Book Review: Sam Walton Made In America

“I still can’t believe it was news that I get my hair cut at the barbershop. Where else would I get it cut?”

To me, that quote sums up Sam Walton’s autobiography. He was referring to a Forbes article that came out after he was named the richest man in the world. Forbes asked to come to his hometown to follow him around for a few days. Even though he allowed them to, it was a decision he regretted the rest of his life. He was a small-town country boy who hated the attention and that friends and strangers made a big deal out of his wealth for the rest of his life. Truth is, Sam never felt as wealthy as his net worth would suggest. He lived off a modest salary and Wal-Mart dividends, drove a pickup truck his entire life, and yes, continued to get his hair cut at a barber, which the rest of the world was apparently amazed by.

I have a lot of respect for people who are incredibly successful, yet remain humble. I’m sure it’s easy to let it all go to your head. His entire career, Sam was infamous throughout the corporation for how often he visited stores. I don’t know how many CEOs of multi-billion dollar companies do things like that, but I bet it’s not many. Sam loved the store-level part of the business and that never changed, even as his role evolved from manager of the first store to CEO of a global behemoth. Even towards the end of his life in his 70s, he was still out visiting stores on a regular basis. His wife and kids joke that all their family vacations involved visiting Wal-Marts and their competitors. Sam claimed he went in more K-Marts than anyone in the world. Given he never worked at K-Mart, that’s pretty damn impressive (who knows if it’s totally factual though). In addition to money never changing him, there were a few other notable characteristics that really stood out to me.

Customers first

The way Sam talks about his customers reminds me very much of Jeff Bezos (I’m sure that’s not a coincidence). Sam was obsessed with saving his customers money. It was interesting when Sam discussed how ruthless he was with beating down suppliers on pricing (something Wal-Mart is still known for). Those suppliers may not like him, but Sam really believed he was making the entire ecosystem more efficient and he was improving the lives of his customers. Not surprisingly, all savings were passed onto customers, no matter what. In the early days there were instances where a store manager would get a great deal on some product and wanted to keep some of that extra margin for the store. Sam always refused.

“We exist to provide value to our customers, which means that in addition to quality and service, we have to save them money. Every time Wal-Mart spends one dollar foolishly, it comes right out of our customers’ pockets.”

Sam (and employees) gave a ton of examples throughout the book proving that quote, but two of them stuck in my mind. For many years, even after Wal-Mart was quite large, traveling employees (including Sam) slept two per room and they only stayed in cheap hotels and ate at cheap restaurants. Much later, when Wal-Mart reached $40 billion in sales, the board insisted they needed their own corporate jet and Walton refused. After months of back and forth he eventually gave in, but the kind of CEO that runs that big of a company and doesn’t want a cushy corporate jet to fly himself around in is my kind of CEO.

Shareholder friendly

“I don’t think any amount of public relations experts or speeches in New York or Boston means a darn thing to the value of the stock over the long haul. I think you get what you’re worth.”

I absolutely love this viewpoint and it’s something I talked about in my last blog post about management intangibles. A lot of managers are way too worried about appeasing Wall Street, through things like quarterly guidance, weekly press releases, and attending lots of conferences. A smaller minority of managers focus more energy on running the business and let Wall Street come to them. As nice as it is to be able to go to a conference and meet a bunch of CEOs, I’d much prefer the companies I’m interested in not be there in the first place. There is evidence to back this up by the way. Over the long-term, stock prices track returns on invested capital and growth and that’s it. Sam seemed to understand this.

Also, when Sam decided the corporate office needed an exercise facility, he paid the $1 million for it out of his own pocket. He didn’t feel it was right to ask shareholders to pay for something like that. Acts like this are very rare for management, but they do pop up once in a while—most often by founders.

Incentives

Sam clearly understood how important incentives are as he pushed store managers to purchase a piece of the their store. Sam knew that someone who invests in a store with his own hard earned money is going to treat it as more than just a job. Wal-Mart was also one of the first big companies to implement an employee stock purchase plan.

There were many low-level employees that stuck with the company and became millionaires thanks to that stock purchase plan. Sam also paid his employees more than his competitors. There was a time he bought a store from a competitor and immediately gave everyone a 50% raise because he felt they weren’t paid enough. Because he paid well and got the incentives right, Sam was happy to give employees a lot of authority and responsibility. Store managers were free to try out their own promotions and even regular store employees were given autonomy over their individual sections of the store.

Cloning

“Most everything I’ve done I’ve copied from somebody else.”

Sam talks about cloning several times throughout the book. During his early years he would travel around the US (and to other countries) to visit successful stores of all kinds. Then he’d go home and take the best of what he found and implement it into Wal-Mart. Interestingly, by taking a bunch of copied ideas and combining them together, he created something that was totally unique.

Investors talk about this idea of cloning a lot. I think there’s an important distinction between blindly investing in companies that other money managers are in versus sourcing ideas from others, but doing all the work yourself. The latter is how I’ve gotten most of my investment ideas. Reading quality investment write-ups can be a great jumping off point as opposed to  sourcing completely original ideas. While I do enjoy going through long lists of stocks occasionally, I think reading investment write-ups and talking directly to peers is a much more efficient way to source ideas.

As of this writing, Wiedower Capital does not own shares in WMT. This is subject to change.

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