, more than twice the traditional store's average -and are all too correctly known as "order takers." Korvette's operating expenses are kept to about half those of traditional stores, and its inventory turns over about twice as fast. Its sales per sq. ft. of selling space are $250 v. $100 for a regular store. It leases all its buildings, does practically all of its financing with its own earnings. Wall Street has taken note of Korvette; its stock on the Big Board has risen from 18 to 47 1/4 in eight months.

100 Stores a Year? A big part of Korvette's success is Gene Ferkauf him self, who runs Korvette by intuition rather than by formal business training, and runs it hard. He has no desk or secretary, has never dictated a letter, spends most of his time roaming through Korvette stores to see that the atmosphere-and the price-is what he thinks it should be. After twelve-hour days, he is in no mood for night life, prefers to watch TV with his wife and children or to walk his German shepherd and collie.

Ferkauf wants to expand Korvette across the nation, is already thinking of opening stores in Texas or California. "I'd like to open 100 stores a year," he says. "I think it's possible." Last week Korvette bought 18% of the stock of Alexander's Department Stores, a chain of New York stores with a low markup, in the hope of bringing off an eventual merger. But Ferkauf feels that the discount house has its limits, wants to reach the huge and highly profitable market composed of people who do not shop in discount houses. He expects to make his nationwide Korvettes nearer to the conventional department store. Unlike the Eastern stores, they would carry regularly priced quality goods with a regular markup. The difference is that Ferkauf would use the profits from famous-name items to spend heavily on promotion, would place tempting discount items throughout the store as further lures--as many department stores already do to meet the discounters' threat.

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