Golden Touch
Walmart officially marked its 50th anniversary on July 2, but the Bentonville, Ark.-based retail behemoth planned events to celebrate this landmark achievement throughout the entire year. Perhaps the high point of those celebrations came on June 1, during the annual Walmart Shareholders Meeting.
The event featured live performances from the likes of Lionel Richie and Celine Dion, as well as some lighthearted banter between Justin Timberlake and Taylor Swift. Although Michael Duke, Walmart's president and CEO, might not possess quite the star power of those folks, he quite capably summed up the retailer's incredible growth story at the meeting.
"The first-ever Walmart store (in Rogers, Ark.) had just 25 associates in the store [and] was only 35,000 square feet," he told meeting attendees. "Fifty years later, we're on five continents, 27 countries [and have] over 10,000 stores, over 2 million associates and over 200 million weekly customer visits … You can't build a company of that size, over that time period, during so much change in the world, on a weak foundation."
Indeed, Walmart's rapid rise to retail domination is associated with an incredibly strong foundation — one put into place by founder Sam Walton.
Walton had "a relentless focus on providing the customers with products at lower prices," says Neil Stern, a senior partner with McMillanDoolittle LLP, Chicago. "Sam used to say, 'We're going to help ordinary folks buy the things the rich folks have.'"
Walton's vision is the basis for Walmart's "Save Money, Live Better" promise. And the company has been able to deliver on that promise over the years because, in large part, it has become extremely proficient at leveraging its size to negotiate better costs from suppliers.
"The original premise was always 'take the cost out of the system, reinvest the savings in low prices, reap the rewards of efficiency, and then do it all over again' — the productivity loop," says Jim Hertel, a managing partner with Barrington, Ill.-based Willard Bishop. "That's how they grew so fast."
Assortment, too, has played a role in the foundation's strength.
"Mr. Sam always said that if you couldn't find it at Walmart, you probably didn't really need it," notes Bob Anderson, former vice president/general merchandise manager, private label for Walmart.
Late start for store brands
Over the years, Walmart also has earned a reputation for being a "house of brands." In fact, with the exception of some control brands, the retailer really didn't enter the store brand game until the 1980s, with the launch of Ol' Roy dog food, Anderson says. (The brand's introduction reflected Walton's love for both dogs and hunting.)
"The idea was that national brands provided a 'common currency' by which shoppers could easily compare Walmart's prices to other stores' and convince shoppers of Walmart's value," Hertel explains.
But once that value was established in shoppers' minds, the door opened up for store brand product development.
According to Stern, Walmart really began to delve into private label when it licensed some of the President's Choice products from Loblaw Companies, Brampton, Ontario, under Walmart's Sam's American Choice label (eventually shortened to Sam's Choice).
Anderson notes that it was Dave Nichol, then president of Loblaw, and Don Watt, who is credited with the President's Choice design, who approached Walton. Although Walton — as well as David Glass, Walmart's president and CEO at the time — initially were a bit hesitant to get into private label, they went for it, and essentially kick-started Walmart's store brand food program.
"At about the same time, Walmart started to get into the self-distribution of food for their supercenters," Anderson notes. "And I created the Great Value brand and the items that followed."
The creation of that mega-store brand, and all of the product development, sourcing and testing that went with it, gave Anderson and Walmart a "great window into the industry." He adds that he was asked many times why Walmart decided to finally get into private label.
"I think there's a role to be played," he says. "And Great Value turned out to be the largest and most well-recognized brand that Walmart had."
Critical to Great Value's success, Anderson notes, has been a firm commitment to quality that is equal to or better than the national brand. That commitment was based on one of Walton's business rules: to exceed customers' expectations.
"We were one of the few companies in the United States that had an independent testing facility, and we did a lot of independent panel testing," he says, adding that Walmart also was one of the first companies to include bilingual labeling on packaging and to reduce perceived negatives such as salt, sugar and MSG.
And at about the same time as the Great Value debut, Walmart launched the Equate health and beauty brand, Anderson notes. The name Equate presents consumers with an obvious comparison to the national brands.
Although Walmart has dabbled in the premium tier (with its newer World Table and Marketside brands), its private label program lacks the "bells and whistles" common to many other retailers, says Jim Wisner, founder of Wisner Marketing Group, Libertyville, Ill.. But the retailer does quite a good job of offering national brand equivalency at a much better price, he says — and it excels in its supplier partnerships here.
"From a purchasing and vendor management standpoint, they are probably the most straightforward customer out there," he says. "They will work very hard to put together collaborative supply chain agreements, which I think the industry as a whole has really lagged Walmart on. … They just simply do a better job of minimizing what the vendor's cost is in servicing."
Fine-tuning along the way
Despite the success of Great Value and Equate, as well as niche brands such as Ol' Roy, Special Kitty and Parent's Choice, Walmart still has faced some challenges in the store brand arena. Paula Rosenblum, managing partner with Retail Systems Research, Miami, points to one major blunder the retailer recently made here.
"At some point, it became obvious to the company that private label merchandise was another way to bring commodities at a reasonable price point, and it might be missing out on that value equation," she says. "That led to 'Project Impact' and a series of missteps in presuming the customer would just accept Walmart's private label without any kind of brand equity."
Project Impact — where Walmart made massive SKU cuts in relation to national and regional brands to make more room on shelves for store brand products, ultimately failed. As Anderson stresses, the move didn't jibe with Walmart's longstanding commitment to assortment.
"I think the consumer voted at their registers really quick," he says, "that that was not an acceptable option for them."
Another mistake, Anderson believes, was Walmart's decision to change the Great Value design a few years back. The timing didn't help, either.
"Whether it's a national brand or any brand, if you change the label, there's always going to be the perception that you changed what's inside the package, too," he says. "To do it for a whole brand and think you can get it done in a year was very naïve. To do it in a time when the country was going through a recession — [knowing] that historically in two of the last three recessions store brands gained share — was a very risky thing."
Wisner isn't "terribly impressed" with the Great Value revamp — and believes Walmart continues to lag behind other retailers on the packaging front.
"It really positioned the brand … more as a neo-generic than as a first-quality private label," he says.
Wisner also notes that Walmart's interest in private label seems to come and go.
"They kind of get behind it; they understand what they have to do, and then all of a sudden they get into this [mindset] that it says 'brands for less on the building,' he says. "And it's almost like they get disinterested in private brand again."
Both Stern and Rosenblum seem to suggest that Walmart's late entry into the private label arena could be behind some of its challenges.
"They've always been somewhat reluctant, if you will, to push private label over brands," Stern adds. "So I would say today that rather than a branded house, Walmart is an agnostic house."
But if the retailer could improve its private label messaging, it could not only add some dollars to its bottom line, but also fight back against the growing dollar store threat, Rosenblum says.
"Dollar stores are a big threat to the company, as they eat way at the edges and reduce basket size just a bit," she stresses.
The next 50 years
Walmart will have to address much more than some kinks in its store brand program, of course, if it is to continue on a strong growth curve during the next 50 years. In the United States, for example, it is running out of room and real estate to open up supercenters, which historically have been the company's growth engine, Stern says.
"The company is going to have to look elsewhere for growth, which obviously is the whole international push that's occurring," he says, "and they're going to have to be much more flexible in their approach to penetrating the U.S. market, which means smaller box formats … and rethinking real estate strategies in terms of how they might penetrate the urban core."
But Walmart is unlikely to allow cracks to form in its foundation.
"We can't possibly envision what the world or what retailing or what Walmart will look like in another 50 years," Duke said at the shareholder meeting. "But if we stay true to the foundation that Sam Walton built, we'll continue to be a better company, a stronger company and a prouder company. … We'll help millions more customers do what they aspire to do for themselves and for their families to save money and to live better."
SELECTED WALMART MILESTONES
Late 1940s Sam Walton is operating a single Ben Franklin store in Newport, Ark.
1950 Sam Walton and his family move to Bentonville, Ark., where Sam opens Walton's 5&10, a Ben Franklin Franchise.
1959 By now, Sam Walton is operating eight Ben Franklin stores, which account for approximately $1.4 million in annual sales.
1962 Sam Walton opens the first Walmart on July 2, in Rogers, Ark., bringing in Don Whitaker to manage the store.
1968 By now, Sam Walton is operating 13 Walmart stores. In June, he attends an IBM class for executives, laying the foundation for a partnership between Walmart and IBM. Walton hires people from IBM to develop Walmart's computing infrastructure.
1970 After officially incorporating as Wal-Mart Stores Inc. the previous year, Walmart becomes a publicly held company and opens up its first distribution center and home office in Bentonville. Sam Walton retires (temporarily); Ron Mayer becomes Walmart's chairman and CEO.
1974 Jack Shewmaker, a Walmart executive, champions "everyday low prices," or EDLP, and Walmart opens its 100th store.
1976 Sam Walton comes out of retirement and resumes his CEO post.
1977 Walmart builds a companywide computer network and puts into operation a system for ordering merchandise from suppliers.
1978 Walmart introduces pharmacies, auto-service centers and jewelry divisions in stores.
1982 The first Sam's Club opens, in Midwest City, Okla.; Walmart "people greeters" also make their debut this year.
1988 The first Walmart Supercenter opens, in Washington, Mo.; David Glass is named CEO of Walmart.
1990 Walmart is now the No. 1 retailer in the United States, with sales of $32.6 billion.
1991 Walmart introduces Sam's American Choice store brand products.
1992 Sam Walton dies; S. Robson Walton becomes Walmart's chairman.
1995 Bud Walton, Sam Walton's brother and Walmart's co-founder, dies; global expansion, which began several years back in locations such as Mexico and Puerto Rico, continues, with stores opening in Argentina and Brazil.
1998 Walmart debuts the Walmart Neighborhood Market concept, opening three stores in Arkansas.
1999 Walmart acquires the UK-based ASDA chain; the retailer also becomes the world's largest private employer, with 1,140,000 associates.
2000 H. Lee Scott becomes CEO of Walmart.
2004 Walmart tests RFID technology in the grocery sections of seven stores.
2005 H. Lee Scott announces Walmart's sustainability goals: to create zero waste, use only renewable energy and sell products that sustain the environment.
2007 Walmart launches its Site-to-Store service, which allows online customers to pick up merchandise in stores.
2008 Michael Duke is appointed to succeed Lee Scott as CEO; Scott hosts Walmart's first China Sustainability Summit, in Beijing.
2009 Walmart debuts a new logo and begins a major store remodeling program. The company also announces plans to develop a worldwide sustainability index for every product it sells.
2012 Walmart celebrates its Golden Anniversary, now operating more than 10,300 stores under 69 different formats in 27 countries. The retailer now employs 2.2 million associates and boasts annual sales of approximately $444 billion.
Source: Walmart
