The Bully of Bentonville

by Anthony Bianco

  The initial thrust of Wal-Mart’s expansion beyond the Ozarks was southwest into Oklahoma, Louisiana, and Texas. It then pushed east across the Deep South, eventually extending all the way to Florida, Georgia, and the Carolinas. Next, the company worked its way north and east through the Midwestern states while simultaneously pushing west across the Great Plains to the Rockies. Wal-Mart maintained its small-town focus but edged its way within sight of the gates of such cities as Tulsa, Kansas City, and Dallas.

  Wal-Mart finally entered the big city in launching its Sam’s Warehouse Club division in 1983. At 130,000 square feet on average, Sam’s outlets were twice the size of a Wal-Mart discount store and even more minimally furnished. Catering to small-business owners and other bulk buyers, these bare-bones outlets charged wholesale prices for a wide variety of brand-name merchandise but required payment of an annual membership fee.

  With a markup of just 9 percent to 12 percent, a Sam’s Club had to do $25 million a year in sales to break even, and this was possible only in a sizable, urban market. Within two years of opening the first Sam’s Club on the outskirts of Oklahoma City, Walton had branched into sixteen other big cities stretching across the Southern quadrant of the country from Houston, Texas, and Wichita, Kansas, all the way to Charleston, South Carolina, and Jacksonville, Florida. (Sam’s Club was founded as a self-contained division with Wal-Mart, with its own procurement and distribution networks.)

  Walton admitted to lifting the Sam’s Club concept wholesale, so to speak, from Sol Price, a pioneering California discounter who had founded Fed-Mart in 1955 (a tour of its Houston store helped convince Walton to shift into discounting) and Price Club in 1976. Over the years, Walton had spent many hours walking the aisles of Price’s stores, surreptitiously whispering notes about merchandise and prices into the little tape recorder he always carried with him. One day in a Price Club in San Diego, a security guard caught Walton and confiscated his machine. Unabashed, Walton attached a note to Robert Price, Sol’s son, asking that the tape be returned to him because he didn’t want to lose comments he’d recorded before hitting Price Club. Sam’s Club quickly eclipsed Price Club (now part of archrival Costco) and would grow into a big business in its own right, with 550 stores and $37 billion in sales by 2005.

  Walton was hugely successful, but hardly infallible. Aside from Sam’s Club, all of Wal-Mart’s other attempts at diversifying in the 1980s flopped resoundingly. The failures included Discount Drugstores, Save Mor home-improvement centers, Helen’s Arts and Crafts stores, and Bud’s Closeout outlets. (Luckily, Sam had only one brother and one wife after whom to name new ventures or there might have been more failures. He was content to honor Ol’ Roy with a private-label dog food.)

  Ironically, by far the most expensive of Walton’s flops—Hypermart USA—put the company on a path to a new-format triumph of such magnitude that in time it would eclipse even the Wal-Mart discount store. Walton took the hypermart concept from Carrefour, a big French retailer that had opened the first hypermarché just outside of Paris in 1963. It combined general merchandise of the sort that Wal-Mart sold with fresh food and other groceries at a discount on a truly colossal scale. At 220,000 square feet on average, the hypermarché was about four times the size of a typical Wal-Mart. By 1973, Carrefour and its imitators had run so many small shopkeepers out of business that the French government enacted legislation to slow their expansion.

  Walton first encountered the hypermarché in Brazil in the early 1980s and was amazed to see the great throngs that Carrefour attracted. On a subsequent swing through Europe, Walton checked out the hypermarché on its home ground and returned home “pushing the concept hard,” as he put it. “I argued that everybody except the U.S. was successful with this concept and we should get in on the ground floor with it.” 43

  Euromarché, one of Carrefour’s leading rivals, beat Walton to the punch. In 1984, the French company joined with Supervalu, the largest U.S. food wholesaler, to form Bigg’s. In 1984, Bigg’s built the first American hypermart, in Cincinnati. Bigg’s had added half a dozen additional stores by the time that the first Hypermart USA store opened in a suburb of Dallas in 1987. Wal-Mart was still new to food, so Hypermart USA was set up as a joint venture with the Cullum Companies, whose Tom Thumb supermarkets dominated the Dallas market. Over the next three years, Wal-Mart built a second Hypermart USA in the Dallas area and also put stores in Kansas City and Topeka.

  Walton was right in one respect: American shoppers were willing to exhaust themselves hunting bargains in bare-bones stores the size of five football fields, with cartons of merchandise towering twenty-two feet high. Hypermart USA never lacked for customers. To the contrary, the stores did such big volume right from the start that Wal-Mart never was able to manage them properly. In short, the Hypermart was just too hyper. The giant, labor-intensive hypermarts generated profits so puny that they were not worth Wal-Mart’s time. “We overbuilt our Hypermarts and spent too much on them,” recalled Donald Soderquist, a former Ben Franklin executive who joined Wal-Mart in 1980 and was promoted to chief operating officer in 1988. “We were able to generate more sales than we ever had in a Wal-Mart store, but we struggled to produce a profit because we had too much overhead.” 44

  Even before Wal-Mart officially terminated Hypermart USA, it began experimenting with a scaled-down, 125,000-square-foot combination discount and grocery store known in the trade as a “superstore.” This format had been pioneered in the 1960s by a couple of regional supermarket companies with coincidentally similar names: Meijer out of Grand Rapids, Michigan, and Fred Meyer of Portland, Oregon. Meijer had sixty superstores in the Upper Midwest and Fred Meyer close to 100 throughout the Pacific Northwest by the time that Wal-Mart finally opened its first experimental “Supercenter” in 1988 in Washington, Missouri, an hour’s drive west of St. Louis. Walton’s comments during the grand opening of the Washington store were prophetic. “I have a different feeling about this store than I’ve ever had,” Wal-Mart’s founder told the store’s 300 employees. “It’s a Wal-Mart, but it’s not a Wal-Mart. But it may be our future.” 45

  As Wal-Mart began to come of age as a corporation, Walton had little choice but to fill most newly created senior management positions with experienced managers from other, established retail chains. However, the second generation of home-office executives—which came to the fore in the 1980s and 1990s—was almost entirely homegrown and thoroughly indoctrinated in the Wal-Mart Way. To climb the ladder in Bentonville to its upper rungs, it wasn’t necessary to drive a beat-up old pickup truck to work, as Walton did (though it sure couldn’t hurt), but you had better embrace the Protestant work ethic unreservedly, respect your marriage vows, and not flash your cash around town. “I just don’t believe a big showy lifestyle is appropriate for anywhere, least of all here in Bentonville, where folks work hard for their money and where we all know that everyone puts on their trousers one leg at a time,” Walton declared. 46

  The senior management cadre that formed an essential part of Walton’s corporate legacy was as racially and ethnically homogeneous as the first generation of Wal-Mart clerks and cashiers had been. Many of its members were Ozarkers, but even those who were not tended to hail from small towns in the South or Midwest. And it was indeed trousers that they put on one leg at a time every morning. Wal-Mart’s executive suite differed from the field in one glaring way: an utter absence of women. As late as 1989, there was not a single woman among the company’s twenty-two highest-ranking execs and only two female vice presidents among its top eighty-eight officers. 47 And only about 3 percent of Wal-Mart’s stores had a female manager.

  It wasn’t that Walton thought that a woman’s place was in the home exactly. How could he, when he hired women by the thousands for his store? It’s even possible that he thought women were perfectly capable of holding down a big job at the home office. The problem, in short, was that as a gentleman of the old school, Walton would much rather charm female workers in the stores than have to b
erate female executives in the home office. Despite all the warmth and encouragement that Walton ladled out as cheerleader-in-chief, he was a real taskmaster as executive-in-chief. He demanded results from his executives, and if he did not get them, he could be downright rough, much like a military commander dressing down a subordinate. “When it came to dealing with hourly associates, Mr. Sam could really give a soft hand,” recalled Jon Lehman, a longtime Wal-Mart store manager who was born and raised in Harrison, Arkansas. “But if you were a manager, or one of his executives, he’d rip you up one side and down the other and fire you. I mean, he was sharp and tough.” 48

  Wal-Mart’s management hierarchy was unusually flat for a big corporation, with only three layers between store managers and executive vice presidents, who exercised companywide authority. Wal-Mart did have regional buying offices scattered around the country, but merchandising, marketing, logistics, information technology, personnel, and the other corporate functions all were centralized in Bentonville. However, Walton wasn’t Wal-Mart’s only travelin’ man—far from it. By 1990, the company had fifteen airplanes (only two of which were jets) and “Air Wal-Mart” was almost always fully deployed. Regional vice presidents were real road warriors, flying out to inspect their territories every Monday morning and returning to Bentonville on Thursday evening. Every other senior executive was expected to spend at least one day a week in the stores, taking the retail pulse where it beat strongest.

  Everyone had to be back in Bentonville by 7 A.M. on Friday at the latest for the weekly management meeting, which included all company officers and division heads and usually lasted all morning. At noon, the regional VPs met with all the merchandise buyers over sandwiches and iced tea. The focus in the morning was the stores; in the afternoon, it was all about product. But the two meetings were similar in tone: candid, often contentious, microscopically detailed sessions reflecting the “bias for action” that Walton had instilled in the company through his constant tinkering, his compulsion to make incremental improvements. 49

  Early Saturday, the whole executive group plus a few hundred other Wal-Marters piled into the auditorium at the home office for what was the pièce de résistance of Walton’s inspirational oeuvre: the Saturday-morning meeting. Its trademark blend of business fundamentals, encounter-group psychodrama, and country corn pone had the few reporters who were allowed to attend over the years reaching for metaphors. To one, the meeting seemed “a corporatized version of A Prairie Home Companion.” 50 To another, it was “Family Feud Meets Ernst & Young.” 51 To Walton, it was simple: “The Saturday morning meeting is at the very heart of the Wal-Mart culture.” 52

  Wal-Mart’s competitors generally waited until Monday to review their weekly store figures and make adjustments in their merchandise purchasing plans. However, the rule in Bentonville was that corrections were to be made in all the stores by Saturday noon. Getting the jump on the meeting that gave Wal-Mart a jump on its rivals, Walton liked to be at his desk by 3 A.M. on Saturday to bone up on all the data before the meeting started at 7:30. “When I’m done I have as good a feel for what’s going on in the company as anyone here—maybe better on some days,” he boasted. 53

  The Saturday-morning meeting evolved into Wal-Mart’s main venue for brainstorming ideas and for debating philosophical or strategic issues. Walton usually arrived with a few notes scribbled on a pad, but his agenda was private and subject to improvisation. He liked to go around the room lobbing questions at people, and he mixed a fair number of hand grenades in with the softballs. He might take a manager in need of humbling down a notch or two by suggesting that he “think before he talked” or making him get up and sing “Red River Valley,” as he did to a longtime exec named Al Miles. Walton might lead the group in song or in calisthenics, read from a favorite book, present an award to a “hero” associate flown in for the occasion, or turn the microphone over to Garth Brooks, Joe Montana, Jack Welch, or some other special guest. Anything could happen on Saturday morning, and that made these three-hour sessions both unnerving and more entertaining than a business meeting had any right to be.

  For Walton, relinquishing power over Wal-Mart did not come easily. His first, absurdly premature attempt at succession took place in 1974, when he was just fifty-six years old. In what amounted to a belated midlife crisis, Walton caved to heavy pressure from his wife, who wanted him to retire while he was still young and healthy. He had hired a hyper-ambitious young hotshot named Ron Mayer away from a competing retail chain in 1968 and made him Wal-Mart’s first vice president of finance. Rather than risk losing Mayer, Walton handed him the positions of chairman and CEO, keeping only his seat on the board (and control over a huge chunk of stock, of course). Wal-Mart soon cleaved into two warring camps: the technology-savvy outsiders that Mayer had gathered around him in Bentonville, and the old guard of merchants and store managers who were aggrieved that the new CEO hadn’t come from their ranks. The company’s performance began to suffer, alarming Walton, who was bored silly anyway. One weekend in 1976, Walton abruptly reclaimed the titles he’d willed to Mayer, who resigned in a huff, taking many promising young executives with him.

  Walton had the good grace to blame himself for this fiasco, which shredded the company’s executive ranks and damaged its standing on Wall Street. The bookish Glass, who had joined Wal-Mart a few weeks after Mayer departed, proved a far more patient heir apparent. Walton was diagnosed with hairy cell leukemia in 1982, but he opted for an aggressive treatment program that proved highly effective. With the leukemia in remission, Walton was able to carry on with barely diminished energy until 1988, when, not long after his sixty-sixth birthday, he relinquished the posts of chairman and CEO to Glass, who was fifty-three years old.

  This time, succession was smoothly realized. In fact, its timing seemed downright providential when, less than a year later, Walton learned that he had contracted a disease far more lethal than leukemia: multiple myeloma, or malignant cancer of the bone marrow. By the end of 1991, he was too weak to continue visiting stores but continued to come into the office pretty regularly. He often felt cold while working at his desk, but refused to let his secretary, Becky Elliott, spend money on a space heater. While Walton was out, Elliott had heating strips installed at the top of one wall that were automatically activated when someone entered the office. After a few days of warmth, he asked Elliott about the popping sound he kept hearing. Walton smiled indulgently at Elliott’s explanation until she told him she’d spent $500. “He didn’t like that,” Elliott recalled. “It was more than he would have okayed.” 54

  Walton died on April 6, 1992, a week after President George H. W. Bush presented him with the Presidential Medal of Freedom. The Bentonville staff thronged a private memorial service at the home office; Arkansas governor Bill Clinton interrupted his presidential campaign to attend with his wife, Hillary Rodham Clinton. An evening memorial open to the public drew an even larger crowd of more than 1,000 people to the stadium of Bentonville High School, where Walton was eulogized by a procession of tearful friends and neighbors. “Arkansas, to other people, was just a hillbilly backwater, but Sam changed all that,” said George Billingsley, the realtor who had been Walton’s favorite tennis partner. 55

  True to form, Walton was laid to rest in a common, $200 corner plot in Bentonville’s municipal cemetery, just a half-dozen blocks from the house where he had lived for five decades. His grave was adorned only by a small block of rose-gray marble with a single word chiseled in block letters: WALTON.

  CHAPTER FOUR

  SO HELP THEM, SAM

  Whatever else might be said about Sam Walton’s successors—CEO’s David Glass and Lee Scott—they brilliantly realized his ambition to grow Wal-Mart to the sky. During Glass’s twelve years as CEO, from 1988 through 1999, sales soared tenfold, to $165 billion from $16 billion, as Wal-Mart blew past Sears to become America’s biggest retailer. The company began to aggressively expand abroad, moving first into Mexico, Puerto Rico, and Canada, and it also thru
st its way into the grocery business at home through the new Supercenter format. Wal-Mart hit a rough patch in the mid-1990s, as runaway operating costs cut into profits. Glass succeeded in reasserting the rigorous financial discipline he had learned at Walton’s knee and retired as a hero to Wall Street, though certainly not to many of Wal-Mart’s own employees.

  Glass was a tenacious, tough-minded technocrat who failed to maintain the loyal, highly motivated workforce that Walton had bequeathed him. By 1999, Glass’s last year, store employees were quitting at the astronomical rate of 70 percent a year. “Our turnover, in my opinion, had absolutely spun out of control,” recalled Coleman Peterson, Wal-Mart’s personnel chief at the time. 1 Scott gradually brought turnover down to about 50 percent after taking over in 2000, but a company that loses half its employees each year has not solved its morale problems. To the contrary, the conviction that Wal-Mart was a much better place to work when Walton was alive has become deeply embedded in the ethos of the company—or at least in its stores. “The main focus of Wal-Mart is no longer the satisfaction of its customers and the welfare of its associates, its focus is on the welfare of the company!” wrote an anonymous associate from the Wal-Mart in Monaca, Pennsylvania, in a recent tribute to Walton posted on the Find-A-Grave Web site. “I only wish you were here today to see it, Mr. Sam. Thank you anyway.”

  In Glass’s own estimation, his approach to the business differed from Walton’s only in its heavy emphasis on technology. “Sam wasn’t sure about technology,” recalled Glass, noting that Walton often took computerized reports and recopied the data by hand into a ledger book. 2 Glass, on the other hand, was a true believer, a digital zealot. “A long time ago, I had a strong belief that technology would ultimately drive this business to be the size that it is,” he said a few years after he had stepped down as CEO. (Glass remains a director and a very active consultant to Scott. 3 )