Target vs Walmart | Retail Rumble | 1

0:09August 1969, Bentonville, Arkansas. saw. In a cramped office above the town barbershop, Walmart founder Sam Walton is on the phone to the Republic Bank of Dallas and getting desperate. I need that credit line and I need it today. I have suppliers who need paying and they won't wait another day. But the bank official isn't budging. Mr. Walton, you already owe us two million dollars. We're not about to add another million and a half to that total. Walton's panic rises. You don't understand. Without that credit, it's over. Walmart will be sunk. The bank official hesitates, then replies. Mr. Walton, I'm sorry, but we're not giving you any more credit.

0:55Walton's heart skips a beat. Walmart can't end this way. He won't let it. Well, in that case, I'm coming over right now. Huh? We're in Dallas. Aren't you in Arkansas? Walton hangs up and grabs his keys. He hurries down the narrow staircase, out the door, and across the town square to his beat-up Chevy. He starts the engine and speeds away towards Bentonville Airport. Twenty minutes later, Walton's small twin-engine aircraft soars into the skies. In the cockpit, Walton checks his map and points his plane towards Dallas. He feels his anxiety rise along with the altitude. He knows it's a long shot, but he's out of options.

1:45If he doesn't get credit, then everything he's built will collapse.

1:57From Wondery, I'm David Brown and this is Business Wars.

2:25In this season, we take stock of the bruising battle between America's top discounters. Walmart and Target. In the blue corner is Walmart, the small-town titan from Arkansas famed for crushing prices. In the red corner is Target, the cheap-chic champ that swaggered out of the Midwest suburbs. Every year, Americans spend half a trillion dollars with these big-box stores, and the fight for those greenbacks is intense. They fought turf wars for the best locations, traded blows on Black Friday, and scramble for an edge in e-commerce. This ongoing fight has changed how we shop, rewired industry, brought Fifth Avenue to Main Street, and even altered the American landscape.

3:14This is Episode 1, Retail Rumble.

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5:27So simplify your business. Go for growth. Go with Workday Go. July 1962, Rogers, Arkansas. On the edge of town, four men in pinstripe suits get out of a car and stare at the large store in front of them. It's called Walmart Discount City, and it opened today. Near the entrance, a sign reads, We sell for less. The men join the trickle of shoppers heading inside. They've just flown in from Chicago, where they work at the head office of Ben Franklin, a chain of five-and-dime stores. And they've got a beef with Walmart's founder, Sam Walton. Walton's a Ben Franklin franchisee, but he's got a new side gig called Walmart.

6:15Trouble is, it's undercutting the Ben Franklin franchise downtown, and this small town ain't big enough for both of them. At the front of the store, a young sales associate greets the grim-faced men. Welcome to Walmart. Would you like to enter our no-obligation opening day raffle? One of the men turns to the employee. Where's Sam Walton? Uh, in the office, at the back. The men weave past the shoppers in the aisles toward the office. The store looks like it was arranged by a passing tornado. There are toilet rolls stacked into high walls, clothes slung over metal pipes and tables loaded with merchandise in no discernible order.

6:58But it's the prices that worry the men from Ben Franklin. Everything's priced to move. A third off sunbeam irons. Wilson baseball gloves at less than half price. Five quarts of motor oil for a dollar instead of a dollar fifty. The men reach the office. Inside, Sam Walton's at a desk made out of orange crates and plywood. He's tanned with receding silver hair and looks older than his 44 years. Walton looks up at the executives. He knows them, but they don't wait for him to say hello. Sam, we're not happy about this place. It's going to hurt Max Russell's Ben Franklin store downtown. Walton sits up.

7:41Now hang on. I invited Max to come in on this place with me. He declined. That's because the prices you're selling at are madness. Walton frowns. The Ben Franklin guys just don't get it. Ben Franklin stores pocket 25 % or more from the price of every sale. but discount stores take much less. Their strategy is to buy low, stack high, price cheap, and make bigger profits overall by selling way more merchandise than their pricier rivals. Look, this works. Those discount stores out east are the busiest stores I ever saw. Discounting's where retail's headed. The way I see it, you either beat them to it, or you get beat.

8:24Sam, those stores work because they're in big cities, not the boondocks. There's only 6 ,000 people in this town. Walton frowns. I've run stores in what you call boondocks for years. There's plenty of money to be made in small towns. Sam, we're here to tell you not to open another Walmart. If you do, there'll be consequences. Walton goes quiet at the veiled threat to strip him of his Ben Franklin franchises. Walmart's only an experiment. He doesn't want to risk losing his Ben Franklin stores. At least, not yet. Okay, understood.

9:08But while Walton makes a tactical retreat, others are also chasing high profits from low prices. With Americans moving to the suburbs, big stores selling everyday goods at rock-bottom prices are opening everywhere. In Michigan, five-and-dime chain SS Kresge starts a discount arm called Kmart. Its chief rival, Woolworth, launches its low-priced Woolco stores. And in Minneapolis, the Dayton's department store opens the first for Targets. Dayton's promotes Target as the upscale discounter, promising quality goods at low prices. But right now, its aim is off.

9:57January 1963, Dayton's head office, Minneapolis. In a meeting room, Target's executives watch as President Douglas Dayton scans the latest inventory report and grimaces. 320 ladies' half-slips, 134 desk lamps. This goes on for pages. Just how much unsold inventory are we sitting on? The merchandising manager replies. About$1 million. Dayton turns pale. At 38, he's the youngest of the five brothers who run the Dayton's retail empire and the champion of its move into discounting. Target was supposed to enliven the company's static sales. Instead, it lost$600 ,000 and built a mountain of excess product.

10:46And that unsold stock is a time bomb. Retailers like Target don't pay suppliers on delivery. they pay a month or two later. That gives them time to sell the goods before having to pay for them. So if a retailer orders the right amount of product, its cash won't get tied up in excess inventory. But it's a tricky balance. Order too little and shoppers will find empty shelves and sales will be lost. Order too much and the retailer will need to pay up before the goods are sold. Dayton pushes the inventory report aside. We have to unload this stuff. The merchandising manager nods. How about a fire sale?

11:29Better than stores full of last year's fashions. Agreed. Agreed. Everything must go. Soon after, Target's clearance sale begins, offering big savings on everything from mouthwash to shotguns. But while it clears the overstock, Target stops expanding. It won't open another store for two and a half years. By then, Sam Walton's already dismissed Ben Franklin's threats and opened three more Walmarts. But the heavyweight contender is Kmart, and it's way ahead. It plans to win the discount wars by expanding faster than anyone else. It's opened 100 stores in three years and adding new ones almost weekly.

12:16It's also boosting sales with ploys like its Blue Light Specials, where flashing blue sirens go off in stores to alert shoppers to limited-time discounts. Worried about falling behind, Target rushes to open stores in cities as far-flung as Denver, Houston, and St. Louis. Walton sticks to small towns no more than a day's drive from Walmart's headquarters in Bentonville, Arkansas. But his small-town strategy has a flaw. To turn a profit while selling cheap, Walmart needs to buy goods at the lowest possible price. And that means buying direct from manufacturers instead of wholesalers. The snag is only a few manufacturers will deliver to the tiny towns Walmart serves.

13:03So Walmart needs to build a warehouse to take deliveries from manufacturers and send the goods on to its stores. Walton doesn't know logistics, so he goes hunting for outside expertise.

13:211968, Fayetteville Airport, Arkansas. Bob Thornton and his wife walk the jetway towards the gate, and they're dressed to impress. Thornton runs a warehouse in Omaha, and Walton wants him to join Walmart. And that suits Thornton just fine. His current employer wants to relocate him to New York, a prospect that horrifies him and his wife. Thornton approaches the gate agent. Walton couldn't meet them here, but said he'd leave his car for them. There should be a car key for me, Bob Thornton. The agent smiles. There you go. Watch that way. Thanks. Which car is it? Don't know. Just try the key till you find the right one.

14:05As they head to the lot, Thornton's wife locks arms with her husband. So, what kind of car do you think he drives? Bet it's a Cadillac. Could be. He does want me to build a distribution center. That's serious money. But there are no Cadillacs among about a dozen cars in the lot. So they try the most expensive car they see. A Buick Electra. Nope, not this one. They move on, but time after time the key doesn't fit. Finally they reach the Chevy Biscayne they've been ignoring, the one with peeling paint and a missing hubcap. Thornton tries the key. The doors unlock. The Thorntons exchange shocked looks and open the doors.

14:50Inside it smells of wet dog. The back seats are torn and there are gnawed rib bones in the front passenger footwell. Thornton's wife nudges the bones aside while trying not to dirty her best shoes. Thornton looks at his wife. It's not what I imagined. No. Still, better than New York. It's Thornton's first taste of Walmart's frugal ways. In his quest to deliver low prices, Walton makes his people fight for every dime. On business trips, executives share rooms in cheap motels. At board meetings, directors pay for their coffees. So when Thornton designs a distribution center that'll cost half a million dollars to build, Walton balks.

15:37Walton doesn't have that kind of money. And that's because Walmart's built on credit. It relies on its bank in Dallas to keep going. But it needs that distribution center. Without it, the profit margins are just too thin. So Walton borrows again. By summer 1969, Walmart is earning$600 ,000 a year, but owes nearly$2 million. The need for cash is relentless. There are always more people to pay, more stores to build, more land to acquire, more inventory to buy, and more trucks to hire. Walton is facing another do-or-die credit crisis. He knows if he can't win the bank over, his 17-store chain will be finished before it's barely left the foothills of the Ozark Mountains.

16:29So, as his plane nears Dallas, he steals himself for a do-or-die attempt to save Walmart from oblivion.

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18:24August 1969, Dallas, Texas. Walton flew here in the hopes of getting out from under the Ben Franklin guys who ambushed him in his Bentonville office. He's tense as he walks into the Republic Bank's offices. He's also ready to beg on his hands and knees. You've got to help. Without that credit, I can't buy merchandise. I can't pay my people. I can't even put gas in our trucks. The bank official hearing his plea looks weary. Walton showed up just before lunch after flying in from Arkansas, and they've been going in circles ever since. Mr. Walton, you're just wasting your breath and my time. I made our position clear on the phone.

19:08You being here don't change a thing. You've already got all the credit we're going to give you. Walton's shoulders sag. It's hopeless. He came to save Walmart. Instead, he leaves defeated. 30 minutes later, Dallas Love Field Airport. At a payphone, Walton calls James Jones. Jones used to work at Republic Bank. He's the guy who first gave Walton credit. Now he works for a bank in New Orleans. James Jones? James, it's Sam Walton. I'm in Dallas and they cut me off. They cut me off! Sam, what are you talking about? Republic Bank, that's who. I'm sorry. I'm all wound up, but they won't give me credit, and I need$1.5 million today.

19:59What do I do? Okay. Are you at the airport? I am. Well, then get in your plane and get to New Orleans. Doesn't matter what time you get here. I'll wait. Walton enters Joan's office in New Orleans. It's just after 6 p.m. Sit down, Sam. You look tired. Thanks. It's been a long day. Hey, listen, I need to know. Can you help? Jones slides a document across the desk. That's an unsecured note, Sam. Sign it. Walton takes a pen from his shirt pocket and signs. You got your money, Sam. Go tell Republic that you bank with us now.

20:42Walmart's near-death experience convinces Walton that things must change. So, in 1970, Walmart goes public. Wall Street barely notices. Walmart's annual sales of$30 million pale next to Target's$289 million, let alone Kmart's$2 billion. Still, the IPO lets Walmart clear its debt and keep expanding. But by then, there's another threat to Walton's plan.

21:20It's October 1970, and in the parking lot of the new Walmart in Clinton, Missouri, the retail clerks' union's up early. The store opens today, and the union wants to organize its workers. As opening time approaches, a union official directs the troops. Everyone, listen up. I want two picket lines. One over there, the other over there. Got it? One striker looks at the store. Hey, why are the windows covered with brown paper? Who cares? Hurry up, they're opening soon. As the strikers fan out, Sam Walton steps out of the store. There's someone by his side. John Tate, a union-busting attorney that Walmart's just hired.

22:07Tate hates unions. In his senior year in high school, he took a summer job and got beaten for crossing a picket line on his first day. He still bears the scars from the head injuries he suffered. Now, he makes his living fighting unions. He's not about to let these strikers spoil the opening of Walmart's 20th store. Tate scowls at the picketers and turns to Walton. Shall we? Walton signals the store manager. Walmart employees race out of the store and rip away the paper covering the windows. The picketers' jaws drop as they see what the paper was hiding. Huge signs advertising a strike sale with super low prices.

22:53The shoppers sauntering towards the store see the sign, perk up, and rush the doors. They brush aside union members trying to give them leaflets. No one wants to stop when there are big bargains to bag. Walton grins. You got him good, John. But Tate isn't so sure. This time, but to really keep the unions out, you need to rethink how you treat your store workers. What do you mean? Sam, you can keep hiring me to keep the unions down, or you can get the workforce on your side. How? Show them you care, Sam. Share profits, hear them out. You do that, they won't want a union.

23:38Like Target and Kmart, Walmart wants to keep the unions out. Walton sees them as outsiders who will sow discontent and prevent him from keeping prices low. So, he takes Tate's advice. He tells employees that his and other executives' doors are always open. He introduces bonuses for stores that meet their targets and stock options for employees who stick around. The new perks keep the unions at bay. That and the fire and brimstone lectures employees get whenever there's a whiff of union activity. With the unions nixed, distribution center open and the cash crunch over, Walmart gains speed, opening stores faster and faster.

24:24But as Walmart accelerates, Target sputters. Walmart is concentrated around northwest Arkansas. Target expands and spreads itself thin, too thin. The long distances between its 46 stores create inefficiencies that hammer profits. With Target in trouble, Dayton's brings in new leadership.

24:55March 1973, Dayton's head office, Minneapolis. In a meeting room, Target's new president, Stephen Pistner, introduces himself to the top team. What you need to know is I believe in management by constructive confrontation. That means we don't ignore our problems. And boy, do we have plenty of those. Pistner checks his notes. We've got outdated merchandise, dirty cluttered aisles, slow checkouts, and declining profits. So, tell me, what's going wrong? One executive replies quickly, eager to impress the new boss. The big problem is customers aren't buying more product. Everyone turns to look at Target's white-haired vice president, Norm McMillan.

25:40He's got a rep as an outspoken maverick. No, the big problem is everybody here wants to be some super executive and look good instead of getting things done. Pistner ignores McMillan and turns back to the eager executive. So, how do we get customers buying more? We can't. It's the economy, inflation, Vietnam. We can't control that stuff. We have to wait for things to improve. Pistner notices Macmillan roll his eyes as most of the team nod in agreement. He thinks at least Macmillan gets it. Pistner glares at the nodding executives. Now, maybe I wasn't clear. I want solutions, not excuses. So who's got solutions?

26:27Macmillan leans forward. I got plenty. Stop opening stores so far apart it makes distribution inefficient. And don't let stores choose their own decor. They should be selling, not decorating. Pistner smiles. Now they're getting somewhere.