Indian Institute of Management, Nagpur
A case analysis on
West We st Lake Home Furnishing Limited
Submitted to
Professor: Danesh Gojer
As an assignment for
ritten Analysis and !ommunication"#
Letter of Transmittal May $%, &%%'
(o, Mr) !harles *o+man !hief -ecuti.e /fficer est 0a1e 2ome 3urnishings 0imited
3rom,
Dhru. Sonagara4 !onsultant5
Subject: 6eport on +hether +est la1e home furnishings ltd) should accept the offer made by a large 7S" *ased retail chain)
(his report analyse the position of +est la1e +ill be in if organisation accepts the offer made by 7S based retail chain) After considering the aspects of income generated and e-penditure incurred, it is suggested that est 0a1e should accept the offer made)
Executive Summary 7S"based retail chain, one of the three major +holesaler, has proposed an offer to 8uintuple the sales of signature line decorati.e lamp by pro.iding prominent shelf space +ith a condition of to reduce its current price from 9;);; to 9&;);; for a period of one year) /ne side it offers this enticing increment in sales, on the other side, other t+o +holesaler +ould also demand such offer from est 0a1e +hich +ill not be appreciated) /nce prices are reduced it +ould also stop them to enter them into niche segment) *ut the offer made by is one of the prominent +holesaler, deal +ould reap greater benefit for est 0a1e) So it is recommended to accept the offer)
Contents
#) Situation Analysis)))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))# &) Problem Statement))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) $) /ptions A.ailable))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) <) !riteria for e.aluation))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) =) .aluation of the /ptions)))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) ) 6ecommendations)))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) ') Action Plan))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))
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1. Situational analysis &) est 0a1e 2ome 3urnishing ltd) +as considering an offer made by 7S based 6etail !hain) (he offer made +as to reduce the retail price of signature line of decorati.e lamps from 9 ;);; to 9 &;);;) In return, the +holesaler +ould gi.e that product a prominent shelf space +hich has the potential to 8uintuple the sale of that product) $) est 0a1e +or1ing in retail +hich is highly competiti.e) (he sales reaching o.er 9 &%% billion, it offers +ide selection of products in mar1et) *ig companies li1e almart and (ire accounting for one third share +hile remaining is captured by small companies, most of +hich has local presence) Sales in furnishing category has sho+n )#> !AG6 from the 9 ')b billion in &%%& to 9 ;)' billion in &%%) (his gro+th is commendable as !anadian retail industry as a +hole has sho+n the gro+th of =)$<> !AG6) In the same time, price of the products offered under furnishing are falling at high rate of #=>) (he baby boomers population of the age from <= to < earned high income and had higher le.els of home o+nership) As home o+nership rate rose, their spending also sho+n same trend) <) !ustomers of home furnishing typically patroni?ed small set of retailers and the larger retailers are generally the first choice as they offer @one"stop e-perience) !onsumers also .isit such store +hich e-pertise in one area li1e lighting store) =) (he mar1et for lighting, in retail, +as 9 ;%% million in &%%) (he peculiar thing is that no retailer ha.e more than &%> share in mar1et) Suppliers to such retailers are mainly of t+o type: importers of ready"made products in lo+ price segment and others are North American manufactures +hich offered attracti.e designs) Mar1et is highly fragmented and no retailer ha.e more than => of share) ) est 0a1e broadening its business into +holesale line of floor lamp, lighting fi-tures, started o+n retail store and +ebsite also) (ill #;;&, manufacturing +as done in"house at (oronto, after that outsourcing of production started to Asian countries) *y #;;;, half of the production +as done in china) And in &%%, only #%> production +as done in !anada) est 0a1e +as +or1ing on negati.e +or1ing capital and consistently profitable) ') est 0a1e /perates mainly in three +ays: +holesale, 6etail Store, Interned store) est 0a1es product +ere sold in main three national chains) (hese three chains represents almost '#> of +holesale sales) !onsumers +ere attracted to est 0a1e because of lo+er price and modern designs) B) est 0a1e has built up a retail store east of totanto, selling a broad line of home furnishing products) est 0a1es =%> stoc1 1eeping units are present in this store) *o+man estimated additional 9 $%%%%% sales, if he hires sales consultant +ith a cost of 9 B%%%%) ;) At the end of &%%=, est 0a1e entered into internet sales also) (hough share of sales through internet +as 9 &%%%%% only, small compared to other means but enjoys '%> margin) #%) /.erall, to achie.e steady #%"#=> gro+th per year est 0a1e need to put some effort into custom lighting and fi-tures department) Also needed to attract customer from interior decorators) ##) /ptions a.ailable in front of est 0a1e is to accept the offer made by retailer or not to) If est 0a1e accept the offer some of the issues are li1e, other t+o big retailers +ill also as1 products at lo+er price) /nce discounted prices are offered it +ill be difficult to enter into niche and premium segment) !ustomer +ill become +ary about the 8uality as it +ill be offered at lo+er price) *ut by accepting offer sales +ill rise and mar1et share can be increased) As they ha.e started retail store and sale through internet, re.enue can be generated from there, but still +holesale remain the big business channel) #&)
1!."ro#lem statement #<) Should est 0a1e accept the offer from 7S based retail chainC
1$. 1%.&'tions availa#le #') (here are t+o options a.ailable in front of bo+man as follo+s: A5 Accept the offer made by 7S based retail chain) *5 Decline the offer made by 7S based retail chain) #B)
1(.Criteria for evaluation A5 Sales increased *5 *rand .alue !5 6elation +ith other t+o retailers
)*. )1.Evaluation of the &'tions A5 (he offer made by retailer is hea.ily based on the increment in sales) (his offer is accepted +ill 8uintuple the sales of est 0a1e) (his is .ery big ad.antage as it +ill help to capture the mar1et) Sale +ill rise from =<<&; units to &'<' units) (his +ill increase some of the cost li1e sales, general and administration cost and +arehousing cost) Also +ill made +est la1e to ta1e line of credit) *ut o.erall, net income +ill rise from 9B&''= to 9;$B<) *5 *rand .alue +ill the issue needs some more consideration) As est 0a1e +ill start to sell at discounted price +ill be difficult to enter into premium mar1et after that) It may also be possible that customer after getting used to ne+ price may demand more discount) Also many customer +ill start to 8uestion the 8uality as it is offered at lo+er price) !5 hen other t+o big retailers +ill came to 1no+ about this they +ill also demand the products at lo+er prices +hich +ill 8uestion the supply from est 0a1e at discounted price)
)).+ecommendations &$) est 0a1e should accept the offer made by retail chain as it +ould reap many benefits) 0i1e it +ill increase the sales by four times) ith this it +ill gi.e the ad.antage of being in .isible range o.er shelf space) (his +ill gi.e competiti.e ad.antage o.er current competitors)
),. )$.-ction 'lan &) Some of the points needs to be ta1en care of +hile accepting the offer) Some of the steps can be ta1en are as follo+s: A5 est 0a1e need to ensure smooth production and supply from china as this consumes time and also in.ol.es uncertainty) *5 est 0a1e needs to come +ith strategy for the other t+o retailers, as sooner or later they +ill come to 1no+ about this offer) !5 Deli.ery to the stores needs to be 1no+n as accurately as possible, other+ise it +ill cause un+anted +arehousing cost) D5 ith +holesaling business, they need to concentrate the sales thorough internet as it gi.es .ery high margin)
).
)/. )(.Exhi#it $%) (he comparison of income statement in the years &%% and &%%') Numbers are in 7S9) 31.
Year
32.
20
33.
06
34.
Total sales
37. Sales to wholesales 40. Sales to retail chain 43. Price per unit 46. Nu!er o" units 49. cost o" one unit 52. #$%S 55.
S%&'
58.
S&(
61. )n*entor+,20 - o" sales 64. $peratin/ )ncoe 67. Ta 70.
Net incoe
35. 11 200000 38. 80 00000 41. 26 66666.67 44. 48. 993 47. 54 429.5444 50. 30 53. 16 32886.33 56. 71 0000 59. 19 6433.333 62. 65. 12 7347.003 68. 0.3 5 71.
82
775.551 7
'$) '<) '=) ') '')
'B)
200 7
36.
293 22959 39. 208 19301 42. 693 9767 45. 25.5 48.
272 147.7 51. 20
54. 57. 60. 63. 66. 69. 72.
544 2954 852 000 491 083.3 960 0 144 129.1 0.35 936 83.94