"I kept saying, Sam, we're making a good living. Why go out, why expand so much more The storesare getting farther and farther away. After the seventeenth store, though, I realized there wasn't going tobe any stopping it."HELEN WALTONAs much as we must have looked like promoters in the early goingwith our donkey rides and ridingmowers out in the parking lots, and mountains of Tide, or whatever, piled up inside the storeswhatnobody realized, including a few of our own managers at the time, was that we were really trying from thebeginning to become the very best operatorsthe most professional managersthat we could. There's noquestion that I have the personality of a promoter. That personality, and our somewhat unorthodox styleat Wal-Mart, probably confused people at the outset. In fact, I have occasionally heard myself comparedto P. T. Barnum because of the way I love to get in front of a crowd and talk something upan idea, astore, a product, the whole companywhatever I happen to be focused on right then. But underneath thatpersonality, I have always had the soul of an operator, somebody who wants to make things work well,then better, then the best they possibly can. So I guess when folks saw me walking around scribblingnotes on my coffee-stained yellow legal pad, or hauling boxes of ladies' lingerie into the stores out of mystation wagon, maybe they didn't take me that seriously. They assumed we couldn't be in it for the longhaul. Some folks no doubt figured we were a little fly-by-nightyou know, in the discount business todaybut out selling cars or swampland tomorrow. I think that misunderstanding worked to our advantage for along time, and enabled Wal-Mart to fly under everybody's radar until we were too far along to catch.
Truth be told, discounting attracted mostly promoters in the beginningpeople who had been in thedistribution center business or who were real estate promoters, guys who weren't really even aspiringmerchants but who saw a huge opportunity. You didn't have to be a genius to see discounting as a newtrend that was going to sweep the country, and all kinds of folks came jumping into it with all fourfeetwherever they could arrive firstCedar Rapids, Iowa, or Springfield, Missouri, it didn't matter. Theywould take a carbon copy of somebody's store in Connecticut or Boston, hire some buyers and somesupervisors who were supposed to know the business, and start opening up stores. From about 1958until around 1970, it was phenomenally successful.
Anybody who has ever known anything about me knows I was never in anything for the short haul; Ialways wanted to build as fine a retailing organization as I could. But in those early daysbefore, and justafter, we opened the first Wal-MartI got to know a lot of those promoters. As I told you, I ran thecountry studying the discounting concept, visiting every store and company headquarters I could find.
The first ones I saw were the mill stores in the East, where the whole thing started. Ann & Hope was inProvidence, Rhode Island, and there were others in Massachusetts and across New England. I went allover up there looking at Giant stores and Mammoth Mart and Arlan's. Another one I learned a lot fromwas Sol Price, a great operator who had started Fed-Mart out in southern California in 1955. I madefriends with Sol's son-in-law, who was running a distribution center in Houston, and talking with himhelped me sort out some of my thinking on distributionwhich would eventually become another key toWal-Mart's success. I guess I've stolenI actually prefer the word "borrowed"as many ideas from SolPrice as from anybody else in the business. For example, it's true that Bob Bogle came up with the nameWal-Mart in the airplane that day, but the reason I went for it right away wasn't that the sign wascheaper. I really liked Sol's Fed-Mart name so I latched right on to Wal-Mart. I do not believe Kmartexisted at that time.
I read in some trade publication not long ago that of the top 100 discounters who were in business in1976, 76 of them have disappeared. Many of these started with more capital and visibility than we did, inlarger cities with much greater opportunities. They were bright stars for a moment, and then they faded. Istarted thinking about what really brought them down, and why we kept going. It all boils down to nottaking care of their customers, not minding their stores, not having folks in their stores with goodattitudes, and that was because they never really even tried to take care of their own people. If you wantthe people in the stores to take care of the customers, you have to make sure you're taking care of thepeople in the stores. That's the most important single ingredient of Wal-Mart's success.
Most of these early guys were very egotistical people who loved to drive big Cadillacs and fly around intheir jets and vacation on their yachts, and some of them lived in houses like I'd never even thought aboutbefore. I remember going to dinner at one of their houses, and we got picked up by this limousine thatmust have had room for fourteen people. Man, they were living high. And they could afford to back thenbecause this discounting thing was working so well. Customers just flocked to their stores, and thesefellows were covered up in cash. Most of them could still be around today if they had followed somebasic principles about running good stores. There are a lot of ways to build strong companies. They don'thave to be done the Wal-Mart way, or my way, or anybody else's way. But you do have to work at it.
And somewhere along the line, these folks stopped short of setting the goals and paying the price thatneeded to be paid. Maybe it wasn't the Cadillacs and the yachts, maybe they just decided it wasn't worthit. But whatever it was, they just didn't stay close enough to their business, they sort of chose to get overon the other side of the road.
They expanded quickly without building the organizations and the supportsuch as distribution centersneeded to expand those companies. They didn't get out into their stores to see what was going on. ThenKmart got their machine in gear and began to do it better and better. I remember going in their storesI'llbet I've been in more Kmarts than anybodyand I would really envy their merchandise mix and the waythey presented it. So much about their stores was superior to ours back then that sometimes I felt like wecouldn't compete. Of course that didn't stop us from trying. And Target came along and did a fine job,taking the whole idea a little more upscale. As these big operators became more organized, thecompetition grew a lot more difficult. That's when all those guys who were failing to meet their customers'
needs and who didn't build strong organizationsall those promotersstarted to fall apart and, eventually,fall out.
Actually, during this whole early period, Wal-Mart was too small and insignificant for any of the big boysto notice, and most of the promoters weren't out in our area so we weren't competitive. That helped meget access to a lot of information about how they were doing things. I probably visited more headquartersoffices of more discounters than anybody elseever. I would just show up and say, "Hi, I'm Sam Waltonfrom Bentonville, Arkansas. We've got a few stores out there, and I'd like to visit with Mr.
So-and-So"whoever the head of the company was"about his business." And as often as not, they'd letme in, maybe out of curiosity, and I'd ask lots of questions about pricing and distribution, whatever. Ilearned a lot that way.
KURT BARNARD, RETAILING CONSULTANT:
"I was executive vice president of the discounters' trade association, working in my New York officeone day in 1967. My secretary said there was a man out front who wanted to join our group. I said Iwould give him ten minutes. So in comes this short, wiry man with a deep tan and a tennis racket underhis arm. He introduced himself as Sam Walton from Arkansas. I didn't know what to think. When hemeets you, he looks at youhead cocked to one side, forehead slightly creasedand he proceeds toextract every piece of information in your possession. He always makes little notes. And he pushes onand on. After two and a half hours, he left, and I was totally drained. I wasn't sure what I had just met,but I was sure we would hear more from him."Looking at everybody else's companies made me feel we were definitely headed in the right direction.
But as we developed, we began to feel a little out of control. In the late sixties, we had more than adozen Wal-Marts and fourteen or fifteen variety stores, which is a pretty good-sized company to berunning with three ladies, myself, and Don Whitaker in the office, and a manager in each store. I alreadytold you what scrubby buyers we were. We had a lot of people with little or no experience, or notenough knowledge of how bigger operations actually worked. I made up my mind that we had to getsomebody with management under his belt. I had hired Gary Reinboth from J. J.
Newberry, a big variety chain that was having some problems at the time, so I asked him if he knewanybody, and he told me about this guy up in Omaha named Ferold Arend. He was Newberry's districtmanager and head of merchandise for the whole Midwest, so Bud and I flew out to see him. We talkedhim and his wife into coming down and looking at our operation.
Ferold arend, wal-mart's first vice president of operations, and later its president:
"In the middle of 1966, Wal-Mart No. 5 was under construction in Conway, Arkansas, and Sam was allexcited and said, 'I've got to show you these plans.' So he loaded my wife and me in his plane and weflew down there. The store had a cotton mill on one side and a stockyard on the other, and it was in aterrible neighborhood. My first thought was: This is not a very good place for a store.' I also thought theBentonville store didn't seem to have any organization to the way it was run. Let's just say I wasn't veryimpressed with the whole Sam Walton operation at that time. I told him I wasn't interested.
"Later on, after that Conway Wal-Mart opened up, Sam called me and told me what the sales were. Ithought, 'My gosh, that store did as much in one day as some of our bigger stores do in a month.' Andthen he told me he was only paying ninety cents a square foot. And I thought, 'He must have somethingthere.' About that time, Newberry's decided to reorganize and I was going to have to move to a newdivision. So I thought, 'Well, if I'm going to have to start over in a company where I've worked fortwenty-one years, why not look at something I'm really interested in' and that was discounting and SamWalton.
"Here I was coming in as vice president, and it took some getting used to. The offices were still up onthe square in Bentonville, and Sam had just got through remodeling themwhich I'm sure was a greatimprovementbut in my opinion they weren't much. The offices were in an old narrow hallwayupstairssome were over the barbershop and others were over an attorney's office. The floor sagged upthere, about four inches from the wall to the center. And they had some partitions and some woodpaneling, and they were real little offices. It was very close-knit up there."Even if he couldn't tell it by the office we gave him, bringing Ferold in was an important step for ourcompany. I knew we had to get better organized than we were. We still had to build a basic merchandiseassortment, and a real replenishment system. We had lists of items we were supposed to carry, and wewere dependent on the people in the stores to keep good records of everything manuallythis was at atime when quite a few people were beginning to go into computerization. I had read a lot about that, andI was curious. I made up my mind I was going to learn something about IBM computers. So I enrolled inan IBM school for retailers in Poughkeepsie, New York. One of the speakers was a guy from theNational Mass Retailers' Institute (NMRI), the discounters' trade association, a guy named Abe Marks.
ABE MARKS, HEAD OF HARTFIELD ZODY'S, AND FIRST PRESIDENT, NMRI:
"I was sitting there at the conference reading the paper, and I had a feeling somebody was standing overme, so I look up and there's this grayish gentleman standing there in a black suit carrying an attach case.
And I said to myself, 'Who is this guy He looks like an undertaker.'
"He asks me if I'm Abe Marks and I say, 'Yes, I am.'
" 'Let me introduce myself, my name is Sam Walton,' he says. 'I'm only a little fellow from Bentonville,Arkansas, and I'm in the retail business.'
"I say, 'You'll have to pardon me, Sam, I thought I knew everybody and every company in the retailbusiness, but I never heard of Sam Walton. What did you say the name of your company is again"" 'Wal-Mart Stores,' he says.
"So I say, 'Well, welcome to the fraternity of discount merchants. I'm sure you'll enjoy the conferenceand getting acquainted socially with everyone.'
" 'Well, to be perfectly honest with you, Mr. Marks, I didn't come here to socialize, I came here to meetyou. I know you're a CPA and you're able to keep confidences, and I really wanted your opinion onwhat I am doing now.' So he opens up this attach case, and, I swear, he had every article I had everwritten and every speech I had ever given in there. I'm thinking, 'This is a very thorough man.' Then hehands me an accountant's working column sheet, showing all his operating categories all written out byhand.
"Then he says: 'Tell me what's wrong. What am I doing wrong'
"I look at these numbersthis was in 1966and I don't believe what I'm seeing. He's got a handful ofstores and he's doing about $10 million a year with some incredible margin. An unbelievableperformance!
"So I look at it, and I say, 'What are you doing wrong Samif I may call you SamI'll tell you what youare doing wrong.' I ha............