Assignment
The year 1975 saw the tail end of a recession that came on the heels of the 1973 Arab oil embargo, the fall of Saigon, and the resignation of Richard Nixon. That same year, Jake Jabs took over the American Furniture Company in Denver, Colorado, renamed it American Furniture Warehouse (AFW), and started turning it into a high-volume discount home furnishings retailer. Jabs responded to concerns that resonated with consumers in a tough economy: tighter pocketbooks, job insecurity, rising energy costs, a growing number of households as baby boomers branched out, and greater receptivity to generic products. Jabs was an experienced furniture retailer and had operated his own furniture manufacturing concern. Unbeknown to Jabs at the time, global sourcing would become a more prominent way for his company to stock its showrooms. Fast-forward to the present. Consumers' tastes change at a faster clip. They have higher standards than ever, and they demand bargains. As an inherently frugal man, Jake Jabs loves to give the public good value while keeping overhead low Jabs is the CEO, but he employs no executives. No titles of vice president or executive vice president are anywhere in sight. The company is family-owned and is not beholden to stockholders demanding that high profit margins or quarterly objectives be met. Without pressure from such entities, AFW has continued to grow and thrive. Jake Jabs obsessively trolls for ideas on how to keep prices low, quality high, and merchandise current. People from all over the western United States visit AFW's megastores. They are intrigued with the values and constantly ask that AFW open a showroom near them. To date, AFW has preferred to remain a regional player. Its buys are based on the preferences and trends of Colorado customers.
Some of the many tenets to which AFW subscribes include striving to offer the lowest prices and the best guarantee, employing a no-pressure sales staff, having the best displays and selection, employing a careful delivery staff that works seven days a week, providing outstanding product information and customer service, and repairing merchandise on-site rather than shipping anything back to the manufacturer. In the 35 years AFW has been operating, it has forged strong vendor relationships worldwide. In fact, AFW sources goods from 30 different countries. Its major trading partners include Malaysia, Indonesia, China, Vietnam, and Mexico. It has a buying office in Asia. Its reputation has matured to the point where vendors travel up to 250 miles to bring samples to a foreign AFW buying office. AFW's small buying staff maximizes its time by having vendors come to buyers at specified dates and times; buyers no longer have to make arduous trips through countries such as China. Instead, they spend their time efficiently visiting stateside wholesale market centers and trade shows and working out of the AFW buying offices the majority of the time. One of the dilemmas AFW has been grappling with centers around setting guidelines under which it will make time to see a new vendor. AFW's reputation is well known, and vendors clamor to get appointments with Jabs and his team on their limited market and trade show visits. Many factories in developing countries have lower cost structures than those closer to home, often due to less stringent government regulations, lower pay, and fewer benefits for workers. Foreign factories often specialize in manufacturing one or two items well rather than constantly changing what product is on the assembly line, as is often the case in the United States. The one- or twoline process is less flexible but more cost-effective. Since AFW sells so much, it is able to buy in volume. It directly imports full containers of merchandise. Its buying staff travels the world looking for the best deals. As a result, buyers are often able to negotiate prices 30 to 60 percent less than competitors' prices for comparable merchandise. This is due in part to the size of the order and the manner in which it is shipped. AFW sometimes pays in advance to get a better price, and it has a policy of always paying on time-a value factories respect and reward. Jake Jabs is exploring other ways in which AFW can differentiate itself in the buying process. An example of how AFW has applied creative problem solving to reduce cost unfolds through its decision to build its own chairs, saving dramatically on freight costs. A garden-variety hardwood dinette chair can be manufactured abroad and the pieces assembled at AFW for much less than the cost if it were shipped already assembled. Typically, 1,000 assembled dinette chairs fit in a standardsize container. AFW buys 4,000 identical chairs in pieces and fits them in that same container. It pays its domestic workers roughly $2 per chair to assemble them and can sell each chair at retail for less than what other retailers pay for the same chair at wholesale. Yet another manifestation of its creative solutions to cost-reduction: AFW takes delivery on blanket-wrapped merchandise rather than carton-wrapped. Not only are the blankets reusable, but not putting the merchandise in cartons in the first place can save as much as 5 percent on the total purchase price.
Once merchandise arrives at one of two distribution centers, it is placed into storage and samples are immediately shipped to the showrooms. AFW makes it a policy not to return merchandise to a factory. If something is broken, its staff of 120 trained service technicians can repair just about any furniture problem they may encounter, often for pennies. Because of its no-return policy, if it makes a buying error, AFW will mark down the item and not repurchase it. With no returns to process, vendors sell to AFW for up to 15 percent less than to other retailers for that reason alone. Artisans in Mexico make and sell accessories to AFW by the truckload. Recently, the accessories buyer was in Mexico at the invitation of the Mexican government. She was advising a group of artisans on what to create to appeal to the Colorado market. Because AFW buys items in bulk, it saves up to 50 percent over what competitors pay for similar items. Jake Jabs would like to replicate this sort of activity in other product categories in other countries. He is pondering the best way to do this. AFW takes chances on new, upstart vendors that other retailers may not have discovered. There are risks and rewards to this strategy, but AFW has found the rewards outweigh the risks, on balance.
DISCUSSION QUESTIONS
1. Factories in many developing nations have lower cost structures, but that is often attributable to fewer benefits and lower wages for workers. What are the ethical trade-offs for retailers and shoppers when merchandise is sourced from countries where labor practices fall short of standards Americans deem acceptable? Do shoppers really care about workers halfway across the globe, or are they more concerned about how many dollars are flowing out of their own pockets?
2. The world is our marketplace. AFW employs global sourcing, uses many negotiating tactics and shifts channel tasks to keep its costs as low as possible. Enumerate the tactics AFW uses to keep its prices low. What other strategies and tactics could a furniture retailer use to hold the line on retail prices?
3. What criteria should AFW use when deciding whether to see a new vendor? How might it apply some of its best practices with its biggest vendors to new, smaller vendors? What strategies or innovations could it employ to stretch the productivity of its buying staff?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.