W.T. Grant Company Case

W.T. Grant Company Case

Prior to the mid-1960s, W.T Grant Company placed its stores in urban locations with low-priced soft goods to lower-income consumers. Grant had altered its business strategy in the mid-1960s to transform itself from an urban discount store chain to a suburban house goods store chain. Unfortunately, in 1975, the company filed for bankruptcy.

According to the case, between 1963 and 1973, Grant opened 612 new stores and expanded 91 others. The exceedingly rapid overexpansion caused a huge problem regardless of existing rivalry companies, such as Kmart. Firstly, Grant needed to invest a huge amount of capital and much of the capital obtained by commercial paper, bank loans and trade credit. Additionally, the change of its product line incurred to invest larger amount of furniture and appliances. Exhibit 1 showed that PPE accounts had increased year by year after 1968, and between 1972 and 1973, the amount increased much quicker. These substantial financing and investing cash outflows during the years could not improve cash flow from operations. Indeed, the cash flow from operations began to decline from 1969 and would never be recovered from then on. Typically in 1973, cash flow from operations reached to be negative $114,266 (Exhibit 3.42). Furthermore, the percentage of operating cash flow compared with total liabilities decreased superiorly especially in 1973, which obtained a negative 16.4% (Exhibit3.44). Even though, the net income during these years was still positive except in 1975 when Grant entered intro bankruptcy.

Grant’s credit system was a crucial problem as well. Based on the case, Grant permitted customers 36 months to pay for their purchases; minimum monthly payment was $1 regardless of total purchase. The credit system stimulated customers to purchase expensive appliances and furniture in order to increase sales and net income, while it had negative effect on the company’s cash flows. In...