W. T. Grant Case
Grant was once one of the largest retailers in US who differentiate itself as a low cost urban chain store. However, as the competitive environment within the industry changed, W. T. quickly altered its corporate strategy, which eventually brought them into bankruptcy and liquidation in1975. Basically, the fatal factors that led to Grant’s failure could be summarized as follows: •Extension of credit to customers Apparently, Extension of store credit is the major reason that influences Grant’s financial condition.Probably, the setup of this credit system is just a corporate strategy that aims to attract more customers, especially when Grant was rapidly expanding its new retail stores into suburban areas.
However, Grant set the rule that allows all the customers to pay for their purchases within 36 months with the minimum monthly payment of only $1 regardless how much they owe. This extreme action actually blocks the company’s cash flows to a large degree. Also, the management made no effort in evaluating the customer’s ability to pay, which directly increase company’s credit risk. Decentralized organizational structure The decentralized organizational structure also harms the company in terms of the credit risk and efficiency. Since each manager separately controls its own credit extension and credit terms, it is likely that some customers may own several credit accounts in different chain stores, which again, increase the credit risk. Moreover, due to this organizational structure, Grant does not have IT system that is able to check the availability of certain products in another store, which reduces the efficiency of the business.
Poor management decisions and the compensation plan Management should be liable for the Grant’s bankruptcy as they made inappropriate decisions and compensation plan. As the credit risk issue rose early in 1970, no actions have been performed to alleviate Grant’s poor financial condition. Probably due to the management compensation plan which allows them to be compensated as a percentage of the store’s sales, management thus have the incentive to maximize the sales rather than paying attention to the potential credit risks. Consequently, the company and shareholders’ value has been ignored.