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
