Wal-Mart under Glass: goal is no. 1 retailer - David Glass - Discount Industry Annual Report - company profile

Discount Store News, July 4, 1988

Wal-Mart Under Glass: Goal is No. 1 Discounter

BENTONVILLE, Ark. -- The Wal-Mart juggernaut cracked 1,000 stores in 1987, but more interesting was the kind of store the Arkansas retailer chose to open.

The big news was the debut of its hypermarket concept, Hypermart USA, in Dallas at year-end. Long-term, the opening of the first of its SuperCenters shortly thereafter may be of even more significance.

Hypermart USA may have been the most ballyhooed store ever to open, attracting as it did a virtual army of reporters looking for the "next big thing" in retailing, but some observers feel that the concept is limited to a handful of major metropolitan areas and an even smaller handful of high-traffic secondary markets.

However, the smaller, down-size hypermarket SuperCenter, unveiled early this year, has the potential to very quickly turn Wal-Mart into the most dominant retailer in the world.

The company's strength has always been rural America, where a new Wal-Mart can normally panic local competition with its rock-bottom prices and deep selection. However, in small metro areas Wal-Mart becomes, according to DSN-sponsored research, "just another discount store." SuperCenter, essentially a scaled-down version of Hypermart USA, could address that weakness, giving the company enhanced access to areas in which it has met relatively little success.

Wal-Mart also made what many see as the first step in what will be a painful management transition when David Glass, formerly the company's president, was named chief executive officer early in 1988.

Many analysts had worried openly that the company had become so dependent upon the personality of founder and chairman Sam Walton that chaos would result when and if he retired or became unable to continue running Wal-Mart. Although the company denied that any competition was involved, vice chairman, chief financial officer Jack Shewmaker, who was a candidate as Walton's heir, resigned his positions at the same time. Shewmaker will remain with the company as a consultant.

Financially, the company had yet another of its trademark record-setting years. Sales rose 34 percent from just under $12 billion to $16 billion, and profits increased a dramatic 39 percent, from $450 million to $628 million. Discount store sales alone rose nearly 30 percent to $13.2 billion. And, at the company annual meeting last month, Glass predicted the corporation would exceed $20 billion in sales this year.

Wal-Mart has become such an efficient money machine, in fact, that Shewmaker felt compelled to note publicly that while the stores were, in fact, lowering prices, outsiders remained skeptical because profits kept going up. "The harder we try to do that [lower prices], the more efficient our people become--we can't seem to get caught up," he said.

Efficiency is almost a religion at Wal-Mart, which has upped its per-square-foot productivity from $145 in 1982 to $213 last year. It has installed state-of-the-art satellite communications technology and POS equipment as one money-saving measure, but the company credits its associates, who it says just get better and better.

The secret of his success, Sam Walton is fond of saying, is very simple: Offer the best merchandise at the best price in an agreeable environment and the world will beat a path to your door. Toss in intensive attention to inventory management and almost fanatical devotion to cutting expenses ("We squeeze a nickel so tight you can hear the buffalo scream," one executive once said), and you have the basic outline of what is arguably the world's most successful business.

Wal-Mart's success is due in a large part to its attention to its employees. The company features liberal stock ownership and pension plans, and it promotes heavily from within. What is commonly perceived as a dead-end job at other retail stores is seen as a career opportunity at Wal-Mart. Last year, according to the company, 1,100 associates were promoted to management-level positions.

Growth Rate Slowed to 12%

Based on the current sales growth rate of the two chains, Wal-Mart is expected to surpass K mart as the world's largest discounter within five years. However, that could happen much more quickly, given the company's rapid growth over the past five years. Although the company's growth rate has slowed down to about 12 percent, those stores have consistently increased sales. The company has concentrated recently on expanding and retrofitting its older stores, which contributes to its impressive same store sales increases.

This year, Wal-Mart will reportedly test new product areas, including a 50-store test of a personal computer department which will feature Blue Chip and Tandy (Radio Shack) products. It will open roughly 125 new Wal-Mart stores, some in new markets, and will continue to expand its SuperCenters and Hypermart USA hypermarkets. Its Sam's Wholesale Club division, which also placed among the top 10 this year, will surpass the 100 store mark.

And, with Wal-Mart's new computer and telecommunications networks running at full speed and its associates continuing their drive to become the most efficient employees in the United States, Wal-Mart will probably continue to outperform even the most optimistic projections of the financial industry.