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.

WMT

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:

Walmart: Where is the moat?

“The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles.” —Warren Buffett

In this post I will take a look at Walmart’s operating segments to see if there are any different characteristics between them. Do they all enjoy a moat, i.e., a sustainable competitive advantage, or not?

Let’s start with a brief business description taken taken from the 2014 annual report 10-K form. Underlinings and boldings made by me.

Business description

WMT2Wal-Mart Stores, Inc. (“Walmart,” the “Company” or “we”) helps people around the world save money and live better – anytime and anywhere – in retail stores, online, and through their mobile devices. We earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices (“EDLP”), while fostering a culture that rewards and embraces mutual respect, integrity and diversity. EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity.

Our operations comprise three reportable business segments: Walmart U.S., Walmart International and Sam’s Club. Our fiscal year ends on January 31 for our United States (“U.S.”) and Canadian operations. We consolidate all other operations generally using a one-month lag and on a calendar basis. Our discussion is as of and for the fiscal years ended January 31, 2014 (“fiscal 2014”), January 31, 2013 (“fiscal 2013”) and January 31, 2012 (“fiscal 2012”).

During fiscal 2014, we generated total revenues of $ 476 billion, which was primarily comprised of net sales of $473 billion.

Walmart U.S. is our largest segment and operates retail stores in various formats in all 50 states in the U.S., Washington D.C. and Puerto Rico, as well as its online retail operations, walmart.com. Walmart U.S. generated approximately 59% of our net sales in fiscal 2014 and, of our three segments, historically has had the highest gross profit as a percentage of net sales (“gross profit rate”), and contributed the greatest amount to the Company’s net sales and operating income.

Walmart International consists of the Company’s operations in 26 countries outside of the U.S. and its operations include numerous formats of retail stores, wholesale clubs, including Sam’s Clubs, restaurants, banks and various retail websites. Walmart International generated approximately 29% of our fiscal 2014 net sales. The overall gross profit rate for Walmart International is lower than that of Walmart U.S. because of the margin impact from its merchandise mix. Walmart International has generally been our most rapidly growing segment, growing primarily through new stores and acquisitions and, in recent years, has been growing its net sales and operating income at a faster rate than our other segments. However, for fiscal 2014, Walmart International sales growth slowed due to fluctuations in currency exchange rates, as well as no significant acquisitions, and operating income declined as a result of certain operating expenses.

Sam’s Club consists of warehouse membership clubs and operates in 48 states in the U.S. and in Puerto Rico, as well as its online operations, samsclub.com. Sam’s Club accounted for approximately 12% of our fiscal 2014 net sales. Sam’s Club operates as a warehouse membership club with a lower gross profit rate and lower operating expenses as a percentage of net sales than our other segments.

We maintain our principal offices at 702 S.W. 8th Street, Bentonville, Arkansas 72716, USA.

Operating segment moat watch

The operating segments disclosure in the annual report provides some figures that could be used in trying to figure out the moatiness of each individual operating segment.

A great business generates high and sustainable returns on invested capital. The same holds true for any operating segment. For an operating segment to be considered great, it also has to be able to generate high and sustainable returns on invested capital.

Some of the metrics provided in the operating segments disclosure are net sales, operating income (or, Earnings Before Interest and Taxes — EBIT) and total assets. In the notes to the financial statements – Goodwill and Other Acquired Intangible Assets – goodwill per operating segment is disclosed. Having the goodwill figures at hand allow us to calculate tangible assets per operating segment (Total Assets minus Goodwill).

From this we can calculate return on invested capital (ROIC) per operating segment by taking EBIT divided by tangible assets, below called EBIT Return on Total Tangible Assets (EBIT ROIC).

Walmart as a whole generated an EBIT ROIC in fiscal year 2014 of 14.5%. Per operating segment Walmart U.S. generated the highest EBIT ROIC of 22.7%, compared to 8.2% for Walmart International and 14.4% for Sam’s Club.

What stands out is two things, 1) the superb returns generated by Walmart U.S. and 2) the not so good returns generated by Walmart International.

Clearly, Walmart U.S. seems to enjoy a moat which is consistent with earlier posts discussing the issue of likely competitive advantages enjoyed by Walmart. In the U.S. market Walmart seems to enjoy a moat through the benefits of captive customers via its Every Day Low Prices (EDLP) and economies of scale mostly in distribution, even if it seems reasonable to assume there also are some scale advantages from marketing and purchasing. Walmart International does not seem to have any of these advantages at the moment, at least not to the extent that it shows up in great returns as measured by the EBIT ROIC calculation. Upon reflection, this may not look as surprising as one might expect. Just as Walmart enjoys advantages in U.S., other retailers most likely enjoy, at least to some degree, the same advantages in their own domestic markets.

ROC1Below is a breakdown of EBIT ROIC and its two main drivers, EBIT margin (Operating income / Net sales) and Tangible assets turnover (Net sales / (Total Assets – Goodwill)).

  • EBIT ROIC = EBIT margin × Tangible assets turnover

In recent years, Walmart U.S. has shown a high and increasing EBIT margin. During the same period Walmart International’s EBIT margin has declined from 5.8% in 2006 to 4.0% in 2014. Sam’s Club’s EBIT margin has been pretty consistent during these years, close to 3.5%. At a consolidated level, Walmart’s EBIT margin has declined from 6.0% in 2006 to 5.6% in 2014, mainly due to the deterioration in Walmart International’s EBIT margin.

ROC3

The second driver of EBIT ROIC, the tangible assets turnover shows that Sam’s Club enjoys the highest asset turnover. Asset turnover for Walmart U.S has been pretty consistent in recent years, hovering around 2.9 times. Walmart International has improved its asset turnover from 1.6 to 2.0, but due to the decline in EBIT margin the EBIT ROIC has not improved.

ROC2

So, the Walmart operating segment moat king, at least as of today (and also in recent years) is Walmart U.S.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is informational and is in my own personal opinion. Always do your own due diligence and contact a financial professional before executing any trades or investments.

Sam Walton: Made in America

“I’ve played to my strengths and relied on others to make up for my weaknesses.” —Sam Walton
MIAMSSW1

I just finished reading another great book. Sam Walton: Made in America was really hard to stop reading, so it didn’t last long.

I thought I’d share a few great quotes.

Sam on the essence of pricing in discount retailing

“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 buying similar panties from Ben Franklin for $2.50 a dozen and selling 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 you 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 retail language, you can lower your markup but earn more because of the increased volume.” (p. 32-33)

Bud Walton, the brother of Sam Walton, about the beginning of Wal-Mart and controlling expenses

“That Newport store [a franchise Ben Franklin five-and-dime in Newport, Arkansas, opened for business on September 1, 1945] 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 trying to be ingenious. He never stopped trying to do something different.” (p. 36)

Taking the best from others

“Most everything I’ve done I’ve copied from somebody else.” (p. 47)

 David Glass, former President and Chief Executive Officer of Wal-Mart

“Two things about Sam Walton distinguish him from almost everyone else I know. First, he gets up every day bound and determined to improve something. Second, he 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.” (p. 50)

Low prices through low expenses

“So while we may not have had any competition for discounting in those little towns, we weren’t strangers to competition. We were always looking at Gibson’s and any other regionals that might decide to come our way, and we knew what to do when they did: keep our prices as low as possible by keeping our costs as low as possible.” (p. 152)

Payroll in retail businesses

“…no matter how you slice it in the retail business, payroll is one of the most important parts of overhead, and overhead is one of the most crucial things you have to fight to maintain your profit margin. Back then, though, I was so obsessed with turning in a profit margin of 6 percent or higher that I ignored some of the basic needs of our people, and I feel bad about it.” (p. 163)

Loyal customers means repeat business

“Satisfied, loyal, repeat customers are at the heart of Wal-Mart’s spectacular profit margins…” (p. 164)

Shrinkage

“As you may know, shrinkage, or unaccounted-for inventory loss—theft, in other words—is one of the biggest enemies of profitability in the retail business. […] This is sort of competitive information, but I can tell you that our shrinkage percentage is about half the industry average.” (p. 172)

The secret

“The secret of successful retailing is to give your customers what they want.” (p. 221)

Meeting competitors head-on

“We decided that instead of avoiding our competitors, or waiting for them to come to us, we would meet them head-on. It was one of the smartest strategic decisions we ever made.” (p. 242)

Competitive advantages in distribution

“I would go as far as to say, in fact, that the efficiencies and economies of scale we realize from our distribution system give us one of our greatest competitive advantages.” (p. 263)

Saturday morning meeting

“So when we sit down at our Saturday morning meeting to talk about our business, we like to spend time focusing on a single store, and how that store is doing against a single competitor in that particular market. We talk about what that store is doing right, and we look at what it’s doing wrong.” (p. 281)

Paychecks to American managements

“But if American management is going to say to their workers that we’re all in this together, they’re going to have to stop this foolishness of paying themselves $3 million and $4 million bonuses every year and riding around everywhere in limos and corporate jets like they’re so much better than everybody else.” (p. 325)

Walmart’s Return on Invested Capital in 1972-2014

Historical Return on Invested Capital

It’s been some time since I posted about Walmart and its business during the first half of the 1970’s, a period where Walmart enjoyed really high growth and high return on invested capital, measured as operating profit divided by average invested capital (see below for calculation of invested capital). But as expansion kept going and the company grew bigger, return on invested capital headed in the opposite direction, peaking at a record high of almost 55% in 1972 and from there on decreasing to 22% in 1997. From 1998 to 2014 return on invested capital has averaged approximately 28%, peaking at 32% in 2001 and and reaching a low of 26% in 2014.

So what we can see here is that growth clearly comes at a price, even for such a great business as Walmart. The question then is, why did Walmart’s return on invested capital deteriorate?

The straight answer to that question is that Walmart did not enjoy as strong a competitive advantage as it had in the beginning of the 70’s. Greenwald explains Walmart’s shrinking return as it grew bigger in the following way in the book Competition Demystified.

“The only explanation we find convincing to account for the shrinking return is that, as it expanded across the country and overseas, it was unable to replicate the most significant competitive advantage it enjoyed in these early years: local economies of scale combined with enough customer loyalty to make it difficult for competitors to cut into this base.”

ROIC1

Components of Return on Invested Capital

Return on invested capital is determined by two components, the operating profit margin of a business and its invested capital turnover.

Looking at these metrics we can see that both of them has trended downward during the period 1972 to 2014. Walmart enjoyed its highest invested capital turnover in the 70’s. The operating profit margin held up pretty good until the middle of the 80’s, peaking at 8.5% in 1985. From there on it deteriorated to 5.4% in 1997. The operating profit margin has averaged about 5.8% in the following years up until today.

ROIC2

All calculations done from data in annual reports provided by Walmart. Annual reports can be found here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is informational and is in my own personal opinion. Always do your own due diligence and contact a financial professional before executing any trades or investments.

Walmart: Competitive Advantage & Its Nature (Part 1)

Background: A framework of competitive advantages and some thoughts about Wal-Mart in 1974

This post is about Wal-Mart in the beginning of the 1970’s. The second part will look at Wal-Mart as of today.

Yesterday I read a post over at CSInvesting about analyzing Wal-Mart to try figuring out its competitive advantage and its nature.

Let’s get back to Wal-Mart. What is the essence–the key–to its ability to grow profitably for so long? What can you spot in the 1974 annual report that would have CSInvesting

First, I just read through it once. Then in the evening I had some time at hand so I picked up Wal-Mart’s annual report for fiscal year 1974 and then the annual report from 2012. WMT1

So, with this post I thought I would make an attempt to touch upon the question about any likely competitive advantages enjoyed by Wal-Mart in 1974 and its nature.

Business analysis is all about getting to know the fundamentals of a business as good as possible. Well, how then can one know if there is a competitive advantage present or not when looking at a business one might ask? I think the best answer to that question is that you have to know in some way what you’re looking for. You need a theoretical framework that contains different likely competitive advantages that a business may enjoy.

From there on, it’s all about reading about businesses, and then read some more. Reading is key. Focused reading is key. Pick a business or an industry, one at a time, and don’t move on until you feel that you know the fundamentals of the business or decide it’s too hard to figure out. Adopt the Charlie Munger approach “In,” “Out” and “Too hard.” 

You have to go out and find the great companies, they will not come to you. Applying the theoretical framework containing the different competitive advantages helps you figure out if a specific business seems to enjoy any of the advantages. This will take time, but it will be great time spent because you will learn a lot. You will accumulate knowledge that you can use further on when looking at other businesses.

The key to investing intelligently is doing a thorough business analysis and to know what makes one business better than another. At the same time you have to keep your own feelings in check. As Richard P. Feynman once said The first principle is that you must not fool yourself and you are the easiest person to fool.”

To start with, I want to make clear that I read Competition Demystified a few years back. I don’t know the exact words that it said about Wal-Mart, but I can say that the book analyzed Wal-Mart’s competitive position and I remember that the analysis was great. But, I won’t stay away from having another look just because I have already read the book. I just want to tell everyone that this book from Greenwald is definitely on my list of the best books to read to learn thinking about competitive advantages and strategy. It has influenced me a lot. So if my analysis is close to Greenwald’s, it’s because I read his book and learned a few things. If my analysis turns out not to be, I better go back and read Competition Demystified once again, because it is a great book that every business analyst and investor should read.

So, with this said. I think it’s time to take on Wal-Mart in 1974.

Wal-Mart’s annual report from 1974 

Some notes from my reading of the 1974 annual report follows here:

  • High and consistent growth in both revenues and earnings in 1970-74
  • Revenues of $169.4 million (126.5 in 1973) and earnings of $6.2 million (4.6 in 1973)
  • Number of stores at year-end was 78 (64 in 1973)
  • Store locations concentrated to Arkansas, Missouri, Oklahoma (see map below) with distribution center right in the middle in Bentonville, the same place where its general office is located.
  • “New stores scheduled during fiscal year 1975 will be within the 350 mile radius served by our Distribution Center.”
  • “A new 150,000 square foot addition to our present distribution system is projected for this year, hopefully to be completed by September 1974. At that time, our total Distribution Center and General Office space will exceed 400,000 square feel.”
  • See tables below for some financial data from the P&L, Balance sheet plus some financial ratios (click them to see better… I know it’s unreadable if you don’t)
  • High returns on invested capital
  • High and stable gross and operating margins

Here are some tables from the annual report that gives the reader a hint about the rapid and consistent growth in the years leading up to 1974.

WMTG

From looking at the P&L the consistent growth coupled with high returns on invested capitals gives a hint that Wal-Mart seems to be doing something right. Three year average gross and operating margin were 26.4% and 7.7%.

WMTPL

A look at the balance sheet shows high growth in shareholders equity together with growing assets and debt. Growing at this high a growth rate requires capital. Even though the debt increased a lot, the whole business grew as seen by higher revenues converted to profits and also from looking at different lines in the balance sheet compared to net sales.

WMTBS

Return on equity was high, 20% in 1974 compared to a three year average of 22%. Return on invested capital (ROIC) was 31% in the same year, compared to a three-year average of 34%. Financial leverage was around 2 times and debt to equity was 0.36 and equity to total assets was 0.51 in 1974.

WMTRatios

Likely competitive advantages and its nature

If I had to pick one picture to show from the 1974 annual report, it would be the map on page 8-9 showing all the store locations that are concentrated around the distribution center. Wal-Mart started off from Bentonville, from where it expanded its store locations and business operations. This concentration likely resulted in economies of scale in distribution and also in marketing.

WMTMap

Local concentration of store location – a powerful force in creating high returns

I have put together a list of the different kinds of competitive advantages a business may enjoy. From looking at Wal-Mart and going through the list (see table below), it seems reasonable to say Wal-Mart did not enjoy any cost advantages (i.e. superior production technology or privileged access to crucial inputs) above keeping costs low from operational efficiency. The same seems true for any government interventions.

So, from this, we go on to look if there seems to be any advantages from demand or economies of scale.

By looking at the map we see that stores are located close to each other in a cluster. This should give an advantage in distribution, advertising, and also in managing the stores, that a competitor with only a few stores in the same area wouldn’t be able to enjoy, at least not in the same extent. Wal-Mart’s focus on everyday low prices would probably also attract customers and hopefully keeping them from shopping elsewhere, so some habit formation here.

If we look at the different kinds of customer captivity, search costs are probably pretty low if not nonexistent. One has to assume that pretty much everyone could find out price levels in competing stores without investing too much time and effort. There might be some switching costs, in the sense that customers have to pay higher prices if they decide to go shopping at a competitor’s place.

When buying groceries most customers reasonably want two things, low prices and good (if not great) quality.

Groceries are bought periodically and it becomes a bit of a habit of going to the same store or chain. So, some customer captivity from habit seems reasonable to assume there is. But in the end a lot of people are willing to change stores to get even lower prices. So, as long as prices are low enough compared to competitors customers probably stay.

The most important thing in the grocery business is keeping prices low, to enjoy some customer captivity from habit and some switching costs. This becomes a feedback loop, with lower prices attracting more customers and more customers making it possible to keep prices at a low enough level.

Enjoying economies and scale, local in the case of Wal-Mart, and at the same time being able to attract a lot of customers means a business can spread its fixed costs (marketing, depreciation, distribution, management and other overhead expenses) over a greater revenue base, i.e. higher margins and returns on capital. This effect is also enhanced by the fact that stores are located in a limited area around the distribution center. Also, Wal-Mart looks to be operationally efficient in the way it conducts its everyday business, also a positive, even though it’s not considered a true competitive advantage.

CA1

To wrap this up, Wal-Mart in 1974 seems to enjoy competitive advantages from some customer captivity and local economies of scale (remember the map). If Wal-Mart where to expand into other areas these advantages would most likely be enjoyed by incumbent in these markets.

Having found a business enjoying a competitive advantage, the next question is about the sustainability of it. To say something about it, I am not really sure how one is supposed to proceed in trying to conquer Wal-Mart in this local area. So at least in the beginning of the 1970’s it should have been reasonable to expect Wal-Mart to keep its competitive advantages for some time in this local area where it operated, and by doing so protecting its profits from any potential entrants.

For a more thorough analysis of Wal-Mart’s competitive position in 1974 and its development from there, see Competition Demystified by Bruce Greenwald.