"Well, now, Sam, how big do you really want this company to be What is your plan"FEROLD AREND,shortly after coming to work at Wal-Mart"Ferold, we're going to take it as it comes, and if we can grow with our own money, we'll maybe add astore or two."SAM WALTONNot long ago somebody showed me an article written for a local magazine in 1960. It was called"Success Story of the Year," and it described how we had built up an empire of nine variety stores. Thenit quoted me as saying that we probably wouldn't grow much more because I believed in personallysupervising the nine-store group, and I thought any more stores would be "unwieldy" to manage withoutadditional supervisors. So what the heck happened How did we ever get to be the largest retailer in theworld with a philosophy like thatI really believed what I said then, and I still do. But we figured out a way to grow, and stay profitable,and there was no logical place to stop. The way I approached managing the business, I always tried tomaintain a sense of hands-on, personal supervisionusually by flying around to take a look at our storeson a regular basis. But from the very beginning, even on my paper routes in college, I have also been adelegator, trying to hire the best possible people to manage our stores. That's been the case since back inNewport.

An awful lot of water has washed over the dam since 1945, when we bought that little Front Street storein Newport, but almost every single thing we learned, every basic principle we applied in building thatstore up into a respectable business, still applies to our company today. It's hard to think of anothercompany that sustained the kind of growth we did over thirty years without experiencing any majorfinancial problems or dips in profitability. During that time, our business was growing at annual rates ofanywhere from 30 to an incredible 70 percent in some years.

Along the way, we always had lots of people waiting for us to stumble and fallespecially Wall Streettypes. They said we'd never be able to keep doing things our way after we reached $1 billion in sales.

But we did, and kept right on going. Then they said everything would fall apart at $10 billion because youjust couldn't manage a company that big with our little down-home management philosophies. We roaredpast that, and then hit $20 billion and $30 billion, and in the coming year we should hit around $53 billion.

Two years ago, we earned $1 billion in profits for the first time. That's a jump from only $41 million justten years before. Here's a chart that completely amazes me:

1960stores9Sales$1.4 millionprofits$112,0001970stores32--Sales$31 millionprofits$1.2 million1980stores276Sales$1.2 billionprofits$41 million1990stores1,528--Sales$26 billion--profits$1 billionSo now we're the largest retailer in the world, and still growing like a weed. If my chart doesn't paint aclear enough picture for you of how large the company is, here are some other ways to think aboutWal-Mart's size. Every week, nearly 40 million people shop in Wal-Mart. Last year, we sold enoughmens' and women's underwear and socks to put a pair on every person in America, with some to spare.

We sold 135 million men's and boys' briefs, 136 million panties, and 280 million pairs of socks. We soldone quarter of all the fishing line purchased in the U.S., some 600,000 miles of it, or enough to go aroundthe earth twenty-four times. We sold 55 million sweatsuits and 27 million pairs of jeans, and we soldalmost 20 percent of all the telephones bought in the U.S. And here's one I'm really proud of: in oneweek last year, we sold as much Ol' Roy private label dog food as we did in all of 1980. With sales of$200 million last year, Ol' Roy became the number-two dog food in America, and remember, we onlysell it in Wal-Mart. Another one: Procter & Gamble sells more product to Wal-Mart than it does to thewhole country of Japan.

I could go on and on, but you get the idea. We're big. Really big. That's not something I like to focus on.

I always wanted to be the best retailer in the world, not necessarily the biggest. In fact, as I said in thatarticle thirty something years ago, I've always been a little bit afraid that big might get in the way of doinga good job. Of course, being this big has some real advantages. Until we reached a billion dollars, a lot ofsuppliers and vendors just ignored us way out here in the Arkansas outback. For years, some supplierswouldn't even call on us. Now, of course, we're too big to ignore. But being big also poses dangers. Ithas ruined many a fine companyincluding some giant retailerswho started out strong and got bloated orout of touch or were slow to react to the needs of their customers.

Here's the point: the bigger Wal-Mart gets, the more essential it is that we think small. Because that'sexactly how we have become a huge corporationby not acting like one. Above all, we are small-townmerchants, and I can't tell you how important it is for us to rememberwhen we puff up our chests andbrag about all those huge sales and profitsthat they were all made one day at a time, one store at a time,mostly by the hard work, good attitude, and teamwork of all those hourly associates and their storemanagers, as well as by all those folks in the distribution centers. If we ever get carried away with howimportant we are because we're a great big $50 billion chaininstead of one store in Blytheville,Arkansas, or McComb, Mississippi, or Oak Ridge, Tennesseethen you probably can close the book onus. If we ever forget that looking a customer in the eye, and greeting him or her, and asking politely if wecan be of help is just as important in every Wal-Mart today as it was in that little Ben Franklin inNewport, then we just ought to go into a different business because we'll never survive in this one.

BILL FIELDS:

"I'm sure that our whole focus on thinking small all relates to Sam running that store in Newport, wherehe was the entrepreneur, and he was out there involved as a leader of the community. He sees thatentrepreneurial element as being so important and something he never wants us to lose. He saw the bigchange in Ben Franklin and all those other companies that lost it because they got too big and distracted,and he's just determined it won't happen here."For us, thinking small is a way of life, almost an obsession. And I suspect thinking small is an approachthat almost any business could profit from. The bigger you are, the more urgently you probably need it.

At our size today, there's all sorts of pressure to regiment and standardize and operate as a centrallydriven chain, where everything is decided on high and passed down to the stores. In a system like that,there's absolutely no room for creativity, no place for the maverick merchant that I was in the early daysat Ben Franklin, no call for the entrepreneur or the promoter. Man, I'd hate to work at a place like that,and I worry every single day about Wal-Mart becoming that way. I stay on these guys around here allthe time about it. Of course, all those vendors and suppliers would love to see us get that way. It wouldmake their jobs a lot simpler for sure. If anybody at Wal-Mart thinks we as a company are immune toBig Disease, I wish they'd just pack up and leave right now because it's always something we'll have toworry about.

For several decades now we've worked hard at building a company that's simple and streamlined andtakes its directions from the grass roots. It's a pretty tall order for an outfit that is spreading out all overthe country as fast as we are. But along the way we've learned some practical things about thinking smalland developed some principles that have had a big effect on our company's success. Before you can fullyunderstand how we got where we are today, it's important to understand these principles. Then you canrecognize how we've applied them all along the way in the building of the company. Seeing how we'vedone some of these things might help other folks out there who face the same challenge of growing theirbusiness without losing touch with the customer.

There's nothing at all profound about any of our principles. In fact, they're all common sense, and mostof them can be found in any number of books or articles on management theorymany of which I've readand studied over the years. But I think the way we've applied them at Wal-Mart has been just a littledifferent. Here are six of the more important ways we at Wal-Mart try to think small:

Think One Store at a TimeThat sounds easy enough, but it's something we've constantly had to stay on top of. Because our salesand earnings keep going up doesn't mean that we're smarter than everyone else, or that we can make ithappen because we're so big. What it means is that our customers are supporting us. If they stopped, ourearnings would simply disappear, and we'd all be out looking for new jobs. So we know what we haveto do: keep lowering our prices, keep improving our service, and keep making things better for the folkswho shop in our stores. That is not something we can simply do in some general way. It isn't somethingwe can command from the executive offices because we want it to happen. We have to do it store bystore, department by department, customer by customer, associate by associate.

For example, we've got one store in Panama City, Florida, and another only five miles away in PanamaCity Beach, but actually they're worlds apart when it comes to their merchandise mix and their customerbase. They're entirely different kinds of stores. One is built for tourists going to the beach, and the other ismore like the normal Wal-Mart, built for folks who live in town. That's why we try our best to put amerchant in charge of each store, and to develop other merchants as the heads of each department inthose stores. If the merchandise mix is really going to be right, it has to be managed by the merchandisersthere on the scene, the folks who actually deal face to face with the customers, day in and day out,through the seasons.

That makes it management's job to listen to those merchandisers out in the stores. We have these buyershere in Bentonville218 of themand we have to remind them all the time that their real job is to supportthe merchants in the stores. Otherwise, you have a headquarters-driven system that's out of touch withthe customers of each particular store, and you end up with a bunch of unsold workboots, overalls, andhunting rifles at the Panama City Beach store, where folks are begging for water guns and fishing rodsand pails and shovels; and at the Panama City store in town you've got a bunch of unsold beach gearstacked up gathering dust.

So when we sit down at our Saturday morning meetings to talk about our business, we like to spendtime focusing on a single store, and how that store is doing against a single competitor in that particularmarket. We talk about what that store is doing right, and we look at what it's doing wrong.

DAVID GLASS:

"We believe that we have to talk about and examine this company in minute detail. I don't know anyother large retail companyKmart, Sears, Penney'sthat discusses their sales at the end of the week inany smaller breakdown than by region. We talk about individual stores." Which means that if we'retalking about the store in Dothan, Alabama, or Harrisburg, Illinois, everybody here is expected to knowsomething about that storehow to measure its performance, whether a 20 percent increase is good orbad, what the payroll is running, who the competitors are, and how we're doing. We keep the company'sorientation small by zeroing in on the smallest operating unit we have. No other company does that."Focusing on a single store can accomplish a number of things. First, of course, it enables us to actuallyimprove that store. But if in the process we also happen to learn a particular way in which that PanamaCity Beach Wal-Mart is outsmarting the competition on, say, beach towels, then we can quickly get thatinformation out to all our other beach stores around the country and see if their approach workseverywhere. Which brings us to the next principle.

Communicate, Communicate, CommunicateIf you had to boil down the Wal-Mart system to one single idea, it would probably be communication,because it is one of the real keys to our success. We do it in so many ways, from the Saturday morningmeeting to the very simple phone call, to our satellite system. The necessity for good communication in abig company like this is so vital it can't be overstated. What good is figuring out a better way to sell beachtowels if you aren't going to tell everybody in your company about it If the folks in St. Augustine,Florida, don't get the word on what's working over in Panama City until winter, they've missed a bigopportunity. And if our buyers back in Bentonville don't know we're expecting to double our sales ofbeach towels this summer, the stores won't have anything to sell.

Nowadays, I see management articles about information sharing as a new source of power incorporations. We've been doing this from the days when we only had a handful of stores. Back then, webelieved in showing a store manager every single number relating to his store, and eventually we begansharing those same numbers with the department heads in our stores. We've kept doing it as we'vegrown. That's why we've spent hundreds of millions of dollars on computers and satellitesto spread allthe little details around the company as fast as possible. But they were worth the cost. It's only becauseof information technology that our store managers have a really clear sense of how they're doing most ofthe time. They get all kinds of information transmitted to them over the satellite on an amazingly timelybasis: their monthly profit-and-loss statement, up-to-the-minute point-of-sale data that tells them what'sselling in their own store, and a lot of other paper they probably wish we wouldn't send them.

I'm not going to pretend we're perfect at this. We do have our share of miscommunication, like that timethe Moon Pies were shipped to stores in Wisconsin, where they didn't exactly jump off the shelves. Andsometimes a simple attitude is as valuable as all the technology in the world. For example, we've got thisone rule I hope we never give up enforcing: our buyers here in Bentonville are required to return callsfrom the stores first, before they return the calls of vendors or anybody else, and they are required to getback to the stores by sundown of the day they get the call.

Obviously, we're too doggoned big to have every department head in every Wal-Mart spend a lot oftime with the vendors who call on us in Bentonville, so we try to think up ways to get at a similar result.

Recently, we've started seminars for our department managers. We'll pick a department, like sportinggoods or lawn and garden, then we'll pick one department headthese are the hourly associates whoactually run those departments in their storesfrom each of our store districts. That's 184 folks right now.

We'll bring all of them in to Bentonville to talk to the buyers about what's working for them, and what'snot. Then they meet with the vendors and explain what kinds of complaints we're getting about theirproducts, or what's working well. Together, all these folks formulate their plan for the coming season,and then the department heads go back to their districts and share what they've learned with theircounterparts in neighboring stores.

As much as we travel to our stores, and bring our folks in to Bentonville, though, sometimes I have thefeeling that the word is not getting out. And if it's on a subject I feel strongly enough about, I'm not abovegetting in front of one of our TV cameras here and going out by satellite to all our associates gathered infront of their TV's in the break rooms of our stores. A few years ago, I had an idea aroundChristmastime that was just burning me up to tell people about, so I went on the camera and visited witheverybody about how our sales were doing, and talked a little about my hunting, and let them know that Ihoped their holiday season was going well. Then I got to the point: "I don't think any other retail companyin the world could do what I'm going to propose to you. It's simple. It won't cost us anything. And Ibelieve it would just work magic, absolute magic on our customers, and our sales would escalate, and Ithink we'd just shoot past our Kmart friends in a year or two and probably Sears as well. I want you totake a pledge with me. I want you to promise that whenever you come within ten feet of a customer, youwill look him in the eye, greet him, and ask him if you can help him. Now I know some of you are justnaturally shy, and maybe don't want to bother folks. But if you'll go along with me on this, it would, I'msure, help you become a leader. It would help your personality develop, you would become moreoutgoing, and in time you might become manager of that store, you might become a department manager,you might become a district manager, or whatever you choose to be in the company. It will do wondersfor you. I guarantee it. Now, I want you to raise your right handand remember what we say atWal-Mart, that a promise we make is a promise we keepand I want you to repeat after me: From thisday forward, I solemnly promise and declare that every time a customer comes within ten feet of me, Iwill smile, look him in the eye, and greet him. So help me Sam."Now, I had no way of knowing how much effect a little communication like that would have on ourassociates, or on our customers. But I felt so strongly about the idea that it was worth calling attention toit by satellite, and I really meant it when I said I didn't think any other retailer in the country could do it. Ido know thisa lot of our associates started doing what I suggested, and I'm sure a lot of our customersappreciated it. We used mass communications to transmit the idea, but it was a small idea, aimed at thefolks on the front lines, the ones most responsible for keeping our customers happy and coming back toour stores over and over. And I'm not saying one way or another whether my little pep talk had anythingto do with it, but we went on from that Christmas to pass both Kmart and Sears in sales at least twoyears before even the most optimistic Wall Street analysts thought we could do it.

Keep Your Ear to the GroundAs chairman of Wal-Mart, I, of course, was the one who ultimately authorized all those expenditures fortechnology, which proved absolutely crucial to our success. But truthfully, I never viewed computers asanything more than necessary overhead. A computer is not and will never bea substitute for getting outin your stores and learning what's going on. In other words, a computer can tell you down to the dimewhat you've sold. But it can never tell you how much you could have sold.

That's why we at Wal-Mart are just absolute fanatics about our managers and buyers getting off theirchairs here in Bentonville and getting out into those stores. We h............