Sam Walton Lost $1 Billion in the 1987 Crash and Hadn't Heard About It Yet

Source: Founders Podcast | Published: 2026-09-21T10:00:20Z

When US stocks collapsed in a single day in 1987, Sam Walton's paper fortune evaporated by over $1 billion. A reporter caught up with him for comment — he said he hadn't heard about it yet.

This was a man who had spent forty years in retail, changing his mind at sixty-one.

An Idea Almost Absurdly Simple

Sam Walton later distilled his business philosophy into a single sentence: buy it low, sell it low every day, and smile. He admitted himself that the idea was "simple to the point of absurdity."

Wall Street never quite understood him. Analysts were trained to hunt for complex strategic intent, and what they found instead was a man with no five-year plan, no ten-year vision — just someone who woke up every morning thinking about how to make Walmart a little better. When new information arrived, he changed course, without embarrassment. "I'm not too proud, nor too blind, to recognize my own mistakes."

His biographers gave this quality a dedicated label: RC, or "resistance to change." He demanded the entire company maintain a low RC — a concept he hammered home in internal meetings for decades.

What He Learned at JC Penney

Sam never planned on a career in retail. When he graduated from college, he had even considered running for president. Needing to make money, he interviewed at JC Penney and landed a job at $85 a month.

There, he learned a few things he would carry for the rest of his life.

The first was about paper and string. On a store visit, Penney himself walked over after watching Sam wrap a customer's purchase and said: "Boys, let me show you something." He took a box of the same size, used paper just a quarter-inch larger than the box, wound the string twice, and tied it off. "We don't make a cent on what we sell. Our profits come from the paper and string we save."

The second was about incentives. His store manager had a 25% profit-sharing contract. One Sunday, this manager pulled out his bonus check and waved it in front of everyone — $65,000, in 1940s dollars. Sam later said it made them "run faster and work harder." He applied the same logic directly at Walmart: store managers received a 25% cut of their store's profits, binding their fate to the store's performance.

The Day the Landlord Threw Him Out

At twenty-seven, Sam opened his first Ben Franklin franchise in Newport, Arkansas — a town of about 7,000 people. He spent five and a half years there, growing annual sales to $225,000 — an achievement unprecedented in the area.

His success drew attention. The landlord noticed how much money the store was making, and when the lease expired, simply refused to renew it — he planned to run it himself.

Sam's lawyer told him there was nothing to be done: no renewal clause in the contract, it was over. The lawyer watched his face go pale.

Then Sam clenched his fist. Opened it. Clenched it again. Stared at his hand for a long time. Then looked up and said: "No, I'm not finished. I found Newport, I found that store. I can find another good town, another Ben Franklin. Just watch."

At thirty-two, he started from scratch, opening a second store in Bentonville. This time he insisted on buying the building outright instead of leasing. "I needed to control my own destiny."

A Johnboat and Several Thousand Hula Hoops

Money was chronically tight in those years.

When the hula hoop craze swept the country, Sam was a small operator who couldn't get inventory from distributors. His solution: buy plastic tubing in bulk, and every night after the store closed, he and his workers would assemble them by hand. They could make several thousand in a single night.

Getting them to stores was another problem. No truck, no proper delivery vehicle — just a johnboat, about twelve feet long, mounted on a two-wheel trailer. That boat became his distribution fleet, moving hula hoops across his locations.

"Every penny and dime counted" — that logic ran through every decision he made in that period. It's also part of why Walmart ended up with just seven letters in its name: fewer letters meant lower costs to manufacture, maintain, and light the signs.

Figuring Out the Chain-Store Model on an Ozarks Highway

From Bentonville to Newport was 250 miles of winding mountain roads — eight to ten hours each way. Throughout the winter of 1950, Sam drove that route over and over, managing businesses at both ends.

It was on those long drives that he started asking: if I can run two stores in two towns, why not three? Four? A dozen?

One night, driving through the mountains, he heard the drone of a small plane overhead and something clicked. The following week he rented a plane out of Bentonville — an eight-hour drive became ninety minutes.

Without that realization, Walmart might never have existed. He learned to fly shortly after, and for decades piloted himself to store visits. It became a core part of how he managed the chain.

Hiding in Small Towns, Buying Himself a Decade

The competitor Sam studied most seriously in those years was Kmart. He held its founder Harry Cunningham in high regard: "When he launched that thing, he was ten to twenty years ahead of his time, and he did it better than anyone. What I did was take the pieces he'd built and try to make Walmart as close to it as I could."

But he never fought Kmart directly. Kmart targeted big cities; Sam targeted small towns. They never competed in the same market. Small towns weren't worth Kmart's attention — which gave Walmart a full decade to grow undisturbed.

Charlie Munger later described this period with a boxing analogy: Walton wanted a great record, so he spent years fighting 42 pushover opponents, one by one. By the time he was big enough, he went after the heavyweights — leaving Kmart to discover, too late, that the world had changed while it wasn't looking.

He Offered Walmart's Idea to Headquarters. They Said No.

Before Sam built Walmart, he tried to give the idea away.

He was a Ben Franklin franchisee with no capital to expand independently. He went to Ben Franklin's corporate office with a proposal: let them provide funding, he'd serve as a test case, and together they'd enter discount retail to compete with Kmart. His ask: drop the wholesale markup from 20–25% down to 12.5%.

The executives looked at each other and turned him down. From their perspective, a rural operator with a handful of stores in Arkansas had no business telling a company with nearly a century of history and a thousand locations how to run itself.

The day after the rejection, a Ben Franklin executive decided to visit the nearest Kmart to see what all the fuss was about. When he walked in, Sam was already there — on the floor, head under a display case, spiral notebook in hand, writing things down.

"Mr. Walton, what are you doing?"

"It's part of the learning process. I'm still learning."

An Iron Fist in a Velvet Glove

His biographers described the gap between perception and reality: the outside world saw a friendly old man in velvet gloves. The gloves concealed iron.

His demands showed up most plainly on the buying side. Walmart's buyers were instructed to drive suppliers to the lowest possible wholesale price — Procter & Gamble, General Electric, Sony, no exceptions. One supplier described the experience of negotiating with Walmart: "Those people look as plain as homegrown tomatoes, but once you're actually doing business, you find them as hard as steel nails and sharp enough to leave you breathless."

His obsession with cost ran through the entire organization. He wrote: "Controlling your expenses better than your competition is always where you can find your competitive advantage." Walmart's overhead as a percentage of revenue was the lowest in the industry — the company publicly reported the figure at 2%.

But on the front lines, he was a different person. He would show up at 2:30 in the morning with a bag of donuts for the loading dock crew, sit down, and ask what could be improved. When workers said they needed more shower stalls, he agreed on the spot. He climbed aboard one of his company's semi-trucks and rode 100 miles alongside the driver, just to understand firsthand how distribution could be improved.

He called this style MBWA — Management by Walking Around — and treated it as a formal discipline. It meant visiting not only his own stores, but his competitors', always looking for something worth copying.

105 Sam's Club Locations in Seven Years

In January 1983, Sam flew to San Diego to study a new retail format called the membership warehouse club. The concept had been pioneered seven years earlier by a California merchant named Sol Price: sell goods directly to members at 10% above cost.

Sam flew back to Bentonville, gathered his executive team, and said they were doing it. He later admitted he was copying Sol Price outright — the same way he'd copied JC Penney, copied Kmart, copied anything he'd ever found useful.

By the end of 1983, three Sam's Club locations had opened. Eight more in 1984. Twelve in 1985, bringing the total to 23 and sales to $776 million. By 1990, 105 Sam's Club locations were in operation with annual sales exceeding $5 billion.

Compare that to the beginning of his career — one store over five and a half years — and the pace looks like it was built by a different person entirely.

On Black Monday, He Hadn't Heard the News

In October 1987, the U.S. stock market dropped 500 points in a single day. Sam Walton's paper losses exceeded $1 billion.

A reporter tracked him down and asked for his reaction to the catastrophe on Wall Street.

He said he hadn't heard about it.