Sears and Walmart

Sears and Wal-Mart are two of the biggest chain retail store in the United States nowadays. First part of the paper will be background of each company; follow by analysis of financial performances in each company and finally come up with suggestions for both Sears and Wal-Mart to improve their business mode in order to become more profitable business organization in the retail industry.

Sears founded in 1891 and started with a catalog business. During 1920s, they expended their business into retail stores. During the 1980s, they faced with the increasing competitive market place and Sears offered company proprietary credit card in order to build customer royalty and offered customers a more flexible ways to pay off their purchases. Core businesses of Sears included retail, service and credit. As of 1997, Sears had 3,530 stores nationwide.

Wal-Mart founded in 1962. As of 1991, Wal-Mart was the world largest retailer with net sales nationwide of $ 44 billions dollar. During 1990s, retail business became increasing competitive and profit margin across the industry went down gradually. In order to increase sales, Wal-Mart collaborating with Manhattan Bank in 1996 to issue a Wal-Mart Master card to facilitate customers to pay for their purchase. Core businesses included Wal-Mart discount store, Wal-Mart Supercenters and SamÐŽ¦s Club.

First, let us compare the overall financial performance of SearsÐŽ¦ and Wal-Mart. During fiscal year 1997, Sears had a steady increase of net revenue for 15% compare with previous year referring to exhibit 1. For Wal-Mart, net Revenue went up for around 12% in the same fiscal year referring to exhibit 3. However, it only generated around 3% of net income for both Sears and Wal-Mart during the year 1997 according to analyze from exhibit 1 and 3. Primary reason for both of companies having comparatively low net profit was high cost of good sold ÐŽV it took out almost 70% of its net revenue of Sears; 80% of the net sales for Wal-Mart.

Except low profitability, for Sears, there was a significant increase in uncollectible account ÐŽV Referring to exhibit 1, it kept increasing at a rate of 50% year after year. Sharpe increase from the uncollectible amount could been further explained by looking at the balance sheet of Sears ÐŽV 50% of the total current asset was Net credit card receivable during year 1997. This might suggest that Sears need to revise their terms on repayment of the credit card bill or had to establish a more strict credit background check on their customer. Wal-Mart had a comparatively smaller portion of account receivable ÐŽV It was only around 3% and increased in a rate of 15% a year which is roughly in the right proportion of increase in net sales per year.

Another problem that Sears facing was the high inventories level ÐŽV Refer to exhibit 2 and 4, inventories consisted of more then 50% of the total current asset. While for Wal-Mart, it roughly consisted of 40% of total current asset for fiscal year 1997. Although theoretically inventories had high liquidity, I suggest that SearsÐŽ¦s marketing group should do a better job on researching market trend and doing a better inventory forecast for next fiscal year.

Next, I would discuss about how Sears and Wal-Mart financed their growth. As referring to exhibit 2 and 4, total debt for Sears was almost 85% of the total equity and liability while Wal-Mart only allocated 60% of debt to finance their growth in fiscal year 1997. For Wal-Mart they used both equity