W. T. Grant - Downfall and Closure

Downfall and Closure

W. T. Grant's bankruptcy in 1976 was the then-second biggest in US history. While there is some argument over exactly which combination of decisions caused this, all these decisions were made by an unchecked management layer and the bankruptcy is considered the "beginning of the end of" idea that US company directors had complete control over their company and no obligation to the company's shareholders to make 'the best' decisions to maintain company value and survival.

The most apparent cause of the bankruptcy was the company's decision to extend store credit to all customers, with no attempt made to assess the customer's ability to repay. Each of the company's stores had credit managers who authorized the opening of store credit accounts, which resulted in many customers having credit accounts with more than one of the company's stores. In addition, there existed no centralized control or record-keeping of store credit accounts which resulted in noncollectable accounts. The credit was recovered in 1976 by Irwin Jacobs who with the backing of Carl Pohlad purchased their consumer accounts receivable account of $276.3 million for $44 million and 5% of first years sales (The Wall Street Journal July 30, 1980).

This initiative to extend credit to all customers was made in 1969, during a prosperous period in US history, when Grant was expanding into new areas of the US and hopeful of pulling customers from rival Kresge and other department-store companies. The low number of defaulters on small loans at this time meant that the credit arrangements looked like a good idea, but the complete absence of any credit check, and the low minimum repayment terms offered by Grant were extreme, even for the times. When the economic expansion slowed in 1970/1971 the balance shifted and the credit arrangement became more of a liability than an asset. No decision was made to change or halt this before 1974 when the company's collapse was a certainty.