Shaw Industry would operate its own retail stores and commercial dealer network. ;Shortly after making the announcement the company purchased a number of commercial carpet dealers and contractors and carpet land USA. Right after the purchasing took place Home Depot dropped Shaw Industries as a carpet and rug supplier and switched to Mohawk Industries. Carpet One and Abbey Carpets, two main buying groups asked their members not to do business with Shaw. After all these, in 1998 Shaw industries announced it would sell of its retail stores to Maxim Group for $93 million.
And later Home Depot started stocking Shaw carpet once again. -Grafton Industries, Inc. Sells premium priced carpeting to rich residential segment of the industry. ; The company had sales of $75 million in the year of 2010 and 72% of the sales were attributed toward residential market. ; The company's net profit before taxes were $3 million while they only accounted 0. 4% of the market. ; Grafton distributes the product to seven floor covering wholesalers, who supply to 4000 retail accounts. ; The wholesalers are located all over West, East and Midwest Coasts. Half of the Meany's retail accounts provide for about 80% of the overall sales. ; The company has wholesalers who represented the company for about more than 20 years. ; The company employees 10 salespeople who mains extensive sales organization. ; The wholesalers for the company received a 20% margin on sales billed at the price to retailers and wholesalers typically applied a markup on cost of 125% for carpeting sold to retailers. 2. Problem While the retailers are becoming more conscientious about the price Grafton industries has slowly been growing in sales for carpeting.
The wholesalers have a excelling profit margin due to the pressure creating from buyer groups which has caused Grafton to have low number of sales since only 6% of its sales are coming from wholesalers and sales representative are only devoted for 40% of each one-hour of their sales call to sell Grafton products, while spending the rest of the time selling noncompetitive products. The cost of inventory is rising as well, since the inventory turnovers are 5% per year while the management sufficient to have 4% per year. Evaluating the idea of opening Croûton's own distributing center in year of 2000. Advantages
By cutting the wholesaler Grafton can distribute directly to retailers and possibly increase its market exposure to public. Disadvantages The company would need to open 7 warehouses in metropolitan areas such as Atlanta, Chicago, Dallas-Fort Worth, Denver, Los Angels, New York City, and Philadelphia to maintain all 4000 of the accounts it holds. Possible chances of losing the current market share by having the distributes turning to the competitor company. It may also give the company a bad reputation due to the fact of dropping wholesalers that's been on the business with the company for more than 20 years.
The company would need to hire 31 more sales representative and 4 field sales manager in order to start a warehouse and maintain all retail account. This will increase expenses by $2. 5 million ; With the $700,000 in fixed operation cost for 7 distribution centers and transportation, inventory and accounts receivable costs would almost account for $16. 3 million. Which makes total expenses to $39. 3 million for the year which is almost more than a 50% increase of expenses from the 2000 fiscal year. (2000 fiscal year expenses were $15. 75 million) ; The inventory turnover would decrease from 5 to 4. The cost of goods would decrease due to the loss of the lost accounts due to the fact of opening up new warehouses. The net profit margin would decrease down to 4. Recommendation Grafton Industries should not open its own distribution warehouses. Even though the cost of goods sold would decrease for the company and increase its gross profit but at the same time the company would lose more than $1. 5 million from other expenses. Opening up new warehouses would also account for many more expenses depending on the reaction of the retailers.
Retailers would most likely stay with the wholesale companies they are with now due to the discount they get from them. The buying groups may lose power while dealing with Grafton which might lead to having sale losses. The company would end up finding itself in the shoes of Shaw Company when they first decided to open up warehouses and opening their own retail stores and losing potential market. I would make the suggestion to the company to stable their current market and stick to it. 5. Appendices The warehouses need to make at least $7 million wholesale sales per warehouse to operate as a warehouse operation economically.