Tuesday, September 23, 2008

Samuel Walton (1918 – 1992)

Wal-Mart is evil. Wal-Mart has no soul. Wal-Mart kills the “Mom and Pop” shops. Wal-mart…well, Wal-Mart is the devil.

So how can Wal-Mart’s founder, Sam Walton be a HERO? Am I crazy?

Wal-Mart offers lower prices. Wal-Mart is wildly successful. Wal-Mart has a cost-advantage. Oh…there it is.

Sam Walton began with a single store, and concentrated on building a better mousetrap in the retail industry. He stayed open later, bought from the lowest-cost suppliers and consequently offered lower prices. This, of course, brought in customers. This increased volume allowed Walton to negotiate even lower prices, and his empire began to grow. He used ideas like volume discounting, extended hours and self-service to streamline the retail process and provide goods at a lower cost than his rivals.

This commitment to discounting allowed Walton some early success, but other retailers followed similar strategies in the 1960’s, and Walton was at that time, just one of many discount retailers. Walton remained committed to the idea of discounting and providing goods at a lower cost than any competitor and this focus led him to many innovations.

Walton was one of the first retailers to embrace computerization. It was this dedication to efficiency through access to information that led to Wal-Mart’s use of an innovation that is now known as “Just-in-Time” inventory control. The idea behind Just-in-Time inventory control is that by providing goods to a store immediately as the need arises, inventory costs can be lowered dramatically. This, of course, requires a great deal of information, but Walton’s early commitment to computerization made accessing this level of information possible. Walton’s strategy of centralizing his store locations between communities and providing a single large store, rather than several smaller ones also allowed him to access lower costs and consequently provide lower prices.

Sam Walton’s desire for innovative ways to cut costs remains in place at Wal-Mart even after his death. Starting in 2005, Wal-Mart began using suppliers who were willing to incorporate radio-frequency identification (RFID) tags into their shipping containers. These RFID tags emit a signal that can be scanned by and inventory management system. This technology allows inventory management to become even more streamlined, lowering costs even further. RFID tags have quickly become standard practice for all large retailers because of the incredible savings they provide.

Recent events have placed Wal-Marts labor practice under scrutiny. But to those who look to criticize Sam Walton’s labor practices, he is also credited with being an early provider of profit sharing, stock options and employee discounts.

Walton’s approach is not beloved by all (see above), but its success cannot be denied. Walton was named the richest man in the U.S. from 1985 to 1988. And nothing signals success like imitation. Retail giants like Home Depot, Barnes & Noble, Blockbuster and Target have built their empires following many of the ideas and innovations of Walton and Wal-Mart.

Many studies have been undertaken to attempt to determine whether or not the presence of a Wal-Mart means an increase or decrease in employment or an increase or decrease in small business opportunities, with varied conclusions being drawn. But one thing that cannot be denied is that Wal-Mart has brought lower prices to a large portion of the country, and Walton’s business practices have become standard practice in many other companies in many other industries, which only expands his influence. Simply understanding that people want lower prices and finding innovative ways to provide them made Sam Walton a Hero of Capitalism.

Sam Walton – one of Time Magazine’s 100 most influential people of the 20th Century.
Sam Walton Biography
Walton’s Wiki

1 comment:

Brian said...

What an awesome idea for a blog - I wish I'd found this sooner.

If you can find them, Edwin Locke's recorded lectures on Wal-Mart are great fun, showing a bit more about Sam. There's probably even enough material there for another entry or two.