Sam Walton - The Khuram Dhanani Blog
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Khuram Dhanani

Sam Walton

With more than $500 billion in revenue for 2020, Walmart is one of the world’s largest corporations. By comparison, its closest industry competitor, Amazon, has only half that revenue. Walmart operates more than 11,500 retail outlets in 27 countries, deriving most of its revenue from brick-and-mortar stores and bucking the worldwide trend toward online sales.

Samuel (Sam) Moore Walton was born into a middle-class farming family, but this did not provide a comfortable living. Sam began selling magazines and newspapers and contributed his earnings to the family wallet. Always a go-getter, Sam became an Eagle Scout at the age of 13.

He enrolled in the University of Missouri and worked his way through college selling papers and waiting tables. Graduating with a degree in business, Sam was accepted into a management training program for J.C. Penney and became a top sales associate because of his natural hustle and knack for connecting with people.

Walton’s progress was halted by World War II and stateside military service. When the war was over, he took his life savings of $5,000, borrowed another $20,000 from his father-in-law, and bought a Ben Franklin franchise outlet in Arkansas. Ben Franklin was a national chain that sold discounted household and craft items and this opportunity gave Sam his first practical experience in retail management.

The Ben Franklin franchise required franchisees to adhere to a long list of policies and practices which Sam found frustrating and limiting. With his creativity, Sam was able to acquire the freedom he needed to drop prices and attract a loyal customer base. As a result, the franchise so on turned a significant profit. 

Choosing to retain his investment in the Ben Franklin store and also branch out, Sam invested in another store but then suffered a traumatic clicking point experience that probably shaped his business philosophy. His new landlord was a retail store competitor, and would not renew the lease when it expired. The only way Sam could avoid bankruptcy was by selling both businesses. 

The 32-year-old entrepreneur had been outmaneuvered by a competitor and learned some important lessons in the process about stretching himself too thin and remaining on guard against the competition. These were lessons he would never forget.

Thoroughly humbled and perhaps somewhat humiliated, Walton didn’t give up. He got back into the discount variety store market and over the next 10 years, he began to open stores across Arkansas, Missouri, and Kansas, always carefully gauging the local competition before moving in. Although each location had an on-site manager, Walton maintained a hands-on approach and soon flew from store to store in a private plane. Sam knew how to execute and get things done, and he enjoyed the freedom of making his own policies and procedures. He was also an expert at delegation, giving the tasks he didn’t want to his executives, which allowed him to keep adding new retail locations. 

A new type of competition began to eat into his profits. K-Mart, Woolco, and other chains had expanded the discount store concept, offering a more comprehensive selection of lower-priced merchandise in warehouse-sized retail spaces. Walton realized that these stores would render his business model obsolete and were going to siphon off his customer base, so he felt he had little choice but to try his hand at running a large-scale discount store.

From the start, the emphasis was on low prices and a no-frills shopping experience. Walton kept decorations to a minimum, purchased the cheapest stock he could acquire, and paid low wages. The business model revolved around offering prices so low that customers could hardly justify shopping anywhere else, and that meant cutting overhead expenses by any means necessary. The model proved especially effective in small, rural towns where incomes were limited.

Fully aware of his downside risk and hesitant to place all his eggs in one basket, Walton continued operating his chain of other retail stores. Then, choosing to leverage his opportunity and raise sufficient cash for further expansion, Sam elected to take the company public. Ever aware of his risk, he was careful to retain a 61 percent stake, ensuring continued control of the operations. Eventually, Walton released his variety store holdings as Walmart stores began to pop up everywhere.

By the 1980s, Walmart’s revenues were over $1 billion a year from more than 200 stores. Knowing he had found a perfect market fit and choosing to take full advantage of this hot market, Sam embarked on another new retail venture he called Sam’s Club. This parallel operation proved to be almost as profitable as Walmart, and by the end of the decade, the sister chain had grown to more than 100 locations. Another entrepreneurial opportunity was the Walmart Supercenter which added groceries, pharmacies, in-store banks, restaurants, and opticians to the original discount merchandise mix. These auxiliary services also proved highly profitable. Within a few years, the Supercenter became the chain’s predominant store format. 

Sam Walton became ill and passed away in 1992, just weeks after receiving the Presidential Medal of Freedom from President George H.W. Bush. The president had made a special trip to Bentonville to present the honor due to Walton’s ill health.

At the time of Walton’s death, he was considered the wealthiest individual in America. His frugality in business was echoed in his lifestyle. Sam had little taste for luxury goods or expensive hobbies, a preference reflected in his successful business model. Neither did he embody any popular idea of “being cool” or aspiring to it. He was down-to-earth, practical, and thrifty. 

If ever there was an example of “ideas are cheap, execution is everything”, it is the life of Sam Walton. He did not invent retailing. He did not create the discount store, the one-stop-shopping concept, or the warehouse store. He was not the first to source from overseas or pay his workers a minimum wage. Walmart became the dominant retailer because Walton executed every aspect of his business with focus and determination. He learned from his failures and made adjustments until everything clicked.

Walton had his critics. In particular, people accused him of driving many independent retailers out of business with aggressive competitive practices and forcing suppliers into take-it-or-leave-it arrangements. In addition, he was criticized for paying low wages and relying heavily on imported goods. On the other hand, Walmart has its defenders. It is one of the largest employers in many small towns and a source of affordable groceries and merchandise for those who rely on low pricing to make ends meet. 

Regardless of these debates, Sam Walton represents an American success story, a man who worked his way up from running a paper route to becoming one of the world’s richest men.

Khuram Dhanani
Khuram Dhanani
Khuram Dhanani