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Levitz Boys Made Shoppers Sit Up by Alpha Team

If there's one thing we've learned from Paris Hilton, it's this: A great business leader who wants his descendants to follow in his footsteps can't bank on genes.

It takes hard work.

The Levitz furniture family was never afraid of hard work. The first Levitzes who migrated from Russia to Pennsylvania laid the foundations of a great furniture business.

Then came the next generation — Leon Levitz (born in 1915) and his brother Ralph (1912-95) — and they turned the firm into an empire.

The first store's founder, Richard Levitz, set the family's tone. Richard, known universally as R.B., was an orphan by age 9 and out of school after the fifth grade, and so had to work for his half-brother Louis' general store when he was only 14.

Yet he was already shrewd enough to start letting some of his wages accumulate. In 1910, when he'd built up enough, he asked for his back pay in merchandise and started up his own business. Soon, R.B.'s younger brother was working for him.

In 1911 he married and went on to have seven children. His store, which branched into furniture in the 1920s, drew $1 million a year — quite a take for a town the size of Lebanon, Pa., back then.

R.B. always believed that his children should follow his example and learn to run their own companies at a young age. So in 1936, shortly after they finished college, he loaned his oldest sons Leon and Ralph $20,000 to start up a branch store in Pottstown, 50 miles to the east.

These little Pennsylvania Dutch hamlets may not seem like great venues for preparation in the world of big business. Yet Leon found Pottstown to be highly educational.

"Working in a small town trains you to deal with customers very well," Leon told Wight Martindale, who wrote "We Do It Every Day: The Story Behind the Success of Levitz Furniture." "We had to get the same family again and again and get all their friends, too. Customer relations become a fine art in a small community."

The art proved its value on a much bigger scale. Customer service brought the Levitz company the concept that made it a national brand: the warehouse showroom.

Like many great business concepts, at first the warehouse showroom was improvised under pressure. Sam Levitz, a younger brother, moved to Tucson, Ariz., for health reasons, and the Levitzes took advantage of his move to open up a Western branch store in 1953.

Trouble followed.

Leon knew they didn't know anything about selling in a big city. Back home, the Levitzes won customer loyalty partly through generous financing arrangements. The more mobile and anonymous customers in Tucson saw this as a free lunch.

"Exactly 90 days after we opened, the you-know-what hit the fan," Leon told Martindale. "Total delinquency was close to 50%, and we, the partners, were liable."

Ralph went out to Tucson to help, and the brothers managed to fend off bankruptcy by changing their financing practices. But they still needed a big chunk of cash — fast.

"We didn't need any more headaches," Leon said. "So we said the customer would have to manage his own delivery, or we'd charge extra for it. We'd guarantee the merchandise against concealed damage, but we wouldn't send a service man out, and we wanted cash or contract."

The sale was a huge hit. Within four months, the Tucson store held two more and repaid most of its investment. Since other companies held warehouse sales, that alone didn't set Levitz apart. What changed everything was the Levitz attitude toward customer service.

"We saw you could treat people differently," Ralph said years later. "We saw the implication that no one else saw: If this is what people want, give it to them every day."

And so at the end of 1956, the Levitzes closed the Tucson showroom, drastically slashed the staff and moved all operations into the warehouse. For the first time, Tucson was turning a profit.

Over the next 15 years, the Levitz company expanded the idea of melding the warehouse and showroom. Sam's bargain-basement approach was successful, but Leon and Ralph felt it could use a little polishing.

"Sam could sell a chair for $150 that looked like it might be worth $200," said Ralph. "But we wanted it to look like it was worth $250."

Unlike the original Tucson sale, the Levitz company did not insist that customers haul their own stuff. Even so, 60% of sales were pickups.

The great efficiency of this concept let Levitz mark up its wholesale prices only half as much as other retailers, yet still turn a healthy profit. Nonetheless, the company needed more capital. In 1968 — more than a decade after Sam moved into his warehouse — Levitz had just six locations.

That was when the company turned to Wall Street.

It was the start of a beautiful relationship. Levitz shares priced at 15 on July 9, 1968, and within three years had soared to 159.

The Levitz brothers knew exactly what to do with the money: plow it into the business. By the end of 1971, the store count had expanded to 34.

Behind the numbers was the remarkable relationship of Leon and Ralph. According to family and co-workers, the brothers disagreed about many things, but they knew how to complement each other. Leon worked the western part of the country, Ralph the east. Leon knew appliances, Ralph furniture. Leon was the mover and shaker, Ralph the strategizer.

Leon had also inherited his father's toughness.

"Some people who work for me say I'm the meanest SOB in the world, but they never worked for Leon," said Leon's son Gary, who also went into the family business. "But I'll tell you, Leon is the best operator in the world. There's nothing he can't do better than most of us."

Success brought imitators. By the early '70s, rivals like Wickes and Unicapital had picked up the warehouse-showroom concept and nipped at Levitz's margins. In June 1972 the stock tanked, and Leon resigned as president. He remained on the executive committee, and Ralph stayed on as chairman.

The Levitz firm has been through many changes, but it owes its continued existence to the family's grit.

"Ralph and Leon never lost faith in their business and the way they were running it," wrote Martindale. "They continued to play for the long run; they put the big picture first."

BY AMY REEVES

This article was published on Tuesday 26 September, 2006.
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