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.
Introduction
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. (Garys, 2002)
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. (McDouglas, 2001)
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. (McDouglas, 2001)
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. (Powers, 2002)
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. (Powers, 2002)
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. (McDouglas, 2001)
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. (Garys, 2002)
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. (Forbes, 2002)
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. (Forbes 2002)
