City Furniture and Mattress Company Analysis - Case Study Example

INTRODUCTION and current situation: This report is about Furniture And Mattress Company which is serving the need of the people in terms of providing them with furniture goods. Currently the company is going through financial turmoil and is facing various internal and external challenges. City Furniture and Mattress (CFM) was previously working with four stores which in the end manage to hold two of its stores one at Greater Toronto area and the other at Pickering. In this report internal and external challenges will be discussed and will give possible solutions and recommendations for overcoming these problems and will device a road map for CFM to carry out proceedings in this competitive market and what possible ways company can measure in order to increase its sales. EXTERNAL challenges: City Furniture and Mattress is currently going through turmoil and has to bear several internal and external challenges. The magnitude of these challenges is affecting the growth and productivity of the company and is causing curiosity and tension in the mind of Rajeev Singh in order to take the decision of either pursuing the business or putting it to an end. There are several external challenges that CFM has faced which are highlighted below: Industry going through turmoil: One of the foremost challenges that Rajeev Singh has to look into account is current industry trends. Within last ten to fifteen years the furniture market has changed dramatically. Initially the consumption of local furniture was at peak. A significant amount of furniture sold nationwide was manufactured in Canada. The rest had exception because the kinds were not easy to make here. More people are now using Asian furniture and which is the reason why it is dominating the furniture industry for several reason. First the affordability factor which somehow resulted in changing people’s perception (though designing may be the case) in terms of buying furniture. Another possible reason is the mass use of leather furniture which some how allows small businesses to display in their stores. Because of the customization process as they have limited amount of colours to select from them so naturally will give them edge of installing these furniture in their display centres. Solution: Rajeev should follow the same trend as the market. Since the perception of people has changed in customization of their rooms. Another possible solution is to enhance the in house manufacturing of furniture and try blending quality with affordability; it will help easing the nerves. Branding or brand endorsement as a challenge: Generally in a furniture industry, furniture doesn’t directly endorse brand name to the customers or in other words in most cases customer doesn’t know which brand or company manufactured his or her furniture. As a result copying designs or making replica of these designs are a common practice. As there is lack of brand recognition and customers are mostly unaware of the fact that either they are using the original product or they are just using replica. Solution: Like many companies Rajeev should focus on making a brand name (brand recognition) or doing brand endorsement It will in the end be fruitful in number of ways. For instance it will first make a different identity of his product with the sense of brand recognition, other furniture companies will less likely to copy his designs and the second purpose will be promotion. Since Rajeev is only left with two stores one at Toronto and the other at Pickering. The Pickering store has low traffic in terms of client tale so if brand endorsement is carried out correctly it will in the end result in uplifting the sales. Open market as a challenge: Open market is another challenge that Rajeev faces, because of the current situation that customers are usually surveying the product in various different shops and then finally passing verdicts of having one for their own. This leads towards the open market, with new companies entering the market needing only upfront inventory cost depending upon the volume they want to start their business with. Solution: Rajeev should try contacting these new stores and provide them with the furniture. It will eventually be fruitful in so many ways. For instance if someone agrees to take furniture from him and display in his store he will have an extra display centre, an extra spacing in his current warehouses, plus he can continue making his furniture in house without being worried too much about the finance or he can even do direct sourcing at larger scale because of the induction of new stores in his arsenal. Competition: Competition is another challenge faced by Rajeev. As nowadays survival of the fittest is the concept. With the new companies entering the furniture industry giving customers a variety of choices and changing the mind set of customers as customer is unaware of the brand recognition in most cases so almost everybody has chance to do well. Solution: Rajeev should try to lower his prices as this is the need of the day and in the end will help him competing with the market. This can be done by tracing the direct source and try buying from them directly rather giving profits to middle man or agencies. Or another way is to change the theme of the furniture try having new styles and innovations which are not easily available in the market in this way he will able to take profits as per his liking because of the uniqueness of his furniture. Internal challenges Sales: As sales play a vital role in the development of company in terms of resources. If a business is giving sales at regular intervals then it’s more likely to prosper and if it’s not then the concern arises. Likewise City Furniture and Mattress has sales issues as per 2005 records. Since it is operating from two different stores one at Toronto and the other at Pickering. The sales should be in great numbers but that’s not the case. Pickering store has various ups and down in terms of revenue generation. Solution: Pickering stores require more branding and more promotion. For instance placing an advertisement on newspaper would not be much effective as placing a permanent add on bus stop, railway stations etc. Another way is to affiliate his store with some social work for instance every mattress you sell have some proportion for the needy people as it will somehow manage to gain attraction and publicity will be automatically driven on a large scale. Customer service: Customer service is another main concern that Rajeev has to face. Customer service act as a backbone in sales, as in most cases the ability to deal with clients count. If a client is dealt properly there are more chances of him returning for shopping again and buying stuff from you. Solution: One fine way is to greet customer when he enters in the shop, try intermingling with customers by talking to them carrying a smile. This will ease their nerves and they will be more likely to stay more at your shop. Ask them about what they have in mind then tell them what you have to offer. Try not recommending them something instead use suggestion method. Give customers respect regardless if he is just shopping for a few hundred dollars or for several thousands. Send them greeting cards on occasions this will somehow keeps your connection alive with them. It would cost much but it can give you unbelievable results. Train your staff accordingly, and treat them well at work, built a positive environment at work it will generate positive energy amongst customer service staff. Inventory: City Furniture and Mattress is undergoing some serious issues in terms of inventory. Toronto store is full having no space at all while Pickering has some little space left to offer. This is a real source of concern as it will somehow affect the global sourcing program and also in many ways put muzzles in store expansion. Solution: Rajeev should look for the new furniture companies who are entering in the market and try persuading them for having his product in their stores or even give them on credit just to clear the space for new furniture goods. This will be a double win as Rajeev will have the desired space and doesn’t have to worry about selling that furniture. Or if that’s not the case then try searching for a new space. Or try selling the current stock on minimum profit and make sure to carefully select the next range for his stores. Delivery: Delivery is another main challenge that CFM has to face these days provided the fact that they are short in terms of employees and that delivery require more physical work and can drain the energies of employees and also require effective communication which at times was hard to carry by employees as they were tired. Solution: This problem can be solved by giving training to the current employees or by hiring new ones. Another way is to change the current payment mode and do not leave large portion of money on delivery. By doing this Rajeev could even use that money and outsource your work of delivery to some other person or persons. Evaluating the options that Rajeev has To increase the profitability of company Rajeev undergoes the three different possible strategies that he can work upon. Those were namely, network expansion, global sourcing and vertical integration. Evaluating Store network expansion: Rajeev had a firm believe that there are still chances and possibilities of network expansion besides the City Furniture and Mattress has previously shut down two of its store due to lack of productivity. He believed store network expansion can be fruitful provided that the selection of place for the store is done with utter most care keeping demographic values under consideration as well. Positive attributes of stores expansions and possible results: From his experience Rajeev had a firm believe that setting up a new store and increasing up a sale is not that tricky in furniture industry provided placement of store is done properly. Store expansion can give extra edge for increase global sourcing. Store expansion may serve to fulfill advertising opportunities. Risks involve in store expansion: Finding a right location for store is a challenge. Additional investment of around 100,000$ to 200,000$ required for new stores filling up purposes and new delivery truck induction will again cost 50,000$. Additional staffing which is not very easy to find. Evaluating increased Direct and Indirect Global Sourcing: Direct and indirect sourcing played vital role in the development of CFM and has its own demographic value. Through experienced gain by the company in terms of choosing furniture proved to be fruitful and resulted in giving high margin profit to the company. So effectiveness of direct and indirect sourcing cannot be negated. Positive attributes of direct and indirect global sourcing: Company can grow through direct and indirect global sourcing. Currently 50% were locally manufactured 30 % are indirectly sourced and 20% are directly sourced from Asia. Profit margin can be increased through direct global sourcing as the profit share of middle man or agencies would not be there if company buys furniture directly. Indirect sourcing has its own advantage in a way that it has easy paying structure and it has minimal risk in terms of product quality. Limitations or risk involved: It requires a bulk of money. (150,000$ for material) Extra spacing or new stores are required costing around 10,000$ as a rent. Too risky at current market situation the profit margins will be hard to come by because of competition. Evaluating vertical integration: Rajeev had no experience in terms of manufacturing furniture so he asked his father to help him in this regard. As manufacturing is not a piece of cake, certain things should be considered like professionalism, product knowledge, knowing about the source where to buy raw material from and skilled labor. Positive attributes of vertical integration: His father as a helper can tell him about the “in and outs” of the work giving all possible knowledge about products where to buy raw material from, how to make, what necessary equipment they require etc. They can increase their profit margin up to 15 to 30%. If production is huge they can out source. Limitations or risk involved: Company plans to only manufacture for it in a longer runs and sometime later they will out source or make furniture for other companies as well. Issue regarding skilled and full time employees. Rajeev’s decision of vertical integration: In my view the decision of vertical integration was not completely correct as Rajeev missed the trick of interpreting the solutions for profit gains. The first and foremost reason that goes against this decision is lack of availability of full time employees. Another reason is that he was himself not very experienced. The lack of productivity on time is another issue as sometimes stores did not have the desired model they were looking for so as a result they were forced to buy it from other companies. Another important reason is making of replica. The employees working at the company were unable to copy designs of some complicated models. Therefore all these reasons reflect that the decision taken by Rajeev was not appropriate. What Rajeev Singh should Do? Currently CFM is going through a financial turmoil under the leadership of Rajeev Singh. And has various important problems that need to be rectified in order to bring company back to its full flow. The competition in the industry has increased to a great extent. All these factors have negatively influenced Rajeev. The problem Rajeev has been facing with the building owner has further increase the magnitude of the situation. Rajeev knew that the company can do a lot better with a little more advertising and branding. According to me, Rajeev could rebrand its company. As there are already several firms making replica brands, but there are only few offering unique designs. Rajeev could differentiate CFM by coming up with innovative designs and unique style. Rajeev could position itself as the innovative firm in the industry rather than a firm that is copying or manufacturing replica versions. Although, this would reduce the cost of the company but with this, Rajeev would be able to differentiate its company among other firms in the market. Also with this strategy, the profit margin would also increase and Rajeev would be able to cover the higher cost of manufacturing innovative and unique style designs. By using the strategy of differentiation, Rajeev would be able to make the company stand out from the competitors and the company could be easily recognized particularly when the competition is high. Because of Rajeev also starts offering replica designs then it would be of almost no use. However, following the strategy of differentiation would require capital as the furniture will be produced at a higher cost and the company also has to increase its marketing budget. As Rajeev is lacking sufficient cash flows therefore to finance its new strategy and marketing campaign, then it could either look for investors or financial institutions or even it could have a joint venture with another company. These options can be viable in having more capital and Rajeev would be able to position CFM better in the market. With the increasing problems from the current location, Rajeev needs to analyse other alternatives as well. it is important that he does not only consider the cost factor while evaluating the other options, but he needs to consider important aspects like feasibility and convenience for customers, turnover of customers at this location, surroundings of this location, transportation expenses, cost of changing location etc. By analysing these factors, Rajeev would be able to identify whether he should change his location or not. The concept of differentiation looks feasible as it would allow the company to distinguish itself from a number of competitors that are offering replica designs. However capital would be required by the company and that can be attained in the form of either joint venture, partnership or may be a bank loan. Bibliography Dubrin, A. (2010). Essentials of Management, South Western USA, Cengage Learning. Glueck , W. (1980). Business Policy and Strategic Management, New York, McGraw-Hill. Johnson, G., & Scholes, K. (2001). Exploring Corporate Strategy: Text and Cases, 6edition, London, Prentice-Hall. Read More