Wal-Mart brought low prices to small cities, but its creator also changed the way Big Business is run
BY JOHN HUEY
hough it's hard to believe today, discount retailing was a controversial concept when it began to gain ground in the '50s at stores such as Ann & Hope, which opened in a reclaimed mill in Cumberland, R.I.
Traditional retailers hated it, and so did manufacturers; it threatened their control of the marketplace. Most states had restrictions on the practice.
When the business began to emerge in the early '60s, Walton was a fairly rich merchant in his 40s, operating some 15 variety stores spread mostly around Arkansas, Missouri and Oklahoma. They were traditional small-town stores with relatively high price markups.
Walton was an active student of retailing--all family vacations included store visits--so by the time a barber named Herb Gibson from Berryville, Ark., began opening discount stores outside towns where Sam ran variety stores, Walton saw what was coming. On July 2, 1962, at the age of 44, he opened his first Wal-Mart store, in Rogers, Ark. That same year, S.S. Kresge launched K Mart, F.W. Woolworth started Woolco and Dayton Hudson began its Target chain. Discounting had hit America in a big way. At that time, Walton was too far off the beaten path to attract the attention of competitors or suppliers, much less Wall Street.
Once committed to discounting, Walton began a crusade that lasted the rest of his life: to drive costs out of the merchandising system wherever they lay--in the stores, in the manufacturers' profit margins and with the middleman--all in the service of driving prices down, down, down.
Using that formula, which cut his margins to the bone, it was imperative that Wal-Mart grow sales at a relentless pace. It did, of course, and Walton hit the road to open stores wherever he saw opportunity. He would buzz towns in his low-flying airplane studying the lay of the land. When he had triangulated the proper intersection between a few small towns, he would touch down, buy a piece of farmland at that intersection and order up another Wal-Mart store, which his troops could roll out like a rug.
As the chain began to take off, Walton made major adjustments to manage the growth--again always seeming to see ahead. As early as 1966, when he had 20 stores, he attended an IBM school in upstate New York. His goal: to hire the smartest guy in the class to come down to Bentonville, Ark., and computerize his operations. He realized that he could not grow at the pace he desired without computerizing merchandise controls. He was right, of course, and Wal-Mart went on to become the icon of just-in-time inventory control and sophisticated logistics--the ultimate user of information as a competitive advantage. Today Wal-Mart's computer database is second only to the Pentagon's in capacity, and though he is rarely remembered that way, Walton may have been the first true information-age CEO.