Wal-Mart to Roll On : Founder Planned Succession to Keep Juggernaut on Track
In 1983, fearing that his Wal-Mart discount empire was on the verge of a disappointing year, Sam M. Walton made his employees a rash promise. If they could rally sales to surpass his expectations, he would do the hula on Wall Street.
No one ever determined whether it was the prospect of seeing the compact, wiry Walton--a man known for his down-home Southern charm and no-frills lifestyle--in a grass skirt that prompted the 38% sales rise that year. But people still talk about the day Walton wiggled his hips and waved his wrists in the Big Apple.
While Walton virtually remade the face of U.S. retailing with his unique motivational techniques and uncanny understanding of American consumers, his death Sunday from cancer is expected to have a minimal impact on the daily operations of Wal-Mart, the nation’s largest retailing empire.
Several analysts said there is no reason that Walton’s death should prevent the company from achieving its goal of generating $100 billion in sales by the end of the decade, more than twice its current level.
Walton, who was 74, was diagnosed with an incurable form of cancer several years ago. He had been planning for his succession since 1988, when he promoted David D. Glass to president and chief executive.
“You can’t replace a Sam Walton,” Glass said earlier this year, “but he has prepared the company to run well whether he’s there or not.”
Industry analysts said Glass, 56, has been calling the shots for three years--the period in which Wal-Mart leaped over Sears Roebuck & Co. and K mart to become the nation’s largest retailer with 1,735-stores and 1991 profit of $1.6 billion on sales of $43.9 billion.
Meanwhile, Walton, ever the Wal-Mart cheerleader, contented himself with visiting stores and preaching his credo of customer satisfaction and low prices, which had served so well since the opening of the first Wal-Mart in 1962.
“There is no doubt that his philosophy and vision are etched into every fiber of that company,” said Kurt Barnard, publisher of Barnard’s Retailing Report in New York and a long-time friend of Walton. “The upshot is that virtually nothing about the company will change because of his death.”
Thomas Tashjian, an analyst with First Manhattan brokerage in New York, said Walton’s death had been expected for a year. Thus, executives at the company headquarters in Bentonville, Ark., had time to prepare for an orderly transition and life without the charismatic and energetic Walton.
“Certainly there is a spiritual loss,” Tashjian said. “But, quite frankly, this is a well-prepared, well-rehearsed changing of the guard.”
Robert Kahn, a retail newsletter publisher in the Bay Area and a Wal-Mart director, said Rob Walton, Sam’s oldest son and the company’s vice chairman, may become chairman.
Tashjian and other analysts said it is unlikely that the price of Wal-Mart stock, which closed down 37.5 cents Friday at $51.625 on the New York Stock Exchange, will fall as a result of Walton’s death. If a drop does occur, he said, “astute investors” will snap up the shares.
Over the last 18 months, the company has embarked on one of its most aggressive and risky expansions ever. Wal-Mart is moving into California and the Northeast, territories distant from and more urbanized than the company’s roots in the South and Midwest.
But analysts say the expansion is proceeding well, proving Wal-Mart’s contention that consumers in trendy California and sophisticated New York want the same values as Middle America.
Wal-Mart is using the same basic formula it had when it opened its first stores in Arkansas and Missouri 30 years ago--pushing low, everyday prices, name-brand merchandise and friendly service.
While emphasizing homespun values, Walton and his team set themselves apart from the pack by their early embrace of computers to manage inventories and track sales.
Like military strategists, company planners built clusters of stores around centralized distribution centers. Wal-Mart also was the first discount retailer to make computerized cash registers integral to the inventory control system--steps competitors K mart and Target instituted much later.
“The computers and electronic connections made Wal-Mart faster and more efficient in managing its merchandise,” Barnard said. “The result is that Wal-Mart has less inventory just sitting in the pipeline than anyone else and is able to have lower costs of doing business than its competitors. That translates into lower prices for consumers and higher profits for Wal-Mart.”
In prototype stores now being tested, there are even more electronics. In one, consumers are able to use special bar-code scanning devices to learn the price of merchandise--an innovation that spares stores from marking individual items while still giving consumers the information they want. Another experiment allows customers to preview movies and music videos before purchasing them and to electronically order videos not in stock.
High technology aside, many analysts believe that it has been the “little things”--employee greeters at the door to welcome customers, paper bags instead of plastic and recessed lighting--that prompted many consumers to view Wal-Mart as a bargain outlet and not a cheap outlet.
“Wal-Mart really believes in the almighty dollar and that customers are the most important thing to their business. It is ingrained in every employee,” said a representative of a pension fund that is among the company’s largest investors.
“Sam embedded it. And it stuck. The culture doesn’t die when he does.”
Wal-Mart Financial Performance The company operates 1,573 Wal-Marts, 148 Sam’s Clubs and 4 Hypermart USAs with headquarters in Bentonville, Ark., and employs about 328,000.
Profits, in billions of dollars, 1991: $1.610
Revenue, in billions of dollars, 1991: $43.890
Source: Standard & Poor’s
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