There is perhaps no better example of how American capitalism works than Walmart, the discount department store where a third of the population of the United States shops every year. The first Walmart opened up in 1962 when an Arkansas businessman named Sam Walton, after some experience running a Ben Franklin five-and-dime store, decided to open his own store—Wal-Mart Discount City—in Bentonville, Arkansas. He undercut his competition by pricing goods just slightly lower than anyone else.
It has proved to be a successful strategy. Celebrating its 50th anniversary in 2012, there were 9,700 Walmart stores in the United States and 28 countries around the world, some with slightly different names like Walmex in Mexico, Asda in Britain, and Best Price in India. In addition, 609 Sam’s Club warehouses in the United States and three foreign countries offer club members bulk goods and groceries at discount.
Needless to say, in just one generation, Sam Walton built a retail colossus, becoming a billionaire who was ranked as the richest man in the United States from 1982 to 1988 on the Forbes 400, which consistently listed him among the top 10 of the Forbes list. His four children have become billionaires as well, now worth a total of 83.5 billion, and ranked on the Forbes 400 as seventh, eighth, and ninth richest Americans (the widow of second son John Walton ranks fourth).
“With the possible exception of Henry Ford,” Tom Peters, coauthor of In Search of Excellence, says, “Sam Walton is the entrepreneur of the century.” How did he get that way?
He was born in Oklahoma, the son of a farmer, and grew up during the Depression. He had a paper route and not only knew how to milk the family’s cows, but also how to bottle and sell the milk that was left over. In his autobiography, Sam Walton: Made in America (which he said he wrote to warn his grandchildren he’d come back to haunt them if they were foolish about money), Walton said that he “learned how much hard work it took to get your hands on a dollar.” Even as a billionaire, he drove an old pickup truck and refused to fly anywhere first class. “It’s just the way we were brought up,” his brother Bud said. Their parents’ approach to money? “They just didn’t spend it,” Sam said. “I’m cheap,” he says.
Walton’s attention to price in his stores paid off handsomely, in good times and in bad. In the aftermath of the 2008 financial meltdown, recession, and global economic worries, Walmart kept its base of low-income customers going and was ranked number one on the Fortune 500 list of corporations in 2010 as its profits grew 7 percent to $14.3 billion. Fortune noted that Walmart’s wide range of private-label goods, from frozen pizza to patio furniture, meant consumers could buy everything they needed in just one stop—and save on gas.
Indeed, at Walmart, you can buy groceries and fill prescriptions, get tires for your car, furniture for your office or nursery, buy an iPad, a television set, DVDs and X-boxes, jewelry, clothing, toys, tools, a treadmill, even, in some locations, a casket or an urn for your ashes. The prices you would pay for any of this will be persuasively lower than elsewhere. You can even use Walmart’s recently reinstated layaway plan to lock in a price and pay as you go. As Walton said in his autobiography, he had learned “a simple lesson”:
say I bought an item for 80 cents. I found that by pricing it at $1.00 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater.
“In retailer language, you can lower your markup but earn more because of the increased volume,” he added. While Walmart has hard-driving competitors like Target, which has started offering groceries, warehouse purveyors like Costco and BJ’s Warehouse, and dollar stores like Family Dollar, it has continued to come in ahead of them and hold its own.
The idea of a department store emerged in the United States in the 19th century. Europe already had the first department store, the Bon Marche in Paris, which, designed by Gustav Eiffel, opened in 1852. In the United States, the founding of the Great Atlantic & Pacific Tea Company (A & P) in 1859 by George Huntington Hartford and George Gilman in New York City to sell coffee and tea was a notable attempt to bring grocery shopping under one roof. Up to then, buying groceries meant separate stops at the proverbial butcher, baker, and candlestick maker. By 1900, the company was operating 200 stores in the United States.
A year earlier, in 1858, a man named Rowland H. Macy moved to New York City from Massachusetts and opened a dry goods store that was immediately successful. R. H. Macy’s moved in 1902 to 34th Street to the landmark building where it has been ever since, advertising itself as “The World’s Largest Department Store” (however, in South Korea, there is now a much larger one). The W. P. Woolworth five-and-dime stores opened in 1879 and J. C. Penney started in 1902, both offering a variety of goods at good prices and eventually expanding as chain stores around the country.
Until these stores came on the scene, Americans in 19th-century rural communities had to rely on rare trips into town to a general store to buy anything other than the food they could grow. But the United States was becoming more industrialized, mass-producing many things, and new patterns of selling and consuming them began to emerge. In Minnesota, a railway station agent, Richard Sears, started a business on the side selling watches through a mail-order catalog. When he moved to Chicago, he acquired a partner, Alvah Roebuck, and they started Sears, Roebuck and Company with a catalog for rural residents who Sears presciently realized could not get to a store to shop. With illustrations and clearly listed, reasonable prices, the Sears, Roebuck catalog was a huge hit. In six years, it grew to 322 pages, offering everything from baby clothes and corsets to sewing machines, bicycles, and automobiles.
Today, though the catalog exists only in reprinted editions, it is an iconic piece of history about how people lived in the first part of the 20th century. The Sears catalog opened people’s eyes to products they had never thought of and, in effect, created new consumer desires and behavior. Sears, Roebuck, now just Sears, merged with Kmart in 2004 but has downsized considerably since, spinning off some of its services. Like Walmart, it offers many private-label products.
Sam Walton may not have researched retail history before he opened his first store, but he was a quick study on consumer desire and behavior and he was consistent—even, he said, obsessive, in his retailing approach of offering goods at discounted prices. And from the beginning, when he purchased and ran a Ben Franklin franchise store, Walton’s Five and Dime, in Bentonville, Arkansas, an Ozark mountain town that has been Walmart headquarters ever since, Walton always offered a wide variety of goods at discount prices in his stores. With his younger brother James “Bud” Walton as partner, by 1962 he owned 15 Ben Franklin stores in three states, Arkansas, Missouri, and Kansas. They offered the managers of their stores a chance to be limited partners and share in the profits, motivating them to increase sales.
The brothers opened the first Walmart, Wal-Mart Discount City, in 1962 in Rogers, Arkansas, putting up most of the money themselves. Gradually replacing their Ben Franklin stores with Walmarts, they had expanded to 24 Arkansas stores by 1967, then to stores in Missouri and Oklahoma. The Waltons made a point of opening their stores in small towns, population 5,000–25,000, and these stores were all pretty much a hands-on operation, as Walton describes it in his autobiography. He admits that the appearance of the stores, one in a former Coca-Cola bottling plant, left something to be desired but he wanted to keep rents down. Merchandise was piled on tables, in barrels, or sometimes on the floor. Even today, the headquarters of the world’s largest corporation is housed in an unprepossessing building in Bentonville, Arkansas.
Walton also made a point throughout his career of visiting all his stores personally, even on vacations with the family. “I love merchandising,” he said in his book. “It has been an absolute passion of mine.”
I really love to pick an item—maybe the most basic merchandise—and then call attention to it. We used to say you could sell anything if you hung it from the ceiling. So we would buy huge quantities of something and dramatize it. We would blow it out of there when everybody knew we would have only sold a few had we just left it in the normal store position... man, in the early days of Wal-Mart it really got crazy sometimes.
Walton himself would man the cash register (once using just a tackle box to check customers out), negotiate with vendors, brainstorm and write advertising, and deal directly with his managers, requiring them to send him a sales report naming their best-selling item each week. He was a risk-taker, constantly experimenting with new ways to sell. Even Walton’s four children worked at his stores, selling candy and popcorn when they were little, learning the business as they grew up. Though only his oldest son, Robson Walton, chairman of the board, remains active in the company, all four of the Walton children were encouraged to invest in it.
To maintain the Walmart pricing policy, cost-cutting was essential. The company maintained its own warehouses that allowed it to buy in volume, control distribution, and restock shelves faster. It did only 12 advertising promotions a year, and because of its warehouses, Walmart could target ads to specific local markets. A public offering of Walmart stock in 1970 and a listing on the New York Stock Exchange in 1972 brought in plenty of cash to expand. The company started its own pharmacies, auto service centers, and jewelry division and by 1979 had opened up 276 more stores in 11 states. That year it became the fastest company to reach the $1 billion mark, with sales of $1.25 billion. In 1983, Walmart started Sam’s Club, a cash-and-carry warehouse-based club, which allowed customer members to buy in bulk at a discount. There are now 609 Sam’s Clubs in the United States, with 100 more in Mexico, China, Brazil, and Puerto Rico.
At its 25th anniversary in 1987, Walmart had 1,198 stores with 200,000 associates and sales of $15.9 billion. When Sam Walton stepped down as CEO of the company in 1988, remaining chairman of the board, he had for the previous six years been listed as the richest man in the United States. He remained Walmart’s chairman of the board as the company has expanded its operations internationally in the early 1990s, first to Mexico, then to Canada, England, Germany, South America, China, and Japan. These stores bring in more than 25 percent of Walmart total sales.
Perhaps it is inevitable that an enterprise of such size and success would raise hackles and cause controversy, and indeed Walmart has had its share. Magazine articles tell the tale: “Is Wal-Mart too powerful?” (Business Week 2003), “Wal-Mart: Will It Take Over the World? (Fortune 1989), Wal-Mart Is Destroying America and What You Can Do About It” (book by Bill Quinn, 2000). Most frequently, the company is criticized for its impact on small towns and for putting mom-and-pop stores out of business. Even Walton himself acknowledged that his stores were strong competition, but he said, “We became an easy target... you make a very convenient villain because everybody seems to love shooting at who’s on top.” But in the end, Walton said, “The small stores were just destined to disappear, at least in the numbers they once existed, because the whole thing is driven by the customers, who are free to choose where to shop.”
The company has faced considerable controversy over its antiunion stance, which has given rise to several lawsuits. A class action suit in 2007 from its female employees accused the company of gender discrimination, paying its women employees less and offering them fewer promotions. The U.S. Supreme Court ruled in Walmart’s favor in 2011, saying the suit did not qualify as a class action. Overseas, the company closed down its stores in Germany, when its sales methods, based on American consumer culture, clashed with that of the Germans, who had very different shopping habits and did not take to the huge array of goods and pricing. It was not Walmart’s first misstep. The company once tried to sell ice skates to Mexicans and golf clubs to Brazilians, who are not familiar with the game.
To meet some of these challenges, Walmart announced in September of 2011 that it would purchase $20 billion worth of goods over the next five years from women-owned businesses globally, at a rate of $5 billion a year by 2016. The company said that it would also donate $100 million to causes supporting wom-en’s economic development and would support training of women in the factories and farms that supply Walmart. Its vendors and advertising and public relations firms would be asked to increase female and minority representation on their Walmart accounts. Critics say these moves are just evading the real issues, but some nonprofit agencies say they welcome Walmart’s help in training women around the world to improve their economic lives.
Samuel Moore Walton was born on March 29, 1918, in Kingfisher, Oklahoma. His father, Thomas Gibson Walton, a farmer, and his mother, Nancy Lee Lawrence Walton, were trying to make a living farming but by 1923 had given it up and moved to Missouri, where he went back to a previous job as a loan appraiser. Sam went through high school in Columbia, Missouri, and, as a member of the Boy Scouts, became an Eagle Scout at 13, the youngest in the state’s history. He graduated with a BA in economics from the University of Missouri in 1940, attending as an ROTC cadet, and working his way through by waiting tables and other part-time jobs.
Three days out of college, he went to work for JC Penney in Des Moines, Iowa, as a management trainee. But World War II was underway and Walton joined the U.S. Army, serving in the Intelligence Corps at Fort Dodge in Utah. He had been promoted to the rank of captain by the time he left the army in 1945 and began his retail career with his first Ben Franklin store in Newport, Arkansas.
He had married Oklahoma-native Helen Robson on Valentine’s Day 1943 while he was still in the army, and they eventually settled in Newport. Their first child, Samuel Robson Walton, was born in 1944. Two more sons arrived, John Thomas Walton, born in 1946, and James Carr Walton, born in 1948, and a daughter, Alice Louise Walton, born in 1949. The Waltons established and endowed the Walmart Foundation, which has provided college scholarships, support for military families, and natural disaster relief as well as a 2011 $2 billion commitment for hunger relief. It ranked first in the nation among corporations for charitable giving in 2010.
Sam Walton was given the Presidential Medal of Freedom from President George H. W. Bush in 1992 and was included in Time magazine’s 100 Most Influential People of the 20th Century list in 1998. He died on April 5, 1992, a week after his 74th birthday, and is buried in Bentonville, Arkansas, just behind a Walmart store.
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Lury, Celia. Consumer Culture. New Brunswick, NJ: Rutgers University Press, 1996.
Mahoney, Tom. The Great Merchants: America’s Foremost Retail Institutions and the People Who Made Them Great. New York: Harper & Row, 1974.
Walton, Sam. Sam Walton: Made in America. With John Huey. New York: Doubleday, 1992.