Sam Walton's story is the quintessential American dream. With a 20,000 loan and 5,000 of his own money Sam Walton bootstrapped his way from one small general store in the American deep south to world wide domination of the retail industry to the point that he literally changed how the business is done. What Walton did was to reinvent the General store concept.
Before Wal-mart, retail itself was changing. In the early 1920's the first category killer big boxes stores were starting to emerge in the form of supermarkets such as Kroger. They were quickly followed by chains of Department stores such as Macy's which had existed for some time but usually in single or few locations. Thus the specialty store concepts were on the rise. Walton inverted this trend by merging the variety and general store concepts. Sam's idea was to provide the customer with a store that offered superior selection (general store concept) and superior pricing power (variety store concept). When he opened his Wal-mart concept in 1962 he essentially offered one stop shopping, which at the time was a rarity in the Unites States. At Wal-mart a customer could get essentially all their household needs at low prices in one trip. This was a compelling choice.
In order to achieve this, Sam took advantage of several trends and techniques including economies of scale, part time employees, private label brands, but perhaps most importantly a slavish devotion to low price. Unlike many retailers Wal--mart uses unusual prices, whereas your typical retailer may price things ending in 99 cents (to make it look a littel cheaper than it really is) Wal-mart may end prices in 88 cents or 12 cents or other uncommon numbers. Thus Wal-Mart can back their claim of low price when challenged on items where they don't have much pricing power. Over time this and their dogged marketing campaigns has helped solidify Wal-mart's reputation for being the most affordable retailer. This is all the more amazing considering the fact that unlike other traditional big box retailers Wal-mart does not charge a slotting fee to its vendors. Instead Wal-mart relies on sheer volume to make up for its low margins and is in fact ranked far below other big boxes in terms of profitability.
Walton also took advantage of how the automobile was changing the way America was built and the way Americans shopped. In their cars Americans were more willing to travel further than ever before to shop, thus Walton acquired very cheap land with minimal zoning restrictions in small towns or on the edges of larger communities and built huge parking lots. He then used low prices to attract customers in. This cheap land helped keep his costs down dramatically,helped him charge even lower prices and allowed him to expand rapidly.
By the late eighties Wal-mart's success had made Walton the wealthiest American at the time. Wal-mart's popularity exploded in the early nineties even further after they dropped their "Made in The U.S.A." campaign and switched to products made overseas magnifying their pricing power over rivals.
Wal-mart's popularity also allowed Sam to launch Sam's Club, a warehouse membership club that was initially aimed at small businesses to replace traditional wholesalers but eventually welcomed in end user consumers as well.
Upon Walton's death his fortune passed onto his children, his fortune was vast enough that all his heirs are now among the world's very wealthiest and consequently making them the wealthiest non-royal family in the world.
Love him or hate him, Walton is undoubtedly one of the most influential Americans of the last century. He has changed the way Americans make products and buy them likely forever. Wal-Mart's devotion to low prices has lead Wal-Mart to be fiercely anti-union and has played a big part in diminishing organized labor's political influence and power over employers. Wal-Mart also inverted the relationship between vendors and retailers, whereas before Vendors could exert strong influence over what retailers stocked (how much to carry and how much to charge), Wal-Mart's eventual size allowed them to dictate to their manufacturers how much they should be charged for goods, a result of this has been the outsourcing of many United States manufacturing jobs overseas to where products can be made less expensively.Many manufacturers are completely reliant on appeasing Wal-mart for if Wal-Mart should drop their products they could lose half of the sales or more in many cases. This gives Wal-mart tremendous leverage over their vendors. Rivals to Wal-mart are often forced to cut their own prices dramatically to try to stay competitive with wal-mart resulting in many small retail closures. Americans as a result are paying less for goods comparatively than they ever have.
Wal-Mart and other big box retailers format style has literally changed the American landscape, whereas before Retail was concentrated curbside along cit streets in dense urban centers , retail is now usually found on the outskirts of towns in strip centers and single immense buildings along heavily trafficked roads.
Walton has changed how business is done so much that economists have dubbed the influence they as the Wal-mart effect. Some economists claim the the prosperity of the 90's was driven by Wal-mart's lowering the cost of goods for Americans more than the Tech Boom.
Wal-mart (and consequently Walton) are not with its critics. Critics contend that Wal-mart has cost Americans thousands of good paying manufacturing jobs, does not use fair labor practices, exerts undue control over its vendors, uses predatory pricing and hurts communities by putting small retailers out of business. Wal-mart naturally contends these criticisms and has frequently commissioned studies on its behalf to fend off the numerous lawsuits it has faced.
Despite these criticisms inn the business community today Walton remains one of the most respected figures of the 20th century.
Related Fool Articles
Relevant External Links
Recent Mentions on Fool.com
- What Sam Walton Would Say About Walmart's New Minimum Wage
- Why Americans Still Hate Wal-Mart Stores, Inc.
- My Exploits at Barnes & Noble During the Financial Crisis
- The Simple Reason Wal-Mart and Costco Are Great Retailers
- Are Minimum Wage Hikes Actually Good for Wal-Mart?
- Best Stock 2015: Amazon.com Inc.