Maybe it was an accident, but that strategy wouldn't have worked at all if we hadn't come up with amethod for implementing it. That method was to saturate a market area by spreading out, then filling in. Inthe early growth years of discounting, a lot of national companies with distribution systems already inplaceKmart, for examplewere growing by sticking stores all over the country. Obviously, we couldn'tsupport anything like that.
But while the big guys were leapfrogging from large city to large city, they became so spread out and soinvolved in real estate and zoning laws and city politics that they left huge pockets of business out therefor us. Our growth strategy was born out of necessity, but at least we recognized it as a strategy prettyearly on. We figured we had to build our stores so that our distribution centers, or warehouses, couldtake care of them, but also so those stores could be controlled. We wanted them within reach of ourdistrict managers, and of ourselves here in Bentonville, so we could get out there and look after them.
Each store had to be within a day's drive of a distribution center. So we would go as far as we couldfrom a warehouse and put in a store. Then we would fill in the map of that territory, state by state, countyseat by county seat, until we had saturated that market area.
We saturated northwest Arkansas. We saturated Oklahoma. We saturated Missouri. We went fromNeosho to Joplin, to Monett and Aurora, to Nevada and Belton, to Harrisonville, and then on to FortScott and Olathe in Kansasand so on. Sometimes we would jump over an area, like when we openedstore number 23 in Ruston, Louisiana, and we didn't have a thing in south Arkansas, which is between usand Ruston. So then we started back-filling south Arkansas. In those days we didn't really plan for thefuture. We just felt like we could keep rolling these stores out this way, and they would keep working, inTennessee, or Kansas, or Nebraskawherever we decided to go. But we did try to think ahead somewhen it came to the cities. We never planned on actually going into the cities. What we did instead wasbuild our stores in a ring around a citypretty far outand wait for the growth to come to us. That strategyworked practically everywhere. We started early with Tulsa, putting stores in Broken Arrow and SandSprings. Around Kansas City, we built in Warrensburg, Belton, and Grandview on the Missouri side oftown and in Bonner Springs and Leavenworth across the river in Kansas. We did the same thing inDallas.
This saturation strategy had all sorts of benefits beyond control and distribution. From the verybeginning, we never believed in spending much money on advertising, and saturation helped us to save afortune in that department. When you move like we did from town to town in these mostly rural areas,word of mouth gets your message out to customers pretty quickly without much advertising. When wehad seventy-five stores in Arkansas, seventy-five in Missouri, eighty in Oklahoma, whatever, peopleknew who we were, and everybody except the merchants who weren't discounting looked forward toour coming to their town. By doing it this way, we usually could get by with distributing just oneadvertising circular a month instead of running a whole lot of newspaper advertising. We've never beenbig advertisers, and, relative to our size today, we still aren't. Just like today, we became our owncompetitors. In the Springfield, Missouri, area, for example, we had forty stores within 100 miles. WhenKmart finally came in there with three stores, they had a rough time going up against our kind of strength.
So for the most part, we just started repeating what worked, stamping out stores cookie-cutter style.
The only decision we had to make was what size format to put in what market. We had five differentstore sizes running from about 30,000 to 60,000 square feetand we would hardly ever pass up anymarket because it was too small. I had traveled so much myself looking at competitors in the variety storebusiness that I had a good feel for the kind of potential in these communities. Bud and I knew what wewanted in the way of locations.
Like so many of the ideas that have made our company work from the beginning, we're still more or lessfollowing this same strategy, although today we've moved into some cities outright. But I think our mainreal estate effort should be directed at getting out in front of expansion and letting the population build outto us. Just like in the beginning, we start around these small towns, people drive past our stores, get toknow us, and become customers. The amazing thing to me is how quickly it works. We have created somany new friends down in FloridaYankee friends, folks who live up Northwho see our stores inFlorida while they're down there for the winter, and they can't wait for us to get up there.
Believe it or not, I get letters all the time asking us to put a store in some place up North because ourcustomers miss us when they go back home. It's the same way in the Rio Grande Valley. All the farmersfrom North Dakota, South Dakota, and Minnesota go down there for the winter and get to know us. Sowe are presold, almost, when we go into some of these areas that are new for us. We're still spreadingout and filling in, and we've got a heck of a long way to go before we saturate territory which weconsider to be basically friendly to Wal-Mart.
There's no question whatsoever that we could not have done what we did back then if I hadn't had myairplanes. I bought that first plane for business, to travel between the stores and keep in touch with whatwas going on. But once we started really rolling out the stores, the airplane turned into a great tool forscouting real estate. We were probably ten years ahead of most other retailers in scouting locations fromthe air, and we got a lot of great ones that way. From up in the air we could check out traffic flows, seewhich way cities and towns were growing, and evaluate the location of the competitionif there was any.
Then we would develop our real estate strategy for that market.
I loved doing it myself. I'd get down low, turn my plane up on its side, and fly right over a town. Oncewe had a spot picked out, we'd land, go find out who owned the property, and try to negotiate the dealright then. That's another good reason I don't like jets. You can't get down low enough to really tellwhat's going on, the way I could in my little planes. Bud and I picked almost all our sites that way untilwe grew to about 120 or 130 stores. I was always proud of our technique and the results we got. Iguarantee you not many principals of retailing companies were flying around sideways studyingdevelopment patterns, but it worked really well for us. Until we had 500 stores, or at least 400 or so, Ikept up with every real estate deal we made and got to view most locations before we signed any kind ofcommitment. A good location, and what we have to pay for it, is so important to the success of a store.
And it's one area of the company in which we've always had family involvement. Jim did it for a while.
And even today, Rob goes on real estate trips and attends every real estate meeting.
Once we found a good location, we just got after it and put up a store there. We built our own fixturesthen, and we still do today. We had what we called a Store Opening Plan, but basically we would call inthe troopsusually we called in all the available assistant managersand put together a store. I'll bet a guylike Al Miles has put together 100 stores and been to over 300 store openings. We had to assemble thefixtures, order the merchandise, and plan the advertisingnot to mention hiring and training the folks to runthe store. We just all dove in and got it done. There are all kinds of stories about those things. Iremember one time I didn't want to spend any money on motels so we all slept in sleeping bags on thefloor of one of our guys' houses. His furniture hadn't gotten there yet.
Ferold Arend made a big difference in the early rollout of Wal-Marts. He was a very organized personin a way that I wasn't. I always told him it was because he was German. But he was the kind of fellowwho, if he had ten things to do in a day, would write them all down and then work to get them done. Hewould double back to see that people did what he told them to do. I never did that as a rule in thosedays. I just kept moving.
I think a powerful sense of needing to take off to the next town or the next store when I'm ready, withoutwasting any time waiting on somebody else, is probably the main reason I never was able to work realwell with pilots. It seemed like they were never ready to go when I was. Anyway, I love the flying, thechallenge of finding my way all over the country, evaluating the weather and making the instrumentapproaches and doing everything myself. But even more than that, I love the independence of being ableto go where I want to, when I want toin a hurry. Plus, I always like to see people working, and thenature of a corporate pilot's job includes a lot of downtime. So, when we first got a few pilots aroundhere I conceived this brilliant idea: "Okay, guys," I said. "If you want to fly airplanes, I want you to gointo the stores and check on our in-stock positions in all our departments when you aren't flying." It madeperfect sense to me. They needed to learn more about the business, they would be helping us, and theycould have had some fun with it. My idea lasted about three months and provoked all kinds of grumbling.
I heard every excuse in the book. We've got to check the weather and make sure the planes are takencare of and all that. Finally, I gave in. And today, our pilots stay in the air about as much as anybody intheir business.
JACK SHEWMAKER:
"The first store we opened after I got there was number 21 in Saint Robert, Missouri. Our store openingcrew was supposed to take possession of a store after construction was complete. It didn't always workout that way. When we took that store, the parking lot wasn't done. I mean, it was gravel and had nostriping, no cording of cars or anything. So the store manager, Gary Reinboth, and I were trying to figureout how to avoid chaos at the opening. Our eyes lit up when we saw this snack bar vendor hauling usedcooking grease in these huge yellow barrels in the back of his truck. So we made a deal with him. Hecould buy all our grease at a good price if we could have all his grease barrels for the grand opening. Wetied flags and rope on them and made a parking lot. That's the way we thought in those days. Samwanted a job done, and he was willing to accept creativity as long as the job got done. Our minds werefreewheeling. We rushed to get things done.
"I remember another opening. We had finally built a new store in Morrilton, Arkansas, out nearInterstate 40, to replace that incredible store Sam was so proud of in the old Coca-Cola plant. My bosswas Ferold Arend, and he told me we were going to set a new record of opening a store in three weeks.
I said okay. But he had made a mistake by a week so we really had a target date of two weeks from theday we began. We tried desperately, but we didn't quite make it. We opened on Thanksgiving Day, andthe store was horrible. I was standing out in front when Sam drove up. He saw the disaster, but he wassmart enough to know how hard we'd been working and that if he told the truth we would have justdisintegrated. He said, The store looks really good, guys.' And he drove away and left us."Obviously, because I have spent as much time as I could out where it counts, in the stores, seeing ifwe're doing the job we should be, it has put a very heavy load on all our executives, especially since Iexpect them to get out in the stores too. My style has always been to lay off a lot of the day-to-dayoperating responsibilities to folks like Ferold Arend and Ron Mayer in the early days, later on to JackShewmaker, and eventually to David Glass and Don Soderquist. So my role has been to pick goodpeople and give them the maximum authority and responsibility.
I've been asked if I was a hands-on manager or an arms-length type. I think really I'm more of amanager by walking and flying around, and in the process I stick my fingers into everything I can to seehow it's coming along. I've let our executives make their decisionsand their mistakesbut I've critiquedand advised them. My appreciation for numbers has kept me close to our operational statements, and toall the other information we have pouring in from so many different places. In that sense, I think my styleas an executive has been pretty much dictated by my talents. I've played to my strengths and relied onothers to make up for my weaknesses.
As I mentioned, I found out early that one of my talents is remembering numbers. I can't recall namesand a lot of other things as well as I would like to. But numbers just stick with me, and always have.
That's why I come in every Saturday morning usually around two or three, and go through all the weeklynumbers. I steal a march on everybody else for the Saturday morning meeting. I can go through thosesheets and look at a store, and even though I haven't been there in a while, I can remind myself ofsomething about it, the manager "maybe, and then I can remember later that they are doing this muchbusiness this week and that their wage cost is such and such. I do this with each store every Saturdaymorning. It usually takes about three hours, but when I'm done I have as good a feel for what's going onin the company as anybody heremaybe better on some days.
But if you asked me am I an organized person, I would have to say flat out no, not at all. Beingorganized would really slow me down. In fact, it would probably render me helpless. I try to keep trackof what I'm supposed to do, and where I'm supposed to be, but it's true I don't keep much of a schedule.
I think my way of operating has more or less driven Loretta Boss, and later Becky Elliott, my twosecretaries, around the bend. My style is pretty haphazard.
LORETTA BOSS PARKER, PERSONAL SECRETARY FOR TWENTY-FIVE YEARS:
"He hasalways been like this. His mind works ten times faster than everybody else's. I mean he just getsgoing and stays two or three jumps ahead, and he's quick to go with what's on his mind. If he getssomething in his mind that needs to be done regardless of what else might have been plannedthe newidea takes priority, and it has to be done now. Everybody has their day scheduled, and thenbang! Hejust calls a meeting on something.
"In the early years, this caused a number of embarrassments. I would make appointments for him andthen tell him about themwe kept two calendars, one on his desk and one on minebut he would justtotally forget. I've had people fly in here from Dallas all set to see him. I'd come in at 8a.m. to meet themand find out he had flown out of town at 5a.m. without telling anybody where he was going. I would justhave to look at this man from Dallas and say, 'He's gone.' So after a few times like that, I finally said, 'I'mnot going to make appointments for you anymore.' And he said, 'Well, that's probably best.' Then hewould make his own appointments and forget about them, and I was still the one who had to give themthe bad news. I couldn't organize him in a quarter of a century, and I don't think anyone else is ever goingto."Except for reading my numbers on Saturday morning and going to our regular meetings, I don't havemuch of a routine for anything else. I always carry my little tape recorder on trips, to record ideas thatcome up in my conversations with the associates. I usually have my yellow legal pad with me, with a listof ten or fifteen things we need to be working on as a company. My list drives the executives around herecrazy, but it's probably one of my more important contributions.
DAVID GLASS:
"When Sam feels a certain way, he is relentless. He will just wear you out. He will bring up an idea, we'llall discuss it and then decide maybe that it's not something we should be doing right nowor ever. Fine.
Case closed. But as long as he is convinced that it is the right thing, it just keeps coming upweek afterweek after weekuntil finally everybody capitulates and says, well, it's easier to do it than to keep fightingthis fight. I guess it could be called management by wearing you down."One way I've managed to keep up with everything on my plate is by coming in to the office really earlyalmost every day, even when I don't have those Saturday numbers to look over. Four-thirty wouldn't beall that unusual a time for me to get started down at the office. That early morning time is tremendouslyvaluable: it's uninterrupted time when I think and plan and sort things out. I write my letters and myarticles forWal-Mart World, our company newsletter.
A. L. JOHNSON, VICE CHAIRMAN, WAL-MART:
"I think one of Sam's greatest strengths is that he is totally unpredictable. He is always his own person,totally independent in his thinking. As a result, he is not a rubber-stamp manager. He neverrubber-stamps anything for anyone.
"Back when I was general merchandise manager, we didn't have much computer support. So everyFriday morning for six years, I would take my columnar pad with all the numbers on it into Sam's officefor him to review. Every morning that I went through those numbers, Sam would jot them down on hisown pad and work through all the calculations himself. I never felt that he didn't trust my judgment. Hejust felt that it was his function to make sure of everything. Sometimes he would work the numbers a littledifferently from the way I had, or argue with some of my conclusions, which kept me on my toes. Thepoint is: I always knew I could not just go in there and lay a sheet of numbers in front of him and expecthim to just accept it.
"As famous as Sam is for being a great motivatorand he deserves even more credit than he's gotten forthathe is equally good at checking on the people he has motivated. You might call his style: managementby looking over your shoulder."I'm always asked if there ever came a point, once we got rolling, when I knew what lay ahead. I don'tthink that I did. All I knew was that wewere rolling and that we were successful. We enjoyed it, and itlooked like something we could continue. We had found a concept, certainly, that the customers liked.
Even back then, I always said at the first sign of it getting out of control, the first time our numbers don'tcome through as they should, we will pull in and put our arms around what we've built. Up to this point,of course, we haven't had to do it.
FEROLD AREND:
"The truth is, we were working with a great idea. It was really easy to develop discounting in those smallcommunities before things got competitive.
There wasn't a lot of competition for us in the early days because nobody was discounting in the smallcommunities. So when we discounted items, it was just an unheard-of concept outside the larger towns.
The customers, of course, weren't dumb. They had friends and relatives in the cities, and they had visitedplaces where discounters were operating, so when they saw this happening in their town, well, shoot,they justflocked to our stores to take advantage of it."I guess Ferold is right about the competitionif you're talking strictly about discounters. But there's aparadox here that I think confused a lot of folks about us for a long time. For twenty years back East,they always said Wal-Mart never had any competition, and that we wouldn't know what to do with itwhen it hit us. They forgot that we had come out of the variety store business, and that the heartland wasthe home ground for practically all the regional variety chains that developed in the U.S. In our BenFranklin days, we had all the competition you could ever want from Sterling and TG&Y and Kuhn's andall those other regionals. So while we may not have had any competition for discounting in those littletowns, we weren't strangers to competition. We were always looking at Gibson's and any other regionalsthat might decide to come our way, and we knew what to do when they did: keep our prices as low aspossible by keeping our costs as low as possible.
Managing that whole period of growth was the most exciting time of all for me personally. Really, therehas never been anything quite like it in the history of retailing. It was the retail equivalent of a real gusher:
the whole thing, as they say in Oklahoma and Texas, just sort of blowed. We were bringing great folkson board to help make it happen, but at that time, I was involved in every phase of the business:
merchandising, real estate, construction, studying the competition, arranging the financing, keeping thebooks everything. We were all working untold hours, and we were tremendously excited about whatwas going on. I'm not sure we even had time to realize just how phenomenal our growth rate in theseventies would look on a chart years later:
STORES SALES1970 32 $ 31 million1972 51 $ 78 million'
1974 78 $ 168 million1976 125 $ 340 million1978 195 $ 678 million1980 276 $ 1.2 billionIn the early seventies, we had formed this cooperative research group among some of us discountersmostly regionalswho didn't compete with one another. Comparing notes with them made me realizejust what an amazing performance Wal-Mart was turning in. I remember they were just astonished. Theycould not believe we could be establishing the number of stores that we were. We would be putting infifty stores a year, when most of our group would be trying to start three, four, five, or six a year. Italways confounded them. They would always ask, "How do you do it There's no way you can be doingthat."But wewere doing it. We just stayed on top of it, and, along with increasing our sales, we increased ourprofitabilityfrom $1.2 million in 1970, to $41 million in 1980. On paper, we really had no right to dowhat we did. We were all pounding sand, and stretching our people and our talents to the absolutemaximum. And don't get me wrong: I'm not saying we didn't have our share of growing pains.
FEROLD AREND:
"More than anything else, we had manpower problemsfinding good people and getting them trained in ahurry. Because we always ran a real tight organization, we had no excess people in the stores so they hadto get real good real fast. Back when I had been at Hested's, and at Newberry's, too, a guy had to haveten years' experience before we'd even consider him to be what we called a manager-in-training. Downhere, Sam would take people with hardly any retail experience, give them six months with us, and if hethought they showed any real potential to merchandise a store and manage people, he'd give them achance. He'd make them an assistant manager. They were the ones who would go around and open allthe new stores, and they would be next in line to manage their own store. In my opinion, most of themweren't anywhere near ready to run stores, but Sam proved me wrong there. He finally convinced me. Ifyou take someone who lacks the experience and the know-how but has the real desire and thewillingness to work his tail off to get the job done, he'll make up for what he lacks. And that proved truenine times out of ten. It was one way we were able to grow so fast."We were trying to put in as many merchandising programs as we could and give our stores as muchsupport as possible during all this growth, but in the early seventies, that Wal-Mart manager was stillpretty much out there on his own when it came to promoting items and moving the merchandise.
THOMAS JEFFERSON, EARLY WAL-MART DISTRICT MANAGER, HIRED FROMSTERLING STORES, LATER. OPERATIONS MANAGER:
"Several times a year, most stores would have a big sidewalk promotion. In those days, we sold aboutas much merchandise off the sidewalks on weekends as we sold inside the store. You know, we'd ropeoff part of the parking lot, get a band, and have maybe a boatload sale. We would take our boatswesold these John boatsput them up on sawhorses, and dump one item into each boat. We'd put big signsup calling them Boatload Sales. They still have sidewalk promotions today, but not like we once did. Itdoesn't work that well anymore."While all this was going on in the early seventies, Ferold Arend and Ron Mayer and Bob Thornton andmyself were still trying to get a handle on how to distribute to a growing number of stores in these smalltowns off the beaten path. It was one of those things that used to drive me crazy. I was always walkingthrough the warehouse in Bentonville saying, "Where does this go" "Who bought this" "We've got toomuch of that!" Meanwhile, the guys out in the stores would be crying for this stuff, and we couldn't get itout to them. I remember being very nervous when everybody decided we needed to buy our own trucks,but we did it. We had two tractors and four trailers, and the folks in the warehouse got to where theythought we needed four tractors and six trailers. I thought that was pretty extreme. So word would getout that I was coming out to the warehouse, and if they had an extra tractor or trailer sitting idle, theywould haul it around to the other side of the building and hide it so I wouldn't know we had anythingempty.
THOMAS JEFFERSON:
"The faster we grew, the further behind we fell. We were always behind with our distribution. We neveropened a warehouse soon enough, and we always had too many stores to service before the warehousewould get opened. Nowadays, I think they stay about one and a half distribution centers out front ofdemand, but back then we had a terrible time getting the freight to the stores. So we were renting outsidewarehouses, which were very expensive to operate, and we just had more than we could handle.
Sometimes we would have five hundred trailers full of merchandise sitting around one of thosewarehouses. And it took time to deal with all that. We couldn't get it out. Then the next day we'd getsixty boxcar loads. We'd have to unload the doggoned boxcars, and here the merchandise they wantedin the stores would be sitting there sometimes a week or a week and a half."It was a big problem, and one that worried me a lot, which is probably why as we moved along in theseventies, I just kept after folks like David Glass, who was still in the discount drug business up inMissouri, and Don Soderquist, who was running Ben Franklin, to come to work for us. I knew they wereboth big talents, and I knew we were going to need all the help we could get in all areasbut especially inthe ones I wasn't all that great at, such as distribution and systems. Like I said before, Ron Mayer hadworked hard on that distribution system, introducing all the concepts like merchandise assembly,cross-docking, and transshipment. But I don't think our distribution system ever really got undercomplete control until David Glass finally relented and came on board in 1976. More than anybody else,he's responsible for building the sophisticated and efficient system we use today.
While Ron and Ferold were helping me run the company, and well before David joined us in themid-seventies, Jack Shewmaker was coming on strong as a big talent. He had done a fantastic job inopening stores. Jack had been the manager of a Kroger SuperCenter which was a concept combininggroceries and general merchandise not unlike our own supercenters today. So he had been a merchant,but he wasn't overly experienced when I hired him. He was in that first wave of college men I had startedto hire, and, being a graduate of Georgia Tech, he had that engineer's love of systems and organizationthat we were still badly in need of. By now, I was really surrounding myself with guys who were good atall the things I tended to just sluff off, like organizing the company to handle the growth explosion we hadstarted. If I hadn't gone after those folks, and kept on doing it, we would have come apart somewherethere in the seventies, or we certainly wouldn't have been able to pull off our really incredible expansion inthe eighties. Getting an early start on all these systems, building a foundation for our distribution centerdevelopment, starting to put data processing into the stores, really saved our bacon later on.
JACK SHEWMAKER:
"Sam and Ferold called me in one day and said, 'We understand you've got some experience in writingpolicy manuals.' I had written some for both Kroger and Coast-to-Coast Hardware Stores out ofMinneapolis. So they said, 'We want you to come in and write up our policies and procedures for us.' Isaid, 'Well, that's nice, but that's not really what I would like to do. I want to work with themerchandising people.' And Sam said, 'Well, we would kind of like you to do it anyway. How long doyou think it will take to do it' I knew from experience it would take six months to a year to properly dothis job. But I said, 'I'll do it in ninety days.' Sam replied, 'You've got sixty days.' Sam never wants towait for anything. He has no patience. That was probably the meld between us. That bias toward action.
Anyway, we published it 360 pages of itin fifty-nine days."As you'll see later, Jack may have been the most controversial guy we ever had in senior management,but he dove right into systematizing things, and he became a great merchant too.
THOMAS JEFFERSON:
"That whole period, Mayer's time of duty, and early Shewmaker, was when we really saw the systemsand computers begin to come into our lives at the operations levelthe store level. We had been usingClass 5 cash registers in all our stores, old hand-crank jobs, you know, which were very slow. Rontalked Sam into buying Singer electric cash registers for the stores, which was a great idea because youcouldn't really have run a business much longer without electric registers. Only trouble was those Singerregisters turned out to be temperamental as hell. Al Miles was the only manager we had who ever reallyfigured out how to work one. So Mayer had the right idea but the wrong register.
"As for in-store computers, you'd have to give Shewmaker the credit for that. Not many of us gavein-store computers much thought. But Shewmaker studied all that stuff, and we would run with whateverhe talked Sam into putting in the stores. It seems like we tried to better ourselves with some new gadgetevery year. That was the beginning of what turned into Wal-Mart's communications system, I guess. Butmost of us were too busy in the stores to even think about where it was all leading."As we moved along in the seventies, we had very definitely become an effective retail entity, and we hadset the stage for the even more phenomenal growth that was going to follow. It's amazing that ourcompetitors didn't catch on to us quicker and try harder to stop us. Whenever we put a Wal-Mart storeinto a town, customers would just flock to us from the variety stores. It didn't take those stores long tofigure out that if they were going to stay in business against this thing Wal-Mart had created, they weregoing to have to go into it themselves. And most of them did eventually convert to discounting. Kuhn'sBig K became a discount chain. Sterling launched its Magic Mart discount chain. And Duckwall wentinto discounting.
Now, most of these guys already had distribution centers and systems in place, while we had to buildone from scratch. So on paper we really didn't stand a chance. What happened was that they didn'treally commit to discounting. They held on to their old variety store concepts too long. They were soaccustomed to getting their 45 percent markup, they never let go. It was hard for them to take a blousethey'd been selling for $8.00, and sell it for $5.00, and only make 30 percent. With our low costs, ourlow expense structures, and our low prices, we were ending an era in the heartland. We shut the door onvariety store thinking.
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