West Lake Home Furnishings Ltd Case Study

Executive Summary:

West Lake Home Furnishings Ltd. was basically a manufacturer of lighting fixtures and floor lamps based in Canada. It had expanded into the retail segment as well as internet-based selling. The Canadian retail market was highly competitive and was growing at a high rate. Most of the manufacturing took place in Asian countries which resulted in lower cost of production and thus, higher margins. West Lake offered modern designs at reasonable price points. It also produced a private label in the higher end. Its signature line was sold exclusively at the growing network of a single retailer. This retailer had proposed an offer to West Lake CEO of providing quintuple sales and more visibility in exchange price reduction. The ramifications of whatever decision the CEO takes need to be analysed and solutions are to be sought.

Problem Statement:

Majority of West Lake's wholesale business was through three national chains who accounted for almost 71% of the company's wholesale business. One of these customers had made a proposal to its CEO, Charles Bowman. As per the proposal, if Bowman reduced the retail price of a signature line of decorative lamps from $69.99 to $29.99 for a period of one year, the wholesaler would give the product prominent shelf space and the potential to more than quintuple unit sales. Bowman was faced with the dilemma of whether he should accept the proposal and was considering the various implications of his decision.

Alternatives:

1. Accept the offer completely since it would lead to loss of an account.

2. Do not go for a complete price reduction from $69.99 to $29.99 since it would lead to decrease in margins drastically. Even if there is decrease in cost of goods sold for the signature line from $30 to $20, the associated rise in expenses cannot be ignored. Negotiate on the price front.

3. Implement the plan for a period of 6 months. The SG&A and S&W expenses would increase to about 3.6Million and 1.245Million. Since this retailer had sales account of 2.67Million, he could not be ignored completely. Instead negotiate the span for which this scheme could be implemented and keep a term in the contract that in case the sales do not exceed a particular benchmark, Bowman would increase the prices back to the original level and the retailer would still give the product prominent shelf space. The market was highly competitive. The new entrants, with designs similar to West Lake were already competing based on price and if Bowman rejects the offer completely, then he would lose a complete account to its competitors. Keep the terms and conditions so stringent that other retail accounts won't ask for price reduction since stakes involved would be higher. Feature the signature line from the other retailers.

4. Reject the offer