Wal-Mart

The founder of the Wal-Mart chain, Sam Walton was born in March 1918 in the town of Kingfisher, Oklahoma. Graduating from the University of Missouri, Sam enlisted in the Army for the World War II effort. Upon his return, Sam worked for a while at the J.C. Penney group of stores. He began to realize that opportunities existed in the large scale discount retailing business (nickel and dime stores). The idea and business philosophy of Wal-Mart borrowed from the nickel and dime stores of earlier times, and consisted of getting National Brands in bulk at a discount based on volume purchases; the company would then stamp its mark and resell the goods at a slight markup, this rate being however less than the other competing Mom and Pop stores across the USA. This philosophy was so successful that it has eventually led to Wal-Mart's becoming the single largest private employer across the USA.

Sam Walton opened his first Wal-Mart store in 1962 in Arkansas, specializing in name-brands at low prices. The chain of Wal-Mart stores eventually sprang up all across rural America. Wal-Mart went public in 1970. A decentralized distribution system spurred further growth in the 1980s. By 1991, Wal-Mart was the largest U.S. retailer with 1,700 stores. The company is today Number One in the list of Fortune 500 firms and the Walton family is one of the richest on the planet, surpassing even Bill Gates, with a worth of US$ 65 Billlion.

Sam Walton remained active in managing the company, as President and CEO until 1988 and Chairman until his death in April 1992. However, his legacy remains entrenched in the corporate philosophy. Lee Scott, a 25-year company veteran, is the current CEO, with the Walton family on the Board of Directors.

BORROWING FROM THE K-MART BUSINESS PHILOSOPHY:

Sam Walton was known to be a conservative on the issues of family, religion and government. Yet in the sphere of business, he was a radical trend-setter. Choosing to be innovative and aggressive, the founder of Wal-Mart took the large scale discount retailing business to new heights and down new avenues. Sam borrowed a lot of ideas for his early stores from Kmart and others. But it was what he chose to do differently - the ways he put his own stamp on the basic business model - that made Wal-Mart so fabulously successful. His model was the same as Kmart's, but his strategy was unique.

From the very beginning, Walton chose to serve a different group of customers. At that time, the 10 largest discounters (in 1962) focused on large metropolitan areas and cities like New York. Wal-Mart's key strategy was to put good-size stores into little one-horse towns which everybody else was ignoring. He sought out isolated rural towns with populations between 5,000 - 25,000, and correctly bet that if his stores could match or beat the city prices, people would shop at home. Since Wal-Mart's markets tended to be too small to support more than one large retailer, eventually the small local competitors went out of business, making the whole area Wal-Mart territory.

Wal-Mart also took a different approach to merchandising and pricing than its competitors. While competitors relied heavily on private label goods, second-tier brands and price promotions, Wal-Mart promised National Brands at everyday low prices. The company pursued efficiency and reduced costs through innovative practices in areas such as Purchasing, Logistics and Information Management.

Wal-Mart offers branded goods for less to a carefully chosen customer base. Compared to this, Kmart, once Wal-Mart's main competitor, went into bankruptcy and failed because it tried to be all things to all people. Kmart failed to find distinctive ways to compete.

WAL-MART'S HR POLICIES:

The key principles of Wal-Mart's HR policies flow from the idea of Giving More Value to the Customer. Recognizing that the customer is king, Walton exhorted his managers and employees to provide the best possible customer service and assistance at all times. Employees and managers alike know that they are operating on narrow profit margins. Walton was among the first to develop a Corporate Culture where employees and managers were rewarded in terms of Stock Ownership. This in turn built loyalties among the workers and encouraged them to work harder.

Walton was totally against Wal-Mart's Unionization. He thought that Unions were a needless nuisance, interested in following their own agenda. Rather than working for the employees, in his opinion Unions drove a wedge between management and employees. They feed on the earnings of both management and labor, adding to the cost of running a business. Moreover, a few prized workers and Union leaders could get by with little or no work, thereby setting a bad example for the rest of the group. Unions broke down direct communication, made it harder to take care of customers, to be competitive, and to gain market share. Right from its inception, Wal-Mart has fought tough battles to stay non-union.

True to its philosophy, while Wal-Mart scoured the marketplace for the best prices on everything, it also kept a relentlessly tight rein on expenses. Executives bunked together on buying trips and passed up gifts from suppliers, because those perks ultimately drove up the price of goods. Walton himself kept his front office lean and mean. The company never spent more than 2 percent of sales on administrative costs, less than half the industry average.

HOW IT HAS CHANGED: THE COSTS OF DOING BUSINESS:

Wal-Mart has been one of the most successful companies in American business. But it is not without its critics. Analysts say that the entry of Wal-Mart into a locality can result in unemployment and drudgery- for nearly all of the local suppliers are driven out of business.