Truth be told, discounting attracted mostly promoters in the beginningpeople who had been in thedistribution center business or who were real estate promoters, guys who weren't really even aspiringmerchants but who saw a huge opportunity. You didn't have to be a genius to see discounting as a newtrend that was going to sweep the country, and all kinds of folks came jumping into it with all fourfeetwherever they could arrive firstCedar Rapids, Iowa, or Springfield, Missouri, it didn't matter. Theywould take a carbon copy of somebody's store in Connecticut or Boston, hire some buyers and somesupervisors who were supposed to know the business, and start opening up stores. From about 1958until around 1970, it was phenomenally successful.
Anybody who has ever known anything about me knows I was never in anything for the short haul; Ialways wanted to build as fine a retailing organization as I could. But in those early daysbefore, and justafter, we opened the first Wal-MartI got to know a lot of those promoters. As I told you, I ran thecountry studying the discounting concept, visiting every store and company headquarters I could find.
The first ones I saw were the mill stores in the East, where the whole thing started. Ann & Hope was inProvidence, Rhode Island, and there were others in Massachusetts and across New England. I went allover up there looking at Giant stores and Mammoth Mart and Arlan's. Another one I learned a lot fromwas Sol Price, a great operator who had started Fed-Mart out in southern California in 1955. I madefriends with Sol's son-in-law, who was running a distribution center in Houston, and talking with himhelped me sort out some of my thinking on distributionwhich would eventually become another key toWal-Mart's success. I guess I've stolenI actually prefer the word "borrowed"as many ideas from SolPrice as from anybody else in the business. For example, it's true that Bob Bogle came up with the nameWal-Mart in the airplane that day, but the reason I went for it right away wasn't that the sign wascheaper. I really liked Sol's Fed-Mart name so I latched right on to Wal-Mart. I do not believe Kmartexisted at that time.
I read in some trade publication not long ago that of the top 100 discounters who were in business in1976, 76 of them have disappeared. Many of these started with more capital and visibility than we did, inlarger cities with much greater opportunities. They were bright stars for a moment, and then they faded. Istarted thinking about what really brought them down, and why we kept going. It all boils down to nottaking care of their customers, not minding their stores, not having folks in their stores with goodattitudes, and that was because they never really even tried to take care of their own people. If you wantthe people in the stores to take care of the customers, you have to make sure you're taking care of thepeople in the stores. That's the most important single ingredient of Wal-Mart's success.
Most of these early guys were very egotistical people who loved to drive big Cadillacs and fly around intheir jets and vacation on their yachts, and some of them lived in houses like I'd never even thought aboutbefore. I remember going to dinner at one of their houses, and we got picked up by this limousine thatmust have had room for fourteen people. Man, they were living high. And they could afford to back thenbecause this discounting thing was working so well. Customers just flocked to their stores, and thesefellows were covered up in cash. Most of them could still be around today if they had followed somebasic principles about running good stores. There are a lot of ways to build strong companies. They don'thave to be done the Wal-Mart way, or my way, or anybody else's way. But you do have to work at it.
And somewhere along the line, these folks stopped short of setting the goals and paying the price thatneeded to be paid. Maybe it wasn't the Cadillacs and the yachts, maybe they just decided it wasn't worthit. But whatever it was, they just didn't stay close enough to their business, they sort of chose to get overon the other side of the road.
They expanded quickly without building the organizations and the supportsuch as distribution centersneeded to expand those companies. They didn't get out into their stores to see what was going on. ThenKmart got their machine in gear and began to do it better and better. I remember going in their storesI'llbet I've been in more Kmarts than anybodyand I would really envy their merchandise mix and the waythey presented it. So much about their stores was superior to ours back then that sometimes I felt like wecouldn't compete. Of course that didn't stop us from trying. And Target came along and did a fine job,taking the whole idea a little more upscale. As these big operators became more organized, thecompetition grew a lot more difficult. That's when all those guys who were failing to meet their customers'
needs and who didn't build strong organizationsall those promotersstarted to fall apart and, eventually,fall out.
Actually, during this whole early period, Wal-Mart was too small and insignificant for any of the big boysto notice, and most of the promoters weren't out in our area so we weren't competitive. That helped meget access to a lot of information about how they were doing things. I probably visited more headquartersoffices of more discounters than anybody elseever. I would just show up and say, "Hi, I'm Sam Waltonfrom Bentonville, Arkansas. We've got a few stores out there, and I'd like to visit with Mr.
So-and-So"whoever the head of the company was"about his business." And as often as not, they'd letme in, maybe out of curiosity, and I'd ask lots of questions about pricing and distribution, whatever. Ilearned a lot that way.
KURT BARNARD, RETAILING CONSULTANT:
"I was executive vice president of the discounters' trade association, working in my New York officeone day in 1967. My secretary said there was a man out front who wanted to join our group. I said Iwould give him ten minutes. So in comes this short, wiry man with a deep tan and a tennis racket underhis arm. He introduced himself as Sam Walton from Arkansas. I didn't know what to think. When hemeets you, he looks at youhead cocked to one side, forehead slightly creasedand he proceeds toextract every piece of information in your possession. He always makes little notes. And he pushes onand on. After two and a half hours, he left, and I was totally drained. I wasn't sure what I had just met,but I was sure we would hear more from him."Looking at everybody else's companies made me feel we were definitely headed in the right direction.
But as we developed, we began to feel a little out of control. In the late sixties, we had more than adozen Wal-Marts and fourteen or fifteen variety stores, which is a pretty good-sized company to berunning with three ladies, myself, and Don Whitaker in the office, and a manager in each store. I alreadytold you what scrubby buyers we were. We had a lot of people with little or no experience, or notenough knowledge of how bigger operations actually worked. I made up my mind that we had to getsomebody with management under his belt. I had hired Gary Reinboth from J. J.
Newberry, a big variety chain that was having some problems at the time, so I asked him if he knewanybody, and he told me about this guy up in Omaha named Ferold Arend. He was Newberry's districtmanager and head of merchandise for the whole Midwest, so Bud and I flew out to see him. We talkedhim and his wife into coming down and looking at our operation.
Ferold arend, wal-mart's first vice president of operations, and later its president:
"In the middle of 1966, Wal-Mart No. 5 was under construction in Conway, Arkansas, and Sam was allexcited and said, 'I've got to show you these plans.' So he loaded my wife and me in his plane and weflew down there. The store had a cotton mill on one side and a stockyard on the other, and it was in aterrible neighborhood. My first thought was: This is not a very good place for a store.' I also thought theBentonville store didn't seem to have any organization to the way it was run. Let's just say I wasn't veryimpressed with the whole Sam Walton operation at that time. I told him I wasn't interested.
"Later on, after that Conway Wal-Mart opened up, Sam called me and told me what the sales were. Ithought, 'My gosh, that store did as much in one day as some of our bigger stores do in a month.' Andthen he told me he was only paying ninety cents a square foot. And I thought, 'He must have somethingthere.' About that time, Newberry's decided to reorganize and I was going to have to move to a newdivision. So I thought, 'Well, if I'm going to have to start over in a company where I've worked fortwenty-one years, why not look at something I'm really interested in' and that was discounting and SamWalton.
"Here I was coming in as vice president, and it took some getting used to. The offices were still up onthe square in Bentonville, and Sam had just got through remodeling themwhich I'm sure was a greatimprovementbut in my opinion they weren't much. The offices were in an old narrow hallwayupstairssome were over the barbershop and others were over an attorney's office. The floor sagged upthere, about four inches from the wall to the center. And they had some partitions and some woodpaneling, and they were real little offices. It was very close-knit up there."Even if he couldn't tell it by the office we gave him, bringing Ferold in was an important step for ourcompany. I knew we had to get better organized than we were. We still had to build a basic merchandiseassortment, and a real replenishment system. We had lists of items we were supposed to carry, and wewere dependent on the people in the stores to keep good records of everything manuallythis was at atime when quite a few people were beginning to go into computerization. I had read a lot about that, andI was curious. I made up my mind I was going to learn something about IBM computers. So I enrolled inan IBM school for retailers in Poughkeepsie, New York. One of the speakers was a guy from theNational Mass Retailers' Institute (NMRI), the discounters' trade association, a guy named Abe Marks.
ABE MARKS, HEAD OF HARTFIELD ZODY'S, AND FIRST PRESIDENT, NMRI:
"I was sitting there at the conference reading the paper, and I had a feeling somebody was standing overme, so I look up and there's this grayish gentleman standing there in a black suit carrying an attach case.
And I said to myself, 'Who is this guy He looks like an undertaker.'
"He asks me if I'm Abe Marks and I say, 'Yes, I am.'
" 'Let me introduce myself, my name is Sam Walton,' he says. 'I'm only a little fellow from Bentonville,Arkansas, and I'm in the retail business.'
"I say, 'You'll have to pardon me, Sam, I thought I knew everybody and every company in the retailbusiness, but I never heard of Sam Walton. What did you say the name of your company is again"" 'Wal-Mart Stores,' he says.
"So I say, 'Well, welcome to the fraternity of discount merchants. I'm sure you'll enjoy the conferenceand getting acquainted socially with everyone.'
" 'Well, to be perfectly honest with you, Mr. Marks, I didn't come here to socialize, I came here to meetyou. I know you're a CPA and you're able to keep confidences, and I really wanted your opinion onwhat I am doing now.' So he opens up this attach case, and, I swear, he had every article I had everwritten and every speech I had ever given in there. I'm thinking, 'This is a very thorough man.' Then hehands me an accountant's working column sheet, showing all his operating categories all written out byhand.
"Then he says: 'Tell me what's wrong. What am I doing wrong'
"I look at these numbersthis was in 1966and I don't believe what I'm seeing. He's got a handful ofstores and he's doing about $10 million a year with some incredible margin. An unbelievableperformance!
"So I look at it, and I say, 'What are you doing wrong Samif I may call you SamI'll tell you what youare doing wrong.' I handed back his papers and I closed his attach case, and I said to him, 'Being hereis wrong, Sam. Don't unpack your bags. Go down, catch a cab, go back to the airport and go back towhere you came from and keep doing exactly what you are doing. There is nothing that can possiblyimprove what you are doing. You are a genius.' That's how I met Sam Walton."Abe invited me to join the NMRI and it turned out to be quite a valuable association for me. I was onthe board for about fifteen years, and made some terrific contacts and generous friends. I visited withAbe a number of times at his New York offices, and he was a very open guy. He shared with me how heused computers to control his merchandise.
ABE MARKS:
"Our system was rudimentary by today's standards, but it was very advanced for the 1960s. Very fewcompanies controlled their merchandise the way we did. Sam spent a lot of time reviewing theseoperations and he brought some of his people up to review them. He has just been a master of taking thebest out of everything and adapting it to his own needs.
"What we helped him with in the early days was really logistics. It's like in the Army. You can movetroops all over the world, but unless you have the capacity to supply them with ammunition and food,there's no sense putting them out there. Sam understood that. He knew that he was already in what thetrade calls an 'absentee ownership' situation. That just means you're putting your stores out where you, asmanagement, aren't. If he wanted to grow he had to learn to control it. So to service these stores you'vegot to have timely information: How much merchandise is in the store What is it What's selling andwhat's not What is to be ordered, marked down, replaced To get more technical, that helps youcontrol what we call turn, or inventory turnoverthe ratio of sales to inventory. That's a key. The moreyou turn your inventory, the less capital is required. And all this involves getting the merchandise to thestore at the right time, communicating how it's being priced and how it's being marked down, whatever.
Logistics.
"Anyway, the man's a genius. He realizedeven at the rudimentary level he was on in 1966, operatingthose few stores that he hadthat he couldn't expand beyond that horizon unless he had the ability tocapture this information on paper so that he could control his operations, no matter where they might be.
He became, really, the best utilizer of information to control absentee ownerships that there's ever been.
Which gave him the ability to open as many stores as he opens, and run them as well as he runs them,and to be as profitable as he makes them.
"You've got to realize this too. By being at that conference, he was absolutely in the right place at theright time. There were no such things in those days as minicomputers and microcomputers. He was reallyten years away from the computer world coming. But he was preparing himself. And this is a veryimportant point: without the computer, Sam Walton could not have done what he's done. He could nothave built a retailing empire the size of what he's built, the way he built it. He's done a lot of other thingsright, too, but he could not have done it without the computer. It would have been impossible."Much as I hate to admit to something like that, I expect Abe is probably right. His memory's pretty goodabout why I was at that conference, too. I wanted to show him my books, and I wanted to ask himabout merchandise control. But I knew I'd never be any whizbang computer guy myself, so I had anotherreason for going to that school: I was looking to hire a good, bright systems person, and I figured I mightfind one there. As it happened, there were all sorts of bright people in that school. Dale Wormana veryastute retailer from the Fred Meyer company out in Portland and now a good friendwas there, as wasArlie Lazarus, who became president of Herb Fisher's Jamesway Corp. And, of course, that's where Ifirst met Ron Mayer, then the smart young chief financial officer at Duckwall Stores in Abilene, Kansas. Itargeted him as the guy we needed at Wal-Mart, and started wooing him right there. Like so many ofthem, he wasn't interested just then in moving to Bentonville, Arkansas, to work for somebody he knewnext to nothing about. Later on, we changed his mind.
But I had another problem on my mind when I went up there: distribution. All these other guys, like AbeMarks, were in large urban markets, and their stores were being supplied by big distributors. Kmart andWoolco were using the same distribution system that was supplying their thousands of variety stores. Sohere we were out in the sticks with nobody to distribute to our stores, which meant basically that ourmanagers would order from salesmen and then some day or other a truck from somewhere would comealong and drop off the merchandise. Even at the stage we were in, this was totally unworkable. A lot ofour stores weren't big enough to order whole pallets of merchandise, so we had rented that old garage indowntown Bentonville as our warehouse. We would have big shipments delivered there, then unpackthem and repack them into smaller quantities. Then we'd call the trucklines to come get them and takethem to the stores. It was expensive and inefficient. Somewhere in that period, Ferold and I had hiredanother fellow from Newberry's, Bob Thornton, who had been running a distribution center for them inOmaha, with the promise that we were going to build a distribution center for him to run.
BOB THORNTON:
"He hired me with the full understanding that I was going to put together a warehouse and distributionsystem. I accepted the job, moved down here, and started drawing some plans. Then one day heproceeds to tell me he doesn't know for sure whether we really need a warehouse yet or not. It upset meto no end because that was really the only field I wanted to be into. I said, 'Gee, Sam, I want to run awarehouse.' For about six months to a year there, I just worked doing various things around thecompany, and in my spare time I drew up plans for a distribution center. There wasn't room for me in theoffice so they knocked a hole through the wall and went into the upstairs of the shoe store next door. Itwas kind of like an attic, my office, with no heat or air conditioning in it. We had one old toilet for a restroom, with a screen-door hook on the door. And there were about twenty-five people working there bynow. Sam would come by every so often and tell me to keep working on drawing those warehouseplans, but I could see he wasn't sure about it at all."I knew we needed a warehouse. I just wanted to make sure we got the kind we needed, and at this timetoo, remember, we were financing everything ourselves. We were borrowing heavily to open new stores.
But anyway, there was one guy at that same IBM schoola fellow up in Green Bay, Wisconsinwho wasthe only one who had a warehouse, a distribution center. He invited me to go look at it. So when I gothome from the school, I threw Don Whitaker and Ferold and Bob Thornton and some other folkstherewere six of us, I rememberinto a Beechcraft Baron I was flying in those days, and hauled us up to GreenBay, Wisconsin. We went through this warehouse, saw how they did it, took a lot of notes on everything.
It was computerized, one of the first computerized warehouses I know anything about.
After that trip, I knew we had to build one, and everybody was pressuring me for a new general office,so we bought fifteen acres on a farm right outside Bentonville, where we still are today, for about$25,000. Bob was in charge of building us a new 15,000-foot general office, which I thought would lastus forever, and a 60;000-foot warehouse, which I thought was too big, but Ferold convinced me weneeded it.
BOB THORNTON:
"As I recall, my blueprint for the warehouse called for 100,000 square feet, which to me was veryminimal. Then Sam decided to get an architect involved. When I got to look at the drawing, I thought,'Well, this can't be right. It's only 60,000 square feet.' So I went to tell Sam about it, and he said, 'Well, Icalled the architect and told him to cut it back. I just don't think we need that 100,000 square feet, Bob.'
"Another thing. I had designed that distribution center around an in-floor towline system, you know, atrack that moves carts around the floor. Sam says, 'Well, Bob, I just don't think we can do that. We can'tspend that kind of money.' At that point, I literally didn't know how to run a warehouse without one so Ijust said, 'Hey, Sam, if we don't have a towline system, then you don't need me because I don't knowwhat to do without it.' So he gave in to that. The truth is, Sam never didanything in size or volume untilhe actually had to. He always played it close to the belt."It's true enough that I was nervous about spending any unnecessary money in those days. We weregenerating as much financing for growth as we could from the profits of the stores, but we were alsoborrowing everything we could. I was taking on a lot of personal debt to grow the companyitapproached $2 million, which was a lot of money at the time. The debt was beginning to weigh on me.
By now I no longer had any doubt that we were really on to something. We had expanded to MissouriSikeston was our first store there. And we'd put stores in Neosho and West Plains. We'd gone toClare-more, OklahomaHelen's hometown. Our first seven or eight Wal-Marts were showingspectacular results. Once we got it going, it was hard to see why we should quit. The thing was, youcould see the potential so clearly. The profits and the sales were there but we needed to get betterorganized and come up with a more sensible way to finance the growth. I needed someone to help mewith systems and distribution.
I had stayed in touch with Ron Mayer, and I kept after him to work for us. Finally, I talked him intocoming down to look over our operations, and then darned near killed him before he ever had a chanceto sign on. We were flying around in my Beech Baron, looking at stores, and we were on our way in toland at Carthage, Missouriheaded for store number 12. There are two intersecting runways at Carthage,and as I touched down on one of them, all of a sudden up ahead we saw this plane on the other runway,right at the intersection, and we were headed straight at him. I hadn't seen him or heard him on the radio.
I didn't know where he came from. I gave that Baron all the power it had and we just barely made it overthe top of the other plane. Then we circled around and landed. This was Ron's first trip with me, and whoknows what he must have thought. But somehow, I talked him into coming to work with us anyway. Hejoined Wal-Mart in 1968 as vice president for finance and distribution.
Even though it may surprise some people, I have to say that I consider the time Ron was at thecompany, from 1968 until 1976 (when he left under some fairly unpleasant circumstances for both of us),to be the most important period of development in Wal-Mart's history. We had a good thing goingbefore Ron arrived, but he, and some of the people he brought on board, like Royce Chambers, our firstdata processing manager, gave the company its first sophisticated systems. And those systems were thebeginnings of a management method which allowed us to stay real close to our stores even as our growthexploded.
We were forced to be ahead of our time in distribution and in communication because our stores weresitting out there in tiny little towns and we had to stay in touch and keep them supplied. Ron started theprograms that eventually improved our in-store communications system. Building on the groundworkalready laid by Ferold Arend, Ron also took over distribution and began to design and build a systemthat would enable us to grow as fast as we could come up with the money. He was the main force thatmoved us away from the old drop shipment method, in which a store ordered directly from themanufacturer and had the merchandise delivered directly to the store by common carrier. He pushed usin some new directions, such as merchandise assembly, in which we would order centrally for every storeand then assemble their orders at the distribution center, and also cross-docking, in which preassembledorders for individual stores would be received on one side of our warehouse and leave out the other.
From Ron Mayer's arrival on, we as a company have been ahead of most other retailers in investing insophisticated equipment and technology. The funny thing is, everybody at Wal-Mart knows that I'vefought all these technology expenditures as hard as I could. All these guys love to talk about how I neverwanted any of this technology, and how they had to lay down their life to get it. The truth is, I did want it,I knew we needed it, but I just couldn't bring myself to say, "Okay, sure, spend what you need." I alwaysquestioned everything. It was important to me to make them think that maybe the technology wasn't asgood as they thought it was, or that maybe it really wasn't the end-all they promised it would be. It seemsto me they try just a little harder and check into things a little bit closer if they think they might have achance to prove me wrong. If I really hadn't wanted the technology, I wouldn't have sprung the moneyloose to pay for it.
By the late sixties, we were really well positioned for serious growth. We had a retail concept webelieved in, the core of a professional management team, and the foundations of systems which wouldsupport growth. In 1968, we had fourteen variety stores and thirteen Wal-Marts. In 1969, we hadfourteen variety stores and eighteen Wal-Marts. And we were raring to go. I couldn't resist taking thatnext step to see how far we could go. And I always figured we would slow down or stop when weweren't as profitable as we should be.
It was around that time that Bud and Ivery quietlybegan to think about taking the company public.
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