Sam Walton: Made In America

by Sam Walton

Then we would come up with a profit and loss sheet, a p&l for each store, and get it out to that store manager as quickly as we could—something we still do today. If there was a problem, I would get with that manager immediately. But most of them owned a piece of their stores, so they were likely to be as concerned as I was. I had a big ledger sheet pasted together to make room for everything I wanted on it, probably fifteen different columns, for every store. It had columns for sales, expenses, net profit, markdowns—everything—utilities, postage, insurance, taxes. I entered the numbers myself each month with a pen, which helped me remember them better. It became a habit with me, and I carried this ledger sheet in my pocket when I went to the stores so everybody always knew exactly where they stood.

I usually felt that if a fellow could manage his own finances, he would be more successful managing one of our stores.

He would always try things like that. He was always open to suggestions, and that’s one reason he’s been such a success. He’s still that way.”

Folks always ask me what are some of the big moments I remember in the history of Wal-Mart, and I usually say, oh, when we passed a billion dollars in sales, or 10 billion, or whatever. But the truth is, some of my fondest memories are of plain old everyday items that we sold a ton of by presenting nicely on endcaps (displays at the end of aisles)—or on tables out in action alley (the big horizontal aisle running across a store just behind the checkout counters). I guess real merchants are like real fishermen: we have a special place in our memories for a few of the big ones.

One of the reasons Helen insisted all along on our living in a small town, I’m sure, is so we could raise the kids with the same values she and I had been exposed to in our youth.

Through our combined efforts the kids received your everyday heartland upbringing, based on the same old bedrock values: a belief in the importance of hard work, honesty, neighborliness, and thrift.

I guess the kids thought of themselves as slave labor back then, but we didn’t work them that hard. We just taught them the value of work.

Dad thrived on change, and no decision was ever sacred.”

I read in some trade publication not long ago that of the top 100 discounters who were in business in 1976, 76 of them have disappeared. Many of these started with more capital and visibility than we did, in larger cities with much greater opportunities. They were bright stars for a moment, and then they faded. I started thinking about what really brought them down, and why we kept going. It all boils down to not taking care of their customers, not minding their stores, not having folks in their stores with good attitudes, and that was because they never really even tried to take care of their own people. If you want the people in the stores to take care of the customers, you have to make sure you’re taking care of the people in the stores. That’s the most important single ingredient of Wal-Mart’s success.

But whatever it was, they just didn’t stay close enough to their business, they sort of chose to get over on the other side of the road. They expanded quickly without building the organizations and the support—such as distribution centers—needed to expand those companies. They didn’t get out into their stores to see what was going on.

Then Kmart got their machine in gear and began to do it better and better. I remember going in their stores—I’ll bet I’ve been in more Kmarts than anybody—and I would really envy their merchandise mix and the way they presented it. So much about their stores was superior to ours back then that sometimes I felt like we couldn’t compete. Of course that didn’t stop us from trying. And Target came along and did a fine job, taking the whole idea a little more upscale. As these big operators became more organized, the competition grew a lot more difficult. That’s when all those guys who were failing to meet their customers’ needs and who didn’t build strong organizations—all those promoters—started to fall apart and, eventually, fall out.

I probably visited more headquarters offices of more discounters than anybody else—ever. I would just show up and say, “Hi, I’m Sam Walton from Bentonville, Arkansas. We’ve got a few stores out there, and I’d like to visit with Mr. So-and-So”—whoever the head of the company was—“about his business.” And as often as not, they’d let me in, maybe out of curiosity, and I’d ask lots of questions about pricing and distribution, whatever. I learned a lot that way.

Abe invited me to join the NMRI and it turned out to be quite a valuable association for me. I was on the board for about fifteen years, and made some terrific contacts and generous friends. I visited with Abe a number of times at his New York offices, and he was a very open guy. He shared with me how he used computers to control his merchandise.

“What we helped him with in the early days was really logistics. It’s like in the Army. You can move troops all over the world, but unless you have the capacity to supply them with ammunition and food, there’s no sense putting them out there. Sam understood that. He knew that he was already in what the trade calls an ‘absentee ownership’ situation. That just means you’re putting your stores out where you, as management, aren’t. If he wanted to grow he had to learn to control it. So to service these stores you’ve got to have timely information: How much merchandise is in the store? What is it? What’s selling and what’s not? What is to be ordered, marked down, replaced? To get more technical, that helps you control what we call turn, or inventory turnover—the ratio of sales to inventory. That’s a key. The more you turn your inventory, the less capital is required. And all this involves getting the merchandise to the store at the right time, communicating how it’s being priced and how it’s being marked down, whatever. Logistics.

“Anyway, the man’s a genius. He realized—even at the rudimentary level he was on in 1966, operating those few stores that he had—that he couldn’t expand beyond that horizon unless he had the ability to capture this information on paper so that he could control his operations, no matter where they might be. He became, really, the best utilizer of information to control absentee ownerships that there’s ever been. Which gave him the ability to open as many stores as he opens, and run them as well as he runs them, and to be as profitable as he makes them.

There were no such things in those days as minicomputers and microcomputers. He was really ten years away from the computer world coming. But he was preparing himself. And this is a very important point: without the computer, Sam Walton could not have done what he’s done. He could not have built a retailing empire the size of what he’s built, the way he built it. He’s done a lot of other things right, too, but he could not have done it without the computer. It would have been impossible.

The truth is, Sam never did anything in size or volume until he actually had to. He always played it close to the belt.

The thing was, you could see the potential so clearly. The profits and the sales were there but we needed to get better organized and come up with a more sensible way to finance the growth. I needed someone to help me with systems and distribution.

The funny thing is, everybody at Wal-Mart knows that I’ve fought all these technology expenditures as hard as I could. All these guys love to talk about how I never wanted any of this technology, and how they had to lay down their life to get it. The truth is, I did want it, I knew we needed it, but I just couldn’t bring myself to say, “Okay, sure, spend what you need.” I always questioned everything. It was important to me to make them think that maybe the technology wasn’t as good as they thought it was, or that maybe it really wasn’t the end-all they promised it would be. It seems to me they try just a little harder and check into things a little bit closer if they think they might have a chance to prove me wrong. If I really hadn’t wanted the technology, I wouldn’t have sprung the money loose to pay for it.

I had bought a bank in Bentonville, for about $300,000, just a little old bank with only about $3.5 million in deposits. But it really helped me learn a lot about financing things.

So by 1970, we had seventy-eight partners invested in our company, which really wasn’t one company, but thirty-two different stores owned by a combination of different folks. My family owned the lion’s share of every store, but Helen and I were also in debt up to our eyeballs—several million dollars’ worth. I never dwell on the negative, but that debt weighed heavy on me. If something happened and everybody decided to call their notes, I kept thinking, we would be sunk. Maybe that’s what being raised in the Depression does to you, but I wanted out of that debt in the worst way.

But the market recovered some, and on October 1, 1970, Wal-Mart became a public company, traded over the counter. Our prospectus offered 300,000 shares at a price of $15, but it sold for $16.50. It was well received, though not widely held; we only had about 800 shareholders, most of them either institutions or folks we knew. Those who bought in that offering, or who owned some of those early partnerships and had them converted in that offering, made an absolute killing.

As everybody today knows, Wal-Mart’s stock performance, and the wealth it has created, is a story in itself. Just fifteen years ago, the market value of the company was around $135 million; today it’s over $50 billion. But here’s a better way to look at it: let’s say you bought 100 shares back in that original public offering, for $1,650. Since then, we’ve had nine two-for-one stock splits, so you would have 51,200 shares today. Within the last year, it’s traded at right under $60 a share. So your investment would have been worth right around $3 million at that price.

as a family we’ve only sold very limited amounts of Wal-Mart stock outside of those offerings. I think that has really set us apart, and, as I said, that’s the source of our net worth. We just kept that stock.

In the early days, it wasn’t anything like what it’s turned into now, which is the largest, most raucous stockholders’ meeting in the world. But it was different. After the meeting on Saturday, we always had a special event. One year it was a golf tournament, which is not all that unusual, I guess. But another year we went fishing on Bull Shoals Lake. And another year we took everybody on a float trip down Sugar Creek. The wildest event I remember was when we all went camping overnight in tents on the banks of Sugar Creek. That was a real fiasco. Remember now, these are a bunch of investment analysts from the big cities.

“These get-togethers became a big hit. The Wal-Mart folks would stay up all night barbecuing, and the analysts or other big shareholders would stay up with them to ‘help.’ But after a while, things got a little out of hand for Sam’s taste. Some of those Yankees got so drunk floating down Sugar Creek they couldn’t stay in the boat. And some of those fellows barbecuing had a few too many beers. Well, Sam isn’t a Puritan or a strict teetotaler or anything, but he can’t stand for people to get drunk. So he banned alcohol completely from the events, and, of course, they were never quite the same after that.”

What’s really worried me over the years is not our stock price, but that we might someday fail to take care of our customers, or that our managers might fail to motivate and take care of our associates. I also was worried that we might lose the team concept, or fail to keep the family concept viable and realistic and meaningful to our folks as we grow. Those challenges are more real than somebody’s theory that we’re headed down the wrong path.

Now that we were out of debt, we could really do something with our key strategy, which was simply to put good-sized discount stores into little one-horse towns which everybody else was ignoring. In those days, Kmart wasn’t going to towns below 50,000, and even Gibson’s wouldn’t go to towns much smaller than 10,000 or 12,000. 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.

We never planned on actually going into the cities. What we did instead was build our stores in a ring around a city—pretty far out—and wait for the growth to come to us. That strategy worked practically everywhere. We started early with Tulsa, putting stores in Broken Arrow and Sand Springs. Around Kansas City, we built in Warrensburg, Belton, and Grandview on the Missouri side of town and in Bonner Springs and Leavenworth across the river in Kansas. We did the same thing in Dallas.

This saturation strategy had all sorts of benefits beyond control and distribution. From the very beginning, we never believed in spending much money on advertising, and saturation helped us to save a fortune in that department.

Except for reading my numbers on Saturday morning and going to our regular meetings, I don’t have much of a routine for anything else. I always carry my little tape recorder on trips, to record ideas that come up in my conversations with the associates. I usually have my yellow legal pad with me, with a list of ten or fifteen things we need to be working on as a company. My list drives the executives around here crazy, but it’s probably one of my more important contributions.

If you take someone who lacks the experience and the know-how but has the real desire and the willingness to work his tail off to get the job done, he’ll make up for what he lacks.

Now, I would love to tell you that this partnership was all part of my master plan from the beginning, that as a young man I had some sort of vision of a great retailing company in which all the employees would be awarded a stake in the business. That I saw them having the opportunity to participate in many of the decisions that would determine the profitability of that business. I would love to tell you that from the very beginning we always paid our employees better than anyone else paid theirs, and treated them as equals. I would love to tell you all that, but unfortunately none of it would be true. In the beginning, I was so chintzy I really didn’t pay my employees very well. The managers were fine. From the time we started branching out into more stores, we always had a partnership with the store managers. Those guys I’ve already told you about, like Willard Walker and Charlie Baum and Charlie Cate, all had a piece of their stores’ profits from the beginning. But we really didn’t do much for the clerks except pay them an hourly wage, and I guess that wage was as little as we could get by with at the time. In fairness to myself, though, that was pretty much the way retail was in those days, especially in the independent variety store part of the business.

The larger truth that I failed to see turned out to be another of those paradoxes—like the discounters’ principle of the less you charge, the more you’ll earn. And here it is: the more you share profits with your associates—whether it’s in salaries or incentives or bonuses or stock discounts—the more profit will accrue to the company. Why? Because the way management treats the associates is exactly how the associates will then treat the customers. And if the associates treat the customers well, the customers will return again and again, and that is where the real profit in this business lies, not in trying to drag strangers into your stores for one-time purchases based on splashy sales or expensive advertising. Satisfied, loyal, repeat customers are at the heart of Wal-Mart’s spectacular profit margins, and those customers are loyal to us because our associates treat them better than salespeople in other stores do. So, in the whole Wal-Mart scheme of things, the most important contact ever made is between the associate in the store and the customer.

the biggest single regret in my whole business career is that we didn’t include our associates in the initial, managers-only profit-sharing plan when we took the company public in 1970.

I think anytime the employees at a company say they need a union, it’s because management has done a lousy job of managing and working with their people. Usually, it’s directly traceable to what’s going on at the line supervisor level—something stupid that some supervisor does, or something good he or she doesn’t do. That was our problem at Clinton and at Mexico. Our managers didn’t listen. They weren’t as open with their folks as they should have been. They didn’t communicate with them, they didn’t share with them, and consequently, we got in trouble.

It was Lewis Company, J. M. Lewis Partnership. They had a partnership with all their associates listed up on the sign. For some reason that whole idea really excited me: a partnership with all our associates. As soon as we got home, we started calling our store workers “associates” instead of employees.

In 1971, we took our first big step: we corrected my big error of the year before, and started a profit-sharing plan for all the associates. I guess it’s the move we made that I’m proudest of, for a number of reasons. Profit sharing has pretty much been the carrot that’s kept Wal-Mart headed forward. Every associate of the company who has been with us at least a year, and who works at least 1,000 hours a year, is eligible for it. Using a formula based on profit growth, we contribute a percentage of every eligible associate’s wages to his or her plan, which the associate can take when they leave the company—either in cash or Wal-Mart stock.

He loved the game. He never gave you a point, and he never quit. But he is a fair man. To him, the rules of tennis, the rules of business, and the rules of life are all the same, and he follows them. As competitive as he is, he was a wonderful tennis opponent—always gracious in losing and in winning.

When I asked permission to hunt, I always introduced myself as Sam Walton of Sam Walton’s variety store down on the square in Bentonville, and I found that it really helped my business. When these farm folks would come to town to shop, they’d naturally do business with that fellow who hunted their land and brought them candy. I still meet folks today who tell me their father recalls me coming out to hunt their land in those days. As we began to expand, and I flew around more, I would throw the dogs in the plane with me so I could hunt between store visits.

We’d play shopping-cart bingo—where each shopping cart has a number, and if your number is called, you get a discount on whatever you have in the cart. At store openings, we’d stand on the service counters and give away boxes of candy to the customers who had traveled the farthest to get there. As long as it was fun, we’d try it. Occasionally it blew up in our face.

The only hitch was that before you could buy that television set you had to find it first. Phil had hidden it somewhere in the store, and the first person to find it, got it. When Phil arrived at the store that morning, there was such a crowd out front that you couldn’t even see the doors. I think all of Fayetteville was there, and a lot of them had been there all night. Our folks had to go in through the back. When they finally opened the front doors, there was a stampede like you wouldn’t believe: five hundred or six hundred people tearing through that store looking for one twenty-two-cent television set. Phil sold a ton that day, but the place was so totally out of control that even he admitted playing hide-and-seek with merchandise was a terrible idea.

Our Cedartown, Georgia, store holds a kiss-the-pig contest to raise money for charity. They set out jars with each manager’s name on them, and the manager whose jar winds up with the most donations has to kiss a pig.

Some of our people greeters—the associates who meet our customers as they come in the door—use their high-profile positions to have a little fun. Artie Hopper, the greeter in Huntsville, Arkansas, dresses in a different costume for every holiday—including Hawgfest, a local celebration.

Traditionally, we’ve had this attitude that if you wanted to be a manager at Wal-Mart, you basically had to be willing to move on a moment’s notice. You get a call that says you’re going to open a new store 500 miles away, you don’t ask questions. You just pack and go, then sometime later you worry about selling your house and moving your family. Maybe that was necessary back in the old days, and maybe it was more rigid than it needed to be. Now, though, it’s not really appropriate anymore for several reasons. First, as the company grows bigger, we need to find more ways to stay in touch with the communities where we operate, and one of the best ways to do that is by hiring locally, developing managers locally, and letting them have a career in their home community—if they perform. Second, the old way really put good, smart women at a disadvantage in our company because at that time they weren’t as free to pick up and move as many men were. Now I’ve seen the light on the opportunities we missed out on with women. (I have to admit that Helen and my daughter Alice have helped me come around to this way of thinking.)

the secret of successful retailing is to give your customers what they want. And really, if you think about it from your point of view as a customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience. You love it when you visit a store that somehow exceeds your expectations, and you hate it when a store inconveniences you, or gives you a hard time, or just pretends you’re invisible.

When we arrived in the much smaller town of Bentonville in 1950, we found almost no spirit of competition. A few retailers were scattered around the square, but each of them had sort of carved out their niche, and that was that. If a store didn’t have something the customer wanted, he or she would just have to drive to Rogers, or Springdale, or very possibly on into Fayetteville. Using some of the things we had learned in Newport, I’d have to say we changed that way of thinking right off and generally sparked up the atmosphere around town.

if we had gotten smug about our early success, and said, “Well, we’re the best merchant in town,” and just kept doing everything exactly the way we were doing it, somebody else would have come along and given our customers what they wanted, and we would be out of business today.

What makes me sad these days—and a little angry too—is that some of these stores are starting to shut down before we come to a town. They hear we’re coming, and they close up before we ever even get there. We get a bad rap for that, but to my mind somebody who’ll close his store just because he hears competition’s coming is somebody who must know he’s not doing much of a job, somebody who probably shouldn’t have been in the retail business to begin with. For all the press about Wal-Mart being at odds with small towns, I am positive that we are most welcome in almost every community where we do business. That’s partly because of our economic contribution. But it’s also because we go out of our way to instill a sense of community involvement in our store management and associates so that they’ll be even better citizens. We know that some of our store managers do a better job at this than others, and it’s a constant effort to make everyone work on community involvement. We already have community scholarship programs and matching charity grant programs, but we’re working hard every day to improve the ways in which we give back to the communities we’re in. If we ever let our sense of being hometown merchants slip too far, we run the risk of damaging what we think is a unique relationship with our customers.

In those days, of course, we desperately needed Procter & Gamble’s product, whereas they could have gotten along just fine without us. Today, we are their largest customer. But it really wasn’t until 1987 that we began to turn a basically adversarial vendor/retailer relationship into one that we like to think is the wave of the future: a win-win partnership between two big companies both trying to serve the same customer.