We're going to get the whole "stating the obvious" out of the way. The company has ten retail stores, so obviously there is room to grow through geographic expansion even in a down market. We comprise an insignificant portion of the market share in this business, so to worry about fractions of percentages is almost silly. The focus of this report is going to be trying to figure out what the firm is doing wrong and how we can address those problems. The broad-based stuff is not really relevant to a small business because we're not in a position to be a national player.
According to the Bureau of Economic Analysis, GDP in Q3 of 2011 grew at 1.8%, compared with growth in Q2 of 1.3%. We don't know Q4 yet, but we did not have a stellar holiday season regardless. Because we sell general consumer products, we should see growth equivalent to broad GDP growth, assuming that our states perform in line with national averages. This is not the case -- we are underperforming GDP.
Slide Three: The second economic indicator we need to pay attention to is housing starts. This is important because we sell home decor, and our sales are better the more people are buying new homes and moving into them. Housing starts improved 9.3% in November, and building permits are increasing at the highest rate in over a year (Homan, 2011). This tells us we should be riding that wave a little bit, if those statistics translate to our local area. Again, where we should be expecting to see an uptick in business, we are losing business in wholesale and struggling in retail.
Slide Four: For operational reasons, we are down to one main supplier. We never considered if that was going to affect our ability to meet the needs of our customers. The first is prices. Our supplier is in China, and while we pay them in dollars, their costs have increased significantly over the past few years and they are starting to pass those costs along to us. The Bureau of Labor Statistics (2011) provides data to support this -- China is still cheap but labor costs are rising rapidly there, and our suppliers cannot maintain the low prices that they had when we first starting doing business with them. As a result, our price to the customer has increased, and you have to think that is hurting us. The other problem is that our products may not be keeping up with the trends in the market, and with one supplier we are really not responsive enough to deal with a rapidly changing market environment. It is recommended that we ensure these issues have been adequately addressed before we make a move into housewares, since a new product line with the same problems will only compound our troubles.
Slide Five: But should we want to pursue housewares, again we can be smart about it and realize that the market is huge and we have no chance of capturing a significant share given the size of our company. Total houseware sales were $76.3 billion in 2005 though we can give or take a few billion and it really won't matter to us. In 2005, the business grew 17%, because the housing market was hot. The housing market has been slumping, but as noted it is beginning to show signs of improvement so the housewares market should pick up as well.
Slide Six: These are sold through the following channels: Discount stores (26.2%), Specialty stores (13%), home centers (10.6%), Department stores (9.4%), Supermarkets (6.7%), Gourmet food stores (6.4%), Warehouse Clubs (5%), Home furnishing stores (2.8%). The Internet at the time was lumped into "other" at 7.1% (Spingola & Jiambalyo, 2006). We can reasonably assume that the Internet is a higher percentage of sales, but that it remains a niche channel for the business as a whole. Internet and catalog sales are now almost 40% at Williams-Sonoma/Pottery Barn.
Slide Seven: As the economy is not expected to see much of an improvement in the next couple of years, the trend towards more dining and entertaining in-house is likely to continue. This will drive the industry as people seek to purchase housewares that allow them to entertain others, and focus on kitchenwares and gadgets in order to prepare more food, especially the types of food they see chefs on television preparing. Trends in kitchenware in particular are also towards green items as organic consciousness increases. Wellness trends also will be prevalent as baby boomers begin to retire and seek to adopt healthy lifestyles while spending more time in the home (Hoak, 2009).
Slide Eight: The target audience for housewares is pretty broad. The most important thing for us is to ensure that there is a strong enough component of the target audience that is congruent with our current target audience. In other words we need to know that our customers are interested in buying housewares, if we are to introduce housewares to our store and website. If not, then we need to create entirely new channels and that is going to cost more. The diverse channels that exist for housewares indicate that they are sold to a wide range of consumers, but we need to know if our customers are among the largest groups.
Slide Nine: For most household products in categories like stoneware, dinner ware, linens, buyers tend to skew younger. This can be attributed to the fact that buyers in younger cohorts are building their kitchens and homes. They are moving into their first homes, or upgrading their existing homes. As their incomes rise, they are actually less likely to purchase housewares, as there comes a point when they purchase quality items that do not need frequent replacement. Overwhelmingly in all categories, purchasers are females (James, 2010). Obviously, we'll be targeting the ones in the geographic location in which we operate. For online sales, we will have a U.S. focus, as that is the easiest to manage with respect to shipping. That the online sales are also going to be to younger consumers should guide our promotional strategy.
Slide Ten: There are a lot of competitors. Again, looking at the breakdown of distribution channels in housewares, it looks like almost any store is a competitor in some way. That includes low-priced outlets like Wal-Mart, Target, Costco and Home Depot. We also face intense competition from specialty stores like Williams-Sonoma or Bed, Bath and Beyond. And then there are department stores as well. Almost all of these competitors are online, and to this list we can Amazon. So we are competing with a large number of well-financed competitors with excellent brands. That's the bad news. The good news is that none has a major market share, so we might be able to exploit that.
Slide Eleven: We can exploit the gaps in the market if we know what those gaps are. In this case, we know that the different retail channels serve different markets and products. Most of the market is taken up by low cost retailers, and those different types of retailers have cheap stuff at cheap prices. It's tough to compete on price with those companies. Likewise, our website isn't going to be as technologically sophisticated as Amazon's. We just don't have that kind of money. But we can slot in with the specialty retailers who have a focus on housewares. That still includes some large companies, but it gives us an opportunity to different ourselves as a specialist player. I would think that our major competitors in this space are Bed, Bath and Beyond; Pottery Barn, Cost Plus World Market; and maybe a higher end place like Williams Sonoma if that is a direction we want to go in. These firms…