Wal-Mart

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Wal-Mart

With nearly 2,500 stores spread across the land, Wal-Mart has become an instantly recognizable and ubiquitous component of American popular culture. There are few places in this country anymore that are beyond a short drive to a Wal-Mart. With upwards of 50,000 different items on the shelves and racks of a typical store, Wal-Mart has literally changed the way Americans shop.

The phenomenal success of Wal-Mart has been the direct result of the vision and energy of its late founder, Sam Walton. His motivation and charisma alone shaped a company which helped to establish discount merchandising as the major form of retail operation in this country. His highly personal management style and folksy, down-home demeanor were instrumental in assembling a fiercely loyal work force and maintaining high employee morale.

Samuel Moore Walton (1918-1992) was born near Kingfisher, Oklahoma, into a farm family. He grew up in Missouri and graduated in 1940 from the University of Missouri with a degree in economics. After a short stint making 85 dollars a month as a manager trainee for the J.C. Penney Company, Walton served in the Army during World War II and attained the rank of captain. He launched his illustrious career in retailing with the purchase of a Ben Franklin variety store franchise in Newport, Arkansas, where he began his practice of high-volume, discount merchandising. From there, he moved to bigger stores in several locations, calling his newly formed chain "Walton's Five & Dime." He depended on regular newspaper advertising and special sales promotions, and began to experiment with self-service shopping, stationing clerks only at check-out counters. His stores became larger and more numerous, and with his brother "Bud" as a partner in the business, "Walton's Family Centers" by 1962 was the largest independently operated chain of variety stores in the country.

A key strategy in the rapid expansion of Walton's stores was one that would be repeated successfully throughout the later Wal-Mart boom: placing new stores in small towns, based on the realization that the consumer power, represented by relatively small but concentrated populations, was more than adequate to support a large variety store. Walton formed early his notion that a big store in a small town would be lucrative, and would intercept the flow of shoppers traveling to larger cities for major purchases. By establishing initial occupation of these smaller market niches, any threat of subsequent competition would be stifled. Although ready and willing to actively test his idea, Walton failed to find interested investors or franchise affiliation, and so went heavily into debt to finance the establishment of the first Wal-Mart in Rogers, Arkansas, which opened on July 2, 1962. The business prospered during the 1960s, first with several new stores opening in other locations in Arkansas, and then further extension into neighboring states. By the end of the decade, however, the need for expansion capital coaxed Walton into incorporation and sale of public stock.

Walton set a course for rapid enlargement of his new Wal-Mart venture, fearing that if he did not crack the market offered by small towns, some other discount store would beat him to it. From 38 stores in 1971, the chain grew to 276 outlets by 1980, most within a 300 mile radius of the firm's Bentonville, Arkansas headquarters. But the greatest growth was yet to come. In the early 1980s, Walton acquired several other retail chains, and transforming these stores into Wal-Marts allowed for quick saturation of new territory, particularly in the Deep South. At mid-decade, there were nearly 1,000 Wal-Marts in 22 states. For new construction, the prevailing expansion plan never wavered from the proven small town location strategy, although a clever ploy of capturing an increasing market share of large cities came about by setting up stores in nearby suburban areas. Overall, the growth and expansion of Wal-Mart has occurred in three phases. Initially, up until the mid-1970s, stores were tightly clustered around the northwest Arkansas operational hub. The second phase, through 1980, witnessed regional expansion into neighboring states, while in the third phase, Wal-Marts seemed to be springing up everywhere.

Sam Walton once described his management style as "MBWA"—management by walking around. He maintained a rigorous schedule of unannounced store visits, which always included Sam's own cheerleading drill and time for chatting with employees at every level. He acknowledged that human resources were the key to Wal-Mart's success, and Walton maintained a people orientation from the beginning that never wavered or waned. Hard work was always rewarded, with bonuses given for good ideas, and stock options and profit-sharing incentives offered to all personnel. Walton himself worked 16-hour days and expected his corporate executives to do likewise. The egalitarian tone of upper management was legendary, and was symbolized by the lack of assigned parking at corporate headquarters, even for Sam's old pick-up truck. The company nurtured several programs aimed at giving back to the community. There were college scholarships for employees' children, as well as local high school students. With the stated purpose of stemming the tide of jobs leaving the country, there was the much touted "Buy American" campaign (though as critics pointed out, Wal-Mart purchased domestically only if that was the cheapest price available). His recipe for prosperity evidently worked, for by the late 1980s, Forbes magazine had placed Sam Walton at the top of their list of the richest people in America for three years running.

By 1987, Wal-Mart ranked fourth among general retail chains, trailing Sears, Kmart, and J.C. Penney's, and in that year alone, the company opened 121 new stores. Its board of directors included the then-first lady of Arkansas—Hilary Rodham Clinton. In 1988, Sam Walton stepped down as CEO (Chief Executive Officer), though he still maintained an active voice in corporate plans and operations. The company he built was now a national icon. As one account opined, "By the end of the 1980s, for its personnel and for the public it served, the firm had evolved into more than just a job or a store. In the eyes of its growing legion of admirers, Wal-Mart had become a cultural phenomenon." The new decade promised continued success and further expansion, and on one day alone, January 30, 1991, Wal-Mart opened 36 new stores. Later that year, Wal-Mart passed both Sears and Kmart to become the nation's leading retailer. Sad news for the company soon followed, for on April 5, 1992, Sam Walton died. But the retailing spectacle he engineered remained firmly entrenched in American culture.

Wal-Mart instituted a number of important and far-reaching technical innovations that serve as exemplars of retail trade management techniques in this country. In 1977, a company-wide computer system was installed that has grown in sophistication and applications to where its database is second only to the federal government's. Wal-Mart pioneered the use of UPC bar code scanning, not only at the check-out counter, but also at the backroom receiving area, which allowed for quick and accurate inventory data analysis. A satellite-based network, which initially cost $20 million and has now become the largest privately owned system in the country, allows for regular and instantaneous communications among staff at all stores and management personnel at headquarters.

Another way that Wal-Mart gained an edge on competition was to vertically integrate the processes of wholesale purchasing and distribution of merchandise. Walton set up a series of centrally located distribution centers that received bulk shipments in very large quantities from vendors and suppliers, often by rail. Through a process known as "cross-docking," the goods were then loaded on a fleet of company-owned trucks bound for individual stores, usually the same day. These distribution centers, full of automatic conveyor belts and often as large as 25 acres in area, did not actually function as warehouses, but rather facilitated rapid transfer of products from a wholesale to a retail mode. They now serve the growing network of retail locations at an approximate ratio of one distribution center per 100 stores. The company also assumed control of all departments within stores, including the jewelry, pharmaceutical, and automobile service sections which previously had belonged to outside contractors leasing floor space.

The success of Wal-Mart has been emblematic of changing retail trends in the United States, and has paralleled the rise of discount merchandising. The economies of scale involved with bigger and more numerous stores, bulk purchasing directly from manufacturers, and high volume sales enabled rapid growth and soaring profits even as individual item mark-ups were reduced and the savings passed on to the customer. The public was quick to respond. As traditional department stores declined in consumer appeal, the large variety outlet promising low prices took over. The year Wal-Mart opened its first store—1962—was the same year Kmart, Woolco, and Target first opened stores. But it was Wal-Mart that most successfully negotiated the transition from shopping center and mall-based retailing to one-stop shopping. Sales and service were guided by a pair of slogans which were displayed prominently in every store—"We sell for Less" and "Satisfaction guaranteed." Not only does management strive to uphold those maxims, but a well-trained staff at all locations exudes helpfulness and attention to customers' needs. The "store greeter," often a senior citizen, is a fixture at the entrance to every store.

The amazing spread of Wal-Mart across the American landscape has not been without controversy. Several locations have actually welcomed the new neighbor, finding that their own business community has prospered from the increased consumer traffic. But much more commonly, local communities perceive the giant store on the edge of town as a threat to main street merchants unable to compete with the bulk purchasing power of a national chain that prides itself on passing its savings on to the consumer. Charges of unfair labor practices have not fazed the infamously non-union shop. For all its self-congratulatory stance on promoting ecology issues and being green, the company has also been criticized for its use of veiled threats and other heavy-handed tactics in dealing with local zoning laws and environmental regulations. On-going opposition by local communities to Wal-Mart's expansion plans will most likely continue. There may come a time when the company feels it has largely saturated the market for its discount retailing operation. Increasing popularity of electronic catalogs and Internet-based shopping may begin to dent the fortunes of this giant, but so far there appears no sign of slowing down, and for now anyway, that big Wal-Mart store is here to stay.

—Robert Kuhlken