"Capital isn't scarce; vision is."
Sam Walton (1918-1992)
In economics, the word "capital" can mean many things.
It does not necessarily mean money. As a
home inspector my capital includes my inspection experience and
knowledge, coupled with useful tools.
But what did Mr. Walton mean when he used the word capital?
Long-term assets, or "fixed" assets - land, labor and capital, some of the factors of production? Seed capital? Investment capital? How about venture capital?
I think he is probably referring to the whole ball of wax, everything it takes to start and maintain a business.
After all, he had experience doing that.
His well-rounded nature was forged by the
time he was in 8th grade, becoming one of the youngest Eagle Scouts in
Boy Scout history. As an adult he continued to support the Boy Scout
program becoming a recipient of the Distinguished Eagle Scout Award.
There are not many recipients of such an award. This circumspect
background got him voted the "Most Versatile Boy" by his high school
graduating class.
Becoming the first in his family to go to
college, and after earning a Bachelor's degree in Economics in 1940, he
worked for a short while for the J.C. Penney Company. He quit to join
the war effort.
After the war he invested a $20,000 loan
from his father in law and his personal savings of $5,000 in a small Ben
Franklin variety store in Newport, Arkansas.
He kept the shelves stocked with a wide variety of goods and grew annual sales from $80 to $225,000 in the three years.
The building's landlord saw Walton's success
and refused to renew the lease, wanting the location to open his own
store in that same location. Unknown to him, at the same time his
father in law negotiated a deal for the shop next door to that first
store even while Sam was looking to open another location in Bentonville,
220 miles away. The Newport store next door was remodeled and opened
immediately in 1950. But the new far-away location was in the works as
well.
Negotiating to buy that other small store
and obtaining title to the building in Bentonville, Arkansas, it was
opened. He then had two locations not near each other. He called his
stores the "Walton Five & Dime." That second location more than
doubled sales in three years. But he also had opportunity to employ
some of his own ideas in the development of both stores.
With the help of family he owned and
managed 16 Ben Franklin stores by 1962. One new idea he tried was to
encourage his store managers to invest as much as $1,000 in their stores
and the next outlet to open. Walton thought that would sharpen their
managerial skills and objectives. It gave them a stake in the
business. Entrepreneurism is another economic factor of production,
something he no doubt learned in college.
It all worked. By the time he opened the
first WalMart in 1962 he was well versed in business management and how
to operate a number of widespread locations.
Interestingly he thought it important to
find American manufacturers to give him a great volume discount price.
He wanted to compete against foreign competition. And did.
At the same time, his philosophy was to
open WalMarts in small towns, not large cities. And each location was
within one day's drive from a distribution center. That way he could
follow sales, and quickly market and restock the best-selling products.
Even today it is Walmart's exceptional marketing and distribution
management system that sets it apart from other department stores.
This logistical management grew the chain
to 800 stores by 1985. At the time of his death in 1992, WalMart had
$50 billion in annual sales from 1,735 stores, 212 Sam's Clubs and 13
Supercenters. Continuing its growth, it is larger than that now.
WalMart survives today as it does because
it continues to offer a variety of products, at exceptional prices. Its
size has not come by accident or through luck. Yes, that makes it
difficult for smaller entities to survive. Yes, they have grown more
international as the world has shrunken economically. Their aim has
been to focus on WalMart.
But, like the butcher, the baker and the
beer maker, they are interested in providing their wares in the most
efficient way possible, and to get their clientele to come back time and
again. They have a very loyal group of employees and clientele. That
is the essence of capitalism - employing the factors of production
(land, labor, capital and entrepreneurs) in the most visionary ways
possible. Capitalism can be the vehicle for super growth just as it can
do the opposite to crush the less visionary and efficient.
WalMart has employed its capital with vision. And they seem to see pretty clearly.
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