In 1945, Sam Walton bought his first retail store.
It was a variety store (being run under the franchise of Butler Brothers), which the current owner was struggling with. Sam bought it for $25,000. Had to take a loan of $20,000 from his father-in-law.
Within the next 3 years, his store became a top performer of that district! His annual sales grew in the following pattern over the next 3 years: $105,000, $140,000, and $175,000.
In this post, I want to explore just these 3 initial years of his foray into retail and see if there was anything unique in Sam’s action-choices in this period.
Source: Sam Walton: Made in America
He started by reading all retail publications he could find.
Would a typical retailer make this choice? Would he not be biased against reading up too much? Well, smartness lies in not falling for this bias and learning from all the sources possible!. In fact, it was through one of such magazines that Sam got the idea of starting the self-service retailing format!
He spent a big part of time studying his competitor.
Sam’s competitor store had annual sales of $150,000–more than twice his annual sales ($72,000). This was despite the fact that the competitor store was relatively a bit smaller and was not on the front street. Clearly those guys were doing something worth emulating! So, Sam spent a lot of time closely watching how that store conducted its business (e.g. prices, displays, variety, etc.).
Would a typical retailer invest so much effort in studying his competitors? Often his ego or laziness or cognitive biases will hold him back. Example: He may attribute his competitor’s success to some biased reasons–such as better availability of funds, unfair practices, better location, family members’ support, etc.
He experimented a lot.
Initially, Sam was very meticulous in following all the specific rules his franchiser had laid out for all franchisee stores. Once such rule was to buy at least 80% merchandise from the franchiser, in order to get a year-end rebate. But, once he had learnt enough, he started exploiting the 20% leeway as much as possible. He traveled long distances to identify offbeat suppliers (who would give him much cheaper rates). He then priced that merchandise at cheaper rates.
He also experimented with putting a pop-corn machine and an expensive ice-cream machine outside the store. He had to buy the machines on loan when he was so short on cash. But the experiment was so successful that he ended up paying the loan in 2-3 years. In fact, he paid up all his debts within 2-3 years! He also started his own promotional programs in the store.
Now, would a typical retailer have an appetite for such experiments in with his business? Think for yourself.
He generated unique insights about his business.
It was due to his experimentative nature, that Sam was able to discover a unique insight about discounting (may sound obvious to us now though!). He talks about it in his book:
“Say I bought an item for $0.8. I found that by pricing it at a $1 I could sell three times more of it than by pricing it at $1.20. I might have made 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”
Now, a typical businessman does not strive actively to discover unique insights about their business. Even if he does, he often not have the guts to act upon those insights!
The reason a typical businessman is not as successful as Sam Walton is that he does not ‘play the game’ the way Sam did with his first store.