W.T. Grant Case Essay

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September 9, 2010 Case 3.3 W.T. Grant During the mid 1960s Grant was determined to modify its strategy and align itself in a different section of the market. One aspect of this strategy was to rapidly expand into suburban shopping centers and on the other hand, Grant also wanted to modify its product line (product mix). This rapid expansion required Grant to increase their physical store space to accommodate new items in their existing stores, in addition to an overall change in product mix (including larger items such as furniture and appliances). Not only did they have to increase their existing store space, they also needed to sequester new properties (which they did via long-term lease agreements) in suburban areas in order…show more content…
The company’s increase in inventory (illustrated on the statement of cash flows) rose after 1970 and culminated by a drastic increase in 1973. This increase in inventory (especially in 1973) appears to be heavily financed by short-term and long-term borrowing rather than the typical accounts payable. This is a bit unusual and in 1973 (when they acquired the greatest amount of debt equity, their accounts payable decreased. Their sales were not sufficient to offset the large outflows of inventory related costs. Furthermore, Grant’s decentralization was also a cause of their financial woes because rather than corporately controlling credit extension and credit terms, they allowed each store manager to set their own policies (and manipulate them as they desired). This disastrous policy imploded in 1975 when the company had to make a $155.7 million provision for bad debt expense. So not only did the company have substantial debt and bad debt to equity ratios, they were forced to write off about 8.8% of their total sales from 1975. I would have become skeptical of Grant’s ability to continue as a viable going concern around 1973. Grant had accumulated substantial long and short term debt and simultaneously raised inventory levels, I would have been lead to believe that the company feared its ability to increase short and eventually long term sales. More specifically, in 1973 Grand also acquired
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