“There’s only one boss: the customer. And you can fire everyone in the company from the president down, just by spending your money elsewhere.”
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 let other responsibilities such as paperwork and keeping books fall by the wayside. He was nearly 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 ability 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 Army 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 long hours in the store and implementing a pricing strategy well below what his competitors were charging, Walton’s new business took off. By 1950, he had the highest-performing Ben Franklin store in the area. Walton’s landlord, 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 earnings with your associates and treat them like your partners.
3) Energize your colleagues.
4) Communicate as much as you can to your partners.
5) Appreciate everything your associates do for the business.
6) Celebrate your success.
7) Listen to everyone in your company.
8) Exceed the expectations of your customers.
9) Control your expenses better than your competition.
10) Open your own path.
Determined as ever to succeed in his venture, Walton looked to other rural Arkansas towns for a new place to settle. 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 Bentonville competitors did not want to lower their prices, and Walton’s business began to flourish.
Realizing that he had a recipe for success, Walton began looking for other areas of 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. He then made the decision to pursue a strong price reduction strategy and hoped to get a much higher 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 done across the country.
building an empire
Walton’s revolutionary plan was to have large hypermarkets in rural towns that discounted a wide variety of products. His initial approach was to Ben Franklin. They turned it down because they didn’t like the idea of operating on lower margins. With no big company behind him, Walton chose to go it alone. In 1962, he mortgaged his house and borrowed against everything he owned to open his first Wal-Mart in Rogers, Arkansas, a neighboring town to Bentonville.
Excited by the prospects of discounts and selections previously only obtainable in the 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.
Funded solely through debt and reinvested earnings, Walton decided that in 1970 he would take the company public. The initial public offering raised $5 million, with Walton retaining 61 percent of the company. The money was used to pay off the company’s debts and fuel further expansion. In 1980 there were 276 Wal-Marts in operation.
An integral component of Wal-Mart’s success was its use of new technology to improve efficiency and save costs. Walton knew that the key to success in a low-margin business was to tightly control your costs. Wal-Mart was, for example, one of the first major retailers to use electronic scanners at cash registers linked to an inventory control system so they could immediately tell 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 discount stores that sold wholesale to small business owners. The idea was another big hit for Walton and in 1985 Forbes magazine listed him as 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.