GIFT OF Mrs. Berton Einstein KEEPING UP WITH RISING COSTS BY WHEELER SAMMONS Of the EDITORIAL STAFF of SYSTEM A. W. SHAW COMPANY CHICAGO NEW YORK LONDON 'em THE MAGAZINE OF BUSINESS SYSTEM "HOW-BOOKS" How TO INCREASE YOUR SALES How TO INCREASE A BANK'S DEPOSITS How TO SYSTEMATIZE THE DAY'S WORK How TO INCREASE THE SALES OF THE STORK How TO SELL REAL ESTATE AT A PROFIT How TO SELL MORE LIFE INSURANCE How TO SELL MORE FIRE INSURANCE How TO WRITE LETTERS THAT WIN How TO TALK BUSINESS TO WIN How TO WRITE ADVERTISEMENTS THAT SELL How TO SELL OFFICE APPLIANCES AND SUPPLIES How TO COLLECT MONEY BY MAIL How TO FINANCE A BUSINESS How TO RUN A STORE AT A PROFIT How TO ADVERTISE A BANK How TO MANAGE AN OFFICE FACTORY "HOW-BOOKS" How TO GET MORE OUT OF YOUR FACTORY How SCIENTIFIC MANAGEMENT is APPLIED How TO GET WORKMEN How TO CUT YOUR COAL BILL How TO MANAGE MEN How TO SYSTEMATIZE YOUR FACTORY STANDARD SETS THE KNACK OF SELLING (In Six Books) BUSINESS CORRESPONDENCE LIBRARY (Three Volumes) BUSINESS MAN'S ENCYCLOPEDIA (Two Volumes) BUSINESS MAN'S LIBRARY (Ten Volumes) LIBRARY OF BUSINESS PRACTICE (Ten Volumes) LIBRARY OF FACTORY MANAGEMENT (Six Volumes) ' STANDARD VOLUMES THE AUTOMATIC LETTER WRITER BUSINESS ADMINISTRATION GOOD WILL, TRADE-MARKS AND UNFAIR TRADING KEEPING UP WITH RISING COSTS Other Business Books in Preparation THE MAGAZINE (/MANAGEMENT COPYRIGHT, 1915, BY A. W. SHAW COMPANY KEEPING UP WITH RISING COSTS I HIGHER COSTS AND HOW TO MEET THEM I THE RISING COST OF DOING BUSINESS ... 9 Why are profits dwindling because of rising costs? Cost information and standards with which to fight higher costs II COST FIGURES FROM 1560 STORES .... 17 Where the merchant's money goes Cost averages and expenses that locate store leaks H-WHAT IT COSTS TO SELL THE GOODS III THE COST OF MAKING SALES 37 How much a clerk can waste Ways to net more money through each salesman IV How MUCH TO PAY FOR RENT .... 55 What is rent? How to make increased rentals pay for themselves Five plans that reduce rent V THE COST OF GETTING TRADE .... 71 Advertising costs against which to check for losses What show windows are worth Tested methods that cut advertising bills III WHAT IT COSTS TO KEEP STORE VI DELIVERY COSTS AND METHODS .... 93 Maintaining profits when competitors give more service Five successful ways to reduce delivery expenses Is a motor truck better than a horse? VII BAD DEBTS AND HIDDEN LOSSES .... 109 How much does it cost to give credit? How to cover losses with reserve accounts Hidden losses that weaken the business CONTENTS VIII KEEPING DOWN MISCELLANEOUS EXPENSES . . 123 How 91 merchants in 14 states handle "overhead" Store practice that controls genera] expenses, light, heat, supplies, depreciation and shrinkage IV MAKING MONEY ON HIGHER COSTS IX POLICIES IN RETAIL COST KEEPING . . . 141 Fixing the value of a cost system in dollars and cents Successful methods that get results with- out red-tape X STANDING UP FOR YOUR PROFIT .... 156 When is a merchant making a net profit and when is he not? Four elements that fix profits after a living wage is paid Typical profits from 80 lines XI MORE TURNOVERS, THE ANSWER TO HIGHER COSTS . 175 Taking two profits instead of one Four methods that speed up the rate of turnover FIGURES I HOW COSTS HAVE GONE UP ..... 13 II COSTS AND PROFITS FROM 579 CONCERNS ... 31 III AVERAGE COSTS OF DOING BUSINESS .... 33 IV WHERE THE MONEY GOES 39 V WHAT SIX LINES SPEND FOR RENT .... 68 VI COSTS IN A RETAIL CLOTHING BUSINESS VII ADVERTISING COSTS IN TWELVE LINES ... 77 VIII ITEMIZED COSTS FOR FIVE LINES .... 97 IX PROFITS, COSTS AND DISCOUNTS, BY LINES . . . Ill X PROFITS, COSTS AND DISCOUNTS, BY TRADES . . 119 XI HOW MANY TURNOVERS TO MAKE A PROFIT? . . 127 XII STANDARDS FOR CHECKING COSTS . . . . 128 XIII HOW MORE ORDERS INCREASE EXPENSES . . . 131 XIV A HANDBILL THAT HOLDS CUSTOMERS . . . 159 xv HOW RETAILERS' AND MANUFACTURERS' PROFITS COMPARE 161 XVI DETERMINING, FIGURING AND SECURING PROFITS . . 167 XVU TURNOVERS IN NINE STORES . . . . . 177 XVIII TURNOVERS IN ELEVEN LINES . . . . 189 FORMS I A CARD HISTORY OF TURNOVERS .... 143 H STOCK PLAN FOR SIX MONTHS 143 III AND IV COMPARING ESTIMATED AND ACTUAL PAYROLLS 146 V HOW A BUDGET HELPS TO CHECK EXPENSES . . 147 VI APPROPRIATIONS FOR SUNDRIES ..... 147 VII AND VIII LISTING DAILY SALES AND PROFITS . . 148 IX TO XXII COST COMPARISONS THAT CONTROL . . 153 A VERAGE cost of doing business figures from over one \. thousand five hundred distributive concerns make this book different from any other ever published. Never before has it been possible to obtain figures of this sort from American mer- chants, for they have been jealously guarded "trade secrets" It has been a blind race against rising costs with "the devil take the hindmost." If business is actually growing into a new pro- fession the greatest of all the professions then the fifteen hun- dred-odd men who forgot the "trade secret" bogey and made this book possible belong among the founders of that profession. There is not space for the one thousand five hundred names , otherwise they would be printed here as fully as the confidential conditions under which the figures were collected would permit , for each merchant deserves as much commendation as the next. They are therefore referred to in a group a group that binds together by a high ideal men with both large and small material interests: John Wanamaker and John Bellaire; Edward A. Filene and Edward P. Russell, and so on through the long list. Although it is not possible to mention individually all who contributed figures and methods to the book, reference must be made to a number of the private, public and semi-public organi- zations that have given generous assistance. These have labori- ously collected cost figures, and their results, when correlated with the other costs obtained in the field by SYSTEM'S investigator s t in no small degree give the book its authority. They also are too numerous for mention in full, but the following particularly deserve the thanks of those who find use for the hundreds of tested means of expense control given in the pages that follow: The National Dry Goods Association; The National Associa- tion of Commissary Managers; The National Pipe and Supply Association; The Electric Vehicle Association of America (William P. Kennedy's delivery costs); The National Shoe Wholesalers' Association; The National Association of Retail Grocers of America; The Bureau of Business Research; Harvard Graduate School of Business Administration; The Extension Division, University of Wisconsin; The National Hardware Association of the United States; The National Boot and Shoe Manufacturers* Association; The National Shoe Retailers' Association; The National Wholesale Grocers' Association; The National Retail Hardware Association; The Harvard Cooper- ative Society; The General Fire Extinguisher Company; Robert H. Ingersoll and Brother; Marshall Field and Company; The Curtis Publishing Company; and Wilson Brothers. To these and to all who have helped to make this volume possible, grateful recognition is now extended. THE PUBLISHERS PART I HIGHER COSTS AND HOW TO MEET THEM THE RISING COST OF DOING BUSINESS COSTS are greater," says the manufacturer. "Net earnings are lower," states the shipper. "Margin of net profit is closer," the wholesaler and retailer re- spond. "Prices are higher," adds the consumer. Cross-section any record of accounts, from cost of making to household budget, and you find the same slowly shrinking percentage left over for profits. It is a big problem. Reasons given are as unsatisfactory as they are many politics, scarcity of gold, rapid devel- opment of new wants, extravagance, wild financing. Many theories are advanced, few facts. Busmess men face facts, not theories. So out of busi- ness has come a nation-wide questioning. National bodies of manufacturers, wholesalers, re- tailers, bankers, shippers, are asking not only why profits are dwindling in many lines, but, with conditions as they exist, how to stop this steady gain of costs upon selling prices which constantly threatens to narrow profits down to nothing. Several years ago SYSTEM presented the results of a cost investigation beginning with these words: "Fif- teen years it takes to make a business man five to know what goods and clerk hire total; five to know the cost to keep store ; five to recognize profit and stand up 10 HOW COSTS ARE RISING for it." In the interval, this investigation has been widely extended and conditions have improved. Na- tional associations have taken up the work of assembling average costs in this and that line; wholesalers and manufacturers have gathered statistics ; universities like Harvard and Wisconsin have collected figures from many concerns. Special investigators have covered a wide territory and even audited the books of many con- cerns for totals that permit the soundest comparison. A summary of these figures, at first representing the cost of doing business in 579 establishments and gradually extending to include more than 1,500 stores, after repro- duction in SYSTEM, is in the following chapters pre- sented in fully revised form and with figures most care- fully verified. The assembling of this material is one sign of a new era that of cooperation between manufacturer, distributor and retailer in which the old-fashioned secrecy that put the average store at the mercy of cut price competition and " shaded " qualities is giving way to the helpful interchange of data. Early in the investi- gation it was found that the more progressive merchants in almost every town selected for study were keenly interested in determining average standards of costs. The investigators worked out a method of tabulating accurate returns in cipher, so as to take care of the merchant's legitimate interest in keeping his figures from his immediate competitors. The result was and still is gratifying, for the investigation has continued successfully and many merchants are still volunteering figures which make the averages on hand constantly of greater value. The readiness of manufacturers, jobbers and dealers to help, their quick recognition of their need and of the value of more definite knowledge of the 1 COSTS AND PROFITS 11 proportionate items of costs, indicate a fundamental advance in methods of doing business. Magic percentages based on no foundation except legend are constantly cropping out in business. If the manufacturer wants to charge depreciation on a ma- chine he writes off ten per cent. A wholesaler is at- tempting to fix a price that will protect the retailer he adds ten per cent. The dealer feels his need of a sum to cover incidentals again the ten per cent. Busi- ness men are finding, however, that traditional stand- ards no longer hold; that they must know, first, the items which constitute their cost of doing business; second, how these items vary. No magic figure for all lines is to be expected. But just as all men are very close to the average man, so out of the investigation of many men's efforts to do business at low cost and with high profit merge reasonable standards for single expense items and fair averages for the total cost of doing business in one and another line, above or below which the average dealer in that line is unwise to go. /^OST standards enable the merchant to match his dis- \~s advantages with his advantages so accurately that he can easily pick the top-heavy items. Rent is, for example, unusually heavy with the furni- ture store, clerk hire with the shoe store ; turnover slow or investment per sale heavy with the jeweler, and ex- actly the opposite with the variety store owner. Even within the same line there are interesting variations which not only explain the success and failure of various concerns, but also indicate how any store can develop an individuality. Where, for example, advertising expense is held down, show-window expense or rent for a central 12 HOW COSTS ARE RISING location may be correspondingly high in the cost of doing business. The two factors balance against each other and two merchants having different retail costs succeed, each by making the most of his position. Out of comparative figures there is nothing more vital for the merchant to get than a definite realization of his advantages and disadvantages, so that he can economize where necessary and throw the weight of his outlay into that phase of selling or service which counts most in the net result. Twelve general lines of business have been chosen for the grouping of the cost figures. These percentages cover an average of something over one thousand con- cerns. What these standard figures are and how to put them to work in your store is the subject matter of the first chapter. In the following three chapters, the subject covered is, roughly, direct selling expense. This is taken to include salaries, with efficiency methods for cutting down the ratio clerk hire bears to sales and to profits; rents and their relation to the store location and the floor space which yields the most profit ; adver- tising forces and their effective use by the retailer. Operating expenses, including averages and cost-cut- ting methods, occupy the next three chapters. The first deals with delivery costs and cost-cutting; the second, with losses through depreciation, bad debts and so on; the third with upkeep, supply and miscellaneous expenses. In the third section of the book are presented the cost and merchandising policies which the investigation has shown to be the keys to success in some of the most prosperous concerns with which SYSTEM has come in touch. In this part of the book these resourceful mer- chants give their proved solutions of the problem of COSTS AND PROFITS 13 keeping up with rising costs and strengthening dwindling profits. The establishment of a cost policy and system intended to give you your own figures and enable you to compare them with standards is discussed in the first chapter; mark-ups and profits which, going beyond the interest on capital and the manager's wages, insure him a true profit in return for the extra initiative he has shown and the risks he takes, in the second; turnover, the all important factor of use of investment, in the third and last. % 27 24 21 18 15 12 * '.* { 3 Jtt .- / x-^ ^ pX X ^\ '' ^s .. X ^' '" ^^ .-- ^ x^ ^ ^^ ' >CT ^ ,-" ^- ^^ cr ' ,xd io- *--** ^ T --^" ^x s S ^ 4* , -" ' ^. ^ ^ oj ^> ^ * ^* ^- - ^ ^- -0 fS^ Department Store (Annual Sales SI7.000.WO in 1912 ) Dry Goods Store ( ., $1;008 .. ) Q . O- Small Store ( 25,W ' ) 1895 1909 190& 1910 191J,' FIGURE I: Rising costs of doing business are shown to be advancing with equal rapidity in both large and small stores, for the three lines, each representing an actual retail concern, are all but parallel 14 HOW COSTS ARE RISING COSTS and PROFITS from TWENTY-FOUR STATES Costs of doing business and profits from thirty-eight stores in cities ranging in population from 7,500 to 300,000 or over in twenty-four states are here analyzed. These facts were collected by the National Dry Goods Association. It is exceedingly significant that the average cost of doing business is set at 23.8 per cent of the sales, while SYSTEM'S national investigation, made both independently and previously, fixed the average at 3.05 per cent, as detailed on page 20. GROSS PROFITS (STATES WITH FIVE HIGHEST PERCENTAGES): Kentucky 33.86% Alabama 30.50% Minnesota 33.30% Virginia 31.41% Tennessee 33 . 12% AVERAGE COSTS OF DOING BUSINESS (STATES WITH SIX HIGHEST AVERAGE PERCENTAGES): Tennessee 27.34% Nebraska 26.83% Indiana 27.00% Alabama 25.94% Minnesota 27.00% Texas 25.58% AVERAGE NET PROFITS (STATES WITH SIX HIGHEST AVERAGE PERCENTAGES): Utah 11.00% Louisiana 9.40% Kentucky 10.66% Michigan 8.00% West Virginia 9.80% New York 6.00% AVERAGE GROSS PROFITS (BY POPULATION AND LOCALITY): 75,000-100,000 population 33 .23% 15,000-25,000 population 31 .29% 100,000, and over, population. 31 .07% 50,000-75,000 population 30.20% 25,000-50,000 population. 30.00% Farming districts 31 .80% Manufacturing and farming localities 30 . 00% Resorts 29 .95% Manufacturing centers 29 . 88% AVERAGE COSTS OF DOING BUSINESS (BY POPULATION AND LOCALITY): 300,000, and over, population (lowest) ... . . . 21 . 25 <; 75,000-100,000 population (highest) 27. " Shipping centers 24 . Farming districts 24 . 52<; Resorts ' 24.00< Manufacturing centers 23 . 22* AVERAGE NET PROFITS (BY POPULATION AND LOCALITY): 300,000, and over, population (highest) 8 . 40<; 100,000, and over, population (lowest) 5.91' Farming districts 7.28 ( Manufacturing centers 6.66* Manufacturing and farming localities 6 . 251 Resorts 5.95< Shipping centers 5.50* A number of interesting facts will be brought out by a few moments' study of these figures. Notice, for instance, that the lowest costs join with the highest net profits in the larger cities. The averages for all of the stores in the twenty -four states are: gross profit, 30.45 per cent; net profit, 6.45 per cent; cost of doing business, 23.8 per cent. It should be understood that these percentages only refer to dry goods stores. The figures that established these averages were carefully audited by experts. COSTS AND PROFITS 15 It is fortunately coming to be recognized as the most imperative fact in business that an article costs more, and probably is worth less, every day it lies on your shelves. Against the plan of taking a ten or twenty per cent net profit fifteen years ago, the modern mer- chant matches the plan of taking three or four or five per cent as many times in a year as his father turned his stock in half a decade. Before this alert merchandising, the methods of Grandfather's Chair can not stand. The whole process of distribution seems, therefore, to be shifting into line with small stocks and quick turns. Fixtures that help the customer decide quickly and for himself have the call over equipment, however costly, that retards turnover. Better appraisal of depreciation and shrinkage, with its accompaniment of frequent clearance sales, is an essential of fast-turn storekeeping, except as buyers grow in skill at balancing stocks ac- curately against standard price demand. The manu- facturer, commission man and wholesaler sometimes complain that they have become large scale retailers to dealers who order small lots incessantly. But those who are making the most money have accepted the situation ; regulated their plants and shipping facilities to this flow of trade ; adopted the policy of short stocks for them- selves ; and thrown the weight of their influence for sound profits, permanent regular trade and short credits. Where the manufacturer has failed to do these things, large retailers have in several instances taken over factories in order that demand might make supply keep step. "With this period of necessary service and cooperation at hand, no enterprise at any point in the chain of dis- tribution can afford not to know what cost items should 16 HOW COSTS ARE RISING be and how to keep the retailer on a sound profit basis. This fact, already sensed by thousands of merchants and manufacturers, is the reason for this book. SYSTEM 's investigations and studies of cost standards and cost control are still going on. These present figures make no pretense to being final, but instead merely at- tempt to offer averages of everyday practices which should help any merchant who studies them to better almost all departments of his storekeeping. More de- tailed figures will be presented and discussed in SYSTEM from time to time; and as knowledge of costs becomes more general, such standards of expense will, the pub- lishers believe, very greatly improve the balance, sta- bility and general prosperity of American business, II COST FIGURES FROM 1560 STORES RISING costs all but closed, within the past year, the doors of a department store which counts its annual sales in tens of millions. A month after moving to a new building, the cost of doing business increased from twenty-four and five-tenths per cent of the sales until it reached thirty-three and three-tenths. The president called his directors to a special meeting. * ' We face ruin, ' ' he said to them. ' * I know that, because our expenses are eating up exactly one-third of our sales. In the old store they never exceeded twenty-six and five- tenths per cent. You know as well as I do that retailing drives ahead under terrific speed nowadays, depending for safety on rapid turnovers at a net profit so small that an increase of a per cent or two means failure. We're seven per cent too high. The fact that we can borrow five hundred thousand within half an hour tem- porarily saves us. But there's a limit to our credit. Therefore, I leave it to you to cut our expense into the twenties before the end of this month. If you don't, we 're going under, taking with us a factory or two. ' ' Three directors were at once appointed a committee to reduce expenses. By going through the store, depart- ment by department, they quickly discovered that under the enthusiasm of expanding to the new building, 18 HOW COSTS ARE RISING " luxuries " had been allowed to creep into equipment and payroll. These they located and weeded out. A reference library was abandoned, a stenographer dis- charged here and a clerk there, the lights over the mar- quees no longer burned all night, store guides were set to helping behind the counters, the head electrician was assigned to detail work and one of his subordinates released. By the end of the month expenses were twenty- six and two-tenths per cent of the sales. The store is making a satisfactory net profit today. A retailer of men's furnishings in an Indiana town was rescued from a corresponding situation by taking a traveling salesman into his confidence. "I sold twenty- nine thousand last year after taking out thirty-five dollars a week for my work, I had left about two hundred dollars net," he explained. The manufacturer had given his selling force rough cost averages for clothing stores and had instructed them to protect future business by helping storekeepers who could not "spot" the expenses which drove their costs too high. The salesman offered to classify the retailer's expenditures. "You're too high on your selling expense," he declared, after figuring out percentages for the more important items. "The sales were $29,030.19 and you paid out, including what you drew yourself, $3,556.57 for wages. That's exactly twelve and a quarter per cent of your sales, and it should be about ten. On that one item alone you're six hundred dollars above the average." "That backs up what I've been thinking," replied the retailer. "One of my men asked for a raise just when I was buying out my former partner, and I gave it to him because he knows people about town and I thought I needed his influence. Since then he has FIGURES FROM 1560 STORES 19 lain down on the job and I've had to hire a young fellow from Chicago to help us. I guess that is why I am spending too much, but I had no way of telling. Now he's got to make more sales, stand a reduction, or get out." FAILURE or success depends on the exactness of the merchant's knowledge of his costs and gross profit margins because slight variations frequently mean losses. Variations in the expense account as slight as these point success or failure today because the cost of doing business, rising with the advance in rentals, wages and supplies, has cut down the net profit on sales. Manu- facturer, middleman, and retailer, you are all three straining with equal power to keep up with your costs. And the consumer, he calls his struggle the high cost of living. Are not net profits in many great manufac- turing businesses dwindling, although the sales volumes were never so large ? Do not the railroads report record breaking gross earnings, but net profits that disappoint their stockholders ? Have not those sellers at retail and wholesale who are making money, changed their methods from receiving rooms to counters in the effort to equal with numerous slim profits the single generous profit they took fifteen years ago? This uphill climb which retail costs are taking parallels an apparent increase in manufacturing and jobbing expenses of operation. When the cost of doing business goes up one per cent, profits net that same per cent less. The chart on page 13 shows where costs have been going for the past twenty years. Without a halt, they have increased until doubled. For instance, retailers whose memories run back a quarter century recall eight and ten per cent as a normal cost of doing business. A HOW COSTS ARE RISING COST AVERAGES and EXPENSES "Costs of doing business" in these tables exclude freight and cartage, losses from mark-doums, and gains through discounts. "Salaries" indicates direct sales payrolls, in some instances including the time spent by the proprietor in setting. "Delivery" and "light, heat and power" include payroll and upkeep charges. All irregular stock losses and all depreciation are listed under "depreciation and shrinkage." Items which cannot be DRY GOODS STORE COSTS The cost of doing business itemized above is the average for the United States as found by the investigation. Note (1) that stores handling the cheaper stocks have been eliminated; (2) that annual sales volumes of over five hundred thou- sand dollars were not included; (3) that freight and cartage charges are not in- Rent 3.24% Salaries 9.65% Advertising 1.67% Heat and light 54% Delivery 1.02% Supplies 38% Insurance and Taxes 1.08% General Expenses 4.15% Depreciation and Shrinkage 1-11% Bad Debts... . .21% Total Percentage of Expenses to Sales 23.05% AVERAGE DRY GOODS STORE This store is in the Southwest. The owner reports that he secures four turn- overs a year through the store at a net mark-up of 28.9 per cent. Note how closely these actual figures check with the averages for the United States given on the left. Rent. . ...$ 1,550.06 or 3.1' Salaries 4,800.19 or 9.6< Advertising . Heat and Light Delivery Supplies Insurance and Taxes General Expenses . . . Depreciation and Shrinkage Bad Debts... 750.03 or 200.01 or 450.02 or 200.01 or 550.02 or 2,200.09 or 4.4< 700.03 or 150.01 or Total Expense $11,550.47 or 23.1% A SMALL DRY GOODS STORE Investigation showed that on the average, small dry goods stores pay out again for expenses 16.21 per cent of their sales. Note that this typical middle- western small store: (1) makes no de- liveries; (2) does not use expensive selling space. Rent $ 731.12 or 2.9% Salaries 2,546.31 or 10.1 % Advertising 302.53 or 1.2% Heat and Light 100.84 or .4% Delivery Supplies 50.42 or .2% Insurance and Taxes . 201 .69 or .8% General Expenses 50.42 or .2% Depreciation and Shrinkage 100.84 or .4% Bad Debts... 25.21 or .1% A LARGE DRY GOODS STORE Average dry goods stores securing annual sales above two hundred thousand dollars pay, the investigation established, expenses of 24.76 per cent when in com- petition with department stores in the larger cities. This Indiana store typifies them. Note (1) the high advertising per- centage; (2) the rent. 3.4< Salaries 22 276 09 or 9 9% Advertising Heat and Light Delivery 6,975.34 or 3.1% 2,025.10 or .9% 3 150 15 or 1 4% Supplies Insurance and Taxes General Expenses . . Depreciation and Shrinkage Bad Debts 1,575 .08 or .7% 2,700.13 or 1.2% 4,950.24 or 2.2% 3,150.15 or 1.4% 450 02 or .2% Total Expense $4,109.38 or 16.3% Total Expense $54,902.67 or 24.4% FIGURES FROM 1560 STORES 21 from the BOOKS of 1560 CONCERNS allocated, administrative and buying salaries, indirect payrolls and invest- ment charges make up "general expense." All figures refer to net sales. Add 1.5 per cent for Pacific Coast, southern and mountain states; and 2 per cent for cities over 400,000. Deduct .5 per cent for Atlantic Coast and 3 per cent for rural districts. Annual sales exceeding $5,000,000, readjust- ments for smaller volumes, and size of packages are not considered. GROCERY STORE COSTS Analyses of the expenses of groceries scattered from New York to Oregon fixed this average cost of doing business. Note (1) that groceries drawing trade from customers with either small or large incomes are not included; (2) that, since the average mark-up is 19.91 per cent of the selling prices, the turnovers are of necessity rapid and carry a low net profit Rent 3.07% Salaries 8.46% Advertising 83% Heat and Light 39% Delivery 2.53% Supplies 37% Insurance and Taxes 58 General Expenses 45 Depreciation and Shrinkage 76 Bad Debts . . .47 AN AVERAGE GROCERY STORE In a middle-western town of forty-three thousand this grocery handles annual sales of fifty thousand dollars at an ex- pense close to the average. Note (1) that advertising costs less than in other lines; (2) that delivery expenses amount to almost as much as the rent. Rent $2,256.95 or : Salaries 4,067.09 or ; Advertising 351 .48 or Heat and Light 251 .05 or Delivery 954.01 or Supplies 150.63 or Insurance and Taxes . 200.84 or General Expenses 150.63 or Depreciation and Shrinkage 301.27 or Bad Debts 150.63 or Total Percentage of Expenses to Sales 17.91% Total Expense $8,834.58 or 16.4% A SMALL CASH GROCERY It is natural that among groceries handling for cash only a trade drawn from modest incomes investigation should fix an expense percentage - 14.77 per cent - below the average. These figures from a city store represent this type of grocery. Note (1) that there is no de- livery expense or loss from bad debts; (2) that a good location is, however, rented. Rent $ 291.92 or 2.7% Salaries 1,048.76 or 9.7% 21.62 or .2% 32.44 or .3% Advertising Heat and Light Delivery Supplies 21.62 or Insurance and Taxes . . 43.25 or General Expenses .... 21.62 or Depreciation and Shrinkage 86.50 or Bad Debts.. LARGE CREDIT GROCERY Investigation also supported the ac- cepted conclusion that, when groceries sell on credit to an exclusive trade, their ex- penses run above usual levels. These expenses, paid by a city store, typify the average - 18.97 per cent -found for this class of groceries. Note (1) the rent; (2) the wage total; (3) the delivery ex- pense. Rent $ 2,009.10 or 2.7% Salaries 6,771.40 or 9.1% 595.29 or .8 f Heat and Light Delivery Supplies Insurance and Taxes . General Expenses . . . Depreciation and Shrinkage Bad Debts 223.23 or .3% 2,232.33 or 3.0% 297.64 or .4% 223.23 or .3% 595.29 or .8% 744.11 or 1.0% 595.29 or .8% Total Expense $1,567.73 or 14.5% Total Expense $14,286.91 or 19.2% HOW COSTS ARE RISING VEHICLE STORE COSTS AN AVERAGE VEHICLE STORE Here is the percentage pointed by the These figures are from the books of a investigation as the average cost of doing store selling $57,600 worth of vehicles and a vehicle and implement business in the implements annually in an eastern city of United States. Note (1) that this cost is thirty -three thousand. They total to second above the lowest fixed - the aver- withm one per cent of the average for the age for mail order houses (15.02 per cent) ; country given to the left. (2) that salaries are proportionately high Rent $1 094 63 or 1 Q% because sales are not large enough, mdi- Salan'p<; ^ SIX 81 nr in i& | III 1 ||| |if l-^f I 31 e ** 1- 12 10- 8- 6- 4- 2- I : . : -i'3s3f' ..\vvV- yj*jji ii*?*** FIGURE VII: These comparisons indicate that lines which turn quickly under low costs spend the least for advertising. Department stores, how- ever, strive for large volumes in order to cover heavy expenses the statistics in this article are almost valueless unless it is remembered that different cases require different treatment and that the important point is less how much to spend than how to spend in order to make every medium pull its utmost in line with other sales forces. 78 SELLING EXPENSE Here are a few cases in point: A New England mer- chant selling annually $40,000 worth of goods spends $3,000 for advertising and a man in the Middle West secures about the same volume for only $1,200 ; one firm in the East has held its advertising bills to an average of two per cent of the sales for fifteen years, while a chain of ten small western stores, each handling a volume between twelve and fifty thousand dollars, fixes two and a half per cent as normal ; and in the Northwest a chain of five stores figures three per cent a fair appropriation. Expenditures as .divergent as these, from all sections of the country, when averaged, nevertheless give stand- ards which will immediately detect abnormal advertising expenses. Investigators .have taken figures drawn from over one thousand stores and compared them to secure the following averages, which are percentages of the net sales and include all types of advertising normally paid for by retailers letters, catalogs, decorating win- dows, newspaper space, time used, and so forth: Groceries 83% Hardware ' 1.12% Vehicles and implements 1.22% Variety goods 1.52% Shoes ,. . 1.65% Dry goods 1.67% Drugs 1.76% Furniture 2.72% Jewelry 2.85% Clothing 3.16% Department stores 4.01% Mail order houses 7.21% These standards represent average expenditures. The returns they bring are horses of another color. C. C. Brown writes copy for his store in Cawker City, Kansas, which pulls a twenty-five-per-cent increase in sales, but ADVERTISING COSTS 79 the retailers in Canajoharie, New York, may not do as well. The "how" of the methods of men like Brown are worth study. A careful analysis of the advertising of sixty-two merchants who are known to be making good in twelve states with sales volumes ranging from twenty million to eleven thousand dollars a year shows that they use five methods: (1) placing right merchandise behind the advertising; (2) telling nothing but the truth; (3) building up individuality and personality through all the advertising; (4) getting store or other news into the copy; and, (5) keeping everlastingly at it. Let us discuss these five methods by which the sixty- two merchants build trade through advertising. First comes the necessity of having the rignt goods behind the advertising. The root of all advertising is in the mer- chandise it describes. Stocks, service and store environ- ment build sales just as surely as printed words. Leo Kahn of Connersville, Indiana, does not spend a cent on newspaper space, preferring to advertise with service, unusually attractive equipment, exclusive stocks and down-to-bed-rock prices. A misrepresented sale brings ruin if it is often duplicated. The consumers are becom- ing better posted on values. Ninety-nine per cent of our successful merchants put the right goods back of their prices as a matter of second nature. The first method of the five favored by the sixty-two merchants is, there- fore, all important. Another incident to illustrate the importance of hav- ing sound goods back of the advertising. One of the dozen or so eastern retailers who handle sales running into the millions grades the elements in his advertising as follows: (1) style; (2) fit; (3) completeness of stocks; (4) service; (5) profit. He pays his advertising manager fifteen thousand dollars a year to plan his 80 SELLING EXPENSE copy, but sees to it himself that this copy ranks merchan- dise first and profit last. No doubt his doing so helps to explain why he is a millionaire. The second method of the five we are analyzing pre- scribes truthful copy. Apparently every retailer is agreed on this point. Still, this label continues to be used : ' ' Fresh gathered eggs 35 cents a dozen. ' ' And a Chicago store advertises: "Get a $25 suit for $17, with two pairs of trousers. You can do it here because you don't have to pay for an enormous 'Loop ' rent. We don't pay any rent at all. We own our own building. We save $100,000 on that item alone ; we save thousands more on other expenses and you save on those, too. ' ' If the poor knowledge of accounting indicated by failing to charge himself rent is an indication of this man 's methods, his store will soon be in difficulties. ]\/f ERCHANTS have built fortunes by advertising 1 * 1 and merchants have lost fortunes by not knowing how to advertise. These policies are followed by the former. It is true that it is difficult to hold to the "one price to all" principle in some towns of small population, especially if many of the customers are farmers who themselves contend with varying prices. * However, mer- chants who insist on holding to their prices under these circumstances are winning out when they freely adver- tise the justness of their attitude. Now if it amounts to anything at all, advertising is a window through which you invite consumers to look at your offerings. If this window is blemished with fake statements and half-truths and crooked ideals, some con- sumer notices it sooner or later. He will tell others; they still others such news radiates like ripples from ADVERTISING COSTS 81 EESULTS of ADVERTISING a SALE of MEN'S SHIRTS THE ADVERTISING 4617 lines in six morning and evening papers. . . $695.94 Circulars in the monthly statements sent to charge customers on the first of the month. . 84.20 Post cards to the men's shirt department's spe- cial list of cash customers 41.82 Circulars describing the other men's depart- ments and distributed at the doors 106.14 Circulars telling how the shirts were secured in large lots enabling low prices to be set for this sale 24lll6 $1,169.26 THE RESULTS The first day (a rainy Friday) 2,849 shirts were sold for 85 cents each, 987 at $1.65, and 302 at $2.85. Saturday 962 went at 85 cents, 763 at $1.65, and 228 at $2.85. Small advertisements were placed in the Sunday papers and on Monday shirts worth $1,003 were sold. THE LESSONS The sale started slowly owing to very rainy weather. Sales increased slowly until noon. At noon there was brisk selling which extended until shortly after two o'clock. It appears fair to assume that during this period many peo- ple used their lunch hours to take advantage of the sale. In the afternoon a great many women and middle-aged men shopped until shortly after four o'clock. From about 4:30 until closing time (5:30) every counter was again thronged with customers, presumably clerks and others. Because of the confusion that existed in some sections of the department, it would seem wise for the next sale to place shirts of the same price together that is, to arrange an 85-cent aisle, a $1.65 aisle, and so on. The argument against this arrangement is that sometimes people would buy $1.65 shirts if shirts at that price were in the 85-cent aisle, even though they had come to purchase the lower priced merchandise. This, however, would not appear to offset the manifest advantage of having shirts of one grade arranged by sizes in one place. At the next sale it would also be wise to consider whether or not it would be advisable to have the sale at only one price 85 cents. 82 SELLING EXPENSE the splash of a stone in still waters. Then comes ruin and disgrace, for severe laws against untruthful adver- tising are rapidly being enacted. A man who sits high in the trade councils of the United States and of the world, a man who has built a great business from a room you could span with outstretched arms, has the following opinions about putting nothing but truth into advertising he is not talking for publica- tion, but for the benefit, of a group of his own executives gathered in conference after closing time : "We say, for instance, that in advertising the basic principle is to tell the truth and only the truth. That sounds a good deal like copy book ethics and not like business. You would expect to be told that from the pulpit. This basic principle of advertising is not com- monly believed in or else a great deal of advertising, which is not based on that factor, would be changed. "Why is it good business in advertising to tell only the truth? Why should we always come back to that if we are in doubt as to what to do? Because if by eloquence or technical skill in advertising we are able to make customers come into our store and buy goods instead of buying them because they are better, cheaper and more desirable than those of our competitors, then we are at the mercy of words, and the man who can lie most can beat us out. "None of us will aspire to be the biggest liar in the city, and on that basis somebody who is willing to be a bigger liar than we are, can get the trade. All the cor- rection of methods, all the building up of scientific sys- tems, comes to naught unless we have that fundamental from which nothing can stir us and to which, when we are involved in the intricacies of advertising, we can always go back to tell nothing but the truth. I want ADVERTISING COSTS you clearly to emphasize in your own minds, that while this is good ethics, it is better business." So much for right merchandise and truthful copy the third advertising method standardized by the sixty- two merchants is individuality and store personality. Psychologists would tell you that we all swarm around a great average a norm, they call it millions of us. It only takes an infinitesimal advance to raise a man above this norm. As soon as the top of his head goes over the norm, he is marked by thousands in his imme- diate vicinity. Let him push one shoulder up, and a state notices him. Just a shade more and he is world known a Wanamaker or a Field or a Ford. Still his complete advance is so small that the psychologists watch- ing the norm scarcely notice. The stores which reflect the men who own them naturally mass on a great norm, too. A bit of individuality puts a firm far enough above the norm to secure wide and profitable attention for it. Hence, it is worth money and effort to secure store personality. There are many and varied ways of creating individ- uality for the store. Herbert A. Ballou of Worcester, Massachusetts, painted his store blue. C. J. Ricker uses a white tile front for a like purpose. Mr. Ricker has, in addition, a little slogan which he advertises exten- sively : "Watch, clock and jewelry work done by Ricker and Son is always well done." Then of course there are a thousand and one little plans that have a touch of individuality. Some mer- chants send picture post cards to their customers from trade conventions that's more than the president of a mail order house boasting several million customers can do, at any rate! Others use birth cards to announce seasonal changes in their stocks. An insurance company 84 SELLING EXPENSE sends policyholders " perpetual pencils" on their birth- days. A laundry sells advertising space on the " shape A SAMPLE RECORD from a SALE of DRESSES THE ADVERTISING Advertisements placed in four morning and evening newspapers $1,183.60 Post card announcements to a special list of the department 's cash customers 172.40 $ 1,356.00 THE RESULTS Women 's dresses sold $9,990.00 Misses ' dresses sold 4,011.00 $14,001.00 THE LESSONS Since the planned sales totaled $12,000, a good record was made, the cost of the advertising being 9% of the sales. Mid-week sales of this type are valuable because they tend to make the daily sales volumes uniform during the week. Some of the lots were in insufficient quantities and this fault should be remedied next time. Only about 100 of a particularly attractive corduroy dress featured in the ad- vertising were on hand. They were all gone a half hour after the store opened for the sale. Sales of this kind are unusually worth* while because often manufacturers can be found who are practically idle at the time and therefore willing to sell almost at cost. holders" it puts in shirts and paints the sides of its wagons like checker boards so that the housewives, recog- nizing them quickly, will have their bundles ready. A wholesale paper house prints a catchy business axiom on a cover of its house organ heavy enough to be torn off and stuck over a desk. Many retailers wisely connect their window displays with local events when ADVERTISING COSTS 85 the normal school has a May pole party, their windows show miniature poles; after a local ball team is organ- ized, the windows attract many to clay models of the diamond, and so on through hundreds of events. Cata- logs frequently help to draw trade. Wrapping paper, unused space on sales slips or bags, and stationery sup- ply other ways for securing individuality. Elaborate sales ideas of the right kind often build A GENERAL SALE THAT BROUGHT $90,000 in a DAY THE ADVERTISING Space in newspapers for women's departments. $1,789.10 Space in newspapers for men's departments. . . 383.60 $2,172.70 THE RESULTS Sales in all departments $92,671.40 THE LESSONS This is a one-day sale at which all stocks must show prices from one-half to one-third lower than usual. This sale shows the value of persistency and good stock the sale is an annual event during which great care is taken to offer exceptional values. Hence customers come to have confidence in the sale, and therefore little more than a detailed announcement is needed in this instance at a cost of but 0.02 per cent of the sales. A careful study of previous records and growths estab- lished an estimated volume of $90,000 for this sale a remarkably close figure, for the actual volume totaled exactly $92,671.40. The advertising is most effective when run in large space, one-fourth of which vividly explains the sale and three- fourths catalogs items from seventy-eight depart- ments set solid in type as small as six point. Smaller ad- vertisements, in scattered mediums, do little more than announce the sale. personality. C. J. Rlcker secretly gave five men gold watches and then advertised that they were, instructed 86 SELLING EXPENSE to hand them to the first people asking them, "Do you trade at Ricker's?" Emporia, Kansas, bustled about for days shouting, "Do you trade at Ricker's?" C. C. Brown awards the woman in his city who receives the most votes from coupons, obtained with purchases at his store, a five-passenger automobile. He first adver- tised this contest on a March fourteenth and by April fourth fifty-two candidates were after the car. A. J. Aronson, of Canisteo, New York, gave the school chil- dren bags of marbles, and coupons good for fifty cents in shoe trade at a specified time during the first day of the marble season. He attracted a lot of new customers it pays to remember the young folks. It would not be difficult to assemble a hundred addi- tional advertising ideas that bring a store individuality. They are used by merchants who make their copy pay by concentrating each argument on a single point that unearths an impulse, by following the seasonal changes closely, and by remembering that a hundred million dol- lars was recently disposed of by a hundred-word will. Above all they write their copy as they would talk to customers over the counter one of them even makes rough drawings of barrels or crates containing repre- sentations of his special offerings and has them zinced for publication. THESE five simple methods for making advertising more profitable are worth careful study particu- larly the plan used by John Wanamaker. Such methods broadly apply to all types of advertis- ing newspaper layouts, telephone calls, letters, show windows, catalogs, booklets, circulars, cards, service, dodgers, premiums, blotters, signs and circulars. It has been shown that windows are worth certain amounts, in ADVERTISING COSTS 87 dollars and cents, a week. Therefore they warrant close attention sparkling glass; clean sidewalls and floors; seasonable displays, changed at least weekly; color schemes; no over-crowding; concentration on one offer at a time; and a connection with national advertising when possible. Letters, too, pull better if given a touch of individuality. We have yet to consider two of the five tested meth- ods : the use of news items and the value of persistency. After all, we only advertise as a matter of information, in order to sell by description. The newspaper report- ers write their stories to carry information, too. But do you for one second suppose that a real live news- paper reporter would write, if instructed to compose an advertisement for salt sifters: " Extra values in salt sifters ? ' ' More probably he would hand in this : ' ' Salt sifters that shake from the left hand while the right is busy." Notice just two sentences from a John Wanamaker advertisement: "The sturdy rompers of cotton crepe which so many small boys and girls wore last summer came from the hands of an energetic little woman who lives in a bleak seacoast village, and many of our finer things are made by individuals. We buy wherever we can find goods up to our standard. ' ' Hundreds of facts as interesting range themselves along the distributive and productive channels which bring staples to every store in the country. The news to be found in all stores of any size is welcomed by consumers. We write advertisements to get, first, attention; sec- ond, a reading ; third, a decision. Live news assures us the first two of these three objects and a fighting chance for the third. Surely the sixty-two merchants are right 88 SELLING EXPENSE when they rank news interest with the five factors that make their advertisements pay. Persistency keeping everlastingly at it comes next. At this point it is timely to call to mind the good woman who declared, "I don't believe in nagging my husband, but I feel it is my duty to keep some things before him. ' ' There are facts which must be kept before consumers otherwise, no excuse exists for their remembering your business. Advertising in one form or another, from exceptional service to printed words, is the only way to spread these facts. Further, advertising has a cumula- tive effect which can be crystallized by persistency and nothing else. Examples that carry lessons over into the local field are plentiful among national campaigns no longer recalled Apitezo, Force, Egg-0-See, and a thousand more. Jordan Marsh and Company of Boston, on the other hand, have for years advertised their annual birth- day sale. Recently they sold $500,000 worth of mer- chandise in two days by merely listing items and prices under a heading descriptive of this birthday sale. The cumulative results of good advertising do not fall much short of being as solid as government bonds. Certainly they spring from several of the bonds' characteristics concentration, consistency and continuity. LESS than five per cent of the merchants in America know how to advertise, according to one manager. These tested methods should help better this record. This completes an analysis of the five methods used by the sixty-two merchants in bettering returns from their advertising right merchandise, truth, individual- ity, news, and persistence. The standards from over a thousand stores offer an opportunity roughly to judge ADVERTISING COSTS 89 how much to spend. Yet these tested methods and the carefully gathered costs will not assist to the full extent of their possibilities, unless the man who puts them to work is fired by enthusiasm for his task. Advertising that pulls is only written by those who live for, fight for, the attractions it describes or helps. And a place in the distributive chain which supports the country, either as a producer, a jobber or a retailer, is well worth existence and struggle. The retailers, every wise manufacturer understands, are uncertain when cajoled, unproductive when driven, and helpful when appreciated. They can practically ruin a cam- paign involving thousands of dollars by using substitu- tion. The makers and the wholesalers feed, clothe and shelter the nation. Work of this importance warrants loyal efforts and good advertising. Still the advertising manager of one of the largest wholesale houses in the United States says that less than five per cent of our retailers know how to advertise. If this is true, it may come about because the attraction in most work particularly retailing tarnishes a bit with close contact. Nevertheless the good and the power in distributive tasks well done exists, furnishing a strong appeal for strong enthusiasm. Couple this enthusiasm, the five successful methods and the cost standards together then good advertising comes easily. Two men express this fundamental idea the reason for writing this article clearly. One is a jeweler in a small middle-western town, the other mer- chandise manager of the largest store of its kind in the world. The jeweler says : ' ' Enthusiasm in your own business is one of the big foundation stones of success that comes to a man. This only means the ability to recognize 90 SELLING EXPENSE business possibilities or opportunities; the capacity to see chances to get business in the everyday contacts and events of your own neighborhood; and the strength to hold yourself in your own field and not look beyond to the improbabilities." This is what the merchandise manager thinks of his job: "We believe that the function of retail distribu- tion should be undertaken as a social service equal in dignity and responsibility with the function of produc- tion, and studied with equal intensity in order that the service may be performed with the highest efficiency, greatest economy, and with nothing more than a fair profit to the retailer." PART III WHAT IT COSTS TO RUN THE STORE VI THE COST OF DELIVERIES DELIVERY wagons, forty or fifty miles from the big New York stores operating them, dot long stretches of the old post road to Boston every morning as the sun tops the horizon. They carry purchases, big and little, rushed overnight in high powered trucks to suburban distributive stations. Before daylight, smaller vehicles swarm away from these branches by the hun- dred; the sun finds them among the farms. This far flung convenience, the big stores' supreme effort to serve the consumer, levies, on the average, two cents from every dollar spent in New York city's larger retail con- cerns. One New York department store delivers over an area equal to one-third the state of Massachusetts at a cost exceeding one million dollars a year. A Philadelphia company sends some of its trucks to Atlantic City. Less important firms supporting delivery facilities propor- tionately extensive, usually, on account of their small sales volumes, spend more out of each dollar for deliv- eries than the large stores. These expenditures are factors of consequence in the rise of costs to do business. Twenty years ago purchasers did not expect deliveries. They then spent on one shop- ping trip the seventy-five dollars they today divide over 94 MERCHANDISING EXPENSES fifteen or twenty. During the eighties, a retailer who occasionally hitched up the family horse to deliver a large order was considered exceptionally accommodating. In 1883, 14.5 per cent of the sales amply satisfied the combined net profits and costs to do business of Alex- ander Findlay's store in Madison, Wisconsin. By 1905 it took 21.5 per cent of the receipts to secure a smaller net profit and cover the rising costs. By that year costs alone amounted to 14.5 per cent. Three cents out of every dollar went for deliveries. Last year saw the expenses increase to 18 per cent and the gross profits to 22.5 per cent. Paul Findlay says that he could cut the selling price on one staple 20 per cent, if his cus- tomers would be satisfied with delivery facilities half as expensive. This rapid multiplication of the conveniences offered by the seller to the buyer changed competition to its very foundations. The goods alone no longer limit the com- petitive issue, for the buyer may now be equally inter- ested in the attractiveness of the service supplied with the wares. As surely as accurate deliveries form the most desired share of the seller's service, delivery of some sort has become practically a condition of sale. The seller is obliged to meet competitors' facilities. When one concern makes free deliveries, consumers feel justified in expecting equivalent service from rivals. Thus delivery is all but automatically forced upon the distributors, who soon find their markets actually depending upon it. Size offers no escape, for, except in certain lines, the little distributor must deliver if he expects to grow into a big distributor. The man with a small sales volume often finds his delivery costs a ruin- ous burden; the man with a large trade discovers that, unless he is continually watchful, pressure makes his CUTTING DELIVERY BILLS deliveries irregular. The long and short of this situa- tion is that the average distributor either delivers his sales or goes under. True, a few break away and suc- ceed in holding their trade. Some control special prod- ucts so famous that they can successfully withstand the demand for free delivery. Others pick a definite trade class which willingly carries home what it buys. Harry Whittelsey, one of the owners of a chain of Kansas "no-free-delivery" stores, handles an annual volume of $250,000 on a ten-per-cent mark-up. Duke Bowers, who runs thirty-two successful stores in the South, refuses to deliver a single order which does not total five dollars. He makes money on a fourteen per cent mark-up. Cooperative stores often profitably eliminate delivery expenses Frank W. Chase, who organized a cooperative store for Boston bank employees, believes that the large cooperative enterprise can save three per cent by eliminating deliveries, and the smaller stores from eight to ten per cent. JOHN WANAMAKER is reducing his delivery costs. Thousands of men with smaller stores are puzzling over the same problem. Here are several tested solutions. Many retailers wedged between the horns of a delivery dilemma compromise with their customers. They either secure the acceptance of a definite delivery schedule which necessitates the placing of orders between certain hours, or offer discounts and better store service in return for a total release from delivery expenses. E. W. Dar- rell in New England delivers to schedule, and Abraham Rober4s in the West only sends wagons daily to cus- tomers within three miles of his store. In Akron, Ohio, a paying market declines to deliver, but maintains a special counter for quick wrapping and attempts to make MERCHANDISING EXPENSES its prices unusually attractive. Another middle-western store with no delivery equipment gives attractive pre- miums frequently and advertises " non-delivery " sales at cut prices. An eastern laundry which offers a ten per cent discount to those who bring and take bundles, reports a three per cent reduction in its delivery costs. Losses, however, face the average distributor who tells his customers, "Hereafter you'll have to do your own carting." The consumer forced by circumstances to content himself with crude distributive service, including a "no-free-deliveries" policy, usually puts up with what the market offers. He has no alternative. But as soon as circumstances brighten, he, of course, desires the best service his money can buy. There is no happy medium. The consumer either says: "I'll do the lugging," or, "you do the lugging, and see that you do it right." Experience shows that the distributor selling to con- sumers who feel they can afford to have purchases delivered, is beckoning trouble when he \fires the delivery force. Witness the case of F. Braastad and Company at Ish- peming, Michigan. They put their prosperous business on a "no-credit-no-free-delivery" basis last September. They wanted to find out just how much Of today 's rising costs and soaring living expenses belong at the distribu- tor's door. Therefore, they cut prices ten per cent throughout the store and in return asked purchasers to release them from carrying accounts and delivering goods. The cash rule was accepted by their customers, but thumbs went down with great emphasis on the "no- free-delivery" regulation. The owners of the Braastad concern discovered what they desired to unearth deliv- eries were resumed. Today they have this to say about their little tiff with rising costs and the consumer's CUTTING DELIVERY BILLS 97 ideas about service: "Our cash system has been an unqualified success. But there were so many objections to no delivery that we finally had to go back to the deliv- ery system, although we are now making less frequent Itemized Costs of Doing Business in Representative Lines FIGURE VIII: Each line in this chart represents itemized costs of do- ing business. As the lines progress to the right, the items, including delivery expenses, are added , until total costs appear at the extreme right deliveries than before. It seems that the majority of the people want their goods delivered and are willing to pay for it." So much for evidence that making deliveries has evi- dently crystallized into a sort of distributive law of the Medes and Persians. Under these circumstances it is 7 98 MERCHANDISING EXPENSES necessary to establish two sets of facts first, how much it costs to deliver representative stocks; secondly, how these costs may be reduced. From well over a thousand stores, scattered through every state in the Union, SYS- TEM has collected figures on the cost of making deliv- eries. These figures, whether from horse, electric or gasoline equipment, and without regard to the size of the stores tabulated, when averaged, give national stand- ards from which it is possible to judge the cost of carry- ing purchases to the doorstep of the American consumer. These national delivery cost standards, which include wages and all items directly connected with deliveries, follow : Percentage of Sales Groceries 2.53% Department stores 2.01% Vehicles and implements 1.06% Dry goods 1.02% Furniture 94% Hardware 91% Clothing 65% Drugs 51% Shoes 46% Jewelry 09% Variety goods No deliveries These standards give an average for the country against which individual figures may be checked for extreme variations from normal conditions. An abso- lute check on individual delivery expenditures is of course impossible without allowance for widely varied local factors and conditions. In Shelbyville, Indiana, one retailer says he pays no delivery expenses because he combines recreation with rising costs and delivers in his touring car! A young man, who for exactly two months had his name on a shop door facing the main street of a Chicago suburb, favored CUTTING DELIVERY BILLS 99 the same idea, but unfortunately lacked the touring car. He was so frequently away from his store making deliveries that one night the sheriff locked up shop for him. In a medium-sized middle-western city a depart- ment store delivers annual sales of $225,000 for $3,433.46, spent to hire a wagon, two horses, a man and two boys. A few miles away a dry goods store delivers sales of $16,000 for about $32 invested in the time of the boy who does the sweeping. Although pavements, grades and other physical con- ditions increase the delivery cost variations caused by corresponding individual circumstances, it is possible accurately to fix the range over which the usual cost per package delivered will vary. Department stores find it costs them from five to eight cents to deliver the average package, regardless of size. The run of distributors pay from five to eleven cents. A St. Louis department store found that it cost four cents to deliver a package by gasoline ; five to five and a half cents by electricity ; and seven to seven and a half cents by short team hauls. These costs, however, do not include depreciation. One of the largest department stores in the Middle West makes deliveries by gasoline and electric trucks at a cost of about 3.75 cents a package within the city limits and 5.25 cents in the suburban sections. A small eastern store makes a record of 3.75 cents a package on account of the numerous level streets in its delivery area. A New York store delivered 1,168,511 packages, at an average cost of 6.43 cents each, by gasoline, and 1,376,- 030, by horses, for 8.46 cents. A clothier in the same city makes his deliveries for 7.4 cents a package by two gasoline automobiles which average sixty miles a day. It is also possible to secure comparisons through aver- age costs of typical equipment. For instance, the aver- 100 MERCHANDISING EXPENSES age team and wagon, with horses and men in reserve, will cost about six dollars and a half a day, and a three- ton gasoline truck, from nine to ten dollars. It is to be expected that concerns delivering every sale stand heavier delivery expenses than those handling stocks which are, at least in part, carried away by pur- chasers. Coal and ice companies, for example, count delivery one of their heaviest expenses. The largest coal company in Chicago spends over 36 per cent of its gross profit for teaming and cartage. Wholesalers usu- ally pay more than the retailer for deliveries. One wholesale firm recently found that its average cost to deliver each of 3,214 packages to be 11.5 cents. Another wholesale concern delivers its packages for 9.7 cents each. One Chicago jobber figures that it costs 18 cents to deliver each package he sells. SAVINGS in the delivery department depend in most instances on these principles and detailed methods which have been tested out by going concerns. With these standards available for checking up deliv- ery costs, the second problem is to find ways for securing reductions. Economies in all types of delivery systems first of all depend on care in routingX The delivery area is usually divided into sections which enable the heaviest loads to be routed over the best roadbeds, and the lighter runs through the poorer streets. One store superintendent finds it profitable to make a tour of his delivery routes at regular intervals, in order to pick the best roads and check on street improvements. It is also important to find the hours when the main thorough- fares and the most congested bridges are least in demand. Whether a distributor handles a small or a large sales CUTTING DELIVERY BILLS 101 volume, a careful study of routing schedules from time to time is worth while. But the most carefully selected routes may prove expensive if shipping facilities are not adequate. A delivery begins from the moment the package is wrapped, not from the moment it is put on a wagon or truck. Abnormal delivery expenses may start on the shipping floor as well as on the road. A rapid and accurate sort- ing of packages in the delivery room permits movable equipment to hold down costs. A western grocer who understands this fact has his shipping room divided into bins. Each order is given a bin number by the cashier before it is filled. The clerks send the goods to the proper bin to be checked over for errors and placed in baskets colored to designate the routes. Bulk staples on hand, wrapped, in the delivery room are assem- bled by the shipping clerks. The drivers simply pick out baskets of the proper color, the clerks stay in the front of the store ready for sales, and every order is checked twice. Reductions in delivery costs, once routes and shipping facilities test up satisfactorily, probably most frequently result from better ways for handling the delivery force. The drivers have it in their power either to conserve time and equipment or to overlook wastes. The driver of a valuable truck is in a position to save his employer money or deluge him with repair bills. The men out on the road with deliveries are exactly like other men they need incentive to keep down expenses. Their wages are usually not an incentive, but just the ordinary, expected remuneration. Therefore, distributors often find it profitable to reward the drivers with either bonuses or prizes. 102 MERCHANDISING EXPENSES The three ways for reducing delivery costs detailed above a better handling of routes, men and shipping facilities do not involve the customer, except as a pas- sive recipient of packages. There are, however, two methods which do concern the purchaser fewer returns and more "take withs." Returns and exchanges worry the big merchants at both retail and wholesale about as much as any single item listed with the rising costs. The smaller stores, on the other hand, find returns less of a problem. One of the largest stores in New England, for instance, reports about 28 per cent of its charge packages returned and nearly 30 per cent of the C. 0. D. orders. Returns necessitating a rehandling of goods in equally large percentages' of the sales trouble most of the larger stores. They have been reduced in many concerns by strictly enforcing return dates and declining to re-stock goods on which special lead tags have been broken. Since there is no profit until a customer is found for wrapped goods, some concerns hire a "send again" clerk to watch returns. This clerk checks on the drivers with return post cards, corrects wrong addresses, and secures com- parative prices when a customer refuses goods on the ground that they are offered cheaper elsewhere. If members of the sales force fall into the habit of sending C. 0. D. packages to addresses selected at random out of the directory, in order to swell their sales records, the "S A" clerk calls a halt. In short, no returned order is put back into stock until an effort has been made to trace causes. But the privi- lege to return packages, like delivery service, is today practically a condition of competition. A marked reduc- tion in the percentage of returned orders to completed CUTTING DELIVERY BILLS 103 WHAT IT COSTS to DELIVER by ELECTRICITY "The assumed price" includes a complete vehicle with the average type of body. Increases or decreases in these prices which are not radical will not seriously alter the operation charges. These figures were presented be- fore the Electric Vehicle Association of America by William P. Kennedy. Capacity, Ibs 700 VEHICLES 1,000 2,000 $2,200 $2,600 $132 $156 220 260 22 28 100 100 3,000 $3,000 $180 300 30 100 $610 $240 225 90 $555 $240 180 180 Assumed price $1 500 Fixed charges Interest at 6% . $ 90 Depreciation at 10% 150 Fire insurance at 1 % Liability insurance Maintenance Battery upkeep . . 15 100 $355 $170 $474 $180 158 60 $544 $200 212 80 Tire upkeep 119 Mechanical parts upkeep .... 50 Garaging Electric power $339 $120 $398 $140 180 120 $492 $170 180 160 Storage and washing ... . 180 Garage labor 100 Annual operating cost $400 $1,094 $440 $1,312 $4 20 2 00 $510 $1,546 $4 85 2 50 $600 $1,765 $5 66 2 50 $8 16 10,000 $4,500 $270 450 45 100 Daily cost (312 days) $3 51 Drivers, daily pay 2 00 Total daily cost $5 51 $6 20 . 4,000 $3400 $7 35 7,000 $4,000 $240 400 40 100 Capacity Ibs . . Assumed price Fixed charges Interest at 6% $204 Depreciation at 10% 340 34 Liability insurance 100 Maintenance Battery upkeep $678 $285 $780 $365 340 125 $865 $415 575 150 Tire upkeep 306 Mechanical parts upkeep . 100 Garaging Electric power $691 . $300 $830 $360 180 250 $1,140 $400 180 300 Storage and washing 180 Garage labor 200 $680 $2049 $790 $2,500 $8 01 3 00 $880 $2,885 $9 25 3 00 Daily cost (312 days) . $6 57 2 50 Total daily cost ........................... $907 $1101 $1225 104 MERCHANDISING EXPENSES sales is not to be expected. It is, however, worth the expense to scrutinize and check wrong addressing and lax delivery methods. Cutting delivery costs by getting customers to carry .away packages is largely a question of wits. Since a customer with a labeled package becomes a walking advertisement, and as well because it is more expensive, on account of the numerous " shif tings " and losses encountered, to deliver a small package than a large one, profits result when purchasers do their own delivering. A customer with money to spend is, however, a privi- leged character he knows it and you know it. Use anything short of ambassadorial diplomacy in suggest- ing to him that you, as a distributor beset with high costs, would appreciate his carrying home a two-ounce package, and your counters will, as likely as not, never see him again. ONE way to reduce delivery bills is to persuade cus- tomers to carry away more packages themselves. It is a delicate task, but these methods have succeeded. A famous store once thought it had a plan which would entice customers into taking home the lighter parcels. The superintendent of this store decided that purchasers rightly enough objected to carrying packages bearing the firm's label. So he had a paper, distinctively ruled but without a letter of type, placed at the bundle coun- ters. "They won't know it," he explained to the presi- dent, "but that ruled paper will be more of an adver- tisement than a label in red letters a foot high." Just there he fooled himself. The purchasers soon discovered that the unusual paper practically shouted the source of their purchases. They rebelled. Successful methods for increasing the number of CUTTING DELIVERY BILLS 105 * ' take withs ' ' exist, however. For example, ' ' take with ' ' packages are wrapped in particularly attractive holiday paper at Christmas time by some stores. Customers want the paper keenly enough to carry home small pur- chases. The most successful plan of all, however, is to say nothing at all about delivering the smaller packages. TYPICAL MOTOR TRUCK DELIVERY COSTS In the upper portion of this table appear the savings actually secured by distributors who have replaced horses with trucks. Below is given the cost of a typical day's work by a power wagon and a team Location and Business Type of Truck Miles per Day (av.) Loads or Stops (pk*s.) Cost Horses Re- placed Saving % East heavy hardware. . East dry goods 1 .000-lb. el. 3-ton gas 32 46 205 $90.00 mo. 9 74 d ;y 2 12 30 45 East dry goods Middle West coal 1 ,500 Ib. gas. 55 27 92 310 25 13* .05 pkg. 11 OQ rtav 4 24 Mirlrilr Wrer fiirnifrurr 00 00 1 Middle West dry goods 1 000 Ib gas 53 195 003 Middle West dry goods 2 000 Ib gas EQ 195 nc n l,~ fi9 1 on West dept. store 1, 000-lb. el. o of\(\ lu _ a< . 40 TOT 135 .U pkg. 40 $14 ocf t tor 11 hours t a day THE HORSE vs. THE POWER WAGON Wagon and Team Three-ton Truck Original cost . $910.00 $3,500.00 Interest at 5 per cent 3.79 14.58 Depreciation at 15 per cent 11.37 (at 203 j) 58.33 Repairs 9.20 14.10 Insurance 1.00 12.90 License' .80 2.00 Feed 25.00 (tires) . 31.10 Shoeing 3.00 (gas.).. 31.66 Miscellaneous 9.00 {oil) . . . 5.80 Wages (driver and jumper) 93.00 (driver and jumper) 9868 Rent 10.00 (garage; 10.00 Cost per day (27):. . $ 6.15 $ 10.34 Simply wrap up the purchase and hand it to the cus- tomer with the usual pleasant word or two about other goods. This is sound psychology, for if you ask a cus- tomer, "Do you want this delivered ?" he will answer, nine times out of ten, "Please.' 7 His attitude is reason- 106 MERCHANDISING EXPENSES able enough he says to himself, "It does not cost any- thing and everybody has things delivered." But say nothing, suggest nothing, and he is not tempted to object to carrying a package of pocket size. Naturally, clerks need to use ordinary discretion. They should not expect customers to take home large packages. There is still another successful plan for making deliv- eries less expensive cooperative delivery systems. Two types have been tested: independent companies which charge the distributor in proportion to the number of packages handled for him, and cooperative arrangements between the retailers themselves. In Boston a delivery company is making money and reducing delivery costs for several stores. R. W. Varde- man controls a company that makes a business of deliver- ing for western retailers. Since deliveries are made in all directions at once, goods get to customers quicker, and the retailers can close up for the night earlier, than when they deliver individually. The savings made by this method have cut individual delivery costs anywhere from 25 to 40 per cent. The retailers in twenty-nine towns and cities in Mis- souri and Kansas use such a system. Here are some figures on the equipment savings which'result in three towns fifty-nine wagons and one truck have been dis- carded : Wagons Wagons Stores Now Formerly Using Used Used Independence, Mo. . . 22 11 35 Columbia, Mo 16 10 32 Mexico, Mo 11 6 19 Equally worthwhile savings appear when retailers cooperate among themselves, although individual inter- ests and desires frequently wreck arrangements of this CUTTING DELIVERY BILLS 107 type. In Geneseo, New York, seven groceries, three dry goods stores and one meat market handle their deliv- eries cooperatively at a sixty per cent saving over previous costs. Capably managed gasoline and electric trucks reduce delivery costs when they handle a suitable volume of business. A power wagon will lose money if managed like a team, however. Because it represents a much larger investment it involves a serious loss when idle. Therefore, quick loading and long hauls underlie motor truck delivery systems, for a fully loaded power wagon on the move is usually a money maker. Trucks have as yet failed to replace horseflesh on short hauls with numer- ous stops, except in the case of loads quickly handled in bulk, like coal. Horses also prove more profitable over the worst roads. With these restrictions understood, the power truck may be relied upon to offer speed, distance, capacity, extended service, advertising and immunity to weather conditions, if there is enough work to supply capacity loads. The ideal conditions for its use are long hauls, infrequent stops and large loads. Careful routing, adequate shipping facilities, a well selected personnel, cooperative arrangements, fewer "returns," more over-the-counter deliveries, and motor trucks these, then, are seven tested methods for cutting delivery costs. They include, as described in this article, the most widely used plans. Many distributors, how- ever, have tried out plans of their own for getting better profits from the details of handling orders. During slack hours an Indiana retailer of men's furnishings sends his clerks on delivery trips. Ice and milk com- panies supply their customers with large placards which designate the quantity desired, so that the drivers need not leave their wagons to make inquiries. Others get 108 MERCHANDISING EXPENSES more than an ordinary amount of advertising out of their delivery wagons by placing on the sides bulletin boards announcing sales or by painting on the tops advertise- ments which attract attention from upper floors. Taken by and large, the delivery problem is one of watchfulness for useless motions. When a wagon breaks down that has needed repairs for a long time, wasted motions result. When an order gets to the wrong door, useless motions redirect it. So it is with all of distribution, whether at wholesale or retail. A sheriff's sale stands for hundreds of wasted motions. Therefore, in delivering their sales, as in mak- ing them and preparing for them, the men who run stores find their most attractive savings in seeing that every motion counts. VII BAD DEBTS AND HIDDEN LOSSES BAD debts sent one business man on the rocks every twenty-four hours last year. These failures cost us forty thousand dollars a day enough to hire five hundred million dollars of capital. And 1913 was not an abnormal year. Add these fourteen millions to the cost of supervision, plus the interest charges, and you have the price we pay for credit. It is not an unreasonable amount, either, when matched with the advantages secured. Take the retailer as a typical user of credit in satisfying the con- sumer's wants. His credit connections are two-sided: he receives datings from manufacturers or wholesalers and probably gives his customers accommodations. This means that the firms in the'primary markets have some of their assets on the retailers' shelves and that the retail- ers transfer a portion of their stocks from their own shelves to customers' homes. It is evident enough that an increase in these goods at customers' homes causes smaller net profits, for larger stocks, whether held within the stores, at warehouses, or in customers' hands, slow down the turnover rate. Sup- pose, for the sake of illustration, that a store is selling one thousand dollars' worth of merchandise a day at a cost of doing business equal to twenty per cent of these 110 MERCHANDISING EXPENSES sales and at a gross profit of twenty-five per cent. Assume the average stock on hand to be worth thirty thousand dollars at retail, or enough to care for thirty days' sales. Now, if this store also allows charge account customers to keep additional stock worth twenty thousand dollars twenty days' sales at their homes, on credit, its net profits will be : or . OA X360, or 36%. OU-J- t\J Next assume that the manager of the store allows the total of the accounts due from customers to climb until it equals thirty thousand dollars thirty days' sales 25 20 and see what happens to his net profit : -577 X 360, or ou-j-oU 30%. A drop of six per cent. Thus credit is demonstrated to be a merchandising problem, in principle exactly like the rest of the activi- ties of the factory or store. It requires capital and the man who has capital enough to keep some of his stock in customers' cupboards will probably in the long run interest a more profitable trade than his competitor who cannot secure money enough to offer this con- venience. Since the capital taken by the credit end of a concern adds interest charges to the costs, in* addition to the supervisory expenses and losses from defaulted debts, business men ask : " Why not sell for cash?" Twenty- five years ago the retailers agitated this "Cash or credit?" question; today, with rising costs pressing down net profits, they again turn to it. Certain classes of trade willing to carry home purchases and forego expensive service buy for cash. Stores stocked and managed to meet their demands succeed on a cash basis. But when consumers able and willing to pay for free delivery, varied service, and charge account facilities are LOSSES AND BAD DEBTS 111 handled, an attempt to sell exclusively for cash usually falls flat. It is admittedly more convenient to charge Net Profits (One Tunwwi) Cash Discounts Casts of Doing Bustoess FIGURE IX: This and the chart on page 119 graphically average cost figures gathered by SYSTEM, various organizations and individual investi- gators. The lines A, B and C join the profits, costs and discounts purchases; the standard of living has advanced until it apparently includes credit as a matter of course. The MERCHANDISING EXPENSES LOSS IN WEAPPING Shrinkage and losses in supplies like paper come from lack of instruction for clerks in right methods of wrap- ping. Modern equipment automatically prevents many of these wastes. practice of ordering by telephone almost automatically increases credit transactions. As a result, credit has become "cheap" and accounts are frequently solicited. The average merchant finds that he is practically forced to either act as banker for a large portion of the community's transactions or lose trade. HOW much do you lose a year through bad debts? If you sell on credit, it is probably a noticeable item. Here are ways by which others have reduced it. It, therefore, becomes increasingly difficult to hold to a safe balance sane credits and a maximum sales vol- ume. The danger signal for unwise credits is the loss from bad debts, provided the capital involved and the supervisory charges do not overtax the resources of the particular business considered. The individual mer- chant's resources determine how much he may safely invest in credit or stock in customers ' homes ; the aver- age credit department costs from four-tenths to six- tenths of one per cent of the net charge sales. The amount of loss which can safely be taken from bad debts also varies with the type of trade handled and LOSSES AND BAD DEBTS 113 LOSS IN TYING There is a wrong and right way to wrap and tie a parcel. At a common wrapping counter much waste could be reduced by making the most skillful packer the in- structor for a group. the class of goods stocked. F. A. Pruitt of Edinburgh says that he lost five thousand dollars in twenty years through bad debts and cut his losses one hundred dollars a year by dropping one-half of his credit accounts. John Harvey, secretary of the Retail Grocers' Association of Kansas City, figures that a one per cent loss is normal for an eighteen-thousand-dollars-a-year grocery business. John A. Green, secretary of the National Retail Grocers ' Association, believes a lower figure is attainable. He says: ""We, as an organization, have done wonderful things along educational lines. No longer do the losses from accounts figure in the cost of doing business. Re- ports from all over the country tell us that the loss from this source is from one-tenth of one per cent to one- quarter of one per cent." Evidently, then, practically everybody agrees that a credit business brings about losses from bad debts. How much this loss will be in individual cases depends on local conditions and whether a generous or a close credit policy is followed. But loss is to be expected. Careful business men anticipate this loss and build a reserve in cash to take care of it by laying aside some of the money from sales. Further, when the loss goes beyond normal 114 MERCHANDISING EXPENSES LOSS IN WEIGHING Prepackaging of goods reduces losses from overweights. Accuracy should be the in- flexible rule in measuring. Modern scales go a long way in eliminating the "per- sonal equation. ' ' limits, they recognize that something is wrong with their credit policy and take in sail. To fix the amount to put away as a reserve and the figure that will measure normal losses requires standards which cross section hundreds of going stores. Averages that merge individual characteristics into normal percentages then appear. Careful investigators have analyzed credit figures from the books of about one thousand stores. The resulting standards, after allow- ance has been made for unusual local factors, supply a rough check for gauging retail credit methods and deter- mining the proper reserves. These standards follow they represent percentages of the net total sales and only refer to totals of accounts actually written off the books as worthless: Furniture 1.94% Groceries 47% Clothing 34% Vehicles and implements 33% Hardware 31% Jewelry 21% Dry goods 21% Department stores 19% Drugs 19% Shoes 10% Variety goods no loss LOSSES AND BAD DEBTS 115 LOSS IN CUTTING The salesman who delivers more than thirty-six inches for every yard sold Tobs his employer 's profit account. ' ' Good measure" is the easiest and most dan- gerous of store habits. When losses from bad debts mount above these stand- ards, and there are no explanatory local conditions, it is at least reasonable to cast about for ways of reducing them. Keeping up with rising costs is a disheartening grind unless all avoidable losses have been carefully cut from your cost of doing business. Eliminating unneces- sary leaks opens the way for using broader plans that build profits in spite of higher costs. The best way to reduce costs through checking losses is to study the methods of others who have been success- ful in meeting corresponding situations. In addition to these specific figures on losses, investigation has devel- oped the most successful methods for reducing this expense used by two hundred and eighty-six merchants. These tested methods, with but three exceptions, group under six broad policies: (1) securing a distinct under- standing of terms and limits; (2) handling customers according to their individual situations; (3) cooperating with fellow merchants; (4) making collections monthly ; (5) being impartial; and (6) securing new accounts on the basis of the additional convenience, instead of the unusual ease, with which goods may be purchased. 116 MERCHANDISING EXPENSES It will prove profitable to discuss in detail each, of these six plans which help control rising costs by lower- ing the number of accounts that go bad. Take the first seeing that the proposition is clearly understood when the account is opened. After deciding whether your credit policy is going to be generous or restricted, the next step is to impress upon customers rules which will carry out these plans. When a man asks for credit, he is more often than not in the position of seeking a favor you can "talk turkey " to him if you use ordinary tact. Credit should not be given if it does not mean an advantage to the merchant; and if extended to a con- sumer who has neither the restraint nor the funds to use a charge account properly, trouble is ahead. Not long ago a man failed for thirty cents on the dollar in Bushville because he was so anxious to do business at any cost that he lost ten thousand dollars through unwise credits in two years. It is harmful, of course, unless the capital in the busi- ness is being overtaxed, to go too far in refusing credit, once it has been decided to grant terms. The average man is honest, and the law of averages would be favorable to granting credit after a single glance, provided investiga- tions were made later. But a careful, pleasant, tactful and clean cut explanation that credit means keeping a certain amount of stock outside the business, that only a limited amount of capital is available for such use, and that it is therefore necessary to receive money on charge accounts regularly according to definite rules, will help the new credit purchaser to live up to his intention to pay promptly. The second method of the six that reduced credit losses prescribes that the personalities of consumers be LOSSES AND BAD DEBTS 117 considered. There is danger in relying too strongly on postage stamps. It is quite possible for the merchant with a small trade to know every customer on his books, and the larger firms can at least keep card records detail- ing characteristics and previous relations. Both prac- tices make it possible to adapt collection methods to the delinquent, once it becomes necessary to use them. The man behind with his bills must be brought to the paying mood, encouraged to exert effort enough to hand over money, and shown that the merchant is willing to help him keep his promises to pay, even to the extent of arranging for instalment payments. SIX methods are here given for reducing losses from bad debts. They have been tried out by two hundred and eighty-five merchant* and found valuable. Cooperating with fellow merchants is the third method. Local credit bureaus, either as independent organiza- tions or branches of associations of commerce, offer a means of bringing together every merchant's experience with the credit applicant. A capable secretary to handle the reports, a simple code for reporting results, card files for the data, loose-leaf books for the ratings, a determination to deny credit when the ratings are adverse, and an earnest interest in sending informa- tion to the secretary, will make a success of a bureau of this type. When the bureau is opened slow pays may be given a jogging up by writing them that a list of delinquents must be sent to the secretary. Often, too, the bureau can bring troublesome accounts to time by sending out impartial letters on its letterhead. Dealers in several lines are now organized nationally to handle collections and catch " skips." President McGlasson of the National Wholesale 118 MERCHANDISING EXPENSES Grocers* Association says that when he asks retailers, ' * When did yon send a statement to this party ? ' ' more than a few answer, "Oh, three or four months ago he don't pay any attention to statements." The fourth method of the successful six has to do with just such a situation the distributor who is inattentive to the overdue money on his books has little reason to expect that he will get it. Prompt collections promote the habit of paying, and an absolutely definite program well understood by all concerned, will do a world of good in checking credit losses. Customers who are allowed to think they do mer- chants a favor by paying bills make poor risks. When their bills become heavy they as like as not shift to a competitor or start buying from catalog houses. Many investigators feel that slack retail collection methods often turn well intentioned consumers into the deadbeat class. When a customer falls behind, an immediate in- vestigation may uncover the all-important information needed why he did not pay. If a courteous personal call can not be made, a short series say four of cumu- lative letters, which make it plain that^they are leading up to more radical action if indifference continues, should go out promptly and the radical action follow absolutely on schedule, if necessary. The two hundred and eighty-six merchants find that promptness of this sort keeps accounts out of agencies and guides consumers toward frank, business-like credit transactions. Fifth is the elimination of all partiality. Favoritism makes for trouble in credit affairs exactly as in all others. The small retailer who carries "pets" on his books, as he calls them, will find that the competitor who treats everybody alike gets more trade at a better net profit. LOSSES AND BAD DEBTS 119 Last of the six methods is the admonition to secure credit accounts on the basis that they afford greater convenience and not by urging how easy it is to get goods $8;:3 Net Profits (One Tumow) PROFITS, COSTS, and DISCOUNTS By Trades !&] Cash Discounts 40- .vXJ Costs of DokBusioes5 -40 38- -38 36- -36 34- A ^ . t ', 1 . 4 ,-,:-.' \ **^^ 34 ." 32- X ;.^ ^ . \ 32 r 5 28- jl E $&. J c x / t'.' i 1 .^ \ i ' ^ '/ S! \ IS \ \ ''-" -rr^ / I \ Iviii! \ X \ || 1 -30 28 -26 -24 -22 -20 11- \ -~~^. 18 M- -IE 14- 12- 1 i -14 -12 1ft- 1 1 t; I I 1 1 1 1 I i f -10 -8 6- -6 4- -4 2 .'.'..'-' ;;>;: -2 FIGURE X: It will be noticed thai the department store figures are un- usual. This is because in large stores the cash discounts pay a portion of the^costs and all of the net profits. (See the chart on page 111) through them. There is no doubt but that carefully handled credit facilities are worth advertising. They 120 MERCHANDISING EXPENSES supply the small retailer with one of his keenest weapons against mail-order competition. Still, stating openly that a credit account makes the gratification of wishes a matter of words is sure to lead to defaulted debts and slow collections. Thus the two hundred odd retailers check credit losses with these six proved methods clean-cut understandings ; personality ; cooperation ; promptness ; impartiality ; and just selling arguments. Now how about the houses in the primary markets selling to these retailers? There are experienced business men who feel that the jobbers give the retailers too much credit, thus allowing them to go into business with assets far too weak. Nevertheless, investigation shows that the makers and the wholesale distributors who are holding their credit losses below the average for their lines rigidly enforce four practices. They instruct their customers in the value of rapid turnovers ; keep in close touch with pur- chasers; explain the value of accurate statements of assets and liabilities; and point out the better credit standing which will result from a concentration of purchases. With the first of these methods in , mind, John G. Shedd, president of Marshall Field and Company, states that his firm has done, in his opinion, considerable bene- fit to the average credit standing in the Middle West by holding their accounts to thirty days when competition offers sixty. Mr. Shedd 's wholesale selling organization shows retailers the dollars-and-cents value of turning stocks fast. Knowledge of the risk is nothing more than a broader treatment of the second method used by the two hundred and eighty-six retailers. When a retailer is acquainted LOSSES AND BAD DEBTS with the credit managers for his sources, he will secure much helpful advice from them and not wait for in- quiries about causes if he has to let bills run over. Next is emphasized the importance of winning re- tailers over to the reasonableness of making accurate reports on their enterprise. Concentrating purchases brings advantages to all in- volved. The wholesalers or manufacturers get larger and steadier volumes and the retailers secure more atten- tion because their accounts are worth while. So much for standards that measure credit losses and tried-out methods for reducing them. Bad debts are not the only losses that help to make costs rise. Hidden leaks abound in any business they range from incorrect freight classifications down through tardy employees, bad checks, poor packing, fires and shrinkage, to neg- lected discounts. The illustrations accompanying this chapter show how careful employees can reduce the com- monest repeated losses that amount to important sums during a year. Neglected discounts are probably as important as any of these hidden losses. Exactly as the retailer is willing to invest some of his capital in merchandise held by customers who owe him on charge accounts, the whole- saler or manufacturer usually arranges to keep some of his assets in the stores of the retailers on his books. If a retailer will relieve him of this practice, and agree to carry these stocks himself, the supplier quite nat- urally is glad to pay for the capital released to give a discount, in other words. Losses from fires amount to five times the cost of all the failures in the entire country, but fortunately they can be covered at a small cost by combining with hun- dreds of others through a fire insurance company. MERCHANDISING EXPENSES Every careful business man, therefore, keeps his tangible assets safely covered usually well above the co-insur- ance limit in one or more sound companies. If they are watchful, those who have extended credit to a care- less merchant will see that he follows the same plan. Still more economical from the social standpoint since over-the-counter prices must finally pay for losses in the factories and stores are devices which may now be secured for checking fires before they spread. These inventions not only reduce the fire risk and, therefore, bring a dollars-and-cents saving in insurance premiums, but which is still more important they also protect the regular flow of trade from expensive interruptions. All these ways for reducing the varied hidden losses that weaken every business to some extent, as well as the ten specific methods used by successful retailers, wholesalers, and manufacturers in warding off an ex- cessive expense from defaulted accounts, rest on the fact that waste, when eliminated, becomes a saving. The rise in costs of doing business is narrowing the profit margin. Many firms find that a volume hereto- fore satisfactory now fails to net a worth-while profit. Their very existence depends, partially at least, on checking expenses against standard costs of doing busi- ness and using the methods of those who are making their regular profits in spite of rising costs to turn into savings the losses which are indicated by the averages. VIII KEEPING DOWN MISCELLANEOUS EXPENSE EXPENSES are abnormal at your branch ; you spend too much for solder ' ' this is the gist of a message sent by the Standard Oil Company to its offices in New England. Solder is a small item, relatively, in the Standard Oil budget a large budget, one of the largest in this country. But nevertheless the home office had records of solder costs that caught the excessive expense in New England. The local manager reported that he was unable to locate the cause. Then the home office, sure of its records, sent an expert investigator who discovered that the openings through which the solder poured were a fraction of an inch "larger than they should have been. Doubtless the Standard Oil makes money for a number of reasons in addition to the exceptionally good one that it watches the smallest expense items carefully. Still the fact that its officials know accurately what the solder bills should amount to, indicates a care in man- agement to which might probably be assigned a majority of the reasons that back its success. Profits have been long in this country; possibly on that account we are generous about the small items in the cost of doinqr business: the supply bills, the light bills, the general expense bills, and the shrinkage losses. 124 MERCHANDISING EXPENSES Now costs are rising. They cut into the profits. "We find that the profits cannot be increased to satisfy these rising costs. We discover that the days of long profits are gone and that they will not return. This all means that we must tighten up on the small items, run our enterprises with the careful economy practiced in the older countries, and push for larger volumes or faster turnovers that will make the gains from the narrower profits attractive. Years ago, before competition concentrated, there was more than trade enough for everybody. The undevel- oped condition of our transportation facilities often made it necessary to be content with exceedingly slow stock turns. Then there was an excuse for long profits. We face new conditions today. Average costs for the main items in the cost of doing business, as shown by wide investigation, have already been discussed. With these averages have appeared those methods for meeting rising costs which investiga- tors found the most successful merchants used. This chapter gives averages for the remaining items in the cost of doing business and tells how ninety-one mer- chants with going concerns in fourteen states handle them. These items are : (1) general expenses ; (2) heat, light and power; (3) supplies; and, (4) depreciation and shrinkage. General expenses, the first of these items which, al- though often but small percentages of the sales vol- umes, frequently turn the balance between profit and loss, include under the classification here used the buy- ing expenses, interest on the investment, salaries which cannot be definitely allocated, and miscellaneous general cost, such as the returned goods expense or freight over- charges. The interest on the investment is figured on MISCELLANEOUS SAVINGS 125 the average amount of capital actively used in the busi- ness. The cost of these charges, averaged from a thou- sand odd stores, is the following percentage of the total net sales volume in the twelve lines investigated : Percentage of Net Line Sales Volume Department stores 6.38% Drugs 4.49% Shoes 4.36% Dry goods 4.15% Jewelry 3.95% Mail order houses 2.42% Clothing 2.31% Hardware 2.01% Furniture 1.10% Variety goods .91% Vehicles and implements .71% Groceries .45% Although the general expenses will vary with the local conditions encountered in each competitive field, these averages offer standards against which roughly to check the expenses remaining after dealing with the main items. Administrative, unallocated and buying salaries vary with each store, however, and are not adaptable to definite or widely applicable methods. But inter- est on the investment appears in the same phases in all the stores contributing to the averages. With- out a single exception the ninety-one merchants par- ticularly consulted on this problem by the investigators charge interest at market rates for every dollar of their investments before they count a net profit. They figure exactly how much they put into the business, multiply it by the usual interest rate, and charge the business with the resulting amount. Some of them build up reserves with this interest money, others re-invest it in the business, and not a few put it into their personal bank accounts. But not one of them makes the mistake 126 MERCHANDISING EXPENSES of neglecting to secure ordinary workaday hire for his money in addition to reasonable profits. Freight overcharges form another item among the general expenses in the handling of which the successful merchants use methods that can be standardized. Sixty- four of the ninety-one merchants check over all freight charges against official classification sheets and apply to the railroads for allowances when mistakes are dis- covered. Since freight classifications are complicated, a majority of those with small stores turn their bills over to agencies which make a business of detecting mis- takes in freight bills. One merchant secured $273.45 from the railroads for errors in a batch of old bills sent to an agency of this type managed by a trade paper. The railroads take the classifications most advantageous to them, of course, but they are always prepared to rec- tify errors backed by reasonable proof. HARRIMAN saved stray paper clips; Wanamaker made scratch paper from old envelopes. These in- stances emphasize the little economies in retailing. In charging the actual freight bills, with but five ex- ceptions, these merchants include them in the cost of the goods and not in the cost of doing business. They jquite rightly consider the freight charges as part of their investment in goods. Whenever possible they charge the freight directly to the goods concerned and never pro- rate or average the freight when they can avoid doing so. Their object is to prorate according to the resulting benefits. The cost of rehandling returned goods is a general expense encountered by most distributors. The jobbers and wholesalers usually urge the retailers to write for instructions before returning goods possibly a satisfac- MISCELLANEOUS SAVINGS 127 tory allowance or delivery to another customer can be arranged. There is no objection from the retailer to How To Maintain Profits Against Rising Costs fcj>^=One Turnover FIGURE XI: This chart analyzes the tendency that apparently dominates modern merchandising. Distributors now strive to equal with a number of small profits the single generous gain that could be taken years ago doing this so long as the jobber has not made needless substitutions without instructions or taken a chance on shipping undesired goods because his salesmen were oversampled. With retailers, returned goods are more of a prob- lem. The department stores are particularly troubled. One large store in the East reports that on the average 29.5 per cent of its C. O. D. purchases are returned and 28.5 per cent of the orders from customers with 128 MERCHANDISING EXPENSES FFFFFFr rrrrrr rrr rrrrrr E r_r_ rrrrrrri rrrrrrrrrrrr rrrrrn rrrrr FURNITURE 26.51% 1.10% .92% 2.14% 41% DRY GOODS LINES 23.05% .Total Cost to Do Business 4.15% .. .General Expenses . . Heat, Light, Power . . Shrinkage, Depreciation .54< 1.11< FIGURE IX: These percentages are averaged from figures secured by studying the books and records of more than a thousand stores. The con- cerns selected typify conditions prevailing in the various lines, being both big charge accounts. Since the privilege of returning goods without question is now widely extended to consumers, about all that can be done by the merchant who desires to meet his competition is to prevent the return of valuable goods after they have been used and to decline to receive returned goods when he is satisfied the cus- tomer is repeatedly taking advantage of him. The re- turns resulting from careless addres'ses and deliveries may be properly charged to delivery costs and their number reduced by checking on the delivery methods. The cost of repair departments is usually charged among the general expenses. Only twenty-eight of the merchants whose methods are analyzed in this chapter have repair departments. Twenty of the twenty-eight report that their repair departments just about take care of themselves and that they do not expect much more of them. The other eight take an opposite view and declare that they make money on repairs. Several go MISCELLANEOUS SAVINGS 129 LINES HARDWARE Total Cost to Do Business 20.41 % General Expenses 2.01% Heat, Light, Power 43% Shrinkage, Depreciation .52 Supplies GROCERIES 17.91% .45% .39% .76% .37% CLOTHING - 23.27% 2.31% .62% 2.16% .43% SHOES 23.22% 4.36% 1.10% and little, and located in cities large and small. The percentages give the retailer approximate standards against which to check corresponding items in order to find out in a general way whether or not his costs are unduly large further and state that they find the repair departments active trade-building forces. These facts apparently in- dicate that in some lines, like jewelry, shoes, and hard- ware, there is an opportunity in vigorously pushing and advertising the repair department. One jeweler, who is particularly confident this is true, sends out the follow- ing letter in the interests of his repair department: "On (insert date) we repaired your watch. We do not remember having repaired it since. A watch is a most delicate piece of mechanism and in the performance of its severe duties deserves good care cleaning, adjust- ing, oiling, and so on. It may seem impossible, but it is nevertheless a fact, that the balance wheel of a watch travels over three thousand five hundred and fifty miles a year and makes over a hundred and fifty million beats during that time. "The entire works are not a moment without friction and this little watch has to bear proportionate with 130 MERCHANDISING EXPENSES its weight more than any wagon can possibly stand. Is it any wonder that a watch needs cleaning every twelve or eighteen months? "You know us, you know our methods. You know that work done at this store is well done. To the best of our knowledge your watch gave satisfaction. We want it to do so, and in case that a watch is not satis- factory, we will thank you to return it so that we can make it perfectly satisfactory. Wouldn't it be a good plan to bring your watch in ? ' ' Heat, light, and power is the second of the four expense items listed. It is worth noticing that in but a few instances was this item found to be in excess of one per cent of the net sales. Below this one per cent, because the different stocks require varying amounts of light, a wide range of percentages appeared. Averaged for the various lines, these percentages give the following norms against which similar expenses may be advantageously checked in a general way : Line Shoes Percentage of Net Sales Volume 1.10% Furniture 92% Variety goods .81% Drugs .69% Clothing .62% Jewelry ... . / .61% Dry goods .54% Vehicles and implements 51% Hardware 43% Groceries .39% Department stores 22% Mail order houses. . .11% Although the lighting bills take but a small portion of the total operating costs they offer attractive oppor- tunities to secure economies. The power and heating MISCELLANEOUS SAVINGS 131 costs, on the other hand, are more nearly standardized, and there is a smaller leeway for economies after using careful management and standard equipment. The advance in lighting efficiency is constant what was eco- H Equips to Manufacture to Stock J Manufacturers r- \ Establishes an "In Stock" Department j SmaHer and More ^ Frequent Orders "~ H Gives Wholesaler Selling Points | Equips to Sell in Broken Lots -j Trains Staff to Handle Many Small Orders Wholesalers Seeks Manufacturers with. "In Stock" Departments Smaller and More ^ Frequent Orders -j Gives Retailer Manufacturers' Selling Points H~ Instructs Salesmen to Help Dealers Buy Right | Fixes Minimum Limits for Stocks -j Holds Stocks to Minimum Limits Retailers Locates and Pushes Fast Selling Lines -1 Weeds Out Slow Selling Lines c Concentrates Buying with a Few Wholesalers FIGURE XIII: Miscellaneous expenses possibly hold more dangers today than ever before because there are more orders. Frequent orders, as here illustrated, result from the universal desire to turn stocks faster nomical yesterday may be extravagant tomorrow because of new discoveries. Electric lights are only about thirty- four years old and the lights now distributed test to results fifty thousand times better than those obtained from the first produced. And still the lights we have today are not over twenty-five per cent efficient. 132 MERCHANDISING EXPENSES Carbon lamps, formerly widely used, were generally purchased according to their candle power. That is not an exact method, since the lamps cannot be expected to give their rated candle power after they have been used for a time. As they age, they use more electricity per candle power and gradually give less and less light. It is more accurate to purchase electric lamps accord- ing to the amount of electricity they actually consume. This consumption is given in watts, which are the units used in measuring electricity, just as gallons are the units for gauging water. Since a watt is a small quantity of electricity, the kilowatt, or 1,000 watts, is more widely used in actual practice. The newer so-called ''tungsten lamps'* are generally rated according to the amount of electricity they con- sume in watts. One of the improvements these lamps are intended to embody is, moreover, a rate of consump- tion which varies only slightly during the life of the lamps. They consume about 1.2 watts per candle power, and carbon lamps, 3.1 watts per candle power. The following table shows the normal relation between watts and candle power for standard^ tungsten lamps and the number of watts that would be used in carbon lamps to produce the same amount of light : Type Regular Approximate candle power 11 5 Size of tungsten lamp, watts 15 Watts a carbon lamp would use to give same amount of light 35.65 Regular 16 20 49 60 Regular Regular 21.4 34 2 25 40 66.34 106.02 Regular 53.6 60 166.16 Regular 92.6 100 287.06 Round bulb 11 5 15 35.65 Round bulb Round bulb 21.4 34.2 25 40 66.34 106.02 Round bulb 53 6 60 166.16 Tubular. .. 21.4 25 66.34 MISCELLANEOUS SAVINGS 133 Therefore the merchant who watches for the develop- ment of more efficient lighting facilities frequently se- cures attractive savings. The tungsten filament electric lamps with which carbon equipment may now be re- placed offer a worthwhile saving, and as soon as the nitrogen gas filled lamps now available for large in- stallations are widely distributed in the small sizes, still further reductions in lighting bills will result. Nitro- gen filled tungsten electric lights have already been tested by several stores for outside illumination and lighting large areas at savings which approach eighty per cent of the former costs. In addition to the savings possible through using the most economical equipment, it is often practicable to economize by rearranging installations and bettering re- lated factors. Sears, Roebuck and Company, for ex- ample, thought the lighting item in their cost of doing business important enough to warrant a careful study of the reflecting qualities of the walls and ceilings in their Chicago headquarters. They found that the effi- ciency of the lights in one room increased fifty per cent after the walls and the ceiling were repainted from a dark color to a cream tint. It is also frequently possible to reduce lighting bills by eliminating a few lamps. Seventy-eight out of ninety-one merchants reported that they do not clean their electric or gas lighting equipment every two months. Sears, Roebuck and Com- pany have, on the other hand, made investigations which establish that a two months' accumulation of dust de- creases the efficiency of their lights between 22.5 per cent and 23.2 per cent. They clean their lamps six times a year without fail, at an average cost of two cents for each fixture, whether direct or indirect. It is their belief that it is worth twelve cents a lamp a year to 134 MERCHANDISING EXPENSES avoid losing more than twenty-four per cent of the equipment 's efficiency. As this small detailed practice of the world's largest mail order house indicates, to secure the highest pos- sible efficiency from lighting equipment is only second in importance to managing it in the most economical manner. Years ago the question was merely how to get light, now it is how to get the light that gives the cus- tomer and the employee the most satisfaction and the least fatigue. Where before there was but one method of lighting, the merchant may now select from among a variety : the orange of gas and oil, the yellow of incan- descent gas and electric lights; the blue white of car- bons; the deep yellow of the flaming arc; and others. Direct, indirect, and semi-direct systems are available and have their individual characteristics. Although daylight cannot yet be closely simulated in equipment suitable for extended installations, screen filters and special diffusing globes make it possible to better the results of yesterday. All of these various technical problems related to proper store illumination have been carefully studied and proper modifications for the store sizes accurately summarized. Many public utility companies gladly place knowledge of this type at the disposal of merchants. Supplies third of the four items here considered seldom exceed one per cent of the net sales and in the majority of stores they are below one-half of one per cent. The following averages for the twelve lines offer standards that make tentative comparisons possible they include incidentals like paper, twine, boxes, water, and all the additional costs needed to keep the busi- ness going, but which are neither covered in the other expense classifications discussed elsewhere in this book, MISCELLANEOUS SAVINGS 185 nor used for purposes the nature of which makes it pos- sible to allocate them under one or another of the main items customarily found in expense accounts : Percentage of Total Line Net Sales Jewelry 89% Hardware 60% Clothing 43% Vehicles and implements 42% Furniture 41% Dry goods 38% Groceries 37% Drugs 36% Mail order houses 34% Department stores 32% Boots and shoes 30% Variety goods 21% Less than one-half of one per cent of the net sales in most lines as shown above and scattered over many items, the supply bills offer a temptation to spend un- necessarily. Even though the amount of money involved in each instance may be small, the aggregate is worth attention. No general methods for saving on supplies, other than watchfulness and wide-awake adaptability, were found in use. With very few exceptions this watchfulness resulted in individual plans and short cuts that save a little each day. One merchant's bookkeeper makes ink from dis- carded typewriter ribbons; an office manager saved $615.00 a year by purchasing a seventeen-dollar filter that made it possible to replace special bottled water with city water in his offices ; a treasurer economized by re-directing letters intended for branch offices, instead of remailing them; a secretary devised large envelopes, perforated with large holes that assured the removal of all the contents, for speeding up the circulation of interhouse papers; and the president of a large mail 136 MERCHANDISING EXPENSES order house made an economy worth seventy-five thousand dollars annually by using a shade smaller type in his huge catalog. So in all lines the reward of watching the small expenses carefully, with an eye for better ways, -is larger profits. DEPRECIATION is figured by most merchants, but some make the mistake of disregarding it. These methods will suggest ideas to both groups. Last among the four .items discussed are losses from depreciation and shrinkage. These include deprecia- tion on all equipment, irregular losses from stock, and stock depreciation not regularly covered by routine mark-downs. Averaged for lines and through the figures secured by the investigation, they give the following standards helpful in approximating the reasonableness of individual losses : Percentage of Total Line Net Sales Clothing 2.16% Furniture 2.14% Department stores 1.61% Dry goods 1.11% Jewelry 95% Groceries 76% Vehicles and implements * .62% Hardware 52% Shoes 50% Drugs 47% Mail order houses 12% Variety goods 06% No agreement appeared among the ninety-one mer- chants on methods for figuring depreciation. They all check direct shrinkage by watchfulness at the counters and in the receiving rooms, and by handling stock sub- ject to rapid depreciation with unusual care supple- mented with the advice of manufacturers. They also MISCELLANEOUS SAVINGS 137 uniformly charge repairs caused by general wear or tear to ordinary operating accounts and keep the reserves resulting from depreciation free for use in making re- placements. Some of them use the reserves in taking discounts. "Without an exception they keep mark-down records as regular accounts so that from them they can predict the amount of the mark-downs normally taken during any season and cover it in their mark-ups. They hold that goods are only worth what they will bring and inventory at actual selling values, not original mark-ups. But they do not figure the actual depreciation written off in any uniform way, although they agree three factors are involved: general decay; the probability of more efficient types developing, or obsolescence; and the pos- sibility of the type becoming inadequate on account of the business expanding. Under these conditions they predict the period of probable usefulness, taking into consideration quality, task and management. The next step is to spread the depreciation over this period of usefulness and in doing this their methods vary. Some simply divide the original capital outlay by the numiber of years in the estimated period of use- fulness and write off the result each year. Others take an unusually heavy depreciation the first year and then figure the remaining depreciation by the first group's method. A third group uses what is probably' the most prac- tical and accurate plan. They first subtract from the original capital investment what they figure will be the scrap or second-hand value after the period of useful- ness has elapsed and divide this remainder by the number of years of expected life. The result is written off each year until the original cost less the estimated resid- ual value is covered. Many merely take an arbitrary 138 MERCHANDISING EXPENSES figure. But, though, their methods differ, not one neg- lects to build up depreciation reserves. These four items (general expenses; heat, lighting and power; supplies; and depreciation and shrinkage) are the small expenses the costs too often passed over with scant or hasty consideration. Yet actual instances demonstrate that the Standard Oil Company and Sears, Roebuck and Company concerns together handling tens of millions of dollars each week find the little expenses worth attention. This ; is a straw that indicates the trend of business development it is becoming necessary to watch more carefully the dollars and cents at work in distribution. And as a matter of fact it is frequently possible to make dollars by saving them. PART IV MAKING MONEY IN SPITE OF HIGHER COSTS IX POLICIES IN RETAIL COST KEEPING A LTMAN although he is dead, his big retail busi- JL\ ness keeps his name alive worked out systems which tell at a glance the yardage left in the bolts on shelves floors below. Altman incessantly used figures, facts, records and statistics. Wanamaker has figures, too, but he centers on merchandising sales plans, ad- vertising, stocks and buying. And so it is among merchants. There is but one end profits and many different means. Some the an- alyzers use records as means; others the salesmen- 1 - make selling the means and rely on records for no more than a varying amount of guidance. Between these extremes is the average American merchant. For him it is obviously impossible to lay down a cut and dried system. That would be attempting to fit his business to a cost system, while he may either rely on costs extensively, consult them only for rough and ready guidance, or make good on a sheer knack for sell- ing. The cost system must be shaped to the merchant, not the merchant to the cost system. And, to say the same thing another way, the type of cost system a mer- chant will pick depends on his business characteristics. Of course there are certain accounting principles which should be present in every cost system if it is to prove 142 HOW MERCHANTS GET AHEAD worth while, just as there are certain principles which a man must uphold if he is to succeed in the long run under average conditions. I?irst of all, a cost system is not worth much if it does not work through the entire set of books in connection with which it is used. If it stops half way or fails to take into consideration items such as depreciation and leakage, there is considerable danger of its doing more harm than good. Secondly, a cost system will work itself to death, eat off its own head, if it is not simple. Probably the worth of a cost system is measured more by the cheapness with which it gets needed facts quite truthfully than by any other factor. Simplicity prescribes a certain amount of give and take in the working of a cost system figures need not be absolutely exact when there is no necessity of absolute exactness. A good many merchants are said to have spent and there is probably more than a grain of truth to it the better years of their lives scratching pen against paper in order to achieve the round about and needless exactness required by their cost systems. There is of course a point at which the virtue of rough- and-readiness in cost system facts may become an ex- ceedingly disastrous characteristic. /This is a question for everyday logic to settle or, possibly, the advice of a broad minded expert. Perhaps an instance will help to explain. On the way from the elevator to the private office of a merchant who is rapidly making himself and his three sons millionaires in an important middle-western city, I passed the desk of his credit manager. The credit manager was taking cash from a customer. One of the first subjects this merchant and I hap- pened to discuss was the cost of delivering packages by a combined fast heavy gasoline truck and light electric SOUND COST KEEPING 143 wagon service. He showed sheet after sheet of costs con- cerning the delivery of packages by this system, arranged from varied angles. Although these figures were in- S tock VJ . Wcrv*. j>W o Month Sales Inventory Turns Mku. Month Sales Inventory Turns Mku. 3^2i lt-oo.il, 320.17 S.f 33.. 1 AUr. /7SO./7 4OO.04- 2-f 31.5 'fWnJx /4fi>_- Vvuvy y*-"<-je- J^xjLy Stocl Stock v^LcrvXLA (At CflS t) Plan From *\/ j rt fl [>yv^xj-*vXA-v I TQ \A-J^* \Vjcvr o napt ? ^ ^ S5O -200 $ 6, 50 OperiTc OpenT Approx Buy For . .-5. . Turns Jp Buy For Each Turn mate Stock Limit (Open to Buy $?. 3 P. plus Average Stock On Hand ^f **&)=*# 5"5^ 330 FORMS I and II: These forms are from the cost system of a merchant who depends on figures for an unusual amount of assistance. The larger supplies turnover facts. The smaller assembles a six 'months' stock plan teresting, it was evident that a good many of them satis- fied no earthly practical use under ordinary circum- stances. So I said, ''You have a very detailed cost sjrstem." "Yes," he replied, "it is a wonder. But I guess it takes about all the time of my younger son you see he is specializing on that side of the business. " The credit manager and the cash were in my mind. I could not resist the need of mentioning it, and said: "Your cost system is certainly specific, but I find my opinion of all these delivery figures, no matter how de- tailed they are, considerably lowered by the fact that 144 HOW MERCHANTS GET AHEAD your statistics of bad accounts depend on the honesty of a man who does not deserve to be put under tempta- tion. Half your doubtful accounts, although perfectly good, could be turned into dead losses through no cause of your customers. Your system would report these facts in minute detail except the single fact that the customers were not to blame. I noticed your credit manager taking cash. Of course, he is also writing off accounts." He was all attention at once and took statistics on overdue accounts out of the top drawer of his desk, where they were ready at hand. He had been worrying about the situation himself, but hesitated to question the elaborate cost system worked out by his son. His figures on bad debt losses showed that the credit manager controlled over twenty thousand dollars in that way, yet gave no bond and received fifty dollars a week. It happened that the credit manager, like nine out of ten men in business, was absolutely honest. "Without doubt the thought of taking money from a customer and then writing off the account had never entered his mind. Yet here was a definite policy need confused with the detail of a system of accounting. COST systems are somewhat of a mystery to most of us. But these simple characteristics of all of them make it easy to analyze your cost accounting needs. In addition to thoroughness and simplicity, a third basic need of cost systems is comparisons. Facts by themselves are helpful to a greater or less degree de- pending upon the amount of experience with which the merchant is able to consider them but in the end it is comparisons that count. A cost system may take the entire time of ten experts to collect figures from every SOUND COST KEEPING 145 conceivable angle and from every conceivable source and still fall short of its purposes if it fails to supply comparisons. I know of a store that boasts a fifteen-thousand-dollar a year treasurer, a five-thousand-dollar a year assistant treasurer, a four-thousand-dollar a year head accountant, and eight people who give all their time to operating its cost system. One man spends the eight hours of an eight hour day copying on a typewriter the figures un- earthed by this indefatigable band. Another young man sits the day through before a huge glass-covered ex- pense classification, fitting bills around the skeleton of this remarkable cost system. And yet this system fell absolutely flat when the store needed it most. It had been industriously squeezing figures out of the money spent and taken in by that company squeezing them out in every ingenious way that the cost accountants could conjure up but it was not getting the right sort of simple fundamental com- parisons. It did not show the relation of the stocks on the shelves to the sales for the current periods in com- parison with earlier periods. The store put up a new building, designed to handle many additional lines, stocked heavily, and moved. The sales at the new location, particularly in the added lines with which the managers had but little experience, soon behaved disastrously. They held up beyond expecta- tions, but the bills began to swamp them. For each incoming dollar, over on.e hundred and fifteen cents went out. The store was on the way to going broke. The owners borrowed money one million four hundred thousand dollars of it, to be exact but it was like throwing good American money away. The cost system corps worked 10 146 HOW MERCHANTS GET AHEAD faithfully and hard during this extremity far into the night, piling up figures upon figures. But the figures still neglected the needed comparisons. Finally an as- sistant to one of the higher officials started out of his J<3 tnonH Slk 1 tSfU 9U-19 fOOXt 4 PAIRO! 14, tat*. Julj tug. S.pt. on. IT. tec. tan. r^. hr. Ipr. Ky JUM fr.n. . 10.00 (0.00 86.67 86.67 80.00 13.33 (0.00 Kl.OO SO.OO 16.67 Mr. TUtaB 15.00 7. SO 65.00 7.50 >0.00 5.00 . Porter 12.00 H.OO 52.00 J6.00 . *n*jr 6.00 W.OO 34.67 39.33 45.00 1.67 5,00 15.00 to.oo 3.33 . Dmi* S.OO 4.17 . MoC*ll 12.00 . fcy.r 10.00 . CclM 10.00 moa . Brora e.oo e.oo 1 913-1! 14 . toad MRttfto. 10.00 e.oo II r. Too MM 20.00 90.0C 66.67 86.66 90.00 63.73 90.0C 90.0C 80.0( 86.6F e.s7 86.6* 66.67 1043.33 HM.Cook e.oo y r. HI kn 15.00 6T.5C 65. Of 65.00 67.50 62.50 67. 5C 67.5C frO.OC 65. OC 65.00 65.00 65.00 T82.V> i r. Por Ur 12.00 54.0C 52.00 52.00 54.00 50.00 54.0C 54.0C 4U.OC 52.0C 52.00 52.00 52.00 626.00 i r. Hur P< 7 BM. c c Mac 11.00 33.00 11.00 44.00 r our II* 1 11.00 77.00 11.00 68.00 u r. Cu r 15.00 30.00 30.00 r. CnhK T ,tal b r UT5C 23634 37833 26950 22116 2475C 2475C 8200C 23632 23834 23832 23834 3031.15 Total *,.. | r. Cr. hju 141G6 14167 14166 14167 14166 14167 141*6! 14167 14167 14167 14167 14167 1TOO.OC 1 r. VfC ord 15.0C 24.00 25.00 25.00 25.00 25.00 25. OC 25. OC 25. OC 25.00 i5.CC 25.00 300. OC tal b 186M 16647 16*6* 16667 16666 166*7 1666' 1666" 16661 16MT 166*7 1646V 2000 .OC FORMS III and IV: These tables and those on page 147 belong to the cost system of a store that uses the budget system. The fundamental idea of such a system is the setting up of estimates for the year ahead own initiative to locate the trouble. He did not know a great deal about accounting, but he did have a bit of a knack for analyzing. He mulled over the cost system 's great mass of figures, looking for loopholes. Matching these figures one SOUND COST KEEPING 147 against another, he made the startling discovery that in the new departments, added on moving to the larger building, stocks were seventy-five per cent larger, for corresponding sales volumes, than in the sections handled IT65.83 1900.00 670. 00 w.oo uea.o* 1MO.OO FORMS V and VI: As explained on page 146 and further illustrated by these tables, the appropriations in a budget system afford the managers a constant check on expenses and give the departments tangible, reasonable records against which to compare efforts by buyers trained under the store's excellent merchan- dising system. The new buyers were at once called together, instructed to reduce their stocks, and the store put on an exceedingly profitable basis within a very short time. 148 HOW MERCHANTS GET AHEAD DAILY SALES AND GROSS PROFIT STATEMENT BY CLERKS NAME OF CLERK . GOODS SOLD %&P. OH SALES LAST TICKET USED tdded to Stock turned by tatomr, Oe duet from Sales 4 Cost of Goods duct from Cost of Goods Sold Monthj C Wednesday Friday F Saturday R Saturda7 Thursday X Saturday Total for weefc EE Monday FF Total for month SAME MCNTH LAST YEAR GG Total for year to date HH Tot. lastyV to this date FORMS VII and VIII: These two forms (spread across both pages) are from accounting systems of progressive manufacturers the upper from R. H. Ingersoll and Brother's jewelry system, the lower from Hart, Schaffner SOUND COST KEEPING 149 v 191. I NAME OF CLERK CROSS % SALES w I"' ** a " LAST TICKET USED CASH SALES CREDIT SALES TOTAL SALES COST OF GOODS SOLO GROSS PROFIT %tr>. OH SALES 191 J 6 Mian \Less6oods Ls- 7 Cost of Goods SoU, Less Cost of Goods Returned 8 Gross Profit 1 % Sales 10 Weather 11 ETMt t r i i f Y -\^- > ^s~ 1 , tomma Tf M*" " 111 Year to Data Last Year to Date m oo / LL Amcunt g An-ount g A m o U nt g" i Qross Profits on Sates | Deduct Expemw Rent Advertistni Advance Orders for Season r Salaries, ffiSSS" Freight znd Express 1 TMsSeason & IT. Sea< Last Ye on r Total Expenses Bought Entire Season Net Proftt on Sates ^Delivered to Date Add: Dlseert Received - g24- S 20- 13- 16- 11- 12- UH 8- 6- 4- 2- COMPARISONS OF AVERAGE PROFITS fc:^; "IIS; m JjiiHij Ave Ave Ave rage Mi rageN rageC Include * Prof 5t Prof istsoj id and its on Capital Invested (Manufacturers) its, One Turnover (Retailers) Doing Business (Retailers) Cash Discounts Mark- downs Deducted, IHiljiii j&iij! ml H ill jljgj: |^ jjl 1 ; >>^:^ : ill FIGURE XV: The averages here compared demonstrate that distributors must stand up for fair profits in order to secure gains equal to those with which the consumer rewards the manufacturer Suppose that Carl J. Ricker takes a trip to Chicago from his jewelry store in Emporia, Kansas, and finds "blue bird of happiness" pins popular there. He carries a stock of them back to Emporia; offers a section of Kansas something attractive it might never have been 11 162 HOW MERCHANTS GET AHEAD able to secure if lie had not shown get up and go enough to visit Chicago in order to widen the scope of his buy- ing ability. If his cost of doing business happens to be eighteen per cent, including a fair manager's salary for himself, and ten per cent his idea of a net profit, is his correct mark-up on the "blue bird of happiness" pins twenty-eight per cent? Not for a moment. He has a novelty, a bit of jewelry consumers desire. They will gladly pay him a high profit in return for his progressiveness and ability in locating it. He may justly take a hundred per cent mark-up, or even more. "That reads very nicely/' you may question, "but how about actual practice?" As a matter of fact the incident is true of actual practice. Kicker came to Chicago, found the pins, and took them to Emporia. Though his cost of doing business may not be eighteen per cent, his net profit ten, or his mark-up on these pins one hundred, since he is a wise merchant, he doubt- less secured a higher gross profit than usual. ONE item is a staple, another a novelty. How shall I mark them up? Here is an answer of interest to manufacturers, jobbers, wholesalers and retailers. Today distributors who secure attractive profits disre- gard blanket mark-ups, and take a gross profit on each line according to what it will bring. They find ac- curately the costs to sell a line, and stand up for a reasonable profit, adding a greater return whenever possible. They are justified, for business men always go a long ways for long profits. Styles or novelties, the carriers of high profit possibilities, usually involve extraordinary risks and abnormal selling expenses. Round figure mark-ups are relics of the days when jobbers educated retailers to "buy at eighty cents, sell MAKING SURE OF A PROFIT 163 at one-twenty-five; buy at one-twenty, sell at one-fifty; buy at one-sixty, sell at two." Today progressive re- tailers know that the nature of the goods, not the out- of-date advice of jobbers seeking to assure them a pro- tecting margin through rule-of-thumb methods, fixes gross profits. Where would the retail grocer be if he marked up staples and fancy lines with the same margin ? Or the distributor at wholesale who tried to get as much on sugar as on roasted coffee, teas, spices and dried fruits? A Michigan retailer died recently after working thirty- eight years behind counters. He left $250. They found he had used a general mark-up lines that cost $2.00 a dozen he sold for twenty-two cents each; five-dollar purchases brought him fifty-five cents a piece; and eleven-dollar lots, one dollar and twenty cents an article. The shoe business of the country is in a bad way, at least as far as retailers are concerned, because the dis- tributors fail to secure a suitable return for the style changes which now disturb their stocks. Many use fixed prices, pity the customer when he does not pity himself, and hesitate to stand up for style prices on style stocks. However, the National Boot and Shoe Manufacturers* Association and the National Shoe Retailers' Association now advise the discontinuance of fixed mark-ups. Too large a profit is, however, dangerous. The great concerns of tomorrow will undoubtedly build on small profits, rapid stock turns, and large volumes which pro- portionately lessen expenses. R. H. Macey and Com- pany grew for several reasons, but one of the most im- portant is their reputation for taking only a twenty per cent mark-up. Nevertheless, round-figure marks-ups usually bring ruin in this day of closely figured costs. 164 HOW MERCHANTS GET AHEAD TYPICAL PROFITS and These figures supply only net gains on sales, but the profits on the invest- ments may easily be figured from the data given. The simple method of ar- riving at the net profit here used covers roughly all losses from mark-downs and unknown sources. The approximate number of stock turns secured FOR A GROCERY STORE A grocery in the South submitted these figures - they are reasonably typical of a prosperous grocery business. The small stock investment is the most marked char- acteristic of the line. Of course the average grocer is not even approximating these earnings. Advertising and donations . . . .$ 1,275.50 Bad debts 492.66 Delivery 3,410.85 Depreciation and shrinkage . . . 961.10 General expenses 942.75 Heat and light 475.20 Insurance and taxes 844.56 Interest on investment at 6% . 630.00 Ttent 2,865.00 Salaries (including owner's) . . . 7,842.94 Supplies 385.61 Stock, first of year, at cost $ 7,341.60 Purchases for year, at cost 73,021.45 $80,363.05 End of year stock, at cost 6,998.11 Sales, at cost Actual income from sales . . Gross profit $22,878.81 Expenses, as detailed above . . . 20,126.17 Net profit $ 2,752.64 Net profit $ 321.1 FOR A DRUG STORE This is an actual store - in New Eng- land. The owner thought he was mak- ing a pretty nice thing out of it until a representative of a commercial agency asked him tc> take out the interest on his investment, and a salary for himself, before reporting his net profit. Advertising and donations $ 1,204.81 Bad debts 106.15 Delivery 299.06 Depreciation and shrinkage . . . 210.62 General expenses 587.44 Heat and-light 462.25 Insurance and taxes 492.14 Interest on investment at 6% . . 900.00 Rent 2,400.00 Salaries (including owner's) . . . 4,952.70 Supplies 241.11 Stock, first of year, at cost $ 8,120.16 Purchases for year, at cost. . . . 29,711.02 $37,831.18 . 7,902.10 End of year stock, at cost . Sales, at cost $29,929.08 Actual income from sales 42,106.52 Gross profit $12,177.44 Expenses, as detailed above . . . 11,856.28 FOR A JEWELRY STORE It is interesting to compare these fig- ures from the books of a middle-western jeweler with those epitomizing conditions ra the shoe store - table opposite, to the right -securing approximately the same sales volume. Advertising and donations $ 2,400.91 Bad debts 171.54 Delivery 289.25 Depreciation and shrinkage ... 821.22 General expenses 405.25 Heat and light 592.61 Insurance and taxes 1,185.16 Interest on investment at 6%. 2,962.85 Rent 3,500.00 Salaries (including owner's) Supplies Stock, first of year, at cost. Purchases for year, at cost . End of year stock, at cost. Sales, at cost Actual income from sales . . Gross profit Expenses, as detailed above . . 9,872.91 738.50 . 38,210.90 . 54,782.45 $92,993.35 . 37,466.21 .$55,527.14 . 80,942.56 .$25,415.42 . 22,940.20 Net profit $ 2,475.22 MAKING SURE OF A PROFIT 165 COSTS by TRADES becomes apparent when the averages of the two inventories are divided into the sales at cost. In figuring rates of turnover from figures representative' of manufacturing concerns, the average of the amount of capital invested* during a period is usually divided into the net sales for that period* FOR A DEPARTMENT STORE FOR A HARDWARE STORE These figures are slightly disguised. They clearly illustrate the characteristics of department store merchandising. Advertising and donations. .$ 113,209.25 Bad debts 5,691.95 Delivery 81,211.01 Depreciation and shrinkage. 20,319.12 General expenses 60,904.88 Heat and light . . 31,843.60 This is an ideal store made up from figures presented before many conven- tions, the opinions of several credit man- agers, and facts submitted by scores of individual stores. The figures are in- tended to be obtainable averages. Advertising and donations $ 210.80 Bad debts 208.60 Delivery 156.50 Depreciation and shrinkage ... 180.00 General expenses 1 10.0O Insurance and taxes 23,191.40 Interest on investm't (6%) 37,210.84 Rent 121,670.80 Salaries (including owner's) . 241 ,625.61 Supplies 27,204.51 Heat and light 100.50 Insurance and taxes 180.50 Interest on investment at 6% Rent Salaries (including owner's) . . Supplies 720.00 720.00 . 2,748.00 56.10 Stock, first of year, at cost . 309,750.12 Purchases for year, at cost . 2,167,101.40 Stock, first of year, at cost . . . Purchases for year, at cost. . . End of year stock, at cost .... $2,476,851.52 End of year stock, at cost . 310,461.83 . 7,810.60 . 26,410.20 Sales at cost $2 166 389.69 $34,220.80 . 8,010.10 Actual income from sales. . . 2,881,246.17 Sales, at cost. . . Gross profit . . $ 714,856.48 .$26,210.70 . 34,073.91 Expense, as detailed above . . 764,082.97 Actual income from sales Gross profit Apparent loss. . . . . .$ 49,226.49 Discounts . . 231216.45 .$ 7,863.21 . 5,391.00 Expenses, as detailed above . . Net profit Net profit $ 181 989 96 $ 247221 FOR A SH( That expenses in this New York state shoe store are about normal is estab- lished by investigations made by the Harvard Graduate School of Business Administration, trade organizations and SYSTEM. Advertising and donations $ 2,008.41 Bad debts 98.60 )E STORE Salaries (including owner's) . . Supplies . 8,106.50 371.25 Stock, first of year, at cost. . . Purchases for year, at cost . . . End of year stock, at cost .... Sales at cost . 24,680.42 . 51,414.55 $76,094.97 . 22,365.86 .$53,729.11 . 72,498.24 Delivery . 264 82 Depreciation and shrinkage ... 401 .14 General expenses 1 645 75 Actual income from sales Heat and light '40288 .$18,769.13 . 18,331.50 Insurance and taxes 892 15 Expenses, as detailed above . . Net profit. . . Interest on investment at 6% . 1,740.00 Rent . 2,400.00 .$ 437.63 166 _ HOW MERCHANTS GET AHEAD _ Consumers do not demand round-figure prices; they willingly pay a profit on the service they desire when shown that it costs the distributor money. The customer gauges prices by the satisfaction he secures, not by the distributor's profits. All the consumer asks is plainly marked prices. These he has had for several centuries the Spectator for November 26, 1712, says of John Morton, a merchant, ' * He imposes upon himself a rule of affixing the value of each piece he sells, to the piece itself; so that the most ignorant servant or child will be as good a buyer at his shop, as the most skilful in the trade. ' ' Every merchant is a John Morton today as a matter of course; but not all know costs plus mark- downs by lines, and not all mark-up more than that percentage according to the nature of each line. Still John Wanamaker would face ruin in a day if he did not. a few hours off some day and list the problems JL your business faces under these factors that shape profits. It is by such analysis that stores grow. The strength of the consumers' demand follows the nature of the goods in our list of profit determining factors. It is not possible to consider any one of these factors without regard to the effect of the others upon it. Demand may not be profitable if competitors supply it easily. As surely as nothing sells without demand, the highest profits occur when a distributor secures the means of satisfying, almost exclusively, a portion of a general demand. Therefore, style changes and novelties often bring attractive returns if they touch a strong demand. These facts explain the attention successful dis- tributors give to locating fast selling lines and surround- ing them with attractive equipment or service. MAKING SURE O* A PROFIT 167 FIGURE XVI: Economists show that net profit is set by the business man's ability and the risk pitted against capability, after the nature of the goods, competi- tion's strength and the consum- er's demand have been considered. This point of view that centered on the economic fac- tors involved is charted above in Column I. The next column (IT) analyzes a second viewpoint the accounting and statistical problem. With the figures here suggested regularly reported, there are established checks at the entrances or exits for money and for goods. However, both tested theories (Column 7), and practical ways for figuring, (Column //), depend almost entirely on the methods behind the business, (Column III). 168 HOW MERCHANTS GET AHEAD The fourth, and last, profit factor is this intensity of competition. Since very few distributors market mo- nopolies, they find their profits in part determined by the strength of the competition in their territories. They consequently face the difficulty of deciding between a few long profits and many narrow margins. The entire make-up of their enterprises may be affected by the course they select. Moreover, since a decision to propor- tionately lessen expenses by expanding the sales volume often falls short of its object, many make this factor their Waterloo. Exactly as important as business capability, stock characteristics, demand and competition these four profit factors are sound accounting and mathematical methods for figuring mark-ups. Because custom has at- tempted to fit elaborate bookkeeping practices to the exceedingly simple plus and minus accounting problems involved in ninety per cent of our stores, many distrib- utors go ahead blindly. Two types of facts inventory figures and accurate costs of doing business are necessary. They can, so we have seen, be kept on sets of cards without reference to the traditional ledgers, journals, cash books or trial balances. The relation of costs to profits are summarized in the chart on page 167. The earnest distributor keeps at least figures which enable him, (1) to add purchases to an inventory taken at the beginning of a period, (2) subtract the stock on hand at the end of this period, (3) and subtract the remainder, (4) in addition to every cent he has paid out during the period, (5) including a fair wage for himself plus interest on the money invested in his busi- ness, from his sales. This remainder is net profit. Once he finds how easy it is to get in this way some MAKING SURE OF A PROFIT 169 idea of his net profits, the value of going deeper into his business becomes evident. He then discovers that after all it is not so much of a task to follow the net and gross profits on each line; to pick the slow and fast movers; to apportion the overhead correctly, even by lines; to demonstrate how many lines he can safely carry ; to establish the quickest way to move stickers ; to show what form of advertising brings him the most money, and to fix his losses from bad debts. In short, he pulls himself, without any trouble whatsoever, away from the greatest danger indicated by failure statistics incompetence. Once he has adequate facts and cost figures at hand, still another difficulty confronts the distributor the actual calculation of selling prices. For several years those anxious to help the retailer have earnestly ad- monished: " Don't fool yourself by marking up on the cost price." HOW to figure mark-ups is an old problem which has been discussed pro and con more than the simplicity of the solution warrants. Here is the solution. Although many merchants forget that a percentage of the cost price is smaller than the same percentage of the selling price, it is absolutely incorrect arbitrarily to state that mark-ups from cost figures mislead. It is quite sound to calculate from cost prices if all the per- centages used relate to cost figures. As a matter of fact, many progressive concerns maintain both cost and selling price mark-up records. But most merchants, quite naturally, think of expenses as so much of their sales. If expenses expressed as percentages of sales are figured on costs smaller amounts than the sales, of course mistakes result. To avoid this blunder, it is 170 HOW MERCHANTS GET AHEAD PROFIT in EIGHTY LINES and TRADES Each of the percentages assembled below gives either net or gross profits for an actual line, store, or manufacturing plant. For instance, the grocery store mentioned in the column is near KimbarJc Avenue and Fifty-third Street, Chicago. All the distributive channels are included. By combining the figures it is, in several instances, possible to obtain a rough estimate of the cost of getting certain lines from the factories to the consumers' doors TYPICAL GROSS PROFITS (ON SALES) Per cent American Family Soap (at full price) 16.36 Barington Hall Coffee (at full price) 20 Borden's Eagle Milk (at full price) 13.33 Campbell's Soup (at full price) 25 Chain grocery stores (three) (49 H% reported by the Asso- ciation for Improving Conditions of the Poor) 15 to 49.5 Clothing stock (southern store; range is from 3 to 37%) ... 20 (average) Collar stock (men's), New York City (cost to do business, 29%) 26 Cotton dress goods stock 32 to 41 Cream of Wheat (at full price) 16.66 Dr. Price's Baking Powder (at full price) 23.33 Fels' Naphtha Soap (at full price) 20 Furniture store (cost of doing business, 31%) 49 Grocery store (cost of doing business, 20%) (Sales, $101,877.00) 25 (average) Hat stock (men's) 39 (average) Hardware (large store) '. 33.33 (average) Hardware line (jobber made 17%) 31 Hardware store (town of 2,000) (cost to do business, 25%) 37.5 (average) Instalment hardware line 62 Ivory Soap (at full price) Kellogg's Toasted Corn Flakes (at full price) Large department store (average for seven years) Malt Breakfast Food (at full price) Mail order house (largest in the world) . . .. 20 .. 22.33 . . 24.5 . . 16.66 25 (average) Meat line (No. 2 loin) 33.33 Meat line (ribs) 40 Meat line (500 Ib. steer cost 13 He. per lb.; sold for 14 ^ to 16c. per lb.) . . 12 Neckwear stock (New York City used as a "loss leader') 26 Pet Milk (at full price) 13.33 Pillsbury's Best Breakfast Food (at full price) 16.66 Quaker Oats (at full price) 21.7 Ralston Breakfast Food (at full price) 16.66 Ready-made clothing lines (Tariff Board) 33.33 Restaurant menu (highest profits taken on salads and pastries; lowest on meats) to 300 Royal Baking Powder (at full price) 20.84 Rumford Baking Powder (at full price) 23.31 Shredded Wheat Biscuits (at full price) 20 Shoe store ($5 $6 lines at retail) 25 to 33.33 Shoe store ($6 $15 lines at retail) 45 (average) Shoe store ($4.50 shoes cost $2.40 and $2.65; $5.00 shoes -cost $2.85 and $3.25) 40 ! (average) Syrup line (at full price) ~ 18 Uneeda Biscuits (at full price) 16.66 Variety goods bargain basement 15 to 25 Variety goods store (average cost 5c. articles, 40c. a doz.; average cost lOc. articles, 80c. a doz.; average cost 25c. articles, $2.00 a doz.) 25 to 33.33 Wesson Salad Oil (at full price) 20 MAKING SURE OF A PROFIT 171 TYPICAL NET PROFITS (ON SALES) RETAIL Per cent Cash grocery 3 to 5 Clothing stock (southern store) 4 Commissary and general store 8 to 10 Dry goods store (small town) . . 10 to 12 Dry goods store (large city) ... 5 to 7 Furniture stock 18 Grocery 4to5 Hardware store (town of 5,000) 12.5 Large department store (average for seven years) 3.1 Mail order houses (average three years; two of the largest con- cerns; cost of doing business of the largest, 15%) 6.8 Variety goods store 10 to 12 Variety goods bargain basement . 5 to 10 WHOLESALE Wholesale cotton dress goods concern 3 Wholesale grocery concern (cost of doing business, 8%) 2 Wholesale shoe concern 4.5 MANUFACTURING Cotton manufacturers (50 South Carolina mills, on the capital) . 10 Cotton manufacturers (thirty- year average, 100 English companies, on the capital) .... 5.33 Packing concern (also sells at wholesale) 2.5 Shoe manufacturer 5 TYPICAL LARGE DEPARTMENT STORE GROSS PROFITS Per cent Art goods or needlework 28 Blankets, comforters, pillows, sheets, etc 27 Cameras 26 China or glass ware 32 Clocks and watches 28 Colored dress goods 28 Harness 31 Infants' clothing 30 Leather goods 32 Linings 32 Neckwear (women's) 29 Notions 31 Trimmings 28 Upholstery 33 Wrappers 26 only necessary to keep clearly in mind what your per- centages actually tie up with sales or costs. This table shows the difference between percentages on sales and costs marking up an article 50% of its cost price is exactly the same as adding 33%% of its selling price: Selling Price Expressed Percentages as Fractions 50 1/2 1/1, 331/3 1/3 1/2, 284/7 2/7 2/5. 25 1/4 20 1/5 i2y 2 i/s 10 1/10 Corresponding Cost Price Percentages 100 50 40 1/3 331/3 1/4 25 1/7 142/7 1/9 111/9 Here is an example to illustrate these facts. Suppose a merchant who finds it costs him 25% of his sales to do business and wants a net profit equal to 10% of his sales, 172 HOW MERCHANTS GET AHEAD desires to secure a sound profit on an article which cost him $10.00. He knows that the selling price represents all, or 100%, of his income, and since the costs and the profit amount to 35% of this, the cost in this case $10.00 can be nothing more or less than 65%. If $10.00 are 65% of the selling price of this particular article, then 1% is 1/65 of $10.00 or $0.1538. If $0.1538 are one hundredth, the entire selling price will then become 100 X $0.1538, or $15.38. But now consider that this merchant records his ex- penses and net profits as percentages of the cost of his stocks. He would find them to be 53%%. To get his selling price on the same $10.00 item he would simply add 53%% to it and get, as before, a selling price of $15.38. But if this is the nigger in the woodpile they talk so much about but if he became confused, took the 35% selling price mark-up as a cost percentage, and added only $3.50, he would get a very unsound, ruinous selling price $13.50. This is the type of mistake re- sponsible for the agitation about marking up on the sell- ing price quite evidently, one that is easily avoided. BIG, easy-going profits were possible fifteen or twenty years ago. But today it is necessary Jo build up equivalent gains with a number of small profits. This confusion of profit figuring methods, combined with the variable nature of the factors that shape net returns, makes the setting up of hard and fast standards impossible. Recently the Philadelphia grocers cut prices to a certain trade class eight per cent ; St. Louis retailers at once declared that somebody had made a disastrous mistake, since five per cent, in their opinion, measures the average net gain on groceries. Some believe that a $2.25 shoe retailed for $3.50 gives MAKING SURE OF A PROFIT 173 a good value, still others regularly market a $3.00 shoe for $5.00. One investigator reports finding that retail distributive gross profits range from 24% to 35% ; an- other fixes upon from 9%% to 30%, with an average at 23 l /2%; and a third considers 33^% a fair average sell- ing price mark-up for all lines, with normal costs be- tween 22% and 26%, and reasonable net gains over 71/3%, but under 11%%. Nevertheless, typical gross and net profits are valuable, if for no other reason than that they point the fast turning, narrow-margin lines. They fix just when to stand up for a profit. At least they show what the other man is doing mighty helpful knowledge, now that the days of big, easy-going profits have faded. There can be no doubt about this dwindling of profits. In 1899 the average grocer marked up his stocks eighteen or twenty per cent; today twenty-five is more usual. The By-Products Coke Corporation of Chicago finds that rising costs, combined with other conditions, cut its net profits exactly 2.42% during 1913. This chapter brings together several hundred typical profits. Since the low man usually sets the market's price within his trade radius, it is well worth the time to study these normal figures. But a sufficient array of modifying restrictions has been brought forward to pre- vent their receiving consideration as absolute standards. The charts on pages 111, 120 and 161, collect and average typical cost, discount and net profit figures. SYSTEM'S investigators secured some of these facts, trade organiza- tions worked out others, and a few only recently came before congressional committees handling legislation touching business. With all these typical profit facts the percentages refer to selling prices. Business is no stronger than the weakest function 174 HOW MERCHANTS GET AHEAD if these averages indicate waste motions in distribution, this weakness will be felt all over the land. Distributors already sense the danger dwindling bank balances supply exceedingly effective barometers. They first of all turn to costs of doing business find out exactly where they stand. The next precaution is to prune these costs to the lowest figures possible for cutting off a bit from the expense total means widening the profit margin. And the profit margin supplies the wherewithal for keeping up with rising costs. Not until all of this is done can a business man turn to consumers goaded to insistence by the high cost of liv- ing and confidently say : ' ' The conditions start beyond my control I understand that it was up to me to help myself out first, and without assistance from anyone, without being forced to it, I've eliminated every false motion, every waste over and above these rock-bottom costs of mine you've got to allow me to stand up for a sound profit." XI MORE TURNOVERS, THE ANSWER TO HIGHER COSTS TURNOVER is the measure of the work each dollar in your business does for you. It is at once the way to profits and a check on your results. The world 's largest manufacturing house in one line, for instance, has all the brain-power of its organization concentrated just now on an effort to do better than turn its capital once in two years. Prices are so standardized in its field that they literally can not be raised, though the cost of doing business is constantly increasing. The only way this company 's capital can make a living wage, therefore, is to spend less time on each job to make quicker turnovers. With this end in view, the management is trying to cut down its ordinary supply of raw materials with- out hampering production, to speed up factory processes without adding expense, to carry smaller stocks of finished goods without sacrificing sales, and to short- cut collections without making payments too hard for prospects or customers. In wholesaling and retailing the same trend is evident. Turn your capital oftener, then, is the answer heads of concerns, large and small, are making to rising costs. Money in a business must earn more than bank interest. It buys raw material or stocks and pays running ex- 176 HOW MERCHANTS GET AHEAD penses. When costs rise with, selling prices fixed, makers and distributors must buy and sell on narrower margins of profit. But turn stock quickly and the little profits, totaled for a year, may equal or exceed a net gain based on wider margins over a longer time. Standards for judging just how hard other men have made their capital work and the methods by which they have made more turnovers, drawn from the capital investment figures and the stock and sales reports of more than seven hundred going concerns, are here as- sembled. They are as important as any of the facts a merchant should have in his struggle against rising costs. Rapid turnovers, for example, are today securing the trade of a new five-story department store in a small Indiana city for a less pretentious shop diagonally across the street. Its quick turns allow the smaller store, which is run by three brothers still in their thirties, to make money on margins so narrow that it repeatedly cuts under the prices set by the big rival's slow turn- overs. The owners of the larger store, who bought their first stock in 1850, know bankruptcy is ahead if rising costs continue to mount into their dwindling profits. Bewildered for the first time in sixty years, they are fighting to save their sinking business. They have put in an accurate cost-keeping system, purchased new fixtures, and advertised heavily, still each January of the last three years has seen them meet deficits by reducing the savings set aside for their families. The young brothers, also faced by rising costs, clearly understand why they are winning they divide the high costs over many turns, a remedy for diminishing profits perfected since their older rivals learned to merchandise. These figures, which were taken from MORE TURNOVERS 177 Turnovers In Representative Stores f J = One Turnover FIGURE XVII: The circles vary in size roughly according to the rela- tive net profits. When two sizes appear for the same line, the smaller represents fractions of turnovers. This is also true of the chart on page 189 the books of the two stores during last October, epitomize the situation : average stock, at cost, in the three brothers ' ready-to-wear section, which sells annually clothes worth 12 178 HOW MERCHANTS GET AHEAD about $145,670 at wholesale, $14,481 ; corresponding facts from the big store sales, $125,820 ; stock, $24,899. Since they are securing twice as many turnovers, the brothers make money on mark-ups which would not pay the larger store a cent. * ' Quick sales at small profits is the modern idea, ' ' the elder of these three brothers says. ' ' My brothers and I got our training under one of the most successful mer- chants in New England. Then we came west to try out his methods. We picked this city because the heaviest competition is controlled by two elderly men who learned the business in the days when the jobbers regularly gave six months' credit, and the retailers four or six. Theirs is the old idea selling slow, at a good profit. We have in mind the Greek banana man who puts his money into fruit in the morning and has it back again by night, plus two or three per cent net profit. He makes over six hundred per cent on his capital annually, if he is out every working day. ' ' We succeed in turning our money seven times a year now. I don't believe our rivals do better than three. We are quite satisfied with five per cent net on a turn or thirty-five on our investment in stock. They have to net over eleven per cent in order to equal our showing at the end of the year. We believe that it is better to get three sales at five per cent net, as long as you cover your costs, than it is to make one at ten. We build our big profit from a number of little profits I think it's some- what like carrying into merchandising a saying of Franklin 's which father made me learn by heart : ' Five shillings turned is six, turned again is seven and three pence, and so on till it becomes a hundred pounds.' ' These ideas and methods are not unique. In prac- tically every city and town some retailer or wholesaler MORE TURNOVERS 179 is using them to overcome competition and master rising costs. In Logansport, Indiana, for example, H. S. Sey- boid, of the Seyboid Dry Goods Company, cut $5,000 from his linoleum inventory and handled more sales. In Columbus, Indiana, A. R f Rosenbush reduced his hat stock over $800 and satisfactorily cared for his usual trade. Numerous like instances show that shrewd mer- chandising on small stocks is enabling distributors to pay rising costs profitably. MORE turnovers enable you to meet rising costs and new competition. They also secure absolute savings of several sorts but must be based on sound profits. In much the same manner automatic machinery, new office appliances and scientific management have helped manufacturers and office men turn their capital quicker. When management finds a better way for handling men, money invested in wages yields higher returns; when an inventor perfects an office appliance that shortens tasks, again capital may be placed more advantageously ; and when an automatic machine cuts factory work, the money spent for it gives larger dividends than resulted before the invention. More turnovers come from these advances, bringing new profits for meeting rising costs. Net gains nevertheless dimmish in many industries be- cause costs increase faster than the gross profits. Of course, the large sales volumes of today, when they pro- portionately lessen expenses, also make it possible for manufacturers and distributors to declare satisfactory dividends on lower net returns. But increasing the stock turn, usually a far more adaptable means, accomplishes the same object higher profits with no advance in price. If, then, more turnovers is the business man's answer to rising costs, why have they been neglected ? It is not 180 HOW MERCHANTS GET AHEAD difficult to explain. More than ordinary knowledge is required to secure a rapid stock turn and it has taken time for merchants to learn. Some got the knack quickly our largest department stores, prospering on rapid turns at exceedingly narrow profit margins, resulted. The majority, however, saw no need for careful mer- chandising, since profits were long and costs low. But the rise in costs which has marked the last ten years over three per cent in retail lines forced them to either learn or go out of business. When profits were generous, competition scattered, credits long, and transportation slow, it was safe, or even necessary, to buy a year or six months ahead. Today, following the rise in costs, mar- gins are not generous enough to allow the holding of profits on the shelves in merchandise. The hand-to- mouth buying which results when failure is avoided, demands a careful gauging of demand and a compre- hensive stock-keeping system. Since these restrictions set no easy task, the commercial agencies tell us that ninety per cent of the retailers in America over-buy. Further, the reports of retail failures from the three causes which reflect the severity of the work incom- petence, neglect and inexperience grew heavier: 33.3 per cent of all the bankruptcies in 1911, 36.8 in 1912. This situation is of importance to all business, for it touches the profits of every enterprise. The happiness and prosperity of the homes are concerned, since over- the-counter prices must finally pay the cost of disasters in the factories and stores. To improve conditions enough to overcome the reduction in net profits, it is necessary that the merchants be given two types of assistance in their fight against rising costs and tighten- ing competition first, national standards against which MORE TURNOVERS 181 to check their stock turns; second, tested methods for speeding up the rates of turnover. National stock turn averages from over seven hundred American stores have been figured from SYSTEM'S in- vestigations to give the averages for the ten standard types shown in the following list. The turnovers are for the complete stocks and have no reference to either the character or the number of the lines carried. Average Number of Turnovers Obtained Type of Store Annually Grocery 10 Department 7 Variety goods 6 Drug 4.5 Dry goods 4 Hardware 3.5 Furniture 3 Shoe 2.1 Clothing 2 Jewelry 1.5 From the books of several hundred stores carrying departmentalized stocks averages for twelve standard lines were obtained as shown below. Average Number of Turnovers Obtained Line Annually Notions 9 Corsets 8 Women 's ready-to-wear 6 Wall paper 4.2 Men 's furnishings 4.2 Underwear 4.1 Hosiery 4 Gloves 3.5 Dress goods 3.2 Silks 3.1 Domestics 3 Carpets 1.5 These average turnovers are for typical lines and bear no relation to the turns normally obtained through com- plete store stocks. 182 HOW MERCHANTS GET AHEAD "With these averages to check against, retailers are in a position to decide if their stock turns rank above or below the results secured in other stores. Turns are easily figured by dividing the sales for any period, at cost, by the cost of the average stock on hand during the period. Once he has secured turnover and cost figures for his store, it is not difficult for the retailer to demonstrate the added profit which an extra turn will bring. The net gains climb when the expenses are cut, the turnovers increased, the totals owing from cus- tomers reduced, or the gross profits lengthened. As soon as larger stocks accumulate, customers neglect to pay, or expenses increase, the net profits dwindle. To show these conditions, it is only necessary to express the cus- tomers' balances and the stocks as equal to so many average days' sales. Your sales, at cost, reach $360,000 a year, or $1,000 a day, let us suppose. Then, if your average stock costs $30,000, it equals thirty days' sales, and the total due from customers, fifteen days', if we take it as $15,000. Also, if your gross profit is twenty- five per cent and your cost of doing business twenty, the net profit for the period will equal the difference between these two percentages divided by the sum of the stock and the customers' accounts due, expressed in days, and multiplied by 360. Or, in figures : Net profit on your capital for the year = 30.4.15 x ^60, or 40%. If the stock is increased to a sixty days' supply, the turnover lessens, and the net profit at once falls : Net profit on your capital for the year = gniig x 360, or 24%. But if you buy closer and push the goods on the shelres MORE TURNOVERS 183 down to a fifteen days' stock, the increased turnover carries the net profit upward: Net profit on your capital for the year = 1 _""" - x 360, or 60%. Although these relations of profits to turnovers are universal, individual conditions vary the number of turns secured in specific stores. The standards given in this chapter therefore require modification when local influences are unusual. The turns obtained in a large department store and in a country general store will differ because of the heavy buying power touched by the city store and its managers' skill. The turnover aver- ages which follow are from several large department stores and a score or more departmentalized concerns in country districts: Number of Turns Obtained Annually : City Depart- Country Gen- Stock ment Stores eral Stores Books 4 1.5 Candy 15 9 Clocks 2.5 1 Embroideries 3.5 * 3 Furs . .- 5 3 Infants ' clothing 5 Laces 4 2 Linens 3.5 2 Men 's hats 7 4 Pianos 9 4 Eibbons 6 2 \ Stationery 5 Umbrellas and canes 11 3 Trunks 5 1.5 Veilings 5.5 Wash goods and flannels.. 5 3.2 The National Dry Goods Association has collected still another group of turnover facts which refers exclu- sively to the dry goods trade. This set of figures is 184 HOW MERCHANTS GET AHEAD given below and should be considered under the re- strictions mentioned on page 14 in connection with related statistics: Average Number of Turnovers Obtained Line Annually Candy 13.27 Skirts and petticoats 7.22 Millinery 6.63 Coats, suits and dresses 5.5 Stoves, refrigerators and cookers 5.45 Shirtwaists 5.14 Patterns 5.05 Furs 4.55 Children 's wear 4.45 Corsets 4.43 Toys and books 4.42 Umbrellas 4.38 Sewing machines 4.37 Neckwear and handkerchiefs 4.26 Wash goods 4.17 Notions 3.97 Linings . 3.77 White goods 3.76 Hosiery 3.65 Furniture 3.65 Jewelry, toilet goods, bags and belts 3.45 Linens -. 3.4 Trunks and bags 3.39 Hair goods 3.22 Muslin underwear 3.20 Table linen and towels ,... 3.09 Eibbons 3.01 Gloves and veilings 2.96 Silks 2.91 Dress goods 2.9 Knit underwear 2.89 Wall paper and decorations 2.88 Men 's furnishings 2.73 Boys ' clothing 2.56 Men 's clothing 2.53 Laces 2.50 Infants ' wear 2.41 Art goods and needlework 2.34 Embroideries and trimmings 2.26 Bugs, carpets and linoleums 2.18 Shoes and rubbers 2.18 China, glass and house furnishings 2.03 MORE TURNOVERS 185 There are variations as marked in the number of turns obtained by stores selling single lines. The average turn- over made by the groceries investigated was ten, but before competition tightened, John Harvey, vice-presi- dent of the Kansas Retailers' Association, handled sales averaging $100 a day with a two-thousand-dollar stock. Many a grocer is today carrying a stock equal to Mr. Harvey's for a fifty-dollar-a-day trade. Again, one of the largest concerns in Boston is making eighteen turns a year in its women 's ready-to-wear sections a Chicago store reporting an equal volume of sales fails to make fourteen turns in the corresponding departments. FVE methods of quickening turns are here described. It is by 'plans such as these that success comes, for faster turns enable the merchant to fight harder. Investigations among drug stores set 4.5 as the national annual rate of turnover for the line. Nevertheless, one store in Chicago makes a turnover every twenty business days, and another, a few blocks down the same street, counts seventy days to a turn. Naturally, stores in cities report quicker turns than those near demands less dense, but expenses are usually lower outside of the urban sections. Even though they average similar varia- tions, the standards here given enable retailers to check up their turns in a general way and to place their stocks in relation with other lines. When the stand- ards are studied in connection with the charts on pages 177 and 189, which show rates of turnovers and costs, it is possible to pick the lines that should rightfully pay the heaviest expenses. "With such average turnover records available, it is not difficult intelligently to try out methods used by others for speeding up stock turns. Investigation of the mer- 186 HOW MERCHANTS GET AHEAD chandising plans successfully used by merchants in five states shows that they are getting more turns in four ways: locating lines which move rapidly; weeding out the slow lines; setting stock limits; concentrating pur- chases with a few manufacturers or wholesalers. Some of these merchants are using only one or two of these methods, others all of them, but not one has discovered and tested a fifth plan. The first method for obtaining more turnovers locat- ing the lines which turn quickly is, according to one of the most successful merchants in New England, at the foundation of good merchandising. Still President Mc- Glasson of the National Wholesale Grocers' Association says that when he asks retailers merely how much stock they have, without reference to the turns secured by lines, many reply, ' ' Oh, I don 't know. ' ' Locating the fast turning lines only requires that stock be taken frequently and the inventories compared with sales recorded by lines. Once the fast turning, profitable lines are known, they are pushed and the stock on the shelves cut to the lowest limit. The quicker the stocks in these lines change, the simpler it is definitely to satisfy customers and to merchandise on a small investment. Manufacturers fre- quently maintain in-stock departments for their fast turning lines, and thereby enable retailers to buy day- to-day supplies. 11 We would not know where we were coming out if we didn't find the lines which turn quickly," declares a middle-western retailer who has made money out of hardware for thirty-two years. "Turnover and volume are in a way more important than profit the success of R. H. Macey and Company in New York proves my statement. We or anybody else, for that matter could make money by selling everything on the shelves over- MORE TURNOVERS 187 night for three-fourths of the cost, if the next morning we could buy at full price what we knew was wanted. The fast turning lines are the wanted lines. If you know them, you have the makings of a good merchandiser and a good merchandiser will succeed, even if he is a poor huyer. We simply keep our sales and inventories by lines. It helps at inventory time if the retail prices are put on each invoice." The second plan for increasing turnovers is to weed out the lines which move slowly. Once the fast turning stocks are tabulated, the less profitable lines immediately become evident. If these slow goods will not stand heavier mark-ups than the rapid lines, they are usually unworthy of shelf room. Eliminating unprofitable lines overcomes a cause of retail failure mentioned by 84 per cent of the successful merchants reached by the investi- gation in four states carrying too many lines. There are many lines which do not turn fast enough to warrant the retailer's investment, for depreciation gradually eats up the slender profit margins they offer. A huge sales volume might be built around these lines, and not a penny of net profit result. The stores which frequently go under when all is apparently prosperous are making this type of sales their owners have not weeded out the slow lines. A jeweler who built a business given up by his father as worthless into a going concern netting him five thou- sand dollars a year, has definite views about this danger springing from slow turning lines. "If you don't know the weak lines, you're bound to hold stocks from season to season, and that's the shortest road to failure," he says. "It's all very well to have a bargain sale or call a job man or start a bargain store under your uncle's name, but it is much more profitable to know the stickers 188 HOW MERCHANTS GET AHEAD ahead of time. Then you can go easy on weak lines ; or, if you do get caught, persuade the clerks to help you with extra efforts before it is necessary to take mark-downs. ' ' Don 't stop at merely knowing the turns by lines, but know the goods. How many men who sell them every day know how clothespins are made ? Close acquaintance with your stock will probably enable you to widen your appeal to customers by selecting new lines and to do so brings new profits. When you get that sort of a grip on your stocks it's only a question of stock-keeping to weed out profitless lines. Once you get the rapid turn- ing lines going well, you will be in a position to aim for big gross sales and less profit that is the type of busi- ness which makes mone}^. I sell a certain novelty pin, for instance, from a ten-dollar stock, by re-ordering daily. I don't invest more than twenty dollars at a time and I turn it twice a week at three per cent net on each turnover. My friend down the street sells at a twenty per cent net profit a farm implement which cost him one hundred dollars. It took him six months to make the sale. Against his forty per cent counting that he repeats the sale in a like time I make three hun- dred and twelve per cent on the investment and have eighty dollars less tied up. That eighty I put into other fast lines." CLOSE buying, from a restricted number of sources, with a careful eye to the stockkeeping standards of your line, is the reply to the problem of rising costs. Third among the tested methods used by the mer- chants working in four states for rapid turns are definite stock limits and plans. The best way to prevent over- buying, in the opinion of these merchants, is to fix the lowest stock which will satisfy demand and then place MORE TURNOVERS 189 Turnovers In Representative Lines \=Oae Turnover FIGURE XV III: To pull what is considered a fair profit for the lines and stores up the grade of the cost of doing business or making sales requires on the average the number of turnovers here represented by circles orders accordingly. This, again, is a stock-keeping prob- lem. Sales and purchases kept by lines give turnovers. From several years ' records of turnovers, sales and pur- 190 HOW MERCHANTS GET AHEAD chases are next estimated three, or even six, months ahead. A reasonable increase in sales is figured and leeway left so that attractive il snaps" may be purchased. It is then possible to hold the stock to limits fixed by weekly, monthly and semi-annual reports. The facts for these reports are taken directly from the sales slips and account books. A system of this nature is maintained in the store of every one of the successful merchants whose methods were investigated. Some of the stores have elaborate records, others only a cash book and a few cards for recording sales and inventories. They all, however, know limits beyond which it is unsafe to buy. This overcomes the constant temptation to buy for a discount, to let the stocks grow faster than the turns, or to allow the buying to get ahead of the selling. The investments in stocks are automatically held to profitable figures, the orders restricted to small quantities, and the fast turning lines pushed. In these stores new stock is arriving every day fresh goods which the salesmen like to handle and very little of the profit is on the shelves. There is one danger in buying too close, however. An Iowa variety store owner, who averages eight turnovers a year, mentioned it specifically, although the ma- jority of the merchants seen by the investigators referred to it. "Your profits are in buying close," he said, "but you are tempted to cut down your assort- ments, and that costs trade. Butler Brothers, the whole- sale house, tell me that all of the failures reported to them in my line during the last thirty-five years were caused either by too much stock or too few lines. So we are between fires. There is only one object, however to get what the customers want, in the quantity they need, at prices they are willing to pay. I find that a MORE TURNOVERS 191 want book and a simple perpetual inventory increased the turns in one of my departments from one to four and a half. I keep four daily records charge and cash sales by departments or divisions of merchandise ; daily sales by clerks; money due from customers; and money owed by me and my bank balance and six monthly rec- ords clerks' wages and sales; charge and cash sales by departments or divisions of merchandise; net profits; expenses ; inventories ; and notes outstanding. * ' But, after all, records are valueless unless you learn to say no, when you're properly stocked, to the type of salesman who talks about sales prospects, loads you up with more than you need, and then helps out your rival when you can't buy any more. My advice is to be as careful about the buying as you were the first year in business and to care for it yourself as long as your time is not exceedingly valuable doing something else. ' ' ' The fourth method for obtaining more turnovers is to concentrate the buying with a few wholesalers or manu- facturers. To do so is helpful in two specific ways. First, there is less danger to the retailer of over-buying through duplication, and bookkeeping troubles are reduced. Second, the manufacturer or wholesaler is naturally unusually interested in the retailers who buy heavily from him. Especially in lines where style changes are important, cooperation between the retailer and the manufacturer is valuable to both. The style points which the manufacturer is able to supply help to increase over-the-counter sales when passed on to the retail selling forces. Small stores are assisted in their buying, and guarded from over-stocking, by the manu- facturers' or the wholesalers' salesmen, when the orders are large. On the other hand, most traveling salesmen attempt to over-load the man who unnecessarily scatters 192 HOW MERCHANTS GET AHEAD his buying. Furthermore, the best "snaps," and the most favorable service, go to the retailer who has con- centrated his buying. Standards against which to check the times invested capital should turn, and plans like these tested methods for handling stocks, supply more turnovers the business man 's answer to mounting costs not only to the retailer, but to all business. In office and factory the stocks are not usually retailed. Still they respond to improved meth- ods for getting more from business investments. Stand- ards for office work are being established, and turnover averages in some manufacturing industries are already known. Alex. Legge, general manager of the Interna- tional Harvester Company, has called the attention of his men to the increased turnover which will result from holding down the materials on hand, the goods on dis- play, and the credits extended to customers. His immense organization is faced by increasing costs so are most enterprises; the effects and results of efforts to meet these higher expenses will influence makers and distributors alike. When the retailer buys in smaller lots, wholesalers must ship with greater frequency. Manufacturers, in their turn, establish in-stock depart- ments or supply the jobbers with smaller units. In other words, the broad answer to rising costs prescribes, first, strong cooperation between the makers and the dis- tributors; second, an earnest spirit among enterprises to help one another make money yield larger returns by turning it more rapidly. THIS BOOK IS DUE ON THE LAST DATE STAMPED BELOW AN INITIAL FINE OF 25 CENTS WILL BE ASSESSED FOR FAILURE TO RETURN THIS BOOK ON THE DATE DUE. THE PENALTY WILL INCREASE TO SO CENTS ON THE FOURTH DAY AND TO $1.OO ON THE SEVENTH DAY OVERDUE. , 23 \^\ Qu I * CVC 1 O 4A" Ucl> j 3 IK 9 FEB20 1940 20My'62 REC'D LD MAY 6 1962 * LD 21-100m-8,'34 u / / UNIVERSITY OF CALIFORNIA LIBRARY