I am always a bit amused when Sam Walton is listed as the greatest retailer in US history, far above any others. I think Sam would be a bit amused, as well.
Don’t get me wrong – Sam Walton was a great retailer, and his company still has some outstanding “DNA” that he injected into its “soul.”
But Sam Walton built his vision and his company on the shoulders of those who went before him, and innovators and friends who were his contemporaries. He was a curious, driven man – one of my heroes – but he was not one of the top retailing innovators.
The policies and techniques of global retailers today stem directly from the innovations of the all-time greats, including: George Huntington Hartford (A&P, the first major chain); Aristide Boucicaut, John Wanamaker, RH Macy & his successors the Straus family, Marshall Field, and Fred Lazarus (the department store); Frank W. Woolworth; Michael Cullen (the supermarket), James Cash Penney, and Richard Sears and Julius Rosenwald (Sears, Roebuck).
I believe the most important innovations since about 1950 have been four:
First, the discount department store, which can be credited to several East Coast entrepreneurs such as Eugene Ferkauf of EJ Korvette’s, but which was “perfected” by Harry Cunningham and his successors at Kmart in the 1960s and 1970s. This concept applied the basic ideas of Cullen’s supermarket to general merchandise (department) stores. Wal-mart and Target have "perfected" this concept.
Second, the superstore or category killer, which applied the cost-saving technologies of the supermarket and discount department store to specialty categories. In this field the pioneer was Charles Lazarus of Toys R Us, although the largest such firm was built by Bernard Marcus and Arthur Blank at Home Depot. Best Buy, Staples, Bed Bath & Beyond, Barnes & Noble, and many other great chains applied the principles developed by Lazarus to their own categories of specialty merchandise.
Third, the warehouse club, possibly the most radical of all retail concepts. More about that in a minute.
Fourth, the online store or “ecommerce.” I think it is a bit early to fully analyze who best understood this still-emerging phenomenon, but it is likely the accomplishments of Amazon and Jeff Bezos will stand the test of time. The ultimate judgments on eBay, which is really more of a marketplace than a retailer, of established companies like Walmart.com, and other players like Apple’s ITunes need more time to fully understand their historical impact.
But let’s return to the warehouse club, which is what brings me to the loss on Monday (at the age of 93) of the industry pioneer Sol Price of San Diego. Sol Price had founded a discount store chain called Fedmart way back in the early stages of the discount store boom. Sam Walton was a friend of his, and in Sam’s great book Made in America he says he took more ideas from Sol Price than any other single person.
After Sol sold his Fedmart chain to a German company (which mismanaged it until the stores were mostly bought by Target), he dreamed up the idea of the warehouse club and opened the first “Price Club” in San Diego in the 1970s. Sol’s idea was a huge store, limited selection, limit customers to “members,” extremely lean with low overhead, and the lowest gross margins (about 10%) in the history of retailing. Everyone thought he was crazy, but that store was soon among the highest volume retail stores in the state of California, if not the highest (Macy’s on Union Square in San Francisco was probably the only contender for that title).
Customers drove from miles away, often for the cheap tires. But also for travel deals and a ton of other stuff at unprecedented prices. Once it became clear to the industry that such high volumes were possible, the clones came along – at least a dozen of them, including Sam Walton’s Sam’s Club. One of Sol’s associates, Jim Sinegal, moved to Seattle and started Costco. Over time the field narrowed to a handful of players.
Sol was always a contrarian. I remember an annual report to his stockholders where he essentially said, “Our stock is way too high, you’d be crazy to buy it now.” Not what you expect from your typical greedy capitalist. Another quote from crazy Sol was, “The secret to retail success is the intelligent loss of revenue.” He meant that you had to know what not to carry, what customers not to serve. I showed him my idea for a book superstore and he said it was way too complex for him to invest in. Sol Price defined lean, mean, and efficient.
He was not a go-go growth guy: he didn’t add stores just to rack up the numbers. So it was not too long before Wall Street liked Costco and Sam’s better, and Sol sold out to his protégé, Sinegal’s Costco. Today Costco continues to run at the lowest gross margins (meaning lowest prices) in the history of retailing, and still pays their employees among the highest wages in the history of retailing. (Sol always took care of “his” people.) This is quite an accomplishment, and puts the lie to the idea that low prices require low wages. Many of these philosophies stem from Sinegal’s teacher, Sol Price.
And Wal-mart continues to operate Sam’s Clubs, with mixed success – their average store does substantially less volume than the average Costco, including the old Price Club stores.
Sol’s son Robert continues in his father’s mold, operating Price Smart stores outside the US.
Sol also was a significant contributor to society in other ways, including philanthropy to the University of California at San Diego. A look at the San Diego paper’s website shows how many people were positively affected by Sol’s generosity and leadership.
When you add Sol Price’s impact on Wal-mart and the discount store industry (through his early efforts at Fedmart and friendship with Sam Walton) to his invention of the radical idea of the warehouse club, he must be considered one of the most important innovators in the history of retailing. Only by studying greats like Sol Price can we really understand the retailing of today and of the future.
Those of us who love the retail industry will miss his presence and his iconoclastic mind.