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Walton's Small-Town Strategy

One of the critical ingredients in Wal-Mart's success was Walton's selection of store locations. Walton made the decision to place Wal-Marts in small-town America, even in places where the population appeared to be too small to support the store. Other large discounters, such as Kmart, believed that a trade territory of 50,000 people was the minimum required to support a discount store. Walton built his first store in Rogers, a town of 8000. The small-town strategy was established early, and definitively, when Walton's wife, Helen, refused to live in any town with more than 10,000 people. Luck and accident play their part in business success, and Wal-Mart is no exception to this rule. Out of Helen Walton's personal preference grew a strategy that—at least for the time being—proved farsighted:

We could really do something with our key strategy, which was simply to put good-sized discount stores into little one-horse towns which everybody else was ignoring. ... When people want to simplify the Wal-Mart story, that's usually how they sum up the secret of our success: "Oh, they went into small towns when nobody else would."

It seems clear that Wal-Mart's small-town strategy gave the company an early edge, giving it an opportunity to refine its methods before tackling more competitive markets. Eventually, however, the small-town strategy began to work to the company's disadvantage. In an interview in the fall of 2002, former Wal-Mart CEO David Glass explained that in many cases, the most difficult discount store to run is one that has no competition. "It is much easier to be successful if you have a pretty good competitor or more than one competitor," said Glass. "If you have no competition in a small town, they have nothing to compare you with. . . . One of the great misconceptions about Wal-Mart is that in the early days we succeeded in the small towns because of an absence of competition. Exactly the opposite is the case. The reason he [Walton] was able to explode in growth in this company was because there was very intense competition in the towns we went to."

Experts such as Northwestern University marketing professor Philip Kotler believe that Wal-Mart's small-town strategy was ingenious, but had other consequences that can't be overlooked in assessing the company: "The fact is, he killed all the mom-and-pops that made up those little town centers, and there was no one else doing that. Kmart was not an issue at that time; they were big, but they were in the city areas. . . . Consumers loved him because he really lowered their costs of buying things. But it's the businesspeople who died in the process."

David Glass vehemently denies that Wal-Mart killed the small stores. "There are far more small businesses that go out of business in towns where there is not a Wal-Mart," he argues, "than where there is." He asserts that the small businesses' real problem was that, "They didn't change with the times. ... They wanted to open at 8:00 and close at 5:00. ... They didn't want to be open on weekends, because they wanted weekends off and would never ask themselves the question, when does my customer want to shop.... It's just like dirt roads going away.... It's just an evolution of America."

What can managers take away from Walton's growth strategy? Although few companies have Wal-Mart's size advantage, there are lessons that can be applied in other business situations:

  • DON'T BUILD WHERE THEY ARE, BUILD WHERE THEY ARE GOING TO BE. Walton's early strategy of building Wal-Marts where there were no other stores made great sense. By building stores and waiting for the population to grow out to him, he was building for the future. Think of ways to apply that lesson to your business by creating products or entering markets that might still be a year or two from fully developing. That leads to a second, closely related idea.

  • BE FIRST TO MARKET. In the towns where he built his early stores, Walton's location strategy ensured that he was the first to market. Companies that are first to market with a new product or service often reap substantial rewards. Of course, being first is easier said than done. One way to try to anticipate future needs is to incorporate a "first to market" mind-set into your planning and training. Consider assigning one of your key managers the task of leading a small team charged with coming up with one or two product ideas that might pay dividends for the future.

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