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Thinking Small

“Well, now, Sam, how big do you really want this company to be? What is your plan?”

—FEROLD AREND, shortly after coming to work at Wal-Mart

“Ferold, we’re going to take it as it comes, and if we can grow with our own money, we’ll maybe add a store or two.”

—SAM WALTON

Not long ago somebody showed me an article written for a local magazine in 1960. It was called “Success Story of the Year,” and it described how we had built up an empire of nine variety stores. Then it quoted me as saying that we probably wouldn’t grow much more because I believed in personally supervising the nine-store group, and I thought any more stores would be “unwieldy” to manage without additional supervisors. So what the heck happened? How did we ever get to be the largest retailer in the world with a philosophy like that?

I really believed what I said then, and I still do. But we figured out a way to grow, and stay profitable, and there was no logical place to stop. The way I approached managing the business, I always tried to maintain a sense of hands-on, personal supervision—usually by flying around to take a look at our stores on a regular basis. But from the very beginning, even on my paper routes in college, I have also been a delegator, trying to hire the best possible people to manage our stores. That’s been the case since back in Newport.

An awful lot of water has washed over the dam since 1945, when we bought that little Front Street store in Newport, but almost every single thing we learned, every basic principle we applied in building that store up into a respectable business, still applies to our company today. It’s hard to think of another company that sustained the kind of growth we did over thirty years without experiencing any major financial problems or dips in profitability. During that time, our business was growing at annual rates of anywhere from 30 to an incredible 70 percent in some years.

Along the way, we always had lots of people waiting for us to stumble and fall—especially Wall Street types. They said we’d never be able to keep doing things our way after we reached $1 billion in sales. But we did, and kept right on going. Then they said everything would fall apart at $10 billion because you just couldn’t manage a company that big with our little down-home management philosophies. We roared past that, and then hit $20 billion and $30 billion, and in the coming year we should hit around $53 billion. Two years ago, we earned $1 billion in profits for the first time. That’s a jump from only $41 million just ten years before. Here’s a chart that completely amazes me:

1960—stores 9—Sales $1.4 million –profits $112,000

1970—stores 32–Sales $31 million –profits $1.2 million

1980—stores 276—Sales $1.2 billion –profits $41 million

1990—stores 1,528–Sales $26 billion–profits $1 billion

So now we’re the largest retailer in the world, and still growing like a weed. If my chart doesn’t paint a clear enough picture for you of how large the company is, here are some other ways to think about Wal-Mart’s size. Every week, nearly 40 million people shop in Wal-Mart. Last year, we sold enough mens’ and women’s underwear and socks to put a pair on every person in America, with some to spare. We sold 135 million men’s and boys’ briefs, 136 million panties, and 280 million pairs of socks. We sold one quarter of all the fishing line purchased in the U.S., some 600,000 miles of it, or enough to go around the earth twenty-four times. We sold 55 million sweatsuits and 27 million pairs of jeans, and we sold almost 20 percent of all the telephones bought in the U.S. And here’s one I’m really proud of: in one week last year, we sold as much Ol’ Roy private label dog food as we did in all of 1980. With sales of $200 million last year, Ol’ Roy became the number-two dog food in America, and remember, we only sell it in Wal-Mart. Another one: Procter & Gamble sells more product to Wal-Mart than it does to the whole country of Japan.

I could go on and on, but you get the idea. We’re big. Really big. That’s not something I like to focus on.

I always wanted to be the best retailer in the world, not necessarily the biggest. In fact, as I said in that article thirty something years ago, I’ve always been a little bit afraid that big might get in the way of doing a good job. Of course, being this big has some real advantages. Until we reached a billion dollars, a lot of suppliers and vendors just ignored us way out here in the Arkansas outback. For years, some suppliers wouldn’t even call on us. Now, of course, we’re too big to ignore. But being big also poses dangers. It has ruined many a fine company—including some giant retailers—who started out strong and got bloated or out of touch or were slow to react to the needs of their customers.

Here’s the point: the bigger Wal-Mart gets, the more essential it is that we think small. Because that’s exactly how we have become a huge corporation—by not acting like one. Above all, we are small-town merchants, and I can’t tell you how important it is for us to remember—when we puff up our chests and brag about all those huge sales and profits—that they were all made one day at a time, one store at a time, mostly by the hard work, good attitude, and teamwork of all those hourly associates and their store managers, as well as by all those folks in the distribution centers. If we ever get carried away with how important we are because we’re a great big $50 billion chain—instead of one store in Blytheville, Arkansas, or McComb, Mississippi, or Oak Ridge, Tennessee—then you probably can close the book on us. If we ever forget that looking a customer in the eye, and greeting him or her, and asking politely if we can be of help is just as important in every Wal-Mart today as it was in that little Ben Franklin in Newport, then we just ought to go into a different business because we’ll never survive in this one.

BILL FIELDS:

“I’m sure that our whole focus on thinking small all relates to Sam running that store in Newport, where he was the entrepreneur, and he was out there involved as a leader of the community. He sees that entrepreneurial element as being so important and something he never wants us to lose. He saw the big change in Ben Franklin and all those other companies that lost it because they got too big and distracted, and he’s just determined it won’t happen here.”

For us, thinking small is a way of life, almost an obsession. And I suspect thinking small is an approach that almost any business could profit from. The bigger you are, the more urgently you probably need it. At our size today, there’s all sorts of pressure to regiment and standardize and operate as a centrally driven chain, where everything is decided on high and passed down to the stores. In a system like that, there’s absolutely no room for creativity, no place for the maverick merchant that I was in the early days at Ben Franklin, no call for the entrepreneur or the promoter. Man, I’d hate to work at a place like that, and I worry every single day about Wal-Mart becoming that way. I stay on these guys around here all the time about it. Of course, all those vendors and suppliers would love to see us get that way. It would make their jobs a lot simpler for sure. If anybody at Wal-Mart thinks we as a company are immune to Big Disease, I wish they’d just pack up and leave right now because it’s always something we’ll have to worry about.

For several decades now we’ve worked hard at building a company that’s simple and streamlined and takes its directions from the grass roots. It’s a pretty tall order for an outfit that is spreading out all over the country as fast as we are. But along the way we’ve learned some practical things about thinking small and developed some principles that have had a big effect on our company’s success. Before you can fully understand how we got where we are today, it’s important to understand these principles. Then you can recognize how we’ve applied them all along the way in the building of the company. Seeing how we’ve done some of these things might help other folks out there who face the same challenge of growing their business without losing touch with the customer.

There’s nothing at all profound about any of our principles. In fact, they’re all common sense, and most of them can be found in any number of books or articles on management theory—many of which I’ve read and studied over the years. But I think the way we’ve applied them at Wal-Mart has been just a little different. Here are six of the more important ways we at Wal-Mart try to think small:

Think One Store at a Time

That sounds easy enough, but it’s something we’ve constantly had to stay on top of. Because our sales and earnings keep going up doesn’t mean that we’re smarter than everyone else, or that we can make it happen because we’re so big. What it means is that our customers are supporting us. If they stopped, our earnings would simply disappear, and we’d all be out looking for new jobs. So we know what we have to do: keep lowering our prices, keep improving our service, and keep making things better for the folks who shop in our stores. That is not something we can simply do in some general way. It isn’t something we can command from the executive offices because we want it to happen. We have to do it store by store, department by department, customer by customer, associate by associate.

For example, we’ve got one store in Panama City, Florida, and another only five miles away in Panama City Beach, but actually they’re worlds apart when it comes to their merchandise mix and their customer base. They’re entirely different kinds of stores. One is built for tourists going to the beach, and the other is more like the normal Wal-Mart, built for folks who live in town. That’s why we try our best to put a merchant in charge of each store, and to develop other merchants as the heads of each department in those stores. If the merchandise mix is really going to be right, it has to be managed by the merchandisers there on the scene, the folks who actually deal face to face with the customers, day in and day out, through the seasons.

That makes it management’s job to listen to those merchandisers out in the stores. We have these buyers here in Bentonville—218 of them—and we have to remind them all the time that their real job is to support the merchants in the stores. Otherwise, you have a headquarters-driven system that’s out of touch with the customers of each particular store, and you end up with a bunch of unsold workboots, overalls, and hunting rifles at the Panama City Beach store, where folks are begging for water guns and fishing rods and pails and shovels; and at the Panama City store in town you’ve got a bunch of unsold beach gear stacked up gathering dust.

So when we sit down at our Saturday morning meetings to talk about our business, we like to spend time focusing on a single store, and how that store is doing against a single competitor in that particular market. We talk about what that store is doing right, and we look at what it’s doing wrong.

DAVID GLASS:

“We believe that we have to talk about and examine this company in minute detail. I don’t know any other large retail company—Kmart, Sears, Penney’s—that discusses their sales at the end of the week in any smaller breakdown than by region. We talk about individual stores.” Which means that if we’re talking about the store in Dothan, Alabama, or Harrisburg, Illinois, everybody here is expected to know something about that store—how to measure its performance, whether a 20 percent increase is good or bad, what the payroll is running, who the competitors are, and how we’re doing. We keep the company’s orientation small by zeroing in on the smallest operating unit we have. No other company does that.”

Focusing on a single store can accomplish a number of things. First, of course, it enables us to actually improve that store. But if in the process we also happen to learn a particular way in which that Panama City Beach Wal-Mart is outsmarting the competition on, say, beach towels, then we can quickly get that information out to all our other beach stores around the country and see if their approach works everywhere. Which brings us to the next principle.

Communicate, Communicate, Communicate

If you had to boil down the Wal-Mart system to one single idea, it would probably be communication, because it is one of the real keys to our success. We do it in so many ways, from the Saturday morning meeting to the very simple phone call, to our satellite system. The necessity for good communication in a big company like this is so vital it can’t be overstated. What good is figuring out a better way to sell beach towels if you aren’t going to tell everybody in your company about it? If the folks in St. Augustine, Florida, don’t get the word on what’s working over in Panama City until winter, they’ve missed a big opportunity. And if our buyers back in Bentonville don’t know we’re expecting to double our sales of beach towels this summer, the stores won’t have anything to sell.

Nowadays, I see management articles about information sharing as a new source of power in corporations. We’ve been doing this from the days when we only had a handful of stores. Back then, we believed in showing a store manager every single number relating to his store, and eventually we began sharing those same numbers with the department heads in our stores. We’ve kept doing it as we’ve grown. That’s why we’ve spent hundreds of millions of dollars on computers and satellites—to spread all the little details around the company as fast as possible. But they were worth the cost. It’s only because of information technology that our store managers have a really clear sense of how they’re doing most of the time. They get all kinds of information transmitted to them over the satellite on an amazingly timely basis: their monthly profit-and-loss statement, up-to-the-minute point-of-sale data that tells them what’s selling in their own store, and a lot of other paper they probably wish we wouldn’t send them.

I’m not going to pretend we’re perfect at this. We do have our share of miscommunication, like that time the Moon Pies were shipped to stores in Wisconsin, where they didn’t exactly jump off the shelves. And sometimes a simple attitude is as valuable as all the technology in the world. For example, we’ve got this one rule I hope we never give up enforcing: our buyers here in Bentonville are required to return calls from the stores first, before they return the calls of vendors or anybody else, and they are required to get back to the stores by sundown of the day they get the call.

Obviously, we’re too doggoned big to have every department head in every Wal-Mart spend a lot of time with the vendors who call on us in Bentonville, so we try to think up ways to get at a similar result. Recently, we’ve started seminars for our department managers. We’ll pick a department, like sporting goods or lawn and garden, then we’ll pick one department head—these are the hourly associates who actually run those departments in their stores—from each of our store districts. That’s 184 folks right now. We’ll bring all of them in to Bentonville to talk to the buyers about what’s working for them, and what’s not. Then they meet with the vendors and explain what kinds of complaints we’re getting about their products, or what’s working well. Together, all these folks formulate their plan for the coming season, and then the department heads go back to their districts and share what they’ve learned with their counterparts in neighboring stores.

As much as we travel to our stores, and bring our folks in to Bentonville, though, sometimes I have the feeling that the word is not getting out. And if it’s on a subject I feel strongly enough about, I’m not above getting in front of one of our TV cameras here and going out by satellite to all our associates gathered in front of their TV’s in the break rooms of our stores. A few years ago, I had an idea around Christmastime that was just burning me up to tell people about, so I went on the camera and visited with everybody about how our sales were doing, and talked a little about my hunting, and let them know that I hoped their holiday season was going well. Then I got to the point: “I don’t think any other retail company in the world could do what I’m going to propose to you. It’s simple. It won’t cost us anything. And I believe it would just work magic, absolute magic on our customers, and our sales would escalate, and I think we’d just shoot past our Kmart friends in a year or two and probably Sears as well. I want you to take a pledge with me. I want you to promise that whenever you come within ten feet of a customer, you will look him in the eye, greet him, and ask him if you can help him. Now I know some of you are just naturally shy, and maybe don’t want to bother folks. But if you’ll go along with me on this, it would, I’m sure, help you become a leader. It would help your personality develop, you would become more outgoing, and in time you might become manager of that store, you might become a department manager, you might become a district manager, or whatever you choose to be in the company. It will do wonders for you. I guarantee it. Now, I want you to raise your right hand—and remember what we say at Wal-Mart, that a promise we make is a promise we keep—and I want you to repeat after me: From this day forward, I solemnly promise and declare that every time a customer comes within ten feet of me, I will smile, look him in the eye, and greet him. So help me Sam.”

Now, I had no way of knowing how much effect a little communication like that would have on our associates, or on our customers. But I felt so strongly about the idea that it was worth calling attention to it by satellite, and I really meant it when I said I didn’t think any other retailer in the country could do it. I do know this—a lot of our associates started doing what I suggested, and I’m sure a lot of our customers appreciated it. We used mass communications to transmit the idea, but it was a small idea, aimed at the folks on the front lines, the ones most responsible for keeping our customers happy and coming back to our stores over and over. And I’m not saying one way or another whether my little pep talk had anything to do with it, but we went on from that Christmas to pass both Kmart and Sears in sales at least two years before even the most optimistic Wall Street analysts thought we could do it.

Keep Your Ear to the Ground

As chairman of Wal-Mart, I, of course, was the one who ultimately authorized all those expenditures for technology, which proved absolutely crucial to our success. But truthfully, I never viewed computers as anything more than necessary overhead. A computer is not —and will never be—a substitute for getting out in your stores and learning what’s going on. In other words, a computer can tell you down to the dime what you’ve sold. But it can never tell you how much you could have sold.

That’s why we at Wal-Mart are just absolute fanatics about our managers and buyers getting off their chairs here in Bentonville and getting out into those stores. We have twelve airplanes—only one of them a jet, I’m proud to say—in our hangars out at the Rogers, Arkansas, airport, and that’s why they’re there. We stay in the air to keep our ear to the ground. Our whole travel system is really an outgrowth of the way I managed those nine stores back in 1960 when I said I didn’t want to grow anymore. Back then, as you now know, I would get in my old Tri-Pacer and fly to those stores once a week to find out what was selling and what wasn’t, what the competition was up to, what kind of job our managers were doing, what the stores were looking like, what the customers had on their minds. Of course, I have continued to visit stores almost constantly ever since, and it is the part of my job I enjoy the most, the part where I feel I make the greatest contribution, but with almost two thousand stores today, a lot of other folks have to get in on the act with me.

Today, the idea is pretty much the same. Our district managers are doing the job that I did back in 1960 —the real hands-on, get-down-in-the-store stuff. But also, we have eighteen regional managers, all of them based here in Bentonville. Every Monday morning, they pile into those airplanes and head across the country to the stores in their regions. It’s a condition of their employment. They stay out three to four days, usually coming back in on Thursday. We’ve drummed into their heads the belief that they should come back with at least one idea that will pay for the trip. Then they gather with the senior management of the company—all of whom should also have been visiting stores earlier in the week if they expect to ask any intelligent questions or know the first thing about what’s going on—for our Friday morning merchandising meeting.

In addition to the fieldwork, of course, we have computer printouts at the meetings which tell us what’s selling and what’s not. But the really valuable intelligence that surfaces in these sessions is what everybody has brought back from the stores. If they’re doing their jobs right, they’ll know why things are or aren’t selling, and what we ought to be thinking about selling next, or dropping from our assortment. If they’ve been to that Panama City Beach store and seen a suntan cream display that’s blowing the stuff out the door, they can share that with the other regionals for their beach stores. Or if they’ve been to a big store in the Rio Grande Valley and found out that we’re getting beat by a competitor on ladies’ dresses because their assortment is more suited to the particular tastes of that area, we can start fixing it. When that meeting is over, every one of those regionals should be on the phone to the district managers, who should be passing the word along to the store managers, who’ll get the department managers to act on it right away.

DAVID GLASS:

“Our Friday merchandising meeting is unique to retailing as far as I can tell. Here we have all these regional managers who have been out in the field all week long—they are the operations guys who direct the running of the stores. Then you have all your merchandising folks back in Bentonville—the people who buy for the stores. In retailing, there has always been a traditional, head-to-head confrontation between operations and merchandising. You know, the operations guys say, ‘Why in the world would anybody buy this? It’s a dog, and we’ll never sell it.’ Then the merchandising folks say, ‘There’s nothing wrong with that item. If you guys were smart enough to display it well and promote it properly, it would blow out the doors.’ That’s the way it is everywhere, including Wal-Mart. So we sit all these folks down together every Friday at the same table and just have at it.

“We get into some of the doggonedest, knock-down drag-outs you have ever seen. But we have a rule. We never leave an item hanging. We will make a decision in that meeting even if it’s wrong, and sometimes it is. But when the people come out of that room, you would be hard-pressed to tell which ones oppose it and which ones are for it. And once we’ve made that decision on Friday, we expect it to be acted on in all the stores on Saturday. What we guard against around here is people saying, ‘Let’s think about it.’ We make a decision. Then we act on it.”

Once these regional managers have come back on Thursdays, we load up the planes with some buyers and send them out to visit the individual stores. As we’ve gotten bigger, we’ve added on all kinds of ways to keep our buyers responsive to the store needs. These days we’ve got folks called regional buyers, who go around and help the store managers customize the merchandise for their own stores. My favorite buyer program is one called Eat What You Cook. Once a quarter, every buyer has to go out to a different store and act as manager for a couple of days in the department he or she buys merchandise for. I guarantee you that after they’ve eaten what they cooked enough times, these buyers don’t load up too many Moon Pies to send to Wisconsin, or beach towels for Hiawatha, Kansas.

Push Responsibility—and Authority—Down

The bigger we get as a company, the more important it becomes for us to shift responsibility and authority toward the front lines, toward that department manager who’s stocking the shelves and talking to the customer. When we were much smaller, I probably wasn’t as quick to catch on to this idea as I should have been. But as an avid student of management theory, back in the mid-seventies I started reading the work of W. Edwards Deming, the famous statistician who taught so much to the Japanese about improving their productivity and competitiveness. Then Helen and I took a trip to Japan and Korea, which got me thinking about a whole bunch of different things we could do to improve our company. That’s probably when I first began thinking about some of the very real ways that we could improve our teamwork and put more authority in the hands of our people in the stores.

Our most famous technique for doing this is a textbook example of thinking small. We call it Store Within a Store, and it’s the simplest idea in the world. Again, in many big retail companies the department head is just an hourly employee going through the motions, somebody who punches a clock, then rips open boxes and stacks whatever’s in them onto shelves. But we give our department heads the opportunity to become real merchants at a very early stage of the game. They can have the pride of proprietorship even if they weren’t fortunate enough to go to college or be formally trained in business. They only have to want it bad enough, pay close attention, and work very hard at developing merchandising skills. We’ve had many cases where the experience has fired people up with ambition, and they’ve gone on to work their way through college and move on up in the company, and I hope we have many more cases like that.

Again, this only works because we decided a long time ago to share so much information about the company with our associates, rather than keep everything secretive. In Store Within a Store we make our department heads the managers of their own businesses, and in some cases these businesses are actually bigger in annual sales than a lot of our first Wal-Mart stores were. We share everything with them: the costs of their goods, the freight costs, the profit margins. We let them see how their store ranks with every other store in the company on a constant, running basis, and we give them incentives to want to win.

We’re always trying for that fine balance between autonomy and control. Like any big retailer, Wal-Mart obviously has certain procedures which we require our stores to follow or items they must stock. But we have taken steps to make sure our stores have some autonomy. The responsibility for ordering merchandise lies with the department head. The responsibility for promoting merchandise is with the store manager. Our buyers have much more responsibility for deciding what’s carried in our stores than buyers at most other companies. We run them hard, and we give them a tough time because we don’t want them getting a big head and thinking they’re all-powerful. But the fact is that our buyers—just like our folks in the stores—are in unique positions of authority for the retail business.

Force Ideas to Bubble Up

This goes hand-in-hand with pushing responsibility down. We’re always looking for new ways to encourage our associates out in the stores to push their ideas up through the system. We do a lot of this at Saturday morning meetings. We’ll invite associates who have thought up something that’s really worked well for their store—a particular item or a particular display —to come share those ideas with us.

The VPI (Volume Producing Item) contest is a perfect example of how we put this into practice. Everybody from the department manager level on up can choose an item of merchandise they want to promote—with big displays or whatever—and then we see whose item produces the highest volume. I’ve always thought of the VPI contest not just as a way to stimulate sales, but as a method of teaching our associates how to become better merchants, to show them what can be done by picking an item that’s available and figuring out a creative way to sell it, or buy it, or both. It gives them the opportunity to act the way we used to in the early days. They can do crazy things, like pick an item and hang it all over a tree filled with stuffed monkeys in the middle of the store. Or drive a pickup truck into action alley and fill it with car-washing sponges.

We’re not just looking for merchandising ideas from our associates. Our latest effort is a program called Yes We Can, Sam!—which, by the way, I did not name. Again, we invite hourly associates who have come up with money-saving ideas to attend our Saturday morning meeting. So far, we figure we’ve saved about $8 million a year off these ideas. And most of them are just common-sense kinds of things that nobody picks up on when we’re all thinking about how big we are. They’re the kinds of things that come from thinking small. One of my favorites came from an hourly associate in our traffic department who got to wondering why we were shipping all the fixtures we bought for our warehouses by common carrier when we own the largest private fleet of trucks in America. She figured out a program to backhaul those things on our own trucks and saved us over a half million dollars right there. So we brought her in, recognized her good thinking, and gave her a cash award. When you consider that there are 400,000 of us, it’s obvious that there are more than a few good ideas out there waiting to be plucked.

TOM COUGHLIN:

“Let me tell you how Wal-Mart came to have people greeters. Back in 1980, Mr. Walton and I went into a Wal-Mart in Crowley, Louisiana. The first thing we saw as we opened the door was this older gentleman standing there. The man didn’t know me, and he didn’t see Sam, but he said, Hi! How are ya? Glad you’re here. If there’s anything I can tell you about our store, just let me know.’

“Neither Sam nor I had ever seen such a thing so we started talking to him. Well, once he got over the fact that he was talking to the chairman, he explained that he had a dual purpose: to make people feel good about coming in, and to make sure people weren’t walking back out the entrance with merchandise they hadn’t paid for.

“The store, it turned out, had had trouble with shoplifting, and its manager was an old-line merchant named Dan McAllister, who knew how to take care of his inventory. He didn’t want to intimidate the honest customers by posting a guard at the door, but he wanted to leave a clear message that if you came in and stole, someone was there who would see it.

“Well, Sam thought that was the greatest idea he’d ever heard of. He went right back to Bentonville and told everyone we ought to put greeters at the front of every single store. A lot of people thought he’d lost his mind.

“Our folks felt that putting someone at the door was a waste of money. They just couldn’t see what Sam and Dan McAllister were seeing—that the greeter sent a warm, friendly message to the good customer, and a warning to the thief. They fought him all the way on it. Some people-tried hard to talk him out of it. They tried to ignore it.

“Sam just kept pushing and pushing and pushing. Every week, every meeting, he’d talk about greeters. He’d throw fits whenever he went into a store and didn’t find one. Gradually, he wore everyone down and got his way. I’d say it took about a year and a half because they really resisted it. But Sam was relentless.

“I guess his vindication had to be the day in 1989 when he walked into a Kmart in Illinois and found that they had installed people greeters at their front doors.”

If people greeters were the only good idea I’d picked up from the associates in the stores over the years, I’d still say that visiting the stores and listening to our folks was one of the most valuable uses of my time as an executive. But really, our best ideas usually do come from the folks in the stores. Period. I should say, though, that the people greeters were an exception in that I’m not generally disposed to ideas that require adding on people and expenses.

Stay Lean, Fight Bureaucracy

Anytime a company grows as fast as Wal-Mart has, pockets of duplication are going to build up, and there will be areas of the business which we may no longer need. No boss or employee really likes to dwell on such matters: it’s only human nature not to want to have your job, or the jobs of the people who work for you, eliminated. But it is absolutely the responsibility of a company’s top management to be thinking about this issue all the time—to ensure a sound future for the overall company.

One way I’ve approached this is by sticking to the same formula I used back when we had about five stores. In those days, I tried to operate on a 2 percent general office expense structure. In other words, 2 percent of sales should have been enough to carry our buying office, our general office expense, my salary, Bud’s salary—and after we started adding district managers or any other officers—their salaries too. Believe it or not, we haven’t changed that basic formula from five stores to two thousand stores. In fact, we are actually operating at a far lower percentage today in office overhead than we did thirty years ago, and that includes tremendous expenses for computer support and distribution center support—though not the actual cost of running the distribution centers. Really, it includes everything that we supply centrally in the way of support for the stores.

Some folks in the retail business have asked me where I came up with the 2 percent formula, and the truth is I just pulled it out of the air. In the early days, most companies charged 5 percent of their sales to run their offices. But we have always operated lean. We have operated with fewer people. We have had our people do more than in other companies. I think we came to work earlier and stayed later. It has been our heritage—our obsession—that we would be more productive and more efficient than our competition. And we’ve accomplished that goal.

A lot of first-time visitors are kind of shocked by our executive offices. Most people say my office and those of all the other Wal-Mart executives look like something you’d find in a truck terminal. We’re in a one-story office-warehouse building. The offices aren’t real big, and the walls are covered with inexpensive paneling. We never had fancy furniture or thick carpet, or suites with bars for our executives. I like them just like they are. We sure as heck won’t win any interior decorating awards, but they’re all we need, and they must be working fine. Just ask our shareholders.

DAVID GLASS:

“If you don’t zero in on your bureaucracy every so often, you will naturally build in layers. You never set out to add bureaucracy. You just get it. Period. Without even knowing it. So you always have to be looking to eliminate it. You know when Tom Watson, Sr., was running IBM, he decided they would never have more than four layers from the chairman of the board to the lowest level in the company. That may have been one of the greatest single reasons why IBM was successful.

“A lot of this goes back to what Deming told the Japanese a long time ago: do it right the first time. The natural tendency when you’ve got a problem in a company is to come up with a solution to fix it. Too often, that solution is nothing more than adding another layer. What you should be doing is going to the source of the problem to fix it, and sometimes that requires shooting the culprit.

“I’ll give you an example that just drove Sam crazy until we started doing something about it. When merchandise came into the back of a store, it was supposed to be marked at the right price or marked correctly on the spot. But because it often wasn’t getting done properly, we created positions called test scanners, people who go around the stores with hand-held scanners, making sure everything is priced correctly. There’s another layer right there, and Sam didn’t ever visit a store without asking if we really needed these folks.

“Well, we still have some, but what we’ve done is overhaul our back-office procedures to make sure we get it right more often the first time, and, in the process, we eliminated one and a half people out of the office in every Wal-Mart store in the company. That’s big bucks.

“Really it’s a pretty simple philosophy. What you have to do is just draw a line in the dirt, and force the bureaucracy back behind that line. And then know for sure that a year will go by and it will be back across that line, and you’ll have to do the same thing again.”

I guess one reason I feel so strongly about not letting egos get out of control around Wal-Mart is that a lot of bureaucracy is really the product of some empire builder’s ego. Some folks have a tendency to build up big staffs around them to emphasize their own importance, and we don’t need any of that at Wal-Mart. If you’re not serving the customer, or supporting the folks who do, we don’t need you. When we’re thinking small, that’s another thing we’re always on the lookout for: big egos. You don’t have to have a small ego to work here, but you’d better know how to make it look small, or you might wind up in trouble.

So you see what I mean when I say you have to think small to grow big. And really, I don’t have any doubt that Wal-Mart will stay the course and reach $100 billion in sales by the year 2000. It’s a challenge. Nothing like it has ever been done before, but our folks will do it. And now I’m going to confess to a really radical thought I’ve been having lately. I probably won’t do anything about it, but the folks who come after me are eventually going to have to face up to this question. Even by thinking small, can a $100 billion retailer really function as efficiently and productively as it should? Or would maybe five $20 billion companies work better?