Korvette Stocks & Bonds - Ghosts of Wall Street


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    E.J. Korvette's founder, Eugene Ferkauf, began his discounting career in a 400-square-foot loft in midtown Manhattan, New York City. Inventory consisted of well-known brands of luggage, household appliances, and some jewelry. Discounts were one-third off regular prices.

    The company used several retailing innovations to propel its rapid growth. It used discounting, even though most discounting was known to be outlawed at the time. Korvette's instituted a membership program, a technique from consumers' cooperatives that had never been applied to a department store before. It also expanded into suburban locations at a time when most department stores were in central business districts.

    The record and audio division became an important part of the profits of Korvette's. In 1964, record sales reached $20,000,000 with David Rothfeld, merchandise manager for records, books and audio equipment described "as hard-hitting as the rest of the young driving force behind Korvette, right up to the company's new 37-year-old President, Jack Schwadron."

    Korvette's low-price, low-service model was in some ways similar to that of earlier five and dime retailers such as Woolworth's, McCrory's, and S.S. Kresge. But Korvette's was innovative in avoiding the anti-discounting provisions of the Robinson-Patman Act, and undercutting the suggested retail price on such expensive items as appliances and luxury pens.

    Korvette used "membership cards" (which it distributed in front of its stores and to surrounding offices) to style itself as a retail cooperative. In doing so, Korvette's was able to accept deep discounts from suppliers, something that competing department stores, such as Macy's and Gimbels, could not do. In fact, Macy's and others filed numerous "fair trade" lawsuits against Korvette's to stop it from undercutting their prices. None succeeded. The lawsuits helped Korvette's by calling attention to prices so low that competitors thought them illegal.

    Founder Eugene Ferkauf attributed his idea for membership cards and deep discounts to luggage wholesaler Chas. W. Wolf. But where Chas. W. Wolf made limited or even surreptitious use of these devices, Korvette's popularized them by instructing employees to distribute membership cards to any person entering any Korvette's.

    While the first E.J. Korvette store was located between Third and Lexington Avenues on 45th Street in Manhattan, its rapid growth in the 1950s was helped by its many stores in strip malls along arterial roads leading out of urban centers. This made E.J. Korvette ideally situated to meet the demands of the suburbs, which grew in the United States during that era.

    The first of the modern-type stores was opened in 1954, a 90,000-square-foot store in Carle Place on Long Island, which for the first time carried apparel. In 1956, Korvette's had six stores, including stores in Philadelphia and Harrisburg, Pennsylvania. By 1958, it had 12 stores. At its peak, it had 58 stores.

    A Korvette retail floor had cashiers located in individual departments, without a central checkout area. Large stores included a full supermarket, pharmacy, pet store, and tire center.

    Korvette's expanded into the Chicago, Northern Virginia, Detroit, and St. Louis areas in the 1960s. It successfully disputed the state and local Sunday closing ordinances and laws after a December 20, 1976 internal financial feasibility study created by this contributor, then an employee. Once those barriers were broken, many other retailers opened on Sunday.

    Korvette's decline and closure were variously attributed to inconsistent management, failure to focus on merchandise it knew (such as appliances), and ultimately attempting to compete directly with the department stores in areas such as fashion (when it had neither the expertise nor the right store atmosphere).

    In February 1961, Eugene Ferkauf brought Jack Schwadron in from Alexander's Department Stores as general merchandise manager of ready-to-wear. Schwadron was elected vice president and named president of Korvette's in 1964.

    Upon becoming President of Korvette, Schwadron is quoted saying "When we went first to Detroit, people thought you spelled our name with a "C" and we were something you drive. But after 90 days, our customers - and our competitors - knew exactly who we were" and "Our profitability has been hampered by the rapidity with which we have opened new stores...But we have finally been able to build the kind of base from which we can develop profitably into a nationwide company."

    Of note was E. J. Korvette's venture into the home entertainment business. The retailer established a rather out of context series of high-end audio salons within selected stores. Korvettes went so far as to market its own "XAM" brand of stereo receivers, amplifiers (some manufactured by Harman Kardon and Roland), television sets, and speakers. (XAM was rumored to be a tribute to the owner's deceased dog, Max.)

    In June 1965, Schwadron resigned over policy differences including opposing philosophies on merchandising, methods of advertising and public relations, among others.

    In late 1965, Korvette's formed its own Home Furnishings Division and ceased subcontracting furniture and carpet sales. A complex warehousing and distribution network was established. A central distribution warehouse was established in Danville, Virginia. This location received furniture, purchased by its buyers located in East Paterson, New Jersey, and in turn reshipped individual customer orders based on promised delivery dates. The sold merchandise was then shipped to delivery warehouses in East Paterson and Pennsauken, New Jersey, and Jessup, Maryland for final prep and delivery. The furniture distribution group was active until it closed at the end of 1977.

    By 1966, Korvette's had begun to decline and chose to merge with Spartan Industries, a soft goods retailer. Eugene Ferkauf was eased out of the company leadership, and Spartan managers attempted to revive the company.

    From 1971 to 1979, Korvette's was owned by Arlen Realty and Development Corporation, a land development company that used Korvette's 50 stores as a source of cash flow. During this period, New York area Korvette's stores advertised heavily on local television, using game show host Bill Cullen as a spokesman.

    In 1979, Korvette's was purchased by the Agache-Willot Group of France, which initially closed Korvette's least profitable stores and began selling off merchandise, fixtures, equipment, and real estate. In 1980, they declared bankruptcy and on December 24, 1980, they closed all of their remaining 17 stores.

    According to Korvette's founder, Eugene Ferkauf, who died on June 5, 2012, the name "E. J. Korvette" was coined as a combination of the initials of its founders (Eugene and Joe) and a re-spelling of the naval term corvette, a nimble sailing warship and later World War II sub-destroyer. The company's founding in 1948 (two years before the Korean War) disproves the urban legend that the name was an acronym for "Eight (or Eleven) Jewish Korean War Veterans". Founders Ferkauf and Zwillenberg, however, were Jewish.
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