Walmart
The incredible story of the retail “granddaddy of them all” Walmart, and its founder Sam Walton. Once you study Walmart, you realize just how deep its heritage runs through Amazon.
This is the incredible story of the retail “granddaddy of them all” Walmart, and its founder Sam Walton. Once you study Walmart, you realize just how deep its heritage runs through Amazon and so many iconic modern companies we cover on Acquired. This episode was an absolute blast, and we even uncovered a new addendum to the hallowed “focus on what makes your beer taste better” playbook theme!
Company Overview
Company Name: Walmart
Founding Year: 1962
Headquarters Location: Bentonville, Arkansas
Core Business: Walmart is the world’s largest retailer by revenue, operating discount stores, supercenters, and ecommerce platforms, offering low-cost goods, including groceries and general merchandise, to over 230 million weekly customers across 24 countries.
Significance: Walmart transformed retail by pioneering the discounting model, leveraging scale economies and logistics to deliver “always low prices,” dominating global retail with nearly $600 billion in revenue.
History and Facts
Timeline
1918: Sam Walton is born in Kingfisher, Oklahoma.
1921: James “Bud” Walton, Sam’s brother, is born.
1930s: Sam grows up during the Great Depression, shaped by farm foreclosures and odd jobs like newspaper delivery.
1935: Sam leads an undefeated high school football team to a state championship, fostering a “winning” mindset.
1940: Sam graduates from the University of Missouri on an ROTC scholarship, earning $4,000–$5,000/year from newspaper routes.
1940–1941: Sam works as a JCPenney floor salesman in Des Moines, Iowa, learning frugality from founder James Cash Penney.
1941–1945: Sam serves in the U.S. Army during WWII, performing internal intelligence work.
1945: Sam and Helen Robson buy a Ben Franklin franchise in Newport, Arkansas, for $25,000.
1950: After losing the Newport lease, Sam opens Walton’s Five and Dime in Bentonville, Arkansas, the third self-service variety store in the U.S.
1952: Sam opens a second Ben Franklin store in Fayetteville, Arkansas.
1962: The first Walmart store opens in Rogers, Arkansas, introducing discounting.
1968: Walmart operates 24 stores with $10 million in revenue.
1970: Walmart goes public, raising $4.5 million (300,000 shares at $15).
1971: Revenue grows 77% post-IPO.
1977: Market cap reaches $135 million, with $500 million in sales.
1983: Sam’s Club launches.
1987: Walmart invests $24 million in a private satellite network.
1990: Walmart surpasses Sears as the largest U.S. retailer.
1992: Sam Walton dies; supercenter expansion begins.
1996: Walmart operates ~2,000 discount stores (368 by 2022).
2011: Walmart acquires Kosmix for $300 million, forming Walmart Labs.
2016: Walmart acquires Jet.com for $3.3 billion.
2018: Walmart acquires a 77% stake in Flipkart for $16 billion.
2022: Walmart operates 10,500 stores, serving 230 million weekly customers, with $600 billion in revenue.
Narrative
This is a spirited tale of Sam Walton’s journey from a Depression-era hustler to the architect of the world’s largest retailer. Born in 1918 in Kingfisher, Oklahoma, Sam’s childhood during the Great Depression, marked by his father’s farm foreclosures and odd jobs like selling rabbits, instilled frugality and ambition. His undefeated high school football team and status as Missouri’s youngest Eagle Scout at 13 shaped a “winning” mindset. At the University of Missouri, Sam scaled a newspaper delivery business to $4,000–$5,000/year, funded by an ROTC scholarship. His JCPenney stint in 1940 taught retail frugality, reinforced by meeting founder James Cash Penney. WWII service and marriage to Helen Robson, whose financier father provided capital and a partnership model, set the stage for Walmart. Helen’s demand for small-town living (<10,000 people) and family control forced Sam to innovate in underserved markets, defining Walmart’s strategy.
In 1945, Sam and Helen bought a struggling Ben Franklin franchise in Newport, Arkansas, for $25,000, aiming to make it Arkansas’s most profitable variety store. Sam’s competitor analysis—visiting rivals with a yellow legal pad—led to direct manufacturer deals and loss-leader pricing, growing sales to $250,000 by 1950. A landlord’s refusal to renew the lease forced a $50,000 sale, a bitter lesson. In Bentonville, Sam opened Walton’s Five and Dime in 1950, pioneering self-service and hitting $90,000 in first-year sales. By 1962, Sam launched the first Walmart in Rogers, Arkansas, embracing discounting after Butler Brothers rejected a partnership. This marked Walmart’s core approach: relentless cost-cutting, direct supplier negotiations, and customer-driven merchandising, amplified by technology like a 1966 IBM seminar and a 1987 $24 million satellite network.
Walmart’s 1970s–1980s growth (40.1% and 32.4% CAGR) was driven by Sam’s logistics innovation, including distribution centers customizing daily store orders. By 1990, Walmart overtook Sears, leveraging scale economies to outprice Kmart. Supercenters, combining discount stores with groceries, captured >20% U.S. grocery share by the late 1990s. Walmart’s slow ecommerce adoption—rudimentary websites in the 1990s–2000s and late acquisitions like Jet.com ($3.3 billion, 2016)—allowed Amazon to close the revenue gap. Today, Walmart’s $600 billion revenue, 10,500 stores, and 2.3 million employees reflect its scale, but ~3% growth since 2013 signals digital and international challenges. Ben and David celebrate Walmart’s dominance while critiquing its digital lag, calling Sam a “bridge” between Rockefeller and modern megacorps.
Notable Facts
Global Dominance: Largest retailer by revenue ($600 billion) and employer (2.3 million), with 230 million weekly customers.
Small-Town Strategy: Targeted towns with <10,000 people; 90% of Americans live within 10 miles of a Walmart (except San Francisco, Seattle, Boston, Manhattan).
Technology Leadership: Pioneered computing (1966) and a $24 million satellite network (1987) for operational efficiency.
Family Control: Walton family owns ~50% via Walton Enterprises, preventing takeovers.
Grocery Power: >20% U.S. grocery share, offering prices 15% below competitors.
Financial Metrics
Revenue (2022): ~$600 billion (55% groceries, $330 billion; 13% ecommerce, $75 billion).
Operating Income (2022): $25 billion (4% margin).
Gross Margin: ~24%, above Sam’s era (20–24%), below Target (29%).
User Base: 230 million weekly customers, 10,500 stores.
Employees: 2.3 million.
Sam’s Club: ~$75 billion (11–15% of revenue), with one in three U.S. households holding memberships in the 1990s.
Market Cap (1977): $135 million, with $500 million in sales.
IPO (1970): $4.5 million raised (300,000 shares at $15).
Growth Rates:
1970s: 40.1% CAGR.
1980s: 32.4% CAGR.
1990s: 34% (1992), 12% (1997), 22% (2000).
2010s–2022: ~2–3%.
Ecommerce Growth (2019): 37%, unprofitable at $75 billion.
Transaction
Transaction not covered in the episode. The episode focuses on organic growth and strategy, mentioning the 1970 IPO ($4.5 million) and acquisitions (Kosmix, Jet.com, Flipkart) briefly without detailed terms or impacts. Ben and David emphasize Sam’s bootstrapped expansion and logistics over financial events.
Grading
Ben and David do not assign an overall grade, but their analysis implies grades by era, focusing on business performance and shareholder value:
Walton Era (1962–1992): A++++
Explanation: Sam’s counter-positioning in small towns, computing adoption (1966), and satellite network ($24 million, 1987) drove 40.1% CAGR (1970s) and 32.4% CAGR (1980s), overtaking Sears by 1990. Ben and David praise Sam’s “winning” mindset and operational rigor.
Stats: $10 million revenue (1968), $500 million (1977), largest U.S. retailer (1990).
Supercenter Era (1990s): A
Explanation: Supercenters captured >20% U.S. grocery share, a “huge innovation.” Growth peaked at 34% (1992), fell to 12% (1997), and hit 22% (2000). Ben and David credit Walmart’s logistics for crushing Kmart.
Stats: >20% grocery share, 55% of 2022 revenue ($330 billion) from supercenters.
Digital Era (2000s–2022): B–
Explanation: Slow ecommerce adoption (1990s–2000s) allowed Amazon to close the revenue gap. Ecommerce grew 37% (2019) but remains unprofitable ($75 billion). Maintaining largest retailer status amid digital disruption earns a B–. Ben notes Walmart “defended the castle.”
Stats: ~3% growth since 2013, $600 billion revenue.
Bear Case and Bull Case
Bear Case:
Competition: Costco’s lower margins (13%), Amazon’s ecommerce dominance, and Kroger/Albertsons’ grocery strength challenge Walmart. Dollar General thrives in niche markets.
Ecommerce Lag: Unprofitable $75 billion ecommerce segment lacks Amazon’s advanced search and data.
Growth Slowdown: ~3% growth since 2013 reflects saturation and weak international execution.
Sam’s Club: Losing to Costco, with declining memberships from one in three U.S. households (1990s).
Labor Tensions: Sam’s Club closures highlight labor issues, evident in subreddit complaints.
Bull Case:
Grocery Strength: >20% U.S. grocery share, 2x Kroger’s, with 15% cheaper prices.
Integrated Retail: Walmart+ and same-day delivery leverage 10,500 stores.
Recession Resilience: Price-sensitive customers drive counter-cyclical strength (e.g., 2009).
Global Scale: 230 million weekly customers, $600 billion revenue.
Good for the World vs. Bad for the World
Good for the World:
Consumer and Community Benefits: Walmart saves middle- and lower-income families hundreds monthly via 15% cheaper groceries and provides 2.3 million jobs in underserved areas. Stock purchase programs enabled some associates to earn millions. Ben and David note Walmart brought first-class retail to small towns.
Sustainability Efforts: Since the mid-2000s, Walmart became the largest U.S. commercial solar power producer (panels on stores/parking lots) and doubled trucking fleet efficiency, reducing emissions. Ben and David highlight this as efficiency-driven.
Gun Policy Middle Ground: Walmart adopted proactive gun policies—background checks pre-2015, no handgun sales (1990s), no assault rifle sales (2015), and no sales to under-21s post a store shooting—seen as a balanced approach by Ben and David.
Bad for the World:
Local Business Impact: Walmart disrupted small-town variety stores, reducing community equity and personal retail relationships. Ben and David cite Sam’s counter-perspective: “You can’t say we ran [competitors] out of business. His customers were the ones who shut him down. They voted with their feet,” arguing consumers chose Walmart’s value.
Labor Issues: A “gigantic chasm” between managers (with equity) and hourly workers, with tensions from Sam’s Club closures and subreddit complaints. Walmart’s 2.3 million employees reflect “all facets of humanity.”
Supplier Pressure:
Offshoring: Price negotiations forced vendors to offshore manufacturing, with Chinese goods rising from 6% to 40% in the 1980s (The Wal-Mart Effect), contributing to U.S. job losses.
Lower Quality Products: Price pressure led to cheaper materials, reducing quality, a late focus (1980s–1990s).
Negative Environmental Impact (Historical): Pre-2000s, cost-cutting ignored environmental costs (e.g., dirty power sources), later mitigated.
Tech Trends
Ben and David discuss two trends:
Computing in Retail: Sam’s 1966 IBM seminar attendance enabled inventory and logistics efficiency. Abe Marks: “Without the computer, Sam Walton could not have built a retailing empire.”
Private Satellite Network: The 1987 $24 million network enabled real-time data and Sam’s virtual store visits.Analysis: These trends underpinned scale economies, outpricing Kmart. Slow internet adoption ceded ecommerce to Amazon.
Powers
Ben and David identify two 7 Powers, with discussion on branding and process power:
Counter Positioning (Takeoff Phase, 1962–1980s): Walmart’s small-town strategy targeted markets Kmart ignored, unfeasible for urban-focused competitors. Ben compares it to DoorDash’s suburban focus.
Scale Economies (Post-1980s): Walmart’s distribution and bulk purchasing enabled the lowest prices. Ben: “There is no reason why anybody should have a lower price than Walmart.” David: “The perfect example of scale economies,” citing logistics and high utilization.
Not Branding: Ben notes Walmart lacks branding power; customers shop for low prices, not loyalty, unlike Amazon’s convenience focus.
Process Power (Debated): Walmart’s operational DNA—optimizing for low prices via distribution centers and cost-cutting—is unique but tied to scale economies. David questions its replicability.
Analysis: Counter positioning established Walmart’s foothold; scale economies ensured dominance. Lack of branding limits premium pricing, and process power is secondary to scale.
Playbook
Expect to Win: Sam’s high school football success instilled a mindset of setting “nearly unreachable goals” and achieving them. Sam’s quote: “I think Kmart or whatever competition we were facing just became Jeff City High School, the team we played for the state championship in 1935. It never occurred to me that I might lose. It was almost as if I had a right to win thinking like that often seems to turn into sort of a self-fulfilling prophecy.” Ben and David highlight this as driving Walmart’s ambitious expansion, from a $250,000 Newport store to $600 billion globally.
Shop the Competition, Look for the Good: Sam spent more time in Kmarts than their management, using a yellow legal pad to note strengths. Charlie Cate’s quote: “Go in and check our competition… Don’t look for the bad, look for the good. If you get one good idea, that’s one more than you went into the store with.” Ben and David urge founders to adopt this, avoiding the trap of dismissing competitors’ flaws, as Sam did with self-service and discounting from Ann & Hope.
Surf the Discounting Wave: Sam pioneered the mass-market discount store in 1962, with low-margin, high-volume sales and zero/negative-margin loss leaders. Ben and David note discounting now dominates 87% of U.S. retail, a wave Sam “both rode and created,” transforming consumer expectations.
Don’t Buy Anyone Else’s Inefficiency: Sam’s directive—“Don’t leave room for a kickback… what is your best price? If they told me it’s a dollar, I would say… I’m going to your competitor, and if he says 90 cents, he’s going to get the business”—ensured no middleman margins. Ben and David highlight this ruthlessness, despite tensions (e.g., with P&G), as key to low prices, especially in rural 1960s–1970s retail where price was critical.
Sometimes, Build In-House Core Competencies (Caveat to “Focus on What Makes Your Beer Taste Better”): Contrary to Jeff Bezos’ rule, Walmart built its own logistics and $24 million satellite network, as outsourcing was inadequate. Ben and David debate this: David argues it was core to low prices, trouncing Kmart’s legacy systems; Ben counters that it’s an exception, as most businesses should outsource non-core functions, but agrees it “made their beer taste better” by enabling scale economies.
Carveouts
Ben: I Am Home Podcast by Nebraska Furniture Mart, featuring Ted Weschler’s rare interview on his Berkshire career.
David: Mario Puzo’s The Godfather (book), praised for its depth over the films.
Additional Notes
Episode Metadata:
Number: Season 11, Episode 1
Title: The Complete History & Strategy of Walmart
Duration: ~3.5 hours
Release Date: July 18, 2022