Wal-Mart & Sam Walton : Enterprise & the Entrepreneur
Wal-Mart Stores, Inc., is one of the nation’s (USA’s) fastest-growing chains of discount stores. In recent years, the chain has been experiencing compounded annual growth rates near 40 percent, while other large retailers have averaged 10 percent. Its 1987 sales reached nearly $15.9 billion and security analysts were predicting that by 1990 its sales might surpass Kmart, making it the number two general merchandise retailer in the country. How it became what it is, is a tribute to Sam M. Walton, an Arkansas retail executive, who carefully created and nurtured the enterprise. The discount chain is composed of nearly 1,150 units that operate mainly in small communities in the South and Midwest.
Sam Walton obtained his initial baptism in retailing as a management trainee in a J.C. Penny store. Then, in 1945 he bought and operated a franchised Ben Franklin variety store in Newport, Arkansas. Five years later he lost his lease and moved to Bentonville, Arkansas, where he started Walton’s 5 and 10, which eventually grew to a chain of fourteen stores. In 1962, he opened his first Wal-Mart store. This was a large warehouse-type structure – similar to a Kmart – that handled a broad general merchandise selection ranging from windshield wipers to disposable diapers.
Although a Wal-Mart store looks much like any other discount establishment, its operating strategy has been carefully conceived an implemented by its management. Other than the vision and persuasive character of Sam Walton, the success of the discount chain has been credited to Walton’s ability to exploit opportunities in the retail market. Noting that Kmart, Target, and other large discounters were locating in urban centers, Walton decided to build his stores in rural communities and offer to small-town consumers brand name goods at discount prices. To maintain its small-town culture, all of the ten regional vice-presidents live near Wal-Mart headquarters in Bentonville and are flown by a company jet to their regions each Tuesday and returned each Thursday evening. Although they are responsible for corporate policy, the firm’s top management never loses touch with the operating units. Each company executive must spend at least one week a year working in a store, doing tasks such as stocking shelves and processing customer transactions. In addition, corporate executives frequently visit both their own and their competitor’s stores in order to discuss the health and direction of the company with store personnel and to stay abreast of industry developments. These executives get involved in merchandise selection, too. Each year they can choose a favorite item and be its champion by making suggestions as to how to better display or promote it.
An important cost advantage that separates Wal-Mart from many of its competitors as its distribution system. The discounter orders in large quantities directly from suppliers and uses its own highly automated warehouses and fleet of delivery trucks. Store managers phone their orders into a central computer each week; the goods are shipped from suppliers to one of seven warehouses; the goods are then sorted and sent onto the stores in Wal-Mart trucks. This centralized distribution helps the discounter to control its shipping and inventory costs.
To encourage good employee relations, all of the nearly 185,000 part-time and full-time employees of Wal-Mart are called associates and participate in a stock-purchase plan and a profit-sharing arrangement. At its Saturday morning meetings of top and middle managers, store clerks who have developed unusual displays resulting in increased sales may be cited for their outstanding contributions. Mr. Walton credits his two-year stint at J.C. Penney as making him aware of the importance of employee participation in a business.
Sam Walton is a key participant in the wheel-of-retailing effect. The Wal-Marts, Kmarts, and other discount stores have changed from the bargain barn type of operation to a more upgraded one. The stores are attracting a larger number of middle-income patrons than they did in the 1960s. The dialectic approach to retail development may help to explain the origins of the Wal-Mart organization. Sam Walton understood the variety store business (thesis) and he knew the advantages of self-service, central checkouts, Spartan décor, low prices, and operating style of a supermarket (antithesis). By blending together the two forms of operation, he created Wal-Mart (synthesis). He believes strongly in technology up-gradation to understand and service the customers and to improve operational efficiencies.
Sam Walton methodically developed a retail mix strategy that appealed to a target market of small-town consumers who had been previously ignored by other discount retailers. To instil a consistent low-price image for Wal-Mart, Sam Walton attempts to keep his prices lower than competitors’. As part of his marketing strategy, he limits sales events to only thirteen annually – refusing to bombard consumers with sales on selected merchandise once or twice a week. In order to generate traffic and attract crowds, he uses a series of exciting promotional activities, such as Army paratroopers landing in a Wal-Mart parking lot and “Western Days.”
Sam Walton is hailed by many as a retailing genius. In 1940 he graduated from the University of Missouri with a major in economics. His initial work experience at J.C.Penney and in the Variety-store industry should have pointed him toward a career in conventional retailing. These early assignments in general merchandise stores did, however, prepare him to enter the maverick discounting business in 1962. After all, a discounter is a general merchandise retailer that maintains low operating costs and stresses low prices. Prior to opening his first discount store, Walton had employed a price-cutting strategy on brand name goods in his variety stores and had notices an appreciable increase in sales.
Sam Walton realized that the buying power of large mass merchandisers permitted them to keep their prices below those of most small single-line and specialty retailers. Knowing that most rural communities contained only small merchants, Walton decided to locate his discount stores in these communities. He believed that larger stores could be placed in towns smaller than anyone had thought possible. Today, Wal-Mart stores reflect the general merchandise background of /Sam Walton and his belief in providing customers with good values at low prices.
Sam Walton could not abide being an independent merchant; his aggressive spirit led him to form a discount store chain. Evidently, chains have been a way of life for Walton. His first variety store eventually blossomed into a chain of fifteen stores. The Wal-Mart organization has grown both by adding new stores and by buying other discounters. In 1980, Wal-Mart bought the Kuhn chain in the Southeast and immediately added 116 variety and discount stores. By 1986, there were nearly 900 Wal-Mart stores in twenty-two states spread across the south from Florida west to New Mexico and into the north as far as Iowa and Nebraska.
Although the Ben Franklin Variety Store that Walton once operated was a franchised unit, he chose not to franchise the Wal-Mart concept. Walton must have reasoned that the advantage of total organizational control would more than offset the rapid expansion that would be possible through franchising. Walton knew the potential from mail-order houses and direct sellers, but these organizations did not fit into his scheme of operation. Over the last three decades, Sam Walton has admirably demonstrated that he knows how to sell general merchandise at low prices and generate a respectable profit.
By locating their stores primarily in small towns, Wal-Mart has been protected from some of the more blistering price-cutting competition. Recently, however, Wal-Mart has been expanding into larger cities where there are numerous established discounters. For example, the company has a store in Springfield, Missouri, which has a population of over 200,000. At the other extreme, Wal-Mart is developing stores of 25,000 to 30,000 square feet for rural communities that several years ago were deemed too small to support a discount store.
Sam Walton is a careful observer of retailing trends. After noting the success of discount membership clubs that sell only to businesses and individual groups, he has opened similar operation called Sam’s Wholesale Clubs in cities of a half million or more population. These clubs operate from a 100,000 square foot warehouse like building and follow the Wal-Mart philosophy of selling identifiable name-brand merchandise at low prices. In another trend-setting move, Wal-Mart purchased a satellite communications system that links all stores and distribution centers with its general offices. When a new retailing trend fits the pattern of the Wal-Mart organization, you can bet that Sam Walton will vigorously pursue it. Today Wal-Mart is trying to establish its network of stores in India – albeit with some hiccups !
Issues for Discussion
What are the lessons or learnings as regards Entrepreneurship and business your group sees in this above write –up.
Do you believe Sam Walton’s stamp is writ all over Wal-Mart ? Please explain why your group thinks so or otherwise. What is the current day status of Wal-Mart as an enterprise ? The group needs to do its own research on this enterprise and the entrepreneur – and arrive at their own conclusions – which they must share along-with their sources of information.
Compare Sam Walton with any other successful entrepreneur(s) icon of his time and current times (may be from among the 10 -11 entrepreneurs discussed in last class – and evaluate the two on various dimensions your group believe are crucial for being adjudged a successful entrepreneur.