In his 2006 Berkshire Hathaway Annual Letter, Warren Buffett reflects on his and Charlie Munger’s early venture into the rewards business by purchasing Blue Chip Stamps in 1970. At the time, the trading stamp company was thriving with $126 million in sales and widespread popularity.
However, despite initial optimism, the business steadily declined after their acquisition, with sales plummeting to $19.4 million by 1980 and eventually to a mere $25,920.
Buffett humorously recounts how their efforts to revive the company failed, but he and Munger remain ever hopeful, continuing to soldier on despite the losses.
Here’s an excerpt from the letter:
Every now and then Charlie and I catch on early to a tide-like trend, one brimming over with commercial promise. For example, though American Airlines (with its “miles”) and American Express (with credit card points) are credited as being trailblazers in granting customers “rewards,” Charlie and I were far ahead of them in spotting the appeal of this powerful idea.
Excited by our insight, the two of us jumped into the reward business way back in 1970 by buying control of a trading stamp operation, Blue Chip Stamps. In that year, Blue Chip had sales of $126 million, and its stamps papered California. In 1970, indeed, about 60 billion of our stamps were licked by savers, pasted into books, and taken to Blue Chip redemption stores. Our catalog of rewards was 116 pages thick and chock full of tantalizing items.
When I was told that even certain brothels and mortuaries gave stamps to their patrons, I felt I had finally found a sure thing. Well, not quite. From the day Charlie and I stepped into the Blue Chip picture, the business went straight downhill. By 1980, sales had fallen to $19.4 million.
And, by 1990, sales were bumping along at $1.5 million. No quitter, I redoubled my managerial efforts. Sales then fell another 98%. Last year, in Berkshire’s $98 billion of revenues, all of $25,920 (no zeros omitted) came from Blue Chip.
Ever hopeful, Charlie and I soldier on.
You can find the entire letter here:
2006 Berkshire Hathaway Annual Letter
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