Sears, Roebuck and Co. vs Wal-Mart Stores

Case Background

Sears, Roebuck and Co.

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

Wal-Mart Stores

Started as a franchisee type variety store

Primarily Retail business – Discount stores, Supercenters, Sam’s club warehouses

Focus on price conscious consumers

Parameters Sears, Roebuck and Co. Walmart Stores Comments

No. of stores Increase of 15% from 3070in 1995 to 3530 in 1997

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

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 278to 313 mn sq ft

Revenue per sq. ft. Decrease from $323 to $318 Increase from $335 to $348

Operating lease Increase of 23% from 357 to 439 mn

Increase of 12% from 531 to 596 mn Higher rentals and lower

depreciation for SearsCapital lease Increase of 15% from 433 to 498

mnIncrease of 9% from 2782 to 3040

mn

Credit card56.6% of total sales come from

Searscharge business

Risk of delinquencies borne by Manhattan chase bank

Credit payment default risk is higher for Sears

Comparison of Retail Strategy

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

Accounting Policies

Fixed years ended jan 31th 1997 1996 1997 1996Current Assets 41296 38064 106178 94773

Total Costs and Expenses 39302 35981 101328 90427

operating income 1994 2083 4850 4346other income 106 22Income before Income Taxes 2100 2105 4850 4346Income Taxes 912 834 1794 1606Income from continuningcontinuing operations 1188 1271 3056 2740Discounted OperationsNet Income(PAT) 1188 1271 3056 2740

Sears,Roebuck Wallmart Stores

Comparative P&L account

The have 4 business segments :

1. Retailing Segment• Company’s namesake stores• Speciality chains

o Home Furnishingso Hardwareo Tires & Batterieso Auto Parts

2. Service Segment• Home Remodeling• Appliance Repair

3. Credit Businesses

• Activities related to Sears’ Credit Card

4. Corporate Segment

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

Business Segment 1997 Growth(96-97) 1996 Growth

(95-96) 1995

Retail $ 946 mn 9% $ 867 mn 23% 703

Services $ 345 mn 24% $ 279 mn 26% 221

Credit $ 1005 mn -14% $ 1164 mn 16% 1001

Corporate $ -214 mn -1% $ -216 mn 10% -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 Growth 1996 Growth 1995

Sears Card as % of sales 55.10% -2.65% 56.60% 0.00% 56.60%

Credit Card receivables ($ millions) 20956 4.24% 20104 4.75% 19193

Provision for uncollectable accounts ($ millions) 1532 57.78% 971 64.86% 589

Allowance for uncollectable accounts ($ millions) 1113 38.95% 801 -3.03% 826

Delinquency as % of end-of year credit card receivables 7% 29.63% 5.40% 29.81% 4.16%

• 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 times

the scheduled minimum monthly payment, which is also on a rise.

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

Comparative Cash Flow Statement

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

Sears,Roebuck Wallmart Stores

Condensed Balance Sheet

Particulars Sears Walmart1997 1997

Current Ratio 1.9 1.6Debt Equity Ratio 2.22 0.58Return On Total Assets Employed 3.10% 7.80%Return On Equity 20% 18%Sales Turnover Ratio 1.08 2.67Return on Capital Employed 0.17 0.21

Comparitive Analysis of Financial Ratios

Comparison of financial statement

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.

Conclusion