The Growth of Wal-Mart: Expansion and Low Costs

How did Sam Walton manage to grow Wal-Mart so quickly? What growth strategy did Walton use?

In 1970, Sam Walton decided to take Wal-Mart public, which contributed to the growth of Wal-Mart. However, Sam Walton’s strategy of going into smaller towns with less than 5,000 people, keeping costs and prices low, and setting up distribution centers was the real reason for Wal-Mart’s success.

Keep reading to learn more about the growth of Wal-Mart and Sam Walton’s business strategies.

Wal-Mart Goes Public

By this point, Walton had taken on a few million dollars in personal debt to finance store growth. They began getting turned down by banks for more loans. To pay off his debts, Sam Walton wanted to go public. In 1970, they consolidated the separate store partnerships into a single company, went on a roadshow, and went public, raising around $5 million. 

  • $1 in Wal-Mart shares in 1970 would be worth roughly $5,312 in 2018.

The Growth of Wal-Mart and its strategy of expansion:

  • Set up a store within a day’s drive of a distribution center
  • Fill in the surrounding areas with stores until saturated
  • Add more distribution centers, and repeat

The big competitors such as Kmart still weren’t going into towns smaller than 50,000, while Wal-Mart was working in towns smaller than 5,000. While leapfrogging from big city to big city, the big guys spread themselves out and became subject to city politics.

When serious competition did finally arrive, Wal-Mart stuck to its strategy: “keep our prices as low as possible by keeping our costs as low as possible.”

To enable the expansion, Sam continued hiring people in operations and distribution to handle things he tended to ignore.

Continued Growth

From 1970 to 1980, Wal-Mart relentlessly pursued its strategy and more than doubled every 2 years:

YearStoresSalesProfits
197032$31 million$1.2 million
197251$78 million
197478$168 million$6 million
1976125$340 million
1978195$678 million
1980276$1200 million$41 million
1984600$4500 million$200 million

However, the growth didn’t come without turbulence. In 1974, they faced a schism in the company, with one executive vice president (Ferold Arend) representing the old guard in merchandising and store management, and another executive vice president (Ron Mayer) representing the new guard in finance, data, and distribution. 

Ron told Sam Walton he wanted to run his own company, and Sam feared losing him. Sam, CEO at the time, was contemplating taking a back seat to focus on his hobbies (such as quail hunting). To solve both these issues, Walton promoted Ron to CEO. 

Sam Walton Becomes CEO

But Sam Walton wasn’t suited for retirement, and he wasn’t able to be hands-off on management. He disagreed with some of Ron’s decisions and intervened, and he worried about the company’s schism. 

30 months later, Sam returned as CEO. In response, Ron left with many of his loyal managers. This was called the “Saturday night massacre” and eventually led to a third of senior management leaving. Wal-Mart’s stock value dropped, and Sam admitted he wasn’t sure if Wal-Mart would make it out of this alive.

Gradually, Sam Walton continued recruiting talent, including David Glass for distribution, who eventually became CEO himself.

The Growth of Wal-Mart: Expansion and Low Costs

Hannah Aster

Hannah graduated summa cum laude with a degree in English and double minors in Professional Writing and Creative Writing. She grew up reading books like Harry Potter and His Dark Materials and has always carried a passion for fiction. However, Hannah transitioned to non-fiction writing when she started her travel website in 2018 and now enjoys sharing travel guides and trying to inspire others to see the world.

Leave a Reply

Your email address will not be published. Required fields are marked *