After Sam: Did Wal-Mart Lose Its Way After Walton Died?

by Mark Friedman  on Monday, Jul. 2, 2012 12:00 am  

Time Magazine featured a posthumous tribute to Sam Walton, calling the Wal-Mart founder "America's favorite shopkeeper".

Sam Walton would be amazed at the growth of his Wal-Mart Stores Inc.

In the two decades since his death at the age of 74 in April 1992, the Bentonville retail chain has become a global retail Godzilla.

When Walton died, Wal-Mart operated 1,714 stores, 208 Sam’s Clubs and only six Supercenters. Wal-Mart’s international division was a blip with eight locations in Mexico and Puerto Rico. Those stores generated $43.8 billion in revenue and $1.6 billion in net income in 1992.

Now a run-up in oil prices is the only reason Exxon Mobil has displaced Wal-Mart at the top of the Fortune 500 list. Wal-Mart sold $447 billion worth of merchandise in the fiscal year that ended in January, and profited $15.7 billion on it. These days the company operates more than 4,400 stores in the United States and another 5,651 outlets in 26 countries.

But behind the big numbers are some trends that disturb retail analysts. Competitors such as Amazon, Apple and the category known as “dollar stores” have gained ground, especially in the United States, where Wal-Mart suffered through two years of same-store sales declines between 2010 and 2011 before managing the barest of increases in the fiscal year that ended in January. Same-store sales reflect sales at stores open at least a year and exclude gains from simply opening new stores.

Some put the blame on Wal-Mart’s management team, saying it has drifted away from Walton’s essential philosophy of offering the lowest price.

“Wal-Mart has lost the most important thing it had, and that’s price leadership,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm in New York. “It’s the most precious asset they had, and they squandered it.”

Instead of focusing on low prices, Wal-Mart turned its attention to fashionable clothes and renovated stores, while practically shunning online sales. It even dropped the slogan “We Sell for Less.”

If Walton were alive today, “this never would have happened,” Davidowitz said. “There’s no way that Wal-Mart would have embarked on an insane assortment … remodeling, making the stores pretty. Sam understood the customer.”

Still, not all of Wal-Mart’s initiatives after Walton’s death backfired. It rolled out $4 generic prescription drugs in the fall of 2006 and in-store health clinics in 2007. Wal-Mart also promoted environmentally friendly products on its shelves while building more green stores.

And some things stayed the same at Wal-Mart, with or without Walton, including allegations that Wal-Mart saved money at the unfair expense of employees that have always been called “associates.”

Wal-Mart was only 5 years old when, in 1967, a federal court ruled that Walton had set up his first stores as separate corporations to avoid having to pay minimum wage under the Fair Labor Standards Act.

 

 

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