Retailing in the Middle of Nowhere -The Success of Wall Drug in South Dakota

In many family businesses, the third generation is famous for going broke. In the case of Ted Hustead and his family’s Wild West oasis in remotest South Dakota, that’s not likely to happen.

From the Harvard Business School Alumni Bulletin.

by Julia Hanna

http://hbswk.hbs.edu/item.jhtml?id=4466&t=leadership&nl=y

Standing in a swirl of tourists that includes a gaggle of teenage girls, clusters of road-weary families, and a nun in full habit, Ted Hustead (OPM 30, 2001) appraises a mechanized Tyrannosaurus rex as it raises its enormous head, roars, and blows clouds of smoke from its nostrils. The noise stops visitors in their tracks.

"I wonder if I should turn him down a little," Hustead muses. As president of Wall Drug in Wall, South Dakota, Hustead ponders this and many other details of a 76,000-square-foot roadside attraction, not far from Interstate 90, that annually draws an estimated 2.2 million passing motorists. Hustead acquired the T. rex, for example, to drive demand for the fossils, rocks, and dinosaur-related products for sale in the Wall Drug Mining Company, one of twenty-one separate retail departments that generate over $12 million in annual sales.

When Hustead’s grandfather used a $3,000 inheritance to purchase the Wall Drug Store in 1931, it was just that: a drug store. At the height of the Great Depression, in a part of the country sometimes described as "the geographic center of nowhere," the family struggled to make ends meet, until Hustead’s grandmother, Dorothy, had a brainstorm: Why not post a few signs on the highway promising free ice water to parched travelers on their way to the Black Hills? Maybe they’d buy something at the same time. Today, old-fashioned billboards and bumper stickers continue to be Wall Drug’s primary source of advertising.

Hustead’s father, Bill, carried on the family business and expanded Wall Drug into the phenomenon so many souvenir-loving vacationers know today. Yes, Wall Drug is well-known for its kitsch (Hustead draws the line at tacky)—its jackalopes, rubber tomahawks, and snow globes, to name just a few examples. Yet it also enjoys a place of honor in the memories of travelers from around the world. Hustead estimates that 45 percent of Wall Drug’s visitors are repeats, many of whom bring their children or grandchildren to sit on the same stuffed bucking bronc they rode as a child.

********

Most businesses don’t know how or where they’re making money, and we were no exception.

********

Before Disneyland became the quintessential American vacation, Wall Drug was already a kind of Wild West theme park. "My dad built an experience for people to take away with them," Hustead says. "It involves education, entertainment, aesthetics, and escapism—you can’t fake it." He shows off some of the touches that make a difference: The ice cream fountain boasts a marble counter, and customers eat 100 percent buffalo burgers in a walnut-paneled dining room hung with original oil paintings by Western artists. In another part of the store, there are 1,400 historical photos on display that document the daily lives of early settlers and local Indian tribes, General Custer’s expedition to the Black Hills, and the last legal hanging in Meade County. (You can still get a prescription filled, too.)

Today, Hustead, fifty-three, one of seven children, oversees Wall Drug with his brother Rick, who serves as chairman, and his mother, Marjorie, treasurer. Last fall, the two brothers consolidated stock in the business between them after buying out the stakes of other family members. "I concentrate on the overall experience of our business with special attention to the retail areas. Rick focuses on the food operation and personnel issues," says Hustead. An acute awareness of the responsibility involved in maintaining and developing a family business is part of what inspired Hustead to apply to the Owner/President Management Program at HBS.

"The third generation is famous for going broke," says Hustead. "There’s a saying about it in every language you can imagine." To sharpen his business skills, Hustead traded his cowboy boots for loafers and traveled to Boston for a three-week OPM session every year for three years. "Most businesses don’t know how or where they’re making money, and we were no exception. I learned to break our business down into twenty-one profit centers and use a strategic, cost-analysis approach to retail."

Although Hustead spent summers as a teenager working at Wall Drug, it wasn’t initially his career of choice. In 1973, after two years of college, he went to work in the oil fields, starting as a roughneck in Wyoming, and then traveling to Alaska to work his way up through the hierarchy. The schedule—a 12-hour shift for twenty-eight straight days—quickly weeded out wimps. "When I started, my name was rabbit choker," he says. "They told me, ‘You kids from South Dakota are so poor you can’t afford to buy shells for your gun. You have to run your rabbits down and choke ’em to death.’" After proving himself, Hustead became "choker," then "old chokey." He eventually took a one-year sabbatical from the oil fields to return to college and graduated from the University of North Dakota in 1980 with a degree in political science and economics.

*****

Business is theater, and Wall Drug is the stage.

*****

Hustead returned to Alaska after graduation and in 1987 landed the top job of driller. At the same time, pressure was growing to help out at Wall Drug. "I made a deal with my brother that I’d come back by April 1988," says Hustead. He did, and married Karen Kuharski two years later. When Karen and their two young sons drop by Hustead’s office to say hello, it’s clear that he’s pleased with the most recent turn his life has taken. "No regrets," he says. "I came back and really started a new phase of my life."

Summer months are the busiest for Wall Drug. As many as 1,000 customers eat at the 525-seat restaurant in one hour, washing down slices of homemade pie or a maple-iced donut with cups of the store’s famous five-cent coffee. In a town with a population of 800 people, Wall Drug bolsters its summertime staff of 240 with retirees and students, some of whom travel from countries as far-off as Slovakia and Poland. The workers stay in dormitories—homes in town that the Husteads have renovated—for a nominal fee. "Getting and training good people is a core competency for us," Hustead remarks. "There’s an aspect to this business that’s similar to putting on a show. Business is theater, and Wall Drug is the stage."

Grace Hammond, a creative-writing major from Oberlin College, is doing her part by showing a group how to pan for gemstones in a sluice, Wall Drug’s latest attraction. "She’s going to teach me how she does this at the end of the summer," says Hustead, whose days in the oil fields have prepared him well for the long hours and attention to detail his current position requires. "This is a capital-intensive, labor-intensive way to make money," he remarks. "It’s a lifestyle, like working on the family ranch. It will always be a challenge to turn this business into a real cash cow."

"By going to HBS, I developed the skills, confidence, and knowledge to be a good steward of this family business. I don’t know if my sons will want to work here, but I do want to provide them with the same opportunity I had—if they’re interested. Right now they’re very interested, but they’re only ten and eleven years old." Looking around, he adds, "My grandparents were able to make a success of Wall Drug in a godforsaken part of the country in godforsaken times. It’s proof that the American dream is still alive."

Reprinted with permission from "American Dream," HBS Alumni Bulletin, Vol. 80, No. 3, September 2004.

See the current issue of the HBS Alumni Bulletin http://www.alumni.hbs.edu/bulletin/

Julia Hanna is associate editor of the HBS Alumni Bulletin.