1-Page Summary

Made in America was published in 1992, the same year that Sam Walton died at the age of 74. In this autobiography, Walton covers his life and the history of Wal-Mart, as well as the key strategies and management principles that led them to overwhelming success.

Brief History of Sam Walton and Wal-Mart

Sam Walton began his retail career in 1945 by buying a variety store in Arkansas. The variety store (also known as a “five and dime” store) was a type of retail store that offered a wide range of inexpensive household goods. This was his training ground in retail, where he learned how to compete with nearby stores. Importantly, he learned these sales principles:

• The advantage of lower pricing to generate sales volume
• Having a unique variety of high-quality merchandise
• Running wacky promotions to get foot traffic

After 5 years, his lease expired, and he was forced to sell the store to the landlord. He chose to start over in Bentonville, another Arkansas town. Over a decade, he built up to 15 variety stores across three states.

At this point, Walton was already successful, but he sensed two threats (and potential opportunities):

• The rise of massive superstores, with over 100,000 square feet of floor space, thus dwarfing typical stores and small variety stores like his.
• The rise of discount stores, which were disrupting traditional department stores.

Rather than be disrupted by both of these seismic trends, Walton chose to take advantage of them. Where he had previously built five-and-dime variety stores, Walton would now embark on the path that Wal-Mart is now known for today—large discount stores.

The first Wal-Mart discount store opened in 1962. By 1968, they had 13 Wal-Marts and added on more warehouses.

Critical to Wal-Mart’s success, Walton believed the large retail companies (such as Woolworth) underestimated the opportunity available in small towns. Competitors specialized in metropolitan areas, servicing large populations. Instead, Walton felt that there were thousands of small towns like Bentonville that were being ignored. If Walton’s stores could offer superior pricing and selection locally, he knew customers would prefer to shop there instead of driving into the city.

In 1970, Wal-Mart went public to pay off its debts. Over the next decade, they doubled every 2 years, from 32 stores and $31 million in sales in 1970, to 276 stores and $1.2 billion in 1980, and even more growth up to 1990. For most of Wal-Mart’s life, it has been a literal straight shot up and to the right, replicating its strategy over and over again in towns around the United States, and then the world.

The Wal-Mart Strategy

Wal-Mart was judicious about where to open up stores, and it avoided direct competition with other major discount stores for years. Its early strategy:

• Set up stores in small towns. The Wal-Mart model worked in towns even with a population under 5,000 people, while Kmart only chased cities above 50k.
• As Wal-Mart expanded, they established stores with a radius of a day’s drive from a distribution center. They then filled in that territory, town by town, state by state until they saturated the area.
• If customer experience was good (including cost, quality, selection), word of mouth would drive more traffic. Towns would hunger for Wal-Mart to enter.

People tend to simplify the Wal-Mart success story as “they did discount stores in small towns where big players didn’t want to win.” This ignores the heavy competition they faced from local variety stores, the substitute options its customers had (to drive an hour away to a store in the city), and the execution required to expand as successfully as they did.

Wal-Mart’s Retail Strategies

The mission of Wal-Mart is to reduce the price of living for its customers. Customer satisfaction is their guiding principle—in merchandising, low prices, shopping experience, and more.

• Sam had little sympathy for retailers who closed down after Wal-Mart entered. Customers closed the shop, not Wal-Mart, by voting with their dollars. The existing shops couldn’t compete by offering superior selection, pricing, or convenience relative to Wal-Mart. They shouldn’t exist if they don’t provide the best quality of life for their customers.

Low Prices, High Volume

Sam Walton believed that lower prices brought in more customers, period. Even though a lower markup meant lowered profits, they could more than make up for it with higher volume. In pursuit of lower prices, Wal-Mart omitted frills and passed savings from vendors and efficient operations onto customers.

Experimenting/Innovation

Sam Walton was relentless in his drive to improve Wal-Mart. Never satisfied with where the company was, he boldly experimented with new ideas to improve stores, even creating entirely new retail store concepts.

Innovation was purposefully encouraged by store managers, who had freedom to try crazy things since they had a personal stake in the store’s success. For instance, one store manager once ran a massive promotion, selling 2,500 detergent boxes stacked up in front of the store in an impressive visual display.

Team Participation

Walton considered the Wal-Mart team the most important ingredient in the company’s success. Walton instilled a culture of teamwork in a wide range of dimensions:

• Wal-Mart calls all their employees “associates” to give a sense of partnership.
• Walton believed good ideas could come from anyone, and he eagerly sought opinions from employees on all levels for new ideas.
• Walton believed in liberally sharing private information and company financials with his associates.
• Wal-Mart regularly practiced profit sharing of some kind with employees. Having employees share financially in the success of Wal-Mart made them committed to the company’s success.

Sam Walton’s Management Practices

Sam Walton practiced these essential management practices:

• Learn from the competition—visit their stores and pick up one good idea when you leave. Borrow ideas liberally and improve on them. Competition makes every competitor better, and the customer is the final beneficiary of that improvement.
• Have fun—don’t take things so seriously; don’t walk around scowling all day. Have a “whistle while you work” philosophy. Celebrate successes, and be a bit goofy.
• Innovation—change is a constant, and adaptation must happen. Wal-Mart adopted computer systems earlier than most. It encouraged store managers with autonomy to run crazy promotions.
• Frugality—Walton believed that every time they wasted a dollar, that was a dollar right out of their customers’ pockets.
• Saturday morning management meetings—these weekly meetings were a chance to share best practices, drill down on individual stores and products, and teach new management strategy.
• Servant leadership—management’s role is to serve the individual stores and help them do their job. Managers aren’t above the people on the frontlines.

Brief Biography of Sam Walton and Wal-Mart

(Shortform note: Published in 1992, Made in America covers the history of Wal-Mart, from a single store in Arkansas to a worldwide retail titan. The book is written chronologically as a narrative, with Walton reflecting on his management and life principles throughout.

To create a more useful summary, we’ve reorganized to group all the main themes together, with examples from the narrative. We’ll start here with a brief biography, then dive into the management techniques that made Wal-Mart the giant it is today.)

Sam Walton’s Early Life

Sam Walton was born in Oklahoma in 1918 and moved to Missouri with his parents. He credited his dad for being a hard worker with high integrity and a great negotiator, and his mother for ambition and drive.

Sam notes that his parents argued a lot, and they split up after he grew up. He felt like he “took a lot of the brunt of this domestic discord,” and this possibly motivated him to stay busy all the time.

Walton was competitive throughout his early life: “It never occurred to me that I might lose...almost as if I had a right to win.” He led his high school football and basketball teams to championships, and he became president of his college senior class.

After supporting himself through college, he was tired and wanted a real job. He joined JC Penney in Des Moines, Iowa for 18 months.

In 1942, he was rejected for overseas combat duty for World War II and instead served limited duty domestically in the United States. Dejected, he quit JC Penney and worked at the Du Pont gunpowder plant. He met future wife Helen Robson in a bowling alley at this time, then entered military service.

Sam Walton’s First Store

In 1945, after 2 years of Army duty, Sam Walton wanted to go into business for himself. Helen gave him two rules: 1) no big city (population under 10,000) and 2) no partnerships (her family had seen business partnerships go sour, and she wanted him to work for himself).

This prompted Sam to buy a Ben Franklin variety store in Newport, Arkansas. He funded this with $20,000 as a loan from his father-in-law, plus $5,000 from personal savings.

The variety store (also known as a “five and dime” store) was a type of retail store that offered a wide range of inexpensive household goods.

Walton’s first store was the crucible where he learned the fundamentals of retail . Here he created a distinct retail strategy that set his store apart from competitors:

• Lower pricing—Walton wanted to sell products at lower prices and lower profits, believing that sales volume and customer loyalty would compensate.
• Promotion—Walton knew that a spectacle would draw customers from other stores. He served ice cream and had popcorn stands outside the shop.
• Suppliers—he found offbeat sources for low-cost goods, which allowed him to undercut his competitors on pricing.

These principles would continue to underlie Wal-Mart for decades to come.

In his first year of ownership, sales increased 45%. After 5 years, his Ben Franklin store became the highest selling in 6 states.

Unfortunately, the lease for Walton’s store expired, and his contract had no option to automatically renew the lease. The landlord, knowing he was in a bind, bought out his store. Sam Walton had to start from scratch again.

With his $50,000 from his store sale (worth roughly $500,000 in today’s dollars), Sam Walton moved his family to Bentonville, Arkansas, where he bought another struggling shop and turned it into another Ben Franklin franchise. He named the store “Walton’s Five and Dime.” This time they tried to get a 99-year lease.

The Beginning of Wal-Mart

Now armed with the experience and strategies of his previous store, Walton set his eye on expansion, with the goal of setting up more stores in the local area. In 1954, he opened a store in a suburb in Kansas City, and by 1962 he would own 16 stores in Arkansas, Missouri, and Kansas. He also began moving away from the Ben Franklin franchise, naming the new stores “Walton’s Five and Dime.”

Critically, he believed the large retail companies (such as Woolworth) underestimated the opportunity available in small towns. Competitors specialized in metropolitan areas, servicing large populations. Instead, Walton felt that there were thousands of small towns like Bentonville that were being ignored. If Walton’s stores could offer superior pricing and selection locally, he knew customers would prefer to shop there instead of driving into the city.

Wal-Mart Transforms

By 1960, Walton had built up to 15 stores with $1.4 million in sales, but this wasn’t satisfying enough. He now saw two threats (and potential opportunities):

• The rise of massive superstores, with over 100,000 square feet of floor space
• The rise of discount stores, which were disrupting traditional department stores.

Rather than be disrupted by both of these seismic trends, Walton chose to take advantage of them. Where he had previously built five-and-dime variety stores, Walton would now embark on the path that Wal-Mart is now known for today—large discount stores.

In 1962, the first Wal-Mart discount store was established in Rogers, Arkansas , with 18,000 square feet. It started as a moderate success at first (with $1 million in sales per year, compared to Sam’s benchmark competitor at $2 million in sales), but clearly it was doing better than their variety stores.

• Walton actually intended to partner with the owner of his former franchise in Newport (Butler Brothers) but they rejected his proposal to be their merchandiser. This put a bit of a chip on Sam’s shoulder and fueled his drive to succeed.

After two years, Wal-Mart began expanding to nearby towns. Competitors were starting to eye the discount store trend, so Walton needed to move fast. By 1968 they had 13 Wal-Marts; by 1969, they had 18.

Wal-Mart also continued to operate the business more systematically. They hired managers to set up a warehouse distribution center, formal accounting systems, and company communications. This would help build the economy of scale that would drive Wal-Mart’s relentless growth for decades to come.

(Shortform note: In the following chapters, we’ll go much deeper into detail on the management strategies that Walton and Wal-Mart used in their rise to retail dominance.)

Wal-Mart Goes Public

By this point, Walton had taken on a few million dollars in personal debt to finance store growth. They began getting turned down by banks for more loans. To pay off his debts, Sam Walton wanted to go public. In 1970, they consolidated the separate store partnerships into a single company, went on a roadshow, and went public, raising around $5 million.

• $1 in Wal-Mart shares in 1970 would be worth roughly $5,312 in 2018.

Wal-Mart continued its strategy of expansion:

• Set up a store within a day’s drive of a distribution center
• Fill in the surrounding areas with stores until saturated
• Add more distribution centers, and repeat

The big competitors such as Kmart still weren’t going into towns smaller than 50,000, while Wal-Mart was working in towns smaller than 5,000. While leapfrogging from big city to big city, the big guys spread themselves out and became subject to city politics.

When serious competition did finally arrive, Wal-Mart stuck to its strategy: “keep our prices as low as possible by keeping our costs as low as possible.”

To enable the expansion, Sam continued hiring people in operations and distribution to handle things he tended to ignore.

Continued Growth

From 1970 to 1980, Wal-Mart relentlessly pursued its strategy and more than doubled every 2 years :

Year	Stores	Sales	Profits
1970	32	$31 million	$1.2 million
1972	51	$78 million
1974	78	$168 million	$6 million
1976	125	$340 million
1978	195	$678 million
1980	276	$1200 million	$41 million
1984	600	$4500 million	$200 million

However, the growth didn’t come without turbulence. In 1974, they faced a schism in the company, with one executive vice president (Ferold Arend) representing the old guard in merchandising and store management, and another executive vice president (Ron Mayer) representing the new guard in finance, data, and distribution.

Ron told Sam Walton he wanted to run his own company, and Sam feared losing him. Sam, CEO at the time, was contemplating taking a back seat to focus on his hobbies (such as quail hunting). To solve both these issues, Walton promoted Ron to CEO.

But Sam Walton wasn’t suited for retirement, and he wasn’t able to be hands-off on management. He disagreed with some of Ron’s decisions and intervened, and he worried about the company’s schism.

30 months later, Sam returned as CEO. In response, Ron left with many of his loyal managers. This was called the “Saturday night massacre” and eventually led to a third of senior management leaving. Wal-Mart’s stock value dropped, and Sam admitted he wasn’t sure if Wal-Mart would make it out of this alive.

Gradually, Sam Walton continued recruiting talent, including David Glass for distribution, who eventually became CEO himself.

Nearing the End of Walton’s Life

Competition heated up in the 1970s, especially from Kmart, and Wal-Mart tackled them head-on in their territories.

• In Springfield, MO, Wal-Mart had 40 stores within 100 miles. When Kmart came in with 3 stores, they had a tough time competing.
• Wal-Mart also acquired a few chains in areas where they had little presence, like 100 of Kuhn’s Big K stores in the South. This geographical spread forced them to upgrade their communication and management practices.

In 1983, Wal-Mart faced competition from ultra-discounters like Price Club, which sold at a meager 6% markup compared to 22% in discount stores. In response, Wal-Mart started Sam’s Club. Sam felt this was something like a second childhood, a chance to build a company all over again.

The book was published in 1992, the same year that Sam Walton died. At the end of his life, Sam Walton focused on two things in Wal-Mart’s future: 1) international expansion, and 2) competition in discount retailing. He confidently expresses that no competitor has been able to operate on their volume as efficiently, nor service customers as well.

As a final record, here is a summary of Wal-Mart’s staggering growth over 30 years.

Year	Stores	Sales	Profits
1960	9	$1.4 million	$.1 million
1970	32	$31 million	$1.2 million
1980	276	$1200 million	$41 million
1984	600	$4500 million	$200 million
1990	1528	$26000 million	$1000 million

(Shortform note: Sam Walton passed away before Amazon rose to challenge Wal-Mart for retail supremacy. Given Walton’s successful history of adapting to trends like discount stores and mega-stores, it would have been fascinating to see how Walton would have taken advantage of the Internet.

Amazon founder Jeff Bezos considers Made in America required reading for Amazon managers. Read more about Bezos and Amazon in our summary of The Everything Store. )

The #1 Principle of Wal-Mart: Customer Focus

Sam Walton believed that his company existed to serve the customer. Wal-Mart’s mission was to lower the cost of living for millions of people around the world.

In retail, “the customer wants everything”: wide variety, high-quality goods, the lowest possible prices, satisfaction guarantees, friendly and competent service, and a pleasant shopping experience.

Any retailer that doesn’t provide this is failing its customers. Any business that does this better is improving the customers’ lives.

• Sam Walton had no sympathy for middlemen who feel entitled to a share but provide little value to customers. He also didn’t have sympathy for retailers that did a poor job with customers before Wal-Mart entered. “Nobody owes anybody else a living.”

Similarly, Sam didn’t sympathize with the idea that Wal-Mart hates small towns.

• Residents generally like when Wal-Mart enters a town, and Wal-Mart chooses locations where they will get a positive reception.
• If the local stores go out of business, the customers have killed them by voting with their dollars, not Wal-Mart. Local stores that enjoyed huge markups, limited selection, and limited hours were doomed to fail sooner or later.
• Sam suspected the ire around town shops disappearing comes from people who just want the town to be stuck in time (even if they’ve personally moved away to the suburbs). But this is the same sentiment from city-dwellers who bemoan that people are moving away to the suburbs.
• If local businesses want to survive, they need to find a niche and a reason for customers to shop there—be it more knowledgeable service staff, a broader selection in a narrower industry (such as hardware or crafts), or a personal touch.

Sam Walton trained his buyers to argue for the customer, not for the company. This made them fearless. “Your customer deserves the best price you can get. Don’t ever feel sorry for a vendor. He knows what he can sell for, and we want his bottom price.”

• His buyers cautioned vendors to offer their best possible price, because if they went to the vendor’s competitor and they offered a better price, the competitor would get the business.

The principle extends downward to the lowest, most granular level. Wal-Mart needs to constantly battle “big company” disease.

• Walton mused constantly about the customer experience. When customers walk around aisles, how will they see and buy items? How do they feel on entering and leaving a store? How do they feel about getting help?
• Each Wal-Mart needs to cater to its particular customers. A Wal-Mart servicing tourists needs to have different merchandise from a general population Wal-Mart 5 miles away.
• Regional managers and buyers aren’t above the ground-floor work in operating stores. They’re required to visit stores to see firsthand how they’re doing, and even try to manage the store for a few days. It must be ingrained that their real job is to support the merchants in the stores.
• In turn, department and store managers need to visit headquarters to communicate what they see in their stores.
• Walton said, “a computer can tell you down to the time what you’ve sold. But it can never tell you how much you could have sold.”

Exceed the customer’s expectations—they’ll come back over and over. Give them what they want—and a little more.

(Shortform note: The emphasis on the customer being the mission, as well as Sam’s indifference about his own wealth, enabled his company to be efficient, low margin, and long-term. Any greedier retailer that wanted to preserve margins at the expense of price died. This is very much in line with Jeff Bezos’s thinking on Amazon.)

Sam Walton's Personality Traits

In his autobiography, Sam Walton demonstrates the character traits that enabled him to build Wal-Mart into a titan. Here are the major themes:

• Competitiveness: Walton always had conviction that he would win. The idea of beating his competition fueled him.
• Boldness and Optimism: Many predicted that Walton’s strategy would fail. He stayed committed and optimistic that he would win, even in major setbacks.
• Frugality: Wal-Mart existed to save customers money. Using money needlessly meant taking money out of customers’ pockets.
• Knowing his Weaknesses: Walton openly admitted weaknesses in himself and his company, such as lack of formal operations.
• Humility: Walton never believed he was smarter than Wal-Mart employees. He eagerly learned from everyone he could, including store greeters.

Competitiveness

Walton noted: “If I had to single out one element in my life that has made a difference, it would be a passion to compete.” His brother Bud Walton noted, “He knew he was going to win. It’s just the makeup of the man.”

Walton was competitive even in early childhood:

• As a child he bet other Boy Scouts who would be first to reach Eagle (he won).
• In high school, he led the basketball teams and football teams to be undefeated state champions
• In college, he became president of his senior class, president of the senior men’s honor society, and president of the Burall Bible Class.

Competitiveness drove his start in retail. When starting his first Newport store, Walton set his 5-year goal: for his “little Newport store” to be the most profitable variety store in Arkansas.

His competition spurred him to keep doing better:

• In Newport, John Dunham’s Sterling Store across the street was his main competition. He studied his competitor’s pricing and goods incessantly and plotted how to beat them. When a large retail space opened up in town for leasing, he took it. He didn’t know what he was going to do with it, but he definitely didn’t want Sterling to have it.
• When discount stores were becoming a larger trend, Walton proposed creating discount stores to the Butler Brothers, the owner of the Ben Franklin franchise. They rejected the idea. Walton reflected, “I got a little angry, and maybe that helped me decide to swim upstream on my own.”

As a habit, Sam Walton constantly eyed the competition and borrowed the best ideas from them.

• He advised his staff, “Go in and check our competition. And don’t look for the bad. Look for the good. If you get one good idea, that’s one more than you went into the store with, and we must try to incorporate it into our company.”
• If other stores offered sales, he wanted his prices lower.
• This became such a habit that on family vacations outside town, he would visit stores to study their practices. His wife Helen commented, “Sam never went by a Kmart that he didn’t stop and look at it.”
• Sam was brazen enough to go directly to his competitors’ management, saying he had a small company in Arkansas, and ask strategic questions. Wal-Mart was too small to worry about in the beginning.
• Even outside retail, Walton picked up the idea of “associates,” morning calisthenics, and company cheers from other companies and cultures.
• He kept watch for new trends, like discount stores, and mega-size shopping centers, letting him be among the first in his area to pursue those opportunities. Wal-Mart itself as a discount retailer was an idea taken from earlier discounters. Sam’s Club, a warehouse sub-discounter, was taken from Price Club.

Competitors make each other better, and the customer gets the best value of all. Sam thanks Kmart for its competition in keeping them on their toes.

• He doesn’t buy the common assertion that Wal-Mart succeeded merely because no one else was paying attention to small towns. They had to compete against variety stores. Also, the rural customers weren’t stupid—if a store an hour away had better deals, they would go there.
• Later when Kmart attacked, they wouldn’t have survived if they weren’t amazing executors.

The competitiveness extends to how he treated vendors: Sam Walton forced all his vendors and suppliers to compete for Wal-Mart’s business, even if he liked them personally and knew they were good people.

Sam was also competitive in his hobbies quail hunting and tennis, never wanting to give up a point. He preferred tennis instead of golf because of its head-to-head nature.

His competitiveness prevented him from ever feeling Wal-Mart was doing enough. He would always point out things that could be improved, like the lines being too long or the store staff not being helpful enough. This kept him forever looking forward, to the next store opening, to the next walk through a Wal-Mart store.

Boldness/Optimism

Walton had a relentless optimism that he would succeed and things would work out.

Said David Glass, former CEO of Wal-Mart, “[Sam] is less afraid of being wrong than anyone I’ve ever known. And once he sees he’s wrong, he just shakes it off and heads in another direction.”

His optimism carried him through key events and major setbacks in his career:

• After leaving the Army in 1945, Walton knew he wanted to go into business for himself. Despite having only his JC Penney job as retail experience, he was confident he could succeed going into business.
• After his lease ran out, Walton lost the store that he’d spent 5 years building. He brushed it off: “I’ve never been one to dwell on reverses...you can make a positive out of most any negative if you work at it hard enough. I’ve always thought of problems as challenges, and this one wasn’t any different.”
• Walton faced early criticism for his small-town strategy, hearing that a town of less than 50,000 in population couldn’t support a discount store. Despite this, he persisted, driven in the idea of being the best store for the local population.

In the autobiography, Walton revealed his optimism and grit often:

• “It never occurred to me that I might lose; to me, it was almost as if I had a right to win. Thinking like that often seems to turn into sort of a self-fulfilling prophecy.”
• Walton saw the book as a story about “knowing where you want to go and being willing to do what it takes to get there...about believing in your idea when maybe some other folks don’t and sticking to your guns.”
• “Commit to your business. Believe in it more than anybody else...If you love your work, you’ll be out there every day trying to do it the best you possibly can, and pretty soon everybody around will catch the passion from you—like a fever.”

His one stated moment of weakness in the book was in 1976, with the “Saturday night massacre” that led to losing a third of senior management. Walton admitted, “I wasn’t sure myself that we could just keep on going like before.”

Frugality

Frugality was a central piece of how Walton lived his life and ran Wal-Mart.

Walton lived through the Great Depression and saw his father go between jobs. He also traveled with his father as a repossessor for a loan company. Through this, he learned the difficulty of earning a dollar, and thus the value of money. In turn, Walton funded himself through college with a small paper routes business and waited tables.

Frugality was part of the core of Wal-Mart. Walton believed that Wal-Mart existed to save customers money and provide quality and service. Any dollar spent inappropriately was money taken from their customers’ pockets. As a result, Wal-Mart hesitated to give fancy perks to employees—they put off buying a jet for management, and they forced employees to sleep two to a room when traveling.

Practically, Walton knew that if he could control expenses better than his competition, they would have an edge in pricing. For years, Wal-Mart had the lowest ratio of expenses to sales. Walton believed that operational efficiency gave them more strategic flexibility and more room to experiment and fail.

Even when expanding rapidly, Sam was careful not to overreach unless he had to:

• In the 1960s early days, he habitually turned down spending unnecessary money, like renting huge warehouses.
• He resisted investing in flashy technology. “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.”
• If warehouse workers knew Sam was visiting and they had an extra tractor idling, they would hide it so Sam wouldn’t know they had anything running empty, lest he cut down on the warehouse’s resources.

Walton extended his values to his family, instilling the values of hard work, honesty, and thrift. Even when wealthy, the Waltons refused to spend lavishly.

• “I just don’t believe a big showy lifestyle is appropriate for anywhere, least of all here in Bentonville where folks work hard for their money and where we all know that everyone puts on their trousers one leg at a time.”
• His children worked in the stores and grew up not having much money (given that Sam reinvested in expanding stores).
• He only flew coach, knowing that if he flew in a different part of the plane as his associates, the resentment would inevitably begin.
• He bemoaned the press for focusing on their family’s wealth without being interested in Wal-Mart.
• Most of the family’s wealth was held in Wal-Mart stock, and he preferred to keep it that way. He observed that some family owners sold stock to live a rich life, but they ended up losing their ownership, and the company would be ruined by new management. He loved the company too much to quit this way.

Knowing His Weaknesses

Throughout his book, Walton is frank about his shortcomings and how his associates at Wal-Mart helped him with things he couldn’t do.

• Walton notes that he wasn’t a good negotiator, since he “lacked the ability to squeeze that last dollar.” For this, he relied on his brother Bud.
• Walton knew that early in Wal-Mart’s history, their back-office systems (for instance, in accounting and inventory) were terrible. But they made up for it by having the lowest possible costs, the variety of merchandise, and brand reputation.
  • Funny story: instead of traditional LIFO/FIFO accounting, Walton notes they used “ESP” accounting—meaning if the books didn’t line up, they added an entry for “Error Some Place.”
• Walton recognized that he tended to slack in some areas, so he surrounded himself with people who were good at things he wasn’t. These included systems, operations, and distribution.

Friendliness

Walton had a natural charisma through his friendliness. Said a co-worker, “Walton just had a personality that drew people in. He would yell at you from a block away...that’s the reason so many liked him and did business in the store. It was like he brought in business by his being so friendly.”

Walton was elected class president, and he said the secret was simple: talk to people you run into before they talk to you. Before long, he knew more people in the school than anyone else.

A quail hunter, Walton said that the way to get invited back to a hunting area was to offer the owner a take of the game shot on his land.

Humility

In the book, Walton repeatedly credits his associates for building Wal-Mart and downplays his importance. “One person seeking glory doesn’t accomplish much; at Wal-Mart, everything we’ve done has been the result of people pulling together to meet one common goal.”

• Management had a habit of having Saturday morning management meetings. Why the weekend timing? Walton felt that if their team members in the stores had to work on Saturday, he thought the managers at headquarters should work on Saturday too.
• Sam Walton considered managers “servant leaders”—their job was to help their team succeed, not to take more from the rest of the team.

Walton’s humility also manifested in how willing he was to learn from others:

• Walton knew he was ignorant when starting his first retail store, and he tried to learn from everybody. He read every retail publication he could get, and he said he learned the most from his competitor across the street.
• In preparation for an upcoming competition with Kmart, Wal-Mart invited the heads of regional discounters to visit Wal-Mart and give their opinion. They ripped them to shreds on pricing, merchandising, and displays. Wal-Mart incorporated this feedback into their operations.
• In his many store visits, Walton carried a tape recorder to record ideas in conversations.

Wal-Mart's Operating Strategies

In Made in America, Walton shares the key strategies that made Wal-Mart successful in retail.

Retail Locations

Wal-Mart was judicious about where to open up stores.

• They started by setting up stores in small towns. Their discount formula worked even in towns under 5,000 people, while big competitors like Kmart were only going into large cities above 50,000. As a result, for a long time Wal-Mart faced little national-quality competition in its small towns.
  • Even when big stores tried discounting, they didn’t really commit to it as a strategy. The incumbents were too accustomed to their 45% markup, and it was hard to let that go. Wal-Mart’s low prices disrupted them.
• As Wal-Mart expanded, they established stores with a radius of a day’s drive from a distribution center. They then filled in that territory, town by town, state by state until they saturated the area.
• They never planned to go into cities—they preferred to build stores in a ring around a city, then “wait for the growth to come to us.”
  • In Springfield, MO, Wal-Mart had 40 stores within 100 miles. When Kmart finally came in with 3 stores, they had a tough time competing.
• They also preferred to build out ahead of a city’s expansion, then let the population build out to them.

Wal-Mart’s customer obsession and popularity in small towns caused helpful word of mouth. Rural towns would share the gospel of Wal-Mart with one another, and other towns would welcome Wal-Mart’s arrival. Furthermore, people who traveled South for the winter and saw Wal-Mart would clamor for stores up north. As a result, Wal-Mart already had demand in an area before they ever established a store there.

Low Prices, High Volume

Sam Walton believed that lower prices brought in more customers, period. Even though a lower markup meant lowered profits, they could more than make up for it with higher volume.

• In the book, Walton repeatedly mentions bins of “ladies’ panties, three for a dollar.”
• Some popular items like makeup and antifreeze are sold at cost, drawing in customers who then buy marked-up (but still cheap) items.

Wal-Mart stores were designed to be functional and omitted frills. Walton admits the stores were “truly ugly,” but they had prices 20% lower than the competition. This proved that people were ultimately looking for the best bargain.

At one point, a manager got a deal on an item with a list price of $1.98; he was able to buy it for 50 cents. The manager proposed selling it for $1.25. Sam objected: “No. We paid 50 cents for it. Mark it up 30%, and that’s it. If we get a great deal, pass it on to the customer.”

Merchandising and Promotion

Walton considered merchandising critical to retail—both stocking unique goods, as well as promoting them.

• In his first stores, Sam obsessed about finding unique goods that he could bring into his store and sell at a discount—like thong sandals and mattress toppers. When they couldn’t procure real Hula Hoops, he partnered with a rival store to make their own.
• Wal-Mart holds VPI (Volume Producing Item) contests between senior buyers to pick specific items that will sell the best (such as a minnow bucket or a brand of apple juice). This teaches store managers that some products can explode in sales, if the messaging and presentation are correct.

Promoting the merchandise was just as important as selection. Walton knew the power of calling attention to merchandise and dramatizing it.

• A store manager once ran ambitious promotions, buying 3,500 giant boxes of detergent and running a promotion at $1.99 rather than $3.97. While headquarters were skeptical about the volume, it made the local news and sold out within a week.
• A store pulled a similar stunt by having 200 riding lawnmowers, stacked in rows in front of the store.

Former Wal-Mart CEO David Glass noted that there are two types of retailers—merchandise-driven or operations-driven. Merchandise-driven retailers will win, because they can always work on improving operations. Operations-driven retailers tend to lose customer loyalty through weaker merchandising.

Experimenting/Innovation

Sam Walton was relentless in his drive to improve Wal-Mart. Never satisfied with where the company was, he boldly experimented with new ideas to improve stores, even creating entirely new retail store concepts.

• While running his Ben Franklin store in Newport, Arkansas, the franchise owners wanted to do things by the book. “It didn’t take me long to start experimenting—that’s just the way I am.” He approached suppliers who would do direct sales to his store; he promoted his shop with an ice cream machine; he priced his goods lower than standard.
• They made their Bentonville store the third self-service variety store in the country, at a time when this was a new concept. (Prior to this, the customer would ask the store clerk for what they wanted, and the clerk would pick out the goods behind a counter.)
• During the time of Wal-Mart’s expansion, each state was controlled by a major variety store (e.g. Oklahoma by TG&Y, Kansas by Alco). The competitors implicitly agreed not to cross state bounds. Sam wanted to break these borders.

Innovation was purposefully encouraged by store managers, who had freedom to try crazy things, and were trusted to do so since they had a personal stake in the store’s success.

• As previously mentioned, a store manager sold a massive volume of goods at steep discounts, including 2,500 detergent boxes and 200 lawnmowers.
• The same manager held a promotion for a TV sold at 22 cents, hidden somewhere in the store. A mass of people showed up and tore the store apart—overall a net positive, but they avoided this kind of chaos in the future.

Not everything worked. Plenty of efforts failed.

• Sam was excited by the European hyperstore concept, where a single store could combine a grocery, general market, bank, and arcade. This ultra-large-footprint store had disappointing results, but it gave rise to the more successful Wal-Mart Supercenter.
• Wal-Mart experimented with other retail verticals—Discount Drug for drug stores, and Save Mor for home improvement. Both failed.

Discount Retailing

Discount retailing was a new idea in 1962, and it was ridiculed by major retailers. That year, Kmart, Target, Woolco, and Wal-Mart were created.

The first three of these were subsidiaries of giant retailer chains—Kmart of Kresge, and Target of the Dayton Company. They had an advantage in speed—within 5 years, Kmart had 250 stores and $800 million in sales to Wal-Mart’s 19 stores and $9 million.

But Sam Walton considered Wal-Mart’s advantage to be scrappiness and innovation by necessity. They uniquely explored small-town America, believing other retailers underestimate the opportunity there. This required special adaptations to manage remote towns that larger stores were unprepared for.

• For example, to manage its far-flung stores, Wal-Mart had to handle inventory and communication at scale. They needed timely information on what was selling, what needed to be ordered, and how to control turnover. As a result, Wal-Mart became a relatively early adopter of computers.

Team Participation

Walton considered the Wal-Mart team the most important ingredient in the company’s success. He felt that Wal-Mart succeeded where dozens of other discount retailers failed, because they took care of their employees, and the employees in turn took care of their customers.

Walton instilled a culture of teamwork in a wide range of dimensions.

1) Wal-Mart calls all their employees “associates” to give a sense of partnership. Walton was inspired to do this when he passed a company sign in England that listed all its associates. Sam also called his employees partners.

2) Walton believed good ideas could come from anyone, and he eagerly sought opinions from employees on all levels for new ideas. The company formalized ways for the best ideas to percolate upwards:

• They flew in representatives from stores around the country to talk with management.
• They required regional managers to visit individual stores and leave with at least one good idea they saw.
  • Wal-Mart’s famous store greeters came from a single Louisiana store that instituted it to combat theft.
• At the headquarters’ Saturday meetings, they dedicated time to showcasing great new ideas.
• The company held Volume Producing Item contests for department managers to choose an item to promote and compete in sales.

Look for people who have unorthodox ideas and keep them around.

3) Walton believed in liberally sharing private information and company financials with his associates, for a few reasons:

• He believed that having all the information was the only way people could do their job to the best of their ability.
• If you can’t trust your associates to know what’s going on, then you don’t actually consider them partners.
• Being trusted with information makes people feel more engaged and responsible for the team’s success.

All these benefits outweighed the downside risk of having company info leaked publicly.

4) Every year, every Sam’s Club and Wal-Mart store elects an associate to attend the annual shareholders’ meeting.

• The meeting is less about honoring shareholders than about recognizing the people responsible for delivering on investments.
• All associates are invited to Sam’s house for a lunch.
• The elected associates tend to be leaders in their stores, who are then tasked with reporting back to their store staff.

5) Through the decades, Wal-Mart has resisted worker unions by treating its associates better.

• Walton believed that unions are purposely divisive, putting management on one side and employees on another side, to justify their role in the middle. Their incentive is to create conflict to make their work meaningful.

Profit Sharing/Stock Ownership

Having employees share financially in the success of Wal-Mart made them committed to the company’s success. Walton employed this liberally:

• Early on before Wal-Mart went public, Sam Walton set up new stores as partnerships and allowed early managers to invest up to $1,000 in new stores (for a 2% stake in a $50k investment). This profit participation attracted hungry talent and made the managers naturally invested in store performance.
• For decades, Wal-Mart had a profit sharing program—equivalent to roughly a 6% bonus on wages each year, which could be taken out as cash or stock when the employee left the company. This led 80% of associates to have equity ownership in the company. (Shortform note: This has since been discontinued in favor of 401k matching.)
• A truck driver who worked for Wal-Mart for 20 years eventually earned $707,000 in profit sharing. He commented, “When folks ask me how I like working for Wal-Mart, I tell them I drove for another big company for 13 years and left with $700. Then I tell them about my profit sharing and ask them, ‘How do you think I feel about Wal-Mart?”

These incentives could also be constructed on a smaller level. For example, one store had a theft problem. They instituted a bonus: if they could reduce shrinkage below a target goal, every associate could get a bonus of as much as $200.

Exercise: Adopt Wal-Mart’s Values

See how you align with some of Wal-Mart’s most important values.

• Sam Walton unfailingly worked in service of the customer. Imagine that in your work, you care only about the customer outcome and will fight on their behalf. When you’re doing something difficult, you are doing it for the customer. How would you behave differently if you took this to heart?

• Walton knew where the value in the company was generated, and he made everything else subservient to them. In Wal-Mart, the senior management and buyers were servants of the individual stores. Where is the value driver in your company? How could you reorganize things to better serve the value driver?

• Sam Walton regularly invited criticism from his worst critics to find areas of improvement. Who could you reach out to for incisive, accurate feedback on what you’re doing? How could you hear what you don’t want to hear?

Sam Walton's Management Style

Walton managed people with a trusting, light-hearted attitude. Even when Wal-Mart had 5,000 stores, he wanted it to feel like when they had 5 stores.

Trust People as Partners

Walton’s management can be summarized in one line: “Pick good people and give them maximum authority and responsibility.”

Walton preferred hiring ambitious, entrepreneurial people. Even if someone seemed too inexperienced or lacked knowledge right then, they were recognized for their potential if they had the desire to work hard.

Walton gave people autonomy. Wal-Mart locations operated as a “store within a store”—within a single store, each department had a manager who essentially operated her own business. They were given financials, such as cost of goods sold, margins, and expenses, and their performance was ranked against all other stores in the company. They were then given incentives to win.

Walton believed positive feedback was important. He actively looked for things to praise and let people know how important they were. People want to feel appreciated for their performance.

• “Nothing else can substitute for a few well-chosen, well-timed, sincere words of praise. They’re absolutely free—and worth a fortune.”

Other tips:

• When talking with employees, ask them how they feel and what’s on their mind. This leaves a strong impression of a personal connection.
• Keep your doors open to the most entry-level associate. Make them feel empowered to drive to headquarters and meet with you. Even if most people never do this, the knowledge that it’s acceptable makes everyone feel heard.

Find Ways to Motivate Your Partners

In addition to having financial incentives, Walton instilled his love of competition to his team:

• He set high goals, encouraged competition, and kept score.
• He made ambitious bets on company performance, with outrageous payoffs.
• He had managers switch jobs with one another to stay challenged and learn more dimensions of the company. “The best executives have touched all the bases and have the best overall concept of the corporation.”

Saturday Morning Management Meetings

Wal-Mart long had the tradition of holding management meetings on Saturday morning. Hundreds of senior executives would attend, celebrating successes, discussing company strategy, and finding areas of improvement.

Why the odd time? Walton felt that if store associates had to work on weekends, then the managers at headquarters should show up on Saturday too.

Instead of talking at a high-level, the group dove deep into individual stores, the smallest operating unit of the company. They would talk about how the store was doing against a single competitor in its market, how single items were selling, and what specific practices could be shared with other stores.

Sam Walton believed novelty in each meeting was critical to compensate for its imposition on the managers’ weekend.

• Famous guests like Jack Welch would sometimes appear and be Q&A’d.
• He sometimes asked specific execs to lead the meeting.
• Sam might read from management articles.

(Shortform note: In 2008, these meetings were reduced in frequency from weekly to monthly. They were then made optional in 2014.)

Don’t Take Things So Seriously

Walton felt it was important to have fun, not to walk around scowling all day “pretending you’re lost in thought over weighty problems.” He preferred a “whistle while you work” philosophy. People should know that they’re supposed to have a good time working.

This spirit was inherited from their small-town roots: a love of parades, cheers, songs, and celebration.

In the early days, this was a way to attract attention in small towns—they made Wal-Mart the best entertainment you could get in the area. The big shopping day for the family was Saturday, and stores needed to attract customers to their stores above others. Walton’s stores employed a host of promotions, such as:

• Hiring bands and circuses to perform in parking lots
• Moonlight Madness sales, with new bargains announced every few minutes
• Shopping cart bingo—Carts with numbers that, if chosen, got a discount
• Boxes of candy to customers who traveled the farthest

This love of fun spilled over into general management practices:

• Sam Walton bet the company in 1984 that if they made 8% in pretax profit, he’d do a hula on Wall St. They did, and he did a hula. He was embarrassed.
• They have a Wal-Mart cheer inspired by the U of Arkansas cheer.

Advice to managers: Have fun. Show enthusiasm. Build spirit and excitement. Capture your team’s attention and keep them interested, make them guess about what’s coming next.

Keep the Store Small

Even as Wal-Mart grew, Walton wanted the company to keep its small-store feel.

In senior management meetings, they focused on how individual stores were doing on individual items. One store’s experience is what is happening to the entire company, times 10,000.

Walton loved listening to individual employees. He particularly liked talking to the truck drivers—they saw more stores per week than anyone else, and they tended to say what they really thought.

Walton also had an allergy for bureaucracy. He wanted to reduce the number of layers in the company, from chairman to the store associates.

He also preferred to solve the root cause of a problem, rather than add on more layers of people as temporary fixes.

• For example, they once faced problems with incorrect merchandise pricing. At first, they fixed this with people holding scanners and verifying the price tags. Sam disagreed with the necessity of this. They eventually improved their back-office procedures to get it right the first time.

Communication Methods

With thousands of stores worldwide, Wal-Mart had to employ communication methods to help associates feel connected to each other. These included:

• Wal-Mart World periodicals
• TV broadcasting in the break room. For instance, this is how Sam announced that store greeters would be instituted at all store locations.
• Saturday morning meetings
• Encouraging visits of local staff to headquarters, and vice versa
• Regularly touching base with all departments of the company

Culture Is Inertia

As healthy as a company culture might be, be aware that once a culture is in place, it becomes an inertial force and can make an organization resistant to change.

For example:

• Wal-Mart resisted hiring college graduates for a long time and even bullied them when hired. They believed that ambition and a tendency to get things done were more important than a college degree. Over time, they realized the advantages that college graduates had.
• Wal-Mart used to assume that store managers were willing to move on a moment’s notice, and so they readily reassigned managers to other store locations. Eventually they realized this disadvantaged women, and it also punished people with local roots (who might actually have been the best at managing a local store).

Exercise: Adopt Walton’s Management Style

Take up some of Sam Walton’s most important management techniques.

• Walton had a “whistle while you work” philosophy, and he wanted people to have a good time working. Do you take yourself too seriously at work? How could you lighten up your perspective?

• Walton enjoyed communicating to the team by broadcasting widely. How could you better communicate to your team in a way that’s high-leverage for you?

• Walton made a habit of talking to individual associates within Wal-Mart. He especially enjoyed talking to truck drivers, who saw what was really going on and weren’t afraid to share it. Who are the truck drivers in your organization that you should talk more to?