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. It would be well for
city planners and local government to consider
these costs before letting Wal-Mart come in to
a particular locality. The wages at Wal-Mart are
some of the lowest in the industry. Wal-Mart capitalizes
on hiring immigrants or retired senior citizens
at low wages. In this way, it can both control
costs and exploit the workers. Another shady practice
is to secretly buy insurance policies for its
aged employees, and encash the same after their
demise if any. Any small to medium sized supplier
doing business with Wal-Mart eventually becomes
a captive due to volume of business. Meanwhile,
Wal-Mart in its
relentless efforts to control costs, then asks
the supplier to cut down their supply prices.
The competition is not only unhealthy for the
suppliers; the competitors have also been drawn
into it. Competitors also operating on the low
profit margins are forced to drop down their wages
and costs even further to stay in business. Thus
the fate of suppliers, workers and employees all
hang in the balance. On the other hand, supporters
of Wal-Mart say that its entry into an area of
unemployment or under-development can be a boost
for the local community. It sparks up economic
activity, as other businesses also move in and
set up in adjacent areas, no doubt assured of
customers who would flock to Wal-Mart.
In recent years to cut costs, Wal-Mart has switched
to outsourcing some product lines. Even here, Wal-Mart
takes full advantage of the weak or almost non-existent
labor laws in undeveloped nations. Employees in
poor Asian and Latin American nations are forced
to work in laborious conditions just to make ends
meet. These poor workers never know their true employer,
only the middleman. Wal-Mart has scant regard for
these outsourced workers.
Despite the charge that Wal-Mart doesn’t
pay sustainable wages, the company has little
trouble recruiting, in part because the gap between
its pay and union wages is offset by the other
benefits that a growing company like Wal-Mart
offers workers, especially in the form of advancement
and stock benefits. Wal-Mart promotes heavily
from within. More than two-thirds of its management
started out working in its stores.
Regardless of the campaign against it, Wal-Mart
is generating enormous support in many of its
newest markets, especially in lower-income urban
areas where shoppers often have few choices among
stores, and where prices are typically high—especially
for groceries, which account for so big a percentage
of low-income budgets.
All these attacks downplay Wal-Mart’s many
virtues. It has never been accused of funny accounting.
It doesn’t load its executives with exorbitant
salaries or perks. Despite its market power, it
doesn’t charge vendors “slotting”
fees—bribes to stock their goods. U.S. executives
voted Wal-Mart America’s most admired company
in Fortune magazine’s annual survey. Manufacturers
ranked Wal-Mart the best retailer to do business
with, while nearly three in ten shoppers surveyed
by the WSL Strategic Retail consulting firm voted
Wal-Mart their favorite store.
Wal-Mart faces a growing number of potentially
costly class action lawsuits, exemplified by a
sex-discrimination suit brought by the Cohen,
Milstein, Hausfeld & Toll firm. The suit is
a collection of anecdotes of individual female
employees—many of whom received poor evaluations
and were turned down for promotion. They now claim
that Wal-Mart managers have frustrated their career
ambitions. A few other cases involve accusations
of supervisors making discriminatory remarks toward
female employees—entirely possible in a
company with more than 1 million employees, but
hardly amounting to a company-wide pattern of
discrimination. Wal-Mart has succeeded like no
other company in understanding what consumers
want and giving it to them. Despite Wal-Mart’s
years of success, the future looks even more favorable
for the company.
|