Wal-Mart shrugs off downturn, but can its sales keep booming?

The company people love to hate has overtaken manufacturing giants to become the world's biggest corporation

The miracle of Wal-Mart ­ although some would call it a scourge ­ never seems to fade. Even in hard economic times, the chain of superstores founded four decades ago by Sam Walton in a scruffy corner of Arkansas manages somehow to thrive. Or, rather, especially in these economic times it manages to thrive.

Quarterly figures released this week confirm what had been obvious for a while. Wal-Mart, purveyor of your every household need from squeegee mops to computer games and bananas, has become the largest corporation in the world, at least in terms of sales. With annual revenue at an astonishing $219.8bn (£154.2bn), it has nudged aside the previous holder of that title, Exxon.

Such rankings are mostly meaningless, of course, but it is worth considering the achievements of Wal-Mart. It stands, arguably, as a symbol of the new post-industrial economy. The biggest companies used to make things like light bulbs and cars; General Electric and Ford and, indeed, Exxon. Wal-Mart just sells things that other people make. It is the triumph of service over manufacturing.

By selling stuff ­ and doing it well ­ Wal-Mart now has annual revenues that are roughly equal to the domestic product of Austria. And Austria is considered to be the world's 26th economy. Wal-Mart has achieved double-digit growth every year for two decades and expects to do it again this year. And it has done it mostly by growing internally, although it has made the occasional outside acquisition. Think Asda.

Considerable legend is attached to the Wal-Mart story and especially to Sam Walton, who died 10 years ago. Whatever his secret was, his heirs continue to be grateful to him. Today, five of his relatives hold a 38 per cent stake in the company. Between them they should be worth about $100bn.

Was it Sam's obsession with service that did the trick? Even now, every Wal-Mart employee ­ as the world's largest private employer it has 1.2 million people on its payroll around the world ­ knows about the 10-foot rule. Mr Walton stipulated that store assistants had to instantly greet any customer that came within 10 feet of them. Or was it his frugality? Visit Wal-Mart HQ in Bentonville, Arkansas, and you find a drab, low-slung building where everyone empties their own waste baskets.

Mostly, of course, the success of Wal-Mart has been about pricing and scale. Sam was relentless at driving down the price he paid suppliers and passing on the savings to his customers. As he became bigger, it became easier. Ask any Asda executive about this. As a British supermarket chain it was not always easy to pressure suppliers to drop their prices. As Wal-Mart, however, the game becomes easier.

Mr Walton made other good decisions. He reasoned that even a small town could support a very large discount store. Instead of building his discount warehouses in urban areas, where companies like Kmart were already opening their doors, he went for rural America. He also understood, more quickly than his rivals, the power of the barcode in helping to track sales and control inventory. Today, Wal-Mart boasts the world's biggest private computer network.

Wal-Mart has 1,647 Wal-Mart stores in the US as well as 1,066 Supercenters, 500 Sam's Clubs ­ where the deepest discounts are found ­ and 31 Neighborhood Markets. Thanks to several years of aggressive expansion in Latin America, Asia and Europe, the company now also has more than 1,100 stores overseas.

Wall Street was not surprised by this week's figures. Wal-Mart's strong performance stands in stark contrast to the experience of its nearest competitor, Kmart, which stumbled into bankruptcy last month. Wal-Mart managed to take advantage of the economic downturn by attracting new customers as they felt the pinch and abandoned non-discount department stores and grocery chains.

"Everyone needs toilet paper and toothpaste, and they're the most efficient at selling it," said Eric Beder, retail analyst at Ladenburg, Thalmann & Co in New York. "It is really an incredible story."

And of course the trouble at Kmart, which is busy closing down hundreds of its outlets all across America, has done Wal-Mart no harm at all.

Wal-Mart reported a 9.5 per cent rise in earnings for its fourth fiscal quarter that ended 31 January. The company said on Tuesday that it had earned $2.19bn, or 49 cents a share, up from $2.00bn, or 45 cents per share, in the year-ago period.

These latest numbers simply compound the sense that Wal-Mart is unstoppable. Not everyone is so delighted by the prospect. The corporation is blamed for killing off what remained of the mom-and-pop retail tradition in the United States. In Europe, the same concern was raised years ago. Every time a Wal-Mart sprouts up on empty land outside a town, businesses on its high street quickly wither.

Wal-Mart has also played its part in turning America, at least, into a society of long hours of work for little pay and almost no benefits. Decades of attempts by the main retailing unions to organise Wal-Mart employees have ended in frustration. As America moves from a manufacturing economy to a service one, its workers get paid less and less. Recent studies show that weekly take-home pay for retail workers in America stands at about 33 per cent of what workers in the car industry make.

History says that every empire that gets too big inevitably crumbles. Nobody can see that for Wal-Mart yet, however. Indeed, the company this week slightly raised its earnings forecast for the coming 12 months. There will always be land to build new stores on. And there are always other things to sell. Watch out for Wal-Marts selling cars soon. Or holidays. Or homes.

And if there was ever a danger that rapid expansion around the globe would lead to the dilution of Sam Walton's founding philosophies, there is absolutely no sign that that is happening. Most importantly, when it comes to pricing leverage ­ which is what the company is all about ­ getting too big may be simply be a contradiction in terms.