Merchant of Death
Overpaid price gouger or legitimate entrepreneur? Either way, Houston’s Robert Waltrip has turned the funeral business into quite a profitable undertaking.
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WHEN ROBERT L. WALTRIP’S TIME COMES, he will likely get the same treatment accorded any of his customers at Houston’s Service Corporation International (SCI). Two men will pick him up, place him in a black plastic bag, lift him onto a stretcher, load him into a dark-colored vehicle, and drive him to a low-slung metal building at Thirty-Fourth Street and Ella Road—what SCI insiders call the prep center.
No matter that Waltrip built SCI into a multinational funeral home conglomerate with $1.7 billion in annual sales. One of the company’s nearly 29,000 workers will treat his body just like the others they handle each day: It will be sprayed with disinfectant, and his throat and anus will be packed with gauze to prevent fluids from leaking. His mouth will be closed with glue or sewn shut by a thread run through his septum and lower gum. His eyes will be closed with plastic eyecaps or glue. Then an incision will be made in his throat, upper arm, or pelvis, and embalming fluid—a solution of methyl alcohol or formaldehyde—will be pumped into his body, forcing all the blood out. Waltrip, a large man of perhaps 250 pounds, will require about five gallons of embalming fluid. Upon completion, another worker will dab a bit of makeup on his face and hands and ship him back to the SCI location handling the arrangements, where he’ll be dressed in one of his many dark suits.
There’s nothing romantic or sentimental about preparing a corpse for the grave, but that’s the point: Waltrip, who is 65, has made himself a very rich man by taking sentimentality out of the funeral trade and replacing it with a tough—some might say ruthless—business mentality. Over the past four decades, he has parlayed a single funeral home on Heights Boulevard into the world’s largest provider of “death care” by exploiting advantages that other CEOs would die for: His industry is recession resistant; the logistics and cost of entering the market keep competitors at bay; customers rarely if ever shop for prices; and everyone needs the service eventually. Best of all, many people pay in advance—SCI currently has more than $2.4 billion in prearranged funerals on the books.
“People who don’t buy our stock just don’t like money,” Waltrip once said. He’s right: SCI’s profit margin in 1995 was 11 percent, nearly twice the average of all American companies, and its revenues were more than twice what they were only three years earlier. Over more than three decades, SCI has buried more than two million people, everyone from regular Joes and Janes to such luminaries as John Lennon, Howard Hughes, Jacqueline Kennedy Onassis, and J. Howard Marshall II; in fact, an SCI home held two funerals for Marshall last year—one given by his wife, Anna Nicole Smith, the other by his son E. Pierce Marshall. This year the company will handle one out of ten services in the U.S., about 230,000 in total. And Waltrip is just getting started. During the past three years, his company has nearly quadrupled its holdings; at the end of the first quarter of 1996 SCI operated 2,795 funeral homes, 324 cemeteries, and 138 crematoriums, making it ten times larger than its closest U.S. competitor, Stewart Enterprises of New Orleans. He’s already the largest funeral services provider in the United Kingdom, having acquired two chains there in 1993, and last July he snatched up France’s largest funeral home operator, Lyonnaise des Eaux, for $423 million. Now he’s looking at other purchases in western Europe and the Pacific Rim. “Germany is a very attractive place to be,” he says. “We will be there one of these days.”
Pale and dour, Waltrip speaks in measured sentences with a distinct Texas twang. He is always clean shaven and wears the standard uniform of the funeral director: starched blue shirt, conservative tie, dark blue suit, polished black tassel loafers. “I always wanted to be a funeral director,” he says, resting his hands in his lap. “I liked it, I was good at it, and I never wanted to do anything else.” In particular, he adds, he has always understood the power of emotion when dealing with customers. “The relationship a funeral director has with the people he serves is very rewarding,” he says. “If you don’t have empathy and a desire to serve, you won’t be very good. You’ll come across as cold.”
Waltrip’s office, on the twelfth floor of a nondescript tower on Allen Parkway, is just a few miles from his boyhood home. Growing up, he knew he would someday be an undertaker, just like his father, Robert E., who co-owned the Heights Funeral Home with his grandmother, Mrs. S. P. Waltrip. But in 1951, while he was a student at Rice University, his father died suddenly, and Waltrip had to leave school so he could help manage the business. Young Robert ran the funeral home while completing his degree at the University of Houston. By 1957 he had come to see the profit potential of buying more funeral homes, and the family acquired two more in Houston. Five years later he founded SCI, and by 1974 he owned three hundred funeral homes and the company’s stock was trading on the New York Stock Exchange.
Just as Ray Kroc, the founder of McDonald’s, brought efficiencies of scale to fast food, Robert Waltrip did the same for funeral homes. The analogy isn’t perfect—while patrons of McDonald’s may spend $5 per visit, SCI’s customers often spend a thousand times that much—but as Waltrip explains, “Things about each business are the same.” Like McDonald’s, SCI has fixed costs. Buying in quantity such commodities as coffins and embalming fluid allows the company to increase its profits. Once the fixed costs are met at an SCI home, between 60 and 80 percent of the remaining revenues go straight to the bottom line. And like McDonald’s, SCI cuts costs and ups income by employing mass-production techniques. For instance, rather than have an embalmer at each home, SCI sends most Houston-area corpses to its prep center. A centralized livery system dispatches hearses and limousines to the company’s funeral homes; thus one hearse, which costs $60,000 to $80,000, can work two or more funerals in a single day. SCI also slashes its overhead, staffing, and transportation costs—and offers customers one-stop shopping—by building funeral homes at its cemeteries.
No wonder Wall Street loves Waltrip’s company. From 1989 to 1994, SCI’s stock, which traded for nearly $53 on May 1 of this year, nearly doubled the performance of the Standard and Poor’s 500 Index. “The entire time I have been covering the company, we have always been recommending it,” says Susan R. Little, a stock analyst with Raymond James and Associates of St. Petersburg, Florida, who thinks SCI is as close to a slam dunk as there is in the market. Is it a sure thing? “There are only two sure things in life—death and taxes,” she says, acknowledging that the surety of death, combined with the aging of America, means SCI should have no problem maintaining double-digit growth rates. “Conservatively, you are looking at net income growth of twenty to twenty-two percent over the next few years,” she says. “That means the stock price could go to sixty by early 1997.”
But if Wall Street loves Waltrip, federal regulators are less impressed. Last year, after SCI purchased a funeral company in Medford, Oregon, the Federal Trade Commission ordered the company to sell two funeral homes, a cemetery, and a crematorium in town for fear that there would not be enough local competition. Since 1992, the agency has required SCI to perform similar divestitures in the southeastern U.S. and California. In Britain, the Monopolies and Mergers Commission recently asked SCI to identify its funeral homes as corporate-owned and to provide customers with lists of competing cremation rates. In Australia, where SCI controls 20 percent of the funeral business, it is said to be under investigation for possible violations of that country’s antitrust laws.
And if the FTC is unimpressed, funeral industry watchdogs are downright mad. “SCI figures it has the mortuary business and consumers by the tail and it can twist them around any way it wants,” says the Reverend Henry Wasielewski, a Catholic priest in Phoenix who is a member of the Interfaith Funeral Information Committee, an organization that publishes the wholesale costs of caskets on the Internet. According to the committee’s Web page, SCI’s markup on caskets averages about five times the wholesale price. Wasielewski notes that based on the volume of its business, the company could charge half to a third of what it currently charges and still make a profit. Karen Leonard, a consumer representative for the Sonoma, California—based Funeral and Memorial Society, is equally puzzled that while SCI gets deep volume discounts—paying for caskets about half of what the independents pay—its funeral prices are among the highest in the nation. The National Funeral Directors Association estimates that an average funeral costs $4,470, but Leonard alleges that the average SCI funeral in Houston costs between $8,000 and $14,000.
And it’s not just big-budget funerals. Brian Sergeant, who owns Sergeant Memorial Funeral Home in admittedly less expensive La Grange, says he pays $25 wholesale for a cremation container, which he sells to his customers for $100—yet SCI’s Memorial Oaks Funeral Home in Houston charges $392 for its least expensive cremation container. When Sergeant needs low-budget caskets, he buys plain twenty-gauge steel non-sealing caskets for $235 from a wholesaler in Houston. Memorial Oaks sells a similar casket for $2,395, ten times the wholesale price. “It’s a free market, and everybody is entitled to a fair profit,” Sergeant says. “But what’s fair?” In response, SCI spokesman William R. Barrett says, “Everybody wants to pick a single piece of merchandise and say, ‘You are charging a thousand percent too much.’ What you need to do is look at the whole package. There’s a lot more that goes into a funeral besides the casket.”
One possible reason for SCI’s high prices: They pay their executives very well. While Barrett insists that SCI’s executive compensation “is in line with other major corporations in America,” last year corporate compensation expert Graef Crystal included SCI in a group of ten companies that grossly overpay their top bosses. Using a formula he calls competitive pay, which factors in elements like company size, stock performance, and comparable pay at companies of a similar size, Crystal figured that SCI’s board members are paid nearly twice as much as their counterparts. Crystal told me that while SCI’s directors earned $102,000 in 1994, they should have earned $52,300, putting them 95 percent over the market. Among the members of SCI’s board are Tony Coelho, the former U.S. representative and House majority whip who left Congress under an ethical cloud, and auto racer A. J. Foyt, a lifelong friend of Waltrip’s.
Crystal also assails Waltrip’s pay, saying he is the twelfth most overpaid executive in the U.S. In the February issue of his newsletter, The Crystal Report, Crystal examined 896 large and midsize companies from 1992 to 1994. Crystal estimates that Waltrip earned an average of $9.334 million a year over that three-year period. “An average CEO salary at a company of that size and performance would be $2.259 million per year,” Crystal told me. “He is three hundred and thirteen percent over the market.” And Crystal isn’t the first to cast a critical eye on Waltrip’s pay. In 1991 Forbes reported that Waltrip made $3.2 million in 1990. When added to the money paid to his son Blair, SCI’s executive vice president, his mother, Wanda McGee, and his son-in-law, T. Craig Benson, a vice president, the magazine said, “The Waltrip family owns about 3 percent of SCI stock, but took in $5 million all told, a lush 8 percent of the company’s 1990 profits.”
Although he claims not to know or care what he is worth, Waltrip is indeed a wealthy man. His 500,000 shares of SCI stock are worth more than $26.4 million, and he also sits on the board of and owns stakes in Cash America International, a pawn-shop chain, and Tanknology Environmental, a wastewater processor. He works behind a massive leather-topped antique desk in an ornate office decorated with numerous pieces of Western art, airplane models, and several massive bronze statues. He makes his home at what he calls a “little place” in Waller County that is registered at the courthouse in his mother’s name. The 133-acre spread, which is covered with live oak trees and ringed by a freshly painted white wood fence, is valued by the local appraisal district at just over $1 million. Waltrip also owns a 3,021-acre ranch near Taos, New Mexico, and 17,748 acres near Steamboat Springs, Colorado. When he travels for work, he takes the company jet, a Gulfstream IV. And he owns a stableful of superb cutting horses. His most famous, Colonel Flip, was born of a $13,000 investment; in 1983 Waltrip turned down an offer of $1 million for the stallion, which he still breeds.
But Waltrip seldom rides. Why not sit in the saddle awhile? “I don’t have time,” he says with a dismissive wave of his hand. Instead of enjoying the fruits of his labor, he concentrates on making SCI bigger and even more profitable. “I was up at ten to four this morning and at my desk by six-thirty.” Why work so hard? “There aren’t many people still alive who have built a company to this size,” he says. “Now I can see it being huge worldwide. What are there—fifty, sixty, seventy million deaths worldwide? That’s big. There’s a need in every community in every country for what we do.
“We have to weigh the economies and the stability of the governments,” he cautions. “We are very concerned about currency risk.” Yet his only apparent currency problem is what to do with all the money rolling in. “We want to place our bets on aces, straights, and cinches,” he says.
By betting on death, Robert Waltrip has found a cinch. And he is making sure that lots of people pay him before they pay the piper.