فصل 06

6

Recruiting the Team

“I kept saying, Sam, we’re making a good living. Why go out, why expand so much more? The stores are getting farther and farther away. After the seventeenth store, though, I realized there wasn’t going to be any stopping it.”

—HELEN WALTON

As much as we must have looked like promoters in the early going—with our donkey rides and riding mowers out in the parking lots, and mountains of Tide, or whatever, piled up inside the stores—what nobody realized, including a few of our own managers at the time, was that we were really trying from the beginning to become the very best operators—the most professional managers—that we could. There’s no question that I have the personality of a promoter. That personality, and our somewhat unorthodox style at Wal-Mart, probably confused people at the outset. In fact, I have occasionally heard myself compared to P. T. Barnum because of the way I love to get in front of a crowd and talk something up—an idea, a store, a product, the whole company—whatever I happen to be focused on right then. But underneath that personality, I have always had the soul of an operator, somebody who wants to make things work well, then better, then the best they possibly can. So I guess when folks saw me walking around scribbling notes on my coffee-stained yellow legal pad, or hauling boxes of ladies’ lingerie into the stores out of my station wagon, maybe they didn’t take me that seriously. They assumed we couldn’t be in it for the long haul. Some folks no doubt figured we were a little fly-by-night—you know, in the discount business today but out selling cars or swampland tomorrow. I think that misunderstanding worked to our advantage for a long time, and enabled Wal-Mart to fly under everybody’s radar until we were too far along to catch.

Truth be told, discounting attracted mostly promoters in the beginning—people who had been in the distribution center business or who were real estate promoters, guys who weren’t really even aspiring merchants but who saw a huge opportunity. You didn’t have to be a genius to see discounting as a new trend that was going to sweep the country, and all kinds of folks came jumping into it with all four feet—wherever they could arrive first—Cedar Rapids, Iowa, or Springfield, Missouri, it didn’t matter. 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 until around 1970, it was phenomenally successful.

Anybody who has ever known anything about me knows I was never in anything for the short haul; I always wanted to build as fine a retailing organization as I could. But in those early days—before, and just after, we opened the first Wal-Mart—I got to know a lot of those promoters. As I told you, I ran the country studying the discounting concept, visiting every store and company headquarters I could find. The first ones I saw were the mill stores in the East, where the whole thing started. Ann & Hope was in Providence, Rhode Island, and there were others in Massachusetts and across New England. I went all over up there looking at Giant stores and Mammoth Mart and Arlan’s. Another one I learned a lot from was Sol Price, a great operator who had started Fed-Mart out in southern California in 1955. I made friends with Sol’s son-in-law, who was running a distribution center in Houston, and talking with him helped me sort out some of my thinking on distribution—which would eventually become another key to Wal-Mart’s success. I guess I’ve stolen—I actually prefer the word “borrowed”—as many ideas from Sol Price as from anybody else in the business. For example, it’s true that Bob Bogle came up with the name Wal-Mart in the airplane that day, but the reason I went for it right away wasn’t that the sign was cheaper. I really liked Sol’s Fed-Mart name so I latched right on to Wal-Mart. I do not believe Kmart existed at that time.

I read in some trade publication not long ago that of the top 100 discounters who were in business in 1976, 76 of them have disappeared. Many of these started with more capital and visibility than we did, in larger cities with much greater opportunities. They were bright stars for a moment, and then they faded. I started thinking about what really brought them down, and why we kept going. It all boils down to not taking care of their customers, not minding their stores, not having folks in their stores with good attitudes, and that was because they never really even tried to take care of their own people. If you want the people in the stores to take care of the customers, you have to make sure you’re taking care of the people in the stores. That’s the most important single ingredient of Wal-Mart’s success.

Most of these early guys were very egotistical people who loved to drive big Cadillacs and fly around in their jets and vacation on their yachts, and some of them lived in houses like I’d never even thought about before. I remember going to dinner at one of their houses, and we got picked up by this limousine that must have had room for fourteen people. Man, they were living high. And they could afford to back then because this discounting thing was working so well. Customers just flocked to their stores, and these fellows were covered up in cash. Most of them could still be around today if they had followed some basic principles about running good stores. There are a lot of ways to build strong companies. They don’t have to be done the Wal-Mart way, or my way, or anybody else’s way. But you do have to work at it. And somewhere along the line, these folks stopped short of setting the goals and paying the price that needed to be paid. Maybe it wasn’t the Cadillacs and the yachts, maybe they just decided it wasn’t worth it. But whatever it was, they just didn’t stay close enough to their business, they sort of chose to get over on the other side of the road.

They expanded quickly without building the organizations and the support—such as distribution centers —needed to expand those companies. They didn’t get out into their stores to see what was going on. Then Kmart got their machine in gear and began to do it better and better. I remember going in their stores—I’ll bet I’ve been in more Kmarts than anybody—and I would really envy their merchandise mix and the way they presented it. So much about their stores was superior to ours back then that sometimes I felt like we couldn’t compete. Of course that didn’t stop us from trying. And Target came along and did a fine job, taking the whole idea a little more upscale. As these big operators became more organized, the competition grew a lot more difficult. That’s when all those guys who were failing to meet their customers’ needs and who didn’t build strong organizations—all those promoters—started to fall apart and, eventually, fall out.

Actually, during this whole early period, Wal-Mart was too small and insignificant for any of the big boys to notice, and most of the promoters weren’t out in our area so we weren’t competitive. That helped me get access to a lot of information about how they were doing things. I probably visited more headquarters offices of more discounters than anybody else—ever. I would just show up and say, “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 as often as not, they’d let me in, maybe out of curiosity, and I’d ask lots of questions about pricing and distribution, whatever. I learned a lot that way.

KURT BARNARD, RETAILING CONSULTANT:

“I was executive vice president of the discounters’ trade association, working in my New York office one day in 1967. My secretary said there was a man out front who wanted to join our group. I said I would give him ten minutes. So in comes this short, wiry man with a deep tan and a tennis racket under his arm. He introduced himself as Sam Walton from Arkansas. I didn’t know what to think. When he meets you, he looks at you—head cocked to one side, forehead slightly creased—and he proceeds to extract every piece of information in your possession. He always makes little notes. And he pushes on and on. After two and a half hours, he left, and I was totally drained. I wasn’t sure what I had just met, but I was sure we would hear more from him.”

Looking at everybody else’s companies made me feel we were definitely headed in the right direction. But as we developed, we began to feel a little out of control. In the late sixties, we had more than a dozen Wal-Marts and fourteen or fifteen variety stores, which is a pretty good-sized company to be running with three ladies, myself, and Don Whitaker in the office, and a manager in each store. I already told you what scrubby buyers we were. We had a lot of people with little or no experience, or not enough knowledge of how bigger operations actually worked. I made up my mind that we had to get somebody with management under his belt. I had hired Gary Reinboth from J. J.

Newberry, a big variety chain that was having some problems at the time, so I asked him if he knew anybody, and he told me about this guy up in Omaha named Ferold Arend. He was Newberry’s district manager and head of merchandise for the whole Midwest, so Bud and I flew out to see him. We talked him and his wife into coming down and looking at our operation.

Ferold arend, wal-mart’s first vice president of operations, and later its president:

“In the middle of 1966, Wal-Mart No. 5 was under construction in Conway, Arkansas, and Sam was all excited and said, ‘I’ve got to show you these plans.’ So he loaded my wife and me in his plane and we flew down there. The store had a cotton mill on one side and a stockyard on the other, and it was in a terrible neighborhood. My first thought was: This is not a very good place for a store.’ I also thought the Bentonville store didn’t seem to have any organization to the way it was run. Let’s just say I wasn’t very impressed with the whole Sam Walton operation at that time. I told him I wasn’t interested.

“Later on, after that Conway Wal-Mart opened up, Sam called me and told me what the sales were. I thought, ‘My gosh, that store did as much in one day as some of our bigger stores do in a month.’ And then he told me he was only paying ninety cents a square foot. And I thought, ‘He must have something there.’ About that time, Newberry’s decided to reorganize and I was going to have to move to a new division. So I thought, ‘Well, if I’m going to have to start over in a company where I’ve worked for twenty-one years, why not look at something I’m really interested in’ —and that was discounting and Sam Walton.

“Here I was coming in as vice president, and it took some getting used to. The offices were still up on the square in Bentonville, and Sam had just got through remodeling them—which I’m sure was a great improvement—but in my opinion they weren’t much. The offices were in an old narrow hallway upstairs—some were over the barbershop and others were over an attorney’s office. The floor sagged up there, about four inches from the wall to the center. And they had some partitions and some wood paneling, and they were real little offices. It was very close-knit up there.”

Even if he couldn’t tell it by the office we gave him, bringing Ferold in was an important step for our company. I knew we had to get better organized than we were. We still had to build a basic merchandise assortment, and a real replenishment system. We had lists of items we were supposed to carry, and we were dependent on the people in the stores to keep good records of everything manually—this was at a time when quite a few people were beginning to go into computerization. I had read a lot about that, and I was curious. I made up my mind I was going to learn something about IBM computers. So I enrolled in an IBM school for retailers in Poughkeepsie, New York. One of the speakers was a guy from the National Mass Retailers’ Institute (NMRI), the discounters’ trade association, a guy named Abe Marks.

ABE MARKS, HEAD OF HARTFIELD ZODY’S, AND FIRST PRESIDENT, NMRI:

“I was sitting there at the conference reading the paper, and I had a feeling somebody was standing over me, so I look up and there’s this grayish gentleman standing there in a black suit carrying an attaché case. And I said to myself, ‘Who is this guy? He looks like an undertaker.’

“He asks me if I’m Abe Marks and I say, ‘Yes, I am.’

” ‘Let me introduce myself, my name is Sam Walton,’ he says. ‘I’m only a little fellow from Bentonville, Arkansas, and I’m in the retail business.’

“I say, ‘You’ll have to pardon me, Sam, I thought I knew everybody and every company in the retail business, but I never heard of Sam Walton. What did you say the name of your company is again?”

” ‘Wal-Mart Stores,’ he says.

“So I say, ‘Well, welcome to the fraternity of discount merchants. I’m sure you’ll enjoy the conference and getting acquainted socially with everyone.’

” ‘Well, to be perfectly honest with you, Mr. Marks, I didn’t come here to socialize, I came here to meet you. I know you’re a CPA and you’re able to keep confidences, and I really wanted your opinion on what I am doing now.’ So he opens up this attaché case, and, I swear, he had every article I had ever written and every speech I had ever given in there. I’m thinking, ‘This is a very thorough man.’ Then he hands me an accountant’s working column sheet, showing all his operating categories all written out by hand.

“Then he says: ‘Tell me what’s wrong. What am I doing wrong?’

“I look at these numbers—this was in 1966—and I don’t believe what I’m seeing. He’s got a handful of stores and he’s doing about $10 million a year with some incredible margin. An unbelievable performance!

“So I look at it, and I say, ‘What are you doing wrong? Sam—if I may call you Sam—I’ll tell you what you are doing wrong.’ I handed back his papers and I closed his attaché case, and I said to him, ‘Being here is wrong, Sam. Don’t unpack your bags. Go down, catch a cab, go back to the airport and go back to where you came from and keep doing exactly what you are doing. There is nothing that can possibly improve what you are doing. You are a genius.’ That’s how I met Sam Walton.”

Abe invited me to join the NMRI and it turned out to be quite a valuable association for me. I was on the board for about fifteen years, and made some terrific contacts and generous friends. I visited with Abe a number of times at his New York offices, and he was a very open guy. He shared with me how he used computers to control his merchandise.

ABE MARKS:

“Our system was rudimentary by today’s standards, but it was very advanced for the 1960s. Very few companies controlled their merchandise the way we did. Sam spent a lot of time reviewing these operations and he brought some of his people up to review them. He has just been a master of taking the best out of everything and adapting it to his own needs.

“What we helped him with in the early days was really logistics. It’s like in the Army. You can move troops all over the world, but unless you have the capacity to supply them with ammunition and food, there’s no sense putting them out there. Sam understood that. He knew that he was already in what the trade calls an ‘absentee ownership’ situation. That just means you’re putting your stores out where you, as management, aren’t. If he wanted to grow he had to learn to control it. So to service these stores you’ve got to have timely information: How much merchandise is in the store? What is it? What’s selling and what’s not? What is to be ordered, marked down, replaced? To get more technical, that helps you control what we call turn, or inventory turnover—the ratio of sales to inventory. That’s a key. The more you turn your inventory, the less capital is required. And all this involves getting the merchandise to the store at the right time, communicating how it’s being priced and how it’s being marked down, whatever. Logistics.

“Anyway, the man’s a genius. He realized—even at the rudimentary level he was on in 1966, operating those few stores that he had—that he couldn’t expand beyond that horizon unless he had the ability to capture this information on paper so that he could control his operations, no matter where they might be. He became, really, the best utilizer of information to control absentee ownerships that there’s ever been. Which gave him the ability to open as many stores as he opens, and run them as well as he runs them, and to be as profitable as he makes them.

“You’ve got to realize this too. By being at that conference, he was absolutely in the right place at the right time. There were no such things in those days as minicomputers and microcomputers. He was really ten years away from the computer world coming. But he was preparing himself. And this is a very important point: without the computer, Sam Walton could not have done what he’s done. He could not have built a retailing empire the size of what he’s built, the way he built it. He’s done a lot of other things right, too, but he could not have done it without the computer. It would have been impossible.”

Much as I hate to admit to something like that, I expect Abe is probably right. His memory’s pretty good about why I was at that conference, too. I wanted to show him my books, and I wanted to ask him about merchandise control. But I knew I’d never be any whizbang computer guy myself, so I had another reason for going to that school: I was looking to hire a good, bright systems person, and I figured I might find one there. As it happened, there were all sorts of bright people in that school. Dale Worman—a very astute retailer from the Fred Meyer company out in Portland and now a good friend—was there, as was Arlie Lazarus, who became president of Herb Fisher’s Jamesway Corp. And, of course, that’s where I first met Ron Mayer, then the smart young chief financial officer at Duckwall Stores in Abilene, Kansas. I targeted him as the guy we needed at Wal-Mart, and started wooing him right there. Like so many of them, he wasn’t interested just then in moving to Bentonville, Arkansas, to work for somebody he knew next to nothing about. Later on, we changed his mind.

But I had another problem on my mind when I went up there: distribution. All these other guys, like Abe Marks, were in large urban markets, and their stores were being supplied by big distributors. Kmart and Woolco were using the same distribution system that was supplying their thousands of variety stores. So here we were out in the sticks with nobody to distribute to our stores, which meant basically that our managers would order from salesmen and then some day or other a truck from somewhere would come along and drop off the merchandise. Even at the stage we were in, this was totally unworkable. A lot of our stores weren’t big enough to order whole pallets of merchandise, so we had rented that old garage in downtown Bentonville as our warehouse. We would have big shipments delivered there, then unpack them and repack them into smaller quantities. Then we’d call the trucklines to come get them and take them to the stores. It was expensive and inefficient. Somewhere in that period, Ferold and I had hired another fellow from Newberry’s, Bob Thornton, who had been running a distribution center for them in Omaha, with the promise that we were going to build a distribution center for him to run.

BOB THORNTON:

“He hired me with the full understanding that I was going to put together a warehouse and distribution system. I accepted the job, moved down here, and started drawing some plans. Then one day he proceeds to tell me he doesn’t know for sure whether we really need a warehouse yet or not. It upset me to no end because that was really the only field I wanted to be into. I said, ‘Gee, Sam, I want to run a warehouse.’ For about six months to a year there, I just worked doing various things around the company, and in my spare time I drew up plans for a distribution center. There wasn’t room for me in the office so they knocked a hole through the wall and went into the upstairs of the shoe store next door. It was kind of like an attic, my office, with no heat or air conditioning in it. We had one old toilet for a rest room, with a screen-door hook on the door. And there were about twenty-five people working there by now. Sam would come by every so often and tell me to keep working on drawing those warehouse plans, but I could see he wasn’t sure about it at all.”

I knew we needed a warehouse. I just wanted to make sure we got the kind we needed, and at this time too, remember, we were financing everything ourselves. We were borrowing heavily to open new stores. But anyway, there was one guy at that same IBM school—a fellow up in Green Bay, Wisconsin—who was the only one who had a warehouse, a distribution center. He invited me to go look at it. So when I got home from the school, I threw Don Whitaker and Ferold and Bob Thornton and some other folks—there were six of us, I remember—into a Beechcraft Baron I was flying in those days, and hauled us up to Green Bay, Wisconsin. We went through this warehouse, saw how they did it, took a lot of notes on everything. It was computerized, one of the first computerized warehouses I know anything about.

After that trip, I knew we had to build one, and everybody was pressuring me for a new general office, so we bought fifteen acres on a farm right outside Bentonville, where we still are today, for about $25,000. Bob was in charge of building us a new 15,000-foot general office, which I thought would last us forever, and a 60;000-foot warehouse, which I thought was too big, but Ferold convinced me we needed it.

BOB THORNTON:

“As I recall, my blueprint for the warehouse called for 100,000 square feet, which to me was very minimal. Then Sam decided to get an architect involved. When I got to look at the drawing, I thought, ‘Well, this can’t be right. It’s only 60,000 square feet.’ So I went to tell Sam about it, and he said, ‘Well, I called the architect and told him to cut it back. I just don’t think we need that 100,000 square feet, Bob.’

“Another thing. I had designed that distribution center around an in-floor towline system, you know, a track that moves carts around the floor. Sam says, ‘Well, Bob, I just don’t think we can do that. We can’t spend that kind of money.’ At that point, I literally didn’t know how to run a warehouse without one so I just said, ‘Hey, Sam, if we don’t have a towline system, then you don’t need me because I don’t know what to do without it.’ So he gave in to that. The truth is, Sam never did anything in size or volume until he actually had to. He always played it close to the belt.”

It’s true enough that I was nervous about spending any unnecessary money in those days. We were generating as much financing for growth as we could from the profits of the stores, but we were also borrowing everything we could. I was taking on a lot of personal debt to grow the company—it approached $2 million, which was a lot of money at the time. The debt was beginning to weigh on me.

By now I no longer had any doubt that we were really on to something. We had expanded to Missouri —Sikeston was our first store there. And we’d put stores in Neosho and West Plains. We’d gone to Clare-more, Oklahoma—Helen’s hometown. Our first seven or eight Wal-Marts were showing spectacular results. Once we got it going, it was hard to see why we should quit. The thing was, you could see the potential so clearly. The profits and the sales were there but we needed to get better organized and come up with a more sensible way to finance the growth. I needed someone to help me with systems and distribution.

I had stayed in touch with Ron Mayer, and I kept after him to work for us. Finally, I talked him into coming down to look over our operations, and then darned near killed him before he ever had a chance to sign on. We were flying around in my Beech Baron, looking at stores, and we were on our way in to land at Carthage, Missouri—headed for store number 12. There are two intersecting runways at Carthage, and as I touched down on one of them, all of a sudden up ahead we saw this plane on the other runway, right at the intersection, and we were headed straight at him. I hadn’t seen him or heard him on the radio. I didn’t know where he came from. I gave that Baron all the power it had and we just barely made it over the top of the other plane. Then we circled around and landed. This was Ron’s first trip with me, and who knows what he must have thought. But somehow, I talked him into coming to work with us anyway. He joined Wal-Mart in 1968 as vice president for finance and distribution.

Even though it may surprise some people, I have to say that I consider the time Ron was at the company, from 1968 until 1976 (when he left under some fairly unpleasant circumstances for both of us), to be the most important period of development in Wal-Mart’s history. We had a good thing going before Ron arrived, but he, and some of the people he brought on board, like Royce Chambers, our first data processing manager, gave the company its first sophisticated systems. And those systems were the beginnings of a management method which allowed us to stay real close to our stores even as our growth exploded.

We were forced to be ahead of our time in distribution and in communication because our stores were sitting out there in tiny little towns and we had to stay in touch and keep them supplied. Ron started the programs that eventually improved our in-store communications system. Building on the groundwork already laid by Ferold Arend, Ron also took over distribution and began to design and build a system that would enable us to grow as fast as we could come up with the money. He was the main force that moved us away from the old drop shipment method, in which a store ordered directly from the manufacturer and had the merchandise delivered directly to the store by common carrier. He pushed us in some new directions, such as merchandise assembly, in which we would order centrally for every store and then assemble their orders at the distribution center, and also cross-docking, in which preassembled orders for individual stores would be received on one side of our warehouse and leave out the other.

From Ron Mayer’s arrival on, we as a company have been ahead of most other retailers in investing in sophisticated equipment and technology. The funny thing is, everybody at Wal-Mart knows that I’ve fought all these technology expenditures as hard as I could. All these guys love to talk about how I never wanted any of this technology, and how they had to lay down their life to get it. The truth is, I did want it, I knew we needed it, but I just couldn’t bring myself to say, “Okay, sure, spend what you need.” I always questioned everything. It was important to me to make them think that maybe the technology wasn’t as good as they thought it was, or that maybe it really wasn’t the end-all they promised it would be. It seems to me they try just a little harder and check into things a little bit closer if they think they might have a chance to prove me wrong. If I really hadn’t wanted the technology, I wouldn’t have sprung the money loose to pay for it.

By the late sixties, we were really well positioned for serious growth. We had a retail concept we believed in, the core of a professional management team, and the foundations of systems which would support growth. In 1968, we had fourteen variety stores and thirteen Wal-Marts. In 1969, we had fourteen variety stores and eighteen Wal-Marts. And we were raring to go. I couldn’t resist taking that next step to see how far we could go. And I always figured we would slow down or stop when we weren’t as profitable as we should be.

It was around that time that Bud and I—very quietly—began to think about taking the company public.