Legendary Walmart - The success
story
One day in just about all of the
9,300 residents of Bentonville, Ark.,turned out to toast the neighbours who
created history in their town by their dedication and hardwork. It was Sam and
Helen Walton,s Appreciation Day. A rousing parade with bands and floats had
been organized to honour the locals who changed the course of retailing and the
town they called home. Portraits of the couples everywhere. The newspaper
printed a special souvenir edition. President Reagan phoned to offer
congratulations. And a retail shop “Five-and-dime” store in their town.
Forbes magazine declared him
America's richest man.How and why he became "King of Retail"? What
magic wand he found? It is certainly a hair raising story and a matter of Case
study for new entrants in this domain.Yes it is Samuel Moore Walton popularly
known as Sam Walton the man behind Wal-Mart Stores Inc.
Walmart -
The success story of Samuel Moore Walton and How did it become the most
powerful business Empire worth $559 Billion.
This is the story of a man who
went from being an ordinary salesman to becoming the retail billionaire of
America. Today his family is worth $215 billion. The iconic businessman is none
other than Mr. Samuel Moore Walton and the company he started is known today as
the retail giant Walmart.
Today, Americans spend $46
million dollars at Walmart every single hour for 24 hours a day, 365 days a
year. Walmart employs about 2.2 million people and in 2021 alone Walmart has
generated a profit of $1.5 million dollars every single hour!
What was so special about Sam
Walton that he was able to build such a gigantic business empire?
This story dates back to America
in the late 1940s when World War II had just ended. Just like any other
post-war situation, the economy was bad and the Walton family, like many other
people, struggled to make ends meet in the recovering economy. Walton worked
multiple jobs throughout his teenage years and early 20s to pay for school and
college. He sold newspapers, worked in retail stores, and waited tables, and
given the nature of his job, he got the opportunity to interact with a lot of
people from diverse backgrounds.
Through those conversations,
Walton was able to understand the operations of several businesses in the
market. While working at a retail store, he took the initiative to study the
rest of the competition although it wasn’t a part of this job. This ability of
his to go the extra mile helped him understand the retail market, and when he
gained enough confidence, he borrowed some money from his father-in-law along
with his own savings and took up a franchise of a retail chain called Ben
Franklin.
His retail journey begins from
here. A franchise model like Ben Franklin came with a lot of restrictions
although he had the liberty to use the brand name. He had to buy 80% of the
products from Ben Franklin, otherwise, he wouldn’t get a rebate. He also had to
spend a specific amount of funds on advertising and even hire a certain amount
of people. All of this gave him only 6-7% profit and a revenue of only $72,000/
year. Whereas, his competitor was generating a revenue of $150,000/ year. This
inspired him to visit every single store nearby and he spent hours at his
competitors’ stores studying their marketing strategies.
During this tedious process of
examining his competition and studying the retail market, Sam Walton learned 3
very important things that helped him become one of the richest men in America.
The first thing he learned was
the power of something called discounting. Discounting is a technique of
selling products at a lower margin in order to maximize the sales volume. For
example, if 100 t-shirts are sold for $3 each with a profit of $1, then the
total profit is about $100. Now, using the discounting method the same t-shirts
are sold at $2.5 each with a profit of $0.5 per piece. But the volume of sales
of the t-shirts had increased to 200 due to its low cost. Although both these
methods had the same $100 profit, the discounting method had some incredible
benefits.
The first benefit was that
discounting resulted in more volume in sales. This meant more people brought
products at the store and hence, increased the footfall (more visitors).
Secondly, the inventory moved in a flash. If you’re a retailer who can quickly
sell your current t-shirts, you can get new t-shirt designs in stock which
would again attract more customers. Faster inventory = new stock. And lastly,
more bargaining power with sellers. You as a retailer could get a better
bargaining power with the sellers if your inventory moved faster. For example,
if the other retailers buy 10,000 units, you could buy 20,000 units because of
your accelerated sales volume. Using the bigger purchase order, you could ask
the seller to reduce the price by 10% which could give you 10% extra profit
even with the best prices.
For a small store, that’s only a
10% increase in the margin along with a discount for customers. But when
Walmart scaled up using the same principle, it became powerful enough to
dominate the sellers. For example, in the present day, a wholesaler sells 20,000
units to a normal retailer for $5 with a $2 profit. Walmart will place an order
for 2 million units and ask the seller to sell it at $3.5. And it being a huge
purchase order, it gives the wholesaler more profit so they usually agree.
Now, when the normal retailer
prices per unit at $7, Walmart puts a price tag of only $4.9. This means the
selling price of Walmart is lesser than the cost price of the normal retailer,
making it impossible for the normal retailer to compete with Walmart. Hence,
Walmart gains a healthy profit of $1.4/unit and generates millions of dollars
in profit without competition.
Initially, Sam Walton could apply discounting to only 20% of the goods due to the franchise restrictions. But later, when he opened his first Walmart store, this aggressive pricing strategy of discounting accelerated the growth of Walmart and made them millions of dollars in profit. This is the first reason why Samuel Walton became incredibly successful and that is the power of discounting.
The second attribute that made
Walton successful was market research. He visited almost every single retail
store he could find in America and studied their marketing strategies. During
this process, he observed that every successful retailer, knowingly or
unknowingly, had an aspect that attracted more people to their store. ..........contd. in II
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