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The Greatest Retail Story Ever Told

Meet Sam. The year was 1940, and Sam was about to graduate from college.

Even then, Sam didn’t know what he wanted to do with his life. He always had a lot of energy, and took on a series of odd jobs. Sam had a hand in delivering newspapers, waiting on tables, and even had a stint as a lifeguard. Work was tiring, and retail was one of the last things on Sam’s mind.

But soon, Sam realized that he needed to earn more to continue his studies.

Odd jobs were just not going to cut it. He needed a real job. So, Sam went out got himself a job at JCPenney, a US retailer. His first salary was US$75 per month.

Sam didn’t know it back then, but this was moment was that started his a lifelong love for retail. As the story goes, Sam fell in love with retail from the get-go. He was always good at selling things. But his hard-writing was desperately poor. It got so bad that his boss felt that Sam wouldn’t amount to much in retail.

But Sam persisted. He was, indeed, a good salesman. So good, that his boss had to keep him around.  

But then 1942 came around, and World War II was on. Like any young fellow during that time, Sam felt an obligation to join the army. So, he quit his job, and spent the next two years on active duty.

In all, Sam had spent all of 18 months at JCPenney.  

Striking Out On His Own

As Sam was discharged from his army duties, he knew that he wanted to get back into retail. But this time, he wanted to be his own boss.

For a 27 year-old with 18 months of retail experience, Sam had a lot of confidence. Too much confidence, as we will soon learn. Sam hooked up with an old friend who introduced him to the Butler Brothers. The new acquaintance had a variety store (called a “five and dime store” in the old days) to offload.

So, Sam took the plunge. He and his wife put up $5,000, and borrowed another US$20,000 to close the deal. And just like that, Sam was in the retail business.

But it soon dawned on Sam that the store he bought was a real dog.

The store did US$72,000 in sales per year, and was paying too much for rent. His competitor, who was just across the street, had twice that amount of sales. Sam’s store was also a franchise, which restricted what he could sell, the price to sell, and who he could get his supply from.

For a town with a population of 7,000, Sam had his work cut out for him.        

At the start, Sam did everything by the book. He had no experience running a store, and the franchise had a system that he could follow. It served him well for a while, but Sam soon grew restless and started to experiment with different ideas, and approached offbeat suppliers to get his supplies.  

Sam was new, but he was unashamed to learn from anyone.

He was frequently at his competitor’s place, having his ear on the ground, checking out their prices, and looking at the way they displayed their items. Sam tried everything. He put a popcorn machine in front of his store to attract customers. He even borrowed money from the bank to buy an expensive ice cream machine.

Sam’s persistence paid off.

By the end of his first year, Sam’s little five and dime store made US$105,000 in sales. Then, it was US$140,000 the next year, and US$175,000 the year after that. Soon, Sam surpassed his competition across the street, and by the fifth year, his store drew in US$250,000 in sales per year.

Sam had hardly put a foot wrong as he drove sales to greater heights.

Times were good, but it was coming to an abrupt end as his early naivety caught up with him. Sam had made a glaring error in his lease contract that he signed at the start. His rousing success had caught his landlord’s eye, and the latter pulled a fast one on Sam — and outright refused to renew the store’s lease at any price.

Sam was furious, but it soon dawned on his that he had run out of options.

There was no other retail space that he could rent in the small town. Not only was he being kicked out of the store, he was being kicked out of the town.  

All his hard work over the past few years was going to disappear, just like that.

A New Lease of Life

Most people would have thrown in the towel in that situation.

But not our Sam. He didn’t dwell too much in disappointment. In fact, Sam saw it as a new lease of life. He could start anew, and unlike his first store, this time he knew what he wanted to do with his next store.

So, Sam fished around for a new store, and settled in at yet another small town in Arkansas. Again, the odds were stacked against him. The new town, Bentonville, had a population of 3,000 people, and the store he chose only drew in US$32,000 per year.

But Sam had plans for his new store.

His first store had cashiers, and clerks aisles scattered all over the shop floor. Clerks would wait on customers as they browsed through the store.

Sam decided that his new store was going to be different. He would still use the same franchise as before, but wanted adopted a new concept where there were only cashiers right up front at the store. In this new setup, customers would have to serve themselves, a foreign concept back in the day. It was so different that Sam’s store was just one of three stores within the franchise to use the new format.  

Sam left his family name on the store, and added a “Five and Dime” to the store’s name. Again, the sales at the store took off. Soon after, Sam’s new store was pulling in US$95,000 per year.

So, the year was 1952, and Sam was back in business. With more experience under his belt, Sam opened another store in Fayetteville and hired his first store manager.

Business was humming along. But soon, Sam saw the next wave of retail approaching.

The Rise of Mega Shopping Centres  

Sam always had his ear on the ground.

As Sam was shuttling back and forth between his two stores, he caught wind of a new concept developing in Ruskin Heights in Kansas City, Missouri. The vision was to develop a 100,000 square-foot shopping centre which would include multiple stores within it.

Sam saw it, and he wanted in.

His store was part of a larger franchise, but Sam knew that his parent franchise was small compared to other, larger variety store chains. With his mind set on a new direction, Sam borrowed money, and took the plunge to secure another franchise store within the massive shopping store concept.

All doubts on the new shopping centre soon disappeared after Sam opened his new store.

In the first year, Sam’s latest store drew in US$250,000, a figure which quickly rose to US$350,000 soon after. From there, Sam continued to open new stores, eventually owning 15 stores which did US$1.4 million in sales per year in 1960.

For Sam, business has never been better.

Just as things were moving along nicely, a new wave of retail was looming, and Sam had his eye on it again.

The Retail Whale Looms Large

Sam had learnt about the value of discounting his products in his first store.  

Sam found out that if he bought an item for US$0.80 cents, he could sell three times the amount if he priced it at US$1.00, instead of US$1.20. Unfortunately, he was also part of a franchise which dictated the price of his products. As such, Sam couldn’t use what he learnt back then. But he never forgot the lesson.

The emerging retail concept uses a large store format, and leans heavily on discounting.

Simply said, the new concept was going to blow everything else out of the water. One single store, called a family centre, was doing US$2 million per year, far exceeding the sales for all of Sam’s 15 stores combined.

So, Sam dug in and did his homework. It didn’t take long for him to realize that these mega-discounters were going to be the future. Armed with the knowledge, he marched back to the old Butler Brothers, and asked them to back him in this new venture. But they weren’t interested.

The rejection meant that Sam was stuck at a crossroads once again.

Should he keep his 15 variety stores, knowing full well that discounters would come around crush them in the future? Or should he open a family centre, and abandon the franchise system that has served him so well over the past 17 years?

By now, we have gotten to know Sam a little bit. I would venture to think that Sam’s next action would be obvious.

The Greatest Retailer of All Time

We have reached a juncture in the story where I am unable to continue without giving away the ending.

You see, Sam’s family name is Walton.  

The late Sam Walton would go on to establish the first ever WalMart in 1962 at the age of forty-four. Wal-Mart (NYSE: WMT), of course, is the world’s largest retailer today, generating an breathtaking US$505 billion (yes, that’s with a “b”) in sales per year. Few retailers, if any, comes close.  

The story above chronicled the early days of the late Sam Walton. We have so much to learn from his early exploits.

Lessons From The World’s Greatest Retailer

As we look at how the popularity of online retail today, there are key points lost in the conversation.

We have been fortunate to be able to observe the history of retail through the late Walton’s eyes. Throughout his life, we saw new retail concepts emerging one after another, and many times, these concepts broke away from the old way of doing things. If there is one lesson that we can take-away, it is that the way retail was done has always changed.

In this context, I see online shopping as simply the next iteration in retail.

So, my take is that online shopping will become more prominent – not less important – and evolve in the future. In fact, I would stick my head out, and say that the even Singapore’s latest GST tax enforcement will not slow down online shopping.

Hoping for a return to the good old days of retail would be, in my eyes, like hoping that we can put the toothpaste back inside the tube. It is unlikely to happen. Online shopping is here to stay.

The real question is: how will Singapore’s retailers adapt?

Skate To Where The Puck is Going, Not Where It Has Been

At the face of adversity, we are reminded that the late Walton was not afraid to abandon an old concept in favour of a better way to deliver value to his customers in the future. Simply said, it was not the changes in retail that is the most important, but rather, the late Walton’s ability to adapt to whatever changes that came his way.

So, if you are interested in retailers, look for management teams that acknowledge the threat of online shopping, and the ones which do not to sweep the problem under the carpet. Seek the managers who embrace the changes as a chance to be a better version of retail for the future.

These two traits are not guarantees of success, of course. But at the very least, we would know that your selected retailers are headed in the right direction.  

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chin Hui Leong does not own any of the shares mentioned.