Strategy analysis of Conforama

By CHEN Junxing
LIU Qingwei
LI Siqi
WU Xinzhu
WANG Jing

Submitted on April 30, 2020 for the course of Strategy MSC M1, a.y. 2019-2020.

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 Contents
1. Introduction............................................................................................................................3
2. External and internal analysis................................................................................................3
2.1 The external environment.................................................................................................3
2.1.1 the macro-environment..............................................................................................3
2.1.2 Sector and industry.....................................................................................................9
2.1.3 Strategic groups........................................................................................................16
2.2 The internal environment................................................................................................20
2.2.1 Resources and capabilities.......................................................................................20
2.2.2 Competitive advantage.............................................................................................25
3. Business and corporate strategy...........................................................................................30
3.1 Business strategy............................................................................................................31
3.1.1 Strategic positioning.................................................................................................31
3.1.2 Relative cost position...............................................................................................32
3.1.3 Sources of differentiation.........................................................................................37
3.2 Corporate Strategy..........................................................................................................38
3.2.1 Business Scope.........................................................................................................39
3.2.2 Value creation...........................................................................................................40
4. Conclusion & Recommendations.........................................................................................42
References................................................................................................................................44

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1. Introduction

Conforama, the No.2 furnishing retail chain in Europe, has been a success since the

beginning of the century. It owns nearly 400 stores in 8 different European countries.

However, the company has recently been in the center of crisis, even the stores in the very

center of Paris was shut down.

We’ve chosen Conforama, as it is one of the most successful furnishing business in France,

and it has also several strategical issues recently. Our objective is to have a better

understanding of Conforama as well as its strategy, to put ourselves in their place in order to

find a better strategical solution. We will analyze the macro-environment (PESTLE

Analysis), sector and industry, strategic group, the internal factors such as resources and

capabilities, competitive advantage. References and data will be used to support our analysis.

2. External and internal analysis

2.1 The external environment

2.1.1 the macro-environment 

The 50-year-old home furnishing retail chain Conforama who owns over 339 stores in 8

countries with more than 15000 collaborators worldwide and offers various of product –

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from kitchen to bedroom furniture, is the second largest industry leader in Europe. From

opening its very first store in Lyon in 1967, today, Conforama has reached a sale of 3.4

billion euro during 2017/2018, with a market share of 16.1% in France.1

Yet, Conforama has problems during its development. For a better understanding of its

situation and therefore analyzing its strategical challenges, the following analysis will

uncover its controversies, growth and difficulties.

2.1.1.1 Political factors

Several aspects of government policy affect business. All firms must follow and respect laws

and regulations. The home furnishing giant Conforama, like many businesses in France, is

deeply affected by the political affaire ‘Gilet Jaune’ in year 2019. Yet, the company is also

receiving help from the French government.2 Owned by Steinhoff, the South-African group

facing a financial crisis today, Conforama has announced a plan of budget-cutting and staff-

reducing, to reduce nearly 20% of its staff, while French government has already given a tax

deduction of 63 million euros.

The political issue has also affected Conforama’s supply chain. Due to French regulation,

Conforama has decided to reduce the number of local supplier3, because once the purchase

by pass 25% of its supplier’s productivity the buyer can’t redraw the contract easily, that will

significantly reduce the flexibility of Conforama and also it can’t reduce its cost easily.

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2.1.1.2 Economic factors

The economic factor can affect the market in various ways. Factors such as economic growth,

exchange rate, inflation rate, interest rates, the disposal income of consumers and

unemployment decide the demand of goods from consumers and therefore impact the sale of

a company.

The furnishing market is very sensible to the macro-economic environment. And as we can

see in the image, Conforama has recorded a success since the early 21 st century, and the

market is also growing.

Also, the global furniture market is projected to grow at the rate of 5.2% during the forecast

period 2018 to 2023. Growing brand consciousness and increasing expenditure for furniture

goods among millennial is supporting the market growth from last few years. 1 This shows the

macro-economic has bring advantages to the industry, but in the same time, the competition is

getting more intense, Conforama will be facing the multinational competitor such as IKEA,

and also its local competitor such as Maison du Monde and But. As a result, the main actors

of the market will try to reduce their cost and even reduce their margin in order to obtain the

market share. Another factor in economic that might affect the furnishing market, is the

individual housing. In France, the furniture sale’s growth is related to the number of housing

start, more the housing is developed, better the furniture could be sold.

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 Figure 1.XX: Individual Housing Starts Seem to Drive Furniture Sales in France

Resource: Conforama: The Victim of Increasing Competitive Pressure in France

At the beginning of 2020, the COVID-19 is hitting the global economy heavily, which means

the global purchasing power will decline. People will focus more on the base need goods

more that luxury product. Therefore, the future of the furnishing business will be a price war.

Consumers will be more price sensitive rather than focusing on the luxury side of furniture.

2.1.1.3 Social factors

It is crucial to understanding the social and cultural factors of the market. The demographic

characteristics, norms, customs and values of the population within which the organization

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operates. This includes population trends such as the population growth rate, age distribution,

income distribution, career attitudes, safety emphasis, health consciousness, lifestyle attitudes

and cultural barriers.

Take IKEA as example, in a Russian catalogue, IKEA removed a same-sex couple from their

magazine.1 While homosexual is widely accepted by the western countries, the action of

IKEA has been criticized. IKEA has put itself in a dangerous position by placing a

controversial subject in a country that doesn’t share the same value as the western society.

2.1.1.4 Technological factors

Digital technology is the most important trend of the world economy. The number of online

purchase in furnishing market is growing every year, see in figure 1.xx.

Figure 1.XX:

Source: statista.com

https://www.statista.com/outlook/255/100/furniture-homeware/worldwide#market-users

As all business is embracing digital technology, the consumers today are more comfortable

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with online purchase. Take IKEA as example, the leader of market has begun its digital

transformation for a while, and they focus on improving customers shopping experience,

from online catalogue to business process improvement, IKEA has successfully increase sales

and brand loyalty. Conforama has also engage to move their business online as they recorded

129 million online visitors in the year of 2018.

Logistic is also an important factor which can help company to better satisfy their client. As

most of the companies are digitalized today, the logistic center2 is an inseparable part in the

business process. With the biggest logistic center, will Conforama seize the opportunity to

win the market share?

2.1.1.5 Environmental factors

Business’s sustainability is no longer ‘just a responsibility’ today, it’s rather an obligation for

those who want to survive in the market. Furniture industry is one of the most affected

business as furniture’s production needs to use wood and other resources: Wood, metal, the

release of greenhouse gas during production and the energy used in stores…

Conforama, like its biggest competitor IKEA, has been taking actions to respond to

environmental problems, recyclable materials, reduce greenhouse gas releasing – from both

production and operating the stores, using responsible wood etc.1

The actions devoted to climate challenges will not only reduce the cost of a furniture

company and also improve their brand image.

2.1.1.6 Legal factors

Legal issues have always been a potential threat that could destroy a company. From its

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creation, Conforama has suffered several crises, such as in 2008, Conforama has recalled its

product as they provoke allergy and skin diseases, ten of the buyers has been hospitalized 1.

The product quality is a crucial factor that affects a company’s reputation. 2 Even the clients

have been refunded; the image of the company remains damaged for years. As a result,

Conforama’s review online has been generally declined. Also, lawsuit will cost time and

money if the product has not been respecting regulations or laws.

2.1.2 Sector and industry

Cost leadership and product quality provide the Conforama Group with a competitive

advantage, making the company one of the market leaders. There are also many competitors

in the furniture and electronics retail industry, which makes it crucial for Conforama to

analyze the micro external environment. Based on porter's five forces model, this paper

analyzes how different factors in the industry affect the competition of Conforama.

a) Bargaining power of suppliers

The bargaining power of suppliers is very low. Globally, there are a large number of suppliers

of furniture and appliances, most of which are small and lack sufficient influence. Furniture

retailers such as Conforama have well-established global supply networks that allow them to

compare prices in global quotes and easily switch from one supplier to another.

Conforama, for example, has 339 stores in eight European countries as of May 2019. In

conjunction with international stores, Conforama has a global supply system consisting of six

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purchasing offices: Paris, Milan, Romania, Poland, Vietnam and China. Global supply chain

suppresses the bargaining power of suppliers and guarantees the low-cost strategy of furniture

retailers.

Figure 2.9: Purchasing framework of Conforama

Source: research on purchasing management of household retail industry -- based on CONFORAMA,

France

b) Bargaining power of customers

In furniture and home appliance manufacturing, buyers' bargaining power is enormous

because they are highly price sensitive. The first reason is that competition is fierce. There are

several large furniture retail chains in Europe, including Conforama, IKEA and BUT. Buyers

can buy from a long list of furniture retailers without switching costs, creating a high

premium for buyers.

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Second, with the development of information technology, furniture buyers can obtain

information more easily, including the list of furniture sellers, the advantages and

disadvantages of each brand, and the comparison of product prices. These factors have a

positive impact on their bargaining power.

Finally, there is a lack of fundamental innovation in furniture products, which leads to

increased bargaining power among buyers. Many furniture retailers do not have their own

designs and differentiated products, they are simply dealers who rely on low prices to win

customers. IKEA has done a good job of this. IKEA owns design patents for all products.

c) Threat of substitutes

The threat from alternative products is small, furniture and electrical appliances are

irreplaceable items in human life. The form, type, and design of furniture can keep pace with

The Times, but innovative products are not substitutes, just product improvements. In the

foreseeable future, there will be no substitutes for furniture and appliances in the short term,

which will minimize the threat of substitutes.

d) Threats from entrants

If new entrants to an industry face a large number of barriers, this means that the threat to

new entrants is low. For the furniture market, the threat from new entrants is medium to the

bottom.

From the technical barriers, legal supervision and other aspects of the analysis, furniture and

electrical appliances retail market easy to enter. Making furniture and distributing electrical

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appliances does not require much research and development. The industry also has no special

legal regulatory requirements. Based on the above factors, new brands can enter the market

on a small scale. There are many brands in the market, but only a few are large enterprises.

From the perspective of economies of scale and cost advantages, it takes a long time and a lot

of investment for a new brand to enter the market and grow into a big brand and gain a large

market share. Founded in 1967, it took Conforama half a century to open more than 300

stores in Europe and build a global supply chain and international distribution channels(as

show in Figure). Years of accumulation ensures Conforama's cost advantage and quality

assurance.

Figure 2.9: The number and distribution of Conforama stores in Europe 2019

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 Source: groupeconforama.fr

Available at: https://www.groupeconforama.fr/le-groupe/chiffres-cles/

In a word, the entry barrier of furniture and electrical appliance retail industry is not high, but

there are still some barriers to become a well-known big brand. Thus, all of these factors

reduce the threat of new players to a medium to low level.

e) Rivalry among existing competitors

Competition between existing companies is fierce. Conforama faces both direct and indirect

competition.

The global furniture industry, with revenues of $545.46 billion in 2018, is huge. Rooted in the

French market, Conforama is Europe's leading retail furniture brand with a large market

share. However, in recent years, IKEA has brought fierce competition. In Figure 2., we can

see that IKEA, with its unique Nordic style products, has gradually replaced Conforama and

taken the first place in the French market share in recent years.

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 Figure 2.9: Market share in value of leading furniture distributors

in France between 2015 and 2016

Source: Les Échos; France; IPEA; 2015 to 2016

In addition to competing directly with home furnishing brands such as IKEA and BUT, large

supermarkets and branded stores are also selling home furnishing products, posing more of a

competitive threat to the industry. In France, for example, carrefour and Auchan both sell

appliances and small furniture.

Moreover, e-commerce brings people more choices. As is shown in the Figure 2., more and

more French consumers choose to buy furniture and electrical appliances in online stores

such as Cdiscount and amazon. Although Conforama has also started to focus on digital

marketing and provide a better shopping experience (conforama.fr), online market share is

still lower than that of integrated B2C e-commerce platforms.

Figure 2.9: Most popular online stores in the furniture and appliances segment

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 in France in 2018, by e-commerce net sales

Source: Statista. (2020). in the furniture and appliances segment in France in 2018.

In short, strong local and multinational brands have intensified competition in the market.

The threat from online stores has further eroded margins. As a result, Conforama faces stiff

competition in the furniture and electronics sectors.

2.1.3 Strategic groups

The French furniture industry is becoming more organized and professional. Now that France

has nearly 11,000 furniture sales stores, the integrated sales approach of "product + service"

has gradually replaced the previous single sales model. The furniture market can be divided

into two main strategic groups: the one is the home furnishings retail chain, like Conforama,

BUT, IKEA, etc. Conforama, IKEA and BUT are the three giants of the French furniture

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market. Conforama accounts for 16%, IKEA accounts for 11% and BUT accounts for 9.8%.

This kind of company is larger, the product price is relatively affordable, suitable for

customers who are looking for high cost performance. And in addition to furniture and home

furnishings, they also provide other products and services. For example, you can find some

large and small appliances, consumer electronics in Conforama and BUT, and every IKEA

includes a restaurant serving traditional Swedish food. The other is furniture and home-

furnishings store, they are mostly middle to high grade. Like Roche Bobois, Edra, Minotti,

GUBI, etc. This kind of stores generally only sell furniture and home furnishings. They are

usually exquisitely made and made of high-quality materials. They are suitable for customers

who pursue a higher quality of life, pay attention to ideas and designs, and have sufficient

budgets to buy. Overall, there are four main differences between these two groups: scale,

structure, price and sales & distribution. We will discuss in detail below.

a) Scale

Furnishings retail chain scale are often large. The Conforama Group includes 235 stores in

France, 339 stores in worldwide, and more than 14000 employees. BUT has more than 300

stores in France. And IKEA owns 433 stores operating in 52 countries. In fiscal year 2018,

€38.8 billion ( US$ 44.6 billion) worth of IKEA goods were sold. As for furniture and home-

furnishings store, although some of them have big influence in worldwide, but the scale is

much smaller in comparison.

IKEA Store Networks in Europe

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 source：https://www.statista.com/chart/9561/the-biggest-IKEA-store-networks-in-europe/

b) Structure

Large furniture retail chains often own or belong to a strong group which is different from

those furniture and home furnishing stores. Like Conforama, first belonged to Kering Group

(formerly Pinault Printemps Redoute), and was later sold to Steinhoff International in 2011, a

South African international retail holding company that is dual listed in Germany. As for

IKEA, the IKEA Group itself includes all IKEA operating agencies-Swedwood Industrial

Group, distribution and warehousing divisions, and companies with stores in many countries

around the world. As for BUT, it has belonged to Decomeubles Partners since 31 March

2008, Decomeubles Partners is a company held by three well-funded consortia: Colony

Capital, Goldman Sachs, and OpCapita. The furniture and home-furnishings store are rare in

this case.

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c) Price

Furniture retailers are positioned as discounters. It is characterized by providing mid-to-low

grade household products with absolute price advantages for the market. For consumers with

average income, especially considering the benefits, a furniture retailer chain brand is a good

choice. And the furniture and home-furnishings store like Minotti, its main target consumer

groups are middle class and upper class. These stores often pay attention to the use of modern

technology, focus on product details, and reflect creativity and design. For example, the

French leading furniture brand Roche Bobois not only pays attention to the quality of the

products, but also integrates fashion-forward elements into the furniture. Roche Bobois have

more and more extensive cooperation with many fashion giants, including brands such as

JEAN PAUL GAULTIER, MISSONI, EMANUEL UNGARO, SONIA RYKIEL, etc. These

brands design custom-made fabrics for Roche Bobois every year, which is extremely rare in

the furniture industry.

Sofa on Conforama’s website

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 source：https://www.conforama.fr/bonnes-affaires/tous-les-produits/NW-11399-rayon~canape?p=2

Sofa on Roche Bobois’s website

Source：https://www.roche-bobois.com/fr-FR/nouvelle-collection

In summary, home furnishings retails chain had a different strategic positioning compared to

furniture and home-furnishings store, and this difference will be discussed more in detail in

the Business Strategy section.

2.2 The internal environment

In this section, we will step into the industry of furniture and white goods and analyze

Conforama’s internal environment. We will investigate the resources and competitive

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advantages that the corporation has by adopting Resources and Capabilities analysis and

VRIN framework to identify their strategic problems, which to be done with the combination

of analysis of external and internal environments.

2.2.1 Resources and capabilities

There are three categories of resources that can be applied to analyze a company’s

competitive advantage in strategy study, which are tangible resource (financial,

organizational, physical and technological), intangible resource (innovation and reputation)

and humans (employee skills and motivation, etc.).

Regarding the tangible resources, Conforama has a great many in this area. The company

runs its business in 8 countries with 339 stores (235 in France) and over 13,500 employees

around the world. The firm attributes the success to its strong geographic network that grants

customers easy and quick access to the nearest store. This big resource enabled Conforama to

gain population from consumers by offering them convenience and time-saving choice.

Conforama enjoys a great advantage in financial aspect. In 2019, a conciliation agreement

was approved by the French Commercial Court of Meaux. It enabled the corporation to raise

a total nominal value of circa €316m as its new money financing plan. In the past three years

(2016-2018), Conforama’s revenue and reported EBITDA experienced a consecutive

decrease (see Chart 1.1). The problem lay in the negative performance of the company in

Italy and Switzerland, as well as the scandal of Steinhoff International, Conforama’s parent

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company. Hence, the new

Chart 1.1: Revenue and Reported EBITDA of Conforama in FY 16, FY 17 and FY 18

financing plan is of great significance to the company. It will stabilize the company’s capital

structure and operations. Also, Conforama hopes to turn around through different efforts on

costs and marketing (positioning, channel and store). The expected result is displayed in

Chart 1.2.

When it comes to Conforama’s intangible resource, the company earned a reputation from

both its customers and its employees. According to Indeed, an employment-related search

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engine, Conforama scored 3,5 out of 5, winning mostly favorable comments, especially

related to professionalism and culture of enterprise, from its working staff. “bon” (good),

“professionnel” (professional) and “agréable” (comfortable) are the words that are most

frequently displayed on the webpages. Additionally, the company adopted policies to ensure

its product to be both legal and environmentally-friend. The Politique Bois (Wood Policy)

Chart 1.2

that Conforama

implemented allows it to meet the requirements of EUTR (European Union Timber

Regulation) when purchasing wood. And labels pasted on the company’s products inform

customers of the environmental impact of the products through their life cycles. From A to E,

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the index on the label takes the consumption of raw materials in the process of

manufacturing, the greenhouse gas emissions during transport, the energy consumed when

the products are used and the way in which they can be recycled into consideration, guiding

consumers in a responsible purchase. Moreover, Conforama made full use of technology. The

company chose DDS Shipper’s souring and costing modules to be integrated into its IT

system. By doing so, Conforama made it possible to obtain the same purchasing conditions

for each subsidiaries and to negotiate the best prices for orders, using fewer suppliers. And

the system unification enabled the firm to harmonize the product range across the stores, and

generate significant savings. Besides cooperating with DDS, Conforama launched its

marketplace with Mirakl. The reason was that Conforama wishes to provide their customers

with latest new products and trends upon their release (Stanislas Conseiller, Development and

New Business Manager). It turned out that their collaboration was a smart move. Upon

launch, Conforama received 15,000 new references, and the second largest furniture and

white goods dealer in Europe reached its goal of 1,6 million offers, 800,000 products and 600

sellers in 2018, as well as 10 new categories. Last but not least, the furniture tycoon aimed at

deploying a logic of both online customer experience in stores, in a sign and a traditional

industry (Romain Roulleau, Managing Director Digital & Customer). To achieve this goal,

Conforama started to take into account the entire customer journey, building a project

consisting of its New Promoter Score system to aggregate the data and measure the entire

customer journey so that the company can reinvent it to offer consumers better experience.

As for the human resource, Conforama considers the training and development of their

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employees the heart of their priorities. The ultimate goal is to provide them with means and

opportunities to success and progress. A good example is the collaboration with Grenoble

Ecole de Management in 2017 to train its floor managers and store directors. By participating

in the training program, they succeeded in acquiring skills and tools that improved their

management position and customer service. The employer not only cares about the career of

its employees, but also their daily life. Conforama believes benefits for its working staff,

which is listed in the following graph (see Graph 1), is a way to motivate them.

2.2.2 Competitive advantage

Through the strategies and activities implemented by the company, the cost of each part can

be reduced, resulting in greater benefits. Together they bring sustainable competitive

advantage to the company. To prove this, we will apply Jay Bamey's VRIN framework to

check whether Conforama's resources and capabilities are valuable, rare, unique and

irreplaceable. 

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The brand's market competition success depends on four aspects:

Low cost advantage

Value Product Category

Cross international
procurement
International tactics
Com petitive Advantage

International
product line
Efficient customer
service
Rarity
Efficient delivery

Huge scale

Inimitable  Huge cash flow

Human resources

Patented design of
the brand
Non-substitutability
Visual search

a) Value

1. Low cost advantage

Price is an important factor in determining whether a retail company has an advantage in the

market. A good purchasing price enables companies to sell at a lower retail price than other

retail companies, and it is also possible to have better profits. Therefore, the control and

management of purchasing prices is also an important factor in purchasing management.

Conforama has a relatively systematic price management system to ensure that the purchase

price is reasonable and has a competitive advantage.

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（1）Online open auction

（2）Information transparency

（3）Price changes.

Utilizing its unique procurement management system, Conforama selects suppliers with good

quality and low prices to gain a large market share with low cost advantages.

Conforama's global supply network brings low cost advantages and generated revenues of €

3.4 billion in fiscal 2018.

2. Product Category

For home retail stores, it is basically furniture-based, followed by decorations, in an effort to

enable customers to buy suitable furniture and home decor items in one store. This is the

model for home chains like Conforama. However, in addition to the above furniture and

household products, Conforama also sells televisions, computers, microwave ovens, DVDs

and other electrical products. Compared with IKEA and other similar home stores that have

given up electrical appliances, they are even better.

3. International tactics

(1) Cross international procurement

Conforama uses international cross-border procurement, directly establishes procurement

relationship with suppliers and has a set of evaluation systems developed by its own

suppliers. Conforama uses a comparative system of price management systems to ensure that

procurement prices are reasonable and give it a competitive advantage. Thanks to the large

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storage capacity near Conforama's store, all products are immediately available.

(2) International product line

Conforama is positioned as a discount store, that is, a parity store.

Different from IKEA's focus on Nordic style, the company sells home appliances that can

provide customers with a variety of styles. It is summarized in eight styles: contemporary,

rustic, modern, ethnic, romantic, traditional and oriental. Style, and strive to meet the tastes of

consumers in the local market.

Conforama 's subsidiaries in France, Switzerland, Italy, Portugal, Spain and Croatia have their

own systems, and they each welcome mergers in accordance with the market and

consumption habits and consumer tastes of the country where the store is located.

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b) Rarity

1. Efficient customer service

Efficient customer service, whether in store suggestions, after-sales service or services

recently set up by retailers around the development of new technologies: GSM subscriber

sales, phone operator cards, satellite bouquets, Internet subscriptions ... all through a very

Tight networks connect the entire territory.

2. Efficient delivery

Almost all shops are located in shopping malls on the outskirts of the city. And there are a

large number of products stored near the store, all of which are supplied in a timely manner.

c) Inimitable 

1. The huge scale

The company operates in 8 countries and has 339 stores (235 in France). The company

attributes its success to its strong geographic network as it claims that 90% of French

residents can reach their stores in 20 minutes.

Compared with IKEA, which has a limited range of activities, conforama is widely

distributed and reaches more end customers than any home brand store in the world.

2. The huge cash flow

Conforama has a big financial advantage. In 2019, as a new currency financing plan, the

company raised a total nominal value of approximately 316 million euros. It will stabilize the

company's capital structure and operations

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3. The strong human resources

Conforama has more than 13,500 employees worldwide and has a good human resources

policy.

It is worth mentioning that the company cooperated with Grenoble Ecole de Management to

launch a management training program for all floor managers and store directors. All

personnel must successfully obtain a Level 2 certificate recognized by the RNCP French

Registry to meet the specific needs of the Conforama Group and the requirements of the

accreditation certificate. This training continuously cultivates high-quality customer service

personnel exclusively for Conforama.

d) Non-substitutability

1. Patented design of the brand

Conforama and Zhejiang Botai Furniture Co., Ltd. have established a long-term strategic

partnership to design and develop patented products.

For example, the HUGO pine cabinet series is the most popular patented design product of

Conforama so far.

2. Visual search

Conforama launches visual search on its desktop and mobile websites, using real-world

customer inspiration, social media, catalog styles, etc., to easily discover and recommend

products that customers are interested in, and create an overall omni-channel experience for

customers, and thus Provide a unique shopping experience. Shoppers are able to seamlessly

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discover a wide variety of products, enabling Conforama to better connect with customers.

3. Business and corporate strategy

In this section, we will look more closely at Conforama ’s competitive location (ie its

corporate strategy) and how Conforama competes in that particular market (ie its business

strategy). The first-level strategy, and more specifically the way Conforama successfully

competes in the international market, will analyze the sources of differentiation with its rivals

to determine how the second part will continue to study Conforama ’s enterprise-level

strategy, which is related to the company’s Overall goals and scope and how to increase

precious time.

3.1 Business strategy

This section consists of three subsections. The first section will cover Conforama's strategic

positioning. More specifically, we will see Conforama's key strategy. In the second section, a

cost analysis will be conducted on its strategic groups, low-cost operators and network

operators. Finally, the third section will end with the difference sources that IKEA and

Conforama have successfully deployed.

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3.1.1 Strategic positioning

As mentioned earlier, Conforama is a retail brand in the fields of furniture, household

appliances and decoration. As the second largest furniture seller in Europe, Conforama is

positioned as a discount store that specializes in the production of household equipment and

provides a variety of products with excellent cost performance. Conforama achieved 8% of

its turnover through its e-commerce website and is committed to becoming an omnichannel

leader in this field.

First, Conforama chose the strategy of brand image positioning rather than the product

strategy adopted by traditional furniture companies. The home retail industry is a constantly

developing and relatively mature industry. It has standardized products, and at the same time

differentiates itself through opportunities for continuous development and innovation of basic

products. Therefore, Conforama first built competition on the brand image. Consumers are

very sensitive to brands. The better the brand image, the higher the consumer loyalty.

The advantages of a single brand strategy are self-evident. Conforama has concentrated its

efforts on shaping a unique brand image. Conforama, a successful brand, comes with several

products of Conforama, so that each product shares the advantages of the brand.

In addition to the strategic aspects that make up the Conforama brand image, the company

also makes great efforts to use the "localization" strategy.

Conforama's subsidiaries in France, Switzerland, Italy, Portugal, Spain and Croatia have their

own systems, and they are welcome to merge according to the market, consumption habits

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and consumer tastes of the country where the store is located. The localization strategy of

Conforama's mature operation has enabled other home retail brands to imitate and learn one

after another.

3.1.2 Relative cost position

In order to understand the relative cost position of Conforama, we will apply analysis based

on the strategy of the company to reveal its advantages and disadvantages comparing to the

its biggest competitor, IKEA, the Sweden industrial leader.

In order to better demonstrate, we will explain by the seven principles of cost driven:

economies of scale, economies of learning, production technique, product design, input cost,

capacity utilization and residual efficiency.

 Economies of scale

The economies of scale have few impacts on the competition between Conforama and IKEA.

First, at the store level, Conforama has 339 stores in 8 countries, IKEA has a larger scale on

the international level that has 355 stores all over the world. IKEA’s world expansion requires

more funding in the operation, and due to the larger space of the store, the cost of

indivisibilities is also higher. At the same time, IKEA’s store usually contains a full floor of

stock, that can relatively reduce the cost, whereas Conforama usually must rent a stock place

near the store.

Conforama want to build up its competitive advantages by providing a larger range of

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product; In other words, IKEA has a more centralized client group because of the brand has

its own unique style of furniture, the specialization of IKEA is stronger as IKEA has a larger

scale of production and a smaller range of product. Conforama, as it has diversified product

lines, the company needs to manage more risk.

 Economies of learning

We’ve observed that the offer of IKEA and Conforama has several differences, take seller as

example: the latter tend to employ more skillful and better educated people, as it has larger

range of product, the offers are usually for seller who manage a specific kind of product. In

another hand, IKEA emphasizes that employees should focus more at team working which

the experienced employees will help new employees to develop their personal skills. The

second difference is that Conforama’s offer is mostly sales, IKEA provides a larger range of

position such as in Finance department, marketing, logistic and so on. The process of

applying employment on IKEA’s website is much clearer than Conforama, and as we can

observe in the annual report, IKEA seems to have a better organizational routine, from

design, logistic, financial service, sales, marketing, customer-service and store management,

the quality is higher than Conforama. The store of IKEA also has different function, rather

than just a retailer, IKEA provide services such as DIY section and restaurant. Conforama is

known as a retailer of furniture and home appliance or related product, instead of designing

of producing, it buys furniture by centralize distribution supplier and establishing partnership

with other company, such as Darty, one of the largest electronic appliance sellers in France to

increase their product range. Therefore, the individual skill of seller is based on the

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knowledge of product and experience. IKEA’s employee tends to hold more knowledge of,

not just its specialization, but also about the business process and the organization.

 Production technique

IKEA was the company who has completely changed the industry by its innovations. The flat

packaging, the design of store, the combination of store and stockage, IKEA has always kept

being creative to provide satisfying service to its customers. Recently, it has launched a

brand-new function on its application, the IKEA place. By using the augmented reality

technology to demonstrate the furniture in real time. The creativity of IKEA has brought huge

competitive advantages which help the company to better connect to its client.

At the other hand, the design of every IKEA store has also played an important role in their

business. Compare to Conforama, IKEA’s store has its own specific organization. The maze-

like store leads their customer to explore different product category, at the same time, IKEA

pushes their core product by placing them in obvious position which can get more views by

the customers.

Another differences between these companies: IKEA, due to its own manufacturing plants,

most of the suppliers are material suppliers. Given by the flexibility of the big organization,

IKEA could reduce its cost by managing different resources and establishing partnership, the

cost of product could relatively lower 30% than other competitors. Conforama uses two

different kinds of arrangement: Direct to Store (DTS) logistic and Distribution Center (DC)

logistic. These two arrangements are addressed to different kind of suppliers and customers,

DTS kind of ‘forces’ the suppliers to transport goods to the closest store, which reduce the

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delivery cost. DC allows a better inventory control and service level. the inventory control is

more flexible. As Conforama’s supplier comes from mainly Asia, DC arrangement also

allows out-sourcing product can be managed and distributed easily in France, the main

market of Conforama.

 Product Design

IKEA is one of the largest wooden furniture producers in the world, while Conforama’s

furniture suppliers comes from all over the world, mainly Asia, where the manufacturing cost

is relatively lower than other regions of the world.

As IKEA produce its own product, by centralizing its manufacture and logistic service, the

company can lower its cost. Also, the biggest advantage of having its own manufacture plant

is that IKEA can standardize its part, therefore IKEA can provide customer a certain level of

flexibility when it comes to missing or damaged parts or personal customized product.

Conforama, who provides multiple kind of product, rely on its supplier more than anything.

Conforama’s play is to provide affordable furniture to the public market, by doing so the

margin of each product sold is lower than other company such as IKEA.

 Input cost & Capacity utilization & Residual Efficiency

Speaking of input cost, we need to talk about the bargaining power. Due to a centralized

product line and unique style, IKEA’s purchase similar material and product, which makes

the purchasing volume bigger than other furniture company, therefore, IKEA has a stronger

bargaining power compare to Conforama, who has multiple suppliers.

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Compare to IKEA who has combined the stockage area with its store, Conforama usually

need to hold a stock besides the store, which increase the cost of the company. And as IKEA

has stores all over the world, and Conforama’s store is basically all based in West Europe,

Conforama’s operating cost has to be higher than IKEA.

In year 2018, France was troubled by the ‘Gilet Jaune’ event. Conforama has also

experienced a bad year: the financial difficulties have made the French furniture leader to

close 32 stores in France. As the political environment was exceptionally unstable in 2018,

strikes have done some damages to French local companies, nevertheless, the closing store

decision has raised the mood of aversion of employees. Conforama’s highly centralized

business in France has brought the company disadvantages, that compares to IKEA,

Conforama is less flexible in capacity adjusting.

Also, the decision of closing 32 stores, and firing nearly 1,900 employees means the ratio of

fixed to variable costs is low: the stores that has been closed is not highly profitable. And up

to now, Conforama has several scandals due to its product quality, the whole situation of

Conforama could mean that the company has a problem in managing its organization.

3.1.3 Sources of differentiation

There are two types of Conforama stores: one is an urban boutique with an area of only 2000-

3000 square meters, a bit like the Galeries Lafayette department store in Paris; the other is a

suburban store, usually 4000-5000 square meters of Les, Similar to IKEA, the product

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overlap rate is 60%. Conforama has a 10-year history. The shop covers the whole of France.

The number of stores is much higher than IKEA in France. Annual sales are three times that

of IKEA France. It is the largest furniture store in France. Someone in the Chinese home

furnishing industry likened Conforama ’s strategy to a group of wolves: “Although IKEA is a

big tiger, the big tiger ’s range of activities is limited. Conforama is a group of wolves, they

are more widely distributed than IKEA, and they reach the end customers More than IKEA. "

Conforama is a brand that specializes in selling household equipment at discounted prices.

We distribute four categories of products: furniture, decoration, household appliances and

consumer electronics. This is also one of our features: Conforama is almost the only brand in

France that proposes the concept of "everything under one roof". In the French market,

Conforama is the French leader in bedding.

In terms of differentiation, Conforama implemented a cost strategy. Conforama is cheaper

than IKEA. After all, Conforama is a discount retail store as a whole, and Conforama is

slightly superior in price advantage.

The main strategy of IKEA is a sense of design and a sense of quality. IKEA's Nordic style is

slightly extravagant.

And Conforama's strategy is localization. The localization from the inside out shows that the

Conforama brand is more close to the people and can attract consumers from all walks of life.

3.2 Corporate Strategy

In this section, we will analyze Conforama's corporate strategy. We will analyze the scale of

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Conforama's operations, to what extent it has achieved diversification and how to create

value in the current environment. This section is divided into two subsections. The first part

will cover Conforama's business scope and discover its diversification. The second section

will analyze its value creation capabilities and problems it faces. Although digitalization is

now a key development trend in the retail industry, we still recommend that Conforama

should not be too hasty when using e-commerce, and should be more cautious in protecting

information security and selecting quality suppliers.

3.2.1 Business Scope

The Conforama Group has more than 14,000 employees and 339 stores in 8 countries or

regions including France, Spain, Switzerland, Portugal, Luxembourg, Italy, Serbia and

Croatia. There must be a Conforama store within 20 minutes of 90 ％ French home. In 2016

Steinhoff's market share in France was 16.1%. The revenue in 2017 was US $ 2.570 billion.

Conforama's main business scope is divided into three major blocks, furniture, home

decoration and household appliances. Conforama adopts a development model combining

online and offline, with a total of 12.9 million users. There are 5.09 million online platforms.

These users are high-quality loyal consumers, which bring a good reputation to the platform.

Sales through the official website weighs 11% of the brand's total turnover (2.2 billion euros

in 2019).

According to 2019 SimilarWeb data, Conforama ranks 63rd globally with 14.7 million in the

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estimated ranking of monthly visits to global online platforms. Ranked 24th in European

consumer visits, the most popular platform in Europe is Amazon, with 1.6 billion monthly

visits. Among the top 20 platforms, 3 out of 4 belong to the whole category and sell a wide

variety of different products. In terms of business scope, Conforama, which focuses on

household goods, is not very competitive. And also can’t the compete with the professional e-

commerce home brand like Wayfair.

In terms of cooperation, in April 2016, it bid with FNAC to acquire Dirty, but eventually

abandoned it. In September 2016, it was reported that Conforama and Casino had forged a

supply purchase co-operation agreement. The two jointly established the procurement center

Mano, and is expected to raise 1.3 billion euros in business. It will be responsible for

negotiating purchases from approximately 30 major joint suppliers of these two groups. In

April 2017, Conforama signed title sponsorship with France's Ligue 1. In May 2017,

Conforama announced that it will acquire a 17% stake in the second largest company in

France, the online retail website Showroomprivé.fr, for 157.4 million euros. On January 11,

2018, under the order of Steinhoff, who was suffering from his own accounting scandal, the

proceeds of this sale to Carrefour amounted to €79m, a loss of 50 %.

We found that although Conforama, as a established furnishing retailer, strives to seek

cooperation with other areas of the retail industry, it hasn’t achieved great results. And didn’t

achieve competitive advantage in online sales.

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3.2.2 Value creation

According to the 2018 annual report of Steinhoff International Holding N.V., parent company

of Conforama, the Europe’s second largest home furnishings retail chain generated a turnover

of €3.5 billion in 2018. While it was definitely great amount, it also marked a cumulative loss

of about €500 million since 2013. Despite the fact that the financial scandal of Steinhoff

International did exert negative influence on its subsidiaries, Conforama was also faced with

difficulties that resulted in the loss.

In the early 2018, Conforama started taking steps to turn the situation around. Those included

an agreement to sell its 17% stake in SRP for approximately €79 million to raise further

liquidity, a deal with Tikehau Capital to receive funding of €115 million for the next three

years and a separate €28 million facility and a new money financing plan between the

company and its creditors that provided with a total amount of €316 million in 2019. In

addition, Conforama announced a job cut of 1,900 and store closure of 32 in 2020 in France.

However, those measures are simply temporary solutions and are not the best approaches to

creating value. In order to realize a real turnaround, the company needs to make full of its

current resources and put efforts into diversification to achieve value creation.

An option for Conforama is to largely increase the weight of e-commerce in its business.

Even though digital remains a major focus area of the retail chain, the e-commerce accounted

for only 8% of sales in 2018. Since IKEA and BUT, Conforama’s main competitors, have

benefited from digital business, and the trend of e-commerce will grow strongly affected by

the current situation of COVID-19, it is necessary for the company to act similarly. As
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discussed in the section 2.2, Conforama is collaborating with different information and

technology firms to integrate their skills and system with its own. For this, the company

established a team to drive digital, e-commerce and user experience, as well as accelerating

digital transformation. It enabled Conforama to collect data for analysis of product, market

and customers to guide their business operation and strategy. Still, the system integration

could contribute to outsourcing issues since Conforama does not have an overall control of

the system, which may damage the confidentiality and cause risks. Hence, we believe that the

company should have caution to protect key information and to choose service providers

when being eager to be “digitalized”.

4. Conclusion & Recommendations

Under highly competitive environment, the strategy of Conforama might need be improved in

order to be better fit into the external and internal circumstances. The company needs to adapt

to consumer’s current need as much as possible in terms of product structure and services.

The market competition in the marketing era is increasingly reflected in the competition of

brands. It is essential to build an international brand by continuously developing products and

services that are your own creativity and competitiveness. Conforama has focus way too

much on its ‘low-cost’ tag, today’s audience would appreciate company who not just provide

affordable service but also bring more value to its customers.

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Therefore, Conforama's brand strategy should be the engine driving its continued growth,

constantly increasing the unlimited possibilities of Conforama in the future. Now that

Conforama's brand image has established its foothold in Europe, localization strategies

should be vigorously implemented in the future. The strategy should not only be to localize

the product, but the focus is to take into account the overall brand, such as the localization of

the brand culture, the localization of the operating model, the localization of marketing

technology, and human resources and operations. In addition, the degree of cooperation with

local suppliers determines the operating costs of multinational retail enterprises. Large retail

companies like Conforama mainly rely on low-price strategies to obtain profits. Therefore,

controlling costs should be a crucial step in corporate strategy. Besides, the 2019 has been a

rough year for this French multination company, establishing good image is also important.

More and more companies today embrace the digital transformation as the digitalization

brings not only more commerce opportunity but allows company to create more add-value to

its brand. Conforama has been dedicating to provide affordable and large range of products to

the market, the internet is the perfect marketplace. Except digital marketing and e-commerce,

new technologies are also applicable for furniture business, such as, IKEA’s new application

which uses Augmented Reality is a game changer, especially during the pandemic, when

people are not able to physically present in the stores.

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