From the Corner Office: David Green of Hobby Lobby

Something interesting happened over the years as Hobby Lobby emphasized people over profits: Profits grew anyway. The philosophy is part of founder and CEO David Green’s mix of conventional and unconventional wisdom in growing the company from a $600 enterprise in 1972 to more than $2 billion in gross sales in 2009. Hobby Lobby, scheduled to open its 455th store this fall, projects $2.2 billion in gross sales for 2010.

Green applies his people-first approach to employees as well as customers, who appreciate a vast selection of well-priced arts and crafts supplies, home accessories and holiday decorations. “You need an attitude of service. You’re not just serving yourself. You help others to grow up and you grow with them,” he tells SUCCESS.

To give employees family time, stores close all day on Sundays and at 8 p.m. other days. These hours benefit Hobby Lobby by attracting quality employees who value time for family, Green says.

Hobby Lobby’s full-time employees enjoy a minimum wage of $11 per hour, which also has worked to the company’s advantage. “It hasn’t been a cost…. You don’t have to retrain, which is very costly. They don’t come and go. If they are making $7.25 an hour working for you, they can go down the street and make $7.25 an hour, so they are more likely to leave.”

This spring at its Oklahoma City headquarters, Hobby Lobby ventured even farther outside the box for employees. It opened a medical clinic that’s free to employees on the company insurance plan ($30 per visit to nonsubscribers). “The clinic has been really good,” Green says. “Some people hadn’t been to the doctor in many years.”

Green says his business practices are rooted in his deeply held Christian values. He applies these principles to Hobby Lobby as well as its affiliates: Mardel Christian & Educational Supply, which sells Christian materials, office supplies and educational products; Hemispheres, retailing home furnishings; and Bearing Fruit Entertainment, a nonprofit communications company that promotes the relevance of biblical teachings through advertising and filmmaking.

Green stands on his principles even when they pinch his pocketbook. The highest-profile example, of course, is store closures on Sundays since 1998, which jeopardized $100 million a year in sales on what was the busiest day of the week. Another time, Green vetoed the sublease of a closed Hobby Lobby to a liquor store, instead paying $330,000 a year on the 10-year lease.

Some of Green’s employee rules also arise from his integrity standards: Theft and sexual misconduct mean automatic firing, and employees are not allowed to accept gifts of any value from vendors.

Other rules relate to typical business plans. Managers must hold payroll at a set percentage of gross sales, and their quarterly bonus declines incrementally based on how much they exceed that percentage. “We don’t have to nag or scold,” Green writes in More Than a Hobby.

Certain mistakes may require more direct handling, however. “One type of mistake is not following instructions. We tell them to do it in a certain way because we know it works, and if they don’t do it, I’m not easy on this kind of mistake,” Green says.

Store buyer missteps are another story. “It’s different when a buyer makes a mistake on what he thinks will sell,” Green says. “We’re very lenient on those. We want them to be aggressive. We try a lot of things. You can’t learn if you don’t try.”

Green admits to suffering severely from one of his own mistakes, loading stores with high-end products during an oil bust in the 1980s. “We were stuck with more than $100,000 worth of twist beads alone. I couldn’t pay vendors....

“It seemed like nothing I tried would work. My nerves were shot. Every time the phone rang, I knew it would be another creditor wanting payment…. Some nights I doubt if I slept a total of one hour.”

Green cut transportation and payroll costs; he slashed prices to move stock and increase cash flow. The company eventually stabilized after losing $1 million in 1985, a painful lesson in inventory caution. “When I take a risk, I like it to be a calculated risk, meaning I make it as small as possible.”

One such risk was buying a $25 million warehouse complete with a state-of-the-art conveyor system. It paid for itself by dramatically improving warehouse productivity. Green made the leap only after careful analysis.

But he resists an expensive bar-code inventory and pricing system. Why? For one thing, some of his foreign manufacturers can’t support a bar-code system. For another, employees know what’s on shelves and can more readily help customers if they take inventory the old-fashioned way, by counting. The computer won’t know if products are broken or stolen, he says. “It blithely goes on telling the staff they have such-and-such, when in fact they don’t.”

The lack of bar codes slows checkout lines a couple of seconds per product, Green says, and if cashiers get backed up, managers open another lane. Bottom line: Bar codes don’t pay their way.

Store leases must promise cost-effectiveness, too; most are second-generation, less-than-prime retail sites. The company converts the space to its winning format, with a priority on new lighting that’s crucial to the Hobby Lobby shopping experience. The makeover is speedy: In two weeks, Hobby Lobby can go from ink drying on a lease to shoppers in the wide aisles.

The quick turns are part of the alluring retail challenge for Green, who has no plans to retire, and no hobbies himself. “I enjoyed building this company from $600 to where it is now. This is my hobby: growing stores, adding stores. It’s fun.”