Made in America - The story behind Walmart

Wal-Mart is not just a gigantic retail company. It is the ultimate retailing juggernaut, setting the bar for products, packaging and pricing, and demolishing its competitors. Given its staggering influence, some would say Wal-Mart has become the very embodiment of retailing. It is the world’s biggest private employer and its largest (by revenue) public corporation, with 2008 sales topping $400 billion. It has 4,264 stores in the U.S. and, with its international subsidiaries, serves more than 100 million customers weekly across the globe. The personality of Wal-Mart’s late founder, Sam Walton, is still a driving force, a source of homespun, countrified wisdom and old-fashioned common sense. In this engaging autobiography, Walton explains how he built his mammoth corporation from a small five-and-dime store in Bentonville, Arkansas. The book doesn’t include much bad news, but you wouldn’t expect to find it here anyway.getAbstract recommends this colorful, entertaining book by America’s ultimate entrepreneur. He clearly was a determined steamroller as a businessman, but he was also a charmer – and that won’t surprise you either.

As American as Apple Pie
Sam Walton, Wal-Mart’s founder, died in 1992, still believing that the average person can accomplish anything, given encouragement and opportunity. And so he did. This plainspoken, simple-living Midwesterner developed the colossal Wal-Mart empire, the largest retailing organization in history. No competitor comes close. How did Walton create this enormous enterprise? His remarkable life story is as American as apple pie.

“Most media folks – and some Wall Street types, too – either thought we were just a bunch of bumpkins selling socks off the back of a truck, or that we were some kind of fast-buck artists.”
Samuel Moore Walton was born in 1918 in Kingfisher, Oklahoma. When he was five, his family moved to Springfield, Missouri, and it continued to move to a series of small Missouri towns during his childhood. Walton was an entrepreneur from an early age. He sold magazine subscriptions when he was seven or eight. As a boy, he became the “youngest Eagle Scout in the history of the state of Missouri.” He was president of his high school’s student body. An accomplished athlete, he led his high school basketball team to a state championship and quarterbacked his football team, also state champions. Everything Walton attempted, he did superlatively well.

“We’re the largest retailer in the world and still growing like a weed.”
In 1940, he graduated from the University of Missouri with a degree in business. He went to work for JC Penney for $75 monthly. Two years later, during World War II, he joined the U.S. Army. Shortly thereafter, he married Helen Robson, who had a degree in finance. Her father, L.S. Robson, was a “great salesman” and a notable influence on Sam. When the war ended in 1945, Walton left the army and, with his father-in-law’s financial help, he took over a Ben Franklin variety store in the little town of Newport, Arkansas.

“Ours is a story about the kinds of traditional principles that made America great in the first place.”
The store was a poor producer for the Ben Franklin chain, but Walton soon made it the company’s strongest store in a six-state region. He did it by buying much of his merchandise from new, cheaper suppliers. Walton explained, “I was always looking for offbeat suppliers or sources.” He eventually developed this practice into a business philosophy. Walton did so well that he opened a second location, a small department store in Newport. However, his strong sales proved to be his undoing in the town. His landlord refused to renew the lease on one of the stores, forcing Walton, who had nowhere else to move the business, to sell. He and Helen left the little town where they had first established a good life for themselves.

“The media usually portrayed me as a really cheap, eccentric recluse, sort of a hillbilly who more or less slept with his dogs in spite of having billions of dollars stashed away in a cave.”
Billionaire Beginnings in Bentonville, Arkansas
Walton moved to Bentonville in northwest Arkansas and opened “the third self-service variety store in the whole country.” Not long after, he opened another variety store in Fayetteville, Arkansas. Around this time, his brother Bud also opened a variety store, in Versailles, Missouri. Later, the brothers became the co-owners of a Ben Franklin outlet in a new shopping center in the Ruskin Heights section of Kansas City, Missouri. The store was profitable from the start. As his retail operations expanded, Sam Walton bought a small Air Coupe plane to fly back and forth to each of his stores, and to scout out locations for new ones. “I loved that little two-seat plane because it would go 100 miles an hour...and I could get to places in a straight line,” said Walton. As Bud noted, “That was the start of the Wal-Mart aviation era.”

“In the beginning, I was so chintzy I really didn’t pay my employees very well.”
Within 15 years, Sam Walton had become “the largest independent variety store operator in the U.S.” At this stage, he began to build larger stores to sell less expensive merchandise. “I knew the discount idea was the future,” said Walton. More than anyone else, he recognized the remarkable logic of the discounter’s creed: “The less you charge, the more you’ll earn.” In 1962, he built his first Wal-Mart in Rogers, Arkansas. Bud became a 3% owner. Walton summed up the Wal-Mart philosophy on two signs at his new store: “We Sell for Less” and “Satisfaction Guaranteed.” The store did a million dollars in sales annually. Wal-Mart was off and running. Walton soon began to open new Wal-Marts in small towns in the region.

“When a penny is lying out there on the street, how many people would go out there and pick it up? I’ll bet I would. And I know Sam would.” [ – Bud Walton, Sam’s brother]
The Wal-Mart Formula
The formula was simple: “We managed to sell our merchandise as low as we possibly could.” Walton targeted “little one-horse towns which everybody else was ignoring” for his large discount stores. “We knew our formula was working, even in towns smaller than 5,000 people, and there were plenty of those towns out there for us to expand into,” he said. He insisted that Wal-Mart would be “merchandise-driven,” not “operations-driven.” To stay on top of retailing, Walton always spent lots of time in his competitors’ stores, seeing how they did things. He adapted their best merchandising and promotional ideas, all according to his discounter’s creed.

“There hasn’t been a day in my adult life when I haven’t spent some time thinking about merchandising.”
In the beginning, Walton paid his employees – called “associates” at Wal-Mart – poorly. He did better in later years, enabling them to share in Wal-Mart’s success through an enlightened profit-sharing program. Many long-term Wal-Mart associates have been able to retire with assets in six figures due to the profit-sharing plan. At the same time, Wal-Mart always resisted unionization.

“Your stores are full of items that can explode into big volume and big profits if you are just smart enough to promote them.”
During Wal-Mart’s early years, Sam and Helen had four children: Rob, John, Jim and Alice. As the children grew up, they worked in the stores. “I guess the kids thought of themselves as slave labor back then,” Walton quipped. He began to hire the pivotal executives who would help him manage his operations professionally, including Ferold Arend, who became president of Wal-Mart, and Bob Thornton, who developed the company’s warehouse and distribution system.

“None of our competitors has yet been able to operate on the volume that we do as efficiently as we do.”
During the mid-1960s, Walton enrolled in an IBM computer training class. He hated to spend an extra dime on anything, but he always invested in sophisticated technology and equipment. In 1976, Walton hired David Glass, the visionary executive he credits for building the chain’s “sophisticated and efficient” inventory system and its automated distribution centers. Other important hires included Ron Mayer and Jack Shewmaker. “The history of Wal-Mart has been marked by having the right people in the right job when we needed them most,” Walton said.

“I’m not going into the financial details of our charitable activities... I don’t think it’s anybody’s business but our own.”
In 1970, to eliminate debt, Wal-Mart went public, although the Walton family retained a large controlling stake. The original investors had tapped into a gold mine. Over the years, given numerous two-for-one stock splits, Wal-Mart stock’s value skyrocketed. An original 100-share investment ($1,650) was worth some $3 million 20 years later. Of course, Wal-Mart’s stock has continued to increase dramatically since then. Investors love Wal-Mart. “We have consistently rewarded them with one of the highest returns on equity in American business,” Walton declared.

“Every time Wal-Mart spends one dollar foolishly, it comes right out of our customers’ pockets.”
As of 1992, the Walton family owned 38% of Wal-Mart’s stock in a partnership. Traditionally, individual family members do not cash in the stock. Walton warned his grandchildren and great-grandchildren that he would return to haunt them after his death if they sold their holdings. This conservative tradition is fully in keeping with his straightforward approach to finance. He was always frugal, known for living simply and nonostensibly. He insisted that everyone at Wal-Mart operate in the same fashion. By keeping its costs low, Wal-Mart can offer its customers the lowest possible prices, which lets it swamp its competition. It has applied this principle to all its retail operations, including its Sam’s Clubs warehouse stores and its immense grocery sales.

“There’s not an individual in these whole United States who has been in more retail stores...than Sam Walton.” [– Bud Walton]
Walton’s Rules for Retailing
Sam Walton’s distinct retail philosophy, “Think Small,” represented his “way of life.” He believed that Wal-Mart – and, indeed, any large corporation – should focus, always, on what its customers (not its stockholders) want and need. Their interests should drive every action the company takes and every penny it spends. To this end, companies should not dictate policy from out-of-touch corporate headquarters. Instead, operational and marketing plans should emerge from the floor, where the customers are. Walton’s other retailing and business principles include:

• “Think one store at a time” – Wal-Mart has thousands of stores. Imposing product selections and merchandising techniques from the corporate headquarters would be easy and would offer more central control. But Wal-Mart does not operate from the top down. It gives local merchandisers – individual owners and department heads at each store – the primary say about what each outlet carries. Wal-Mart’s hundreds of buyers must stay in extremely close touch with its local merchandisers to ensure that they procure the goods these frontline individuals believe they can promote and sell. At Wal-Mart’s famous Saturday morning meetings, its corporate executives always focus on one single store.
• “Communicate, communicate, communicate” – Wal-Mart believes in the value of information. It disseminates all relevant sales data throughout the company. Store managers get “
• every single number” that pertains to their branches. Wal-Mart uses a satellite and computer system to distribute immediately valuable sales and merchandising information. Its sophisticated communication system relays tips and guidelines from the front office to store managers and department heads. Walton once went on camera to insist that all store personnel had to take a special pledge that whenever they got near a customer, they would, “look him in the eye, greet him and ask him if [they could] help him...so help me, Sam.”
• “Keep your ear to the ground” – Walton reluctantly authorized spending millions to create Wal-Mart’s sophisticated IT and inventory tracking systems. But for his own information, he relied more on visiting stores than on the elaborate computer network. He personally flew his little planes back and forth across the U.S. Walton insisted that his corporate managers and buyers visit stores constantly, and Wal-Mart still has a fleet of airplanes for this purpose. Regional managers must travel half of each week. Walton insisted that they “come back with at least one idea that will pay for the trip.”
• “Push responsibility – and authority – down” – Wal-Mart’s famous “store within a store” concept enables department managers at individual stores to exercise pivotal merchandising judgment and to be “the managers of their own businesses.” Through this program, which represents a key Wal-Mart operational philosophy, each department manager has the primary responsibility of ordering the merchandise he or she believes will sell most efficiently and profitably.
• “Force ideas to bubble up” – Wal-Mart encourages associates to communicate with store managers and national management about what sells best for them. Through the “Yes We Can, Sam!” program, they suggest ideas to improve operations and cut costs.
• “Stay lean, fight bureaucracy” – Wal-Mart does not believe in extraneous costs, including the numerous management levels found at most large corporations. Walton always insisted that Wal-Mart “operate on a miniscule 2% general office expense structure” – that is, corporate operations should represent only 2% of sales. To keep costs down, Wal-Mart spends as little as possible on furnishings. It keeps executive “perks” to the bare minimum. “Most people say my office and those of the other Wal-Mart executives look like something you’d find in a truck terminal,” Walton said.
  “Of all the notions I’ve heard about Wal-Mart, none has ever baffled me more than this idea that we are somehow the enemy of small-town America.”
  Additionally, Walton believed that executives must commit to their businesses and always be enthusiastic. “Pretty soon everybody will catch the passion from you – like a fever,” he explained. To keep his associates excited, Walton complimented them for good work. He believed that executives should not pay themselves outrageous salaries, but should share profits with the employees who make the business possible. His advice: “Behave as a servant leader.” Walton thought companies should routinely shake things up; therefore, sometimes, he would order the highest-level Wal-Mart executives to switch jobs, so they would not become stale.

Walton listened to frontline associates, “the ones who really know what is going on out there.” He made sure that Wal-Mart always delivered more in merchandise selection, pricing and quality than customers expected or requested. Walton’s final and perhaps most prevailing principle was, “Swim upstream.” Early in his career, numerous know-it-alls warned Walton that small towns could never support large discount stores. He certainly proved them wrong. “If everybody else is doing it one way, there’s a good chance you can find your niche by going in exactly the opposite direction,” he explained. And that is precisely how Sam Walton built the largest retail company in the world.