Fechheimer Brothers
Company Overview
Fechheimer Brothers Company is a uniform manufacturer and distributor specializing in uniforms for law enforcement, fire departments, the military, and postal services. Founded in Cincinnati in 1842, Fechheimer is one of the oldest companies in Berkshire's portfolio. Berkshire acquired Fechheimer through a negotiated transaction with the Heldman family in 1986 for approximately $55 million.
Investment Story
1986: Acquisition from the Heldman family. The Heldman family had operated Fechheimer for generations, building the dominant supplier of law enforcement and fire department uniforms. The family approached Berkshire directly — having read about Berkshire's acquisition philosophy — rather than conducting a formal auction.
The uniform market. Law enforcement and fire departments purchase uniforms through established procurement relationships with suppliers who understand specific requirements. Switching suppliers involves testing new fabrics, resizing for the entire force, and updating procurement systems — a process more expensive than the savings from switching, creating supply relationships that persist for decades.
Growth under Berkshire. Fechheimer has continued operating essentially autonomously — management who chose to remain stayed in place. The business grows modestly in line with public safety employment trends, generating consistent free cash flow with minimal capital requirements.
Buffett's Own Words
That does not mean we expect all of our holdings to behave uniformly; some will disappoint us, others will deliver pleasant surprises. To date our experience has been better than we originally anticipated, In aggregate, we have received far more than a dollar of market value gain for every dollar of earnings retained. The following table shows our 1983 yearend net holdings in marketable equities. All numbers represent 100% of Berkshire’s holdings, and 80% of Wesco’s holdings. The portion attributable to min
Berkshire was tough work in 1986. We did make one business acquisition - The Fechheimer Bros. Company, which we will discuss in a later section. Fechheimer is a company with excellent economics, run by exactly the kind of people with whom we enjoy being associated. But it is relatively small, utilizing only about 2% of Berkshire’s net worth. Meanwhile, we had no new ideas in the marketable equities field, an area in which once, only a few years ago, we could readily employ large sums in outstanding business
Buffalo News, Fechheimer, Kirby, Nebraska Furniture Mart, Scott Fetzer Manufacturing Group, See's Candies, and World Book. In 1987, these seven business units had combined operating earnings before interest and taxes of $180 million. By itself, this figure says nothing about economic performance. To evaluate that, we must know how much total capital - debt and equity - was needed to produce these earnings. Debt plays an insignificant role at our seven units: Their net interest expense in 1987 was only $2 mil
Last year we dubbed these operations the Sainted Seven: Buffalo News, Fechheimer, Kirby, Nebraska Furniture Mart, Scott Fetzer Manufacturing Group, See’s, and World Book. In 1988 the Saints came marching in. You can see just how extraordinary their returns on capital were by examining the historical-cost financial statements on page 45, which combine the figures of the Sainted Seven with those of several smaller units. With no benefit from financial leverage, this group earned about 67% on average equity capita
Buffalo News .............. 46,047 42,429 27,771 25,462 Fechheimer ................ 12,621 14,152 6,789 7,720 Kirby ..................... 26,114 26,891 16,803 17,842 Nebraska Furniture Mart ... 17,070 18,439 8,441 9,099 Scott Fetzer Manufacturing Group .... 33,165 28,542 19,996 17,640 See's Candies ............. 34,235 32,473 20,626 19,671 Wesco - other than Insurance 13,008 16,133
Investment Lessons
Government procurement creates genuinely captive customer relationships. A police department's uniform supplier is rarely changed: administrative costs of requalification far exceed potential price savings. This procurement inertia compounds into decade-long relationships that make the business's revenue extraordinarily predictable.
Small, steady businesses compound into substantial aggregate earnings. Fechheimer is the opposite of a headline acquisition — modest revenues, steady growth, no strategic drama. But dozens of such businesses, each generating reliable returns on minimal capital, compound into Berkshire's extraordinary aggregate earnings base. The collection of unglamorous excellence is itself a powerful diversification strategy.