Unexpected Overture Keeps Champaign Surplus in the Family
In 2005 at the ages of 56 and 55, Ira and Lynn Wachtel began to think about how they were going to exit Champaign Surplus, a 64-year-old Champaign, IL store they had acquired from Lynn’s parents in 1981.
It appeared neither their son nor daughter was interested in taking over the family business. After a two-year stint working at the store after graduating college, their son opted to return to grad school and pursue a career in government. Their daughter, Shira Epstein, was happily married in Chicago, where she owned a successful graphic arts business.
The Wachtels huddled with their personal financial planners, bankers, accountants and lawyer to consider their options. Shira’s husband Dan Epstein, a CPA, was brought in to help value the business. The Wachtels had serious discussion with a couple of buyers, but no sale ensued.
By 2008, the couple had reluctantly concluded that their best option would be to keep running the store until they qualified for Medicare. At that point, they would likely hold a going-out-of business sale. When the recession hit later that year, however, the couple decided that their new retirement was going to be working much longer than they anticipated.
“We felt that we could no longer manage retirement without our yearly income from the store,” said Ira.
But while returning from a trip to the Boundary Waters in August 2009, the Wachtels received a phone call from Shira and Dan. The Epsteins, it turned out, had been thinking about returning to Champaign to take over the family business for two years, and were now ready to make the move. By January 2010, the Wachtels had sold the business and begun working under a seven-year transition period that would allow Ira and Lynn to retire at ages 67 and 66 respectively.
In many ways, the sale of Champaign Surplus represents the ideal outcome. In one fell swoop, the Wachtels passed on the business to a third generation, while securing their retirement and gaining more frequent visits with their daughter and first grandchild, who was born in January, 2011. But the Wachtel’s story is also a cautionary one for specialty retailers and their vendors. Had the Epsteins not unexpectedly offered to buy the business, the Wachtels might have had to postpone their retirement much longer and the outdoor industry would have likely lost Champaign Surplus, its millions of dollars in annual sales and the goodwill it has built up over more than 60 years of doing business.
At their annual meeting in Salt Lake City in January, the board of directors for Outdoor Industry Association listed the lack of succession planning by specialty retailers as one of its top concerns. OIA VantagePointTM data indicate that outdoor specialty retailers generated between 15 and 25 percent of outdoor product sales in 52 weeks ended March 7, 2011. More importantly, they have historically played a lead role in helping vendors launch new brands, products and innovations. Yet in its Specialty Retailer Operational Report for 2007, OIA found less than half of independent outdoor specialty stores have a succession plan and among them only 21 percent plan to keep ownership in the family. Given that many outdoor specialty retailers are now approaching retirement, that’s a disturbing figure.
In the Wachtels case, Shira’s and Dan’s strong business background put the transaction on a fast track. Shira holds an undergraduate degree in graphic design, worked as a designer for the Federal Reserve Bank in Chicago, received an MBA from The Kellogg Business School of Northwestern and owned a graphic design firm. Dan is a CPA who was working as the controller of the Leo Burnett Advertising Agency in Chicago. Their solid business credentials eased concerns among Champaign Surplus’ creditors, including its bank, vendors and landlord.
It also helped that Ira and Lynn had acquired the business from her parents in 1981 at the ages of 32 and 31 after a six- year transition and knew how to structure a transition plan that maximized the chances for success for both generations. Finally, there was absolute trust between the two generations.
“Their attitude through entire the process was, ‘We don’t want to do anything that jeopardizes your lifetime of work,’ and our attitude was ‘You’re our kids and we want to make sure you have a high likelihood of succeeding,” said Ira. “We both sacrificed from the point of view of the best buy and the best sell.”
Last year, during the first year of transition, Ira worked 70 percent of his old schedule and Lynn worked 90 percent of hers. Ira mentored Shira on retail marketing, buying and customer relations, and Lynn continued to work as the women’s buyer and bookkeeper. Each year going forward, the Wachtels will work less and less until exiting the business sometime after 2016.
“The expectation of both couples is that after seven years Lynn and Ira will only work at the store if they want to and if they are welcome to do so by Shira and Dan,” said Ira.