Just mention the name "Haft" to Washington and drugstore industry executives and the response is almost always the same: a very private but extremely shrewd and strong-willed family that has built a business empire through its determination to win.
Herbert H. Haft, the chairman of Dart Group Inc. and Crown Book Corp., and co-chairman of Trak Auto Corp., is head of the family. He's called "dynamic . . . with a lot of dare and tenacity and very bright" by Leonard Rodman, president of Rodman's Discount Drugs Inc. and a longtime local competitor.
"He's a mystery man who has proven to be a brilliant businessman in his ability to make money," added David Pinto, editor of Chain Drug Review. "His son Robert is also bright," Pinto said, noting that the younger Haft, the 32-year-old president of Dart, Crown and Trak Auto, is the brains behind the successful Crown discount book chain.
"The Hafts are tough businessmen who have to win, win, win," said another retail executive who asked not to be named.
The Hafts' relentless resolve to come out on top is one of the chief reasons the drugstore industry and financial community took seriously Dart's recent announcement that it was considering buying the nation's second-largest drugstore chain, Jack Eckerd Corp. -- a company whose yearly revenue of $2.6 billion is nearly three times that of Dart.
Early last month, in a document filed with the Securities and Exchange Commission, Dart said that it had acquired a 5 percent stake in Eckerd and was considering buying all of the Clearwater, Fla.-based company's common stock. In what analysts call an attempt to ward off an unfriendly takeover, Eckerd last week announced it was selling two key subsidiaries.
Eckerd already had filed suit against Dart in a effort to bar it from buying more stock. Among other things, Eckerd charged in court documents filed in the suit that Herbert Haft "has a long history of exploiting public companies that he controls for his own purposes, including diverting corporate funds for personal use, and appointing numerous family members and close personal associates to high-paying executive positions."
Financial analysts last week said Eckerd's move may not be enough to ward off a takeover.
Industry executives who have talked with the Hafts in the past year are convinced that the family is interested in Eckerd for more than just an investment. Having sold their 73-store Dart Drug chain last year for $160 million, the Hafts may be looking for new retailing opportunities beyond the two specialty chains -- Crown Books and Trak Auto -- they currently run, the officials said.
"I talked to Herb Haft last November and he said he missed the chain drugstore business and really wanted to get back into it," said Robert J. Bolger, president of the National Association of Chain Drug Stores.
Yet, Bolger and other industry officials noted, it is very hard to know what the Hafts' motives really are, given their strong penchant for secrecy. Herbert Haft, 64, "is a loner . . . not really close to the rank and file of the industry," Bolger said.
According to financial analysts, the Hafts' determination to keep their activities as private as possible makes it difficult to keep close track of Dart, Crown or Trak -- even though they are publicly traded companies.
"You can't follow them; it's impossible," said one New York analyst who asked not to be named. "For a public company, it is covertly closed-mouth. They just don't give out any information," the analyst added.
Even at the annual stockholders meetings, the Hafts are reluctant to disclose public information. At Crown's annual meeting last month, Robert Haft refused to answer a stockholder's question about how much Crown stock he owned -- even though his holdings were listed in the material sent to stockholders notifying them of the meeting.
The Hafts, through their lawyer, declined to be interviewed for this story. "It is impossible for us to respond to any request for an interview because we are in litigation," defending the suit filed by Eckerd, said Dart's attorney Robert B. Hirsch.
Similarly, longtime Dart employes refused to be interviewed. "Ever since I have been here, the Hafts have always taken a low profile. I don't feel that I ought to change that now," one employe said.
Nonetheless, through required quarterly and annual filings at the SEC, Eckerd's lawsuit and a 1981 lawsuit filed by a former employe, it is possible to piece together some of the Hafts' motives -- as well as a clearer picture of the multimillion-dollar empire that began with a single Dart discount pharmacy opened by Herbert Haft in 1954 at the corner of 18th St. and Columbia Rd. NW.
Today, Haft's empire consists of Dart Group Corp., a holding company with total assets of $256 million. Dart's 1.6 million shares of Class A stock are traded over-the-counter. The Haft family controls all Class B stock, which is the only voting stock and is not publicly traded.
Dart's corporate holdings include:
*Crown Books Corp., a 181-store discount book chain. Crown, which was created by Robert Haft as a Dart subsidiary, was spun off into a separate company in 1983. Dart, however, still holds 34 percent of Crown's stock.
*Trak Auto Corp., a 144-store chain selling automotive parts at discount prices. Also created by Dart as a subsidiary, Trak was similarly spun off in 1983, with Dart retaining a 66 percent stake in its offspring.
*Dart Group Financial Corp., a new subsidiary created in April to handle the parent company's investments. For a start, Dart has agreed to contribute up to $90 million to the subsidiary as the capital base for its investments.
Gone from Dart's balance sheet is the 73-store Dart Drug chain that had been the backbone of the company's assets and operations for 20 years. Last year, after turning more and more attention to Crown and Trak Auto, the Hafts decided to sell the drugstores to the management group that had recently been named to run them.
The sale brought Dart $160 million in cash. At the time, Herbert Haft, in a rare telephone interview, indicated that Dart intended to use the proceeds to expand existing business operations as well as enter new ones.
"Since the sale, Dart has examined a number of possible business acquisitions," the holding company told the SEC in documents filed for the fiscal year ended Jan. 31.
These included a possible takeover of The May Department Stores Co., the parent of The Hecht Co. and a number of other retailing chains. Between December and February, Dart purchased 383,800 shares of May stock for $15 million. At around the same time, Crown Books bought an additional 440,000 shares for $18.2 million. After May resisted Dart's preliminary maneuvers by arranging a real estate deal that would have made an unfriendly takeover difficult, Dart and Crown sold their stock. In the process, however, the two companies earned a profit totaling $1.4 million.
"Dart is continuing to seek and evaluate potential business acquisitions and has consulted several major investment banking firms in this regard," Dart told the SEC in documents filed for fiscal 1985.
In addition to Dart, the Haft family owns a number of real estate partnerships that, in turn, own a variety of properties leased by Dart, Crown, Trak and other retailers.
Chief among the real estate ventures is Combined Properties Limited Partnership, which owns about two dozen shopping centers throughout the Washington area (see chart). Most of these include a Dart, Trak or Crown store, and sometimes all three.
According to documents filed with the SEC, Haft family partnerships received more than $1 million in rental fees from Trak and Crown in the fiscal year ended Jan. 31. Trak also paid a Haft family partnership a $361,000 fee to lease store fixtures and equipment.
Meanwhile, the spun-off Dart Drug Stores Corp. paid the Hafts $384,000 in annual rent for use of 12 stores and the Landover warehouse that also is owned by the Hafts. Dart Drug Stores will continue to use the warehouse as its headquarters, but Trak, Crown and the Dart Group holding company will move to new corporate headquarters a half-block away later this year. The new complex, including a distribution center, is on property owned by a Haft family partnership that includes Robert and his sister, Linda Haft. Yearly rent at the new facility will be $1.5 million.
"Real estate has been Herbert Haft's prime interest," said one drugstore industry official who requested anonymity. "In many ways, his real estate interests were stronger than the stores. The biggest portion of his wealth and success has come from real estate."
Nonetheless, Dart handsomely compensates the Haft family, consistently making them the highest-paid executives in the Washington area, and among the highest in the country.
According to SEC documents, Dart's compensation to Herbert Haft totaled $5.5 million last year, while his son received $5.34 million. Crown Books paid Robert an additional $200,000 in compensation. Those figures made Robert the fifth-highest-paid executive in the country -- just ahead of Chrysler Corp. Chairman Lee A. Iacocca, who earned $5.51 million, according to a Business Week survey.The Hafts were not included in the Business Week survey. Herbert Haft ranked just behind Iacocca in the seventh spot. By contrast, International Business Machines Corp. Chairman John R. Opel was paid $3.8 million, Business Week said.
On top of this compensation, Dart last year made an $801,000, interest-free loan to Herbert Haft for personal use and a $176,000 advance, also interest-free, to his son Robert. Robert repaid all of his loan by year's end, while $190,000 remained outstanding on Herbert's loan.
In addition, Herbert's wife Gloria has a 10-year employment contract that guarantees her a yearly base salary of $75,000, plus a minimum 10 percent raise a year. Gloria Haft is a vice president and director of Dart Group.
The Hafts have come a long way since they opened their first drugstore in Adams Morgan 31 years ago. At the time, Herbert was a pharmacist; Gloria, a cosmetician.
The Hafts quickly earned a reputation within the industry as steep discounters, incurring the wrath not only of nearby drugstores, but also of its suppliers, for breaking industry pricing rules. At a time when other drugstores closely followed the orders of cosmetic and drug makers, selling merchandise at the manufacturers' suggested price, Haft would cut his prices, recalled Rodman, another Washington-area discounter. "Other drugstores bought an item that was priced at $1 and sold it for $1 or more. The Hafts took a $1 item and sold it for 59 cents or 79 cents. He was on the front line of the battle against 'fair trade laws' " that permitted manufacturers to set the price at which their goods could be sold at retail, Rodman said.
One by one, Haft's suppliers threatened to cut off Haft's shipments if he didn't raise his prices. And one by one, Haft fought them in court. "Sometimes he would win, sometimes he would lose," Rodman said.
But in the process, Rodman added, Haft "changed the drug business for Washington, D.C. . . . Now he has every chain following his lead in cutting prices."
In 1957, the government charged Parke Davis & Co. -- one of the nation's largest drug firms -- with violating federal antitrust laws by conspiring to fix drug prices. Herbert Haft was one of the government's lead witnesses and gained much publicity when Parke Davis threatened to cut off his supplies after his court testimony. After fighting all the way to the Supreme Court, the government finally won its case.
Haft's price-cutting campaign made him an iconoclast within the industry. Coupled with his compulsion for privacy in what drug chain officials say is a very open industry, his price-cutting made him less than popular among his peers, several drugstore executives said. Haft has never been named to the board of the National Association of Chain Drug Stores -- even though executives of most other chains have served on the panel, several industry observers noted.
Dart remained primarily a drugstore chain until the early 1980s, when Robert joined the company immediately after earning a masters degree at Harvard Business School. "The chain was successful, not because it knew how to merchandise, but rather because people came in droves to the store in response to its weekly newspaper advertisements promoting large price discounts," one industry expert said.
Robert, however, quickly changed Dart's image by launching Crown Books -- a concept that originated in a thesis he did at Harvard. Robert modeled Crown after the New York-based discount chain Barnes & Noble, which he frequented while at Harvard.
"I came back from Boston and wondered why we didn't have it here," he later recalled. With his father's backing, Robert opened his first book store five months after his graduation. That was eight years ago; today the chain has 181 stores.
With the book store chain a success, the Hafts two years later decided to try their hand at another specialty discount store -- this time for automotive parts. Today, Trak has 144 stores. But its financial health is not as strong as Crown. Last year, Crown posted a $6.5 million profit; Trak, on the other hand -- hit hard by competition on the West Coast -- earned $3.2 million, a 30 percent drop from the previous year.
"Robert helped broaden the business -- all the creativity comes from him," one retailing executive said.
"Robert came in and changed the nature of the business," added another. "In the process, he made Dart a profit center that it never was before."
Today, industry officials believe Dart is trying to become an even greater profit center -- and perhaps even a major force nationwide -- with its move to acquire other big retailers. Eckerd is the latest target.
Dart has retained the investment firm of E. F. Hutton & Co. Inc. to act as its financial adviser in its move to buy Eckerd, which, until last week, not only owned 1,511 drugstores, but also the nation's largest chain of video stores, VideoConcepts, and JByrons, a Florida department store chain. However, reflecting the consensus among financial analysts that VideoConcepts and JByrons had been a large drain on company resources, Eckerd sold those two units last week.
On Friday, Eckerd said it had agreed to sell the 55-unit JByrons chain to Amcena Corp. of New York. Two days before, Eckerd and Tandy Corp. reached an agreement on the sale of American Home Video Corp., which runs the 207 VideoConcepts stores. Terms of the deals were not disclosed, but analysts said the transactions should provide Eckerd with about $200 million in cash that could be used to help ward off a takeover bid.
Continued troubled at VideoConcepts plus a decline in drugstore sales have caused a large drop in Eckerd's earnings this year, with the company reporting a 50 percent decline for its latest quarter that ended April 27. Earnings went from $18 million last year to $8.8 million this year. Despite annual revenue nearly three times as high as Dart's, the two companies had almost identical profits last year -- $85.4 million for Eckerd, $82.3 million for Dart.
Before last week's announcement, the Hafts had told the SEC, "If Eckerd were to focus more on its retail drug business than on its unrelated businesses, the corporation's value could be enhanced."
As a result of the sale announcements, Dart's attorney Hirsch said, "Maybe we're influencing management already." Eckerd officials said Friday, however, that the two deals were unrelated to the Dart takeover bid and were initiated before Dart made its intentions known.
At the very least, the Hafts stand to make a handsome profit from its move on Eckerd. As soon as Eckerd announced in early May that it expected its third-quarter earnings to be less than half the profits achieved in the same period a year ago, its stock price dropped sharply, from $26 a share to $22.875. Within days, the Hafts began buying Eckerd stock on the New York Stock Exchange for an average $24.70 a share. After buying about 5 percent of Eckerd for $46.5 million, Dart notified the SEC that it was considering buying the rest of the company.
Friday, Eckerd stock closed at $29.625 a share. If the Haft's were to sell their 1.9 million shares today, they would earn a profit of nearly $9.36 million.
If Dart fails to win Eckerd, analysts predict it will certainly try again for another company.
But in the process, they said, they are confident that the Hafts will continue to make money and come out on top.
As one industry executive said: "You can bet your bottom dollar that the people who come out whole will be the Hafts."