I love how this book is called Made in America
and the Sony story is Made in Japan.
Like, I don't know who stole from who there
or if it was just the natural title they both chose
and didn't even consider it, but that's amazing.
Ah, so, so great.
Welcome to season 11, episode one,
the season premiere of Acquired.
It's a podcast about great technology companies
and the stories and playbooks behind them.
I'm Ben Gilbert and I am the co-founder
and managing director of Seattle-based Pioneer Square Labs
and our venture fund, PSL Ventures.
And I'm David Rosenthal
and I am an angel investor based in San Francisco.
And we are your hosts.
When we did our Sony episode,
we discovered that many Steve Jobs
as well as other Sony investors
really started as Accio Morita-isms.
And in all of the research for today's episode,
we learned that many of the mental models
and quotes ascribed to Jeff Bezos
were really the original thoughts of Sam Walton.
But of course, that is also not entirely true either
since Sam Walton's greatest gift
was the ability to digest, learn, adapt, test
and integrate new ideas from others.
Today, we explore Sam's creation,
which ushered in,
a new era of American retail
and now global retail
from the post-World War II period
all the way to today.
Some astonishing stats on the company.
It is the largest by revenue in the world,
doing nearly $600 billion a year in sales.
Although Amazon is close behind now.
It's true.
It is the world's largest employer,
other than public entities like governments
employing nearly 2.3 million people around the world.
It is still,
still controlled by the Walton family,
who owns just over 50% of the business
a full 60 years after it was founded.
Oh, we're going to get into how and why that is the case.
One other fun stat for you.
Today, 90% of America lives within 10 miles of a Walmart,
but there are three places where that is not true
and a fourth kind of where it's technically true,
but not in spirit.
Do you know what those places are?
No.
San Francisco, Seattle, no way, Boston,
and the fourth place is Manhattan in New York City.
It is not technically true because there is a Walmart
across the river in New Jersey that is less than 10 miles away,
but in spirit, that is true.
What, two and a half hours to get there or something?
Yes.
Wow.
So you're saying it's not a company that is built on the urban core.
Is that where you're going, David?
It's the biggest company in the world.
It services all of America, except where we live.
Yeah, it's fascinating.
This really is one of the most classic business stories in America
or in the world, period,
and I kind of can't believe that we're not covering it until now.
So let's start season 11 with the bang.
There are so many lessons that are totally applicable today
and every entrepreneur can learn from Sam Walton.
All right, listeners,
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So you can get $1,000 off Vanta at vanta.com slash acquired.
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And just tell them that Ben and David sent you.
Well, after you finish this episode,
you should come discuss it with the 12,000 other smart,
curious members of the Acquired community
at acquired.fm slash slack.
And if you are dying for more Acquired,
go check out the Acquired LP show.
You can search for that in any podcast player.
The next episode will be an interview with Patrick Campbell
on all the juicy details of how his $200 million
acquisition of ProfitWell went down step by step,
deal point by deal point.
And if you want that early,
it is already live for paid Acquired LPs
at acquired.fm slash LP
or by clicking the link in the show notes.
So cool.
Patrick totally bootstrapped ProfitWell.
Almost like Sam Walton,
totally bootstrapped Walmart.
Yes.
Well, without further ado, David,
take us in and listeners,
as always, the show is not investment advice.
David and I may have investment advice,
but we are not investments in the companies we discuss.
And this show is for informational
and entertainment purposes only.
Indeed.
Well, we do have to thank the man,
Sam Walton himself and his co-author,
John Huey for his autobiography,
Made in America,
which is just amazing.
It's the backbone of the history we're going to tell here.
We first got turned on to it,
going back and rereading the Everything Store
and finding out that it was one of Bezos' favorite books
and, you know, formed the blueprint of
how he thought about it.
About Amazon in the early days.
And I think what's cool reading it is
it just struck me that Sam and the Walmart story
is like the bridge between the business America
that was John Rockefeller and Standard Oil
and Amazon and Jeff Bezos.
Like this is the connective bridge
between those two realities.
In many ways, he was the last of the Rockefeller type tycoons,
but the first of the sort of modern megacorp,
not tech business, but almost tech business era
founders.
Oh, very much tech business.
This is what shocked me reading the story
is how much Walmart embraced technology
and Sam embraced technology.
And I think they were arguably the first corporation
in America to embrace computing as a business paradigm.
Certainly to embrace their own private satellite network.
But yes, I'll save the spoilers.
Okay, we start back in March 1918
in Kingfisher, Oklahoma,
which is right in the middle of Oklahoma.
Not too far from Oklahoma City.
At the time in 1918,
the population of Kingfisher was 2,500 people.
Today, it is much larger,
bustling metropolis of 5,000 people.
But of course, those 5,000 people
have just about every retail need of theirs
serviced in a first class way
by the local Walmart super center
that is located just south of town.
Walmart grew at a much faster rate
than the 2X that Kingfisher grew in a century.
This is crazy.
Kingfisher, 2,500 person Kingfisher around this time,
is also the birthplace of the Coleman company.
You know, like the outdoor, like camping gear?
Oh, no way.
Yeah, started in Kingfisher, Oklahoma.
Didn't Jim Weber from our Brooks episodes
start his career at Coleman?
Oh, I think that might be right.
Oh, yeah.
We're on like an accidental CPG retailing kick here.
I know, so great.
Well, anyway,
back in March of 1918 in Kingfisher,
when Samuel Moore Walton
was born to Thomas Gibson Walton and Nancy Lee,
their first oldest child.
And at the time of his birth,
Tom and Nancy were farmers.
But it was 1918.
This was right at the end of World War I.
We're heading into the roaring 20s in America.
People are raising their standards of living.
The country's modernizing.
They wanted to move up in the world,
and so his dad goes from working on the farm himself
to getting into farm financing.
He becomes a mortgage broker for farms,
working with his brother in the business.
This is a theme that's going to recur in the Walton family.
And speaking of brothers,
in December 1921,
Sam gets one for himself,
one James Lawrence Walton,
Bud, better known as Bud.
Shortly after Bud is born,
the family moves from Oklahoma to Missouri,
where they move around a bunch
before ultimately settling down in the lovely,
we can personally say,
truly genuinely lovely town of Columbia, Missouri.
Home of Capital Camp.
Yes.
Home of the University of Missouri Capital Camp
and Permanent Equity and our friend Brent Bishore there.
Yep.
So the 20s were good times for the Walton family.
Unfortunately, though, for Sam and Bud,
maybe fortunately for Walmart,
right?
really get shaped by the 20s you know they're still like little kids growing up in the 20s
what really shapes them is the 30s and the 30s were very very different for the middle of america
all of america but the hardest hit part of the country during the depression was the midwest
farming community because of the dust bowl so if you've ever read the grapes of wrath or any
of the great novels steinbeck or otherwise from that period it was terrible people lost
everything crops failed and what was the walton family doing at this time they were
like doubly leveraged it wasn't just that they were farmers they were financers of farmers
so they're living in this nice town of columbia at this point tom has to go travel around to
all these farms that he'd financed and foreclose on them literally kick people out of their
farms out of their homes and he would bring sam and bud along with him for this i remember reading
in made in america i sort of thought that what sam was going to say is that his father worked
with these farmers the best he could to help them save the business where they could or cut a deal
but no what he actually just said was and he just did it in the most humane and decent way possible
and you're like whoa there were not deals or negotiations to be struck it is we are foreclosing
and we just have to be a good human to you well this is definitely happening i mean that's probably
why he brought the kids along right probably hard for somebody to uh attack him or get too
mad if he had his two little kids there with him i wonder yeah crazy times but yeah so all of this
makes an impression on sam and sam says in the book in his very sam way
quote all of this must have made an impression on me as a kid
although i don't ever remember saying anything to myself like i'll never be poor but he says one
thing my mom and dad shared completely was their approach to money after all this quote they just
didn't spend it i think we've already kind of made the point but the walton family goes on to be the
wealthiest family in the world still all of sam's future generations are worth a few hundred billion
dollars depending on the day that you look at walmart's market cap since it's nearly all
invested in walmart but it's a multi-hundred billion dollar family yeah incredible to go from
that to this in two generations so like many kids during the depression sam and bud as they're
growing up they do all sorts of odd jobs around the house to help out the family their mom goes
in colombia and gets some cows and sort of restarts part of the farming business she
starts a milk business that they help out you know milking the cows delivering to
neighbors in colombia sam starts selling magazine subscriptions he also starts selling
selling rabbits and pigeons that he raises in the backyard i don't know who was buying the
rabbits and pigeons but that's what he does he learns retailing at a young age though indeed
and then of course like every good acquired protagonist he gets a newspaper route for
the columbia missourian just like warren buffett that's right that was on berkshire part one that
episode we did yeah i think that was part one yep oh that's right because he delivered the washington
post before later going on to become a major shareholder so besides all of these sort of
proto-entrepreneurial ventures that sam is undertaking as a teenager he also becomes at
age 13 the youngest eagle scout ever certified in missouri history ben you were an eagle scout how
old i am when you became a i got one just in the nick of time when i was 17 and a half you must get
one before you turn 18. that is the last day that you can get one you cannot become a boy scout and
this is the rules now i don't know if it's the rules then but until you're like 12 or 11 and a
half or something like that is when you sort of graduate cub scouts so sam got his eagle at age 13.
so it must have been the only thing he did for that year and a half or whatever like that's the
fastest advancement to go through whatever five or six ranks and then you're like you're not going to
go through six ranks in that short a period of time maybe he counted uh raising the rabbits and
pigeons yeah that's right maybe some merit badges in there so the other thing this is pretty crazy
that young sam as a teenager exhibits he becomes the quarterback of the football team
in his high school sam if you've ever seen any photos or video he's such an incredible
folksy dude listening to his talks is just amazing he's five foot nine and very slight
so you wouldn't think that he's going to be a great football athlete of course we're talking
about american football here this is incredible though i think they win the state championship
every year because he never loses a game this is crazy he writes about this in the book he says
i think that record had an important effect on me it taught me to expect to win to go into
tough challenges always planning to come out victorious later on in life i think kmart or
whatever competition we were facing just became jeff city high school the team we played for the
state championship in 1935 it never occurred to me that i might lose to me it was almost as if
i had a right to win thinking like that often seems to turn into sort of a self-fulfilling
prophecy and man was that sam walton there's like two sort of contrasting ideas that i've heard
different vcs and different founders espouse on both sides one is you know you learn from your
mistakes and you learn from failure the other is if all you've ever done in your entire career
is be in really high performing very successful environments then that is kind of all you know
how to do and that's the bar that you hold yourself to and i think there's totally merit to
both i think both of these forces shape sam right like the depression the dust bowl foreclosing on
farms you know his dad struggles and he never loses a game all of that goes right into walmart
so much of walmart is trying something doing an experiment watching it fail on some small scale
choosing not to roll it out or watching it succeed and then choosing to rapidly roll it
out across as many stores as possible we'll get into this but the very first store opening they
put a whole bunch of watermelons outside it was swelteringly hot and they started exploding in
the parking lot and getting watermelon juice all over all the customers in their cars that
was actually walmart number two oh sorry that was in harrison we'll get there but yes legendary story
so after high school he goes on to college locally at the university of missouri the only way he can
go because his family has no money it's the depression is he attends on a rotc scholarship
so he still has to like pay his living expenses and mom and dad and the family aren't gonna help
out you know there's no money in the family so he keeps his newspaper around but like he's busy
you know and he actually he has like political aspirations on campus he becomes the president of
the class you know he's greeting everybody he's in rotc he's busy so he hires a few people under him
to actually like do the delivery of the newspapers and help kind of scale the business by the end of
college he's making four to five thousand dollars a year from his newspaper activities which that's
like huge we're gonna get into what his first job pays him in a minute but four to five thousand
dollars a year in the 30s during the depression that's a lot of money yeah it's crazy and there's
a great quote in the book from the circulation manager of the missourian says we hired sam
to deliver newspapers and he really became our chief salesman when school started we had a drive
to get the kids in the fraternities and sororities to subscribe and sam was the boy we had do that
because he could sell more than anybody else he was good he was really good it's so interesting
that this story parallels warren buffett's story in so many ways but the reasons that they're
successful are different warren's is about understanding the value of compounding and it's
not that sam didn't but it's that sam was a salesman he's a merchant he's a retailer like he
understands how to learn what people want and then go procure the thing in the way that they want it
and deliver that to them there are different superpowers that manifested both in building
early successful periodical distribution
sub companies warren basically stayed an entrepreneur sam is clearly this natural
entrepreneur when it comes time for graduation though he decides you know what
i think i'm just gonna go get a regular job even though he's making so much money
from his newspaper businesses so he interviews with two companies who come recruit on campus
jc pennies and sears and he goes with the offer from jc penny which is interesting because sears
was the dominant retailer everyone bought everything for their homes including some homes
from sears yes i think the first house we lived in in seattle was a sears catalog home wow yeah so
like this is what's funny and you know and sam is like he really keeps it real in the book you know
you could tell this like backward-looking narrative of he connected all the dots he
wanted to go learn retail learn the craft from the best in which case he would have gone to work for
sears but no he writes i had big plans for after graduation i figured i would get my degree and go
on to the wharton school of finance in pennsylvania buffett just like warren but as college wound down
i realized that even if i kept up the same kind of work routine i'd had all through college
i still wouldn't have the money to go to wharton because he would have had to pay
tuition so i decided to cash in what chips i already had i visited with the two company real
recruiters who came to campus. Now I realize the simple truth. I got into retailing because I was
tired and I wanted a real job. Wow. It would not bring him any rest though. No, no, no, no. Maybe
this first job at Penny's or as he calls it, Penny. I don't think he colloquializes the way
that people did in our era. Like I always called JC Penny, Penny's. Right. Well, he ultimately ends
up getting to meet James Cash Penny himself. Wait, the guy's name is James Cash Penny. I know.
Isn't that awesome? James Cash Penny. That's almost as amazing as Price Club being founded
by a guy named Saul Price. Oh, we are going to talk a lot about Saul Price. Yes. So he's tired.
He just wants a regular job, but he's this natural born salesman. So he goes to work
in the Des Moines, Iowa store of JC Penny as like a floor salesman. And he does great. I mean,
literally.
James Cash Penny comes and meets with him himself. And the story that Sam tells is JC shows him how
to tie, you know, packages, merchandise that is sold with the least amount of twine and paper
possible, but still make it look nice to save money. But of course, pretty quickly, this only
lasts 18 months because in December 1941, Pearl Harbor happens and the U.S. of course enters World
War II. And Sam had been in ROTC. He's commissioned. He's going to join the army. He was looking
forward to this.
So Bud, his brother, joins the Navy, becomes a decorated bomber pilot in the Pacific. You know,
Sam thinks he's going to go probably off to Europe, but he fails the physical exam for combat duty.
It turns out he had a heart irregularity. And so he's kind of depressed. He's unhappy about this.
Bud's going off to join the Navy and Sam is going to stay home in America at a desk job.
So before he gets his commission, he leaves Des Moines and he goes back to Oklahoma.
I'm not exactly sure why he just sort of traveled back to Oklahoma. He says in the book that he was
sort of depressed at the time. And he ends up in Claremore, Oklahoma, which is a small town
outside of Tulsa. Which it's interesting to point out, we've mentioned six, seven towns so far,
and I don't think most people would have heard of a single one of them. There's a parallel here
between Walmart's success and the fact that most people haven't heard of most of any reference that
we've made so far. And there one night,
at a bowling alley in Claremore, he meets and falls in love with a girl named Helen Robson.
And Helen was from Claremore, but her father, L.S. Robson, was, unlike Sam's family,
a very wealthy and successful businessman, financier, trader in the broader Tulsa area.
And he ends up taking a big shine to Sam and would become very successful.
Hugely influential, along with Helen, because he marries Helen, of course. And Sam would say
the Robsons were very smart about the way they handled their finances. Helen's father organized
his ranch and family businesses as a partnership. And Helen and her brothers were all partners.
Helen has a college degree in finance, which back then was really unusual for a woman.
And Mr. Robson advised us to do the same thing with our family, which we did way back in 1953.
And that partnership that Helen and Sam set up is today Walton Enterprises, which owns 36% of Walmart.
And then individual family members and trusts, I think mostly Bud's family, own the other 11, 12%.
Yeah, this is the interesting seed plant of Walmart being a family business from the very get-go.
They organized it interestingly. Each store was actually its own company so that different people could sort of
hold shares in each store. The management, different people who, you know, wanted to invest in the store,
that sort of thing. But at a really high level, Walmart always was a family partnership. It was
always something where the economic and spiritual ownership and decision-making always was the
Walton family. And of course, Sam's the guy, but there was a lot of family meetings to make
decisions for the business. And this is why, because the family were all partners.
In Walton Enterprises, they couldn't just sell their stock. The partnership, the family as a whole
had to decide to sell, and that allowed them to keep majority control of Walmart all through the
history. Sam talks about this. He says, he thinks it's the big reason why corporate raiders or
larger companies like Kmart never came and acquired them because the stock was never splintered. It
was all within the partnership. And he actually writes, one of the real reasons I'm writing this book
is so my grandchildren and great-grandchildren will read it years from now and know this.
If you start any of that foolishness, like changing the structure, selling off stock,
you know, going off and doing, you know, fancy things.
Buying NBA and NFL teams.
Buying NBA and NFL teams, which they do now. I will come back and haunt you.
So don't even think about it.
I love that warning.
So Sam and Helen get married and Sam gets posted in a bunch of places all around the country doing
kind of internal.
Intelligence work for the army. He goes to Utah, plenty of other places. And he decides that when
the war ends and he gets out of the army, he's going to go back into retailing. But now he has
the support of Helen and her family and her father LS and their financers. So he knows I now have
access to some amount of capital. Like I can be an entrepreneur. I don't necessarily have to work
for somebody. So when the war ends, LS,
initially wants them to move back to Claremore. But Helen and Sam kind of decide together. They're
like, well, we want your support, but we don't want to be totally under your wing and in your
shadow. So Sam, he's got big ambitions. He and a buddy decide that they want to buy a federated
store department store franchise in St. Louis. They're going to be big. You know, he come from
JCPenney in Des Moines. He wants to be a big,
city department store owner, magnet entrepreneur. Helen vetoes this outright. We would not be
talking about Walmart if Sam had moved the family to St. Louis. So Helen says, look, one,
I don't want you doing any partnerships with non family members. Sam says her family had
seen some partnerships go sour and she was dead set on the notion that the only way to go was to
work for yourself and for your family. And two, she says, I don't want to live in a big city. I want
to go live in a small town like where I grew up in, just like Claremore. I don't want to live in
Claremore itself, but we are not allowed to move to any town that has a population of more than
10,000 people. I mean, her whole thing was, I want to raise my kids the way that I was raised.
And she looked at Sam and said, you were raised the same way, small town. And like,
that's what we're going to do. And so whatever business he did had to be,
family owned and controlled and have a small town based strategy. And so like,
what seems so intentional and so genius actually stems from the fact that
she just vetoed his original idea. Totally. I mean, it's crazy. She had a
undergraduate degree in finance for a woman at that time. I mean, she was very involved,
obviously, in the strategy of the business. In the 30s and 40s, the number of women with
undergrad finance degrees in the US was probably tens of thousands. It could not have been a large
number.
Yeah.
And also like, kudos to the family and LS and his wife for encouraging her to say she had
brothers. Like, it would have been easy for him to say like, oh, okay, the boys are all going to
take over the business.
Right. Which is like what we saw in the New York Times family or, yeah.
Or the Rockefellers too. So Sam, you know, he doesn't stay down for long. I think he was a
little disappointed that his wife had overruled him, but you know, he finds a way. So he goes
back to the company that owned. Federated, which is a company called Butler Brothers. They were franchisors of Federated.
They were based in Chicago. And he asks, well, do you have any department store locations that
might be available in a small town of say 10,000 people or less? And the Butler Brothers guys are
like, um, we don't really do department stores in, uh, in towns like that, but we do have another,
you know, sort of spinoff operation that we run, which is our variety.
Variety store franchising business.
Like there literally wasn't enough people they believe to support a department store.
Variety stores are, they're like glorified general stores. I mean, when, if you think
about a town that's like two, three, 4,000 people, it really is like if you visited an
old West town and looked at a, a general store, it's like that on steroids, you know, it's like
that, but a few decades later.
You know, variety store businesses. Yeah, that's exactly it. After the depression and after World
War II, people were like, Oh yeah, we're going to open a new store. We're going to open a new store.
This particular one was Ben Franklin was the brand name, like Benjamin Franklin general store type
place. And when you say franchise operation, it's because it's way too much of a burden to like
source your own inventory, carry your own inventory, maintain all those different vendor
relationships. If you're in one of those towns, you're serving 2000 people. You're kind of the
one store there. What you really want is to sign a contract and just get the shipment of the stuff
that goes into the Ben Franklin stores in all the small towns. Yeah. And just be literally the
merchant serving your customers. That mindset dominated. It's worth a pause here to talk.
about what these stores were, because it's a very foreign concept to anything we're familiar with
today. These variety stores, they were also called five and dimes. If you've ever heard
that term, like a five cent, 10 cent store. And the reason for that is that most of them,
every item in the store was either priced at five cents or 10 cents. That was the level of
sophistication here. The other big, big difference between how these stores operated and modern
retail today, which Sam really invented, was they weren't self-service. Oh, he didn't invent that.
He stole that. We're going to get to it. Okay. So you would walk into
these stores and there'd just be a counter area up front that had clerks and you would tell the
clerk what you wanted. And then the clerk would go back into the store, pick out what you wanted,
bring it up to the front and check you out. Because there wasn't really choice. You're like,
I need a hose.
And they would go get the hose. It's not like, well, let me see all the different brands and
sizes and colors. It was like, I know you have hoses here. Can you get me one?
The merchants weren't making the decisions on the inventory. It was all just being handed down
on high from Butler Brothers back in Chicago.
Yeah. I did not understand when reading this book, when he kept referencing stores,
that they were not stores where you walked around and got your own stuff off the shelf,
that that is a modern concept. That is crazy.
I don't know exactly how the department store model worked like, you know, JC Penney's or Sears
where Sam had worked, but I think it was also not really what we're familiar with. I think when Sam
was working as a salesman in Des Moines at Penny's, you know, it was sort of like an even higher touch
version of this. I believe where like a customer would come into the store, the salesperson would
greet them and then sort of like escort them around and curate their shopping trip. Very,
very different experience.
Yeah.
So Butler Brothers, Sam's having this conversation with him and they're like, well,
probably you want a Ben Franklin franchise. And it just so happens we've got the perfect
store for you in the little town of Newport, Arkansas. The current owner of the Ben Franklin
franchise there wants to sell in Newport. It's a little town. It's about 7,000 people.
It's in Eastern Arkansas. Now, if you know where Bentonville, Arkansas and Walmart is today,
it's not in Eastern Arkansas. And Sam's like, great, I'll take it. Sight unseen.
Now, you have to ask yourself, it is 1945 in America. The war has just ended. And unlike
1945 in Japan, like we talked about with the Sony story, retail in the U.S. is booming.
Everyone's coming home. There was the GI Bill. Everyone's got new homes. Everyone's
starting families.
Like, there's a lot of stuff to buy.
There's a lot of stuff to buy. It doesn't matter if you're a department store in a big city or a
variety store in a 7,000 person town. Like, everybody in retail should be making money
hand over fist right now. So the question that Sam didn't ask himself and should have
was why does this guy want to sell? And he says in the book, a guy from St. Louis owned it and
things weren't working out at all for him. He was losing money and he wanted to sell it.
He wanted to unload the store as fast as he could. I realize now that I was the sucker
Butler brothers sent to save him. I was 27 years old and full of confidence, but I didn't know the
first thing about how to evaluate a proposition like this. So I just jumped in with both feet.
My negativity about contracts and such would later come back to haunt me in a big way.
Wow. So he and Helen buy this store.
This distressed asset.
At not a distressed price.
Yes. They buy it for $25,000, $5,000 of their own savings and a $20,000 loan from LS, from
Helen's father. And Sam, you know, he says, this isn't what I dreamt, but, you know,
I'm still going to set big goals. He decides that he's going to set a goal that this store
is going to become the most profitable variety store in Arkansas within five years.
Quite the turnaround. And is also the first indication of Sam setting these big,
hairy, audacious goals. He has this subsequent obsession with set a goal, hit it, set a goal,
hit it. And that really does drive all of his need for experimentation because he finds himself in
these situations where he has a goal set and he must invent some way to hit it.
Well, it also sets the stage for what was to come. He sets this goal and then he gets there.
This is not a realistic goal. He says,
only after we closed the deal, of course, did I learn that the store was a real dog.
It had sales of about $72,000 a year, but its rent was 5% of sales, which I thought sounded
fine at the time, but which it turned out was the highest rent anybody had ever heard of in
the variety store business. No one paid 5% of sales for rent. And it had a strong competitor,
a Sterling store, which was another franchise across the street. Who's excellent manager,
John Dunham was doing more than $150,000 a year in sales, double mine.
Yikes. So not only is it unlikely that he's going to be the most profitable store in Arkansas,
it's unlikely he's going to be the most profitable store in Newport.
Yeah. So what does Sam do? He goes right across the street into Dunham store and he starts trying
to figure out why Dunham is twice as successful as he is. Yeah. And this,
this is a thing that speaking of the first time Sam does something that he then does forever,
he becomes notorious for going into competitor stores, bringing in a little notebook, later
bringing in a little tape recorder and just seeing what he can get away with interviewing clerks,
interviewing associates at these stores. Anytime he's traveling with the family on vacation or
anything, he's just going into all these other stores and observing and taking notes and figuring
out what their systems are, what's working, what's not working. So here he learns that valuable lesson
time. So great. I was going to bring this up later, but I think he says in the book that he believes
he has spent more time in Kmart than any non like individual store employee of Kmart,
including Kmart senior management. Yeah. And also we keep referencing Kmart. When I was growing up,
I was like Walmart, Kmart. I think Kmart's kind of like Walmart about the same scale, same size,
kind of a little lower end. Like that was my perception as a kid of Kmart. I didn't realize
that Kmart for a
very long time was much, much larger than Walmart. They were kind of Walmart's big brother
incumbent. Oh, they were the gorilla. I don't remember what year this was, but I remember some
quote from Walton where he's talking about when we reached 5% the scale of Kmart. And it's like,
whoa, that really puts it into perspective how big a lead they had. So you mentioned notepad. It's
actually a yellow legal pad that Sam uses. Sorry. Sorry, David. Famously, he has his yellow legal
pad in his editor stores. He starts like diving in dumpsters, trying to get sales receipts and
like inventory orders and stuff, figure out how these stores are operating. And he quickly realizes
from both Dunham across the street. And also he's doing this all over the countryside, going into,
you know, small variety stores all over Arkansas, just trying to learn. He realizes that price and
running promotions, cutting prices on big marquee kind of attractive items like health and beauty
aids, toothpaste, mouthwash, makeup, that kind of stuff. Like that really drives customers in.
So he's like, okay, you know, he starts doing that. He has some success,
but there's a problem, right? Like we talked about Butler brothers is the franchise or
they're controlling all the inventory. You know, Sam is the merchant is just getting whatever they
send to him at whatever cost they prescribe. And Butler brothers, they're doing great. They get
about a 25%.
Markup on all the inventory and they don't even do anything. It's almost like they set up the
whole system just to keep these prices high out in the countryside. And they just get a, you know,
25% skim off the top. Yep. So what does Sam do? He starts figuring out who the manufacturers are
of some of these goods and for manufacturers that are also located there kind of in the South and
the Midwest, he starts driving around and knocking on their doors and asking if they'll do side
deals with him and just like sort of, you know, clandestinely sell him some of the merchandise that
he otherwise would be ordering from Butler brothers and that they would be selling to
Butler brothers. They just give, you know, him a deal directly on that.
And you know what? Like he's operating a small enough scale that Butler brothers doesn't really
notice. And to be frank, like there wasn't good tracking or accountability at this point. I mean,
there wasn't computers yet. So there's no computerized inventory here. You'd have to
really be paying attention to figure out, Oh, maybe Sam's not ordering quite as much of this
stuff from us as he should be. He's driving around himself. There's no management. He has
some clerks working in the store, but it's just Sam and you know, Helen running the place. So he's
out, he drives to visit them. He's got to get a deal done on the spot. So he goes, he knocks on
the door, meets these people and is like, I want to buy right now. I've got a trailer hooked up to
my pickup truck outside. Can you just load the inventory right into the back and I'll drive it
back to Newport.
So he says, "I bring them the inventory, I bring it back,
jack price it low and just blow that stuff out of the store which this is an invention like this is
a brand new concept that we kind of take for granted now but is totally a sam walton invention
to meet his own needs which is create something that is astonishingly low price to get people in
the store take no margin on it make it a loss leader who cares but get people in the door
spending time in your store and they look at other stuff and this would become a cornerstone
of walmart forever after this and for every other retailer even a pricing of sass products now where
you look at it and it's like oh i'm on the free plan right it's not that he invented lost leadership
as a category but he figured out how to make it work in the retail model yes he figured out how
to really merchandise operationalize you know dunham's across
the board but he figured out how to make it work in the retail model yes he figured out how to
the street was running promotions right but dunham wasn't thinking about oh well maybe i could sell
even lower if i go haul my pickup truck out to these manufacturers and get goods at a lower price
right and of course once you're hauling your pickup truck to go meet the vendors directly
it's not that far of a cry to say well what don't i have in the store that i'm getting from butler
brothers like what could be interesting you start getting good at doing these direct deals
and sourcing your own inventory and figuring out how to merchandise
products that you personally believe will sell and this is really where he started to hone that
skill craft and sixth sense for deeply knowing the american consumer or let's say consumers in this
area in his communities and having a real spidey sense of what would make them go crazy and have
really product market fit in people's homes price selection convenience right that's the
holy trinity of of retail but nobody really knew this yet and frankly all of this is
one of those things are important but for the majority of people out there in the world and in
america at the time and certainly the vast majority of people in these small towns
yeah like selection and convenience life was inconvenient period so like you were gonna go
through some inconvenience to get things selection there wasn't much of no matter what
and we just came out of the great depression price is very important customers will go to great
lengths to get lower prices people would make day trips people would drive five hours to other cities
to get a deal on goods it's crazy he says here's the simple lesson we learned which others were
learning at the same time and which eventually would change the way retailers sell and customers
buy all across america say i bought an item for 80 cents i found that by pricing it at one dollar
i could sell three times more of it than by pricing it at one
dollar i could sell three times more of it than by pricing it at one dollar
20 i might make only half the profit per item but because i was selling three times as many
the overall profit was much greater simple enough but this is really the essence of discounting by
cutting your price you can boost your sales to a point where you can earn far more at the cheaper
retail price than you would have by selling the item at a higher price and always low prices
always walmart there it is so we're not quite at walmart yet though did you know there are
a lot of companies out there that don't have the lowest price but they're going to have the lowest
price always but then there was like a ftc lawsuit against them where they changed to always low
prices because it was like false advertising yes they didn't always have the lowest price
once they got to a certain scale at walmart it was bigger i think the original company-wide
slogan was always low prices always and then at some point they changed it i think in the 70s to
always the lowest price like we're gonna push it even farther and they got away with it for like 5
or 6 years and uh the government had a little something to say about that yeah so all this
sounds like sam says there it sounds simple right but like people didn't know this stuff yet like
retailing had not professionalized we're not that far removed from rockefeller like the general
store like post world war ii this is all new so this is incredible he actually hits his goal so
by year five of the newport store he's doing a quarter million dollars two hundred fifty
thousand in sales at a thirty to forty thousand dollar annual profit remember he bought the thing
for twenty five thousand dollars and that's including the crazy five percent rent charge
in his expenses so his operating margin on this is twenty four percent he's making very very real
profits on this little store that he's got if he had a better rent deal it could be like twenty
eight percent but at those numbers it is the most profitable store in arkansas
and the biggest store by sales not just in arkansas but like the whole midwest and south
region so like he has found a winning formula here which is interesting because i'm pretty
sure at this point he's got a bunch of direct deals cut with the suppliers and he's added a
bunch of products of his own he's really merchandising so he's really showing up on
ben franklin's radar on the butler brothers corporation's radar and they kind of know what
he's doing at this point
but it's good for them even though it's good for sam it's also good for them because
volume and customers right he's by far the best performing ben franklin store
in the country at this point unfortunately though like i said there's a reason that
walmart is not headquartered in newport arkansas butler brothers wasn't the only
related party to sam who figured out what was going on here his landlord that had pulled one
over on the previous owner and had the super onerous rent terms
butler brothers wasn't the only related party to sam who figured out what was going on here
also figures out of course how great sam is doing despite having the decks decked against him
and he decides he wants to take over the store so he goes to sam and year five is when the lease
expired and there wasn't an option in the contract to renew the lease so the landlord goes to sam
and is like you know what son you've done a great job i thank you for turning this property of mine
around i'm going to take it from here and like just to contextualize this it's a seven thousand
person property and it's a seven thousand person property and it's a seven thousand person property
in town there's not really many other available storefronts he's got tons of shelves in there with
tons of goods like a meaningful amount of inventory that's being carried on the business
it's not like you can be like oh cool i'll move next door that option does not exist
so his landlord comes to him and says this and he's like wait uh oh my god oh my god i have no
other options he says it was the low point of my business life i felt sick to my stomach i couldn't
believe it was happening to me it really was like a nightmare i say this because it's a really good
this is a saving grace although the reality is helen's father would have financed sam's next
venture no matter what but sort of the saving grace for sam's pride at least was that the
landlord did buy out the value of the ben franklin franchise license and the hard assets the
inventory the fixtures etc in the store so he pays sam and helen fifty thousand dollars to take over
the store i mean i guess that's sort of a what 2x return and what was
what was the operating income from the previous year thirty to forty thousand dollars yeah wow
brutal but at least they get the fifty thousand dollars out so this is now 1950
and sam and helen hit the road again looking for a new town to bring their uh traveling circus to
and have a little bit more knowledge on lease negotiation yes so they go up to the other
corner of the state in northwest arkansas that's where they start looking around for the next place
setup shop for two reasons one closer to helen's family in oklahoma and claremore and two like i
said sam keeps it real he was like you know there's some really good quail hunting up there
and i really wanted to be closer so i could drive my bird dogs out and go hunting yes and more
specifically it's not just that there's good quail hunting it is that he will be very close
to four states which each have their own quail hunting season
so that he can get the maximum amount of quail hunting in with an easy drive from his house yes
so great lots of business decisions being made here on family we need to be in a small town we
need to only work with family sam i need to be able to hunt quail in the maximum amount of time
that i possibly can so the opportunity that they find and settle on is in a little town of 3 000
so less than half the size of newport that already in this town of 3 000 people had three variety stores operating newport had two for 7 000 people this town has three for 3 000 people as sam says he loves competition and that town is bentonville arkansas yes sam probably almost assuredly is rolling over in his grave right now the new walmart campus the new walmart campus that
they're building it looks absolutely gorgeous which i'm sure he would be furious about yes if you thought
warren was you know a penny pinching very plain no frills no fancy things entrepreneur sam walton
hard to argue who's sort of more frugal and less showy i mean sam eventually got into airplanes
for very you know practical use but sam is not a showy guy actually the anecdote that he and john
made in america with is i think it's 1985 when forbes ranked him the richest
man in America. And all these reporters, you know, start descending on Bentonville.
They want to go interview the richest man in America. And, uh, he still drives an old pickup
truck that has cages in the back for his bird dogs. Cause he goes, you know, hunting in the
four States nearby. And, uh, it's this big sensation that the richest man in America
drives a beat up old pickup truck with cages in the back. And he's like, well, what am I going
to drive my, uh, my dogs around in a Rolls Royce? All right. So they arrive in Bentonville,
Bentonville in the world or forever changed, but it doesn't happen all at once. No. So the store
that they buy is another Ben Franklin franchise that had done $32,000 in revenue the year before
quite a distance from the 250,000 that they left Newport with. And, uh, Sam decides he's like,
all right, well, this is a small market. This is a small store. There's a lot of competition,
but I have big ambitions. He's got his ear to the ground in retail and particularly in the
Ben Franklin franchisee, you know, sort of network. He hears through the grapevine that
there are two Ben Franklin stores up in Minnesota that we're trying a radical new concept. They were
redoing the whole way. The store was laid out the way it worked. They were removing the upfront
counters or turning them into checkout counters and letting customers go into the store,
browse the merchandise, pick it up themselves, select it themselves.
And then check out. So he's like, I gotta go. I gotta go see this. He takes the overnight bus
up from Arkansas up to Minnesota and, uh, checks them out. He's taking notes the whole time on his,
you know, yellow legal pad. And, uh, he says about that trip, I liked it. So I did it too.
I love how he's so obsessed with firsthand experience. He couldn't just hear about this
and then implement it. He's like, I must see it for myself. Cause he so fervently believes that
he picks up the phone and he's like, I'm going to go see this. I'm going to go see this. He picks up insights from like actually spending time in stores and actually talking to customers.
It seems like he does that sort of more than any other entrepreneur we've ever talked about on this
show, this obsession with firsthand experience. I think everybody can apply this to their business.
I was thinking about it, reading the book, you know, I starred so many passages like this. I'm
like, I already listened to lots of other podcasts. Unlike when we started acquired and I didn't
listen to any other podcasts. We should find the best ideas and incorporate them. Yeah. There's a
great quote about this when Walmart actually gets started later that I'm going to tease it for now.
So on July 29th, 1950, just about, what is that? 72 years ago, they reopen the Ben Franklin store
that they bought. Still a franchise, still a franchise, still a Ben Franklin franchise,
still working with Butler brothers for most of the inventory, quote unquote,
but they want to send a message that this is a new era. They're doing the self-service.
New store in Bentonville. So they rename it Walton's five and dime, and it becomes the third
self-service variety store in the entire country. And it's fascinating that they picked this name
because part of the reason why you do a franchise is the brand. Sure. It's nice to get the inventory
and the negotiated relationships and prices and all this stuff. But really what you're buying is
people know what a Ben Franklin is. And so they would come to the store. And what Sam is saying is,
eh, I feel pretty good about building my own brand. I know I'm in one way or another paying
to use the Ben Franklin brand, but we're not going to use it.
It really was rational because even though Sam on the margins is doing his own direct deals with
manufacturers at this point, it's a ludicrous concept that somebody in a little store in
Arkansas could source all of their inventory and do all of their logistics by themselves. Like,
yes, that is completely. It is completely freaking crazy that a store servicing 3000 people in a little town
would handle all of that themselves. But they launch with the new name. You know,
it's the new concept. It's self-service. It causes quite a stir. Now, I believe,
I couldn't find this exactly, but I believe in that first year when Walton's five and dime
is open. Remember the previous Ben Franklin iteration of the store had done, I think what 32,
$2,000 I said a year in revenue, something like that. Walton's five and dime does $90,000 in sales
the first year. Now, I don't know what the competitive dynamics were between the three
stores in Bentonville, but remember the town only had 3000 people. So if you assume the previous
three stores roughly had equal market share, you know, it's a big assumption, but let's just for
argument's sake, that would mean that the whole market size of Bentonville, the whole TAM is $90,000
and they did $90,000 in revenue. So what was happening here? Yeah. Is there a massively
expanding TAM? Did they expand the market because people are just buying more stuff than they
otherwise would have? I don't know what happened to the other two stores, whether they went out
of business or not. Certainly they wouldn't have right away. I think what happened was this caused
such a stir that people started coming to shop at Walton's five and dime from other towns.
I think it was the first time that Sam realized that
shock value would bring customers much like I didn't need anything. The first time I went to
an Amazon go to like try the cashier list checkout, people sort of came for novelty value here. And
that taught him the lesson of, Oh, maybe we should always have novelty value. Maybe there's like
reasons why people should be coming to Walmart's even if they aren't necessarily looking to buy
something. Yep. And if you think about it, right, like put yourself in the shoes of customers back
there. And Sam talks about this a lot in the book, you know, for so long, we'll get into the
competition with Kmart. Everybody thought Walmart, Sam, all their customers, they were just like
hicks in the sticks, right? Just completely like morons out there. Nothing could be farther from
the truth. Like he says, like my customers were also sophisticated retail customers.
They knew about what was going on in the cities. They had relatives there. They'd go visit.
It's not like they didn't want first-class shopping experiences in their own home.
So clearly this makes a big splash. So Sam realizes that he might have a tiger by the tail
here. And so he starts looking unlike in Newport where he was satisfied, you know, the store kept
growing. He did $250,000 a year in sales. He starts looking to open up more locations,
more five and dimes. He also doesn't want to have all of his eggs in one basket and one lease like
he did in Newport. Right. Didn't he open a store directly next door to one of his competitors?
Just so that his competitor couldn't expand their store. Yes. It's like it wasn't a high
performing store for him, but he was like, at least it didn't let them get the square footage.
Yes. Clearly he's a very competitor focused. You know, it's funny. Like there's so many
Jeff Bezos isms that when you read this book and you learn about Walmart and Sam
Walton, you realize that they were originally Walton isms, Sam isms, but the whole Amazon,
like we're customer focused. We're not competitor focused. Sam would have said, absolutely not. We're
absolutely competitor focused. We are focused on taking the best stuff from our competitors and
implementing it here. All right. Yeah. Well, we're here. We have to say it. So eventually a Walmart
does go in back in Newport and there is a little store that is run by a family member of the
landlord that screwed over Sam that does get put out of business by that Walmart going in.
And Sam makes the point. You can't say we ran that guy, the landlord's son out of business.
His customers were the ones who shut him down. They voted with their feet. To me, this is
that perfect overlap of are you competitor focused or customer focus? Well, both. You have to win in
a market by counter positioning in some way. And Walton did it by discounting. But that obviously
has an impact on your competitors and you need to be able to counter position against someone like
a competitor. So when the big realization is, oh, customers always want lower prices
and satisfaction guaranteed and all the other Walmart isms that will have impacts on your
ultimately the customers decide Sam is willing to blame the customer for putting the competitor
out of business. So in 1952, just a short while later, Sam opens up a second store in nearby
Fayetteville, Arkansas, because again, like it's just Sam and Helen when she can, you know, helping
out with the bookkeeping, managing the first store, Sam needs to hire somebody to go manage
Fayetteville because he's working in in Bentonville. So,
he brings on a guy named Willard Walker, who was managing a variety store in Tulsa
before that. And the way they convince him to move to Fayetteville and take over this sort of
new concept is they make him an offer. He can't refuse. They make him a partner in the store.
Then this is what you were referring to earlier. They give him a percentage of the profits that
that individual store makes. And in fact, they set up that store and all future stores as their own
partnerships.
This is something I didn't understand until reading the book becomes a huge part of the
playbook for Walmart's for decades, which was every store manager in a new store opening was
given at first equity and individual partnerships and then later profit sharing incentives in that
individual store. So like that sets up a true alignment of incentives. I don't think anybody
else was doing this at that point in time. And then even better. So all the pool of existing
listing store managers, whenever they open up another store,
Sam and Helen give them the opportunity to invest dollars in the new stores and the new
partnerships. So now you're incentivized on success of the whole network and you're incentivized to
information share and you want everybody to do better. They get carry and they should make a GP
commit. Exactly. And I actually think this is super brilliant. I was thinking about this with
regard to tech companies today and everything. And like, even though employees of tech companies
get much better economic deals with stock options, I think psychologically, this is a better way to
do it. What Sam was doing, you're putting your own money at work and you're incentivized both on
your own personal performance in the store, which is like an RSU type equivalent. You can't really
do this in a tech company, but it's scoped to your performance.
It's independent of other store performances. But then you also, in the equivalent of tech
company equity, it's not just that somebody gave that to you or the company gave it to you.
You put your dollars into it. Which is what a stock option is supposed to simulate because
later you put your dollars in if you feel that it's a valuable thing to own.
But I don't think people think about it like that.
No. Well, people think about options like it's direct equity. That's the biggest problem with
options. Most people do not understand what they're actually getting. But yes,
no employee. Employees are ever asked to invest in the business. That is definitely not
what seems to happen in 99.9% of startups.
And then reading more in the book about this. So during this period and in the early Walmart
corporation period, it was just the store managers who are doing this, not the hourly employees.
There was a gigantic chasm. I mean, there's still a big chasm today, but two completely
different classes of humans in those early days between the store managers who were salaried and
employed by the partnership.
And of course, the to be called associates, but the hourly workers who were not.
And so a couple interesting things. One, the people who were the store managers,
this wasn't quite like white collar workers. It's somewhere in between. Most of these people
didn't have college degrees. They were salaried. And then they got equity in these partnerships.
But, you know, it wasn't like these were Wharton graduates that were coming in and doing this.
Intentionally not. Those folks were kind of discriminated against in the Walmart culture,
especially in the early days of like, I think you're better than us, college boy.
Totally. One of the first managers was nicknamed the bear and he had one eye.
There's some crazy stories out there. They were, you know, bringing donkeys into the store.
All right. All right. We're talking Walmart. So like, take us to Walmart. How did we get from
the Walton's fine a dime on the employee front? After Walmart went public, Sam instituted both
profit sharing at the store level with the associates, with the hourly employees,
but then also an employee stock purchase program. And this is cool. So Home Depot modeled their
employee stock program, purchase program after Walmart's. And it's brilliant. It's the same
thing. You put up your own money, but you can do it pre-tax dollars out of your paycheck at a 15%
discount to the stock price. This is what Microsoft let me do when I was a PM there.
In addition to your stock-based compensation,
they call it an ESPP, an employee stock purchase program. Microsoft only let us
have a 10% discount. So very kind of Walmart to give a 15% discount from market price.
So there's stories in the book of hourly associates that made millions of dollars
in the seventies and eighties off of the employee stock purchase program. It's pretty cool.
Wow. Speaking of Home Depot, did you know that's a venture capital backed company?
Yes. It's an amazing story.
Yeah. We should do that at some point.
I'm totally inspired by Sam and Walmart and
everything. Okay. So back to the fifties in Arkansas, remember we talked all the way back
in the beginning of the episode about Sam's brother, Bud. Well, Bud had gotten into the
Ben Franklin business himself after the war in Missouri. One day Sam is visiting Kansas city
and he hears about a new suburb development going in just Southeast of the city called Rushkin Heights.
And it's going to have a shopping center, this new fangled concept right in the middle of this
suburb subdivision. And there's going to be a grocery store and a drug store and real estate
for a big Ben Franklin store. So Sam calls up Bud and he's like, we got to go in 50, 50 on this.
This is a huge opportunity and they do. And it is a banger $250,000 in annual sales the first year
in Rushkin Heights. And then $350,000 in annual sales in the first year in Rushkin Heights. And
then $350,000 the year after, and just keeps growing and growing. Sam says, when I saw that
shopping center catch on the way it did, I thought, man, this is the forerunner of many,
many things to come. The only problem was Rushkin was actually kind of a red herring.
This was the future. This was the forerunner of many things to come, but it was still a little
bit ahead of its time. Hmm. This was really a 1960s thing, not a late fifties thing. Sam is
convinced though, that it's the future. So he starts going around in Arkansas and in Missouri,
evangelizing to towns and city planners about putting in the shopping centers for which they
would be the anchor tenant, but it's super slow going dealing with local governments. You know,
it's hard. It takes a long time. He wants to move fast. So he starts trying to put his own
real estate deals together for multi-tenant shopping centers and fails. And so eventually
he goes back to Helen's advice. And he's like, I don't know. I don't know. I don't know. I don't
He's like, well, these multi-tenant shopping centers, I see the power in Rushkin, but it's dependent on too many other people. But if I'm willing to invest some capital, I could just put bigger stores in these same locations myself. And that's what he starts to do.
Does he become his own landlord then and just buy the land? Or what requires more capital?
That's a good question. I don't know at this point if they were doing real estate themselves, but certainly they're like building out bigger store concepts, required capital to build the stores.
You know, it's not like there were existing structures there and then to outfit them with all the fixtures and all the inventory for the larger stores.
But he and Bud together start doing this. They call these new stores, quote unquote, family centers.
And they start doing like.
Unheard of numbers. A million dollars. Two million dollars.
And are they still sourcing the inventory from Ben Franklin, from Butler Brothers?
Yes. So they don't yet have their own distribution inventory logistics network set up.
That was the big step of Walmart. These were still just like much larger versions of Ben Franklin's and they were working with them to get all the inventory to them.
And they've already at this point, they've bent so many rules with Ben Franklin, like changing.
The store layout and concept and where they're going and starting to dictate more terms, naming them on their own.
And so at this point, they're really starting to treat Butler Brothers as more of a component of the Walton business rather than Walton being a franchisee of Butler Brothers.
Exactly. So these, quote unquote, family centers that Sam and Bud were building, they're still Ben Franklin franchises.
They're just, you know, the wallets.
The Waltons are now taking over more and more of control of the concept, their self-service, their larger format.
But it's still part of the Butler Brothers cartel, shall we say?
Yes. And because they were part of Butler Brothers, Sam and Bud were limited on how much discounting they could really do.
They were aggressive on pricing, probably more so than other merchants at the time.
And they had self-service, the large format, you know, all this interesting stuff.
But the prices weren't like that much different than other stores.
It's worth knowing that we don't think about the notion of discount stores today being counter positioned against something like all big stores have things at kind of the lowest price you can find them.
Because they're all discounters now. I think it's 87% of market share in America is discounters.
Yeah.
So there's either like. Or like specialty high-end retail, which is often directly from the manufacturer, sort of like vertically integrated or specialty sourced or something.
Or if you're buying things at what we consider a big regular store, they're all discounters.
And at the time, there were no discounters.
Everyone was marking up their goods by about 45%, which means that the gross margin, like if you're buying something and then marking it up 45%, it means your gross margin is about 33%.
As a retailer.
And that was on top of the markups in the middle from the franchise operators.
The competition was so low that you totally could just do this.
For reference, just so people have a sense today, Walmart probably has a gross margin between 20% and 24% at any given time.
And every store had like a 33% gross margin.
Even though like Target is sort of like a high-end discounter, it's sort of like a nicer stuff, more expensive.
They're in the 29% category, but everyone was 33% or above gross margin at this point in history.
Before this episode, I didn't think of Target as a discounter.
right but that's what it is it's a discounter it is this model that sam is about to perfect here
yes so you said there were no discounters yet at this point in time just like with self-service
that's not totally true and actually even more so you know self-service there were the two ben
franklins in minnesota that was doing it you could argue they were first but sam was really
the first to bring it to market in a real way there were folks bringing this new discounting
model idea to market was it ann and hope was that the most successful it was ann and hope
stores in new england and contemporaneously at the same time it was fed mart and sol price
down in san diego in southern california which i didn't know sol price had a i mean i should
have known this but i just haven't been a student of sol price
i didn't realize he had a big venture before price club that fed mart was his first very large
successful thing i didn't know i bet 90 of our listeners didn't know you probably did know
sol price you know fed mart and then price club which he starts later that's costco costco was a
merger of costco in seattle in the northwest with price club costco is the legacy of sol price
isn't there something like jim senegal worked at
price
club or was like a disciple of sol price yes and then left to do the same concept up in the
northwest and then they ended up merging together like it's all the same dna like that's costco
so basically everyone's marking up their goods 45 and nobody has done other than ann and hope
and a few other select folks that haven't really rolled it out at scale or really popularized the
movement no one has done discounting but what is discounting two major components one is big
loss leadership so
blow it out in order to get people in the store do it in dramatic fashion and then people buy other
stuff two is we make it up on volume just don't mark stuff up that much period across the whole
store decide that you're only going to mark things up 25 instead of 45 and then you know when you do
that of course you don't make as much money per item but everybody buys more stuff in your store
this hadn't really been proven yet yeah well and there's another component what you're saying which
is sam's original lesson of
you know you're not going to be able to buy stuff in your store you're not going to be able to buy
you actually make more profit dollars selling items at the dollar than you do at 120 because
you sell three times as many yep but there's also the piece in the middle the franchisor the butler
brothers piece remember they're taking 25 percent from the manufacturer to butler brothers and then
out to the stores and that's how most everything operated these discounters they're like
no no we're going to go direct to the manufacturers for everything just like sam's
was starting to do in this but on the margins we're just going to completely not be a franchise
operation we're going to own and operate everything and we're going to operate our
own back end our own supplier relationships our own distribution there's a great quote this is
again later in walmart's development and it's when sam walton is sort of informing the walmart
vendor relations team and merchandisers on how to deal with vendors he's telling them don't leave in
any room for a kickback because we don't do that here and we don't want your advertising program
or your delivery program and we don't want your advertising program or your delivery program
our truck will pick it up at your warehouse now what is your best price and if they told me it's a
dollar i would say fine i'll consider it but i'm going to go to your competitor and if he says 90
cents he's going to get the business so make sure a dollar is your best price if that's being hard
nose then we ought to be as hard-nosed as we can be you have to be fair and upfront and honest but
you have to drive your bargain because you're dealing with millions and millions of customers
who expect the best price they can get if you buy the
thing for a buck 25 you've just bought someone else's inefficiency totally i love that i mean
it is brutal but that encapsulates the philosophy so well and there's so much baked into that that
people don't even realize to get to the point where you could do that you need to operate
the entire back end of retail yourself sam and bud and walmart they're starting from they don't
have anything to get to a point where you can have conversations with suppliers like that
you need your own shipping carriers trucks you need your own distribution centers you need your
own ordering systems you need your own technology like they don't have any of that you need to
forecast you need to be able to understand we're going to sell enough of these units to go buy a
crap ton at this super low price we need to be able to be so confident in that that we can tell
the supplier to spin up new inventory and so that we will buy it to increase their production
okay that's all the future so in this
moment okay so in this moment sam of course goes out he goes and shops he travels to the northeast
he shops in ann and hope he goes out he meets sol price who he already knew and we're in like 1960
late 50s okay late 50s early 60s at this point before 1962 and he sees what they're doing you
know they're doing this proto discounting in big cities and you know rings around big cities not
necessarily in like the primo real estate downtown but like where you have access to
logistics hubs and you can sort of scrounge together and make this work the idea that sam
could copy this and go do it back in arkansas it's crazy what manufacturers are going to ship stuff to
arkansas especially big volume stuff yeah so he goes he meets with sol and ann and hope and he's
like you know what i think i can make this work i think i can do it now even he knows what a huge
undertaking this is so he actually goes back to butler brothers and he's like we've been great
partners we've really innovated on a lot of stuff together i've seen this discounting model i think
it's the future i know customers like low prices i've got these new large format stores why don't
we work together on this i need you to handle the back end you have the scale to be able to do this
you already distribute out to
small towns like mine let's partner on this and do it together and butler brothers says no by the way
this is like when vitalik goes to the colored coins guys and says hey uh let's partner on this
thing together distributed world computer i think it's the future and they're like no and he's like
okay i'll go start ethereum yes that is this moment for walmart and you know in butler brothers
defense they signed their own death warrant here but that was the rational thing to do this is like
a
counter-positioning thing if they had done this they had all these other ben franklin franchises
out there so if they had done what sam is proposing and essentially taken out their markup
on goods that they would provide to sam's stores what are all the rest of their franchisees gonna
say it is literally the innovator's dilemma because they have too much baggage to actually
pull this new thing off and to be more specific about that there is too much ongoing revenue
that they would cannibalize in the short term by
messing up all those relationships they had with their other franchisees
where they would probably churn too much of that and risk the whole business so they could not take
advantage of what could be the new wave yeah and the thing that sam knew the minute he saw
discounting was all of those stores are dead anyway yeah just a matter of time somebody is
gonna come bring discounting to arkansas and missouri and texas and florida and everywhere
else and those stores are dead it's that insight
that people far out from cities want the same thing as people in cities and so they're just
as bright they want the same things in life they just happen to not live in cities and so
let's not be pejorative let's serve them with high quality retail experience
totally so 1962 sam and bud secure a site in rogers arkansas which is pretty close to
bentonville it's got the site you know they're gonna do this it's gonna be chaos like but they're
gonna figure out the back end do this you know new discounting concept they just need a name and
sam's got a bunch of candidate names for what to call this new retail concept and he's talking with
one of the early store managers bob bogle about his ideas and he says what do you think and bob
says you know you've got all these fancy names but it's pretty expensive building the neon signs
of you know walton's five and dime and ben
franklin like that's a lot of letters what if you just take part of the walton name keep that
and make it a place to shop and call it walmart seven letters that'll be pretty cheap i love it
and the legend is born and uh you know sam's basically
not mad about this obviously saving money on neon was appealing to his nature but the other
reason he really liked it was he really admired sol price and sol price head fed mart yeah
and so that's why he really took a shine to it so july 2nd 1962 which we should say at this point
sam is in his mid 40s i think he's 44 i want to say yeah it's worth pointing out people often say
like sam walton didn't start walmart until he was 44 but as you can tell because we are very deep in
the story and in this episode here and we are just now at the formal founding of walmart everything
that sam had done in his whole life was a success and i think that's why he really took a shine to it
was leading up to this moment and it's a gradient it's a slow start
walmart in some ways started 20 years before yeah totally did it start in newport you know sam's
education well started well before then but yeah retail entrepreneur education started then but i
think bentonville is walton's five and dime i think is when you can say really started yep but
anyway july 2nd 1962 the very first walmart opens in rogers arkansas and as you can imagine it was
like chaos you know ben you were telling the story earlier about the watermelons popping that was
actually at store number two which was harrison is this the one with the donkey rides yeah they
had donkey rides and trying to pull together a back end for the first time on their own
total total freaking chaos right so not only they're sourcing all this stuff on their own
for the first time but they're also opening a store that is a pretty unfamiliar store concept
to people but an appealing one come here and you can get everything that you
you
used to but for less money like a lot less money and it's a large square footage store so it's also
bigger than most people are used to for a shopping experience so i think you think about running to a
walmart today is kind of a chore like oh it's this big parking lot and it's a big standard store the
goal is to make it anything but the goal was to make it like a ufo is landing in your small town
come see it totally they did all sorts of crazy promotions and circus carnival type stuff but at
the end of the day it was a lot of fun it was a lot of fun it was a lot of fun and it was a lot of fun
everyday low prices david always the low price always and boy did customers just love it so
there's a quote from charlie kate who was the store manager of that first walmart and rogers
and he says from day one at walmart mr walton made it clear that this wasn't just ben franklin
with low prices on some items he wanted real discounting he said we want to discount everything
that we have and we want to discount everything that we have and we want to discount everything
we carry when other chains around us were discounting he said we advertise that we sell
it for less and we mean it so whatever anyone else did we always had to sell it for less if
an item came in and everybody else in town was selling it for 25 cents we'd sell it for 21 cents
literally everything in the store is the lowest price in the whole area that was the value
proposition which should ring eerily true to amazon 40 years later
so that store does a million dollars in the first year which was great but now remember some of the
family center stores were doing two million dollars so it was very promising but rogers
was still a pretty small town so i did later that year or the next year they open up two more
walmart's one in springdale which was a much bigger town and that pretty much immediately
becomes the highest sales store in the whole walton empire and then a third walmart the second
one takes up a lot of space and it's a lot of money and it's a lot of money and it's a lot of
technically in harrison which we've been talking about and that was also a smaller town and as sam
puts it they were basically trying to answer two questions with each of these like one would people
in a small town defect and start shopping in this new crazy chaotic environment just because of
price and then two in springdale which was a larger town like would this idea scale up to a
point they do know they have a tiger by the tail and so they sort of have line of sight to okay i
bet we can get to like 10 stores and i think sam even gives an interview where he talks about that
that's all he would ever want to expand to something like 10 or 15 stores that he doesn't
have like a global ambition and in part the reason for that is he is extremely into
overseeing these stores himself he wants to be able to visit every single one he wants to be able
to really understand what's going on on the ground he wants to be able to take the best ideas from one
and bring them to the other he's not really a control freak as much as he's uncomfortable with
being disconnected from what's going on in the stores and so his belief was well if we expand
outside of this state or this tri-state area and we start getting more and more stores i don't know
that it expands beyond 10 15 20 somewhere in there because i can't run it i can't run it
the only way that i know how to run it if it gets bigger i mean for the longest time we've already
said it but there was no middle management it was like hourly employees in the stores
store manager sam and bud that was it and this is how the sort of legendary anybody who knows
about walmart corporate culture knows about the saturday morning meeting which they actually
made monthly i think in like the mid 2000s and then now it's optional again sam would be rolling
over in his chair and he's like i'm gonna run it i'm gonna run it i'm gonna run it i'm gonna run it
but this was a mandatory saturday morning meeting for all of the store managers in person either in
bentonville or like they do it in some motel around the region where they were operating
where like they'd all get together every week and they would share pnl information what's working
what's not working certainly kmart wasn't doing that and sam despite objections from a lot of
people including his wife didn't feel bad about it because he was like look you're working retail and
hourly employees that have to be in your store today i feel like you can come to a meeting today
and a big part of this was he was obsessed with getting numbers as fast as possible getting the
sales numbers in his hands so he could understand them and pour over them then immediately getting
them into the management's hands as fast as possible so they could look over them and
make changes in their stores but then as they got more and more stores it was really about
how fast can we incorporate things that are working into stores in other places and so
that we can very very quickly learn yep and remember all these managers were equity owners
in their own stores and in most cases in the stores of all the other managers too
yeah so yeah okay we keep talking about kmart this is crazy also in 1962 the same year as the
first walmart woolworth launches woolco which obviously doesn't exist anymore but as a
discounting concept store their attempt at discounting yeah
the dayton hudson company in minneapolis launches target in 1962 which doesn't target feel like a
newer company than walmart i know right literally started the same year yep and ss kresge which was
a huge nationwide variety store chain based in detroit they start their own new discounting
concept kmart but it's worth knowing all three of these are existing
variety store chains that were used to making 33 on every single item they sold in their store
and if you look at four horses this woolco target kmart which would come out of ss kresge
and walmart you probably wouldn't have bet on walmart to be the dominant
one that wins in the discount wave but they steamrolled the other three those other folks
because they came out of existing
companies they weren't as willing to discount as much there may be some truth to that but i think
the story is actually a little more nuanced i think especially like kmart they were the gorilla
and they were really well run and i think the parent companies especially kresge were willing
to take losses and have lower margins in kmart the way walmart won and that is just this amazing
story we're going to tell now is because all of those others like the problem wasn't the mindset
of margins it was that they came out of these existing operations and they used the existing
logistics back end and distribution back end for their stores and at first that was by far the best
so within five years you know by like 1967 ish kmart has 250 stores all across the country doing
800 million dollars in sales and the new walmart concept walmart revenue was still only around 10
million dollars at that point in time so they are
like a gnat five years later and kmart is like darling of wall street because they're having
to build everything from scratch like go negotiate with every single manufacturer of every item that
they sell try and figure out how to warehouse it figure out the logistics network for the very
first time yeah and they're like in arkansas and missouri in like a regional area kmart's now
everywhere like they could just leverage this network that they had all their distribution
back end and like go everywhere all at once
but the problem was that all of their existing distribution back end was tailored to the old
model it wasn't tailored to this new model of store and that worked fine when there was no
competition but it wasn't lean and mean focused on getting the lowest cost most efficient operations
possible because they weren't that worried about margin on the back end so as walmart
started to build their back end they were like oh my god we're going to have to do this
starts to build out on their own going from chaos to building out their own distribution network
they're always a hundred percent laser focused on lowest cost possible most efficient possible
as much cash flow as much inventory turns as possible like they had to be the only way they
were going to grow was if they could get excess cash flow to grow to invest in new stores the
only way they could do that while keeping prices low was to make their operations as
as efficient as humanly possible,
because they were not taking outside capital. So they had to only reinvest cash flows coming
out of the business. Totally. Sam has this amazing quote. He says,
the things that we were forced to learn to do because we started out underfinanced and
undercapitalized in these remote small communities contributed mightily to the way we've grown as a
company. Had we been capitalized or had we been the offshoot of a large corporation the way I
wanted to be, because remember, he wanted to do the deal with Butler Brothers, we might not ever
have tried the Harrison or the Rogers or the Springdales or all these other little towns we
went into in the early days. It turned out that the first big lesson we learned was that there
was much, much, much more business out there in small town America than anybody, including me,
had ever dreamed of. And of course, that they built their own logistics network to service it.
It's very clear that what they did was, to quote,
Jason,
they had to build a lot of infrastructure early, but they're really obsessed with getting the
operating costs down on a sort of per unit basis as much as possible so that as they do reach big
scale, they can continue to be very, very profitable. It's interesting that there's a
dual-pronged approach here between lean, mean, focusing on getting your costs every penny you
possibly can down because your margins are so low. And I think that's a really good point.
on selling these items are going to be so thin. There was a second component, though, which is
be a great merchandiser. You both have to be super operationally efficient, but you have to be a good
merchant, too. And part of this was Sam's spidey sense for what consumers wanted and making sure
that they were sourcing that from vendors, that they were putting stores in the right places.
I mean, we haven't talked about the planes yet, but this is probably a good time.
Oh, yes. Let's talk about the planes.
So Bud was a pilot in the war. And pretty early in the book, Sam talks about that he and Bud
owned like 20 planes over the course of Walmart's life. But only one was a jet or a sort of later
they became jets because early on when they didn't have any pilots, they had no pilots.
So early on, what they would do is the two of them would take prop planes, fly to places to
survey where they want to put a store. They would identify from the air what seemed like
an interesting location.
By flying.
By flying sideways.
Sideways. So they could look out the window down at the town directly below them. And then they
would go and figure out who owned that land and negotiate with them. And it was this,
we can do it ourselves. We can do it super lean. And we are not going to hire any middleman to
go around all the towns for us and identify spots. No, we'll just fly over them and figure
out where we want to put a store. And we'll figure out how to reach consumers in a way that is like
bringing them the best merchandise at the absolute lowest operating cost to us.
Totally.
When I read that story, I was like, Oh, this is amazing. CEO of company decides he needs a plane
to be able to travel around faster. He's spending too much time in the cars. And you're like,
okay, here we go. And then I was like, I'm going to buy a second hand prop plane with a washing
machine motor. And I'm going to learn how to fly and fly it myself. Amazing. I was thinking also
about this whole incredibly important piece of the Walmart store,
where they literally build their own infrastructure for everything from scratch.
You know, and it reminded me of what we talk about all the time on the show, right? Of the Jeff
Bezos. Don't build your own infrastructure. Focus only on what makes your beer taste better.
And I think we now have to have a caveat to the Bezos law, which is that yes, that is true
in most cases. But if what you're doing is like in a whole new,
new area and best in class infrastructure for what you need doesn't exist. In a case like this,
the infrastructure actually can make your beer taste better.
Oh, if it's actually your core competency. Yeah. I mean, this is new core competency that actually
did need to be done in house. Most of the time that argument doesn't hold water, but if it truly
is core, which this did become core to beating Kmart and all the others and having much better
economics.
At scale, then yeah, you have to do in house.
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sent you. All right, so discounting. Well, they grew the number of discounting stores
pretty dramatically up through their 90s. And so they're going to be able to do that. And people still weren't really paying attention because they were this company in the southern
Midwest. They seemed regional. But let's just take you through some figures. By 1968, they had 24
stores. They filed to go public in 1970 with 32 stores and around 1,000 employees. And the public
markets, the reception, the bankers, this was not a household name. So even though it was a consumer
brand, you would sort of treat it the way that you treat it like an enterprise IPO today. It's not
like the Airbnb IPO that gets a lot of reception. Some stats on the actual IPO. Well, first of all,
it was postponed because the market fell apart on them, much like many startups are going through
right now. But in October 1st of 1970, it went public. Only 800 shareholders participated in the
IPO. They saw the market fall apart. Sold 300,000 shares at $15. So that's sort of the actual IPO the night before. And some quick math
shows they raised four and a half million dollars in that IPO. It started trading for around 1560.
So they had a modest little pop the next day. But they really were not having meaningful research
coverage. A lot of the research coverage they were getting was kind of skeptical. It sounds a lot
like Amazon's research coverage early days, as if this whole house of cards could fall apart.
At any given moment, the next year in 1971, they did grow top line revenue 77%. So despite the
Walmart that we know of today, where they're a very slow growth company, and I say that not to
criticize them, but because we're often talking about pretty new tech companies on this show.
But if we look at, you know, the 2010s, the annual growth rate for Walmart is in the like
two to 3% range. So not a fast growing company by top line revenue by any standards. Now,
but shortly after IPO, despite not attracting a lot of attention, that was not the case.
No, we'll link to it in the show notes. But I pulled open the 1972 annual report, which is a gem.
Oh, such a good find.
And compared to the stuff that you need to write now for your annual reports, which is like,
mostly compliant stuff that you don't want to even page through this is like remarkably legible. It's
a pretty thin document. Most of it is seems to be written from Sam himself.
They grew 77% their first year after IPO.
In fact, by 1977, the market cap was still only $135 million as a public company growing quickly
seven years after IPO.
In 1977, they did half a billion dollars in sales growing at that rate. I did some math on the
Kager by decade. So Walmart's compound annual revenue growth rate for the whole decade of the
1970s was 40.1%. 40.1%.
For the whole decade. And then in the 1980s, it was 32.4%. And that was starting from like a $25
billion revenue base.
Those two decades propelled them to be and somehow still hold the crown for the highest
revenue company in the world. You look at Amazon and some people that you think might be approaching
them. Approaching, but still not better.
Still, Walmart is king.
Yeah.
So there's really two last really important pieces of the story that I think we need to fill in
here. One kind of during this period, actually starting like
right.
right after those first early years of the first walmart's and that is computers so yes this is
wild in 1966 so just four years after the first walmart goes in sam walton who at this point is
what 1966 he's just about 50 he's like 48 years old i think yep he starts hearing about computers
because he's always got his ear to the ground he's talking to everybody he's always looking
for new ideas he's cheap so he doesn't want to spend money on computers but he's starting to
get the sense that in the same way that discounting disrupted everyone that came before in the variety
store era computer back-end retailers were probably going to disrupt the classic retailers today who
don't use computers so he goes up to poughkeepsie new york and enrolls himself as chairman ceo of
walmart in a seminar at ibm
on how to use computing technology in business there's a great quote from a guy named abe marks
who was president of the national mass retailers institute and was also at that seminar he says
without the computer sam walton could not have done what he's done he could not have built a
retailing empire the size of what he's built the way he built it he's done a lot of other things
right too but he could not have done it without the computer it would have been impossible and
then sam right after that
says much as i hate to admit to something like that i expect abe is probably right i love that
i literally had that in my notes too so i'm glad that you grabbed that quote this was the start of
walmart becoming a technology company they were always interested in experimenting with the most
cutting edge stuff but sam didn't understand technology well but he understood the benefits
of technology and so the way that he made sure walmart could sort of benefit from this is
he always left the door open for
smart tech savvy younger people to come and have big jobs at walmart and then he would push back
aggressively on their plans and say like do you really think that we need to move our whole
inventory system over to computers that's super expensive like convince me that we need to do that
but the fact that he went to these conferences enrolled in this stuff created this headcount
meant that he was open to it he just wouldn't be the one to make the decision because he probably
wouldn't have picked the right technology choice he wouldn't have picked the right technology choice
or might have done it too early or too late and so i think this was like an interesting compromise
for him to do this later on there was a proposal made for a 24 million dollar satellite network
private satellite network specifically for walmart this was like pre-dial-up this was in
the 70s right was it that early 70s or 80s yeah i think this was in the 70s and 80s oh yeah you're
right 1987 so let's see market cap at this point is probably going to be a little bit higher than
probably around 10 20 billion dollars somewhere in there so they invested 24 million dollars to link
all stores with a two-way voice and data transmission and a one-way video communication
from bentonville and basically there was not enough bandwidth available on any other communication
lines yeah whatever was being used at the time to sync back in a very fast manner all of the sales
data from stores
and you know we talked about how sam was obsessed with getting the data as quickly as possible and
learning from it and disseminating those learnings they ended up okaying a 24 million dollar
proprietary satellite network and then because sam had this philosophy remember he thought it
couldn't scale past 15 20 stores of needing to sort of visit all of the stores themselves and
have that personal communication the satellite network enabled sam to sort of virtually visit
these stores from the home office and broadcast
satellite transmissions of himself and they eventually instituted this for the saturday
morning meeting too where he would broadcast over their proprietary satellite network in 1987
so the satellite network becomes part of this but this whole technology investment computerization
it's even more than just information sharing it gets back to what i was saying about logistics
about efficiency about margins about keeping prices low and about beating competition
so as they start to invest in computers and they start to bring the talent
into the company to do this including the first person who sam brings in who he meets at this
conference guy named ron mayer who ill-fatedly sam would briefly make ceo of walmart then
discovery was not ready to retire yeah exactly which is a very tsmc story totally similar to
morris chang and he's very gracious to ron in the book you know he said like look the problem was me
i was not ready to retire but ron and team that he builds in in the technology they build the
first concept of a distribution center
you know think of kmart is like great they have warehouses right like you would order goods from
your vendors from your suppliers coming into a warehouse you know and then you chip them out
elsewhere but like they just sit in the warehouse and then you pick stuff up from the warehouse and
go elsewhere walmart as they're investing in technology they start taking daily individual
orders for custom you know whatever skews in whatever amounts each store in the walmart network
like big big bulk in big packaging from their vendors that comes into what used to be called a
warehouse is now called a distribution center in one side walmart does a whole bunch of stuff
in the middle of the warehouse they unbox all the stuff they take it out of the packaging they
re-box it up into the individual orders for each individual store every single day and then they
ship it back out the other side customized to each store and then originally they were doing this with
common logistics carriers like ups fedex or other carriers then they start building their own
trucking lines and so they can just get so efficient with this so this is how as walmart
starts to expand out from the south and from the midwest across the country and kmart is just going
off city by city extending their supply lines walmart's got this behemoth of a distribution
network that is way more efficient and so when they go to the distribution center they're like
oh head to head in a geography walmart can price lower still be making a profit and kmart just
bleeds cash in those stores yeah it's amazing how far walmart has come because the first store
didn't use a distribution center they would have to order from all the manufacturers
and all the vendors drop ship directly to the stores you can only sell what you have in the
store and so when they opened the first distribution center what they basically did was because
they sold the first distribution center they sold the first distribution center they sold the
first distribution center they sold the first distribution center they sold the first distribution
center they sold the first distribution center they sold the first distribution center they sold the
first distribution center they sold the first distribution center they sold the first distribution center
moving outward so like the suburbs are starting to happen they would build the distribution center
sort of like hub and spoke they would pick the city that they wanted to go into that was furthest
from that distribution center and they would build a store there and then they would start building
slowly back toward the distribution center so you basically planted your flag out in the middle of
nowhere but would become an area where a lot of people lived as suburbia sort of blossomed there's
one day drive of a truck
from the distribution center right yes and so then at some point they've got dozens of stores
that are driving distance filled in this whole sort of radius back to the distribution center
so they could make a lot more margin because they could get the price down as much as possible
because they could negotiate these huge discounts with vendors because they have the distribution
center which will send all those stores that are connected to it it's a pretty brilliant
methodology and i don't really realize they invented this concept of a distribution center
i always forget that before walmart there was the franchise variety stores but there really wasn't
large-scale discount retail that used this sort of model so by 1990 walmart passes sears to become
the largest retailer in america again all through the 70s all through the 80s kmart was the gorilla
and then by the early 90s kmart which had been so popular for a long time had become the largest
they start really feeling the squeeze from walmart because walmart is now pretty much nationwide at
this point pretty much but still not yet in 1990 they finally opened a store in california it took
until 1992 for oregon and 93 for washington so all these quote-unquote coastal elites who are
like underrating walmart it's kind of for a lack of exposure the first store opened in washington
in 1993 and amazon was founded in 1994 wow
of course on the coasts and then in the big cities you kind of don't feel
the dominance of walmart in the same way so here's some really fun history that i had
no idea about in the mid to late 80s kmart is at the height of its power the height of its pride
right before you know walmart is finally gonna tip them over during that time they go on a sort
of drunken acquisition spree did you know about this no so
kmart between the mid 80s and the early 90s acquired sports authority office max builder
square walden books and borders and this just had all sorts of light bulbs going off in my head
kind of reminds me of the new york times during that era too right knowing my uh tech history
knowing our tech history here on acquired louis borders the ceo and founder of borders books
started webvan during the tech bubble and i
Always wondered.
I was like, why on earth did. Louis leave Borders that he started and was founder of, and then go start this web van thing.
It was because Kmart bought his company. Wow. I never knew what happened to Borders.
And so by the time like kind of early mid nineties, when the writing's on the wall,
Kmart starts selling off all of these acquisitions that they had made to just try and raise cash.
They ultimately file for bankruptcy in January of 2002. And then in 2004, Kmart and Sears merge.
Wait, Kmart and Sears merged? Yes. In 2004, we're going to take these two legacy, you know,
previously biggest retailers out there, storied brands, and we're going to merge them together
and it's going to work. And I vaguely was aware of this and I thought like, oh, well, duh, Amazon
killed them all. No, Walmart killed them. There's no way that Kmart or,
God forbid, Sears at that point could compete against Walmart. So that combined entity itself
went bankrupt in 2018. But Walmart, by this point in time, this is like the Sony PlayStation
version of Walmart, like the last big hurrah. They had launched the Supercenters.
This is nuts. In fact, Supercenters is so dominant now that they've actually deprecated the name.
Walmart Supercenters are just called Walmarts now.
Walmarts were the legacy.
They're the variety stores. They didn't have groceries. They had hard goods. And
groceries was always this very attractive category. It's the biggest category of retail
in America. Dude, it's an enormous amount of consumer spend. After house and cars,
I think grocery, or at least food as the next category, is the largest thing that households
spend money on. Yes. This also explains why I've always wondered, why is Amazon so obsessed with
grocery?
Over the years.
Which they haven't cracked, by the way. Famously, they've sort of struggled to nail it.
Yep. And they bought Whole Foods and, you know, Whole Foods is great and all that. But Bezos
always talked about, we're always trying to crack grocery. This is why. It's enormous.
But difficult. There's a cold supply chain that you need to
nail that's totally different than shipping plastic around.
And Walmart nailed it, but it wasn't Sam. So Sam passed away in 1992.
Before he did in the late 80s, he was on a trip in Brazil. Whenever he would go around the world
and Walmart had started to expand internationally at this point, of course, he would go check out
other retailers, shop the competition. And in Brazil, Carrefour, the French company,
their operations in Brazil, they had these big centers called hypermarkets. And these hyper
markets were like a combination of a Walmart and a grocery store.
Dude, we should open a merch store and call it the acquired hypermarket.
So I actually tweeted this on the 4th of July when I was doing research. Sam,
just like he had with self-service retailing and then with the discounting model, he was like,
I've seen the future. I'm going to come bring it back. We're going to do it at Walmart.
And again, he was right. And again, like some of the others, he was wrong on timing.
So he launches a spin out of Walmart in the late 80s and early 90s
called Hypermart USA. And there are photos you can find online. This is what I tweeted on July 4th.
I think they only built three of them. It is the most 90s America thing you have ever,
ever, ever seen. It's a great logo, red, white, and blue all over the place. This just enormous,
enormous footprint store, square footed, like a cathedral of capitalism. They were pretty amazing,
but they were too big. It didn't catch on. So then he battled cancer for the last few years of his
life.
As his health was failing, he had already handed over the CEO role to David Glass,
the company. And then after his death started a smaller scale version of a hypermarket
that they called Supercenters that was like not as blown out as what Carrefour was doing in
Brazil, but combined grocery, like a traditional grocery store and a traditional Walmart.
Dude, I lived right next to one in North Carolina in 2008, and it was awesome.
It was the only thing in my like little suburb off the highway where I lived for one summer.
There was a, you know, some other stuff in the shopping center, but you kind of had like
the Walmart Supercenter and it was amazing. You go and you get all your groceries. They
have everything else. I'm so sold on that concept. It's not surprising at all to me
that that massively took off. Well, and not only that it was so convenient to have it all in one
and, you know, entertainment value, all of the things they brought the Walmart approach
of low prices to grocery too. So most items by and large on average across the board,
the grocery items in a Walmart Supercenter are 15% cheaper than a comparable grocery store,
which if you're like a middle or lower income family, that's hundreds of dollars a month
that you're saving, which is incredibly meaningful to you as a family. So Walmart goes from 0%
market share in us grocery at the beginning of the nineties to, I think by the end of the decade
in the nineties, they had become the largest grocer in America, which they still are.
They are the largest grocery store in the United States today. Well, now they are not just the
largest grocery store. They are the largest grocery store by a factor of over two X,
the number two player. Whoa. Which is Kroger. Who's two Kroger. Yep. So Walmart
has over 20% market share of us groceries. Kroger has under 10% and then Albertsons and Costco
are tied at 5% each. Wow. And is Albertsons Safeway now? Do they merge? I think that might
be right. So if you add up all of those together, there's still less than Walmart. Oh my God.
Crazy. That's like Amazon's dominance in e-commerce. If you add up two through nine in e-commerce,
and Walmart is second place to Amazon, it is still not equivalent to Amazon's total sales
in a year. And in fact, I think it's something like two through nine added together are still
50% shy of Amazon's e-commerce revenue in a year. In the last most recent fiscal year,
grocery accounted for 55% of Walmart's total revenue, which is over $300 billion.
$300 billion. Alone, just from grocery. For a part of the business that didn't exist for the
first 30 years, I mean, that is an iPhone scale company reinvention. And barely existed when Sam
died. It reminded me of Ted and Todd within Berkshire Hathaway buying Apple. The best
Berkshire Hathaway investment probably ever that happened in the public markets after Warren had
brought on Ted and Todd. Crazy. One last little bit about super centers. I think the war was
already won with Kmart. But this was really the death knell with super centers because Kmart tried their own hypermarket
concept called super Kmarts. Oh, I remember that. And this is where the Walmart distribution
strategy just completely trounced to Kmart. It trounced Kmart in hard goods, but now you're
talking about groceries. The items need to be fresh. They expire after a few days. You need
to figure out how to preserve. It's also an even lower margin business. So like here's Walmart,
with better logistics, getting better, fresher items in their stores at lower prices is totally
game over for Kmart. And frankly, it's kind of crazy that a lot of the other traditional
grocery chains even have the market share that they do. I mean, I can understand like
specialty and higher end stuff like Whole Foods or Sprouts or the like, but Walmart is just so
dominant in the grocery category. Okay. So we talked a little bit about technology at Walmart
and they were undoubtedly the best at putting in backend systems to build a real impressive
data network and use that data in the 80s and 90s. But of course, so the internet happens
and Walmart is pretty slow to adapt to that. I spent some time on the Wayback Machine kind
of looking at their website over the years and they did not take the internet very seriously
at first. All the way through the 90s, all the way through the early 2000s,
I don't think they thought it was an existential threat the way that it truly was for the business.
So they make a few really big moves to try and bolster this team.
You say they didn't realize it was an existential threat, and that's true. But just telling
the Walmart story now in their DNA, they hadn't historically been a company motivated by threats.
They saw opportunities and they pursued opportunities like super centers.
Why they didn't pursue the online opportunity is really puzzling.
Yeah. It's almost like no one made the compelling enough case for why they need
to invest in building out the internet team until it was kind of too late. That really
was the style of make the pitch to leadership of why this needs a massive investment.
And Amazon was poaching executives from Walmart left and right.
Totally. So the first step that they take here is, do you remember when you were
the company Cosmix, David? K-O-S-M-I-X?
Yes. Yes, I do. I remember using it.
Walmart bought them in 2011 for 300 million. Do you know what the founders did beforehand?
No, I remember it was like a meta search.
search company? Yeah, it was called Jungly. It was not for US search. It might have been like
meta search for e-commerce in India or something like that. So Amazon had bought Jungly. And then
those two guys, Venky and Anand, inside of Amazon started Mechanical Turk. Oh, cool.
So interesting Amazon history there. So they leave, they start Cosmix. Walmart buys it for
$300 million. That becomes Walmart Labs, which was run as a totally separate company and is now
sort of merged into Walmart's global internet division. But that was where this sort of like,
okay, we need to start taking this really seriously. This e-commerce thing is going
to be really disruptive. And they've acquired a variety of other companies over the years,
including Bonobos or Bonobos. I've never exactly known how to say it other than I like their pants.
And of course, then in 2016, we did an episode on this. Now we're entering the
time of the year where we're going to be able to do a lot of things. And we're going to be
entering the time of the year where we're going to be able to do a lot of things. And we're
going to be able to do a lot of things. And we're
get a bunch of really talented e-commerce focused engineers and product people together. And then it
served as a great vehicle to serve as the core at this point of Walmart's e-commerce business.
And they really have made a good comeback, right? Yeah. So Mark Lurie left in 2021. And Walmart's
current CEO, Doug McMillan, does credit him for jumpstarting their e-commerce business,
which I think is growing. And this is before COVID because COVID statistics messed up.
But in 2019, I think grew 37%. Which when Walmart itself as a whole was growing like 2%.
Yes. And at this point, it's hard to say if this is a small number or a big number, but
only about 13% of Walmart's revenue comes from e-commerce. Now that's $75 billion.
Right. And it is growing much faster than Amazon's e-commerce business. But it's because
Amazon's e-commerce business is at ludicrous scale. You know, it's five or six times larger
than Walmart's e-commerce business. And it's growing much faster than Amazon's e-commerce
at this point. But the Walmart strategy here is quite interesting because it leverages their
distribution centers and their stores. They want to make e-commerce not a separate thing.
They really want to make it feel like you're shopping at Walmart, whether you're shopping
online or in person. And there's sort of a seamless experience between the two.
And so they leverage their stores to do things like same-day grocery delivery,
or pick it up at the store, or buy it. And we're flexible, whether you sort of
feel like you bought it in the store and you want to come grab it from us, or whether it
wants to arrive at your house. We'll have to see how that strategy plays out versus
Amazon coming at it from the other direction and having to build physical infrastructure to
come through on those promises. They're doing some cool stuff. They launched Walmart Plus.
Which is a prime competitor.
Right, which is a prime competitor. But like you were saying about this sort of like
integrating it all into one experience, physical and e-commerce, one of the cool things about Walmart
I wish there were a Walmart in San Francisco. A, so I could save money on stuff I buy. But B,
so I could try stuff like this. I'm very curious if you would shop there.
I mean, I love Trader Joe's.
Yeah.
So I shop at Whole Foods and Trader Joe's. I bet I would buy stuff at Walmart. But one of the cool
things that's part of Walmart Plus is you can shop with your phone in the store. You can scan
checkout, buy stuff as you're going through the store on your phone, all done seamlessly and then
just walk out, which I think obviously Amazon's working on this too with their just walk out
technology. But to me, that's like a big value prop. Like one of the reasons I don't like
shopping at Trader Joe's, Target, even Whole Foods too, like physically anywhere is
the checkout lines. It's just like, yeah, like I hate it.
Yeah. Yeah. But I'm not used to waiting for anything anymore because the internet makes
it so I don't have to.
And I'm like, why am I doing this? It's not just like the waste of my time. It's like this is
unnecessary in this day and age. And I'd be happy to check out on my phone as I go through a store.
I started in preparing for this episode trying to understand like how is the digital experience of
Walmart these days versus Amazon's experience? Because I obviously am well-versed and Amazon
packages arriving at my house every day. So I started buying some stuff on Walmart. I bought
some like garden lamps because I needed to install some lights. And I will say,
the consumer perspective so far for me has been pretty identical to Amazon. I don't think the
selection is as large, but I'm not convinced that I take advantage of Amazon's sort of infinite
selection. I think I look for Amazon's Choice or the Wirecutter Pick or something that has five
stars and over a thousand reviews and just buy that thing. And that methodology is very available
on Walmart. And I was trying to dig in and study from a technology perspective, what are examples
of things that are available on Walmart? And I was trying to dig in and study from a technology
perspective that Amazon is more advanced on. And actually, this was a great use of Tegas. Good
friends of the show over there. I read a transcript from a call with a former Amazon director. It's an
interesting quote. It's just a little microcosm. It says, I can tell you at Walmart, it is almost
exclusively just the title and the product description used for search. And as far as I can
tell, there's no metadata that's put into their search algorithm today. Amazon absolutely has the
additional metadata that they've built into their algorithms. And it's a constantly changing and
resophisticated in what they do for search. There's tons of stuff hitting keywords, user-generated
content, all that seller input is totally baked into the search algorithm. And that sort of makes
sense that on Walmart, it would be sort of like a focus on a crude implementation first, make sure
it works well enough. But they also just have less historical data than Amazon does on all the
shopper behavior and all that stuff to incorporate into functionality of the website.
But Amazon, right, is, you know, both a first-party seller and a marketplace. Because of that
marketplace dynamic, there's just exponentially more SKUs on Amazon than on Walmart.com.
Right. So Amazon had to do this.
Walmart does have third-party sellers online, and they do actually
lease space in stores to vendors. That's another part of the modern Walmart business model is you
can just basically lease square footage, stock it. You have your own people who work there,
you own your own payroll, and they're the ones who put all that merchandise in there. And of
course, they can check out conveniently at the Walmart checkout, but the revenue goes to you,
and you just pay Walmart for that space. This was so fascinating. I knew that there were
McDonald's and Subway's in Walmart's, like sort of the store within a store
concept. And like Target has those too. And also brilliant way to increase your margins as a
retailer or allow you to sell at lower prices in Walmart's case. But what you're saying is even more
than that, which is super cool items on the shelves and like display areas in Walmart's
that are integrated into the store, especially like greeting cards, that sort of thing,
things that require like heavy customization in the way that it's presented.
Those are owned, operated and run by third-party vendors.
All right, listeners, now is a great time to talk about one of our favorite
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So Legora's founders approached this the way that great founders do. Early on,
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Every legal team can get access to the same AI models, so the models themselves
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that's the whole game. Today, over 100,000 legal professionals at more than 1,800 law firms
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is an associate who reaches for it at two in the morning during a closing or whether a general
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it out, whether you're at a firm or in-house, go to legora.com slash acquired and be sure to tell
them that Ben and David sent you. Well, we want to get to the final figures on the business from
today, and then I want to do a bear case and a bull case on the company from here, and then we'll
do the playbook, go through and talk about what the things were that made Walmart successful.
And of course, we have to do powers analysis. And powers. We've got a good amount of episode
left here. I know. All right. So Walmart today, we have talked some about this,
but I think it's worth recapping what the shape of the company is actually at this point.
So they're in 24 countries, which we haven't discussed. They're a global empire at this point.
There's 10,500 stores. Each week, 230 million customers visit one of these stores.
230 million customers. It's wild. The supercenter concept is basically Walmart now.
It wasn't like some of the stores are supercenters. Most stores,
are now supercenters. If you just think about the standard Walmart discount store in 1996,
there were about 2,000 of them. Now there are 368, because the supercenter is the new thing.
So the business is supercenters. They did close to $600 billion of revenue last year. They did
$25 billion of operating income. That's only about a 4% operating margin for those counting at home.
They do have a 25% operating margin. They do have a 25% operating margin for those counting at home.
They do have a 24% gross margin, which is interestingly higher than in Sam's heyday,
what he sort of believed the discounting business model should bear. If I were to sort of postulate,
I think because discount stores have just become stores, I think there actually is room for a little
bit more margin than sort of originally believed. The other piece of the business that we haven't
talked about at all, but is an interesting,
both piece of Walmart's business and competitive vector to Walmart is Sam's Clubs, which were
started in 1983, I believe, and has been a very successful part of the company. I believe what
is like 10, 15% of revenue of Walmart today. It's been a pretty successful part of the company,
but it's losing to Costco. Yes. Costco has been this amazing story that,
is like the Walmart of Walmarts, you know, and Walmart has it too with Sam's Club,
but it's interesting. You bring up margins.
Costco does $217 billion a year in revenue. Sam's Club does about 75 billion. How is it that they
have all of Walmart's advantages? And yet I think it's like 11% of Walmart's revenues,
which is obviously very material, but somehow they did not become dominant in this category.
Especially, you know, we were talking about Walmart plus and this membership,
you know, Costco doesn't really have much of an e-commerce digital business these days.
I'm sure they're investing in it, but Walmart really was kind of positioned to have best of
both worlds here of membership, subscription business with Sam's Club plus e-commerce.
It feels like there's a lot more that they could be doing.
And there are some crazy stats about Sam's Club. Like somehow in the 90s,
one in three US households had a Sam's Club membership.
I don't know if you have the numbers, but I bet it's way less now.
I think it's declined. Yeah. Okay. So it's worth a little bit of a margin analysis here.
And in particular, gross margins, because we were citing some numbers earlier. If you look at
Walmart's 24-ish percent gross margin, so that's basically what they get from the goods that they
sell on the shelf. You see, okay, it's less than Target, which makes 29, 30% of anything that they
sell on the shelf. Well, Costco's gross profit margin is only around 13%.
And that's come up like when they first went public. And I think 92, it used to be like 10%.
But the whole business of Costco is totally doing what Walmart did to the variety stores
to Walmart and the other discounters. It's really the idea that what if we have even
less promises to customers about the experience that you get in store,
and we give it all back to you in price? So what if you can't buy small quantities of things? What
if you can't buy small quantities of things? What if there's not really someone to help you get something off the shelf? What if it's all just in
a freaking warehouse? It's all about what can we take away? And will customers still deal with to
get the lowest price? So Saul Price, of course, as we talked about, and Jim Senegal, who worked for
him, were big pioneers of the shopping club, you know, Costco, Price Club, Sam's Club model.
The original Target market for it was not consumers. It was small business.
Oh, I didn't know that.
And that was the core of the market. And then over time, I think,
as Costco grew, I think they realized, oh, consumers like this, too.
Yeah. Yeah, it's interesting. We cite Jeff Bezos saying, your margin is my opportunity.
That was totally Sam Walton's thing to variety stores and totally is Jim Senegal's thing to Sam
Walton.
While we're talking about things that Walmart has not executed on to Sam's level of rigor,
shall we say, over the years.
You know, international, again, it's like Sam's Club. It's a decent part of the business.
It's 18% of revenue.
It's 18% of revenue. It's about half of the stores are international stores. They have some success
stories. I think Mexico has been extremely successful for Walmart. Canada has also gone
well. But they have some big losses in Europe. They pulled out of Germany, right?
They pulled out of Germany. In the UK, they bought the big retailer chain, Asda, for about $10,000.
I think that was in the late 90s, I believe. And they operated that and they were a decent
size player, but never as big as Tesco and some of the other retailers in the UK. They actually
ended up trying to sell it a couple years ago to Sainsbury's for $10 billion. The UK government
blocked that deal. And then they ended up selling it off to private equity, I think for about $6
billion just a couple years ago. So, you know, neutral.
At best.
We'll see how Flipkart plays out for them. They own, what, 75% of that?
Right. So then there's India and Flipkart. Walmart bought 77%, I think, stake in Flipkart
back in, I think it was 2018, for over $16 billion, which is a huge, huge price.
I think part of it was, I'm not as studied on the history of this. I think Walmart had wanted
to enter India for a long time, had been negotiating with the government, trying to make it a
for years and years and years, couldn't. And I think part of the idea, I believe, of
buying Flipkart was, this will be our vector to bring Walmart into India. I don't think
it's gone super well. I read, I believe there are about 20 or so, 20 or 30 Walmart-owned
physical locations in India now, but that's not worth a $16, $17 billion purchase price.
No, definitely not. Well,
I mean, the last thing that I think is important to understand about Walmart is
their growth has really just come down. If we look back, all the way back to, let's see, 1982,
they were growing about 40% to 50% a year. And that has basically been on a slow, steady decline
all the way until about 2013, where it's been about flat at 3% since then. So they're trying
to make all these big investments. And this is revenue, by the way. So it's not like,
oh, well, I'm going to make this money. I'm going to make this money. Well, that's just because they're reinvesting in e-commerce. No, the top line is just not moving
very far year over year these days. Now, to be fair, it is the biggest
top line of any company in the world. So the law of large numbers is at work. But as we've talked
about, it's not like they fully saturated the TAM if you include e-commerce and you include
international. Had they executed well on both of those. And grocery.
Well, they did on grocery, but on discount clubs and the Costco,
in Sam's Club, if they'd executed well on all of those, their growth could have been
much, much higher. Yep. All right, let's do power, and then we'll get into bear case, bull case.
Great. Power. So for new listeners of the show, and as a reminder for all of us old-timers,
Hamilton Helmer's seven powers, there are seven of them. And what he's identified as
persistent differential returns. So basically, what enables Walmart to be more profitable than
their closest competitor on a durable basis. Yep. And the seven are counter-positioning,
scale economies, switching costs, network economies, process power, branding, and cornered
resource. We got to separate the takeoff phase from where they are today, because I think it's
a totally different set of powers. Okay, okay. In the takeoff phase, no doubt that it was
counter-positioning. I mean, this small-town strategy, they were just doing something that
all of the big established companies,
couldn't and wouldn't do.
They were not set up to do it with their distribution chains.
they were not, frankly, set up to serve those customers well. They didn't understand those
customers well. They kind of ignored them. And it didn't seem like a big opportunity.
No. And in fact, it kind of reminds me of DoorDash. Thinking back on that big episode
we did the day of the DoorDash IPO, where they sort of looked at the suburbs and they were like,
wait, this business, even though everyone's doing food delivery in the cities, it actually makes
more sense in the suburbs. Walmart realized that same thing. They were like, well, the cities are
going to build out and those people are going to want something like this in their towns. And so
we can serve the people who are there now and we will be positioned to serve way more people as
those suburbs build out. Yeah, totally. So massive counter-positioning, I think.
Such a good point in the beginning here. Absolutely right. I think as they built it up,
though, I mean, scale economies. Yes. This is the perfect example of scale economies.
Literally the perfect example. I mean, Hamilton uses Netflix in the book,
which is another great example. But this is the single best example of scale economies in the
world. They can price lower because they have the power of scale and the distribution and
logistics network and the operations that they've built behind it.
There is no reason why anyone should be able to have a lower price than Walmart.
Walmart is going to buy in larger quantities than any other retailer for basically any item that
they sell. They're going to have more locations to get that thing to consumers in the most
convenient way to them. So they're going to have the most consumers excited to buy it,
which kind of feeds back into that quantity thing. They own and operate their own logistics
fulfillment distribution network. So even though they've taken on a lot of sort of risk in doing
that and a lot of fixed costs, to the extent that they're utilizing all that at 100% utilization or
as close to 100% as possible, they don't have to pay anyone else margin to use their network.
Every element I can possibly think of has all of the
margin squeezed out of it. Which is also interesting when you think about Amazon and
everything Amazon has been doing for the last, especially five, 10 years,
they're doing all the same things. Amazon Air, building their own logistics,
all the Amazon vans that you see around. Yep, absolutely.
Okay, do we have any others on here? Switching costs? I mean, with Walmart Plus, you know,
maybe but like not. They interestingly don't have branding. And this I think is a place that
Amazon, because for Walmart, the definition of branding, as Hamilton puts it out there is,
would you pay more for a good that came from this brand than a different brand?
And at Walmart, no, you go there because it is the lowest price. And I will not buy
something that's more expensive at Walmart than somewhere else. Walmart brand does not mean that
to me. But at Amazon, they have kind of moved away from the we always have the lowest price,
they have convinced you that it is so convenient to shop on Amazon,
that even if they're a little more expensive in price, that's kind of okay. And I think it's
really interesting that they've taken a different path there. I don't think Amazon was ever just
about being the lowest price. I think it was more about we're the best combination of price
selection and convenience. Yeah, it's the customer centricity. They're both deeply customer centric
Bezos sort of adopted the centric part of customers centricity, or at least that is the way that he
refers to it. But at the same time, they're both deeply customer centric. They're both deeply
But Sam Walton, in about eight different ways in his book, tells you that the only thing that
makes Walmart tick is listening to the customer. And it just so happens that the vector that they
optimized for more than anything else was price and Amazon was convenience.
I think it might be worth a minute to discuss process power. Do we think Walmart has process
power? And there are two areas I'm thinking about with this. One is the operations themselves,
and everything we've talked about. I don't think you could airlift that out of Walmart
and put it somewhere else. Now, you could argue that it's a outgrowth of scale economies that
they have it. But I'm also wondering, there's this DNA at Walmart, or at least there used to be
under Sam, of what you just said, the lowest price is the thing that matters the most.
And they could have, and I think most other companies would have taken their
distribution and operation advantages and increase their profit margins. And that is
like anathema at Walmart. It's always like, we will keep the lowest prices possible for our
consumers. And we will take the absolute bare minimum margin possible, pass it all along the
consumers, rather than taking it for the company.
And the question is, is that still true? Or are they looking for opportunities to keep margin now,
given growth has stalled? And at the end of the day, public late stage CEOs are paid to
get more earnings per share. Did you see what they were doing with gas stations in the last few years?
They used to have this partnership where there was a gas station company that operated in Walmart
parking lots. And Walmart has said, going forward, we will be operating our own gas stations in those
parking lots. The speculation on that is that they just want some of the margin from selling gas at
this point. They're big enough where they think it's worth it. And they're not going to be able to
invest in owning that. And I think there's probably some truth to that at this point in
their growth and saturation. Walton Enterprises and the structure of the family and the ownership
of the stock, I think, did go a long way to reinforcing this mentality, even after Sam
passed away. But now that we're mostly on to the third generation of Waltons, as you said, I think
Walton family members own more professional sports franchises than any other company.
Any other family out there?
Them and their spouses, yes.
Yeah, right. So the focus on keeping all the money in Walmart, keeping prices as low as possible,
because we don't care about profit margins. We care about winning and keeping customers.
It's not necessarily there as much.
Agree. Okay. Bear and bull. We've hit a lot of these points already. But in my bull case,
they kind of should win same-day grocery delivery since they have these super centers everywhere.
You could make a bull case for them.
You could make a bull case from the blending of e-commerce and in-store to the one seamless
experience. You could make a bull case based on how well they've done in groceries. They'll
continue to execute really well there. There's another one that is, especially in this environment
we're going into, Walmart is kind of recession-resistant and in some ways even counter-cyclical.
Because of their obsession with the lowest price, they actually should do great in an
economic downturn.
Which I believe they did in 2009.
I think so too. Walmart's average customer is below the average income of the U.S. broadly,
which to me basically means they just don't have the top 1% shop there,
and that drops their average below the average of the country. That's sort of an interesting
way to look at it. Averages are stupid, especially at this scale, because they hide all the
interestingness of the distribution. But their average customer is far more price sensitive
and far more likely to lose.
They're far more likely to be in an unfortunate economic position in a downturn than other
companies. So they serve those people well.
Those are my few bull cases.
That makes sense to me.
The bear case list is unfortunately long. We've hit a lot of it already, one of which
is just competition everywhere, and good competition everywhere at this point. Costco wins on lower
margins and lower prices. Amazon wins on lower margins and lower prices. Amazon wins on convenience in most cases and is far more
competent at e-commerce and technology. Kroger and Safeway and Albertsons are extremely compelling
businesses in the grocery segment. I mean, old, but very stiff competition. And then you have this
other movement happening, which is the gigantic proliferation of Family Dollar and Dollar General,
where there's a different customer base that, especially in these sort of food desert type
locations, those businesses have done tremendously well. And I think that's a good thing.
And are kind of, it's not that they're pushing Walmarts out, but there's lots of scenarios where
someone would opt to choose to shop at a Family Dollar versus going to the bigger Walmart experience.
So I think, I don't know that I 100% have the full history on the dollar store industry,
but I learned a little bit of it through Walmart research. I believe that dollar stores as we know
them today grew out of the remnants of the dollar store industry. Of the old variety stores, like the Ben Franklin's.
Really?
Like when they got disrupted by the discounters,
Butler Brothers and Ben Franklin didn't survive. But I think kind of the shell of what
all of those stores were, especially because remember, they were fixed prices. They were
the five and dimes. So like, I think that eventually became the dollar store industry.
Fascinating. Well, I have a whole new internet rabbit hole I need to go down after this.
Listeners, if you know anything about the dollar store industry,
about this, definitely hit us up in Slack and we'd love to chat about this.
Yes, for sure. I think there's a bear case around e-commerce, even though they're growing
quickly, 37% pre-pandemic, e-com is still not a profitable segment for them. It's crazy to think
that you could be doing 75 billion in e-commerce revenue and that hasn't reached scale that makes
it profitable. I guess it's just a massive, massive fixed costs on the employee base to
make that happen. I don't know, but when I have in the past,
past used Walmart e-commerce, it's because they run some crazy deals. So I wonder if they're
also like
running really low margin or even discounting below cost on some stuff.
And because they don't break it out, I don't know if that means it's not profitable. I don't know
what profit we're talking about there. Amazon for a long time was not profitable because they
were reinvesting in more distribution centers and stuff like that. So maybe it's that, but
there's a work in progress going on with Walmart e-commerce.
Yeah. They have in recent years been closing a large number of Sam's Clubs. And I think a lot
of that real estate they've been converting into e-commerce distribution centers.
Yeah, I know they did in Washington. There's a labor point to make here too,
which is that I think in closing all those Sam's Clubs, they basically lay off all the employees
and then say, all right, now you can interview at this building that will be converted into an
e-commerce distribution center and we can figure out if you're a fit. It makes sense, but I think
it's like one of 100 death by a thousand cuts things going on between Walmart and labor.
Oh boy. Well, we'll do value creation, value capture in a minute. And
there's a whole nother episode we could do on is Walmart good or bad for the world?
All right. Playbook. We'll do the playbook. And then I want to get to that point.
I'll go first because I have one. I realized that I teased this quote hours ago in the beginning of
the episode and then I never actually said it, but this perfectly encapsulates so many wonderful,
great playbook lessons to take from Sam Walton and the Walmart story. But this is my favorite.
And this is a quote from Charlie Kate, the manager of that first Walmart store. Number one,
where he says, he's talking about Sam saying, I remember Sam saying over and over again,
go in and check our competition, check everyone who is our competition. Don't look for the bad,
look for the good. If you get one good idea, that's one more than you went into the store with.
And we must try to incorporate it into our company.
We're really not concerned with what they're doing wrong. We're concerned with what they're doing
right. And the reason that this grabbed me so much organizational dynamics and behavior and
just human behavior is such that your competitors, you always want to like, look for what they're
doing wrong and make yourself feel better by like, Oh, like they suck. Look how much better
we are than them. Oh, that's such a good point. Especially, I don't know if you see this, but
being VCs and, you know, we invest in so many wonderful founders and work with folks, but
this is really like a disease that I've noticed over the years that startup founders and management
teams, they look for the worst in their competition and they make themselves feel
better about how great they're doing. We're guilty of it too, but that is so the wrong way to look at
it. Right. A much better way to look at it is it doesn't matter what they're doing wrong. Look at
what they're doing right and steal it. Most time you talk to a founder. And of course, like most
times we talk to founders, they're pitching for investment. So they're going to have a different
posture, but it's, Oh yeah, that is another company in our space. Yeah. Here's why they're
doing it wrong. Here's why that's the wrong approach. If you look at a Jensen Huang take
on this, his would be like, Oh, it turns out actually everyone else doing three-sided polygons.
That was right. So we're going to do everything we can to immediately move to that. You're right.
Sam woke up every day and thought, how can we go find something a competitor is doing right and
steal it? Now, a core part of being a founder, I think, especially these days is,
is identifying something that you don't like in the world or that could be done better and then
doing it better. That's how companies and products get started. Yes. But once you've done that,
you've done that, you're doing it now, go make it better. Like it doesn't matter what
everybody else is doing wrong. So I just love that one. Agree. There's one that we've talked
about a bunch. So I'm just going to like summarize it, identify a wave and ride it.
Okay.
Would have known that discounting was a wave that happened before starting this research.
And if you were operating a variety store in 1955, you may not have known that discounting
was a wave that was going to come, but Sam was in the right place at the right time with the
right insight and then built the company to ride the discounting wave. And it's fascinating to me
how just in the course of 50 years or 70 years, it can go from, wait,
will this be a wave that's going to come? Or will it be a wave that's going to come?
There was ever a point in time where it wasn't a thing. It was different. He both rode that wave,
but also created that wave. Yep. Reminds me so much of Jeff Bezos sitting in the offices of
D.E. Shaw in the early nineties being like, holy crap, the internet is going to be a wave.
Yep. For sure. A big one is don't buy anyone else's inefficiency. If you're going to compete
on price, you must buy someone else's inefficiency. If you're going to compete on price, you must
avoid buying anyone else's inefficiency at all costs. And it means having often very contentious
relationships with your suppliers. P&G and Walmart were enemies for years, even though P&G had to sell
in Walmarts and Walmart had to be buying P&G products before they kind of figured out how can
we both do this? Because we do both need to serve the same customer. And that took a long time. And
so that ruthlessness of being willing to not buy anyone else's inefficiency, even though it can
create tension in the relationship,
if you're a business that's winning on price, somebody will be doing that in your space. So
you kind of have to if you want to win. Yep. I don't know that this is a playbook per se,
but in a industry like retailing and Walmart's business and Amazon's business and the like,
price really, really, really matters. Selection and convenience matters too. And that's why
Amazon's a thing and Whole Foods exists and specialty retailers and all that. But price
really, really, really matters. And so when you're buying something, you're buying something that's
what you're saying is absolutely applicable in cases like that. When price really matters,
your margins really matter. And your margin is my opportunity and exploiting inefficiencies and
being as efficient as possible is so important. But not all industries are like that. There's
danger of over rotating to that. Say you're in the media industry. That is a high margin industry
or the software industry. That is a high margin industry. Not to say prices don't matter. Of
industries, you need to think about what industry you're in before you start applying this stuff.
Yeah, that's a great point. The last one is an ill-formed thought,
but I kind of want to just get it out there and it might be word vomit. But Walmart in so many ways
is a microcosm of America or really at this point of the world. There are so many customers. There
are so many people. There are so many deficits of life and they have such a large share of wallet
for a lot of people that everything that can happen will happen. And so like labor problems,
yes, for sure. Significant tensions there. Environmental impact. Employees doing everything
you can think of because there are 2.2 million of them. So if you come up with some statement of
like Walmart employees are so wonderful, that is true. And Walmart employees steal is also true.
And Walmart employees hate their boss is also true. You and I did some serious spelunking on
the Walmart subreddit. I spent a couple hours on there and it's easy to get depressed because the
most vocal people create threads there and you're like, God, is this a terrible, terrible corporation?
It's one of these things where you realize at this point in the world and at this point in
the company's history and at their scale, they are just everything. You walk into a store and
you get a microcosm of America. At this point, it's not even a microcosm. It's a macrocosm.
You're talking about 2.2 million people that work there. And what'd you say? 240 ish million
people shop there every week. Yeah. Walmart is where you witness humanity. Yes. In all of its
glory and the opposite of glory. All right. I got one more, which is again, I said earlier in
the episode, but I think we now have to institute a caveat or an exception to what has been our
golden lesson on acquired, which is the focus on what makes your beer taste better. I guess it is
still always in service of making your beer taste better. Dude, Walmart building a logistics network
made their beer taste better. Fair point. But that wasn't obvious. I don't think that's true.
In fact, it was completely non-obvious in that Kmart just borrowed Kresge's distribution network
and everybody thought that that was the way to go. Yeah. And it certainly was for the first
decade. First, probably two decades. Yeah. That helped them get a massive lead. And there'd be
some very, very credible argument that I totally would have bought, which is if you think you can
get two decades of lead with this strategy, there probably will be something that materializes
during that time where being that far ahead means you just win. Yeah. And Sam says in the book,
his name is Henry Cunningham, I want to believe, who was the CEO of Kresge when they launched Kmart
he says that Cunningham was like an amazing retailer, brilliant and great competition.
And that Sam believes had Cunningham still been running Kmart as Kmart started to decline,
the company would have made different choices. Fascinating. They had a whole bunch of CEO
turnover and all sorts of controversial stuff. All right. So we're onto the segment where we're
going to make a case to each other for Walmart being good for the world and bad for the world.
Bull and bear on the business, but the global impact. Let's save the employees thing for the
about impact on communities. Because I think there's an easy narrative to paint, kind of the
same narrative that got painted with Starbucks of bad for communities because it puts the local
store out of business. And certainly, I don't think Sam Walton would say that they didn't. I
think he would say that we put a Walmart in a community and it was better for consumers. And so
then people needed to adapt. Of course, existing merchants hated us. But did consumers hate us? No,
I don't think so at all. I think it was better for them.
And especially for customers in, well, everywhere, saving money and saving significant
amounts of money on your everyday purchases. That's huge. If you are living in middle class
or lower class, that is enormous. That makes a huge difference in your life.
Yeah. That said, there's probably more interesting things you could buy that have more soul in the
local stores. Merchandising that may not show up in a Walmart supply chain. There might be
more meaningful personal relationships you could build.
People who run the stores than you would have the opportunity to at a Walmart. I'm trying to think
of all the things in a consumer experience that are better from a locally owned store. There's
the fact that when you buy something, the equity that gets built from that transaction happening
happens in your community versus the equity accruing 50% to the Walton family and 50% to
a bunch of public shareholders. Every transaction any business makes accrues either positive or
negative equity to the business that participated or facilitated the transaction.
Even if that Walmart employs a bunch of local people,
the equity is still being built by other shareholders.
So there is a lot. I think I said we could do a whole nother three, four hours on discussing this.
I read the book, The Walmart Effect as part of research. It's really good. It's really even
handed, really well done. It's about, I think it was written in 2006. And it goes really deep into
all of these questions. Labor,
impact, and security. And I think it's really good. And I think
on communities, all sorts of stuff, highly recommend reading. Frankly, we're not going to
be able to do anywhere near as good a job discussing all that as the book does and as other
forums do. But to my mind, like the biggest takeaway I had from it was if you just look at
individual communities, I think you can make a pretty good argument. And this is Sam's argument,
like you were saying that Walmart is good on balance a because saves consumers money. That's
super important. And I think it's
provides a lot of jobs. You could argue about the quality of those jobs, but a lot of jobs that
otherwise would have gotten destroyed. Discounting was going to happen. Yeah, the local shops were
not going to survive the local variety stores. And it could be someone that doesn't have the
types of incentive programs that Walmart has, right? Maybe it's not enough, but they do offer
the ability for part of people's pay to go into Walmart stock. And that can appreciate over time.
And you can decide whether to cash it out or take it in Walmart stock. Like there are ways to make
hundreds of thousands of dollars on top of your pay by being a Walmart employee. Yep. Now, here's
the way, though, where Walmart's impact is a little more unambiguously pernicious, both for
the world and specifically for America, despite all that great stuff. And that's actually in the
relationships and the vendor relationships as Walmart got so big and got so much leverage and
they're so unrelenting.
On pushing down prices. And then as the relationships, you talked a little bit about
the P&G relationship, but with all their vendors, you know, Walmart is the biggest customer of all
of the vendors and suppliers that they work with. They exert so much pressure for vendors to lower
their prices. Ultimately, that leads to a couple of things that led to offshoring of American
manufacturing. Walmart was a huge contributor.
At some point, the majority of items sold in Walmarts were made in China.
I think during the 80s, it went from like 6% to like 40%. And now like, I mean, if you take out
grocery, I'm sure most stuff in Walmart is not made in America. Yep. You know, and Walmart
recognized that this was a problem and tried to address it. But if you're a supplier and there
are a bunch of examples in the book of lawnmower companies, Vlasic that makes pickles, also like
you just at a certain point, you cannot pay American labor the wages that you need to pay them
and price products where Walmart needs them priced. Like it just does not work. You have to offshore
it. So that's one issue. And, you know, you could argue about whether that's good or bad,
but certainly now, you know, post COVID here in 2022, all sorts of reasons where we see there's
a negative side of the ledger of offshoring American manufacturing. That's one. Two is
quality of products, which is also related. Like the other thing that whether you're making stuff
in America or elsewhere, if you're making stuff in America, you're making stuff in America, you're
pushing down those margins so far. Like you've got to use lower quality materials in your product.
There's just this constant barrage to push down quality, push down labor costs. And all of that
like comes at a real cost. And quality was an afterthought. I mean, even in 92, when Sam
published his book, it was only in the last decade where they were realizing how important quality
was in addition to price. Now, one area where all of this had a huge, pretty much unambiguously
negative externality that I think, you know, I don't know if you've heard of it, but I think
has gone a long way towards being corrected was environmental impact. You can just imagine all
the dynamics we were just talking about, like having a positive environmental impact does not
fit into that equation, right? You're not using the slightly more expensive power source. When
you're a vendor to Walmart, you're using the cheapest, no matter how dirty it is.
Now for current management and the previous generation of management of Walmart
to their like big credit in the mid two thousands, they got religion on this and embraced
sustainability and positive environmental impact as a way to generate more efficiency.
So like Walmart, I think is now the largest us commercial producer of solar power. Whoa,
because they put solar panels on the roofs of the Walmarts and then now in parking lots too.
And then it ends up being cheaper. They also invested a ton in more efficient truck fleets,
both in the type of fuel, the shape of the trucks. I want to say they literally doubled the efficiency
over a decade by just little things they did here and there to chip away.
And that makes a huge impact because they're one of the largest trucking fleets in the world.
I mean, if you look, there's those graphics that fly around, they're like, what's the largest
employer ever in any state? And like most of the lower Midwest and much of the South is Walmart.
And then there's the other ones that float around. That's like, what's the number one
profession in every state? And for half the states, it's truckers. And you're like,
I wonder who those truckers work for in a lot of those states. So yes,
it's a massive part of not only the American economy, but of our energy usage.
I think it's worth bringing up now, especially given everything that's happened recently and
where we live and whatnot. Walmart is one of the biggest, well, was and still is one of the
biggest sellers of guns in America. And they've pared back the AR-15 and the ammo and the,
you know, they stopped selling some things, but like only after there was a shooting in their
store. Right, right. Now they still sell guns, obviously. Sam himself obviously was an avid
hunter. He'd use guns all the time. Yep. But it wasn't just after the shooting in the store.
They've required background checks for a long time. Well, before that, they stopped selling handguns
in the nineties. And now after the shooting in the store, they don't sell guns to people under 21
in 2015, they stopped selling assault rifles. So I'm sure it's one of these issues where like
people on both sides say they're not doing nearly enough or they're doing way too much.
A good example of a middle ground. You can argue whether it's enough or not enough or too much,
but like it's a middle ground. All these things really come back to that point of Walmart operates
at such scale that it is literally just a snapshot of humanity. And so if it's a facet of our national
conversation or things happening in the world, it's going to be happening at Walmart. All right,
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started. Let's move on to grading. How do you think we should grade this one? Yeah, I think we should go
grade to Walmart, the company encompassing the whole body of work. The Walton early days,
the first several decades, the 40.1% annual compounding in the seventies, the 32 and a half
in the eighties three right now. Yeah. Three, two. I think it's less than three now. I think it's
growing slower than the American economy. Well, maybe not this year, but in recent years, I think
let's do the whole totality. Well, I mean,
the way to do it on a year by year or annualized or even decade
basis would be the same way that we did berkshire which is effectively look at their annual growth
rate set some hurdle rate and then decide what constitutes an a plus and what constitutes an f
and do it on a fine grade basis year by year we're not actually going to do that and is it a cop-out
to say that like it's an a plus plus from founding through the 80s and mid 90s and then it's been
a d on exploiting the next big opportunity since then that's how i feel it feels weird to roll
those into one letter well i think if we were going to break it out into subgrades for eras
i think i would actually do three eras i would do the walton era including the 70s and 80s
a plus plus plus plus yeah plus right you can't say enough pluses there then i think
actually the 90s is also an a plus and like literally grading for shareholders we're not
grading for the multi-stakeholder world that we live in.
of their communities they're grading just purely the business and for shareholders i think the 90s
also an a plus the super centers like amazing what a huge innovation and that was not really sam that
led that and was also a big part of driving the nail in the coffin of kmart and is now 55 percent
of the business dude so let me tell you about the 90s in 1992 they came in growing 34 percent
and by
1997 they were growing at 12 percent okay okay fair that was like the quintessential decade of
their decline did growth reaccelerate at all as super centers came online it accelerated from
97 it was down at 12 percent and then it peaked again in 2000 at 22 percent but then it's been
all downhill from there interesting interesting i mean
you could say all their job really has been since 2002 is to stay the same size as e-commerce became
a thing literally just defending the castle would have been an a plus and maybe that is actually a
pretty reasonable way to analyze it not that it would have been a good idea to invest a dollar
necessarily in 2003 and pull it out today but what is a win if you were already the world's largest
retailer stay the world's largest retailer and you're not going to be able to do that in the next
year and you're going to be the world's largest retailer through a transformational technology
wave which they've done i mean uh sears didn't do that no but we'll put this graph up on the
screen if you look at the gap that amazon closed in total revenue since the time they were founded
to walmart they're gonna catch them no doubt about it oh yeah for sure and it's a little bit
of a deceptive graph because part of it is aws so there's high margin revenue in there there's
a completely second business oh i doubt it all counts like walmart could have done that right
scoreboard right you look at the scoreboard right okay so maybe then 90s is not an a plus
but i still like the super center innovation is huge but yeah and then i do think that the
2000s and particularly the 2010s pretty uninspiring for walmart it's a little silly
because like what actually should you be going for if sam walton cared about the acquired scoreboard
they should have been done in like 1995 or even 2002 we're penalizing them for
continuing to exist and doing worse than they did before so i don't know i'm unwilling to grade this
as one single thing i'm willing to say it was an a plus up through sam walton's death and then since
then i'll go from like a d to a b because they have actually continued to be the world's largest
retailer through tremendous upheaval in the world and stayed nimble enough to do that all right how
about perhaps a less controversial or more straightforward way of grading i would grade
made in america as an a among the canonical tomes that we've used as main sources on acquired okay
like shoe dog made in japan yeah of that ilk yeah sure so sam's co-author who we've mentioned of
made in america john huey do you know anything about who john huey is no no idea he after
writing the book became
the editor-in-chief of time oh wow and do you know who he replaced as editor-in-chief of time
is it someone else's co-author walter isaacson no way yeah no one's co-author but
wow you know it was written as and because sam was dying of cancer so it really has a feel of
steve jobs and isaacson steve jobs book and like you know reading it like sam knows the end is near
he's writing this as he's dying it's really good just highly recommend for sure okay i'm sick of
this grading that's not really grading so let's do carve outs and also i just got a text your
walmart order was delivered thanks for shopping with us reply hell for more so i have to go run
and pick up my walmart order oh you gotta go get it my carve out is a podcast that almost certainly
no one has listened to because our audience overlap has to be approximately zero which is the
i am home podcast which is the official podcast of the nebraska furniture mart which many of you
will now know is who listen to our berkshire episodes will know is a berkshire hathaway
company and this is the venue that ted weschler chose to go and give a wonderful interview and
so it is so cool to hear one of the big managers at berkshire these days and i think ted's the one
that did the apple investment to give an interview a very rare interview on the nebraska furniture
mart's i am home podcast so that is my carve out so good it's in my queue i haven't actually listened
to it yet though dude he even talks like warren it's crazy so okay here's what i'm curious about
is the content of the podcast about discussing furniture no it's about what's your day-to-day
like give us your story how did you find your way to berkshire oh so fun i mean that's obviously
better but i'm kind of curious what ted's you know furniture preferences are i think he does
talk about that he bought a bunch of furniture for his house from the nebraska furniture mart i love it
is he like a modern guy is he a classic guy listen tune in and find out are we talking
mediterranean here like i don't think mediterranean if i had to guess my carve out is a carve out that
has been unacquired before it was your carve out but in a different form oh and that is
the godfather the film you did do it as a carve out right parts one and two parts one and two yes
both parts so good which i also have recently re-watched so good
but you know what is even better that i read for the first time and i can't believe i hadn't read
it until the last month or two is it the book is mario puzo's book the godfather it's so good
i think it was better than the movies it's as good as the movies yeah careful there buddy and i
watched both after reading the book as with anything when you read the book you understand
so much more about what's going on why motivations because i feel like especially
in movies made back then you can argue whether this is good or bad i see both sides but they
left a lot more ambiguous like they didn't like explain everything as much as movies do now which
is great which is so great it's back when film was an art form it reminds me not as much as this but
i also did the same thing with 2001 a space odyssey a couple years ago i read the book and i'd never
understood like the movie i was just like this is crazy you're like what the hell is the last scene
but then you read
the book and you're like oh now i totally understand what's going on and i get it and
it's awesome it's a little bit like that with the godfather with the book and large parts of
godfather part two are interspersed in the book in part one it was never intended to be a series
like it's all just one book so you get a lot more kind of like as you go like vetoes history
like the italian backstory is actually part of the first main volume and
when michael is off in sicily hiding after he murders the turk and the police captain
all right on my list adding it it's good it's good with that listeners thank you so much for
being on this journey with us after you finish come discuss with the other 12 000 smart clever
kind appreciative members of the acquired community at acquired.fm slash slack if you
want more acquired i know this episode's gonna clock in like three and a half hours or something
insane but if you're like you guys i need more we just dropped an awesome awesome interview with
patrick campbell going through like things that don't often get discussed about acquisitions for
his over 200 million dollar acquisition of profit well by paddle that will be coming to the public
feed soon that you can find by searching acquired lp show in the podcast player of your choice
and is already live at acquired.fm slash lp for paid subscribers and we've got a job board go check
it out at acquired.fm jobs we here on the acquired team look at every single one of those and our jobs
that we think are interesting so if you're looking for your next shtick consider that
all right david anything else i don't know what else we could say at this point
all right listeners with that we'll see you next time we'll see you next time
Bye.
Bye.
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