Berkshire Hathaway 1994 Annual Meeting Audience Question # 22

On the economics of the shoe industry and why Warren invests in it

Warren Buffett:

Zone 3.

Audience Member:

(This part of the audio is not clear) Chicago. Can you speak to some of the economic characteristics of the shoe industry that allow the business to be profitable and, in your view, attractive?

Warren Buffett:

I didn’t hear that. Did you hear that, Charlie?

Charlie Munger:

He wanted you to comment on the merits of the shoe industry.

Warren Buffett:

Well, I think our feelings for the shoe industry are very clear from what’s been happening the last few years.

We think it’s a great business to be in as long as you’re in with Frank Rooney and Jim Issler and Peter Lunder and Harold Alfond. Otherwise, it hasn’t been too good.

The… we have a couple of extraordinary shoe operations, but they’re not extraordinary because we get our leather from different steers or anything of the sort.

It’s… we have two companies, really three now that Lowell’s been brought in, too, but that have truly extraordinary records. I think those same managements would have been enormous successes in any business they’d gone into.

But, they have gone into the… they are in the shoe business and the companies earn unusual returns on equity. They earn unusual returns on sale. They’ve got terrific trade reputations.

And I think that to the extent we can find ways to expand in the shoe business while employing those managements, we’ll be very excited about doing so.

It isn’t because we think that the shoe industry is any cinch, you know, per se, or anything of the sort. But we’ve got a lot of talent employed in the shoe business and whenever we’ve got talent we like to try and figure out a way to give them as big a domain as we can.

And it’s not inconceivable that we would expand the shoe business, perhaps even significantly
over time.

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