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

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Case Study I: Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc. Chao Han
Junliang Shi
Zhongyi Hu
2/25/2015
Azusa Pacific University

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 Rewards, which allows customers to earn and save in a number of ways and offers an entire online store with products from appliances to fashion to toys. However, it has ignored the customer preferences over the years. The problem is that Sears has relied on this flawed loyalty program in a flawed attempt to bring customers to the stores. The loyalty of customers is based on their changing needs but Sears failed to do so.
Wal-Mart Stores, Inc. outperforms Sears Roebuck & Co. in marketing strategies. According to Bagons (2013), Wal-Mart Stores, Inc. has several outstanding marketing strategies that make it occupies a big market share. The first is the low prices it offers their products for. The guaranteed low prices are very attractive to customers since prices are the important elements customers will consider when they are seeking for products. There are no guaranteed low prices in Sears even if there is a reward program. “Shopping” actually takes place before “reward”. The second is its extremely easy access for customers. Wal-Mart Stores, Inc. has thousands of stores all around the world. Even if customers don’t live near one, they could always use their internet store and buy from there. This strategy makes marketing to customers much easier since it’s easy for the customers to find the stores and consequently do business with them. On the other hand, the customer service is available for customers 24 hours a day, which help maintaining customer satisfaction and adjust the problems in time. The locations of Sears are not as impressive as Wal-Mart--not that many, not that convenient and not that close to the neighborhood. Even if many of Sears are located in shopping malls, they are easily ignored by customers since Sears is not the main part of shopping malls. The third, as mentioned before, is Wal-Mart’s supply of all types of products. Anyone coming to Wal-Mart could find something that they are seeking for. To this extent, Wal-Mart gives customers a much broader appeal to all personality types. Even if customers’ needs are changing, they will finally be satisfied in this retail that almost contains all kinds of products. The fourth strategy is social media campaigns carried out by Wal-Mart. Social media campaigns have become a prevailing marketing strategy in our times. Since it is one of the best types of marketing due to its consistent results, all large companies including Wal-Mart have focused a lot of resources on it. Blogging and video sharing have proven to be the best types. Based on social media campaigns, Wal-Mart has become a retailer that is known to every household. As a result, the customer base of Wal-Mart is more steady than Sear’s. It’s understandable that customers prefer to go to a close retailer in which the low prices are guaranteed and more products could be found.
Service
Sears did a great job in maintaining the penetration of Credit products in all their sales and service channels which increase their revenues of the Retail and Services business. By suggesting customers to use the Company’s domestic credit operations, Sears attracted many customers whatever old or new to purchase goods and enjoy services. According to the report by Don Edwards, at the end of 1997, Credit had 27 million active customer credit accounts, with an average balance of $1,058. The traditional charge card occupied 90% of total receivable. It is obvious that Sears used to offer a good Credit service and did attract a lot of customers. However, based on Sears’ recent year’s performance on service, Sears does not perform very well. According to Loeb (2014), “Under current leadership, the company has ignored customer preferences.” The key of the service is around the company’s target customers. If the service cannot reach the target customers, then the service is not good. Now the fact is that Sears ignored the new trend and only relied on the loyalty program and fail to attract customers to the stores. That is why in 2006, Sears restructured its operations and these operations are run by people with little retailing experience. It showed that Sears does not care about the quality of the service. Thus, Sears used to successfully attract customers and made the annual sales increased, however, since the wrong strategy, their service cannot help them to appeal new customers.
Wal-Mart added another financial service across the country last year. This retailer announced in Apr, 17, 2014 that customers can transfer money to and from any of its 4,000 stores in the U.S. and Puerto Rico. This financial service is not new to Wal-Mart customers. According to Touryalai (2014), Wal-Mart has played the role as a bank for a long time. This company once fails to get a bank charter. After this, Wal-Mart tried to use other ways to provide financial services to customers which also included the new financial service announced recently. The aim of Wal-Mart’s service is that earning money by providing service and keeping shoppers stay longer in stores. Based on Ben Jackson (2014)’s understanding, who is the senior analyst at Mercator Advisory Group, a payments and banking consulting firm, offering financial service is an extension of Wal-Mart larger financial service strategy. Another service Wal-Mart has is that the company establishes the new partnership with DirectHealth.com in 2014, which can help consumers to shop for health insurance. “This approach is similar to what we saw with Wal-Mart’s retail clinic strategy, where they leased space in their stores to local health systems rather than operating their own clinics,” said by Alicia Daugherty, who leads the Advisory Board Company's marketing and planning research. Partnering with DirectHealth.com also helps Wal-Mart to know how consumers shop for health plan.
Comparing these two companies’ performance in service area, both two companies made some effort to service customers and to satisfy them in order to keep them stay longer in stores. From the statements of income of Sears in fiscal year 1997, the merchandise sales and services section showed the increase trend than the two previous fiscal years. Therefore, the total revenues of Sears in 1997 are $41,296 million, which is 3,232 million more than 1996. With more and more evidence showed that Sears is not as it used to be, investor needs to consider whether Sears is still worth investing. Due to the wrong strategy and leadership method, Sears does not provide high-quality service in stores. Shoppers will not feel satisfied if only the product and the service are good. The service shows company’s attitude towards customers. However, the CEO of Sears, Edward Lampert claims that inventory reductions, expense management and a ‘member-based’ business model will save the company instead of focusing on retail business and improving service quality. If Sears cannot improve their service, it will not enjoy the decreasing popularity in once enjoyed.
However, Wal-Mart is doing a totally different service strategy. Financial service The company keeps consumers staying longer in stores by providing financial service, not only the money transfer service, but also let licensed agents to help consumers shop for health insurance and navigate Obamacare’s health insurance exchanges. Wal-Mart keeps customers stay longer and then gets profit by financial service. According to Mercator’s Customer Monitor Survey Series, in 2013 14% of consumers sent transferred money to friends and family up from 9% in 2012. Multi-service helps Wal-Mart to compete with transfer giant such as Western Union and MoneyGram. Jackson explains this by saying “If a customer’s wallet is filled at a Wal-Mart store, then it’s likely the customer will do some incremental shopping there too.” It is true that Wal-Mart’s goal is becoming a shopping place that offering multi-services. Thus, only comparing the two retail companies in service area, Wal-Mart is doing better in keeping customers longer in stores and getting profit by service, however, Sears Credit service is old-fashioned and the company is lost in the retail trend.
Business Strategy
During the fiscal 1997, based on the idea that “make it more attractive for customers to purchase goods and services from the retail and services businesses”, Sears, Roebuck and Co. drove its operation in selling credit cards through its own brand, which allowed the products to offer by Sears, Roebuck and Co.’s domestic credit operations. The results of operating credit business are that the sales of products and services increased 8% than previous year. In the exhibit 7 of Edwards’ research, it showed that Sears credit card was sold as 55.1% of its total sales. As a result, Sears gained 1.30 billion dollars as the net income before noncomparable items in 1997, which grew 4.8% per share to 3.27 dollars from previous year. During the fiscal 1995 to 1997, Sears distributed its business as home stores, full-line stores and auto stores. According to related researches, “the home stores showed a growth of 6% over total sales area”. On the other hand, the full-line stores and auto stores decreased 5% on total sales. The credit policy reduced Sears’ operational costs and increased its income. Moreover, Sears also accepts credit and debit cards from third party; its purpose is to maintain the penetration of credit products in all sales and service sections. The net income of Sears benefited from this policy, which showed in description of business in fiscal 1997.
For Wal-Mart’s part, it respectively operates business as Discount Stores, Supercenters and Sam’s Clubs. Wal-Mart started to combine full-line supermarket and discount store as Supercenters in fiscal 1988. In the Edwards’ exhibits 8 of Wal-Mart’s description of business, the total balance of conversions of Wal-Mart discount stores to Wal-Mart Supercenters were increasingly growing, and Wal-Mart gained a considerable increase of income on Supercenters. In the same report as Sears’ research, the discount stores of Wal-Mart decreased around 2% over the total number of premises; the super centers grew 134% and Sam’s clubs grew 2% of the total of their respective premises during fiscal 1995 to 1997. Wal-Mart mainly invested on its conversion of super centers and gains a valuable return through it. Besides, with the classical slogan “always low prices”, Wal-Mart becomes increasingly competitive than most of retail stores.
To compare these two top enterprises, they show us totally different ideas on business strategy. The results as the data of exhibit 2 and 8 showed, Sears, Roebuck and Co. gained many profits based on its credit business in fiscal 1997, but the total sales at Sears fell a bit unlike those of Wal-Mart rose. Also, the retail store revenues per selling square foot of Sears were 318 dollars in fiscal 1997, which were different from Wal-Mart’s 337.35 dollars. Thus, Sears’ strategy was not advanced like Wal-Mart’s. A report from Crain Communication Inc. stated that the move of Sears’ issuing MasterCard was outmoded. Customers got lower interest rates on their bank cards and “offering sweet rewards programs are using the Sears store card less and less”. Sears cannot compete with discount stores like Wal-Mart under this situation. In contrast, Wal-Mart aimed at the needs of customers and developed many substantial supercenters which supply articles for daily use on low price. That is, conversion of discount stores to supercenters not only increases the income of Wal-Mart, but also successfully attracts increasingly number of shoppers.
Assets, Liabilities and Stockholder’s Equity

These two charts showed the total liabilities and stockholders’ equity of Sears and Wal-Mart in 2014. From the first chart, it is clear that the total stockholders’ equity decreased in 2014. At the beginning of 2014, the total stockholders’ equity of Sears is 1, 739, 00 million dollars, then in November, the number decreased to 126, 00 million dollars. The total liabilities and stockholders’ equity also decreased 3,092 million dollars, from 18,261 million to 15,169 million dollars. The total assets of Sears and Wal-Mart in 2014 are also displayed in these two charts. By 10/31/2014, the total assets of Wal-Mart are 207,889 million, which surpassed the total assets of Sears (15,169 millions) a lot. The general trend of total assets of Wal-Mart in 2014 in increasing; but for Sears in 2014, the general trend is decreasing. The first chart illustrated that all the assets, liabilities, and stockholders’ equity have the decreasing trend, therefore, it is hard to estimate that Sears can perform well in 2015.
In addition, the above chart showed an obvious phenomenon that the Sears holdings shareholders equity rapidly declined from 2012 to now. Thus, investors would face a big risk when they consider participate Sears shares. New investors should begin to shift their goal to other optimistic enterprises.
Conclusion
In conclusion, this paper compares Sears, Roebuck and Co and Wal-Mart Stores, Inc. in four different areas: marketing, service, business strategy and assets, liabilities and stockholder’s equity. Wal-Mart outperforms Sears in marketing due to its outstanding marketing strategies. Wal-Mart occupies a bigger market share than Sears in terms of its guaranteed low prices, easy access, all types of products, and social media campaigns. Sears relied on its flawed Shop Your Way rewards system and consequently ignored the customer preferences over the years. Wal-Mart also does better than Sears in service area. By offering money transfer service and helping customers who have problem in health plan. However, Sears failed to improve their service due to several wrong strategies. Moreover, Sears relied on its special credit business strategy to gain many profits, but it was outmoded. In contrast, Wal-Mart made an excellent decision that transforming Wal-Mart Supercenters and keeping low price to attract more shoppers. By looking at the balance sheet of these two companies in 2014, Wal-Mart has an increasing trend in assets, liabilities, and stockholder’s equity, comparing to Sears has an decreasing trend in 2014 whole year and the three previous years. Therefore, Wal-Mart is more worthy of investing than Sears.

References
Bagons, S. (2013). Top Marketing strategies that can be Learned from WalMart. Retrived from http://www.moneynewsnow.com/2013/09/top-marketing-strategies-that-can-be-learned-from-walmart/
Crain Communications Inc. (2000). Credit card push won't recharge Sears' strategy. Retrieved from http://www.chicagobusiness.com/article/20000506/ISSUE07/100013930/credit-card-push-wont-recharge-sears-strategy
Loeb, W. (2014). Why Sears Is The Dying Dinosaur Of Retailing. Retrieved from http://www.forbes.com/sites/walterloeb/2014/05/30/merchandising-takes-center-stage-except-at-sears/
Nutsch, M., Kacani, R., Seely. M., Green A., & Eagle, W. (2004). Sears, Roebuck and Co. G5 Investment Group. Retrieved from http://mmoore.ba.ttu.edu/ValuationReports/Sears.pdf.
Sears, Roebuck and Co. Profile. (2015). Retrieved from http://www.hoovers.com/company-information/cs/company-profile.Sears_Roebuck_and_Co.43310043b174fa41.html
Touryalai, H. (2014). Walmart's New Money Transfer Service: Should Banks, Western Union And MoneyGram Be Nervous? Retrieved from http://www.forbes.com/sites/halahtouryalai/2014/04/17/walmarts-new-money-transfer-service-should-banks-western-union-and-moneygram-be-nervous/

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