Walmart 02:59:37

I love how this book is called Made in America and the Sony story is Made in Japan. I don't know who stole from who there or if it was just the natural title they both chose and didn't even consider it, but that's amazing. So, so great. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down, say it straight. Another story on the

Welcome to Season 11, Episode 1, the season premiere of Acquired. It's a podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal, and I am an angel investor based in San Francisco. And we are your hosts.

When we did our Sony episode, we discovered that many Steve Jobs-isms really started as Accio Morita-isms. And in all of the research for today's episode, we learned that many of the mental models and quotes ascribed to Jeff Bezos were really the original thoughts of Sam Walton. But of course, that is also not entirely true either, since Sam Walton's greatest gift was the ability to digest.

digest, learn, adapt, test, and integrate new ideas from others.

Today, we explore Sam's creation, which ushered in a new era of American retail and now global retail from the post-World War II period all the way to today. Some astonishing stats on the company. It is the largest by revenue in the world, doing nearly $600 billion a year in sales. Although Amazon is close behind now. It's true. It's true.

It is the world's largest employer, other than public entities like governments employing nearly 2.3 million people around the world. It is still controlled by the Walton family, who owns just over 50% of the business a full 60 years after it was founded. Oh, we're going to get into how and why that is the case.

One other fun stat for you. Today, 90% of America lives within 10 miles of a Walmart, but there are three places where that is not true and a fourth kind of where it's technically true, but not in spirit. Do you know what those places are? No.

San Francisco, Seattle. No way. Boston. And the fourth place is Manhattan in New York City. It is not technically true because there is a Walmart across the river in New Jersey that is less than 10 miles away. But in spirit, that is true. What, two and a half hours to get there or something? Yes.

Wow. So you're saying it's not a company that is built on the urban core. Is that where you're going, David? It's the biggest company in the world. It services all of America except where we live. Yeah, it's fascinating. This really is one of the most classic business stories in America or in the world, period. And I kind of can't believe that we're not covering it until now. So let's start season 11 with the bang.

There are so many lessons that are totally applicable today, and every entrepreneur can learn from Sam Walton.

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With ServiceNow's platform, your business can put AI to work today. It's pretty incredible that ServiceNow built AI directly into their platform. So all the integration work to prepare for it that otherwise would have taken you years is already done. So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to servicenow.com slash acquired. And when you get in touch, just tell them Ben and David sent you. Thanks, ServiceNow.

Well, after you finish this episode, you should come discuss it with the 12,000 other smart, curious members of the Acquired community at acquired.fm slash slack. And if you are dying for more Acquired, go check out the Acquired LP show. You can search for that in any podcast player. The next episode will be an interview with Patrick Campbell on all the juicy details of how his $200 million acquisition of ProfitWealth

went down step by step, deal point by deal point. And if you want that early, it is already live for paid acquired LPs at acquired.fm slash LP or by clicking the link in the show notes. So cool. Patrick totally bootstrapped ProfitWell, almost like Sam Walton.

Totally bootstrapped. Walmart. Yes. Well, without further ado, David, take us in. And listeners, as always, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only.

Indeed. Well, we do have to thank the man, Sam Walton himself, and his co-author, John Huey, for his autobiography, Made in America, which is just amazing. It's the backbone of the history we're going to tell here. We first got turned on to it going back and rereading The Everything Store and finding out that it was one of Bezos' favorite books and formed the blueprint of how he thought about Amazon in the early days. And I think what's cool reading it is it's

It just struck me that Sam and the Walmart story is like the bridge between the business America that was John Rockefeller and Standard Oil and Amazon and Jeff Bezos. Like this is the connective bridge between those two realities. In many ways, he was the last of the Rockefeller type people.

tycoons, but the first of the sort of modern megacorp, not tech business, but almost tech business era founders. Oh, very much tech business. This is what shocked me reading the story is how much Walmart embraced technology and Sam embraced technology. And I think they were arguably the first corporation in America to embrace computing as a business paradigm. Certainly to embrace their own private satellite network. But yes, I'll save the spoilers.

Okay. We start back in March, 1918 in Kingfisher, Oklahoma, which is right in the middle of Oklahoma, not too far from Oklahoma city at the time in 1918, the population of Kingfisher was 2,500 people today.

It is much larger, bustling metropolis of 5,000 people. But of course, those 5,000 people have just about every retail need of theirs serviced in a first-class way.

by the local Walmart super center that is located just south of town. Walmart grew at a much faster rate than the two acts that Kingfisher grew in a century. This is crazy. Kingfisher, 2,500 person Kingfisher around this time is also the birthplace of the Coleman company, you know, like the outdoor, like camping. Oh, no way. Yeah. Started in Kingfisher, Oklahoma.

Didn't Jim Weber from our Brooks episode start his career at Coleman? Oh, I think that might be right. Oh, yeah. We're on like an accidental CPG retailing kick here. I know. So great.

Well, anyway, back in March of 1918 in Kingfisher, when Samuel Moore Walton was born to Thomas Gibson Walton and Nancy Lee, their first oldest child. And at the time of his birth, Tom and Nancy were farmers. But it was 1918. This was right at the end of World War I. We're heading into the roaring 20s in America. People are raising their standards of living. The country's modernizing.

They wanted to move up in the world. And so his dad goes from working on the farm himself to getting into farm financing. He becomes a mortgage broker for farms, working with his brother in the business. This is a theme that's going to recur in the Walton family. And speaking of brothers, in December 1921, Sam gets one for himself and

one James Lawrence Walton, Bud, better known as Bud. Shortly after Bud is born, the family moves from Oklahoma to Missouri, where they move around a bunch before ultimately settling down in the lovely, we can personally say,

truly, genuinely lovely town of Columbia, Missouri. Home of Capital Camp. Yes. Home of the University of Missouri, Capital Camp, and Permanent Equity and our friend Brent Bishore there. Yep. So the 20s were good times for the Walden family.

Unfortunately, though, for Sam and Bud, maybe fortunately for Walmart, they don't really get shaped by the 20s. You know, they're still like little kids growing up in the 20s. What really shapes them is the 30s. And the 30s were very, very different for the middle of America, all of America. But the hardest hit part of the country during the Depression was the Midwest farming community because of the Dust Bowl. So if you've ever read the

The Grapes of Wrath or any of the great novels, Steinbeck or otherwise from that period. It was terrible. People lost everything. Crops failed. And what was the Walton family doing at this time? They were like doubly leveraged. It wasn't just that they were farmers. They were financers of farmers. So they're living in this nice town of Columbia at this point. Tom has to go travel around to all these farms that he'd financed and

foreclose on them, literally kick people out of their farms, out of their homes. And he would bring Sam and Bud along with him for this. I remember reading in Made in America, I sort of thought that what Sam was going to say is that his father worked with these farmers the best he could to help them save the business where they could or cut a deal. But no, what he actually just said was, and he just did it in the most humane and decent way possible. And you're like, whoa, there were not

deals or negotiations to be struck. It is we are foreclosing and we just have to be a good human to you. Well, this is definitely happening. I mean, that's probably why he brought the kids along, right? Probably hard for somebody to attack him or get too mad if he had his two little kids there with him. I wonder. Yeah. Crazy times. But yeah, so all of this makes an impression on Sam. And Sam says in the book in his very Sam way,

Quote, all of this must have made an impression on me as a kid, although I don't ever remember saying anything to myself like I'll never be poor. But he says one thing my mom and dad shared completely was their approach to money. After all this, quote, they just didn't spend it.

I think we've already kind of made the point, but the Walton family goes on to be the wealthiest family in the world. Still. All of Sam's future generations are worth a few hundred billion dollars, depending on the day that you look at Walmart's market cap, since it's nearly all invested in Walmart. But it's a multi-hundred billion dollar family. Yeah. Incredible to go from that to this in two generations. So...

Like many kids during the depression, Sam and Bud, as they're growing up, they do all sorts of odd jobs around the house to help out the family. Their mom goes in Columbia and gets some cows and sort of restarts part of the farming business. She starts a milk business that they help out, you know, milking the cows, delivering to neighbors in Columbia. Sam starts selling magazine subscriptions and

He also starts selling rabbits and pigeons that he raises in the backyard. I don't know who was buying the rabbits and pigeons, but that's what he does. He learns retailing at a young age, though. Indeed. And then, of course, like every good acquired protagonist, he gets a newspaper route for the Columbia Missourian, just like Warren Buffett.

That's right. That was on Berkshire part one, that episode we did. Yeah, I think that was part one. Yep. Oh, that's right. Because he delivered the Washington Post before later going on to become a major shareholder. So besides all of these sort of proto-entrepreneurial ventures that Sam is undertaking as a teenager...

He also becomes, at age 13, the youngest Eagle Scout ever certified in Missouri history. Ben, you were an Eagle Scout. How old were you when you became a... I got one just in the nick of time when I was 17 and a half. You must get one before you turn 18. That is the last day that you can get one. You cannot become a Boy Scout, and this is the rules now. I don't know if it was the rules then, but until you're like 12...

11 and a half or something like that is when you sort of graduate Cub Scouts. So Sam got his eagle at age 13. So it must have been the only thing he did for that year and a half or whatever. Like that's the fastest advancement to go through whatever five or six ranks in that short a period of time.

Maybe he counted, uh, raising the rabbits and pigeons. Yeah, that's right. Maybe some merit badges in there. So the other thing, this is pretty crazy that young Sam as a teenager exhibits, he becomes the quarterback of the football team in his high school. Sam, if you've ever seen any photos or video, he's such an incredible folksy dude listening to his talks. It's just amazing. He's five foot nine and very slight.

So you wouldn't think that he's going to be a great football athlete. Of course, we're talking about American football here. This is incredible, though. I think they win the state championship every year because he never loses a game. This is crazy. He writes about this in the book. He says, I think that record had an important effect on me. It taught me to expect to win, to go into tough challenges, always planning to come out victorious.

Later on in life, I think Kmart or whatever competition we were facing just became Jeff City High School, the team we played for the state championship in 1935. It never occurred to me that I might lose. To me, it was almost as if I had a right to win. Thinking like that often seems to turn into sort of a self-fulfilling prophecy. And man...

Was that Sam Walton? There's like two sort of contrasting ideas that I've heard different VCs and different founders espouse on both sides. One is, you know, you learn from your mistakes and you learn from failure. The other is, if all you've ever done in your entire career is be in really high performing, very successful environments, then that is kind of all you know how to do. And that's the bar that you hold yourself to. And I think there's totally merit to both.

I think both of these forces shape Sam, right? Like the depression, the Dust Bowl, foreclosing on farms, you know, his dad's struggles, and he never loses a game. All of that goes right into Walmart.

So much of Walmart is trying something, doing an experiment, watching it fail on some small scale, choosing not to roll it out, or watching it succeed and then choosing to rapidly roll it out across as many stores as possible. We'll get into this, but the very first store opening, they put a whole bunch of watermelons outside. It was swelteringly hot and they started exploding in the parking lot and getting watermelon juice all over all the customers in their cars.

That was actually Walmart number two. Oh, sorry. That was in Harrison. We'll get there. But yes, legendary story. So after high school, he goes on to college locally at the University of Missouri. The only way he can go because his family has no money, it's the depression, is he attends on a ROTC scholarship. So he still has to like pay his living expenses and mom and dad and the family aren't going to help out. You know, there's no money in the family. So he keeps his newspaper around.

But like he's busy, you know, and he actually he has like political aspirations on campus. He becomes the president of the class. He's greeting everybody. He's in ROTC. He's busy. So he hires a few people under him to actually like do the delivery of the newspapers and help kind of scale the business.

By the end of college, he's making four to $5,000 a year from his newspaper activities, which that's like huge. We're going to get into what his first job pays him in a minute, but four to $5,000 a year in the thirties during the depression, that's a lot of money.

Yeah, it's crazy. And there's a great quote in the book from the circulation manager of the Missourian says, we hired Sam to deliver newspapers and he really became our chief salesman.

When school started, we had a drive to get the kids in the fraternities and sororities to subscribe. And Sam was the boy we had do that because he could sell more than anybody else. He was good. He was really good. It's so interesting that this story parallels Warren Buffett's story in so many ways, but the reasons that they're successful are different.

Warren's is about understanding the value of compounding. And it's not that Sam didn't, but it's that Sam was a salesman. He's a merchant. He's a retailer. Like he understands how to learn what people want and then go procure the thing in the way that they want it and deliver that to them. There are different superpowers that manifested both in building early successful periodical distribution systems

sub-companies. Warren basically stayed an entrepreneur. Sam is clearly this natural entrepreneur. When it comes time for graduation though, he decides, you know what? I think I'm just going to go get a regular job, even though he's making so much money from his newspaper businesses. So he interviews with two companies who come recruit on campus, JCPenney's and Sears.

And he goes with the offer from JCPenney. Which is interesting because Sears was the dominant retailer. Everyone bought everything for their homes, including some homes from Sears. Yes. I think the first house we lived in in Seattle was a Sears catalog home. Wow. Yeah. So like, this is what's funny. And you know, and Sam is like, he really keeps it real in the book. You know, you could tell this like,

backward looking narrative of he connected all the dots. He wanted to go learn retail, learn the craft from the best, in which case he would have gone to work for Sears. But no, he writes, I had big plans for after graduation. I figured I would get my degree and go on to the Wharton School of Finance in Pennsylvania. Buffett, just like Warren. But

But as college wound down, I realized that even if I kept up the same kind of work routine I'd had all through college, I still wouldn't have the money to go to work because he would have had to pay tuition. So I decided to cash in what chips I already had. I visited with the two company recruiters who came to campus. Now I realize the simple truth. I got into retailing because I was tired and I wanted a real job. Wow.

It would not bring him any rest, though. No, no, no, no. Maybe this first job at Penny's, or as he calls it, Penny. I don't think he colloquializes the way that people did in our era. Like, I always called JCPenney Penny's. Right. Well, he ultimately ends up getting to meet James Cash Penny himself. Wait, the guy's name is James Cash Penny? I know. Isn't that awesome? James Cash Penny. That's almost as amazing as Price Club being founded by a guy named Saul Price. Oh.

Oh, we are going to talk a lot about sole price. Yes. So he's tired. He just wants a regular job, but he's this natural born salesman. So he goes to work in the Des Moines, Iowa store of JC Penny as like a floor salesman. And he does great. I mean, literally James Cash Penny comes and meets with him himself. And the story that Sam tells is JC shows him how to

tie, you know, packages, merchandise that is sold with the least amount of twine and paper possible, but still make it look nice to save money. But of course, pretty quickly, this only lasts 18 months because in December 1941, Pearl Harbor happens and the US, of course, enters World War Two. And Sam had been in ROTC. He's commissioned. He's going to join the army. He was looking forward to this. So Bud, his brother, joins the Navy, becomes a decorated bomber pilot in the Pacific and

Sam thinks he's going to go probably off to Europe, but he fails the physical exam for combat duty. It turns out he had a heart irregularity. And so he's kind of depressed. He's unhappy about this. Bud's going off to join the Navy and Sam is going to stay home in America at a desk job. So before he gets his commission.

He leaves Des Moines and he goes back to Oklahoma. I'm not exactly sure why he just sort of traveled back to Oklahoma. He says in the book that he was sort of depressed at the time and he ends up in Claremore, Oklahoma, which is a small town outside of Tulsa. Which it's interesting to point out. We've mentioned six, seven towns so far and

I don't think most people would have heard of a single one of them. There's a parallel here between Walmart's success and the fact that most people haven't heard of most of any reference that we've made so far. And there one night at a bowling alley in Claremore, he meets and falls in love with a girl named Helen Robson. And Helen was from Claremore, but her father, L.S. Robson, was unlike Sam's family and

a very wealthy and successful businessman, financier, trader in the broader Tulsa area. And he ends up taking a big shine to Sam and would become hugely influential along with Helen because he marries Helen, of course. And Sam would say the Robsons were very smart about the way they handled their finances. Helen's father organized his ranch and family businesses as a partnership between

And Helen and her brothers were all partners. Helen has a college degree in finance, which back then was really unusual for a woman. And Mr. Robson advised us to do the same thing with our family, which we did way back in 1953. And that partnership happened.

that Helen and Sam set up is today Walton Enterprises, which owns 36% of Walmart and then individual family members and trusts, I think mostly Bud's family, own the other 11, 12%.

Yeah.

at a really high level, Walmart always was a family partnership. It was always something where the economic and spiritual ownership and decision-making always was the Walton family. And of course, Sam's the guy, but there was a lot of family meetings to make decisions for the business. And this is why, because the family were all partners in

in Walton Enterprises, they couldn't just sell their stock. The partnership, the family as a whole, had to decide to sell, and that allowed them to keep majority control of Walmart all

all through the history. Sam talks about this. He says, he thinks it's the big reason why corporate Raiders or larger companies like Kmart never came and acquired them because the stock was never splintered. It was all within the partnership. And he actually writes one of the real reasons I'm writing this book is so my grandchildren and great grandchildren will read it years from now and know this. If you start any of that foolishness, like changing the structure, selling off stock, you know, going off and doing, you know, fancy things,

Buying NBA and NFL teams. Buying NBA and NFL teams, which they do now. I will come back and haunt you. So don't even think about it. I love that warning. So Sam and Helen get married and Sam gets posted in a bunch of places all around the country doing kind of internal intelligence work for the army. He goes to Utah, plenty of other places. And he decides that when the war ends and he gets out of the army, he's going to go back into retailing.

But now he has the support of Helen and her family and her father, LS, and their finances. So he knows I now have access to some amount of capital. Like I can be an entrepreneur. I don't necessarily have to work for somebody. So when the war ends, LS initially wants them to move back to Claremore.

But Helen and Sam kind of decide together. They're like, well, we want your support, but we don't want to be totally under your wing and in your shadow. So Sam, he's got big ambitions.

He and a buddy decide that they want to buy a federated store, department store franchise in St. Louis. They're going to be big. You know, he'd come from JCPenney in Des Moines. He wants to be a big city department store owner, magnet entrepreneur. Helen vetoes this outright. We would not be talking about Walmart if Sam had moved the family to St. Louis. So

Helen says, look, one, I don't want you doing any partnerships with non family members. Sam says her family had seen some partnerships go sour and she was dead set on the notion that the only way to go was to work for yourself and for your family. And two, she says, I don't want to live in a big city. I want to go live in a small town like where I grew up in, just like Claremore. I

We are not allowed to move to any town that has a population of more than 10,000 people. I mean, her whole thing was, I want to raise my kids the way that I was raised. And she looked at Sam and said, you were raised the same way, small town. And like, that's what we're going to do. And so whatever business he did had to be family owned and controlled and have a small town based strategy. And so like what seems so intentional and so genius actually stems from the fact that she just vetoed his original idea.

Totally. I mean, it's crazy. She had a undergraduate degree in finance for a woman at that time. I mean, she was very involved, obviously, in the strategy of the business. In the 30s and 40s, the number of women with undergrad finance degrees in the US was probably tens of thousands. It could not have been a large number.

Yeah. And also like kudos to the family and LS and his wife for encouraging her to say she had brothers. Like it would have been easy for him to say like, oh, okay, the boys are all going to take over the business. Right. Which is like what we saw in the New York Times family or yeah. Or the Rockefellers too.

So Sam, you know, he doesn't stay down for long. I think he was a little disappointed that his wife had overruled him, but you know, he finds a way. So he goes back to the company that owned federated, which has a company called Butler brothers. They were franchisors of federated. They were based in Chicago. And he asks,

Well, do you have any department store locations that might be available in a small town of, say, 10,000 people or less? And the Butler Brothers guys are like, we don't really do department stores in towns like that. But we do have another sort of spinoff operation that we run, which is our variety store franchising business.

Like there literally wasn't enough people they believe to support a department store. Variety stores are, they're like glorified general stores. I mean, when if you think about a town that's like two, three, 4000 people, it really is like if you visited an old West town and looked at a general store, it's like that on steroids, you know, it's like that, but

A few decades later, you know, variety store businesses. Yeah, that's exactly it. After the depression and after World War II, that was how small towns and areas were serviced at retail. And they're mostly franchise operations. This particular one was Ben Franklin was the brand name, like

Benjamin Franklin, general store type place. And when you say franchise operation, it's because it's way too much of a burden to source your own inventory, carry your own inventory, maintain all those different vendor relationships. If you're in one of those towns, you're serving 2,000 people, you're kind of the one store there. What you really want is to sign a contract and just get the shipment of the stuff that goes into the Ben Franklin stores in all the small towns. Yeah, and just be...

literally the merchant serving your customers, that mindset dominated. It's worth a pause here to talk about what these stores were, because it's a very foreign concept to anything we're familiar with today. These variety stores, they were also called five and dimes. If you've ever heard that term, like a five cent, 10 cent store. And the reason for that is that most of them

Every item in the store was either priced at five cents or 10 cents. That was the level of sophistication here. The other big, big difference between how these stores operated in modern retail today, which Sam really invented, was they weren't self-service. Oh, he didn't invent that. He stole that. We're going to get to it. We're going to get to it. Okay.

So you would walk into these stores and there'd just be a counter area up front that had clerks and you would tell the clerk what you wanted. And then the clerk would go back into the store, pick out what you wanted, bring it up to the front and check you out. Because like there wasn't really choice. You're like, I need a hose and they would go get the hose. It's not like, well, let me see all the different brands and sizes and colors. It was like,

I know you have hoses here. Can you get me one? The merchants weren't making the decisions on the inventory. It was all just being handed down on high from Butler Brothers back in Chicago. Yeah. I did not understand...

when reading this book, when he kept referencing stores, that they were not stores where you walked around and got your own stuff off the shelf, that that is a modern concept. That is crazy. I don't know exactly how the department store model worked, like, you know, JCPenney's or Sears, where Sam had worked.

But I think it was also not really what we're familiar with. I think when Sam was working as a salesman in Des Moines at Penny's, you know, it was sort of like an even higher touch version of this, I believe, where like a customer would come into the store, the salesperson would greet them and then sort of like escort them around and curate their shopping trip. Very, very different experience. Yeah. So Bentley Brothers, Sam's having this conversation with them.

And they're like, well, probably you want a Ben Franklin franchise. And it just so happens we've got the perfect store for you in the little town of Newport, Arkansas. The current owner of the Ben Franklin franchise there wants to sell.

And Newport, it's a little town. It's about 7,000 people. It's in Eastern Arkansas. Now, if you know where Bentonville, Arkansas and Walmart is today, it's not in Eastern Arkansas. And Sam's like, great, I'll take it. Sight unseen. Now, you have to ask yourself, it is 1945.

in America. The war has just ended and unlike 1945 in Japan, like we talked about with the Sony story, retail in the U S is booming.

Everyone's coming home. There was the GI bill. Everyone's got new homes. Everyone's starting families. Like there's a lot of stuff to buy. There's a lot of stuff to buy. It doesn't matter if you're a department store in a big city or a variety store in a 7,000 person town, like everybody in retail should be making money hand over fist right now. So the question that Sam didn't ask himself and should have was why does this guy want to sell? Yeah.

And he says in the book, a guy from St. Louis owned it.

and things weren't working out at all for him. He was losing money, and he wanted to unload the store as fast as he could. I realize now that I was the sucker Butler Brothers sent to save him. I was 27 years old and full of confidence, but I didn't know the first thing about how to evaluate a proposition like this, so I just jumped in with both feet. My naivete about contracts and such would later come back to haunt me in a big way.

Wow. So he and Helen buy this store, this distressed asset at not a distressed price. Yes. They buy it for $25,000, $5,000 of their own savings and a $20,000 loan from LS from Helen's father. And, uh, Sam, you know, he says, this isn't what I dreamt, but, uh, you know, I'm still going to set big goals.

He decides that he's going to set a goal that this store is going to become the most profitable variety store in Arkansas within five years. It's quite the turnaround and is also the first indication of Sam setting these big, hairy, audacious goals. He has this

subsequent obsession with set a goal, hit it, set a goal, hit it. And that really does drive all of his need for experimentation because he finds himself in these situations where he has a goal set and he must invent some way to hit it. Well, it also sets the stage for what was to come. He sets this goal and then he gets there and

this is not a realistic goal. He says only after we closed the deal, of course, did I learn that the store was a real dog. It had sales of about $72,000 a year, but its rent was 5% of sales, which I thought sounded fine at the time, but which it turned out was the highest rent anybody had ever heard of in the variety store business. No one paid 5% of sales for rent. And it

It had a strong competitor, a Sterling store, which was another franchise across the street, whose excellent manager, John Dunham, was doing more than $150,000 a year in sales. Double mine. Yikes. So not only is it unlikely that he's going to be the most profitable store in Arkansas, but.

It's unlikely he's going to be the most profitable store in Newport. Yeah. So what does Sam do? He goes right across the street into Dunham store and he starts trying to figure out why Dunham is twice as successful as he is. Yeah. And this is a thing that speaking of the first time Sam does something that he then does forever, uh,

he becomes notorious for going into competitor stores, bringing in a little notebook, later bringing in a little tape recorder, and just seeing what he can get away with. Interviewing clerks, interviewing associates at these stores. Anytime he's traveling with the family on vacation or anything, he's just going into all these other stores and observing and taking notes and figuring out what their systems are, what's working, what's not working. So here he learns that valuable lesson for the first time. So great. I was going to bring this up later, but

I think he says in the book that he believes he has spent more time in Kmart than any non like individual store employee of Kmart, including Kmart senior management. Yeah.

Yeah. And also, we keep referencing Kmart. When I was growing up, I was like, Walmart, Kmart. I think Kmart's kind of like Walmart, about the same scale, same size, kind of a little lower end. That was my perception as a kid of Kmart. I didn't realize that Kmart, for a very long time, was much, much larger than Walmart. They were kind of Walmart's big brother incumbent. Oh, they were the gorilla. I don't remember what...

this was, but I remember some quote from Walton where he's talking about when we reached 5% the scale of Kmart.

And it's like, whoa, that really puts it into perspective how big a lead they had. So you mentioned notepad. It's actually a yellow legal pad that Sam uses. Sorry. Sorry, David. Famously, he has his yellow legal pad and he's going into competitor stores. He starts like diving in dumpsters, trying to get sales receipts and like inventory orders and stuff, figure out how these stores are operating. And he quickly realizes from blunders.

both Dunham across the street. And also he's doing this all over the countryside, going into, you know, small variety stores all over Arkansas, just trying to learn.

He realizes that price and running promotions, cutting prices on big, marquee, kind of attractive items like health and beauty aids, toothpaste, mouthwash, makeup, that kind of stuff like that really drives customers in. So he's like, OK, you know, he starts doing that. He has some success. But there's a problem, right? Like we talked about.

Butler brothers is the franchise or they're controlling all the inventory. You know, Sam is the merchant is just getting whatever they send to him at whatever cost they prescribe and Butler brothers. They're doing great. They get about a 25% markup on all the inventory and they don't even do anything. It's almost like they set up the whole system just to keep these prices high out in the countryside and they just get a, you know, 25% skim off the top. Yep.

So what does Sam do? He starts figuring out who the manufacturers are of some of these goods and for manufacturers that are also located there kind of in the South and the Midwest, he starts driving around and knocking on their doors and asking if they'll do side deals with him and just like sort of, you know, clandestinely sell him some

some of the merchandise that he otherwise would be ordering from Butler Brothers and that they would be selling to Butler Brothers. They just give, you know, him a deal directly on that. And you know what? Like he's operating a small enough scale that Butler Brothers doesn't really notice. And to be frank, like,

there wasn't good tracking or accountability at this point. I mean, there wasn't computers yet, so... There's no computerized inventory here. You'd have to really be paying attention to figure out, oh, maybe Sam's not ordering quite as much of this stuff from us as he should be. He's driving around himself. There's no management. He has some clerks working in the store, but...

but it's just Sam and Helen running the place. So he's out, he drives to visit them. He's gotta get a deal done on the spot. So he goes, he knocks on the door, meets these people and is like, I wanna buy right now. I've got a trailer hooked up to my pickup truck outside. Can you just load the inventory right into the back and I'll drive it back to Newport? Yeah. So he says, I bring them the inventory. I bring it back, price it low and just blow that stuff out of the store. Yeah.

which this is an invention. This is a brand new concept that we kind of take for granted now, but it's totally a Sam Walton invention to meet his own needs, which is create something that is astonishingly low price to get people in the store. Take no margin on it. Make it a loss leader. Who cares? But get people in the door spending time in your store and they look at other stuff. And this would become a

cornerstone of Walmart forever after this and for every other retailer. Even a pricing of SaaS products now where you look at it and it's like, oh, I'm on the free plan. Right. It's not that he invented loss leadership as a category, but he figured out how to make it work in the retail model. Yes, he figured out how to really...

merchandise, operationalize, you know, Dunham's across the street was running promotions, right? But Dunham wasn't thinking about, oh, well, maybe I could sell even lower if I go haul my pickup truck out to these manufacturers and get goods at a lower price. Right. And of course, once you're hauling your pickup truck to go

meet the vendors directly, it's not that far of a cry to say, well, what don't I have in the store that I'm getting from Butler Brothers? What could be interesting? You start getting good at doing these direct deals and sourcing your own inventory and figuring out how to merchandise products that you personally believe will sell. And this is really where he started to hone that

skill, craft, and sixth sense for deeply knowing the American consumer or let's say consumers in this area in his communities and having a real spidey sense of what would make them go crazy and have really product market fit in people's homes. Price, selection, convenience, right? That's the holy trinity of retail, but nobody really knew this yet. And

Frankly, all of those things are important, but for the majority of people out there in the world and in America at the time, and certainly the vast majority of people in these small towns, yeah, like selection and convenience. Life was inconvenient, period. So like you were going to go through some inconvenience to get things. Selection, there wasn't much of no matter what. And we just came out of the Great Depression. Price is very important.

customers will go to great, great lengths to get lower prices. People would make day trips. People would drive five hours to other cities to get a deal on goods. It's crazy. He says, here's the simple lesson we learned, which others were learning at the same time, and which eventually would change the way retailers sell and customers buy all across America. Say I bought an item for 80 cents and

I found that by pricing it at $1, I could sell three times more of it than by pricing it at $1.20. I might make 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. By cutting your price, you can boost your sales to a point where you can earn far more at the cheaper retail price than you would have by selling the item at a higher price. And...

Always low prices. Always. Walmart. There it is. We're not quite at Walmart yet, though. Did you know their slogan for a long time was always the lowest price always? But then there was like a FTC lawsuit against them where they changed to always low prices because it was like false advertising. Yes. They didn't always have the lowest price. Once they got to a certain scale at Walmart and it was bigger, I think the original company-wide slogan was...

always low prices always. And then at some point they changed it, I think in the seventies to always the lowest price, like we're going to push it even farther. And they got away with it for like five or six years. And, uh, the government had a little something to say about that. Yeah. So all this sounds like Sam says there, it sounds simple, right? But like people didn't know this stuff yet. Like retailing had not professionalized. We're not that far removed from running

Rockefeller, like the general store, like post world war two, this is all new. So this is incredible.

He actually hits his goal. So by year five of the Newport store, he's doing a quarter million dollars, $250,000 in sales at a $30,000 to $40,000 annual profit. Remember, he bought the thing for $25,000 and that's including the crazy 5% rent charge in his expenses. So his operating margin on this is 24%.

He's making very, very real profits on this little store that he's got. If he had a better rent deal, it could be like 28%. But at those numbers...

It is the most profitable store in Arkansas and the biggest store by sales, not just in Arkansas, but like the whole Midwest and South region. So like he has found a winning formula here, which is interesting because I'm pretty sure at this point he's got a bunch of direct deals cut with Amazon.

the suppliers, and he's added a bunch of products of his own. He's really merchandising. So he's really showing up on Ben Franklin's radar, on the Butler Brothers Corporation's radar, and they kind of know what he's doing at this point. But it's good for them. Even though it's good for Sam, it's also good for them because volume and customers. Right. He's by far the best performing Ben Franklin store in the country at this point. Unfortunately, though...

Like I said, there's a reason that Walmart is not headquartered in Newport, Arkansas. Butler Brothers wasn't the only related party to Sam who figured out what was going on here. His landlord that had pulled one over on the previous owner and had the super onerous rent terms also figures out, of course, how great Sam is doing despite having the Dex decked against him.

And he decides he wants to take over the store. So he goes to Sam and year five is when the lease expired and there wasn't an option in the contract to renew the lease. So the landlord goes to Sam is like, you know what, son, you've done a great job.

Thank you for turning this property of mine around. I'm going to take it from here. And like, just to contextualize this, it's a 7,000 person town. There's not really many other available storefronts. He's got tons of shelves in there with tons of goods. It's like a meaningful amount of inventory that's being carried on the business. It's not like you can be like, oh, cool. I'll move next door. That option does not exist. So his landlord comes to him and says this and he's like, wait,

Uh, oh my God. Oh my God. I have no other options. He says it was the low point of my business life. I felt sick to my stomach. I couldn't believe it was happening to me. It really was like a nightmare. I say this as a saving grace, although the reality is Helen's father would have financed Sam's next venture no matter what, but sort of the saving grace for Sam's pride at least was that the landlord did buy out the value of

the Ben Franklin franchise license and the hard assets, the inventory, the fixtures, et cetera, in the store. So he pays Sam and Helen $50,000 to take over the store. I mean, I guess that's sort of a, what, 2x return? And what was the operating income from the previous year? $30,000 to $40,000. Yeah, wow. Brutal. But at least they get the $50,000 out. So this is now 1950 and Sam and Helen...

hit the road again, looking for a new town to bring their traveling circus to. And have a little bit more knowledge on lease negotiation. Yes. So they go up to the other corner of the state in Northwest Arkansas. That's where they start looking around for the next place to set up shop for two reasons. One, closer to Helen's family in Oklahoma and Claremore. And two, like I said, Sam keeps it real. He was like,

you know, there's some really good quail hunting up there. And I really wanted to be closer so I could drive my bird dogs out and go hunting. Yes. And more specifically, it's not just that there's good quail hunting. It is that he will be very close to four states, which each have their own quail hunting season so that he can get the maximum amount of

quail hunting in with an easy drive from his house. Yes, so great. Lots of business decisions being made here on family. We need to be in a small town. We need to only work with family. Sam, I need to be able to hunt quail in the maximum amount of time that I possibly can. So the opportunity that they find and settle on

is in a little town of 3000 people. So less than half the size of Newport that already in this town of 3000 people had three variety stores operating. Newport had two for 7,000 people. This town has three for 3000 people. As Sam says, he loves competition and that town is Bentonville, Arkansas. Yes.

Sam probably, almost assuredly, is rolling over in his grave right now. The new Walmart campus? The new Walmart campus that they're building. It looks absolutely gorgeous, which I'm sure he would be furious about. Yes. If you thought Warren was...

you know, a penny-pinching, very plain, no frills, no fancy things entrepreneur, Sam Walton. Hard to argue who's sort of more frugal and less showy. I mean, Sam eventually got into airplanes for very, you know, practical use, but Sam is not a showy guy.

Actually, the anecdote that he and John Huey open made in America with is I think it's 1985 when Forbes ranked him the richest man in America. And all these reporters, you know, start descending on Bentonville. They want to go interview the richest man in America. And, uh,

He still drives an old pickup truck that has cages in the back for his bird dogs because he goes, you know, hunting in the four states nearby. And it's this big sensation that the richest man in America drives a beat up old pickup truck with cages in the back. And he's like, well, what am I going to drive my my dogs around in a Rolls Royce? All right. So they arrive in Bentonville. Bentonville in the world are forever changed, but it doesn't happen all at once. No.

No. So the store that they buy is another Ben Franklin franchise that had done $32,000 in revenue the year before quite a distance from the 250,000 that they left Newport with. And, uh, Sam decides he's like, all right, well, this is a small market. This is a small store. There's a lot of competition, but I have big ambitions.

He's got his ear to the ground in retail and particularly in the Ben Franklin franchisee, you know, sort of network. He hears through the grapevine that there are two Ben Franklin stores up in Minnesota that were trying a radical new concept. They were redoing the whole way the store was laid out, the way it worked, and

They were removing the upfront counters or turning them into checkout counters and letting customers go into the store, browse the merchandise, pick it up themselves, select it themselves, and then check out. So he's like, I got to go. I got to go see this.

He takes the overnight bus up from Arkansas up to Minnesota and checks them out. He's taking notes the whole time on his yellow legal pad. And he says about that trip, I liked it.

So I did it too. I love how he's so obsessed with firsthand experience. He couldn't just hear about this and then implement it. He's like, I must see it for myself because he so fervently believes that he picks up insights from like actually spending time in stores and actually talking to customers. It seems like he does that

Sort of more than any other entrepreneur we've ever talked about on this show, this obsession with firsthand experience. I think everybody can apply this to their business. I was thinking about it reading the book. You know, I starred so many passages like this. I'm like, I already listened to lots of other podcasts, unlike when we started Acquired and I didn't listen to any other podcast. We should find the best ideas and incorporate them. Yeah. There's a great quote about this when Walmart actually gets started later that I'm going to tease it for now. So

So on July 29th, 1950,

Just about, what is that? 72 years ago, they reopen the Ben Franklin store that they bought. Still a franchise, still a franchise, still a Ben Franklin franchise, still working with Butler brothers for most of the inventory quote unquote, but they want to send a message that this is a new era. They're doing the self-service new store in Bentonville. So they rename it Walton's five and dime and it

it becomes the third self-service variety store in the entire country. And it's fascinating that they picked this name because part of the reason why you do a franchise is the brand. Sure, it's nice to get the inventory and the negotiated relationships and prices and all this stuff, but...

Really what you're buying is people know what a Ben Franklin is. And so they would come to the store. And what Sam is saying is, I feel pretty good about building my own brand. I know I'm in one way or another paying to use the Ben Franklin brand, but we're not going to use it. It really was rational because even though Sam on the margins is doing his own direct deals with manufacturers at this point,

It's a ludicrous concept that somebody in a little store in Arkansas could source all of their inventory and do all of their logistics by themselves. Like, yes, that is completely freaking crazy that a store servicing 3000 people in a little town would handle all of that themselves, but they launch with the new name. You know, it's the new concept. It's self-service. It causes quite a stir. Now I believe I couldn't find this exactly,

But I believe in that first year when a Walton's five and dime is open, remember the previous Ben Franklin iteration of the store had done, I think what $32,000, I said a year in revenue, something like that. Walton's five and dime does $90,000 in sales the first year. Now I don't know what the competitive dynamics were between the three stores in Bentonville, but remember the town only had 3000 people.

So if you assume the previous three stores roughly had equal market share, you know, it's a big assumption, but let's just for argument's sake, that would mean that the whole market size of Bentonville, the whole TAM is $90,000 and they did $90,000 in revenue.

So what was happening here? Yeah, is there a massively expanding TAM? Did they expand the market because people are just buying more stuff than they otherwise would have? I don't know what happened to the other two stores, whether they went out of business or not. Certainly they wouldn't have right away. I think what happened was this caused such a stir that

that people started coming to shop at Walton's Five and Dime from other towns. I think it was the first time that Sam realized that shock value would bring customers. Much like I didn't need anything the first time I went to an Amazon Go to try the cashierless checkout, people sort of came for novelty value here. And that taught him the lesson of, oh, maybe we should always have novelty value. Maybe there's like

reasons why people should be coming to Walmart's even if they aren't necessarily looking to buy something. Yep. And if you think about it, right, like put yourself in the shoes of customers back then. And Sam talks about this a lot in the book, you know, for so long, we'll get into the competition with Kmart. Everybody thought Walmart, Sam, all their customers, they were just like hicks in the sticks, right? Just completely like morons out there.

Nothing could be farther from the truth. Like he says, like my customers were also sophisticated retail customers. They knew about what was going on in the cities. They had relatives there. They'd go visit. It's not like they didn't want first class shopping experiences in their own hometowns. So clearly this makes a big splash. So Sam realizes that he might have a tiger by the tail here.

And so he starts looking, unlike in Newport, where he was satisfied, you know, the store kept growing. He did $250,000 a year in sales. He starts looking to open up more locations. More five and dimes. He also doesn't want to have all of his eggs in one basket and one lease like he did in Newport. Right.

Didn't he open a store directly next door to one of his competitors just so that his competitor couldn't expand their store? Yes. It's like it wasn't a high-performing store for him, but he was like, at least it didn't let them get the square footage. Yes. Clearly, he's a...

very competitor focused. You know, it's funny, like there's so many Jeff Bezos isms that when you read this book and you learn about Walmart and Sam Walton, you realize that they were originally Walton isms, Sam isms, but the whole Amazon, like we're customer focused, we're not competitor focused. Sam would have said, absolutely not. We are absolutely competitor focused.

We are focused on taking the best stuff from our competitors and implementing it here. All right. Yeah, while we're here, we have to say it. So eventually a Walmart does go in back in Newport. And there is a little store that is run by a family member of the landlord that screwed over Sam that does get put out of business by that Walmart going in. And Sam makes the point, you can't say we ran that guy, the landlord's son, out of business. His customers were the ones who shut him down. They voted with their feet.

To me, this is that perfect overlap of are you competitor-focused or customer-focused? Well, both. You have to win in a market by counter-positioning in some way, and Walton did it by discounting. But that obviously has an impact on your competitors, and you need to be able to counter-position against someone like a competitor. So when the big realization is, oh, customers always want lower prices and satisfaction guaranteed and all the other Walmart-isms,

that will have impacts on your competitors and you have to pay attention to those competitors. But ultimately, the customers decide. Sam is willing to blame the customer for putting the competitor out of business. So...

So in 1952, just a short while later, Sam opens up a second store in nearby Fayetteville, Arkansas, because again, like it's just Sam and, you know, Helen, when she can, you know, helping out with the bookkeeping, managing the first store, Sam needs to hire somebody to go manage Fayetteville because he's working in, in Bentonville. So he brings on a guy named Willard Walker.

who was managing a variety store in Tulsa before that. And the way they convince him to move to Fayetteville and take over this sort of new concept is they make him an offer he can't refuse. They make him a partner in the store. Then this is what you were referring to earlier. They give him a percentage of the profits that that individual store makes. And in fact, they set up that store and all future stores as their own partnerships.

This is something I didn't understand until reading the book becomes a huge part of the playbook for Walmart's for decades, which was every store manager in a new store opening was given at first equity and individual partnerships and then later profit sharing incentives in that space.

individual store. So like that sets up a true alignment of incentives. I don't think anybody else was doing this at that point in time and then even better. So all the pool of existing store managers, whenever they open up another store, they're

Sam and Helen give them the opportunity to invest dollars in the new stores and the new partnerships. So now you're incentivized on success of the whole network and you're incentivized to information share and you want everybody to do better. They get carry and they should make a GP commit. Exactly. And I actually think this is super brilliant. I was thinking about this with regard to tech companies today and everything and like,

Even though employees of tech companies get

much better economic deals with stock options, I think psychologically, this is a better way to do it. What Sam was doing, you're putting your own money at work and you're incentivized both on your own personal performance in the store, which is like an RSU type equivalent. You can't really do this in a tech company, but it's scoped to your performance. Like it's independent of other store performances. But then you also have

in the, you know, the equivalent of tech company equity, it's not just that somebody gave that to you or the company gave it to you. You put your dollars into it. Which is what a stock option is supposed to simulate because later you put your dollars in if you feel that it's a valuable thing to own and you... But I don't think people think about it like that. No.

Well, people think about options like it's direct equity. That's the biggest problem with options. Most people do not understand what they're actually getting. But yes, no employees are ever asked to invest in the business. That is definitely not what seems to happen in 99.9% of startups. And then reading more in the book about this. So...

During this period and in the early Walmart corporation period, it was just the store managers who were doing this, not the hourly employees. There was a gigantic chasm. I mean, there's still a big chasm today, but two completely different classes of humans in those early days between the store managers who were salaried and employed by the partnership and, of course, the to-be-called associates, but the hourly workers who were not. And so a couple interesting things.

One, the people who were the store managers, this wasn't quite like white collar workers. It's somewhere in between. Most of these people didn't have college degrees. They were salaried and then they got equity in these partnerships, but they

It wasn't like these were Wharton graduates that were coming in and doing this. Intentionally not. Those folks were kind of discriminated against in the Walmart culture, especially in the early days of like, you think you're better than us, college boy? Totally. One of the first managers was nicknamed the bear and he had one eye.

There's some crazy stories out there. They were, you know, bringing donkeys into the store. All right. All right. We're talking Walmart. So like, take us to Walmart. How did we get from the Walton's Fine with Dime? On the employee front, after Walmart went public, Sam instituted both profit sharing at the store level with the associates, with the hourly employees, but then also an employee stock purchase program. And this is cool. So

Home Depot modeled their employee stock program, purchase program after Walmart's. And it's brilliant. It's the same thing. You put up your own money, but you can do it pre-tax dollars out of your paycheck at a 15% discount to the stock price. This is what Microsoft let me do when I was a PM there.

In addition to your stock based compensation, they call it an ESPP at employee stock purchase program. Microsoft only let us have a 10% discount. So very kind of Walmart to give a 15% discount from market price. So there's stories in the book of hourly associates that made millions of dollars in the 70s and 80s off of the employee stock purchase program. It's pretty cool. Wow. Speaking of Home Depot, did you know that's a venture capital backed company?

Yes. It's an amazing story. Yeah, we should do that at some point. And totally inspired by Sam and Walmart and everything. Okay. So back to the fifties in Arkansas, remember we talked all the way back in the beginning of the episode about Sam's brother, but well, but had gotten into the Ben Franklin business himself after the war in Missouri.

One day, Sam is visiting Kansas City and he hears about a new

suburb development going in just southeast of the city called Rushkin Heights. And it's going to have a shopping center, this new fangled concept right in the middle of this suburb subdivision. And there's going to be a grocery store and a drug store and real estate for a big Ben Franklin store. So Sam calls up Bud and he's like, we got to go in 50-50 on this. This is a huge opportunity. And they do. And it is a

banger. $250,000 in annual sales the first year in Rushkin Heights, and then $350,000 the year after and just keeps growing and growing. Sam says, when I saw that shopping center catch on the way it did, I thought, man, this is the forerunner of many, many things to come. The only problem was Rushkin was actually kind of a red herring.

This was the future. This was the forerunner of many things to come, but it was still a little bit ahead of its time. This is really a 1960s thing, not a late 50s thing. Sam is convinced, though, that it's the future. So he starts going around in Arkansas and in Missouri evangelizing to towns and city planners about putting in these shopping centers. For which they would be the anchor tenant. But it's super slow going.

Dealing with local governments, you know, it's hard. It takes a long time. He wants to move fast. So he starts trying to put his own real estate deals together for multi-tenant shopping centers and fails. And so eventually he goes back to Helen's advice. He's like, well, these multi-tenant shopping centers, I see the power in Rushkin, but it's dependent on too many other people. But if I'm willing to invest some capital, I'm

I could just put bigger stores in these same locations myself. And that's what he starts to do. Does he become his own landlord then and just buy the land? Or what requires more capital? That's a good question. I don't know at this point if...

they were doing real estate themselves, but certainly they're like building out bigger store concepts, required capital to build the stores. You know, it's not like there were existing structures there and then to outfit them with all the fixtures and all the inventory for the larger stores. But he and bud together start doing this. They call these new stores, quote unquote, family centers. And they start doing like

unheard of numbers, a million dollars, $2 million. And are they still sourcing the inventory from Ben Franklin from Butler Brothers? Yes. So they don't yet have their own distribution inventory logistics network set up. That was the big step of Walmart. These were still just like much larger versions of Ben Franklin's and they were working with them to get all the inventory to them.

And they've already, at this point, they've bent so many rules with Ben Franklin, like changing the store layout and concept and where they're going and starting to dictate more terms, naming them on their own. And so at this point, they're really starting to treat Butler Brothers as more of a component of the Walton business rather than Walton being a franchisee of Butler Brothers. Exactly. So these...

quote unquote family centers that Sam and bud were building. They're still Ben Franklin franchises. They're just, you know, the Waltons are now taking over more and more of control of the concept, their self-service, their larger format, but it's still part of the Butler brothers cartel, shall we say? Yes. And because they were part of Butler brothers, they

Sam and Bud were limited on how much discounting they could really do. They were aggressive on pricing, probably more so than other merchants at the time. And they had self-service, the large format, you know, all this interesting stuff. But the prices weren't like that much different than other stores.

It's worth knowing that we don't think about the notion of discount stores today being counter-positioned against something. Like all big stores have things at kind of the lowest price you can find them. Because they're all discounters now. I think it's 87% of market share in America is discounters. Yeah. So there's either like specialty high-end retail, which is often discounted,

directly from the manufacturer, sort of like vertically integrated or specialty sourced or something. Or if you're buying things that we consider a big regular store, they're all discounters. And at the time, there were no discounters. Everyone was marking up their goods by about 45%.

which means that the gross margin, like if you're buying something and then marking it up 45%, it means your gross margin is about 33% as a retailer. And that was on top of the markups in the middle from the franchise operators. The competition was so low that you totally could just do this. For reference, just so people have a sense today,

Walmart probably has a gross margin between 20 and 24% at any given time. And every store had like a 33% gross margin. Even the like,

Target is sort of like a high-end discounter. It's sort of like a nicer stuff, more expensive. They're in the 29% category, but everyone was 33% or above gross margin at this point in history. Before this episode, I didn't think of Target as a discounter. Right. But that's what it is. It's a discounter. It is this model that Sam is about to perfect here. Yes.

So you said there were no discounters yet at this point in time, just like with self-service. That's not totally true. And actually even more so, you know, self-service, there were the two Ben Franklins in Minnesota that was doing it. You could argue they were first, but Sam was really the first to bring it to market in a real way.

There were folks bringing this new discounting model idea to market. Was it Ann and Hope? Was that the most successful? It was Ann and Hope stores in New England. And contemporaneously, at the same time, it was FedMart and Sol Price.

down in San Diego in Southern California. Which I didn't know Saul Price had a... I mean, I should have known this, but I just haven't been a student of Saul Price. I didn't realize he had a big venture before Price Club, that FedMart was his first very large successful thing. I didn't know. I bet 90% of our listeners didn't know. You probably did know.

Sol Price, you know, FedMart and then Price Club, which he starts later. That's Costco. Costco was a merger of Costco in Seattle in the Northwest with Price Club. Costco is the legacy of Sol Price. Isn't there something like Jim Senegal worked at Price Club or was like a disciple of Sol Price? Yes. And then left to do the same concept up in the Northwest. And then they ended up merging together. Like it's all the same DNA. Like that's Costco. Oh,

So basically, everyone's marking up their goods 45%.

And nobody has done, other than Anne and Hope and a few other select folks that haven't really rolled it out at scale or really popularized the movement, no one has done discounting. But what is discounting? Two major components. One is big loss leadership. So blow it out in order to get people in the store, do it in dramatic fashion, and then people buy other stuff. Two is we make it up on volume. Just don't mark stuff up that much, period, across the whole store. Decide that you're only going to mark things up

25% instead of 45%. And then, you know, when you do that, of course, you don't make as much money per item, but everybody buys more stuff in your store. This hadn't really been proven yet.

Yeah. Well, and there's another component, what you're saying, which is Sam's original lesson of you actually make more profit dollars selling items at the dollar than you do at one 20. Cause you sell three times as many. Yep. But there's also the piece in the middle, the franchisor, the Butler brothers piece. Remember they're taking 25% from the manufacturer to Butler brothers and then out to the stores. And that's how most everything operated. These discounters, they're like,

No, no, no. We're going to go direct to the manufacturers for everything, just like Sam was starting to do in this. But on the margins, we're just going to completely not be a franchise operation. We're going to own and operate everything. We're going to operate our own back end, our own supplier relationships, our own distribution.

There's a great quote. This is again later in Walmart's development. And it's when Sam Walton is sort of informing the Walmart vendor relations team and merchandisers on how to deal with vendors. And he's telling them, don't leave in any room for a kickback because we don't do that here. And we don't want your advertising program or your delivery program. Our truck will pick it up at your warehouse. Now, what is your best price? And if they told me it's a dollar, I would say, fine.

I'll consider it. But I'm going to go to your competitor, and if he says $0.90, he's going to get the business. So make sure a dollar is your best price. If that's being hard-nosed, then we ought to be as hard-nosed as we can be. You have to be fair and upfront and honest, but you have to drive your bargain because you're dealing with millions and millions of customers who expect the best price they can get. If you buy the thing for $1.25, you've just bought someone else's inefficiency.

Totally. I love that. I mean, it is brutal, but that encapsulates the philosophy so well. And there's so much baked into that that people don't even realize. To get to the point where you could do that, you need to operate the entire back end of retail yourself. Sam and Bud and Walmart, they're starting from they don't have anything. To get to a point where you can have conversations with suppliers like that, you need your own

shipping, carriers, trucks. You need your own distribution centers. You need your own ordering systems. You need your own technology. Like they don't have any of that. You need to forecast. You need to be able to understand we're going to sell enough of these units to go buy a crap ton at this super low price. We need to be able to be so confident in that that we can tell the supplier to spin up new inventory and so that we will buy it to increase their production.

Okay. That's all the future. So in this moment. Okay. So in this moment, Sam, of course, goes out. He goes and shops. He travels to the Northeast. He shops in Ann and Hope. He goes out. He meets Saul Price, who he already knew. And we're in like 1960s? Late 50s. Late 50s, early 60s at this point, before 1962. And he sees what they're doing. They're doing this proto-discounting.

in big cities and, you know, rings around big cities, not necessarily in like the Primo real estate downtown, but like where you have access to logistics hubs and you can sort of scrounge together and make this work. The idea that Sam could copy this and go do it back in Arkansas, it's crazy. What manufacturers are going to ship stuff to Arkansas, especially big volume stuff. Yeah. So,

He goes, he meets with Saul and Ann and Hope. And he's like, you know what? I think I can make this work. I think I can do it. Now, even he knows what a huge undertaking this is. So he actually goes back to Butler Brothers and he's like, we've been great partners. We've really innovated on a lot of stuff together. I've seen this discounting model before.

I think it's the future. I know customers like low prices. I've got these new large format stores. Why don't we work together on this? I need you to handle the back end. You have the scale to be able to do this. You already distribute out to small towns like mine. Let's partner on this and do it together.

And Butler Brothers says no. By the way, this is like when Vitalik goes to the colored coins guys and says, hey, let's partner on this thing together, distributed world computer. I think it's the future. And they're like, no. And he's like, okay, I'll go start Ethereum. Yes. That is this moment for Walmart. And, you know, in Butler Brothers defense, they signed their own death warrant here, but that was the rational thing to do. This is like a counter positioning thing. If they had done this,

They had all these other Ben Franklin franchises out there. So if they had done what Sam is proposing and essentially taken out their markup on goods that they would provide to Sam's stores, what are all the rest of their franchisees going to say? It is literally the innovator's dilemma because they have too much baggage to actually pull this new thing off.

And to be more specific about that, there is too much ongoing revenue that they would cannibalize in the short term by messing up all those relationships they had with their other franchisees, where they would probably churn too much of that and risk the whole business. So they could not take advantage of what could be the new wave. Yeah. And the thing that Sam knew...

the minute he saw discounting was all of those stores are dead anyway. Yeah, just a matter of time. Somebody is going to come bring discounting to Arkansas and Missouri and Texas and Florida and everywhere else. And those stores are dead. It's that insight that people far out from cities want the same thing as people in cities. And so they're just as bright

They want the same things in life. They just happen to not live in cities. And so let's not be pejorative. Let's serve them with high quality retail experience. Totally. So...

1962 salmon bud secure a site in Rogers, Arkansas, which is pretty close to Bentonville. It's got the site, you know, they're going to do this. It's going to be chaos, like, but they're going to figure out the backend, do this, you know, new discounting concept. They just need a name. And Sam's got a bunch of candidate names for what to call this new retail concept. And he's talking with one of the early store managers, Bob Bogle about

his ideas. And he says, what do you think? And Bob says, you know, you've got all these fancy names, but it's pretty expensive building the neon signs of, you know, Walton's five and dime and Ben Franklin. Like that's a lot of letters. What if you just take part of the Walton name, keep that and make it a place to shop and call it Walmart seven letters. That'll be pretty cheap. I love it. And the legend is born. And, uh, you know, Sam's basically, you know,

not mad about this. Obviously, saving money on neon was appealing to his nature. But the other reason he really liked it was he really admired Sol Price and Sol Price had FedMart. Yep. And so that's why he really took a shine to it. So July 2nd, 1962. Which we should say at this point,

Sam is in his mid-40s. I think he's 44, I want to say. Yeah, it's worth pointing out, people often say like, Sam Walton didn't start Walmart until he was 44. But as you can tell, because we are very deep in the story and in this episode here, and we are just now at the formal founding of Walmart, everything that Sam had done in his whole career was leading up to this moment. And it

It's a gradient. It's a slow start. Walmart in some ways started 20 years before. Yeah, totally. Did it start in Newport? You know, Sam's education, well, started well before then, but yeah, retail entrepreneur education started then. But I think Bentonville is Walton's five and dime, I think is when you can say really started. Yep. But anyway, July 2nd, 1962, the very first Walmart opens in Rogers, Arkansas.

And as you can imagine, it was like chaos. You know, Ben, you were telling the story earlier about the watermelons popping. That was actually at store number two, which was Harrison. Is this the one with the donkey rides? Yeah, they had donkey rides and trying to pull together a back end for the first time on their own.

Total, total freaking chaos. Right. So not only are they sourcing all this stuff on their own for the first time, but they're also opening a store that is a pretty unfamiliar store concept to people, but an appealing one. Come here and you can get everything that you're used to, but for less money. Like a lot less money? And it's a large square footage store. So it's also bigger than most people are used to for a shopping experience. So

I think you think about run into a Walmart today is kind of a chore like it's this big parking lot and it's a big standard store. The goal is to make it anything but the goal was to make it like a UFO is landing in your small town. Come see it. Totally. They did all sorts of crazy promotions and circus carnival type stuff. But at the end of the day, it had low prices on

on everything. Everyday low prices, David. Always the low price. Always. And boy, did customers just love it. So there's a quote from Charlie Kate, who was the store manager of that first Walmart in Rogers.

And he says, from day one at Walmart, Mr. Walton made it clear that this wasn't just Ben Franklin with low prices on some items. He wanted real discounting. He said, we want to discount everything we carry. When other chains around us were discounting, he said, we advertise that we sell it for less and we mean it.

So whatever anyone else did, we always had to sell it for less. If an item came in and everybody else in town was selling it for 25 cents, we'd sell it for 21 cents. Literally everything in the store is the lowest price in the whole area. That was the value proposition. Which should ring eerily true to Amazon 40 years later.

So that store does a million dollars in the first year, which was great. But now remember some of the family center stores were doing

$2 million. So it was very promising, but Rogers was still a pretty small town. So I had to later that year or the next year, they open up two more Walmarts, one in Springdale, which was a much bigger town. And that pretty much immediately becomes the highest sales store in the whole Walton empire. And then a third Walmart, the second one, technically in Harrison, which we've been talking about. And that was also a smaller town. And, um, I

Sam puts it, they were basically trying to answer two questions with each of these. Like one, would people in a small town defect and start shopping in this new, crazy, chaotic environment just because of price? And then two in Springdale, which was a larger town, like would this idea scale up to a larger town too? And the answer to both of those was emphatically yes.

So at this point, they do know they have a tiger by the tail. And so they sort of have line of sight to, okay, I bet we can get to like 10 stores. And I think Sam even gives an interview where he talks about that that's all he would ever want to expand to, something like 10 or 15 stores that he doesn't have like a global ambition. And in part, the reason for that is he is extremely into...

overseeing these stores himself. He wants to be able to visit every single one. He wants to be able to really understand what's going on in the ground. He wants to be able to take the best ideas from one and bring them to the other. He's not really a control freak as much as he's uncomfortable with being disconnected from what's going on in the stores. And so his belief was, well, if we expand outside of this state or this tri-state area and we start getting more and more stores,

I don't know that it expands beyond 10, 15, 20, somewhere in there because I can't run it the only way that I know how to run it if it gets bigger. I mean, for the longest time, we've already said it, but there was no middle management. It was like hourly employees in the stores, store manager, salmon bud. That was it. And this is how the sort of legendary, anybody who knows about Walmart corporate culture knows about the Saturday morning meeting, which

Which they actually made monthly, I think, in like the mid 2000s. And then now it's optional. Again, Sam would be rolling over in his grave. But this was a mandatory Saturday morning meeting for all of the store managers in person, either in Bentonville or like they do it in some motel around the region where they were operating, where like.

they'd all get together every week and they would share P&L information, what's working, what's not working. Certainly Kmart wasn't doing that. And Sam, despite objections from a lot of people, including his wife, didn't feel bad about it because he was like, look, you're working retail and you got hourly employees that have to be in your store today. I feel like you can come to a meeting today. And a big part of this was

He was obsessed with getting numbers as fast as possible, getting the sales numbers in his hands so he could understand them and pour over them, then immediately getting them into the management's hands as fast as possible so they could look over them and make changes in their stores. But then as they got more and more stores, it was really about how fast can we incorporate things that are working into stores in other places so that we can very, very quickly learn.

Yep. And remember, all these managers were equity owners in their own stores and in most cases in the stores of all the other managers, too. Yeah. So, yeah. OK, we keep talking about Kmart. This is crazy. Also, in 1962, the same year as the first Wal-Mart.

Woolworth launches Woolco, which obviously doesn't exist anymore, but as a discounting concept store. Their attempt at discounting. Yep. The Dayton Hudson Company in Minneapolis launches Target in 1962. Which doesn't Target feel like a newer company than Walmart? I know, right? Literally started the same year. Yep. And...

S.S. Kresge, which was a huge nationwide variety store chain based in Detroit.

They start their own new discounting concept, Kmart. But it's worth knowing all three of these are existing variety store chains that were used to making 33% on every single item they sold in their store. And if you look at four horses, this Wolko, Target, Kmart, which would come out of SS Kresge, and Walmart, you probably wouldn't have bet on Walmart to be the dominant brand

one that wins in the discount wave, but they steamrolled the other three. Those other folks, because they came out of existing companies, they weren't as willing to discount as much. There may be some truth to that, but I think the story is actually a little more nuanced. I think especially Kmart, they were the gorilla and they were really well-run and

And I think the parent companies, especially Kresge, were willing to take losses and have lower margins in Kmart. The way Walmart won, and that is just this amazing story we're going to tell now,

is because all of those others, like the problem wasn't the mindset of margins. It was that they came out of these existing operations and they used the existing logistics backend and distribution backend for their stores. And at first that was by far the best. So within five years, you know, by like 1967 ish, Kmart has 250 stores all across the country doing $800 million in sales.

And the new Walmart concept, Walmart revenue was still only around $10 million at that point in time. So they are like a gnat five years later. And Kmart is like darling of Wall Street. Because they're having to build everything from scratch, like go negotiate with every single manufacturer of every item that they sell, try and figure out how to warehouse it, figure out the logistics network for the very first time. Yeah. And they're like in Arkansas and Missouri and like a regional area. Kmart's now everywhere. Like they could just...

leverage this network that they had all their distribution backend and like go everywhere all at once. But the problem was that all of their existing distribution backend was tailored to the

the old model. It wasn't tailored to this new model of store. And that worked fine when there was no competition, but it wasn't lean and mean focused on getting the lowest cost, most efficient operations possible because they weren't that worried about margin on the backend.

So as Walmart starts to build out on their own, going from chaos to building out their own distribution network, they're always

100% laser focused on lowest cost possible, most efficient possible, as much cash flow, as much inventory turns as possible. Like they had to be the only way they were going to grow was if they could get excess cash flow to grow, to invest in new stores. The only way they could do that while keeping prices low was to make their operations as efficient as humanly possible.

Because they were not taking outside capital. So they had to only reinvest cash flows coming out of the business. Totally. Sam has this amazing quote. He says, the things that we were forced to learn to do because we started out underfinanced and undercapitalized in these remote small communities contributed mightily to the way we've grown as a company.

Had we been capitalized or had we been the offshoot of a large corporation the way I wanted to be, because remember, he wanted to do the deal with Butler Brothers, we might not ever have tried the Harrison or the Rogers or the Springdales or all these other little towns we went into in the early days.

It turned out that the first big lesson we learned was that there was much, much, much more business out there in small town America than anybody, including me, had ever dreamed of. And of course, that they built their own logistics network to service it. It's very clear that what they did was to quote Chathan at Benchmark, the sort of go slow to go fast approach.

They had to build a lot of infrastructure early, but they're really obsessed with getting the operating costs down on a sort of per unit basis as much as possible so that as they do reach big scale, they can continue to be very, very profitable.

It's interesting that there's a dual-pronged approach here between lean, mean, focusing on getting your costs every penny you possibly can down because your margins on selling these items are going to be so thin. There was a second component, though, which is be a great merchandiser. You both have to be super operationally efficient, but you have to be a good merchant, too. And part of this was...

Spidey sense for what consumers wanted and making sure that they were sourcing that from vendors, that they were putting stores in the right places. I mean, we haven't talked about the planes yet, but this is probably a good time. Oh, yes. Let's talk about the planes. So,

So Bud was a pilot in the war. And pretty early in the book, Sam talks about that he and Bud owned like 20 planes over the course of Walmart's life. But only one was a jet or a sort of later they became jets because early on when they didn't have any pilots, they had no pilots. So early on, what they would do is the two of them would take projects.

prop planes fly to places to survey where they want to put a store, they would identify from the air what seemed like an interesting location. By flying sideways? Sideways, so they could look out the window down at the town directly below them, and then they would go and figure out who owned that land and negotiate with them. And it was this, we can do it ourselves, we can do it super lean, and we are not going to hire any middleman to like

Go around all the towns for us and identify spots. Now we'll just fly over them and figure out where we want to put a store and we'll figure out how to reach consumers.

in a way that is like bringing them the best merchandise at the absolute lowest operating cost to us. Totally. When I read that story, I was like, oh, this is amazing. CEO of company decides he needs a plane to be able to travel around faster. He's spending too much time in the cars. And you're like, okay, here we go. And then I was like, I'm going to buy a secondhand

prop plane with a washing machine motor and I'm going to learn how to fly and fly it myself. Amazing. I was thinking also about this whole incredibly important piece of the Walmart story where they literally build their own infrastructure for everything from scratch.

you know, and it reminded me of what we talk about all the time on the show, right? Of the Jeff Bezos. Don't build your own infrastructure. Focus only on what makes your beer taste better. And I think we now have to have a caveat to the Bezos law, which is that yes, that is true in most cases, but

If what you're doing is like in a whole new area and best in class infrastructure for what you need doesn't exist. In a case like this, the infrastructure actually can make your beer taste better. Oh, if it's actually your core competency. Yeah. I mean, this is new core competency that actually did need to be done in house. Most of the time that argument doesn't hold water, but if it truly is, then

core, which this did become core to beating Kmart and all the others and having much better economics of them at scale, then yeah, you have to do in-house.

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Well, they grew the number of discounting stores pretty dramatically up through their 1970 IPO. And people still weren't really paying attention because they were this company in the southern Midwest. They seemed regional. But let's just take you through some figures. By 1968, they had 24 stores. They filed to go public in 1970.

with 32 stores and around 1,000 employees. And

The public markets, the reception, the bankers, this was not a household name. So even though it was a consumer brand, you would sort of treat it the way that you treat it like an enterprise IPO today. It's not like the Airbnb IPO that gets a lot of reception. Some stats on the actual IPO. Well, first of all, it was postponed because the market fell apart on them, much like many startups are going through right now. But in October 1st of 1970, it went public.

only 800 shareholders participated in the IPO. They sold 300,000 shares at $15. So that's sort of the actual IPO the night before. And some quick math shows they raised $4.5 million in that IPO. It

It started trading for around $15.60, so they had a modest little pop the next day. But they really were not having meaningful research coverage. A lot of the research coverage they were getting was kind of skeptical. It sounds a lot like Amazon's research coverage early days, as if this whole house of cards could fall apart at any given moment. The next year, in 1971, they did grow top-line revenue 77%. So despite the Walmart that we know of today, where they're

a very slow growth company. And I say that not to criticize them, but because we're often talking about pretty new tech companies on this show. But if we look at the 2010s, the annual growth rate for Walmart is in the 2% to 3% range. So not a fast-growing company by top-line revenue by any standards now. But shortly after IPO, despite not attracting a lot of attention, that was not the case. No.

We'll link to it in the show notes, but I pulled open the 1972 annual report, which is a gem. Oh, such a good find. And compared to the stuff that you need to write now for your annual reports, which is like mostly compliant stuff that you don't want to even page through. This is like remarkably legible. It's a pretty thin document. Most of it seems to be written from Sam himself.

They grew 77% their first year after IPO. In fact, by 1977, the market cap was still only $135 million as a public company growing quickly seven years after IPO. In 1977, they did half a billion dollars in sales growing at that rate.

I did some math on the Kager by decade. So Walmart's compound annual revenue growth rate for the whole decade of the 1970s was 40.1%, 40.1% for the whole decade.

And then in the 1980s, it was 32.4%. And that was starting from like a $25 billion revenue base. Those two decades propelled them to be and somehow still hold the crown for the highest revenue company in the world. You look at Amazon and some people that you think might be approaching them. Approaching, but still not better. Still, Walmart is king. Yeah. Yeah.

So there's really two last really important pieces of the story that I think we need to fill in here. One kind of during this period, actually starting like right after those first early years of the first Walmarts and that is computers. So yes, this is wild in 1966. So just four years after the first Walmart goes in.

Walton, who at this point is what? 1966. He's just about 50. He's like 48 years old. I think he, uh,

starts hearing about computers because he's always got his ear to the ground. He's talking to everybody. He's always looking for new ideas. He's cheap, so he doesn't want to spend money on computers, but he's starting to get the sense that in the same way that discounting disrupted everyone that came before in the variety store era, computer backend retailers were probably going to disrupt the classic retailers today who don't use computers.

So he goes up to Poughkeepsie, New York and enrolls himself as chairman CEO of Walmart in a seminar at IBM on how to use computing technology in business.

There's a great quote from a guy named Abe Marks, who was president of the National Mass Retailers Institute and was also at that seminar. He says, without the computer, Sam Walton could not have done what he's done. He could not have built a retailing empire the size of what he's built, the way he built it. He's done a lot of other things right, too, but he could not have done it without the computer. It would have been impossible. And then Sam right after that says,

Montes, I hate to admit to something like that. I expect Abe is probably right. I love that. I literally had that in my notes too. So I'm glad that you grabbed that quote. This was the start of Walmart becoming a technology company. They were always interested in experimenting with the most cutting edge stuff, but...

Sam didn't understand technology well, but he understood the benefits of technology. And so the way that he made sure Walmart could sort of benefit from this is he always left the door open for smart, tech savvy, younger people to come and have big jobs at Walmart. And then he would push back aggressively on their plans and say, like, do you really think that we need to?

move our whole inventory system over to computers. That's super expensive. Like, convince me that we need to do that. But the fact that he went to these conferences, enrolled in this stuff, created this headcount meant that he was open to it. He just wouldn't be the one to make the decision because he probably wouldn't have picked the right technology choice or might have done it too early or too late. And so I think this was like an interesting compromise for him to do this.

Later on, there was a proposal made for a $24 million satellite network, private satellite network, specifically for Walmart. This was like pre-dial-up. This was in the 70s, right? Was it that early? 70s or 80s. Yeah, I think this was in the 70s and 80s. Yeah, you're right. 1987. So let's see. Market cap at this point is probably around $10, $20 billion, somewhere in there.

So they invested $24 million to link all stores with a two-way voice and data transmission and a one-way video communication from Bentonville. And basically, there was not enough bandwidth available on any other communication lines. Yeah, whatever was being used at the time.

to sync back in a very fast manner all of the sales data from stores. And, you know, we talked about how Sam was obsessed with getting the data as quickly as possible and learning from it and disseminating those learnings. They ended up okaying a $24 million proprietary satellite network. And then because Sam had this philosophy, remember he thought it couldn't scale past 15, 20 stores, of needing to sort of visit all of the stores themselves and have that personal communication,

The satellite network enabled Sam to sort of virtually visit these stores from the home office and broadcast satellite transmissions of himself. And they eventually instituted this for the Saturday morning meeting, too, where he would broadcast over their proprietary satellite network in 1987. So the satellite network becomes part of this, but this whole technology investment computerization is...

It's even more than just information sharing. It gets back to what I was saying about logistics, about efficiency, about margins, about keeping prices low and about beating competition. So as they start to invest in computers and they start to bring the talent into the company to do this, including the

The first person who Sam brings in, who he meets at this conference, a guy named Ron Mayer, who ill-fatedly, Sam would briefly make CEO of Walmart. Then discover he was not ready to retire. Yeah, exactly. Which is a very TSMC story. Totally. Similar to Morris Chang. And he's very gracious to Ron in the book. You know, he said like, look, the problem was me. I was not ready to retire. But Ron and the team that he builds in and the technology, they build the first concept of a distribution center. Yeah.

you know, think of Kmart is like, they have warehouses, right? Like you would order goods from your vendors, from your suppliers, they come into a warehouse, you know, and then you chip them out elsewhere. But like they just sit in the warehouse and then you pick stuff up from the warehouse and go elsewhere. Walmart, as they're investing in technology, they start taking daily individual orders for custom, you know, whatever skews in whatever amounts each store in the Walmart network needs, right?

They buy in like big, big bulk in big packaging from their vendors that comes into what used to be called a warehouse is now called a distribution center in one side.

Walmart does a whole bunch of stuff in the middle of the warehouse. They unbox all the stuff. They take it out of the packaging. They re box it up into the individual orders for each individual store every single day. And then they ship it back out the other side, customized to each store. And then originally they were doing this with common logistics carriers like UPS, FedEx or other carriers. Then they start.

building their own trucking lines. And so they can just get so efficient with this.

So this is how, as Walmart starts to expand out from the South and from the Midwest across the country, and Kmart is just going off city by city, extending their supply lines, Walmart's got this behemoth of a distribution network that is way more efficient. And so when they go head to head in a geography, Walmart can price lower, still be making a profit, and Kmart just bleeds cash in those stores. Right.

Yeah, it's amazing how far Walmart has come because the first store didn't use a distribution center. They would have to order from all the manufacturers and all the vendors. Drop ship directly to the stores. You can only sell what you have in the store. And so when they opened the first distribution center, what they basically did was because...

they saw the growth of cities moving outward, so like the suburbs are starting to happen, they would build a distribution center sort of like hub and spoke. They would pick the city that they wanted to go into that was furthest from that distribution center

And they would build a store there. And then they would start building slowly back toward the distribution center. So you basically planted your flag out in the middle of nowhere, but would become an area where a lot of people lived as suburbia sort of blossomed. It was one day drive of a truck from the distribution center, right? Yes.

And so then at some point, they've got dozens of stores that are driving distance filled in this whole sort of radius back to the distribution center. So they could make a lot more margin because they could get the price down as much as possible because they could negotiate these huge discounts with vendors because they have the distribution center, which will send all those stores that are connected to it. It's a pretty brilliant methodology. Yeah.

And I don't really realize they invented this concept of a distribution center. I always forget that before Walmart, there was the franchise variety stores, but there really wasn't large scale discount retail that used this sort of model. So by 1990...

Walmart passes Sears to become the largest retailer in America. And again, all through the seventies, all through the eighties, Kmart was the gorilla. And then by the early nineties, Kmart, which had been so dominant, they start really feeling the squeeze from Walmart because Walmart is now pretty much nationwide at this point. Pretty much, but still not yet in

In 1990, they finally opened a store in California. It took until 1992 for Oregon and 93 for Washington. So all these quote-unquote coastal elites who are like underrating Walmart, it's kind of for a lack of exposure. The first store opened in Washington in 1993, and Amazon was founded in 1994. Wow. Of course, on the coasts and in the big cities, you kind of don't feel...

the dominance of Walmart in the same way. So here's some really fun history that I had no idea about. In the mid to late 80s, Kmart is at the height of its power, the height of its pride, right before Walmart is finally going to tip them over. During that time, they go on a sort of drunken acquisition spree. Did you know about this? No.

So Kmart, between the mid 80s and the early 90s, acquired Sports Authority, which

Office Max, Builders Square, Walden Books, and Borders. And this just had all sorts of light bulbs going off in my head. Kind of reminds me of the New York Times during that era too. Right. Knowing my tech history, knowing our tech history here on Acquired, Louis Borders, the CEO and founder of Borders Books, started Webvan during the tech bubble. And I always wondered, I was like, why on earth did Louis leave Borders?

borders that he started and was founder of, and then go start this web van thing. It was because Kmart bought his company. Wow. I never knew what happened to borders. And so by the time, like kind of early mid nineties, when the writing's on the wall, Kmart starts selling off all of these acquisitions that they had made to just try and raise cash. They ultimately file for bankruptcy in January of 2002. And then in January

2004 Kmart and Sears merge wait Kmart and Sears merged yes in 2004 we're gonna take these two legacy you know previously biggest retailers out there storied brands and we're gonna merge them together and it's gonna work and

And I vaguely was aware of this and I thought like, oh, well, Amazon killed them all. No, Walmart killed them. There's no way that Kmart or God forbid Sears at that point could compete against Walmart. So that combined entity itself went bankrupt in 2018. But Walmart, by this point in time, this is like the Sony PlayStation version of Walmart, like the last big hurrah. They had launched the super centers and

This is nuts. In fact, Supercenters is so dominant now that they've actually deprecated the name. Walmart Supercenters are just called Walmarts now. Walmarts were the legacy of the variety stores. They didn't have groceries. They had hard goods. And groceries was always this very attractive category. It's the biggest category of retail in America. Dude, it's an enormous amount of consumer spend.

After house and cars, I think grocery, or at least food as the next category, is the largest thing that households spend money on. Yes. This also explains why I've always wondered, why is Amazon so obsessed with grocery over the years? Which they haven't cracked, by the way. Famously, they've sort of struggled to nail it. Yep. And they bought Whole Foods and, you know, Whole Foods is great and all that. But Bezos always talked about, we're always trying to crack grocery. Yeah.

This is why it's enormous. But difficult. There's a cold supply chain that you need to nail that's totally different than shipping plastic around. And Walmart nailed it, but it wasn't Sam. So Sam passed away in 1992.

Before he did in the late 80s, he was on a trip in Brazil. Whenever he would go around the world and Walmart had started to expand internationally at this point, of course he would go check out other retailers, shop the competition. And in Brazil, Carrefour, the French company, their operations in Brazil, they had these big centers called hypermarkets.

And these hypermarkets were like a combination of a Walmart and a grocery store. Dude, we should open a merch store and call it the acquired hypermarket. So I actually tweeted this on the 4th of July when I was doing research. Sam, just like he had with self-service retailing and then with the discounting model, he was like, I've seen the future. I'm going to come bring it back. We're going to do it at Walmart. And again, he was right. And again, like some of the others, he was wrong on timing.

So he launches a spin out of Walmart in the late 80s and early 90s called Hypermart USA. And there are photos you can find online. This is what I tweeted on July 4th. I think they only built three of them.

It is the most 90s America thing you have ever, ever, ever seen. It's a great logo. Red, white, and blue all over the place. This just enormous, enormous footprint store, square footed, like a cathedral of capitalism. They were pretty amazing, but they were too big.

it didn't catch on. So then he battled cancer for the last few years of his life. As his health was failing, he had already handed over the CEO role to David Glass, the company. And then after his death started a smaller scale version of a hypermarket that they called super centers that was like not as blown out as what Carrefour was doing in Brazil, but combined. And

grocery, like a traditional grocery store and a traditional Walmart. Dude, I lived right next to one in North Carolina in 2008. And it was awesome. It was the only thing in my like little suburb off the highway where I live for one summer. There was a, you know, some other stuff in the shopping center, but you kind of had like the Walmart super center. And it was amazing.

You go and you get all your groceries, they have everything else. I'm so sold on that concept. It's not surprising at all to me that that massively took off.

Well, and not only that it was so convenient to have it all in one and, you know, entertainment value, all of the things they brought the Walmart approach of low prices to grocery too. So most items by and large on average across the board, the grocery items in a Walmart super center are 15% cheaper than a comparable grocery store, which if you're like a middle or lower income family, you're

that's hundreds of dollars a month that you're saving, which is incredibly meaningful to you as a family. So Walmart goes from 0% market share in US grocery at the beginning of the 90s

to, I think by the end of the decade in the 90s, they had become the largest grocer in America. Which they still are. They are the largest grocery store in the United States today. Well, now they are not just the largest grocery store. They are the largest grocery store by a factor of over 2x the number two player. Whoa. Which is Kroger? Who's two? Kroger. Yep.

So Walmart has over 20% market share of U.S. groceries. Kroger has under 10%. And then Albertsons and Costco are tied at 5% each. Wow. And is Albertsons Safeway now? Do they merge? I think that might be right. So if you add up all of those together...

They're still less than Walmart. Oh my God. Crazy. That's like Amazon's dominance in e-commerce. If you add up two through nine in e-commerce and Walmart is second place to Amazon, it is still not equivalent to Amazon's total sales in a year. And in fact, I think it's something like two through nine added together are still 50% shy of Amazon's e-commerce revenue in a year.

In the last, most recent fiscal year, grocery accounted for 55% of Walmart's total revenue, which is over $300 billion alone just from grocery. For a part of the business that didn't exist for the first 30 years, I mean, that is an iPhone-scale company reinvention. And barely existed when Sam died. It reminded me of Ted

Ted and Todd within Berkshire Hathaway buying Apple. The best Berkshire Hathaway investment probably ever that happened in the public markets after Warren had brought on Ted and Todd. Crazy. One last little bit about super centers. I think the war was already won with Kmart, but this was really the death knell with super centers because Kmart tried their own hypermarket concept called super Kmarts. Oh, I remember that. And this is where...

the Walmart distribution strategy just completely trounced Kmart.

It trounced Kmart in hard goods, but now you're talking about groceries. The items need to be fresh. They expire after a few days. You need to figure out how to preserve. It's also an even lower margin business. So like here's Walmart with better logistics, getting better, fresher items in their stores at lower prices is totally game over for Kmart. And frankly, it's kind of crazy that a lot of the other traditional grocery chains are

even have the market share that they do. I mean, I can understand like specialty and higher end stuff like Whole Foods or Sprouts or the like, but Walmart is just so dominant in the grocery category. Okay. So we talked a little bit about technology at Walmart and they...

were undoubtedly the best at putting in backend systems to build a real impressive data network and use that data in the 80s and 90s. But of course, so the internet happens, and Walmart is pretty slow to adapt to that. I spent some time on the Wayback Machine kind of looking at their website over the years, and...

They did not take the internet very seriously at first. All the way through the 90s, all the way through the early 2000s, I don't think they thought it was an existential threat the way that it truly was for the business. So they make a few really big moves to try and bolster this team. You say they didn't realize it was an existential threat, and that's true. But just telling the Walmart story now in their DNA...

They hadn't historically been a company motivated by threats. They saw opportunities and they pursued opportunities like super centers. Why they didn't pursue the online opportunity is really puzzling. Yeah.

It's almost like no one made the compelling enough case for why they need to invest in building out the internet team until it was kind of too late. That really was the style of make the pitch to leadership of why this needs a massive investment. And Amazon was poaching executives from Walmart left and right. Totally. So the first step that they take here is, do you remember the company Cosmix, David? K-O-S-M-I-X? Yes. Yes, I do.

I remember using it. Walmart bought them in 2011 for $300 million. Do you know what the founders did beforehand? No, I remember it was like a meta search company. Yeah, it was called Jungly. It was not for US search. It might have been like meta search for e-commerce in India or something like that. So Amazon had bought Jungly. And then those two guys, Venky and Anand, inside of Amazon started Mechanical Turk. Oh, cool. Yeah.

So interesting Amazon history there. So they leave, they start Cosmix, Walmart buys it for $300 million. That becomes Walmart Labs, which was run as a totally separate company and is now sort of merged into Walmart's global internet distribution.

division. But that was where this sort of like, okay, we need to start taking this really seriously. This e-commerce thing is going to be really disruptive. And they've acquired a variety of other companies over the years, including Bonobos or Bonobos. I've never exactly known how to say it other than I like their pants. And of course, then in 2016, we did an episode on this. Now we're entering the timeline where acquired was already a thing by the time this happened, which is crazy because now it means we're dinosaurs.

They bought Jet.com for $3.3 billion. I would love to talk to Mark Lurie about all this. Yeah, so obviously Mark started...

Quidzy, diapers.com, sold that to Amazon, got into a nice tiff with Jeff Bezos, left, started Jet. Did he raise a billion dollars or was it a billion dollar valuation? There was some ludicrous, for the time, pre-launch financing that happened. And it basically didn't work. The actual Jet.com thing, Walmart shut down. It was a club, right? It was more like Costco. Well, it changed. It originally was and then...

I can't remember if it was that it wasn't or it wasn't that it was, but there were multiple strategies. And the quote is, we tried a lot of things, we innovated, not all of them are going to work, we learned from our failures. And the party line from Mark and from the Walmart team were that Jet served its purpose to get a bunch of really talented e-commerce focused engineers and product people together. And then it served as a great vehicle to serve as the core at this point of Walmart's e-commerce business.

And they really have made a good comeback, right? Yeah. So Mark Lurie left in 2021 and Walmart's current CEO, Doug McMillan, does credit him for jumpstarting their e-commerce business, which I think is growing. And this is before COVID because COVID statistics messed up everything for e-com. But in 2019, I think grew 37%. Which when Walmart itself as a whole was growing like

2%? Yes. And at this point, it's hard to say if this is a small number or a big number, but only about 13% of Walmart's revenue comes from e-commerce. Now that's $75 billion. Right.

And it is growing much faster than Amazon's e-commerce business, but it's because Amazon's e-commerce business is at ludicrous scale. You know, it's five or six times larger than Walmart's e-commerce at this point. But the Walmart strategy here is quite interesting because it leverages their distribution centers and their stores to

They want to make e-commerce not a separate thing. They really want to make it feel like you're shopping at Walmart, whether you're shopping online or in person, and there's sort of a seamless experience between the two. And so they leverage their stores to do things like same-day grocery delivery or pick it up at the store, buy it, and we're flexible whether you sort of feel like you bought it in the store and you want to come grab it from us or whether it wants to arrive at your house.

We'll have to see how that strategy plays out versus Amazon coming at it from the other direction and having to build physical infrastructure to come through on those promises. They're doing some cool stuff. They launched Walmart Plus. Which is a prime competitor. Right, which is a prime competitor. But like you were saying about this sort of like integrating it all into one experience, physical and e-commerce, one of the cool things about Walmart Plus, I wish there were a Walmart in

in San Francisco, A, so I could save money on stuff I buy, but B, so I could try stuff like this. I'm very curious if you would shop there. That's a good question. I mean, I love Trader Joe's. Yeah. So I shop at Whole Foods and Trader Joe's. I bet I would buy stuff at Walmart. But one of the cool things that's part of Walmart Plus is you can shop with your phone in the store. You can skip

scan, check out, buy stuff as you're going through the store on your phone, all done seamlessly and then just walk out.

Which I think obviously Amazon's working on this too with their Just Walk Out technology. But to me, that's like a big value prop. Like one of the reasons I don't like shopping at Trader Joe's, Target, even Whole Foods too, like physically anywhere is the checkout lines. It's just like, yeah, like I hate it. Yeah. Yeah. But I'm not used to waiting for anything anymore because the internet makes it so I don't have to. I think about stuff like this and I'm like, why am I doing this? It's not just like the waste of my time. It's like this is unnecessary in this day and age. Right.

And I'd be happy to check out on my phone as I go through a store. I started in preparing for this episode trying to understand how is the digital experience of Walmart these days versus Amazon's experience? Because I obviously am well-versed and Amazon packages arriving at my house every day. So I started buying some stuff on Walmart. I bought some garden lamps because I needed to install some lights. And I will say the consumer perspective so far for me has been...

pretty identical to Amazon. I don't think the selection is as large, but I'm not convinced that I take advantage of Amazon's sort of infinite selection. I think I look for Amazon's choice or the Wirecutter pick or something that has five stars and over a thousand reviews and just buy that thing. And that methodology is very available on Walmart. And I was trying to dig in like...

and study from a technology perspective, what are examples of things that Amazon is more advanced on. And actually, this was a great use of Tegas. Good friends of the show over there, I read a transcript from a call with a former Amazon director. It's an interesting quote. It's just a little microcosm. It says, I can tell you at Walmart, it is almost exclusively just the title and the product description used for search.

And as far as I can tell, there's no metadata that's put into their search algorithm today. Amazon absolutely has the additional metadata that they've built into their algorithms. And it's a constantly changing and ongoing process. They're very sophisticated in what they do for search. There's tons of stuff hitting keywords, user-generated content. All that seller input is totally baked into the search algorithm. And that sort of makes sense that on Walmart, it would be sort of like a focus on a crude implementation first, make sure it works well enough.

But they also just have less historical data than Amazon does on all the shopper behavior and all that stuff to incorporate into functionality of the website. I suspect we will talk a lot more about this dynamic throughout the season. But Amazon, right, is, you know, both a first party seller and a marketplace. Because of that marketplace dynamic, there's just exponentially more SKUs on Amazon than on Walmart.com. Right.

So Amazon had to do this. Walmart does have third-party sellers online, and they do actually lease space in stores to vendors. That's another part of the modern Walmart business model is you can just basically lease square footage online.

Stockett, you have your own people who work there on your own payroll, and they're the ones who put all that merchandise in there. And of course, they can check out conveniently at the Walmart checkout, but the revenue goes to you and you just pay Walmart for that space. This was so fascinating. I knew that there were

McDonald's and Subway's in Walmart's like sort of the store within a store concept and like Target has those two and also brilliant way to increase your margins as a retailer or allow you to sell at lower prices in Walmart's case. But what you're saying is even more than that, which is super cool items on the shelves and like display areas in Walmart's.

that are integrated into the store. Especially like greeting cards, that sort of thing. Things that require like heavy customization in the way that it's presented. Those are owned, operated, and run by third-party vendors.

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Well, we want to get to the final figures on the business from today. And then I want to do a bear case and a bull case on the company from here. And then we'll do the playbook, go through and talk about what the things were that made Walmart successful. And of course, we have to do powers analysis and powers. We got a good amount of episode left here. I know.

All right. So Walmart today, we have talked some about this, but I think it's worth recapping what the shape of the company is actually at this point. So they're in 24 countries, which we haven't discussed. They're a global empire at this point. There's 10,500 stores. Each week,

230 million customers visit one of these stores. 230 million customers, that's wild.

The super center concept is basically Walmart now. It wasn't like some of the stores are super centers. Most stores are now super centers. If you just think about the like standard Walmart discount store in 1996, there were about 2000 of them. Now there are 368 because the super center is the new thing. So yeah,

The business of supercenters, they did close to $600 billion of revenue last year. They did $25 billion of operating income. That's only about a 4% operating margin for those counting at home. They do have a 24% gross margin, which is interestingly higher than in Sam's heyday, what he sort of believed the discounting business model should bear. If I were to sort of postulate, I think...

Because discount stores have just become stores, I think there actually is room for a little bit more margin than sort of originally believed. The other piece of the business that we haven't talked about at all, but is a

Interesting, both piece of Walmart's business and competitive vector to Walmart is Sam's Clubs, which were started in 1983, I believe, and has been a very successful part of the company. I believe what is like 10, 15% of revenue of Walmart today. It's been a pretty successful part of the company, but it's losing to Costco. Yes, Costco.

has been this amazing story that

is like the Walmart of Walmarts, you know? And Walmart has it too with Sam's Club, but it's interesting you bring up margins. Costco does $217 billion a year in revenue. Sam's Club does about $75 billion. How is it that they have all of Walmart's advantages and yet think it's like 11% of Walmart's revenues, which is obviously very material, but somehow they did not become dominant in this category?

especially, you know, we were talking about Walmart plus and this membership option, you know,

Costco doesn't really have much of an e-commerce digital business these days. I'm sure they're investing in it, but Walmart really was kind of positioned to have best of both worlds here of membership, subscription business with Sam's Club, plus e-commerce. It feels like there's a lot more that they could be doing. And there are some crazy stats about Sam's Club. Like somehow in the 90s, one in three U.S. households had a Sam's Club membership. I don't know if you have the numbers, but I bet it's way less now.

I think it's declined. Yeah. Okay, so it's worth a little bit of a margin analysis here, and in particular gross margins, because we were citing some numbers earlier. If you look at Walmart's 24-ish percent gross margin, so that's basically what they get from the goods that they sell on the shelf, you see, okay, it's less than Target, which makes 29, 30% of anything that they sell on the shelf. Well,

Costco's gross profit margin is only around 13%. And that's come up like when they first went public in I think 92,

It used to be like 10%. But the whole business of Costco is totally doing what Walmart did to the variety stores to Walmart and the other discounters. It's really the idea that what if we have even less promises to customers about the experience that you get in store and we give it all back to you in price?

So like, what if you can't buy small quantities of things? What if there's not really someone to help you get something off the shelf? What if it's all just in a freaking warehouse? It's all about what can we take away and will customers still deal with to get the lowest price?

So, Saul Price, of course, as we talked about, and Jim Senegal, who worked for him, were big pioneers of the shopping club, Costco, Price Club, Sam's Club model. The original target market for it was not consumers. It was small businesses. Oh, I didn't know that. And that was the core of the market. And then over time, I think, as Costco grew, I think they realized, oh, consumers like this too. Yeah.

Yeah. Yeah, it's interesting. We cite Jeff Bezos saying your margin is my opportunity. That was totally Sam Walton's thing to variety stores and totally is Jim Senegal's thing to Sam Walton. While we're talking about things that Walmart has not executed on to Sam's level of rigor, shall we say, over the years.

You know, international. Again, it's like Sam's Club. It's a decent part of the business. It's 18% of revenue. It's 18% of revenue. It's about half of the stores are international stores. They have some success stories. I think Mexico has been extremely successful for Walmart. Canada has also gone well. But they have some big losses in Europe. They pulled out of Germany, right? They pulled out of Germany. In the UK, they bought the...

big retailer chain, Asda, for about $10 billion when I think that was in the late 90s, I believe. And they operated that and they were a decent sized player, but never as big as Tesco and some of the other retailers in the UK. They actually ended up trying to sell it a couple of years ago to Sainsbury's for $10 billion. The UK government blocked that deal. And then they ended up selling it off to private equity, I think for about $6 billion. And

just a couple of years ago. So, you know, neutral at best. We'll see how Flipkart plays out for them. They own what, 75% of that? Right. So then there's India and Flipkart. Walmart bought 77%, I think, stake in Flipkart back in, I think it was 2018, for over $16 billion, which is a huge, huge price. And I think part of it was, I'm not as studied on the history of this. I

I think Walmart had wanted to enter India for a long time, had been negotiating with the government trying to make it happen for years and years and years. Couldn't. And I think part of the idea, I believe, of buying Flipkart was this will be our vector to bring Walmart into India. I don't think it's gone super well. I read, I believe there are about 20 or so, 20 or 30 Walmart owned physical locations in India now. But yeah,

you know, that's not worth a 16, $17 billion purchase price. No, definitely not. Well, I mean, the last thing that I think is important to understand about Walmart is,

their growth has really just come down. If we look back all the way back to, let's see, 1982, they were growing about 40 to 50% a year. And that has basically been on a slow, steady decline all the way until about 2013, where it's been about flat at 3% since then. So

They're trying to make all these big investments. And this is revenue, by the way. So it's not like, oh, well, that's just because they're reinvesting in e-commerce and no, like

The top line is just not moving very far year over year these days. Now, to be fair, it is the biggest top line of any company in the world. So the law of large numbers is at work. But as we've talked about, it's not like they fully saturated the TAM if you include e-commerce and you include international. Had they executed well on both of those... And grocery. Well, they did on grocery, but on...

discount clubs and the Costco in Sam's club, if they'd executed well on all those, their growth could have been much, much higher. Yep. All right. Let's do power and then we'll get into bear case, bull case. Great.

So for new listeners in the show, and as a reminder for all of us old timers, Hamilton Helmer's seven powers, there are seven of them and what he's identified as persistent differential returns. So basically, what enables Walmart to be more profitable than their closest competitor on a durable basis?

Yep. And the seven are counter positioning, scale economies, switching costs, network economies, process power, branding, and cornered resource. We got to separate the takeoff phase from where they are today because I think it's a totally different set of powers.

Okay. Okay. In the takeoff phase, no doubt that it was counter-positioning. I mean, this small town strategy, they were just doing something that all of the big established companies couldn't and wouldn't do. They were not set up to do it with their distribution chains. They were not, frankly, set up to serve those customers well. They didn't understand those customers well. They kind of ignored them. And it didn't seem like a big opportunity. No. And in fact, it

it kind of reminds me of DoorDash. Thinking back on that big episode we did the day of the DoorDash IPO, where they sort of looked at the suburbs and they were like, wait, this business, even though everyone's doing food delivery in the cities, it actually makes more sense in the suburbs. Walmart realized that same thing. They were like, well, the cities are going to build out and those people are going to want something like this in their towns. And so we can serve the people who are there now and we will be positioned to serve way more people as those suburbs build out.

Yep, totally.

So massive counter positioning, I think. Such a good point in the beginning here. Absolutely right. I think as they built it up, though, I mean, scale economies. Yes, this is the perfect example of scale economies. Literally the perfect example. I mean, Hamilton uses Netflix in the book, which is another great example. But this is the single best example of scale economies in the world. They can price lower because they have the power of scale and the distribution and logistics network and the operations that they've built behind it.

There is no reason why anyone should be able to have a lower price than Walmart. Walmart is going to buy in larger quantities than any other retailer for basically any item that they sell.

They're going to have more locations to get that thing to consumers in the most convenient way to them. So they're going to have the most consumers excited to buy it, which kind of feeds back into that quantity thing. They own and operate their own logistics fulfillment distribution network. So even though they've taken on a lot of sort of risk in doing that and a lot of fixed costs, to the extent that they're utilizing all that at 100% utilization or as close to 100% as possible, they're

They don't have to pay anyone else margin to use their network. Every element I can possibly think of has all of the margin squeezed out of it. Which is also interesting when you think about Amazon and everything Amazon has been doing for the last, especially five, 10 years, they're doing all the same things. Amazon air building their own logistics, all the Amazon vans that you see around. Yep, absolutely. Okay. Do we have any others on here?

Switching costs, I mean, with Walmart Plus, you know, maybe, but like not. They interestingly don't have branding. And this, I think, is a place that they're different than Amazon. Because for Walmart, the definition of branding, as Hamilton puts it out there, is would you pay more for a good that came from this brand than a different brand? And at Walmart, no. You go there because it is the lowest price. And I will not buy something that's more expensive at Walmart than somewhere else. Walmart brand does not mean that to me.

But at Amazon, they have kind of moved away from the we always have the lowest price. They have convinced you that it is so convenient to shop on Amazon that even if they're a little more expensive in price, that's kind of okay. And I think it's really interesting that they've taken a different path there. I don't think Amazon was ever just about being the lowest price. I think it was more about we're the best combination of...

price selection and convenience. Yeah, it's the customer centricity. They're both deeply customer centric. Bezos sort of adopted the centric part of customers centricity, or at least that is the way that he refers to it. But Sam Walton, in about eight different ways in his book, tells you that the only thing that makes Walmart tick is listening to the customer. And it just so happens that the vector that they optimized for more than anything else was price and Amazon was convenience.

I think it might be worth a minute to discuss process power. Do we think Walmart has process power? And there are two areas I'm thinking about with this. One is the operations themselves and everything we've talked about. I don't think you could airlift that out of Walmart and put it somewhere else. Now you could argue that it's a outgrowth of scale economies that they have it,

But I'm also wondering, there's this DNA at Walmart, or at least there used to be under Sam, of what you just said. The lowest price is the thing that matters the most. And they could have, and I think most other companies would have, taken their...

distribution and operation advantages and increase their profit margins. And that is like anathema at Walmart. It's always like, we will keep the lowest prices possible for our consumers.

And we will take the absolute bare minimum margin possible, pass it all along to consumers rather than taking it for the company. And the question is, is that still true? Or are they looking for opportunities to keep margin now, given growth has stalled? Right. And at the end of the day, public late stage CEOs are paid to get more earnings per share. Right. Did you see what they were doing with gas stations in the last few years? Yes.

No.

And I think there's probably some truth to that at this point in their growth and saturation. Walton Enterprises and the structure of the family and the ownership of the stock, I think, did go a long way to reinforcing this mentality even after Sam passed away.

But now that we're mostly on to the third generation of Waltons, as you said, I think Walton family members own more professional sports franchises than any other family out there. Them and their spouses, yes. Yeah, right. So the focus on keeping all the money in Walmart, keeping prices as low as possible because we don't care about profit margins. We care about winning and keeping customers. It's not necessarily there as much.

Agree. Okay, bear and bull. We've hit a lot of these points already, but in my bull case, they kind of should win same-day grocery delivery since they have these super centers everywhere. You could make a bull case from the blending of e-commerce and in-store to the one seamless experience. You could make a bull case based on how well they've done in groceries. They'll continue to execute really well there. There's another one that is, especially in this environment we're going into, Walmart is...

kind of recession resistant and in some ways even counter cyclical because of their obsession with the lowest price, they actually should do great in a economic downturn, which I believe they did in 2009. I think so too. Walmart's average customer is below the average income of the U S broadly.

which to me basically means they just don't have the top 1% shop there, and that drops their average below the average of the country. That's sort of an interesting way to look at it is averages are stupid, especially at this scale, because they hide all the interestingness of the distribution, but their average customer is

is far more price sensitive and far more likely to be in a unfortunate economic position in a downturn than other companies. So they serve those people well. Those are my few bold cases. That makes sense to me. The bear case list is unfortunately long. We've hit a lot of it already.

one of which is just competition everywhere and good competition everywhere at this point. Costco wins on lower margins and lower prices. Amazon wins on convenience in most cases and is far more competent at e-commerce and technology. Kroger and Safeway and Albertsons are extremely compelling businesses in the grocery segment. I mean, old businesses,

but very stiff competition. And then you have this other movement happening, which is the gigantic proliferation of Family Dollar and Dollar General, where there's a different customer base that, especially in these sort of food desert type locations, those businesses have done tremendously well and are kind of

It's not that they're pushing Walmarts out, but there's lots of scenarios where someone would opt to choose to shop at a Family Dollar versus going to the bigger Walmart experience. So I think, I don't know that I 100% have the full history on the dollar store industry, but I learned a little bit of it through Walmart research. I believe that dollar stores as we know them today...

grew out of the remnants of the old variety stores, like the Ben Franklin's. Really? Like when they got disrupted by the discounters, Butler Brothers and Ben Franklin didn't survive. But I think kind of the shell of what

all of those stores were, especially because remember they were fixed prices. They were the five and dimes. Right. So like, I think that eventually became the dollar store industry. Fascinating. Well, I have a whole new internet rabbit hole I need to go down after this. Listeners, if you know anything about this, definitely hit us up in Slack and we'd love to chat about this. Yes, for sure.

I think there's a bare case around e-commerce. Even though they're growing quickly, 37% pre-pandemic, e-com is still not a profitable segment for them. It's crazy to think that you could be doing $75 billion in e-commerce revenue and that hasn't reached scale that makes it profitable. I guess it's just a massive, massive fixed cost on the employee base to make that happen. I don't know, but...

When I have in the past used Walmart e-commerce, it's because they run some crazy deals. So I wonder if they're also like running really low margin or even discounting below cost on some stuff. And because they don't break it out, I don't know if that means it's not profitable. I don't know what profit we're talking about there. Amazon for a long time was not profitable because they were reinvesting in more distribution centers and stuff like that. So maybe it's

that. But there's a work in progress going on with Walmart e-commerce. Yeah. They have in recent years been closing a large number of Sam's Clubs. And I think a lot of that real estate they've been converting into is

e-commerce distribution centers. Yeah, I know they did in Washington. There's a labor point to make here too, which is that I think in closing all those Sam's Clubs, they basically lay off all the employees and then say, all right, now you can interview at this building that will be converted into an e-commerce distribution center and we can figure out if you're a fit. It makes sense, but I think it's like one of 100 death by a thousand cuts things going on between Walmart and labor right now. Oh boy. Yeah.

Well, we'll do value creation, value capture in a minute. And there's a whole nother episode we could do on is Walmart good or bad for the world? All right. Playbook. We'll do playbook. And then I want to get to that point.

I'll go first because I have one. I realize that I teased this quote hours ago in the beginning of the episode and then I never actually said it, but this perfectly encapsulates so many wonderful, great playbook lessons to take from Sam Walton and the Walmart story. But this is my favorite. And this is a quote from Charlie Kate, the manager of that first Walmart store. Number one, where he says he's talking about Sam saying, I remember that.

See, I'm saying over and over again, go in and check our competition. Check everyone who is our competition. Don't look for the bad. Look for the good. If you get one good idea, that's one more than you went into the store with. And we must try to incorporate it into our company. We're really not concerned with what they're doing wrong. We're concerned with what they're doing wrong.

Right. And the reason that this grabbed me so much, organizational dynamics and behavior and just human behavior is such that your competitors, you always want to like look for what they're doing wrong and make yourself feel better by like, oh, like they suck. Look how much better we are than them. Oh, that's such a good point. Especially, I don't know if you see this, but

being VCs and we invest in so many wonderful founders and work with folks. But this is really like a disease that I've noticed over the years that startup founders and management teams, they look for the worst in their competition and they make themselves feel better about how great they're doing. We're guilty of it too. But that is so the wrong way to look at it. A much better way to look at it is it doesn't matter what they're doing wrong. Look at what they're doing right and steal it.

Most time you talk to a founder, and of course, like most times we talk to founders, they're pitching for investment. So they're going to have a different posture. But it's, oh, yeah, that is another company in our space. Yeah, here's why they're doing it wrong. Here's why that's the wrong approach. If you look at a Jensen Huang take on this, his would be like, oh, it turns out actually everyone else doing three-sided polygons, that was right. So we're going to do everything we can to immediately move to that.

You're right. Sam woke up every day and thought, how can we go find something a competitor is doing right and steal it? Now, a core part of being a founder, I think especially these days, is...

identifying something that you don't like in the world or that could be done better and then doing it better. That's how companies and products get started. Yes. But once you've done that, you've done that, you're doing it. Now go make it better. Like it doesn't matter what everybody else is doing wrong. So I just love that one. Agree. There's one that we've talked about a bunch, so I'm just going to like summarize it.

Identify a wave and ride it? I never would have known that discounting

was a wave that happened before starting this research. And if you were operating a variety store in 1955, you may not have known that discounting was a wave that was going to come. But Sam was in the right place at the right time with the right insight and then built the company to ride the discounting wave. And it's fascinating to me how just in the course of 50 years or 70 years, it can go from

wait, will this even be a thing to there was ever a point in time where it wasn't a thing? It was different. He both rode that wave, but also created that wave. Yep. Reminds me so much of Jeff Bezos sitting in the offices of D. Shaw in the early 90s being like, holy crap, the Internet is going to be a wave. Yep, for sure. A big one is don't buy anyone else's inefficiency. Yeah.

If you're going to compete on price, you must avoid buying anyone else's inefficiency at all costs. And it means having often very contentious relationships with your suppliers. P&G and Walmart were enemies for years, even though P&G had to sell in Walmarts and Walmart had to be buying P&G products before they kind of figured out how can we both do this because we do both need to serve the same customer. And that took a long time. And so...

that ruthlessness of being willing to not buy anyone else's inefficiency, even though it can create tension in the relationship. If you're a business that's winning on price,

somebody will be doing that in your space. So, uh, you kind of have to, if you want to win. Yep. I don't know that this is a playbook per se, but in a industry like retailing and Walmart's business and Amazon's business and the like price really, really, really matters. Selection and convenience, you know, matters too. And that's why Amazon's a thing and Whole Foods exists and specialty retailers and all that. But price really, really, really matters. And

And so what you're saying is absolutely applicable in cases like that. When price really matters, your margins really matter. And your margin is my opportunity and exploiting inefficiencies and being as efficient as possible is so important. But not all industries are like that. There's danger of over-rotating to that. Say you're in the media industry. That is a high margin industry. Or the software industry. That is a high margin industry. Not to say prices don't matter. Of course they do. But there are other dimensions that...

matter more in those industries. You need to think about what industry you're in before you start applying this stuff. Yeah, that's a great point. The last one is an ill-formed thought, but I kind of want to just get it out there and it might be word vomit, but Walmart in so many ways is a microcosm of America, right?

or really at this point of the world. There are so many customers, there are so many employees, they touch so many facets of life, and they have such a large share of wallet for a lot of people that everything that can happen will happen.

And so like labor problems, yes, for sure. Significant tensions there. Environmental impact. Employees doing everything you can think of because there are 2.2 million of them. So if you come up with some statement of like, Walmart employees are so wonderful, that is true. And Walmart employees steal is also true. And Walmart employees hate their boss is also true. You and I did some serious spelunking on the Walmart subreddit. I spent a couple hours on there and

It's easy to get depressed because the most vocal people create threads there and you're like, "God, is this a terrible, terrible corporation?" It's one of these things where you realize at this point in the world and at this point in the company's history and at their scale, they are just everything. You walk into a store and you get a microcosm of America.

At this point, it's not even a microcosm. It's a macrocosm. I mean, you're talking about 2.2 million people that work there and what do you say? 240 ish million people shop there every week. Yeah. Walmart is where you witness humanity. Yes. In all of its glory and the opposite of glory. All right. I got one more, which is interesting.

Again, I said earlier in the episode, but I think we now have to institute a caveat or an exception to...

What has been our most golden lesson on Acquired, which is the focus on what makes your beer taste better. I guess it is still always in service of making your beer taste better. Dude, Walmart building a logistics network made their beer taste better. Fair point. But that wasn't obvious, I don't think. That's true. In fact, it was completely non-obvious in that Kmart just borrowed Kresge's distribution network.

And everybody thought that that was the way to go. Yeah. And it certainly was for the first decade. First, probably two decades. Yeah, that helped them get a massive lead. And there'd be some very, very credible argument that I totally would have bought, which is, if you think you can get two decades of lead with this strategy, there probably will be something that materializes during that time where being that far ahead means you just win.

Yeah. And Sam says in the book, his name is Henry Cunningham, I want to believe, who was the CEO of Kresge when they launched Kmart. He says that Cunningham was like an amazing retailer, brilliant and great competition, and that Sam believes had Cunningham still been running Kmart as Kmart started to decline, the company would have made different choices. Fascinating. They had a whole bunch of CEO turnover and

All sorts of controversial stuff. All right. So we're on to the segment where we're going to make a case to each other for Walmart being good for the world and bad for the world. It's almost like a bull and bear on the business, but the global impact. Let's save the employees thing for the moment and first talk about impact on communities. Because I think there's an easy narrative to paint, kind of the same narrative that got painted with Starbucks of bad for communities because it puts the local store out of business.

And certainly, I don't think Sam Walton would say that they didn't. I think he would say that we put a Walmart in a community and it was better for consumers. And so then people needed to adapt. Of course, existing merchants hated us. But did consumers hate us? No, I don't think so at all. I think it was better for them. Well, and especially for customers in, well, everywhere, saving money and saving significant amounts of money on your everyday purchases. That's huge. If you are living in middle class or lower class, that's huge.

That is enormous. That makes a huge difference in your life. Yeah. That said, there's probably more interesting things you could buy that have more soul in the local stores. Merchandising that may not show up in a Walmart supply chain. There might be more meaningful personal relationships you could build with people who run the stores than you would have the opportunity to at a Walmart. I'm trying to think of all the things in a consumer experience that are better from a locally owned store.

There's the fact that when you buy something, the equity that gets built from that transaction happening happens in your community versus the equity accruing 50% to the Walton family and 50% to a bunch of public shareholders. Every transaction any business makes accrues either positive or negative equity to the business that participated or facilitated the transaction. Even if that Walmart employs a bunch of local people,

the equity still being built by other shareholders. So there is a lot, I think I said we could do a whole nother three, four hours on discussing this. I read the book, the Walmart effect as part of research. It's really good. It's really even handed, really well done. It's about, uh, I think it was written in 2006 and it goes really deep into

all of these questions, labor impact on communities, all sorts of stuff, highly recommend reading. Frankly, we're not going to be able to do anywhere near as good a job discussing all that as the book does and as other forums do. But to my mind, like the biggest takeaway I had from it was if you just look at individual communities, I think you can make a pretty good argument. And this is Sam's argument. Like you were saying that Walmart is good on balance.

A, because saves consumers money. That's super important. Provides a lot of jobs. You could argue about the quality of those jobs, but a lot of jobs that otherwise would have gotten destroyed. Discounting was going to happen. Yeah. The local shops were not going to survive the local variety stores. And it could be someone that doesn't have the types of incentive programs that Walmart has.

Right. Maybe it's not enough, but they do offer the ability for part of people's pay to go into Walmart stock and that can appreciate over time and you can decide whether to cash it out or take it in Walmart stock. Like there are ways to make hundreds of thousands of dollars on top of your pay by being a Walmart employee. Yep. Now, here's the way, though, where Walmart's impact is a little more unambiguously pernicious, both for the world and

specifically for America, despite all that great stuff. And that's actually in the supplier relationships and the vendor relationships as Walmart got so big and got so much leverage and they're so unrelenting on pushing down prices. And then as the relationships, you talked a little bit about the P and G relationship, but with all their vendors, you know, Walmart is the biggest customer of all of the vendors and suppliers that they work with.

They exert so much pressure for vendors to lower their prices. Ultimately, that leads to a couple of things. It led to offshoring of American manufacturing. Walmart was a huge contributor. At some point, the majority of items sold in Walmarts were made in China. I think during the 80s, it went from like 6% to like 40%. And now, like, I mean, if you take out grocery, I'm sure most stuff in Walmart is not made in America. Yeah.

Yep. You know, and Walmart recognized that this was a problem and tried to address it. But if you're a supplier and there are a bunch of examples in the book of lawnmower companies, Vlasic that makes pickles, all sorts of like you just at a certain point, you cannot pay American labor the wages that you need to pay them and price products where Walmart needs them priced. Like it just does not work. You have to offshore it. So that's one issue. And, you know, you could argue about whether that's good or bad, but certainly now, you

all sorts of reasons where we see there's a negative side of the ledger of offshoring American manufacturing. That's one. Two is quality of products, which is also related. Like the other thing that whether you're making stuff in America or elsewhere, you're

If you keep pushing down those margins so far, like you got to use lower quality materials in your product. There's just this constant barrage to push down quality, push down labor cost. And all of that like comes at a real cost. And quality was an afterthought. I mean, even in 92, when Sam published his book, it was only in the last decade where they were realizing how important quality was in addition to price.

Now, one area where all of this had a huge, pretty much unambiguously negative externality that I think has gone a long way towards being corrected was environmental impact. You can just imagine all the dynamics we were just talking about, like having a positive environmental impact does not fit into that equation. Right. You're not using the slightly more expensive power source when you're a vendor to Walmart. You're using the cheapest, no matter how dirty it is.

- Now for current management and the previous generation of management of Walmart,

To their big credit in the mid-2000s, they got religion on this and embraced sustainability and positive environmental impact as a way to generate more efficiency. So Walmart, I think, is now the largest US commercial producer of solar power. Whoa. Because they put solar panels on the roofs of Walmarts and then now in parking lots too. And then it ends up being cheaper. They also...

a ton in more efficient truck fleets, both in the type of fuel, the shape of the trucks. I want to say they literally doubled the efficiency of the trucking fleet over a decade by just little things they did here and there to chip away. And that makes a huge impact because they're one of the largest trucking fleets in the world. I mean, if you look, there's those graphics that fly around. They're like, what's the largest employer in any state? And like most

of the lower Midwest and much of the South is Walmart. And then there's the other ones that float around that's like, what's the number one profession in every state? And for half the states, it's truckers. And you're like, hmm, I wonder who those truckers work for in a lot of those states. So yes, it's a massive part of not only the American economy, but of our energy

energy usage. I think it's worth bringing up now, especially given everything that's happened recently and where we live and whatnot. Walmart is one of the biggest, well, was and still is one of the biggest sellers of guns in America. And they've pared back the AR-15 and the ammo and the, you know, they stopped selling some things, but like only after there was a shooting in their store. Right, right. Now they still sell guns, obviously. It's

Sam himself obviously was an avid hunter. He'd use guns all the time. Yep. But it wasn't just after the shooting in the store. They've required background checks for a long time. Well, before that, they stopped selling handguns in the 90s. And now after the shooting in the store, they don't sell guns to people under 21. In 2015, they stopped selling assault rifles. So I'm sure it's one of these issues where like,

people on both sides say they're not doing nearly enough or they're doing way too much. Too much. Yeah. But I think it is a good example of a middle ground. You can argue whether it's enough or not enough or too much, but it's a middle ground. All these things really come back to that point of Walmart operates at such scale that it is literally just a snapshot of humanity. And so if it's a facet of our national conversation or things happening in the world, it's going to be happening at Walmart. Totally.

And let's move on to grading. How do you think we should grade this one? Yeah, I think we should go for it. I think we should give an overall grade to Walmart, the company, encompassing the whole body of work.

the Walton early days, the first several decades, the 40.1% annual compounding in the seventies, the 32 and a half in the eighties. Three right now. Yeah. Three, two. I think it's less than three now. I think it's growing slower than the American economy. Well, maybe not this year, but in recent years, I think let's do the whole totality. Well, I mean,

The way to do it on a year-by-year or annualized or even decade basis would be the same way that we did Berkshire, which is effectively look at their annual growth rate, set some hurdle rate, and then decide what constitutes an A-plus and what constitutes an F and do it on a fine-grade basis year-by-year. We're not actually going to do that. And is it a cop-out to say that it's an A-plus-plus from founding through the 80s and mid-90s and then it's been...

a D on exploiting the next big opportunity since then. That's how I feel. It feels weird to roll those into one letter. Well, I think if we were going to break it out into subgrades for eras, I think I would actually do three eras. I would do...

the Walton era, including the seventies and eighties, a plus, plus, plus, plus, plus, right. You can't say enough pluses there. Then I think that actually the nineties is also an a plus.

And like literally grading for shareholders. We're not grading for the multi-stakeholder world that we live in of their communities. They're grading just purely the business and for shareholders. I think the 90s also an A plus. The super centers like amazing. What a huge innovation. And that was not really Sam that led that and was also a big part of driving the nail in the coffin of Kmart and is now 55% of the business.

Dude, so let me tell you about the 90s. In 1992, they came in growing 34%. And by 1997, they were growing at 12%.

Okay, okay, fair. That was like the quintessential decade of their decline. Did growth reaccelerate at all as supercenters came online? It accelerated from 97. It was down at 12%. And then it peaked again in 2000 at 22%. But then it's been all downhill from there.

Interesting. Interesting. I mean, you could say all their job really has been since 2002 is to stay the same size as e-commerce became a thing.

Literally just defending the castle would have been an A+. And maybe that is actually a pretty reasonable way to analyze it. Not that it would have been a good idea to invest a dollar necessarily in 2003 and pull it out today, but what is a win if you were already the world's largest retailer?

stay the world's largest retailer through a transformational technology wave. Which they've done. I mean, Sears didn't do that. No, but we'll put this graph up on the screen. If you look at the gap that Amazon closed in total revenue since the time they were founded to Walmart, they're going to catch them, no doubt about it. Oh, yeah, for sure. And it's a little bit of a deceptive graph because part of it is AWS. So there's high margin revenue in there. There's a completely second business. Oh, yeah.

It all counts. Like Walmart could have done that. Right. Scoreboard, right? You look at the scoreboard. Right. Okay. So maybe then 90s is not an A plus, but I still like the super center innovation is huge. But yeah, and then I do think that the 2000s and particularly the 2010s.

pretty uninspiring for Walmart. It's a little silly because like what actually should you be going for? If Sam Walton cared about the acquired scoreboard, they should have been done in like 1995 or even 2002. We're penalizing them for

continuing to exist and doing worse than they did before. So I don't know. I'm unwilling to grade this as one single thing. I'm willing to say it was an A plus up through Sam Walton's death. And then since then, I'll go from like a D to a B because they have actually continued to be the world's largest retailer through tremendous upheaval in the world and stayed nimble enough to do that. All right. How about perhaps a less controversial or more straightforward way of grading?

I would grade Made in America as an A among the canonical tomes that we've used as main sources on Acquired. Okay. Like Shoe Dog, Made in Japan. Yeah. Of that ilk. Yeah. Sure. So Sam's co-author, who we've mentioned of Made in America, John Huey. Do you know anything about who John Huey is? No, no idea. He...

After writing the book became the editor in chief of time. Oh, wow. And do you know who he replaced as editor in chief of time?

Is it someone else's coauthor? Walter Isaacson. No way. Yeah, totally. No one's coauthor, but wow. You know, it was written as, and because Sam was dying of cancer. So it really has a feel of Steve jobs and Isaacson, Steve jobs book. And like, you know, reading it, like Sam knows the end is near. He's writing this as he's dying. It's really good. Just highly recommend.

For sure. Okay, I'm sick of this grading that's not really grading. So let's do carve outs. And also, I just got a text. Your Walmart order was delivered. Thanks for shopping with us. Reply helpful more. So I have to go run and pick up my Walmart order. Oh, you gotta go get it. My carve out is a podcast that almost certainly no one has listened to.

because our audience overlap has to be approximately zero, which is the I Am Home podcast, which is the official podcast of the Nebraska Furniture Mart.

which many of you will now know is who listened to our Berkshire episodes will know is a Berkshire Hathaway company. And this is the venue that Ted Weschler chose to go and give a wonderful interview. And so it is so cool to hear one of the big managers at Berkshire these days. And I think Ted's the one that did the Apple investment to,

give an interview, a very rare interview on the Nebraska Furniture Mart's I Am Home podcast. So that is my carve out. So good. It's in my queue. I haven't actually listened to it yet, though. Dude, he even talks like Warren. It's crazy. So, OK, here's what I'm curious about, though. Is the content of the podcast...

About discussing furniture? No, it's about what's your day-to-day like? Give us your story. How did you find your way to Berkshire? Oh, so fun. I mean, that's obviously better, but I'm kind of curious what Ted's furniture preferences are. I think he does talk about that he bought a bunch of furniture for his house from the Nebraska Furniture Mart. I love it. Is he like a modern guy? Is he a classic guy? Listen, tune in and find out. Are we talking Mediterranean here? I don't think Mediterranean, if I had to guess. My carve-out is a carve-out that has been...

unacquired before. It was your carve out, but in a different form. And that is The Godfather. The film. You did do it as a carve out, right? Parts one and two. Parts one and two. Yes. Both parts. So good. Which I also have recently rewatched. So good. But you know what is even better that I read for the first time, and I can't believe I hadn't read it until...

the last month or two. Is it the book? Is Mario Puzo's book, The Godfather. It's so good. I think it was better than the movies. It's as good as the movies. Yeah, careful there, buddy. And I watched both after reading the book. As with anything, when you read the book, you understand so much more about what's going on, why, motivations. Because I feel like especially...

in movies made back then. You can argue whether this is good or bad. I see both sides, but they left a lot more ambiguous. Like they didn't like explain everything as much as movies do now. Which is great. Which is so great. It's back when film was an art form. It reminds me not as much as this, but I also did the same thing with 2001 A Space Odyssey. A couple of years ago, I read the book and I'd never understood like the movie. I was just like, this is crazy.

You're like, what the hell is the last scene? But then you read the book and you're like, oh, now I totally understand what's going on. And I get it. And it's awesome. It's a little bit like that with the Godfather, with the book and large parts of Godfather part two are interspersed in the book in part one. It was never intended to be a series. Like it's all just one book. So,

So you get a lot more kind of like as you go, like Vito's history, like the Italian backstory is actually part of the first main volume. And when Michael is off in Sicily hiding after he murders the Turk and the police captain. All right. On my list. Adding it. It's good. It's good. It's good.

With that, listeners, thank you so much for being on this journey with us. After you finish, come discuss with the other 12,000 smart, clever, kind, appreciative members of the Acquired community at acquired.fm slash slack.

If you want more Acquired, I know this episode is going to clock in like three and a half hours or something insane. But if you're like, you guys, I need more. We just dropped an awesome, awesome interview with Patrick Campbell going through like things that don't often get discussed about acquisitions for his over $200 million acquisition of ProfitWell by Paddle. That will be coming to the public feed soon that you can find by searching Acquired LP Show in the podcast player of your choice and is already live on

at acquired.fm slash LP for paid subscribers. And we've got a job board. Go check it out at acquired.fm slash jobs. We here on the Acquired team look at every single one of those and our jobs that we think are interesting. So if you're looking for your next shtick, consider that. All right, David, anything else? I don't know what else we could say at this point. All right, listeners, with that, we'll see you next time. We'll see you next time. ♪ Who got the truth? ♪

Is it you, is it you, is it you who got the truth now?