After graduating last year from an Ivy League university, Joe Tyler was hired as a stock analyst. Wanting to make his mark on the industry, Tyler issued a scathing report on a major discount department store retailer, Smart-Mart. The basis of his attack was a comparative analysis between Smart-Mart and Tracys Department Store, an upscale, full-service department store. Some of the information cited in Tylers report follows.

Items as Percent of Sales Smart-Mart Tracys

Cost of goods sold 65% 55%

Gross margin 35% 45%

Selling and administrative 27% 33%

Profit 8% 12%

Based on the comparative analysis, Tyler issued to his clients a sell recommendation for Smart-Mart and a buy recommendation for Tracys. The gist of Tylers rational for the recommendations was that Tracys Department Store was outperforming Smart-Martin the crucial area of cost management as evidenced by both a higher profit as a percent of sales and a higher gross margin as a percent of sales.

1. Evaluate Tylers recommendations given the limited evidence available.
2. Because the two firms contrasted by Tyler have different strategies, what performance criteria would you use to evaluate their competitiveness in the industry?