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Chapter 4 Swimming Upstream
  "From day one of Wal-Mart, Mr. Walton made it clear that this wasn't just Ben Franklin with low priceson some items. He wanted real discounting. He said, 'We want to discount everything we carry.' Whenthe other chains around us weren't discounting, he said, 'We advertise that we sell for less, and we meanit!' So whatever else we did, we always had to sell for less. If an item came in and everybody else intown was selling it for twenty-five cents, we'd go with twenty-one cents."CHARLIE CATE,store managerAs I said earlier, once we opened that Wal-Mart in Springdale, I knew we were on to something. Iknew in my bones it was going to work. But at the time, most folksincluding my own brother, Budwerepretty skeptical of the whole concept. They thought Wal-Mart was just another one of Sam Walton'scrazy ideas. It was totally unproven at the time, but it was really what we'd been doing all along:

experimenting, trying to do something different, educating ourselves as to what was going on in the retailindustry and trying to stay ahead of those trends. This is a big contradiction in my makeup that I don'tcompletely understand to this day. In many of my core valuesthings like church and family and civicleadership and even politicsI'm a pretty conservative guy. But for some reason in business, I havealways been driven to buck the system, to innovate, to take things beyond where they've been. On theone hand, in the community, I really am an establishment kind of guy; on the other hand, in themarketplace, I have always been a maverick who enjoys shaking things up and creating a little anarchy.

And sometimes the establishment has made me mad. The truth is, when those Butler Brothers folksturned down my discounting idea, I got a little angry, and maybe that helped me decide to swim upstreamon my own.

DON SODERQUIST, FORMER PRESIDENT OF BEN FRANKLIN, NOW VICE CHAIRMANAND CHIEF OPERATING OFFICER, WAL-MART:

"I first met Sam in 1964, when I was in charge of data processing at Ben Franklin, and he was ourbiggest franchisee. He had already opened the Rogers Wal-Mart and he was up in Chicago trying toconvince our officers to franchise his discount stores in small towns. They gave him a flat no. After themeeting he came back to see me and moved right on to the subject of computers. He wanted to know allabout how we were using them, and how we were planning to use them.

And he took everything I said down on this yellow legal pad.

"The next day was Saturday, and I went shoppingdressed in a pair of mangy cutoff jeans at the Kmartnear my house. I walked over into the apparel section and saw this guy talking to one of the clerks. Ithought, 'Jeez, that looks like that guy I met yesterday. What the heck is he doing way out here' Istrolled up behind him, and I could hear him asking this clerk, 'Well, how frequently do you order . . .

Uh-huh. . . . How much do you order . . . And if you order on a Tuesday, when does the merchandisecome in" He's writing everything she says down in a little blue spiral notebook. Then Sam gets down onhis hands and knees and he's looking under this stack table, and he opens the sliding doors and says,'How do you know how much you've got under here when you're placing that order'

"Finally, I said, 'Sam Walton, is that you' And he looked up from the floor and said, 'Oh, Don! Hi!

What are you doing here' I said, 'I'm shopping. What areyou doing' And he said, 'Oh, this is just partof the educational process. That's all.' Of course, he's still doing the same thing today, except he uses hislittle tape recorder."I guess everybody who knew I was going ahead with the discounting idea on my own really did think I'dcompletely lost my mind. I laugh now when I look back on Wal-Mart's beginning. In 1962, the discountindustry was fairly young and full of high-living, big-spending promoters driving around in Cadillacsguyslike Herb Gibsonwho had the world by the tail. But it had very few of what you'd call goodoperatorsuntil 1962, the year which turned out to be the big one for discounting. In that year, fourcompanies that I know of started discount chains. S. S. Kresge, a big, 800-store variety chain, opened adiscount store in Garden City, Michigan, and called it Kmart. F. W. Woolworth, the granddaddy of themall, started its Woolco chain. Dayton-Hudson out of Minneapolis opened its first Target store. And someindependent down in Rogers, Arkansas, opened something called a Wal-Mart. At the time, and for quitea while after that, I can guarantee you that hardly anybody noticed that last guy. Heck, within five years,Kmart had 250 stores to our 19, and sales of more than $800 million to our $9 million. Here's whatmakes me laugh today: it would have been absolutely impossible to convince anybody back then that inthirty years most all of the early discounters would be gone, that three of these four new chains would bethe biggest, best-run operators in the business, that the one to fold up would be Woolco, and that thebiggest, most profitable one would be the one down in Arkansas. Sometimes even I have troublebelieving it.

I can tell you this, though: after a lifetime of swimming upstream, I am convinced that one of the realsecrets to Wal-Mart's phenomenal success has been that very tendency. Many of our best opportunitieswere created out of necessity. The things that we were forced to learn and do, because we started outunderfinanced and undercapitalized in these remote, small communities, contributed mightily to the waywe've grown as a company. Had we been capitalized, or had we been the offshoot of a large corporationthe way I wanted to be, we might not ever have tried the Harrisons or the Rogers or the Springdales andall those other little towns we went into in the early days. It turned out that the first big lesson we learnedwas that there was much, much more business out there in small-town America than anybody, includingme, had ever dreamed of.

CLARENCE LEIS, SECOND MANAGER, WAL-MART NO. 1:

"When we opened Wal-Mart No. 3 in Springdale, Sam wanted a red-hot price on antifreeze. So he gottwo or three truckloads of Prestone and priced it at $1.00 a gallon. Then he priced Crest toothpaste at27 cents a tube. Well, we had people come from as far as Tulsa to buy toothpaste and antifreeze. Thecrowd was so big that the fire department made us open the doors for five minutes, then lock them untilshoppers left. Sam grabbed a tackle box and started using it as a cash register, checking people out asfast as he could."We stuck with what we had learned in the variety store business about customer service and satisfactionguaranteed, but I have to admit that in those days we did not have anywhere near the emphasis on qualitythat we have today. What we were obsessed with was keeping our prices below everybody else's. Ourdedication to that idea was total. Everybody worked like crazy to keep the expenses down. We tried tobuild decent buildings, but we had to keep the rent downwe never liked to pay more than $1.00 asquare foot. Our stores really didn't look that goodthey weren't professional at all. We opened one,store number 8 in Morrilton, Arkansas, that was really a sight. We rented this old Coca-Cola bottlingplant. It was all broken up into five rooms, and we bought some old fixtures from a failing Gibson's storefor $3,000. We hung them by baling wire from the ceiling. We had clothes hanging in layers on conduitpipe all the way to the ceiling, and shelves wired into the walls. But this was really a small, small town, sonumber 8 was another experiment.

We didn't have systems. We didn't have ordering programs. We didn't have a basic merchandiseassortment. We certainly didn't have any sort of computers. In fact, when I look at it today, I realize thatso much of what we did in the beginning was really poorly done. But we managed to sell ourmerchandise as low as we possibly could, and that kept us right-side-up for the first ten yearsthat andconsistently improving our sales in these smaller markets by building up our relationship with thecustomers. The idea was simple: when customers thought of Wal-Mart, they should think of low pricesand satisfaction guaranteed. They could be pretty sure they wouldn't find it cheaper anywhere else, and ifthey didn't like it, they could bring it back.

CLARENCE LEIS:

"Rogers had been open about a year, and everything was just piled up on tables, with no rhyme orreason whatsoever. Sam asked me to kind of group the stuff by category or department, and that's whenwe began our department system. The thing I remember most, though, was the way we priced goods.

Merchandise would come in and we would just lay it down on the floor and get out the invoice. Samwouldn't let us hedge on a price at all. Say the list price was $1.98, but we had only paid 50 cents.

Initially, I would say, 'Well, it's originally $1.98, so why don't we sell it for $1.25' And he'd say, 'No.

We paid 50 cents for it. Mark it up 30 percent, and that's it. No matter what you pay for it, if we get agreat deal, pass it on to the customer.' And of course that's what we did."It was a little frustrating there for a while, being out on our own. In addition to no basic merchandiseassortment, we had no real replenishment system. We didn't even have inventory books like we had withthe Ben Franklin stores, where if necessary you could simply look over what you needed and order itfrom Butler Brothers, then price it accordingly. We had no established distributors. No credit. Salesmenwould just show up at our door, and we would try to get the best deals we could. Sometimes it wasdifficult getting the bigger companiesthe Procter & Gambles, Eastman Kodaks, whoeverto call on us atall, and when they did they would dictate to us how much they would sell us and at what price. P&Ggave a 2 percent discount if you paid within ten days, and if you didn't, man, they took that discount rightoff. I don't mind saying that we were the victims of a good bit of arrogance from a lot of vendors in thosedays. They didn't need us, and they acted that way. I never could understand it. To me, it always seemedlike a customer was a customer, and you ought to try to sell them what you could.

The biggest challenge was buying health and beauty aids at low cost and staying stocked up on thembecause those items were really at the heart of almost every early discounter's strategy. I figured that outafter I went into the first Gibson's store. His whole concept was to buy direct at a lower cost thanindividual stores could buy, then charge $300 a month to run one of his franchises, and he would act asthe store's buying agent. The basic discounter's idea was to attract customers into the store by pricingthese itemstoothpaste, mouthwash, headache remedies, soap, shampooright down at cost. Those werewhat the early discounters called your "image" items. That's what you pushed in your newspaperadvertisinglike the twenty-seven-cent Crest at Springdaleand you stacked it high in the stores to callattention to what a great deal it was. Word would get around that you had really low prices. Everythingelse in the store was priced low too, but it had a 30 percent margin. Health and beauty aids were pricedto give away.

As far as building the company up, we simply had no time for it. We were too busy concentrating onday-to-day operations. I had moved my office from the Ben Franklin on the Bentonville square to an oldgarage nearby, where I worked with three ladies who helped out with the bookkeeping. By the earlysixties, we had eighteen variety stores and a handful of Wal-Marts. (For a time in there, we owned a mixof several different types of stores. We had variety stores under both the Ben Franklin and Walton namesas well as our Wal-Mart discount stores. For years, while we were building Wal-Marts, we continued torun our various Ben Franklin and Walton variety stores. But we gradually phased them out, usuallyreplacing them with Wal-Marts.) We kept a little pigeonhole on the wall for the cash receipts andpaperwork of each store. I had a blue binder ledger book for each store. When we added a store, weadded a pigeonhole. I know we did that at least up to twenty stores. Then once a month, WandaWiseman and I would close those booksenter the merchandise, enter the sales, enter the cash, balanceit, and close them. Nowadays, you hear a lot about fancy accounting methods, like LIFO and FIFO, butback then we were using the ESP method, which really sped things along when it came time to closethose books. It's a pretty basic method: if you can't make your books balance, you take however muchthey're off by and enter it under the heading ESP, which stands for Error Some Place.

Then we would come up with a profit and loss sheet, a p&l for each store, and get it out to that storemanager as quickly as we couldsomething we still do today. If there was a problem, I would get withthat manager immediately. But most of them owned a piece of their stores, so they were likely to be asconcerned as I was. I had a big ledger sheet pasted together to make room for everything I wanted on it,probably fifteen different columns, for every store. It had columns for sales, expenses, net profit,markdownseverything utilities, postage, insurance, taxes. I entered the numbers myself each month witha pen, which helped me remember them better. It became a habit with me, and I carried this ledger sheetin my pocket when I went to the stores so everybody always knew exactly where they stood.

For several years the company was just me and the managers in the stores. Most of them came to usfrom variety stores, and they turned into the greatest bunch of discount merchants anybody ever saw. Weall worked together, but each of them had lots of freedom to try all kinds of crazy things themselves.

The closest thing we had to an operations manager was Don Whitaker, the guy I hired from TG&Y outin Abilene to be our first Wal-Mart manager. After that, he became our first regional manager. Don hadbarely finished high school, if that, and he had terrible grammar. He threw people off sometimes becausehe only had one eye, and he looked at you sort of funny. But he was one of the finest people I have everknown in my life. Everybody called him Whitaker, and he was a hard-working, practical, smart fellow.

He had a great big heart, but he was gruff and he scared all the young folks to death. There was neverany question that he was the boss, and when he wanted something done, believe me it got done. I singlehim out here because Don Whitaker was very, very important in the early development of the company,establishing the philosophy of Let's be out front. Let's do it right. Let's get it done now and get on with it.

CLAUDE HARRIS,WAL-MART'S FIRST BUYER:

"Sam is very sharp on being able to read people and their personalities, and their integrity, and he didn'tmake any mistakes back there picking people, if I do say so myself. Really, back early, one bad managercould have pulled us under. When you're only making $8,000 or maybe $12,000 a year net in a store, itwould have only taken one or two managers who were dishonest to lose the whole company. Sam wouldmeet them in the stores where they worked, and invite them down to look at his stores. You know, he's avery persuasive man; he could charm a bird out of a tree. And he and Helen would have you out to thehouse and serve ice cream, and they'd always ask if you and your family went to church. He was sogood at evaluating and selecting these fellows. He wasn't just looking for store managers. I think he wasselecting people he thought he could go forward with. He was progressive. He knew that he neededsomething, and he was looking for it, and he was getting it every step of the way."We found Claude over in Memphis running a Woolworth store. He was from Muskogee, Oklahoma,and about one-quarter Indian, and he had started with Woolworth out of high school. None of thesefellows like Don or Claude had any college, and they didn't want me hiring any college men. They had theidea that college graduates wouldn't get down and scrub floors and wash windows. The classic training inthose days was to put a two-wheeleryou know, a cart that you carry merchandise oninto a guy's handswithin the first thirty minutes he came to work and get him pushing freight out of the back room. They allcame out of these variety stores with the same background and the same kind of philosophy andeducation. And we looked for the action-oriented, do-it-now, go type of folks.

Claude had four or five kids and was probably making $12,000 a year, maybe $10,000. I hauled up infront of his soda fountain one day and started talking to him. I found out that he had been able to save onhis salary, and I usually felt that if a fellow could manage his own finances, he would be more successfulmanaging one of our stores. We put him into our variety store on the east side of the square inFayetteville, so he had to compete against our other store on the west side of the square, which was runby Charlie Cate, and supervised by Charlie Baum at the time. That was a real test because nobody wasmore competitive than Charlie Baumhe would compete with a buzzsaw. But Claude was so skillful andnice that Charlie had to get along with him to some degree.

CLAUDE HARRIS:

"My store wasn't making much money, and we were starting to get competition from Gibson's, whichalso had a little store on the square down there. It was obvious that their discounting thing was working,and they were pulling everybody in with their health and beauty aidsHBA we call it. So I thought, 'Well,why don't I try that in my variety store' I changed the whole store around and got McKesson-Robbinsdown in price and put in a bunch of over-the-counter drugs. It was the first discount department in ourcompany, the health and beauty aids department at the east side of the square in Fayetteville. But I likedto have lost my best friend over that one. Charlie Baum liked to have had a heart attack. He thought Iwas trying to undercut him. You got to understand that Charlie is one of the most competitive peoplewho ever lived. He'll fight you tooth and toenail at bridge, or anything. I was just trying to see where itmight lead us. Anyway, Sam knew all about it, and he said, 'Go ahead and try it.' He would always trythings like that. He was always open to suggestions, and that's one reason he's been such a success. He'sstill that way."When I started buying for Wal-Mart, I would often take Claude along with me. Pretty soon, we madehim Wal-Mart's general merchandise manager. He didn't have any more experience at being a generalmerchandise manager than the guy off the street. He was a store manager, but we didn't have anybodyelse so he became general merchandise manager. I don't even know when we finally brought our firstprofessional buyer, or even someone who had ever had any buying experience, into the company, but itwas years later.

I guess the thing those early managers and I all had the most in common was that we all lovedmerchandising. Don't get me wrong. Our early stores weren't all that well merchandised. By that, I meanwe didn't necessarily have the best assortment of merchandise available, all displayed seductively.

Because remember, we didn't have any real distribution system, and we had to buy where we could. Butwe all loved to find unusual items and the store managers had a lot of freedom to try different things.

CHARLIE CATE:

"Sam had us send our sales report in every week, and along with it we had to send in a Best SellingItem. I mean wehad to. What he was doing was teaching us to look for what's selling all the time. Youhad to look because you had to send in this report every week, and if you reported that nothing wasselling well, Mr. Walton would not be happy. He would think you weren't studying your merchandise,and in that case he'd come study it for you. He's been that way ever since I first met him in 1954."It's almost embarrassing to admit this, but it's true: there hasn't been a day in my adult life when I haven'tspent some time thinking about merchandising. I suspect I have emphasized item merchandising and theimportance of promoting items to a greater degree than most any other retail management person in thiscountry. It has been an absolute passion of mine. It is what I enjoy doing as much as anything in thebusiness. I really love to pick an itemmaybe the most basic merchandiseand then call attention to it. Weused to say you could sell anything if you hung it from the ceiling. So we would buy huge quantities ofsomething and dramatize it. We would blow it out of there when everybody knew we would have onlysold a few had we just left it in the normal store position. It is one of the things that has set our companyapart from the very beginning and really made us difficult to compete with. And, man, in the early days ofWal-Mart it really got crazy sometimes.

PHIL GREEN, EARLY WAL-MART MANAGER:

"Me and Sam used to have a big time picking items. We'd go buy a Dallas newspaper and a Little Rocknewspaper and a Fort Smith newspaper, and he'd say, 'Well now, Phil, let's make us up some kind of anad for this weekend.' So we'd look around the store and find a big display of socks or a big display ofpanties, or a wastebasket, or a broom, or a big old stack of motor oil. We'd pick out, say, twenty items,and then we'd sit down on the floor with a pair of scissors and go through those newspapers until wefound some store that had run oil, and we'd just cut out the oil can and paste it on there and write'Pennzoil 30W' and stick our price on it. And we'd do the same thing for the socks and the panties andthe wastebasket just make up our own ad out of everybody else's ads in those newspapers. But itworked! Because we made real hot prices. He'd say there was no use running an ad everybody else wasrunning for the same price, or why would they come in Sam was a dime store man so at first he wantedto make a certain percentage of profit on everything. But he came around to the idea that a real hot itemwould really bring them in the store so we finally started running things like toothpaste for sixteen cents atube. Then we'd have to worry about getting enough of it in stock."A little later on, Phil ran what became one of the most famous item promotions in our history. We senthim down to open store number 52 in Hot Springs, Arkansasthe first store we ever opened in a townthat already had a Kmart. Phil got there and decided Kmart had been getting away with some pretty highprices in the absence of any discounting competition. So he worked up a detergent promotion that turnedinto the world's largest display ever of Tide, or maybe Cheersome detergent. He worked out a deal toget about $1.00 off a case if he would buy some absolutely ridiculous amount of detergent, somethinglike 3,500 cases of the giant-sized box. Then he ran it as an ad promotion for, say, $1.99 a box, off fromthe usual $3.97. Well, when all of us in the Bentonville office saw how much he'd bought, we reallythought old Phil had completely gone over the dam. This was an unbelievable amount of soap. It made upa pyramid of detergent boxes that ran twelve to eighteen cases highall the way to the ceiling, and it was75 or 100 feet long, which took up the whole aisle across the back of the store, and then it was about 12feet wide so you could hardly get past it. I think a lot of companies would have fired Phil for that one, butwe always felt we had to try some of this crazy stuff.

PHIL GREEN:

"Mr. Sam usually let me do whatever I wanted on these promotions because he figured I wasn't going toscrew it up, but on this one he came down and said, 'Why did you buy so much You can't sell all ofthis!' But the thing was so big it made the news, and everybody came to look at it, and it was all gone in aweek. I had another one that scared them up in Bentonville too. This guy from Murray of Ohio called oneday and said he had 200 Murray 8 horsepower riding mowers available at the end of the season, and hecould let us have them for $175. Did we want any And I said, 'Yeah, I'll take 200.' And he said,'Twohundred!' We'd been selling them for $447, I think. So when they came in we unpacked every one ofthem and lined them all up out in front of the store, twenty-five in a row, eight rows deep. Ran a chainthrough them and put a big sign up that said: '8 h.p. Murray Tractors, $199.' Sold every one of them. Iguess I was just always a promoter, and being an early Wal-Mart manager was as good a place topromote as there ever was."I'll tell you, Phil not only liked to swim upstream, he liked to do it with weights strapped on just to showhe could do it. Things may not be quite as wild today as they once were, but being a Wal-Mart managerisstill a great place to promote items because it is such a part of our heritage, and it is a part we hadbetter always hold on to. Over the years, I've had so much fun with this, and it really is amazing howmuch merchandise you can move with just a little promotion. Folks always ask me what are some of thebig moments I remember in the history of Wal-Mart, and I usually say, oh, when we passed a billiondollars in sales, or 10 billion, or whatever. But the truth is, some of my fondest memories are of plain oldeveryday items that we sold a ton of by presenting nicely on endcaps (displays at the end of aisles)or ontables out in action alley (the big horizontal aisle running across a store just behind the checkoutcounters). I guess real merchants are like real fishermen: we have a special place in our memories for afew of the big ones.

I realize this may sound boring to most of you, but one of my best items ever was a mattress pad calleda Bedmate. I think I picked this one up one day by going out and talking to one of those salesmen waitingin the lobbywhich is something I like to do from time to time just to keep in touch. At the time I don'tthink we even carried mattress pads, but somehow or another I felt it was an unexplored item or an itemwe should have. So we bought a bunch of the pads, lowered the price and the margin a little bit,displayed them prominently, and it has become one of the most fantastic items we have ever had in ourstores. I had somebody check for me the other day, and since we introduced the Bedmate in 1980,we've sold over five and a half million of those doggoned things.

Another day I walked out into the lobby and began talking with this salesman from the AladdinCompany, the folks who make Thermos bottles. He had his samples with him, and I asked him the usualquestion, what do you have that is real hot that we could promote successfully And he had a half-gallonred and blue Thermos bottle that looked real handsome and he said, "This will make a great special.

We'll give you this kind of price and you can sell it for such-and-such." I said, "Let's talk about it." So Igot him down a little more, ran it at an even lower price, and we went crazy with that thing. We soldcarloads of that Thermos by shooting it into the stores.

For a while there I got to thinking that maybe I was just a genius at picking these items, they all did sowell. But I finally realized that because I was the chairman, and because they knew I'd be coming intotheir stores sooner or later, our associates would get at it on those items I chose and move those thingsright on out. I learned I had to be careful the time we promoted the Moon Pies. These gooeymarshmallow snacks, which are real popular in the South, were another one of my great items. I got onto them in Tennessee, where I ran into a department head, a woman who had been selling Moon Pies inan unbelievable way just by putting them out where folks would notice them. Well, I knew they weren'tbeing pushed across Wal-Mart because I hardly ever saw them around in the stores. So I took her idea,came back, got with the buyer, called the company, and said, "Hey, what if I make the Moon Pie myitem, ship it to all our stores, and sell it five for $1.00 instead of 23 cents apiece" They went for it andcame down in their price to 12  cents apiece. We charged 20 cents and sold 500,000 Moon Pies, or$100,000 worth, in one week. Company-wide, it was a real winner. The problem was everybody gotcarried away with my item and we shipped them to Wisconsin. Those people up there never heard ofMoon Pies before, and they weren't too interested in learning about them. It was the kind of mistake wehad to watch out for once we got so big.

DAVID GLASS:

"We have this executive VPI (Volume Producing Item) contest, you know, but it's really hard tocompete with Sam on it because it is just unbelievable the compliance he gets. I think the ChattanoogaBakery, which makes Moon Pies, made him their man of the year. If they didn't, they should have. Noone in history has ever even dreamed you could sell Moon Pies like that. But see, if he picks an item, he'llsay he wants a table in front of the check stands, and he wants fifteen cases of Moon Pies there brokendown into vanilla, chocolate, and caramel, in whatever ratios he decides they're going to sell. ThatBedmate thing was ordinarily a side-counter itemmaybe you stock four on a side counter and they sell afew a month. Well, Sam takes a table in action alley, designs the sign himself, and makes a rule that youhave to keep the thing full of Bedmates. Of course, it just exploded. Ask him about his minnow bucket,though. That was his worst item ever. That was the same year I won the contest with Seneca AppleJuice. It was just sensational. It sold tons. So I would go to the stores, and get them to take that minnowbucket up front to the people greeter at the door, put ice in it, ice down the apple juice, and give awaysamples out of his minnow bucket. I particularly did it in stores I knew he was going to visit. It drove himcrazy, and he got off that minnow bucket pretty quick.

"We have a lot of fun with all this item promotion, but here's what it's really all about. The philosophy itteaches, which rubs off on all the associates and the store managers and the department heads, is thatyour stores are full of items that can explode into big volume and big profits if you are just smart enoughto identify them and take the trouble to promote them. It has been a real key to helping this companydramatically increase its sales per square foot. If you are going to show the kind of double-digitcomparable store sales increases that we show every year, and grow a company the way we've grownours, you have to be merchandise driven. Otherwise, you become like everybody else. I can name you alot of retailers who were originally merchandise driven, but somehow lost it over the years. In retail, youare either operations drivenwhere your main thrust is toward reducing expenses and improvingefficiencyor you are merchandise driven. The ones that are truly merchandise driven can always workon improving operations. But the ones that are operations driven tend to level off and begin todeteriorate. So Sam's item promotion mania is a great game and we all have a lot of fun with it, but it isalso at the heart of what creates our extraordinary high sales per square foot, which enable us todominate our competition."By the way, I'm promoting an item in the stores this year that I think is a real winner: a halogen carheadlight for only $10.94. I teamed up on it with Jack Welch, the CEO of General Electric. It's a goodexample of how we're cooperating with our big vendors these days at the highest levels.

In the early days of Wal-Mart, this period we've been talking about, I really believe our emphasis onitem promotion helped us to make up for a lot of shortcomings we hadan unsophisticated buyingprogram, a less than ideal merchandise assortment, and practically no back-office support. It wasanother way of swimming upstream. We made up for what we didn't have by being merchants.

The only other reason the thing held together back then is that from the very start we would get all ourmanagers together once a week and critique ourselvesthat was really our buying organization, a bunchof store managers getting together early Saturday morning, maybe in Bentonville, or maybe in some motelroom somewhere. We would review what we had bought and see how many dollars we had committedto it. We would plan promotions and plan the items we intended to buy. Really, we were planning ourmerchandising programs. And it worked so well that over the years, as we grew and built the company, itjust became part of our culture. I guess that was the forerunner of our Saturday morning meetings. Wewanted everybody to know what was going on and everybody to be aware of the mistakes we made.

When somebody made a bad mistakewhether it was myself or anybody elsewe talked about it,admitted it, tried to figure out how to correct it, and then moved on to the next day's work.

Another way we tried hard to make up for our lack of experience and sophistication was to spend asmuch time as we could checking out the competition. It's something I did from the beginning, and it'ssomething I insisted all our managers do.

CHARLIE CATE:

"I remember him saying over and over again: go in and check our competition. Checkeveryone who isour competition. And don't look for the bad. Look for the good. If you get one good idea, that's onemore than you went into the store with, and we must try to incorporate it into our company. We're reallynot concerned with what they're doing wrong, we're concerned with what they're doing right, andeveryone is doing something right."CLARENCE LEIS:

"When Gibson's first came into Rogers, we practically lived between the two stores. My assistants, JohnJacobs and Larry English, would go over there and walk through their store trying to memorize prices.

Then they would come out and write them all down. But there was a great big open trash bin out behindthat store, and at night, after both stores were closed, John and Larry would go over to Gibson's and getdown in their trash and check as many prices as they could find."I guess we had very little capacity for embarrassment back in those days. We paid absolutely noattention whatsoever to the way things were supposed to be done, you know, the way the rules of retailsaid it had to be done. You should have seen us on some of those early buying trips to New York. Wehad hired this wholesaler from Springfield, Missouri, a guy named Jim Haik, to work with us as sort of anagent. We had bought goods from him, so we said we needed someone to hold our hand and take usaround New York to get some merchandise. Jim was a good guy, a straight guy. He took Don Whitakerand me around and introduced us to his sources. He would say, 'These are guys from a little chain downin Arkansas, and they are good people.' We bought dresses and blouses and girls' and infants' and,again, we were mostly item buyers. We didn't buy like other chains, where a buyer specializes in one lineof merchandise and just buys that one line. I don't think any of those guys in New York really understoodour thinking, but we were a store whose profit and volume had to be driven by finding real bargains onthings we could promote out in the sticks. And we did. I usually found my best buys in men's shirts froma guy named Harry Criss at Colonial Manufacturing. He would give us special treatment, meeting us athis showrooms by seven in the morning so we would have extra time to work the street. I alwaysappreciated that, and I bought a lot of shirts from Harry Criss over the years.

BUD WALTON:

"I'll never forget those buying trips. Four, five, six of us might go at a time: Sam, me, Don Whitaker, PhilGreen, Claude Harris, Gary Reinboth. We had this budget, and we knew we could spend X amount ofdollars, whatever it was. We would have $10,000 for this department, or $20,000 for that one, right ondown the line. So here we were, a bunch of guys from Arkansas wandering around New York City. Itwas all new to me. I had never been to New York City. Sam would split us up into pairssome wouldbuy domestics, others ladies' tops and bottoms, whatever.

"So one day he says, 'Bud, you and Don Whitaker go buy men's department.' Well, neither one of ushad ever bought men's before. We were mostly hardlines merchants, who didn't know much aboutclothes. We went down to the Empire State Building where all the men's clothes manufacturers were, andI will never forget that day as long as I live. I had never seen anything like it. We got real carried awayand just bought sweaters, pants, all kinds of stuff. Then at night we would get together back at our hotelroom and see what we'd spent. Most of the time we would have overbought and somebody would haveto go back the next day and cancel a few orders."GARY REINBOTH:

"From the very beginning, Sam was always trying to instill in us that you just didn't go to New York androll with the flow. We always walked everywhere. We never took cabs. And Sam had an equation forthe trips: our expenses should never exceed 1 percent of our purchases, so we would all crowd in theselittle hotel rooms somewhere down around Madison Square Garden.

"He was always trying to get somebody to work with us early in the morning or late at night. To get NewYorkers to do that is something really difficult, you know, because they all catch the train and they've gottheir rules about everything. But Sam would always find somebody to visit with us at night. For one thing,he wanted the trips to be as short as possible. For another, he wanted to make sure we were working allthe time.

"Anyway, we would split up and go to all these different showrooms. We'd walk in, and they'd say,'Who are you with'

"And we'd say, 'We're with Walton's.'

" 'Oh yeah, where are you located'

" 'Arkansas.'

" 'What town'

" 'Bentonville, Arkansas.'

"Then they'd always say, 'Where in the world is Bentonville, Arkansas'

"And Don Whitaker, with a straight face, would always say, 'Next to Rogers.'

"Then, the guy would say, 'Excuse me, I need to get something out of the back room.'

"And old Whitaker would say, 'You don't need to check us out with Dun and Bradstreet. We're thesame as General Motors.'

"Then the guy would come back and say, 'Well, I found you in there, and you do have good credit. Sowhat can I show you'

"We never finished up until about twelve-thirty at night, and we'd all go out for a beer except Mr.

Walton. He'd say, 'I'll meet you for breakfast at six o'clock.' And we'd say, 'Mr. Walton, there's noreason to meet that early. We can't even get into the buildings that early.' And he'd just say, 'We'll findsomething to do.'

"The next morning he would talk some janitor or somebody into letting us in the building, and we'd besitting there outside the showroom when those folks started coming in to work. Like I said, I think hewas trying to make a point: just because we're in New York doesn't mean we have to start doing thingstheir way."I expect Gary's right about my trying to make a point. Because wherever we've been, we've always triedto instill in our folks the idea that we at Wal-Mart have our own way of doing things. It may be different,and it may take some folks a while to adjust to it at first. But it's straight and honest and basically prettysimple to figure out if you want to. And whether or not other folks want to accommodate us, we prettymuch stick to what we believe in because it's proven to be very, very successful.

We started out swimming upstream, and it's made us strong and lean and alert, and we've enjoyed thetrip. We sure don't see any reason now to turn around and join the rest of the pack headed downcurrent.


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