W.T. Grant Case
September 9, 2010
Case 3.3 W.T. Grant
During the mid 1960s Grant was determined to modify its strategy and align itself in a different section of the market. One aspect of this strategy was to rapidly expand into suburban shopping centers and on the other hand, Grant also wanted to modify its product line (product mix). This rapid expansion required Grant to increase their physical store space to accommodate new items in their existing stores, in addition to an overall change in product mix (including larger items such as furniture and appliances). Not only did they have to increase their existing store space, they also needed to sequester new properties (which they did via long-term lease agreements) in suburban areas in order serve a different breed (type) of customer (of the upscale variety).
The narrative explains that between 1963 and 1973 Grant opened 612 new stores (with the bulk of them [369] being established between 1969 and 1973) and also expanded 91 others. This required a substantial outlay of capital and much of this capital came in the form of debt equity ( a mix between long term and short term borrowing). Normally when a firm settles on and chooses to embark on an expansion strategy, they are required to spend large sums of money but these initial outflows are (in theory) supposed to result in an overall increase (whether in the form of increased sales, or possibly in the long term decrease/elimination of certain variable expenses)in cash flow in the long run, but unfortunately in the case of Grant, their firm failed to in meet expectations and their cash flow from operations began to decline beginning in 1969 (and from that point on they never had another year of positive cash flows from operations). W. T. Grant’s average present value for lease commitments between 1966 and 1975 totaled about $559 million, further illustrating how heavily invested in store space (in terms of long term fixed costs) this expansion caused them to become.
Case 3.3 W.T. Grant
During the mid 1960s Grant was determined to modify its strategy and align itself in a different section of the market. One aspect of this strategy was to rapidly expand into suburban shopping centers and on the other hand, Grant also wanted to modify its product line (product mix). This rapid expansion required Grant to increase their physical store space to accommodate new items in their existing stores, in addition to an overall change in product mix (including larger items such as furniture and appliances). Not only did they have to increase their existing store space, they also needed to sequester new properties (which they did via long-term lease agreements) in suburban areas in order serve a different breed (type) of customer (of the upscale variety).
The narrative explains that between 1963 and 1973 Grant opened 612 new stores (with the bulk of them [369] being established between 1969 and 1973) and also expanded 91 others. This required a substantial outlay of capital and much of this capital came in the form of debt equity ( a mix between long term and short term borrowing). Normally when a firm settles on and chooses to embark on an expansion strategy, they are required to spend large sums of money but these initial outflows are (in theory) supposed to result in an overall increase (whether in the form of increased sales, or possibly in the long term decrease/elimination of certain variable expenses)in cash flow in the long run, but unfortunately in the case of Grant, their firm failed to in meet expectations and their cash flow from operations began to decline beginning in 1969 (and from that point on they never had another year of positive cash flows from operations). W. T. Grant’s average present value for lease commitments between 1966 and 1975 totaled about $559 million, further illustrating how heavily invested in store space (in terms of long term fixed costs) this expansion caused them to become.