Hands-on managers propel Pep Boy's success

Discount Store News, May 9, 1988

Hands-On Managers Propel Pep Boys' Success

PHILADELPHIA--A corporate philosophy that recognizes and rewards the achievements of store managers is one of the key ingredients that makes Pep Boys--Manny, Moe & Jack one of the fastest growing specialty automotive parts chains in the nation.

Its earnings grew 22 percent last year on a sales gain of 14 percent. In 1987, Pep Boys earned a record $34.3 million on revenues of $553.8 million. On average, each store takes in $2.8 million annually.

Its net profit margin of 6 percent should result in a net of $44 million in 1988 on sales in excess of $715 million. In comparison, St. Louis-based Western Auto, saddled with debt from a leveraged buyout, reported earnings of $10.3 million in 1987 on sales of $930.8 million. In agreeing to acquire Western Auto, Sears, Roebuck & Co., Chicago, will assume $50 million of that debt and pay $250 million in cash.

The care and feeding of store managers is a key element of Pep Boys' success, indicated Walter Arader, a board member and former secretary of commerce for the Commonwealth of Pennsylvania.

"Upper management takes a real and sincere interest in the advancement of store managers," said Arader, who also served in the past as a commissioner of the Pennsylvania Securities Commission.

Under a corporate philosophy of expansion, assistant store managers, as well as store managers, enjoy real advancement opportunities, he said.

A "very generous" policy of offering stock options as far down as assistant managers prompts store level managers to "act as owners," Arader said, even though tax reform has removed some advantage of options.

For compensating store management, Pep Boys relies mainly on salaries, although it does offer some bonus incentive, he said.

"We're big on salaries. We don't lose good people."

Pep Boys operates under "a hands on" style of management, Arader said, adding that "top management is present at every store opening," and makes unannounced, drop-in visits.

At least once every year, top management goes off for a four- to five-day conference away from headquarters, said another board member, Edward Rosen.

At the conference the management "cabinet" that includes the president, chief financial officer and chief purchasing officer have a chance to engage in long-range planning, set budget goals and consider which new markets to tackle, Rosen said.

Both the chief executive officer and chairman, Benjamin Strauss, and the president, Mitchell G. Leibovitz, came up from the financial side of the business, said Rosen, operator of an appliance distributorship in Philadelphia, Raymond Rosen Co. He added that Pep Boys operates under "fairly tight cost controls."

A major factor in Pep Boys' continued success is the consolidation during the last two years of the West Coast and East Coast branches into a single company.

No longer do they operate as separate companies; the consolidation "brings the best of the East to the West and the West to the East," Rosen said.

Pep Boys offers an excellent training program for new personnel, including operational manuals for new store managers, he said.

The company uses a standard layout for each store and exerts "fairly tight control" over store managers, he said.

Pep Boys does well because it has developed a "specialized management structure," Rosen said.

"We stick to our knitting," he said. "We're working at what we've been doing for many years."

Pep Boys isn't part of a drug chain, Rosen said in an oblique reference to the money-losing Autoworks division of Perry Drugs, which Perry recently sold to Northern Automotive.

"We haven't franchised because franchisees can get lax, and we haven't diversified," he said. Automotives "is our business."

Strauss has put a whole lifetime of work into Pep Boys, and Leibovitz has dedicated 15 years, Rosen said.

"It's their life."