REV: JANUARY 19, 2006
GREGORY S. MILLER
Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc.
Don Edwards, having just earned an MBA, decided to take a job as an analyst with a prestigious investment bank. He was assigned to a team that followed retail companies. His first task was to prepare a report that contrasted the financial performance of Sears and Wal-Mart. Although WalMart was the acknowledged powerhouse of the U.S. retailing industry, Sears had made some great strides in the 1990s to revive the fortunes of its ailing stores. In fact, Edwards noted that Sears' ROE of 22% exceeded Wal-Mart's ROE of 20%, leading him to wonder which firm was the true powerhouse. Edwards knew that there was a good chance that his report would be used as input into buy/sell recommendations on these two companies so he wanted to do a good job.
Sears, Roebuck and Co.
Founded in 1891, Sears, Roebuck and Co. grew over the course of the next century to become the world’s largest retailer in terms of annual sales. Originally operated solely as a catalog business, the company expanded into retail stores in 1924. Sears’ stores were primarily located in shopping malls and sold a variety of merchandise including apparel, cosmetics, jewelry, electronics, household appliances, cookware, bedding, and handtools.
By the early 1980s, Sears was confronted with increased competition and declining market share. A number of different retailing initiatives as well as diversification into financial services and real estate failed to turn around the company’s financial performance. In 1992, Arthur C. Martinez was brought on board to head Sears’s retailing operations. He was named the company’s CEO three years later.
Faced with outdated and unprofitable stores, Martinez sought to cut costs in order to improve profitability. He also re-oriented the product mix at Sears’ stores in an attempt to boost sales by appealing to a target audience of middle-class female shoppers. The slogan, “Come see the softer side of Sears,” reflected the company’s commitment to updating its merchandise selection. Another way that Martinez sought to improve Sears’ sales figures was to offer customers more flexibility to pay for merchandise gradually over time through the use of the company’s proprietary credit card. Sears’ credit card was issued by the company and could only be used in its own stores.
________________________________________________________________________________________________________________ This case was prepared by Professors Gregory S. Miller and Christopher Noe from published sources as the basis for class discussion rather than to illustrate either effective handling of an administrative situation. It is a rewritten version of the case, Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc., HBS No. 199-046. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Sears, Roebuck and Co. vs Wal-Mart Stores, Inc.
Following Martinez’s lead, Sears opened 24 million new card accounts between 1993 and 1996— roughly a 50% increase over the previous four years.1
Exhibit 1 contains selected excerpts of the description of business from Sears 1997 10-K, Exhibit 2 discusses several non-standard events that occurred during fiscal 1997, Exhibit 3 consists of Sears’ 1997 financial statements....