Background on the merger
In April 2008 Haverwood Furniture merged with Lea-Meadows, a manufacturer of upholstered furniture for living and family rooms. The merger was not planned in any conventional sense. The merger proceeded smoothly since the two firms were located on adjacent locations and the two companies would maintain as much autonomy as was economically justified. The only real issue that still remained was merging the selling efforts. The question was straight-forward “do we give the upholstery line of chairs and sofas to our sales force, or do we continue using the sales agents?” Haverwood’s vice president said the line should be given to his sales group, but Lea-Meadows said the upholstery line should remain with sales agents.
Lea-Meadows Inc. is a small, privately owned manufacturer of upholstered furniture for use in living and family rooms. The firm is more than 75 years old. The company has some of the finest fabrics and frame construction in the industry. Their net sales in 2007 were $5 million and the total industry sales in 2007 were $15.5 billion. A forecasted industry sale for 2008 is about $16.1 billion. Over the past 5 years sales had increased 3% annually, also believing that this trend would continue. Lea-Meadows employed 15 sales agents to represent its products. Sales agents found it necessary to deal with several buyers in a store in order to represent all the lines carried. On a typical sales call, a sales agent first visited buyers to discuss new lines, in addition to any promotions being offered by manufacturers.
These new orders were sought where and when it was appropriate. Lea-Meadows paid an agent commission of 5 percent of net company sales for these services. Also were thought to have spent 10-15 percent of their in-store time on Lea-Meadows products. There is no influence on who to sell their products to but there is a stigma of not selling to discount houses. Records show that agents were calling on specialty furniture and department stores. An estimated 1,000 retail accounts were called on in 2006 and 2007. All agents had established relationships with their retail accounts and worked closely with them.
Haverwood Furniture Inc.
They are a manufacturer of medium- to high-priced wood bedroom, living room and dining room furniture. Their net sales in 2007 were $75 million; and the industry sales of wood furniture in 2007 were $12.4 billion. It is projected that in 2008 they will have $12.9 billion in industry sales. The company has 10 fulltime sales representatives, who call on 1,000 retail accounts. They perform the same activities as sales agents but were paid a salary plus a small commission. In 2007 the average sales representative received an annual salary of $70,000 and a commission of 5% on net company sales. Total administration costs were $130,000 Haverwood’s salespeople were highly regarded in the industry. They were known particularly for their knowledge of wood furniture and willingness to work with buyers and retail sales personnel. Sales representatives were presently making 10 sales calls per week with an average sales call running three hours. Their remaining time was accounted for by administrative activities and travel. It was also recommended that the call frequency be increased to seven calls per account per year.
Pros and Cons
Points in favor for combing the two companies
Haverwood has one of the most respected sales force in the industry. Their sales force could easily learn the lingo to interacting with upholstery buyers. Selling Lea-Meadows would only require 15% of present sales call times More control over sales efforts is possible and a combined sales forces fits with the belief that “only our people are willing and able to give” It would not look right if both representatives and agents called on the same stores and buyers because of the overlap on the companies on both companies’ accounts.
Points in favor of keeping in the sales agents
All sales agents had established clients and were highly regarded among the store buyers. Sales agents represent little cost beyond commission
Sales agents were committed to the lea-meadows line.
Sales agents were calling on buyers not contacted by haverwood sales force. Haverwood sales people would have a tough time learning the ways of lea-meadows because there are over 1 billion possible items to learn. Both companies make valid points but the main thing is to determine the cost and profitability. Financial calculations based off the cost of sales force, and sales agents.
10 (sales force members) x $70,000 (average salary) = $700,000 .005 (commission) x $75,000,000 (net sales) = $375,000 x 10 = $3,750,000 $130,000 (total sales administration costs)
Total cost of sales force
5,000,000 (net sales) x .05 (commission) = $250,000 x 15 (sales agents) Total cost of sales agents
Although Lea-Meadows pays their sales agents less with 5 more employees, their profit margins fall 5% below that of Haverwood. It ultimately will affect them more than the cost for Haverwood affects them. If Lea-Meadows were to give their line to the Haverwood sales force, they would only need to pay for 15% of the cost for the sales force.
Total sales force cost = $4,580,000
$4,580,000 x .15 (percentage of time devoted to Lea-Meadows line) = $687,000 The decision to give the line to Haverwood saves Lea-Meadows $3,063,000.
Haverwood’s sales process
Haverwoods personal Sales forces Retail Consumer
Lea-Meadows sales process
Lea-Meadows Sales agency Retail Consumer