Wal-Mart: The Sam Walton Success Story
“There is only one boss: the customer. And he can fire everyone in the company, from the president down, simply by spending his money elsewhere.”
Growing
Sam Walton’s career in retail began in 1940 when he became a sales apprentice in Des Moines, Iowa, at a JC Penney store. Despite his enthusiasm for serving customers, Walton was not a model employee. His desire to make his clients happy was so great that he often left other responsibilities like paperwork and bookkeeping behind him. He came close to being fired by his boss, who told him he wasn’t cut out for a career in retail. However, Walton kept his job due to his skill 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 in his homeland during World War II. When he left the military three years later, Walton was married with a son, and decided to start his own business to support his new family. With the $ 5,000 he had saved along with a $ 20,000 loan from his wife’s father, he bought a Ben Franklin variety store in Newport, Arkansas. Walton was 27 years old.
Starting the business
By spending many hours in the store and implementing a pricing strategy well below what his competitors were charging, Walton’s new business took off. In 1950 he had the best performing Ben Franklin store in the area. The owner of Walton, 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 was forced to close.
Walton’s 10 Commandments for Business Success were:
1) Commit to your business.
2) Share your profits with your associates and treat them as your associates.
3) Energize your colleagues.
4) Communicate as much as you can to your partners.
5) Appreciate all that 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) Make your own way.
Determined as ever to succeed in his endeavor, Walton sought out other rural Arkansas cities in search of a new place to establish a business. He found a small town called Bentonville and opened 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.
Realizing he had a recipe for success, Walton began looking for other areas for expansion. He borrowed money and used the profits from his first stores to buy more. By 1960, he owned 15 stores, but he wasn’t getting the kind of return on investment he thought he would get. He then made the decision to pursue a strong price-cutting strategy and hope to get much larger volume for higher profits. 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 retail was conducted across the country.
Building an Empire
Walton’s revolutionary plan was to have large superstores in rural towns that offered discounts on a wide variety of products. His initial approach was to Ben Franklin. They rejected it because they did not like the idea of operating with lower margins. Without a great company behind him, Walton chose to go it alone. In 1962, he mortgaged his house and borrowed everything he owned to open his first Wal-Mart in Rogers, Arkansas, a town near Bentonville.
Excited by the prospects for discounts and a selection previously only available in cities, rural customers flocked 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.
Financed solely through debt and reinvested earnings, Walton decided that in 1970 he would go public with the company. The IPO raised $ 5 million and Walton retained 61 percent of the company. The money was used to pay off the company’s debts and encourage further expansion. By 1980, 276 Wal-Mart were operating.
An integral component of Wal-Mart’s success was leveraging new technology to improve efficiency and save costs. Walton knew that the key to success in a low-margin business was rigidly controlling costs. Wal-Mart was, for example, one of the first major retailers to use electronic scanners at cash registers that were linked to an inventory control system so that they could immediately know which items were selling well and needed to be reordered.
The success of his Wal-Mart stores led Sam to another idea: Sam’s Wholesale Clubs. These would be the discount stores that wholesale to small business owners. The idea was another huge success for Walton, and in 1985, Forbes magazine considered him the richest man in America with an estimated net worth of $ 2.8 billion.
Like Ray Kroc, Sam Walton did not invent retail, he simply changed the business model and the way of doing business to make it a much more profitable company.