"Forget about Gates and Buffett, in the United States, the Walton family is the one that has a real impact on the American economy and society." This is how Fortune magazine evaluates it.

In 2023, $Walmart (WMT.US)$ It has been the largest company on the Fortune Global 500 list for 10 consecutive years, and this is the 18th time it has received this honor since 1995. According to the latest 2023 annual report released by the company, Walmart's revenue in 2023 was $648.125 billion and its net income was $16.27 billion.

On one hand, there is Carrefour, which has almost withdrawn from China, and on the other hand, there is the crowded Sam's Club and Walmart, which leads the world's Fortune 500 list. How has the Walton family maintained its position as the world's richest family and the leadership of Walmart as a retail industry leader?

They are known as the world's most frugal billionaires, as well as the most low-key and inconspicuous billionaires. The Walton family's modest lifestyle is quite different from the extravagant American style, which has even led to hostility from Western media.

01 - The Frugal and Eccentric Local Tycoon

"A tree hugs, growing from a tiny bit; a nine-layered platform, rising from accumulative earth." Whether it is political elites or super-rich, the entrepreneurial generation cannot escape one word - poverty.

Born in a poor area, experiencing the Great Depression of the American economy, no one understands the difficulties of life better than Sam Walton. He made a living by farming and doing odd jobs to sustain a basic life, and entered the battlefield during World War II. Sam grew up in difficulties and became diligent, thrifty, determined, and optimistic.

Meeting his wife Helen Robson must have been a turning point in Sam's life.

The wealthy girl from a rich family and her banker father were both attracted by Sam's simplicity and determination, which was completely different from the spoiled children. Helen and Sam didn't want to live under the protection of their fathers, so they decided to find their own careers.

Due to his previous experience doing odd jobs, in 1945, Sam decided to open a "5&10" variety store (selling products for 5-10 cents, similar to the current dollar store). Tired of the hustle and bustle of the city, and with Helen's suggestion, Sam decided to open the store in a small town with a population of less than 10,000, where she wanted to settle down with their one-year-old son, Rob.

Their eldest son Rob recalls, "Dad always likes to listen to Mom. If he doesn't listen, Mom will make sure he does." Sam originally planned to build Walmart stores starting from big cities, but because Helen insisted on choosing small towns with a population of less than 10,000, Sam ultimately decided to start from Bentonville.

In this small town that the big retailers looked down upon, they launched a campaign of "encircling cities with rural areas." "We value every penny's worth and want to prove our value to the customers," this concept laid the foundation for Walmart's meticulous business operations.

Sam arrived at the store at 4:30 in the morning and worked until late at night every day to save on labor costs. In order to get lower purchase prices, instead of placing orders with brands like most stores, he would go to wholesalers by car to find cheaper goods, and he habitually bargained with dealers to earn a little more money.

Sam, always in a good mood, always fills his car so full that there is barely enough space to drive. The purchase price is lower than that of competitors, so the selling price is naturally lower and more people buy it. Price and service have been Walmart's core weapons since then.

Helen has always admired Sam's thriftiness. In order to pass on the thrifty family style to their children, she even asked Sam to let them live in a small town until the children turn 18, and they are not affected by the extravagant life. Their four children naturally help promote products in the store and earn pocket money with their parents.

The family of six often work and play together, creating a harmonious and joyful atmosphere that greatly heals Sam's childhood insecurity caused by his parents' endless quarrels.

As the business grew, Sam decided to join the Ben Franklin chain store. This gave Sam more stores, but the high franchise fees and the requirement that 80% of the products must be purchased from the headquarters made Sam and his wife feel that they couldn't make use of their intelligence.

In 1962, Sam, who had already opened dozens of chain stores, made an astonishing decision - to close all franchise stores and create his own brand. With the experience he had, Walmart's first store in the small town was a great success. When the revenue of Sam's first store reached 1 million dollars a year, he, at a young age, began to consider how to save his estate tax for the next hundred years.

In order to 'save' this expensive future expense, Sam decided to break up Walmart. He divided the shares of Walmart evenly into 5 parts, with each of his four teenagers owning one part, and himself and his wife owning one part. The best way to reduce estate tax is to give it away before the assets appreciate. When he passed away in 1992, he saved a lot of money on expenses, and this practice was also followed by many wealthy families.

Sam is very thrifty, he saves not only the money in his pocket, but also a lot of money that many people cannot see in the distant future. He likes to do things that are beneficial, useful, and challenging.

Sam is thrifty but not stingy, and he often spends a lot of money to save money in the future. In order to improve the efficiency of choosing locations for new stores, Sam surveys from the air by flying a plane, a location strategy that was at least ten years ahead of other retailers in the United States. In the 1960s, Walmart, which was rapidly expanding, also started the process of informatization.

Scale does not equal efficiency, it is only a condition for efficiency. The Keemat chain, which was once famous in the United States in the 1970s, collapsed because of poor management, outdated products, and low prices. Carrefour also faces the same problem. The key to winning the demand chain is always better cost control than the competitors.

In 1970, in order to change from aerial observation to real-time monitoring, Sam invested in launching a commercial satellite to track logistics and the sales situation of each store, thereby achieving rapid turnover and reducing inventory backlog. Sam established the largest private satellite communication system and the largest private transportation team in the United States, and the procurement and logistics systems achieved rapid response demand chain management through big data analysis.

This was a costly and cutting-edge decision that created Walmart's powerful supply chain and laid the foundation for its deep moat.

In managing the company, Sam was equally adept. He once hid a television in the store and advertised to invite residents to treasure hunt: whoever found the television could buy it for 22 cents. He also came up with the famous "women's pants theory": a pair of ladies' trousers costing 80 cents, initially priced at $1.20; if later discounted to $1, it could double the sales volume.

But in contrast, Sam's children did not entirely enjoy the business. His second son left behind a large sum of money to join the army and became a special forces soldier. After retiring, he worked as a sailor, pilot, investor, and even flew a plane to spray pesticides. Sam did not interfere with his children's choices, but he began to consider how to ensure the sustainable operation of Walmart, which is the root of frugality.

After Walmart went public in 1972, Sam clearly defined Walmart's corporate culture of "respecting individuals, serving customers, and pursuing excellence," as well as the business philosophy of "everyday low prices, guaranteeing your satisfaction." At the same time, he began looking for suitable professional managers. Walmart also had the "Three-Meter Smiles" requirement, where employees should stand within three meters, smile, and greet customers.

It took Sam 12 years to convince professional manager David Glass to join Walmart, establishing the management structure of "family business + professional managers," and balancing the various urgent needs of the family business and modern enterprise. Sam had a keen eye for people, and during David's 16 years as president, Walmart's stores grew from less than 300 to over 4,000 worldwide.

In order to fully respect the professional abilities of the managers, Sam stipulated that family members hold no more than 40% of the shares and strictly prohibited family interference in internal affairs, ensuring the public and depersonalization of the family business.

In 1982, Walmart became the world's number one. Journalists from around the world rushed into the town where they lived out of curiosity about the world's richest man. This "world's richest man," who drove a red Ford jeep without air conditioning, had coffee stains on the seats, wore a cheap baseball cap, only got his hair cut at the cheapest barber shop on the street, and never tipped, left the reporters in awe.

Sam's office is only ten square meters. He prints on the back of scrap paper. He wears clothes that can be bought at Walmart. He has only flown first class once in his life. When he travels, he often shares a room with someone and has even stayed in an 8-person hotel room. After buying a 20-acre plot of land in the suburb of Bentonville in 1965 and building a house for 0.1 million USD, he never bought any other property.

"The news media usually portrays me as a frugal and quirky country tycoon, a country bumpkin who sleeps with dogs, even though there is 1 billion USD hidden in a cave." Sam doesn't care at all about the maliciousness of the American media. He said, "Money itself doesn't mean much to the Walton family because a person can only wear one pair of pants, no matter how much money they have. Wearing two pairs doesn't make you a rich person, it means you have mental problems."

The Walton family advocates thrift. They dislike extravagance and playboys, and even dismiss employees who have lavish tastes. With the support of systems and organizations, Sam's "frugal" style, even though he passed away 30 years ago, still continues within Walmart:

• There is no dedicated paper for photocopying in the company. It is all done on the back of discarded reports.

• Walmart's office space is small and the decoration is simple, including the headquarters in the city.

• During the peak sales season, all managers and middle managers are responsible for tasks such as moving, installing, and cashiering in the sales department to save labor costs.

• The accommodations for employees on business trips are simple and ordinary hotels that meet basic needs for bathing and resting.

On one side is the shabby and on the other side is Walmart's big move.

Walmart never compromises on investment in procurement and inventory control, and transfers this capability to suppliers like Procter & Gamble through its integrated information system, allowing manufacturers to grasp the sales and inventory dynamics of goods and replenish inventory in real time. This creates an unbreakable relationship between Walmart and the brands.

This makes large retailers like Carrefour just the capillaries of the brand's blood flow, while Walmart, through its forward-looking integrated information system, becomes the brand's main artery.

02 Family and Sustainable Operations

Family business succession goes beyond entrepreneurs, products, family members, and wealth, and includes organizational, institutional, and value inheritance. The proper handling of successors is the cornerstone of corporate development.

Helen chose a simple small-town environment for her children, which is an important environment for passing on the frugal family tradition of the Walton family. When the family was wealthy, the eldest son, Ross, inherited the massive family business, but he still booked economy-class flights when traveling.

Helen spends most of her time with the children, and although Sam works more than six days a week, he also tries to stay at home on Friday evenings to participate in the children's competitions. Helen and Sam are committed to taking the whole family on trips or camping, keeping the family harmonious, providing their children with their own childhood experiences, and enhancing empathy for each other, as well as cultivating the children's willpower.

Therefore, Helen, Sam, and their three sons and one daughter have a very harmonious relationship, and each child is very thrifty and low-key. This is also the emotional foundation for Sam's willingness to evenly distribute the company's stocks to his children at an early age.

"As long as I'm still around, most of the shares of Walmart Group won't be moved - and I believe this attitude will continue unchanged to the next generation. As the company has been around for a long time, some families gradually sell off their shares to maintain a luxurious life, and then - bang - their shares are completely taken over by someone, and the company changes hands. One of the genuine reasons I wrote this book (autobiography 'Made in America') is so that my grandchildren and great-grandchildren could read it one day and understand this: as long as you start making the kind of foolish moves as mentioned above, I will crawl out of the grave and hold you accountable. So don't even think about it." Sam said.

Robert once said: "I learned from my dad that change and experimentation are frequent and essential, you must constantly try new things." Just like his father, he spared no effort to find a path of survival that better fits future development trends, so under his leadership, Walmart expanded globally and set up its layout.

Just as his father said in the "Ten Rules of Business Operation": "When successful, celebrate to your heart's content, when failed, learn to laugh at yourself, relax, and let everyone relax." With this wisdom, Robert moved forward without any burden.

In order to better pass on the family tradition, Helen used to hold a family meeting every two weeks while she was still alive, where the whole family would discuss the company's future: such as developing overseas markets, sales plans, or charitable activities, etc. Nowadays, the Walton family still has to hold three meetings every year, where all family members including children are required to attend, specifically to cultivate the third generation's emotions towards the company and the family. The members also go on a collective short trip every year.

The position of Walmart's chairman has been passed down to the third generation, taken over by Robert's son-in-law, Gregory Penner. From Walmart's consecutive 10-year ranking as the world's top 500 companies, the Walton family has not let down Sam's painstaking design. However, Walmart is not without challengers.

03 Challenges

The American lifestyle is filled with extravagance and luxury, which is quite different from the frugal and reserved Walton family. They were once criticized by the media for being 'peculiar and penny-pinching.' As time went on, people began to realize the charm of being low-key and frugal, but the questioning of the Walton family did not stop.

"Made in America" Walmart, which is fabulously wealthy, is a typical example of an extreme supply chain and representative of economies of scale. As Walmart continues to grow, the Walton family, which holds over 30% of Walmart's shares, rapidly increases their wealth at a rate of one billion dollars a day. However, more and more people have discovered the negative social impact of Walmart's rapid expansion.

Emphasizing low prices and services, backed by the supply chain, walmart is so strong that it has crushed the possibility of many small local retailers' survival. With over 8,000 walmart shopping plazas, sam's club stores, walmart stores, and walmart community stores in 15 countries globally, the diverse types of stores give walmart extremely strong risk resistance, making it nearly impossible for local people to succeed as entrepreneurs and forcing them to become walmart employees.

Although walmart is the leader in the industry, it still has competitors in its business.

The transformation pressure on traditional supermarkets, as well as the undercutting effect of fresh supermarkets and community group buying on superstore businesses, has made it difficult for some supermarkets to continue operating. The consumption habits of China's middle-class families have fundamentally formed, leading to a major outbreak for membership stores. In 2019, the first Costco store in Shanghai opened for business, with 200,000 paid members within a week and membership fee income close to 60 million RMB, setting a record in 35 years.

Costco, a membership warehouse store, and sam's club, a membership warehouse store under walmart, are the top two players in the membership warehouse retail industry and have been fierce competitors. Sam's club has changed CEOs five times in ten years in an attempt to surpass Costco, but currently lags behind.

Both companies sell products at low prices, with the profit from product sales only used to cover basic store operating costs and relying on membership income to maintain profits. However, it appears that the service which walmart once prided itself on is becoming a stumbling block for its advancement in membership stores.

In the US market, unlike sam's club facing traditional walmart members, Costco's members are slightly more high-end customers and small business owners. The average household income is $58,000, the average household size is 2.6 people, the average number of store visits per year is 11.4, and the average spending per visit is $94. By comparison, sam's average household income is $53,000, the average household size is 2.8, the average number of store visits per year is 8.5, and the average spending per visit is $78.

Costco's gross margin has never exceeded 14%, maintaining a net income of 1.8% with a gross margin of 9%–12%. Unlike sam's "low price + service" strategy, Costco provides minimal service and has about 3,800–4,000 skus in its warehouse stores, all products are sold in bulk packaging to reduce operating costs.

However, industry insiders believe that sam's club has 30% more skus than Costco and not all products are sold in large quantities. The employee costs of sam's club's "smiling Mr. and Mrs." evaluation activity are destined to be higher than those of Costco, where products are stacked high.

But don't think that Costco doesn't care about serving customers. Compared to these outdated friendly services, Costco, which lowers prices, focuses on deeper care. In 1986, Costco began selling fresh meat and agricultural products, and in 1995, it launched its own brand product line and started selling gasoline. Sam's Club followed suit two or three years later. In 1998, Costco started online shopping, and Sam's Club followed suit a year later.

They provide members with a wide range of services such as car and home insurance, mortgage services, real estate services, bill form printing, credit processing, health insurance, etc. Costco also introduces food additives, optical one-hour imaging labs, and baking departments into its stores, and even sells caskets in its stores.

Costco has become an agent for customers, while Sam's Club still acts as a user guide.

From a small store in the past to a wealthy one, the management and cultural style left by Sam's Club has placed Walmart at the top of the world. However, to become the new Walmart, the company must surpass its creator, Sam Walton.

*References:
Sam Walton, John Huey: 'Made in America'
Robert S. Slater, 'The Walmart Dynasty - the Growth Legend of the World's Largest Enterprise'
Niuyulong, 'Classic Cases of American Logistics'
George Parker, translated by Liu Ran, 'The Sinking Age'

Editor/Somer