Sunday, July 20, 2008

Influencing Wal-Mart

The one aspect of the Wal-Mart story that I find most fascinating was Sam Walton’s study of the discount store industry, in the years both before and after the launch of his namesake chain. In his autobiography, Walton describes his adventures visiting discount stores all over America. “I ran the country, studying the discounting concept, visiting every store and company headquarters I could find”, he wrote. Starting in the New England area, which was in many ways the birthplace of the concept , Walton worked his way from coast to coast.

Most often, due to Walton’s humble, disarming approach (“Hi, I’m Sam Walton from Bentonville, Arkansas. We’ve got a few stores out there, and I’d like to visit with Mr. So-and-So” – whoever the head of the company was- “about his business”)and the lack of any perceived competitive threat (which of course was the case at the time), discount chain presidents everywhere were all too happy to escort Sam on a tour, showing off their empires. It was a chance to impress a small-time operator from the sticks.

Walton accurately describes the make-up of the industry at the time as largely composed of “promoter” types – wholesalers or real estate promoters with little interest in the merchandising business who saw an opportunity to strike it rich. “They would take a carbon copy of somebody’s store in Connecticut or Boston, hire some buyers and some supervisors who were supposed to know the business, and start opening up stores. From about 1958 to 1970, it was phenomenally successful”.

The frugal Walton took note of the lifestyles of the discount chiefs, many of whom lived like Roman emperors – private jets, Cadillacs, cadres of servants and so on, living off the "discounting fad" while ignoring the condition of their stores and the quality and attitude of their customer service. Many of them just became lazy, unaware while their businesses slowly deteriorated. By the beginning of the 1990’s, as Walton pointed out referencing a then recent trade magazine article, 76 of the top 100 American discount stores that were in business in 1976 no longer existed. Of course, in the 16 years since Walton’s passing, the remaining count of 24 has been severely pared down as well.

Aside from these “good examples of bad examples”, as Sam might have put it, there were some individuals for whom he developed great respect - John Geisse, who played a key role in the founding of Target and Venture was one, but at the top of Walton’s list were Harry Cunningham, former S.S. Kresge president and father of Kmart, and Sol Price, the founder of Fed-Mart and Price Club.

It’s highly likely that had Kmart not existed, Wal-Mart couldn’t have. Walton, an ardent admirer of the (early, at least) Kmart merchandising style, considered Kmart his “laboratory” and claimed to have visited more Kmart stores than anyone, even while on vacation, as his wife Helen, as quoted in Robert Slater’s The Wal-Mart Triumph attested: “Sam never went by a Kmart that he didn’t stop by and look at it”. In time, Walton gained Cunningham’s respect as well. Long after his 1972 retirement from Kresge, in what certainly ends up sounding like a backhanded slap at his old company, Cunningham was quoted in Sam’s 1992 autobiography – “From the time anybody first noticed Sam, it was obvious he had adopted all of the original Kmart ideas. I always had great admiration for the way he implemented – and later enlarged on – those ideas. Much later on, when I was retired but still a Kmart board member, I tried to advise the company’s management of just what a serious threat I thought he was. But it wasn’t until fairly recently that they took him seriously”.

Sol Price, one of the best known early proponents of the “warehouse store” concept, was a huge influence on Walton in a couple of key areas. Price, still kicking at age 92, founded Fed-Mart in 1954 as a membership warehouse store in San Diego. Eventually, Fed-Mart would grow to a 45-store chain with locations in California, Arizona and Texas. Price sold the chain to a German firm in 1975 and with his son Robert founded The Price Company, another warehouse store operation whose stores went under the name of Price Club, the following year. In 1993, he would merge his company with Costco.

For starters, Sam liked the sound of the name “Fed-Mart”, a fact often cited among the stories about the origin of the Wal-Mart name. To be sure, however, Price’s most notable influence on Walton was in regard to the warehouse store concept itself. In 1983, some months following a dinner with Price and their wives in San Diego, Wal-Mart launched its first Sam’s Wholesale Club in Oklahoma City. Despite this new competitive relationship, the two men maintained a warm personal friendship, as evidenced (and possibly tested) by a story Walton related in his book. Sam, on one of his competitive store visits, browsed the Price Club store on Morena Avenue in San Diego, tape recorder in hand, noting prices and other details about the store. Stopped by a security guard who demanded the tape, Walton obliged, asking to write a note to Robert Price about the tape, which also contained observations from other area stores. A few days later, Walton received the tape in the mail, none of it erased, accompanied by a friendly note from Price. Now, that's a friend!

The photos above are circa 1972.

17 comments:

  1. Sam Walton's down to earth style and downhome demeanor could easily diffuse any competitors worries that he would be a threat. It was likely that demeanor that resulted in J.C. Penney and Ben Franklin not taking his discount store concept as seriously as they should have when he presented his ideas.

    The non-threatening retail whiz from Arkansas even earned a place on Winn-Dixies board, a stint that encouraged him to enter the food retailing business that ultimately resulted in the Walmart Supercenter of today and became possibly one of Winn-Dixie's greatest contributors to its ails as the new century approached. I'm sure the centralized buying network at W-D and family approach of the Davis' was an influence to Sam as well. Keep in mind Winn-Dixie often ran at higher margins than Safeway and Kroger due to its financial conservatism, which made the chain more slow to react to the Wal-Mart juggernaut that was born in its own backdoor.

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  2. Ken- I agree, based on everything I've read and fleeting memories of different TV interviews I saw of him, he was diplomatic and humble. Even after Wal-Mart began to trounce some of these companies, they didn't seem to hold it against Sam personally. In the case of Ben Franklin, another factor that played a big part,though, was their unwillingness to accept the discounters' typical margin of 20-25% or so vs. the standard variety stores' 35-40%.

    I didn't know that Sam was on the Winn-Dixie board. That had to make for some interesting board meetings, as the Davises came from similar humble beginnings. Winn-Dixie's conservatism served it well in their early years. All of their early expansions, right up to the time the gov't ordered them to stop all acquisitions in the mid-60's were on a cash basis.

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  3. Chains like Fed-Mart (along with Gov-Way, Fedco, and GEMCO) originally were founded to serve Federal Government employees, who were paid less than civilian employees in the 50s-60s. Later on FM dropped its membership requirements and became a standard discount chain (with grocery departments)

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  4. Anonymous - Thanks, and you can add the GEM and GEX chains to that, also Unimart in California. Fed-Mart first tried the "open" arrangement on two of their stores, Anaheim and Long Beach, before making the decision to drop the membership requirement chainwide.

    I've got a copy of an early 60's Fed-Mart ad that's hilarious in that it shows how much they'd loosened the criteria for membership in order to get more people in the stores - Homeowners, Members of the Armed Forces, Local, State and Federal Government Employees, Employees of Public Utilities (including railroads and airlines, bus and truck drivers!), Licensed Professionals (doctors, lawyers, CPAs, architects, engineers, etc.)were all eligible. Before long, you probably could have signed your cat up!

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  5. Just a comments from your mention of Price Club, I remember Price Club opening in California in the 1980's and they had membership requirements like yo had to be a member of a credit union or worked for a public entity. I recall this since my father worked for a Transit District and Price Club would promote flyers at the bus yards. I also recall them adding a 5% fee to purchases?!? They were very bare-bones stores with mainly bulk food and household items.

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  6. Mr. Bluelight - (great name!)
    Thanks for the comment!

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  7. I too remember Price Club. I recall going to one in the early 1990s in Chicago. We onl;y went once and I don't remember anything special. I had always wondered what the heck happened to them. Now I know they were bought out by Costco.

    Another thing I wanted to say about Sam Walton was that he had a heck of a lot of determination. That is a true strength and virtue in his character.

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  8. I went to my first Wal Mart in 1981 in Jackson MO. My great aunt raved about their prices and would stock up on food, cigs, etc.

    Had no idea they'd be the #1 store chain!

    But then Sears and K Mart once were flying high.

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  9. These old store photos bring back so many memories. Even though I had never heard of Walmart until they had taken over the closed Woolco in my hometown in 1983, these pictures remind me so much of some other discount stores I went to in the 70's when I was kid. Does anybody remember TG&Y, Howard Bros? There was also this other local chain that was in south Louisiana called West-Gipson Discount Store. It might have been called Gipson Discount Stores in New Orleans, I am not sure. They had a location in Gonzales, LA, where I am from. Anyway, these old photos of the interior of the early 70's Walmart store reminds me so much of all these stores. What a great find!

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    1. I remember Howard Brothers. I'm from West Monroe and the headquarters were in Monroe. Jack Howard had been the mayor of Monroe, LA. Google him and you should get some info. He and his brother Alton started Howard Brothers. I remember "Howard's Brand Discount" with the red and green sign. Here in town we had 5 stores. Plus the Howard family had a publishing business (still operating - a few years ago it was sold to Simon & Schuster) and also the Howard's had a really awesome jewelry store Called Howard Jewelers. The jewelry store went out of business in 1989.

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  10. Didi- The company was actually called Price Costco for a while, though I'm not sure that any of the stores were identified by that name.

    Regarding Sam Walton, strength and virtue in his character, for sure.

    Tomcat - I don't think anyone, even those who lived in the early Wal-Mart areas, would have dreamed they'd become number one!

    Jamie B - TG & Y was pretty widely known, but I'm unfamiliar with the others you mention. Hopefully some other Louisianans can chime in. Thanks!

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  11. Hi Dave; Great article about Price Club. As a former Costco employee (19 years) I have lots of memories of the competition which turned into the connection between the two companies. Costco as well had the "membership criteria" at the beginning - business owners/licensees in one group, selected occupations in another. Eventually all that was dropped in favor of a straight membership fee. Costco's co-founder, Jim Sinegal, used to work for Sol Price as an executive and wanted to start his own company. Sol gave Jim encouragement and advice and let him go - not a typical reaction from CEOs in those days. The only tiny correction to the article is that the Price Club Sam Walton visited in San Diego is on "Morena Boulevard"; it's their original store site. Sam also came by a couple of Costco stores to visit as well.

    Great site! I grew up in the North Seattle / Snohomish County area and my memory chip includes such venerables as Valu-Mart (an early membership store, I think it was just a few dollars per year) and WigWam Stores. Thanks! woodway77

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  12. Woodway77 - Thanks so much for your comment, and I have corrected the street name spelling on the post.

    Everything I've read about Sol Price gives me the impression that he's a true class act, and Jim Sinegal has done an absolutely brilliant job with Costco. He has done the difficult in surpassing Wal-Mart on the "wholesale club" front.

    I've heard of WigWam stores, but need to read up on Valu-Mart!

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  13. I loved going intothe huge govway dept stores in the 60s in arizona can anyone tell me what happened to them? Iheard Sol Prices stores fedco-priceco turned into costco
    storeswhat happened with govway?
    Any info would be appreciatedthank you

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  14. Emma - Govway is one of those chains that is hard to find info on, but I'll let you know what I dig up! From what little I've found on the web, it sounds like they were a large store along the lines of a White Front or Topps (both profiled here on this site), with sporting goods, electronics and groceries among other departments. I would guess from the name "Govway" that they were a membership dept. store that catered to federal/state employees like G.E.X. Correct me if I'm wrong on that. To answer your question, I don't know what happened to them!

    After he sold FedMart, Sol Price went on to start Price/Costco, forerunner to the modern day Costco.

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  15. Love your blog, what great pictures, I am linking it to a blog post on my site. Walmart was such an incredible influence in our lives as teenagers, it was the meeting place to hang out on the parkin lot & talk! Thanks for the memories
    Sheila
    http://www.newsouthernpantry.blogspot.com

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  16. These pictures really bring back memories. Especially those mannequins! I remember in the 80s every Walmart would have them in the fabric section. But they got rid of them by the late 90s, I guess because they were too difficult to maintain and dress, and the store evolved more into a "supercenter" than a goods store.

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