The Poor Farmer Who Created Walmart
Vocab level: B2
You're not logged in yet, your progress will not be saved!
Login now
or
Create an account
Loading...
Loading...
572 billion dollars,
that's how much revenue Walmart generated in 2021.
With over 2 million people working for the company,
it is the largest employer in the world and the biggest retailer in terms of sales.
But building such an empire was no easy feat.
It all started when a poor farmer who after being told he had no career in the retail business
decided to open his own store.
Sam Walton was born on the 28th of march 1918 in Kingfisher, Oklahoma.
His father Thomas Walton was a farmer
but the farm wasn't generating enough money to provide for his family.
Because of this, the family traveled around the country looking for greener pastures,
moving from one state to another until they finally settled in Columbia, Missouri.
Around this time, Sam had become a teenager.
He helped the family by working a variety of small jobs.
He also watched his mother start up a fairly successful milk business
that involved him milking cows and delivering the milk to customers in the neighborhood after his football practice.
His parents taught him the value of hard work
and also just how much work it took to make a single dollar.
But things weren't great at home for Sam.
His father, Thomas, was almost never with the family
as he was always on the road trying to make extra money where he could.
Because of this, Thomas's relationship with his wife worsened every year.
In fact, in his autobiography, Sam described his parents as the two most quarrelsome people to ever live together.
To escape the troubles at home, Sam engaged himself in sports,
joined the boy scouts and took several leadership roles that kept him busy.
Sam graduated from David H Hickman High School in 1935
and decided to attend the university of Missouri to take his first steps into the business world.
While in school, he worked many odd jobs to support himself
including delivering newspapers and waiting tables in exchange for meals.
Upon his graduation in the spring of 1940, Sam would get his first taste of the retail industry.
He got himself a job as a sales trainee at J.C Penney,
which back then was just a small shop in Des Moines, Iowa.
His starting pay was $75 a week
but this job did not go smoothly for Sam
and he was seen as one of J.C Penney's worst employees.
One thing counting against him was that his bookkeeping was terrible
because he hated making his customers wait while he fussed with paperwork.
As a matter of fact Sam's boss threatened to fire him at one point
and even told him that he had no career in the retail business.
The only thing that saved Walton was his gift for salesmanship
which earned him an extra $25 a month in sales commissions.
When the Second World War reached America in 1941,
Walton was eager to play a role in it.
He quit his job the following year and joined the US army.
The army recognized Sam's natural leadership skills
and selected him to become a member of the military's intelligence corps
where he rose to the position of captain.
The military stationed Sam in Oklahoma in April of 1942
where he met his future wife, Helen.
And after a short period of dating, they got married on valentine's day in 1943.
By the time the war was over in 1945,
Walton had a wife and child to support
and so, he decided to start up his own retail business
with a $20,000 loan from his father-in-law
and $5000 from his own savings.
Sam bought a Ben Franklin store in Newport, Arkansas.
It's important to note that millions of small stores had failed during the course of the 20th century in America.
And when Sam bought this particular store, it was losing a lot of money.
Not only did Sam invest in a store that wasn't bringing in much money
but he was also paying far too much for it.
The rent for the store was 5% of the sales.
And initially, this sounded fine to Walton
but after signing the lease
he discovered that it was the highest rate anybody had ever paid for a variety store business.
Despite all of his obstacles, Sam succeeded beyond everyone's expectations.
He studied all the typical rules of retail
and then broke the ones he thought didn't make sense
which for him was nearly all of them.
When Sam bought the Ben Franklin store
he was required to buy all his goods from company outlets
but he knew he could find cheaper merchandise elsewhere.
So he found a clause in his contract that allowed him to buy his merchandise from somewhere else
and then he would reduce the cost of his goods way below what other shops were selling them for.
He made his profit on volume rather than margin
but it took him nearly a decade to fully appreciate the power of that idea.
Nothing Sam did was extraordinary, neither was he a genius.
And while there's no question that he was business smart.
The real reason for his success was his main policy to make the lives of his customers easier.
And because he did that, more and more people bought from him.
Once things were going great for Sam and his business,
he asked his brother, Bud, to join him
and together they were able to run the store more smoothly.
The Butler brothers, who owned the store Sam had leased
were not happy with the fact that the Waltons were getting their merchandise elsewhere
but they couldn't say much about it.
Because the numbers Sam was generating were unmatched anywhere,
his sales had increased by more than 45%
reaching $105,000 in his first full year of ownership.
The following year, the number increased again to $140,000.
And by the third year his sales increased by another 25%
reaching $175,000 after only three years in the business.
Sam was able to repay the 20,000 dollar loan his father-in-law gave him in full.
And two years later Sam had become the leading variety store owner in Arkansas
and likely in the neighboring states as well.
But the truth is, it wouldn't matter anyway
because the business was destined to fail.
You see, when Sam Walton signed the lease for his store back in 1945,
it contained no renewal clause.
Options to renew were typically standard features of leases.
So when Walton's father-in-law found out about this oversight,
he was shocked that Sam could have made such a mistake.
Walton had not only built one of the most successful businesses in Newport
but he had invested his body and soul into the business and the town.
And his wife, Helen, equally loved the town
as three of their four children were born there.
In his autobiography Sam Walton is quoted saying:
"it was the lowest point of my life, I felt sick to my stomach."
"I had built the best variety store in the whole region and worked hard in the community,"
"done everything right and now i was being kicked out of town."
After being kicked out of his own store
Sam Walton was eager to start again
but this time he was determined to do it the right way and better than ever.
He began to search for a new destination to buy another store
until he found one in the tiny community of Bentonville, Arkansas.
It was here where Walton set up his second shop in the town square
and this time he insisted on a 99-year lease.
Sam opened his new store in the summer of 1950 and called it Walton's Five And Dime.
The Walton family often heard people whisper amongst themselves saying:
"well, we'll give this guy 60 days, maybe 90, he won't last that long".
But Sam would prove them wrong.
At the time, there were two other variety stores in town
but neither of them offered the consistent low prices that Walton did.
So, when Walton finally opened his store,
it changed the lives of the people in the Bentonville community.
During the 50s, America's economy was looking great
and Sam took advantage of it.
He kept finding new ways to reduce the prices of his goods and keep his customers happy.
One day, Walton learned about self-service in the retail industry.
The concept was simple,
rather than have his sales clerks get goods for his customers,
customers could Walk into the store get the goods themselves and pay at the entrance.
Walton immediately fell in love with the idea.
This meant he could have fewer employees and further reduce the cost of his goods.
Not only did this new trick work perfectly
but it also tripled his income in less than a year.
With more money, Sam had the funds and resources to further expand his business.
For the next few years, Sam went on to open one store after another.
And by the end of the 1950s, Walton was a proud owner of 15 stores
which he had acquired using borrowed money and profits from his stores.
But Sam still felt that he wasn't making as much profit as he should
for the kinds of work he was putting into his business.
So, he decided to adopt a new strategy
and this new strategy would change everything.
"We exist to provide value to our customers"
"which means that in addition to quality and service we have to save them money."
Walton's idea was to build big stores that discounted everything they stocked
and to place them in small towns.
By dramatically slashing his prices,
he would undercut his competitors and make up the difference in price through a higher volume of sales.
This idea was already being practiced across the country
but the difference was that the discount stores tended to be small
and were located in the cities
and most of them only offered discounts for specific items, not their entire stock.
It was risky and he needed a lot of money to make it work.
Sam initially approached the company that franchised Ben Franklin stores with his idea
but they refused to back him
especially because his idea meant that they would have to cut their standard wholesale margin in half
to accommodate the low prices he wanted to charge.
With nowhere else to go, Walton decided to take a big gamble,
he mortgaged his home, borrowed a whole lot of money
and opened his first Walmart store in Rogers, Arkansas in 1962.
Customers were thrilled that they didn't have to travel all the way to the city to get discount prices on goods.
They flocked to Walmart's stores in droves and the company's sales rose tremendously.
In those years, Sam kept learning from his competitors
and developed new ways to further reduce the prices of his goods.
He replaced the wooden shelves in his stores with metal ones
as they were cheaper and more durable.
Another strategy he came up with was to keep his stores open for longer hours than his competitors.
This was something only Walmart was doing and it helped him generate more money.
He also made sure his customers had big parking lots
and unlike his competitors, he never collected a dime for parking spaces.
Until 1969, Sam Walton had funded the expansion of his business through profits and borrowing money
but in 1970, he decided to take the company public.
The initial offering generated about 5 million dollars
and allowed Walton and his family to retain about 61% ownership of the stock.
The money afforded Walton the opportunity to pay off the debts he owed to banks
to pay back loans from friends
and to move forward with his next ambitious plans for the country.
Between 1970 and 1971, Walmart added six more stores
followed by another 13 stores in each of the next two years.
Then 14 and then 26.
By the end of 1980, Walmart had a total of 276 stores
and from then on they were opening about a hundred stores per year.
Sam believed that the rapid growth of Walmart didn't just come down to their low costs that attracted customers
but was also due to the work of his close associates.
Sam made his associates partners and made sure that they benefited from cash bonuses and stock options
and this gave them a chance to take part in the growth of his business.
Walton also made sure that his stores were close to warehouses
in order to permit one day delivery of goods
while also minimizing advertisement costs.
Another innovation was the decision to buy directly from manufacturers
rather than through wholesalers
which allowed him to lower his prices even more.
By the end of the 1970s,
Walton had built his store into the fastest growing and most influential force in the retail industry.
Things were going so great for the company
that one investor who bought $1650 worth of Walmart shares in 1970
saw his shares rise over $700,000 by 1987.
In 1983 Walton made another terrific business move.
He launched the first of his Sam's wholesale clubs
which were aimed at small business owners and others who wish to buy goods in bulk.
Once again Walton had struck gold
and by 1990, Walmart had more than 1000 stores and 150,000 employees working for the company
but Sam had his fair share of people and groups who disliked him and his retail business.
He has often been criticized for competing with small retailers and putting them out of business.
Sam Walton himself acknowledged this by saying:
"the small stores were just destined to disappear, at least in the numbers they once existed"
"because the whole thing is driven by the customers who are free to choose where to shop".
Sam Walton died on the 5th of April 1992.
He was 74 years old
and at the time of his death, Walmart had annual revenues exceeding 104 billion dollars.
Today, Walmart has grown to over 10,500 stores
and generates well over half a trillion dollars in revenue per year.
- Next exercise: These Hairworms Eat a Cricket Alive and Control Its Mind
- Previous exercise: How Instant Ramen Became an Overnight Success