I’d never heard the name Max Kohl until a few hours ago. But I like the guy.
Kohl’s, the department store he founded, is looking to hire some 52,000 or so people in the coming months — good news for job-seekers across the country. The downside is that these are seasonal jobs for the holidays, but the more interesting fact is that the number of seasonal employees the store is seeking is up 10 percent over last year, a very good indicator of the firm’s expectations for the all-important holiday retailing season, and a good indicator in general.
But expanding operations is not easy. It requires, in a word, capital. Lots of it. Tons of it. Where did Kohl’s get the capital to do this? As it turns out, Mitt Romney had something to do with it.
Kohl’s is a typical American success story: Max Kohl, a Jew born in Poland in 1901, decides that there’s a richer future for him in the United States than in Poland. He ends up in Milwaukee. He starts a grocery store. He does this in 1929, incidentally — not the best year in American history to launch a new business. But he weathers the Depression, adds a store, then another, and by the 1960s he’s the owner of the state’s largest grocery-store chain, employing more than 5,000 people. He then does the same thing all over again with a chain of department stores. And if you’re building department stores, why not build the shopping centers they’re located in? So he does that, too, and pretty soon he has so much real estate that he has to start a real-estate company to keep up with things. On top of having more real estate than he can keep up with, he has more money than he can keep up with, so he gives wagon-trains of it to Brandeis University, the Jewish National Fund, and a bunch of local charities and religious groups. By the time of his death at 80 he had, like so many immigrants, made more of the opportunities afforded to Americans than most sons of the soil do. Well done, Max Kohl.
His businesses lived on. The department-store chain went through a couple of ownership changes, first being acquired by BATUS (a division of British American Tobacco), which ultimately decided that Kohl’s didn’t fit in well with the rest of its portfolio, namely such high-end properties as Saks Fifth Avenue. Kohl’s managers thought that they could do a better job with the chain than their smoky corporate overlords, and so they — irrationally optimistic capitalists that they were — bought the company, now comprising 40 stores, and took it private. The managers changed the merchandise mix and implemented forward-looking retail practices such as digital inventory management. Kohl’s wasn’t a market revolutionary like Walmart, but it was smart and careful, staking out turf between the low-end discounters and the higher-end department stores. Kohl’s prospered to such an extent that it caught the attention of a major investor, the Morgan Stanley Leveraged Equity Fund, which bought the company in 1988 with the intention of taking it public. Aggressive expansion ensued, and sales nearly trebled in the next four years, when the company went public. More innovative management practices were introduced, and an enormous distribution center was constructed. By 1999 there were 259 Kohl’s stores, and revenues were more than $4.5 billion. All this from Max Kohl’s little grocery and the villainous leveraged-buyout artists.
Around the turn of the century, Kohl’s ran into a little trouble, with declining sales and profit. Max Kohl said he attributed his success to selling good stuff and being nice to his customers. Kohl’s doesn’t put it that way, but that is essentially what they were failing to do at the time, making some bad decisions about inventory and allowing their stores, now in numbering in the hundreds, to fall into disarray. Investors were not happy. Heads rolled. Kohl’s recovered and began to grow again. Today it operates 1,100 stores and employs about 140,000 people, more than the population of Alexandria, Va., or Savannah, Ga. It makes a lot of money and wins praise for its environmental practices. That’s what happens when Max Kohl’s plan to run a better grocery store collides with the free market, including the critically important capital market.
The list of the firm’s top shareholders is heavy with big hitters: T. Rowe Price, State Street, Vanguard, BlackRock, Morgan. And a bit down the list you’ll find Brookside Capital, a hedge-fund operator and subsidiary of Romney’s firm, Bain Capital, which as of June had a position of about $100 million in Kohl’s, up significantly from the March reporting period. Because Kohl’s is now a $12 billion firm, Brookside is not a particularly big investor, and Kohl’s isn’t an especially big part of Brookside’s portfolio, which is heavy on Apple, DirecTV, Anheuser-Busch, El Paso Corp., Google, Kinder Morgan, and less cutting-edge firms, such as Macy’s.
Forget every stupid thing you’ve ever heard a politician say about “job creation” — this is what it really looks like. Entrepreneurs have ideas, management teams seek incremental improvements, and investors invest. Sometimes it works out, sometimes it doesn’t. There’s nothing dramatic about it, no great speeches, no grand plan to create 140,000 jobs at a single firm. It just happens. Sometimes a company makes a big bet on a promising firm, like Bain with Staples or Morgan with Kohl’s. Sometimes it is a quiet, conservative bet, like Brookside with Kohl’s. Both are necessary in the marketplace, and that is where the money comes from to make a couple of stores into a national retail powerhouse that sometimes needs an extra 52,000 employees to see it through the busy season. Maybe a part-time job at Kohl’s is not what you’re looking for, but those jobs at Apple and Kinder Morgan are a result of the same process. They sure as hell aren’t the result of politics. In the world of politics, one guy — the president — has an outsized role in everything. In the real world, lots of people play lots of small roles in making big things happen.
That Mitt Romney has allowed himself to be put on the defensive over his role in this business says something about him, but it says more about the American electorate. Barack Obama gives speeches about job creation. But this is how it’s done. Obama’s demonization of investors and Romney’s unwillingness to offer a compelling defense suggests that both sides are betting that the American people are too stupid to understand what makes their economy work.