Feature Image: CC BY-SA 3.0, https://en.wikipedia.org/w/index.php?curid=16013506
Entrepreneurs can learn a lot from traditional successful companies in an increasingly AI-driven world. Here, I present the story of Walmart. Entrepreneurs can draw their lessons from how this company evolved and grew to become a giant in the retailing space.
Walmart is an example of an old-school business: retailing. Sam Walton, the founder of Walmart, began his first foray into retailing in Newport, the USA. In 1945, he acquired the franchise of a Ben Franklin variety store in this small town. With little experience running a variety store, Sam Walton studied the store across the street, examining prices, displays, operations, and products offered in the store. He used his learnings to improve the newly acquired store's operational efficiency.
Sourcing right and cheap
Sam is required by contract to buy merchandise nearly exclusively from the franchise owner. He understands that inventory is cheaper from other sources, so he drives all around the region, looking for inexpensive bargains.
Sam observes an excellent demand for panties, nylons, and men's shirts. He buys these in bulk directly from manufacturers at a lower price. Not just that, he keeps his markups low in the newly acquired variety store in Newport. The crowds flock into his store looking for bargains. He will soon be the market leader in that town.
Low prices in his stores in a small-town setting of just 7000 residents are the market demand generation triggers. In a closely-knit society of small Southern American towns, news on bargains travels quickly, and shoppers crowd in.
Sam Walton's first stores were all located in rural America. He and his wife Helen hailed from this region and understood the psyche of the small-town countryside. Society in these parts is close-knit, hardworking, generally poor, and trusting of each other.
It creates awareness of retail stores that offer bargains that help generate demand. The founder's outgoing, friendly, down-to-earth personality made it easier for him to build relationships with these communities. The brand recognition of the retail product brought to this community rapidly established.
In this market, demand existed for everyday-use merchandise. Customers are constantly looking for products that can be bought at a bargain. Walmart stores started operating in this market and began offering essential merchandise at prices lower than the competition. The strategy was made for the region. Walmart stores rapidly acquired market share at the cost of existing competing stores.
The growth of the fledgling retail brand propounded by Sam Walton suffered a temporary setback when he needed help to renew the Newport store's lease. Undaunted, he hunted and secured an alternative franchise for a Ben Franklin variety store at Bentonville. Bentonville is an even smaller town. It had just 3000 people. The first store in Newport had 7000 residents. The store opening was announced through newspaper ads showing free balloons for kids and cheap merchandise. The Walmart founder introduced self-service in his variety store, the first in the region. This innovation improved the store experience of its customers, adding to its popularity.
The first Walmart store opened in 1962. Its taglines are "We sell for less" and "Satisfaction Guaranteed." These describe the brand proposition of this enterprise. Compared to Ben Franklin variety stores, Walmart stores were larger, held a wide range of products, and occupied more space. The stores discounted everything they carried. Discounting in Walmart stores continued even when other chains were not offering discounts.
Walmart had an explicit philosophy that drives market demand. It said, "We want to discount everything we carry. When other chains around us weren't discounting, they did. When they say we sell for less, and we mean it". Wal-Mart showed that small-town America had much more business than any of the competitors dreamed of existed. When customers think of Wal-Mart, the idea is simple: they should consider low prices and guaranteed satisfaction.
The brand went public in 1970. In 1972, Walmart was listed on the New York Stock Exchange. The Ben Franklin variety stores were finally phased out in 1976. All energy is focused on growing the Walmart brand of stores. The discounting model and the efficiency of the Walmart store enterprise continue to fuel demand. Walmart made the first inorganic growth 1977 by acquiring 15 Mohr-Value stores with a strong presence in Missouri and Illinois.
Walmart secured the number 1 tag in sales, earnings, and equity growth from Forbes in 1978. In 1979, it became the fastest company to reach the $ 1 billion mark. The demand for Walmart stores is enormous. It was opening new stores and distribution centers as fast as it could. The discounting model, adoption of computers, satellite communication networks, and integrated command and control Information Technology systems made the enterprise more efficient than ever. Technology was now making it possible for Bentonville's headquarters to undertake minute-by-minute monitoring of stores, logistics, and inventory nationwide.
New categories of stores, such as Sam's Club, Hypermarkets, and Supercenters, were added. These stores started offering cheaper products and expanded services.
Business risk
Walmart's international expansion to China and other nations had two objectives. Merchandise and other goods in demand in the US could be sourced at low rates from these countries. China was a populous country with a vast market. It was attracting a lot of foreign companies to its shores. Walmart was no exception. It, too, wanted to buy cheap from China and sell cheap in the US. It also wanted to expand its business footprint in China. As Walmart's supply chains and logistics capabilities improved, China became a critical sourcing location. Merchandise bought from these low-cost markets has helped it keep prices of products low in the US. It has benefited the US consumer immensely.
Geopolitical risks, such as pandemics like those faced by the world in 2020 and 2021, led to the breakdown of supply chains set up with a lot of effort. The buy-local movements in many parts of the world, including the USA, have affected these global supply chains. Trade tensions between China and the US have impacted the companies of these two countries. They are now facing sanctions and regulations that are affecting growth. Walmart, which sources merchandise extensively from China, cannot stay unaffected.
Walmart moved into India, the second-most populous market after China, as a hedging bet against the enormous Chinese market's geopolitical disruption. Progressing in India is difficult because local regulations protect and prefer small shopkeepers and traders. Companies like Walmart are prohibited from setting up retail stores in the country.
Faced with these restrictions, Walmart has gone online. It acquired Flipkart, the primary online retailer, and competitor to Amazon in India. With this acquisition, Walmart hopes to secure access to India's vast retail market. It must compete with Amazon and other Indian competitors like Reliance and Tata.
Walmart is no stranger to competition. It emerged triumphant against dominant players in the US and grew. However, in those days, Sam Walton led the company. Sam's personality, innovation, and entrepreneurship helped Walmart become the giant it is today. Leadership, innovation, and entrepreneurial skills will again be required to be displayed in China and India's vast new markets. Walmart is again being tested in these markets.
A new entrepreneur looking to foray into a new, unknown, or known market will draw lessons from Sam Walton's meticulous style, which created this great franchise—Walmart.