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One Nation Under
Wal-Mart ;
How retailing's superpower--and our biggest company-- is changing
the rules for corporate America.
Jerry Useem; Reporter Associate Julie Schlosser Research
Associate;
Helen Kim
03/03/2003
Fortune Magazine
Time Inc.
64
(Copyright 2003)
Bentonville, Ark., does not come to the world. The world comes to
Bentonville. Whether you're a media mogul or a toy tycoon or King
Tut,
you drive your rent-a-car north on Walton Boulevard, past Smokin'
Joe's
Ribhouse and the Lube N' Go, and into one of the parking spots
marked
SUPPLIER. Don't expect a welcoming party. You make your way into a
packed waiting room that reminds you of the Department of Motor
Vehicles
and have a seat. Thirsty from your trip? Coke machine in the back.
Coffee? Ten cents in the box, please. Change machine over there if
you
need it.
The young buyer who emerges to greet you has a paycheck that's far
smaller than yours, a name that's far less celebrated, and a
budget of
about $1 billion. He ushers you into a seven-by-ten-foot blue
roomlet--one fluorescent light, one table, one photo of Mr. Sam.
So,
says the buyer in his unfailingly polite manner, how can Disney
help
Wal-Mart?
If you are an executive from Walt Disney, you've been here before.
Your
company sells movies, Pooh merchandise, and many other items to
Wal-Mart. But when the buyer wonders whether Disney could make a
short
video involving Wal-Mart and a Disney character--you know,
something to
get the store associates fired up or perhaps to play on Wal-Mart's
in-store TV network--you have to say no: Disney characters aren't
allowed to be so crassly commercial. Well, that's okay. Jeffrey
Katzenberg was down here, and his team at DreamWorks made the
nicest
video of Shrek doing the Wal-Mart cheer...
Not only was the Shrek video a huge hit, but Katzenberg has spent
more
time around Bentonville than anyone might suspect. "I've been
there
three times in the last 45 days," he confirmed recently. "I cannot
tell
you how much I respect and love the bare-essentials efficiency....
I'm
flattered by the opportunity they've offered." If this strikes you
as
unconvincing, you haven't seen Katzenberg do the Wal-Mart cheer.
That an important studio boss like Katzenberg would answer calls
of
"Give me a W!" with fist raised might generate snickers among his
peers.
But nobody was laughing in 2001 when Wal-Mart--its stores
bristling with
displays of the green ogre--helped turn Shrek into the year's
bestselling DVD. "Jeffrey figured out something his competitors
didn't,"
says Warren Lieberfarb, the former Warner Home Video chief, who is
known
as the father of DVD. "Wal-Mart is the largest single revenue
generator
for Hollywood in the world."
And so, you see, there are two types of executives these days:
those
who have learned to play by Wal-Mart's rules, and those who still
haven't learned the right answer to the cheer's closing question:
"Who's
No. 1?"
"The customer! Always! Whoomp!!!"
For most of Wal-Mart's 41 years, corporate America refused to
acknowledge the retailer as one of its own. Wal-Mart was Podunk,
U.S.A.,
Jed Clampett, Uncle Jesse's pickup--and worse yet, a discount
store.
This year its transfiguration is complete. Wal- Mart is FORTUNE's
most
admired company, marking the first time the world's biggest
corporation--yes, it replaced Exxon Mobil atop the FORTUNE 500
last
year--is also its most respected. You might say that Wal-Mart
finally
belongs in corporate America. More accurately, you could say
corporate
America belongs to Wal-Mart.
To understand this astonishing development, you need to grasp the
difference between a big company--what Wal-Mart was at the time of
Sam
Walton's death in 1992, when it was about one-fifth its present
size--and a company that has created a whole new definition of
bigness.
If conventional metrics, like Wal-Mart's $240 billion-- plus in
sales or
its 1.3 million "associates," don't do the trick, these may help:
--Wal-Mart's sales on one day last fall--$1.42 billion--were
larger
than the GDPs of 36 countries.
--It is the biggest employer in 21 states, with more people in
uniform
than the U.S. Army.
--It plans to grow this year by the equivalent of--take your
pick--one
Dow Chemical, one PepsiCo, one Microsoft, or one Lockheed Martin.
--If the estimated $2 billion it loses through theft each year
were
incorporated as a business, it would rank No. 694 on the FORTUNE
1,000.
What this means for Wal-Mart's low-profile CEO, Lee Scott, is that
he
runs what is arguably the world's most powerful company. What it
means
for corporate America is a bit more bracing. It means, for one,
that
Wal-Mart is not just Disney's biggest customer but also Procter &
Gamble's and Kraft's and Revlon's and Gillette's and Campbell
Soup's and
RJR's and on down the list of America's famous branded
manufacturers. It
means, further, that the nation's biggest seller of DVDs is also
its
biggest seller of groceries, toys, guns, diamonds, CDs, apparel,
dog
food, detergent, jewelry, sporting goods, videogames, socks,
bedding,
and toothpaste--not to mention its biggest film developer,
optician,
private truck-fleet operator, energy consumer, and real estate
developer. It means, finally, that the real market clout in many
industries no longer resides in Hollywood or Cincinnati or New
York
City, but in the hills of northwestern Arkansas.
If this sounds fanciful, then you haven't visited Newell
Rubbermaid's
new Bentonville office, just a 60-second drive from Wal-Mart
headquarters. One of 200 corporate embassies here that form a ring
known
as "Vendorville," it's home to the 50 members of Newell's Wal-Mart
Division. "Everything in here is like Wal-Mart," says one manager,
and
he means it literally. The carpets mirror those in Wal-Mart
headquarters. Same with the cheap cubicles. The first floor has an
"exact replica of a Wal-Mart store" showing the placement of
Newell
glassware, Sharpie pens, trash cans, Levelor blinds, and so forth.
Upstairs, Sam Walton's image and aphorisms hang on the walls,
while even
the Gregorian calendar has given way to "Wal-Mart time": Week 9 is
understood to mean nine weeks into the company's fiscal year,
starting
Feb. 1. "You need to be your customer," explains my host.
Newell's reasoning comes down to one number: 15, the percentage of
its
merchandise that passes through Wal-Mart cash registers. That
number
helps explain why Newell CEO Joe Galli spends four weeks a year
touring
Wal-Mart stores, and why Newell seldom designs or launches a new
product
without Wal-Mart's involvement, and why division president Steven
Scheyer gives every new employee a copy of Sam Walton's
autobiography.
(It also helps explain why there are no direct flights from New
York
City to Little Rock, but you can catch one of American Airlines'
two
daily nonstops from LaGuardia to Bentonville.) "We live and
breathe with
these guys," says Scheyer. "People are focusing on 'What's the
right
Sharpie for Wal- Mart, what's the right closet product for
Wal-Mart,
what's the right stroller?' " Little wonder that Stockholm
Syndrome--the
phenomenon in which hostages come to identify with their captors--
has
been a problem for some companies. "At first there's resistance,
then
they break down, then they go to the other side," says Steve
Cleere, a
consultant at TradeMarketing. "They're thinking like Wal-Mart
people
instead of brand people, and they need to be rotated out."
How Wal-Mart thinks has never been a big mystery: Buy stuff at the
lowest cost possible, pass the gains on to the consumer through
superlow
prices, watch stuff fly off the shelves at insane velocity.
(Critics who
say Wal-Mart is obsessed with its bottom line have one thing
wrong:
Wal-Mart is obsessed with its top line, which it grows by focusing
on
the consumer's bottom line.) Suppliers are expected to offer their
best
price, period. "It's not even negotiated anymore," says Paul Kelly
of
Silvermine, a consulting company that helps manufacturers sell to
big
retailers. "No one would dare come in with a half-ass price." As
for a
supplier raising prices, good luck: In some cases Wal-Mart has
been
known simply to keep sending payment for the old amount. "The days
of
the price increase," Joe Galli has told his troops, "are over."
By systematically wresting "pricing power" from the manufacturer
and
handing it to the consumer, Wal-Mart has begun to generate an
economy-wide Wal-Mart Effect. Economists now credit the company's
Everyday Low Prices with contributing to Everyday Low Inflation,
meaning
that all Americans--even members of Whirl-Mart, a "ritual
resistance"
group that silently pushes empty carts through
superstores--unknowingly
benefit from the retailer's clout. A 2002 McKinsey study,
moreover,
found that more than one-eighth of U.S. productivity growth
between 1995
and 1999 could be explained "by only two syllables: Wal-Mart."
"You add
it all up," says Warren Buffett, "and they have contributed to the
financial well-being of the American public more than any
institution I
can think of." His own back-of-the-envelope calculation: $10
billion a
year.
That, mind you, is Wal-Mart today. "As Wal-Mart grows," writes
consultant Ira Kalish of Retail Forward, "it will transform its
competitors, its suppliers, and the industries it dominates." In
apparel, for instance, Wal-Mart is moving from staples into cheap-
chic
fashion, exemplified by its new George line, which offers career
basics
like skirts and blazers priced between $8.87 and $28.96. That in
turn is
pressuring everyone from Bloomingdale's to Banana Republic to
compete on
price as well as image. "Wal-Mart has caused the fashion industry
to go
topsy-turvy," says Marshal Cohen, co-president of NPDfashionworld.
In Hollywood, Wal-Mart's push for cheap DVDs (as low as $5.88) has
exacerbated a schism between studios like Universal, which don't
want to
cannibalize the lucrative rental business, and those like Warner,
which
are pushing a high-volume, low-margin approach. Caught perilously
in the
middle is Viacom's Blockbuster. "We don't plan to participate in
the
below-cost DVD madness," says CEO John Antioco.
Convenience stores, meanwhile, are threatened by the 700 gas
stations
now in Wal-Mart parking lots, causing petroleum sellers to lobby
vigorously for protective legislation. "We are seeing margins on
fuel
that we haven't seen this low in a decade or more," says Jeff
Lenard, a
spokesman for the National Association of Convenience Stores.
The battle of the brands, too, is increasingly played out on Wal-
Mart
turf. In batteries, perennial third-place Rayovac has used a
low-cost
"Wal-Mart uber Alles" strategy to challenge Energizer and
Gillette's
Duracell. Tattered Levi Strauss, once too cool for discount
stores, has
bet its future on sub-$30 jeans to hit Wal- Mart racks this
summer. And
toy companies anxiously watch the fate- -and try actively to boost
the
fortunes--of Toys "R" Us, fearing a unipolar world. "If Toys 'R'
Us goes
under, and then Kmart too, are you selling 60% of your toys to
Wal-Mart?" asks Alex Lintner, a retail expert at Boston Consulting
Group.
Wal-Mart in 2003 is, in short, a lot like America in 2003: a sole
superpower with a down-home twang. As with Uncle Sam, everyone's
position in the world will largely be defined in relation to Mr.
Sam. Is
your company a "strategic competitor" like China or a "partner"
like
Britain? Is it a client state like Israel or a supplier to the
opposition like Yemen? Is it France, benefiting from the
superpower's
reach while complaining the whole time? Or is it...well, a Target?
You
can admire the superpower or resent it or- -most likely--both. But
you
can't ignore it.
It is an odd fact that the public face of Wal-Mart continues,
after all
these years, to be the folksy visage of Sam Walton. Spend enough
time
inside the company--where nothing backs up a point better than a
quotation from Walton scripture--and it's easy to get the
impression
that the founder is orchestrating his creation from beyond. The
explosive growth of the past decade has, of course, actually
occurred
under the earthly apostleship of David Glass and, since 2000,
53-year-old Lee Scott.
Yet the best way to understand Wal-Mart is to talk to people like
Shelly Chandler. Daughter of a Marine colonel, she started out
sorting
invoices for $4.65 an hour. As a $50,000-a-year apparel buyer in
the
mid-1990s, she controlled a budget of $1 billion. "Tough as I
am--thank
you, Sam--I got good deals," recalls Chandler, who still speaks of
the
company as "we" despite having left in 1996, when her child fell
ill.
"Sam taught us to be tough but fair. That's what makes Wal-Mart go
round
and round and round." Pressed on how it felt to control a thousand
million dollars, Chandler paused. "I had the biggest pencil in the
United States of America," she said, "and if someone didn't do
what fit
with our program, I could break my pencil, throw it on the table,
and
never come back."
Early power retailers like Sears and A&P started out with the
upper
hand. A 1930 FORTUNE article noted that "A&P's terms become,
practically, Economic Law." (The magazine also marveled that "if
every
person in New York City were a hen laying regularly, there would
not be
enough eggs to fill the A&P demand.") It was the coming of
television,
plus laws that prevented stores from selling products below their
listed
price, that shifted the advantage to mass-marketers like P&G,
Coke, and
Revlon (which not only sponsored but owned the top-rated '50s TV
show
The $64,000 Question). "What Wal-Mart has done," says Harvard's
Tedlow,
"is turn that on its head again. The store has a helluva lot of
power."
How Wal-Mart chooses to wield this power is today's $244 Billion
Question. Many assume that the company uses it crudely, cracking
suppliers' heads and stealing their lunch money. But if that were
the
case, you'd expect to see manufacturers' margins shrinking. And?
According to Value Line, operating margins of household product
makers
actually grew 48% between 1992 and 2001; food processors' went up
30%;
soft drink makers' rose 14%. Though horror stories do circulate
(some
entrepreneurs have accused Wal-Mart of knocking off their product
proposals), Wal-Mart also towered as the "best retailer with which
to do
business" in a Cannondale Associates survey of 122 manufacturers.
"I
think most would say that Wal-Mart is their most profitable
account,"
says Silvermine's Paul Kelly.
How can that be? It begins to make sense if you consider the
byzantine
demands that most retailers impose on suppliers. Slotting fees.
Display
fees. Damage allowances. Handling charges. Late penalties. Special
sales
and rebates. Super Bowl tickets. Each is a small inefficiency that
benefits the retailer at the supplier's expense and,
ultimately--since
the supplier builds those costs into its prices--the consumer's.
Wal-Mart, by contrast, is famous for boiling everything down to a
one-number negotiation. "It's very pure," says Newell Rubbermaid's
Scheyer. "All the funny money--1% for this, 2% for that, 'I need a
rebate... I need a special fund for our annual golf event'--it
isn't
there. They'll negotiate hard to get the extra penny, but they'll
pass
it along to the customer."
While this part of the negotiation is strictly arm's-length
(figuratively anyway, given the cubby-like dimensions of the blue
rooms), Wal-Mart also operates in "partnering" mode, in which both
sides
swap information to streamline the flow of goods from raw
materials to
checkout counter. "They would rather extract fat from the process
than
extract their suppliers' profits," explains Ananth Raman, a
Harvard
Business School professor who studies supply chains. So while
Newell
Rubbermaid's "We [love] Wal-Mart" strategy can seem the ultimate
in
corporate vassalage, consider what Newell gets out of the deal:
not only
huge volume but, thanks to Everyday Low Prices, predictable
volume,
which lets it keep its factories running full and steady. There
are no
advertising costs, no "funny money." And Wal-Mart will even back
up its
trucks to Newell's factories. Many suppliers, including P&G, like
the
model so much that they've pushed it on their other customers.
There's more. Newell gets product ideas from Wal-Mart. Hundreds of
them. A store associate in Arizona mentions that Hispanic
customers are
looking for a kind of cookware called a caldero. Done. The
hardware
department sees an opportunity for "light industrial" cleaning
products.
Time to market: 90 days. Shoppers, in effect, get direct control
of the
nation's manufacturing facilities--reason to see Wal-Mart as the
world's
most finely articulated tool for turning customer wants into
reality. A
win- win-win.
Playing this game, however, requires constant hustle. Besides
continually cutting your costs, you need to handle all that data
pouring
off RetailLink--the system that lets suppliers track their wares
through
Wal-Mart World--since you wouldn't want to annoy Wal- Mart with
excess
inventory or, worse yet, not enough. An electronic "vendor
scorecard"
will let you know how you're doing.
In the meantime, you should also be peppering Wal-Mart with
"retail-tainment" ideas about how to make its stores more fun. If
you're
the maker of Power Rangers, that means creating the world's
largest
inflatable structure--a 5,000-square-foot moon --for a tour of
Wal-Mart
parking lots. If you're Coke, it means routing your
L.A.-to-Atlanta
Olympic Torch Run past every Wal-Mart possible. You may be
"encouraged"
to buy time on the in-store TV network. And should you enjoy the
privileged position of "category manager," you'll be expected to
educate
Wal-Mart on everything happening in the jelly or lingerie or Hulk
Hands
markets. Above all, you'd better start thinking like a retailer.
"If
you're focused on your shipments, you're screwed," says Dennis
Bruce, a
vice president with Newell Rubbermaid's Bentonville team. "You
gotta be
worried about what's moving through the registers."
"Vendor offenders," as some Wal-Marters jokingly call them, don't
last
long. "People think they're wired in at the top of the company,
but the
relationship in itself means nothing if you don't perform," says
Newell's Scheyer, whose father sold to Sam Walton in the 1960s.
Then, too, Bentonville isn't above dropping the occasional bomb.
Procter & Gamble's storied partnership with Wal-Mart began on a
1987
canoe trip when Walton and a P&G boss agreed to start sharing
information instead of hoarding it. Yet there was little warning
when,
in 2001, Wal-Mart unveiled its Sam's American Choice detergent at
roughly half the price of P&G's family jewel, Tide. (The move "in
no way
strains our relationship," a P&G spokeswoman said at the time.
Uh-huh.
And we have no problem with a McDonald's(TM) brand FORTUNE.) Now
there
are rumors--which Wal- Mart does not confirm--that the retailer is
planning to introduce a second, even cheaper detergent under its
Great
Value label. "I'm not sure [P&G] didn't pay way too high a price
to
achieve that partnership," says TradeMarketing's Cleere. "They
taught
Wal-Mart about the laundry business."
Tide still commands about four times the shelf space of Sam's
Choice,
and Tom Coughlin, chief of Wal-Mart's U.S. stores, says
manufacturers'
brands will remain the company's cornerstone. But Wal-Mart's
private-label assault has turned even its most trusted suppliers
into
its competitors. With little fanfare and no advertising,
Wal-Mart's Ol'
Roy dog food (named for Sam Walton's English Setter: 1970--81) has
charged past Nestle's Purina as the world's top-selling brand.
Great
Value bleach outsells Clorox in some stores.
That raises a tricky question: What, exactly, is the brand here?
As
Wal-Mart flexes its muscle as a marketer and not just a
merchandiser, it
could accelerate the demise of weaker brands. Even P&G has
refocused on
just 12 powerhouses, like Crest and Pampers. Now manufacturers
worry
about losing their direct connection to the consumer. Two decades
ago
65% of their ad budgets went to television and other mass media,
while
today 60% go to retailers for in-store promotions and the like.
The
worry, as a Forrester report predicts, is that "Wal-Mart will
become the
next Procter & Gamble." The nightmare: Wal-Mart becomes your
company's
new VP of marketing.
If the trip on Gulliver's coattails is no joyride, it sure beats
being
a Lilliputian underfoot. Over the years Wal-Mart has thundered its
way
up the retail food chain, first flattening mom- and-pop stores,
then
stepping on discounters like Ames, Bradlees, and Kmart, and
finally
sitting on specialty retailers like Toys "R" Us--threatening, in
effect,
to kill the category killer. Now no category seems safe.
Just ask your grocer. The quintessentially low-margin business had
benefited from a decade of consolidation and cost cutting by
giants like
Kroger and Albertsons. Yet most of the gains dropped to the
companies'
bottom lines, not the consumers'. Now, feasting on fat margins in
the
presence of Wal-Mart is a bit like tucking into a juicy sirloin in
the
presence of a grizzly: Your dinner won't be there for long, and
unless
you start running, neither will you. Only ten years after
launching its
food business amid much guffawing, Wal-Mart is the world's biggest
grocer, driving down prices an average of 13% in the markets it
enters,
according to a UBS Warburg study. The effect has been seismic:
Kroger
has gone on a cost-cutting drive to narrow the price gap,
Albertsons has
abandoned some markets entirely, and an army of consultants now
advise
grocers on how to grapple with the 800-pound gorilla. When
Wal-Mart
moves, it adheres to the Powell doctrine of overwhelming force.
Now imagine you're a Wal-Mart strategic planner on the prowl for
other
high-value targets. Where else are middlemen taking fat profits
and
stiffing consumers? Did someone say used cars? Of course! The last
castle of medieval retailing. Visit the parking lots of several
Houston
Supercenters, and you'll find a dealer quietly testing a no-haggle
approach under the name Price 1.
What else? Well, what about Microsoft? Its margins are--can this
be
right?--44%, and it's sitting on $38 billion in cash. Mr. Sam
would not
approve. Log on to walmart.com and you'll find $199 computers
powered by
a fledgling Windows competitor, Lindows.
Financial services! Regulators have twice thwarted Wal-Mart's
attempts
to buy a bank, but hey, you don't need a bank to offer wire
transfers
and money orders. And get this: Western Union charges $50 to wire
$1,000
from Texas to Mexico. How about a flat $12.95 instead, and 46-cent
money
orders instead of the 90 cents charged by the U.S. Postal Service?
Available at a store near you.
Wal-Mart vacations. Internet access. Flower delivery. Online DVD
rentals a la Netflix. All happening.
Wal-Mart stresses that many of these experiments are just that:
experiments. But the company has long excelled at using itself as
a
testing lab, tweaking and refining a concept until--boom!--it's
everywhere. That's why even the looniest speculation--Wal-Mart
partners
with a Korean auto company to make a private-label car, Wal-Mart
acquires a drug chain, Wal-Mart becomes a wholesaler to other
merchants--can't be dismissed. Just because you're paranoid
doesn't mean
Bentonville isn't out to get you.
Wal-Mart's zero-to-60 engine is driven by three powerful
cylinders:
scale, scope, and speed. The scale part is obvious. The scope part
allows Wal-Mart to "flex" its toy section before the holidays and
collapse it afterward, while Toys "R" Us is stuck selling toys
year-round. (Scope also lets Wal-Mart use entire categories--gas,
soft
drinks, whatever--as loss leaders to pull people into the stores.)
The
speed part may be the most intimidating. Wal-Mart's turnover is so
rapid
that 70% of its merchandise is rung up at the register before the
company has paid for it. Speed is why it routes ships from China
through
the Suez Canal and across the Atlantic, so that exactly 50% of
imports
end up on each coast--more expensive in the short run, but faster
in the
long. And while the interior of a Wal-Mart distribution center
evokes
the final scene of Raiders of the Lost Ark--42-foot-high corridors
of
toilet paper stretching toward a vanishing point-- many items
never hit
the warehouse floor, moving directly from truck to truck along 24
miles
of conveyor belts.
That leaves competitors with two options (surrender not one of
them;
Bentonville doesn't do acquisitions). Option No. 1 is to play
Wal-Mart's
game. Very risky. In the mid-1990s, Kmart proved it to be ritual
suicide. On the other hand, companies already steeped in
discounting--Costco, Family Dollar, grocery chain Publix--have
more than
held their own against Goliath. Option No. 1 should thus carry the
warning found atop black-diamond ski runs: EXPERTS ONLY.
Option No. 2: Don't play Wal-Mart's game. Typically a better
choice.
Grocery folks regularly tromp through H-E-B, a Texas grocery chain
that's held Wal-Mart at bay with such "destination products" as
ice
cream made from Poteet strawberries, a local favorite that H-E-B
freezes
in vast quantities. Not surprisingly, Wal-Mart is already thinking
along
similar lines, mining its mountains of data to tailor individual
stores
to local tastes.
The question on everyone's mind, of course, is, How much more
dominant
can Wal-Mart get? More than 70 million people already roam its
aisles
each week. Its truckers are trained to avoid deluded motorists who
dream
of a collision and a Wal-Mart--sized settlement. The U.S. Mint
chose
Wal-Mart, not banks, to introduce its Sacagawea gold dollar in
2000.
Target had difficulty finding American flags on Sept. 12, 2001,
because
guess who had begun buying every flag it could the previous day.
Hegemony, it would seem, doesn't get any more complete.
Yet a bit of fifth-grade math produces a startling result: If
Wal-Mart
maintains its annual growth rate of 15%, it will be twice as big
in five
years. "Could we be two times larger?" asks CEO Lee Scott. "Sure.
Could
we be three times larger? I think so."
Crazy talk? Maybe not. Roughly half of Wal-Mart's Supercenters
(groceries plus general merchandise) are in the 11 states of the
Old
South, leaving plenty of room for expansion in California and the
Northeast. And Bentonville is getting creative about overcoming
the
political and real estate hurdles there. In January it opened its
first
inner-city Supercenter in the Baldwin Hills neighborhood of Los
Angeles,
a three-story affair with special escalators for shopping carts.
All
told, Wal-Mart will open roughly a store a day this year.
As it expands outward, it's also filling in the gaps. "We've found
that
a smaller population than what we originally had thought can
support a
Supercenter," says Scott. "So you can put two Supercenters--Rogers
(Ark.) and Fayetteville--roughly four miles apart. Same thing is
true in
Dallas, Houston, Atlanta." Within those four miles Wal-Mart is
building
new Neighborhood Markets, or "Small-Marts": smartly designed
food/drug
combos with conveniences like self-checkout, honor-system coffee
and
pastries, drive- through pharmacies, and half-hour film processing
(this
last based on a finding that 50% of women shoppers have an
undeveloped
roll of film in their purse). In Arkansas, Wal-Mart's even
dabbling with
stand-alone pharmacies. Throw in Sam's Club, with 46 million paid
memberships, and walmart.com, with its mission of "easy access to
more
Wal-Mart," and you start to wonder: Is there any format
Bentonville
won't consider on its march to "saturation"? Well, yes, says
Scott.
"You're not going to see Wal-Mart casinos."
Which brings us to a final issue: is someone going to decide that
Wal-Mart has too much power? Doesn't the government break up
companies
that get this big? The short answer in this case is "not likely."
Antitrust law is aimed at protecting consumers, not competitors.
(In the
U.S. anyway: A German judge last year ordered Wal-Mart to raise
its
prices.) Monopolists jack up prices. Wal- Mart lowers them--making
it,
in some instances, a more effective trustbuster than the
trustbusters
themselves.
Yet the company has grown self-conscious about its size. While
Sears
and Woolworth once announced their power by erecting the world's
tallest
skyscrapers, Wal-Mart strives to be everywhere and nowhere, hidden
in
plain sight--just your friendly hometown superpower. The reasons
for
that may be less calculated than cultural. Sam Walton used the
language
of service and democracy-- customers, he said, "voted with their
feet"--to build a republic of fervent consumer advocates. Today
the
company still sees itself that way--and seems confounded when the
rest
of the world does not. For lest we forget, America's most admired
company has also been one of its most maligned, recently
attracting
headlines about class- action lawsuits alleging that associates
were
forced to work unpaid overtime. "In the past we were judged by our
aspirations," says Scott. "Now we're going to be judged by our
exceptions."
It's more than a little reminiscent of another fledgling republic
that
became a superpower and discovered to its shock that much of the
world
saw it as an imperial bully. Admired and resented, imitated and
vilifed,
envied and feared: One Nation, Under Wal- Mart.
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It employs the most
Wal-Mart is the largest employer in 21 states (in red).
It buys the most
COMPANY % OF ITS TOTAL SALES TO WAL-MART
Tandy Brands Accessories 39%
Clorox 23%
Revlon 20%
RJR Tobacco 20%
Procter & Gamble 17%
It sells the most
PRODUCT WAL-MART'S U.S. MARKET SHARE*
Dog food 36%
Disposable diapers 32%
Photographic film 30%
Toothpaste 26%
Pain remedies 21%
*Percent of all sales through food, drug, and
mass-merchandisers.
FORTUNE CHART /SOURCES: ECONOMY.COM, SEC FILINGS, A.C.
NIELSEN
The company of giants
Wal-Mart's share of the economy isn't the biggest ever, but it
will be in four years if its recent growth rate continues.
YEAR COMPANY % OF GNP
1917 US Steel 2.8%
1932 A&P 1.5%
1955 GM 3.0%
1983 Sears 1.0%
1990 IBM 1.2%
2002 Wal-Mart 2.3%*
*Estimate.
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