WEST LAKE HOME FURNISHINGS LTD.

Situational analysis of market It has been observed that sales in the past 4 years had a compounded average growth rate of 6.1% compared to high growth of unit sales which is at 15%. Baby boomers are now in the age of 45-64 are generally earning more income and are keen to spend on home improvements which lured new competitors to enter this market. Gradually production hub has been shifted to Asian countries because of low cost of production made retailers and consumers to have access to variety of merchandise at lower prices. This indeed made the retailers to have merchandise just in time rising the inventory levels of manufacturers. In lighting and light fixtures segment it has been observed that the market is very luring, at the same time it is a very fragmented one, this made the top 5 competitors to have just 20% combined share of market while the other 40% to private label and 40% to small firms. Also because of this fragmentation and market growth of this sector has made new players to enter in order to grab business from retailers. These people have some designs similar to west lakes, were primarily competing on price and targeting West lakes retail accounts. West Lake situational analysis For west lake, in the last two years they are having negative operating cash flows because of huge inventory they are having in order to meet the just in time inventory needs of its retailers. West Lakes products are sold in three national chains which together contributed 71% sales of companys wholesale business. For some retailers it also produces some private label line. They had a manufacturing facility for customized lamps and fixtures for small orders without having to wait for products from china to arrive which generally took 6 weeks time. They also had a retail store in Toronto where It sold its own products to interior decorators and also some small retailers. Now they are planning to hire a sales consultant to improve their annual sales. Recently they entered Internet based business that gave them the benefit of enjoying gross margins of about 70%. Regarding the way forward Bowman felt that they might be having a growth of 10-15% per year and their potential growth area is mainly lighting and fixtures. Also they are concentrating on Toronto based interior decorators with their range of customized products. Problem question Bowman is facing the problem on how to decrease the inventory levels and having positive cash flows? Is it possible to get positive cash flows and more profits with increased unit sales if he is going to give the product at the $29.99 to this retailer and consequences to be faced in future from other retailers?

Alternative solutions 1) 2) 3) 4) Invest more in internet based business where the gross margins are very high. Improve or expand the customized business. Give the signature line product to the retailer at the quoted price by retailer. Reduce the huge inventory present in the ware house by discount sales.

Alternate evaluation Criteria 1) Although it is giving more margins the sales of this business compared to wholesale is very low hence the cash flows they get might not be enough to give positive cash flows. 2) This is a very good option but we are not sure how many people will prefer customized products at higher prices and it requires more capital to be invested. 3) This is best option since from the quantitative analysis we can see that increase in unit sales by fivefold will give greater sales and also we saw that cogs is also getting decreased. The inventory cost must also be included and we have to bargain with the retailer for more price than offered one. 4) Offer discount sales to all the retailers and also consumers through their own retail stores which will automatically reduce warehouse maintenance charges and also push the cash flows to positive. Recommendation I finally recommend taking option 3 and 4 since they are presently facing more warehouse maintenance charges because of huge inventory levels this can be compensated by letting this inventory through discount sales or seasonal offer sales at the cost of ware house maintenance. Also it has been seen that cogs at such unit sales is $20 and adding other costs, even the Asian suppliers cant give the same product at the price of $29.99. Hence we can bargain for more prices from the retailer with the guarantee of quintuple sales. Coming to future problems with other retailers regarding this concession we can offer them same if they are going to promise the same amount of sales for their best selling product or else we can say that the manufacturing cost of that product has declined, we have to consider the fact that this product is available only with this retailer. For internet based business concentrate more on this and try selling customized products through this where you wont face the issue of present concession.