CaseStudy Analysis for Sears and WalMart
Questionone: Differences in retailingstrategies of Sears and WalMart
Oneof the most successful strategies that Sears had used to ensure thatit gets more customers compared to WalMart involved positioning itsproducts in locations that had the best proximity to consumers. Inrelation to this, Sears ensured that it occupied major shopping mallsin the major cities hence grabbing more of consumer’s attention.The products ranged from apparel, jewelry, household items,electronics, cosmetics, cooking ware, handtools and beddings. Byusing this strategy, Sears ensured that they took care of everyconsumer need in order to grab the largest market share (Michael,211). On the other hand, WalMart used the pricing strategies to helpin grabbing the largest market share of the major products itstocked. The company used the pricing strategy that created anelement of cheapness of its products hence attracting low incomeearners and more customers. Using the slogan “Always Low Prices”the company was able to create a better perspective of pricing toattract customers for their varied products.
Thedifference in return on equity for the two stores in 1997
In1997, Sears had an ROE of 22% while WalMart’s ROE was 20%. This wasas a result of Sears increased efforts to rise in the industry torevive its failing stores. Sears had a higher ROE since it hadintensified its marketing and sales activities in its working storesin order to revive the services of its failing stores. Thisindicates that Sears had superior performance since its salessignificantly increased leading to a higher ROE. According to Dupotanalysis, the ROE for the companies must have been affected byeffective operating efficiency, which is evident in a higher profitmargin, asset use effectiveness, which can be calculated using totalasset turnover and financial leverage that is shown by the equitymultiplier (Archer, 56).
Ratiosthat are most important for predicting future value creation forSears and Walmart
Suchratios are very crucial for ensuring that the company carries out itsfuture operations in a manner that will help in making maximumprofits and identifying the market forces. The efficiency ratios arethe ones that are responsible for measuring future performance forboth companies. They include inventory turnover ratio, accountsreceivable turnover, and rate of stock turnover. These ratios showhow fast a company turns its products into sales over a long periodof time. The ratios that WalMart uses include liquidity andefficiency rations such as stock turnover,current ratio and return oncapital. Evidently the ratios used by WalMart are very important inhelping ensure that the company carries out an effective analysisthat would help in increasing its profits. The important ratios aredifferent between the two companies since every company has theirretail strategies set differently.
Usefulnessof financial ratios in evaluating each company’s performance and incomparing the two companies
Ratiosshow the performance of the company over a long time hence can beused to express whether a company is making profits or loses.Additionally, in WalMart Company, ratios have a great essentiality inensuring that the company carries out an internal audit of whether itis making any progress in its daily activities. Besides, ratios helpin enabling companies to compare with other companies so as to knowthe market performance and improve in the same.
Calculationsof ratios for Sears and WalMart
ForSears, Net income for 1997$4,158 while the shareholders’ equity is$38700
TheROE is, therefore =10.7%
For1996, Sear’s ROE= ×100= 9.20%
CalculatingROA for Sears, the formula is
ROAfor 1997= =10.7%
ROAfor 1996= ×100= 9.20%
TheROA and the ROE are equal since the net income remained the same andthe value of total assets equals the value of shareholders’ equity.
INVENTORYTURNOVER for Sears is Costof Goods Sold ÷ Average Inventory
In1997, the Inventory Turnover for Sears was =67.11%
Michael,R. Gregory&NeoC. Sears, Roebuck and Co. Vs WalMart Inc Harvard School of Business.2003.