walmart sears case

Topics: Inventory, Financial ratios, FIFO and LIFO accounting Pages: 3 (1036 words) Published: July 2, 2014
Case Questions: Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc. Answers must be posted to Compass. You may work in groups of no more than four people. Be sure to remember to submit ALL names and UINs on the assignment.

1. How do the retailing strategies of Sears and Wal-Mart differ? How does each firm operate their business/attempt to create value?
The major difference in these two companies’ retailing strategies, according to their filings in 2014, lies in the ways they expand their sales. Wal-Mart realizes its sales by opening new retail units both in the U.S. and abroad, broadening the scope of merchandise offered for sale, and committing to price leadership. According to its annual report, it prices items at a low price every day so its customers trust that its prices will not change under frequent promotional activity. Sears, on the other hand, does not open as many stores as Wal-Mart does, but it has another two segments that mainly deal with appliances, electronics and equipment. It also opens a special kind of store named Land’s End, which is a direct merchant of clothing, accessories and footwear. Moreover, it sells merchandise, parts and services to commercial customers through business-to-business Sears Commercial Sales and Appliance Builder/Distributor businesses.

2. Wal-Mart’s average ROE for the 1997 fiscal year was 19.7% [$3,525/($18,503+$17,143)/2] while Sears’ average ROE over roughly the same period was 22.0% [$1,188/($5,862+$4,945)/2]. Don Edwards was puzzled by these numbers because of WalMart’s reputation as a premier retailer and Sears’ financial difficulties not long ago. Use the 3step DuPont method to break down the ROE calculation and determine what is driving the individual performance of each of these two companies during fiscal 1997. How do they differ?

ROE
Net profit margin Asset turnover Financial leverage
Wal-Mart
19.7%
3.0%
2.78
2.38
Sears
22.0%
2.9%
1.10
6.93
Apparently Sears’ higher average ROE was due to its...
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