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City Furniture and Mattress, Case Study Example

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Words: 1553

Case Study

City Furniture and Mattress has had a great deal of success up until recently.  It has become necessary for the owner and general manager to step back and begin to look at the external challenges that are threatening their business.  The first step is to look at the current company strategy.  The sales for City Furniture and Mattress were continually growing, but the owner and manager needed to consider their profitability due to the local competition and big-box stores.  There are many possible ways that CFM could choose to address these challenges.  These options include expanding global outsourcing, capital investment, and store network expansion and vertical integration.  His attempt at vertical integration and the manufacturing of domestic product did not have the success they had hoped for.  The legal battle with the building owner at the Pickering location also played a role.  They began to evaluate the possibility of closing come stores to solve the short-term problems.  They also considered leaving the furniture business all together.

There are internal challenges that City Furniture and Mattress have to address as well.  The owners, Rajeev Singh and his father Baskar Singh ventured into the import wholesale furniture market.  However, due to the lack of experience in large-quantity product selection, internal product management, and business-to-business sale, they had some difficulties.  This, in addition to some poor decision making left the company in jeopardy.  For example, they ordered ninety dining rooms sets from a Chinese manufacturer.  When the product was received it was not what they felt was presented when they purchased.  It required additional space and labor; however, the shipment was accepted anyway.  This left City Furniture and Mattress with excessive inventory that was not very marketable due to its size. This forced them to take alternate actions, including opening a new location for an entirely new venue.

At this point, City Furniture and Mattress has to address the very necessary problem of profitability and the competition they face from local competitor and big box chains.  The owner and manager have to make several decisions that could make or break the business they have been building over the years.  This included closing the manufacturing facility and returning back as just a furniture retailer, closing locations such as Pickering, staying in the wholesale business entirely, and even leaving the furniture business entirely.  In order to make this decision, they would have to take a closer look at the critical issues they are currently facing.

City Furniture and Mattress’ Pickering location is not currently profitable.  The sale is low and it is directly affecting the company’s overall profitability.  They also recently faced a rent increase at this location which made the potential for making a profit even less likely.  Competition is increasing their pressure in the marketplace.  This factor is making it even more difficult for CFM to find long-term financial stability and success.  There is significant margin erosion due to Toronto’s decline in the furniture industry pricing. This is due directly to declining prices.  The company has to address the issue associate with the manufacturing facility as well. The quality control issues are a big obstacle in the manufacturing facility.  In addition, they have failed to be able to manufacture quality replica designs for their complicated models.  This is creating a financial strain on the company as well, having a negative effect on the retail side.

City Furniture and Mattress is not only facing an issue with their locations and products, they have to look at their employees as well.  They have run into complications finding and hiring full time skilled labor.  This is a problem in the warehouse and showrooms alike.  The lack of quality employees is also playing a role in the company’s inability to produce product in a timely manner.   The product essentially is delayed in hitting the retail stores, which is costing the sales side revenue as well.  CFM is being forced to purchase product from other manufacturers to have the necessary product in their retail stores, however this is costing a significantly greater amount of money, reducing the profit margin even more.

Rajeev Singh and his father Baskar Singh have to consider alternate routes for their company to remain in business.  They have to consider opening new stores for economies of sales.  This could reduce the overall production cost by increasing the revenue coming in.  The better the placement of stores, the more traffic will enter, and the more potential opportunity for sales.  The company can purchase the product via indirect globally sourced product which will save cost as well.  This will elevate some of the stress on the manufacturing they currently utilize.   By doing this is will provide the necessary product for the retail stores without sacrificing the profitability margins like they were previously doing.

They have to consider the obstacles they will face as well.  Being inexperienced in many faucet of this business they are in, they have to do their homework to ensure they don’t fall victim to potential issues that could ultimately eliminate CFM.  The owner and manager previously had issues with their locations.  It is important for them to find the right location to market their product.  Location alone with play a big role in the amount of revenue they are able to obtain.  They also have to consider the size of the locations.  Their new site would require a significant amount of new inventory, which is an increased cost to the company.  The concern prior is the ability to find quality employees.  The new, bigger location will also require additional staffing.  If they have had no luck prior in their area, it needs to be addressed prior to taking on this much larger facility.

City Furniture and Mattress also has the option to not exit the furniture market, but simply change directions.  This would mean closing their retail stores and focusing on the manufacturing side of the business.   The company has had success with manufacturing and wholesale.  This would allow the owner and manager to use their past experiences and relationships to obtain the needed raw materials and equipment.  The margin gains would be significantly higher, proving a better overall profitability.  They would still have to consider the obstacles they had prior.  This includes the staffing at their manufacturing facility.  If there were constant delays and quality issues prior, they have to consider this will be the same issue if they change direction in their business.   This needs to be evaluated prior to making a change in order to have the potential for a significant profitability increase.

Rajeev Singh and Baskar Singh’s decision to pursue vertical integration was the best option for their business.  The biggest obstacle they are facing as a result is their inexperience in many of the areas.  In order to fully utilize the potential benefits that companies obtain from vertical integration, they would need to have a better operating knowledge of the areas they are entering.  For example, purchasing the container from a Chinese manufacturing company could have been a great profit potential if they had more experience in this area.  They saw the product at a market and liked the appearance.  The owner and manager failed to notice the table did not have a leaf it, the size it was displayed was the size the consumers would get.  It was too large for most homes.  The resulted in CFM having ninety tables they had to mark down in order to get rid of.  Experience in this situation would have prevented this from ever occurring.

City Furniture and Mattress has the potential to reap a significant profit through vertical integration.  However, they would need to cut the areas that are costing them the most money in order for that to happen.  The retail stores need evaluated and the unprofitable locations need closed.  Finding a better market and location would be key in the success of their retail stores.  Next, they need to address the manufacturing facility.  The continual delays, lack of quality employees and quality control issues can be fixed if they have the right type of management in the facility.  In order for this area to have the success they need, they need to hire a manager who has had a proven track record of success in this area.  The problems will be addresses and the manufacturing area would have the potential for a profit.  And finally, they need to find qualified buyers.  The owner and manager can still participate in this process, but having someone with experience will prevent problem purchases from occurring.

Rajeev Singh and City Furniture and Mattress will have to face increasing competition regardless of what area of the business they choose to venture into.  He had expected to be able to utilize his father’s expertise in several areas, however due to the personal issues; he was not able to help as planned. CFM has already made a name in the market, and they need to continue on in the avenue they have been traveling.  Making the necessary previsions will ensure that Singh and CFM has the profitability and growth they had hoped for.  In light of the potential lawsuit, they need to ensure that no future legal ramifications surface as well.   Vertical integration and reevaluating their entry into the furniture market will provide the opportunity for City Furniture and Mattress to have success in this business.

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