Founder of the Wal-Mart Store - Term Paper Example

?Sam Walton, Founder of the Wal-Mart Store Introduction Sam Walton was a frugal and grounded man. He began his career in retail in 1940, as a J.C. Penney clerk with a monthly salary of $75. In 1945 he opened his first store, a 5-and-10 store in Newport, which lost its lease in 1950. Undaunted, he bought a Ben Franklin store in Bentonville, and by 1962 he had been able to establish a chain of general stores in Arkansas, this time under the Wal-Mart name, with his brother (Douglas, et al., 2007). From then, the business grew, with a culture that imbibed Sam Walton’s down-to-earth philosophy and personal vision, propelling it to be the largest food retailer in the U.S. and one of the world’s most successful corporations that ever existed (Springer, 2010). The company is known to have revolutionized food retailing such that competitors were forced to adapt to the standards of service it had set. What Walton did right Wal-Mart’s main business goal was to deliver big-city discounting to small-town America (Sellers & Barlyn, 1996). The key strategy behind Walton’s retailing model is cost leadership – keeping costs low and prices lowest. He imparted the values of thrift and efficiency in his company, but most important of all was his attention to people, both his customers and his employees. Walton hired personnel with grocery experience for his stores because they knew low-margin retailing best, thereby cutting the learning curve as well as costs. He also created a highly organised supply chain system that kept store shelves stocked with fresh foodstuffs and quality merchandise at low prices (Sidey, 1992) Raised on a strong work ethic, Walton made it a point to personally visit and confer with his store employees when the company was smaller, although this became a problem as the company expanded. Fortunately, Walton also had “a thirst for innovation and a willingness to gamble on new ideas” (Springer, 2010). When his stores expanded to the point where he could hardly visit them by road travel in his old pick-up, Walton took flying lessons, got a pilot’s license, and flew his private plane to the far flung stores. In 1983 Walton agreed to a proposal for a $24 million investment in a private satellite network. The improved communications, which was years ahead of its time, provided Walton with a means to maintain personal contact with each of his stores, a matter he had always emphasised and a cornerstone in the firm’s corporate culture. More than this, however, it also provided a means of gathering and organising data, which had increasingly become difficult to conduct by phone. The satellite network that was operational in 1987 enabled Walton to maintain close personal touch with all the associates, while providing management with daily store-by-store information on sales and inventories. Because of this, Wal-Mart’s sales rose from $8.4 billion in 1985 to $93.6 billion in 1995; by 2005, it hit $288 billion (Hajim, 2005). Most significant of all is the respect and admiration Sam Walton’s leadership inspired. Walton kept a low profile, shared his profits with his employees, and held down his salary to a lower proportion to his employees than executives in other companies did. When the business grew, Walton modified his company’s structure from that of a family business, realizing that a large corporation could not be run in the same way a small business is run. He ingrained in his family that the company is the foundation of their assets, but not the foundation of their income. The family’s real income was produced by their investments developed as an overall corporation supported by the company – not the company’s operations itself. Thus the company was able to keep its costs and prices low (Springer, 2010). What Walton did wrong Sam Walton was not perfect, and he had to learn along the way. Probably his first error (or near error, as it turned out) was wanting to establish his first nickel and dime store in St. Louis. As luck would have it, his young wife refused to live in the city or raise her kids there, and with her father bankrolling the business, Walton was forced to change his plans and to stay in the small town, which fortunately determined his future strategy. Early in the retail business, Sam Walton committed several mistakes: he engaged in dubious buying practices that broke his legally binding Ben Franklin variety store franchise agreement; his early promotional practices were poorly conceived and executed, such as ice-cream machine on the sidewalk, and four pairs of polyester panties selling for $1; and poor judgment in destroying the competition, for which he bought a store across the street to prevent his principal rival’s expansion, though the purchase did not contribute to his business. Finally, he failed to secure an option to renew on his lease, and thus when his lease was up (in 1950), the property owner took over the entire store which workaholic Walton toiled over for years (Brown, 2008). Leadership-wise, Sam Walton emphasized the personal approach, and himself oversaw the stores through high-tech communication (satellite) and transportation (private plane) . The highly personalized style may be an advantage, but it may also be disadvantageous particularly now that the leader is dead. The company did not function in the same way Walton run it; thus, although Walton resigned his post as CEO in 1974, he had to return a scant two years later, in 1976, in order to keep the business momentum. Upon his death, many expressed the belief that Wal-Mart has seen its best years and may begin to plateau (Bus. Strat. Rev., 2003). For some people, what Walton did wrong was not in relation to his business success, but his extreme aggressiveness in cutting off the competition. This resulted in the closure of the entire downtowns of several small towns, with four or five stores closing down, many of them representing a part of the town’s history. Therefore, many ruined small businessmen regarded Wal-Mart’s success with bitter antipathy. Economic principles Several economic principles are involved in the way Sam Walton conducted his business and managed his extremely successful company. First is the law of demand and supply, which describes the relationship between demand, supply and price, where. a reduction in price increases the quantity demanded by customers. Wal-Mart was willing to reduce prices to levels lower than their competitors were willing to go, and so drove them out of business. Secondly, Walton built his empire among the small towns in out-of-the-way places. He noticed there was a strong demand for affordable consumer goods in small rural towns because they were being bypassed by serious competitors such as Kmart and Target. Third, Wal-Mart was able to reduce per-unit costs by streamlining and improving the chain of supplies, to the point that it became highly efficient, minimizing stock-out, carrying and delivery costs. The company maintains a low profit margin so the reduction in costs is passed on to the customer in the form of low prices. Fourth, the company’s cost leadership strategy necessitated a high volume of sales. The increasing volume of sales increases the contribution margin for every item sold, because fixed costs are more widely distributed among the number of products. This is true until the optimal point where variable cost per item approaches the price (or, where marginal cost MC approaches marginal revenue MR). Finally, the use of technology – a qualifier of the supply function – by the company allowed it to reach a new level of efficiency, enabling them to encounter even lower costs which savings are passed on to consumers in the form of low prices. The innovation and technology that allowed the company to communicate via satellite to all the stores resulted in a dramatic rise in sales and reduction in the cost of Walton’s physical trips to each store. From a macroeconomic point of view, the size, geographic expansion, and volume of sales generated by the Wal-Mart stores comprise a significant contribution to the economy’s growth, by bringing the goods produced by manufacturers to the market, creating employment for what are literally thousands of people, and supporting the sustainable conversion of the available factors of production to necessary goods. This should increase the gross domestic product, balance out imports against exports, and help keep inflation in check by increasing efficiencies in the supply chain. Conclusion Sam Walton is probably the most successful businessman in the 20th century. He pioneered the current widespread retailing model, and its distribution channels brought quality goods to small rural communities at affordable prices. These were praised by many, but at the same time also criticized by many. Walton’s strategy and tactics were well planned and executed; however, his personal leadership style has played a significant role in the success of his company until his death. Since then, Wal-Mart arguably had taken increasingly different directions, now as a multinational with an aggressive presence abroad. Also, company officers had been linked to controversies running counter to the company’s culture, with company executives riding in high-priced cars (Neck, 2006). Even customers have complained that the stores are no longer run the way they were during Walton’s watch (Sellers & Barlyn, 1996). Only time will tell if Sam Walton’s legacy will continue to live on as he intended, or if the e nd is inevitable and its arrival just a matter of time. Bibliography Anon 2003 “Sam Walton: on a wing and a prayer.” Business Strategy Review, Winter 2003, Vol. 14 Issue 4, p81-82; DOI: 10.1111/j..2003.00290.x Bergdahl, M 2006 “10 Rules of Sam Walton.” Leadership Excellence, Sep 2006, Vol. 23 Issue 9, p4 Brown, S 2008 “Sam Walton (1918-92).” Fail Better! p36-40 Douglas, E et al. 2007 “At Your Service.” Forbes, 10/8/2007, vol. 180, issue 7 Hajim, C 2005 “1983: Sam Walton explores the final frontier.” Fortune, 6/27/2005, Vol. 151, Issue 13 Neck, J 2006 “Sam’s successors share blame for Wal-Mart shame.” Advertising Age, 12/11/2006, vol. 77, issue 50. Sellers, P & Barlyn, S 1996 “Can Wal-Mart get back the magic?” Fortune, 4/29/96, vol. 133, issue 8 Sidey, H 1992 “The two sides of the Sam Walton legacy.” Time, 0040781X, 4/20/92, Vol. 139, Issue 16 Springer, J 2010 “Sam Walton.” Supermarket News, 12/6/2010, vol. 58, issue 49. Read More

 

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