The refinement of EDLP

Discount Store News, Oct, 1999

As the 1970s began, Wal-Mart had shown that it was a viable retailer on a regional basis, but it would use the decade to refine the core strategies that drive its business internationally today.

During the '70s, the company began to emerge as a retailer people in the industry were hearing more about. Although nowhere near a national powerhouse, Wal-Mart made moves during the decade that continue to pay dividends.

The decade got under way with Wal-Mart's initial public offering on Oct. 1, 1970. The offering was small by today's standards, with just 300,000 shares priced at $16.50. However, it infused Wal-Mart with cash, and going public gave the company the higher level of legitimacy it needed to attract the talented managers it would need to grow.

Among the key executives who joined the company during the mid-1970s were Jack Shewmaker, Don Soderquist and David Glass. It was their insight into the impact that computers, technology and automation would have on retailing as well as their ability to convince Walton of the need to invest in the systems that helped Wal-Mart achieve its low operating cost structure that enabled it to work on thin margins and consequently offer low prices.

Attracting talent wasn't easy because Wal-Mart was a small and relatively unknown company. In 1971, Wal-Mart had just expanded into Louisiana and Kansas from its base in Arkansas, Missouri and Oklahoma, with stores reaching up to 60,000 sq. ft. The chain was maintaining a 55%/45% hard goods/soft goods mix after introducing apparel just a few years before.

The '70s also saw Wal-Mart refining its every day low price strategy. The company's goal was to keep its operating costs as low as possible. Tales of the era's frugality abound, with executives recounting that they would cram into hotel rooms by the bunch to cut costs on buying trips to New York. By keeping operating costs low, Wal-Mart could charge lower prices and increase its volume. The formula was and still is simple: keep costs low, sell more merchandise, lower prices further and sell even more.

The strategy certainly wasn't developed and implemented in a day, or even a decade. Rather, Wal-Mart took steps that permitted it to become a more efficient business and to offer lower prices than competitors while maintaining margins.

By fiscal 1973, company sales were $167.5 million with net earnings of $6.1 million, and the growth was just beginning. By 1974, Wal-Mart had opened its 100th store. By 1975, Wal-Mart also had created a logistics system that turned inventory every seven days and delivered shipments to stores every three to five days. That year it planned to double the size of its 200,000-sq.-ft. Bentonville distribution center.

In 1977, with stores in nine states including Texas, Wal-Mart had laid the foundation for several more strategies that would drive business in the coming years. The company also had initiated computerized data capture, an innovation upon which the company would build until it became the retail leader in processing, sharing and applying information.

By the end of 1979, Wal-Mart had 276 stores after having boosted its retail square footage by 23% with the addition of 47 units. It planned 45 new outlets in 1980. Sales for the fiscal year were $1.25 billion, and earnings were $41.2 million, up 40.1% from a year earlier.

The company's financial performance was starting to attract attention. But by the end of the '70s, Wal-Mart was still a retailer that most competitors didn't view as a serious threat.