Question

FoodMart Inc. is a grocery supermarket chain with 65 stores in various locations across the country. For the past year, total revenues have been steadily declining, and the management wants to make some changes to try and improve earnings. According to the CEO of the company,shutting down the 10 lowest performing stores should remedy the situation. Which of the following is the strongest counterargument for the above?
A) Eighty percentage of the workforce in the stores is constituted of contracted laborers.
B) Most of the retail stores that the company has are located in high rental demand areas
C) A recent analysis by the operations department suggests that implementing a vendor managed inventory system would significantly reduce the operating costs.
D) A recent study reveals that inventory and transportation costs contribute up to 70 percent of the total operating costs.

Answer 1

Answer:

(B)

Explanation:

Important to note that the CEO wants to address declining total revenue (sales) NOT cost of operations (or profit).

A good counterargument is, since most out of the 65 stores are located in high demand areas, it is very much possible to remedy the declining total revenue problem in the affected stores having low performance.

Rather than shutting down the stores, emphasis should be placed on marketing and branding, especially for stores found in those high demand areas.

This is the best course of action inorder to overtake competitors rather than close the doors to customers.

Answer 2

Answer:

C) A recent analysis by the operations department suggests that implementing a vendor managed inventory system would significantly reduce the operating costs.

Explanation:

Since total revenues have been decreasing constantly, you need to increase revenues and try to decrease costs. If you close stores, your revenue wouldn't increase. Something similar happened a few years ago when GM and Chrysler decided to reduce the number of car sellers in the country in an attempt to increase sales, that never worked and both companies went bankrupt. In order to increase sales, you must increase your total sales per store or increase the number of stores.

The other thing you should do is decrease your operating costs and using a vendor managed inventory system that reduces costs is a great starting point.