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Furthermore, due to low switching costs, high information, and price sensitivity, buyers are not loyal and have high bargaining power relative to retailers. The Canadian retail hardware and home improvement industry can be characterized by high degree of rivalry, mainly due to a large number of players competing over products of low differentiation and incurring high fixed costs. This industry, although more attractive than the lumber industry, has its own inherent flaws. Additionally, due to the large initial investment in fixed assets with high specialization required for this industry, lumber firms are locked in and cannot easily exit the industry, further intensifying competition.Ĭanadian Retail Hardware and Home Improvement Industry Analysis Restrictive governmental actions along with the high power of buyers, and high degree of rivalry have made the industry unattractive. The high level of buyers information and their low switching cost has added to their high negotiation power relative to the producers.
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As lumber producers were forced to compete on price, buyers reaped the benefits. The combination of these factors and the slow industry growth in recent years has led to a high degree of rivalry among producers, resulting in a fall in lumber prices. With an increase in the number of many small and medium lumber producers, competing to sell a commoditized product, the industry has become very fragmented. Expected oversupply of Canadian lumber, increased competition in the industry, and greater buyer power, have put downward pressure on prices, adversely affecting the profitability of producers. The Canadian lumber industry can be seen as very unattractive at best. However, extending Dawson additional credit may increase Dawsons default risk and jeopardize the potential for NBC to retrieve the $4.2mm term loan it is already owed. The Bank cannot afford to turn away NBCs business. Given that Dawson is one of the regions largest borrowers, NBC must be careful in how it manages this relationship. NBC must remain cognizant of the competitive landscape of the lumber industry and assess whether a focus on the retail segment is beneficial to Dawsons strategic plan. Dawson intends to finance inventory and receivables with the line of credit. National Bank of Canada (“NBC” or “the Bank”) is tasked with the decision to review Dawson Lumber Company Limiteds (“Dawson”) request for an increase in its line of credit up to the amount of $10.8mm. Essay Preview: Dawson Lumber Company Limited