Brian Prewitt Professor Michael Milligan Hist 155 12/16/13 Wal-Mart and its Place in Business History Despite

much rampant public criticism and numerous labor protests, Wal-Mart Stores Inc. is one of the most wildly successful enterprises in the history of business. Founded by former Benjamin Franklin employee Sam Walton, Wal-Mart has achieved its success through a series of cunning business practices. As such an important and successful company in the history of business, it is academically important to compare Wal-Mart to other high achieving companies in history. Historically dominant companies like Microsoft, Standard Oil, General Motors, or the McDonalds Corporation all achieved similar success in their industries. Each of these companies, along with Wal-Mart used differing business structures and practices to rise to the top. Wal-Marts relationship with these companies, though, is much more than historical. Wal-Mart has key business practices in common with these historical giants that reflect WalMarts ability to gain astronomical success. The unique policies that Wal-Mart has also show distinct differences from each of these companies. Most of these differences have equally contributed to Wal-Marts success in some way. This unique blend of accepted and rejected policies has allowed Wal-Mart to maintain and grow its success for over 50 years. Wal-Marts operation and structure is a masterfully crafted and refined process. Sam Walton was a former employee of a chain of discount stores known as Benjamin Franklin. Walton had a unique vision for providing consumers with a shopping experience that provided

every day necessities at a price that had to be right, discounted below the price suggested by the manufacturer (Lichtenstein, The Retail Revolution, p. 33). The reduced clothing, toiletries, and household goods would draw customers into the store in droves. Walton decreased the profit margin on products from thirty to forty percent, down to ten to twenty percent. This would eliminate incentive for most entrepreneurs to get into business, but Walton had an idea: draw consumers in with shockingly low prices, and them upsell them on appliances and other big ticket items that are at a price parity with its competitors. Walton also posited that customers bought more stuff when they selected the goods themselves, so once they got in the store he wanted the experience to be as consumer driven as possible (Lichtenstein, The Retail Revolution, p. 32). The company has also perfected the supply chain, which has allowed them to eliminate inventory and warehouse costs while completely cutting out the distribution middle man (Lichtenstein, The Retail Revolution, p. 46). Maybe most importantly, Wal-Mart has managed to control labor costs through specific employee benefits like profi1t sharing, and by keeping its workforce from being unionized. Wal-Mart has a program that is similar to profit sharing (but is not profit sharing) that puts 6 percent of the employees earnings back into company stock options that accumulate over many years (Lichtenstein, The Retail Revolution, p. 166). This has reduced cost because of high turnover, meaning that many of this contributions never reach their seven year vesting goal. The money that is lost is simply put right back into Wal-Marts pockets. Wal-Marts avoidance of more liberal metropolitan areas, outsourcing of work, and a steadfastly built anti-labor indoctrination team have allowed Wal-Mart to avoid the expensive costs of a unionized labor force for its entire history (Lichtenstein, The Retail Revolution, p. 174-188). These are just a few of Wal-Marts structural pillars, and a comparison with many of the other

large companies in history reveal even more about the policies that make Wal-Mart so successful. Microsoft Corporation is one of the most prolific and recognizable companies in the modern consumer setting. Founded by ruthless businessman and programmer Bill Gates, Microsoft specialized in developed computer operating systems. These operating systems allow the user to easily use their computer through advancements like graphics user interfaces. Microsofts growth in the 1980s and 1990s came from its commitment to structure its business horizontally (instead of packaging the hardware and software, concentrate on dominating software) and bullying others out of their way. As it currently stands, Microsofts market share currently stands at over 90% of all computer operating systems, but in feeling pressure from Apple Inc. has regressed in its dominance of the industry (Operating System Market Share). Though they are seemingly vastly different, Microsoft and Wal-Mart are contemporaries in businesses historical perspective. They are massive, cunning, well respected businesses who dominant their competition. According to Adam Hartung of Forbes, these two companies have a common fault: their expansion techniques. According to Hartung, Microsoft is falling behind Apple because of an inability to react to shifting markets. Hartung says Microsoft has caught the Wal-Mart Disease---constantly trying to do more of what it always did, hoping it can regain old results even as the market keeps shifting (Hartung, , Why Not All Earnings are Equal; Microsoft has the Wal-Mart Disease, p.1). In a technology market that has seen a drastic shift towards handheld computing, Microsoft has failed to roll out meaningful and competitive products. Microsoft has instead concentrated on sticking to its OS guns, which has been plagued by a lukewarm reception to Windows 8. Though Hartung tickets it as Wal-Mart Disease, WalMart has done a much better job of reacting to these market shifts. Stores like Trader Joes have

shown a market shift towards smaller, labor friendly stores that have a more hometown feel (Ton, Why Good Jobs Are Good For Retailers, p.1). Instead of succumbing to its own disease, Wal-Mart adapted to the changing market and has begun opening smaller stores in urban locations to compete with boutique grocers like Trader Joes. Wal-Mart possibly learned from both it and Microsofts mistakes, that a business must change with the market in order to survive long term. Through this commonality, it is easy to see Wal-Marts unique structural ability to diversify and change on the fly in response to market pressures. Though a considerable distance lies between Standard Oil and Wal-Mart in both time period and industry, it is hard to deny the striking similarities between these two industry giants. Standard Oil was John D. Rockefellers oil giant that was eventually hit with charges of monopolism under the Sherman Anti-Trust Act. The similarities between the two companies come in their expansion techniques and structure. The clearest parallel that can be drawn are their overarching strategies for growth: cut costs and eliminate (literally and figuratively) the competition. Wal-Mart is famous for its ability to cut costs vertically, by manipulating its suppliers. Wal-Marts abilityto squeeze suppliers is legendary and their market power allows the[m]to home in on every aspect of a suppliers operation; which products get developed, what theyre made of, and how to price them (Thomas and Wilkinson, The Outsourcing Compulsion, p. 195). The ability of Wal-Mart to, effectively, vertically integrate in its industry has allowed it to cut costs and undersell the competition. This has allowed them to dominate the other stores of its type (K-Mart, Ben Franklin) and drive them to the brink of, or to, shutting their doors (K-Mart declared bankruptcy, and Ben Franklin is now defunct). Standard Oil was really no different. Rockefellers company realized massive cost savings in its vertical integration. Standard oil saved millions by forcing various units of the refining empireto

compete with one anotherRefinery output expanded rapidly and enormous expenditures had to be made for tanks and pipelines to hold and move this vast supply (Armentano, Antitrust & Monopoly, p. 65). Stories of Standard Oil refineries where barrels of refined oil rolled off of conveyor belts right onto trucks headed for distribution are also told in the annals of history (Armentano, Antitrust & Monopoly, p. 65-66). Standard Oil cut costs, began to dominate, and then eliminated the competition; through both market domination and (mostly) purchasing of direct competitors. Wal-Marts vertical supply chain is equally as efficient, as they have eliminated the need for store warehouses. Wal-Mart shows a qualitatively different business practice than Standard Oil that has kept them from falling in the same Sherman trap: Wal-Mart is not purchasing its competitors at a high rate. At times Wal-Mart purchased some competitors but Walton eschewed growth through acquisition (Lichtenstein, The Retail Revolution, p. 44) .Though a dominant force in the mart market, Wal-Mart is rarely charged with partaking in monopolistic activities. The government has not felt a need to interfere and break up Wal-Mart like it did Standard Oil. Wal-Mart is unique in this sense in that most giant companies end up purchasing competitors. Even Microsoft has purchased competitors like Dell and Nokia. WalMarts ability to dominate the market place without purchasing (many of) its competitors places it in a unique place in business history. The relationship between General Motors is one of both striking similarity in success and structure and divergent policies that have allowed Wal-Mart to so far avoid many of General Motors labor downfalls. Wal-Mart and General Motors are unique in that they were two companies large enough to account for 2% of all of the United States Gross Domestic Product (Lichtenstein, Wal-Mart- Yesteryears GM?, p. 289). This success meant that competitors of both companies had to emulate them to survive; Wal-Marts low pricing and Alfred Sloans

unique management techniques forced others to follow in their footsteps. Maybe the most common practice of the two companies was their overly profit driven motives. Every businesss main goal is to turn a profit, but Sloan drove GM to dominate the marketplace by giving people cars they wanted instead of purchasing his competitors (Farber, A 2004 Interview with David Farber, p. 2). Wal-Mart, as previously mentioned, also followed the path of fulfilling consumer demand and not purchasing its competitors. With the excessively profit driven motives of each company comes another structural similarity: both companies use(d) complicated statistical analysis to predict consumer purchasing habits and stock their products. Sloan oversaw the use of rigorous financial and statistical tools to profitably manage GM in a time before their common use (Farber, A 2004 Interview with David Farber, p. 2). As a CEO, Sloan was at the forefront of using statistical analytics to drive profits for his company. Wal-Mart is a modern example of similar concepts. Wal-Marts adoption of the Universal Product Code (UPC) near the beginning of its life allowed it to kick-start its dominance through similar statistical analytics. In fact, by the mid-1980s almost all Wal-Mart stores were tied into the UPC system, well ahead of Kmart, Sears and most department stores (Lichtenstein, The Retail Revolution, p. 54-55). Not only did the bar code eliminate labor costs through its increases in inventory efficiency (what to stock, when to stock it, etc.) but it also provided Wal-Mart with the information necessary to stock its shelves so as to generate highly accurate item affinity sales that would give the retailer a small but consistent edge against its discount competitors (Lichtenstein, The Retail Revolution, p. 58). This was a method of stocking certain products together that people buy at once, like tissues and cold medicine (Lichtenstein, The Retail Revolution, p. 58). Both companies practiced advanced statistical analysis to get a significant leg up on their competition. A major difference that Wal-Mart has shown from many of its historical contemporaries (especially GM)

is its labor policy. GM was at one point not unionized and made a transition to being unionized in 1937. With this came strikes (which decreased productivity) and cries for increased dividends for the workers (Lichtenstein, Wal-Mart- Yesteryears GM?, p. 190-191). Wal-Mart has avoided unionization, and despite some public pressure, it does not look like they are moving towards accepting it into their policy. Wal-Mart seems to have recognized that GM, in a similar economic position, went through some economic struggles post-unionization, and is looking to avoid similar struggles. Without being unionized Wal-Mart has been able to keep prices low; its low labor costs pass the savings right to consumers. Though a unique feature of Wal-Mart when compare to GM, this could come to an end soon with numerous strikes against Wal-Marts labor policy popping up nationwide. A more modern contemporary for Wal-Mart is McDonalds Corporation. McDonalds was the worlds first true fast food giant, pumping out a limited selection of items with speed and quality. Its star brightened when it invested a substantial amount of its money in the real estate of its franchises, relying less on sales and more on spreading out its resources. McDonalds faced a unique challenge from a diversified group of competitors in the late 1990s: they were losing out because of other chains lower prices. In 1997 McDonalds make a drastic move in cutting prices in which its chief tacticwas the discounted sale of a Big Mac package (Muller, Redefining Value: The Hamburger Price War, p.1). In an almost direct parallel to Wal-Mart, McDonalds needed to increase the number of customers that were coming into its stores. By deeply discounting a signature item like the Big Mac could draw people in and have them purchase other items as well; just like Wal-Mart. McDonalds main focus at the time was indeed increasing the traffic for the discounted menu items and this was successful in putting McDonalds back on top again (Muller, Redefining Value: The Hamburger Price War, p. 2). This

paralleled method and result for McDonalds shows that Waltons original vision to bring in customers with heavily discounted items (even in a pre-food Wal-Mart) is widely applicable to many industries. Up to this point it has looked as if Wal-Mart has reaped the benefits of its historical contemporaries, but this seems to indicate Wal-Mart has had an equally impactful influence. The specificity of the business practices shared between McDonalds and Wal-Mart show exactly how businesses feed off of each other in a beneficial manner. One of Sam Waltons defining qualities was his capacity to borrow, steal, or appropriate good ideas from anywhere he found them and the four contrasted historical contemporaries of Wal-Mart show that to be strikingly true (Lichtenstein, The Retail Revolution, p. 32). What is also clear though, is that Wal-Mart refuses to repeat the mistakes of some of these companies, especially when it comes to their vehement resistance to the acceptance of labor unions. WalMart knows that like these other giants, it may be only a matter of time before something like labor issues causes them to fall from their throne. Wal-Marts similarities to other companies business structures and practices and many of their unique practices have put them in a special place in business history. Only time will tell if something like labor strife will jeopardize its legacy.

Works Cited Armentano, Dominick. "Antitrust & Monopoly." N.p., 1982. Web. Farber, David. "A 2004 Interview with David Farber." N.p., 2004. Web. Hartung, Adam. "Why Not All Earnings Are Equal; Microsoft Has the Wal-Mart Disease." Forbes. Forbes Magazine, 03 May 2011. Web. 16 Dec. 2013. Lichtenstein, Nelson. The Retail Revolution: How Wal-Mart Created a Brave New World of Business. New York: Metropolitan, 2009. Print. Lichtenstein, Nelson. "Wal-Mart- Yesteryear's GM?" The Globalist. N.p., 17 Jan. 2005. Web. Muller, Christoper. "Redefining Value: The Hamburger Pricing War." Cornell Hotel and Management Administration Quarterly, 1997. Web. "Operating System Market Share." Operating System Market Share. N.p., n.d. Web. 16 Dec. 2013. Thomas, Andrew R., and Timothy J. Wilkinson. "The Outsourcing Compulsion." Mt. Sloan Management Review, 2006. Web. Ton, Zenyep. "Why "Good Jobs" Are Good For Retailers." Harvard Business Review, 2012. Web.