A Storybook Struggle : Father-Son Dispute Is Tearing Apart Crown Books’ Haft Family

It is a battle mean and nasty enough to be soap opera--a tale of two generations struggling for the control of a billion-dollar retailing empire that encompasses such disparate chains as Crown Books and Trak Auto.

The ongoing Haft family wars pit a street-smart father who amassed a fortune in real estate and discount drugstores against his Harvard Business School-educated son, whose genius is in marketing. At stake is ultimate control of Dart Group Corp., the family-dominated holding company that owns the majority of shares in Crown and Trak.

So far, the street has triumphed.

Despite the pleas of his wife Gloria and other family members, Herbert Haft has exiled his oldest son, Robert, into the corporate wilderness, firing him as president of Dart Group and dismissing him as chairman of Crown, the nation’s third-ranking bookstore chain.

The final, humiliating blow to the younger generation came last weekend. Full-page Crown ads in the book review sections of the Los Angeles Times and Washington Post appeared for the first time without a picture of Robert Haft, the company’s creator and ubiquitous spokesman. It is he who has proclaimed endlessly on television and in print: “If you paid full price, you didn’t buy it at Crown Books.”

Herbert Haft also suspended his son’s salary, ignoring a 10-year employment contract that offered him about $500,000 a year in salary and another $250,000 annually in bonuses.

Cutting off the paychecks was “an extraordinarily punitive step,” says Edward J. Costello, a Los Angeles arbitrator and mediator whose work on business disputes has included the resolution of complex family fights.

“I would think a person who served the company for a substantial time in a senior office would normally have a generous severance package and a consulting package,” said Costello, adding: “They have a very successful set of businesses. There must be a better way to resolve (the dispute).”

The acrimonious fight has been brewing for a year. Robert wanted a more open attitude to the public and potential investors, and a faster accession to full power in the family-controlled holding company. The arguments escalated into a full-blown public feud in recent weeks, more resembling a bitter divorce than a boardroom disagreement.

Neither side is talking directly (both Hafts declined to be interviewed) but knowledgeable sources tell a tale of misunderstandings and angry feelings of betrayal.

Herbert Haft, 72, is the stern patriarch, a man who sold discount vitamins and cosmetics at a small Washington drugstore when Robert Haft was still a toddler.

He is known to be tough and secretive, a legacy from the early days of cutthroat retailing, when he battled with drug and cosmetics manufacturers who tried to drive him out of business because he would not sell their products at the retail prices they asked.

“Herbert hates the idea of anybody, especially outsiders, knowing what he is up to,” says one Wall Street financial analyst who closely follows the fortunes of Dart Group and its related firms.

Robert, 40, dreamed up the idea of selling books at a deep discount while he was a student in the mid-1970s at Harvard Business School. Using the family’s vast capital, planting stores in family-owned shopping centers for low-cost leases and exploiting his flair for marketing, he built Crown into the third largest bookstore chain.

More modern in his business approach, Robert wanted to lift the veil of secrecy from the firm in an attempt to draw the attention of big-time Wall Street investors, his supporters say. However, Herbert’s partisans argue that the son also became increasingly insistent in board meetings and corporate strategy sessions, demanding more power in a disrespectful way.

When the firm’s investment bankers tried to mediate, they were dismissed. A long-time Dart director and family friend who died last year tried unsuccessfully in his last months of life to reconcile father and son.

Two other Crown directors quit the board last month rather than acquiesce to Herbert’s demand to fire Robert. When Gloria Haft, Herbert’s wife and Robert’s mother, asked her husband to relent, she was dismissed as a Dart Group director.

Because of the corporate ownership structure, Herbert is free to impose his will on the directors and shareholders of three publicly traded companies.

He owns 57% of the voting stock in Dart Group Corp., which controls 69% of the common shares of Trak Auto and almost 51% of the stock in Crown Books. His other children, Linda and Ronald, also own sizable blocks of Dart Group stock.

Prior to the blowup, Robert Haft was president of Dart, vice-chairman of Trak, chairman of Crown, and the heir apparent at all three firms. Now, new boards of directors unswervingly loyal to Herbert Haft have been created for the companies.

All the jobs once held by Robert Haft “remain vacant at this time,” Dart Group said in a report to the Securities & Exchange Commission labeled: “Removal of the President of the Corporation.”

In spite of their much publicized personal differences, both Hafts still enjoy strong reputations as savvy businessmen.

“They are obviously great retail managers,” said Robert Robotti, president of Robotti and Eng, a New York securities research firm. “They have done a wonderful job creating businesses from scratch and building them up. The market price of the stocks is very cheap relative to the true worth of the assets.”

Robotti says that Robert’s firing means Herbert has “solidified his control of the company, and the company will continue to be run in the relatively secretive manner (in which) it has been operated in the past.”

Herbert Haft’s management style was shaped by a long, hard struggle to succeed in his younger days.

His father, an immigrant from Russia, ran a drugstore in Baltimore that went broke during the Depression. Herbert, who grew up in an apartment over the store, earned a pharmacy degree from George Washington University and served in the Navy during World War II. He returned to Washington and married Gloria Greenberg, a cosmetologist. Together they opened a small family drug store.

Haft’s insistence on cutting prices below the manufacturer’s suggestions earned him their enmity--many tried to stop his supplies or sue him. He fought back, testifying before Congress on drug prices, and was the key plaintiff in a lawsuit that eventually resulted in a Supreme Court decision that threw out drug-price restrictions.

Herbert can be both dominating and secretive. “He likes to keep things under his direct control, he doesn’t want anybody to know what he is doing, and he’ll fight you hard,” said a former financial adviser to the company.

After Herbert won out over the big cosmetics and drug firms, the Dart chain of discount drugstores boomed for 20 years in the growing Washington metropolitan area. At the same time, he used some of the profits from Dart to amass a huge, family-controlled portfolio of commercial real estate--including shopping centers, warehouses and office buildings--that is now generating enormous income for the Hafts.

Trak, Crown and Shoppers Food Warehouse are expected to pay more than $250 million in rents during the next 38 years for stores, warehouses and offices owned by Haft family partnerships, according to company documents on file at the SEC.

Herbert Haft has shown an uncanny instinct for timing, as well. When the drugstore price wars began to erode his profits in 1980s, he sensed it was time to get out, selling the chain for $160 million in 1984 to the corporation’s senior executives and managers.

Just five years later, the drug chain was bankrupt, and the stores have since been absorbed into other chains.

After Robert returned from Harvard Business School in 1976 with inspired ideas for mass marketing, Herbert agreed to pour resources into his fledgling discount retail operations: Trak Auto and Crown Books.

(The Hafts later bought a half interest in Shoppers Food Warehouse, a privately owned chain of discount supermarkets in the Washington area.)

Robert Haft had two terrific notions: cut the prices on all bestsellers by 40%, and make a bundle of money on “remainder books,” the overstocks of volumes no longer selling in retail stores but available for pennies on the dollar.

Crown “did brilliantly with remainders, organizing them by categories, and making customers see them first and walk all the way to the back of the stores to find the bestseller loss leaders,” says Maureen Marr, former western manager for the Brentano’s chain of bookstores.

Robert ran Crown operations with an iron hand.

“All major merchandising decisions concerning prices, advertising and promotional campaigns, as well as the initial ordering for each store, are controlled centrally at Crown Books’ headquarters in Landover, Md.,” according to Crown documents filed with the SEC.

In the past three years, the company has invested heavily in Super Crown stores, which have 30,000 to 40,000 titles, triple the inventory in the ordinary Crown store. The 35 SuperCrowns accounted for 21% of the total volume of the 248-chain outlet during the past fiscal year.

The bigger stores have benches for browsers and play areas for children. Cappuccino bars are being installed on an experimental basis in several outlets.

The same bigger-is-better strategy, offering customers a larger selection of automobile parts and accessories, is being pursued at the new SuperTrak stores, which boast an elaborate computer system to help the do-it-yourself mechanic.

Trak ranks in the top 10 in the highly competitive replacement parts business, according to William Julian, vice president of equities research at Mabon Securities in New York. But the stock market activity is comparatively quiet, just as with Dart Group and Crown, where the penchant for secrecy dominates management thinking.

Despite the shattering of family unity, the Haft ventures are in the black. Dart had a net income of $550,000 on sales of $320.2 million for the quarter ended April 30. Crown earned $1 million on sales of $54.5 million. Trak’s profits were $92,000 on revenues of $77.9 million.

Yet morale may be suffering as employees watch the bitterness unfold, said one expert in the mediation of family business disputes.

“People loyal to the old man may believe the son is an ungrateful whippersnapper, but others look at the younger man as someone with forceful new ideas,” says Garylee Cox, regional vice president in Washington for the American Arbitration Assn.

The Haft Empire

The feuding Hafts’ finances are deeply intertwined. Through its holdings in Dart Group, the family controls Crown Books, Trak Auto and other retailing and real-estate properties.

A. Dart Group Corp., Landover, Md.

B. Class B Voting shares held by:

Herbert Haft: 57%

Gloria Haft: 17.98%

Robert Haft: 8.33%

Linda Haft: 8.33%

Ronald Haft: 8.33%

C. Dart Group Corp. owns:

69% of Trak Auto: 320 stores (119 in Los Angeles area)

53% of Crown Books: 248 stores (65 in Los Angeles area)

50% of Shoppers Food Warehouse: 35 stores in Washington metropolitan area (privately-held firm of discount supermarkets)

D. Haft Family owns:

Cabot Morgan Real Estate Co.

Shopping centers and warehouses