Les Schwab: One of a kind
He's our Tire Dealer of the Year 2000. But Les Schwab could really qualify as the Tire Dealer of the Century. The scope and nature of his achievements are unprecedented in the history of the tire industry. His hard work, creative thinking and generosity are unmatched.
Starting as a penniless orphan on his own at age 15, he has not only built an independent tire dealer empire, but also given scores of honest, hard-working store managers the opportunity to become millionaires. And literally hundreds more Schwab people are well on their way to millionaire status.
Schwab was 33 when he opened his first tire store on Jan. 1, 1952. It was in a 1,400-square-foot shed without running water. From that inauspicious beginning Schwab set the stage for creation of a chain of 313 stores in all or parts of six states in the Northwest that will sell a billion dollars’ worth of tires this year. (Editor’s note: Les Schwab Tire Centers did, indeed, finish the year with more than $1 billion in sales.)
His profit-sharing plan has provided store managers the opportunity to earn average incomes well into six figures, and a number of those six-figure numbers start with a "2." What's more, Schwab profit-sharing has accumulated a retirement trust fund for employees of more than $332 million! This is in addition to the $60 million the dealership distributed in bonuses last year. And, oh yes, on top of everything else, every Schwab employee got a dividend check for $1,500 earlier this year.
The dealership has a self-insured medical benefits program dedicated to helping the families of employees with a need. It recently provided more than $150,000 for care of a newborn baby with problems. Such expenditures are not uncommon.
An open book
What's the secret to all this success? There is no secret! Les Schwab spelled out his business-building strategy in detail 14 years ago in his book, Pride in Performance -- Keep it Going. He wrote it mostly for his employees. But the book has since sold some 36,000 copies and is still available postage-paid for $12.50 from Les Schwab Tire Centers, PO Box 667, Prineville OR 97754.
Despite all this interest, no one else has made the Schwab system work -- at least not on a large scale. Some believe that's because nobody had the vision and confidence -- or is it courage? -- to duplicate Schwab's generosity.
His formula is simple. You lay out simple ground rules for running a tire store and you hire good people to carry them out. You get good people by giving them a share of the profits they help you earn, a share that now totals more than 51% before taxes.
You support the stores with a strong advertising program, with good products purchased at a price that ensures a fair profit, and you provide exceptional service that makes the purchase an outstanding value. You expect from these employees unlimited hustle and long hours of work, and you clearly explain requirements they need to meet that will enable them to qualify as, first, assistant store managers and, then, managers with virtually unlimited earning potential.
You expect them to hurry out to the parking lot to greet customers before they get out of their vehicles. You will not tolerate long hair, pierced lips or noses, grimy hands. You expect them to wear clean white shirts and blue trousers, to fix flats for free and provide any reasonable service or adjustment for customers.
And you back them up with creative ideas, a number of which have been proven successful decades ahead of their time.
High expectations. Handsome rewards. Most employees who stay with Schwab for a year remain with the dealership for life.
For many years top store managers were paid more than key executives at Schwab headquarters in Prineville, Ore. Schwab says that's only fair. They made the money. The executives spent it.
He believes providing opportunity is far better than giving handouts. People are the key to success, and over the years, Schwab has spent many hours coming up with ideas on how to reward employees fairly for their efforts.
He rejects the idea of putting any cap on earned income. People should be paid based on what they contribute, he says. The more they make, the more the company profits. But you must earn your keep.
Les Schwab, now, a few weeks shy of his 83rd birthday, comes to the office only a few hours a day. He's still involved in major decisions, but President Phil Wick runs operations on a day-to-day basis and is Schwab's heir-apparent. Recognizing his diminishing contribution to the business, Schwab has cut his own pay accordingly and now takes home a salary of $32,000 a year. Of course, he has other sources of income, but this decision makes his point.
A number of early decisions have benefited the dealership over the years. For example, some 35 years ago, he decided that outdoor signage at Les Schwab Tire Centers should promote only Les Schwab tires. Schwab wanted to promote that he would supply the tires that best filled customers' needs. Besides, promoting a specific brand name would limit his ability to switch brands.
One manufacturer found out how serious Schwab was about this decision. It insisted once too often that he put up its signs. He responded by dropping the brand entirely. At the time, Schwab was the manufacturer's largest dealer in North America.
So outdoor signs identify Schwab stores as "Les Schwab Tire Centers." And many Schwab customers buy Les Schwab tires with scarcely a look at the brand name on the sidewall.
Trust in Les
The trust and loyalty of Les Schwab customers is legendary. In Washington, Oregon, Idaho, eastern Montana and western Nevada, Schwab Tire Centers have more than a 50% share of the tire market. And in Northern California, market share is rapidly approaching that figure. This despite challenges from Discount Tire Centers of California, Big O Tires and other heavy hitters eager for a larger piece of the action.
There are Les Schwab Tire Centers in virtually every town of 2,500 or more in Oregon, Washington and Idaho, towns where a dissatisfied customer could spread his complaint to just about everyone in a matter of hours. But smaller towns are where Schwab Tire Centers got their start.
When Schwab decided to invade the big cities like Seattle and Portland, scoffers said the system would never work in a "sophisticated" market. They were wrong. In Portland today, Schwab's tire market share is 64%, probably 20 times that of the nearest competitor.
Another Les Schwab concept that was far ahead of its time was his "tire supermarket" idea. Long before people began discussing multi-brand strategy, Schwab was insisting his stores sell a variety of tire brands to satisfy every need. Today, Schwab stores are the largest marketer of Toyo tires in North America and are by far Toyo Tire (U.S.A.) Corp.'s largest customer there.
In addition to Toyo, Les Schwab Tire Centers offer Ohtsu, Multi-Mile, Hercules and Dean brand tires. To a lesser extent, they also sell large numbers of major brand tires made by Michelin North America Inc., Goodyear Tire & Rubber Co., and Bridgestone/Firestone Inc.
In the past Schwab was an outspoken critic of the way major tire manufacturers treated tire dealers, but he's mellowed some. "When you get to be our size," he smiles, "you make Christians out of all of them."
The Schwab chain is the fifth largest independent tire dealership in North America in number of outlets. All of the others -- except for Discount Tire Co. Inc. of Arizona -- were built through acquisitions of large established tire store chains.
Schwab Tire Store stores were acquired one or a few at a time or were started from scratch at promising locations. And certainly no other large tire store chain was born from such humble beginnings.
Only in America
If ever there was an "Only in America" story, it is Les Schwab's. He grew up poor in an Oregon mining camp and went to grade school in a boxcar with windows cut crookedly in its sides.
At 15, he was on his own, moving in with an older brother in an $8-a-month house in Bend, Ore., the town where Schwab attended high school. He talked the principal into letting him out of school part time to earn money delivering newspapers. For two months he peddled them on foot until he could earn enough money to buy a bike. Once, during hot weather, he collapsed from heat exhaustion on his route.
At 16, the Portland-based Oregon Journal put Schwab in charge of all its circulation in Bend. Concerned about young Les' welfare, the school principal called him in for a talk one day. He was shocked to find that by then, Schwab was earning $175 to $200 per month -- more than the principal's $150-a-month salary.
At 18, Les married his high school sweetheart, Dorothy Harlan. They are still in love after 64 years of marriage.
The Oregon Journal promoted Les to district circulation manager and moved the Schwabs to Salem. But he and Dorothy found themselves in debt. For 18 months they lived mostly in their car and in low-cost motels while they paid off their bills. Finally, Schwab was offered the chance to return to Bend as circulation manager of the Bend Bulletin. By then, he and Dorothy had a son, Harlan.
After Pearl Harbor, Les enlisted in the Air Cadets. During her husband's time in service, Dorothy worked as a maid for an officer's family in order to be near him, and Schwab baby-sat for officers to earn money. At one time during Les' service stint, Dorothy washed their clothes in an old-fashioned tub and wrung them out by hand.
Les was 28 when he got his discharge and returned to the newspaper circulation business. But he was itching to get into business for himself. So in 1952, he and Dorothy sold their home and Schwab borrowed $11,000 from a brother-in-law to buy an O.K. Rubber Welders franchise store located in a shed in the small city of Prineville, Ore.
He knew little about tires, but he knew how to hustle and make money. In the first year he increased sales of the former owner by four-and-a-half times -- to $150,000.
A year later, Les opened a second tire store in nearby Redmond. He shared profits of both stores with the man who ran the second outlet -- and has been sharing profits ever since.
Schwab soon opened stores in Bend and Madras, Ore., but O.K. Tire Welders saw this growth as a threat to its franchising operations. Though the company threatened to sue, Schwab dropped the franchise agreement and went out on his own, renaming the stores Les Schwab Tire Centers. And he refined his profit-sharing system with a formula that split proceeds in a manner determined by the size of the store.
Growth has been phenomenal. By 1986 sales at 170 Schwab stores had reached $180 million and Les Schwab had more than 2,000 employees. The dealership's profit-sharing trust was $26 million -- less than one-twelfth of its present value. By 1999 sales had exploded to $893 million, and there were 5,200 on the Schwab payroll.
When Schwab quit passenger tire retreading earlier this year, the company was able to absorb most workers affected. The dealership still retreads about 1,300 truck tires a day at four locations. Some 860 are produced daily in Prineville.
Two hundred eighty three of Schwab's 314 stores (there is also an outlet in Alaska) are company-owned. The remaining 80 are franchised to owners who are required to operate them exactly as Schwab does his own.
Growth continues. Schwab is currently expanding into the Sacramento, Calif., area. New tire centers average about 17,000 to 20,000 square feet and now cost about $2.5 million each to build. Equipment and inventory adds another $300,000 per store.
Schwab plans to open 15 to 20 stores per year in each of the next five years. The dealership is also pushing hard to increase its commercial tire sales in current locations; in the last year or so, the company has recruited 13 salesmen largely from competitors.
Expansion is necessary because the dealership wants to keep its commitment to the young people who qualify for assistant manager and manager posts. With the earnings opportunities the dealership provides, Schwab has no problem recruiting good people. In fact, a number of college graduates with MBA degrees have asked for entry-level jobs with Schwab in recent years. But it's ambition and leadership ability, not degrees, that impress Les Schwab.
"I don't subscribe to the theory that there are natural-born leaders," he told Northwest tire dealers in a speech years ago. "Leadership is learned.... The ability to lead and inspire others is acquired through experiences in one's everyday life. The ultimate nature and quality of that leadership reflect the character and personality of each individual.
"No one wants to follow a weak leader. You build and become strong leaders with open and honest communication."
The quiet life
Despite his fabulous success, Schwab and his wife live quietly and modestly on a ranch outside Prineville, where the tire empire was begun. They rise early and play a few hands of gin rummy and cribbage before Schwab goes to work. Dorothy is well ahead in the running score they've been keeping for years.
All Schwab stock is owned by Les and Dorothy and their children, and the dealership has no debt.
Needless to say, Les Schwab Tire Centers are an enormous force in Prineville, a town of about 5,000 hit hard by the closing of four of its five lumber mills.
Schwab Tire offices (including a meeting room that seats 1,000), its computer center that ties together the store network, its retreading plant and its Midway Equipment subsidiary occupy 1.6 million square feet of building space under roof in downtown Prineville. On a hill overlooking the city a 530,000-square-foot warehouse recently has been completed alongside a similar 450,000-square-foot facility that's only three years old. The new warehouse is equipped to handle tires taken from ships arriving in Portland harbor and taken to Prineville while still in their containers.
Altogether, Schwab buildings in Prineville occupy 2.7 million square feet of space. And still some of Schwab's tire inventory is stored outside.
Schwab doesn't talk much about charitable donations, but the emergency room wing of Prineville Memorial Hospital is named in his honor.
"I have a philosophy that I've used for years," Schwab told the tire dealers years ago. "In training store managers, I ask them to make the people under them successful.... If everyone who works for you is successful, you, too, will be successful."