Sears, Roebuck and Co.

vs Wal-Mart Stores

Case Background
Sears, Roebuck and Co. Wal-Mart Stores

Started as a company dealing in catalogue sales Diversification into 3 types of business Retail, Service and Credit Retail store types Full line stores, Auto stores, Home and lifestyle stores

Started as a franchisee type variety store Primarily Retail business Discount stores, Supercenters, Sams club warehouses

Focus on price conscious consumers

Comparison of Retail Strategy

Parameters Sears, Roebuck and Co.
Increase of 15% from 3070 in 1995 to 3530 in 1997

Walmart Stores
Increase of 5% from 2558 in 1995 to 2740 in 1997

Comments

No. of stores

Retail selling space has increased more for Walmart as compared to Sears Retail space Increase of 13% from 81 to 93 mn sq ft Increase of 12.5% from 278 to 313 mn sq ft

Revenue per sq. ft. Operating lease Capital lease

Decrease from $323 to $318

Increase from $335 to $348

Increase of 23% from 357 to 439 Increase of 12% from 531 to 596 mn mn
Increase of 15% from 433 to 498 Increase of 9% from 2782 to 3040 mn mn

Higher rentals and lower depreciation for Sears

Credit card

56.6% of total sales come from Sears charge business

Risk of delinquencies borne by Manhattan chase bank

Credit payment default risk is higher for Sears

Accounting Policies
Depreciation Straight Line Method
SEARS 5-10 years on furniture and 40-50 years on buildings WALMART 5-12 years on furniture and 5-33 on buildings

Pre opening Costs Long term lease obligations

Operating leases Capital leases

Comparative P&L account

Fixed years ended jan 31th Current Assets Total Costs and Expenses operating income other income Income before Income Taxes Income Taxes Income from continuningoperations continuing Discounted Operations Net Income(PAT) Sears,Roebuck 1997 1996 41296 38064 39302 1994 106 2100 912 1188 1188 35981 2083 22 2105 834 1271 1271 Wallmart Stores 1997 1996 106178 94773 101328 4850 4850 1794 3056 3056 90427 4346 4346 1606 2740 2740

Sear, Roebuck & Co. breakdown of operations by business segment

The have 4 business segments :

1. Retailing Segment Companys namesake stores Speciality chains o Home Furnishings o Hardware o Tires & Batteries o Auto Parts
2. Service Segment Home Remodeling Appliance Repair 3. Credit Businesses Activities related to Sears Credit Card

4. Corporate Segment

Business Segment

1997

Growth (96-97) 9% 24% -14% -1%

1996

Growth (95-96) 23% 26% 16% 10%

1995

Retail Services Credit Corporate

$ 946 mn $ 345 mn $ 1005 mn $ -214 mn

$ 867 mn $ 279 mn $ 1164 mn $ -216 mn

703 221 1001 -197

Total Operating Income

$ 2082 mn

-1%

$ 2094 mn

21%

1728

While the services segment grew at a very good rate for consecutive years, Operations from Credit Segment fell alarmingly. Since any default of credit defaulters was to be borne by Sears, Roebuck & Co., this further fall was bound to hit them severely

Sear, Roebuck & Co. breakdown of operations by credit card segment

1997 Sears Card as % of sales Growth 1996 Growth 1995 56.60% 55.10% -2.65% 56.60% 0.00%

Credit Card receivables ($ millions)

Provision for uncollectable accounts ($ millions) Allowance for uncollectable accounts ($ millions) Delinquency as % of end-of year credit card receivables

20956
1532 1113 7%

4.24%
57.78% 38.95% 29.63%

20104
971 801

4.75%
64.86% -3.03%

19193
589 826 4.16%

5.40% 29.81%

Sears started accepting other credit cards like VISA, MasterCard, etc since 1993

This did not cause a significant change in the percent of sales through the years, but

The allowance & provision for uncollectable accounts very recorded to be very high
signifying more bad debts in the respective calendar year.

An account is generally considered delinquent when the past due balance is three ti the scheduled minimum monthly payment, which is also on a rise.

Condensed Balance Sheet

Fixed Years ended january 31 Current Assets Total Fixed Assets Total Assets Current Liabilites LTL Income Tax and interest Total shareholders Equity Total Liabilites and Share Holder Equity Sears 1997 30682 8018 38700 15790 13071 3977 5862 38700 Walmart 1997 17993 21611 39604 10957 10016 1488 17143 39604

Comparative Cash Flow Statement

Fixed Years ended jan 31 Net Cash Provided by Operating Activites Net Cash used by investing activites Net Cash used by financing activites Effect Of exchange Rate Net increase in cash and cash equivalent Sears,Roebuck 1997 1996 -556 1189 -1072 -1443 1330 309 -4 -1 -302 54 Wallmart Stores 1997 1996 5930 2383 -2068 -3332 -2138 -3068 800 38

Comparison of financial statement

Comparitive Analysis of Financial Ratios Particulars Sears Walmart 1997 1997 Current Ratio 1.9 1.6 Debt Equity Ratio 2.22 0.58 Return On Total Assets Employed 3.10% 7.80% Return On Equity 20% 18% Sales Turnover Ratio 1.08 2.67 Return on Capital Employed 0.17 0.21

Conclusion
Wal-Mart used their current assets more efficiently to generate sales than sears. Wal-Mart had less debtors compare to sears, majority of sears CA comprised of debtors In comparison with Sears Walmart has higher Sales/Assets ratio which indicates that the operational efficiency is better and returns from fixed assets in higher Also the current assets have not generated enough Revenue for Sears when compared to that of Wal-Mart

The Sales/ Cash for Sears shows that there has been increase in Sales but a decrease in the cash collections for the year 1997, and this is in sharp contrast to the previous year, which in turn can lead to a liquidity crisis. At the same time, Wal-Mart continued to maintain almost high ratio for the consecutive years.