The following appeared in a memorandum from the owner of Movies Galore, a chain of movie-rental stores."In order to stop the recent decline in our profits, we must reduce operating expenses at Movies Galore's ten movie-rental store

The owner of the Armchair Video presents a memorandum that comprises suggestions to increase their declining profits. Taking a clue from one of their stores in Marston, which reduced its operating hours and the overall inventory by stocking only recent films, he says that this should be adopted at other stores as well. Since they are known for their discounts and special offers, they cannot consider increasing the prices to gain profits. This change has also seen very few customer complaints because of which it can be adopted at other stores to reduce operating expenses. However, this could be a useless change, if not profitable, since the memorandum ignores a number of other possibilities that can prove the opposite to be true. The memorandum from the owner of Movies Galore makes a suggestion which does not appear to be based on sound reasoning. Instead of a sound claim, followed by specific and sound reasoning, the author jumps quickly between general points, leaving much to be desired in terms of reasoning. The argument may be sound, however the unsupported reasoning means the claim is spurious at best.

The first assumption made is that the decline in profits can be remedied with reducing operating expenses. However, the decline is not directly addressed, and there is no reasoning given for why the business is seeing a downward shift. If the decline is due to a failing business model, ie internet streaming models becoming more and more successful, then only a drastic change in Movie Galore's business model can help ameliorate the profit decline. However, the owner does not even begin to address the reasoning for the decline in profits, and thus one does not know if the most strategic solution is to indeed cut operating expenses.

Another point the owner makes is that by closing earlier, the store significantly decreased its operating expense. However, to address the primary concern of declining profits, other stores may see a peak time between 6:00 and 9:00pm. Therefore it would be true that operating costs would be cut drastically, but potentially many stores would see its revenue also sharply decline. In doing this, the owner would be addressing their view of the solution, but still worsening the overall problem.

Finally, Movie Galore would get rid of its stock from over five years ago. This would indeed cut overall operating costs in the long run, as there would now be a big percentage of movies gone which may have needed maintenance or continuous replacement. However, Movie Galore may have been primarily relying on its selection of hard to find older movies for its profits. The operating expenses would decrease in this instance, yet without specifying the reason behind the decline in profits, one can not be assured to whether or not this would actually address the root problem.

In thie memorandum form Movies Galore, the owner presents a problem and then presents their idea of a solution alongside many examples which would support the solution. However because they never address the specifics of how those implementations would address the problem itself, the solution is a problematic one and the argument is fallacious.

As is mentioned in the memorandum, the store in Marston reduced its operating hours in the last one month. Reducing the operating hours can reduce the expenses only if it can be introduced successfully. However, there are a number of things attached to this decision that are ignored in the memorandum. While reducing the operating hours reduces the expenses, it also cuts down on the number of customers that come to the store. There are many people for whom the evening time of 6 to 9 suits best to visit the market. They cannot come to the store before that. Moreover, the evening time is most profitable in many places. Similarly, there are customers for whom other times of the day are suitable. Hence, if the operating hours are cut down, these customers are lost. Therefore, the owner of the video rental stores should consider this before reducing the working hours of all the stores.

The owner also considers reducing the overall inventory of films by stocking only those films released in the past two years and giving away the films older than those. With this he probably expects to reduce the costs of maintenance of these films.

However, it is possible that there are a number of customers whose first choice is older films. The owner has to thus make a careful decision of the choice between retaining the business by keeping these customers and earn profits or by reducing the costs related to keeping these films to increase profits.

There could have been very few customer complaints of these policies in Marston, but it cannot be accepted for all places. The choice of films by customers depends upon the composition of customers of the place. While at one place people could prefer the recent films, at other places there could be a liking for the older films. Hence if there are no complaints from customers of Marston store, there could be reports of customer complaints at other places. Moreover, it should not be forgotten that such a policy has been adopted in Marston only for a period of one month. This period is a very small period to observe the reaction of customers as well as predict future profits. People take time to notice such changes. There could be many customers who are not aware of these policies and thus they did not complain about them. If there have been very few customer complaints in the past one month there could be an increase in the number of complaints in the coming times as the customers get to know about the changes.

These points discussed above disagree with the owner's suggestions of following the policies of Marston to gain profits. Instead of such policies, there should be other ways of increasing profits. A change in the marketing strategies should be considered to attract more customers. Since Armchair Video is known for its special bargains, the owner should introduce more of such offers along with some subscription or membership for customers and ensure profits. Thus, it can be said that the suggestions given in the argument should not be followed in all the stores because of their impracticality. The owner should instead consider other options that can be more profitable for its video rental stores. This argument is built upon the belief that closing early and reducing the movie stock helped cutting back the operating costs. Is this really true? Sure it sounds like a reasonable cut back. Did it actually help in increasing the profit? It may be true that they have been successful reducing the operating costs, but because of the shorter operating hours, they may have much less profit than before. Similarly, because they have much less movie selection, people may have stopped renting a movie there as they can no longer find the movies they are interested.

This argument recommends for all the MG stores to close 3 hours earlier than the store’s current closing time. This recommendation is only based on the fact that the single store in downtown location was successful in cutting back the operating expenses by taking this action. The question is, does this particular case apply to all the other stores? Why was it successful in this particular location? Perhaps it was in industrial district. Most people usually hurry home at 5pm. If this is the case, indeed closing at 6pm makes sense. However, other 9 location could be in the suburbs or residential area. In such neighborhood, people who came back home from work probably want to stop by and rent a movie after 6pm. Taking a statistics on the total sales by the hour, also by the date in the week would provide a beneficial information on the slowest times and date that could help MG to figure out how to cut back business hours.

In addition, this argument recommends for all the MG stores to eliminate the movie stock older than five years ago. This is also based on the experience of one single store in downtown district. Again, younger working generations who are majority of the particular district may prefer cutting edge, blockbuster movies, while communities that are consisted of older, retired people may seek for classics. It all depends on the location. If MG needs to cut back the movie stock, then taking a customer survey at each MG store before doing so should provide them with much more precise and specific customer preference based on the location and the type of people who live nearby.

Moreover, this argument believes that they cannot raise the rental price, because they are “famous for the special bargains”. The special bargains are bulk deals such as “rent one get one free”. Raising a single rental price should not negatively impact their famous special bargains. In fact, if they raise the single price, customers may be more attracted for the bulk deal, hence increasing the profit.

Whether changing the price, hours, or the amount of stock, MG should evaluate what type of customers they hold at each location, and get to know them better before making a dramatic change in their operation in an effort to increase the profit.