Why Warren Buffett invested in Nebraska Furniture Mart (NFM). The Warren Buffett Nebraska Furniture Mart investment was made over a handshake.
Buffett acquired an 80% stake in Nebraska Furniture Mart for $55 million in 1983; the remaining 20% belonged to members of the Blumkin family, who were also responsible for managing the company even after the purchase. Buffett wants his managers to think like owners to ensure that business decisions are made in shareholders’ best interests – giving them actual ownership of the company will be the best way to make this happen.
There are many things that Buffett liked about Nebraska Furniture Mart, including the fact that it was home-grown, from his beloved Omaha:
First, it was run by Mrs. B or Rose Blumkin, an extremely hard-working woman who worked 7-days a week and had impeccable integrity. Her motto: ‘Sell cheap and tell the truth’. Although she never learned to read or write English, she was a hard negotiator and was able to build up an incredible business that had yearly sales of $500 per square foot when Buffett purchased the company. The Warren Buffett Nebraska Furniture Mart investment revealed that it is impossible to judge others simply by their educational backgrounds. Many sound investments can be made with people who have never had the chance to go to college.
Second, Nebraska Furniture Mart had exceptional operating efficiency. Nebraska Furniture Mart’s operating expenses as a percentage of sales was 16.5%. In contrast, one of the other industry players, Levitz, had operating expenses as a percentage of sales of 35.6%. By being the most efficient operator, Nebraska Furniture Mart has more clout in the market and with its suppliers, which in turn improves its long term profitability.