Article 4 of 200
TIME 100
Discounting Dynamo SAM WALTON Wal-Mart brought low
prices to small cities, but its creator also changed the way Big
Business is run
John Huey
12/07/98
Time Magazine
Time Inc.
Page 196+
(Copyright 1998)
No one better personified the vitality of the American Dream in the second
half of the 20th century than Sam Walton. A scrappy, sharp-eyed bantam
rooster of a boy, Walton grew up in the Depression dust bowl of Oklahoma
and Missouri, where he showed early signs of powerful ambition: Eagle
Scout at an improbably young age and quarterback of the Missouri
state-champion high school football team. He earned money to help his
struggling family by throwing newspapers and selling milk from the cow.
After graduating from the University of Missouri, he served in the Army
during World War II. Then, like millions of others, he returned home in
1945 to earn a living and raise a family in an uncertain peacetime economy.
Over the decades that followed, the way America worked and lived changed
profoundly, and Walton found himself at the center of much of that change.
He possessed a gift for anticipating where things were headed, and he
probably understood the implications of the social and demographic currents
that were sweeping the country--especially outside its cities--better than
anyone else in business. That acumen hastened his rise from humble
proprietor of a variety store in the little Delta cotton town of Newport, Ark.,
to largest retailer in the world and richest man in America.
When Walton died in 1992, with a family net worth approaching $25 billion,
he left behind a broad and important legacy in American business as well as a
corporate monument. Wal-Mart stores is the No. 4 company in the
FORTUNE 500, with annual sales of close to $120 billion, ranking behind
only General Motors, Ford and Exxon.
At the risk of oversimplifying a rather complex business phenomenon, it can
be said that the easiest way to grasp the essence of what Sam Walton meant to
America is to read his ad slogan emblazoned on all those Wal-Mart trucks
you see barreling down highways around the country: WE SELL FOR
LESS, ALWAYS. Walton did not invent discount retailing, just as Henry
Ford didn't invent the automobile. But just as Ford and his cars
revolutionized America and its industrial model, Walton's extraordinary
pursuit of discounting revolutionized the country and its service economy.
Walton didn't merely alter the way much of America shopped; he changed
the philosophy of much of American business, instigating the shift of power
from manufacturer to consumer that has become prevalent in industry after
industry.
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
traveled 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.
John Huey, managing editor of FORTUNE, co-wrote Sam Walton: Made in
America
{BOX}
BORN March 29, 1918, in Kingfisher, Okla. 1945 Gets franchise for Ben
Franklin store in Newport, Ark. 1962 Opens his first Wal-Mart discount
store in Rogers, Ark., after Ben Franklin spurns his plans for discounting
1985 The value of his Wal-Mart stock makes him the wealthiest American
1991 Wal-Mart passes Sears to become the country's biggest retailer 1992
Dies in Little Rock, April 5
{BOX}
THE CUSTOMER IS KING
As retailers wooed buyers, the watchwords became lower cost and higher
volume
FIRST SHOPPING CENTER Country Club Plaza opened in 1929 in Kansas
City, Mo. It was the archetype of the suburban strip mall--a clutch of
retailers anchored by an S.S. Kresge 5 & 10 and yoked to a parking lot
FIRST SUPERMARKET A "monstrous" store, King Kullen debuted in 1930
in New York City. The self-serve food palace was four times the size of a
typical grocery of the day but a tenth the size of today's 60,000-sq.-ft.
superstores
FIRST DISCOUNTER Bent on cutting prices by eliminating the middleman,
Masters (which later became a chain) pioneered the discounting concept
when it put its name on a tiny, low-rent outlet in Manhattan in 1937
FIRST ONLINE SHOPPING Amazon .com rocketed retail into the Cyber
Age in July 1995 with its bookstall-on-the-Web. Total number of online
buyers has soared from 3 million to 16 million. Online sales are projected at
$41 billion by 2002
Quote: "Sam is notorious for looking at what everybody does, taking the best
of it and making it better." SOL PRICE, founder of Fed-Mart and Price
Club
B/W PHOTO: BEN WEAVER--CAMERA 5 A RARE PICTURE--A
STATIONARY WALTON. HE WAS CONSTANTLY ON THE MOVE {Sam
Walton in front of Wal-Mart store} B/W PHOTO WHETHER CRANKING ICE
CREAM OR HIS OWN BUSINESS DURING COLLEGE, YOUNG SAM WAS
SPECTACULARLY AMBITIOUS {Sam Walton cranking ice cream maker}
COLOR PHOTO: STEVEN PUMPHREY HIS PICKUP-TRUCK REP WAS
REAL. SAM LIKED PEOPLE AND LOVED DOGS {Sam Walton and dog}
B/W PHOTO A BOTTOM-UP MANAGER AND MASTER MOTIVATOR,
THE FOUNDER IS WIDELY COPIED {Sam Walton and Wal-Mart employee
with arms raised} B/W PHOTO FIRST SELF-SERVE: PIGGLY WIGGLY IN
1916 {Interior of Piggly Wiggly store} |
