According to Leon’s (The Canadian home furniture store), the company was able to increase its market share despite a decrease in sales.

Leon’s Furniture Ltd. said its profit last quarter was 26% lower than the same time last year as the Toronto-based retailer and its franchise affiliates felt the impact of the economic slowdown.

Leon’s net income was $8.62 million in the second quarter or 12 cents per share, down from $11.6 million of 16 cents per share in the same period of 2008, the company announced Tuesday.

Total sales including franchise stores fell to $209.9 million from $224.7 million, a decline of $14.7 million. Franchise sales fell to $44.7 million, down 6.8% or $3.3 million compared to the second quarter of 2008.

“In order to help offset declining consumer confidence, we continued running a very active marketing campaign to coincide with the company’s 100th anniversary. Although same-store corporate sales were down 6.5% compared to the prior year, based upon a competitive analysis of the marketplace, we feel confident that we did increase market share,” Leon’s said.

This case illustrates the problem with analyzing multi-variable problems.  It is difficult to ascertain why Leon’s sales dropped at a slower rate than its competitors.

  • Was it because of the reported 13% increase in advertising spending in the quarter?
  • Was it because Leon’s has successfully ingrained the positioning (over many decades) that they have the lowest prices?
  • Did shoppers who were looking at buying furniture naturally migrate to the large format stores and by-passed the local boutiques in order to save money?
Unfortunately, since there are rarely controlled studies available in real world problems (like this one), it is difficult to answer these questions.  Thus, many organizations spend money without truly understanding what drives ROI.
However, the questions Leon’s should be asking are:
  • What is the nature of the decline in category sales?
    • Is this a temporary issue, or have buyer preferences changed? (i.e. are people generally willing to hold onto old furniture longer)
  • What will the make up of the category be once the recession is over?
    • Is Leon’s current business model still valid?
These forward looking questions will help frame Leon’s go-forward strategy and enable to be more proactive.
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Posted by Malcolm on Tuesday, August 11th, 2009 at 3:49 pm
Filed Under Category: Consumer Goods
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