Analysis of Retail Television Industry

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Analysis of Retail Television Industry document sample

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Reader Note: This paper is provided as an example of a well-constructed VOS analysis,
and is reproduced here with the permission of the authors. No portion of this report may
be reproduced by any means without the express written permission of the authors.

Venture Opportunity Screening Analysis

Industry Name: Household and Institutional Furniture Manufacturing

Members: Andy Staney, Troy Williams, Jonathan Baker, Sam Cabani, Zoraida Ruiz

Course: GEB 4111 - New Venture Finance

Section: Wednesdays 1:30 – 4:20

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1. Industry Analysis

 What is the industry that addresses this market?
o Household and Institutional Furniture Manufacturing (NAICS)
 NAICS Code
o 33712 (NAICS)
 Market Capitalization
o This industry’s market capitalization is $31,238.8 million (―Household and‖ p6)
 Growth Rate
o The market grew 0.8% from 2004 to 2005 (―Household and‖ p5)
 Number of competitors
o The major competitors in this industry are:
 Ashley Furniture Industries, Inc.,
 La-Z-Boy Incorporated,
 Furniture Brands International, Inc., and
 Herman Miller, Inc. (―Household and‖ p24)
 Relative size of competitors
o Ashley Furniture Industries, Inc. – 5.90% Market Share
o La-Z-Boy Incorporated – 5.60% Market Share
o Furniture Brands International, Inc. – 5.50% Market Share
o Herman Miller, Inc. – 2.30% Market Share (―Household and‖ p24)
o Other companies – 83.30% (―Household and‖ p30)
 What trends are important in this industry?
o Sociocultural trends?
 The industry is sensitive to:
 fashion trends and
 consumer taste (―Household and‖ p33)
o Demographic trends?
 The Baby Boomer generation has the largest impact on this industry
 Baby Boomers spend the most money in this industry (―Household
Durables‖)

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o Technology trends?
 Technology varies based on the company’s size and level of competition
 New machines enable more efficient products
 When advances in material occur, all companies in the industry benefit
(―Household and‖ p19)
o Economic trends?
 This industry is sensitive to:
 economic changes,
 the amount and usage of disposable income, and
 changes in demand for raw materials (―Household and‖ p33).
o Geopolitical trends?
 Exports in this industry are low but increasing
 Imports in the industry are high and increasing
 The largest source of imports is China—followed by Canada, Italy and
Mexico (―Household and‖ p7)
 How does this industry segment the market?
o The industry is segmented into the following product and service segments:
 non-upholstered household furniture,
 upholstered household furniture,
 institutional furniture,
 metal household furniture,
 household furniture (except wood and metal), and
 wood television, radio, and sewing machine cabinets (―Household and‖
p12).

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2. Product/Service Delivery

 What exactly are the types of products or services being offered in the industry?

o Types of products being offered in the industry include:

 upholstered household furniture manufacturing,
 non-upholstered wood household furniture manufacturing,
 metal household furniture manufacturing,
 household furniture (except wood and metal) manufacturing,
 institutional furniture manufacturing, and
 wood television, radio, and sewing machine cabinet manufacturing
(―Household and‖ p12).
 What aren’t they? Carefully describe.

o This industry does not cover:

 the installation of institutional furniture items such as theatre, stadium,
and park seats, restaurant furniture and work benches,
 the manufacture of office furniture and/or office or store fixtures,
 the wholesaling of furniture, or
 the repairing or refinishing of furniture (―Household and‖ p3).
 What is unique about these products/services?

o This industry is comprised of establishments primarily engaged in
manufacturing household and public building furniture (i.e., library,
school, theater, and church furniture) (―Household and‖ p3).
 What are their key features and benefits?
o The furniture may be made on a stock or custom basis and may be
assembled or unassembled (i.e., knockdown), and
o household and institutional furniture manufacturers distribute the bulk of
their products to wholesalers and contract outfitters (―Household and‖ p3).
 Do the industry competitors benefit from any proprietary rights to the
products/services (for example, technology, patents, copyrights, trade secrets,
etc.)?
o Several proprietary rights include:

 agreements with suppliers and contractors that lock them into using
products directly from that particular company,

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 access to skilled carpenters, and the

 dominance of the existing major competitors (―Household and‖ p15).

 What differentiates the competitors, and what are the similarities?

o The larger companies benefit greater from new technology with the
materials and machinery while the smaller companies do not see this
benefit to the same degree, but

o changes in the level of disposable household income influence demand for
products for all competitors (―Household and‖ p19).

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3. Marketplace Analysis

 What is the market that the industry currently serves?

o The industry currently serves the following markets:

 homeowners,

 renters,

 businesses,

 government institutions, and

 educational institutions.

 How large is it?

o Bruce Bursma implied that this is an 11—12 billion dollar market.

 What is its growth potential?

o Bursma also believes this market is modestly growing at a double digit rate but
is projected to slow down due to the deferring of business purchasing.

 What motivates customer purchase decisions?

o Kathy Leadman said the motivation of customer purchase decisions lies
within the price, quality, brand name, fashion trends, state of the economy,
and consumer taste.

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4. Marketing Dynamics

 Who are the target customers of the marketplace?

o Individuals, businesses, hotels, and architects

 What problems are being solved for them?

o Finding superior quality furniture with high level of customization

 What are their profiles?

o Individuals and families with median income over $50,000 (―Marketing‖)

o Small to large businesses including hotels

 What motivates their buying decisions?

o Kathy Leadman explained price, quality, brand name, fashion trends, state
of the economy, and consumer taste motivate buying decisions.

 What are the strengths of the products/services currently being offered?

o Several strengths include:

 lower prices due to economies of scale (―Ashley‖),

 online storefronts with multiple physical locations for easy access,
and

 offering no interest payment plans, or no payments for an allocated
period of time.

 Weaknesses?

o Several weaknesses include:

 product standardization,

 lower quality materials,

 limited amount of customization—if any,

 weak distribution channels, and

 poor customer service (Bostrom)

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 Who are the key competitors?

o Ashley Furniture Industries, La-Z-Boy Incorporate, Furniture Brands
International Inc., and Herman Miller Inc. (―Household and‖ p24)

 How do they differentiate their products or services?

o According to Kathy Leadman, La-Z-Boy differentiates its products by
providing an excellent shopping experience with the ability to utilize its in-
home designers to customize products free of charge;

o Ashley furniture utilizes a GERS retail system that integrates the
company’s inventory and store operations solutions with Ashley Furniture
Industries’ corporate system for online inventory allocation and shipment
scheduling (―Ashley‖);

o Furniture Brands differentiates its products by employing talented
designers who excel in keeping products innovative and fresh
(FurnitureBrands.com), and

o According to Mark Schurman, Herman Miller differentiates its product by
creating a product based on large amounts of research with a problem
solving purpose—for example, the intent to reduce heat buildup.

 How are the products or services currently priced?

o Prices range for different furniture products with different optional
equipment, and

o prices start from as low as $100 for a single chair to well over $5,000 for
entertainment and bedroom sets (FurnitureOnline.com).

 What are gross revenues per unit sold?

o The industry average for gross revenue per unit sold is $766.71
(―United‖).

 What are anticipated annual sales?

o The anticipated annual sales for a startup company is $40 million,
contingent upon opening 20 stores throughout the United States based on
a scaled down figure from La-Z-Boy Incorporated’s 10-K report
(―United‖).

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5. Distribution & Sales Dynamics

 What distribution channels does the marketplace currently use (e.g., direct sales,
mail-order, wholesalers, etc.)?

o Kathy Leadman reported that the industry mainly uses direct sales
through retailers, and

o Leadman also mentioned retail storefronts are preferred as opposed to
online sales.

 How does the marketplace currently communicate with customers (e.g., advertising,
promotions, etc.)?

o Leadman declared print, television, radio, online, and mail order promotions
and advertisements are used both on a corporate and individual retail store
level.

 How does the marketplace currently sell its products or services?

o Leadman mentioned all of the following selling methods:

 mainly in retail locations—usually individual franchises,

 little to no online selling in the industry, and

 customer may order by phone.

 Who does the selling (internal sales people, manufacturing representatives, etc.)?

o Leadman explained sales personnel in individual franchise locations sell
the products.

 What are the costs associated with this sales strategy?

o Leadman described the following costs:

 employee pay and

 advertisements.

 Which costs are fixed?

o Advertisements go out regularly in newspapers and other print sources.

 Which are variable?

o Employee pay is based on commission only.

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6. Financial Estimates

Answers found through the 10-K report for La-Z-Boy Incorporated.

Summarize estimates made in previous sections:

A. Annual unit sales: 51,613
B. Price per unit: $775.00
C. Variable cost per unit (production and sales): $580.00
D. Fixed costs (admin, production, and sales): $8,563,291.00
E. One-time start-up costs (eqpmt, mktg, legal, etc.): $4,226,098.00
F. Working capital rqd (receivables, inventory, etc.): $752,980.00

Calculate estimated annual gross revenues and income:

G. Estimated annual revenues (AxB): $40,000,000.00
H. Estimated annual variable costs (AxC): $30,400,057.00
I. Estimated annual contribution margin (G-H-D): $1,036,652.00

Calculate break-even figures:

J. Contribution margin per unit (B-C): $186.00
K. Annual break-even quantity (D/J): 46,040
L. Ratio of break-even to expected quantities (K/A): 0.89

Estimate the money you will initially need to start your business:

M. Total up-front funds required (E+F): $4,979,078.00
N. Additional units to cover up-front funds (M/J): 26,770
O. Break-even quantity with up-front funds (K+N): 72,810

Calculate financial performance figures:

P. Payback period for startup funds (M/I): 4.81
Q. Annual return on start-up investment (I/M): 0.21
R Variable cost to price ratio (C/B): 0.76
S. Contribution margin ratio (I/G): 0.026

Page - 10
7. Venture Opportunity Screening (VOS) Analysis

VOS Indicator

Factor Categories High Average Low

Industry/Market
Market Size Potential X
Venture Growth Rate X
Market Share (year three) X
Entry barriers X

Pricing/Profitability
Gross margins X
After-tax margins X
Asset intensity X
Return on assets X

Financial/Harvest
Cash flow breakeven X
Rates of return X
IPO potential X
Founders control X

Management Team
Experience/Expertise X
Functional areas X
Flexibility/Adaptability X
Entrepreneurial focus X

Total Points by ranking 15 8 7

Overall total points (OTP) 30

Average core (OTP/16) 1.875

High=3; Average=2; Low=1

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8. Conclusions

 Do these results look attractive enough to proceed with the development
of a new venture in this industry?

o Given the maturity and size of the industry, a new venture in this
industry would most likely not be profitable for approximately five
years.

 How can we improve the probability of success of a new venture in this
industry?

o By using overseas manufacturing and resource procurement,

o by increasing marketing towards institutions and government
organizations, and

o by establishing corporate and government contracts.

 If we were to start a new venture in this industry, what size (scale) and
scope (breadth of product offerings) would have the greatest probability
of success?

o A regional scale and wide variety of products wo uld insure the
greatest probability of success for a new venture in this industry.

 What other information do we need in order to make an effective decision
to proceed with a new venture in this industry, or to choose another
industry for analysis?

o We would need to know the following:

 the failure rate of furniture manufacturing and/or retail facilities
within the first five years,

 investment possibilities in this type of venture,

 the availability of resources and distribution channels, and

 demographic information that could dictate the most profitable
region of the United States to start in.

Page - 12
9. Works Consulted

―Ashley Furniture HomeStores Integrate Supply Chain with GERS Retail Systems and
FurnishNet.‖ Freshnews.com. 28 July 2005. Freshnews.com San Diego/Orange
County. 4 Oct 2006 <http://www.freshnews.com/news/computers-
internet/article_25740.html?Furnishnet>.

Bostrom, Matthew and Tari Titherington. ―Traditional Intermediaries.‖ 4 Oct. 2006
<http://www.american.edu/carmel/tt6157a/traditional.html>.

Bursma, Bruce. Herman Miller. Telephone interview. 4 Oct. 2006.

FurnitureBrands.com. 2006. Furniture Brands Strategy. 3 Oct. 2006
<http://www.furniturebrands.com/investor/OurStrategy.aspx>.

FurnitureOnline.com. 4 Oct. 2006 <http://www2.furnitureonline.com>.

―Household and Institutional Furniture Manufacturing in the US 33712.‖ IBISWorld
Industry Market Research. 2006. IBISWorld Inc. 13 Sept. 2006
<http://www.ibisworld.com.ucfproxy.fcla.edu/industry/default.aspx?indid=862>.

―Household Durables Industry Surveys.‖ NetAdvantage. 2006. Standard & Poor’s. 26
Sept. 2006
<http://www.netadvantage.standardpoor.com.ucfproxy.fcla.edu/NASApp/NetAdv
antage/showIndustrySurvey.do?code=hhd>.

Leadman, Kathy. La-Z-Boy. Telephone interview. 4 Oct. 2006.

―Marketing that Motivates.‖ La-Z-Boy.com. 2006. La-Z-Boy Opportunities. 4 Oct. 2006
<http://www.la-z-boy.com/opportunities/marketing.html>.

NAICS. U.S. Census Bureau. 2006. 13 Sept. 2006
<http://www.census.gov/epcd/www/naics.html>.

Schurman, Mark. Herman Miller. Telephone interview. 4 Oct. 2006.

―United States Securities and Exchange Commission, Form 10-K.‖ La-Z-Boy
Incorporated. 4 Oct. 2006
<http://www.sec.gov/Archives/edgar/data/57131/000005713106000025/tenkall.ht
m 06/22/2006>.

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