Crafton Industries, Inc Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Problem Statement

There have been many recent developments in the carpet and rug industry in United States and Crafton Industries Inc which is one of the competitive premium price floor covering company is considering the possibility of moving towards a company owned distribution system as compared to the current wholesale distribution system of the company in order to maximize the profits from the residential business of the company. In order to analyze both the options, a detailed strategic, qualitative, quantitative and economic perspective will have to be evaluated and analyzed and a final decision needs to be made.

Question 1

How would you characterize Crafton's position in the carpet and rug industry?

There have been a lot of developments taking place within the carpet and rug industry in United States and Crafton Industries Inc was considering the possibility of establishing its own wholesale operations and distribution centers by focusing specifically on the residential business of the company in an attempt to maximize the profits. The carpet and the rug industry is basically a very highly competitive and consolidated industry and Crafton Industries Inc is looking to improve its profit margins in the industry.

The total spending by the businesses in this industry in the year 2009 were 17 billion for the floor coverings. The total residential sales in the industry were about 2/3^rd of the total sales of the industry which accounted for about 11.33 billion sales. The total sales in the industry including the commercial and the residential sales had declined by 29% in terms of current prices and after the adjustment of inflation the decline in the sales trend was about 27%. Furthermore, the market share for the carpet and the rug industry had also declined to 54.5% from 56.7% between 2007 and 2009. The number of the companies had reduced from 300 in 1980 to 100, due to a number of reasons such as bankruptcies, acquisitions and mergers.

In such a dramatic industry, the Crafton Industries Inc had remained competitive by selling carpets at the premium prices to the rich residential segment of the industry. The total sales of the company in the year 2010 were $75 million and this included around 72% of the sales that were accounted for to the residential market of the industry. The profit before tax of the company accounted for 0.4% of the total market and stood at $ 3 million. The products of the company were being distributed to 7 wholesalers which in turn were supplying the products to 4000 retail accounts. The wholesalers of the company represented its products and its two brands in the market for about 20 years.

Crafton Industries Inc had captured around 0.64% of the total sales in the year 1999 of the total market sales of $ 75 million. The company expects to maintain a market share of 0.62% for the year 2010. Not all the manufacturers in the industry are making a profit and Crafton Industries Inc is one of those few manufacturers that are making profits in the industry. The 80% of the total sales of the company are the residential carpet sales an are being achieved through the sales of the company’s products to 2000 retail accounts of the company (50% of total). A total of 30% of the total retailers of Crafton Industries are seeking price discounts and are also members of the buying group. The company is currently being pressurized by the wholesalers to accommodate by the buying groups and reduce its prices. However, still the company maintains a strong competitive position in an industry which is characterized by declining sales trend and market shares.

Question 2

What are the pros and cons for Crafton of a wholesale vs. company distribution system from a qualitative perspective?

From a qualitative perspective there seem to be many pros and cons for wholesale versus a company distribution system. The pros and cons for both the options are discussed below:

Wholesale Distribution System

Pros

The company currently maintains a wholesale distribution system and has a network of about 7 wholesale distributors that sell to around 400 retail accounts of the company. The company has established a long term relationship with its current wholesalers for selling the company’s products and this relationship is based on 20 years. These wholesalers also played a major role in the marketing strategy of the company. Out of the 7 wholesalers of the company, 2 wholesalers had represented a relationship of about 30 years..........................

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