Sears, Roebuck And Co. Vs. Wal-Mart Stores Case Solution
Basically this case is the comparison between the financial condition and efficiency of two companies. These companies are the retail companies (Wal-Mart and Sears, Roebuck and Co). Both the companies were big names in the retail industry. The comparison of both the companies’ efficiency was done through conducting the financial ratio analysis of both the companies. The MBA graduate: Don Edward, was given the assignment to analyze the both companies’ performance. Sears, Roebuck and co. was founded in 1891.It was started as a sole proprietor business, which later in 1924, expanded its operations as retail store(Noe, 2000). The company’s stores were mainly in the shopping malls as merchandise. Sears was one of the large organization in terms of sales. In 1992, the company was suffering in terms of profitability. The CEO had intended to reduce the cost in order to increase the profitability.
Walmart was started in 1962 in Bentonville, Arkansas. This small store had transitioned into a whole big community in the retail industry. After 5 years; the company’s sales reached to $100 billion. Walmart’s main objective was to maintain the low prices and its slogan was also to offer the low prices for their customers. Walmart also possessed Sam’s clubs and super-centers to expand its business.
The retail strategy of Sears and Walmart are completely different form each other, in various aspects. First of all, the slogans of both the companies are the clear indicative of their retail strategies, i.e. Walmart’s slogan is “Always low prices”, and while the Sears’ slogan is “Come see the softer side of Sears”.
From these slogans, it is obvious that Walmart focuses on cost leadership strategy while the Sears is more focused on product differentiation strategy. Walmart is focused on providing all of the products in its stores at competitive prices, which enhance-sits cooperation with suppliers and also enhances its bargaining power. On the other hand, Sears is focused on updating its inventory through reorientation of its product mix.
Similarly, Walmart is only focused on the retail business, however, Sears’ product mix is large enough, including: retail, credit cards and services. Not only this, Walmart has its own stores while Sears’ stores are located in different malls, which means that Sears is always trying to provide differentiated services to its customers as compared to Walmart, which tries to provide the products at lower and competitive prices. The income statement of both the companies show that the spending on selling and administration costs by Sears are greater than Walmart.
The financial ratio analysis, as shown in Appendix 1, shows that Walmart’s return on equity was 19.7% for the fiscal year, while Sears had a return on equity of 22%, despite the fact that Walmart is a giant industry retailer. The main reason behind such difference in the financial profitability of both the organizations in the fiscal year 1997 are as follows:
The return on equity is calculated by dividing the company’s net with average shareholders’ equity and if the shareholders’ equity of one company is larger than the other, then it would result in lower return on equity for the firm with higher equity portion. Walmart had a higher equity financing in the fiscal year 1997 as compared to Sears, i.e. the Walmart had an equity financing of 43%, while Sears had an equity portion of 15%, as a result of which, Sears reported a higher ROE in the fiscal year 1997. Sears is more dependent on the short term financing as compared to Walmart, which can be costly for the company. Further, the reliance on the short term debt gives a signal of risk taking approach buy Sears, which may not be preferred by few investors.
In addition, according to the given case study, Sears’s sales were mostly generated through proprietary credit cards, i.e. 55.1% of the total sales were generated through credit cards. The sales figure for Sears seem very attractive, but it might lead the company towards a cash crunch if it would be unable to collect the accounts receivables. On the other hand, Walmart’s financial status in terms of cash collections is steadier in comparison to Sears.
Lastly, the financial ratio comparison for both the companies is not justified because the net profit of Sears also includes non-comparable gains, while Walmart’s profitability is only coming through its retail stores. In order to compare ROE, same business’ profit should be kept into consideration for both Walmart and Sears……………………..
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.