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The Waltons:
Inside America's Richest Family 

ANDY SERWER / Fortune v.150, n.10, 15nov04

[More on Wal-Mart]


"Have you been to Bentonville?"

The Waltons: Inside America's Richest Family ANDY SERWER / Fortune v.150, n.10, 15nov04

Alice, Rob, Sam, Helen, Jim, and John Walton
1981 photo

If you worked for Wal-Mart at any time since December 26, 1998, you may have legal claims in a class action sex discrimination lawsuit against Wal-Mart.

Si Ud. desea información en Español sobre esta demanda de la acción de clase contra Wal-Mart, por favor llámenos al (800) 839-4372. 


It's a question more and more businesspeople ask each other these days, and increasingly the answer is yes. This hamlet of 25,000 in Northwest Arkansas is, of course, the home of Wal-Mart, the world's largest company, and as such has become a mandatory destination for hordes of vendors, contractors, and salesmen. As you might imagine, growing pains abound. The road from the airport is a curvy country lane that runs a dozen miles with at least three 90-degree turns. There are no big hotels in town. And between the endless construction projects and the choked streets, it can sometimes take you 15 minutes to go a mile or two. Then there's Wal-Mart headquarters, which sits amid the sprawl—a faded, one-story, red brick building that looks like a book depository for the board of education.

Bentonville is also home to the Walton family—the widow and offspring of Sam Walton. They control about 39% of Wal-Mart stock, worth some $90 billion, which makes them by far the richest family in the U.S. The Waltons keep a very low profile, though, and you'd be hard-pressed to find any signs of their great wealth here. Several months ago, strolling around downtown Bentonville, I came upon a plain old brick building. It faces a boarded-up building across the street, and has no sign on the door. I walked into the lobby and down the hall to a directory in a glass case. The listings were cryptic in their simplicity: "WEI—218, WFF—217," which, having done some research, I could decipher to mean that Walton Enterprises Inc. (the family office) and the Walton Family Foundation are on the second floor. There was also "Arvest Marketing—310" (Arvest is the Waltons' bank company) and "Community Publishers—318" (their newspaper company). You could take an old elevator, but most prefer to walk. Upstairs, in a warren of shopworn offices, resides the nerve center of the biggest fortune in the U.S.

If Wal-Mart, with its quarter-trillion dollars in annual sales, is almost unimaginably massive, then the Waltons' great wealth is its equal in a parallel universe of private fortunes. The Walton family is as rich as Bill Gates and Warren Buffett combined. Amid all the talk about how rich Teresa Heinz Kerry is, consider that the Walton family is 117 times wealthier. The Waltons' $90 billion fortune is equivalent to the GDP of Singapore. It's bigger than IBM's annual revenues. The dividend stream from the family's holdings produces nearly $880 million annually. It's likely that only the Rockefellers—before John D. gave away much of his fortune—were wealthier. And that's after adjusting for inflation. In sheer dollar terms, the Waltons are far richer.

It is reasonable, and useful, to consider the Waltons' combined wealth this way because the family members act and think collectively. They are constantly in contact with each other and with family advisors, and they meet three times a year to discuss and manage their fortune. Because they hold such a huge stake in Wal-Mart, the Waltons have a large, if quiet, influence on our economy and society. They have a say in more than a mil-lion jobs in this country. (What if the family, for instance, urged the company to give up the fight with unions in California and pull out of the Golden State?) The Waltons' decisions could also affect hundreds of billions of dollars in investors' stock portfolios and retirement ac-counts. In the future, their impact could be much greater. The Waltons' philanthropy is a giant just beginning to stir. What the family does with its great wealth—think Rockefellers again for a moment—could leave a lasting mark on the nation.

In time, the Waltons will almost certainly join the ranks of instantly recognizable American family names like Morgan, Mellon, and Getty. At this point, though, they are still in the early stages of their great wealth. Wal-Mart went public 34 years ago and didn't become a juggernaut until the '90s. Family members didn't grow up rich. They were small-town kids whose dad happened to own a handful of successful stores. The big money didn't come into their lives until they were adults—which has been a blessing: This is the kind of outrageous fortune that can tear families apart.

Most of us are familiar with Mr. Sam—that is, Samuel Moore Walton, Wal-Mart Stores' founder. Born in 1918 in the dusty community of Kingfisher, Okla., he had accumulated the biggest family fortune in America by the time he died in 1992. Today Mr. Sam still looms over his clan, starting with the fact that its vast wealth is the product not just of his business acumen but also of his foresight. Put it this way: When Sam Walton died, it was hardly a taxable event. Sam had set up his ownership of Wal-Mart's stock in a family partnership that largely avoided estate taxes. So at the time of Sam Walton's death, each of his four children held 20% of Walton Enterprises, while Sam owned 10%, as did his wife, Helen. She inherited his partnership stake tax-free.

But who are these heirs? What do they do with all that money? What are they like? Well, in many respects they are like Sam. The family is still in its filial generation of billionaires and feels the pull of Sam's plain living and frugality. The Waltons are understated and seek to keep their influence mostly hidden. And yet they are slowly being drawn to the creature comforts—private jets, houses in tony Western towns, vintage sports cars—that their station in life affords them.

There's Helen, the family matriarch, who until recently cooked grits for houseguests at 6:30 in the morning. Helen's children all have varying degrees of their father's fire. There's son John, who survived harrowing missions as a Special Forces operative in Vietnam, and who now leads the family's philanthropic efforts. There's son Jim, who pre-sides over the Waltons' private businesses, including a fast-growing banking empire. There's son Rob, the underestimated chairman of Wal-Mart, who is the link between the company and the family. And there's a daughter, Alice, the richest woman in America, who closed her investment bank so she could breed cutting horses, and who has been a leader in the development of Northwest Arkansas.

The Waltons have never been interested in discussing their lives with the media, but now for the first time they have opened up their family album to a degree, granting FORTUNE interviews. All told, FORTUNE spent over a year reporting this story, speaking with scores of sources across the country. The result, we hope, is the most complete picture to date of the Waltons, the first family of American business.




Rob Walton

"ROB HAS NO INTEREST in discussions about whether the Clorox should be on the third shelf," says Wal-Mart CEO Lee Scott, de-scribing his boss, Rob Walton, the company's chairman. "But with real estate and legal and those sorts of areas, his knowledge base and his ability to drill down is remarkable. He also has a photo-graphic memory. He can tell you about a store that we opened in Paducah, Ky., and that it's near a Burger King and three miles

from the interstate and why the Kmart has a slightly better location." And then there's Rob's competitive streak. "We never fly on the same plane, so if we're going to a meeting out of town we sometimes race to see who can get there first," Scott says with a chuckle (he rides in a Wal-Mart jet; Rob flies his own). "Rob's a good pilot," Scott adds. "He follows all the rules."

"Unlike you-know-who?" I ask. "Let's just say Rob's father was less conservative in an airplane."

Ah yes, the inevitable comparisons to Mr. Sam. Rob, the oldest son, has to deal with them constantly. "Me and Dad are just very different people," Rob says. "My strengths are more analytical. I've got a legal background and an accounting background. I really wouldn't feel appropriate comparing myself to him."

Rob Walton is obviously a very bright guy, but he's neither the retailing genius nor the firecracker his father was. The thing is, he is smart enough to know that. Rob Walton figured out that he could look after his family's fortune and serve as Wal-Mart's chairman but didn't have to take on the unenviable burden of being the company's CEO.

Instead Rob is the focal point in the relationship between Wal-Mart and the Walton family. This is not a nine-to-five job, nor is Rob a typical chairman. Because he keeps such a low profile, his name is rarely mentioned when it comes to the workings of Wal-Mart. But with decades of experience by his father's side, Rob is probably the most knowledgeable nonexecutive chairman in American business. And with his family's fortune all in a single stock, he'd better be. "You know the family could have liquidated its position in the company, but they have a long-term view," says David Glass, Wal-Mart's former CEO, who is currently chairman of the board's executive committee. "Never once has Rob said, `No, don't do that, the family needs to be conservative.' The family resisted increasing dividends. The money should be put in to grow the company. Not all families in this situation would say that." Rob Walton's office at Wal-Mart headquarters is across a corridor from those of Scott and Glass, which makes sense because these are "the three amigos," as Rob puts it, who run the company. Rob oversees the board and runs the shareholder meetings. Glass is the éminence grise, the master merchandiser. And logistics expert Scott, the CEO, heads the operation.

One other thing about Rob Walton's office: It's about the size of a large supply closet. "Ten feet by ten feet," he says proudly. "With no windows." All the offices at Wal-Mart are small, but Rob's is smaller than that of most other senior executives, for two reasons. First, it sends the message that even Mr. Sam's son doesn't get preferential treatment. Second, Rob isn't in the office that much these days—only four or five times a month. He has other passions. From his home in the Colorado mountains Rob will take off in his jet to go cycling in France, or hunt geese in Canada, or go on bio-safaris in South America.

Samuel Robson Walton, who just turned 60, always seemed destined to follow in his father's footsteps somehow. He has worked at the company, or as the company's outside lawyer, his entire 35-year career, and he is the only one of his siblings to have worked at Wal-Mart as a senior executive. Lean and tanned, 6 feet tall, with close-cropped light hair, he has a matter-of-fact demeanor and chooses his words like the lawyer he is. He has been known to carry a little notebook on trips to write down names and take notes. And like his father, Rob asks questions. "Most billionaires I meet tell me what they think," says a Wall Street executive who spent time with him recently. "But Rob was asking me questions—should Wal-Mart increase its dividend or buy back stock?" This is part of Rob's DNA: "I learned from my Dad that change and experimentation are constants and important. You have to keep trying new things."

Rob was born in Tulsa and grew up in Bentonville and Newport, Ark. As you might imagine, his was not an idle childhood. "I worked in Dad's stores, moving boxes—I remember quite well one stockroom that was upstairs—sweeping floors, laying tile. I also had paper routes." He was an all-state football player as a high school senior, and he went on to the College of Wooster, a small liberal arts school in Ohio his mother picked because of its Presbyterian affiliation (that's the Waltons' denomination). He played football there too—"I was small but slow as a college tackle," Rob jokes before transferring after two years to the University of Arkansas in Fayetteville, 25 miles south of Bentonville. He majored in accounting, graduated in 1966, and then packed off to Columbia Law School in New York a big deal for a kid from a nobody family in Razorback country. Why law school? "My grandpa Leland Stanford Robson [named after the founder of Stanford University, whom Grandpa's parents had met on a train] was a lawyer, and he was kind of my role model," Rob says.

Instead of plunging directly into the world of Wal-Mart after getting his degree, Rob took a job with Tulsa law firm Conner & Winters, where some of his practice consisted of legal work for his dad's burgeoning company. (He picked Tulsa because it was the closest city to Bentonville but gave him breathing room from his family.) Rob helped organize his family's ownership in the business into Walton Enterprises, and he did legal work for Wal-Mart's IPO in October 1970. But Bentonville beckoned. "Dad in his own way let me know that he wanted me to come back," says Rob, and in 1978—with three children, divorced, and remarried—he returned home.

Sam made his son a senior vice president (and company secretary and later vice chairman) and put him on the board. "Sam told Rob there wasn't enough work to do at Wal-Mart just being a lawyer," says Glass, "so he just dumped some more stuff on his desk, starting with real estate." Rob asserted himself in other parts of the business as well. It was he who pushed his father to expand into other countries in the mid-1980s. "We were concerned we were running out of room to grow here, which was wrong, of course. Still, we're glad we did. I remember we made secret visits to Canada in 1993 where we had sites picked out. I was a big advocate of that, and Canada is now a major success story. Today we purchase more than $1 billion of international real estate each year."

Of course, for all its success, Wal-Mart these days is taking a lot of heat. As company chairman, Rob feels especially keenly the accusations that it destroys small towns, discriminates against women, is anti-union, pays sub-standard wages, and on and on. I ask him about the criticisms of his company. "Some of what they are saying is right. And it hurts to be vilified," he says. "But some of our opponents have agendas too. The unions are looking to organize. When you are the biggest company in the world you get this kind of attention. We are getting better, though, and in the end it will make us stronger."

Last June, in a rare and lengthy speech to the American Antitrust Institute (an anti-monopoly lobbying group) in Washington, Rob sought to defend Wal-Mart: "Frankly, one of the misconceptions about Wal-Mart today is that we arrive at low prices because of our size and our ability to get the best deals from suppliers.... I've seen articles suggesting that Wal-Mart buys at prices lower than our competitors', and that this gives Wal-Mart An unfair advantage. I don't believe it.... What we hear is concern that in some circumstances, Wal-Mart may actually be paying more than our competitors." That sounds as though someone's been drinking too much Kool-Aid. Rob's remarks smack of what many critics find most objectionable about Wal-Mart: It's not so much that the company may run rough-shod over others, it's that Wal-Mart people can't conceive of the possibility that they are doing so.

ROB AND I FINISH SOME SANDWICHES ORDERED FROM Jimmy John's, a sub shop and gold mine owned by a family friend across the street from headquarters) and then head through Wal-Mart's public school–like halls out into the parking lot. The glaring Arkansas sun contrasts so strongly with Wal-Mart's muted interior that we both have to shade our eyes as Rob scans the aging asphalt for the latest object of his affection—a Prius, Toyota's hybrid car. As he drives us over to the company museum, site of the first Wal-Mart, on Bentonville's town square, he explains the car's drivetrain and sheepishly acknowledges that he was able to bypass the six-month waiting list.

In the back of the Prius is a reminder of how Sam's eldest son found his own path: a Trek time-trial bike with a tire as thin as a strip of ribbon. Rob began riding seriously more than 20 years ago, taking a leave from Wal-Mart to spend a year training for the Ironman Triathlon in Hawaii. (He is still a serious racer.) At the time, his sabbatical was widely seen as a gesture meaning that he wouldn't seek the CEO job.

Not long ago Rob separated from his wife, Carolyn, and moved to Colorado full time. He has been dating a bit. Eschewing the beat-up old twin-engine props that Sam used to fly, Rob recently bought himself a new, top-of-the-line Falcon jet. He races vintage sports cars. "I own a 1970 Lotus, a Cobra, and a Scarab," he says. (The Scarab is interesting: The car was created in the 1950s by Lance Reventlow, heir to another retail fortune, Woolworth.) Rob, along with his son, hit the track in August at the Monterey Historic Automobile Races, the premier event of this sport.

Hobnobbing at Pebble Beach with Ferrari owners wouldn't have been Mr. Sam's idea of fun on a Sunday afternoon, but he would be pleased with Rob's carrying on one his favorite pastimes. "We hunt geese in Canada," says Kaneaster Hodges Jr., a lawyer and family friend. "Each year we hunt pheasant together in Gregory, S.D. Rob's such a good shot they put a little plaque up there that says WALTON'S WALK."'

Rob and I end the day at the Wal-Mart museum. Inside the retrofitted old store there must be a thousand pictures of his father—with employees, cutting ribbons, with Presidents, and famously in a hula skirt. A glassed-off section encloses Sam's office, with his desk and personal effects preserved as they were the day he died. His famous battered red-and-white pickup truck is in the museum too, complete with kennel boxes back in the bed for hunting dogs like the beloved 01' Roy. "If I stay here long enough I'll tear up," Rob says quietly, looking at the images and then down at his shoes. It makes me think back to something Lee Scott said. "Can you imagine growing up as Sam Walton's oldest son?" Scott asked me. "But I think Rob has it figured out. He celebrates his dad's memory but he doesn't compete with him. Rob does his own thing."



Helen Walton


TWICE EACH YEAR for a full weekend, the Waltons gather at Helen Walton's house, built Frank Lloyd Wright–style over a creek in a secluded spot north of Bentonville. When Sam was alive and Helen was in better health, the family held these get-togethers at resorts in Florida, Mexico, or California, and they still are able to take short trips together once a year. But mostly they gather in Helen's living room, she, her children, and her grandchildren.

These meetings are central to the Walton family. Topics are chosen in advance, and Wal-Mart executives or advisors from Walton Enterprises or the family foundations are invited to give presentations. The subject might be philanthropy, merchandising, or the company's expansion overseas. "The meetings glue us together," Rob Walton says. "We want the next generation to be actively involved and to be good stewards of this company."

As matriarch, Helen Robson Walton is the moral authority of the nation's richest clan. At 84, she is in fragile health after a car accident five years ago, but she still gets around and by all accounts is intensely interested in her family's business. An attractive, friendly-faced person who wears her hair pulled straight back, Helen was a moderating influence and a counterpoint to Sam's incessant drive.

"Dad always listened to Mom, and when he didn't, she made sure he did," is Rob's Yogi Berra–like take. Sam wanted to start Wal-Mart in a bigger town, but he founded it in Bentonville because Helen insisted on settling in a town of fewer than 10,000 people. 

Helen hails from Claremore, Okla., and so isn't really a Southerner. She and Sam both were both products of the Dust Bowl, although neither family was poor. Sam and Helen met in Claremore during World War II, and in his autobiography, Made in America (written with John Huey, now editorial director of Time Inc., FORTUNE's publisher), Sam describes Helen as "pretty and smart and educated, ambitious and opinionated and strong-willed." As for Helen on Sam, she said, "I always told my mother and dad that I was going to marry some-one who had that special energy ... maybe I overshot a little."

While Sam was pretty much all business all the time, it was Helen who made sure that the family paid attention to philanthropy. She is said to be the one who persuaded Sam to set up a foundation for charitable giving at Wal-Mart, as well as the private family foundations. (We should point out that not all Helen's ideas have been as astute: She reportedly was against the company's IPO and also persuaded Sam to retire briefly back in the 1970s, a spectacular failure.) Despite Sam and her children's conservative political leanings, Helen has made significant contributions to Planned Parenthood. She also served as a trustee of the Presbyterian Church Foundation, where she established the Sam and Helen Walton Awards, for church development, with a $6 million gift. She gave $2.2 million to the Bentonville school district.

"Helen is bedrock," says John Lewis, CEO of the Bank of Fayetteville, who has known the family for years. "She has had aspirations for the area." At Helen's urging, the Waltons put down $5 million toward the building of the Walton Arts Center near the university campus in Fayetteville. It opened in April 1992, just weeks after Sam died. The multipurpose facility is the home of the North Arkansas Symphony and also hosts traveling Broadway shows and other performers; this season's program includes Pilobolus, Herbie Hancock, the Chieftains, and the Kronos Quartet.

Public appearances have become rare for Helen since her car accident. She was driving through Bentonville in her 1997 Chrysler LHS when she slammed into a Peterbilt dump truck loaded with 57,000 pounds of dirt. Witnesses said she ran a red light. Helen got hurt pretty badly. She broke an ankle, a hip, and both shoulders. First she was in intensive care; then there were multiple surgeries. (Adding to the pain, the truck driver sued her for $65 million. The suit was later dropped.) Helen fought her injuries, but she never really re-covered from the accident. "Mom also had a head injury in the accident," Rob says. "She is limited as to what she can do now."

Rick Niece, president of the University of the Ozarks—which received a $39.5 million matching grant from the Walton family—recalls staying over at Helen's before she was injured. "I remember before we went to bed I said, `Mrs. Walton, what time do you typically get up?' And she said, `Don't worry about when I get up. You get up when you want to get up.' About 6:30 I heard some noise in the kitchen—pots and pans—and I awakened my wife and said, `Sherée, I think we'd better get up, I think Mrs. Walton's in the kitchen.' We got up and went into the kitchen and she was making breakfast for us. I think it was the first time we've ever had homemade grits."



Jim Walton


ARKANSAS IS A QUIRKY STATE. It has produced more than its share of larger-than-life national political figures—the Clintons, of course, but also William Fulbright and Dale Bumpers—and let's not forget Martha Mitchell. The list of prominent businessmen is over-sized too. There's the Stephens clan in Little Rock, whose investment banking business is said to be the biggest outside Wall Street. And then there are the people in the northwest corner of the state: the Waltons, chicken tycoon Don Tyson, and trucking magnate J.B. Hunt. Arkansas isn't that big a place, and inevitably these characters end up doing business or trading elbows with each other. And that's when things get interesting.

Often the Walton on the phone with the big dogs is Jim, Sam and Helen's youngest son. If Rob is the public face of the Walton family—to the extent that it has one—then Jim represents the family's private side. He presides over many of the family-owned businesses, including Walton Enterprises, which holds the $90 billion of Wal-Mart stock, as well as a thriving bank holding company, newspapers, and some smaller companies. Jim isn't on the board of Wal-Mart, and in fact all the companies where he serves as an executive are privately held. (Jim is also the only one of his siblings who declined to be interviewed for this story.) "Jim is like his dad, only quieter," says David Glass. "He gets things done. He also puts in very long hours." Word around Northwest Arkansas is that no-body who works for Jim would want his job, because the man works too hard. That's not necessarily typical of a second-generation billionaire.

Walton's first store

The first store

Jim's offices are upstairs in that unlikely old building in downtown Bentonville. There, at the center of the Walton's universe, is Walton Enterprises Inc. WEI is what's known in the investment business as a family office, or a company that manages the money and affairs of a single wealthy clan. But with the value of its Wal-Mart stock bigger than the state budgets of Texas and Arkansas combined, it dwarfs most others. Jim oversees it with20 or so employees, including key advisors like Rick Chapman, who manages the family's day-to-day financial affairs, and Buddy Philpot, director of the Walton Family Foundation.

How is all this organized? Good question. While the family provided limited guidance, it wasn't anxious to disclose much about its private financial workings, which are run via a web of trusts and companies. Through interviews and documents, though, we have been able to draw at least a partial picture of the Waltons' very private side.

To start, you have to go back to Sam Walton and the family partnership he created in 1953, when his kids were still running around on the school playground. In his autobiography, Sam wrote: "Over the years our Wal-Mart stock has gone into that partnership. The board of Walton Enterprises, which is us, the family, makes decisions on a consensus basis. Sometimes we argue, and sometimes we don't. But we control the amount we pay out to each of us, and everybody gets the same." Today Helen and her four children each own a 20% stake in Walton Enterprises—worth about $18 billion—and WEI in turn owns that 39% stake in Wal-Mart. The 39% amounts to 1,680,506,739 shares.

Let's pause for a minute and consider dividends. With Wal-Mart's payout this year at 52 cents, the annual dividend check from the Waltons' stake comes to a cool $873.8 million, or just under $175 million, pretax, for each Walton. That's probably what family members use to "fund their lifestyle," as bankers to the wealthy put it. But most of the cash flow goes into family businesses, like the bank, and philanthropy.

Though the great bulk of each Walton's wealth resides in Walton Enterprises, Helen and her children also hold smaller chunks of stock (small is only relative here) in two other forms. Each owns between 2.8 million and 11 million shares individually that were mostly acquired in the early days or at the company's IPO. Dividends from those holdings presumably go directly to family members. Helen's children also have shared indirect ownership of two million to four million Wal-Mart shares. Walton watchers may have noticed that John and Rob reported the sale of some six million shares of Wal-Mart stock—worth over $320 million—in September. A close analysis shows those were actually shares in the Helen Walton 1987 Non-Qualified Charitable Trust. (John and Rob are trustees.) The beneficiary of that trust is one or both of the foundations, and the $320 million will be used for philanthropy.

The variation in the smaller, non–Walton Enterprises holdings means that all Waltons are not equally wealthy. The richest in terms of overall Wal-Mart stock is John, with additional shares worth $752 million. The "poorest" is Helen (who has likely made bigger gifts to charity) with additional shares worth a mere $181 million. A side note: Alice is worth more than her mother, which gives her the distinction of being the richest woman in the U.S.

Jim Carr Walton, 56, is the Walton who stayed home. Like his brothers, he went to Bentonville High, where he too was an all-state football player. But unlike Rob, John, and sister Alice, who went away to school, Jim attended the University of Arkansas, where he majored in business administration. Like most Waltons, Jim learned to fly, and then joined Wal-Mart in the early 1970s, doing real estate transactions. His dark hair and his smile make him resemble his mother more closely than his brothers do.

Soft-spoken and composed, Jim is the only one of his siblings who has remained married to his first spouse. His wife, Lynne, ran a bookstore near the town square until it closed last year. Jim gets high marks for his civic involvement, but he is said to be a hard bargainer, as tightfisted with a dollar as his father was. So when he expressed interest in leaving Wal-Mart back in the early 1970s after only a few years on the job, moving over to run Walton Enterprises made sense.

Even back then Walton Enterprises was more than just a vehicle for the family's stake in Wal-Mart, and in fact Jim spends most of his time on Arvest. "Sam had bought the Bank of Bentonville in the early 1960s," says John Lewis of the Bank of Fayetteville. "Jim and Sam built the business slowly over the decades, although lately it's grown a lot faster."

Walk into an Arvest branch, and it feels as though you're in a Wal-Mart version of a bank. There are lots of friendly signs about, and officers and tellers sport oversized badges with their first names in big letters. Arvest's financial performance is just average, though, according to consulting firm SNL Financial. Arvest's net interest margin is above that of its peers, while its return on assets and return on equity are below. (A spokesman says that's because the bank is spending money on growth.) Arvest is owned directly by the family: Jim, John, and Rob each hold 25.88% of the stock, Helen holds 18.57%, and employees own the balance. What about Alice? It's likely that because she ran an investment-banking company, called Llama (more on that later), she was prohibited from also owning a piece of the bank. Arvest now has some $7 billion in assets and net income of over $43 million last year. It has some 200-plus branches in Arkansas, Oklahoma, and Missouri, with mortgage companies and insurance operations as well. Arvest's geographic growth is following almost the exact same footprint Sam used when he expanded Wal-Mart.

Besides getting into banking, Sam Walton decided decades ago to buy the local newspaper, the Benton County Daily Record, which now operates under Walton family corporate parent Community Publishers. While Sam may have been interested in acquiring a printing press for fliers and brochures, the move also protected the family from a potentially unfriendly press. Today Jim owns 97% of Community Publishers (the balance is likely held by employees).

Not long ago Community Publishers got into a battle with the Stephens clan in Little Rock over control of a newspaper in Fayetteville, the Northwest Arkansas Times. The Stephenses, who control another paper in the region, tried to buy the Times, but the U.S. Attorney and Community Publishers sued and blocked the deal. Conrad Black's Hollinger International bought the pa-per and later sold it to Jim's company.

Consider for a moment the power that Wal-Mart and the Walton family hold in the northwest corner of their state. It's not unlikely that an individual works at Wal-Mart, owns Wal-Mart stock in his 401(k), banks and has his mortgage at Jim Walton's Arvest, gets his news from the Benton County Daily Record, and perhaps even has a subscription to the Walton Arts Center. While a few people have complained about this concentration of power, generally the populace has no objections. The Waltons have done well to maintain a level of independence among these operations. (The Benton County Daily Record, for instance, recently ran some anti-Wal-Mart ads paid for by a group in Vermont.) And because of the Waltons' success in business— and that of people like Tyson and Hunt— Bentonville and the surrounding towns and counties are growing so fast that most folks are just too busy to care.




John Walton

ONE MORNING THIS FALL John Walton and I are driving south on Highway 61 through Mississippi. We're on the old Blues Highway, the same road that black Southerners took northbound looking for work and a way out of their hardship. Now John Walton is headed back down the other way, trying to breathe life into the schools of this struggling region. John is driving a well-worn white Taurus, talking easily and matter-of-factly about what could be-come the Waltons' greatest legacy.

"Our family has come to the conclusion that there is no other single area of activity that would have the breadth of impact that improving K-through-12 education in America would have. It would have a positive impact on every single societal challenge that we face, from crime to productivity to economic health and growth, to true equality," he says, glancing at me as we speed down that long, flat road. And as we turn west onto Highway 49 (not far from the famous crossroads where Robert Johnson is said to have sold his soul to the Devil in exchange for mastery of the blues) and cross the Mississippi River into Arkansas, I'm trying to figure out how John Walton came to this place. 

This place turns out to be the Delta College Preparatory School, a KIPP school in Helena, Ark. Helena is a small city on the Mississippi River that has been devastated by the collapse of its economy over the past 50 years. The population is mostly poor and black. The Delta College Prep School— located in a renovated storefront in Helena's decayed downtown— is a public middle school, grades 5-7, that is part of the Knowledge Is Power Program (known as KIPP), a national charter-school organization founded by two young teachers ten years ago.

I've heard that KIPP schools are intense, and this one is no exception. Students are here 9½ hours a day, five days a week, and a half-day on Saturdays. They get two or three hours of homework

every night. As we go from class to class, John shakes hands with students and teachers, introducing himself as John from the Walton Family Foundation. None of them have a clue who he is, and he doesn't care to explain that he's their benefactor. The Walton Family Foundation has given $269,000 for the creation of this school, in addition to some $6.2 million to the national KIPP program.

John is the family's social reformer, leading the Waltons' effort to transform education. He is also the family's Renaissance man— soldier, sailor, pilot, techie, and venture capitalist. He is thin and tall like his brother Rob, but John's face is a bit weathered and pinched, making him resemble his father. Like Rob, John left the College of Wooster, but he chose to go to Vietnam.

That the Waltons' charitable giving began slowly shouldn't come as a surprise to anyone. Sam Walton was in business to grow his company, not to accumulate and then give away a fortune, and his first philanthropic forays were incremental. "Dad implemented the Central American Scholarship Program, the Walton Scholars Program for Wal-Mart associates, and our college scholarship programs," says John of some of the family's early giving. John has helped focus the family on making gifts to reform education, one of three tar-gets of the Waltons' giving, along with boosting Northwest Arkansas and the delta region of the state. As it turns out, those last two goals are often met by aiding education in those regions.

The Waltons have two charities: the Walton Family Foundation, which was created in 1987 and whose board consists only of family members and advisors, and the Walton Family Charitable Support Foundation, whose board includes outsiders. Buddy Philpot, formerly an Arvest banker (who created a stir a few years back when he shaved his head on a bet after his bank exceeded his growth target), runs WFF. Why are there two foundations? "One is a support organization," says Rob. "That means it is specifically designated to give to public and private colleges in Arkansas." The other has an open-ended mandate.

When examining the giving of the Walton Family Foundation, I was struck by the huge number of mini-gifts it makes annually. I stopped counting after 500. Scores and scores of institutions receive checks for a few thousand dollars. The Chickasha Community Theater and the Cato Institute— $3,000 each. Seed Savers Exchange, Fun in the Son Ministries, and the University of Wyoming— $2,000.

The Waltons are beginning to think big, however. Last year the family made a splash when it gave a $300 million matching grant to the University of Arkansas— the largest gift ever given to a public university. (The money is to be used to create an undergraduate honors college and endow graduate programs.) Some deride the Waltons for making that gift a matching grant, even though the university wanted it that way. The university still needs to raise another $25 million to complete its obligation.

But higher education really isn't the Walton' priority. "We had been talking about problems in elementary education as a family for a long time, going back to when A Nation at Risk was published," says John, referring to the watershed 1983 report that gave a scathing review of K–12 education. "Dad was very interested in this area, too.... So we began to look at K–12 actually while he was still alive." Leaving aside the $300 million university gift, in dollar terms most of the Waltons' giving has gone toward primary education.

For now, the great bulk of that goes to what John calls school reform, an umbrella term that refers to a controversial variety of programs— vouchers and charter schools, for instance— that aim at providing families with freedom and funding to pick schools, public or private, that they believe best suit their children. Critics say these efforts undermine public schools, but John contends that it is the only way to effect change. "Education is a $700-plus-billion-a-year industry," John says. "By additive and incremental spending you are not going to move that environment. We aren't trying to change public schools, we are trying to change the education environment so that public schools have to change for the better." It's not surprising that the drive for this kind of school reform often comes from businesspeople, because, as most would freely acknowledge, the purpose really is to introduce competition to the primary education process. To some, this sounds like the successful businessman who's just bought a professional sports franchise and pledges to apply the rational rules of business to sport. Lots of luck.

The largest single recipient of Walton foundation money in K–12 education has been the Children's Scholarship Fund, a non-profit organization that John co-founded five years ago with Ted Forstmann, the colorful Wall Street buyout artist. More than 62,000 children in 38 cities and towns across the country have received scholarships from CSF. Parents have to pay at least 50% of tuition and children can receive scholarships of up to $1,900 per year. CSF's board is a bipartisan Who's Who, including Trent Lott, Henry Kissinger, Charles Rangel, and Tom Daschle, as well as Wall Street heavies like Julian Robertson and Stanley Druckenmiller and celebrities like Will Smith and Pat Riley. Brother Jim Walton is on the board too.



AT ONE POINT when I was driving with John down Highway 61, I tried to start up a conversation about his war experiences.

"So were you in combat?"


"Why did you go to Vietnam?"

"When I was at Wooster, there were a lot of people talking about the war in the dorm rooms, but I didn't think they under-stood it."

"So you volunteered and joined the Army?"


"What unit? What part of the Army?"

"I was in Special Forces."

"Really? Why did you do that?"

"I figured if you're going to do something, you should do it the best you can."

The conversation continued, deposition-like, until I gave up. Like many Vietnam vets, John is reluctant to talk about the war. Later I dug around and discovered that John's experiences were a whole lot more than just your basic tour of duty.

John was a Green Beret, part of a unit code-named the Studies and Observations Group, or SOG (cover for "special operations group"), a secret, elite military unit whose operatives would be disavowed by the U.S. government if captured. SOG often conducted actions behind enemy lines and in Laos and Cambodia. John joined the unit in 1968, right after the Tet offensive. On almost every mission there was a firefight. A particularly horrifying battle occurred in the A Shau Valley in Laos while he was assigned to a unit named ST (strike team) Louisiana.  John was the commando team's No. 2 as well as its medic. One morning ST Louisiana was dropped from helicopters onto a ridge near the DMZ and was attacked by North Vietnamese army soldiers. In a memoir titled Across the Fence: The Secret War in Vietnam, fellow Green Beret John Stryker Meyer gives an account of that day: "Four of the NVAs rounds struck the tail gunner, wounding him severely. As Walton swung his CAR-15 [a sub-machine gun version of the M-16] toward the enemy soldier ... [his] rounds hit the NVA soldier and drove him back in the jungle."

The account goes on to say that Walton's commanding officer, Wilbur "Pete" Boggs, called in a napalm strike that landed yards away from John. Soon the six-man team was surrounded. One was dead and three were wounded. John tended to casualties, including Boggs, who was knocked semiconscious by shrapnel, and Tom Cunningham, who was badly hurt. "The knee got blown out and started hemorrhaging very, very severely. John Walton applied a tourniquet to my leg to stop the severe hemorrhaging," recalls Cunningham today. John called in two choppers for extraction. As the first Kingbee dropped in and lifted off with some of the men, the NVA intensified its assault. A second chopper was needed to get all the men out, but the landing zone was too hot to make it in. Walton and his team thought they were doomed, but suddenly the first chopper came back down, even though their added weight might make it too heavy to take off again. With the enemy advancing into the clearing, firing at the helicopter, and Walton trying to keep Cunningham alive, the Kingbee took off and barely made it over the treetops.




The family foundations in recent years have begun to make grants on the scale of better-known institutions.
  1. Walton Family Charitable Support Foundation Largely a one-time$300 million gift to the University of Arkansas

  2. Walton Family Foundation breakdown below

  3. $26.4 K-12 education (noncharter)

  4. $16.0 Higher Education

  5. $6.5 Community and social services

  6. $3.3 Arts / Culture

  7. $3.5 General charities

  8. $2.1 Conservation

  9. $3.6 Other (political, think tanks, civil rights, media, religious, misc.)

  10. $45.4 Charter schools/school choice



Cunningham and Boggs survived, though Cunningham lost his leg. That night while John was playing poker, someone pointed out that he had a flesh wound across his right wrist. A round fired by the NVA soldier John had killed had creased his skin. Later John was awarded the Silver Star. "If I were on the committee I wouldn't have given it to me," says John. "There were people doing things like that all around."

How do you come back from that to a world of garden hoses and toothpaste and everyday low prices? Sam and the family wanted John to join Wal-Mart, but the only job John felt comfortable with was as company pilot. Even that proved too confining. John set out on his own and started a crop-dusting business in Texas and Arizona. Crop-dusting may sound like an innocent enough occupation, but it's actually sort of an excuse to fly dare-devil tricks in a single-engine aircraft all day. (It's also kind of like doing bombing runs over and over.) You swoop down way low over Farmer Brown's alfalfa field— nearly touching the leafy green for half a mile or so— and then pull up, up, up to clear the wires at the end of the field. And then repeat.

Crop-dusting was a fine way for John to reacclimate himself to civilian life, but there are only so many years a man can do that. Next, the sea called him. "I started a boat-building business in California, Corsair Marine. We built trimaran sailboats. The company is still going. An Australian bought it several years ago." Meanwhile, John married, divorced, remarried, and had a son.

Eventually, though, Wal-Mart pulled John back. "It was around 1990. Dad was still alive. I had been running the flying services and the boat-building operation for a while, and was starting to do some other investments, and had been making some trips with Dad, and he asked me whether I'd be interested in being on the board. I jumped at the chance."

Over the past decade John has become more and more of a businessman. He bought another boat company, called Pearson Yachts, which makes high-end motorboats— though what really attracted him to the company was a subsidiary that made turbine blades for wind farms. That division has been spun off; it's now making blades for Mitsubishi and, according to John, "doing some prototype work for the government in composites for military vehicles and that sort of thing." John also formed a holding company called True North, which is the umbrella entity for Pearson, the composites operation, and his other venture capital investments. (One of Pearson's newest models is named True North, by the way.)

No matter where his life leads, John won't forget Vietnam, even if he doesn't want to talk about it. Late last fall a private jet landed at a small airport in Fargo, N.D., to pick up retired South Vietnamese Colonel Thinh Dinh. The jet was John Walton's. He flew Thinh to a SOG reunion in Las Vegas. It was the least John could do— 36 years ago it was Thinh in his Kingbee who came back to pick up Walton and just barely made it over the trees on that bloody morning in the A Shau Valley. John is a guy who voluntarily traveled to hell, is lucky to be alive, and now is one of the richest people on the planet. Maybe that's where his commitment comes from. Maybe that's why he's driving down that Mississippi highway.

REPORTER ASSOCIATES Kate Bonamici, Doris Burke


Alice Walton


A CROWD OF 8,000 gathered on the tarmac outside Bentonville early one November morning six years ago, awaiting the arrival of President Bill Clinton. Almost everyone here had some sort of personal tie to the President, and now he was coming back to them on this momentous day— the dedication of Northwest Arkansas's brand-new airport (call letters )(NA). Many folks had said it couldn't be done; they'd been trying to build an airport here since the 1950s. The President stepped off Air Force One and spoke: "I have found that there is in any project like this a certain squeaky-wheel factor; there are people that just bother you so much that even if you didn't want to do it, you'd go on and do it anyway. I would like to pay a special tribute to the people who were particular squeaky wheels to me— starting with Alice Walton, who wore me out." The crowd roared.

Not long ago I visited with Alice Walton at her remote cabin deep in the woods of Arkansas, high over a river with a stunning view. Alice, 55, was recovering from a cold ("She's on the go all the time," says one of her advisors). "I'm proud of what we did here," she said. "We needed economic development in this part of the state, and the only way to get it was by creating the infrastructure. The roads and the airport. And we accomplished that." It's true. Bentonville and all of Northwest Arkansas are booming. That has everything to do with the success of Wal-Mart, but it's also because you can finally get there.

Alice Louise Walton is Sam and Helen's youngest child and only daughter, and as such has always been someone special in the family. Like her dad, Alice is headstrong. "In some ways, I believe she's the most like me— a maverick— but even more volatile than I am," Sam wrote in his book. "I learned about determination from him," she laughs. "Just a touch." And then: "Dad could see things simply. He knew how to take risks. I'd like to think that I have some of that," she says, suddenly tearing up.

Companies headquartered around Bentonville now produce more than 2.5% of the nation's GDP. They say if you can't find a job here, you aren't getting off your couch. Bentonville is joining other company towns like Hershey, Pa., and Corning, N.Y., that have benefited from a corporate benefactor. Walton money and power had been there for decades, but it wasn't until 1990, when Alice Walton began to marshal these forces, that the town began to truly profit from their presence.

Walking through the Arkansas woods, Alice tells me about the region and its history. She is wearing jeans and a crimson blouse with a horse print (horses being her great love), and a jacket with a Brooks & Dunn logo on it. An attractive woman with longish, straight hair, Alice looks a bit like her mother. She has an infectious laugh and a fully developed sense of humor, which she turns to often. She wears her emotions on her sleeve and isn't afraid to look you dead in the eye and speak her mind.

In a way, Alice's life has come full circle. She started out as a small-town girl in Bentonville who loved nothing more than playing outdoors and riding her horses. Today, after several decades of high-stakes business— with some ups and downs— she has returned to her horses. Does she miss the business life? "Not at all," she says with a chuckle.

After high school, Alice graduated from Trinity College in San Antonio and then briefly worked at Wal-Mart as a buyer. It wasn't a perfect fit. "I tease Alice and tell her that I'm still trying to clean up some stuff she bought when she was a buyer," says David Glass. She moved to New Orleans, was married for a time, and took a job as a broker with E.E Hutton. In 1979 the SEC accused Alice— then a 25-year-old broker— and 11 other Hutton employees in eight cities of making "unsuitable" option trades for customers. In a letter Alice wrote to the SEC on April 18, 1979, she denied that she violated any laws but accepted a settlement "to avoid protracted litigation." She was suspended from the securities business for six months.

By the mid-1980s Alice had moved back to Northwest Arkansas to raise cutting horses, which are trained for a competition in which riders in a ring compete to separate cattle singly from a herd. Alice got involved in her family's businesses, establishing and running an investment brokerage operation at Arvest. Then, one morning in 1989, there was a great tragedy. Alice struck and killed a woman who stepped in front of her car as she was driving to work. To this day she is visibly shaken when that event is mentioned.

Alice formed her own investment company, called Llama (named after a llama that J.B. Hunt bought for her), using money from Walton Enterprises and some from her own pocket. "We formed Llama mostly to help companies get capital in our part of the world, which had been shut out from getting funding," she explains. Llama underwrote bonds and provided asset management for other financial institutions. And from her catbird seat as head of Llama, Alice became a one-woman whirlwind during the next ten years, focusing her energies on lifting the economy of Northwest Arkansas.

In 1990, Alice became the first chairperson of the Northwest Arkansas Council, which brought together men like her father, J.B. Hunt, and Don Tyson. "Alice was the leader among leaders," says Uvalde Lindsey, an old Clinton hand and the current staff di-rector of the council. "There was no four-lane highway up here. We used to travel on this old two-lane pig trail that was so dangerous they had bumper stickers that said PRAY FOR ME, I DRIVE ON ROUTE 71."

In response to Alice's lobbying, a congressional committee came to town to hear field testimony at a Holiday Inn. Sam Walton reminded the committee that Wal-Mart paid billions of taxes and said that if the feds sent some money back to improve infrastructure, the company would grow and pay more taxes. Soon thereafter Congress approved $380 million to fund I-540, a four-lane highway through the Boston Mountains— with several grand bridges— connecting Bentonville to civilization.

Meanwhile, Alice was working the airport angle. Fayetteville had a small facility, but its cancellation rate was three times the national average, mostly because of a bad fog problem. Wal-Mart vendors

had to come in a day in advance to make sure they wouldn't miss their meetings. "Only props flew there," says Lindsey. "When Transportation Secretary Skinner came to hear about us needing a new airport, his pilot— God love him— missed the approach because of the mountains."

Building an airport from scratch was obviously a great unknown. "We had no idea what we were doing," Alice recalls, laughing. "They told us we couldn't do it. I remember one newspaper head-line: FIELD OF DREAMS." The FAA needed to approve the plan. So did seven local municipalities. Tens of millions of dollars needed to be raised. Then there was the small matter of persuading the airlines to fly there. "Me, my father, J.B. Hunt, and Frank Broyles [the legendary athletic director of the University of Arkansas] went down to visit with Bob Crandall [the CEO] of American Airlines," says Alice. "He said, `I think I'll keep my planes down in Fayetteville and let the other guys move first,"' she recalls. Crandall came around, though, and American was the first air-line to fly to XNA.

Raising money got hairy. "We needed to sell bonds to finance the deal," says Lindsey. "And we had no airport, no tenants, no revenue, and no airlines. Wall Street wasn't very receptive." In 1997, Alice through Llama managed to sell $79.5 million in airport revenue bonds, which put them over the top and paved the way for that visit by President Clinton. Today nearly half a million passengers a year pass through the Alice Walton Terminal Building. And as they walk up to the escalator, they come to a bronze bust of Alice and an inscription that tells the airport's story.

If Alice's development projects were successes, her record with Llama was mixed. At its peak Llama had some 90 employees, but critics say it suffered from high turnover and a shifting focus. The bond market crash in the summer of 1998 didn't help. That same year there was another unfortunate episode in Alice's personal life: In January 1998 she was arrested for driving under the influence of alcohol. Alice moved to a 3,200-acre ranch in central Texas— Walton's Rocking W Ranch— to raise cutting horses full-time (including a mare named Walsmart). Soon after, Llama closed its doors.

Alice has been doing charity work in Texas, sending kids to museums in Fort Worth, fighting the pollution of a local river, and supporting equine causes. But her biggest project is a mammoth, $9 million, 160-acre summer camp for kids— Camp War Eagle— that she is building on Beaver Lake near Bentonville. "I love nature, and I remember my days at summer camp being just so wonderful," she says. The faith-based, nondenominational camp will bring together children of all income levels— including children of the fast-growing Hispanic population in the area. There will be scholarships for poor kids, which they have to earn though community service or by improving grades. The nonprofit camp, expected to open in 2006, will serve as many as 2,400 children each summer. If Camp War Eagle works out, Alice may start a similar project in Texas. Would you open more camps, I ask her? "Well, I'm not sure I necessarily want to become the Camp Queen." So says the wealthiest woman in America, with a grin.



By putting his Wal-Mart stake into a family partnership, Sam Walton was able to pass on a great fortune to his heirs. Now worth $90 billion, it's the size of Singapore's GDP.

Sam Walton & Helen Walton

Sam Walton — Born in Kingfisher, Oklahoma, he built Wal-Mart into a retail colossus before he died in 1992.

Helen Walton, 84 —  Arkansas. She encouraged her husband to begin putting his great wealth philanthropic uses. WORTH $18.4 billion

Rob Walton

Rob Walton. 60 — Colorado. Chairman of Wal-Mart; went to Columbia Law School. Biking aficionado, collects and races vintage cars. Children: two sons, one daughter. WORTH $18.7 billion

John Walton

John Walton, 58 — Wyoming. Decorated Vietnam War veteran. Has worked as Wal-Mart pilot, crop-duster, boatbuilder, and venture capitalist. Steers family philanthropy, much of which goes to education. Children: one son.  WORTH $19.1 billion

Jim Walton

Jim Walton, 56 — Arkansas.  Oversees Walton Enterprises, Arvest Bank, Community Publishers, and other small companies owned by the family. Works almost as hard as his father. Children: three sons, one daughter.  WORTH $19.0 billion

Alice Walton

Alice Walton, 55 — Texas.  Worked as an investment banker and has led the development of infrastructure in Northwest Arkansas. Currently raises cutting horses on her 3,200-acre ranch.  WORTH $18.5 billion

Net worth determined by combining stake in Walton Enterprises, Wal-Mart shares held directly and indirectly, and stake in Arvest.



FIFTY-ONE YEARS AGO a scion of America's then wealthiest family moved to Arkansas. Winthrop Rockefeller was the fourth son of John Jr. and Abby, and at age 41 he was the black sheep of the family. A hard-living type who had little luck in school or business (he was dyslexic), Win Rockefeller settled in Arkansas to hide. But as the years went by, he emerged as one of the state's greatest benefactors. He began with a successful farm and eventually was elected governor, serving two terms from 1967 to 1971. During his tenure he completed the desegregation of Arkansas schools and reformed the state prison system. He also founded the Winthrop Rockefeller Foundation to fund education and public health in his adopted state. The foundation has given away some $62 million and counting over the past quarter century (it still has $134 million in assets). Even more than a benefactor, though, Win Rockefeller was a leader. He championed causes and spent freely on them. Not bad for a black sheep.

Every great fortune in this country seems to go through a cycle. A hard-charging entrepreneur creates a company hailed as a great American success story. As the company grows larger, its image changes into that of a bully that abuses its scale and power. Meanwhile, the founder accumulates vast wealth. A major philanthropic effort follows, partly because the founder can't possibly spend all that money, partly because he feels an obligation to address society's ills, and partly to rehabilitate or elevate a family's legacy. Examples include Rockefeller, Ford, and now Gates.

To the extent that the Waltons buy into this theory of business dynasties, they maintain that they are still focused on growing Wal-Mart, and think that it is too early to give away their fortune. Family members point out that they have already given hundreds of millions of dollars. Yet there are those who say their giving is not enough or has strings attached or is misdirected.

Now the Waltons are fast approaching a threshold. Just as more attention has been paid to Wal-Mart since it became the world's largest company, so is the family likely to come under increasing scrutiny. The Waltons face several very large questions.

The first question is: What happens to the family's fortune when Helen Walton and her children die? It is a subject that family members don't like to discuss. The best we can discern from documents and from clues offered by those who know the family is that much of Helen's money, it appears, will pass in trust to the Waltons' two philanthropies. That means the family would not give up voting control of that $18 billion, but ultimately all that money would be given away.

In the cases of Rob, John, and Jim, it is reasonable to suppose that at least some of their money will be left to their children and grand-children and that some will be left to the foundations. How that split will break down is anyone's guess. Trust and estate lawyers point out that it would be possible under the right circumstances for the family to pass on its holdings from generation to generation through trusts indefinitely. As for Alice, the question is more open-ended, as she has no children. The best I can get from the Walton camp on the critical topic of inheritance is, "You can assume that the family is aware of all of these issues and is working together on them."

A second important question is, Who will emerge as the next generation of leaders in the Walton family? Just as Rob didn't fill Sam's shoes, it isn't certain that any of the third-generation Waltons will take Rob's role as chairman of Wal-Mart. None of Sam's grandchildren currently work for the company, though some have interned there. The official line on who in G3 (as the third generation is referred to) might step up is that the family will wait and see. Clearly Rob and John have plenty of years left to serve on the

Wal-Mart board, but at some point the family will likely look to replace them with new members. Will the next generation have the experience that John and especially Rob have to make them real contributing board members? A third question, and one that could resonate for the nation as a whole: What does the future hold for the Waltons' philanthropy? John spoke about this when we were down in the delta.

"It's likely that our giving over time will grow, and it will be substantial," he said. "And it is unlikely that the three focus areas that we now have [education, Northwest Arkansas, and the state's delta region] will remain the only focus areas that we have. I think our foundation giving may have lagged some expectations, but our measurement has not been how much we can give away, but are we making a difference?"

To date, much of the Waltons' significant giving has been of the matched variety. The intent is understandable — why should the family simply give money away, when it can motivate recipients and other donors at the same time? But at some point the Waltons may have to abandon the practice if they want to accomplish great things. Think of the Rockefellers, who built Rockefeller University in New York and the University of Chicago. They checked the scourge of hook-worm in the South. They even reconstructed Colonial Williams-burg. Fair enough, the Waltons may not be interested in these kinds of projects. But in the end, if they ever want to join the top tier of great American philanthropic families, they may have to take the initiative and the responsibility for great accomplishments upon themselves. It would take even more innovative thinking and bold action than Winthrop Rockefeller brought to their state some 50 years ago. With a fortune this big, it might require the kind of single-mindedness, drive, and vision that Mr. Sam brought to Bentonville in the first place.


One Nation Under Wal-Mart 

How retailing's superpower—and our biggest Most Admired company—is changing the rules for corporate America. FORTUNE Tuesday, February 18, 2003 By Jerry Useem

Bentonville, Ark., does not come to the world. The world comes to Bentonville. Whether you're a media mogul or a toy tycoon or King Tut, you drive your rent-a-car north on Walton Boulevard, past Smokin' Joe's Ribhouse and the Lube N' Go, and into one of the parking spots marked supplier. Don't expect a welcoming party. You make your way into a packed waiting room that reminds you of the Department of Motor Vehicles and have a seat. Thirsty from your trip? Coke machine in the back. Coffee? Ten cents in the box, please. Change machine over there if you need it.

The young buyer who emerges to greet you has a paycheck that's far smaller than yours, a name that's far less celebrated, and a budget of about $1 billion. He ushers you into a seven-by-ten-foot blue roomlet—one fluorescent light, one table, one photo of Mr. Sam. So, says the buyer in his unfailingly polite manner, how can Disney help Wal-Mart?

It Buys the Most

					% of its 
					total sales 
Company 				to Wal-Mart 
Tandy Brands Accessories (TBAC)		39% 
Clorox (CLX) 				23% 
Revlon (REV) 				20% 
RJR Tobacco (RJR) 			20% 
Procter & Gamble (PG) 			17% 

It Sells the Most 

Product 				U.S. market share* 
Dog food 				36% 
Disposable diapers			32% 
Photographic film 			30% 
Toothpaste 				26% 
Pain remedies 				21% 
*Percent of all sales through food, drug, and mass-merchandisers. 

The Company of Giants 

Wal-Mart's share of the economy isn't the biggest ever, but it will be in four years if its recent growth rate continues. 

Year 		Company 		% of GNP 
1917 		US Steel 		2.8% 
1932 		A&P 			1.5% 
1955 		GM 			3.0% 
1983 		Sears 			1.0% 
1990 		IBM 			1.2% 
2002 		Wal-Mart 		2.3% 


If you are an executive from Walt Disney, you've been here before. Your company sells movies, Pooh merchandise, and many other items to Wal-Mart. But when the buyer wonders whether Disney could make a short video involving Wal-Mart and a Disney character—you know, something to get the store associates fired up or perhaps to play on Wal-Mart's in-store TV network—you have to say no: Disney characters aren't allowed to be so crassly commercial. Well, that's okay. Jeffrey Katzenberg was down here, and his team at DreamWorks made the nicest video of Shrek doing the Wal-Mart cheer ...

Not only was the Shrek video a huge hit, but Katzenberg has spent more time around Bentonville than anyone might suspect. "I've been there three times in the last 45 days," he confirmed recently. "I cannot tell you how much I respect and love the bare-essentials efficiency.... I'm flattered by the opportunity they've offered." If this strikes you as unconvincing, you haven't seen Katzenberg do the Wal-Mart cheer.

That an important studio boss like Katzenberg would answer calls of "Give me a W!" with fist raised might generate snickers among his peers. But nobody was laughing in 2001 when Wal-Mart—its stores bristling with displays of the green ogre—helped turn Shrek into the year's bestselling DVD. "Jeffrey figured out something his competitors didn't," says Warren Lieberfarb, the former Warner Home Video chief, who is known as the father of DVD. "Wal-Mart is the largest single revenue generator for Hollywood in the world."

And so, you see, there are two types of executives these days: those who have learned to play by Wal-Mart's rules, and those who still haven't learned the right answer to the cheer's closing question: "Who's No. 1?"

"The customer! Always! Whoomp!!!"

For most of Wal-Mart's 41 years, corporate America refused to acknowledge the retailer as one of its own. Wal-Mart was Podunk, U.S.A., Jed Clampett, Uncle Jesse's pickup—and worse yet, a discount store. This year its transfiguration is complete. Wal-Mart is FORTUNE's most admired company, marking the first time the world's biggest corporation—yes, it replaced Exxon Mobil atop the Fortune 500 last year—is also its most respected. You might say that Wal-Mart finally belongs in corporate America. More accurately, you could say corporate America belongs to Wal-Mart.

To understand this astonishing development, you need to grasp the difference between a big company—what Wal-Mart was at the time of Sam Walton's death in 1992, when it was about one-fifth its present size—and a company that has created a whole new definition of bigness. If conventional metrics, like Wal-Mart's $240 billion-plus in sales or its 1.3 million "associates," don't do the trick, these may help:

What this means for Wal-Mart's low-profile CEO, Lee Scott, is that he runs what is arguably the world's most powerful company. What it means for corporate America is a bit more bracing. It means, for one, that Wal-Mart is not just Disney's biggest customer but also Procter & Gamble's and Kraft's and Revlon's and Gillette's and Campbell Soup's and RJR's and on down the list of America's famous branded manufacturers. It means, further, that the nation's biggest seller of DVDs is also its biggest seller of groceries, toys, guns, diamonds, CDs, apparel, dog food, detergent, jewelry, sporting goods, videogames, socks, bedding, and toothpaste—not to mention its biggest film developer, optician, private truck-fleet operator, energy consumer, and real estate developer. It means, finally, that the real market clout in many industries no longer resides in Hollywood or Cincinnati or New York City, but in the hills of northwestern Arkansas.

If this sounds fanciful, then you haven't visited Newell Rubbermaid's new Bentonville office, just a 60-second drive from Wal-Mart headquarters. One of 200 corporate embassies here that form a ring known as "Vendorville," it's home to the 50 members of Newell's Wal-Mart Division. "Everything in here is like Wal-Mart," says one manager, and he means it literally. The carpets mirror those in Wal-Mart headquarters. Same with the cheap cubicles. The first floor has an "exact replica of a Wal-Mart store" showing the placement of Newell glassware, Sharpie pens, trash cans, Levelor blinds, and so forth. Upstairs, Sam Walton's image and aphorisms hang on the walls, while even the Gregorian calendar has given way to "Wal-Mart time": Week 9 is understood to mean nine weeks into the company's fiscal year, starting Feb. 1. "You need to be your customer," explains my host.

Newell's reasoning comes down to one number: 15, the percentage of its merchandise that passes through Wal-Mart cash registers. That number helps explain why Newell CEO Joe Galli spends four weeks a year touring Wal-Mart stores, and why Newell seldom designs or launches a new product without Wal-Mart's involvement, and why division president Steven Scheyer gives every new employee a copy of Sam Walton's autobiography. (It also helps explain why there are no direct flights from New York City to Little Rock, but you can catch one of American Airlines' two daily nonstops from LaGuardia to Bentonville.) "We live and breathe with these guys," says Scheyer. "People are focusing on 'What's the right Sharpie for Wal-Mart, what's the right closet product for Wal-Mart, what's the right stroller?' " Little wonder that Stockholm Syndrome—the phenomenon in which hostages come to identify with their captors—has been a problem for some companies. "At first there's resistance, then they break down, then they go to the other side," says Steve Cleere, a consultant at TradeMarketing. "They're thinking like Wal-Mart people instead of brand people, and they need to be rotated out."

How Wal-Mart thinks has never been a big mystery: Buy stuff at the lowest cost possible, pass the gains on to the consumer through superlow prices, watch stuff fly off the shelves at insane velocity. (Critics who say Wal-Mart is obsessed with its bottom line have one thing wrong: Wal-Mart is obsessed with its top line, which it grows by focusing on the consumer's bottom line.) Suppliers are expected to offer their best price, period. "It's not even negotiated anymore," says Paul Kelly of Silvermine, a consulting company that helps manufacturers sell to big retailers. "No one would dare come in with a half-ass price." As for a supplier raising prices, good luck: In some cases Wal-Mart has been known simply to keep sending payment for the old amount. "The days of the price increase," Joe Galli has told his troops, "are over."

By systematically wresting "pricing power" from the manufacturer and handing it to the consumer, Wal-Mart has begun to generate an economy-wide Wal-Mart Effect. Economists now credit the company's Everyday Low Prices with contributing to Everyday Low Inflation, meaning that all Americans—even members of Whirl-Mart, a "ritual resistance" group that silently pushes empty carts through superstores—unknowingly benefit from the retailer's clout. A 2002 McKinsey study, moreover, found that more than one-eighth of U.S. productivity growth between 1995 and 1999 could be explained "by only two syllables: Wal-Mart." "You add it all up," says Warren Buffett, "and they have contributed to the financial well-being of the American public more than any institution I can think of." His own back-of-the-envelope calculation: $10 billion a year.

That, mind you, is Wal-Mart today. "As Wal-Mart grows," writes consultant Ira Kalish of Retail Forward, "it will transform its competitors, its suppliers, and the industries it dominates." In apparel, for instance, Wal-Mart is moving from staples into cheap-chic fashion, exemplified by its new George line, which offers career basics like skirts and blazers priced between $8.87 and $28.96. That in turn is pressuring everyone from Bloomingdale's to Banana Republic to compete on price as well as image. "Wal-Mart has caused the fashion industry to go topsy-turvy," says Marshal Cohen, co-president of NPDfashionworld.

In Hollywood, Wal-Mart's push for cheap DVDs (as low as $5.88) has exacerbated a schism between studios like Universal, which don't want to cannibalize the lucrative rental business, and those like Warner, which are pushing a high-volume, low-margin approach. Caught perilously in the middle is Viacom's Blockbuster. "We don't plan to participate in the below-cost DVD madness," says CEO John Antioco.

Convenience stores, meanwhile, are threatened by the 700 gas stations now in Wal-Mart parking lots, causing petroleum sellers to lobby vigorously for protective legislation. "We are seeing margins on fuel that we haven't seen this low in a decade or more," says Jeff Lenard, a spokesman for the National Association of Convenience Stores.

The battle of the brands, too, is increasingly played out on Wal-Mart turf. In batteries, perennial third-place Rayovac has used a low-cost "Wal-Mart ueber Alles" strategy to challenge Energizer and Gillette's Duracell. Tattered Levi Strauss, once too cool for discount stores, has bet its future on sub-$30 jeans to hit Wal-Mart racks this summer. And toy companies anxiously watch the fate—and try actively to boost the fortunes—of Toys "R" Us, fearing a unipolar world. "If Toys 'R' Us goes under, and then Kmart too, are you selling 60% of your toys to Wal-Mart?" asks Alex Lintner, a retail expert at Boston Consulting Group.

Wal-Mart in 2003 is, in short, a lot like America in 2003: a sole superpower with a down-home twang. As with Uncle Sam, everyone's position in the world will largely be defined in relation to Mr. Sam. Is your company a "strategic competitor" like China or a "partner" like Britain? Is it a client state like Israel or a supplier to the opposition like Yemen? Is it France, benefiting from the superpower's reach while complaining the whole time? Or is it ... well, a Target? You can admire the superpower or resent it or—most likely—both. But you can't ignore it.

It is an odd fact that the public face of Wal-Mart continues, after all these years, to be the folksy visage of Sam Walton. Spend enough time inside the company—where nothing backs up a point better than a quotation from Walton scripture—and it's easy to get the impression that the founder is orchestrating his creation from beyond. The explosive growth of the past decade has, of course, actually occurred under the earthly apostleship of David Glass and, since 2000, 53-year-old Lee Scott.

Yet the best way to understand Wal-Mart is to talk to people like Shelly Chandler. Daughter of a Marine colonel, she started out sorting invoices for $4.65 an hour. As a $50,000-a-year apparel buyer in the mid-1990s, she controlled a budget of $1 billion. "Tough as I am—thank you, Sam—I got good deals," recalls Chandler, who still speaks of the company as "we" despite having left in 1996, when her child fell ill. "Sam taught us to be tough but fair. That's what makes Wal-Mart go round and round and round." Pressed on how it felt to control a thousand million dollars, Chandler paused. "I had the biggest pencil in the United States of America," she said, "and if someone didn't do what fit with our program, I could break my pencil, throw it on the table, and never come back."

Early power retailers like Sears and A&P started out with the upper hand. A 1930 FORTUNE article noted that "A&P's terms become, practically, Economic Law." (The magazine also marveled that "if every person in New York City were a hen laying regularly, there would not be enough eggs to fill the A&P demand.") It was the coming of television, plus laws that prevented stores from selling products below their listed price, that shifted the advantage to mass-marketers like P&G, Coke, and Revlon (which not only sponsored but owned the top-rated '50s TV show The $64,000 Question). "What Wal-Mart has done," says Harvard's Tedlow, "is turn that on its head again. The store has a helluva lot of power."

How Wal-Mart chooses to wield this power is today's $244 Billion Question. Many assume that the company uses it crudely, cracking suppliers' heads and stealing their lunch money. But if that were the case, you'd expect to see manufacturers' margins shrinking. And? According to Value Line, operating margins of household product makers actually grew 48% between 1992 and 2001; food processors' went up 30%; soft drink makers' rose 14%. Though horror stories do circulate (some entrepreneurs have accused Wal-Mart of knocking off their product proposals), Wal-Mart also towered as the "best retailer with which to do business" in a Cannondale Associates survey of 122 manufacturers. "I think most would say that Wal-Mart is their most profitable account," says Silvermine's Paul Kelly.

How can that be? It begins to make sense if you consider the byzantine demands that most retailers impose on suppliers. Slotting fees. Display fees. Damage allowances. Handling charges. Late penalties. Special sales and rebates. Super Bowl tickets. Each is a small inefficiency that benefits the retailer at the supplier's expense and, ultimately—since the supplier builds those costs into its prices—the consumer's. Wal-Mart, by contrast, is famous for boiling everything down to a one-number negotiation. "It's very pure," says Newell Rubbermaid's Scheyer. "All the funny money—1% for this, 2% for that, 'I need a rebate ... I need a special fund for our annual golf event'—it isn't there. They'll negotiate hard to get the extra penny, but they'll pass it along to the customer."

While this part of the negotiation is strictly arm's-length (figuratively anyway, given the cubby-like dimensions of the blue rooms), Wal-Mart also operates in "partnering" mode, in which both sides swap information to streamline the flow of goods from raw materials to checkout counter. "They would rather extract fat from the process than extract their suppliers' profits," explains Ananth Raman, a Harvard Business School professor who studies supply chains. So while Newell Rubbermaid's "We (c) Wal-Mart" strategy can seem the ultimate in corporate vassalage, consider what Newell gets out of the deal: not only huge volume but, thanks to Everyday Low Prices, predictable volume, which lets it keep its factories running full and steady. There are no advertising costs, no "funny money." And Wal-Mart will even back up its trucks to Newell's factories. Many suppliers, including P&G, like the model so much that they've pushed it on their other customers.

There's more. Newell gets product ideas from Wal-Mart. Hundreds of them. A store associate in Arizona mentions that Hispanic customers are looking for a kind of cookware called a caldero. Done. The hardware department sees an opportunity for "light industrial" cleaning products. Time to market: 90 days. Shoppers, in effect, get direct control of the nation's manufacturing facilities—reason to see Wal-Mart as the world's most finely articulated tool for turning customer wants into reality. A win-win-win.

Playing this game, however, requires constant hustle. Besides continually cutting your costs, you need to handle all that data pouring off RetailLink—the system that lets suppliers track their wares through Wal-Mart World—since you wouldn't want to annoy Wal-Mart with excess inventory or, worse yet, not enough. An electronic "vendor scorecard" will let you know how you're doing.

In the meantime, you should also be peppering Wal-Mart with "retail-tainment" ideas about how to make its stores more fun. If you're the maker of Power Rangers, that means creating the world's largest inflatable structure—a 5,000-square-foot moon—for a tour of Wal-Mart parking lots. If you're Coke, it means routing your L.A.-to-Atlanta Olympic Torch Run past every Wal-Mart possible. You may be "encouraged" to buy time on the in-store TV network. And should you enjoy the privileged position of "category manager," you'll be expected to educate Wal-Mart on everything happening in the jelly or lingerie or Hulk Hands markets. Above all, you'd better start thinking like a retailer. "If you're focused on your shipments, you're screwed," says Dennis Bruce, a vice president with Newell Rubbermaid's Bentonville team. "You gotta be worried about what's moving through the registers."

"Vendor offenders," as some Wal-Marters jokingly call them, don't last long. "People think they're wired in at the top of the company, but the relationship in itself means nothing if you don't perform," says Newell's Scheyer, whose father sold to Sam Walton in the 1960s.

Then, too, Bentonville isn't above dropping the occasional bomb. Procter & Gamble's storied partnership with Wal-Mart began on a 1987 canoe trip when Walton and a P&G boss agreed to start sharing information instead of hoarding it. Yet there was little warning when, in 2001, Wal-Mart unveiled its Sam's American Choice detergent at roughly half the price of P&G's family jewel, Tide. (The move "in no way strains our relationship," a P&G spokeswoman said at the time. Uh-huh. And we have no problem with a McDonald's™ brand FORTUNE.) Now there are rumors—which Wal-Mart does not confirm—that the retailer is planning to introduce a second, even cheaper detergent under its Great Value label. "I'm not sure [P&G] didn't pay way too high a price to achieve that partnership," says TradeMarketing's Cleere. "They taught Wal-Mart about the laundry business."

Tide still commands about four times the shelf space of Sam's Choice, and Tom Coughlin, chief of Wal-Mart's U.S. stores, says manufacturers' brands will remain the company's cornerstone. But Wal-Mart's private-label assault has turned even its most trusted suppliers into its competitors. With little fanfare and no advertising, Wal-Mart's Ol' Roy dog food (named for Sam Walton's English Setter: 1970-81) has charged past Nestle's Purina as the world's top-selling brand. Great Value bleach outsells Clorox in some stores.

That raises a tricky question: What, exactly, is the brand here? As Wal-Mart flexes its muscle as a marketer and not just a merchandiser, it could accelerate the demise of weaker brands. Even P&G has refocused on just 12 powerhouses, like Crest and Pampers. Now manufacturers worry about losing their direct connection to the consumer. Two decades ago 65% of their ad budgets went to television and other mass media, while today 60% go to retailers for in-store promotions and the like. The worry, as a Forrester report predicts, is that "Wal-Mart will become the next Procter & Gamble." The nightmare: Wal-Mart becomes your company's new VP of marketing.

If the trip on Gulliver's coattails is no joyride, it sure beats being a Lilliputian underfoot. Over the years Wal-Mart has thundered its way up the retail food chain, first flattening mom-and-pop stores, then stepping on discounters like Ames, Bradlees, and Kmart, and finally sitting on specialty retailers like Toys "R" Us—threatening, in effect, to kill the category killer. Now no category seems safe.

Just ask your grocer. The quintessentially low-margin business had benefited from a decade of consolidation and cost cutting by giants like Kroger and Albertsons. Yet most of the gains dropped to the companies' bottom lines, not the consumers'. Now, feasting on fat margins in the presence of Wal-Mart is a bit like tucking into a juicy sirloin in the presence of a grizzly: Your dinner won't be there for long, and unless you start running, neither will you. Only ten years after launching its food business amid much guffawing, Wal-Mart is the world's biggest grocer, driving down prices an average of 13% in the markets it enters, according to a UBS Warburg study. The effect has been seismic: Kroger has gone on a cost-cutting drive to narrow the price gap, Albertsons has abandoned some markets entirely, and an army of consultants now advise grocers on how to grapple with the 800-pound gorilla. When Wal-Mart moves, it adheres to the Powell doctrine of overwhelming force.

Now imagine you're a Wal-Mart strategic planner on the prowl for other high-value targets. Where else are middlemen taking fat profits and stiffing consumers? Did someone say used cars? Of course! The last castle of medieval retailing. Visit the parking lots of several Houston Supercenters, and you'll find a dealer quietly testing a no-haggle approach under the name Price 1.

What else? Well, what about Microsoft? Its margins are—can this be right?—44%, and it's sitting on $38 billion in cash. Mr. Sam would not approve. Log on to walmart.com and you'll find $199 computers powered by a fledgling Windows competitor, Lindows.

Financial services! Regulators have twice thwarted Wal-Mart's attempts to buy a bank, but hey, you don't need a bank to offer wire transfers and money orders. And get this: Western Union charges $50 to wire $1,000 from Texas to Mexico. How about a flat $12.95 instead, and 46-cent money orders instead of the 90 cents charged by the U.S. Postal Service? Available at a store near you.

Wal-Mart vacations. Internet access. Flower delivery. Online DVD rentals a la Netflix. All happening.

Wal-Mart stresses that many of these experiments are just that: experiments. But the company has long excelled at using itself as a testing lab, tweaking and refining a concept until—boom!—it's everywhere. That's why even the looniest speculation—Wal-Mart partners with a Korean auto company to make a private-label car, Wal-Mart acquires a drug chain, Wal-Mart becomes a wholesaler to other merchants—can't be dismissed. Just because you're paranoid doesn't mean Bentonville isn't out to get you.

Wal-Mart's zero-to-60 engine is driven by three powerful cylinders: scale, scope, and speed. The scale part is obvious. The scope part allows Wal-Mart to "flex" its toy section before the holidays and collapse it afterward, while Toys "R" Us is stuck selling toys year-round. (Scope also lets Wal-Mart use entire categories—gas, soft drinks, whatever—as loss leaders to pull people into the stores.) The speed part may be the most intimidating. Wal-Mart's turnover is so rapid that 70% of its merchandise is rung up at the register before the company has paid for it. Speed is why it routes ships from China through the Suez Canal and across the Atlantic, so that exactly 50% of imports end up on each coast—more expensive in the short run, but faster in the long. And while the interior of a Wal-Mart distribution center evokes the final scene of Raiders of the Lost Ark—42-foot-high corridors of toilet paper stretching toward a vanishing point—many items never hit the warehouse floor, moving directly from truck to truck along 24 miles of conveyor belts.

That leaves competitors with two options (surrender not one of them; Bentonville doesn't do acquisitions). Option No. 1 is to play Wal-Mart's game. Very risky. In the mid-1990s, Kmart proved it to be ritual suicide. On the other hand, companies already steeped in discounting—Costco, Family Dollar, grocery chain Publix—have more than held their own against Goliath. Option No. 1 should thus carry the warning found atop black-diamond ski runs: experts only.

Option No. 2: Don't play Wal-Mart's game. Typically a better choice. Grocery folks regularly tromp through H-E-B, a Texas grocery chain that's held Wal-Mart at bay with such "destination products" as ice cream made from Poteet strawberries, a local favorite that H-E-B freezes in vast quantities. Not surprisingly, Wal-Mart is already thinking along similar lines, mining its mountains of data to tailor individual stores to local tastes.

The question on everyone's mind, of course, is, How much more dominant can Wal-Mart get? More than 70 million people already roam its aisles each week. Its truckers are trained to avoid deluded motorists who dream of a collision and a Wal-Mart-sized settlement. The U.S. Mint chose Wal-Mart, not banks, to introduce its Sacagawea gold dollar in 2000. Target had difficulty finding American flags on Sept. 12, 2001, because guess who had begun buying every flag it could the previous day. Hegemony, it would seem, doesn't get any more complete.

Yet a bit of fifth-grade math produces a startling result: If Wal-Mart maintains its annual growth rate of 15%, it will be twice as big in five years. "Could we be two times larger?" asks CEO Lee Scott. "Sure. Could we be three times larger? I think so."

Crazy talk? Maybe not. Roughly half of Wal-Mart's Supercenters (groceries plus general merchandise) are in the 11 states of the Old South, leaving plenty of room for expansion in California and the Northeast. And Bentonville is getting creative about overcoming the political and real estate hurdles there. In January it opened its first inner-city Supercenter in the Baldwin Hills neighborhood of Los Angeles, a three-story affair with special escalators for shopping carts. All told, Wal-Mart will open roughly a store a day this year.

As it expands outward, it's also filling in the gaps. "We've found that a smaller population than what we originally had thought can support a Supercenter," says Scott. "So you can put two Supercenters—Rogers (Ark.) and Fayetteville—roughly four miles apart. Same thing is true in Dallas, Houston, Atlanta." Within those four miles Wal-Mart is building new Neighborhood Markets, or "Small-Marts": smartly designed food/drug combos with conveniences like self-checkout, honor-system coffee and pastries, drive-through pharmacies, and half-hour film processing (this last based on a finding that 50% of women shoppers have an undeveloped roll of film in their purse). In Arkansas, Wal-Mart's even dabbling with stand-alone pharmacies. Throw in Sam's Club, with 46 million paid memberships, and walmart.com, with its mission of "easy access to more Wal-Mart," and you start to wonder: Is there any format Bentonville won't consider on its march to "saturation"? Well, yes, says Scott. "You're not going to see Wal-Mart casinos."

Which brings us to a final issue: is someone going to decide that Wal-Mart has too much power? Doesn't the government break up companies that get this big? The short answer in this case is "not likely." Antitrust law is aimed at protecting consumers, not competitors. (In the U.S. anyway: A German judge last year ordered Wal-Mart to raise its prices.) Monopolists jack up prices. Wal-Mart lowers them—making it, in some instances, a more effective trustbuster than the trustbusters themselves.

Yet the company has grown self-conscious about its size. While Sears and Woolworth once announced their power by erecting the world's tallest skyscrapers, Wal-Mart strives to be everywhere and nowhere, hidden in plain sight—just your friendly hometown superpower. The reasons for that may be less calculated than cultural. Sam Walton used the language of service and democracy—customers, he said, "voted with their feet"—to build a republic of fervent consumer advocates. Today the company still sees itself that way—and seems confounded when the rest of the world does not. For lest we forget, America's most admired company has also been one of its most maligned, recently attracting headlines about class-action lawsuits alleging that associates were forced to work unpaid overtime. "In the past we were judged by our aspirations," says Scott. "Now we're going to be judged by our exceptions."

It's more than a little reminiscent of another fledgling republic that became a superpower and discovered to its shock that much of the world saw it as an imperial bully. Admired and resented, imitated and vilified, envied and feared: One Nation, Under Wal-Mart.

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