Wal-Mart Stores, Inc.

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Wal-Mart Stores, Inc.

702 Southwest 8th Street
Bentonville, Arkansas 72716
U.S.A.
(501) 273-4000

Fax: (501) 273-8650
Public Company
Incorporated: 1969
Employees: 434,000
Sales: $55.48 billion
Stock Exchanges: New York Pacific
SICs: 5331 Variety Stores; 5311 Department Stores

Wal-Mart Stores, Inc., is a national discount department store chain operating primarily in small towns throughout the United States. In 1993 the company had more than 1,900 stores in 45 states and Puerto Rico. Its founder, Samuel Walton, was among the richest people in the United States at his death in 1992.

Walton graduated from the University of Missouri in 1940 with a degree in economics and became a management trainee with J. C. Penney Company. After two years he went into the army. Upon returning to civilian life three years later, he used his savings and a loan to open a Ben Franklin variety store in Newport, Arkansas. In 1950 he lost his lease, moved to Bentonville, Arkansas, and opened another store. By the late 1950s, Sam and his brother J. L. (Bud) Walton owned nine Ben Franklin franchises.

In the early 1960s Sam Walton took what he had learned from studying mass-merchandising techniques around the country and began to make his mark in the retail market. He decided that small-town populations would welcome, and make profitable, large discount shopping stores. He approached the Ben Franklin franchise owners with his proposal to slash prices significantly and operate at a high volume, but they were not willing to let him reduce merchandise as low as he insisted it had to go. The Walton brothers decided to go into that market themselves and opened their first Wal-Mart Discount City in Rogers, Arkansas, in 1962. The brothers typically opened their department-sized stores in towns with populations of 5,000 to 25,000, and the stores tended to draw from a large radius. “We discovered people would drive to a good concept,” Walton said in Financial World on April 4, 1989.

Wal-Mart’s “good concept” involved huge stores offering customers a wide variety of name-brand goods at deep discounts that were part of an every day-low-prices strategy. Walton was able to keep prices low and still turn a profit through sales volume and an uncommon marketing strategy. Wal-Mart’s advertising costs generally came to one-third that of other discount chains; most competitors were putting on sales and running from 50 to 100 advertising circulars per year, but Wal-Mart kept its prices low and only ran 12 promotions a year.

By the end of the 1960s the brothers had opened 18 Wal-Mart stores and owned 15 Ben Franklin franchises throughout Arkansas, Missouri, Kansas, and Oklahoma. These ventures became incorporated as Wal-Mart Stores, Inc., in October 1969.

The 1970s held many milestones for the company. Early in the decade, Walton implemented his warehouse distribution strategy. The company built its own warehouses so it could buy in volume and store the merchandise, then proceeded to build stores throughout 200-square-mile areas around the distribution points. This cut Wal-Mart’s costs and gave it more control over operations. It meant that merchandise could be restocked as quickly as it sold, and that advertising was specific to smaller regions and cost less to distribute.

Wal-Mart went public in 1970, initially trading over the counter; in 1972 the company was listed on the New York Stock Exchange. By 1976 the Waltons phased out their Ben Franklin stores so the company could put all of its expansion efforts into the Wal-Mart stores. In 1977 the company made its first significant acquisition when it bought 16 Mohr-Value in Missouri and Illinois. Also in 1977, based on data from the previous five years, Forbes ranked the nation’s discount and variety stores, and Wal-Mart ranked first in return on equity, return on capital, sales growth, and earnings growth.

In 1978 Wal-Mart began operating its own pharmacy, auto service center, and jewelry divisions, and acquired Hutchenson Shoe Company, a shoe-department lease operation. By 1979 there were 276 Wal-Mart stores in 11 states. Sales had gone from $44 million in 1970 to $1.25 billion in 1979.

Wal-Mart sales growth continued into the 1980s. In 1983 the company opened its first three Sam’s Wholesale Clubs and began its expansion into bigger-city markets. Business at the 100,000-square-foot cash-and-carry discount membership warehouses proved to be good; the company had 148 such clubs in 1991, by which time the name had been shortened to Sam’s Clubs.

The company continued to grow by leaps and bounds. In 1987 Wal-Mart acquired 18 Supersaver Wholesale Clubs, which became Sam’s Clubs. The most significant event of that year, and perhaps the decade, was the opening of Wal-Mart’s newest merchandising concept—taken from one originated by a French entrepreneur—that Walton called Hypermart USA. Hypermart USA stores combine a grocery store, a general merchandise market, and services such as restaurants, banking, shoe shines, and videotape rentals in a space that covers more area than six football fields. Prices are reduced as much as 40% below full retail level, and sales volume averages $1 million per week, compared to $200,000 for a conventional-sized discount store. Dubbed “malls without walls,” there were four of these facilities in the United States in 1991.

Making customers at home in such a large-scale shopping facility required inventiveness. The Dallas store had phone hot-lines installed in the aisles for customers needing directions. Hypermart floors are made of a rubbery surface for ease in walking, and the stores offer electric shopping carts for the disabled. To entertain children, there is a playroom filled with plastic balls—an idea taken from the Swedish furniture retailer Ikea.

There have also been wrinkles to work out. Costs for air conditioning and heating the gigantic spaces have been higher than expected. Traffic congestion and parking nightmares have proven a drawback. Customers also have complained that the grocery section is not as well-stocked or maintained as it needs to be to compete against nearby grocery stores. Wal-Mart has tried addressing these problems by, for example, redesigning the grocery section of the Arlington, Texas, store. Wal-Mart has also opened five smaller “supercenters”—averaging around 150,000 square feet—featuring a large selection of merchandise and offering better-stocked grocery sections, without the outside services such as restaurants or video stores.

Wal-Mart has received some criticism for its buying practices. For example, according to Fortune (January 30, 1989), sales representatives are given this treatment: “Once you are ushered into one of the spartan little buyer’s rooms, expect a steely eye across the table and be prepared to cut your price.” Wal-Mart has been known not only for setting the tone with its vendors for buying and selling, but often for only dealing directly with the vendor, bypassing sales representatives. In 1987, 100,000 independent manufacturers representatives initiated a public information campaign to fight Wal-Mart’s effort to remove them from the selling process, claiming that their elimination jeopardized a manufacturer’s right to choose how it sells its products.

Meanwhile, Wal-Mart’s revenues kept going up, and the company has moved into new territory. Wal-Mart enjoyed a 12-year streak of 35% annual profit growth through 1987. In 1988 the company operated in 24 states—concentrated in the Midwest and South—1,182 stores, 90 wholesale clubs, and 2 hypermarts. President and chief executive officer David D. Glass, who had been with the company since 1976, was a key player in Wal-Mart’s expansion.

In a move that was part good business and part public relations, Wal-Mart sent an open letter to U.S. manufacturers in March 1985 inviting them to take part in a buy-American program. The company offered to work with them in producing products that could compete against imports. “Our American suppliers must commit to improving their facilities and machinery, remain financially conservative and work to fill our requirements, and most importantly, strive to improve employee productivity,” Walton told Nation’s Business in April 1988. Product conversions—arranging to buy competitively priced U.S.-made goods in place of imports—are regularly highlighted at weekly managers’ meetings. William R. Fields, executive vice-president of merchandise and sales, estimated that Wal-Mart cut imports by approximately 5% between 1985 and 1989. Nonetheless, analysts estimated that Wal-Mart still purchased between 25% and 30% of its goods from overseas, about twice as much as Kmart. Wal-Mart has also been criticized for its impact on small retail businesses. Independent store owners often went out of business when Wal-Mart came to town, unable to compete with the superstore’s economies of scale. In fact, Iowa State University economist Kenneth Stone conducted a study on this phenomenon and told the New York Times Magazine (April 2, 1989),’ If you go into towns in Illinois where Wal-Mart has been for 8 or 10 years, the downtowns are just ghost towns.” He found that businesses suffering most were drug, hardware, five-and-dime, sporting goods, clothing, and fabric stores, while major appliance and furniture businesses picked up, as did restaurants and gasoline stations, due to increased traffic.

Wal-Mart has a record of community service, however. It awards a $1,000 scholarship to a high school student in each community Wal-Mart serves. But the company’s refusal to stock dozens of widely circulated adult and teen magazines, including Rolling Stone, had some critics claiming that Wal-Mart was willfully narrowing the choices of the buying public by bowing to pressure from conservative groups.

In 1990 the company continued to grow, adding its first Wal-Mart stores in California, Nevada, North Dakota, Pennsylvania, South Dakota, and Utah. It also opened 25 Sam’s Clubs, of which four were 130,000-square-foot prototypes incorporating space for produce, meats, and baked goods. In mid-1990, the company acquired Western Merchandise, Inc., of Amarillo, Texas, a supplier of music, books, and video products to many of the Wal-Mart stores. Late in 1990 Wal-Mart acquired the McLane Company, Inc., a distributor of grocery and retail products. Early in 1991 The Wholesale Club, Inc., merged with Sam’s Clubs, adding 28 stores that were to be integrated with Sam’s by year end. Also, Wal-Mart agreed to sell its nine convenience store-gas station outlets to Conoco Inc.

Wal-Mart’s expansion continued in 1991, and by 1992 the company opened about 150 new Wal-Mart stores and 60 Sam’s Clubs, bringing the total to 1,720 Wal-Mart stores and 208 Sam’s Clubs. Some of these stores represented a change in policy for the company, opening near big cities with large populations. Another policy change was instituted by the company when it announced that it would no longer deal with independent sales representatives.

In 1991 Wal-Mart introduced its new store brand, Sam’s American Choice, and its first products were beverages, colas, and fruit juices. The beverages were made by Canada’s largest private-label bottler, Cott Corp., but the colas were supplied from U.S. plants. Future plans called for the introduction of many different types of products that would match the quality of national brands, but at lower prices.

In 1992 Wal-Mart moved into Mexico, where it entered into a joint venture with Cifra, that nation’s largest retailer. The venture developed a price-club store called Club Aurrera which required an annual membership of about $25. Shoppers could choose from about 3,500 products ranging from fur coats to frozen vegetables. Within the year, the joint venture operated three Club Aurreras, four Bodegas discount stores, and one Aurrera combination store.

Expansion in the United States also continued, and from 1992 to 1993, 161 Wal-Mart stores were opened and one was closed. Another 48 Sam’s Clubs and 51 Bud’s Warehouse Outlets were also opened. Expansions or relocations took place at 170 Wal-Mart stores and 40 Sam’s Clubs. All told, there was a net addition of 34,556,271 square feet of retail space. By 1993, the 1,914 stores included 40 Supercenters in 45 states and Puerto Rico, and 27 Sam’s Clubs in 41 states.

In January 1993 Wal-Mart’s reputation was shaken when a report on Dateline on NBC-TV showed child laborers in Bangladesh producing merchandise for the stores. The program showed children working for 5 cents an hour in a country that lacked child labor laws.

The program further alleged that items made outside the United States were being sold under “Made in USA” signs as part of the company’s Buy American campaign instituted in 1985. CEO David Glass appeared on the program saying that he didn’t know of any “child exploitation” by the company, but did apologize about some of the signs incorrectly promoting foreign-made products as domestic items.

In April 1993 Wal-Mart introduced another private label, called Great Value. The brand was initially used for a line of 350 packaged food items for sale in its supercenter stores. The proceeds from the company’s other private label, Sam’s American Choice, were to be channeled into the Competitive Edge Scholarship Fund, which the company launched in 1993 in partnership with some vendors and colleges. In the same year, Wal-Mart started to build an experimental store that would sell products made from recycled materials, in keeping with the company’s environmental position of using recycled paper and plastic materials.

The company planned to open 150 new Wal-Mart stores and 65 Sam’s Clubs in 1994. About 100 older stores and 25 clubs were to be expanded or relocated, including 40 Wal-Mart stores to be operated as Supercenters. Also planned was the construction of two new full-line distribution centers, two grocery distribution centers, a distribution center to process clothing, and a storage center, as well as the introduction of the first Wal-Mart Supercenters in Monterrey and Mexico City.

Principal Subsidiaries

Kuhn’s Big K Stores Corp.; North Arkansas Wholesale Co., Inc.; Wal-Mart Realty Co.; Super Saver Warehouse Club, Inc.; McLane Company, Inc.; The Wholesale Club, Inc.