Ncui fork Hate OloUege of Agrtc«ltu« At (Ifnrncll UniJierBitj} atljata. n. ?. Hibrary Cornell University Library HF5429.N8 1919 The economics of retailing, 3 1924 013 885 821 The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013885821 THE ECONOMICS OF RETAILING BY PAUL H. NYSTROM, Ph. D. Sales Manager, International Magazine Company; formfrly in charge of commercial research in United States Rubber Company; formerly Associate Professor of Economics, University of Minnesota, and As- sistant Professor of Political Economy, University of Wisconsin. SECOND EDITION NEW YORK THE RONALD PRESS COMPANY 1919 Copyright, 1915, by The Ronald Press Company Copyright, 1919, by The Ronald Press Company All Rights Reserved TO MY WIFE WHOSE DEVOTION AND HELPFULNESS HAVE MADE THIS WORK POSSIBLE PREFACE This book aims to present fact material and to suggest constructive thought on the subject of retail distribution. It does not tell how to get rich quick at retailing. It presents but little theory and advocates no particular or special method of doing the work of the retail store. Its purpose is to describe the retail business as it is, and to point out the broad lines along which retailing progress is being made. In this work the attempt has been made to reduce the knowledge about retailing to teachable form, and to make it usable alike to the ambitious, thinking man already in business and to the student who desires to gain an intimate in- sight into this interesting as well as important field of human work. Except in fragmentary form, there has been but little written upon which the writer could build. The effort has been made, with what success the reader must judge, to bring together in one volume a summary of the best thought so far expressed; but much of the material presented is the result of the writer's own observation and experience in the retail business, and of what he has gathered in conference with over a thousand retail store managers and salespeople who were students in his classes in retail methods, during the years 1909 to 191 5. Every part of the work has been tested by presentation to groups of people engaged in the retail business. Every point has been held up to the standard of practicability. It is to be presumed, however, that it is not free from error, and no one will be more glad than the writer to have these errors pointed out. A science of retailing can become possible only by the freest and the most critical interchange of thought. vi PREFACE This preface may not be closed without an expression of the writer's personal indebtedness for inspiration and sug- gestions, to the members of the faculty of the Department of Political Economy, and particularly to Professor William A. Scott, Director of the Course in Commerce, in the Uni- versity of Wisconsin. Paul H. Nystrom New York City, September, 191 5. PREFACE TO SECOND EDITION The reception of the first edition of "Economics of Retailing" by reviewers, critics, and readers has been very gratifying. Few criticisms have been made but many com- mendations have been received. This friendly reception has prompted the preparation of this second edition. The former work has been gone over carefully. Three new chapters have been added and much new matter has been inserted. Former errors, so far as discovered, have been corrected and every effort has been made both by the publishers and the author to bring the work thoroughly up to date. It is hoped that this edition will more nearly merit the compliment paid by an indulgent reviewer of the first edition who characterized it as "the standard work on retailing." Paul H. Nystrom New York City, September 30, 1919. CONTENTS Chapter Page I Distribution i Distribution Defined Scientific Methods of Distribution Reasons for Lack of Interest Former 111 Fame of Retailers The Views of Adam Smith and Herbert Spencer Changed Attitude of Public Toward Retailers Beginnings of Retail Trade Literature Development of Business Writing Economic Writings of the Nineteenth Century Early Business Books Recent Tendencies Solving the Distribution Problem II H The Distributive System 12 The Retail Store The First "Shops" Advent of the Middleman Rise of Specialty Stores Foreign Trade — The First Merchants Merchandising Organization Effect of Industrial Revolution Beginnings of Wholesaling Wholesale Methods Pre-Civil War Selling Methods Founding of Dun's and Bradstreet's The Mercantile Agency Opposition to Agency Methods Development of Present-Day Selling Methods Results of the Traveling Salesman System Growth of the Retail Stores Types of Stores The Modern Distributive System Channels of Distribution III The Consumer 30 The Store and the Consumer Power of the Customer Consumers and Their Demands Demand Influenced by Scarcity of Children Sex as a Factor Selling to Women vii vi-fi CONTENTS Chapter Page Habits of Customers Racial Characteristics of Customers Community Preferences Sectional Styles General Consumer Characteristics Income; Its Relation to Demand Per Capita Consumption Average Family Expenditures Appealing to Instincts Fluctuation of "Consumer-Demand" Canned Goods an Example Canned Goods and the Cost of Living Demand for Canned Goods Certain Other Examples of Changed Demand Reasons for Changed Demand Consumer Rules Retail Market IV Present Status of Retailing . . -51 Census Retail Store Statistics Census of ipio Difficulties of Comparison Massachusetts Trade Census Report of Massachusetts Bureau of Labor Statistics Mercantile Agency Lists V The Expenses of Retailing . 56 Analyzing Expenses Three Factors of Production Retail Cost Accounting Investigations Other Investigations Two Distinct Costs Sales Cost Basis vs. Goods Cost Basis Expenses Variable Results of Cost Investigations Accurate Data Unavailable VI Retail Salespeople and Their Work 69 Division of Labor in Retail Store Amount of Sales Work Men and Women in Retail Stores Serving the Customer "Making the Connection" Satisfying Desires Influencing a Decision "Getting Your Money's Worth" Salesmanship as a Social Good Evils of Salesmanship Dishonesty Factors of Successful SelHng Meeting a Difficult Situation CONTENTS ix Chapter Page Health and Education The Gifts of Health Personal Hygiene The Store Physician VII Standards of Retail Sales Service 83 Service Manuals and Rule Books Variation in Manual Detail The Manual for Managers 'v VIII Securing Good Salespeople 91 Retail Store Labor Turnover The Problem of Labor Turnover Reasons for High Rate of Turnover Permanent Employees Numerous Department of Employees Cost of "Hiring and Firing" The Employment Department The Pepartment of Employees Job Analysis in the Retail Store Job Analysis Value of Job Analyses Methods of Making Analyses Sources of Applicants for Positions Filling Vacancies Good-Will as an Employment Factor Interviews and Tests Ability Judged by Interview The Mirage of Character Analysis Phrenology Graphology Physiognomy Employment Psychology The Work of Binet and Simon Psychological Tests for Retail Salespeople Observing the Applicant The Application Blank Use of the Application Blank Purpose of Questions References The Value of References Physical Examinations The Hindrance of Physical Weaknesses The Physical Examination Prescription vs. the Physical Audit Objections and Expenses X CONTENTS Chapter Page IX Education for Retail Salespeople . . . . . . 112 Methods of Training Employees Systematized Instruction for New Employees The Store Conference Store Manuals Trips for Salespeople Efficiency Bulletins Trade Papers Libraries and Book Collections Reading Courses Correspondence Courses Progressive Promotion System of Training The "Flying Squad" The Understudy System Gilbreth's Variation of the Understudy Idea The School of Salesmanship The Beginning of Salesmanship Training The Literature of Salesmanship Salesmanship Instruction in Retail Stores The First Store School Mrs. Prince's Work Diana Hirschler's Work The Department Store Education Association The Merchandise Manuals University "Merchant's Courses'' Progress at Other Universities Continuation and Public Schools The Carnegie Text Course Training for Teachers Other Courses Outline of a Course of Study for Retail Salesmanship X The Wages of Salespeople 145 Percentage of Wages to Total Expense Statistics of Sales Expense Percentage of Salespeople's Wages to Total Sales Salaries of Salespeople General Wage Levels Methods of Wage Payment Difficulties in Commission Payments "PM's" and "Spiffs" Profit-Sharing Purposes of Premium Payments Extra-Salary Remuneration Thrift Plans Sick and Death Benefit Associations Fines The Social and Econornic Side of Low Wages Women and Low Wages Unionization of Retail Store Employees Outside Help CONTENTS xi Chapter Page Sources of Minimum Wage Propaganda Minimum Wage Legislation Operation of Minimum Wage Laws The Argument for a Minimum Wage Tlie Argument Against a Minimum Wage A Summary of the Minimum Wage Arguments Practical Education for Salespeople XI Location and Rent in the Retail Business . . i68 Principles of Rent Applicable to Retail Store Locations A Good Location Necessary to Successful Selling Rent Defined and Classified Distinction Between Building and Ground Rent Amount of Rent Paid An Illustration Managerial Ability a Factor in Higher Prices Competition — An Illustration Plan of Economists Faults of Economists' Theory Rents Not Controlled by Average Business Man Increase in Cost of Doing Business Reasons for High Rents Rise of Ground Rents Counterbalancing Forces Percentage of Rent to Sales Relative Increase of Rents Relative Increase from Towns to Cities Characteristics of Retail Store Rents How High Can Rents Go? Checks to Operation of Rent Tendencies Xn Location and Rent in the Retail Business (Continued) .... ... . . i88 Factors of Desirability in Location Value of Location Determined by Profits Accessibility Determines Sales Neighborhood Stores The Centrally Located Store Purchasing Power of Customers a Factor of Location Value Frame-of-Mind of Passers-by a Factor "Shoppers" the Most Valuable Passers-by Tendency of Retail Stores to Cluster Together Other Advantages of Clustering Retail Stores and the Public Market Buying Habits of Customers General Influences Preferable Side of Street in New York Effects of Climatic Conditions "Hoodoo" Locations Crowd Habits xii CONTENTS Chapter Page Corner Locations Disagreeable Surroundings a Detriment Ease of Access Desirable XIII Location and Rent in the Retail Business (Continued) ... 204 Intensive Use of Location Cultivating a Location Intensively Erect a Suitable Building General Structure Basements The Upper Floors Estimating Floor Value Apportioning Floor Rent Use of Mezzanine Floors and Balconies Using Space Efifectively Allocating Goods Finding Storage Room Quick Service — Quick Turnover of Goods Arranging Attractive Displays Advantages of Standard Equipment Fixtures that Economize Space Attracting Trade : Advertising Window Displays Value of Display Space Distributing Rent Taxation Values Other "Intensive Cultivation'' Methods XIV How Retail Prices Are Fixed . 222 Charging "What the Traffic Will Bear" Factors of Retail Price; Costs Other Price Considerations Desirability of the Article Intensity of Desire Increasing Pesire by Teaching Competition Destructive Price-Cutting Setting a "Fair Price" Habit and Price Ethical Influences on Prices Differing Ideas of Value Influence Prices Toilet Soap an Example Capital and Turnover Relation of Expense to Increased Sales Rapid Turnover Raises Net Profit Departmentalized Accounts Relation of Cost Accounts to Prices Kovf is the Selling Price Set? Salespeople Assist in Price-Fixing Goods of Variable Value CONTENTS xiii Chapter Page The One-Price Policy Success of One-Price Policy The Variable Price System Publicity of Retailers' Costs XV The Department Store 246 What a Department Store Is Origin of the Department Store Department Store Formed by Consolidation Period of Rapid Development Number of Department Stores Today The Department Store Abroad Characteristics of Department Store Mer- chandising Unity Service Specialized Advertising Bargain Sales Miscalculating Demand Department Store Buying Results of Stabilized Merchandising Conditions Untruthful Advertising Not Common Specialized Organization Each Department a Store Comparative Organization Charts J Efficiency of the Department Store Division of Labor Advantage of a Central Location Economics of the Department Store High Expenses of Department Stores Wasteful Leaks Poor Salesmanship General V XVI Chain-Store Systems 268 Origin of Chain Stores Number of Chain Stores How the Chains Developed The Object of Chains The Advantage of Buying in Bulk Chain Stores and Jobbers Jobbers' Chains Manufacturers' Chains Hazards of the Manufacturer Consumers' Co-operative Chains Net Returns the Universal Object Superior Executive Management of Chains Competitive Advantages Cut Prices Possible Private Brands Chain-Store Disadvantages Local Managers Lack Interest XIV CONTENTS Chapter Page Careful Organization Necessary- Special Departments Subsidiary Companies Store Equipment Department Daily Reports Weekly Summaries Checks and Safeguards Getting Results Premium for Chain Store Employees Importance of Local Manager More Chains in Future XVII The Mail-Order House 288 Mail-Order Business a Recent Developrnent The Establishment of the First Mail-Order House Other Important Mail-Order Houses Volume of Mail-Order Business Mail-Order Method Most Highly Developed in U .S. Reasons for Rapid Growth Influence of Increased Earning Power Mail-Order House vs. Small Town Merchant Growth of Advertising Price Arguments Causes of Development of Mail-Order Business Advertising Man Important Handling Orders Efficiently An Innovation Cash and Credit The Purchasing Department Methods of Buying Determining the Minimum Price Cash Buying The Guarantee Truthful Advertising The Correspondence Department Efficiency Methods The Future of a Mail-Order House Employee Cost of Doing Business Advantages of Mail-Order Houses Economic Disadvantages XVIII The Failure Rate in the Retail Business Business Death Tables Definition of Terms Agency Failure Statistics Early Failure Statements Other Estimates The Conflict of Statements The Oshkosh Study General Facts About Oshkosh Oshkosh a Typical City The Table of Retail Dealers 309 CONTENTS XV Chapter Pace Results of the Survey Summing Up the Situation Previous Occupations of Oshkosh Merchants Relative Rates of Change in Retail Business Causes of Failure Failure Rate High The Wholesaler and Retail Failures How Relief May Come XIX Are There Too Many Retail Stores? .... 327 Too Many Retailers? Meaning of the Question United States Census Report What the Table Tells Number of Stores and Population Another Comparison Retailers Increase with Population Not Certain that There Are Too Many Stores The Function of the Retailer Other Census Statistics ; Manufaetured Goods The Statistics Analyzed A Valid Objection Ratio of Manufactured Foods to Number of Retailers Distributors Must Increase with Products The Growth of Cities and Distribution Relation Between Standard of Living and Distribution Production Costs Manufacturing Costs and Distribution Costs The Retailer's Viewpoint The Public's Viewpoint Retail Stores Do Not Add Expenses XX Public Regulation of the Retail Business . . . 346 Regulating Retail Business Business Taxes Licenses and Taxes Paying Business Taxes Purposes of Business Taxes Monopolies and Taxes Peddler's Taxes Class Taxes Methods of Assessment The French Business Tax The Prussian System Canada's Tax Business Taxes in the U. S. State Business Taxes Municipal Taxes Taxable Occupations Who Pays the Tax? Shifting the Tax Opposition to Business Regulation xvi CONTENTS Chapter Page Arguments for Business Regulation Taxes Limit Competition License System Best Reg:ulation Eliminates Parasitism Difficulties of Regulation Is Regulation Necessary? Summary / XXI The Ideal Retailing System 367 Retailer Performs a Useful Function Changing Retail Methods Evolution of Distributive Systems Retailer as a Public Servant The Salesman's Duty Proper Store Equipment Protecting the Customer Legal Objections to Licensing The Rise of the Chain Store Multiplication of Special Agencies Undesirable The Remedy Admission of All Products New Retailing Problems Benefit to Consumer Advantages and Disadvantages of Method Three Necessary Reforms Trusts Checking the Trust Evil The P. A. T. A. Extent of Government Regulation Value of Statistics Progress Through Scientific Study Appendix A — Distribution of Family Expenditures . . . 383 B — Dealers in the United States in 1913 . . 387 C — Rules for Figuring Costs and Profits . . . 390 D — Methods of Handling Cash. Credits, and Sold Goods . . . . 392 THE ECONOMICS OF RETAILING CHAPTER I DISTRIBUTION Distribution Defined. — To move goods from where they are, to places where they are wanted; to effect exchanges so that those who have merchandise to dispose of and those who desire to acquire merchandise may both be accommo- dated ; and to get the goods from the producers and place them in the hands of the consumers — this is the problem of the distribution of goods. The term "distribution" is used in another sense in the standard books on political economy. There it means the shares of income received by members of society for their participation in, or contribution to, the economic system. The term as used here has no reference to the income of anyone. It refers solely to the processes of carrying and exchanging material goods, and used in that sense, is but a part or a phase of what economic treatises call "production." Wherever the term distribution is used in this work it should be remembered that it means distribution of goods, and not what technical treatises on economic theory call distribution of wealth. Scientific Methods of Distribution. — Attention has cen- tered for years on methods of increasing the production of goods, of reducing the expenses of production, and of mak- ing the part played by labor in production relatively easier. Veritable sciences have been developed in engineering, in min- 2 ECONOMICS OF RETAILING ing, and in agriculture. In the producing of things in either field or factory a knowledge, almost exact, is at the disposal of the managers. As a result, a large part of the uncertainty formerly inherent in production is being eliminated. But this is not so in the distribution of goods to the ultimate con- sumers. In this there are a number of important functions, such as transportation, insurance, banking, storage, and all that might be comprehended under the term marketing — the choosing of the right methods of distribution, the assembling, packing, sorting, handling,, the buying and selling. These, save as to the first three, i.e., transportation, insurance, and banking, have received but little scientific attention — only that, in fact, which business men give to their practical affairs. Production has been the object of solicitous scientific study in laboratory and school, while distribution, except as to the three specialized phases named above, has been left largely to itself. It can hardly be argued that this neglect of distribution is due to the small importance of the subject. It has been es- timated that the costs of distributing goods exceed the costs of manufacture. The number of people engaged in the dis- tributive occupations equals nearly one-sixth of the total num- ber of gainful workers. The number of people engaged in the retail business alone exceeds the number of those in any line of manufacture, and is exceeded only by the number engaged in agriculture. It cannot be that the distribution of goods has been so well done that no criticism could be made. Indeed, much of the fault for the increasing cost of living, whether rightly or wrongly, has been placed by many people upon the systems of distributing goods. Reasons for Lack of Interest. — Two main reasons may be cited at this point, to explain why this important matter of DISTRIBUTION 3 distribution has not received the study that it should. First of all, scientific progress is never made in all lines at the same time. Advances are made in one thing at one time, in another at another time, etc. The development of the sciences pertaining to agriculture and engineering have made their greatest strides within the memory of men now living. These productive sciences are still in process of rapid growth. Why scientific development should have begun on these lines is obvious. Without production there could be no distribution. It is safe to say that the distributive system as it existed before the present age of factory production was both adequate and efficient for its time. The progress of production has made necessary the study and improvement of distribution. The second reason why thorough-going studies have not yet been made in distribution is that the distributive process — the handling of goods and the work of middlemen — ^has been considered by the public as something in the nature of a necessary evil. Press and platform have united in giving the impression, indirectly at least, that distribution is less im- portant than, and somewhat beneath, the productive enterprise. Economists have given practically their entire thought to analyzing production rather than distribution. Distribution has been taken for granted. To the public the mention of middlemen and their work has usually suggested "only the thought of trickery or dishonesty. Former 111 Fame of Retailers. — Ever since the beginning of trade there has been a tendency to attribute mean qualities to the dealer, largely due, no doubt, to the fact that his earn- ings could come only by adding a profit to his purchases before selling them. Since no change was made in the form of the goods, people were inclined to reason that additions to the price were unjust impositions. It is not urged that no worse causes than this have helped to create the evil impression, but ^ ECONOMICS OF RETAILING this in itself was sufficient to give impetus to the view, and probably accounts for the larger part of it. "As a nail sticketh fast beneath the joinings of the stones, so doth sin stick close between buying and selling."^ Such was the view of the ancient Hebrews. Ancient Persians held commerce to be a school of lies.^ The old Greek word for retail trader meant the same as falsi- fier. To retail and to falsify were synonymous. Artistotle, the great Greek philosopher, said : "Of the two sorts of money making, one, as I have just said, is a part of household management (agriculture and the hand trades), the other is retail trade; the former neces- sary and honorable, the latter a kind of exchange which is justly censured, for it is unnatural, and a mode by which men gain from one another." He then adds, "The most hated sort, and with greatest reason, is usury (charging in- terest for the use of money) which makes a gain out of money itself, and not from the natural use of it."^ Cicero went so far as to claim that no one could be pro- ficient as a merchant without lying. "Nihil proficiunt mer- catores nisi mentiantur: mercatura, si tennis, sordida putanda est." The Church of the Middle Ages likewise held strong views against traders. St. Chrysostom believed it scarcely possible that a man could at the same time be a Christian and a merchant. The canon law prohibited buying in order to sell again at a higher price. It was considered a sin to gain money in trade. The old Italian words "barulla," "treccone," and "rivendi- tore," used to designate retailers, also signify covetousness, tendency to cheat, and vileness. In Medieval England laws were passed against "en- " "Ecclesiasticus,'- XXVII, 2. ^ Ely,_ "Problems of To-day," page 23, ' "Aristotle's Policies," Jowett's translation, page 19. DISTRIBUTION 5 grossers," "regrators," and "forestallers." An engrosser was one who bought in order to sell again; a regrator one who bought in order to sell in the same market or within four miles thereof; and a forestaller was one who bought goods before they came to market, and thus prevented them from coming to market in the hands of the producers. The Views of Adam Smith and Herbert Spencer. — Some- thing of the same view has come down to modern times. Even Adam Smith, the founder of scientific political economy, warned the people against traders : "As during their whole lives they are engaged in plans and projects, they have fre- quently more acuteness of understanding than the greater part of country gentlemen. . . . The interest of the dealers, how- ever, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. . . . The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to decei\e and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."* Herbert Spencer wrote an essay entitled "The Morals of Trade," in which he enumerated a long list of shortcomings of the trading classes, but placed a large part of the blame for these on the customers and people at large.^ These two causes — on the one hand, the necessary primacy of production and its obvious relations to social welfare, and * "Wealth of Nations," Book I, Ch. XI. ""Spencer's Essays," page 107 #. 6 ECONOMICS OF RETAILING on the other, the contempt for the occupations of distribution — very largely account for the slowness with which people have come to see any need for the study of the distributive processes. Changed Attitude of Public Toward Retailers. — There are many indications of a coming change in this attitude toward retailers, however. For example, writers no longer say so much about the dishonesty of dealers, though the jokesmiths and cartoonists still intersperse this idea with the mother-in-law, slow train, precocious child, accident to an Irishman, and other stock mirth provokers. Criticism is now generally leveled at the inefficiencies of the distributive system rather than at its crookedness. This is a favorable sign, and one can well afford to pardon or neglect the crudeness of some of the suggestions that are offered as panaceas, since these suggestions indicate the work- ing of a leaven that will sooner or later develop into solid research. Beginnings of Retail Trade Literature. — It must not be supposed from the foregoing that nothing has been contributed towards a practical theory of distribution, nor that the sub- ject has received no serious thought at all. Three hundred years ago Sir Francis Bacon wrote: "The wisdom touching negotiation, or business, hath not been hitherto collected in writing, to the great derogation of learning and the professors of learning. . . . For if books were written of this, as the other, I doubt not but learned men, with mean experience, would far excel men of long ex- perience, without learning, and outshoot them with their own bow." In 1726 the first, and in 1727 the second, volume of a re- markable work appeared, entitled "The Complete English DISTRIBUTION 7 Tradesman." So far as is known, this was the first attempt to gather in book form in the EngHsh language the maxims and principles of the best practice in trading and retailing as carried on at that time. The first volume was written to serve as a text-book for apprentices and beginners in mer- chandising. The second considers the problems that experi- enced tradesmen were likely to be interested in. Although now out of date, and in many places based on defective eco- nomic theory (Mercantilism), there are within these two volumes many lessons of value even for dealers of the present time. The material was presented in a clear and most interesting manner. The author of this brilliant first effort in literature on trading was Daniel Defoe, well known to the world as the author of "Robinson Crusoe." Development of Business Writing. — No attempt will be made to trace the literary development of this subject. That would require more time and space than can be given here. A few statements will suffice. The next notable contributions following Defoe's book seem to have been the work of economists, Adam Smith, Ganilh, J. B. Say, J. R. McCulloch, and others in Europe, while Benjamin Franklin in America did a great deal to popularize among .merchants, clerks, and busi- ness men in general, much homely common sense and wisdom of value in the conduct of business. As has been said, the economists generally concerned themselves little with the processes of distributing goods, but, in developing their theories, they indicate the lines along which progressive think- ing might begin. Besides their general theoretical studies, such subjects as banking, money, and credit, and, in the last half of the nineteenth century, insurance and transportation, came to be considered in detail. Foreign trade has been a subject given much consideration. Politicians have based many of their doctrines on economic grounds, thus bringing 8 ECONOMICS OF RETAILING up much controversy over such questions as the tariff and taxes. Economic Writings of the Nineteenth Century. — The turmoil of national and political life during the nineteenth century turned the currents of economic thinking largely into political lines. "The Wealth of Nations," "Political Econ- omy," "National Economy," "Inquiry into the Nature and Origin of the Public Wealth," "Political Economy and the Philosophy of Government," and "National System of Political Economy," are titles of early works which show clearly enough the bent of their author's minds. The produc- tion and distribution of wealth (distribution in the sense of the economists) was to them a matter to be studied in the light of its relation to government. Individual economics was left to care for itself. This tendency of political economy to em- phasize the political side has been continued down to the present. But, recently, several works have appeared that give considerably less space to the political phases and more to an explanation of the causes and influences operating on values, of the processes of production, and of the market. These treatises are more generally denominated "Economics," "Out- lines of Economic Theory," "Dynamic Economics," "Prin- ciples of Economics," and "Introduction to Economics." The change in emphasis from political to individual and private is to be noted in the tendency to use the word "economics" rather than "political economy." One of the first books written in this country solely for merchants was B. F. Foster's "The Mer- chant's Manual," in 1838. Two magazines that gave con- siderable help to trading classes during the middle of the nineteenth century were Hunt's Merchants' Alagasinc of New York, first issued in 1839, and DcBow's Reznczv, of New Or- leans, begun in 1846. Hunt was a prolific writer on busi- DISTRIBUTION 9 ness topics, most of his material appearing in his magazine. J. D. B. DeBow, editor of DeBow's Review, was a professor of political economy in the University of Louisiana. His writings and editorial work were of a substantial sort, espe- cially in outlining trade conditions in the South and West. Early Business Books. — A number of books on business subjects appeared between 1850 and 1880. Some of the best known are mentioned in the following paragraphs. Edwin T. Freedley's "A Practical Treatise in Business" passed through several editions. More than 20,000 copies had been printed by 1852. Freeman H. Hunt's "Lives of American Merchants" ap- peared in 1858, and another work known as "Worth and Wealth, a Collection of Maxims, Morals, and Miscellanies for Merchants and Men of Business" had appeared in 1857. The material in both of these books first appeared in the form of magazine articles in Hunt's Merchants' Magazine. Davies' "How to Make Money" was issued in 1867 fol- lowed by S. H. Terry's "The Retailer's Manual," in 1869. This latter work has run through 16 editions, and still has some sale under the title "How to Keep a Store." J. A. Scoville's "Old Merchants of New York" appeared in 1876. A noticeable characteristic of most of this early American literature on business is its grandiloquent and fulsome eulogy of individual business men whose records have since shown them to merit but a small part of the praise showered upon them. Another characteristic was its verboseness and flourish in announcing very simple and plain business methods and practices as if they were great discoveries. Still another was a general tendency to moralize at every possible opportunity. To exaggerate somewhat, the line of moral logic seemed to be something like this: Do these things and be good, and lO ECONOMICS OF RETAILING you will be rich; be rich and you will be happy. A large amount of this literature was distinctly intended for moral instruction. Much of it was written by ministers and tem- perance workers. Some of the following titles may suggest the character of the reading: "The Merchants' Clerk Cheered and Counselled," "Mer- cantile Morals, or Thoughts for Young Men Entering Mer- cantile Life" (1852), "The Merchant's Clerk" (1852), "On the Road to Riches" (1876), "Sins of Trade and Business" (1874), "The Bible in the Counting House, Lectures to Merchants" (1878). Fashion affects the literature of business as it does the popular novels of the day. Moral teaching — much of it, unfortunately, mere cant — was the fashion in light business literature of the middle of the nineteenth century, much as the literature of "scientific management" rules the mode today. Not that no good came out of the former, nor that good is missing in the present fashion — for the former pro- duced some lasting results, as will the latter; but these waves of thinking characterize our general mental progress. Each receding wave leaves behind some substantial products of lasting value which may be made of service if condensed, preserved, and crystallized in proper form. Recent Tendencies. — The past ten years has seen such a flood of business literature as has never appeared before. It is out of all these efforts that an organized, systematic treat- ment of the subject is becoming possible. With the adoption of educational courses in schools and colleges dealing with distribution, the establishment of experimental distributive stations, the investigation of specific problems by careful un- biased methods, the accumulation of business facts by means of censuses conducted by the government, all of which have , been proposed, and some of which are already under way, the DISTRIBUTION 1 1 hope of a science of distribution of goods stands a chance of realization in the near future. Solving the Distribution Problem. — In conclusion, the dis- tribution of goods constitutes a problem whose importance has only recently come to be felt. In view of the advanced de- velopment of other industrial lines, it may not be too much to say that it is the biggest economic problem confronting the people of this country at the present time. It presents itself to the public in three different ways : First, it is desirable that those who are to enter this field of work should be properly trained for performing their services. Second, careful studies need to be made to determine the most eco- nomical routes through which the goods may be transferred from the producers to the consumers. Third, in the inter- ests of ultimate good to the consumers, fair practices in trad- ing must be promoted, and efficiency encouraged. In the following pages, one link of the distributing sys- tem — retailing — will be examined and described in the light of these three viewpoints. CHAPTER II THE DISTRIBUTIVE SYSTEM The Retail Store.— The retail store or shop in some form or other exists in every civiHzed land. Wherever the buy- ing and selling of commodities is carried on continuously, there spring up the necessary buildings and equipments that we visualize whenever we think of retailing. The form and development of the business carried on in retail stores have changed remarkably since the beginnings of such trade. A study of this development would be not only interesting but fruitful in understanding the present retailing institutions. Such a study must in the present case be omitted except for a few general statements. The First "Shops."— In England the retail store is known as a "shop," and this term indicates its origin. A thousand years ago there were no retail stores in England such as there are today. Every home was practically self-sufficing, especially as to material needs. The food, the clothing, and the rude implements used were all made or prepared in the homes. The room or the outlying building in which things were made, was called the shop. As time went on, it was found more profitable for some members of a community or village to give their attention to one thing only, as for example, the spinning of yarns, the weaving of cloth, the making of shoes, the production of hats, and the shaping of iron and copper into tools or utensils. The surplus products prepared by these early specialists were traded for the prod- ucts of others; thus each got for consumption a share of the THE DISTRIBUTIVE SYSTEM 13 products of all in return for production of some one thing for all. There were at this stage no middlemen. Each man with a product to dispose of hunted up a man who had a product to sell, or waited for someone to come to his shop who wanted to make a trade. The weaver who wanted meat took his cloth to the home of the cattle raiser, and the shoemaker who wanted clothes for himself and family traded his shoes to the weaver and tailor in return for their handiwork. In this earliest t}'pe of exchange, the consumer and producer came together in every transaction. The ordinary place where the transactions were made was either the village market — usually some central, open space to which all who wanted to get or to dispose of goods came regularly on certain days — or the homes or shops of the people. To go about from one workshop to another in search of an article wanted was to "go a-shopping." Advent of the Middleman. — Later, some producers, who may have been too busy to go out to hunt customers or who did not have any liking or ability for the marketing phase of their work, began to turn their products over to other pro- ducers to market for them. These goods were usually stored in the shops of the latter to await the calls of customers, and it was only a matter of development over a few years when a number of these found that selling the goods intrusted to them took up so much of their time and proved so profitable that they gave up making goods on their own account and spent all of their time in marketing goods other people had made. Thus their shops, which had formerly been work- shops, now became sales and store rooms, but the name clung to the establishments. Rise of Specialty Stores. — There developed out of the conditions of the handicraft stage a great number of one 14 ECONOMICS OF RETAILING line or specialty shops generally located in the building that also served as the home of the family, as for example, in the cellar, or ground floor ; and consequently, to this day it is the custom in England and other European countries — much more generally than is the case in this country — for merchants to live in upper floors over their stores. Each kind of goods tended to be handled by a separate dealer ; so there were found linen drapers, wool drapers, silk drapers, leather dressers, saddle makers, shoemakers, iron mongers, brass mongers, copper goods dealers, grocers, fruiterers, pepperers, fishmon- gers, and so on. Foreign Trade — The First Merchants. — The importation of goods from other lands, such as silks, spices, fruits, and jewelry, contributed additional classes of shops. As trade in a shop expanded, and as the owner became more wealthy, it was customary for him to employ his surplus capital and energy in some sort of merchandising venture. In seven- teenth century England, the following procedure was general : The merchant would buy up a cargo of English-made goods, send them abroad, trade them for other goods, and return with these to England where they could usually be sold at a good profit. However, there were great dangers in those days of a ship's never coming back. While the profits were good, the risks were great. To reduce the risk of the in- dividual merchant, organizations known as merchants stock companies were formed to finance a number of ships. In this way it became possible for a merchant to have his wealth in- vested in several ships, instead of all of it, or a large part of- it, in a single vessel. If a ship were lost, its owner, if an individual, would be ruined, but if it was but one of a fleet owned by a company, the loss on any particular member was not so heavy or important as permanently to cripple him financially. THE DISTRIBUTIVE SYSTEM 15 These early companies were known as the merchant ad- venturers' companies. For two hundred years or more, these were among the most remarkable business organizations that existed. They were the forerunners of the modern cor- poration, of modem insurance and risk-taking concerns, and of modern wholesale houses. With the growth of these com- panies began to arise a distinction in the use of the word "merchant." Only those who engaged in foreign trade on a large scale were so called, while inland dealers were simply called tradesmen and shopkeepers. This limited use of the word merchant prevails to the present day in England to a considerable extent. The period of the merchant adventurers' companies marked the beginning of England's supremacy as a trading nation, and her success in this line gained for her, not in- appropriately, the title, "a nation of shopkeepers."^ Merchandising Organization. — The collection and exporta- tion of the products of England, and the distribution of im- ported goods over the island, called for extensive merchandis- ing organization. The large warehouses established in the seaport towns were the prototypes and forerunners of the modern wholesale house. All inland transportation, other than by boat on the rivers, was by wagon and horseback. In the early part of the eighteenth century several of the great foreign-trade merchants not only had large sales warehouses in the seaboard cities, but also great trains of wagons and pack animals which were used in gathering up the grain, wool, woolen cloth, and other textile fabrics that England pro- duced and for which she was famed the world over, and in delivering silks, spices, wines, metal goods, and novelties that 'A terra credited to Napoleon Bonaparte, spoken of the English in derision; also used by Adam Smith, "Wealth of Nations," Book IV, Ch. VII, pt. 3; and by Dean Tucker in a tract published in 1766. l6 ECONOMICS OF RETAILING had been imported from abroad and which were sold to the little shops found in every village. The great merchant trading concerns not only gathered up the products offered for sale in every little hamlet of Eng- land and transported them to the seacoast, but also stored, shipped, sold, and bought both in foreign and domestic mar- kets, and assumed all risks connected therewith. Further- more, they sold from their warehouses to tradesmen who came to them, and also in wholesale lots to all comers at the great fairs that were then held periodically at various places in England and to which gathered traders, producers, and con- sumers. These great merchants also granted credit to the shop- keepers, and advanced funds to the producers, often long before the delivery of the products. Their systems provided for performing most of the work now carried on under the names of importing and exporting, wholesaling, transporting both by land and water, insurance, banking, and storage, as well as finding buyers and sellers for the goods in which they dealt.' Effect of Industrial Revolution. — When the industrial revo- lution began in the latter part of the eighteenth century and factory production commenced to take the place of the old shop handicraft methods, the channels of distribution for factories through wholesalers and retailers were already fairly well developed. All that was needed was an extension of these channels to provide for the greater volume of goods made available for markets by the machine processes. Beginnings of Wholesaling. — Wholesaling proper, apart from the importing and exporting business, came into existence with factory and large scale production. It was absolutely im- = Defoe in "The Complete English Tradesman" (1726), pages 388-407, describes very clearly and fully the systems of distribution existing in England at that time. THE DISTRIBUTIVE SYSTEM 17 possible after the introduction of modern machinery, for the producer himself to go out to find markets for his goods. Either he must employ a selling organization of his own, or sell his product to middlemen. Both methods were fol- lowed early in the development of the factory system. It was said to have been a common sight on England's roads to see a train of pack animals or of big heavy wagons loaded with cot- ton and woolen cloths setting out to find shopkeepers who would buy their season's stocks therefrom. As the managers of these trains sold the finished goods, they also bought raw wool in every place where it could be had and accumulated a load for the return to the factory. Later it was found more profitable to send out men on horseback or in carriages with samples to show to shopkeepers and to take orders to be delivered from wagons to follow. Thus originated the cus- tom of sending out traveling salesmen or commercial travelers in England. Large numbers of "bagmen" or "chapmen," as they were called, were traveling England by the opening of the nineteenth century. Wholesale Methods. — In finding markets v^'holesalers fol- lowed practices identical with those of the big producers. Specializing on marketing, building up an established trade, granting credit to retailers, and making advances to needy manufacturers, these wholesalers gradually became more suc- cessful in marketing than the manufacturers who did their own distributing. By the end of the eighteenth century, nearly all of the textiles sold in England were distributed through wholesalers, while those going abroad were handled by the exporting firms. The importing and exporting busi- ness had grown to large proportions and had also become specialized; the inland trade formerly carried on by the early merchant traders, whose work we have described, had gradually been taken over by the wholesalers. l8 ECONOMICS OF RETAILING The channels of trade developed rapidly but not at all systematically. Many wasteful methods were involved. During the eighteenth century, it was not uncommon for goods, such as woolen cloth, to go through as many as ten hands in passing from the producer to the consumer. Fac- tors, brokers, carriers, great wholesalers, small wholesalers, merchants, and retailers multiplied; and strange as it may seem to people of today, this was held to be a good thing for England. In the early part of the century, Defoe expressed the current view as follows : "The greater the number of hands through which goods pass, the greater public advantage it is to the country it is carried on or managed in; and, therefore, it is not always the true interest of a manufacturer in this or that particular place, to shorten or lessen the needful expense of trade though it should render the goods something the cheaper at market."^ The American colonies copied English methods quite closely. The importer was the real "merchant" and he served as the wholesaler as well, until American manufactures began to be established on a large scale, which was not until after the War of 1812-1814. Up to the time of the Civil War, practically all wholesalers were importers also. The organized system of distribution as it existed up to i860 included importers, who supplied foreign-made goods; brokers, who marketed the products of the New England textile mills; wholesalers, who were sometimes importers as we have seen, and who otherwise purchased from importers, brokers, commission men, and from producers direct; and retailers. Pre-Civil War Selling Methods. — There were few com- mercial travelers before the Civil War. Retailers "went to market" to buy; that is, they visited the wholesaling centers — 'Defoe, "The Complete English Tradesman," pages 109, 110. THE DISTRIBUTIVE SYSTEM 19 Boston, New York, Philadelphia, Baltimore, Chicago, Cin- cinnati, St. Louis, or New Orleans — twice a year. It was the custom to order at one time enough stock to last for six months, generally on from six to eight months' time. Losses due to bad debts were frequent, but the margins of profit were usually ample to cover such shortages. The panic of 1837, however, caused several wholesale and importing con- cerns, as well as other business concerns, to go into bankruptcy because of inability to collect their accounts. This experi- ence resulted in their taking more care in the granting of credit than had previously been customary. Systematic ef- forts were thereafter made by some of the larger concerns to learn about the financial standings of their customers. Men were sent out on the road — the first commercial travelers in this country — to visit the retailers periodically, learn how they were getting along, collect moneys due, extract settle- ments from delinquents, and to make friends for the wholesale house among those not already customers. These men sold little or no goods as a rule and the system proved to be most expensive and one that only the largest concerns could afford. The opportunity for a new kind of business enterprise had arisen, namely, the mercantile agency. Founding of Dun's and Bradstreet's. — Shortly after the panic of 1837, a Mr. Church established in New York a bureau of credit information whose purpose it was to serve whole- salers who desired information concerning out-of-town mer- chants buying from them. About 1840 the first mercantile reference book was issued. The first mercantile agency was established in 184 1 by Lewis Tappan in New York. A second was established in 1842 under the name of Woodward and Dusenbury. The Bradstreet Company was founded in 1849 by J. M. Bradstreet, who, as a salesman previous to 1849, had collected a great deal of information about his own customers. 20 ECONOMICS OF RETAILING Later the firm of R. G. Dun and Company came into existence, taking over the business built up by Lewis Tappan. Other concerns entered the field and for years the competition was keen, but the two last named are now practically alone in the field of general mercantile agencies. To a certain extent spe- cial industries are represented by special credit-reporting agencies. The Mercantile Agency. — The mercantile agency is a purely American institution. No country in Europe has any- thing like it. In England, banks furnish their customers with information concerning the standing of parties in trade, but in this country the development of this function among banks was next to impossible. In the first place, banks were failing, suspending specie payments, and were subject to great sus- picion at the times when the desire for mercantile credit information was strongest, namely, during and after the panics of 1837, 1843, and 1857. The country had grown so rapidly in trade, and particularly in the extent of territory over which this trade was transacted, that the small banks of the wholesale centers of the time had neither the incentive nor the ability to keep track of commercial conditions in such a way as to be of real service to the commercial interests of the country. Another reason why the banks of this country did not develop the credit information function for their wholesalers, was that there was no central bank through which such in- formation could be collected for the whole country and transmitted to the places where it was needed. Thus the mercantile agencies came into successful existence. Opposition to Agency Methods. — Naturally there was con- siderable opposition to the methods of the mercantile agencies. It was considered as an imposition by many retailers to have THE DISTRIBUTIVE SYSTEM 21 a third and outside party prying into their business affairs. Every attempt to get information directly by these concerns was opposed by large numbers of business men. Magazine and newspaper articles were written against the system. Even as late as 1896 a book entitled "The Mercantile Agencies Against Commerce: Are We a Nation of Swindlers and Liars?" appeared, written by W. Y. Chinn, violently op- posing the agencies. This spirit has now largely passed away. Antagonism towards the agencies has been largely replaced by confidence. A great number of merchants today furnish the mercantile agencies with signed statements show- ing the exact condition of their respective businesses.* Development of Present-day Selling Methods. — The present-day practice of sending out traveling salesmen to solicit trade from retailers seems to have originated in two ways. As has already been indicated, the "commercial travelers" who were sent out by wholesale houses to ascertain the financial conditions of customers and to make collections, began to take orders for goods as part of their regular duties. There was another type of employee in the early wholesale houses whose work finally grew into traveling salesmanship — the "drummer." The drummer, at first, was employed by wholesale houses to hang around hotels and watch for the arrival of retail merchants from out of town. When a mer- chant arrived he became the special recipient of every kind of appeal to get him to come to the house represented by the drummer to do his trading. "The country merchant is booked on his arrival, is captivated by courtesy, is attracted by appeals to each of his appetites and passions, is coaxed, decoyed, and finally ensnared or captured."' * Earling, P. R., "Whom to Trust," pages 295-304; Boulter, J., Mercantile Agencies and Their Work, in "Trade and Commerce," pages 372-394; Masterson, E. D., The Mercantile Agency, in "Modern Merchandising," Vol. VI, pages 87-92; Bankers' Magazine (18S8), 12:545; Hunt's Merchants' Magazine (1851), 24:46. " Freedley, E. T., "United States Mercantile Guide" (1856), page 204. 22 ECONOMICS OF RETAILING Later, as competition among the wholesalers grew keener, the drummer was sent out to see retailers in their home towns, to get their promise to come to the house when in the market, and to take orders whenever possible. As the prac- tice of small-town merchants going to market periodically decreased, the work of selling to the retailer in his own store or home became more and more important. Today, a very large part of the business between retailers and wholesalers is transacted through the medium of traveling salesmen. As early as i860 a number of traveling salesmen were employed by wholesale houses in New York, Chicago, Cin- cinnati, and other jobbing centers." After the Civil War their number increased very rapidly. Chicago wholesale houses sent their representatives out over the Western prairies, beyond the terminals of railroad and steamboat navigation. Traveling salesmen with their trunks loaded on wagons fol- lowed the pioneer trails to mining camps, lumber camps, trad- ing posts, and everywhere that a store existed. Some of them drove across the mountains to Utah and even to the Pacific Coast. Chicago's supremacy over St. Louis as a whole- sale center was largely due to this early hustling, and the Eas- tern drummer in the Northwest was declared to be a thing of the past in a statement made in the Chicago Tribune Annual Review of Trade and Commerce for 1869. Results of the Traveling Salesman. System. — With the be- ginning of this system, short credits gradually displaced long credits, and the discount for cash began to be generally adopted. Frequent visits of the salesmen made it possible to order in smaller lots ; hence merchants were able to keep a much wider variety of goods and to follow the changes in fashion more easily. By the introduction of this new system of retail 'Bankers' Magazine, 12:545 ff; Briggs, "Fifty Years on the Road," Ch II: Yeakle, M. M., "St. Louis of To-day," page 315. THE DISTRIBUTIVE SYSTEM 23 store buying it was made possible for great masses of the people to satisfy their desires for fashions in a way that had never before been possible. Henceforth the problem became, not whether fashion was to change or not, but rather how soon it was to change. Whether for good or evil, the length of time formerly interposed between production and consumption was generally reduced. Not only did this make frequent changes in fashion possible, but it opened the way to the later development of large-scale production of perish- able goods, foodstuffs, and so on. Some of the most re- markable developments in the distributive system during the last twenty-five years have been the adaptations in methods made to facilitate very rapid distribution over wide territory. Growth of the Retail Stores. — The development in this country of the retail store and its selling methods is fully as interesting as that of the wholesale house. In nearly every large center, the earliest store was a trading post, where furs were purchased from the Indians and trappers, and goods of various kinds given in exchange. The trading post was fol- lowed by the general store, a type that is still found in a great many country towns. The general store is perhaps the most typical American development in merchandising institu- tions, since very few like it are to be found anywhere else in the world. The old-time general store distributed dry- goods, hardware, groceries, drugs, and even liquors. It was frequently the location of the post-office, and served as the village social center for the men. The old box stove, the rickety chair or two, the near-by barrels, and the sawdust spit box, were the almost universal furnishings that equipped it for its social services. Here politics, religion, and neighbors were discussed. It may not be too much to say that here the tariff question, the government bank, internal improvements, foreign policies, and other important govern- 24 ECONOMICS OF RETAILING ment matters were ultimately settled. Certainly statesmen had to reckon with the forces of public opinion generated and cultivated around the stove of the country store. With all its inefficiency, its wasteful methods, and its shortcomings, as a retail establishment, it must be said that it successfully served its day as probably no other type of institution could. Many general stores still exist and will for years to come. But with increasing density of population and a rising standard of living, the general store as such must give way to other types of retailing institutions. Types of Stores. — The specialty, or one-line, store repre- sents the next stage in the development of retailing in this country. When the demands of the people of the villages became numerous, when the variety of goods offered in the general merchandise store became unsatisfactory, then came the one-line specialty store — the drug store, hardware store, agricultural implement dealer, dry-goods store, grocery store, the meat market, men's furnishings and clothing, and so on. Of these types of stores, and still later forms of retail in- stitutions, such as the department stores and mail-order houses, no more need be said here. Ample space is given to each of these types in later chapters. The Modern Distributive System. — In conclusion, the modern distributive system consists essentially of two middle- men between producers and consumers — the wholesaler and the retailer. The wholesaler buys in large quantity, and in wide variety, generally from many producers, assembles these stocks, stores them for sea?onal demands, oftentimes sorts and repacks the goods, and then finds the customers and sup- plies them with suitable quantities at suitable times. Credit relations are established, the importance of which may be inferred from estimates of the average amount of credit THE DISTRIBUTIVE SYSTEM 25 granted to retailers. Such estimates run from $400,000,000 to $750,000,000 ; that is to say, while retailers are always pay- ing up their debts to wholesalers, their purchases in advance of payment always run up into the hundreds of millions of dollars. It is not unusual for a wholesale concern to have as many as 25,000 or even more customers' accounts upon its books. Tlius, in addition to its other functions already named, the wholesaler is a great accounting and credit agency in our business system. In the lines he handles, the retailer assembles the goods of his particular community. In his store he keeps these goods, presumably, in cleanly condition, preserved from ex- tremes of heat and cold, from decay, from fire, and other forms of destruction to which all goods are subject. He demonstrates or shows the consumer how the goods are to be used. He sells and generally delivers them. Taking the country as a whole, the retailer likewise extends an enor- mous amount of credit to his customers. Channels of Distribution. — Distributing goods through wholesaler and retailer may be called the customary or regular channel of distribution. From this method there are many variations. In some lines there are more than these two links, while in others the two have been concentrated into one. The struggle for markets among producers both large and small has tended to make distribution very complex; and where competition is free and unchecked, changes from one system to another are both frequent and abrupt. So-called eliminations of middlemen have proceeded from both ends of the system. Many large retailers, such as the department stores, have sent their buyers direct to the producers to pro- cure supplies, while many of the producers have gone direct to the retailers and even to the consumers with their goods. There has been a good deal of experimenting and some chang- 26 ECONOMICS OF RETAILING Monufocfur Whole Refoile Prodt Local Buyer Commission Mon orWholesaler Rei-< eTailer Moni/adt'u rer Wholesaler Refeili er jonaumer Groceries Farm Products Light Hardware Manufacfu Retoi ■\gency Heavy Hardware Silverware The Channels of Distribution for THE DISTRIBUTIVE SYSTEM 27 Drugs Shoes Harvesting Machinery Various Lines of Goods 28 ECONOMICS OF RETAILING Jobber Commission Hi Broker Dept 5\bre ClotiiinaMfr Reteiler Jobber ConmissionHs Textiles boOFfoducers Jobber in^slricf 1 Relailer Colifomia Fruit Grorrera Ex. 1 Auctions W±?^ 1 -" Jobber Jobber 1 . 1 Refeiler Refailtr 1 Conaumtr Co-operative Fruit Marketing The Channels of Distribution for Various Lines of Goods—Continuei THE DISTRIBUTIVE SYSTEM 29 ing back and forth. Not all changes have been made in the interests of economy. Friction with present systems has been not the least among the causes for establishing new chan- nels in many cases. As an illustration of the number of methods of distribution employed by large producers, it is a fact that out of 102 concerns doing national advertising, 17 sell to jobbers, 18 to retailers, 11 through agencies, and 8 to consumers direct; 29 sell to both jobbers and retailers, 13 to retailers and through agencies, 4 to jobbers, retailers, and through agencies, i to both consumers and retailers, and I to jobbers, retailers, and consumers.' A clear idea of the customary channels of distribution in the main lines of trade passing from the producer to the con- sumer through retail stores, can be obtained from the charts presented on the preceding pages. ' Printers' Ink, September 12, 1912. CHAPTER III THE CONSUMER The Store and the Consumer. — The function of the retail store is to provide its customers with the goods they want — when, where, and how they want them. Efficiency in re- taiHng consists in furnishing this service satisfactorily and economically. This service must be satisfactory to the con- sumer in order to gain his good-will, and it must be economical in order that it may not cost the consumer any more than is necessary. Under competition the concerns that can perform this service most economically are able to reap the greatest net profits. Progress in retailing should lead continually to bet- ter and better service at relatively lower costs. Power of the Customer. — In planning the work of a store it must be borne in mind continually that the consumer is the party that ultimately determines what shall and what shall not be in the retailing as well as in the entire busi- ness system. What may at one time and in one way seem very satisfactory and most economical to the retailer, may not be satisfactory at all to the consumer and cannot therefore result in success. It may be said, perhaps, that the best-planned system of retailing from a theoretic standpoint might not be suitable for a given community or even for any part of the whole country, simply because consumers as a class may not be ready Ito appreciate it as such. There must be development on both sides in order that the system of distribution may progress. The consumers' point of view is fundamental. It 30 THE CONSUMER 31 may be changed and is constantly changing, but unless the re- tailer is able to make his business accord with it, he stands little chance of continuing in business. In fact, it may be asserted that success in retailing depends entirely upon find- ing out what the people want and then performing that service for them as economically as possible. Consumers and Their Demands. — Who are the consumers ? What do they want? The consumers of the country are its hundred millions of men, women, and children. What they want depends upon their respective ages, sex, habits — social and personal — and their occupations, and how much they want depends largely upon their incomes or wealth. Under most circumstances, demands for goods come only from adults or persons above the ages of childhood. Par- ents select goods not only for themselves but also for their children. This is the rule the world over. But in this coun- try there are several notable exceptions. Children of for- eigners learn the English language much more quickly than their parents, hence frequently serve as interpreters for the family. They begin to read the English advertising, study the goods at the stores, and are influenced by fashion changes more quickly than their elders. To some extent, children thus buy or influence the buying, not only of goods for them- selves, but also for their homes. Demand Influenced by Scarcity of Children. — Among the American people of the richer classes, the birth rate of children has fallen off markedly during the last fifty years, and this tendency to reduce the number of children per family has probably not yet reached its limit. One of the effects of this tendency of interest to distributors of goods, particularly re- tailers, is that, as there become fewer children per family, the 32 ECONOMICS OF RETAILING attention given to each child increases. This attention takes two forms, first to supply all its needs and demands much more completely than could otherwise be possible, and, second, to give more freedom to the child to satisfy its own de- mands. The fewer the children, the more the money for each child to spend. In consequence, children of native-born par- ents especially, begin to demand and to buy goods of a great variety at an early age. Children's movements such as "Boy Scouts," "Campfire Girls," marble playing, baseball, roller-skating, and so on, sweep over a town with remarkable rapidity, simply because the wherewithal to supply the neces- sary material equipment is provided to the child by its par- ents when wanted. The present has been called the "age of the child," and this should be a matter of significance to the retailer in making his plans. The store must be arranged to show its goods in a way to appeal to the age of people who constitute its customers. What suits one age may not suit another. The growth of the influence of children on the mar- kets and merchandise of this country during the last generation is mudh greater than is generally realized. Sex as a Factor. — Sex makes a great deal of difiference in demand, not only in the obvious diflferences in the goods used, but also in the manner in which the goods are bought from stores. It is commonly asserted that it takes more time, and that it is harder to please and to sell to women than to men. It is probable that many of the differences that have been pointed out between the sexes in their buying habits are exaggerated, but there are certainly differences that need to be noted. A generation ago women's time was so completely taken up with the household industries in the home, many of which are now performed in factories, that they had very little time to spend in shopping. Then men did practically all of THE CONSUMER 33 the buying for their families. Now this practice is quite re- versed. Women have been set free from a great deal of the arduous hand labor characteristic of the past, and have become purchasers rather than producers of the products needed in the home. It has been estimated by a number of people that, at the present time, at least 75 per cent, possibly more, of the goods used in the home are purchased by women. This ap- plies not only to goods used by the women themselves and by children, but also to foodstuffs and house furnishings. Even men's clothing, particularly furnishings, are now pur- chased very largely for them by women. The woman is the purchasing agent for the home in an increasingly large num- ber of cases. Retailing in all lines must take this into ac- count. Selling to Women. — Women are harder to sell to than men because as a rule they have, or think they have, more time to shop than men do. Practice in looking over stocks of goods affords them much real enjoyment. Most women like to shop. Only a few men, relatively speaking, enjoy shopping. Women, as a rule, rely more on their own senses and less on brand names than men do in buying. They also read descriptions and note details more carefully. The strug- gle of American families for social place and for more com- plete satisfaction of a very wide variety of wants causes many women to think more of the pennies than men do. For this reason, sales at reduced prices mean much more to women than to men. The problem of making a little money go a long way under pressure of an increasing cost of living is one that women are meeting by giving more and more care- ful attention to details in their shopping. Still another fac- tor to be considered is the specific instruction now being given to young women in hundreds of schools in domestic science, in studies of textiles and foodstuffs. Such education will 34 ECONOMICS OF RETAILING tend to make women still more critical purchasers, and the retail store must be adapted to meet this development.^ Since women are now the chief customers of retail stores in practically all lines, the stores must seek to meet women's standards and demands rather than men's. What was satis- factory to men in the past is not wholly satisfactory to women now. Retailers who have grasped this idea and have made their stores conform to it in such details as cleanliness, fix- tures, lighting, decorations, display of goods, and personal service, have reaped large rewards, while those who have not observed these changing conditions have passed out in failure. Habits of Customers. — Habits of customers are exceed- ingly important factors in determining how a retail store shall be carried on. We may distinguish between those that many people possess in common and those which only single in- dividuals have. The first may be called social habits, customs, and conventions, and only the latter are designated simply as habits. Of the two classes, the social habits are most im- portant in laying out the plan of a store's work and its general policies. The latter must be met by the individual salesman- ship of the retailer and his clerks. Racial Characteristics of Customers. — Customs depend upon race, nationality, and community. There are national foods, drinks, and clothing. There are types of architecture and house furnishings that are peculiar to, or at least originate •Other sex differences may be noted briefly as follows: Scientists affirm that women are less often color-blind than men. It is asserted that a woman has a much wider range of vision than a man has. With her eyes fixed straight ahead slie observes persons and things farther right and left than men do. Women excel men in grasping the meaning of, or comprehending, paragraphs. "Women go in flocks, and in social matters are less prone to stand out with salient individuality. They are more emo- tional, altruistic, intuitive, less judicial, and less able to make disinterested and impersonal judgment." "Women excel in memory." A woman's thoughts are more concrete and are more likely to relate to practical things of interest to herself. Men theorize and generalize more. Out of 483,517 patents recorded in Washington up to October, 1892, THE CONSUMER 35 in, certain countries. What one race of people may like, an- other race may find very distasteful. In a country such as the United States where all races are found, these racial and national variations constitute a big problem for the distributor. For example, it is said that the French people eat little or no cereal for breakfast. For them breakfast foods have no appeal. Sour-tasting foods are much favored by the Ger- mans. The English are great consumers of tea and crackers. Olive oil or imitations of it are much in demand among the people from South Europe, and everyone has read and heard of the part played in food supply by beans in New England, red peppers in the Southwest, corn bread in the South, pota- toes in Ireland, oatmeal in Scotland, rice in Japan. The usual statements regarding the use of these foods by nations are greatly exaggerated, but the kernel of truth is suggested to the retailer. A store in a community mad^up mostly of Ger- mans must offer a somewhat different supply of goods and furnish a somewhat different service than that demanded l)y people in communities made up of French, English, or other nationalities. Community Preferences. — Community habits are of more direct significance still. The resources of the region, the de- velopment of social standards of consumption, and the gradual unification of wants according to the classes of people found in the community, are factors making for definite lines of merchandising. Country districts differ from small-town communities, and the latter from large towns and cities. The relationship of the store to the community in each case is some- onl7 3,458 were by women. Women are more tactful and are able to extricate them- selves from difficulties more readily than men. "Old women are likely to be talkative, while old men are glum." "Male crime to female is as 6 to i." "She is about as superior to man in altruism as she is behind him in truth-telling, being more prone to ruse and deception." "Influence and suggestion are more potent than argument with women. They are more emotional, blush and cry easier; and are more often hypnotized. They have more sympathy, pity, charity, generosity, and superstition." Hall, G. S., "Adolescence," Vol. II, pages 561-567- 36 ECONOMICS OF RETAILING what different, and the power of the retailer to vary the con- ditions set before him also differs. Sectional Styles. — Manufacturers recognize differences in the character of demand in various parts of the country. "Met- ropolitan" and "western" styles are two distinct classes. Groceries, soaps, and so on are put up in certain ways for "southern trade." Maps might be made of the country show- ing divisions not by states but by parts of the country where various kinds of goods are consumed. Thus green tea areas would be found largely separated from black tea areas, mackerel-eating areas and herring areas, and so on. We should be able to locate sauerkraut areas, corn-bread areas per- haps, extreme-styles areas, conservative-styles areas, carpet- using areas, rug-using areas, in addition to areas producing specific products used very largely at home. In the big cities of the East white eggs are considered the choicest, while in San Francisco brown are considered most valuable. Com meal must be somewhat yellow in the North, but white in the South. The extent of such differences and their effects on distribution — matters that are but imperfectly understood at the present time — constitute one of the big problems of the economical distribution of goods. General Consumer Characteristics. — Notwithstanding the differences, there are a sufficient number of similarities to warrant some general statements. For example, in dealing with the subject, "Consumers' Fancies," a writer in the Year Book of the U. S. Department of Agriculture (1904), page 434 and following, called attention to certain factors in con- sumers' demands that will interest retailers, particularly grocers : "The consumer has a fondness for red, white, and the colorless, and sometimes for yellow when reinforced with THE CONSUMER 37 large size. Gloss, polish, and luster are wanted. Things should be large, and when applicable, of plump appearance; they should be uniform in size, shapely, and with ornamental lines. A convenient and showy package is appreciated and a product, trade, or producer's name, once established favor- ably, catches the fancy of customers often more easily and securely than anything else." The extent of demand depends not only upon customs and conventions, but also on spending power. Demand is like a coiled spring under pressure. The pressure is the limit set to spending b}' the Hmits of the pocketbook. But the use of income is not the same in all communities. Much de- pends upon whether the families own their homes or not, whether they are secure in their source of income or not, and upon the prospects for future prosperity in the community. People who rent their homes, as a rule, spend a larger share of their total income for daily needs than people who are buying and paying for homes. The spirit of economy is stronger in the latter case. Prospects of future plenty, as for example, good crops, a growing or booming city, incoming industries, and other evidences of community prosperity, tend to cause the people to spend more freely whatever money they may have than is the case under indications of hard times, retrograding business, and so on. Income; Its Relation to Demand. — General statistics of family incomes are of some value, although when applied to any given locality, they need to be qualified to suit the peculiarities of that locality. The table on page 39 was pub- lished by the Bankers Trust Company, New York, in 1918, from such statistics as were available. It is probably not free from error, but it will serve the purposes of this chapter, which is merely to indicate the outlines of the consumer problem. The total income of $38,250,000,000 is divided among 38 ECONOMICS OF RETAILING savings and expenses, and estimates on outlays for consumers' goods run as high as $30,000,000,000 annually. The usual classifications of expenses are as follows, in the order of their importance : Food Rent Clothing Fuel and light Miscellaneous items Omitting rent, since this item is not dealt with through retail stores, the following is presented as one of the typical estimates of national consumption in several lines of goods : Food Men's clothing . . . Women's clothing Children's clothing Shoes Furniture 3,200,000,000 765,000,000 790,000,000 500,000,000 730,000,000 530,000,000 Per Capita Consumption. — The following estimates of consumption in specific lines have been drawn from various sources : Sugar Coffee Cocoa Tea . , 89.0 ii-S 1-25 14 Shoes $10.00 Wool 5.25 Cotton 20.0 Tobacco 5.7 Soda water $1.20 Crackers $1.10 Flavoring extracts $1.00 Baking powder $.40 Condensed milk $1.00 Soap $2.00 Perfumery and cosmetics $.75 lbs. per capita lbs. THE CONSUMER 39 Income of Families in the United States, 1918. Classes of Incomes Average Income No. of Families Total Income Und zr $850* 7,288,000* $4,703,217,000 $780 to $910 $850 3,590,000 3,051,500,000 911 " 1,040 1,000 3.525,000 3,525.000,000 1,041 " 1,170 1,100 2,737,000 3,010,700,000 1,171 " 1,300 1,250 2,262,000 2,827,500,000 1.301 " 1.430 1.350 1,826,000 2,465,100,000 1,431 " 1,560 1,500 1,602,000 2,403,000,000 1,691 " 1,690 1,600 1,228,000 1,964,800,000 1,820 1,750 710,000 1,242,500,000 1,821 " 1,950 1,900 475.000 902,500,000 I.9S1 " 2,080 2,000 385,000 770,000,000 2,081 " 2,210 2,150 306,000 ^57,900,000 2,211 " 3.340 2,275 243,000 552,825,000 2,341 " 2,470 2,400 189,000 453-600,000 2,471 " 2,601 *' 2,S6i " 2,600 2.550 142,000 362,100,000 2,860 2,750 200,000 550,000,000 3.000 3,000 • 167,000 501,000,000 3,001 " 4,000 3.500 85,000 297,500,000 4.001 " 5,000 4*500 72,000 324,000,000 5,001 " 6,000 5,500 52,000 286,000,000 6,001 " 7,000 6,500 36,500 237.250,000 7,001 ** 8,000 7,500 26,500 198,750,000 8,001 " 9,000 8,500 20,000 170,000,000 9,001 " 10,000 9,500 15,500 147,250,000 10,001 " 15.000 12,500 45.309 566,362,000 15,001 " 20,000 17.S00 22,618 395.815-000 20,001 " 25,000 22,500 12,953 291,442,000 25,001 " 30,000 27,500 8.055 221,512,000 30,001 " 40,000 35.000 10,068 352.380,000 40,001 " 50,000 45,000 5,611 252,495,000 50,001 " 60,000 ' 55, 000 3,621 199,155.000 6g,ooi " 70,000 65,000 2,548 165,620,000 70,001 " 80,000 75,000 1.787 134,025,000 80,001 " 90,000 85,000 1,422 120,870,000 90,001 " 100,000 95.000 1,074 102,030,000 100,001 " 150,000 123,000 2,900 356,700,000 150,001 *' 200,000 174,000 1.284 223,416,000 200,001 " 250,000 225,000 726 163,350,000 250,001 " 300,000 277,000 427 118,279,000 300,001 " 400,000 345,000 469 161,805,000 400,001 " 500,000 448,000 245 109,760,000 500,001 " 1,000,000 683,000 376 256,770,000 1,000,001 " 1,500,000 1,106,000 97 107,282,000 1,500,001 " 2,000,000 1,701,000 42 71,442,000 2,000,001 " 3,000,000 2,459,000 34 83,606,000 3,000,001 4,000,000 3,459.000 14 48,426,000 4,000,001 " 5,000,000 4,514,000 9 40,626,000 5,000,001 and over 10,284,000 Totals 10 102,840,000 2,000,000,000 27,304,199 $38,250,000,000 *This group is composed of ^ number of individuals as well as families. 40 ECONOMICS OF RETAILING Another and more scientific way has been used in arriv- ing at per capita consumption, and that is by getting the figures from the consumers themselves. A number of such investiga- tions have been made during the last sixty years, but in the nature of the case each was limited in scope. The results of these investigations were very well summed up in the report of the Massachusetts Cost of Living Commission in 19 10. This summary will be found in Appendix A, from which the following sentences are quoted : "It would be safe to deduce from these tables a few generalizations about the expenditure of the income of a workingman's family under normal conditions. For weekly incomes of from $12 to $18 the income would usually be spent about as follows : rent, 18 to 20 per cent; fuel and light, 5 per cent; clothing, 14 per cent; food, 43 to 45 per cent; sundries, 15 to 17 per cent. This analysis may not fit the expenditures of many famihes, but it would probably be found that normal families with incomes of the amount stated tend to approach these figures." Average Family Expenditures. — The first of the following tables summarizes the figures which are presented in detail in the second. The figures are the result of a study conducted by the Bureau of Labor Statistics during the years 1918-1919. The more detailed table is taken from the Monthly Labor Rc- z'iczv of August, 1919; it shows in detail the items of expendi- ture for typical workingmen's families. (Average number of persons per family 4.9) Per Cent of Items of Expenditure Average Expenditure Food $548.50 38.3% Clothing 237.60 16.6% Rent 191.37 13.4% Fuel and light 76.15 S-3% Furniture and furnishings 73-23 5.1% Miscellaneous 306.10 21.3% Total i.,434-36 100.0% o M O r-, M M H 02 o f^ ^ w S n u 5^ 1-1 ^ ■< <1 « « ^ W p PL, o H a2 X o fi o I o <1 g < o O O O o .- - l,r S.-'^'SSS ft Families Having Neither Surplus nor Deficit 1-^ as IN M OS CO (N S "SS""- II OOiOCOCOt^OO — •* CO O CVJ lO O CC r^ M <:<3 JJ„„^„„^ Si ■H Tj- lO lO ua O M ir ^00OliOM.M^ ^ «' C^ CS O C^ to 1 s^ S""""°"' ss h o tH fe "S > lO S^£-!rS'S'^ 1 fa ^ lO --0 fr3 r-- CD C2 •- § P4 ^ tH a o ^ I^ 5 < ^^MMCOCOlf 3 .-H to m m (M as ot o o QO M Tj« lO >n o t^ t, Average Persons in Family CO lO 1-- O M t- "« Ci Tji -ji -^tH »o *ra lo « -iH CO Tfi OS c— »o t- e^ I ° I cqccca^ 1 ^ 1 ^«i»«»«««o wfefeJSJ^ ■2ll§|g 3 g 3 -a -rt -a -a -73 i-s § § § s g H 1- eSOOOOO O pin fe?5?6?£S&SB?£? ■* »o CO cfl .-I »n i>- ec ^ -* OS ira •<»( M 'fc?tS'l>?t5't5> 00 r« c4 CO o CO t^ CO "f CO lO lO t-- •* CO Tj> -^ ifl lO lO lO O CO C^ O lO " 3 COifJ "3 ifS -^ -t" ■^ CO CO CO ro C^ O C^ lO 0» I^ U3 C« I*) ^ I- CO Ci ■3 CO COCO t~ O t~ CO cq oo Oi .OCJOO ooooo qOOO-HIO j§§S§i •t ^ n n eq a n ►- rtooooo s o '=^ ° <=" ° ■=> •OgMiOOOT-nO i5 0» vH -H ^MN P «« •» w «• «4 «• ■|e||-| ■§■§■8-1 ■till 33-Sl aaS.a td U) ui ^ ml .2.2.2-9 o O O o "" d a a T3 «s oj V S o u a H O CD o ^.2.2,2 2^.s^ **^rt«i-l00 bo bo bo bO a g d a a d a a 41 42 ECONOMICS OF RETAILING The averages presented in the preceding tables represent standards which may be fairly representative of w^hole classes of our population, but from which individual families vary. It is probably true that most people consume amounts close to the average for their class; but in planning a retail- store selling system it is necessary to go still further and ask what causes the variations from the average and what the likelihood is that there will be such variations. Every fam- ily must have food and clothing, but some families will econ- omize in food in order to buy more clothing, while others will do the opposite. Which a particular customer will do will depend much upon personal habits, personal peculiarities, and the strength of the appeals made for the goods of the various classes by advertising or by salesmen. In an investigation made by the Chicago Tribune in 191 3 as to why some 30,000 housekeepers had purchased certain food products, it was found that — 55% of the housekeepers were influenced by retailers 36% of the housekeepers were influenced by advertising 6% of the housekeepers were influenced by friends Appealing to Instincts. — It is clear, therefore, that the suggestion and salesmanship of the retailer was a powerful factor in introducing new articles to the customer. Added to this is the influence of advertising, calling for the use of funds in a hundred different ways. The saving instinct in some, the love of finery, the stand- ards of spending of the class to which the consumer aspires to belong, the appeal of the goods themselves — as for ex- ample, that they save time or labor, or give comfort, pro- tection, or pleasure — all tend to have their effect on the ulti- mate division of the family income between the various classes of goods. What constitutes a strong appeal to one may not THE CONSUMER 43 have any influence with another. It is only in the most general way that we can say that all people's demands for goods are alike. Fluctuation of "Consumer-Demand." — "Consumer-de- mand"' is constantly changing. With this fact everybody is familiar. In foodstuffs, desire has increased for greater variety and finer quality. Attention is now being given as never before to the appearances of food, its flavor, taste, and its appeal to the aesthetic senses. In clothing, fashion now rules among practically all classes. Clothes no longer wear out ; they pass out. Faded or threadbare suits are rarely ever seen. In the homes there has grown up a demand for more room, more Hght, more fresh air, and for a well-regulated temperature. Furniture and furnishings as well as the build- ing itself are touched by fashion and conventionality. The standards of classes enjoying leisure and wealth have been selected as the types for popular imitation, moderated to a limited extent by the influence of culture spread by the schools and literature now enjoyed by all classes. Canned Goods an Example. — Illustrations of these changes in consumer-demand are available on every hand. Families no longer lay in "a winter's supply" of any kind of food. Such storing of foods is no longer necessary. The means for better storage on a large scale have been invented, and the people have gladly availed themselves of these and thus elimi- nated all the risk and trouble connected with collecting and storing foods at home for long periods. The waste, the spoilage, and the capital formerly tied up in the big family supplies, as well as the labor of canning, preserving, and 2 "Consumer-demand" is a term that has recently come into use among producers who are national advertisers. It is used in contradistinction to "dealer-demand." The meanings are obvious. 44 ECONOMICS OF RETAILING pickling, and the general lack of variety characteristic of this way of doing things, has been largely eliminated by the introduction of this large-scale commercial cold storage, by the wholesale canning and preserving of fruits and vegetables, and by the preparation of foods for distribution in small parcels or packages. A general idea of the extent to which this process has been carried and the possibility of a varied diet today as compared with that of a generation ago when there were no canned goods other than those prepared at home, can be gained from running over the following list of canned goods. This is by no means complete, but represents fairly the goods a modern grocery store expects to supply its customers. Apricots, anchovies, apples, apple sauce, artichokes, as- paragus, baked beans, lima beans, kidney beans, string beans, wax beans, blackberries, black raspberries, red raspberries, strawberries, huckleberries, beets, brown bread, carrots, cauli- flower, celery, cherries, clams, corn, crabs, cranberries, cran- berry sauce, currants, dandelions, figs, fish, game, grapes, guavas, gumbo, hominy, jams, jellies, catsup, lentils, lobster, meats, milk, mincemeat, molasses and syrups, mushrooms, nectarines, okra and tomatoes, oysters, parsnips, peaches, peas, peppers, pigs' feet, pineapple, plum pudding, plums, poultry, preserves, pumpkins, quinces, rhubarb, salmon, sardines, sauce, sauerkraut, shrimps, soups, spaghetti, spinach, squash, suc- cotash, sweet potatoes, sprouts, tamales, terrapin, tomatoes, turnips, turtle. The term "meats" in this list could be divided into a dozen or more articles little known to the public, and the word "fish" stands for nearly as large a variety of canned food. Canned Goods and the Cost of Living. — Much has recently been said concerning the increasing costs of food due to the use of cans and packages. The New York State Food Inves- THE CONSUMER 45 tigating Commission, the Massachusetts Cost of Living Com- mission, as well as many other bodies and individuals, have held that the tendency to sell goods in this form is one of the causes of the increased cost of living. That this is true there can be no doubt, but that the use of receptacles of this kind is therefore undesirable is quite another question. The rapid extension of their use seems to indicate a growing instead of a diminishing popular favor. The arguments commonly ad- vanced in favor of package and canned goods are as follows : 1. Goods are kept in better condition, free from dust and handling. 2. Keeping qualities are enhanced. 3. Cost of handling in the retail store is reduced. It is easy, as far as handling is concerned, to sell a package or can ready for passing across the counter. Such goods can be sold to the consumer at a lower margin of gross profit than bulk goods of the same class. 4. There is less waste both in the store and in the homes, the waste formerly resulting from handling, weighing, pack- ing, and so on, being largely eliminated. 5. The package or can is more attractive than goods of like character in bulk. While the number of grams of food elements in a package are not changed a bit by its appearance, it is well known that the consumer's appetite is decidedly af- fected by it. The attractive food container as well as the table linen and silver are elements in consumption that people now demand. 6. The use of canned goods gives even to the family of moderate income an opportunity to use a wide variety of foods from all parts of the world. 7. The contents of a can or package are usually of such quantity as may be served and consumed in a short time. The consumers do not grow tired of the food as they did when they ate oatmeal porridge made from oatmeal out of the bar- 46 ECONOMICS OF RETAILING rel every morning all year long. The use of canned and packaged goods permits of frequent changes in diet. 8. All parts of the foods that are packaged or canned are edible, and many such foods are ready-cooked. There is no waste. The unedible parts are removed at the factories and made up into by-products, while under the old methods of home food production such materials were very largely thrown away, especially in the cities. Much of the packing, as well as other operations of food preparation, is done by machinery with great saving of labor. Demand for Canned Goods Certain. — That food in cans and packages costs more than in bulk as formerly sold is un- questionably true. If consumers desire their foods in these ■"orms, they must pay for the expense of their preparation. It is also likely that in the case of some of these goods the margins of profit are much higher than with similar bulk goods. This may be accounted for partly by the novelty of the product, its immediate success, and the lack of the keen competition that is likely to develop in the course of time. That the demand for food in small lots put up in attractive form is here to stay, seems certain. Other Examples of Changed Demand. — Many illustrations could be given of changes in the character of demand for clothing. For example, men's $io suits of clothes have given way to $15 to $25 suits; women's corsets for 25 cents up to 75 cents have been displaced by those selling from $2 up to $3 and more. Boots for men gave way to congress shoes, and congress shoes to lace and button shoes. Copper-tipped shoes for children are now unknown. Fifteen years ago nearly all men polished their own shoes. Now shoe- blacking is hardly ever sold to people living in the richer homes. Shoes are polished by bootblacks and in so-called THE CONSUMER 47 "shoe-shining parlors." The shawl for men and for women is gone, as is the paper collar, dickie, and cuffs for men. Heavy underwear has been discarded for much hghter weights but of much finer grades. Clothing for women and children, nearly all made in the homes a score of years ago, is now largely, probably half of it, made outside of the homes, in factories. Entire families of children were once dressed in clothing made from fabric of the same pattern sold from the same bolt, so that, having seen one of the children, one could identify all of the rest of the members of a family by their uniform colors. Now, all of that is changed. Where means permit, each child in the family must have a distinctive dress suited to its age and in- dividuality. The carpet bag and rubberized satchel have given way to the suit case and traveling bag. Gone also is the cot- ton umbrella with its whalebone ribs. In the drug line, proprietary articles increased from 7,500 in the early 90's to over 40,000 in 1919. Hardware, furniture, and many other lines have experienced similar tendencies. Reasons for Changed Demand. — Immigration and Education. The causes for such changes in this country are not hard to discern. In addition to the change in habits from one generation to another, there is the steady effect of the inflowing immigration, also the emigration. Each addition or subtraction of people from a community is likely to strengthen or weaken some tendency to form certain habits of consumption. But more effective than these general movements is the education that the Ameri- can public is getting through its schools, theatres, lectures, moving-picture shows, and so on. Through these everybody finds out what everybody else's standard of living is. No class can keep its methods of satisfying its wants long to itself. The poor learn from the rich, the employee from the employer, 48 ECONOMICS OF RETAILING and the country from the city. Chicago learns what New York is doing — what its people have to wear and how they live; and Kankakee learns from Chicago. Information is dif- fused quickly and widely. Emulative imitation takes care of the rest. Short Labor Hours. The shortening of hours of labor and the consequent increase in leisure time that nearly all classes have enjoyed has helped indirectly to bring about the great changes in demand noted above. During the newly ac- quired leisure time, the laborer has had the opportunity to learn and to think about things concerning which he could have had no possible interest while his time was entirely taken up by his work. High Wages. The rise into economic independence of large classes of people is another factor helping to produce the changes. Nowhere are the effects on demand for such changes in economic conditions more obvious than among those classes of people who have an income of one thousand dollars a year and over. In families having less than this income, the wife must often work as well as the husband, but when the hus- band's salary or income passes this point, one of the first things that occurs is the withdrawal of the wife from some, if not all, productive labor. The standard for the wife there- after becomes one of leisure, and the demand made for goods reflects how this standard moves. Not only is outside, work by the wife given up, but also the labors of the home are lightened progressively. Package goods and ready-cooked foods, or foods that may be prepared in a very few minutes with the least possible amount of labor, are especially esteemed. Orders for goods are for small quantities only, and left-overs are disliked. The servant problem is solved by throwing most of the work of the home on commercial enterprise and eliminating maids and servants entirely. Pictures. Every magazine, newspaper, and recent novel THE CONSUMER 49 is a lesson in demand. Advertising, news, stories, and illus- trations convey impressions concerning the methods by which people satisfy their material desires and cause the wide dif- fusion of current standards. Who can estimate the influence that the food, dress, and ways of living of heroes and heroines in modern novels, have had on the standards of the readers? The influence of the theatre on women's dress is well under- stood, but no one has yet given Christy, Hutt, Fisher, Gibson, Flagg, Phillips, and other popular artists and illustrators the credit they deserve for interpreting the high tide of fashion in clothing and dress accessories, and for helping to popularize style tendencies through their work as illustrators of fiction. What is proper and desirable is thus built up in consumers' minds quite unconsciously. Mental products of these kinds are the ones consumers fancy to be their own — the result of their own tastes and intuitions. Consumer Rules Retail Mzirket. — In conclusion, the con- sumers are the rulers of the retail market. What consumers want, actually or potentially, constitute the things that the re- tailer must supply. If he cannot, he must make way for the one who can. It is most difficult to characterize these con- sumers in general terms. Among the multitude of consumers there are marked individual differences. No general classi- fication would be adequate. They are of all classes and con- ditions. They are made up of the rich and poor, old and young, ignorant and intelligent, active and indolent, careful and indifferent, honest and dishonest, and the sick and the well. Most of them are struggling for a living, all have their difficulties to contend with, and few can ever have all of their demands for goods entirely satisfied. Now attending to one want, now another, they seek the maximum of satisfaction possible to them under the circumstances. Subject to a multi- tude of whims, unsystematic in their buyings, forgetful, ease- 50 ECONOMICS OF RETAILING loving— such in general is the character of the customer of the retailer. It is for these that the retail store, in fact all busi- ness, exists. The merchant and his employees, who have learned that the store is for the customer and not the cus- tomer for the store, have gone far toward solving the problem of how a retail institution should be conducted. Bibliography Beardot, E. The Quality Appeal. Printers' Ink, February 22, 1912. Fawcett, W. Consumer Demand. Printers' Ink, November 7, igi2. Frederick, Mrs. C. Woman — the Greatest Buyer. Address before Associated Advertising Clubs of the World. Toronto, June 22, 1914. Associated Advertising, August, 1914. Hall, G. S. Adolescence, Vol. II, pages 561-569. (Splendid on differences between men and women.) Harris, W. J. How the Shifting of Populatin Is Affecting Pos- sible Markets. Printers' Ink, August 28, 1913. Homes, Geo. K. Consumers' Fancies. Year Book of U. S. Depart- ment of Agriculture, 1904. Langworthy, C. F. Food Customs and Diet in American Homes. Circular no. Office of Experiment Stations, U. S. Department of Agriculture. Johnson, R. W. Keeping Up with the Changing Market. Printers' Ink, September 12, 1912. Parlin, C. C. The Merchandising of Textiles. Curtis Publishing Company. Rogers, E. S. What Sort of a Person Is the Consumer? Printers' Ink, September 26, 1912. Spencer, C. D. Putting Yourself in the Consumer's Place. Printers' Ink, June 15, 1911. Ward, L. F. The Psychic Factors of Civilization, Ch. XXVI, "Fe- male Intuition." Warren, W. P. Getting People to Pay More. Printers' Ink, Decem- ber 28, 191 1. Woman as a Buyer. Printers' Ink, October 20, 1910. CHAPTER IV PRESENT STATUS OF RETAILING Census Retail Store Statistics. — To get an accurate idea of the proportions of any business, one naturally turns to the census statistics of a country. But in the study of the dis- tribution of goods, and of retailing in particular, one meets with a strange lack of any information in such documents. The only helpful material contained in the United States Cen- sus reports having any reference to trade are the figures show- ing the occupations of the working population of the coun- try. Such figures were first published for the census of 1850, and have been continued in connection with each decennial census down to the present, but the working of the Census Bureau machinery is so slow that years intervene between the census itself and the publication of its results. For example, the report on occupations from the census of 19 10 was not published until the autumn of 1914. Census of 1910. — The following figures are presented from the census of 19 10. The reader should observe caution in reading the table. For example, the figures showing the num- ber of merchants and dealers do not represent the number of establishments. All owners and partners and managers of stores were counted. In cases where a store was owned by several partners, each partner was counted. In cases where one person owned several stores directly managed by himself, the owner or manager was counted, and not the stores. The total does not represent the number of retail stores in this country, and there is no way of telling whether the number of 51 .52 ECONOMICS OF RETAILING establishments is greater or smaller than the number of mer- chants and dealers. Number of Persons Engaged in the Retail Business^ Retail merchants and dealers, total 1,195,029 Agricultural implements 8,518 Automobiles 4.S97 Books 3.118 Boots and shoes 19,346 Butchers and meat dealers 124,048 Candy and confectionery 29,538 Cigars and tobacco 17,728 Clothing and men's furnishings . . . 35,273 Coal and wood 24,466 Department stores 8,970 Drugs and medicines 67,575 Dry-goods, fancy goods, notions . . . 65,283 Five and ten cent variety 4,331 Furniture 22,209 General stores 88,059 Groceries 195,432 Hardware, stoves, cutlery 39,663 Harness and saddlery 7,541 Hucksters and peddlers 80,415 Jewelry 29,962 Liquors and wines 17,736 Lumber 26,485 Music and musical instruments .... 5,222 Newsdealers 7,075 Oil, paint, wall paper 6,818 Opticians 6,284 Produce and provisions 29,639 Rubber goods 493 Cashiers in stores 28,500 Clerks in stores 387,183 Bundle and cash boys and girls 10,866 Decorators, drapers, window dressers 5,341 Delivery men 205,589 Demonstrators 4,380 Elevator tenders 3,07S Store laborers 68,093 Meat cutters : 15,405 Salesmen and saleswomen 875,180 Scrubbers and sweepers 276 * Selected groups from Census of igio. For a complete list of figures for all classes of retail businesses as listed by the Census, see U. S. Census, 1910, Vol. IV, pages 420-423. PRESENT STATUS OF RETAILING 53 Difficulties of Comparison. — Another defect in the United States Census figures for the different decades is the lack of uniformity in classification of the occupations having to do with trade. This makes all comparisons of one decade with another decade difficult, and doubtful in result. For example, wholesale merchants were not separated from retail merchants until 1890. Up to 1890, retail salespeople were counted as clerks and copyists. Traveling salesmen were not enumerated as a class until 1870. No attempt was made to classify a large class of dealers at all. In 1900 over 364,000 merchants out of the total of 790,000 were simply lumped together as "not specified." Massachusetts Trade Census. — Nearly every state in the union takes a periodical census, but none of them, with the single exception of Massachusetts, has taken any particular ac- count of the distributing classes. In 1904 a law was passed in Massachusetts requiring that a census be taken of trade at the same time as the regular ten-year census is taken in years ending in 5. In consequence a study was made of the distributing business in Massachusetts in 1905, the first of its kind in this country. The volume containing the report of this census was issued in 1908. The Massachusetts census of trade is so significant that it merits something more than mere mention in this connec- tion. Its results cover the following subjects : when the stores were established; number of establishments, classified into retail, wholesale, jobbing, commission, exporting, importing, and exporting and importing; the number of partners and stockholders; the capital invested; value of goods sold; the number of wage earners; the wages paid per week; the num- ber of salary earners ; and the salary paid per week. As a study of wage and salary conditions, this census is excellent, but retail stores are not carefully enough distin- 54 ECONOMICS OF RETAILING guished from the other kinds of distributing institutions to permit one to form any conclusion as to the proportion of distributors, as for example, grocers, dry-goods men, or hardware storekeepers, to population. Nothing definite can be learned as to the service rendered to the people of the state in kinds of goods handled and expenses of handling. A good start was made in getting this census, but much more still remains to be done. Some of the more suggestive results which are shown in the Massachusetts report may be noted as follows : Over half of the extant concerns had come into existence within the ten-year period preceding the census. Ten firms out of a total of 29,045 had been founded before 1770. There were 12,441 stores which sold food products. The average investment in each of these was $2,489, and the average sales $14,569. There was one food store for every 241 people in the state. Report of Massachusetts Bureau of Labor Statistics. — Another important contribution to the subject of retailing was made by the state of Massachusetts in its Report of the Bureau of Statistics of Labor for 1899, published in March, 1900. Seventy pages in this report were devoted to a study of "Changes in Conducting Retail Trade in Boston since 1874." The investigation upon which this report was based was un- dertaken to determine the effect of the increase in number of department stores on the retail trade. Several states were considering legislating against the department stores at the time, and, as it happened, there was a bill introduced before the Massachusetts legislature during the session of 1899- 1900. Nothing came of this bill, however, and the Bureau reported as the results of its investigation, that there was no reason to believe that department stores were crowding the small stores out of existence. PRESENT STATUS OF RETAILING 55 Mercantile Agency Lists.— Another source of statistical in- formation concerning the number of retailers of this country and their financial ability, is found in the reference books of R. G. Dun and Company and in the Bradstreet lists of vari- ous classes of dealers. These lists all probably contain some inaccuracies. Neither of the two concerns are able to get all of the names of all concerns in business. But the lists are likely to include the better and more stable classes of retailers — those who have been in business for some time.^ ^ A list of the number of wholesalers and retailers in various lines of merchandise, as compiled from R. G. Dun & Company's records, is given in Appendix B. CHAPTER V THE EXPENSES OF RETAILING Analyzing Expenses. — One of the best ways to get a clear understanding of the retail business is to analyze its expenses. Until such an analysis has been made, comparisons of the work of one store with that of another are mostly meaningless. But the development of better retailing beyond a certain point can come only through intimate, detailed comparisons of the elements determined from such an analysis. The factors fa- vorable to efficiency may thus be isolated in the more succes.s- ful stores and applied in the administration of the less suc- cessful. The leaks, wastes, and abnormal elements may like- wise be determined and eliminated. Three Factors of Production. — In text-books of general economics it is commonly stated that there are three factors of production, viz., land, labor, and capital. A retail business, like all other economic enterprises, possesses these three fac- tors. The land factor comprises the location utilized by the store, and the labor includes all of the services given to the business by all the people employed in it, from manager down to the elevator boy or cash girl. The capital element includes all that for which money has been laid out — such as merchandise, fixtures, and equipment of all kinds. This classification has its value for purposes of general economic discussion, but in a treatise on a special field of economics, such as the distribution of goods at retail, it is not detailed enough to be as serviceable as it should be. For a better enumeration of the factors of a retail business we 56 THE EXPENSES OF RETAILING 57 must go to the accountants who have made a special study of cost-finding in the retail business. Retail Cost Accounting Investigations. — The most notable contribution to retail cost accounting is the "Harvard Sys- tem of Accounts for Shoe Retailers." In 191 1 the Bureau of Research in the Graduate School of Business Administration of Harvard University began investigating the distribution of shoes with a view to collecting facts suitable for educational purposes. A certain amount of field work in gathering data during the summer convinced the managers that such inves- tigations would be useless, since the data collected from dif- ferent stores did not represent the same things. In other words, there was no uniform classification of elements of expense in the business. Accurate comparisons could not be made. As a preliminary step to further work it was determined to prepare a uniform accounting system. "A joint committee composed of accountants of national reputation and of shoe men most representative in Boston and vicinity was secured. As a result of their labors and counsel, and that of the Bu- reau, the Harvard System of Accounts for Shoe Retailers was given to the trade early in 1912." A large number of shoe retailers the country over have adopted this system, and the number is rapidly increasing. A bulletin giving a general statement of the results found dur- ing the first year of its operation was published by the Bureau in May, 1913. Reference to this publication will be made in several places in this work. Since 191 3 Harvard University has made studies, similar to the shoe retailers' accounting, for wholesale shoe dealers and for grocers, both retail and wholesale. Other Investigations. — A great deal has been written on retail accounting during the last three or four years. The 58 ECONOMICS OF RETAILING Burroughs Adding Machine Company, in connection with their advertising, conducted an investigation on how retailers figure their profits, and found a considerable variation in methods. A large number of returns obtained indicated that many retailers were in error. The account of this investiga- tion accompanied by suggestions for better bookkeeping methods was published widely in the trade papers of the country. Several of the trade papers have themselves conducted service bureaus where proper accounting methods have been promulgated. The National Association of Credit Men has interested it- self in proper retail accounting and has published a set of rules showing what items of expense should be considered and how.^ For four or more years the National Implement and Vehicle Association has conducted an extensive campaign for accurate cost-finding in retail businesses handling agricul- tural implements and vehicles. Harry B. Mason, editor of Bulletin of Pharmacy, a live trade paper, was one of the first to write on the subject of cost accounts for retailers. From 1905 down to the time of writ- ing this book he continuously urged through the editorials of his paper and by addresses before trade associations, colleges, and elsewhere the need for better accounts. The fact that Mr. Mason's work did not begin until 1905 or thereabouts shows how recent the whole movement for more careful anal- ysis of retailing is. A remarkable work for promoting better methods of retail accounting has been performed by Thomas A. Fernley, of Philadelphia. As secretary of various national trade or- ganizations, Mr. Fernley compiled a large number of facts re- garding the retail trade and published monographs on the sub- ject, that have been given a very wide distribution. So far ^ Sec Appendix C of this volume. THE EXPENSES OF RETAILING 59 as the writer has learned, these were the first publications upon the subject of scientific retail cost accounting.^ In conversa- tion with Mr. Fernley the writer was told that the studies pre- ceding these publications began in the latter 90' s and were carried on by both Thomas A. Fernley and his father, T. James Fernley, secretary-treasurer of the National Hard- ware Association of the United States. William H. Ingersoll, marketing manager for Robert H. Ingersoll and Brother, has worked out a system of accounting for retail jewelers that has been found acceptable, and has been widely adopted. Hart, Schaffner and Marx, the Chicago clothing manufac- turers, have devised a system for retail clothing stores which is described in a pamphlet entitled, "What Do You Know About Business?" In 191 5 the General extension Division of the University of Minnesota, through a committee composed of retail mer- chants, of the editor of one of the trade papers, and of a representative of the General Extension Division, appointed at the first short course for merchants held during February, 1914, issued an accounting system for general merchants. Several private concerns as well as individual accountants specializing in retail systems have broken into the field of retail cost accounts, with the result that, while the movement is of comparatively recent date, it is developing with great rapidity. In 1916 the Federal Trade Commission issued a helpful pamphlet on "A System of Accounts for Retail Merchants." In the introduction to this pamphlet, Edward N. Hurley, then Chairman of the Commission, stated : "The Federal Trade Commission has found that the ma- jority of retail merchants do not know accurately the cost of ^ A collection of monographs, including "Cost of Doing Business" and the "Right of Way to Figure Profits," was published in 1912 under the title "Price Maintenance," by Thomas A. Fernley, Philadelphia. 6o ECONOMICS OF RETAILING conducting their business and for this reason they are unable to price their goods intelligently. There must be decided im- provement in this direction before competition can be placed upon a sound basis and before we can expect a decrease in the heavy business death rate among retail merchants." Two Distinct Costs. — In running a store it must be borne in mind that a retailer must make two distinct kinds of di- rect outlays ; first, his costs for goods, and second, his costs for conducting the business. If one may compare a retailer's business with a manufacturing concern, the outlay for mer- chandise is much the same as the manufacturer's outlays for raw material, ancf the costs of conducting the retail business are similar to costs of manufacturing — labor, rent, general expenses, etc. The price which the retailer pays for the goods is not their total cost when handed over the counter to the consumer, any more than the cost of raw material is the total cost of the finished product that the manufacturer offers for sale. Nothing but looseness of speech and of thought can account for the common use of the word profit as if it were the full difference between what the retailer paj's for the goods when he buys them and what he receives for them when he sells them. The true costs of the goods include the purchase price plus all expenses of transportation, drayage, and so forth, ne- cessary to bring the goods to the store. Then in addition In this first cost of the goods laid down, there are the costs of selling them. It is the latter, the costs of selling the goods in a retail store, that we are interested in outlining in this chap- ter. It should be noted in passing that all freight, express, parcels post, and cartage on incoming goods are to be added to and considered part of the purchase price of the goods. Only after the goods actually reach the store can the selling expense in them be said to commence. THE EXPENSES OF RETAILING 6l Classification of Retail Store Expenses I. Buying Expenses: 1. Salaries and wages of buyers in proportion to time spent in buying. (All time consumed in examining stock, making stock records, ordering goods, inspecting sales- men's samples, and all time used in buying trips should be included.) 2. Traveling expenses 3. Miscellaneous expenses II. Selling Expenses : 1. Salaries and wages of sales force. (All time given to selling by buyers and manager should be included under this classification.) 2. Premiums, commissions, bonuses, spiffs, PM's, and prizes paid for sales service in addition to salaries. 3. Advertising: (a) Newspaper and periodical (b) Circulars and letters (c) Bill-boards, electric signs, etc. (d) Local programs (e) Window displays (f) Gifts, premiums, and trading stamps 4. Miscellaneous : (a) Wrapping paper, twine, etc. (b) Free alterations and repairs (c) Expenses and losses on returns III. Delivery Expenses : 1. Wages of delivery force for time spent in delivering goods to customers 2. Stable and garage expenses 3. Express, mail, and freight shipments 4. Miscellaneous IV. Management Expenses: I. The portion of the salaries of the managers represented by the time consumed in hiring and training employees, supervising the work of the store, and other managerial work. 62 ECONOMICS OF RETAILING V. Office Expenses: 1. Salaries of bookkeepers and stenographers for time spent in office work 2. Salaries of cashiers, inspectors, and office messengers 3. Office supplies : (a) Stationery, printing, and postage (b) Account books (c) Miscellaneous IV. Fixed Charges: 1. Rent; (a) Store premises (b) Storage or warehouse 2. Heat, light, and power 3. Insurance: (a) Fire (b) Burglary (c) Fidelity (d) Plate glass (e) Employer's liability (f) Accident elevator (g) Sprinkler system water damage (h) Warehouse (i) Boiler (j) Merchandise en route (k) Life insurance payable to firm 4. Taxes on stock and store equipment VII. Up-keep and Depreciation Expenses : 1. Repairs and renewals of equipment- 2. Depreciation of equipment 3. Depreciation of merchandise stock VIII. Miscellaneous Expenses : 1. Telephone and telegraph expenses 2. Water and ice 3. Care of store, janitor's services, cleaning, etc. 4. Expenses of collecting slow accounts 5. Losses from bad debts IX. Interest on Net Worth of Business at Current Rate THE EXPENSES OF RETAILING 63 Saies Cost Basis vS. Goods Cost Basis. — After classifying the expenses of a store according to the foregoing or any other method, it is necessary to reduce the results to percentages before they may be compared with similar results recorded from other stores, or even with results from the same store for years past. But in order that the percentages may be compared they must be computed upon the same basis. At this point there is much disagreement among retail store accountants. Some claim that the costs of the goods should be used as the base, while others insist that the sales cost should be con- sidered as the base. Trade papers have teemed with articles on both sides. Frank E. Goodwin has been a leader in the discussion for using the costs of the goods as the base,' while the National Association of Credit Men, Burroughs Adding Machine Company, Butler Brothers, the National Implement and Vehicle Associations, the Harvard System of Accounts, as well as many of the trade papers have urged sales cost as the proper base for figuring retail expenses and profits. It is obvious that either may be used with accuracy if adhered to consistently. The trouble that has arisen has been due to the fact that dealers have very generally computed some of their percentages on their sales and others on costs. This confusion constitutes the chief error noted in actual practice. There seems to be some advantage, however, in computing expense and profit percentages on sales rather than on costs, and for this reason all percentages in this book are based on sales. In a little pamphlet published by the Burroughs Add- ing Machine Company, written by Thomas A. Femley, "twelve reasons why the percentage of profit should be figured on the selling price and not on the cost" are given : I. Because the remuneration of salesmen is figured on a certain percentage of the selling price. ^ "A Cost Accounting Fallacy Exposed," first published as an article in the American Faint and Oil Dealer, June, 1912. 64 ECONOMICS OF RETAILING 2. Because the percentage of expense of conducting busi- ness is based on the selling price. If you talk per cent of profit on cost and per cent of expense on the selling price, where are you? 3. Because the mercantile and other taxes are invariably based on a percentage of the gross sales. 4. Because the sales totals are always given in books of record, cost totals are seldom, if ever, shown. 5. Because a profit must be provided for two items of capital — one the capital invested in merchandise — the other the capital necessary for operating expenses and other ex- penditures not properly chargeable to merchandise account. This is only possible by figuring profit on the selling price. 6. Because it indicates correctly the amount of gross or net profit when amount of sales is stated. The percentage of profits on sales is indicative of character of result of year's business — percentage of profit on cost is not. 7. Because allowances in percentage to customers are always from selling price. 8. Because no profit is made until sale is actually effected. 9. Because nine stores in ten which do not figure on the selling price get mixed somewhere in their figures, and do not know whether they are going forward or backward. 10. Because the big stores figure on the .selling price. 11. Because it puts the retailer where a customer will not be so likely to call him a robber if he learns the percentage of profit. Twenty per cent of the selling price is 25 per cent on the cost, but the 20 per cent does not seem as large an amount. 12. Because if you figure on the selling price you can go to the cash drawer, and say "10 per cent of that money is my profit" instead of having to say that 10 per cent of the cost of the goods which I sold for that money is mv profit." THE EXPENSES OF RETAILING 65 Expenses Variable. — The total expenses of doing a retail business vary greatly. The causes for these variations may be inferred to be due to the kind of business, the location, the volume of business done, the class of business whether high or low grade, and the efficiency with which it is conducted. Expenses seem to vary according to the size of the town — the larger the town, the higher the expense. There seems to be a little variation between the different parts of the country. Pacific Coast and Mountain State stores have expenses run- ning from I to 3 per cent higher than the Middle West, while costs seem to be somewhat less in the South than in the North for similar classes of business. The averages reported by the trade papers for the various parts of the country are remark- ably similar, however, for the same kinds of businesses A recent article contains the following statement: "Location counts. One per cent may be added for the Pacific Coast and Mountain States (freight, an important but variable item, is not considered) and one per cent may be deducted for the Atlantic Coast. Rural community re- tailers may safely deduct three per cent from the averages, and concerns in cities of over 400,000 add two per cent."* The costs of doing business run higher in well-to-do com- munities than in the less prosperous ones. Almost invariably the costs are higher in manufacturing and commercial towns than in agricultural centers. Taking the same conditions, there is often the widest variation in costs, and it is not to be presumed that higher costs always indicate lower efficiency, though this is frequently the case. Results of Cost Investigations. — In the investigations of the costs of doing business in dry-goods and ready-to-wear stores, made by C. C. Parlin for the Curtis Publishing Com- pany, the following results were obtained: * System, December, 1913, page 569. 66 ECONOMICS OF RETAILING Costs of Doing Retail Business^ Dry-Goods and Women's Ready-to- Wear (Including Corporation Salaries, Buying Expenses, and Freight) Cities 600,000 up 200,000 to 600,000 10,000 to 200,000. 2,500 to 10,000. . . Rural stores In the East Range 24-31% 22-27 20-25 17-23 10-20 Ave. 261.^% 24 22 20 17 In the Middle West and South Range Ave. 23-28% 25% 20-26 23 18-24 21 11-20 18 In the Pacific and Mountain States* Range 28-34% 25-32 20-27 iS-25 Ave. 31% 281-^ 26' J 23 •Freight to Pacific Coast amounts to about 3 per cent and to the Mountain States 4 per cent of the sales. Reductions to this amount should be made from the last column. The Harvard investigation on the retaihng of shoes for its first year ending in the spring of 191 3 and embracing observations of more than 130 shoe stores, showed the fol- lowing cost of selling: Cost of Selling in Retail Shoe Stores^ Principal Items of Expense Buying . . . Sales force Advertising Deliveries Rent Interest . . . Range (Total expense i8-3S";c) Modal Group (Total Expense Low Grade 23% High Grade 27%) Most Efficient Group (Total Expense Low Grade 20% High Grade 25%) 1.0% 7.0 1-5 0.4 30 2.0 ""Selling Forces," pages 178-179. (Curtis Publishing Co.) ° Bulletin of the Bureau of Business Research, Harvard University Number i May, 1913. . ' THE EXPENSES OF RETAILING 67 It is to be noted, however, that a large number of the figures upon which these percentages are based came from stores in "the eight large cities — New York, Philadelphia, Baltimore, Pittsburgh, Cleveland, Detroit, Chicago and Cin- cinnati." This probably accounts for the wide range in total expense, and probably also for the difference between these figures and those found by the writer in eight Wisconsin shoe stores. The writer's own investigations among stores in Wis- consin show the following results : Costs of Doing Retail Business in Wisconsin Kind of Business No. of Stores Range Modal Group No. Falling Within Mode Grocery 17 II 8 8 8 7 3 4 11 2 12-22% 16-25 22-28 16-27 17-26 • 20-30 24-30 25-32 22-30 25-27 i4'/4-l7% 11-22 22-24 21-23 19-22 27-30 28'" 26-27 11 6 Furniture Shoes Hardware Men's clothing Drugs Jewelry Department stores.... Five and ten cent stores 6 4 4 3 2 5 Accurate Data Unavailable. — An amount of data sufficient to make an accurate descriptive analysis of all of the details that enter into the expenses of retailing and the causes for their variation is not yet available. It is not likely that there ever will be fully satisfactory information upon these points until the federal government can be induced to make nation- wide investigations in this line, much as the Department of Agriculture now studies and reports agricultural conditions. In the chapters which follow the writer has taken what facts are available and in coming to more or less tentative conclusions has made such use of them as seems warranted. The next 68 ECONOMICS OF RETAILING Step in this field, as well as in many other branches of econ- omics, is not theorizing but the gathering of more facts, and this is a work that should be performed in the interest of all business by the government or by some branch of the government. Bibliography Federal Trade Commission. A System of Accounts for Retail Mer- chants. 1916. Fernley, Thomas A. Price Maintenance. Commerce Pub. Co., Philadelphia. 1912. Goodwin, F. E. Cost Accounting Pathfinder. Midland Publishing Co., Columbus, Ohio. 1910. Harvard University, Graduate School of Business Administration. Harvard System of Accounts for Shoe Retailers. 1914. Mason, H. B. The Druggists and his Profits. E. G. Swift, Yar- mouthport, Mass. 1915. Nystrom, P. H. Retail Stores Management. La Salle Ext. Uni., Chicago. 1917. Sammons, W. Keeping up with Rising Costs. (This interesting book first appeared as a series of articles in System. It contains summaries of cost of doing business in 1560 stores scattered over the country, from which conclusions are drawn showing how to meet the rising costs tendency.) Walker, J. C. Retail Accounting and Store Management. South- western Publishing Co., Cincinnati, Ohio. 1916. CHAPTER VI RETAIL SALESPEOPLE AND THEIR WORK Division of Labor in Retail Store. — The real work of the retail store is, of course, to sell goods. Therefore the sales- people may be called the "productive" help of the store. It is mainly with salespeople that the public comes in contact and upon the efficiency of their work hangs the success of the store. But selling goods is not the only work to do in a store. Before goods can be sold they must be bought, handled, un- packed, stored, displayed, repacked or wrapped, and delivered. Office records and accounts must be kept, correspondence car- ried on, advertisements written, and so on. Finally the store building must be kept clean and in good condition for selling. All of this work is carried on in order to make it possible to sell goods. There is then a division of labor in a store which may be roughly outlined as follows : Actual selling 50% Office work 15% Stock marking, etc 8% Delivery 8% Care of building 5% Other work 14^^ Total 100% In small stores all of these various kinds of work may be done by the same person. As the size of the store and the number of employees increase, these duties are divided 69 ■JO ECONOMICS OF RETAILING Up and apportioned off to individuals. In large department stores one may find employees whose duties are so simple and so few that they may easily be defined in a very few sentences. There is considerable variation in the proportions of va- rious kinds of work done in retail stores. It can readily be seen that stores which do not give delivery service would not have a delivery division of work. These stores would show a larger proportion of actual selling labor. The same is true to a degree for stores which do not grant credit. In the recent innovations of serve-self stores, the proportion of actual selling labor would be cut down. The table given above merely presents the average condition in general merchandise stores and department stores. Amount of Sales Work. — That fully half of the work of a retail store is something else than selling may be surprising to many people. Failure to keep this fact in mind is the cause of considerable misconception of the real function of retailing. It is really something more than "buying, selling, and taking toll in goods passing from producer to consumer." Men and Women in Retail Stores. — The proportions of men and women employed in retail stores is a point of inter- est. Taking the country as a whole according to the census, salesmen in stores are about three times as numerous as sales- women. But in large stores in the large cities the ratio is almost exactly reversed. In department stores and 5 and 10 cent stores there are from four to six times as many women as men employed. The following table drawn from the United States report, "Wage-Earning Women in Stores and Factories," Vol. v., "Woman and Child Wage-Earners in the United States," page 41, shows the distribution of women employees b}' oc- RETAIL SALESPEOPLE AND THEIR WORK ^i cupations in 26 department stores of New York, Chicago, and Philadelphia, employing a total of 36,000 women. Percentage of Whole Saleswomen 46.2% Cash girls, messengers, inspectors, bundle wrappers, and packers 13.2 Office employees 17.6 Buyers and assistant buyers 1.2 Other employees 21.8 100% From the above it appears that of all the labor that women are employed to do in large stores, selling constitutes a little less than one-half. The entrance of women mto the field of retail salesman- ship is one of the noteworthy developments of the retail busi- ness since the middle of the nineteenth century. They were first employed on a large scale in some of the largest dry-goods stores of New York, and soon after in the dry-goods and department stores of practically every other city. In a work published in New York in 1856 it was stated that the employment of ladies as clerks in stores, especially in dry-goods stores, was becoming very general in America.^ But with the development of the department stores beginning in the 70' s, and the notion and variety goods stores, best typi- fied today in the 5 and 10 cent stores, the employment of women as salespeople seems to have received its main ad- vancement. Serving the Customer. — The work of the salespeople is to represent the store in the sale of its goods. The existence of a store depends upon two things ; on the one hand, the possibiHty of serving customers, and, on the other hand, the possibility of getting a remuneration or profit for performing that service. ' Hurt, F., "Worth and Wealth," page 499. ;2 ECONOMICS OF RETAILING The work of the salespeople must therefore be such as to sat- isfy customers and bring profits to their employers at the same time. The salesman's service to the customer consists in showing the goods the store has gathered together for sale, explaining and demonstrating the qualities and uses of these goods, and helping to make suitable selections or secure proper fittings. For this service the salesman presumably has had, or should have had, special training, so that the assistance given to the customer may have an expert or quasi-professional nature. After prices reach stable levels, the natural development of competition between dealers leads towards a better grade of selling service to customers. Since, according to the view of many merchandisers, the general levels of retail prices and necessary profits within given classes of retail stores have been fairly well established, we may expect to see a more rapid and more general improvement in sales service in the future than that obtained in the past. "Making the Connection." — But the salesman in a retail store cannot confine his entire attention to the interests of the customer. Such singleness of purpose might occasionally result in directing a prospective customer for a particular ar- ticle to a competitor's store. Such cases are not unknown. It would be eminently desirable if such practices could be in- creased. Such co-operation could be carried out in a town in which each store agreed to handle certain lines, to confine it- self to these only, and to direct customers for other lines to the other stores. Tlie usual interests of business, however, re- quire that the customer must be supplied, if possible, from the store's stock. It is presumed that the buyer for the store has exercised good judgment in selecting suitable stocks of goods, and that the people who enter the store may want to purchase something from the lines represented by those stocks. It is RETAIL SALESPEOPLE AND THEIR WORK 73 the business of the retail salespeople to make the connections between the store's goods and the customers' wants, if it is at all possible to do so. In the selection and purchase of goods most customers are governed by a variety of considerations — many of which are purely matters of opinion having no reasonable basis. Likes and dislikes cannot always be logically explained and in many instances are subject to frequent and radical changes. People want what they think they want, and what they think they want depends largely upon their knowledge of goods and their habits of using them. To influence the customer in favor of his goods, therefore, the salesman must convey as many ideas as he can concerning those goods — their qualities, uses, the satisfaction that may be derived from their use, and so on. Satisfying Desires. — The average customer has a great number of desires, only some of which he can satisfy with the money at his disposal. These desires compete for sati.s- faction in his own mind. For purposes of clearness we may consider them in two categories — desires for entirely different classes of goods, and desires for goods of the same kind but of different qualities. All of these desires are of unequal in- tensity. Among goods of different kinds, desires will tend to be satisfied in order of intensity. For example, if a work- ingman feels that he needs a new hat, a pair of shoes, and a pair of gloves, but does not feel that he can afford to buy all three at the same time, he will decide to take that which he feels he needs the most at the present time. At a later time he will take what he then needs most, and so on. He may purchase the shoes first, the gloves a week later, and the hat a week after that. Among goods of the same kind, the cus- tomer selects that which promises the greatest amount of sat- isfaction — such as wear, comfort, and appearance — for his money. 74 ECONOMICS OF RETAILING Influencing a Decision. — A salesman handling gloves might in many cases show to the man who had decided to buy shoes that a pair of gloves would be more desirable. He might point out that the customer's shoes could be resoled and that they would then wear for a long time to come, and that the oncoming cold weather would make it very disagree- able to get along without gloves, and finally that the cost of re- pairing the shoes and of a new pair of gloves might not be more than for a new pair of shoes. By following the salesman's suggestion the customer would thus have not only his feet cared for serviceably, but also his hands; whereas, otherwise he would have to stand the discomfort of going barehanded for another week. Supplementing these ideas, the salesman would show the customer suitable gloves, point out their de- sirable qualities — durability, comfort, warmth, and good appearance — and thus help to build up the customer's thoughts, and consequently his desire for gloves. A customer who has decided upon what kind of goods he wants, is still confronted by the problem of getting the most for his money. There are many kinds of shoes of many different qualities. The work of the salesman is to find the shoe from his stock that will serve the customer best, and then explain it, fit it, and get the customer to appreciate it more highly than any competing shoe. "Getting Your Money's Worth." — What the salesman does in either case may be summarized as follows : He presents to the customer's mind by all possible methods, ideas about his goods that will build up a favorable impression, so that when it comes to the time of deciding what to buy, the customer's desire for the given article that the salesman is trying to sell is clearly much stronger than any desire he might have for other goods of either the same or a different kind. Using the economist's term, "marginal utility,'' which simply means RETAIL SALESPEOPLE AND THEIR WORK 75 the intensity of demand felt for any goods, we may say that the marginal utility for almost any article is an extremely variable thing with most people, not only as between different things but also for the same thing considered at different times and under different circumstances for any one person. What the salesman does for his employer is to raise the marginal utility of the article he is trying to sell to such a point that in the customer's mind it overtops the marginal utility of all other goods at that particular time. The question may be raised at this point as to whether this is in the interests of the consumer and of society at large. In answer it may be pointed out that desires had to be aroused and intensified in order to introduce into general use prac- tically every article of modern convenience and comfort. It was salesmanship that put the sewing machine, range, gas stove, electrical appliance, musical instrument, washing ma- chine, and vacuum cleaner into the home. Salesmanship has introduced practically all great improvements and devices into every line of business and industrial life. Without salesmen our present material development would be inconceivable. Salesmen are the present-time teachers of the people in the arts of progress,' and as such rank with the schools and the press. Salesmanship as a Social Good. — The social importance of good salesmanship can be pointed out very well by show- ing the failures of salespeople of the past generation. As one goes through homes and notes the incongruous furnishings, lacking both in art and in usefulness, one cannot help but think of the wasted opportunity of salesmen to point out to purchasers how — and generally without additional expense — they might have improved their homes. Much of the wastes of American cookery in the towns and cities could be eliminated by a word of advice given by skilled grocers' salesmen now 76 ECONOMICS OF RETAILING and then. It is said by shoemen that at least 75 per cent of adults have trouble with their feet — corns, bunions, ingrowing toe-nails, broken-down arches, and so on. Most of these trou- bles are directly traceable to poor shoe fittings ; in other words, poor shoe salesmanship. Much of the waste, inefficiency, and even suffering due to badly furnished homes, poor clothing, badly fitted garments and shoes, wrongly selected foods, and so forth, are chargeable to a very large extent to bad retail salesmanship. One should not overlook the responsi- bility of the consumer for being in the plight he is often in, but the work of the retailer and his salespeople as purchasing and distributing agents for the community might well include such education of the consumer in the use of materials as the retailer and his salesmen are best fitted to give. There is unbounded opportunity for progress along these lines. Evils of Salesmanship. — It is not to be inferred because of the great social services the salesmen perform, and the still greater ones for which there are opportunities, that there are no evils connected with selling. There can be no doubt that many people are led to place too high estimations of value upon certain goods which common sense would dictate should be placed in a subordinate order. But purchases made by consumers are largely dictated by custom, and the ultimate satisfaction derived from the purchase must determine the wis- dom of the purchase and its value in comparison with other possible purchases. If its use results in comparatively littld satisfaction, then we may say that the purchase was un- wise; otherwise, not. Many a purchaser has been called a fool by his acquaintances for investing in a new contrivance which ultimately brought him great results, and many an unwise purchase has been made by consumers where no sales- man's persuasion had anything to do with it whatever. It is likely that no more people have been deluded into buying RETAIL SALESPEOPLE AND THEIR WORK -j-j things they did not need and could not get full value from, than have been deluded into voting the wrong ticket and for the wrong men in politics, or into taking any other unwise individual or social action. Evils in other lines do not excuse evils in selling, but an understanding of the general prevalence of such evils causes one to take a broader view of the matter. One of the main results to be hoped for from a thorough system of educating salespeople for their work is a clearer and keener conscience upon this point. It may be noted that the practice now followed by many stores of exchanging goods or of refunding the purchase price, if customers are not satisfied with the goods, offers almost a complete remedy. Dishonesty. — The great evils frequently associated with salesmanship are dishonesty and misrepresentation. If goods are declared to possess qualities which they do not possess, and which the customer cannot safely pass judgment upon, a great wrong is perpetrated. Under such circumstances the customer buys thinking that he is receiving what he is really not getting at all. Much of this dishonesty appeared in the old time "puffing" of goods, horse traders' bragging, and merchants' higgling. Much of it has survived, though in decreasing pro- portions, down to the present day. The attempt is now under way to purge advertising of this fault; and the next step is to hold salespeople equally responsible for every statement they make. A most insidious form of dishonesty in selling is that committed by manufacturers who adulterate or misbrand their products. Retail salesmen may be and are, in many cases, as helpless before this form of dishonesty as the customers themselves. Nothing but close public supervision and regulation will eliminate such forms of dishonesty. Opponents of public interference in business must bear in mind that rules are neces- 78 ECONOMICS OF RETAILING sary in all situations where people come together, whether it be a game or a public assembly. The purpose of these rules is so to regulate business as a whole as to provide fair play for all concerned. Factors of Successful Selling. — The factors of successful salesmanship are the salesperson's knowledge, experience, at- titude towards the work, and personality. The knowledge referred to is that which applies directly to the work of the retail store — knowledge of the qualities and uses of the goods sold and the ability to describe them properly to prospective customers; knowledge of people, their traits and ways of thinking, their ways of using goods, their methods of arriving at an appreciation of values, their standards of liv- ing, their consumption habits and customs; knowledge of the store, its plans and policies, and of its stock, so that no time need be wasted in locating the goods wanted when serving a customer. Experience is needed to give deftness in hand- ling and applying these forms of knowledge. The attitude towards the work is highly important. The salesperson's constant contact with the customer and the ultimate relationship between the goods offered and the sales- person in the customer's mind, make it highly imperative that the salesperson present a mental attitude that is favorable to salesmaking. What this attitude must be is somewhat dif- ficult to define except in most general terms. It involves a liking for the work, a liking for people and human nature of all kinds, an optimistic view of life and its problems, en- thusiasm and ambition. The salesman must feel, not make- believe, that he has a great work to perform, that he is one of the luckiest of mortals to have the opportunity, and that every person who approaches his counter is his possible friend. Liking for the work and a feeling of friendliness to all people are the most essential elements of this attitude. RETAIL SALESPEOPLE AND THEIR WORK 79 Personality is a great factor in all kinds of selling. It is not only the goods themselves but the manner in which they are to be sold that counts in marketing. Every detail of the salesman's personality, whether pleasing or otherwise, exerts an influence on the customers with whom the sales- man comes in contact. This influence is not by any means the same on all. Each element of personality has its own peculiar effect on each customer. But in general, the salesman with a disagreeable personality loses a certain percentage of the sales that a salesman with pleasing personality would hold. Personal habits, individual peculiarities, appearance, and manners all count in the make-up of pleasing personality. To many customers the use of tobacco, liquor, and chewing gum are offensive. A bad breath, harsh voice, too loud speaking, and indirectness of manner are likewise generally irritating to a large number. Since the majority of customers are women, the type of personality that pleases them rather than men, so far as a differentiation can be made, is to be preferred. Friendliness, courtesy, deference, sincerity, and tactfulness are essential attributes. Meeting a Difficult Situation. — There are many trying situations constantly arising in a retail store that make it difficult for any salesperson to pursue an ideal course. Es- pecially are the younger ones tempted to assert combativeness or antagonism to certain types of customers. There is a strong tendency in this country, as elsewhere, towards caste and class ideals. Many shoppers look upon salesgirls as a class of servants. This is frequently resented. A large num- ber of the young women who are employed in stores have chosen this kind of work rather than domestic service, even at a lower net wage, simply because store work seemed to offer them a higher class or plane of social life. They are, therefore, socially ambitious; and when the shopper looks 8o ECONOMICS OF RETAILING down upon them as a class beneath, they are likely to disre- gard the possibility of making sales, and think only of show- ing the customer a spirit of independence and an attitude of "I am as good as you." Such salespeople rebel unconsciously at the bearing of a shopper who looks at the saleswoman as a maid or servant. The more successful salespeople are able to look upon all such situations in a philosophical manner, while rendering the service that the shopper exacts in the manner desired. Health and Education. — The underlying bases of the fac- tors of successful salesmanship are clearly good health and proper education, or, in other words, a good physical and mental equipment. Proper education, we are coming to un- derstand, includes not only a training of the mind to perform mental tasks, but also the ability to control and mold the body to the uses of the mind. In a certain sense, proper education is one of the first requisites to good health, for health depends largely if not entirely upon proper attention to such matters as food, fresh air, clothing, rest and sleep, and exercise. The proper use of these does not come natur- ally to anyone Experience is the source of the knowledge of right living for most people, but experience is a costly teacher. Training under the direction of skilled teachers, whether in person or through books, promises much greater returns. The Gifts of Health. — ^Good health, a clear mind, and plenty of surplus energy when well directed are magnets of trade and sales. The influence of health on disposition and personality is well recognized, as is also its influence on mem- ory and clear thinking. Good health, optimism, and cheer- fulness tend to associate closely, and the relation of all of these to selling we have already seen. There is no calling in which the factor of good health and the external evidences RETAIL SALESPEOPLE AND THEIR WORK 8i of it, such as good posture, lively step, bright eye, and clear skin count for so much. One in this field of work who does not possess these qualities is handicapped from the start. Personal Hygiene. — The salesperson should give special attention to the care of the feet, correct shoe fitting, and the avoidance of shoes that are too tight, too short, or that have too high heels. They are on their feet so much of the time that lack of attention to such details as these is likely to cause a great deal of trouble. The use of rubber heels and a moment's rest by sitting down now and then are suggested as helpful ex- pedients. Cork mats back of the counters, or other paddings for the floor, have been provided in some retail stores to re- duce the strain and fatigue on salespeople's feet. Many stores proyide the services of a skilled chiropodist to care for the feet of the salespeople. The Store Physician. — The physician, or at least a nurse, has come to be a regular employee of most of the larger stores of the country, and the chief duties of these are to prevent employees from becoming ill, to watch for signs of physical breakdown, and to provide means of prevention. Dentists' services are offered in some cases, and suggested in many other stores. The importance of health on selling has therefore not only been recognized, but means have been taken to insure that it shall be secured. Bibliography Atkinson, W. W. The Psychology of Salesmanship. E. Towne, Holyoke, Mass. 1913. Beaching, C. L. Grocery and Business, Chap. X. Beynon, R. Drapery and Drapers' Accounts. Isaac Pitman and Sons, New York. 1909. Corbion, W. A. Principles of Salesmanship, Deportment and Sys- tem. Jacobs, Philadelphia. 1907. 82 ECONOMICS OF RETAILING Educational Training Course. Retail Shoe Salesman's Guide. 1913- Farrington, F., The Clerks Book. Merchant's Helps Publishing Co., Delhi, N. Y., 1907. Fisk, J.W. Retail Selling. Harper's, New York. 1916. Fowler, N. C. Practical Salesmanship. Little, Brown and Co., Boston. 191 1. Goddard, F. B. The Art of Selling. 1889. Higinbotham, .H. N. The Making of a Merchant. Forbes and Co., Chicago. 1906. Hirshler, D. The Art of Retail Selling. Institute of Mercantile Training, New York. 1909. Hoover, S. R. The Science and Art of Salesmanship. Macmillan Co., New York. 1916. Knox, J. S. Salesmanship and Business Efficiency. Knox School of Salesmanship and Business Efficiency, Cleveland, Ohio. 1917. Maxwell, Wm. Salesmanship. Houghton Mifflin Co., Boston. 1914. Training of a Salesman. Lippinoott, Philadelphia. 1919. Norton, H. R. Retail Selling. Ginn and Co., Boston. 1919. Nystrom, P. H. Retail Selling and Store Management. D. Apple- ton and Co., New York. 1914. Opdycke, J. B. Advertising and Selling Practice. Shaw Education Ser., Chicago. 1918. Whitehead, H. Principles of Salesmanship. Ronald Press Co., New- York. 1917. CHAPTER VII STANDARDS OF RETAIL SALES SERVICE Service Manuals and Rule Books. — Most of the large stores, including the chain store systems, have developed standards of practice to a high degree, beginning with general rules or instructions and passing even to details of direction on just how store operations shall be performed. In many stores and systems these standards of practice and rules have been reduced to writing and printed forms, known as service manuals or "rule books." Following is a typical manual such as is given to salespeople and other employees. Employees' Service Manual Advice to Beginners. — Inform yourself as quickly as possible con- cerning the stocks of goods you are supposed to sell, their names, where they are kept, their qualities, sizes, pieces, what they are used for, etc. Do not hesitate to ask for information whenever you need it. You will be corrected if you are in error. Accept these correc- tions in good spirit and with the resolve to profit thereby. Learn the working rules of the house, such as : Hours for business. Use of time clocks. What to do in case of unavoidable absence. Leaving your department. When you may make personal purchases. Learn to make out the necessary sales forms on checks for all possible conditions of selling, such as the following: 83 84 ECONOMICS OF RETAILING I. Cash sale taken 10. 2. Cash sale delivered II. 3. Charge taken 12 4- Charge delivered 13- 5- Charge to one address, 14. sent to another 15- 6. C. 0. D. 16. 7- Even exchange 17- 8. 9- Uneven exchange "Will call" sale 18. Discount sale Credit to cover Special delivery Employee's purchases Part cash, part paid Inclosed packages Transfers Future dehvery Memorandum charge Write plainly ; your sales checks have to be read by many others. If your writing is not easily legible mistakes are certain to occur. Study Your Merchandise. — Learn its names, its history, and where it comes from. Find out what it is made of and what its qualities are. Learn all about its uses. The customer is entitled to know what she is buying and you must be able to tell her. Study Your Stock. — Be sure that you know in detail what you have and where it is so that you can get it promptly. Watch your stock so as to prevent running out. Keep close track of calls for goods not kept so that they may be ordered if calls are numerous. Learn which are the profit-making goods and sell them whenever you can. Prevent accumulations of dead stock ; when possible sell the oldest article first. Keep all of the stock on the move. Keep your stock in good condition and in good order. Go over it whenever possible, putting it in first class order. Use your spare time in looking after your stock. Good Business Manners Are Required. — Employees are forbidden to use tobacco and liquor in all forms during working hours. Pro- fanity, whistling, loud calling, talking across aisles, congregating, gossiping, entertaining visitors during business hours, and so on are all forbidden. They interfere with dignified, courteous service and cannot be permitted. Employees are expectd to be courteous to all ; not only customers but to fellow employees as well. A helpful STANDARDS OF RETAIL SALES SERVICE 85 spirit of co-operation is necessary to the highest store efficiency. Salespeople are expected to dress conservatively and in good, simple taste. Customers like to deal wfith salespeople who are neat and clean in person. Take good care of your hair, skin and nails, and keep your clothing clean. In talking to customers, remember that you represent the store. You are the store. But use the word "we" rather than "I," and say "you" more frequently than "we." In speaking of men's goods, refer to them as "men's goods," not as "gent's goods." Always use the word "madam" instead of "lady," in addressing women who visit the store when you do not know their names. Use their names if you know them. Saleswomen, in waiting upon other women, should never use the expression, "My dear," or anything similar to it. The word "flat" as applied to an apartment house is not pleasing. Use the word "apartment" instead. Instead of saying "charge or cash?" when closing the sale, it is preferable to say, "Have you an account?" assuming that otherwise the cash will be presented. Employees are expected to maintain a high standard of conduct outside of business as well as in. To succeed in the long run you must, of your own accord, choose respectable, moral associates and keep good habits. The Essentials of Retail Salesmanship. — Your position and the very existence of the store both depend upon customers. The real boss in every store is the customer. Come forward and meet your customers promptly. If engaged in work with other customers, show by recognition that you know the prospective customer is waiting. Endeavor to keep her until you are at liberty to wait on her. Show a real, personal interest in, and friendliness to your cus- tomer. Look the customer straight in the eye in a kindly way. Be on the alert and don't make it necessary for a customer to ask you to wait on her. Say politely, "Madam, may I wait on you?" Wait expectantly. After you have learned the customer's wishes, move promptly to carry them out. 86 ECONOMICS OF RETAILING Get the customer's attention to the goods in some way, by word or action, but get it. Then demonstrate the goods. Start out by giving the sales point that you think will be strongest with the customer. If the customer seems interested, go ahead. If the customer is not interested, try some new point or another article of merchandise. Be sincere in manner as well as in mind. Be positive but not domineering. Be forceful but tactful. Show how the goods are used and how they will look when in use. Handle your goods appreciatively. That suggests appreciation to your customer. Show enough goods to demonstrate that you are willing to work hard to please, but don't confuse the customer by too great variety. Start by showing considerable variety, but next eliminate those articles not likely to interest. Get the goods into the hands of the customer if possible. Don't overtalk. Get the customer's viewpoint. Be a good listener. Watch the customer's expressions. Be guided thereby. Don't misrepresent. Don't sell an article that you are not sure will give the cu.s- tomer full satisfaction. Study the expression of your customer. Close the sale by repeating the points in which the customer seemed most pleased. Emphasize the advantages the customer will enjoy from owning the article. Make it easy to say ''yes'' and difficult to say "no." Be sure that the customer is satisfied before leaving. Win the customer for the store. Thank every customer. Be prepared to answer objections by knowing in advance what they are likely to be. Answer by appearing to agree. Never argue. Don't dispute. Remember "the customer is always right." Common Objections Heard in Retail Stores. — Study these objec- tions. Learn how to meet them. "I haven't time to buy today." "I wish to look elsewhere." "I can get it cheaper at Brown's.'' "I will ask a friend to come in and see it." "It is too high in price.'' "It is more than I expected to pay." "I have not enough money with me today." "I'll wait until the goods are marked down." STANDARDS OF RETAIL SALES SERVICE 87 "I want my husband to see it." "I won't decide today." "I am too tired to know what I want today." "It is not the same as I want.'' "I must think it over." "It doesn't seem to fit well." "The new styles seem so queer." "I can't see with these glasses.'' "I will buy at Brown's. I have a charge account there." "I want something nicer.'' "I don't want to pay for alterations." Use of the Telephone. — It is just as important to make a good impression over the telephone as it is face to face with the customer, more important if anything. Never tell the customer over the wire that you are busy or that anyone else in the store is too busy to attend. Telephone calls should be answered promptly. The one who answers should do so with the most pleasant voice possible. "The voice with the smile wins." See that every detail of service is carried out perfectly on telephone orders. In no other way can the customer be saved for the store. Sales by Suggestion. — Every customer should leave the store highly pleased. Better not a sale at all rather than a displeased cus- tomer. Additional sales can frequently be made, however, by slight suggestions that are fully agreeable to the customer. Study how to suggest goods pleasantly. A few illustrations are listed below : When a customer buys a tooth brush call attention to your line of dentifrices. Mention neckties to the shirt customer. The customer for shoes may also be a good prospect for polish, shoe trees, and even hosiery. When it is raining or threatening to rain suggest umbrellas, rubbers, etc. A customer for brooms, dust cloths, or cleaning utensils may be interested in vermin exterminators, scouring soap, etc. If you know what goods a customer prefers, mention them. Other lines for suggestions are as follows: 88 ECONOMICS OF RETAILING New goods just received. Goods advertised for the day. Special bargains. Goods that will fit the customer's needs for hot weather, for outings, for picnics, for work, etc. So far as possible merchandise should be displayed in a way to lead the customer from one want to another. Display related things together. General Suggestions to Salespeople. — Discover and remember each customer's individual taste and you will be able to give her quicker and better service. Always introduce and display your new goods ; this will please the customer and help your sales. By being polite, prompt, and cheerful you grow — and no one can keep you from growing but yourself. Serve each customer so promptly, pleasantly, and politely that she will come back again and recommend the store to her friends. In every transaction with a customer, you represent the firm, and her opinion of the store and its service is based largely on the good or bad impression you make. The best helps to advancement are to be interested in your work and to remember always that your employer's best interests are your own. Study the store's advertising. The advertising is the voice of the store. It not only tells what goods are on sale and helps to sell, but it also tells the store's policies. Variation in Manual Detail. — While the foregoing manual is typical to a large extent, individual manuals differ from it, of course, in various details. In some stores, for instance, ab- solute uniformity of dress is required, v^^hile in others only a slight variation is allowed. The following is quoted from the manual of a well-known department store: "Be cleanly and neat in appearance, avoiding extravagance and display. All young women in the sales departments will please dress in black, exception being made in the use of white or colored neck-bands, if desired, which we will ask always be held at the point of good taste. During the period STANDARDS OF RETAIL SALES SERVICE 89 when shirtwaists are worn (from April i until October 15) we shall not object to employees wearing neat shirtwaists (white preferred)." The Manual for Managers. — The manuals sent out to the managers of chain stores contain information and instructions more general in nature. The following suggestions are typi- cal of those sent out to such managers in store manuals. Manual for Store Managers Keep the Exterior of the Store Attractive. — The sidewalk should be kept clean, free from ice, snow, boxes, and so on. It should be level and of sufficient width to permit customer's to pass in and out with ease. The front of the store should be kept fresh looking. It should be painted frequently. This outlay is more of an investment than an expense. The entrance should be easy of access, the doors should swing easily. There should be no projections to catch the garments of cus- tomers. The hinges should be noiseless. If a door-man is employed, he should be pleasant in appearance, alert, ready to serve, courteous, and reliable. He must not only be these things; he must look them as well. Proper Ventilation and Heating. — The temperature of the store should be kept about 68° to 70° during the winter and with a relative humidity of 50 to 75 per cent. This temperature and humidity will make the store an ideal place in which to sell goods both for the salespeople and for the customers. The air should be changed by ventilation frequently enough to provide every person in the store with at least 50 cubic feet per minute. Keep the Store Well Lighted, But Not Over-lighted.— Light the outside, windows, and interiors in such a way as to give an agreeable impression to the eye as well as to help show merchandise. The light should be soft rather than glaring. Keep the Store Clean. — Sweep the floors and dust the counters and shelves every morning. go ECONOMICS OF RETAILING Go over paint carefully, removing all dirt. Do not use washing powders, ammonia, or soap on painted woodwork. These lessen the life of the paint. Go over the counters every Saturday night with oil and rub well with cheese cloth. , Polish all metal utensils, scales, scoops, cash registers, coffee mills, and so on once a week. Clean the refrigerators thoroughly, both inside and out, the ice chambers as well as the food chambers, once a week. Clean the electric light bowls once a week. Oil the floors once a week, preferably on Saturday nights. Keep the windows clean. Your windows are the eyes of your store. Clean the inside of a window with clean water, using a sponge, a chamois, and a clean well-worn cloth (not cheese cloth). Wash the outside of window with a window brush and rinse off with clean water. Wash immediately after every rain or snowstorm. Use clean price tags on your goods, clean window and store signs. Keep the merchandise clean and fresh looking. Keep flies and other insects out of store at any cost. Keep the store free from mice and rats. Use traps and poisons. Do not keep a cat in the store. CHAPTER VIII SECURING GOOD SALESPEOPLE Retail Store Labor Turnover The Problem of Labor Tvirnover. — The average store suf- fers from a very high turnover of its employees. In large stores it is not uncommon to employ twice as many people during the year as are employed at any one time. There are instances of hiring five times as many people in a year as were employed even during the busiest season. On the other hand, there are large stores which do not have to employ more than a fifth as many in a year as the total average number work- ing. This shift in personnel or "labor turnover," as it is called, is one of the biggest problems in retail store adminis- tration. Reasons for High Rate of Turnover. — The reasons for this high rate of turnover of employees in retail stores are numerous. In the first place the demand for employees fluc- tuates greatly in most stores. It is usually lowest in August and heaviest between Thanksgiving and Christmas. The holi- day force averages at least a quarter more than the summer force in most department stores. In a great many stores it amounts to one-half more. Tliis is the chief cause of the high labor turnover. Another reason for a high labor turnover is the classes of people employed. A large number of new employees are young, inexperienced, without settled life purposes and without a sense of profession or craftsmanship. The result is what one 91 92 ECONOMICS OF RETAILING would expect. Those newly hired furnish the highest ratios of those who leave. The reasons given by the employees themselves for leaving include such statements as follows : "Don't like the work." "Disliked the buyer." "Wanted a change.'' "Work was too hard." "No chance for promotion." "Was ill." "Going to get married." "Needed at home." "Don't have to work." "Change of residence." In the numerous cases of employees who leave because they are discharged the reasons are such as follows : "Careless." "Made too many errors." "Lazy." "Irresponsible." "Unreliable." "Insubordinate." "Couldn't learn." "Theft." "Constantly tardy." "Trouble maker." Permanent Employees Numerous. — On the other hand, it must not be inferred that retail stores do not successfully hold a large part of their employees for considerable lengths of time. Many of the older stores justly pride themselves on the number of employees who have been with them for twenty years or more. In New York, according to the New York State Factory Investigating Commission, 191 5, Vol. II, it was found that the average age of salesmen in stores is 31 years and of sales- SECURING GOOD SALESPEOPLE 93 women, 22 years. Men average seven years in the trade and women four years. But about an eighth of the entire number had been in retaihng for over ten years. This prob- ably compares very favorably with any other vocation. Department of Employees Cost of "Hiring and Firing." — The high rate of labor turnover prevailing in retail stores is forcing owners and managers to give systematic attention to the problem of em- ployment in just the same manner as this problem is being faced in other lines of business. The cost of hiring new help, of training, and of the losses due to the inefficiency of new help, keep the net profits of any store down tremendously. Counting all costs such as hiring, time of training, and losses in sales and good-will due to inexperience, it may be safely assumed that the total cost is not less than $25 per new em- ployee, and it is probably more. The Employment Department. — So there is being de- veloped a science of employment to meet the problem of high costs due to labor turnover. Most stores of large size now have regular employment departments. A few have estab- lished departments of larger responsibility, employment being a detail. The trend is in the direction of a well-developed de- partment dealing with employees in all possible ways, just as there is a merchandise department, a delivery department, an accounting department, a credit department, an advertising department, and so on. The Department of Employees.— A department of em- ployees is a logical thing. Its duties, now generally widely distributed, need centralization, and, more often, development or expansion. 94 ECONOMICS OF RETAILING The head of the department of employees might well be called the "superintendent of employees." His functions are so important that his position should be ranked with that of the merchandising manager. His qualifications should in- clude not only knowledge of the business and experience with people, but also a pre-eminent fairness, open mindedness, and careful judgment. There is no position in any store of greater responsibility. The department of employees under the plan that is fol- lowed in a few of the most progressive and most successful stores, and which seems to be on the way for adoption in all large stores, carries the following duties : 1. It is responsible for the selection of all employees, and therefore includes all the functions of an em- ployment department. 2. It keeps close track of all possible sources of supply of all kinds of labor needed in the store. 3. It is in charge of all interior store surveys aiming at analysis of the various positions. In other lines of work this type of survey is called "job analysis." 4. It studies employees in the same way as jobs are studied, in order to get the "right man into the right place." 5. All training of employees is under the direction of this department; thus the educational department, if there is one, would be a part of the department of employees. 6. It is responsible for the progress in efficiency of the employees. Therefore it should have the means of following employees into their respective sec- tions, helping them to improve and testing their achievements. SECURING GOOD SALESPEOPLE 95 7. It is the clearing house for the labor of the store. Transfers, promotions, as well as discharges should be made through it. 8. It is the department through which plans of remuner- ation should be carried out. 9. All welfare work done by the company is under the direction of this department. 10. Finally, this department is the place for settling all controversies, misunderstandings, and grievances of employees. Job Analysis in the Retail Store Job Analysis. — The first step to scientific employment is a careful analysis of all of the positions in the store. A few of the most progressive stores in the country have already taken this step; others are considering it. Such analyses show what each job is, what work is to be done, how it is to be done, and the qualifications needed to be able to do it in a satisfactory manner. An example of a position analyzed in the manner suggested is as follows : Analysis of Position Department (Handkerchief) Position (Saleswoman) I. Duties of Position : 1. To keep stock in good order. To keep stock attractive looking. To work out department displays under direction of dis- play manager. To replenish from reserve stock. To report when stock is falling low so that stock may be ordered in time. 2. To make sales to customers. Saleswoman must have a knowledge of the goods and of retail salesmanship. g6 ECONOMICS OF RETAILING 3- To co-operate with other departments. 4- To make out sales slips correctly. II. General Qualities Desired of Person Holding Position, I. Willingness to work 2. Good sense 3- Honesty 4- Good healthy physique (a) Medium height (b) Active, not necessarily strong (c) Sound feet (d) Good eyesight and hearing (e) Healthy appearance 5- Good, pleasing voice and personality 6. Punctuality 7- Obedience 8. Alertness 9- Patience 10. Cheerfulness II. Ambition 12. Tact 13- Courtesy 14. Taste IS- Age : Preferably between 18 and 25, not over 40 Value of Job Analyses.— Such analyses are invaluable to the manager of the employment department. With these before him he can wisely select from the candidate for positions those who qualify. The analyses may also serve effectually in educating new employees, as guides or courses of study. If an employee is not improving in a satisfactory way she can be shown point by point in just what ways she is failing. The analysis is an impersonal standard. Methods of Making Analyses. — Job analyses can be readily obtained at a minimum expense of time by requesting every employee to make out a hst of his or her own duties. These statements, more or less perfect, will define the duties of SECURING GOOD SALESPEOPLE 97 each existing position. These may then be checked by de- partment heads, corrected where necessary, and turned over to the employment manager as data for his records. This method of obtaining the analysis of the various posi- tions also has a good effect on the employee himself. It is not only a time-saving plan for performing this work, but is ex- tremely valuable in itself. In the first place, the employee when called upon to enumerate the duties of his position is forced to analyze his job fully in his own mind. In many cases this results in a clearer conception in the minds of the employees as to what their work really is, and this tends to increase their ambition. But there is another value and that lies in the opportunity afforded to correct misconceptions of duties as understood by the employees. Such errors may thus be caught by the department heads and rectified. Job analyses are valuable for the management. They are to labor what the inventory is to merchandise. They are the listings of the work to be done. Sources of Applicants for Positions Filling Vacancies, — Next, after having the analyses of positions the employment manager may proceed to filling vacancies as they occur and to filling newly created positions. In this connection a knowledge of possible sources of supply of applicants is highly valuable. In general these are as follows : 1. Applicants who come to the store on their own account looking for positions. 2. Persons recommended by present employees. As a rule employees take a great deal of interest, if given the chance, in finding good employees for the concern. Some stores pay a bonus of a dollar or in some cases five dollars for 98 ECONOMICS OF RETAILING every new employee thus obtained. At the same time this method of getting new help is not without disadvantages. If a large number of employees are taken into the concern in this way, cliques centering around those who made the recom- mendations easily form, and these are in some cases difficult to manage. Cases have been known where groups left the store when the person who recommended them was discharged. 3. Advertising in local papers. This is usually an effec- tive way of getting help. 4. Advertising placed so that young people in the vil- lages and country may see it. Such advertising usually brings good results and a desirable class of employees. Large city stores can frequently get many desirable employees by going to small towns and to the country. 5. Organizations such as the Y. M, C. A., lodges, churches, and young people's organizations. These may be very helpful sources of getting desirable applicants. 6. Students about to quit public, private, and business schools who desire to go into store \\ork. Information con- cerning such persons may be obtained through the help of the teachers and principals of the .schools. 7. Salespeople who have left the store but who may be willing to come back. 8. Saleswomen who have left the store to get married but who for one reason or another may be willing to come back for work, particularly if offered the opportunity to work at convenient hours. A few concerns are able to keep highly desirable saleswomen on their staffs for the busy hours of each day in this way. 9. Employment agencies, particularly the public employ- ment agencies lately established. Such agencies are certain to become important sources. 10. Advertising in trade papers for high grade em- ployees. The fact that a retail store man or woman reads SECURING GOOD SALESPEOPLE 99 trade papers sufficiently to note the "want ads" is a recom- mendation of some value. Good- Will as an Employment Factor. — A store is likely to experience ease or difficulty in getting new employees in ac- cordance with its good-will in the community. Applicants will sometimes take positions in certain retail stores even at lower rates than those which may be obtained elsewhere, simply because the employees already there are so well satisfied. There are a few stores which at all times are able to com- mand the services of the best classes of young people in their towns. The store',s good-will is in such cases equivalent to cash in hand. - As this is so true, every store should aim at developing its good-will, not only to increase its patronage, but also to help get the right sort of employees. Interview and Tests Ability Judged by Interview. — The interview is to most employment departments the chief means of getting informa- tion and judging the abilities of the applicant. A large ele- ment of chance enters into the conditions that grow out of an interview. In many cases it may be very unfair to the appli- cant, as the impression given in an interview may be far from the right impression. The remedy is obviously to supplement the initial interview by other sources of information, and if possible by other interviews. More than one interview may be impossible in retail store practice except for the higher, more important positions. The calls for help are so urgent in the average store and the number of people who must be seen is so great that judgment as to the applicant's fitness must, in most cases, be formed quickly. lOo ECONOMICS OF RETAILING In view of the need for economy of time in hiring, as well as the need for better results, the interview must be made as effective as possible. It must be to the employment manager or superintendent of employees, what the diagnosis is to the physician. Like the physician, the employment manager needs a well-developed order of procedure, based primarily upon a knowledge of what is needed in the position to be filled, and coupled with the necessary technique for bringing out the required information about the applicant. For example, the employment manager can determine the qualifications desired in the applicant, and in a general way, those not desired. Naturally the interview room is arranged, noise is excluded, and the employment manager's manner is such as to give the applicant a fair chance. The applicant is greeted in a friendly manner to help relieve the possible ner- vous tension from which some people suffer when seeking a position. The questions asked are intended to bring the interview to the point. The applicant is given an opportunity to sell his services fully. Specifically, the applicant is drawn out to determine his ability to do the work required. The Mirage of Character Analysis. — From time to time employment managers and executives are carried away by their interest in so-called methods of character analysis. If their were any sure, swift short-cut to reading character, its discovery would be a wonderful aid to employment as well as to all other walks of life, but in spite of thousands of years of study and theorizing, no such method has yet been found. Hope springs eternal, however, in the breasts of many, so there has been wave upon wave of belief in various "systems" and schemes .such as astrology, palmistry, clairvoyance, telep- athy, phrenology, graphology, and physiognomy. The intelligent reader will at once cast out of mind most SECURING GOOD SALESPEOPLE loi of these as wholly futile, but may make reservations in favor of some one or more of the group. Many business men now believe in the last three — phrenology, graphology, and physiog- nomy. Phrenology. — Phrenology theories were exploded long ago in the acid test of accurate measurement but have recently been revived in well-advertised methods of "character analysis" and apparently the errors of the past will have to be tried out again in the fires of costly experience. Graphology. — Graphology, reading character in hand- writing, is without scientific value but does apparently offer something indicative of character in an indirect manner. Thought tends to be expressed. Habits of thought are formed. Expression likewise becomes habit. So neatness in thinking is likely to be shown in neat writing. Forceful thinking might be shown in strong, jagged, forceful writing. But it is all very indefinite. The most valuable point that the retail store employment manager can gain from observing the writing of applicants is whether the penmanship is legible or not. That constitutes sufficient reason for getting a sample of the applicant's handwriting. Physiognomy. — Physiognomy, like graphology, may tell something of the inner man because thoughts tend to show in the expression of the features. Signs of nervousness are ob- vious. The rate of thinking, whether rapid or slow, can be seen. The person who is trying to keep from telling some- thing may have shifty eyes, but in every case it is the expres- sion that the interviewer sees and interprets and not the length of the nose, the slant of the forehead, the convexity or con- cavity of face, the blondness or brunetteness of the applicant. The only character reading of which we have any assuredness I02 ECONOMICS OF RETAILING is character reading from expression — what the appHcant tells by word of mouth, by actions, by blushes, frowns, inclination of the head, twitching of the smaller muscles, and so on. This is real and highly important. To be a successful reader of men, one must be expert in reading and interpreting expres- sion. The most skillful character readers are the most skilled readers of expression. They may think that it is physiog- nomy, phrenology, telepathy, or what not, but subconsciously if not consciously it is swift, sure noting of the outward signs of the applicant's thoughts. Employment Psychology. — More recently there has been given a great deal of thought to the application of psychology to employment. Psychology is really a science, and from ef- forts made in this direction there may be borne fruit. Psychology has been employed scientifically and success- fully for years in the education of children. The recent in- terest in psychology as a possible help to employment grows out of observation of the remarkable results obtained from testing the various faculties of mind, memory, reasoning, imagination, perception, patience, attention, and so on. The Work of Binet and Simon. — In 1908 there was pub- lished in France a work on testing the general intelligence ant! determining the mental age of children. The authors were Binet and Simon. Their work has been revised and greatly expanded. Many devices have been added, particularly by American professors of psychology. With the work of Binet and Simon as a basis, sets of tests intended to .show the fitness of people for particular jobs, are being developed. Considerable progress has already been made. Tests have been worked out that are fairly certain in selecting the right persons for steel ball-bearing inspectors, telephone operators, telegraph operators, stenographers and typists, SECURING GOOD SALESPEOPLE 103 motormen, chauffeurs, naval officers, singers, engineers, wait- resses, hand-sewers, machine stitchers, army and navy appli- cants, aviators and traveling salesmen. The tests applied to these classes vary, but include generally measurements of general intelligence, tenacity, accuracy, reac- tion time (time it takes for the mind to get results from the muscles of the body), and so on. Psychological Tests for Retail Salespeople. — Unfortu- nately, no satisfactory tests have been worked out as yet for retail salespeople. There have been experiments, but nothing conclusive has been given to the public. There would be distinct drawbacks to psychological tests for retail selling, even if they were prepared, as it takes consid- erable time to carry them out, and they are usually so technical that they require a trained psychologist to put them through. Progress is being made, however, and retail store managers as well as employment men would do well to keep their eyes open for developments in this line. Up to the present time the best progress in employment in retail stores has been made through improving the methods of the interview, arranging for simple trade tests, the use of a well-worked out application blank, and by getting the opinions of references very fully. Observing the Applicant. — The interview is useful, as suggested above, not only as a means for getting informa- tion from the applicant in his replies but also as a means for '.izing up the applicant. The applicant's manner talks to the skilled employment manager as loudly as the applicant's speech. How the applicant is dressed, how he walks, how he talks, his reactions to questions, his attention to details, what is interesting to him and what is not — these are matters which help the employment manager to form conclusions. 104 ECONOMICS OF RETAILING As a further aid to judgment the employment manager talks with the applicant, puts him at his ease, and draws him out, gets him to talk about himself and his ambitions and in this way learns of his ideals and dreams, at least to a cer- tain extent. The size, appearance, and figure of applicants for sales positions must be given careful consideration. The more ob- vious points in this connection may be handled by the em- ployment manager, such as : A girl with a sallow complexion would be entirely out of place in the toilet goods department. A bald man selling a hair restorer would be a joke. A young man or woman covered with cheap jewelry certainly does not belong in the jewelry department. Salespeople who look very young will have difficulty in closing sales in departments where the confidence of customers is needed, such as in coats, suits, rugs, furniture, and so on. Short girls do not look well behind tall show-cases nor do they stand the work well if they have to reach up for goods on high shelves frequently. Tall salespeople are not ideally fitted to become good .shoe salesmen. A tall person is worn out bending over to fit shoes. A slow-moving girl is entirely out of place in an active notions department. It seems that nobody loves a fat man or a fat woman in retail selhng positions. The nicely dressed, pretty young lady is entirely out of place in the house furnishings department. Frail-looking people should not be placed in positions where they have to do a great deal of heavy lifting. The effect is not only hard on the employee but also on customers. SECURING GOOD SALESPEOPLE 105 The Application Blank Use of the Application Blank.— The application blank sum- marizes all the information that the employment manager can hope to get satisfactorily from the applicant. The following illustrates a form of appHcation blank. Application for Employment I. Position desired 2. Date 3. Name 4. Address S- Telephone.... 6. Date of birth 7. Where born 8. If born outside of country are you naturalized? 1st papers 2nd papers 9. Where was your father born ? 10. Where was your mother born ? 11. What is or was your father's occupation ? la. What is your religion ? 13. Where was your childhood spent?. . . .In city?. . .On farm?. . . . 14. How far did you go in school ? 15. Name schools you attended 16. Are you living with parents ? 17. Are you single ? Married ? Divorced ? 18. Do you board? Rent an apartment? Own your own home ? 19. H'ow many and whom do you support ? 20. Do you want a permanent or temporary position? 21. What preferences have you as to your work ? 22. Are you willing to do any work assigned to you? 23. Are you employed at present? Reason for desiring to change 24. When can you begin work?. ... 25. Salary expected now. . . . 26. Salary ■ expected within two years 27. What languages other than English do you speak?. . .Read?. . . 28. How do you use your spare time at present? 29. What are your favorite forms of recreation ? 30. What musical instrument do you play ? 31. Do you sing?. 32. What arts do you practice? I06 ECONOMICS OF RETAILING When in school what were your favorite studies?. 33 34. What studies did you dislike most? 35. What work that you have done in the past did you do best? 36. How much of last year were you ill? Nature of illness 37. Have you any physical defects?. . . .Nature of defects 38. How is your eyesight? 39. Hearing? 40. What is your height? 41. Weight? 42. Do you use tobacco much? Little Not at all? 43. Do you use drugs ? 44. Do you use alcoholic drinks ? 45. Do you use slang? 46. Do you gamble? 47. What besides pay is important to you in your work ? 48. Experience. Give names of the firms you have worked for, beginning with the last Name Address Reference Address Position held Employed from to Salary received, minimum. . . .maximum. . . . Name Address Reference Address Position held Employed from to Salary received, minimum. . . .maximum. . . . Name Address Reference Address Position held Employed from to Salary received, minimum. . . .maximum. . . . 49. Personal references. Give names of at least three people who have known you for at least five years. They must not be relatives or previous employers. Name Address Occupation ( Signed) Date of interview By whom interviewed. SECURING GOOD SALESPEOPLE 107 Purpose of Questions. — Each of the questions in the fore- going model appHcatioh blank has a purpose. For example, "What is or was your father's occupation?" may seem far fetched, but it really is a helpful question when properly answered. In this country children do not follow their fath- ers' footsteps in occupation, but most fathers talk about their work at home, and children are likely to pick up a good deal of information unconsciously about their father's line of busi- ness. An applicant whose father was in the retail business is likely to know a great deal about retailing. If the appli- cant's father was in the textile business, that would be con- sidered favorable for putting the applicant in some depart- ment where the knowledge he undoubtedly has can be put to good use. "How many and whom do you support?" helps to deter- mine whether the position open is going to be satisfactory or not. The United Cigar Stores Company will not hire a man for a position paying less salary than is needed to sup- port the applicant and his dependents. The reasoning back of this judgment is obvious. A man cannot continue happily and successfully in his work if his income is insufficient for actual needs. Questions as to use of time and personal interests reveal the true man or woman in the applicant. What we play at is more significant than what we work at. References The Value of References. — The interview and application should be followed up by a thorough inquiry among those re- ferred to in the application blank. Teachers should be asked for information about young people, and former employees and associates concerning older people. Upon the basis of actual knowledge gained by observa- Io8 ECONOMICS OF RETAILING tion in the interview, in the apphcation blank, and by inquiry, a fair judgment can be approximated, and in this way the right employee for the right place can be secured. This is the first step to reducing labor turnover and labor costs in the store. Physical Examinations The Hindrance of Physical Weaknesses. — One of the chief causes of reduced efficiency in retail stores is the physical unfitness of many of the employees. Striking defects such as blindness, deafness, illness, and deformity obviously unfit peo- ple for selling. These defects are subject to all possible degrees and, in so far as they exist at all, they hinder the individual's progress and materially reduce the efficiency of the store. Color blindness may be so slight as to pass unnoticed both by the individual and by his associates, but may still be the cause of a customer's lack of confidence in his taste as a retail salesman. A slight deafness may be the unconscious cause of inat- tention and apparent discourtesy. Weak feet, broken arches, corns, badly fitting shoes are more than likely causes of irritableness, lack of patience, un- willingness, and apparent blindness to opportunity. Bad digestion has probably caused more people to do the devil's bidding than all other causes put together. Uncorrected visual defects, teeth needing attention, and wrong diet are almost certain to make employees perverse, in- efficient, and disagreeable in their work. Hardly ever does a person in perfect physical condition fail in work. When a person fails we blame his will and his attitude toward the work. But back of the will and the desire lies the physical condition that determines, in most cases, the trend of both. SECURING GOOD SALESPEOPLE 109 The Physical Examination. — Another aid needed, then, in getting the right kind of employees is a thorough physical ex- amination at the time of employment, and, if possible, periodi- cally thereafter. Such an examination will result in prevent- ing the employment of the psysically unfit, those who would labor under handicaps in the store, and those with contagious disorders that would endanger other employees. At the same time such examinations will be of value to the applicants them- selves. Their attention may be called to defects of which they are not a-\\'are and thus they may be enabled to improve their health by eradicating such weaknesses. That there is need for physical examinations is evidenced by the fact that more than half of the people between the ages of 18 to 45 are so defective as to be in actual need of medical or surgical treatment. More than a third of the young men between 21 and 31 years of age drafted for army service were found unfit for the training camps. All men were admitted who suffered from ailments that might be successfully treated in camps. Examinations made by industrial concerns, insurance com- panies, and by the Life Extension Institute show that physical defects are fully as frequent in women as in men. Therefore physical examinations of the group of people employed by a retail store are certain to show a high rate of impairment among its applicants as well as its employees. The results of physical examinations are often startling eye-openers. Prescription vs. the Physical Audit. — Many stores now have medical departments, particularly in connection with their welfare work, but the functions of these departments are diagnosis and prescription for ailments rather than the making of a physical audit. There is a big difference. Both are important, but as an aid to employment it is the audit that is of greatest value. no ECONOMICS OF RETAILING A physical examination, to be most serviceable as an aid to the employment of retail salespeople, should cover at least the following points : Eyes — to determine visuality and ability to sense colors Ears Nose and throat — to note whether free from inflamma- tion, obstructions, etc. Teeth, gums, and tongue Scalp Skin Lymphatic glands Blood pressure Circulation Heart Lungs Digestive organs Kidneys Genito-urinary Physique Posture Feet — look for flat foot or tendencies to breaking of arches Physical defects Physical examinations can be secured either by having them made by the store physician, if there is one, or by con- tract arrangement with some outside physician. The Life Extension Institute of New York performs this sort of work on a large scale through its home office and through branches and representatives located in practically all of the principal cities. It makes the physical examinations for certain life insurance companies and for a large number of important in- dustrial concerns. In any case, whoever performs this service. SECURING GOOD SALESPEOPLE m it should, if possible, be done by a reliable, well-trained physician. Objections and Expenses. — There usually is a little objec- tion at the start from employees and from applicants to having physical examinations. This grows out of misunderstanding and may be overcome entirely by patient explanation and tactful handling. The expense of physical examinations is one that more than pays for itself in the long run in increased service. "Physical examinations pay" is the verdict of practically all concerns that have tried them out systematically. CHAPTER IX EDUCATION FOR RETAIL SALESPEOPLE Methods of Training Employees. — Retail store managers have probably always fully recognized the need for giving special attention to the training of their new employees. Even since the custom of serving an apprenticeship passed out, new employees have usually been accorded something more than a "sink or .swim" chance. In the smaller stores the managers themselves have generally instructed their new help. In the larger establishments new employees have frequently been turned over to older employees or to heads of departments for aid and instruction. Thus has arisen the need for the specialized trainer of employees, the teacher, and the store school, for the older employee and department head were in the nature of things almost sure to fall short of the results desired by the head of the business. The passing from training by un- specialized regular employees to specialized professional teachers has been but a short step. Thirty years ago in large stores, busy superintendents hiring salespeople, mostly inexperienced, were virtually forced' to start training groups or classes in which to show these new employees how to do their routine work; and when duties crowded still more heavily, to hire someone capable of giving instruction, to do this for them. The training of experienced employees to higher efficiency had to wait until the subject of salesmanship had reached teachable form, and until the wave of vocational education for adults had brought its valuable lessons. Twenty years 112 EDUCATION FOR RETAIL SALESPEOPLE "3 ago the possibilities of retail education in the public schools began to be surmised. Now the movement is under way. It will probably not be long before every city and village in the country will have in its schools courses in retail selling. Systematized Instruction for New Employees. — In the meantime, the stores have been developing a remarkable tech- nique and numerous devices for the instruction of .salespeople. This technique is a tribute at once to the great interest in the education of retail employees and also to the great need for increased efificiency. Necessity and invention have traveled hand in hand. The Store Conference. — The commonest educational plan followed in stores is the sales conference under the direction of the head of the store, the buyer, or some other store execu- tive. A great many stores hold these meetings weekly, either in the morning or at night, after store hours. At these meet- ings matters of store policy, retail salesmanship, new mer- chandise, sales methods, and so on, are discussed. Some stores make a practice of inviting to these meetings outsiders who may have something to contribute — traveling .salesmen, mer- chants from other towns, prominent advertising men who, as a rule, can always be depended on to be willing to give a talk, teachers of business subjects, doctors to talk on how to take care of personal health, and so on. The store conference is an old, well-tried method of developing employees, and when properly carried out is most excellent. Nothing proposed in any educational plan supersedes it. Store Manuals. — As noted in Chapter VII, salespeople are made acquainted with their duties in some stores through store manuals, sales manuals, and department manuals. The larger chain store systems in particular, use sales manuals 114 ECONOMICS OF RETAILING to a marked degree. The United Cigar Stores, the United Drug Company, and the American Druggists' Syndicate are among those concerns which have in their stores excellent manuals on practice. Many department stores have rule books which are essentially store manuals. Small stores fre- quently use the manuals of larger stores for educational pur- poses. The preceding chapter in this book contains a manual that will serve this purpose directly, and also indirectly as a guide in the preparation of other manuals. Manufacturers are awakening to the fact that better retail selling will help their lines, and that retail selling is a matter of education. In consequence, many have prepared booklets, sales manuals, letters, correspondence courses, and so on for retail salespeople. This material is exceedingly interesting and any retail manager or employer would do well to get acquainted with it and make provisions to have it put into use among his employees. Trips for Salespeople.— Some manufacturers have ar- ranged trips through the factory for retail salespeople, partic- ularly for stores not far distant. This form of education is desirable and salespeople and store managers should make more effort to procure it than they usually do. Also salespeople may profitably visit other stores, and, in the case of large department .stores, visit all parts of the store itself. The occasional inside trip is a feature very help- ful both to the salespeople and the store. Such trips put the employees in touch with the big work of the store, help them to visualize their own work in its relation to other depart- ments, and help to secure co-operation with other departments. Efficiency Bulletins. — Store papers, letters to salespeople, bulletin board notices, and efficiency bulletins constitute other effective methods of reaching employees with current infor- EDUCATION FOR RETAIL SALESPEOPLE "5 mation. While such bulletins are usually confined to convey- ing notices of various kinds, there is no reason why brief lessons on salesmanship, on merchandise, and on store policy may not be communicated to the sales force in this way. The most striking success in the use of this means of educa- tion is that of Wm. Filene's Sons Company in Boston. This concern has issued "efficiency bulletins" to its force of em- ployees regularly for years, covering .such subjects as "Mer- chandise Calls," "Service to Employees," "Talk Merchandise, Not Price," "Summer Visitors," "Promises," "Errors in Sys- tem,". "Educating the Public," "Working Together." Twro illustrations of Filene's efficiency bulletins follow, one on "Satisfaction versus Selling," and one on "Interpret- ing Merchandise for the Customers." No. 171. Efficiency Bulletin Satisfaction Versus Selling This store was organized and equipped not for one day, one year, or one lifetime, but for many. To insure its future we must look beyond the immediate sale and sales total of the day. We may sell to a customer, or we may satisfy her — the two are not yet synonymous. A sale may be made though our efforts are half-hearted. A customer can be made satis- fied only by earnest, intelligent effort which calls to aid all the resources that the store offers. To illustrate : A customer came to us to buy a hunting outfit. She went first to the shirtwaist department and explained that she wished something for the mountains. She knew that she wanted a flannel waist, but could not give the exact style. Those shown her were not what she wanted, and so she went away without purchasing when the sales person said, "These are all we have." She then tried to get a skirt, and again did not see what she wanted, and was told, "These are all we have." Il5 ECONOMICS OF RETAILING She abandoned the idea of getting anything for herself and looked for riding oittfits for her two daughters, 8 and lo years old. She met with the same reply. This customer was leaving our store, which is the largest specialty shop in New England, without finding what she wanted. Fortunately, she was intercepted. The result was that she purchased in the boys' department just the waist she wanted, found in another department a heather-down skirt such as is used exclusively for hunting because it does not wrinkle or shrink under any weather conditions; bought in the boys' department two corduroy suits which were ex- cellent for riding habits, and added to these bloomers, gar- ters, storm shoes, and leather gaiters. In short, zue had what she wanted, but she was leaving us to buy elsewhere, because of our lack of resourcefulness. No. i86 Efficiency Bulletin Interpreting Merchandise for the Customer Merchandise has a history. Much has happened to it before it reaches our hands. It may have come from a re- mote part of the globe — from Australia, India, Russia, France, Japan — and passed through many lands on its way to us. Its present history begins with us; its future depends upon us. The sales person makes its acquaintance and, to a certain extent, studies it. She studies it chiefly from the point of view of the present; that is, in terms of stock — such and such a price, style, color, size, in such and such a location. The average customer on entering a shop has the future point of view. She has not defined the article she comes to buy; she may know nothing of its past or of its present exis- tence in terms of stock. She has, however, a use for it. We determine whether that need is to be supplied. Thus there is a mental gulf between the two points of view. The sales person who approaches with questions of price, style, color, etc., shows that she has not studied and grasped EDUCATION FOR RETAIL SALESPEOPLE 117 the possibilities of her merchandise, the uses to which it can be put, its future. Figuratively speaking, she does not budge one step to meet the customer, but attempts the dangerous task of making the customer bridge the gap and walk every step of the way to her till they are on common ground. To illustrate : A customer asked to be shown a coat to wear motoring over a simple silk dress that she had on. She was using her suit coat, and so wished to purchase for immediate wear. The sales person said, "We haven't any- thing ; they have all been closed out." The customer, in surprise, asked, "What kind of a ooat do you think I want?" and persisted in being shown something. The merchandise selected was so inappropriate that she went away without buying. While making another purchase she chanced to re- mark how odd it was that in such a large store she could not find a coat for her purpose. She was persuaded to try again and did find just the article that she could use. Moreover, this was her first visit to the store, and before she left her cash sales amounted to about $100. An incident like this is peculiar to no one department. It is happening in all, and is a problem for all. The solution lies in studying our merchandise from every point of view, past, present, and future — feeling its human interest and possibilities. The more we interpret its past as well as its present, the better able are we to interpret its future. We must study its future — the individual and occasion it can best serve. If we study our merchandise in these ways, the right customer will appear and we shall have the right merchan- dise already selected for her. Trade Papers. — Trade papers constitute the course of much that is valuable in the education of any retail worker. No retail salesman can be said to be completely trained unless he has acquired the habit of reading trade papers regularly and easily. The trade press is essential to keeping abreast of progress in retailing. Consequently many retailers con- centrate their efforts on getting employees to read trade pa- Il8 ECONOMICS OF RETAILING pers. Definite articles in definite issues are assigned and usu- ally the readers are quizzed on their reading to make sure that they have understood what they read. The reading of trade papers as a part of a retail salesman's training is cer- tain to become increasingly important. Libraries and Book Collections. — A few stores have ac- quired book collections or libraries on subjects helpful to sales- people. This method reaches the type of employee \^'ho is naturally studious and must be considered a helpful supple- ment to any or all other educational means. There is con- siderable literature on merchandise and on buying and selling available, so that there is no excuse for passing up the ques- are heloful. Reading Courses. — An excellent variation of the use of the store library is the prescribed and supervised reading course. For example, the retail salesman in the trunk and bag department can be asked to read as follows : 1. Articles on leather in encyclopedias. 2. "Leather Goods," a department store merchandise manual written by M. E. Lehmann. 3. "Retail Selling and Store Management," by Paul H. Nystrom. 4. "Salesmanship," by William Maxwell. 5. "Advertising and Selling Practice," by John B. Op- dycke. tion of using books on the ground that there are none that Similar courses of reading could be drawn up for practi- cally all branches of the retail trade, and would certainly be of enormous benefit. The key to their success, however, is the definite assignment of books, followed by quizzing and discussion. EDUCATION FOR RETAIL SALESPEOPLE 119 Correspondence Courses.— Along the same line, but even more definitely arranged from the standpoint of the student, are the correspondence courses on business and salesmanship now offered by such concerns as the Alexander Hamilton In- stitute, New York; the International Correspondence Schools, Scranton, Pa. ; and the Sheldon School of Chicago. The only objection to these courses is that not one of them covers retail selling specifically and exhaustively. They are good as general educational courses but do not fit the imme- diate problems of retailing. Something more has been done along this line by the Extension Divisions of the Universities of Wisconsin, Minnesota, and Kansas. The ideal correspond- ence course in retailing is yet to be prepared. Progressive Promotion System of Training.— There has also been a marked progress in training salespeople by care- fully planning the steps of experience. New employees, where possible, are in many stores carefully inducted from one posi- tion to the next and so on leading up to salesman or sales- woman. For example, a girl may start as messenger, then become stock girl, packer, or inspector, then junior salesgirl and then saleswoman. A girl beginning as stock girl in notions and becoming saleswoman in notions can then be promoted to any one of the following departments : Laces Draperies Ribbons Trimmings Leather goods Jewelry From the positions outlined above the line of promotion leads to assistant buyer and then to buyer. 120 ECONOMICS OF RETAILING The "Flying Squad." —Another plan of utilizing experi- ence as training is to put all new employees ready for sales positions into what is usually called the "contingent group" or "flying squad." The "contingents" are subject to call from any part of the store, wherever there may be a demand for extra sales help. The maintenance of a contingent group thus serves a double purpose — first, as a means of taking care of special calls for sales help, as in the case of bargain sales, and second, as a means of giving the new salespeople experience in a number of departments and thereby helping to locate the particular lines for which they are best fitted. The contin- gent group or flying squad is coming to be a part of every department store sales organization. Occasionally large stores employ college graduates or other young people of exceptional ability or training, and put them through an apprenticeship of selling in a number of departments m preparation for more serious work as exec- utives. The experience of the various departments in such cases serves as education. The Understudy System. — There is a plan that is growing in favor among large retail stores and even in smaller ones, known as the understudy system. Each employee occupying a responsible position is required to have an understudy, one who is learning to do the work and who will be capable of taking the position in case of vacancy due either to promotion or leaving. This plan makes of every employee having an understudy, a teacher. If promotion is made dependent upon successful training of an understudy the system is likely to be a success. It is not likely, however, that this system will be widely used in retailing. It is chiefly useful in executive positions. It is likely to suffer in application to ordinary selling positions. Even if regular employees can be interested sufficiently to EDUCATION FOR RETAIL SALESPEOPLE 121 help an assistant, which is doubtful, the system assumes too much. It seems to take for granted that wherever there is a will there is a way in teaching. Pedagogy has really pro- gressed far beyond the point where anyone with proper intent can teach as well any anyone else. We now have teachers, or at least the knowledge of teaching, that puts the student who works under specialized direction far in advance of the student or learner not so favored. For general application the store managers of today must consider specialized instruc- tion to fit their needs in a manner that goes far beyond what the understudy plan can offer. The understudy system has marked advantages, however, for certain positions of an executive nature. It seems possible that each buyer might well have an understudy. The .store superintendent might have an understudy. The head of the delivery department should have an understudy. But the proper application of the system calls for a careful considera- tion as fitting their needs in a manner that goes far beyond what the understudy plan can offer. Gilbreth's Variation of the Understudy Idea — The under- study .system has been adapted in a remarkable way by Mr. and Mrs. F. M. Gilbreth, efficiency engineers of Providence, R. I., under what they call the "three position plan." Under this plan each employee should — 1. Have an understudy for whose instruction he is re- sponsible. 2. Have regular work to do in the positions filled. 3. Be the understudy of an officer or workman above or be a student preparing for a higher position. Thus every worker under the Gilbreth plan would be at once a learner, a worker, and a teacher. This plan has not, according to the information of the writer, been applied in any general way in any retail store. Its applicability extends 122 ECONOMICS OF RETAILING wherever the understudy systems can be used. It is pre- sented here for its suggestiveness. The School of Salesmanship The Beginning of Salesmanship Training. — Back in the early eighties, certain publishing houses selling books on the subscription plan made a fine art of canvassing by carefully analyzing the work to be done and by systematically teaching their canvassers the best ways of doing their work. There may have been earlier schools of salesmanship but no traces of them are evident. It seems that the distinctively modern course in salesmanship had its beginnings in the book can- vassing business. From book canvassing, salesmanship training courses spread to magazine selling, picture selling, patent medicine selling, and from these to still other lines, so that by 1900 there were several .specialty manufacturing concerns giving their salesmen or canvassers training courses in salesman- ship. The National Cash Register Company, a leader among sales organizations, began holding salesmen's meetings, much like schools, as early as 1891. On April 4, 1894, the first regular training school started with 37 men in attendance. Ten years later, in 1904, Hugh Chalmers, then general man- ager, said that out of the 1081 men trained in this school dur- ing the ten years, 63 per cent had succeeded as salesmen. In most concerns, if one man out of ten makes good the re- sult is considered satisfactory. Life insurance companies, correspondence schools, nur- sery stock growers, piano and phonograph concerns, and office device manufacturers have been the leaders in establishing training courses for their sales employees. The Literature of Salesmanship — We have already listed in the first chapters of this book some of the earliest books EDUCATION FOR RETAIL SALESPEOPLE 123 written for retailers. Some mention of books for retail sales- men may not be out of place at this point. So far as the author has been able to learn, the first book written dealing with retail salesmanship was F. B. Goddard's "The Art of Selling," published in 1889. This book seems to have been written primarily for traveling salesmen, but does contain several sections on retail selling. The first thorough effort in book form specifically for re- tail salesmen seems to have been George S. Cole's "The Art of Salesmanship, a Manual for Retail Dry Goods Salesmen," issued in 1895. ^^- Cole was also the author of "Cole's En- cyclopedia of Dry Goods," which passed through several edi- tions, the first appearing about 1890. It is safe to say that "Cole's Encyclopedia" has been a great educational help to a great many dry goods salesmen in this country. "The Art of Salesmanship" was a remarkably well written volume, a worthy pioneer in a worthy field, excelling many books that have since been written on the subject. Barcus' "The Science of Selling" was a book issued in 1894, written mainly for canvassers but also including con- siderable matter for "traveling representatives and clerks." It is particularly interesting as a good example of the kind of training given book canvassers back in the eighties and nine- ties. After 1895 the trade papers began to devote considerable space to salesmanship in their respective lines of business, and by 1900 there was quite a flood of matter appearing on the subject. In 1902, A. F. Sheldon started his famous corre- spondence course in salesmanship, and its almost instant suc- cess prompted the subsequent preparation of a number of other courses. By 1910 salesmanship was taught in Y. M. C. A. classes, and business colleges, and more than a dozen books on the subject were being widely sold. 124 ECONOMICS OF RETAILING Salesmanship Instruction in Retail Stores — The begin- nings of systematic instruction in salesmnaship in retail stores are hard to trace. Educational work in stores, with a few exceptions, even to this day is sporadic — now in full swing, now stopped entirely. In the old days of apprenticeship for re- tail clerks before the Civil War, salesmanship was taught by the employer by precept and example. But apprenticeship ceased to exist and in its place came the store school and education in retailing through public schools. The First Store School. — The first store school of which there is definite record is the one established in John Wana- maker's store in Philadelphia, March 12, 1896, known as the John Wanamaker Commercial Institute, and later changed in name to American University of Trade and Applied Com- merce. Before that, there had been store conferences, meet- ings conducted by buyers, lectures, and so on. But here was the first real store school. The Wanamaker Commercial Institute at first admitted only boys, but later girls were admitted. The course of study at the start covered the subjects of reading, writing, spelling, arithmetic, grammar, bookkeeping, commercial correspond- ence, physical training, and singing. Later other subjects were added including studies in merchandise, trades, labora- tory work, and so on. Then came the establishment of educational departments in department stores generally to train new employees how to make out sales checks and to inform them concerning store rules and policies. By 19 10 there were many stores that had a department responsible for this much training. Mrs. Prince's Work — In the meantime there had been be- ginnings in .store education of greater meaning. In 1905 the Women's Educational and Industrial Union of Boston undertook an investigation of training needed by girls who EDUCATION FOR RETAIL SALESPEOPLE 125 wished to become saleswomen. Mrs. Lucinda W. Prince, a member of the committee, became so interested that she re- solved to devote herself to it. Mrs. Prince succeeded in get- ting the Union to provide a room and equipment, and the first class, eight girls, none of them actually employed in retail stores, was opened in the fall of 1905. Another class fol- lowed in the early part of 1906. Neither class was very suc- cessful so far as securing positions in retail stores was con- cerned. But in July, 1906, Wm. Filene's Sons Company vol- unteered to take Mrs. Prince's students for part time. Later Jordan Marsh Co., Gilchrist Co., Shephard Norwell Co., and C. F. Hovey Co. became interested and agreed to take students on part time during a course of twelve weeks' instruction, the instruction coming in the forenoons and store work in the afternoons. Under an arrangement with the stores, students also were selected by the store superintendents from sales- people already employed. The work, though limited in scope, proved a .success. Gradually large stores in various parts of the country became interested. Mrs. Prince's graduates were called upon to be- come store instructors. Naturally the next step was the establishment of a teacher's training course. This was defi- nitely effected in 1912. In the following year the course pre- pared by Mrs. Prince was taken over by Simmons College of Boston which now administers the training course for teachers of salesmanship. In 191 5 Mrs. Prince became educational director for the National Retail Dry Goods Association, an organization of about 500 retail store members, including, besides regular dry goods houses, several of the most prominent department stores of the country. In this capacity she has worked to increase interest in department store education, supervised the work of store teachers employed by members, and urged the institu- tion of classes in retail selling in public schools. 126 ECONOMICS OF RETAILING At the end of the year 191 6, more than eighty graduates had been turned out from the teachers' training course estab- Hshed by Mrs. Prince in Simmons College. These graduates were filling positions as store instructors in many of the largest stores in the country and in a few public schools. Mrs. Prince's course of study for saleswomen and teachers is as follows : Salesmanship Textiles Color and Design Economics Arithmetic Personal Hygiene from the point of view of business honesty Practical Talks Dicina Hirschler's Work. — Another woman who had an important share in the early development of interest in teach- ing salesmanship was Miss Diana Hirschler. Mrs. Prince came to the work of training salespeople from the point of view of the social worker, teacher, and club woman. Miss Hirschler made her approach from the standpoint of a direc- tor of welfare work. In 1905 she was in charge of the wel- fare department of Wm. Filene's Sons Company in Boston. The city seems to have been alive with interest in salesman- ship instruction at this time. The Boston Board of Education started an evening class during the winter in the Bigelow School, South Boston, at the request of both wholesale houses and retail stores. Over 150 men and women attended. The instruction was given in a series of talks by leading store ex- ecutives, among whom was Diana Hirschler. In 1908, Miss Hirschler was appointed to teach a night high school course in salesmanship established in New York. During the years 1906 to 1910 Miss Hirschler traveled over EDUCATION FOR RETAIL SALESPEOPLE 127 the country visiting several of the larger stores making be- ginnings in the teaching of retail selling, generally urging better educational methods through the buyers and store su- perintendents. For a considerable time Miss Hirschler con- ducted a correspondence course showing store managers how to educate their employees. In 1909 Miss Hirschler put out her book, "The Art of Retail Selling," which while defective in many respects from a mechanical standpoint and contain- ing many errors, has been a great help practically as well as an inspiration to those interested in store education since it was written. The Department Store Education Association During 1 9 14, several prominent New York people who had become interested in the training of retail salespeople formed the Department Store Education Association whose objects were as follows : 1. To study at first hand the methods and conditions of department store employment. 2. To develop salesmanship to the status of a skilled occupation and give it a professional standard. Shortly after this association was organized the services of Miss Beulah Elfreth Kennard as educational director were obtained. Miss Kennard began her work by studying all edu- cational methods in use in retail stores, and as a result of her studies brought together a suitable course of instruction for use in stores and public schools. Educational work was established in some of the New York and Brooklyn department stores under the direction of Miss Kennard. Later a Department Store Educational Council was formed to co-operate with the City Board of Education to carry out an educational plan for retail em- ployees. This has since been developed and carried to a large 128 ECONOMICS OF RETAILING extent through high schools, evening schools, and continua- tion schools. The courses of study outlined were more thor- ough as well as broader than anything attempted up to that time. A training course for teachers was established in New York University and Miss Kennard was put in charge. One of the distinguishing features of the course established was the attention given to studies of merchandise as well as to salesmanship. Salesmanship in Miss Kennard's courses is considered merely as a means, the end being the conveyance of the goods; and the quality of the goods is rightly consid- ered an essential. The Merchandise Manuals. — A noteworthy development of Miss Kennard's work was the preparation of a series of "Merchandise Manuals," covering "Cotton and Linen Goods," "Silks," "Millinery," etc. — the principal hnes of consumer goods — in just the detail needed by salespeople. This is a contribution that is coming to be recognized as of great value and is certain to be appreciated more and more as the move- ment for education for retail selling progresses. Another noteworthy work by Miss Kennard was the au- thorship of a helpful handbook for teachers of retail selling, "The Educational Director." This is the first book outlining and discussing the work of the teacher of salesmanship and is well worth the study of all interested in the education of retail salespeople. While the Prince, Hirschler, and Kennard educational movements were developing in the East, another force brought its influence to bear in the direction of training for salespeople in the Middle West. University "Merchant's Courses." — In 1910 the University Extension Division of the University of Wisconsin estab- EDUCATION FOR RETAIL SALESPEOPLE 129 lished extension courses under the direction of the writer, both through evening classes and by correspondence, for re- tailers and retail salespeople. These courses soon became very popular. Several thousands of retailers and salespeople pur- sued them. Other universities, notably Kansas, Iowa, Minne- sota, Washington, and Oklahoma, have since adopted similar courses. Progress at Other Universities.— Another university move- ment for better retailing began in 191 3 in conducting "Mer- chant's Short Courses." Both the Universities of Minnesota and Kansas held such courses that year. Later the Universi- ties of Iowa, Illinois, and Oklahoma established similar courses. The merchants' short course was modeled in some respects after the agricultural short course for farmers that is held annually in most agricultural colleges the country over. The .students in attendance were men and women actually engaged in business. The subjects presented included the most prac- tical presentations possible, in every case presented by experts in merchandising rather than academic instructors. The mer- . chants' short courses proved highly popular, but were largely discontinued during the war. A revival may be expected. Throughout the work of the universities it has been the purpose to encourage interest in the science back of retailing and to point out the need of teaching retail salespeople. As a result of the agitation of the universities and of all othc sources, retail salesmanship has been introduced into a great many schools, beginning in the Middle West in Oshkosh, Wisconsin, in 1910, in Boston in 1912, in Duluth, Minneapolis, and Detroit in 1913-1915, and so on. Continuation and Public Schools — Continuation schools established in all large cities in Wisconsin beginning in 19 13 included retail selling in many instances. The only reason why 130 ECONOMICS OF RETAILING it was not introduced more widely at the start was because of the lack of teachers. The teaching of salesmanship in public schools has made rapid strides during the last five years. It will probably not be long before salesmanship will be a regular subject in every commercial high school in the country. The Carnegie Text Course. — The Research Bureau for Retail Training, established at the Carnegie Institute of Tech- nology, Pittsburgh, in May, 1918, is one of the most impor- tant of these recent developments in retail store training. This Research Bureau is carried on with the co-operation of the leading merchants of Pittsburgh, who have under- written $32,000 a year for five years toward its budget. The chief aims of the course are : "i. To provide a limited group of able people with tech- nical training for leadership in the employment and the educational departments of general stores. 2. To train teachers for high-school courses in retailing. 3. To conduct research bearing on the human factor in stores : the selection, placement, and individual de- velopment of employees. 4. To co-operate with the public schools in arranging part-time courses which combine schooling with experience in stores." Eight $500 fellowships are available for each year. Through intimate association with actual store work, sup- plemented by courses in applied psychology, personnel ad- ministration, and retail store research, the students are ready upon completion of the course to assume positions as teachers or investigators in retail stores. Training for Teachers.— Beginning with the fall term of 19 1 9, New York University established a new two-year course EDUCATION FOR RETAIL SALESPEOPLE 131 for the training of teachers of retail selling, following the so- called "New York plan." This plan calls for half-time study of the principles of merchandising and half-time in train- ing in practical work in the retail store. For entrance to this course a college degree or its equiva- lent is required, and additional tests are made to make sure that the applicant possesses qualities which in the judgment of experienced merchants will make him a retail store execu- tive. Working fellowships paying from $700 to $1,000 have been provided to encourage the attendance of those capa- ble of making able scientific study of the subjects assigned. The general policy of control of the course is laid down by a board of eleven members, of whom six are merchants, two representatives of the Board of Education, and three University representatives. The merchants are in control and practical results may be expected. Weekly visits will be made to the classes by committees of the merchants. Co-ordination of store training with university study will be secured through a special officer who will devote his time to investigation of store work and of the teaching methods, making sure that the latter fit the needs of the store. The close correlation of the lectures at the university with the practical work of the stores is one of the special features of the New York plan, the students attending classes in the forenoon and working in stores in the afternoon, Saturday, and during vacations. The course for the first year includes : First Term : Business Ethics Store Organization Language of Business General Science, Arithmetic, and Elementary Book- keeping Distribution and Management 132 ECONOMICS OF RETAILING Second Term : Store Management Language of Business Textiles Distribution and Management The course for the second year includes: First Term : Methods of Training Color and Design Personal Relations Non-Textiles Second Term : Method of Training Personal Relations Non-Textiles The purpose of the course is to train teachers not only for the various grades of the public schools, but also for superintendents of training and for managerial positions in retail stores in general and department stores in particular. In this respect the course is unique. It is entirely different from any other educational movement affecting retailing. It is expected that fully as many graduates from the course will go into executive retail positions as into teaching posi- tions. Those going into the latter positions may, after ex- perience, through having taken this course, be promoted to the highest grade of positions in retailing. Dr. Lee Galloway, who for many years has been interested m promoting education in business, is director of the course. Other Courses.— Cognizance of the need for retail sales- manship as a subject for school study has been given by teachers, boards of education, state superintendents, by state teachers' associations, by the Educational Association, by EDUCATION FOR RETAIL SALESPEOPLE 133 trade education organizations, by the U. S. Commission of Education, and by the Federal Board for Vocational Educa- tion. The main problem from now on will be getting local communities and boards of education to act in authorizing the start. The movement is on the way. Private schools, business colleges, the Y. M. C. A., and other institutions of like nature have not overlooked retail selling, but, on the whole, have not been so successful with it as they have been with such subjects as bookkeeping. The proper place for the education of salespeople is in the public school system and in the stores themselves. Outline of a Course of Study for Retail Salesmanship . The following outline was prepared by Miss Helen C. Wisner, Instructor in Salesmanship, Girl's Vocational High School, Minneapolis, Minn., with the co-operation and approval of the executives of the leading department stores of that city. This course sets down all of the needs of retail salesman- ship without regard to the place where these needs are to be satisfied, whether in store or school. It assumes very properly that the first step is to determine fully what is to be done. Hav- ing this outline complete it may be easier to map out clearly the work in the store, the store school, and the public school. Course in Retail Salesmanship I. Introductory Course f.or Aisle Girls, Messengers, Stock- keepers, AND Others who wish to Qualify as Salespersons. (i) To test general ability; (2) to determine the attitude toward store work; and (3) to serve as a basis for eliminating those lacking fundamental education. A — Arithmetic I. Fundamental processes, common and decimal frac- tions as applied to — (a) Money. (b) Quantities. (c) Measurements. 134 ECONOMICS OF RETAILING B — English and Spelling 1. Oral English. (a) For ability to express simple information about merchandise correctly. (b) For use in greeting a customer and in ordi- nary conversation. 2. Dictation exercises to test — (a) Ability to take customers' orders or direc- tions. (b) Common facts about merchandise. 3. Spelling lists of words selected to suit the needs and abilities of each group of beginners. (a) Words in common use. (b) Names of merchandise. (c) Names of streets. C — Personal Hygiene and Dress 1. Care of the hair, nails, and teeth. 2. Neatness in dress and its importance in store work. D — Store Deportment 1. Toward customers. 2. Toward fellow employees. E — Store System 1. How to make out sales slips. 2. Policy of the store with regard to exchanges and refunds. 3. Policy of the store with respect to the treatment of customers. II. Elementary Salesmanship, (i) To test the talent for salesmanship; (2) to serve as a basis for eliminating those un- suited for store work; and (3) to assist in classifying workers as stockkeepers, sales persons, or office workers. A — Salesmanship. I. Elementary principles. (a) How to greet customers. (b) How to find out customers needs. EDUCATION FOR RETAIL SALESPEOPLE 135 (c) How to hold the customer until a more ex- perienced sales person can give her the attention desired. (d) How to locate stock in the department. (e) Such elementary information about stock as prices, stock numbers, special names, or other means of identifying stock. 2. Care of stock. (a) How to dust, brush, clean, and fold stock. (b) How to replace it in boxes on the shelves.. 3. Demonstration sales applied to familiar miscellane- ous merchandise. (a) Practice in making a sale through the demonstration. (i) How to show the goods. (2) How to interest the customer. (3) How to meet the customer's ob- jections. (4) How to substitute merchandise. (5) Closing the sale. Making the sales slips. (6) Accounting and giving the customer change. (b) Relation of counter display, store display, and advertising to selling. B — Arithmetic 1. Drill in the use of fundamental processes in arith- metic, fractions, and decimals based on problems taken from daily routine of the store. (a) On sales slips. (b) Rapid drill for accuracy and speed. 2. Short methods for making computations used in the store. 3. Practical business problems in interest and profit and loss. C — English I. Oral. (a) Talking about merchandise. 136 ECONOMICS OF RETAILING (b) Repeating and giving directions. (c) Telephone conversation. (d) Talking to employers when applying in per- son for a position. 2. Written. (a) Business letters. (i) Letters of inquiry. (2) Ansvi^ers to inquiries. (b) Short descriptions of merchandise. 3. Dictation. (a) Directions for amounts, kinds of merchan- dise. (b) Names and addresses of customers. (c) Short business letters. 4. Reading such literature on salesmanship and mer- chandising as beginners can understand. (a) Salesmanship literature. (b) Descriptions of merchandise and methods of manufacture. (c) Trade journals. 5. Spelling. (a) Words in common use. (b) Names of merchandise, especially the kinds that are being handled from day to day, and new merchandise. (c) Drill in names of streets. (d) Abbreviations in common use. D — Penmanship — for Legibility and Speed E — Color and Design I. Unity and variety as applied to merchandising, (a) Harmony of color. (i) Matching and blending of colors in fabrics and trimmings. (2) Combining colors for store displays. (3) What to avoid in showing colors to customers. 2. Study of line and space as in plaids, striped and figured goods. EDUCATION FOR RETAIL SALESPEOPLE 137 3. Talks on what constitutes good taste. 4. Art vocabulary for business purposes, etc. (a) Accepted trade names for colors, etc. b) Descriptive terms as smart, chic, mode, etc. F — Business Ethics, Store Deportment, and Citizenship 1. Relation of employer and employee. 2. Loyalty of employer and employee — reasons for. 3. Good manners and courtesy — reasons why they are an important part of salesmanship. 4. Discussion of laws relating to store employment, school attendance, and community life, in their relation to self and others. G — Personal Hygiene and Health 1. Health — a business asset. 2. Simple rules for: (a) Sleeping. (b) Bathing. (c) Exercise. (d) Proper food — the noon lunch. 3. Dress — its relation to health, attractive appearance, and business. 4. Exercises in proper sitting and standing. 5. Recreation. 6. Care of the teeth, nails, eyes, and hair. H — Textiles: How to Know Staple Fabrics I-. Names of cotton fabrics and drills in recognizing them; also market prices, widths, and uses. 2. Names of woolen fabrics, names of weaves, how to recognize them, widths, and market prices. 3. Linen fabrics, their names, prices, weaves, widths, and uses. 4. Instruction about one or more of the textile fibers. III. Salesmanship and Department Duties. Pupils for these courses (when given in the store) should be taken from the depart- ments having merchandise with points in common. This course is a 138 ECONOMICS OF RETAILING continuation of the elementary course. Its aims are :(i) to develop selling ability; (2) to give specific information about merchandise and methods of obtaining such information; (3) to give methods for learning new points about merchandise; and (4) to develop ability to meet and deal with people. A — Salesmanship Applied to Specific Merchandise 1. Demonstration sales, with discussion and analysis of the principles of making a sale. (a) ' ining the attention. (b) Interest. (c) Desire. (d) Decision. 2. Planning of demonstration sales by pupils. 3. Suggestion in salesmanship. 4. Care and arrangement of stock. (a) In the department. (b) On the shelves or in boxes. (c) Display of stock on the counters and in the cases. 5. Merchandise talks by buyers. 6. Talks on advertising by advertising manager. 7. How to cultivate customers and gain good-will for the store. 8. Relation of good health to efficient service. 9. Personal qualifications (as expressed in manner and dress) required for successful salesmanship. 10. Study of trade journals, with reports and discus- sions. B — Arithmetic 1. Continuation of drill as given in the previous course, if necessary. 2. Elementary accounting and principles of book- keeping. 3. Pergonal accounts. 4. Apportionment of personal income for : (a) Living. (b) Dress. (c) Savings. EDUCATION FOR RETAIL SALESPEOPLE 139 (d) Recreation. (e) Philanthropy and church. C— English 1. Oral continuation of the work outlined in the pre- vious course as applied to the demonstration sales and talks about merchandise. 2. Written. (a) Descriptions of merchandise. (b) Plans for demonstration sales. (c) Selling talks. (d) Taking notes from buyers' talks and ad- visers' talks. 3. Reading. (a) Keeping up to date with trade journals. (b) Methods for manufacture of merchandise. (c) Current magazines and newspapers for gen- eral information. (d) Literature, selected classics. D — Commercial Geography 1. Where merchandise comes from. 2. How shipped — freight, express, boat. 3. Cost of transportation — freight, express, duty, and so on. 4. Sources of raw materials. E — Spelling I. Occasional drills to keep up to date with new terms used in merchandising, in styles. F — Color and Design I. Balance and accent, more advanced work in blending of colors for the sake of: (a) Light and dark in colored fabrics. (b) How to recognize neutralized colors in fabrics. (c) How to suggest warmth or coolness in color and when they are to be used for dress, furnishings, and so forth. 140 ECONOMICS OF RETAILING 2. Design. (a) Arrangement, balance, and accent. (l) How to arrange trimmings or draperies. Regularity, as in making two sides alike. Irregularity. Lines applied to trimmings or draperies. (2) Value of colors in relation to their use, as in dress, trimmings, and furnishings. (3) Textures of fabrics and their rela- tion to dress, trimmings, and furnishings. (4) Place of color, line proportion, etc., in advertising and display work. (5) Talks on what constitutes good taste. IV. Course for Assistant Buyers and Buyers. This course to take the form of a club of forum lectures, discussions, and de- bates. The following topics are suggested: A — Market Centers for A^arious Kinds of Merchandise B — Study of Merchandise I. Factors affecting merchandise, (a) (b) Quality. (I) Grades of raw materials. (2) Mixtures used in materials. (3) Adulterations. (4) Methods of finishing. Price. (I) Style. (2) Quality. (3) Workmanship. (4) Demand. (5) Transportation facilities and prox imity of market. EDUCATION FOR RETAIL SALESPEOPLE 141 2. Factors governing selection of merchandise. (a) Style. (b) Use. (c) Service. (d) Amount. (e) Price. (f) Jobs lots. (g) Discounts. C — Supply and Demand as Related to Merchandising D — Current Labor Conditions and Problems and Their Effect on Merchandising E — Store Arrangement as to Location of Departments F — Department Arrangement 1. Methods for placing merchandise. 2. Shifting merchandise for seasonal demands. 3. Featuring stock. G — Department Management 1. Policies relating to dealing with employees. 2. Management of stock as in planning for turnover. H — Current Legislation, Especially in Its Bearing on Store Work and Merchandising I — Lectures on Commerce and Business Problems by Authori- ties J — Textiles 1. Drill in recognizing staple fabrics continued. 2. Drill in names, kinds, grades, widths, prices of staple and popular silks. 3. Study of weaves — how they are made. (a) Plain weave. (b) Basket. (c) Cord. (d) Twill. (e) Serge. (f) Brocade. (g) Satin. (h) Marquisette or scrim, (i) Nap. 142 ECONOMICS OF RETAILING 4. Simple tests for wool, cotton, silk, and linen fabrics. How to know mixtures. 5. Such simple, practical comparisons as difference be- tween damask and crash ; serge and broadcloth ; cotton twill and Indian head. 6. Dyes — where they come from, how made, and how used. 7. Weighing and finishing fabrics. 8. Sources of raw textile fibers. (a) How secured. (b) Preparation for spinning and weaving. V. Advanced Course in Salesmanship for persons who have been in the store a year or more. To be conducted as class work or club work for persons selected from allied departments. The ob- ject of this course is to develop a knowledge of scientific salesman- ship and for the study of merchandise. A — Demonstration Sales, with Discussion and Grading. B — Discussions of Such Store Problems as : 1. Problems of merchandising. (a) Division of merchandise among departments and sales people. (b) Methods of keeping stock. (c) Plans for disposing of stock. (d) Featuring out-of-season stock. (e) Display of stock. 2. Problems of discipline. (a) Team-work in departments and in the store. (b) Deportment in the store, employees' codes and standards versus those of employers. (c) Treatment of customers. 3. Ways of improving service. (a) For convenience and comfort of customers. (b) For saving time and energy of employees. 4. Required readings from trade journals and books on salesmanship, discussed or debated. 5. Current literature, magazines, newspapers. EDUCATION FOR RETAIL SALESPEOPLE 143 6. Industrial history as related to merchandise. (a) History of sources and uses of merchandise. (b) Evolution of manufacturing methods and the effect upon merchandise as to : (1) Quality. (2) Cost. (3) Colors. (4) Design in decorative patterns. 7. Literature, selected classics. Bibliography Department Store Merchandise Manuals. B. E. Kennard, Editor. Dr. Lee Galloway, Consulting Editor. Ronald Press Com- pany, New York. 1918. (Additional volumes in preparation.) The Educational Director. By B. E. Kennard. An excellent outline of the duties and responsibilities of the educational director in department stores. Cotton and Linen Goods. By E. B. Thompson. Glassware. By M. A. Lehmann. House furnishings. By E. L. Hutchinson. Jewelry. By B. E. Kennard. Leather Goods. By M. A. Lehmann. Millinery. By C. R. Aiken. Notions. By M. A. Souder. Silk. By E. B. Thompson. Stationery. By M. A. Lehmann. Field, L. F. Service Instruction of American Corporation, Bureau ■of Education, Bulletin, 1916, No. 34. Galloway, Dr. Lee. Office Management. The Ronald Press Com- pany, New York, 1919. Contains a discussion of the train- ing of salespeople, together with outlines of courses. Kelley, R. W. Hiring the Worker. Ronald Press Company, New York. 19 1 8. Contains a chapter on education of employees that deals in part with the education of store employees. Maxwell, Wm. The Training of a Salesman. J. B. Lippincott Company, Philadelphia. 1919. Norton, H. R. Department Store Education. Bureau of Education, Bulletin, 1917, No. 9. Department of the Interior, Washington, 144 ECONOMICS OF RETAILING 1917. This bulletin gives a complete historical account of the work of Mrs. Lucinda W. Prince. O'Leary, Iris P. Department Store Occupations. Cleveland Edu- cation Survey, Cleveland, Ohio. 1916. Prince, Mrs. L. W. Retail Selling. Commercial Education, Series No. I, Bulletin No. 22. Federal Board for Vocational Educa- tion, Washington, 1918. This bulletin outlines fully the courses followed in the Union School of Salesmanship in Boston and the training course for teachers in Simmons College, also sug- gestive courses drawn up by Mrs. Prince for continuation schools, evening schools, and high schools. It presents a list of cities in which Mrs. Prince's graduates are working in public schools and in retail stores, and a good bibliography on retail selling. A very helpful publication. Tolman, W. H. Social Engineering. ]\IcGraw Publishing Company, New York, 1909. Contains an excellent chapter on education of employees. CHAPTER X THE WAGES OF SALESPEOPLE Percentage of Wages to Total Expense.— Wages in a re- tail store constitute the largest single expense item, and out of this total, the amount paid for selling, that is to salespeople, is normally the largest part. The expense for salespeople's salaries or wages varies a great deal with different lines, with different stores, and to a considerable degree within the same store, and even within the same department. For example, general averages for five department stores known to the writer range from 5 to 8 per cent of the total net sales, but within the .stores the wages of the salespeople range from as low as 23^ per cent in some departments to as high as 12 per cent in others. These figures are corroborated by practically every statement of department store expenses that has been made public. Statistics of Sales Expense.— The following^ is one of the best statements that has come to the attention of the writer. It shows the average percentage of expense for three of the large department stores of New York, and also the specific percentage of expense of one of the three stores for three years in succession. The only criticism that may be offered from the standpoint of the purposes of this chapter is that the figures include not only salaries for salespeople but also buyers, stock clerks, and other labor directly chargeable to the department. ^ Adapted from tables presented in the Dry Goods Economist, September 27, 1913, October 25, 1913, April 25, 1914, and March 27, 1915. 146 ECONOMICS OF RETAILING Percentage of Expense for Selling by Departments IN New York Department Stores Departments Books ^d stationery Carpets, mattings, rugs China, glassware, lamps Clothing (men's and boys') . Corsets Press goods Furniture and bedding Furs Gloves Groceries Handkerchiefs Hosiery Infants' wear Jewelry, silverware, cutlery. Laces, embroideries, veilings Leather goods Millinery Muslin, underwear and un- derskirts Neckwear (women's) Notions and art embroidery Pictures Ribbons Sewing machines Shoes (women's) Silks and velvets Suits and coats (women's) . Suits (misses') Toilet goods, drugs, perfum- ery Toys Trimmings Umbrellas, parasols, canes.. Underwear (knit) Upholsteries Waists and women's sweat- ers Wash goods White goods, linens Wrappers, kimonas fc I- o 9.0;, 8.9 9.8 8.9 5.8 9.8 8.0 6.3 6.1 9.4 6.6 6.0 7.3 9.4 8.2 6.4 8.7 6.5 8.8 9.4 10.8 9.4 8.3 9.7 8.4 8.0 7.7 7.8 12.9 8.4 5.9 7.9 9.5 7.7 10.3 7.6 8.7 o t; I- 9.5% 7.9 11.1 8.1 12.6 12.2 6.7 5.7 8.5 6.8 6.3 5.0 9.3 8.5 6.4 4.9 8.5 7.7 10.8 7.4 8.3 8.8 8.4 7.1 7.4 8.0 13.1 9.3 4.7 6.2 9.4 7.0 9.9 6.2 7.0 t, o 9,4% 7.2 10.7 8.1 1-, o -2.55 S3 1-^ 11.4% 6.9 11.6 (■ 6.6 Boys' 19.4 Men's 9.0 9.7 9.9 9.6 9.9 8.5 5.9 5.8 8.5 8.8 7.6 6.9 6.0 6.4 4.9 5.3 9.2 10.0 8.1 8.5 6.9 7.1 5.4 5.6 8.3 8.7 8.0 8.6 11.3 11.7 6.2 8.8 12.3 15.7 9.0 9.1 8.4 8.4 7.0 7.7 f8.1 Suits 1 7.4 Coats 7.8 6.5 13.9 13.9 9.3 10.6 6.0 6.8 Men's 6.1 Women's 10.0 10.0 6,8 f6.7 Waists 4.9 Sweaters 9.1 9.4 5.7 6.5 7.1 7.7 THE WAGES OF SALESPEOPLE 147 Percentage of Salespeople's Wages to Total Sales.— Simi- lar ranges in percentages are frequently found within a given department. The writer has seen cases where salespeople working within a given department were costing the firm from 3 per cent to 10 per cent of their sales, and a fact of in- terest in this connection is that those salespeople costing 8 and 10 per cent were receiving the lowest salaries. A girl drawing 10 per cent of her sales was getting $5 per week while one drawing 3 per cent was getting $15 a week. The opportunities for making sales were about equal in both cases, except that the $15 a week saleswoman was of such well known excellence that customers would wait for her when she was busy with other customers rather than have other sales- people attend to their wants. Nothing could demonstrate more clearly the difference between salespeople than such facts as these. From a business standpoint, the saleswoman getting $15 a week was grossly underpaid. She should have received at least $25 per week, while the salesperson who was getting $5 per week was much overpaid. The following average percentages of salaries to sales may prove helpful.^ 2 Groceries 7-96% Furniture 8.73 Variety stores 8.86 Clothing 949 Dry-goods 9-6S Hardware lo.ii Shoes 10.51 Drugs 10.93 Jewelry 10.96 The Harvard retail shoe store investigation found that salaries for the sales force ranged from 5 to 10.3 per cent ^System. February, 1914. 148 ECONOMICS OF RETAILING of sales, that 8 per cent was a common figure, and that 7 per cent was a good efficient level of expense.^ Salaries of Salespeople. — The great industrial changes brought about by the war as well as the rather unsettled state of business conditions at the present time render it practically impossible to make any accurate statement concerning the ab- solute wages paid to retail store employees througout the country. During the last few years, however, there has been a distinct rise in the level of retail store wages, just as in the wage levels of the various industries. Associations of department store owners and other re- tailers in various parts of the country are making a concerted drive toward increased efficiency; as a result of this drive, wages, working conditions, and opportunities for advance- ment are all undergoing a constant improvement. The day of the $3-a-week .salesgirl has passed, while the retail store now probably offers to the ambitious young man as good and as certain a future as does banking, insurance, or any other one of a score of profitable occupations. This truth is emphasized by the fact that the retail stores are com- ing in, indirectly, for their share of the benefits of the recently enacted Smith-Hughes bill, which is a direct attempt to stimu- late and increase the opportunities for vocational training and guidance. With the minimum wage laws in many states insuring to every retail store employee at least a living wage, and with the efforts of the employers themselves to train properly and pro- mote systematically every efficient employee, insuring future improvement, the general tendency of retail store wages and opportunities may be said to be definitely on the up-grade. Excepting as abnormal the wages paid to women munition ' Bulletin of the Bureau of Business Research, Harvard University, Number May, 1913. THE WAGES OF SALESPEOPLE 149 workers, statistics tend to show that the wages of women de- partment store employees are higher than those of women em- ployed in factories ; besides, the saleswoman continues to draw a higher and higher salary after the factory-employed woman ceases to get any better pay. The tendency to recognize in store work the need of special ability acquired through ex- perience is clearly evidenced in the increase in salaries in ac- cordance with the length of time which is spent in such work.* General Wage Levels — To a certain extent, it also seems clear that the limits of salary are set by the efficiency of the employee herself. The general levels of wages for salespeople expressed in the average percentage cost of selHng are prob- ably fixed by forces beyond the control of individual sales- people, but the amount of income based upon such percentages is largely dependent upon the skill of the salesperson. Methods of Wage Payment. — Wages in retail stores are usually paid on a time basis, as for example, so much per week, or month ; on a commission basis, as for example 5 per cent of total net sales; or on a combination basis of a certain amount per week plus a commission of a certain percentage on all sales above a given amount. While salespeople's salaries must always bear a certain ratio to the sales made, still the regular time wage is widely used and in many ways has much to commend it. A straight commission is theoretically the ideal method of paying salespeople, but in most retail stores is very difficult to carry out properly. Unless very carefully established, it may lead to much friction among the employees. Som.e of them are likely to rush ahead of others in trying to get an opportunity to serve customers ; others will try to avoid all other work, such as care of stock, in order that they may * "Wage-Earning Women in Stores and Factories," Vol. V in report on condition of Women and Child Wage-Earners in the United States, pages 41-48. I50 ECONOMICS OF RETAILING be ready for customers all of the time. Customers with small orders are likely to be neglected for those with large ones. Salespeople will try to force the selling so as to make as many sales as possible per day. Also, unless a difference is made in the commissions paid for selling various goods, the sales- people are likely to sell only the newest and most desirable goods, leaving old stocks and "stickers" to accumulate. Cases have been known where some of the salespeople actually hid desirable goods so that other salespeople in the same depart- ment could not make sales from them. The results of these tendencies are hurtful, not only to the general spirit of the store, but also to the store's trade. Difficulties in Commission Payments It is also a difficult matter to adjust commissions at the proper level for each of the great variety of goods handled by most stores. Not only should the commission be adjusted to the kind of goods, but it should also be adjusted to different articles in some fair pro- portion to the difficulty of selling them. For example, older goods, as a rule, need higher commission rates than goods just received; novelties need a higher rate than staples; style goods and goods requiring care and time in fitting need higher commission rates than goods that are standard all of the time and which take but little time to sell. So, while the commis- sion rate is, theoretically, the best plan of remunerating sales- people, it seems practicable only in stores that are large enough to carry the division of selling labor to a very fine degree. When a salesperson sells nothing but handkerchiefs, for ex- ample, or hosiery, or men's collars, a flat commission rate is possible. The combination of a straight wage and a commission is much more generally used and much more practicable for most stores. Sometimes a commission of a certain percentage, .say 3 per cent or 5 per cent of sales, is paid after a certain THE WAGES OF SALESPEOPLE 151 sales quota has been reached. In some cases additional amounts are added to the wage in the form of a bonus or premium for sales above a certain quota, for punctuality, or for a high rating based on a consideration of sales, freedom from errors, punctuality, and ,so on. "PM's" and "Spiffs."— Still another form of premium commonly used is the "PM" or "spifif," a special payment for pushing stock that seems to have developed "sticker" qualities. Unseasonable goods, and other goods in any way undesirable, are frequently marked "PM" and the salesman succeeding in selling them gets the stated "premium" or "spiff." The amount of the "PM" usually runs from 10 cents up to 50 cents per article, depending upon the kind of goods. In selling women's garments, a i per cent "PM" is quite fre- quently used. Profit-Sharing — Profit-sharing is another device for re- munerating salespeople that has been widely heralded as the solution of the wage question, but has not yielded the results generally hoped for by its advocates. With a few firms, as for example, "The Great Department Store," of Lewiston, Maine, profit-sharing has apparently proved very successful. The methods used in profit-sharing schemes vary con- siderably. One of them requires that, after all expenses for the year or other period of settlement have been paid, a certain percentage of profit, say 6 per cent, be set aside as the net profit due to the management. All remaining funds are dis- tributed among the employees. In some instances, after ex- penses are paid the net profits are divided among labor, capital, and management in equal parts. In other cases, certain parts of the net profits are set aside as provident funds to be paid after a term of years in the form either of an old-age pension, or an annuity. In .still other cases, life insurance for em- 152 ECONOMICS OF RETAILING ployees is provided from the net profits.^ Several of these features are combined in some institutions, as for example in the great French store, the Bon Marche. Among the American stores which are carrying out a plan of profit-sharing, some pay a certain percentage, say 5 per cent, of all sales in excess of the sales for the same months of the year preceding, while others pay a straight percentage, say 3 per cent, on all sales above a certain point. These methods obviate the necessity of making known to the sales force the exact financial condition and net profits of the con- cern. The most common method of distributing profits is on the basis of the salary received, that is to say, the salesperson whose salary is $12 per week gets twice as big a share of the profits as the one whose salary is $6 per week. Some con- cerns distribute upon the basis of sales, and others distribute in a more or less arbitrary fashion, thus hoping to equalize the differences, in the conditions and the opportunities for making sales of all members working in the .store. Another common form of profit-sharing is the distribution of shares of stock or other evidences of ownership to em- ployees, either upon favorable purchasing terms or as a reward for faithful service over a term of years. Purposes of Premium Payments. — The purposes of profit- sharing, premium paying, and bonus granting are, first, to get the salesman to use his own initiative and ambition in fur- thering the business of the concern, and, second, to tie the good employees to the concern so that they cannot be drawn away, either into independent businesses of their own or to competitors. These purposes demand that the systems adopted must be such as to avoid such friction among salespeople as * Adams and Sumner, "Labor Problems," Ch. IX. THE WAGES OF SALESPEOPLE 153 straight commissions arouse ; that the rewards must be great enough to awaken their interest and ambition; and that set- tlements should be made frequently enough to keep the end of the period in mind from the start, and yet have it long enough so that the amount payable at its end in the form of profit, shares, bonuses, or premiums may seem worth while. Bonus and premium schemes apparently work best in institu- tions that give cz'cry employee a chance to earn something extra besides a regular salary, and which adjust the rules or conditions of earning the bonuses or premiums so that those who are engaged in places in the store unfavorable to making a good .showing are given all due allowances. Premiums in the form of PM's and spiffs, prizes and com- missions for sales above quota are usually paid weekly, or whenever the regular wage is paid. Profit shares and bonuses are generally paid annually or semi-annually. The argument for the annual payment is that in this length of time the shares or bonuses amount to a good deal in the case of the best sales- people, and the prospect of losing this amount keeps them from seeking employment elsewhere, at least until after these bo- nuses have been paid. Such payments are usually made at about the beginning of the calendar year, or just after the holiday rush of trade. Extra-Salary Remuneration. —In practice salespeople re- ceive remuneration other than direct salaries in a variety of ways. Discounts of from 10 to 20 per cent on merchandise purchased from the store are granted by many stores. The lower figure is the most common. A few stores allow no dis- counts at all, and most stores give discounts to apply only on goods for the salesperson's personal use. A few stores add the proviso that discounts shall apply only on goods for per- sonal use or for the use of persons wholly dependent upon the salesperson. Special discounts are usually given on dress 154 ECONOMICS OF RETAILING goods to be used in making uniforms required by stores for their employees. Gifts, prizes for suggestions, Christmas presents, vacations on full pay, occasional banquets, gymnasium suits, musical in- struments for bands, books and papers for the employees to read, educational courses in salesmanship, in millinery, in do- mestic science, in art, in elocution, in music, dancing, and for- eign languages are frequently supplied to employees. Under the head of welfare work, large .stores go into a great many things of interest and value to their employees. Singing societies, baseball clubs, orchestras, bands, theatrical societies, cadet corps, athletic clubs, literary societies, and other organizations are established and assisted." Thrift Plans — The larger stores encourage thrift and econ- omy among employees by means of savings and loan associa- tions, sick and death benefit associations, and even by build- ing and loan associations. The purpose of the savings and loan association is to encourage all members to lay aside a fixed sum of money every pay day, and, in cases of need, to make loans to individual shareholders at reasonable rates of interest. By this means the loan shark business, which has always obtained some patronage among retail salespeople, is materially reduced. Sick and Death Benefit Associations The sick and death l3enefit associations collect regular dues from their members during earning periods and then pay weekly benefits in case of sickness, and a stated amount to the deceased's family in case of death. The following tables indicate the amount of dues collected and benefits paid by typical benefit associations. The general rules governing membership follow each table. "Employers' Welfare Work, Bui. 123, U. S. Bureau of Labor Statistics (1913). Tolman, W. H., "Social Engineering," pages 48-61 (1909). THE WAGES OF SALESPEOPLE 155 EsPENHAiN Employees' Mutual Benei'it Association Sick Class Salary Dues per Benefits Death per Week Month per Week Benefits A $2-$4 IOC $2.00 $50.00 B 4-6 20 3.50 50.00 C 6-9 30 5.00 50.00 D 9 and up 40 8.00 50.00 Membership is voluntary and granted upon written application. An employee must have been a member of the association at least 30 days prior to his or her sickness in order to be entitled to benefits. Notice of sickness must be made in writing within three days. Notice must be accompanied by a physician's certificate. If illness continues for more than one week, physician's certificate must be for each week. Benefits are not paid for less than one week nor more than twelve weeks within a year. Any person feigning sickness or disability, in order to procure benefits, is expelled by the board of directors, and may not be reinstated. All late and error fines collected from all employees of the concern go into the benefit fund. Benefit funds are invested either in first mortgages, bonds, or with a reliable bank or trust company. The Wanamaker Mutual Insurance Association OF Philadelphia Sick Class Salary Dues per Benefits Death per Week Month per Week Benefits 1st Below $3 IOC $1.50 $50.00 2nd $3-$5 25 2.50 100.00 3rd 5-7 40 4.00 125.00 4th 7-10 50 5.00 150.00 5th 10 and up 60 6.00 200.00 156 ECONOMICS OF RETAILING Membership is compulsory. All regular employees of the firm shall be members and eligible to benefits. No member shall be eligible for benefits until after hav- ing been in actual service three full months. Benefits shall not be paid for a period exceeding thirteen weeks from date of illness. Notice must be sent to the secretary of the association within three days of the date of sickness. Only half benefits shall be paid for the first week of any illness. If dues do not cover the necessary benefits, special assess- ments may be made, and regular dues may be omitted if funds in the treasury are sufficient for current needs. The firm of John Wanamaker will be or shall appoint the treasurer. In the development of great movements of these kinds the progressive department stores of the country have always led. John Wanamaker in his Philadelphia and New York stores, Marshall Field in Chicago, and Wm. Filene Sons Company in Boston are well-known concerns that present the highest type of organization for the individual and .social bet- terment of employees, entirely aside from the regular work of the store. Such effort for the benefit of employees would be quite impossible for a small store. Fines.' — Coupled with the wage system there is in many stores a system of fines imposed upon salespeople and other employees for tardiness, errors in making out sales checks, for breakage, for mismatching goods, and so on. No part of the retail store system has caused so much ill-will among its employees as the application of fines in a careless way. In fact, it has seemed very difficult to assess fines in any way that did not create trouble sooner or later. It is generally reported that the system is on the wane.'' ' Report of the Massachusetts Commission on Minimum Wage Boards, pages 106-107. THE WAGES OF SALESPEOPLE 157 The Social and Economic Side of Low Wages- — The gen-' erally low wages prevailing in the retail business have attracted a great deal of attention not only from the standpoint of econ-J omists, social workers, and the publit at large, but also from thinking merchants. The wages of salespeople are admittedly low, but the supply of people ready to go to work in stores has nearly always been more than adequate. In consequence the wages have been pushed down to a point at which an adult finds difficulty in supporting himself or herself upon the average amount paid. The situation has been complicated by the fact that there have been no standards of efificiency, no special qualifications or skill required for entrance into the business, and by the employment of great numbers of very young people. Over two-thirds of all saleswomen investigated by the Massachusetts Minimum Wage Board Commission were under the age of 24 years. Women and Low Wages. — The employment of women has complicated the matter still more because of the fact that a very large proportion of them, three-fourths or more, ac- cording to the reports of all investigators, live at home or with relatives. A large number of these are not required to contribute to the support of their homes, and may, therefore, use their wages as "spending money." Some are even partly supported by other members of the family, while only com- paratively few help support others. The general aver- age youthfulness of female workers shows that they are drop- ping out of the occupation of retail salesmanship after a few years' work at the most. Work in the store serves merely to tide over the period from the time that they reach sufficient maturity to be gainfully employed to the time of marriage. These facts cause women, in particular, to accept work of this kind at lower than living rates, and thus cause wages for the whole class of retail salespeople to fall to their present low 158 ECONOMICS OF RETAILING levels. The general result is a big unsettled problem for the independent salesman or .saleswoman who is supporting him- self or herself and wishes to make a life-work of salesman- ship in retail stores. Unionization of Retail Store Employees In this connec- tion it may be well to note the activities in the direction of unionization of retail store employees. As far back as 1863, there was organized among women employed in stores and factories a society known as the "Working Women's Protec- tive Union" whose aim it was to raise the wages of working girls and women, but more particularly to aid members in collecting .sums due them from employers. During the early days of woman labor in stores and factories in this country, considerable fraud of this kind was practiced and many em- ployees were beaten out of their wages.^ There were regular unions among salespeople and for salespeople exclusively as early as 1882. At that time seven local unions were drawn into the big general organization known as the Knights of Labor. In 1890, these withdrew and were forthwith united with the American Federation of Labor. These pioneer early unions of salespeople were generally called "Early Closing Societies," their main object being named in the title. When joined with the American Federa- tion of Labor, the name, "Retail Clerks' National Protective Association," was adopted, which was later changed to "Re- tail Clerks' International Protective Association."® The objects' of the "Retail Clerks' International Protec- tive Association" as expressed in its preamble are, to improve the conditions of retail clerks, secure reasonable compensation, oppose long hours and Sunday labor, disseminate useful in- formation by means of lectures, pamphlets, and other litera- ' Hyslop, J. H., "Shop Girls and Their Wages.'' Andover RevieWj 16:455. ° Retail Clerk's Intci national Advocate^ September, 1906. THE WAGES OF SALESPEOPLE 159 ture, demand comfortable seats for lady clerks, and equal pay for equal work, oppose child labor and to provide a benefit fund for sick, aged, and indigent retail clerks. In 1906 the association had formulated its demands to the extent of requiring stores to employ only union employees, to observe a 9-hour working day and a 52-hour week, with pay at one and one-half times the regular rate for overtime, vary- ing in practice, however, to suit local conditions, and to settle by arbitration all disputes between employer and employee. This association has grown so that it now has locals in nearly every important city in the country. Since 189 1, it has published a monthly organ, the Retail Clerks' Interna- tional Advocate. It has employed the strike and boycott as a means of bringing employers to terms; but on the whole it has not been, and is not now, apparently, a very strong union. Outside Help. — Considerable outside support has always been lent to the organization of retail store employees for the purpose of bettering their condition. A great deal of work was done for salespeople before they were organized, and in lines where organization has not yet been effected, such a!5- sociations as the "Women'.s Educational and Industrial Union" of Boston, an organization of the same name in Buf- falo, and the "Protective Agency for Women and Children" in Chicago, have been of material assistance. Lately, the "Consumers' League" and the "Women's Trade Union League" have interested themselves a great deal in better conditions for store employees. These organizations have even gone so far as to assist materially in efforts to get the salespeople to organize into unions, and to encourage sales- women, particularly, to make demands for higher wages, shorter hours, seats back of the counters, and other improved working conditions. Unions among salespeople are well organized in other l6o ECONOMICS OF RETAILING countries. "The National Amalgamated Union of Shop As- sistants, Warehousemen, and Clerks," "The Amalgamated Union of Co-operative Employees," and the "Irish Drapers' Assistants' Benefit and Protective Association" are well-known British organizations numbering thousands of members. Sources of Minimum Wage Propaganda. — To meet the problem of low wages prevalent in retail stores the minimum wage principle has been proposed. The suggestion to adopt a minimum wage has come from three well-defined sources, viz. 1. From progressive, far-seeing store managers. Even before there were any laws passed or even sug- gested in this country there were several well- known stores which had voluntarily adopted mini- mum wage levels. 2. From retail store employees, clerks' unions, and so on. 3. From social workers, economists, and legislators seek- ing general public legislation setting minimum wage levels. There is far from uniformity of opinion among any of these classes favoring the minimum wage principle. Many retail stores and retailers' associations are opposed. A large body of retail .salespeople are undoubtedly opposed or at least indifferent to the establishment of the minimum wage. Trade unions, including the American Federation of Labor, are luke- warm about it. Even economists and social workers differ widely on the subject. In spite of the diversity of views there has been considerable progress toward the minimum wage, particularly by legislation, since 1912. Minimum Wage Legislation — The minimum wage by legislation originated in New Zealand and Australia. The first act of the kind was passed in New Zealand in 1894. THE WAGES OF SALESPEOPLE i6i Victoria, Australia, came second in 1896. England passed a comprehensive minimum wage act in 1909. There followed a period of increasing interest in this coun- try during which a number of commissions were appointed to study the minimum wage. Massachusetts in 1912 passed the first minimum wage law, and was followed in 19 13 by eight other States. During the next two years more states enacted similar laws, but during the war there was a slacken- ing of interest. One state, Arizona, passed a law in 191 7, and the District of Columbia act was passed in 1918. These state laws were contested in courts in several cases. In a few cases lower courts declared the minimum wage laws unconstitutional but the state supreme courts in every case have declared them legal. In one case, carried from the State Supreme Court of Oregon to the United States Supreme Court at Washington, the decision of the Oregon Supreme Court was reaffirmed favoring the minimum wage law. The legal- ity of the minimum wage has apparently been firmly fixed. Operation of Minimum Wage Laws. — The laws so far passed follow two general methods in arriving at the mini- mum wage levels. In some cases, as in Utah, the rate is definitely fixed and named in the law itself. In other cases the fixing of the rates and the administration of the act is left to commissions and wage boards with instructions to fix the minimum wage at points that will give the employees sufficient to cover the costs of the essentials of living. The second method, while much more certain to be right, involves careful investigation by Wage boards into standards and costs of living governing any business affected. Such studies have been made for several states. Since the first of these was made in 1914 it is interesting to note that the mini- mum wage fixed at that time, of $8.71 per week, by a Massa- chusetts wage board has moved upward during the period l62 ECONOMICS OF RETAILING of the war as fixed by other wage boards to $15.50 in Wash- ington, D. C, in 1918, with a wage of $12.50 fixed by a state board at about the same time. The Argument for a Minimum Wage. — In this country, up to the present, minimum wage laws have been proposed only for women and children. It has been felt that circumstances are against the woman and child employee, and that, when left to natural market operations, they are not able to get wages high enough to support themselves. The arguments usually cited for a legal minimum wage are as follows : 1. If wages are lower than the cost of living, society must make up the difference in some way to the individual — hence why not directly through the wage? 2. Less than a living wage causes deterioration of the individual, and therefore of society. Poorly fed, poorly clothed, and poorly housed individuals make poor citizens. 3. A better wage means greater efficiency and, to a cer- tain extent, at least, a better and bigger product. 4. The strain of living from hand to mouth is removed from the wage-earner, and he or she becomes more con- tented, more happy, and, therefore, more efficient. 5. A minimum wage eliminates cut- throat competition among business competitors. It gives to each more equal opportunity since each must pay the same minimum wages. 6. Parasitism will be eliminated. It is claimed by some that retailing does not bear its own burden of expense, that it must have cheap labor in order that goods may be sold to the consumers as cheaply as at present. Raising the wages will, therefore, raise prices. Retailing will not then be in a position of drawing help, in the form of underpaid labor, that must be supported by other classes of society. 7. Finally, women and children, it is claimed, are not able to bargain on equal terms with their employers for a THE WAGES OF SALESPEOPLE 163 living wage, and, consequently, employers sometimes take advantage of their weakness and pay them less than their services would bring if properly marketed. Merchants who favor a minimum wage go further and point out that, as a matter of expediency, no merchant try- ing to do a legitimate retail business should oppose it. The tendency of the public thought at the present time .seems to be towards a minimum wage. To oppose this thought is to antagonize the public upon whose support the retail store de- pends directly for existence. Merchants favoring the plan also hold that the increase in wages will result in a selection of employees with better care, and that the unemployment of the younger and inexperienced classes will force the public to establish systems of education to fit them for the minimum wage. In the long run it is felt that any increases made neces- sary in retail expenses because of higher wages can and will be shifted to the consumer. The Argument Against a Minimum Wage. — The argu- ments commonly used against the minimum wage are as follows : 1. The inefficient will not be hired at all if a wage higher than they can earn must be paid. Thus many people will be deprived of earning anything, or contributing anything to the support of their families. 2. The inducement to do better work and to enter higher classes of employment will be lessened. It is felt that em- ployees will simply lean back on the minimum wage and wait for the state to boost that payment rather than work individ- ually for better things. 3. Stores depending for business drawn from near the boundary lines of states and located in a state where a mini- mum wage law is put into force will be hurt if minimum wage laws are not also put into effect in the near-by states. In 164 ECONOMICS OF RETAILING other words, stores so located will lose business to stores across the line in other states. 4. The minimum wage will tend to become a maximum. 5. "If the state fixes a minimum wage, it is logically bound to furnish employment at that wage." There seems to be no question that as long as there are plenty of prospective salespeople to select from, the more in- efficient will lose their positions under a minimum wage law, if their present wages are not equal to the minimum proposed. But a reasonable administration of a minimum wage law — a law that permits reasonable exceptions, under carefully worked out restrictions — will provide special classifications for such emplo\ees. One of the results that seems certain is that the public will then have its attention called to the neces- sity of adopting some form of specific education for the work of retail selling. This would, in the long run, be a most de- sirable thing, not only for the salespeople themselves, but also for the retailers and the public. A Summary of the Minimum Wage Arguments. — That a minimum wage will reduce initiative and ambition and that the minimum will tend to become the maximum are argu- ments ■ that have been used against all minimums of wages set by trade unions for years. These arguments have never been clearly proved for any trade, and in a business like selling where personality counts for so much, and where the means for measuring efficiency are so easy, it will be much harder to prove it than for most other lines of work. It does not appear clear that the state must furnish em- ployment if it sets a minimum wage, any more than that it should engage in making pure food or drugs simply because it passes a pure food and drug act, or that it must run steam engines simply because it fixes certain requirements for their operation. The view represented by this argument against THE WAGES OF SALESPEOPLE 165 the minimum wage results from confusing the function of the state as a regulative body, and from not distinguishing the necessity for rules in the conduct of business — as well as in any other social activity — from a participation in business it- self. The state exists for the purpose of protecting the rights of all, and in the performance of this function it must make rules and enforce them. Some rules may be made unwisely, some regulation may be unjust or unnecessary, but such errors do not constitute an argument against the principle of regula- tion. In conclusion, the standards for both the wages and effi- ciency of retail salespeople .seem to be tending upwards. Both are too low at the present time, but even under the present wage standards, based on the usual percentages on sales for salaries, the more efficient are able to make fairly good wages. Practical Education for Salespeople. — This suggests the possibilities of a practical education for salespeople — taking young people who have been sufficiently prepared in the regu- lar courses of the schools, and giving them a training directly for the retail business. No good reason has been presented why this sort of training should not be given through the pub- lic school system, even as training is given in agriculture, domestic science, and the many mechanical trades that have been introduced. It is to be presumed that such educational work will be established in the public school systems, and it promises to be the next great step, both in the field of voca- tional education, and in the development of more efficient re- tailing. The new ability that such educational work would give to salespeople would make them earners of higher wages at present rates, but it is entirely likely that with the increased understanding of their business and its functions involved in such an education, the army of workers in the retail field would gradually force a somewhat higher wage standard. l66 ECONOMICS OF RETAILING whether minimum wage standards were adopted by law or not. In any business there .should be no question as to whether or not it supports itself and pays its own expenses. With an educated sales force performing well its work for the public, and fully realizing the responsibility and importance to the public of this work, the retail business will be able to take its place among the most honored and best paid professions. Bibliography Butler, E. B. Saleswomen in Mercantile Stores. Baltimore, 1909. Clark, J. B. Minimum Wage. Atlantic Monthly, 112 :289-97. Dry Goods Economist, New York, published a number of articles bearing on the minimum wage during 1913 and 1914. Both sides of the question are presented from the standpoint of retailers. The April 3, 1915 number contained a valuable summary, "Salary and Bonus Systems for Salespeople." Fourth Report of N. Y. State Factory Investigating Commission, 1915. Vol. I. A very excellent survey of views on minimum wage. Kelley, Florence. Minimum Wage Boards. Proceedings of the National Conference of Charities and Corrections, Cleveland. 1912. MacLean, Annie M. Two Weeks in Department Stores. America;: Journal of Sociology, 4 1721. Millis, H. A. Some Aspects of the Minimum Wage. Journal of Political Economy, 22 :i32-59. Minimum Wage Legislation in the U. S. and Foreign Countries. U. S. Bureau of Labor Statistics, Bulletin No. 167. Neighborhood Department Stores in Chicago. U. S. Bureau of Labor, Bulletin No. 91. Perils of the Minimum Wage, Century, 84 :3ii-3. Pigou, A. C. Principle of the Minimum Wage, igth Century, 73 : 644-58. Report of the National Civic Federation on Conditions in Department Stores, 1913. Published in the Federation Review. Reviewed by Nation, July 31, 1913. Ryan, J. Living Wage. Survey, 27 :i623-4. THE WAGES OF SALESPEOPLE 167 Van Kleeck, M. Working Conditions in New York Department Stores. Survey, 31 :5o-Si. Criticism of the report of the Na- tional Civic Federation. Wage-Earning Women in Stores and Factories. Vol. V. In Re- port of Conditions of Woman and Child Wage-Earners in the United States, 1910. 6ist Congress, 2d Session, Document No. 645- Wages of Women in Retail Stores. In Report of the Massachusetts Commission on Minimum Wage Boards, 1912, pages 88-142. Webb, S. Economic Theory of a Legal Minimum Wage. Journal of Political Economy, 20 :973-98. CHAPTER XI LOCATION AND RENT IN THE RETAIL BUSINESS Principles of Rent Applicable to Retail Store Locations A Good Location Necessary to Successfvil Selling. — Some unknown person has said, "If a man makes even a mouse trap better than anyone else, though he build his hut in the woods, the world will make a beaten track to his door." Although widely quoted and having the ring of wisdom, as a maxim of practice the saying has no value. There is now scarcely an article of commerce so necessary, or so fine in quality, as to tempt the masses of buyers a single step from the regular channels of trade without a good deal of coaxing. The maker of the "better mouse trap" would find it much more to his profit to "build his hut" by the traveled wayside and supple- ment the advantages of his location with an attractive window display. In no branch of business is location more important than in retailing. The oldest books on trade, as well as the most recent literature, emphasize this point. Shopkeepers and traders have always congregated in certain locations in popu- lous communities. Where legal ordinances have not inter- fered, it is likely that these locations have always been the points at which the greatest possible amount of retail business could be transacted. Every merchant of experience knows something of the comparative value of retail sites. The buyer of a store considers the value of the location first of all. The credit manager of the wholesale house inquires concerning i68 LOCATION AND RENT 169 the location of the store whose owner seeks his department's O. K. Failure statistics show that many bankruptcies are due directly to poor location. If figures could be given show- ing the number of cases in which a bad location was a con- tributing cause to failure, there is no doubt but that they would run extremely high. Any study of retailing must take loca- tion into consideration. Rent Defined and Classified. — Rent is the payment that the retailer makes for his location and for the use of the buildings and improvements there may be thereon. It matters not if he owns his store and the land that it is built upon, for in this case much of the rent that he would otherwise pay is paid out in taxes and other expenses. Rent, as the term is generally used, is made up of two parts — building rent and ground rent. Building rent com- monly covers a number of items such as up-keep or deprecia- tion charges, taxes on the building and improvements, insur- ance, and real estate brokers' or rental agencies' commission.s, together with any other charges paid by the landlord for the tenant, such as janitor's services, water, light, heat, power, and elevator service. What remains of the building rent after these charges have been paid is generally looked upon as the interest or return upon the money invested in putting up the building and making the improvements. Rarely is it more than the average interest rate on funds offered in the open markets. Ground rent is the payment made by a retailer for the space his store stands on. But the value of this space de- pends almost entirely upon its location. Hence it is virtually true that ground rent is the retailer's payment for location. Distinction between Building and Ground Rent. — The distinction between building rent and ground rent is recog- nized by many business men in their accounts and records. In I70 ECONOMICS OF RETAILING England it has long been customary, especially in the larger cities, for landlords to lease unimproved city lands for long periods to merchants and others who put up their own build- ings, but who pay rent for the use of the land. This custom seems to be on the increase in the larger cities of this country. In these cases the distinction is kept clear in practice. Some states and municipalities require separate assessment of land and improvements for purposes of taxation. Tax reformers of the Henry George type accept this division as fundamental. Courts frequently cause land and improvements to be valued separately in condemnation proceedings. Clear thinking demands that the same distinction be made in any discussion of retail rents. It is unfortunate, however, that nearly all statistics that are available, such as figures drawn from retailers' accounts on the costs of doing business, lump building rent and ground rent together. What part should be assigned to each is impossible to tell. There is a rule among some real estate men that may serve as a guide to a rough approximation. This rule is that the amount invested in buildings and other improvements for retail purposes should be about equal to the value of the ground.^ Since the ground value is normally the capitalized value of the rental, the re- turns to the ground and the improvements, at least while the latter are new, will be about equal. For example, if the net rental of a certain retail store amounts to 2 per cent of the sales, one may roughly estimate that i per cent goes to the buildings and improvements and the other i per cent to the ground. This rule is only an approximation and plenty of exceptions may be found. It is representative of the average rather than the actual in any particular case. Amount of Rent Paid. — The amount of rent paid for the location depends upon its comparative desirabiHty. In a town * Hurd, "Principles of City Land Values.'' LOCATION AND RENT 171 where all locations are equally good for retail .store purposes, and where there are more locations offered than can be used, the rent for any one location will naturally be low, probably not more than would be paid for similar property used for residence purposes. Such a condition is rarely the case, how- ever, except in small country villages having no special fea^ tures causing a concentration of the retail business at any given point. Where there exists a considerable difference in de- sirability, and where there is competition for the more de- sirable locations, the rents will tend to vary with the desir- abihty. The more desirable the location is, the higher its rent will be. In other words, ground rent, in the retail busi- ness, is paid for comoarative advantages in location. An Illustration. — To illustrate, let us assume that a mer- chant has under consideration two locations, one in which he can make sales amounting to $24,000 a year, and the other in which he can make sales amounting to $30,000 a year on the same capital investment. Eliminating all other possible differences between the two locations, let us assume that the sales in both cases will yield a gross profit or margin of 33-1/3 per cent and that the expenses in each case, excepting the rent item, amount to 23 per cent of the sales. The net margin to cover rent and net profits would thus be 10- 1/3 per cent in each case, or $2,480 for the first location and $3,100 for the second. If both locations could be procured at the same rent, say $40 a month, or $480 a year, the difference in favor of the second location becomes evident, amounting to $620. But the owner of the second location, if he knows the value of his property, will want more than $480 per year. He may say to the merchant, "My location will bring you an increase of $6,000, or 25 per cent more business than the other one. I must, therefore, have 25 per cent more rent for my location. Instead of $480, I must have $600 per year." 172 ECONOMICS OF RETAILING Reducing these figures to percentages of the sales in each case, it will be seen that $480 is 2 per cent of the sales at the first location, and that $600 is 2 per cent of the sales at the second location. In other words, in raising the rent of the second lo- cation from $480 to $600 per year, the landlord is only keep- ing his rent in the same proportion to .sales as exists for the first location. It is practically certain that under the circum- stances the landlord would be able to get at least this amount of rent. But the merchant tenant will still find the second location more desirable than the first. The gross margin in each case, it will be recalled, is 33 1/3 per cent and the expenses of doing business amount to 23 per cent plus 2 per cent for rent, or 25 per cent of sales. This leaves a margin of 8 1/3 per cent net profit in each case. Now 8 1/3 per cent of $30,000, or $2,- 500, is $500 more than 8 1/3 per cent of $24,000, or $2,000. Thus $500 is the measure of desirability in favor of the second location. In the bargaining process between the merchant and his landlord, especially if there are other merchants competing for the same location, the $500 surplus just indicated will be an object of serious interest. Some one of the merchants is likely to offer more than $600 a year for the location, thus virtually offering to divide this $500 surplus profit with the landlord. In the competitive bidding that we are assuming to follow, the landlord finally closes with the merchant who offers to give him the greatest portion of it. Under most circumstances, the landlord will not be able to get all of it, although that outcome is not impossible. As the rent is fixed at a higher and higher figure, the interest of the merchants begins to wane, certainly while locations of the first kind yielding net profits of $2,000 per year are available. It is the surplus above $2,000 that attracts their bidding. If no surplus is possible, the merchants will stick to the other LOCATION AND RENT 173 locations. The landlord may possibly get $300 surplus, thus leaving $200 for the tenant. In this case the total rent would be $900 a year, 3 per cent of the sales. Thus on passing from poorer to better retail locations the proportion of rent to sales tends to increase. Managerial Ability, a Factor in Higher Prices. — There is another reason why rents tend to be higher for the better locations, not only absolutely, but also relatively to sale. The competition among the retail .store managers of a town is generally very keen, and the best locations, as noted above, naturally go to the highest bidders. While mistakes often re- sult from such competitive bidding and store managers some- times find themselves unable to pay the high rents agreed upon and succeed, still, in the long run, the highest bidder is Hkely to be the one who can make the most out of the property. There are probably as great differences in the managerial ability of merchants as there are differences in desirability of locations. The most efficient manager is the one who can make a location yield the greatest amount of profit. Hence the most efficient manager, other things being equal, is the one who is able to bid the most for the location. In thus bidding against each other for good locations, store managers are likely to give to the landlord a share of the total profit which might properly be attributed to the superior efficiency of the manager. Take the case of the second location referred to in the illus- tration used. It was assumed that the merchant could make a gross profit of 33 1/3 per cent and a net profit of 8 1/3 per cent on his sales. Now, let a more efficient manager appear, one able to cut the selling expense from 25 per cent to 20 per cent of sales, or one able to buy the same goods at from 5 to 10 per cent lower prices, or one able to increase the amount of the sales, and it becomes evident, other things remaining the 174 ECONOMICS OF RETAILING same, that such a manager will be able to clear more than 81/3 per cent profit on his sales. Now, if the number of locations where such efficiency can be exercised is limited, and if two or more store managers of unusual ability should be found in competition for the same location, it is almost certain that the landlord will be able to get as rent more than 2 per cent of the sales, the amount received by the owner of the poorer location. Competition — An Illustration. — Suppose three merchants. Smith, Brown, and Jones, to be in competition for the place. Let us assume that Smith is a manager of good average ability and that, therefore, he is able to clear $2,500 annually on the location, when the rent is $600 per year. Brown is a more skilful manager and is able to make $2,800 annually after pay- ing the rent. Jones, let us say, is the most efficient of the three. He is able to make $3,000 a year in the desired loca- tion. Smith feels that he cannot afford to pay more than $600 per year for rent, and makes that as his bid for the place. Both Brown and Jones are willing to pay more if necessary. Since all three desire the place, the bids of Brown and Jones soon pass the $600 mark and Smith drops out. Brown con- tinues his bidding up to $900 a year for the place. At this point he finds that it will be unprofitable for him to go further, that other locations of¥er equal opportunities for him. Jones, the most efficient of the three, makes his bid just a trifle higher, say $901, and then Brown drops out. The outcome is that the landlord receives $301 more rent than he would have received if none other than merchants of average ability, such as Smith, had offered to take the place. Through Jones' superior talents as a store manager the location is made to yield $500 more than Smith or any other average merchant could have obtained from it. Because of the competition of other efficient men like Brown, the landlord is able to collect $301 out of that $500, leaving $199 to Jones. LOCATION AND RENT 175 to deprive the most efficient men of at least a part of the special prodtict of their efficiency, and that this product is absorbed in the rent for location. To this the land-owning class would reply that the additional product is as much the result of the good location as of the superior man, and that the superior man would never have been able to demonstrate his special talents were it not for the superior location. As to the merits of this controversy, nothing further need be said, except to point out that product is everywhere the result of the economic combination of three things, land, labor, and capital, and that since all three are absolutely essential, it is a most difficult, if not impossible, task to assign any exact measure to the contributions of each, or to estimate definitely the exact product specifically attributable to each. Plan of Economists. — The method proposed by most econ- omists in their analyses of production, and followed largely in business practice, in determining the share of each factor, is to take for consideration a going concern using fairly well proportioned amounts of labor, capital, and land. The total product of the concern is first determined for a definite period of time. Next, a unit of one or another of the factors is added to the concern, say another average laborer, another $100 in capital in the form of fixtures, or in stock, or in any other form, or a few more feet of land if thit be possible. Presumably there will be an increase in the total product of the concern. This increase is credited to the new unit added, and is said to be the product attributable to that unit. It is assumed that this unit of land, labor, or capital is like any other unit of land, labor, or capital already used by the con- cern, since it may be exchanged for, or put in the place of, any other unit. Hence the product of any unit of capital already used by the concern is assumed reasonably to be the same as that of the unit of capital last added, or the product 176 ECONOMICS OF RETAILING same as that of the unit of capital last added, or the product of any laborer already employed is assumed to be the same as that of the laborer last added. Multiplying the number of units of any factor by the product thus found for one unit, the result is taken as that part of the whole product caused by that factor. Thus the product of all the labor employed is equal to the product of any one man employed multiplied by the number of laborers. In the same way the nroducts for capital and land are found. Faults of Economists' Theory. — The only trouble with this theory is that the sum of the products thus found is not at all likely to be equal to the total product of the going concern. In the case of all successful concerns, the total product will be greater than the sum of the products of the three factors. How this surplus is treated we shall soon see. In the division of the product, or the proceeds of the product, each factor tends to get as its remuneration the part or share determined as above. For example, the market rate of labor tends to equal the value of that amount of product which one Jaborer can add to the total product of the concern. The interest rate for capital tends to equal the value of that amount of product which one unit of capital, say $100, can add if put to use in the concern. It is a little harder to illus- trate the principle with land, as used for retail purposes, al- though the principle is just as effective. We may .say, the- oretically, that the rent per front foot tends to equal the value of that amount of product which one unit of land, say one front foot a hundred feet deep, can add if put to use. This method of determining the productivity of each factor has practical advantages for the manager of the business. By such measurements the manager can tell whether his pay-roll is high or low, whether his outgo for interest is high or low, and whether his rent is proportional to market rates or not. LOCATION AND RENT 177 Rents Not Controlled by Average Business man. — In ac- tual practice, the average business man has but little to say about what the market rates for wages, interest, and rents shall be, but taking the market rates as they are, the business man combines land, labor, and capital in such proportions as will yield him the greatest return. If the market rate for land is high, it may pay him to invest in building an upper story. If land is low, he may expend capital in building his store over more ground space. If labor is high, he may employ less of it in the store, by installing automatic machines of various kinds, open display fixtures, arrangements whereby goods sell themselves, and so on. If capital or money is rela- tively high in interest, he may economize in fixtures and equip- ment, and use more labor instead. Thus the business man takes on more labor, or more capital, or more land as long as he can make something over the amount that he must pay out for its use. He will stop adding units of any factor as soon as the product no more than equals the outlay. The surplus that remains after wages, interest, and rent have been paid, is considered the profit of the concern. By some economists it is further classified as the wages or the profits of good management, and pure or chance profit. Increase in Cost of Doing Business. — So far, we have com- pared locations of different degrees of desirability. It is evident that a location may change in desirability with the passing of time; hence we may compare the relation of the rent to the earning power of the same location at different times. One of the mo.st common explanations for the rise in the costs of doing a retail business during the last fifteen years is that rents have gone up. In support of this view one writer'^ gives figures from a small department store in a town of about 2 Wheeler Sammons, "Keeping Ahead of Rising Costs," System, December tj, 1914. 178 ECONOMICS OF RETAILING 25,000 population which show that rent equalled 1.9 per cent of the sales in 1883, and 3.2 per cent of .sales in 1913. An- other writer^ states that the average rental for shoe stores has gone up from 1.86 per cent of sales to 2.6 per cent in the last fifteen years. Another report indicates that retail rents in Massachusetts were from 30 to 40 per cent higher in 19 10 than they were in 1897; and that wholesale store rents had gone up from 10 per cent to 15 per cent of sales in the same time.'' Similar observations were made by the U. S. Bureau of labor.'' Note that these increases are not proportional to sales, that is, rents have increased faster than sales. Reasons for High Rents. — Two sets of causes are already discernible, both of which must be taken into account in ex- plaining these increases in rents. In the first place, part of the increase is due, not to increase in ground value, but to building costs. Cost of building construction is much higher now than it was even a few years ago. Such increases in costs must be met in the investment and must be covered by a higher return. Better store buildings, fixtures, fronts, win- dows, and so on, are required today than ever before. But these improvements have meant additional outlays that must be compensated for by the merchant-tenant who uses the store. The items, interest, and up-keep on a higher investment due tn higher building costs, and interest and upkeep on a more expensive equipment, certainly account for a large part of the increase in total rent noted by business men everywhere. Rise of Ground Rents. — Another explanation for the in- crease in retail rents during the last fifteen years is that the 'Flint Garrison, in the Drygoodsman, November i6, 1912, ' Report of the Mass. Cost of Living Ciimm., pages 138-g. ■"'Bulletin of the U. S. Lab. Statistics, Nu. 130, page 63. LOCATION AND RENT 1/9 ground rents have been rising. In the period previous to this, many towns came into existence in this country and small towns have grown into large towns. In general, a large part of the country, in this period of time, emerged from frontier conditions. Locations that were comparatively new have be- come old. But a retail location used continuously, especially if managed in a way satisfactory ta the public, naturally draw s an increasing trade. As the trade increases, the location is said to improve. This improvement may be due to the ac- tive business methods of the store manager, but whatever of such "good-will" remains permanently inheres in the location and not in the manager.. There is an old law among dealers' that "steady improvements in a retail business follow the stand and not the man." A merchant may sell out and move across the street, but many of his customers will continue to trade at the old location if the service remains the same. Thus, as the cultivation of the trade at a given location proceeds, the value of the location is enhanced. As the trade at any location increases, the possibility of making a larger profit increases, and the best locations in a town are nearly always those that have been cultivated by a good business manager for some time. As the desirability of a location increases, the competition for it grows keener, with the result that the rent that will be offered and paid to the land- lord will not only increase as the sales increase, but will tend to do so somewhat faster. Thus the same forces which op- erate to fix relative rents over poorer and better locations, at the same time operate to fix relative rents for the same location as it grows better with time. Counterbalancing Forces. — To a certain extent, the in- creases in rent due to some locations becoming more desirable are counterbalanced by the decreases due to other locations becoming less desirable. It is doubtful if in this country the l8o ECONOMICS OF RETAILING counterbalancing effect equals the tendency to increase. Population has been increasing rapidly, earning power per capita has gone up and the amount of retail business has been on the up grade for several years. Statistics are not available to show clearly whether the number of stores in the country has kept at even proportion to population and to consumption of goods during this time or not. But census figures do show great increases in urban population, particularly in the larger centers, and also that great numbers of small towns and vil- lages are losing ground. Now, it is in the larger cities that the climbing tendencies of retail rents are most evident, and the increases in population that have taken place in such places may reasonably be taken as a cause of the active operation of the rent tendencies above noted. The retrograde movement in the small towns would make but little difference in the general rent tendencies as expressed in percentages of sales, for in such towns the rent percentages have always been and are now low. Percentage of Rent to Sales. — That the percentage of rent to sales increases as the location improves is the testimony of many people. The following quotations will serve to present the typical view : "The question of taking a lease of such premises will be a most important one. If the premises are in a growing neigh- borhood, and a shop is taken with no lease, or merely an agree- ment for two or three years, the tenant will be at the mercy of his landlord at the expiration of that time." "Should the business increase and become a success, the " landlord will most likely require a substantial increase in the rental."" The retailer must also reckon with "a rental that has a " Richard Beynon, "Drapery and Drapers' Accounts,'' pages 160-161. LOCATION AND RENT l8i yearly probability of increase as he builds up a trade. His landlord is a ready partner in his profits." "I am impressed by the fact that the popularity of the cry for leasehold reform is greatly due to the general convic- tion that the shopkeepers and small tradesfolk are systema- tically despoiled by the landlord whenever a lease falls in. The freeholder or a long-lessee lets a foothold in the busi- ness life of London to an industrious and enterprising trader — a butcher, a photographer, a grocer, a printer, a draper, -what, you will. The working occupier gets a lease for a few years, puts in what needful capital he can raise, spends freely his own time and brains and makes a business, but that business is often wholly and always partially annexed to the spot where it is made. There are not a dozen bakers in London who would not pay a heavy fine rather than move a mile. There- fore, you have him in a trap. Some security you must ofifer him, or he will not put his money down, but the competition is keen and he will take a wonderfully short tenure. That done, you watch his business with affectionate interest, for you will skim the cream off by and. by. Knowing that he cannot leave without a loss, of say, i,ooo pounds, you will fine him 900 pounds for your leave to stay. You first charge him for dilapidation, so called, then you lay on a rent, probably be- yond what another man would give you; then you ask a fine, in cash, or in the form of building improvements, remember- ing all the while that amazing axiom of the law, that whatever of his property he affixes to the soil forthwith belongs to you."« "By the leasehold system the landlord is not content with taking the house that he did not build ; he also takes the good- will of the trade attached to the house, and, on renewing a lease, extorts a heavy payment for allowing the tenant to con- SulUvan, "Markets for the People," page 45. ' B. F. C. Costelloe, a member of the London County Council, quoted in Dawson's "Unearned Increment," page 40. l82 ECONOMICS OF RETAILING tinue to enjoy his own business which he has brought to the house, under the hard penaUy of being turned out of the house altogether. ... It is also cant to talk about freedom of contracts, for the tenant would be ruined if he did not submit to his landlord's terms."® Relative Increase of Rents. — That rents in the retail busi- ness do actually show a tendency to increase, not only abso- lutely but relatively as well, on passing from poorer to better locations, or for the same location as it becomes more desir- able over a period of time, seems to be borne out by such figures as are available on the subject. It is unsafe to form any hard and fast generalization, however, for the reason that so few figures are to be had. Later statistics may show other and different tendencies at work more powerful than those that have been indicated above. One writer states that the average rent for most small stores is about 2^ per cent of sales, but that in large city stores it reaches 10 per cent.^" Elsewhere the statement is made that rents average 2 per cent in country stores, 4 per cent in small city stores, and from 4 per cent to 7 per cent for department stores. ^^ In reply to an inquiry upon this point directed to C. C. Parlin,^" who has made an extensive study of the costs of doing business in retail stores in all of the principal cities of the country, he stated that he found the tendency indicated above to be generally true. Coming at the same idea in another way, the Harvard Bureau of Business Research states : "On rather limited data, so that it must be stated tenta- tively, it yet begins to appear as if the rent item fell off markedly in importance in towns of less than 100,000 popu- ' Dawson, "Unearned Increment," page 52, ^"System, March, igri. ■; "How to Run a Store at a Profit." A, W. Sliaw Co. '-Manager Coni'l Research Division. Curtis Pub. Co. LOCATION AND RENT 183 lation." Elsewhere this report indicates a range in rent "from 1.8 per cent to 14.6 per cent of the net sales of going con- cerns."" Figures collected by the writer in person from a hundred stores in towns of various sizes in the Middle West indicate no exceptions to the general tendency. For example, a neighborhood grocery store in a Wisconsin city of 30,000 population pays ij< per cent of its sales for rent, while one of the largest and most prosperous grocery stores in the down town section pays 2 per cent for rent. A drygoods store a few doors off from the main street of a town of 25,000 population pays 2.3 per cent for rent, while a principal dr}-^- goods store in the town pays 3 per cent. A shoe store in a neighborhood shopping district in one of the large cities of the country pays 2 per cent for rent, while one of the best located shoe stores in the same city pays 6 per cent. Relative Increase from Towns to Cities. — On passing from the best locations in small towns to the best locations in larger cities, the same rule seems to hold. The share of the landlord tends to increase faster than the sales. The payment for rent for a good dry-goods store in a town of 18,000 is 2 per cent; for the best located store in a city of 25,000 it is 3 per cent; for a well located dry-goods store in a city of 300,000 it is 21/^2 per cent ; and in a city of over a million it is 43^ per cent of saicrf. A small country town shoe store pays 2 per cent for rent; in a town of 25,000 population, one of the best shoe stores pays 3 per cent; and in a metropolitan center the rent is 6 per cent. These are typical of the figures at hand, and, if not conclusive, are at least suggestive. Characteristics of Retail Store Rents. — In conclusion, rents "Bulletin No. i, Preliminary Figures on the Retailing of Shoes, May, 1913, page II. 184 ECONOMICS OF RETAILING in the retail business seem to present the following char- acteristics : 1. The amount of rent paid by a store manager for a retail store depends primarily upon the compara- tive desirability of the location. Desirability of location means possibility of making profits. The more desirable the location, the higher will be the rent. 2. The rent tends to increase not only absolutely but relatively to profits on passing from poorer to better locations. 3. The rent tends to increase not only absolutely but relatively to profits on passing from the best lo- cations in smaller towns to the best locations in larger towns. 4. The rent tends to increase not only absolutely but relatively to profits as the desirability of a location increases over a period of time. 5. In the long run the most efficient store managers tend to get possession of the best store locations. Such questions might very properly arise at this point, as, how high can retail rents go; are there any checks pre- venting the complete operation of these principles of rent; and can retail rents absorb all pure profits ? How High Can Rents Go? — In considering how high re- tail rents can go, one must constantly bear in mind that there is competition of landlords as well as of store managers. The rent for the best location in any town can go no higher than the point which equalizes the remaining product in the form of profits from that location with the product which may be earned in the next best locations. Rent can absorb a great part of the profits made by retailers of average efficiency, but LOCATION AND RENT 185 never all of the profits made by the most efficient. The most efficient man will leave the best location for the next best the moment the landlord raises the rent above the point that leaves the store manager no surplus profit. But as no other man- ager can pay as much rent, the landlord will soon call him back again. Thus, while rents tend to crowd profits, they can probably never absorb all. One might assume that long ownership of a single loca- tion well managed would finally lead to getting the highest rents. The history of retail districts in cities shows, how- ever, that the point of best locations is never really stationary, and that in the course of a generation it is likely to be several blocks from the original place. Though merchants may build up trade and good-will for a period of years, items of value that are in turn to a certain extent absorbed in the landlord's rent, general currents in retail trade beyond the control of any merchant, finally come and sweep away all these advantages. In scarcely a city in the country does the center of the retail district occupy the same place today that it occupied fifty years ago. Though taking more years to accomplish the changes, the same thing seems to be going on in the older cities of Europe as well. Retail locations have their periods of rise and decline in desirability just as empires have their rise and decline in power. Every change of this kind brings new opportunities to new groups of people in the business field. Checks to Operation of Rent Tendencies. — There are sev- eral checks to the complete and perfect operation of the ten- dencies of rent that have been enumerated: I. For one thing, retail profits are hardly ever so certain as have been assumed in the illustrations used in this chapter. Some allowance must always be made for the element of chance that stands out large in the retail business. The profits l86 ECONOMICS OF RETAILING assumed in the illustrations might materialize one year, and the next year might be represented by a minus quantity, or deficit. Both the store manager and the owner of store prop- erty must constantly make estimates of the possible business and profits, but, in practice, these estimates are always subject to qualification. Hence the merchant offers less rent, and the landlord may take less rent, for a time, than would otherwise be necessary or probable if the business were of more stable nature. 2. Another check to the freer operation of these tenden- cies is the ignorance of the landlord in many cases regarding what his tenant, the merchant, is really accomplishing with the location. The latter conceals his profits and pleads for the lowest possible terms. In the absence of keen competition he is in many cases able to keep his rent down to a low percentage of sales, simply because the landlord does not know how much the location is worth to him. 3. Then there are customary rents beyond which land- lords find it hard to push the retailers. In some towns $100 per month is the highest customary rent, though on strict econ- omic principles, some locations might pay $110, $125, or even more. The retailers of a town sometimes combine, or come to an understanding, not to pay more than a certain rent. Checks on retail rents suc^ as customs and combinations of these kinds are characteristic of the easy-going little country town rather than the brisk, rapidly growing city. In the latter environment custom counts for nothing and combinations are usually easily broken up. 4. The long-time leasing system also acts as a check on the operation of the laws of rent. It prevents the ready ad- justment of rent to the actual, present desirability of the location. Under the long-term lease, sometimes one party gets the benefit and sometimes the other, depending largely upon whether retail trade currents are coming towards or pass- LOCATION AND RENT 187 ing away from the location at the time of the making of the lease and thereafter. 5. Bargaining is not always carried to the extreme auc- tioning method indicated. In many cases a merchant makes as good an ofifer as he can, once and for all, and the landlord takes him at his word, and accepts or rejects as the case may be. Thus errors in market judgment are sometimes made. The rent is sometimes placed higher than it need be. Actual lessors are not always available at the times that leases expire, hence good locations sometimes go begging as it were, because of lack of good merchants in the market seeking for locations. Many such checks act to prevent the rent tendencies from operating freely. In some cases the checks may be more powerful than the tendencies. The most that can be said until further statistics upon the subject have been gathered is that the resultant of the opposing forces seems to be some- what in favor of what we have here called the "tendencies of retail rents." CHAPTER XII LOCATION AND RENT IN THE RETAIL BUSINESS (Continued) Factors of Desirability in Location Value of Location Determined by Profits. — The value of a retail store location is determined solely by the possibilities it offers of making a profit. The possibilities of making a profit depend upon the possibilities of making sales. There can be no profits without sales, but there can be sales without profits. The sales of some goods, such as class goods, fashion goods, and novelties, yield a high profit in proportion to sales. Other goods, such as staples of everyday use by the masses, generally yield but a low profit in proportion to the sales. Thus small sales with high profits may in some cases be fully as profitable as large sales with low profits. In any case the profit is the important consideration. A good location is one that permits the retailer to make a good profit either from small sales and large margins, or from larger sales, with un- usually small margins of profit. The customary method of expressing the rent that a store pays as a percentage of the sales of the store, is, therefore, defective as a basis of comparison with other stores, unless one also knows what gross profit is made on the sales. Of the two items, profit is by far the more important with which to compare the outlay for rent. Accessibility Determines Sales. — The possibility of making sales depends upon accessibility to the purchasing public. The LOCATION AND RENT 189 greater the number of people, other things being equal, who hve near, who come to, or who pass by a certain location, the more valuable that location is. Every retailer who knows his business recognizes this. The late Frank W. Woolworth, expressed this idea exactly when he said, "I set my traps where the mice are thickest." Store managers, particularly the man- agers of certain chain-store systems, on seeking out new loca- tions for stores, first determine the number of people who pass the proposed locations, actually counting them for certain periods of time, often for weeks, so as to get accurate data, and then giving their preference for store location to those places — other things being equal — that show the highest counts. The merchant who locates at the point that is easiest for customers to get to, that requires the least possible effort from them in every possible way, has the best chance to succeed. This well-known fact accounts for the location of the cross- roads store in the country, the corner store in the village, the neighborhood store in the residential section of the city, and the "downtown" or "uptown" store in the center of the city. Neighborhood Stores. — The neighborhood store aims to get as close to the homes of the prospective customers as pos- sible, so that it will be easy for them to come to the store or to send for goods by means of children or servants, and so that deliveries can be made quickly. But neighborhood stores must as a rule content themselves with handling only such lines of goods as are of daily necessity in the surround- ing homes — such as groceries, meats, baked goods, and dairy products. Another limitation on a neighborhood store that is clearly evident, is that its area of trade is limited. Hardly ever does trade for such a store come further than four or five blocks. Beyond this radius the influence of competing igo ECONOMICS OF RETAILING neighborhood stores, or the attraction of the stores in the center of the city overpower the trade possibihties of the neighborhood stores. There are here and there neighborhood store managers who are able to push their trade beyond these natural limits, but such cases are exceptional. The amount of neighborhood trade depends, therefore, upon the population of the immediate vicinity, and rent for such locations is determined accordingly. Stores in rich, fashionable neighborhoods are able to com- mand higher profits in proportion to sales than stores in poorer neighborhoods, and the proportion of rent to sales varies in the same way. A grocery store in one of the best residential districts of a Middlewestern city of 350,000 peo- ple, pa}'S a rent of nearly 3 per cent on its sales, while another neighborhood grocery in another section of the same city occupied by wage earners, a store doing approximately the same volume of business as the other, pays slightly less than 2 per cent of its sales for rent. While the sales are about the same in both cases, the first merchant is slightly better of?. The lines of goods he handles make a much better profit per dollar of sales than do those handled by the second store. The profits from his location are considerably higher, hence he has to pay a higher percentage for rent, but still makes more money than the second. The Centrally Located Store. — The centrally located store, as the term expresses, is located where the most people nat- urally come together, whether it be at a country crossroads, the place of intersection of principal streets in a city, or at the intersection of street car or other transportation lines. It is a matter of dispute as to whether a retail store away from the traveled streets can be conducted so well as to draw a profitable and permanent trade to itself, but it is a well recog- nized fact that most merchants do not court the difficulties of LOCATION AND RENT 191 such an attempt. The commonest struggle among retailers is that for the location which is passed by the greatest num- ber of people. Purchasing Powier of Customers a Factor of Location Value. — In considering the value of a location for a retail store, however, something more than the number of passers- by must be taken into account. The purchasing power and the probable proportion of customers from the passing crowds are most important considerations. Hence in analyzing a lo- cation for a retail store, one must determine what economic classes are represented, to what extent in each case, and what their buying habits are. A knowledge of the average wealth might be misleading, especially if there are several classes in a community. Most of the passers-by might come from families whose total incomes were under $800 per year, while, if a millionaire came by occasionally, the average income might seem to be above $1,000. What the man who wishes to start a retail store wants to know is how many out of this passing crowd spend $10 for their suits of clothes, how many $15, how many $20, how many $25, and how many above that; or how many of the women passing spend less than $10 per year for millinery, how many between $10 and $20, how many between $20 and $50; or how many of the men who pass smoke 5-cent cigars and how many lo-cent cigars, and to what, extent they are smokers. The average of wealth is a poor guide to such facts. Specific amounts expended by specific numbers of people who pass by are much more de- sirable facts. Frame-of-Mind of Passers-By a Factor. — Another classifi- cation of passers-by that will prove helpful in determining an estimate of the possibilities of a location is based on the pur- pose or the reason for their passing by. Some are going to 192 ECONOMICS OF RETAILING or coming from their place of work or business. Others are out for pleasure. Others are out to buy, while others are out merely to look. Passers-by going to or returning from work or business are, as a rule, not good customers for anything, with the one exception of the higher-salaried and income-receiving classes who patronize news-stands, bootblacks, barber shops, cigar stores, and, to some extent, haberdasheries, on their way to and from business. Large crowds of factory employees, men and women, may pass a store day after day for years on their way to and from work and never patronize it. On their way to work, there is usually little time left before the whistle blows, hence there is little or no chance to look at goods. On their way from work, they are usually tired and hungry and not in the mood of shopping. Many factory workers, particu- larly of the younger generation, do not care to trade in a store or in a part of town where their occupation is known or where any reference may be made to their daily labor. The "downtown" retail district is much more likely to draw their trade. A very large part of the goods of all kinds needed by the family from which the factory worker comes is pur- chased by the wife or mother, and thus the trade goes to the locations that are the most convenient or attractive for her. The only classes of retail business that seem to do well on the custom of working people, going to or coming from work, are the cheaper grades of restaurants, lunch counters and similar eating places. Pleasure seekers are usually better buyers than the army of workers passing to or from work. Refreshments, flowers, sweets, souvenirs, and trinkets are some of the objects that may appeal to their fancies. Such trade is strictly chance cus- tom. It is entirely dependent upon the time of year, the oc- casion, and the weather. A fine summer day brings out a crowd of people along the fashionable streets. A converging LOCATION AND RENT 193 point of such thoroughfares makes a splendid location fur a refreshment stand. On stormy days the same location may be worth nothing. The street leading out to the fair grounds when the fair is in session, and the route to the circus ground when a circus is in town, are dotted with refreshment booths, the best located doing a good business and finding it profitable to pay a high rental for the day for the location which would be absolutely worthless to them on the next day for the same purpose. "Shoppers" the Most Valuable Passers-by. — The people who come out for the express purpose of shopping and buying are for the majority of retail businesses by far the most im- portant classes. The places to which these people go are the places that are valuable for retail purposes. Shoppers and buyers go where they think they can see and get what will give them the most satisfaction. Except for such necessities as common foods, meats, and so on, the place to buy, according to the opinion of the shoppers, is nearly always in the heart of the town. This may be the location of the village corner store, the big stores at the intersection of the principal streets in the city, or the place where the great public markets are located. Here, in the mind of the average customer, is of- fered the biggest variety, the best qualities, the best facilities for examination, and the biggest bargains. Because others come here to purchase goods, this is assumed to be the best place. In any case, the most central point is the most valuable retail store location. Retailers who cannot get this best loca- tion struggle to get as near to it as possible, and rents are largely bargained for on the basis of distance from this cen- tral market point. Thus the retail store group spreads out from the center, especially along the streets most frequented or best traveled. 194 ECONOMICS OF RETAILING Tend.ency of Retail Stores to Cluster Together. — Stores tend to cluster around this best location in the city and to form what is known as the retail district. The stores estab- lished are not always competitors. Almost as frequently they arrange themselves into complementary groups co-operating with each other in the attraction of custom and in the making of sales. Thus, .stores dealing in men's goods are sometimes found on one side of the street, while stores dealing in wo- men's goods are located on the other side. Dry-goods, mil- linery, jewelry, shoe, and book stores are likely to be found close together, if not entirely absorbed under one roof in the form of a department store. Grocery stores, meat mar- kets, and bakeries tend to form another grouping, each co-op- erating in a way with the other kinds of stores in the group. Confectioneries, soda and ice cream parlors, florists' shops, and theatres form another natural grouping. The pool and billiard hall, tobacco and news-stand, and the cheaper grade of restaurants form .still another. But stores that .sell exactly the same kinds of goods, and that are clearly competitive, do not necessarily merely divide the business that was formerly done by one store. When there is known to be competition this in itself attracts trade, and people come from farther away. New wants are devel- oped that did not exist before. Thus the result is an increase in the total amount of trade. Cases are known where the in- crease was so great as to give to each of the competitors more business than had been enjoyed by the single merchant before. This, of course, is exceptional. The tendency of stores to cluster closely together is not only profitable to the merchants themselves, but is a conven- ience to the customers. In fact, the convenience to the cus- tomer is the chief cause for the close grouping. Stores hand- ling the same or similar lines and stores handling different lines of goods, all close together, save the customer'.s time. LOCATION AND RENT 195 This is, probably, the greatest argument for the department store, which assembles many lines under one and the same roof. Most customers, particularly women, like to compare values in different stores before purchasing. An investiga- tor for a large publishing house ^ has stated that "before she buys, a woman usually visits three stores to compare goods. The man, who is distinctly 'anti-shop' in his inclinations, on the contrary, visits but one." Competing stores, located close together, and dealing in goods ^yomen buy, permit com- parisons to be made easily. Other Advantages of Clustering.^ — Another advantage of locating competing stores close together is the possibility of drawing trade from customers who had planned on going di- rectly to some one of the competitors. Such customers may frequently be induced to enter other stores by attractive win- dow displays, and whether they do or do not buy the goods that they had planned to buy from the competitor, perhaps, seeing the displays, they will buy other goods that they had not thought of before. In this way even competitors help each other to a certain extent. A location next to a large, old, well-advertised, well-known, and popular store is always valuable for another store dealing either in complementary or competitive lines of goods. A Middlewestern jobbing house that has a service department to aid those who wish to establish variety goods stores fre- quently advises the locating of the store — so it is stated — next door, if possible, to a syndicate 5 and 10 cent store, if there happens to be one in the town. Out of the crowds who go to the latter, many can be attracted into the independent variety goods store. The advertising value of the big store is ^ C. C. Parlin, Manager of Research Division, Curtis Publishing Co., in an address before the Advertisers' Convention, Cincinnati, September 24, 1913. 196 ECONOMICS OF RETAILING shared to a certain extent by the smaller and newer store next door. Retail Stores and the Public Market. — In cities or towns having a public market that amounts to anything, stores fre- quently group themselves about the market place. It has been remarked by several writers that the establishment of city markets in this country is usually opposed by the city merchants, particularly those who deal in the goods likely to be bought and sold on the public market. There is probably reason for this, but after the city's merchandising has once readjusted itself to the market, its removal is generally strongly opposed by the merchants. The removal of the city market has in many cases ruined whole retail districts which had been built up around and near the old market place. This merely exemplifies the principle that retail stores must go to the people and that the people are not likely to go out of their way to find the stores. Buying Habits of Customers. — We have so far considered the possibilities of a retail store location from the standpoint of the number of passers-by, the purposes that bring them, and the buying power represented. There is another factor having an influence on the value of a location and that is the buying habits of the possible customers. Not all people within even the same economic classes, or those having the same incomes, expend their money in the same way. In nothing is this more clearly exemplified than in lines com- monly called luxuries. Some people spend their money freely for such items, while others with the same income do so sparingly. The average consumption of such commodities varies greatly from one community to another. According to George J. Whelan, President of the United Cigar Stores Com- pany, the expenditure for cigars is as follows in the principal cities : LOCATION AND RENT 197 Annual Cigar Consumption in American Cities^ New York $1.74 per capita Chicago 63 St. Louis ■ 1. 21 Rochester .97 Spokane .60 San Francisco 4.06 Milwaukee .22 Atlantic City 2.55 Other things being equal, the value of a location for a cigar store passed by a certain number of people can not be as high in Milwaukee as a similar location passed by about the same number in San Francisco. Such differences in tastes and habits are, no doubt, just as important in many other lines. In this connection it may be noted that tastes and habits are neither stationary nor permanent. What is true for one year may not be true for the next. In so far as such changes take place, they are re- flected in the retail business and thence back to the location of the retail store that is most conveniently situated to serve the demands. General Influences. — Any influence on the course of peo- ples' movements affects the value of a retail location. Certain streets are more popular than others, and one side of the street is generally more traveled than the other, with a consequent difference in value for retail purposes. One must assume that there are definite reasons for this, and upon the basis of these reasons the retailer must select his location or make the best use of the one already .selected. Sunlight and temperature tend to make one side of the street more crowded than the other. In warm climates and in warm weather, people seek the shady side. In colder cli- ^ From Printers' Ink, quoted in Cherington's "Advertising as a Business Force," page 1 87. 198 ECONOMICS OF RETAILING mates, and in the winter time, they walk on the sunny side. Which side of the street is most popular must depend there- fore upon what time of the day shoppers come out in greatest numbers. In most stores the heaviest trade occurs during the afternoon. The richer classes in the larger cities do their shopping generally between 11 a.m. and 3 p.m. For most parts of this country the sides of the streets that are shady during the afternoon, namely the south and the west sides, are the ones which people prefer to take. The exceptions are some of the cities in the most northern tier of states, where the most popular sides of the streets are the north and east sides. This seems to be true more especially for the winter, late fall, and early spring months. The shady side of the street has another advantage. Be- cause of the reflection of softer lights from the plate glass and show-window back-grounds on this side, the window displays appear to better advantage, and, therefore, draw more at- tention. Also a greater variety of goods, can be shown, and much better effects can be obtained on the shady side of the street than on the sunny side, because of less danger to the goods themselves from the effects of the sun. Goods of deli- cate shades generally fade easily and need protection from the sun's direct rays. In order to display such goods on the sunny side, awnings are necessary, but awnings interfere with the widest and best use of the front of the building and windows, hence may be considered in the light of necessary evils only. Preferable Side of Street in New York. — In New York City, for example, the west side of Broadway and the south side of Fourteenth and Twenty-third streets and other wide streets are worth much more than the opposite side. On the average the rental value of the favorite locations is about dou- ble those of ordinary locations in these vicinities. There are ex- LOCATION AND RENT 199 ceptions, however. "A Wanamaker can pull trade anywhere, but if Macy should change places with Wanamaker, history would record a very different story of the retail dry-goods trade of New York.'" R. M. Hurd, in his "Principles of City Land Values" states that the west side of north and south streets and the south side of east and west streets are generally worth from 20 per cent to 40 per cent more than the opposite sides, and in some cases the difference in value may run as high as 100 per cent. Effects of Climatic Conditions. — In some places there are generally prevailing winds that strike certain locations or one side of certain streets in a more disagreeable way than the other side, causing values to be less on the exposed side. Dusty and windy locations are never desirable if they can be avoided. If a town is built on a side hill, the upper side of the street is nearly always preferable to the lower. There seems to be a sort of inherent tendency among human beings, as among goats, to get on the upper side of things. The reason may be that the upper side gives a better view, or it may be that it is less laborious to go from the upper side to the lower side, if necessary to cross the street. Dust and refuse tend to gather on the lower side of the street with the result that the upper side is generally cleaner. Whatever the cause, the fact re- mains that the upper side seems to be favored in most cases. This tendency may be remedied to a certain extent, but not en- tirely, by having the streets graded so as to put the walks on both sides on the same level. "Hoodoo" Locations. — Most merchants of many years' ex- perience know of "hoodoo" locations, places which would ^ Dry Goods, December, 191 1. 200 ECONOMICS OF RETAILING seem to be favorable for a retail store, but in which every mer- chant who has tried them has failed. It is not easy to account for these things. For one thing, a succession of failures hurts a location for future trade. Not only do careful merchants avoid such places, but customers stay away also. It takes more than average ability to turn the tide towards success in some such places. There is an old adage among merchants to the effect that it is easier to start a new business than it is to raise a dead one. Often the only explanation for the value of a side of a street for business purposes is popular habit. People con- tinue to take one side rather than the other because some time in the past they found it best to do so. After the reason for so doing passed away, the practice continued as a habit. Crowd Habits. —Speaking of the peculiarities of the habits of crowds, R. A. Bruce, general manager of the Beck Shoe Store Company of New York, operating a chain of New York shoe stores, says : "Walk up Broadway from Twenty-third street to Fiftieth. The crowd seems to be about the same on both sidewalks. There are stores on both sides too, prosperous stores. It would seem to be a matter of no consequence which you located a shoe store on. Yet the west side is good for shoes and the east side is bad. That holds good up as far as Fortieth street and then it suddenly shifts. From there up to Fiftieth the east side of the street is a little better than the other. Why? I can't tell you, but it is true." Corner lots are more valuable than inner lots the very reason that more people pass them. The corner of two streets, both equally well frequented, is passed by twice as many people as any inside lot on either street. Again, the corner is a kind of .stopping place or pausing point for people who are uncertain as to where they are to go. Heavy traffic LOCATION AND RENT 201 passing may cause them to stop. The moment's pause may be sufficient to cause the passer-by to notice the corner store window display and to be drawn in to examine goods and to buy. In bad weather, corner locations are valuable because people drop in while waiting for cars, in order to get warm, or to await the passing of a shower, etc. The corner is fre- quently the designated meeting place for many people. For these reasons the corner is of considerably greater value than the inside lot, and especially for businesses depending upon pick-up trade or chance custom, such as cigar stores, drug stores, book stores, news stores, shops dealing in curios, sou- venirs, and novelties of any kind. A well-known manager of a chain of shoe stores estimates that for the shoe business the corner is worth at least 20 per cent more than an inside loca- tion.* Some tax and assessment experts assert that the corner lot is worth 50 per cent more than inside lots, and that the corner influence extends at least 100 feet down each street from the comer in a diminishing ratio. Newark, New Jersey, for example, assesses all business comer lots 50 per cent higher than inside lots.° Corner Locations. — There is a difference in value in the corner locations that corresponds to the difference found be- tween opposite sides of the street, and for. similar reasons. In localities where the south and west sides of the streets are most popular, thd southwest corner is most valuable, the south- east corner comes next, the northwest comer next, and the ncrtheast corner last. In localities where the sunny sides are preferred, these values would be reversed. Disagreeable Surroundings a Detriment. — The presence of near-by disagreeable features of any kind reduces the value * Printers' Ink, August 7, 1913. > "Real Estate and Its Taxation in Pliiladelphia," a pamphlet published by the City of Philadelphia. 202 ECONOMICS OF RETAILING of a location for store purposes. Smoke, dust, disagreeable odors, and noise from near-by shops or factories, hurt. A location that is darkened by shadows of large buildings is also less valuable. All of these factors depreciating the value of the location must be made up for, if possible, by using more advertising, special store fronts, unusual lighting effects, or striking window displays. Proximity to stables, asylums, hospitals, or schools gener- ally cuts down retail trade, and hence affects location value adversely. Women dislike going near hospitals and stables. The hospital always suggests unpleasant things to the mind of the average person, and location near a school is likely to be affected by the noise of children playing. If the sidewalk is good on one side of a street and poor on the other, or if the sidewalk is level on one side and uneven on the other, people will take the better walks in the large majority of cases. Steps up or down from the side- walk to a store lessen the value of the location. A rickety sidewalk has the effect of driving customers to the other side. A sidewalk kept clean, free from snow, ice, slush, and standing pools after rains is always preferred. Old and worn-out structures near by also hurt a retail location, and it is commonly asserted that an empty building next door to your store is your worst competitor. The best location is the one that looks the most prosperous. Empty and old buildings indicate favor passed away. The store manager who finds that the building next to his is vacated, in many cases, either tries to rent it for his own use, or attempts to get a tenant for the property who will sell non-competitive or complementary lines of goods. Ease of Access Desirable. — Other things being equal, the store easiest for customers to reach has the best location. The places where the cars stop, where the farmers tie their LOCATION AND RENT 203 teams when coming to town, and where the street has the best pavement or road bed, are the most valuable. Street cars and telephones tend to concentrate the business of a community into the central section of town. This results in an increase in the value of land in this section, and a decrease in land values in other parts of town farther out, for retail store purposes. Patronage given distant towns, the development of parcels post, and the use of the automobile, and even to a certain ex- tent the development of better roads for wagon traffic have helped to concentrate trade in the retail districts of the larger cities. Locations in such places have seemingly grown more valuable with nearly every invention that has been made in the way of improving the means of transportation and communication. Many other factors of varying degrees of importance influence the value of retail store locations, but all depend for their influence upon the principle laid down at the beginning of this chapter, namely, that the value of a site depends en- tirely upon its possibilities for making profits. For the op- portunity to use the site, the tenant pays his rent. CHAPTER XIII LOCATION AND RENT IN THE RETAIL BUSINESS (Continued) Intensive Use of Location Cultivating a Location Intensively. — A good location for a retail store simply offers the possibility of getting a good profitable trade, provided the manager of the store "hustles" for it. A good location differs from a poor location only in the fact that the limits of trade of the latter are more quickly reached. The former will bear intensive cultivation, the latter will not. The rent is the payment for the opportunity to cul- tivate and to harvest the product of the given location, what- ever that may amount to. When the retail store manager is confronted by a demand for more rent, it means that he must in turn make more profit. Ordinarily this means that he must make more sales, and turn his stock more rapidly. In order to accomplish this, factors other than location must be right. The building must be appropriate for the business that is to be transacted; perhaps more than one floor or story should be used; at any rate, the floor space must be employed as effectively as possible. Space may perhaps be economized by the use of special fixtures and equipment. Something can often be done to provide for dis- tributing and circulating the incoming crowds of people to all parts of the store. In addition to these things, trade must be attracted to the store by means of improved window dis- plays, advertising of various kinds, and by special service to the people who come to the store. Finally, the salespeople 204 LOCATION AND RENT 205 must do their work in an efficient manner, and this means that they must be trained. All sources of losses to the store must be checked and stopped. Through such methods as these the store managers occupying the highest priced locations are able, to make good ; and it is by study of such methods as these that retail merchandising can be improved in all classes of locations. Erect a Suitable Building. — The first step in putting a good location to intensive use is the erection of a suitable building. In most cases, particularly in this country, such •work is performed by the owner of the .site. This fact tends to prevent the highest efficiency in this direction, for the rea- son that, unless the owner of the site is himself a merchant, or, unless he turns over all of the planning of the building to someone who is a skilful merchant, several architectural fea- tures desirable from the standpoint of merchandising are likely to be omitted. Each class and grade of merchandising estab- lishment demands a store built for the purpose. Store archi- tecture in this country is still in its infancy. Only in the case of certain large types of institutions, such as department stores, can it be said that a true type of merchandising building has been developed by American architects. Hence the aver- age architect is by no means to be trusted to plan a structure perfect for store purposes. General Structure. — The building should be constructed to harmonize with the ideals of its particular line of business and the particular kind of trade that is desired. It should combine beauty with the highest type of utility and efficiency. Ordinarily it should convey the impressions of solidity, spaci- ousness, lightness, and airiness, the things that fit in with the present popular ideas of art and sanitation. It needs dis- tinctiveness to help attract attention. Store fronts, like mil- 2o6 ECONOMICS OF RETAILING linery, are subject to fashion, hence the structure of the build- ing should be such as to permit of easy and economical changes in this respect. Further, it needs to be built so as to reduce fire risks to the minimum from whatever cause. Thus the building should combine both the useful and the beautiful. If the business is a good one, a merchant may feel the ne- cessity for more space than that offered by the main floor. If the additional space cannot be obtained economically on either side, he must use space either below or above the ground floor. Basements. — The use of basements as adjuncts to main floor stores has rapidly increased during the last few years. The older plan was to use the basement as a storage place for goods, but this is giving way very generally in the larger stores to the "bargain basement," the "economy basement," or the "subway store" idea. So far has this gone that there is hardly a large department store of any consequence but has at least one basement in use for displaying and selling goods, and a few of the very largest and most modern stores have two basements, one under the other, thus utilizing for mer- chandising purposes a space upwards of 25 feet below the street level. There has always been some difficulty in getting people to go to the basement for goods, hence merchants commonly use "bargains" or other inducements to draw them there. Fre- quently the entrance to the basement from the first floor is placed at a point of considerable distance from the main build- ing entrances, making it necessary for customers to cross the main floor, and, therefore, to pass by much of the main floor goods displays before getting to the place where the tempting bargains are to be had. In other cases people are attracted to basement departments by direct entrances from the street. Modern stores must be planned to make the sales of goods LOCATION AND RENT 207 easy, and to increase the sales wherever possible in such ways as these. The Upper Floors. — Upper stories offer the same objec- tion as the basement, namely the difficulty of getting cus- tomers to go there. Good comfortable stairways, capacious elevators, and, more recently the use of esculators have been introduced to make travel from the ground floor to other parts of the store easy and attractive to customers. As the height from the ground floor increases, the difficulty of getting customers also increases. A two-story store with a basement may be able to get along with stairways only, but this seems to be about the limit for foot travel. The use of elevators even in this case adds to the number of customers who go beyond the first floor. Beyond the second floor, how- ever, either elevators or escalators seem to be absolutely ne- cessary in most towns, and for the second, third, and fourth floors in large city stores the escalator seems to do better than the elevator. For floors above the fourth, the elevators serve the best.^ An investigation on the comparative merits of escalators and elevators, as reported by a concern that makes and sells both classes of apparatus,^ showed that in a certain store having escalators, 53 per cent of the people who entered the store circulated above the ground floor, while in other stores served only by stairways and elevators, only 28 per cent traveled above the ground floor. Estinaating Floor Value. — The value of a floor in a build- ing is not entirely dependent upon the number of people who come to it. The ground floor is likely to have a larger pro- portion of shoppers, or, rather, sight-seers, than any other floor. While the store must aim to interest and to sell goods • Ring, R. S., "The Escalator for Department Stores," Archit. & Bldg., 44:509. 2 Otis Elevator Company. 2o8 ECONOMICS OF RETAILING to as many of such persons as possible, still a large number of these do not buy. Floors other than the ground floor are likely to be visited by a larger proportion of bona fide cus- tomers for merchandise. The average person who takes the trouble to come to a third or fifth floor is likely to have some definite want in mind that the store has a good chance to satisfy. But in spite of these qualifications, the ground floor is far more valuable than any other. Apportioning Floor Rent. — The apportionment of the total rent to the various floors in actual practice depends largely upon circumstances, but in all cases that the writer has ob- served, a much larger proportion has been charged to the first floor than to any other. The following figures obtained in part from the service department of the Dry Goods Econ- omist, and in part from figures given to the writer by execu- tives of two of the largest retail concerns in the country, are probably typical. Table Showing Apportionment of Rent of Building TO THE Various Floors^ Store No. 123456789 10 Basement 35 .. 25 .. 15 10 10 15 I2>^ 15 Main Floor 65 65 50 60 45 45 50 40 35 35 Second Floor 35 25 30 25 25 20 20 20 20 Third Floor 10 15 10 10 15 15 10 Fourth Floor 10 10 10 10 10 Fifth Floor yy'2 5 Sixth Floor c; As indicated by the table, the rental value of stories above the first decreases rapidly for retail purposes. This brings us to a question of interest in the larger cities, namely, how ^ The total number of floors in each store is shown by number of percentages given. The first store consists of ground floor and basement, the second of first and second floors, and so on. LOCATION AND RENT 209 high up will retail customers go. A recent writer'' has stated that nine stories above the ground with two basements beneath probably represents the profitable limits. Other stores have gone somewhat higher but with what success is not known. This problem is of interest, of course, only where rents are very high, and additional space very difificult to get. Tv/o stories and a basement are probably the profitable limits for most stores in towns under 25,000 population; and in larger cities, under most conditions, five or six stores probably repre- sent working limits. The difficulties of getting large numbers of customers up and down quickly are too great for further upward expansion. Except where space is very valuable, and crowds are great, the expense of running elevators, and the rent of the space occupied by elevators and stairways, more than counterbalance the earnings of the upper floors. Use of Mezzanine Floors and Balconies. — Additional iloor space is very frequently obtained by building a balcony or mezzanine floor part way around the main floor room. This can be done only when the ceiling is high enough. Modern store architecture nearly always provides such height for the first floor, and the mezzanine floor is often a part of the original construction. Some stores use this sort of struc- ture to great advantage, generally for goods that might otherwise be displayed and sold either on the second floor, or in the basement, as, for instance, bargains, or else those goods that people determine in advance that they need and come to the store for the express purpose of buying. Many small stores find the use of balconies both con- venient and profitable, but mistakes in their structure are so often made that their full value is seldom realized. One error frequently made in building a balcony is to leave it with an un- finished appearance, just as if it were so much staging. To • Architectural Record, 12 :287. 2IO ECONOMICS OF RETAILING some customers it hardly looks safe to walk on. It lacks the appearance of stability and solidity. Other shortcomings noted frequently include — lack of provision for proper light, poor ventilation, and poor or uncomfortable stairways. Where these evils are remedied, the balcony has proved a money-making addition to many stores. Using Space Effectively. — Whatever the demands may be for more floor space, there is present always the problem of using in an effective way space already controlled. High rents force this problem to the front. Store arrangement is a science in itself, a science that is only imperfectly understood by most merchants. The arrangement of the store is often the factor that makes or breaks its success. It calls for con- sideration of a multitude of details among which only a few of the most important can be mentioned. Provision must be made for receiving, storing, and handhng the goods; the ma- chinery, engines, and heating plant must be located properly; and precautions against fire must be taken at every step. The heating, and in larger stores, the cooling plants should receive most careful attention. Maintaining a uniformly com- fortable temperature, regardless of weather conditions, is es- sential. Provision must be made also for proper ventilation of all parts of the store in order to make it pleasant for cus- tomers and a good workroom for salespeople. Light of the right amount and kind should be provided for each department of goods. This means brilliant light for such departments as jewelry, glassware, and chinaware, and sub- dued lights for such departments as furniture, and so on. Provision must also be made for easy and thorough cleaning of all parts of the store. Employees must be accommodated with locker space, lunch room, rest rooms, toilet rooms, and often with recreation space. The store must provide ample room for customers, spacious aisles, large stairways and com- LOCATION AND RENT 21 1 modious elevators. The entrances must be made large enough to let crowds in and out easily. The store should be arranged so as to make it very easy for customers to get from one point to another in the store. Accommodations for customers, such as waiting rooms, reading and writing rooms, telephone booths, and toilets must be provided. Places and fixtures for displaying and selling merchandise, and for making change, wrapping parcels, and so forth, must receive prime considera- tion. Space is required for assembling the goods that are to be delivered, also for the disposal of refuse and waste. Allocating Goods. — When we come to the goods, the de- partments must be located so as to draw the most trade. The goods that sell themselves must be located where they will help to attract attention to other goods. Goods not in cus- tomers' minds must be located where they can be seen. The merchandise must be arranged in groups that permit of mak- ing a sale of more than one article. Goods that go together in actual use are, therefore, generally grouped together. The man who comes in to buy a collar must see displays of neck- wear, shirts, handkerchiefs, and gloves, and these departments should lead easily to hats, clothing, shoes, and so on. If the store is small and the number of people who come in com- paratively great, the departments must be so arranged as to scatter the crowd equally over all parts of the store by placing departments making the most numerous sales as widely apart from each other as possible. The so-called "non-productive" departments of the store, such as the offices and places for keeping records and accounts, must be located in odd spaces not taking up room valuable for sales purposes. This may mean placing them in the back part of the store, on a balcony up' out of the way, or on an up- per floor where space is, as we have seen, much less valuable for selling work. 212 ECONOMICS OF RETAILING Finding Storage Room. — Storage place for the surplus stocks of goods is always a problem wherever rents are high. Special equipments are sometimes built permitting a maximum of storage under counters and on shelves. For the bulk of the surplus stock, an upper floor is the usual solution, with an occa- sional use of a storage building in a low rent part of the town. The distant warehouse may have the advantage of low rent, but it also has the disadvantage of high expense in transferring goods quickly to the main store. All of these matters must be considered. Quick Service — Quick Turnover of Goods. — If the profits of the store depend upon quick sales and large volume, it is clear that everything should be done to handle crowds of people and supply their demands as adequately and as quickly as possible. Prospective customers in such stores must be helped by the arrangement of the store and by the displays as well as by salespeople. Open counters, easily read price tickets, printed statements about the goods, and similar devices assist in this direction. The making of change and the wrapping of parcels should be reduced to such system as will save every possible second of time.^ Salespeople need to show the goods in the quickest possible ways compatible with good salesman- ship, and to be prepared to tell in short, pithy, clear-cut sen- tences the things that customers are likely to want to know about the goods. Above all, they need deft hands, quick eyes, ready minds, and unfailing patience and good-will for e\ery individual in the passing throng. Arranging Attractive Displays.— In addition to all these problems of arrangement and salesmanship and of even greater importance, is the problem of making the store at- tractive in all its details. In this respect a store differs from ° Sec Appendix D, "Methods of Handling Cash, Credits and Sold Goods.'" LOCATION AND RENT 213 a manufacturing plant. The latter may be planned solely in the interests of efficiency of production, but the store must be planned to please customers as well as to facilitate the hand- ling of goods. A great deal of attention needs to be given to arranging the store display so as to make it most effective. Goods must be placed where they can be seen. The principle is that the display of merchandise should fall largely within the average line of vision. Experiments need to be performed to deter- mine just what this is, but it may be safely stated here that most people on passing through a store notice goods only when they are located more than two feet and less than seven feet above the floor. This means that the display must be planned within this line or belt of vision five feet wide. Dis- play above or below these limits seems either to remain un- noticed or to confuse the customer. As a rule, whatever is done above and below these limits, must be for purely decora- tive purposes, or to serve as a background for the regular goods that are displayed within the line of vision. Within this line of vision there are possibilities for great art in arranging the display of goods. For example, one may seek to get the colors of the goods into appealing relation- ships, to get the forms of the goods into harmonious groups, and to get an effect that is not only pleasing to the eye but attractive to the customer's pocketbook. The one who ar- ranges the store's displays has the possibility of exercising talent similar to that of a painter or sculptor, but his combina- tions must differ from the picture or sculptured group in this respect, that the details rather than the ensemble must stand out clearly to catch the customer's attention. Art is in- troduced to set off the goods effectively so that they may appeal to purchasers and be sold. Order, symmetry, har- mony, and other fundamental principles of art are essential to good store display, but the art must be for business' sake. 214 ECONOMICS OF RETAILING Everything beyond the direct Hne of vision in a store is to the customer what the frame and the background of a painting are to the painter and to the one who looks at the painting. This frame or background needs to be in keeping with the central object, harmonious yet subdued, not attractive in itself, but helping to make the goods displayed as attractive as their true natures will permit. Advantages of Standard Equipment. — Much valuable space in a store can be saved in many cases by using standard sizes in all equipment, such as cases, cabinets, and cartons for the goods, counters and shelves of the right width and height, the right width of aisles for customers on one side and for clerks on the other side. Common obstructions such as pillars, angles in the walls, stairways and so on, present dififi- cult problems in store planning that must be solved according to the best judgment of the manager. Fixtures that Economize Space. — Recently much has been done in the way of devising fixtures that economize space. The portable and sectional types of store apparatus and equip- ment are aimed, partly at least, to aid in this direction. Special cabinets have been devised to hold a maximum amount of goods in a minimum amount of space for such merchandise as gloves, patterns, laces, embroideries, trimmings, hosier}', shoes, hats, and clothing of all kinds. Stands and frames using a comparatively small amount of floor space have been devised to hold stocks of rugs, curtains, pictures, picture frames, tools, oilcloths, garments, and many other things. Shelving in a modern store is built so as to waste no space. The distance between shelves corresponds exactly to the height of the cartons, packages, cans, or other forms in which goods are contained. The shelving itself is made of no thicker mate- rial than is necessary to support the burden. Upright supports LOCATION AND RENT 215 of the shelves are arranged in such a way as to take up very little space. Other fixtures are similarly planned. But as already noted, every detail is planned with its artistic, as well as its economic possibilities in view. Where the two con- flict seriously, the economic must give way in part at least to the artistic. The walls and space beneath the floors is used for heating flues, air shafts, as well as electric con- duits. A bright country storekeeper, who must use a stove to heat his store, runs the smoke pipe directly down through the floor and underneath it until it reaches the wall. Here it is allowed to rise, and the draught seems to be perfectly satisfactory. In this way he has eliminated the unsightly stove pipe and saved space. Pneumatic tubes, cash and bundle carriers, wiring, and other devices are not permitted to take up too much valuable selling space. A virtual saving in space is accomplished by careful stock keeping and buying methods. The quantity of each article kept on hand is reduced to a minimum, thus saving shelf or storage room, and the variety is increased by the addition of other desirable lines. This involves buying often, perhaps daily, and a careful watching of the state of the stock so as to prevent running out, but it economizes space. Attracting Trade; Advertising. — Of the methods used in attracting trade we can say but little here. The statement is sometimes made that less money need be expended for adver- tising in a good location than in a poor one. This is probably true if one seeks to get the same volume of business in both cases. If it is necessary to expend a certain sum of money for publicity to get a certain amount of business in a poor location, it is clear that the same volume can be obtained in a better location with a smaller expenditure for advertising. This does not mean that merchants spend less for advertising in the better locations. The reasons for advertising are as 2i6 ECONOMICS OF RETAILING Strong in the better location as they are in the poorer, the object in each case being to increase to the maximum the vol- ume of sales. Hence one does not ordinarily find a diminu- tion of advertising outlay, or even the percentage of advertis- ing to sales decreasing on passing from poorer to better loca- tions. The principle governing advertising as well as the use of any other factor is its possibility of bringing in a return more than equal to the expenditure or outlay. It is entirely possible that in a great number of cases, a larger proportion of advertising expense will be found profitable in a good rather than in a poor location. In the poor location 2 per cent of sales may be found the profitable limit, while 4 per cent of sales may be nearer the limit in the better locations. This is a matter upon which no rule can be given. Each manager must work out the possibilities of his own business and the means of promoting it. Window Displays. — In recent years a great deal of prog- ress has been made in this country in the matter of window displays. Frequently increases in business are directly trace- able to the introduction of better store fronts, show windows, and better window trimming. The tendency seems to be to use for display purposes every available inch of frontage. In some cases this display space is increased by recessing the front, building it in the form of a vestibule or arcade, and by constructing island display cases. Much of this work done by modern stores, particularly in the larger cities, is costing a great deal of money, but it is held by all that such expendi- tures are well worth while. The show window depends for its value upon the number of people who pass by, but there is hardly a town so small, or crossroads store so insignifi- cant, as to make unnecessary or valueless the trimming of windows. Some idea (jf the value of show windows may be gained LOCATION AND RENT 217 from the fact that a Chicago department store having twenty- one windows charges its window trimming department nearly $500 per day, distributed as follows : 2 Island windows at $100.00 per day 2 Windows 8 Windows 2 Windows S Windows I Window I Window 20.00 16.00 15.00 10.00 9-5° 5.00 These amounts are in turn charged to the departments of the store using the respective windows." A large de- partment store in Boston charges its fifty windows the sum of $306.00 per day.'' These sums of money represent the windows' burden. They must earn at least this much for the store. A large department store in Chicago is reported to ex- pend over $150,000 per year in the trimming of its win- dows. Six hundred Chicago druggists outside of the loop district make a charge of from $4 to $15 per window per week for the privilege of displaying patent and proprietary goods. Druggists and others within the loop district get as high as $100 per week from demonstrators who use this means of attracting attention to their goods. Figures for the loop district of Chicago are, however, abnormal and in no way comparable with average store conditions. The figures of the Chicago druggists outside the loop come nearer repre- senting ' average values in most towns of 10,000 population and up. In towns smaller than this the values of the show windows are somewhat less. A recent statement by one who has had opportunities for wide observation, is that the average • The figures are for the Chas. A. Stevens Store, and are taken from the Mer- chants' Record and Show Window, April, 1915. .„_.,. ' Wm. Filene's Sons Company, Boston. Figures given in Ury Goods Economist, May 24, 1913. 2i8 ECONOMICS OF RETAILING value of display windows the country over is not far from $ro per week.^ Value of Display Space. — The front part of the store is the most valuable in all ordinary cases. The window space ranks first and highest, the departments nearest the entrance come second, and so on back. This is true largely because it is so difficult to get customers who come to the store to circulate far beyond the entrance. A manager of a department store has informed the writer that nearly half of the people who enter his store never go beyond a radius of 50 feet from the main entrance, and this in spite of the fact that he has arranged his departments so as to attract trade farther back. This case is not given as typical but rather to illustrate that the space on a store floor is not equally valuable, hence the rent burden should not be distributed among all departments di- rectly on the basis of the number of square feet occupied. Distributing Rent. — Various methods of distributing the rent charge for a floor are practiced. In some cases this charge is fixed in proportion to the square feet occupied, in others to the gross sales of the department, in others to the gross profits, in still others the rent charge is prorated on the basis of accessibility to customers, and in some stores several or all of these conditions are considered. Taxation Values. — It may be of interest in this connection to note what methods experts use in determining for purposes of taxation the relative values of the different parts from front to back of business real estate. Space will permit but a brief statement. There are several assessment systems in actual use, differing somewhat in detail, and in methods of computing the values, but all aim at the some thing — equit- able assessment of city lots of varying depths. Among these ' C. W. Hurd in Printers' Ink, August 31, 1911. LOCATION AND RENT 219 systems are the following: The Hoffman-Neill rule, the Lindsay-Bernard rule, the Newark plan, and the Cleveland plan, also called the Somers rule. In all of these systems, excepting the Lindsay-Bernard rule, the standard lot is con- sidered as 100 feet deep. The value of lots of depths dififer- ing from the standard 100-foot lot has been worked out in each of these systems. To illustrate, a few figures will be given. Value of City Business Lots of Different Depths Based on a Percentage of the Value of a Standard Lot One Hundred Feet Deep ° Feet Hoffman-Neill Newark Cleveland or Deep Rule Plan Somers Plan 100 100.00% 100.00% 100.00% I 6.76 3-1 S 17-32 14-35 10 25.98 25 25.0 20 38.99 41 41.0 30 49-47 54 54-0 40 58.49 64 64.0 50 66.67 72 72.5 60 74-20 80 79-5 70 81.70 86 85.6 80 87-73 91 90.9 90 94.01 96 95-6 100 100.00 100 lOO.O 125 109.00 109 109.0 ISO 117.00 121 II5.0 200 130.00 133 122.0 *» See- Report of Department of Taxes and Assessments of New York City, 1913, Appendix. Somers' "Unit System of Realty Valuation," Cleveland. Bernard's "Some Principles and Problems of Real Estate Valuation," Bal- timore. kawles, Wm, A., "Classification of Land for Purposes of Taxation," an address delivered before a conference on taxation in Indiana, held Feb- ruary 5 and 6, 1914; published in Indiana University Bulletin, Vol. XII, No. 4. pages 137-153- 220 ECONOMICS OF RETAILING Note should be taken that under all three rules the value of the first lo feet is considered to be worth 25 per cent of the total 100 feet in the standard lot. The first 20 feet has a value in all these rules of about 40 per cent of the total. The front half of the lot, that is the first 50 feet nearest the street, is considered worth two-thirds of the whole lot in one rule and more than that in the other two. Now what is true for the lot is true for floor space, and if these per- centages are fairly representative for the one they are for the other. It is not urged that these percentages should be used by merchants in their store without qualification. They are simply given here as an illustration of the sort of studies that need to be worked out in the various kinds of retail busi- nesses, studies that will result in accurate figures on such a problem as the distribution of rent over floor space. Other "Intensive Cultivation" Methods. — Intensive use of location must include many other things, only a few of which can be mentioned in this outline. High rents force store managers to exert every means to bring people to the store and to increase sales. Advertising has been mentioned already as one of these means. Perhaps under this head should be included such features as "special sales," "cut prices," "loss leaders," and special service to people who come to the store — service in the form of music, moving-picture shows, lec- tures, art exhibits, demonstrations, lunch and refreshment de- partments, news bulletins, baseball score boards, etc. All of these tend to make the store a center of interest to shoppers, both male and female. The modern store is almost as much an amusement place as it is a merchandising establishment, and there are many people v^^ho prefer shopping to most regular entertainments. This is the result of the competition for the patronage of the public in central, high rent locations. Something further can sometimes be accomplished by en- LOCATION AND RENT 221 couraging the use of the telephone for all who cannot come to the store, the establishment of a mail-order department, and promotion of sales by various forms of personal solicita- tion, ranging from sending letters to customers to sending a personal representative from house to house. All these methods help to increase the sales and help to reduce that part of the overhead expense due to the rent item. Finally, and most important, as a means of keeping ahead of the high rent charge is the employment and training of competent salespeople. Contrary to the opinion of many, the importance of good salespeople does not diminish on passing from poorer to better locations. In a good loca- tion the salesperson's efforts are usually specialized in selling some one particular line, or part of a line, or to a particular class of customers. On the whole, each salesman in such a location has a greater opportunity for exercising his abil- ity. Consider shoe selling as an example. Salesmen aver- age volumes of sales ranging from $2,000 to $10,000 per year in small towns. The average in good locations in the large cities is over $16,000 per year." In the latter locations there is an opportunity to sell more — but there is also the oppor- tunity to make more mistakes. Quick, intelligent service and accurate salesmanship are essentials for such locations as much as for any other, and it is among such stores that one finds the unusual salesman — the shoe salesman, for example, who is able to average sales of $30,000 or more per year. The importance of salesmanship has been discussed in Chapter VI. It is simply mentioned here to point out its relationship to the location factor of a store. ^* Bulletin No. i, Bureau of Business Research, Harvard University, pages 13-13. CHAPTER XIV HOW RETAIL PRICES ARE FIXED Charging "What the Traffic Will Bear."— The aim of the retailer, as well as of all others who engage in business, is to realize a profit from his operations. His success is meas- ured very largely by the amount of profit that he makes. Prices, therefore, tend to be fixed at the point that will bring the highest net return. In other words, retail dealers charge "what the traffic will bear." But while the retailer places the price mark on the goods, it would not be correct to assume that he makes the price, except in so far as he interprets correctly all of the influ- ences affecting values in his community and makes it in ac- cordance with his judgment of those influences. Price, as we shall see, is the resultant of many forces operating in various ways and with various degrees of strength. Factors of Retail Price; Costs. — Chief among the forces or factors that influence retail prices are the costs of the goods, the costs of selling, the desirability of the goods from the standpoint of the consumer, the competition of other re- tailers, custom or habit, personal salesmanship, and an ethical element or tendency to fair play among both buyers and sellers. The costs of the goods and the costs of selling set the lower limit below which the selling price may not fall with- out loss to the store. However severe the competition may be, whatever the policies of selling adopted, the retailer must get all of his costs back or fail in business. For purposes 222 HOW RETAIL PRICES ARE FIXED 223 of clearance or advertising some goods may be sold below the cost point, but deficits so incurred must be made up in the general sales levels. It is obvious, then, that the retailer should know his costs accurately. An estimate made too high may lead him to think in cases of keen competition that all is over with him before he is really in danger. On the other hand, costs estimated lower than they really are may lead to a feeling of security where danger really exists. Nearly every printed article that has appeared during the last five years on this subject has either taken for granted or has presented facts to show that a great many retailers do not actually know what their costs are, and that they have operated their business upon guesses or estimates that were in many instances far from correct. Many examples of merchants who believed that they were making good safe margins of profit but who were really moving towards bankruptcy because of too low estimates of costs have been cited. A large proportion of fail- ures in retail stores are, no doubt, due to this cause. It is certain that a very large proportion of the retail merchants who are thrown into bankruptcy have very imperfect account- ing systems or records of their business. Other Price Considerations. — But costs are not the only considerations in fixing prices. It is even held by many that price fixing based upon costs would be neither desirable nor fair in all cases. When the producer has erred and has ex- pended twice as much in making an article as he should, or when the dealer has mistakenly paid more for an article than others could obtain it for, it would not be just that the burden of such errors should be passed on to the consumers, nor would it be passed on to the consumers under free competition. Each should stand the losses due to mistaken judgment or other similar mistakes caused by himself. On the other hand, if the buyer of a store, or the producer before him, were 224 ECONOMICS OF RETAILING able to bring into the market a lot of goods at a much lower figure than normal costs of production and distribution, the consumer has not thereby earned any opportunity to enjoy those goods at cost. The surplus thus produced is the legiti- mate profit or reward to the producer or to the buyer for his special efficiency. To what extent such cases occur in everj'- day business it is, however, impossible to say. The dealer uses his knowledge of costs only in determining the lower limit of profitable selling. The exact point at which the price shall be set on a particular article must be determined by other considerations. Costs of selling serve merely as a guide as to what the retailer shall purchase and as to what the upper limits of his purchase prices must be. Knowing his costs the retailer can, to a large extent, elimi- nate unprofitable lines from his stock. Thus, while serving only as a guide, the knowledge of costs is a most important thing to the retailer who wishes to succeed in business. Desirability of the Article. — The desirability of an article to the customer is a very important factor in price fixing. It is because people want goods that they come to stores for them and the strength of their wants helps to determine what they will pay for them. It may be the usefulness, the beauty, the uniqueness, or any one of a hundred other qualities that appeals to the customer, but whatever it may be, it is this desire that causes the customer to conclude to give up his money and whatever other goods his money might have bought, in order to possess these particular goods. The strength of demand measured by the amount that customers will be willing to pay for any article is dependent upon four things : 1. The strength of the customer's desire for it. 2. Possession of money or means to buy it. 3. The relative strength of the desire for this article. HOW RETAIL PRICES ARE FIXED 225 compared with the desires the customer may have for other articles that his money or means can pur- chase for him. 4. The knowledge of what this article or similar articles can be obtained for elsewhere. Intensity of Desire.— No goods could be sold unless cus- tomers desired them. Desires must be taken for granted. In fact, all human beings have a multitude of desires, more than most of them can ever hope to have satisfied. The best that any individual can do is to satisfy one at a time in something like the order of intensity. The desire for any particular article in the customer's mind nearly always has competing desires for other articles, possibly widely different in nature. The price that he will pay for any given article measures how many of the other articles he is willing to sacriiice. That is to say, in buying any article, a person does not simpl}- give up his money but he gives up the opportunity to get such other goods as his money would buy. Economists have called this opportunity cost. It is clear that the price of an article must not be placed above the point at which customers will prefer to spend their money for other goods, or there will be no sales of this article. Increasing Desire by Teaching. — The work of the retailer and his salespeople, and of the advertising given to the goods offered in a store, must not be overlooked in discussing the strength of "consumer demand," particularly for goods that are not well known to the customers. It is a well established principle of psychology that we can desire only that which we know something about, and the thing for which desire is the strongest is the central thing in the mind. Strong human wants, such as that for food, when hunger presses, force them- selves into the center of attention, while other wants present 226 ECONOMICS OF RETAILING themselves in the orderly course of thought. A person tends to value a thing in proportion to his knowledge of it, and of its practical significance to him. Salesmanship consists in teach- ing customers about the goods, their qualities, their uses, and the satisfactions they provide. In this way con- cepts concerning the goods, are built up in the customers' minds, and wants for them are developed and strengthened. Not only are demands for new goods thus created, but by such proceeses, the customers are educated up to a willing- ness to pay more for a similar article than they otherwise would. The pre-existent desire for the article is made very much stronger, not only absolutely but relatively, than the desire for other goods. The salesman's knowledge of his goods, his way of telling what the customer wants to know, his faith in his goods, and his "nerve" in asking a price go far towards fixing in the mind of the customer a desire for the article at the price named. Competition. — In addition to the competition of desires for various goods within the individual's own mind, there is the familiar competition of the world of business, the compe- tition of dealers offering the same or similar articles. In times past the most effective competition among retailers was among those whose stores were located close to each other, but dur- ing the last few years, particularly in the smaller towns and the country, the competition of the big stores in the large cities and the mail-order houses has pushed closely up to front rank. Aside from cut-throat competition whose pur- pose it is to kill ofif or to drive trade rivals out of business entirely, competition usually results in forcing prices down close to cost levels with possibilities of net profit for the more efficient dealers only. Price levels will tend to become fixed at a place above which no dealer can sell very many goods nor continue his sales for very long. HOW RETAIL PRICES ARE FIXED 227 When customers are ignorant of what other retailers are offering certain goods for, a retailer may sometimes keep up his prices for a time in the face of competition. But selling goods for more than other dealers get is likely to provoke considerable ill-will when discovered, and it is re- markable that this feeling is likely to vary inversely as the value of the article. Nothing seems so irritating to the aver- age customer as to find out that he has been charged fifteen cents for an article that other dealers are selling for ten cents, while an overcharge of $5 on a $25 or $30 coat or garment may create but little resentment. .Such details need the care- ful attention of the retailer. Destructive Price-cutting. — Competition that drives the price levels below the costs of the goods plus the costs of sell- ing tends either to drive dealers out of business, or to drive them together into combinations having for their purpose the establishment of more profitable prices. The price-cutter is to the regular retailer what the scab is to the trade unionist. The pubHc has always opposed such combinations and under- standings among dealers while excusing if not favoring sim- ilar combinations among laborers. It has always been feared that dealers' combinations, if allowed at all, would lead speed- ily to monopoly and monopoly prices. One of the most prom- ising movements, however, for the elimination of cut-throat competition, particularly the kind that grows out of ignorance of what it costs to do business, is the movement among busi- ness organizations to teach all dealers how to compute the costs of doing business in their own stores and to get them to establish uniform accounting systems, so that results from various stores may be compared readily. Practically every retailers' association in the country is now working towards this end. It is. not thought that accurate knowledge of costs will 228 ECONOMICS OF RETAILING eliminate competition, but with exact knowledge, it is be- lieved that most dealers will hesitate before beginning to cut prices down below the cost line. If they do cut below they will at least do so consciously, and this has not always been the case with price-cutters in the past. Setting a "Fair Price." — Some associations have worked out, and the trade papers have pubhshed what have been considered fair prices for various kinds of retail services, much the same as professional organizations have worked out schedules of regular rates or charges. The National Associa- tion of Retail Druggists has a price schedule, which it sug- gests that its members should use, showing what to charge for prescriptions. In this schedule careful account is taken of the average amount of time required to fill the various classes of prescriptions, costs of materials, containers, and so on. How generally this schedule has been adopted by mem- ber druggists is not known. Habit and Price. — The rule of custom is strong in the retail business. Customary prices are current in many lines. It is difficult to sell goods for more than these prices, and in case of rising costs, the emergency is met more frequently by reducing quality than by increasing prices. On the other hand, customers do not expect to buy goods for less than the cus- tomary prices, hence when costs of production go down and competition among dealers is not particularly keen, the old selling prices yielding enlarged profits are often maintained for a considerable length of time. Every price that is repeated tends to become customary. After an article has sold for a considerable length of time at the same price both customers and dealers get into the habit of thinking of it as fixed. Such prices tend to cover all the costs of production and distribution and a minimum of sat- HOW RETAIL PRICES ARE FIXED 229 isfactory net profit. Any other set of conditions will tend, to upset the equihbrium the customary price presupposes. Goods that have to be sold at less than costs of production and distribution will drop out of the market, while goods sold at large net profits will attract competition that will re- sult in a reduction of the price. Between these two forces, one tending to limit the supply until prices go up to a satis- factory point, and the other tending to reduce net profits to a minimum, the price tends to become constant or customary. Whatever these customary prices are they must be observed by the retailer in fixing prices on any particular article. Ethical Influences on Prices. — In all of the struggles of business for price and profits, cold-blooded as they seem, and generally are, there are frequent indications of influences of an ethical nature at work. What seems "right" prevails at times over all other forces. Discussions of "fair prices" in- volve this higher element. The opposition even of disinter- ested persons to cut-throat competition is another example. Customers are sometimes willing to pay to some dealers a higher price than goods may be obtained for elsewhere, be- cause they feel that the dealers should be supported in their policies of trade, as for example, in selling goods not made in sweat shops, in dealing in home produced goods, and so on. The forces of competition are at least modified to a certain extent through such influences as these. The store manager who is known for his fairness to his employees, for his public spirit, and for his charity is likely to draw trade even if his prices are somewhat higher than those of other merchants who have not manifested the same likeable qualities. Another instance of the influence of other than purely selfish motives is found in the customary practice among many dealers, druggists, for example, to charge the poor less than the regular rates for prescriptions and medicines. This 230 ECONOMICS OF RETAILING cannot be explained by saying that they are getting all they can out of these poor people. The star added to the price mark — the sign that less than schedule prices have been charged — found on a large number of the prescriptions in the files of many druggists, indicates that the work of the pro- fession of pharmacy is after all in the interests of humanity and that justice has tempered economics in fixing the prices charged people beset by pressing difficulties. The same spirit of fairness is aroused in another connec- tion and quite selfishly perhaps, but, nevertheless, related to the phenomena already described. When a man says to him- self when marking the price on an article, "I ought to get so much for it," his idea back of the word "ought" has fairness in view, even if it is to himself. The idea is quite different from that which a man has when he says "I'll get all I can for it!" Again, when a man is being ruined by competition, he rarely speaks of economic laws, nor does he blame the eco- nomic system. He appeals for "fair play." He wants to be defended from "unfair competition." To deal with such cases as his, society has built up entire codes of legal process and precedent on "unfair trade," and to these codes new items are constantly being added. In other words, the ethi- cal is encroaching on the blind, economic, frequently un- social, forces through the medium of courts and law. Differing Ideas of Value Influence Prices In considering at what price goods should be marked in order that they may sell profitably, it has been assumed up to this point that the demand of all customers is the same, or that there are no indi- vidual differences of opinion as to desirability or value. This might hold in theory, but in practice nothing could be farther from the truth. To illustrate, out of ten men, probably not more than five would care for a safety razor at any price. HOW RETAIL PRICES ARE FIXED 231 Out of ten women, not more than three or four would buy black hats with pink trimmings, under any circumstance, and so on. Sales will be limited to the number of persons who feel a desire for the particular article. But not only will sales depend upon the number of people who have any desire for the article, but they will also depend upon the price itself. At a given price there will be a certain number of purchasers, at a higher price there will be fewer, and at a lower price there will be more. Thus the volume of sales possible at a certain price within a certain time is an important consideration in fixing a price that will be most profitable. Toilet Soap an Example. — Take for example a toilet soap whose cost to the dealer, both purchase price and selling ex- pense added together, amounts to 8 cents per bar. At what price should it be sold? The answer will depend upon the possibilities of making sales at different prices. Suppose that the sales for a week at 10, 13, and 15 cents per bar were esti- mated to amount to 100, 50, and 20 bars respectively. The net results of each pricing system can be most easily under- stood by a table : Sales of Toilet Soap in One Week at Different Prices Total Costs at Estimated Amounts 8c per Net Selling Price Sales Received Bar Profit 10 cents 100 bars $10.00 $8.00 $2.00 13 " 50 " 6.50 4.00 2.50 15 " 20 " 3.00 1.60 1.40 It is clear from the above that sales made at 13 cents per bar will yield the highest net return. This will, therefore, be selected as the sales price for the week. It should also be noted that sales at 10 cents per bar are relatively more profit- able than at 15' cents per bar for the reason that five times as 232 ECONOMICS OF RETAILING much soap is sold at lo cents as at 15 cents, and the net profit on the sales at 10 cents amounts to more than the net profit on the sales at 15 cents. Capital and Turnover. — One of the productive factors of a retail store is the capital invested in its stocks of goods. When this capital is borrowed for use in the store, interest must be paid for it, and interest should be entered as an ex- pense charge in any case regardless of whether the manager of the store borrows or supplies capital from his own funds. Efficiency in its use depends upon its activity. By activity is meant the number of times it can be used over and over again in the course of a year. Each complete use of the capital in- vested in merchandise is known as a "turnover." If expenses and profits per sale remain the same, the greater the number of turnovers within a year, the greater the net profit result- ing.^ This fact has long been recognized. There is an old business maxim that expresses the idea exactly; "A nimble sixpence is better than a slow shilling." To illustrate with a very .simple kind of retail business, suppose that a push cart vendor invests $6 in fruits and veg- etables and sends out the cart and its load of merchandise with a salesman who is employed at $2 a day. The cart load brings $9. If it takes a day to sell out, the owner will have to pay $2 out of the $9 to his employee. Since the vegetables cost $6, his net profit, excluding repairs and upkeep on his ^ The annual turnover in a retail business is usually computed by dividing the sales for the year by the inventory. This method is incorrect. In the first place, the inventory is usually taken at billed or cost prices, and is, therefore, not com- parable with the sales. In the second place, the inventory when taken only once or twice a year, is usually not taken at a time that will represent the fair average value of the stock carried. A January inventory represents, or should represent, the lowest stock level of the year. Using this method, gives a result that is too high, and is, therefore, likely to delude the merchant into thinking that his turnover is Igreater than it really is. The correct way to find the annual turnover is to divide the sales for the year by the average inventory for all twelve months, taken at selling values not costs; or divide the total amount of goods sold, expressed in the figure which represents what those goods cost by the average inventory at cost prices. If only one or two inventories are taken during the year, they should be taken at times that most nearly represent average stock conditions. HOW RETAIL PRICES ARE FIXED 233 push cart in this illustration, amounts to $1. But if the load can be sold during the forenoon, and another like load in the afternoon, the expenses for the employee will be the same, viz., $2, the cost for merchandise will be twice $6 or $12, while the gross receipts come to $18. Tlie net profits, there- fore, amount to $18 less ($12 plus $2), or $4 for the day. That is to say, one turnover per day will yield the push cart merchant $1 profit, but two turnovers will yield him $4 on the same investment. A third turnover during the day would increase his profits to $7, all on the capital investment of $6. In the illustration above, it is assumed that selling ex- penses remained the same, that is, $2 per day, regardless of the amount of sales. If the absolute expenses of running a store remained the same, while its sales increased, the prin- ciple of increase in profits in proportion to turnover would be the same as for the push-cart vendor. This is rarely the case, however. Some expenses in conducting a retail store tend to parallel increases in sales, particularly the item of salaries or wages for salespeople, deliveries, rent and some others. The average store conditions can be illustrated better by assuming in our push-cart example that the salesman em- ployed receives a commission rather than a salary. Suppose that he receives $2 for every load of merchandise he sells. Assuming all other conditions in the illustration to be the same, if but one turnover were made per day, the owner of the push-cart would reap a net profit of $1. But if two turnovers were made, he would make $2, and if three were made he would make $3. Thus, when expenses remain constantly pro- portionate to sales, the net profits for any period of time will equal the net profits on one turnover multiplied by the num- ber of turnovers in that time. Relation of Expense to Increased Sales. — Up to a certain point a store starting in business can generally increase its 234 ECONOMICS OF RETAILING sales without increasing its expenses proportionately. Beyond this point its expenses parallel increases in sales until a still higher point is reached when additions to sales cost relatively more and more. Expressed in terms of economics, the first is a .stage of increasing returns in proportion to outlay, the second is a stage of constant returns, and the third is a stage of diminishing returns. In the first, the percentage of expense to sales decreases; in the .second, it remains constant; and in the third, it begins to climb. The rise in expense in the third stage may proceed to the point where it will not pay to in- crease the sales at all, for the reason that the costs incurred in getting the additional business are equal to, or greater than, the gross profits derived therefrom. For the purpose of this chapter, it may be assumed that most retail concerns are in the second stage, the stage in which selling expense simply parallels business. Whate>ver profit, therefore, is gained on one turnover of the capital of such stores, is multiplied by the rate of turnover. Rapid Turnover Raises Net Profit. — It is obvious that the retailer will seek to increase the number of turnovers in order to get the higher net profit. It may even be profitable to reduce the selling price somewhat to increase the turnover. This amounts in substance to dividing the net profits due to the greater turnover with the customers. To illustrate we may consider the push-cart vendor again. It was assumed that on a commission basis each turnover would net a dollar profit, and that $3 of net profit could be made in a day if three turnovers could be secured. Suppose, however, that the best that could be done was one turnover per day when selling at regular prices, but that by reducing the prices so as to sell the entire load for $8.50 instead of $9, three turnovers could be made. Then what would the results be? Each turnover would in this case net the owner a profit JV_h HOW RETAIL PRICES ARE FIXED 235 of 50 cents or a total of $1.50 on the three, while one turn- over at full prices would yield a net profit of only $1. It would, therefore, be more profitable by 50 cents to sell at the lower prices and turn the goods oftener. This brings us to a consideration of the possibilities of turnovers in the various lines of merchandise. Upon this point there have been collected a number of interesting figures. Annual Turnovers in Retail Stores^ ^ Number of ^X^ind of Stores Turnovers ^ fjTocery 10 ' ■ \Department 7- "* Variety goods 6 Drug 4.5."' Dry-goods 4 HardVvare 3.5 Furniiure 3 Shoes 2. 1 Clothing 2 ^ Jewelry 1.5 Annual Turnovers of Departments in Department Stores and Country General Stores' V Departments City Stores Country Stores \ Books 4 1.5 ""^^andy 15 9 Clocks 2.5 I Embroideries 3.5 3 Furs 5 3 Infants' clothing 5 3 Laces 4 2 Linens 3.5 2 Men's hats 7 4 Pianos 9 4 Ribbons 6 2 Stationery 5 2 Umbrellas and canes 11 3 Trunks 5 1.5 Veilings 5.5 2 Wash goods and flannels 5 3.2 ' Compiled by Wheeler Sammons of System. 'Id. 0, ,^, (^ 236 ECONOMICS OF RETAILING Annual Turnovers in Various Lines in Dry- Goods AND Department Stores^ Line Aver. An. Turnovers Candy 13.27 Skirts and petticoats 7.22 Millinery 6.63 Coats, suits, and dresses 5.5 Stoves, refrigerators, and cookers 5.45 Shirtwaists 5.14 Patterns 5.05 Furs 4.55 Children's wear 4.45 Corsets 4.43 Toys and books 4.42 Umbrellas ; 4.38 Sewing machines 4.37 Neckwear and handkerchiefs 4.26 Wash goods 4.17 Hosiery 3.65 White goods 3.76 Notions 3.97 Linings 3.77 Furniture 3.65 Jewelry, toilet goods, bags, belts 3.45 Linens 3.4 Trunks and bags 3.39 Hair goods 3.22 Muslin underw ear 3.20 i'able Imen and towels 3.09 Ribbons 3.01 Gloves and veilings 2.96 Silks 2.91 Dress goods 2.9 Knit underwear 2.89 Wall paper and decorations 2.88 Men's furnishings ' 2.73 Boys' clothing 2.56 Men's clothing 2.53 Laces 2.50 Infants' wear 2.41 Art goods and needlework 2.34 Embroideries and trimmings 2.26 Rugs, carpets, and linoleums 2.18 Shoes and rubbers 2.18 China, glass, and house furnishings 2.03 * The National Dry Goods Association. HOW RETAIL PRICES ARE FIXED 237 The Harvard retail shoe store investigation gives the range of turnover from i up to 3.6, with 1.8 as the point at which a large number of stores center, and offers 2.5 as a reahzable standard for shoe store turnovers.^ Departmentalized Accounts. — It is clear that in this mat- ter analysis can be carried much farther than indicated by the preceding tables. It may be safely assumed that each kind of article carried in stock has its rate of turnover, and also its specific selling cost. It is not likely that retail cost account- ing can ever be carried to the point where these fine subdivi- sions can be made except for such stores as carry only a very few kinds of goods. The best that can be done, as it now ap- pears, is to "departmentalize" the accounts to correspond with the general departments or main lines found in a store and then make estimates within those departments as to the rel- ative burdens of expense each article should stand, and as to the rate of its turnover. This involves many questions, such as a comparison of the relative costs of selling package as com- pared with bulk goods, staples compared with novelties, high- priced with low-priced goods, and so on. If carried out in a practical way this analysis would show that the cost of doing business for any retail store constitutes but an average of the costs of doing business in each and all of the separate kinds of goods handled. For example, if a grocery store whose costs of doing business amount to 16 per cent of sales could be analyzed minutely, it would be found, probably, that a large number of the goods in that store were being sold at actual costs of more than 16 per cent, some possibly as high as 25 per cent and even 30 per cent; while other goods would run considerably less than 16 per cent. It could be safely assumed that such goods as spices, teas, fancy ' Bulletin of the Bureau of Business Research, Harvard University, No. i, May, 1913, page 14. 238 ECONOMICS OF RETAILING canned fruits, very perishable goods, and other goods sold in small quantities and requiring considerable time to demon- strate and handle, cost the grocer more than 16 per cent; while the selling cost of such goods as sugar, flour, lard, kero- sene, staple vegetables, and so on, is less than 16 per cent of the sales price. Relation of Cost Accounts to Prices. — A number of re- tailers and others who have been studying the application of cost accounts to the pricing of goods, hold that the general percentage of expense of selling .should be added uniformly to all goods purchased, and that a uniform net profit should be added to this amount. The sum of these three items, the cost price of the goods, the costs of selling, and the net profit, should be the price at which the goods should be sold. That this method would not result in prices representative of mar- ket values we have already seen, but it may be pointed out here that if this method were followed, some goods would have to bear a much heavier expense burden than they really incur, while other goods would be sold for less than the origi- nal costs, plus the costs of handling. In reply to this criticism, those who favor this method argue that this makes no practical difference since the total expenses and total sales will probably be the same as before. But this answer is subject to question, and, besides, the re- tailer who attempts this plan is likely to find himself in trouble with his competitors. Some who may be carrying only such goods as may be handled and sold at low expense, will thus be able to underbid him for trade and force him to drop his prices on such goods or lose the opportunity of effecting their sale. In case he refuses to reduce his prices, it may be as- sumed that people will go elsewhere for those goods on which his prices are high in comparison with the prices offered by other merchants, while they will come to him for goods which HOW RETAIL PRICES ARE FIXED 239 he sells at lower prices than others, though they are burdened with a high cost of handling and selling. But if he does not raise his price on these, he will begin to lose money, for the sales that he planned on in the lower expense burdened goods can no longer be made. Thus his deficits in the higher bur- dened goods will not be covered. The only logical way would seem to be for each article in the store to carry its own burden as fully as possible. Where the selling expense is high, the price should be made correspondingly high, and where the selling expense is low, the price should be relatively moderate. Long profits should be made on the slow sellers and short profits on the quick sellers. Competition will tend to drive prices in these direc- tions. How is the Selling Price Set? — It will now be of interest to see what practice retailers follow in marking the selling prices of their goods. It will be recalled that the costs of tlie goods, plus the costs of selling, set the lower limits at which goods may be sold, while the relative desirability of the article to the consumer sets the upper limit. Between these two limits there operate such forces as competition, custom, personal salesmanship, and desire for fair play or the square deal. With these forces to reckon with, how is the price to be set? One of the customary methods is to study competitors' prices and then fix prices at the same points. This is a dan- gerous policy unless the retailer knows what his own costs are and that his prices adequately cover them. If compet- itors' prices are too low on some goods, the only way out of the difficulty for the retailer is to avoid such goods as much as possible, deal in other lines in which prices are not so low, secure exclusive agencies, and specialize on certain profitable lines. When competitors' prices are not known, the method of 240 ECONOMICS OF RETAILING determining prices most commonly used is to compare the goods to be priced in every way with other goods of the same class that have already been successfully sold, and to mark the new goods higher, lower, or the same, as they seem to be more, or less, or equally desirable. Salespeople Assist in Price-Fixing. — In this connection it is worth noticing that some of the most successful retailers constantly call on their salespeople for assistance in this mat- ter. The salesman is asked what he thinks he can sell a given article for. The salesman realizes that he succeeds with his firm only in proportion as he makes a profit for it. In the light of his experience with past goods he will name as high a price as he thinks he can get. But if he is wise, he will not make it too high for he may be called to account later on for his in- ability to sell it at the price named. This method, therefore, not only gets a price set upon the goods at which they are likely to be sold, but also enlists the full co-operation of the salesman in making the goods move at the price named. A combination of these methods — a comparison with competitor's prices, comparison with prices of other goods successfully sold, using the judgment of the salespeople, in the meantime checking back to the costs of the goods and of selling — is the plan followed by a large number of suc- cessful stores. Following any one plan is likely to lead into difficulties. Only by considering all of the factors affecting cost on the one hand and demand on the other, can the price be set which will bring the best returns to the store. Goods of Variable Value. — A large number of goods are exceedingly variable in value, particularly those affected by changes in fashion. A recent article in a trade paper asserted that 25 to 30 per cent of the goods handled in department stores are subject to mark-downs. In other words, in such HOW RETAIL PRICES ARE FIXED 241 goods, even when of the same quaHty, tl ere is no certainty that all purchased at one time can be sold at the price named at first. As soon as a stock of such goods begins to move slowly at the price first set, it is customary to "mark them down." Reduction sales are held, and the goods cleared out in this way. To illustrate, suppose a concern purchases a lot of fancy silks at a uniform price of $1.35 per yard. In the lot there may be a great variety of patterns, colors, and shades. Recog- nizing the fact that demand for such goods as dress silks, varies exceedingly with individual purchasers, and that the de- mand created by fashion is at its best very fickle, the concern sets out to make the best of it. Instead of setting a uniform price on the silks at which they hope to sell out the entire lot, they may fix, at first, a price as high as $3, or more. The fact that a "fresh shipment of beautiful dress .silks in the very latest patterns has just arrived" will be announced, and some shoppers are likely to be interested. As a result some sales will be made. These first customers will naturally pick out what to them seem the most desirable patterns and colors. Then in order to move another portion of the stock a '"cut" in price is resorted to. "Silks formerly offered at $3 are now being sold at $2.19." This brings a great many more shoppers, and at this point a large part of the goods are probably sold. But there may still remain a collection of odds and ends of the patterns that did not seem very desirable to the two classes of shoppers that have already examined them. These are "re- duced" again, perhaps sent to the bargain basement or subway store, to be sold at $1.69. Here the last of the lot is dis- posed of. This policy seems to succeed better than to offer the entire lot at say $2.25, and hold to that price until all are sold. At the latter price it is not likely that all could be sold and the net result would be considerably less profitable to the con- 242 ECONOMICS OF RETAILING cern than when sold in the way indicated. This method of marking up goods and making reductions as necessary seems to be the most effective way to sell some goods, especially those that are subject to changes in style. Besides bringing handsome profits to the concern directly, the spectacular cuts in prices, incident to the system, described, furnish excitement for the readers of the .store's advertising, and help to draw crowds who are likely to buy other goods as well as those advertised. The One-Price Policy. — There are certain well-defined policies with reference to retail store prices that need to be mentioned. The first of these is the one-price policy. Stores following this policy mark their goods in plain figures and, at any given time, sell to any or all buyers at the same price. That some buyers might be willing to pay more if they had to, makes no difiference. If the price is too high for others no reduction is made. All are treated alike. The one-price policy is comparatively modern. It first came into use in this country in the big dry-goods and department stores. Tlie or- ganization of such stores as they grew became so complicated that any other policy was hard to carry out. The old dicker and bargain policy still found in many one-line stores of the old-fashioned type required salespeople with considerable skill in handling customers. The one-price policy made it possible to employ people who had had no training in business nor in any phase of buying and selling. To be successful the one- price policy demanded that the price be fixed at the point at which the goods would move, and after a trial, if it was found that customers did not buy, the prices could be revised and re- duced. If the prices were made too low, that fact could also be noted and changes made accordingly. Thus the bargaining process was removed from individuals and made a matter of reaching groups. HOW RETAIL PRICES ARE FIXED 243 Success of One-Price Policy. — The one-price policy has been found very successful in this country and very much in accord with the common sentiment of the American people — equality of opportunity (even in buying goods.) to all. It has resulted in great economies in time for both buyer and seller. The weak and the ignorant have been placed on a level in purchasing ability with the best. Salesmanship under the one-price policy has been raised from the level of talking about the price, to dernonstrating what is being offered. The old plan of marking goods with secret or code price marks and then selling them to customers for as much above this price as possible has not entirely passed away. There are still houses whose salesmen ".size up a customer" when it comes to stating the price, and then ask as much aboA'e the minimum set by the concern as they think the customer is likely to pay. In the old days the customer usually par- ried and made an offer of considerably less. Then the hig- gling began, the salesman bragging about his goods and the customer pointing out their defects, until finally some com- promise was reached, often halfway between the price first asked and that offered. In many instances the salesman re- ceived a commission on all sales in which he succeeded in getting more than the minimum decided upon by the concern, some firms splitting such profits evenly with the salesmen. Except in the largest cities where, in addition to the modern department store with its one price to all, are found the lowest grade of shops with different prices to different people, the.se practices no longer prevail. The Variable-Price System. — The system of variable prices has little to commend it except its age. In principle it accords perfectly with the old theory of freedom of the mar- ket and free competition. Under this principle the "fittest" bargainer "survived." In times past when man's wants and 244 ECONOMICS OF RETAILING varieties of goods were not so numerous as they are now and when there was not the pressure for time that characterizes modern Hfe, there may have been more reason for such a pohcy than at present. Since there were fewer goods to buy, and fewer varieties of those goods, it must have been easier to exercise wisdom in their selection and purchase, and to know their quahties and values. Customers could then afford to waste hours in jangling and bargaining in the shops over half shillings, whereas now, so far as possible, every develop- ment is towards setting man's time free from the economic struggle of life. Hours of labor are cut down, children are forbidden to labor before reaching certain ages, and pensions are given to the aged so that they may retire from labor. In accord with this same tendency, the people of the present are seeking to .standardize and to make automatic as much of the economic life as possible, in order to save time for other things. The one-price policy in retail stores seems to be in line with these tendencies. Finally, there are indications that in the near future the public will be more generally informed concerning the costs of distribution and consequently concerning retailing. Much of the dissatisfaction and criticism of our distributive system has grown up because the public has not fully understood what work has been performed for them by distributors and what the legitimate costs for such services really are. Not knowing the facts, such information as the people have gained concerning the margins of gross profit that retailers get has made it easy to conclude that middlemen are robbers. A clearer kn6wledge of the necessary costs of any form of dis- tribution must certainly serve to clear up any misconceptions or misunderstandings. Publicity of Retailers' Costs. — It has already been sug- gested, and it may not be long before the more progressive HOW RETAIL PRICES ARE FIXED 245 retailers will decide to reveal their business costs to their cus- tomers and urge them to come for goods on the ground that their costs of doing business are less than their competitors. In these days when we worship the -ideal of (efficiency, such an argument as that, truthfully stated, should prove a great trade attractor. Sooner or later the growing unrest of the public concerning the rising costs of living will be focussed on the costs of distribution. Public investigations will be made and -legislation proposed. Much of any ill-will that might be present in that scrutiny, when it comes, can be averted by retailers if they will but take the public into their confidence. Price is the tender spot in nearly all economic discussions where public interest is concerned. It is highly essential that all retailers, who are doing a legitimate business upon a reasonable profit basis, co-operate in letting the public know what are their price-making processes and problems. CHAPTER XV THE DEPARTMENT STORE What a Department Store Is. — The department store is a retailing institution that deals in several Hnes of goods, each line separated or "departmentalized" from the rest, both m lo- cation within the building and in the concern's accounting and management systems. Each department is considered practically a store in itself, and in large stores each has its separate organization of buyer, or department manager, and salespeople, much the same as any independent store. The term "department store" has not been received with much favor by the managers of some of the largest and most representative institutions of this kind. "United stores," "consolidated stores," and other names have been suggested as more appropriate. The reason for this disfavor is probably that the title "department store" has been claimed by many concerns doing business on planes that have tended to draw disrepute to the whole class. However, this term has come into general use by the public, and it is probable that the name will stick. Origin of the Department Store. — Although department stores have existed in this country less than half a century, their origin is hard to trace. The general merchandise store once so common, and still found in large numbers of country towns, handling all classes of goods, but not in departments, is considered by some as the prototype of the modern depart- ment store. There is certainly a similarity in the functions performed by the two institutions, but their respective organ- 246 THE DEPARTMENT STORE 247 izations are entirely different, and but few of the present de- partment stores were the direct outgrowth of general mer- chandise stores. The general merchandise store has usually given way to specialty or one-line stores, and the department store has appeared only after the merchandising of the com- munity has become well established and advanced. A large number of department stores trace their beginnings to dry- goods stores. Factory production of women's goods, and of goods formerly made in the homes, such as women's and children's ready-to-wear, underwear, hosiery, millinery, laces, embroideries, and household goods of all kinds has resulted in a demand for special outlets to women customers. Since the dry-goods stores were first in the field as suppliers of women's needs these new lines of goods have naturally found a place in dry-goods stores expanded into department stores. The competition among dry-goods merchants, and the nar- rowing margins in the older lines of goods, such as the tex- tile staples, have helped to make the merchants more ready to take on the new lines and to expand their stores by adding new departments than they would otherwise have been. Thus, by gradual expansion, the dry-goods store grew into a de- partment store. Department Store Formed by Consolidation. — It seems that, in some cases, the department store had its origin in a consolidation of several stores conducted by as many indi- viduals under one roof. It has been customary in many in- stances for the owner of a building, or the lessee of the por- tion suited for store purposes, to sublease a part of the floor space to one person, and other parts to others with the un- derstanding that each should conduct a retail business thereon in a specified line of goods not competing with other lines of goods ©ffered in other departments. There are in existence today many such combined stores. With the passage of time 248 ECONOMICS OF RETAILING the ownership of these several departments passed to one in- dividual, who thereby became a department store owner. Period of Rapid Development. — Whatever were the be- ginnings of department stores, the fact remains that the period following the panic of 1873-4 in this country saw a rapid de- velopment of this class of retailing establishment. The Jor- dan Marsh Company's store in Boston is credited by some with being the first. This store, it is understood, borrowed the idea from the Bon Marche, a large retail store in Paris, and the first department store of which anything is known anywhere. Shortly after the Jordan Marsh store had been departmentalized, other department stores were established in Chicago, Philadelphia, and New York. Following the close of the Civil War, prices of all com- modities handled in retail stores began to fall, competition stiffened, new methods of merchandising began to be tried out. To use a- stock exchange term, the "bears" ruled the retail markets. Many of the older storekeepers did not know how to adapt their business so as to buy and sell under such conditions. Out of these circumstances grew the tendency among some retailers to buy for cash in the wholesale markets and direct from the producers, to seek out bargains, and to sell quickly by offering the merchandise at prices lower than usual. Profits were made smaller per sale, but stocks were turned oftener. Advertising was applied to help sell the goods. Special sales began to be introduced ; while, on the other hand, the demand of the public for goods increased both in variety and amount. Under these conditions there appeared contem- poraneously the department store, the mail-order house, and the chain store. Number of Department Stores Today.— According to the United States Census of 1910, there were 8,970 department THE DEPARTMENT STORE 249 .Store merchants and 88,059 general store dealers in this coun- try. Dun lists nearly 1,800 department stores. There are about a hundred department stores that are rated at a million dollars or more. Probably nearly half of entire retail sales of dry-goods and women's ready-to-wear are made through department stores. The volume of business done by these stores in the hundred leading cities of this country exceeds a billion dollars. Naturally the department store business is largely con- centrated in the larger cities. Greater New York has nearly a hundred establishments of this character doing a business aggregating more than $300,000,000 per year. In New York the sales of some of the largest stores are in excess of $20,- 000,000 per year. One store in Philadelphia probably sells $30,000,000 per year. It is commonly stated that the largest store in Chicago has sales amounting to $35,000,000. The largest in Boston sells $20,000,000, and the largest in St. Louis nearly $10,000,000 worth of merchandise annually. The Department Store Abroad. — The modern develop- ment of the department store is not exclusively American. In Paris there are at least nine or ten large stores of this type. Besides the Bon Marche already mentioned as the pio- neer, there are the Louvre, Galleries Lafayette, Printemps, Trois Quartiers, Maison de Blanc, Cour Batave, Samaritaine, and Dufayel's. In London, Har^od's, Whiteley's, and Sel- fridge's stores are well known. H. G. Selfridge, however, is an American, a former resident of Chicago, and at one time a partner of Marshall Field. The private department stores do not succeed as well in England as on the Continent, for in England their functions are at least partly performed by the big co-operative societies' stores, of which there are branches in nearly all parts of Great Britain. In Germany this system of merchandising is well developed and the number of estab- 250 ECONOMICS OF RETAILING lishments great. One of the stores in Berlin, Wertheim's, is said to occupy the most remarkable merchandising building in the world. Department stores are also to be found in China, Japan, Argentina, Australia, and Canada. The department store has come into existence in response to an economic need. It has succeeded and has continued to, hold its place, and to gain ground because it has occupied a certain point of vantage in the distribution of goods. Its future in one form or another in large cities seems secure. Characteristics of Department Store Merchandising Unity. — Many departments or sections under one roof. Stores are not usually classed as department stores' unless they have at least a score of departments. Some of the larger establishments have a hundred or more. One of the largest is said to have over 250 sections or departments. Service. — Special convenientes offered to all shoppers whether they buy or not. Under the guise of "service" the modern department store has come to be a sort of club house and amusement place for women. One ordinarily finds in these stores rest rooms, silence rooms for nerve-tired shop- pers, reading and writing rooms, restaurants, information bureaus, post-ofifices, telephone booths, and telegraph stations for the unrestricted use of all. In some stores lectures, demon- strations, musical programs, moving picture shows, and even operas and plays are given frequently. In a few cases, the department store has served as an employment agency for do- mestic help, as a house and estate agency, and even, recently, as a market for corporation securities. Some department stores conduct banking departments accepting the deposits of their customers and employees and paying interest on these deposits, although this form of service is now somewhat under a cloud because of the recent failures of large eastern depart- THE DEPARTMENT STORE 251 ment stores having banking departments. Hair dressing and manicure parlors, and children's barber shops are regular ad- juncts of the largest stores in all cities. Play rooms for chil- dren, lost and found departments, and dental parlors are also common. None of these services have any direct connection with the sale of goods in the store. Most are gratuitous, and where direct expenses are involved as in the restaurants, hair dressing, and manicure parlors, the charges made are usually only sufficient to cover those expenses, and no special attempt is made to get a profit therefrom. All of these services are given, however, to attract people to the store, and to get them into the habit of coming, so that their wants may be satisfied by merchandise purchased there. Several special forms of service in direct connection with the sale of goods are also common. Free delivery, sales on credit, C. O. D. sales, goods sent to the homes of cus- tomers on approval, guarantee of "money back if not satis- fied," and "goods exchanged," are so common now as to merit no more than a remark. While many of these serv- ices are extended to their customers by specialty or one-line stores, none have gone farther than the big department stores, and none could profitably do so. Specialized Advertising. — The employment of specialists in the advertising department. The great volume of adver- tising run by the larger stores is intended to draw people to the store and to facilitate the sale of goods. It is intended to take the place of much of the expert salesmanship that might otherwise be necessary to effect sales. Department stores are the greatest users of newspaper advertising space. W. C. Freeman, formerly advertising manager of the New York Globe, has estimated the amounts expended annually by some of the principal stores for advertising as follows ■} ^Printers' Ink, October 9, 1913- 222 ECONOMICS OF RETAILING John Wanamaker's, Philadelphia $450,000 John Wanamaker's, New York 700,000 Gimbel's, New York 700,000 R. H. Macy and Co., New York 350,000 Altman's, New York 300,000 Stern Bros'., New York 300,000 Jordan Marsh Co., Boston 300,000 plus Shepard, Norwell Co., Boston 300,000 plus Houghton and Button, Boston 300,000 plus This expense is said to amount to from 2 to 5 per cent of the total sales of the stores named. Another feature about department store advertising in addition to its magnitude, it is specific, concrete presenta- tion of information about goods. Style, quality, and price have been the lines along which the chief appeals for busi- ness have been made; and of these three, price has been the one most emphasized. Comparisons of "Our special price" with "Regular price," now happily not so much used as formerly by the largest stores, have been heralded in black face type for years from one side of the continent to the other. Bargain Sales. — The usual reasons for these price offer- ings, where reasons were given, have sometimes been that the store has either overbought and wishes to unload at a sacrifice, or has had some misfortune such as a fire and must sell its goods at greatly reduced prices, or more commonly that it has been especially fortunate in its purchases. It may almost be said that the larger part of department store business seems to have been built up on bargain advertising. It is certainly in this field that some of the most remarkable successes have been made. Miscalculating Demand. — On account of the tremendously rapid development of machine production during the last fifty years, it has not been possible for any producer to predict the THE DEPARTMENT STORE 253 Strength of demand for the kind of goods that he planned on getting out. New industries have been springing into the field, competition has grown keen over night, demands themselves have both developed and changed rapidly. Channels of dis- tribution have not been well defined and not always open to all. In consequence of such unsettled conditions, every producer has had to take chances on the possibilities of mar- keting his goods successfully. Many miscalculations have resulted. In such cases the producers have been glad to un- load their unprofitable surpluses at even less than the costs of production; in fact, they have been glad to take anything they could get. Department Store Buying.— Department stores with their own buying organizations able to buy direct from producers have been best fitted to take advantage of these manufacturers' sacrifices. With ready cash and the organization for taking care and disposing of such goods, the buyers of these stores have been able to pick up many lots of goods of this kind. By their direct merchandising methods, they have found an opening in the economic system of production and distribu- tion of goods that other concerns had either failed to see or could not benefit from. Their function here is to pick up surplus stocks in the hands of producers and dealers, stocks not wanted by the regular trade. Out of stocks thus bought up, the department store has been able to make bargains an actuality. Because acceptable job lots of this kind are not always available for all of the departments of a department store, it is sometimes necessary to adopt other means to get goods at prices lower than those paid by other dealers. The de- partment store with plenty of capital has been able to buy for cash large quantities of goods and get larger discounts than would be given to those who buy only in small quanti- 254 ECONOMICS OF RETAILING ties. In many cases these quantity discounts have been over- large from an economic standpoint. The temptation of the big order and the competition of other producers have tended to drive the supply prices down even below the point one might reasonably expect in view of the savings to the pro- ducer in getting rid of his product in large lots. In still other cases the department store buyer has been able to get his goods at unusually low prices by ordering them in large lots in advance of manufacture, thus lessen- ing the manufacturer's risk, and guaranteeing work for his plant during seasons that might otherwise be dull. In these ways the big department stores have been able to get many consignments of goods at figures that have permitted them to sell at bargain prices and still make a good profit. Results of Stabilized Merchandising Conditions. — But as merchandising conditions become more stable, and as it be- comes more nearly possible to predict the demand for a cer- tain line of goods, either by careful analysis of all conditions that may affect it, or by producing only to order, as is now largely done by many concerns in the shoe and clothing trades, the opportunity of picking up job lots of goods of dependable quality becomes relatively rare. Surpluses of products that the producers cannot market through the regular channels of trade because of mistaken judgment as to demand are not so frequent. Goods offered in this way are now very likely to be defective or poor in quality. Defective goods, however, have entered very largely into the retail markets, especially through the medium of the cheaper grade of department stores. While these "goods" have been heralded as bargains, the advertising in such cases does not belong to the realm of truthful merchandising. In some cases it is possible that some stores have gone farther than this in their advertising, and where no bargains THE DEPARTMENT STORE 255 have existed, the advertising writers have conceived them in their own minds and proceeded to pubHsh them as actual realities. Untruthful Advertising Not Common. — Untruthful ad- vertising is not peculiar to department stores. Specialty stores have sinned in this respect as much as department stores, differing only in the degree to which they have used advertis- ing. Mention of the matter is made here simply because de- partment stores are such great advertisers as compared with all other forms of retailing establishments. The better classes of stores are very strongly opposed to bargain advertis- ing, and it is even claimed by some that the "bargain" as an appeal is losing its attractions and its power to draw cus- tomers. "Newspaperdom" says: "One variety of lie that has had its day of effectiveness is the 'bargain-sale' lie. Ad- vertisements of bargains are still printed, but the public is almost as impervious to them as the side of a battleship would be to the fire of a battery of pea-shooters. The delusion still exists among many merchants that this is not so, but no such delusion exists among the great merchants." George Hough Perry, former advertising manager of John Wanamaker, Gimbel Bros., and Siege! Cooper, is re- ported to have said that "bargain sales are passing rapidly into the limbo of exploded ideas, that all future tendencies will be toward emphasizing not price, but what can be had for the price, and that 'bargain' sales are obviously and neces- sarily built upon lies." J. J. Stokes, advertising manager of Marshall Field & Co., says that "nine-tenths of all bargain advertising is made up of falsehoods and exaggerations and that loo lines of advertis- ing concerning the publicity of a business house is worth loo pages of 'bargain' falsehoods." 256 ECONOMICS OF RETAILING Specialized Organization. — The main factor of depart- ment store efficiency apart from its buying and advertising powers, already referred to, is its specialized form of organ- ization. In this respect the modern department store differs from the old time general merchandise store as day differs from night. In the latter, there was no specialized organiza- tion. Clerks sold goods in all or nearly all departments, and accounts or records were not separately kept. For the most part, when the store made a profit, the owner could only guess what lines of goods produced it, and his guess was as likely to be wrong as right. Possibly department store system would have been impracticable in the general merchandise store, but the lack of it was the weakness of the latter, while the presence of it is the basis of the peculiar strength of the former. Each Department a Store. — In a department store, each department or section is considered as a separate specialty store or shop. Its accounts are kept separate, and under nor- mal conditions it must .stand on its own feet; that is to say it must pay its own expenses, and its prorated share of the general expenditure for rent, light, heat, power, insurance, office up-keep, and so on. In addition to this it must seek to make a net profit. Each department has its own organization for buying and selling goods. This organization consists of its man- ager or buyer and necessary assistants such as assistant buyer, head of stock, and salespeople. In these respects the depart- ment is exactly like a specialty store, but the accounting, ad- vertising, stockroom work, credits and collections, handling of the cash paid out and received, and the delivery of the goods is done for the individual department by special depart- ments organized to serve all of the merchandise departments in the store. The specialty store, selling one line, has its own THE DEPARTMENT STORE 257 Accounting Credits and Cd lections Delivery Supervision Gen'l. Manager Meretiandise Ctepartmsnt Customers Care cf Stone Stock Wfork Advertising I. Organization Ctiart — Specialty Store Accounting Credits and Collections Delivery Supervision Qen'l. Manager Care oF Store Mercha ndise' [feportments Customers 5tocl<-rooiTi Work Advertising 2. Organization Ctiart — Department Store 258 ECONOMICS OF RETAILING u c u o THE DEPARTMENT STORE 259 accounting, advertising, credit, cash, and delivery depart- ments, but in a department store of forty sections, for ex- ample, there is but one of each of these departments to serve all of the forty sections. Comparative Organization Charts. — The charts on page 257 will make these relations more clear and indicate the difference between specialty store organization and depart- ment store organization. In Chart i the single merchandise department of the specialty store is served by all of the sur- rounding departments. In Chart 2 the merchandise depart- ments, A, B, C, D, E, F, G, and H are all served by the same number of special departments, one new official only being added, viz., the merchandise manager. This official acts as a sort of head buyer for all departments, apportions the buying funds among them, advises the buyers, gives approval or disapproval to department sales policies, and so on. Figure 3 presents a typical department store organization in considerable detail. Other illustrations and charts may be found in the books and articles referred to in the bibliogra- phy at the end of the chapter. Efficiency of the Department Store. — The modern de- partment store is a wonderful business mechanism. At its best it represents very high efficiency as a trade-getting and profit-making institution. Its advantages in competition over the specialty or one-line stores he in its conveniences for shop- pers, the many lines under one roof, the special services that are so attractive to many people, and the displays of goods on all sides in the many different lines. Such displays suggest purchases to customers and bring about ^ales that one-line shops could not effect at all. The department store method of distribution actually stimulates new demand, by showing to customers things about which they might not otherwise know anything. 26o ECONOMICS OF RETAILING Division of Labor.— Another advantage of the department store is its division of labor and the employment of the best people obtainable as heads of departments, to plan and sug- gest schemes for carrying on the store work. In the best department stores great care is exercised in the selection of employees, in training them specifically for their work, and in placing them where they will be most efficient. For the routine work the department store is able to get along with the services of cheaper help than most one-line stores, just because of the fine division of labor and because the work of each employee is carefully planned and standardized. Heads of departments draw salaries and incomes that average con- siderably higher apparently than the average incomes of specialty store managers. Buyers receive from $2,500 up to $25,000 per year, and in some of the better stores $5,000 to $10,000 is the average. For the higher positions, such as merchandise manager and store superintendent, even higher salaries are paid. It is known that two or three department stores have paid salaries as high as $50,000 per year. The average salaries for the rank and file are, however, somewhat low, and the reason for this is largely that the type of per- sonal efficiency required is not very high. A change is to be noted in this respect, however, for as competition grows keener, the demand for personal salesman- ship and skilful personal management of every detail in- creases. No plan, no matter how well worked out, can sub- stitute automatic service for human service in dealing with customers. Careful planning goes a long way, and in the past twenty-five years has progressed rapidly, but when the limits of mechanical devices and system are reached, store managers will have to give their attention to bringing up the standard of their employees by some sort of training or apprenticeship perhaps, but more likely by systematic education for this kind of work. THE DEPARTMENT STORE 261 Advantage of a Central Location. — The department store usually has the advantage of being the centrally located store in the retail district. The architecture, especially in its mod- ern types, is in every way helpful to its purpose of selling goods. Moreover, it has a prestige in the public mind, care- fully cultivated in all cases, well earned in some cases, that goes far towards making it, as a popular institution, most successful. Big business appeals to the imagination of the people of the twentieth century, especially to the people of the middle and lower classes. The big store suggests class and distinc- tion. To trade there to a certain extent confers distinction. The big store's automobile delivery truck calling at one's resi- dence heightens this effect. On the other hand, in the great cities, a large part of the trade of the ultra-rich and fashionable goes not to the de- partment stores but to the exclusive little specialty shops. The department store is fitted to transact business with the masses, but with certain exceptions, not with the classes. The department store cannot as a rule build a large enough trade on exclusive lines to make the business pay. Handling such goods is rnore the function of specialists who have unusual taste and fitness for selecting goods, displaying them, and giving the service that touches the vanity of wealthy shoppers. Department store employees are not commonly equipped to do this well, and where an attempt is made to get such trade, it is usually by classifying the stock into departments of higher and lower grade goods, providing special entrances from the outside of the store leading to each, and by employing sales- people especially fitted to serve in the more high class, exclu- sive lines. Such trade pays well when it can be obtained, but at best such customers are fickle in their demands, peculiarly subject to whim, careless in their obligations, and often un- 262 ECONOMICS OF RETAILING reasonable. Only a few department stores have successfully handled this class of trade. The department store is essen- tially a store for the masses. Economies of the Department Store. — There are a num- ber of economies in department store management not possi- ble in the specialty store. Having one accounting department, one advertising department, one delivery department, one credit department, and so on, makes it possible to serve all of the departments or sections in the store. How much these savings amount to cannot be stated exactly, as there are no figures available, but it would seem that certain advantages must result from this arrangement. An efficient credit de- partment serving forty or fifty subsidiary merchandising de- partments is able to accept more credit, and take more chances, because it is in a position to employ more effective collection methods, and is better able to enforce payment of slow or doubtful accounts. A specialty store would either have to refuse credit to a much larger number of people seeking it or else shoulder a much larger loss from bad debts, simply because it cannot give the special attention to credits that the department store credit manager is expected to and does give. In a certain sense these special departments, credit, deliv- ery, advertising, and so on, are giving service to a combina- tion of co-operative merchandising establishments. The ad- vantages urged in favor of co-operative delivery for retail stores, for example, are in a measure realized in the depart- ment store. On the other hand, some questions may occur as to just how far these economies go, and to what extent they are coun- terbalanced by the disadvantages of aggregation, such as a department store represents. The average cost of doing busi- ness in a department store seems to be considerably higher THE DEPARTMENT STORE 263 than the average for one-line establishments, of course ex- cepting the high cost of the few exclusive shops catering to the super-rich. Turnover by departments is about the same as for specialty stores. In fact well-managed specialty stores frequently have a faster rate of turnover. On comparing the items of expense in department stores with those of specialty stores one finds that rent is higher, advertising is higher, delivery is higher, salaries run about the same, and bad debt losses about the same.^ High Expenses of Department Stores. — Why rent aver- ages higher is explained in another chapter. Advertising is higher because the department store must reach out farther for business. It has many more competitors of many kinds than the average one-line store. It uses its advertising to assist in making quick sales. In a measure it substitutes skilled adver- tising for skilled salesmanship. An advertising expense of from 2^ to 5 per cent of sales is not uncommon in depart- ment stores, but above the average for specialty stores. De- livery though done for a number of departments, hence cheaper than if done for a single shop doing business with the same customers, tends to be higher because the department store delivers over a much wider territory than the average one-line store, and probably delivers a much larger percentage of the goods purchased. ' Many popular writers on department stores have assumed that the department store method of distributing goods is much more economical than any other. It is remarkable that so manjf have taken this view with hardly a fact to warrant it. Some official bodies of a public nature have expressed the same view upon equally ground- less bases. As an example of this sort of thinking, the United States Industrial Commission in its final report (Vol. 19, page 549) may be quoted: "If rightly managed, the department store must be able to make great economies in rent, cost of superintendence, office expenses, and, possibly, in clerk hire." But in the testimony given before the commission there was nothing to lead to such a conclusion. For example, S. M, Woodward, a Washington department store manager, testified as follows (Vol. VII, page 736) : ' Q. You believe you can sell goods cheaper than the one-line stores can, or do you know that you can? ■ . , , "Mr Woodward's answer; I do not thmk we ever claimed that. I know that the quantity of goods that we purchase in many lines enables us to do that.' " A few moments before Mr. Woodward was asked: "Does the department store, from the economical standpoint, require less help to do the same business than in the old way of several stores?" 264 ECONOMICS OF RETAILING Another factor of expense in department stores that places them at a disadvantage is the gratuitous service they give to all who come. Competition forces department stores into these things. There is no escape. The tendency seems to be to add more and more of it. Trade must be gained, but the only way to gain it is by getting the people to come to the store. The service factors bring people to the store and must therefore be employed. The more special service that is offered by one store, the more other stores must offer in order to hold their trade and gain customers. It is hard to see just where this tendency is going to end. The expenditure for salaries in department stores runs about the same as in specialty shops. This can probably be explained by the high salaries paid to the managers, and by the fact that it is difficult in a big store to apportion em- ployees to the various departments in the exact proportions necessary to do the work properly. More or less waste of time occurs, all of which the store must pay for. Small stores have such losses too, but the work is not so fully divided into departments, and employees not employed in selling can usually be set to work at something else. This item of loss is not by any means uniform. Efficient stores both large and small attempt to reduce it to a minimum, but it seems that small stores are able to do so more fully than the big department stores. "A. No; it requires more. That evidentljr does not seem reasonable to you, but we have to wait xipon people now with specially trained help in more than half of our departments. Of 60 to 80 per cent of them that is true. In other words, a customer is not 3 customer, unless she is waited upon intelligently." Later Mr. Otto Young, manager of "The Fair," was asked (Vol VII, page 696) : "Q. What is the economy of many departments under one management?" "A. The economy is largely in the quantity of goods that we can purchase, as against the small merchant. We buy our goods for cash. No department store that has to buy goods on credit ever made a success. Department stores do away largely with the middlemen, the jobbers. They buy nine-tenths of their goods direct from the manufacturer; they do not have to pay two or three profits before the goods get to them. A man that wants to buy a dozen — a manufacturer would not bother with him to sell him a dozen; he must go to a jobber. That jobber must make 10 or 15 per cent on the goods; therefore they cost the buyer more money." Other department store managers gave similar testimony, yet the Industrial Com- mission concluded that "If rightly managed, the department store must be able to make great economies in rent, cost of superintendence, office expenses, and, possibly, in clerk hire!" THE DEPARTMENT STORE 265' Wasteful Leaks. — The department store, even when planned for the highest efficiency, is a place where there may be a thousand leaks. Hired employees are proverbially less diligent and watchful than people in business for themselves. Carelessness, loss of materials, soiling materials, spoilage, leakage, breakage, and so on, are likely to occur more freely in the big store than in the small store. Only eternal vigi- lance can keep such losses down, and there seems to be more danger of slackening in vigilance under hired eyes than under proprietor's eyes. The department store must spend much money and time in developing its system, in making out its accounts, and in working up statistics to show just how the concern is working, while in the small store, the manager- owner can carry much of such information in his head, and need spend no time in working it out on paper. This economy is probably carried too far by most small retailers. Perhaps much could be gained by the specialty store manager by bor- rowing something from the department store manager's thorough-going manner of getting at the exact facts of the business. But whether this is true or not, the fact remains that the department store spends a lot of money in getting up information that the small one-line retailer is getting along without. Poor Salesmanship General. — Finally, the department store type of salesmanship is usually weak. There are excep- tions and notable ones, but the general rule is poor salesman- ship. The specialty store that attempts to be up-to-date dif- fers from department stores markedly in this respect, although both classes of stores would benefit largely if systematic im- provement and education of salespeople could be effected. As it is, much of the efficiency of the department store gained by its location, its window displays, its advertising, its thorough and systematic sales plans, is lost simply because the salesman 266 ECONOMICS OF RETAILING fails in his important work with the customer. Not only are opportunities for making sales lost through this failure, but when sales are made, they are often wrongly made. The wrong things are sold and when the right things are sold they are sent out improperly fitted and demonstrated. The result is discomfort, disutility, and dissatisfaction. The re- tail store whose great social function it is to serve the pub- lic or that much of the public that comes to it, fails to per- form its service in a creditable way because the employee whose duty it is to represent the store in deahng with the customer does not know how his work should be done. Bad retail salesmen are plentiful, but more so in department .stores, it seems, than in specialty or one-line stores. The fault is not the salesman's, but rather it is that of the stores in neg- lecting to improve the human factor, and that of society, in not providing education in its schools for people who enter this line of work. Bibliography Adams, S. H. The Department Store. Scribner's Magazine, 21 -.4. Big vs. Little Store. Printers' Ink, April 25, 1912. Brewer, F. N. Some Features of Department Store Management. Ann. Am. Acad. 19:320. Butler, E. B. Saleswomen in Mercantile Stores, Ch. IV. Charities Publication Committee, New York. 1912. Cherington, P. T. Advertising as a Business Force, page 158 ff. Doubleday Page and Co., New York. The Advertising Book. Doubleday Page & Co., New York, 1916. Cross, J. H. Points on Merchandising Advertised Products Through Department Stores. J. H. Cross Co., Philadelphia, Pa. 1918. Daniels, Wm. Cooke. The Department Store System, Denver, 1900. Davis, H. The Department Store at Close Range. Everybody's, 17:312. Dennis, John, Jr. Marshall Field. Everybody's, 14:291. THE DEPARTMENT STORE 267 Department Store and Its Opportunities for Boys and Young men. The Vocation Bureau, Boston, 1912. Department Store in the East. Arena, 22:321. Golden Book of the Wanamaker Stores, 1861-1911. Modern Merchandising, Vol. I. Basch, J. The Merchandiser in the Department Store. Stokes, J. J. Organization of the Department Store. Wanamaker, John. The Evolution of a Mercantile Business. Modern Merchandising, Vol. V. Stokes, J. J. The Department Store. Modern Merchandising, Vol. VIII. Schneider, J. Department Store Advertising. Xystrom, P. H. Retail Store Management. La Salle Extension University, Chicago, 1917. Phillips, W. B. How Department Stores Are Carried On. 1900. Private Department Store Brands vs. Nationally Advertised Brands. Printers' Ink, October 31, 1912. Puffer, J. Adams. Vocational Guidance, Ch. XII. Rand, McNally and Company, Chicago. 1913. Richardson, A. S. The Modern Woman's Paradise. Woman's Home Companion, Sept., 1911. Selling Forces. Curtis Publishing Company. Pages 103-132. Swinney, John B. Merchandising. Alexander Hamilton Institute, New York. 1917. U. S. Industrial Commission, Vol. VII, 1900. Testimonies of Messrs. S. W. Woodward, John Wanamaker, Otto Young, and Chalifoux. CHAPTER XVI CHAIN-STORE SYSTEMS Origin of Chain Stores. — A chain-store system, as the term impHes, is an organization composed of a number of retail stores operating under one management. There are many such organizations which have existed for a long time, but during the last thirty years there has been a marked develop- ment both in their size and their number. The chain- store system of today is a typically modern factor in the dis- tribution of goods. ^ Hurd and Zimmerman in Printers' Ink, September to December, 1914, estimated that there were more than 2,000 chain-store systems in the United States, and that in these chains there were in excess of 25,000 stores. Boyd's City Dispatch offers to supply lists of chain stores aggregating 10,000 systems. There are no official figures showing the extent of chain-store development. Number of Chain Stores. — There are over 200 drug store chains in the country, although many of them have only two or three stores in the organization. There are over 1,300 ^ Dates of establishment of some of the great chain-store systems: Great Atlantic & Pacific Tea Co 1 859 Jones Bros. Tea Co 1S72 F. W. Woolworth Company 1879 Jas. Butler Company 1882 Hanan Shoe Stores 1885 Acme Tea Stores 1 887 (.Now a part of American Stores Company) New York & London Drug Co 1897 Cannon Stores 1 899 United Cigar Stores 1901 Penney Stores 1 901 Duke C. Bowers Stores 1902 United Drug Co 1903 268 CHAIN-STORE SYSTEMS 269 grocery chains, 754 dry-goods millinery chains, and 179 cloth- ing store chains, each of which is made up of five or more stores. Chain-Store Systems in the United States Grocery Chain : Stores Great Atlantic and Pacific Tea Co., Jersey City... 2,339 American Stores Co., Philadelphia 1,223 Kroger Grocery and Baking Co., Cincinnati 400 James Butler Grocery Co., New York 238 Childs and Co., Camden, N. J 230 Grand Union Tea Company, Brooklyn 200 M. O'Keefe, Inc., Gardner, Mass 146 Wm. Butler, Philadelphia 140 Bell Co., Philadelphia 130 Robinson and Crawford, Philadelphia 130 National Grocery Co., Jersey City 126 Direct Importing Co., Inc., Boston 125 Thos. Roulston, Brooklyn 121 John T. Connor Co., Boston no G. M. Dunlop Co., Philadelphia ■ 106 Five and Ten Cent Stores : F. W. Woolworth Co 1,038 C. S. Kresge Co 157 S. H. Kress and Co 147 J. G. McCrory Co 137 Tobacco and Cigar Stores : United Cigar Stores^ 1,200 Drug Chains: Liggett-Riker-Hegeman Co., New York 157 Dow Drug Co., Cincinnati 32 Owl Drug Company, San Francisco 20 Squire Drug Co., Syracuse, N. Y 20 Marshall Drug Co., Cleveland 15 Sun Drug Co., Los Angeles 13 Day Drug Co., Akron, 12 Standard Drug Co., Cleveland, 11 Hook Drug Co., Indianapolis 10 ^ The United Cigar Stores Company of America operates its 1200 stores in nearly 200 cities in the United States. Some of these, however, are owned by companies subsidiary to the United Cigar Stores Company of America, such as the United Cigar Stores of New Jersey, United Cigar Stores of Illinois, and United Cigar Stores nf R^ode Island. 270 ECONOMICS OF RETAILING Shoe Chains: W. L. Douglas Shoe Co., Brockton, Mass loi R. H. Long, Framingham, Mass 82 Regal Shoe Co., Boston 48 Hanover Shoe Co., New York 52 Florsheim Shoe Co., Chicago 3° Sorosis Shoe Co., Brooklyn 30 Hanan and Son, New York 18 Beck Shoe Co., New York 15 Hat Stores : Kaufman Bros., New York 40 Truly Warner, New York 24 Irving Hat Co., New York 24 Sarnoff Bros., New York 16 In addition to the above, there are chains to be found dealing in confectionery, jewelry, meats, dairy products, furniture, clothing, hardware, automobiles and automobile supplies, millinery, corsets, flowers, books, etc. Chain-Store Systems in Europe ^ EooD Stores or Shops : Shops Lipton's Ltd 469 Home and Colonial Stores 688 Maypole Dairy Co. Ltd 835 Shepherd's Ltd 100 Fearks, Ltd 200 T. Seymour, Mead and Co. Ltd 56 United Kingdom Tea Co., Ltd 25 Lyons and Co., Ltd 170 Aerated Bread Co. Ltd 140 Express Dairy Co., Ltd 103 Eastman's Ltd 800 British Tea Table Co Alfred Pearce Tea Shops Pearce and Plenty Kaiser's Kaffee Geschaft, Germany 1,000 Drug Stores : Boot's Chemists 565 Parke's Drug Stores, Ltd 34 Lewis and Burrows, Ltd 25 Henry Hodder, Ltd 17 Thompson and Capper 10 ^ Except where otherwise specified these are in England. CHAIN-STORE SYSTEMS 271 Shoe Shops: Freeman, Hardy and Willis 460 Lilley and Skinner 75 Public Benefit Boot Co 120 S. Hilton and Sons 129 Stead and Simpson, Ltd 235 W. Abbott and Sons, Ltd 13 W. Abbott and Sons, Ltd., France 7 A. and W. Paterson 42 Greenlees and Sons 165 John Greenlees 12 Tobacco Shops: Salmon and Glucksteim, Ltd 139 Alfred Baker and Co., Ltd 49 Department Stores : Tietz Department and Dry Goods Stores, Germany.. 88 Chain-store systems may be classified according to owner- ship as follows: 1. Retailers' chains, such as the following: United Cigar Stores Owl Drug Co. Child's Restaurants 2. Jobbers' chains Difficult to give examples. Ownership hidden as a rule. 3. Manufacturers' chains, such as the following : W. L. Douglas Shoe Co. Singer Sewing Machine Co. Huyler's How the Chains Developed. — Retailers' chains have in many cases been formed simply by gradual expansion, the owner beginning with one store and adding others as cir- cumstances permitted. Many retailers have been so success- ful with their first store that they have established branches, sometimes conducted in co-operation with the parent store and sometimes independently. 272 ECONOMICS OF RETAILING In a few noteworthy instances retailers' chains have been formed by the establishment of a corporation with the pur- pose of acquiring and conducting a number of retail stores under a definite chain-store plan of organization. In still other cases chains have been formed by the union of several retailers into an organization, usually of corporate form, each retailer taking stock in the company, and in re- turn permitting his store to pass into the new organization. Some of these retailers' co-operative chains have enormous memberships. The Object of Chains. — The object in view in the organ- ization of retailers' chain-store systems has been largely to reap the profits of increased buying power, of heightened efBciency in advertising, of better handling of credits and collecting, and of more profitable methods in handling and selling merchandise. For many merchants who have acquired or established branch stores, the additional store units have served as a means of investment for surplus funds and as a field for the exercise of executive ability not fully taken up in the single institution. The Advantage of Buying in Bulk. — The ability to buy for less than the ordinary retailer can buy, is commonly ac- cepted as the chief advantage of the chain store. In systems where the buying is done for all of the stores from a central office or by organization buyers, it is obvious that their de- mand for quality commands the strongest interest of produc- ers and wholesale suppliers. In a competitive market such buyers are usually able to get the lowest possible prices and are able to profit by every possible quantity discount. Frequently the chain-store buyers pass over the whole- salers and buy direct from producers, in fact, perform their own jobbing functions. In such cases they are usually ac- CHAIN-STORE SYSTEMS 273 corded the prices made to jobbers and, if current reports be true, are sometimes given even lower prices.* Producers feel under necessity to make every possible concession for the reason that the buyer for a large chain represents a pow- erful factor in distribution, one whose future trade is con- sidered worth fighting for, and one who can easily transfer his trade from place to place. The competition for the chain- store business is, therefore, keen. Chain Stores and Jobbers. — Some of the chain-store sy.s- tems carry on their jobbing functions much the same as an ordinary jobbing house. Warehouses are provided, and goods are stored, and delivered to the various stores only upon purchase and charge. Goods charged to any unit store bear a percentage burden of buying and warehousing expense, cor- responding in a measure to the margins added by regular job- bers to the costs of their goods when selling to retail dealers. In groceries this margin is said to run from 2j^ to 6 per cent of the value of the goods. In other cases the burden of the buying expense is prorated among the stores directly, some- times in proportion to their sales, sometimes in proportion to their ability to stand the charge. Jobbers' Chains. — Jobbers' chains have come into exis- tence in various ways. In some cases, jobbers have been forced to buy out retail stores from certain of their retail debtors to save themselves from loss such as would occur if the store were to go on in the hands of the former owners and managers. A good many jobbing houses have a number of retail stores that they virtually own and which they are nursing along in the hope of building up the business or until a competent manager can be found who will buy the store. Management of these stores calls for the same methods and * Ilurd and Zimmerman in Printers' Ink, November 19, 1914, page 64 ft 274 ECONOMICS OF RETAILING practices as are required in other chain systems. In some cases when breaking into new territory, jobbers are forced to acquire stores of their own in order to find local outlets for their goods. Stores already in .such localities may not will- ingly take on new lines, and a jobbers' own store system may be the only means of reaching the consumer. In still other cases, the jobber may find his trade slipping from him either because of cut- throat competition with other jobbers, or because manufacturers are selling directly to re- tailers. In the ordinary course of events either of these pro- cesses might eliminate the jobber. To save himself and to insure a constant market, his only recourse may be to estab- lish a chain of retail stores to handle his goods. This adap- tation of the jobber to new conditions is going still farther in a few instances. Not only are chains of stores acquired but also manufacturing plants, so as to assure both a market and a product to place on the market. Jobbers thus have become both retailers and manufacturers, as well as whole- salers. It seems likely that this integration of distributive processes is likely to go on in several lines, those, particularly, in which the jobbing functions are diminishing in importance. Manufacturers' Chains. — There are a number of manufac- turers' chain-store systems, nearly all of which had their origin in an inability to find a satisfactory market through the regular channels of trade. Among the lines of goods rep- resented in manufacturers' chains, one finds several brands of shoes, confectioner)-, baked goods, hats, gasoline and kerosene, sewing machines, cash registers, adding machines, typewrit- ers, office furniture, automobile supplies, corsets, gloves, sport- ing goods, phonographs, paper novelties, etc. Some of these goods probably could not be marketed through regular retail stores. Others are not so marketed because of dissatisfac- tion due to any one of several causes, such as competition CHAIN-STORE SYSTEMS 275' with other goods on dealers' shelves; price-cutting among dealers on the manufacturer's standardized lines; inability of the average retailer and retail salesman to give intelligent salesmanship to the line; unwillingness of the average re- tailer to put in a complete line such as the manufacturer considers necessary to give the consumer a fair idea of his goods; and unwillingness or inability of the average retailer to give the additional service sometimes found necessary to make sales stick. Hazards of the Manufacturer. — It is probable that scarcely any manufacturer desires to conduct his own distributive sys- tem if the service obtained from the regular channels is at all satisfactory. A chain of retail stores ties up a great deal of capital. In some lines it takes several times as much capital to market the goods as to manufacture them. John H. Hanan, of Hanan & Son, states that it takes three times as much capital to conduct the chain stores as it does to run the factories that supply them.° The management of a chain in- volves grave problems. The chances of failure are high. The profits from retailing are, on the whole, not so great as those from manufacturing, considering both under favor- able circumstances. In spite of these drawbacks some of the manufacturers' chains are the best examples of present day efficient chain-store management. It is altogether probable that the future will see many more such organizations. Consumers' Co-operative Chains. — There is another type of chain-store organization that might properly be discussed under this heading, but which must be omitted here. This is the consumers' co-operative chains. Such concerns have not as yet made much progress in this country, but in Europe they are numerous and, according to most reports, very success- 'Printers Ink, March 21, 1912. 276 ECONOMICS OF RETAILING ful. Evolution in Europe seems to be quite definitely in the direction either of privately owned chain-store systems, or consumers' co-operative concerns. In their methods of doing business, the co-operative and the private chain are much the same. An analysis of the methods in the one will serve as a general outline for the other. The competition of these two classes of concerns is in some cases very keen, and it is said that the co-operatives in England, where co-operative dis- tribution is at its best, fear nothing so much as the growth of "the multiple shop," as th$ private chain store is called there. Net Returns the Universal Object. — The chain-store unit works for the same end as the individually owned retail store — namely, the best possible net returns. To succeed in get- ting a good net return the chain store usually works for a big volume on a relatively small stock, resulting in a rapid turn- over. In this respect some of the chain stores are very suc- cessful. In the average city grocery store the stock turns per- haps ten or twelve times per year. In some of the best chain grocery stores, forty turns per year is not unknown. In the average drug store three or four turns per year is considered good, but the most successful drug chain has a turnover of twelve times per year. In a cigar and tobacco store the aver- age is from four to ten turns, while in one of the most suc- cessful stores in a well-known chain, the stock turns fifty times per year. The syndicate five and ten cent stores average ten to twelve turns per year, while the average for individ- ually owned stores is only from eight to ten." Superior Executive Management of Chains. — Chain-store systems, because of their large capital investments, can afford to employ the most efficient executives available even though their salaries must be high. Thus chain stores are likely to ^ Printers' Ink, December 3, 1914, page 66 ff. CHAIN-STORE SYSTEMS 277 have better executive management and more efficient methods planned for doing the work of the stores than the ordinary individually o\Yned stores. Expert attention is given to such problems as hiring and training employees, writing advertis- ing matter, preparing window trims, store service, and eliminating leaks and wastes. Most chain stores, though not all, are noted as price-cut- ters in well-known, standard kinds of merchandise, such as nationally advertised goods, or .staple merchandise of unvary- ing quality. Most of them make cheaper prices the adver- tised argument for trade in competition with the individually owned stores. An occasional one, such as the Owl Drug Company, emphasizes service to the customer rather than low prices. Many chain stores supplement their cut-price argu- ments and other advertising features by use of trading stamps, premium plans, and other schemes to attract and hold trade. Competitive Advantages. — In the competition of chain stores with individually owned stores there seem to be cer- tain advantages in favor of the former. First, the chain-store system as a rule represents greater buying power, and its buyers are enabled to take advantage of prices that are us- ually given only to jobbers. Savings thus made are, however, counterbalanced to a certain extent by necessary expenses in redistributing the goods to the individual stores of the sys- tem, providing storage and insurance for warehoused goods, paying interest on the money invested in them, and defraying extra cost of handling. As much as possible of this expense is avoided by having goods shipped from the factories to the stores direct, but this method cannot always be carried out advantageously. Second, certain superior economies in ac- counting, in the delivery of goods, in advertising, and in the granting of credit and making collections seem to be more practicable in chain-store management than in individually 278 ECONOMICS OF RETAILING owned stores. Third, the chain-store system with many units scattered widely can to a certain extent eliminate losses due to unsalable goods accumulating in any particular place by hav- ing the slow-selling goods moved to other stores where they may sell better. For example, a chain-store system dealing in men's furnishings may find that a certain line of neckwear does not appeal to customers in one community at all, whereas, in another town that same line may prove quite popular. By transferring the goods from the former to the latter place, losses by mark-downs are prevented. The individually owned store has no such opportunity to transfer its goods. What is bought for the store must be sold from it, and if a mistake is made in buying, the only remedy is to sell at a sacrifice. Cut Prices Possible. — In competition with individually owned retail stores, if it comes to a desperate conflict, the chain store has a decided advantage. The chain store being a member of a group can concentrate its competition at any point, undersell its individually owned retail store rival, sell below cost indefinitely if it so desires, and make up its deficits caused by such cut-throat methods at that point, by profits made in other stores in other places. Theoretically it can con- tinue this process until it has driven its competitors out of business or cowed them into submission. Private Brands. — The chain-store system has another ad- vantage in competition with the individually owned stores in that it can handle private brands of its own, advertise them, and build up a market for them. In most cases, the small one-store retailer is not in a position to develop a business in private brands. But the standard brands handled by the in- dependent retailer, may be selected and used by chain stores as loss leaders to attract trade, and the independents have no similar method of retaliation. The chain-store system usually CHAIN-STORE SYSTEMS 279 has access to supplies of the same kinds of goods as the reg- ular retailers, but the regular retailers do not have like oppor- tunity to exploit the chain-store products. Therefore, the chain store has unusual opportunity to use the goods handled by the regular retailers as competing weapons. The large chain-store system with jobber or factory con- nections is assured of a supply of goods under all circum- stances. The ordinary retailer buying in the open market is not always certain to find further supplies when he wants them. In times of severe competition, sources of supply as well as the outlets to the consumers are important points of attack. In respect to supplies jobbers' and manufacturers' chains are obviously much more secure than the ordinary one-store concern. Chain-Store Disadvantages. — On the other hand, chain stores suffer certain disadvantages in comparison with indi- vidually owned stores. The average cost of doing business in chain stores is apparently lower than in average individ- ually owned stores.^ There is no question but that the average chain store is more efficiently and economically conducted than a large number of individually owned stores, but this is far from saying that chain-store efficiency and economy compares favorably with the best conducted individually owned retail stores. It seems entirely probable that the best conducted chain stores must fall behind the best conducted individually owned stores in this respect. Local Managers Lack Interest. — The chain-store system can probably never secure the same degree of interest from its local store managers, especially when they work on a sal- ary basis, that the single store receives from its owner. It is much more difficult to maintain the close personal touch ^Printers' Ink, December 17, 1914, page 20 ff. 28o ECONOMICS OF RETAILING with employees that is so necessary to successful store prac- tice in a chain than in a store where employees work under the direct supervision of the owner. The systematic methods of doing the work of the chain store, so thoroughly worked out by the executives, may easily pass over the dead-line of red tape and become a burden rather than a productive helj). The difficulty of finding efficient store managers who will work for chain systems is admitted by every chain-store con- cern. Though the routine work may be, and usually is done by low-priced help, the cost for efficient managers, super- visors, and executives is high, and as competition grows keener, the cost for both classes of help must rise accordingly. Careful Organization Necessary. — The organization of a chain store must be fitted to its purpose. Great attention must be given to details, some of which can be cared for from the central headquarters, while others must be arranged locally. The organization must provide for the strictest au- thority and for the most careful distribution of duty while making full allowance for all local demands. Thus the chain- store system must be something more than a machine in order to make good. It must be a machine with an intelligent mind active in every part. Initiative is in demand at every point. In all of these respects the individually owned store possesses natural advantages over the chain which, if utilized, help it to hold its own in competition with the chain. Special Departments. — In addition to the regular organ- ization found within each store of a chain — an organization very similar to that of any good retail store — and in addition to the corporate organization with its financial, executive, and legislative departments, most chain-store systems make special provision for the following activities — in some cases by the establishment of special departments : CHAIN-STORE SYSTEMS 281 1. Selecting and acquiring good store locations, making purchases, arranging rentals, disposing of unused property, attending to repairs, renewals, insurance, etc. 2. Equipping the stores with furniture and fixtures. 3. Supplying the stores with merchandise. 4. Advertising the stores and their merchandise. 5. Planning window decorations and store displays. 6. Employing and training help for the stores, making promotions, transfers, and so on. 7. Devising sales plans and ideas. 8. When trading stamps or premium plans are used, ar- ranging the details in a proper manner. 9. Keeping accounts and statistics of the system. 10. Auditing. Subsidiary Companies. — In the case of some chain-store concerns, some of the functions named above are carried on by subsidiary corporations whose stock is owned by the parent company. For example, in the United Cigar Stores Com- pany, the purchase and rental of sites for stores, the repairs, improvements, and subletting, are all cared for by a corpora- tion known as the United Merchants Realty and Improvement Company; while the window displays for all of the stores and agencies are prepared by the United Window Display Company. Agencies of the United Cigar Stores Company are cared for by the United Cigar Stores Agencies Company. The company in charge of the real estate and leases has proved a profitable part of the concern, showing earnings of $650,000 to $700,000 annually.* These profits accrue from favorable purchases and sales, and from leasing large buildings only parts of which are used as cigar stores, the remainder being •From "Weekly Market Letter," April 15, 191 5, issued by Jones & Baker, Chicago. See also, Printers' Ink, November 12, 1914, page 58 fif. 282 ECONOMICS OF RETAILING sublet to other tenants. The premiun> department is conducted by another corporation entirely separate from the United Cigar Stores known as the United Profit Sharing Corporation. Store Equipment Department. — The store equipment de- partment in chain-store concerns apportions the space for store use and provides proper fixtures, often the same for all stores in the chain. The window display department works up the ideas and supplies the materials for making attractive window displays. The reporting system developed by the accounting and statistics departments of large chain-store systems, such as the United Cigar Stores, or the Regal Shoe Company, is wonderfully well adapted to indicate the exact condition of the business in each store almost at any given moment. Daily Reports. — Daily reports showing total sales and sales by departments on lines handled, are required from every store in most chain systems. The daily report usually in- cludes orders for new stock to replenish lines sold out. Some concerns require that all sales slips and price tags be sent to the central office along with the daily report sheet. Cash taken in by the store is usually deposited daily in a local bank and the certificate of deposit is mailed at once to the treasurer of the company. From these daily reports the ex- ecutives of the company may learn definitely what is the status of each store, its daily sales, what lines are selling best, what lines poorest, what each salesman is doing, what profits are being made, and what stock is left on hand. The slightest change in custom or demand may be noted almost instantly. Weekly Summaries. — Weekly summaries are sometimes required from the local managers, and weekly statements from the individual salespeople in the form of claims for bonuses CHAIN-STORE SYSTEMS 283 or prizes, and so on. These reports serve as checks on the daily reports. In most chain stores, inventories are taken frequently, generally once each month. In some cases these inventories are taken at regular times, in others only on spe- cial call from headquarters. The reports of stock on hand in the inventories serve as another check on the operations of each store. The daily reports as summarized and carried out in the accounting department show exactly what goods have been ordered and what goods sold, and, therefore, what goods should remain. The inventory report shows whether the daily reports were made correctly or not, or whether any stock has been taken from the store in any way without proper accounting. Checks and Safeguards. — Every possible precaution is taken to prevent dishonesty and to discover it if any should occur. The reports already named serve this purpose, and in addition there is the work of the traveling auditors, the super- vision by district managers, and the work by special investiga- tors, many of whom work in much the same way as detectives. The employee of a chain store knows that if he works hard and successfully, he will be well rewarded, but that he is being watched constantly for crookedness. Not only must each store and employee make a report, but a certain standard of results is set before each. Before estab- lishing any store, an estimate is made of its probable business based upon the number and class of passers-by, their probable consuming capacity, their habits, and the amount and kind of competition. This estimate is set before the store as its first year's standard, and the manager of the store is held responsible for getting at least that amount of business. This is known as the store's quota. After the first year this quota is determined upon the basis of the previous years' experience and the possibilities of increasing the trade. The quota for 284 ECONOMICS OF RETAILING the store may include not only a figure to represent the total sales that must be aimed at, but also the amount of profits that must be gained. This means that the manager of the store must give his attention, not only to pushing sales gen- erally, but must give special attention to pushing the sales of goods that show the largest profits. The sales quota may go still further and set standards for the sales in various lines, or in various parts of the store. For example, in the Regal Shoe Stores there is said to be a total sales quota, a total profits quota, and quotas for each department of goods handled. The sale of shoe trees should average one pair to every four pair of shoes sold, and sales of shoe polish must average one bottle to every three pairs of shoes sold. Not only are quotas established for every store but also for every salesman. The quota is the standard for the sales- man's accomplishment. If he cannot make sales correspond- ing to the quota set for him, he must give way to someone who can. Getting Results. — While every attempt is made to secure the accomplishment of what has previously been determined as possible, and employees are held strictly to account for this, usually several incentives, are adopted to get every man to do his best. In the first place, fairly good salaries are paid. On the average, it seems, although the writer relies only on his own observation for this, that the salaries for the same classes of labor average somewhat higher in chain stores than in individual stores. The chain-store system is in many cases able to use a lower grade of labor, more young and inexperienced people, for example, than the ordinary store?. The systematic division of labor in the majority of chain stores permits this. Thus, while these stores pay more for this class of labor than other stores, the total pay-roll for the chain stores may not be as high as in the other stores doing CHAIN-STORE SYSTEMS 285 an equal amount of business. It seems quite certain that chain stores must pay good salaries to all of their store man- agers and other executive officers. Their incomes must com- pare favorably with what they could earn as independent store managers, or the company could not keep them in employ nor hold their loyalty. Premium for Chain Store Employees. — Many chain stores go further and give their employees bonuses or premiums for accomplishment above the standard or quota. Some con- cerns never grant regular salary increases. All increases in earnings must come in the form of bonuses or premiums. Prize-giving systems are common. In attempting to get everybody interested in doing more than before, store is set in competition with store, man against man. Every year, each store must do better than it did the preceding year. Every man is encouraged to make his record for the coming year better than for the year preceding. Prizes and premiums are offered for successes in making higher records. In the most successful chain stores these bonus and prize-giving sys- tems are so extended as to give to every employee some chance to earn a prize. To stimulate these contests and increase sales efficiency, weekly bulletins or house organs giving the status of every store and every employee in the contests are published and sent to all of the stores. Along with this information, the management also conveys inspiration and encouragement by means of lively, interesting addresses, bulletins, and printed articles, and practical instruction through educational letters and sales manuals. Every attempt is made to encourage greater endeavor. Importance of Local Manager. — There is a maxim among some chain-store system managers that runs as follows : "As 286 ECONOMICS OF RETAILING is the manager so is the local store." Special effort is made to get "live wires" for such positions, and much is done to keep them "live," after they have been given positions at the heads of stores. The manager of a store generally shares substantially in every prize or bonus that comes to the store. He is often given or required to hold a partner's share in the store, or stock ownership. In the company's records the store in which he is employed is named after him. He is taken into the company's confidence, and his advice and suggestions are sought. All of these things tend to make the store man- ager a very loyal employee of the chain-store system. It is recognized that here is the weakest element in chain-store management — a. hired employee rather than an owner at the head of a store. More Chains in Future. — If one may judge from the de- velopment of chain stores during the past ten years, it is quite certain that the next decade will see many new chains come into existence. The struggle of manufacturers and jobbers for markets is forcing them into developing chain-store sys- tems, and as long as buying in large quantities for cash se- cures lower prices, competition among dealers will tend to draw groups of them together, either in the form of organiza- tions under single managers, or in the form of co-operative buying concerns, in order to command the advantage of quantity prices. As the number of such combinations in- creases, the special advantages will proportionately diminish, or, to put it in another way, as the number of combinations seeking special prices on the goods they buy increases the difficulty in getting these prices will also increase, hence, it will become necessary to increase the size of the aggregations either by expansion over more territory, or by consolidation of existing chains in order to get better prices than other concerns. CHAIN-STORE SYSTEMS 287 That this movement to consolidate existing chains has al- ready begun is evidenced by several significant events of recent date. For example, the F. W. Woolworth Company absorbed the S. H. Knox five and ten cent stores. The United Cigar Stores owners acquired a controlling interest in the Riker-Hegeman Co., in the latter part of 19 13. The H. G. Gill stores have been combined with the Maurer & Remley Company of St. Louis, and the latter with the Kroger Grocery and Baking Company, and press rumors indicate that many other consolidations are being proposed. It seems not at all unlikely that vast combinations will some day occupy the field of distribution of goods, or at least certain parts of it, in much the same manner that many large con- cerns now control certain parts of production. Bibliography A series of fourteen articles on chain stores appeared in Printers' Ink beginning in the September 10, 1914, issue, and ending Decem- ber 24, 1914, written by Charles W. Hurd and M. Zimmerman, mem- bers of the Printers' Ink staff. This series of articles supplies the best published dissertation on chain-store systems extant. An Account of the Maypole Dairy Company of England in "A Better Day's Profits." Published by Burroughs Adding Machine Co., Detroit. From One Store to Six Hundred, the Story of the Woolworth Stores. Hardware Dealers' Magazine, September, 1912, and December, 1912. Getting Maximum Sales Out of Chain Store System. Printers' Ink, August I, 1912. Hanan Chain Stores. Printers' Ink, March 21, 1912. History and Secrets of the Chain Store Grocery Business. Grocers' Magazine, 191 1. Money Sticking Out, Story of B. H. Kroger. McClurc's, January, 1914. Several Articles on Chain Stores by R. A. Bruce. Printers' Ink, July 10, 17, 31, and August 7, 1913. United Cigar Stores. Printers!' Ink, several articles during Novem- ber and December, 191 1. Woolworth's Tower of Nickels and Dimes. Hearst's Magazine, October, 1912. CHAPTER XVII THE MAIL-ORDER HOUSE Mail-Order Business a Recent Development. — The de- velopment' of the mail-order business is one of the most re- markable commercial events of the last fifty years. While goods have been ordered by mail ever since mails were first started, the retail establishment depending for business en- tirely upon mail orders, or the department of a retail store set up to handle nothing but business by mail, is a very modern thing. The Establishment of the First Mail-Order House. — The first of the great mail-order concerns was established in Chicago by A. Montgomery Ward in 1872. The first store room was a hay loft over a stable on East Kinzie street. Mr. Ward, who died December 7, 191 3, had been a clerk in retail stores in Chicago and had also had some experience as a trav- eling salesman for a Chicago wholesale house before going into the mail-order business. Soon after starting, he asso- ciated with himself his brother-in-law, George R. Thorne. These two men and their families have continued down to the present time to conduct the business known as Montgomery Ward and Co. The original aim of the business was to serve as a supply house for the farmers' granges, local branches of a secret society known as the Patrons of Husbandry, which spread very rapidly in the latter 6o's and early 70's. The grange movement had as one of its chief objects, co-operative buying of all classes of goods for its members. While in organiza- 288 THE MAIL-ORDER HOUSE 289 tion is still strong in several parts of the country, its co-opera- tive buying did not progress successfully; and as that feature fell ofif, Montgomery Ward and Co. moved into the general mail-order field. The concern was incorporated in 1882 and again in 1913. Its sales amounted in 1913 to nearly $40,000,- 000 and in 19 18 to $76,000,000. Other concerns followed the methods of Montgomery Ward, and at the present time there are hundreds of mail- order concerns, most of which, however, are doing but a small amount of business. The business of but one concern exceeds that of Montgomery Ward and Co., namely, that of Sears, Roebuck and Co. This concern's gross sales amounted to $95,500,000 in 191 3 and to $181,665,830 in 1918. Other Important Mail-Order Houses. — Sears, Roebuck and Co. has the most remarkable history of all mail-order houses. Mr. Sears was at one time a station agent in a small town in northern Minnesota. A mail-order watch con- cern once sent a watch to be delivered C. O. D. to some customer in the town. The customer could not be found, and Mr. Sears notified the company. They replied by urging him to sell the watch to someone else. Mr. Sears did so at a profit of $2. This profitable venture led him to order other watches and to sell them at a similar profit. Later he left the em- ploy of the railway company and started a mail-order watch and jewelry concern in Minneapolis, which was moved to Chicago and after a few years sold out at a good figure. An- other mail-order house was started in Minneapolis under the name of Sears and Roebuck. The new business grew, bat at the end of five years it was thought best to move this estab- lishment to Chicago also. This was done and the concern was incorporated under the laws of Illinois in 1895. This organization continued until 1906. Then the concern under- went an internal change. A reorganization was efifected 290 ECONOMICS OF RETAILING June 1 6, 1906, under the leadership of Juhus Rosenwald, a former employee and now president of the concern, and a number of his friends. Mr. Sears sold out his interest and retired from the business, although his name was retained in the list of the board of directors to keep the confidence of the public in the new management. The new corporation was formed under New York State laws. Its capitalization at that time was placed at $10,000,000 in the form of preferred stock, and $30,000,000 common stock. Since 1906 addi- tions have been made to the common stock and some of the preferred shares have been retired.' Other prominent concerns in the mail-order field are Timothy Eaton and Co. in Canada, with stores at Winnipeg and Toronto, the National Cloak and Suit Company in New York, John M. Smyth, Jr. and Co., Harris Brothers Co., formerly the Chicago House Wrecking Company, the Chicago Mail Order Company, Bellas, Hess & Company, Chas. Williams' Stores, Bedell's, Standard Mail Order Company, and the Larkin Company. In addition to these there are a considerable number of credit mail-order concerns which sell goods on the instalment plan, and finally a large number of regular retail stores which conduct impor- tant mail-order departments. There are over 2,500 mail- order houses in all in this country. Of this number 850 are rated at over $100,000. It should be stated in passing that the mail-order depart- ment in department stores has not been uniformly successful. Several large stores that formerly issued mail-order catalogues have discontinued, and there are several well known merchan- dising men, such as W. R. Hotchkin, J. F. Beale, and P. V Bunn, who have expressed lack of faith in a department store mail-order department. 1 On December 31. IQ18, the capitalization of Sears, Roebuck & Co., follows: preferred stock, $8,000,000; common stock, $75,000,000. THE MAIL-ORDER HOUSE 291 Volume of Mail-Order Business.— The amount of mail-or- der business in this country direct with consumers has been estimated to be in excess of $500,000,000 per year. If one includes all mail-order business, the transactions of regular re- tail stores through the mails as well as exclusive mail-order house business, the total business transacted by mail must exceed $1,000,000,000 per year. Estimating the total con- sumption of goods purchased through retail stores to be in the neighborhood of $25,000,000,000, or $250 per capita per year, it appears that the mail-order business equals about 4 per cent of the total retail business. But this percentage hardly represents what is taking place by way of competition between mail-order concerns and the regular retail stores ; for the mail-order business is largely, though not entirely, trans- acted with customers in country districts and small towns. Some estimates place the mail-order business at as high a figure as 20 per cent of the total trade of this part of our population. To indicate the extent of the mail-order business, the fol- lowing suggestive statements drawn from catalogues of the mail-order houses will prove helpful. Sears, Roebuck and Company claim to have over 6,000,000 regular re-ordering customers. In 1912 this concern is said to have sold over 5,000,000 pairs of shoes at selling prices amounting to over $7,000,000. Advertising cream separators, its spring catalog of 1913 says "about 350,000 in use," while in the fall of 1913, the advertisements state that there are "over 380,000 in use." Of one type of buggy handled the claim is made "over 49,000 in use." Again "The entire output of over a hundred furni- ture factories is taken." Montgomery Ward and Company claims to have 3,000,000 re-ordering customers and other con- cerns claim as high as a million. Allowing for duplications, there are still probably at least 10,000,000 people who order some goods every year from mail-order concerns. 292 ECONOMICS OF RETAILING Mail-Order Method Most Highly Developed in U. S. — No other country has developed the mail-order method of distribution to consumers so extensively as the United States. It is not likely that any other cotintry could possibly have had a similar development, at least in extent or volume of business and number of customers. American life during the last fifty years has supplied a number of conditions especially favorable for the growth of this method of distribution. Reasons for Rapid Growth. — The typical American farmer, for example, lives an isolated life. His home, located on his 40 to 160 acre farm, is distant, not only from town, but also from neighbors. Farmers in other countries live in vil- lages and are thus closely associated with each other, as well as with the business men and store or shop-keepers of the vil- lage. The American farmer has developed an independence of .spirit that is at once a strength and a weakness. Self-re- liance and readiness to act on his own initiative on the one hand is accompanied by a corresponding tendency to feel little or no interest in the upbuilding of the community or in any- thing but his own farm and family. Unlike the farmer- villager common in all of the old countries, he feels no in- terest in his nearest town, no duty to support it against all of the rest of the world, and may even suspect his townsmen of motives injurious to his rights of property. This indifference and even antagonism between town and country is common in America. Under these circumstances it is not surprising that a proposal to do business with a distant store or mail-order house meets with success, even if the profit from the transac- tion is no greater than could be had nearer home. The farmer is as ready to trade with one as the other. Another cause of the recent rapid progress of the mail- order business is the tremendous increase in circulation of popular periodical literature loaded with advertising. Such THE MAIL-ORDER HOUSE 293 literature has had several effects. The reading matter in the form of news, fiction, special columns, and even the illustra- tions, have pointed out the means to a higher or costlier stand- ard of living. Both reading matter and advertising have shown the way to greater variety in consumption, and have helped to create new wants in the minds of the people. The advertising has indicated the way in which those wants could be satisfied, and the method has often been to order by mail from a distant concern. The countryman's freedom from any feeling of obligation to his home-town merchants, already referred to, and his self-reliance and initiative make it easy for him to send his money to a distant town. Influence of Increased Earning Power. — The increased earning power and consequently increased average wealth of large classes of Americans in the country districts and small towns have promoted the tendency to emulate classes of society thought to be "higher." Such emulation has always meant the expenditure of more money for the things used conspicu- ously, such as clothing, automobiles, phonographs, furni- ture, house furnishings, and so on. Fashion now finds expres- sion among classes of people who have heretofore never felt its appeal. The desire of the American citizen "to be as good as the best" too often results in nothing but consumption of such goods as it is believed "the best" use. Fashion, emula- tion, and desire for variety, therefore, cause new classes com- ing into economic .independence to seek outlets for their spend- ing power. For these, in their earlier stages at least, the mail- order house is the means to the desired end. The goods thus obtained are distinguished by being "different" from anything in the home village, and by having come from that region of mystic charm, the city. In accordance with their adver- tised descriptions, such goods are "the latest and most ap- proved by the best classes." 294 ECONOMICS OF RETAILING Mail-Order House vs. Small Town Merchant. — The retail merchants of the smaller towns have in many cases been un- able to meet successfully the growth of the progressing de- mands of their customers. Often the customers of a store may have transferred a large part of their trade to mail-order concerns long before the merchant learns anything about it. The work of retailing in a small community and a small store is largely a work of countless details, and it is easy to overlook the general tendencies of demand and to get into a habit or custom of doing routine things in the same old way. Customers, in some cases, actually grow away from the store that stands still and transacts business in the same way with the same kinds and . qualities of goods, trying to get the same profit margins, year after year. It is significant that where the merchants are most active and progressive, the mail-order business is usually unimportant. Growth of Advertising. — Advertising has made great strides as an art useful in promoting sales during the last score of years, but in no business has it reached the state of perfection found in the larger mail-order houses. This advertising has in many cases been more powerful than the personal salesmanship and actual display of goods in local retail stores. Price Arguments. — Mail-order houses have used as their principal argument, a price lower than that asked in re- tail stores. The mail-order house catalogue of some years ago was a mass of price comparisons. An attempt was made to show for almost every article that it would cost so much more at the regular stores than at the mail-order house. Price comparisons are not now so frequently made directly. The suggestion is, however, made in even more effective ways, though more indirectly, that the mail-order method of pur- chasing is one of great economies. THE MAIL-ORDER HOUSE 295 Causes of Development of Mail-Order Business. — The independence and lack of community spirit of the American countryman due largely to his isolated manner of living, the general circulation of periodical literature among all classes of people, the increased earning power of many classes, the rising standards of living, the backwardness of many small-town merchants, the power of mail-order adver- tising to create demands for mail-order house goods, and the cheaper price argument, are, it seems to the writer, the chief causes of the mail-order business development. Advertising Man Important. — As already suggested, the mail-order house sells its goods through advertising. The mediums employed include letters, circulars, newspaper or magazine advertising, price lists, and catalogues. The cata- logue and the advertisement in the popular periodicals are the mediums most commonly and successfully used. Every effort is made to make these as effective as possible. The work of the advertising man in a mail-order house is second in impor- tance to no other. In general, the advertisement of an article either in a paper or in a catalogue must catch the reader's attention and interest at the first glance, and the description must be such as to make the reader see, feel, and appreciate the qualities, as if the goods were already within reach. The reader is made to feel that there is nothing to do but to fill out the order blank and send the money to the mail-order house in order to consummate the enjoyment or satisfaction antici- pated. No wonder the mail-order house catalogues are read by thousands of families more than any other book. They are interestingly written in language carefully calculated to attract the attention and stimulate the desires of such families. They bear every mark of the best popular literature in that their use of words is picturesque, the ideas are clearly ex- 296 ECONOMICS OF RETAILING pressed, the terms used are all within the average person's grasp, and, above all, they tell the intimate things that people want to know — the qualities of goods, what other people are using, the chances to economize, what is necessary in order to outshine other people, and so on. These are material things, and the material things of life influence all classes. The mail-order catalogue is to many country or small town consumers what the department store and the brilliantly lighted shopping district are to the city dweller. Handling Orders Efficiently. — In the larger mail-order houses the handling of the merchandise and the filling of orders is reduced to great efficiency. We may take, as an illustration, the system followed in one of the largest of these concerns. Practically all of the orders come to the house through the mails. The mails come to the concern in large truck loads several times a day, and an average of 100,000 pieces of mail per day is the usual amount. The first step is the separation of the postal cards and other matter from the sealed letters. The next is the opening of the sealed letters by power-operated, letter-opening machines which are able to handle 10,000 to 12,000 letters per hour per machine. The contents of the letters are next examined and another classification is made. All letters containing no orders for goods, but seeking or giving information of any kind are turned over to the correspondence departments. Letters con- taining orders for goods on time, or for C. O. D. shipment are sent to the credit department, and letters containing orders for goods accompanied by payment are sent to the auditing de- partment. The method of handling credit orders will be described later. The orders going to the auditing department are carefully checked as to descriptions and prices, and the total of the THE MAIL-ORDER HOUSE 297 order is checked with the amount of money sent. Record is made of the amount of money received, an invoice number is assigned to the order, the money is turned over for entry and deposit, and the order is sent on to the entry department. Here the order tickets are made out that are to go to the merchandise departments. One order ticket is made out for each merchandise department represented in the customer's order. A complete record is made of the order for the mail- order house files and indexed so as to make it easy to locate at any time. Next, the order tickets are sent to the routing department where specialists on routing and transportation fill in instructions as to the methods of shipping and packing, and attach the address labels for use in the packing depart- ment. This completes the office work in connection with an order. The order tickets, properly filled out with instructions as to packing, shipping, and so on together with the address labels are next sent direct to the proper merchandise departments. The manager of the merchandise department receives the order ticket addressed to him, has it filled by one of his assis- tants, and then sends the goods and the order tickets to the assembling and packing room. If the original order called for goods from, say, four of the concern's merchandise de- partments, each would receive its order ticket, and the goods would be received from each department, assembled into one parcel in the packing department and then checked to see that nothing had been omitted. After packing, the address labels are affixed and the parcel is shipped to its destination. Alto- gether, an average mixed order for goods passes through from fifty-five to sixty hands from the time it is received until the goods are shipped. An Innovation. — Recently an innovation has been adopted in the delivery of goods in cities of from 3,000 population and 298 ECONOMICS OF RETAILING up. In such places the cost of drayage for freight from the station to the homes of customers has often been so much as to deter ordering goods. Under the new plan now followed by the largest mail-order houses, sometimes in co-operation with each other, arrangements are made with some local dray- man to receive all freight from the mail-order houses in his name as if he were the customer and thereby receive the lowest freight rates accorded for quantities. The drayman is then required to make deliveries to the homes of the cus- tomers and to charge the latter a pro rata share of the cheaper freight rate, plus a delivery charge based on a rate fixed by contract between the drayman and the company, always some- what less than the regular dray charge would be. In this way the transportation charges, both freight and drayage, are con- siderably reduced, especially for small parcels that would not ordinarily be entitled to the lowest rates. Cash and Credit. — A number of mail-order houses have always done a credit business, but some of the largest have from the first done a cash business exclusively. Recently some of these cash houses have established credit departments for certain classes of customers. It has been found that cer- tain kinds of goods, such as pianos, cream separators, and other expensive goods, do not sell readily on the cash in advance basis. The amount of cash required is more than many users of such goods can pay down at one time. Where credit is granted, however, every precaution is taken to secure payments when due. The credit manager of such a concern is one upon whom great responsibility rests for he must find out all about his credit customer's ability to pay by means that will not antagonize him. Seemingly, from the point of view of the customer, credit is obtained ver^'- easily. Really the whole financial history of the customer is pretty well known to the credit manager before he affixes THE MAIL-ORDER HOUSE 299 his O K to the order. This done, however, the order passes back into the office channels already described, just the same as an order accompanied by cash. When payments fall due, the mail-order credit department system takes care that the customer receives due notice, and if for any reason he does not respond as he should the collection machinery of the concern is set to work to get the amount due. As progressive parts of this system, he may get, at first, a mere statement of the amount due ; second, a letter calling his attention to the amount due ; third, a letter urging payment or an immediate reply giving reasons for failure; fourth, a threat to begin legal action if pay is not forthcoming at once; and fifth, if the company has received no satisfactory response, the claim is placed in the hands of the local attorney with instructions to secure the money without delay in any possible way. The losses due to bad debts in the best managed mail-order concerns are usually a very small percentage of the total sales. By exer- cising care in the granting of credit, and by pushing the debtor for payment promptly when due, the collection difficulties are reduced to a minimum. One concern that sold by mail about 4,000 pianos in two years, had to use legal means in making collections in only two cases. The Purchasing Department. — Ranking with the work of the advertising department in importance to the firm, stands the buying of the merchandise. In order to do business with the public it is necessary not only to have able men prepare the catalogues and other material describing the goods but also to have buyers who are able to get bargains worth talking about. Every merchandise department has its chief who is the buyer. His qualifications for his work are very important. He must know thoroughly the classes of goods his department is to carry. He must be familiar with their qualities, com- 300 ECONOMICS OF RETAILING parative values, and styles, and know where such goods can be obtained, how they are made, the materials of their con- struction, costs of making, market tendencies, and so on. He must be shrewd in bargaining, cool and quick in judgment, and sure in his reasonings. His work commands a salary of from $2,500 up to $25,000 and even more per year. Methods of Buying. — The mail-order house of today that succeeds best is the one that has either plenty of cash, or very good credit. One of the fundamental conditions of suc- cess in the mail-order business is ready money to buy with and plenty of it. The buyer in a large concern has but few restrictions placed upon him as to what, when, or how much he shall buy, or how much he shall pay. He is assumed to be a specialist in his line and his judgment is not to be ques- tioned. The only injunction that hangs constantly over his head is "make good." Whatever he does he must show a good net profit in his department at the end of the season. If he fails to do so, and can give no good reason for the failure, he loses his job. Such changes in the personnel of mail-order buyers are not at all infrequent, and the executives of large mail-order concerns are constantly scouring the coun- try with sharp eyes to locate the ablest buyers. Whenever one is located he is secured at once if possible. Determining the Minimum Price. — With these conditions in mind, the buyer sets out to buy goods at the lowest possible prices and to sell them at the highest possible figures. The standards of the concern as to quality of goods must be main- tained as closely as possible. The prices at which the goods are to be sold can never be more than those obtained by most retail stores, especially in well-known standard goods. How much below the regular prices the mail-order house must mark its goods is a problem. Such prices must be low enough to THE MAIL-ORDER HOUSE 301 attract trade but not any lower than is necessary to this end. The upper hmits being fixed thus by general retail market conditions, the greater part of the buyer's work consists in trying to buy his goods at lower and lower prices, or at least to get them at lower prices than anyone else. The mail-order house with plenty of cash at its command and an outlet for large volumes of goods, is in a position to get inside prices — if any one can get them. The inside price may take either of two forms, an unusually large discount for cash, or an unusually low quantity price. Sometimes when immediate cash is not an object to a supplier, the buyer may succeed in getting his bills dated forward for a consider- able length of time, thus getting the use of the funds for the house for a longer time before paying for the supplies. Cash Buying. — The buyer of a mail-order house with plenty of cash at his disposal watches for bargains the coun- try over. A manufacturer who has overstocked himself with his product and does not see any immediate means of liquidat- ing, or a manufacturer in need of ready cash whose credit is none too good at the banks, or a manufacturer in a line that has only a seasonal demand followed by periods of dullness, or a manufacturer who has had trouble in marketing his goods — these classes of producers are likely to be visited by mail-order buyers. Large orders and cash in hand will be ofifered if the prices are made low ; and the result is that many such transac- tions are made upon very favorable terms. Rarely do sup- pliers succeed in getting fancy profits when dealing with such buyers. The Guarantee. — One of the most potent factors in modern mail-order merchandising is the guarantee. One concern prints in large type on the outside of its cover, "We guaran- tee absolute satisfaction. Promptly return to us, at our ex- 302 ECONOMICS OF RETAILING pense, any unsatisfactory purchase. We will then either ex- change it for what you want, or return the full amount you have paid, together with transportation charges." This is an unqualified guarantee. It has no strings attached to it. Some people undoubtedly take advantage of this guarantee and make unreasonable demands, but the amount that is lost in this way is more than recovered by the gains in trade with the timid who might not purchase at all, if it were not for this clear-cut statement. A guarantee of this kind issued by a large house has a peculiar psychological effect. It not only promotes confidence in the statements made in the catalogue, but it also promotes confidence in the goods themselves, even after they have come to the customer. The way this principle works can best be seen in the case of some concerns that attach guarantee tags to all goods sent out. This tag attached to an article when it finds its way into the customer's hands is equivalent to an assertion made in' a positive way that the article is good. This assertion helps to overpower any negation or criticism that might otherwise tend to form in the customer's mind. The guarantee, therefore, actually tends to prevent returns and exchanges rather than to increase them. Truthful Advertising. — Truthfulness of advertising is an- other important factor in the long run. Because of slight misrepresentations in the catalogues or other advertising mat- ter many concerns never receive a second order from cus- tomers. Readiness of the firm to back up every statement made is the first principle in successful merchandising not only in the mail-order business but in every other retail business as well. It seems that in this regard the standards of mail- order houses have risen considerably during the last few years. Even the ordinary expressions of selling talk have been toned down considerably. It is probable that any mis- THE MAIL-ORDER HOUSE 303 representations which occur in the advertising matter of most of the large houses, at least, are due to error rather than policy. It would be strange if some errors did not creep into the descriptions of merchandise, when these run up into the tens of thousands in a single catalogue. The Correspondence Department. — It is of interest to note the character of the work required and done in the corres- pondence departments of mail-order houses. Here again are found high-salaried people. In writing to customers or others great care and judgment must be exercised. Questions must be answered precisely, clearly, and tactfully. All classes of people must be corresponded with. What is put down on paper must be both readable and interesting from the stand- point of the person who receives the letter, whether that per- son be a day laborer in a factory, a farmer, a ranchman, a housewife, or a school boy. The reader of the letter must be put at ease. Confidence must be restored in cases of com- plaint, or built up in cases of inquiry. ' "Write letters, or or- ders to us, in any way, on any piece of paper, and in any language. We can read and correspond with you in your own tongue. Don't be afraid you will make a mistake. We will readily understand what you want." Such is the statement in one catalogue. To adapt the work of the correspondence department to all of such needs requires both high grade in- telligence and art. Efficiency Methods. — In a large, modern mail-order house one finds a great variety of devices to make the handling of orders and goods efficient. Letters are opened by machine, orders and communications are sent to departments in pneumatic tubes, parcels and loose goods are conveyed from upper to lower floors in gravity conveyors, and from one part of the building to others by endless belt conveyors. Or- 304 ECONOMICS OF RETAILING ders are filled by people who travel almost on the run all day long. Experiments have been made in the use of roller skates in the order filling and stock-room departments. Packing has been reduced almost to an exact science. Wher- ever a machine can do the work, one is used. Human labor is classified and departmentalized. New employees are taught how to do their work most effectively. Standards of per- formance are set and employees must come up to these stand- ards. Responsible positions pay high salaries, but the system is so devised that the number of such positions is few com- pared to the total. The majority of employees need only to be active, alert, and accurate in their movements. Every- thing is taken care of by definite instruction. For this reason a very large number of such routine positions are filled by young people, boys and girls below twenty years of age, working at low wages. The Futvire of a Mail-Order House Employee. — Looking at the business from the social standpoint, one might wonder what becomes of all of these young people as they grow older and must have higher paying situations in order to meet the higher costs of adult life. Certainly, only a small propor- tion can ever hope to occupy the better paying positions in their respective firms. One might also question what effect their experience in such highly specialized and subdivided routine work has on their chances for getting more lucrative employment elsewhere. Whatever the answers to these ques- tions may be, it must be asserted that the mail-order business represents one of the highest forms of corporate efficiency. Every item is turned to account in the production of profit. Cost of Doing Business. — This brings us to the final point. What are the costs of doing a mail-order business? The fol- lowing is a schedule of the percentages of each of the main THE MAIL-ORDER HOUSE 305 expense items based on sales for a specialty mail-order house in 1913: Percentage Expense Item of Sales Rent 1.8% Salaries 4.6 Advertising 3.2 Heat and light 0.9 Delivery 4.3 Supplies 2.3 Insurance and taxes 0.7 General expenses 2.4 Depreciation and shrinkage 0.6 Bad debts 1.6 Total 22.4% Two items in the list are out of the ordinary, namely, ad- vertising and delivery. Advertising averages from 6 to 10 per cent of sales in most concerns, and delivery is an item that appears only for concerns that prepay transportation charges to consumers. The illustration is taken from a com- pany that does very Httle general advertising. Its business is obtained by correspondence, using select mailing lists, and delivery charges are prepaid. In testimony given by Wm. C. Thome, Vice President of Montgomery Ward and Company before the Parcels Post Sub-Committee of the Senate Committee on Post-Offices and Post Roads, January 3, 1912, he stated that "the cost of do- ing business in a catalogue house runs from 16 to 25 per cent of sales." Among figures gathered by the writer directly from mail-order houses, the range is from 16 to 26 per cent of sales. One was given as 16 per cent of sales, another as i8j4 per cent, another at 20 per cent; one at 22 per cent ; two at 24 per cent ; two at 25 per cent, and one at 26 per cent. The average appears to be about 22 per cent. Considering the volume of business transacted, 20 to 3o6 ECONOMICS OF RETAILING 22 per cent of sales would probably be fairly representati\ e of the average cost at which the mail-order business of this country is transacted by exclusive mail-order houses. Mail- order departments in regular retail stores seem to run some- what higher in most cases. These figures must be consid- ered merely as indications or estimates at best. While the\' represent the costs found in some of the largest concerns in the country, the number of firms included is too small to enable one to form an accurate idea. Advantages of Mail-Order Houses. — In conclusion, mail- order houses claim, and undoubtedly do have, certain advan- tages in many cases over the small local stores that are most affected by the mail-order competition. First. The art of advertising is carried very much far- ther by the successful mail-order concern than by the small town store. In fact, even where prices for the same goods are equal, the advertising is sometimes of such a character as to pull trade away from the local dealer in spite of all of the advantages the latter has in the way of personal salesman- ship and of allowing the customer to examine the goods be- fore buying. The vivid descriptions of goods and the sug- gestions of enjoyment or satisfaction stirred up in anticipation of ownership, not always literally truthful with all advertisers, are factors in the modern mail-order catalogue that must be reckoned with. Second. The large mail-order house is enabled to offer through its catalogue a very wide variety of goods, a great factor of success in competing with small town merchants. Third. Certain classes of people, in this country at least, are ready customers of mail-order houses whenever they are in the market for goods. People who feel no interest in the up-building of the trade of a community, those who have ac- tually, or through misunderstanding, felt themselves mis- THE MAIL-ORDER HOUSE 307 treated by their home merchants in any way, or those who desire the distinctive thing, the merchandise from the distant place of different appearance or quahties, but who cannot afiford to go in person to the distant town to buy; and those who are trying to make their funds go as far as possible and to whom the cut prices often advertised mean a great deal — these classes form, perhaps, in the main, the bulk of mail- order house patrons. Fourth. The large mail-order house through its financial power and ability to market immense quantities of goods is able, without doubt, to buy much of its goods at inside prices, and such prices are often so low that the mail-order house may undersell its competitors and still make a handsome profit. In other words, the mail-order house is frequently favored by manufacturers with an unusual quantity price. Economic Disadvantages. — The economic disadvantages of the mail-order method of distribution may be summarized as follows : A constant and high advertising expense is neces- sary to keep trade coming in; a large number of customers never send in more than one order; and new fields of cus- tomers must be cultivated constantly. The transportation item from the mail-order houses to customers is frequently overlooked in discussions of this kind, but constitutes an ex- pense that is disproportionately large. When one adds up all expenses properly chargeable and incident to dealing with a mail-order concern it is open to question whether the mail- order method of distribution is more economical than the older jobber-retailer-to-consumer method. That this fact is one that bothers the mail-order house managers is made evident by the attempts to reduce the trans- portation expense on the packages and parcels as they are sent to the customers by establishing branch houses or redistribut- ing points. Montgomery Ward and Company has such 3o8 ECONOMICS OF RETAILING branch warehouses at New York, Kansas City, Portland, Ore- gon, and Fort Worth, Texas. Sears, Roebuck and Company hkewise has three or four branch warehouses, while certain classes of goods such as stoves are distributed directly to con- sumers from a dozen or more points. The National Cloak and Suit Company combines all the shipments for a week or shorter period to some central point in a section and ships them by freight to an agent located in this place. The agent opens up the freight boxes and reships the contents by parcels post, the packages for individual customers being already wrapped, stamped, and addressed to their proper destinations. By these means some savings are effected in mail-order distri- bution. CHAPTER XVIII THE FAILURE RATE IN THE RETAIL BUSINESS Business Death Tables. — One of the best means of ob- taining a clear idea of the physical troubles of humanity is to study the mortality rate. From the death tables one may find something concerning the relative importance of the causes of death, and from the study of these causes, scientists and physicians have been able to find remedies and thus re- duce mortality. In the same way a study of the failure statis- tics for retail stores will reveal not only the direct causes of failure, but may also lead to the discovery of methods of re- ducing the failure rate. Definition of Terms. — Failure in the retail business, as understood here, does not necessarily, nor even usually, imply bankruptcy in the legal sense. It simply means discontinu- ance of a business because of inability to conduct it so as to make it yield at least a fair wage to the manager and a fair rate of interest on the capital invested. By a fair wage is meant such a wage as the manager could command in em- ployment elsewhere, and by fair rate of interest is meant the customary or market rate. The commonest type of failure in the retail business is where the manager of a store finds that he is "losing money," that he is meeting expenses out of capi- tal and not out of earnings, and that the business is going backward with no hope of recovery. Sometimes it is dis- covered that a business cannot be made to pay and the decision to get out from under it is quickly made. In other cases, the final move is not made until -the dealer's original capital is al- 309 3IO ECONOMICS OF RETAILING most if not entirely gone. Occasionally the loss involves not only the dealer's capital but also a part of the funds loaned him in merchandise or in other forms by his creditors. In any case, the store is finally sold or disposed of, and its man- ager sets out to embark in something else. Agency Failure Statistics.— The usual failure statistics issued by such concerns as Dun and Bradstreet comprise only failures in which creditors lose something. No account is taken of that very large class in which the dealers are able to satisfy their creditors, but lose part or all of their own substance.^ The proportion of bankruptcies and failures of the classes enumerated by Dun and Bradstreet must clearly be very small, and, consequently, such figures, if taken to show the actual failure rate in business, are misleading. Recently, an article was published and widely quoted, calling attention to the low proportion of failures to the total number of people in business as .shown by Dun's tables. Upon this as a basis the estimates of a very much higher failure rate made by many experienced business men are crit- icized. That the word "failure" is used in an entirely dif- ferent sense in each case is completely overlooked.^ Early Failure Statements. — So far as the writer has been able to learn, one of the first public statements in this coun- try concerning the failure rate among merchants was made in 1840 by General Henry A. S. Dearborn, then collector of the port of Boston, in an address before the members of the Massachusetts Legislature. His statement was as follows : "After an extensive acquaintance with business men, and having long been an attentive observer of the course of events in the mercantile community, I am satisfied that, among one ^ Bradstreet's "Failure Statistics — Tlieii- Meaning and Utility,*' 1910, page 5. '^Printers' Ink, March s, 1914, page loi. THE FAILURE RATE 3" hundred merchants and traders, not more than three in this city ever acquire independence. It was with great distrust that I came to this conclusion; but, after consulting with an experienced merchant, he fully admitted its truth." ' This statement was questioned and doubted by other men in public life in Boston at that time, and caused other investi- gations to be made. The results of these, though in most cases not so definite, served to corroborate General Dearborn's testimony, at least to the extent that very few of those who entered the merchandising business were able to make a suc- cess of it.* A generation later, a study was made among the mer- chants of Worcester, Massachusetts. It was found that out of 56 firms doing business in that city in 1845, one-fifth passed out within five years, two-fifths within ten years, and three- fifths within fifteen years. Following this statement an esti- mate was made for the retail business in general, to the effect that, out of all who begin as merchants, at least 25 per cent fail within five years, 50 per cent fail within ten years, and 66 2/3 per cent fail within fifteen years." Other Estimates. — In his testimony before the Industrial Commission in 1900, John Wanamaker stated that only about 4 per cent of all who embark in mercantile business succeed. At the same time he quoted A. T. Stewart, a former great retailer and wholesaler of New York City, who used to claim that only 2 per cent succeeded.* Leroy Beaulieu, a great French economist, estimated that in France, out of a hundred new businesses, twenty fail soon after starting, fifty to sixty vegetate, or are able simply to hold their own, while from ten to fifteen are successful.' 'Hunt's Merchants' Maganine, 15:475- * Freedley, E. T., "Common Sense in Business," 1879, pages IBS-?- 'Nation, April 12, j888. " Industrial Commission, Vol. VII, page 452. ' "Repartition des Richesses," Chap. XI. 312 ECONOMICS OF RETAILING David A. Wells, a well-known American economist of the latter half of the nineteenth century, estimated that at least 90 per cent of 'those who go into business fail* Professor Commons of the University of Wisconsin in his "Distribution of Wealth," page 202, quotes from some writer not named, that "10 per cent of the men who go into business succeed, 50 per cent vegetate, and 40 per cent fail." This statement is accepted as a basis upon which to build an economic doctrine concerning profits. The Conflict of Statements. — Plainly these estimates are in conflict with such statistics as those offered by Dun and Bradstreet, unless the latter are interpreted correctly. For example, for the year 1910 Bradstreet's showed that 11,573 firms out of a total of 1,592,509, or .72 per cent failed. Dun's for the same year showed 12,652 failures out of a total of 1,515,143 firms of all kinds, or .80 per cent. In no year since either of these two concerns have begun to collect sta- tistics on failures have the percentages even equalled ii/< per cent of the total number of concerns in any one year. But for the year 1910, Bradstreet's tables show that over 321,000 names of firms were taken off their lists, amounting to more than 20 per cent of all the concerns in business dur- ing that year. In addition to these, a large number of changes were noted in firms, some of which, at least, must have been due to weakness and failure. No explanation is attempted for these. The Oshkosh Study.— To get a little more definite idea of the actual proportion of failures in the retail business, the writer undertook a study of the failures in his home city of Oshkosh, Wisconsin, during the years 191 1 and 1912. With "Recent Economic Changes,'' page 351. THE FAILURE RATE 313 the help of the city directories, lists were compiled of all persons who had engaged in certain lines of the retail busi- ness from 1890 down to 1912, and the changes in personnel from year to year were noted. By interviewing a number of the older merchants and other old residents of the city, the attempt was made to find out why each retailer who had dis- continued business during the period under study had dropped out, so that the actual number of failures could be learned. The following represents the results of this study. General Facts About Oshkosh. — In order that the condi- tions of the city may be understood and that the figures show- ing the mortality rate of its retail business may be given proper weight, the following general facts are presented: The population of Oshkoch in 1890 was 22,836; in 1900 28,284; and in 1910, 33,062. It is located in the heart of a rich agricultural area of eastern Wisconsin, and is the county seat of Winnebago County. The population is made up al- most entirely of whites of North-European extraction. Among the adults, foreign born are slightly in excess of native born of foreign parents; and this class is somewhat in excess of native born of native parents. Most of the foreign born adults of voting age are naturalized citizens according to the 1910 census report. Among the foreign born, Germans pre- dominate, and among the native born of native parents. New England and New York strains prevail. According to the statement of an old merchant, "The Yankees, the Germans, and the Irish run the town." From 80 to 90 per cent of the land area in the county is in farms, and the average value of farm land per acre was not far from $75 in 1910. Most farms run from 40 to 160 acres in size, the average size being 95 acres, and the average number of acres under cultivation, 68 acres. About 20 per cent of the farms are managed by tenants. Milk and 314 ECONOMICS OF RETAILING milk products, corn, oats, barley, and potatoes are the most important products. The manufacturing industries of the City of Oshkosh employ over 6,000 people and a capital of $10,000,000; wages and salaries paid by these same industries amount to about $3,250,000 annually. The chief manufacturing industry is wood-working. A large number of the people employed are either unskilled or only semi-skilled. There were 835 persons within the city paying an in- come tax for 191 1. Out of this total, 132 retail dealers were income-tax payers, but 94 of these had other sources of income than their stores. Only 41 of the income-tax pay- ers received their incomes from the stores alone. Among these, saloon-keepers ranked highest with a total of 8, gro- cers came next with 5, and druggists third with 3. The sales of the stores in the city in some lines, accord- ing to estimates made by leading merchants, amount to about $2,000,000 annually in groceries, including butter, eggs, fruit, and vegetables; $1,000,000 annually in dry-goods, notions, women's and children's ready-to-wear goods; $350,000 in men's and boys' clothing; $250,000 in shoes; and $150,000 in hardware; all at retail prices. As an illustration of the probable power of national ad- vertising in helping to determine consumer-demand, it was ascertained that there passed through the post-office, approxi- mately, the following number of magazines each month in 1911 : Woman's World 500 Ladies' Home Journal •. 400 Home Life 400 Designer 350 Delineator 300 Ladies' World 300 Pictorial Review 300 Woman's Home Companion 250 Housekeeper 125 THE FAILURE RATE 315 Good Housekeeping 100 Harper's Bazaar 50 Everybody's 175 Outlook 250 Collier's 300 Literary Digest 150 System 50 Oshkosh a Typical City.— In general these conditions are very similar to those of other cities of the Middle West, and no unusual or peculiar conditions, so far as the retail trade is concerned, exist. The town has had no booms within the period under consideration, nor any particular slumps. The population and industries of the city, as shown by a study of the past censuses, have had slow, gradual growths. In such a place as this, if anywhere, we should be able to find normal tendencies operating in the retail business. The Table of Retail Dealers.— The table on page 316 shows the number of retail dealers in the city handling the following lines of goods — groceries, shoes, dry-goods, men's clothing, hardware, furniture, and drugs. All other lines are omitted. After the date 1890 in the left-hand column of the table, appears first the number of dealers in business in that year. Following the line to the right, one may trace the grad- ual dropping out of the original dealers by noting the dimin- ished numbers at each date. After the year 1893 in the left- hand column of the table, under the appropriate place, appears the number of new dealers found in the new 1893 directory — dealers who were not in the 1890 list. These new firms are followed through to the end of the period in the same way as those found in the 1890 list. The 19 12 column shows the number remaining of each group. In the same manner, for each year in which a directory was issued, the number of new firms listed is noted and then traced down to 1912. The table is to be interpreted as follows : 3l6 ECONOMICS OF RETAILING Of the total number of merchants in business in Oshkosh in 1890, 145 in all, only 18 remained in 1912. Of the 43 new dealers who began business between 1890 and 1893, only 8 remained in 1912. Of the 61 who began between 1893 3.nd 1895, only 9 remained in 1912. Of the 52 new ones listed in 1898, 13 remained in 1912, and so on. Changes in Retail Dealers in Oshkosh from 1890 TO 1912 1890 1893 1895 1898 1900 1903 1905 1908 igio 1912 Exist'g stores, 1890 145 117 91 73 50 37 29 27 18 18 New firms, 1893 43 24 18 15 12 11 9 8 8 189s 61 33 20 19 17 16 13 9 1898 52 34 26 20 15 15 13 " " 1900 45 31 19 13 10 9 1903 35 24 19 16 13 '' " 1905 32 19 13 10 1908 35 24 20 1910 41 34 " " 1912 38 145 160 176 176 164 160 152 153 158 172 Results of the Survey. — It appears from the table that there was a general increase in the number of retailers from 1890 up to 1898, and then a decrease up to 1908, followed by another increase up to 1912. Clearly the number of re- tailers has not increased during the period as rapidly as the population increased. While the population increased from 28,000 to 33,000 between 1900 and 19 10, the number of retail stores actually decreased from 164 to 158. The city was supplied with 145 retailers in 1890 and with 176 in 1895 and 1898. These figures represent the range. The average is nearly 162 for the period. To keep the city .supplied with this number of stores during the period of 22 years, 526 people embarked in business and invested THE FAILURE RATE 317 their money and time. Out of these, 354 dropped out, leav- ing 172 at the end of the period. One of the remarkable things about the showing is the continuous inflow and outflow of people, keeping the total number engaged in business at any "one time so close to the average. To determine the causes of dropping out, the writer was able to get information concerning 201 out of the total of 354 who quit business during the period. This informa- tion was gained largely from wholesale and retail merchants who had been in business during the entire period and had watched the development of the retail business and noted every change with a competitor's interest. Out of the total of 201, the general causes for dropping out of business were as follows : Causes for Discontinuing Business Cause Number of Stores Death 24 Retired because of ill health I Bankruptcies handled by courts 6 Failures or fizzles 124 Sold out, probably representing losses* 2j Sold out, representing gainsf 14 Retired with competencesf 5 Total 201 •According to the belief of the writer's informants, some loss, amount or extent not known, was involved in each of these. tSuccess as defined by the writer's informants was often a very moderate thing. One of the merchants was able to buy and pay for a farm from the proceeds of his sale. Another of tlie retired merchants has an income of about $800 a year from his investments. The majority of the 14 went into other businesses. Some of the most successful merchants in the city are still in business, and are therefore, not included in the table. Out of the total of 354 who dropped out during the period, 153 could not be accounted for. Whether they succeeded or not could not be learned. It seems that most of them quietly disposed of their businesses and slipped out, and the changes 3i8 ECONOMICS OF RETAILING in ownership of their stores were hardly noted by the people of the city. It seems safe to venture that none of them were very successful or they would have attracted the attention of competitors. On the other hand, if they failed, it was not probably failure that involved any extensive loss to creditors, or the latter, particularly the Oshkosh wholesale houses — in the grocery line at least — would have recalled them more defi- nitely. Summing up the Situation. — In discussing the situation with some of the older merchants and with managers of wholesale houses, it seemed to be the general estimate that those who have entered the retail business in the city had, on beginning, sums ranging on the average from $300 up to $1,000 saved up from wages, or gained in some other way, frequently by inheritance; and that with this, and as much credit as wholesale houses would grant, they began business. A few, as we have noted, were able to make a success of it, but the great majority fizzled out. The majority of retail concerns in the city have a life of from less than a year up to eight or ten years, with the average centering about six years. More drop out during the first year thari during any other year of trial. The story of the retailer who fizzles out .seems to be some- Avhat as follows : He comes into business with a capital of his own of from $300 to $1,000, usually gained from some occupation other than retailing. He spends a few years in the business, struggles hard to make it go, and then slips out with little or nothing of his original capital, and nothing but a bare living to show for his labor and often for the labor of members of his family also. There seems to be a steady flow of capital, generally in small sums saved from other occupations, into the retail busi- ness. Here, in the course of a few years, it is consumed or THE FAILURE RATE 319 lost, and those who contribute it are forced to get out and try other occupations again or work as clerks, giving the results of their experience to other retail store employers. The contributions of capital to other businesses from the re- tail business seem to be insignificant compared with what goes into it. It thus appears that under present conditions, retail- ing is at least partly parasitic, though indirectly and involun- tarily so. Previous Occupations of Oshkosh Merchants. — Some light may be thrown on the sources of the capital put into the retail business by a study of what occupation each of the present owners of retail stores in Oshkosh came from preceding the present work. Occupations of Oshkosh Merchants Before Going into Present Business Druggists : Drug clerks 11 Jewelry : Watchermakers 6 General tinker i Tailor i Factory hand i Shoes: Shoe Clerks 11 Cobblers 6 Grocery clerk I Factory hand i Barber i Clothing: Clothing store clerks 9 Dry-goods clerks 3 Grocery clerk i Saloon-keeper i Furniture : Cabinet makers 2 Clerks in furniture store 3 Factory worker i Farmer i 320 ECONOMICS OF RETAILING Hardware : Hardware business formerly 2 Hardware store salesmen 2 Tinsmiths 2 Traveling salesman i Furniture manufacturer i Iceman i Dry-Goods : Merchants before 3 Dry-goods clerks 3 Peddler i Grocer i Farmer i Shoe merchant i Carpenter i Housewife i Grocers : Grocery clerks 16 Factory hands 16 Housewives (widows) 9 Farmers 9 Grocers in other places 8 Butchers .- 4 Bakers 3 Milkmen . . . .' 3 Carpenters 2 Traveling salesmen 2 Saloon-keepers 2 Musicians ■ 2 Section man on railwa)- Teamster Motorman Blacksmith Cigar-maker Shoemaker Machinist Sewing machine agent Policeman Grain buyer Coal merchant The above lists also show that a very large number of those who go into retailing have neither experience nor knowl- edge of the business. "Anybody can keep store" is the slogan. THE FAILURE RATE 321 It vSeems a matter for small wonder, then, that so few are able to succeed. Relative Rates of Change in Retail Business. — To deter- mine whether the rates of change in the retail business in Oshkosh were any different from those found in other cities of the same class in Wisconsin, similar directory studies were made for Janesville and La Crosse for ten-year periods each. The same lines were considered in Janesville as in Oshkosh, namely, grocers, shoe, hardware, furniture, dry-goods, men's clothing, and drug dealers. In the case of La Crosse, jewelers were added to the list. This addition is of no material con- sequence in the general results, however. The results were as follows : Changes in Retail Firms in Janesville from 1890 TO 1900 Total Retail Stores in 1890 1896 1898 1900 Total stores, 1890 63 31 28 23 New firms, 1896 48 29 23 1898 17 6 " " 1900 25 63 79 74 77 Changes in Retail Firms in La Crosse from 1893 to 1903 Total Retail Stores in 1893 1895 1897 1900 1901 1903 Total stores, 1893 181 124 108 95 82 71 New firms, 1895 55 29 23 19 16 1897 33 21 17 14 1900 34 17 14 " " 1901 31 14 1903 35 181 179 170 173 166 164 322 ECONOMICS OF RETAILING Changes in Retail Firms in Beloit between 1890 and 1900 Total Retail Stores in 1890 1896 1900 Total stores, 1890 46 27 19 New firms, 1896 25 .15 " " 1900 22 46 52 56 Changes in Retail Firms in Evansville between 1890 and 1900 Total Retail Stores in 1890 1896 1900 Total stores, 1890 14 7 5 New firms, 1896 10 4 " " 1900 6 H 17 15 Changes in Retail Firms in Edgerton between 1890 and 1900 Total Retail Stores in 1890 1896 1900 Total stores, 1890 21 9 7 New firms, 1896 7 4 1900 5 21 16 16 Changes in Retail Firms in Clinton between 1890 AND 1900 Total Retail Stores in 1890 1896 1900 Total stores, 1890 15 8 7 New firms, 1896 7 1 " " 1900 ^ 7 15 15 15 THE FAILURE RATE 323 From the foregoing it appears that retailers drop out at about the same rates in Janesville and La Crosse as in Oshkosh. The proportion of failures is probably the same. Similar results were also found for Beloit, and for the smaller towns of Edgerton, Evansville, and Clinton, all located in southern Wisconsin, showing that the tendencies for retail dealers to drop out of business are not only very high in such cities as Oshkosh, but also in the much smaller cities and coun- try towns. Causes of Failure. — For the causes of failure among re- tailers we may refer to the classifications of Dun and Brad- street. While these concerns count only failures of a limited class, the causes that operate to drive dealers over into this class of failures are everywhere operative and probably in about the same proportions as found by Dun and Bradstreet. These causes, stated generally, are as follows: Bradstreet's Classification of Business Failures" Beginner's Handicaps : Lack of capital 29.7 Incompetence 30.2 Inexperience 4.6 Unwise credits 2.0 66.5 Personal Faults of Character: Fraud 10.3 Neglect of business 2.0 Personal extravagance .7 13.0 Factors Threatening Success: Competition 1.9 Failure of others 1.3 Speculation in other business 8 Specific conditions (disaster, etc.) 16.5 20.5 "Adapted. 324 ECONOMICS OF RETAILING Classification of Causes of Failures in the Retail Business ^° Beginners' Handicaps: Lack of capital 29.5 Incompetence (including inexperience) 24.0 Unwise credits 4.4 General expense too high 3.0 Poor location 2.2 Expansion (branch stores) 2.0 65.1 Personal Faults of Character : Fraud 4.0 Neglect of business 4.0 Personal extravagance 4.8 Intemperance 2.0 14.8 Factors Threatening Success : Loss by storm, flood, fire, etc 3.8 Sickness 3.5 Failure of others 2.6 Speculation 2.1 Competition 1.4 Closed by "sharks" 1.2 Robbery of store 1,0 Death 8 Loss in contracts .8 Miscellaneous causes 2.9 20.1 Failure Rate High. — In conclusion, the failure rate among retail dealers is very high, probably higher than in any other phase of business of equal importance. But very few of the failures in the retail business reach the stage of bankruptcy proceedings. The large majority of such cases are averted by the dealer settling up or selling out before the crash. The fact that a large number of small dealers own only their stock and rent their buildings makes it easy to sell out and settle ■"By 0. W. Mayer. Credit Manager, Steele, Wcdeles and Co. Adapted from System, February, 1914. THE FAILURE RATE 325 with wholesalers or others to whom money is due whenever the dealer finds himself going hopelessly backward. It is the business of the credit men of wholesale houses to watch over all concerns exhibiting weakening tendencies, and to shut off credit and make prompt collections as soon as the dealer's own capital begins to diminish. Thus, while the dealer may lose a large part or all of his own investment, the creditors may be able to come out of the settlement with little or no loss. The Wholesaler and Retail Failures. — Most failures in the retail business are simply closed out in a quiet, informal way, and the public never learns just what the exact financial situa- tion was. A new man with new capital seems to be ready to slip in and try his fortune as soon as the old dealer steps out. No lesson is drawn from the accumulated experiences of the vast number of failures that have taken place in the past. For the most part the system by which elimination takes place is such as to preclude the outside public from gaining from the experiences of others. Those who do know most about it — the wholesalers — find it contrary to their own interests to check people from going into business, even when the chances of ultimate failure are very great. A new store is a new cus- tomer, and the wholesaler considers that by keeping close watch of its development through his credit department, he may be able to pull out whole before the inevitable end. Be- sides, the final outcome is not always failure in spite of all signs and indications. Some of these new men do make good, and it is worth while making them customers when they are just starting in business. Failures among retailers are a continual source of trouble and expense to wholesalers, but the incentive to .supply a new man with goods when he comes with cash in hand, and a cer-^ tain line of credit for a while at least, is stronger than the in- centive to advise him to keep out of the retail business. If 326 ECONOMICS OF RETAILING one wholesaler does not supply him, another will. So, while wholesalers, as a rule, are vitally interested in seeing their customers succeed, they are not in position to act as judges on who should, and who should not, enter the retail business. How Relief May Come. — ReHef, if it is to come, must come through a system of general, popular education through press and schools in the elements of distribution of goods, in the work that must be done in the vocations within this field, in the qualifications that are required of those who take up this work, and in the perils that attend it. Something could be done by means of public regulation, perhaps, through a license system, to limit the number of persons who are to en- gage in retail trade, and to give the opportunity to prescribe or insure that all of those who do enter shall have some fitness and necessary qualifications for serving the public properly. But it is not likely that such regulations of the retail business can be carried out in this country yet. The inherent belief in the freedom of industry and of trade that is the product of two hundred and fifty years of thinking among English-speak- ing people, will hardly permit any sudden change to a practice involving such regulation, no matter how necessary such a change might be. CHAPTER XIX ARE THERE TOO MANY RETAIL STORES? Too Many Retailers? — A belief is widespread that there are too many retailers. Not only is this view held by many popular writers, but also by many economists. Pizzamiglio in his "Distributive Co-operative Societies" quotes, among others, John Stuart Mill, to the effect that it would be pos- sible to dispense with the services of nine-tenths of the English traders, and Thorold Rogers, to the effect that England could get along very well with one-fifth of the actual number of retailers. Leroy-Beaulieu and Roscher were also named as holding similar views for France and Germany respectively. One might question the exact meaning of these state- ments. Did these critics of the retail distributing system mean that the ownership of the existing stores might be consoli- dated to a very great extent, and thus reduce the number of retail store owners? Or, did they mean that there were too many retail establishments? Chain-store systems, co-opera- tive distributive societies and, to a certain extent, the estab- lishment of department stores, would be the remedy, if it could be shown that there were too many independent store owners. But if they meant, as it may be assumed here, that there were too many establishments, then the character of ownership would count for little. The remedy would be some form of regulation to prevent the number of stores from in- creasing beyond a certain point in each community. Meaning of the Question. — One might also ask what is meant by the question, "Are there too many retail stores?" 127 328 ECONOMICS OF RETAILING Does it mean too many for the good of retailers themselves? Does it mean that there are more than necessary to supply all the demands for .services such as retailers perform? Does it mean that if there were fewer stores the service performed would cost the public less? Obviously, if a retailer makes the assertion that there are too many stores, he means that if there were fewer he would get more business and more profit. An economist interested in the conservation and proper em- ployment of all labor might assert that if there were fewer stores the labor of retail distribution could be accomplished by fewer people and consequently at lower social cost. The consumer wonders if the duplication of plants in the many near-by stores does not result in an additional burden of ex- pense which is added to the prices he must pay for the goods he buys. It does not follow that the conclusions drawn by these three classes of people will agree. The purpose of this chapter will be to examine such evidence as is available in order to answer the question, if possible, mainly from the standpoints of the retailers and the consumers. United States Census Report. — As we have already seen, our statistical knowledge of the retailing business, in this country as a whole, is very imperfect. The only statistics that are available are the United States Census figures on occupa- tions and the lists compiled from the Dun and Bradstreet mer- cantile reference books. Both are probably defective, the former in classification, and the latter through failure to list all persons engaged in the retail business. The following table prepared from the United States Census report on occupations is serviceable. It indicates the total number of retail dealers, and the number of dealers in selected lines for each census year from 1850 to 1910. Against its use criticism might be made that, at the start, we are confusing the number of merchants or retail dealers ARE THERE TOO MANY RETAIL STORES? 329 with the number of stores, that many of these merchants may be owners of more than one store. This criticism is valid, but it may be pointed out that there are no statistics whatever for the country as a whole showing the number of retail establishments. In further justification of the use of the table, it may also be pointed out that, at the present time, by far the largest number of retail merchants are owners of only one store. While there have been a large number of merchants who have conducted more than one establishment during the entire period, it is only within the last twenty years that chain stores and department stores have increased in great number. If the number of establishments controlled by such institutions coiitinue to grow, statistics such as these will become more and more untrustworthy as a guide to the number of stores actually in existence. Development of Retailing As Shown by the Total Number of Merchants and the Number of Retailers in Selected Lines Line 1850 174,102 i860 1870 1880 1890 691,325 1900 833,212 1910 All merchants* 267,921 357,647 479,439 1,004,153 Wholesalers . 31.086 42,326 64,166 Grocers 24,479 40,070 74,410 101,849 114.849 156,479 195,432 Druggists 6,139 11,031 17,369 27,700 46,375 57,271 65,575 Shoe dealers.. 68s 8,234 9.993 15,239 19.346 Clothiers 3,780 3,346 7.595 10,073 18,09s 35,273 Jewelers S.iii 10,175 6,402 2,305 29,962 Dry-goods. . . J9,790 45,831 42,527 45,820 65,283 Lumber 9,440 11,263 16,792 26,48s •Including wholesalers. What the Table Tells.— This table reveals a number of interesting things. If it were entirely reliable as to classifica- tion, some interesting conclusions could be drawn from it. Some of the discrepancies, however, are obvious. For ex- ample, the drop from 6,402 jewelers in 1870 to 2,305 in 1880, 330 ECONOMICS OF RETAILING and then the rise to 29,962 in 1910 is incomprehensible. Many dealers were not subclassified by the census enumerators at all in each census, hence the discrepancy may possibly be ex- plained by assuming that a large number of jewelers were enumerated under the head of "other dealers" in 1880. The figures show steady increases in the number of deal- ers in practically every line. It is interesting to note that there were no shoe dealers reported in 1850, but that there were 685 in i860, and over 8,000 in 1870. This period marks the beginning and rise of the manufacture of boots and shoes by machine methods. Before i860, practically all boots and shoes were made by hand by shoemakers found in every vil- lage and requiring no stores or middlemen. The number of clothiers also increased rapidly during the same time, and for the same reasons. Number of Stores and Population. — Some light may be thrown on the question proposed by the title of this chapter by comparing the number of retailers at each census date with the total population and with the total number of persons gainfully employed. By means of such comparisons one may learn whether the relative numbers of dealers to total popu- lation and to the total number of gainfully employed are in- creasing or not. After such comparisons have been made and the tendencies noted, some attempt can be made to explain these tendencies, and to draw conclusions concerning whether there are too many retail establishments or not. Ratio of Grocers to Total Population 1850 — I grocer to 960 people i860— I 1870 — I 1880— I 1890 — I 1900 — I 1910— I 750 527 490 540 423 470 or 1.04 per 1,000 population " 1.30 " 1.90 " 2.04 " 1.85 ■' 2.36 " 2.13 ARE THERE TOO MANY RETAIL STORES? 331 The census reports are somwhat indefinite upon the point, but it seems quite certain that the number of grocers indi- cated did not in any case include all who sold groceries, such as general-merchandise storekeepers, but only those who kept one-line grocery stores. It is to be noted that this number increased in proportion to population in every decade except 1890 to 1900. In those years it appears that there were fewer in proportion to population than at any time since the decade between i860 and 1870. Why this should be so is not clear. It seems likely that the disproportionately small number of grocers indicated for that year may be explained by failure of the census enumerators to classify all grocers under this head. There is no reason, so far as is known, for any drop in the number of grocers in proportion to population for that period. Another Comparison. — The following table probably rep- resents the situation more accurately. In this case the total number of merchants is compared with the total population and with the total number of persons gainfully employed ; and the total number of persons engaged in trade and transporta- Ratios of Merchants to Population ' „ , . -. Number of Per- Number of Mer- Number of Mer- j^ns ;„ ^rade V.,r chants per 1,000 '=¥';^? E?": \'°P,° and Transpor- ^^' of Total Popu- °i All Gainfully tajion per 1,000 lation Employed in All ^f ^11 Gainfully Industries Employed 1850 7.51 27.37 109.20 i860 8.52 29.03 97.38 1870 9.27 27.56 99.50 1880 9.55 28.00 107.60 1890 11.40 29.65 146.29 1900 10.97 28.66 163.96 I9IO 10.92 26.30 199.28 •The above table is based upon statistics given in the 13th Census of the United States Vol. IV, Occupation Statistics. The totals of merchants are as given in Table '15. The term "merchants" here includes both wholesale and retail merchants. No separate classification of wholesale dealers appears in the census before 1890. 332 ECONOMICS OF RETAILING tion are compared with the total number of people gainfully employed at each census period. Retailers Increase with Population. — It will be seen from the foregoing table that the number of merchants increased relatively to population from 1850 up to and including 1890, but that the ratio decreased for 1900 and 1910. The de- creases, however, are so small as to be practically negligible, and the conclusion seems warranted that beginning about the year 1890 the number of retailers in proportion to population seemed to remain stationary down to 1910. It is noteworthy that the greatest relative increases in the number of merchants came in the decades 1850 to i860 and 1880 to 1890. The significance of these increases will be alluded to later on. The proportion of merchants to all persons gainfully em- ployed shows the same general tendency to increase as the proportion of merchants to population, with the exception of a peculiar rise from 1850 up to i860, followed by a fall between i860 and 1870. A marked increase in number of merchants in proportion to working population from 18S0 to 1890 is found here as well as in the ratios of merchants to total population. But from 1890 down to 19 10 the ratio of merchants to working population decreased quite mate- rially. In other words, the total number of people going into industries of all kinds increased faster than the number of merchants. The figures in the last column indicate the growing im- portance of trade and transportation among the industries since i860. The high figure for 1850 probably shows the high tide of transportation by wagon, river, and canal, and, consequently, the great number of people required to trans- port goods. By i860, for long distances, transportation by wagon had been largely superseded by railroad transporta- tion. The tendency of the numbers employed in trade and ARE THERE TOO MANY RETAIL STORES? 333 transportation to increase since i860 is coincident with the development of railroad transportation on a large scale. In 1870, one out of every ten persons gainfully employed in this country was engaged in trade or transportation. In 1880, one out of every nine, in 1890, one out of every seven, and in 1900, one out of every six, were so employed. Not Certain that there are too Many Stores. — Whatever local variations there may have been, it is clear from the cen- sus that the number of retailers, and, presumably, the number of retail stores, increased very rapidly from 1850 down to 1910. Not only was there an increase in actual numbers, but also relatively to population, excepting the apparent tendency for the number of merchants in proportion to population to fall of? during the last two decades. The fact that the num- ber of merchants has increased lends color to the belief held by many that there are too many retail stores. Considered in an unqualified way this proposition has led to the judgment that the cost of distributing goods must of necessity be rela- tively higher today than it was forty or fifty years ago. Since there are more people engaged in the distributive business to- day than there were then, and since all of these additional people must be supported, this expense, so the reasoning runs, must be borne by the consumers. Assuming that the number of retail stores was quite sufficient in proportion to population in 1850 or i860, it seems easy to jump to the conclusion that since there are relatively more stores now, there must now be too many. This conclusion should not be drawn, how- ever, without question. For if it can be shown that there is now much more work to be done by retailers and that the former proportion of retail stores could not adequately handle the business that must now pass over retail counters, then there may not be too many retailers even if there are more than there were fifty years ago. This point needs study. 334 ECONOMICS OF RETAILING The Function of the Retailer. — The function of the re- tailer is to distribute goods. Instead of comparing the num- ber of stores with the number of people, it would be better to compare the number of stores with the amount of work done, that is, the amount of goods sold by the stores. Un- fortunately such a comparison cannot be made directly, for there are no statistics available which show the amount of goods sold through the retail stores of the country for any year. Other Census Statistics ; Manufactured Goods. — The near- est approach to an equitable basis for such a comparison that is available is the United States Census valuation of goods manufactured in this country, and the tables showing values of exports and imports. Probably the greater part of manufactured goods and goods imported are sold to consumers through dealers. Ob- viously there are many exceptions. For example, large items in the total of manufactured goods such as foundry and ma- chine shop products, iron and steel products, railway equip- ment, electrical machinery, illuminating gas, coke, etc., make up a considerable proportion of the total, but are not handled by retail stores at all, or at least to a very small extent. The figures representing the value of manufactured products as given by the United States Census do not represent merely the values of finished products ready for final consumption. The goods which pass through several processes of manufac- ture have their values counted in the totals for each process. But in making comparisons of the number of people in the distributing business with the total values of manufactured goods and imports, the goods not handled by retailers and the items of duplication in values found in the total of manufac- tured goods, may perhaps be assumed to have a somewhat con- stant relationship to the total values for the period under con- ARE THERE TOO MANY RETAIL STORES? 335 sideration. It is assumed here that any considerable change in the volume of manufactured goods and imports as represented by their values would be likely to have some appreciable and direct effect upon the amount of work to be performed by dealers. The Statistics Analyzed.— It will occur to some at once that the items of merchandise included in the totals for man- ufactured goods which are not handled by dealers may have increased more rapidly in value than other kinds of goods. A comparison of the census statistics for 1910 with 1900 does not seem to bear out this objection. For example, the value of iron and steel products in 1909 exceeded those of 1899 by about 65 per cent, but the percentages of increase for the same period were as follows for the following goods, all of which are handled by retail concerns of one kind or another: slaughtering and meat packing 73.8 per centi; flour mill prod- ucts, 76.2 per cent; cotton goods, 85.3 per cent; men's cloth- ing, 75.4 per cent; boots and shoes, 76.8 per cent; bread and other bakery products, 126.3 per cent; and women's clothing, 141. 5 per cent. It is believed that in spite of the many items under the head of manufactured goods not handled by retail dealers, the total values represent a fair basis of comparison when employed to show the increase in the amount of business that must be done by the retail trade. As an offset to large increases among manufactured goods not handled by retailers, one should remember that there has been a very rapidly in- creasing amount of farm produce entering into the sys- tem of distribution which does not appear under the head of manufactured goods at all. Among such products are veg- etables, poultry, eggs, and fruit. It needs no citation of sta- tistics to maintain that the volume of such goods handled by retail stores has greatly increased within the last twenty or thirty years. 336 ECONOMICS OF RETAILING A Valid Objection. — It may be urged that the values of manufactured goods as expressed in 1910 are not fairly com- parable with the figures for earlier decades because of the in- creases in prices. While the values have gone up, it may be urged, the volume has not correspondingly increased. This is a valid objection so far as it goes. If prices have gone up fas- ter than the volume has increased, then there is some ground for the belief that the decrease in ratio between the number of merchants and the total of manufactured goods is more apparent than real. It would take considerable satistical study to determine this point fully. It seems probable, however, that the efifect of rising prices has been merely to qualify or limit the tendency of the volume of manufactured goods to increase more rapidly than the number of distributors. It must be left for some future statistician to demonstrate the truth or fal- sity of this position. Ratio of Manufactured Goods to Number of Retailers. — The following table gives the essential facts regarding the relations of the values of manufactured goods and imports to the number of retailers, to the number of commercial trav- elers, to the total number of people who are gainfully em- ployed, and to the total population. A study of this table and the chart on page 338 shows an increase in every item mentioned, for each census year over the census year preceding. But manufactures and im- ports increased more rapidly than either the totals of persons in trade and transportation, or of merchants. The increase in the number of traveling salesmen, however, seemed to par- allel the increase in manufactures and imports very closely. By a study of the chart it will be seen that the abrupt expansion of manufactures and imports from 1880 to 1890 is accompcUiied by a similar increase in the total number of persons employed in trade and transportation, and also in ARE THERE TOO MANY RETAIL STORES? Comparison of the Number of Distributors 337 With the Total of Goods Manufactured and Imported, with Total Population and with Total Number of Persons Gainfully Employed i8so i860 1870 1880 1890 1900 1910 Manufactured Goods (000,000 omitted) •0 m 9 S-2- Total Goods (000,000 omitted) Number of Retailers Number of Commercial Travelers Total Number Employed in Trade and Transportation Total Number Gainfully Employed $1,109 1,886 3,386 5,370 9,372 13,000 20,672 $174 418 446 745 697 1,312 $1,193 2,217 3,804 S,8i6 10,117 13,697 21,984 174,000 268,000 358,000 479,000 691,000 833,000 1,004,000 7,000 28,000 59,000 93,000 164,000 582,000 802,000 1,244,000 1,872,000 3,326,000 4,767,000 6,252,000 5,330,000 8,236,000 12,506,000 17,392,000 22,736,000 29,073,000 38,167,000 „ 3 23 31 39 50 63 76 92 the number of traveling salesmen. The number of merchants also increases, but not in such an abrupt fashion as the fore- going. From 1890 to 1900, manufactures and imports did not increase so radically as in the preceding decade. A similar de- cline in the rate of increase is to be noted for the number of merchants and the total engaged in trade and transporta- tion. But the retardation is more marked for merchants than for the entire group employed in trade and transportation. It will be noted also that the number of retailers increases at a somewhat higher rate than does the total population. This may be accounted for by the fact that the rapid increase in manufactured products indicates an increased consumption per person. Thus the rate of increase in number of retailers is, to an extent, justified in exceeding the rate of increase of the total population, because of the increased demand per person. 338 ECONOMICS OF RETAILING M (O / Number of Merchants. , Unit •■ loo.ooo " Employed inTradeiTransportation- Unit- 5oo,ooo / / / / / - / / / / / / / / / / / / / 1 / / 1 ■/' /■ / //- /■ / / A '/ A -^ / / W/ ..-"/ Y --'' 7 ^^-' ,/■■■- --' / / i-' / ^ / 22 20 a o Comparison by Decades of the Number of Merchants, of Commercial Travelers, and of Total Persons in Trade and Transportation, with the Total Value of Manufactures and Imports ARE THERE TOO MANY RETAIL STORES? 339 From the above it is clear that, while merchants and dealers as well as the total engaged in trade and transporta- tion have increased faster than population, these classes have not increased as rapidly as the volume and value of goods that they have been called upon to handle. It would appear from the foregoing that each dealer handled, on the aver- age, more business in 1900 or 19 10 than in i860 or 1870. In other words, while there were more dealers in proportion to population in 1910 than in 1870, for example, the dealers of 1910 were required to handle proportionately more goods. Consumers had become relatively more dependent upon retail stores for their supplies. Distributors Must Increase with Products. — Some addi- tional explanation may be necessary to make clear why more distributors are needed as the products to be distributed in- crease. It must be borne in mind that a very large proportion of the changes in methods of manufacture since 1850 have been due to the introduction of labor-saving machinery and to large-scale production. These changes have resulted in great economies such as a reduced cost per unit of product, but these economies in most cases could be realized only by developing wide markets. The distribution of goods directly to near-by consumers, as had been customary in the stage when hand production prevailed, no longer sufficed. Consequently, with large-scale production, have grown up great systems of transportation, of markets, and of middlemen. Large-scale machine production drove independent pro- ducers using the older methods out of business. Many of these thereupon engaged in some specialized form of produc- tion as wage earners. In this capacity, they became more and more dependent upon retail stores for the goods they and their families consumed. As the class of wage earners increased, and as the specialization of industry went on, the number. 340 ECONOMICS OF RETAILING of people going to stores for the necessities of life increased. The old-time self-sufficing home, in which all the food, cloth- ing, and other goods consumed were produced by the family itself, passed away. Work at the factories for wages took the place of work at home and the retail store became the market for the exchange of wages for the necessities and comforts of life. The Growth of Cities and Distribution. — Factory produc- tion has been the chief cause of the growth of modern cities. But the greater the number of people who live together in cities, the greater the work of distribution. People who live in the country, and even in small villages, are able to produce a great many things for their own use, such as vegetables, fruits, poultry and dairy products, meats, and, in some parts of the country, even fuel. It is also possible in rural communi- ties and in small villages for the producers and consumers to come together frequently and make direct exchange without the medium of middlemen. In cities, however, there is very little opportunity for a family to produce anything that it can consume directly. Nor is there very much opportunity for buying goods directly from producers. Everything that is to be used must be obtained from some dealer. The demand from cities for products suitable for consumption is spread over vast areas of territory, and, consequently, a need for an extensive and intricate distributing system is created. Relation between Standard of Living and Distribution. — The changes in the standards of living of the American peo- ple that took place between 1850 and 1910 have also had an important effect on the distribution system. At the latter date practically all people consumed a much wider variety of goods than at any time previously. Goods were purchased in much smaller quantities, therefore requiring more handling and ARE THERE TOO MANY RETAIL STORES? 341 care. In general, customers of retail stores required much more personal attention than before. These changes in the customers have helped to place a bigger burden on the distri- butive system. Thus, as the area over which the distribution of goods has to be effected is enlarged, as a greater number of customers have to be reached, as the custom or necessity for purchasing goods at stores rather than making them at home has in- creased, and as city life has developed, the variety and total volume of manufactured goods distributed through retail stores has greatly grown, and the distribution of the goods has become increasingly important, and has demanded the services of more and more people. Production Costs. — It has been noted generally that the costs of production both in the factory and on the farm have diminished during the period studied, namely, from 1850 to 1910. It has not been noted, however, that the increased production consequent to lower costs made necessary a much wider distribution involving more handling, transporting, and selling. While the average costs of production per unit of product decreased during this period, the costs of distribution per unit probably increased for many though not for all goods. To make clear what is believed to be a fair representation of what has taken place, the diagram shown on page 342 may be used. Suppose the line ab to represent the costs of manufac- ture of a given unit of goods, and ax to represent the costs of distributing that unit, in 1850. Let us assume that the costs of manufacture have decreased in the following 60 years so that in 19 10 they may be represented by the line cd. In the meantime, for the causes already given, the costs of distribution have risen so that in 1910 they equal cy. The results are that the costs of the goods to the consumer equalled §42 ECONOMICS OF RETAILING ab plus ax, or bx, in 1850 and cd plus cy, or dy, in 1910. Thus, while the total costs to the consumer have undoubtedly gone down during the period under consideration they have not gone down in the proportion that the costs to manufac- ture have decreased, for with decreasing costs in production there have of necessity come the increasing costs of distribu- tioa X ^_^ ■-ly Diagram Showing Tendency of Costs of Production to Decrease, and of Costs of Distribution to Increase Manufacturing Costs and Distribution Costs. — It is not to be supposed that the decreasing costs of manufacture are equalled by the increasing costs of distribution. If that were true, then there would be no incentive to install labor-saving improvements, or construct larger plants. It is simply main- tained that the full economies of modem, large-scale, factory production could not possibly be passed on in entirety to the consumer. It is even conceivable that in the development of a given industry the point may be reached where slight improve- ments leading to an increased and cheapened product may be entirely counterbalanced by the additional expense involved in marketing this additional product. ARE THERE TOO MANY RETAIL STORES? 343 Increases in the number of retail stores in proportion to population are thus abundantly accounted for by the increased service that they have been called upon to perform. Whether there are now too many retail stores or not, it is certain that there is a necessity for more stores now than there were fifty years ago. The Retailer's Viewpoint. — From the standpoint of the retailer there are too many retail stores. There would be too many if only half of the present number were in existence, for the presence of competitors generally means divided trade and less profit. From Chapter XVIII, "The Failure Rate in the Retail Business," it seems clear that a somewhat less keen competition would insure many more retailers a fair living wage from their occupation and thus result in fewer discon- tinuances and changes in the personnel of the business. The Public's Viewpoint. — From the standpoint of the pub- lic it is not so easy to pass judgment. It is true that the num- ber of retailers is great and it is also true that the costs of distribution are high. But it does not appear that any other class than the retailers themselves would benefit largely from cutting down their number. The loss to retailers due to competition is largely a matter of gain to the consuming public. If the number of retailers could by legal mandate be reduced by one-half, the results to the public would be a very general reduction in the amount of conveniences and services, such as retailers now furnish, and, very likely, an increase in the costs of distribution. Each store would be called upon to perform twice the service it now gives ; but, if one may judge from the experience of present stores that have developed to twice or more times their former size, doubling the business of each store will not necessarily result in a reduced selling expense. Retailing is different from most other businesses in this respect 344 ECONOMICS OF RETAILING that the small store can usually be conducted at a lower cost than a larger store. Unless other advantages, such as in buying or in advertising, may be gained to offset the increas- ing expense of the large establishment, there is nothing to be gained by increasing the business of a store beyond a cer- tain point that keeps a small institution busy. From the standpoint of certain classes of consumers vifith relatively high standards of living, a somewhat larger average retail business unit would be highly desirable. The extreme subdivision of the retail stores now found in most parts of this country, while not so great as in European countries, prevents each store from offering a wide variety of goods. It also takes something more than the average amount of business at average profits to equip and conduct a modern meat or grocery store, for example, in a manner entirely satisfactory to such consumers. Refrigerators, automatic scales, electric conveyors for cash and parcels, marble-topped counters, plate glass and metallic fixtures, automobile delivery outfits, sales- people dressed in well-laundered white suits, absolute cleanli- ness, ornamental and artistic displays of goods, sanitary ar- rangements, and so on, constitute the necessities of a well- ordered, up-to-date food store such as these consumers would like to patronize. But to support a concern of this kind requires both a larger amount of business than the or- dinary store gets and also a higher rate of gross profit. As the education of the consumers goes on, and as the standard of living rises, the demand for such stores as these will grow. One may expect to see their number increase even in competi- tion with the smaller stores with the cheaper equipments, lower expenses of doing business, and lower prices. Retail Stores Do Not Add Expenses. — In conclusion it may be stated that, from the standpoint of the entire public, there is nothing to indicate that the great number of retail ARE THERE TOO MANY RETAIL STORES? 345 stores adds anything to the burden of expense the consumer must bear. The high failure-rate in tlie retail business would seem to indicate that retail distribution is supported, in part at least, not by the consumers who patronize the stores, but by the great numbers who enter the business of retailing with capital accumulated in other occupations and then lose it in the retailing venture. The losses of dealers who fail are primarily the losses of the dealers themselves. Only in the most general way of speaking could one assert that the public must bear the burden. There are opportunities, however, of keeping down the costs of distribution which should not be neglected. The same inventive genius that has been applied to the produc- tion of goods so as to cut down the costs per unit can no doubt be applied in a similar way to cut down the costs of distribution per unit. What is needed is the application to distribution of science and research as these methods are now applied to production. CHAPTER XX PUBLIC REGULATION OF THE RETAIL BUSINESS Regulating Retail Business. — The suggestion that retail stores should be regulated has frequently been made. Some- thing is already being accomplished in this direction by states and municipalities through inspections designed to secure pur- ity of foods, legal weights and measures, proper sanitary ar- rangements, sufficient protection from fire and from elevator accidents, and observance of legal requirements as to em- ployees. Advocates of regulation go still further, however, and declare that the number of stores should be limited. By such regulation, it is maintained, the standard of retaihng would be automatically raised, resulting in better working conditions for the retailers themselves and better service for the consumers. A business or license tax has most frequently been proposed as the means whereby such a limitation could be efifected. To understand fully what this proposal comprehends it will be necessary to give some consideration to the nature of business taxation. Business Taxes. — "Business taxes" is an indefinite term covering what are variously called "license taxes," "business licenses," "business taxes," "privilege taxes," "occupation taxes," and so on. In a limited way nearly all states in the Union have some form of tax corresponding to some one or more of the above. When the amount assessed upon any business or occupation is barely enough to cover "the legiti- mate costs of regulation and no more, considering all probable 346 PUBLIC REGULATION 347 consequences,"' it is technically known as a fee and not as a tax. A tax presupposes a surplus of revenue above all costs of collection and other expenses incurred by the taxing body in its relations to the person or business taxed. But the popu- lar use of the word "tax" includes both meanings. Licetibes and Taxes. — Formerly the kind of license most frequently met with was the license fee or tax upon the manu- facturers and distributors of liquor. At the present time the amusement enterprises take the lead in the payment of license taxes. A Hcense has been defined as a "privilege granted by the State, usually on payment of a valuable consideration, though this is not essential. To constitute a privilege the grant must confer authority to do some- thing which without the grant would be illegal; for if what is to be done under the license is open to everyone without it, the grant would be merely idle and nugatory, conferring no privilege whatever. But the thing to be done may be some- thing lawful in itself, and only prohibited for the purposes of the Hcense; that is to say, prohibited in order to compel the taking out of a license."^ Taxes, using the word in the popular sense, may be col- lected by a state either under its taxing power or under its police power. Under the taxing power the state secures its general revenues. This power, which is of very wide scope and subject only to constitutional and statutory limitations, may be applied in almost any way. The only limitations un- der most state constitutions and in court practice are that the tax must be uniform and must not be oppressive. Under the police power, which "extends to the protection of the lives, health, and property of the citizens, and to the preservation of good order and public morals,"* any state i"Cooley on Taxation,'" page 1138. 'Id., pages 1137-8. 348 ECONOMICS OF RETAILING can license any occupation which can be shown to need regu- lation. In such cases the amount collected for licenses is such as is judged will pay the expenses of regulation. Frequently, however, these two powers of the state are combined in the same act, and the result is taxation for revenue and for regulation at the same time. In these cases the amount col- lected is something more than a fee. It is in fact a true tax. Paying Business Taxes. — "Business taxes" may be col- lected either as an amount payable periodically in the same way as any other general tax, or as a payment for a license. This is a technical distinction that is necessary to an under- standing of how the license system works. If a tax is not paid when due, the business upon which it is levied does not thereby become unlawful, but the tax must be collected through the same channels as those prescribed for other gen- eral taxes. Under a license system, the payment for the license must be made before the business can lawfully begin. The common business tax, like a property tax, is payable after the business has come into existence, but the license payment must be made before business can be transacted. Purposes of Business Taxes. — Tlie purpose of the busi- ness tax may be either to secure a revenue for the govern- ment or to regulate the occupations or businesses .subject to the tax. The latter was obviously the aim, at least in part, in most communities where saloons were required to pay a li- cense fee. For similar reasons, bowling alleys, billiard halls, and theatres are often required to take out licenses since there is commonly some necessity for regulation in connection with the conduct of such establishments. In some cases, the aim of the business tax is to prohibit the business or occupation entirely by fixing the tax so high ^ Davock V. Moore, ids Mich. 120. PUBLIC REGULATION 349 as to make it unprofitable, or undesirable, to continue in it. Lotteries, gambling houses, bucket shops, and also saloons have in some cases thus been taxed out of existence. Prohibi- tion of such institutions by taxation, however, is an indirect method that is not at present strongly favored. This method usually results in failure to prohibit. If the tax is not placed high enough, the business will continue to exist, and if it is made too high, practice shows that the tax will be evaded. Monopolies and Taxes. — A business tax or license system could be used to build up a monopoly. A tax of such nature is that imposed by the National Government of 10 per cent on the note issues of state banks. The rate is prohibitive and gives to the national banks the monopoly of issuing bank notes. At one time it was common for European sovereigns to grant patents or licenses to private individuals in return for high fees or payments, giving those individuals practical mono- polies of certain businesses in certain communities. Such grants were prohibited in England in 1624, and in this coun- try such acts are forbidden by the constitution. Practically, however, a high license or business tax sys- tem may have the effect of granting a partial monopoly, for the reason that, while the privilege may be exercised by any one upon the payment of a fee or tax, it may not be profitable for more than one to procure the license and engage in the business, consequently that one gains practical control of the trade in that community. Peddlers Taxes. — A business tax may be levied for the purpose of protecting local industries or businesses by pre- venting competition from outsiders. The license tax required of peddlers comes under this head. The local merchants of a town are protected to the extent that the tax deters ped- dlers from engaging in this form of traffic in that community. 350 ECONOMICS OF RETAILING The house-to-house method of selling has certain advantages, however, that may make it profitable for a peddler to go on with his business even if he must pay a high tax. The occa- sional peddler who does pay it reaps another advantage due to the fact that his competition with other peddlers has been materially reduced. This point explains why peddling does not entirely cease even when the peddler's tax is placed at a very high figure. Some writers on taxation have held that peddlers render to the consuming public a service of superior value, a service that is much demanded, and that, on this account, peddling is difficult to suppress or restrict. In accordance with this view it has been held that the tax on peddlers should be made low. Professor T. S. Adams held this view some years ago,* and J. W. Sullivan, in "Markets for the People," urges that all bars or restrictions on peddling be let down. Class Taxes. — A business tax is frequently levied upon certain classes of individuals, particularly those engaged in certain professions which might otherwise escape payment of taxes. For example, a lawyer might enjoy a handsome in- come, but have no assessable property that an ordinary tax could be collected upon. A business or professional tax would be the means of making him pay a direct contribution to the public funds. The tax on peddlers, already referred to, is, in a certain sense, such a tax also. Justice is preserved between the local merchant who must pay property taxes and the itinerant peddler who has nothing taxable under the general property tax as ordinarily administered, by assess- ing the peddler a special license fee or tax. The following quotation from the Cyclopedia of Law and Procedure" will give some idea of the scope of the business * Hollander, "Studies in State Taxation," pages 45-51. PUBLIC REGULATION 351 tax, and the number and kinds of businesses and occupations that may lawfully be subjected to a business tax. As proper subjects for license or tax the following oc- cupations or privileges have been sanctioned by the court. Any commercial or professional business; corporate fran- chises and privileges; dealing in "futures"'; the keeping and use of animals; the keeping of billiard or pool tables for profit; the keeping of bowling alleys; keeping concert and dancing halls ; keeping laundries ; keeping a restaurant; mechanical trades and pursuits in general; mer- cantile business in general; publishing a newspaper; rais- ing or grazing sheep; sales of goods; sales on exchanges; selling certain publications; selling foreign merchandise; selling newspapers ; selling to employees or tenants ; theatres and shows; vehicles and means of transportation in general; vehicles used in carrying passengers or property for hire or profit ; vehicles used by merchants or manufacturers in their own private business; and vessels. And among the persons whose occupations have been declared to be properly subject to license or tax are the following: architects; at- torneys ; auctioneers ; bakers ; banks ; bill posters ; brewers ; bridge companies ; brokers ; carriers ; cigar and tobacco dealers; confectioners; corporations; dairymen; dealers in or sellers of oleomargarine ; dealers in second-hand goods ; dealers in trading stamp enterprises; dentists; detectives; •domestic corporations; druggists; drummers and canvassers; emigrant agents ; employment agents ; express companies ; factors and brokers; farriers; ferries; foreign corporations; foreign insurance companies; grocery dealers; hawkers and peddlers ; hospitals ; ice dealers ; inn keepers ; insurance brokers or companies ; itinerant merchants or traders ; junk dealers; dealers in second-hand goods; keepers in gaming houses ; liquor dealers ; livery stable keepers ; lumber dealers ; manufacturers; meat dealers; merchants; milk dealers; money lenders; note shavers; packers and carriers of oy- sters; patent medicine venders; pawnbrokers; persons deal- ing in food; pharmacists; photographers; physicians and "Vol. 25, pages 416-421. 352 ECONOMICS OF RETAILING surgeons; pilots; pipe line companies; sewing machine agents; soda water dealers; steamship companies; street railroad companies; teachers; telegraph and telephone com- panies ; turnpike companies ; vendors of lottery tickets ; warehouse men; water companies; and wood dealers. Methods of Assessment. — The methods of assessing the amount of the license or business tax vary greatly and it is more than likely that the success of business taxation is modi- fied by the kind of base or basis selected in administering the tax. The following methods are current : 1. In proportion to the average value of the stock in trade or equipment for doing business. 2. In proportion to the annual purchases. 3. In proportion to the total sales, gross receipts, or income. This is virtually an income tax applied to businesses. 4. In proportion to gross profits variously defined. 5. In proportion to net or divided profits. 6. In proportion to the rental value of the properties used by the business. 7. A fixed amount upon an occupation. 8. A fixed amount upon an occupation based upon the size of the town, or upon other trade advantages. 9. A progressive rate based upon the volume of the business. 10. A progressive rate based upon the number of lines of goods handled, as for example on department stores. In some of its forms at least, the business tax is easy to levy and easy to collect. Naturally it has been widely used for fiscal as well as for regulative purposes. It has often served countries as well as municipalities in times of financial stress. In some countries, as for example, in France, Prussia, PUBLIC REGULATION 353 and Canada the business tax occupies an important place in the fiscal machinery of the government. In many parts of the United States, it supplies important additions to the pubhc funds. Brief descriptions follow of foreign systems. The French Business Tax. — In France, the business tax (patente) was first collected in 1791 and has been continued down to the present, but with many modifications. Practically all persons employed in gainful occupations are called upon to contribute. The method in which it is apportioned is somewhat complex. Part of it is fixed in amount, depending upon the kind of business, the number of employees, if a de- partment store or other like concern, the population of the community served, and some other considerations. The other part of the tax is variable and is dependent in amount upon the rental value of the property used by the business.® The Prussian System — Prussia followed France's example and enacted a law for a similar tax (gewerbesteuer) in 1810. But the later basis of the Prussian tax was in all cases either the annual profits or the capital of the individual business. Wherever it was possible to determine the earnings or profits, these were taken as the base, but where such information was not available, the capital value was taxed. The amount of the tax placed on the capital value was made to correspond as nearly as possible to the amounts collected upon the basis of earnings or profit from concerns with the same capitalization.'' In 1896 Prussia passed a law laying a special business tax on department stores. Three years later Bavaria did likewise. The French business tax, just referred to, had al- ready been applied to such institutions. The German statutes were enacted in response to a cry for help from the small » Bullock, "Selected Readings in Public Finance," pages 321-328. ' Id., pages 328-336. 354 ECONOMICS OF RETAILING dealers who were losing ground in competition with the new and rapidly growing department stores. The acts were aimed to check these institutions and to protect the small shop- keepers. A department store was defined, and a progressive tax laid on sales amounting to more than 400,000 marks per year. The amount of the tax levied by Prussia on depart- ment stores was comparatively small. Beginning with one-half of I per cent for sales of 400,000 marks, the rate increased as the sales increased up to a maximum of 3 per cent of sales. No store, no matter how great its sales were, was required to pay a greater percentage than this. The French method of taxing department stores differs from the German method in that the number of employees, rather than the volume of sales, serves as the basis upon which the tax rate is progressively increased.* Canada's Tax — In Canada, the Province of Ontario levies a tax on business proportional to the rental value of the property in use; but there is a rating of businesses so that the retailers pay on 25 per cent, wholesalers on 75 per cent, manufacturers on 60 per cent, and manufacturers and whole- salers of liquors on 150 per cent of this rental value. As between retailers and wholesalers, the theory is that retail stores occupy so much more valuable land than wholesale stores that this should be taken into account in fixing the tax. In Winnipeg, retail stores were assessed from 1893 to 1906 at the rate of about three cents per square foot of store floor space. The act providing for this assessment did not prove entirely satisfactory, and in 1906 a change was made to the Ontario plan.® Business Taxes in the U. S. — In the United States the Fed- eral Government has at various times resorted to business tax- ^Hill, J. A., "Taxes on Department Stores," Quarterly Journal of Economics, " "International Conference on State and Local Taxation," 1908, pages 286-288. PUBLIC REGULATION 355 ation, particularly during times of financial need. For ex- ample, in 1862, there was laid a business tax affecting 480 occupations calling for payments from each of from $5 up to $500." The measure was entirely for revenue purposes, al- though certain businesses, such as those that handled liquors and tobacco, were required to contribute at higher rates than the others. After the war, the revenue taxes were removed from most businesses, but continued though reduced, on liquor and to- bacco. As these last named articles were almost universally taxed within the states also, it not infrequently happened that the same business had to procure and pay for as many as three or even four licenses — federal, state, county, and municipal — before beginning operations. ^^ In 1898, during the Spanish War, federal business taxes were again collected, but in this case, in addition to liquor and tobacco businesses, only on bankers, brokers, pawn- brokers, and places of public amusement. After the war these latter taxes were removed. State Business Taxes. — At the present time business taxes form a part of the regular state revenue-producing systems in Alabama, Florida, Georgia, Kentucky, Louisiana, Mary- land, Mississippi, Missouri, North Carolina, Pennsylvania, Tennessee, Virginia, and West Virginia. This list includes all of the Southern states except Texas whch repealed all business tax laws in 1907, and South Carolina, which permits all li:ense fees to go into the county funds. ^^ In a considerable number of states other than those named, the privilege of collecting business taxes is granted by the state to the municipalities, and a great number of the latter have availed themselves of this means of increasing their "Redfield, A. A., "Handbook of the U. S. Tax Law of 1862," pages 115-121, 365. ^^Ely, R. T., "Taxation in American States and Cities," page 203. i2"Wealtli, Debt and Taxation," Spec. Report, U. S. Census, 1907. 356 ECONOMICS OF RETAILING incomes. By far the greater portion of the funds from this tax never get beyond the local pubHc treasuries. "About 12 per cent of the state tax receipts in 1902 came from Hcenses and permits, and taking the state and local gov- ernments together the revenue from this source amounted to $75,000,000, of which $55,000,000 came from Hquor li- censes. "^^ Municipal Taxes. — Among the larger cities in the country where business taxes are collected, the percentages of total revenues obtained from this source, for the year 1907, were as follows :" Kansas City 18% Atlanta 12 Savannah 20 Norfolk 26 Charleston 11 Birmingham 37 Mobile 30 Augusta 12 Montgomery 33 Jacksonville 26 Knoxville 15 Macon 18 Taxable Occupations. — In the states where business taxa- tion prevails, a great number of different occupations and businesses are taxed. The United States Bureau of the Cen- sus enumerated 188 different classes with several subclassifi- cations in its special report, "Wealth, Debt, and Taxation," in 1907. No state system includes all of these. Mississippi taxed 119 occupations some years ago ^^ and Louisiana has a constitutional provision permitting the legislature to lay a tax on all occupations whatsoever, except clerks, laborers, clergy- men, school teachers, and those engaged in mechanical, agri- cultural, horticultural, and mining pursuits, and manufac- " Ely, R. T., "Outlines of Economics," Revised Edition, page 648. ^* Statistics of Cities," Special Report of U. S. Census, 1908, from Table 37. "^ Hollander, "Studies in State Taxation." PUBLIC REGULATION 357 turers other than those of distilled, alcoholic or malt liquors, tobaccos, cigars, and cottonseed oil." Many cities extend the business tax system even farther than the states do. Wil- mington, North Carolina, formerly taxed 124 classes of occu- pations, and Atlanta enumerated 466 taxable items under the head of business taxes. Among the specific occupations or businesses taxed, saloons and liquor businesses formerly led the list. There were prob- ably no communities in this country where saloons were not licensed. At the present time amusement places, traveling vendors, and auctioneers take the lead. Who Pays the Tax? — Who pays the business tax, the re- tailer or the consumer? There is not enough direct evidence at hand upon which to base a conclusive answer. There is a good deal of disagreement among both economists and business men about the matter. According to Seligman," under competitive conditions, a tax on profits tends in the long run to be shifted to the consumer, while under monopoly conditions, if the demand is elastic, and if the monopoly price has already been reached, the tax will not be shifted. It is common observation among economists that a tax of a fixed amount on an occupation is generally not shifted if the amount of the tax be small. Practice has shown that prices tend to remain at customary levels after the tax is laid. But when the tax is high it is generally shifted. Certainly such a tax would be considered an expense of the business under most mercantile accounting systems, and in fixing selling prices, the business tax would be considered and, if possible, would be prorated in some way over all the goods offered for sale. If the concerns do not succeed in getting the prices asked for the goods, and, therefore, have i« Millis, "Business and Professional Taxes," Journal of Political Economy, " Seligman, E. R. A., "Shifting and Incidence of Taxation." 358 ECONOMICS OF RETAILING to mark them down to lower figures in order to move them, obviously the tax falls upon the merchant. But the more successful merchants, it is quite likely, will be able to shift the tax, and those who can not do so at one time or in one season will seek, by making changes in their stock or in their selling methods, to increase their net profits to some customary point over and above all expenses of the business, including the tax. Shifting the Tax. — The problem of shifting and incidence as applied to most business is exceedingly complex. Pro- fessor Seligman's analysis, while probably theoretically cor- rect, throws but little light on the concrete instance. If the retail store manager finds that he is not making the usual profit, he may blame his purchases, and seek to buy thereafter such goods as will yield a profit above all expenses of the business. In marking the prices on his goods, he usually makes allowance for all expenses of the business including taxes of various kinds, and when some goods cannot be sold for prices bearing the full store burdens, other goods are selected and priced so as to make up the deficits. In an or- dinary merchandise assortment there may be some goods sold which do not pay even the direct expenses of handling, while others may yield profits several times the amount of these expenses. Since there are so many different articles to be priced and sold in a retail store, since qualities and cost prices differ so widely, and since there are other factors entering into retail merchandising besides price, such, for example, as service, custom, and convenience, it is exceedingly difficult to determine whether a specific tax in a specific instance is shifted or not. There are undoubtedly some retailers who could not shift a business tax ; namely, those on the margin — those barely able to make ends meet before the levy of such a tax. Naturally PUBLIC REGULATION 359 the tax, if considerable, would drive such dealers over the line into failure or bankruptcy. In these cases, however, the tax may be considered only as a last straw to an already over- heavy burden. Opposition to Business Regulation. — Opponents of regula- tion by means of business license or taxation assert that busi- ness taxes have the tendency to overburden the small dealer while not making much difference to the bigger merchant. It is also asserted that a business tax, especially when in the form of a license, if considerable, makes it difficult for beginners to get a start, since such a tax must be paid before the business can begin and usually amounts to the same in the early stages of building up a business as it does after the business is well established. Such a tax also checks freedom of movement from one occupation or business to another, and therefore prevents individuals from seeking better opportunities and making the most of themselves. A business tax, if made heavy enough, unquestionably reduces the number of persons in the par- ticular business that is taxed. Are these criticisms valid and important? That a busi- ness tax, if heavy enough, will tend to make it more difficult to enter the retail business is admittedly one of the reasons for such a tax. But any means that would effectually close the door of opportunity to all who aspired to become retailers in a community would be obviously unfair and unjust, not only to individuals, but also to the community itself. Any measure proposing such radical exclusion should meet with failure. But total exclusion is an entirely different matter from a limited regulation of the number. Arguments for Business Regulation. — It is held by those who favor regulation that the business tax, if used to limit 360 ECONOMICS OF RETAILING the number of persons who may engage in retailing, will simply eliminate those who are now nearest the margin and not the successful concerns, presumably managed by those best fitted for the work. It may be questioned seriously whether an absolutely unrestricted freedom of entering any business is an unqualified benefit either to the persons entering or to the general public. So far as the retail business is concerned, such unrestricted freedom encourages persons with- out the necessary ability, training, or capital to rush in and waste their energies and substance, and, after their failure, to be followed by a stream of other incom- petents. Among the results of this course of events is a con- stant disorganization of the retail business, frequent occur- rences of unfair competition, and generally unsatisfactory service to the public. Professor Seager argues for the business license system as follows: Retail trade, whether in liquors, or in drugs, milk, ice, groceries, provisions, or even merchandise, is strikingly wasteful when exposed to the effects of an unregulated competition. The needless multiplication of stocks and sell- ing places, the reckless entry into the field of men with little capital and less experience due to the feeling that "'anyone can keep a store,'' and the losses which result owing to the fact that only competent persons can make store-keeping pay, the costly duplication of distributing machinery — all these aspects of retail trade supply telling arguments against a competitive organization of industry. The high license system, although not primarily intended for that purpose, substitutes regulated for unregulated competition. It is believed to be within the truth to claim that more than half of the revenue that the government derives from license taxes is wealth that without the moderate regulation the sys- tem imposes would have been wasted in vain competition. The incidence of the remainder of the tax is similar to that of excise or customs taxes. In the case of liquor PUBLIC REGULATION 361 licenses a part of it is probably borne by the holder of the license and part of it by the consuming public in the slightly higher prices they are required to pay for the same quantity and quality of liquor.^^ Experience with it (the liquor license) in operation has made prominent certain economic advantages which suggest the desirability of applying it to many other branches of trade; The selling and distribution of milk, ice, gro- ceries, provisions, etc., admit of even larger savings through the concentration of management brought about by the high license system than the selling and distribution of liquors. These businesses offer a large and practically untouched field for the tax gatherer and just as the payment of high licenses has served neither to make the saloon business unprofitable nor to compel the consumer to pay much more for his beer and whiskey, so it is believed that the payment of high license by milk dealers, ice companies, grocers, butchers, etc., would serve merely to concentrate these businesses into fewer and more competent hands without appreciably raising the prices of the commodities sold. By extending its license system to include these and other ; businesses, every state in which large cities are found could put itself in a position to dispense with the returns from the general property tax.^° Taxes Limit Competition. — That the business tax does under most circumstances limit competition, especially if made high enough, experience has proved. For example,^" before the war the German department store tax laid for the purpose of checking the growth of the department stores in order to help the small shopkeepers resulted, according to reports, in considerable benefit to the department stores themselves by dis- couraging other firms from entering the field and thus giving the stores already in existence control over the entire trade. Many other examples of the restriction of competition could " Seager, "Introduction to Economics," pages 560-561. ^^Id , page 584. "Gehrmg, Hans, "Die Warenhaussteuer in Preussen, Ein Beitrag zur maaniichen Mittelspandspolitik," 1905, pages 65-72. 362 ECONOMICS OF RETAILING be drawn from all parts of this country wherever the license tax has been employed. In some cases the increase in volume of business and the resulting increase in profits accruing to the remaining firms who pay the tax have been sufficient to make entirely unnecessary any increase iij prices of the goods sold to the consumers. License System Best. — If regulation of the retail business is to be attempted, no other plan suggested so far seems so easy to apply as a license system. Through its use the num- ber of retailers could be limited, and, if thought best, certain qualifications necessary for efficient retailing, such as knowl- edge, experience, and a minimum amount of necessary capital could be required. Regulation might be carried still further through such means as, for example, setting standards of service, and supervising price-fixing. It is not urged that all of these measures are either necessary or desirable, but, simply, that the degree of regulation need not be confined by anything but the demands of public policy under this method. Regulation Eliminates Parasitism. — It is probable that certain gains would accrue to the public from a limited regula- tion and supervision of the retail business. It is certain that, in many localities, the retailers themselves would be much benefited by such regulation. Much of the capital and energy now wasted in senseless competition could then be turned into channels of service to the consumer. Regulation would tend to insure to the dealer a fair return for his service. At the present time, under the competition found in many places, the business not only does not pay a fair wage to those who are engaged in it, but is supported in part at least by the returns from other industries. The capital used, it seems, is largely accumulated from other fields, and the wages paid to employees are in many cases so low as to make it necessary for the PUBLIC REGULATION 363 younger employees, at least, to depend for part of their support upon their homes. In other words, present competition has made the retail business partly parasitic. This condition, so far as it prevails, is essentially evil. Each industry should- stand on its own feet, pay its own way, provide for its own emergencies and risks, and be the source of the capital necessary to make extensions. If regulation is established, these matters would have to be considered, and the parasitic element would prob- ably be eliminated. Difficulties of Regulation. — There are large difficulties in the way, however, for legal regulation of the retail business in this country. It would probably have to be accomplished under the exercise of the state's police power. In order to invoke this power it must first be shown that such regulation is necessary. For example, "To license plumbing it must be shown that this will tend to promote the public health, morals, safety, comfort, or welfare, or to suppress disease."" In some cases it might prove quite difficult to demonstrate the need of such regulation in the face of the court precedents of the past. To illustrate, "A tax on department stores can not be shown to be such (necessary to promote the public health, safety, comfort or welfare), hence cannot be sustained under the police power."^^ The Missouri law under which the case, just quoted from, came to the supreme court of that state was in many respects similar to the German department store law, but this decision declared it unconstitutional on the grounds that such an act was unnecessary, unfair, and constituted class legislation. Some economists have also taken a view opposed to such regulation and taxation. In his work on "Shifting and In- cidence of Taxation,"" Professor Seligman speaks of the ^ Wilkie V. Chicago, i88 111. 444- 22 State V. Ashbrook, iS4 Mo. 375- 364 ECONOMICS OF RETAILING effects of the German law in restricting competition and takes the position that such a result would be undesirable in this country. Without special legislation there is little hope for any form of regulation of retail businesses. Courts have held a position quite consistently opposed to any interference of the pubHc with ordinary retail establishments. "It would be illegal for a city to create a monopoly by granting an exclusive license to a single party."" "Taxation cannot be used for the purpose of building up monopolies. Taxation of business and license taxes are peculiarly liable in this direction, especially if they undertake to limit the number to whom permits shall be given."^' In certan instances, however, both legislatures and courts have departed entirely from their theories of free competition. At one time it was thought essential in order to keep alive competition among railways between two points, to have two or more companies in a municipality selling gas, water, light, telephone, or transportation services. But the wastes involved in such competition have become apparent to all, and these now constitute exceptions to the rule of freedom in business. Is Regulation Necessary? — If it could be shown generally and conclusively that regulation of the retail business would be a distinct benefit to the public, the first step towards the establishment of such a system could soon be accomplished. But it must be admitted that such regulation cannot at present be shown to be necessary, for the reason that the evidence, even if existent, is not available. Many think, or believe, or feel, that such regulation would be a benefit, but such thoughts, beliefs, or feelings are not the influences by which either legislative or judicial opinion might or should be swayed. ^ Pages 361, 362. ^*"American and English Encyclopedia of Law," Vol. 21:784. ^■^ "Cooley on Taxation," Vol. 1:409, 410. PUBLIC REGULATION 365 The first step to be taken in the settlement of the problem in either one way or the other would be a thorough investiga- tion of the retail business by the states, or, better still by the national government, to determine just where and what the wastes in retail distribution are. From the information thus gathered, judgment could more readily be passed as to the need of public regulation. Summary. — In conclusion, the following points should be noted : First. If the retail business is to be regulated, the busi- ness tax or license system seems to offer the simplest approach to the matter. Second. A business tax is an effective means of securing money for government purposes. There is as much to commend it for this purpose as for regulation. Third. Judging from the conditions that are apparent in retailing, it would seem desirable for the public to exercise some regulative power over retail stores. This regulation, if widely applied, would be fully as beneficial to the retailers as to the public. Fourth. 'As a first step, before any measures are taken for general regulation of any kind, a thorough-going investi- gation is needed to determine the exact character of the prob- lems to be solved. A Selected List of References on Business Taxation Adams, H. C. The Science of Finance. Pages 377-384. Hfenry Holt and Company, New York. 1899. Bastable, C. F. Public Finance. Pages 425-431. Macmillan Co., New York. 1895. Bullock, C. J. Introduction to Economics. (See Index therein.) Silver, Burdett and Co., New York and Boston. 1908. Selected Readings in Public Finance. Pages 321-349. Ginn and Co., New York. 1906. 366 ECONOMICS OF RETAILING Cohn, G. The Science of Finance. Pages 482-484. University of Chicago Press, Chicago. 1895. Cooley. Treatise on the Law of Taxation. 3rd Edition (legal work). Chapter XVIII, "Taxation of Business and Privilege." Callaghan and Co., Chicago. 1906. Ely, R. T. Outlines of Economics. Pages 648-649. Macmillan Co., New York. 1908. Taxation in American States and Cities. Pages 203-209 and 280-286. Forman, J. C. Business Assessments as a Substitute for the Per- sonal Property Tax. International Conference on State and Local Taxation, 1908. Pages 273-283. Hart, W. O. License System in Louisiana. International Confer- ence on State and Local Taxation, 1909. Page 275 ff. Hill, J. A. Taxes on Department Stores. Quarterly Journal of Economics, 15 :299-304. Hollander, J. H. Studies in State Taxation, Vol. 18 in Johns Hop- kins University Studies in Historical and Political Science: Adams, T. S. Maryland, pages 45-51. Barnett, G. E. North Carolina, pages 92-97. Brough, C. H. Mississippi, pages 206-212. Schmeckelbier, L. F. Georgia, pages 243-248. Millis, H. A. Business and Professional Taxes. Journal of Political Economy, 16 :76-87. Seager, H. R. Principles of Economics. (See Index therein.) Henry Holt and Co., New York. 1917. Seligman, E. R. A. Shifting and Incidence of Taxation. Pages 338-366. Lemcke, Lemcke and Buechner, New York. 1893. Finance Statistics of American Commonwealths. American Statis- tical Asso., Boston, Mass. 1889. U. S. Census, Special Reports : Wealth, Debt and Taxation. 1907. Statistics of Cities. 1908. (Table 35.) CHAPTER XXI THE IDEAL RETAILING SYSTEM Retailer Performs a Useful Function. — One of the most noteworthy ideas that results from a study of the present re- tailing system with all its complexities, is that it is a product of an evolution extending back over a great many years, and that during all the intervening time there has gone on a steady, relentless elimination of all forms of distribution found uneconomical. In view of this, if for no other reason, it is to be presumed that there is a proper economic place for each form of retail distribution now in existence. De- partment stores, specialty stores, and mail-order houses, all perform economic functions. Each serves in a part of the field of distribution not entirely covered by the other types of institutions. So long as the general problem of distribution remains the same as it is at present, each of these classes is here to stay. It is even likely that new types not yet developed will also find their way into the system. The difficulties that exist among them are probably due to a lack of adjustment of each type to its proper field, rather than to anything more fundamental. Much of the friction may be reduced in the course of time. Changing Retail Methods. — Changes in retailing methods must proceed slowly, for no change can be made successfully without the co-operation, or at least the acquiescence, of the people. The people are the final arbiters, and no system of distribution can succeed unless the people are in favor of it in both conscious thought and unconscious habit. Whatever 368 ECONOMICS OF RETAILING there is of value in past experience, therefore, should be saved and put to use in present and future practice. It is probable that the most substantial progress in retailing in the future will be the result of gradual changes, and careful adaptations of one thing at a time to suit new needs, rather than the result of rapid evolutions from old into new and entirely untried plans. Evolution of Distributive Systems. — The fact that the present system is a product of evolution is presumptive proof that it is far from perfect. Evolutionary movement is always preceded by necessity. Conditions demand a readjustment long before the readjustment takes place, and it is only at times that are relatively stable or unprogressive that it may be said that the necessary readjustments actually or approxi- mately catch up with the needs. Since the distributive sys- tem is conditioned on the one hand by the methods of produc- tion, and on the other by the standards of living of the con- sumers, it is only during long periods of relatively fixed methods of production and relatively fixed standards of living that distributing systems work smoothly and satisfactorily. But at the present time, and during the years just passed neither methods of production nor standards of living have been fixed or stable. Consequently, the system of distribution has been and is under the necessity of change. Not that any particular form of retailing is foreordained to succeed over others, but the new conditions demand readjustments of some kind, and those that fit the conditions most adequately are destined to the greatest development. Retailer as a Public Servant. — There is a demand, poten- tial at least, at the present time for a retailing system that will supply each community with what the people want, in the way that they want it, when they want it, and at the lowest THE IDEAL RETAILING SYSTEM 369 possible cost. What is demanded is that the retailer and his employees must be whole-hearted servants of the people. Upon this ground only can the retailer's wage, called his profit, be justified. Profit or wage of any kind without service in return is graft. This is a fundamental principle to which all business must sooner or later conform. The Salesman's Duty.— In an ideal system of retail distri- bution, the salesman must be able to perform an expert service ; in other words, the salesman must be a specialist in his field. It does not seem too much to say that the grocery salesman must be a food specialist, well versed in dietetics, food values, and food preparation. The dry-goods and clothing salesman must be a textile and style expert. The shoe salesman must be a specialist on fitting feet for comfort, for service, and for appearance. Proper Store Equipment. — The store equipment must be such as to facilitate the best service, and by best service is meant speed, cleanliness, correct weights and measures, the saving of labor, and the elimination of leaks and wastes. People are coming to expect that the comer grocer shall not only be honest and intelligent concerning his goods, but that he shall make his place of business accord with the best standards of the community as to architecture and sanitary arrangements. Light, air, and cleanliness are modern demands for every structure used by people and must not be neglected by modern store owners. Fixtures that are not only useful in every way but also artistically appropriate in line and design add to the customer's satisfaction. Protecting the Customer. — Either every store should have its own laboratory or testing room with full equipment for making tests of all goods handled, so that what is told the 370 ECONOMICS OF RETAILING customers about the goods may be the results of personal ob- servation or knowledge; or such a laboratory should be sup- plied by each municipality in which the necessary tests could be made for all stores. Every salesman should be well versed in all known tests which are applicable to his particular line of business. The interest of the public in the distribution of goods is such that a certain amount of supervision and regulation seems necessary, as for example, the setting of standards for, and the inspection of foods, drugs, food stores, weights and measures, and so on. In some states legislation has been specifically enacted against untruthful advertising. Such laws seem desirable, and it is probable that other states will take similar action. The rule "caveat emptor" is passing. In its stead the seller is coming to be held responsible for all of his statements. Competition forces this in the long run, but the difficulty arises with short-sighted dealers and with fly-by- night concerns that expect to sell a customer only once. Dis- honesty in such quarters must be checked, and to this end, a good "truthful-advertising law" will be found to be most efficacious. The administration, or the responsibility for the adminis- tration, of such a law should rest with the retailers themselves. No one is hurt by dishonest advertising any more than the dealer who is trying to do business on honest lines, and who hopes for continued patronage from the same customers. Re- tailers as a class would be more interested to see such laws carefully enforced than any other group of citizens. In the matter of truthful advertising as well as in every other re- form, the motive for progress should come from within the group rather than from without. Supported by the good opinion of the more influential members of the group of re- tailers, the law will be effectually observed. Without this support, it is likely to be evaded if not neglected entirely. THE IDEAL RETAILING SYSTEM 371 Legal Objections to Licensing. — It has been proposed in various quarters that retailers should be licensed, their num- bers regulated, and their standards defined publicly. There are many legal objections to such a course and no precedents exist for such a regulation of ordinary retail businesses in this country. Aside from the practical difficulties of carrying out such a plan, there is not yet a sufficient amount of general knowledge about the problems of retail distribution to warrant the public in taking a decided stand upon any point that might be affected by regulation. Obviously the public should know where it is going before it starts. Regulation may be very desirable, and undoubtedly is, but at the present stage of our knowledge about the work of retailing, it is far from clear that any satisfactory method of regulation could be devised without a great many preliminary trials and errors. The problems of distribution are too big and too complex to be solved by simple formulas. Unless wisely administered, public regulation would be as likely to prove harmful as helpful. EstabHshing regulation without sufficient prelimin- ary, impartial investigation might result in too expensive ex- perimentation. The Rise of the Chain Store. — As has been pointed out in a preceding chapter, there has been a decidedly great develop- ment of chain stores of various kinds in this country during the last score of years. A number of these chain systems have been established solely because of friction in the regular chan- nels of distribution. Manufacturers who have had trouble with retailers and jobbers over such problems as price-cutting, substitution, and refusals to handle the goods at all, have felt obliged to establish outlets of their own. Thus, there have grown up in this country, as well as in the European countries, a number of manufacturers' and jobbers' chain-store systems, of exclusive agencies, of "tied shops," and of various other 372 ECONOMICS OF RETAILING complex arrangements in which the distribution of goods from the producers to the consumers is carried out of its regular channels. If occasion for such friction is to continue, it seems certain that these independent and special distributive agencies must multiply. It is even possible that in the course of time these special agencies may take the place of the regular stores entirely. Multiplication of Special Agencies Undesirable. — What- ever the future may bring, it does not seem that this develop- ment of multitudes of special distributive systems is to be desired. In the first place, the most obvious result is a dupli- cation of distributive agencies that are already in existence. In so far as the present agencies are inadequate to handle any given type of business, the establishment of the special type is socially justifiable. But where the special distributive sys- tem is established in the face of the fact that present systems are quite sufficient, one may well pause before giving an un- qualified approval. Such duplication means waste that in many cases consumes all, and more than all, of the gains made through the new arrangement. Wealth dissipated in dupli- cating distributive systems already in existence is lost not only to the individual who advances it, but also to society; since if it were otherwise productively employed there would be an increase of useful products or services for society. A second reason for doubting the good of the movement towards chain stores and other special distributive agencies is that such systems, although established in many cases in self-defense, have a tendency after they reach large propor- tions to become aggressive, to dominate the retail markets, to drive smaller concerns out of business, and in short, to do in the field of distribution what the great trusts have done in certain productive industries. The former, a duplication of existing distributive systems. THE IDEAL RETAILING SYSTEM 373 constitutes social waste; the latter, a tendency to gain control of large sections of the retail business, is a menace. But present conditions of retail trade encourage the organization and development of just such special systems. Until some- thing shall have been done to eliminate the friction now so common between producers and distributors, the present ten- dency towards large and special retailing aggregations must go on. The remedy, if such it may be called, is to remove the causes of friction. The Remedy — If a remedy is to be applied, it would seem wise, in view of our experience with the great industrial trusts, to apply it now as a preventive rather than wait until the development has gone on so far as to demand a cure. The greatest causes of friction between producers and retailers at the present time are as follows : 1. Price discriminations, in which some dealers are favored at the expense of others. 2. Price-cutting on standard goods resulting in injury to the producer's markets. 3. The difficulty producers experience in getting and keeping their goods in the hands of dealers so that they may be obtained by the consumers. The first steps aimed at reducing such friction must seek to prevent unfair price-discriminations between buyers, and must grant to the producer, who desires to make a stand- ardized article, the right to name the prices at which it is to be sold by all dealers. The elimination of the system of granting price favors to "preferred customers" and of un- authorized price-cutting of standard goods, would go far towards removing many of the present serious causes of controversy. The third great source of friction in the distributive ma- 374 ECONOMICS OF RETAILING chine, mentioned above, is the difficulty experienced by pro- ducers in getting their goods into the hands of retailers and in keeping them there. The expense for traveling men and for advertising campaigns that have for their sole purpose the cultivation of trade relations with dealers, getting trade away from other concerns, and preventing other concerns from retaliating, is enormous. Under present methods of competi- tion this waste seems unavoidable. Business men everywhere frankly admit that this is one of the big problems of present- day industry. Into this competition all the forces of busi- ness are brought into play. Far from stopping with perfect- ing the character of the goods offered for sale, or reducing the price to the lowest possible point to secure markets through the regular channels, much baser methods amounting virtually to bribery and graft are often resorted to. To reduce the friction arising from these causes something must be done to open the regular distributive channels to all producers on the same terms. Admission of All Products. — It does not seem beyond the bounds of practical thinking to suggest that all dealers in a certain class of goods should be required to admit to their stores the products of all manufacturers or jobbers who might desire to employ their services upon being guaranteed a rea- sonable, fair remuneration therefor. This plan might be entirely impracticable in some lines. But among the specialties in groceries, dry-goods, drugs, and hardware, certainly much waste could be eliminated if the manufacturer could freely send a sample or a small lot of his goods to the retailer together with his guarantee to pay the re- tailer for his expense for a given period of time, whether sales were made or not. The retailer would then serve the manufac- turer, or the producer, in much the same capacity and under the same principle as the transportation companies now serve THE IDEAL RETAILING SYSTEM 375 shippers. Each manufacturer would at least get a chance to have his goods displayed where customers are, just as shippers are now all given the privilege of having their goods trans- ported. This plan would mean a great saving to the manufacturer in selling and advertising expense. The problem of the man- ufacturer under this plan would not be how to get retail dealers to agree to take his goods, or how to keep their cus- tom after they had once begun to order, that is, to keep other manufacturers from taking the trade away; but the prob- lem would be how to make the goods so attractive in quality, appearance, and price as to cause them to be sold to consumers in competition with other like goods from other producers, all on the same counter, or in the same show case. The real de- mand for an article could soon be determined by this method and at much less expense for most goods than by sending out traveling salesmen and spending large sums on adver- tising. There would still be some need for commercial trav- elers and certainly for advertising, but both forms of sales promotion would become very much more effective than at present. New Retailing Problems. — The retailer would be con- fronted by a number of problems quite different from those he has to meet now. One of these would be to provide suit- able space for all of the goods that might be sent to him by producers. But since the retailer would be paid for his serv- ice, including rent for the space occupied by the goods, it does not seem that the problem would prove unsolvable. There would also be difficulty, though not insurmountable, in providing fair display space and prorating the various rental charges for the various classes of goods consigned to the store. The capital of a dealer would be his store room, fix- tures, and equipment. The risks of marketing would fall 376 ECONOMICS OF RETAILING where they belong — on the producer. Accumulation of dead or unsalable stock in any community could be obviated by this method of distribution. Goods not sold within a certain time could simply be returned to the manufacturer or sent on his order to some other store where sales of such goods were being made. Benefit to Consumer. — The consumer would be benefited most of all. In the first place, the emphasis in competition would be placed by the manufacturer on getting the consumer's trade rather than as now on getting the retailer's trade. To get the consumer to buy, quality and price would become pre- eminent considerations. In the second place, it seems quite likely that the consumer would have a larger variety of goods to select from, so that wants could be more fully and specifi- cally satisfied. In the third place, many more kinds of goods would reach the consumers than is now the case; for now many valuable inventions are probably never marketed be- cause their promoters are unable to satisfy the demands of jobbers or other dealers who control the outlets. Advantages and Disadvantages of Method. — It might be urged that this method would tie up much of the manufac- turer's capital in goods consigned to dealers. This is true, and it is not to be expected that every manufacturer could effect national distribution at once. It is obvious, however, that the plan proposed has many advantages for the manu- facturer. Advertising and distribution could be perfectly correlated by taking one community at a time. Goods dis- tributed nationally could be advertised through national mediums, while the goods distributed through certain parti- cular sections could be advertised in those sections only. Many other possibilities of this plan will suggest themselves to the reader. THE IDEAL RETAILING SYSTEM 377 Three Necessary Reforms. — Prevention of unfair price- discrimination, permitting price-maintenance under careful supervision, and opening the retail markets to all producers — these three reforms in business would result in raising it to a plane where workmanship and efficiency rather than subtlety, crafty bargaining, and force count for success. Under these three policies there would be no object in creating chain sys- tems or in organizing any form of combination other than for purposes of reducing the expenses of handling. Eliminate the inside-price-buying system and the price-cutting system in selling and you eliminate bases upon which stand all marketing monopolies. Trusts. — The great power of a modern trust, whether it be in the field of distribution or of production, lies either in its ability to buy for less, to sell for more, or to do its work at a lower expense than its competitors. Its buying for less amounts to no advantage unless the price is much less propor- tionately than that paid by other competitors. Such a difference constitutes unfair discrimination. The trust can sell for more only when it has a monopoly — when its competitors have been wiped out of the market. But the usual method adopted by the trusts to get rid of competitors is by underselling them in one place or in one line at a time, while making up these losses by sales in other places or other lines. Price-maintenance is, at least, a partial, if not a complete, remedy for this in the retail trade. In so far, and wherever the trust succeeds in actually re- ducing the expenses of production or distribution, at the same time giving the service that the public desires, it is to be commended and encouraged as against less efficient concerns. But in all recent trust investigations, the economies of produc- tion and distribution gained by organization have been largely incidental and insignificant compared with the power it has 378 ECONOMICS OF RETAILING given to buy for less, and sell for more than competitors, and by these processes frequently to put competitors out of business altogether. Checking the Trust Evil.— If the public really wishes to check the evils of trust development, the means in general outline are clear. Simply prevent unfair price-discrimination. In other words, compel all sellers to sell to all buyers who apply on equivalent terms, and thereby prevent cut-throat com- petition, that is, price-cutting that goes below the legitimate costs of production and distribution. As for the rest, under these conditions, let the best man win. The concern with the best system and the lowest costs will succeed, as it should, combination will be made, not for industrial and commercial warfare, but for efficiency, if at all. The P. A. T. A. — Where governments do not interfere with these tendencies of present-day competition and its frictions, business concerns themselves are forced to combine into or- ganizations having for their purpose the regulation of trade abuses. Something has already been accomplished in this country through "the trade relations committees" of the great dealers' associations, but in this respect American business men are much behind those of Europe. The Proprietary Ar- ticles Trade Association of England is a good example. The "P. A. T. A.," as it is called, is made up of manufacturers, jobbers, and the majority of retailers of the country. Agree- ments are reached as to both retail and wholesale prices, thus settling both the quantity-discount and price-maintenance questions. Any manufacturer or jobber who transgresses the rules established by agreement by giving inside prices to any buyer is immediately expelled, the prices on his goods are generally cut thereafter by all dealers, the stock in the hands of the dealers is disposed of and is thereafter ordered only THE IDEAL RETAILING SYSTEM 379 Upon request of consumers. Retailers who cut prices set by the P. A. T. A. are likewise summarily treated.^ It is possible that the conditions of American retail trade that are now so troublesome will in the future be eliminated or avoided by plans such as these. But there is always a ten- dency when an organization such as the P. A. T. A. becomes large and effective, to go farther than merely correct the abuses existing within and to lay tribute upon the consumer. In other cases, the members of such organizations become unprogressive and assume an unnecessary enmity towards all improvements. In view of these tendencies, such associa- tions need the corrective balance of the one other party in- terested in their work — namely, the consumer. Hence there is needed the supervision of the public. Extent of Government Regulation. — How far government supervision and regulation over the retail trade will be carried remains to be seen. One can well adopt Spencer's dictum that the government that governs least is the best, and that the responsibility of working out its own destiny should be left as largely as possible to each class of business. It is only when one group threatens the existence of others and offers no ultimate advantage to the consumer, that the spirit of fair play must be invoked through the agency of govern- ment and the offenders made to employ fair methods. Value of Statistics. — One thing that the public can and should do for distribution is to collect statistics that will give an accurate, quantitative idea of the extent of the business, the different types of retail organizations, the expenses of selling in each, the amount of business done, the amounts of capital in- vested, the character of retail store ownership, the relations of retail stores to jobbers and manufacturers, the number and ' Printer"!! Ink, April 2, 1914. page 64. 380 ECONOMICS OF RETAILING kinds of employees and their wages and salaries, the extent of the credit business, the costs of delivery, the tendencies in con- sumer demands, and many more important matters necessary to forming correct judgments concerning the retail business. By means of the Federal and State Censuses, and through the work of other government departments and bureaus, the nation is gradually coming into possession of a fair knowledge of the problem of the production of raw materials, of trans- portation, and of manufactures. In the newly established Office of Markets in the Department of Agriculture, the dis- tribution of agricultural products is to be studied. Except for this beginning, important as it is, and covering but a single section of the big field of goods distribution, nothing has been done by any department of government to determine the de- gree of our nation's efficiency in its commerce and trade. Of all the states, Massachusetts has taken the first and only census of trade.^ Even that was meagre in detail. It seems strange that great sums of public money should be given to the study and promotion of better methods of production, and that nothing should be done to determine better standards of ef- ficiency in distribution, especially when one considers that the costs of distribution are nearly equal to those of pro- duction. Investigations made so far in the field of retailing are mere samplings, and the judgments passed are but little more than guesses. The demand for census-taking and in- vestigation in the distributive business is one that the gov- ernment should neglect no longer. Progress Through Scientific Study. — It is probable that the greatest progress to come in retailing will not result from any readjustment brought about by public action, though this may be a necessary part of its evolution, but rather from a scientific study of the problem of distributing goods made ' In 1905. THE IDEAL RETAILING SYSTEM 381 by retailers and their salespeople themselves. The costs of distribution are admittedly too high at present for the services performed. If these costs could be generally reduced, for example, as much as 2 per cent, it would mean a saving of from $200,000,000 to $300,000,000 annually to the United States alone. This saving would first take the form of added profits to the distributors but ultimately would go to the consumers as a whole. But 2 per cent is a very conservative estimate of reductions that may be made when those engaged in the business shall have been properly educated for their work. It may not be too much to say that savings of twice or even three times this amount are possible. There is no reason why scientific study and education should not do for distribution what it is doing for agriculture. Like agricultural education, the education for retailers and their salespeople must be widely diffused in order that society may make appreciable gains. Every store worker must share in this training. Progress towards more economical and bet- ter retailing can come only by slow degrees, and by improve- ment of one thing at a time. For the best scientific results, there must be co-operation of the schools and the public with the retailers. One of the most vital effects to be hoped from a proper training of retailers is that they may in turn help con- sumers to become rational in their demands and wiser in their purchases and consumption. Some reforms are necessary in present-day business methods. A clear understanding of the evils that exist and their causes will go far towards prompting business men to take steps of their own accord to eliminate them. There is a demand that business education should be offered by the public schools. The purpose of such education would be. to point out the ways in which business might be successfully conducted. If present-day business practice alone were to serve as the lesson to be studied, the schools would have to 382 ECONOMICS OF RETAILING countenance some methods that are expedient rather than right. This proceeding would justly be met by public criticism. Business education must come, but, as an accompaniment, business must be made fit to teach. Machiavellian training has no place in a public educational system. Thus the com- ing of science and education into distribution will help to ac- complish what all business men of high principle and broad vision desire to see, efificiency and honesty of performance in this great and useful work. APPENDIX A DISTRIBUTION OF FAMILY EXPENDITURES^ Ernest Engel (1821-96), while at the head of the Statistical Bureau of Saxony, conducted extensive investigations of work- ingmen's budgets. As a result of these studies he formulated tables that have become classical. Expenditures, by Income Groups and Percentages (Engel's Table for Saxony, 1857) Annual Incomes Items of Expenditure $22S-$3oo $450-$6oo $750-$i,ooo Subsistence 62.00% 55.00% 50.00% Clothing 16.00 18.00 18.00 Lodging 12.00 12.00 12.00 Fuel and light 5.00 5.00 5.00 95.00% 90.00% 85.00% Education, church, etc 2.00% 3.50% 5.50% Legal protection i.oo 2.00 3.00 Care of health i.oo 2.00 3.00 Comfort (mental and bodily recreation) i.oo 2.50 3.50 5.00% 10.00% 15.00% From these tables Mr. Engel propounded four economic lavi^s that are as follows : First. That the greater the income, the smaller the percentage of outlay for subsistence. Second. The percentage of outlay for clothing is approximately the same, whatever the income. Third. The percentage for lodging or rent and for fuel and light is approximately the same, whatever the income. Fourth. As the income increases in amount the percentage of outlay for sundries becomes greater. ^Quoted from Massachusetts Cost of Living Commission's Report, 1910 384 ECONOMICS OF RETAILING Comparison of Five Invest! Percentages of Expendi Income Rent J3 u 1 3 ro b o U c If) o B.2 o p u o 3 SI i-i ^ 3 . Fuel and Light 1 3 n o U ?,^ V2 _ c m^' ri (Tl U E.2 V t-t o 3 - Under $200 $ 200 to $ 300 to 400 to 500 to 6oo to 700 to 8oo to 900 to 1,000 to 1,100 to 1,200 to 1,300 to 1,400 to 1,500 and 300.. 400. . 500.. 6co.. 700. . 8oo.. 900. . ,000. . ,100. . 200. . ,300.. 400. . ,500. . over. 26.8 25.9 23.6 21.9 20.7 19.0 18. 1 16.2 19.8 16.8 16.3 15 30. S 25.9 22.4 21.7 21.2 18.6 17.6 17-3 18. c- 16.2 16.9 18.0 18.6 18.5 18.4 18.4 18. 1 17.0 17. S 17.5 16. s 17-4 4.1 6.5 6.2 6.0 5.7 6.4 5.4 4.8 4-5 4-5 2.7 3.2 .. Let us now take the results of a number of investigations, and test them by Engel's laws. The investigations here selected for this comparison are chosen either because based on the study of large numbers of families or because they are comparatively recent. They are as follows: Investigation of cost of living of workingmen in textile and glass industries, made by the United States Bureau of Labor in 1891. Total number of budgets, 5,284. Investigation of cost of living, made by the United States Bureau of Labor in 1903. The investigation was based upon the study of 25,440 family budgets. Investigation of wage earners' budgets in New York, made in 1905 by Mrs. Louise B. More of Greenwich House. This investiga- tion was an intimate study of 200 families on the lower west side of New York City. APPENDIX 38s CATIONS OF Family Budgets TURKS, BY Income Groups Clothing Food Sundries '0, u E u m 3 . 3° 3 . 1 S u „g II 1-1 U M c ■a CO 6 S u (fl c IS 3 g, 3 . is 3 - t/ji-I 8.6 8.6 10.2 II-3 II. 9 12.8 I3-S 13-5 143 iS-o 14.8 IS. 7 12.8 so. 8 47.3 48.0 46.8 46.1 43-4 41.4 41-3 39-9 38.7 37.6 36.4 49.6 44.2 45-4 45-0 43.8 41. 1 38.8 38.0 34-3 34-7 30.6 28.6 IS.S 18.7 16.0 16.5 17.2 19-3 21.6 23.0 23.2 23.6 26.1 25-4 13.9 19.2 t8 ? 4 9 4 6 5 9 2 7 9 10 9 5 I 5 7 5 7 9 8 9 2 10 9 10 II 3 3 5 2 3 4 8 3 14 14 14 IS IS 16 IS 16 17 16 15 ^4 3 8 3 8 5 5 7 44.2 44-4 SO. I 45-5 44.2 45-8 45-8 43-6 II. s 14.2 13.0 18.2 19.0 19.9 22.4 23.8 13 12 12 13 14 14 IS 14 IS 13 40 44 44 4S 44 44 44 45 45 43 8 4 6 6 3 7 7 6 6 43-5 41.4 40.2 41.9 38.4 33-3 13.8 II. 4 I3-I 14. 1 16.0 16.6 17. 1 16.2 22.3 21.0 22.5 21. g 27.1 23-3 24.2 18.6 19. 1 21. S 23.8 25.4 29.1 28.1 36.7 40.0 26^7 39-5 Tfi !^ 10 n t6 fi 36 8 21.0 3S.8 . . 26.0 2S-I 28.2 Investigation of the standard of living among workingmen's families in Nevir York City in 1907, by Robert Coit Chapin, under the auspices of the New York State Conference of Charities and Cor- rection and the Russell Sage Foundation. This was an intensive study of 391 families. Investigation of the Homestead Commission in Washington, D. C, made in 1907, and based upon the budgets of 2,078 families. The accompanying table enables us to compare the results of these five investigations. It gives the percentage of expenditure for va- rious purposes by classified incomes. In the case of rent it will be seen that the investigations of the United States Bureau of Labor of 1891 and 1903 agree with Engel's law — that the proportion of income spent for rent is about the same for all incomes. But the three more recent studies all show a de- creasing proportion expended for rent. For New York this is 386 ECONOMICS OF RETAILING probably due to the fact that the minimum housing is abnormally high, so high for low incomes that with higher incomes the people cannot afford to move into a better house because they are already paying an abnormal amount for rent. In both New York studies, rent takes more than 20 per cent of the family's income for all incomes under $800 a year. Engel's law is supported by the figures for fuel and light. The proportion expended remains practically the same for all incomes covered by the investigations ; and, furthermore, the percentages very nearly agree for all the investigations. Engel's law in regard to clothing is not borne out by all the studies, although the increase in the proportion expended for clothing is usually slight. There is considerable variation in the percen- tages of expenditure for clothing in each income group in the dif- ferent investigations. Engel's law with regard to clothing — that the percentage of expenditure for that purpose did not tend to increase with increasing income — has never been borne out by studies made in the United States. The percentages of expenditure for food bear out Engel's law for food- — that as income increases the percentage of expenditure for food decreases. In the $7oo-$8oo and $8oo-$900 groups the figures for different investigations differ but slightly. Engel's law with regard to sundries is strikingly borne out by every investigation. As income increases the proportion spent for sundries increases. On the whole, there is a remarkable harmony in the results of these five investigations, based as they were upon families in different localities and at different times, and studied by various methods. It would be safe to deduce from these tables a few gen- eralizations about the expenditure of the income of a workingman's family under normal conditions. For weekly incomes of from $12 to $18, the income would usually be spent about as follows : rent, 18-20 per cent; fuel and light, 5 per cent; clothing, 14 per cent; food, 43-45 per cent; sundries, 15-17 per cent. This analysis may not actually fit the expenditures of many families, but it would probably be found that normal families with incomes of the amounts stated tend to approach these figures. APPENDIX B DEALERS IN THE UNITED STATES IN 1913' Wholesale Retail Agricultural implement dealers 240 5,912 Animal, bird, and goldfish 420 Art stores and picture 1,900 Automobile 10,200 Bakers 620 25^788 Bicycle 5,013 Booksellers and stationers ii,9S4 Booksellers and stationers (second hand) io8 Boot and shoe 522 20,104 Butchers and meat markets 781 62,798 Butter and eggs i,i94 Carpet 83 19,316 Cattle dealers and shippers 20,100 Cheese 263 China, crockery, and glassware 340 2,861 Cigars and tobacco i,99i 40,555 Cloaks and suits 1,988 Clothing 160 22,713 Coffee, tea, and spice 547 3,764 Confectioners 35,423 Department stores 1,752 Drugs 668 43,230 Dry-goods 725 30,787 Electrical supplies 424 3,272 Fancy goods and notions exclusive 786 3>7S9 Feed, flour, and grain i,572 19,839 Fish 950 Fishing tackle 3,88c Five and ten cent— independent 1,054 Floiists 1,765 . 8,482 Fruit 1,831 10,087 Furs (raw) , 305 Fur garments 2,334 Furniture 307 16,131 Furniture (second-hand) 2,175 Gas and electric fixtures 2,476 ^ From R. G. Dun and Company's list as compiled by the Rapid Addressing Machine Company. 388 ECONOMICS OF RETAILING Wholesale Retail General stores 144,933 Glass, oils, and paint 605 29,533 Glove 63 Grain dealers 1,210 16,783 Grocers 3,840 172,043 Gun 3,885 Hair-goods 1,0.37 Hardware 928 20,881 Harness and saddlery 314 20,084 Hats and caps 201 16,240 Hides 1,528 Honey 113 Hosiery 1,105 Ice 5,429 Instalment houses 1,488 Japanese and Chinese goods 413 Jewelers 815 22,025 Junk 189 6,213 Laces and embroideries ... 384 Liquors 5,412 101,605 Lumber ... 29,669 Mail-order houses 1,304 Men's furnishings (exclusive) 315 12,387 Milk 1 1,092 Milliners 424 26,843 Musical instruments 6,185 Neckwear 315 Notions and toys 802 6,892 Nuts 138 Oysters (dealers and shippers) 1,222 Paper 905 Pianos and organs 8,040 Produce 7,785 Provisions 1,221 Real estate 70,491 Rubber scrap 31 Seed men 597 Sewing machines ... 2,102 Sponges ...-. 37 Sporting goods 423 2,410 Stamps and coins 129 Stationery 391 Stoves 22,177 Tallow and pelts 1,528 Tobacco leaf 592 Trunks 712 Typewriters and supplies 810 APPENDIX 389 Undertakers 17,808 Wall paper 284 Willow and woodenware 131 Wines 229 Wool 767 There is undoubtedly some duplication in the numbers given in the foregoing table. It would hardly be safe to add the number of retailers in each line named above to get the total number of retail stores. Some stores carry several lines, and it is possible that the same store may be listed in several lines in several cases. So far as it goes, however, the number of dealers in any given line as stated is fairly correct, that is to say, there were probably, in 1913, 43,239 places where drugs were sold, 20,881 hardware stores, and so on. APPENDIX C RULES FOR FIGURING COSTS AND PROFITS^ 1. Charge interest on the net amount of your total investment at the beginning of your business year, exclusive of real estate. 2. Charge rental on all real estate or buildings owned by you and used in your business at a rate equal to that which you would receive if renting or leasing it to others. 3. Charge in addition to what you pay for hired help an amount equal to what your services would be worth to others ; also treat in like manner the services of any member of your family employed in the business not on the regular pay-roll. 4. Charge depreciation on all goods carried over on which you may have to make a less price because of change in style, damage, or any other cause. 5. Charge depreciation on buildings, tools, fixtures, or anything else suffering from age or wear and tear. 6. Charge amounts donated or subscriptions paid. 7. Charge all fixed expenses, such as taxes, insurance, water, light, fuel, etc. 8. Charge all incidental expenses, such as drayage, postage, office supplies, livery, or expenses of horses and wagons, telegrams and telephone, advertising, canvassing, etc. 9. Charge losses of every character, including goods stolen or sent out and not charged, allowance made customers, bad debts, etc. 10. Charge collection expense. 11. Charge any other expense not enumerated above. 12. When you have ascertained what the sum of all the fore- going items amounts to, prove it by your books, and you will have your total expense for the year ; then divide this figure by the total of your sales, and it will show you the per cent which it has cost you to do business. ^Recommended by the National Association of Credit Men. APPENDIX 391 13. Take this per cent and deduct it from the price of any article you have sold, then subtract from the remainder what it cost you (invoice price and freight), and the result will show your net profit or loss on the article. 14. Go over the selling prices of the various articles you handle and see where you stand as to profits; then get busy in putting your selling figures on a profitable basis — and talk it over with your competitor as well. APPENDIX D METHODS OF HANDLING CASH, CREDITS, AND SOLD GOODS There is considerable disagreement among expert store managers at the present time concerning the best methods of handling cash and credits, and of inspecting and wrapping merchandise. In the early days of store-keeping the salesman completed each transaction with each of his customers by accepting the money, making change, wrapping, and delivering the parcel to the customer. Twenty-five or more years ago a number of the larger stores began to relieve .salespeople of some of these duties by installing carrier devices to centralize change-making and the inspecting and wrapping of goods. Cashiers were put in charge of the central money-receiving and change-making sta- tion and inspectors and bundle wrappers were placed at the central wrapping stations. It was thought that this division of labor would result in greater efficiency in all departments as well as greater security for the store in handling its cash and merchandise. More recently there has been a tendency towards decen- tralization, particularly of the inspecting and wrapping of merchandise. It begins to appear that the centralization of these functions did not bring increased efficiency in all cases, and that customers seem to be best pleased when the opera- tions of wrapping are performed before their eyes by the salespeople. The clerk-wrap plan, as it is called, seems to be gaining ground. But whether cash and credits should be handled from cen- tral stations or by individual salespeople in their departments 392 APPENDIX 393 is a matter upon which the widest difference of opinion seems to prevail. The makers of devices to be used both for cen- tralized and decentralized systems claim advantages and argu- ments over each other that are hard to reconcile. Testi- monials of the satisfactory service of the one as against the other are given in large number by makers of the devices used in both plans. An analysis of some of the arguments which are advanced on both sides follows : Arguments in favor of a de- centralised system of handling cash by means of cash registers. 1. Takes less time to make change. No waits for mbney to go to cashiers. No delays such as due to stoppage of tubes, broken cables, delays of cashiers, etc. 2. Cost less. Small cost of up-keep. No power plant required. 3. Saves steps for salespeople. Easy to move cash regis- ters to convenient loca- tions. 4. Takes up little room and adds to attractiveness of store. 5. Insures protection of store's cash. Claimed that car- riers do not. Arguments in favor of a cen- tralized system for handling cash by means of pneumatic tubes or other forms of carriers. 1. Take less time to make change. No waits because of salespeople waiting their turns at cash regis- ters. Change made by expert cashiers while salespeople wrap parcels. 2. Cost less. Small operating expense. 3. Saves steps for salespeople. Easy to provide conveni- ent tube or cable stations. For the price of a multi- ple drawer cash register, three or four tube stations can be installed. 4. Takes up less room than cash registers in sales de- partments. 5. Insures protection of store's cash. Claimed that cash registers do not. 394 ECONOMICS OF RETAILING 6. Salesperson made respon- sible. A good thing. Salesmanship improved. Waits for change over carrier systems are em- barrassing. Customers are better pleased when sales- person gives entire ser- vice required. Disputes can be settled on the spot. All parties to the transac- tion close at hand. 7. Miscellaneous. Easy to audit from printed record. No expenses for cashiers. Receipt plan reduces salesperson's temptation to dishonesty. Not neces- sary to make out sales slips in some departments, when cash register re- ceipts are given out. Salespeople like registers. Responsibility removed frorri salesperson. A good thing. Salesmanship im- proved. Salespeople do not have to think about cash. Can give whole time to selling more goods. 7. Miscellaneous. Constant control over, and easy ac- cess to, cash when cen- tralized. Expenses for cashiers distributed among salespeople when cash registers are used. Salespeople cannot detect counterfeits. Cashiers can. Salespeople like car- rier and tube systems. INDEX Accounting, retail, 59-64 Accounts, departmentalized, 237, 238 Adams, T. S., 350 Advertising, 215, 216 by department stores, 251, 252 by mail-order houses, 295, 296 truthful, 302, 303 untruthful, 255 Attracting trade, by advertising, 215, 216 display space, 218 window displays, 216-218 Agency failure statistics, 310 American Federation of Labor, 158 Applicant, observation of, by em- ployment manager, 103, 104 Application blank, 105-107 Aristotle, on retailing, 4 Article, customer's desire for, 224, 22s B Bacon, Sir Francis, 6 Bagmen, 17 Barcus, on "Science of Selling," 123 Bargain sales, 252 Binet, 102, 103 Bradstreet, J. M., 19, 20, 55, 310, 312, 328 Bruce, R. A., 200 Building, 205-207 Building rent, 169, 170 (See also "Rent") Burroughs Adding Machine Com- pany, 58, 63 Business books, characteristics of early ones, 9-10 Business literature, recent tendencies of, ID Business regulation, arguments for, 360, 361 opposition to, 359 Business taxes, 346, 347, 355, 356 (See also "Taxes") payment of, 348 purposes of, 348, 349 Business writing, development of, 7-8 Butler Brothers, 63 Buyers, for department stores, 256, 260 for mail-order houses, 299, 300 Bjiying, department store, 253 Canada, business taxes in, 354 Canned goods, 44-46 Capital, investments of in goods, 232, 233 (See also "Turnovers") Carnegie Institute of Technology, 130 Cash buying, 301 Chain stores, 268-287 bonuses, 285 bulk buying of, 272, 273 careful organization necessary, 280 checks and safeguards of, 283, 284 classification of, 271 competitive advantages of, 277, 278 cut prices in, 278 daily reports, 282 development of, 271, 272 disadvantages of, 279-280 European, 270, 271 future of, 286, 287 395 396 INDEX Chain stores — Continued jobbers, 273 local manager, 285, 286 net returns, 276 number of, 268, 269 object of, 272 origin of, 268 private brands, 278, 279 results from, 284, 285 rise of, 371, 372 special departments, 280, 281 store equipment department, 282 subsidiary companies, 281, 282 superior executive management, 276, 277 United States, 269, 270 weekly summaries, 282, 283 Chalmers, Hugh, 122 Chapmen, 17 Character analysis, 100, lOl Charts, channels of distribution, 26-28 comparison of number of retailers with value of production, 338 decrease of production cost and in- crease of distribution costs, 342 organization, 257, 258 Cicero, on merchants, 4 Cities, growth of and distribution in, 340 Class taxes, 350-352 Cole, George S., 123 Commercial travelers, 21 Commission payments, difficulties in, ISO, 151 Community habits, 35, 36 Competing stores, advantages of close location, 195, 196 Competition, dealers', 226, 227 effect of taxes on, 361 evil effects of, 227, 228 of desires, 226 remedy for, 362-365 Consumer-demand, 225 (See also "Demand") examples of change in, 43, 44 fluctuation of, 43 Consumers, 30-50 (See also "Cus- tomers") benefit, by competition, 376 controls retail market, 49, 50 co-operative chains, 275, 276 definition of, 31 general characteristics of, 36, 37 importance of in store planning, 30, 31 satisfying demands of, 34, 35 Consumption per capita, table of, 38 Correspondence course for salespeo- ple, 119 Cost accounting, retail, 59-64 investigations in, 57-59 Cost accounts, relation of, to prices, 238, 239 Cost investigation, results of, 57-59, 65,66 Cost of living, effect on, of canned goods, 44-46 percentage of expenditure, table, 41 Costs, effect of, on retail prices, 222, 223 distinct kinds, for retailer, 60-62 publicity of, 245 selling, table, 146 Crowd, habits of as regards store location, 200, 201 Curtis Publishing Company, cost in- vestigations, 65 Customers, (See also "Consumers") buying habits of, 196, 197 habits of, as to store location, 34 protection of, 369, 370 purchasing power of, on location values, 191 racial characteristics of, 34, 35 satisfying desires of, 73 INDEX 397 Dealers ("See Retailers") De Bow, J. D. B., Review, 8-9 De Foe, Daniel, 7, 18 Demand, changes in, 46, 47 factors influencing, 31-33 influence of children on, 31, 32 influence of sex on, 32, 33 measured by, 224, 225 reasons for changes in, 47-49 sectional, 36 Department store, 246-266 abroad, 249, 250 advantages of central location, 261, 262 advertising by, 251, 252 definition of, 246 economies of, 262, 263 efficiency of, 259 formed by consolidations, 247 high expenses of, 263, 264 leaks in, 261 number of 248, 249 organization charts, 257, 258 origin of, 246 period of rapid development of, 248 poor salesmanship, 265, 266 service of, 250, 251 specialized organization, 256 unity obtained by, 250 Department store buying, 253, 254 Department Store Education Associa- tion, 127, 128 Department store merchandising, characteristics of, 250-252 Departments, non-productive, location of, in store, 211 Desire, increase of, by teaching, 225, 226 Displays, arrangement of, for attrac- tiveness, 212-214 Distribution, channels of, 25-28 definition of, I functions mostly neglected, 1-2 how to solve problem of, 11 of goods, l-ll (See also "Retail- ing") reasons for lack of interest in, 2, 3 Distribution costs, 342 Distributive systems, evolution of, 368 Distributors, comparison of, 336 increase of with products, 339, 340 Division of labor, 260 Drummers, 21, 22 Dry-goods and women's ready to wear stores, costs of doing busi- ness in, 66 Dun, R. G. & Company, 19, 20, 55, 310, 312, 328 E Economics, literature on, 8 Economists, analysis of production, 175, 176 contribution to business writing, 7-8 faults in production theory, 176, 177 Education, effect of, on demand, 47, 48 Education of salespeople, 80, 1 12-144, 165, 166 correspondence course, 119 courses, 125-143 outline, 133-143 efficiency bulletins, 114-117 "flying squads," 120 history and progress of, 122-133 libraries for, 118 literature, 122, 123, 127, 128 progressive promotion, 119 public schools, 130 reading course, 118 398 INDEX Education of Salespeople — Continued special instructors, 112 store conferences, 113 store manuals, 83-90, 113, 114 trade papers, 117-118 trips to factories, etc., 114 understudy systems, 120 Educational Association, 132 Efficiency bulletins, 114, 115 Employees, department of, 93-95, Employment department, 93 Employment psychology, 102 England, department stores in, 249 medieval laws against retailers, 4-5 Proprietary Articles Trade Associa- tion, 378, 379 Equipment, 369 Expenditures of average families, 40, 41 Extra-salary remuneration, 153-154 Failures, 309-326 causes of, 32;^ comparative tables of, 321-323 estimates of, 311, 312 statements of, 310, 311 term defined, 309 Fair price, arriving at, 228 Family budget, 41 Family expenditures, distribution of, 37,38 Federal Board of Vocational Educa- tion, 133 Federal Trade Commission, 59, 60 Fernley, Thomas A., 58, 59, 63, 64 Filene, Wm. Sons Company, 115, 125, 127 efficiency bulletins, 115-117 Fines, 156 Fixtures, economizing space with, 214, 21S Floor rent, making apportionment of, 208, 209 Floor space, effective use of, 210, 211 Floors, estimating value of, 207 mezzanine and balconies, use of, 209, 210 "Flying squads," 120 Foreign trade (See "Merchant ad- venturers' companies") Foster, B. F., "Merchants Manual," 8 French business tax, 353 G Galloway, Dr. Lee, 132 General wage levels, 149 Gilbreth, Mr. and Mrs. F. M., 121 Goddard, F. B., 123 Goods, allocation of, 211, 212 delivery of, 297, 298 manufactured, 334, 335 quick turnover of, 212 variable value of, 240, 241 Good-will, factor in employment, 99 Goodwin, Frank E., 63 Government regulation, extent of, 379 Graphology, loi Ground rent, i6g, 170 (See also "Rent") H Habits of crowds on store loca- tions, 200, 201 Hart, Schaffner and Marx, 59 Harvard retail shoe store investiga- tion, 57, 66, 237 Harvard system of accounts, 57-59, 63 Health, 80, 81 Hiring and firing, cost of, 93 Hirschler, Piana, school, of, 126, 127 "Hoodoo" locations, 199, 200 Hours of labor, effect of, on demand, 48 INDEX 399 Hunt, '"Merchants' Manual,' Hurd, R. M., igg Hurley, Edward N., 59, 60 Immigration, effect of, on demand, 47,48 Importer, as merchant and whole- saler, 18 Income, expenditure of by workmen's fami- lies, 40 of families in United States, 1918, 39 Increasing sales, relation of expense to, 233, 234 Industrial revolution, 16 IngersoU, William H., 59 Instinct, appeal to, 42, 43 Interviews,, as tests of ability, 99-100 Jobbers' chains, 273, 274 K Kennard, Miss Beulah E., 127-128 Labor turnover, 91-93 reasons for high rate in, 91, 92 Leroy-Beaulieu, 327 Library for salespeople, 118 License and taxes, 347, 348, 362 Licensing, legal objections to, 371 Life Extension Institute, no Location, (See also "Rent") accessibility of, 202, 203 best, obtained by efficient managers, 176 change of, undesirability, 178, 179 counterbalances in rent of, 180 department store, 261, 262 effect on, of customers' purchasing power, 191 effect on, of passers-by, 191-193 good, necessity of, 168 increase in cost of city over town, 183, 184 influence upon rents, 173, 174 intensive cultivation of, 204 suitable buildings, 205 value of, determined by profits, 188 Low wages, employment of women at, IS7 M Mail-order houses, 288-308 advantages of, 306, 307 advertising by, 295, 296 beginnings of, 288-290 buying methods of, 300-302 causes of development, 295 competing with small-town mer- chant, 294 correspondence department, 303 costs of, 304-306 credit business of, 298, 299 disadvantages of, 307, 308 efficiency methods of, 303, 304 employees in, 304 growth of, reasons for, 292, 293 guarantees given by, 301, 302 handling orders in, 296, 297 increased earning power of, 293 methods of, highly developed, 292 purchasing department in, 299, 300 recent development of, 288 truthful advertising of, 302, 303 volume of business of, 291 Manuals, store, 83-go, 113, 114 Manufacturer, hazards of, 275 Manufactures, ratio of to retailers, 337 Manufacturers' chains, 274, 275 Manufacturing costs, 342 400 INDEX Mason, Harry B., 38 Massachusetts, Bureau of Labor Statistics, 54 Cost of Living Commission, 40, 45 trade census of, 53, 54 Mercantile agency, 20, 55 opposition to, 20, 21 Merchandise manuals, 128 Merchant adventurers' companies, 14, IS Merchant trading organizations, 15, 16 Middleman, absence of, 12-13 advent of, 13 ehmination of^ 25 Mill, John Stuart, 327 Minimum wage, 160-165 arguments against, 163 arguments for, 162, 163 laws, operation of, 161, 162 legislation on, 160, 161 sources of propaganda on, 160 summary of arguments on, 164, 165 Minnesota, University of, short course for merchants, 59 Monopolies and taxes, 349 Montgomery Ward and Co., 287, 208 Municipal taxes, 356 N National Association of Credit !Men, 58, 63 _ National Association of Retail Drug- gists, 228 National Cash Register Co. sales- manship courses, 122 National Implement and Vehicle As- sociation, 63 National Retail Dry Goods Associa- tion, 125 Neighborhood stores, i8g, 190 New employees, (See also "Educa- tion of salespeople") systemized instruction for, 113 New York City, street values for shoppers, 198, 199 New York Department Stores, percentage of selling in, by depart- ments, 146 New York plan, 130 New York State Factory Investiga ting Commission, 92 New York University, retail selling, course in, 131-132 O One-price policy, 242, 243 success of, 243 Opportunity cost, 225 Organization charts, 257, 258 Oshkosh, 313-320 general facts of, 313-315 study of failures in, 312, 313 Package and canned goods, argu- ments in favor of, 45 Parlin, C. C, 65 Passers-by, frame of mind of, 191, 192 number of, 190, 191 shoppers, most valuable, 193 Peddlers' taxes, 349, 350 Perry, George Hough, 255 Personality in selling, 79 Phrenology, loi Physical audit, log Physical examinations, 108-111 Physical weaknesses hindrance of, 108 Physiognomy, loi, 102 Pictures, effect of, on demands, 49 P M's, 151 Premium payments for salespeople, purpose of, 152, 153 Price, Mrs. Lucinda W., 124-126 Price-cutting, results of, 227, 228 INDEX 401 Price-fixing, effect on, of customers' desirability, 224, 22s salespeople assisting in, 240 Price levels, point at which fixed, 226 Producers, friction between retailers, causes of, 373, 374 remedies for, 374, 375 Production costs, 341, 342 Profit-sharing, 151, 152 Promotions of salespeople, lig Proprietary Articles Trade Associa- tion, 378, 379 Prussian tax, 353, 354 Psychology, 102 Public, viewpoint of, on number of retail stores, 343, 344 Public regulation, arguments for, 360 by business taxes, 346, 347 (See also "Business tax") difficulties of, 363, 364 elimination of parasites by, 362, 363 necessity of, 364 summary of points, 365 R Ready-to-wear stores, costs of do- ing business, 66 References, values of, 107, 108 Rents, (See also "Location") amount paid, 170, 171 changes in, causes, 178, 179 characteristics of, 183 checks to high, i8S, 186 definition and classification of, i6g distribution of, 218 effect on, of competition, 174, 175 effect on, of location, 173, 174 ground and building separate, 169, 170 ground, dependent on location, 171, 172 high, reasons for, 179-187 maximum of, 183 not controlled by business man, 177 percentage of, to sales, 180, 181 relative increase in, 182, 183 Research Bureau for Retail Train- ing, 129 Retail business, expenses of, 65 public regulation of, 346-359 Retail failures, relief from, 326 wholesaler and, 325, 326 Retail grocers, ratio of compared with population, 330, 331 Retail locations, disagreeable surroundings, detri- ment to, 201, 202 effect on, of climatic conditions, 199 effect on, of people's movements, 197 "hoodoos,'' 199, 200 intensive cultivation, miscellaneous methods, 220, 221 value of comer lots, 200, 201 Retail prices, cost factor in, 222, 223 differing ideas of value on, 230,231 effect on, of desire, 225 effect on, of habit, 228, 229 ethical influence on, 229, 230 other considerations on, 223, 224 "what the traffic will bear," 222 Retail pricing systems, effect on toilet soaps, 231, 232 Retail salesmanship, outline of course in, 133-143 Retail stores, (See also "Retailers") as social expense burden, 344, 345 average length of employment in, 92, 93 beginnings of, 12-13 centrally located, 190, 191 402 INDEX Retail stores — Continued classifying expenses on sales cost or goods cost basis, 63, 64 development of, 23, 24, 329, 330 division of labor in, 69, 70 effect on, of public market, 196 erection of building, 205-207 expenses, classification of, 61, 62 failure rate of, 309-325 functions of, 30 instruction in salesmanship, 124 job analysis in, 95-97 number of, 327-330 compared with population, 331 how to measure, 327, 328 claim to be excessive, 327 proportion of men and women in, 70, 71 tendency toward grouping, 194, 195 where found, 12 Retail trade literature, 6-1 1 Retailers, (See also "Retail stores") friction between producers and, causes of, 373, 374 friction between producers and, remedies for, 374-376 functions of, 25, 334, 366 hostile criticism of, 3-6 increase of, with population, 332, 333 methods of, before Civil War, 18, 19 public attitude toward, 6 public servants, 368, 369 viewpoint of, 343 Retailers' costs, publicity of, 245 Retailing, charging methods of, 367, 368 courses in, 125-143 outline, I33-I43 development of, in America, 18-25 in England, 12-18 table on, 329 education for, 1 12-143 (See also "Education of salespeople") expenses of, 56-68 ideal system of, 367-382 literature on, 6, 7, 9-1 1, 122, 123, 127, 128 persons engaged in, 330 public regulation of, 346-365 two distinct costs in, 60 Rogers, Thorold, 327 Roscher, 327 Rule books, 83-90, 113, 114 St. Chrysostom, on traders, 4 Salaries (See "Wages") Sales, determined by accessibility, i8g increasing, relation of expense to, 233, 234 Salesmanship, courses (See "Education of sales- people") evils of, 76-78 literature on. 122, 123, 127, 128 social importance of, 75, 76 what it consists of, 226 Salespeople, connecting goods with wants, 72. 73 duty of, 369 educating (See "Education of sales- people") in trying situations, 79, 80 influencing customer's decision, 74, 75 progressive training of, 119 psychological tests for, 103 traveling, 21, 22 trips for, 114 unionization of, 158, 159 work of, 71, 72 Salespeoples' wages, percentage of, to total sales, 147-149 Scientific study, progress by, 380-382 INDEX 403 Sears, Roebuck and Company, 289, 290 Selling, factors in, 78, 79 Selling agencies, multiplication of, undesirable, 372- 373 Selling expense, table, 146 Selling price, setting of, 239, 240 Service, quick, 212 Service manuals, 83-90, II3, II4 Sheldon, A. F., 123 Shoe stores, cost of selling in, 57, 66, 237 Shoppers, 193 Shops, 12-13 (See also "Stores") Sick and death benefit associations, 154. 156 Simon, 102, 103 Simmons College, 125 Smith, Adam, on traders, 5 Specialty stores, 13-14, 24 organization chart, 257 Spencer, Herbert, on trading classes, S-6 "Spiffs," 151 Stabilized merchandising conditions, results of, 254, 255 Standard equipment, advantage of, 214 Standard of living and distribution, relation between, 340, 341 State business taxes, 355, 356 Statistics, value of, 379. 380 Stokes, J. J., 25s Storage room, 212 Store conference, 113 Store equipment, 369 Store manual, 83-90, II3, II4 Store physician, 81 Stores, chain, 268-287 department (See "Department stores") grouping, 194 mail-order, 288-308 neighborhood, 189 retail (See "Retail stores") specialty, 13-14, 24, 257 Sullivan, J. W., 350 Taxable occupations, 356, 357 Taxation values, relative, of business real estate, 218 rules of, 219, 220 Taxes, 346-365 (See also "Business taxes") Canada, 354 France, 353 limiting competition by, 361, 362 methods of assessment, 352, 353 paid by, 357, 358 Prussia, 353 shifting of, 358, 359 United States, federal, 355 municipal, 356 state, 355, 3S6 Thrift plans, 154 Trade papers for salespeople, 117-118 "Tradesman, Complete English," 6-7 Traveling salesmen, 21-22 Traveling salesman system, results of, 22, 23 Trusts, 377, 378 Turnovers, of labor, 91-93 of stock, 232, 233 rapid as increase to net profit, 212, 233, 234 table on, 235, 236 u Understudy system, 120, 121 Unions among store people, 158-160 United Cigar Stores, 114 404 INDEX United Drug Company, 114 United States Bureau of Labor, in- vestigation of family budgets by, 40 United States business tax, 355 United States Census, difficulties of, 52 of manufactures, 334-337 of occupations, 330, 331, 332 statistics on retail stores, 51, 52 United States Commission of Educa- tion, 133 Vacancies, how filled, 97-99 Variable price system, 243, 244 w "Wage-Earning Women in Stores and Factories," report on, 70, 71 Wages, high, effect of, on demand, 48 low, social and economic side of, 1S7 methods of payment, 149, 150 of salespeople, 145-165 percentage of, to total expense, 145 Wanamaker Commercial Institute, 124 Wanamaker, John, 124, 199, 311, 312 Wanamaker Mutual Benefit Associa- tion, 155 Wholesaler, as importer, 18 failure of retailer, 325 functions of, 24, 25 Wholesaling, beginning of, 16, 17 methods, 17, 18 Wisconsin, costs of retailing in, 67, 68 public schools, courses in retail selling, 132 study of failures in, 313-320 Wisconsin University, "merchant" courses in, 128, 129 Wisner, Miss Helen C, 133 Women, selling to, 33 Women's Educational and Industrial Union, 124 Y. M. C. A., salesmanship taught in, 123