Cardon Carpet Mills Case Study

EXECUTIVE SUMMARY

United States consumers and businesses spend about $50 billion annually for floor coverings.The largest category of floor coverings is carpet and rugs, followed by resilient coverings(vinyl), hardwood, ceramic tile, and laminates. Cardon Carpet Mills, Inc. is a privately heldmanufacturer of a full line of medium-to-high-priced carpet primarily for the residentialsegment. The company markets its products under the Masterton and Chesterton brandnames. Based on the present state of the industry and performance in 1999, it pleased thedirectors. The business recorded a profitable sales growth 3.6 percent and net profit margingained 4 percent respectively. Given recent developments within the floor covering industry,Robert Meadows the president of Cardon Carpet Mills, Inc. was considering the possibility of establishing distribution centres or wholesale operations for the company. Thus, SuzanneGoldman, a special assistant to the president was given a task to prepare a position paper forthe president. Nevertheless, Gol

dman received unfavourable feedback from the company’s

wholesaler who did not agree with the proposal.

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 1

980’s

when the largercarpet and rug manufacturers began to eliminate the margins paid to wholesalers bybypassing 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 forresidential carpet and rug sales were distributed through company distribution centres 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...