(SAM WALTON & JOHN HUEY/Rourke Pub Group /March 1993/368pages/$7.90)

The Story of Americas Richest Man

SAM WALTON :

MADE IN AMERICA

- 2 -

SAM WALTON : MADE IN AMERICA

The Story of Americas Richest Man

Samuel Moore Walton was born in Kingfisher, Oklahoma in 1918 and died in Little Rock, Arkansas on 5 April 1992. In 1985, Forbes Magazine named him as the richest man in America with assets of nearly US$25 billion. All of Sam Waltons personal wealth has been generated by the publicly listed Wal-Mart supermarket chain. The Walton family currently owns about 38-percent of Wal-Marts issued shares. Wal-Mart is the worlds largest retail chain by sales turnover and continues to expand rapidly. From nine stores with sales of US$1.4 million in 1960, the Wal-Mart group had grown by 1990 to 1,528 stores with US$26 billion in sales and profits exceeding US$1 billion. The company has set a target of achieving a sustainable annual sales turnover of US$100 billion by the year 2000.

Sam Walton always credits his father as providing him with keen trader instincts and extroverted personality traits. Thomas Walton was a farmer who loved to trade or to make a deal for just about anything. When the 1930s Depression came, Thomas Walton took on a number of jobs including banker, farm-loan appraiser, insurance agent and eventually a farm repressor as the effects of the Depression flowed through to the rural sector. As with most families of that era, Sams mother Nan started a small milk business to try and help feed the family. Sam would get up early to milk the cows, his mother would prepare and bottle the milk and Sam would deliver it after school to 10 or 12 regular customers. To supplement this small income, Sam also started selling magazine subscriptions and delivering newspapers while at school. That background of struggle through the Depression ingrained a strong respect for the value of a dollar - a respect that Sam Walton still feels keenly today.

From the time we were kids, Sam could excel at anything he set his mind to. I guess its just the way he was born. Back when he carried newspapers, they had a contest. Ive forgotten what the prizes were - maybe $10, who knows. He won that contest, going out selling new subscriptions door to door. And he knew he was going to win. Its just the make-up of the man. My only explanation is that Sam has a lot of our mothers characteristics.

---- Bud Walton, Sams brother

- 3 -

At High School, Sam did well at sports. He played as the quarterback on the football team, and occasionally did double duty as the teams linebacker as well. After completing High School, Sam went on to study at the University of Missouri, where he made it on to the football team. When Sam decided to run for student body president, he learned the secret to winning votes that would also later serve him extremely well in retail: speak to people coming down the sidewalk before they speak to you. He went out of his way to get to know everybody on campus, and before long most of the students recognized him and considered him their friend. He was successful in being elected to every office he ran for. While at university, Sam worked to pay his own way. His parents didnt have enough money, so Sam paid his own tuition fees and living expenses. He waited tables in a restaurant (in exchange for free food), worked as a lifeguard, delivered newspapers and sold magazine subscriptions. In fact, Sam started hiring workers to help and by the end of university, he was making a profit of about $4,000 to $5,000 a year - impressive by late-1930s standards. When Sam Walton graduated in 1940 with a business degree, he planned on becoming an insurance salesman. However, he happened to speak with a couple of college recruiters from J.C. Penney and Sears Roebuck, and Sam decided that a career in retailing wouldnt be too bad either. He eventually accepted a job as a management trainee with J.C. Penney in Des Moines, Iowa for a starting salary of $75 a month. It was only when he started serving customers that his new employer became aware of a slight problem - Sams handwriting was so bad no-one else could read it. That, added to the fact that Sam couldnt stand to leave a customer waiting while he fiddled with the paperwork, created incredible confusion with J.C. Penneys paperwork.

Walton, Id fire you if you werent such a good salesman. Maybe youre just not cut out for retail, said Penneys regional manager Phil Blake. Luckily, however, Sams store manager, Duncan Majors, was an excellent motivator with a proud record of having trained more J.C. Penney store managers than anyone else in the company. Majors lived and breathed retail, and passed that enthusiasm on to his employees. Sam lasted 18 months at J.C. Penneys and quit in early 1942 to join the Army and fight in the Second World War. However, when he took the Army medical, he was turned down because of a minor heart irregularity. Since he had already quit at J.C. Penneys, Sam headed south to Tulsa to look for a job in the booming oil business. There, he met his future wife, Helen Robson. Before they could get married, Walton was called up to join the Army although he couldnt be assigned to combat duty. Sam ended up spending the Second World War supervising security at aircraft plants and POW camps around the United States. He married Helen Robson on Valentines Day, 1943. While in the Army, Sam maintained a passion for retailing and took every opportunity to read books and visit retail stores around the country. Helens father was a prominent lawyer, banker and rancher, and he was very keen for his new son-in-law to be set up in a business of his own. Helen had only one rule: she didnt want to live in any city with a population of more than 10,000 people.

- 4 -

With the end of the War in 1945, Sam approached the Butler Brothers Company who ran two chains of franchise retail stores: Federated Stores (small department stores) and Ben Franklin (variety stores commonly called five and dimes or dime stores). They offered Sam a Ben Franklin store in Newport, Arkansas (population: 7,000 people). The 27-year old Sam Walton liked what he saw, and agreed to buy the Ben Franklin for $25,000 - using $5,000 of his own money and $20,000 borrowed from his father-in-law. Sam was so keen to get started that he signed a contract which anybody with more experience would have re-negotiated: Sam agreed to pay a rent of 5-percent of his gross sales. When he bought the store, it had sales of around $72,000 a year. The Ben Franklin franchise program turned out to be well put together. They had developed an excellent accounting system, which include a Beat Yesterday book in which this years sales figures were compared with the sales figures of one year ago on a day by day basis. Sam started out working within the franchise system, but before long he was trying a number of his own promotional ideas. He used to drive all over looking for whatever merchandise he could get a good deal on. Sam soon learned he made greater profits by selling a large number at a low profit margin than by selling just a few with a high profit margin. That is, an increased volume generates more profits than are lost by lower markups. This principle would later form the bedrock foundation of the Wal-Mart chain. Within three years, sales at the Newport store grew from $72,000 to $175,000. Sam was able to pay back his father-in-law after two-and-a-half years in business. When a store became vacant next to his Ben Franklin, Sam took up the lease and opened a small department store selling anything he could get a good deal on. His brother Bud was just back from the Army, and he helped Sam run both stores. By the end of 5-years in operation, the Ben Franklin store was turning over $250,000 in sales per year, generating $40,000 in profits. Things looked bright except for one minor detail - in Sams enthusiasm to negotiate his original lease, he had failed to include a right-of-renewal. The landlord refused to renew the lease, and offered to buy the store for his son to operate. Sam had no option but to sell the Newport Ben Franklin store and start over again somewhere else.

The sole advantage of losing the lease on the Newport store was that the 32-year old Sam Walton could now start afresh in a new location applying everything that had been learned at Newport. Sam found a small store in Bentonville which was turning over about $32,000 a year. He negotiated a 99-year lease on the store and a barbershop next door, took out the dividing wall and set up an enlarged store along the lines of a new concept he had just heard about - self service. Sams Bentonville shop was the third self-service variety store to open for business in the entire United States of America.

- 5 -

The store was called Waltons Five and Dime, although in effect it was operating as a Ben Franklin franchise.

I guess Mr. Walton just had a personality that drew people in. He would yell at you from a block away, you know. He would just yell at everybody he saw, and thats the reason so many liked him and did business in the store. It was like he bought business in by being so friendly.

---- Inex Threet, Clerk, Waltons Fine and Dime As a result of his Newport experience, Sam was determined not to have all his eggs in just one basket ever again. He found an old grocery store in nearby Fayette and converted it into a self-service variety store. Sam convinced a dime store manager he knew to manage the Fayette store with the promise of a share of the stores profits. Meanwhile, Sams brother Bud had bought a Ben Franklin store in Versailles, Missouri. He and Sam also went into a fifty-fifty partnership to set up a Ben Franklin store in a new retail concept called a shopping center in Kansas City. The shopping center idea fired Sam up so much that he tried to duplicate it in Arkansas. Unfortunately, he was a little ahead of the market and Sam ended up losing about $25,000 trying to develop a shopping center.

Two things about Sam Walton distinguish him from almost everyone else I know. First, he gets up every day bound and determined to improve something. Second, he is less afraid of being wrong than anyone Ive ever known. And once he sees hes wrong, he just shakes it off and heads in another direction.

---- David Glass, CEO, Wal-Mart By this stage, Sam was doing so much driving from store to store that he decided it might not be a bad idea to save time by flying his own plane.

One day, I got a call from Sam and he said, "Meet me in Kansas City, I want to buy an airplane". Boy, it took me by such surprise. I always thought he was the worlds worst driver and even my father wouldnt ever let Sam drive him. I thought, "He will kill himself the first year". So I did everything in the world to try and talk him out of that first airplane. He called me later and said hed bought this Air Coupe for $1,850, and I had to come see it. Ill never forget going over to the Bentonville airport and seeing what he called an airplane. It had a washing machine motor in it, and it would putt-putt, and then miss a lick, then putt-putt again. It didnt even look like an airplane, and I wouldnt go near it for at least two years.

---- Bud Walton, Sams brother With a plane, Sam caught store fever. He opened Ben Franklin franchises in Little Rock, Springdale, Siloam Springs, Neodesha and Coffeyville. Each store was operated as a separate partnership, with Bud investing in some, Sams father-in-law in others, Sams father and other relatives in yet more stores. Even Sams children invested whatever money they had earned delivering papers. Each stores manager also had the opportunity to become a shareholder in the partnership. By expanding this way, Sam Walton became the largest independent variety store operator in the United States. He had fifteen stores with a combined total turnover of $1.4 million a year. It had taken him 15 years since opening his Bentonville Store to reach this point.

- 6 -

Sam was always on the lookout for new ideas and he noted the new wave in retailing at that time was the concept of discounting. He approached the Butler Brothers with a proposal for them to back him in a new discounting venture. They werent interested so Sam was left with two choices: stay in the variety store business, which looked certain to be hit by the coming discounters, or open his own discount store. Sam didnt like the idea of sitting still and becoming a target so he decided to take the plunge and open a discount store in Rogers, Arkansas. Sam and his family had to find most of the money for the first discount store themselves. His brother Bud put in 3-percent and the new store manager Don Whitaker contributed 2-percent, which left Sam and Helen Walton to borrow enough money to fund the remaining 95-percent share holding. Fortunately, the first Wal-Mart turned out to be moderately successful, and soon had established a turnover of $1 million per year - in a town with a population of less than 6,000 people. Before long, Wal-Mart No. 2 was built in nearby Springdale, and this new store sold even more than the original Wal-Mart.

Once we opened that Wal-Mart in Springdale, I knew we were on to something. I knew in my bones it was going to work. But at the time, most folks - including my brother Bud - were pretty skeptical of the whole concept. They thought Wal-Mart was just another one of my crazy ideas. It was totally unproven at the time, but it was really just what wed been doing all along: experimenting, trying to do something different, educating ourselves as to what was going on in the retail industry and trying to stay ahead of those trends. This is a big contradiction in my make-up that I dont completely understand to this day. In many of my core values Im very conservative. But for some reason in business, I have always been driven to buck the system, to innovate, to take things beyond where theyve been.

---- Sam Walton In 1962, four companies started discount chains: Mr. Krege of Michigan opened the first K-Mart, Mr. Woolworth started his Woolco chain, Dayton-Hudson of Minneapolis opened a Target store and 44-year old Sam Walton opened the first Wal-Mart. The discounting concept took off very quickly. Within five years, K-Mart had established 250 stores with sales of $800 million compared to Wal-Marts 19 stores with sales of $9 million.

Rogers had been open about a year, and everything was just piled up on the tables, with no rhyme or reason whatsoever. Sam asked me to kind of group the stuff by category or department, and thats when we began our department system. The thing I remember most, though, was the way we priced goods. Merchandise would come in and we would just lay it down on the floor and get out the invoice. Sam wouldnt let us hedge on the price at all. Say the list price was $1.98, but we had only paid 50 cents. Initially, I would say, "Well, its originally $1.98, so why dont we sell it for $1.25?" And hed say, "No. We paid 50 cents for it. Mark it up 30 percent, and thats it. No matter what you pay for it, if we get a great deal, pass it on to the customer." And of course thats what we did.

---- Clarence Leis, Second Manager, Wal-Mart No. 1 The first Wal-Marts had considerable difficulty attracting the attention of bigger suppliers, who tended to treat Wal-Mart as if they were doing them a favor by supplying goods. At the very heart of the sales strategy of the early Wal-Marts were health and beauty aids -

- 7 -

toothpaste, mouthwash, headache remedies, soap and shampoo. These items were advertised heavily and frequently sold at cost, so that people would come in to buy health supplies and end up buying additional items which had the standard 30-percent margin. By the late 1960s, Sam had eighteen variety stores and a handful of Wal-Marts operating. He ran the company from an office in Bentonville. Every month, he and his three-lady staff would produce a handwritten profit and loss sheet for each store. A copy went to each stores manager, and Sam always carried another copy whenever he would visit the store. Things were pretty wild in those early days, and Sam used to let his store managers have a lot of leeway. One of them, Phil Green, ordered 3,500 large cases of detergent because he could get $1.00 off. He built a pyramid of detergent boxes in his store 18 cases high, 4 metres wide and 30 metres long. He promoted the detergent heavily at $1.99 a box instead of the usual $3.97 and sold the entire lot within a week. Another time he ordered 200 riding mowers which he lined up in front of the store 25 in a row, 8 rows deep. He sold the mowers for $199 instead of the usual $447, and sold the lot. Sam and the store managers would get together once a week on Saturday mornings to discuss whatever was happening in each store, to coordinate promotional programs and to look at any mistakes that had been made. They also made it a point to thoroughly analyze whatever their competitors were doing. Visiting other discounters and studying the way they operated became almost like a religion to Sam and his store managers.

Sam instinctively realized the key to building a large company would be the development of an effective ongoing support structure - distribution, staff training, purchasing and merchandising skills. He also knew that building his staff would be critical. Therefore, he started to assemble a close-knit management team who could drive the company forward using the very latest in retailing ideas and technology.

What we helped him with in the early days was really logistics. Its like in the Army. You can move troops all over the world, but unless you have the capacity to supply them with ammunition and food, theres no sense putting them out there. Sam understood that. He knew he was already in an absentee ownership situation. That just means youre putting your stores out where you, as management, arent. If he wanted to grow he had to learn to control it. So to service these stores, youve got to have timely information: How much merchandise is in the store? What is it? Whats selling and whats not? Sam realized in 1966 that he couldnt expand beyond that horizon unless he had the ability to capture his information on paper so that he could control his operations, no matter where they might be. He became, really, the best utilizer of information to control absentee ownerships theres ever been. Which gave him the ability to open as many stores as he opens, and run them as well as he runs them, and to be as profitable as he makes them.

---- Abe Marks, President, National Mass Retailers Institute Another key to growth was distribution. At first, each manager ordered merchandise

- 8 -

which was delivered directly to the store from the manufacturer. Sam realized that having a central warehouse where the merchandise for all the stores could be delivered, stored and then shipped was a more efficient way to operate. It would allow him to secure a better price by buying in bulk, he could oversee delivery to each store and he could maintain better control over stock availability. By the end of the 1960s, the Walton chain of 14 variety stores and 18 Wal-Mart discount stores were well positioned for growth. Sam had developed a rational retail concept, assembled the core of a management team and had generally put in place the foundations of systems which could handle growth. However, to fund growth thus far, Sam Walton had borrowed money from almost every bank in Arkansas and Missouri. He and his wife were several million dollars in debt. While he was able to service the loans, Sam always worried that if everyone called their notes at the same time, he could be forced out of business. He decided it was time to seriously attract reasonable equity investment to fund future growth and expansion. The best way to achieve that would be to take the company public, and have the shares listed on a stock exchange. Sam approached a New York investment broker who, after looking at the operation, expressed interest in taking the company public. By that stage, Wal-Mart had 78 shareholders from the partnerships formed for individual stores. Sam and his family owned 75-percent of the company, Bud Walton 15-percent and the remaining 10-percent was split among the rest of the shareholders. On 1 October 1970, Wal-Mart became a publicly traded company, with 300,000 shares offered for sale on the over-the-counter market at $16.50 each. The shares were well received, although they were not widely held, with only about 800 shareholders buying the shares made up mainly of institutions and Walton family friends. Since 1970, Wal-Marts market value has grown dramatically. 100 shares purchased for $1,650 in 1970 would today represent 51,200 shares (after nine 2-for-1 share splits), worth about $3 million at the current market price of $60 per share.

Ill never forget Wal-Marts first annual meeting, or should I say meetings. I went up a day early to help prepare for it, but this friend of Sams - Fred Pickens from Newport - got confused on the dates and showed up a day early. So Sam decided to go ahead and hold the meeting for Fred, right there in his office. The next day we had the official annual meeting: six of us met around a table of the coffee shop there by the warehouse. The next year, we held the meeting at a motel in Little Rock, the capital of Arkansas. Nobody came. Well, I was getting desperate to get some analysts down to really start following the company, so I came up with the idea of bringing them all in for a weekend at Bella Vista, which is this nice development in the hills just north of Bentonville, with lots of golf courses, tennis courts and lakes.

---- Mike Smith, Investment Banker The investment analysts, including bankers who were lending money to Wal-Mart at the time, would be met at the airport by a manager from the company. The annual meeting would be held on Friday night, and then everyone would attend the Saturday morning management meeting. The rest of Saturday and Sunday were filled with whatever type of activities they liked, and picnics where they could get to know the Wal-Mart team.

- 9 -

The 1970 share offering was followed by a second share offering in 1972 to broaden the share base and allow Wal-Mart shares to be listed on the New York Stock Exchange. Today, Wal-Mart annual meetings are the largest, most raucous stockholder meetings in the USA. After the formal meeting, there is always a special event (such as a golf tournament or fishing competition) and then everyone is invited over to the Chairmans house for a barbecue.

These get-togethers became a big hit. The Wal-Mart folks would stay up all night barbecuing, and the analysts or other big shareholders would stay up with them to "help". But after a while, things got a little out of hand for Sams taste. Some of those Yankees got so drunk floating down Sugar Creek they couldnt stay in the boat. And some of those fellows barbecuing had a few too many beers. Well, Sam isnt a Puritan or a strict teetotaler or anything, but he couldnt stand for people to get drunk. So he banned alcohol from the events, and, of course, they were never quite the same after that.

---- Mike Smith, Investment Banker From 1977 to 1987, Wal-Mart stock continued to increase in market value at approx. 46-percent per year. Even in the recessionary climate of the early 1990s, Wal-Mart has continued to report a return on equity of more than 32-percent.

Freed from worries about debt, Sam was now able to concentrate on applying the success formula hed always embraced: putting large discount stores into small towns every other discount chain was ignoring. Wal-Mart now had the resources to implement that strategy more effectively. Every new store was located within a days drive of a warehouse and distribution center. Also, Wal-Mart had a unique strategy for the large cities. They built the stores in the outer suburbs around the city, and then waited for the suburbs to grow out to where they were. Store sizes were standardized into five different models, which could then be customized to meet local requirements.

More than anything else, we had manpower problems finding good people and getting them trained in a hurry. Because we always ran a real tight organization, we had no excess people in the stores so they had to get real good real fast. Back when I had been at Hesteds, and at Newberrys, too, a guy had to have ten years experience before wed even consider him to be what we called a manager-in-training. Down here, Sam would take people with hardly any retail experience, give them six months with us, and if he thought they showed any real potential to merchandise a store and manage people, hed give them a chance. Hed make them an assistant manager. They were the ones who would go around and open all the new stores, and they would be next in line to manage their own stores. In my opinion, most of them werent anywhere near ready to run stores, but Sam proved me wrong there. He finally convinced me. If you take someone who lacks the experience and the know-how but has the real desire and the willingness to work his tail off and get the job done, hed make up for what he lacks. And that proved true nine times out of ten. It was one way we were able to grow so fast.

---- Ferold Arned, Wal-Mart Vice President of Operations

- 10 -

Meanwhile, Sam and Bud Walton continued to take an active interest in growing the company. Sam particularly enjoyed scouting out new store locations from the air. He would fly over a city, identify the best area in terms of traffic flow, land the plane and rush out and try to buy whatever piece of land he had identified from the air.

Sam has always been very disorganized. His mind works ten times faster than everybody elses. I mean he just gets going and stays two or three jumps ahead, and hes quick to go with whatever is on his mind. If he gets something in his mind that needs to be done - regardless of what else might have been planned - the new idea takes priority and it has to be done now. In the early days, this caused a number of embarrassments. I would make appointments for him and then tell them about them but he would just totally forget. Ive had people fly in here from Dallas to see him. Id come in at 8 am to meet them and find Sam had flown out of town at 5 am without telling anybody where he was going. I would just look at this man from Dallas and say, "Hes gone."

---- Loretta Parker, Personal Secretary

When Sam feels a certain way, hes restless. He will just wear you out. He will bring up an idea, well all discuss it and then decide its not something we should do. Fine. Case closed. But as long as he is convinced that it is the right thing, it just keeps coming up week after week until everybody says, well its easier to do it than to keep fighting Sam. I guess you could call it management by wearing you down.

---- David Glass, CEO, Wal-Mart

The truth is, we were working with a great idea. It was really easy to develop discounting in those small communities before things got competitive. There wasnt a lot of competition for us in the early days because nobody was discounting in the small communities. So when we discounted items, it was an unheard of concept. The customers, of course, werent dumb. They just flocked to our stores to take advantage of it.

---- Ferold Arned, Wal-Mart Vice-President of Operations Sam was closely involved in ever aspect of the companys operations - merchandising, real estate, construction, studying the competition, arranging finance and keeping the books. Meanwhile the companys growth was impressive:

At the same time, profits had increased from $1.2 million in 1970 to $41 million by 1980. While Sam had learnt early the discounters paradox - the less you charge per item, the more profit youll make overall - it wasnt until the early-1970s that he took to heart a second paradox that the more you share your profits with your employees, the more profit will accrue to the company.

- 11 -

At Wal-Mart, employees are called associates to reflect the fact that real profits lie in loyal repeat customers, and that satisfied customers are a reflection of well treated associates with an active interest in the business. In 1971, Wal-Mart introduced a profit sharing plan for all associates. Every associate has around 6-percent of their wages contributed to the plan by the company automatically (a sum that would, by the 1990s, amount to more than $125 million every year). When the associates leaves, they can take their share of the profits in cash or Wal-Mart stock. Today, Wal-Mart associates collectively own around $1.8 billion of Wal-Mart stock. It is not uncommon for long time Wal-Mart associates to have $700,000 or $800,000 in profit sharing saved after working there on hourly wages for 20 years or so. The other unusual feature about Wal-Mart associates is the fact the company has an open book policy. Every associate is provided with exact information about the stores profits, purchases, sales and markdowns. They also know where their store stands by comparison with other Wal-Marts, and in comparison to the competition.

We feel a great affinity for Sam and Wal-Mart because of the way they treat their people. Hes such a great motivator. We look at his operation - with what, almost 400,000 people - and you walk in there, and theyre all smiles. He proved that people can be motivated. But if you ask Sam hows business, hes never satisfied. He says, "Bernie, things are really lousy. Our lines are too long at the cash registers. Our people arent being helpful enough. I dont know what were going to do to get them motivated." He is down to earth and knows who he is. Without question, Sam Walton is one of the great all-time merchants. Period.

---- Bernie Marcus, Co-Founder, Home Depot

If youve ever spent any time around Wal-Mart, you may have noticed that its not unusual for somebody in Philadelphia, Mississippi, to get into his pickup on the spur of the moment and drive to Bentonville, where you can find him sitting in the lobby waiting patiently to see the chairman. Now, really, how many chairman of $50 billion companies do you know who are totally, 100-percent accessible to their hourly associates?

---- David Glass

By 1974, Wal-Mart was doing well, with 100 Wal-Marts generating $170 million in sales and $6 million in profits. Sam Walton decided it was time to step back a little and let his management team take the company forward. Until that time, Sam was Chairman and CEO of Wal-Mart with two executive vice-presidents, Ron Mayer running finance and distribution and Ferold Arend running merchandising. In 1974, Sam became Chairman of the Executive Committee and appointed Ron Mayer as chairman and CEO and Ferold Arend as President. However, as soon as the new appointments were made, the company split into two warring factions. On one side, most of the old guard aligned themselves with Ferold

- 12 -

Arend. On the other side, most of the newer technology oriented managers aligned themselves with Ron Mayer. Added to the mix was the fact that even though Sam tried to take a back seat, he still expected his ideas to be acted upon. Finally, in 1976, Sam once again became Chairman and CEO which led to the resignation of Ron Mayer and around one-third of Wal-Marts senior managers. Things looked bleak, but Sam decided to turn a setback into an opportunity and he appointed David Glass as Finance and Distribution Vice-President and Jack Shewmaker as Operations and Merchandise Vice-President.

One definite quality about working at Wal-Mart is that it was never boring or predictable. For example, a Wal-Mart warehouse manager once lost a bet with his crew that they couldnt beat a production record. As a result, the manager had to wrestle a bear while his appreciative crew looked on. Even that bet was eclipsed by Sam Waltons bet with David Gloss. When Sam lost, he had to do a hula dance on Wall Street - complete with an authentic grass skirt and a truckload of real hula dancers and ukulele players. David Gloss also very thoughtfully alerted the media so televisions and newspapers across the United States carried pictures of the Chairman of Wal-Mart doing a hula dance down Wall Street because he had lost a bet. The spirit of making business fun runs very deep in Wal-Mart. Contests, in-store promotions, parades and other oddball activities are all designed to make Wal-Mart stores memorable for the shoppers and fun for the staff. It also builds an incredible team spirit around the company. One element of the Wal-Mart culture is a Saturday morning meeting held in Bentonville. All the head office staff along with local store managers and associates are invited to attend to discuss whatever is happening in the company at that time. The meeting, like working at Wal-Mart, is totally unpredictable and spontaneous. A number of impressive speakers have attended, including Jack Welch of General Electrics. Other visitors include sporting stars and entertainers.

One of the real values of our meeting is its spontaneity. We never really have an agenda. Of course the Chairman always has his yellow legal pad with notes scribbled on it of things he wants to discuss, and some of the rest of us do the same thing. But one of the things Sam will do is call someone up at the start and say, "Okay, you conduct the whole meeting today." And that meeting will take on the personality of whoevers running it. That way, theres always a sense of anticipation. Something unusual may happen, or somebody may pull off something great.

---- Don Soderquist At the very heart of the Wal-Mart culture lies a commitment to making customers number one, and giving them whatever they want: a wide assortment of good quality merchandise, the lowest possible prices, friendly service, convenient hours, free parking and a pleasant shopping experience.

- 13 -

Sam Walton understands better than anyone else that no business can exist without customers. He lives by his credo, which is to make the customer the centerpiece of his efforts. And in the process of serving Wal-Marts customers to perfection, he also serves Wal-Marts associates, its share owners, its communities and the rest of its stockholders in an extraordinary fashion - almost without parallel in American business.

---- Roberto C. Goizueta, Chairman and CEO, the Coca-Cola Company Wal-Mart looks at retailing as a license to act as agents for the customers, and to secure the best possible deals on merchandise and then to pass those bargains on to the people who shop at Wal-Mart. This has caused some controversy over the years as middlemen and other agents who dont add value to a product, from the perspective of the customer, have been squeezed out of the supply chain by Wal-Mart.

There is a difference between being tough and being obnoxious. Ive always told the buyers: "Youre not negotiating for Wal-Mart, youre negotiating for your customer. And your customer deserves the best price you can get." We would tell the vendors: "Dont leave in any room for a kickback because we dont do that here. And we dont want your delivery program or advertising program. Our truck will pick it up at your warehouse. Now what is your best price?" And if they told me it was a dollar, Id say: "Fine, Ill consider it, but Im going to go to your competitor, and if he says 90 cents, hes going to get the business. So make sure a dollar is your best price.

---- Claude Harris, Buyer, Wal-Mart

If you simply think like a customer, you will do a better job of merchandise presentation and selection than any other way. Its not always easy. To think like a customer, you have to think about details. Whoever said "retail is detail" is absolutely 100-percent right. On the other hand its simple. If the customers are bosses, all you have to do is please them.

---- David Glass, CEO, Wal-Mart Wal-Mart also has a culture of meeting competitors head-on rather than avoiding them. It makes the company stretch and develop a competitive edge that cannot be created any other way. For example, in the 1970s, Wal-Marts sales were less than 5-percent of KMarts. KMart opened several stores in direct competition to Wal-Marts without any notable success. Meanwhile, competition has been very good for the consumer. Margins in the discount industry have fallen from around 35-percent in the 1960s to about 22-percent today representing increased value and savings for the customers. Sam Walton has also been ever ready to pick up on a competitors idea and run with it himself. For example, a small business warehouse operation was started in 1983 called Sams Clubs. The concept was largely based on Sol Prices Price Club model. By 1992, 217 Sams Clubs would be in operation generating $10 billion in sales. A number of systems and concepts help Wal-Mart to maintain a competitive advantage as it continues to grow including: 1. Warehousing and distribution Wal-Mart supplies about 85-percent of the items in any store from one of 20 giant warehouse centers across the United States. That means that the company has

- 14 -

greater control over the exact stock position of each individual Wal-Mart. But more importantly, Wal-Marts costs to ship goods are only 3-percent while competitors are forced to pay 5-percent.

2. Information technology Wal-Mart always adopted computers as they became available. The company has also invested in satellite based data communication equipment, creating the largest non-military communications system in the world.

Weve spent almost $700 million building up the current computer and satellite systems we have. What I like is the kind of information we can pull out of it on a moments notice. I can pick anything and tell you exactly how many of them weve bought over the last year and a quarter, and exactly how many weve sold. Not only overall, but in any or every region, every district, every store. It makes it tough for a vendor to know more about how his product is doing in our stores than we do. I can walk into the satellite room, where our technicians sit in front of their computer screens talking on the phone to any stores that might be having problems with the system, and just looking over their shoulders will tell me a lot about how a particular day is going. Up on the screen, I can see the total of the days bank credit card sales adding up as they occur. I can see how many stolen bank cards weve retrieved that day. I can tell if our seven-second credit card approval system is working as it should be and monitor the number of transactions weve conducted that day. If we have something really important or urgent to communicate to the stores and distribution centers - something important enough to warrant a personal visit - I, or any other Wal-Mart executive, cam walk into our TV studio and get on that satellite transmission and get it right out there.

---- Sam Walton 3. Keeping an ear to the ground Wal-Mart has 18 regional managers who are out visiting stores every Monday to Thursday. The regional managers are expected to know exactly whats happening in each of their stores. This information is then discussed in a Friday morning merchandising meeting at Wal-Marts head office.

4. Think one store at a time The larger Wal-Mart becomes, the more the company tries to think and act like a small retailer. That means focusing on lowering prices and delivering better service one department at a time store by store. It also means analyzing exactly how each store is doing against its competition.

5. Push responsibility and authority down the line Wal-Mart has developed a Store Within A Store concept. A department head of a Wal-Mart is designated as manager of his own business, and he can then decide how much of any particular item to order, the best way to merchandise it and all the practical decisions. The department head is also supplied with management information on the profitability of their particular store within the larger Wal-Mart store. The practical advantage of this approach is that less decisions get made away from where the real action occurs - in the stores.

6. Force new ideas to bubble up through the system Wal-Mart has a Volume Producing Item contest. Everyone nominates one product they want to promote, and the company then holds a competition to see whose item

- 15 -

produces the largest sales volume. This generates a number of creative and original merchandising and promotional ideas. The concept of Wal-Marts greeters was a good example of allowing worthwhile ideas to come to the surface. One store started using retired people as greeters to assist shoppers and to make sure people werent walking out the entrance with merchandise that hadnt been paid for. When Sam saw the idea in action, he loved it and adopted it for every store in the Wal-Mart group.

7. Stay lean and fight bureaucracy Wal-Mart has always used a formula that states no more than 2-percent of sales should be spent on maintaining the general company office and support structure. To keep to that, you have to operate a lean and efficient management structure, and avoid any temptation to build monuments to peoples egos or expensive offices.

8. Give something back to the community In addition to making contributions to numerous charities, Wal-Mart also initiated a bring It Home to the U.S.A. program in 1985. The program is designed to provide U.S. manufacturers with an opportunity to increase their competitiveness by comparison with overseas suppliers. Under this program, Wal-Mart commits to high volume purchases well in advance of shipping deadlines. American manufacturers are then in a position to realize significant efficiency gains to make their goods available at competitive prices. Everyone wins. Wal-Mart is able to secure a good deal for its customers, American jobs are created and Wal-Mart is acting as a responsible member of the business community.

One thing youll notice if you spend very much time talking with Sam about Wal-Marts success. hes always saying things like "This was the key to the whole thing" or "That was our real secret". He knows as well as anyone there wasnt any magic formula. A lot of different things made it work, and in one days time he may cite all of them as the "key" or the "secret". Whats amazing is that for almost fifty years hes managed to focus on all of them at once - all the time. Thats his real secret.

---- David Glass, CEO, Wal-Mart Sam Walton gave the following rules as principles that have worked for him in the development of the Wal-Mart chain: 1. Commit yourself wholeheartedly and passionately to the business you are in. Unless you live for what you do, you wont be successful.

2. Treat all employees as partners and create an opportunity for them to share in the wealth generated by the business enterprise. Make all employees shareholders in your company.

3. Consistently develop new and imaginative ways to motivate and fire up your employees on a daily basis. Set challenging goals with outlandish rewards, and then follow through rigorously. Dont be predictable - always keep people guessing.

- 16 -

4. Enable employees to know exactly where the business stands. The more they know, the more they can help in developing original ideas to further the companys operations.

5. Express appreciation for outstanding efforts on the part of employees. Acknowledge their achievements not only financially but also personally.

6. Have some fun and dont take everything too seriously. Turn disasters into humorous occasions everyone can look back on with laughter. And really celebrate whenever something turns out very successfully.

7. Listen to everyone in the company, especially the people on the front-lines with your customers. They are the only ones who know first-hand what is going on, and they will be the source of your best ideas.

8. Find ways to exceed your customers expectations. Deliver more than you promise and stand behind your product or service.

9. The strongest competitive advantage comes from controlling your expenses. You can always beat a competitor if your costs are consistently lower than his costs.

10. Be unconventional. Never miss an opportunity to do the exact opposite of whatever the bulk of the people are doing. Thats where real opportunity lies.

With the possible exception of Henry Ford, Sam Walton is the entrepreneur of the century.

---- Tom Peters, Co-Author of In Search of Excellence Wal-Mart has continued to grow at an impressive rate throughout the companys entire history;

Wal-Mart is today the largest retailer in the world. Every week, more than 40 million people shop in a Wal-Mart store. Many suppliers sell more product to Wal-Mart than they do to entire foreign countries. Yet despite all this success, Sams focus has always been to be the best retailer, not necessarily the biggest.

The thing is, I am absolutely convinced that the only way we can improve one anothers quality of life, which is something very real to those of us who grew up in the Depression, is through what we call free enterprise - practiced correctly and morally. And I really believe there havent been many companies which have done the things

- 17 -

weve done at Wal-Mart. Weve improved the standard of living of our customers, whom weve saved billions of dollars, and of our associates who have been able to share profits. Many of both groups have invested in our stock and profited all through the years. When we started out, the whole idea was nothing but a pure profit motive: our business strategy was to bring the customers into the tent by selling the highest quality goods we could at the lowest possible prices. It worked, and those few of us who believed in it from early on and invested in the idea got rich off it.

---- Sam Walton

Almost from the beginning, our objective has been to charge just as little as possible for our merchandise, and to try and use what muscle weve had to work out deals with our suppliers so we can offer the very best quality we can. Many people in this business are still trying to charge whatever the traffic will bear, and theyre simply on the wrong tack. Ill tell you this: those companies out there who arent thinking about the customer and focusing on the customers interests are just going to get lost in the shuffle - if they havent already. Those who get greedy are just going to be left in the dust.

---- Sam Walton

In the global economy, successful business is going to do just what Wal-Mart is always trying to do: give more and more responsibility for making decisions to the people who are actually on the firing line, those who deal with the customer every day. Good management is going to start listening to the ideas of these line soldiers, pooling those ideas and disseminating them around their organizations so people can act on them.

---- Sam Walton

A lot of folks ask me two related questions all the time. The first one is could a Wal-Mart-type story still occur in this day and age? My answer is of course it could happen again. Somewhere out there right now theres someone - probably hundreds of thousands of someones - with good enough ideas to go it all the way. It will be done again, over and over, providing that someone wants it bad enough to do whatever it takes to get there. Its all a matter of attitude and the capacity to constantly study and question the management of the business. The second question is if I were a young man or woman starting out today with the same stores of talents and energies and aspirations that I had fifty years ago, what would I do? The answer to that is a little harder to figure out. I dont know exactly what I would do today, but I feel pretty sure I would be selling something, and I expect it would be at the retail level where I could relate directly to customers off the street. I think Id study the retail field today and go into some business that offered the most promise for the least amount of money.

---- Sam Walton

I kept saying, Sam, were making a good living. Why go out, why expand so much more? The stores are getting farther and farther away. After the seventeenth store, though, I realized there wasnt going to be any stopping it.

---- Helen Walton

Sam had us send our sales report in every week, and along with it we had to send in a Best Selling Item. I mean we had to. What he was doing was teaching us to look for whats selling all the time. You had to look because you had to send in this report every week, and if you reported that nothing was selling well, Mr. Walton would not be happy. He would think you werent studying your merchandise, and in that case hed come

- 18 -

study it for you. Hes been that way ever since I first met him in 1954. ---- Charlie Cate

We have this Executive Volume Producing Item contest, but its really hard to compete with Sam on it because it is just unbelievable the compliance he gets. I think the Chatanooga Bakery, which makes Moon Pies, made him their man of the year. If they didnt, they should have. No one in history has ever dreamed you could sell Moon Pies like that. But see, if he picks an item, hell say he wants a table in front of the check stands, and he wants fifteen cases of Moon Pies there broken down into vanilla, chocolate and caramel, in whatever ratio he thinks theyre going to sell. That Bedmate thing was ordinarily a side-counter item maybe you stock four on a side counter and they sell a few a month. Well, Sam takes a table in action alley, designs the sign himself, and makes a rule you have to keep the thing full of Bedmates. Of course, it just exploded. Ask him about his minnow bucket, though. That was his worst item ever. That was the same year I won the contest with Seneca Apple Juice. It was just sensational. It sold tons. So I would go to the stores, and get them to take that minnow bucket up front to the people greeter at the door, put ice in it, ice down the apple juice, and give away samples out of his minnow bucket. I particularly did it in stores I knew he was going to visit. It just drove him crazy, and he got off that minnow bucket pretty quick. We have a lot of fun with all this item promotion, but heres what its really all about. The philosophy it teaches, which rubs off on all the associates and the store managers and the department heads, is that your stores are full of items that can explode into big volume and big profits if you are just smart enough to identify them and take the trouble to promote them. It has been a real key to helping this company dramatically increase its sales per square foot. If you are going to show the kind of double-digit comparable store sales increases that we show every year, and grow a company the way weve grown ours, you have to be merchandise driven. Otherwise, you become like everybody else. In retail, you are either operations driven - where your main thrust is towards reducing expenses and improving efficiency - or you are merchandise driven. The ones that are truly merchandise driven can always work on improving operations. But the ones that are operations driven tend to level off and begin to deteriorate. So Sams item promotion mania is a great game and we all have a lot of fun with it, but it is also at the heart of what creates our extraordinarily high sales per square foot, which enables us to dominate our competition.

---- David Glass, CEO, Wal-Mart

* * *

[ (NBS) ,

(Summary) . Book Review

,

. .]