Article Details

“Capital isn't scarce; vision is” - Sam Walton, founder of Walmart  Back
By: Yahya Hussain
"There is only one boss - the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else."
Sam Walton's career in retail began in 1940 when he became a sales trainee in Des Moines, Iowa at a J.C. Penney store. Despite his enthusiasm to serve the customers, Walton was not a model employee. His desire to make his customers happy was so great that he often let other responsibilities like paperwork and keeping the books fall by the wayside. He was almost fired by his boss who told him that he was not cut out for a career in retail. Walton kept his job, however, because of his ability as a great salesman.
In 1942, Walton was drafted into the United States army. He worked in the communications division of the Army Intelligence Corps and remained on home soil throughout the Second World War. When he left the army three years later, Walton was married, had a child, and decided to start his own business to support his new family. With the $5,000 that he had saved along with a $20,000 loan from his wife's father, he purchased a Ben Franklin variety store in Newport, Arkansas. Walton was 27 years old.
Starting the Business
By putting in many hours at the store and implementing a pricing strategy far below what his competitors were charging. Walton's new business took off. By 1950 he had the top performing Ben Franklin store in the area. Walton's landlord, seeing his success, decided that he wanted Walton to sell the store to his son. When Walton refused, the landlord decided not to renew Walton's lease and he was forced to shut down.
Walton's 10 commandments for business success were:
1) Commit to your business.
2) Share your profits with your associates and treat them like your partners.
3) Energise your colleagues.
4) Communicate everything you possibly can to your partners.
5) Appreciate everything your associates do for the business.
6) Celebrate your success.
7) Listen to everyone in your company.
8) Exceed your customers' expectations.
9) Control your expenses better than your competition.
10) Blaze your own path.
Determined as ever to succeed in his venture, Walton looked for other rural Arkansas towns for a new place to set up shop. He came across a small village called Bentonville and opened the Walton's Five and Dime in 1950. He made sure to get a 99-year lease this time on the property. The two local competitors in Bentonville did not want to discount their prices and Walton's business began to flourish.
Realising he had a recipe for success; Walton began looking for other areas of expansion. He borrowed money and used the profits from his first stores to acquire more. By 1960, he owned 15 stores but he was not getting the kind of return on investment that he thought he would be making. He then made the decision to follow a heavy price cutting strategy and hope to get much higher volume to turn a larger profit. This was not a new idea. The problem at the time was that most discount stores were small, located in urban areas, and focused on specialty items. Walton's plan was to change the way retailing was done across the country.
Building an Empire
Walton's revolutionary plan was to have large superstores in rural towns that discounted a wide variety of products. His initial approach was to Ben Franklin. They turned him down as they did not like the idea of operating with lower margins. Without a large company behind him, Walton opted to go it alone. In 1962, he mortgaged his home and borrowed against everything he owned to open his first Wal-Mart in Rogers, Arkansas, a neighbouring town of Bentonville.
Excited about the prospects of getting discounts and selection that were previously only obtainable in the cities, rural customers came out in droves to his store. The success of his first store allowed him to expand and by 1969 he had 18 Wal-Marts in Arkansas and Missouri.
Funded solely through debt and reinvested profits, Walton decided that in 1970 he would take the company public. The IPO raised $5 million and Walton retained 61 per cent of the company. The money was used to settle the company's debts and fuel further expansion. By 1980, 276 Wal-Marts were operating.
An integral component of Wal-Mart's success was its leveraging of new technologies to improve efficiencies and save costs. Walton knew that the key to success in a low margin business was to rigidly control his costs. Wal-Mart was, for example, one of the first major retailers to use electronic scanners at the registers which tied to an inventory control system so they could know immediately which items were selling well and needed to be re-ordered.
The success of his Wal-Mart stores led Sam to another idea - Sam's Wholesale Clubs. These would be discount stores that sold to small business owners in bulk. The idea was another big hit for Walton and by 1985 he was considered by Forbes magazine to be the richest man in America with an estimated net worth of $2.8 billion.
Similar to Ray Kroc, Sam Walton did not invent retailing; he simply changed the business model and way of doing business to make it a much more profitable venture.
Sam Walton passed away in 1992 but his legacy lives on. It is estimated that if the Wal-Mart chain was its own economy, it would rank 30th in the world, behind Saudi Arabia. The company's revenues continue to grow at roughly 10% a year, likely surpassing half a trillion dollars in sales within the next decade. The international division of Wal-Mart is also its fastest-growing division, which indicates that the company is continuing to increase its presence around the world. If Sam Walton were alive today, he would be the richest person in the world, with twice the fortune of Bill Gates. How did a farm boy from Oklahoma accomplish all of this?
He Inspired His Workers: "We're all working together; that's the secret," Walton said of his Wal-Mart team. Known for seeing his workers as 'associates' rather than employees, Walton tried to treat his team with respect and trust in order to instill company loyalty. He also introduced profit sharing to help motivate his staff. "Appreciate everything your associates do for the business," he said. "If people believe in themselves, it's amazing what they can accomplish."
He Made His Customers #1: "We let folks know we're interested in them and that they're vital to us," said Walton. "Because they are." Superior customer relations became one of the hallmarks of the Wal-Mart culture. The Wal-Mart Rule #1 was: 'The customer is always right'. The Wal-Mart Rule #2 was: 'If the customer happens to be wrong, refer back to Rule #1'. In prioritising his customers, Walton was creating a strong loyalty that would help propel his company to the top.
He Had Passion: Walton didn't know where his passion for retailing came from, but he didn't need to. All he knew was that he loved going to work every day and trying to build the best business he could. Despite being underestimated and not taken seriously, and experiencing the failure of his first business, it was Walton's passion alone that kept him coming back to work.
He Embraced New Technology: Walton was one of the original pioneers of the Information Age. "You can't just keep doing what works one time, because everything around you is always changing," said Walton. "To succeed, you have to stay out in front of that change." By looking for innovative, new technologies to help Wal-Mart grow, Walton was ensuring his company would have significant staying power.
He Had Fun: "I always prided myself on breaking everybody else's rules, and I always favoured the mavericks who challenged my rules," he said. Walton took a light approach to his business, never too serious to resist change and never unwilling to poke fun at himself. He wanted to ensure that both he and his workers enjoyed coming to work each day. In the long run, he believed this would both improve productivity and distract his competitors from noticing just how serious they were about succeeding.
"I believe in always having goals, and always setting them high," said Walton. Largely unnoticed by the American press until he was already a success, Walton proved that being underestimated by others was no obstacle to achievement. Today, in what seems to be a world of wall-to-wall Wal-Marts, Walton's feats are impossible to ignore.
Back