Warren Buffett on the Borsheim Business Model

Borsheim’s Fine Jewelry is an Omaha-based jewellery store that in 1989 was acquired by Warren Buffett’s Berkshire Hathaway.

From the 1988 Berkshire Hathaway Letter to Shareholders

You won’t be surprised to learn that this family brings to the jewelry business precisely the same approach that the Blumkins bring to the furniture business.  The cornerstone for both enterprises is Mrs. B’s creed: “Sell cheap and tell the truth.” Other fundamentals at both businesses are: (1) single store operations featuring huge inventories that provide customers with an enormous selection across all price ranges, (2) daily attention to detail by top management, (3) rapid turnover, (4) shrewd buying, and (5) incredibly low expenses.  The combination of the last three factors lets both stores offer everyday prices that no one in the country comes close to matching.

Take the breakfast cereal industry, whose return on invested capital is more than double that of the auto insurance industry (which is why companies like Kellogg and General Mills sell at five times book value and most large insurers sell close to book).  The cereal companies regularly impose price increases, few of them related to a significant jump in their costs.  Yet  not a peep is heard from consumers.  But when auto insurers raise prices by amounts that do not even match cost increases, customers are outraged.  If you want to be loved, it’s clearly better to sell high-priced corn flakes than low-priced auto insurance.

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