Sam Walton: King Of The Discounters

The legendary retailer relentlessly studied and borrowed from rivals

As part of its anniversary celebration, BusinessWeek is presenting a series of weekly profiles for the greatest innovators of the past 75 years. Some made their mark in science or technology; others in management, finance, marketing, or government. In late September, 2004, BusinessWeek will publish a special commemorative issue on Innovation.

In 1967, a lean, tanned visitor from Arkansas came to see Kurt Barnard, then the head of a discount retailers' trade group in New York. Barnard recalls promising the man 10 minutes. But for more than two hours, the intense Sam Walton grilled him on every aspect of discounting, taking notes all the while.

Walton already showed the drive that would turn his Wal-Mart (WMT ) discount chain into the world's largest company. His simple business model, with its fanatical focus on low costs and low prices, changed the way Americans shop. But the chain's impact goes beyond cheap underwear. With its unparalleled size and efficiency, Wal-Mart Stores Inc. has dampened inflation and driven productivity gains throughout retailing and manufacturing. It also has been attacked for holding down wages, hastening the shift of production jobs overseas, and decimating small-town merchants.

Born in Kingfisher, Okla., in 1918 and raised in Missouri, Samuel Moore Walton stumbled into retailing. He honed his competitive drive on the high school football field. At the University of Missouri, where he earned a business degree in 1940, Walton waited tables, worked as a lifeguard, and managed newspaper routes, earning more than $4,000 a year. He contemplated business school but couldn't afford it. So he took an offer to be a J.C. Penney Co. (JCP ) management trainee. "I got into retailing because I was tired, and I wanted a real job," he wrote in Sam Walton: Made in America.

Walton's wife, Helen, was responsible for one strategy that fueled Wal-Mart's success: its early focus on small towns. Helen refused to move to any town with more than 10,000 people. So when Walton was ready to start his own Ben Franklin variety store as a franchisee in 1945 -- borrowing $20,000 from Helen's dad -- they landed in tiny Newport, Ark. Walton's small-town focus forced him to build his own distribution and communications systems. Those systems became critical to gathering and analyzing the data that Wal-Mart uses to push suppliers for everything from lower prices to better packaging.

Sensing that his variety stores could be steamrolled by the powerful new concept of discounting, Walton jumped in with his first Wal-Mart Discount City in Rogers, Ark., in 1962 -- the same year that rivals Kmart (KMRT ) and Target (TGT ) got their start. Walton studied his competitors and borrowed liberally. Even the hokey Wal-Mart cheer was based on one Walton heard at a factory in South Korea. Walton took his 32-store chain public in 1970. Last year, Wal-Mart hit a once unthinkable $256 billion in sales, $9.1 billion in profits, and more than 4,900 stores around the world. Its dominance has created a backlash from unions, antisprawl activists, antisweatshop watchdogs, and plaintiffs' lawyers.

Before his death at 74 in 1992, the visionary Walton was already pondering some of the issues now critical to his company: Could a $100 billion retailer be as efficient as five $20 billion retailers? How would Wal-Mart guard against abusing its power? Critics say his zeal for cost-cutting set the stage for some of the controversies that now dog Wal-Mart. But for better or worse, Walton's mission to serve as the "agent" for consumers has changed retailing forever.

By Wendy Zellner

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