Warren Buffett buys a second shoe manufacturer

Lowell Shoe Inc. was the second firm to go into Berkshire Hathaway’s Shoe Group. Warren Buffett was encouraged to buy it because he had witnessed the first shoe company bought, H. H. Brown, performing well in the the six months after purchase on July 1, 1991. Turnover was $104m and after-tax earnings $8.6m.   Then in its first full year under Berkshire’s ownership it earned $17.3m on revenue of $215m, a nice steady increase and a decent income on the $161m laid out.  Rooney and Buffett made their move to create The Shoe Group on the penultimate day of 1992 by acquiring Lowell Shoe Company for $46.2m.

This act is an example of a Berkshire Hathaway principle: subsidiaries are encouraged to make small “add-on” acquisitions if at least a dollar of value is created for each dollar spent. Such actions could be used to extend product offerings or distribution capabilities. “In this manner, we enlarge the domain of managers we already know to be outstanding – and that’s a low-risk and high-return proposition.” (1992 Letter)

Lowell, also located in New England but with one of its manufacturing plant in Puerto Rico, had a niche business supplying nurses (and some doctors) with shoes.  “Nurse Mates” are anti-slip, light-weight and comfortable with their broad heel. With a reputation established over many decades most US nurses today wear Nurse Mates or shoes from their rival Dansko. Turnover in 1992 was $90m. This was boosted by the sale of other kinds of women’s shoes, but the reputational competitive advantage lay with nurses’ shoes (Lowell was later renamed Söfft Shoe Company).

Buffett joked about a limitation on potential candidates for acquisition: “a trend has emerged that may make further acquisitions difficult.  The parent company made one purchase in 1991, buying H. H. Brown,

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