BatesManor Furniture Inc. was formed in the early 1900s by current president Charleton Bates’ great-grandfather. BatesManor Furniture is a manufacturer of high quality wood furniture, specializing in medium to high priced bedroom, living room and dining room pieces. Their furniture is sold through 1000 high-quality department stores and independent furniture subspecialty stores nationwide, but not all stores carry the company’s entire line of furniture. BatesManor is very selective in choosing retail outlets and will not sell to furniture chains and discount outlets. BatesManor’s sales force consists of ten full-time employees and two regional sales managers, contrary to ...view middle of the document...
The last category, consumer advertising is directed at potential customers through shelter magazines. The purpose is to highlight new furniture and different furniture arrangements.
On January 9th, BatesManor executives held a budgeting meeting to discuss the appropriate way to allocate funds for promotional expenditures in 2008. Also in attendance were executives from BatesManor’s advertising agency, Hervy and Bernham. BatesManor’s policy has been to budget 5% of expected sales toward total promotion expenditures. Mike Hervey proposed an increase in expenditures for consumer advertising by $225,000. Cooperative and trade advertising would remain at the 2007 levels. Hervy recommended that shelter magazines account for the bulk of the incremental increase in consumer advertising. Jon Bott, BatesManor Vice President of Sales, disagrees with Hervy’s suggested budget allocation. Jon believes the funds should be used to cover expected increases in sales expenses and administration costs, as well as to hire an additional sales representative. Trade economists are predicting a 4% sales increase for 2008. According to Jon Bott’s calculations, the 4% increase would provide a promotional budget of $3,975,000. If Jon Bott receives the funds he is requesting and Bates agrees to Hervy’s recommended increase in consumer advertising; only $12,000 remains for trade promotion. Charleton Bates is now faced with the challenge of figuring out how to allocate the advertising funds and how the funds should be allocated within the budget.
This is an industry in its mature stage, and following will be a decline in revenue through 2015 according to IBISWorld. Declining economic conditions, decreased expendable income, and a poor housing market have all driven down the demand for this industry. Increased (less expensive) imports have lowered overall furniture prices, thus adversely affecting local manufacturing companies.
Some other external drivers affecting the industry as a whole, and consequently BatesManor, are:
Value of residential construction
Residential construction plunged by an average of 22% between 2007 and 2009. The housing market crash spread to the financial sector, trickling down into the rest of the economy and resulted in many layoffs. This in turn affects disposable income which leads to decreased demand of certain products and services.
Downstream demand from furniture stores
This is due to the decreased consumer demand.
Disposable per capita income
Per capita disposable income determines an individual's ability to purchase goods or services. Below is a chart depicting the per capita income percentage change starting in 1981 and projecting up to 2016. Notable is the significant drop in the time period between 2006 and 2008; more than a 3% decline. A slight increase followed between 2008 and 2009.
Price of sawmill lumber
Sawmilled lumber refers to logs that are sawed into boards and prepared for use...