When it filed for bankruptcy in October 1975, W. T. Grant (Grant) was the seventeenth largest retailer in the United States, with almost 1,200 stores, more than 82,000 employees, and sales of $1.7 billion. It had paid dividends consistently since 1906. The collapse of Grant came largely as a surprise to the capital markets, particularly to the banks that provided short-term working capital loans. 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. Its failure serves as a classic study of poor implementation of what seemed like a sound business strategy. What happened to Grant and why did it happen are questions that, with some analysis, can be answered. On the other hand, why the symptoms of Grant’s prolonged illness were not diagnosed and treated earlier is difficult to understand.
Using the narrative information and the financial data provided in Exhibits 3.38–3.43, your mission is to apply tools of financial analysis to determine the major causes of Grant’s financial problems. If you had been performing this analysis contemporaneously with the release of publicly reported information, when would you have become skeptical of the ability of Grant to continue as a viable going concern? To assist in this analysis, Exhibits 3.44–3.46 present selected ratio and growth rate information based on the following assumptions: Exhibit 3.44: Based on the amounts as originally reported for each year (Exhibits 3.38 and 3.39).