The Piggly Crisis

Saunders was obsessed with the idea of efficiency, and thought that customers wasted a lot of time waiting on clerks. Saunders wanted to free customers from the tyranny of clerks by letting them do their own shopping. Saunders also developed a just-in-time delivery system to get food to his Piggly Wiggly stores. This system later inspired Toyota to apply the same concept to automobiles which helped Toyota to control costs and conquer the globe. Saunders opened up his first Piggly Wiggly store on September 6, 1916 at 79 Jefferson Ave. in downtown Memphis, Tennessee. Each store had a turnstile at the entrance. Every item in the store had a price on it, another innovation, and Saunders provided shopping baskets so customers could take their items to a check-out stand in front. Saunders patented the idea of self-service stores in 1917. Saunders incorporated the Piggly Wiggly Stores Corp. in 1918. The stores were an immediate success. By 1922, there were over 1,200 Piggly Wiggly Stores of which about 650 were owned by Saunders, and by 1932, there were 2,660 Piggly Wiggly stores with sales of $180 million. Unfortunately, in 1923, Saunders had lost control over his Piggly Wiggly stores.  

Saunders vs. the Shorts

Clarence Saunders also became part of the last stock corner on the New York Stock Exchange in 1923. The corner became so prominent, that the whole affair became known as the Piggly Crisis. Clarence Saunders was generous, determined, stubborn, and well-known in Memphis. Saunders became known as the home boy who faced off the financiers of Wall Street who were using a bear raid to try and profit from a decline in Piggly Wiggly stock. The goal of shorting a stock is to borrow shares from someone who owns them and sell them. When the stock declines in price, the shorts buy the shares back at a lower price, make a profit, and then return the stock to the person they borrowed it from. In a bear raid, several shorts make a concerted effort to drive the price of a stock down so they can profit from the decline. The bulls, on the other hand, can try and beat the shorts by forcing the price of the stock up, squeezing the shorts and forcing them to sell at a loss. If the bulls can buy up the existing float, the stock is cornered. The shorts have no choice but to buy the stock from the bulls at whatever price they demand. Of course, creating a corner is risky for the bulls as well because it takes a lot of resources to buy up the float in the stock. Once the corner is completed and the shorts have covered their positions at the inflated price, little demand is left for the stock. The price of the stock can collapse, leaving the bulls with a burdensome load of debt. The whole process can end up bankrupting both the shorts and the bulls. Piggly Wiggly shares started trading over-the-counter in July 1920 and listed on the New York Stock Exchange (NYSE) in June 1922. In November, 1922, several of the independently-owned Piggly Wiggly stores in New York, New Jersey and Connecticut failed and went into receivership. Although Saunders’ corporation operated independently of these stores and was profitable, some Wall Street operators saw this as a reason to begin a bear raid on Piggly Wiggly stock. The bear raiders began selling PIggly Wiggly short and spread rumors that the company was in poor shape. Saunders took this challenge personally. He had created Piggly Wiggly stores, created the concept of self-shopping, was spreading his stores across the country, and some bears were trying to create profits by spreading lies about his stores. Saunders decided to “beat the Wall Street professionals at their own game.” Saunders not only used his own money to battle the shorts, but he borrowed ten million dollars from a group of bankers in Memphis, Nashville, New Orleans, Chattanooga and St. Louis to buy up the existing float. In the Wall Street of the 1920s, bear raids came and went. Companies didn’t go bankrupt because of bear raids, and if the fundamentals of the company were sound, the stock would bounce back after the bear raid was over. Nevertheless, Saunders refused to give in to the Wall Street city slickers. Saunders hired Jesse L. Livermore, the most famous bear on Wall Street, to help him break the back of the bear raiders. Within a week, Livermore had bought 105,000 shares of Piggly Wiggly, over half the float of 200,000 shares. The bears had shorted Piggly Wiggly stock in the 40 range, but by January, Saunders’ bull campaign had pushed the price of shares past 60. The shorts were losing money.  

The Shorts Are Cornered

Piggly shares were traded on both the Chicago and New York Stock Exchanges. In January, the Chicago Exchange announced that the stock had been cornered, though the NYSE denied that a corner existed. So Saunders decided to try a new tack. He announced that he would issue 50,000 shares of Piggly Wiggly shares at $55 each. Saunders regularly advertised his stores in the newspapers, and he used some of these ads to offer shares to small investors. Saunders pointed out that Piggly Wiggly stock paid a $1 per quarter dividend, yielding 7% to investors. Since this occurred before the S.E.C. came into existence, Saunders could promise that this was a “once in a lifetime opportunity,” and get away with it. Since Piggly stock was then trading at $70, why would Saunders offer shares at $55, leaving $15 on the table for each of the 50,000 shares? The reason is that Saunders knew that once the shorts had been cornered, the demand for Piggly stock would dry up. Saunders’ stock distribution created a market where he could distribute his shares to new investors. Saunders even allowed investors to buy new shares on the payment plan, put $25 down and pay $10 a month for three months. Since the new shareholders couldn’t sell their shares until they were paid for, this would keep the shorts from obtaining these newly minted shares to cover their positions. On March 19, Saunders let it be known that he controlled all but 1,128 shares of Piggly Wiggly’s outstanding shares. He had cornered the shorts. On Tuesday, March 20, Saunders called on the shorts to deliver their shares to him. By the rules of the exchange, the shorts were required to produce the shares by 2:15 on March 21. The stock opened on the March 20 at 75½, moved up to 124 by noon, but then dropped to 82 on the rumor that the Exchange planned to suspend trading in Piggly and postpone the delivery deadline for the shorts. It was no rumor. The NYSE did suspend trading in the stock. Saunders responded by saying that he expected settlement on Thursday the 22nd by 3 p.m. at $150 per share. Thereafter, his price would be $250 per share. The exchange permanently halted trading in Piggly and gave the shorts until 5 p.m. on Monday the 26th to settle with Saunders. With this ruling, the NYSE saved the shorts. This postponement tipped the scales in favor of the shorts because it gave them several extra days to find some of the 1,128 outstanding shares to settle their accounts without having to come begging to Saunders. Was it right for the Exchange to change the rules in the middle of the game to prevent a corner similar to the one that had occurred in Northern Pacific in 1901? Or should the Exchange have left the shorts to their fate? The NYSE justified their actions on the grounds that the demoralizing effect of the corner could have spread to the rest of the market.  

Saunders Wins a Pyrrhic Victory

On Friday, the 23rd, Saunders offered to settle at $100 per share. In the meantime, the shorts were able to find enough shares floating around in Iowa or New Mexico to cover their positions. Shareholders in Sioux City who knew nothing of the Piggly Crisis were happy to double their money by selling to the shorts while the shorts were happy to get the shares at a mere $100. Saunders now had complete control of Piggly stock, but he was also deeply in debt. It is estimated that Saunders made half-a-million dollars out of his corner, but that proved insufficient to cover his costs. After Saunders paid off the banks with his proceeds, he found that he was five million dollars short, half of which was due on September 1, 1923 and the balance on January 1, 1924. Since Piggly shares could no longer trade on the NYSE, Saunders was forced to sell shares directly to the public and advertised in the newspapers once again, offering Piggly Wiggly shares at $55. Although the public was sympathetic toward Saunders and his battle against the Wall Street bears, the public was unwilling to put their money where their sympathies lay. Saunders took out another newspaper advertisement saying that if Piggly Wiggly were ruined, it would “shame the whole South.” Memphis’s newspaper, The Commercial Appeal, lined themselves behind Saunders and helped lead a campaign to convince Memphians to buy Piggly Wiggly shares and save their local boy. The newspaper planned a three-day campaign to sell 50,000 shares to Memphians at $55 a share. This was to be an all or nothing proposition. If they were unable to sell all 50,000 shares, none would be sold. The campaign began on May 8, and soon 23,698 shares had been subscribed. Despite this, skeptics began to raise questions about who was the true beneficiary of this campaign, Saunders or the public. They asked for a spot audit of Piggly Wiggly to reassure potential investors that the company was a good investment. Saunders refused the audit, but offered to step down and let a committee run the company. Skeptics also asked why Saunders was still building his million-dollar Pink Palace when Piggly Wiggly was possibly in its last throes. The Pink Palace was a huge house built using pink Georgia marble. The Palace was to include a pipe organ, Roman atrium, indoor swimming pool, ballroom, bowling alley, its own golf course, and other luxuries. Saunders promised to board up the Pink Palace and stop construction. Unfortunately, the campaign was unable to sell even 25,000 shares, and the campaign soon fizzled. Saunders responded by selling Piggly Wiggly stores, rather than stock, to raise money. Despite selling stores in Chicago, Denver, Kansas City and elsewhere, Saunders failed to raise enough money to meet the September 1 payment of $2.5 million. Saunders turned over his Piggly Wiggly Stock, the Pink Palace (which was sold to the city of Memphis for $150,000 and opened as a museum in 1930. Today, it includes a replica of the first Piggly Wiggly store, a planetarium, a natural history museum and a museum of twentieth-century Memphis) and other property to his creditors and defaulted on the loan. By Spring, Saunders was in formal bankruptcy proceedings. If Saunders had never launched his campaign against the shorts, he would not have had to borrow the money that drove him into bankruptcy. Pride went before the fall.   Initially, the stores, known as Sole Owner Stores, were hugely successful. A millionaire once again, Saunders was able to buy a million-dollar estate just outside Memphis. Saunders also organized a professional football team called the Sole Owner Tigers which beat the NFL champion Green Bay Packers in 1929 by the score of 20-6. In 1930, the Tigers were invited to join the National Football League, but Saunders declined because he didn’t want to go to away games. When the depression hit, the Sole Owner Stores went bankrupt in 1930. Still, Saunders was able to find backers for his next venture, Keedoozle (“Key Does All”) stores, which were completely automated. Goods were placed behind glass as in an Automat. Customers would turn a key in front of the item they wanted to buy. Their purchases were placed on a conveyor belt, delivered to the front, assembled and boxed. The system eliminated shopping carts, stocking by employees and queuing at the checkout stand. The stores embodied Saunders’ obsession with increasing efficiency. Two Keedoozle stores were opened up in Memphis and in Chicago, but the machinery was too complex and expensive to compete with the quaint fashion of having people push shopping carts around the store. The stores failed. When Saunders died in October 1953, he was still trying to perfect his idea, this time with the Foodelectric system which did everything the Keedoozle did, including adding up the bill. Today, there are over 600 independently-owned PIggly Wiggly stores located in 17 states, mainly in the southern United States. It is easy to see why the S.E.C. banned stock manipulation, not only for corners, but for pools and other schemes that were used to profit from unsuspecting investors in the 1920s. The corner game ended up destroying both the bulls and the bears and benefitted no one. Had Saunders never borrowed $10 million to challenge the shorts, he never would have lost control over his stores. Since the Piggly Crisis, there has been only one stock corner in the United States, in E. L. Bruce stock in 1958. That is another story.