m 
 
 \^i\ 
 
Digitized by the Internet Archive 
 
 in 2007 with funding from 
 
 IVIicrosoft Corporation 
 
 http://www.archive.org/details/economicsofretaiOOnystrich 
 
THE ECONOMICS OF 
 RETAILING- 
 
 BY 
 
 PAUL H. NYSTROM, Ph. D. 
 
 Formerly Assistant Professor of Political Economy in the University 
 
 of Wisconsin and, later, Associate Professor of £x;onomics 
 
 in the University of Minnesota 
 
 NEW YORK 
 
 THE RONALD PRESS COMPANY 
 
 1915 
 

 Copyright, 1915, 
 . By 
 The Ronald Press Company 
 
TO 
 
 MY WIFE 
 
 WHOSE DEVOTION 
 
 AND HELPFULNESS HAVE 
 
 MADE THIS WORK 
 
 POSSIBLE 
 
 341176 
 
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 pre- 
 sents 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 
 insight 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 1915. 
 
 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 
 
 V 
 
vi PREFACE 
 
 errors pointed out. A science of retailing can become pos- 
 sible only by the freest and the most critical interchange of 
 thought. 
 
 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 Wil- 
 liam A. Scott, Director of the Course in Commerce, in the 
 University of Wisconsin. 
 
 Paul H. Nystrom. 
 New York City, 
 September, 1915. 
 
CONTENTS 
 
 PAGE 
 
 Chapter I. Distribution 13 
 
 Meaning of distribution. Distribution versus production. 
 Importance of distribution. Reasons for neglect of distribu- 
 tion. Early dishonesty of distributors. Contributions to the 
 study of distribution. Early literature of distribution. Char- 
 acter of early American literature. 
 
 Chapter II. The Distributive System ... . . 24 
 
 I. Origin of retailing. Origin of the term "shop." Devel- 
 opment of retailing in England. Rise of the " merchants." 
 Early distributive organizations.'' , Origin of wholesaling insti- 
 tutions. The age of many middlemeiVv -Early American dis- 
 tributive organization. Bad credit^acilities. Origin of mer- 
 cantile agencies. ^iiLagonismJio mercantile agencjes. Origin 
 of traveling salesmen. _ Changes in buytng met^o3s*. Develop- 
 ment of retailing. Present-day distribution. Elimination of 
 middlemen. 
 
 Chapter III. The Consumer . . . . . . .41 
 
 The consumer determines the character of distribution, 
 i »Who the consumers are. Influence of adults. Influence of 
 (/ children. Influence of sex. Habits of individuals. Social 
 and racial customs. Geographical areas of consumption. Con- 
 sumers' fancies. Influence of financial incomes. Average ex- 
 penditures for various lines of goods. Influences of dealers 
 upon consumption. Constant change in consumer demand. 
 Increasing variation in diet. Package goods vs. bulk goods. 
 Changes in demand for clothing. Causes of changes in 
 demands. 
 
 Chapter IV. Present Status of Retailing ... 62 
 
 Distribution overlooked by government census. Number 
 of distributors in various lines of business according to cen- 
 sus of 1910. Massachusetts trade census of 1905. Massa- 
 chusetts study of trade in Boston, in 1899, Dun's and Brad- 
 street's lists of dealers. Study of retailing made by Amer- 
 ican Economic Association. 
 
 Chapter V. The Expenses of Retailing .... 69 
 
 Reasons for the analysis of retailing expenses. Harvard 
 system of accounts for shoe retailers. Suggestions made by 
 the Burroughs Adding Machine Company. Rules for handling 
 expense made by National Association of Credit Men. The 
 Ingersoll system for retail jewelers. The Hart, Schaffner & 
 
viii . CONTENTS 
 
 PAGE 
 
 Marx system for retail clothiers. The retailers' profit. Classi- 
 fication of retail store expenses. Discussion of the right way 
 to figure profits. Average expenses of retailing in this coun- 
 try: Curtis Publishing Company figures, Harvard figures on 
 , shoe stores, the writer's figures. 
 
 Chapter VL Retail Salespeople and Their Work 82 
 
 The classes of work in a retail store. The amount of sales 
 work compared with other store labor. Women in sales posi- 
 tions. The salesman's service to the customer. The sales- 
 man's service to his employer. The factors that cause the cus- 
 tomer to buy. The elements of salesmanship. Social service 
 in salesmanship. Honesty in salesmanship. The salesman's 
 personality. Education for salesmanship. Attention to phys- 
 ical details. 
 
 Chapter VII. The Wages of Salespeople .... 97 
 
 The percentage of salespeople's wages to total expense. 
 Statistics of sales expense. Wages of salesmen. Wages of 
 saleswomen. The limits of sales wages set by personal effi- 
 ciency. Wage systems: time wage, commissions, combina- 
 tions of time wages and commissions, premiums and prizes, 
 profit sharing, discounts on merchandise purchased by sales- 
 people. Welfare work for salespeople. Benefit associations. 
 Fines systems. The minimum wage in retail stores: em- 
 ployers' minimums, work of salespeople's unions, minimum 
 wages fixed by legislation. 
 
 Chapter VIII. Location and Rent in the Retail 
 Business — The Principles of Rent Applicable 
 TO Retail Store Locations .118 
 
 The value of good location in retailing. Retail rents. 
 Building rents vs. ground rents. Retail rent depends upon 
 desirability. Rents increase relatively faster than profits. 
 Rents are relatively higher in better locations. Rents grow 
 relatively higher as location increases in value. Most effi- 
 cient managers tend to get best locations. Changes in retail 
 trade districts. Checks to operation of retail rent principles. 
 
 Chapter IX. Location and Rent in the Retail Busi- 
 ness (Continued) — Factors of Desirability in 
 Location 138 
 
 Desirability depends upon chance of making profit. Ac- 
 cessibility to purchasing public. Trade territory of neigh- 
 borhood stores. Trade habits of customers. The number of 
 passers-by. Classification of passers-by: workers, pleasure 
 seekers, shoppers and buyers. ^Natural retail store clusters. 
 Beneficial effects of competition. Spending habits of passers- 
 by. Why some streets are more popular on one side than 
 on the other. Value of corner lots. Influences hurting re- 
 tail locations. 
 
CONTENTS ix 
 
 PAGE 
 
 Chapter X. Location and Rent in the Retail Busi- 
 ness (Continued) — Intensive Use of Location 154 
 
 A good location simply means a trade opportunity. The 
 better the location, the more intensive its cultivation. Suit- 
 able building. Proper use of store space. Comparative val- 
 ues of floors above or below first. Number of floors that 
 may be used. Use of balconies. Factors in proper use of 
 store space. Attractiveness of store arrangement. Location 
 of non-productive departments. Location of storage and 
 stock rooms. Need for quick service in handling crowds. 
 Attention to store display. Economies in store space. Need 
 for special efforts to attract trade in good locations. Value 
 of show windows. Value of different parts of the store. 
 Use of telephone. Mail order department. Promotion of 
 sales by solicitation, etc. Importance of salesmanship. 
 
 Chapter XL How Retail Prices Are Fixed . . .172 
 
 Retail prices based on " what traffic will bear." Retail price 
 a resultant of many forces: costs of goods, costs of selling, ^ 
 
 desirability of goods, competition, custom or habit, personal 
 salesmanship, ethics. Relation of turnover to profit. Average 
 turnovers in various classes of trade. Difficulty in using 
 average costs of selling as a basis for marking goods. Price- 
 making in seasonable goods. " One price to all " principle. 
 Public should know costs of selling. 
 
 Chapter XIL The Department Store 195 N 
 
 Characteristics and origin. Extent of department store 
 business. Department stores in other countries. Department 
 store service. Department store advertising. Department ^— 
 store buying. Future limits of department store bargain 
 sales. Department store organization. Handling goods in a 
 department store. Efficiency. Factors of department store 
 success. Department stores compared with specialty stores 
 Department store sales expense. The need of better trained 
 • sales people. 
 
 )res. ^^ 
 
 ined ^^ 
 
 Chapter XIIL Chain-Store Systems 21 
 
 ^ . . *. . 
 
 Characteristics of chains. Classification of chains : retail- 
 ors', jobbers', manufacturers'./ Objects of chain-store or- 
 ganization. Consumers' co-operative chains. Comparison of 
 chain stores with individual stores: turnovers, organization, 
 selling methods, competitive methods, costs of doing busi- 
 ness. Analysis of a chain-store system. Chain-store account- 
 ing. Sales quotas. Methods used to increase sales effi- 
 ciency. The future of chain stores. 
 
 Chapter XIV. The Mail Order House .... 235 \ 
 
 Origin and development. Principal mail order concerns. 
 Extent of mail order business. Reasons for success of mail 
 order houses: isolation in country life; great circulation of 
 popular periodicals; rapid increase in standards of living; 
 
X CONTENTS 
 
 PAGE 
 
 local dealers unable to keep up ; skilful advertising. The work 
 of the mail order house advertising. How mail orders are 
 filled. Delivery service in cities. Mail order credit busi- 
 ness. Mail order house buying. Mail order house guarantee. 
 The correspondence department. Efficiency devices. Costs 
 of selling. 
 
 Chapter XV. Price-Maintenance 255 
 
 Meaning of the term. Origin and use of the policy. 
 Claims for and against. Arguments of business interests. 
 Price-maintenance vs. monopoly price-fixing. Prices under 
 this policy compared with other prices. Why pubHc is bene- 
 fited by standardized goods. Economics of price-cutting. 
 Competition of big with little concerns in retailing. Summary. 
 
 Chapter XVI. Buying at Inside Prices .... 277 
 
 The inside price a special problem in distribution. Forms 
 of inside prices : special concessions to buyers, quantity 
 prices, split salesmens' commissions, split jobbers' profits, 
 free deals, abnormal discounts for cash, forward dating. In- 
 sidious influences of the inside price. Arguments in favor of 
 the quantity price: expediency and custom; quantity price 
 earned by buyer; accordance with public policy. Arguments 
 against the quantity price. Need for the public to under- 
 stand the nature of inside prices. The inside price a form of 
 discrimination similar to that found in the transportation field 
 before the Interstate Commerce Act. 
 
 Chapter XVII. The Failure Rate in the Retail 
 Business 300 
 
 Abnormal frequency of failure. Dun and Bradstreet im- 
 perfect guides. Estimates of failure rate among retailers. 
 Failure rate among retailers in Wisconsin towns. Causes 
 of failures. Previous occupations of present retailers. 
 Bradstreet's classification of business failures. Education the 
 remedy. 
 
 Chapter XVIII. Are There Too Many Retail 
 Stores? 317 
 
 Views held by theorists. Confusion in the question. Light 
 on the subject from the census. Comparison of number of 
 retailers with population. Remarkable development of trade 
 since 1850. Comparison of number of retailers with amount 
 of work done. Number of dealers now not proportionately 
 greater than in 1850, Why more dealers are needed now : 
 large scale factory production ; wide variety of goods de- 
 manded by people ; increased number of city dwellers. Costs 
 of distribution have probably increased. Not certain that re- 
 ducing the number of dealers would reduce costs. Tendency 
 of costs to rise as standards of people rise. Opportunities 
 for more efficient distribution. 
 
CONTENTS xi 
 
 PAGE 
 
 H AFTER XIX. Public Regulation of the Retail 
 Business 337 
 
 Present forms of regulation. Business taxation as a means 
 of regulation. The business . tax in present use. Business 
 taxes in other countries. . Revenues from business taxes. In- 
 cidence of the business tax. Beneficial effects of business 
 taxes to retailers. Beneficial effects to the public Difficulties 
 of applying the tax in this country. Need of investigating 
 retail business, ^ -7^ 
 
 Chapter XX. The Ideal Retailing System . . . 357 
 
 The present retail system a product of evolution. Changes '' 
 
 are made slowly but constantly. Tendencies toward better < "* 
 service on the one hand and lower costs on the other. Fac- 
 tors of ideal retail distribution: expert sales service; elimina- 
 tion of leaks and waste; good sanitary arrangements; abso- 
 lute truthfulness in advertising and selling; standards in 
 merchandise; public regulation to secure the above. Elim- 
 ination of price discriminations. The open door to the con- 
 sumer for all producers. Development of trade associations. 
 Need for the gathering of trade statistics by state and nation. 
 Possibilities of increasing trade efficiency. Need for public 
 education in distribution. 
 
 Appendices 373 
 
 I, Distribution of Family Expenditures. II. Statistics of 
 Trading Concerns in Massachusetts. III. General Statistics 
 of Retail Trade. IV. Dealers in the United States in 1913, 
 V. Rules for Figuring Costs and Profits. VI. Methods of 
 Handling Cash, Credits and Sold Goods. VII. Judicial and 
 Other Action Affecting Price-Maintenance. 
 
 CHARTS 
 
 The Channels of Distribution for Various Lines of Goods . • 3^ 
 'harts Showing Internal Organization of Specialty and Depart- 
 ment Stores 206 
 
 Comparison by Decades of the Number of Merchants, of Com- 
 mercial Travelers, and of Total Persons in Trade and Trans- 
 portation, with the Total Value of Manufactures and Imports , 3^9 
 
 iagram Showing Tendency of Costs of Production to Decrease, 
 and of Costs of Distribution to Increase 33^ 
 
THE ECONOMICS OF RETAILING 
 
 CHAPTER I 
 
 DISTRIBUTION 
 
 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 accommodated; 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 
 any one. It refers solely to the processes of carrying and 
 exchanging material goods, and, used in that sense, isjbut 
 a part or a phase of what economic treatises call " produc- 
 tion." 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. 
 
 Attention has centered for years on methods of increasing 
 the production of goods, of reducing the expenses of pro- 
 duction, and of making the part played by labor in produc* 
 tion relatively easier. Veritable sciences have been devel- 
 oped in engineering, in mining, and in agriculture. In the 
 
 13 
 
14 
 
 ECONOMICS OF RETAILING 
 
 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 pro- 
 duction is being eliminated. But this is not so in the dis- 
 tribution of goods to the ultimate consumers. Here we 
 have a number of very important functions, such as trans- 
 portation, 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 bank- 
 ing, 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- 
 
 Itimated that the costs of distributing goods exceed the costs 
 of manufacture. The number of people engaged in the dis- 
 tributive occupations equal nearly one-sixth of the total 
 number 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 num- 
 ber 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 sys- 
 tems of distributing goods. 
 
 Two main reasons may be cited at this point, to explain 
 why this important field of work has not received the study 
 that it should. First of all, scientific progress is never made 
 
DISTRIBUTION 15 
 
 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 develop- 
 ment should have begun on these lines is obvious. Without 
 product 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 is what 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 giv- 
 ing the impression, indirectly at least, that distribution is 
 less important 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. 
 
 Ever since the beginning of trade there has been a tend- 
 ency to attribute mean qualities to the dealer, largely due, 
 no doubt, to the fact that his earnings 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 this in itself 
 was sufficient to give impetus to the view, and probably ac- 
 counts for the larger part of it. 
 
i6 ECONOMICS OF RETAILING 
 
 " 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 
 falsifier. To retail and to falsify were synonymous. Aris- 
 totle, 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 arid 
 the hand trades), the other is retail trade; the former nec- 
 essary 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 proHciunt 
 mercatores nisi mentiantur: mercatura, si tenuis, 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 '' rir- 
 venditore," used to designate retailers, also signify covet- 
 ousness, tendency to cheat, and vileness. 
 
 In Medieval England laws . were passed against " en- 
 grossers," " regrators," and " forestallers." An engrosser 
 was one who bought in order to sell again ; a regrator one 
 
 1 " Ecclesiasticus," XXVII, 2. 
 
 2 Ely, " Problems of To-day," p. 23. 
 
 3 " Aristotle's Policies," Jowett's translation, p. 19. 
 
DISTRIBUTION 17 
 
 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. 
 
 Something 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 frequently more acuteness of understanding than the 
 greater part of country gentlemen. . . . The interest of the 
 dealers, however, in any particular branch of trade or manu- 
 factures, 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 deceive 
 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 short- 
 comings 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, on the other, the contempt fdr 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. 
 
 4 '• Wealth of Nations," Book I, Ch, XI. 
 
 5 " Spencer's Essays," p. 107 ff. 
 
1 8 ECONOMICS OF RETAILING 
 
 There are many indications of a coming change in this 
 attitude, 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 gen- 
 erally leveled at the inefficiencies of the distributive sys- 
 tem rather than at its crookedness. 
 
 This is a favorable sign, and one can well afford to par- 
 don or neglect the crudeness of some of the suggestions 
 that are offered as panaceas, since these suggestions indicate 
 the working of a leaven that will sooner or later develop 
 into solid research. 
 
 It must not be supposed from the foregoing that nothing 
 has been contributed towards a practical theory of distribu- 
 tion, nor that the subject 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 experience without learning, and outshoot them with 
 their own bow." 
 
 In 1726 the first, and in 1727 the second, volume of a 
 remarkable work appeared, entitled " The Complete English 
 Tradesman." So far as is known, this was the first attempt 
 to gather together in book form in the English 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 begin- 
 ners in merchandising. The second considers the problems 
 that experienced tradesmen were likely to be interested in. 
 Although now out of date, and in many places based on 
 
DISTRIBUTION 
 
 19 
 
 defective economic 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 is Daniel Defoe, 
 well known to the world as the author of " Robinson Cru- 
 soe." 
 
 No attempt will be made to trace the literary develop- 
 ment 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, McCulloch, and others in Europe, while 
 Benjamin Franklin in America did a great deal to popular- 
 ize among merchants, clerks, and business men in general, 
 much homely common sense and wisdom of value in the 
 conduct of business. As has been said, the economists gen- 
 erally concerned themselves little with the processes of dis- 
 tributing goods, but, in developing their theories, they in- 
 dicated the lines along which progressive thinking might 
 begin. Besides their general theoretical studies, such sub- 
 jects 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 bring- 
 ing up much controversy over such questions as the tariff 
 and taxes. 
 
 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 Economy," *' National Economy," " Inquiry into 
 the Nature and Origin of Public Wealth," '' Political Econ- 
 omy and the Philosophy of Government," and " National 
 
20 ECONOMICS OF RETAILING 
 
 System of Political Economy," are titles of early works 
 which show clearly enough the bent of their authors' minds. 
 The production 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. Individ- 
 ual economics was left to care for itself. This tendency of 
 political economy to emphasize the political side has con- 
 tinued down to the present. But, recently, several works 
 have appeared that give considerably less space to the po- 
 litical phases and more to an explanation of the causes and 
 influences operating on values, the processes of production, 
 and of the market. These treatises are more generally 
 denominated " Economics," " Outlines of Economic The- 
 ory," " Dynamic Economics," " Principles of Economics," 
 and " Introduction to Economics." The change in empha- 
 sis 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 Merchant's Manual,"' 
 in 1838. Two magazines that gave considerable help to 
 trading classes during the middle of the nineteenth century 
 were Hunt's Merchants' Magazine of New York, first 
 issued in 1839, and DeBow's Reviezv, of New Orleans, 
 begun in 1846. Hunt was a prolific writer on business 
 topics, most of his material appearing in his magazine. 
 J. D. B. DeBow, editor of DeBow's Review, was a pro- 
 fessor of political economy in the University of Louisiana. 
 His writings and editorial work were of a substantial sort, 
 especially in outlining trade conditions in the South and 
 West. 
 
 A number of books on business subjects appeared be- 
 tween 1850 and 1880. Some of the best known are men- 
 tioned in the following paragraphs. 
 
DISTRIBUTION 21 
 
 Edwin T. Freedley's " A Practical Treatise in Business " 
 passed through several editions. More than 20,000 copies 
 had been printed by 1853. 
 
 Freeman H. Hunt's " Lives of American Merchants " 
 appeared 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 
 followed 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 " ap- 
 peared in 1876. 
 
 A-iiQticeable ^haract eristic of most of this early Ameri- 
 can 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 meth- 
 ods and practices as if they were great discoveries. Still 
 another was a general tendency to moralize at every pos- 
 sible opportunity. To exaggerate somewhat, the line of 
 moral logic seemed to be something like this: Do these 
 things and be good, and you will be rich; be rich and you 
 will be happy. A large amount of this literature was dis- 
 tinctly intended for moral instruction. Much of it was 
 written by ministers and temperance workers. Some of the 
 following titles may suggest the character of the reading : 
 
 " The Merchants' Clerk Cheered and Counselled," 
 " Mercantile Morals, or Thoughts for Young Men Entering 
 Mercantile Life " (1852), " The Merchant's Clerk " (1852), 
 "On the Road to Riches" (1876), "Sins of Trade and 
 
22 ECONOMICS OF RETAILING 
 
 Business " (1874), " The Bible in the Counting House, Lec- 
 tures to Merchants" (1878). 
 
 Fashion affects the Hterature of business as it does the 
 popular novels of the day. Moral teaching — much of it, 
 unfortunately, mere cant — was the fashion in light busi- 
 ness 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 produced 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. 
 
 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 treatment of the sub- 
 ject is becoming possible. With the adoption of educa- 
 tional courses in schools and colleges dealing with distribu- 
 tion, the establishment of experimental distributive stations, 
 the investigation of specific problems by careful unbiased 
 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 hope of a science of distribution of goods stands a chance 
 of realization in the near future. 
 
 In conclusion, the distribution of goods constitutes a 
 problem whose importance has only recently come to be felt. 
 In view of the advanced development 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__t hose wh o are 
 
DISTRIBUTION 23 
 
 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 economical routes through I (/M^ 
 which the goods may be transferred from the producers to ) 
 the consumers. Third, in the interests of ultimate good / 
 to the consumers, fair practices in trading must be pro- 1 
 moted, 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 or shop in some form or other exists in 
 every civiHzed land. Wherever buying and selling com- 
 modities is carried on continuously, there spring up the 
 necessary buildings and equipments that we visualize when- 
 ever we think of retailing. The form and development of 
 the business carried on in retail stores have changed re- 
 markably 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. 
 
 In England the retail store is known as a " shop/' and 
 this term indicates its origin. A thousand years ago there 
 vy-ere no retail stores in England such as there are today. 
 Every home «vas practically self-sufficing, especially as to 
 material needs. The food, the clothing, and the rude im- 
 plements 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 vil- 
 lage 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 pre- 
 pared by these early specialists were traded for the products 
 of others; thus each got for consumption a share of the 
 
 24 
 
r 
 
 THE DISTRIBUTIVE SYSTEM 
 
 25 
 
 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 shoe- 
 maker who wanted clothes for himself and family traded 
 his shoes to the weaver and tailor in return for their handi- 
 work. In this earliest type of exchange, thejionsumen-and 
 _prodj4c^_caine together in ^very- transact ion. 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 — ^ br 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." 
 
 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 tbe marketing phase of their work, begaa 
 to_tu m their products over to oth er pr oducers t o mark et 
 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 o^ 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 workshops, now 
 became sales and store rooms, but the name clung to the 
 establishments. 
 
 There developed out of the conditions of the handicraft 
 stage a great number of one 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 
 
26 ECONOMICS OF RETAILING 
 
 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, fishmongers, 
 and so on. 
 
 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 mer- 
 chandising venture. In seventeenth 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 Eng- 
 land 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 individual merchant, 
 organizations known as merchants' stock companies were 
 formed to finance a number of ships. Ih this way it be- 
 came possible for a merchant to have his wealth invested 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 no ^particular member was very im- 
 portant. These early companies were known as the mer- 
 chant adventurers' companies. For two hundred years or 
 more, these were among the most remarkable business or- 
 ganizations that existed. They were the forerunners of 
 the modem corporation, of modern insurance and risk-taking 
 
THE DISTRIBUTIVE SYSTEM 
 
 27 
 
 concerns, and of modern wholesale houses. With the 
 growth of these companies 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 in- 
 land 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 
 inappropriately, the title, " a nation of shopkeepers." ^ 
 
 The collection and exportation of the products of Eng- 
 land, and the distribution of imported goods over the island, 
 called for extensive merchandising organization. The large 
 warehouses established in the seaport towns were the proto- 
 types 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 produced and for which 
 she was famed the world over, and in delivering silks, spices, 
 wines, metal goods, and novelties that 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 lit- 
 tle hamlet of England and transported them to the seacoast, 
 but also stored, shipped, sold, and bought both in foreign 
 and domestic markets, and assumed all risks connected there- 
 with. Furthermore, they sold from their warehouses to 
 
 1 A term 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. 
 
28 ECONOMICS OF RETAILING 
 
 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 consumers. These great merchants also 
 granted credit to the shopkeepers, 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.^ 
 
 When the industrial revolution 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. 
 
 Wholesalin g_proper, apart from the importing and ex- 
 portmg business, cameJryii-existeftGe with fa€t^3iy^Hd4arge 
 scale production. It was absolutely impossible after the 
 introduction of modern machinery, for the producer himself 
 to go out to find markets for his goods. Either he must em- 
 ploy a selling organization of his own, or sell his product 
 to middlemen. Both methods were followed 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 cotton 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 
 
 2 Defoe in "The Complete English Tradesman" (1726), pp. 388-407, de- 
 scribes very clearly and fully the systems of distribution existing in England 
 at that time. 
 
THE DISTRIBUTIVE SYSTEM 29 
 
 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 the wagons to follow. Thus originated 
 the custom 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. 
 
 In finding markets wholesalers followed practices identi- 
 cal with those of the big producers. Specializing on mar- 
 keting, building up an established trade, granting credit to 
 retailers, and making advances to needy manufacturers, 
 these wholesalers gradually became more successful in mar- 
 keting than the manufacturers who did their own dis- 
 tributing. 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 business 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. 
 
 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 ex- 
 pressed the current view as follows : 
 
 '' The greater the number of hands through which goods 
 
30 ECONOMICS OF RETAILING 
 
 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 manufac- 
 tures 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 
 1860 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 im- 
 porters, brokers, commission men, and from producers di- 
 rect; and retailers. 
 ^^ There were few commercial travelers before the Civil 
 War. Retailers "went to market" to buy; that is, they 
 visited the wholesaling centers — Boston, New York, Phila- 
 delphia, Baltimore, Chicago, Cincinnati, 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 concerns, as well as other 
 business concerns, to go into bankruptcy because of inability 
 to collect their accounts. This experience resulted in their 
 taking more care in the granting of credit than had pre- 
 viously been customary. Systematic efforts were there- 
 
 3 Defoe, " The Complete English Tradesman," pp. 109, 110, 
 
THE DISTRIBUTIVE SYSTEM 
 
 31 
 
 after 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 settlements 
 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 af- 
 ford. The opportunity for a new kind of business enter- 
 prise had arisen, namely, the mercantile agency. 
 
 Shortly after the panic of 1837, a Mr. Church estab- 
 lished in New York a bureau of credit information whose 
 purpose it was to serve wholesalers who desired information 
 concerning out-of-town merchants buying from them. 
 About 1840 the first mercantile reference book was issued. 
 The first mercantile agency was established in 1841 by 
 Lewis Tappan in New York. A second was established in 
 1842 under the name Woodward and Dusenbury. The 
 Bradstreet Company was founded in 1849 by J. M. Brad- 
 street, who, as a salesman previous to 1849, had collected 
 a great deal of information about his own customers. 
 Later the firm of R. G. Dun & Company came into exist- 
 ence, taking over the business built up by Lewis Tappan. 
 Other concerns entered the field and for years the competi- 
 tion was keen, but the two last named are now practically 
 alone in the field of general mercantile agencies. To a cer- 
 tain extent special industries are represented by special 
 credit-reporting agencies. 
 
 The mercantile agency is a purely American institution. 
 No country in Europe has anything llike 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 im- 
 
32 ECONOMICS OF RETAILING 
 
 possible. In the first place, banks were failing, suspending 
 specie payments, and were subject to great suspicion 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 whole- 
 sale 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. 
 
 Naturally there was considerable opposition to the meth- 
 ods of the mercantile agencies. It was considered as an 
 imposition by many retailers to have 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 opposing the 
 agencies. This spirit has now largely passed away. An- 
 tagonism towards the agencies has been largely replaced by 
 confidence. A great number of merchants today furnish 
 the mercantile agencies with signed statements showing the 
 exact condition of their respective businesses.* 
 
 4Earling, P. R., "Whom to Trust," pp. 295-304; Boulter, J., Mercantile 
 Agencies and Their Work, in "Trade and Commerce," pp. 372-394; Masterson, 
 E. D., The Mercantile Agency, in " Modern Merchandising," Vol. VI, pp. 87- 
 
THE DISTRIBUTIVE SYSTEM 
 
 33 
 
 The present-day practice of sending out traveling sales- 
 men to solicit trade from retailers seems to have originated 
 in two ways. As has already been indicated, the '* commer- 
 cial 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 travel- 
 ing salesmanship — the "drummer." The drummer, at 
 first, was employed by wholesale houses to hang around ho- 
 tels and watch for the arrival of retail merchants from out 
 of town. When a merchant 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 cap- 
 tured." ^ 
 
 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 whole- 
 salers is transacted through the medium of traveling 
 salesmen. 
 
 As early as 186Q a number of traveling salesmen were 
 employed by wholesale houses in New York, Chicago, Cin- 
 cinnati, and other jobbing centers.^ After the Civil War 
 
 92; Bankers' Magazine (1858), 12:545; Hunt's Merchants' Magazine (1851), 
 24:46. 
 
 5 Freedley, E. T., "United States Mercantile Guide" (1856), p. 204. 
 
 Q Bankers' Magazine, 12:545 ff; Briggs, "Fifty Years on the Road," Ch. II; 
 Yeakle, M. M., " St. Louis of To-day," p. 315. 
 
34 
 
 ECONOMICS OF RETAILING 
 
 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 followed the pioneer trails to mining camps, lum- 
 ber camps, trading posts, and everywhere that a store ex- 
 isted. Some of them drove across the mountains to Utah 
 and even to the Pacific Coast. Chicago's supremacy over 
 St. Louis as a wholesale center was largely due to this early 
 hustling, and the Eastern 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 Com- 
 merce for 1869. 
 
 With the beginning of this system, short credits grad- 
 ually displaced long credits, and the discount for cash began 
 to be generally adopted. Frequent visits of the sa lesmen 
 made it_possible_ to order in smaller lots : hence merchants 
 were able to keep a much wider variety of go ods a nd to fol- 
 low the changes in fashionjTnore_easily. By the introduction 
 orihTs~new"systemofretail store buying it was made pos- 
 sible for great masses of the people to satisfy thejr desires 
 for_iasliijQjis 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 gener- 
 ally reduced. Not only did this make frequent changes in 
 fashion possible, but it opened the way to the later develojg- 
 ment of la rge-scale production of perishable goods, food- 
 stuffs, and so on. Some of the most remarkable develop- 
 ments in the distributive system during the last twenty-five 
 years have been the adaptations in methods made to facili- 
 tate very rapid distribution over wide territory. 
 
 The development in this country of the retail store and 
 
THE DISTRIBUTIVE SYSTEM 35 
 
 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 followed by the general 
 store, a type that is still found in a great many country 
 towns. The general store is perhaps the most typical Amer- 
 ican development in merchandising institutions, 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 ( ^iguor^ ^/ 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 government 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 ineffi- 
 ciency, 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 stand- 
 ard of living, the general store as such must give way to 
 other types of retailing institutions. 
 
 The specialty, or one-line, store represents 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 
 
36 ECONOMICS OF RETAILING 
 
 store — the drug store, hardware store, agricultural imple- 
 ment 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 institutions, such 
 as the department stores and mail order houses, we need 
 say no more in this place. Ample space is given to each 
 of these types in later chapters. 
 
 In conclusion, the modern distributive system consists 
 es sentially of two middlemen between producers and c on- 
 s umers — the wholesaler and the retailer. The wholesale r 
 buys in large quantity, and in wide variety, generally from 
 many producers, assembles these stocks, stores them for 
 seasonal demands, oftentimes sorts and repacks the goods, 
 and then finds the customers and supplies them with suitable 
 quantities at suitable times. Credit relations are estab- 
 lished, the importance of which may be inferred from esti- 
 mates of the average amount of credit granted to retailers. 
 Such estimates run from $400,000,000 to $750,000,000; 
 that is to say, while retailers are always paying 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. 
 Thus, 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 
 for 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 DISTRIBUTIVE SYSTEM 
 
 37 
 
 the country as a whole, the retailer likewise extends an enor- 
 mous amount of credit to his customers. 
 
 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 have 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 mid- 
 dlemen 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 procure 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 changing 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 channels 
 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, 1 to both consumers and retailers, and 
 1 to jobbers, retailers, and consumers."^ 
 
 To give a clear idea of the customary channels of dis- 
 tribution in the main lines of trade passing from the pro- 
 ducer to the consumer through retail stores, the following 
 charts are presented: 
 
 7 Printers' Ink. Sept. 12, 1912. 
 
38 
 
 ECONOMICS OF RETAILING 
 
 The Channels of Distribution for Various Lines of Goods 
 Groceries Farm Products Light Hardware 
 
 Manufacfurer 
 
 Wholesaler 
 
 Refoil 
 
 consumer 
 
 Prodi 
 
 Local Buycc 
 
 Com mission Man 
 orWholesaler 
 
 Ret 
 
 erai ler 
 
 consumer 
 
 ManufacfL 
 
 Whol( 
 
 Re^iler 
 
 consumer 
 
 Heavy Hardware 
 
 Silverware 
 
 
 ^nufacturer 
 
 * 
 
 Manufecfurer 
 
 
 
 
 ^ ^^ 
 
 \ 
 
 
 
 ^^ 
 
 ^^^ "^^ 
 
 
 R^ailer 
 
 
 Jobber 
 
 
 Retoil^r 
 
 Agency 
 
 
 
 
 
 *-^ 
 
 --.^ ^^ 
 
 ^, ■' 
 
 
 Re-lhiler 
 
 
 Conaumcr 
 
 
 GDnsumer 
 
THE DISTRIBUTIVE SYSTEM 
 
 39 
 
 Drugs 
 
 "^anufocfurer 
 
 Large Reialer 
 
 Jobber 
 
 Refeiler 
 
 Consumer 
 
 Shoes 
 
 Harvesting Machinery 
 
 
 Wonufachirer 
 
 
 
 1 
 
 
 
 Geni Agenl: 
 
 
 ^ 
 
 -- 
 
 ^^ ^--^ 
 
 ^ 
 
 ^^^^^ 
 
 Block men 4 
 
 
 Relailer 
 
 1 
 
 
 / 
 
 Canvassers 
 
 \ / 
 
 '--^ 
 
 ^^ 
 
 ^../ 
 
 
 
 Consumer 
 
 
40 
 
 ECONOMICS OF RETAILING 
 
 Textiles 
 
 Monufac+i 
 
 CommisaonH's 
 
 Oepi" Ofore CIcsttiingKfi: 
 
 Co-Operative Fruit Marketing 
 
 
 GSOOfWucers 
 
 
 
 
 
 
 
 Jobber 
 
 
 
 17 Dislricf 
 Exchonoes 
 
 1 
 
 
 
 
 Reiailer 
 
 
 
 California fruit 
 Grorrers Ex. 
 
 \ 
 
 
 
 
 
 1 
 
 N. 
 
 Auctions 
 
 
 ^« 
 
 Ns^^ 
 
 
 \^^ 
 
 1 ^ 
 
 \^^ 
 
 
 ^^^^ 
 
 
 Nv 
 
 Jobber 
 
 \. 
 
 Jobber 
 
 
 N. 
 
 1 
 
 \v 
 
 1 
 
 
 \ 
 
 Reiailer 
 
 
 Retailer 
 
 \ 
 
 X, 
 
 1 
 
 
 
 — ■ — 
 
 
 
 Consumer 
 
 
 
CHAPTER III 
 THE CONSUMER 
 
 The function of the retail store is to provide its cus- 
 tomers with the goods they want — when, where, and how 
 they want them. Efficiency in retaiHng consists in fur- 
 nishing this service satisfactorily and economically. This 
 service must be satisfactory to the consumer 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. Prog- 
 ress in retailing should lead continually to better and better 
 service at relatively lower costs. 
 
 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 be and what shall not be in the retail- 
 ing as well as in the entire business 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, sim- 
 ply because consumers as a class may not be ready to appre- 
 ciate 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 may be 
 changed and is constantly changing, but unless the retailer 
 
 41 
 
42 
 
 ECONOMICS OF RETAILING 
 
 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 finding out 
 what the people want and then performing that service for 
 them as economically as possible. 
 
 Who are the consumers ? What do they want ? 
 
 The consumers of the country are its hundred million 
 of men, women, and children. What they want depends 
 upon their respective ages, sex, habits — social and per- 
 sonal — 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 
 country there are several notable exceptions. Children of 
 foreigners 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 themselves, but also for their homes. 
 
 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 retailers, is that, as there become 
 fewer children per family, the attention given to each child 
 increases. This attention takes two forms, one 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 demands. The few^er the chil- 
 
THE CONSUMER 
 
 43 
 
 dren, the more the money for each child to spend. In con- 
 sequence, children of native-born parents especially, begin 
 to demand and to buy goods of a great variety at an early 
 age. Children's movements such as " Boy Scouts," " Camp- 
 fire Girls," marble playing, baseball, roller-skating, and so 
 on, sweep over a town with remarkable rapidity, simply 
 because the wherewithal to supply the necessary material 
 equipment is provided to the child by its parents 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 in 
 the markets and merchandise of this country during the 
 last generation is much greater than is generally realized. 
 
 Sex makes a great deal of difference in demand, not 
 only in the obvious differences 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 buying for their families. Now this practice is 
 quite reversed. 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 
 
44 
 
 ECONOMICS OF RETAILING 
 
 cent, possibly more, of the goods used in the home are 
 purchased by women. This appHes not only to goods used 
 by the women themselves and by children, but also to food- 
 stuffs and house furnishings. Even men's clothing, par- 
 ticularly furnishings, are now purchased very largely for 
 them by women. The woman is the purchasing agent for 
 the home in an increasingly large number of cases. Retail- 
 ing in all lines must take this into account. 
 
 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 ow^n senses and less 
 on brand names than men do in buying. They also read 
 descriptions and note details more carefully. The struggle 
 of American families for social place and for more complete 
 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 educa- 
 tion will tend to make women still more critical purchasers, 
 and the retail store must be adapted to meet this develop- 
 ment.^ 
 
 1 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 
 she 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 indi- 
 
THE CONSUMER 45 
 
 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 sat- 
 isfactory 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 clean- 
 liness, fixtures, 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 are exceedingly 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 individuals 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 important in lay- 
 ing out the plan of a store's work and its general policies. 
 The latter must be met by the individual salesmanship of the 
 retailer and his clerks. 
 
 Customs depend upon race, nationality, and community. 
 There are national foods, drinks, and clothing. There are 
 types of architecture and house furnishings that are pe- 
 culiar to, or at least originate in, certain countries. What 
 one race of people may like, another race may find very dis- 
 tasteful. In a country such as the United States where all 
 
 viduality. They are more emotional, 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, only 3,458 were by women. Women are more tactful and are 
 able to extricate themselves 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 1." " 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, pp. 561-567. 
 
46 ECONOMICS OF RETAILING 
 
 races are found, these racial and national variations consti- 
 tute 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 
 Germans. 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, potatoes 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 suggestive to the retailer. A store in a community 
 made up mostly of Germans must offer a somewhat different 
 supply of goods and furnish a somewhat different service 
 than that demanded by people in communities made up of 
 French, English, or other nationalities. 
 
 Community habits are of more direct significance still. 
 The resources of the region, the development of social stand- 
 ards 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 somewhat dif- 
 ferent, and the power of the retailer to vary the conditions 
 set before him also differs. 
 
 Manufacturers recognize differences in the character of 
 demand in various parts of the country. '* Metropolitan " 
 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 showing divi- 
 sions not by states but by parts' of the country where various 
 
THE CONSUMER 
 
 47 
 
 kinds of goods are consumed. Thus green tea areas would 
 be found largely separated from black tea areas, mackerel- 
 eating areas from herring areas, and so on. We should be 
 able to locate sauerkraut areas, corn-bread areas perhaps, 
 extreme-styles areas, conservative-styles areas, carpet-using 
 areas, rug-using areas, in addition to areas producing spe- 
 cific products used very largely at home. In the big cities 
 of the East brown colored eggs are considered choicest,* 
 while Ttr~San Franci SCO white eggs are considered most 
 valuable. Corn 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 im- 
 perfectly understood at the present time — constitute one 
 of the big problems of the economical distribution of goods. 
 
 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. Depart- 
 ment of Agriculture (1904), page 434 and following, called 
 attention to certain factors in consumers' demand that will 
 interest retailers, particularly grocers: 
 
 " The consumer has a fondness for red, white, and the 
 colorless, and sometimes for yellow when reinforced with 
 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 customers 
 and conventions, but also on spending power. Demand is 
 like a coiled spring under pressure. The pressure is the 
 limit set to spending by the limits of the pocketbook. But 
 
48 ECONOMICS OF RETAILING 
 
 the use of income is not in all communities the same. Much 
 depends 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, in- 
 coming industries, and other evidences of community pros- 
 perity, tend to cause the people to spend more freely what- 
 ever money they may have than is the case under indica- 
 tions of hard times, retrograding business, and so on. 
 
 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 49 was published by Printers' Ink in 1911, from 
 such census statistics as were available. It is probably not 
 free from error, but it will serve the purposes of this chap- 
 ter, which is merely to indicate the outlines of the con- 
 sumer problem. 
 
 The total income of $23,800,000,000 is divided among 
 savings and expenses, and estimates on outlays for con- 
 sumers' goods run as high as $20,000,000,000 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 
 
THE CONSUMER 
 
 49 
 
 
 ^ 
 
 
 
 
 
 
 
 
 
 
 
 
 1 
 
 1 
 
 1 
 
 
 a 
 
 
 
 
 
 
 
 
 4J <U 
 
 
 
 
 
 
 
 s 
 
 
 O W C5 N N C 
 
 J q q o> oi (M o o 
 
 «+4 U 
 
 o OS o o ci '^ 
 
 < t- 00 00 TjJ o CO d 
 
 y 
 
 tH tH tH iH r- 
 
 < O T-l 
 
 
 00 o 
 
 T-l 
 
 
 
 
 
 1 
 
 
 
 
 cn 
 
 
 
 
 
 
 
 >> 
 
 tft u 
 
 
 
 
 
 
 
 
 c <n 
 
 o o »o in »n c 
 
 > >o lo o »r3 o »o o 
 
 's 
 
 o :=: 
 
 I> l> (M (M l> C 
 
 > t> r^ cvj th th w o 
 
 U3 o 
 
 1 "^^ *^ '^^ '"^ "^ '-'^^ °o 
 
 pS 
 
 le 
 
 W W" CvT W W or- 
 
 r wf w w T-T th k>~ cq" 
 
 
 o 
 
 
 
 1 
 
 
 1 
 
 1 
 
 
 
 
 
 
 o -^ 
 
 
 
 
 ^3 
 ^(2 
 
 (M »rt CO t> ■* r> 
 
 a 
 
 l> W C3 C 
 
 o. 
 
 o 
 
 
 w d riH d d t- 
 
 Tt 
 
 CO* T-i 
 
 »r 
 
 
 
 CO (M tH iH 
 
 a 
 
 
 
 
 
 
 o o o o o c 
 
 7~ 
 
 o o o c 
 
 I 
 
 , g 
 
 
 
 o o o o o c 
 
 > c 
 
 o o o c 
 
 c 
 
 
 rt 
 
 o o o o o c 
 
 > c 
 
 o o o c 
 
 c 
 
 o 
 
 
 
 
 
 
 
 
 
 
 ^ 
 
 ■* I> O T-H CO C£ 
 
 -^ 
 
 TjH M CO t- 
 
 tC 
 
 o 
 
 en 
 
 00 l> O <M OO M 
 
 
 O (M -* 
 
 ?> 
 
 Oi 
 
 (U 
 
 H 
 
 O QO^ l>_ O^ I> "^ 
 
 a 
 
 t- Ol 
 
 a 
 
 00 
 
 
 
 
 
 
 
 
 
 .—1 
 
 
 O" Co" C<r n" T-T r- 
 
 r i> 
 
 
 
 
 oo" 
 
 6 
 
 
 
 
 
 
 
 rH 
 
 rt 
 
 
 
 
 
 
 
 
 fo 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 «+H 
 
 
 
 
 
 
 
 
 o 
 
 
 o o o o o c 
 
 J c 
 
 o o o c 
 
 c 
 
 > o 
 
 u. 
 
 c 
 
 > ^ 
 
 o o o c 
 
 c 
 
 8 
 
 S:? 
 
 o o o o o c 
 
 > c 
 
 o o o c 
 
 c 
 
 1 
 
 
 
 
 
 
 
 -e 
 
 o i^ CO o o «: 
 
 r «c 
 
 c<r w CO i> 
 
 ^5 
 
 <s 
 
 CO O O CO o -^ 
 
 i> 
 
 CO W TJH 
 
 c 
 
 > 00 
 
 3 
 
 p 
 
 O^ CO^ »0 rH^ »0^ Tj 
 
 1 "" 
 
 JO (M 
 
 cc 
 
 «. 
 
 iz; 
 
 Co" C<r rH th" t-T r- 
 
 1- 
 
 
 
 
 
 
 
 o o o o o 
 
 c 
 
 o 
 
 
 ^ 
 
 ^ 
 
 
 
 o o o o o 
 
 c 
 
 o 
 
 
 
 c 
 
 o 
 
 
 1 
 
 o o o o_ o 
 
 c 
 
 o 
 
 
 
 c; 
 
 o 
 
 
 
 
 
 
 
 
 
 
 TjT d I:-" •t-T d" 
 
 oc 
 
 m" 
 
 
 
 (M 
 
 o 
 
 
 ITS tH Ci 05 00 
 
 0- 
 
 l> 
 
 
 
 t- 
 
 
 
 TjH^ iq^ th 00 (M 
 
 cr 
 
 tH 
 
 
 
 
 o 
 
 
 (M" iH tH 
 
 «C 
 
 
 
 
 
 d" 
 
 
 CO 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (U 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 s 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 O 
 
 
 
 
 
 
 
 ^ 
 
 
 
 
 
 
 
 
 
 C 
 
 
 
 
 
 
 
 § 
 
 
 
 
 
 
 
 
 
 o 
 
 
 
 
 
 
 
 i^ 
 
 
 
 
 
 
 
 
 
 tn 
 
 en 
 
 en 
 
 
 
 
 
 
 
 l_ 
 
 
 c 
 
 o ^ 
 
 
 
 
 
 
 
 
 
 o o 
 
 a. 
 
 o c 
 
 O 4J 
 
 V- 
 
 
 
 
 
 
 
 o § 8 
 
 
 to 1- 
 
 o c 
 
 d" "^ 
 
 4. 
 
 > 
 
 
 
 c 
 
 J 
 
 § 1 1 1^^ 
 
 c 
 c 
 
 "c 
 
 
 
 
 . O O O 
 
 o 
 
 
 o c 
 
 
 O 1 
 
 
 
 l-l 
 
 -a 
 
 
 -</3 
 
 ^ ^ 
 
 o 
 o 
 
 8 
 
 00 
 
 H 
 
 c 
 
 8 
 
 1^ 
 
 ;l 
 
 i 
 
 ^ o 
 
 8 
 
 c 
 
 h 
 
 
50 ECONOMICS OF RETAILING 
 
 retail stores, the following is presented as one of the typical 
 estimates of national consumption in several lines of goods : ^ 
 
 Food $6,552,000,000 
 
 Men's clothing 686,400,000 
 
 Women's clothing 520,000,000 
 
 Children's clothing 972,000,000 
 
 Shoes 520,000,000 
 
 Furniture 520,000,000 
 
 Books and papers 166,400,000 
 
 The following estimates of consumption in specific lines 
 have been drawn from various sources : 
 
 Sugar 81.6 lbs. per capita (1910) U. S. Statistical Abstract 
 
 Coffee 10.0" " " (1911) U. S. Statistical Abstract 
 
 Cocoa 1.25 " " " (1910) U. S. Statistical Abstract 
 
 Tea 1.4 " " " (1911) U. S. Statistical Abstract 
 
 Shoes $8.44 " " Good Storekeeping, 1 :2 
 
 Wool 5.25 lbs. " " U. S. Department of Agriculture 
 
 Cotton 20.0 " " " U. S. Department of Agriculture 
 
 Tobacco 5.7 " " " U. S. Department of Agriculture 
 
 Soda water $1.20 " " Drygoodsman, Aug. 26, 1911 
 
 Alcoholic liquors. $21.85 " " Bradstreets', June 25, 1910 
 
 Crackers $1.00 " " National Biscuit Company 
 
 Flavoring ex- 
 tracts $1.00 " " Joseph Burnett Company 
 
 Another and more scientific way has been used in arriv- 
 ing at per capita consumption, and that is by getting the fig- 
 ures from the consumers themselves. A number of such 
 investigations 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 Commis- 
 sion in 1910. This summary will be found in Appendix I, 
 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 
 
 2 " National Advertising the Modern Selling Force," p. 44 (Curtis Publishing 
 Co.). 
 
THE CONSUMER 5 1 
 
 family under normal conditions. For weekly incomes of 
 from $12 to $18 a week, 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 fit the expenditures 
 of many families, but it would probably be found that nor- 
 mal families with incomes of the amount stated tend to 
 approach these figures." 
 
 The following table is quoted because it gives in greater 
 detail the items of expenditure for typical workingmen's 
 families : 
 
 Average Expenditure of 2,567 Workingmen's Fam- 
 ilies FOR Each of the Principal Items Entering 
 into Cost of Living and Per Cent of Average 
 Total Expenditure, 1901.^ 
 
 Expenditure Based on 
 Items of Expenditure All Families 
 
 Per Cent 
 of Total 
 Average Expenditure 
 
 Food $326.90 42.54 
 
 Rent 99.49 12.95 
 
 Mortgage : 
 
 Principal 8.15 * ' 1.06 
 
 Interest 3.98 1 .52 
 
 Fuel 32.23 4.19 
 
 Lighting 8.15 1.06 
 
 Clothing: 
 
 Husband 33.73 4.39 
 
 Wife 26.03 3.39 
 
 Children 48.08 6.26 
 
 Taxes 5.79 .75 
 
 Insurance : 
 
 Property 1.53 .20 
 
 Life 19.44 2.53 
 
 * Including interest paid by 13 families. 
 
 t Not including interest paid by 13 families, included in principal. 
 3 From Eighteenth Annual Report of the U. S. Commissioner of Labor, p. 
 648. 
 
52 ECONOMICS OF RETAILING 
 
 Expenditure Based on 
 Items of Expenditure All Families 
 
 Per Cent 
 of Total 
 Average Expenditure 
 
 Organizations : 
 
 Labor 3.87 .50 
 
 Other 5.18 .67 
 
 Religious purposes 7.62 .99 
 
 Charity 2.39 .31 
 
 Furniture and utensils 26.31 3.42 
 
 Books and newspapers 8.35 1.09 
 
 Amusements and vacations. 12.28 1.60 
 
 Intoxicating liquors 12.44 1.62 
 
 Tobacco 10.93 1.42 
 
 Sickness and death 20.54 2.67 
 
 Other purposes 45.13 5.87 
 
 Total $768.54 100.00 
 
 The averages presented in the preceding tables repre- 
 sent standards which may be fairly representative of whole 
 classes of our population, but from which individual fam- 
 ilies 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 fur- 
 ther and ask what causes the variations from the average 
 and what the likelihood is that there may be such variations. 
 Every family must have food and clothing, but some families 
 will economize 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 peculiar- 
 ities, 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 1913 as to 
 why some 30,000 housekeepers had purchased certain food 
 products, it was found that — 
 
THE CONSUMER 53 
 
 55% of the housekeepers were influenced by retailers 
 36% " " " " " " advertising 
 
 6% " " " " " " friends 
 
 It is clear, therefore, that the suggestion and salesman- 
 ship 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 
 ultimate division of the family income between the various 
 classes of goods. What constitutes a strong appeal to one 
 may not have any influence with another. It is only in 
 the most general way that we can say that all people's de- 
 mands for goods are alike. 
 
 " Consumer-demand " * 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 light, more 
 fresh air, and for a well-regulated temperature. Furniture 
 and furnishings as well as the building itself are touched by 
 fashion and conventionality. The standards of classes en- 
 
 4 " Consumer-demand " is a term that has recently come into use among pro- 
 ducers who are national advertisers. It is used in contradistinction to " dejiler- 
 demand." The meanings are obvious. 
 
54 ECONOMICS OF RETAILING 
 
 joying 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. 
 
 Illustrations of these changes 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 neces- 
 sary. The means for better storage on a large scale have 
 been invented, and the people have gladly availed themselves 
 of these and thus eliminated all the risk and trouble con- 
 nected 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 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 cus- 
 tomers. 
 
 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, 
 
THE CONSUMER 
 
 55 
 
 meats, milk, mincemeat, molasses and syrups, mushrcMDms, 
 nectarines, okra and tomatoes, oysters, parsnips, peaches, 
 peas, peppers, pigs' feet, pineapple, plum pudding, plums, 
 poultry, preserves, pumpkins, quinces, rhubarb, salmon, sar- 
 dines, sauce, sauerkraut, shrimps, soups, spaghetti, spinach, 
 squash, succotash, 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. 
 
 Much has recently been said concerning the increasing 
 costs of food due to the use of cans and packages. The 
 New York State Food Investigating Commission, the Massa- 
 chusetts Cost of Living Commission, 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 popu- 
 lar favor. The arguments commonly advanced in favor of 
 package and can 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, weigh- 
 ing, packing, and so on, being largely eliminated. 
 
 5. The package or can is more attractive than goods of 
 
56 ECONOMICS OF RETAILING 
 
 like character in bulk. While the number of grams of food 
 elements in a package are not changed a bit by its appear- 
 ance, it is well known that the consumer's appetite is de- 
 cidedly affected 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 barrel 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 fac- 
 tories 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, 
 are done by machinery with great saving of labor. 
 
 That food in cans and packages costs more than in bulk 
 as formerly sold there can be no doubt. If consumers desire 
 their foods in these new forms, they must pay the added 
 expense of preparing them. 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 ac- 
 counted for partly by the novelty of the product, its imme- 
 diate 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. 
 
THE CONSUMER 57 
 
 Many illustrations could be given of changes in the 
 character of demand for clothing. For example, men's $10 
 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 $1 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 shone their 
 own shoes. Now shoe-blacking is hardly ever sold to people 
 living in the richer homes. Shoes are polished by boot- 
 blacks and in so-called " 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 lighter weights but of much finer grades. Cloth- 
 ing 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 individuality. The carpet bag and rubberized satchel 
 have given way to the suit case and traveling bag. Gone 
 also is the cotton umbrella with its whalebone ribs. In the 
 drug line, proprietary articles have increased from 7,500 in 
 the early 90's to over 30,000 in 1913. Hardware, furniture, 
 and many other lines have experienced similar tendencies. 
 
 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 in- 
 flowing immigration, also the emigration. Each addition 
 or subtraction of people from a community is likely to 
 
58 ECONOMICS OF RETAILING 
 
 strengthen or weaken some tendency to form certain habits 
 of consumption. But more effective than these general 
 movements is the education that the American pubHc is 
 getting through its schools, theatres, lectures, moving-pic- 
 ture 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, 
 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 
 diffused quickly and widely. Emulative imitation takes 
 care of the rest. 
 
 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 de- 
 mand noted above. During the newly acquired leisure time, 
 the laborer has had the opportunity to learn and to think 
 about things concerning which he could have had no pos- 
 sible interest while his time was entirely taken up by his 
 work. 
 
 The rise into economic independence of large classes of 
 people is another factor helping to produce the changes. 
 Nowhere are the effects on demand of such changes in 
 economic conditions more obvious than among those classes 
 of people who have an income of $1,000 a year and over. 
 In families having less than this income, the wife must often 
 work as well as the husband, but when the husband'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, produc- 
 tive labor. The standard for the wife thereafter 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 pro- 
 
THE CONSUMER 
 
 59 
 
 gressively. 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 throw- 
 ing most of the work of the home on commercial enterprise 
 and eliminating maids and servants entirely. 
 
 Every magazine, newspaper, and recent novel is a lesson 
 in demand. Advertising, news, stories, and illustrations 
 convey impressions concerning the methods by which peo- 
 ple satisfy their material desires and cause the wide dif- 
 fusion of current standards. Who can estimate the influ- 
 ence that the food, dress, arid ways of living of heroes and 
 heroines in modern novels has had on the standards of the 
 readers? The influence of the theatre on women's dress is 
 well understood, 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 intui- 
 tions. 
 
 In conclusion, the consumers are the rulers of the retail 
 market. What consumers want, actually or potentially, 
 constitute the things that the retailer must supply. If he 
 cannot, he must make way for the one who can. It is most 
 difficult to characterize these consumers in general terms. 
 Among the multitude of consumers there are marked in- 
 dividual differences. No general classification would be 
 adequate. They are of all classes and conditions. They 
 are made up of the rich and poor, old and young, ignorant 
 
6o ECONOMICS OF RETAILING 
 
 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 pos- 
 sible to them under the circumstances. Subject to a mul- 
 titude of whims, unsystematic in their buyings, forgetful, 
 ease-loving — such in general is the character of the cus- 
 tomer of the retailer. It is for these that the retail store, 
 in fact all business, exists. The merchant and his em- 
 ployees, who have learned that the store is for the cus- 
 tomer and not the customer for the store, have gone far 
 toward solving the problem of how a retail institution should 
 be conducted. 
 
 Bibliography 
 
 Langworthy, C. F. Food Customs and Diet in American Homes. Cir- 
 cular 110, Office of Experiment Stations, U. S. Department of Agri- 
 culture. 
 
 Homes, Geo. K. Consumers' Fancies. Year Book of U. S. Department 
 of Agriculture, 1904. 
 
 Fawcett, W. Consumer Demand. Printers' Ink, Nov. 7, 1912. 
 
 Warren, W. P. Getting People to Pay More. Printers' Ink, Dec. 28, 
 1911. 
 
 Beardot, E. The Quality Appeal. Printers' Ink, Feb. 22, 1912. 
 
 Johnson, R. W. Keeping Up with the Changing Market. Printers' Ink, 
 Sept. 12, 1912. 
 
 Fawcett, W. Consumer Demand. Printers' Ink, Nov. 7, 1912. 
 Ink, Oct. 17, 1912. 
 
 Spencer, C. D. Putting Yourself in the Consumer's Place. Printers' 
 Ink, June 15, 1911. 
 
 Harris, W. J. How the Shifting of Population Is Affecting Possible 
 Markets. Printers' Ink, Aug. 28, 1913. 
 
 Rogers, E. S. What Sort of a Person Is the Consumer? Printers' Ink, 
 Sept. 26, 1912. 
 
 Woman as a Buyer. Printers' Ink, Oct. 20, 1910. 
 
 Parlin, C. C. "The Merchandising of Textiles." Curtis Publishing 
 Company. 
 
THE CONSUMER 6l 
 
 Ward, L. F. The Psychic Factors of Civilization, Ch. XXVI, " Female 
 
 Intuition." 
 Hall, G. S. "Adolescence," Vol. II, pages 561-569. (Splendid on 
 
 differences between men and women.) 
 Frederick, Mrs. C. "Woman — the Greatest Buyer." Address before 
 
 Associated Advertising Clubs of the World, Toronto, June 23, 
 
 1914. Associated Advertising, Aug., 1914. 
 
CHAPTER IV 
 
 PRESENT STATUS OF RETAILING 
 
 To get an accurate idea of the proportions of any busi- 
 ness, one naturally turns to the census statistics of a country. 
 But in the study of the distribution of goods, and of retail- 
 ing in particular, one meets with a strange lack of any in- 
 formation in such documents. The only helpful material 
 contained in the United States Census reports having any 
 reference to trade, are the figures showing the occupations 
 of the working population of the country. 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 1910 was not published until 
 the autumn of 1914. 
 
 The following figures are presented from the census of 
 1910. The reader should observe caution in reading the 
 table. For example, the figures showing the number of 
 merchants and dealers do not represent the number of estab- 
 lishments. 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 num- 
 
 62 
 
PRESENT STATUS OF RETAILING 63 
 
 ber of establishments is greater or smaller than the number 
 of merchants and dealers. 
 
 Number of Persons Engaged in the Retail Business ^ ^^^^ 
 
 Retail merchants and dealers, total 1,195,029 
 
 Agricultural implements 8,518 
 
 Automobiles 4,597 
 
 Books 3,118 
 
 Boots and shoes 19,346 
 
 Butchers and meat dealers 124,048 
 
 Candy and confectionery 29,538 
 
 Cigars artd 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 and 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 3,075 
 
 1 Selected Groups from Census of 1910. For a complete list of figures for all 
 classes of retail businesses as listed by the Census, see U. S. Census, 1910, Vol. 
 IV, pp. 420-423. 
 
64 ECONOMiCS OF RETAILING 
 
 Store laborers 68,093 
 
 Meat cutters 15,405 
 
 Salesmen and saleswomen 875,180 
 
 Scrubbers and sweepers 276 
 
 Another defect in the United States Census figures for 
 the different decades is the lack of uniformity in classifica- 
 tion 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 copy- 
 ists. No traveling salesmen were 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 are simply lumped together as " not 
 specified." 
 
 Nearly every state in the union takes a periodical cen- 
 sus, but none of these, with the single exception of Massa- 
 chusetts, has taken any particular account of the distributing 
 classes. In 1904 a law was passed in Massachusetts requir- 
 ing that a census be taken of trade at the same time as the 
 regular ten-year census taken in years ending in 5 is taken. 
 In consequence a study was made of the distributing busi- 
 ness 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, im- 
 porting, and exporting and importing; the number of part- 
 ners and stockholders; the capital invested; value of goods 
 sold; the number of wage earners; the wages paid per week; 
 
PRESENT STATUS OF RETAILING 65 
 
 the number 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 dis- 
 tinguished 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 store keepers, 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 re- 
 sults shown in the Massachusetts report are 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.^ 
 
 Another important contribution to the subject of retail- 
 ing 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 w^ere devoted 
 to a study of " Changes in Conducting Retail Trade in Bos- 
 ton since 1874." The investigation upon which this report 
 was based w^as undertaken to determine the effect of the 
 increase in number of department stores on the retail trade. 
 Several states were considering legislating against the depart- 
 ment 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, how^ever, 
 
 2 A few of the most significant figures in the Massachusetts Trade Census wjll 
 b? found in Appendix II of this volume, 
 
66 ECONOMICS OF RETAILING 
 
 and the Bureau reported as the results of its investigation, 
 that there was no reason to beHeve that department stores 
 were crowding the small stores out of existence.^ 
 
 Another source of statistical information concerning the 
 m.Tmber of retailers of this country and their financial abil- 
 ity, is found in the reference books of R. G. Dun & Com- 
 pany and in the Bradstreet lists of various 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.* 
 
 One of the first, if not the first, of the studies of retail 
 distribution was made by a committee of the American Eco- 
 nomic Association and reported at the regular annual meet- 
 ing in 1887. This report contained a number of significant 
 suggestions, and it seems too bad that this great association 
 of American scholars of economics did not see fit to continue 
 their work so well begun in this line. The text of Secre- 
 tary R. T. Ely's abstract of the report is presented herewith : 
 
 " Report of Committee on Trade ^ on 'Condition and 
 Organization of Retail Trade ' to American Economic As- 
 sociation," May 24, 1887. 
 
 " This preliminary report, on the condition and organi- 
 zation of retail trade, was a compilation of a large number 
 of returns received in answer to circulars of inquiry sent to 
 retailers, chiefly in Kansas, Iowa, Minnesota, covering eleven 
 hundred and eighty-five retailers. The report shows : 
 
 3 A comparison of the number of departments selling specific lines of goods in 
 department stores, with the number of specialty stores in Boston, and a comparison 
 of the total population of Boston with the number of retail stores in each of 
 several specified lines, as enumerated by the Bureau of Statistics of Labor in 1899, 
 will be found in Appendix III hereof. 
 
 4 A list of the number of wholesalers and retailers in various lines of mer- 
 chandise, as compiled from R. G. Dun & Company's records, is given in Ap- 
 pendix IV. 
 
 5 Professor James H. Canfield, Chairman; Professor Jesse Macy, Dr. Albert 
 Shaw, and Professor W. W. Tolwell, Committee. 
 
PRESENT STATUS OF RETAILING ey 
 
 " That retailers are increasing (proportionately) four 
 times as fast as the population. 
 
 " That the average retailer knows very little of the gen- 
 eral condition of his own branch of business. 
 
 " That there is very little, if any, efficient organization 
 among retailers. 
 
 " That intelligent retailers are coming to understand and 
 deplore this condition of affairs. 
 
 " That competition tends constantly and strongly to be- 
 come mere unintelligent commercial cut-throatism. 
 
 '* That in food supplies, competition tends constantly and 
 strongly to adulteration and general inferiority; while in 
 dry-goods and clothing the result is better quality and better 
 workmanship. Boots and shoes and other branches are 
 about equally divided in opinion as to the result of com- 
 petition. 
 
 " That compared with the capital invested, the volume 
 of business is very large and the wages of superintendence 
 very small. 
 
 " That in the localities reporting, during five years 15 
 per cent of the retailers have failed, about 17 per cent have 
 changed localities by removal, and 12 per cent have with- 
 drawn from business, leaving but about 56 per cent that can 
 be called stable. 
 
 " That the more experienced dealers are settling down to 
 a cash basis. 
 
 " That the undue extension of credits and the consequent 
 abuse of the credit system by both wholesalers in relation 
 to retailers, and retailers in relation to their customers, is 
 a large factor in the present disordered condition of the 
 retail world. 
 
 " There seems to be a strong tendency to avoid credits in 
 buying and selling. Accounts settled at the close of each 
 month are generally called cash accounts. A suggestion is 
 
68 ECONOMICS OF RETAILING 
 
 made that all laws for the collection of debts be abolished. 
 This would be better worded as * laws for the enforcement 
 of credits/ In proportion to the amount of business done 
 and credit extended, there are fewer collection suits than 
 formerly. The great mercantile agencies make a specialty 
 of protecting credits. It is thought if the wholesale credit 
 system were considered as resting entirely on honor, the 
 results would be in every way beneficial to both traders and 
 the purchasing world. The committee has received several 
 suggestions looking to this general result. The thought is 
 worthy of careful consideration. The assertion is made that 
 the largest and most successful business firms in this country 
 already proceed practically on this basis. 
 
 " After the full report of this committee was read, 
 President Walker said that the field was so vast that no 
 generalizations from such limited data as this committee 
 had obtained were reliable. 
 
 " Dr. Bemis spoke briefly on retail trade and co-opera- 
 tion, and Rev. J. G. Brooks and Mr. Geo. A. Denison and 
 Professor Ely continued the discussion." 
 
 Subsequent accounts and statistics have shown certain 
 of the deductions in this report badly founded, as for ex- 
 ample, that retailers are increasing four times as fast as the 
 population, and that the rnore experienced dealers are set- 
 tling down to a cash basis. On the whole, however, the ten- 
 dencies found by this committee seem to be amply supported 
 at many places by facts drawn from other sources. It is to 
 be hoped that the American Economic Association or some 
 other organization may soon take up again such studies as 
 these, and work out collectively what is so difficult and so 
 time-consuming for single individuals to accomplish. 
 
CHAPTER V 
 
 THE EXPENSES OF RETAILING 
 
 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 
 favorable to efficiency may thus be isolated in the more suc- 
 cessful stores and applied in the administration of the less 
 successful. The leaks, wastes, and abnormal elements may 
 likewise be determined and eliminated. 
 
 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 en- 
 terprises, possesses these three factors. 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, fix- 
 tures, 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 
 
 69 
 
70 ECONOMICS OF RETAILING 
 
 must go to the accountants who have made a special study of 
 cost finding in the retail business. 
 
 The most notable contribution to retail cost accounting 
 is the " Harvard System of Accounts for Shoe Retailers." 
 In 1911 the Bureau of Research in the Graduate School of 
 Business Administration of Harvard University began in- 
 vestigating 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 con- 
 vinced the managers that such investigations would be use- 
 less, since the data collected from different 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 ac- 
 countants of national reputation and of shoe men most rep- 
 resentative in Boston and vicinity was secured. As a result 
 of their labors and counsel, and that of the Bureau, the Har- 
 vard 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 
 during 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. The expense classi- 
 fication in the Harvard Accounting System, while specific- 
 ally prepared for the shoe business, seems to be generally 
 adaptable with minor changes to any retail store, especially 
 of the one-line or specialty type. Department store accounts 
 must be carried somewhat differently. Other elements need 
 to be considered when a store handles many lines of goods. 
 
 A great deal has been written on retail accounting dur- 
 
I 
 
 THE EXPENSES OF RETAILING 
 
 71 
 
 ing the last three or four years. The Burroughs Adding 
 Machine Company, in connection with their advertising, con- 
 ducted 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 investigation accom- 
 panied 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 
 itself 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 Associiation has conducted an extensive cam- 
 paign for accurate cost finding in retail businesses handling 
 agricultural implements and vehicles. Frank E. Goodwin, 
 editor of a St. Louis trade paper known as Farm Machinery, 
 claims to have been one of the first to begin a systematic 
 study of the costs of doing business in a retail store.^ The 
 fact that his studies were not begun until 1908 shows how 
 recent the whole movement for more careful analysis of 
 distributive business is. 
 
 A remarkable work for promoting better methods of 
 retail accounting has been performed by Thomas A. Fern- 
 ley, of Philadelphia. As secretary of various national 
 trade organizations, Mr. Fernley compiled a large number 
 of facts regarding the retail trade and published monographs 
 on the subject,^ thiat have been given a very wide distri- 
 bution. So far as the writer has learned, these were the 
 
 1 See Appendix V of this voltime. 
 
 2 American Paint and Oil Dealer, September, 1913, p. 33. 
 
 3 A collection of monographs, including " Cost of Doing Business ** and the 
 " Right Way to Figure Profits," was published in 1912 under the title " Price 
 Maintenance," by Thomas A. Fernley, Philadelphia. 
 
72 ECONOMICS OF RETAILING 
 
 first publications upon the subject of scientific retail cost 
 accounting. In conversation with Mr. Fernley the writer 
 was told that the studies preceding these publications began 
 in the later 90's and were carried on by both Thomas A. 
 Fernley and his father, T. James Fernley, secretary-treas- 
 urer of the National Hardware Association of the United 
 States. 
 
 William H. Ingersoll, marketing manager for Robert H. 
 Ingersoll & Brother, has worked out a system of account- 
 ing for retail jewelers that has been found acceptable, and 
 has been widely adopted. 
 
 Hart, Schaffner & 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 Your Business ? " 
 
 In 1915, the General Extension Division of the Univer- 
 sity of Minnesota, through a committee composed of retail 
 merchants, of the editor of one of the trade papers, and of 
 a representative of the General Extension Division, ap- 
 pointed 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 account- 
 ants specializing in retail systems have broken into the field 
 of retail cost accounts, with the result that, while the move- 
 ment is comparatively recent, it is already developing 
 rapidly. 
 
 In running a store it must be borne in mind that a re- 
 tailer must make two distinct kinds of direct outlays ; first, 
 his^cpsts .for goo_ds,. and, second, his_.co.sts for conducting 
 t he busine ss. If one may compare a retailer's business with 
 a manufacturing concern, the outlay for merchandise is 
 much the same as the manufacturer's outlays for raw ma- 
 
THE EXPENSES OF RETAILING 
 
 73 
 
 terial, and the costs of conducting the retail business are 
 similar to costs of manufacturing — labor, rent, general 
 expenses, etc. What the retailer pays for the goods is not 
 their total cost when handed over the counter to the con- 
 sumer, 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 pays 
 for the goods when he buys them and what he receives for 
 them when he sells them. The true costs of the goods in- 
 clude the purchase price plus all expenses of transportation, 
 drayage, and so forth, necessary to bring the goods to the 
 store. Then in addition to 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 chapter. 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. 
 
 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 salesmen's sam- 
 ples, and all time used in buying trips 
 should be included.) 
 
 2. Traveling expenses. 
 
 3. Miscellaneous expenses. 
 
74 
 
 ECONOMICS OF RETAILING 
 
 II. Selling Expenses: 
 
 1. Salaries and wages of sales force. (AH 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: 
 
 (1) Newspaper and periodical 
 
 (3) Circulars and letters 
 
 (3) Bill boards, electric signs, etc. 
 
 (4) Local programs 
 
 (5) Window displays 
 
 (6) Gifts, premiums, and trading stamps 
 
 4. Miscellaneous: 
 
 (1) Wrapping paper, twine, etc. 
 
 (2) Free alterations and repairs 
 
 (3) Expenses and losses on returns 
 
 III. Delivery Expenses: 
 
 1. Wages of delivery force for time spent in de- 
 
 livering goods to customers. 
 
 2. Stable and garage expenses. 
 
 3. Express, mail, and freight shipments. 
 
 4. Miscellaneous. 
 
 IV. Management Expenses: 
 
 1. 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. 
 
 V. Office Expenses: 
 
 1. Salaries of bookkeepers and stenographers 
 for time spent in office work. 
 
THE EXPENSES OF RETAILING 75 
 
 VI. 
 
 2. 
 
 Salaries of cashiers, inspectors, and office mes- 
 
 
 sengers. 
 
 3. 
 
 Office supplies : 
 
 
 (1) Stationery, printing and postage 
 
 
 (2) Account books 
 
 
 (3) Miscellaneous 
 
 XE 
 
 D Charges: 
 
 1. 
 
 Rent: 
 
 
 (1) Store premises 
 
 
 (2) Storage or warehouse 
 
 2. 
 
 Heat, light and power. 
 
 3. 
 
 Insurance : 
 
 
 (1) Fire 
 
 
 (2) Burglary 
 
 
 (3) Fidelity 
 
 
 (4) Plate glass 
 
 
 (5) Employer's liability 
 
 
 (6) Accident elevator 
 
 
 (7) Sprinkler system water damage 
 
 
 (8) Warehouse 
 
 
 (9) Boiler 
 
 
 (10) Merchandise en route 
 
 
 (11) Life insurance payable to firm 
 
 4. Taxes on stock and store equipment. 
 
 VII. Upkeep 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. 
 
76 ECONOMICS OF RETAILING 
 
 4. Expenses of collecting slow accounts. 
 
 5. Losses from bad debts. 
 
 IX. Interest on Net Worth of Business at Cur- 
 rent Rate. 
 
 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 com- 
 puted upon the same bases. 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 considered as the 
 base. Trade papers have teemed with articles on both sides. 
 Frank E. Goodwin, already referred to, 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 com- 
 puted 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 comput- 
 ing expense and profit percentages on sales rather than on 
 costs, and for this reason all percentages in this book are 
 
 4 " A Cost Accounting Fallacy Exposed," first published as an article in the 
 American Paint and Oil Dealer, June, 1^12. 
 
THE EXPENSES OF RETAILING 
 
 77 
 
 based on sales. In a little pamphlet published by the Bur- 
 roughs Adding Machine Company, written by Thomas A. 
 Fernley, ** t welve reasons why the percentage of profit shoul d 
 be_ figured on the selling price and not on the cost '' a re 
 given : 
 
 jll First. Because the remuneration of salesmen is figured 
 on a certain percentage of the selling price. 
 
 Second. Because the percentage of expense of conduct- 
 ing business 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? 
 
 %^ Third. Because the mercantile and other taxes are in- 
 variably based on a percentage of the gross sales. 
 
 Fourth. Because the sales totals are always given in 
 books of record, cost totals are seldom, if ever, shown. 
 
 Fifth. 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 
 expenditures not properly chargeable to merchandise ac- 
 count. This is only possible by figuring profit on the 
 selling price. 
 
 Sixth. 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. 
 
 Seventh. Because allowances in percentage to customers 
 are always from selling price. 
 
 Eighth. Because no profit is made until sale is actually 
 effected. 
 
 Ninth. 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. 
 
 Tenth. Because the big stores figure on the selling price. 
 
 Eleventh. Because it puts the retailer where a customer 
 
78 ECONOMICS OF RETAILING 
 
 will not be so likely to call him a robber if he learns tb 
 percentage of profit. Twenty per cent of the selling prio 
 is 25 per cent on the cost, but the 20 per cent does n 
 seem as large an amount. 
 
 Twelfth. Because if you figure on the selling price yo' 
 can go to the cash drawer, and say ** 10 per cent of tha 
 money is my profit " instead of having to say that " 10 pe; 
 cent of the cost of the goods which I sold for that mone; 
 is my profit." 
 
 T he-total expe nses of dQingiaj;etailbusiness vary greatly 
 The causes for these variations may be inferred to be due t 
 the kind of business, the location, the volume of busines 
 done, the class of business whether high or low grade, an 
 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 running 
 from 1 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 re- 
 ported by the trade papers for the various parts of the 
 country are remarkably similar, however, for the same kinds 
 of businesses. 
 
 A recent article coiltains 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." ^ 
 
 In the investigations of the costs of doing business in dry- 
 goods and ready-to-wear stores, made by C. C. Parlin for 
 
 B System, December, 1913, p. 569. 
 
THE EXPENSES OF RETAILING 
 
 79 
 
 the Curtis Publishing Company, the following results were 
 obtained : 
 
 Costs of Doing Retail Business ^ 
 Dry-Goods and Women's Ready-to-Wear 
 
 (Including Corporation Salaries, Buying Expenses, and Freight) 
 
 Cities 
 
 In the East 
 
 In the Middle. 
 West and South 
 
 In the Pacific 
 
 and Mountain 
 
 States * 
 
 600,000 up 
 
 200,000 to 600,000. . 
 30,000 to 200,000.. . 
 
 2,500 to 10,000 
 
 Rural stores 
 
 Range 
 
 24-31% 
 
 22-27 
 
 20-25 
 
 17-23 
 
 10-20 
 
 Ave. 
 26V2% 
 24 
 22 
 20 
 17 
 
 Range 
 
 23-28% 
 20-26 
 18-24 
 11-20 
 
 Ave. 
 
 25% 
 
 23 
 
 21 
 
 18 
 
 Range 
 
 28-34% 
 25-32 
 20-27 
 15-25 
 
 Ave. 
 
 31% 
 281/2 
 261/2 
 23 
 
 * Freight to Pacific Coast amounts to about 3 per cent and to the Mountain 
 States 4 per cent of tfte sales. Reductions to this arrtount should be made from 
 the last column. 
 
 The Harvard investigation on the retailing of shoes for 
 its first year ending in the spring of 1913 and embracing 
 observations of more than 130 shoe stores, showed the 
 following cost of selling: 
 
 Cost of Selling in Retail Shoe Stores "^ 
 
 Principal Items 
 of Expense 
 
 Range 
 
 (Total Expense 
 
 18-35%) 
 
 Modal Group 
 
 (Total Expense 
 
 Low Grade 23% 
 
 High Grade 27%) 
 
 Most Efficient 
 Group 
 
 (Total Expense 
 Low Grade 20% 
 High Grade 25%) 
 
 Buying 
 
 Sales force 
 
 Advertising .... 
 
 Deliveries 
 
 Rent 
 
 Interest 
 
 0.8- 1.8% 
 5.0-10.3 
 0.0- 8.8 
 0.0- 1.4 
 1.8-14.6 
 1.0- 7.9 
 
 1.1% 
 
 8.0 
 
 2.0 
 
 0.6 
 
 5.0 
 
 2.5 
 
 1.0% 
 
 7.0 
 
 1.5 
 
 0.4 
 
 3.0 
 
 2.0 
 
 It is to be noted, however, that a large number of the 
 figures upon which these percentages were based came from 
 
 6 " Selling Forces," pp. 178-179. (Curtis Publishing Co.) 
 
 7 Bulletin of the Bureau of Business Research, Harvard University, Number 
 1, May, 1913. 
 
8o 
 
 ECONOMICS OF RETAILING 
 
 stores in " the eight large cities — New York, Philadelphia, 
 Baltimore, Pittsburgh, Cleveland, Detroit, Chicago and 
 Cincinnati.'' 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 Wiscon- 
 sin 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 
 
 Grocery 
 
 Dry-goods 
 
 Furniture 
 
 Shoes 
 
 Hardware 
 
 Men's clothing 
 
 Drugs 
 
 Jewelry 
 
 Department stores. . 
 
 Five and ten cent 
 
 stores 
 
 No. of 
 Stores 
 
 Range 
 
 17 
 
 12-22% 
 
 11 
 
 16-25 
 
 8 
 
 22-28 
 
 8 
 
 16-27 
 
 8 
 
 17-26 
 
 7 
 
 2(>-»30 
 
 3 
 
 24-30 
 
 4 
 
 25-32 
 
 11 
 
 22-30 
 
 2 
 
 25-27 
 
 Modal Group 
 
 No. Falling 
 Within Mode 
 
 141/2-17% 
 11-22 
 22-24 
 21-23 
 19-22 
 27-30 
 
 28 
 26-27 
 
 An amount of data sufficient to make an accurate de- 
 scriptive 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 in- 
 vestigations in this line, much as the Department of Agri- 
 culture 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 con- 
 clusions has made such use of them as seems warranted. 
 The next step in this field, as well as in many other branches 
 of economics, is not theorizing but the gathering of more 
 facts, and this is a work that should be performed in the 
 
r 
 
 THE EXPENSES OF RETAILING 8 1 
 
 interest of all business by the government or by some branch 
 of the government. 
 
 Bibliography 
 
 Fernley, Thomas A. " Price Maintenance." Parts II and III. 
 Harvard University, Graduate School of Business Administration. 
 Harvard System of Accounts for Shoe Retailers, 1914. 
 
 Sammons, W. "Keeping up with Rising Costs." (This interesting 
 book first appeared as a series of articles in System. It contains 
 summaries of costs of doing business in 1560 stores scattered over 
 the country, from which conclusions are drawn showing how to 
 meet the rising costs tendency.) 
 
CHAPTER VI 
 RETAIL SALESPEOPLE AND THEIR WORK 
 
 The salespeople constitute the typical laborers of the re- 
 tail store. It is mainly with them that the public comes into 
 contact, and upon the character of the service performed 
 by them hinges the success of the retail store. But, as has 
 been pointed out, selling goods is not the only labor in a 
 store. Goods must be bought, handled, unpacked, stored, 
 re-packed and delivered. Office records and accounts must 
 be kept, correspondence carried on, advertisements written 
 and goods displayed in windows and store. Finally, the 
 building must be kept in good condition as to heat, light, 
 ventilation, and cleanliness. But all of this work is car- 
 ried on in order to assist and make more efficient the selling 
 end of the business. 
 
 The ratio of the number of salespeople who devote their 
 entire attention to selling, to other employees in a store 
 depends upon its size. In a small store, there is but little 
 division of labor. Where only one helper is hired, he may 
 serve alternately as salesman, delivery man, janitor, and 
 possibly as bookkeeper. Clean division of labor, under 
 which each class of store work is carried on by a separate 
 group of laborers, may be found only in the largest stores; 
 but even here, buyers and stock room help, as well as several 
 other classes, are frequently employed for part of their time 
 in selling goods, especially during rush times. Hence only 
 an approximation of the share of store labor used in selling 
 can be given. Statistics showing the actual proportions of 
 
 82 
 
RETAIL SALESPEOPLE AND THEIR WORK 83 
 
 both sexes employed in the different departments of 
 store work are not available. But in the United States re- 
 port, ''Wage-Earning Women in Stores and Factories," 
 Vol. V, '' Woman and Child Wage-Earners in the United 
 States," page 41, the number of women employees in 26 
 department stores of New York, Chicago, and Philadelphia, 
 employing a total of 36,000 women, were classified as fol- 
 lows : 
 
 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 consti- 
 tutes a little less than one-half. As indicated, no figures are 
 available on the ratio of men to women in such stores, nor 
 to show what proportion of the total number of men em- 
 ployed in stores are engaged in selling. In a large retail 
 store in Boston 38 per cent of the selling * force are men.^ 
 In other words, if this store is typical of other big stores, 
 there are almost twice as many saleswomen as salesmen em- 
 ployed. In the country as a whole the proportions are re- 
 versed. The United States census for 1900 showed 461,- 
 909 salesmen and 149,230 saleswomen. The Massachu- 
 setts census for 1905 showed 43,365 males and 15,430 fe- 
 males in the total retail selling force of the state. In both 
 the country as a whole and in the State of Massachusetts, 
 
 1 Massachusetts Report of the Commission on Minimum Wage Boards, p. 96. 
 
84 ECONOMICS OF RETAILING 
 
 salesmen were about three times as numerous as saleswomen. 
 Only in stores of the department store class in the larger 
 cities does the number of saleswomen exceed the number of 
 salesmen. 
 
 The entrance of women into the field of retail sales- 
 manship is one of the noteworthy developments of the retail 
 business 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 
 typified today in the 5 and 10 cent stores, the employment 
 of women as salespeople seems to have received its main 
 advancement. 
 
 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 possibility of serving 
 customers, and, on the other hand, the possibility of getting 
 a remuneration or profit for performing that service. The 
 work of the salespeople must, therefore, be such as to satisfy 
 customers and bring profits to their employers at the same 
 time. 
 
 The salesmen's service to the customer consists in show- 
 ing the goods the store has gathered together for sale, ex- 
 plaining 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 
 
 2 Hunt, F., " Worth and Wealth," p. 499. 
 
RETAIL SALESPEOPLE AND THEIR WORK 85 
 
 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 im- 
 provement in sales service in the future than obtained in 
 the past. 
 
 But the salesman in a retail store cannot confine his 
 entire attention to the interests of the customer. Such sin- 
 gleness of purpose might occasionally result in directing a 
 prospective customer for a particular article to a competitor's 
 store. Such cases are not unknown. It would be eminently 
 desirable if such practices could be increased. Such co- 
 operation could be carried out in a town in which each 
 store agreed to handle certain lines, to confine itself to these 
 only, and to direct customers for other lines to the other 
 stores. The usual interests of business, however, require 
 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 the business of the retail salespeople to make 
 the connections between the store's goods and the custom- 
 ers' 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 explained in 
 any logical way, and many of them are subject to fre- 
 quent and radical changes. People want what they think 
 they want, and what they think they want depends largely 
 
86 ECONOMICS OF RETAILING 
 
 upon their knowledge of goods and their habits of using 
 them. To influence the customer in favor of his goods, the 
 salesman must, therefore, convey as many ideas as he can 
 concerning those goods — their qualities, uses, the satisfac- 
 tion that may be derived from their use, and so on. 
 
 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 satisfaction 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 dif- 
 ferent 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 customer selects that which promises the greatest amount 
 of satisfaction — such as wear, comfort, and appearance — 
 for his money. 
 
 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 re-soled and that they would 
 then wear for a long time to come, and that the on-coming 
 cold weather would make it very disagreeable to get along 
 without gloves, and, finally, that the cost of repairing 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 sug- 
 gestion the customer would thus have not only his feet 
 
RETAIL SALESPEOPLE AND THEIR WORK 87 
 
 cared for serviceably, but also his hands ; whereas, otherwise 
 he would have to stand the discomforts of going bare- 
 handed for another week. Supplementing these ideas, the 
 salesman would show the customer suitable gloves, point out 
 their desirable qualities — durability, comfort, warmth and 
 good appearance — and thus help to build up the customer's 
 thoughts, and, consequently, his desires 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. 
 
 What the salesman does in either case may be sum- 
 marized 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 other desire he may have for other 
 goods of either different or the same kind. Using the 
 economist's term, " marginal utility," which simply means 
 the intensity of demand felt for any goods, we may say 
 that the marginal utility for almost any article is an ex- 
 tremely 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 
 
88 ECONOMICS OF RETAILING 
 
 large. In answer it may be pointed out that desires had 
 to be aroused and intensified in order to introduce into 
 general use practically every article of modern convenience 
 and comfort. It was salesmanship that put the sewing ma- 
 chine, range, gas stove, electrical appliance, musical instru- 
 ment, washing machine, and vacuum cleaner into the home. 
 Salesmanship has introduced practically all great improve- 
 ments 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. 
 
 The social importance of good salesmanship can be ; 
 pointed out very well by showing 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 op- . 
 portunity of salesmen to point out to purchasers how — and 
 generally without additional expense — they might have im- 
 proved their homes. Much of the wastes of American cook- 
 ery in the towns and cities could be eliminated by a word of 
 advice given by skilled grocers' salesmen now and then. It 
 is said by shoemen that at least 75 per cent of adults have 
 troubles 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 fitting ; 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 re- 
 sponsibility of the consumer for being in the plight he is 
 often in, but the work of the retailer and his salespeople as 
 
RETAIL SALESPEOPLE AND THEIR WORK 89 
 
 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. 
 
 It is not to be inferred that because of the great social 
 services the salesmen perform, and the still greater ones that 
 there are opportunities for, that there are no evils con- 
 nected with selling. There can be no doubt that many people 
 are led to place too high estimations of value upon certain 
 goods that 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 its value in com- 
 parison with other possible purchases and the wisdom of the 
 purchase. If its use results in comparatively little satisfac- 
 tion, then we may say that the purchase was unwise ; other- 
 wise, 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 salesman's 
 persuasion had anything to do wath it whatever. It is 
 likely that no more people have been deluded into buying 
 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 un- 
 wise individual or social action. Evils in other lines do not 
 excuse evils in selling, but an understanding of the general 
 prevalence of such things 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. As 
 a further remedy the practice now followed by many stores 
 
90 ECONOMICS OF RETAILING 
 
 of exchanging goods freely, or of refunding the purchase 
 price, if customers are not satisfied with the goods, offers al- 
 most a complete remedy. 
 
 The great evils frequently associated with salesmanship 
 are dishonesty and misrepresentation. If goods are de- 
 clared 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 proportions, down to the present day. The at- 
 tempt 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 
 necessary in all situations where people come together, 
 whether it be a game or a public assembly. Regulation 
 supplies the rules under which business must be conducted. 
 Its purpose is to provide fair play to all concerned. 
 
 The factors of successful salesmanship are the salesper- 
 son's knowledge, experience, attitude 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 
 
RETAIL SALESPEOPLE AND THEIR WORK 91 
 
 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 living, 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 handling and apply these forms of knowl- 
 edge.^ 
 
 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 
 salesperson in the customer's mind, make it highly imperative 
 that the salesperson present a mental attitude that is favor- 
 able to salesmaking. What this attitude must be is some- 
 what difficult to define except in most general terms. It 
 involves a liking for the work, a liking for people and hu- 
 man nature of all kinds, an optimistic view of life and its 
 problems, enthusiasm 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 oppor- 
 tunity, 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. 
 
 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 sales- 
 man with a disagreeable personality loses a certain percent- 
 
92 ECONOMICS OF RETAILING 
 
 age 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 cus- 
 tomers 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, defer- 
 ence, sincerity, and tactfulness are essential attributes. 
 
 There are many trying situations constantly arising in 
 a retail store that make it difficult for any salesperson to 
 pursue an ideal course. Especially 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 number 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 down upon them as 
 a class beneath, they are likely to disregard the possibility 
 of making sales, and think only of showing the customer 
 a spirit of independence and an attitude of " I am as good 
 as you." Such salespeople rebel unconsciously at the bear- 
 ing 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. 
 
RETAIL SALESPEOPLE AND THEIR WORK 93 
 
 i 
 
 V The underlying bases of the factors of successful sales- 
 P manship are clearly good health and proper education, or, 
 in other words, a good physical and mental equipment. 
 Proper education, we are coming to understand, 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 mat- 
 ters as food, fresh air, clothing, rest and sleep, and exer- 
 cise. The proper use of these does not come naturally 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. 
 
 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 memory and clear 
 thinking. Good health, optimism, and cheerfulness tend to 
 associate closely, and the relation of all of these to selling 
 we have already seen. There is no calling in which the fac- 
 tor of good health and the external evidences 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. 
 
 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 atten- 
 tion 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- 
 
94 ECONOMICS OF RETAILING 
 
 pedients. Cork mats back of the counters, or other pad- 
 dings for the floor, have been provided in some retail stores 
 to reduce the strain and fatigue on salespeople's feet. Many 
 stores provide the services of a skilled chiropodist to care 
 for the feet of the salespeople. 
 
 The physician, or at least a nurse, has come to be a regu- 
 lar 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 of- 
 fered 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. 
 
 Proper education for selling requires two kinds of prepa- 
 ration : first, such general education as is now given to every 
 youth in the public schools — general culture; and, second, 
 special vocational training fitting the prospective salesper- 
 son for his or her chosen work. The latter should consist 
 of special education about the goods that are to be handled, 
 the routine practice followed in stores, and a study of people. 
 The study of people, when properly developed, will probably 
 consist of an elementary course in psychology, social psy- 
 chology, and sociology. It is only recently that it has come 
 to be felt that the results from these sciences may be applied 
 to practical business affairs, although the first, psychology, 
 has been considered as a basis for the study of pedagogy 
 for many years. But the psychological problems of the 
 teacher and the salesperson are essentially the same, and 
 whatever in the science of psychology has been found of 
 value in explaining the processes of learning may likewise 
 be used in explaining the processes of selling. The sales- 
 man teaches and the teacher sells. In both, the essential 
 thing is the conveyance of ideas. The only difference be- 
 
RETAIL SALESPEOPLE AND THEIR WORK 
 
 95 
 
 tween the two is that in the case of the salesman the ideas 
 are conveyed in the hope that they will function or cause 
 decision at once, while with the teacher, the practical func- 
 tioning of the ideas conveyed, except through recitation, is 
 often postponed for a long time. 
 
 Specific education for retail salespeople through the pub- 
 lic schools is now under consideration in several places. 
 Some experiments have already been made in Extension 
 Divisions of the Universities of Wisconsin and Minne- 
 sota, in the Boston public schools, in Los Angeles, and in 
 a dozen or more other places. Many retail stores have edu- 
 cational departments for their own employees. In addi- 
 tion to these educational beginnings, much is already being 
 accomplished through the retail trade papers whose contents 
 and evident purposes have greatly changed and improved 
 during the last ten years. The trade paper is rapidly com- 
 ing to mean to the retailer and his salespeople what the pro- 
 fessional journals mean to physicians, lawyers, and teachers 
 respectively. 
 
 The need for specific education for those who are to be- 
 come retail salespeople is evident, and, as we have seen, the 
 demand is likely to become greater as time goes on. It may 
 not be too much to predict that such training will soon be 
 considered a necessary part of the work in every city school 
 system. 
 
 Bibliography 
 
 Atkinson, W. W. " The Psychology of Salesmanship," 1913. 
 Beaching, C. L. " Grocery Business," Chap. x. 
 Beynon, R. " Drapery and Drapers' Accounts." 
 
 Corbion, W. A. " Principles of Salesmanship, Deportment and Sys- 
 tem," 1907. 
 Educational Training Course. Retail Shoe Salesman's Guide, 1913. 
 Farrington, F. "The Clerk's Book," 1907. 
 Fowler, N. C. " Practical Salesmanship," 1911. 
 Goddard, F. B. " The Art of Selling," 1889. 
 
96 ECONOMICS OF RETAILING ^ ; 
 
 Higinbotham, H. N. " The Making of a Merchant," 1911. 
 Hirshler, D. " The Art of Retail Selling," 1909. 
 Huff, C. L. " Huff's Talks on Real Salesmanship," 1912. 
 Nystrom, P. H. " Retail Selling and Store Management," 1914. 
 Puffer, J. Adams. " Vocational Guidance," 1913, Chap. XII, Salesman- 
 ship. 
 Scott, W. D. " Increasing Human Efficiency in Business," 1911. 
 
CHAPTER VII 
 
 THE WAGES OF SALESPEOPLE 
 
 Wages in a retail store constitute the largest single ex- 
 pense 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 con- 
 siderable 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 2^4 per cent 
 in some departments to as high as 12 per cent in others. 
 These figures are corroborated by practically every state- 
 ment of department store expenses that has been made public. 
 
 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 1912, 1913, and 1914. 
 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. 
 
 1 Adapted from tables presented in the Dry Goods Economist, September 27, 
 1913, OctQber 25, 1913, April 25, 1914, and March 27, 1915, 
 
 97 
 
98 
 
 ECONOMICS OF RETAILING 
 
 Percentage of Expense for Selling by Departments 
 IN New York Department Stores 
 
 Departments 
 
 
 
 0) 
 
 <u 
 
 
 U 4^ 
 
 u >-< 
 
 ^ ^ 
 
 <U (L) 
 
 £o„ 
 
 £ 2 
 
 CO ^ 
 
 o o 
 •^-^ t^ ■* 
 
 JH-B ^ 
 
 •-J C« iH 
 
 'rt «^ 05 
 
 "rt vsJ 
 
 (U u o 
 
 3 (uS 
 
 2 B^ 
 
 o rt C 
 
 3 £ ,H 
 
 ^^ c« 
 
 ^o.S 
 
 <«^- 
 
 <-- 
 
 9.0% 
 
 9.5% 
 
 9.4% 
 
 11.4% 
 
 8.9 
 
 7.9 
 
 7.2 
 
 6.9 
 
 9.8 
 
 11.1 
 
 10.7 
 
 11.6 
 
 8.9 
 
 1 8.1 
 
 ' 8.1 
 
 5 6.6 Boys' 
 I 9.4 Men's 
 
 5.8 
 
 
 . . 
 
 
 9.8 
 
 12.6 
 
 9.0 
 
 9.7 
 
 8.0 
 
 12.2 
 
 9.9 
 
 9.6 
 
 6.3 
 
 6.7 
 
 9.9 
 
 8.5 
 
 6.1 
 
 5.7 
 
 5.9 
 
 5.8 
 
 9.4 
 
 8.5 
 
 8.5 
 
 8.8 
 
 6.6 
 
 6.8 
 
 7.6 
 
 6.9 
 
 6.0 
 
 6.3 
 
 6.0 
 
 6.4 
 
 7.3 
 
 5.0 
 
 4.9 
 
 5.3 
 
 9.4 
 
 9.3 
 
 9.2 
 
 10.0 
 
 8.2 
 
 8.5 
 
 8.1 
 
 8.5 
 
 6.4 
 
 6.4 
 
 6.9 
 
 7.1 
 
 8.7 
 
 •• 
 
 •• 
 
 •• 
 
 6.5 
 
 4.9 
 
 5.4 
 
 5.6 
 
 8.8 
 
 8.5 
 
 8.3 
 
 8.7 
 
 9.4 
 
 7.7 
 
 8.0 
 
 8.6 
 
 10.8 
 
 10.8 
 
 11.3 
 
 11.7 
 
 9.4 
 
 7.4 
 
 6.2 
 
 8.8 
 
 8.3 
 
 8.3 
 
 12.3 
 
 15.7 
 
 9.7 
 
 8.8 
 
 9.0 
 
 9.1 
 
 8.4 
 
 8.4 
 
 8.4 
 
 8.4 
 
 8.0 
 
 7.1 
 
 7.0 
 
 j 8.1 Suits 
 I 7.4 Coats 
 
 7.7 
 
 7.4 
 
 7.7 
 
 •• 
 
 7.8 
 
 8.0 
 
 7.8 
 
 6.5 
 
 12.9 
 
 13.1 
 
 13.9 
 
 13.9 
 
 8.4 
 
 9.3 
 
 9.3 
 
 10.6 
 
 5.9 
 
 4.7 
 
 
 
 7.9 
 
 6.2 
 
 6.0 
 
 j 6.8 Men's 
 I 6.1 Women's 
 
 9.5 
 
 9.4 
 
 10.0 
 
 10.0 
 
 7.7 
 
 7.0 
 
 6.8 
 
 5 6.7 Waists 
 I 4.9 Sweaters 
 
 10.3 
 
 9.9 
 
 9.1 
 
 9.4 
 
 7.6 
 
 6.2 
 
 5.7 
 
 6.5 
 
 8.7 
 
 7.0 
 
 7.1 
 
 7.7 
 
 Books and stationery 
 
 Carpets, mattings, rugs. . . . 
 China, glassware, lamps . . . 
 
 Oothing (men's and boys') 
 
 Corsets • • 
 
 Dress 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, per- 
 fumery 
 
 Toys 
 
 Trimmings 
 
 Umbrellas, parasols, canes. 
 
 Underwear (knit) 
 
 Upholsteries 
 
 Waists and women's sweat- 
 ers 
 
 Wash goods 
 
 White goods, linens 
 
 Wrappers, kimonas 
 
THE WAGES OF SALESPEOPLE 
 
 99 
 
 Similar 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 interest in this connection is that those sales- 
 people costing 8 and 10 per cent were receiving the lowest 
 salaries. A girl drawing 10 per cent of her sJles was get- 
 ting $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 salespeople attend to their wants. Nothing 
 could demonstrate more clearly the difference between sales- 
 people than such facts as these. From a business stand- 
 point, the saleswoman getting $15 a week was grossly under- 
 paid. She should have received at least $25 per week, while 
 the salesperson who was getting $5 per week was much over- 
 paid. 
 
 The following average percentages of sales for salaries 
 of salespeople may prove helpful : ^ 
 
 Groceries 7.96% 
 
 Furniture 8.73 
 
 Variety stores 8.86 
 
 Clothing 9.49 
 
 Dry-goods 9.65 
 
 Hardware 10.11 
 
 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 
 
 2 System, Feb., 1914. 
 
lOO 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 for boys in retail stores usually start at from 
 $3 up to $5 or $6 a week, depending upon age, strength, 
 alertness, and general indications of adaptability to the busi- 
 ness. Salesmen's salaries range from $12 to $18 per week 
 generally. In a few cases, salesmen in some departments, 
 and in specialty stores dealing in goods such a^ rugs, fur- 
 niture, or silks, receive as high as $35.00 or $40.00 per 
 week. A majority of the men in retail stores never pass 
 $18 per week.* 
 
 Salaries of women in retail stores have been investi- 
 gated in several places in the country during the last few 
 years by various public and semi-public organizations. The 
 reports of these investigations throw considerable light upon 
 the economic condition of saleswomen. According to a 
 special government report, " Wage-Earning Women in 
 Stores and Factories," female employees in 36 department 
 and other retail stores in New York, Chicago, and Phila- 
 delphia received salaries or wages as follows: 
 
 ' Cash girls, messengers, inspectors, bundle wrappers, and 
 packers received from less than $3 up to $10 per w^eek, but 
 more than two-thirds of them were getting less than $5. 
 
 Saleswomen received from $3 up to $25 per week and 
 even more, but more than half of them were getting from 
 $6 to $9 per week. 
 
 Of all women employed, 76 per cent were getting less 
 than $10 per week. The average wage for all women em- 
 ployees in stores was found to be $7.93. The average for 
 saleswomen was found to be $8.84 per week. 
 
 Low as this is, this figure was found to be somewhat 
 
 3 Bulletin of the Bureau of Business Research, Harvard University, Number 
 1, May, 1913. 
 
 4 " The Department Store and Its Opportunities for Boys and Young Men," 
 pp. 77-78. 
 
THE WAGES OF SALESPEOPLE lOi 
 
 higher than for women employed in factories, and, besides, 
 as it was pointed out, 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 experience is clearly evidenced in the increase in 
 salaries in accordance with the length of time spent in 
 store work.^ 
 
 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 selling are probably fixed by 
 forces beyond the control of individual salespeople, but the 
 amount of income based upon such percentages is largely 
 dependent upon the skill of the salesperson. 
 
 Wages in retail stores are usually paid on a time basis, 
 as for example, so much per week, or month ; on a commis- 
 sion 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/n Some of 
 them are likely to rush ahead of others in trying to get an 
 opportunity to serve customers^thers will try to avoid all 
 other work, such as care of stock, in order that they may 
 be ready for customers all of the timo^StTustomers with 
 small orders are likely to be neglected for those with large 
 
 5 " Wage-Earning Women in Stores and Factories," Vol. V in report on con- 
 dition of Woman and Child Wage-Earners in the United States, pp. 41-48, 
 
I02 ECONOMICS OF RETAILING 
 
 ones.v^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 salespeople 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 department could not make 
 sales from them. The results of these tendencies are hurt- 
 ful, not only to the general spirit of the store, but also to 
 the store's trade. 
 
 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 ad- 
 justed to the kind of goods, but should also be adjusted to 
 different articles in some fair proportion 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 re- 
 quiring 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 commission rate is, 
 theoretically, the best plan of remunerating salespeople, 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 
 example, 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 percent- 
 age, say 3 per cent or 5 per cent of sales, is paid after a' 
 certain sales quota has been reached. In some cases addi- 
 tional amounts are added to the wage in the form of a bonus 
 
THE WAGES OF SALESPEOPLE 103 
 
 or premium for sales above a certain quota, for punctuality, 
 or for a high rating based on a consideration of sales, free- 
 dom from errors, punctuality, and so on. 
 
 Still another form of premium commonly used is the 
 " PM " or " spiff," a special payment for pushing stock that 
 seems to have developed " sticker " qualities. Unseason- 
 able 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 1 per cent PM is quite fre- 
 quently used. 
 
 Profit sharing is another device for remunerating sales- 
 people 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 ex- 
 ample, " 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, is set aside as 
 the net profit due to the management. All remaining funds 
 are distributed among the employees. In other cases, after 
 all expenses 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 employees 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. 
 
 6 Adams and Sumner, " Labor Problems," Ch. IX. 
 
I04 ECONOMICS OF RETAILING 
 
 Among the American stores which are carrying out a 
 plan of profit sharing, some pay a certain percentage, say 
 6 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 concern. 
 
 The most common method of distributing profits is on 
 the basis of the salary received, that is to say, the salesper- 
 son 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 
 concerns distribute upon the basis of sales, and others dis- 
 tribute in a more or less arbitrary fashion, thus hoping to 
 equalize the differences in the conditions and the opportuni- 
 ties for making sales of all members working in the store. 
 
 Another common form of profit sharing is the distribu- 
 tion of shares of stock or other evidences of ownership to 
 employees, either upon favorable purchasing terms or as a 
 reward for faithful service over a term of years. 
 
 The purposes of profit sharing, premium paying, and 
 bonus granting are, first, to get the salesman to use his own 
 initiative and ambition in furthering the business of the 
 concern, and, second, to tie the good employees to the con- 
 cern so that they cannot be drawn away, either into inde- 
 pendent 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 straight com- 
 missions arouse; that the rewards must be great enough to 
 awaken their interest and ambition; and that settlements 
 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. Bo- 
 
THE WAGES OF SALESPEOPLE 105 
 
 nus and premium schemes apparently work best in institu- 
 tions that give every 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 allowance. 
 
 Premiums in the form of PM's and spiffs, prizes and 
 commissions 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 salespeople, and the prospect of losing this 
 amount keeps them from seeking employment elsewhere, 
 at least until after these bonuses have been paid. Such 
 payments are usually made at about the beginning of the 
 calendar year, or just after the holiday rush of trade. 
 
 In practice salespeople receive 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 com- 
 mon. A few stores allow no discounts at all, and most 
 stores give discounts to apply only on goods for the sales- 
 person's personal use. A few stores add the proviso that 
 discounts shall apply only on goods for personal use or for 
 the use of persons wholly dependent upon the salesperson. 
 Special discounts are usually given on dress goods to be 
 used in making uniforms required by stores for their em- 
 ployees. 
 
 Gifts, prizes for suggestions, Christmas presents, vaca- 
 tions on full pay, occasional banquets, gymnasium suits, 
 musical instruments for bands, books and papers for the 
 employees to read, educational courses in salesmanship, in 
 millinery, in domestic science, in art, in elocution, in music, 
 
I06 ECONOMICS OF RETAILING 
 
 dancing, and foreign languages are frequently supplied t< 
 employees. 
 
 Under the head of welfare work, large stores go into 
 great many things of interest and value to their employees^ 
 Singing societies, baseball clubs, orchestras, bands, theatri-i 
 cal societies, cadet corps, athletic clubs, literary societies, an< 
 other organizations are established and assisted."^ 
 
 The larger stores encourage thrift and economy amonj 
 employees by means of savings and loan associations, sicl 
 and death benefit associations, and even by building and loai 
 associations. The purpose of the savings and loan associa- 
 tion 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 in- 
 terest. By this means the loan shark business, which has 
 always obtained some patronage among retail salespeople, is 
 materially reduced. 
 
 The sick and death benefit 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 col- 
 lected and benefits paid by typical benefit associations. The 
 general rules governing membership follow each table. 
 
 EsPENHAiN Employees' Mutual Benefit Association 
 
 Sick 
 
 Qass Salary Dues per Benefits Death 
 
 per Week Month per Week Benefits 
 
 A $2-$4 10c $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 
 
 7 Employers' Welfare Work, Bui. 123, U. S. Bureau of Labor Statistics (1913). 
 Tolman, W. H., " Social Engineering," pp. 48-61 (1909). 
 
THE WAGES OF SALESPEOPLE 
 
 107 
 
 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 bene- 
 fits, 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 
 
 jlst Below $3 10c $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 
 
 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 having 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 assessments 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 al- 
 
io8 ECONOMICS OF RETAILING 
 
 
 ways led. John Wanamaker in his Philadelphia and Ne 
 York stores, Marshall Field in Chicago, and Wm. Filene's 
 Son's Company in Boston are well known concerns that 
 present the highest type of organization for the individual 
 and social betterment 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. 
 
 Coupled with the wage system there is in many stores a 
 system of fines imposed upon salespeople and other em- 
 ployees 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.® 
 
 The generally low wages prevailing in the retail business 
 have attracted a great deal of attention not only from the 
 standpoint of economists, social workers, and the public 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 efficiency, no special qualifica- 
 tions 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 Mas- 
 sachusetts Minimum Wage Board Commission were under 
 the age of 24 years. 
 
 8 Report of the Massachusetts Commission on Minimum Wage Boards, pp. 
 106-107. 
 
THE WAGES OF SALESPEOPLE 109 
 
 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, according to the reports of 
 all investigators, live at home or with relatives. A large 
 number of these are not required to contribute to the sup- 
 port 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 comparatively few 
 have to help support others. The general average youth of 
 female workers shows that they are dropping 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 
 levels. The general result is a big unsettled problem for 
 the independent salesman or saleswoman who is supporting 
 himself or herself and wishes to make a life-work of sales- 
 manship in retail stores. 
 
 One of the methods proposed to meet this problem is 
 the establishment of a minimum wage. In discussions of 
 this subject one finds the idea emanating from three different 
 sources. Employers of several large stores have volun- 
 tarily established minimum wage scales for their own es- 
 tablishments.^ Some attempts have been made to secure 
 minimum wage standards fixed through organizations of 
 
 9 The writer is informed that the following firms adopted minimum wage 
 scales during the years 1912 and 1913: 
 
 Wm. A. Filene Sons Company, Boston $8.00 
 
 Hannah & Lay Mercantile Company, Traverse City, Michigan 7.00 
 
 B. H. Gladding Dry Goods Co., Providence, R. 1 8.00 
 
 Blakeley Dry Goods Co., Spokane, Wash 9.00 
 
 Greenway & Hughes, Wichita, Kan 7.00 
 
 Louis Traxler Company, Dayton, 7.00 
 
 Hager and Brother, Lancaster, Pa 6.50 
 
 M. T. Garvin & Company, Lancaster, Pa 6.50 
 
no ECONOMICS OF RETAILING 
 
 salespeople in the form of labor or trade unions. Lately, 
 we have heard much in this country of the establishment b} 
 law of minimum wage rates, particularly for women anc 
 children. 
 
 Besides the minimum wage scales established voluntarib 
 by retail firms for their own employees, there has been 
 considerable movement among retail salesmen to establisl 
 minimum wage scales in much the same way as that fol- 
 lowed by laborers in many other lines, that is by organiza- 
 tion and collective bargaining. As far back as 1863, there] 
 was organized among women employed in stores and fac- 
 tories a society known as the " Working Women's Pro- 
 tective Union " whose aim it was to raise the wages of 
 working girls and women, but more particularly to aid mem- 
 bers 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 employees 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 organiza- 
 tion known as the Knights of Labor. In 1890, these with- 
 drew and were forthwith united with the American Federa- 
 tion of Labor. 
 
 These pioneer early unions of salespeople were generally 
 called " Early Closing Societies," their main object being 
 namecf 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 Pro- 
 tective Association " as expressed in its preamble are, to 
 
 10 Hyslop, J. H., "Shop Girls and Their Wages," Andover Review, 16:455. 
 
 11 Retail Clerks' International Advocate, September, 1906. 
 
It the wages of salespeople III 
 
 'improve the conditions of retail clerks, secure reasonable 
 compensation, oppose long hours and Sunday labor, dissemi- 
 nate useful information by means of lectures, pamphlets, 
 and other literature, 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 em- 
 ployees, 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, varying in practice, however, to suit local con- 
 ditions, and to settle by arbitration all disputes between em- 
 ployer and employee. 
 
 This association has grown so that it now has locals in 
 nearly every important city in the country. Since 1891, it 
 has published a monthly organ, the Retail Clerks' Inter- 
 national 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. 
 
 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 as- 
 sociations as the " Women's Educational and Industrial 
 Union " of Boston, an organization of the same name in 
 Buffalo, and the " Protective Agency for Women and Chil- 
 dren " 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 
 
112 ECONOMICS OF RETAILING 
 
 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 im- 
 proved working conditions. 
 
 Unions among salespeople are not unknown in other 
 countries. "The National Amalgamated Union of Shop 
 Assistants, Warehousemen, and Clerks," " The Amalga- 
 mated Union of Co-operative Employees," and the " Irish 
 Drapers' Assistants' Benefit and Protective Association " 
 are well known British organizations numbering thousands 
 of members. 
 
 A third form of minimum wage, and the one most com- 
 monly thought of by the public whenever this subject is 
 mentioned, is a minimum wage fixed by legislative act. 
 Such acts were passed several years ago in Australia and 
 New Zealand. Victoria enacted a minimum wage law as 
 early as 1896, New Zealand had wage boards before, but 
 passed a wage act in 1905. England passed a comprehen- 
 sive minimum wage act in 1909. In this country between 
 1912 and 1914 laws upon this subject were passed in nine 
 states, namely, Massachusetts, California, Colorado, Minne- 
 sota, Nebraska, Oregon, Utah, Washington, and Wisconsin. 
 Several other states had similar measures under considera- 
 tion in 1913, and it seems not unlikely that several other 
 states will soon pass similar acts. The purpose of the mini- 
 mum wage law in this country is ostensibly to protect cer- 
 tain classes of workers, such as women and children, who 
 are relatively weak in bargaining power. It has been felt 
 that circumstances are against the woman and child em- 
 ployee, and that, when left to natural market operations, 
 they are not able to get wages high enough to support them- 
 selves. The arguments usually cited for a legal minimum 
 wage are as follows: 
 
 1. If wages are lower than the cost of living, society 
 
f THE WAGES OF SALESPEOPLE 1 13 
 
 must make up the difference in some way to the individual 
 — hence why not directly through the wage ? 
 
 2. Less than a Hving wage causes deterioration of the 
 individual, and to that extent, 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 
 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 
 
114 ECONOMICS OF RETAILING 
 
 of employees with better care, and that the unemployment 
 of the younger and inexperienced classes will force the pub- 
 lic to establish systems of education to fit them for the mini- 
 mum wage. In the long run it is felt that any increases 
 made necessary in retail expenses because of higher wages 
 can and will be shifted to the consumer. 
 
 The arguments commonly heard 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 
 individually 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 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 1?o 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 
 inefficient 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 employees. One of the results that 
 
THE WAGES OF SALESPEOPLE 1 15 
 
 seems certain is that the pubHc will then have its attention 
 called to the necessity of adopting some form of specific 
 education for the work of retail selling. This would, in 
 the long run, be a most desirable thing, not only for the 
 salespeople themselves but also for the retailers and the 
 public. 
 
 That a minimum wage will reduce initiative and ambi- 
 tion and that the minimum will tend to become the maxi- 
 mum are arguments that have been used against all mini- 
 mums of wages set by trade unions for years. These argu- 
 ments 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 be- 
 cause 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 minimum wage results from confusing the func- 
 tion of the state as a regulative body, and from not distin- 
 guishing the necessity for rules in the conduct of business 
 — as well as in any other social activity — with a partici- 
 pation in business itself. 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 argu- 
 ment against the principle of regulation. 
 
 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 
 
Il6 ECONOMICS OF RETAILING 
 
 present wage standards, based on the usual percentages for 
 salaries on sales, the more efficient are able to make fairly 
 good wages. This suggests the possibilities of a practical 
 education for salespeople; taking young people who have 
 been sufficiently prepared in the regular 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 public school 
 system, even as training is given in agriculture, domestic 
 science, and the many mechanical trades that have been in- 
 troduced. It is to be presumed that such educational work 
 will be established in the public school systems, and it prom- 
 ises to be the next great step, both in the field of vocational 
 education, and in the development of more efficient retail- 
 ing. 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 func- 
 tions involved in such an education, the army of workers 
 in the retail field would gradually force a somewhat higher 
 wage standard, 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 respon- 
 sibility**and importance to the public of this work, the retail 
 business will be able to take its place among the most hon- 
 ored and best paid professions. 
 
 Bibliography ^ 
 
 Wage-Earning Women in Stores and Factories, Vol. V. In Report of 
 Conditions of Woman and Child Wage-Earners in the United 
 States, 1910. 61st Congress, 2d Session, Document No. 645. 
 
 Wages of Women in Retail Stores. In Report of the Massachusetts 
 Commission on Minimum Wage Boards, 1913, pp. 88-143. 
 
THE WAGES OF SALESPEOPLE 
 
 117 
 
 Neighborhood Department Stores in Chicago. U. S. Bureau o£ Labor, 
 Bulletin No. 91. 
 
 Report of the National Civic Federation on Conditions in Department 
 Stores, 1913. Published in the Federation Review. Reviewed by 
 Nation, July 31, 1913. 
 
 Van Kleeck, M. Working Conditions in New York Department 
 Stores. Survey, 31 :50-51. Criticism of the report of the National 
 Civic Federation. 
 
 Butler, E. B. Saleswomen in Mercantile Stores. Baltimore, 1909. 
 
 MacLean, Annie M. Two Weeks in Department Stores. American 
 Journal of Sociology, 4:721. 
 
 Dry Goods Economist, New York, published a number of articles bear- 
 ing 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." 
 
 Pigou, A. C. Principle of the Minimum Wage. 19th Century, 73: 
 644-58. 
 
 Clark, J. B. Minimum Wage. Atlantic Monthly, 112:289-97. 
 
 Webb, S. Economic Theory of a Legal Minimum Wage. Journal of 
 Political Economy, 20:973-98. 
 
 Minis, H. A. Some Aspects of the Minimum Wage. Journal of 
 Political Economy, 22 :132-59. 
 
 Kelley, Florence. Minimum Wage Boards. Proceedings of the Na- 
 tional Conference of Charities and Corrections, Cleveland, 1912. 
 
 Perils of the Minimum Wage, Century, 84 :311-3. 
 
 Ryan, J. Living Wage. Survey, 27:1623-4. 
 
I 
 
 CHAPTER VIII 
 
 LOCATION AND RENT IN THE RETAIL 
 BUSINESS 
 
 The Principles of Rent Applicable to Retail Store 
 
 Locations 
 
 Some unknownperson 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 sin- 
 gle 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 supplement 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 busi- 
 ness could be transacted, (^try merchant of experience 
 know5 something of the comparative value of retail sites. 
 TM buyer of a store considers the value of the location first 
 of all. The credit manager of the wholesale house inquires 
 
 n8 
 
LOCATION AND RENT II9 
 
 concerning the location of the store whose owner seeks his 
 department's O.K. Failure statistics show that many bank- 
 ruptcies are due directly to poor location. If figures could 
 be given showing the number of cases in which a bad loca- 
 tion was a contributing cause to failure, there is no doubt 
 but that it would rank extremely high. Any study of retail- 
 ^Jng must take location into consideration. 
 
 Rent is the payment that the retailer makes for his loca- 
 tion and for the use of the buildings and improvements 
 there may be thereon. It matters not if he own his store 
 and the land that it is built upon, for in this case the rent that 
 he would otherwise pay to another person simply goes to 
 himself. 
 
 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 upkeep or deprecia- 
 tion charges, taxes on the building and improvements, in- \ 
 surance, and real estate brokers' or rental agencies commis- 
 sions, 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 depends almost entirely upon its loca- 
 tion. Hence it is virtually true that ground rent is the 
 retailer's payment for location. 
 
 The distinction between building rent and ground rent 
 is recognized by many business men in their accounts and 
 records. In England it has long been customary, especially 
 in the larger cities, for landlords to lease unimproved city 
 
120 ECONOMICS OF RETAILING 
 
 lands for long periods to merchants and others who put uj 
 
 .'their own buildings, but who pay rent for the use of the landj 
 
 / This custom seems to be on the increase in the larger cities 
 
 of this country. In these cases the distinction is kept clej 
 
 in practice. Some states and municipalities require separate 
 
 assessment of land and improvements for purposes of taxa- 
 
 \ tion. Tax reformers of the Henry George type accept this 
 
 i division as fundamental. Courts frequently cause land and 
 
 \ improvements to be valued separately in condemnation pro- 
 
 ceedings. 
 
 Clear thinking demands that the same distinction should 
 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 do- 
 ing 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 capital- 
 ized value of the rental, the returns to the ground and its 
 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 1 per cent goes to the buildings and improve- 
 ments and the other 1 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. 
 
 The amount of rent paid for the location depends upon 
 its comparative desirability. In a town where all locations 
 are equally good for retail store purposes, and where there 
 
 iHurd: "Principles of City Land Values." 
 
LOCATION AND RENT 12 1 
 
 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 pur- 
 poses. Such a condition is rarely the case, however, except 
 in small country villages having no special features causing 
 a concentration of the retail business at any given point. 
 Where there exists a considerable difference in desirability, 
 and where there is competition for the more desirable loca- 
 tions, the rents will tend to vary with the desirability. The 
 more desirable the location is, the higher its rent will be. 
 In other words, ground rent, in the retail business, is paid 
 for comparative advantages in location. 
 
 To illustrate, let us assume that a merchant 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 differ- 
 ences between the two locations, let us assume that the sales 
 in both cases will yield a gross profit or margin of 33% 
 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% 
 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 dif- 
 ference 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." Reducing these figures to percentages of the 
 
122 ECONOMICS OF RETAILING 
 
 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 rais- 
 ing the rent of the second location from $480 to $600 per 
 year, the landlord is only keeping his rent in the same pro- 
 portion to sales as exists for the first location. It is prac- 
 tically certain that under the circumstances 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% 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% 
 per cent net profit in each case. Now 8% per cent of 
 $30,000, or $2,500, is $500 more than 81/3 per cent of 
 $24,000, or $2,000. Thus $500 is still 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 mer- 
 chants 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 
 tb get all of it, although that outcome is not impossible. 
 
 /As the rent is fixed at a higher and higher figure, the in- 
 terest of the merchants begins to wane, certainly while lo- 
 cations of the first kii3id yielding net profits of $2,000 per 
 
 \year are available. It is the surplus above $2,000 that at- 
 tracts their bidding. If no surplus is possible, the mer- 
 
LOCATION AND RENT 1 23 
 
 chants will stick to the other locations. The landlord may 
 possibly get $300, thus leaving $200 for the tenant. In 
 this case the total rent would be $900 a year, or, under the 
 assumption, 3 per cent of the sales. Thus on passing from 
 poorer to better retail locations the proportion of rent to 
 sales tends to increase. 
 
 There is another reason why rents tend to be higher, 
 not only absolutely, but also relatively to sales for the bet- 
 ter locations. The competition among the retail store man- 
 agers of a town is generally very keen for these locations, 
 and the best locations naturally go to the highest bidders. 
 While mistakes often result from such competitive bidding 
 and store managers sometimes find themselves unable to 
 pay the high rents agreed upon and succeed; still, in the 
 long run, the highest bidder is likely 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 ef- 
 ficient 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 product which might properly be attributed to the 
 superior efficiency of the manager. 
 
 Take the case of the second location referred to in the 
 illustration used. It was assumed that the merchant could 
 make a gross profit of 33% per cent and a net profit of 
 8% 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 in- 
 crease the amount of the sales, and it becomes evident, other 
 
124 ECONOMICS OF RETAILING 
 
 things remaining the same, that such a manager will be abU 
 to clear more than Sy^ per cent profit on his sales. Now] 
 if the number of locations where such efficiency can b< 
 exercised is limited, and if two or more store managers oj 
 unusual ability should be found in competition for the sam< 
 location, it is almost certain that the landlord will be ableJ 
 to get as rent more than 2 per cent of the sales, the amount] 
 'received by the owner of the poorer location. 
 
 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 paying the rent.i 
 Jones, let us say, is the most efficient of the three. He is 
 able to make $3,000 a year in the desired location. 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 offer 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. Be- 
 cause of the competition of other efficient men like Brown, 
 
LOCATION AND RENT 125 
 
 the landlord is able to collect $301 out of that $500, leaving 
 $199 to Jones. 
 
 It thus seems that the business system is so contrived as 
 to deprive the most efficient men of at least a part of the 
 special product of their efficiency, and that this product is 
 absorbed in the rent for location. To this the land-own- 
 ing 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 demon- 
 strate his special talents were it not for the superior loca- 
 tion. As to the merits of this controversy, we need give 
 no attention here, except to point out that product is every- 
 where 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. 
 
 The method proposed by most economists in their analy- 
 ses of production, and followed largely in business practice, 
 in determining the share of each factor, is to take for con- 
 sideration 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 that 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 concern, since it may be 
 
126 ECONOMICS OF RETAILING 
 
 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 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 product 
 is taken as the part of the total product caused by that factor. 
 Thus the product of all the labor employed is equal to the 
 product of the last man employed multiplied by the number 
 of laborers. In the same way the products for capital and 
 land are found. 
 
 The only trouble with this theory is that the total 
 products found as above are 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 taken separately. 
 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 laborer can add to the total product of 
 the concern. The interest rate for capital tends to equal 
 the vahie of that amount of product which one unit of cap- 
 ital, say $100, can add, if put to use in the concern. It is 
 a little harder to illustrate the principle with land, as used 
 for retail purposes, although the principle is just as ef- 
 fective. We may say, theoretically, 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 by the concern. 
 
 This method of determining the productivity of each 
 factor has practical advantages for the manager of the busi- 
 
LOCATION AND RENT 1 27 
 
 ness. 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. 
 
 In actual practice, the average business man has but lit- 
 tle 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 in- 
 stalling automatic machines of various kinds, open display 
 fixtures, arrangements whereby goods sell themselves, and 
 so on. If capital or money is relatively high in interest, 
 he may economize in fixtures and equipment, 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 some- 
 thing 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 profits of the concern. By 
 some economists it is further classified as the wages or the 
 profits of good management, and pure or chance profit. 
 
 Referring back to the statement concerning the tendency 
 of the more able merchants or store managers to compete 
 keenly for the best locations, an interesting sidelight on 
 the retail business is revealed, namely, that the best or most 
 efficient store managers tend to get the best locations in the 
 long run. The highest bidder gets the place. Normally, 
 however, the highest bidder is the one who can make the 
 most out of the location ; hence the highest bidder is in such 
 
128 ECONOMICS OF RETAILING 
 
 
 ts 
 
 1 
 
 a case the most efficient store manager. Mistakes are fre- 
 quently made in bidding for locations, however, and many 
 men fail to make good under the burden of the rent and 
 other expense assumed in the better locations. Only here 
 and there is there a manager who can meet the high rents 
 and earn a good profit besides. Under the present order o 
 business, this is the only visible, practical measure of e 
 ficiency. Thus the sifting process goes sternly on. 
 
 So far, we have compared locations of different degre 
 of desirability. It is evident that a location may change in 
 desirability with the passing of time; hence we may com- 
 pare the relation of the rent to the earning power of the 
 same location at different times. One of the most common 
 explanations for the rise in the costs of doing a retail 
 business during the last fifteen years is that rents have 
 gone pp. In support of this view one writer ^ gives figures 
 from a small department store in a town of about 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 19^0 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 pro- 
 portional to sales, that is, rents have increased faster than 
 sales. 
 
 ifrwo sets of causes are clearly discernible, both of which 
 mult be taken into account in explaining these increases 
 
 2 Wheeler Sammons, " Keeping Ahead of Rising Costs," System, Dec. 13, 1914. 
 
 8 Flint Garrison, in the Drygoodsman, Nov. 16, 1912. 
 
 4 Report of the Mass. Cost of Living Comm., pp. 138-9, 
 
 B Bulletin of the U. S. Lab. Statistics, No. 130, p. 63. 
 
LOCATION AND RENT 129 
 
 in rent. In the first place, part of the increase is due, not 
 to increase in ground rent, but to building rent. Cost of 
 building construction is much higher now than it was fifteen 
 or more years ago. Such increases in cost must be met in 
 the investment and must be covered by a higher return. 
 Better store buildings, fixtures, fronts, windows, and so on, 
 are required today than ever before. But these improve- 
 ments have meant additional outlays that must be com- 
 pensated for by the merchant-tenant who uses the store. 
 These items, interest and upkeep on a higher investment, due 
 to 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 every- 
 where. 
 
 Another explanation for the increase in retail rents dur- 
 ing the last fifteen years is that the 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 become old. 
 But a retail location used continuously, especially if man- 
 aged in a way satisfactory to the public, naturally draws 
 an increasing trade. As the trade increases, the location 
 is said to improve. This improvement may be due to the 
 active 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 fol- 
 low 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, its value goes up. 
 
I30 ECONOMICS OF RETAILING 
 
 J As the trade at any location increases, the possibiHty oJ 
 making a larger profit increases, and the best locations in 
 town are nearly always those that have been cultivated by 
 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 t( 
 the landlord will not only increase as the sales increase, but 
 will tend to do so somewhat faster. Thus the same forces' 
 which operate 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. 
 
 To a certain extent, the increases 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 counterbalancing effect 
 equals the tendency to increase. Population has been increas- 
 ing 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 i:en- 
 ters, ar^ 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 opera- 
 tion of the rent tendencies above noted. The retrograde 
 movement in the small towns would make but little differ- 
 ence in the general rent tendencies as expressed in percen- 
 tages of sales, for in such towns the rent percentages have 
 always been and are now low. 
 
 That the percentage of rent to sales increases as the 
 
LOCATION AND RENT 13 1 
 
 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 
 neighborhood, and a shop is taken with no lease, or merely 
 an agreement 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 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 con- 
 viction that the shopkeepers and small tradesfolk are sys- 
 tematically despoiled by the landlord whenever a lease falls 
 in. The freeholder or a long-lessee lets a foothold in the 
 business 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. Therefore, you have him in a trap. Some security 
 you must offer 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 af- 
 fectionate interest, for you will skim the cream off by and 
 by. Knowing that he cannot leave without a loss, of say, 
 
 6 Richard Beynon, " Drapery and Drapers' Accounts," pp. 160-161. 
 
 7 Sullivan, " Markets for the People," p. 45. 
 
132 ECONOMICS OF RETAILING 
 
 1,000 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 beyond what another man 
 would give you ; then you ask a fine, in cash, or in the form 
 of building improvements, remembering 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 continue to enjoy his own business which he has brought 
 to the house under the hard penalty of being turned out of 
 the house altogether. ... It is also cant to talk about free- : 
 dom of contracts, for the tenant would be ruined if he 
 did not submit to his landlord's terms." ^ 
 
 That rents in the retail business do actually show a 
 tendency to increase, not only absolutely but relatively as 
 well, on passing from poorer to better locations, or for the 
 same location as it becomes more desirable 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 these 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 
 
 8 B. F. C. Costelloe, a member of the London County Council, quoted in 
 Dawson's " Unearned Increment," p. 40. 
 
 9 Dawson, " Unearned Increment," p, 52, 
 
 10 System^ M^r., 1911, 
 
LOCATION AND RENT 133 
 
 for department stores. ^^ In reply to an inquiry upon this 
 point directed to C. C. Parlin/^ who has made an ex- 
 tensive 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 m towns of less than 100,000 popu- 
 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 concerns." ^^ 
 
 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 1% 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 dry- 
 goods store a few doors off from the main street of a town 
 of 25,000 population pays 3.3 per cent for rent, while a prin- 
 cipal dry-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. 
 
 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 
 
 11 " How to Run a Store at a Profit," A. W. Shaw Co. 
 
 12 Manager Com'l. Research Division. Curtis Pub. Co. 
 
 13 Bulletin No. 1, Preliminary Figures on the Retailing of Shoes, May, 1913. 
 
134 
 
 ECONOMICS OF RETAILING 
 
 in a town of 18,000 is 2 per cent; for the best located storj 
 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 3% per cent; and in 
 city of over a million it is 4% per cent of sales. A smal 
 country town shoe store pays 2 per cent for rent ; in a town oi 
 25,000 population, one of the best shoe stores pays 3 per centi 
 and in a metropolitan center the rent is 6 per cent. Thej 
 are typical of the figures at hand, and, if not conclusive, an 
 at least suggestive. 
 
 In conclusion, rents in the retail business seem to pre- 
 sent the following characteristics : 
 
 1. The amount of rent paid by a store manager for 3. 
 retail store depends primarily upon the comparative desira- 
 bility of the location. Desirability of location means pos- 
 sibility of making profits. The more desirable the location, 
 the higher the rent. 
 
 2. The rent tends to increase not only absolutely but: 
 relatively to profits on passing from poorer to better loca- 
 tions. 
 
 3. The rent tends to increase not only absolutely but 
 relatively to profits on passing from the best locations 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? 
 
 In considering how high retail rents can go, one must 
 constantly bear in mind that there is competition of land- 
 lords as well as of store managers. The rent for the best 
 
LOCATION AND RENT 
 
 135 
 
 location in any town can go no higher than the point which 
 equahzes 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 efiticiency, but never 
 all of the profits made by the most eflficient. The most effi- 
 cient 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 manager 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 sta- 
 tionar"^, 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 cur- 
 rents 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. 
 
 There are several checks to the complete and perfect 
 operation of the tendencies of rent that have been enumer- 
 
136 ECONOMICS OF RETAILING 
 
 ated. For one thing, retail profits are hardly ever so cer- 
 tain as have been assumed in the illustrations used in thisi 
 chapter. . 'Some allowance must always be made for the ele- 
 ment of chance that stands out large in the retail business. 
 The profits 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 property 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 retit, and the landlord may take less rent, for a 
 time, than would otherwise be necessary or probable if the 
 business were more stable. 
 
 Another check to the freer operation of these tendencies 
 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 compe- ' 
 tition 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. ) 
 
 Then there are customary rents beyond which landlords 
 find it hard to push the retailers. In some towns $100 
 per month ts the highest customary rent, though on strict 
 economic principles, some locations mjgtepay $110, $125, 
 or even more. The retailers of a townTdhietimes combine, 
 or come to an understanding, not to pay more than a certain 
 rent. ^Checks on retail rents such as customs and combina- 
 tions of these kinds are characteristic of the easy going lit- 
 tle country town rather than the brisk, rapidly growing city. 
 In the latter environment custom counts for nothing and 
 combinations are usually easily broken up. 
 
 ' The long time leasing system also acts as a check on the 
 operation of the laws of rent. It prevents the ready adjust- 
 
LOCATION AND RENT 
 
 137 
 
 ment of rent to the actual, present desirability of the loca- ' 
 tion. Under the long term lease, sometimes one party gets 
 the benefit and sometimes the other, depending largely upo/i 
 whether retail trade currents are coming towards or passiiig 
 away from the location at the time of the making of the 
 lease and thereafter. 
 
 Bargaining is not always carried to the extreme auction- 
 ing method indicated. In many cases a merchant makes as 
 good an offer 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 tendencij^s 
 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 somewhat in favor of what we have here called the 
 " tendencies of retail rents." , 
 
CHAPTER IX 
 
 LOCATION AND RENT IN THE RETAIL 
 BUSINESS (Continued) 
 
 Factors of Desirability in Location 
 
 The value of a retail store location is determined solely 
 by the possibilities it offers of making a profit. The pos- 
 \ sibilities of making a profit depend upon the possibilities of 
 making sales. There can be no profits without sales, 
 j 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 
 I 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 profit- 
 able as large sales with low profits. In any case, the profit 
 I is the important consideration. A good location is one that 
 1 permits the retailer to make a good profit either from small 
 ! sales and Isitge margins, or from larger sales, with un- 
 usually smaller margins of profit. 
 / The customary method of expressing the rent that a 
 store pays as a percentage of the sales of the store, is, there- 
 fore, 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 importa.it 
 with which to compare the outlay for rent. 
 
 The possibility of making sales depends upon accessi- 
 biHty to the purchasing public. The greater the number of 
 people, other things being equal, who live near, who come to, 
 
 138 
 
LOCATION AND RENT 
 
 139 
 
 or who pass by a certain location, the more valuable that 
 location is. Every retailer who knows his business recog- 
 nizes this. The president of the Woolworth five and ten 
 cent stores company expressed this idea exactly when he 
 said, " I setiny traps where the mice are thickest." Store 
 managers, particularly the managers of certain chain-store 
 systems, on seeking out new locations for stores, first de- 
 termine the number of people who pass the proposed loca- 
 I tions, actually counting them for certain periods of time, 
 often for weeks, so as to get accurate data, and then giv- 
 ing their preference 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 crossroads store in the country, the comer store in 
 the village, the neighborhood store in the residence section 
 of the city, and the " downtown " or " uptown " store in 
 the center of the city. 
 
 The neighborhood store aims to get as close to the homes 
 of the prospective customers as possible, 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 con- 
 tent themselves with handling only such lines of goods as 
 are of daily necessity in the surrounding homes — such as 
 groceries, meats, baked goods, and dairy products. Another', 
 limitation on a neighborhood store that is clearly evident, is 1 
 that its area of trade is limited. Hardly ever does trade •, 
 for such a store come further than four or five blocks. Be- j 
 yond this radius the influence of competing neighborhood 
 stores, or the attraction of the stores in the center of the 
 city overpower the trade possibilities of the neighborhood 
 
I40 ECONOMICS OF RETAILING 
 
 stores. There are here and there neighborhood store mai 
 agers who are able to push their trade beyond these natun 
 Hmits, 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 
 similarly determined. 
 
 Stores in rich, fashionable neighborhoods are able to 
 command higher profits in proportion to sales than stores in 
 poorer neighborhoods, and the proportion of rent to sales 
 varies in the same way. i A grocery store in one of the 
 best residence districts of a Middle- Western city of 350,000 
 people, pays 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 approxi- 
 mately 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 off. 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 16cation are con- 
 siderably higher, hence he has to pay a higher percentage 
 for rent, but still makes more money than the second. 
 
 The centrally located store, as the term expresses, is 
 located where the most people naturally come together, 
 whether it be at a country crossroads, the place of inter- 
 section of principal streets in a city, or at the intersection of 
 street car or other transportation lines. It is a matter of dis- 
 pute 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 recognized fact that 
 most merchants do not court the difficulties of such an at- 
 tempt. The commonest struggle among retailers is that for 
 the location which is passed by the greatest number of people. 
 
 In considering the value of a location for a retail store, 
 
LOCATION AND RENT 
 
 141 
 
 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 an- 
 alyzing a location 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 10-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. 
 
 Another classification of passers-by that will prove help- 
 ful in determining an estimate of the possibilities of a loca- 
 tion is based on the purpose or the reason for their passing 
 by. Some are going to 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, boot blacks, barber shops, 
 
142 ECONOMICS OF RETAILING 
 
 cigar stores, and, to some extent, haberdasheries, on theii 
 way to and from business. Large crowds of factory em- 
 ployees, 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 for shopping. Many 
 factory workers, particularly 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 '' down town " retail dis- 
 trict is much more likely to draw their trade. A very 
 large part of the goods of all kinds needed by the family 
 from v/hich the factory worker comes is purchased 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, too often, the saloons, and the cheaper grade of res- 
 taurants and lunch counters. 
 
 Pleasure seekers are usually better buyers than the army 
 of workers passing to or from work. Refreshments, flow- 
 ers, sweets, souvenirs, and trinkets are some of the objects 
 that may appeal to their fancies. Such trade is strictly 
 chance custom. It is entirely dependent upon the time of 
 year, the occasion, and the weather. A fine summer day 
 brings out a crowd of people along the fashionable streets. 
 A converging point of such thoroughfares makes a splendid 
 location for 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 circus is in town, are dotted with 
 refreshment booths, the best located doing a good business 
 
LOCATION AND RENT 143 
 
 and finding it profitable to pay a high rental for the day 
 for the location which would be worthless on the morrow 
 for the same purpose. 
 
 The people who come out for the express purpose of 
 shopping and buying are for the majority of retail businesses 
 by far the most important classes. The places to which these 
 people go are the places that are valuable for retail pur- 
 poses. 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 offered the 
 biggest variety, the best qualities, the best facilities for ex- 
 amination, and the biggest bargains. Because others come 
 here to purchase goods, this is assumed to be the best place. 
 In any case, this central point is the most valuable retail 
 store location. Retailers who cannot get this best location 
 struggle to get as near to it as possible, and rents are largely 
 bargained for on the basis of distance from this central 
 market point. Thus the retail store group spreads out from 
 the center, especially along the streets most frequented or 
 best traveled. 
 
 Stores tend to cluster around this best location in the 
 city and to form what is known as the retail district. The 
 stores established are not always competitors. Almost as 
 frequently they arrange themselves into complementary 
 groups co-operating with each other in the attraction of cus- 
 tom 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 women's goods are located on the 
 
144 ECONOMICS OF RETAILING 
 
 other side. Dry-goods, millinery, jewelry, shoe, and bool 
 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 markets, and bakeries tend to form 
 another grouping, each co-operating in a way with the 
 other kinds of stores in the group. Confectioneries, soda 
 and ice cream parlors, florists' shops, and theatres form an- 
 other natural grouping. The saloon, 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 de- 
 veloped that did not exist before. Thus the result is an 
 increase in the total amount of trade. Cases are known 
 where the increase 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 con- 
 venience Jo the customers. In fact, the convenience to the 
 customer is the chief cause for the close grouping. Stores 
 handling the same or similar lines and stores handling dif- 
 ferent lines of goods, all close together, save the customer's 
 time. This is, probably, the greatest argument for the de- 
 partment 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 investi--* 
 gator for a large publishing house ^ has stated that '* before 
 
 1 C. C. Parlin, Manager of Research Division, Curtis Publishing Co., in an 
 address before the Advertisers' Convention, Cincinnati, Sept. 24, 1913. 
 
LOCATION AND RENT 
 
 145 
 
 she buys, a woman usually visits three stores to compare 
 goods. The man, who is distinctly * anti-shop ' in his in- 
 clinations, on the contrary, visits but one." Competing 
 stores, located close together, and dealing in goods women 
 buy, permit comparisons to be made easily. 
 
 Another advantage of locating competing stores close 
 together is the possibility of drawing trade from customers 
 who had planned on going directly to some one of the com- 
 petitors. Such customers may frequently be induced to en- 
 ter other stores by attractive window displays, and whether 
 they do or do not buy the goods that they had come out 
 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 Middle-West jobbing house that has a service 
 department to aid those who wish to establish variety goods 
 stores frequently advises the locating of the store — so it is 
 stated — next door, if possible, to a syndicate five and ten 
 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 shared to a certain extent by the 
 smaller and newer store next door. 
 
 In cities or towns having a public market that amounts 
 to anything, stores frequently 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 
 
 1 
 
146 ECONOMICS OF RETAILING 
 
 city's merchandising has once readjusted itself to the marke 
 its removal is generally strongly opposed by the merchant 
 The removal of the city market has in many cases mine 
 whole retail districts which had been built up around an 
 near the old market place. This merely exemplifies th 
 principle that retail stores must go to the people and tha 
 the people are not likely to go out of their way to find the 
 stores. 
 
 We have so far considered the possibilities of a retail 
 store location from the standpoint of the number of passers 
 by, the buying power represented, and the purposes that 
 bring them by. 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 commonly 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, 
 j President of the United Cigar Stores Company, the expendi- 
 ture for gigars is as follows in the principal cities : 
 
 Annual Cigar Consumption in American Cities ^ 
 
 New York $1.74 per capita 
 
 Chicago .63 per capita 
 
 St. Louis 1.21 per capita 
 
 Rochester 97 per capita 
 
 Spokane 60 per capita 
 
 San Francisco Qk O ^per capita 
 
 Milwaukee 23 per capita 
 
 Atlantic City 2.55 per capita 
 
 2 From Printers' Ink, quoted in Cherington's " Advertising as a Business 
 Force," p. 187. 
 
LOCATION AND RENT 
 
 147 
 
 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 reflected in the retail business and thence back to the 
 location of the retail store that is most conveniently located 
 to serve the demands. 
 
 Any influence on the course of people's movements af- 
 fects the value of a retail location. Certain streets are 
 more popular than others, and one side of the street is gen- 
 erally more traveled than the other, with a consequent dif- 
 ference 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 
 climates, and in the winter time, they walk the sunny sides. 
 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 street 
 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 
 
148 ECONOMICS OF RETAILING 
 
 street 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. 
 ] Because of the reflection of softer lights from the plate 
 I glass and show-window back-grounds on this side, the win- 
 /dow displays appear to better advantage, and, therefore, 
 j draw more attention. 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 delicate shades generally fade easily and 
 need protection from the sun's direct rays. In order to dis- 
 play 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. 
 
 In New York City, for example, the west side of Broad- 
 way 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 double those of ordinary lo- 
 cations in this vicinity. There are exceptions, however. 
 " A Wanamaker can pull trade anywhere, but if Macy 
 should change places with Wanamaker, history would re- 
 cord 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 is 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. 
 
 3 Dry Goods, Dec, 1911. 
 
LOCATION AND RENT 149 
 
 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 be- 
 ings, as among goats, to get up 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 remains that the upper side 
 seems to be favored in most cases. This tendency may be 
 remedied to a certain extent, but not entirely, by having the 
 streets graded so as to put the walks on both sides on the 
 same level. 
 
 Most merchants of many years' experience know of 
 '' hoodoo " locations, places which would seem to be favor- 
 able for a retail store, but in which every merchant 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 mer- 
 chants 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 rea- 
 
I50 ECONOMICS OF RETAILING 
 
 son for so doing passed away, the practice continued as 
 habit. 
 
 Speaking of the peculiarities of the habit of crowds, 
 A. Bruce, general manager of the Beck Shoe Store Compan] 
 of New York, operating a chain of New York shoe stores] 
 says: 
 
 " Walk up Broadway from 23rd street to 50th. 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 40th street and then it suddenly shifts. From there 
 up to 50th the east side of the street is a little better than 
 the other. Why? I can't tell you, but it is true." 
 i Corner lots are more valuable than inner lots for 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. IJeavy traffic 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 lo- 
 cations 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 frequently the designated meet- 
 ing place for many people. For these reasons the corner is 
 of considerably greater value than the inside lot, and espe- 
 cially for businesses depending upon pick-up trade or chance 
 custom, such as cigar stores, drug stores, book stores, news 
 stores, shops dealing in curios, souvenirs, and novelties of 
 any kind. A well-known manager of a chain of shoe stores 
 
LOCATION AND RENT 151 
 
 estimates that for the shoe business the corner is worth at 
 least 20 per cent more than an inside location.^ 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 corner 
 in a diminishing ratio. Newark, New Jersey, for example, 
 assesses all business corner lots 50 per cent higher than in- 
 side lots.^ 
 
 There is a difference in value in the corner locations that 
 corresponds to the difference found between opposite sides 
 of the street, and for similar reasons. In localities where 
 the south and west sides of the streets are most popular, the 
 southwest corner is most valuable, the southeast corner 
 comes next, the northwest corner next, and the northeast 
 corner last. In localities where the sunny sides are pre- 
 ferred, these values would be reversed. 
 
 The presence of near-by disagreeable - features of any 
 kind reduces the value 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, if at all, by using more advertising, special store 
 fronts, unusual lighting effects, or striking window displays. 
 
 Proximity to stables, saloons, hospitals or schools gener- 
 ally cuts down retail trade, and hence affects location value 
 adversely. Women dislike going near saloons 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 
 
 4 Printers' Ink, Aug. 7, 1913. 
 
 5 " Real Estate and Its Taxation in Philadelphia," a pamphlet published by the 
 City of Philadelphia. 
 
152 ECONOMICS OF RETAILING 
 
 uneven on the other, people will take the better walks in] 
 the large majority of cases. Steps up or down from thej 
 sidewalk to a store lessen the value of the location. A rick- 
 ety 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 build- 
 ing 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. 
 
 Other things being equal, the store easiest for customers 
 tcyreach has the best location. The places where the cars 
 stop, where the farmers tie their 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 centralize 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. Pat- 
 ronage given distant towns, the development of parcels post, 
 and the use of the automobile, and even to a certain extent 
 the development of better roads for wagons and buggies 
 have helped to concentrate trade in the retail districts of 
 the larger cities. Vj-ocations in such places have seemingly 
 grown more valuable with nearly every invention that has 
 been made in the way of improving the means of transpor- 
 tation and communication. 
 
 Many other factors of varying degrees of importance ' 
 influence the value of retail store location, but all depend for 
 
LOCATION AND RENT 
 
 153 
 
 their influence upon the principle laid down at the beginning 
 of this chapter, namely, that the value of a site depends 
 entirely upon its possibilities for making profits. For the 
 opportunity to use the site, the tenant pays his rent. 
 
CHAPTER X 
 
 LOCATION AND RENT IN THE RETAIL 
 BUSINESS (Continued) 
 
 Intensive Use of Location 
 
 A good location for a retail store simply offers the pos- 
 sibility 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 cultivate 
 and to harvest the product, whatever that may amount to, 
 of the given location. 
 
 When the retail store manager is confronted by a de- 
 mand 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 accom- 
 plish 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 ef- 
 fectively as possible. Space may perhaps be economized by 
 the use of special fixtures and equipment. Something can 
 often be done to provide for distributing 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 displays, advertising of va- 
 rious kinds, and by special service to the people who come to 
 
 IS4 
 
LOCATION AND RENT 1 55 
 
 the store. Finally, the salespeople 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 man- 
 agers occupying the highest priced locations are able to make 
 good; and it is by study of such methods as these that re- 
 tail merchandising can be improved in all classes of loca- 
 tions. 
 
 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 reason 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 features desirable 
 from the standpoint of merchandising are likely to be 
 omitted. Each class and grade of merchandising establish- 
 ment 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 depart- 
 ment stores, can it be said that a true type of merchandis- 
 ing building has been developed by American architects. 
 Hence the average architect is by no means to be trusted 
 to plan a structure perfect for store purposes. 
 
 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, spaciousness, 
 lightness, and airiness, the things that fit in with the present 
 popular ideas of art and sanitation. It needs distinctiveness 
 to help attract attention. Store fronts, like millinery, are 
 subject to fashion, hence the structure of the building should 
 
156 ECONOMICS OF RETAILING 
 
 be such as to permit of easy and economical changes in thi 
 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 
 necessity 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 th 
 ground floor. 
 
 The use of basements as adjuncts to main floor storej 
 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 utiliz- 
 ing for merchandising purposes a space upwards of 25 
 feet deep below the street level. 
 
 There has always been some difficulty in getting people 
 to go to the basement for goods, hence merchants com- 
 monly use " bargains " or other inducements to draw them 
 there. Frequently the entrance to the basement from the 
 first floor is placed at a point of considerable distance from 
 the main building entrances, making it necessary for cus- 
 tomers 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 easy, and to increase the sales 
 wherever possible in such ways as these. 
 
LOCATION AND RENT 1 57 
 
 Upper stories offer the same objection as the basement, 
 namely the difficulty of getting customers to go there. 
 Good comfortable stairways, capacious elevators, and, more 
 recently the use of escalators 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 diffi- 
 culty 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, however, either elevators or escalators seem 
 to be absolutely necessary 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 re- 
 ported 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. 
 
 The value of a floor in a building is not entirely depend- 
 ent upon the number of people who come to it. The 
 ground floor is likely to have a larger proportion of shop- 
 pers, or, rather, sight-seers, than any other floor. While 
 the store must aim to interest and to sell goods 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 customers 
 
 iRing, R. S., "The Escalator for Department Stores," Archit. & Bldg., 44:509i 
 2 Otis Elevator Company. 
 
158 ECONOMICS OF RETAILING 
 
 for merchandise. The average person who takes the trouble 
 to come to a third or fifth floor is Hkely to have some 
 definite want in mind that the store has a good chance 
 to satisfy. But in spite of these quahfications, the ground 
 floor is far more valuable than any other. 
 
 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 observed, 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 Economist, and in part 
 from figures given to the writer by executives of two of the 
 largest retail concerns in the country, are probably typical. 
 
 Table Showing Apportionment of Rent of Buildii^ 
 TO THE Various Floors ^ 
 
 Store No. 123456789 10 
 
 Basement 35 . . 25 . . 15 10 10 15 12^ 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 Ih 5 
 
 Sixth Floor . 5 
 
 As indicated by the table, the rental value of stories abovet 
 the first decreases rapidly for retail purposes. This brings 
 us to a question of interest in the larger cities, namely, how 
 high up will retail customers go. A recent writer* hasfj 
 stated that nine stories above the ground with two base- 
 ments beneath probably represents the profitable limits. 
 Other stores have gone somewhat higher but with what suc- 
 cess is not known. This problem is of interest, of course, 
 only where rents are very high, and additional space very 
 
 3 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. 
 
 ^Architectural Record, 12:287. j 
 
LOCATION AND RENT 159 
 
 difficult to get. Two 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 stories probably represent working limits. The diffi- 
 culties of getting large numbers of customers up and down 
 quickly are too great for further upward expansion. Ex- 
 cept 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 counterbal- 
 ance the earnings made by the use of upper floors. 
 
 Additional floor space is frequently obtained by the ex- 
 panding concern by building a balcony or mezzanine floor 
 part way around the main floor room. This can be done 
 ^nly when the ceiling is high enough. Modern store archi- 
 tecture nearly always provides such height for the first floor, 
 and the mezzanine floor is often a part of the original con- 
 struction. Some stores use this sort of structure with great 
 advantage, generally for goods that might otherwise be dis- 
 played and sold either on the second floor, or in the base- 
 ment, 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, such as furniture, 
 stoves, rugs, carpets, curtains, etc. 
 
 Many small stores find the use of balconies both conven- 
 ient 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 unfinished appearance, just as if it were so much 
 staging. To 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 uncomfort- 
 able stairways. Where these evils are remedied, the bal- 
 cony has proved a money making addition to many stores. 
 
1 
 
 l6o ECONOMICS OF RETAILING 
 
 Whatever the demands may be for more floor space, ther< 
 is present always the problem of using in an effective wa; 
 space already controlled. High rents force this problem t 
 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 consideration of a multi- 
 tude of details among which only a few of the most impor- 
 tant can be mentioned. Provision must be made for receiv- 
 ing, storing, and handling the goods; the machinery, en- 
 gines, and heating plant must be located properly ; and pre- 
 cautions against fire must be taken at every step. The heat- 
 ing, and in larger stores, the cooling plants should receive 
 most careful attention. Maintaining a uniformly comfort 
 able temperature, regardless of weather conditions, is essen- 
 tial. 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 depart- 
 ment of goods. This means brilliant light for such depart- 
 ments as jewelry, glass-ware, and china-ware, and subdued 
 lights for such departments as furniture, and so on. Pro- 
 vision 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 
 commodious 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. Accommoda- 
 tions for customers, such as waiting rooms, reading and 
 writing rooms, telephone booths, and toilets must be pro- 
 vided. Places and fixtures for displaying and selling mer- 7 
 
LOCATION AND RENT l6i 
 
 chandise, and for making change, wrapping parcels, and so 
 forth must receive prime consideration. Space is required 
 for assembHng the goods that are to be delivered. The dis- 
 posal of refuse and waste makes its demand. 
 
 When we come to the goods, the departments 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 customers' minds 
 must be located where they can be seen. The merchandise 
 must be arranged in groups that permit of making 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 neckwear, 
 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 
 comparatively 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 upper floor where space is, as we have seen, 
 much less valuable for selling work. 
 
 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 occasional use 
 of a storage building in a low rent part of the town. The 
 distant warehouse may have the advantage of low rent, but 
 
l62 ECONOMICS OF RETAILING 
 
 it also has the disadvantage of high expense in transferring 
 goods quickly to the main store. All of these matters must 
 be considered. 
 
 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 ade- 
 quately 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 count- 
 ers, 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 re- 
 duced 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 salesmanship, and to be 
 prepared to tell in short, pithy, clear-cut sentences 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 every individual in 
 the passing throng. 
 
 In addition to all these problems of arrangement and 
 salesmanship and of even greater importance, is the problem 
 of making the store attractive in all its details. In this 
 respect a store differs from a manufacturing plant. The lat- 
 ter may be planned solely in the interests of efficiency of 
 production, but the store must be planned to please cus- 
 tomers as well as to facilitate the handling of goods. 
 
 A great deal of attention needs to be given in 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 per- 
 formed to determine just what this is, but it may be safely 
 
 5 See Appendix VI, " Methods of Handling Cash, Credits and Sold Goods." 
 
LOCATION AND RENT 
 
 163 
 
 stated here that most people on passing through a store no- 
 tice 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. Display above or below these limits seems 
 either to remain unnoticed or to confuse the customer. As 
 a rule, whatever is done above and below these limits, must 
 be for purely decorative purposes, or to serve as a back- 
 ground 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 re- 
 lationships, 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 arranges the store's displays has the possibility of exer- 
 cising talent similar to that of a painter or sculptor, but 
 his combinations must differ from the picture or sculptured 
 group in this respect, that the details rather than the en- 
 semble must stand out clearly to catch the customer's atten- 
 tion. The art is introduced to set off the goods effectively 
 so that they may appeal to purchasers and be sold. Order, 
 symmetry, harmony, and other fundamental principles of 
 art are essential to good store display, but the art must be 
 for business' sake. Everything beyond the direct line 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 sub- 
 dued, not attractive in itself, but helping to make the goods 
 displayed as attractive as their true natures will permit. 
 
 Much valuable space in a store can be saved in many cases 
 by using standard sizes in all equipment, such as cases, cab- 
 
1 64 ECONOMICS OF RETAILING 
 
 inets, and cartons for the goods, counters and shelves of thi 
 right width and height, the right width of aisles for custom- 
 ers on one side and for clerks on the other side. Common 
 obstructions such as pillars, angles in the walls, stairways 
 and so on, present difficult problems in store planning that 
 must be solved according to the best judgment of the man- 
 ager. 
 
 Recently much has been done in the way of devising fix- 
 tures that economize space. The portable and sectional types 
 of store apparatus and equipment 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, hosiery, 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, gar- 
 ments, 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 con- 
 tained. The shelving itself is made of no thicker material 
 than is necessary to support the burden. Upright supports 
 of the shelves are arranged in such a way as to take up very 
 little space. Other fixtures are similarly planned. But as 
 noted already, 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 
 
LOCATION AND RENT 165 
 
 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. 
 
 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 advertising 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 neces- 
 sary 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 loca- 
 tions. The reasons for advertising are as strong in the bet- 
 ter location as they are in the poorer, the object in each case 
 being to increase to the maximum the volume of sales. 
 Hence one does not ordinarily find a diminution of adver- 
 tising outlay, or even the percentage of advertising to sales 
 decreasing on passing from poorer to better locations. 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 possi- 
 ble that in a great number of cases, a larger proportion of 
 advertising expense will be found profitable in a good than 
 
l66 ECONOMICS OF RETAILING 
 
 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. 
 
 In recent years a great deal of progress has been made in 
 this country in the matter of window displays. Frequently 
 increases in business are directly traceable to the introduc- 
 tion of better store fronts, show windows, and better win- 
 dow trimming. The tendency seems to be to use for dis- 
 play purposes every available inch of frontage. In some |l 
 cases this display space is increased by recessing the front, 1 
 building it in the form of a vestibule or arcade, and by con- 
 structing island display cases. Much of this work done by 
 modem 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 of the value of show windows may be gained 
 from the fact that a Chicago department store having 
 twenty-one windows charges its window trimming depart- 
 ment nearly $500.00 per day, distributed as follows : 
 
 2 Island windows at $100.00 per day 
 
 2 Windows 
 
 20.00 per day 
 
 8 Windows 
 
 16.00 per day 
 
 2 Windows 
 
 15.00 per day 
 
 5 Windows 
 
 10.00 per day 
 
 1 Window 
 
 ' 9.50 per day 
 
 1 Window 
 
 ' 5.00 per day 
 
LOCATION AND RENT 167 
 
 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 J 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 
 representing average values in most towns of 10,000 popu- 
 lation 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 value of display windows the country over 
 is not far from $10 per week.^ 
 
 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 in- 
 formed the writer that nearly half of the people who enter 
 his store never go beyond a radius of 50 feet from the main 
 
 6 The figures are for the Chas. A, Stevens Store, and are taken from the Mer- 
 chants' Record and Show Window, April, 1915. 
 
 7 Wm. Filene's Sons Company, Boston. Figures given in Dry Goods Econo- 
 mist, May 24, 1913, 
 
 8 C. W. Hurd in Printers' Ink, Aug. 31, 1911. 
 
1 68 ECONOMICS OF RETAILING 
 
 entrance, and this in spite of the fact that he has arrange( 
 his departments so as to attract trade farther back. Thij 
 case is not given as typical but rather to illustrate that th< 
 space on a store floor is not equally valuable, hence the ren^ 
 burden should not be distributed among all departments di- 
 rectly on the basis of the number of square feet occupied.! 
 
 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 accessi- 
 bility to customers, and in some stores several or all of these 
 conditions are considered. The last named is probably the 
 fairest method, for all of these methods individually are sub- 
 ject to qualification and exception. Most distributions of; 
 rent over floor space are probably more or less arbitrary. 
 
 It may be of interest in this connection to note what 
 methods experts use in determining for purposes of taxa- 
 tion 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 same thing — equit- 
 able assessment of city lots of varying depths. Among 
 these systems are the following: The Hoffman-Neill rule, 
 the Lindsay-Bernard rule, the Newark plan, and the Cleve- 
 land plan, also called the Somers rule. In all of these sys- 
 tems, excepting the Lindsay-Bernard rule, the standard lot 
 is considered as 100 feet deep. The value of lots of depths 
 differing from the standard 100 foot lot has been worked 
 out in each of these systems. To illustrate, a few figures 
 will be given as obtained by the Hoffman-Neill rule used 
 in New York City, and the same figures obtained by the 
 Newark, and the Cleveland or Somers plans, 
 
LOCATION AND RENT 
 
 169 
 
 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 
 
 )eep 
 
 Rule 
 
 Plan 
 
 Somers Plan 
 
 100 
 
 100.00% 
 
 100.00% 
 
 100.00% 
 
 1 
 
 6.76 
 
 
 
 3.1 
 
 5 
 
 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 
 
 85.5 
 
 80 
 
 87.73 
 
 91 
 
 90.9 
 
 90 
 
 94.01 
 
 96 
 
 95.6 
 
 100 
 
 100.00 
 
 100 
 
 100.0 
 
 125 
 
 109.00 
 
 109 
 
 109.0 
 
 150 
 
 117.00 
 
 121 
 
 U5.0 
 
 200 
 
 130.00 
 
 133 
 
 122.0 
 
 Note should be taken that under all three rules the value 
 of the first 10 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 
 
 9 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 Prooiems of Real Estate Valuation," Bal- 
 timore. 
 Also, see — 
 
 Rawles, 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. Xll, 
 No. 4, pp. 137-163. 
 
170 ECONOMICS OF RETAILING 
 
 used by merchants in their store without qualificatio: 
 They are simply given here as an illustration of the sort o 
 studies that need to be worked out in the various kinds o 
 retail businesses, studies that will result in accurate figure 
 on such a problem as the distribution of rent over floo 
 space. 
 
 Intensive use of location must include many othe 
 things, only a few of which can be mentioned in this out 
 line. High rents force store managers to exert every means 
 to bring people to the store and to increase sales. Adver- 
 tising 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, lectures, art exhibits, 
 demonstrations, lunch and refreshment departments, 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 amuse- 
 ment place as it is a merchandising establishment, and there 
 are many people who prefer shopping to most regular enter- 
 tainments. 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 
 encouraging the use of the telephone for all who cannot 
 come to the store, the establishment of a mail order depart- 
 ment, and promotion of sales by various forms of personal 
 solicitation, 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, 
 
LOCATION AND RENT 171 
 
 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 
 opportunity to make more mistakes. Quick, intelligent ser- 
 vice and accurate salesmanship are essentials for such loca- 
 tions 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 in a store. 
 
 10 Bulletin No. 1, Bureau of Business Research, Harvard University, pp. 12-13. 
 
CHAPTER XI 
 
 HOW RETAIL PRICES ARE FIXED 
 
 The aim of the retailer, as well as of all others who en- 
 gage in business, is to realize a profit from his operations. 
 His success is measured very largely by the amount of profit 
 that he makes. Prices, therefore, tend to be fixed at the 
 i 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. 
 
 ,Qiief__amang the forces or factQr&_that influence retail J 
 prices-^reLthe costs of the goods, the costs of selling, the 
 desirability of the goods from the standpoint of the con- 
 sumer, the competition of other retailers, 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 
 of clearance or advertising some goods may be sold below 
 the cost point, but deficits so incurred must be made up in 
 
 172 
 
HOW RETAIL PRICES ARE FIXED 173 
 
 the general sales levels. It is obvious, then, that th^ 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 bank- 
 ruptcy because of too low estimates of costs have been cited. 
 A large proportion of failures 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 accounting systems or records of their 
 business. 
 
 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 expended twice as much in mak- 
 ing an article as he should, or when the dealer has mistak- 
 enly 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 like per- 
 sonal mistakes caused by himself. On the other hand, if 
 the buyer of a store, or the producer before him, were able 
 to bring into the market a lot of goods at a much lower 
 figure than normal costs of production and distribution, the 
 
174 ECONOMICS OF RETAILING 
 
 consumer has not thereby earned any opportunity to enjoj 
 those goods at cost. The surplus thus produced is the legitij 
 mate profit or reward to the producer or to the buyer for hij 
 special efficiency. To what extent such cases occur in every^ 
 day business it is, however, impossible to say. 
 
 The dealer uses his knowledge of costs only in determid 
 ing the lower limit of profitable selling. The exact point aj 
 which the price shall be set on a particular article must 
 determined by other considerations. Costs of selling serv< 
 merely as a guide as to what the retailer shall purchase an< 
 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. 
 
 The desirability of an article to the customer is a very, 
 important factor in price fixing. It is because people wanti 
 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 pos- 
 sess these particular goods. 
 
 The strength of demand measured by the amount that 
 customers will be willing to pay for any article is depend- 
 ent 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 
 compared with the desires the customer may have for other 
 articles that his money or means can purchase for him. 
 
HOW RETAIL PRICES ARE FIXED 175 
 
 4. The knowledge of what this article or similar articles 
 can be obtained for elsewhere. 
 
 No goods could be sold unless customers desired them. 
 Desires must be taken for granted. In fact, all human be- 
 ings have a multitude of desires, more than most of them 
 can ever hope to have satisfied. The best that any indi- 
 vidual 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 
 much of the other articles he is willing to sacrifice. That 
 is to say, in buying any article, a person does not simply 
 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 cus- 
 tomers w^ill prefer to spend their money for other goods, or 
 there will be no sales of this article. 
 
 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 de- 
 mand," 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 w^hich 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 themselves into 
 the center of attention, while other wants present themselves 
 in the orderly course of thought. A person tends to value 
 in proportion to his knowledge of it, and of its practical 
 significance to him. Salesmanship consists in teaching cus- 
 tomers about the goods of the store, their qualities, their 
 
176 ECONOMICS OF RETAILING 
 
 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 processes, 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. 
 
 In addition to the competition of desires for various 
 goods within the individual's own mind, there is the famil- 
 *^«iar competition of the world of business, the competition 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 of the mail order houses has pushed closely up to 
 front rank. Aside from cut-throat competition whose pur- 
 pose it is to kill off 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 efBcient 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. 
 
 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- 
 
HOW RETAIL PRICES ARE FIXED 177 
 
 markable that this feeling is likely to vary inversely as the 
 value of the article. Nothing seems so irritating to the 
 average 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 careful attention of the retailer. 
 
 Competition that drives the price levels below the costs 
 of the goods plus the costs of selling tends either to drive 
 dealers out of business, or to drive them together into com- 
 binations 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 public has al- 
 ways opposed such combinations and understandings among 
 dealers while excusing if not favoring similar corribinations 
 among laborers. It has always been feared that dealers' 
 combinations, if allowed at all, would lead speedily to mo- 
 nopoly and monopoly prices. One of the most promising 
 movements, however, for the elimination of cut-throat com- 
 petition, 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 
 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. 
 
 Some associations have worked out, and the trade 
 
^. 
 
 178 ECONOMICS OF RETAILING 
 
 papers have published what have been considered fair prices 
 for various kinds of retail services, much the same as profes- 
 sional organizations have worked out schedules of regular 
 rates or charges. The National Association of Retail Drug- 
 gists has a price schedule, which it suggests that its mem- 
 bers 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 pre- 
 scriptions, costs of materials, containers, and so on. How 
 generally this schedule has been adopted by member drug- 
 gists is not known. 
 
 The rule of custom is strong in the retail business. Cus- 
 tomary 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, cus- 
 tomers 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- 
 isfactory net profit. Any other set of conditions will tend 
 to upset the equilibrium 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- 
 
HOW RETAIL PRICES ARE FIXED 179 
 
 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. 
 
 In all of the struggles of business for price and profits, 
 cold-blooded as they seem, and generally are, there are fre- 
 quent indications of influences of an ethical nature at work. 
 What seems ** right " prevails at times over all other forces. 
 Discussions of " fair prices " involve this higher element. 
 The opposition even of disinterested 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, because 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 deal- 
 ing 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 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 
 profession of pharmacy is after all in the interests of hu- 
 manity and that justice has tempered economics in fixing 
 
l8o ECONOMICS OF RETAILING 
 
 the prices charged people beset by pressing difficulties] 
 The same spirit of fairness is aroused in another connecJ 
 tion and quite selfishly perhaps, but, nevertheless, related t( 
 the phenomena already described. When a man says t< 
 himself when marking the price on an article, " I ought t( 
 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 quit( 
 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. 
 
 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 indiv idual diff ereiices_,of_opinion as to 
 desirability or value. This might hold in theoryTHbut in 
 practice nothing could be farther from the truth. To illus- 
 trate, out of ten men, probably not more than five would 
 care for a safety razor at any price. 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 
 it 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 
 
HOW RETAIL PRICES ARE FIXED igi 
 
 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. 
 
 Take for example a toilet soap whose cost to the dealer, 
 both purchase price and selling expense added together, 
 amounts to eight 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 ten, thirteen, and fifteen 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 
 
 Selling Price 
 
 Total 
 
 Estimated 
 
 Sales 
 
 Amounts 
 Received 
 
 Costs at 
 
 8c per 
 
 Bar 
 
 Net 
 Profit 
 
 10 cents 
 13 " 
 15 " 
 
 100 bars 
 50 " 
 20 " 
 
 $10.00 
 6.50 
 3.00 
 
 $8.00 
 4.00- 
 1.60 
 
 $2.00 
 2.50' 
 1.40' 
 
 It is clear from the above that sales made at thirteen 
 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 ten cents per bar are rela- 
 tively more profitable than at fifteen cents per bar for the 
 reason that five times as much soap is sold at ten cents as at 
 fifteen cents, and the net profit on the sales at ten cents 
 amounts to more than the net profit on the sales at fifteen 
 cents. 
 
 One of the productive factors of a retail store is the 
 'capital inves ted injts stocks cif goods. When this capital 
 is borrowed for use in the store, interest must be paid for it, 
 and interest should be entered as an expense charge in any 
 case regardless of whether the manager of the store bor- 
 rows or supplies capital from his own funds. Efficiency in 
 
l82 ECONOMICS OF RETAILING 
 
 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 ex^ 
 penses and profits per sale remain the same, the greater the] 
 number of turnovers within a year, the greater the net profit] 
 resulting.^ 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 illus- 
 trate with a very simple kind of retail business, suppose 
 that a push cart vendor invests $6 in fruits and vegetables 
 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 
 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 
 sam«, viz., $2, the cost for merchandise will be twice $6 or 
 $12, while the gross receipts come to $18. The net profits, 
 therefore, 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 
 
 * 1 The annual turnover in a retail business is usually computed by dividing 
 
 'l the sales for the year by the inventory. This method is incorrect. In the first 
 I place, the inventory is usually taken at billed or cost prices, and is, therefore, 
 not comparable 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 greater 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 183 
 
 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 
 principle 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 employed 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 turn were made 
 per day, the owner of the push cart would reap a net profit 
 of $1. But if two turns were made, he would make $2, and 
 if three turns were made he would make $3. Thus, when 
 expenses remain constantly proportionate to sales, the net 
 profits for any period of time will equal the net profits on 
 one turnover multiplied by the number of turnovers in that 
 time. 
 
 Up to a certain point a store starting in business can 
 generally increase its sales without increasing its expenses 
 proportionally. Beyond this point its expenses parallel in- 
 creases 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 re- 
 turns in proportion to outlay, the s econd is a stage of con- 
 stant returns, and the third is a stage of diminishing re- 
 turns. In the first, the percentage of expense to sales de- 
 creases ; in the second, it remains constant ; and in the third, 
 
1 84 ECONOMICS OF RETAILING 
 
 it begins to climb. The rise in expense in the third staj 
 may proceed to the point where it will not pay to increase 
 the sales at all, for the reason that the costs incurred in get- 
 ting the additional business are equal to or greater than the 
 gross profits derived therefrom. For the purposes 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. Whatever profit, therefore, is gained on 
 one turnover of the capital of such stores, is multiplied by 
 the rate of turnover. 
 
 ^t 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 some- 
 what to increase the turnover. This amounts in substance 
 to dividing the net profits due to the greater turnover with 
 the customers. To illustrate how this works out we may 
 consider the push cart vendor again. It was assumed that 
 each turnover would bring a dollar of net profit, and that 
 $3 of net profit could be made in a day if three turnovers 
 co^ild 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 turns could be 
 made.. Then what would the results be? 
 
 Each turnover would in this case net the owner a profit 
 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 than to sell at 
 the higher prices. The same principle holds for every re- 
 tail business. The retail price must be fixed at the point 
 which will bring the highest net return, the number of turn- 
 overs considered. 
 
 This brings us to a consideration of the possibilities of 
 
HOW RETAIL PRICES ARE FIXED 185 
 
 turnovers in the various lines of merchandise. Upon this 
 point there have been collected a number of interesting fig- 
 ures. 
 
 Annual Turnovers in Retail Stores ^ 
 
 Kind of Stores Number of Turnovers 
 
 Grocery 10 
 
 Department 1 7 
 
 Variety Goods 6 
 
 Drug ' 4.5 
 
 Dry-Goods 4 >y 
 
 Hardware 3.5 
 
 Furniture 3 
 
 Shoes 2.1 
 
 Clothing 2*^ ^^X 
 
 Jewelry 1.5 ^^mfM, %%tAih^l 
 
 Annual Turnovers of Departments 
 
 IN 
 
 Department Stores and Country General Stores ^ 
 
 Departments City Stores Country Stores 
 
 Books 4 1.5 
 
 Candy 15 9 
 
 Qocks 2.5 1 
 
 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 
 
 Average Annual Turnovers of Typical Lines * 
 
 Goods Turnovers 
 
 Notions 9 
 
 Corsets 8 ' 
 
 Women's ready-to-wear 6 , 
 
 Wall paper 4.2 
 
 Men's furnishings 4.2 
 
 2 Compiled by Wheeler Sammons of System. 
 
 3 Id. 
 
 * System, March, 1914, p. 235. 
 
l86 ECONOMICS OF RETAILING 
 
 Goods Turnovers 
 
 Underwear 4.1 
 
 Hosiery 4 
 
 Gloves 3.5 
 
 Dress Goods 3.2 
 
 Silks 3.1 
 
 Domestics 3 
 
 Carpets 1.5 
 
 Average Annual Turnovers in Retail Stores ^ 
 
 Goods Turnovers 
 
 Candy 15-25 
 
 Groceries 12-16 
 
 Cloaks 10-12 
 
 Millinery 6-8 
 
 Hats 5-8 
 
 Clothing 4-6 
 
 Furnishings 4-5 
 
 Carpets 4 
 
 Hosiery 4 
 
 Crockery 3 
 
 Shoes 2.5 
 
 Furniture 2.5 ' 
 
 While the statements of both Sammons and Geuting are 
 subject to the criticism that neither gives any idea as to how 
 many or what classes of stores are considered in getting at 
 their averages, both are valuable. 
 
 The Harvard retail shoe store investigation gives the 
 range of turnover from 1 up to 3.6, with 1.8 as the point at 
 which a large number of stores center, and offers 3.5 as a 
 realizable standard for shoe store turnovers.^ 
 
 It is clear that in this matter 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 accounting can ever 
 be carried to the point where these fine subdivisions can be 
 
 5 From an address by A, H. Geuting, formerly manager of the Shoe Depart- 
 ments of Gimbel's in Philadelphia, now owner and manager of a successful shoe 
 store in the same city, as reported in the Drygoodsman, Aug. 17, 1912. 
 
 6 Bulletin of the Bureau of Business Research, Harvard University, No. 1, 
 May, 1913, p. 14. 
 
HOW RETAIL PRICES ARE FIXED 
 
 187 
 
 made except for such stores as carry only a very few kinds 
 of goods. The best that can be done, as it now appears, is 
 to " departmentize " 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 relative 
 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 costs of doing business for any retail store 
 constitute 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 canned fruits, very perishable 
 goods, and other goods sold in small quantities and requir- 
 ing considerable time to demonstrate and handle, cost the 
 grocer more than 16 per cent; while the selling cost of such 
 goods as sugar, flour, lard, kerosene, rough staple vegetables, 
 and so on, is less than 16 per cent of the sales price. 
 
 A number of retailers and others who have been study- 
 ing 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 uni- 
 form net profit should be added to this amount. The sum 
 of these three items, the cost price of the goods, the costs 
 
l88 ECONOMICS OF RETAILING 
 
 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 market 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 original 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 
 pf ices, it may be assumed 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 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 burden goods can no longer be made. 
 Thus his deficits in the higher burden goods will not be 
 covered. 
 
 The o nly lo gicaL way would seem to be for ea ch arti.de 
 in the^ore tocarrvits-own- b u rd e n a s iully_a.s 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 
 
HOW RETAIL PRICES ARE FIXED 189 
 
 sellers. Competition will tend to drive prices in these di- 
 rections. 
 
 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 the 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 
 dangerous policy unless the retailer knows what his own 
 costs are and that his prices adequately cover them. If 
 competitors' 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 cer- 
 tain profitable lines. 
 
 When competitors' prices are not known, the method 
 of 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. 
 
 In this connection it is worth noticing that some of 
 the most successful retailers constantly call on their sales- 
 people for assistance in this matter. The salesman is asked 
 what he thinks he can sell a given article for. The sales- 
 man realizes that he succeeds with his firm only in propor- 
 tion as he makes a profit for it. In the light of his experi- 
 ence 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 
 
I90 ECONOMICS OF RETAILING 
 
 for he may be called to account later on for his inability 
 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 sales- 
 man 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. 
 
 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 goods, even when 
 of the same quality, there 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. 
 
 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. 
 Recognizing the fact that demand for such goods as dress 
 silks, varies exceedingly with individual purchasers, and that 
 the demand 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 
 $3.00, or more. The fact that a " fresh shipment of beau- 
 
 
HOW RETAIL PRICES ARE FIXED 191 
 
 tiful dress silks in the very latest patterns has just arrived " 
 will be announced, and some shoppers are likely to be in- 
 terested. As a result some sales will be made. These first 
 customers will pick out what to them seem the most desir- 
 able patterns and colors. Then in order to move another 
 portion of the stock a " cut " in price is resorted to. *' Silks 
 formerly offered at $3.00 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 shop- 
 pers that have already examined them. These are " re- 
 duced " again, perhaps sent to the bargain basement or sub- 
 way store, to be sold at $1.69. Here the last of the lot is 
 disposed 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 profit- 
 able to the concern 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 di- 
 rectly, 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 may buy other 
 goods as well as those advertised. 
 
 There are certain well-defined policies with reference 
 to retail store prices that need to be mentioned. The first 
 of these is the oneip rice 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 
 difference. If the price is too high for others no reduction 
 
192 ECONOMICS OF RETAILING 
 
 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. The organiza- 
 tion 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 consider- 
 able 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 suc- 
 cessful 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 reduced. If the prices were 
 made too low,cthatiact could also be noted and changes made 
 accordingly. Thus^ -the Jb,argaining process was removed^ 
 from individuals and made a matter of reaching groups. ^ 
 
 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, toi 
 demonstrating what is being offered for the price. 
 
 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 above 
 the minimum set by the concern as they think the customer 
 is likely to pay. In the old days the customer usually par- 
 
HOW RETAIL PRICES ARE FIXED 193 
 
 ried and made an offer of considerably less. Then the 
 higgling began, the salesman bragging about his goods and 
 the customer pointing out their defects, until finally some 
 compromise was reached, often halfway between the price 
 first asked and that offered. In many instances the sales- 
 man received a commission on all sales in which he suc- 
 ceeded 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 addi- 
 tion to the modern department store with its one price to 
 all, are found the lowest grade of shops with different prices 
 to different people, these practices no longer prevail. 
 
 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 market and free competition. 
 Under this principle the " fittest " bargainer " survived." 
 In times past when man's wants and varieties of goods were 
 not so numerous as they are now and when there was not 
 the pressure for time that characterizes modern life, there 
 may have been more reason for such a policy 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 
 qualities 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 development 
 is towards setting man's time free from the economic strug- 
 gle of life. Hours of labor are cut down, children are for- 
 bidden 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 
 pf the economic life as possible, in order to save time for 
 
194 ECONOMICS OF RETAILING 
 
 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 under- 
 stood 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 rob- 
 bers. A clearer knowledge of the necessary costs of any 
 form of distribution must certainly serve to clear up any mis- 
 conceptions or misunderstandings. 
 
 It has already been suggested, and it may not be long 
 before the more progressive retailers will decide to ^evf a1 
 theirbusiness-cests to their customers and urge them to 
 come for goods on the grounds 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 legis- 
 lation 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 rea- 
 sonable profit basis, co-operate in letting the public know 
 what are their price-making processes and problems. 
 
CHAPTER XII 
 
 THE DEPARTMENT STORE 
 
 The department store is a retailing institution that deals 
 in several lines of goods, each line separated or " depart- 
 mentized " from the rest, both in location within the building 
 and in the concern's accounting and management systems. 
 Each department is considered practically as 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 word " 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 dis- 
 favor is probably that the word '' department store " has 
 been claimed by many concerns doing business on planes 
 that have tended to draw disrepute to the whole class. 
 However, the term " department store " has come into gen- 
 eral use by the public, arid it is probable that any change 
 would be difficult. 
 
 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 department store. There is 
 certainly a similarity in the functions performed by the two 
 
 195 
 
196 ECONOMICS OF RETAILING 
 
 institutions, but their respective organizations are entirely 
 different, and but few of the present department stores 
 were the direct outgrowth of general merchandise 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 community 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 narrowing 
 margins in the older lines of goods, such as the textile 
 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 department store. 
 
 It seems that, in some cases, the department store had 
 its origin in a consolidation of several stores conducted \>y 
 as many individuals under one roof. It has been customary 
 in many instances for the owner of a building, or the lessee 
 of the portion suited for store purposes, to lease a part of 
 the floor space to one person, and other parts to others with 
 the understanding that each should conduct a retail business 
 thereon in a specified line of goods not competing with other 
 lines of goods offered in other departments. There are in 
 ^j^ist^nce today many such cornbined stores. With th? 
 
THE DEPARTMENT STORE 
 
 197 
 
 passage of time the ownership of these several departments 
 passed to one individual, who thereby became a department 
 store owner. 
 
 Whatever were the beginnings of department stores, the 
 fact remains that the period following the panic of 1873—4 
 in this country saw a rapid development of this class of re- 
 tailing establishment. The Jordan Marsh Company's storfe 
 in Boston is credited by some with being the first. This 
 store, it is understood, received the idea from the Bon 
 Marche, a large retail store in Paris, and the first depart- 
 ment store of which anything is known anywhere. Shortly 
 after the Jordan Marsh store had been departmentized, 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 whole- 
 sale markets and direct from the producers, to seek out bar- 
 gains, 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 ap- 
 plied to help sell the goods. Special sales began to be in- 
 troduced; while, on the other hand, the demand of the public 
 for goods increased both in variety and amount. Under 
 these conditions there appeared contemporaneously the de- 
 partment store, the mail order house, and the chain store. 
 
 According to the United States Census of 1910, there 
 were 8,970 department store merchants and 88,059 general 
 
198 ECONOMICS OF RETAILING 
 
 store dealers in this country. C. C. Parlin stated in 1913 
 that there were 1,140 department stores in the country, each 
 of whose sales averaged over $200,000 annually, and he esti- 
 mated that fully 40 per cent of the dry-goods and ready-to- 
 wear goods of the country were marketed through these 
 1,140 stores.^ 
 
 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 $200,000,000 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 prob- 
 ably 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 larg- 
 est in St. Louis nearly $10,000,000 worth of merchandise 
 annually. 
 
 The modern development 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 al- 
 ready mentioned as the pioneer, there are the Louvre, Gal- 
 leries Lafayette, Printemps, Trois Quartiers, Maison de 
 Blanc, Cour Batave, Samaritaine, and Dufayel's. In Lon- 
 don, Harrod's, Whiteley's, and Selfridge'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 w£ll 
 in England as on the Continent, for in England their func- 
 tions 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 establish- 
 ments great. One of the stores in Berlin, Wertheim's, is 
 
 1 Parlin, C. C, "The Merchandising of Textiles," 1913. 
 
i 
 
 THE DEPARTMENT STORE 
 
 199 
 
 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 re- 
 sponse to an economic need. It has succeeded and has con- 
 tinued to hold its place, and to gain ground because it has 
 occupied a certain point of advantage in the distribution of 
 goods. Its future in one form or another in large cities 
 seems secure. 
 
 The characteristic things about department store mer- 
 chandising are: 
 
 First. Many departments or sections under one roof. 
 Stores are not usually classed as department stores unless 
 they have at least a score of departments and from this 
 number to a hundred or more. One of the largest is said 
 to have over 250 sections or departments, 
 -y Second. Special conveniences offered to all shoppers 
 whether they buy or not. Under the guise of '* service " the 
 modem 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 shoppers, reading and writing rooms, restaurants, in- 
 formation bureaus, post offices, telephone booths, and tele- 
 graph stations for the unrestricted use of all. In some 
 stores lectures, demonstrations, musical programs, moving 
 picture shows, and even operas and plays are given fre- 
 quently. In a few cases, the department store has served 
 as an employment agency for domestic help, as a house and 
 estate agency, and even, recently, as a market for corpora- 
 tion 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 department stores 
 
200 ECONOMICS OF RETAILING 
 
 having banking departments. Hair dressing and manicure 
 parlors, and children's barber shops are regular adjuncts of 
 the largest stores in all cities. Play rooms for children, lost 
 and found departments, and dental parlors are also com- 
 mon. 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 restau- 
 rants, 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 freely 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. 
 
 Third. The employment of specialists in the advertis- 
 ing department. The great volume of advertising 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 other- 
 wise be necessary to effect sales. Department stores are the 
 greatest users of newspaper advertising space. W. C. Free- 
 man, advertising manager of the New York Globe, recently 
 estimated the amounts expended annually by some of the 
 principal stores for advertising as follows ; ^ 
 
 i Printers' Ink, Oct. 9, 1913, 
 
THE DEPARTMENT STORE 201 
 
 John Wanamaker's, Philadelphia $450,000 
 
 John Wanamaker's, New York 700,000 
 
 Gimbel's, New York 700,000 
 
 U R. H. Macy & 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 & 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, is its 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. 
 
 The usual reasons for these price offerings, where rea- 
 sons 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. 
 
 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 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 
 
202 ECONOMICS OF RETAILING 
 
 have both developed and changed rapidly. Channels of 
 distribution 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 
 marketing his goods successfully. Many miscalculations 
 have resulted. In such cases the producers have been glad 
 to unload their unprofitable surpluses at even less than the 
 costs of production; in fact, they have been glad to take any- 
 thing they could get. 
 
 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 dis- 
 posing of such goods, the buyers of these stores have been 
 able to pick up many lots of goods of this kind. By thei^ 
 direct merchandising methods, they have found an opening 
 in the economic system of production and distribution 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- 
 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 
 
THE DEPARTMENT STORE 203 
 
 one might reasonably expect in view of the savings to the 
 producer 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 store has 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. 
 
 But as merchandising conditions become more stable, 
 and as it becomes more nearly possible to predict the de- 
 mand for a certain 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 of- 
 fered 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 mer- 
 chandising. * 
 
 In some cases, it is generally believed that department 
 stores have gone farther than this in their advertising, and 
 where no bargains have existed, the advertising writers 
 have conceived them in their own minds and published them 
 as realities. 
 
 Untruthful advertising is not peculiar to department 
 stores. Specialty stores have sinned in this respect as much 
 
204 ECONOMICS OF RETAILING 
 
 as department stores, differing only in the degree to which 
 they have used advertising. Mention of the matter is made 
 here simply because department stores are such great adver- 
 tisers as compared with all other forms of retailing estab- 
 lishments. The better classes of department stores are 
 strongly opposed to such advertising, and it is even claimed 
 by some that the *' bargain " as an appeal is losing its power 
 to draw customers. ^ 
 
 " 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 de- 
 lusion 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 Siegel Cooper, is 
 reported 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 ; 
 necessarily 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 100 lines 
 of advertising concerning the publicity of a business house 
 is worth 100 pages of * bargain ' falsehoods.". 
 
 Fourth. The main factor of department store efficiency 
 apart from its buying and advertising powers, already re- 
 ferred to, is its specialized form of organization. In this 
 respect the modern department store differs as day differs 
 from night from the old time general merchandise store. 
 In the latter, there was no specialized organization. Clerks 
 soldgoods in all or nearly all departments, and accounts 
 
THE DEPARTMENT STORE 205 
 
 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 be impracticable in the general merchandise store, 
 but the lack of it was the weakness of the latter, and the 
 presence of it the basis of the peculiar strength of the former. 
 
 In a department store, each department or section is con- 
 sidered as a separate specialty store or shop. Its accounts 
 are kept separate, and under normal 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, consisting in the former case of its man- 
 ager or buyer and necessary assistants such as assistant 
 buyer, head of stock, and salespeople. In these respects the 
 department is exactly like a specialty store, but the account- 
 ing, advertising, stockroom work, credits and collections, 
 handling of the cash paid out and received, and the de- 
 livery of the goods is done for the individual department by 
 special departments organized to serve all of the merchan- 
 dise departments in the store. The specialty store, selling 
 one line, has its own accounting, advertising, credit, cash, 
 and delivery departments, but in a department store of 
 forty sections, for example, there is but one of each of 
 these departments to serve all of the forty sections. 
 
 The charts on page 206 will make these relations more 
 clear and indicate the difference between specialty store or- 
 ganization and department store organization. In Chart 1 
 the single merchandise department of the specialty store is 
 served by all of the surrounding departments. In Chart 2 
 the merchandise departments. A, B, C, D, E, F, G, and H 
 
2o6 
 
 ECONOMICS OF RETAILING 
 
 Charts Showing Internal Organization of Specialty 
 AND Department Stores 
 
 I. Specialty Store Organization. 
 
 Accounfing 
 
 CixditB and 
 Cd lections 
 
 Delivery 
 
 Supervision 
 Gen1. Manager 
 
 Mercbandi 
 Dzparimeni' 
 
 Customers 
 
 :of5tone 
 
 Stock V\brk 
 
 Advertising 
 
 2. Department Store Organization. 
 
 Accounting, 
 
 Cnedits and 
 Collections 
 
 Delive-ry 
 
 Supervision 
 Qen'l. Manager 
 
 Care of 5torB 
 
 MenchandigeDsport ment s 
 
 Customers 
 
 Stock -room 
 Work 
 
 Adverlising 
 
THE DEPARTMENT STORE 207 
 
 are all served by the same number of special departments, 
 excepting that one new one has been added, viz., merchan- 
 dise manager. This official acts as a sort of head buyer for 
 all departments, apportions the buying funds among the 
 departments, advises the buyers, gives approval or disap- 
 proval to department sales policies, and so on. 
 
 We need not go further into detail here concerning the 
 organization of department stores. Such studies have al- 
 ready been made by others.^ But it may be of interest as 
 throwing light on the character of these organizations to 
 trace an article through a store, from the time it arrives until 
 it is sold and delivered. 
 
 After the purchase of the article by the buyer it is sent 
 to the store and delivered in the receiving room. Here all 
 the goods are unpacked, and after their qualities, condition, 
 and quantities are noted, are passed on to the stock room. 
 The goods are received by the head of the stock room, and 
 prices are marked by the buyer, or, generally, by one of 
 his assistants from the merchandise department managed 
 by the buyer. The 'article is next placed in reserve in the 
 stock room until needed in the store. At the proper time it 
 is brought out by a stock boy and given to the head of 
 counter "or head of stock in the department. It is next sold 
 by the salesman, the cash is received and sent to the cashier, 
 and the 'article is sent to the wrapping desk to be inspected 
 and wrapped," and if the article is to be delivered by the 
 store, it is next addressed and then sent to the delivery room. 
 Here it is selected from the mass of packages that arrive 
 there and is placed in a bin that is set aside for the part of 
 the city in which the purchaser resides. One bin is pro- 
 vided for each section of the city to which deliveries are 
 made. From the bin the article is taken by the driver of 
 the delivery wagon who is usually accompanied by a boy, 
 
 3 See bibliography at end of chapter. 
 
2o8 ECONOMICS OF RETAILING 
 
 known as the driver's boy. When the home of the pur- 
 chaser is reached, the boy runs to the door with the parcel, 
 makes the delivery ; and then the store's work so far as that 
 particular article is concerned is completed, unless the cus- 
 tomer makes a complaint about it, returns it for exchange, 
 or demands her money back. In this case other machinery 
 is started which we need not trace out here. 
 
 The modern department 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 shoppers, 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 sales that one-line shops could not effect at all. 
 The department store method of distribution actually stimu- 
 lates new demand, by showing to customers things about 
 which they might not otherwise know anything. 
 
 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 suggest schemes for 
 carrying on the store work. In the best department stores 
 great care is exercised in the selection of employees, in 'train- 
 ing 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 em- 
 ployee 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 
 
THE DEPARTMENT STORE 209 
 
 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 salesmanship and skilful 
 personal management of every detail increases. No plan, 
 no matter how well worked out, can substitute automatic 
 service for human service in dealing with customers. Care- 
 ful planning goes a long way, and in the past twenty-five 
 years has progressed rapidly, but when the limits of mechan- 
 ical 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 usually has the advantage of being 
 the centrally located store in the retail district. The archi- 
 tecture, especially in its modern types, is in every way help- 
 ful to its purpose of selling goods. As already shown, the 
 department store has buying power and advertising power 
 far in excess of most specialty stores. Moreover, it has a 
 prestige in the public mind, carefully cultivated in all cases, 
 well earned in some cases, that goes far to make it, as an 
 institution, successful. Big business appeals to the imagina- 
 tion of the people of the twentieth century, especially to the 
 people of the middle and lower classes. ^The big store sug- 
 gests class and distinction. To trade there to a certain ex- 
 tent confers distinction.^ The big store's automobile de- 
 livery truck calling at one's residence heightens this effect. 
 
 On the other hand, in the great cities, a large part of the 
 
2IO ECONOMICS OF RETAILING 
 
 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 more 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 salespeople especially fitted to serve 
 in the more exclusive lines. Such trade payS well in profit 
 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 unreasonable. Only a few depart- 
 ment stores have successfully handled this class of trade. 
 The department store is essentially a store for the masses. 
 There are a number of economies in department store^ 
 management not possible in the specialty store. Having one 
 accounting department, one advertising department, one de- 
 livery 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 efificient credit department serving forty or fifty subsid- 
 iary merchandising departments 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 en- 
 force payment of slow or doubtful accounts. A specialty 
 
THE DEPARTMENT STORE 21 1 
 
 store would either have to refuse credit to a much larger num- 
 ber of people seeking credit 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, delivery, advertising, and 
 so on, are giving service to a combination of co-operative 
 merchandising establishments. The advantages urged in 
 favor of co-operative delivery for retail stores, for example, 
 are in a measure realized in the department store. 
 
 On the other hand, some questions may occur as to 
 just how far these economies go, and to what extent they 
 are counterbalanced by the disadvantages of aggregation, 
 such as a department store represents. The average cost of 
 doing business in a department store seems to be consider- 
 ably higher than the average for one-line establishments, of 
 course 'excepting the high costs of the few exclusive shops 
 catering to the super-rich. On comparing the items of ex- 
 pense 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.* 
 
 4 Many popular writers on department stores have assumed that the depart- 
 ment store method of distributing goods is much more economical than any other. 
 It is remarkable that so many 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 groundless bases. As an example of this sort of thinking, the United 
 States Industrial Commission in its final report (Vol. 19, p. 549) may be quoted: 
 
 " If rightly managed, the department store must be able to make great econo- 
 mies 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, p. 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 think 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? " 
 
 "A. No; it requires more. That evidently does not seem reasonable to 
 you, but we have to wait upon people now with sf>ecially trained help in more 
 than half of our departments. Of 60 to 80 per cent of them that is true. In 
 
212 ECONOMICS OF RETAILING 
 
 Why rent averages higher is explained in another chap- 
 ter. Advertising is highejr because the department store 
 must reach out farther for business. It has many rnore 
 competitors of many kinds than the average one-Hne store. 
 It uses its advertising to assist in making quick sales. In a 
 measure it substitutes skilled advertising for skilled sales- 
 manship. An advertising expense of from 2% to 5 per cent 
 of sales is not uncommon in department stores, but above 
 the average for specialty stores. Delivery 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 pur- 
 chased. 
 
 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 stor€ 
 and must therefore be employed. The more special service 
 that is offered by one store, the more other stores must offer 
 
 other words, a customer is not a customer, unless she is waited upon intelli- 
 gently." 
 
 Later Mr. Otto Young, manager of " The Fair," was asked (Vol. VII, p. 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 
 Commission 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 213 
 
 *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 to 
 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. 
 
 The department store, even when planned for the high- 
 est efficiency, is a place where there may be a thousand leaks. 
 Hired employees are proverbially Jess 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 vigilance 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 work- 
 ing, 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 borrowing some- 
 thing from the department store manager's thorough-going 
 
214 ECONOMICS OF RETAILING 
 
 manner of getting at the exact facts of the business. But 
 whether this is true or not, the fact remains that the depart- 
 ment store spends a lot of money in getting up information 
 that the small one-line retailer is getting along without. 
 
 Finally, the department store type of salesmanship is 
 usually weak. There are exceptions and notable ones, but 
 the general rule is poor salesmanship. The specialty stored 
 that attempts to be up-to-date differs from department stores 
 markedly in this respect, although both classes of stores 
 would benefit largely if systematic improvement and edu- 
 cation 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 sys- 
 tematic sales plans is lost simply because the salesman fails 
 in his important work with the customer. Not only are op-- 
 portunities 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-' 
 lie 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 dealing with the 
 customer doesn't 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. Thfe 
 fault is not the salesman's, but rather it is that of the stores 
 in neglecting to improve the human factor, and that of so- 
 ciety, in not providing education in its schools for people 
 who enter this line of work. 
 
 Bibliography 
 
 The Department Store and Its Opportunities for Boys and Young Men. 
 The Vocation Bureau, Boston, 1912. 
 
THE DEPARTMENT STORE 
 
 215 
 
 Butler, E B. Saleswomen in Mercantile Stores, Ch. IV. Charities 
 
 Publication Committee, New York, 1912. 
 Puffer, J. Adams. Vocational Guidance, Ch. XII. Rand, McNally & 
 
 Company, Chicago, 1913. 
 Daniels, Wm. Cooke. The Department Store System, Denver, 1900. 
 Cherington, P. T. Advertising as a Business Force, pp. 158 ff. 
 Phillips, W. B. How Department Stores Are Carried On. 1900. 
 Selling Forces. Curtis PubHshing Company, pp. 103-132. 
 Golden Book of the Wanamaker Stores, 1861-1911. 
 Modern Merchandising, Vol. I. 
 
 Wanamaker, John. The Evolution of a Mercantile Business. 
 
 Stokes, J. J. Organization of the Department Store. 
 
 Basch, J. The Merchandiser in the Department Store. 
 Modern Merchandising, Vol. V. 
 
 Stokes, J. J. The Department Store. 
 Modern Merchandising, Vol. VIII. 
 
 Schneider, J. Department Store Advertising. 
 U. S. Industrial Commission, Vol. VII, 1900. 
 
 Testimonies of Messrs. S. W. Woodward, John Wanamaker, Otto 
 Young and Chalifoux. 
 Brewer, F. N. Some Features of Department Store Management. 
 
 Ann. Am. Acad. 19 :320. 
 Davis, H. The Department Store at Close Range. Everybody's, 
 
 17 :312. 
 Dennis, John, Jr. Marshall Field. Everybody's, 14 :291. 
 Adams, S. H. The Department Store. Scribner's Magazine, 21 :4. 
 The Department Store in the East. Arena, 22:321. 
 Richardson, A. S. The Modern Woman's Paradise. Woman's Home 
 
 Companion, Sept., 1911. 
 Big vs. Little Store. Printers' Ink, April 25, 1912. 
 Private Department Store Brands vs. Nationally Advertised Brands. 
 
 Printers' Ink, Oct. 31, 1912. 
 
CHAPTER XIII 
 
 CHAIN-STORE SYSTEMS 
 
 A chain-store system, as the term implies, is an organiza- 
 tion 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 development both in size and 
 number of such concerns. The chain-store system of today 
 is a typically modern factor in the distribution of goods. ^ 
 
 Hurd and Zimmerman in Printers' Ink, September to 
 December, 1914, estimated that there v^ere more than 3,000 
 chain-store systems in the United States, and that in these 
 chains there v^ere 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. The names of a few of 
 the best known systems in the country are given on the op- 
 posite page. 
 
 1 Dates of establishment of some of the great chain-store systems: 
 
 Great Atlantic & Pacific Tea Co 1859 
 
 F, W. Woolworth Company 1879 
 
 Jas. Butler Company 1882 
 
 Hanan Shoe Stores 1885 
 
 Acme Tea Stores 1887 
 
 New York & London Drug Co 1897 
 
 Cannon Stores 1899 
 
 United States Cigar Stores 1901 
 
 Penney Stores 1901 
 
 Duke C. Bowers Stores 1903 
 
 United Drug Co 1903 
 
 2l6 
 

 CHAIN-STORE SYSTEMS 
 
 Chain-Store Systems in the United States 
 
 217 
 
 Grocery Chains Stores 
 
 Great Atlantic & Pacific Tea Company, Jersey City 807 
 
 Acme Tea Company, Philadelphia 315 
 
 James Butler Grocery Company, New York 238 
 
 Childs & Company, Camden, N. J 230 
 
 Grand Union Tea Company, Brooklyn 200 
 
 Kroger Grocery & Baking Co., Cincinnati 182 
 
 M. O'Keefe, Inc., Gardner, Mass 146 
 
 Wm. Butler, Philadelphia 140 
 
 Bell Company, Philadelphia 130 
 
 Robins6n & Crawford, Philadelphia 130 
 
 National Grocery Company, Jersey City 126 
 
 Direct Importing Co., Inc., Boston 125 
 
 Thos. Roulston, Brooklyn 121 
 
 John T. Connor Co., Boston 110 
 
 G. M. Dunlop Co., Philadelphia 106 
 
 Five and Ten Cent Stores A 
 
 F. W. Woolworth Co 744 /w { 
 
 S. H. Kress & Co 147 A\^ 
 
 C. S. Kresge Co 124 ^ .v^ 
 
 J. G. McCrory Co 115 ^ 
 
 Tobacco and Cigar Stores 
 
 United Cigar Stores 2 r-rrrs 1100 
 
 Drug Chains 
 
 Riker-Hegeman Co., New York 105 
 
 Louis K. Liggett Co., Boston 52 
 
 ^■^wl Drug Company, San Francisco 20 y^ 
 
 Square Drug Co., Syracuse, N. Y 20 
 
 Marshall Drug Co., Cleveland 15 
 
 Shoe Chains 
 
 R. H. Long, Framingham, Mass 82 
 
 W. L. Douglas Shoe Co., Brockton, Mass 79 
 
 -^egal Shoe Co., Boston 47 
 
 Hanover Shoe Co., New York 52 
 
 •^Florsheim Shoe Co., Chicago 30 
 
 Sorosis Shoe Co., Brooklyn 30 
 
 Hanan & 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 
 
 2 The United Cigar Stores Company of America operates its 1100 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 of Rhode Island. 
 
2i8 ECONOMICS OF RETAILING 
 
 In addition to the above, there are chains to be found 
 dealing in confectionery, jewelry, meats, dairy products, 
 liquors, furniture, clothing, hardware, automobiles and au- 
 tomobile supplies, millinery, corsets, flowers, books, etc. 
 
 Chain-Store Systems in Europe^ 
 
 Food Stores or Shops Shops 
 
 Lipton's Ltd 469 
 
 Home & Colonial' Stores 688 
 
 Maypole Dairy Co. Ltd 835 
 
 Shepherd's Ltd 100 
 
 Pearks. Ltd 200 
 
 T. Seymour, Mead & Co. Ltd 56 
 
 United Kingdom Tea Co., Ltd 25 
 
 Lyons & 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 & Plenty 
 
 Kaiser's Kaffee Geschaft, Germany 1000 
 
 Drug Stores 
 
 Boot's Chemists 565 
 
 Parke's Drug Stores, Ltd 34 
 
 Lewis & Burrows, Ltd 25 
 
 Henry Hodder, Ltd 17 
 
 Thompson & Capper 10 
 
 Shoe Shops 
 
 Freeman, Hardy & Willis 460 
 
 Lilley & Skinner 75 
 
 Public Benefit Boot Co 120 
 
 S. Hilton & Sons 129 
 
 Stead & Simpson, Ltd 235 
 
 W. Abbott & Sons, Ltd 13 
 
 W. Abbott & Sons, Ltd., France 7 
 
 A. & W. Paterson 42 
 
 Greenlees & Sons 165 
 
 John Greenlees 12 
 
 Tobacco Shops 
 
 Salmon & Glucksteim, Ltd 139 
 
 Alfred Baker & Co., Ltd 49 
 
 Department Stores 
 
 Tietz Department and Dry Goods Stores, Germany 88 
 
 Chain-store systems may be classified according to own- 
 ership as follows : 
 
 S Except where otherwise specified these are in England. 
 
CHAIN-STORE SYSTEMS 219 
 
 Retailers' chains 
 '/Jobbers' chains 
 Manufacturers' chains 
 
 Retailers' chains have in many cases been formed simply 
 by gradual expansion, the owner beginning with one store 
 and adding others as circumstances permitted. Many re- 
 tailers have been so successful with their first store that they 
 have established branches, sometimes conducted in co-opera- 
 tion with the parent store and sometimes independently. 
 
 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 in view in the organization of retailers' chain - 
 store systernjT h^^ been largely to reap the profits of increased 
 buying power, of heightened efHciency in advertising, in bet- 
 ter handling of credits and collecting, and in more profit- 
 able 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 exclusive ability not fully taken up in the single institu- 
 tion. 
 
 The ability to buy for less than the ordinary retailer can 
 buy, is commonly accepted as the chief advantage of the 
 chain store. In systems where the buying is done for all 
 of the stores from a central ofifice or by organization buy- 
 ers, it is obvious that their demand for quality commands 
 
220 ECONOMICS OF RETAILING 
 
 the strongest interest of producers and wholesale suppliers 
 In a competitive market such buyers are usually able to ge 
 the lowest possible prices and are able to profit by every pos- 
 sible quantity discount. 
 
 Frequently the chain-store buyers pass over the whole 
 salers and buy direct from producers, in fact, perform thei i 
 ownjoWbing functions. In such cases they are usually ac 
 corded the prices made to jobbers and, if current reports b( 
 true, are sometimes given even lower prices.^ Producer 
 feel under necessity to make every possible concession foi 
 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_^o mpetition for the 
 chain-store business is, therefore, keen. 
 
 Some of the chain-store systems carry on their jobbing 
 functions much the same as an ordinary jobbing house. 
 Warehouses are provided, and goods are stored, and deliv-; 
 ered to the various stores only upon purchase and charge. 
 Goods charged to any unit store bear a percentage burden of 
 buying and warehousing expense, corresponding in a measure 
 to the margins added by regular jobbers to the costs of their 
 goods when selling to retail dealers. In groceries this mar- 
 gin is said to run from 2% to 6 per cent of the value of ^he 
 goods. In other cases the burden of the buying expense is 
 prorated among the stores directly, sometimes in proportion 
 to their sales, sometimes in proportion to their ability to 
 stand the charge. 
 
 Jobbers' chains have come into existence 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 
 
 4 Hurd & Zimmerman in Printers' Ink, Nov. 19, 1914, pp. 64, flf. 
 
CHAIN-STORE SYSTEMS 221. 
 
 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 practices as are re- 
 quired in other chain systems. In some cases when break- 
 ing 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 willingly 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 proc- 
 esses 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, particu- 
 larly, in which the jobbing functions are diminishing in im- 
 portance. 
 
 There are a number of manufacturers' chain-store sys- 
 tems, 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 represented in manufac- 
 turers' chains, one finds several brands of shoes, confection- 
 ery, baked goods, hats, gasoline and kerosene, sewing ma- 
 chines, cash registers, adding machines, typewriters, office 
 
222 ECONOMICS OF RETAILING 
 
 furniture, automobile supplies, corsets, gloves, sporting^ 
 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-l 
 tion due to any one of several causes, such as competition] 
 with other goods on dealers' shelves; price-cutting among 
 dealers on the manufacturer's standardized lines; inability ofl 
 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. 
 
 It is probable that scarcely any manufacturer desires to 
 conduct his own distributive system 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 them, as it 
 does 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 involves grave prob- 
 lems. The chances of failure are high. The profits from 
 retailing are, on the whole, not so great as those from manu- 
 facturing, considering both under favorable circumstances. 
 In spite of these draw-backs 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. 
 
 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 
 
 6 Printers' Ink, Mar, 21, 1912. 
 
I 
 
 CHAIN-STORE SYSTEMS 223 
 
 hains. Such concerns have not as yet made much progress 
 in this country, but in Europe they are numerous and, ac- 
 cording to most reports, very successful. Evolution in Eu- 
 rope seems to be quite definitely in the direction either of 
 privately owned chain-store systems, or consumers' co-opera- 
 tive 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 distribution is 
 at its best, fear nothing so much as the growth of " the 
 multiple shop," as the private chain store is called there. 
 
 The chain-store unit works for the same end as the indi- 
 vidually owned retail store — namely, the best possible net 
 retur ns. To succeed in getting a good net return the chain 
 store usually works for a big volume on a relatively small 
 stock, resulting in a rapid turnover. In this respect some bf 
 the chain stores are very successful. In the average city 
 grocery store the stock turns perhaps 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 oi*" 
 four turns per year is considered good, but the most success- 
 ful drug chain has a turnover of twelve times per year. In 
 a cigar and tobacco store the average is from four to ten 
 turns, while in one of the most successful 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 individually owned stores is 
 only from eight to ten.^ 
 
 Chain-store systems, because of their large capital invest- 
 ments, cail_afford to employ the most efficient executives 
 available even though their salaries must be high. Thus 
 
 6 Printers' Ink, Dec. 3, 1914, p. 66 ff. 
 
224 ECONOMICS OF RETAILING 
 
 chain stores are likely to have better executive management 
 and more efficient methods planned for doing the work of ^ 
 the stores than the ordinary individually owned stores. ^- 
 ^rt attention is given to such problems as hiring and train- 
 ing employees, writing advertising, preparing window trims, 
 store service, and elimination of leaks and wastes. 
 
 /^ost 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 un- 
 varying quality. Most of them make cheaper prices the ad- 
 vertised argument for trade in competition with the individ- 
 ually 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 arguments and other advertising features by use of 
 trading stamps, premium plans and other schemes to attract 
 and hold trade. 
 
 In the competition of chain stores with individually : 
 owned stores there seems to be certain advantages in favor 
 of the former, first, the chain-store system as a rule repre- 
 sents greater buying power, and its buyers are enabled to 
 take advantage of prices that are usually given only to job- 
 bers. Savings thus made are, however, counterbalanced to 
 a certain extent by necessary expenses in redistributing the 
 goods to the individual stores of the system, providing stor- 
 age 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 advan- 
 tageously. Second, certain superior economies in account- 
 ing, in the delivery of goods, in advertising, and in the grant- 
 ing of credit and making collections seem to be more prac- 
 ticable in chain-store management than in individually owned 
 
CHAIN-STORE SYSTEMS 
 
 225 
 
 stores. Third, the chain-store system with many units scat- 
 tered widely can to a certain extent eHminate losses due to 
 unsalable goods accumulating in any particular place by 
 having 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. 
 
 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 indi- 
 vidually 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 continue this process 
 until it has driven its competitors out of business or cowed 
 them into submission. 
 
 The chain-store system has another advantage in com- 
 petition with the individually owned stores in that it can han- 
 dle private brands of its own, advertise them, and build up 
 a market for them. In most cases, the small one-store re- 
 tailer is not in a position to develop a business in private 
 brands. But the standard brands handled by the independ- 
 ent 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 has 
 access to supplies of the same kinds of goods as the regular 
 
226 ECONOMICS OF RETAILING 
 
 retailers, but the regular retailers do not have like opportu- 
 nity 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. 
 
 On the other hand, chain stores suffer certain disadvan- 
 tages in comparison with individually owned stores. The 
 average cost of doing business in chain stores is apparently 
 lower than in average individually owned stores.'^ There 
 is no question but that the average chain store is more effi- 
 ciently 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. 
 
 The chain-store system can probably never secure the 
 same degree of interest from its local store managers, espe- 
 cially when they work on a salary basis, that the single store 
 receives from its owner. It is much more difficult to main- 
 tain the close personal touch with employees that is so nec- 
 essary to successful store practice 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 
 
 7 Printers' Ink, Dec. 17, 1914, p. 20 flf. 
 
 I 
 
CHAIN-STORE SYSTEMS 
 
 227 
 
 chain store, so thoroughly worked out by the executives, may 
 easily pass over the dead-line of red tape and become a bur- 
 den rather than a productive help. The difficulty of finding 
 efficient store managers vs^ho will work for chain systems is 
 admitted by every chain-store concern. Though the routine 
 work may be, and usually is done by low-priced help, the cost 
 for efficient managers, supervisors, and executives is high, 
 and as competition grows keener, the cost for both classes of 
 help must rise accordingly. 
 
 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 authority and for the most careful 
 distribution of duty while making full allowance for all 
 local demands. Thus the chain-store system must be some- 
 thing 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 re- 
 spects the individually owned store possesses natural advan- 
 tages over the chain which, if utilized, would go far toward 
 helping it to hold its own in competition with the chain. 
 
 In addition to the regular organization 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 de- 
 partments, most chain-store systems make special provision 
 for the following activities — in some cases by the establish- 
 ment of special departments: 
 
 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. 
 
228 ECONOMICS OF RETAILING 
 
 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. 
 
 In the case of some chain-store concerns, some of the 
 functions named above are carried on by subsidiary corpora- 
 tions whose stock is owned by the parent company. For 
 example, in the United Cigar Stores Company, the purchase 
 and rental of sites for stores, the repairs, improvements, and 
 sub-letting, is all cared for by a corporation 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. Agen- 
 cies 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, leasing large buildings only parts of 
 which are used as cigar stores, the remainders being sub-let 
 to other tenants. The premium department is conducted by 
 another corporation entirely separate from the United Cigar 
 Stores known as the United Profit Sharing Corporation. 
 
 The store equipment department in chain-store concerns 
 apportions the space for store use and provides proper fix- 
 tures, often the same for all stores in the chain. The win- 
 
 8 From " Weekly Market Letter," Apr. 15, 1915, issued by Jones & Baker, 
 Chicago. See also, Printers' Ink, Nov. 12, 1914, p. 58 ff. 
 
CHAIN-STORE SYSTEMS 229 
 
 dow 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 showing total sales and sales by depart- 
 ments on lines handled, are required from every store in 
 most chain systems. The daily report usually, includes or- 
 ders for new stock to replenish lines sold out. Some con- 
 cerns 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 executives 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 are sometimes required from the local 
 managers, and weekly statements from the individual sales- 
 people in the form gf claims for bonuses or prizes, and so 
 on. These reports serve as checks on the daily reports. In 
 most chain stores, inventories are taken frequently, gener- 
 ally once per month. In some cases these inventories are 
 taken at regular times, in others only on special call from 
 headquarters. The reports of stock on hand in the inven- 
 tories serve as another check on the operations of each store. 
 The daily reports as summarized and carried out in the ac- 
 counting department show exactly what goods have been 
 ordered and what goods sold, and, therefore, what goods 
 should remain. The inventory report shows whether the 
 
230 ECONOMICS OF RETAILING 
 
 daily reports were made correctly or not, or whether an] 
 stock has been taken from the store in any way without 
 proper accounting. 
 
 Every possible precaution is taken to prevent and to dij 
 cover dishonesty if any should occur. The reports already 
 named serve this purpose, and in addition there is the worl 
 of the traveling auditors, the supervision by district man- 
 agers, and the work by special investigators, 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 con- 
 stantly for crookedness. 
 
 Not only must each store and employee make a report, 
 but a certain standard of results is set before each. Before 
 establishing 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 the store m^ 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 generally, but must give special atten- 
 tion to pushing the sales of goods that show the largest 
 profits. The sales quota may go still further and set stand- 
 ards 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 tptal profits quota, and quotas for 
 
CHAIN-STORE SYSTEMS 231 
 
 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 corre- 
 sponding to the quota set for him, he must give way to some- 
 one who can. 
 
 While every attempt is made to secure the accomplish- 
 ment of what has previously been determined as possible, and 
 employees are held strictly to account for this, usually sev- 
 eral incentii^es are adopted to get every man to do his best. 
 In the first place, fairly good salaries are paid. On the aver- 
 age, it seems, although the writer relies only on his own ob- 
 servation for this, that the salaries for the same classes of 
 labor average somewhat higher in chain stores than in indi- 
 vidual 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 stores. The syste- 
 matic division of .labor in the majority of chain stores per- 
 mits this. Thus, while the chain store pays more for this 
 class of labor than other stores, the total pay-roll for the 
 chain store may not be as high as in the other stores doing 
 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 
 compare favorably with what they could earn as independent 
 store managers, or the company could not keep them in em- 
 ploy nor hold their loyalty. 
 
 Many chain stores go further and give their employees 
 bonuses or premiums for accomplishment above the stand- 
 ard or quota. Some concerns never grant regular salary in- 
 
232 ECONOMICS OF RETAILING 
 
 creases. All increases in earnings must come in the form oj 
 bonuses or premiums. Prize-giving systems are commoi 
 In attempting to get everybody interested in doing more thj 
 before, store is set in competition v^ith store, man agains 
 man. Every year, each store must do better than it did th< 
 preceding year. Every man is encouraged to make hii 
 record for the coming year better than for the year preced^ 
 ing. Prizes and premiums are offered for successes in' 
 making higher records. In the most successful chain stores 
 these bonus and prize-giving systems are so extended as to 
 give to every employee some chance to earn a prize. 
 
 To stimulate these contests and increase sales_efficiency< 
 v^eekly 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. 
 
 There is a maxim among some chain-store system man- 
 agers that runs as follows : " As 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 own- 
 ership. In the company's records the store in which he is 
 employed is named after him. He is taken into the com- 
 pany's confidence, and his advice and suggestions are sought. 
 All of these things tend to make the store manager a very 
 loyal employee qf the chain-store system. It is recognized 
 that here is the weakest element in chain-store manage- 
 
CHAIN-STORE SYSTEMS 233 
 
 ment — a hired employee rather than an owner at the heacik^ 
 of a store. 
 
 If one may judge from the development 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 are forc- 
 ing them into developing chain-store systems, and as long as 
 buying in large quantities for cash secures lower prices, 
 competition among dealers will tend to draw groups of them 
 together, either in the form of organizations 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 increases, the special ad- 
 vantages will proportionately diminish, or, to put it in an- 
 other way, as the number of combinations seeking special 
 prices on the goods they buy increases, the difficulty in get- 
 ting these prices will also increase, hence, it will become nec- 
 essary to increase the size of the aggregations either by ex- 
 pansion over more territory, or by consolidation of existing 
 chains in order to get better prices than other concerns. 
 
 That this movement to consolidate existing chains has 
 already begun is evidenced by several significant events of 
 recent date. For example, the F. W. Woolworth Com- 
 pany absorbed the S. H. Kngx five and ten cent stores. The 
 United Cigar Stores owners acquired a controlling interest 
 in the Riker-Hegeman Co., in the latter part of 1913. The 
 H. G. Gill stores have been combined with the Maurer & 
 Remley Company of St. Louis, and the latter with the 
 Kroger Grocery & Baking Company, and press rumors in- 
 dicate 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 cer- 
 tain parts of it, in much the same manner that many large 
 concerns now control certain parts of production. 
 
234 
 
 ECONOMICS OF RETAILING 
 
 Bibliography 
 
 A series of fourteen articles on chain stores appeared in Printers 
 Ink beginning in the September 10, 1914, issue, and ending December 24j 
 1914, written by Charles W. Hurd and M. Zimmerman, members of the 
 Printers' Ink staff. This series of articles supplies the best publishec 
 dissertation on chain-store systems extant. 
 
 From One Store to Six Hundred, the Story of the Wool worth Stores^ 
 
 Hardware Dealers' Magazine, Sept., 1912, and Dec, 1912. 
 Woolworth's Tower of Nickels and Dimes. Hearst's Magazine, Oct.^| 
 
 1912. 
 History and Secrets of the Chain Store Grocery Business. Grocery 
 
 Magazine, 1911. 
 
 Money Sticking Out, Story of B. H. Kroger. ' McGlure's, Jan., 1914J 
 Several Articles on Chain Stores by R. A. Bruce. Printers' Ink, July! 
 
 10, 17, 31, and Aug. 7, 1913. 
 Getting Maximum Sales Out of Chain Store System. Printers' Ink, 
 
 Aug. 1, 1912. 
 An Account of the Maypole Dairy Company of England in "A Better 
 
 Day's Profits." Published by Burroughs Adding Machine Co., 
 
 Detroit. 
 Hanan Chain Stores. Printers' Ink, March 21, 1912. 
 United Cigar Stores. Printers' Ink, several articles during November 
 
 and December, 1911. 
 
CHAPTER XIV 
 
 THE MAIL ORDER HOUSE 
 
 The development of the mail order business is one of the 
 most remarkable 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 
 entirely upon mail orders, or the department of a retail store 
 set up to handle nothing but business by mail, is a very mod- 
 ern thing. 
 
 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 E^st Kinzie 
 Street. Mr. Ward, who died December 7, 1913, had been 
 a clerk in retail stores in Chicago and had also had some 
 experience as a traveling salesman for a Chicago wholesale 
 house before going into the mail order business. Soon 
 after starting, he associated 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 Company. 
 
 The original aim of the business was to serve as a sup- 
 ply house for the farmers' granges, local branches of a secret 
 society known as the Patrons of Husbandry, which spread 
 very rapidly in the latter 60's and early 70's. The grange 
 movement had as one of its chief objects, co-operative buy- 
 ing of all classes of goods for its members. While the or- 
 ganization is still strong in several parts of the country, its 
 co-operative buying did not progress successfully ; and as that 
 
 235 
 
236 ECONOMICS OF RETAILING 
 
 
 I 
 
 feature fell off, Montgomery Ward and Co. moved into th 
 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 1914 to $41,042,486. 
 
 Other concerns followed the methods of Montgome 
 Ward, and at the present time there are hundreds of ma: 
 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 1913 and to $101,121,654 in 
 1914. 
 
 Sears, Roebuck and Co. has the most remarkable his- 
 tory of all the mail order houses. Mr. Sears, the founder, 
 was at one time a station agent in a small town in northern 
 Minnesota. A mail order watch concern 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 com- 
 pany. 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 employ of 
 the railway company and started a mail order watch and 
 jewelery concern in Minneapolis, which was moved to Chi- 
 cago 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, but 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 some sort of a crisis. A reorganization was effected 
 June 16, 1906, under the leadership of Julius Rosenwald, a 
 former employee and now president of the concern, an^' a 
 
THE MAIL ORDER HOUSE 
 
 2*7 
 
 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 giant concerns in the mail order field are Timothy 
 Eaton and Co. in Canada, w^ith stores at Winnipeg and To- 
 ronto, 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 consider- 
 able number of credit mail order concerns which sell goods 
 on the instalment plan, and finally a large number of regu- 
 lar retail stores which conduct important mail order depart- 
 ments. It should be added in passing that the mail order 
 department in department stores has not been uniformly 
 successful. Several large stores that formerly issued mail 
 order catalogs have discontinued, and there are several well 
 known merchandising 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. 
 
 The amount of mail order business in this country direct 
 with consumers has been variously estimated at from 
 $250,000,000 to $500,000,000 per year. If one includes all 
 mail order business, the transactions of regular retail stores 
 through the mails as well as exclusive mail order house busi- 
 ness, the latter figure is probably nearer right. Estimating 
 
 ")n May 1, 1915 the capitalization of Sears, Roebuck & Co. was as follows: 
 P . ed stock $8,000,000; common stock $60,000,000. 
 
238 ECONOMICS OF RETAILING 
 
 the total consumption of goods purchased through retail 
 stores to be in the neighborhood of $12,500,000,000, or $125 
 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 re- 
 tail stores ; for the mail order business is largely, though not 
 entirely, transacted 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 catalogs 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 cata- 
 log 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 furniture factories is taken." Montgomery 
 Ward and Company claims to have 3,000,000 re-ordering 
 customers and other concerns claim as high as a million. Al- 
 lowing for duplications, there are still probably at least 
 10,000,000 people who order some goods every year from 
 mail order concerns. 
 
 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 country 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 es- 
 
THE MAIL ORDER HOUSE 
 
 239 
 
 pecially favorable for the growth of this method of distri- 
 bution. 
 
 The typical American farmer, for example, lives an iso- 
 lated 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 villages and are thus 
 closely associated with each other, as well as with the busi- 
 ness men and store or shop-keepers of the village. The 
 American farmer has developed an independence of spirit 
 that is at once a strength and a weakness. Self-reliance 
 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 anything 
 but his own farm and family. Unlike the farmer-villager 
 common in all of the old countries, he feels no interest in his 
 nearest town, no duty to support it against all the rest of the 
 world, and may even suspect his townsmen of motives in- 
 jurious 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 
 transaction 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 
 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 
 standard 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 
 
 ii 
 
240 ECONOMICS OF RETAILING 
 
 could be satisfied, and the method has often been to orderl 
 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 take a chance " at sending his money to. 
 a distant town. 
 
 The increased earning power and consequent 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 conspicuously, such as clothing-, car- 
 riages, automobiles, horses, furniture, house furnishings, 
 and so on. Fashion now finds expression among classes of 
 people who have heretofore never felt its appeal. The de- 
 sire 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, emulation, and 
 desire for variety, therefore, cause new classes coming into 
 economic independence to seek outlets for their spending 
 power. For these, in their earlier stages at least, the mail 
 '5 order house is the means to the desired end. The goods 
 
 J S 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 
 advertised descriptions, such goods are " the latest and most 
 
 i K approved by the best classes." 
 
 ^^ ^>^ The retail merchants of the smaller towns have in many 
 cases been unable to meet successfully the growth of the pro- 
 gressing demands 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 any- 
 thing about it. The work of retailing in a small commu- 
 nity and a small store is largely a work of countless details, 
 
THE MAIL ORDER HOUSE 
 
 241 
 
 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 busi- 
 ness 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 unimpor- 
 tant. 
 
 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. 
 
 Finally, the mail order houses have used as their prin- 
 cipal argument, a price lower than that asked in regular re- 
 tail stores. The mail order house catalog of ten 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 purchasing is one of great economies. 
 
 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. . 
 
242 ECONOMICS OF RETAILING 
 
 As already suggested, the mail order house sells its goods 
 through advertising. The mediums employed include let- 
 ters, circulars, newspaper or magazine advertising, price lists, 
 and catalogs. The catalog and the advertisement in the 
 popular periodicals are the ones most commonly and most 
 successfully used. Every effort is made to make these as 
 effective as possible. The v^ork of the advertising man in a 
 mail order house is second in importance to no other. In 
 general, the advertisement of an article either in a paper or 
 in a catalog 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 con- 
 summate the enjoyment or satisfaction anticipated. No 
 wonder the mail order house catalogs are read by thousands 
 of families more than any other book. They are interest- 
 ingly 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 expressed, 
 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 out- 
 shine other people, and so on. These are material things, 
 and the material things of life influence all classes. The 
 mail order catalog is to many country or small town con- 
 sumers what the department store and the brilliantly lighted 
 shopping district are to the city dweller. 
 
 In the larger mail order houses the handling of the mer- 
 chandise and the filling of orders is reduced to great cffi- 
 
THE MAIL ORDER HOUSE 
 
 243 
 
 ciency. We may take, as an illustration, the system fol- 
 lowed 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 truck loads 
 four times a day. In the largest concern of the kind, 
 90,000 pieces of mail per day is an average amount. The 
 first step is the separation of the postal cards and other mat- 
 ter 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 or- 
 ders for goods, but seeking or giving information of any 
 kind are turned over to the correspondence departments. 
 Letters containing orders for goods on time, or for C. O. D. 
 shipment are sent to the credit department, and letters con- 
 taining orders for goods accompanied by payment are sent 
 to the auditing department. The method of handling credit 
 orders will be described later. 
 
 The orders going to the auditing department are care- 
 fully checked as to descriptions and prices, and the total of 
 the order checked with the amount of money sent. Record 
 is made of the amount of money received, an invoice num- 
 ber is assigned to the order, the money is turned over for 
 entry and deposit, and the order is sent on to the entry de- 
 partment. 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 rout- 
 ing and transportation fill in instructions as to the methods 
 
244 ECONOMICS OF RETAILING 
 
 of shipping and packing, and attach the address labels for 
 use in the packing department. 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 de- 
 partments. The manager of the merchandise department 
 receives the order ticket addressed to him, has it filled by one 
 of his assistants, 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 mer- 
 chandise departments, each would receive its order ticket, 
 and the goods would be received from each department, as- 
 sembled into one parcel in the packing department and then 
 checked to see that nothing had been omitted. After pack- 
 ing, the address labels are affixed and the parcel is shipped to 
 its destination. All together, 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. 
 
 Recently an innovation has been adopted in the delivery 
 of goods in cities of from 3,000 population and up. In such 
 places the cost of dray age 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 drayman 
 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 customers 
 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 
 somewhat less than the regular dray charge would be. In 
 
THE MAIL ORDER HOUSE 245 
 
 this way the transportation charges, both freight and dray- 
 age, are considerably reduced, especially for small parcels 
 that would not ordinarily be entitled to the lowest rates. 
 
 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 certain kinds 
 of goods, such as pianos, cream separators, and other expen- 
 sive 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 pay- 
 ments 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 very easily. Really 
 the whole financial history of the customer is pretty well 
 known to the credit manager before he affixes his O. K. to 
 the order. This done, however, the order passes back into 
 the office channels already described, just the same as an or- 
 der 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 re- 
 spond 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 threario 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 
 
246 ECONOMICS OF RETAILING 
 
 to secure the money without delay in any possible way. The 
 losses due to bad debts in the best managed mail-order con- 
 cerns are usually a very small percentage of the total sales. 
 By exercising 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 force in making collections in only two cases. 
 
 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 catalogs and other ma- 
 terial 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 depart- 
 ment is to carry. He must be familiar with their quaHties, 
 comparative values, and styles, and know where such goods 
 can be obtained, how they are made, the materials of their 
 construction, costs of making, market tendencies, and so on. 
 He must be shrewd in bargaining, cool and quick in judg- 
 ment, and sure in his reasonings. His work commands a 
 salary of from $2,500 up to $25,000 and even more per year. 
 
 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 success 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 questioned. The 
 only injunction that hangs constantly over his head is " make 
 good." Whatever he does he must show a good net profit 
 
THE MAIL ORDER HOUSE 
 
 247 
 
 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 
 is not at all infrequent, and the executives of large mail or- 
 der concerns are constantly scouring the country with sharp 
 eyes to locate the ablest buyers. Whenever one is located, 
 he is secured at once if possible. 
 
 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 maintained 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 attract trade but not any 
 lower than is necessary to this end. The upper limits 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 itey take either of two forms, an unusually large dis- 
 count for cash, or an unusually low quantity price. Some- 
 times when immediate cash is not an object to a supplier, 
 the buyer may succeed in getting his bills dated forward for 
 a considerable length of time, thus getting the use of the 
 funds for the house for a longer time before paying for the 
 supplies. 
 
 The buyer of a mail order house with plenty of cash at 
 his disposal watches for bargains the country over. A 
 manufacturer who has overstocked himself with his product 
 
248 ECONOMICS OF RETAILING 
 
 and does not see any immediate means of liquidating, 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 or- 
 der buyers. Large orders and cash in hand will be offered 
 if the prices are made low; and the result is that many such 
 transactions are made upon very favorable terms. Rarely 
 do suppliers succeed in getting fancy profits when dealing 
 with such buyers. 
 
 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 guarantee ab- 
 solute satisfaction. Promptly return to us, at our expense, 
 any unsatisfactory purchase. We will then either exchange 
 it for what you want, or return the full amount you have 
 paid, together with transportation charges." This is an un- 
 qualified 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 confi- 
 dence in the statements made in the catalog, but it also pro- 
 motes 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 
 
THE MAIL ORDER HOUSE 
 
 249 
 
 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 in- 
 crease them. 
 
 Truthfulness of advertising is another important factor 
 in the long run. Because of slight misrepresentations in the 
 catalogs or other advertising matter many concerns never 
 receive a second order from customers. Readiness of the 
 firm to back up every statement made is the first principle 
 in successful merchandising not only in the mail order busi- 
 ness 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 or- 
 dinary expressions of selling talk have been toned down 
 considerably. It is probable that any misrepresentations 
 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 de- 
 scriptions of merchandise, when these run up into the tens 
 of thousands in a single catalog. 
 
 It is of interest to note the character of the work required 
 and done in the correspondence 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 standpoint of the person who re- 
 ceives the letter, whether that person 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. Confi- 
 dence must be restored in cases of complaint, or built up in 
 case of inquiry. " Write letters, or orders to us, in any way, 
 on any piece of paper, and in any language. We can read 
 
250 
 
 ECONOMICS OF RETAILING 
 
 and correspond with you in your own tongue. Don't be 
 afraid you will make a mistake. We will readily under- 
 stand what you want." Such is the statement in one cata- 
 log. To adapt the work of the correspondence department 
 to all of such needs requires both high grade intelligence 
 and art. 
 
 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 com- 
 munications 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 build- 
 ing to others by endless belt conveyors. Orders are filled by 
 people who travel almost on the run all day long. Experi- 
 ments have been made in the use of roller skates in the order 
 filling and stock room departments. Packing has been re- 
 duced almost to an exact science. Wherever a machine can 
 do the work, one is used. Human labor is classified and 
 departmentized. New employees are taught how to do their 
 work most effectively. Standards of performance are set 
 and employees must come up to these standards. Responsi- 
 ble positions pay high salaries, but the system is so devised 
 that the number of such positions is few compared to the 
 total. The majority of employees need only to be active, 
 alert, and accurate in their movements. Everything 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. 
 
 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 proportion can ever hope to occupy the better paying 
 
THE MAIL ORDER HOUSE 
 
 251 
 
 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 an- 
 swers to these questions 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. 
 
 This brings us to the final point. What are the costs of 
 doing a mail order business? The following is a schedule 
 of the percentages of each of the main 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, 
 advertising 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 little general advertising. Its business 
 is obtained by correspondence, using select mailing lists, and 
 delivery charges are prepaid. 
 
 In testimony given by Wm. C. Thorne, Vice President 
 of Montgomery Ward and Company before the Parcels 
 Posts sub-committee of the Senate Committee on Post Offices 
 and Post Roads, January 3, 1912, he stated that " the cost 
 
252 ECONOMICS OF RETAILING 
 
 of doing business in a catalog 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 18% 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 22 
 per cent of sales would probably be fairly representative 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 they 
 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. 
 
 In conclusion, mail order houses claim, and undoubtedly 
 do have, certain advantages in many cases over the small 
 local stores that are most affected by the mail order com- 
 petition. 
 
 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 the same, the advertising is sometimes of such 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 sales- 
 manship and of allowing the customer to examine the goods 
 before buying. The vivid descriptions of goods and the 
 suggestions of enjoyment or satisfaction stirred up in antici- 
 pation of ownership, not always literally truthful with all 
 advertisers, are factors in the modern mail order catalog 
 that must be reckoned with. 
 
 Second. The large mail order house is enabled to offer 
 
THE MAIL ORDER HOUSE 
 
 253 
 
 through its catalog 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 inter- 
 est in the up-building of the trade of a community, those 
 who have actually, or through misunderstanding, felt them- 
 selves mistreated by their home merchants in any way, or 
 those who desire the distinctive thing, the merchandise from 
 the distant place of different appearance or qualities, but 
 who cannot afford 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 finan- 
 cial 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 hand- 
 some profit. In other words, the mail order house is fre- 
 quently favored by manufacturers with an unusual quantity 
 price. 
 
 The economic disadvantages of the mail order method of 
 distribution may be summarized as follows : A constant 
 and high advertising expense is necessary to keep trade com- 
 ing in; a large number of customers never send in more than 
 one order; and new fields of customers 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 expense that is dispropor- 
 tionately large. When one adds up all expenses properly 
 chargeable and incident to dealing with a mail order con- 
 cern it is open to question whether the mail order method 
 
254 ECONOMICS OF RETAILING 
 
 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 
 transportation expense on the packages and parcels as they 
 are sent to the customers by establishing branch houses or 
 redistributing points. Montgomery Ward and Company 
 has such branch warehouses at New York, Kansas City, 
 Portland, Oregon, and Fort Worth, Texas. Sears, Roebuck 
 and Company likewise has three or four branch warehouses, 
 while certain classes of goods such as stoves are distributed 
 directly to consumers from a dozen or more points. The 
 National Cloak and Suit Company combines all the ship- 
 ments 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 soi;ne savings 
 are effected in mail order distribution. 
 
 / 
 
CHAPTER XV 
 
 PRICE-MAINTENANCE 
 
 Price-maintenance is a term used to designate a business 
 policy applied in the marketing of products through middle- 
 men. It consists essentially of the limitation or restriction 
 placed upon middlemen or dealers not to resell at more or 
 less than a certain price named by the manufacturer or 
 producer. 
 
 Business men take views upon the subject in accord 
 with their business interests and cannot be reconciled. The 
 United States Supreme Court has decided, in decisions to 
 be referred to later on in this chapter, that price-maintenance 
 under ordinary and customary forms is illegal. An attempt 
 has been made, and likewise opposed, to secure national 
 legislation permitting the practice of the policy. In conse- 
 quence of these things and because of the gravity and far- 
 reaching effects of the problem, it has become a matter of 
 vital public interest. A solution is now demanded of the 
 court of public opinion. 
 
 The price-maintenance policy originated with the present 
 system of distributing goods through wholesalers and re- 
 tailers. Large scale, specialized production, dependent upon 
 wide distribution through the regular channels of trade, and 
 cut- throat competition are the conditions out of which grew 
 the demand for this policy. 
 
 From the earliest developments of the factory system, 
 there existed the sharpest competition both among producers 
 and distributors. At first, the producers fought their com- 
 
 255 
 
256 ECONOMICS OF RETAILING 
 
 petitive battles almost entirely by attempts to cheapen the 
 quality of the goods and by trying at the same time to keep 
 up appearances. It was the age of fleeting colors, shoddy, 
 glue, and paste. Some of these manufacturers, as well as 
 their distributors, never expected to sell a consumer the same 
 make of article more than once. American-made goods 
 were the laughing stock of the world. '' Cheap factory- 
 made stuff " was a commonly used phrase. 
 
 This state of competition led to evils that had to be cor- 
 rected by state and national legislation. As a result there 
 grew up whole codes of factory laws, child-labor laws, pure- 
 food laws, and so on; and, as an indication that the same 
 forces are still operative, it may be noted that there is an 
 emphatic demand from many parts of the country for pure 
 textile laws, pure shoe laws, and truthful advertising laws. 
 
 Out of the competition mentioned above, there grew 
 two movements. One was the trus^t , built on the financial 
 wreckage of unsuccessful plants and seeking a monopoly 
 of the industry by controlling either the sources of supply, 
 or the markets leading to the consumer. Th ^ other w as_ 
 a movement to get the trade of the public by giving satis- 
 factory goods at satisfactory prices. It was thought by 
 some producers that in the long run, in preference to making 
 cheap goods for competitive selling, it would be more profita- 
 ble to make goods of constant standard qualities, and depend 
 upon the judgment of the public for returns. 
 
 Some of these producers who believed that they could 
 build successful businesses on the basis of making goods of 
 standard qualities began to carry out their plans. After 
 they had developed their product to the standard of excel- 
 lence decided upon, they began to tell the public about it 
 by advertising and otherwise. The goods were distributed 
 through the most economical means available at the time, 
 that is, through the regular channels of trade. The public 
 
PRICE-MAINTENANCE 257 
 
 saw the advertisements, tried the new standard goods, paid 
 the standard prices for them, and were satisfied. They 
 came again and again for the same goods. They were 
 evidently permanently satisfied. 
 
 Let us remember that the dealers were still, and are yet, 
 largely without well recognized standards of merchandising 
 competition. Each man did whatever was within his power 
 to keep his own trade and attract the trade of his rivals, 
 whether the means were fair or foul, so long as the law 
 permitted and the public remained indifferent. Price-cutting 
 had been a device of traders since the beginnings of com- 
 merce. It was not long before some enterprising dealer 
 thought of these new standardized goods, now becoming 
 well-known to the public, as splendid means of drawing trade 
 to his store. The bait worked. Not only did he draw cus- 
 tomers to his store for the cut-priced standard goods, but 
 he sold them other goods upon which the prices were not 
 cut and upon which his profits were sufficient to make up 
 for the losses on the cut-priced article. 
 
 Thereupon other dealers in the community handling the 
 same article, were forced either to cut the price on this article 
 also or to substitute for it some other article, and do every- 
 thing possible to counteract the trade-drawing influence upon 
 the public mind of the combination of a bargain price and 
 a standard, well-known article. 
 
 The next time the representative selling this particular 
 standard article visited this town, the retailers (all but the 
 price cutter) would refuse to buy any more. Not that the 
 goods were unsatisfactory in any way to either the dealers 
 or the public, but the retailers did not want to handle them 
 because to do so meant a loss. They could not be expected 
 to conduct a store and to sell goods without some return 
 for their services and outlay. Consequently the salesman 
 g^ot no orders from this town, except from the price cutter, 
 
258 ECONOMICS OF RETAILING 
 
 and after customers had purchased as much of the article 
 as there seemed to be an immediate demand for, and when 
 it seemed to lose its power as a trade attractor, then it was 
 time for the price cutter to drop this article and to use some 
 other standard article as a leader. Hence the producer lost 
 not only his outlet through the other retailers, but also 
 through the price cutter as well. 
 
 After such incidents had happened in several communi- 
 ties the producer began to sit up and take notice. What 
 could he do about it? 
 
 If he had a monopoly on the production of his kind of 
 goods, and if they constituted one of the necessities of life 
 of large classes of people, he could probably disregard local 
 price-cutting difficulties. The dealers would be forced 
 by public demand to carry the goods whether they received 
 any profit for their services or not. 
 
 If the producer was the owner of large plants making 
 many different kinds of articles and had plenty of capital 
 behind him, he might not be worried by local price-cutting. 
 If the regular dealers could not agree to sell his goods with- 
 out friction, he could develop a selling organization of his 
 own, pass over the heads of the jobbers, and sell direct to 
 retailers. In this way he could select his customers and 
 sell to those only who would agree to maintain prices. He 
 could refuse goods to the price cutter simply by not going 
 near him, or by pleading inability to fill his orders if they 
 were sent in by mail. 
 
 If this plan still left something to be desired, he could 
 start agencies, branch stores, or other outlets all of his own, 
 where no one could question his right to sell his goods at 
 the standard price. 
 
 With large amounts of capital to spend in advertising, 
 the producer might even be able to create a consumer- 
 
PRICE-MAINTENANCE 
 
 259 
 
 demand, strong enough to force regular dealers to carry 
 the goods even against their wishes. 
 
 But note the additional expense in all of these methods, 
 the friction, and the unnecessary duplication of effort. It 
 is a principle in business economics that any method of dis- 
 tributing goods which attempts to proceed without the 
 active co-operation of the distributing agents is uneconomical 
 and wasteful. Where there is waste somebody must pay 
 the bill. In some cases, it might mean a loss to the manu- 
 facturer, but where the wasteful way is the regular way, the 
 burden would be shifted to the consumer. 
 
 But if the producer were a small manufacturer with 
 Hmited capital, or a manufacturer of a single commodity of 
 small price value, he could hardly disregard the effects of 
 local price-cutting. He would find his business slipping 
 from him in one community after another, no matter how 
 well his product was made, and no matter how well the 
 consumers of that product were satisfied with it. What 
 would be the remedy? 
 
 He might give up advertising and making goods of 
 standardized qualities, and go back to producing competi- 
 tion stock with cheapness as his aim. 
 
 He might unite with or sell out to some other manu- 
 facturer with an independent selling organization, enabling 
 him to carry the goods direct to retailers or consumers in 
 the manner that some large plants now do. 
 
 He might unite his plant to some selling organization 
 such as a mail order house, department store, jobbing con- 
 cern, or chain-store system. Although some such distrib- 
 uting concerns are taking over many factories, they are, on 
 the whole, not anxious to do so except when the factory is 
 sold to them at a great sacrifice. Some of these selling 
 organizations, according to their own statements, can get 
 
26o ECONOMICS OF RETAILING 
 
 abundant supplies of goods at prices lower than they could 
 possibly manufacture them for themselves. Some of such 
 businesses are built on the policy of collecting and disposing 
 of lots of goods at figures below the normal costs of pro- 
 duction. The losses are the producer's, the gains the dis- 
 tributor's, rarely the consumers'. 
 
 He might surrender his plant to a trust which is, singu- 
 larly enough, almost always incipient in industries suffering 
 from price-cutting competition. 
 
 His only other alternative was to attempt to suggest or 
 name prices for which his goods were to be sold by the 
 dealers who handled them, and prevent anyone from chang- 
 ing these prices. It was because of the conditions just 
 described that the price-maintenance policy was devised. 
 Several manufacturers began carrying out the plan during 
 the 70's and 80's, but its main development has come during 
 the last twelve or fifteen years. 
 
 To prevent price-cutting on standardized goods among 
 certain dealers who chose this method of attracting trade 
 to their stores, the producers sought protection under the 
 law. But as the need was new and the law was old, it is 
 not to be wondered at that but little protection for the 
 price-maintenance policy could be found therein. Prior to 
 1907, however, both state and federal courts uniformly 
 sanctioned the price-maintenance principle.^ 
 
 The recent decisions of the Supreme Court of the United 
 States do not prohibit the price-maintenance principle. 
 They simply prohibit certain methods of price-maintenance, 
 the most economical from the standpoint of independent 
 producers and the public. Price-maintenance is now per- 
 fectly possible, and legally legitimate, if the producer is able 
 to build a selling organization of his own, and is able to 
 sell direct to consumers by means of his own agents or 
 
 I See Appendix VII, " Judicial and Other Action Affegting Price-M5^intenanc§." 
 
PRICE-MAINTENANCE 261 
 
 salesmen or through chain or branch stores. It is still pos- 
 sible if the manufacturer builds a selling organization of 
 his own and sells direct to retailers. If the retailer, to whom 
 he sells, cuts prices, he can refuse to let him have more goods. 
 Probably, the manufacturer can appoint any or all retailers 
 of his Hne as his agents and direct them in the matter of 
 resale price as well as in any other particular. The manu- 
 facturer can consign his goods to his agents with instruc- 
 tions to sell at a specified price. 
 
 But all of these methods involve great expense in build- 
 ing up sales organizations that in a measure simply duplicate 
 organizations already in the field. Going through the for- 
 mality of appointing agents, sending out goods on consign- 
 ment, and making collections involve a large additional sell- 
 ing expense compared with the regular methods of distribu- 
 tion. Thus, while price-maintenance has not been prohib- 
 ited, it is now legally practicable only for the larger and 
 more powerful producers. The added and unnecessary ex- 
 pense involved in conforming the distribution of such goods 
 to the views of courts basing their decisions on laws that do 
 not apply to the case at all, must ultimately be borne by the 
 consumers. 
 
 Such then is the status of price-maintenance at the 
 present time. Manufacturers of specialties, depending for 
 distribution upon the regular channels of trade, and manu- 
 facturers without selling organizations of their own but who 
 produce goods that must be widely distributed, are in favor 
 of price-maintenance. 
 
 Manufacturers who have monopolies in the production 
 of necessaries of life are indifferent to price-maintenance. 
 Manufacturers with well-developed selling organizations of 
 their own that reach the retailers or the consumers directly, 
 not only do not care for price-maintenance, but seem to be 
 hostile towards it, probably for the reason that they do not 
 
262 ECONOMICS OF RETAILING 
 
 need it themselves and fear if it should be made permissible, 
 new factors of competition would have to be faced. 
 
 Wholesalers are either for or against price-maintenance 
 according to whether or not they have special brands of 
 goods that they desire to push. The wholesaler with a 
 brand of goods of his own is in much the same position as 
 the manufacturer with a well-developed selling organization; 
 he has nothing to gain by legalized price-maintenance. His 
 selling organization accomplishes directly and effectively 
 what other producers without selling organizations hope for 
 through price-maintenance. He, too, fears that if price- 
 maintenance were made possible his present competitive 
 market advantages would be more nearly equalled by 
 specialty manufacturers. 
 
 Retailers as a class seem to be in favor of price- 
 maintenance.^ 
 
 Those who favor price-standardization claim that its 
 employment results in a square deal to all concerned — to 
 producers, distributors, and consumers. It is held that the 
 policy is beneficial to producers, and makes it unnecessary 
 for a producer to compete with articles that he has made 
 himself, and that it enables him to seek the most economical 
 methods of distributing his goods. It is claimed that the 
 policy provides a reasonable profit, no more nor less, for 
 the dealers, and that it insures a product of standard quali- 
 ties at a fair price in each case to all consumers. Without 
 price-standardization, it is claimed, manufacturers are forced 
 
 2 " In answer to the query whether dealers favor price standardization the 
 Eastman Kodak Company and A, J, Reach Company received answers from over 
 90 per cent of the retailers carrying their goods and in each case ^8 i>er cent 
 voted for price-maintenance. A similar census taken by the Waterman Fountain 
 Pen Company showed 98 per cent favoring that form of merchandising. Out of 
 fourteen hundred and five replies received by the Kellogg Toasted Corn Flake 
 Company to the same question, only eight dealers were against the maintenance of 
 uniform prices. And in six thousand votes cast by retail jewelers in the Ham- 
 ilton Watch Company poll, there were only three opposed to the enforcement 
 of standard prices." Quoted from an article by Chas. L. Miller, in the Univ. 
 of Pa. Law Review, November, 1914, entitled " The Maintenance of Uniform 
 Resale Prices." 
 
PRICE-MAINTENANCE 263 
 
 to combine into trusts to protect their goods; and small, 
 independent dealers are driven out of business by large 
 retailing concerns that use price-cutting merely as a bait to 
 attract trade, and who make up for cuts in their prices on 
 some goods by overcharges on other goods. 
 
 The reasons given in opposition to price-maintenance are 
 that it interferes with the rights of property; that it makes 
 the dealer the '* manufacturer's slot machine " or " errand 
 boy," that it constitutes injurious restraint of trade, that 
 it prevents dealers who are able to do so, to sell more 
 cheaply than other dealers, that it protects the inefficient 
 dealer at the expense of the consumer, and that the con- 
 sumer must pay higher prices for his goods than he otherwise 
 would. 
 
 Several other arguments are offered on both sides, but 
 all attempt justification on one or the other of two grounds, 
 viz., economy to the consumer, and fairness to all parties 
 concerned. 
 
 To the argument that price-maintenance interferes with 
 the dealer's rights of property but little space can be given 
 here. This is a question that may be handled much better 
 from the legal than from an economic standpoint. Property 
 rights are held by individuals by permission of society. In- 
 dividuals are protected in those rights because it is assumed 
 that the welfare of society is best promoted by such a course 
 of action. Wherever an individual exercises a right or privi- 
 lege that militates against the best interests of society that 
 right is subject to restriction to fit the needs of the case. 
 Whether the restraints placed upon dealers by price-main- 
 tenance are reasonable or not, depends upon their effect 
 upon all concerned. Whatever is found to be of the great- 
 est good to the greatest number must here as elsewhere 
 determine the proper course. It may be safely assumed that 
 such rights are not greatly endangered if it be true, as the 
 
264 ECONOMICS OF RETAILING 
 
 evidence seems to indicate, that the great majority of inde-j 
 pendent retailers, the country over, are in favor of price- 
 maintenance. 
 
 The pubHc is not much interested in the objection that 
 price-maintenance makes the dealer the "errand boy" of 
 the manufacturer, nor are most dealers apprehensive of the 
 odious relationship suggested by this expression. The 
 dealer is in business to perform a service for the public for 
 which he expects a profit. Whether the profit may be made 
 most easily by handling goods advertised and guaranteed 
 by the manufacturer, or goods advertised by himself, makes 
 but little difference, so long as there is profit in them. There 
 are numberless ways in which a retailer can individualize 
 his business, other than by charging a higher or lower price 
 than that set by manufacturers. 
 
 That price-maintenance constitutes injurious restraint of 
 trade and tends towards monoply, if it be true, is of much 
 greater significance to the public. But the monopolist, as 
 we have seen, is little interested in maintaining prices at 
 which dealers are to resell, and the price-fixing of the 
 monoply is an entirely different thing from price-main- 
 tenance. 
 
 The price-fixing of combinations is dangerous to the 
 public because the combination controls a cross-section of 
 the machinery of business, and it is made up either of pro- 
 ducers making the same or similar sorts of things, or of 
 dealers selling the same sorts of things. Price-maintenance 
 means longitudinal co-operation in the channels of trade. 
 The former eliminates competition and raises prices to the 
 point of maximum profit to the group concerned. The 
 latter breeds competition, if not in price, certainly in quality 
 and service, hinders the forming of monopolistic combina- 
 tions among dealers, and permits the manufacturer of a 
 specialty to continue to exist independently, 
 
PRICE-MAINTENANCE 265 
 
 Price-maintenance restricts competition among the pro- 
 ducer's own products, but in doing so it sets the energies of 
 the producer free to work out the most economical system 
 of distribution possible for his particular kind of goods. 
 Where price-maintenance does not prevail, the producer, 
 without channels of distribution of his own, must not only 
 struggle with his competitors among the producers, but also 
 with the goods he has produced remaining in the hands of 
 dealers. In other words, he has unwittingly become a second 
 Frankenstein and must avoid destruction at the hands of 
 his own creation. 
 
 We have seen that a struggle of this kind is hkely to 
 force a small manufacturer to cheapen the qualities of his 
 goods and to attempt to get distribution by stimulating ex- 
 cellence; or to combine with some other manufacturer who 
 has a selhng organization reaching direct to the retailers, or 
 to combine or sell out to some large selling organization 
 such as a mail order house, department store, or chain-store 
 system, or to surrender to a trust. 
 
 None of these results in themselves are desirable from 
 the standpoint of the consumer or the public. The Ameri- 
 can people do not look upon the development of great busi- 
 ness and commercial organizations with easy minds. Our 
 experience with industrial combinations has not yet clearly 
 indicated the way to handle these concerns. One may not 
 be pessimistic about the future, and still grant that the 
 development of such concerns brings new and difficult prob- 
 lems for our government to solve. 
 
 That price-standardization has no necessary connection 
 with monoply prices and profits should be obvious. If a 
 producer has a monoply in his line of goods, he is in a posi- 
 tion to get a monopoly profit whether price-maintenance is 
 employed or not. It is more than likely that such producers 
 when they name the resale prices, will fix them at a point 
 
266 ECONOMICS OF RETAILING 
 
 that will not give the retailer any net profit at all, for after 
 their own profits have been provided for, it would seem to 
 be to their interest to get the goods to the consumer with 
 as small additions to the price as possible in order to enjoy 
 a large volume of sales. At any rate, such was the experi- 
 ence of dealers under the price-maintenance regulations of 
 the Sugar Trust a few years ago. After a time of experi- 
 ment with the policy, aimed at reducing the friction among 
 dealers due to price-cutting, it was given up. 
 
 That price-maintenance does not prevent competition 
 will be clear when one observes that there are a dozen well- 
 known safety razors on the market, scores of varieties of 
 corn flakes, several brands of grape juice, probably hun- 
 dreds of brands of shoes, several brands of collars and cuffs, 
 dozens of makes of cameras, dozens of brands of hosiery, 
 corsets, hats, and so on ; lines in which some manufacturers 
 have maintained their prices for years. A standardized 
 article at a fixed price attracts both direct competition and 
 substitution. It will always be found profitable to make 
 variations from time to time both above and below the 
 quality of the standard article to suit individual tastes and 
 means. In fact, price-standardization makes such competi- 
 tion possible. 
 
 That the price-maintenance policy results in higher prices 
 to consumers is subject to doubt. Certain investigations 
 have been made, which, so far as they go, show that articles 
 sold at maintained prices are no higher on the average than 
 goods of the same quality that are not price-maintained. 
 Nor are the profits made by the dealers on price-maintained 
 goods any larger than on other goods of the same kinds, 
 but not price-maintained. On the contrary, the prices and 
 profits seem to be somewhat lower on the price-maintained 
 goods than on competing goods not so restricted. 
 
 The main difference between the two classes of prices 
 
I 
 
 PRICE-MAINTENANCE 267 
 
 is the stability of both price and profit of the price-main- 
 tained goods while the prices and profits on unstandardized 
 and non-price-maintained goods vary widely from time to 
 time. This suggests that, possibly, dealers who object to 
 price-standardization do so because of the desire to sell at 
 higher than regular prices almost as often as they desire to 
 cut the prices.^ 
 
 In fixing upon a price at which a competitive article is 
 to be sold to the consumer, the producer, who desires to 
 maintain a standard price, is confronted by two considera- 
 tions. One is that he must allow the retailer who is to 
 handle his goods enough profit so that he will be satisfied 
 to handle them. On the other hand, the price must be kept 
 as low as possible to the consumer in order that the sales 
 volume may be high. Every addition to the price reduces 
 the quantity sold. This is an almost universal fact. As 
 an illustration of this point, consider the case of a manu- 
 facturer in the Middle West who put out an article which 
 was sold to consimiers for 35 cents. After some months, 
 he concluded to have the price changed to 25 cents. As a 
 result the sales increased twelvefold. Knowing that con- 
 sumer-demand varies to a very considerable extent in nearly 
 all classes of goods in accordance with the price, the pro- 
 ducer is likely to fix the retail price at a point that will allow 
 the retail dealer as small an amount as he dares, an amount 
 sufficient only to cover the expenses of doing business in an 
 
 3 In a hearing before the Committee on Patents in the House of Representa- 
 tives, May 30, 1912, Wm. R. Ingersoll, of the firm of Robt. H. IngersoU and 
 Brother, New York City, presented a list of the prices and profits made by re- 
 tailers on 55 price-maintained articles and 142 articles of the same classes but 
 not price-maintained. This list has been quoted by Printers' Ink and also by 
 Professor Paul T. Cherington in his " Advertising as a Business Force." 
 
 The writer has verified a number of the figures given in this list, and, except 
 for minor inaccuracies that might be explained by changes in prices and difference 
 in territory in which the information was obtained, has found them correct. So 
 far as known the fairness of the list, though the latter was compiled by one who 
 favors price-maintenance, has not been challenged. In the hearings on the price- 
 maintenance question before congressional committees, no price comparisons 
 were presented by those who opposed the policy. 
 
268 ECONOMICS OF RETAILING 
 
 efficient retail store, plus a fair net profit. Inefficient deal- 
 ers and other classes of retail stores with high expenses may 
 obtain no net profit at all. 
 
 Speaking upon this point, F. W. Aldred, Secretary of the 
 B. H. Gladding Dry Goods Company, a large department 
 store in Providence, Rhode Island, said : 
 
 " The tendency for the successful national advertiser 
 (the producer of standardized goods) is gradually to lower 
 the possible profit of the retailer until this profit gets to or 
 below the retailer's cost of doing business. This is a major 
 reason why the retailer, whose expenses for all kinds of 
 service are continually being jacked up by competition and 
 the requirements of his customers, is becoming less and less 
 anxious to exploit trade-marked goods and more and more 
 anxious to put his own brand on the market, or, at least, 
 have no name but his own connected with the goods. . . . 
 I believe nine out of ten advertising sales-managers of the 
 larger stores will substantially agree with me in most of the 
 above." ^ 
 
 Price-maintenance makes it possible for specialty manu- 
 facturers to produce standard goods of standard qualities to 
 which they may attach their names and guaranty to the 
 consumer. There is no object in maintaining prices on 
 goods that are not standardized in quality, and it does not 
 pay the producer at the present time to try to maintain 
 quality and advertise it to the consumer without some assur- 
 ance that dealers will not make a football of it. Such 
 standardization and identification of merchandise by pro- 
 ducers is desirable for the public for several reasons. 
 
 First, the consumer can tell by one single inspection or 
 trial, whether such an article is suited to his needs or not. 
 If it is desirable, future purchases of the same article will 
 take up but little time or energy. If it is not desirable, he 
 
 4 Printers' Ink, June 13, 1912. 
 
PRICE-MAINTENANCE 269 
 
 can just as easily avoid getting it. Thus the buying process 
 of the consumer is simplified, and time and energy are saved. 
 
 Second, the standardized article saves both the con- 
 sumer's and dealer's time usually taken up in demonstrating 
 the goods. The consumer is assured of the quality he is 
 getting without taking the time and pains to make a careful 
 examination before purchasing. The dealer is saved the 
 time that is usually taken to describe and push the unknown, 
 unstandardized article. In these days, with our complex 
 standards of living, these savings are highly important. 
 
 Third, the standard article serves as a basis of compari- 
 son. When the dealer substitutes another article, and tells 
 the consumer, " This is just as good," or " This is a better 
 article," assuming that what the dealer says is true, the con- 
 sumer knows what he means. He is getting a clear idea of 
 what the dealer claims. He is able to hold him to his 
 statements. 
 
 There are, of course, standard goods which are not price- 
 maintained, but they are generally goods produced either 
 by trusts or by concerns having power sufficient to push 
 them through to the consumer even without the active con- 
 sent of the dealers. A large number of standard goods are 
 of necessity price-maintained, whether the process is legal 
 or not. * 
 
 It is usually assumed that price-cutting benefits the con- 
 sumers. It cannot be denied if an individual buys a regular 
 $1 article for 79 cents that he is a gainer by 21 cents. But 
 such cuts in price cannot be made by any retail store, large 
 or small, without losing money. After the expenses of 
 retail stores are paid the usual margins of profit are never 
 wide. A very large number of retail stores are not able to 
 earn any net profits at all. The best they can do is to pay 
 their expenses. It is commonly asserted that 90 per cent 
 of the retail dealers fail sooner or later. What does this 
 
270 
 
 ECONOMICS OF RETAILING 
 
 mean but that in the long run the majority of retailers are 
 not only unable to make any net profits, but are also unable 
 to hold their own and meet their expenses in full? Price- 
 cutting under such circumstances means that what is cut off ^1 
 at one place must be made up at some other. There is no*| 
 choice about this if business is to go on. 
 
 Nor is there any conclusive evidence that concerns that 
 practice price-cutting are really operating their businesses 
 upon lower gross profit margins and lower costs of doing 
 business than regular stores. If it could be shown that these 
 institutions can supply consumers at a lower expense than 
 others, then it would seem wise economic policy to encourage 
 them by every means possible, and a price-maintenance policy 
 should not be allowed to stand in their way. Such figures 
 as are available seem to show, all things considered, that the 
 costs of distribution are practically the same through the 
 department stores, chain stores, and mail order houses, as 
 through the regular distribution agencies. Advantages of 
 some kinds are found in the case of each, but the advantages 
 are counterbalanced in each case by disadvantages as well. 
 Certainly there seems to be but little economic argument in 
 favor of the big retail store as against the small store. Until 
 further evidence is obtained it must be held that large-store 
 efficiency does not lie in the ability to sell goods at a lower 
 percentage of expense than the small store. Whatever 
 economies or savings there may be in large-scale production, 
 the same rule does not seem to hold for retail distribution. 
 
 The peculiar strength of the large retailing institutions 
 without question lies in their advertising and buying powers. 
 In their advertising they get maximum efficiency by using 
 large space and by employing the most skilled writers to 
 fill this space. The size of the institution and the amount 
 of goods displayed therein is in itself a magnet to crowds. 
 In buying, the giant retailing concern gets all of the regular 
 
PRICE-MAINTENANCE 27 1 
 
 discounts for quantity and cash and frequently other rebates 
 and discounts similar in nature to those which the railroads 
 Used to give the big shippers before the Interstate Commerce 
 Act was passed to stop such unjust discrimination. By the 
 pressure of their financial power they force undue differen- 
 tials from their suppliers. It is true that some retailing 
 concerns of this class become manufacturers of parts of their 
 own goods, but it is also true that a large number of them 
 prefer not to take over factories, because they can buy goods 
 cheaper from other mills than they can make them for 
 themselves. 
 
 Because the big retail concern is sometimes able to 
 buy goods at less than costs of manufacture, it is enabled to 
 sell goods to the public, when it finds it necessary to do so, 
 at prices lower than those of the small dealer and still make 
 a good profit. Both the reduced price to the public and the 
 profit are due, not to efficiency in distribution, but to the 
 special inside price granted the big store by the producer. 
 
 But undoubtedly the time will come when special inside 
 prices and quantity discounts will come under public observa- 
 tion and regulation. In the public utilities inside prices are 
 now forbidden. Railroads are no longer permitted to make 
 discriminatory rates to big shippers as they once did. The 
 government does not make a difference in price to different 
 persons in the sale of postage stamps no matter what the 
 quantity purchased. 
 
 There may be some justification for a quantity price or 
 discount when based on items of saving to the manufacturer 
 such as storage, insurance, interest on the money invested, 
 and reduced costs of handling, but the dealer who gets a 
 discount just equivalent to these items is not thereby enabled 
 to undersell others. The items of storage, insurance, in- 
 terest, and handling must in this case be met by him instead 
 of the manufacturer, and the retail price must cover these 
 
272 
 
 ECONOMICS OF RETAILING 
 
 expenses just the same as in any other case. But there is 
 very little social justification for a quantity discount or 
 inside price that discriminates between buyers to the material 
 advantage of one and to the disadvantage of others. It does 
 not seem at all unlikely that such discrimination will some 
 day call for legislative or other regulative action of the same 
 kind and for the same reasons as that taken in the case of 
 the public utilities. 
 
 In the meantime many manufacturers who have seen 
 the outcome of such market discrimination are discarding the 
 policy of giving quantity prices altogether. The quantity 
 price that cannot be justified by economic reasons is out of 
 date and unworthy of our times. It bears no relation to 
 efficiency and comes into existence almost because of the 
 coercion or pressure of big capital. 
 
 President Wilson has said: 
 
 " Safeguard American men against unfair competition 
 and they will take care of themselves. ... If you make 
 the processes by which small men are undersold in particular 
 markets criminal, then you have freed America, and I for 
 my part am willing to stop there and see who has the best 
 brains." 
 
 The cut price to the public does not represent purchases 
 made by the dealer at inside prices as frequently, probably, 
 as it represents a device used to attract trade. On the whole 
 the cut price in most retail stores is of psychologic rather 
 than economic significance. Its purpose is to attract trade. 
 When the prospective customer enters some stores, it is thfe 
 well-understood duty of the salespeople to try to sell him 
 something else, or in addition to, the cut-price leader. One 
 can safely agree with John Wanamaker, that greatest of all 
 living American merchants, when he said : 
 
 " I want to keep away from the store that tries to catch 
 me with that kind of a fish hook. If they lose on one thing 
 
PRICE-MAINTENANCE 
 
 273 
 
 J they will put it on something else you do not know of. 
 There are things purchasers do not know anything about." ^ 
 
 No article serves the purpose of price-cutting so well as 
 a standard article generally sold at a fixed, well-known price. 
 Everybody recognizes such a bargain, but few people recog- 
 nize the full significance of what happens to them when they 
 . get into the store offering the bargain. 
 
 The small storekeeper is probably no better in his busi- 
 ness morals than the big store manager, but his opportunity 
 for playing the same game on the public is much more 
 limited. The retailer of one line cannot cut prices on many 
 things or he will be without a business in a short time. But 
 the big retail institution with twenty-five or more depart- 
 ments can cut prices in any one of these departments 
 on every article in the department, if it chooses to do so, 
 and make up daily its deficits in that department by the 
 profits from the other departments. In this way the big 
 store can carry on war with all the merchants of some one 
 line in its town and practically drive them out of business 
 in the same way that the Standard Oil Company used to kill 
 off its competitors by selling oil at less than cost in the 
 competitor's territory and at big profit in its own territory. 
 
 Price-maintenance prevents the big retailing concern 
 from using such unfair tactics. If the small independent 
 store handles price-maintained articles its profits will not be 
 small, and the big store will not be able to crush it out. 
 
 To give to the big store, the chain store, and the mail 
 order house the free hand that some of them desire in such 
 matters as those under discussion here will only lead to a 
 deeper accentuation of some of the economic ills that already 
 beset us, such, for example, as the consolidation of inde- 
 pendent specialty manufacturers into trusts, the concentra- 
 tion of retail markets in the large cities and in certain sec- 
 
 5 Report of U. S. Industrial Commission, Vol. VII, p. 465. 
 
274 ECONOMICS OF RETAILING 
 
 tions of those large cities, the piling up of enormous un- 
 earned increments in land values in these sections and the 
 depreciation in values in, and the decay of, small towns. 
 As a citizen, one cannot lightly pass this struggle by without 
 considering what the effect will be. 
 
 What has been said should not be considered as a criti- 
 cism of the larger types of retailing concerns. There is no 
 question but that these perform some services for the public 
 much better than the smaller stores. Large numbers of the 
 big department stores, probably a majority of them, are as 
 much opposed to unfair methods as any one possibly could 
 be. These concerns are appealing for trade on straight- 
 forward lines, selling goods for what they really are, and 
 performing their service in a most creditable manner. It is 
 likely that the highest type of retail merchandising in exist- 
 ence today, considering service to customers, treatment of 
 employees, and general public spirit, is to be found in some 
 of the best department stores. But these are not the con- 
 cerns that are strongly opposing price-maintenance. 
 
 In conclusion, price-maintenance is a need of modern 
 production. The demand for it comes from the small manu- 
 facturer, or the producer of a specialty, rather than the big 
 concern, the producer of many lines, or the trust. The big 
 concern does not need any legislation to help it in maintaining 
 prices. It already has the means to do so — means that no 
 one can deny. Its objection to price-standardization, when 
 objection is raised, is purely selfish. 
 
 Price-standardization does not check competition. It 
 will rather give us the best results that competition can offer. 
 Price-maintenance is to present-day business what the rule 
 not to strike below the belt is in prize fighting. One blow 
 below the belt may put the best fighter in the world on the 
 floor in a moment and thus end the struggle. A foul blow 
 in business competition, such as unjustified or dishonest 
 
PRICE-MAINTENANCE 275 
 
 price-cutting has shown itself to be in several cases, might 
 send the most efficient and socially useful producer into a 
 receivership. The naturally weak productive or distributive 
 agent deserves no special protection if there are other equally 
 efficient agencies at hand to perform the same services. On 
 the other hand, efficiency cannot be measured by capitalistic 
 power alone, particularly in the distribution of goods. The 
 big institution should not be allowed to have peculiar, artifi- 
 cial or legal advantages with which to crush its less powerful 
 competitors, either directly or indirectly. 
 
 Finally, to succeed, the standardized price must be fair 
 to the consumer. Price-maintenance, therefore, promotes 
 the square deal to all concerned — the producer, the dis- 
 tributor, and the consumer. In granting the privilege of 
 maintaining prices to manufacturers, we shall be doing only 
 what has already been done in one way or another by several 
 of the European countries. We shall only be giving to the 
 small manufacturer and the manufacturer of a specialty a 
 right that many large concerns can, and do now exercise 
 without question, through their own agencies, chain stores, 
 or selling organizations. 
 
 Bibliography 
 
 The best source of information concerning the development of the 
 price-maintenance question is Printers' Ink. There have been hterally 
 hundreds of allusions to the subject as well as scores of articles during 
 the last five or six years. For an extended list of these articles applica- 
 tion should be made to the publishers. 
 
 Advertising and Selling has likewise published a number of articles. 
 
 Other magazines that have given considerable space to a considera- 
 tion of the question are the following: 
 
 Scientific American 
 Literary Digest 
 Ladies' Home Journal 
 Harper's Weekly 
 Outlook 
 Independent 
 
276 ECONOMICS OF RETAILING 
 
 Collier's Weekly 
 World's Work 
 The following articles not found in the above seem noteworthy : 
 
 Miller, Chas. L. The Maintenance of Uniform Resale Prices. Unit). 
 
 of Pa. Law Review, Nov., 1914. 
 Hard, W. Better Business. Everybody's, May, 1914. 
 Rogers, E. S. Predatory Price-Cutting as Unfair Trade. Harvard 
 
 Law Review, Dec, 1913. 
 
 Books dealing with the price-maintenance question : 
 
 Cherington, P. T. Advertising as a Business Force, Ch. XII, " Price 
 
 Maintenance." 1913. 
 Fernley, T. A. Price Maintenance. 1912. 
 Mahin, J. L. Advertising, Selling the Consumer, Ch. XIX, " Price 
 
 Maintenance." 1914. 
 The Selling Problem. Published by the American Sunday Magazine, 
 
 pp. 7-30. 
 
 The best statements, although in voluminous form, are to be found in 
 the public record of the hearings before the Committee on Patents, U. S. 
 House of Representatives, 1912-1913 ; the Judiciary Committee of the 
 House of Representatives, 1913-1914; and the Committee on Interstate 
 and Foreign Commerce, House of Representatives on H. R. 13,305, 
 February 27, 1914, to January 9, 1915. 
 
 The American Fair Trade League, Fifth Avenue Building, New 
 York, has issued several pamphlets and reprints setting forth the 
 affirmative side of the question. 
 
 An otherwise excellent little publication from the offices of the 
 American Fair Trade League misquotes the writer on pages 25 and 26. 
 It asserts that the writer stated before the Judiciary Committee, March 
 19, 1914, that "the average cost of doing business in the large mail 
 order houses is from 27 to 30% and that the average cost of the large 
 department store is 30%, or over." Figures were given by the writer 
 for mail order houses of from 16 to 26% with an average of 21 to 22%, 
 not including the cost of transportation of the goods. No figures were 
 given by the writer on department store costs at that time. 
 
CHAPTER XVI 
 
 BUYING AT INSIDE PRICES 
 
 To buy more goods for the same money, or to buy the 
 same goods for less, seems to be the sole aim and ambition of 
 many retail store buyers. The fear that his competitors may 
 be able to buy goods for less than he must pay is the bete noir 
 of the average retailer's business life. Sellers have discrim- 
 inated among buyers, have sold to some for more and to 
 others for less, since the beginnings of trade. Upon such 
 differentials as these some buyers have grown rich while 
 others have starved. 
 
 With the passing of the age of hand industry and the 
 coming of mechanical production with distribution on a large 
 scale, the keenness of competition among dealers for inside 
 prices has increased rather than diminished. The results 
 from such discriminations are now on a larger scale and 
 more disastrous than formerly, and therefore more obvious, 
 hence the subject has lately begun to take definite form in 
 the minds of buyers and sellers as a problerfi demanding some 
 solution. 
 
 The main reason for special consideration of the subject 
 of buying at inside prices at this time is that during the last 
 two or three decades several types of distributive institutions 
 have come into existence whose aim has been to buy only in 
 depressed markets, to deal largely in goods bought in spe- 
 cial lots or jobs, and to get trade by selling below the regular 
 markets. Many such concerns have, without doubt, been 
 able to sell some goods at less than usual market prices, but 
 
 277 
 
278 ECONOMICS OF RETAILING 
 
 because of the still lower prices at which they bought, were 
 in some cases able to make profits even higher than usual. 
 A customary method of disposing of such purchases has 
 been to advertise them for sale at cut prices in such a way 
 as to lead the average consumer to believe that all prices in 
 the store are equally low. To increase this illusion, the 
 goods selected for sale at cut prices are scattered throughout 
 the store in many departments. To use an expression com- 
 mon among merchants, the regular stock is '' sweetened '* 
 by the intersprinkling of " bargains." Goods purchased in 
 job lots or otherwise at special inside prices furnish the re- 
 tailer with the opportunity to make such offerings without 
 loss to himself, and much to the confusion of other com- 
 peting retailers.^ 
 
 Discriminations made to buyers for retail stores occur in 
 a multitude of forms, some of which are so old in usage 
 as to merit being called customs of trade. They range from 
 such smaller concessions as entertainment for the buyer 
 while he is in the market-city — dinners, cigars, theatre 
 tickets, and so on — to deep cuts in the regular prices and 
 special discounts. 
 
 Concessions made to influence buyers in a personal way 
 have been considered rather disreputable lately, especially 
 since buyers have come to be employees rather than the 
 owners of their respective stores. Gifts, goods for personal 
 use sold at cost or at very low prices, and percentages, or 
 *' rake-offs," on all purchases made for the store are now 
 rightly classed as species of graft, and all such practices are 
 frowned upon by business managers generally. But the 
 reasons assigned for disfavor are generally to the effect that 
 the buyer who is the recipient of such personal tips or con- 
 
 1 Of course not all stores oflFering goods at cut prices do so with the intent 
 to deceive the public into believing that all goods are sold at equally low figures. 
 The cut price is openly used by many concerns to draw trade to the store in 
 the hope that the customer who comes for the cut-price article will see some- 
 thing else that he or she wants and thus increase the store's sales. 
 
BUYING AT INSIDE PRICES 279 
 
 cessions cannot serve the store for which he buys, loyally 
 and efficiently. The buyer is still expected to get all of the 
 price reductions, special favors, and concessions that he can 
 for his employers, but must not permit such inside practices 
 to redound to his personal advantage. 
 
 One of the most common price-discriminations is based 
 upon quantity purchases. The larger the quantity purchased 
 the lower the price per unit is set. A large majority of 
 manufacturers and wholesalers have regular scales of prices, 
 as for example, a certain price per dozen, but a lower pro 
 rata price per gross, and a still lower figure for great gross 
 lots. In some cases this quantity price is given in actual 
 figures as stated above; in others, it is given in the form of 
 an extra percentage off in the trade discounts. For instance, 
 certain lines of goods handled by hardware and jewelry 
 stores in small lots cost 40 per cent less than the list, the 
 price at which the goods generally retail, but if the dealer 
 buys a certain quantity he is given 40 and 10 per cent off 
 the list. If he buys a still larger quantity he is given an- 
 other 10 per cent, that is, trade discounts of 40 per cent, 10 
 per cent, and 10 per cent off list. 
 
 The large purchaser sometimes receives favors not only 
 from the manufacturer or wholesaler with whom he deals, 
 but also from the salesman representing the manufacturer or 
 wholesaler. In order to get the big dealer's order in the 
 face of competition, the salesman often splits his own com- 
 mission with the dealer. It cannot be believed that this is 
 done without the knowledge if not actual consent of the 
 employers. 
 
 In a similar way, it is complained by manufacturers who 
 desire to have their prices maintained, that jobbers split their 
 profits with the big retailers. The jobbers contend, how- 
 ever, that this practice must be followed in order to hold the 
 big dealers' trade, that if the jobbers would not grant the 
 
28o ECONOMICS OF RETAILING 
 
 1 
 
 price concessions the dealers would probably go to the man- 
 ufacturers directly and get as much as they now get. 
 
 Another form of special favor to certain buyers is th< 
 so-called " free deal." Concerns that use this device frei 
 quently say that they have no special prices. Everybody 
 pays the same price, but occasionally goods are thrown 
 free with other goods ordered at regular prices. The dealer^ 
 ordering and paying for five cases receives one case in ad- 
 dition. The dealer ordering ten cases may receive three 
 cases free, and so on. The free deals are not always made 
 up of the same goods as those ordered. For example, soap 
 concerns frequently give supplies of various toilet goods, 
 face creams, lotions, and so on, with big orders for laundry 
 soap. Patent-medicine makers include other remedies with 
 the order for a certain kind. In some cases a condition is 
 placed upon the dealer that the free goods are to be used 
 in his window displays for a week, or that they are to have 
 a prominent place in the show cases. Except for such con- 
 ditions which constitute contracts for services to be per- 
 formed by the dealer for the wholesaler or producer, the 
 free-deal, except in name, is essentially the same as a quan- 
 tity discount, or a special price. Concerns that have tried 
 to eliminate the former have generally fallen into the latter 
 method; and the giving of free deals is as common as 
 quantity discounts. 
 
 Another form of special price given to some buyers is a 
 larger-than-usual discount for cash. The seller may object, 
 to giving a regular discount off his established price, or he 
 may not be willing to throw in any free goods, and may still 
 be prevailed upon to grant an additional 1 per cent, or more, 
 ■for prompt payment. Discounts for cash run from 1 per 
 cent up to 7 per cent and even 10 per cent if paid within 
 ten days, with terms of 30, 60, or even 90 days net. If the 
 buyer pays within 10 days he may take advantage of the 
 
BUYING AT INSIDE PRICES 281 
 
 discount, but if he does not pay then he may let his bill run 
 for the remainder of the term, but must in this case pay the 
 full price. The cash discount became customary during the 
 Civil War and the years following when long credits, such 
 as had up to that time prevailed, became especially risky. 
 But competition among sellers was keen. They did not 
 dare give long credit terms, but they did give large discounts 
 for prompt payment. The cash discount has continued to 
 the present as a premium for cash down or within a short 
 period, such as 10 days. The usual discounts given, not to 
 mention such discounts as the more successful buyers are 
 sometimes able to get, are rather high when compared with 
 usual interest rates. For example, terms of 2 per cent if 
 paid in 10 days, or net if paid within 30 days, terms which 
 are very common and not considered unreasonable by most 
 business men, either buyers or sellers, mean an interest rate 
 of 36 per cent per annum on money that the buyer advances 
 within the 10 days rather than waiting 30 days and paying 
 the full bill. Terms of " 1 per cent if paid in 10 days, net 
 if paid within 30 days " yield an interest of 18 per cent 
 when computed upon an annual basis. While cash discounts 
 of " 7 per cent off if paid in 10 days, 60 days extra," terms 
 found in some lines, yield a saving equalling an interest rate 
 of 42 per cent. Marketing upon the basis of these higher 
 rates of discounts is either abnormally risky or else makes 
 a very unfair discrimination against the man who does not 
 have the cash to pay at once. Nothing indicates the present, 
 unscientific character of business better than the rule of these 
 customary discounts for cash long after the original cause 
 for them has passed away. 
 
 The buyer's problem is not complicated so much by the 
 customary rates of discounts, however, as by the unusual and 
 irregular terms given only to a few. Thus when the prices 
 have been fixed upon between buyer and seller, the bargain- 
 
282 ECONOMICS OF RETAILING 
 
 ing for terms begins. An extra 1 per cent, as we have seen, 
 is enough to make all the difference between success and fail- 
 ure among closely competing concerns. 
 
 There are several variations in the ways of granting 
 favors in other methods than by raising the percentage of dis- 
 count. In some cases the term of discount is lengthened so 
 that instead of giving the buyer only 10 days in which to 
 pay his bill if he wishes to take advantage of the cash dis- 
 counts, he is sometimes given 30 days, 60 days, or even 
 more. To gloss the process over and to give it the form of 
 regular transactions, the device of forward dating is em- 
 ployed. Thus, a bill of goods bought February 1, and re- 
 ceived within a week may be dated as if the sale took place 
 March 1, or April 1, and subject to the terms of discount 
 from the latter rather than the original date. In such cases 
 the buyer gets the advantage not only of the regular cash 
 discount, but also of the use of his money for one or two 
 months longer than he otherwise would. We have here the 
 strange spectacle of a man both eating and having his cake 
 at the same time. 
 
 Forward dating upon a somewhat different basis and for 
 a different reason is common in many lines of goods that 
 have seasonal sales, such as clothing, underwear, hats, and 
 so on. Orders from retailers are taken far in advance of 
 either delivery or possibility of making retail sales. To 
 have the bills mature at a suitable time, they are usually 
 dated in the future and then customary terms are accorded 
 the buyer from the future date. The necessities of the case 
 cause the sellers to fix the time of payment to coincide with 
 the time of receiving the goods, and the forward-dating de- 
 vice has been utilized to make this possible. No objection 
 can be offered to this except when forward or extra dating 
 is given to buyers in the form of favors or special discrim- 
 inations. 
 

 BUYING AT INSIDE PRICES 
 
 283 
 
 It is impossible to state how much the practice of giving 
 inside prices to preferred buyers prevails. Neither those 
 who give such prices nor those who accept them are willing 
 as a rule to tell about them. From time immemorial, the 
 prices that a retail concern pays for its goods has been con- 
 sidered a matter to be guarded closely. 
 
 The secret price-mark for retail selling has given way 
 very generally to the one-price-to-all policy, a policy that now 
 is held in great public esteem. But producers and whole- 
 salers have not yet gone so far, with a few notable excep- 
 tions, in fixing their prices when selling to retailers. If a 
 special price is given it must of necessity be kept secret, or 
 every other buyer will urge his rights to the same price. 
 What is lost on selling at a special discount to one buyer 
 must be made up by selling at higher prices to other buyers. 
 
 As indicated above, a few concerns have adopted a one- 
 price-to-all policy in selling to dealers. Recent news items 
 in the trade press indicate that the Shredded Wheat Com- 
 pany, Kellogg Toasted Corn Flake Company, and The Welch 
 Grape Juice Company have adopted a policy of selling to 
 all dealers at one price regardless of quantity or other 
 considerations. Other concerns such as the N. K. Fair- 
 bank Company, The Enoch Morgan and Sons Company, 
 The Eagle Lye Company, The Wildi Evaporated Milk Com- 
 pany, Swift and Company, and The Crystal Domino Syrup 
 Company have decided to give no more free deals. 
 
 As indicative not only of the extent of quantity discount 
 and other special price-making devices, but of the fact that 
 men of business are beginning to question the outcome of 
 unrestricted practice in these lines, a symposium on the 
 quantity-price problem in a recent magazine is enlightening.^ 
 
 Samuel Cabot, Inc., Boston, wrote: 
 
 " It is notorious that the quantity discount has degen- 
 
 2 Printers' Ink, April 2, 1914, p. 64 flf. 
 
284 ECONOMICS OF RETAILING 
 
 erated into a special favor which is out of all proportion to 
 the saving made by the manufacturer because of landing 
 large orders." 
 
 R. R. More, Vice-President of the Diamond Crystal 
 Salt Company, stated: 
 
 " It has been customary for the large buyer to demand, 
 and for sellers generally to concede, a lower price on ac- 
 count of a large quantity. There is perhaps one valid excuse 
 for such quantity prices. It reduces the selling expense." 
 
 George A. Weinman, of Lord & Taylor's Wholesale 
 Department, expressed himself as follows : 
 
 "At one time there was a general practice to grade the 
 price according to the standing of the customer, and where 
 there was a greater risk, it was natural to exact a large 
 profit. Special discounts seem to work in the same way." 
 
 In an address before the Chicago Sales Managers' Asso- 
 ciation held in Chicago, November 29, 1913, R. Esau 
 is reported to have stated that " 75 per cent or more of the 
 members of the Chicago Sales Managers' Association seem 
 to be of the opinion that quantity does rightfully control 
 price." Other speakers at the same meeting opposed it in 
 principle. 
 
 Reviewing the writer's testimony before the Judiciary 
 Committee of the House of Representatives, March 19, 1914, 
 the editor of the New York Journal of Commerce held that 
 " quantity discounts breed monopolies." 
 
 It is obvious that the special or inside-price problem is a 
 complicated one. It has many angles and what seems true 
 and right for one concern or even for an entire line of in- 
 dustries may not be right for another. 
 
 The main arguments in favor of manufacturers and 
 wholesalers making price-discriminations among retailers 
 may be grouped under three heads, viz. — first, that the 
 inside-price-giving system is expedient; second, that it re- 
 
BUYING AT INSIDE PRICES 285 
 
 suits in certain economies to the seller; and, third, that it 
 is not opposed to the best interests of the public. 
 
 Under the argument of expediency it is held that quantity 
 prices, free deals, special discounts, and other concessions 
 are customary. Dealers expect them and this fact makes it 
 necessary for the seller to give them in order to avoid fric- 
 tion with the distributors. It is held that it is almost im- 
 possible for a new product to break into the retail markets 
 without making special concessions, especially to some of 
 the larger retailers, and that reductions thus made are equiv- 
 alent to expenditures for advertising or for other special 
 means to get distribution. There is no article so good that 
 substitutes for it cannot be procured and sold to the public. 
 In competition with other products it is necessary to do, not 
 what seems to be the fairest thing for everybody, but what 
 will get and keep a market. It is often necessary to sub- 
 sidize or even bribe some retailers to get their interest and 
 help in marketing goods. Having secured a market through 
 a few dealers, it is always easier to place goods with other 
 dealers, particularly among the smaller retailers. 
 
 The quantity price and free deal are held to be expedient 
 because they stimulate buying. This gives the producer a 
 chance to make more goods, and as the volume is increased, 
 in some cases, the costs of producing each unit is reduced; 
 therefore the reductions in price to a few dealers followed by 
 greater consumption of the goods, may result in a greater net 
 profit to the producer. 
 
 The quantity price is an easy, and in some cases, the only 
 means of turning goods into immediate cash. The manu- 
 facturer who needs funds for use at once, may find it more 
 advantageous to sell his goods at less than regular prices 
 than to borrow money from the banks. In other cases, 
 changes in demand, mistakes in production, and in judgment 
 of what there is market for, leave the producers with sur- 
 
286 ECONOMICS O^ R^tAlLlNG 
 
 plus stocks on their hands. To attempt to sell these goods at 
 regular prices would be folly. The sooner they are dis- 
 posed of the better. To sell them for what they will bring, 
 often at greatly reduced prices, is the only remedy against 
 complete loss. 
 
 Thus we see that there are several arguments for special 
 price-making based on expediency, arguments that must be 
 considered seriously. Trade naturally follows the lines of 
 least resistance and question may be raised as to whether 
 such lines should be blocked up or closed. 
 
 Another line of argument used by those who favor the 
 giving of quantity prices, free deals, and other special dis- 
 counts is that such discounts are usually payments for serv- 
 ices performed by the buyer for the seller. The buyer who 
 takes a large lot of goods off the hands of the seller saves 
 for the latter the costs of storage, interest on the capital 
 tied up in the goods, insurance from loss, damage, and de- 
 preciation of every kind, handling, and so on, expenses that 
 would otherwise have to be incurred if sales had to be made 
 in small lots. Since the buyer of the big lot saves these 
 items for the seller, why should he not, it is asked, receive 
 some reduction in the price which he must pay commensurate 
 with those savings? 
 
 As already stated, the seller, particularly the producer 
 who sells direct to retailers, frequently gives a number of 
 articles free, or as a premium, with an order for goods from 
 the retailer at regular prices. The extra or " free goods," 
 as they are called, are usually given in consideration of the 
 retailer performing some special service such as pushing the 
 line whenever possible, recommending it to his customers or 
 giving it a prominent place on his shelves and show cases, 
 where it will be seen by all who enter the store. It is cus- 
 tomary in many lines for the seller to throw in an extra 
 
BUYING AT INSIDE PRICES 287 
 
 dozen to be used in a window display, and later to be sold 
 and the full prices pocketed by the dealer. 
 
 As pointed out in another chapter, window space, as well 
 as other store space, is valuable. The producer who desires 
 preferred position for his goods either in the windows or in 
 the store simply pays for the privilege in much the same 
 manner as advertisers pay more for preferred space in news- 
 papers and magazines. That this method of bargaining 
 with producers of goods for a place in the store, if fully de- 
 veloped, may lead to new problems in retailing, it is easy to 
 see; but that there is such a tendency at work among re- 
 tailers to apportion their store space to goods according to 
 their profit possibilities is obvious. Retailers must be paid 
 for the services that they perform, and the remuneration 
 may take the form either of cash, or of extra goods, not 
 " free goods." For example, the producer of toilet soap 
 may pay the druggist $6 in cash, or give $6 worth of goods 
 for the use of a display window for a week. Such bargains 
 are not uncommon, but in the case of the so-called " free 
 deals," the business element is obscured by the language and 
 methods of expressing the agreement. To illustrate, the 
 salesman representing the producer may say to the dealer, 
 *' As a personal favor to you, I shall have my company 
 throw in an extra dozen free with your order. Now, 
 wouldn't you be willing to make up a good window display 
 showing our goods for a week? " As a '' personal favor " 
 to the salesman, the dealer is satisfied with the offer, and 
 trims a window for a week with that company's goods. 
 Really there is a mutual exchange for a consideration, but 
 in the language of common business, the extra goods thrown 
 in constitutes a " free deal." 
 
 There is another reason urged by many producers for a 
 quantity price. If the opportunity presents itself to sell 
 
288 ECONOMICS OF RETAILING 
 
 considerable amounts of goods in advance of manufacture, 
 the producer not only saves the usual items of expense al- 
 ready enumerated, viz. — storage, insurance, costs of selling 
 and handling, interest on the money invested, and so on, but 
 he is also assured of a market for his goods whatever may 
 happen. In some cases the sales of quantities permit the 
 producer to use his plant to its full capacity all of the time, 
 not only during busy seasons but during dull seasons as well. i 
 In cases like these the manufacturer is insured against losses \ 
 due to changes in seasonal demand. Certainly, it is claimed, 
 a quantity price is justifiable here. 
 
 Looking at the matter from the standpoint of public 
 policy, those who favor quantity prices and price-discrimi- 
 nation urge that a single price to all is inequitable. Such a 
 price, for instance, will make no distinctions because of dif- 
 ferences in transportation and other costs. Some of them 
 go still further and claim that the use to which the goods 
 are to be put should be considered. If to be used by an ulti- 
 mate consumer, the price should be different than what it 
 should be if it were to be used by another producer. Prices 
 to others in the same trade or profession should not be so 
 high as to the general public. These views represent old 
 customs among business people. While probably not as 
 strong now as they once were, they are still prevalent. 
 
 There is also a feeling among producers that distributors 
 who have been in the business a long time should have bigger 
 discounts than newer firms. There may be some reason for 
 this, based on difference in risk, but the risk factor alone will 
 not account for " preferred lists " of dealers, " starred deal- 
 ers," and other classifications sometimes made in whole- 
 salers' and producers' account books. Aside from risk in 
 dealing with a new firm, there is a sort of customary way of 
 thinking that the retailer who has served faithfully for years 
 is entitled to a little bigger " rake-off," not because he buys 
 
BUYING AT INSIDE PRICES 289 
 
 larger quantities, but just because he has been in the busi- 
 ness so long. This explanation reminds one of the explana- 
 tion sometimes given by employers when they pay a much 
 larger salary to an old employee than to a younger one who 
 may be much more efficient in every way than the older one. 
 As a matter of fact, such discriminations do exist, but to 
 what extent the writer cannot say. 
 
 Some people argue that the quantity-discount system 
 should be used much more than it is used for the reason that 
 the competition ensuing would eliminate a large number of 
 the smaller stores. This argument is based on the assump- 
 tion that there are too many stores, and that any reduction 
 of the number would result in savings to the remainder, and 
 that through the competition of the remainder those savings 
 would ultimately go to the public. If this assumption is 
 correct, there is some argument for quantity prices along 
 these lines. But that this assumption is correct, although 
 commonly believed by many people, is open to question. It 
 is not at all unlikely that the costs of distribution, taking all 
 things into consideration, would be higher to the public if 
 there were fewer retailers. This question is considered else- 
 where. It may be pointed out in passing that if this assump- 
 tion is not true then the argument for quantity prices fails 
 entirely. 
 
 Those who oppose the quantity-discount, free-deal, and 
 other special price-making policies also urge expediency, 
 economy, and public welfare. But their observations of 
 actual business and their conclusions therefrom are so dif- 
 ferent from those already cited, that reconciliation is prac- 
 tically impossible. One must choose from among them those 
 which seem to be most nearly correct. 
 
 It seems clear that a one-price policy is highly expedient 
 for certain classes of producers, and that far-sighted business 
 managership will lead to its adoption. For example, a con- 
 
290 
 
 ECONOMICS OF RETAILING 
 
 cern that is well established, whose product is well known to 
 the consuming public, and which does not need skilful sales- 
 manship to move it over the retailers' counters, is in position 
 to shut down on the more extensive forms of quantity or 
 special discounts. If the product has a very wide distribu- 
 tion, most of it, say from 75 to 90 per cent of it, is probably 
 distributed by small stores rather than large ones. But the 
 few large stores are the only ones which can as a rule profit- 
 ably take advantage of quantity prices and quantity dis- 
 counts. These few large stores can, if they feel so inclined, 
 cause much troublesome competition. The lower prices at 
 which they buy may enable them to undersell the smaller 
 competitors without loss to themselves. This situation 
 creates a feeling of antagonism in the small dealers' minds 
 towards this line of goods, an antagonism that may best 
 be removed by putting all dealers, both big and small, on the 
 same price basis. 
 
 Manufacturers of perishable goods, or goods that de- 
 preciate rapidly with the passage of time, must seek to get 
 their product into the hands of the consumers as soon as 
 possible after making. No other policy will insure the 
 preservation of a favorable reputation for their brands. 
 Under such circumstances it is dangerous to sell- to any 
 dealer any greater quantity than is necessary to keep him 
 well stocked. Quantity discounts and free deals operate 
 against this policy, hence are not only unnecessary but may 
 be harmful to the producer in the long run. Breakfast 
 foods are good examples of this class of goods and it is 
 notable that the brands that have been sold under the one- 
 price policy have been the most successful. It is also 
 notable that one of the first, if not the first, big manufactur- 
 ing concern in this country with a national distribution to 
 sell on a one-price-to-all policy was a cereal breakfast-food 
 maker. 
 
1BUYING AT INSIDE PRICES 291 
 
 There is a danger in giving quantity discounts that all 
 producers who employ this policy must combat: The giv- 
 ing of quantity and special discounts leads to the tempta- 
 tion to discriminate more and more among buyers. It is 
 difficult to draw the line between what may be done safely 
 and what may not be done. In a recent article, appearing 
 in a number of trade papers, signed by Edgar T. Welch, 
 secretary-treasurer of the Welch Grape Juice Company, 
 there appears this paragraph : 
 
 ** Suppose a retailer could secure the lowest price on 
 fifty cases, what should we say to retailers using or willing 
 to use one hundred cases ? And there are still larger stores 
 or combinations of stores that can use five hundred, one 
 thousand or more cases. Why should we stop with fifty 
 cases? If the quantity-price idea were carried to its logical 
 conclusion, there would be a price to fit every quantity." ^ 
 
 It appears that under pressure from competing buyers 
 some manufacturers do give way more and more, until, 
 finally, to save for themselves a profit from their business, 
 either the majority of the buyers must be forced to pay 
 more, or the quality of the product must be reduced and 
 production cheapened. It is a current observation that 
 price declines are very likely to be followed by quality 
 declines, the only exceptions being first, in cases where the 
 product is already at as low a quality level as will permit 
 it to be marketed, and, second, where the producer's plant 
 is equipped to make only a certain grade. To change to a 
 lower quality would in the latter case probably be uneco- 
 nomical. Quantity discounts and price concessions, accord- 
 ing to this view, have unsettling influences that are likely to 
 hurt the sellers as well as the buyers in the long run. 
 
 The quantity discount is held to be uneconomical be- 
 cause, as it is claimed, it causes a number of wastes. In 
 
 3 Twin City Commercial Bulletin, Feb., X914, 
 
292 ECONOMICS OF RETAILING 
 
 competition with big buyers, small dealers are forced to buy 
 more than they otherwise should, or would, in order to get 
 as low prices as their larger competitors. Large purchases 
 made by small dealers tend to produce several bad effects. 
 In the first place, such purchases tie up large parts of the 
 dealers' capital that might otherwise be used elsewhere. 
 The large stock of goods obtained means increased expendi- 
 tures in taxes, insurance, storage or rent, and additional 
 handling. The quantity of goods on hand prevents the 
 dealer from keeping a wider variety of goods. These items 
 of expense, however, are to be expected as a part of a 
 quantity-price proposition, and may be considered as nor- 
 mal. The evils arise from the fact that the retailer may 
 not be able to sell his purchases soon enough. Many goods 
 begin to depreciate, particularly if the retailer does not have 
 the right kind of storage place, and most of them have not. 
 Groceries become stale, most goods lose their appearance of 
 freshness, some go out of fashion, large stocks are much 
 more subject to depredations of vermin, and so on. As a 
 consequence the retailer is often forced to unload much of 
 his quantity goods at cut prices or even at a loss. Unex- 
 pected needs for capital may force him to reduce prices to 
 move his goods even when they have not depreciated. A 
 large stock of goods of one kind on hand, moving slowly, 
 has a peculiar psychological effect on the average retailer. 
 As he sees the big supply of goods from day to day and 
 notes how slowly it sells, he is likely to begin by wishing he 
 were rid of it; later the wish becomes a fear that he will 
 lose on it, and often he stampedes himself into selling it all 
 off at deep cuts in prices. 
 
 Whatever the cause, the price-cutting results in a reduc- 
 tion of the market value of the goods in the minds of con- 
 sumers that is very hard to build up to higher levels again. 
 The same goods when offered at the regular prices are 
 

 BUYING AT INSIDE PRICES 293 
 
 taken very much more reluctantly than before, and substi- 
 tutes are readily accepted. Thus the retailer's market for 
 that particular article is shattered and the manufacturer is 
 hurt still more. By his quantity-discount or free-deal 
 policy, the manufacturer not only hurts himself for future 
 sales, but also hurts a number of retailers, while the benefit 
 to consumers through the price reductions are but tempo- 
 rary. 
 
 Because of the length of time a large quantity of goods 
 must stay on a dealer's shelves before moving, and because 
 of the hundred and one possibilities of depreciation and 
 damage, a manufacturer's guarantee to the consumer is 
 practically impossible if quantity-price policies are pursued. 
 The relations of the producer to the consumer are cut off 
 by the quantity deal. The responsibility of the producer 
 is reduced and his purpose becomes more clearly to make 
 goods to sell rather than for consumption. Of this class 
 of business we have had plenty of evidence in the form of 
 adulterations, misbrandings, and imitations. It would 
 seem that the consumer would derive most benefit when 
 knowing who the producer is and what are his claims for 
 his goods. In other words the consumer must hold him 
 responsible for his product. The quantity discount is 
 therefore more generally associated with private brands and 
 unbranded and unstandardized goods. 
 
 Another argument against the quantity-discount, free- 
 deal, and special-discount policies is that every sale to a re- 
 tailer becomes a dicker. But the retailer and his suppliers 
 tend to concentrate their attention on price rather than 
 qualities suited to thie community in which the retailer lives. 
 Since sales must be made by a bargaining or higgling 
 process, economical short cuts in distributing goods become 
 impossible. The only method that will work in getting 
 orders from retailers who are accustomed to getting spe- 
 
294 ECONOMICS OF RETAILING 
 
 cial inside prices is to see them personally. The present 
 costly method of sending out commercial travelers, or the 
 more expensive method of retailers coming to market peri- 
 odically, must continue indefinitely, whereas, under a uni- 
 form price system, dealers may order by mail or telegraph 
 and know that they will receive as low prices and as many 
 favors as any other dealers. Thus, it is claimed, that the 
 quantity-price and special-discount policies stand in opposi- 
 tion to any progress in the direction of more economical 
 distribution. They put a premium upon clever bargaining, 
 subtle deceit, and personal influence, rather than upon busi- 
 ness above board with equal opportunities for all. 
 
 From the standpoint of public policy the quantity dis- 
 count and other like price concessions have not received the 
 study that should be given to them. We have seen the 
 diversity of interests and views both for and against these 
 policies from the standpoint of private business. Certainly 
 the ultimate consumers have some interests that need to be 
 conserved and presented in such discussions. Very little 
 attention has been given to these problems by economists or 
 by men in public life. Very few facts have been gathered 
 by anyone. Much must be done in the way of investiga- 
 tion before safe conclusions can be drawn. What follows 
 is to be considered as a tentative point of view rather than 
 a final analysis. 
 
 In the problem of quantity prices and special discounts, 
 as in most other business problems, the public has two in- 
 terests, viz., to get goods at the lowest possible prices con- 
 sistent with the welfare of all concerned, and to see that 
 fairness prevails among competitors in the production and 
 distribution of goods. Every business policy must be tested 
 by these two principles. 
 
 It has been shown that the quantity discounts, free deals, 
 and special discounts of various kinds are generally given 
 
BUYING AT INSIDE PRICES 295 
 
 to the big distributors rather than to the small. We have 
 seen that, in some lines at least, purchasing in large quanti- 
 ties does result in savings to the producer, and that the buyer 
 shares in such savings. In so far as the quantity discount 
 merely covers such savings, there can be little objection. In 
 such cases, storage, insurance, interest on the money in- 
 vested in the goods, handling, selling in small lots and other 
 costs are assumed by the buyer and must normally be met 
 by him rather than the producer. Discrimination among 
 buyers based merely on these items cannot be called unfair. 
 Assuming that the ordinary costs of conducting retailing 
 business are the same in both large and small establishments, 
 any discounts that the big store buyer may get that simply 
 cover the savings to the manufacturer in storage, insurance, 
 handling, interest, and so on, will not enable the big store 
 to sell the goods to consumers for less than the small store 
 without loss. By taking over the large quantity, the big 
 store simply undertakes to do its own storing, insuring and 
 handling, work for which it must be paid; hence the result 
 to the consumer will be approximately the same, whether 
 the producer or the big dealer performs these functions. In 
 other words, a quantity discount that merely covers the 
 savings to the seller will not permit sales to consumers at 
 less than regular prices, nor can this be interpreted as caus- 
 ing unfair competition among dealers. 
 
 The quantity discount or price concession that does make 
 a difference to the public is one that goes much farther than 
 the case just outlined. It seems to be customary in some 
 lines and for some producers and wholesalers to grant dis- 
 counts and prices to a few dealers that cannot be justified 
 by any economic savings. It is to these that the term inside 
 prices may be applied, and it is this form of quantity dis- 
 count or price concession that must be subjected to 
 scrutiny. 
 
296 ECONOMICS OF RETAILING 
 
 In the first place, such discriminations in price constitute 
 a recognition of capital rather than ability. As pointed 
 out in another chapter, bigness in a retail store is no guar- 
 antee of lower costs of doing business. Such, concessions 
 mean encouragement to the big store as against the small 
 store, and have no necessary connection with efficiency of 
 distribution. The store that receives the concessions does 
 not necessarily transfer any part of them to the public in 
 the form of lower prices. On the contrary, prices are cut 
 only to draw trade, and only enough and on such articles as 
 will draw the trade. Price-cutting as usually carried on 
 does not benefit anyone to any considerable extent. The 
 purpose of price-cutting must be achieved or prices will not 
 be cut. With the exception of such cases as have already 
 been referred to, when goods must be unloaded by the 
 retailer, the deficits from cut prices must be made up by 
 sales of other goods where prices are not cut. Thus, the 
 cut price is simply a device for stimulating buying among 
 consumers, or drawing trade that would otherwise go to 
 other stores. 
 
 The producer who discriminates in his price-making in 
 favor of the big distributor either tries to recoup his losses 
 on his big sales by raising the price on his sales in small 
 lots, thus making the discrimination still wider, or by seek- 
 ing to economize in his productive departments. Some- 
 times both of these methods are operated. In the course 
 of the development of some industries, improvements lead- 
 ing to lower costs of production are introduced, but in so 
 far as these economies are passed on to the distributors, 
 the larger purchasers and those on the preferred lists are 
 likely to get the first, if not all, of the advantages, while the 
 smaller dealers stay on the same price levels as before. 
 
 Small dealers recognize their inability to compete in 
 buying with the more powerful and larger concerns, hence 
 
BUYING AT INSIDE PRICES 297 
 
 there is constant friction and dissatisfaction in every line 
 in which the inside price-giving policy prevails. It is recog- 
 nized that the chief strength of many of the larger retailing 
 institutions depends almost entirely upon buying some of 
 their goods, at least, at inside prices. It is only natural, 
 therefore, that retailers should combine in buying associa- 
 tions, exchanges, or pools, co-operative chain stores, and 
 establish so-called trade relations committees in their 
 national associations. By their united power they are able 
 to command as low prices as the big retail stores. Compe- 
 tition then ensues between the big combinations for better 
 prices, and so the contest grows ever keener. 
 
 Price-discrimination leads to the development of large- 
 scale-buying concerns on the one hand, and to the elimina- 
 tion of the small independent retailers as such on the other. 
 In distribution, as in production, price-discrimination tends 
 towards consolidations, and these in turn breed still greater 
 combinations. There are difficulties in the way of forming 
 monopolistic combinations in the retail business that do not 
 exist in production, but the retailing trust is not an impossi- 
 bility. In any case, there seems to be a decided tendency 
 towards larger organizations. This raises the question 
 whether the small independent type of retailer or the larger 
 concern can serve the public best; and upon one's answer 
 to that question will depend one's conclusion as to whether 
 the movement towards consolidation is a good or a bad 
 thing. 
 
 In conclusion, it may be stated that certain forms of 
 quantity discounts and other price concessions seem to be 
 justifiable, especially when granted in return for services 
 actually performed by the buyer for the seller. Certain it 
 is that under present circumstances much of such discrim- 
 ination is considered expedient even where its possible evils 
 are clearly discerned. Neither the buyers, as such, nor the 
 
298 ECONOMICS OF RETAILING 
 
 sellers can remedy the matter. Both are forced by circum- 
 stances to continue as they have in the past unless prevented 
 from so doing by society. The big buyer seems to be the 
 starting point for most of the difficulty. With cash in hand 
 and a demand for large amounts of goods, he has a power 
 in the market that compels sellers to discriminate in his 
 favor. The big order is a big temptation to many pro- 
 ducers and competition does the rest. 
 
 The situation is very similar to that of the railroads 
 and the big shippers before the Interstate Commerce Com- 
 mission was created and clothed with enough power to pre- 
 vent unfair discrimination in favor of the latter as against 
 the great mass of small shippers. Every argument used 
 in the public discussion of that question is applicable to this. 
 That the railroads have been legally defined and set apart 
 under the term " public utilities " does not alter the merits 
 of the case in the least. There may be a difference in 
 degree of public interest as between transportation and the 
 distribution of goods, but even this is open to question. 
 Certainly the latter affects as many if not more people, and 
 more money is involved. It does not seem unlikely that the 
 government will some day have to take upon itself the 
 regulation of this great problem. 
 
 There is something about this question of inside prices 
 that suggests unfairness. It is as if it were possible for a 
 man to buy postage stamps in large quantities at reduced 
 rates, or as if reductions should be made in a rich man's 
 taxes just because he pays a large amount. As long as 
 such price-making is permitted, dealers can hardly be blamed 
 for seeking them, and if the small dealer cannot buy inde- 
 pendently at prices that will permit him to compete suc- 
 cessfully with the large dealer, we must not be surprised to 
 see him unite with his fellows into combinations, either 
 in the form of chain stores under corporate control, or in 
 
I 
 
 BUYING AT INSIDE PRICES 
 
 299 
 
 co-operative organizations. What this movement v\^ill bring 
 with it no one can foresee, but if one may judge from 
 what has already occurred in some industries, such as oil, 
 tobacco, sugar, and steel — industries in which price-dis- 
 criminations led to larger and larger units — the public 
 may well begin to take account of what is going on and 
 prevent, if possible, the development of tendencies that may 
 later have to be combated, as the country is now compelled 
 to combat the big industrial trusts. As matters now stand, 
 the inside-price problem is the most disturbing element in 
 business. More of the evils of unfair trade can be traced 
 to this as a cause than to any other single item. 
 
CHAPTER XVII 
 
 THE FAILURE RATE IN THE RETAIL BUSINESS 
 
 One of the best means of obtaining 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 reduce mortality. In the 
 same way a study of the failure statistics for retail stores 
 will reveal not only the direct causes of failure, but may 
 also lead to the discovery of methods of reducing the failure 
 rate. 
 
 Failure in the retail business, as understood here, does 
 not necessarily, nor even usually, imply bankruptcy in the 
 legal sense. It simply means discontinuance 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 employment else- 
 where, 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 
 capital and not out of earnings, and that the business is 
 going backward with no hope of recovery. Sometimes it is 
 discovered 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 
 
 300 
 
THE FAILURE RATE 
 
 301 
 
 capital is almost if not entirely gone. Occasionally the 
 loss involves not only the dealer's capital but also a part of 
 the funds loaned him in the form of merchandise or other- 
 wise by his creditors. In any case, the store is finally sold 
 or disposed of, and its manager sets out to embark in some- 
 thing else. 
 
 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 numbers 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 criticized. That the word " failure " is used in an 
 entirely different sense in each case is completely over- 
 looked. ^ 
 
 So far as the writer has been able to learn, one of the 
 first public statements in this country 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 Legis- 
 lature. 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, 
 
 1 Bradstreet's " Failure Statistics — Their Meaning and Utility," 1910, p. 5. 
 
 2 Printers' Ink, March 5, 1914, p. 101. 
 
302 ECONOMICS OF RETAILING 
 
 among one 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 con- 
 sulting with an experienced merchant, he fully admitted 
 its truth." 3 
 
 This statement was questioned and doubted by other 
 men in public life in Boston at that time, and caused other 
 investigations 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 success 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 state- 
 ment an estimate was made for the retail business in gen- 
 eral, 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% per cent fail within fifteen 
 years.^ 
 
 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 
 
 Z Hunt's Merchants' Magazine, 15:475. 
 
 4 Freedley, E. T., " Common Sense in Business," 1879, pp. 185-7. 
 
 5 Nation, April 12, 1888. 
 
 6 Industrial Commission, Vol. VII, p. 452. 
 
THE FAILURE RATE 
 
 303 
 
 simply to hold their own, while from ten to fifteen are 
 success fulJ 
 
 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. 
 
 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 "^^loo of one 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 ^%oo of one per cent. In no year 
 since either of these two concerns have begun to collect 
 statistics on failures have the percentages even equalled 
 11/2 per cent of the total number of concerns in any one 
 year. 
 
 Bu t for the year 1910, Bradstreet's tables show that 
 over 321,000 names of firms were taken off their lists, 
 amounting to mo re than 20 per cent of all the concerns in 
 bu sinels^]during 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. 
 
 To get a little more definite idea of the actual propor- 
 tion of failures in the retail business, the writer undertook 
 a study of the failures in his home city of Oshkosh, Wis- 
 
 7 " Repartition des Richesses," Chap. XI. 
 
 8 " Recent Economic Changes," p. 351. 
 
304 ECONOMICS OF RETAILING 
 
 consin, during the years 1911 and 1913. With the help 
 of the city directories, Hsts were compiled of all persons 
 who had engaged in certain lines of the retail business 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 for each retailer who had 
 discontinued business during the period under study why 
 he had dropped out, so that the actual number of failures 
 could be learned. The following represents the results of 
 this study. 
 
 In order that the conditions of the city may be under- 
 stood and that the figures showing the mortality rate of 
 its retail business may be given proper weight, the follow- 
 ing general facts are presented: 
 
 The population of Oshkosh 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 almost entirely of whites of North- European ex- 
 traction. 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 predominate, 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. 
 
r 
 
 THE FAILURE RATE 305 
 
 About 20 per cent of the farms are managed by tenants. 
 Milk and 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 in- 
 dustry is woodworking. 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 1911. 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 
 payers received their incomes from the stores alone. 
 Among these, saloon keepers ranked highest with a total 
 of 8, grocers 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 
 advertising in helping to determine consumer-demand, it 
 was ascertained that there passed through the post office, 
 approximately, the following number of magazines each 
 month in 1911 : 
 
 Woman's World 500 
 
 Ladies' Home Journal 40O 
 
 Home Life 400 
 
 Designer 350 
 
 Delineator 300 
 
 Ladies' World , 300 
 
 Pictorial Review 300 
 
 Woman's Home Companion 250 
 
 Housekeeper 125 
 
3o6 ECONOMICS OF RETAILING 
 
 Good Housekeeping 100 
 
 Harper's Bazaar 50 
 
 Everybody's 175 
 
 Outlook 250 
 
 Collier's 300 
 
 Literary Digest 150 
 
 System 50 
 
 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 con- 
 sideration, nor any particular slumps. The population and 
 industries of the city, as shown by a study of 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 on page 307 shows the number of retail dealers 
 in the city handling the following Hues of goods — gro- 
 ceries, shoes, dry-goods, men's clothing, hardware, furni- 
 ture, 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 gradual dropping 
 out of the original dealers by noting the diminished num- 
 bers 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 1913 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: 
 
 Of the total number of merchants in business in Oshkosh 
 
THE FAILURE RATE 
 
 307 
 
 ^ 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 and 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 1910 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 
 
 1895 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 S5 24 20 
 
 1910 .\.. 41 34 
 
 1912 38 
 
 145 160 176 176 164 160 152 153 158 172 
 
 It appears from the table that there was a general in- 
 crease in the number of retailers from 1890 up to 1898, 
 and then a decrease up to 1908, followed by another in- 
 crease up to 1912. Clearly the number of retailers has not 
 increased during the period as rapidly as the population 
 increased. While population increased from 28,000 to 
 33,000 between 1900 and 1910, 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 the business 
 and invested their money and time. Out of these, 354 
 dropped out, leaving 172 at the end of the period. _., One of 
 the remarkable things about the showing is the ^ntinuous 
 inflow and outflow of people, keeping the total number en- 
 
3o8 ECONOMICS OF RETAILING 
 
 gaged in the 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 the business during the period. This 
 information 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 busi- 
 ness 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 1 
 
 Bankruptcies handled by courts 6 
 
 Failures or fizzles 124 
 
 Sold out, probably representing losses * 27 
 
 Sold out, representing gains t 14 
 
 Retired with competences t 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. 
 
 t Success 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 the retired merchants has an income of about 
 $800 a year from his investments. The majority of the 14 went into other busi- 
 nesses. 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 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 
 
THE FAILURE RATE 309 
 
 extensive loss to creditors, or the latter, particularly the 
 Oshkosh wholesale houses — in the grocery line at least — 
 would have recalled them more definitely. 
 
 In discussing the situation with some of the older mer- 
 chants 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 in- 
 heritance; and that with this, and as much credit as whole- 
 sale 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 8 or 10 
 years, with the average centering about 6 years. More 
 drop out during the first year than during any other year 
 of trial. 
 
 The story of the retailer who fizzles out seems to be 
 somewhat 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 
 business. Here, in the course of a few years, it is consumed 
 or 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 em- 
 ployers. The contributions of capital to other businesses 
 from the retail business seem to be insignificant compared 
 with what goes into it. It thus appears that under present 
 
310 
 
 ECONOMICS OF RETAILING 
 
 conditions, retailing is at least partly parasitic, though indij 
 rectly and involuntarily so. 
 
 Some light may be thrown on the sources of the capit< 
 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 : 
 
 Watchmakers 6 
 
 General tinker 1 
 
 Tailor 1 
 
 Factory hand 1 
 
 Shoes : 
 
 Shoe Qerks 11 
 
 Cobblers 6 
 
 Grocery clerk 1 
 
 Factory hand 1 
 
 Barber 1 
 
 Hardware : 
 
 Hardware business formerly 2 
 
 Hardware store salesmen 2 
 
 Tinsmiths 2 
 
 Traveling salesman 1 
 
 Furniture manufacturer 1 
 
 Iceman 1 
 
 Clothing: 
 
 Clothing store clerks 9 
 
 Dry-goods clerks 3 
 
 Grocery clerk 1 
 
 Saloon-keeper 1 
 
 Dry-Goods : 
 
 Merchants before 3 
 
 Dry-goods clerks 3 
 
 Peddler 1 
 
 Grocer 1 
 
 Farmer 1 
 
 Shoe merchant 1 
 
 Carpenter 1 
 
 Housewife 1 
 
THE FAILURE RATE 31 1 
 
 Furniture : 
 
 Cabinet makers 2 
 
 Clerks in furniture store 3 
 
 Factory worker 1 
 
 Farmer 1 
 
 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 railway 1 
 
 Teamster 1 
 
 Motorman 1 
 
 Blacksmith 1 
 
 Cigar-maker 1 
 
 Shoemaker 1 
 
 Machinist 1 
 
 SeAving machine agent 1 
 
 Policeman 1 
 
 Grain buyer 1 
 
 Coal merchant 1 
 
 The above lists also show that a very large number of 
 those who go into retailing have neither experience nor 
 knowledge of the business. " Anybody can keep store " is 
 the slogan. It seems a matter for small wonder, then, that 
 so few are able to succeed. 
 
 To determine 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 direc-. 
 tory 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 consequence in the general results, 
 however. The results were as follows : 
 
312 
 
 ECONOMICS OF RETAILING 
 
 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 
 
 Changes in Retail Firms in Beloit between 
 1890 AND 1900 
 
 =^ 
 
 Total Retail Stores in 1890 1896 1900 j 
 
 
 
 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 
 
 14 17 15 
 
THE FAILURE RATE 313 
 
 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 
 
 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 country towns. 
 
 For the causes of failure among retailers we may refer 
 to the classifications of Dun and Bradstreet. 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 ^ 
 
 Beginners' Handicaps : 
 
 1. Lack of capital 29.7 
 
 2. Incompetence 30.2 
 
 9 A<iapted. 
 
314 
 
 ECONOMICS OF RETAILING 
 
 (a) Inexperience 4.6 
 
 (b) Unwise credits 2.0 
 
 66.5 
 
 Personal Faults of Character: 
 
 1. Fraud 10.3 
 
 2. Neglect of business 2.0, 
 
 3. Personal extravagance 7 
 
 13.0 
 
 Factors Threatening Success: 
 
 1. Competition 1.9 
 
 2. Failure of others 1.3 
 
 3. Speculation in other business 8 
 
 4. Specific conditions (disaster, etc.) 16.5 
 
 20.5 
 
 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 
 
 10 By O. W. Mayer, Credit Manager, Steele, Wedeles & Co. Adapted from 
 System, Feb., 1914. 
 
THE FAILURE RATE 315 
 
 In conclusion, the failure rate among retail dealers is 
 very high, probably higher than in any other phase of busi- 
 ness of equal importance. But very few of the failures in 
 the retail business reach the stage of bankruptcy proceed- 
 ings. 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 
 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. 
 
 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 situation was. A new man 
 with new capital seems to be ready to shp 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 customer, and the wholesaler considers that by keep- 
 ing close watch of its development through his credit de- 
 partment, he may be able to pull out whole before the 
 inevitable end. Besides, the fiinal outcome is not always 
 
31 6 ECONOMICS OF RETAILING 
 
 failure in spite of all signs to the contrary. 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 certain line of credit for a while at least, is 
 stronger than the incentive to advise him to keep out of the 
 retail business. If 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. 
 
 Relief, 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 sys- 
 tem, to limit the number of persons who are to engage 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 busi- 
 ness 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-speaking people, will hardly permit any sudden 
 change to a practice involving such regulation, no matter 
 how necessary such a change might be. 
 
CHAPTER XVIII 
 
 ARE THERE TOO MANY RETAIL STORES? 
 
 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 possible 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 con- 
 solidated 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- 
 operative distributive societies and, to a certain extent, the 
 establishment 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 increasing beyond a certain number in each 
 community. 
 
 One might also ask what is meant by the question, " Are 
 
 317 
 
3i8 ECONOMICS OF RETAILING 
 
 there too many retail stores ? " 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 expense 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 con- 
 sumers.^ 
 
 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 occupations and the lists 
 compiled from the Dun and Bradstreet mercantile reference 
 books. Both are probably defective, the former in classi- 
 fication, 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 
 
 1 A discussion of this subject appeared in Women's Wear, Dec. 4, 1914, written 
 by Carl H. Fast, Mr. Fast concludes that there are too many department stores 
 operating under out-of-date systems of management. 
 
ARE THERE TOO MANY RETAIL STORES? 
 
 319 
 
 in selected lines for each census year from 1850 to 1910. 
 To its use the criticism might be raised that, at the start, 
 we are confusing the number of merchants or retail dealers 
 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 estab- 
 lishments controlled by such institutions continue to grow, 
 statistics, such as these, will become more and more un- 
 trustworthy 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 
 
 All merchants*. 
 Wholesalers . . . 
 
 Grocers 
 
 Druggists 
 
 Shoe dealers 
 
 Clothiers 
 
 Jewelers 
 
 Dry-Goods 
 
 Lumber 
 
 1850 
 
 174,102 
 
 24,479 
 6,139 
 
 3,780 
 5,111 
 
 1860 
 
 267.921 
 
 40,070 
 
 11,031 
 
 685 
 
 3,346 
 
 10,175 
 
 1870 
 
 357,647 
 
 74,410 
 17,369 
 8,234 
 7,595 
 6,402 
 39,790 
 9.440 
 
 1880 
 
 479,439 
 
 101,849 
 27,700 
 
 9,993 
 10,073 
 
 2,305 
 45,831 
 11,263 
 
 1890 
 
 691,325 
 31,086 
 
 114,849 
 46,375 
 
 42.527 
 
 1900 
 
 833.212 
 42,326 
 
 156,479 
 57,271 
 15,239 
 18,095 
 
 45,820 
 16.792 
 
 1910 
 
 1,004,153 
 64,166 
 195,432 
 65,575 
 19.346 
 35,273 
 29,962 
 65,283 
 26.485 
 
 * Including wholesalers. 
 
 This table reveals a number of interesting things. If it 
 were entirely reliable as to classification, some interesting 
 conclusions could be drawn from it. Some of the dis- 
 
320 
 
 ECONOMICS OF RETAILING 
 
 crepancies, however, are obvious. For example, the drop 
 from 6,402 jewelers in 1870 to 2,305 in 1880, 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 explained 
 by assuming that a large number of jewelers were enumer- 
 ated under the head of " other dealers " in 1880. 
 
 The figures show steady increases in the number of 
 dealers in practically every line. It is interesting to note 
 that there were no shoe dealers reported in 1850, but that 
 there were 685 in 1860, and over 8,000 in 1870. This 
 period marks the beginning and rise of the manufacture of 
 boots and shoes by machine methods. Before 1860, practi- 
 cally all boots and shoes were made by hand by shoemakers 
 found in every village and requiring no stores or middle- 
 men. The number of clothiers also increased rapidly during 
 the same time, and for the same reasons. 
 
 Some light may be thrown on the question proposed 
 by the title of this chapter by comparing the number of re- 
 tailers 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 population and to the total num- 
 ber of gainfully employed are increasing 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 — : 
 
 L grocer 
 
 to 960 
 
 people, 
 
 or 1.04 per 
 
 1,000 population 
 
 1860 — ] 
 
 " 
 
 " 750 
 
 
 " 1.30 " 
 
 « « 
 
 1870 — ] 
 
 
 " 527 
 
 « 
 
 " 1.90 " 
 
 « « 
 
 1880 — 1 
 
 
 " 490 
 
 i( 
 
 " 2.04 " 
 
 « « 
 
 1890 — ] 
 
 
 " 540 
 
 « 
 
 " 1.85 '• 
 
 « « 
 
 1900 — 1 
 
 
 " 423 
 
 « 
 
 " 2.36 " 
 
 i< « 
 
 1910 — ] 
 
 
 " 470 
 
 « 
 
 " 2.13 " 
 
 « « 
 
ARE THERE TOO MANY RETAIL STORES? 321 
 
 The census reports are somewhat indefinite upon the 
 point, but it seems quite certain that the number of grocers 
 indicated 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 and 1900. In that year it appears that 
 there were fewer in proportion to population than at any 
 time since the decade between 1860 and 1870. Why this 
 should be so is not clear. It seems likely that the dispro- 
 portionately 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. 
 
 The following table probably represents the situation 
 more accurately. In this case the total number of mer- 
 chants 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 transportation are 
 compared with the total number of people gainfully em- 
 ployed at each census period. 
 
 Ratios of Merchants to Population ^ 
 
 XT t, r >T Number of Per- 
 
 Number of Mer- ^IJ^J'.f ° n ^nT sons in Trade 
 
 Y^^, chants per 1.000 S All (SaLfuHv and Transpor- 
 
 of Total Popu- FL\^iifH7n A?^ tation per 1,000 
 
 lation Employed in All ^ ^U Gainfully 
 
 Industries Employed 
 
 1850 7.51 27.37 109.20 
 
 1860 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 
 
 1910 10.92 26.30 199.28 
 
 2 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 mer- 
 chants. No separate classification of wholesale dealers appears in the census be- 
 fore 1890, 
 
322 ECONOMICS OF RETAILING 
 
 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 decreases, however, are so small as 
 to be practically negligible, and the conclusion seems war- 
 ranted that beginning about the year 1890 the number of 
 retailers in proportion to population seemed to remain sta- 
 tionary down to 1910. It is noteworthy that the greatest 
 relative increases in the number of merchants came in the 
 decades 1850 to 1860 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 1860, followed by a fall 
 between 1860 and 1870. A marked increase in number of 
 merchants in proportion to working population from 1880 
 to 1890 is found here as well as in the ratios of merchants 
 to total population. But from 1890 down to 1910 the ratio 
 of merchants to working population decreased quite ma- 
 terially. 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 1860. 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 1860, for long distances, transportation by 
 wagon had been largely surperseded by railroad transporta- 
 tion. The tendency of the numbers employed in trade and 
 transportation to increase since 1860 is coincident with the 
 development of railroad transportation on a large scale. In 
 1870, one out of every ten persons gainfully employed in 
 
ARE THERE TOO MANY RETAIL STORES? 
 
 323 
 
 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. 
 
 In Appendix III, '' General Statistics of Retail Trade," 
 the table " Average Population to All Kinds of Stores for 
 Census Years " in Boston, shows a somewhat different ten- 
 dency. In Massachusetts the number of stores decreased 
 from 1 store to every 125 people in 1875 to 1 store to every 
 149 people in 1890, with a slight increase of one store to 
 every 142 people in 1895. In 1880 the ratio in Boston was 
 one store to every 141 people, while for the country there 
 was one merchant or dealer for every 105 people. We 
 need not attempt to explain this apparent discrepancy in 
 numbers except to point out that the United States Census 
 enumerated many dealers not counted at all by the Massa- 
 chusetts Bureau of Labor ' Investigation. The important 
 consideration in this comparison, however, is that in 1890 
 the ratio of stores to population had fallen to one to every 
 149 people, while for the country the ratio had increased to 
 one store to every 95 people. 
 
 The explanation is probably this, that in Boston, a large 
 and old, well developed commercial center, the centraliza- 
 tion of retailing into larger stores had begun to take place, 
 while the country as a whole, relatively young, expanding, 
 and sparsely settled, had for the most part experienced no 
 such tendency. Except in the large cities, concentration in 
 the form of department stores could not take place. No 
 check in the relative increase of retailers in proportion to 
 population began to appear for the country as a whole be- 
 fore the decade between 1890 and 1900. During this 
 decade the ratio of dealers to population in Boston actually 
 increased. The reasons for this increase are not clear. 
 A partial explanation may be found in the fact that during 
 this decade a large number of immigrants began to pour 
 
324 ECONOMICS OF RETAILING 
 
 into the industrial sections of the city, bringing with them 
 the European habit of trading at small shops and markets. 
 
 Whatever local variations there may have been, it is 
 clear from the census that the number of retailers, and, pre- 
 sumably, 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, except- 
 ing the apparent tendency for the number of merchants in 
 proportion to population to fall off during the last two 
 decades. The fact that the number of merchants has in- 
 creased 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 relatively higher 
 today than it was forty or fifty years ago. Since there are 
 more people engaged in the distributive business today 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 1860, 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. 
 
 The function of the retailer is to distribute goods. In- 
 stead of comparing the number 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 
 
ARE THERE TOO MANY RETAIL STORES? 325 
 
 sold by the stores. Unfortunately such a comparison can- 
 not be made directly, for there are no statistics showing the 
 amount of goods sold through the retail stores of the coun- 
 try for any year. 
 
 The nearest approach to an equitable basis for such a 
 comparison that is available is the United States Census val- 
 uation 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. 
 Obviously there are many exceptions. For example, large 
 items in the total of manufactured goods such as foundry 
 and machine shop products, iron and steel products, railway 
 equipment, 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 manufac- 
 tured 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 manufacture 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 manufactured goods, may perhaps be 
 assumed to have a somewhat constant relationship to the 
 total values for the period under consideration. It is as- 
 sumed 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. 
 
 It will occur to some at once that the items of merchan- 
 dise included in the totals for manufactured goods which 
 
326 ECONOMICS OF RETAILING 
 
 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 was 
 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 cent; flour mill products, 76.2 
 per cent; cotton goods, 85.3 per cent; men's clothing, 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 increasing amount of farm produce 
 entering into the system of distribution which does not ap- 
 pear under the head of manufactured goods at all. Among 
 such products are vegetables, poultry, eggs, and fruit. It 
 needs no citation of statistics to maintain that the volume of 
 such goods handled by retail stores has greatly increased 
 within the last twenty or thirty years. 
 
 It may be urged that the values of manufactured goods 
 as expressed in 1910 are not fairly comparable with the 
 figures for earlier decades because of the increases in prices. 
 While the values have gone up, it may be urged, the volume 
 has not correspondingly increased. This is a valid objec- 
 tion so far as it goes. If prices have gone up faster than 
 the volume has increased, then there is some ground for the 
 belief that the decrease in ratio between the number of mer- 
 
ARE THERE TOO MANY RETAIL STORES ? 
 
 327 
 
 chants and the total of manufactured goods is more ap- 
 parent than real. It would take considerable statistical 
 study to determine this point fully. It seems probable, 
 however, that the effect of rising prices has been merely to 
 qualify or limit the tendency of the volume of manufac- 
 tured goods to increase more rapidly than the number of 
 distributors. It must be left for some future statistician 
 to demonstrate the truth or falsity of this position. 
 
 The following table gives the essential facts regarding 
 the relations of the values of manufactured goods and im- 
 ports to the number of retailers, to the number of commer- 
 cial travelers, to the total number of people who are gain- 
 fully employed, and to the total population : 
 
 Comparison of the Number of Distributors 
 
 With the Total of Goods Manufactured and Imported, with 
 
 Total Population and with Total Number of 
 
 Persons Gainfully Employed. 
 
 
 /— N 
 
 /— s 
 
 /— s 
 
 
 
 
 
 /-N 
 
 
 •0 
 
 TJ 
 
 -o 
 
 
 
 
 
 -o 
 
 
 a> 
 
 <U 
 
 ^ 
 
 
 
 c 
 
 
 4> 
 
 
 
 
 
 
 
 
 
 
 
 factured 
 
 s 
 
 000 omi 
 
 1 
 
 tn 
 
 ■>-> 
 
 
 «+.< en 
 
 erof 
 
 -nercial 
 
 elers 
 
 Number 
 oyed in 
 e and 
 sportati 
 
 Number 
 
 fully 
 
 loyed 
 
 1! 
 
 ^ 2 
 
 1-1 
 
 Manu 
 Gooc 
 (000, 
 
 
 
 ^ -2 
 
 Numb 
 Conu 
 Trav 
 
 Total 
 Emp 
 Trad 
 Tran 
 
 Total 
 Gain 
 Emp 
 
 Total 
 Popt 
 (000 
 
 1850... 
 
 $ 1,109 
 
 $ 174 
 
 $ 1,193 
 
 174,000 
 
 
 582,000 
 
 5,330,000 
 
 23 
 
 1860... 
 
 1,886 
 
 331 
 
 2,217 
 
 268,000 
 
 . . . . 
 
 802,000 
 
 8,236,000 
 
 31 
 
 1870... 
 
 3,386 
 
 418 
 
 3,804 
 
 358,000 
 
 7,000 
 
 1,244,000 
 
 12,506,000 
 
 39 
 
 1880... 
 
 5,370 
 
 446 
 
 5,816 
 
 479,000 
 
 28,000 
 
 1,872,000 
 
 17,392,000 
 
 50 
 
 1890... 
 
 9,372 
 
 745 
 
 10,117 
 
 691,000 
 
 59,000 
 
 3,326,000 
 
 22,736,000 
 
 63 
 
 1900... 
 
 13,000 
 
 697 
 
 13,697 
 
 833,000 
 
 93,000 
 
 4,767,000 
 
 29,073,000 
 
 76 
 
 1910... 
 
 20,672 
 
 1,312 
 
 21,984 
 
 1,004,000 
 
 164,000 
 
 6,252,000 
 
 38,167,000 
 
 92 
 
 A study of this table and the chart on page 329 shows 
 an increase in every item mentioned, for each census year 
 over the census year preceding. But manufactures and im- 
 
328 ECONOMICS OF RETAILING 
 
 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 
 parallel 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 accompanied by a similar increase in the total number of 
 persons employed in trade and transportation, and also in 
 the number of traveling salesmen. The number of mer- 
 chants also increases, but not in such an abrupt fashion as 
 the foregoing. From 1890 to 1900, manufactures and im- 
 ports did not -increase so radically as in the preceding decade. 
 A similar decline in the rate of increase is to be noted for 
 the number of merchants and the total engaged in trade and 
 transportation. But the retardation is more marked for 
 merchants than for the entire group employed in trade and 
 transportation. 
 
 So far as the statistics go, it seems that the number of 
 persons engaged in the marketing of goods has tended to in- 
 crease with the amount of goods to be marketed, but the 
 number of merchants and the total number of persons en- 
 gaged in trade and transportation did not increase quite so 
 rapidly as the volume of goods. Between the number of 
 traveling salesmen and the volume of manufactures and 
 imports, however, there is the closest correlation. 
 
 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 1910 than in 1860 or 1870. 
 In other words, while there were more dealers in proportion 
 
ARE THERE TOO MANY RETAIL STORES? 
 
 329 
 
 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. 
 
330 ECONOMICS OF RETAILING 
 
 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 re- 
 tail stores for their supplies. 
 
 Some additional explanation may be necessary to make 
 clear why more distributors are needed as the products to 
 be distributed increase. It must be borne in mind that a 
 very large proportion of the changes in methods of manu- 
 facture 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 nearby con- 
 sumers, as had been customary in the stage when hand pro- 
 duction 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 pro- 
 duction 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 of people going to stores for the necessities 
 of life increased. The old time self-sufficing home, in 
 which all the food, clothing, 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. 
 
 Factory production has been the chief cause of the 
 growth of modern cities. But the greater the number of 
 
ARE THERE TOO MANY RETAIL STORES? 331 
 
 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 communities and in small 
 villages for the producers and consumers to come together 
 frequently and make direct exchanges without the medium 
 of middlemen. In cities, however, there is very little op- 
 portunity for a family to produce anything that it can con- 
 sume 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 de- 
 mand 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. 
 
 The changes in the standards of living of the American 
 people that took place between 1850 and 1910 have also had 
 an important effect on the distributive system. At the latter 
 date practically all people consumed a much wider variety 
 of goods than at any time previously. Goods were pur- 
 chased in much smaller quantities, therefore requiring more 
 handling and care. In general, customers of retail stores 
 required much more personal attention than before. These 
 changes in the customer have helped to place a bigger burden 
 on the distributive system. 
 
 Thus, as the area over which the distribution of goods 
 has to be effected is enlarged, as a greater number of cus- 
 tomers have to be reached, as the custom or necessity for 
 purchasing goods at stores rather than making them at home 
 has increased, and as city life has developed, the variety and 
 total volume of manufactured goods distributed through 
 retail stores has greatly increased, and the distribution of 
 
332 
 
 ECONOMICS OF RETAILING 
 
 the goods has become increasingly important, and has de- 
 manded the services of more and more people. 
 
 It has been noted generally that the costs of production 
 both in factory and on farm have diminished during the 
 period we have studied, namely, from 1850 to 1900. It has 
 not been noted, however, that the increased production con- 
 sequent to lower costs has made necessary a much wider 
 distribution involving more handling, transporting, and sell- 
 ing. While the average costs of production per unit of 
 product have decreased, the average costs of distribution 
 per unit have probably increased for many though not for 
 all goods. To make clear what is believed to be a fair rep- 
 resentation of what has taken place, the following diagram 
 may be used: 
 
 I 
 
 i 
 
 i 
 
 i 
 
 Diagram Showing Tendency of Costs of Production to Decrease, and of 
 Costs of Distribution to Increase. 
 
 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 GO 
 
ARE THERE TOO MANY RETAIL STORES? 
 
 333 
 
 years so that in 1910 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 con- 
 sumer equalled ab plus ax, or bx, in 1850 and cd plus 
 cy, or dy, in 1910. Thus, while the total costs to the con- 
 sumer have undoubtedly gone down during the period un- 
 der consideration they have not gone down in the proportion 
 that the costs to manufacture have decreased, for with de- 
 creasing costs in production there have of necessity come the 
 increasing costs of distribution. 
 
 It is not to be supposed that the decreasing costs of 
 manufacture are equalled by the increasing costs of dis- 
 tribution. If that were true, then there would be no incen- 
 tive to install labor saving improvements, or construct larger 
 plants. It is simply maintained that the full economies of 
 modem, large-scale, factory production could not possibly 
 be passed on in entirety to the consumer. It is even con- 
 ceivable that in the development of a given industry the 
 point may be reached where slight improvements leading to 
 an increased and cheapened product may be entirely counter- 
 balanced by the additional expense involved in marketing 
 this additional product. 
 
 Increases in the number of retail stores in proportion to 
 population are thus abundantly accounted for by the in- 
 creased 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 
 fifty years ago. 
 
 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 com- 
 petitors generally means divided trade and less profit. From 
 Chapter XVII, " The Failure Rate in the Retail Business,'* 
 
334 
 
 ECONOMICS OF RETAILING 
 
 it seems clear that a somewhat less keen competition would 
 insure many more retailers a fair living wage from their oc- 
 cupation and thus result in fewer discontinuances and 
 changes in the personnel of the business. 
 
 From the standpoint of the public it is not so easy to 
 pass judgment. It is true that the number 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 of the retailers due to their competi- 
 tion is largely the gain of the consuming public. If the num- 
 ber of retailers could by legal mandate be reduced by one- 
 half, the results to the public would be a very general reduc- 
 tion in the amount of conveniences and services, such as re- 
 tailers now furnish, and, very likely, an increase in the costs 
 of distribution. Each store would be called upon to per- 
 form 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 busi- 
 ness of each store will not necessarily result in a reduced 
 selling expense. Retailing is different from most other 
 businesses in this respect 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 increasing expense of the large estab- 
 lishment, there is nothing to be gained by increasing the 
 business of a store beyond a certain point that keeps a small 
 institution busy. 
 
 From the standpoint of certain classes of consumers 
 with 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 
 
ARE THERE TOO MANY RETAIL STORES ? 
 
 335 
 
 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, salespeople dressed in well- 
 laundered white suits, absolute cleanliness, ornamental and 
 artistic displays of goods, sanitary arrangements, 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 ordinary store gets and also 
 a higher rate of gross profit. As the education of the con- 
 sumers goes on, and as the standard of living rises, the de- 
 mand for such stores as these will grow. One may expect 
 to see their number increase even in competition with the 
 smaller stores with the cheaper equipments, lower expenses 
 of doing business, and lower prices. 
 
 In conclusion j t may be stated that, from the standpoint 
 of the entire public, there is nothing to indicate that the 
 great number of retail stores adds anything to the burden 
 of expense the consumer must bear. The high failure-rate 
 in the retail business would seem to indicate that retail dis- 
 tribution 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 bur- 
 den. Certainly, no extra burden is added to the prices 
 charged consumers because of the keenness of competition 
 resulting from too many stores. 
 
336 ECONOMICS OF RETAILING 
 
 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 XIX 
 
 PUBLIC REGULATION OF THE RETAIL 
 BUSINESS 
 
 The suggestion that retail stores should be regulated 
 has frequently been made. Something is already being ac- 
 complished in this direction by states and municipalities 
 through inspections designed to secure purity of foods, legal 
 weights and measures, proper sanitary arrangements, suffi- 
 cient protection from fire and from elevator accidents, and 
 observance of legal requirements as to employees. Advo- 
 cates of regulation go still further, however, and declare 
 that the number of stores should be limited. By such regu- 
 lation, it is maintained, the standard of retailing would be 
 automatically raised, resulting in better working conditions 
 for the retailers themselves and better service for the con- 
 sumers. A business or license tax has most frequently been 
 proposed as the means whereby such a limitation could be 
 effected. 
 
 In order to understand fully what this proposal compre- 
 hends it will be necessary to give some consideration to the 
 nature of business taxation. 
 
 " 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. The kind most frequently met with is the 
 license fee or tax upon the manufacturers and distributors 
 
 ZZ7 
 
338 ECONOMICS OF RETAILING 
 
 of liquor. Only a little less frequently does one find that 
 peddlers and certain forms of amusement enterprises must 
 pay license taxes. 
 
 When the amount assessed upon any business or occu- 
 pation is barely enough to cover " the legitimate costs of 
 regulation and no more, considering all probable conse- 
 quences," ^ 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 
 popular use of the word " tax " includes both meanings. 
 
 A license 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 something 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 what- 
 ever. But the thing to be done may be something lawful 
 in itself, and only prohibited for the purposes of the license; 
 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 
 under 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 protec- 
 tion of the lives, health, and property of the citizens, and 
 
 1 " Cooley on Taxation," p. 1138. 
 
 2 Id., pp. 1137-8. 
 
PUBLIC REGULATION 
 
 339 
 
 to the preservation of good order and public morals/' ^ any- 
 state can license any occupation which can be shown to need 
 regulation. 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 com- 
 bined in the same act, and the result is taxation for revenue 
 and for regulation at the same time. In these cases the 
 amount collected is something more than a fee. It is in 
 fact a true tax. 
 
 '' Business taxes " may be collected 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 dis- 
 tinction that is necessary to an understanding 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 general taxes. Under 
 a license system, the payment for the license must be made 
 before the business can lawfully begin. The common busi- 
 ness tax, like a property tax, is payable after the business has 
 come into existence, but the license payment must be made 
 before anything else can be done in the business. 
 
 The purpose of the business tax may be either to secure 
 a revenue for the government or to regulate the occupations 
 or businesses subject to the tax. The latter is, obviously, 
 the aim, at least in part, in most communities where saloons 
 are required to pay a license 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 es- 
 tablishments. 
 
 In some cases, the aim of the business tax is to prohibit 
 the business or occupation entirely by fixing the tax so high 
 
 3 Davock V. Moore, 105 Mich. 120. 
 
340 ECONOMICS OF RETAILING 
 
 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. Pro- 
 hibition of such institutions by taxation, however, is an indi- 
 rect 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. 
 
 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 na- 
 tional 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 monop- 
 olies 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 profit- 
 able 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. 
 
 A business tax may be levied for the purpose of pro- 
 tecting local industries or businesses by preventing compe- 
 tition 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 peddlers from 
 engaging in this form of traffic in that community. The 
 house-to-house method of selling has certain advantages, 
 
PUBLIC REGULATION 34 1 
 
 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. 
 
 A business tax is frequently levied upon certain classes 
 of individuals, particularly those engaged in certain pro- 
 fessions which might otherwise escape payment of taxes. 
 For example, a lawyer might enjoy a handsome income, 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 tax, and the number and kinds of businesses and 
 
 14 Hollander, " Studies in State Taxation," pp. 45—51. 
 
 5 Vol. 25, pp. 614-621. - 
 
342 
 
 ECONOMICS OF RETAILING 
 
 occupations that may lawfully be subjected to a business 
 tax. 
 
 As proper subjects for license or tax the following occupations or 
 privileges have been sanctioned by the court. Any commercial or pro- 
 fessional business; corporate franchises 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 ; mercantile business in general ; publish- 
 ing a newspaper ; raising 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 carry- 
 ing 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; attorneys; auc- 
 tioneers; bakers; banks; bill posters; brewers; bridge companies; 
 brokers; carriers; cigar and tobacco dealers; confectioners; corpora- 
 tions; 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 com- 
 panies; 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; manufac- 
 turers ; meat dealers ; merchants ; milk dealers ; money lenders ; note 
 shavers ; packers and carriers of oysters ; patent medicine venders ; 
 pawnbrokers; persons dealing in food; pharmacists; photographers; 
 physicians and surgeons ; pilots ; pipe line companies ; sewing machine 
 agents ; soda water dealers ; steamship companies ; street railroad com- 
 panies; teachers; telegraph and telephone companies; turnpike com- 
 panies ; venders of lottery tickets ; warehousemen ; water companies ; and 
 wood dealers. 
 
 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 modified by the kind of 
 base or basis selected in administering the tax. The fol- 
 lowing methods are current : 
 
r 
 
 PUBLIC REGULATION 343 
 
 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, 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 public funds. Brief descriptions follow 
 of the French, Prussian, and Canadian systems. 
 
 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. 
 
344 
 
 ECONOMICS OF RETAILING 
 
 Part of it is fixed in amount, depending upon the kind of 
 business, the number of employees, if a department 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.^ 
 
 Prussia followed France's example and enacted a law 
 for a similar tax (gewerbesteuer) in 1810. But the present 
 basis of the Prussian tax is in all cases either the annual 
 profits or the capital of the individual business. Wherever 
 it is possible to determine the earnings or profits, these are 
 taken as the base, but where such information is not avail- 
 able, the capital value is taxed. The amount of the tax 
 placed on the capital value is made to correspond as nearly 
 as possible to the amounts collected upon the basis of earn- 
 ings or profit from concerns with the same capitalization. 
 The Prussian tax is essentially a tax on the profits of busi- 
 ness or industry."^ 
 
 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 
 already been applied to such institutions. The German 
 statutes were enacted in response to a cry for help from the 
 small 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 department stores is comparatively small. Be- 
 ginning with one-half of 1 per cent for sales of 400,000 
 marks, the rate increases as the sales increase up to a maxi- 
 
 6 Bullock, " Selected Readings in Public Finance," pp. 321-328. 
 
 7 Id., pp. 328-336. 
 
PUBLIC REGULATION 
 
 345 
 
 mum of 3 per cent of sales. No store, no matter how great 
 its sales may be, is 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 em- 
 ployees, rather than the volume of sales, serves as the basis 
 upon which the tax rate is progressively increased.^ 
 
 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, manufac- 
 turers on 60 per cent, and manufacturers and wholesalers 
 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.^ / 
 
 In the United States the Federal Government has at 
 various times resorted to business taxation, particularly dur- 
 ing times of financial need. For example, in 1863, 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, although certain busi- 
 nesses, such as those that handled liquors and tobacco, were 
 required to contribute at higher rates than the others. 
 After the war, the taxes were removed from most busi- 
 nesses, and greatly reduced on liquor and tobacco businesses. 
 The taxes on liquor and tobacco dealers have continued 
 
 8 Hill, J. A., " Taxes on Department Stores," Quarterly Journal of Economics, 
 15:299-304. 
 
 9 " International Conference on State and Local Taxation," 1908, pp. 286-288. 
 
 10 Redfield, A. A., " Handbook of the U. S, Tax Law of 1862," pp. 115-121. 
 
346 ECONOMICS OF RETAILING 
 
 down to the present. As these business are almost univer- 
 sally taxed within the states also, it has not infrequently- 
 happened that the same business has had to procure and pay 
 for as many as three or even four licenses — Federal, state, 
 county, and municipal — before beginning business. ^^ 
 
 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 were removed. 
 
 At the present time business taxes form a part of the 
 regular state revenue-producing systems in Alabama, Flor- 
 ida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, 
 Missouri, North Carolina, Pennsylvania, Tennessee, Vir- 
 ginia, and West Virginia. This list includes all of the 
 Southern states except Texas which repealed all business 
 tax laws in 1907, and South Carolina, which permits all 
 license 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 incomes. By far the greater portion of the funds 
 from this tax never get beyond the local public treasuries 
 named. 
 
 " About 12 per cent of the state tax receipts in 1902 
 came from licenses and permits, and taking the state and 
 local governments together the revenue from this source 
 amounted to $75,000,000, of which $55,000,000 came from 
 liquor licenses." ^^ 
 
 Among the larger cities in the country where business 
 taxes are collected, the percentages of total revenues ob- 
 
 11 Ely, R. T., " Taxation in American States and Cities," p. 203. 
 
 12 " Wealth, Debt and Taxation," Spec. Report, U. S. Census, 1907. 
 
 13 Ely, R, T., " Outlines of Economics," Revised Edition, p. 648. 
 
PUBLIC REGULATION 347 
 
 tained from this source, for the year 1907, were as fol- 
 lows : ^* 
 
 Per Cent 
 
 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 
 
 In the states where business taxation prevails, a great 
 number of different occupations and businesses are taxed. 
 The United States Bureau of the Census enumerated 188 
 different classes with several sub-classifications in its special 
 report, " Wealth, Debt, and Taxation " in 1907. No state 
 system includes all of these. Mississippi taxed 119 occu- 
 pations some years ago ^^ and Louisiana has a constitutional 
 provision permitting the legislature to lay a tax on all occu- 
 pations whatsoever, except clerks, laborers, clergymen, 
 school teachers, and those engaged in mechanical, agricul- 
 tural, horticultural, and mining pursuits, and manufacturers 
 other than those of distilled, alcoholic or malt liquors, to- 
 baccos, cigars, and cotton seed oil.^^ Many cities extend 
 the business tax system even farther than the states do. 
 Wilmington, North Carolina, formerly taxed 124 classes 
 
 14 •• Statistics of Cities," Special Report of U. S. Census, 1908, from Table 37. 
 
 15 Hollander, " Studies in State Taxation." 
 
 16 Millis, " Business and Professional Taxes," Journal of Political Economy, 
 16:76-87. 
 
348 ECONOMICS QF RETAILING 
 
 of occupations, and Atlanta enumerated 466 taxable items 
 under the head of business taxes. 
 
 Among the specific occupations or businesses taxed, 
 saloons and liquor businesses head the list. There are prob- 
 ably no communities in this country where saloons are not 
 licensed except where prohibited entirely. Amusements, 
 traveling vendors, and auctioneers follow next in order. It 
 is evident that regulation is the chief aim in taxing these 
 classes. The revenue feature, however, is not unimportant. 
 
 Who pays the business tax, the retailer or the con- 
 sumer? 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 com- 
 petitive conditions, a tax on profits tends in the long run to 
 be shifted to the consumer, while under monopoly condi- 
 tions, 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 
 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 
 
 17 Seligman, E. R. A., " Shifting and Incidence of Taxation." 
 
PUBLIC REGULATION 349 
 
 season will seek, by making changes in their stock or in their 
 selling methods, to increase their net profits to some cus- 
 tomary point over and above all expenses of the business, 
 including the tax. 
 
 The problem of shifting and incidence as applied to most 
 businesses is exceedingly complex. Professor Seligman's 
 analysis, while probably theoretically correct, 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 bear- 
 ing the full store burdens, others goods are selected and 
 priced so as to make up the deficits. In an ordinary mer- 
 chandise 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 deter- 
 mine 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 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 overheavy burden. 
 
 Opponents of regulation by means of business license 
 
350 
 
 ECONOMICS OF RETAILING 
 
 or taxation assert that business taxes have the tendency to 
 overburden the small dealer while not making much differ- 
 ence to the bigger merchant. It is also asserted that a busi- 
 ness tax, especially when in the form of a license, if con- 
 siderable, makes it difificult 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 build- 
 ing up a business as it does after the business is well es- 
 tablished. Such a tax also checks free 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 particular business that is taxed. 
 
 Are these criticisms valid and important? That a busi- 
 ness tax, if heavy enough, will tend to make it more diffi- 
 cult to enter the retail business is admittedly one of the 
 reasons for such a tax. But any means that would effec- 
 tually 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 ex- 
 clusion should meet with failure. But total exclusion is an 
 entirely different matter from a limited regulation of the 
 number. 
 
 It is held by those who favor regulation that the busi- 
 ness tax, if used to limit the number of persons who may 
 engage in retailing, will simply eliminate those who are now 
 nearest the margin and not the successful concerns, presum- 
 ably 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 freedom en- 
 
PUBLIC REGULATION 351 
 
 courages persons without 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 
 incompetents. Among the results of this course of events 
 is a constant disorganization of the retail business, frequent 
 occurrences of unfair competition, and generally unsatis- 
 factory service to the public. 
 
 Professor Seager argues for the business license system 
 as follows: 
 
 Retail trade, whether in Hquors, or in drugs, milk, ice, groceries, 
 provisions, or even merchandise, is strikingly wasteful when exposed to 
 the eflFects of an unregulated competition. The needless multiplication 
 of stocks and selling places, the reckless entry into the field of men 
 with little capital and less experience due to the feeling that " any one 
 can keep a store," and the losses which result owing to the fact that 
 only competent persons can make store-keeping pay, the costly duplica- 
 tion 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 system 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 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 distri- 
 bution of milk, ice, groceries, 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 whisky so it is believed that the pay- 
 ment of high license by milk dealers, ice companies, grocers, butchers, 
 etc., would serve merely to concentrate these businesses into fewer and 
 
 18 Seager, " Introduction to Economics," pp. 560-561. 
 
352 
 
 ECONOMICS OF RETAILING 
 
 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.^^ 
 
 That the business tax does under most circumstances 
 limit competition, especially if made high enough, has been 
 proved by experience. For example, the German depart- 
 ment store tax laid for the purpose of checking the growth 
 of the department stores in order to help the small shop- 
 keepers has, according to reports, resulted in considerable 
 benefit to the department stores themselves by discouraging 
 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 be 
 drawn from all parts of this country wherever the license 
 tax has been employed. In some cases the increase of vol- 
 ume in business and the resulting increase in profits accru- 
 ing to the remaining firms who pay the tax have been suf- 
 ficient to make entirely unnecessary any increase in prices 
 of the goods sold to the consumers. 
 
 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 number of retailers 
 could be limited, and, if thought best, certain qualifications 
 necessary for efficient retailing, such as knowledge, expe- 
 rience, and a minimum amount of necessary capital could 
 be required. Regulation might be carried still further 
 through this 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, 
 
 19 Seager, " Introduction to Economics," p. 584. 
 
 20 Gehring, Hans, " Die Warenhaussteuer in Preussen, Ein Beitrag zur Kau- 
 mannischen Mittelstandspolitik," 1905, pp. 65-72. 
 
PUBLIC REGULATION 
 
 353 
 
 simply, that the degree of regulation may not be confined by 
 anything but the demands of public policy under this 
 method. 
 
 It is probable that certain gains would accrue to the 
 public from a limited regulation and supervision of the 
 retail business. It is certain that, in many localities, the 
 retailers themselves would be much benefited by such regu- 
 lation. 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 busi- 
 ness 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 em- 
 ployees is in many cases so low as to make it necessary for 
 the 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 probably be 
 eliminated. 
 
 There are large dif^culties 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 
 
354 ECONOMICS OF RETAILING 
 
 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." 22 
 
 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 
 Incidence of Taxation," ^^ Professor Seligman speaks of 
 the 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 public 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 under- 
 take to limit the number to whom permits shall be given." ^^ 
 
 In certain instances, however, both legislatures and 
 
 21 Wilkie V. Chicago, 188 111. 444. 
 
 22 State V. Ashbrook, 154 Mo. 375. 
 
 23 Pages 361, 362. 
 
 24 " American and English Encyclopedia of Law," Vol. 21:784. 
 
 25 " Cooley on Taxation," Vol. 1:409, 410. 
 
PUBLIC REGULATION 
 
 355 
 
 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 sell- 
 ing 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 
 mle of freedom in business. 
 
 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. 
 The first step to be taken in the settlement of the problem 
 in either one way or the other would be a thorough inves- 
 tigation 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 infor- 
 mation thus gathered, judgment could more readily be 
 passed as to the need of public regulation. 
 
 In conclusion, the following points should be noted : 
 
 First. If the retail business is to be regulated, the 
 business tax or license system seems to offer the simplest 
 approach to the matter. 
 
 Second. A business tax is an effective means of secur- 
 ing 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 exer- 
 
356 ECONOMICS OF RETAILING 
 
 cise some regulative power over retail stores. This regula- 
 tion, 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 inves- 
 tigation is needed to determine the exact character of the 
 problems to be solved. 
 
 A Selected List of References on Business Taxation 
 
 Ely, R. T. Outlines of Economics, pp. 648-649. 
 
 Ely, R. T. Taxation in American States and Cities, pp. 203-209 and 
 280-286. 
 
 Seager, H. R. Introduction to Economics. (See Index therein.) 
 
 Bullock, C. J. Principles of Economics. (See Index therein.) 
 
 Bullock, C. J. Selected Readings in Public Finance, pp. 321-349. 
 
 Bastable, C. F. Public Finance, 1895, pp. 425-431. 
 
 Cohn, G. The Science of Finance, 1895, pp. 482-484. 
 
 Seligman, E. R. A. Shifting and Incidence of Taxation, pp. 338-366. 
 
 Seligman, E. R. A. Finance Statistics of American Commonwealths. 
 American Statistical Assoc., 1889. 
 
 Cooley on Taxation. 3rd Edition (legal work), Ch. XVIII, "Taxa- 
 tion of Business and Privilege." 
 
 U. S. Census, Special Reports : 
 
 Wealth, Debt, and Taxation, 1907. 
 Statistics of Cities, 1908. (Table 35.) 
 
 Hollander, J. H. Studies in State Taxation, Vol. 18 in Johns Hopkins 
 University Studies in Historical and Political Science: 
 Adams, T. S. Maryland, pp. 45-51. 
 Barnett, G. E. North Carolina, pp. 92-97. 
 Brough, C. H. Mississippi, pp. 206-212. 
 Schmeckelbier, L. F. Georgia, pp. 243-248. 
 
 Millis, H. A. Business and Professional Taxes. Journal of Political 
 Economy, 16:76-87. 
 
 Hart, W. O. License System in Louisiana. International Conference 
 on State and Local Taxation, 1909, p. 275 ff. 
 
 Forman, J. C. Business Assessments as a Substitute for the Personal 
 Property Tax. International Conference on State and Local Taxa- 
 tion, 1908, pp. 273-283. 
 
 Hill, J. A. Taxes on Department Stores. Quarterly Journal of Eco- 
 nomics, 15:299-304. 
 
 Adams, H. C. The Science of Finance, 1899, pp. 377-385. 
 
CHAPTER XX 
 
 THE IDEAL RETAILING SYSTEM 
 
 One of the most noteworthy ideas that results from a 
 study of the present retaiHng system with all its complex- 
 ities, 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. Department 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. 
 
 Changes in retailing methods must proceed slowly, for 
 no change can be made successfully without the co-opera- 
 tion, or at least the acquiescence, of the people. The peo- 
 ple are the final arbiters, and no system of distribution can 
 succeed unless the people are in favor of it in both con- 
 scious thought and unconscious habit. Whatever there is 
 of value in past experience, therefore, should be saved and 
 
 357 
 
358 ECONOMICS OF RETAILING 
 
 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 adapta- 
 tions 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. 
 
 The fact that the present system is a product of evolu- 
 tion is presumptive proof that it is far from perfect. Evo- 
 lutionary movement is always preceded by necessity. Con- 
 ditions demand a readjustment long before the readjust- 
 ment takes place, and it is only at times that are relatively 
 stable or unprogressive that it may be said that the neces- 
 sary readjustments actually or approximately catch up with 
 the needs. Since the distributive system is conditioned 
 on the one hand by the methods of production, and on the 
 other by the standards of living of the consumers, it is 
 only during long periods of relatively fixed methods of 
 production and relatively fixed standards of living that dis- 
 tributing 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 ade- 
 quately are destined to the greatest development. 
 
 There is a demand, potential 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 possible cost. What is de- 
 manded 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 
 
THE IDEAL RETAILING SYSTEM 
 
 359 
 
 wage of any kind without service in return is graft. This is 
 a fundamental principle to which all business must sooner or 
 later conform. 
 
 In an ideal system of retail distribution, 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. 
 
 The store equipment must be^ch as to facilitate the 
 best service, and by best sa|^(?is meant speed, cleanliness, 
 correct weights and mealffes, the saving of labor, and the 
 elimination of leaks and wastes. People are coming to ex- 
 pect that the corner grocer shall not only be honest and intel- 
 ligent 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. 
 
 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 to the customers about 
 the goods may be the results of personal observation or 
 knowledge; or such a laboratory should be supplied by each 
 municipality in which the necessary tests could be made for 
 all stores. Every salesman should be well versed in all 
 known tests applicable to his particular line. 
 
 The interest of the public in the distribution of goods 
 
360 ECONOMICS OF RETAILING 
 
 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 pass- 
 ing. 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 cus- 
 tomer only once. Dishonesty in such quarters must be 
 checked, and to this eiM, a good " truthful-advertising law " 
 will be found helpful. The administration, or the respon- 
 sibility for the administration, 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 pat- 
 ronage from the same customers. Retailers as a class 
 would be more interested to see such laws carefully enforced 
 than any other group of citizens. In the matter of truth- 
 ful advertising as well as in every other reform, 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 retailers, the law will 
 be effectually observed. Without this support, it is likely 
 to be evaded if not neglected entirely. 
 
 It has been proposed in various quarters that retailers 
 should be licensed, their numbers regulated, and their 
 standards defined publicly. There are many legal objec- 
 tions 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 knowl- 
 
THE IDEAL RETAILING SYSTEM 361 
 
 edge 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 und^tedly 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. Establishing regulation without suffi- 
 cient preliminary, impartial investigation might result in too 
 expensive experimentation. 
 
 As has been pointed out in a preceding chapter, there 
 has been a decidedly great development 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 channels of distri- 
 bution. Manufacturers who have had trouble with retailers 
 and jobbers over such problems as price-cutting, substitu- 
 tion, 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 coun- 
 tries, a number of manufacturers' and jobbers' chain-store 
 systems, of exclusive agencies, of " tied shops," and of 
 various other complex arrangements in which the distribu- 
 tion of goods from the producers to the consumers is car- 
 ried out of its regular channels. If occasion for such 
 friction is to continue, it seems certain that these independ- 
 ent 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. 
 
 Whatever the future may bring, it does not seem that 
 
362 ECONOMICS OF RETAILING 
 
 this development of multitudes of special distributive sys- 
 tems is to be desired. In the first place, the most obvious 
 result is a duplication of distributive agencies that are al- 
 ready in existence. In so far as the present agencies are 
 inadequate to handle any given type of business, the estab- 
 lishment of the special type is socially justifiable. But 
 where the special distributive system is established in the 
 face of the fact that present systems are quite sufficient, one 
 may well pause before giving an unqualified 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 duplicating distributive 
 systems already in existence is lost not only to the indi- 
 vidual 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 sys- 
 tems, 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 organi- 
 zation and development of just such special systems. Until 
 something shall have been done to eliminate the friction 
 now so common between producers and distributors, the 
 present tendency towards large and special retailing aggre- 
 gations must go on. The remedy, if such it may be called, 
 is to remove the causes of friction. 
 
THE IDEAL RETAILING SYSTEM 363 
 
 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 preventative rather than wait until the develop- 
 ment 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-discrim.inations 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 
 unauthorized 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 
 machine, mentioned above, is the difficulty experienced by 
 producers 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 pur- 
 pose the cultivation of trade relations with dealers, getting 
 trade away from other concerns, and preventing other con- 
 cerns from retaliating, is enormous. Under present 
 methods of competition this waste seems unavoidable. Busi- 
 ness men everywhere frankly admit that this is one of the 
 big problems of present-day industry. Into this competi- 
 
364 ECONOMICS OF RETAILING 
 
 tion all the forces of business are brought into play. Far 
 from stopping with perfecting 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 distribu- 
 tive channels to all producers on the same terms. 
 
 It does not seem beyond the bounds of practical think- 
 ing to suggest that all dealers of 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 reasonable, fair re- 
 muneration 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 retailer for his expense for a given period of time, 
 whether sales were made or not. The retailer would then 
 serve the manufacturer, or the producer, in much the same 
 capacity and under the same principle as the transportation 
 companies now serve shippers. Each manufacturer would 
 at least get a chance to have his goods displayed where cus- 
 tomers are, just as shippers are now all given the privilege 
 of having their goods transported. 
 
 This plan would mean a great saving to the manufac- 
 turer in selling and advertising expense. The problem of 
 the manufacturer under this plan would not be how to get 
 retail dealers to agree to take his goods, or how to keep 
 their custom after they had once begun to order, that is, to 
 keep other manufacturers from taking the trade away; but 
 the problem would be how to make the goods so attractive 
 
THE IDEAL RETAILING SYSTEM 365 
 
 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 demand 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 advertising. There would still be 
 some need for commercial travelers and certainly for ad- 
 vertising, but both forms of sales promotion would become 
 very much more effective than at present. 
 
 The retailer would be confronted by a number of prob- 
 lems quite different from those he has to meet now. One 
 of these would be to provide suitable space for all of the 
 goods that might be sent to him by producers. But since 
 the retailer would be paid for his service, including rent for 
 the space occupied by the goods, it does not seem that the 
 problem would prove unsolvable. There would also be dif- 
 ficulty, though not insurmountable, in providing fair display 
 space and prorating the various rental charges for the vari- 
 ous classes of goods consigned to the store. The capital 
 of a dealer would be his store room, fixtures, and equip- 
 ment. The risks of marketing would fall where they be- 
 long — on the producer. Accumulation of dead or unsal- 
 able 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 were being 
 made. 
 
 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 preem- 
 inent considerations. In the second place, it seems quite 
 
366 ECONOMICS OF RETAILING 
 
 likely that the consumer would have a larger variety of 
 goods to select from, so that wants could be more fully and 
 specifically 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 because their promoters are unable to satisfy the 
 demands of jobbers or other dealers who control the outlets. 
 
 It might be urged that this method would tie up a great 
 amount of the manufacturers' capital in the form of goods 
 consigned to dealers. This is true, and it is not to be ex- 
 pected that every manufacturer could effect national dis- 
 tribution at once. It is obvious, however, that the plan pro- 
 posed has many advantages for the manufacturer. Ad- 
 vertising and distribution could be perfectly correlated by 
 taking one community at a time. Goods distributed nation- 
 ally could be advertised through national mediums, while 
 the goods distributed through certain particular sections 
 could be advertised in those sections only. Many other pos- 
 sibilities of this plan will suggest themselves to the reader. 
 
 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 work- 
 manship and efficiency rather than subtlety, crafty bargain- 
 ing, and force count for success. Under these three policies 
 there would be no object in creating chain systems or in 
 organizing any form of combination other than for pur- 
 poses 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 mar- 
 keting monopolies. 
 
 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 
 
THE IDEAL RETAILING SYSTEM 367 
 
 at a lower expense than its competitors. Its buying for 
 less amounts to no advantage unless the price is much 
 less proportionately 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 vdped 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 par- 
 tial, if not a complete, remedy for this in the retail trade. 
 
 In so far, and wherever the trust succeeds in actually 
 reducing 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 con- 
 cerns. But in all recent trust investigations, the economies 
 of production and distribution gained by organization have 
 been largely incidental and insignificant compared with the 
 power it has given to buy for less, and sell for more than 
 competitors, and thus to put competitors out of business. 
 
 If the pubHc really wishes to check the evils of trust 
 development, the means in general outline are clear. Sim- 
 ply prevent unfair price-discrimination. In other words, 
 compel all sellers to sell to all buyers who apply on equiva- 
 lent terms, and thereby prevent cut-throat competition, that 
 is, price-cutting that goes below the legitimate costs of pro- 
 duction and distribution. As for the rest, under these con- 
 ditions, let the best man win. The concern with the best 
 system and the lowest costs will succeed, as it should. Com- 
 bination will be made, not for industrial and commercial 
 warfare, but for efficiency, if at all. 
 
 Where governments do not interfere with these tenden- 
 cies of present-day competition and its frictions, business 
 concerns themselves are forced to combine into organizations 
 
368 ECONOMICS OF RETAILING 
 
 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 
 Articles Trade Association of England is a good example. 
 The " P. A. T. A.," as it is called, is made up of manu- 
 facturers, jobbers, and the majority of retailers of the coun- 
 try. Agreements are reached as to both retail and whole- 
 sale prices, thus settling both the quantity-discount and 
 price-maintenance questions. Any manufacturer or jobber 
 who transgresses the rules established by agreement by giv- 
 ing inside prices to any buyer is immediately expelled, the 
 prices on his goods are generally cut thereafter by all deal- 
 ers, the stock in the hands of the dealers is disposed of 
 and is thereafter ordered only upon request of consumers. 
 Retailers who cut prices set by the P. A. T. A. are like- 
 wise 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 
 tendency when an organization such as the P. A. T. A. 
 becomes large and effective, to go farther than merely cor- 
 rect the abuses existing within and to lay tribute upon the 
 consumer. In other cases, the members of such organiza- 
 tions become unprogressive and assume an unnecessary 
 enmity towards all improvement. In view of these tenden- 
 cies, such associations need the corrective balance of the 
 one other party interested in their work — namely, the con- 
 sumer. Hence there is needed the supervision of the public. 
 
 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 gov- 
 
 1 Printers' Ink, April 2, 1914, p. 64. 
 
THE IDEAL RETAILING SYSTEM 369 
 
 erns 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 government and the offenders told 
 to limit their activities to fair methods. 
 
 One thing that the public can and should do for distri- 
 bution 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 the business done, the amounts of capital 
 invested, the character of retail store ownership, the rela- 
 tions of retail stores to jobbers and manufacturers, the num- 
 ber and kinds of employees and their wages and salaries, 
 the extent of the credit business, the costs of delivery, the 
 tendencies in consumer demands, and many more important 
 matters necessary to forming correct judgments concern- 
 ing 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 transportation, and of manufactures. In the 
 newly established Office of Markets in the Department of 
 Agriculture, the distribution 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 depart- 
 ment of government to determine the degree 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 
 
 2 In 1905. 
 
37# ECONOMICS OF RETAILING 
 
 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 
 efficiency 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 retail- 
 ing are mere samplings, and the judgments passed are but 
 little more than guesses. The demand for census taking 
 and investigation in the distributive business is one that the 
 government should neglect no longer. 
 
 It is probable that the greatest progress to come in retail- 
 ing 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 prob- 
 lem of distributing goods made by retailers and their sales- 
 people 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 dis- 
 tributors 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 agricul- 
 ture. Like agricultural education, the education for retail- 
 ers 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 better retailing can come only by slow de- 
 
THE IDEAL RETAILING SYSTEM 
 
 371 
 
 grees, and by improvement of one thing at a time. For 
 the best scientific results, there must be co-operation of both 
 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 consumers to become rational 
 in their demands and wiser in their purchases and con- 
 sumption. 
 
 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 success- 
 fully conducted. If present-day business practice alone 
 were to serve as the lesson to be studied, the schools would 
 have to 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 accom- 
 paniment, business must be made fit to teach. Machiavel- 
 lian training has no place in a public educational system. 
 Thus the coming of science and education into distribution 
 will help to accomplish what all business men of high prin- 
 ciple and broad vision desire to see, efBciency and honesty 
 of performance in this great and useful work. 
 
APPENDIX I 
 
 DISTRIBUTION OF FAMILY EXPENDITURES ^ 
 
 Ernest Engel (1821-96), while at the head of the Statistical Bureau 
 of Saxony, conducted extensive investigations of vvorkingmen'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 Income 
 Items of Expenditure $225-$300 $450-$600 $750-$l,000 
 
 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 1.00 2.00 3.00 
 
 Care of health 1.00 2.00 3.00 
 
 Comfort (mental and bodily- 
 recreation) 1.00 2.50 3.50 
 
 5.00% 10.00% 15.00% 
 
 From these tables Mr. Engel propounded four economic laws 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. 
 
 1 Quoted from Massachusetts Cost of Living Commission's Report, 1910. 
 
 373 
 
374 
 
 ECONOMICS OF RETAILING 
 
 Comparison of Five Investi 
 Percentages of Expendi 
 
 
 
 Rent 
 
 
 
 Fuel 
 
 AND Light 
 
 
 Income 
 
 
 L 
 
 
 5§ 
 
 Is 
 
 3 J 
 
 
 L 
 
 
 3 * 
 
 si 
 
 J3 J 
 
 
 d 
 
 en O 
 
 
 w-^ 
 
 m-^ 
 
 c 
 
 '-«.2 
 
 
 m-^ 
 
 PQ-^ 
 
 
 & 
 
 iJ 
 
 u 
 
 O 
 
 ^'t; 
 
 -^•-^ 
 
 & 
 
 i.^ 
 
 ^ 
 
 c/iJ 
 
 c/iH 
 
 
 6 
 
 i^ 
 
 D° 
 
 ;d° 
 
 G 
 
 x^ 
 
 ^ 
 
 ^o 
 
 ^° 
 
 Under $200 
 
 
 
 
 16.9 
 
 15.4 
 
 ... 
 
 
 ... 
 
 7.8 
 
 8.0 
 
 $ 200 to $ 300... 
 
 
 
 
 18.0 
 
 14.6 
 
 
 . . . 
 
 . . . 
 
 7.1 
 
 7.4 
 
 300 to 400. .. 
 
 
 
 30.5 
 
 18.6 
 
 14.9 
 
 . . . 
 
 . . . 
 
 6.5 
 
 7.0 
 
 6.9 
 
 400 to 500. . . 
 
 26.8 
 
 
 25.9 
 
 18.5 
 
 15.2 
 
 5.6 
 
 . . . 
 
 6.2 
 
 6.6 
 
 6.5 
 
 500 to 600. .. 
 
 25.9 
 
 17.5 
 
 22.4 
 
 18.4 
 
 15.1 
 
 5.9 
 
 5.4 
 
 6.0 
 
 6.1 
 
 6.5 
 
 600 to 700. .. 
 
 23.6 
 
 17.1 
 
 21.7 
 
 18.4 
 
 15.5 
 
 5.8 
 
 4.8 
 
 5.7 
 
 5.7 
 
 5.7 
 
 700 to 800. .. 
 
 21.9 
 
 15.6 
 
 21.2 
 
 18.1 
 
 15.6 
 
 5.0 
 
 4.8 
 
 6.4 
 
 5.2 
 
 5.2 
 
 800 to 900. .. 
 
 20.7 
 
 13.3 
 
 18.6 
 
 17.0 
 
 16.0 
 
 5.0 
 
 4.3 
 
 5.4 
 
 4.9 
 
 5.1 
 
 900 to 1,000. .. 
 
 19.0 
 
 13.6 
 
 17.6 
 
 17.5 
 
 14.9 
 
 5.1 
 
 4.0 
 
 4.8 
 
 4.9 
 
 4.7 
 
 1,000 to 1,100. . . 
 
 18.1 
 
 10.9 
 
 17.3 
 
 17.5 
 
 15.1 
 
 4.5 
 
 3.3 
 
 4.5 
 
 4.8 
 
 4.4 
 
 1,100 to 1,200. . . 
 
 16.2 
 
 . . . 
 
 . . . 
 
 16.5 
 
 12.2 
 
 3.8 
 
 
 
 4.6 
 
 3.8 
 
 1,200 to 1,300... 
 
 19.8 
 
 . . . 
 
 . . . 
 
 17.4 
 
 12.5 
 
 3.8 
 
 . • . 
 
 
 4.9 
 
 2.9 
 
 1,300 to 1,400. .. 
 
 16.8 
 
 . . . 
 
 18.0 
 
 . . . 
 
 . . . 
 
 3.6 
 
 . . • 
 
 4.5 
 
 
 
 1,400 to 1,500. .. 
 
 
 
 
 . . . 
 
 . . . 
 
 . . . 
 
 
 
 
 
 1,500 and over.. 
 
 16.3 
 
 15.3 
 
 16.2 
 
 
 
 4.1 
 
 2.7 
 
 3.2 
 
 
 
 Let us now take the results of a number of investigations, and test 
 their results by Engel's laws. The investigations 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 investigation was 
 an intimate study of 200 families on the lower west side of New York 
 City. 
 
 Investigation of the standard of living among workingmen's families 
 in New York City in 1907, by Robert Coit Chapin, under the auspices 
 of the New York State Conference of Charities and Correction and the 
 Russell Sage Foundation. This was an intensive study of 391 families. 
 
APPENDIX I 
 
 375 
 
 CATIONS OF Family Budgets 
 TURES, BY Income Groups 
 
 Cloth 
 
 [NG 
 
 
 Food 
 
 
 Su 
 
 NDRIES 
 
 c 
 a 
 
 6 
 
 1 
 
 s 
 6 = 
 
 en O 
 
 S.22 
 o P 
 
 2i 
 
 o 
 
 3 r? 
 
 it 
 
 6 
 
 
 o 
 
 3 § 
 •J 
 
 
 c 
 
 6 
 
 
 O 
 
 
 
 
 
 
 8.6 
 
 12.8 
 
 
 
 
 50.8 
 
 49.6 
 
 
 
 
 15.5 
 
 13.9 
 
 . . . 
 
 . . . 
 
 
 8.6 
 
 14.3 
 
 . . . 
 
 
 
 47.3 
 
 44.2 
 
 . . . 
 
 . . . 
 
 . . . 
 
 18.7 
 
 19.2 
 
 . . . 
 
 . . . 
 
 7.3 
 
 10.2 
 
 14.4 
 
 . . . 
 
 . . . 
 
 44.2 
 
 48.0 
 
 45.4 
 
 . . . 
 
 . . . 
 
 11.5 
 
 16.0 
 
 18.2 
 
 13.0 
 
 
 9.3 
 
 11.3 
 
 14.3 
 
 40.8 
 
 
 44.4 
 
 46.8 
 
 45.0 
 
 13.8 
 
 
 14.2 
 
 16.5 
 
 18.6 
 
 12.4 
 
 9.9 
 
 8.5 
 
 11.9 
 
 15.2 
 
 44.4 
 
 43.5 
 
 50.1 
 
 46.1 
 
 43.8 
 
 11.4 
 
 21.0 
 
 13.0 
 
 17.2 
 
 19.1 
 
 12.9 
 
 10.5 
 
 9.0 
 
 12.8 
 
 15.8 
 
 44.6 
 
 41.4 
 
 45.5 
 
 43.4 
 
 41.1 
 
 13.1 
 
 22.5 
 
 18.2 
 
 19.3 
 
 21.5 
 
 ]3.4 
 
 11.1 
 
 9.2 
 
 13.5 
 
 16.3 
 
 45.6 
 
 40.2 
 
 44.2 
 
 41.4 
 
 38.8 
 
 14.1 
 
 21.9 
 
 19.0 
 
 21.6 
 
 23.8 
 
 14.0 
 
 11.5 
 
 10.3 
 
 13.5 
 
 15.0 
 
 44.3 
 
 41.9 
 
 45.8 
 
 41.3 
 
 38.0 
 
 16.0 
 
 27.1 
 
 19.9 
 
 23.0 
 
 25.4 
 
 14.6 
 
 11.7 
 
 9.4 
 
 14.3 
 
 16.8 
 
 44.7 
 
 38.4 
 
 45.8 
 
 39.9 
 
 34.3 
 
 16.6 
 
 23.3 
 
 22.4 
 
 23.2 
 
 29.1 
 
 15.5 
 
 11.5 
 
 10.8 
 
 15.0 
 
 17.5 
 
 44.7 
 
 33.3 
 
 43.6 
 
 38.7 
 
 34.7 
 
 17.1 
 
 24.2 
 
 23.8 
 
 23.6 
 
 28.1 
 
 14.9 
 
 
 
 14.8 
 
 16.5 
 
 45.6 
 
 
 
 37.6 
 
 30.6 
 
 19.5 
 
 
 
 26.1 
 
 36.7 
 
 15.2 
 
 
 
 15.7 
 
 15.7 
 
 45.0 
 
 
 
 36.4 
 
 28.6 
 
 16.2 
 
 
 
 25.4 
 
 40.0 
 
 13.7 
 
 ... 
 
 11.3 
 
 ... 
 
 ... 
 
 43.6 
 
 ... 
 
 39.5 
 
 ... 
 
 ... 
 
 22.3 
 
 
 26.7 
 
 
 ... 
 
 16.8 
 
 10.2 
 
 16.6 
 
 
 
 36.8 
 
 21.0 
 
 35.8 
 
 ... 
 
 ... 
 
 26.6 
 
 25.1 
 
 28.2 
 
 ... 
 
 ... 
 
 Investigation of the Homestead Commission in Washington, D. C, 
 made in 1907, and based upon the budgets of 2,078 famihes. 
 
 The accompanying table enables us to compare the results of these 
 five investigations. It gives the percentage of expenditure for various 
 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 decreas- 
 ing proportion expended for rent. For New York this is 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 precentages very 
 nearly agree for all the investigations. 
 
376 ECONOMICS OF RETAILING 
 
 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 percentages of expenditure 
 for clothing in each income group in the different investigations. 
 Engel's law with regard to clothing — that the percentage of expendi- 
 ture 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 $700-$800 and $80{>-$900 groups the figures for dif- 
 ferent 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 locali- 
 ties and at different times, and studied by various methods. 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 $1^ 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 II 
 
 STATISTICS OF TRADING CONCERNS IN MASSA- 
 CHUSETTS 
 
 Classification of Trading Concerns in Massachu- 
 setts BY Manner of Selling 
 
 Number 
 
 Retail 
 
 24,522 
 
 $120,065,311 
 
 Wholesale ... 
 
 3,315 
 
 109,952,787 
 
 Jobbing 
 
 480 
 
 16,777,443 
 
 Commission . . 
 
 570 
 
 24,255,758 
 
 Exporting . . . 
 
 12 
 
 237,500 
 
 Importing . . . 
 
 129 
 
 15,516,364 
 
 Exporting and 
 
 
 
 importing . . 
 
 17 
 
 1,161,293 
 
 Capital Value Goods Sold Wages 
 
 $ 444,984,052 $ 849,075 
 
 510,016,634 359,150 
 
 81,017,798 56,926 
 
 253,670,922 48,048 
 
 2,492,083 389 
 
 83,540.190 13.644 
 
 8,519,704 
 
 3,254 
 
 Salaries 
 
 $ 78,206 
 
 152,492 
 
 32,924 
 
 29,711 
 
 627 
 
 13,735 
 
 2,218 
 
 Z17 
 
APPENDIX III 
 
 GENERAL STATISTICS OF RETAIL TRADE 
 
 General Summary of Massachusetts Trading Con- 
 cerns 
 
 Number of establishments 29,045 
 
 Dealing in raw materials 1,682 
 
 Dealing in food products 14,224 
 
 Dealing in manufactured goods 13,139 
 
 Total capital invested $287,966,456 
 
 Raw materials $42,897,034 
 
 Food products 71,708,282 
 
 Manufactured goods 173,361,140 
 
 Value of goods sold $1,384,161,383 
 
 Raw materials $270,159,171 
 
 Food products 448,002,405 
 
 Manufactured goods 665,999,807 
 
 Total number of wage earners 129,129 
 
 Males 90,332 
 
 Females 38,797 
 
 Total number of salary earners 15,330 
 
 Males 13,031 
 
 Females 2,299 
 
 Retail stores — total 24,522 
 
 Raw materials 1,038 
 
 Food products 12,441 
 
 Manufactured goods 11,043 
 
 Weekly Wages Paid by Trading Concerns in Massa- 
 chusetts IN 1904 
 
 Weekly Wage Males Females Both 
 
 Under $3 2,248 1,970 4,218 
 
 $ 3 to $ 4 2,524 2,909 5,433 
 
 4 to 5 2,696 3,848 6,544 
 
 5 to 6 3,471 5,766 9,237 
 
 6 to 7 3,914 8,526 12,440 
 
 7 to 8 3,379 4,452 7,831 
 
 378 
 
379 
 
 Females 
 
 Both 
 
 3,639 
 
 7,843 
 
 2,082 
 
 8,693 
 
 3,683 
 
 17,645 
 
 1,838 
 
 25,517 
 
 819 
 
 16,875 
 
 265 
 
 6,853 
 
 APPENDIX III 
 
 Weekly Wage Males 
 
 8 to 9 4,204 
 
 9 to 10 6,611 
 
 10 to 12 14,962 
 
 12 to 15 23,679 
 
 15 to 20 16,056 
 
 20 6,588 
 
 Total 90,332 38,797 129,129 
 
 Weekly Salaries Paid by Trading Concerns in Massa- 
 chusetts IN 1904 
 
 Weekly Salaries Males Females Both 
 
 Under $ 5 556 99 655 
 
 $ 5 to $ 6 293 174 467 
 
 6 to 7 339 273 612 
 
 7 to 8 261 269 530 
 
 8 to 9 345 297 642 
 
 9 to 10 341 183 524 
 
 10 to 12 890 332 1,222 
 
 12 to 15 1,767 369 2,136 
 
 15 to 20 2,524 216 2,740 
 
 20 5,715 87 5,802 
 
 Total 13,031 2,299 15,330 
 
 Retail Store Statistics for Massachusetts, 1904 
 
 Number Capital Sales ^^^^ ^,^Z 
 
 Total retail Stores.. 24,522 $120,065,311 $444,984,052 $849,075 $78,206 
 
 Dealing in raw ma- 
 terials 1,038 11,308,916 41,946,360 80,584 8,361 
 
 Dealing in food prod- 
 ucts 12,441 30,968,451 181,258,332 319,437 15,327 
 
 Dealing in manufac- 
 tured goods ....11,043 77,287,944 221,779,360 449,054 54,518 
 
 Deductions from Massachusetts Trade Census Re- 
 garding Food-Selling Stores, 1905 
 
 Total number of retail stores selling food of all kinds 12,441 
 
 Average capital invested $2,489 
 
 Average sales $14,569 
 
 Ratio of food stores to population 1 store to 241 people 
 
38o 
 
 ECONOMICS OF RETAILING 
 
 Average Population to Each Kind of Retail Store 
 FOR Census Years (Massachusetts) 
 
 Line of Business 
 
 1875 
 
 1880 
 
 1885 
 
 1890 
 
 1895 
 
 Drugs and medicines 
 
 Boots and shoes 
 
 Carpets 
 
 China, glass, and crockery 
 
 Dry-goods 
 
 Fancy goods 
 
 Furniture 
 
 Glassware 
 
 Groceries 
 
 Hats, caps, and furs .... 
 Jewelry, watches, and 
 
 plate 
 
 Kid gloves 
 
 Kitchen-furnishing goods 
 Laces, embroideries, etc.. 
 Men's and boys' clothing. 
 Men's furnishing goods . . 
 
 Millinery 
 
 Music 
 
 Small wares 
 
 Sporting goods 
 
 Stationery 
 
 Toys 
 
 Trunks, bags, and valises 
 
 Upholstery goods 
 
 Women's clothing and 
 furnishing goods 
 
 1,461 
 1,809 
 
 20,113 
 7,433 
 2,023 
 1,828 
 2,295 
 
 13,653 
 
 357 
 
 3,454 
 
 3,419 
 
 48,846 
 
 34,129 
 
 31,084 
 
 2,590 
 
 5,999 
 
 2,178 
 
 21,370 
 
 12,211 
 
 34,919 
 
 5,605 
 
 68,384 
 
 12,664 
 
 11,397 
 
 17,996 
 
 1,481 
 2,199 
 
 21,343 
 9,304 
 2,573 
 2,356 
 2,555 
 
 15,514 
 
 383 
 
 4,269 
 
 3,702 
 
 45,355 
 
 24,189 
 
 32,985 
 
 4,123 
 
 8,246 
 
 2,147 
 
 19,097 
 
 22,677 
 
 72,568 
 
 4,970 
 
 51,834 
 
 18,142 
 
 13,955 
 
 32,985 
 
 1,555 
 2,193 
 
 16,266 
 8,873 
 2,585 
 2,730 
 2,656 
 
 17,745 
 
 394 
 
 4,593 
 
 3,308 
 
 39,309 
 
 35,490 
 
 24,400 
 
 3,683 
 
 6,100 
 
 2,638 
 
 26,026 
 
 16,974 
 
 43,377 
 
 5,005 
 
 78,079 
 
 18,590 
 
 15,015 
 
 24,400 
 
 1,563 
 2,076 
 
 22,424 
 8,305 
 2,398 
 3,900 
 2,970 
 
 15,465 
 
 392 
 
 5,750 
 
 3,559 
 
 74,746 
 
 26,381 
 
 56,060 
 
 3,274 
 
 5,215 
 
 2,893 
 
 32,034 
 
 28,030 
 
 48,831 
 
 5,901 
 
 56,060 
 
 17,249 
 
 16,017 
 
 28,030 
 
 1,510 
 
 1,656 
 19,877 
 11,043 
 
 2,643 
 
 4,688 
 
 3,227 
 
 14,615 
 
 360 
 
 6,538 
 
 3,736 ^ 
 62,115 
 23,663 
 33,128 
 
 2,940 
 
 5,286 
 
 2,199 
 23,663 
 38,225 
 33,128 
 
 6,999 
 82,820 
 23,663 
 16,564 
 
 29,231 
 
 Average Population to All Kinds of Stores for Cen- 
 sus Years (Massachusetts) 
 
 Census Years 
 
 Population 
 
 1875 341,919 
 
 3880 362,839 
 
 1885 390,393 
 
 1890 448,477 
 
 1895 496,920 
 
 Number of 
 
 Stores 
 Considered 
 
 2,734 
 2,571 
 2,701 
 3,010 
 3,499 
 
 Average 
 Population to 
 Each Store 
 
 125 
 341 
 145 
 149 
 142 
 
APPENDIX III 381 
 
 Comparison of the Number of " Departments " in 
 
 Department Stores with the Number of 
 
 Retail Stores in Boston in 1899 
 
 Classification of De- Number 
 
 partments and Stores Departments 
 
 Apothecaries (drugs and medicines) . 4 
 
 Boots and shoes 16 
 
 Carpets 8 
 
 China, glass, and earthenware 9 
 
 Dry-goods 54 
 
 Fancy goods 16 
 
 Furniture 5 
 
 Glassware 5 
 
 Groceries 5 
 
 Hats, caps, and furs 9 
 
 Jewelry, watches, and plate 14 
 
 Kid gloves 12 
 
 Kitchen-furnishing goods 7 
 
 Laces, embroideries, etc 30 
 
 Men's and boys' clothing 9 
 
 Men's furnishing goods 16 
 
 Millinery 11 
 
 Music 5 
 
 Small wares 27 
 
 Sporting goods 3 
 
 Stationery 8 
 
 Toys 6 
 
 Trunks, bags and valises 13 
 
 Upholstery goods 7 
 
 Women's clothing and furnishing 
 
 goods 85 23 369.57 
 
 Not classified 33 . . 
 
 Number of 
 
 Percentage of 
 
 Retail 
 
 Departments to 
 
 Stores 
 
 Retail Stores 
 
 328 
 
 1.22 
 
 321 
 
 4.98 
 
 31 
 
 25.81 
 
 42 
 
 21.43 
 
 225 
 
 24.0 
 
 94 
 
 17.02 
 
 184 
 
 2.72 
 
 30 
 
 16.67 
 
 1,695 
 
 0.30 
 
 87 
 
 10.34 
 
 157 
 
 8.92 
 
 9 
 
 133.33 
 
 22 
 
 318.2 
 
 15 
 
 200.0 
 
 201 
 
 4.48 
 
 96 
 
 16.67 
 
 242 
 
 4.55 
 
 20 
 
 25.00 
 
 14 
 
 192.86 
 
 14 
 
 21.43 
 
 76 
 
 10.53 
 
 3 
 
 200.00 
 
 17 
 
 76.47 
 
 37 
 
 18.92 
 
APPENDIX IV 
 
 DEALERS IN -THE UNITED STATES IN 1913 ^ 
 
 ; Wholesale Retail 
 
 Agricultural implement dealers 240 15,912 
 
 Animal, bird, and goldfish 420 
 
 Art stores and picture 1,900 
 
 Automobile 10,200 
 
 Bakers 620 25,788 
 
 Bicycle 5,013 
 
 Booksellers and stationers 11,954 
 
 Booksellers and stationers (second hand) 108 
 
 Boot and shoe 522 20,104 
 
 Butchers and meat markets 781 62,798 
 
 Butter and eggs 1,194 
 
 Carpet 83 19,316 
 
 Cattle dealers and shippers 20,100 
 
 Cheese 263 
 
 China, crockery, and glassware 340 2,861 
 
 Cigars and tobacco 1,991 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 43,239 
 
 Dry-goods 725 30,787 
 
 Electrical supplies 424 3,272 
 
 Fancy goods and notions exclusive 786 3,759 
 
 Feed, flour, and grain 1,572 19,839 
 
 Fish 950 
 
 Fishing tackle 3,885 
 
 Five and ten cent — independent 1,054 
 
 Florists 1,765 8,482 
 
 Fruit 1,831 10,087 
 
 Furs (ra^r) 305 
 
 Fur garments 2,334 
 
 Furniture 307 16,131 
 
 Furniture (second-hand) 2,175 
 
 Gas and electric fixtures 2,476 
 
 General stores 144,933 
 
 Glass, oils, and paint 605 29,533 
 
 Glove 63 
 
 1 From R. G. Dun and Company's list as compiled by the Rapid Addressing 
 Machine Companv. 
 
 382 
 
APPENDIX IV 
 
 383 
 
 Wholesale Retail 
 
 Grain dealers 1,210 16,783 
 
 Grocers 3,840 172,043 
 
 Gun 3,885 
 
 Hair-goods 1,037 
 
 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 11,092 
 
 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 
 
 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 
 
384 ECONOMICS OF RETAILING 
 
 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 are probably about 43,239 places where drugs are sold, 
 20,881 hardware stores, and so on. 
 
APPENDIX V 
 
 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 building, 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. 
 
 -;*^2, When you have ascertained what the sum of all the foregoing-r^ p 
 /y items amounts to, prove it by your books, and you will have your total ^ 1^1 
 I / 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../ =■ , 
 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 
 y (invoice price and freight), and the result will show your net profit or 
 \ loss on the article. • . * 
 
 ^TTfTGo 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 com- 
 petitor as well. 
 
 1 Recommended by the National Association of Credit Men. 
 
APPENDIX VI 
 
 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 de- 
 livering 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 station and inspectors and bundle wrappers were 
 placed at the central wrapping stations. It was thought that this divi- 
 sion 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 decentralization, 
 particularly of the inspecting and wrapping of merchandise. It begins 
 to appear that the centralization of these functions did not bring in- 
 creased efficiency in all cases, and that customers seem to be best 
 pleased when the operations 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 central sta- 
 tions or by individual salespeople in their departments is a matter upon 
 which the widest difference of opinion seems to prevail. The makers of 
 devices to be used both for centralized and decentralized systems claim 
 advantages and arguments over each other that are hard to reconcile. 
 Testimonials 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 : 
 
 386 
 
APPENDIX VI 
 
 387 
 
 Arguments in favor of a de- 
 centralized system of handling 
 cash by means of cash registers. 
 
 1. Takes less time to make 
 
 change. 
 No waits for money to go 
 to cashiers. No delays 
 such as due to stoppage 
 of tubes, broken cables, de- 
 lays of cashiers, etc. 
 
 2. Cost less. 
 
 Small cost of up-keep. No 
 power plant required. 
 
 3. Saves steps for salespeople. 
 
 Easy to move cash registers 
 to convenient locations. 
 
 4. Takes up little room and adds 
 
 to attractiveness of store. 
 
 5. Insures protection of store's 
 
 cash. 
 Claimed that carriers do not. 
 
 6. Salesperson made responsible. 
 
 A good thing. Salesman- 
 ship improved. Waits for 
 change over carrier sys- 
 tems are embarrassing. 
 Customers are better 
 pleased when salesperson 
 gives entire service re- 
 quired. Disputes can be 
 settled on the spot. All 
 parties to the transaction 
 close at hand. 
 
 Arguments in favor of a cen- 
 tralized system for handling cash 
 by means of pneumatic tubes or 
 other forms of carriers. 
 
 1. Takes less time to make 
 
 change. 
 No waits because of sales- 
 people waiting their turns 
 at cash registers. Change 
 made by expert cashiers 
 while salespeople wrap 
 parcels. 
 
 2. Cost less. 
 
 Small operating expense. 
 
 3. Saves steps for salespeople. 
 
 Easy to provide convenient 
 tube or cable stations. 
 For the price of a multiple 
 drawer cash register, three 
 or four tube stations can 
 be installed. 
 
 4. Takes up less room than cash 
 
 registers in sales depart- 
 ments. 
 
 5. Insures protection of store's 
 
 cash. 
 Claimed that cash registers 
 do not. 
 
 6. Responsibility removed from 
 
 salesperson. 
 A good thing. Salesman- 
 ship improved. Sales- 
 people do not have to 
 think about cash. Can 
 give whole time to selling 
 more goods. 
 
388 
 
 .ECONOMICS OF RETAILING 
 
 7. Miscellaneous. 
 
 Easy to audit from printed 
 record. No expenses for 
 cashiers. Receipt plan re- 
 duces salesperson's tempta- 
 tion to dishonesty. Not 
 necessary to make out 
 sales slips in some depart- 
 ments, when cash register 
 receipts are given out. 
 Salespeople like registers. 
 
 7. Miscellaneous. 
 
 Constant control over, and 
 easy access to, cash when 
 centralized. Expenses for 
 cashiers distributed among 
 salespeople when cash reg- 
 isters are used. Sales- 
 people cannot detect coun- 
 terfeits. Cashiers can. 
 Salespeople like carrier 
 and tube systems. 
 
APPENDIX VII 
 
 JUDICIAL AND OTHER ACTION AFFECTING 
 PRICE-MAINTENANCE 
 
 Instances of state courts holding for price-maintenance: 
 Ice Co. V. Parker, 21 How. Pr. (N. Y.) 302 (1861). 
 Clark V. Frank, 17 Mo. App. 602 (1885). 
 Walsh V. Dwight, 58 N. Y. Supp. 91 (1899). 
 Garst V. Harris, 177 Mass. 72 (1900). 
 
 Commonwealth v. Grinstead, 63 S. W. Rep. (Ky.) 427 (1901). 
 Park & Sons Co. v. Nat. Wholesale Druggists' Assn., 175 N. Y. 
 1 (1903). 
 
 Recent state court decisions favoring the price-maintenace policy: 
 Grogan v. Chaffee, 156 Cal. 611 (1909). 
 
 Ghirardelli v. Hunsicker, 128 Pac. Rep. (Cal.) 1041 (1912). 
 Fisher Flouring Mill Co. v. Swanson, 137 Pac. Rep. (Wash.) 
 144 (1913). 
 
 Instances of Federal courts sustaining price-maintenance: 
 Dr. Miles Medical Company v. Goldsmith, 133 Fed. 794. 
 Dr. Miles Medical Company v. Piatt, 142 Fed. 606. 
 Hartman v. John D. Park & Sons Co., 145 Fed. 358. 
 Wells & Richardson v. Abraham, 146 Fed. 190. 
 
 In the case of Fisher Flouring Mills Co. v. C. A. Swanson, Supreme 
 Court of Washington, decision rendered December 13, 1913, the Court 
 closed its argument with the following statement: 
 
 " Finally, it seems to us an economic fallacy to assume that the 
 competition, which in the absence of monopoly, benefits the public, 
 is competition between rival dealers. The true competition is be- 
 tween rival articles, a competition in excellence, which can never be 
 maintained if, through the perfidy of the retailer who cuts prices for 
 his own ulterior purposes, the manufacturer is forced to compete in 
 prices with goods of his own production, while the retailer recoups 
 his losses on the cut price by the sale of other articles, at, or above, 
 their reasonable price. It is a fallacy to assume that the price cutter 
 pockets the loss. The public makes it up on other purchases. The 
 
 389 
 
390 
 
 ECONOMICS OF RETAILING 
 
 manufacturer alone is injured, except as the public is also injured 
 through the manufacturer's inability, in the face of cut prices, to 
 maintain the excellence of his product. Fixing the price on all brands 
 of high grade flour is a very different thing from fixing the price on one 
 brand of high grade flour. The one means the destruction of all compe- 
 tition and of all incentive to increased excellence. The other means 
 heightened competition and intensified incentive to increased excel- 
 lence. It would not do to say that the manufacturer has no interests 
 to protect by contact in the goods after he has sold them. They 
 are personally identified and morally guaranteed by his mark and 
 advertisement." 
 
 The state of New Jersey enacted a law in the spring of 1913, 
 legalizing price-maintenance. Since this is the first enactment of this 
 kind in this country, the statute is quoted in full: 
 
 An Act to Prevent Unfair Competition, and Unfair Trade 
 Practices 
 
 " Be it enacted by the Senate and General Assembly of the State 
 of New Jersey. It shall be unlawful for any merchant, firm, or 
 corporation, for the purpose of attracting trade for other goods, to 
 appropriate for his or their own ends a name, brand, trade-mark, 
 reputation or good will of any maker in whose product said merchant, 
 firm or corporation deals, or to discriminate against the same, by 
 depreciating the value of such products in the public mind, or by 
 misrepresentation as to value or quality or by price inducement or 
 by unfair discrimination between buyers, or in any other manner 
 whatsoever, except in cases where said goods do not carry any 
 notice prohibiting such practice, and excepting in case of a receiver's 
 sale, or a sale by a concern going out of business. 
 
 "Any person, firm, or corporation violating this act shall be liable 
 at the suit of the maker of such branded or trade-marked goods, 
 or any other injured person, to an injunction against such practices, 
 and shall be liable in such suit for all damages directly or in- 
 directly caused to the maker by such practices, which said damages 
 may be increased threefold, in the discretion of the Court. 
 
 "This act shall take effect immediately" (April 1, 1913). 
 
 In the latter part of the 90's, an attempt was made to read the 
 right to maintain resale prices into the Copyright and Patent Acts, 
 but in recent decisions of five judges against four, the Supreme Court 
 has decided that the patent and copyright acts do not give this right 
 to the holders of patents or copyrights. In deciding thus the court 
 has probably acted in a thoroughly logical manner. Certainly Con- 
 gress did not have price-maintenance in mind when these acts were 
 
APPENDIX VII 391 
 
 passed. Price-standardization was then an undreamed of need of 
 business. Thus the decisions have little or no significance, so far as 
 the question of the right or wrong of price-maintenance is con- 
 cerned. They have merely settled technical legal points. 
 
 A decision of a Federal court in 1896, known as the " Button 
 Fastner Case" (Heaton Peninsular Button Fastner Co. v. Eureka 
 Specialty Co., 77 Fed. 228) gave to manufacturers who desired 
 to employ the price-maintenance policy the belief that price-main- 
 tenance could be applied by law under the Patent Act. In this case 
 a manufacturer and patentee of a machine used in fastening shoe 
 buttons by means of metallic staples, sold the machine to shoe dealers 
 all over the country with the limitation that no other staples than 
 those made and sold by this company should be used in the machine. 
 The staples were not patented and could easily be made. A rival 
 concern began putting out a supply, and the button fastener company 
 sought to restrain this concern as infringers of its patent right, the 
 "sole right to make, use, and sell" their patented product. The 
 Federal court held that the " sole right to use " gave the patentee the 
 privilege of selling that right with restrictions as to what could be 
 used with the patented machine and granted an injunction against 
 the rival staple manufacturer. 
 
 It was thought by those who wished to market their goods under 
 maintained price rules that, under this decision if an article were 
 patented, its resale price could be fixed by the patentee. In accordance 
 with this view manufacturers of patented specialties began soon after to 
 stamp their goods with notices to the effect that retail prices named by 
 the producer must be charged. The opponents of price-maintenance, 
 some department stores, the so-called cut-rate stores, and the mail order 
 houses, were loath to follow the instructions in these resale notices, and 
 trouble resulted. In 1903 the first price-maintenance case under the 
 Patent Act was tried, and was decided in favor of price-maintenance. 
 This case was the Victor Talking Machine Company v. Fair Depart- 
 ment Store of Chicago (123 Fed. 424). More than a score of similar 
 cases came up in the next six or seven years in Federal and State 
 courts, most all of which were decided in a similar manner, that is, 
 in favor of price-maintenance. 
 
 The Copyright Act was worded in a manner much the same as the 
 Patent Act and it was therefore supposed that it also gave the 
 right to restrict the resale prices as well as the Patent Act. Under 
 this supposition, the American Publishers' Association, including 
 75 per cent of the book publishers of the country, was organized 
 to prevent price-cutting in the selling of books. The first cases 
 were brought both by and against the R. H. Macy Department Store, 
 of New York City. 
 
392 ECONOMICS OF RETAILING 
 
 Two suits, begun by Bobbs-Merrill and Scribners (Bobbs-Merrill 
 Co. V. Strauss, 210 U. S. 339), against this store were pushed to the 
 Supreme Court of the United States, and there it was decided in 1908 
 that the Copyright Act did not give to the publisher the right to 
 fix the resale price by notice printed on the back covers of the 
 books. 
 
 Another case followed in the U. S. Supreme Court in 1911, the 
 Dr. Miles Medical Co. v. J. D. Park & Sons Co. (220 U. S. 373). 
 The Miles medicines were sold to dealers with price-maintenance 
 restrictions. J. D. Park & Sons Co., wholesale druggists, obtained sup- 
 plies of the Miles medicines and sold them to retailers, who in turn 
 sold them at cut prices to the public, just as cut price druggists are 
 now doing, and for exactly the same reasons, merely to attract trade 
 and to sell other goods upon which large profits could be obtained. 
 The Supreme Court held that price-maintenance in this case, and as 
 eflfected by the Dr. Miles Medical Company constituted unreason- 
 able restraint of trade under the Sherman Anti-Trust Act. 
 
 On March 11, 1912, the United States Supreme Court decided a 
 case known as Henry v. A. B. Dick & Co. (224 U. S. 1) which had 
 an indirect bearing on the price-maintenance question. The court 
 upheld the A. B. Dick Company in its restrictions on the use of the 
 mimeograph, with the stencil paper, ink, and other supplies made only 
 by Dick & Co., as a patent right. It was believed by many that this 
 decision indicated that there would no longer be any question that 
 under the patent law, the owner of a patent would have the power 
 of fixing resale prices, and manufacturers who were not producing 
 patented articles but who wished to maintain prices began to look 
 around for something to patent in connection with their product 
 that would bring them under the protection of the Patent Act. One 
 of these was the Kellogg Toasted Corn Flake Company, which 
 patented its package or container and is seeking to maintain the prices 
 of its corn flakes under the patent law. 
 
 But hope for price-maintenance, based on the Dick decision, was 
 soon destroyed. At the time the Dick decision was rendered, there 
 were only eight judges on the bench and one of these did not take 
 part in the case. Of the seven judges who listened to the case, four, 
 a majority, concurred in the opinion of the court, while three dis- 
 sented. 
 
 In the next case to come before the court, affecting price-main- 
 tenance under the patent law, known as " The Sanatogen Case," Bauer 
 Chemical Co. v. O'Donnell (229 U. S. 1, May 26, 1913), the full court 
 of nine judges took part. The three judges who dissented in the Dick 
 case were joined by the two who had not taken part in that case, thus 
 
APPENDIX VII 393 
 
 making a majority of five against price-maintenance. Several cases have 
 since been tried but the court in each case has held to the views ex- 
 pressed in the Sanatogen case. 
 
 The European courts seem to sustain and enforce price-main- 
 tenance contracts uniformly. 
 
 Denmark has a statute specifically permitting price-maintenance. 
 This act, passed in June, 1912, reads as follows: 
 
 " It is also forbidden to sell, or offer for sale, goods in original 
 wrappers from producers or jobbers, upon which their fixed prices 
 for the retail trade have been indicated, at a lower price, unless the 
 sale is of the kind mentioned in section 6 (namely, sales of damaged 
 goods, sales growing out of going out of business, removal, etc.) 
 or unless the permission of the producer or jobber or other sanction 
 equal thereto has been granted. Violations may, according to cir- 
 cumstances, be punished by fine of not more than 2,000 kroner. 
 
 "Where violations of this law have taken place, and any indi- 
 vidual, person, or business has suffered thereby, the courts are, 
 while prosecuting the case originating in the violations, warranted 
 in awarding an indemnity of not more than 1,000 kroner to the 
 person or business injured, without regard to the fact that proof 
 as to the extent of the damage .cannot be produced." (Sec. 15.) 
 
 Price-maintenance contracts were enforced under the decisions 
 of English courts in the following cases: 
 
 Elliman Sons & Co. v. Carrington & Sons, 2 Ch. Div. 275 (1901). 
 National Phonograph Co. v. Edison-Bell Co., 1 Ch. Div. 335 
 
 (1908). 
 Dunlop Pneumatic Tyre Co., Ltd., v. Selfridge & Co., Ltd., 29 
 
 T. L. R. 270 (1913). 
 Ford Motor Co. v. Armstrong, decided in 1914, not yet reported. 
 Dunlop Pneumatic Tyre Co., Ltd., v. New Garage Co., decided 
 
 July 1, 1914, not yet reported. 
 
 German courts have likewise favored price-maintenance. 
 
 Jandorf v. Incorporated Assn. of Manufacturers of Branded 
 Articles; Berlin Geschaftsnummer, 73,0, 179.05, 48 VI, 489.06. 
 
 Efforts are being" made at the present writing, May, 1915, to %tt 
 national legislation permitting price-maintenance. The Stevens Bill, 
 H. R. 13,305, introduced in Congress February 12, 1914, provides 
 that contracts for the sale of trade-marked or branded merchandise for 
 the purpose of prescribing uniform resale prices shall be legal under 
 certain conditions and restrictions; Another bill, known as the Metz 
 
394 ECONOMICS OF RETAILING 
 
 Bill, embodying similar features but with fewer restrictions was 
 introduced at about the same time. 
 
 The American Fair Trade League, an organization of manu- 
 facturers, wholesalers, retailers, and consumers, with headquarters 
 in New York City, was formed in 1913 and has since actively worked 
 for the passage of the Stevens Bill. This organization has had the 
 active support of such people as Louis D. Brandeis; Mrs. Christine 
 Frederick, Consulting Editor of Ladies' Home Journal; Mrs. Julian 
 Heath, President of the National Housewives' League; Alfred D. 
 Woodruff, Food Supply Expert of the New York Association for 
 Improving the Conditions of the Poor; Dr. Lee Galloway, New York 
 University; Dr. Thomas Conway, Jr., University of Pennsylvania; 
 as well as a large number of prominent men engaged in various 
 lines of business. 
 
 The Chamber of Commerce of the United States of America, 
 at its annual meeting in 1914, provided for the organization of a 
 special committee on the maintenance of resale prices to study and 
 analyze the questions involved. 
 
 This committee, as originally appointed, was composed of Professor 
 Paul T. Cherington, Harvard University, Chairman; Geo. M. Courts, 
 Galveston, Texas, President of United Typothetae and Franklin Clubs 
 of America; Henry B. Joy, of Packard Motor Car Company, De- 
 troit, Mich.; F. W. Whitcher, of Frank W. Whitcher Co., 14 Albany 
 St., Boston, Mass.; Professor Paul H. Nystrom, University of Min- 
 nesota; Charles A. Stix, of Stix, Baer & Fuller Dry Goods Co., 
 St. Louis, Mo.; Edward S. Rogers, Attorney, Chicago, 111.; Frank 
 H. Armstrong, of Reid Murdock & Co., Chicago, 111.; James F. 
 Finneran, of National Association of Retail Druggists, Boston, Mass. 
 Later the name of F. H. Rike, President of the Rike-Kumler Co., 
 Dayton, Ohio, was added. 
 
 This committee held a meeting at Washington, February 2 and 3, 
 1915, at which a preliminary report was made. Upon instructions 
 from the Chamber, the committee continued its work, and prepared 
 to present its first complete report in December, 1915. 
 
INDEX 
 
 Accounting, retail, 70-78 (See also 
 
 " Cost Accounting ") 
 Advertising, 165, 166 
 bargain, 201-204 
 by department stores, 202-204, 
 
 212 
 by large retail stores, 270 
 by mail order houses, 241, 242, 
 
 249, 251, 252 
 public regulation of, 360 
 truthful, 360 
 Age and demand, 42, 43 
 American Economic Association, 
 studies of retail distribution 
 by, 66-68 
 American Fair Trade League, 393, 
 
 394 
 American Federation of Labor, 
 
 110 
 Annuities for salesmen, 103 
 Architecture, store, 155, 156 
 Aristotle, on retailing, 16 
 Atlanta, revenue from business 
 
 taxes in, 347 
 Augusta, revenue from business 
 taxes in, 347 
 
 Bacon, Sir Francis, 18 
 Bagmen, 29 
 
 Balconies, in retail stores, 159 
 Banking departments in depart- 
 ment stores, 199 
 
 Banks, credit information function 
 of, 31, 32 
 
 Bargain advertising, 201-204 
 
 Bargain basements, 156 
 
 Bargain sales, 201-204 
 
 Basements in retail stores, 156 
 
 Beloit, Wis., changes in retail firms 
 in, 312, 313 
 
 Birmingham, revenue from busi- 
 ness taxes in, 347 
 
 Bobbs-Merrill Co. v. Strauss, 392 
 
 Bonuses, 
 in chain stores, 231, 232 
 for salesmen, 102, 103, 104, 105 
 
 Boston, retail trade in, 65, 66, 323, 
 380 
 
 Boys, salaries of, 100 
 
 Brad street Company, 31 
 classification of business failures 
 
 by, 313, 314 
 failure estimates of, 303 
 lists of dealers of, 66 
 
 Budgets, workingmen's family, 50- 
 52, 373-376 
 
 Building rent, 119, 120 (See also 
 " Rent ") 
 increase in, 129 
 
 Buildings for retail stores, 155, 156 
 
 Burroughs Adding Machine Com- 
 pany, 71, 76, 77 
 
 Business failures (See "Fail- 
 ures ") 
 
 Business literature, 18-22 
 
 Business lots, value of, by depth, 
 168-170 
 
 Business taxes, 337-356 
 
 395 
 
396 
 
 INDEX 
 
 Business taxes — continued 
 arguments against, 349, 350 
 arguments for, 350-352 
 court decisions on, 354 
 in Canada, 345 
 in France, 343-345 
 in Germany, 344, 345, 352 
 in United States, 
 Federal, 345, 346 
 state and city, 346, 347 
 methods of assessing, 342, 343 
 object of, 339-341 
 on department stores, 344, 345, 
 
 352, 354 
 scope of, 341, 342 
 shifting and incidence of, 347, 
 348 
 Button Fastner case, 391 
 Buyers for mail order houses, 246- 
 
 248 
 Buying at inside prices, 277-299 
 Buying expenses, 73 
 
 Canada, business taxes in, 345 
 Canned foods, 55, 56 
 Capital, 
 
 activity of, 181, 182 (See also 
 "Turnovers") 
 
 source of, 309-311 
 Cash discount, 34, 280-282 
 Cash, methods of handling, 386- 
 
 388 
 Cash registers, arguments for, 387, 
 
 388 
 Catalogs of mail order houses, 242 
 Central stores, 140 
 Chain stores, 216-234 
 
 advantages of, 224-226 
 
 bonuses in, 231, 232 
 
 consolidation of, 233 
 ' c6nsumers' co-operative, 222, 223 
 
 disadvantages of, 226, 227 
 
 Chain stores — continued 
 in Europe, 218 
 in the United States, 216-218 
 jobbers', 220, 221 
 manufacturers', 221, 222 
 organization of, 227-232 
 prospects for, 233 
 retailers', 219, 220 
 salaries in, 231 
 tendency toward, 361, 362 
 Chamber of Commerce of United 
 States, committee on main- 
 tenance of resale prices, 394 
 Chapmen, 29 ^ 
 
 Charleston, revenue from business I 
 
 taxes in, 347 
 Chicago, as a wholesale center, 34 
 Children as consumers, 42, 43 
 Cicero, on merchants, 16 
 Cigars, annual consumption of, 146 
 Cities, business taxation in, 346, 
 
 347 
 City markets, 145, 146 
 Clinton, Wis., changes in retail 
 
 firms in, 313 
 Clothiers, number of, 319, 320 
 Clothing, demand for, 57 
 Commercial travelers, 
 early American, 31, 33 
 early English, 29 
 relation of, to volume of manu- 
 factures and imports, 327- 
 329 
 Commission basis for wages of 
 
 salesmen, 101, 102 
 Community habits and demand, 46 
 Competition, 
 cut-throat, 177, 179 
 effect of business tax on, 352 
 eflfect of cost keeping on, 177 
 influence of, in fixing prices, 176, 
 
 177, 189 
 price-maintenance and, 266, 274, 
 275 
 
INDEX 
 
 397 
 
 Competition — continued 
 remedy for, 364-366 
 tendencies of, 67 
 waste due to, 363 
 Concessions to buyers, 278, 279 
 Consumer-demand, 53 (See also 
 " Demand ") 
 influence of, in fixing prices, 
 174-176 
 Consumers, 41-61 
 co-operative chains, 222, 223 
 number of retail stores and, 334, 
 335 
 Consumers' League, 111 
 Consumption, 
 
 estimates of, 50, 51 
 factors influencing, 85, 86 
 Co-operative stores, 222, 223 
 Copyright Act, price-maintenance 
 
 under, 390-392 
 Corner locations, value of, 150, 151 
 Cost accounting, retail, 70-78 
 application of, in fixing prices, 
 
 187, 188 
 effect of, on competition, 177 
 Costs, 
 analysis of, 187 
 influence of, in fixing prices, 172- 
 
 174 
 of department stores, 211-213 
 of distribution, 370 
 
 increase in, 332, 333, 336 
 of mail order business, 251, 252 
 of production, decrease in, 332, 
 
 333 
 publicity concerning, 194 
 rules for figuring, 385 
 Court decisions, 
 on price-maintenance, 255, 260, 
 
 389-393 
 on taxation of retail stores, 
 354 
 Credit business of mail order 
 houses, 245, 246 
 
 Credit relations between wholesal- 
 ers and retailers, 36, 37 
 Credits, methods of handling, 386 
 Credit system in wholesaling and 
 
 retailing, 67, 68 
 Custom, 
 
 and demand, 45, 46 
 
 influence of, in fixing prices, 178, 
 179 
 Cut prices, 190, 191, 269, 270, 296 
 
 friction due to, 363 
 
 in chain stores, 224 
 
 price-maintenance and, 257-260 
 
 psychological significance of, 272 
 Cut-throat competition, 
 
 elimination of, 177 
 
 opposition to, 179 
 
 Dealers (See "Retailers") 
 
 Defoe, Daniel, 19, 29, 30 
 
 Delivery expenses, 74 
 
 Demand, 
 
 factors influencing, 42-60 
 influence of, in fixing prices, 
 174-176, 180, 181 
 
 Denmark, price-maintenance in, 
 393 
 
 Dentist, store, 94 
 
 Department stores, 195-215 
 advantages of, 208-211 
 advertising by, 200-204 
 banking departments in, 199 
 chain of, in Germany, 218 
 comparison of departments in, 
 with retail stores in Boston, 
 380 
 costs of, 211-213 
 development of, 195-199 
 disadvantages of, 211-214 
 location of departments in, 161 
 mail order business in, 237 
 organization of, 204-208 
 
398 
 
 INDEX 
 
 Department stores — continued 
 percentage of expense for sell- 
 ing in, 98, 99 
 salaries in, 208, 209, 213 
 salesmanship in, 214 
 "service" of, 199, 200, 212 
 statistics of, 197, 198 
 taxation of, 344, 345, 352, 354 
 Discount, 
 cash, 34, 280, 281, 282 
 on merchandise to salespeople, 
 
 105 
 quantity, 271, 272, 279, 283, 284 
 arguments against, 289-294 
 arguments for, 285-289 
 effect of, on consumer, 295- 
 297 
 Dishonesty in selling, 90 
 Display, 
 of goods, 162, 163 
 window, 166, 167 
 Distribution of goods, 13-23 (See 
 also "Retailing") 
 channels of, 37-40 
 costs of, 332, 333, 336, 370 
 education in, 316 
 effect of factory production on, 
 
 330, 331 
 literature on, 18-22 
 non-competitive, 364-366 
 popular attitude toward, 15-18 
 problem of, 22, 23 
 system of, 24-37 
 Dr. Miles Medical Co. v. J. D. 
 
 Park and Sons Co., 392 
 Druggists, 
 charges of, to the poor, 179 
 number of, 319 
 price schedules for, 178 
 Drug store chains, 217 
 
 in Europe, 218 
 Drummer, 33, 34 
 
 Dry-goods merchants, number of, 
 319 
 
 Dry-goods stores, 
 
 as forerunner of department 
 stores, 196 
 
 costs of retailing in, 78, 79 
 Dun, R. G., and Company, 31 
 
 failure estimates of, 303 
 
 reference books of, 66 
 
 Economic conditions, effect of, on 
 
 demand, 58, 59 
 Economics, literature on, 19, 20 
 Economy basements, in department 
 
 stores, 156 
 Edgerton, Wis., changes in retail 
 
 firms in, 313 
 Education, 
 effect of, on demand, 58 
 for retail selling, 115, 116, 370, 
 
 371 
 for salesmanship, 93-95 
 in distribution of goods, 316 
 Efficiency in relation to location. 
 
 and rents, 123-125, 127, 128 
 Elevators, 157 
 Emigration, effect of, on demand, 
 
 57 
 Employees' mutual benefit associa- 
 tions, 106-108 
 Engel's family expenditure tables, 
 
 373 
 Engel's laws, 373-376 
 England, 
 court decisions on price-mainte- 
 nance in, 393 
 department stores in, 198 
 development of distributive sys- 
 tem of, 24-30 
 ground rent in, 119, 120 
 minimum wage law of, 112 
 Proprietary Articles Trade As- 
 sociation, 368 
 Engrosser, 16 
 
INDEX 
 
 399 
 
 Escalators, 157 
 
 Ethical considerations in fixing 
 
 prices, 179, 180 
 Europe, 
 chain-store systems in, 218 
 court decisions on price-mainte- 
 nance in, 393 
 Evansville, Wis., changes in retail 
 
 firms in, 312, 313 
 Expenditure of workingmen's fam- 
 ily, 50-52, 373-37S 
 Expenses of retailing, 69-82 
 classification of, 73-76 
 for wages, 97-100 
 Exportation of goods, early, 27 
 
 Factory system, effect of, oh dis- 
 tribution, 28, 330, 331 
 Fairs, English, 28 
 Failures, 300-316, 335 
 
 causes of, 313, 314 
 
 due to location, 119 
 
 due to wrong estimates of costs, 
 173 
 
 estimates of, 301 
 
 nature of, 315 
 
 rate of, 300-^16 
 
 studies of, 301-313 
 
 types of, 300, 301 
 Family expenditures, distribution 
 
 of, 50-52, 373-376 
 Federal business taxes, 345, 346 
 Fernley, Thomas A., 71, 72, 77 
 Fines in retail stores, 108 
 Fisher Flouring Mills Co. v. C. A. 
 
 Swanson, 389, 390 
 Five and ten cent stores, 217 
 
 turnovers in, 223 
 Fixed charges, 75 
 Fixtures, store, 164 
 Floor space in retail stores, addi- 
 tional, 156-159 
 
 Food stores, 
 
 chains of, in Europe, 218 
 
 in Massachusetts, 379 
 Foodstuffs, demand for, 53-56 
 Forestaller, 16, 17 
 Forward dating, 282 
 France, 
 
 business tax in, 343-345 
 
 failure rate in, 303 
 Free deal, 280, 285-287 
 
 General store, 35, 195, 196 
 Geographical variations in de- 
 mand, 46, 47 
 Germany, 
 business tax in, 344, 345, 352 
 court decisions in favor of price- 
 maintenance in, 393 
 department stores in, 198 
 Goodwin, Frank E., 71, 76 
 Grange movement, 235 
 Grocers, 
 number of, 319 
 
 ratio of, to population, 320, 321 
 Grocery chains, 216, 217 
 Ground rent, 119, 120, 129 (See 
 
 also "Rent") 
 Guarantees of mail order houses, 
 248, 249 
 
 Habit of crowds and store loca- 
 tion, 149, 150 
 Habits and demand, 45, 46 
 Hart, Schaffner and Marx, 72 
 " Harvard System of Accounts for 
 
 Shoe Retailers," 70 
 Hat store chains, 217 
 Health and salesmanship, 93, 94 
 Henry v. A. B. Dick & Co., 392 
 Hoodoo locations, 149 
 
400 
 
 INDEX 
 
 Ideal retailing system, 357-371 
 Immigration, effect of, on demand, 
 
 57 
 Importation of goods, early, 2G, 27 
 Imports and manufactures, ratio 
 
 of retailers to, 325-330 
 Income, 
 
 demand and, 47-53 
 
 of families in United States, 
 1910, 49 
 Ingersoll, William H., 72 
 Inside prices, 271, 272, 277-299 
 
 arguments against, 289-294 
 
 arguments for, 284-289 . . 
 
 forms of, 278-282 
 
 friction due to, 363 
 
 prevention of, 367 
 
 public policy and, 294-297 
 
 results of, 297 
 Investigations of family budgets, 
 373-376 
 
 Jacksonville, revenue from busi- 
 ness taxes in, 347 
 
 Janesville, Wis., study of retail 
 failures in, 311, 312 
 
 Jewelers, number of, 319 
 
 Jobbers' chains, 220, 221 
 
 Jordan Marsh Company's store, 
 197 
 
 Kansas City, revenue from busi- 
 ness taxes in, 347 
 
 Knights of Labor, 110 
 
 Knoxville, revenue from business 
 taxes in, 347 
 
 Labor conditions, effect of, on de- 
 mand, 58 
 La Crosse, Wis., study of retail 
 
 failures in, 311, 312 
 Licenses, 337-339 (See also " Busi- 
 ness Taxes ") 
 liquor, 348, 351 
 peddlers', 340, 341 
 Life insurance for employees, 103 
 Liquor license, 348, 351 
 Literature, 
 business, 18-22 
 
 popular effect of, on mail order 
 business, 240 
 Living wage (See "Minimum 
 
 Wage ") 
 Location of retail stores, 
 
 factors of desirability in, 138-153 
 failures due to, 119 
 importance of, 118, 119 
 intensive use of, 154-171 
 principles of rent applicable to, 
 118-137 
 Long-term lease, influence of, on 
 
 rents, 136, 137 
 Lots, business, valuation of, 168- 
 
 170 
 Lumber dealers, number of, 319 
 Luxuries, consumption of, 146 
 
 Macon, revenue from business 
 taxes in, 347 
 
 Magazines, influence of, on de- 
 mand, 59 
 
 Mail order business in department 
 stores, 237 
 
 Mail order catalog, 242 
 
 Mail order houses, 235-254 
 advantages of, 252, 253 
 advertising by, 241, 242, 249, 251, 
 252 
 
INDEX 
 
 401 
 
 Mail order houses — continued 
 buyers for, 246-248 
 conditions favoring, 239-241 
 correspondence departments of, 
 
 249, 250 
 costs of, 251, 252 
 credit business of, 245, 246 
 disadvantages of, 253, 234 
 guarantee of, 248, 249 
 routine in, 250, 251 
 statistics of, 237, 238 
 system employed by, 243-245 
 Management expenses, 74 
 Manufacture, decreased costs of, 
 
 332, 333 
 Manufactures, 
 effect of, on distribution, 28, 330, 
 
 331 
 imports and ; ratio of retailers 
 to, 325-330 
 Manufacturers' chain-store sys- 
 tems, 221, 222 
 Marginal utility, 87 
 Market, public, 145, 146 
 Marshall Field's, 108 
 Massachusetts, 
 investigation of retail trade in, 
 
 65, 66 
 retail statistics in, 323 
 trade census of, 64, 65, 377-381 
 Mercantile agencies, 31, 32 
 Mercantile reference book, first, 
 
 31 
 Merchant adventurers' companies, 
 
 26, 27 
 Merchant, definition of, 27 
 Merchants' stock companies, 26, 
 
 27 
 Metz Bill for price-maintenance, 
 
 393 
 Mezzanine floors, 159 
 Middleman, elimination of, 37 
 Minimum wage, 109-116 
 laws, 112 
 
 Minimum wage — continued 
 laws, arguments for, 112-114 
 arguments against, 114, 115 
 scales, stores adopting, 109 
 Minnesota, University of, account- 
 ing system of, 72 
 Misrepresentation of goods, 90 
 Missouri, taxation of department 
 
 stores in, 354 
 Mobile, revenue from business 
 
 taxes in, 347 
 Monopoly, 
 due to business taxes, 340 
 price-maintenance and, 264, 266 
 remedies for, 366, 367 
 retail, 297 
 Montgomery, revenue from busi- 
 ness taxes in, 347 
 Montgomery Ward and Company, 
 
 235, 236, 238 
 Mutual benefit associations, em- 
 ployees', 106-108 
 
 National Association of Credit 
 Men, retail accounting rules 
 of, 71, 76 
 
 National Implement and Vehicle 
 Association, 71, 76 
 
 Neighborhood stores, 139, 140 
 
 New Jersey, price-maintenance 
 law in, 390 
 
 New Zealand, minimum wage law 
 of, 112 
 
 Newspaper advertising by depart- 
 ment stores, 200, 201 
 
 Newspapers, influence of, on de- 
 mand, 59 
 
 Norfolk, revenue from business 
 taxes in, 347 
 
 Novels, influence of, on demand, 
 59 
 
 Nurse, store, 94 
 
402 
 
 INDEX 
 
 Occupation taxes (See "Business 
 
 Taxes") 
 Office expenses, 74, 75 
 Offices, store, location of, 161 
 Old age pensions, in retail stores, 
 
 103 
 One-line stores, 35, 36 
 One-price policy, 191, 192 
 arguments for, 289-294 
 in selling to dealers, 283 
 Ontario, business taxes in, 345 
 Opportunity cost, 175 
 Organizations in retail stores, 204- 
 
 214 
 Oshkosh, Wis., study of failures 
 
 in, 303-311 
 
 Package foods, 55, 56 
 
 Paris, department stores in, 198 
 
 Passers-by, 
 
 buying-habits of, 146, 147 
 
 number of, 138-140 
 
 object of, 141-143 
 
 purchasing power of, 141 
 Patent Act, price-maintenance un- 
 der, 390-392 
 Peddlers, license tax on, 340, 341 
 Personality and selling, 91, 92 
 Physician, store, 94 
 "PM," 103, 105 
 
 Pneumatic tubes for handling 
 cash, arguments for, 387, 388 
 Population, 
 
 average, to retail and other 
 stores, 380, 381 
 
 influence of, on rents, 130, 133, 
 134 
 
 ratio of retailers to, 320-324, 327 
 Premiums, 
 
 for salesmen, 103, 104, 105 
 
 in chain stores, 231, 232 
 
 Price-cutting, 190, 191, 269, 270, 
 296 
 friction due to, 363 
 in chain stores, 224 
 price-maintenance and, 257-260 
 psychological significance of, 272 
 Price-discrimination, 271, 272, 
 277-299 
 arguments against, 289-294 
 arguments for, 284-289 
 forms of, 278-282 
 friction due to, 363 
 prevention of, 367 
 public policy and, 294-297 
 results of, 297 
 Price-maintenance, 255-276, 367 
 advantages of, 273-275 
 arguments against, 263-267 
 arguments for, 262, 263 
 attitude of manufacturers to, 
 
 261 
 attitude of retailers, 262 
 attitude of wholesalers, 262 
 court decisions on, 255, 260, 389- 
 
 393 
 definition of, 255 
 development of, 255-260 
 fixing of prices for, 267, 268 
 in Denmark, 393 
 judicial and other action affect- 
 ing, 389-394 
 legislation for, proposed, 393, 
 
 394 
 methods of, 260, 261 
 price-cutting and, 257-260 
 Price schedules, 178 
 Price standardization (See " Price- 
 maintenance ") 
 Prices, 
 inside, 271, 272, 277-299 
 retail, fixing of, 172-194 
 factors in, 172-189 
 methods of, 189, 195 
 policies of, 191-194 
 
INDEX 
 
 403 
 
 Privilege taxes (See "Business 
 
 Taxes") 
 Prize systems in chain stores, 232 
 Producers, friction between re- 
 tailers and, 
 causes of, 363 
 remedies for, 363-366 
 Production, 
 analysis of, 125-127 
 decreased costs of, 332, 333 
 factors of, 69 
 
 factory, effect of, on distribu- 
 tion, 330, 331 
 Professional taxes, 341 
 Profit-sharing, 103, 104, 105 
 Profits, 
 location determined by, 138 
 on price-maintained goods, 266 
 percentage of, figured on selling 
 
 price, 77, 78 
 rules for figuring, 385 
 Property rights, effect of price- 
 maintenance on, 263, 264 
 Proprietary Articles Trade Asso- 
 ciation of England, 368 
 Proprietary drugs, increase in, 57 
 Prussia, business tax in, 344, 345 
 Public markets, 145, 146 
 Public regulation, 
 of advertising, 360 
 of retail business, 337-356, 360, 
 361, 368, 369 
 advantages of, 353 
 by business taxes, 339 (See 
 
 also " Business Taxes ") 
 difficulty of, 353-355 
 Public schools, business education 
 
 in, 116, 371 
 Publicity, 165, 166 
 
 Quantity discounts, 
 arguments against, 289-294 
 
 Quantity discounts — continued 
 arguments for, 285-289 
 effect of, on consumer, 295-297 
 
 Quota for chain stores, 230, 231 
 
 Race characteristics and demand, 
 
 45, 46 
 Ready-to-wear stores, costs of re- 
 tailing in, 78, 79 
 Reduction sales, 190, 191 (See also 
 
 " Price-cutting") 
 Regrator, 16, 17 
 Regulation, public (See "Public 
 
 Regulation ") 
 Rents, 
 
 apportionment of, 
 to various departments, 168 
 to various floors, 158 
 average, 132, 133 
 building, 119, 120, 129 
 checks on, 134 
 definition of, 119 
 increase in, 128-132 
 percentage of, to sales, increase 
 
 in, 128, 130, 131 
 principles of, applicable to retail 
 stores, 118-137 
 Reporting system of chain stores, 
 
 229, 230 
 Retail accounting, 70-78 
 Retail Clerks' International Pro- 
 tective Association, 110, 111 
 Retail district, 143 
 Retail failures, 300-316, 335 (See 
 also "Failures") 
 causes of, 313, 314 
 nature of, 315 
 Retail market, opening of, to all 
 
 producers, 364-366 
 Retail monopolies, 297 
 Retail prices, fixing of, 17^194 
 
404 
 
 INDEX 
 
 Retail salesmen, 
 education of, 93-95 
 requirements for, 90-93 
 work of, 82-96 
 Retail stores, 
 average population to, 380, 381 
 buildings for, 155, 156 
 chains of, 219, 220, 361, 362 
 failure rate of, 300-316 
 function of, 41 
 grouping of, 143-146 
 location of, 
 
 factors of desirability in, 138- 
 
 153 
 intensive use of, 154-171 
 principles of rent applicable 
 to, 118-137 
 number of, 
 
 compared with goods to be 
 handled, 324-332 
 :v compared with population, 
 320-324 
 from consumer's standpoint, 
 
 334, 335 
 from retailer's standpoint, 333, 
 334 
 public regulation of, 337-356, 
 
 360, 361, 368, 369 
 ratio of, to manufactures and 
 
 imports, 325-330 
 statistics of, in Massachusetts, 
 
 379 
 taxation of, 337-356 
 Retail trade associations, 367, 
 
 368 
 Retail trade papers, 95 
 Retailers, 
 ^ criticism of, 15-18 
 
 friction between producers and, 
 causes of, 363 
 remedies for, 363-366 
 functions of, 36, 37 
 in United States in 1913, 382- 
 384 
 
 Retailers — continued 
 ratio of, 
 to population, 320-324, 327, 333 
 to working population, 321, 
 322, 327 
 U. S. Census statistics, 318-323 
 Retailing, 
 development of, 
 
 from 1850 to 1910, 319-323 
 in America, 34-36 
 in England, 24-28 
 education for, 370, 371 
 effect of factory production on, 
 
 330, 331 
 effect of standards of living on, 
 
 331 
 expenses of, 69-81 
 classification of, 73-76 
 for wages, 97-100 
 ideal system of, 357-371 
 literature on, 18-22 
 modern tendencies in, 67, 68 
 persons engaged in, 14, 62-66 
 popular ignorance of, 194 
 present status of, 62-68 
 public regulation of, 337-356, 
 360, 361, 368, 369 
 advantages of, 353 
 difficulty of, 353-355 
 reforms in, 363-366 
 relation of consumer to, 41, 42 
 studies of, 369, 370 
 Revenue, business tax as source 
 of, 355 
 
 Salaries, 
 
 in chain store systems, 231 
 
 in department stores, 208, 209, 
 213 
 
 in Massachusetts trading con- 
 cerns, 379 
 
 in retail stores, 97-117 (See also 
 " Wages ") 
 
INDEX 
 
 405 
 
 Salesmanship, 82-96, 170, 171 
 demand created by, 175, 176 
 department store, 214 
 education for, 93-95, 115, 116 
 evils of, 89, 90 
 factors in, 90-95 
 social importance of, 88, 89 
 Salesmen, retail, 
 annuities for, 103 
 education of, 93-95 
 in ideal retailing system, 359 
 influence of, in fixing prices, 189, 
 
 190 
 organization of, 110-112 
 requirements for, 90-93 
 wages of, 97-117 
 work of, 82-96 
 Salesmen, traveling (See " Travel- 
 ing Salesmen") 
 Saleswomen, 
 age of, 108, 109 
 number of, 83, 84 
 salaries of, 100, 101, 109 
 Sanatogen case, 392 
 Savannah, revenue from business 
 
 taxes in, 347 
 Savings and loan associations, 
 
 106 
 Seager, Professor, on business 
 
 taxes, 351, 352 
 Sears, Roebuck and Company, 236, 
 
 237, 238 
 Selling expenses, 74, 97-100 
 influence of, in fixing prices, 
 174, 187, 188 
 Selling price, as a basis for com- 
 puting expense and profit 
 percentages, 76-78 
 Service factors in department 
 
 stores, 199, 200, 212 
 Sex and demand, 43-45 
 Shady side of the street, advantages 
 
 of, 147, 148 
 Shelving in stores, 164 
 
 Shoe retailers. 
 Harvard system of accounts for, 
 
 70 
 number of, 319, 320 
 Shoe stores, 
 chains of, 217 
 
 in Europe, 218 
 cost of retailing in, 79, 80 
 Shops (See also "Stores") 
 
 development of, 24-27 
 Short credits, 34 
 Show windows, 166, 167 
 Sick and death benefit associa- 
 tions, 106 
 Smith, Adam, on traders, 17 
 Special discounts (See " Price-dis- 
 crimination ") 
 Specialty stores, 35, 36 
 
 vs. department stores, 204-214 
 Spencer, Herbert, on trading, 17 
 Spending power and demand, 47- 
 
 52 
 "SpiflF," 103, 105 
 Standardized goods, 
 advantages of, 268, 269 
 price-cutting and, 255-260 
 Standards of living, effect of, on 
 
 retailing, 331, 335 
 State business taxes, 346, 347 
 Stevens Bill for price-mainte- 
 nance, 393 
 Stock keeping to economize space, 
 
 165 
 Storage of surplus stock, 161, 162 
 Store architecture, 155, 156 
 Store arrangement, 160-162 
 Store display, 162, 163 
 Store equipment, 163-165 
 
 in ideal retailing system, 359 
 Store offices, location of, 161 
 Stores, 
 average rent of, 132, 133 
 central, 140 
 chain, 216-234 
 
4o6 
 
 INDEX 
 
 Stores — continued 
 department, 195-215 (See also 
 
 "Department Stores") 
 dry-goods, 78, 79, 196 
 five and ten cent, 217, 223 
 general, 35, 195, 196 
 grouping of, 143-146 
 having minimum-wage scale, 
 
 109 
 mail order, 235-254 
 neighborhood, 139, 140 
 retail (See "Retail Stores") 
 specialty or one-line, 35, 36, 210- 
 
 214 
 Subway store, 156 
 
 Taxes, 
 business, 337-356 (See also 
 
 " Business Taxes ") 
 license, 337-341 
 professional, 341 
 Temperature, influence of, on lo- 
 cation of stores, 147 
 Time basis for wages, 101 
 Tobacco and cigar store chains, 
 217 
 in Europe, 218 
 Trade and transportation, persons 
 engaged in, 321-323, 328, 
 329 
 Trade relations committees, 368 
 Trade statistics for Massachusetts, 
 
 377-381 
 Trading posts, 35 
 Transportation, 
 
 in eighteenth century, 27 
 trade, and persons engaged in, 
 321-323, 328, 329 
 Traveling salesmen (See also 
 " Commercial Travelers ") 
 development of, 33, 34 
 relation of, to volume of manu- 
 
 factures and imports, 327- 
 
 329 
 Trusts (See "Monopoly") 
 Turnovers, 
 computation of, 182 
 in chain-store systems, 223 
 in five and ten cent stores, 223 
 influence of, in fixing prices, 
 
 182-186 
 statistics of, 185, 186 
 
 Unions among salespeople, 110-112 
 United Cigar Stores Company, 
 217 
 subsidiary corporations of, 228 
 United States, 
 business taxes in. 
 Federal, 345, 346 
 state and city, 346, 347 
 dealers in, in 1913, 382-384 
 development of distributive sys- 
 tem in, 30-36 
 U. S. Bureau of Labor, investiga- 
 tion of family budgets by, 
 374, 375 
 U. S. Census figures, 
 
 for manufactures, 325-329 
 for retail dealers, 318-323 
 O. S. Chamber of Commerce, com- 
 mittee on maintenance of 
 resale prices, 394 
 U. S. Supreme Court, decisions on 
 
 price-cutting, 255, 260 
 Up-keep and depreciation ex- 
 penses, 75 
 
 Variable price policy, 192, 193 
 Victor Talking Machine Com- 
 pany V. Fair Department 
 Store of Chicago, 391 
 
INDEX 
 
 407 
 
 Victoria, minimum wage law of, 
 
 112 
 Vocational training for salesmen, 
 
 94, 95, 116 
 
 W 
 
 Wage, minimum (See "Minimum 
 
 Wage") 
 Wages, 
 
 of Massachusetts trading con- 
 cerns, 378, 379 
 
 of salespeople, 97-117 
 
 of saleswomen, 100, 109 
 Wanamaker stores, 108 
 Warehouses, early English, 27 
 Welfare work, 106 
 Wholesalers, 
 
 functions of, 36 
 
 number of, 319 
 
 retail failures and, 316 
 Wholesaling, development of, 28, 
 29. 30-34 
 
 Wm. Filene's Son's Company, 108 
 Wilson, Woodrow, on unfair com- 
 petition, 272 
 Window display, 166, 167 
 Wisconsin, costs of retailing in, 
 
 80 
 Won?.en, 
 as consumers, 43-45 
 in retail stores, 83, 84 
 age of, 108, 109 
 salaries of, 100, 101, 109 
 Women's Trade Union League, 
 
 111 
 Worcester, Mass., failure rate in, 
 
 302 
 Workingmen's family budgets, 50- 
 52 
 investigations of, 373-376 
 Working population, ratio of re- 
 tailers to, 321, 322, 327 
 Working Women's Protective Un- 
 ion, 110 
 Wrapping of merchandise, 386 
 
UNIVERSITY OF CALIFORNIA LIBRARY 
 This book is DUE on the last date stamped below. 
 
3 
 
 m 
 
 '^m 
 
 ^^^ 
 
 '•^^ 
 
 >« 
 
 &.. 
 
 & 
 
 i, 
 
 UNIVERSITY OF CAUFORNIA UBRARY 
 
 vW. ,, 
 
 :^^ 
 
 
 ^^ 
 
 '^m 
 
 ^^-L* 
 
 ^^ 
 
 M 
 
 
 S 
 
 m 
 
 >f^^Si^ 
 
 s 
 
 ^■^^ 
 
 ^ 
 
 ^^^2 
 
 ^^ik^ 
 
 
 ^cilLy^ 
 
 ^^-T^^ 
 
 i^ 
 
 ^of^Ci 
 
I 
 
 'iV 
 
 
 ^ ! . , 5 
 
 I t 
 
 I * t 
 
 ' ) > 
 
 ::' m