Home Décor (HD) - Business Management Case Study

 Home Décor (HD)

Home Décor (HD) is a private limited company  that sells garden furniture. The company owns 10 stores nationwide. Five members of David’s family own all the shares. Home Decor has a very good reputation for quality and service and is highly profitable. HD’s objective is to grow and increase its national market share by 12% in the coming two years. The market for garden furniture is growing but competition is intensifying. The task of Ray (the Finance Director) is to decide which growth path the company should take. Two growth options are currently being considered:

Option 1: Set up a franchising operation that would allow 10 new stores to be opened each year for the next five years.

Option 2: Go public.” This would mean a float of 49 % of the company on the stock market. This should raise $10 million to fund five new stores a year for the next five years.

Despite being profitable, HD lacks sufficient internal capital to finance the desired growth

Questions

Q1: Define the term ‘franchise’ [2]

Q2: Outline two reasons, one internal and one external, why objectives may change over time [ 2]

Q3: Evaluate two growth options mentioned in the stimulus and recommend the best one for HD [10]

Suggested answers

 Q1: Define the term ‘franchise’ [2]

A franchise  is a business model in which a business (the franchisor) grants another party (the franchisee) the rights to operate using its established brand name, products, and business processes in exchange for a fee or royalty.

Q2: Outline two reasons, one internal and one external, why objectives may change over time [ 2]

Internal reason:

Change in financial position: If a company’s profits, cash flow, or available capital increase or decrease, it may need to adjust its objectives.
For example, if Home Décor generates higher profits, it may set more ambitious growth or expansion targets; if profits fall, it may shift to cost-control objectives.

Change in leadership or management vision: When new leaders or directors take charge, they may bring different priorities or strategies, leading to a shift in business objectives.
For example, if a new Finance Director at Home Décor prefers a more cautious financial approach, the company might change its focus from aggressive expansion to sustainable growth.

External reason:

Change in market conditions or competition: As market trends evolve or competitors increase, a company may need to adapt its goals to remain competitive.
For instance, if competition in the garden furniture market intensifies, Home Décor might shift its objective from rapid expansion to strengthening brand loyalty or improving efficiency.

Q3: Evaluate two growth options mentioned in the stimulus and recommend the best one for HD [10]

Home Décor (HD), a successful family-owned business selling garden furniture, aims to grow its national market share by 12% in two years but lacks sufficient internal funds. The Finance Director must decide between two growth strategies — franchising or going public — to finance and sustain this expansion. This response evaluates both options using strategic tools and recommends the best approach.

Option 1: Franchising (External Growth)

Franchising is a form of external growth, where a business expands by allowing independent owners (franchisees) to operate under its brand and business model. For HD, this approach offers key advantages. As per Ansoff matrix, this growth option can be considered as ‘ Market Development’, a   medium risk strategy.  

First, it enables rapid expansion with minimal capital investment, as franchisees provide the funds to open and manage new stores. This supports the company’s goal of increasing national market share while leveraging economies of scale in procurement, marketing, and brand promotion across multiple locations. Second, franchising facilitates faster market penetration, aligning with HD’s objective of national growth. By leveraging franchisees’ local knowledge and investment, HD can achieve a wider market reach without overextending its resources.

However, franchising has disadvantages. There is a loss of operational control, as franchisees manage their stores independently, which may lead to inconsistencies in quality or customer service. Additionally, HD only earns income through franchise fees and royalties, potentially limiting overall profitability compared to owning stores directly. A Force Field Analysis shows strong driving forces for franchising—rapid growth, low capital requirement, and brand expansion—while restraining forces include potential quality inconsistency and shared profits.

 Option 2: Going Public (Internal Growth)

Going public is a form of internal growth, allowing HD to raise funds by selling a portion of its ownership via a stock market flotation.  According to ‘Ansoff matrix’, this  growth strategy can be considered as Market Penetration as well as  ‘Market Development’

This provides advantages such as access to substantial capital—approximately $10 million—to fund new stores, invest in marketing, and support innovation. It also enhances public profile and credibility, which can attract new customers, suppliers, and skilled employees. Moreover, owning all new stores allows HD to maintain full control over quality, service, and operations, leveraging economies of scale effectively across its company-owned network.

The disadvantages of going public include loss of family control, as external shareholders influence key decisions, and increased regulatory burden, which entails audits, governance requirements, and higher administrative costs. Force Field Analysis highlights driving forces—access to capital, control over operations, and brand consistency—against restraining forces such as reduced ownership control and increased compliance obligations.

Both franchising and going public offer viable paths for Home Décor (HD) to achieve its growth objective of increasing national market share by 12% in two years. However, each option carries different implications when viewed through the lens of HD’s strengths, weaknesses, opportunities, and threats (SWOT).

Based on the above evaluation using Force Field Analysis, Ansoff Matrix, and economies of scale, franchising is the preferred short- to medium-term growth strategy for Home Décor. It aligns with HD’s objectives, maximizes market penetration while minimizing financial risk, and preserves family control. Once HD achieves broader national coverage and stabilizes its operations, going public could be considered to fund larger-scale or international expansion.

However, to make a more informed decision, additional information such as  detailed financial projections for each growth option ( cash flow, payback, ARR, ROCE, etc.) insights from market research on demand and competitors, and information on franchisee interest and capabilities needed. Understanding the costs and requirements of going public, along with potential risks and the impact on brand control, would enable a clearer comparison of  two growth options.