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Published: 4/27/2004

Walton succeeded in taming two 'villains'

UNLIKE some of my grumbling friends, I like the new Wal-Mart store on Central Avenue. It has great prices, large stocks, and helpful employees who seem to like their jobs. And though founder Sam Walton has gone to the Big Store in the Sky, I never visit a Wal-Mart without breathing thanks that he tamed two "villains" from my youth in Nebraska.

One "villain" from this 1930s period was the "middleman." Time and again, I heard my elders blame high prices on mysterious "middlemen" who stood between the producer and consumer while skimming off high profits.

A typical example in this farming community was the low price of wheat versus the high price of a loaf of bread. We heard repeatedly that the farmer was paid very little for the amount of wheat in one loaf, while the rest went to middlemen who contributed little but captured most of the money.

The second "villain" was the chain store. These were local branches of national firms such as Safeway and Montgomery Ward, and they were using lower prices to drive local retailers out of business.

But we were warned that the low prices would survive only until local competitors had been completely vanquished. Then the predatory chain stores, cheered on by greedy middlemen, would boost their prices to sky-high levels and we would be powerless to resist them.

When all this grumbling was going on, Sam Walton was a young clerk in a J.C. Penney store, just beginning to learn something about the retail marketplace. He must have heard the same complaints, and might have even been told that there were no more opportunities in business - the middlemen and the chain stores had it all.

But Sam went ahead anyhow, laying down a growth record that stands as one of the greatest achievements in American business. He was consistently able to offer low prices, but that's possible only through shrewd purchasing and efficient cost and inventory control practices.

Wal-Mart has been extremely successful in yanking good prices out of the "middlemen" in its supply system. Sam even negotiated personally with General Electric's Jack Welch for great deals on light bulbs. It's not likely that any of the so-called "middlemen" who supply Wal-Mart get away with anything.

This ability to restrain the middleman also became a good deal for customers.

And what about the chain stores that were going to drive all the independents out of business in order to charge ruinously high prices later on? Well, it never happened, and people like Sam Walton are the reason it never happened. Most of those chain stores that appeared so threatening in my Nebraska hometown have themselves disappeared from the market.

Safeway folded up its local store in the early 1980s, J.C. Penney is struggling, and Montgomery Ward is history everywhere. In the meantime, Wal-Mart succeeded there so handsomely that it actually closed a smaller store and put in one of its giant operations. Some people grumble about it, but the parking lot is always full.

Wal-Mart's spectacular success has raised complaints about independents it has driven out of business. Will Wal-Mart then charge sky-high prices when it virtually owns the market? That's not likely. Even now, there might be a young Sam Walton type somewhere in a Wal-Mart store who has an even better idea for a future retail business.

Nobody understood that better than Sam Walton.

Mel Barger is a free-lance writer in Toledo.



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