How Arthur Blank, Bernie Marcus co-founded Home Depot after being fired

Marcus, Bernard

How Arthur Blank, Bernie Marcus co-founded Home Depot after being fired

In a classic all–American rags–to–riches story, billionaire Bernard Marcus ascended from a childhood in the tenements of Newark to the co–founding of the world's largest home improvement retailer, The Home Depot, Inc.

, making him one of the richest men in America.

Equally impressive is the fact that success has not changed the friendly, sincere, and popular “Bernie,” who still gives hugs to his achieving employees, and donates the bulk of his money to charity.

Personal Life

Marcus was born in 1929 in Newark, New Jersey, to Russian immigrant parents. After receiving a degree in pharmacy from Rutgers University in 1954, Marcus instead chose a career in the retail field.

After being summarily fired, along with another key executive, from Handy Dan Home Improvement Centers for experimenting with wholesale do–it–yourself merchandise, the two men formed The Home Depot. The easy–going Marcus is married with three children.

He enjoys golf, swimming, and the Atlanta Hawks professional basketball team. As far as do–it–yourself projects around the house go, Marcus told Nation's Business interviewers that he wouldn't do plumbing repairs even if he had the time.

He is co–author of the book Built from Scratch, which is about founding The Home Depot.

Marcus is the chairman of the Center for Disease Control Foundation and is on the board of directors of many organizations, including the New York Stock Exchange. He is active in several community organizations,including the Shepherd Spinal Center and the City of Hope cancer research center.

Marcus, with his wife, Billi, is the founder of the Marcus Foundation. The Foundation contributes to Jewish causes, medical and health care issues, free enterprise systems, and children's issues. In 2001, the Foundation announced a $4.

5-million contribution to establish the Marcus Chair in Vascular Medicine and the Marcus Vascular Research Fund for Emory University's School of Medicine.

Marcus also created the Marcus Developmental Resource Center, a support services resource for children with mental impairments; Marcus made a $45-million donation to the Center in 1998. In November 2001, he gave $200 million to build one of the world's largest aquariums in Atlanta, Georgia.

Marcus was named Most Respected CEO in 1990 by Georgia Trend magazine. He also has been honored with induction into the Horatio Alger Association of Distinguished Americans, and in 2000, was inducted into the Rutgers University Hall of Distinguished Alumni.

Career Details

Following graduation from college, Marcus began working at Vornado, a drugstore and cosmetics company. The retail experience appealed to him more than the pharmaceutical aspect of his job, and he instead chose tocontinue his career in retail.

Moving up through the ranks at Vornado, Marcus was vice president when he left the company in 1968. He moved because he was offered the job of president of Odell, Inc., which he accepted. In 1970, Marcus again moved to a position as vice president of a much larger company, Daylin, Inc.

Daylin owned a chain of local home improvement stores known as Handy Dan Home Improvement Centers, Inc.. Marcus found his mark.

By 1972, Marcus had moved through the ranks of retailer Handy Dan and struck up camaraderie with the vice president of finance, Arthur Blank.

The pair began experimenting in discounted merchandise within the Handy Dan chain.

When Marcus moved up to chairman of the company, he and Blank developed a plan to sell discounted goods in a “do–it–yourself” retail store. They began experimenting with the idea, with local success.

Meanwhile, venture capitalist Kenneth Langone had heard from a friend that Marcus found success with his new marketing strategy at Handy Dan. Langone arranged to meet Marcus. He saw a man with an insatiable drive to make things better, even when things were good. As he told Forbes magazine interviewers, “He [Marcus] was—and still is—a warrior.”

Langone began buying Handy Dan stock and visiting some of the 60 area stores. He noticed that all the employees knew Marcus as “Bernie.” Said Langone in the same interview, “When he put his arm around a clerk and said, 'How's your baby?' he really wanted to know how the baby was.

” So impressed was Langone that he and a group of Invemed clients bought up about 14 percent of Handy Dan shares. Then Langone began to put pressure on Sanford Sigoloff, head of Handy Dan's parent company, Daylin, Inc.

At the time, Daylin controlled approximately 84 percent of Handy Dan stock. Notwithstanding, Langone felt that Sigoloff was not giving Marcus the support he needed. So Langone “put Sigoloff on notice that I was going to hold him accountable, as majority stockholder, for my interest.

” Sigoloff offered to buy Langone's interest out. Langone held out, then sold.

In 1978, with Langone off his back, Sigoloff fired Marcus and Blank. It was the best thing that ever happened to either of them. As Marcus related in Forbes, “I remember calling him [Blank] on a Friday night. He said, 'You've just been hit in the [rear end] with a golden horseshoe. Let's go into business for ourselves.'” That is exactly what they did.

Marcus and Blank joined with a third fired executive, Pat Farah, and developed their vision for The Home Depot. Langone provided an initial investment of $100,000 working capital for them.

Unable to finance construction of a prototype store, the men bought two defunct Treasure Island Discount stores in Atlanta and set up shop as The Home Depot.

They stocked the shelves with 18,000 different items, priced them low, and hired knowledgeable staff.

On the day of their grand opening, June 22, 1979, Marcus and Blank came up with the idea to have their children hand out $1 bills at the store entrance as a thank you gift to shoppers. By evening, the kids were out in the parking lot, trying to find people and offer them $1 to come into the store. The second day was the first.

Marcus, Blank, and Farah met for lunch. As Marcus later recalled in an interview with Nation's Business, “We just sat there in stunned silence. We didn't even eat. It looked curtains for us.” Marcus continued, “My wife wouldn't let me shave for days. She didn't want me to have a razor in my hands.

However, a couple days later, according to Nation's Business, Marcus became hopeful when a satisfied customer returned with a bag of home–grown okra as her way of saying thank you for the good shopping experience she had at The Home Depot.

New Yorker Marcus didn't know what to make of the okra, but the gesture made him believe he was on the right track. Soon, word spread and the customers poured in—so much so that within twelve months, two more stores had opened.

The year after that, 1981, The Home Depot went public and issued its first stock.

Chronology: Bernard Marcus

1929: Born in New Jersey.

1954: Graduated from Rutgers University with a pharmacy major.

1954: Worked for Vornado, a drugstore and cosmetics company, after graduation from college.

1968: Left Vornado for presidency at Odell, Inc.

1970: Joined Daylin, parent company of Handy Dan.

1978: Fired, along with Arthur Blank, from Handy Dan.

1978: Partnered with Blank and Pat Farah to form The Home Depot.

1979: The first The Home Depot store opened in Atlanta.

1981: The Home Depot went public.

1999: Home Depot earned a place on the Dow Jones Industrial Average.

2001: Marcus pledged $200 million to build one of the world's largest aquariums in Atlanta, GA.

During the following 10 years, the company exploded with growth, and it had toppled the nation's leadinghome improvement chain, Lowes, as the country's biggest warehouse home center retailer. Marcus' and Blank's stock was then worth $780 million.

By 1987, The Home Depot had 75 stores and had earned $54 million on sales of $1.5 billion. By 1991, the company had 158 stores in 14 states, and more than 30,000 happy stock–holding employees.

Eight years later, in 1999, The Home Depot was added to the selective Dow Jones Industrial Average, when such respected firms as Sears, Chevron, and Goodyear were removed.

But co–founders Marcus and Blank never forgot the day they were terminated from Handy Dan. They had been running the most profitable home center store in the country at the time.

But then, unexpectedly, one day, they were fired without reason. As Marcus recalled in Nation's Business, “what we learned is this: You never turn your back. You always question success.

And that experience gave us one of the things that is critical to running the company today: humility.”

That humility translated into customer service for the new The Home Depot chain. Marcus and Blank often made time in their busy schedule to wear an orange apron and walk the floor in one of their stores, helping customers just any other employee.

Further, they always were open for suggestions, whether from customers or employees. These early practices have stayed with the company since the beginning. But, as a result of listening to customers, their stores have not remained the same.

The stores have nearly doubled in size and carry twice as many items as those first envisioned.

From the beginning, Marcus served as The Home Depot's chief executive officer (CEO), and Blank was its president (the third partner, Farah, has since retired). But they have always treated the company as though it was a large entrepreneurial interest involving all their employees.

In 1992, when interviewed by Nation's Business, Marcus stated, “Among our 30,000 employees, we probably have 10,000 people who are entrepreneurs. And we have an environment that allows the entrepreneur to function. That is very rare for a company our size.

” He cited an example of an employee who took it upon himself to learn sign language to better assist hearing–impaired or deaf customers. As a result, the number of deaf customers turned into a steady stream, and the employee began teaching sign language to other sales clerks.

All employees of the company are graduates of employee training at The Home Depot University.

Since going public, The Home Depot suffered the exposure that often attracts competitor copycats. But Marcus and Blank believed that their successful recipe involved “chemistry,” particularly between customers and employees.

And there was chemistry between Marcus and Blank as well. Blank is the more detailed and organized of the two; Marcus is the more gregarious, casual one.

His formula for success, as he told Forbes interviewers, is that “Every customer has to be treated your mother, your father, your sister or your brother.”

Social and Economic Impact

The Home Depot Inc. reported fiscal 2001 revenues of $45.7 billion, with a one–year's sales growth of 19 percent. That year, they employed 227,000. The chain had grown to 1,100 stores in 48 states and Canada, Puerto Rico, Argentina, and Chile.

In 2000, the company acquired plumbing distributor Apex Supply, which had operated 21 facilities in South Carolina, Georgia, and Tennessee. The company planned to open 600 stores by early 2002.

For six consecutive years, The Home Depot was ranked by Fortune magazine as America's Most Admired Specialty Retailer.

Marcus has been praised in many magazines for his social responsibility, citing him as one of the most generous philanthropists in the world. The Home Depot co–founder Arthur Blank spoke of his relationship with Marcus on the occasion of the Rutgers University Distinguished Alumni award in 2000.

Said Blank, “For more than 20 years, we have shared a labor of love at The Home Depot, and my admiration for Bernie has grown through the seasons. Bernie carries within him a sincere respect for people of all origins and situations, and his passion for life and compassion for others has inspired thousands, including me.

I am proud to call him my partner, my friend, my mentor, my brother.”

Sources of Information

Contact at: The Home Depot, Inc.2455 Paces Ferry Rd.Atlanta, GA 30339–4024Business Phone: (770) 433–8211



Home Depot, Inc

How Arthur Blank, Bernie Marcus co-founded Home Depot after being fired

245S Paces Ferry Road Atlanta, GA 30339-4024 (770)433-8211

The subtitle of their 1999 book, Built From Scratch, tells their story in a nutshell: “How a Couple of Regular Guys Grew the Home Depot from Nothing to $30 billion.” In this case, the “regular guys” are Bernie Marcus and Arthur Blank, longtime friends and founders of Home Depot, Inc.

Since they started the company more than twenty years ago, the two men have weathered downturns in the economy, lawsuits, competition, and other adversities to become the world's largest chain of home improvement stores.

Today, Home Depot has fourteen hundred stores, more than a quarter of a million employees, and sales of nearly $60 billion per year.

Thank Ming the Merciless

The Home Depot story started in the early 1970s when Marcus and Blank were executives at Handy Dan, a chain of home improvement stores owned by the now-defunct Daylin Corporation.

The owner of Daylin, Sandy Sigoloff, called himself Ming the Merciless, after a villain from the Flash Gordon movie serials of the 1930s. His management style was ruthless, reflecting his nickname, and he was proud of it. In 1978, Sigoloff fired Marcus and Blank.

As it turned out, being fired was one of the best things that ever happened to them.

Losing their jobs allowed the two friends to develop an idea Marcus had been thinking about for several years—opening a chain of hardware and home improvement superstores across the country un anything that existed at the time.

Marcus and Blank drew on the experiences of two other friends and retailers: Sam Walton, founder of Wal-Mart (see entry), and Sol Price, founder of the Price Club.

The pair also sought financial help from another friend who had been fired by Sigoloff, Texas billionaire H. Ross Perot (1930-).

When their deal with Perot fell through, Marcus and Blank got the $2 million they needed from another group of investors; they were given two years to get their business started. With money in hand, the pair was ready to go. They leased three vacant buildings from J.C. Penney in Atlanta, Georgia, deciding that city was the best place to launch their first stores.

They secured another loan of $3.5 million, which they used to purchase inventory. They also hired twenty employees to help run the management end of the business. On June 22, 1979, the first three Home Depot stores, staffed by two hundred workers, opened in Atlanta.

The company began with Marcus as chairman of the board of directors and chief executive office (CEO), and Blank as president.

Home Depot at a Glance

  • Employees: 251,488
  • CEO: Robert L Nardelli
  • Subsidiaries: EXPO Design Center; Maintenance Warehouse; Georgia Lighting; Apex Supply Company; Your “other” Warehouse; Home Depot Commercial Direct Division; Total HOME
  • Notable Stores: Home Depot; EXPO Design Center; Villager's Hardware; Del Norte
  • Major Competitors: Lowe's; Menard; TruServ

Although Home Depot had $7 million in sales its first year, it lost $2 million. In 1980, it opened a fourth store in Atlanta and added one hundred employees, which helped boost sales to $22 million that year. From there, the company grew rapidly, opening new stores, and posting increased sales and profits each year. By the end of 1981, Home Depot had eight stores, including its first in Florida. Marcus and Blank took the company's stock public, meaning shares of the company could be purchased by the public on the New York Stock Exchange. This raised just over $4 million. The following year, the stock split three times and the company started an employee stock-purchase plan. This allowed workers to have a percentage of their salary deducted from their paychecks and used to purchase Home Depot stock. In effect, the employees who bought the stock owned part of the company. As of 2002, employees owned about 25 percent of Home Depot stock. The year ended with the company operating ten stores with over one thousand employees. It posted sales of $118 million.

1979: Bernie Marcus and Arthur Blank open the first three Home Depot stores in Atlanta, Georgia. 1981: Home Depot offers its stock to the public; opens stores in Florida. 1983: Stores open in Arizona and Louisiana. 1985: Company posts sales of $700 million; opens stores in California. 1988: Home Depot has ninety-six stores at year's end. 1990: Annual sales reach $3.8 billion at 145 stores. 1991: Company opens first EXPO Design Center in San Diego, California. 1993: Home Depot expands into Pacific Northwest. 1994: Company opens stores in Canada; annual sales are $12.5 billion. 1997: Blank replaces Marcus as CEO. 1999: Built From Scratch by Marcus and Blank is published. 2001: Company acquires Total HOME, a four-store chain in Mexico; annual sales top $53 billion. 2002: Robert L Nardelli becomes CEO.

Bernie Marcus and Arthur Blank, founders of Home Depot.

Reproduced by permission of AP/Wide World Photos.

From 1982 to 1983, the company doubled in size. With openings in Arizona and Louisiana, Home Depot ended 1983 with nineteen stores, over two thousand employees, and $250 million in sales.

One of the reasons for the huge success of the company was its shrewd strategy of purchasing large quantities of an item at a very low price and then reselling the item at only a slight profit.

These “advertised specials” worked to bring large numbers of people into the stores to buy a specific product. While in the store, many customers then purchased other merchandise.

For example, in 1981 Blank found a supply of ceiling fans that he was able to get for $27 each. Although these fans would normally be marked up to retail for about $50, Blank priced them at $30. This means the company would make only a $2.00 profit per fan.

Such a low profit margin was relatively unheard of in hardware and home improvement stores at the time. But what the company may have lost in a low markup, it made up for in volume. Three days after the sale was advertised, the stores had sold forty thousand fans.

Company Values

From the start, Blank and Marcus felt that offering exceptional customer service was one of the keys to success.

“If I ever saw an associate [salesperson] point a customer towards what they needed three aisles over, I would threaten to bite their finger,” Marcus wrote in Built From Scratch.

“I would say, 'Don't ever let me see you point. You take the customer by the hand, and you bring them right where they need to be and you help them.'”

Marcus and Blank also established a set of core values for the Home Depot, which they believe should apply to any company. These included:

  • Doing whatever it takes to build customer loyalty.
  • Treating all employees with respect, including always paying more than the minimum wage.
  • Developing an entrepreneurial spirit that allows many decisions to be made at the store level. Marcus and Blank thought of the Home Depot's organizational structure as an inverted pyramid, with stores and customers at the top and senior management on the bottom.
  • Showing respect to all people, regardless of race, religion, gender, income, or education.
  • Giving back to the community, not just by donating money to charitable causes, but by encouraging employees to actively take part in such efforts by donating their time and experience.

Ross Perot (1930-) did not help H• Bernie Marcus and Arthur Blank launch Home Depot because of a quirky situation over the type of automobile Marcus drove.

When Perot found out Marcus drove a Cadillac, the billionaire told him that all his executives had to drive Chevrolets.

In their book, Built From Scratch, Marcus wrote of Perot, “If this guy is going to be bothered by what kind of car I'm driving, how much aggravation are we going to have when we have to make really big decisions?”

Marcus said other companies could easily copy this system, but that it would not work unless company management truly believed in the ideal underlying the values. He wrote in Built From Scratch, “These values are our company.

They are our belief system and we believe in them as much today as we did The 1980s, 1990s, and beginning of the twenty-first century saw a large increase in the number of people interested in do-it-yourself home improvement.

Reproduced by permission of AP/Wide World Photos.

when the first Home Depot stores opened in June 1979. Without them, we're no different than our competition.

Do-It-Yourself Philosophy

From 1984 through 1989, the company continued to steadily expand. By the end of 1989, Home Depot had 118 stores from coast to coast, 17,500 employees, and annual sales of $2.7 billion.

During 1987, sales increased by 45 percent. This came not only from opening new stores, but also from increasing sales at existing stores by 18 percent.

For most retail chains at the time, a 5 percent increase was considered good.

Much of this success is because Home Depot convinced people that they could do many home repairs and improvements themselves. According to a 1988 article in Fortune, “What sets Home Depot apart from mere discounters is the company's mission to make a Mr. or Ms. Fixit someone who thinks about calling the plumber to change the bath water.

” From almost the beginning, the stores offered a wide variety of free classes, ranging from how to replace a toilet to building a patio deck. This became particularly important whenever there was a slump in new home construction because of a poor economy.

Instead of buying a new house, many people took on remodeling projects and they turned to Home Depot for help and supplies.

The 1990s saw a ten-fold increase in annual company sales, going from $3.8 billion in 1990 to $38.4 billion in 1999. By the end of the decade, Home Depot had 930 stores and 201,000 employees. It also established two specialty stores: EXPO Design Center and Villager's Hardware.

The first EXPO Design Center opened in San Diego, California, in 1991. The stores are 150,000 square-feet, and feature eight interior design departments, including kitchen, bath, lighting, and carpeting. As of 2002, Home Depot had forty-eight EXPOs in fourteen states.

The first Villager's Hardware, the company's attempt to get into the $50 billion a year convenience hardware market, opened in 1999 in East Brunswick, New Jersey.

But after only three years and four stores, Home Depot scrapped the idea and converted the stores into Home Depots in 2002.

In 2001, Bernie Marcus and Arthur Blank showed that they truly believed in leading by example when they both agreed not to accept bonuses they were entitled to. The combined amount was $5 million. At the time, the company was going through budget cuts because of declining profits.

Just a few years earlier, however, Home Depot had a chink taken its corporate values armor. In 1997, the company settled four gender discrimination lawsuits, although it did not admit having done anything wrong. Home Depot agreed to pay a total of $104 million.

Of this, the company paid $65 million to thousands of female workers on the West Coast, $22.5 million in legal fees, and $17 million to overhaul its employment programs.

As part of the agreement, Home Depot also set up a procedure to help more women get sales and management jobs within the company.

In 2000, the company acquired Apex Supply Company, a wholesale distributor of plumbing, followed by the purchase of Your “other” Warehouse, a specialty plumbing-supply store chain, in 2001.

With an eye to the international market, Home Depot bought Total HOME, a four-store chain in Mexico, in 2001. In 2002, it purchased Del Norte, a four-store chain in Juarez, Mexico.

It planned to open two more Del Nortes in Mexico by the end of the year.

The sales associates at Home Depot stores are often able to teach customers how to use the tools and products they are buying.

Reproduced by permission of Getty Images.

As of June 2002, Home Depot had a total of 1,400 stores, including 83 in Canada, seven in Puerto Rico, and four in Mexico, and 251,488 employees. It posted $53.6 billion in sales in 2001.

The company leadership underwent a dramatic change in January 2002 when cofounder Blank resigned as CEO (he had taken over the position in 1997). He was replaced by president Robert L. Nardelli.

Marcus left the board of directors in May 2002, when he reached the company's mandatory retirement age of seventy-two.

Growth Scaled Back

With Nardelli at the helm, Home Depot has scaled back on it growth plans for the immediate future.

Marcus had projected that the company would add about three hundred to four hundred new stores a year; Nardelli cut that projected number to about two hundred a year through 2004.

He does, however, Home Depot's tall aisles help keep them well-stocked with in-demand items.

Reproduced by permission of Getty Images.

plan to expand into the service arena, adding such things as carpet installation, lawn care, and pest control.

In light of all the changes, Nardelli intends to address complaints that Home Depot has lost some of its commitment to customer service, including Marcus's original vow that when a customer asks where a product is, the employee will take the customer to where it is. “We've got to make our stores more shoppable, more navigable,” Nardelli said in a 2002 Money interview. “While we're No. 1 in home improvement, I want to make sure we're No. 1 in every segment of home improvement.”


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