City Furniture and Mattress Case
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CASE STUDY -CITY FURNITURE AND MATTRESS
Business Problem:
City Furniture and mattress is concerned with profitability and competition from various local stores and big box chains. It is confronted with several decisions including closing the manufacturing facility and returning back to being a retailer, closing its Pickering location, continuing with the wholesale business or even closing the furniture stores and stepping away from the business.
Critical Issues:
CFMs Pickering location is low on sales which is thus reducing the companys overall profitability. Also, the rent of the Pickering location has increased.
The manufacturing facility has faced quality control issues and is not able to manufacture quality replica designs for complicated models. Hence, the manufacturing facility is losing money and draining cash from the retail side of the business.
CFM is also facing a problem in hiring full time skilled labor for the facility due to which the company cannot supply products to its retail stores in a timely manner and is forced to purchase those products from other manufacturers, thus affecting profitability.
Although the Toronto location is producing acceptable results, there is a threat of margin erosion due to declines in the industry pricing.
Increasing competitive pressures in the marketplace are making it difficult to thrive in the long term (what is the nature of those competitive pressures?).
Analysis:
Refer exhibits A and B for SWOT Analysis and Porters five force model Here you should be explaining the implications of your analysis in the exhibits. How do you get from the problems you define to your alternatives and recommendations?
Alternatives:
Open new stores for economies of scale
Pros:
-Reduced overall production costs (how does opening more stores reduce production costs?).
-Will allow company to purchase more of its indirect globally sourced products in containers which would save costs.
Cons:
-Finding the right location is a challenge.
-The new site would require additional investment in inventory.
-Staffing for the new locations would be an area of concern (why?).
Close both the stores and concentrate on manufacturing
Pros:
-The company can utilize its past experience and relationships to acquire necessary equipments and raw materials.
-Margin gains would be around 15% to 30% which will improve the overall profitability of the company, if CFM were able to grow production volumes (what needs to happen for that to be viable? How likely? What assumptions?).
Cons:
-CFM does not plan to manufacture products for other retailers. Thus, it is not certain that the volume generated from its current locations will make the venture worthwhile. (If theyre closing both stores, then presumably they would have to be selling to other retailers.)
-Inability to find experienced full time labor since furniture manufacturing was based on commission rate per piece for certain tasks.
Close the Pickering location and focus on the GTA retail store.
Pros:
-The Pickering location is incurring significant losses.
-Concentrate on ways to increase sales for the GTA store.
Cons:
– Single store retail operation will increase market pressure.