The Story of Keith Lee (American Retail Supply)

Oct 20, 2022

American Dream Achieved

IBA, as an approximately fifty-year old business brokerage firm serving the entrepreneurial community of the Pacific Northwest, has been uniquely positioned since before the American Bicentennial celebration of 1976 to witness and hear the stories of thousands of people who have lived the American dream through entrepreneurship creating beloved businesses by employees, customers, and communities while finding personal fulfillment and financial prosperity through execution of their ideas, hard work, perseverance, and ability.  In an effort to share these stories heard throughout the years by our team of business brokers, who are commonly regarded as the “best listeners” in the M&A industry, IBA has retained highly regarded writer, Nesha Ruther, to tell their stories.  It is our goal to share one story a month. It is our hope that you will find the stories as inspirational and motivational as they are to us and the buyers who bought the businesses in IBA facilitated transactions in Washington, Oregon, and Alaska.

The Story of Keith Lee (American Retail Supply)

By Nesha Ruther

While other teenage boys were playing with friends, Keith Lee was working. Or rather, trying his hardest to work. For months he hounded the owner of the local grocery store to hire him. Unfortunately for Keith, the store wouldn’t hire anyone under the age of 16. “I had gone up there and bugged them every month for at least a year before I turned 16,” he says. “Every month I said, ‘Hey, have you changed those rules? Can I start now?’”

Despite the monthly rejections, Keith was so determined to work that he even offered to weed the grocery store parking lot. He cites this eagerness to contribute from watching his parents, North Dakota farmers who moved to Washington State, and how hard they worked. Finally, Keith turned 16 and got his first job as a box boy at the grocery store.

Keith worked at the grocery store for eight years. “I went to community college so that I could continue to work,” he says. “There was not a lot of money coming from my parents or anything, we didn’t have college money.”

While in college, Keith married his high school sweetheart. His growing responsibilities and new stage of life caused him to want to move on from the grocery store and do something more challenging. “I got a job at Frito-Lay in what I thought was a sales position. It was actually just a delivery route. I never had time to talk to anybody, all I did was deliver chips,” Keith says. “It was a good-paying job, but I hated it. I actually wanted to do something.”

Keith left Frito-Lay and got a job as a food broker. During that time, his wife was working at a beauty supply store. There, the outside salespeople not only made a commission for first-time customers, but that commission would be ongoing whenever the customer bought more. This model was very attractive to Keith. “I wanted to do that,” he says.

Eventually, Keith found a company that had a similar structure of ongoing commission. He got a job as a salesman for hand-held price marking equipment used in grocery stores and retail. It was in this position that he graduated and got his degree in Business Administration.

Keith loved getting to speak directly with customers and help them find the equipment best designed to suit their needs. While he initially took a pay cut from his job at Frito-Lay, he had faith in his own abilities to succeed within the commission structure. “[The owner of the price marking store] told me I’d make $800 my first month, but they had someone there who had started very similar to that and was now making good money. That showed me that I could make this work. I ended up making very good money for the time and my age.”

Keith was right. Within his first year, he was making triple his starting salary. Within three years, he had been promoted to general manager. This was a wise choice, as while the owner of the business was very enthusiastic and loved starting new initiatives, he lacked the consistency to follow through. “We had a joke going around that if you wanted to find out the newest company policy, go talk to whomever spoke to the owner last.”

Six months after becoming manager, Keith became company president. After a number of years, he and the owner arranged a buy-sell agreement in which Keith would be able to purchase shares of the company if he were able to reach certain profit numbers. Keith fulfilled the agreement and purchased 49% of the company.

After a number of years, the owner grew ready to retire and began regularly approaching Keith, asking him to buy the rest of the company. “He’d say, ‘Keith, you got enough to buy me out of the other 51%?’ I would ask him, ‘How much do you want?’ and he’d tell me, and I would say, ‘Nope. Can’t afford to do that.’”

This became an annual routine for the two; until one day in 1991, that number didn’t seem so bad anymore. Because Keith had already been running the business for so long, and the owner trusted him, they reached an agreement in which Keith would pay off the remaining 51% shares over the course of ten years. Keith was able to pay it off in five and become the sole owner.

At the time, the company was called Thomson Marking Service, and exclusively sold price markers. Keith understood, however, that as technology increased, the need for physical price markers would diminish. For the company to last, it would need to employ a new marketing plan. “We had a whole lot of customers who loved us, and we’d already started selling to non-food places like hardware stores, toy shops, menswear, and so on. The marketing decision for me was realizing we had more customers in non-food than grocery, and so we should be selling them all the supplies they needed for their business.” Keith renamed the business American Retail Supply and began stocking a wider range of products to meet the needs of a broader scope of businesses.

Before getting his degree in Business Management, Keith had studied accounting; this came in handy as he gained more control of the company’s finances and began to scale. “When I first took over the company, we were on a cash basis of accounting. We were not making money so the banks wouldn’t even talk to us about a loan. I moved us to an accrual basis of accounting, so all of a sudden we had assets, we had some net worth, and we could get a loan.”

Keith used the loan to purchase a pallet of plastic bags to sell to retailers. At the time, plastic bags were just entering the market and beginning to replace paper. Because plastic bags were fairly new, Keith was able to find a manufacturer willing to sell to a company their size, which was smaller than the typical companies paper bag manufacturers sold to.

The bags were American Retail’s first new product, but it would not be their last. “I wanted to sell things that were used up and taken out of the store, so our first products were packaging products, gift wrap, boxes, ribbons, and bags.” Keith says, “My plan was to sell packaging retailers needed and then move into other products.

Keith’s strategy worked, and before long they were able to finance their inventory and accounts receivable. What had begun as a 1,000-square-foot space combining both office and warehouse, grew into multiple distribution centers ranging from Dallas and Denver to Honolulu and Seattle. By the time Keith sold the company, they sold more different supply and fixture product to retailers than anyone in the country.

Throughout the 1990s and 2000s, the number of independent retailers across the country began to decrease as large chains began dominating across markets. Keith witnessed firsthand the marginalization of small businesses yet continued to service this incredibly valuable demographic. “When I started American Retail, there were had been three local independent menswear stores in our small town, now there’s not a single independent menswear store,” he says. “This entire time our target market was declining, yet we continued to grow because of other product lines and added geography,” he says.

In the early 2000s, no matter where you were based in the country, if you searched “plastic bags” in Google, one of the first results would be American Retail Supply. Keith also stayed ahead by buying out other retail supply stores. Over the years, they purchased 11 of their competitors. “They were struggling, and we got them for next to nothing.”

Easy mergers were uncommon in the industry, but Keith and American Retailers developed a reputation for trustworthiness. So much so that other retail supply stores began approaching them, asking American Retail to buy them out. “I’m betting half the mergers in our industry had litigation, someone suing because they didn’t get paid or they didn’t get what they said they would. [For us] it was reputational, people knew of us and knew we were doing well and if we bought them, there wouldn’t be an issue,” he says. Of Keith’s 11 acquisitions, they never encountered any legal trouble, and everyone went away happy.

American Retail Supply gained a huge advantage from one such acquisition, a packaging distributor out of Phoenix who was selling ten times more product than Keith. “His business was bleeding, so I went to Phoenix and looked at it.” The business was in such a poor state that when Keith returned home, he didn’t contact the owner. “He calls me three days later and says, ‘What’s going on, you were going to make me an offer?’ I said, “Well, I don’t want to offend you, but I’m not making you an offer because it’s just not worth much.’ He said, ‘You don’t understand, make me an offer.’”

Keith offered to pay half the value of his inventory to buy the business, and the owner agreed. Because of the size of the company, Keith was able to buy the inventory for 20% less than he would as a customer. By buying out the competition and acquiring their inventory, Keith was able to broaden his product to include items like display cases, shelving, clothes racks, and more.

At the time, most retailers went to different suppliers for different kinds of items. For example, a store would have one supplier for fixtures and another for packaging. American Retail Supply became a one-stop-shop for anything a retail store might need.

This was not the only area in which Keith displayed ingenuity ahead of his time. While it is now extremely common for businesses to purchase their products out of Asia, Keith was one of the first in his industry to buy products internationally. “I was buying from Asia long before anyone else was,” Keith says. “I was buying plastic bags from Asia in the 1980s.”

While managing all the different suppliers proved complicated, it was worth it for the simplicity granted to the customer. “They were able to make one call and get everything they needed. They loved it,” Keith says.

This did not mean, however, that American Retail Supply never struggled. One moment that had a profound impact on Keith and his company was the attacks on September 11th. “9/11 was really rough [on the company]. Our business dropped 30% overnight.” The fear and panic caused by 9/11 led many people to stop shopping. This impacted the retailers who purchased their supplies directly from Keith.

Keith recalls visiting a normally profitable acquisition in Honolulu shortly after 9/11 and seeing the main street completely deserted. “You could have rolled a bowling ball down Kawakawa Street, normally teeming with vacationers and not hit anyone.” It took a year to come back from that.

It was in moments like these that Keith’s reputation for reliability became useful. He was able to secure a 30-day delay on payments to his suppliers, which allowed him to collect the revenue needed to make the necessary payments.

Difficult economic moments forced Keith to make hard decisions. Amazingly, Keith had never had to lay off an employee from when he began working at the company in 1981 to 2008. However, when the market crashed, in 2008, American Retail Supply had to cut a third of its employees. “I remember one gal saying, ‘Can we wait until after Christmas?’ I said, ‘I don’t know if we’ll be here after Christmas.’ That was hard,” Keith says.

However, even the most difficult moments yielded positive results. “While I didn’t want to lay off anyone, I was able to keep the best people. That made a huge difference.” By choosing to lay off some staff rather than having everyone take a pay cut, those that remained were happy and eager to do their job to the best of their abilities. Having a smaller but incredibly skilled team made the company as a whole more efficient and agile.

Over time, American Retail Supply grew back to its original size, but with the added wisdom of being able to do more with less. “It was almost a blessing in disguise,” Keith says. “We were able to concentrate on the things that made us money and do them really well.”

This mindset of resourcefulness became a critical part of Keith’s business ethos. He cites Michael Gerber’s concept of the E-myth. “A focus of E-myth is making sure that every single thing you do in your business has a documented way of doing it properly. We documented everything we did. How to answer a phone exactly right, how to transfer a call, how to do everything we do exactly right. That didn’t mean everything was done the exact same way every time, but everything was documented,” he says.

Keith’s method came with an important disclaimer, however: everything was to be done according to protocol unless it does not take care of the customer. If the method in place did not meet the needs of the customer, the employee should not only change course but amend the operating procedure to better serve the customer. This allowed for a process of continuous improvement.

Another important element of this protocol is that it puts the onus of improvement on the employee. Keith highlights the importance of getting employees involved in big decisions. “It doesn’t mean you need to get them involved in everything,” he says, “but on the really big [decisions], you should get everyone involved.”

One such moment was when American Retail purchased a computer system. In the early 2000s, such a system cost a tremendous amount of money. Months went by, and yet the employees were not using it like Keith envisioned. He realized that the system did not actually help employees in completing their day-to-day tasks. “The idea behind it was that you can be on the phone, take the order, and have it processed and printed when you get off the phone. But if you were taking an order and someone decided they wanted something shipped differently, it was so hard to make those changes that it was just easier to write the order down,” he says.

“What we did was have the software rewritten, and we got the salespeople together and they had a huge say in how the software was written. It wasn’t me or the sales manager, it was the salespeople. Then, when we reached the point of integrating the software with the warehouse, we got the warehouse people involved and they would have their say.”

Keith understood that nobody could make decisions better than those who would be most impacted. By allowing his employees to have control over the systems they used, the company as a whole was more efficient. “It allowed us to do things better and faster than our competition,” he says. “If there was something that was custom ordered, we had processes that made sure it was coming at the time we said it would. Amazon does all that now, but back then it wasn’t easy.”

Many business owners get so focused on the bottom line that they forget the more mundane, but equally necessary skill of managing people. Keith, however, was not one of these owners. “The biggest thing is listening to your team, it really is,” he says. “When you start listening to your team and their ideas, it makes all the difference. It shows appreciation.” This mindset paid off, and in 1995, American Retail was nominated to Washington CEO Magazine as the best small business to work for in Washington State.

“One of the things [Washington CEO Magazine] asked was for the names of three people they could interview about our business. I thought that was stupid. Am I supposed to pick the three people I think are the happiest? I gave them my whole list of employees.”

Keith was not concerned with winning, but rather genuinely curious about how his employees were feeling. “I wanted it to be representational of who we really were. I didn’t want it to be people that I had picked.”

American Retail Supply ended up winning the award. The magazine said that what set them apart was that team members understood that they did not work for Keith, but rather with Keith.

Keith understood that customer service was indistinguishable from happy employees. And in order to have happy employees, they needed to be treated as equals. He cites Disney and Stew Leonard’s Dairy as companies that helped inform this philosophy. Keith even wrote a book titled, The Happy Customer that details his principles for ensuring not only customer satisfaction but delight. Keith’s secrets to customer happiness have sold over 60,000 copies, but he shared some of them with us for free.

One of Keith’s secrets is identifying competition across lines of skill rather than industry relevance. This meant that for American Retail, the competition was not only other retail providers, but anyone who sold a good, handled customer service, or made deliveries. “The competition is anybody that your customer compares you to,” Keith says. This means the goal is not to sell more retail supply items than other stores but to do each individual skill better than anyone else, across all industries. “For instance, Disney is an amusement park. A lot of people call them for different reasons. When they’re on the phone, they don’t compare themselves to other amusement parks, they compare themselves to whoever is the best in the world at handling phone calls,” Keith says.

“Is your bathroom better than the best bathroom in America? Is your phone answering better than the best in America? Go outside of your industry, see who does things best, and copy them.”

Keith has always looked for what other businesses do well. In one instance, he even drew from a fly-fishing shop that shipped product on the day of the order. He identified a skill, despite the industry being completely different, and incorporated it into his own business. This ability to borrow from a wide range of industries can be traced back to his original desire for the ongoing commission structure he saw his wife get from the beauty supply store.

Another one of Keith’s business secrets is surrounding yourself with like-minded entrepreneurs, particularly those with more experience than you. “Being in groups of people who were smarter than me was huge,” Keith says. It was through groups like these that he learned about search engine optimization, direct mail, and so much more. “I was learning how to do it from other people. I’m not a genius.”

It was these groups that actually led Keith to meet Gregory Kovsky and IBA. Keith had been attending a mastermind group in Seattle, and a mutual friend connected them. Keith was 60 at the time and beginning to wind down. He had originally thought he needed a five-year plan to prepare his business to be sold, but Gregory told him that he would likely be able to get his desired price sooner. “The systems we had developed made it easy for a new owner to come in and continue business as usual and I wouldn’t be needed there anymore. [Gregory] came back with a number significantly higher than I thought.”

Keith’s ability to learn across industry lines was even reflected in the selling of American Retail Supply, as he eventually chose buyers who were involved in tech rather than the retail supply industry.

For Keith, the most important thing to look for in a business broker is trust that the broker will make competent and experienced decisions for the well-being of your business. “I had a deep amount of trust in Gregory because I respected him. Competence in a broker is very important. You need to see if they have done it before.”

For Keith, one aspect of the American Dream is freedom. Part of why he was so committed to installing systems in his business was to grant freedom to both himself and his employees. “If I’m needed for stuff at work, I can’t be free. I went on a three-week cruise in the Mediterranean, I knew [my operation’s manager] wouldn’t need me. Another time, I suffered a concussion, and I was a fruitcake for six months. When I came back, things were running even better than before because we had the systems in place. I had the freedom to do what I wanted.”

Another facet of the America Dream is the inheritance passed down from parent to child. Keith’s parents were farmers who moved from North Dakota to Washington in the mid-1950s seeking a better life for their children. “They came out here for the American Dream, to build a better life for us kids. And while we didn’t have a whole lot of touchy-feely time, we were certainly loved. They worked their butts off to create a great life for us. I wasn’t milking cows at 13, but I had a paper route,” Keith says.

“The American Dream, in my opinion, is making a better life for your kids.”

Keith was able to rise through the ranks and make American Retail Supply what it is today, and he used that business to carry on his parent’s legacy. When asked if he has accomplished this, and built a better life for his children, Keith responded, “When my daughter was 12, she had been to Hawaii 13 times.”

From milking cows to paper routes, to trips to Hawaii; with a little ingenuity and a lot of hard work, anything is possible.


Nesha Ruther

Nesha Ruther is a writer and editor from Takoma Park, Maryland. She received her BA in English Creative Writing from the University of Wisconsin Madison, where she received a full tuition scholarship through the First Wave program based on academic and creative merits. She was a 2016 Young Arts winner in spoken word, a 2016 winner of the DC Commission of the Arts Larry Neal Writing Award, a 2017 winner of the Mochila Review Writing Award, which was judged by Nikki Giovanni, a 2020 winner of the University of Wisconsin’s Eudora Welty Fiction Thesis Award, and a 2022 Tin House Winter Workshop Participant. She has been commissioned to write and perform for the National Education Association, and has had work published in NarrativeNortheast, Angles Literary Magazine, Beltway Quarterly and more. She currently lives in Cincinnati Ohio and is the Lead Manuscript Developer at Holon Publishing and Collective Press.