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Sam Walton
1918 -

 


Wal-Mart brought low prices to small cities, but its creator also changed the way Big Business is run
By JOHN HUEY for Time Magazine
 

 

Though it's hard to believe today, discount retailing was a controversial concept when it began to gain ground in the '50s at stores such as Ann & Hope, which opened in a reclaimed mill in Cumberland, R.I.

Traditional retailers hated it, and so did manufacturers; it threatened their control of the marketplace. Most states had restrictions on the practice. When the business began to emerge in the early '60s, Walton was a fairly rich merchant in his 40s, operating some 15 variety stores spread mostly around Arkansas, Missouri and Oklahoma. They were traditional small-town stores with relatively high price markups.

Walton was an active student of retailing — all family vacations included store visits — so by the time a barber named Herb Gibson from Berryville, Ark., began opening discount stores outside towns where Sam ran variety stores, Walton saw what was coming. On July 2, 1962, at the age of 44, he opened his first Wal-Mart store, in Rogers, Ark. That same year, S.S. Kresge launched K Mart, F.W. Woolworth started Woolco and Dayton Hudson began its Target chain. Discounting had hit America in a big way. At that time, Walton was too far off the beaten path to attract the attention of competitors or suppliers, much less Wall Street.

Once committed to discounting, Walton began a crusade that lasted the rest of his life: to drive costs out of the merchandising system wherever they lay — in the stores, in the manufacturers' profit margins and with the middleman — all in the service of driving prices down, down, down.

Using that formula, which cut his margins to the bone, it was imperative that Wal-Mart grow sales at a relentless pace. It did, of course, and Walton hit the road to open stores wherever he saw opportunity. He would buzz towns in his low-flying airplane studying the lay of the land. When he had triangulated the proper intersection between a few small towns, he would touch down, buy a piece of farmland at that intersection and order up another Wal-Mart store, which his troops could roll out like a rug.

As the chain began to take off, Walton made major adjustments to manage the growth — again always seeming to see ahead. As early as 1966, when he had 20 stores, he attended an IBM school in upstate New York. His goal: to hire the smartest guy in the class to come down to Bentonville, Ark., and computerize his operations. He realized that he could not grow at the pace he desired without computerizing merchandise controls. He was right, of course, and Wal-Mart went on to become the icon of just-in-time inventory control and sophisticated logistics — the ultimate user of information as a competitive advantage. Today Wal-Mart's computer database is second only to the Pentagon's in capacity, and though he is rarely remembered that way, Walton may have been the first true information-age CEO.

To his great delight, Walton spent much of his career largely unnoticed by the public or the press. In fact, hardly anyone had ever heard of him when, in 1985, Forbes magazine determined that his 39% ownership of Wal-Mart's stock made him the richest man in America. After that, the first wave of attention focused on Walton as populist retailer: his preference for pickup trucks over limos and for the company of bird dogs over that of investment bankers. His extraordinary charisma had motivated hundreds of thousands of employees to believe in what Wal-Mart could accomplish, and many of them had ridden the company's stock to wealth. It was the American Dream. As Wal-Mart's influence grew, however, and passed that of competitors K Mart and Sears, Walton began to be villainized by some, especially beleaguered small-town merchants. They rallied a nostalgic national press, which--from its perch in Manhattan — waxed eloquent on the lost graces of small-town America, blaming that loss squarely on Sam Walton.

Walton viewed all these arguments as utter foolishness. He had been a small-town merchant. And he had seen the future. He had chosen to eat rather than be eaten. And anyway, he believed that small-town merchants could compete — if they would make major changes to adapt. As it turned out, of course, the consumer voted heavily with Walton. He gave America what it really wanted — low prices every day.

There is no argument offered here that Sam Walton didn't clutter the landscape of the American countryside or that he didn't force a lot of people to change the way they made a living. But he merely hastened such changes. The forces of progress he represented were inevitable. His empowering management techniques were copied by businesses far beyond his own industry; his harnessing of information technology to cut costs quickly travelled upstream to all kinds of companies; and his pioneering retailing concepts paved the way for a new breed of "category killer" retailer — the Home Depots, Barnes & Nobles and Blockbusters of the world. This wave of low-overhead, low-inventory selling continues to accelerate. The Internet, in fact, is its latest iteration. One can only wonder what a young cyber Sam would set out to accomplish if he were just getting started.
 


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Businessman Sam Moore Walton (born 1918) built Wal-Mart into one of the nation's largest retailers and became one of the richest Americans.

Sam Moore Walton was born in Kingfisher, Oklahoma, March 29, 1918. The older of two boys, his father was a banker. A product of the Great Depression of the 1930s, he graduated from the University of Missouri in 1940. He married Helen Robson after graduation and eventually had four children. He served three years as an Army intelligence officer during World War II.

Walton had started in retailing with the J. C. Penney Company in Des Moines, Iowa, as an $85-a-month trainee. He spent the period 1938-1942 with them. After his army service, in 1945 Walton used his savings plus a $25,000 loan to buy a Ben Franklin store in Newport, Arkansas, where his brother joined him. In 1950, when his landlord failed to renew his lease, Walton moved to Bentonville, Arkansas, now a town of about 10,000 and headquarters to the Wal-Mart empire.

From 1945 through 1962 he operated Ben Franklin stores; by 1962 he had nine stores - Walton's 5 & 10 - operated under a franchising agreement with the Chicago-based Ben Franklin. Then began what became one of America's most successful retail operations - Wal-Mart, which he co-founded in 1962.

At that time Walton decided that the future of retailing was in discount stores, not dime stores. He studied chains such as K Mart and Zayre and then proposed to the Ben Franklin management the starting of a discount store. When they showed no interest, he, along with his younger brother James, opened his first Wal-Mart outlet in Rogers, Arkansas, five miles from Bentonville.

Walton avoided publicity about himself, preferring that his stores occupy the spotlight, and he took a direct role in the administration of those stores at all levels. He was, indeed, perhaps a corporate evangelist, and in his articulation of a vision for his firm is a good example of the conscious creation of a corporate culture - a set of shared values which define a business and those who work in it. Preferring to be called "Sam," or "Mr. Sam" at most, he might appear at a Wal-Mart checkout, or loading dock, or at a rally at a new store opening.

His business has been described as an extremely well managed one. Although the stores tended to operate as relatively inexpensive, no-frills units and appeal to a lower-middle-class market, the company was quite willing to invest at the cutting edge of technology. The stores were clustered around warehouses in order to permit one-day delivery of goods, and advertising costs were minimized. An early innovation was the decision to buy directly from manufacturers rather than through wholesalers. In addition, the company was firmly committed to a "Buy American" program. Walton built his firm into the fastest growing and most influential force in the retail industry, with stores averaging an annual growth rate of more than 35 percent for more than a decade - a rate more than three times that of the retail industry in general. An investor who spent $1,650 for 100 shares of stock in 1970, when the firm went public, would have had $700,000 worth of stock at 1987 prices. In the process, Walton became one of the richest men in the world, with estimates of his worth varying widely and growing constantly.

This early and phenomenal growth - Wal-Mart stood behind only Sears and K Mart in the retail field and was challenging them - was achieved as essentially a regional chain, operating in the Sunbelt. In later years it created a chain of warehouse stores - Sam's Wholesale Club - and was moving into the hypermarket area, Wal-Mart Supercentre

Walton was the epitome of modern retailing, adapting to contemporary demographic trends. He built his empire not in the large urban areas of the North, East, and West - the politically and economically dominant regions of the first two-thirds of the 20th century - but in the South and Midwest (the former once depressed and neglected, the latter the "heartland" of the nation). His strategy was not to take on the large chains and department stores of the urban centres, but rather to compete with the local chains and individual merchants of smaller urban areas and their rural surroundings. When his stores did approach larger population centres, they went first to the periphery of the urban area. That strategy changed in the 1980s with the extension of stores to the other geographic areas of the nation - in order to build a truly national chain - and the movement in toward the centre of the urban areas.

Sam Walton died on April 5, 1992 at 74 years of age. He left behind a fortune that amounted to over $23 billion in Wal-Mart stock alone. Before his death, Walton penned a book in 1992 entitled Sam Walton, Made in America. By 1997, five years after Walton's death, Wal-Mart had grown to over 2,300 stores with annual revenues of $104.8 billion per year.


 

 

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This web page was last updated on: 17 December, 2008