Walmart Finance Case

Q1) Several aspects have been identified that indicates the differences between Sears and Wal-Mart in terms of their retailing strategies:

 The way these two companies started up their businesses differ from one another. While Sears originally operated as a catalog business, Wal-Mart began as a single store in a small rural community.

 Whereas Sears had four specialty chains, namely home furnishings, hardware, tyres & batteries and auto parts, Wal-Mart did not have such specialty chains.

 Sears did not remain as a retailer only and expanded its operational fields into financial services and real estate. Wal-Mart, on the other hand, also operated Sam’s Club membership warehouses and Wal-Mart Supercenters to compete on price.

 Sears’ marketing strategy which focused on the target audience of middle-class female shoppers as a result of the re-orientation of product mix in stores was conveyed via the slogan, ‘Come see the softer side of Sears’. On the other hand, Wal-Mart’s marketing idea was to implement a competitive pricing on anything which was explicit in its slogan, ‘Always low prices’.

 To enable customers to pay more flexibly over time, Sears provided proprietary credit cards which could only be used in its own stores, whereas Wal-Mart did not have a proprietary credit card and its customers could acquire a MasterCard issued by Chase Manhattan Bank.

Q2) In order to analyze the reason why average of Sears’ ROE is better than Wal-Mart’s for 1997, Du Pont equation is utilized. The average ratios, components of Du Pont analysis, are calculated separately for Sears and Wal-Mart according to the two fiscal years’ data (see Appendix A). From the 1st level Du Pont Decomposition (ROE = ROA×EM), it is understood that even though Wal-Mart is better in terms of asset profitability (ROA), Sears takes advantage of equity profitability (ROE) thanks to its