#302 - Don Zale - Former Chairman of Zale Corporation - A Great American Business Story That Brought Diamonds To The Masses

Chris Powers: Don. Welcome to the show.

Thanks for joining me today. 

Don Zale: It is my pleasure to be here. Thanks. 

Chris Powers: It would be good to start with some background about your family coming to America and how the Zale's started here. 

Don Zale: Yeah, it's a fascinating story to me. And the whole story is the American dream when you get right down to it if you take it from start to finish.

My father's uncle was a guy named Sam Krueger, and they were all born in a little village called Java, which is now in Belarus. It was in Poland at the time. I'm going back to the turn of the century, 1900. My father was born in 1901, and Uncle Sam, his mother's brother, was the first in the family to leave what is now Belarus and go come to New York. 

And fortunately, Uncle Sam had a little training as a watchmaker, and he got to New York and got some job and was able to send for his wife and his daughter and made a few bucks. He worked a little longer and then sent for his brother-in-law, who was my grandfather.

And my grandfather came to America, to New York, and he worked for a year or so. And she then sent for his wife, who would be my grandmother. And we were talking about how a young woman was probably in her early twenties and had two little boys, ages three and five or so. And she lived in this little village for a year or two, as long as it took him to make the money to get them to New York. And what struggles she must have gone through being isolated there and having no communication, and I can imagine her getting a knock on the door at midnight or something saying, Libby, it's time to go to New York.

And she probably needed to find out where New York was, and she goes, and they pay off crossing guards on an ox cart because there are no buses. And they finally get to Rotterdam and take the ship for three weeks in steerage to get to New York. And finally, she gets there, and Uncle Sam puts them all up.

And then Uncle Sam fortunately decides that the best place for him to get a job is where the railroads have a big depot because all of the track had to be switched manually, and these guys would ride this little Johnny carts out to, you've seen them in the last time I looked at blazing saddles. I have a picture of one of those, the two guys pumping on either side, and they'd go out to the track and have to have a watch kept good time and knew when to switch those tracks.

So Uncle Sam said that's where I can get a good job because they need good watches. And he goes to Fort Worth. And then he sends for the family one, two, three at a time again. And they all come to Fort Worth, including my father and his family, Blake's great-grandfather, and his brother Bill, and they come to Fort Worth.

My grandfather was not much of a breadwinner. He was a very Orthodox Jew and spent most of his time at the synagogue but was a house painter and paper hanger. When he could get a job, he would take my dad and my uncle Bell with them on the job and let them help him some.

And then, unfortunately, my dad had to drop out of school in the sixth grade because, in the seventh grade, you had to buy your books. And they didn't have the money for that. And then they discovered oil out in West Texas. The railroads decided to build a depot in Wichita Falls.

So that's where they would deliver all the pipe and supplies for the construction projects, and Uncle Sam said if that's going to be a new boom town, I'm going to go there and open a jewelry store. And he went to Wichita Falls and opened a jewelry store with excellent products, Patek Philippe watches and sterling silver flatware.

And after about four or five years of that. I was getting up to the mid 1915s when Uncle Sam sent my father, living in Fort Worth then, to help him in Wichita Falls. And my dad started learning about the jewelry business from his Uncle Sam. And then my dad decided, in about 1921 or so, that he wanted to own his store.

And he picked Graham, Texas; it's a site for his first store. And he goes to Graham and makes a deal for a jewelry counter in a drugstore in Graham and his rent, but he is the janitor in the drugstore and would clean it up at night. And he slept above the drugstore too.

Not sure, at any rate. After a month or two, the banker in Graham comes to the store owner, the drugstore owner and tells them that the Ku Klux Klan is getting active. There are no blacks in Graham, and there's only one Jew, and that's M.B. They thought it was time for him to get out of town if he wanted to be safe.

And so my dad opened the store for a month or two. And then he got out of there and went back to Wichita Falls. At the time, Uncle Sam in Wichita Falls was doing a very nice business and wanted a new location for his jewelry store. And so he sold his existing location to my dad for stock and what became Z.A. Corporation.

The existence of credit was absolutely a big void. There was no such thing as consumer credit. In 1923-24, I was speaking down at A&M not too long ago, and there was a class for about 50 finance students. And I said, how many of you here have a credit card? And, of course, every hand went up.

I said Picture yourself in 1924; how many of you would have a credit card? Of course, no hands went up because there was no such thing as credit. But my dad looked and said his uncle Sam was selling to doctors, lawyers, bankers, etc. He was selling all these fine products.

And he said these guys that are out there drilling the oil wells. And they're making a living, so I trust them to pay me, and he decided he would open up a credit jewelry store and sell lovely jewelry at a fair price to the average guy and let them pay 2$ down and 2$ a week. And it was a significant hit. The store did extraordinarily well, and customers would come in and buy, and they would buy on credit, and then they would come in every week and make a payment.

And I remember working in the stores, taking those payments as a little guy. And as I said, that store was a big hit, and they decided that they would want to do a second store. And Tulsa, Oklahoma, another oil town where they had a very similar clientele. And so they moved to Tulsa as a second store.

And then the third store they did was Oklahoma City and so forth. And the fourth store was Amarillo. And then 1929 came around. And the market crashed, and the great depression was beginning, and they survived the depression by keeping all of the cash in cigar boxes, and there's in their safes, they got wind that the banks were going to close and kept the cash.

They took all their money out of the banks. And then they just eked it through, barely making a living, taking what they needed through the depression. And then, in the middle 1930s, as things started to get better, they began looking for another location or two. By the time World War Two came around, they had about eight or nine stores.

Then during the war, there were several significant events. Number one, they had a policy to keep their prices the same despite shortages. My dad had a policy. He said that these people buying from me now will be my customers after the war, and we won't take advantage of them.

We will see that they want to return and do business with us. Then my dad had a strict policy that they wouldn't change their prices, even though there were black market activities. He had a lot of issues with the banks, and during the depression, they were tough to do business with, and he was trying to get a loan. He needed 10 000.

And I'm returning to the early thirties, where none of the Wichita Falls banks would give him a loan. And we had a store in Oklahoma City. My uncle Bill was running that store, and we had a relationship with a bank there. I've read where my dad got in the car, and it went to Oklahoma City. He made a plea, and while sitting there, the banker wrote out a deposit slip for 10,000, took out the 400 interest payments or overdue, and gave my dad a deposit slip, and he was in absolute shock. 

And I know we kept a deposit in a relationship with that bank until I left the company in 1986. How am I doing? 

Chris Powers: So you're doing fantastic. I'll ask you a couple of questions in there. You pioneered credit, didn't raise prices during the war, and kept a relationship with a bank for as long as possible. Who in the family understood the power of relationships and understanding the customer because, as I'm hearing now, somebody that profoundly understands their customer jury is almost the next thing in line. 

Don Zale: It was M.B. and Bill, the two brothers, MB perhaps more so than Bill.

MB was a very well-read, self-educated guy. He was very dedicated to the business. He had seen poverty and excessive part of his early life and was determined never to be in debt. He would not be in debt to the banks or anybody else, and they would run their business conservatively.

And he also understood his customer from the standpoint of women's desires, especially to have nice things. And he wanted to sell it to them at a popular price. 

Chris Powers: How do you take the atmosphere in that time, and if you look at where we are today, has anything changed?

Don Zale: Yeah, I'm telling you, it has changed a lot. And the essential communications we have today are the significant contributors. When I was a kid in Wichita Falls, during World War II, if we wanted to know what was going on in the war, there was a Saturday movie tone newsreel that we could go to, we called it the picture show at the time we go to the movie house, and they would show us a newsreel. We'd find out about the battle of Leyte Gulf or something six weeks afterward.

And I remember when the Vietnam War was on, and we had television, and that war was in our living room every day. And the difference was just extraordinary. The public's reaction to those two events was just dramatic because we knew so much more, and we saw it every day, and it was presented to us.

It was part of our life. So the communications that we have are very significant. The world has gotten a lot smaller. 

Chris Powers: I don't want to go back to you entering the business, but before that, it would be necessary if your dad started it or was a co-founder. The apple comes from the tree.

Please describe your relationship with your dad and how he influenced you or the things in your all's relationship that made you want to work with him or describe the setting. 

Don Zale: When I was a little kid, the store was as much our home as our place on Avondale Street in Wichita Falls. And I remember during the summer, my dad always had a convertible, and he'd take us for ice cream cones at night, but we didn't always drive by the store, and we used to joke with him that the store didn't move while he was gone.

He closed at six o'clock at night, and we went there at eight 30 to ensure it was still there.

And so it was just part of our life. And I recall frequently taking the school bus to downtown Wichita Falls, going to the store for an hour or two, and then riding home with my dad. And when I was about seven or eight years old, I was at the store, and he said, why don't you help us with the watches?

So I said, okay, what do we do now? It was back. So I'm seven years old. It's 1940, and the watch industry needed more quality control than you find today. And so we would buy these popularly priced watches, and they would come in, and we'd have to wind them. They were all spring wounds. There's no such thing as an electronic watch or an automatic watch, for that matter.

And they were all spring wounds. And we would wind them and set them to the time and then have to come in the next day, 24 hours later. And if they weren't keeping proper time, you'd give it to the watchmaker, and there was a slight adjustment. Factor in there, and the watchmaker would adjust it and so forth.

My dad told me I could hire a monkey to wind watches, but I want you to turn it over after you wind the watch, I want you to turn it over, and I want you to look at the price tag on the back. And this watch is $20, and this one is 35. And I would like to know why those watches are different prices.

What it's all about. And you couldn't just wind the watch and look at it. You had to clean it, remove your fingerprints, and return it to the showcase. The other aspect that was very interesting and important in retrospect is that if you didn't come in and wind them every day, They stopped, and then you had to rewind them and reset them the next time you came in.

And that was a significant pain in the neck. So you had to come in every day and wind those darn watches. And that was an excellent lesson for me. And then interestingly enough, when world war two broke out, there was an extensive air force base in Wichita Falls. It's still there, Shepherd air force base. And we started getting in complex watches, clocks and timers and things of that nature for the pilots, navigators, and so forth, the shepherd air force.

And I became almost the watch expert in the store, and I was ten years old, so these soldiers and airmen would come in. They wanted to buy this watch, and if I was there, the salesman would call me over to explain it to him, which was goofy at the time, but it was just one of the things that I had done, and it was my introduction, and I loved it.

It was a responsibility for a little kid and gave me something to do that I felt worthwhile doing. And that was my initial exposure. And so going to the store was just part of my life. When they were little, most kids would go off to camp in the summer. We did some camping around Wichita Falls, but we would go to the store.

And we would help out in the store, and ultimately we started going to camp and so forth because I guess we got to be too big in pain in the neck to my folks, but that was my initial exposure, and then I recall when I was about 14 years old. We had a New York office, and the lady in charge of the New York office called my father in the summer and said, I can't get a delivery boy because the parents found out that our offices weren't air-conditioned.

It is 1943, 1944-1946and so my dad said I've got a delivery boy for you for the summer. He didn't know if it was hot or cold, and he sent me to New York. I lived in New York that summer at the YMHA at 92nd Street and Lexington Avenue as a little kid, and my uncle lived in New York. So I used to have dinner with him at night, but I remember taking the bus down Lexington Avenue as 15 year old and going to work at the office in New York. 

And they would give me little packages to deliver to various jewelers throughout the city. And then I'd go pick them up and so forth. And so I was the runner in New York, and the store and the business was always a part of my life.

In 1951, the internal revenue service developed the first profit-sharing plans, and we adopted one at Zale Corporation. And I remember that. So in 1951, I was 18 years old. I set up all the record-keeping for the profit-sharing plan because it was just something to do. I remember we had ledger cards for every employee.

And each store was a separate corporation. It was a big deal, but I had to figure out everything. And I kept all the books for the profit-sharing plan. I'd go in, it wasn't a big deal in retrospect, but it was just part of my upbringing when I got to college and took accounting. What else will you guys give me already been doing this stuff?

And so it was elementary for me when I went off to school.

Chris Powers: Was your dad easy on you? 

Don Zale: Oh, God, no. No way. He was not mean for sure, but he was the kind of person you never wanted to disappoint. We were never spanked as kids, but they put so much confidence in me, my brother, and the rest of us that we would never want to disappoint them. And so it was a unique bringing up. 

Chris Powers: Yeah. All right. Let's move to when you grew up in the business. It was in your blood, and we had a couple of offices down in the South, and all of a sudden, we had a New York office.

When did the business start becoming this big business that was growing? Most people at that time probably had a shop or two. Zale was the first company to bring jewelry to the masses. When did that start that this is something that's going to become a big business?

Don Zale: It started after World War II. I recall that. Let's go to 1950. Okay. We had about 20 stores in 1950. And I remember when I went to college in 1951, there were about 23-24 stores cause I was setting up this profit-sharing plan. And while I was gone, the company probably added 20 odd stores because Barbara Zale and I married in 1954 and had 40 stores. And, of course, she took credit for the fact when we had 1600 that, the company had done so well since I married her.

By the way, she was a Fort Worth girl. And a bigger chain's development started in the early 1950s. And after this profit-sharing plan and the stores were all separately incorporated into the managers; each owned about 20% of their store, and we had a consolidation in the middle fifties.

And we reorganized the capital structure and gave the store managers stock in a significant company. And we merged all of those corporations. And then, in 1957, we had a moral obligation to these managers. That we would repurchase their stock when they quit or died or whatever. And that started to become a significant capital call.

So we determined that the best thing to do is to go public. I didn't have anything to do with that. I was about 23 years old, so 24. And when I say that, they put so much confidence in me. I'll recall that when they decided they were my uncles and my father going to go public, they finally got an underwriter.

They couldn't get one in New York. So they got a local underwriter called Eppler, Guerin, and Turner in Dallas. And we had to have an audit, which we'd never had an audit by a major accounting firm. And so they turned that over to me. And I'm 24 years old. I didn't know what the hell I was doing. I don't mind telling you. But once again, they have given me this task.

And there's no way I was going to say I can't do it or that I can't perform. And so I hurried around and found out what to do: talk to a couple of lawyer friends who knew something about the securities business. And we hired a public accounting firm, Touche, Niven, Bailey, and Smart.

And we had an audit. And then I remember I had to work with the lawyers to do a prospectus. And I knew absolutely nothing about perspectives, but we had a great law firm. It's the old Sam Winstead law firm. It's called Winstead and something else now. It's a big firm, and I'll never forget it. They had a securities lawyer there, a guy named Don Fitch, and Don Fitch lost a leg sometimes.

And our offices were not too far from their offices, and he'd call me about four o'clock in the afternoon, and he'd say, all right, you need to come over here, and we're going to go through this part of the prospectus and so forth, he says, and then we'll stay and have a traffic center. Okay. What's that?

Of course, it meant we would go upstairs and have a drink, let the five o'clock traffic go down. But I was very fortunate in that I was surrounded by people who cared, and for whatever reason, they were a significant help to me, and they were very dedicated to making sure we did it right.

And I was very fortunate to be there at that time. 

Chris Powers: Was there a point in the journey where diamonds started taking the lead as the main product sold out of Zale's? We started with kind of watches and things like that, but the Zale's we know today, or that became more prominent, were diamonds. Was there a reason why that shift took?

Don Zale: Yeah, that shift occurred before world war II. And because diamonds are a girl's best friend and they're forever. And by the way, there's enormous disruption in the diamond industry today. And I've said that if I were 40 years younger, I'd be back in a heartbeat. 

Chris Powers: Really?

Don Zale: Oh. Oh, there's got to be so much opportunity in that, that it's just destroyed. It's fabulous. And we can talk about that if you want to, but a piece of diamond jewelry was always our primary merchandising category. And that was why we had that office in New York to help us make diamond jewelry.

And that's also when we became vertically integrated, which was the beginning of our vertical integration. And we ultimately were manufacturers of our jewelry to a great extent. And when the company got started, it had to be a very promotional activity to attract customers.

And my first job was when I graduated college; I'll always remember this. I graduated from summer school in 1954, and I had been working at the office. And I walked in on Monday morning and went to my uncle, Ben Lipshey, who was president of the company or would be president then.

And I said I'm ready to go to work full time. And Uncle said okay; he turned around pulls out a set of plans for a store. And he says, we just signed a lease for a store in Tyler, Texas. I remember this end of August. And he says we have to have it open before Thanksgiving. Build it. I didn't know what the hell I was doing. Honest to God, I did not. 

Chris Powers: This is a theme. 

Don Zale: Yeah. They're a significant theme throughout this whole thing. And he gave me the plans. He says, builds the store. And I said, yes, sir. And I walked out of his office, saying, what do I do next? But we had a guy in the company who had built stores before. So I went and talked to him, and we figured it out.

And I remember when I started to merchandise that store. We'd had significant categories of dishes, kitchen appliances, and so forth, along with the jewelry, and we would run big ads for these appliances and dishes. He gets 40 dishware sets, and we throw in a door, my mixer, etc.

So you come in and open an account, and that continued for a good long while. And I became president in 1971, and I remember one of the best works I always did was when I got out of the office and went to the stores. I was walking down the mall in Salt Lake City, Utah, and I saw our beautiful store in a corner location.

And the first thing I saw when I got there was a West Bend percolator. And I returned to Dallas and told the powers that be; I said, We can't do that anymore. We're going to be the diamond store. We're going to be jewelry only. And all that category of goods was a good piece of our total revenue and sales volume.

And I got the crew together, and I told them that we weren't going to sell that anymore, and I said, we'll adopt a policy if it has an electrical cord on it. We're not selling it, and we're not selling all this other stuff. And I remember one of our guys said, I was going to be the citizen's band king of the world.

I had a promotion for citizen band radio. I said you'd have to be the jewelry king of the world instead. And so we took all that stuff out and began concentrating on being only a jewelry company. That was in 1971. 

Chris Powers: The lesson that I'm hearing, and it's a lesson that stands the test of time, what did going all in and focusing on one thing do for the business?

Don Zale: Number 1, it gave the customer confidence to buy jewelry from us. And it was knowing that they would get a good value, that we were specialists. We were concentrating on that. The other thing that I insisted upon was back in 1971 also. The first day I became company president, we had about 300 stores.

And I sent out a note to every store, saying, I want a customer; I want a copy of every unresolved customer complaint when you close the store at night. So I want it if you have a customer complaint that needs to be resolved. And I put together four or five people, and we started getting the first; I remember the first day, I got about 40 or 50 customers and got people on the telephones to cut.

We called the customers. And we said, what can we do to make you happy? We're going to give you your money back. We can give you a new piece of goods. We can fix what you've got, whatever we want to do it. And so, I set a separate line on their profit and loss statement for resolving customer complaints.

And after about two months, all the store managers said now wait a minute, this guy's charging it to us, and he's doing it, and he's getting all the credit for it. We could do that ourselves. And after four months, we had no unresolved customer complaints. I then instituted a policy of unconditional money-back guarantee for sales, sale products, and diamond products.

And if they find a better value, any place will give you your money back. And that took the scary part of buying a diamond off the table. And it was a marketing concept that gave the customer confidence. They could buy from us and know they were getting a good value. 

Chris Powers: Okay, so we talked about focusing on the customer at the beginning, and what you just said, can you go a little deeper on your thoughts on marketing?

And how you approach it and why it's essential because it rings true in the story. You all became a mass, and you're providing to the masses. Some of my notes say mass advertising. You just talked about the 

money-back guarantee. What do you think about marketing? 

Don Zale: The first thing you have to do is know who your customer is and understand them.

And that was a big revelation for me. And it was also a major revelation for the company in that the concept of marketing was never one that my predecessors embraced. They were great merchants who could pick excellent products and knew how to make them. But that was the end of their contribution.

They weren't concerned about that because they knew that their product was unparalleled and would get sold. But things started to get slightly different in the seventies and eighties. And you could tell that the customer was much more informed.

And today, it's even white years different than in the seventies and eighties. And so that's number one: you must understand your customer. Look at what happened to Budweiser beer, just what happened 60 days ago. They lost 30% of their business overnight because of some dumb ass that didn't understand their customer.

Yeah. And it's just wild if you don't know who you're selling to and who you want to attract; you can't stay in business. 

Chris Powers: Okay. Let's talk a bit about it, we're going to get to why you'd get into diamonds again in a little bit, but there was your dad, his brother, and it sounds like your uncle were co-founders.

I want to focus on the family business. Probably lots of kids. You became president and eventually became CEO and chairman. What's the dynamic, like just what's the lessons learned? You had many cousins that probably were, maybe it was an easy solution for you to become that, or it wasn't.

What dynamics occurred as you grew up in the company that made you?

Don Zale: I don't know why they selected me. 

Chris Powers: Is that? Are you being humble, or do you not know? 

Don Zale: No, I don't know why they selected me because I believe I was one of the only of our group who probably talked back to them and didn't roll over and play dead when they told me I had to do something.

And I was saying to Blake and Robert driving over here that being CEO of a public company, where we had 40% that was owned and controlled by our family, was the most straightforward job you could have because you got so much advice, free advice from your family members, telling you what to do. And it was not easy, but I must tell you that our family is sensational, and we didn't get along perfectly all the time.

I had significant disagreements with several folks in our family. And I used to have a policy where I would talk in our meetings and say, look, we're going to sit down, and we're going to talk about our plan and where we're going, the direction we're going. And I want to hear from everybody, and I want you to have plenty of opportunities to tell me what you like and dislike, but once we decide where we're going, I want everybody here to say.

I'm behind it, and we will make it right because we don't do it right. We'll change it. We'll make, we'll do something else. I'm very open to the fact that I've made a mistake. We're not going to sit here and do nothing. We're going forward. And I had many problems with that concept with some of the family, but I just toughed it out and said we'd do it anyway. 

And ultimately, a few left because they didn't like what I was doing. But the exciting thing was when they left, and they didn't sell their stock in the company. They kept their stock in the company. 

Chris Powers: So you're managing share shareholders, family members, but shareholders, and then you're managing the other public shareholders; how are you managing both groups? Because there may be some alignment but different incentives and wishes. 

Don Zale: Yeah. That's a challenging concept to work on. And I used to have to tell. Our patriarchs that look, we own and control 40% of the company, but somebody else owns 60% of the company.

And we've got to think about them as well. And so we're not just thinking about ourselves. We're thinking about sale corporation, total customers, and total ownership. And it was a point of contention in many cases, but it was evident to me that we had to do what was in our shareholders' best interest.

And not just our family share. 

Chris Powers: All right. The eighties roll around. Now let's talk about the other 60% of shareholders because some hostility started brewing. Yes. Let's tell that story. 

Don Zale: Okay. There was a company in Canada. It was a jewelry company that had, and it was about 25% the size of, Zale Jewelers and the Canadian banks.

Begin making a lot of loans to Canadian companies to invest in the United States. It was prevalent then. And their bankers contacted this particular company about doing something in America. And they bought about 30 million, and they started opening stores and buying stores in the United States.

And we were well aware of that. And I looked at stores, and they were just another competitor. As far as I was concerned, they weren't any primary concern or threat. And so they had all this money that was borrowed, and after a couple of years, they figured that they needed to do better with the stores and would sell their stores off and pay the banks.

It is the story that was related to me. And so the company sold their stores, and the banks told them they needed to keep their investment in the United States. And they talked about that and said we'd buy stock in a public company. And they picked us. And as soon as they bought the stock and we had some astute investment bankers.

And I recall that they called me and said there's some unusual activity in Zale stock, and we talked about that, and they came down to see us and so forth. And we figured out it was this company that was much, much smaller than us. And so we contacted them point blank and asked them, they said yes, they're bankers that suggested that they buy stock in Zale corporation and blah, blah, blah, blah.

And I wasn't satisfied that I knew these people and the guy that was my somewhat contemporary, probably ten years younger than me. He was their president and CEO. He was a pretty arrogant guy. I didn't have anything to do with him, so it didn't bother me one way or the other.

And we ultimately worked out a relationship with them because they owned a good chunk of stock in the company. We worked out a relationship with them with a standstill agreement where they would agree not to buy any more stock in the company because we felt it was in fragile financial hands.

And that it would be detrimental to all the shareholders if they suddenly had to blow off 30 or 50 million worth of stock. So we entered into a standstill agreement with them that they would buy no more stock, and we would give them three seats on our board of directors. We had 15 people, so that worked out, and going to a boardroom was like having an elephant in the room. These guys were sitting over in a corner and were not disruptive, but having them there wasn't comfortable.

And after a year or so, they started talking to us about junk bonds. They had been doing business with Michael Milken, who was, I forgot, the name of the firm he was with. 

Chris Powers: He like invented the junk bond. 

Don Zale: Yeah, and by the way, he's worth several billion dollars today. He went to prison.

Chris Powers: Oh, wow. I didn't know that. 

Don Zale: Yeah. He went to prison for insider trading or something like that. But at any rate, he invented junk bonds, and they wanted to give us their ones. Of course, we turned that down very quickly. And then this.

Chris Powers: Why did they want to give them to you? 

Don Zale: They want to give us junk bonds and buy the company with them.

Chris Powers: Oh, I got you. Okay. Okay. 

Don Zale: Yeah. We'll buy the company from you and give you junk bonds. That's giving up your birthright for a piece of paper. 

Chris Powers: For some turds. Junk bonds 

Don Zale: Yeah. Junk bonds. Yeah. Junk bonds promise to pay later if I can't; you don't get your money if I can't.

So anyway, that was very easy for us to turn down and say, no, we're not interested in your junk bonds. And by the way, you promised you wouldn't buy any more stock. And so that, that was easy to turn down, and they made more than one offer for junk bond. And then, as time went on, they became partners with Swarovski.

This guy who was running people had gone to the Wharton School of Finance with a man who was the CFO of Swarovski, and Swarovski was headquartered in Austria, but they had a lot of money. Swarovski, by the way, their big business is reflective glass. And so all these little reflective glass things you see all over the world on the highways and so forth and every place you look is they were, I think they had 80% of the world market, and so are solid company financially, and they put up 250 million bucks to buy more stock and sale corporation. 

And so now they made us an offer of all cash. They went to the banks, and with this 250 million dollars, we can get a line of credit close to a billion bucks. And they came to us, which was a game changer. We had a cash offer, and I went to New York and spent three or four weeks trying to determine whether it was the kind of offer we should take.

Should we compete with it and tell our shareholders because they had offered them 50$ a share, which is about 20 bucks over what it was trading for? And I looked at it and finally determined two things. Number one, I didn't think that they could run the company and that it would not be suitable for the company.

But number two, I needed to see how I could beat the offer for the shareholders. And once again, keeping all your shareholders in mind, you just concluded that was the best deal the shareholders could get. And so we agreed to accept their cash offer, all cash. That was in November 1986.

And I didn't trust those people as far as you could throw a chimney by the smoke, and I only left Zale Corporation once every check cleared. And I remember sitting at my desk, sending one of our lawyers to the bank in New Jersey where the checks were drawn. And that was December 1986.

And she called me about 10 a.m. And she said, Mr. Zale, there's collected funds in the account so that all the checks will clear, and I got up, left the company, and never returned.

Chris Powers: Take a deep breath on that one. What's it like to have a family business that you've watched that you were seven years old cranking watches and because you're a public company? You don't have as much control over it; it's not like a private company where you say you're not getting on our cap table.

What's that like? 

Don Zale: It's challenging. I remember long before I was president of the sales, my father had a cousin, Jake Feltman, a scrap metals dealer. And Jake was a hardworking guy and a great trader in metals. And his company was not doing well, and he made my father chairman of the board, and my dad would go over there every Saturday. They would work on stuff at commercial, it was commercial metals, which today is a multi-billion dollar company that's very strong, very profitable.

And he would go there every Saturday, and after about a couple of years. My dad and my uncle called a little meeting of the top family people, and I was invited to come to the meeting to sit in the corner. How was about? Oh, it was 1960, something like that. So I've been with the company full time, about five years, six years.

And they said they thought that we should buy commercial metals. We should merge with them. And they went around the room, and my brother was living in New York, running a New York office, and my cousins, his uncles, and so forth, were living in California, and my uncle, other uncles, was doing stuff, wherever.

And they went around the room and said, what do you think about this? And, oh, everybody loved it. I had a cousin living in New Orleans; he thought that was a great idea, significant diversification. And it came to me, and I said it stinks. I said I don't think that we have any business in the scrap metal business.

Because our shareholders didn't buy their stock in a scrap metal business, they bought theirs, and I said that the two businesses don't mix. And that was my first time expressing myself on a significant transaction, and the whole thing disappeared. Right down in there, there's no further discussion of that.

And that was the first time my uncles and father understood that they had stockholders to consider. And they listened to me, and I was just a kid when it was going on, but we'd been public for four or five years, three years, whatever. And I had a different perspective than probably the rest of my family.

And I had that on several occasions where I disagreed with them and was always very upfront. And told them my reasons, and they listened. I was just the reprobate, and I was the guy who wasn't going to say, oh, yeah, everything you guys are doing is excellent. 

Chris Powers: Okay, I wonder if we call it a hostile takeover.

We can, but the question is, you've been in this business since this is your life. And some group from Austria that you probably know of but don't know. And some can eat, eat up, and start the war. I imagine they're just marching up the field, and there's nothing to do at some point.

They've made the right offer. Do you build up resentment as just a CEO and someone who loves the business? Do you say this is part of the game, and I'm just playing the game? And how do you feel about that?

Don Zale: You feel like you don't feel good about it at all. But by the same token, you have to be realistic, and you got to be prepared to move on.

And it was a complicated process for me because I happened to be the only person who had to sign a covenant not to compete. And so I was out of the jewelry industry for five years. I couldn't talk to anybody, couldn't make any investments, blah, blah, blah. So I was out, and that was tough. And I had no respect for the guys who had bought it regarding their ability to operate the company and to its credit.

They didn't take bankruptcy for five years, but under those guys, it was predictable. And the exciting part about the bankruptcy, when they took bankruptcy, almost five years to the day, I went to one of the first creditor committee meetings. And I was thinking about putting together a group to repurchase the company.

And when I walked into the creditor's committee, I think it was one of my relatives, I'm not sure who it was, and sat down at the table, they said, we're not doing business with you. And I said, what do you mean? He said you overcharged those guys. You made them buy that company and pay too much.

I said, are you going to put a gun to their head? They said they didn't care. They wanted me out. And so, bingo, I was gone. It was just, and I never did understand that. I still don't understand, but I was conscious that they didn't know what they were doing and would ruin the company.

Chris Powers: That's because a lot of corporate M and a, that's the, most of these big corporate purchases, don't work out. History shows very few mergers or acquisitions are creative and create value. What was it that you saw in them? They gave you the correct number. They had a fantastic business in their oven, right?

The shiny glass or whatever you call it. But what in the conversations with them? Did you know they're going to torpedo the company? What made it evident to you and talking to them?

Don Zale: I know that this guy from Canada, he thought if those West Texas yokels can run that business and make 30, 40, 50 million a year.

And that guy went to Texas A&M, and I went to Wharton; I got to be much more intelligent than they are. And I can run that business and make double the money they did. And the first thing they did was to eliminate our entire merchandising organization, which is the death knell right there, and then they said the policy we will have is to do strategic partnerships with our suppliers.

That didn't make any sense at all. And so the company fired all of our creative people who were merchandising. They got rid of our vertical integration and saved a lot of money. And the guy who was chairman, I'll always remember. He called me and said, come over and see me, and so forth. It was about four or five months after they, and he said, we cut 70 million of expenses from your company? I said, Oh? 

And he said, yes, you know you had all the great locations in these malls nationwide. And we figured that with all the traffic in those malls. And everybody else advertising, we didn't need to advertise. So we cut that advertising budget to 55 million bucks.

No, really? Yes. Then we closed down your whole merchandising company in New York. He said that was another 12 million. So that was 67 million. They picked up 3 million bucks someplace else, but that shows you how stupid that they cut out all the advertising and they cut out the merchandising, which is the lifeblood of any retailing company.

And it was just predictable to me. The company just absolutely had no idea what the hell they were doing.

But I got fortunate. Let me tell you what because this is important. After the first phone call, I got when we announced that we were selling Zale Corporation. It was from the president of U.T. Southwestern Medical School, and a doctor said, I want you to come over here with me.

I got an office for you. And I said, Dr. Sprague, that's nice of you. He said, call me Charlie. I said, just Dr. Sprague, I'll do that one day, but now you're Dr. Sprague. And so I said, I'll see you. Yes. I have too much to do now, but I'll see you when I finish here.

And I got involved with the U.T. Southwestern, and it was an absolute blessing because I was 54 years old here. The only thing I'd ever done in my whole life was the retail jewelry business primarily. And now I couldn't talk to anybody in the industry. I was out. And here they invited me over as a volunteer, wasn't paid, but as a volunteer to get all involved and help them develop what is now their clinical act.

And I've always said they did more for me than I ever did for them because I would have gone ballistic just having nothing to do.

I promised Barbara and the kids that the very first day, I came home after hearing that the checks would clear, I promised my wife and kids, and I said I would not do anything for one year. I'm going to look at deals and volunteer to do stuff. I'm not going to sign a lease. I'm not going to buy a business.

I'm not going to take a job—none of that. I said because I've seen too many of my friends who were in YPO with me and so forth that sold their businesses and thought they were wizards, and they went out and invested right away in something else and screwed up their finances and their family and got all screwed up.

And I said I'm going to wait and find something that fits. And having that year doing something worthwhile, I helped build a hospital, reorganize their finances and foundation and all that stuff, and met all kinds of new doctors was very fortunate.

Chris Powers: I want to end on several things, but you said. If I were your age, there would be enormous disruption in the diamond industry today. We can't leave that hanging. What's going on in the diamond industry that excites you so much? And is this something that's been building for a while, or is it recent?

Don Zale: In the 1960s, General Electric synthesized a diamond. They made a natural diamond of industrial grade. Out of carbon in 1965 caused us to diversify, and that's another whole story. Since then, technology has just multiplied that laboratory-grown diamonds are within the equal of mine diamonds, and laboratory-grown diamonds generally have a cost that is probably somewhere in the neighborhood of 15 to 20% of a minor diamond, a significant occurrence now. 

Laboratory diamonds today are also identifiable, but you must have sophisticated equipment and knowledgeable people to identify them. And there's a significant inventory out there of mined diamonds worldwide. And now you can call up Sammy, who's got a centrifuge over here or something that can make you a diamond for 15 or 20% of that.

And so I just envisioned having a 2,000$ diamond and having your wife there and showing now for 2,000; I can give you this two-carat diamond, but I can also give you a five-carat diamond. And here they are, and they're identical. Which one would you like to have? One of my good friends told a friend of mine one time when he was selling him a 12-carat pear-shaped stone for his wife, we looked at it, and she said, it's so big, and he said to her, you'd be surprised how they shrink and that's true.

They shrink. And so the value of these new laboratory-grown stones will be extraordinary to, in my judgment, the public. And that's where the ample opportunity is. 

Chris Powers: Your family has a ton of adoration or respect for you. You've lived for 90 years. You've seen a lot. You were born in the Great Depression.

I assume you didn't say that. You were born in 1933.

Don Zale: I was the only baby in the hospital. My mother said they were so poor I didn't get a middle name. 

Chris Powers: So, do you have no middle name right now? 

Don Zale: No middle name. 

Chris Powers: What would it be? We can. What are some things that you, and what are some just tried and actual lessons that transcend time that you would leave?

You may leave it to your family, but you can relate. You can lay it professionally, like what matters at the end of the day, after all that you've experienced, 

Don Zale: Let me tell you this. I was fortunate in 2003. I got an honorary doctorate from Texas A&M. The way the event went down is memorable because I was trying to think I would be at the commencement. There were 16 000 of my closest friends who were going to be there and family, students, and so forth. 

And how do I get everybody's attention? And I started my remarks to the students, saying I didn't deserve this award.

But I had a bad case of hemorrhoids and didn't deserve those either. And that's gone down as the hemorrhoid address down at A&M., But I thought real hard about what I could say to those kids, and I came up with nine words for a great life, and they are, and I sincerely believe this. That number one, you've got to be proud of yourself.

And by that, I mean you have to be able to look yourself in the mirror and chastise yourself about the way you may be mistreated by an employee or a relative, or somebody else. So you've got to think hard about your relationship with people and be proud of how you treat them and what you've done because you are the only person you can fool.

You can't fool yourself. You can fool everybody else. And that's number one. Number two, you have to love your work. I've seen so many people who are miserable all the time, and they come home and make their families miserable because they don't like what they're doing. They're not in love with it.

And you've got to love your work. And then, number three, you've got to give back. And I've seen so; I had an uncle who had an incredible fortune. And he was the family curmudgeon, Uncle Brunke. And Uncle Brunke was, he was unhappy his whole life. And he wound up with this incredible fortune.

And I helped him give it away. And I never saw him as happy as he was giving away his money and so giving back. However, you can do that; it is essential. And number one is your family. I've been blessed with a great family. I lost my wife a little over a year ago. 

I'm sorry.

Don Zale: Anyway, sorry about this.

Chris Powers: That's okay. Take a breath. Yeah,

Don Zale: but I've lived a charmed life, really have. 

Chris Powers: I want to end on something I came across because it ties this up perfectly. You did lose your wife, you're 90 years old, and there's a rumor; I'm sure this is true, but you still go to public golf courses a couple of times a week. And go as a one some so that you can meet people and play with them. 

Don Zale: I did that yesterday and played with a fireman from Frisco. 

Chris Powers: Why, after all, 90 years where you could play golf anywhere you want with whoever you want, do you choose to show up as a one some and keep meeting people? 

Don Zale: I love people. I do. This guy yesterday that I played with he's probably a third in age.

Something like that. The first thing I told that guy. He's a great big, tall guy, African American. I said, now listen, I'm 90 years old. Nobody gives me a stroke. I'm talking about not a golf stroke. I'm talking about an actual stroke, a stroke in the head. And he was just such a nice guy. And I just enjoyed visiting with him.

His wife is a nurse, and blah, blah, blah. And it was just fun for me. That's awesome. I like doing it.

Chris Powers: Don, this has been just a real treat. Thank you for sharing today. I hope you've enjoyed this episode of the Fort podcast. Follow us on your favorite podcast platform or hop over to YouTube to watch full video episodes.

You can check out the fort pod if you prefer—com for more information.