Case Analysis: Crafton Industries Inc. Harvard Case Solution & Analysis

Case Analysis: Crafton Industries Inc. Case Solution

Situational Analysis

In this section the analyst will go through a session in which he will try to analyze the market conditions and situations which are directly or indirectly affecting the business of Crafton Inc. Moreover, in this section the analyst will also try to clear the problems which are being faced by the US flooring industry.

US flooring Industry

The flooring industry had a market size of almost $17 billion which was dominated by carpet and rugs since, the biggest section of the business were relying on carpets and rugs. However, customers were using these floor covering products over ceramic tiles, vinyl, hardwood, stone, laminate and rubber. In addition to this, the residential sales were almost of 11.33 billion which indicates almost 2/3 i.e. 66.67% of the total sales. On the other hand, the revenue which was generated from commercial sales consisted of 5.67 billion showing almost 33.33% of the market. The revenue of carpet and floor covering products went down from 23.222 million to 17.12 million from 2007 to 2009. Nevertheless, this decline showed a difference of almost 6 million in only two years. Moreover, the sales of the industry fluctuated almost 29% of the current prices and 27% after the adjustment of the inflation.

It has also been observed that the market share of this industry was almost 68.1% in 1999 which was reduced to 56.7% to 54.5% in two years i.e. 2007 and 2009. Moreover, the industry spends a minimal amount on advertising as this industry is only spending 0.9% of the sales which is very low as compared to the home furniture and fixture industry, since, this industry was spending 2.7% of their sales on customer advertising. On the other hand,the household appliances industry was spending over 1.7% of their sales on the same. In addition, there were five major companies which were generating almost 75% of the industry’s total revenue. These companies are as follows

Name of the companyRevenue% total
Shaw Industries $        3,025                 0.32
Mohawk Industries $        2,479                 0.27
Beaulie of America $           857                 0.09
Interface flooring $           423                 0.05
the Dixie group $           199                 0.02
others $        2,352                 0.25
total $        9,335

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Out the above five companies, the three top companies accounted for almost 85% of the US residential carpet and rug sales. Furthermore, the Shaw industries made itself by $ 3 billion of sales in 2009.

Direct Distribution the Central issue of the Case

The distribution and retailing strategy of this arena has gone through three different stages since 1980s because in 1980s, the largest carpet and rug manufacturer decided to sell its products directly to the retailer by following the forward integration strategy. However, the ultimate objective of this initiative was to cut down the margin of wholesale and to directly sell its product to the retailer. Moreover, the strategy of this manufacturer did well and contributed a lot towards the profit generation.

On the other hand, small manufacturers followed the traditional style of selling by selling their products to the wholesale and the wholesaler then provided them to the retailer. The reason behind lacking of these manufacturers towards forward integration is that a large capital was required to integrate forward and to bypass the wholesaler.

Therefore, these small producers followed the same strategy to reach the end consumer and to sell their products. Furthermore, the small and independent specialty stores contributed 58% of the residential sales while the departmental stores accounted for 21% and furniture stores contributed 19% of the sales via the wholesale and retail consolidation.

Wholesale and retail consolidation

The second major change which the industry faced in 1990s which was that the departmental stores, retailers and distributors were replaced with mass merchandiser such as Wal-Mart, K-Mart and Sears however, these mass merchandiser were later on switched by home centers such as Home Depot...........

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