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Business Model Analysis of Wal Mart and Sears While both companies belong to the retail industry (where

sales of products and services are the source of business), Sears and Wal-Mart have very different business models. Making an analysis of the profitability of the shareholder can be seen that although both companies have similar returns, the source of this return is different. As shown in the table above, both companies have returns on capital near 20%, although the source of profitability differs among them. In the case of Sears the main source of value creation is the rotation of the assets of the estate. This high turnover can be explained largely by its funding through debt, allowing the assets represent a minor portion of the assets. Wal-Mart for its part has a high turnover of assets on their sales. This product of your business model focused on selling high volumes, thus increasing the profitability of their assets. Looking at the ratio (total liabilities / assets) of both companies is evident in the case of Sears a ratio of 5.93 times, while in Wal-Mart, of 1.38 times. For the foregoing and in view of the increased risk associated with debt, the profitability required by the shareholders at Sears should be greater than that required to Wal-Mart. During fiscal 1997, Sears drew much of its operation (55% of its total sales) in selling credit cards through its own brand, creating a financial business that accounted for 48% of its operating revenues in the same year . In turn the sales of products and services grew 8% over the same period of previous year, but there was a reorientation of its premises, reducing the share of its Full Line Stores, based on its retail business (78% of the physical space available for sale), and giving way to growing its chain Home Store (offer more specialized products), which nearly tripled the footage of its stores between 1995 and 1997. In fact, during the period 1995 to 1997 shows a shift in Sears in the distribution of their premises, with a growth of the smaller premises (Home Stores) and a reduction of the largest local (Full Line Stores and Auto Stores) . The Home Stores showed a growth of 8% over the total number of premises, about 5% of the total area and 6% over total sales area. For their part, the Auto Stores and Full Line Stores showed a decrease of 6% over the total number of local, 4% of the total area and 5% on total sales area. This shift suggests a possible change in its strategy mix of premises to a larger number of local small to increase participation and geographic change the mix of products (looking for penetration and targeting). But this change increased the amount of closure of premises, probably because of a bad identification of the locations and / or products offered, and an inefficiency in terms of sales per square foot, as befits a local strategy less concentrated. This can be seen in increasing the percentage of closed premises on the premises of a total of 3%, and the reduction in sales per square foot to $ 5 .-, the previous period. This credit policy coupled with the change in the mix of its products, reducing their operational costs and increasing their income from securitization of its receivables, it gave Sears in 1997 contribution margins high (35%) but Sales volumes lower in relation to the size of its stores (compared with previous periods and with Wal-Mart). Wal-Mart for its part, is basing its strategy of retail stores in 3 formats: Discount Stores, Super Center and Sam's Club. In 1997 participation in square meters by type of store was 61%, 21% and 18% respectively. Its business model is based on sustained growth in the quantity and size of premises, offering a wide range of products at highly competitive prices (contribution margin of 21% in 1997), and the flexibility of different means of payment for its customers, not incorporated into their business risks and profits of the credit market. During the analysis period 1995 to 1997, Wal-Mart also presented a shift in the distribution of their premises, but with considerable growth for larger premises (Center Super Stores). The Discount Stores (smaller local) showed a decrease of 2% over the total number of premises. For their part, the Super Center stores showed a growth of 134% and Sam's Club 2% of the total of their respective premises. This shift suggests a possible change in its strategy mix of premises to a larger number of local large to

increase efficiency in sales. This can be seen in increasing sales per square foot of U.S. $ 22 .-, during the period in question. Wal-Mart defines its slogan "Always Low Prices", which is a true reflection of its pricing strategy. Therefore generates high volume sales with growth rates above 12% in 1997 and 1998. Analysis of State Results In 1997 retail sales at Sears fell 1%, unlike those of Wal-Mart rose the same percentage. Likewise, sales per square foot Sears were U.S. $ 318 .-, against U.S. $ 337 .- Wal-Mart. By observing the evolution of the types of buildings on each of these chains shows that between 1994 and 1997 96% of the new premises were Sears Auto Stores and Home Centers (40% and 56% respectively), while for Wal -Mart for 90% of new premises were Super Centers. Continuing with the analysis of income, it is noted that while Sears continues to grow, has seen its deteriorating growth rate (9.3% in 1996 over 1995 v / s 8.5% in 1997 regarding a1996), especially in income from business lending (16.5% in 1996 over 1995 v / s 14.2% in 1997 regarding a1996), compared with Wal-Mart maintains that its levels of growth (12% in 1996 over 1995 v / s 12.4% in 1997 regarding a1996). In relative terms the business of credit Sears has increased its share on total revenue (10.9% in 1995 to 11.9% in 1997). This can increase the level of risk due to the fact that there was an increase in levels of bad reflected in the increase in the provision for this item (64.9% in 1996 over 1995 and 57.8% in 1997 regarding a1996). While the Net profit at Sears and Wal-Mart was 3% in 1997, the first of these the growth of its provision for uncollectible accounts expenses (58% in 1997; 4% of total sales of goods and services) It generated pressure on the outcome. Additionally, the low development costs of administration and sales (only 3% more than in 1997), less than half the sales development in the same period, although in that year the company joined 159 local suggest a possible restructuring. In general, and for a period of 3 years, it is noted that the results of Sears were in sharp decline. By contrast Wal-Mart is stable and growing. Indeed, the final margin of Sears (end profits on total sales) suffered a decrease of 44% (increased from 5% to 3%). By contrast Wal-Mart this ratio grew by 2%. It should be noted that despite some unusual events that affected Sears during the period 1997, the subsequent analysis of the financial situation of this company shows that during the 3 years analyzed, strategies and the management of it have been unfavorable to the results . Analysis of State of Cash Flows Scenario: Considering that both companies sell a similar mix of products, and therefore are assigned to similar value-added taxes of these products, is disregard the effect of these taxes in calculating the average period of recovery in sales and payment of operational duties. On this course was determined to further the relationship between the two companies the average number of days for recovery and payment. Regarding the cycles of cash, Sears introduced a period considerably greater than that of Wal-Mart (153 days v / s 33 days). The main difference is observed in the permanence of accounts receivable, with 182 days for Sears to 3 days of Wal-Mart. This occurs because of the different business models that use both companies: Sears maintains high balances of accounts receivable proceeds of the sale with his own credit card, while Wal-Mart in the balances of these accounts are then sold mainly to low cash or credit cards from third parties (it is assumed that all of the credit card transactions are paid for third at the end of each month). Additionally, noting the balance of Sears shows that short-term debt is a considerable departure, it is assumed that they finance the balance of accounts receivable. The interest charged on credit cards themselves should be greater than the debt, generating a profit for the company, but increasing the risk to develop a potential loss for uncollectible accounts. Another important difference is observed in the average number of days for payment of obligations operational. While accounts payable to Sears for approximately 95 days remaining, the Wal-Mart do it for only 33 days. Assuming that both companies are paying their bills on the due date, Sears would have a major strength at this point it pays its suppliers 62 days after Wal-Mart.

In relation to the cycle of recovery / payment of both companies noted in a period of 2 years that Sears, for each day that a delay in paying its operational obligations, increased its period of recovery from its operational accounts. By contrast Wal-Mart declined this relationship. In 1996, Sears took 1.8 days on average in their operational accounts receivable for each day they delayed in paying its operational obligations, and in 1997 this ratio grew by 5%. For its part Wal-Mart in 1997 took 0.1 days on average in their operational accounts receivable for each day they delayed in paying its operational obligations, and in 1998 this ratio decreased by 2%. We conclude that receivables Sears presents a cycle / payment much larger than Wal-Mart, and that during the analysis period, Sears presented an inefficiency in its cycle versus Wal-Mart. This will directly affect their states of operational cash flows, with year-end 1997, a negative flow in the event of a positive and Sears in the case of Wal-Mart. As cash flow is operating at Sears noted a significant increase in the provision for uncollectible accounts. This product as a continuous deterioration of accounts receivable (at a rate of 1% on annual sales). Also called attention to the increase in accounts receivable (both accounts transferred as accounts held by the company), which grow between 1996 and 1997 at rates that are considerably higher than sales growth. If the percentage of sales with credit cards has presented a small decrease, it can be said and to see from the above ratios, that the timing of recovery of accounts have increased. The operational flow of Wal-Mart is quite healthy, because it shows an upward trend coming in 1997 to represent 6% of sales, versus -1% representing Sears in the same period. With regard to the flow of investments in both companies represent the largest item purchases of land and equipment. In the case of Sears investment in 1997 represents 3% of sales, against 2% for WalMart. Taking the flow of investment capital and accumulated, for the years 1996 and 1997, Sears noted in a deficit of $ 551 .- MMUS, which is financed by debt. Wal-Mart for its part submitted for the same period a cumulative positive flow of $ 2913 .- MMUS, which is mainly used to repay debt. Analysis of Balance The rotation of total assets is higher than in Wal-Mart Sears (Sears 1.05 in 1996 and 1.1 in 1997, WalMart 2.68 in 1997 and 2.81 in 1998) because the business Wal-Mart is based on a policy of low prices, which means lower margins but higher sales volumes. This is also reflected in the rotation of working capital, net (Sears: 2.82 in 1996 and 2.91 in 1997, Wal-Mart: 15.09 in 1997 and 20 in 1998) in which the spread of Wal-Mart is even greater as a result of lower levels of working capital, net (Sears: 13,497 in 1996 and 14,892 in 1997, Wal-Mart: 7036 in 1997 and 4892 in 1998). In relation to total assets, the net working capital is more significant for Sears (Sears 0.37 in 1996 and 0.38 in 1997, Wal-Mart: 0.18 in 1997 and 0.11 in 1998) by maintaining higher levels of accounts receivable proceeds of your business credit. The ratio fixed assets on total assets (Sears 0.16 in 1996 and 0.17 in 1997, Wal-Mart: 0.46 in 1997 and 0.47 in 1998) also reflects the greater weight of the accounts receivable from Sears by your business credit. In analyzing the value per share for Sears in 1997 shows that this increased 5% for the year 1996 (not considered non-comparable events), which rose 12% against the Wal-Mart in the same period.