6. (Ex 8) Extract from CPT Marketing Module of WWL Staff Intranet

Question 1

Why does WWL retail not sell directly to homeowners?

Answer 1

Because of the considerable cost and after-sales services required to manage this part of the value chain

Question 2

Is WWL interested in online retailing?

Answer 2

They have no plans to develop digital retailing

Despite the accelerated move towards online shopping seen in the UK since 2020

Question 3

Why does WWL have no interest in moving into digital sales?

Answer 3

As they feel online sales are unsuitable for carpet retailing, as home owners generally prefer to go to a store to see, feel and possible walk one a sample of carpet

They also like to discuss the purchase with a retailer before buying it

Question 4

What % of WWL’s revenue comes from retail revenue? And who is this sold to?

Answer 4

Retail makes up approx 60% of total annual revenue
(Note: UK carpet market is 48% retail)
Sales are made to network of retailers

Question 5

In terms of in-store presence, what is WWL’s aim for their ongoing business development?

Answer 5

Aiming to increase depth and breadth of in-store presence
Objective: ensure every retailer used is provided with samples of each element of WWL’s product range

Question 6

Does WWL fit the carpets it sells to retail clients and why?

Answer 6

No, as the carpet retailers WWL sells to offers this service to their customers

Question 7

What are the credit terms offered to retail clients?

Answer 7

40-60 days credit
But some take longer to pay on occasion

Question 8

What % does commercial work typically make up for WWL?

Answer 8

15% of WWL revenue
Note: UK carpet market is 40% commercial sales

Question 9

Does WWL fit carpets it sells to commercial customers?

Answer 9

WWL isn’t usually involved in fitting the carpets supplied as commercial clients organise this themselves

Question 10

What does WWL need to do to win commercial clients?

Answer 10

They need to be very competitive on price offered per m2
- means generally lower margin than retail sales

However, it is high-volume which makes it attractive in terms of production efficiencies

Question 11

What produces higher margins - retail or commercial sales and why?

Answer 11

Retail sales earn higher margins
As for commercial sales, WWL has to be highly competitive on price

Question 12

Despite the lower margins, why is commercial sales an attractive margin?

Answer 12

It is a high-volume sale, so it is attractive in terms of production efficiencies

Each commercial order also involves the delivery of a large quantity of carpet to a single location, so transport costs are lower per order

Question 13

What terms of credit are offered to commercial clients?

Answer 13

60 - 90 days

Question 14

What is the credit terms for retail and commercial customers?

Answer 14

Retai: 40-60 days, but on occasion some take longer
Commercial: 60-90 days, depending on the order size

Question 15

Why is commercial work difficult for WWL specifically to win? But how have they overcome this?

Answer 15

WWL is smaller than some of its rivals
There are some specialist companies that tend to be the first choice for such work

However, they do have good reputation for quality, reliability of supply and service
Also invested in sophisticated logistics and warehouse processes that allow WWL to tender at comparable price for commercial work and offer additional benefits (e.g. off-site storage & on time delivery)

So usually when they get the opp to tender for commercial contract, it is usually successful

Question 16

How successful is WWL at tendering for commercial contracts?

Answer 16

usually when they get the opp to tender for commercial contract, it is usually successful

As they have a good reputation for quality, reliability of supply and service
Also invested in sophisticated logistics and warehouse processes that allow WWL to tender at comparable price for commercial work and offer additional benefits (e.g. off-site storage & on time delivery)

Question 17

Why is bespoke design often very lucrative

Answer 17

Involves client and WWL design team working together to produce unique designs which are then manufactured, supplied and fitted by WWL

Often for wealthy indivs/ businesses that serve wealthy clients

Question 18

Using figures, demonstrate how lucrative bespoke design is for WWL

Answer 18

Bespoke work makes up 25% of revenue
But contributes 40% of gross profit

Also gives WWL access to the premium end of the market

Question 19

Why must the service be good for bespoke?

Answer 19

As it provides access to the premium end of the market

Critical that client expectations are met as wining these types of contracts relies heavily on reputation and word of mouth

Question 20

What is the credit terms for bespoke designs?

Answer 20

Credit period offered can vary widely
Usually linked to the completion of the contract, which can place liquidity pressure if contracts are delayed

Question 21

How big are bespoke orders usually?

Answer 21

Can vary considerably in size
Most place orders around £50k, usually completed within 2-4 months

Orders £100-200k are considered to be medium sized (3-6m)

2 largest bespoke design clients use WWL on an annual basis - each typically placing orders of around £250k (5-12m)

Question 22

Describe the 2 largest bespoke design clients

Answer 22

Use WWL on an annual basis, typically completing orders of £250k
5-12m to complete
Provide regular level of repeat business, though no on-going contract with them

Orders rarely take longer than 12m to complete
No orders have extended beyond 18 months

Question 23

Summarise bespoke orders in terms of large orders
Order size
Average revenue per order
Number of orders
Typical completion period (months)

Answer 23

Order size : large
Average revenue per order : £250k
Number of orders: 2
Typical completion period (months) : 5-12

Question 24

Summarise the bespoke design orders that are medium sized in terms of
Order size
Average revenue per order
Number of orders
Typical completion period (months)

Answer 24

Order size : medium
Average revenue per order : £150k
Number of orders: 14 orders/yr
Typical completion period (months): 3-6m

Question 25

Summarise the bespoke design orders that are small in terms of: Order size Average revenue per order Number of orders Typical completion period (months)

Answer 25

Order size: small Average revenue per order: £50k Number of orders: 35 Typical completion period (months): 2-4m

Question 26

How often are bespoke design orders from repeat customers?

Answer 26

Approx 50% of the time But they rarely place an order more than once per year

Question 27

What is the mark up like on bespoke design work?

Answer 27

High mark up cost on total costs Reflects the high added value associated with this type of work Higher margin also rewards WWL for taking on the uncertainties of this type of work

Question 28

What are the key risks and uncertainties associated with bespoke design work?

Answer 28

- Tends to be unique for each client, often involves non-regular spaces (e.g. circular rooms) Results in higher wastage - up to 25% by volume Some contracts require WWL to take responsibility of removal and disposing of existing end of life carpet - Offered premium service at premium price. But are often demanding in terms of level of communication, service and flexibility expected Changing delivery dates, agreed design specifications etc expected to be absorbed by WWL. Can also result in delayed completion & invoicing, increased costs (wastage), fitting and project man costs. All impacts CF & profit - Costs can often rise during projects for new clients, beyond initial estimates. Returning clients are more predictable but still create uncertainties

Question 29

What often makes bespoke design clients unique?

Answer 29

- Tends to be unique for each client, often involves non-regular spaces (e.g. circular rooms) Results in higher wastage - up to 25% by volume Some contracts require WWL to take responsibility of removal and disposing of existing end of life carpet

Question 30

How does new clients affect the scoping for bespoke design work?

Answer 30

- Costs can often rise during projects for new clients, beyond initial estimates. Returning clients are more predictable but still create uncertainties

Question 31

Why does WWL not sell directly to home owners?

Answer 31

Because of the considerable cost and after-sales services required to manage this part of the value chain

Question 32

Why are premium prices charged for bespoke designs?

Answer 32

Bespoke clients are often demanding in terms of level of communication, service and flexibility expected Changing delivery dates, agreed design specifications etc expected to be absorbed by WWL. Can also result in delayed completion & invoicing, increased costs (wastage), fitting and project man costs. All impacts CF & profit

Question 33

What must be considered when evaluating a new bespoke design work contract?

Answer 33

Due to the risks and uncertainties, various scenarios need to be considered Carry out sensitivity analysis of key variables to help determine price

Question 34

Why are WWL still looking to expand the bespoke design revenue stream?

Answer 34

Large margins possible on the comtract Despite the fact it is niche and more variable than the others, making it a less reliable income stream

Question 35

What is the revenue mix type between retail, commercial and bespoke for 2019, 2020 and 2021?

Answer 35

2019: Retail 61% Commercial 14% Bespoke design 25% 2020: Retail 65% Commercial 13% Bespoke 22% 2021 Retail 59% Commercial 15% Bespoke 26% Increase in bespoke in 2021, drop in retail, commercial remained similar

Question 36

What is the gross profit mix type between retail, commercial and bespoke for 2019, 2020 and 2021?

Answer 36

2019: Retail 53% Commercial 11% Bespoke design 36% 2020: Retail 58% Commercial 10% Bespoke 32% 2021 Retail 49% Commercial 11% Bespoke 40%

Question 37

What is mostly sold by WWL (which product?)

Answer 37

80:20 wool mix is most of the carpet sold But the product mix varies with seasonal variations in fashion Is particularly influenced by the choices made by bespoke design clients

Question 38

Who are most of the wool carpets sold to?

Answer 38

Sold to bespoke design clients, who often ask for their chosen carpets to be complemented with uniquely designed rugs

Question 39

How predictable are the product types that will sell in the market?

Answer 39

Very difficult to predict, as demand is strongly influenced by individual client preferences

Question 40

Summarise how WWL mitigate some of the risks that the cyclical sector presents to them

Answer 40

Having a range of different client types, which they can supply a portfolio of carpet and rug products to Supported by design skills and reputation

Question 41

Summarise case study 1 -Retail customer: Johnson's Carpets Ltd

Answer 41

JC = medium sized chain of floor retailer close to Kidderminster 70yr old family business Not member of carpet buying group mid-to-high priced segment Excellent customer service & supportive/engaging shopping env = key to success Wide range of products offered- wool & synth Stocks large, medium & small manufacturer carpets Wide range of choice so consumers likely to purch all flooring from JC V well trained sales staff Fitting team highly trusted All staff worked there for many years WWL supplies mostly with 80:20 wool mix carpets 100% wool less popular with JC customers JC carpet sales = 2-3% of WWL total revenue Typical retailer that WWL relies on JC always keen to learn of WWL's latest product innovations

Question 42

Summarise case study 2 - Commercial; Switch Cloud Software Ltd (SCS)

Answer 42

SCS offers sophisticated high end software solutions to corporate clients 20yrs old business , expanded recently into new premises SCS contacted WWL for quote for high traffic premises of new expansion (wool mix). SCS sorted own fitting WWL won contract based on contract criteria: quality of carpet; ability to meet schedule & price Shortlisted for initial tender, then given app to represen tender at lower price or quote 100% wool for same price WWL suggested cheaper as wool= unsuitable SCS impressed with openness and candour arguing for less expensive carpet. So selected SCS Carpet was from existing range Manufactured prior to delivery & WWL stored until required Allowed delivery & fitting within clients tight schedule

Question 43

Summarise Case Study 3 - Bespoke designs - Project Yacht Fit

Answer 43

Oct 18 won contract to design, manufacture, supply & fit carpet on new fleet of luxury Yachts supplied by Schubert Yachts 3rd repeat order in 5 years from Schubert Yachts High quality previous work earned repeat custom Helped establish credentials in a market that is notoriously difficult to enter Only ways to enter: word-of-mouth recommendations & personal relationships

Question 44

Give an example of a retail customer

Answer 44

Johnsons Carpets Ltd

Question 45

Give an example of a commercial customer

Answer 45

Switch Cloud Software Ltd (SCS)

Question 46

Give an example of a Bespoke Design customer

Answer 46

Project Yacht Fits - Schubert Yachts

Question 47

What was the gross profit of Yacht fit compared to the whole business in 2019?

Answer 47

Yacht Fit GP = 37.3% Whole company GP = 30.1% THIS WAS 2019

Question 48

Describe the revenue on the Project Yacht Fit in 2019

Answer 48

£150k contract on fixed price basis 50% markup on total estimated costs of £100k, giving operating profit of £50k Gross margin = 37.3% Operating profit margin of 33.3% Higher than WWL 2019 averages (30.1% and 3.5% respectively) Higher value reflects high added value of contract & compensation for risks & uncertainties Risks & uncertainty: project timings, possibility of client demands changing within fixed price contract

Question 49

Describe CoS of 2019 Project Yacht Fit

Answer 49

Manufacturing scheduled within capacity for 2019 using existing equip, production staff & normal HQ raw ingredients So cost per m2 was in line with 2019 average CoS = £39k being Materials £22k Labour £8k OH £9k + following costs Design work £14k (unique logo designed), carried out by in-house design team (part of production team) Project Man cost £7k/Q Subcontracted carpet fitters (£20k, included within £28k labour costs) Floor area set: 10 yachts, each 300m2 to carpet. Generating 300m2 revenue @ £50/m2 Av 7 cabins/suits per yacht @ £30m2 av = 210m2 Common area 90m2 = 300m2 total

Question 50

What £/m2 was generated from Yacht project?

Answer 50

£50/m2

Question 51

What was the mark up on the Project Yacht fit?

Answer 51

50% of the £100k costs

Question 52

What was the gross profit margin and operating profit margin for Project Yacht fit

Answer 52

37.3% gross profit margin 33.3% operating profit margin

Question 53

What is included in manufacturing costs for a bespoke design project?

Answer 53

Materials Labour Production overheads + Design work Project management cost Subcontracted carpet fitters

Question 54

How high/low compared to average was the Project Yacht fit overheads?

Answer 54

As all the yachts were harboured in a single location, and the high volume delivery of goods at each phase of the project, delivery costs per m2 were lower than average

Question 55

Describe the selling and distribution costs for Project Yacht fit

Answer 55

Distribution costs were £6k All yachts were harboured at same area and high volume carpet delivery at each stage meant delivery costs per m2 were lower than average

Question 56

Describe the administrative expenses for Project Yacht fit

Answer 56

The size of the project meant that support capacity within WWL was sufficient, so no additional admin expenses were required

Question 57

Describe the operating profit of Project Yacht fit

Answer 57

3rd order from Schubert Yachts very similar to previous orders So costs were estimated accurately Actual costs were closely in line with £100k estimated £150k revenue was contractually agreed Key uncertainty for this project was timing of each phase of work - dependent on client

Question 58

Describe the project scheduling

Answer 58

Work initially to be completed on a phased basis throughout the acc year ending 30 Sept 19, with work scheduled each Q But client delays meant design was only completed Q2 2019, so manufacturing wasn't complete until end Q3 2019 Carpet fitting only completed once rest of internal construction, FF&E were in palce. Further client delays obtaining this to obtain components & equip for cabin construction So carpet fitting delayed til Q1 2020

Question 59

What were the invoicing and project work arrangements for the Project Yacht fit?

Answer 59

50% of fee billed once design was agreed Rest of bill on completion Payment was received from Q in same Q invoice was raised Manufacture of required carpet began after first invoice was raised Fitting began after carpet manufacturing was completed, subject to yacht availability Fitting and selling and distribution costs incurred in same Q carpets were fitted to yachts Project management costs incurred equally in each Q following design agreement

Question 60

How was the fee billed for Project Yacht fit?

Answer 60

50% of the fee billed once the design was agreed Rest billed on completion

Question 61

When was payment received from Project Yacht Fit?

Answer 61

Received from client in the same Q as each invoice was raised

Question 62

When did manufacture begin for Project Yacht fit?

Answer 62

began after the first invoice was raised

Question 63

When did fitting begin for Project Yacht fit?

Answer 63

After the carpet manufacturing was completed - subject to yacht availability

Question 64

When were fitting & selling and distribution costs incurred?

Answer 64

In the same Q as the carpets were fitted to the yachts

Question 65

When were project management costs incurred in Project Yacht fit?

Answer 65

Incurred equally in each Q following design agreement