To nourish their slender profits, the big boxes will charge companies like GTO "indiscriminately," notes Andrew Jassin, a New York City-based consultant to retail suppliers. "If something doesn't sell at the expected rate or the inventory doesn't move, the retailer will inexplicably return the product, and the seller who doesn't fight will be charged."
Yes, fighting is part of the game. But what Mitchell didn't appear to know was that any disagreement is supposed to stop short of mortal combat. A building contractor for 20 years, he had no experience with retailing or manufacturing before he took over GTO, in 1993. Mitchell knew, of course, that suing would be risky, that it would forever alienate Wal-Mart and could even stigmatize GTO as it sought to attract other brand-name retailers. Yet once he came to understand Sam's Club's tactics, he felt there was no choice but a showdown. And despite the risks, he says, "it felt great to be able to kick Wal-Mart in the shins."
Charles Burrell Mitchell III has the high cheekbones of Glen Campbell and the gray mane of Charlie Rich, the country crooner. If his smile appears preternaturally white, that's because those aren't his original-issue teeth. In his freshman year at Florida State University, he crawled inside a heating duct of a chemistry lab. Somehow a solid metal door smashed him squarely in the face, knocking out several front teeth. Why a duct? "It was something I needed to explore," he says by way of explanation.
Mitchell, evidently, has always gone his own way. He built his house with his bare hands back in 1973. That same year he founded Mad Dog Design & Construction Co., a maker of custom houses in Tallahassee, instead of accepting a Wilson fellowship to study for a Ph.D. in American history at Yale. As Mad Dog's president, Mitchell worked to create customer loyalty: he made a point of being the kind of builder who wouldn't clobber customers who wanted an extra door.
Among Mitchell's customers was Lester M. Tabb, a former Wall Street trader who later founded GTO and invited Mitchell to become an investor and board member. The idea for the automatic gate opener came from Wayne A. Payne, an amateur inventor. Now a senior vice-president and chief operations officer at GTO, 43-year-old Payne shares an office with his yellow-headed Amazon parrot, Bubba. Just down the hall Mitchell's brother, John, a vice-president, often works beside his caged, six-foot-long gray rat snake. Phil Wilkins, director of research and development, also has an office mate: his beloved baby boa. Indeed, the menagerie-like atmosphere at GTO reflects Mitchell's unconventional style.
Until 1994, GTO was a money-losing enterprise. But Tabb, a born salesman, stayed upbeat, portraying the gate opener as something that was destined to become as ubiquitous as garage-door openers. Landing Sam's Club in 1989 nonetheless had seemed to fulfill his vision. "Everybody was saying, 'Hey, this could be the account that will put us over the top. We could be a viable company after this," recalls board member Mike Blankenship. "Once you get that kind of account, you really feel you have accomplished something."
Everyone had high hopes that GTO would have the kind of alliance with Wal-Mart that founder Samuel Moore Walton had himself championed. Wal-Mart's vendors were "partners" in Walton's vocabulary. With them, he would write in his memoir, Sam Walton: Made in America, he sought to "sit down...and work out the costs and margins and plan everything together....Then, as long as they are honest with us and try to lower their costs as much as they can, and keep turning out a product that the customers want, we can stay with them." Of course, Wal-Mart also became known for its fierce efficiency, in part by squeezing every cent out of its supply chain. That strategy became especially true at Sam's Club, which must operate on a "very, very low" gross margin to stay competitive with front-runner Costco Cos., according to Maggie Gilliam, a retail consultant who worked as a Wall Street analyst for 35 years.
For Tabb the prospect of having his gate opener on the shelves of many of the Sam's Club stores--now totaling more than 450--potentially meant millions of dollars of business. And by 1992, Sam's Club was snapping up $1 million worth of gate openers. But Tabb didn't feel much like a valued partner.
Payne, among others, had brought to Tabb's attention the problem with returns. "We need to do something," he said. But Tabb, understandably, was cautious about alienating the customer he had worked so hard to bag. A few months into GTO's relationship with Sam's Club, in a letter he fired off on June 18, 1990, Tabb complained of four units that "were obviously not returned under the terms of our vendor agreement." The gate openers had been abused, he wrote--one by a cutting torch, another by submersion in water--and some were missing parts. "We want to emphasize that this is not the first time products have been returned to the factory in this kind of condition," he wrote.
The answer he got back--"Don't do that again," according to Mitchell--was, in spirit, the same reply GTO would receive for the next half a dozen years. Although Tabb didn't do it again, in 1993, shortly before he died, he instructed employees to photograph and test every returned gate opener. Testing could determine, for instance, if the gate opener had been crushed by an impatient driver, fried by lightning, or installed on a gate heavier than the maximum allowance of 350 pounds. It could also show that nothing whatsoever was wrong with the device.
