Guillermo Furniture Store Analysis
Guillermo Furniture Store Analysis
Amanda Donner
FIN/571
April 29, 2013
Danica Djordjevich
Guillermo Furniture Store Analysis
Guillermo Navallez owns a furniture store in Sonoma, Mexico near his residence. He produces tables and chairs from the available timber supply in the area. Until the late 1990s, Guillermo was enjoying a lucrative business because labor costs were low, and he could charge a premium price for his handcrafted and high quality products (University of Phoenix, 2010). Guillermo is noticing a decrease in his profit margins because of a change in the furniture market environment. A competitor from overseas that uses a hi-tech production method has moved to the area (University of Phoenix, 2010). Also, the area of Sonora, Mexico is growing in population and development. These two situations have a direct effect on Guillermo’s furniture business. He must determine how this change in market environment affects his business and develop an alternative business strategy to compete in the new environment.
Issues Affecting Guillermo’s Business
Pricing Strategy The foreign competition that has moved into the area provides a hi-tech approach to production that provides furniture at a low cost with high specifications (University of Phoenix, 2010). This creates a pricing issue for Guillermo. Previously, Guillermo could charge a higher price for custom tables and chairs. Because his low-tech production method is time and labor intensive it will be difficult to lower the price of his furniture. To remain competitive, he can no longer demand a higher price for his custom products because the competition can provide the same service at a lower cost.
Labor Costs
Sonora, Mexico with its mild weather and beautiful scenery, is growing and providing inexpensive housing, un-congested roads, a new International Airport, and development (University of Phoenix, 2010). This new growth is, in part because one of the largest retailers in the nation
Amanda Donner
FIN/571
April 29, 2013
Danica Djordjevich
Guillermo Furniture Store Analysis
Guillermo Navallez owns a furniture store in Sonoma, Mexico near his residence. He produces tables and chairs from the available timber supply in the area. Until the late 1990s, Guillermo was enjoying a lucrative business because labor costs were low, and he could charge a premium price for his handcrafted and high quality products (University of Phoenix, 2010). Guillermo is noticing a decrease in his profit margins because of a change in the furniture market environment. A competitor from overseas that uses a hi-tech production method has moved to the area (University of Phoenix, 2010). Also, the area of Sonora, Mexico is growing in population and development. These two situations have a direct effect on Guillermo’s furniture business. He must determine how this change in market environment affects his business and develop an alternative business strategy to compete in the new environment.
Issues Affecting Guillermo’s Business
Pricing Strategy The foreign competition that has moved into the area provides a hi-tech approach to production that provides furniture at a low cost with high specifications (University of Phoenix, 2010). This creates a pricing issue for Guillermo. Previously, Guillermo could charge a higher price for custom tables and chairs. Because his low-tech production method is time and labor intensive it will be difficult to lower the price of his furniture. To remain competitive, he can no longer demand a higher price for his custom products because the competition can provide the same service at a lower cost.
Labor Costs
Sonora, Mexico with its mild weather and beautiful scenery, is growing and providing inexpensive housing, un-congested roads, a new International Airport, and development (University of Phoenix, 2010). This new growth is, in part because one of the largest retailers in the nation
References: Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate financial management (3rd ed.). Morristown, NJ: Wohl Publishing Inc. Ivestopedia. (2013). Weighted average cost of capital - WACC. Retrieved from http://www.investopedia.com/terms/w/wacc.asp Lloyd, J., & Davis, L. E. (2007, November). Building long-term value. Journal of Accountancy, Retrieved from http://www.journalofaccountancy.com/Issues/2007/Nov/BuildingLongTermValue.htm University of Phoenix. (2010). Guillermo 's Furniture Store Scenario. Retrieved from University of Phoenix, FIN571 website.