One store fits all
Six years ago, a giant U.S. retailer looked north and decided
to get serious about foreign expansion. The Canadian gambit did
the trick. BARRIE MCKENNA visits Wal-Mart HQ in Bentonville, Ark.,
and finds the new target is global domination
Research by Rick Cash; Sources: The Fortune Global 500, The Globe And Mail Library,; International Franchise Association, World Bank,; Organization for Economic Co-operation and Development,; World Tourism Organization, International Finance Corp.,; Forbes, International Monetary Fund, http://www.walmartstores.com
Thursday, October 19, 2000
Inside the cavernous Wal-Mart distribution centre No. 6094, Greg Carpenter looks on proudly as a computerized camera mounted overhead scans a relentless stream of boxes racing down a conveyor belt.
There are TVs from South Korea, batteries from Japan and jeans from Canada. As they pass by, at 10 kilometres an hour, the computer records the contents of each box, its dimensions and where it is destined.
Then each item is automatically dispatched to one of 102 trucks waiting one floor below, and a Wal-Mart store somewhere is instantly billed for the merchandise.
"This is the most technologically advanced conveyor system in the world," boasts Mr. Carpenter, a manager at the newly opened centre. "It's the Cadillac."
Plunked down between pig farms and cow pastures in a remote patch of northwest Arkansas, this warehouse is at the heart of what has made Wal-Mart Stores Inc. one of the most dominant retailers the world has ever known.
From its improbable base in Bentonville, a town of just 12,000 people, Wal-Mart is laying the roots for a global retail powerhouse.
It has been less than a decade since it opened its first store outside the United States, in Mexico City, and just six years since its second foreign venture -- the acquisition of 122 Woolco outlets in Canada.
Now, the merchandising empire born in 1962 when founder Sam Walton opened his first store in nearby Rogers, Ark., is the largest retailer in Canada and Mexico as well as at home.
Flush with the success of its North American beachheads, it is feverishly opening stores and stalking rivals abroad. In 1995, Wal-Mart expanded into Argentina and Brazil, adding China in 1996, Germany and Korea in 1998 and Britain last year, when it paid $10.7-billion (U.S.) to acquire the 229-store ASDA chain.
Wal-Mart executives love to talk about their low prices and their stores' ubiquitous, grinning "greeters." But a near-messianic drive to root out costs and inefficiencies at every turn is equally responsible for the discount giant's success.
For example, the distribution centre in Arkansas, covering the equivalent of 24 football fields, can handle 15,000 boxes an hour with the help of nearly 20 kilometres of conveyor belts strung like Christmas-tree lights throughout the four-storey warehouse.
A bulk shipment of batteries that might once have sat for weeks in a conventional warehouse can be split up here in a matter of hours, with barely the touch of a human hand, and be shipped to a store needing just a few AA batteries. A supplier thousands of kilometres away can log onto the Internet to see how the same batteries are selling at any one of Wal-Mart's 4,100 stores worldwide.
The company motto -- "Every Day Low Price" -- isn't so much a pledge to shoppers as it is a reminder to rivals and suppliers that it is not going to cede an inch in the retail war.
And that means getting batteries into the hands of flashlight owners as fast as possible, anywhere in the world.
Wal-Mart is not alone in its drive to be No. 1 everywhere. From retailing to computer software and financial services, corporate America is outpacing most of the world at the dawn of the new century. And it is doing it thanks in large measure to a technology-driven productivity revolution.
Since the mid-nineties, U.S. labour productivity has grown at twice or three times Canada's rate every year, and well ahead of most other major industrialized countries. Productivity -- the output of the economy for every hour worked -- grew 3.2 per cent in the United States last year, compared with just 1.4 per cent in Canada.
Wal-Mart is the beneficiary of a remarkable U.S. business environment that is better suited to innovation than almost any other country in the world, suggests Andrew Wyckoff, a senior economist at the Organization for Economic Co-operation and Development, who has just published a major study of the new economy.
He says the United States has provided a welcoming financial milieu that is a magnet for companies, ideas and entrepreneurs from around the world.
Mr. Wyckoff also credits the United States' unmatched embrace of the Internet for its ability to leap ahead of other nations.
"The Internet is relatively cheap, ubiquitous and fairly easy-to-use technology that made the existing capital stock of computers and communications infrastructure a lot more useful," he explains. "That makes the computer on your desk more productive than it was 10 years ago."
This U.S. productivity explosion, which has touched even the remotest corners of this country, has propelled the United States into its 10th year of economic expansion.
It has also contributed to a soaring standard of living, record low unemployment, falling poverty rates, low inflation and a booming housing market. And until a recent reversal on Wall Street, it was also responsible for the bull stock market.
Economists say the productivity boom may have five or more years left to run, as companies such as Wal-Mart pour their profits back into new technology.
Wal-Mart, which uses Bentonville and the surrounding area as a sort of real-world testing ground for many of its new schemes, will build five of its $85-million high-tech warehouses every year worldwide for the foreseeable future.
It will also add 10 grocery distribution centres annually to service its ever-expanding global retail empire.
Backing up Wal-Mart's logistics and distribution system is a computer system reputed to be the most powerful in the corporate world, with storage capacity of more than 100 terabytes of information. Only the U.S. government has a larger computer network.
It is somewhat fitting that Arkansas not only produced one of the greatest corporate success stories of the nineties, but also the U.S. president who helped guide the country to one of its longest periods of economic expansion in history. Bill Clinton, born in Hope, Ark., has talked of helping the country to build "a bridge to the 21st century."
Through his self-styled "third way" in politics -- a mix of liberal and conservative policies -- Mr. Clinton saw it as his mission to guide the United States through the turmoil of globalization and to "manage the nation's transition from the Industrial Age to the Information Age," author and former Clinton aide Joe Klein concludes in the current issue of The New Yorker.
When Mr. Clinton took office in 1992, Wal-Mart had 371,000 employees and 1,714 stores -- all in the United States.
It now has more than 1.1 million employees in nine countries, and every year it hires more people than General Motors employs.
Wal-Mart is on track to surpass GM as the largest company in the world within the next 12 months (measured by total sales).
Its sales have grown nearly fivefold in the eight years since Mr. Clinton moved to Washington.
From its world headquarters in Bentonville, Wal-Mart has virtually saturated the United States with its so-called big-box discount stores. Eager to continue growing, it has recently branched out into banking, pharmacies and groceries.
Like Mr. Clinton, Wal-Mart is also a product of the baby-boom generation.
Sam Walton rode a wave of small-town and suburban expansion to become the largest retailer in the world -- he also became the world's richest man before he died in 1992.
Almost oblivious to many of the retail trends of the past four decades, Wal-Mart ignored the rise of high-end department stores and large shopping malls. Mr. Walton chose instead to blanket small-town U.S.A. -- places that other chains largely ignored -- with discount stores.
Even the recent frenzy over Internet shopping has had relatively little impact on Wal-Mart. Dot-coms were supposed to swamp bricks-and-mortar stores, but it has not happened yet. Wal-Mart recently temporarily shut down its own Web shopping site, which had suffered from poor sales, for a major redesign.
But Wal-Mart is using the Internet. Since 1997, its largest suppliers have had access to its Internet-based Retail Link system, which allows them to track sales of products daily, right down to a particular Wal-Mart store. The same system also gives Wal-Mart managers a complete picture of where goods are and how fast they are moving through the system.
Now, as Americans prepare to choose Mr. Clinton's successor, Wal-Mart is battling to be as dominant outside the United States as it is within, moving aggressively into foreign markets as it surfs on the success of its early forays into Canada and Mexico.
This year, nearly 20 per cent of Wal-Mart's estimated $190-billion (U.S.) in sales will come from outside the United States. Its massive supply chain spans the farthest reaches of the globe.
Roughly a quarter of its stores -- 1,041 -- are abroad. And its international operations are grabbing an ever-larger share of Wal-Mart's growth. International sales grew four times faster than the company-wide average last year, soaring nearly 90 per cent.
"We are very early in the curve in our international growth," John Menzer, president of Wal-Mart's international division, says humbly.
". . . We would like to be the market-share leader in every market we're in."
Wal-Mart plans to add more aisles and square metres of shopping space in 2001 than it has in any of its first 38 years of existence -- roughly a third of it outside the United States. Mr. Menzer points out that it only makes sense, since Americans make up just 4 per cent of the planet's population.
Every week, there are fresh rumours of expansion into new markets, including France.
Just as Wal-Mart transformed the landscape of the United States, starting in obscure Southern and Midwestern towns in Arkansas, Missouri and Oklahoma, it is now helping to change the way people shop in places as far away as China and Germany.
Wal-Mart seems to stir things up wherever it goes -- it triggered industry-wide government pricing probes in Britain and Germany. In Germany, which has some of the most restrictive retail laws in the world, the government has accused Wal-Mart and its competitors of charging too little -- of pricing below cost.
"We are the pioneer, and you know what happens to pioneers, they get some arrows in them," Mr. Menzer says with a chuckle. "We see that when we go into a country, our competition does get better. We see them take a look at some of the things we are doing and we take a look at what we're doing.
"The competition typically gets stronger because the customer expectations are raised by Wal-Mart coming to the markets."
Critics, of course, are less charitable. Writer Bob Ortega, in his recent book In Sam We Trust,calls Wal-Mart a "blanderizing steamroller" that has revolutionized retailing, but destroyed communities.
"Wal-Mart, with its size and aggressiveness, was becoming the symbol of some of the most endemic and dismaying aspects of American society: mindless consumerism, paved landscapes and homogenization."
There is no doubt that Wal-Mart has left an indelible mark on towns and cities like Bentonville everywhere.
"Wal-Mart pretty much is this town," college student Rob Newton says with a sigh. He works as a waiter at a local hotel, but "you might say I work for them."
Wal-Mart employs 12,000 people at its head office and has triggered a local home-building boom. Unemployment is 1.8 per cent in the surrounding area, less than half the national average.
Dozens of Wal-Mart's largest suppliers have also opened up offices here, filling newly built strip malls.
Wal-Mart has absorbed a kind of religious zeal from this Bible Belt region, where big-box evangelical churches seating 5,000 people or more seem to be the norm.
It applies an almost cult-like style of personnel management the world over. Workers are referred to not as employees, but as "associates." (The lone exception is Britain, where ASDA calls its workers "colleagues"). The human-resources department is known as the "people division."
Dozens of internal awards are handed out and company slogans are drummed into workers. At store meetings in Britain and Canada, employees shout out cheers such as "Who's No.1? The customer."
Farther from Bentonville, the methods are different, but the objective the same. In China, Wal-Mart sponsored an employee beer-chugging contest and exhorted workers to come up with a suitable chant.
Meanwhile, back in Bentonville, departments are busily trying to outdo each other with the most elaborate Halloween decorations.
Even eight years after Mr. Walton's death, the company works hard to foster the folksy and humble corporate culture that he was fond of. The Bentonville head office -- or "home office" -- is housed in a modest collection of connected brick and metal-clad buildings on Sam Walton Boulevard. The complex, across the street from Uncle Jay's BBQ, looks more like a hospital than a corporate headquarters.
Throughout the building, there are giant pictures Mr. Walton, along with many of his famous quotations and guiding principles, such as, "Smile when you are within 10 feet of a customer." His likeness is carved into a pumpkin sitting on the reception desk, and many managers talk fondly of him as though he were still alive.
Inside one of Mr. Walton's first stores, opposite the town square, the company has opened a visitors' centre. Part corporate museum and part shrine to Mr. Walton, it traces Wal-Mart's rise from small-town five-and-dime to global retailer. There are videos of the founder's boyhood, his beloved red and white Ford pickup truck, and a mock-up of his office as it was the day he died. (There is also a special display celebrating Wal-Mart Canada.)
But most striking is that the town square, watched over by a monument to the town's Confederate war dead, has itself become a museum display of sorts. There are law offices and municipal buildings, but virtually no stores or restaurants. Most storefronts are either boarded up or converted to other uses.
Motorists who miss the small sign for the Wal-Mart visitors' centre might not know there is a downtown Bentonville. That is because the commercial heart of the town -- like in so many communities -- has moved out onto the two major highways that surround the old downtown. There, alongside the Wal-Mart Supercenter, is the usual mix of fast-food restaurants, gas stations and hotel chains found anywhere in North America.
"We're here in the middle of nowhere and nobody paid us much mind for years," a Wal-Mart spokesman says. "We kind of went about our own thing."
Now, Bentonville is an international retail mecca. Every week, hundreds of Wal-Mart suppliers come from around the world to show their wares and make deals. In the middle of the week, more than a dozen local hotels are filled.
To accommodate the growing traffic, the community last year opened a new "international" airport that offers jet service to major U.S. cities including Dallas, Chicago and St. Louis.
Along with everything else, Wal-Mart's growing foreign operation is making its presence felt in Bentonville.
Workers like James Leeson, a 28-year-old buyer from ASDA's head office in Leeds, come to learn the Wal-Mart system.
Here for what he expects to be a three-year stay, Mr. Leeson bemoans the fact that he is a single guy living in the heart of the U.S. Bible Belt. "It couldn't have been more different," he says. "This is pretty and beautiful, but it's all Wal-Mart. . . . Wal-Mart here in northwest Arkansas is essentially the government."
Still, he is ready to sacrifice a bit on the personal side to learn the ins and outs of Every Day Low Prices, or EDLP in Wal-Mart-speak, from the masters.
"I've been here six months and I still don't know anything. This Every Day Low Price system is a philosophy."
By the numbers
Corporate America is quickly overtaking the rest of the globe. Take, for example, the fact that the top five international franchises all began life in the United States:
-*McDonald's Corp. (with 26,000 restaurants in 119 countries);
-*7-Eleven Inc. (19,600 stores in 19 countries);
-*Subway Sandwiches & Salads (14,603 in 75 nations);
-*Burger King Corp. (11,180 in 58 countries);
-*Pizza Hut Inc. (10,200 in 87 nations).
(All figures are in U.S. dollars
46% The share of market capitalization of the world's stock exchanges that is made up of companies on U.S. exchanges, end of 1999.
$8.7-trillion: U.S. gross domestic product, 1999.
$30.2-trillion: World GDP, 1999.
Four: Americans at the top of the list of the world's wealthiest people.
1 in 5: Odds that a U.S. member of the International Franchise Association operates franchises in 94 nations.
151: U.S. companies on Fortune's list of the world's largest corporations, ranked by revenue, 1994.
$2.9-trillion: Total revenue of those U.S. companies.
149: Japanese corporations on the 1994 list.
$3.8-trillion: Revenue of the Japanese firms.
179: U.S. companies on Fortune's list, 1999.
$4.68-trillion: Revenue of those U.S. companies.
107: Japanese firms on the list, 1999.
$3-trillion: Japanese revenue.
12.7 per cent: U.S. share of the world's merchandise exports, 1998.
11.8 per cent: The percentage in 1990.
14 per cent: U.S. share of the world's exports of goods and services, 1998.
12.6 per cent: The 1990 figure.
First: Rank of the United States on the World Economic Forum's list of the world's most competitive nations, 2000.
First: Rank of Singapore from 1996 to 1999.
10,000 to 100,000 square feet: The size of a Wal-Mart store.
885,000: U.S. Wal-Mart employees.
255,000: Workers abroad.
100 million: Number of customers served weekly worldwide.
$165-billion: Total sales for the fiscal year ending in January of 2000.
$22.7-billion: Sales from its international division, an 85.6-per-cent increase from the year before.
Every Day Low Prices: Wal-Mart's policy on competitive pricing.
The Sundown Rule: Wal-Mart's expectation that requests will be responded to the same day they are made.
The Ten-Foot Attitude: Wal-Mart's tenet that employees serve customers who are in close proximity.
Saturday, Oct. 14: Overview
Monday, Oct. 16: Diplomacy
Tuesday, Oct. 17: Culture
Wednesday, Oct. 18: Science
Thursday, Oct. 19: Business
Friday, Oct. 20: Military