by Jack Whitsett on Monday, Mar. 31, 2014 12:00 am
A version of this article originally appeared in Arkansas Business on April 30, 2001. It is being republished as part of Arkansas Business' 30th anniversary issue. You can access the digital edition for free here.
It’s easy to forget now, but Wal-Mart wasn’t always the dominant discount retailer in the world. As late as 1979, the Bentonville chain arguably wasn’t even the dominant Arkansas discounter.
That effectively changed the morning of Friday, Dec. 21, 1979.
At 9:35 a.m., a Cessna 421 twin-engine plane carrying three vice presidents of Sterling Stores Inc. slammed into a fog-covered hill 4 miles southwest of Locust Grove, near Batesville. Aboard were Ben Johns, operations manager for the company’s Magic Mart discount stores; David N. McClanahan, Magic Mart general merchandising manager; Frank A. Bauer, divisional merchandise manager for the discount stores; and company pilot Jack Starr. All four died in the fiery crash.
The crash made the front page of Saturday’s Arkansas Gazette. The article, written by John Brummett, now a leading political columnist, reported that the executives were conducting a holiday check of stores and planned to return to Little Rock Friday afternoon for the company’s annual Christmas party.
A manager in one of the stores expecting a visit from the executives called the company’s headquarters on Forbing Road to deliver the news, only to be met with disbelief.
“They said, ‘It can’t be,’” he later recalled. “’They were in the big plane.’”
Magic Mart was a relatively new, expanding division of Sterling, an Arkansas institution started in 1921. Within four years, the entire company was gone, absorbed in a 1983 merger with Duckwall-Alco, a Kansas retail chain.
Though the loss of the three executives and their combined 99 years of experience wasn’t the sole factor in Sterling’s demise, the venerable business never recovered.
For Irene Forbes, who worked in the company’s advertising department at Sterling headquarters on Forbing Road in Little Rock, the crash’s business impact didn’t take long to sink in.
“All of us could tell afterward that the business wouldn’t make it,” Forbes, now an art director for Arkansas Business Publishing Group, said recently.
Retail by Default
Sam Grundfest was handed the keys to the first Sterling store in 1921. For better or worse, the 2,500-SF variety store in El Dorado was defaulted to him as sole payment for a bad debt.
Grundfest, just out of the U.S. Army and new to the business world, had come to Arkansas from his native Mississippi to serve at Camp Pike in North Little Rock. He wasn’t quite sure what to do with the store.
So he called his 20-year-old brother, Dave.
The two began opening variety stores in various small Arkansas towns, and in 1927 the young company established a beachhead in Little Rock with a store at Capitol and Center streets. The store remains today, the only location left bearing the Sterling name, though it is owned by Duckwall-Alco.
The two eventually spread Sterling stores beyond Arkansas, and at its peak, the chain ran variety stores in Louisiana, Mississippi, Missouri, Texas and Tennessee.
Variety, or “five and dime,” stores represented something new on America’s retailing frontier, bringing together goods formerly sold in separate locations and selling them at competitive prices — the supercenters of their day.
Most Arkansas towns large enough to have a town square boasted a Sterling store on one corner, selling fabrics, thread, housewares, toys and clothes, and smelling of fresh popcorn.
As the business grew, so did the stature and influence of the brothers. Active in numerous civic organizations, the Grundfests took an interest in politics as well. Letters from both are preserved with the papers of Sen. J. William Fulbright in the Special Collections Division of the University of Arkansas Libraries in Fayetteville.
In a 1952 letter scribbled on four sheets of stationery from the Albert Pike Hotel in Little Rock, Sam Grundfest revealed plans to symbolically nominate Fulbright for president at the upcoming Democratic National Convention.
Dave Grundfest Sr. wrote Fulbright aide Lee Williams in September 1968 offering to make a short speech, possibly a television commercial, supporting Fulbright.
“Here is a one-minute presentation about which I spoke to you,” Grundfest wrote. The letter was typewritten on Grundfest’s personal stationery. “Hope that you understand I am not trying to get into the act. All I want to do is help Bill get re-elected.”
Driven by Dave Grundfest’s boundless enthusiasm — “Who — who but you is the most important person in the whole STERLING organization? Nobody ... not even me,” was a typical message employees would find with their paycheck — the chain eventually included about 100 variety stores.
Dave Grundfest Jr. joined the company as a vice president, introducing a second generation to the family business.
The fun lasted until the next new wave hit retailing in the 1960s.
Only one single year really matters in discount retailing: 1962. In that year, all three of the top chains in the field today began operating large stores that featured volume pricing and low overhead, though the three took divergent routes to the top.
New York variety retailer S.S. Kresge launched Kmart, Minneapolis department store chain Dayton-Hudson started Target, and Bentonville entrepreneurs Sam and Bud Walton opened Wal-Mart #1 in Rogers.
Kresge, Dayton-Hudson and the Waltons presented three models to the retailing community: variety retailer spins off discount operation, department store chain spins off discount operation and discount operation starts from scratch. (The Waltons held several Ben Franklin variety store franchises and continued to operate them after founding Wal-Mart.)
F.W. Woolworth soon followed with its Woolco chain, and before long it seemed discount stores were sprouting from every square yard of American soil.
By 1968, Kmart was far ahead of the other operations. The chain was well on the way to being a coast-to-coast operation, with revenue and profit that dwarfed all competitors. The variety store spinoff model looked pretty good to the experienced merchants at Sterling Stores, and Magic Mart was born.
“It became rather obvious that just as supermarkets were replacing grocery stores, so would a discount store take the place of a variety store,” Jack Grundfest said last week.
Grandson of the Sterling co-founder, Grundfest, now a Little Rock attorney, immersed himself in Magic Mart, working in all phases of the operation from summer work as a child to store setups.
Ben Johns, who had served as manager of the downtown Little Rock Sterling store, was tapped to spearhead the new division as operations manager, a position he held until he died in the plane crash.
Sterling and Wal-Mart both became publicly traded by 1970, and the two regional chains embarked on a war for the hearts of small-town America.
“We were the only discount chain in the country that competed with Wal-Mart on a store-to-store basis,” Jack Grundfest said.
Dave Grundfest Sr. stepped aside as president in favor of Dave Jr. in 1971. He died in 1974 with Sterling Stores at its peak, including the rapidly expanding discount division.
The company ultimately opened 47 Magic Marts in the six-state Sterling territory. A new, larger prototype debuted in Little Rock, first at Geyer Springs and Baseline roads, then at 6428 Asher Ave.
“It was an attempt at a more upscale look instead of just bright colors,” Jack Grundfest said.
By that fateful December 1979, Wal-Mart was winning the battle for capitalization. Double-digit interest rates and inflation were eating away at Magic Mart.
In that interest-rate environment, Jack Grundfest said, the only way to offset fixed costs was by adding more stores to generate more revenue.
Still, the company aggressively sought its share of the Christmas trade. On Dec. 20, the Gazette featured a double-truck (two facing pages) Magic Mart ad, headed with a phrase worthy of the company’s ebullient co-founder: “There are five shopping days left ’til Christmas. That’s four more than you’ll need when you shop at Magic Mart.”
The next day, Gina Wilkins, who wrote training programs and advertising copy, was making Christmas preparations.
“I was helping decorate for the party, and I went to my mother’s office and the door was closed.” Wilkins’ mother, Beth Vaughn, had been Dave Grundfest Jr.’s secretary at the time of the crash.
As the reality of the crash sunk in, “we were all just totally devastated,” Vaughn said.
Pilot Jack Starr’s mother-in-law worked at Sterling headquarters. Vaughn gave her the news.
It also fell to Vaughn to speak for the company when Brummett called for comment on the tragedy.
“Beth Vaughn, secretary to Magic Mart President Dave Grundfest Jr., said the executives were to have visited several ... stores Friday morning,” Brummett wrote in the Gazette, “then fly back to Little Rock for the annual office Christmas party Friday afternoon.
“‘That of course was canceled,’ she said. ‘This has been a nightmare for us.’
“She said Grundfest was too upset about the tragedy to make statements to the press. ‘He is just at a point that he wouldn’t know what to say,’ she said. ‘This is just a horrible tragedy. These were longtime friends and very vital people to the company.’”
“I’ll never forget that day,” Wilkins said. “Psychologically and emotionally we never recovered. I knew everybody on that plane intimately — all my life, some of them. That was a family business.”
The company’s fortunes quickly sank. Undercapitalized and ravaged by a struggling economy, the company began rapidly selling off the Sterling stores to better support its greatest source of profit, Magic Mart.
In need of a “strategic partner,” the company originally hoped to remain the surviving partner in the Duckwall-Alco merger. But the Little Rock company was the financially weaker partner in the deal.
On Feb. 25, 1983, the companies agreed that Duckwall-Alco would acquire all of Sterling’s outstanding stock in exchange for “not more than 335,000 shares of Duckwall-Alco common stock.”
“Dave [Jr.] called everyone into the office and told them what was going on,” Vaughn said. “It was a very tearful announcement.”
“We were told that the stockholders were the ones wanting to sell the business, not Grundfest,” Irene Forbes said. “When he gathered the employees together to tell us ... he cried.”
The Kansas company inherited Magic Mart stores at the Colony South Shopping Center, 6428 Asher Ave.; 1701 Main St. in Little Rock; in North Little Rock at Pike Plaza Shopping Center; and at North Park Mall. The stores ran for two years as Alco units but shut down in July 1985.
Duckwall-Alco still operates the downtown Little Rock store, along with former Magic Marts in Hardy, Russellville, Conway, Hot Springs, Hot Springs Village and DeWitt.
Dave Grundfest Jr. died in the 1987 crash of a private plane in Aspen, Colo.
Memories and Buffets
Every month, Vaughn, who lives in Benton, meets a group of former Sterling employees for lunch at Franke’s Cafeteria at University Mall in Little Rock.
The gatherings, which started immediately after the company closed, have dwindled from 45-50 people to around 10, she said.
“It was a very close-knit group of people,” Vaughn said. “Everybody felt like your family.”
Now working part time at the southwest Little Rock office of the Dave Grundfest Co., a construction firm run by the grandson of the Sterling co-founder, she spoke with reverence of kindnesses received from three generations of Grundfests.
“Mr. Dave Grundfest Sr. was the kind of person who had a concern for people,” she said. “He was always very, very good to me.”
Communication skills came naturally to him, Vaughn said, so a person bringing a concern to Grundfest could count on a thorough hearing.
“You always felt like you were the most important person,” she said.
“A lot of people have never gotten over working for Sterling,” Wilkins, author of numerous romance and adventure novels, said. “Mr. Dave [Jr.] was like a godfather to me. Dave Jr. and Dave Sr. were very interested in the people that worked there for them.”
Wilkins lives in Jacksonville with her husband and family.
“It was a great place to work back then,” Forbes said. “We had a big Christmas talent program every year. That was something we all looked forward to, and everyone was eager to be involved. The company would furnish a bus during racing season for the ladies to go to Oaklawn for a day. Every one of the buyers’ offices had a picture of the old Mr. Grundfest, and they had a box of cigars on their desks.”
Loyalty thrived in such an environment and served as a powerful incentive for attendance, Vaughn said.
“I have to be there,” she recalled telling her husband when he suggested that missing a day of work would not be unacceptable. “They can’t run that place without me.”
Sterling Stores Inc. co-founder Dave Grundfest Sr. loved the variety store business and figured everyone else must, too.
Excerpted below are weekly notes Grundfest, as president of Sterling, sent to his management team. They reveal a keen retail mind, as well as someone who took irrepressible joy in his work.
The weekly instructions/musings included here were produced in 1941 and headed “To All Store Managers and District Men.”
• “Next Sunday is Mother’s Day. Certainly all of us who are fortunate enough to have our Mother with us should be grateful and certainly we should do everything we can to help those who want to remember their Mother on Mother’s Day by making our windows and our counters very attractive for this occasion, so even the thoughtless will be forced to remember their Mother on Mother’s Day.”
• “We are now beginning to feel a definite upward trend in prices and we can not absorb these increases. Our operations cost is as high or higher today than it has ever been. We must begin thinking about getting higher prices.
“I think this calls for a lot of thinking on the part of you men who run these Sterling Stores, and I would like an expression from you, telling me instances where you think there is a possibility of getting increased prices on definite items.”
• “Women’s Nainsook and Flowered Print Gowns for 29 and 39 cents are coming into their own. With the coming of the hot weather, these gowns become very popular with the female species.”
• “Shirts and Shorts at 15 cents are coming into their own at this season of the year because with hot weather and perspiration a man can’t wear a suit of underwear a whole week now. He just has to change sometime, even before Thursday.”
• “It seems every time the German Army advances, prices do likewise. If they could do something to stop the German Army from advancing, I wouldn’t give a damn what happened to the prices, they could go up or down but so you will be informed a bit, here are a few of the latest advances:
“Alarm Clocks, 70 cents F.O.B. Factory ...
“Men’s #2 Grey Sox, Shoofly, on your counter at 10 cents, Today’s Market Price, 90 cents a dozen ...
“Women’s Broadcloth Slips that you have sold thousands of dozens of at 25 cents each, today’s price $2.40 a dozen ...
“Oh, I could tell you a lot more but I don’t want to disturb your equilibrium.”
Grundfest valued communication so much that he viewed an employee’s weekly paycheck as an opportunity for getting a message out. Each check was accompanied by a slip of paper featuring Grundfest’s picture and a timely observation from the company president — sort of a payday fortune cookie.
If every employee didn’t share Grundfest’s constant enthusiasm, the Sterling co-founder appeared not to notice. This Sept. 15, 1962, message was typical:
“This is the second week in September ... the leaves are beginning to turn. Before too long now, there will be a frost and you will be surprised to know how many people are going to start buying ladies’ sweaters and skirts, car coats, electric blankets, and so many things we have to offer.
“Give them a little boost, will you? Put a little bit of yourself into your selling job ... it will help us out and make you feel better.”
Since Then ...
2014: This article introduced a regular feature in Arkansas Business, “Fifth Monday,” which continues 13 years later. On months in which we produce five issues, the fifth issue contains a feature on some historic business subject — blue laws, floods, the Grand Gulf nuclear power plant, Yarnell Ice Cream Co.
While Magic Mart was absorbed by Duckwall-Alco in 1983, its in-state competitor, Wal-Mart Stores Inc., continued to expand until it topped the Fortune 500 list of the largest publicly traded companies for the first time in 2002.
Duckwall-Alco’s presence in Arkansas has continued to dwindle. The flagship Sterling store in downtown Little Rock was closed in 2005. And of the six Alcos stores that were still operating in 2001, only two remain: in DeWitt and Hot Springs.
The Grundfest name is still active in the Arkansas business community: Dave Grundfest III is CEO of The Dave Grundfest Co. of Little Rock, a commercial contractor with revenue of more than $23 million in 2012.
And Irene Forbes is still an art director at Arkansas Business Publishing Group.
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