Case Study-Home Goods Retailer

Case Prompt:

A mall-based home goods retailer with 500 stores throughout the US is experiencing a drop in sales and profits over the last three years. They have hired you to find the root causes and come up with solutions to improve the situation.

Exhibit:

• The home goods market has three segments: discount stores (e.g. Target), specialty stores (e.g. Bed, Bath, and Beyond), and other stores.
• Overall sales have increased over the last 3 years, with discount and specialty segments growing and ìotherî segment (the client fell into this category) declining.
• The client did better than its segment but worse than the overall market.
• Cost structure of the three segments:
Client: Profit Margin 5%, SG&A 15%, COGS 40%, Fixed Costs 40%
Target: Profit Margin 25%, SG&A 15%, COGS 40%, Fixed Costs 20%
Bed, Bath, and Beyond Profit Margin 25%, SG&A 15%, COGS 40%, Fixed Costs 20%
• Rent is the main reason for higher fixed costs.
• Client’s products fall into two broad categories: textiles and kitchenware. Kitchenware sales were going up, while textile sales were down.
• The client’s merchandise is different from competitors’ merchandise.

Background:

The home goods retailer in question is experiencing a decline in sales and profits over the last three years, despite a growing overall market. They are located in malls, and competitors have more flexibility in choosing their locations and likely own their buildings. As a result, the client has higher fixed costs, with rent being the main reason. Their products fall into two categories, textiles and kitchenware, with kitchenware sales going up and textile sales going down. The client’s merchandise is also different from competitors’ merchandise.

Analysis:

To improve the client’s situation, the following recommendations have been made:

Focus on textiles first, then do the same type of analysis for kitchenware: As textile sales have been declining, focusing on improving this category is crucial. Conducting the same type of analysis for kitchenware afterward can provide insights into how to increase sales for that category as well.

Compute sales per square foot both by product line and quality for each store: By analyzing sales per square foot for each product line and quality, it can be determined which products are performing the best in each store. This data can then be used to dedicate more shelf space and prominent displays to the best-performing products.

Use results to dedicate more shelf space and more prominent displays to the best-performing products: By dedicating more space and prominent displays to the best-performing products, sales can be increased. This strategy can be implemented for both textile and kitchenware categories.

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