Cardon Carpet Case Analysis

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I. Problem Definition/Issue facing the company

Cardon Carpet Mills, Inc. is a privately held manufacturer of a full line of medium-to high-priced carpet primarily for the residential segment. Given recent developments within the floor covering industry Robert Meadows, the president of Cardon Carpet Mills, Inc is considering the possibility of establishing distribution centers or wholesale operations for the company.

II. Situation Analysis

Industry Background

Wholesale and retail distribution in the U.S. carpet and rug industry has gone through a lot of instabilities since the 1980’s. There have been three major competitive trends that occurred within the industry. The first trend to occur happened in the mid 1980’s when the larger carpet and rug manufacturers began to eliminate the margins paid to wholesalers by bypassing them and selling directly to retailers. Similar manufacturers continued their use of wholesalers due to their lack of capital. By 1990 a majority of the carpet and rug sales for residential carpet and rug sales were distributed through company distribution centers to retailers. This altered the industry. The next trend that occurred was in the early 1990’s with the emergence of retail buying groups. They would combine their purchases in order to obtain quantity discounts from manufacturers. The last change took place when Shaw Industries, the carpet and rug industry leader, began to open and operate its own retail stores and commercial dealing network. This action led to Shaw Industries being dropped by big stores such as Home Depot and several buying groups. A couple years later Shaw Industries sold its retail stores and was picked up again by Home Depot. As a result of all these efforts there was an upward trend in dollar sales over the past decade but marginal profitability for the industry.

Company Background

As stated before Cardon Carpet Mills, Inc is a privately held manufacturer of a full line of medium to high priced carpet primarily for the residential segment. The company markets its products under the Masterton and Chesterton brand names. Contract sales to institutions and businesses are also made but account for only 28 percent of the company’s sales and occur primarily in the southeastern United States. The total company sales for the fiscal year 2000 were $75 million, with a net profit before taxes of $3 million. The company has no export sales. Advertising by Cardon Carpet Mills appears primarily in shelter magazines and newspapers. The emphasis in advertisements is on fiber type, colors, durability, and soil resistance. Cardon Carpets floorcovering wholesalers play a major role in Cardon Carpet Mills’ marketing strategy.

Target Market

Cardon Carpet Mills, Inc currently distributes its line through seven floorcovering wholesalers located throughout the United States. These wholesalers, in turn, supply to 4,000 retail accounts, including department stores, furniture stores, and floorcovering specialty stores. The wholesalers distribute the product to retailers who then offer it to the end user. The need for different varieties of our product will vary based on the end users need. The wholesalers purchase the product from the company, which is then distributed to retailers. The retailers then sell the product to the consumers. The role of the intermediary is consistently changing within the industry including direct distribution to retailers in the mid 1980’s, the wholesale and retail consolidation when buying groups emerged in the early 1990’s and the forward integration into retailing by Shaw Industries in the mid 1990’s. Distribution records revealed that 80 percent of residential segment sales were made through 50 percent of its retail accounts.

Competition

Cardon Carpet Mills primarily competes for a position in the U.S. market. In early 2000 the number of carpet and rug manufacturers reduced from more than 300 companies to 100 companies. The...
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