Sam Walton was an American businessman, best known as the founder of Wal-Mart Stores Inc., the largest retail company in the world.  His idea that a successful business could be built around offering low prices and efficient services to its customers was hailed as unfeasible and unrealistic by its competitors during the early years of the company’s operations.

Sam’s idea about offering lower prices to customers was based on achieving economies of scale for his company.  Sam’s idea to achieve profits through selling in large quantity by offering lower prices on every product offered in the store every day rather than on special occasions like its competitors caused disruption to many existing businesses and continues to do so even today.

As of now, Wal-Mart Stores Inc., is considered as the largest retailer in the world, with over 11,500 stores under 63 banners in 28 countries across the world.  The company employs more than 2.3 million employees worldwide, and provides services to almost 260 million people each week.  The company reported annual revenues of US$482.1 billion for the fiscal year 2016 according to market reports.

What did it disrupt?

Sam’s idea was to focus on small margins but sell in large quantities which allowed him to bargain even lower prices from wholesalers and in the process forced many local stores out of business.

The central theme of his idea was “high sales volume and low prices” pushed thousands of small-town merchants out of business across the world.

He focused on expansion to the small rural areas rather than big cities like its competitors which even though caused financial distress in these areas and met with bitter resistance from the local communities laid the foundation of further expansion of the Walmart stores across the world.

The massive economies of scale enjoyed by Walmart allows the retailer to undercut prices offered by the other retailers in the small and regional locations and then slowly push the small and regional stores out of business by continuously luring customers and killing competition through offering lowest prices possible.  The idea although disruptive to many regional and local businesses, promoted efficiency in the market place and enable consumers to enjoy the lowest prices possible on every product that the company offers, around the world.  It also transformed the shopping experience for every shopper globally by offering a wide range of products under a single roof.

How did the idea emerge?

The foundation of the largest retail chain, Walmart Stores, was laid in 1962 in Rogers, Arkansas, U.S.A.  Initially, Sam approached the company that he had previously worked for, with his idea about the store.  But upon hearing his idea about offering low prices on every product which would cut the company’s wholesale margin by half, the directors of the company refused to back his idea about the stores.  He then decided to take the gamble himself, and with the borrowed money opened the first Walmart store in Rogers, Arkansas.

Sam opened his first Ben-Franklin variety store in 1945 with an investment of US$20,000 which he borrowed from his father-in-law in addition to US$5,000 he saved during his years in the U.S. Army.  The idea was same – to keep the prices of the goods as low as possible, offer a wide variety of goods in a single place, and keep the stores open for longer hours than its competitors.  Through hard work and his idea to consistently offer low prices on every product, in less than two decades, he became a proud owner of 16 stores across three states in the US with his brother, father-in-law, and brother-in-law.  He had plans to expand even faster to other states as well to achieve higher growth in profits by focusing on rural areas unlike its competitors who were focusing on major cities for expansion.  However, his failure to convince others in the management team of Ben Franklin about his aggressive expansion plans resulted in his fallout from the team and his journey to open his first Walmart store in Rogers, Arkansas, in 1962.

Sam Walton and the Foundation of the World’s Largest Retailer – Walmart

After opening his first Walmart store in Rogers, Arkansas, Sam saw a massive growth opportunity by expanding his business to small towns because at that time, all the major discount stores in the US were focusing on major cities for expansion.  This led to the expansion of Walmart stores to the regions that were untapped by the other major retailers.

The soaring stores sales and continuous expansion to other smaller market forced Sam to adopt new strategies to cut down on the largest costs faced by his business – transportation costs.  His strategy to keep all the stores geographically within a one day’s drive from a Wal-Mart warehouse and operating his own fleet of trucks for transportation purposes paid off during the expansion stage of the business.  And by 1969, Wal-Mart Stores Inc. consisted a chain of 38 stores which had combined sales of almost US$44.2 million.

In 1970, the company decided to go public and that year its shares were first time listed on the New York Stock Exchange (NYSE).  During the 1970s and 1980s, the company continued its expansion path across the country, making Sam Walton the richest person in the US in the process.  By 1991, the company surpassed other major retailers in the country including Sears and Roebuck & Company to become the largest retailer in the US and reported sales of US$43.9 billion that year.

In 1988, at the age of 70, Sam retired as the CEO of the Wal-Mart but stayed on as the Chairman of the Board for the company until his death in 1992.  During the final year of his life, he was awarded with the Presidential Medal of Freedom by then President of the US, George H. W. Bush, for his entrepreneurial spirits.  Moreover, at the University of Arkansas, the Business College was later named as the Sam M. Walton College of Business in his honor.  At the time of his death, he had a net worth of close to US$25 billion.

(Analysis of successful business models by DART Analysts)