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The Hitchhiking Conversation Behind the First Factory Outlet Store

The small town of Skowhegan, Maine has the proud distinction of being home to the longest running consecutively held state fair in the country. Every year since 1818 Mainers have taken the trip to the idyllic town in Skowhegan in the summer to enjoy the best of what their state had to offer. One of these pilgrims unwittingly changed the course of retail in America.

On his way to the fair a young man named Harold Alfond stopped to pick up a hitchhiker. The conversation no doubt turned to shoes, as Harold and his father both worked at a shoe factory. This is what likely led the hitchhiker to tell Harold about a shoe factory nearby that was for sale. Neither Harold nor the hitchhiker made it to the fair, instead they drove to the factory for a tour and Harold offered to buy it for $1,000.

Harold eventually turned that factory purchase into Dexter Shoe company, a mainstay in department stores like Sears, Penney, and Montgomery Ward that at its peak produced over 36,000 pairs of shoes daily and over 7.5 million annually. Much of the company’s success has been credited to Harold. He was a gifted athlete and was proud of the fact that he never attended college (although he has been given a half dozen or so honorary degrees throughout his life). Harold was a true example of northeastern, salt of the earth worth ethic. He was known for saying poignant affirmations like “keep it simple,” and “don’t tell me, show me.” 

Living in a place like rural Maine teaches the importance of not being wasteful, you have to find a way to get a use out of everything. Harold seemed to have this same attitude, rather than throwing away factory defects he decided to open up a shop next to his facility and sell them for a discount. The locals loved it, people flocked to the rustic outlet, never knowing if you were going to get that “perfectly good” pair that couldn’t be sold in stores. Eventually Harold started selling all of his shoes from his factory store and grew the retail footprint to a nationwide chain. These log cabin themed factory stores are credited as being the first “outlets,” what is now an almost $40 billion dollar industry.

Harold wanted to buy a shoe factory and start a business as a way to teach his sons life skills. All three of them eventually went on to run the company masterfully. It was this operational mastery that led to the eventual sale of the company to a then relatively unknown private equity investor called Berkshire Hathaway. In 1993 the company paid $443 million for the shoe company and the fund manager Warren Buffett described Dexter as one of the best run companies he had ever seen.

As good as the company was run, the decision to purchase it using Berkshire Hathaway Class A stock turned out to be one of Buffet’s admittedly worst decisions. Dexter Shoes eventually could not compete with foreign manufacturers and filed for bankruptcy. “What I had assessed as durable competitive advantage vanished within a few years,” Buffett wrote. “By using Berkshire stock, I compounded this error hugely.” At the time he wrote that the stock was worth ten times what it was when he used it to buy Dexter Shoes. Now the stock is worth 52 times what it was back then.

The transaction left Alfond and his family as the second largest shareholders of Berkshire Hathaway and thus incredibly wealthy. But Harold was never the type to call it quits, another one of his sayings was “I’ll retire until at least 10 years after I’m dead.” He went on to be a prolific philanthropist, there are hospitals, schools, and fields all over the county thanks to his giving. He was also a part owner of the Boston Red Socks and sponsored an Olympic sailing effort. 

Harold is a true example of the American dream personified, a man who’s agreeableness and worth ethic help build a great business. Even though Dexter Shoes might have come and gone, he will always be remembered for his contributions to the retail landscape and his commitment to giving back.

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