Case Study: Sears, Roebuck and Co. Vs Wal-Mart Stores Inc.

Case Study I: Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc.

Sears, Roebuck and Co. and Wal-Mart Stores, Inc. are the two big retail companies in U.S. Although Wal-Mart was acknowledged powerhouse of the U.S. retailing industry, Sears’ ROE exceeded Wal-Mart’s 2%, which can show that this firm was the true powerhouse. Therefore, Don Edwards, an analyst with a prestigious investment bank. He compared two financial performances of these two companies and he wanted to figure out which company performed better in different areas.

Sears, Roebuck and Co. was founded in 1891. It started originally with a sole catalog business and then expanded into retail stores in 1924. Its stores were primarily located in shopping malls, including a large variety of merchandise. Sears has become the world’s largest retailer in terms of annual sales. By the early 1980s, Sears faced increased competition and declining market share. In 1992, The CEO of Sears, Arther C. Martinez has carried out three methods to improve profitability. The first was to cut costs. The second was to re-oriented the product mix in which the target audience was set to be middle-class female shoppers. The third was to offer customers more flexibility through the use of the company’s proprietary credit card. The policy of credit card has enhanced Sear’s profitability.

In 1962, the first Wal-Mart store was opened in Bentonville, Arkanas. Then the small rural community grew into a retailing powerhouse. In 1991, Wal-Mart claimed $43.9 billion net sales and the title of world’s largest retailer. Five years later, the company’s annual sale was up to $100 billion. Wal-Mart offered competitive price which reflected in the slogan: Always low prices. The group also operated Sam’s Club membership warehouses and Wal-Mart Supercenters to extend their business. Different with Sears, Wal-Mart customers could own a MasterCard with the Wal-Mart logo and this credit card was issued by Chase Manhattan Bank.

There are several exhibits which respectively showed basic financial status of Sears and Wal-Mart. The first four exhibits represented the business description, the non-standard spending, financial statements, and several significant accounting policies of Sears during fiscal 1997. The data showed that Sears used credit card services to enhance its profitability; and the Company (Sears) allowed third credit and debit cards to participate its services. Then the data showed the net income before noncomparable items of the Company increased in fiscal 1997 due to the strong merchandise sales and higher credit operating income. Moreover, exhibits 5 to 7 represented the lease footnote of the Company in fiscal 1997, its business segment which consists of retailing, service, and credit business, and the details of its credit segment. On the other hand, exhibit 8 started to introduce the status of Wal-Mart’s business; it showed the financial costs for conversions of Wal-Mart discount stores to Wal-Mart Supercenters and the total Wal-Mart sales per square footage, which includes discount stores, supercenters, and Sam’s Clubs. In addition, exhibit 9 stated that Wal-Mart had an increment of net income during fiscal 1996-1998. Finally, the last two exhibits contained several accounting policies of Wal-Mart and its lease footnote. After analyzing these data and other related sources, this paper shall compare these two retail companies in marketing, service, business strategy, and assets, liabilities and stockholder’s equity areas, and then give a brief conclusion of which company performs better and worth being invested.

Marketing

Sears Roebuck & Co. offers a variety of merchandise and related service; it has made effort to expand its market. Sears not only established stores in the foundation of shopping malls, but also exploring other places. According to “Sears, Roebuck and Co. Profile.”, beyond about 785 US mall-based stores in all 50 states, Sears operates 20 Sears Essentials/Grand stores in 10 states, as well as 54 specialty stores that include three dozen free-standing Sears Auto Centers and more than a dozen Lands' End retail stores. Sears' stores sell apparel, tools, and appliances , and provide home services under the Sears Parts & Repair Services and A&E Factory brands. It also operates a growing online business. Sears was acquired by Kmart Holding Corp. in 2005. The deal formed Sears Holdings, which owns both chains. Nutsch,Kacani, Seely, Green and Eagle (2004) indicated that Sears operates primarily in the United States, Puerto Rico, and Canada. Sears, Roebuck, & Co. is ranked fifth in the retail market, behind: Wal-mart Stores Inc., Target Corp., Kohl’s Corp, and JC Penney Company Inc. Sears operate both specialty and full-line stores. The customer operations of Sears consist of major sales from online and catalog marketing. Sears’ 871 full-line stores offer a wide range of products for the home, including appliances, clothing, jewelry, automotive supplies, power tools, and garden equipment. Sears.com is Sears’ implementation of internet marketing and offers a limited assortment of home and accessories merchandise. In addition to its full-line stores, Sears operates 1,100 specialty stores, 792 primarily independently owned stores, 245 Sears Hardware Stores, 8 furniture stores, 18 The Great Indoors stores, 45 Sears Outlet Stores, and a commercial sales division.

Wal-Mart Stores, Inc. has over 11,000 stores in 27 countries, under a total 71 different brands. It operates retail stores in various formats worldwide. The company operates through three segments: Wal-Mart U.S., Wal-Mart International, and Sam’s Club. It operates discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, restaurants, apparel stores, drug stores, and convenience stores, as well as various retail Websites, such as walmart.com and samsclub.com. With more than 11,100 stores internationally, Wal-Mart stores leverage their global resources to meet local needs. It offers an assortment of merchandise and services at everyday low prices.

Comparing these two companies’ performance in marketing, both of them served as the worldwide retail stores to meet the needs of local people. But Wal-Mart could be the preference for most of people rather than Sears. Wal-Mart stores relatively provide more comprehensive products for customers, including grocery items such as meat, bakery, and dairy as well as consumables such as health and beauty aids. It provides almost everything customers may need in their daily lives. Therefore, it is one of the aspects that Wal-Mart overshadows Sear. Sears once had enormous customer trust, admiration, and loyalty -- it was known for its hard-line products. However, it has just been a history. Sears has a loyalty program called Shop Your Way