Should frontier workspace solutions limited (FWSL) consider adding luxury vinyl tiles (LVT) to its residential sector product portfolio to increase profitability?

Should Frontier Workspace Solutions Limited (FWSL) consider adding luxury vinyl tiles (LVT) to its residential sector product portfolio to increase profitability?

Frontier Workspace Solutions Limited (FWSL) is a high-end service provider distributing furniture-related products and services sourced from over seventy brands. However, amidst the pandemic, FWSL has experienced a profit decline due to the majority of projects being put on hold. Over 2019, its profits have declined by 12 million HKD, which made up nearly 10% of the business's total profits. Additionally, due to the predicted growth of Hong Kong’s residential market, FWSL plans to expand its residential sector in hopes of increasing the revenue in this area of the business. Hence, the business is considering adding luxury vinyl tiles (LVT) flooring to its existing residential sector product portfolio to increase profitability.

Firstly, I would like to thank the Director of FWSL for her cooperation and willingness to help me throughout the process. I would also like to thank both of my parents for their support and constant encouragement. Finally, I would also like to thank my business teacher for the professional advice and guidance that he has provided me with during this project.

FWSL is a multinational distributor of furniture-related products and services catering to a variety of sectors. On account of the pandemic quietening Hong Kong’s economy, many of FWSL’s projects have been prolonged or postponed, leading to a significant fall in profits. Hence, FWSL is considering adding luxury vinyl tiles (LVT) to its residential sector product portfolio to increase profitability.

 

This report examines the feasibility of selling LVT in the residential sector by conducting interviews with FWSL’s director, head of sales, and a project manager from a firm specialising in interior design. Potential clients were also surveyed to gauge the level of interest in LVT flooring and define the target market. Hereafter, a SWOT analysis was composed to summarise the interview results, while an Ansoff Matrix was used to determine the nature of the strategy. Additionally, CFFs were constructed and Lewin’s FFA was used to quantitatively evaluate the driving and restraining forces for this proposed change.

 

In conclusion, FWSL should add LVT flooring to its residential sector product portfolio to increase profitability. It is recommended that additional financial resources are acquired beforehand for purchase costs, marketing is prioritised, and a just-in-case stock control system is implemented.

Since 2002, FWSL has been a purveyor of furniture-related products and services with distribution sites throughout the Asia Pacific. With a commitment to “help clients create great spaces”, FWSL aims to work with environmentally-conscious partners whilst diversifying its product portfolio so that new sectors can be serviced. Currently, FWSL offers products and services across commercial, hospitality, residential, and institutional markets.

 

With the ongoing Covid -19 pandemic, most of FWSL’s projects have been put on hold and prolonged, resulting in a loss of 12 million HKD in 2019 and forcing the company to cut costs accordingly. To address this issue and improve profitability, FWSL is considering selling luxury vinyl tiles (LVT) in its residential sector. The firm is targeting the residential sector because of the forecasted availability of approximately 28,000 residential units in the coming year (Ka-Sing 2022). As such, FWSL believes that the residential market demonstrates a high potential for growth.

Should Frontier Workspace Solutions Limited (FWSL) consider adding luxury vinyl tiles (LVT) to its residential sector product portfolio to increase profitability?

Two interviews were conducted with internal stakeholders within FWSL: the director of the company and the head of sales (Appendix 1 & 6). The interview findings consisted of data regarding the business’ rationale and objectives, and the feasibility of implementing this project based on its current standing. Such qualitative data was acquired as the foundation for the SWOT analysis, Ansoff Matrix, and Lewin’s Force Field Analysis. The quantitative data was used to aid the construction of the cash flow forecast.

 

Clarence Lui, a project manager at Kompass Creative Design Limited, was interviewed (Appendix 8) to gain insight into the level of demand for LVT flooring and its advantages and disadvantages. This information was used to create relevant questions for the survey.

 

A survey (Appendix 9) was sent out to 20 potential customers to gauge the level of interest in LVT flooring and better define the potential target market. Despite the respondents being selected through convenience sampling, it had been assured that this group would likely engage with a business like FWSL.

Paul Hoang’s business management textbook was used with his revision guide to define and apply relevant BM concepts and correctly interpret the qualitative and quantitative data provided. FWSL’s official website was also used to obtain relevant background information.

Despite the objectivity of the interview questions, information is being collected from individuals who have large stakes in the success of the business and would therefore refrain from portraying it negatively. As such, their responses may include elements of bias. This might affect the construction of strategic tools.

 

Although the survey was distributed to 20 potential clients of FWSL, the sample size of 14 respondents is limited. Hence, the data gathered may be unrepresentative of the target market’s level of interest in LVT. A larger sample size of 50 potential clients could be used to reduce misinterpretations. Nonetheless, it is important to consider that the overall validity of the survey may be impacted.

 

Due to unknown variables, the use of approximations in FWSL’s numerical data, and the uncertain future of Hong Kong’s economy, the financial projections may not be fully reliable. However, they can still be used as estimates for the project’s financial feasibility.

Using the information extracted from the Director of FWSL (Appendix 1) and the company’s head of sales (Appendix 6), a SWOT analysis was constructed.

35.7% of the respondents’ homes are between 1500 to 2000 square feet.

28.6% of respondents are willing to spend $400,000 to $500,000 HKD on their home renovations.

50% of respondents will allocate 20% to 30% of their home renovation budgets to flooring.

85.7% of respondents are uninformed about LVT as a flooring option.

After reading an introduction to LVT and a summary of its advantages and disadvantages, respondents are mostly neutral about (median of 3) using this flooring in their homes.

The CFF was assembled based on the figures and P&L statements provided by the director of FWSL (Appendix 2) and the constructed P&L statements based on the figures acquired through an email exchange (Appendix 3). The considerations made when applying the raw financial data from FWSL to the CFF calculations can be seen in Appendix 4.

FWSL is considering implementing market development since it is offering a new product in the existing residential sector. Although FWSL’s residential sector accounts for less than 10% of the company’s overall turnover (Appendix 6) and the firm has limited experience selling to individual clients, LVT is currently sold in the commercial and hospitality sectors. Hence, FWSL can transfer its existing expertise to the residential sector. Having said this, the strategy is considered to be of low to medium risk, which is favourable for FWSL due to the company’s limited availability of resources as a result of declining profits (Appendix 1).

The following FFA evaluates the driving and restraining forces identified for selling LVT in the residential segment. The weightings used were determined through an email exchange with the director of FWSL (Appendix 5).

Through observing Figure 14, one may conclude that this project will significantly improve the firm’s cash flow. For instance, the closing cash balance as of the end of Q4 2024 in Figure 6 is $368,194 HKD, whereas the closing cash balance as of the end of the same quarter in Figure 7 is $752,688 HKD. This strategy can help FWSL to sustain the company’s operations and ensure its survival despite this quiet economy and its falling profits, which the director stated to be the company’s main weakness (Appendix 2).

Adding LVT to the residential sector will also stabilise FWSL’s revenue. Due to LVT’s ease of installation (Appendix 8) and the size of the area where they would be installed not exceeding 4000 sq ft (Appendix 9), FWSL will be able to take on more projects simultaneously. This is an important factor for FWSL to consider since it may result in a more stable income which is favourable for FWSL due to the recent operating environment’s instability. It could also contribute to financially compensating the projects FWSL had to prolong and or postpone (Appendix 1).

With this project’s market development strategy, FWSL can work towards its long term objectives of diversifying its market segments and increasing its market share (Appendix 1). This may increase FWSL’s profitability, one of its short-term objectives. Simultaneously, the risk that that comes with the current business model depending on the project market, a primary reason for FWSL’s profits’ vulnerability to the slowed economy and pandemic, may be reduced. This is important for FWSL as an additional, more stable source of income, may decrease the firm’s susceptibility to hindrances caused by the external environment.

Since FWSL already has the storage capacity, expertise, and distribution channels (Appendix 1), the company will only need to account for the purchase costs of the LVT flooring (Appendix 1). Moreover, due to its current digital marketing strategy development, the business will need little additional resources for advertising since the company’s presence on social media will allow it to form relationships with individual clients. Hence, FWSL will have a higher net cash flow; allowing it to resume its normal spending on operations such as marketing (Appendix 1), and improve its productivity and sales accordingly.

According to survey results, 85.7% of respondents are unaware of LVT (Appendix 9). Additionally, home-owners do not typically opt for LVT flooring due to misconceptions regarding its robustness (Appendix 8). As such, the demand for LVT flooring may not be as high as anticipated, resulting in inaccurate projections for the CFF, and creating the risk of excess inventory. Although this surplus is unlikely to go obsolete due to LVT’s durability (Appendix 8), the money tied up in inventory may create a cash flow shortfall. FWSL would not be able to afford this financial burden because of its already falling profits. Nonetheless, FWSL gave this force a weighting of 2 as its marketing plan can significantly increase customer awareness of this flooring option.

Based on the survey results showing that only 14.3% of respondents are aware of LVT as a flooring option (Appendix 9), an effective marketing strategy is crucial for attracting sales. However, as a result of having to cut costs, FWSL has diverted its focus from its marketing efforts (Appendix 1). Consequently, the growth of the residential sector may be stunted as the awareness of this product would be limited; hence, the company may fail to meet its sales targets. However, FWSL’s weighting of this force is low due to the upcoming digital marketing strategy which has the potential to circumvent such concerns.

Due to the current lack of relationships with vendors and complications regarding logistics (Appendix 2), FWSL may not be able to meet customer expectations concerning the quality and delivery of the LVT flooring, thus resulting in customer dissatisfaction and potentially tarnishing FWSL’s brand image. With the the risk of another wave of Covid-19 (Appendix 1), the unpredictable economy may lead to the reluctancy of customers to renovate. Therefore, the projected profitability may not eventuate, putting FWSL at risk of failing to meet financial targets. Though this may largely impact FWSL’s success for this project and its future expansion plans, the firm believes that the political and economic situation will improve, hence the low rating of this force.

Based on the weightings of the FFA in which the driving forces for this strategy outweigh the restraining forces 15 - 6, FWSL should add LVT flooring to the residential sector product portfolio to increase profitability.

 

According to the CFFs (Figures 6 & 7), selling LVT flooring in the residential sector will significantly increase the company’s NCF and closing cash balance. Due to FWSL’s recent profit decline, boosting its profitability is arguably the top priority, as evidenced by it being one of the firm’s short-term objectives. Its importance also lies in the significance of sufficient capital for FWSL’s plans for expansion in the residential market and the further development of the marketing plan.

 

Although selling LVT flooring in the residential sector is of a medium-risk, its long-term potential is justified. FWSL’s history in the furniture industry, combined with a strong marketing plan, may mitigate its insufficient track record in the residential market. Similarly, its strong reputation allows for relationships to be easily established with vendors. These are important factors to consider for this project’s success. However, the risk of insufficient demand still withstands; hence, this project’s success is highly dependent on FWSL’s ability to market it.

If FWSL adds LVT to its residential sector product portfolio, it should -

 

• Raise at least $456,000 HKD from injecting personal funds by the director of FWSL to account for purchase costs in the first quarter of operation (Figure 7) since the company prefers to separate the residential sector’s LVT from its existing stock. Further areas of study include the exploration of alternative sources of finance in the case that the projections in the CFFs lack accuracy and additional funding may be required.
• Prioritise its marketing operations, specifically its upcoming digital marketing strategy. This will allow FWSL to interact with and educate potential buyers about LVT flooring whilst building relationships with individual clients, a key factor in attracting sales in the residential industry. According to survey results, FWSL should focus its marketing efforts on middle to high-class Hong Kong residents aged 41 - 55.
• Adopt a JIC inventory system to prepare the business for fluctuations in sales. With the firm’s current JIT control system, if demand exceed initial expectations, the inventory carried may be insufficient to cater to all projects since FWSL would only carry enough stock for the next 3 months. Although JIC may incur higher costs, a lack of inventory may result in customer dissatisfaction and a tarnished reputation, which is arguably more harmful for FWSL given its expansion plans in the residential sector.

Frontier Workspace Solutions Limited. "About Us." Frontier Workspace Solutions Limited, 2021, www.frontierworkspace.com/about. Accessed 21 Aug. 2022.

 

Hoang, Paul. BUSINESS MANAGEMENT 4TH EDITION. Victoria, IBID Press, 2018. Accessed 21 Aug. 2022.

 

Hoang, Paul. Business Management Study & Revision Guide: For the IB Diploma. London, Hodder Education, 2016. Accessed 21 Aug. 2022.

 

Ka-Sing, Lam. "Ballooning Hong Kong Supply of New Homes in 2023 Will Have Developers Slashing Prices, Buyers Saving 10 Percent or More." South China Morning Post, 19 Dec. 2022,

https://www.scmp.com/business/article/3203763/ballooning-hong-kong-supply-new-homes-%202023-will-have-developers-slashing-prices-buyers-saving-10.%20Accessed%2015%20Jan.%202023.

 

Wood Floor Warehouse. "What Is LVT Flooring?" Wood Floor Warehouse, 2022, www.woodfloorwarehouse.co.uk/advice-inspiration/faqs/what-is-lvt-flooring. Accessed 21 Aug. 2022.