Can Some Please Grade My AWA
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04 Aug 2014, 04:55
The following appeared as part of a recommendation from the business manager of a department store:
“Local clothing stores reported that their profits decreased, on average, for the three-month period between August 1 and October 31. Stores that sell products for the home reported that, on average, their profits increased during this same period. Clearly, consumers are choosing to buy products for their homes instead of clothing. To take advantage of this trend, we should reduce the size of our clothing departments and enlarge our home furnishings and household products departments.”
Discuss how well reasoned . . . etc.
The argument states that the profit for clothing store declined between Aug 01 and Oct 31 while at the same time the profit for stores that sell home products has increased. Thus the manager of department store advices the store to reduce the size of clothing inventory and increase home furnishings and household products. Stated this way the argument is weak as it modifies the fact and presents a false picture. The argument lies on several flawed assumptions and thus cannot be accepted.
Firstly the author states that the profitability of clothes section have declined between August 1 and October 31 while that of store that sells home product has increased, but does this mean that the store should reduce the clothing and increase furniture and household products. This may not be necessarily true because it is possible that during May-July period the profitability of clothing store was all time high due to increased margins or higher demand thus leading to a high base to which the growth is considered while for the same period there may be low sales volume for home furnishing due to rains and thereby has a very small base. So unless we know earlier period profitability we cannot conclude that weather it will be profitable to depend more on furnishing rather than clothing.
Secondly the author states that as the profitability of stores that sell home product has increased and those of clothing store has decreased, thereby concluding that the customers are choosing to buy products for home than clothing. This again is a very weak conclusion as profitability has no relation with sales. It might be possible that the cost of furniture has declined due to low cost of raw material leading to a higher margin. If that is the case than drawing this conclusion is completely flawed.
More to that the manager states that store should reduce clothes and increase home furninshing to increase profitability. Even if the above fact is accepted stating that the profitability of the furniture store was higher than clothing section but it does not necessarily mean that the trend may continue. There may be certain factors which has lead to increase profitability like higher demand caused by new society that has been build next door. So this kind of demand may be cyclical and may not have the kind of effect as desired.
Finally we may conclude that unless we have more clarity on facts like the sales figures for past months, operating margins for the product categories, any other factors which may have lead to an increase in sales, we may not be able to conclude that the argument is true and can be accepted. Once we consider more facts and figures that are important for analysis of this argument than only we may be in a better position to conclude.