Leadership—Overcoming Disappointment What if…Sam Walton had Stayed in Newport?
A few weeks ago my wife and I were driving from our home in Tampa to our daughter’s in Dallas. As we passed another tractor trailer in the never ending chain of trucks along I-75, I noticed its familiar blue lettering, Walmart—Bentonville, Arkansas.
As a native Arkansan, I recalled that Sam Walton began his business career in Newport, Arkansas about 30 miles from my hometown of Batesville. With miles and time ahead of me I began to wonder…why did Sam Walton move from Newport to Bentonville?
The story that unfolded involved decisions made by two family businesses—one mature, transitioning into its third generation; the other, in its infancy—and the consequences of those decisions on two small towns.
The answer as to why Mr. Walton left Newport came easily, but left nagging questions and many—what ifs.
The simple reason Sam Walton moved his business from Newport to Bentonville was that he lost his lease. In fact, Walton later stated that he felt as if he was run out of town by his landlord. But was he?
The Walton’s story in Newport begins in 1945 when, with the help of a $20,000 loan from his father-in-law, and $5,000 he saved while serving during World War II, Walton opened a Ben Franklin five-and-dime store on Front Street in Newport, at the time the main street for most downtown retail businesses.
Back then, five-and-dime stores were the equivalent of today’s dollar stores. In fact, the Chicago-based franchise is still around today, but in the forties, fifties, and early sixties they seemingly were in every small town in the South.
The town of Newport certainly qualified for Ben Franklin’s small town target market. According to the 1950 Census Report, Newport had a population of around 5,000; its county Jackson, had a population of about 25,000. Newport is located about ninety miles east of Memphis, Tennessee and during the 40s and 50s, was a farming and railroad town.
Despite two things—Newport’s small size and Walton’s admitted lack of retail experience—over the next few years the little store set records for Ben Franklin stores throughout the region. As reported in the Harvard Business Review, July 2001, Walton’s store grew from $72,000 in gross sales to $105,000 in its first year. In the second year, sales increased to $140,000 and a year later to $175,000. By the fifth full year of operations, the little store that could had gross sales of $250,000 for a five year compound annual growth rate of just over 28% making Walton’s five-and-dime the leading variety store in Arkansas. Not bad for a store that Walton later describe as “a dog of a store” at the time he bought it.
Mr. Walton’s approach to his retailing was to keep expenses low, purchase inventory at the lowest price possible, regardless of the source, and pass the savings onto the customers. To Walton, the low cost approach was just good old common sense, but it ran counter to the Chicago-based Ben Franklin franchise model owned by the Butler Brothers. However, the sales numbers Walton was producing kept the corporate office back in Chicago appeased and, I’m sure, intrigued. This approach, to drive value for the customer through low prices, became a foundational component of Walmart’s long term competitive strategy.
In five short years, with the store’s success and his engaging personality, Sam Walton became well known and a person of influence in Newport. He was active in the Rotary Club, his church, and became president of the Chamber of Commerce. As Walton flourished in business and civic activities, his wife Helen was very involved in social, civic, and church life, forming many great friendships that would last a lifetime.
Three of their four children were born in Newport, and the couple considered Newport to be their home. Life was great for the Waltons and they loved their new hometown—but the life they built in Newport was about to change.
Down the street from their Ben Franklin store was Jackson County’s leading retail operation, the PK Holmes Department Store, owned by Mr. P.K. Holmes, Sr., Walton’s landlord.
Mr. Holmes watched with close interest as young Walton’s store continued to grow and prosper. Holmes recognized that Walton’s little store had become a staple in the community with many loyal customers.
As Walton’s landlord, Holmes also knew of the impressive increase in annual sales. The lease agreement between the two called for Holmes to receive 5% of sales in exchange for the lease on the Front Street store.
However, near the time the lease was up for renewal Mr. Holmes’s youngest son Douglas, after serving with distinction during World War II, was nearing graduation from the University of Arkansas.
As the story has been reported, Mr. Holmes wanted Walton’s now profitable little store for his son to run.
The profitability of the store was perhaps part of the motivation, but according to some family members of Mr. Holmes’ familiar with the events, the heart of the decision not to renew the lease had little to do with the profitability of the store.
Mrs. Phyllis Holmes, widow of Douglas P. Holmes, the young man returning home from college to join the family business, when asked if the motivation not to renew the lease was based upon the profitability of the store or commitment to family, she replied, “Family—plain and simple.” According to Mrs. Holmes the decision was about continuing the tradition of the family business.
The family business tradition ran deep and was entering its third generation of operations. The parents of P.K. Holmes and his wife were some of the earliest settlers of Jackson County and both families had long been merchants in Newport and the surrounding area.
Continuing the tradition in the family business, Holmes’s oldest son P.K. Holmes, Jr., had joined the business upon returning from World War II and when not
practicing law, worked in the business of the department store, and also opened a men’s store in Newport.
With his youngest son Douglas, graduating from college at the same time Walton’s lease was up for renewal, it was only natural for Mr. Holmes to look at this as a convergence of opportunities being presented to the Holmes family businesses—to bring Douglas into the business and to expand and diversify their retail operations into variety stores.
A natural evolution of most family businesses is to expand or find positions for family members as they become of age, if they have the desire to enter the family enterprise.
It was later reported that when Walton went to Mr. Holmes’s office to discuss renewing the lease that Walton was told by Mr. Holmes that he would not renew the lease “at any price,” further giving credence to Mrs. Holmes’s assertion that it was not about the money, but about family.
Regardless of the reason, Walton felt blindsided by the turn of events and was by all accounts furious with his landlord. But part of Mr. Walton’s anger was perhaps leveled at himself. In his rush to open the store, Walton had failed to notice that the lease agreement he signed with Mr. Holmes did not have a renewal clause.
Sam and Helen were crushed by the thought of leaving Newport. This small town, with its friendly, down-to earth people, had become home to the young family. Adding to the pain was the fact that, in their minds, they were being forced to leave. Quoted for an article, Mr. Walton recalled the following:
"I felt sick to my stomach. I couldn't believe it was happening to me. It was really like a nightmare. I had built the best variety store in the whole region and worked hard in the community—done everything right—and now I was being kicked out of town. It didn't seem fair. I blamed myself for getting suckered into such an awful lease, and I was furious at the landlord. Helen, just settling in with a brand-new family, was heartsick at the prospect of leaving Newport. But that's what we were going to do."
The search for a new location began soon after. The search itself focused again on small towns—Helen wanted to raise her kids in a small town—and in 1949 Arkansas certainly had a lot of them, most of which however, were off the main highways.
Back then, there were more dirt roads in Arkansas than paved, and the time it took to travel between towns took longer than it does today. I am sure there were some long days that young Sam Walton spent driving the narrowly paved, half paved, and the dusty back roads of Arkansas, looking for a new hometown for his family with a suitable and available location for a new store.
With time to think on a long drive, I believe that Mr. Sam spent much of his time visualizing ways to expand his concept of low overhead, low prices, and exceptional customer service into other communities. He proved the concept in Newport. It is easy to imagine that the thought of a chain of stores crossed his mind as he traveled through the hills and flatlands of Arkansas looking for a new location.
The Waltons ultimately found a location in Bentonville, Arkansas, a sleepy little town in the northwest corner of the state. Bentonville, the county seat of Benton County, was even smaller than Newport with a population of a just under 3,000, and county population of 5,000 as stated in the 1950 Census Report.
Bentonville is in the rolling hills of Northwest Arkansas and in 1950 featured a beautiful downtown with a classic courthouse town-square for shopping, a great location for their new store.
Learning from his experiences in Newport, and armed with an abundance of optimism, and a vision for the future, Walton bought a building and with the help of his father-in-law, negotiated a 99-year lease on the building next door on the town-square in Bentonville where they opened the first Walton’s Five-and-Dime.
Over the next ten years, Walton with the help of his wife Helen, who held a degree in business from the University of Oklahoma, and Sam’s brother James “Bud” Walton, expanded their operations creating a chain of 15 variety stores across Arkansas and Missouri.
With experience and the success the small chain of stores, Walton began to think beyond the small variety stores. If his formula worked in small towns for variety stores, why couldn’t it work for larger stores carrying essentially all the daily needs of a family? With this idea, the first Walmart was opened in 1962 in Rogers, Arkansas, a short drive and a few minutes from Bentonville.
Over the course of forty years, from 1945 until 1985, Sam Walton went from opening a five-and-dime store in the small farming community of Newport, to becoming the largest retailer in the world and being named the World’s Richest Man by Forbes Magazine from 1982 to 1988.
Today, according to the Walmart website, the company employs 2.3 million associates around the world. For the fiscal year ending January 31, 2016 Walmart’s total revenue was $482.1 billion and the company returned $10.4 billion to shareholders through dividends and share repurchase.
What has become of the sleepy little town of Bentonville and the surrounding area, now the center of the global operations of Walmart?
Bentonville has grown in population from 2,942 in 1950 to around 45,000 according to the US Census Bureau in July 2015. The surrounding area of Benton County has grown from 5,000 when the Walton family first moved there to just over 249,000. Benton County is currently listed as #52 among the 100 fastest growing counties in America, and has a median household income of $56,325.
Newport is still a town full of warm and welcoming people—however the years have not been good for the town’s growth. Today, Newport has a population of around 7,700, and the county population has dropped from 25,000 when the young Walton family first moved to the area to a just over 17,000 as reported in the 2015 Census Report. The median household income in Jackson County is listed in the report as $31,517.
The comparisons and contrast in the economic growth and population of the two communities and the incredible success of Walmart and the Walton family raises the question, what would have happened to Newport if Mr. Holmes had renewed the lease? Would it now be the headquarters for Walmart? Maybe, maybe not.
There are other factors that need to be considered regarding the lease controversy recently brought up in a conversation with Price Holmes, the grandson of P.K. Holmes, Sr.
“Sam Walton chose to leave Newport, he didn’t lose the Ben Franklin franchise for the area, he simply lost his lease. It wasn’t that he didn’t have options, he could have rented, bought or built another building and reopened his store. No one forced him to leave town, he made that decision.”
But there are so many other what if scenarios for consideration:
What if—As Price Holmes suggests, Walton had built a new store down the street and remained in Newport? Would he have gone on to establish Walmart?
What if—Mr. Sam had not had the motivation, as painful as it was, of “being run out of town” by Mr. Holmes, would he have been as driven?
What if—Mr. Holmes had intentionally left a renewal clause out of the lease, realizing that in a few years his youngest son would be coming home from college and this site would be perfect to expand the family retail operations and saw a young, and by his own admission, naïve Sam Walton as a tenant only until his son Douglas graduated from college?
What if—the circumstances had been reversed and Sam Walton would have been the landlord with a son or daughter returning home wanting to go into the family business, would he have made the same decision?
Regardless of how many different scenarios you come up with, or your opinion of the lost lease, the outcome remains the same. The choices made and actions taken by Mr. Holmes and Mr. Walton, carried with them significant consequences, however unintended, for two small towns in Arkansas, Bentonville and Newport.