Family feud at Harbor Freight
A family feud over the ownership and control of Harbor Freight Tools, the multichannel discount tool retailer with more than 300 stores, is now taking place in Superior Court of Los Angeles County. The father-son struggle for control, laid out in a complaint filed on July 14 by company founder Allan Smidt, is in many ways a familiar tale of cross-generational disagreements over management, growth and lifestyles.
Headquartered in Camarillo, Calif., the retailer sells imported tools, most of them house brands, through catalog, over the Internet and in nationwide outlets. Smidt, 81, who founded the company (under another name) in 1968, has accused his son Eric, 50, of pressuring him to transfer over the ownership of Harbor Freight Tools and then freezing him out of the company.
The company has estimated annual sales of about $1 billion.
Eric Smidt has served as CEO of Harbor Freight Tools since 1999. Allan and Dorothy Smidt, 76, are now suing their only child for breach of trust, breach of contract false representations and other causes. In addition to damages, the plaintiffs are requesting that the court rescind the agreement that transferred ownership of Harbor Freight to Eric Smidt in June 1999.
At the time, working relations between father and son were good, according to court papers. The two agreed to a complicated purchase agreement involving the sale of a controlling interest in the company for $20.9 million. According to the elder Smidt, he sold his stock in the company for less than fair market value at the suggestion of his son, who agreed they would continue to run the company together, with Allan serving as chairman of the board, and the family would share the profits together.
But changes began the following year, many of which the elder Smidt opposed. In 2007, when Harbor Freight borrowed $500 million from Credit Suisse First Boston, Allan Smidt accused his son of using some of the money as “dividends” to pay for a $46 million dollar estate in Beverly Hills, a $100 million addition to his art collection and a $20 million apartment in Manhattan.
“The leveraging of the companies has had serious negative consequences,” the complaint reads.
That same year, Eric agreed to pay his father $50 million, in annual payments of $2.5 million, for the rest of his life, according to the lawsuit. At least two payments have been missed, Allan Smidt claims.
Another sticking point between father and son is the termination and replacement of many of Harbor Freight’s long-standing management team in 2009 and 2010. An attempt was also made in April 2010 to remove Allan Smidt as a director of Harbor Freight, the complaint states. When Smidt went to the company’s headquarters on May 17, 2010, and tried to access payroll, inventory and supplier records through his office computer, he was unable to do so. Smidt says he was then escorted out of the building by the company’s chief operating office, Robert Rene, who said, “Don’t come back.”
Eric Smidt has yet to file any legal response to his father’s complaint. But he issued the following statement to Home Channel News:
“While the lawsuit saddens me, the assertions in the complaint are completely unfounded and will be addressed in due course. The lawsuit will have no affect on the continued success of Harbor Freight Tools, which has just completed its strongest fiscal year ever.”
Is the customer always right?
(The following letters were in response to an item about the now-famous JetBlue flight attendant incident and its lessons for customer service.)
“The customer may not always be right, but he/she is always the customer.”—Tony Calistro, Ring’s End Lumber, Stratford, Conn.
“Is the customer always right? Not always. But most companies will never tell customers they’re wrong, even when they are. You are never too willing to let the almighty dollar walk out the front door [too] easily. Most of the time, we keep our cool and, through some savvy dialogue, educate the customer on the particular item or issue at hand, and guide them in what we feel is the right direction. If they end up being forever resistant or argumentative, we smile and graciously apologize.
“In extremely rare instances, we have asked a customer or two to not come back. Some people are just extremely negative in general.
“I have noticed that sometimes the older people handle these situations better than the younger. In these instances, when management sees the situation is not going well for the employee, they need to step up and ask, ‘How may I be of service?’ as opposed to give a glance and mutter: ‘Boy, I’m glad I don’t have that customer.’”—Mark Rezak, Millard Lumber, Omaha, Neb.
“No employee should have to tolerate abuse, verbal or physical…nor should they engage in actions that encourage emotions to escalate.
“If abuse happens, the appropriate reaction is to calmly advise the customer they will not be abused, back away, and call for a supervisor or other staff to get in the picture.
“From the moment I saw the JetBlue incident, I wasn’t buying what was being reported…My opinion is, this guy was looking and had planned to take this action. We will see what is found out.
“Flying the past 30 years, the airlines have developed/retained a small but significant number of people who obviously dislike interacting with the public unless they do just…exactly as they want them to. In the Army I had drill instructors who were friendlier.”—John M. McGraw
Aging in place: A trend for the future?
“I can speak from experience that aging at home is preferable to anything else. The elderly should stay in their homes for as long as they possibly can. The comfort one has from staying in his/her own environment is important. I feel that this category is poised for tremendous growth, and not much attention (or products) is aimed toward this department. Who knows who will come out with the innovations that are needed to extend the home experience for the elderly?”—Richard Freund
“With the U.S. population aging—the age factor growing every year—how can hardware and home center retailers and distributors ignore this important market segment? They can be assured—The Home Depot and Lowe’s certainly won’t.”—Paul Siegel, GoPro Construction Solutions
Crackdown on luxury shower heads
“I guess the government wants us to dry clean.”—Richard Deitrich, Wrightsville, Ga.
“I stand for water conservation. Build different designs of the water-conserving shower heads, and consumers will still have a choice. There are many consumers, (I’ve been one) who will ‘piss away’ water just because they can afford the cost. There are still an amazing number of consumers who have no clue regarding water conservation and how to conserve. ”—Bill Sarbaugh
“Consumer choice should always trump bureaucratic policy.”—Jim Madsen, Castle Rock, Colo.
Internet sales tax
“Whether the store is online, in a catalog or has a store front, all must pay the sales tax. If you sell your car online, when you go to register it, you need to pay the tax.”—George Polony, Heieck Supply
“While I agree that online retailers should need to charge, collect and pay sales tax, implementing it will put a serious burden on any company conducting an online business. Most states require sales tax calculated based on point-of-possession, and this is what they’re all after—to collect the sales tax due on products shipped into their state. This means that every online retailer now will need to find a way to be able to accurately calculate and report on sales for every possible tax jurisdiction in the U.S. For larger companies, this may not be unmanageable, but for smaller, niche companies operating out of their home, this could be too much burden.”—Patrick O’Neil, IT manager, Bellevue Builders Supply
In an article on HD Supply in the Aug. 9 issue, the size of Crown Bolt’s market share was misstated. The overall U.S. market in fasteners and builders hardware is $725 million and $350 million, respectively. Crown Bolt owns a portion of that market through its sales to Home Depot and other retailers.
Myrick replaces Hylbert as ProBuild CEO
In what the company is describing as a long-planned succession move, Paul Hylbert is stepping down as the chief executive of Denver-based ProBuild Holdings. The 66-year-old executive will be replaced by Bill Myrick, 49, the current chief operating officer, who joined ProBuild in February 2007 as senior VP strategic initiatives.
Hylbert will continue to serve as senior adviser and a director on the board of ProBuild, the industry’s largest chain of lumberyards.
“We’ve been working on this transition for three and a half years,” Hylbert told Home Channel News. The announcement was timed to coincide with the company’s budgetary planning process for 2011, which is just getting underway, Hylbert added.
Although he pointedly refused to use the word “retirement,” Hylbert said he intends to spend more time away from the LBM industry. “There are things I want to do beyond working the schedule I’ve been [tied to],” he explained. Moving out of Denver is high on his list, and Hylbert said he’s been house hunting for a place “closer to the water.”
Doing consulting work or serving on company boards lies somewhere in the future, Hylbert said.
Hylbert’s long history in the lumber industry includes a 21-year stint at Wickes Lumber, nine years at the helm of PrimeSource and five years as CEO of Lanoga. After Lanoga merged into ProBuild in 2006, Hylbert was named chief operating officer. He was promoted to CEO in January 2007.
Myrick started his career in the LBM industry as a manager trainee at 84 Lumber, where he spent 25 years and rose to the position of chief operating officer before leaving 84 Lumber to join ProBuild. After being hired at ProBuild, Myrick attended a two-month program at Harvard Business School and then steadily took on more responsibilities, rising to the position of chief operating officer in June 2008.
Myrick’s career path at ProBuild was charted to end up in the CEO’s seat, according to Hylbert. “Our board meets twice a year [to discuss] succession planning,” he explained. “This is exactly what we had in mind.”
ProBuild will be eliminating the COO position, Myrick told Home Channel News. Instead, all regional presidents will report to Jim Cavanaugh, executive VP operations. The former president of Hope Lumber joined ProBuild in 2006 when the company acquired the 49-unit chain.