Chabot Wallpaper Company Case
1. What are the major issues and problems facing Chabot?
Chabot faces a variety of issues and problems in the wallpaper industry. First off, as the number of wallpaper manufacturers decreases over each year, remaining company’s market share is increasing, this in turn is creating more competition among these companies. Depending on the market share, some of these companies may be exerting more power and control over retailers than others are able to. Wall coverings outside of wallpaper are also eating at the profits of wallpaper manufacturers as these manufacturers must not only produce a good that is highly valued but is also offered at a reasonable cost. When wallpaper pattern designs become obsolete, markdowns are necessary to help get rid of this old inventory. These markdowns are a key factor in the recent trend of decreasing net income. Since Chabot has made the decision to reimburse retailers for markdowns, Chabot’s total profit margin is reduced relative to the markdown reimbursement costs. Markdown costs have nearly tripled since 2006 and show no sign of slowing down because every four months a new pattern is introduced which creates less demand for the older patterns. The markdowns can be traced back to poor forecasting. Chabot’s forecasting is causing them to build up a very undesirable level of obsolete inventory. This increasing number of obsolete inventory also has a negative effect on inventory turnover. Retailers are very concerned with this turnover rate because it carries a heavy cost on inventory holding. Retailers are threatening to remove Chabot’s products from their shelves in order to make space for products with higher turnover rates which will help minimize inventory costs for the retailers. Keeping up with demand is another issue for Chabot. Chabot is unable to keep a steady supply of its successful patterns which is unacceptable to loyal customers and ultimately hurting Chabot’s level of customer service. Retailers of
Chabot faces a variety of issues and problems in the wallpaper industry. First off, as the number of wallpaper manufacturers decreases over each year, remaining company’s market share is increasing, this in turn is creating more competition among these companies. Depending on the market share, some of these companies may be exerting more power and control over retailers than others are able to. Wall coverings outside of wallpaper are also eating at the profits of wallpaper manufacturers as these manufacturers must not only produce a good that is highly valued but is also offered at a reasonable cost. When wallpaper pattern designs become obsolete, markdowns are necessary to help get rid of this old inventory. These markdowns are a key factor in the recent trend of decreasing net income. Since Chabot has made the decision to reimburse retailers for markdowns, Chabot’s total profit margin is reduced relative to the markdown reimbursement costs. Markdown costs have nearly tripled since 2006 and show no sign of slowing down because every four months a new pattern is introduced which creates less demand for the older patterns. The markdowns can be traced back to poor forecasting. Chabot’s forecasting is causing them to build up a very undesirable level of obsolete inventory. This increasing number of obsolete inventory also has a negative effect on inventory turnover. Retailers are very concerned with this turnover rate because it carries a heavy cost on inventory holding. Retailers are threatening to remove Chabot’s products from their shelves in order to make space for products with higher turnover rates which will help minimize inventory costs for the retailers. Keeping up with demand is another issue for Chabot. Chabot is unable to keep a steady supply of its successful patterns which is unacceptable to loyal customers and ultimately hurting Chabot’s level of customer service. Retailers of