Wal-Mart: From Zero to 11,453 (Part I)

“…most everything I’ve done I’ve copied from somebody else.” —Sam Walton, Made in America: My Story

A Retail Fairy Tale

Sam Walton’s Made in America: My Story is a great read, and definitely a book to read for everyone with an interest in business, a book to read for business owners as well as investors. So if you haven’t already read this book, add it to your reading list.

The Walmart journey began in Arkansas from where it expanded to become a massive enterprise. In 1972 Walmart was listed on the New York Stock Exchange (WMT). That year Walmart had 51 stores and sales of $78 million.

As of today and looking at fiscal year 2015 Walmart generated revenues of $486 billions from its 11,453 stores, operating income of $27 billion, equal to an operating margin of 5.6 %, profit before tax of $25 billion. Diluted earnings per share from continuing operations and book value per share was $5.1 and $24.1 respectively. Dividends paid out to shareholders during fiscal year 2015 amounted to $1.90 per share.

To get some perspective of Wal-Mart’s track record I have put together some key data to be able to track operations over time.


With these impressive operating data in mind (from annual reports) showing Walmart’s growth from 1970 to 2015, we’ll leave the numbers for now and move on to the book that this post was supposed to be all about.

Learning to Value a Dollar and Starting on a Dime

In Made in America: My Story Sam Walton shares his view on Walmart, from its beginning and how it all started out, the ups and downs and also his thoughts on, among other things, business strategy and operational efficiency.

Following are a few quotes that i especially appreciated and marked when I read chapter one Learning to Value a Dollar and chapter two Starting on a Dime (underlinings added by me). 

Pricing Strategy: Profit Margin, Asset Turnover and Return on Capital

I’ll never forget one of Harry’s deals, one of the best items I ever had and an early lesson in pricing. It first got me thinking in the direction of what eventually became the foundation of Wal-Mart’s philosophy. If you’re interested in “how Wal-Mart did it,” this is one story you’ve got to sit up and pay close attention to. Harry was selling ladies’ panties—two-barred, tricot satin panties with an elastic waist—for $2.00 a dozen. We’d been buy

ing similar panties from Ben Franklin for $2.50 a dozen and selling them at three pair for $1.00. Well, at Harry’s price of $2.00, we could put them out at four for $1.00 and make a great promotion for our store.

Here’s the simple lesson we learned—which others were learning at the same time and which eventually changed the way retailers sell and customers buy all across America: say I bought an item for 80 cents. I found that by pricing it at $1.00 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough. But this is really the essence of discounting: by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. In retailer language, you can lower your markup but earn more because of the increased volume.

Bud Walton on Expense Management

That Newport store was really the beginning of where Wal-Mart is today. We did everything. We would wash windows, sweep floors, trim windows. We did all the stockroom work, checked the freight in. Everything it took to run a store. We had to keep expenses to a minimum. That is where it started, years ago. Our money was made by controlling expenses.

That, and Sam always being ingenious. He never stopped trying to do something different.

Lease Agreements: The Importance of an Option to Renew

Every crazy thing we tried hadn’t turned out as well as the ice cream machine, of course, but we hadn’t made any mistakes we couldn’t correct quickly, none so big that they threatened the business. Except, it turned out, for one little legal error we made right at the beginning. In all my excitement at becoming Sam Walton, merchant, I had neglected to include a clause in my lease which gave me an option to renew after the first five years.

And our success, it turned out, had attracted a lot of attention. My landlord, the department store owner, was so impressed with our Ben Franklin’s success that he decided not to renew our lease—at any price—knowing full well that we had nowhere else in town to move the store. He did offer to buy the franchise, fixtures, and inventory at a fair price; he wanted to give the store to his son. I had no alternative but to give it up. But I sold the Eagle Store lease to Sterling—so that John Dunham, my worthy competitor and mentor, could finally have that expansion he’d wanted.

It was the low point of my business life. I felt sick to my stomach. I couldn’t believe it was happening to me. It really was like a nightmare. I had built the best variety store in the whole region and worked hard in the community—done everything right—and now I was being kicked out of town. It didn’t seem fair. I blamed myself for ever getting suckered into such an awful lease, and I was furious at the landlord. Helen, just settling in with a brand-new family of four, was heartsick at the prospect of leaving Newport. But that’s what we were going to do.

I’ve never been one to dwell on reverses, and I didn’t do so then. It’s not just a corny saying that 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. I don’t know if that experience changed me or not. I know I read my leases a lot more carefully after that, and maybe I became a little more wary of just how tough the world can be. Also, it may have been about then that I began encouraging our oldest boy—six-year-old Rob—to become a lawyer. But I didn’t dwell on my disappointment. The challenge at hand was simple enough to figure out: I had to pick myself up and get on with it, do it all over again, only even better this time.

Wal-Mart: Annual Report, 1972

For Walmart, 1972 was the first year as a publicly traded company. Click image below to read the 1972 annual report.

Learn More About Walmart and its History

If you want to know more about the history of Walmart, check out the following sources:


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