Sam Walton had some definite fundamental principles on making money, and some of those apply to the billboard business. In this Billboard Mastery podcast we’re going to discuss how some of Walton’s thoughts on building Walmart are true for building your billboard portfolio, too.
Episode 55: Making Money The Walmart Way Transcript
Walmart was founded in 1962 in Rogers, Arkansas, by Sam Walton. If you've read the book and I've read many, you'll see, there were some underlying principles that Walmart built, was built from by Sam Walton, and there are some of those that apply to the Billboard industry. This is Frank Rolfe with the Billboard Mastery Podcast. We're gonna be talking all about Sam Walton, what his thoughts were on business, how he used those to build Walmart, and why we can learn a lot from some of his ideas related to running and... A successful Billboard company. So let's first start off with the basic premise behind Walmart. Walton had a Five and Dime store in Rogers, Arkansas, and he had this theory that Maybe you could advance the idea of low-cost goods to the general public on all kinds of things, not just toys and games like in a traditional dime store, but maybe even higher end items like appliances.
So he had this theory that if you just marked up each item a little and sold them in massive volume, it would be more profitable than marking them up a whole lot and selling very few of them. He was kind of the beginning of the founder of the whole idea of what has now led to not only Walmart, but places like Target, and even like Amazon, and that's... Let's get a little margin and do it in giant scale. That was always the theory. And today, a typical Walmart store does about $100 million in sales per store, which is an incredible amount for a stand-alone store, but it does so because consumers flock to Walmart because they know they'll get really low prices and Walmart makes tons of money, because even though they don't have a lot of mark up in every item they sell, they sell a tremendous quantity of them, in fact, Walmart is the largest retailer in the world.
So how can you apply any of the thoughts of Sam Walton to the Billboard industry? Well, there actually are quite a few things that do in fact apply, let's first start off on the advertising side, when you have a Billboard... Well, what's really important is at the end of the day, how much money you actually make? I learned that when I got in the business and my competitors were charging, let's say $1000 a month for a sign on the highway, but I saw it was empty, probably about half of the year, so my thought was, What if I dropped a price to $500, but I was occupied year-round, same amount of revenue coming in the door, the only difference was stability, made you feel a lot more comfortable when you had money coming in every month and not getting twice a month for half the year and no monthly, the rest... No money, the rest of the year. So that's what I decided I would do, I would start applying that kind of Walmart dynamic of a lower markup, but greater sales to renting the ad space. The other benefit, of course, when you do that is advertisers are so appreciative, they tend to renew year after year after year, infact I had about an 80% renewal rate, which meant unlike my competition, I only had to rent annually one out of every five signs, think of the amount of efficiency there.
So much work saved simply by giving the advertiser a better price, so that's the first time I applied Walmart to my thinking. And of course, I did it just to get my foot in the door, then later as an act of desperation when the economy went down, but the theory, which I still find to be completely true, was Let's not try make an outrageous markup every month. Let's make a lower markup, but let's stay full at all times, and particularly in a time like right now where America's, headed into a recession.
That can be the difference between success and failure, is just being able to maintain an advertiser on your sign paying their rent every month to get you from point A to point B. The bigger lesson I learned, however, from Sam Walton with regards to billboards, was the fact that we don't have to make a ton of money on every sign, we can make that up in the total number of signs that we own. Case in point, I had 300 billboards each generating like little engines money every month, and because I had that level of scale, I didn't have to make a ton on every sign. So if you have a billboard, and let's say you put it out there out in the country, out in the suburbs and exurbs of America, where they're so ripe with opportunity, and I build some wooden telephone pole billboard out there, and I rent that sign for a few hundred dollars a month per side, when I net out all of my cost, let's assume that sign makes $3000 a year. Now, someone in the big city might say, Well, gee, what a joke, I've got this one monopole in I don't know, I make five times that amount.
Okay, well, that's probably true, but here's how you really have to look at that, that little wooden sign costs not much to build, the big monopole sign costs, I don't know, 75, $80,000 or more to build. And that little sign is really easy because you only have to rent the ad space one time every year, and it's so inexpensive, people stay on it year after year after year, so I can build a giant plethora of those signs. I'll generate a little money, and when you aggregate it together, it's a ton of money, if I have each sign making $3000 a year... I have 10 signs, it's 30 grand a year if I have 30 signs, I'm approaching 100 grand a year. You have a 100 signs it's making 300 grand a year. With very, very little effort. That's why there's wooden telephone pole signs, there's old age sheet signs, abandoned signs you can find along the highway that you can bring back into service, there's huge money in those as long as you do them in volume. And personally, I would much rather have a large volume of smaller signs, each making money on a regular basis than just a few that make much more money, because there's one other item, which Walmart also learned.
And that's the concept of diversity. If I have just one store... Let's say you're a big retailer like Neiman Marcus, for example. Neiman Marcus in the United States, only has what? 10 or 15 stores, I think it's not a huge number. And of those flagship stores they have recently, well they haven't made any money at all, but even in the old days, they only made a certain amount because even though they sold prices, products at a huge markup, they didn't sell that much of it. Walmart, on the other hand, you will find a Walmart in almost every market in America, not just the big cities, but even in the small towns and surrounding areas, and if one, Walmart should have any problem, I don't know, hit by a tornado flood, whatever the case may be, it doesn't kill the rest of the empire, which all comes to its aid, it just knocks one unit out, if you had 50 signs and one of them was lost in a tornado, you only lost 2% of your revenue if you had 10 signs. However, you just lost 10%. If you have two signs, you lost 50%... You can see the difference.
So the whole concept of scale is not only in having lots of units, which is charging advertisers lower amounts, so they stay all the time, but it's also in having not any one unit that has that much influence over your future. In that manner, every time there's a storm or some issue on TV or just some kind of local economic recessionary crisis, you're well insulated from that, and that's the beauty of the Walmart model, and why it's works so well for so very long. Walmart has been around now for almost 70 years, which is a very long time for retailers, most retailers never survive that long, but Walmart has made it because it has some very smart grassroots concepts. Don't mark up goods that much, but instead make it up in volume. Also, you can go ahead and have a large volume of stores to help spread your risk, and then finally, you don't have to make a ton on each store as long as you have a whole bunch of them... Sam Walton was an absolute genius in the world of retail, no one's ever been able to match what he did, Warren Buffet and others have made geniuses on investment, but they didn't actually have to go out and create the companies that they own.
Walton built the entire concept of Walmart from scratch, in fact, he used to fly around in a private airplane just to perfect his model. So if you haven't read one of the books on Walton, there's many of them, you can buy them on Amazon or even at used bookstores for not a whole lot of money, but when you read those books, you see his underlying business fundamentals, you'll see that many of them apply very well to the Billboard industry. This is Frank Rolfe with the Billboard Mastery Podcast. Hope you enjoyed this. Talk to you again soon.