Shortly after Tate knocked the scales from his eyes, Walton also instituted the “We Care” program, which assured even the lowliest worker the right to take a grievance all the way up the corporate ladder to the top if need be, without fear of retribution from a supervisor. Walton also instructed his managers to open the books to workers and regularly disclose all the key measures of their particular store’s performance, including profits. Underscoring Wal-Mart’s new egalitarianism, Mr. Sam decreed that employees henceforth were to be called “associates,” a term that he lifted from J. C. Penney Co. “Because you are our partner,” Walton told his associates, “we have an open door, and we listen to you, and together we can work out our problems.” 28
Although Walton got an earful during his store visits, he also encouraged associates to telephone him if need be, or even to show up on his doorstep in Bentonville unannounced. His door really was open and so was his mind—his implacable opposition to collective bargaining aside. He would not hesitate to rebuke or fire a manager who disrespected a worker. A clerk in Texas once telephoned Walton in Bentonville after his store manager humiliated him by peremptorily ordering him to stop what he was doing and remove a piece of paper from the floor. Walton told the clerk to mark the spot with tape. The next day, Walton flew to Texas and invited the manager, who was new to Wal-Mart, to join him on a walk-around. When they came to the telltale bit of tape, Walton laid a crumpled sheet of paper atop it and sarcastically demonstrated the proper removal technique by picking it up himself. He then took the manager out behind the store and fired him. Reports of this and other instances of Walton’s intervention on behalf of persecuted associates reverberated far and wide through Wal-Mart, burnishing Mr. Sam’s populist credentials.
Even so, the bigger the company grew, the harder it was for Walton to sustain even the semblance of a personal relationship with tens of thousands of workers scattered over a few dozen states. He maintained a manic schedule of store tours, but also devised various inspirational gimmicks that did not require his presence. The most notable was the Wal-Mart cheer, which workers in every store were required to perform at the start of every shift. It was introduced in 1975, after Walton returned from a trip to South Korea, where he’d witnessed factory workers doing morning calisthenics punctuated by mass chanting of their employer’s name. Walton also cooked up “Sam’s Pledge” to encourage compliance with “The Ten-Foot Rule.” The pledge varied in the recitation, but usually went something like this: “From this day forward, I solemnly promise and declare that every customer that comes within ten feet of me, I will smile, look them in the eye, and greet them. So help me Sam!” 29
Shrewdly, Walton softened the Orwellian edge of all this mandatory good cheer by also sanctioning goofiness in the vein of his own grass-skirted hula down Wall Street. “We’re constantly doing crazy things to capture the attention of our folks and lead them to think of surprises of their own,” he noted in his autobiography. 30 On a dare, a male Wal-Mart vice president put on pink tights and a blond wig and rode a white horse around the town square in Bentonville. Unlike Walton, David Glass was a reserved man, but he was shamed into putting on overalls and a straw hat and riding a donkey in mock punishment for his candid comments to a reporter about the opening-day fiasco in Harrison. Numerous stores staged pig-kissing, poetry-reading, Moon Pie-eating, or baby-serenading contests, as well as women’s fashion shows “using ugly old men from the stores as models,” as Walton put it.
To Walton, these wholesome hijinks were not just a technique of employee motivation but also a defiant affirmation of Wal-Mart’s small-town roots, of its Ozark soul. “We know that our antics—our company cheers or our songs or my hula—can sometimes be pretty corny, or hokey,” he declared. “We couldn’t care less.” 31
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Although Wal-Mart paid its hourly workers less than did the competition, it was more generous in rewarding store managers than were most discount chains. Because managers received a bonus pegged to store profits, there was no theoretical limit to their earnings. By the 1980s, the manager of a thriving store could take home as much as $175,000 to $200,000 a year, which went a long way in a small town. This was good money, but not easy money; running a Wal-Mart store was a burnout job from the company’s earliest days.
With few exceptions, managers were required to work through two, eight-hour shifts six days a week and to be on emergency call twenty-four hours a day. Bentonville set ambitious sales and profit goals for each store, and a manager could not fall short many times and expect to keep his job (though demotion was more likely than dismissal). A manager also had to walk a fine line between pushing workers to be more productive and antagonizing them to the point where they started burning up the phone lines to the home office. If disgruntled workers started muttering about the need for a union, headquarters was inclined to axe the store manager first and ask questions later.
In Wal-Mart’s formative years, many a clerk or stock boy worked his way up through the ranks to store manager without ever leaving his hometown. This tended to happen fast if he had even a modicum of talent and drive, because most of his colleagues—all of the women, that is—were effectively disqualified from rising above department manager. But as Wal-Mart became a sizable company, it professionalized store management in a way that not only blocked the traditional path upward but also created a two-tier caste system consisting of an elite of highly mobile, overwhelmingly male managers and an underclass of dead-ended hourly workers that was predominantly female.
In the late 1970s, Wal-Mart started a management training program, making an undergraduate degree a prerequisite for admission. The company even began recruiting management trainees on college campuses, concentrating on small schools in the South and Midwest. Walton so thoroughly reversed the company’s early prejudice against the educated that he and his wife contributed a large sum to the University of Arkansas to create a Walton Institute within its business school in Fort Smith. Wal-Mart sent its brightest managerial prospects to Fort Smith for advanced training.
Qualified hourly workers were free to apply to the training program at their store—and many did—but it was an awful lot like enlisting in the U.S. Army. If you survived basic training, the company might send you anywhere it had a store to fill an assistant manager vacancy. To get a store of your own, you’d almost certainly have to move at least two or three times more and keep right on moving even after you’d grasped the golden ring as store manager. Bentonville strongly preferred to entrust the opening of a new store to an experienced store manager. As the pace of new openings accelerated, this effectively put managers on a six-month rotation. “Traditionally, we’ve had this attitude that if you wanted to be a manager at Wal-Mart, you basically had to be willing to move on a moment’s notice,” Walton said. “You get a call that says you’re going to open a new store 500 miles away, you don’t ask questions. You just pack and go, then sometime later you worry about selling your house and moving your family.” 32
For his first dozen years in business, Walton was unable to take full competitive advantage of his obsessive frugality. As a Ben Franklin franchisee, he was required to buy at least 80 percent of his merchandise from Butler Brothers at a hefty 25 percent markup. Chafing under this requirement from the start, Walton routinely hitched a trailer to his car and drove from Newport into Tennessee, where he found wholesalers willing to sell at better prices than was Butler Brothers. Although founding Wal-Mart freed Walton from franchisor-imposed price constraints, he remained at a serious disadvantage to bigger retailers when it came to buying goods directly from manufacturers like Procter & Gamble, RCA, or Eastman Kodak. Most big consumer products companies were loath to sell through discount stores for fear of cheapening their brands, and they more or less dictated the price of the merchandise they did deign to provide to small fry like Wal-Mart Stores. “I don’t mind saying that we were the victims of a good bit of arrogance from a lot of vendors in those days,” Walton later complained, in what for him was a str
ong rebuke. “They didn’t need us, and they acted that way.” 33
As Wal-Mart gained size and strength, Walton gradually reversed the dynamic of his one-sided relationship with suppliers. By the late 1970s, Walton had the upper hand and he used it unsparingly to extract price and other concessions from even the largest vendors. To save money, Wal-Mart stopped sending buyers out on sales calls and insisted that vendors call on them in Bentonville. “[He] is tough as nails,” said George Billingsley, a Bentonville Realtor who was a close friend of Walton’s. “Just ask any vendor: He’s as cold as a Sunday night supper.” 34
Walton took all the song and dance out of procurement, forbidding his buyers from accepting any of the gratuities that lubricate commerce in America: expense-account meals, golf outings, cases of wine, Super Bowl tickets, and so on. Buyers were not even allowed to bring sales reps into their offices at headquarters, but instead had to meet with them in the small, windowless interview rooms that lined both sides of a hallway just off the lobby. Nor did Walton allow his employees to be distracted by talk of cooperative advertising, return management fees, and the other additives vendors customarily use as deal sweeteners. For Wal-Mart, it all boiled down to a single price on an invoice, and the boiling had better be quick or a recalcitrant visitor would find himself back in the parking lot in a hurry. Wal-Mart is “the rudest account in America,” a senior consumer goods executive once complained (anonymously) to a reporter. 35
For years, the cost advantage that Wal-Mart held over other retailers was purely a matter of Walton’s fanaticism in stretching a dollar any way he could. Operationally, Wal-Mart was something of a mess, even by Walton’s own description. “We didn’t have systems. We didn’t have ordering programs. We didn’t have a basic merchandise assortment. We certainly didn’t have any sort of computers,” he conceded in Made in America. “In fact, when I look at it today, I realize that so much of what we did in the beginning was really poorly done.” 36
Then, too, the Ozarks put Walton’s fledgling company at a significant cost disadvantage when it came to distribution. None of the wholesale distributors and trucking companies that catered to the big, established retailers offered regular delivery service to Ozarks towns as small and as distant from major highways as those where Wal-Mart put its stores. Instead of centralizing merchandise orders to facilitate volume purchasing, each Wal-Mart outlet placed its own orders with salesmen and usually had to pay extra for special delivery by common carrier. Walton did buy some items in bulk, taking delivery in Bentonville, where, in a rented garage, laborers repacked the orders into store-sized loads. Walton improvised madly to get these goods out to the stores. His oldest son, Rob, had just got his driver’s license the first time he was drafted to haul a truckload of something to a store one night. 37
In the late 1960s, Walton recruited a handful of smart, experienced executives from Ben Franklin, Newberry, and other retailers to begin building the distribution, computer information, and communications systems that Wal-Mart so conspicuously lacked. By building its own network of warehouses and its own fleet of trucks to make deliveries to stores, the company was able to consolidate its ordering and buy in volume just like the biggest retailers. What is more, by taking on the rigors of systems development itself instead of outsourcing it to third parties, as did most every other retailer, Wal-Mart brought to bear its compulsive pursuit of cost advantage to a vast new area of chain-store management. In distribution, as in procurement, Wal-Mart succeeded in transforming initial weakness into enduring competitive edge.
Even so, this aspect of the business did not come naturally to Walton, because it was not a simple matter of minimizing expense but instead required making heavy investments in technology to streamline the flow of merchandise and information. Wal-Mart’s founder was perfectly capable of understanding the rationale for investing $70 million in an automated distribution center the size of twenty-three football fields or sinking $24 million into a private satellite network, but he required serious persuasion when it came to actually parting with the cash. “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,” Walton conceded. “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.’” 38
Walton gave the lion’s share of credit for Wal-Mart’s back-office prowess to Glass, who finally succumbed to Walton’s recruiting pitches in 1976 (and would succeed Walton as CEO in 1988). In some ways, Glass was Walton cloned. Born and raised in the backwoods Ozarks city of Mountain Home, not far from the Walton family’s Webster County stronghold, Glass grew up on a farm without electricity or indoor plumbing and was well-acquainted with the taste of rabbit and squirrel. Born in 1935, Glass was a bit young to bear the scars of the Great Depression in memory the way Walton did, but he was as tight with a dollar as his predecessor and no less rigorous an enforcer of corporate frugality. Like his predecessor, Glass was an unpretentious man for whom the bright city lights held no allure. “He’s still the same old kid he always was, and I’d just whup him if he weren’t,” his mother, Myrtle Glass, told a reporter in 1992. 39
Although Glass was not without talent as a merchant, he was, definitively, a master back-office technician and he looked the part, with his quizzical half-smile and his beetling, peaked eyebrows and long dark sideburns. Diffident and dry-witted, Glass was Walton’s opposite temperamentally (certainly no one ever thought to call him “Mr. Dave”) and had none of Walton’s genius for connecting with regular folk or delivering stem-winding speeches. Glass would succeed Walton as Wal-Mart’s CEO without ever replacing him as its inspirational leader.
Glass made himself so useful to Walton that he survived the bungling of one of his first big assignments, the construction of Wal-Mart’s first fully mechanized distribution center in Searcy, Arkansas, in the late 1970s. The Searcy “DC” did not entirely eliminate the human element, but its 700 employees mostly tended machines of one sort or another. The colossal warehouse was equipped with eight miles of high-speed, laser-guided conveyor belts and was linked by computer to stores and to suppliers, the better to track inventory levels and to speed reordering. The Searcy facility was the prototype of dozens of DCs to come, but getting it working right was a struggle. According to Glass, the company began shipping freight before the building had a roof or working toilets.
Even with Walton’s reflex miserliness slowing the pace of Wal-Mart’s progress, the company managed to get the jump on its competitors in virtually every area of the digital revolution that has transformed retailing over the last three decades, establishing a technological edge that it has yet to relinquish. Wal-Mart was one of the first retailers to use computers to track inventory (in 1969), adopt the now-ubiquitous product bar codes (1980), and implement electronic data interchange to speed purchase orders to suppliers (1985). In 1987, Wal-Mart began building what is now America’s largest private satellite-communication network to move data through space faster and in greater volumes than is possible over telephone lines. Piece by piece, Walton and company were putting together a seamlessly integrated system that “would give its executives a complete picture, at any point in time, of where goods were and how fast they were moving, all the way from the factory to the checkout counter.” 40
In Walton’s view, Wal-Mart’s expansion in the 1970s and 1980s—the climactic decades of his career—was simply a matter of “rolling out the formula” to hundreds of new locations outside of Wal-Mart Country. His world-beating formula in a nutshell was this: an affinity for underserved small-town locations plus a low-paid but highly motivated workforce and ultra-efficient distribution equals “Every Day Low Prices” that few consumers could resist and that no competitor could match. The amplitude of Wal-Mart’s growth curve during Walton’s last two decades of running the company he had founded was simply astonishing. Wal-Mart went from 32 stores in 1970 to 276 in 1980 to 1,726 in 1990. The company’s sales in these miles
tone years totaled $31 million, $1.248 billion, and $25.881 billion, respectively. Wal-Mart’s common stock split so many times over this period that 100 shares purchased for a total of $1,650 in the 1970 initial public offering grew to 51,200 shares worth $3.2 million by 1990.
Wal-Mart’s ascendance was not nearly as easy as Walton and colleagues made it look, for it is an exceptional company that can maintain its discipline while growing at a geometric rate. Discounting’s other pioneers were a particularly pertinent case in point. A few hundred entrepreneurs around the country had gone into the business before Walton had, but very few of them survived the entry of Kmart and other established chains into the field in the 1960s. Walton took special satisfaction in the demise of Gibson Discount Stores. In his view, “guys like Herb Gibson” were sloppy, unfocused operators who had only themselves to blame. “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.” 41
Ever since the advent of mass merchandising in the latter decades of the nineteenth century, the conventional strategy for building a national retail chain had been to open as many stores in as many big cities around the country as fast as possible. This was essentially what Kmart did in discounting, saturating the suburbs of America’s large and midsized cities at a furious clip; by 1980, Kmart had 2,300 outlets, none of which were located in towns of less than 50,000. By contrast, Wal-Mart methodically moved out from its base in Bentonville in a pattern described by a series of slightly overlapping, adjoining circles. At the center of each circle was a distribution center capable of supplying 150 stores within a radius of about 250 miles, or the approximate distance that a truck could safely travel to and from a DC in a day. “We were always pushing from the inside out,” Glass explained. “We never jump [locations] and then backfill.” 42
The Bully of Bentonville Page 7
