^ -^ -? .! f .'J i; I ^: .' > / i-i- i.^^ ^^.•^;?..;:^>'|;j^- -S^^i^'X^. /VrJrtfvii uimit THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES RE6.U.S.R*T. OFFICE Modern Business A SERIES OF TEXTS PREPARED AS PART OF THE MODERN BUSINESS COURSE AND SERVICE OF THE ALEXANDER HAMILTON INSTITUTE ALEXANDER HAMILTON INSTITUTE NEW YORK Modern Business Editor-in-Chief JOSEPH FRENCH JOHNSON Dean, New York University School of Commerce, Accounts and Finance Associate Editors: PETER P. WAHLSTAD, ROLAND P. FALKNER Titles Authors Business and the Man Joseph French Johnson Economics OF Business . . „ . . . i Joseph French Johnson ( r rank L. McVey Organization and Control ..... Charles W.Gerstenberg Factory and Office Administration , . Lee Galloway Marketing Methods • Ralph Starr Butler Advertising Principles Herbert F. De Bower Salesmanship and Sales Management . , John G. Jones Credit and the Credit Man Peter P. WahlstaJ Accounting Principles Thomas W. Mitchell Cost Finding Dexter S. Kimball Corporation Finance William H. Walker Business Correspondence Harrison McJohnston Advertising Campaigns Mac Martin Inl.\nd Traffic Simon J. McLean Foreign Trade and Shipping Erich W. Zimmermann Banking Principles AND Practice . . . E.L. Stewart Patterson Domestic AND Foreign Exchange . . . E.L, Stewart Patterson Insurance and Real Estate \ S?^'^^-/^'''"'^^ ( Walter Lmdner Merchandising John B. Swinney The Exchanges and Speculation .... Albert W. Atwood Accounting Practice and Auditing . . . John T. Madden Financial and Business Statements . . . Leo Greendlinger Investment Edward D. Jones Commercial Law Walter S. Johnson MERCHANDISING BY JOHN B. SWIXNEY, A.B. Professor of ^Larket'uui, Tiihute University MODERN BUSINESS VOLUME 19 ALEXANDER HAMILTON INSTITUTE NEW YORK COPYRIGHT, 1918, BY ALEXANDER HAMILTON INSTITUTE COPYRIGHT IN GREAT BRITAIN, 1918, BY ALEXANDER HAMILTON INSTITUTE The title and contents of this volume, as well as the business growing' out of it. are further protected by laws re- lating to trade marks and unfair trade. All rights reserved, including transla- tion into Scandinavian. Registered trade mark, Reg. U. S. Pat. Off., Marca Registrada, M. de F. Made in U, S. A. Hf PREFACE In the Text on "^larketing ^Methods" there is a general survey of the different steps in marketing from the producer to the consumer as well as a discus- sion of the function and present status of manufac- turer, jobber and retailer. The latter chapters of "^Marketing ;Methods" outline in detail the operating methods of the manufacturer in marketing his goods. The corresponding operating methods of the whole- saler or jobber and of the retailer remain to be dis- cussed and this is the purpose of the present volume on "INIerchandising." The reader is assumed to be well grounded in the principles of marketing as dis- cussed in "^Marketing ]Methods," as well as in those of organization and management, advertising, sales- manship, accounting, credits and the other subjects preceding this in the Course. ^Methods of doing business are changing daily, es- pecially in trading concerns; therefore it has been necessary to make a special investigation of the field for the purpose of this Text. In this work a number of experienced investigators have assisted me in col- lecting the necessaiy information. The work has been done largely by interview, and visits to various Inisiness centers of the country were made for the purpose. This was supplemented by a large amount 990814 vi PREFACE of correspondence together with questionnaires. Fi- nally each chapter as prepared has been read by several authorities on each topic. Some were univer- sity teachers ; some editors of trade papers ; some sec- retaries of trade associations; but most were officers in or proprietors of wholesale and retail concerns. To give individual credit to each one who has as- sisted would be out of question, for the number would be several hundred; and in addition many good sug- gestions and much valuable material has been obtained by checking over the files of correspondences with In- stitute subscribers. So the limitations of space in the preface require the author, much to his regret, to con- tent himself with one general acknowledgment of his indebtedness. It is possible, however, to give personal credit to my assistants. First, I must mention Mr. W. L. Durant, who has worked with me on the whole volume and to whom much credit is due. Next, I want to record my indebtedness to Messrs. D. H. Eastmead, George F. Hamilton, Max V. MacKinnon, R. B. Shumway and Harold B. Kreider, each of whom as- sisted in the work of investigation and the prepara- tion of the manuscript. In addition various members of the Institute Staff collaborated frequently, while others, especially Messrs. Cuthbert Hague, Ernest E. Jenks and the late Allan C. Carroll, cooperated heart- ily in my regular work so that I could get time to give to the preparation of this volume. John B. Swinney, TABLE OF CONTENTS PART I: WHOLESALE MERCHANDISING CHAPTER I THE SELLING FIELD SECTION PAGB 1. Status of Wholesale Merchandising .... 3 2. Point of Attack 4. 3. Radius Within Which Jobber Can Compete Suc- cessfully 4 4. Radius Within Which Jobber Can Work Inten- sively ;^ 6 5. Radius Within Which Jobber Can Render Efficient Service 6 6. Study of Business Cycles 7 7. Effect of Crop Conditions 8 8. Other Guides to Business Conditions .... 9 9. Total Consumption Capacity 10 10. Condition in the Jobber's Own Lines . . . .11 11. Study of the Consumer 11 12. Study of the Retailer 13 13. Classification of Retailers 14 14. Source of Information on Retailers .... 16 15. Reports from Salesmen 17 16. Analysis of Competition 17 17. Business Policies of Competitors 20 CHAPTER II MERCHANDISING POLICIES 1. Two Kinds of Business Policies 22 :2. Main Sales Appeal 22 ■yU viii RETAIL MERCHANDISING SECTION ^^^^ 3. Marketing Policy 23 4. Price Policy ^^ 5. Locality Price 24) 6. Competitive Prices 25 7. Loss Leaders 25 8. Different Prices for Different Classes of Customers 26 9. Discount Policy 26 10. Three Kinds of Discounts 27 11. Cash Discount . • . .... 28 12. Extra or Special Discounts 28 13. Extra Discounts on Large Quantity Purchases . 29 14. Extra Discounts on Drop Shipments .... 29 15. Credit Policy 30 16. Dating of Invoices 31 17. Trade Acceptances 32 18. Credit for Goods Returned 33 19. Other Business Policies 34 CHAPTER III ORGANIZING AND FINANCING THE BUSINESS 1. Early Forms of Organization 35 2. Military T>^pe of Organization 36 3. Functional Type of Organization 37 4. Variation In Detail 38 5. Financial Division 39 6. Budget 39 7. Checking the Budget 41 8. Auditing the Various Reports 42 9. Credit Department 45 10. Collecting Past Due Accounts 45 CONTENTS ix CHAPTER IV MERCHANDISING THE BUSINESS SECTION PAGE 1. Function of a Merchandising Division .... 48 2. Merchandise Office 48 3. Buying Control 49 4. Indicating Slow-Selling Lines 52 5. Selection of Buyers 52 6. Essential Qualifications of the Buyer .... 53 7. The Buying Market 54 8. Buying Methods 54 9. Authority of the Buyer 56 10. Discounts 56 11. Pricing 57 12. Branch Buying Office 58 13. Supervision of Stockkeeping 59 14. Necessity for Careful Stockkeeping .... 60 15. Stock Rooms ;' . 60 16. Stockkeeping Methods 61 17. Perpetual Inventories 61 18. Physical Inventories 62 CHAPTER V SELLING AND SALES SUPERVISION 1. Function of the Sales Division 65 2. Application of Intensive Salesmanship to a Job- bing Business 66 3. Sales Department Office 66 4. Sales Plan . 67 5. Dividing the Territory 68 6. Sort of Salesmen to Employ 70 7. Expense of Employment and Training ... 72 8. Organizing the Sales Force 72 9. Price Book 73 X RETAIL MERCHANDISING SECTION PAGE 10. Determining Compensation 74 11. Organization of Recording and Statistical Depart- ments . ... 77 12. Keeping in Touch with the Men 78 CHAPTER VI ADVERTISING 1. Necessity for Jobber Advertising 80 2. Present Status of Jobber Advertising .... 81 3. Function of Jobber Advertising 81 4. Advertising for Manufacturing and Semi-Jobbers 83 5. Organization of Advertising Department ... 84 6. The Appeal 85 7. Advertising Appropriation 87 8. Selection of Medium . 87 9. Miscellaneous Types of Advertising .... 88 10. Direct Advertising for the Jobber 88 11. Jobber's Catalog 88 CHAPTER VII COOPERATING WITH THE RETAILER 1. Jobber's Obligation to Cooperate 90 2. Two Kinds of Dealer Cooperation 91 3. Helping in the Solution of Individual Problems . 91 4. Credit Man as Service Man 92 5. Dealer Aids 92 6. Accounting and Store Systems 94 7. Advertising Helps 95 8. Dealer Service Thru the House Organ ... 96 9. Retail Salesmanship 96 10. Correspondence Courses in Retail Selling ... 97 11. Demonstrations of Salesmanship . . . . . 97 12. Sales Contests 98 CONTEXTS xi SECTIOX PAGE 13. House Organs and Miscellaneous Dealer Litera- ture 98 14. Selling Points of Merchandise 99 15. Trade Extension Trips 99 16. Merchants' Weeks or Seasons 99 IT. Checking up Results from Dealer Service . . . 100 CHAPTER VHI OPERATING THE BUSINESS 1. Function of the Operating Division .... 103 2. House Manager 103 S. House Policies 104 4. Methods of Employment 105 5. Standards for Clerical Work and Wage Systems . 105 6. Instruction and Welfare Work 107 7. General Office 107 8. Order and Registry Departments 108 9. Timing the Order ' 110 10. Order Department Reports Ill 11. Order and Registry' for Mail Orders . . . .111 12. Traffic Department 113 13. Contract Department 114 14. Billing Department 115 15. Claim Department 116 16. Profit and Cost Department 116 17. Bookkeeping Department 118 18. Cashier, Stenographers and Miscellaneous General Office Employes 119 19. Warehouse Department 119 20. Receiving Department 119 21. Packing Department . 120 22. Shipping Department 121 xii RETAIL MERCHANDISING CHAPTER IX MANUFACTURING JOBBER AND SEMI-JOBBER SECTION PAGE 1. Manufacturing Jobber Defined ..... 122 2. Why Jobbers Manufacture 122 3. Methods of Organization 124- 4. Relative Advantage of the Two Types of Organ- ization 125 5. Production Methods 126 6. Stockkeeping 126 7. Advertising and SelHng 126 8. Special Terms 127 9. Accounting and Costkeeping 127 10. Pricing Goods to Jobbing Departments . . . 128 11. Definition of Semi-Jobber 129 12. Reasons for Development of Semi-Jobbing Busi- ness 129 13. Organization 129 14. Stockkeeping 131 15. Accounting 132 16. Pricing Goods to Retail Store 132 CHAPTER X COOPERATIVE JOBBING 1. Basic Reasons for the Cooperative Jobbing Idea . 134 2. Behind Cooperative Jobbing 135 3. Buying Syndicates 135 4. Cooperative Manufacturing 136 5. True Cooperative Jobbing 136 6. General Plan of Organization 137 7. Method of Stock Subscription 137 8. Voting Power 139 9. Dividends 139 10. Manager and Directors 140 CONTENTS xiii SECTION- PAGE 11. Buying Advantage 140 12. Buying Arrangements 141 13. Selection of Merchandise 141 14. Stockkeeping 142 15. Selling 142 16. Returned Goods and Exchanges 143 17. Prices 143 18. Credits 144 19. Deliveries 144 CHAPTER XI SELLING AGENT AND FACTOR 1. Necessity for Many Distributive Agents . . . 146 2. Manufacturer's Selling Agent 147 3. Compensation of Selling Agents 148 4. Pricing 148 5. Delivery and Other Expenses 148 6. Sales Agent's Contract and Authority . . . .149 7. Two Classes of Selling Agents 149 8. Services Rendered by Selling Agent .... 150 9. Selling Agent's Organization 151 10. Mill Agent 152 11. Factor and His Function 153 12. Form of Agreement 154 13. Method of Operation 154 14. Compensation of Factor 155 15. Factor's Organization 156 CHAPTER XII COMMISSION MEKCHANT AND BR0K1:H 1. Necessity for the Commission Merchant . . 158 2. Activities and Compensation of Commission Mer- chants 159 xiv RETAIL MERCHANDISING SECTION PAGE 3. Commission Merchants and Manufacturers' Agent 159 4. Commission Merchants and Factors .... 160 5. Rates of Commission 160 6. Commission Contracts 161 7. Organization 164 8. Operating a Commission House 165 9. Export Commission Houses 167 10. Necessity for the Merchandise Broker .... 168 11. Function of the Broker 168 12. Commission Merchants and Brokers .... 169 13. Extent of Merchandise Brokerage 169 14. Broker's Contract . 169 15. Broker's Commission 170 16. Broker's Organization and Operating Method . 170 PART II: RETAIL MERCHANDISING CHAPTER I THE SELLING FIELD 1. Old Merchandising Methods 175 2. Retailer Must Analyze Territory' and Competition 176 3. General Store as a Type 176 4. Reason for Opening the Store 177 5. Analysis of Population 177 6. Division of Population into Classes .... 179 7. Other Sources of Trade 181 8. Studying Competitors . . . ' 181 9. Large Department Store as a Competitor . . . 183 10. Chain Store as a Competitor 184 11. Competition with Mail-Order Houses .... 185 12. Learning from Competitors 186 CONTENTS XV CHAPTER II MERCHANDISING POLICIES SECTION pj^(3E 1. Necessity for Statement of Business Policies . . 187 2. Two Kinds of Policies 187 3. Class of Trade 188 4. The Big Appeal 189 5. Buying Policies 190 6. Maintenance of Prices . . . . . , . . 191 7. Slow-Selling Sj'stems 192 8. Returned Goods and Refunds 193 9. Credit Policy 195 10. Adjustments 195 11. Deliveries 197 12. Store Creed 197 CHAPTER III ORGANIZING AND FINANCING THE STORE 1. Meaning of Efficient Organization 200 2. Functionalizing the Business 201 3. Dcpartmentizing the Business 202 4. Organization Chart 203 5. General Manager 203 6. Financing a Store 204 7. Financial Budget 205 8. Counting Room 207 CHAPTER IV OPERATING AND RECORDING THE BUSINESS 1. Necessity for Operating Function 209 2. Superintendent 209 3. Choosing the Store Site 210 4. Store Building 210 5. Store Front 211 xvi RETAIL MERCHANDISING SECTION PAGE 6. Heat, Light and Ventilation 211 7. Store Equipment 212 8. Standards in Equipment 213 9. Organization of the Personnel 21 4< 10. Employing New Clerks . . 215 11. Training and Welfare Work 215 12. Wage Systems 216 13. Floor and Aisle Managers 218 14. Inspectors and Wrappers . 219 15. Delivery Service 219 16. Records Manager 220 17. Retail Accounting 221 CHAPTER V TRAINING THE SELLING FORCE 1. "The Salesman Is the Store" 223 2. Explaining the Store Policy 224 3. Teaching the Store System 225 4. Beginning Actual Selling 226 5. Special and General Bulletins 227 6. Studying Merchandise 227 7. Libraries and Rest Rooms 228 8. Junior Courses 228 9. Cooperating with the Public Schools .... 229 10. Training the Non-Selling Employes .... 229 11. Results of the Educational Work 230 CHAPTER VI BUYING 1. Necessity for Good Buying 231 2. Organization for Buying 231 3. Basic Facts for Merchandising 232 4. Determination of Lines to Be Carried .... 233 CONTENTS xvii SKCTIOK PAGE 5. Apportionment of Investment 234? 6. Merchandise Plan 236 7. Fixing the Standard Turnover 238 8. Determining the Gross Profit Desired .... 239 9. Turnover as a Merchandise Factor .... 240 10. Controlling the Bu3'ing 243 11. Concentration of Purchases 245 12. Buying Interview 246 13. Selection of ]\Ierchaiulivo ln>- (Jaality .... 246 14. Element of Price 247 15. Attitude Toward Discounts 247 16. Accrediting the Discounts 248 17. Element of Style, Novelty and Exclusiveness . . 249 18. Stocking New Lines . . . 249 19. Pricing the Goods 250 20. Profits 250 21. Buyer as a Merchant 251 CHAPTER VH STOCKKEEPING 1. Necessity for Good Stockkeeping 253 2. Receipt of Merchandise 255 3. Reserve Stocks 258 4. Arrangement of Reserve Stocks 260 5. Active or "Forward" Stock 261 6. Importance of Keeping Track of Stock . . . 262 7. Preparing for Phj'sical Inventory 265 8. Preliminary Work 265 9. Inspecting Stock 266 10. Numbering 266 11. Changes After First Count 267 12. Taking Stock While Business Goes On . . . 267 13. Plan f Inventory 267 14. Subdividing the Inventory 268 XlX-2 xviii RETAIL MERCHANDISING CHAPTER VIII ADVERTISING AND DISPLAYS SECTION PAGE 1. What Is Retail Advertising? 269 2. Starting Right 270 3. Advertising and Store Service 270 4. Value of the Newspaper 271 5. Intermittent and Continual Advertising . . . 271 6. What to Advertise 272 7. Must Each Advertisement Pay for Itself? . . 273 8. Store News . 273 9. Change Copy Often 274 10. Put Interest into Copy 274 11. Individuality in Copy and Display .... 275 12. Letters and Circulars 276 13. Store Papers 277 14. Other Mediums 277 15. Use of Dealer Helps 278 16. Display Advertising 278 17. Guiding Principles That Govern Interior Displays 279 18. Aids to Interior Displays 280 19. Window Displays 281 CHAPTER IX DEPARTMENT STORE AND SPECIALTY SHOP 1. Point of View 283 2. Development of the Department Store . 283 3. Selling Field and Policies 284 4. Organization and Financing of Department Stores 284 5. Operating the Department Store 285 6. Delivery System 286 7. Mail-Order Departments 287 8. Merchandise Office 287 9. Advertising Practice 288 CONTENTS xix SECTION PAGB 10. One-Line or Specialty Stores £89 11. Analysis of Territory and Competition . . . 289 12. Marketing Policies 291 13. Organization and Financing 292 14-. Buying for a Specialty Store 292 15. Stockkeeping 292 16. Accounting 293 17. Store Service 294 18. Sales Force 294 19. Store Building and Fixtures 295 20. Mark-Up, Turnover and Prices 295 21. Advertising 296 CHAPTER X THE CHAIN STORE 1. Analysis of the Selling Field 298 2. Merchandising Policies 299 3. Partnership Type of Organization .... 301 4. Getting the Partners 301 5. Organization and Operation 302 6. Advantages of the Type 303 7. Corporation Type of Chain Store 304 8. General Plan of Organization 305 9. Real Estate Department 305 10. Merchandising 306 11. Supply Department 307 12. Central Warehouse 307 13. Control of Warehouses 308 14. Planning Special Sales 309 15. Employment and Training 309 16. Keeping in Touch with Employes 311 17. District Manager 311 18. Department Managers 312 19. Advertising and Displays 312 XX RETAIL MERCHANDISING SECTION PAGE 20. Mail-Orders and Local Agencies 31S 21. Store Manager 314! 22. Stockkeeping System 314 23. Control of Stock Turnover 316 24. Accounting System for Store 316 25. Accounting System for Central Organization . . 317 CHAPTER XI MAIL-ORDER HOUSE 1. Analysis of the Selling Field 319 2. Marketing Policies 320 3. Location 321 4. Organization 323 5. Financing a JMail-Order House 323 6. Merchandising the Business 324 7. Pricing 326 8. Stockkeeping 327 9. Sales Promotion 328 10. Advertising 329 11. The Catalog 329 12. Operating the Business 330 CHAPTER XII COOPERATIVE STORE 1. Reason for the Cooperative Movement .... 334 2. Starting a Cooperative Store 335 3. Organizing the Store 337 4. Store Manager 338 5. The Budget 338 6. Business Policies 339 7. Buying and Stockkeeping 339 8. Sales Policies 341 9. Deliveries 341 CONTEXTS xxi SECTION- PAGE 10. Credit Policy 342 11. Advertising 344. 12. Salesmen and Salaries 344 13. Accounting Sj'stem 345 14. Keeping Track of Members' Purchases . . . 346 15. Distribution of Profits 347 PART I 4 WHOLESALE MERCHANDISING WHOLESALE MERCHANDISING CHAPTER I THE SELLING FIELD 1. Status of wholesale merchandising.— 'During re- cent years, business executives have made an insistent demand for improvement in working methods. There the easiest point to attack was the factory. The re- sults were so startling that the work has been extended to the office and finally to the sales force. The manu- facturer, therefore, was the first to apply the modern methods of analysis and planning to marketing. The wholesale merchant or, as he is generally called, the jobber, was the last member in the distributing process to feel the necessity for modem methods. When he saw many manufacturers selling direct to the retailer and many retailers in turn buying direct from the manufacturer, he realized how precarious was his position in the distributing chain. As soon as he began to study the situation thoroly, he found there was a wide-spread impression that the jobber is not a necessary factor in marketing and that at best he is a wasteful one. A thoro revision of jobbing methods is now being made, and already many jobbers are as 4 WHOLESALE MERCHANDISING up-to-date in their merchandising as any manufac- turer or retailer. Those who do not follow the lead of their more progressive competitors cannot expect to outlive their generation. 2. Point of attack. — In order to study wholesale merchandising systematically, it is advisable to pro- ceed as if a new wholesale house were to be organized.- The methods to be considered are equally applicable to old and well-established houses. Probably more jobbers fail because they do not frequently check over the business from the beginning and revise their meth- ods and policies so as to harmonize with changing con- ditions, than from any other one cause. The first task of the wholesaler is to make a thoro analysis of his territory and of the competition at present existing within that territory. In general, it is much the same sort of analysis that the manufac- turer makes when he sizes up the market for his prod- uct, and of this there is full discussion in the Modern Business Text on "Marketing INIethods." However, the jobber's analysis differs in detail, because his work- ing conditions are not the same as those of the manu- facturer. 3. Radius within which jobber can compete sue- cessfnUy. — The jobber begins by blocking out roughly his selling field. This is more dependent upon the facilities and rates for shipment than on any other single factor, because the jobber often pays not only the transportation charges but also cartage to the retailer's store. In any case the shipping cost is a THE SELLING FIELD 5 factor to be considered in figuring the net cost of goods delivered to the retailer. When a Chicago grocery- jobber solicits business in New York in competition with New York jobbers, he must either pay all charges to the retailer's door, make a lower price, or offer some other inducement to offset the competitive advantage of the nearby jobber. On staple lines no other induce- ment is possible and since the margin of profit will not permit paying freight and cartage charges, the Chi- cago jobber cannot compete. The result is that he so- licits business in New York on private brands only. In other lines, such as dry-goods and hardware, it is not customary to prepay freight. Therefore the Philadelphia dry-goods jobber in competing for busi- ness in New York against New York jobbers must do so on a basis of service, style, price or some other fac- tor. It is a serious economic question whether the Philadelphia dry-goods j()l)})er should do business in New York in staple lines. If he cannot get the busi- ness by superiority of style and pattern or thru the policy of the house for quality and service at a fair price ; if he must resort to what is really price-cutting in the way of freight concessions, so that he acts as a mill distributor at no profit, it would be better to do less business in a smaller territory at a profit. The problem of the jobber, therefore, is to analyze thoroly the traffic situation in order to determine just how far from a central point he can distribute the different classes of merchandise in competition with other job- bers in his own and neigliboring cities. 6 WHOLESALE :\IERCHANDISING 4. Radius within wJiich jobber can work inten- sively, — Wholesalers are coming to realize that they should work their selected territory more intensively if they are to increase their profit and to realize also that there is an increasing amount of loss in jobbing done at a distance from the home city. The jobber who scatters his sales efforts over a wide territory in- creases the cost of jobber service generally thru dupli- cation of sales effort. In outlying territories, he gets a little business at a high cost, to the disadvantage of local jobbers to whom it rightly belongs and at a loss to all others concerned. The president of a wholesale hardware house in Chicago asserts that he cannot oper- ate intensively outside a radius of 150 to 200 miles. 5. Radius within which the jobber can render effi- cient service. — After all, the only thing the jobber has to sell is service. In determining the jobber's operat- ing territory, therefore, the preceding factors are of less importance than the consideration of the radius within which he can render proper service. The job- ber who tries to do a nation-wide business from one point, without branch houses, is at a serious disadvan- tage and it is doubtful whether he can give his cus- tomers that measure of service to which they are en- titled and for which they pay. One wholesaler says it is impossible to give efficient service beyond a radius of 200 to 300 miles. Conditions vary with different lines. A grocery jobber sets the limit on staple lines at 100 miles, while a dry-goods jobber thinks he can serve well within an average radius of 500 miles. THE SELLING FIELD 7 Various factors must be considered as an index to the jobber's ability to render good service. One fac- tor is the time required to make dehveries. Retailers are more and more buying in small quantities in order to reduce stocks and increase their turnovers. Nat- urally the jobber who can deliver the goods most promptly will get the business. Consequently, in making his traffic map the jobber considers the time required to make delivery at each principal point in his territory. The effect of the jobber's location on his ability to obtain his merchandise from manu- facturers and producers must also be considered. 6. Study of business cycles. — As every student of business knows, there is a distinct tendency for peri- ods of business depression and prosperity to move in cycles. Thus a period of depression will be followed by successive stages of readjustment, improvement and prosperity. The exact duration of these cycles cannot, of course, be definitely predetermined; they are, however, recurrent and their separate parts fol- low one another in the same order. During 1908 and 1909, conditions in the United States were generally bad, following the panic of 1907. Factories were running on part time, many employes were idle and people had less money than usual to spend. As a consequence, few new business enterprises were or- ganized and established concerns were forced to re- trench. The mercantile world suffered severely and many large wholesale and retail houses failed. Peri- ods of readjustment and prosperity followed. These 8 WHOLESALE MERCHANDISING cycles are likely to be less pronounced in the future than they were before the inauguration of the pres- ent Federal Resei^e banking system. The study of business conditions is begun by checking up the peri- ods of expansion and depression so as to forecast their effect on the immediate future. For a fuller dis- cussion of the cycle of trade the reader is referred to the Modern Business Text on "Investment." Sometimes it happens that a generally depressed business condition is advantageous for a particular hne. The makers of Karo Corn Symp were about ready to market their product when a panic occurred. In spite of it they went ahead, for they concluded that there would be many people who would have to forego the use of butter and who would buy the cheaper prod- uct, Karo, as a substitute ; and they were right. Such opportunities are not frequent with manufacturers, but it is always possible to adjust a jobber's sales effort to changed conditions because, unlike the manu- facturer, he can change his lines of merchandise al- most overnight. 7. Effect of crop conditions. — It is, of course, ob- vious that when the cotton crop in the South or the corn crop in the Middle West is good, buying is more liberal in these sections. But the effect is not entirely local. Crop conditions have their effect on distant parts of the country. The grocer j^ jobber who oper- ates only in central New York must consider the wheat crop of the West and the cotton crop of the South as factors to reckon with in studying business THE SELLING FIELD 9 conditions generally and their effect on his territory. Full reports on crop conditions are issued regularly by the Bureau of Crop Estimates of the Department of Agriculture. 8. Other guides to business conditions. — An excel- lent guide to business conditions is found in the pro- duction of pig iron. Iron is of such universal use that tlie amount of production reflects the economic condi- tion and buying power of the population as a whole in the same manner as does the crop condition. Other evidences of prosperity or its opposite may be found in the amount of bank clearings, and in the balance of trade as evidenced by the discount rate between local cities and financial centers. Then, too, the conditions in specific industries must be considered. For in- stance, during the latter part of 1916, mining sections such as those of nortliern ^lichigan and Butte, were exceedingly prosperous while in the lumber sections of the Xorthwest, business was dull. It is not difficult to keep informed on business con- ditions if one will read intelligently the financial page of the average metropolitan newspaper. Informa- tion obtained from this source serves as an excellent check upon the reports of traveling salesmen, for salesmen are sometimes inclined to report conditions as bad to excuse their own failure to get business. A knowledge of market conditions from general sources enables the wholesaler to judge whether or not he is getting his share of business from each sec- tion of his territorv. For more detailed discussions 10 WHOLESALE MERCHANDISING of the methods of an analysis of business conditions the reader is referred to the chapters on Business Barometers in the Modern Business Text on "Invest- ment." 9. Total consumption capacity. — The total con- sumption of any one of the jobber's commodities in his territory may be estimated without great diffi- culty. A family of four is assumed as a unit — con- sisting of father, mother and two growing children. Then the average family is considered from the stand- point of nationality and station in life. With these factors as a basis, a preliminary investigation is made in various parts of the territory to find out how much of a certain product in the jobber's line is used by such a standard family. By carrying the investigation far enough to obtain results that are uniform and reliable, an average consumption capacity is deduced. For in- stance, in one section of Greater New York it has been found that the average consumption of laundry soap on the part of American, German and Irish families in homes in which the family washing is done at home, is about 104 cakes per hundred families per week. After obtaining the average consumption capacity by groups, according to nationality, station in life, etc., it is easy to get the total capacity by sections of territory. The United States Census, together with the Abstract, forms the basis of calculation and this can be brought up to date by estimating probable changes. This can in some instances be checked by state census reports. The jobber should estimate the current distribution of business among the various THE SELLING FIELD 11 jobbers operating in the territory and, if he is already in business, match his own sales against the maximum or consumption capacity in order to determine what percentage of the total volume he is securing. Various other agencies will be of service in gather- ing these data. No one jobber could afford to go to the expense of determining from original investiga- tions the exact consumption capacity in each article he sells. He can, however, get sufficient information on many products to enable him to estimate it without making a complete survey of his market. Frequently trade associations have reliable data. Often a manu- facturer of a single line has compiled figures and is willing to give them out. Sometimes information is to be had from government reports or one of the sta- tistical houses, such as Roger W. Babson, Inc., of Wellesley Hills, Mass. There is a more detailed dis- cussion of this subject, from the standpoint of adver- tising, in the Text on "Advertising Campaigns." 10. Condition in the jobber's own lines. — Next in importance to general conditions are those to be found in the trade itself. Is the market growing or shrink- ing? Take the automobile supply business as an ex- ample. It is easy for the jobber to judge the market because he can readily obtain, from the state official who issues automobile licenses, the figures for present and past years so that he may know exactly how fast the sale of automobiles is increasing in the state and within his radius of operation. 11. Study of the consumer. — The jobber will not XIX-3 12 WHOLESALE MERCHANDISING study the consumer quite in the same detail as the re- tailer would study him but, nevertheless, both manu- facturer and jobber cater ultimately to the consumer and therefore, each must know the consumers as a class, if not individually. Goods are made for the consumer, not for the jobber or retailer, and so every step in distribution must be planned from a knowl- edge of the needs of the consumer. In making such a survey the jobber divides his ter- ritory into sections and then analyzes each section according to the various sources of income. He esti- mates how many people or families there may be in each section dependent upon agriculture for a living, how many are engaged in manufacturing and the number in every other form of activity in which there may be any appreciable number. The average earn- ing power of each group as well as the totals by groups is estimated, and any factors affecting stability of in- come, such as labor conditions, are taken into consid- eration. Then comes a consideration of the inherent characteristics of consumers by classes, as determined by nationalities and mode of living. The jobber should attempt to push those goods which he is sure will satisfy a known or predetermined demand. Very often the consumer will have to be educated up to the point of appreciating the need and uses for a given article. More often, however, thru the forces of na- tional advertising, the consumer already desires the article but the machinery of distribution is not prop- erly organized to get the article to him when he wants THE SELLING FIELD 13 it most. In taking on s new line, the wholesaler often loses heavily because he is making a gamble on the pre- cise demand for the class of goods and its appeal to the consumer. jMuch of this loss could be eliminated if he would be guided in his buying by an intimate knowl- edge of the consumers' wants and the amounts which they are ready to spend upon the commodity in ques- tion. Frequently, the jobbers of a section combine in this work, as was the case in Council Bluffs, Iowa, during 1916, when all the jobbers thru their trade associa- tion united in carrying on a sun ey of the territory to learn market conditions for their commodities. The time is coming rapidly when there will be a spirit of cooperation among the competing jobbers so that all may profit by such data without the great expense of getting it individually. In some cities the task of analyzing retail trade conditions has been assumed by the retail trade de- partment of the local chamber of commerce, and with effective results. Many believe that the commercial survey of a community should be the first task of the commercial organization of the city. 12. iStudy of the retailer. — Obviously the first thing the modern jobber does in sizing up the retail situa- tion is to make a list of all dealers in his line within the selected territory. A card catalog system classi- fied by towns is the most suitable. In order to main- tain the record of per capita distribution to the con- sumer, the wholesaler must keep his dealer record up to date and include in it not only the dealers to whom 14. WHOLESALE MERCHANDISING he already sells, but all other dealers in his territory. Very often a low distribution to the wrong class of stores will bring about the failure of an otherwise commendable sales campaign. In order to secure accurate information of the ap- pearance of new dealers in the field and the exit of old dealers, it is necessary to adopt a quarterly or semi- annual survey of the whole field, covering every dealer. Such a survey is most efficiently and eco- nomically conducted by having the jobber's salesmen call on all dealers at given periods. Each salesman should be supplied with a complete list of names and addresses of dealers at the time of the last survey. A study of those reported out of business will give val- uable ideas as to the trend of general business condi- tions in the territory. 13. Classification of retailers. — The record of each dealer should show the form of organization followed — whether a sole proprietorship, partnership or cor- poration ; the officers of the company, a brief history of the business, the capital invested, the amount of busi- ness done, the promptness with which bills are paid, and something of their business policies, such as the class of business to which each caters. It is equally important to classify retailers according to the cost of delivering goods to them. This is generally done by means of a separate tab system on the cards to segre- gate different sections of the territory according to freight rates and according to the time required for delivery. The nature of the wholesaler's business and THE SELLING FIELD 15 his policies may dictate the necessity for other facts regarding the retailers. Some wholesalers, for in- stance, in an attempt to get new business and even in order to hold old business, offer easy credit terms and naturally cater strongly to retailers who are "slow pay," even tho they may not realize the loss which such a policy is likely to incur. Frequently, if the facts are met squarely, such jobbers have little on which to appeal for business than a willingness to allow long credits. Such jobbers have only them- selves to blame for the bad credit conditions of which they complain so bitterly. Other jobbers demand that bills be met promptly and cut off the credit of the retailer who will not do so. They realize that it is useless for them to bother long with the chronic de- linquent. Various other facts regarding each retailer should be collected, as follows : (a) Does the retailer buy mainly from jobbers or is he trying to go direct to the manufacturer? (b) Does he buy in large or small quantities? (c) How do the various dealers in each community rank in effectiveness? Why are some getting stronger, and which are on the decline? (d) What retailers, possibly new to the business, have possibilities of development in which the jobber might cooperate? Next, the jobber classifies the dealers as to the prob- ability and feasibility of their being brought to deal with him in preference to a competitor. He nat- urally devotes his most intensive effort toward selling 16 WHOLESALE MERCHANDISING to retailers who are in his natural territory and he considers this area his primary market, his major source of revenue and profit. But the progressive jobber always keeps an eye on his secondary market with a view to the establishment of branch houses un- less the secondary market is, at the same time, a logical primary market for other jobbers. If the secondary market is also a secondary one for other jobbers, it becomes a logical territory for expansion and the job- ber will frequently do business there, even at a loss, in order to create good-will upon which to build a branch business. 14. Source of information on retailers. — In the gathering of information concerning the status of re- tailers in any jobber's territory, the wholesale and trade associations and the trade magazines are able and wilhng to lend valuable assistance to wholesalers all over the countr}\ IManuf acturers frequently com- pile data secured in developing their marketing plans and those who operate thru jobbers are anxious to share these data with them. After all, however, the jobber and his office executives must go out and get acquainted with their own retailers, for retailers gen- erally do not "go to market," as was customary fifty years ago. The president of one western grocery jobbing concern claims to know personally seventy per cent of the retailers in his territory, thru visits to them in their stores. Trade trips, such as are con- ducted by local jobbing trade associations and by the wholesale bureaus of chambers of commerce, are of THE SELLING FIELD 17 inestimable value if conducted along proper lines. 15. Reports from salesmen. — Salesmen are of course required to report on conditions in each re- tailer's business and in each community. Naturally this can be overdone, for a salesman cannot be ex- pected to give up every evening to writing out long reports. He feels his first job is to sell goods and that he has served his firm well when he has put in a good day's work as a salesman. Yet it is a fact that the average jobber's salesman wastes much time dur- ing the day waiting for customers or train connections, and in addition to this a little evening time can easily be used to furnish with each order a few salient points regarding the dealer in question. Some houses find it best to provide a series of printed questions which can usually be answered by "Yes" or "No," while others prefer to supply a daily report blank without questions on which the salesman can give a running account of anything of interest to the house. The former method succeeds best with the average sales- man. 16. Analysis of competition. — A thoro investiga- tion of present conditions in wholesale merchandising shows that relatively few jobbers make any system- atic analysis of their competition. Every progres- sive manufacturer studies his competition from the standpoint both of production and distribution. The up-to-date retailer — particularly the manager of chain stores — also makes such a study carefully. On the other hand, many jobbers depend upon the casual re- 18 WHOLESALE MERCHANDISING marks of their salesmen to keep them informed re- garding the activities of their competitors. The few who do check up from time to time the business of competing jobbers are among the really successful. Such work need not be considered as spying and, in fact, should not be carried to the point where it results in following the methods of others rather than in de- veloping new ones. In many lines competitors are coming to realize that cordial cooperation is better than cut-throat meth- ods. This desirable attitude began with the exchange of credit data and is spreading slowly, so that in some trades information as to general business conditions, volume of business of each jobber, prices obtained, credit losses, cancelations, claims and the like, are reported weekly thru the trade association. The sec- retary tabulates the data, assigning a number to each jobber in place of his name, and sends the report out to each member. This enables each jobber to know the conditions of the business generally and of his business in particular, in comparison with that of his competitors. In sizing up competition, the jobber will first list the competitors in his territory. Investigations seem to prove that the ideal market consists of at least three competitors. One investigation showed that a single jobber in the market did less business than when he had a competitor. No doubt this was due to the fact that he greatly curtailed his service and did not try to secure business with the same amount of hard THE SELLING FIELD 19 work as when competition was keen. But, at the same time, it must be remembered that too much com- petition, of necessity, increases the cost of distribution. The jobber should find out the resources of each of his competitors. This information can easily be ob- tained from any commercial agency. He can then determine whether his capital will enable him to meet the competition successfully. The strength of many a jobbing house lies in its financial power rather than in its merchandising ability. The jobber may find that the territory of one or two of his competitors overlaps his own territory only at certain points, and accordingly that competition will be met only at these points. Jobbers' territories frequently overlap in such a way as to cut the profits of all concerned. Incidentally this duplication of ef- fort is a burden to the retailer in that too much of his time is taken by salesmen, and eventually the added expense of the duplication and overlapping must be paid by the retailer and passed along to the consumer. The jobber should also know how long each one of liis competitors has been established. From this fact he can determine whether they have built up any great amount of good-will. Good-will is one of the strong- est assets of a jobber and therefore it forms one of the hardest kinds of competition to meet. In fact, the only way he can meet it is by adopting some means of creating an even gi'eater force of good-will toward his own house. It is also important to ascertain whether the business of his competitors has increased or de- 20 WHOLESALE MERCHANDISING creased during the period they have been in business. By means of these data he can eliminate those com- petitors who are standing still or whose business is declining, and at the same time know just who are the most progressive and who will prove his strongest competitors. 17. Business policies of competitors. — In the chap- ter which follows, the method used by the jobber in determining his business policies is discussed. Nat- urally this is based largely upon an analysis of the selling field and of competition. In connection with the latter, a thoro study should be made of the busi- ness policies of competitors. The jobber should size up the personnel of each competing firm and then analyze its policies on sales, credits, dealer cooperation and the like. For instance, he may find that one com- petitor is inclined to overstock his customers while another may have built up good-will thru helping the retailer turn over his stock frequently. The vari- ous questions of policy as well as the method of doing business in each department should be tabulated in order that the jobber may know how to meet his com- petitors' good points and how to take advantage of those in which they are weak. The modern jobber does not build his business on guesswork. He knows the facts before he begins. Nor is he content to continue his business on the basis on which it was started. His competitors are chang- ing constantly just as his selling field changes. The weak competitor of yesterda}^ may be the strong com- THE SELLING FIELD 21 petitor of tomorrow. Therefore the analysis of the seUing field and the competition must be continued as a basis for keeping the business policies and methods in harmony with changing conditions. But the analysis must be used to help the jobber to lead in his territory, not to follow or copy his competitors. REVIEW What is the function of a wholesale merchant? How are a jobber's activities confined? What principles should guide the jobber in determining his field? What should the jobber know about general business condi- tions? About the retail trade? How may the jobber get the necessary information? How ma}' a study of the competition help the jobber? CHAPTER II MERCHANDISING POLICIES 1. Two kinds of business policies. — The jobber's business policies are of two kinds : those that concern his relations with his employes and those that con- cern his relations with his customers. The former are generally called house policies and of these the wage system for employes is an example. The methods of determining these house policies are discussed in Chapter VIII. Here we are concerned only with merchandising or trade poHcies such as those in re- gard to price, competition or credits. These will rep- resent the code of laws by which the business is to be conducted, and by which all marketing questions are to be settled. 2. Main sales appeal. — When the Simmons Hard- ware Company placards the country with their slogan "The quality is remembered long after the price is forgotten" they are simply announcing their main sales policy. Another announces, "Our catalog is our only drummer," while a third declares itself to be "The house that always has the goods you want when you want them." A merchandising business without a "big appeal" is without reason for existence, for it is without guidance toward the main drive for busi- 22 MERCHANDISING POLICIES 23 ness. Yet it is not necessaiy that this appeal be used as an advertising slogan. Great care should be used in its selection, for unless the jobber can live up to an announced standard, the appeal becomes a boomerang. Every wholesaler must find his natural source of ])rofitable business, determine his main sales appeal and from that his main sales policy. 3. Marketing policy. — Is the marketing policy to be a case of "Let the buyer beware" or is it to be the more modem policy of considering the jobber and the retailer as cooperators in the distribution of mer- chandise so that whatever harms the retailer is deemed bad policy for the jobber? In the latter case, the jobber will not consider his obligation ended imtil the goods have been sold to the consumer at a fair profit, so as to turn over the retailer's stocks promptly and leave his shelves clean at each season's end. In fact, the obligation must go even further, for the trans- action is not closed until the goods have proved satis- factory to the consumer. When such a sales policy is followed the jobber and his sales force will assist the retailer in selecting the best goods in proper amounts for the retailer's trade, so that he may not become overstocked. The wisdom of this policy is proved by the rapid development in 7'ecent years of Inindreds of jobbing houses that have followed it. One house specializing in under- wear has gone so far as to develop a stockkeeping sys- tem for retailers, which forms an accurate guide to the movement of all stocks so that the retailer may know 24 WHOLESALE MERCHANDISING which are the best sellers and exactly how fast thej^ are selhng. The system classifies these facts accord- ing to style, weight, color and size, and does all with little effort on the part of the retailer or his clerks. The jobber can well afford to assist in developing such a system. It puts the responsibility for correct buy- ing where it belongs — upon the retailer. 4. Price policy. — In a retail business the mainte- nance of the same price to everyone is customary and is not open to question. In the jobbing field condi- tions are different and vary with each line. If the Chicago grocery jobber were operating only in Chi- cago, a uniform price would be consistent. But when he invades St. Louis, he finds competitors who can deliver from their own warehouses so that there will be no freight expense, while the transportation cost from his establishment in Chicago is a considerable item. Therefore, if he is to compete successfully he must pay the freight and cartage or make a corre- sponding allowance. 5. Locality price. — The result is what may be called a locality price. The Chicago wholesaler in paying freight on shipments to St. Louis retailers estabhshes his price in St. Louis and so cannot be said to offer discriminating prices. Nor can he be accused of discriminating against Chicago retailers, provided it is accepted that the retailer must consider the freight as a part of the cost of his merchandise. Con- sequently both Chicago and St. Louis grocers get the goods at the same net price. Yet there are many Avho MERCHANDISING POLICIES 25 consider the freight allowance as a cut in price. The question is open for debate. 6. Competitive prices. — ^\Vhen variation in price goes beyond the allowance for freight and carriage, the jobber certainly abandons a one-price basis for a competitive price and this undoubtedly is open to crit- icism. If competitive prices are allowed, they should range within narrow limits, as otherwise the salesmen are encouraged to take advantage of one retailer to make up for the low price to another. This system of pricing encourages haggling and is likely to cause ill-will. Competitive prices are most frequent in foodstuffs and heavy articles where freight charges are highest, while in lines like dry goods or drugs, the one price policy is more often observed. In competing in these lines, the jobber considers all the facts and then de- termines his policy accordingly. He is a wise mer- chant who sticks to a one-price policy and does not allow himself to be carried into price-cutting competi- tion. This has probably ruined more good wholesale houses than any other single thing. 7. Loss leaders. — The policy of a good many job- bing firms in this country of carrying certain lines of goods as "loss leaders," follows the practice which has been current in retail merchandising for many years. It may be advantageous for the jobber to carry a cer- tain well-known line and sell it to the dealer at a loss to gain prestige in the trade. The idea is that if the dealer will purchase the "loss leader" he will no doubt 5^6 WHOLESALE MERCHANDISING include in his order many other items on which the jobber is making a fair profit, and as a result no net loss will be incurred. This policy is questionable from an ethical standpoint as well as from the stand- point of its permanent effect upon the trade. The jobber therefore should consider all conditions which surround his particular field before adopting such a sales policy. Every year finds fewer jobbers follow- ing the practice. 8. Diferent prices for different classes of custom- ers. — When the jobber's ti-ade extends beyond the or- dinary retailer the difficulty increases. Some jobbers have one price for the regular retail trade; one for chain stores, mail-order houses, department stores and other large retail concerns ; another for hotels and in- stitutions ; and still another for goods sold to the city, state or Federal governments. The problem is one of the biggest which confronts the jobber today and his policy regarding it must be clearly defined. The jobber's primary function consists in supplying his wares to the retailer only, for resale, at one price to all, except for possible freight allowance to distant points or on bulk articles. The nearer he can keep to his primary function the better for him. 9. Discount policy. — A large southern dry-goods jobber remarked recently: My success has been largely due to the carefully worked out policies which our firm has in regard to the giving of discounts, refunds for canceled orders and defective goods, as well as to the promptness with which we settle all claims MERCHANDISING POLICIES 27 against the railroad companies in behalf of our dealer cus- tomers. One of the most valuable features of this policy is that it insures each dealer's getting the same treat- ment. As long as a dealer knows that he gets the same discounts as every other dealer in his territory he is satisfied. But the moment he learns that some competitor gets preferential terms, trouble begins. 10. Three kinds of discounts. — Discounts in the jobbing trade are of three kinds: trade discounts, cash discounts and extra or special discounts. The origi- nal purpose of the trade-discount system was to make it possible for the wholesaler to quote list prices which would be the same as the retail selling price, and which would provide for the retailer's margin of profit thru the discount. Discounts are used largely in selling commodities where price fluctuations are frequent. Thus an article made to sell for a dollar may be listed at $12 per dozen with a discount of 25 per cent to the trade. In practice, however, the trade discount varies widely. Wholesale stationers frequently give a series of trade discounts totaling 50 to 75 per cent and do not expect the retailer to get the list price. In many lines, of which dry-goods is an example, no such trade discounts are customary. Wholesale prices are quoted, subject only to cash discounts. The manu- facturer or jobber about to start in business can easily find out what is customaiy in his particular line by applying to the secretary of his trade association. XIX 4 28 WHOLESALE MERCHANDISING The tendency at present in many forms of business is toward the elimination of trade discounts and the sub- stitution of wholesale prices. ^ 11. Cash discount. — The cash discount was origi- nally given as a premium to induce prompt pay- ment on sales of certain lines in which long credit was given. Thus in the grocery trade it is custom- ary to give a series of discounts with different lines. One large wholesale grocer gives only 30 days' time on staples such as sugar, with one per cent discount for cash in ten days. On goods on which there is a profit, such as canned goods, he gives 60 days' time with two per cent discount for cash in ten days, while on certain private brands which he wishes to push, or on which there is a better margin of profit, he gives four months' time with four per cent discount for cash in ten days. 12. Extra or special discounts. — The cash discount is a firmly established custom in most lines of trade and its continuance is certain, tho there have grown up about it many trade abuses. For instance, for many years, retail buyers have made strong drives to obtain extra or special discounts. It has even seemed, at times, that the buyer was purchasing discounts in- stead of merchandise. The jobber who cuts his prices by giving special discounts must make up the loss in some way. Generally, he does this by increasing his list prices to the "discount buyers" or by giving them merchandise at regular prices which another man would get at job-lot prices. MERCHANDISING POLICIES 29 13. Extra discounts on large quantity purcliases. — Some buyers demand quantity discounts on large purchases, on the claim of the saving to the jobber in handling the merchandise in such quantities. As a matter of fact, there may conceivably be a saving of one-half to two per cent, but such a discount does not satisfy the big buyer. He wants five to ten per cent. ^Nlany progressive concerns refuse to give extra dis- counts for any quantity. This problem arises espe- cially with the sales to chain and department stores and frequently the jobber feels that he must yield. If he does, he is likely to alienate the small dealer. As the jobber's sales must be made principally to the independent retailer, he is a short-sighted business man who builds his price policy on any basis other than the best interests of the one on whom he must depend for the larger part of his business. 14. Extra discounts on drop shipments. — Similar to the quantity discount is the practice of allowing dis- counts on "drop shipments," that is, on goods shipped direct from the manufacturer to the retailer. The large retailer maintains that such shipments allow a considerable saving to the jobber and that the saving should be divided with the retailer. Tlie manufac- turer frequently steps in and demands a higher price from the jobber because he is assuming a part of the jobber's function; but in this the manufacturer is seldom successful. The jobber in such merchandise as heavy hardware, building material and other lines where large shipments are common, frequently yields 30 WHOLESALE MERCHANDISING to the retailer by giving him an extra discount of five per cent. In this, as in the case of ordinary quantity shipments, it is questionable whether the saving to the jobber is as great as it would seem. Unless the amount of drop-shipment business becomes a consid- erable part of his total business, he must maintain just the same warehouse facilities as if the goods came to him and were reshipped. Accordingly most jobbers, except those who deal in a few heavy lines, refuse to give special discounts on drop shipments. 15. Credit policy. — The question of a uniform credit policy has probably been debated more thoroly by the various wholesale trade associations thruout the country than any other question. Altho there has been progress, there does not seem as yet to be a definite settlement of the question. However, the credit department in merchandising is now receiving the recognition which it deserves. While it is true that the percentage of loss thru bad debts has been on a gradual increase since 1899, it is now (1917) begin- ning to decline. This is due in part to better business conditions generally during the last two years, but probably in a still greater degree to the careful study which this department of the wholesaler's business is receiving and to progress in standardizing credit policies. First of all, it is necessary that a jobber have a defi- nite basis upon which he shall extend credit and then a credit policy which will enable the credit manager to stick to this basis. The general practice in the MERCHANDISING POLICIES 31 past among wholesalers has been to perform the function of a commercial banker for his dealer cus- tomers and, in his eagerness to get business, he has been encouraging the retailers in many cases to be- come financially involved. As long as the average dealer knows that he has unlimited credit, he will not be careful in his purchases. On the other hand, if the jobber is to assume the role of commercial banker, he should charge a stipu- lated fee for the financial service. A discount is given to those who pay cash for their goods and for the same reason it would seem just to charge interest to those who use the money of the jobber overtime. In this, as in many other questions of policy, the jobber will need the cooperation of other jobbers, in order to en- force his policy. IMany jobbing trade associations have passed resolutions on this subject, with penalties for those who break the regulations thus established. 16. Dating of invoices. — The policy in regard to the dating of invoices is closely connected with the dis- count and credit policy. For instance, a cotton goods jobber will sell a bill of goods for delivery on the first of September and agree to date the bill for the first of November with a discount of two per cent if the goods are paid for in ten days, that is by the tenth of Novem- ber. This condition has grown up in certain trades where orders are taken months in advance of both manufacture and delivery. During 1916, with busi- ness generally in a highly prosperous condition, and many firms unable to fill all orders obtained, there 32 WHOLESALE MERCHANDISING came an opportunity for a concerted effort to cut down the term of credit allowed. In many lines, wholesalers were able to reduce the period materially. The policy of restricting credits and cutting down "extra dating" is likely to continue. The jobber who makes the most of this opportunity is wise; for there is no economic reason why the wholesaler should finance the retailer. 17. Trade acceptances. — Many wholesalers are making a determined effort to get rid of long credits with the uncertainties of collections, hy the substitu- tion of a more general use of the trade acceptance. This movement is fostered by many wholesalers' as- sociations, and the use of such acceptances is favored by the Federal Reserve Board. Member banks are permitted to discount these acceptances at a lower rate than other forms of commercial paper, and gen- erally do so. The advantage to the wholesaler who establishes greater certainty in his collections by the use of these acceptances is clear. The retailer may be expected to object because this method of handhng accounts de- prives him of some of the privileges to which he has been accustomed, and which he has often abused in the past. Under the open-credit system he can postpone payment of his bills for a few days without any pen- alty. If, on the other hand, he indorses a trade ac- ceptance, he is in the same position as if he had given a promissory note for the amount of the invoice. If the acceptance is not paid on the date due, the bank MERCHANDISING POLICIES 33 on which it has been discounted will protest it. This of course will involve some expense to the retailer and will be an injury to his business prestige. At the same time the trade acceptances will put his purchases on a spot cash basis and so enable him to buy to better ad- vantage.^ 18. Credit for goods returned. — The practice on the part of both retailer and consumer of returning goods, whether or not they are defective, is an ever-in- creasing menace to both jobber and manufacturer. In many cases the goods returned are unfit for resale and the result is that the jobber incurs an entire loss unless he can pass part of the loss along to the manu- facturer. Policies in regard to the acceptance of re- turned goods differ with the various lines and with each different manufacturer. In the grocery line, the jobber in nearly every case accepts the goods returned and credits the account of the dealer without a ques- tion as to whether the goods were defective or whether the dealer merely found that he had overpurchased and did not want them. The only reason that can be assigned for this over- liberal policy on the part of most jobbers is the fear of the competition from the otlier jobbers in their ter- ritory. Each jobber seems to think that any dis- agreement which he may have with his dealer customer gives his competitors an opportunity. Probably the most successful solution to this problem is that of the wholesale gi'ocers in Los Angeles, Cahfornia, who 1 For a fuller discussion of trade acceptances see Modern Business Texts on "Credit and the Credit Man," pape 36, and "Corporation Fi- nance," chapter on Trade Credit and Bank Loans, page 78. 34 WHOLESALE MERCHANDISING thru their local trade association placed an advertise- ment in a Los Angeles trade paper. It was headed as follows: "Manufacturers are becoming stricter every year in the matter of accepting returned goods. It is therefore necessary for the wholesale grocer to exercise care in the same respect. In order that our friends in the trade may understand the situation and be able to protect themselves, we deem it both just to them and to ourselves to record the following." The advertisement then gives a clear statement of policy toward the return of goods, describes definitely all re- strictions of such privilege, and sets forth plainly and frankly the requirements which must be met by all dealers who wish to make returns. Thus a uniform policy is established and the retailer knows exactly how to deal with the jobbers in his territory. 19. Other business policies. — The jobber must have well-defined policies in regard to advertising, dealer cooperation, manufacturing, semi- jobbing and the like. These questions can best be treated in connec- tion with succeeding chapters on the organization of corresponding departments. REVIEW Why do you consider it desirable to determine trade policies as definitely as possible before beginning business? What factors determine the price policy of a jobbing house? Under what circumstances would you give special discounts ? What are discounts on drop shipments? Why should a jobber scrupulously live up to his trade policies? CHAPTER III ORGANIZING AND FINANCING THE BUSINESS 1. Early forms of organization. — An investigation into the history of many prominent jobbing houses shows that the majority, as one jobber remarked, " 'just growed,' hke Topsy." This same man adds "We are more or less a family affair, or a two- family affair. While we settle most questions by consultation, yet it is not always possible to an-ange a conference and each one of us, therefore, is called upon to render independent decisions. In such cases, we find our respective authorities frequently overlap and confusion results." As a matter of fact, the market for almost all kinds of merchandise has been so great in the past that wholesalers have been far more concerned with secur- ing goods and filling orders than with the organiza- tion of their business machinery. The jobber has been in such close personal touch with the trade and with every department of his organization that he could succeed with it as a "one-man" type of business. Considering the enormous volume of business trans- acted and the small percentage of expense, his profits were so large in proportion to his expenses that he did not need to watch each detail of his organization for opportunities to increase its efficiency, 35 36 WHOLESALE MERCHANDISING In recent years conditions have changed. In many old firms, the partners are no longer able to stand the strain of long hours devoted to the details of the busi- ness. Expenses of doing business have gradually in- creased and the margin of profit has grown less. The jobber has lost considerable business thru the develop- ment of chain stores and mail-order houses which buy direct from the manufacturer. He has been put on the defensive to demonstrate that his service to the manufacturer and retailer is necessary and econom- ical. 2. Military tyj^ of organization. — During these changes it was necessary for the jobber to adapt him- self to conditions or fall behind in the procession. He was forced to add many new departments to his business, and as he did so, his organization outgrew the one-man type and became departmental. The head of each department of the business assumed con- trol of all work performed for his department, re- gardless of its character. This is termed the "mili- tary" type of organization and was employed par- ticularly in large concerns. Marshall Field and Com- pany, in its wholesale department, was one of the fii-st concerns to organize their business on departmental lines. Each of the forty-five departments has its complete organization — executive, buying, selling, stockkeejjing and accounting — so that it exercises all the functions of an independent mercantile house, spe- (ciahzed to the extreme. This gives each department ORGANIZING AND FINANCING 37 head, or buyer, wide power. In addition, a central organization supervises the whole business. In small concerns where such a scheme would mean a great duplication of sales and clerical force, a plan of organization has grown up which is a compromise between the one-man type and the departmental type. Each buyer has a certain amount of supervision over the various salesmen who sell his lines, and likewise over the accounting, receiving and shipping of these goods. The organization is similar in operation to that of Marshall Field and Company, but it cannot be so free from friction because the authority of dif- ferent department heads is likely to overlap. 3. Fmictional type of organization. — The out- growth of this is the functional organization which retains the advantages without the disadvantages of the departmental system. Buyers generally are not good sales managers, for buying and selling are oppo- site types of endeavor. Within recent years, therefore, nearly all jobbing- concerns have relieved buyers of the supervision of the salesmen by the appointing of sales managers. Likewise, some officer has taken charge of the office force and the warehouse. More recently, in line with the de^elopments in department stores, the office of merchandise manager, in charge of the buying and stockkeeping, has been created. Gradually the change has been made to functional organization and tlie business has been divided into the four natural 38 WHOLESALE MERCHANDISING functions — financing, merchandising, selling and operating, the last including the office and the ware- house force. In a recent bulletin of the National Wholesale Dry Goods Association, shown on the in- sert following page 39 the functions are apportioned so that the president has charge of finances, the vice- president of buying, the secretary of selling and the treasurer of the office and warehouse. Since that dis- tribution of authority seems in harmony with the best practice of the day, the present discussion of func- tional organization is built on that basis. The organ- ization which results is most easily understood from the chart facing page 40. 4. Variation in detail. — A study of the organiza- tion of wholesale houses shows that while there are certain functions to be performed everywhere, the work is apportioned differently in different houses. It is common to combine the work of the merchandise manager with that of the sales manager. The presi- dent is frequently the treasurer, while the office and warehouse are supervised by an employe. The same is true of the subdivisions of each function. In some houses, the traffic work is handled by the shipping clerk, while in another the traffic manager may be one of the highest paid men in the concern. These are cases of adjustment made to suit the needs and per- sonnel of the individual house. The functions remain the same in each business regardless of their distribu- tion among officers and employes. For the purpose of this discussion, therefore, it is best to outline a com- ORGANIZING AND 1 IN ANCING 39 plete functional organization based on the best pres- ent-day practice. At the same time, whenever con- ditions permit, it is highly desirable to follow out a complete functional scheme of organization, for a con- fusion of functions always brings opportunity for mis- understanding and a weakening of supervision. 5. Financial division. — The first function of the financial division is to provide the funds with which the business is to be conducted. To accomplish this purpose, the financial manager, who is generally the president, has charge of the arrangements for raising capital for the business when it is organized. He es- tablishes banking relations, attends to the investment of surplus or inactive funds, and has supervision of credits and collections. In conjunction with the other members of the executive committee, if the business is directed bj^ an executive committee, he arranges the budget for each department and the merchandise plan for the whole business. 6. Budget. — From an experience extending over a period of years, the president can estimate pretty closely the different items in the budget and so judge the amount of money required to conduct the busi- ness from month to month. Great care is exercised to see that the experience of the past is representative and that the future is carefully estimated. Business conditions during 191.5 and 1916 were so abnormal as to be of little value as a basis for judging the fu- ture. However, by averaging past budgets over a pe- riod of years, allowing for any unusual conditions. o H Q « J^ 6C.2 Q O O 6-3 <1 C Ml I— I o C K Ph Q <1 % U2 h3 W O Pi w H rn ^ K CJ t-5 Pi < «< ^ ir> o o H < w W H 2'^ oJB. X O '** .. 1) > •4-* Ifi C 4) •y 5 Ph-^^ I g> m.S P2 ^ J5 O o o en O o **-. 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Woo oMl-t-S f !* « WwH •!-«»♦♦■*! ■<'^ •* S". 40 WHOLESALE MERCHANDISING considering known factors of the future and allowing a margin of safety, a proper basis for building a budget can be reached. The following budget for a wholesale dry-goods concern is based on an average of ten years rather than for any individual year. PREARRANGED FINANCE, MERCHANDISE, SALES AND OPERATING BUDGET, COMPILED BY WILLIS P. MUNGER OF THE BUP.NHA5I-MTJJfGEE-EOOT DRT-GOODS COMPANY OF KANSAS CITY, MISSOURI Percentage of Gross Sales Gross Sales $7,500,000 100. Cost of Merchandise, Freight Added 6,112,500 81.5 GROSS INCOME Revenue by Profits on Sales of Merchandise. . . 1,256,250 16.75 Net Revenue from Cash Discounts Taken 131,250 1.75 Total 1,387,500 18.50 DEDUCTIONS FROM GROSS INCOME Office Expense 60,000 .8 Merchandise Expense 150,000 2. Sales Expense 300,000 4. Operating Expense 240,000 3.2 Total Overhead Expense 750,000 10. Discounts Given 75,000 1. Losses, Bad Debts and Depreciation 63,750 .85 Net Interest Paid 48,750 .65 Interest at 5% on Capital Stock 75,000 1. Total Expense (Fixed) 262,500 3.5 SUMMARY Gross Income 1,387,500 18.5 Gross Deductions 1,012,500 13.5 Net Earning Ovter 5% on Capital Stock 375,000 5. Interest at 5% on Capital Stock 75,000 1. Net Earning over 5% on Capital Stock 375,000 5. Total Surplus 450,000 6. Note: Total Surplus is 30% of Capital Stock Investment of $1,500,000 Average Merchandise Investment 1,500,000 Average Money Borrowed 1,175,000 Interest on Average Money Borrowed at 4% 47,000 WHOLESALE ORGANIZATION E3 [^Glt^Q^ E5e;3E3[^[^ E^CiSgE^Etr]^ g§^E5E5E3C^^S^E5§=i I ^ ORGANIZIXG AND FINANCING 41 7. Cheching the budget. — One of the functions of the president as financial manager is to check the actual operating results of the business, month by month, against the financial budget. He naturally begins with his own department and compares actual collections against the estimate in the budget. It is frequently necessary to be lenient in credits, for in- stance, in the wheat belt, where a bad crop season may occur, tho good crops seemed assured. There- fore, it is necessary to watch collections closely and to revise the budget frequently in order that it may be of value. In the case of the merchandise section of the budget, it is not difficult to check purchases month by month against sales and stocks on hand. But to be sure that the budget for merchandise is reasonable and to watch it from month to month to see that the buying organ- ization is following, is a task of considerable difficulty. Since the greatest loss comes from a lack of attention to a merchandise plan, the merchandise commitments should be regulated month by month in advance. Sometimes the buyer must be allowed to make heavy purchases against a rising market, and for this the financial manager must provide funds. This is par- ticularly true in such lines as groceries, where the job- ber's profit comes largely from market operations, that is, from buying in the most favorable market. But even in such lines, many houses will testify it is possible to follow a merchandising plan. The merchandise section of the budget must be XIX-5 42 WHOLESALE MERCHANDISING divided -to show the exact amount of funds each department will require month by month to meet ex- penses and purchases. This is checked by the mer- chandise department as the invoices from manufactur- ers come in, and shows the amount of goods that re- main undehvered. If a manufacturer is dehvering goods at other than contract dates, this fact is noted, in order that dehveries and invoices may tally with the budget and the fmancial plans. The sales budget is easily checked from month to month, for many of its items, such as salaries to sales- men, can be estimated accurately in advance. If the salesmen are paid on a commission basis, there will be no special need of checking. The main problem is to check the advertising budget regularly in order to insure that expenditures are as planned. A check must be had on expenditures for dealer aids and for departmental expenses in general. Finally, the operating section of the budget must be checked. Here conditions are fairly stable and, by following his past experience and that of other job- bers, the financial manager need have no difficulty in preparing his plans. The statement of the National Wholesale Dry Goods Association on the "Cost of Doing Business" given opposite page 38, furnishes the sort of data which the financial manager will find of much value. 8. Auditing the various reports. — A statement of the actual results of the operation of the business as ORGANIZING AND FINANCING 43 required in checking the hudget and in carrying on the work of the financial department in general is usually supplied by the auditor, who is a member of the financial manager's force. These reports show sales in comparison with previous years, purchases, collections, expenses and various combinations of these factors in order to give a better working knowledge of present conditions and future tendencies. In one well-organized drygoods house the following- reports are made, and the system is representative of good j^ractice. ( 1 ) Comparative daily statement of sales and prof- its by departments and corresponding figiu'es for same day of previous year. ( 2 ) Weekly summary of the foregoing with added figures showing totals so far during month as com- pared with previous year, and similar figures for goods returned. (3) JNIonthly report of cashier to president show- ing exact expenditures for the month, for the year to date and the average expense per month for the operation of the financial division. This includes salaries, adjusting expenses, collection expenses, dis- count received and given and interest paid and col- lected. Against each average there is set a "bogey" or desired percentage of expense so that any variation is readily noted. (4) Monthly report of the cashier to the vice-presi- dent, giving a summary of all expenses incurred in tlie merchandising division. 44 WHOI.ESALE MERCHANDISING (5) Monthly report of the cashier to the secretary giving a summary of all expenses incurred by the sales division. (6) JNIonthly report of the cashier to the treasurer giving a summary of the operating expenses. (7) Monthly summary of reports Nos. 3, 4, 5 and 6, prepared by the auditor for the president. In addition, the auditor's report includes a complete financial statement, showing quick assets and liabili- ties, receipts and disbursements, and estimated collec- tions and payments. (8) Merchandise operating statement for the month, and monthly for the year to date, by depart- ments. This is a most complete report, and shows everj'^ phase of the conduct of each department. The main items are purchases, classified as received, un- delivered and on contract for next year ; freight costs ; sales; returns; profit above freight; average stock in- vestment and average turnover of stock, first and last of month. Against each figure is set a "bogey" or desired result and all figin-es are carried both for the month and the year to date. In addition, there is a continual checking of records thru the house. For instance, all purchasing and sell- ing invoices are checked on a non-listing adding ma- chine. All cash expenditures, entries in the cash books, journals, general ledger and monthly trial bal- ances are also checked over by the auditor and his assistants. In addition to this, the whole business should be audited periodically by a public accountant. ORGANIZING AND FINANCING 45 9. Credit department. — The credit manager and his assistants divide the jobber's temtory into sections and each man handles the accomits in his own section. Information on credit risks is gathered as described in the jNIodern Business Text on "Credit and the Credit ^lan." This information is entered on cards which are filed geographically. A clerk is emploj^ed to keep these files up to date and to type inquiries for trade experiences from other jobbers and from mer- cantile agencies. The orders from salesmen after they have been checked by the sales manager and the departments concerned go to the credit man in charge of the section in which the customer is located. He investigates the applicant, and if his credit standing is satisfactory, the credit is authorized. 10. Collecting past-due accounts. — Each credit man has charge of the collection of past-due accounts in his own territory. Whenever statements are sent to customers, copies go to the credit department. These statements are distributed by the credit man- ager to his assistants according to territory. Previous correspondence on each account is attached to the cus- tomer's statement and is then filed in a tickler file under various dates, for attention as circumstances require. Each credit man checks over his accounts from day to day and, before following up any account, lie has it rechecked against the ledgers and the incom- ing remittance mail. The greater part of the collection work is done by letters composing a form-paragraph system. The 46 WHOLESALE MERCHANDISING credit man marks on each customer's collection record the numbers of the paragraphs in his correspondence manual to be used, and his stenographer fills in the details of the amounts and other data from the col- lection records. Of course some accounts require per- sonally dictated letters, and others need the services of traveling adjusters. Carbon copies of all important credit letters should be sent to the salesman handling each territory. The problem of adjusting doubtful accounts is a big one, for it is not easy to collect the accounts and retain the good-will of the retailer. A substantial customer and a loyal trade friend is frequently made of the merchant who is in trouble and sees only bank- ruptcy ahead, by helping him to build up his busi- ness, and thus enabling him to pay his bills. This is especially true in cases where jobbers cooperate with their customers. It is equally necessary that jobbers work in harmony with one another; for if one jobber, at the first sign of trouble, throws the retailer into bankruptcy, the others can do nothing to save him. Some jobbing houses have developed such a reputa- tion in the trade for handling doubtful accounts that when signs of difficulty appear, other jobbers come in and readily agree to the suggested basis of settlement. REVIEW What are the merits of the military type of organization? In what respects is the functional type of organization su- perior to the military ? Under what circumstances would you prefer a committee sys- tem to a system of individual heads of departments? ORGANIZING AND FINANCING 47 Who in general should be in charge of tlie financial division of a business? What statistics are needed to make a budget? Wliat checks are desirable on the accuracy' of the budget? What regular reports should the head of a jobbing house re- ceive ? CHAPTER IV MERCHANDISING THE BUSINESS 1. Function of a nierchandising division. — The work of the buyers in a jobbing house seems easy. It looks ahnost hke a clerical job; but it is not. The merchandise division is the heart of the business, and in every jobbing house the purchase of the goods is considered the most important task of all. The function of the merchandising organization is to provide such merchandise as is in keeping with the pohcies of the business, at a price such that the sales organization can sell the goods at a profit. Quanti- ties must be regulated to meet all demands without unnecessary stock at any time but in such a way as to leave stocks clean at the season's end. In order to ful- fil his function, the merchandise manager must be a real merchant himself — not merely a good buyer; a constructive worker and not merely an opportunist. He must organize a staff about himself to keep track of every factor in the business which affects buying. The division of the merchandising work among the various members of the force will be readily noted from the organization chart facing page 40. 2. Merchandise office. — The merchandising centers in the merchandise manager's office, tho in large 48 MERCHANDISING THE BUSINESS 49 concerns the immediate supervision of the office itself is given to the assistant merchandise manager. The fmiction of the merchandise office is to keep all rec- ords necessary to the proper conduct of the merchan- dising division. These include records of stock lim- its, turnovers and mark-ups for each department, to- gether with the buying-control system; comparative daily reports of purchases, receipts, stock on hand and unfilled orders on contract; statistics on market conditions; tabulations of complaints, cancellations and returns ; and various other data which may be re- quired in each line and in each individual concern. The office force includes a sufficient clerical staff to keep these records up to the minute, for material of this sort is worse than useless if it is not accurate at the moment it is required. It is here that much of the poor buying in the mismanaged wholesale house originates. The buyer and the merchandise manager are misled by figures which are either antiquated or in- accurate. .3. Buying control. — The merchandise section of the financial budget has already been discussed. This section is the result of the operation of a buying-con- trol system under the merchandise division. The pur- pose of the buying-control system is to determine the amount of capital to be set aside for the use of each department and to regulate its use from month to month more or less automatically so as to balance the amount of staple merchandise handled on a small profit against the amount of profitable merchandise. 50 WHOLESALE MERCHANDISING Such a system varies somewhat with different hnes but the principles remain the same. One of the great- est faults of the average buyer comes as a result of his desire for volume regardless of profits. At the beginning of the fiscal year the merchandise manager checks up his business of the preceding year and estimates the amount of business he can do each month in each department, as well as the number of times he can turn the stock. On this basis an allot- ment of money is made to each department which is apportioned to the months of the year. The de- partment managers are instructed accordingly. As orders go thru for purchases, they are checked by the merchandise office and the amounts subtracted from the current buying allotment. When the buyer has used up his allotment for any given month, his orders will not be countersigned for further purchases unless he gets a special appropriation. However, if the sales in a line increase over the quota set by, say, $10,000, the excess amount is automatically allowed as a special allotment or it may be added to the next month's allotment. On the other hand, if the buyer does not use up his allotment during any given month it may be added to the following month. Such a con- dition would indicate that stocks were becoming de- pleted by heavy sales against small purchases, and therefore the added amount would serve to bring the stocks back to normal. If sales fall below the quota, the buying allotment may be correspondingly cut to prevent overstocking. Interest is generally charged MERCHANDISING THE BUSINESS 51 the department on all funds above the regular allot- ment. But, at the same time, it must be remembered that such interest charge in the final accounting is net profit on the year's operation. For instance, if a department carries $200,000 more average stock than its allotment and interest on this is charged at five per cent, this means $10,000 net profit above the regu- lar trading profit of the department. The automatic buying-control system has been em- ployed for some years in department stores, and works well there. In jobbing houses conditions are some- what different. In many lines the market fluctua- tions are so radical and the normal jobbing profit is so small that the main source of profit is in market operations. The shrew^d jobber makes contracts for his merchandise for months, or even a year in advance, when he feels certain of a rising market. Where the market promises to fall, he buys from day to day. Therefore, the jobber's buyer must have considerable latitude and for this reason many concerns object to the buying-control system. On the other hand, the automatic control actually does what the term indi- cates. It gives the merchandise manager complete control over purchases of merchandise so as to encour- age making the quota of sales and turnovers in each line with a minimum of stock. The buyer is always free to appeal for a special appropriation to take ad- vantage of market advances and as the merchandiser is just as anxious as the buyer to get any such advan- tages, these requests are usually granted. The sys- 52 WHOLESALE xMERCHANDISING tern is coming more rapidlj^ into use, and if it can be successful in the largest grocery -jobbing concerns, as has been proved in many instances, there is no reason why it should not be applicable in every jobbing line. 4. Indicatmg slow-selling lines. — As an incidental result of the automatic-buying control it is possible to show up the slow-selling lines. The system is not in itself adequate for the purpose. One dry-goods jobbing house has a second check which starts with the receiving room. The tags on cases of goods, showing the lot number of the goods, are made in dif- ferent colors to indicate the month of the year in which the merchandise was received. When the stock clerk selects merchandise to fill orders, he is instructed to take always the oldest on hand. This is made easy for him by the color system. At the beginning of each month the merchandiser and the buyer check over the stock and compare quantities with the maximum and minimum stock limits. The merchandiser readily sees in what lines there is an overstock and what styles or sizes are tlie slow sellers. The matter is then taken up with the sales manager and plans are made to move the slow stock or the surplus stock bj'- some special sales effort. 5. Selection of buyers. — One of the foremost tasks of the merchandise manager is the selection of buyers. The final decision on the emploj^ment of each buyer generally rests with the executive committee if there is one, or with the president, because the success of the business depends largely upon the ability MERCHANDISING THE BUSINESS 53 of eacli buyer. In most concerns, there is a buyer for each principal line. Each man has authority within the hmitations of his buying allotments in the conduct of his work, because the details of a jobbing business are so numerous and varied that the buyer or department manager must settle most questions with- out consultation with the officers. ]Much of the slow selling difficulty can be prevented by organizing a job department and by penalizing each buyer for merchandise carried after a certain pe- riod. The merchandise is taken away from the de- partment at a 50 per cent reduction and given to the job department at the reduced price for resale. 6. Essential qualifications of the buyer. — The suc- cessful buyer has, of course, the general traits of char- acter which make success in any form of endeavor. In addition, he must have a natural capacity for detail and for study. He is an expert on the kinds of goods which he buys and, undoubtedh^ he has to know more about them than anyone else who handles them ex- cept the manufacturer. He makes a study of all the conditions surrounding the production of the raw ma- terials and the methods of manufacture used in chang- ing this raw material into the finished product offered for liis inspection and purchase. In gaining this knowledge, he studies the methods of the various pro- ducers and manufacturers, and gathers useful infor- mation as to what he may expect from each one and from his goods. In sliort, it is necessary for the buyer to know his 54 WHOLESALE MERCHANDISING line, the buying market and the buying methods, what U'oods he has on hand from day to day and how these goods are moving. 7. The buying market. — When a buyer enters the market he asks himself these questions : Who are the manufacturers of the goods that I want to buy? How far can I rely on each of them? Wliere can I secure the highest qualities of goods? Where can I find the cheap lines? Who can be depended on for prompt deliveries? Who can best be trusted to fill emergency orders ? What manufacturers are success- fully advertising their products? Which ones are actively cooperating with the retailer? What atti- tude shall I adopt toward new lines? Which manu- facturers are going to give me the heartiest coopera- tion? In other words, he makes a complete analysis of all the sources of supply. In most manufactured lines, there are centers where the majority of the manufacturers are repre- sented. At certain seasons, depending on the nature of the merchandise to be purchased, the buyers visit the various centers, look at new lines, study the mar- ket generally and make their purchases. 8. Buying methods. — Altho some buyers visit the markets, even those in foreign countries, a large per- centage of the buying is done at home from brokers and traveling salesmen. It is always to the advan- tage of the buj^er to give each salesman a courteous hearing. A good salesman frequently has informa- tion that might be lielpfiil to the buyer. Again, MERCHANDISING THE BUSINESS 55 ^\•hen the salesman has anything of particular interest or special value to olfer, he naturally turns toward the men who have treated him well. The buyer may drive a hard bargain w^ith the salesman but so long as the buyer is fair, he will find that this fairness has a material value, especially in assuring him of the coop- eration of the salesman in selecting most desirable styles, securing rush deliveries and in getting personal interest and attention. A question which frequentlj^ confronts the buyer is whether to distribute his purchases among many different concerns or confine them to a few. As a rule, it has been found that by concentrating them so as to make the amount of business given to each man- ufacturer worthy of special attention, better relations are established with the manufacturers. This should not prevent the buyer from keeping in constant touch with the prices of competing salesmen, for sometimes salesmen get their highest prices from their closest friends , much as that is to be regretted. The question of how far to go with advertised brands and how far with private brands is usually one which is predetermined for the buyer or whoever is responsible for the policies of the house. The same is true of guarantees as to products, net weights and the like. In order to specify quantity and dehvery dates in- telligently, the buyer must know all the facts concern- ing the stock on hand. Therefore, the stock-records for the goods which he buys are placed directly un- 56 WHOLESALE MERCHANDISING der his control. In some cases the buyer, and in others the merchandise manager, keeps a record of each manufacturer's goods to ascertain whether it pays to deal with that manufacturer. Such a record shoA\s how the goods have moved, the satisfaction they have given and the profit on handling them. Of course, each buyer has also a complete record of the operation of his department. INIodern merchants realize the wisdom of giving each buyer all the figures indicative of the success of each buyer's work. 9. Authority of the buyer. — As a rule, the buyer relies entirely on his own judgment in his purchasing, consulting the merchandise manager only when un- usual circumstances arise or when he wishes to ven- ture outside the ordinary scope of his authority. If he gets into trouble in handling a line he will consult the merchandiser, just as he does when he sees a mar- ket opportunity for which he needs an extra allotment of funds. Most merchandise managers will back their buyers in any transaction within reason for any amount which they may consider necessary for proji- erly conducting their respective departments. 10. Discounts. — The subject of discounts is one to which the buyer should give careful study. A'VTiile it is always an advantage to secure as large a discount as possible, it behooves the buyer to remember that the appeal should not be made until after all ques- tions of quality, price, delivery dates and the like have been agreed upon. Yet it must not be forgot- ten that the cash discount, taken frequently, almost MERCHANDISING THE BUSINESS 57 equals the total net profit. In the wholesale dry- goods business, the average discount received is l"/4 per cent while many concerns are content with 2/{> per cent net profit. Others obtain even less. Therefore, a serious responsibility rests with the buyer to obtain as large a cash discount as is consistent with the other factors of buying. 11. Pricing. — The job of fixing the sales prices falls to the buyer. He goes over the price book of staple lines from day to day and revises the list prices as conditions require. In the case of special pur- chases, he puts the list price or mark-up percentage on each invoice as it is received, and the receiving depart- ment tags it accordingl}\ The profit and cost depart- ment should exercise some authority in connection with pricing along with the merchandising plan. If the desired mark-up is not being maintained, it is the function of this department to call attention to the fact. In many lines, the gep^^al price level is determined by market quotations and in all cases is fairly well regulated by the forces Cf competition. If the price on a particular line is too high, the salesmen will not try to sell it. After all, merchandise is worth only what it will bring, and therefore it is priced largely according to competition and market conditions. The question is sometimes raised whether the jobber is entitled to take advantage of the opportu- nity to mark up merchandise which he has bought in a favorable market. During 1916, the price of linens XIX-6 58 WHOLESALE MERCHANDISING advanced rapidly due to conditions in Europe. Some foresighted jobbers stocked heavily during 1915 so that linens which cost them seventy-five cents a yard were worth double that and could not be replaced for less. Such jobbers made a handsome profit by mark- ing up their prices from week to week to agree with the market quotations, and they were entirely justi- fied in doing so. Upon the settlement of the Euro- pean war, prices of linens will doubtless fall, and many a jobber is likely to be caught with linens that cost him a dollar and a half a yard and which will be worth only a dollar. In that case, competition will force the jobbers to cut their prices and take their losses, be- cause every merchant knows that on a declining mar- ket the sooner the losses are taken the less they will be. Therefore prices must be revised from time to time to agree with the market and the competition re- gardless of whether the revisions will mean gains or losses. 12. Branch buying office. — Many large wholesale houses maintain branch buying offices in each buying center. For instance, every large dry-goods jobber maintains a branch office in New York City. The office force of one of these branches usually con- sists of a head buyer, or manager, one or more local buyers, clerks and stenographers, an office boy and telephone operator. In most cases, there is a stock room attached to the office for the temporary storage of goods. As a rule, the buyers from this office make purchases only when directed to do so by the main MERCHANDISING THE BUSINESS 59 office. However, the office serves as an information bureau at all times, since its men watch market de- velopments, investigate bargains and job lots, and size up new goods which appear on the market. This office also serves as headquarters for buyers from the home office when they are in the city. In such cases, the branch manager receives a state- ment as to the lines, quantities and price ranges for each buyer on his trip, and on this basis the branch manager becomes temporarily the merchandise man- ager in charge of those buyers with power to authorize their purchases. He handles their mail, both incom- ing and outgoing, and attends to all detail work for them during the period of their stay. The branch of- fice frequently sees to the assembling and packing of small purchases, as well as the routing and shipment of all purchases from that center. 13. Supervisio7i of stochheeping. — It is a much de- bated question whether stockkeeping should be a function of the merchandising or of the house man- ager. The purpose of stockkeeping is to keep track of the merchandise in the house so that orders from customers may be filled promptly from fresh stocks. The merchandise manager is responsible for having stocks on hand and, therefore, it seems logical that he should ])e intrusted with the keeping of them. Otherwise, he may throw on another department the responsibility for shortages or surplus of stock due to errors in keeping stock records. In department stores, which are in many ways comparable to 60 WHOLESALE MERCHANDISING jobbing houses, the supervision of stock rooms is dele- gated to the merchandising manager ; this practice is growing rapidly in wholesale concerns. Each buyer supervises his own stock, under the direction of the merchandise manager. However, the house manager or superintendent inspects and regulates the physical conditions of the stock rooms and the methods of stor- age. 14. Necessity for careful stochheeping . — It is obvi- ous that stocks must be kept scientifically. INIer- chandise on the shelves, like money in the vaults, should be protected ; in fact it must be kept even more carefully, for stock nearly always depreciates with age. Therefore, the merchandise manager must guard his investments in merchandise by making careful and frequent inventories of his stock. To conduct his department successfully, he needs an accurate record of the movement of his stocks from the time they are received until they are shipped. Yet in few wholesale houses is it possible to tell what happens to individual purchases of merchandise, or even the condition of the stock in a given line. In this respect, jobbing houses generally have much to learn from the few who have installed modern stock- keeping systems. 15. Stock rooms. — The first problem in the ar- rangement of stock rooms is to see that waste motion is cut to a minimum. The methods of industrial management in routing material thru a factory, of which there is full discussion in the Modern Busi- MERCHANDISING THE BUSINESS 61 ness Text on "Factory and Office Administration," are used. The various floors are divided so as to give each stock its proportionate si^ace. In a large concern, there are generally two sets of stock in each line. One is the reserve stock, from which orders for full cases and unbroken lots are obtained. 16. Stoclcheeping 7netliods. — For each floor there is a head stockkeeper, who is responsible for the work and who gives his personal attention to the perpetual inventory and the checking of incoming and outgoing goods. In each staple line, a maximum and a mini- mum are set. It is the head stockkeeper's duty to re- port at once any case in which stocks exceed the maxi- mum or fall below the minimum. From time to time during stock-taking periods, it is customary to check roughly the perpetual inventory in order to catch any discrepancies. This process is independent of the annual or semi-annual inventory. The surest way to insure a clean stock is to work thru it constantly, and the stockkeeper must spend a considerable part of his time delving into it. 17. Perpetual inventories. — The numerous types of perpetual inventories in use among wholesalers vary in detail but are the same in principle. They depend on a card or book system; the entries are classified according to items and lot numbers. Each separate stock department operates its own system, tho small concerns frequently employ one general svstem for the entire stock. 62 WHOLESALE MERCHANDISING The form of the stock card is regulated by the par- ticular requirements of the concern. The main points to be covered on the record are the name of the article, the date when entry is made, the quantity received, tlie quantity delivered and the location of the goods in the stock room. In most cases, space is provided on the card to show the number of the article, the manu- facturer's name, the maxmium and the minimum stock to be maintained, the balance on hand, and frequently the size and color. Location may include stock room designation, showing the part of the room in which the article is stored and the bin number. The important thing in stockkeeping is to insure that all entries are jjromptly made. If the balance of any article on hand is reduced be- low the minimum amount by the last entry, it is cus- tomary to inspect the bin or container of that article and, if necessary, take an actual count. An independ- ent check of the stock record is thus accomplished, and by taking the count when the stock is at its lowest, the check is most easity made. In cases where a dis- crepancy occurs, there should be an immediate investi- gation to determine the cause. 18. Physical inventories. — The semi-annual physi- cal inventory is necessary as a regular check on the perpetual inventory. It serves a further purpose in that it brings about an inspection of the actual condi- tion of the stock, the way in which it is stored, and all other points regarding it which are not covered by the perpetual or card inventory. Nor need the physical MERCHANDISING THE BUSINESS 63 inventor\^ prove a burden, altho there was a time wlien stocktaking caused a great deal of confusion and made employes stay long after hours, sorting, counting and checking. The system used by a large number of wholesalers owes its success principally to the fact that it can be operated simply and speedily. Cards are consecu- tively numbered, made into pads and then given to the stock clerks. For each class of articles a card is made out, on which is recorded the nimiber of articles in the class. This is continued until the original stocktak- ing of each section, bin or container is completed. The cards are then gathered up and checked against the goods to determine whether anything has been overlooked. After collection, the cards are examined by number to be sure that none have been lost, then they are sorted according to the data they record by catalog number, grade, kind, style or make of goods, in readiness for the extension of prices and the trans- ference to the final summary sheets. This checking and rechecking insures accuracy, without involving any of the confusion likely to arise from the use of most other systems. It is possible to use any number of employes in making the inventories witliout having them interfere with one another. Furthermore, the inventory is so subdivided that small mistakes can be corrected without disturbing the whole work. Any change due to the arrival of new goods and their being placed in stock, or the taking of goods from stock to fill or- 64 WHOLESALE MERCHANDISING ders, must be recorded on the cards which bear the count for those goods. REVIEW What is the work of the buyers? Of what importance are the records kept by the merchandise office? Outline tlie purchasing procedure and method of payment for goods bought by the merchandising division in department stores ; in jobbing houses. How does the merchandise manager keep buying control? W^hat is done with slow selling lines? What qualifications should the buj'er have? How is he chosen? To what extent must the buyer study the market? Discuss some of the problems of successful buying. How far does the buyer's authority go? Who fixes the sales price? If a jobber buys goods before a rise in price, is he entitled to raise his price with the market? How is a branch office managed ? Why is careful stockkeeping important? Discuss the pro- cedure and methods of stockkeeping. AVhat kinds of inventories are made? When? Why? De- scribe the system in use by many wholesalers. CHAPTER V SELLING AND SALES SUPERVISION 1. Function of the sales division. — In the days of the one-man type of organization, there was httle supervision of the selling activities of a wholesale house. Salesmen were hired by the proprietor and told to call on the trade in a certain section. The salesman seldom heard from his house except to get printed lists of price changes, and became merely an order taker. As a result, certain concerns felt that more intensive selling could be done by mail with less expense and built their business accordingly. Oth- ers, spurred on by the good work of the salesmen from specialty manufacturing concerns, put in modern sales organizations. Today, few jobbing houses are without modern sales organizations. The primary study of the market and the deter- mination of the marketing policy have been discussed in earlier chapters in connection with the organization of the business. It is the function of the selling di- vision to conduct the sales work of the house accord- ing to the predetermined policies. This is most readily accomplished by a combination of personal salesmanship with advertising and the occasional use of mail-order methods. 65 66 WHOLESALE MERCHANDISING 2. Application of intensive salesmanship to a job- bing business. — Selling methods must depend on the needs of the business and upon the amount that may be expended for selling work. When the demand for an article, such as Ivory Soap, has already been cre- ated, the salesmanship need not include intensive "missionary" work. In such cases, it is frequently asserted that salesmen need be only ordertakers ; and this may be true. But it is certain that modern meth- ods of salesmanshij) may be applied to increase the re- sults secured by individual salesmen and decrease the expense of selling. In some jobbing lines, such as coffees and teas, there is room for the highest type of constructive salesmanship. The selling of private brands con- trolled by manufacturing jobbers is of the same na- ture as the selling of any specialty manufacturer. Nothing prevents the jobber and his sales manager from applying the fundamental principles of selling and sales management to their activities, tho condi- tions and lines may add some difficulty in adapting these methods to the jobbers' work. 3. Sales department office. — Everything which has to do with selling and with the supervision of sales- men centers in the sales manager's office, tho here, as in the case of the merchandise manager's office, the president's office keeps the statistics by means of which sales campaigns are planned and executed and the work of individual salesmen stimulated and directed. The sales office keeps duplicates of most of the SELLING SUPERVISION 6T operating records listed in Chapter III, such as analyses of operating territory, comparative state- ments of purchases and sales and the like. 4. Sales plan, — The decision as to the sales plan is a part of the general work of founding the busi- ness, and is included in the statement of policies. It remains now to put it into operation. Knowing the extent of the territory, the number of dealers to be called upon, the average number that a salesman can see in a day and the frequency with which calls are to be made, the sales manager can readily estimate the number of traveling salesmen required. At the same time, an estimate can be made of the total amount of business which the territorj^ should yield under the proposed campaign. Then it may be necessary to add specialty salesmen to do pioneer work on private brands but, as previously stated, such men are under the direction of the merchandise manager. The sales manager may also add general-line and house sales- men. The advertising is a part of the general sales plan. Advertising and selling are inseparable, and it is al- most impossible to tell where one leaves off and the other begins. The advertising function of a sales de- partment is just as important as hiring men to travel on the road. In order to cover the subject satis- factorily it is necessarv to give two chapters to the sales division. The .present chapter is given largely to personal selling and the next succeeding one to advertising and mail-order work. 68 WHOLESALE MERCHANDISING 5. Dividing the territory. — Jobbers have been in the habit of considering a territory from a standpoint of the production of the individual salesman rather than from the natural resources or the reasonable ex- pectancy of the territory. A territory should be looked upon as a certain percentage of the sales ex- pectancy of the house and considered from this stand- point. Territory should be mapped out by the house from a standpoint of convenience and economy. Each ter- ritory should be studied and analyzed as a separate problem and the results to be obtained prearranged, then men found to produce those results rather than trying to arrange a territory to suit the peculiar char- acteristics of a man. The house should look upon a territory the same as a ten-acre farm that must be made to yield a maximum crop under intensive meth- ods, and the salesman should be considered in the light of the farmer who is to plow, sow and reap the crop. The task of dividing the territory among the road salesmen is always a difficult one. It is proverbial that the other fellow's field always looks better; and there will, of course, be some inherent differences. However, these differences can be reduced to a mini- mum by careful adjustment, and unfairness can be avoided entirely by further adjustment according to the ability of the men as proved by their records. One jobber divides his territory into three classes consist- ing of large, medium and small accounts and classifies SELLING SUPERVISION 69 them as A, B and C territories. The new man as a junior salesman starts on C grade territory. If he works hard and succeeds, he is advanced to B grade territory in a year or two and finally to A grade ter- ritory. Sometimes, as a special reward, he is given a few B grade accounts while still a C grade salesman. There is in fact nothing to hinder a division of the ter- ritory along practical rather than geographical lines if this makes for the best interests of the business. The more customary classification is between gen- eral house salesmen, road, and specialty salesmen as given in the organization chart, and this allows for a line of development for each man. It is customary to ])egin as a house salesman and in this way get the first outside experience either as a road salesman covering a section for several lines, or a specialty salesman covering a still larger territory for a single line. In time the salesman may earn a position as general salesman with almost the authority of a district sales- manager, so far as his accounts are concerned. It may be necessary to handle some business other- M-ise than thru salesmen. When a grocery jobber sells to chain stores, the business is generally consid- ered a "house account." When the buyer for the chain wishes to purcliase a quantity of coffee, he makes the rounds of the jobbers until he can close a satisfactory deal for the goods desired. It is evident that only the head of the coffee department can han- dle such a large sale. There must be a clear under- 70 WHOLESALE MERCHANDISING standing with salesmen as to what business shall be considered "house accounts." All this business is dis- regarded when dividing up the territory. 6. Sort of salesmen to employ. — The type of salesmen required will var}^ with the line of goods which the jobber is handling, as well as with the kinds of dealer to whom he is appealing, and the location of these dealers. The jobber's salesmen must know the working methods of their house in greater detail than is necessary for salesmen in lines where service is not so dominant a factor. Most jobber's salesmen have come up thru the ranks of their respective or- ganizations. They may have w^orked first in the stock room, or the accounting department, and have proved themselves successful in the inside organiza- tion. In this way they are graduated from one de- partment to another until they earn places as sales- men. Frequently it is possible to engage young men for clerical work in the house with the avowed pur- pose of eventually making them salesmen. This method distributes the expense of training over a period of years. It may be desirable to employ sales- men who have had selling experience with other first- class houses in the same line. These are usually ex- cellent men for newly organized houses. The road experience and acquaintance with the trade are valu- able assets and in many cases a salesman will bring a majority, or even all, of his customers to the new house. But the salesman who is anxious to leave an established house and make a new connection is SELLING SUPERVISION 71 always open to suspicion as to why he wishes to leave, or even why he is willing to make the change to a new and strange organization. Occasionally jobbers feel it is unethical to employ such men and so insist on having men who have never sold for a competing house. Again, there are excellent salesmen to be had from the retail field. There are men in country stores who may not have the means to run a store of their own, or who have been only moderately successful as re- tailers, who will make excellent traveling salesmen because they know so thoroly the retailer's problems and point of view. One distinctlj?- successful grocery jobber recruits his force almost entirely from this source, selecting men of about forty years of age. Of course, it is necessary to train these men thoroly, in order that they may get the jobber's point of view as well as the retailer's. There is a fourth group of men who can be de- veloped into successful jobber salesmen. This group includes the "personality" salesmen. The individual may be a man who has not met with success in his chosen field because he is not altogether adapted to it. Perhaps he has been trained for some profession thru family influences, and really does not like his work. Some of these men may possess pleasing personali- ties and the knack of meeting people and impressing them with their views. Such men have many of the essential qualities of salesmen, tho training is necessary to supply any lack of business experience. 72 WHOLESALE MERCHANDISING These men must be taught the inside working of a job- ber's business, and something regarding retail store methods. Men of this sort are ahnost invariably an excellent addition to the sales force. 7. Expense of employment and training. — In man- ufacturing industries, it is estimated that from twenty-five to one hundred dollars must be spent to train a new mechanic to work efficiently. In the sales force the average expense is still higher. One large manufacturer figures that each new salesman repre- sents an investment of at least $500. This varies, however, with each concern according to the amount of care used in selecting men and in training them. Some houses are continually changing their repre- sentatives, while others invest more in the beginning, but get better men and keep them longer. 8. Organizing the sales force. — In the most pro- gressive houses it is fully realized that it is very poor business policy to send salesmen off into the field and let them "try their luck." Such a course often brings failure to men and not infrequently disaster to the house. The modern system provides in many cases a class for the training of new salesmen before they start out in the field, followed by coaching under the guidance of a seasoned salesman. It often includes the learn- ing of a carefully prepared standard selling talk, and presents in a sales manual for the salesmen the valu- able information and counsel which has been gained SELLING SUPERVISION 73 from the experience of others. In such systems the equipment for the salesman receives special attention, with the purpose in mind that each part shall be as effective as possible, and no part superfluous. These are all fundamental concerns of sales man- agement and are fully discussed in the INIodern Busi- ness Text on "Salesmanship and Sales JNIanagement." There are a few matters, however, which should re- ceive attention here with especial reference to tlie job- bing trades. 9. Price hooh. — A great deal of care is exercised in the compilation of the price book to insure ac- curacy and ease of interpretation. Most jobbers agree that prices should be given in plain figures and that discounts should be figured in each case so that the salesmen may find them easily. In lines such as wholesale groceries, where the salesmen are given some latitude in adjusting prices to market conditions, it is, of course, unnecessary to figure discounts in advance. Each salesman should be made to understand thoroly the terms and discounts. It is surprising how few salesmen know the purpose of terms and discounts and their method of operation. Changes in prices are forwarded to the salesmen immediately, either by wire or mail, so that they may make the necessary notations as soon as possible. A great deal of unnecessary fric- tion sometimes arises when prices have been changed on a certain commodity and the salesman, not having recorded it in his price book, quotes the customer a XIX— 7 74 WHOLESALE MERCHANDISING price lower than he is entitled to receive. Most houses require salesmen to acknowledge the receipt of new pages for their price books. 10. Determining coinpensation. — The question of how much the jobber should pay his salesmen is a vital one. He must know his cost of doing busi- ness and determine from this how much he can allow for his selling expense. The most important factor to bear in mind here is that a successful sales department is essential to the success of the business. If the salaries are small, only a poor class of salesmen will be attracted and results will be correspondingly poor. Good salesmen must be secured and they must be paid in accordance with their ability. The increas- ing demands which are being placed upon a jobber's services require that he employ higher grade men than in the past, and he must find a way to pay good men on the basis of their ability. Originally jobbers' salesmen received salary and expenses, but more recently a commission plan or a combination of salary and commission has been much used. However, competition is so keen in the job- bing trade that it has been necessary to find a way to enable the salesmen to compete in price when neces- sary. This has resulted in giving the salesmen cost figures with suggested prices and then dividing with them the net profits resulting from each sale. As stated under the discussion of marketing policies, this is becoming customary in groceries and other heavy lines. SELLING SUPERVISION 75 One plan used in the grocery trade is called the "base price and overage system." The price book is in code and two figures are given on each article. One figure may be the base price of say, 12 cents. Xo salesman is allowed to sell below this price with- out permission from the house. The other price is the suggested or list price of, say, 13 cents. The base price covers the cost of merchandise and the general overhead, but no selling expense or profit. The list price will bring a fair profit. If the salesman sells at 13 cents without expense for delivery, the one cent profit on each article is divided so that the salesman gets 60 per cent and the house 40 per cent. If there is a delivery expense, this must be deducted before the profit is figured and divided. Under this plan, it is, of course, advisable for the salesman to sell as far above the base price as he can. In no case can he secure an abnormal figure because competition is so keen in gi'oceries that no salesman could sell any ap- preciable amount at a price far above the current market. In another similar sj^stem the cost of each article is listed in the price book, together with suggested or list prices. For instance, a certain house figures that it costs six per cent of the selling price to do business, exclusive of selling and deliveiy expenses. They ex- pect every salesman to get at least nine per cent above cost and delivery expense. From the total of each sale, all expenses for cartage and delivery are de- ducted and then the percentage of profit is figured. 76 WHOLESALE MERCHANDISING If the salesman has secured just nine per cent, there is tln-ee per cent to divide. Of this, the salesman gets two per cent and the house one per cent. If he gets only eight per cent above the cost price, the house gets tvi^o-thirds of one per cent and the salesman gets one and one-third per cent. Various other proportions are arranged, so that the division of profits may be fair to both parties and the salesman is still left with a stimulus to get the business at as good a price as is consistent with trade conditions. Of course the house must cut the listed cost prices below actual cost if the market is declining; other- wise, the salesman will not sell the merchandise, as he is not anxious to do so without profit to himself. Then, too, the sooner goods are sold when the market is dechning, the better, for the quicker the loss is taken, the less it will be. On the other hand, if a liouse has bought advantageously on a rising market, it must mark up the listed cost price above whatever the goods actually cost to protect itself against possible loss on a declining market. Consequently, the cost figures in the price book under this system are the currently quoted prices rather than the prices ac- tually paid for each quantity of merchandise. In drygoods, a one-price system prevails. Sales- men are paid either on a salary or a commission basis, or a combination of the two. One such plan is in the form of a profit-sharing system, based on either gross or net profits, while another is a bonus system based on a pre-arranged merchandise plan. The third i^ SELLING SUPERVISION 77 called the gi-aded merchandise system and is based on a classification according to profit possibilities in each oroup of merchandise. This encourages the sales- men to sell the grades which bring the most profit, and to create more good-will for the house. 11. Organization of recording and statistical de- partments. — The foundation upon which the success of any sales campaign rests is the efficiency of the re- cording and statistical division. Unless records of the activities of the salesmen and the results of their efforts are kept, and these data formulated into sta- tistics, no sales campaign can reach a high degree of success. Xothing presents so clearly the results of sales efforts as a tabulation of facts and their compila- tion into a chart or graph. Successful sales depart- ments all over the country have, as part of their equip- ment, departments for recording and compiling sta- tistics. Such records are not always actually tabu- lated in the sales department. In fact they are more frequently gotten up by the various departments from their operating records. The records kept by jobbers vary according to par- ticular circumstances. In any case statistics should satisfy each jobber's needs and should be as complete as those needs dictate. The overdoing of anything works for its inefficiency and only data which are vital to the successful conduct of a sales department should be recorded. It is important to keep in mind in this connection that the labor and time required of the salesmen for 78 WHOLESALE MERCHANDISING making out reports for the sales department should be reduced to a minimum. The salesman is out to get business and should not be burdened with making out unnecessary reports. Standardized forms permit information to be recorded easily and rapidly. Records which are not put in form to use easily are often not used at all. Neglect of the records can most readily be avoided by putting them in graphic form. Daily summaries of business secured are re- corded on a chart thruout the year. INIonthly sum- maries and yearly summaries can then be made from tliis chart and the results shown up clearly. Many use charts to show the service which they are giving the retailer and emphasize that which appeals most to the retailer. The salesman's record can also be pictured graphically, as well as the general condition of the territory in which he is operating. Such rec- ords and statistics form the basis of the next year's campaign and show clearly the present campaign's strong and weak points. 12. Keeping in touch with the men. — In order to foster a spirit of loyalty and enthusiasm for hard work among the men, as well as to direct their activities, the sales manager must keep in constant touch with them. Unless he does this, the entire work of the sales campaign will fall down and the investment which the house has made in training its new men will be lost. There are a number of ways in which the sales manager can cooperate with the salesmen. Many SELLING SUPERVISION 79 sales managers make it a regular practice to spend a good part of their time in the field with the men. This is especially true with new men or with any who are not producing their full quotas of business. Other sales managers depend on calling such men in frequently for conferences. Semi-annual or annual sales conventions accomplish good far in excess of the expense incurred. ]\Iany jobbing houses work in such small territories that all their men can come in for a weekly conference, which is generally held on Saturday morning. REVIEW What is the function of the selling division and how does it accomplish its purpose? Upon what do selling methods depend ? What is the purpose of the sales department office? If you were a sales manager how would you divide territory among your road salesmen? What four types of men may be developed into good jobber salesmen? Describe some of the various plans in use in determining com- pensation for salesmen. CHAPTER VI ADVERTISING 1. Necessity for jobber advertising. — The record of successful jobbing houses shows that nearly all of them have been built up thru the force of personal salesmanship. The road men exploited their houses and their wares in the most forceful way possible — face to face with prospective customers. Consistent and faithful service at headquarters backed up the claims made in appealing for business, and the result has been the development of hundreds of big whole- sale houses which have had no material expense for advertising. But in keeping with the changes in merchandising generally, and particularly in the jobbing field, the need has arisen for the general salesmanship which we call advertising, to aid the personal selling effort of the traveling force. This is due in part to in- creased competition; in part to the activity of spe- cialty manufacturers who sell direct to the trade; in part to the necessity for paving the way of the salesmen thru advertising of the "pioneer" sort; and in part to the changing conditions in retailing, particularly in the way of frequent changes in style and the keeping of smaller stocks. This last necessitates more frequent purchases than can 80 ADVERTISING 81 be made directly from salesmen, and consequently necessitates mail-order departments. 2. Present status of jobber advertising. — A few years ago trade papers with both national and local circulation contained only a few cards of jobbers, in- serted possibly more as a matter of trade policy rather than in the hope of getting business. In a recent number of the Bulletin of the Betail Merchants' As- sociation of Utah, there appeared fifteen full page advertisements placed by jobbers in that territory. This increase is typical of the growth in jobber adver- tising of other sectional trade papers. The type of advertising has undergone a change. From the simple card giving the name of the firm, its hne and perhaps a picture of the office and warehouse, the advertisement developed to the exploiting of pri- vate brands. There is, of course, a place for this type of advertising at the present time. But the jobber of today realizes that his function is one of service and that therefore his advertising appeal may well be based on the service he is prepared to render. 3. Function of jobber advertising. — Under pres- ent conditions, therefore, the first purpose of the ad- ^ertising is to impress the retailer with the jobber's ability to serve as a wholesale distributer. Here, as elsewhere, words without deeds are a liability rather than an asset. The jobber must tell plainly how he can be of economic service to the retailer. This serv- ice will be based upon the general efficiency of the house in taking care of the retailer's merchandise 82 WHOLESALE MERCHANDISING needs but it must not stop there. The jobber must do more than supply the most suitable wares at a fair price. He must cooperate with the retailer in selling these wares. The definite methods employed in dealer cooperation will be discussed in the next chap- ter. It is the first function of advertising to bring both these types of service to the retailer's attention, for they are the basis of good-will. The advertise- ment of M. E. Smith & Company printed on page 83 illustrates how one jobber is advertising a single phase of his service. The second function of jobber advertising is to assist in reducing the selling expenses by blazing the way for the sales force. The jobber's salesmen sel- dom have time for much constructive salesmanship because of the long list of items they sell and the short time that can be given to each customer. This is par- ticularly true in connection with the introduction of new lines or new styles. The advertisement of tlie H. B. Claflin Corporation is of this class. As its third function, jobber advertising has a very definite task in linking the manufacturer, jobber, re- tailer and consumer together. The manufacturer's products are advertised to the retailer, and hkewise the jobber assists the retailer in the retailer's own ad- vertising of the same wares. Some jobbers arrange to cooperate with both manufacturers and retailers in a complete system of advertising. The advertising of The Symns Utah Grocer Company, given on page 85 is of this type: ADVERTISING 83 Another Record Smashed During the month of September we received 10232 orders, and of this large number only 140 were not filled By Four O' Clock of the Same Day They Arrived at Our Offices That's 99.98 Per Cent PROFICIENT SERVICE An increase in service efficiency of .28 over our best record. It seems almost incredible — imbelievable, especially at this time when markets are so xmcertain. It's a fact, however, and our records are opefl to verify this statement. ^3333^" _j^-iMk^JiAiW. provides you with one of the largest and best open stocks of Dry Goods in the West, backed by an organization of buyers who keep our stocks as complete as human foresight will permit. Mesco Service is of vital importance to every merchant at the present time— it is service that will be appreciated when once tried, and service that becomes more valued, the more it is used — it means the maximum delivery of goods to you — it means speed— and it means PROFITS, This service is yours for the asking. We have worked hard to develop it to its present efficiency, and we are glad that we can ofifer it to you. Write us — we want your business and we are in a position to take care of it to your greatest satisfaction. Start today! M. E. SMITH & CO. Wholesale Dry Goods OMAHA 4. Advertising for manufacturing and semi-job' hers. — The advertising methods of the manufacturing jobber are the same as those of the manufacturer who 84 WHOLESALE MERCHANDISING sells direct to the retailer. Advertising on specific lines direct to the consumer thru farm papers and city dailies in the jobber's territory is the most effective means of promoting the general interests of the manu- facturing and private-brand jobbers. A definite demand is created as in the case of the consumer ad- vertising of the manufacturer. This brings about a complete reaction on the part of the retailer toward the jobber in the form of an order to take care of the specific demand created by the jobber's advertising. Likewise the retail advertising of the semi- job- ber is identical with that of any retailer, except as the manufacturer's jobber may have extra selling argu- ments due to the double organization. 5. Organization of advertising department. — Ap- proximately fifty per cent of the jobbing houses have an advertising department with someone giving his personal attention to the work. This percentage is increasing rapidly. When there is no separate de- partment the advertising is handled by a committee. In addition to the advertising copy, the department prepares the price book or catalog and keeps it re- vised. Frequently the dealer cooperation work is carried on by the advertising department, as in the past this work consisted largely of the distribution of advertising and selling material, such as show cards, signs and window displays. With the coming of real cooperation on the part of the jobber, such as help in store systems and accounting methods, it is frequently necessary to have a more thoro training and experi- ADVERTISING 85 ence than is likely to be found in the case of the aver- age advertising manager, and for that reason separate dealer service departments are organized. G. The appeal. — The purpose of the advertising naturally determines the nature of the appeal. If the j)urpose is to exploit the house generally, as in the case with the advertisement of ]M. E. Smith & Com- pany on page 83, the appeal of prompt delivery from well maintained stocks is excellent. If the advertise- ment is to do "missionary" work for a single depart- Symns Utah Grocer Co. Exclusive Jobbers of Staple and Fancy Groceries DISTRIBUTORS FOR LIpton's Teas LIpton's CofTees Lipton's Jelly Tablets Sight Draft Cigars Thompson & Taylor's Coffees Fort Stan wlx Fancy Vegetables (Flag Brand) We travel regularly, the four states, viz: UTAH, IDAHO, NEVADA, WYOMING Any business entrusted to us Is appreciated and will have our prompt and best attention Remember we sell DEALERS ONLY Mall Orders A Specialty TELEPHONE: MAIN 48. P. O. BOX 866 SALT LAKE CITY, UTAH 86 WHOLESALE MERCHANDISING ment, the appeal must be similar to that of the H. B. Claflin Corporation, illustrated below. The direct White Goods for 1917 The strongest and wisest statement we can make in this Bonte» White Goods Announcement is simply to reflect what market editor- ials say — that this will be an espeaaliy active year (or all weights and styles o( white goods — that because ol shortage in many quali- ties, alert retailers should cover their needs now. both for their own profit and to satisfy all their customers- BONTEX Line o! White Goods is ready in gr"' completeness And we can add in splendid distinction. Sheer White Goods — in plain and fancy effects — a particu- lar feature ol the BONTEIX line — the showing includes voiles, balisla, organdies and marquisettes. Fashionable Embroidered Novelties— are incomplete range in this showing, including original effects ol unusual style ment and great selling possibilities. White Skirtings — Heavy Weaves which are especially popular because of their adaptabdity for sport fashions are — poplins, piques. Basket Weaves, corded effects, tennis cloths, gabardines and beach cloths. White and Colored Irish Dress Linens— continue their popularity and are ui complete range in BONTEX oflenngs. because we anticipated conditions we are maintaining the usual BONTEX Service- All popular shades, weaves and finishes in 36 and 45 inch widths. The H. B. Claflin Corporation, New York R P. BONTIES. Piesidtnt OiUt ani/ Retail Entcrpitie Artt/wheie. The House oF Bon I EV ADVERTISING 87 selling appeal for special lines is illustrated by the ad- vertisement of the Symns Utah Grocery Company on page 85. 7. Advertising appropriation. — The neophyte in advertising decides how much he can lose in advertis- ing without becoming bankrupt, and plunges accord- ingh\ The man who conducts his merchandising by plan, figures out how much advertising he needs just as carefully as he figures the amount of personal salesmanship he needs to cover his territory. Once the house is well established it is possible to deter- mine from the experience of other jobbers in the same line whether the advertising is costing more than it should. For instance, the analysis of the expense of doing business in wholesale dry-goods, given on the in- sert opposite page 38, indicates that the cost should be about one-tenth of the per cent on gross sales. If the cost of the mail-order catalog and other printed mat- ter is to be included in the advertising, the total will be from .3 to A of 1 per cent. 8. Selection of medium. — It is obvious that the or- dinary jobber must select the medium which reaches the largest number of retailers in his line, and a me- dium whose circulation is limited as far as possible to the territory in which he operates. Naturally it is seldom possible to find a medium in which there is not considerable waste circulation from the jobber's standpoint. The quality of circulation should be in- vestigated thoroly, and papers which are not of high fjuality as mediums should be passed by. It is unfor- 88 WHOLESALE MERCHANDISING tunately true that many trade papers exist mainly for advertising purposes. No jobber should feel it necessary to advertise in all the trade papers in his hne and territory, for unless a paper is a good medium it is a parasite and should not be encouraged. 9. Miscellaneous types of advertising. — Advertis- ing novelties have been used by jobbers for many years. Of course a present of a memorandum book or a desk calendar creates some good-will for the job- ber, but it is doubtful whether the return is pro- portionate to the cost. Of greater value is the large piece of equipment, such as a store sign or a thermom- eter, for which the retailer pays a part of the cost, or which is given him as a reward for increasing his pur- chases in certain lines. Retailers, like all other Im- man beings, appreciate most the things which cost them either time or money. 10. Direct advertising for the jobber. — Advertising to the retailer thru letters, catalogs and other direct forms has always been successful. During recent years many jobbers have installed mail-order promo- tion departments for the purpose. Such work is par- ticularly effective in introducing a new line. 11. Jobber's catalog. — The preparation and dis- tribution of the jobber's catalog is a tremendous task, as every jobber who has a catalog will testify. In some lines the catalog is not necessary, but with the increasing tendency to buy often, it is difficult to dispense with it. If the catalog is to be successful, it must, of course, be well done. In some of the large ADVERTISING 89 concerns the catalog department includes a complete advertising department in itself, with a staff of artists, copywriters, layout men, and occasionally a private printing plant. However, such a condition is unusual and the smaller jobber frequently turns over the work of preparing the catalog to a specialist who assumes responsibility for the complete catalog. REVIEW What is the importance to the retailer of jobber advertising? What are the functions of the advertising department of a job- bing house? From what mediums will the jobber get the most satisfactory results? What is the particular strength of the M. E. Smith & Company advertisement ? If you were a retailer, what sort of jobber advertising would appeal to you most powerfully? XIX— 8 CHAPTER VII COOPERATING WITH THE RETAILER 1. Jobber's obligation to cooperate. — In the final analysis the jobber's function is to serve the producer ' or manufacturer in distributing his goods by means of the retailer, and to serve the retailer by providing him promptly and in proper quantities with the mer- chandise he cannot get economically direct from the manufacturer. The main element in any jobber's work is one of service. In the present chapter we are concerned with the cooperation which the jobber, together with the producer or manufacturer, renders to the retailer. This is commonly called "dealer co- operation" and the material used for the purpose, "dealer aids.'* For many years jobbers have been cooperating with retailers in various effective ways. Jobbers' salesmen have made it a point to pass along from one retailer to another good ideas on merchandising. Credit managers in wholesale houses have always been ready to confer with retailers on their financial problems. Many jobbers who make no pretense of having a special man or department for dealer co- operation work have been acting effectively as busi- ness advisers to their retail customers. From this they have built up a great deal of good-will. 90 COOPERATING WITH RETAILER 91 2. Two kinds of dealer cooperation. — The jobber gives the most valuable cooperation when he acts as a friendly adviser to the retailer in any of his busi- ness problems. It is common for a young man about to enter the retail business to make a trip to the jobbing house with which he proposes to deal. He will go over with the sales manager, or even the presi- dent of the house, the jjroposed plans and get assistance in planning his business along proper lines. Such jobbing houses, for instance, as Butler Brothers in Chicago, go to great pains to be of every possible help in such cases and point with pride to the retail concerns which they have helped to launch. 3. Helping in the solution of individual prob- lems. — Beyond such preliminary assistance the jobber can be of frequent service. Whenever the retailer strikes a problem which he seems unable to solve, he Avill find the jobber with whom he does business ready and anxious to help. ^Slany jobbers have a report blank which the sales- man is required to fill in at every call so that the job- ber may anticipate needs, and whenever he feels that liis help would be welcome, to take the initiative. In many cases the salesman sees the retailer's difficulties and can suggest the remedy at once. This would be the ideal form of dealer cooperation, but unfortu- nately few jobbers' salesmen are sufficiently trained in retail merchandising to give the necessary coopera- tion. One of the biggest opportunities at present in jobbing is in connection with the possibility of train- 92 WHOLESALE MERCHANDISING ing the jobber's salesmen to be service men as well as salesmen. 4. Credit man as service man. — The next point of contact with the retailer will come thru the credit department of the jobbing house. In trying to find out why the merchant is slow in paying his bills, the credit man frequently puts his finger on the retailer's weak spot. He may discover that the retailer, thru lack of knowledge of his cost of doing business in each line, may be selling certain lines below cost. Again, he may find that a large part of the retailer's capital is tied up in dead stock. In such a case he can recommend an inventory system or a set of checks which will show what goods are selling and at the same time protect the retailer against leaks. He may find that the retailer is unable to get the credit he deserves at his bank because he cannot draw up a good statement showing the condition of his business, with its comparative yearly growth. When a dealer's business shows signs of impending bank- ruptcy it is the policy of many credit managers to take the first train to the retailer's town. A slight study of the situation will enable a good credit man to save a large percentage of such failures, and the time and expense involved is a good investment. 5. Dealer aids. — The second and most common form of dealer cooperation is in the form of aids for the sale of individual articles. These consist of win- dow displays, signs, booklets descriptive of the mer- chandise and its methods of manufacture, and the COOPERATING WITH RETAILER 93 like. In the case of such articles, the material itself must be prepared by the manufacturer of the mer- chandise. Therefore, except in the case of his own private brands, the jobber must look to the manu- facturer for these dealer aids. The man who creates a special brand of merchandise is really the logical one to create the aids for its sale. It is not our purpose here to discuss whether or not the jobber should handle nationally advertised brands other than those of his own manufacture, but rather to point out his source for dealer helps. In case he does handle such lines, for his own sake he must co- operate with the manufacturer in the distribution of any dealer aids provided by the manufacturer. Of the two types of cooperation, the former is the more important. The average retailer needs help in devising a good accounting system or a means of training his clerks in salesmanship far more than he needs additional window trimming material or show cards. Unless he has the means to increase his mer- chandising ability generally, it is of little use to add to the selling devices. The jobbers of the country and everyone else dependent upon the retailer for final dis- tribution realize this also. Jobbers' associations are working hard on the problem, and furthermore, thru cooperation with their members and with retail trade associations, they are doing much to help the re- tailer become a better merchant. Several outside agencies, such as the Associated Advertising Clubs of the AVorld, have organized departments to cooper- 94 WHOLESALE MERCHANDISING ate in devising accounting and cost-keeping systems, and the like. It behooves the jobber to cooperate with every reputable organization engaged in the work and to collect useful material from ever}?" avail- able source. 6. Accounting and store systems. — An investiga- tion made by Robert H. Ingersoll and Brother proves that in the majority of small retail stores only twenty per cent of the stock is active. Mr. George W. Whelan, President of the United Cigar Stores Com- pany, estimates that less than fifty per cent of the re- tailers take an inventory once a year. Yet the means for keeping track of one's stock so that the slow-mov- ing goods may be weeded out, may easily be obtained by means of a simple accounting and stockkeeping system. It enables the retailers to find out in a mo- ment the amount of stock of each kind on hand, the turnover on each line, and consequently the lines which are profitable, the sales of each clerk, and finally the total sales by lines. The expense of doing business, together with the percentage of net profit and the total profit on each line may also be easity determined. Many retailers are afraid to adopt complete mod- ern retail systems because they believe that such sys- tems are too complex and require too much clerical labor. Yet the average country storekeeper wastes hours every day; and the same is true of his clerks. It is one of the duties of the more progressive retailers as well as of jobbers and manufacturers to educate the country retailer to appreciate the value of such COOPERATING WITH RETAILER 95 systems. A duty rests likewise upon those who de- vise such systems, to make them both simple and ef- fective. Any junior accountant can devise a complex system; but it takes a genius to balance simplicity with effectiveness. The jobber is wise who gives pa- tient thought to the study of the needs of the retailer before recommending the remedy. 7. Advertising helps. — ^Dealer cooperation began with advertising helps, and this form of service to re- tailers is still the most common. These consist mainly of electros of advertisements, booklets and catalogs, counter and store cards, window displays and store signs. It was so easy to get out ma- terial of this sort and scatter it broadcast that it was overdone. Retailers receive so much more material than they can possibly use that much of it is thrown away. Manufacturers and jobbers are realizing this situation and as a result some send material only on special request, while others arrange for one of their salesmen to investigate the needs of each retailer and to deliver the material he is sure will be used. In the case of window displays it is customary to have a crew of men who deliver and set up the dis- play. The present tendency is to improve the qual- ity and cut down the quantity of display material. The manufacturers and jobbers have also become convinced that advertising service, to be effective, must be individual rather than general. Retailers need help in planning their advertising campaigns and in the preparation of copy. Here the jobber has an 96 WHOLESALE MERCHANDISING advantage over the manufacturer, as he prefers to give individual help rather than to supply expensive printed material. Furthermore, retailers want to feature themselves rather than the manufacturer or the jobber. The jobber has no desire to feature him- self in the advertising; he agrees with the retailer in the matter. In cases where jobbers do little advertising them- selves and have no organization for the work, they can combine to form a joint dealer-service bureau. The jobbers of St. Joseph, Missouri, organized such a bureau and employ an expert in merchandising who gives his entire time to the assistance of the re- tailers in the jobbers' territory. The work has been strikingly successful. 8. Dealer sei'vice thru the house organ. — Recently many jobbers have come to realize that the house or- gan, if it is to succeed, must be something more than disguised advertising ; in fact, that it must be first of all of service to the retailer. The house organ is an excellent medium for keeping the retail trade informed on business opportunities and trade conditions. The complaint is frequent among retailers that on account of the large variety of articles which they handle, they are unable to study the selling possibilities of many of them, and that manufacturers and jobbers give them little real help in this way. Descriptions of methods used by other successful merchants are par- ticularly acceptable. 9. Retail salesmanshij). — There is a great oppor- COOPERATING WITH RETAILER 97 tunit}' for the jobber to assist the retailer. The job- ber's salesman is in closer touch with the needs of the dealers in his territory than perhaps any other per- son interested in the distribution of goods. If this salesman is a man of keen observation, he can easily find the clerks who need training in salesmansliip, and persuade the dealer to allow them to take a course of instruction. The four general methods of helping the retailer to improve the selling ability of his clerks are these: (1) systematic instruction by means of correspondence courses ; ( 2 ) personal demonstrations ; (3) salesmen's contests; and (4) unsystematic in- struction tlii'u house organs, booklets and circulars. 10. Correspondence courses in retail selling. — The use of correspondence courses, which is the first method of improving retail salesmanship, is the only thoro one. Because of the expense involved, few jobbers are able to work up such courses independ- ently. The material, however, can be obtained from manufacturers, trade associations and educational institutions, or direct from text-books on retail selling. Generally it is best for the jobber to co- operate in this work with other agencies. One manu- facturer has recently found that by making a small charge for his course he increases the appreciation of its value and, correspondingly, the proportion of those who complete it satisfactorily. 11 . Demonstrations of salesmanship. — Some manu- facturers have traveling salespeople who instruct clerks in the dealer's establishment, while others main- 98 WHOLESALE :MERCHANDISING tain a training school at the factory. Sometimes state universities, such as Wisconsin, thru their extension department supply traveling instructors. In certain cities the educational authorities are in a position to conduct classes in retail salesmanship in the high schools of commerce. In fact, the sources of help of this sort are numerous. 12. Sales contests. — The third means of improving retail salesmanship is sales contests. Salespeoi^le will work harder to increase their efficiency when there is a reward or prize in sight than under any other circum- stances. It is easier to see a direct reward in the shape of a prize than an indirect reward in an increase in salary at some future day. Therefore, weekly sales contests, quota systems and the like, offer an excellent stimulus to the study of how one may increase selling efficiency. 13. House organs and miscellaneous dealer litera- ture. — Many people who would not follow a sys- tematic course are reached by means of practical ex- amples in the form of anecdotes and articles in house organs and dealer literature. This influence is con- tinuous in its operation. Such instruction, tho not systematic, can be very effective. In order to hold the interest of the clerk and the dealer, the house organ should constantly emphasize the great impor- tance of the work done by the clerks of the retailer. The biggest problem to solve in this form of in- struction is getting the literature to the clerk at a time when he is able to read it. Accordingly, it is much COOPERATING WITH RETAILER 99 better to send the literature to the clerk's home, where he has time in the evening to study it. 14. Selling points of merchandise. — Unless a sales- person understands the selling points of the merchan- dise, he is in no position to use his training in sales- manship. It is easy to obtain this information, since manufacturers are taking great pains today to pre- pare literature describing materials, process of manu- facture and points of merit, all of which can be used in selling their products to the consumer. Here again the jobber comes in as a distributor. With his knowl- edge of the dealer's needs, he is in a better position than the manufacturer to place this material in the hands of the retailers who need it most. The job- ber can act in the capacity of a clearing house on mer- chandise information from every possible source. 15. Trade extension trips. — Another effective means of cooperating with the retailer comes in con- nection with "trade extension excursions." A num- ber of executives of the various wholesale houses in different lines in a city, charter a special train and visit the retail trade in a series of towns in their terri- tory. This method enables them to meet their cus- tomers and establish friendly relations with them. It also offers an excellent opportunity for the jobber to get an impression of the customer's capacity and re- liabihty, as well as of his requirements with respect to additional service. 16. Merchants' weeks or seasons. — Another way of bringing the retailer into direct contact with the 100 WHOLESALE MERCHANDISING jobber is to conduct merchants' weeks or seasons. Instead of the jobber's visiting the retailer himself, the retailer comes to the jobber. This is usually handled by an association of jobbers of a city or by the whole- sale trade department of the Chamber of Commerce. The first inducement is a refund of carfares to those who purchase a stated amount from jobbers of the city. A series of lectures on retail merchandising is usually offered during the period. The lecturers are the best men to be obtained, and the course is well ad- vertised in advance so as to insure a representative gathering. The plan is used with much success by various jobbers' associations in the Middle West. 17. Checking 7/7; results from dealer service. — Because of his frequent visits to the different retailers in his territory, the jobber's salesman better than any- one else can keep track of results from dealer service. If he is the right kind of salesman he will be con- stantly on the alert to watch any change in the re- tailer's store. It will not be difficult for him to note wliether the advertising material furnished by the job- ber has been used or not. He can easily see whether the retailer's clerks are improving their salesmanship. The jobber's salesman is usually allowed to roam all about the store, and in so doing he can have a talk with the credit man or the bookkeeper, and find out whether the accounting help given by the jobber has been used and whether the retailer has established his credit department on a more efficient basis. The salesman should be required to report to the jobber the results COOPERATING WITH RETAILER 101 of his visits, and in all cases the data should be indexed and filed away for future reference. When electros are supplied for advertising service, some jobbers employ a newspaper clipping bureau to clip the advertisements of the retailer and turn them in to the jobber. This is perhaps the most efficient means of checking this form of service. Another method for checking service is to inclose a return pos- tal card with the material sent to the retailer, with a form on the back for the retailer to fill out. Here are some of the questions included on the card sent out by a prominent manufacturer of silverware: 1. Have you found the advertising aid helpful to you? 9. What change or improvements would you suggest? 3. Have you used the window display matter sent you? 4. Can you trace any direct results in sales from the use of this material? 5. What results can you trace from the use of circulars or other helps which we have furnished you? This manufacturer reports that less than half of these cards are returned, but nevertheless he feels well satisfied with the results he is able to secure. In order to tabulate the results it is necessary to have a card index of all dealers to whom such service has been supplied. These cards should contain a rec- ord of all advertising material sent to the dealer, the nature of all other service furnished him, the use he has made of it, the results he reports, and any crit- icisms or suggestions received from the dealer rela- ti^'e to this advertising material or service in general. 102 WHOLESALE MERCHANDISING The salesman's report on the kind of help the dealer can use and prefers is also recorded on each dealer's card. REVIEW What are the common forms of dealer aids used by jobbers? What do vou consider the most valuable form of dealer co- operation ? Why ? How may house organs be made most valuable to the retailer? What do you consider the best method of improving the stand- ard of retail salesmanship? How, also, may the jobber help increase the retailer's sales efficiency ? How may dealer service be best checked and improved ? CHAPTER A^II OPERATING THE BUSINESS 1. Function of the operating division, — We have already discussed the financial, production or mer- chandising, and sales divisions. It is obvious that there must be an accounting division. In a jobbing concern it is found advisable to include with the ac- counting division, all the other clerical and miscella- neous departments which are not limited in their function entirely to financing, buying and selling. Various names are given to this combination division. The most appropriate seems to be "operating divi- sion," suggested by the National Wholesale Dry Goods Association. The duties of the operating di- vision are to handle the merchandise, keep up the physical plant used by the business, and record all the activities that are necessary to its operation. The re- lation of these detailed activities and their respective departments to the remainder of the organization will be gi-asped readily from the general organization chart facing page 40. 2. House manager. — The house manager has un- der his immediate supervision nearly all the clerical force of the operating divisions. In many concerns he is responsible also for the employment, training and 103 104 WHOLESALE MERCHANDISING disciplining of all clerical employes, including those detailed to work in the financial, merchandise and sales divisions. It is generally conceded that the best re- sults may be obtained in this way thru the setting of uniform standards. In a large concern, where it is impossible for one man to do all the work, an office manager looks after the details of supervising the gen- eral office, and a house superintendent performs a like function in connection with the work of the remaining departments in the warehouse. The work of the house manager is to plan and de- velop the systems used in the various departments of the operating division. He sets standards for the employes generally and for each department spe- cifically, formulates the house policies, devises scien- tific units for efficient work in each department, and corresponding wage systems, looks after the training of emploj^es and their welfare, and in all this work he seeks to develop that esprit de corps which is so necessary to the successful operation of any business. 3. House policies. — In this connection we are con- cerned with internal house policies. The most im- portant house policy relates to the problem of employ- ment. If an esprit de corps is to be developed in the office force, both management and employes must real- ize that any business concern is founded on the co- operation of capital and labor. This is the funda- mental principle on which a successful jobbing business is to be erected. It is as necessary to have an enthusiastic corps of office emploj^es as it is to OPERATING DIVISION 105 have the same spirit of eiithiisiasin instilled in a sales force. The work must begin with the employment of only such people as have possibilities for development for the executive positions in the house or sales force. For each employe there must be set a definite line of development and advancement. This requires sys- tematic training and proper working conditions. A jobbing business calls for the efficient handling of an enormous amount of routine work at a small cost per unit, and the only way this work can be done success- fully is to employ a thoroly trained force, in which each member is an understudy to some higher em- ploye. 4. Methods of employment. — All positions, except under extraordinary circumstances, are filled by pro- motion. In many jobbing concerns the highest of- ficers have come up thru the ranks from the posi- tion of office boy or stock clerk. But there are dis- advantages in following such a method exclusively, as people who have come up thru the ranks often lack breadth of view. They are inclined to think that be- cause something has always been done in a certain way, there can be no better method. As a result, the methods of many houses are old-fashioned and expen- sive. This condition is being changed rapidly as more information on methods of up-to-date houses is being made available and competition is forcing a search for more efficient methods. .5. Standards for clerical tmrh and wage systems, — Just as in the case of factory work, standards for all MX 9 106 WHOLESALE MERCHANDISING operations can be set. One dry-goods house has standards for every type of work. For instance, in its correspondence with retailers, in which a form- paragraph system is used, this firm found that the stenographers were typing an average of fifty letters a day. Since the company was satisfied that they were not working up to reasonable capacity, a small bonus was offered on all typing in addi- tion to the fifty letters daily. At once the girls, with apparently no special effort, began doing an average of seventy letters daily. Finally, in connection with a general wage increase, the stand- ard day's work was set at sixty-five letters and a bonus arranged for all production beyond that, together with a penalty for errors. The girls are now doing an average of seventy-five to eighty letters, while the typ- ing is being done at a considerable lower cost per let- ter. In the same way standards on billing, packing, shipping and all other lines of work were set. By this method it was possible to increase wages per per- son and at the same time decrease the operating ex- penses, get out the orders more promptly and reduce the percentage of errors. This wage system is based on a straight salary, for which a minimum output is required, with a bonus for increased output and a pen- alty for delays and errors. In addition, sj)ecial bonuses are awarded for good suggestions, for regu- larity and promptness in attendance, and for every other factor which serves to measure an employe's usefulness to the house. From these bonuses are OPERATING DIVISION 107 made deductions for any shortcomings, such as tardi- ness, absence and the like. 6. Instruction and welfare worh. — Systems of in- struction such as are used in retail organizations and are described in Chapter V, Part II, are coming into use in wholesale houses. It is generally con- ceded that there is a need for courses in salesmanship for the sales force; moreover, there is a like need for study by the clerical force of the house policies and systems in general. A definite training in the work of the department in which the new employe is to work is essential. In this connection a manual of operations, explaining in detail the function and system of each department, together with samples of the forms used, is of great value. Welfare work must not be overlooked in any organization where the chief officers cannot come in daily contact with each employe. The point of view should be one of cooperation if each employe is to do his best work, rather than the patronizing atti- tude so noticeable when welfare work first came into prominence. 7. General office. — While the number of depart- ments in the general office varies with the kind and size of the business, the functions to be performed in each are uniform in most jobbing houses. From a functional standpoint it does not matter whether the extensions on the invoices are checked by the billing department or by a separate profit and cost depart- ment. It is easier to explain the different functions. 108 WHOLESALE MERCHANDISING however, when each department is hmited to one par- ticular activity. Since there are eleven distinct func- tions in the average wholesale house, an organization system is here described in which these functions are represented by eleven distinct departments. The different departments will be discussed in the order in which a customer's order would pass thru them. 8. Order and registry departments. — After the or- der has been checked by the sales department to show that it is satisfactory in regard to terms, prices and the like, it is passed to the credit department for ap- proval. It is then registered in the order book. This may be termed the book of original entr}^ Cards may be used instead of a book. The order book shows the name and address of the purchaser, the date, the salesman, the order number, the kind of order and the departments represented. After the goods have been shipped, the date of shipment is entered from the ship- ping ticket. The order number, or registry number, as it is more frequently called, appears on all records thereafter connected with this particular order and is the basis for its identification. Orders are registered numerically and entered in the order book as they are received. In most houses the order department is responsible for the preparation of duplicates of the order, which are sent to each department concerned, so that each may work on the order at the same time. In Sprague, Warner and Company of Chicago, the salesmen are re- quired to make out their orders with an indelible pen- OPERATING DIVISION 111 person, the lost time must be reported at once to the office manager or house superintendent; otherwise the clerk who received the order late will be held respon- sible for holding it longer than necessary. The maximum time allowed each person to take care of his part in filling an order is worked out in advance. In one large Chicago wholesale house, the maximum time from the moment the order is received until it is filled and out of the house is three hours, while the average time is slightly under two hours. 10. Order department reports. — The process of fill- ing the order really begins in the order department. It is the function of this department to keep track of it and particularly to observe the promptness with which it is filled. The form on page 112 is used for this purpose in one large concern which is making an enviable record for success in fiUing orders the day they are received. 11. Order and registry for mail orders. — A number of concerns have a special department to handle all orders received thru the mails, while in others the order and registry department takes care of them. The volume of business received by mail should deter- mine whether a separate mail-order department is desirable. Such a department has an advantage be- cause much discretion is required to make sure that the desired goods are properly selected. Frequently mail orders are ambiguous, and therefore someone must be able to interpret the retailer's needs correctly. The plan is identical with that of the mail-order de- 112 WHOLESALE MERCHANDISING O J- h- g " n- T n UJ _i u. H O z ^. rn '^ a: Q O s a: UJ I'J > O o I y. ^ a. A a. < £ o CO < Z » ? s H < UJ U i i < I 1^ ^ s < £ CN »• C3 S •" 1 Q o z o z S a a. -i J o w O o ■n J ►- o a a g o if _ & > J*: 1 ^ c; •"S n < t- o H «) CO rr Q Q X < CO z < 1- ^^ cn •- Q o 0. -I UJ Z 0. () < a o £ oi z _l t- o *- CO lO c^ in eo ■o- ^ ■^ o CD CO Q z < 1- CO Q CO CO (11 IX. ul n n u CO o n z CM o ex CO o P3 ^ ^- CO *" CM ^- co O s ! 1 i O O _1 O b < Q UJ 1 S — _J 1- O z crt q: UJ a cc O i C3 -3 O a g 1 1 1 c i 1 a 1 o 5 H ^ O 5?i V' H ^ W ^ 125 ^ 5^ 3 S d o 'd J5 H « 3 fs OPERATING DIVISION 113 partment in a department store, where mail-order shoppers are sent out with each order to select the desired goods from stock. 12. Traffic department. — The work of the traffic department is to check up freight charges on both incoming and outgoing goods and make claims, when necessary, to the transportation company. In the case of incoming goods, the traffic man, in many houses, checks all future orders to make sure that the best route and the lowest rate consistent with the type of merchandise ordered is specified. A good traffic man can save his salary by checking the freight costs on incoming merchandise and making claims for overcharges, except possibly in such cities as New York, where so much of the merchandise is obtained from local wholesalers. But the main work of the traffic man is in connection with outgoing shipments. Generally the shipping route is specified by the pur- chaser, but as freights are often prepaid there still arises a possibility of saving. For instance, large New York jobbers ship in bulk to Galveston and then contract with Galveston cartage firms to receive and deliver or reship the goods. It is the duty of the traffic manager to arrange such special means as this whenever desirable and then check the freight bills to see that these instructions are followed and that the lowest possible rates are obtained. The traffic man has another function in connection with claims. Most jobbing houses feel that they are better qualified than the customer to follow up claims 114 WHOLESALE MERCHANDISING for damage to goods in transit. This work frequently takes a large part of the time of the traffic department force, and in handling it the jobbing concern is per- forming a real service for its customers. 13. Contract department. — Jobbers usually pur- chase some commodities on long-term contracts. This is particularly the case during such periods of rising prices as occurred in 1916. Buying by contract is an important part of the jobber's activity because of the speculative possibilities in market operations. Such contracts are recorded and looked after by the contract department, tho in many concerns the con- tract department is a part of the merchandise division rather than a part of the general office. When con- tracts for futm'e deliver}^ are made by buyers, records are provided, and as deliveries are made the records are checked after the fashion of a cumulative inven- tory, to show how much has already been delivered and how much remains to be delivered on the contract. It is necessary also to make sure that contract agree- ments are being maintained. When goods are re- ceived too soon, unnecessary expense for warehousing and insurance, as well as for interest on capital, is in- curred. If goods are received too late, a loss of sales and a general confusion of the merchandise plan may follow. It is therefore a necessity to keep constantly checking the records of delivery against the various contracts. Another important activity frequently assigned to this department is the recording and filing of back OPERATING DIVISION 115 orders, as weU as advance orders, from customers. Even when stocks are most carefully regulated, thei-e are likely to be times when certain lines are short, or "out of stock." When an order for immediate deliv- ery comes in, shipment is made of items in stock. If the order calls for goods out of stock a record is made of the goods short. Each line short is put on a sep- arate card and then, as the stock is replenished, ship- ment is made. Customers are advised to purchase elsewhere or to reorder later if the delay is likely to be lonff or if the amount of the back order is too small to make up a separate shipment. A record is also kept of orders taken for future de- livery. In most jobbing lines, a large part of the business is obtained some months in advance of sea- sonal requirements on the part of dealers. For in- stance, in the dry-goods business, orders for fall mer- chandise will be taken between January 1 and June 15 preceding, and these are entered up for delivery in August or September. Because of the advantage to the jobber in getting orders in advance, an extra or "stock order" discount is sometimes allowed as an in- ducement. 14. Billing department. — In some wholesale houses, in order to expedite the work, the bills are made out while the goods are being selected and packed. In many houses the billing is done in the packing room. This method is not so successful in grocery houses, where goods need little or no packing, as they are sold largely in the original containers. The simplest way 116 WHOLESALE MERCHANDISING is to have the original order, together with the floor sheets if any are used, and the hill of lading returned to the general office as soon as goods are shipped. Then the invoice can be made out from complete in- formation. Houses which use this method succeed in mailing invoices on the same day that the goods are shipped. This should be the rule everj^where. 15. Claim department. — All claims made by dealers for credit on goods returned are handled by the claim department. Claims against the transportation com- panies, however, are usually tin*ned over to the traffic department. Since the volume of goods returned by the dealer to jobbers is great, the work of this de- partment is very important. The dealer must be satisfied or he will be lost as a customer, and it there- fore behooves every jobber to establish a liberal but firm policy and an organization for handling these claims. 16. Profit and cost department. — In every jobbing business a profit and cost department is essential, for it is the source of the most valuable statistics — those on sales and profits. As soon as the invoices are made out, they are sent here for auditing. The prices are checked and then the extensions are verified by means of a non-listing adding machine. Next the profits are figured and entered on either the original order or on the carbon of the invoice, which is retained for the office files. From the total of profits, the cartage is deducted to give the gross profit to the house. Next a slip is made out to show the total amount of each OPERATING DIVISION 117 order for each department and the gross profit to each department. In the large concerns, the figuring is done on a tabu- lating machine. A card is punched for each order, showing the number of the salesman, the date of the order, the totals of the sale for each department and the corresponding profits. Then by running thru the tabulating machine all tlie cards representing one day's business, any desired combination can be ob- tained, such as the totals for the day of a department, of a salesman or of a section of the country. These cards are kept for several months, so that any desired combination of statistics can be had on short notice for any period. Diy 1 1 2 2 ^,3 3 Ledger 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 99 General SalesmAn X 1 1 1 2 22 3 33 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 Special Salesman X 1 1 1 2 2 2 3J^3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 Dept, X 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 99 Dept. Salesman X 1 1 1 2 2 2 3 33 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 X 1 1 1 22 2 3 3 3 4 4 4 5 65 6 6 6 7 7 7 8 88 9 9 9 OiO olo 1 11 iTfi 1 I I 212 2 2i2 2 I I 313 3 3l3 3 4 4 4 4;4 4 515 5 5!5 5 e'e 6 616 6 -f -r- — 7 7 7 717 7 I I 8;8 8 8[8 8 9|9 99199 0|0 i"ri|rv 2 2 2i2 2 3 33133 4 4 414 4 5 5 5;5 5 6 6 616 6 7 7 7|7 7 8 8 8|8 8 9 9 9j9 9 At the end of the month each salesman receives a statement of his total sales and profits, together with a statement of the same month of the previous year, as in the exhibit. 118 WHOLESALE MERCHANDISING 17. Bookkeeping department. — The duplicate copy of the invoice, together with the original order, now goes to the accounting department, where they are Form 126. 2M 7-10-16. V ) 'ymjjbh. .Salesman 19 ,e SAME MONTH LAST YEAR DEPARTMENTS SALES PROFITS PER CENT SALES PROFITS PER CENT 1 Suffar 1480 iO 2 Tea 1850 250 3 Coffee 2100 250 4 Tobacco 258 18 ^ (Flour ■* (Cereals 720 72 (Molasses ''(Syrup 200 20 7 Cbeese 483 42 Dried ** Fruits 342 18 Canned ^ Goods 1500 300 10 Fish 150 ^ Miscellane ous 1375 j^2 Manu- facturing 13 Cigars 230 j^ (Fancy (Groceries 325 Total Cartage Allowances Net OPERATING DIVISION 119 posted after the usual fashion. The orders are next filed away alphabetically according to the customer's name. 18. Cashier, stenographers and miscellaneous gen- eral ofpce employes. — The cashier receives all money which is paid to the concern on account of goods pur- chased, and renders a daily statement in quadrupli- cate; one goes to the auditor, one to the credit man, one to the accounting department, while the fourth is filed in the cashier's office. This statement gives a list of amounts received and states what accounts should be credited. The duties of the stenographic force and telephone operators are obvious. 19. Warehouse department. — The employes con- nected with the receiving and shipping of the goods and all those engaged in taking care of the building used by the concern are included in the warehouse de- partment, which in large concerns is under the direc- tion of the house superintendent. Both he and the office manager report direct to the treasurer, who also acts as house manager in general charge of the operat- ing division. This relation which the house superin- tendent bears to the organization as a whole, and the general outline of his department is shown on the or- ganization chart facing page 40. 20. Receiving department. — All goods which are ordered by the merchandise division are received by the receiving department, which is responsible for see- ing that they are in good condition. The receiving clerk makes out on a blank form a list and a descrip- 120 WHOLESALE MERCHANDISING tion of all merchandise received in connection with the invoice or the pui'chase order. This is sent to the mer- chandise office, where it is checked against the original purchase order to make sure the goods are as ordered. It used to be customary to check against the invoice goods received in the receiving department. The hurried or careless receiving clerk checked as having been received in good condition much merchandise which was short or damaged. The receiving clerk holds the goods until he gets authority from the mer- chandise office to send them to stock. As was re- marked in the chapter on Merchandising the Busi- ness, each buyer supervises his own stock, while the house manager or superintendent inspects and regu- lates the physical condition of the stocks and the meth- ods of storage. 21. Packing department. — Reference has already been made, in connection with the discussion of the order department system, to the various ways of hand- ling orders. The organization of the packing room depends on the order system used. In dry-goods houses a general packing room is necessary, while grocery houses need an assembling room, except when items are required in less than full package lots. Many houses have their own box-making plants with automatic machinery ; in dry-goods houses the baling machines are included in the equipment of the pack- ing room. It is the duty of the chief clerk of the packing de- partment and of his assistants to check over the goods OPERATING DIVISION 1^1 sent from the warehouse stock with the customer's order. If he passes the order, the goods called for are supposed to have been shipped and the invoice is made accordingly. For this reason it is essential that the checking be done accurately. 22. Shipping department. — The shipping clerk makes out the bill of lading and labels the shipment. In many concerns the requisite number of labels are made in the order and registry department, and each shows what goods are to be shipped on it. The street- men check each outgoing shipment to make sure that nothing goes out that is not under a regular label. The idea, of course, is to prevent shipping clerks from shipping goods irregularly. The order is now ready to be taken to the freight house for shipment. Copies of all bills of lading are filed in the shipping department, or attached to the original order when it is returned to the billing department. City deliveries are handled in much the same way, except that a de- livery ticket is made out instead of a bill of lading. REVIEW What functions are performed by the operating division? Into wliat departments is this division usually divided? Why are wise house policies particularly necessary for a job- bing house? What do you think should determine the location of depart- ments in the w^arehouse office? What is the importance of the traffic department? Tlie con- tract department? The profit and cost department? Why is it desirable to have invoices made out in the packing room ? XFX-lO CHAPTER IX MANUFACTURING JOBBER AND SEMI-JOBBER 1. Manufacturing jobber defined. — The ternij manufacturing jobber, is applied properly only to the jobber who actually manufactures and brands the merchandise which he sells at wholesale. Some ac- tivities which might be considered manufacturing functions, such as sorting, cleaning and roasting coffee, have always been considered within the scope of the regular jobber and so do not put him in the class of manufacturing jobbers. It is necessary, also, to distinguish the manufacturing from the private- brand jobber who buys goods in bulk and puts them up in packages under his own brand. 2. Why jobbers manufacture. — Various reasons are given by jobbers for manufacturing their own goods, but seldom do two jobbers give identical reasons. In fact, the reasons for manufacturing are not the same for every department of the same house. The most common reasons given by jobbers for manufacturing are the following: a. In many lines, the profit on both staples and manufacturers' specialties is insufficient, and in such lines the jobber must add a manufacturer's profit in order to make any money. " 122 JOBBER AND SEMI-JOBBER 123 b. It is necessary to control the quality of the goods, especially in food products, c. There is an advantage in handling goods in bulk, and thus saving not only warehouse space, but also loss from broken containers and soiled packages. The goods may be put into packages, as required. d. Control of the market thru conti'ol of both the manufacture and the marketing of particular brands has obvious advantages. It is claimed that the jobber who manufactures, brands and advertises a line suc- cessfully creates a consumer demand which forces the dealer to come to him to buy these goods. e. The trade of chain stores, department stores and buying exchanges which would otherwise go to the manufacturer, may be diverted to the jobber if he is prepared to manufacture his own goods. f. The possibility of bringing out new lines ahead of the manufacturer is a further advantage. g. Manufacturing gives the jobber the opportunity of selling to retailers who are competing with one an- other, because he can make up a special brand for each retailer. h. Manufacturing leaves the jobber free to follow his own interpretation and analysis of the demand in every respect and to act accordingly. One dry-goods jobber increased his. turnover from twice to nine times in one line, by manufacturing the goods to meet his own trade's demand. i. A small manufacturer whose line is so limited as to prevent his establishing a sales organization may be 124 WHOLESALE MERCHANDISING given an opportunity to enlarge his business by be- coming a manufacturing jobber. j. The jobber may, by manufacturing, be able to improve the source of supply of merchandise. k. The prestige which comes from manufacturing the goods sold offers a strong inducement to many jobbers to undertake manufacturing. 1. The personal desire on the part of the jobber to develop into a manufacturer is a further inducement. Large manufacturing jobbers in the grocery line frequently consider the last two points as the strong- est reasons for entering the manufacturing field. 3. Methods of organization, — In the business of the manufacturing jobber, the manufacturing unit may be run as separate from the wholesale department and have all the functions of a complete manufacturing business. An expert in manufacturing is engaged as factory manager. A complete accounting and cost system for the factory is maintained, and prices to the wholesale department of the business are figured so as to show a profit, if possible, for the factor}^ Fre- quently the factory is incorporated separately, tho both concerns may have the same officers. Sales are frequently made from the factory to other jobbers. Under another plan of organization, each depart- ment of the jobbing business does such manufacturing as may seem advisable. For instance, the buyer of vanilla extracts may decide to manufacture instead of buy extracts in the open market. It is a com- JOBBER AND SEMI-JOBBER 125 paratively simple matter to obtain the vanilla beans thru a broker or an importing house and to instal the necessary machinery for grinding the beans and for preparing and bottling the extract. 4. Relative advantages of the two types of organ- ization, — The type of organization to be employed must depend on conditions, such as the amount of manufacturing to be done and the kind of goods to be manufactured. Concentration of the manufac- turing helps to bring about a large-scale production which largely reduces the cost of the finished product. Furthermore, under a separate factory system it is easier to allocate costs and to arrive at a correct fig- ure for each step in the process, as well as for the total cost of the finished product. Some jobbers maintain that this plan produces friction between manufacturing and sales department to the point of defeating the abihty to meet competition. Those jobbers who are in favor of puttuig each buyer in charge of the manufacture of his own par- ticular line, maintain that a considerable saving re- sults from a combination of the buying and manu- facturing function in each department. They believe that the buyer's expert knowledge of the requirements which the product must meet make him better able to supervise the manufacturing than someone less fa- miliar with the public demand. They contend, fur- ther, that it is quite possible for one man to supervise both manufacturing and buying, and in support of their contention they point to many concerns in which 126 WHOLESALE MERCHANDISING each buyer manages his own manufacturing. The vanilla-extract manufacturing can be handled best in this way. 5. Production methods. — All the principles of fac- tory administration are applicable to the business of the manufacturing jobber. Especially is this true of those principles that govern methods of routing the work, time schedules, the use of labor-saving and time- saving machinery, standard methods of operation and premium systems for wage payments. The factory sys- tems in any one of a dozen or more of the large whole- sale groceiy concerns in the United States and Canada are models of industrial organization and management. 6. Stockkeeping. — The manufacturing jobber keeps most of his stock in bulk, packing it and pre- paring it for shipment only as the demand requires. In this way he saves space and minimizes the number of torn or soiled packages which accumulate, and can arrange his storage facilities to prevent depreciation and waste. When a separate factory is maintained, a great part of the saving comes from large-scale production. This method necessitates packing and warehousing, tho to a less extent than other manufacturers require, since the certainty of the outlet makes the plan for production more definite than those of the ordinary manufacturer. A complete stockkeeping system is maintained at the factory. 7. Advertising and selling. — The jobber who is to create and put on the market a brand of his own must JOBBER AND SEMI-JOBBER 127 use the same sort of intensive advertising that the spe- cialty manufacturer uses. oNIany jobbers feel that manufacturing furnishes the only way to save them- selves from extinction. Such jobbers must take their places among aggressive advertisers, and that they are doing so is evidenced by the great amount of national advertising being used today by jobbers in national weeklies, farm papers, city dailies and country week- lies. But advertising must be followed up by the work of a force of specialty salesmen who handle the private brands only. 8. Special terms. — As a special inducement to en- courage the purchase of his own brands, the manufac- turing jobber usually offers longer terms of credit on them than he is willing to offer on other lines. He is making a correspondingly larger profit, either thru the saving resulting from manufacturing or thru his ability to get a higher price on his own lines. More- over, in his capacity as manufacturer, it is not neces- sary to give long-term credit to his jobbing depart- ment. This saving can be passed along to the re- tailer. Since he is getting both a manufacturer's and a jobber's profit he has a wider margin on which to base his credit terms. 9. Accounting and costkeeping. — In either type of organization, there must be two separate sets of ac- counts; one for the jobbing business, and the other for the manufacturing business. When these activi- ties are separated, the accounting system charges each unit with its respective expenses of doing business — 128 WHOLESALE MERCHANDISING rent, salaries, light, heat, a proportionate cost of su- pervision on the part of those who divide their time between the two units, and any other expense which may be incurred for the particular department. 10. Pricing goods to jobbing departments. — When the factory is conducted as a separate unit, it is de- sirable to show a profit on its operation in addition to a surplus to cover depreciation on machinery and fluctuation in the cost of raw materials. Prices are based on the cost of manufacture and the conditions of competition in the line. Even then, however, it is not always easy to rmi the factory at a profit, as many manufacturing jobbers admit. When each buyer does his own manufacturing, this is generally considered as a substitute for buying in the open market, and therefore no manufacturing profit is shown on the books. The goods are charged to the house at the cost of manufacture, including overhead and interest on capital invested. Any profit resulting from their sale to other jobbers is credited to the department concerned as a trading profit. However, the cost prices given to the salesmen repre- sent the current market prices or perhaps a trifle less, rather than the actual cost figures. This method is entirely correct, because the salesman has no interest in the manufacturing and is therefore not entitled to any extra profits resulting from manufacturing. He represents only the marketing unit of the organiza- tion and must expect to work on a basis of average market prices. JOBBER AND SEMI-JOBBER 129 11. Definition of semi- jobber. — The term semi- jobber is applied to a merchant who sells at retail as well as at wholesale. Most semi- jobbers have either added a retail business to an existing wholesale busi- ness, or a wholesale business to an existing retail busi- ness. In only a few cases did the merchant start out at the beginning to conduct both. 12. Reasons for development of semi- jobbing busi- ness. — Various reasons have led to the development of the semi- jobbing business. The prospect of the dou- ble profit furnishes a strong inducement to undertake both branches. The wholesaler who adds a retail branch to his business may wish to have a guaranteed outlet for his jobbing business, to conduct a service station for retailers, to try out new merchandise plans, and to dispose of odd or broken lots or any slow-sell- ing stock. The retailer who takes on the jobber's function may wish to render better service thru ready access to a wholesale stock, or may wish to establish agents thru his increased capacity to buy in jobbing quantities. The man who starts in business with both branches may be actuated by any of the above reasons. 13. Organization. — When the wholesale and retail departments are operated separately, as is the case in Marshall Field and Company, the plan of organ- ization is similar to that of the manufacturing jobber who operates both factory and wholesale organizations as separate and distinct units. In cases in which a re- tail store is added to a growing wholesale business. 130 WHOLESALE MERCHANDISING the retail function is frequently handled by the regu- lar wholesale organization. The wholesale and retail stocks are not separated, nor does any other line of demarcation appear, except that represented by the keeping of separate accounts. When the jobbing function has been added to a retail store, the wholesale business is usually handled by a special wholesale man. A separate set of ac- counts is kept for each of the two divisions. The wholesale man takes the wholesale customer to the department in which he is interested and, with the buyer of the department, shows the desired goods. Special prices are made by the buyer on each article, unless wholesale figures are made in advance. A wholesale business of this sort is conducted by John Wanamaker in connection with his retail stores in New York and Philadelphia. In houses where either of these two types of organ- ization is found, there may be a complete organization for both wholesale and retail. Generallv, seffreg-ation begins with separate accounts; then comes a separate show room, and later a separate open stock for each, while each depends on the same buyers and the same reserve stocks. Xext, the retail manager maj'- feel the need of keeping his line complete by purchases else- where and thus eventually build his own buying force. In fact, in most of these organizations, such as Straw- bridge and Clotliier, Wholesale and Retail, Phila- delphia, the retail buyers are not required to buy from the wholesale unit. JOBBER AND SEMI-JOBBER 131 The third type of organization is used by the firm of Haniniacher, Schlemmer and Company, New York. This firm has handled both wholesale and re- tail business since the founding of the house. A loose-leaf j^rice list which gives both wholesale and retail prices is issued for use by the sales force. Cer- tain of the retail salespeople are authorized to handle requests for wholesale terms, altho most of the whole- sale business is done entirely by the wholesale de- partment offices. Names of people entitled to whole- sale prices are registered and full information neces- sary to the conduct of a wholesale business is main- tained in order that the firm's dual activities may not overlap and cause confusion and ill-will toward the house. 14. Stockkeeping. — It is generally conceded that where both wholesale and retail lines of business are to be developed, it is best to run each stock independ- ently of the other. In such a case two stocks are main- tained. Sometimes the retail business depends upon the wholesale stock as a reserve. Both plans are likely to insure equally careful buying, for each stock is built up according to the special requirements which it must meet. There is also increased convenience in handling. Each division of the business can be held responsible for its own stock, whereas if both work from the same open stock, one is likely to blame the other for any failures to buy and keep the stock prop- erly. If one division is merely an adjunct of the other, planned only to secure a little extra j)rofit with- 132 WHOLESALE MERCHANDISING out much expense, then only one stock should be maintained. 15. Accounting. — One of the most common causes of trouble in semi- jobbing comes from the lack of separate accounts. Frequently one department or the other is run at a loss, and sometimes the one which is really losing money is considered the more profita- ble. 16. Pricing goods to retail store. — The problem of fixing prices for the retail store is analogous to that of the manufacturing jobber. Shall the jobbing end of the business show a jobbing profit, or shall it be con- sidered a part of the retail buying organization — a de- vice to get quantity prices for a retail concern? If the jobbing work is to show a profit, full current mar- ket prices will be charged to the retail store. If no jobbing profit is desired, the actual cost of the mer- chandise is charged to the retail unit, and to this is added only the expense of operating the jobbing unit. Sometimes, too, the retail division is considered an outlet to the wholesale. In such a case the full re- ceipts of the retail division are credited to the jobbing- organization and against these is charged the expense of conducting the retail business, just as if it were a branch of the wholesale selling organization. In other words, this represents a direct selling expense against the wholesale business. In case the prices are made so as to show an intercompany profit in selling goods at retail, allowance must be made when mak- JOBBER AND SEMI-JOBBER 133 ing up a consolidated balance sheet just as for a hold- ing company. REVIEW Distinguish between the manufacturing jobber and the semi- j obber. What reasons given by jobbers for engaging in manufacturing do you consider the best? How is the business of the manufacturing jobber organized? What causes do you assign for the development of the semi- jobbing business? Why are separate accounts for the divisions of the business necessary? CHAPTER X COOPERATIVE JOBBING 1. Basic reasons for the cooperative jobbing idea. — A variety of causes have contributed to the existence of the group purchasing plan. The enormous devel- opment of department stores, chain stores and mail- order houses, in the last few years, has brought greatly intensified competition from the standpoint of the re- tailer, and especially of the comparatively small buyer. Retailers realize the necessity not alone of more effi- cient internal management in their own businesses, but of closer buying as well. The most obvious way to accomplish the latter was to get close to the manu- facturer, secure the same quantity discount on pur- chases as the regular jobber could secure, maintain a central warehouse, and in this way eliminate a part of the jobber's selling expenses as well as appropriate all his profits. Various minor circumstances added fuel to the flames. Retailers saw the chain stores buj^ing direct from manufacturers at quantity prices or else from "friendly" jobbers who split commissions on large orders. The practice of many jobbing houses in al- lowing some latitude to salesmen in making prices has frequently led to discrimination. The salesmen got highest prices from their friends and lowest prices 134 COOPERATIVE JOBBING 135 from those who had the time and inchnation to haggle. All of this forced many retailers to the conclusion that their salvation lay in closer buying and that the only way to buy closely was to band together and buy di- rect of the manufacturers. 2. Behind cooperative jobbing. — The idea back of the cooperative buying movement is to substitute the "pull" of the retailer thru his cooperative efforts for the "push" of the manufacturer or jobber. In this way the retailer appropriates the profit resulting to the jobber for obtaining his business, and equally the expense incurred by other wholesalers who strive for his business without obtaining it. The members base their activities on the assumption that the organization is more economical than an ordinary jobbing concern. The usual profits of the jobber are distributed as divi- dends among the stockholders in the cooperative con- cern, and among the buyers in the form of rebates or of lower prices on goods bought. 3. Buying syndicates. — The buying syndicate is a loose organization that does not attempt to supply its members with all their goods. The Nebraska Feder- ation of Retailers is an example. The plan is to buy certain staples in carload lots, to be sold for cash to the members at cost price, plus a small charge for ad- ministration. Various modifications of the buying syndicate, or exchange, are to be found. One such organization in Chicago maintains a large exhibition hall in which manufacturers display their products. Retailers come to this central office and buy thru an 136 WHOLESALE MERCHANDISING expert buying staff maintained by the organization. The organization charges each retailer who belongs to the exchange an annual fee of five dollars. Since the retailers themselves have no other financial inter- est in it, the organization cannot be considered truly cooperative. 4. Cooperative manufacturing. — Still another type of cooperative organization is found in such associ- ations as the United Drug Company, which is owned by independent retailers thru stock subscription. The membership carries with it an exclusive agency for the Rexall line, but it also includes considerable con- trol of the pohcies and operation of the business, as well as of the distribution of the profits. Further- more, the United Drug Company handles only goods of its own manufacture or private brands made under contract. This company seems to the writer to be a cooperative manufacturing concern working thru a cooperative chain which acts as an exclusive agency rather than a buying syndicate. The United Jewelers' Association is of the same sort, while the American Druggists' SjTidicate differs in that a general jobbing business is added. Affil- iated with such concerns are frequently several others of similar character, such as the United Merchants' Insurance Company, allied with the United Drug Company, which does the insurance business of Rexall stores on a cooperative basis. 5. True cooperative jobbing. — Cooperative job- bing, the third type of cooperative effort to replace COOPERATIVE JOBBING 137 the jobber, exists when retailers organize a stock com- pany, maintain a warehouse, and carry out all the functions of the jobber, with such limitations and savings as may be maintained thru organized coopera- tion. Such concerns are the Girard Grocery Com- pany, of Philadelphia, and the Philadelphia Whole- sale Drug Store. 6. General plan of oiyanization. — While no two of these cooperative houses work in exactly the same way, their methods are fundamentally the same. The or- ganization corresponds to that of a stock company. Great care must be exercised in the selection of mem- bers. The organizers, in their enthusiasm for the movement, may persuade many retailers to join, but the problem is to get those who will stay and make desirable working associates. Therefore, only those should be invited to join who are in thoro sjanpathy with the movement, and who are determined to see it thru. ^Members must be financially reliable and able to pay cash for goods. They must be willing to dis- pense with some of the services of the jobbers, partic- ularly in the way of extensions of credit and service made possible thru the corporation of the jobber's salesmen. They must be conversant with the advan- tages and disadvantages of the cooperative method, and fully convinced that for them the advantages out- weigh the disadvantages. 7. Method of stock subscription. — Various types of stock subscription are found. One organization re- quires each member to purchase five shares of stock at XIX~11 138 WHOLESALE MERCHANDISING one hundred dollars each. In case the member does not pay promptly for any goods bought, his stock may be sold and his membership canceled. After this initial purchase, which gives the membership privilege, the further purchase of stock is entirely at the option of the member. Generally all earnings above a mod- erate return on the stock subscriptions go to the mem- bers in the form of rebates on their purchases or in special prices on merchandise. Slightly different is the method in one cooperative drug jobbing concern, as outlined in its constitution and by-laws : To become a member, it is necessary to pay a membership fee of $25, for Avhich a certificate of membership is issued, which is transferable only by consent of the company. To enjoy the purchasing privileges of this company, it is further necessary for each member to carry a cash deposit with the company, which cash deposit shall be the equal of the average weekly purchases of said member, for which the company will issue a certificate of deposit. It is understood that the cash deposit cannot be used to pay an account except upon the surrender of the certificate of deposit, properly indorsed, and that thereupon the buy- ing privilege of said member is revoked until the cash de- posit shall have been restored, whereupon another certificate of deposit shall be issued. In several concerns it is not felt necessary to have the members become stockholders in order to ffuaran- tee their loyalty. In the Cincinnati Economy Drug Company only one-third of the members are stock- holders, yet the company gets as strong support from COOPERATIVE JOBBING 139 non-stockholders as from stockholders. The stock- holder simply gets a little extra profit from stock ownership ; both get the same buying advantage. 8. Voting power. — Any cooperative institution is peculiarly susceptible to mismanagement. As a rule, in the cooperative jobbing organization only one vote is allowed each stockholder, irrespective of the amount of stock he o\^tis. Under these circumstances the small retailer is inclined to feel that he has just as much authority in the matter of management as the larger retailer; and theoretically he should have. This ruling generally causes troubk because the small retailer usually is not so well informed or so good an executive as the man with large business interests. Cases even arise in which it would seem that the smaller retailer would like to penalize his larger asso- ciates for these larger interests. The experience of one well-known cooperative jobbing concern in the West is interesting. When we started this institution, we allowed one vote only to each stockholder, but on account of the interference of the small stockliolder, and on account of the fact that men with capital would not invest, except in a very small way, we changed our by-laws so as to entitle each stockholder to one vote for each share of stock. We can and do vote cumula- tively. 9. Dividends. — The savings after paying any re- bates on sales, and after setting aside a part for re- .serves form the dividends. One concern, for exam- ple, pays 5 per cent on its common stock and 10 140 WHOLESALE MERCHANDISING per cent on its preferred stock regularly. The divi- dends on the preferred stock are cash discounts; re- bates from manufacturers, and any profit which may be made by advancing prices on the rising market, are taken as organization profits and therefore are used directly for distribution as dividends to stock- holders, rather than as bonuses on purchases or as a basis for lowering prices. 10. Manager and directors. — The cooperative or- ganization is peculiarly a "one-man" institution. As one authority in the hardware field has said : The success or failure of the formal cooperative jobbing organization depends entirely on the man at its head. Com- paratively few of these organizations that spring up, ac- tually grow ; they invariably "run on the rocks" because of petty internal jealousies among the stockholders, as well as suspicion among the stockholders, or graft, discrimination, favoritism, etc., not only on the part of the internal manage- ment itself, but of the employes. It is evident that impar- tial treatment by the man at the head of the organization to- ward all its members is an absolute necessity. 11. Buying advantage. — The merchandise man- ager of the cooperative jobbing organization has a big advantage over the merchandise manager of the reg- ular jobbing house. He has a regular and constant market practically assured. He knows this market thoroly. He can gauge closely the consumption ca- pacity of both staple and seasonal goods thru the re- quirement lists supplied by members. Dealers send in their orders for seasonal goods considerably ahead of time and thus give the cooperative concern exact COOPERATIVE JOBBING 141 figures on which to place orders with manufacturers. As a result, very little stock is carried over at the end of the season and there is little depreciation. The ordinary jobber can at best only estimate what the orders for seasonal goods are to be. 12. Buying arrangements. — The big problem is to establish satisfactory buying arrangements with manufacturers. Other jobbers try to prevent manu- facturers from selling to associations, but the chief difficulty is the uncertainty of the future of the new organization. The mortality among cooperative con- cerns, both wholesale and retail, is so high that manu- facturers are naturally skeptical. After the new organization establishes a good financial rating, few manufacturers will refuse to sell to it. In return, the manufacturer gets cash prices for his goods and an outlet which is not complicated as is usually the case with jobbers who engage in manufacturing and who have private brands of their own. 13. Selection of merchandise. — Xo attempt is made by the cooperative jobbing association to influence the retailers' selection of merchandise. Most cooperative concerns limit themselves to staple merchandise, generally the kinds known as nationally advertised brands. This is true es2)ecially of the drug and gro- cery lines, in which such brands occupy a big place. The association gathers lists of stocks carried by re- tailers, and then arranges to obtain each article from the manufacturers in jobbing quantities and at job- bing prices. In some cases, manufacturers have tried 142 WHOLESALE MERCHANDISING to charge the cooperative jobbing concerns five per cent more than the}^ charge regular jobbers. The co- operative concerns have made a point of taking all cash discounts, and this fact, together with possible competition from more encouraging manufacturers, has forced the skeptical sellers into line. The real problem of the cooperative jobbing concern is to keep in close touch with the market and the needs of the members. The concern must be able to supply- promptly the goods the retailers want, when they want them, and to act as distributors of information on new merchandise so that the retailer may order by mail and receive satisfactory service. Few manufacturers' goods are taken on a consign- ment basis. Cooperative organizations, for the most part, handle only commodities for which a consumer demand has already been created. Very few associa- tions run private brands. 14. Stockheeping. — A cooperative concern must be so well managed that stocks seldom run short ; other- wise the member for whom "shorts" often occur will become disgusted and resign. A permanent inven- tory is maintained and this is checked monthly or, at the most, semi-annually to show any discrepancies. The manager can tell at a glance the exact state of the stock in any line, together with the maximum and minimum set for it and the sales for the day, week or season. A complete physical inventory is also taken semi-annually. 15. Selling. — Practically no advertising to con- COOPERATIVE JOBBING 143 sumers is carried on by cooperative jobbing houses, since they do not, as a rule, undertake to put new manufactured goods upon the market. In some cases, a few salesmen are maintained. This expense of salesmen is reduced to a minimum in comparison with that of the elaborate selling organization main- tained by some of the larger jobbers. Such salesmen as are employed are partly order-takers, partly busi- ness counselors. But for the most part this expense of keeping salesmen is eliminated by having the retail- ers order thru the mail, unless perchance it is possible for the retailer to call at the headquarters of the co- operative concern and make his selection in person. Booklets, catalogs, pamphlets and lists of price quota- tions are sent to the members periodically, and special lists whenever new arrangements are made with manu- facturers or when special purchases are offered. 16. Returned goods and exchanges. — No allow- ances are made to members in connection with re- turned goods except for defects in manufacture. In some cooperative organizations there is an exchange arrangement. When one retailer finds himself over- stocked, he communicates thru the central organiza- tion with other retailers and, if possible, unloads his surplus. 17. Prices. — The system of pricing varies. In some concerns the prices are the same as on the manu- facturers' lists and the savings come to the retailer in the way of rebates at the end of the fiscal year, as well as in dividends. In others, prices are reduced to the 144 WHOLESALE MERCHANDISING lowest possible figure. Any surplus savings at the end of the fiscal year are distributed in dividends. In concerns which allow non-members to purchase, cur- rent market prices are charged and no later benefits in the way of dividends or rebates accrue to them. 18. Credits. — Terms of payment differ in detail but all sales are practically on a cash basis. Some require payment weekly ; some on the first and the fifteenth of each month; some on the tenth of the month for the previous month's purchases; some allow one or two per cent cash discount. Losses from bad debts are negligible. One concern says these losses have not amounted to more than one-fiftieth of one per cent for any year since the organization began business. 19. Deliveries. — Wherever possible drop shipments — that is, direct shipments from the manufacturer to the retailer — are required. When shipment is made from the cooperative associations' warerooms, the re- tailers have the choice of sending their own teams for them or of having the goods delivered by the cooper- ative company and the cost charged on the invoice. This emphasis on delivery expense encourages the member to group his purchases and avoid small ship- ments. REVIEW What economic conditions gave rise to group-purchasing? Do you think that cooperative jobbing groups can do away with the function of the jobber? Would such a result be de- sirable ? How does the buying syndicate differ from true cooperative organizations ? COOPERATIVE JOBBING 145 How is the voting power in cooperative jobbing organizations usually determined? Whv have cooperative organizations not been notably success- ful? What advantages has the cooperative jobbing organization which the jobber does not have? What disadvantages? CHAPTER XI SELLING AGENT AND FACTOR 1. Necessity for many distributive agents. — The problems of distribution are so intricate and the meth- ods of meeting them so varied that there is plenty of room in the field for other wholesale middlemen be- sides the jobber. Some have been in the business field for many years, while others have begun opera- tions only recentlj^ Their existence is justified by the economic functions which they perform. At one time the manufacturer's selling agent, the mill agent, the factor, the commission merchant and the broker had definite lines along which they worked, and to which they held rather closely. However, as many merchants in each class reached out for more business, for more power or for an opportunity to in- vest surplus funds, they began adding to their func- tions. Their original titles are still in use, with the result that there is much confusion in terms. For this reason it is impossible to lay down any hard and fast definitions which will apply in all cases. For ex- ample, many distributors who are called merchandise brokers, operate warehouses or lease storage space for keeping stock. Many take exclusive territorial sell- ing rights, or handle a manufacturer's entire output. 146 SELLING AGENT AND FACTOR 147 In some cases goods are bought outright for resale. The broker may do any or all of these thmgs without interfering with his ordinary brokerage business. He still calls himself a broker when, as a matter of fact, he has performed the functions which were originally attributed to at least three other types of middlemen. Furthermore, the jobbing business is often com- bined with that of one or more of these other middle- men. So a man might call himself by any one of the titles, and that title might apply to one particular branch of his business, yet not cover the whole of it. For the purposes of this chapter, the primary inter- pretation is given in every case, and the primary functions of each middleman are discussed separately. It will be found that the classification here used, to- gether with that for the jobber, covers practically every form of the wholesale middleman's business. 2. Manufacturer's selling agent. — In the modern scheme of wholesale distribution, the manufacturer's selling agent has gained a position of considerable importance because of the volume of business which he is able to control. In some cases, the selling agent activities are limited to medium sized manufacturers who are not in a position to organize and operate their own sales organizations, or to the man just organizing a manufacturing business w4io does not feel capable of marketing his own product to the best advantage. His easiest course is to turn to one of the manufac- turers' selling agencies. Various instances can be cited, however, in which 14.8 WHOLESALE MERCHANDISING large and well-established concerns depend on a sell- ing agency to market their goods. This is true, for example, in such lines as hosiery, underwear and gloves, in which there are few large manufacturing concerns which operate their own sales organization. 3. Compensation of selling agents. — Usually a commission is allowed the selling agent on all goods he sells, with an extra commission when he guarantees the accounts. Other forms of payment, including monthly or yearly salaries, or percentages of profits, are sometimes used. Careful consideration must be given to the question of special selling expenses when the agreement with the agent is made out, for fre- quently trouble arises in this connection. 4. Pricing, — The principal considerations in the selling of the various classes of goods whose main characteristics are practically uniform are price and delivery. Usually the agent is furnished with a defi- nite price scale so that the only decision he need make concerns the matter of delivery. Obviously, in such cases, the advantage over competitors lies with the agent who can give quick deliveries, and in some cases, with the one who can give the cheapest deliveries. 5. Delivery and other expenses. — In any case de- livery charges are a part of the net cost to the buyer. So prices must be made accordingly if one is to get the business. Likewise, there must be corresponding compensation to the agent if he is to pay delivery charges, since these are selling expenses. In some lines allowance must be made for advertising expense, SELLING AGENT AND FACTOR 149 or for the expense of specialty salesmen, or dealer serv- ice and the like. The manufactui-er usually pays all such expenses. 0. Sales agent's contract and authority. — The actual relationship of manufacturer and selling agent is not, however, a development of modern times. It is purely a case of agency, the details of which have been made to conform with modern business condi- tions. The law provides that the selling agent shall have power to sell, that he may grant terms of credit, and that, ordinarily, he may warrant the quality of goods. In addition, he has all the special rights and obligations set forth in his contract, together with those that may be implied from the general customs of the business. The length of the contract is determined by the fact that there is a point in the development of the sales volume beyond which it is more economical for the ])roducer to market his own product than to have it done thru the sales agency. 7. Two classes of selling agents. — There are two distinct classes of sales agents. The first class con- sists of those who maintain their oa\ti warehouses, shipping accommodations and administrative depart- ments. The warehousing sales agent can-ies a com- plete stock of the manufacturer's goods from which he makes shipments as orders are received thru his representatives. He also bills the goods and, in some instances, undertakes the collection of accounts and insures payment. In other words, he performs all 150 WHOLESALE MERCHANDISING the functions of a trader, thus relieving the manu- facturer of further concern after the goods are com- pleted and consigned to the agent. This arrangement is particularly well adapted to certain commodities, such as groceries and dry goods, in which immediate shipment to dealers is essential. The sales agent who does not maintain a warehouse sells only by sample. He does not make shipments to customers nor is he directly concerned with the billing or collection of accounts. His agency is lim- ited to the primary function of selling; beyond that he has neither rights nor obligations. In most cases the sales agent accepts orders subject to the approval of his principal. The territory of the warehousing agent may extend over the entire country, or even thruout the world. The agent who has no warehous- ing facilities is frequently limited to one country, city or town. 8. Services rendered hy selling agent. — The selling agent, to be successful, must be in a position to give efficient service. This is his great function which out- weighs all other activities he may assume. Hence, he exerts every effort to maintain it, as the penalty for his failure is the termination of the agency bj'^ the manufacturer. What the sei-vice is, is governed by the business customs for different lines of goods. Sometimes it is necessary to maintain show rooms in each important city within the agent's territory. The Coast Products Company, which represents various manufacturers from the Pacific coast, in Missouri SELLING AGENT AND FACTOR 151 and neighboring states, maintains in addition to the headquarters in St. Louis, branch warehouses in Des Moines, Omaha, Kansas City, Indianapohs, Minne- apohs and Cincinnati, for only in that way can they render satisfactory service to chents, in competition with local jobbing houses. The amount and type of service varies widely. One selling agent in the hardware trade represents forty manufacturers, yet no two of them receive iden- tical service. For some, he is a warehousing sales agent, while for others, he stocks no goods. Some- times he handles a line in only a part of his territory. Sometimes he collects accounts and in other cases he guarantees them. He prides himself on being able to serve any manufacturer in the way the manufac- turer wishes to be served. 9. Selling agent's organization. — The organization of the sales agent varies from the one-man-and-a-desk type to the highly developed enterprise with its warehouses, selling departments, administrative offices and branch show rooms located at trade centers. The former needs no sj)ecial mention in this connec- tion except to suggest that, altho his organization is small, he nevertheless performs a valuable service in disposing of the product of the manufacturer. Such an agent is better able to offer this service than his largest competitor, especially to the smaller manufac- turer, because of his close connection with the market and with his clients and because of his low overhead expense. 152 WHOLESALE MERCHANDISING In the larger agencies, it is quite natural to expect that the personnel will be of a higher grade, that there will be greater specialization and, on the whole, greater efficiency than it is possible for the small manufac- turer to maintain. The large volume of business in- sures low unit costs for any one of the manufacturer's accounts represented. Whether or not the selling agent will survive the agitation against middlemen as a whole is a matter of some concern. It seems safe to assume that, inas- much as he offers a valuable economic service, espe- cially for small manufacturers, there is no good rea- son to expect a curtailment of his activities. 10. 3Iill agent. — The mill or factory agent has come to be known as an agent altho, in reality, his sendees are entirely those of a principal. The main point of distinction between him and other wholesale distributors is that he contracts to purchase outright the entire output of a mill or mills. ^liddlemen, such as the jobber, usually take over only sufficient stock to meet the needs of their trade. Commission mer- chants and brokers sometimes handle the entire out- put of certain mills or factories, but neither of then; buys outright. Since the work of the mill or factory agent is, in effect, to act as the selling organization of the manu- facturer, it naturally follows that he will be a sales specialist. Thus, his main function is to create and to sustain a demand for the goods. In most cases he advertises them at his own expense, and in many cases SELLING AGENT AND FACTOR 153 owns the trade-mark which they bear. As in the case of the manufacturer's seUing agent, many points sub- ject to discussion are settled in the contract between the parties. The nature of each contract is influenced by the particular conditions surrounding the case. Seldom are two such contracts ahke. From the viewpoint of the producer, the greatest advantage in this scheme of marketing is, that he has a convenient outlet for everything he manufactures and is not confronted with selling problems. On the other hand, he is often at a disadvantage thru inability to adjust prices readily so as to get the full benefit of favorable market fluctuations. 11. Factor and his function. — Until comparatively recently no adequate means to finance a manufac- turing business have been available to one whose cap- ital was limited and who did not have financial back- ing. Ordinary banks, in most cases, do not care to grant accommodations unless the credit instrument is secured by specific liens on tangible property. Even tho a business may be already earning substantial profits and may have a bright future, neither national nor state banks are in a position to grant loans of cap- ital to carry on the desired business, since they are not allowed to invest in such loans to any great extent. In order to meet the requirements which the banks set, and to offer the kind of service demanded by growing enterprises, the factor established himself. At law, there is little difference between the selling agent and the factor yet in practice the distinction XIX— 12 154. WHOLESALE MERCHANDISING is sharp. The real function of the selhng agent is to supply a sales organization, while that of the factor is to supply the capital necessary to carry on his clients' operations. Of necessity, the relation between factor and cHent is intimate and demands the factor's close supervision. The client is variously known as a de- partment, account or annex of the factor — depending largely on the class of business in which he is engaged. For convenience here, the term client will be used thruout. 12. Form of agreement. — There is no standard form of agreement used by all factors. Terms are arranged to meet circumstances and are subject to bargaining by the parties. Usually the factor agrees to a standing loan, for which he charges interest, the security being the client's tangible assets. He also agrees to make immediate cash advances on all sales made by the client, subject to the factor's approval for credit responsibility. The amount varies from 60 to 80 per cent of the amount of the sale. The goods are billed in the name of the factor who is thus able to maintain control over the accounts and to make collections. When the customer's remittance is re- ceived, the factor deducts the amount of the advance made on that particular bill and a commission for use of money and for service rendered. The balance is then turned over to the client. 13. Method of operation. — The following is an illusti'ation of the relationship between factor and client. A is factor for B, a manufacturer. Their SELLING AGENT AND FACTOR 155 contract provides that on the sale of goods to a cus- tomer whose credit standing has been proved, A will advance 70 per cent of the invoice price; the remain- der, after deducting 3 per cent for services and interest on money, is to be remitted on receipt of set- tlement from the customer. B makes a shipment of goods, valued at $1,000, to a customer in Philadelphia, on terms of net cash, 60 days — credit and terms hav- ing been approved by A. On receipt of notice of shipment, A advances to B, cash in the amount of $700. When the bill becomes due, the customer re- mits $1,000 to A, who deducts from this the $700 ad- vanced, plus the $30 which represents his 3 per cent compensation and forwards the remaining $270 to B, thus closing the transaction. It is the general purpose of the factor to relieve his clients of those activities outside the manufacture and marketing of the product. In some instances, the factor supplies a sales office situated in a desirable trade center. With it is provided heat, light and full insurance protection. Then, too, he may agree to at- tend to all the details of collecting accounts and may guarantee his client against any losses from bad debts. In practically every case, the billing of goods is at- tended to by the factor, and the book records are kept })y him, thus relieving the client of much clerical work. 14. Compensation of factor. — The factor's compen- sation varies with the service rendered. In a case in which the service is limited to an advance on short- term accounts, the commission is sometimes less than 156 WHOLESALE MERCHANDISING one per cent of the sale price. It may range as high as six per cent when the factor takes the functions of banker, landlord, credit insurer and selling agency. There is little doubt that the factor is giving useful service in our present plan of marketing. This fact is borne out by the gi'owing importance which he has assumed in recent years. However, the cHent's pay- ment for financial accommodations include additional profit to the factor, and to that extent the manufac- turer is handicapped in his effort to compete with those in stronger financial circumstances. With the coming of trade acceptances, the need for factors is likely to diminish in lines in which prime commerical paper would arise from the transactions which could be rediscounted at a Federal Reserve bank. 15. Factor s organization. — Whenever it can be conveniently arranged, the factor endeavors to have his clients in the building in which his own office is lo- cated. Sometimes a modern loft building is provided in the center of a wholesale district, and the floor space is apportioned according to the requirements of the individual clients. A very complete credit department is conducted by the factor so that with close supervision it is possible to keep at a minimum losses from bad debts. A fac- tor sometimes represents forty or fifty clients. If each of these were to operate his own credit and col- lection department, individual profits would be re- duced. The services of credit information bureaus, collection agencies, and a force of credit investigators SELLING AGENT AND FACTOR 157 are essential to every well-conducted business, but the operating cost of such agencies is high. Wlien this is apportioned among forty or fifty concerns, the indi- vidual expense is greatly reduced. Moreover, the type of credit and collection service rendered by the factor is probably higher than that which the clients would be able to maintain individually. In fact, as a rule, the factors in any line have the most complete credit files of any concerns interested in the line. REVIEW What conditions in distribution account for the presence of wholesale middlemen other than the jobber? What do you understand to be the function of the sales agent? Of the mill agent? Of the factor? What value have these functions? Are these types of middlemen likely to continuie? CHAPTER XII COMMISSION MERCHANT AND BROKER 1. Necessity for the commission merchant. — For certain lines of raw and intermediate products it is not easy for the producer to find a market. Produc- ers are scattered widely and the market fluctuates from hour to hour. Consequently, at market centers a type of wholesale middleman has developed who re- ceives consignments of goods and sells them as an agent. His knowledge of market prices and condi- tions enables him, as a rule, to make better deals than his principal could. This man is the commission mer- chant. The lines in which commission merchants are most commonly employed include textiles, grains, cotton and chemicals. Formerly, a large percentage of farm produce was handled in this way but, during recent years, commission men have not been able to get enough farm produce on consignment to supply their regular trade, and so have been forced to go out and buy like any regular jobber. Even in the four lines just mentioned, commission merchants are coming to have connections besides their regular commission business. Many white goods commission houses trade to some extent on their own account. In the chemical business most of the 158 COMMISSION MERCHANT AND BROKER 159 foreign manufacturers sell thi-u American commission houses, but many of these same commission merchants own their own chemical factories and their own ware- houses. There are few grain or textile commission men who have not some connection with elevators or warehouses. 2. Activities and compensation of commission mer- chants. — Some commission merchants guarantee col- lections on the sales, and are known as del credere commission merchants. In so doing they are ap- proaching the function of the factor. Unless there is a special allowance for brokerage, the commission man pays all selling costs out of his commission, but such expenses as storage, handling and insurance of the goods while in his possession, are charged to the principal for whom the commission man acts. The commission merchant makes collec- tions and fixes terms and prices within the limits of his instructions from his principal. In all cases, he is bound to obey the instructions of his principal and, like any other agent, is liable for any damages suffered from his failure to do so. He can depart from such instructions only to protect himself from loss on his own advances or disbursements, or to meet some other emergency. 3. Commission merchants and manufacturers' agent. — The commission merchant differs from the manufacturer's selling agent both in his legal status and in his method of accounting. The manufacturer's agent is as his name indicates, a sales agent, working 160 WHOLESALE MERCHANDISING under the direct orders of his principal. The manu- facturer dictates classes and terms of credit and fixes prices. Within the scope of his agency, the agent binds the manufacturer absolutely but does not as- sume any individual hability. Goods shipped to him on consignment remain the property of the manufac- turer, who must bear all risks. The commission merchant, on the other hand, is more independent. Altho the consignments whicli he receives are not his property, nevertheless, thru force of custom, he provides for storage and insur- ance. He is usually given wide range in fixing prices and terms, and is responsible for the payment of cus- tomers' accounts. 4. Commission merchants and factors. — Manufac- turers frequently obtain advances from the commis- sion merchants thru sight drafts drawn against con- signments up to sixty or seventy per cent of the current market value. Commission merchants also frequently discount bills receivable for merchandise already sold on time. In doing this, the commission merchant becomes in effect a factor or commercial banker. 5. Rates of commission. — Rates of commission vary greatly with different lines of business and even with different houses in the same line. The points that enter into the calculation are the prestige of the house, whether the accounts are to be guaranteed, whether an allowance is to be made for brokerage, and whether COMMISSION MERCHANT AND BROKER 161 the commission house must assimie all storage and han- dling charges. Five per cent is a common rate of commission for chemicals; ten per cent is sometimes paid in certain textiles. When brokerage is allowed, the conmiission is two or three per cent because, in such cases, the commission is practically clear profit. In addition to this, an allowance is gi'anted for stor- ing, insuring and otherwise caring for the goods from the time they are shipped until the time they are de- livered to the retailer or consumer. This allowance is no small item, and often equals the commission charge. 6. Commission contracts. — The care which must be exercised in drawing up a contract with a commission house depends largely upon the reputation of the house. A responsible concern offers to the consignor many privileges and courtesies not specified in the contract and, in general, looks after his interests. But it is possible to do business with safety even with a concern which has no great reputation, provided every question likety to arise is covered by the agree- ment. Not all the items mentioned in the following discussion are necessary in every contract, but most of them should be included. The general rule is to provide in the agreement for every question on which there is any possibility of a difference of opinion. Transportation — Charges for transportation should be supported by the original bills of lading of the carrier. It is wise to prepay all transportation 162 WHOLESALE MERCHANDISING charges on consignment shipments and to provide in the contract that no transportation charges shall be allowed. Storage — The commission house will probably in- sist that it is to be allowed usual storage rates. When possible, the consignor should stipulate that charges shall be the exact cost to the commission man. It is well to provide also for a maximum storage charge for storage periods so that goods may not accumulate charges indefinitely. Cartage — It is fair to agree upon a certain cartage rate of a definite amount per package, or per hundred- weight, regardless of whether the commission house operates its own trucks or not. Sometimes cartage charges are waived. Insurance — Definite insurance rates should be specified. Commission merchants generally carry a blanket policy on all consignments. This furnishes the basis for a fair insurance charge to each client. Repacking and handling — Wlienever possible, the manufacturer should ship all his goods in marketable packages, and in such assortments as are demanded by the commission house's customers. This seldom involves additional expense on the part of the manu- facturer, yet it permits him to provide definitely that there shall be no allowance for handling or repacking. When shipping in packages ready for market is im- practicable, the parties should reach an agreement as to just what repacking will be required and what the repacking will cost. Consignors to commission COMiMISSION MERCHANT AND BROKER 163 houses in foreign countries should give this point special attention. Selling price and terms — When there is an estab- lished market price it can be provided, if desired, that all sales shall be at market rates or shall be not less than 90 per cent of the market rates. It is common to provide that usual terms of credit of the particular line of business will be allowed. Guarantee of accounts — When operations are con- ducted on a del credere commission basis, there should be a definite agreement that the commission house will guarantee the prompt payment of all accounts with its customers. Unless this exists the commis- sion house probably could not be held responsible for poor accounts. The agreement should include, also, an understanding that the manufacturer shall be re- quired to make no allowance or give any other spe- cial consideration for such guarantee. Amount of commission — The rate of commission, ])ased upon the selling price, rather than on the cost price, should of course be stated. Monthly settlements — It is well to specify that ir- respective of terms allowed to customers, all sales are to be accounted for and the net proceeds are to be payable by the tenth of the month following. This provision gives considerable protection, and is of value in accounting properly for consignment goods. Brokerage — Brokerage is designed to cover the cost of selling. An allowance for brokerage is paid only when the commission rate is small. When possible, it 164 WHOLESALE MERCHANDISING should be specified that the commission is to cover all selling expenses, and that no further allowance for such expenses shall be made. The parties should agree upon a definite terri- tory in which the commission merchant is to o]3er- ate, establish definite allowances for traveling and salesmen's expenses for each town or city in that ter- ritory, and specify just what expenses are to be in- cluded under the general heading "selling expenses." It is well to specify further that the total brokerage allowance, on any sale, shall not exceed a stated per- centage of the selling price. Regular audits — The manufacturer has the right to audit the accounts and records of the commission dealer at least twice a year. Whether this provision should be enforced or not can then depend upon the reliability of the commission dealer. 7. Organization. — The organization of a commis- sion house usually consists of three main divisions under one general management — ^banking and finance, accounting, and sales. The banking division attends to all investments and arranges loans and advances to the mills. The accounting division is subdivided into three departments: the office department wliicli handles correspondence, orders, collections, bookkeep- ing and all similar work ; the credit department which passes on all questions of the credit of customers ; the statistical department which keeps all records, mclud- ing salesmen's records, production records, price rec- COMMISSION MERCHANT AND BROKER 165 ords and all other statistics which are useful in operat- ing the business. The sales department is some- times split up into as many departments as there are different lines of goods. In such a case, the head of each particular department interprets market quota- tions and fixes prices, subject in most cases to con- firmation by the mill. A further division in this de- partment is sometimes made when the commission house operates out-of-town branches. Traveling salesmen usually operate for the home office in the territory surrounding the branch. 8. Operating a commission liouse. — The various operations of the commission merchant are seen more clearly from this example taken from the cotton trade. It is customary for the commission house to utilize the entire output of the mills for which it acts. If this were not the case the mill might be put in the position of competing against itself. In cases in which the commission merchant does not receive the goods in actual possession, they are shipped direct to the customer from the mill, but are billed to the commission merchant, who, in turn, bills them to the customer. This virtually amounts to a con- signment of the goods as they come under the control of the commission merchant as soon as they are ready for the market and are subject to his shipping direc- tions. This method effects an economy in re-packing, storage and delivery charges. Goods are sold F.O.B. the mill, with freight allowances to the city where the 166 WHOLESALE MERCHANDISING commission merchant has his office. In this way, title passes to the buyer at the mill and the risks of trans- portation are his. In cotton-goods lines which nse raw materials listed on one of the various exchanges. M'ith constantly fluc- tuating prices, the commission merchant, on receipt of a large order, wires to the mill either before or at the time of accepting the business so that the mill may at once provide the raw materials at a price com- parable with the price obtained for the finished prod- ucts. To prevent an absolute loss it is customary to hedge. Prices are quoted by the commission house but limits may be set by the mills. The commission house usually knows the approximate cost of produc- tion in order that it may not go below a figure which will insure a proper margin of profit. The mill also controls prices in cases where the demand and supply are far from equal. For example, in certain kinds of cotton goods, the mill may be sold up to full capacity for some time. In such cases, since for various rea- sons it would be undesirable to take the goods en- tirely off the market, it is necessary for the commis- sion house to quote prices so high as to be practically prohibitive. Conversely, when there is an overstock, the commission house may be instructed to quote prices lower than would be allowable or possible un- der ordinary conditions. In many cases in which the mills would otherwise have insufficient capital, either to operate at full ca- COMMISSION MERCHANT AND BROKER 167 pacity or to take advantage of low figures in the fluctuating prices of materials, advances are made by the commission house. These may be charged against goods on consignment, bills receivable, or any other good security. The usual amount of such a loan is about 75 per cent of the value of the security. Often there is a fixed loan to the mill by the commission house, with the additional stipulation of advances to be made against goods as soon as they are manufac- tured and consigned. In such cases, the commission merchant becomes also a factor, tho he still continues to be designated as a commission merchant. The average commission allowed in the cotton trade is about 4 per cent, which covers all selling costs, with an additional 1 per cent to the commission house for guaranteeing accounts. About 75 per cent of the manufacturers of cotton goods in this country sell thru commission merchants. 9. Export coinmission houses. — There are over six hundred export houses in New York City and over two hundred more listed in other American ports. The majority of these may be properly called export commission houses, but they do business in such a variety of ways that it is well-nigh impossible to give a hard and fast definition of their activities which would be accurate and comprehensive. The fact that these houses buy and pay for goods which they order from manufacturers, is, in itself, misleading. Orig- inally the definition of an export commission house included only American firms which received orders 168 WHOLESALE MERCHANDISING from foreign customers and executed them, charging a commission for this service. Now, however, these houses have branched out into numerous other related activities. The bulk of their business is on a commis- sion basis, but some also do business as merchants, while the majority handle American agencies to the extent of their ability. More detailed information on export commission houses will be found in the Text on "Foreign Trade and Shipping." 10. Necessity for the merchandise broker. — In such lines as canned goods, the producer is averse to send- ing his goods to a commission merchant to be sold. He feels that he must have either a sales force of his own to market his goods, or else enlist the services of some salesman who operates on his own responsi- bility. If the amount of business will not warrant organizing his own sales force, he offers the goods to the brokers in his line. On the other hand, several large and well-established manufacturing concerns, such as the Campbell Soup Company, operate thru merchandise brokers rather than thru a sales depart- ment of their own. 11. Function of the broker. — In the strictest sense of the term, a broker is an agent or middleman whose business it is to make a bargain for another, or to bring persons together to bargain. He may act in the interest of either the buyer or the seller, but not for both, unless by their common consent. Compensation for his services is made in the form of a commission based on the selling price of the merchandise. COMMISSION MERCHANT AND BROKER 169 12. Commission merchants and brokers. — There are two main differences between the merchandise broker and the commission merchant. The broker usually does not have possession of the merchandise, and he deals in the name of his principal ; the commis- sion merchant, on the contrary, usually does have pos- session of the property under a consignment title, and deals in his own name in all cases. The commission merchant uses a regular bill of sale on which his own name appears; the broker gives a memorandum of the transaction, while his principal usually does the actual billing. 13. Extent of merchandise brokerage. — Brokers are found most commonly in lines such as fruits, coffee and other food products. Recently there have been a number of instances in which the sale of manufac- tured food products have been turned over to brokers while the amount of merchandise brokerage seems to be on the increase. This may be accounted for by the fact that the brok- erage house is composed of specialists in each line. As a general rule, a broker operates in a much larger field than any other form of middleman and, for this reason, is in a better position to make a general sur- vey of the market than any other wholesale middle- man. He can, therefore, often get better prices and make better deals for his principal than any other type of middleman since he may deal anywhere within the limit of his principal's interest. 14. Broker's contract. — Usually, no formal con- XIX-13 170 WHOLESALE MERCHANDISING tract between manufacturer and merchandise broker is drawn up, since it is understood that the broker acts as an agent for and in the name of the principaL Or- dinarily the broker has no authority to receive pay- ment for property sold by him, and if payment is made to him by the purchaser, it is at the purchaser's risk, unless under some special circumstances, author- ity to receive such payment can be conferred. The principal fixes all terms and prices, and makes all col- lections. 15. Broker's commission. — This varies according to the particular line of business in which the broker is engaged. There are many brokers who specialize in certain lines of merchandise and do not deal in other lines. Commissions, in such cases, are gov- erned by the custom of the trade. For example, the usual brokerage on bulk olives is 1/4 per cent and on bottled olives 5 per cent. 16. Broker's organization and operating method. — In a typical merchandise brokerage organization there is a broker for each principal line and in addi- tion a few clerks and bookkeepers to keep track of the commissions. Some of the most successful brokers operate alone and do not have even desk room. They go back and forth between the manufacturers and the buyers for jobbing houses, looking for good lots to offer and likewise good purchase needs to satisfy. When a buyer authorizes a broker to bid a price to a manufacturer, the broker does so at once by tele- phone or telegraph. If the manufacturer accepts COMMISSION MERCHANT AND BROKER 171 the bid, the broker makes out a memorandum of sales as an agent and then a claim for commission. Once this is done, he has no further connection with the transaction. But he is not sure of his commission un- til the goods are actually delivered and paid for, as cancellations are frequent. Legally, he should be able to collect his commission if he has received a bona fide order, but few brokers feel that it is wise to do so. This might offend the manufacturer so that he would not accept future bids from the broker. REVIEW What economic conditions account for the development of the commission business? How does the function of the commission merchant differ from that of the selling agent? Of the factor? Of the merchandise broker ? What provisions is it desirable to include in a contract witli a commission house? Assume that you are a commission merchant for the cotton goods trade. The mill for which you operate has not sufficient capital to take advantage of low prices on raw materials. How would you secure a loan made to the mill? Under what circum- stances would you consider it wise to make a permanent loan? Assume that you are a mill owner who sells thru a commis- sion house. Wlien would you quote prohibitive prices? How does the merchandise broker carry on his business? What is you idea of an export commission house? PART II RETAIL MERCHANDISING RETAIL MERCHANDISING CHAPTER I THE SELLING FIELD 1. Old merchandising methods. — A few years ago the man who had failed as a farmer or a preacher or a lawyer, often opened a store, for it was commonly supposed that anyone of average intelligence could "run a store." It was comparatively easy to do so then, when manufacturers were wrestling with the problems of production and the countrj^ was so prosperous that the demand increased faster than the competition. But with the advent of keen competi- tion among merchants who analyzed and planned, those who did not do so soon began to lose business. Today thousands of old-time storekeepers who have continued in their old ways do not make the wages of a day-laborer. This type of storekeeper cannot out- live its generation. The credit for the beginning of modern merchan- dising methods must be given largely to the depart- ment stores. Recently the mail-order houses and the chain stores have been doing even more intensive work. Now manufacturers, jobbers and advertising asso- ciations have taken a hand and, in cooperation with wide-awake, independent retailers, are doing exceed- 175 176 RETAIL MERCHANDISING ingly good work. For instance, the jobbers and manufacturers of several cities, such as St. Paul, Minnesota; Council Bluffs, Iowa; St. Joseph, Mis- souri, have united to make a careful survey of the retail field in which they operate. A number of manufacturers like Kirkman and Sons, soap mak- ers of Brooklyn, New York, have tackled the job independently, and several allied organizations — among them the Associated Advertising Clubs of the World — have organized retail service bureaus to do analytical and constructive work of this sort. Every group dependent on the retailer for the final distribu- tion of its goods realizes the necessity of cooperation; and cooperation must begin with a careful analysis of each retail field. 2. Betailer must analyze territory and competition. — As far as the retailer himself is concerned, no efforts on the part of manufacturers, jobbers and allied or- ganizations can take the place of his o^vn analysis, much as they may help him. The retailer must know his selling territoiy and his competition in exactly the same way in which the manufacturer or the jobber does. It is only on the basis of the facts which he finds that he can inake his plans for organizing and con- ducting his business. The experience of the most suc- cessful retail organizations, the chain stores, the de- partment stores and the mail-order houses, as well as that of the wide-awake independent retailers furnishes indisputable evidence of this fact. 3. General store as a type. — In Part I of this Text, THE SELLING FIELD 177 the general treatment was from the standpoint of the ordinary jobber, the modifications necessary in other types of wholesaHng being added in separate chapters. It seems advisable to use the same method in treating retail merchandising, and the departmentized general store which is in reality a small department store, has been chosen as the most suitable type for the general discussion of the different retail functions. The mod- ifications necessary for specialty stores, large depart- ment stores, chain stores, mail-order houses and co- operative stores will be given in the last four chapters. 3Iany of these, however, are applicable to stores of other types. 4. Reason for opening the store. — Before any store is established there should be a reason for its existence — a reason sufficient to warrant the risk of the venture. An analysis of the selling field and of the competition will prove whether or not the venture is justified and, if it is, will make possible the formulation of definite store plans and policies. Frequently preliminary plans are found to be entirely wrong Avhen the analysis is completed. The idea of starting the store is given up unless the plan be changed to meet the require- ments of existing conditions. Chain stores almost invariably succeed, because they are carefully planned in advance on a basis of a complete survey of condi- tions. They find a way of serving the community better than others have done and this is the final proof of success. 5. Analysis of j)opulation. — As soon as a merchant 178 RETAIL MERCHANDISING begins business, he secures as much information as possible concerning the population of that city or vil- lage and of the immediate vicinity. Naturally the best source of information is the latest census. In some states a census is taken every five or six years. Valuable data are often obtained from local and school censuses. Supplementary sources, however, are frequently available; for instance, local news- papers may have information concerning their imme- diate communities. Generally, the retail section of the local chamber of commerce is of assistance. In rural communities, the farm papers give infor- mation about resources and conditions. For instance, the Farmer s Review, which circulates mainly in cen- tral Illinois, has made a careful survey, under the supervision of E. B. Moon, a merchant of long ex- perience and a trained investigator, of retailing con- ditions from the standpoint of the village and rural sections of their territory, particularly as to the aver- age size of the neighboring farms and families and the consuming power of each community. In this con- nection, it is interesting to note, as an example of the general principles resulting from such surveys, that where the farms are comparatively large, the consum- ing power is not as great as in a territory of smaller farms, because the smaller the farms, the greater the number of people, the more diversified are the wants, the gi'eater is the community spirit, and the less inclined are the people to have accounts with the big department store in the city. A general store THE SELLING FIELD 179 often fails in a territory forty-two miles square which contains only large farms ; several stores may flourish in a territory of the same size if the farms are small. The owners of big farms have the city, not the country viewpoint. But the country merchant must operate his store in accordance with the normal demand of his community. The small farmer is not interested in extreme styles. He wants good merchandise, but not necessarily well-known goods, altho from reading his farm papers he knows what those goods are. It is of the utmost importance that a merchant inform him- self in regard to facts and conditions of this kind, in order that he may be able to judge accurately as to the possibilities of success in any given community. 6. Division of j^opiilation into classes. — After a merchant has secured these figures in regard to the number of people in each section in the neighborhood of the proposed store, his first step is to divide the population into groups in order to judge their buying capacity. The classification generally includes the following classes: those who earn their living in fac- tories ; those who are dependent on agriculture ; those connected with wholesale and retail establishments, professional men, and a miscellaneous group which may, in turn, be subdivided if it includes enough of any one class to warrant further classification. The next step is to analyze the manufacturing class — the first group — in order to ascertain how many wage scales are represented, how large the families of the workers are and such matters as the likelihood of 180 RETAIL MERCHANDISING strikes. The buying capacity of each sub-group is estimated, and constitutes a part of the total sales pos- sible for the store. In like manner, other groups are checked up. The large chain stores have definite outlines of questions to be answered, the results of which are tabulated by the investigators. Of course, results vary Avidely with different kinds of stores and different sections of the country, and usually a special outline of the investigation is developed for each city. Similarly, the trading territory must be analyzed according to all other factors ; for instance, Italians do not buy hearty foods, and therefore they do not make as good customers for a grocer as Germans or Irish. Sectional traits have a strong influence. The require- ments of people in the South, and especially their tastes, vary from those of similar classes in the North or West. This same principle of scientific analysis can be ap- plied with good effect in the determination of the pos- sibilities of better retail service, and an analysis of the trade zone will prove valuable to the management of any country general store. Since per capita con- sumption figures on many staple and specialty prod- ucts are available, the local merchant can estimate for himself with considerable accuracy the trade possibil- ities of the line of merchandise that he carries. If his trade zone consists primarily of small farms, with many families and many laborers, and if diversified rather than single crop farming is done, he will have a better and bigger market for provisions and gen- THE SELLING FIELD 181 eral equipment tlian he would have if the farms were large and the number of persons fewer. He can also develop his business on a cash basis. Dairy farmers get cash for milk every two weeks. Those who raise hogs are able to market them at least four times a year. But the grain farmer has only one harvest; therefore, in the grain belt there is greater necessity of doing a credit business. 7. Otliei' sources of trade. — It behooves every mer- chant to give careful consideration to the possibilities of suburban and rural as well as of local trade. Such an analysis includes transportation facilities, such as train frequency, rates of fare and ease of access from the terminus to the store. People come to smaller cities and to villages, by automobile. If the roads are not so good as those leading to the stores of competi- tors, the firm should use its influence to have them improved. The estimated volume of suburban trade should be added to the estimate of the local trade. If a mail-order business is to be attempted, a separate estimate must be made of the prospective trade in that line. Most stores do not attempt a campaign of this sort, however, until their business has become firmly established. 8. Studying competitors. — The average retailer buys an old store or starts a new one without making more than a casual, off-hand estimate of the competi- tion that he will have to meet. He "gets a hunch" that the competition is not worth considering, and so he does not take the trouble to make a scientific analy- 182 RETAIL MERCHANDISING sis of the actual conditions. Anyone familiar with conditions in many villages and small cities will recall the result when a new store is opened and is obliged to compete with the efficient stores that already are more than capable of supplying the needs of the community. Of course the firms that have been long established may be forced out, but more frequently it is the new concern that succumbs. The analysis to be made for any store is naturally determined by the type of stores — department, chain, specialty, neighborhood or mail-order. The relative advantages and disadvantages of the various kinds of stores are discussed in the Text on "Marketing Meth- ods," and therefore need not be treated here in detail. It is sufficient to say that if a new store is to succeed, it must have special advantages to enable it to meet the competition that exists. It cannot create busi- ness to any great extent; it must get the bulk of its business from the stores already organized and there- fore must have very valid reasons for its existence against such competition. A good example of a firm's analysis of a prospective situation is the case of the dry-goods chain of the First National Stores, a chain of dry-goods stores operating in cities of 5,000 to 20,000, and it is interesting be- cause these new stores must compete mainly with gen- eral stores, as in communities of this size general stores are the common type. The company chose such cities because the competition is less severe in them than in larger cities, where department stores THE SELLING FIELD 183 flourish, or in smaller communities, where the mail- order houses secure the greater portion of the busi- ness. In selecting cities of this size — there are thousands of them in the United States — they first chose those in which the sources of income were about evenly di- vided between agriculture and manufacturing and then selected from these the cities in which competition seemed least severe. Their analysis, of course, included each individual store in the cities investigated. First w^as collected all the data available from such reporting concerns as Dun's and Bradstreet's. Then all the information possible concerning every merchant w^as gathered, even to details in regard to fraternal and family con- nections. The past history and the business policies of every store were checked up, and the good-will value of each was estimated. Finally, the present ef- fectiveness of each store's methods was tested by an efficient "shopper," who for a considerable time played the role of an actual customer. 9. Large department store as a couipetitor. — From the standpoint of competing strength the gen- eral store which is departmentized need fear little more from a department store of the same size than from another general store ; for there is, in reality, lit- tle difl'erence in their inherent advantages or method of operation. But when the department store is much larger, the competition takes on a different aspect. Sometimes the competing store is in the same com- 184 RETAIL MERCHANDISING munity but, more frequently, it is in a large neighbor- ing city. In sizing up a large department store as a com- petitor, a beginning is made by tabulating the usual advantages of operation that such a store possesses as compared with those of a smaller general store. This will include first, the effect of size, convenience, adver- tising jjower, buying power and the like. Then there will be the offsetting disadvantages of high cost of operation as compared with the economy of the smaller stores, the liability of giving poor service be- cause of the number of customers to be accommodated, the lack of contact between the proprietors and the clerks, and many other drawbacks that few large stores have been able to rid themselves of entirely. The new store must estimate its own ability against such competition. At the same time, the ability of stores already organized to improve their service un- der the stimulus of increased competition must not be neglected. Some will be found ready to imitate the new store's methods while others will settle down to decay. 10. Chain store as a competitor. — In planning to compete with a chain store, the management must first make as thoro an analysis of the selling field as the chain store made, and must also evolve store pol- icies and store methods as efficient as the chain store has. Next, it is necessary to study advantages pecu- liar to chain stores. The usual advantages of the chain stores, in effec- THE SELLING FIELD 185 tive organization, in location of their stores, in buying efficiency, in frequency of turnover, in standard prac- tices and efficient selling methods, resulting from the training of the sales force, should be reckoned as ele- ments of efficiency of the competing chain store. At tlie same time allowance should be made for the high operating overhead, which of necessity goes with the intensive type of chain-store organization and super- vision. A few so-called chains keep down the over- head by eliminating many features of central super- vision, but these concerns can hardly be called chains. They are really groups of independent stores working thru a cooperative bujnng syndicate. 11. Competition with mail-order houses. — Few stores attempt to ascertain the amount of competition to be expected from mail-order houses. They are more concerned with the reason for the loss of business to local merchants thru such competition, and this is the correct attitude when it leads to constructive measures. One should be fully cognizant of the ad- vantages of the mail-ordfer competitor: the complete- ness of stocks in all lines carried, the assumed lower cost of the mail-order method of selling, the conve- nience to rural people in shopping by mail, the advan- tage of buying ready-to-wear garments directly from a metropolitan store, the clearness and accuracy of catalog descriptions of merchandise, and the advan- tage in getting things whiph have not been seen in a local store by one's neighbors. In measuring the com- petition, liowever, allowance should also be made for XIX— 14 186 RETAIL MERCHANDISING the handicaps in the mail-order method which are to the advantage of the local retailer. 12. Learning from competitors. — The proper view is, that competition is always an advantage. Many merchants have learned modern methods of retailing from a new chain store, and have come to realize the wisdom of giving a clear and complete description of their goods, from mail-order catalogs. Numbers of small stores are operating mail-order departments which secure more business from their radius of opera- tion than any mail-order house ever obtained from a territory of the same size with similar lines of mer- chandise. REVIEW Who originated modern merchandising methods? What are the manufacturers, jobbers, etc., doing to aid cooperation? Why should each retail field be analyzed? What are the fundamental points of the analysis; in a general store; a chain store? What are the sources of information? What groups are anal- yzed? Is a knowledge of the per capita consumption of goods advantageous? How are methods made to conform to condi- tions ? Give two views on selecting a location and deciding the rent to be paid. What is the policy of department stores; of specialty shops; drug stores; cigar stores? Why should competition be scientifically considered? Outline the method pursued by one dry-goods chain. What are the advantages and the disadvantages of competition in department stores; chain stores; mail-order houses? What may the merchant learn from mail-order competitive methods? CHAPTER II MERCHANDISING POLICIES 1. Necessity for statement of business j)olicies. — Every retailer who is about to open a new store won- ders what stand he should take in regard to such troublesome questions as cut-price competition, sell- ing goods on credit, the disposition of slow-selling stocks, the settlement of comijiaints and the many- other problems that arise daily in every store. Fre- quently, the merchant is so busy fixing up his store and buying his stock that he leaves all such questions to be settled when they come up. The result is dis- astrous. In the midst of the first busy morning, a request for credit is made by someone of doubtful credit standing, and the method used in settling that one case is allowed to determine the store's policy. The result is likely to be bad, for the decision has been made under stress and, while it may have been a good one for the particular case, it ought not to serve as a basis for the store's permanent credit policy. 2. Two kinds of j)olicies. — As in wholesale mer- chandising, there are policies that affect the customer, and those that affect the employes of the store. In this chapter we shall confine ourselves to a discussion 187 188 RETAIL MERCHANDISING of the first kind, leaving the treatment of house poli- cies until Chapter IV, which deals with the operation of the business. 3. Class of trade. — The proprietor of a high-grade shoe store in a city of about one hundred thousand, situated near the Ohio River, recently made the fol- lowing interesting comment concerning the relation of the store policy to the class of trade : I didn't realize until today what a business policy is. Yesterday a poor colored woman came into my store, and the clerk, a young Southerner, refused to wait on her; so 1 fitted her myself. Then I told my clerks that while our store ought not to cater to colored people because our lines were of too high a grade, I felt we ought to treat every one, black or white, courteously. With a little thought we could see to it that any one who entered our store was offered the nearest thing possible to their needs and desires, without at the same time encouraging trade unfitted to our store. Frankly, I don't want the colored trade, because so few col- ored people can afford our shoes, and the few who could, would drive away many of the well-to-do in our section who are our logical customers. So I instructed the clerks to do their best to serve well every person who honored us with an offer of their patronage, but not to encourage those who should naturally trade at some other type of store. Among these I include the people of all nationalities, Italians as well as negroes, who should buy more moderate-priced shoes than we carry, or can afford to carry in an expensively equipped store in a high-class neighborhood. You see I was deciding a business policy, altho I did not realize it at the moment. Hereafter my clerks will have a rule by which to conduct our business, so far as the class of trade to whom we cater is concerned. A store exists for the public; not the public for MERCHANDISING POLICIES 189 the store. Onl}^ in small communities can one store cater to all classes of trade. Therefore, after having decided on the chentele desired, it is the duty of the management to study the needs and wishes of the group selected, in order that the store may prove by means of adequate service its right to exist, and may prosper because it serves a section or a class better than its competitors do. In rural communities and in small cities, the class lines are not so sharply drawn; in fact, any division that is made is likely to be based upon sections rather than upon classes. The general store in the rural community must be merchandised for average custom- ers, who constitute a large majority, leaving the occa- sional customers, who can afford the novelties and exclusive lines, to obtain such goods by a shopping excursion to a nearby city. 4. Tlie big appeal. — After the class of trade has been selected, the store must find its best appeal. This ap23eal must be based upon price, service or quality of merchandise, for these are the principal as- sets of the store. Will the clientele demand goods of fair quality at competitive prices, but not expect a great deal of service, or will they demand that both goods and service be of the highest quality and be willing to pay accordingly? Recently the proprietor of a small general store came to the decision that his customers would be satisfied with less expensive service than he was giving them, and would prefer lower prices. He 190 RETAIL MERCHANDISING found he could cut down his prices about five per cent if he moved to a cheaper location and reduced the expense of delivery and other services. He did move, and now he is making price his "big appeal" and is competing successfully with the chain store across the street and the department store in the neighboring city. But too many merchants make the mistake of thinking that "price" is the only appeal. In their opinion the purpose of advertising is to sell goods at a cut price. To the average retailer, the appeal of * 'money's worth," or money value in quality goods, seems stronger and more convincing than either a service or a quality appeal. Few country storekeepers realize that they are making their main appeal for business along special lines. If they would take the trouble to find out who their customers are and what it is that has se- cured their trade, they could readily locate their "big appeal" and use it much more intelligently and ef- fectively. .5. Buying policies. — First in importance, after knowing the quality of merchandise desired, is the question of nationally advertised, as against un- branded, goods. In order to decide upon a policy, it is only necessary for the merchant to compare the rela- tive advantages of these two kinds in the light of his trade requirements. Generally the countrj^ store- keeper succeeds best with nationally advertised brands; the same is true of the specialty shop in the MERCHANDISING POLICIES 191 city until it becomes firmly established. Of course it is possible to sell unbranded goods or goods with private brands on the strength of the shop's standing, but some of the best specialty shops, even when they do this, use the name of a nationally kno^Mi manufac- turer as well as their own. Good merchants will succeed under either policy, provided other things are in harmonj^ but no merchant will succeed who mixes different policies indiscriminately. 6. Maintenance of prices. — Price maintenance is one of the most important questions before the aver- age retailer today. Every merchant must size up his own situation, and in the light of its advantages and disadvantages, determine his price policy, especially with reference to branded articles. He is a wise mer- chant who can find a way to keep out of cut-rate competition. Firms that feel it necessary to meet the cut-rate prices of competitors, have a policy of making the reduction when at least two other representative con- cerns cut prices. Others start a back-fire at once by making a leader of some article. Frequently, firms that maintain advertised prices on branded articles run unbranded goods as leaders at a cut price. Again, it is customary to meet cut prices by appealing to manufacturers for goods for a special sale on a basis that will not represent a loss to the retailer. Some- times cut-rate competition is met by using a loss- leader — that is, an article which is sold purposely at a loss. In this way, the advantage of a bargain is ob- 192 RETAIL MERCHANDISING tained without demoralizing the sale for staple goods. For the retailer who adopts the policy of maintaining prices on standard staple goods, the whole problem re- solves itself into one of finding ways of meeting price competition and of taking advantage of the element of low prices as a selling appeal, without demoralizing his sale of staple articles, on which the merchandising foundation of his business is laid. Above all things, a merchant should have definite policies and hold to them. Some stores prefer lines that they can control ex- clusively — lines on which they can always maintain the price. Then they meet competitors' prices on brands or grades of goods which both carry, but maintain the price on lines which they control themselves. This is a twofold advantage for it offers the opportunity to use both the quality and the price appeal in the ad- vertising. 7. Slow-selling systems. — Retailers have long since realized the wisdom of keeping themselves informed in regard to the age of each group of stock. In lines like millinery, it is customary to check over the stock at least every week; some merchants check it every day. Seasonal millinery more than a fortnight old is considered slow-selling, and means must be taken to dispose of it. Some of the various methods are: To hold a spe- cial sale; to reduce the price of the goods; and to give a commission or a bonus to the salespersons who succeed in selling them. The most common of the MERCHANDISING POLICIES 193 commission methods is the so-called P.M. (premium money system), which provides a definite bonus on each article. It is an established fact that a fifty- cent P.jNI. will do more than a two-dollar reduction in price to move the twenty-dollar women's ready-to- wear suit that is overstaying its time. If the customer learns of the circumstances, she is likely to feel resent- ment, even tho she may have obtained a good bargain. Therefore, it is doubtful whether this system should be used, for it does not pay to have secret practices in any business. Furthermore, the system is open to easy abuse. It should be used only in a few lines like cloth- ing, and then only when the goods are entirely desir- able and are slow-moving because of over purchase or some other fault of the retailer. There are plenty of other methods — such as the concentration of sales ef- forts, special advertising and the like — which do not involve the disadvantages of the system just de- scribed, and which most retailers are finding prefer- able, even tho they require more thought and effort. 8. Returned goods and refunds. — The policy among retail merchants to refund in full for goods returned is now so well established that it is difficult to realize that the wisdom of it was ever open to question. Yet it was only a few decades ago that the "your-money-back-if-you-want-it" policy came into vogue. It has done more than anything else, except possibly the one-price policy, to remove the consumer's old-time suspicion concerning merchan- dising methods and establish confidence and good- 194 RETAIL MERCHANDISING will. Furthermore, it has a tendency to prevent shop- ping around unnecessarily. The customer need not hesitate and put off the decision until later if he feels reasonably certain of selection and knows at the same time that if his decision should prove a mistake he may, within a set time, return the purchase for ex- change value or a refund. It is only to be expected, however, that such a policy should lead to some abuse. Frequently a customer orders a number of expensive rugs, only to return them a few days later after using them during some social event at his home; fortunately, however, not everyone resorts to small practices of this kind. It seems, however, to be the storekeeper's lot to be im- joosed on occasionally, just as it is that of every other man in business. In some cities, groups of people — sometimes organizations like the chamber of com- merce — have taken steps to narrow the time limit and to restrict the kind and amount of merchandise that may be returned. In other cities the merchants have conducted a general campaign in which they have ap- pealed directly to the public for justice in this re- spect. In still other localities individual retailers have adopted different measures of various kinds. For in- stance, one women's ready-to-wear shop, in delivering garments, sends a fitter who makes it a point to see that the customer is satisfied. No returns are allowed after the goods have been fitted and accepted in the customer's own home, except, of course, in the case of imperfections. But in general, any strict preven- MERCHANDISING POLICIES 195 tive measures are likely to drive away more than enough business to cover the occasional losses from re- turns. Therefore, a liberal policy of credit for return within a few days and at the current price when re- ceived, is the best policy. The merchant who wants to succeed must remember that he is selling more than mere merchandise — he is selling satisfaction. 9. Credit policy. — It is natural to suppose that most retailers who do not succeed can attribute their failure to unwise credits to their customers. This, however, is not true ; only four or five per cent of the failures are due directly to that cause. The credit system costs money, but at the same time it decreases the amount of shopping that the customer must do, and increases the amount of sales to one customer. The woman who has established a charge account with a general merchant trades at his store regularly, but the one who pays cash generally wanders around shopping from one store to another, buying a few of her items at each store and increasing the selling ex- pense of each. It is an established fact that the aver- age of sales, to each person who enters both the gen- eral store and the department store, is much higher among those stores that liave charge systems than among those that operate entirely on a cash basis. It is sufficient to note here that the retailer should consider every phase of credit-giving as it affects his community, his class of trade, his line and his com- petition, and then formulate his policy accordingly. 10. Adjustments.— The day of whining and de- 196 RETAIL MERCHANDISING layed settlement of "complaints," as they are called, is over, and in its place has come the modern adjust- ment policy. "The customer is always right," said Marshall Field. He meant that the customer is right in expecting a prompt investigation of the facts, and then an equally prompt adjustment satisfactory to the customer or a refund of the amount in full. In one store, statistics show that 75 per cent of the com- plaints are due to mistakes or misunderstandings on the part of the customer. Yet the customer is right in reporting what seems to him faulty, and store- keepers should be anxious to have faults reported. The customer who nurses a grievance and does not give the store an opportunity to clear up the misun- derstanding is the one who is really hard to handle. On the other hand, the man who complains bitterly and then receives satisfaction, frequently proves a most loyal friend of the store. Therefore it appears to be good business for a merchant to allow himself to be imposed upon occasionally. One of the best statements of a liberal policy is that of a certain concern which handles men's clothing. The firm have in their store a placard stating that if their clothing proves unsatisfactory, they will allow the customer the purchase price of the goods returned toward a new garment, and will deduct only what the customer feels is a fair allowance for the use already obtained. In this way they satisfy the customer without demoralizing their business by using an irregular and unbusinesslike policy of adjustment. MERCHANDISING POLICIES 197 Some merchants think that a policy as hberal as this is impracticable, but there is plenty of evidence to show that it can be successfulh^ followed. 11. Deliveries. — The decision as to whether or not a delivery system is necessary will depend on the class of trade, the line handled, the custom of the com- munity and the size of the town. IVIany country stores, that formerly had no delivery system, have in- stalled one in recent years. The tendency seems to confirm the statement of the late J. J. Hill, that the trouble of modern life is the cost of high living rather than the high cost of living. As long as people con- tinue to demand delivery service, the retailer, as their servant, must continue to give them what they want. A good delivery system has an advertising value as well as a service value. Customers like to have their goods delivered by neatly uniformed boys from spic and span automobiles, and they are apparently willing to bear the expense involved. Conversely, some stores, generally of the cheaper grade, en- gage a separate concern to handle their deliveries realizing that customers do not wish to have it known that they trade at a cheap store. Others combine and adopt a cooperative delivery system. In any event, the delivery system should be governed by a definite policy, and it should j^rovide for the solution of such incidental problems as the handling of goods other than purchases, as an accommodation, and spe- cial and irregular deliveries. 12. Store creed. — Certain portions of the store's 198 RETAIL MERCHANDISING policies should be constantly before each employe and likewise before the public. The following statement, which is incorporated in one of the advertisements of John Wanamaker, is an example : THE WANAMAKER CONCEPTION OF A GREAT STORE'S DUTY TO ITS PUBLIC To gather conveniently under one roof all the world's multitudinous products, for personal wear and the furnish- ing of the home. To select them with expert care and wise discrimination — buying always the best, but buying with such knowledge and judgment that the merchandise may al- ways be sold at the lowest possible price. Keeping constantly in stock the staple merchandise in general demand, but assuming the greater duty of sending our buyers into strange places and over little-traveled roads, seeking for the new and different things not found in the usual channels of trade. Always seeking to do a better thing than has been done. Working aggressively with manufacturers to have mer- chandise better made, or manufacturing conditions improved. To place orders conveniently, so that economics in the cost of production may be secured for our public. To develop constantly newer and better styles, and yet have them pro- duced at prices usually lower than equal qualities in com- monplace designs. Recognizing the fact that errors will creep in to blight the best intentions, in a great institution that depends upon hu- man heads and hands, many of which must be constantly newly trained ; but always regarding each fault as monstrous until cured, so that continued error cannot exist. Providing a store service that is polite, intelligent, prompt, and efficient, to make shopping here as pleasant as it is satis- fying. Recognizing the fact that good morals and good manners are of as much importance as good merchandising, MERCHANDISING POLICIES 199 that the customer's comfort and convenience deserve first thought, and that nothing but perfect satisfaction ever seals a sale. To do every minute the utmost that we know, as the ex- perience of almost half a century has taught, sparing no pains or expense where service or facilities can be improved. To do the best that is known today, and still seek for the better tomorrow and do it. REVIEW ^^^ly is a settled credit policy necessary? How do large or- ganizations teach the store policies to the employes? How does a firm cultivate the class of trade desired? What customers does the country general store seek to obtain? On what bases, beside price, may the store rest its main aj^peal ? Discuss the value of such appeals? Compare the advantages of nationally advertised and private brand goods. What is the change in opinion concerning the turnover ? What is the modern idea of the proper service of the store to the pub- lic? Is it advisable to carry a full stock? Give the advantages and disadvantages of price maintenance. What is a "loss-leader" ? How is cut-price competition met ? Discuss several methods of disposing of slow selling goods. What are the advantages of the returned-goods and refund sys- tem ? How may it be abused ? What are the gains from a credit system? What are the ad- vantages of discounting purchase invoices? How are " complaints " treated today? In what ways is a de- livery system valuable? Discuss the creeds of the ^larshall Field and Wanamaker stores and apply them to small stores. How may they be brought to the attention of the employes? CHAPTER III ORGANIZING AND FINANCING THE STORE 1. Meaning of efficient organization. — For some years past we have heard much of efficiency and of efficient methods of organization. In factory, store and office in essence they are the same — specialization to the highest possible degree. With specialization comes a study of methods of work for the purpose of discovering the simplest and most direct. Next comes the setting of standards of quality and quantity, to- gether with a scientific selection of workers; then a systematic training of these workers and a study of working conditions in order that employers may help employes to attain the standard. Finally, an impetus toward the desired goal is furnished in the form of financial reward, commendation or promotion to all who increase their efficiency. That such methods are applicable in a retail store as in a factory or office is proved beyond a doubt by the examples of such stores as Marshall Field and Company and Wilham Filene's Sons Company. Nor is the use of efficiency methods limited to the use of large stores. Hundreds of small stores, such as Garver Brothers in Strassburg, Ohio, have become just as efficient relatively as the two large ones just 200 ORGANIZING AND FINANCING 201 mentioned. Great size, because of the working con- ditions that it involves is, in reality, a handicap. The so-called "small merchant" is in such close touch with all phases of his business that he is in a much better position than his large competitor when it comes to the matter of efficient supervision. The principles of organization need not be restated here. Efficient organization in a retail store, irre- spective of its kind or size, means the effective coordi- nation of all the separate factors involved in the oper- ation of the business. The store which best serves the people on whom it depends for business can be de- pended upon to yield a satisfactory net profit. Then, too, efficient organization implies efficient management. A general manager, who is free to rise above the details of operation and view the store and its several parts as a whole, seeks to improve his organization according to the laws of balance and proportion. His duty is to see to it that each part of his organization pulls its full share of the load at a minimum expense. Thus it is difficult in this dis- cussion to differentiate the terms organization, op- eration and management. The main point is that efficient operation is impossible without efficient or- ganization as well as efficient management. 2. Functionalizing the bushiess. — The first task in studying the organizatic«i of any business is to classify the work according to its different functions. The average business readily lends itself to the usual XIX-15 202 • RETAIL MERCHANDISING classification which includes the four functions of pro- duction or buying, finance, marketing or selling and accounting. In the case of the wholesale house, as we found, there is some modification of this division, and the same is true of the retail con- cern. The modification in the latter instance does not consist in the omission of certain usual functions, but in a redistribution of emphasis so that sometimes a single function is divided between two departments of the business, while in other cases a major department may not quite cover a single function. In small concerns, there may be no divi- sion of the functions; the proprietor himself may look after all four functions of the business. But in any case, be the business large or small, and ir- respective of the personnel of the store, it will be found that the four main functions are always pres- ent. 3. Departmentizing the business. — Department stores have taught all other types of retailers the value of departmentizing the business. This is especially true of general stores. As a matter of fact, the gen- eral stores which are not yet departmentized are rap- idly becoming so, for only thru such means can the merchant be sure which lines of merchandise are prof- itable and which are not. Yet such departmentiza- tion should not be carried to the same degree in all general stores. It may be said that in any general store doing a business of $100,000 a year, the records necessary to keep track of the business by depart- I=g ^ r ORGANIZING AND FINANCING 203 ments, should not require more than one hour daily of one clerk, in addition to the usual time given to the store's records before departmentization. Counting this clerical expense and the expense for the extra rec- ord forms and books required, the amount directly chargeable to the departmentization should not cost more than a few hundred dollars a year, and the ad- vantages resulting are certain to be worth many times that amount. 4. Organization chart. — The division of a retail business into functions may be readily understood from the attached organization chart of a city de- partment store. In this concern, the president is also the general manager. The vice-president is merchan- dise manager, in charge of all buying. The treasurer is records manager in charge of accounting; and the secretary the store superintendent. In the general store any one or more of these divisions may be com- bined with others, so that in some stores we find tlie general manager, the sole owner and supervisor of the business. 5. General manager. — The merchant is the gen- eral manager. He is either the owner, the principal partner or a stockholder of the business; or in some cases, he is the representative of the owner. As gen- eral manager, he has the responsibility that the name of the office implies; and except in very large stores, he is in direct charge of one or more functions. As the merchandising is the most difficult work in the store, the general manager usually supervises it. 204* RETAIL MERCHANDISING In a very small store, the general manager personally looks after all the functions — buys the merchandise, employs and trains the store force, and acts as floor- walker. But as the store grows in size, the general manager must train others to look after some of the phases of the store's work, and must himself give his time to the solution of the larger problems of manage- ment. Yet a good general manager finds time to work daily with his sales force. No man can run a store successfully simply by the examination of rec- ords and statistics. 6. Fmancing a store. — Financing a retail store is a simple matter compared to financing a wholesale house, because of the smaller volume of business, the larger working margin and the willingness of jobbers and manufacturers to assist any worthy retail enter- prise. Generally, the merchant has sufficient capital to buy a small stock, and if he buys carefully and runs his store with reasonable efficiency he should be able to turn over his stock by the time his merchan- dise statements become due. John Wanamaker be- gan with twenty-four dollars, and many merchants with the cooperation of wholesalers, have founded a big business on even less. Yet it is well to remember that the percentage of failures in the retail business is high, and about twenty-nine per cent of all failures, according to Bradstreet's, are due to a lack of capi- tal. Even more, however, are due to incompetence. Every large wholesale house can point to a consider- able number of prosperous and successful retail con- ORGANIZING AND FINANCING 205 cerns founded with very small capital, with which they have cooperated. Any honest man who knows merchandise and merchandising can obtain help in founding a retail store, provided the location and the general conditions are favorable. 7. Financial budget. — Business men have been classified as the hard workers and the hard thinkers. The hard worker plunges in and does a thing and then figures out afterward how it might have been done better. The hard thinker, on the other hand, plans first how a thing should be done and then works according to the plan. The hard worker frequently has a moderate success because he accomplishes so much by hard work during long hours that it makes up for his lack or insufficiency of planning. The hard thinker gains profit from every bit of his hard work because he has made no blundering mistakes that drag down his net results. This type of business man in the retail store makes up an operating financial budget at the beginning of each season, and if he has the required merchandising ability and works hard enough, he will find it possible to merchandise his store in advance according to the plan he himself has made rather than to merchandise it from day to day accord- ing to guesswork and snap decisions. On the page following is a summary of a budget for a general store in a city of twenty thousand, with a total trading population, including suburbs and farming sections, of about thirty-five tliousaud. This summary is made uj) from tlie detailed budgets 206 RETAIL MERCHANDISING of each selling department of the store. In the de- partmental budgets, purchase limits are set by months of the season, as are also limits of sales and expenses. To the records of each month, the actual records of the corresponding month of the preceding year are added. Allowance is here made for special sales events in any department, such as a possible March houseware sale in the house-furnishing depart- ment. Expenses for each department are also sub- divided to show direct sales expense, department and general overhead, allowance for advertising, displays, delivery and the like — every kind of expense is divided among the months of the season. The same is true of the non-selling departments, for they also have finan- cial operating budgets. The general financial budget is a summary of all departmental budgets. SUMMARY OF FINANCIAL BUDGET FOR A GENERAL STORE (Depaetmentized) Spring Season of 1917 Location — Middle West City of 20,000 Population; Trading Population of 35,000 Total expected sales for 6 months, at retail $300,000 Capital investment in common stock (dividends declared semi- annually at end of each season) 100,000 Average merchandise investment at cost 75,000 Fixtures 15,000 Cash for working assets 10,000 Other funds as required from time to time obtained of bankers. Mark-up (gross profit) desired, at retail 25% Stock at beginning of period at cost (market value) 75,000 Stock at beginning of period at retail (market value) 100,000 Purchases during the six-month period, at cost 150,000 Purchases during the six-month period, at retail 200,000 Stock desired at end of period, at retail 75,000 ORGANIZING AND FINANCING 207 Maximum stock limit during period, at retail 125,000 Average stock during period, at retail 100,000 Gross sales, at retail -200,000 Gross profits, at retail 50,000 Per cent gross profit, at retail i25% Expected salarj^ expense 13,350 Other expenses" 26,950 Total expenses 39,300 Per cent of expenses on sales at retail 20.15% Net profits on sales 9,700 Per cent of net profit on sales 4.85% Cash discounts taken 6,500 Interest paid on money borrowed at the bank to discount bills and to take care of extra financial requirements beyond capital invested in business. (An average of $25,000 dur- ing the six-month period, at 6% ) '<'50 Xet gain on discounts over interest paid 5,750 Total profits earned by store during period 16,450 Reserve set aside for depreciation on fixtures, losses on collections and for surplus fund 11,450 Net earning available for dividends to stockholders 5,000 Rate of dividend to be declared 5% for 6 months 8. Counting room. — The cash is received and han- dled by the cashiers. Their duties are considered a part of the general clerical work of the store. The financing of the store is carried on thru the counting room. Here the funds are received from the cash- iers and are deposited in the bank. Payrolls as well as all bills for merchandise and supplies are here made up and paid. The head of the counting room is generally the president of the business. The treasurer knows from purchase records the total amount due for payment of merchandise bought from day to day, and can, therefore, plan the distribu- tion of his funds so as to pay the bills and at the same time take advantage of cash discounts. He works with the buyers and the merchandise manager, if there is one, to arrange purchases so as to make payment 208 RETAIL MERCHANDISING dates as convenient as possible from a financial stand- point. Since the credit and collection departments involve financial functions, they should be under the super- vision of the person in charge of the financial division. REVIEW Is functional management applicable in the conduct of a re- tail store? II Describe the organization chart given as an illustration. Why is it easier to finance a retail store than a wholesale estab- lishment? What are the salient points of the budget given on pages 206 and 207? CHAPTER IV OPERATING AND RECORDING THE BUSINESS 1. Necessity for operating function. — After plan- ning the general organization and financing of the business, the next task is to arrange for the store building and equipment, the layout of the different departments and to engage the sales and clerical force needed to sell and deliver the goods. The buy- ing will be handled by the merchandise organization, and the records by the records manager in his depart- ment. The remaining employes, consisting of sales- people and all the other employes not directly con- nected with financing, buying and records are in- cluded in the operating division of the business. In the average store, fully ninety per cent of the total number of employes are in this division. 2, Superintendent. — The work of organizing and supervising this force, as well as taking care of the building and equipment, is the task of the superin- tendent. His relation to the business as a whole will be noticed by referring to the organization chart fac- ing page 203. In many stores, he has general super- vision over all clerical employes even tho they may be assigned to duty in the financial, buying or record- ing divisions. He is responsible for tlie training of 209 210 RETAIL MERCHANDISING employes and for the physical conditions under which they work. He also develops the internal store poli- cies and rules, builds up the store system and is re- sponsible for its successful operation. 3. Choosing the store site. — A choice location in the best part of the retail center is required for a general store as it is for a department store, if it caters to quahty trade. If the appeal is one of price, a cheaper location is more suitable. A definite limit for rent should be set, proportional to the expected volume of business, and then the best location at the price should be obtained. In a city, the question of transportation facilities is a serious factor. In a rural section, acces- sibility to suburban trolleys is important. A strong merchandising organization never hesitates to locate next to another store. Competition is often of an ad- vantage. It brings all shoppers to a given locality and the best merchant gets the cream of the business. 4. Store huilding. — All physical equipment has its practical utility and its psychological effect. A cer- tain type of store building or store front is advisable primarily on account of its suggestive value. For example, a store which occupies the first floor of a big building among other smaller buildings, impresses the public as being a big store; whereas the same amount of floor space in a building by itself would seem small in comparison, especially if the floor space were spread over two stories as against one story for the store in the big building. The impression of big- ness may not always be advantageous; but where it OPERATING AND RECORDING 211 is, a big building might be desirable, even tho the upper stories are occupied by other tenants. In a big building, the opportunity to get additional space as the growth of business may require, is usually open. 5. Store front. — There is both a utilitarian and a psychological value to the store front. If it is old-fashioned and unattractive, prospective custom- ers are disposed to think that the stock of merchan- dise must likewise be out-of-date and the service poor. To spend money in remodeling an old store front is usually a good investment. When one general mer- chant was asked the reason for his success, he pointed to a freshly-painted store front and said, "A couple of gallons of good paint twice a year — that's the reason." He meant, of course, that a clean, bright store front all the year round typified the cause of his success. Many people judge the character of the store by the appearance of its front. Therefore, it should be mod- eled to give as nearly as possible the impression the merchant desires his store to make in the public mind. 6. Heat, light and ventilation. — Proper light and heat should be figured out scientifically. The lo- cal electric light company will gladly give the services of one of their engineers for the purpose of collabor- ating with the store superintendent in working out the proper illumination of the store. This problem is too important to be solved by guesswork, and there- fore the wise store superintendent should secure all the expert assistance he can command. Various or- ganizations, such as the Extension Division of the 212 RETAIL MERCHANDISING University of Iowa, have prepared excellent pam- phlets on the subject, for the use of those who cannot readily get the assistance of an engineer experienced in store lighting. The problems of heating and ven- tilation should also be given like careful attention. 7. Store equipment. — The equipment of the store has also both utility and suggestive value. There is what might be called service equipment as contrasted with selling equipment. By service equipment is meant that which serves the convenience of customers or employes but is not used in the operation of the business. It is often a difficult question to determine how much service equipment, such as rest rooms, hos- pital rooms, telephone booths, and so on should be provided. Such equipment tends to bring women into the store and keep them there for longer periods. For this reason large stores provide restaurants, rest rooms and entertainment in order that shoppers may staj^ the greater part of the day and shop without be- coming fatigued. Such stores claim that service of this kind increases the amount of sales per person as well as the number of customers, so that selling ex- penses are reduced. There is probably much truth in this contention, since in retailing, sales are made by indirect means rather than hj the direct sales efforts of the clerks alone. It is easier to decide on the installation of selling equipment. This will be governed by the size and type of the store as well as by the financial strength of the organization. For instance, a cash register is OPERATING AND RECORDING 213 generally recognized as necessary in any kind of a store. Even for the young man with only a few hun- dred dollars with which to start a neighborhood store, it is a necessary piece of equipment. It would probably pay for itself from the start for reasons known by everj'^ merchant today. 8. Standards in equipment. — The merchant should determine the general standard of equipment to be used in his store, and then maintain it. Uniformity in quality, design and color of equipment is essen- tial. A store that is equipped with a varied assort- ment of styles in shelving and show cases conveys a confused impression. Uniformity of style and fin- ish of fixtures and equipment add tone to any store. To secure this result the equipment need not be expensive. In one of the most successful chains of stores the total cost of standard equipment for each store is less than a thousand dollars, yet it is as attrac- tive and as satisfying as fixtures costing a great deal more. Few stores are sufficiently equipped for conven- ience. In most cases, no matter how well planned the fixtures and other equipment may be in a new store, additions and changes soon become desirable. INIer- chants, however, are inclined to let temporary incon- venience and expense of improvement postpone the big permanent gain in convenience and jn-ofit. In this respect, the chain-store systems such as the United Cigar Stores Company, set an excellent ex- ample of convenience in equipment. 214 RETAIL MERCHANDISING Equipment is designed to protect the merchandise, to aid in systematic stockkeeping, to display mer- chandise, and to make a favorable impression on customers. Extra expenditure on fixtures for pro- tecting perishable goods, or goods easily soiled or goods of great value, is nearly always advisable if the line is a permanent part of the stock. The modern cases in which are kept stocks of men's ready-to-wear clothing, for example, pay for themselves over and over. They save time thru systematic stockkeeping, and aid in selling by keeping the merchandise in per- fect condition. The best fixture or equipment of any kind is the one that best meets the four purposes just mentioned, cost considered. Which purpose should be empha- sized in case all of them cannot be attained, or in case one must be gained at the expense of the other — protection interfering with display, for example — de- pends of course on the goods and conditions peculiar to each store. Inexpensive waists for women are dis- played in open cases where they may be readily ex- amined by the chance passer-by, while expensive waists must be kept in glass cases or in stock boxes. In the first example the display value i^redominates, while in the next the protective value. 9. Organization of the personnel. — Anyone willing to take advice and with plenty of funds at his disposal can organize the physical equipment of a store. He has only to study other stores, consult with the experts on the staff of manufacturers of OPERATING AND RECORDING 215 store equipment and spend the money. But when it comes to building up the human equipment the task is not so easily accomplished. The superintendent of a store devotes the greater portion of his time to the selection and training of new employes, to the es- tablishing of high standards for old employes and to the general building up of the human machine. Special attention must be given to the contributory factors in this work such as store rules and policies, wages, bonuses, promotions, transfers, working con- ditions and the like. 10. Employing new clerks. — In every store of any size, the superintendent must give a good part of his time to employment work. Each applicant should be checked against an ideal or standard set for the employment work in each department. Mental and ph^^sical tests are frequently added. Too much at- tention cannot be given to this work, for the loss thru "floaters" and those who fail, is much greater than the expense of careful selection in the first place. The average period of employment in general stores usually is less than a year, yet some stores have been able to raise the average to two or three years. If the statement is correct that the average expense of engaging a new clerk and training the clerk up to the point of earning his or her salary is fifty dollars, then the loss from turning over the whole force more than once a year is a very heavy drain on the busi- ness. 11. Training and welfare work. — The work of 216 RETAIL MERCHANDISING training the new employes is considered in a later chapter. The welfare work must be such as to aid the employe in doing the best for himself and for the firm. It begins with proper working conditions. There is no reason, for instance, why stools or chairs should not be provided for salespeople in order that they may rest when not occupied with selling or stock- keeping. But it must go further. In large stores lunches are furnished and a place is provided for rest or recreation during the noon hour. Employes often assume an obligation to cooperate in recreational and social activities outside of office hours. Assistance in case of illness or need also represents an opportunity in the way of welfare work. In any case such work should not be patronizing, but should always be a part of the effort of the employer to cooperate with, and thus help his employes, in order that both may work together to better advantage to secure personal as well as business benefits. The small merchant can do better welfare work than his large competitor, be- cause he is close to the employe and knows both the opportunity and the best method to secure desired results. The less splurge and the more quiet, sin- cere interest and cooperation, the greater the value of welfare work. 12. Wage systems. — We all work for wages; and we all think we are entitled to more than we get, whether it comes to us indirectly in the form of profits as proprietors of our own business or directly as em- ployes of another. A great variety of wage systems OPERATING AND RECORDING 217 have been tried by retailers but all are dependent on one principle. The wage must be proportionate to the profit accruing to the proprietor from the work of ■ the wage-earners. In order to get at this scientifically, it is necessary to find the per cent of profit from the sale of goods handled by the clerk in question, and then the profit to the store can be fio-ured. Probably the best waffc system is one in which a beginning salary based on the profit is set in each line. In one store in which the minimum wage is $8.00 weekly, except for the junior employes such as messenger boj^s and stock girls, the beginning wage in the millinery department is $0.00 a week and the clerk is expected to sell at least $300 worth of goods a week. For all sales over this amount a commission of two per cent is paid, while the clerk remains on the salary of $9.00. When the clerk's salary is increased to $10.00 the sales quota is raised to $350, while the commission for all sales beyond the increased quota remains the same, two per cent. Various quotas and in fact modifications of the sys- tem are made in other lines. In men's clothing, for instance, a straight salary is paid weekly and at the end of each season each clerk's sales are totaled and commissions are figured at five per cent. In depart- ments like bargain basements, the commission is usu- ally 2/4 to 3/4 per cent with settlements weekly in- stead of at the end of the season. This is due to the difference in the type of salespeople. The salesmen XIX— 16 218 RETAIL MERCHANDISING in the men's clothing department will work for a longer period under the impetus of a bonus system than the young women in the basement. The object of a bonus and premium system of wage payment should always be to increase salaries to each individual without increasing the percentage of sales expense. In the working of the system both the em- ployer and the employe strive to improve the store efficiency and both share in the profit ; the one in in- creased salary and the other in increased volume of business with lower pro rata expense. Salary advances should be automatic. The unex- pected increase is always twice as effective as the one asked for. But the salary is not the only reward. Every store superintendent should promote his peo- ple as rapidly as possible to more responsible work. And for this purpose he should have a definite line of promotion for each employe. The better job ahead, to be secured when it is earned, is the greatest possible stimulus to good work. The record of each clerk's efficiency is kept by the superintendent, and also the record of his or her educational training. 13. Floor and aisle managers. — On each floor of a large store the superintendent has an immediate assistant in the floor manager, and under him are several aisle managers or floorwalkers. They super- vise the sales force, settle minor complaints, direct customers, take care of their section of the building, follow up promises of future delivery, countersign with the buyer returns for credit or refund, and gen- OPERATING AND RECORDING 219 erally perform the work of a superintendent for their immediate section of the store. 14. Inspectors and wrappers. — In large stores it is necessary to follow out unit operations and this work is done by the inspectors and wrappers. The former check the goods to see if the quantity is correct, com- pare it with the sales slip, receive the cash if it is a cash transaction or send the sales shp to the credit depart- ment if it is a charge sale. Then, if there is a sepa- rate person to wrap the goods, the inspector passes it on for wrapping. In large departments there may be inspector, cashier and wrapper, while in a small one all three functions may be combined in one. Again, in the small general store all three operations may be dispensed with, the salesperson doing every- thing. There are advantages in both the inspector and the clerk-wrapping system. At the time of writ- ing, the tendency seems toward the latter system be- cause of the delay when goods must pass thru so many hands after being sold. The whole problem of re- cording and delivering merchandise is a troublesome one. The average sales clerk spends too much time in making out the sales slip and doing other non-sell- ing work. Some day, perhaps, someone will invent a system which will be simpler and yet carry with it the same advantages for recording the sale correctly. It is one of the most serious problems in retailing today. 15. Delivery service. — Much money can be saved by careful organization of the delivery service, when deliveries are made. Definite schedules and routes 220 RETAIL MERCHANDISING are possible even in the small store with a single de- livery wagon. If the customers of a store understand a merchant's schedule of delivery and know that he will maintain it, they will adapt their requests and ex- pectations to it. The merchant himself often makes a mistake when he accedes to an unreasonable request for delivery. Deliveries are always expensive unless they are thoroly systematized. The more frequent they are from any one store, the easier it is to establish an eco- nomical system which will keep the cost of delivery per item within reasonable bounds. This advantage is multiplied in a cooperative delivery plan; but such plans are successful only when conducted under effi- cient management. The plan is, however, economi- cally sound, and whenever a cooperative system has failed it has usually been due to poor management. 16. Records manager. — As a store increases in size it is necessary to put more authority on individu- als. From such a development an official kno^vn as the records man or the office manager has arisen. He has charge of bookkeeping, auditing, statistical work, cost finding and everything pertaining to the records of the business. In a small store he keeps the stock records. Keeping track of purchases and of sales to customers is a simple matter, calling for only a knowledge of elementary bookkeeping. The work of auditing the sales slips to verify prices and exten- sions, does not call for special treatment. But the task of keeping track of the various departmental OPERATING AND RECORDING 221 purchases, expenses and sales in order to show the real progress and present conditions of the store, is more difficult. 17. Retail accounting. — One of the best ways to get a clear understanding of a retail business is to analyze its expenses. A merchant may secure val- uable hints on the subject of retail accounting from many sources. For instance, the Federal Trade Com- mission has published a pamphlet entitled, "A System of Accounts for Retail INIerchants," which contains some very valuable suggestions. A study of these various trade accounting systems reveals one common trait — simplicity. Experience has proved that too many complications, with the re- sulting waste of time, will often bring costs so high as to defeat the purposes of a carefully worked out accounting system. The merchant wishes to tell at a glance whether things are going as they should without wading thru an involved mass of figures. No system which requires practically all a man's time can be called successful, because the cost of that time will often outweigh any economies which may come from systematized records. There is a very close relationship between retail ac- counting and retail stockkeeping, particularly where a perpetual inventory system is in use. In fact, in the majority of cases, the perpetual inventory sys- tem depends directly upon the accounting system for its success. Therefore, where the foundation — ac- counting — is weak, it follows that the whole struc- 222 RETAIL MERCHANDISING ture of the stockkeeping plan is correspondingly weak. This all goes to prove that the accounting system is important not only for its own sake, but also for the sake of one of the most important elements of suc- cessful retailing — a good system of stockkeeping. REVIEW What do you consider to be the duties of a superintendent ? Why is an attractive store front a good investment.'' Discuss service equipment and store equipment. For what purposes is equipment designed? How are wage systems determined? Do you believe in bonus and premium systems ? Explain your position. What is the value of an adequate cost system in retail mer- chandising? In what way does retail accounting contribute to the success of the business? CHAPTER V TRAINING THE SELLING FORCE 1. "Tlie salesman is the store.'' — When you stop to consider that there are approximately fifty thou- sand salespeople in the department stores of New York City alone, it is evident what possibilities there are in the training of the young man or young woman behind the counter to represent more effectively and more truly the merchants themselves. Add to New York all the cities of the nation and then all the re- tail selling organizations of whatever nature, from the general store at the countrj^ crossroads to the chain organizations with their thousands of stores, and you get some idea of the hundreds of thousands of peo- ple engaged in retail selling in the United States. They make or break the store ; yet how strange that the opportunity to help them "make" the store has been so long overlooked, or at best handled in such desul- tory fashion by the great majority of retailers. True, there have been noted exceptions, particularly during the last decade or two; and true, also, in every such case striking success has followed. One of the most evident examples is that of the United Cigar Stores Company. Everyone knows how their business has been built in a decade into one reaching practically to every large city in the United States. 223 2M RETAIL MERCHANDISING More than anything else their system of training the salesmen was responsible for this success. That the same methods are fundamental to all retail selling and just as applicable to one as to another, is evidenced by the fact that the United Cigar Store system of training retail salesmen and similar systems in large department stores, are being used with equal advan- tage by small stores. 2. Explaining the store policy. — The training be- gins immediately after the details of employment have been arranged. At that time, the educational record card is made out, showing all the facts ; such as name and address, education, previous store experience, po- sitions held and reasons for leaving. In addition, space is left to enter the new employe's records in the educational course. A group of new salespeople is collected in one cor- ner of the store during a dull period, or after the store closes, by the person in charge of the educational work or by one of his assistants, and the general manager gives a lecture on the history and policy of the store. Here is the first big opportunity; for the successful salesman must be first of all an enthusiastic believer in the store of which he is a part and in the merchandise he offers for sale, as well as in that hard-to-define something which we call the policy of the company. One of the notable recent department store failures was said to be due largely to the fact that the selling force had lost faith in their own store and literally drove trade away. THE SELLING FORCE 225 3. Teaching the store system. — Having become thoroly imbued with the spirit of the store and im- pressed with the importance of courtesy and real serv- ice to customers as invited guests, which they really are, the new sales clerk is ready to learn the routine system. The superintendent of the store is now the instructor. He takes up the sales slip or "schedule," as it is frequently called, and explains how it is made out under varying conditions. Then, as would be ex- pected, the new clerk is quizzed to test his ability to follow instructions. The same methods apply to the making out of the various other forms, such as "hold tickets," "work tickets," "transfers," "special delivery slips" and the like. But great care must be exercised to avoid taking up too much at one meeting, for it is very easy to confuse the new clerk with a mass of forms. For that reason, instruction should be spread over several meetings on different dates. A stereop- ticon, especially of the reflecting type, has been found to be almost indispensable at Wanamaker's in in- structing large groups in the store system. Instruction is also given in the care of stock and in various other details of the salesperson's duties. If, however, they are special employes engaged for a single sale, the whole course in the store system must be condensed into one meeting. A store manual is provided for each salesperson and becomes a part of his permanent equipment. In many stores the lower prices in the basement necessitate simpler systems and likewise a difl'erent 226 RETAIL MERCHANDISING and briefer course of training in the store system. Generally this work can be condensed into one or two meetings, which are preceded also by a special discussion of the basement pohcy. Tests are required here as in the main selling actions. A special base- ment manual is also provided. 4. Begitming actual selling. — Then follow lessons in salesmanship in which the various steps in the sale, as illustrated in the chart, are carefully noted. The new recruit can begin selling at this time under the guidance of an experienced salesperson. At this time a complete record for the first year will be started. A form is provided on which a record of errors is maintained — every error of the new employe is re- ported to the superintendent and there taken up in person with the salesman. In some stores, as for in- stance that of Stix, Baer and Fuller Company, of St. Louis, a premium in the form of a half holiday bi-monthly is given those who keep do^vn their errors to a certain minimum. Tn addition to this, the staff of the educational de- partment includes a number of "shoppers" who visit the new salespeople at their work and watch them sell, in order later to offer suggestions for improvement as well as to compliment them on their good work. At Strawbridge and Clothier's, in Philadelphia, a special attempt is made to clear their conversation of errors of speech in addition to training them in policy, sys- 227 Qian- e the neet- :aged n ab- le to iency )r the ;pira- aisle idled, trd of ir the to go ssion, ners" then ecord ;s ob- o the volve hould edu- lanu- arded sales- THE STEPS IN THE SALE Prepared by Mh. James W. Fish, Manager of the Training School for Teachers of Retail Selling maintained by the Dry Oooda Economist. - THE STEPS SUMMARIZED STEPS IN THE SALE I AttractiDg Attt-ntioQ ^0 per o 1 1 Arousing Interest 20 per d III Creating Desire 15 per d IV Closing the Sale 20 per c V Introducing Other Goods ... 10 per c VI Securing Good Will IS per c 100 per CI THE STEPS ANALYZED ATTRACTING ATTENTION Total -JO Pointt Alertness, watchfulness Discontinuing other work . . . . Rapidity of advance Point at which customer is m( ATTITUDE Showing recognition Sliowing expectancy and defei Appearing energetic Self-confident bearing Pleasant . . Expectant Unexpected service Catch customer's first words , Courteous , Suited to customer Offering services immediately Using customer's name Audible, distinct Sincere Rhythmical Suited to customer Total AROUSING INTEREST Total 20 Pointi Definite information 3 Most vital selling point 2 Positive statement 1 Referring to purpose of purchase 1 Promptnes Bringing goods to ( Placing goods in reach 2 Displaying to best advantage.. 4 Removal of objectionable fea- Handling to enhance value 1 Showing right goods 2 (Noticing implied preference) Total 20 CREATING DESIRE Total 15 Points Adapting to customers' actions Supplying new ideas as needed Answering questions readily . . . Anticipating objections Using most vital selling points . Citing personal experience Using evidence of other pur- chases or authorities .... Getting customer to agree Showing right quantities Displaying to best advantage Showing points of superiority. Appealing to the senses Comparison with other goods . . Total CLOSING THE SALE Total 20 Pointa Recognizing best time to close.. 5 Finding reasons for delay 3 Overcoming expressed objcc- Referring to customers' ap- proval 1 Showing advantage of immedi- ate buying 9 Suggesting that decision is mode 1 Getting customers' consent 1 Eliminating other goods 1 Overcoming expressed objec- tions 2 Demonstrating approval merits 1 Suggesting that decision is Total 90 Total 10 Pointt Allied lines In own department In other departments Inferred preference ...... Advertised articles New goods Service instead of selling . Suggesting further wants . Tone of voice Suggesting future purchas* Total Total 15 Poin(» By prompt service 1 By attentlveness I By courtesy 1 By merchandise knowledge 1 By unexpected service S By continued interest 4 By expression of gratitude .... 9 By invitation to call again 1 By invitation to take advantage of special service features ... I By accompanying to department limits on departure 1 Total 15 K /^ THE SELLING FORCE 227 tern and salesmanship. Likewise training in penman- ship is frequently necessary. For regular people the course of instruction lasts ten weeks, with two meet- ings a week. Basement people, and those engaged for special reasons on sales, can be given only an ab- breviated course. 5. Special and general bulletins. — From time to time special bulletins, called by one store "Efficiency Bulletins," are necessary. These are planned for the whole store force. Sometimes they are of inspira- tional character and sometimes educational. They are sent to the floor superintendent or aisle managers in each section, by whom they are handled. Each salesperson reads them and signs, as a record of his reading. Later the subject is discussed under the floor men's leadership. The purpose of this is to go into more detail regarding the topics under discussion, and incidentally to make the idea "we are partners" more than so much verbiage. The floor man then sends in a report to the educational office to record the holding of the meeting held and the results ob- tained. 6. Studying merchandise. — When it comes to the study of merchandise itself, the task must devolve upon the person in charge of the buying. He should hold regular conferences with his sales force to edu- cate them thoroly in materials and methods of manu- facture. The study of merchandise is coming to be regarded as equally important with that of system and sales- 328 RETAIL MERCHANDISING manship and before many years it will be given its full share of prominence. 7. Lihraiies and rest rooms. — Marshall Field and Company give over a large part of their tenth floor to the exclusive use of their employes. Two reading rooms are provided. Music and rest rooms, as well as various other welfare features, are also associated with their educational work. 8. Junior courses. — In addition to such a course of educational training for the selling forces of today, a similar course must be provided for training of the salesmen and saleswomen of tomorrow, composed now of messenger boys and cash girls. Every large store has many of these boys and girls between fourteen and seventeen or eighteen years of age. In most cases they left school at the first legal mo- ment, after having completed at best only the gram- mar school, and in a large percentage of cases only six or seven grades. For them some sort of continua- tion school must be organized. That at Wanamak- er's, called the John Wanamaker Commercial Insti- tute, may be considered typical. Regular classroom instruction under competent teachers is given in store time and occupies about four hours a week. The subjects are such as are needed to continue the pre- vious education from the point where it was dis- continued. Also to supplement it along lines most advantageous to one starting a mercantile career by including a study of the materials and methods of merchandising. The boy instinct is also developed THE SELLING FORCE 229 by military and gymnastic drills, boy scout exercises and the like. 9. Cooperating with the public schools. — In some cities a concerted movement has been started to get the public schools of the city to give some of this elementary training for mercantile life. In Winni- peg a group of club women made an investigation into the conditions surrounding the young girls working in department stores of the city, and as a result of it offered two recommendations. One was directed toward better living conditions by encouraging the opening of semi-philanthropic boarding-houses for working girls hving away from home; and the other, the more important, urged the board of education of the city to revise the course of study in the public schools, and to add special continuation courses so that these girls might enter store work with a better chance to earn and command a living wage. Several Amer- ican cities, particularly Cincinnati and Milwaukee, have added continuation schools such as the club women of Winnipeg recommended. Other cities are seriously considering it. 10. Training the non-selling employes. — To com- plete the educational system of a department store it is necessary to make some mention of the training courses in the non-seUing departments. There are the weekly meetings of buyers to discuss policies and methods, and similarly of other groups, as that of floor superintendents and aisle managers. In fact, even buyers and floor men must complete a system of train- 230 RETAIL MERCHANDISING ing similar in many ways to that required of a new salesperson. In many stores the educational direc- tor plans special courses for office and delivery em- ployes and for each other group in which there is any considerable nmnber. 11. Results of the educational work. — That the whole movement is proving successful is evident as much from the demand of salespeople of many years' experience that they be admitted to such courses, as from the tangible results themselves. In fact, in one Middle West store, that of Rike-Kumler Company, in Dayton, Ohio, the result of the fii'st course of in- struction was so striking as to bring the following re- mark from the educational director: "One great step which has been obtained is the awakened attitude of employes toward education. At first the older employes asked to be excused, but now they are be- ginning to realize the value of the school work." REVIEW What principles are used in training the selling force? Name one firm which was a leader in the movement. What is the first lesson given to department-store new em- ployes? How is the spirit of the store as well as its system taught ? Who should educate the salesman in materials, manufacturing, etc. ? What subjects, besides selling topics, are taught in the com- mercial courses in department stores ? What is some of the wel- fare work? Do the employes approve of the educational and welfare work? Discuss a typical course for junior employes. How may department-store methods be adapted to other re- tail selling organizations? Of what value is a store manual? CHAPTER VI BUYING 1. Necessity for good buying. — If the retailer is to serve his trade well he must be first of all a good buyer. In order to continue in business he must be able to meet competition, and this again emphasizes the need for good buying. With the constant in- crease both in the cost of merchandise and the ex- pense of doing business, the margin of profit is low- ered. Profits begin with successful buying. No matter how well goods are displayed and advertised and how carefully the sales force is built up, no merchant can overcome the handicap of poor buying sufficiently to operate his business under present conditions with even moderate success. 2. Organization for buying. — In a small store and even in stores doing as much as a hundred thou- sand dollars' worth or more of business annually, the proprietor is the buyer. As the store grows larger, the older clerks are allowed to buy less important lines, and buyers are engaged for the more difficult ones; while in the city department stores there may be a hundred or more buyers, many of wlioni have one or more assistants. In the very largest stores 231 232 RETAIL MERCHANDISING the proprietor finds it impossible even to supervise all the buying, and an officer known as a merchandise manager is therefore put in charge of all buying activi- ties. Whether the buying is for a country cross- roads store or for a city department store, it must be done according to certain well-established principles if it is to be well done. 3. Basic facts for merchandising. — The analysis of the selling field, competition and the determina- tion of marketing policies were discussed in an earher chapter. The merchandiser begins the planning of his work with a study of these facts. From time to time a new analysis is made and policies are re- vised to suit changing conditions. Salespeople are required to hand in "want slips" showing requests for goods not carried in stock. "Shoppers" make the rounds of competing stores to keep in touch with com- petition and to get ideas for improvement ; slow-selling systems warn against the repetition of errors in buy- ing judgment. Complaints are checked up by the buying organization to prevent their repetition if the fault was due to poor buying. Reasons for not pur- chasing, as given to the salespeople, are turned in daily. Finally, buyers spend a large part of their time during the day among the customers of the store. When they are on buying trips it is as necessary for the buyers of high-class women's wear to visit the theaters and restaurants to see what well-dressed women are wearing, as it is to visit the manufacturers. Any expense incurred m ' ' ' considered well BUYING 233 invested, for the buyer must be constantly revising the basic facts upon which his buying is planned. 4. Determination of lines to he carried, — In a gen- eral store which is to serve all the ordinary needs of the community, the problem is to have on hand all the goods that are wanted as far as the limited invest- ment of money in stock permits. The real problem here is to apportion the investment in stock so that it meets the greatest possible number of wants, and at the same time the sort that on the whole are profit- able to supply. There must be a limit to the variety of lines offered, and to the assortment of items in each line. This limit is fixed by local demand. Goods not in de- mand are not stocked unless the merchant thinks he can arouse a latent or unexpressed demand for them. The selection of the variety and assortment of stock is determined by the amount or intensity of the de- mand, or by the possibility of creating a demand. The selection is determined also by the net profit to be derived from supplying the demand. Future busi- ness must be considered, as well as the prospect of additional trade in other lines, as a result of supplying certain lines and items. Subsidiary to these main considerations are such questions as to whether a new line will fit in with others carried. Ludicrous combinations of lines are often found. Thus, a store in Baltimore, according to its sign, carries pianos, organs and iron safes. On the other hand, the successful clothier can well add XIX-17 234 RETAIL MERCHANDISING such lines as sporting goods to his sporting-clothes department, and such items of jewelry as cuff links, etc., to his haberdashery section. Likewise, shoe-re- pairing departments are often added for their con- venience or service value to patrons of the store. Closely alhed with this are hues such as oriental rugs or novelties, which are added for their advertising value, even tho the communitj^ demand would not warrant such additions. Frequently such goods can be obtained on consignment. 5. Apportionment of investment. — The analysis of the territory makes it possible to estimate the amount of total business which the retailer's trading center will produce on each line. Knowing how much of the total the retailer can expect to get in competition with others, he can estimate his own total sales in each line. This can be further subdivided according to price ranges, on the basis of average incomes of different classes in the trading territory. For in- stance, a merchant in a small city in Indiana, who handles only women's ready-to-wear garments, fig- ures his total sales for each line. Then when he be- gins buying for a season he has an estimate of the number of garments in any one line that he expects to sell at each price range. If in addition he knows how many times he can turn his stock each year, he can figure the average stock requirements. If he can do a business of $5,000 in women's waists and can turn the stock over five times a year, he will need an average stock worth, at retail, $1,000. During the spring BUYING 235 season, his stock will run from a minimum of about $500 on February 1, to a maximum of about $2,000 at Easter time and will then gradually fall to the minimum of $500 about the end of July. The task of determining price and style-range within the line is even more difficult. Staples must be carried in full range of size, color and price at all seasons, while novelties must be obtained from time to time according to the expected demand. The stock of novelties must be turned more frequently than that of staples. Conditions of competition frequently af- fect the distribution of the investment among lines. If a general merchant is particularly strong in one hne, as for instance, in men's clothing, it is perhaps due to the exclusive agency of a well-known brand. Under such circumstances it would be better for an- other retailer in that territory to refrain from stock- ing such a line or better still to maintain only a small investment in it, unless, of course, he can secure a similar line equally as good. In the case of a store already operating, these esti- mates of the possible business to be done in each line and each range of price serve as a sort of quota sys- tem or ideal to attain. The past records of sales as well as assortments according to price ranges, sizes, styles and the like in each line, cannot, of course, be neglected in forming these estimates. Yet to serve the buying community, the activities of the store should be planned according to community needs rather than past records. At first, it is best to obtain a complete 236 RETAIL MERCHANDISING variety of lines and items rather than quantities of each item sufficient to supply a continuous demand, tho this course may be slightly more costly because of purchasing in small quantities. Fewer sales are lost, the opportunity to find out the complete range of demand is increased and the initial investment in stock is kept down. The variety should ke kept up to the point which assures the customers that they will probably find what they want in the stock. There is no other way to build up good-will for a new store. 6. Merchandise plan. — In the financial budget given in Chapter III, the outline of the plan for the business as a whole was given. It remains now to plan the buying according to that budget — to set up a merchandise budget or "plan," as it is generally called. The merchandising plan for the store in ques- tion is shown on the opposite page. The merchandise plan is fundamental to all types of retailing. Some of the smallest country stores are being merchandised according to a plan ; and the work is so well done that the results obtained are within a fraction of a per cent of those estimated. Every large store is merchandised according to a plan, tho there are various modifications. For instance, one department store doing about ten million dollars' worth of business a year is merchandised on antici- pated costs of running each department, rather than on anticipated sales. In large stores where there are many departments, it is necessary to carry out the plan in greater detail in order to show such things Ph O :z; m l-H Q < !)s noseag p»)«ui liBjan no < p< m o )-i o o H o J?; o oSsaaAV ;soo no ?soo ;b nosBag JOJ S9IGS pa)eai nosEag J9d j8A0nanx isoo ^B 3i3o;s 93LU8AV XSl P4 O 31oo;s IBi^ini OCCCOOOCOOOOOOOOOMiCtOOOOCO o 03 CO in o CO o o o lo o c o o ft t~ ;d o o o CO ococot^OcoooociOooL'tcococDOOoco ocococou^ninuomtooooc-Jco'^^DOOoco ocococswcocot-iHmoi-TO^Dcoeoo'^ooco ;£3 (DtotoootoinoomcootootDt-tooooco co^tOLOOOciioirst^coo^iocDcoeooooco «0 tt> oiOiomo inirTfi'eo-^'N-'t CO i-TNrHM'ira ^4 ^"t-"i-i' ooooooooooooooooooooo OOOOOOOOOOOOOOiOOoOOOO omooominmooocioot-ouKOinoin tot-co-*iOT-no;Oi-iciNiHC>oo THfJ mciiH ^ "2 Qt3 •«« 16 0)t3 J; ° ■^o-: >» ■► O.TS^-*.— OCT 0* tfl'^ s s s « S o ? fl a 9 i. t. S 237 •335 2.?x 1 i. a >'Si ? SI'S. ,-> 9 *■ d ^ I- a J- es T ai.r'r' ^3i|a, " £5 So ^ '^I-II^S.EIS "iraS-ooSS"' CI r^ l^ ea " rt 238 RETAIL MERCHANDISING as cash discounts for each department, departmental expenses, mark-down, losses and the like. In single line and general stores, which are not departmentized, the plan is much simpler as the figures are for the business as a whole rather than by departments. 7. Fixing the standard turnover. — It will be no- ticed that a standard turnover for the season is set for each department. In a small store, the proprietor decides on the number of times he ought to turn each hue carried during the year or season. (The figures in the merchandise plan are for a season; the annual turnover being of course twice the seasonal turnover. ) The term turnover is of recent origin, and there is some confusion as to its exact meaning. Some mer- chants figure what they call "merchandise capital" turnover. This represents, as its name indicates, the number of times the capital used in purchasing goods is turned over. This is computed by dividing the average stock maintained during the season, at cost, into the gross sales at retail. This method of figur- ing the turnover has been applied to a stock turn- over by some merchants, with the result that they are operating their business on a false basis. As a matter of fact all figures should be converted at once to the retail basis and all calculations based on both stock and sales at retail. If this is done, we get the true turnover, which, in contra-distinction to the so-called merchandise capital turnover, is called the stock turnover. It is obtained by dividing the average stock maintained during the season or year BUYING 239 at retail prices, into the total sales during that period at retail prices. Some stores figure it by dividing the average stock at cost into the total sales at cost. This method is not quite as accurate as the one using the retail prices as a basis because the retail figures show more accurately the true value of the merchan- dise. The total volume of sales at retail is a definite fiofure, while the actual cost of merchandise sold is difficult to obtain except thru the maintenance of elab- orate cost systems. The average stock at retail is likewise easy to figure accurately because in all up-to- date stores, merchandise is given a retail price as soon as it is received. The actual cost of each lot is obtained afterward by taking off the mark-up and likewise the loss thru reductions. 8. Determining the gross profit desired. — The pro- prietor or merchandiser and the buyer in each line, must plan the amount of gross profit desired on the line. In actual practice the figure is arrived at in any one of several ways. If the expense of doing business in a department is 25 per cent of the total sales and it is desired to make a net profit of five per cent on each sale, it is evident that the gross profit on sales must be 30 per cent. However, there will occasionally be a necessity for marking down some goods in connection with sales, and some goods will be damaged, while others will be stolen. Again, it will be necessary to mark certain lines below the standard mark-up as "leaders" or to meet competitors' sales prices. Hence, the average mark-up must be 240 RETAIL MERCHANDISING somewhat higher than the actual gross profit desired. In lines where style is an element, reductions are more frequent than in staple lines. Thus, it is im- possible to set one standard for all lines. In the mer- chandise plan it will be noticed that in women's ready- to-wear garments the plan calls for a maintained gross profit of 20 per cent. In order to average this on all goods sold, as in reduction sales, goods are frequently sold below actual cost, it will be necessary to aim at more than 20 per cent profit. But it will be noticed that the number of turnovers is greater in this de- partment than in any other. Here an average gross profit of 20 per cent is sufficient, whereas an average gross profit of as high as 33 1/3 per cent is required in certain slow-selling lines. So, in the final analysis, the customer pays on an average about the same per cent above the cost of the merchandise in all lines. What is lost to the merchant thru reductions is more than gained thru frequency in turning the stock. 9. Turnover as a merchandise factor. — As one suc- cessful retailer remarks: "One of the most insidi- ous leaks from the 'profit chest' of a retail store is very often caused by the idleness of stock, failing to turn it as often as it should be in a given period. And this is due in a good many cases to the fact that the merchant has no standard turnover in each line to go by." Many merchants try to build up volume by having such complete lines that they can turn their stocks only twice a year. If they would but study the needs of their community, the demand from BUYING 241 day to day, and order frequently and in small quan- tities, they could get along with much less inactive stock, and their stock would be newer and fresher at all times. Frequently, too many competing lines are carried by the retailer simply because he assumes he has to carrj' them in order to hold his own in a competitive market. In the toilet goods department of one store, twenty-eight lines of talcum powder were carried while only fifteen of them were selling in suffi- cient quantity to warrant being stocked. Every one who is acquainted with the typical country store knows that the slow-selling and dead stock is a heavy drag on the business. The stock which does not move eats up the profit on other lines. The longer it stays on the shelves, the more it depreciates, the more in- terest and rent charges it piles up, and the more it deprives the merchant of profits he might be making on fresher and more salable merchandise. Of more importance is the merchant's obligation to his customers. It is his duty to handle what the customer wants, in the quantity needed, and at as low prices as are consistent with giving the merchant a fair net profit at the end of the year. Now suppose the merchant buys $1,000 worth of goods and marks it up 50 per cent on cost or 33 1/3 per cent on retail. Because of competitive selling conditions, his price is so high that he can turn that stock only twice a year, at a total gross profit of $1,000. Suppose, instead, he marks the goods at a 33 1/3 per cent mark-up on cost (25 per cent on retail) so that on the stock cost- 24^ RETAIL MERCHANDISING ing him $1,000, he makes a profit of $333.33 against $500 on the previous basis, but on account of the lower price, he can turn his stocks four times during the year, then his gross profit at the end of the year will be $1,333.33, or an increase of $333.33 over the previous method of figuring a higher gross profit. At the same time, he has supplied his customers with de- sired merchandise at a lower price and has rendered them greater service. Many retailers have seized upon the turnover as a grand panacea for merchandising shortcomings and have made a fetish of it. It is true that it is one of the evidences of successful merchandising but only one. Various other factors must be taken into con- sideration in order to determine the results of good merchandising. Against the desire for a high turn- over must be set the necessity of maintaining sufficient stocks to take care of the needs of the shopping clien- tele and likewise the relative importance of volume of business. It is much better to serve well in five lines by hav- ing five stocks of sufficient completeness to take care of average needs, bought according to a merchandise plan which is built on a knowledge of the trading community, at the lowest quantity prices, with de- liveries according to seasonal needs, than in fifteen lines of which none is complete or bought on advan- tageous terms. The attempt to make too many turns of stock is dangerous. The costly sale is the one you lose thru being "out of stock," and no "want slip" BUYING 24-3 svstem yet devised has told how many such sales are lost daily in the store, making a fetish of turnovers. 10. Controlling the buying. — The merchandise plan shows how much business should be done during a season. This is split up into months of the season so as to form a sort of quota for each month. It is also necessary to leave stocks clean at the season's end and for this purpose a desired minimimi is set. Therefore, the merchant can figure out what his sales and stock on hand should be from week to week in each hne and know how much it is necessary to buy thruout the season, and how much stock from week to week to take care of the volume of business which has been planned. The necessary sum is allotted to each department, by months of the season; and as pur- chase orders go thru, the totals are deducted from the allotment. Some stores will not allow buyers to ex- ceed the current allotment for each department unless under unusual conditions. If sales run ahead of the quota, the amount of the increase is automatically added to the current buying allotment; and hkewise, if sales run behind, it is deducted. The system described is open to the criticism that it is too mechanical. Buyers frequently complain that their superiors will not allow them to buy necessary merchandise. Generally this is an acknowledgment of previous poor judgment in buying. Successful merchants move slow-selling merchandise by freshen- ing it up with new goods ; and so are as anxious as the buyer to help in reducing the stock thru a well-planned 244 RETAIL MERCHANDISING special sale, even tho it may necessitate an extra al- lotment for a special purchase to add to what is al- ready an over-pm-chase. In lines in which styles play an important part, the buyer for even the small store, visits market cen- ters frequently in order to keep in close touch with the market. These visits sometimes result in getting better prices but always in strengthening the relation- ship between wholesaler and retailer, as well as in giving the retailer a better knowledge of merchandise and trade conditions. The buyer must follow up every other means of studying his buying market, such as trade papers, catalogs, circulars and quota- tion sheets of wholesalers and manufacturers. He should be acquainted with the trade association in his line, particularly if it offers such a buying service as is rendered by the National Retail Hardware Asso- ciation. Various questions arise in connection with the se- lection of wholesalers with whom one is to deal, and upon most of them general principles can be given in answer. For example, should the retailer buy from nearbj'- wholesalers or from those located in dis- tant markets? In the case of small retailers, the closer the buyer is to the source of supply, the better. Jobbers recognize that there is a distance beyond which they cannot render efficient service, and manu- facturers, such as the Regal Shoe Company, in order to serve efficiently distant customers, find it neces- sary to open branch warehouses at various centers BUYING 245 with complete wholesaling and dealer service equip- ment. 11. Concentration of purchases. — Should the dealer scatter or concentrate his purchases? There can be no doubt of the value of concentration, for the whole- saler with whom the buyer does a large part of his business is in a better position to cooperate with him than a wholesaler who secures only a small part of the business. Concentration is also necessaiy in order to get the exclusive sale of a line of goods. But it is of even greater importance as a sort of insurance against financial troubles and a guarantee of prompt deliver- ies. If a worthy dealer owes only a few houses, these houses often enter into an agreement to give him fi- nancial assistance if necessary. If he owes many wholesale and manufacturing concerns, it is ahnost an impossibility to effect such an agreement when he needs help. There is also an unwritten law that when there are a great many creditors at the time of fail- ure, it is a prima facie evidence of deliberate fraud. On the other hand, concentration may also lead to an easy-going relation between the salesmen of manu- facturers and wholesalers, and as a result the buyer may not get as good prices as if he were to shop around and occasionally haggle over prices. In any case the buyer must be independent and must know his market and what other wholesalers are offering. Unfortunately the rule of caveat emptor has not en- tirely passed away. While the wholesaler should give the best treatment to his best customers, and gener- 246 RETAIL MERCHANDISING ally does so, there is still a need for good buying by a man who knows the market and the demand, who is independent, yet appreciates the cooperation. 12. Buying interview. — In an interview between a buyer and a salesman or representative there is a dis- tinct advantage to the one who dominates the inter- view. The alert buyer is quick to gain this advan- tage and assume an impersonal attitude in which he can resist pressure and make the salesman prove his statements. Furthermore, a good salesman is quick to perceive a buyer's ability and will treat him ac- cordingly. Courtesy on the part of the buyer is never wasted. A salesman may have nothing of interest to offer one season but the following season he may have a splen- did line, and will help the buyer who has been friendly, even tho refusing to buy. This is especially true in a "seller's market," when retailers have trouble in get- ting goods. The buyer who has treated the salesmen of wholesalers squarely in the past is now getting the favors. The fellow who has always been gruff and unpleasant, who has always taken an unfair advan- tage, is begging in vain for merchandise. Mr. Lew Hahn, Editor of Women s Wear, in an address be- fore an assembly of merchandise managers of the National Retail Dry Goods Association in Septem- ber, 1916, gave this admonition to the buyer: "Be courteous; be fair; be watchful." 13. Selection of merchandise for quality. — It goes without saying that the buyer should be able to judge BUYING 247 qualities; yet the means of learning how to test for quality have been few. Large concerns have chemi- cal laboratories as an adjunct to their buying organi- zation. For the smaller concerns there are in every line many simple tests that can be readily learned and quickly applied. From time to time simple trea- tises on such methods are published. For instance, there is a variety of recent books on textiles descrip- tive of processes of manufacture, trade names, uses and tests for qualities. Many of these are issued by manufacturers. 14. Element of price. — Merchandise of quality will bring its price in spite of so-called shrewdness on the part of the buyer. Manufacturers work on a narrow margin of profit and it is certain that the buyer who haggles and forces down prices beyond a reasonable limit is sure to get inferior merchandise, ^lany merchants realize this. The merchandise man- ager of a large department store remarked at the dry- goods convention mentioned above, "When my buyer of women's ready-to-wear coats finds an attractive one at, say, $18 wholesale, he does not try to beat down the price to $16.50. Instead, he would fre- quently offer the manufacturer a dollar more to put in a better lining or a more attractive collar." 15. Attitude toward discounts. — There are as a rule two sources of profits in retailing — the primary profit from buying and selling, which is called the merchandise profit, and the secondary profit from the cash discounts obtained in excess of the value of the 248 RETAIL MERCHANDISING money used. Discounts will average thru all mer- chandise lines about two per cent for payment within 10 days with net at 30 days. Assuming that the account is paid at the beginning of the ten-day pe- riod, this would give a discount of two per cent for the use of the funds for 30 days. On the basis that the money is worth six per cent per annum, there is a profit of 18 per cent in taking the discount. There- fore it is not surprising that buyers strive to get as big discounts as possible. In some houses there is a rule that buyers should get an average of five per cent discount for cash. They figure on selling their mer- chandise so low as to eliminate any net merchandise profits, depending on the discount profit for all the net profits to the business. In the long run such houses are simply buying discounts. They usually pay a higher price for their merchandise in order that a discount may be thrown in. But it should be the rule, once the desired merchandise has been bought at a fair price, to get as good a cash discount as can be obtained. 16. Accrediting the discounts. — The discount ques- tion brings up another which is even more disputed in the merchandise world. Is the discount a part of the price of the merchandise and so a trading profit, or is it a result of financing the business and so a financial profit? In other words, does the discount go to the credit of the merchandise division of the busi- ness or is it an office profit? Practice varies widely and there are many arguments to support each side BUYING 24^9 of the question. It has always seemed to the writer that, as cash discounts must be taken under present conditions of competition in retaihng, if the retailer is to make a living profit, the buying cost of the mer- chandise is the net price after all discounts have been taken off, and therefore, that the cash discounts be- long to the merchandise division. In that case, the merchandise and discount profits should be combined to show the profit in each line. 17. Eleinent of style, novelty and eacclusiveness. — The class of trade for which one is buying will determine how much importance should be given to style, novelty and exclusiveness. It is always ad- visable to have a few novelties on hand to attract at- tention and brighten up the store. Frequently, too, they can be obtained on consignment. In lines such as oriental rugs, diamonds, furs and gowns, a large percentage of the business in small cities and villages is done thru consignments. Fresh, attractive mer- chandise always offers the strongest possible selling appeal and aids gi-eatly in advertising the store. 18. Stocking new lines. — When it comes to stock- ing of new lines in competition with lines already car- ried, or with specialties and luxuries, the analysis must go further. The buyer should ask himself such ques- tions as the following: Is there a sufficient demand to warrant my stocking this article? Do I now carry in stock similar articles that will answer the purpose or that are even better? Will it fit into the prearranged merchandise plan? Are the manufac- XIX-18 250 RETAIL MERCHANDISING tiirers reliable on quality, satisfaction and deliveries? What quantity can I sell in one month? In six months ? Then may be considered the matter of price, discounts, margin of profit, etc. 19. Pricing the goods. — In the merchandise plan, a mark-u]) is set for each line. This is the amount of gross profit which must be maintained above all losses and reductions. It serves only as a general guide in pricing each lot. Goods are bought to sell within a definite price range. The buyer goes into the mar- ket to buy women's ready-to-wear suits to be sold at $25 and he is expected to make a certain gross profit. Therefore, he knows what the limit of price cost must be and buys accordingly. In some instances, it is well to let the salespeople as- sist in the buying. That is one of the advantages of buying from traveling salesmen. When, for exam- ple, a garment is shown, the salespeople may be asked to examine it and suggest the retail selling price for it, without knowing the cost. If the consensus of opinion indicates that it will bring $25 and the price is low enough to obtain the desired profit, it may well be bought. Perhaps, at $25 it may bring even more than the desired profit. If so, the extra profit will help to balance a loss somewhere else or to serve as a margin of safety. After all is said, goods are worth only what they will bring. Slow-moving goods must be reduced and cleared out because the sooner the loss is taken the less it will be. 20. Profits. — This brings us to the question of BUYING 251 what is a fair profit? Profit may be defined as that amount which a merchant has left after all conceiv- able expenses of doing business have been taken care of, such costs to include even such items of expense as interest on capital invested and reasonable com- pensation to the merchant for the services which he gives the business. Profit is a payment, not only for ability but also for initiative, and for the risks which the merchant takes in doing business. It is profit which measures a merchant's success. The man who has brought the business into being — giving much time to the preparation and to the study of conditions, and on whom rests the responsibility of success, a responsibility which is usually with him at all times — is surely deserving of something better than a manager's salary for his work and worry, his risks and responsibilities. 21. Buyer as a merchant. — It would seem from this discussion that the buyer had enough to do in buying alone. As a matter of fact, in most retail stores, from the smallest to the largest, the buying has to be worked in with the bigger job of merchan- dising. Very large stores expect their buyers to spend their first hour in the morning supervising the arrangement of the stock on the selling floor and also in the reserve stock rooms. Up to eleven o'clock, their time is given to buying. The remainder of the day is spent on the selling floor, assisting salespeople and customers. INIany buyers "keep a book," as sell- ing and making out sales slips is called. No man 252 RETAIL MERCHANDISING can keep in touch with consumers' demands without this personal contact. In addition, if the buyer is to be a real merchant he must collaborate with the ad- vertising man in planning the advertising and display of his lines and, in addition, cooperate with every other person connected with the successful operation of the store. REVIEW Describe some ways in which basic facts for merchandising are obtained. How would you determine the lines of stock to be carried in a retail store? If you had a retail store in a small town how would you be guided in apportioning your investment ? What is the correct method of figuring a turnover? Why does a rapid turnover indicate successful merchandising? How does a buyer keep in touch with the buying market? Show the value and the drawbacks of concentration of pur- chases. Discuss cash discounts. How would you accredit them? CHAPTER VII STOCKKEEPING 1. Necessity for good stockkeeping. — Since great care is taken to obtain the right kind of merchandise to be sold, naturally as much care should be given to handling and keeping track of it; if this second phase is neglected, the whole merchandising plan will fail. Yet it is striking how little serious attention is given to the matter. As is so often the case, the obvious course is not generally followed. The re- tailer, after planning and working to get the right kind of goods at the right price, relaxes his concern regarding the goods themselves and centers his ener- gies on advertising, or becomes engrossed in the mul- titudinous details of running his store. He looks upon the handling and storing of the merchandise as physical labor. As for a systematic means of keep- ing track of it, why all the fuss? The doors are locked at night; and during the daytime, the stuff is there to be sold, and it either sells or stays until a clearance sale is held. So usually the merchandise is left to take care of itself. The money is used to buy merchandise in order that the retailer may sell it again at a profit. The buying expense, whether the buying is done by the 253 254. RETAIL MERCHANDISING proprietor himself, or by a salaried buyer, is not to be neglected. One department store adds seven per cent for direct buying expense and general buying overhead. Another store considers four per cent enough. The average expense is probably about five per cent. Add to this the freight, cartage and re- ceiving-room expenses and a proportionate share of the general overhead, deduct any cash discounts, and you have the net delivered cost of your merchandise. Every dollar's worth of merchandise on the selling floor has cost nearly $1.10, and the moment it gets there it begins to depreciate. In some lines — such as millinery — only two weeks is allowed for selling the goods at the regular price; while in others, the time allowance may be two to six months. When the time allowance expires, the goods are marked down materi- ally and then again, and again, if necessary, until they are sold. This reduction is made to lessen the loss that is certain to accrue if the goods are allowed to remain in the store. And what are the causes for this depreciation? One is improper storing and care of the merchandise. Boxes become broken ; goods be- come soiled, mussed or faded; larger quantities than can be used are allowed to accumulate ; ranges of sizes, colors and styles become irregular; and goods are al- lowed to remain in the stock rooms which should be on show. As a result, sales are lost because goods are out of stock; sometimes employes think they are out of stock because there is no way of telling absolutely what is in stock at the moment. Such a condition of STOCKKEEPING 255 affairs is a great handicap both in sales and records. The explanation of the whole matter lies in the fact that many merchants give their personal attention to watching the cash, while they delegate to some husky young chap — a man of brawn rather than of brains — the task of caring for the merchandise. They fail to realize that people will "pilfer" merchandise who would not "steal" money. They do not understand that, in the purchase of their merchandise, an expense of from five to ten per cent was incurred, which they can get back only by selling at a profit. And they do not know, or they forget, that the merchandise be- gins at once to depreciate rapidly. ]\Ierchants would be better off if they would put the honest young "husky" in charge of their cash, and assume personal responsibihty for their merchandise. 2. Receipt of merchandise. — It does not matter whether the merchandise is received at the back door or at the special entrance to a receiving room — the important thing is that there should be a definite place where it is always received, and where the receipt of it is recorded. In any case, the receiving quarters need be only just large enough to hold the inflow of goods for an hour or so, since there should be no possi- bility of their being delayed in getting to the selling floor, or to the reserve stock room. Suppose, as in the store mentioned earlier, the buying expense is seven per cent, and the freight and cartage $2.00. And that the lot consists of ten dresses, which cost the mer- chant $10 each at wholesale, and that he obtained a 256 RETAIL MERCHANDISING discount of five per cent ten days, net 60 days. Of course the discount is to be taken in this store, and is to be credited to the department. Suppose, also, that the merchant is to get a mark-up of 20 per cent on retail, or 25 per cent on cost. The invoice, with his annotations would read as follows : 10 dresses at $10.00 each $100.00 5 per cent for cash in ten days 5.00 Net to manufacturer $ 95.00 Freight and cartage 2.00 Total cost of dresses $ 9T.00 Direct buying expense and general buying overhead at 7 per cent. . 6.79 Net delivered cost of dresses $103.79 Net delivered cost for each dress 10.38 Mark-up of 20 per cent (25 per cent on cost) 2.60 Retail price per dress 12.98 In actual practice the buyer would now look over the goods, calling into consultation several of his sales- people, and decide what retail price to put on them. Some dresses might show up better than others — there might be all kinds of contingencies to affect the decision as to the final price. But under average con- ditions, the price for each dress would be made $13, or $12.98 in stores where "penny prices" are used. In the receiving room, a ticket will be made out for each garment, showing the lot number, the size, the color and the price at retail. The cost price does not show on the ticket, even in code. Thereafter, the dress is a thirteen-dollar dress, not a ten-dollar one; and there is great importance in this because we are all influenced by names and terms. In some houses, STOCKKEEPING 257 after the invoice is paid and destroyed, there is no way of telling absolutely what any individual article cost. A general idea can be gained from the average mark- up required in a department or line, but the thing that concerns the retailer, after the articles are bought, is what they will sell for. If a buyer does not mark up any article to the usual limit set for that line, the re- ceiving clerk should get the authority of the manage- ment before marking the goods below the figured per cent of mark-up. The value of the goods at inventory time is the only figure of any interest. This may be greater or less than the cost, and the only way to find it is to appraise the merchandise and ascertain what it will bring, or at what price it can be replaced. If the merchandise consists of staples and the market is rising, the mer- chant will appraise it at its current market value and mark up his retail price correspondingly. If, on the other hand, it is depreciating for any reason, or if the market is declining, he must appraise it for what it is worth at the time of inventory. He must also reduce his retail price correspondingly. The profit he makes out of a rising market, he should take without any qualms of conscience, and he must take as philo- sophically any losses from a falling market. In the case of the latter, the sooner the merchant takes his losses the smaller they will be. In this connection it is not recommended that the retailer become a speculator, as many jobbers have done. The function of the retailer is that of a retail 258 RETAIL MERCHANDISING distributor and he is not expected to make a specula- tive profit. The retailer who feels assured of a rising market uses good business judgment if he buys staples for several months' consumption while the price is low. But primarily, he buys for immediate resale only. When he buys more food products than he can sell and stores them to speculate with them on the produce exchange, he is not, at least for the time being, a retailer. 3. Reserve stocks. — There is no fundamental reason for keeping reserve stocks. The buyer should be able to distribute his deliveries in such a way, and to obtain so much merchandise on reorders, that whatever stock is required to run the business can be kept on the sell- ing floor. After all, merchandise is bought to be sold, and the only place to sell it is from the shelves or over the counter. The reserve stock is dead stock, and is, at best, a heavy drag on the business. Because they realize this fact, shrewd merchants are cutting down the space allowed for reserve stocks. One New York department store, which has five large selling floors, until recently devoted a whole floor to the reserve stock. They decided, however, that keeping so much reserve encouraged overbuying and tended to cause slow turnovers. Therefore, at the beginning of the spring season of 1916, they cut down the space for resei-i^e stock to a quarter of what it had been and set a maximum and a minimum re- serve for each line of novelties and for each item of staples. Then they told their buyers that it was up STOCKKEEPING 259 to them to control their stocks and their purchasing so closely that they would be able to serve the trade as well without the large reserve stocks. At the same time they rearranged their selling floors and put in new fixtures that allowed them to carry larger active or "forward" stocks. The plan has resulted in a ma- terial increase in sales because of the presence of a fresher stock on hand at all times, and because of the greater turnover, the greater volume of business and the gi-eater net profits, with no increase in want-slips calling for goods out of stock. This example fur- nishes striking evidence of the advisability of keeping the amount of reserve stocks down to a minimum. During the year 1917, it was a constant problem for the average retailer to get enough staple merchan- dise to supply his needs, partly because of the inability of manufacturers to keep ahead of the demand, and partly because of the delays in freight shipment. The variation of prices according to quantity, as well as many other factors, affects the determination of what shall be the maximum and the minimum stock to carry in each line. The rental values of floor space, the amount of space each line requires, the necessity of displaying different sizes and colors within a limited space, with the result that tliere is little room for any- thing but samples, whether purchases are carried home by the customer or are sent thru the delivery depart- ment, are considerations which affect the decision: first, in regard to whether all tlie stock sliall be kept on the selling floor, or a part shall be held as reserve 260 RETAIL MERCHANDISING stock ; and secondly, regarding the maximum and min- imum to be carried in each line. In any case, however, the reserve stocks should be reduced to the smallest amount consistent with the rendering of good merchandising service. Pass the responsibility for carrying surplus stocks back on the jobber and manufacturer, and let them pass it back to those who collect the raw material. Each, in turn, will reduce his loss from slow-moving stocks. 4. Arrangement of reserve stocks. — The reserve stocks should be grouped according to the general plan of arrangement for the active stock on the selling floors. In a department store the reserve stock of each department is placed by itself, generally in a cage under lock and key. In each department the "head of stock," who is generally also assistant buyer, is in charge of the stock of the department. There may be a stock clerk, also, for the department, but generally work in the stock room is done by the regu- lar clerks of the department during the early morning hours. When goods are transferred from reserve to active stock, a requisition is given the person in charge of all the reserve stocks, and he deducts from his re- serve-stock inventories the amount of the reserve that has been removed. The stock of a department is arranged according to hnes rather than according to manufacturers. For example, all the different brands of talcum powder are grouped together. The reason for this arrange- ment is largely psychological. If the goods of each STOCKKEEPING 261 maker were placed in a group by themselves, the buyer would be more hkely to buy, at various times, all the brands of talcum powder of each prominent maker, largely because of this prominence. No matter how successful a manufacturer may be, he is certain to have occasionally on his list, a poor or slow-selling article. Accordingly, the retailer who buys all the line gets many slow-moving articles; furthermore, he gets too many competing hues. If all the brands of talcum powder, for instance, are grouped together, irrespec- tive of makers, the buyer is more likely to get a repre- sentative assortment of the most desirable and the best-selling goods. 5. Active or ''forward" stock. — The question of the arrangement of the store, as a whole, and of different departments, was taken up in chapter IV under the subject of operation; the arrangement of the goods, from the standpoint of display, will be discussed in chapter VIII under the topics of advertising and dis- play. In this chapter, we are concerned with the prob- lem of handling the physical stock and of keeping track of it. After modern fixtures for each class of stock have been provided, according to the maximum and the minunum amount which it has been decided to keep on the selling floors, it is a simple problem to take care of and keep track of it. The makers of modern store equipment have reduced the work of stockkeeping fully 100 per cent. To keep the active stock in good condition is a simple problem, the suc- cessful solution of which, however, depends largely 263 RETAIL MERCHANDISING on the constant vigilance of the person in charge of each stock. The major work of stockkeeping is done before the store opens in the morning and during the early hours of the day, when shopping is at a minimum. During the day the clerks spend their spare time after each sale in straightening out stocks. In certain lines, like jewelry, each tray is put back before another is brought out. In gown stocks, girls follow the sales clerks to put back each article as soon as the customer is no longer interested in it. Every article must be put in selling condition before it is returned to stock. Any damages must be repaired, and any defects in equipment — for example, breakages in stock boxes — must receive immediate attention. The problem of stockkeeping is simple, since it requires only careful attention; nevertheless, the lazy person or the person who is content with slip -shod conditions had better leave it alone. 6. Importance of keeping track of the stock. — So far, we have been describing methods of handling the stock. Equally important is the need of knowing the quantity of stock on hand in each line, the style, the color, and so on. This knowledge is the only basis for reorders and is therefore fundamental to all the records of the business; it is gained by one of two methods, or by a combination of both. The older method — that of the physical inventory — was, until recently, considered the only satisfactory one. It consists of taking an inventory at regular intervals STOCKKEEPING 263 — general^ annually — of the goods actually on hand, and noting the value of each article, as well as the total amount in each hne and the grand total of the entire stock of merchandise. As previously remarked, goods should be appraised at either the amount they will bring, or at the amount for which they could be replaced. If the stocks are carried at retail, the mark- up should be deducted from the appraised retail value. The result is the appraised cost value. The newer method is the perpetual, or book, inven- tory. When this is used, a record of purchases and sales is kept in order that the difference may be com- puted to show the amount on hand at any given time. Theoretically, there is no reason why this method should not be used just as successfully in the case of merchandise as in the case of funds. And many con- cerns are finding that the practice is as satisfactory as the theory. The Atlantic and Pacific Tea Company requires each store manager to account weekly for each item of stock that he has received, down to a sin- gle egg, just as they require him to account for each penny he receives from the sales. If an egg is broken he must save the shell as a voucher. When the perpetual inventory is in use, the periodi- cal physical inventory — whether weekly, as in some grocery chains, or monthly, as in a cigar chain, or semi-annually, as in a department or general store — is used as a check against the book inventory. ^Ir. Frederick M. Ayres, president of T.. S. Ay res and Company, of Indianapolis, gives the following inter- 264 RETAIL MERCHANDISING esting illustration of the reliance now placed on cumu- lative inventories. Until about six or seven years ago, we made a semi-annual physical inventory of our stocks, at cost, having no method of checking these inventories other than trying to assure our- selves that the inventory itself was made with proper care and thoroness. The various percentages of mark-ups, gross profits, mark- downs, etc., thruout the year were only approximately ar- rived at by the experience gained in the past years. Un- der the system of carrying all our figures at retail, and of depending on a cumulative book inventory, these percentages are now known absolutely and correctly at the end of each month. The most astonishing fact, however, that was disclosed by the cumulative book system, was that errors crept into the taking of a physical inventory, even under the most care- ful scrutiny. We found that where it was necessary to take a stock over again, the difference in the two physical in- ventories taken within a very short time was often very large, showing that under the old system of taking physical inven- tories at cost, it was impossible to be certain that the final figures were correct. The advantage of being so certain of the monthly stock on hand was proved to us two years ago. A fire in the build- ing adjoining our main store destroyed part of our stock in the upper floors of that building and caused a consider- able smoke damage to the stock in our main building. The fire occurred on the second day of January, or just after we had completed taking our semi-annual physical inventory. In this case, all that would have been necessary would have been to wait until these inventories were extended and recapitulated. As this, however, would have taken a period of two weeks or more, during which time we would have been obliged to keep our store closed, the insurance com- panies immediately agreed to settle on the basis of the stocks as shown by our cumulative book inventory without waiting STOCKKEEPING 265 to figure up the physical inventory, so that the actual loss of time was cut down to three days. The discrepancy between the stocks called for by our books under the cumulative system of inventorying and that called for by the physical inventory averages about one per cent every six months. We have therefore set up what we call a Merchandise Depreciation Account, and charge off one-sixth of one per cent per month to this fund. Instead of invoicing our entire establishment on the first days of January and July, as we formerly did, we now in- voice our stocks at such times in the year as are best suited for the individual departments. This procedure has done away with the confusion of invoicing our entire establish- ment semi-annually, during which time the departments are bound to lose their efficiency more or less, but instead allows the different departments to invoice at any time when busi- ness in the department is the slowest. We could not be per- suaded on any account to give up the system of cumulative or book inventorying on the retail basis. 7. Preparing for physical inventory. — There are two general methods of preparing for inventory. The first is to take stock, and have special sales afterward ; the other is to clean out the stock by means of sales first, and then take the inventory. Most merchants favor the latter method, since it makes it possible to reduce all stocks to the minimum before taking inven- tory. Of course, a certain amount of buying is nec- essary because of the fact that it is considered poor pohcy to let the supply of articles for which there is a demand become exhausted. Merchants generally try to anticipate such a possibility and still buy as lightly as possible. 8. Preliminary work. — Within a reasonable num- XIX~19 ^66 RETAIL MERCHANDISING ber of days before the actual work of inventorying is to be begun, the clerks and salespeople are instructed to straighten up their respective sections of the stock. They are expected to examine carefully, sort and count the contents of each case, drawer, bin, carton, or whatever container the goods are stored in. The results of the examination are written upon what is called a "first-count slip," which is placed in the con- tainer with the counted goods. In many stores the number of the container is also noted on the slip. It is customary to use slips printed with blanks that provide space for filling in various details such as quantity, style number, selling price, cost number, and whatever other details may be considered necessary. 9. Inspecting stock. — During stock-taking the goods are actually handled, in order that there may be no misunderstanding in regard to their condition. In many instances it has been found that goods would have depreciated if they had been left as they were originally stored. It is considered advisable to examine every item in the stock, to learn the present value or salableness, and to become acquainted with the stock on hand. When every article in the house bears a plain mark, confusion is avoided; moreover, the marking of the stock means a saving in time during inspection, as well as when the goods are being sold. 10. Numbering. — In order that all the first-count slips may be carefully accounted for, they are consecu- tively numbered in advance. These shps also bear STOCKKEEPING 267 some distinguishing mark of the department to which they belong. 11. Changes after first count. — Inasmuch as the counting, the measuring and all similar operations be- gin before the actual work of the inventory is really under way, it happens that after certain lots have been counted, new goods of that kind will arrive. Some of the items counted may be sold. In each of these cases the respective first-count slip is changed accordingly. 12. Taking stock while business goes on. — The old method of requiring the salespeople and those who have charge of the stock to stay long after hours, straightening out inventories and listing goods carried on the shelves, is now a thing of the past. The modern method, which is^much better, permits the taking of stock during business hours, and while the department is busy selhng. In stores which maintain cumulative book inventories, a staff of people for the physical inventories can work from one department to another continuously. 13. Plan of inventory. — The preparation having been completed, books are provided which are ruled with a sufficient number of columns to accommodate the various headlines under which the stock is to be entered, as lot number, kind of merchandise, sizes, types, and any other heading that may indicate an im- portant feature of record to be kept. Loose-leaf sheets are ordinarily used; these sheets, which are bound and covered, contain the number of pages necessary for the listing of each classification 268 RETAIL MERCHANDISING of goods. In stores where a number of people are engaged in making the inventory, it is considered essential to use a number of these small books in order that entries may be made simultaneously. It is, of course, important to use these books not only in connection with the preliminary work of entering on the sheet while calling off the amounts, but also in connection with the later work of figuring and re- figuring the items. 14. Subdividing the inventory. — It is desirable to separate each individual department's inventory into as many parts as possible, up to the point where further division would mean confusion. This subdi- vision of the inventory makes it possible to catch mis- takes easily. Each page or sheet of the inventory is footed inde- pendently, no matter what system is employed ; totals, or total sheets, are not carried forward in the ordinary way. This plan of keeping separate totals makes it easier to locate mistakes and check whatever part of the work may need checking. REVIEW Why do merchants frequently give less attention to the care of their merchandise than of their cash? Describe the processes which should be followed when mer- chandise is received by the store and marked up for selling. Are reserve stocks desirable, and under what conditions are they necessary? Explain the difference between a periodical and perpetual in- ventory? How do they supplement each other? Describe the method of operating the perpetual inventory and the physical inventory. CHAPTER VIII ADVERTISING AND DISPLAYS 1. What is retail advertising? — Retail advertising includes everything done to create public sentiment favorable to a retail store, to di'aw trade to it, and to make customers satisfied with their purchases. Some merchants say that they do not believe in advertising. If they make this statement honestly, they have a mis- taken idea of what advertising is and of what it does. A retailer who says he does not believe in retail adver- tising refers usually only to newspaper advertising. Newspapers are valuable advertising mediums for re- tail stores, but they are by no means the only ones. Every retail merchant advertises when he puts a sign in front of his store. If he is a good business man he also dresses his show windows attractively, with the idea of attracting trade. Furthermore, he displays his goods on his counters and shelves so as to empha- size the good points of his s^ock. And he often calls attention to goods by means of counter cards, wall signs, display racks and demonstrations. Finally, the good retail store is permeated by an atmosphere of courteous service, which in itself possesses a definite advertising value. Every man who sells a dollar's worth of goods is an advertiser, whether he knows it 269 270 RETAIL MERCHANDISING or not. If he did not believe in advertising, he would tear down his signs, board up his windows, cover up his shelves, make kindling of the store fixtures, and do business with customers thru a hole in the wall. 2. Starting right. — Retail advertising takes many forms. There are many things, both inside and out- side a store, which are really in the nature of adver- tising, and which contribute to the effectiveness of all store publicity. Advertising begins much further back than the writing of copy and the buying of news- paper space. Before any advertising can be really effective, the advertiser must be sure that his store is worthy of the trade he wishes to attract. Unless a store is attractive, unless it is so well-arranged that the visitor can shop in comfort, unless it is well-lighted, well-heated, and well-located, no newspaper adver- tising in its behalf can be successful. 3. Advertising and store service. — Satisfactory physical conditions in a store, however, are not the only things the retailer must provide before he under- takes printed advertising. The store service must be right if trade, attracted by advertising, is to be re- tained. The attitude toward the public must be one of courtesy on the part of every employe. It must be the expression of a genuine spirit of helpfulness — a real desire to serve the community. The right store service will provide a hearty welcome for every store visitor, it will embody a policy of "satisfaction guar- anteed or money refunded," and it will provide ac- commodations, conveniences and comforts for the ADVERTISING AND DISPLAYS 2T1 customers. Finally, good store service will give to customers all the information that they want about the goods they buy. Good salesmanship, in other words, is an exceedingly important factor in the serv- ice of any store. 4. Value of the newspaper. — If the conditions are such as to insure the satisfaction of customers, the retailer has a choice of the ways by which to carry his story to the public. For many retail stores the most important advertising medium is the newspaper. The city dealer who is alive to his opportunities knows what newspaper advertising can do for him. Some merchants in the smaller towns, however, have not yet learned its value. The country merchant sometimes says: "Why should I advertise in the newspaper? Everybody knows me." Everybody maj" know him, but everybody does not know his goods and his serv- ices. His constant effort must be directed toward making the public know more about his store and his goods. Everything he does in a business way adver- tises him and his store, either favorably or unfavor- ably. By his own personal efforts he is constantly trying to induce more people to trade with him and to make his old customers buy more goods. Newspaper advertising enables him to do on a large scale exactly what he is continually doing personally on a small scale. It enables him to tell his trade story to a larger audience than he could possibly reach thru his per- sonal efforts alone. 5. Intermittent and continual advertising. — Some 2T2 RETAIL MERCHANDISING merchants who are convinced of the power of news- paper pubhcity are not convinced of the necessity of advertising continually. Intermittent advertising is better than no advertising at all, but it is not the best kind. The best advertising is that which continues thru good seasons and bad seasons, and which persist- ently keeps the store and its goods before the public. No reader of a newspaper sees all the advertisements in any one issue, and no store that advertises only oc- casionally can hope to have its advertisements come to the attention of all the people it wishes to reach. The store that impresses itself upon the pubHc's con- sciousness in such a way as to insure its permanent success is the one that tells its story continually. The intermittent advertiser runs the risk of having his competitor talk when he is silent. 6. What to advertise. — It is a mistake for a dealer to refrain from advertising until he has a special price offer to make. Advertising a "sale" is the least profit- able kind of advertising. Advertising is best used to bring people into a store to buy regular goods at regu- lar prices, rather than special goods at sales prices. There is no worthy store in which there are not many matters that could be made the subject of interesting advertisements. The service of the store — that is, the special features of this service as compared with other stores — is something a store may advertise. It is essential, however, that the service be presented in an interesting wa}^ The public is not primarily in- terested in anything that does not pertain to its own ADVERTISING AND DISPLAYS 273 welfare and happiness. This fact renders obvious the necessity that a store make the advertisements of its service interesting to the pubhc. 7. Must each advertisement pay for itself? — Some merchants make the mistake of believing that every advertisement must pay for itself. They should not expect this any more than they expect their invest- ment in an attractive store front to pay for itself in increased trade within one day or within one week. Advertising is an investment. It is sales insurance. A traveling salesman calls on many people. He does not make a sale every time he makes a call, but he does not for that reason refrain from making many calls. He knows that the more often he tells his sales story, the more sales he will make. The seed sown on one trip, even if not immediately fruitful, may re- sult in a harvest of orders on future trips. So it is with advertising. The power of advertising is cumu- lative. Its influence may be felt perhaps weeks or even months after its publication. The dealer may be sure that eveiy good advertisement pays. Keep- ing everlastingly at it brings rewards in advertising as in every other effort. 8. Store news. — Retail advertising is store news. This fact is not understood by the retailer who thinks he is advertising when he pays for a standing "card" like this: John Smith Still at the same old stand Good groceries at fair prices Give us a trial 274 RETAIL MERCHANDISING This is not advertising; it is a gift to the publisher of the paper. Much ineffective advertising is due to a lack of knowledge of the true function of news- paper publicity. Some advertisers seem to think that readers seize the local newspaper and turn the pages in an attempt to find out what dealers in town sell groceries. They forget that people read the news- paper because they expect to find news in it, and that anything that is not news stands but a small chance of being read. 9. Change copy often. — If advertising is news it should be treated like any other kind of news. No editor would permit the same local story to appear in the same place in his paper in two, three, six or fifty editions in succession. An editor, however, will often encourage the running of a piece of store news in the same unchanged form from two to fifty consecutive times. The local store news that can be used effect- ively more than once or twice is rare indeed. No really successful retail advertiser permits his copy to appear again and again in endless reiteration of the same story. Each piece of copy ordinarily serves its purpose once, and once only. 10. Put interest into copy. — Advertisements must be interesting if they are to be read. No real news- paper ever published a news item like this: "Some people came to town from Milwaukee yesterday." Such a statement is wholly without interest, because it is general rather than specific. Yet the store news columns frequently carry just as uninteresting state- ADVERTISING AND DISPLAYS 275 ments. For example: "A new line of goods just in. Come and see them." "A shipment of fm*niture just received." These statements are no more inter- esting than the bare statement, "Some people came to town from JMilwaukee yesterday." To be interesting, the news item referred to should read somewhat as follows : Jones and Thomas Smith, former residents of this city, came from Milwaukee Sunday to spend the day with friends." The state- ment must be specific. In like manner, instead of the bare announcement, "A new shipment of furniture has been received," there must be specific statements about the furniture: "New furniture, beautiful, sturdy and inexpensive. JNIahogany tables for the library — massive, strong, and handsome — unusual values at $25. Divans upholstered to match that par- lor rug, with springs that delight the tired body — just what you have been looking for, and only $60." 11. Individuality in copy and display. — It is true that the copy in the advertisement must be interesting if it is to be read. But what if the advertisement is not even noticed? What is there about the adver- tisement to attract the attention of the casual reader? Individuality in the display, "something different" in the copy and the layout of the advertisement, help to secure the necessary attention. Even if one of Lord and Taylor's advertisements should not bear the firm's name many would still identify it because of the type display, the border and the general atmosphere of the copy. The large department stores of the country 276 RETAIL MERCHANDISING have come to realize the vakie of creating an at- mosphere of individuahty around their advertising. They use the same border, type display, arrangement and stjde in their copy day after day until finally they have succeeded in creating individuality for their ad- vertising and consequently for their store. John Wanamaker's, B. Altman's and Lord & Taylor's advertising are excellent examples of individuality in both copy and display. And the same results can be obtained by the small general store, no matter what the size of the community may be. 12. Letters and circulars. — Altho newspapers are the most valuable and the most widely used advertis- ing mediums for retail stores, in smaller places there are often no local papers, and in larger ones some stores cannot use them advantageously, because they are situated so far away from the central shopping district that advertising would be unprofitable. The store that cannot make effective use of newspaper ad- vertising is by no means cut off from all advertising opportunities. Furthermore, stores which use the newspapers frequently wish to supplement newspaper advertising with other kinds of publicity. There are many mediums which can be used in such circum- stances. Among these mediums first place should be given to letters from the storekeeper to his old customers and to possible customers whose trade he wishes to secure. Circular letters or personal letters carefully prepared and containing a real sales story, sent at ADVERTISING AND DISPLAYS 277 frequent intervals, are among the most effective kinds of publicity the retail merchandiser can use. Attrac- tively printed circulars, mailed to a carefully selected list of names, serve often the same purposes. Circu- lars distributed by hand and left on doorsteps are sel- dom effective. To accomplish their purpose circulars must usually have back of them the prestige of the mails. 13. Store papers. — Many country stores that are unable to use newspapers, publish store papers of their own and consider the use of them profitable. These store papers are small periodicals, published at weekly or other intervals, which contain items of in- terest to residents of the neighborhood, and which also carry well-displayed and well-written advertisements of the goods to be found in the store. There are also the small catalogs and pamphlets, which are similar to the store papers. Some retailers send each week to their mailing list a small folder that describes some particular line of goods or service peculiar to their respective stores. Such a folder takes the place of a large and expensive catalog, which is too costly for the average retailer. 14. Other mediums. — There are, in addition to the advertising mediums already described, many others available for the small advertiser. The telephone provides an admirable opportunity for the live retailer to tell his story personally to a large number of pos- sible customers. Street-car cards are also used ad- vantageously by the city neighborhood store situated 278 RETAIL MERCHANDISING on a car line. In the smaller towns, cards in the in- terurban cars serve a useful purpose if they are care- fully prepared and frequently changed. 15. Use of dealer helps. — Almost every retailer in the United States receives countless numbers of so- called manufacturers' aids or dealer helps. ]Many dealers can testify as to their inability to use all the helps they receive. Then, too, some of this material is so poor in quality that it is unfit for display in the average dealer's window or store. When this is the case, the retailer should notify those manufactur- ers or jobbers who are sending unsatisfactory helps. By doing so he will assist in eliminating the tremen- dous waste in this kind of advertising material. On the other hand, there are many manufacturers' and jobbers' displays that deserve to be intelhgently used by most retailers. The retailer who receives them should be glad of the opportunity thus afforded him to link his own advertising campaign with that of the manufacturer. He is saved the expense of pre- paring his own window display. Good displays can always be used to advantage. Retail advertising should express the individuality of the advertiser and of his store. If that individu- ality is of the sort to attract trade, intelligent adver- tising is certain to bring results. 16. Disjjlay advertising. — It is generally recog- nized that the average customer is influenced in mak- ing purchases by advertising or by seeing goods dis- played in windows, show cases or on a counter. Most ADVERTISING AND DISPLAYS 279 retailers pride themselves on the fact that they do not solicit sales thru personal salesmanship, house-to-house canvassing, or thru direct appeal to the passer-by. The day of beckoning a person to enter a store, or of urging the person once in the store to buy, is gone. Therefore it is apparent that the selling success of the store depends largely on advertising and on displays. This latter term refers specifically to the display of merchandise both inside the store and in the windows. Hence the term, display advertising. 17. Guiding imnciples that govern interior dis- plays. — The first principle to observe in arranging displaj^s is that goods should be displayed within the natural range of vision of a person passing thru the store. The customer cannot see goods that are more than seven or eight feet above the floor, without cran- ing his neck, except at long range. He is not likely to see them at all when the goods are on the floor or only two or three feet above it. Most people can con- centrate on only a few objects at one time. Since this is true, it is desirable to display only a few allied ob- jects in any one group. Everything in the display should be harmonious — the assortment of goods, colors, sizes, utility, price, range and the like. Jarring effects of anj^ kind are undesirable. The whole display should be arranged so as to pre- sent a complete selling campaign. It should so at- tract the attention that the passer-by will stop and look; it should create enough desire to lead him to in- 280 RETAIL MERCHANDISING quire concerning it, and it should, if possible, con- vince the customer that he wants the merchandise. The salesperson may then stimulate the customer to action, by asking permission to show the customer the goods. An entire sales appeal is in this way con- summated. Displays should be changed frequently — the ar- rangement of the store as a whole, as well as the display of goods in each part of it. People get tired of seeing the same things year in and j^ear out. Real- izing this fact, shrewd merchants spend considerable sums in moving things about occasionally and in changing the arrangement of the store equipment. A customer is sometimes annoyed to find a department moved to some other part of the building, but the ad- vantage of a change more than counterbalances this occasional resentment. 18. Aids to interior displays. — Reference has al- ready been made in the chapter on Buying to the necessity of correct arrangement of departments or lines. This is really a form of interior display, for often it is the merchandise itself that is the attracting force. Therefore, good display work must begin with effective arrangement of the store as a whole, includ- ing the use of modern fixtures and other equipment for displaj'^ing the merchandise. Next comes the use of display racks and forms and of signs and counter cards. It is only within recent years that dealers have learned the superior value of "selling" signs as compared with "price" signs; yet ADVERTISING AND DISPLAYS 281 it costs little when making a sign, to add a bit of sell- ing argument — as, for instance, the reason for the special price. Finally, there are the general interior displays. It is surprising to see the number of blank and unat- tractive walls and unsightly corners in most stores. There are enormous possibilities for displays in ele- vators, on stairways opposite elevator entrances, and at such other vantage points as balconies and stair landings. A store can as easily be a thing of beauty thruout all its selling departments as any private home. Rugs, lamps, pictures and the like need not all be in their respective sections. In fact, they sell better when displayed individually with other things than when grouped together in departments. Cus- tomers travel long distances to see the Easter decora- tions at INIarshall Field's and Wanamaker's; and the things they admire are the things that are for sale. Therefore, the interior displays serve a double pur- pose, in that they produce an impression on the public that results in more sales, and also help to bring people to the store. When they are there, the display often makes them customers. 19. Window displays. — Everything that has been said regarding interior displays applies equally well to window displays. To build window displays is much easier than to arrange interior displays, because the space is designed for display and nothing inter- feres with the most effective grouping of the goods. Light, background and floors lend themselves readily XIX-20 282 RETAIL MERCHANDISING to window displays ; while aisles, counters, pillars and the necessity for allowing space for both customers and clerks, interfere with effective interior displays. Manufacturers and jobbers are so anxious to cooper- ate in window-trimming that much, if not all, of the equipment can be obtained ready-made and gratis. It is easy to study the display methods of most suc- cessful stores. It is not so easy to find out the buying methods or the accounting methods of a merchant, for he frequently considers these a part of his stock in trade. But his display methods he cannot hide. The more they are studied the better he likes it, because, like his advertising proper, they are only successful when they attract enough attention and arouse enough interest to get the customer into the store. The more they are talked about, the more nearly will they ac- complish this purpose, providing they create the de- sired impression. REVIEW In its most general sense, what would you include under the advertising of a retail store? What are the prerequisites of successful printed advertising? Describe the best methods for retail stores to use in news- paper advertising and the mistakes which they should avoid. How may direct advertising be effectively used? What are store papers ? Discuss dealers' helps and their usefulness to the retailer. State the most important considerations in arranging interior displays. What advantages have window displays over interior displays? CHAPTER IX DEPARTMENT STORE AND SPECIALTY SHOP 1. Point of view. — The general discussion of retail methods in the preceding eight chapters has been mainly from the point of view of the general store, as it seemed the best type for the purpose. In the remaining chapters it is intended to take up each type of store and survey it as a unit so that the reader may get a definite idea of how each type is organized and operated. It will readily be seen that the method must be dependent on the type of store and the condi- tions under which it is operated, and that methods suit- able for one type are not adapted to another. 2. Development of the department store. — The general store developed as the country was settled. Directly after the Civil War, as prosperity returned, the department store arose. It is only an enlarged general store, departmentized. Therefore, in our discussion of department stores the modifications from the methods of the general store which is fully departmentized are few. What differences there are result from the increased size. The general store seldom does a business over $100,000 annually tho there are a few, such as Garver Brothers in Strassburg, Ohio, which do a business of half a million. When the store gets larger, the simple de- 283 284 RETAIL MERCHANDISING partmentization, applying only to the arrangement of stocks and segi-egation of accounts is insufficient, and each department must be run as a separate store with a department manager. 3. Selling field and policies. — Consequently, the method of analyzing the selling field and the competi- tion, and of determining the merchandising policies remains the same for the department store. In fact some of the best work of this sort has been done by such department stores as William Filene's Sons Com- pany of Boston, and various others scattered thru- out the United States. In other cases equally good work has been done for department stores by adver- tising agencies, as a basis for planning their adver- tising campaigns. 4. Organization and financing of department stores. — The discussion of organization and the organization chart given in Chapter III will apply equally as well to a small department store, and with further depart- mentization and subdivision of executive functions, to a department store of any size. Nor need any further comment be added upon the financing of the store because the increased size simply intensifies the problem. There are also compensat- ing advantages from size; for instance, a big store becomes so generally known thruout the country as to make it possible to sell its commercial paper in any part of the country. Manufacturers are so anx- ious to sell large stores that they will sometimes offer as an inducement greater discounts or longer terms DEPARTMENT AND SPECIALTY STORES 285 and this makes the financing of the store less diffi- cult. At the same time, the large department stores are better equipped to handle collections from their customers, and are more independent in this matter than the average general or specialty store. This, of course, facilitates the use to which their working capi- tal can be put because it is kept moving all the time. 5. Operating the department store. — Size has a disadvantage in operating the department store for it is difficult to get the new recruit to do things the way the proprietor would like to have them done. The spirit of the organization has to travel so far from the general manager to the salespersons that it is weakened by the time it reaches them, and they do not feel its importance. Nor could it be expected, even if the general manager took time personally to train an eight-dollar salesgirl, that she could appre- ciate, much less follow, the ideals and policies devel- oped by the eight-hundred-dollar-a-week manager. As a result it takes all the ingenuity of the manager with his big financial, merchandising and advertising power to prevent the salesgirl from driving away the business which he has taken so much pains to bring in. But conditions of this sort are improving, thanks to the elaborate systems for employment and training. A great many interesting problems arise in con- nection with the operation of the department store. One is that of speeding up the service so as to com- plete each sale more promptly. It is a hard problem to solve because of the elaborate system necessary to 286 RETAIL MERCHANDISING do this. Some concerns have adopted specialty-shop methods, such as allowing certain clerks in certain departments to deliver charged goods without wait- ing to have the charge authorized by the credit de- partment. In another store an enlarged price ticket is used, a part of which serves also as a sales slip so that no sales sHp is necessary. More and more de- partment stores are giving up the unit operations in which several persons handle the sale, including both merchandise, sales slip and money, and are requiring one or two people to do it all, in order to speed up the service to the customer. 6. Delivery system, — There is another serious prob- lem in the delivery system. The demands made upon it both as to the ratio of "sent" to "taken" articles and the increased cost of each delivery are making the expense a greater burden each year. It seems probable that some system of direct charge for the delivery of each package will be introduced. From an operating standpoint, the delivery prob- lem is becoming easier with the improvements in mo- tor trucks and automatic carriers in the store itself. Where accurate cost figures are kept by stores, the delivery expense varies from five to seven cents for each package. The method of handling packages within the store has become easier with the installa- tion of modern equipment such as gravity conveyers, belt conveyers, spiral shutes, to say nothing of freight elevators capable of carrying a ten-ton truck to the top floor where it may be loaded with a suite of furni- DEPARTMENT AND SPECIALTY STORES 287 ture without bringing each article to the delivery room in the basement. 7. Mail-order departments. — The function of the mail-order department is to act as agent of the cus- tomer. Therefore, each order as it is received is as- signed to a mail-order shopper, who goes to the coun- ters just as customers do and buys the goods which have been ordered by mail. The goods are sent thru the regular delivery department. Catalogs and special letters are used to attract business. Sometimes a special stock of merchandise is used for mail-order purposes. The object in doing this is to guarantee a supply of the goods offered in the catalog. If these goods were also offered over the counter and proved especially attractive, every article might be bought up before the first mail order came in. In fact, this has happened so frequently that most department stores maintain special stocks in lines such as women's wear, in which style plays so important a part in the selection that a substitution is impossible. 8. Merchandise office. — Theoretically, in a depart- ment store each buyer should be able to merchandise his own department; but few buyers are also mer- chants in the broad sense of the word. Buyers are generally opportunist, while a merchant must be con- structive. Merchandising offices are created because department stores contain too many buyers and too few merchants. The merchandising office is the safety valve of the 288 RETAIL MERCHANDISING modern department store. As such stores are organ- ized today it is an economic necessity. When prop- erly organized and intelhgently administered it is the greatest determining factor in the success or failure of the business. 9. Advertismg practice. — Concurrently with the development of the department store, came the rise of advertising. The proprietor himself usually did the merchandising but he had neither the time nor the ability to look after the advertising. Consequently, he appointed an advertising manager as one of his first assistants, on an equal basis with the superin- tendent and the records manager. With the recent development of the merchandise manager as one of the first officials, there has developed in many stores a point of conflict between the merchandising and advertising functions. The advertising is really only another form of selling. It makes a general appeal while the over-the-counter selling is personal. Therefore, if the merchandise manager is to have charge of both the buying and selling function, it is logical that he should have supervision of the ad- vertising. That is undoubtedly the tendency in de- partment-store organization at the present time, and the same conditions apply to the supervision of in- terior and window displays, since the latter is only another form of the selling appeal which has grown up under conditions similar to those related to the advertising. Unfortunately, or perhaps fortunately, the strongest personalities upset ideal methods of DEPARTMENT AND SPECIALTY STORES 289 organization, so far as domination of the establish- ment and its policies is concerned. There are cases, for instance, in very successful stores, where the man having the title of advertising manager is the real merchandiser and the man having the title of mer- chandising manager is subordinated to the former. 10. One-line or specialty stores. — The store that carries only one line is called by several names — most commonly the specialty shop, but sometimes the one- line or the single-line store. It is a store that special- izes in a single line, or in two or three very closely allied lines, such as shoes and rubbers, hosiery and gloves, and so on. One-line stores may be neighbor- hood or community stores, such as a village jeweliy store or a small retail jew^elry store in a residential section of a city. They cater to the needs of the aver- age resident in the district in which they are located. Sometimes they cater to passers-by, as for instance, the haberdashery in the Grand Central Station in New York City or the one on Wall Street in the same city. Or these stores may cater to a select group within a city, as an exclusive millinery store on Fifth Avenue in New York City or on Michigan Avenue in Chicago. But there is little difference between these types ; eacli is a single-line store catering to only one group or class of people. AVe may therefore safely consider them as comprising a single group. 11. Analysis of territory and competition. — It is even more necessary to analyze the territory than in the case of a general or (lej)artment store, because the 290 RETAIL MERCHANDISING appeal is to one class of trade only and the risk of fail- ure is greater. In a village store the proprietor can do this without much effort because the radius of op- eration is small and a large percentage of the people are already known to him. The method described in a previous chapter is readily adaptable to the purpose ; and the same is true of his study of the competition. In the city store, the problem is a bigger one, as is evidenced by the fact that so many specialty shops fail. Persons guess there is, for example, enough trade to warrant a high-class millinery shop, only to find when the business fails there is not. Gener- ally such stores are organized by former employes of other specialty shops who are able to take part of their trade with them to the new store. Failures re- sult from an overestimate of the amount of trade they can take from their old connection or of the addi- tional new business which they can secure. With failure impending it is necessary to make the analysis. The total trading population within the price ranges decided upon should be tabulated, and the competi- tion taken into consideration in order to show the pos- sible business the new store can depend upon. One of the most serious problems of the specialty shop is that of location. It has been frequently proven that one side of Broadway or of Fifth Ave- nue in New York is very much better than the other. This is the result of several factors. In the case of Broadway, when walking either north or south, there are fewer obstructions to continuous travel on the DEPARTMENT AND SPECIALTY STORES 291 west side below Fortieth Street, tho the Times Build- ing obstructs continuous travel north of Forty-second Street on this side. Crossing the street is difficult at the busy Forty-second Street corner and as a result many people walking north,- naturally cross over around Fortieth or Forty-first Street, to the east side of the street, and continue up on that side. For this reason the most interesting shops are on the west side below Fortieth Street and on the east side above that. They tend to perpetuate the difference in re- tail location values. On the prosperous side of the street the buildings are better than on the other, tho this is an effect rather than a cause. At present it is helping to perpetuate the differences. One of the first policies to be settled concerns the class of trade that a firm shall cultivate. A certain Detroit clothier, in analyzing his territory, figured that the best men's-wear trade came from residents of the northern part of the city in the section along Woodward Avenue. He decided, therefore, to cater to this section. He analyzed it carefully in order to ascertain the clothing requirements of the people. Then he studied the retail section and decided that the west side of Woodward Avenue about a block north of the center of the retail section would be the best point to locate his store. 12. Marketing policies. — The specialty store suc- ceeds because of certain well-defined policies more than for any other reason. The success of the store service is based on convenience of location, complete 292 RETAIL MERCHANDISING stocks, personal service, frequent turnovers and low expenses ; while the method of operation is based on a limited trade, limited advertising, buying in small quantities and frequently, on exclusiveness or the abil- ity to offer novelties. 13. Organization and financing. — The specialty store is usually a one-man affair and consequently is generally organized as a single proprietorship. It has a better credit standing than a corporation, and if to this is added well-known ability on the part of the proprietor, the store can get any needed credit on the basis of a small capitalization. Almost any jobber will back an honest young store clerk in the financing of a specialty store if he believes the location and gen- eral conditions are satisfactory and the young man capable of running the store. 14. Buying for a specialty store. — It is assumed that in organizing the store a merchandise plan or operating budget has been developed after the fashion previously described. Specialty shops offer a wider variety, especially of novelties, in the line carried, than the corresponding general or department store. For this reason the main problem in buying is to maintain such a standard. The specialty shop proprietor must spend proportionately more of his time in buying be- cause of this, and likewise because of the fewer offer- ings that come to him because of his limited buying capacity. Buying is undoubtedly the biggest prob- lem in the specialty shop. 15. Stockkeeping. — As a rule no reserve stocks are DEPARTMENT AND SPECIALTY STORES i293 carried. Because of the difficulty of his buying prob- lem the proprietor spends all his time except during the very busy hours, from eleven to one and from two to four or five o'clock, working over his stock and hunting up new lines. Everyone employed in the store knows every bit of stock in the place. Per- petual inventories are nearly always kept in the man- ner described in the preceding chapter, and usually complete records are kept of each customer's pur- chases in order to get an idea of what they really desire. 16. Accounting. — There are more sources of help in accounting for single-line stores than for any other type. One of the most notable contributors is the Harvard System of Accounts for Shoe Retailers. In attempting to gather data on the retail shoe industry it was found necessary to get retailers to adopt a uni- form system of accounts because the data collected from different stores did not represent the same thing. There was no uniform classification of the elements of expense. It was finally decided that this work should be done by a joint committee composed of accountants of national reputation and a few of the most prom- inent merchants in Boston and vicinity. The result, in the form of a booklet containing the necessary ruled forms, was made available for retailers early in the year of 1912. Similar systems have been worked out by them for other lines and may be obtained at a nominal price by addressing Harvard University, Cambridge, Mass. 294 RETAIL MERCHANDISING A number of well-known manufacturers have is- sued much valuable literature on the subject of retail accounting. The National Cash Register Company of Dayton, Ohio, has worked out systems based on the use of their machines, for practically every kind of retail store. This information is freely given to anyone interested, and a number of successful ac- counting systems have been based upon it. The firm of Robert H. Ingersoll and Brother of New York City has given to the trade a "System of Retail Ac- counting for Jewelers," which has also been put to good use. Hart, Schaffner and Marx of Chicago also have an excellent system for the retail clothier. 17. Store service. — The keynote of the specialty store is personal service. As a rule, the clerks know all their regular customers, their likes and dislikes, as well as their buying ability. Clerks know at once what to show each customer and frequently they make it a practice to notify them when new goods come in. Clerks have authority to deliver goods to charge cus- tomers without the authorization of the proprietor or credit man. Inspectors and wrapping clerks are dis- pensed with and the clerk does not leave the customer until the last detail of the purchase is finished and the customer is bowed out of the store. In every way the attempt is made to please the customer thru prompt, painstaking and personal service. 18. Sales force. — These stores call for a higher grade of salesperson than do the department stores. The clerk is a real salesperson, while in the depart- DEPARTMENT AND SPECIALTY STORES 295 ment store, the sale is generally influenced more by the advertising and display of the goods before the customer comes in. In the highest class of specialty store, conmiission systems of payment are customary. In village stores, even in good ones, it must be ac- knowledged that salaries are miserably low. The pro- prietor takes advantage of the few opportunities which young girls in villages have to get employment by giving as low a salary as the slight competition with other stores may make necessary. Training is given, if at all, by the proprietor or by older clerks, and a selling ability is more likely to be inherent than the result of training. 19. Store building and fixtures. — The modern spe- cialty shop, whether, for example, it caters to the shoe trade of a small city or that on Tremont Street in Boston, is a model of its kind. Department stores realize this asset on the part of specialty shops and frequently build little shops within their stores, such as the Burlington Arcade or London Shop in Wana- maker's New York store. There can be no doubt that such surroundings, provided they are appropriate to the class of trade and the community, aid in mak- ing sales. 20. Marh-up, turnover and prices. — INIost specialty shops must meet a certain competition from depart- ment and chain stores. The corner grocery is a spe- cialty shop, and must compete in price, quality or serv- ice with the cut-rate chain store across the street. Owing to the wide variety of conditions under which 296 RETAIL MERCHANDISING specialty stores operate, from the corner grocery in the tenement district to the exclusive gown shop on Fifth Avenue in New York City, no special applica- tions of the principles of pricing, already discussed, can be given. The more important point is the turn- over. Yet again that is relative. The corner drug- store must take care of the needs in its district. If a customer asks for Kolynos Tooth Paste and it proves to be out of stock at the moment, the customer will go to the next nearest drug store for it. After a few such experiences, the customer will conclude that the store is poorly managed and transfer his trade to an- other store. The principles underlying a determina- tion of turnover apply as well to the specialty shop as to any other type of retail store. 21. Advertising. — The buying public to w^hich the store caters determines the advertising mediums. In the case of a village clothier the medium is naturally the village weekly. In the case of the neighborhood haberdashery in a large city, unless there is a distinctly local newspaper, the publicity is limited to handbills, signs and other forms of direct-by-mail advertising. The exclusive shop in the shopping center can well use the exclusive magazines of more or less national cir- culation, together with occasional space in the news- papers, which go to the homes in which the store ap- peals for trade. The greater part of the publicity of the exclusive specialty shop must be thru special an- nouncements, displays, special booklets. Sometimes personal solicitation is used, especially by neighbor- DEPARTMENT AND SPECIALTY STORES 297 hood shops. The inability to use the usual means of advertising saves a considerable outlay. Department stores frequently spend from two per cent to five per cent for advertising while specialty shops frequently succeed without spending a penny. Generally, how- ever, this saving is compensated for in other ways, so that the net result is neither an advantage nor a dis- advantage. REVIEW Why must the preliminary analysis of the territory and the competition be more detailed for a one-line store than for a gen.- eral store? What are the permanent characteristics of the marketing, buy- ing, stockkeeping service and advertising policies of the one-line store ? Describe the growth of the department store. What are the difficulties of financing, operation, deliveries and adjustments? How are mail orders handled? What is the work of the merchandise manager in a depart- ment store, and how is it related to that of the advertising man- ager ? XIX— idl CHAPTER X THE CHAIN STORE 1. Analysis of the selling field. — The thoroness with which the United Cigar Stores Company and similar chain organizations make their analysis of the selling field and the competition has been quoted in business literature and is often held up as a model, as it really is. They follow all the methods described in the chapter on Analysis of the Selling Field and then add special methods of many kinds of which only a few can be noted in the limited space of this chapter. For example, when a store in the Great Atlantic and Pacific Tea Company system gets to the point of do- ing a business of $600 a week the traveling superin- tendent is expected to find a suitable location in the vicinity for another store. In another grocery chain system, possible locations are discovered thru a check on deliveries. When the amount in some section a few blocks away from a store, reaches a hundred dol- lars a week, the section is looked upon as a likely one for another store. It is analyzed and, if it ap- pears to have possibilities of a business of $200 weekly within three months of its opening, a new store is opened, provided other conditions are favorable. If it does not reach the quota set in three months it is closed and the stock and fixtures are transferred to 298 THE CHAIN STORE some other new store which is to be tried out in the same way. The kind of trade which the new store may find available is quite as important as the volume. In the location of their shoe stores, the traveling supervisors of the Hanan Shoe Company keep in mind that their stores must cater to people who ^y'\\\ pay from $7.00 to $10.00 a pair for shoes. Therefore in checking up the passers-by they count only those who seem to be probable purchasers of their quality of shoes. Simi- larly, grocery chains check nationalities because of the effect of national traits on food purchases. The United Cigar Stores began with fundamental statis- tics. The average annual per capita consumption of cigars in San Francisco was estimated at $4.06, while in ^lilwaukee it is only $.22. It is obvious in which of these two cities they would first locate stores. The modern chain store analyzes the territory of each store in every other possible way. As it grows it acquires experience and establishes standard practice. It re- duces the whole analysis to a regular system and is able to select cities, neighborhood and corners with speed and precision. 2. Merchandising policies. — One of the directors of the United Cigar Stores Company recently attributed the phenomenal growth of their chain to their success in building up the service end of their business. Cour- teous, well-trained clerks, who thank each customer — no matter how small the purchase — are fflr more ef- fective in building up a chain than differences in price. 300 RETAIL MERCHANDISING In building a chain-store organization the pohcy on service is one of the first to settle definitely. And once it is decided upon, it should be stated so explic- itly that no employe can have an excuse for forgetting it. The United Cigar Stores Company and similar organizations prepare booklets which explain the store's policies on service and other topics, describe the store system and state the store rules. The following are some of the topics included in a store manual is- sued for use in the Liggett-Riker-Hegeman Drug Stores : Rules in regard to promotion ; the handling of complaints; the importance of personal neatness and cleanliness ; telephone service ; how to care for the stock; how to get up window displays; the value of courtesy; the necessity for prompt service; no trans- action is complete until the customer is satisfied; the future prospects of the employe. The management of the chain-store organization must decide each question of policy in its relation to others. Recently a number of grocery chains have discontinued delivery service, believing that their par- ticular trade would prefer to buy their groceries a bit lower in price and carry them home. In another chain in a different line similar cuts in service policies were made in order to reduce the overhead expense and make it possible to reduce prices. This chain claims to have cut two per cent from the expense of doing business and to have reduced prices accord- ingly. Whether such a policy will prove a wise one in the lono^ run is doubtful. THE CHAIN STORE 301 3. Partnership type of organization. — The great problem in chain-store organization is to get the same intelHgent effort from store managers and clerks that can be obtained in an independent store of the same type which caters to the same trade. Mr. J. C. Penney, who organized the Penney Department Stores thruout the ^Middle West, decided that the way to accomplish this was thru a form of partner- ship between the individual store manager and the central organization. The plan is an ingenious combination of the part- nership and the corporation. The parent company issues both common and preferred stock. The com- mon stock, of which there is an issue of $1,000,000, is owned entirely by ^Ir. Penney and no dividends are paid on it. The preferred stock, of which $15,000,000 is authorized, is divided up into series. Each series is authorized to the extent of $15,000, and represents the total authorized capitalization on any one store. Every series is handled independently so that the profits of each store may be kept separate from every other store, and the dividends on the stock represent- ing each store may be exactly the net earnings. Thus one store may earn and pay in dividends twice as much as a neighboring store. 4. Getting the partners. — The plan works simply. Whenever in any store a bright young clerk has saved up a few hundred dollars and gives promise of success as a store manager, the manager of the store and the clerk agree on the location for a new store and re- RETAIL MERCHANDISING fer the matter to the central organization in New York. If conditions seem to promise success, the new store is opened. Mr. Penney invests one-third of the amount necessary, the local manager and the new man who joined in the recommendation each one-third. In case the local manager or the new man cannot raise their full quota Mr. Penney loans it to them and takes their note. A new series of preferred stock is then started by investing the amount decided upon as necessary for financing the store in the pre- ferred stock of the parent or central organization. The latter does all the financing of the new store from the fund received from the sale of the preferred stock sold and issued to the new store. 5. Organization and operation. — The organization is simple. Each store manager has full authority to run his own store. He writes his own advertising and hires and trains his own clerks. The central organ- ization does the buying, and supplies the store man- ager with lists of merchandise available and from which he can choose as he pleases. All purchases are made of the central organization which has its head- quarters in New York. Shipments are made direct to the individual stores from manufacturers. No sal- aries are paid to the half dozen or so buyers at the central office because they get their income from part ownership in stores. Store managers receive small salaries, never over $100 a month, but thru ownership in their own and other stores, some of them make as high as $20,000 a year. THE CHAIN STORE 303 There are many interesting points in connection with the organization. Every employe must be a clean-cut, earnest young chap who has the makings of a store manager and who has the ambition and the willingness to work. Each one must have served sev- eral years of apprenticeship and must have saved up several hundred dollars before he is allowed to open a store. 6. Advantages of the type. — Under the plan there is an enormous saving in central-organization over- head as compared with the usual chain-store system. The buying expense is almost nil and the supervision is so limited that a great saving results there also. In chain stores generally the central-office overhead runs from four per cent to eight per cent whereas under this plan it is said to be less than one per cent. The saving in buying expense is, however, largely a book- keeping saving for the buyers are paid from individ- ual store profits rather than in salaries from the cen- tral organization which, in turn, would come from charges against the stores. The saving in supervi- sion expense is more real, for the stores can be run successfully without district supervisors and traveling auditors. Mr. Penney is said to have had only one case of inefficiency and no cases of dishonesty among his store managers during the fourteen years in which he has been in business. Of course, if he found it necessary to sell stock to the public or to use banking credit to any great extent, it would be necessary to have more centralized supervision of both operation 304 RETAIL MERCHANDISING and finances, but as he has always found it possible to finance each new store himself out of profits of stores ah-eady running, that contingency has not ar- rived. The power of the partnership idea is the real force back of the organization and, as a result, INIr. Penney has been able to secure the right kind of material for store managers, to train the men and to give them such profits that they become the most enthusiastic cooperators, while at the same time each man runs his own store. Thus, he has been able to combine all the advantages of individual store ownership and operation with a considerable number of the advan- tages of the chain-store system. 7. Corporation type of chain store. — In the more common type of chain store the initiative comes from the central organization. This is the true chain, whereas the Penney type is in reality a form of co- operative buying and financing plan. The success of central organization is largely due to the fact that at headquarters experts able to work out the most efficient method are engaged, and little is left to the initiative of the individual store manager and still less to the store employes. Buying, adver- tising, training the sales force and the like are done at headquarters. The systems are devised there and accounts are kept there. Managers and employes at the stores devote their efforts to following the rules laid down in regard to stockkeeping and selling. High-salaried men at headquarters do the construe- THE CHAIN STORE 305 with a er ex- be the tn and I func- ng ap- f busi- ng the rlance. Drug charts ut the ' in the I'S pri- tment, •rofes- isiness IS and chain- )tains, build- irove- Jnited ipany n-se is 1 then rents to the cigar store company any section it desires ORGANIZATION CHART OF THE LIGGETT-RIKER-HEGEMAN DRUGSTORES OFFICE ORGANIZ ,.Lo,S.. .„v„U ELD ORGANIZATION THE CHAIN STORE 305 tive thinking. It is thus possible to operate with a lower grade of store employes and at a lower ex- pense for salaries in each store than would be the case otherwise. Policies can be more uniform and control more certain in the corporation type. 8. General jjlan of organization. — The usual func- tions of buying, selling, accounting and financing ap- pear in the chain store as in every other type of busi- ness. The distribution of these functions amoner the various executive officers may be obtained, at a glance, from the chart of the Liggett-Riker-Hegeman Drug Stores. While no two chain-store organization charts are identical, the general plan is always about the same. The only peculiarity in this chart is found in the work called "Ethical Supervision." This refers pri- marily to the prescription-compounding department, but includes anything relating to the medical profes- sion. One of its purposes is to build up the business thru the cultivation of the good-will of physicians and dentists. 9. Real estate department. — In a number of chain- store organizations a subsidiary company obtains, owns or rents and cares for the store sites and build- ings. The United ^Merchants' Realty and Improve- ment Company is such a subsidiary of the United Cigar Stores Company. The real estate company buys or rents entire buildings when such a course is necessary in order to get a desired location, and then rents to the cigar store company any section it desires 306 RETAIL MERCHANDISING and to other tenants whatever remains. Theoret- ically, the work can be done as well by a depart- ment of the chain-store organization as by a subsid- iary corporation; and some drug and grocery chains are making as good profits from their realty opera- tions as are the cigar stores. The problem is a little more difficult in the latter case, because the cigar stores want only a "hole-in-the-wall," as someone has called it, out of each corner store. Yet it is the corner which is taken, the very heart of the building. It is, therefore, more difficult to arrange leases so as to sub- let any remaining part at a profit, than in the case of a drug store which will use all the ground floor and basement of a corner store and perhaps one of the upper floors. The real estate work, whether done by a subsidiary corporation at a profit of three-quarters of a million a year, as in the case of the cigar stores, or by a department of the central organization so as to show a corresponding profit above a fair rental, as in the case of the Childs' restaurants, is one of the most important parts of the central organization. 10. Merchandising. — The organization for mer- chandising is similar, in that one department selects all lines to be carried while another sees to the actual buying. This practice is also found in mail-order houses and has some advantages. The one who se- lects new lines is relieved of the actual purchasing and so can devote his time to the planning of all selling. He decides what can be sold to advantage and then leaves to another the task of purchasing. There is a THE CHAIN STORE 307 tendency to take longer speculative chances. When the buyer in a chain organization finds a bargain, he takes it, regardless almost of the quantity and then begins to hunt an outlet for any surplus beyond his selling possibilities. 11. Supply department. — The organization for the actual buying, or purchasing as it is called, is under the supervision of the manager of the supply depart- ment. The lines having been chosen for him by the merchandising department, it is his task to buy them at the best price. He scours the market for goods of the desired quality at the desired prices. One buy- ing advantage of the chain store is in the form of special terms, either thru extra discounts or longer terms. Chain stores frequently control factories or own their own manufacturing plants. Others have their own jobbing concerns, or get inside prices direct from jobbers and brokers. The buyer of one chain carries his checkbook with him all the time and is ready to pay in advance when it will mean a saving in price. The manufacturer with good merchandise can always get cash immediately from a chain organization if he will make the price attractive ; and many a manu- facturer has been helped thru a tight place in just this way. New lines are often introduced thru chain stores which it would be difficult to market otherwise without a heavy expense in creating a demand on the part of the public. 12. Central warehouse. — Whether a chain organ- ization should maintain larger reserve stocks in a cen- 308 RETAIL MERCHANDISING tral warehouse or whether it should depend on drop shipments direct from manufacturers to each store, is a much debated question. In hues such as five and ten-cent novelties, being out of stock in any stock is not a serious problem, for something similar will gen- erally satisfy or in case it does not, the customer does not take offense. Therefore, the F. W. Woolworth Company maintain only a small warehouse, tho their total business in 1916 was nearly a hundred million dollars. This results in an enormous saving both in warehouse and reshipping expense, in interest charges and depreciation on goods in the warehouse and in transit to the stores. But when service and the loss of a sale is a more serious factor the central warehouse is more neces- sary. Therefore, drug and grocery chains generally maintain full stocks in a central warehouse. One of the smaller chains, the Childs' Grocery Company, at Camden, New Jersey, employs over one hundred per- sons in its warehouse. 13. Co7itrol of ivarehouses. — In the Liggett organ- ization, the central warehouses, from which the stores thruout the organization are supplied with merchan- dise, are managed by a depot manager who is re- sponsible to the vice-president treasurer. The rea- son for this connection is, first, that the auditing system adopted by the company, and which is under the control of the treasurer, shall be carried out in the depots, and, secondly, because of the necessity that the treasurer should control the question of invest- THE CHAIN STORE 309 ment. It will be seen later that the organization de- pends largely for its success on the system of checks and counter-checks presented by the apparent inter- relation of departments. The control over the de- pots by the treasurer acts as a check upon any tend- ency on the part of the supply department to" overbuy. l-l. Planning special sales. — The manager of mer- chandising must plan the selling activities of the chain, in cooperation with the organization. Some years ago the sales manager of a drug chain conceived the idea of the one-cent sale as a means of moving an over- supply of their own private brand. The plan was to give two bottles of a fifty-cent toilet water for the price of one plus one cent, or a total of fifty-one cents. It meant a reduction from fifty cents to twenty-five and a half, but to each customer was sold twice the usual quantity in a single sale. Several manufactur- ers concluded this would be a good way to advertise, charging any loss to publicity as a sort of sampling in which the customer pays at least the prime cost of the samples. Several manufacturers asked to come in on the sale and it has become a regular feature with many chains for the purpose of introducing new lines and of disposing of overstocks of goods. The plan is at once to the advantage of manufacturer, re- tailer and consumer. 15. Employment and training. — INIost of the big chains maintain a large employment department as a part of the sales-manager's organization at head- 310 RETAIL MERCHANDISING quarters, tho in the chart shown, it is assigned to the financial manager. This is due to his previous expe- rience in the work rather than to inherent functional- ization. Here all salesmen for the stores are selected. Mr. Petermann of the United Cigar Stores interviews many thousand applicants each year for positions as salesmen in the United Cigar Stores. Out of this number, only one out of every hundred survives the test which he gives them, and only four-fifths of one per cent permanently make good. The big chains usually find it necessary to train all new salesmen at headquarters. New men attend the training school for a week or two, and then are given two weeks' experience in one of the stores. Then they are brought back to the training school for another week of instruction, in order to round out their training after contact with a store. Such train- ing schools are not considered as necessary in grocery chains which do business largely on the price basis. However, it is worthy of note that instances have oc- curred in which companies have closed their doors one afternoon a week, so that the salesmen might take advantage of educational classes. Particular atten- tion is being given by this new chain to training neat and courteous salesmen who know their merchandise thoroly. Some chains prefer to put the new men in the store at once and let the store managers train them. When a young man enters the Woolworth Company, he is started in a store basement where he THE CHAIN STORE 311 learns all about the merchandise. It takes about three years to train a manager, and during that time the new man will have worked in each different depart- ment in at least five or six stores. 16. Keeping in touch with employes. — The sales manager must keep in touch with his men thru letters, bulletins and house organs, and thru the personal visits of himself or the district manager. Of course, the salesmen are encouraged to boost their sales con- tinually thru various contests, in the hope of increased salary, and the desire to have their good work com- plimented in the house organ. jNIost chain stores pay their salesmen on a salary and commission basis in order to stimulate the sales as much as possible. The United Cigar Stores pay their men on a salary basis and then divide among the store salesmen and the manager, a certain percentage of the increase in sales over the corresponding month of the year before. No commission is paid to the men if there is any shortage in the cash or discrepancy in the accounting records. Naturally, this binds the store salesmen together, and makes each one responsible for the other's mistakes. 17. District manager. — In a large chain the super- vision of individual stores is largely in the hands of the district or territory managers who have charge of all stores in a section. In the case of districts at some distance from headquarters the district managers have considerable discretionary power. They countersign requisitions for goods, and in fact generally do the real merchandising of each store under their supervi- 312 RETAIL MERCHANDISING sion. They investigate all complaints and even take time to call on dissatisfied customers. On each trip to each store, they make a complete analysis from the back door to the front including the cellar. In the final analysis their function is to keep up the volume of business and the quality of service. Various mod- ifications of the general plan of supervision are found in different chains. 18. Department managers. — In the Liggett-Riker- Hegeman Drug Stores each store is departmentized and every detail of each department is followed up thru the auditing system so that not only is the busi- ness of each store known in detail, but the executives are able to tell in what fines each store is gaining or losing. To aid in maintaining each department at its highest possible standard, specialists have been ap- pointed for the various departments. For instance, a man who has a national reputation as an authority on toilet goods specializes in that department. An- other man who is not only a very able merchant, but also has practical knowledge and experience in the soda and candy business, specializes in these de- partments. It is the duty of each of these depart- ment heads to visit the stores thruout the chain with a view to working up his department. These depart- ment managers, like the territorial managers, are re- sponsible to the president. 19. Advertising and displays. — The advertising manager is usually, directly under the sales manager, and has charge of all advertising, both for the private THE CHAIN STORE 313 brands of the chain, and for each store in the chain. A corps of men at headquarters draw up all new plans and write copy, circular letters and the like. Some- times a printing and art department is included. All window displays are usually planned and pre- pared at the home office, tho in a few cases the work is done by a subsidiary corporation. The dis- play manager has charge of getting up all new ideas for such displays under the direction of the sales manager. The dimensions of the windows in each store are on file at the home office, so that the dis- play manager can prepare the display in all its de- tails and simply ship it to the store with instructions to the store manager how to set it up. 20. Mail-orders and local agencies. — Some of the chain stores are now going into the mail-order busi- ness. The Kresge Company, of Detroit, which op- erates a big chain of five-and-ten-cent stores, is now reaching out for this kind of trade. The local stores in the J. C. Penney chain operate a mail-order busi- ness, which very often runs up as high as a thousand dollars a month. They feel that they have simply made a beginning in this field. Closely associated with this is the exclusive agency as another mean3 of selling business in communities too small to support a local store. It is interesting to note that many of the chains are now considering taking up national advertising. The United Cigar Stores have already started their campaign, and plan to spend $250,000 during the first year for an adver- XIX— 22 SU RETAIL MERCHANDISING tising campaign in support of their mail-order and exclusive agency business. Proprietors of drug and other stores taking on one of their agencies are able to secure the benefit of all the United Cigar Stores' plans and methods, even the assistance of the real estate department in picking a store site, and the dis- play manager's ideas in regard to trimming their win- dows. Once more this is a case where the independent merchant is learning from the much hated chain. 21. Store manager. — In almost all chain organiza- tions, the store manager spends most of his time in actual selling, for the merchandising is done for him. In a grocery chain, the store force frequently consists of a store manager and a dehvery boy. The travel- ing superintendent gets to each store daily, checks up the business and the stock and puts in the requisi- tions for goods. The manager deposits all cash re- ceipts in a local bank, except in some chains in which he is allowed to pay directly the salaries and inci- dental expenses, and mails the deposit shp to the treasurer along with the vouchers for any money paid out and a daily report of sales, stock on hand and expenses. 22. Stockkeeping system. — Each of the store man- agers is given very careful instructions as to the neces- sity of keeping his stock in good order. Inventories are usually taken about once a month in lines like drugs and cigars. When new stores are opened up, or in stores which are not paying as well as they should, inventories are taken more frequently. Very THE CHAIN STORE 315 often, men are sent out from headquarters to take the inventory of the stock so that the manager of the store does not have to bother with this at all. The manager of each store is, of course, personally respon- sible for all goods from the time he signs a receipt for them until they are sold. One of the simplest systems is found in a chain of meat markets. All goods are charged to each store at cost plus an overhead to cover the central organiza- tion expense and the prices for each kind of meat and each cut are set by the central organization from day to day. On Saturday night after the store closes, a complete inventory of stock on hand at cost is made. Quarters of beef partly cut are estimated pro rata according to the value of parts remaining in propor- tion to the total cost. This is subtracted from the total of the goods on hand at inventory a week pre- vious plus the cost of the goods delivered to the store during the week. This gives the cost of goods sold during the week. To the total of the sales is added the value of scraps on hand and from this is deducted the expenses of the store for salaries, rent, advertis- ing, and likewise the cost of goods sold as previously figured. The balance is the net profit of the store for the week. The following is an illustration : Inventory at dose of bnsiness on Saturday night, November 4, 1916", at cost (including: scrai)s) $ 500.00 ^lercliandise received bv store during week of Nov. 6-11, 1916, at cost : 80Q-QQ Total $1,300.00 Inventory at close of business on Saturday night, November 11, 1916, at cost (including scraps) '1-.50.00 Cost of goods sold during week of Nov. 6-11, 1916 $ 850.00 316 RETAIL MERCHANDISING Receipts from retail sales $ 950.00 Receipts from scraps sales 25.00 Total receipts $ 975.00 Expenses for salaries, rents, etc 100.00 Net receipts $ 875.00 Subtracting cost of goods sold 850.00 Net profit for store for week $ 25.00 In a grocery system it is customary to charge each item to the store at the retail price and then at in- ventory on Saturday night the store manager must be able to turn over an account for each item received, by producing it or the equivalent in cash receipts. Such a system is, of course, more exact than the meat market system just illustrated. 23. Control of stock turnover. — To each store a standard stock, based on its volume of business, is given on which the manager is required to do business. It is part of the vice-president's duty to see that that standard is just and adequate, and is maintained in such a way that there shall be no loss thru unnecessary investment, or loss of business thru lack of merchan- dise. This control acts as a check against rash buy- ing on the part of the store managers who are ex- pected to merchandise for their respective stores. 24. Accounting system for store. — Practically all chain stores are run on a cash basis, and all the gen- eral accounting is handled at headquarters. So the only accounts kept by the store manager are the rec- ords on carbon copies of goods obtained, the totals of sales from the cash register and the totals of expenses from vouchers. THE CHAIN STORE 317 The following are the records made up by each store manager : ( 1 ) Comparative sales record by stores, and by depart- ments of stores, weekly (7 day, 1-i day, 21 day, 28 day) and cumulative for month. (2) Monthly reports of stock — purchases against sales — and stock on hand at end of month. (3) Monthly report showing standing of each store in detail — sales, expense, profits. (4) Inventory of each store 4- or 5 times a year, 25. Accounting system for central organization. — An elaborate system of accounting is required in the central organization. In one chain it consists of the following records and reports: (1) Daily receiving sheets. Showing, by departments, all goods received from all sources of supply. (2) Daily sales report. Showing receipts, by depart- ments. (3) Contingent fund report. Showing payments made, from the store's contingent fund, of various expenses, such as postage, car fares, etc. (4) Weekly pay roll report. Showing names of persons employed. No matter how closely each store may be super- vised by traveling superintendents and district man- agers, the chief executives need to have at all times complete data on each store and on the whole system. The problem of running a group of stores at scat- tered points is a serious one and failure is sure to re- sult unless the executives constantly have the most de- tailed data. The expense of gathering these data is 318 RETAIL MERCHANDISING one of the disadvantages of chain store organization. But when the saving in expense-accounting work at each store is figured, the cost ceases to be prohibitive, and where divided among several hundred stores it becomes relatively small. REVIEW Describe the methods used by chain stores in their analysis of the selling field and in their merchandising policies. What is the usual origin of chain stores ? Describe the organization of the Penney Department Store. and contrast this with other chain stores. What are the real estate problems of the chain store, and how are they managed? Explain the policy of chain stores with respect to buying and maintaining a central warehouse. Describe the duties of the sales manager, the district manager and the traveling superintendent. What are prominent characteristics in advertising and dis- plays ? How are mail-order and local agencies helping to develop the chain store? What are the methods of stockkeeping and the records which they entail ? What are the accounting methods of the individual store and of the central organization? CHAPTER XI THE MAIL-ORDER HOUSE 1. Analysis of the selling field. — Each of the large mail-order houses has made a more or less thoro analy- sis of the territory in which it operates, tho in most cases this was done after the house was well started. A beginning was generally made by buying maihng lists for various sections. Some years after Sears, Roebuck and Company was founded, the company made an analysis of the United States. It was de- cided neither to solicit nor to encourage business orig- inating outside of the United States, and the policy has been adhered to consistently. One of the problems in any business is to discount any local conditions that are detrimental and take advantage of any that are good. In surveying a sec- tion it is necessary to observe as wide a variety of con- ditions as possible. The mail-order house is at an advantage because its appeal is general. When the cotton crop in the South is poor, the wheat crop in the Northwest may be good. The analysis must be by sections and by sources of income. There must be constant rennalysis in order that sell- ing plans may be adjusted to changing conditions. During the fall of 1916, a mail-order house discovered 319 320 RETAIL MERCHANDISING that the farmers of Maine were particularly prosper- ous because of the big potato crop and the high mar- ket prices. Immediately they sent out to the Maine farmers special catalogs — "flyers," as they are called in mail-order houses — listing such luxuries as pianos and phonographs. The amount of business they ob- tained was surprising. 2. Marketing policies. — The first principle of mail- order work is that the exact truth, without reserva- tion or qualification, must be told at all times. The catalog descriptions must be so accurate that they cannot be misunderstood. One mail-order man says that fully fifty per cent of the returns are caused by the customer's failure to understand the description. This can be largely eliminated by a persistent attempt on the part of the copy writer to anticipate any possi- ble misinterpretations. It is ahnost equally fundamental that there should be promptness in handling orders and correspondence. Mail-order houses are as a rule marvels of efficient operation. Every step in handling an order is scheduled and a record of the actual time required to handle it in each department is recorded by time clocks. As a department manager in one house re- marked, "Everything here is done by schedule. We work by schedule and play by schedule; we eat by schedule and sleep by schedule; we dream schedules." Various points in connection with the operating of a business call for decisions on policy. The classes of trade for which the house is to cater must be deter- MAIL-ORDER HOUSE 321 mined. It was only a few years ago that nearly all the business was with farmers. In fact, most houses refused to send their catalog to residents of large cities. Recently Sears, Roebuck & Company put out a special edition of Encyclopedia Britannica. One indirect result was the influence it had in helping them extend their trade in the large cities, particularly among the educated classes. The whole marketing policy is summed up in the word "service." All retailers must serve their cus- tomers, but the mail-order house is at a greater dis- advantage because of the loss of personal contact between themselves and the customer. At the slight- est discourtesy in correspondence, carelessness in fill- ing his orders or in packing, the least hesitancy to take the customer's word for shortcomings or damages, the mail-order house is put on the customer's black list. Therefore the service must be of the highest character in every respect. The slogan of Charles Williams Company is "Consider the Customer." It sums up well the marketing policy of the house. 3. Location. — The decision on the city in which the house is to locate is another result of the analysis of the selling field, and of the determination of mar- keting policies. A house located in New York is seriously handicapped compared with one in Chi- cago in the cost of delivery and the time required to reach customers in most parts of the country. On the other hand in women's wear, in wliich style is more important than the extra cost of delivery or time re- 322 RETAIL MERCHANDISING quired, it is frequently considered preferable to lo- cate in New York, as it is the style center. For that reason Montgomery Ward & Company handle all their "fashion" merchandise from a special branch in New York City. Altho they have also a general east- ern branch in Brooklyn, orders for women's wear, even tho coming from a suburb of Chicago where the main house is located, are shipped from the New York City office. The location within the city is important from an- other basis. The prime requisite is a suitable build- ing. The machinery for handling the merchandise is highly specialized, and calls for such things as gravity conveyers, spiral chutes, belt conveyers, pneu- matic tubes and the like. Everything must be han- dled and routed as in a factory. Shipping facilities must be of the best. The eastern branch of Mont- gomery Ward and Company is in a public terminal building on the Brooklyn water front, while the Na- tional Cloak and Suit Company offices are situated in a newly constructed building near the west-side docks and freight terminals in New York City. The mail-order house effects a great saving over other re- tail establishments in the rental expense by being in cheaper rental sections. Also thru the fact that it needs no expensive buildings with window and interior displays and various service features such as rest rooms for customers. The labor problem must not be overlooked in se- lecting the location. JNIuch of the work in a mail- ORGANIZATION CHtRT OF A MAIL ORD£R HOUSE MAIL-ORDER HOUSE 323 order house is in a sense factory work or at least must be done on a factory basis. As a result the turnover of labor, in spite of high wages, educational classes, excellent working conditions and various types of wel- fare work, is higher than in department stores, and is consequently a heavy drag on the business. Con- ditions in the labor market vary with different cities and in different sections of the same city, so that there is some possibility of discounting the handicap. But at best it offers a serious problem. 4. Organization. — In general, the plan for internal organization is similar to that of any retail concern, for there are the same functions to perform. In fact about the only real difference between the operation of a mail-order house and a department store is that in the former a written order instead of a person travels around from one department to another. The general plan of functional relationship is shown by the organization chart opposite. 5. Financing a mail-order house. — In the past many concerns have been organized "on a shoe string." The organizer raised enough capital to ad- vertise either in magazines or by circulars. As each order was secured, he obtained the goods from a manufacturer, so that an investment in stock was un- necessary. It is still possible to follow the same method in certain specialties, but in the case of staple merchandise, it would be impossible to get the goods in single lots at a price which would enable the mail- order man to crjinpfic^ uitli well-financed houses. 324 RETAIL MERCHANDISING Moreover, the returns are likely to be slow in any new house. Therefore the new firm must be strong enough financially to buy in quantity at the best quantity price, and to weather a long period in which the business is getting on a paying basis. Once the business is under way, it is run by financial budget just as a department store. Mail-order houses are generally run on a cash basis, so there is no credit collection problem. The audit- ing is a simple matter as all sales are entered in the auditing department directly after the order is re- ceived. 6. Merchandising the business. — The merchandis- ing aspect of the mail-order house is parallel to that of a department store. A plan for each season is made out by the merchandise manager, and each buyer is expected to follow the plan. Buyers, how- ever, have wide latitude in large concerns. If the buyer does not earn a good profit during the season, he is summarily dropped. The turnover in buyers is almost as high as in the clerical force. The problem of buying is complicated by the fact that prices must be maintained, if possible, for six months. One concern in the case of cotton goods, buys a six months' supply "in the gray" or unbleached and unprinted state, and then converts the goods from time to time according to the demand of color, style, design and the like. In order to secure a supply at the best prices, buyers go to any length necessary. If they can get better terms by contracting for a MAIL-ORDER HOUSE 325 mill's whole output, they do it. Sometimes they can save money by putting up factories of their own. Again, they may not find on the market just the par- ticular article or quality for which there is a demand. But in general it is doubted if any retailer saves money, in the long run, thru manufacturing his own goods. Various minor considerations arise in buying for a mail-order house. One is the possibility of offering a much wider range than the average retailer, and yet to make a profit from an ordinary mark-up a retail hardware dealer figures that he must make an average mark-up of 25 per cent on retail prices, and turn his stock four times a year, to make ten per cent annually on his capital investment. If he has some lines which he carries to accommodate certain customers and in which a stock of a dozen might last two or three years, it is evident he should get a higher mark-up — perhaps 50 per cent, than on the average of his line. Yet the mail-order house, selling nation- ally, can turn the same stock several times a year and so can sell the article at 25 per cent mark-up and make its average profit. Another such consideration is in connection with articles for which a market must be created. The large mail-order house has so much selling momentum that it can create a demand which otherwise would not exist in appreciable quantity. For instance, the cata- log of Sears, Roebuck and Company for the fall of 1916 features fixtures for water supply for farm 326 RETAIL MERCHANDISING houses. The farmer's wife, on reading the story of the advantages of running water for the kitchen, to- gether with the plain statement of the small expense involved, and the ease with which such equipment may be installed by the farmer himself, is more likely to urge such equipment than if she were dependent on the average country hardware store for the idea. When one stops to consider that, as one man remarked, "There's a copy of this year's catalog on every parlor table," and that it is an interesting bit of literature, it is not surprising how great a demand can be created for all sorts of things. 7. Pricing. ^The usual practice in mail-order work is to keep under the average retail price. In reply to a direct question "Are mail-order prices always lower than retail prices?", an officer of a mail-order house said to the writer: For some classes of goods, yes. For others, no. A mail order house can usually sell you a cream separator, farm im- plement or similar article for less money than a retail store, due to economies of operation and distribution. On some lines, when you consider the shipping charges, the saving is on the side of the local store. However, I firmly believe that the real reason for the growth of the mail order business is the fact that people in rural communities have been able to save money over local retail prices by ordering by mail. Mark-downs in price are less common than in other retail establishments. It is quite customary in retail stores to mark such articles as women's wear at 30 per cent mark-up on retail price at the beginning of the season, in order that after reductions have been MAIL-ORDER HOUSE 327 made later in the season, a desired average mark-up of 25 per cent may be obtained. jNIail-order houses do not find reductions necessary, and so are enabled to mark the goods from the beginning at the mark-up which it is desired to maintain. Some reductions, however, are necessary in the case of overstocks, broken lots and slow-selling styles, and for this pur- pose the National Cloak and Suit Company main- tain a retail store thru which such goods are sold. In this "outlet," as it is called, price reductions are not as radical as in the average department store under like circumstances. Goods are seldom sold be- low cost, whereas in a department store prices are fre- quently cut much below the actual cost. 8. Stockkeeping . — Each line of merchandise is car- ried in stock in its own departments, just as in a general store the active and reserve stocks are gen- erally combined. Carefully systematized standard shelving is used and the whole problem of storing and handling merchandise has been worked out to a fine point. "Tickets" calling for the goods on the customers' orders are sent thru each department on schedule, and extraordinary efficiency in filling these orders has been developed. Cumulative inventories of each stock are carried and these are constantly checked by clerks, so there is little possibility that an error in the cumulative inventory will remain un- checked long enough to cause trouble. The stock- keeping and recording system in a large mail-order house is a marvel of efficiency. 328 RETAIL MERCHANDISING 9. Sales promotion. — Altho it is generally thought that the mail-order house uses every possible means to obtain business, upon analysis it is found that very little sales-promotion work, aside from mailing a large catalog twice a year, is really done. The mailing lists, once obtained by advertising or by purchase, are con- sidered worth at least ten dollars per name, and every precaution is taken to conserve the good-will of those who once buy. In fact the National Cloak and Suit Company find that 70 per cent of their business is repeat business. Of course this means that the busi- ness is obtained at the small cost of two printed cat- alogs a year. It is safe to predict, however, that mail-order houses will do more in the coming ten years in the way of sales promotion. Customers' lists are likely to be- come as active as subscription lists and other lists, where constant circularization is done to influence purchase. But there must also come a means of build- ing the organization to keep pace with the growth. During the past ten years few mail-order houses could have absorbed much more business, and extensive di- rect advertising might have proved overwhelming to the organization and thus more destructive than bene- ficial. One of the cardinal rules in mail-order work is to anticipate the results from each offering, and provide the organization to take care of it promptly. Naturally, as long as all the business that can be han- dled is being obtained, intensive sales-promotion work is both unnecessary and undesirable. MAIL-ORDER HOUSE 329 10. Advertising. — Once the customers' lists are fairly well started, comparatively little advertising in newspapers and magazines is done, and this is limited to some special proposition which is being introduced, or which, because of some peculiar features, does not lend itself to sale from a large catalog. An illustra- tion of this fact is found in the current advertising of the Encyclopedia Britannica by Sears, Roebuck and Company. 11. The catalog. — The fundamental rules of mail- order merchandising affect the building of each cat- alog. All copy must be of the "reason-why" type and must be written in simple, interesting language. Complete facts must be given, for the reader will take time to study the description who might not listen patiently to one given orally by a retail merchant. A certain percentage of illiterate customers are an- ticipated, and for them illustrations are added which tell the story over again in picture form. As the mail- order house usually offers a "wide-open" guarantee, descriptions must be expressed in language so exact that there cannot possibly be any danger of a mis- understanding. In making up the sales plan for each department, an allowance of space is made, with its relative value. Each buyer works up the description of the articles he wishes to include, and turns it in with the mer- chandise for comparison and for the making of the illustrations. The advertising manager then revises each page of copy. Any disputes between the buyer XIX— 23 330 RETAIL MERCHANDISING and the advertising manager are settled by the mer- chandise manager, under whom both work. Past experience is a valuable aid in the development of the catalog. A quota is set for each page, for each line of goods and for different sections of each page. When an article does not bring enough profitable business to earn its quota, it is thrown out without further fuss. Special catalogs, "flyers" and circulars are put out at more or less regular intervals. A special Christmas gift catalog is used by many houses, while a "flyer" may be sent at any time that a special opportunity offers or business seems a bit slack. 12. Operating the busifiess. — One large house re- ceives an average of 90,000 pieces of mail a day. These are delivered in special mail bags by the com- pany's own trucks at the mail-opening cage. The postal cards and other unsealed mail pieces are sep- arated from the sealed envelops. Letters are opened by machines capable of handling 10,000 letters an hour. The letters are examined and classified, and for each letter a schedule showing the departments thru which it is to pass and the time it is to leave each de- partment, is attached in the form of a slip, or stamped on the back of the letter. All letters seeking informa- tion, but containing no orders are turned over to the correspondence department for reply. Orders for C.O.D. or instalment purchase are sent to the credit department for authorization. Finally, letters ac- companied by remittances are sent to the indexer, who MAIL-ORDER HOUSE 331 checks each one as to descriptions, and assigns an index number to each order. A record is made of the cash received, and a shp is attached showing such re- ceipt. The money is turned over to the cashiers for entry and deposit. Next it goes to the routing de- partment where the freight bill is headed; the de- tails of each item are added when shipment is actually made. Then the order with the freight bills is sent to the entry department, where a ticket is made out for each department from which goods are re- quired. Each order receives a basket number at this point. These tickets are sent to the pricing depart- ment, where prices are added. The original order goes to the letter information desk while the tickets go to the various departments where an "order picker" selects the goods desired and sends them with the ticket to the shipping room. The goods from each department, when received in the shipping depart- ment, are separated according to basket numbers and each order is assembled in its own basket. The schedule is attached to each ticket so that all goods on order are required to reach the shipping depart- ment at approximately the same time. Here the goods are rechecked, packed, weiglied and shipped. In the meantime the original order is acknowledged at the letter information desk, and any questions are answered. In case the merchandise picker is unable to ship an order promptly or must for some reason omit an item, a memorandum is sent at once to the letter information desk as a basis for a letter, and a 332 RETAIL MERCHANDISING notification of omission is sent the packing depart- ment. From the letter information desk, the orig- inal order goes to the billing department where the check is totaled and then if any refund is necessary, to the banking department. Finally, it is filed, geo- graphically by post offices and alphabetically under each post office. Various special modifications in operating methods are found in each house. For instance, the National Cloak and Suit Company have their own agents in various centers who receive large shipments containing a quantity of orders and reship to individual custom- ers. The orders of a single day for all places within the first two parcel post zones from Ann Arbor, Mich- igan, are sent to the local representative in one large case. Each article is separately packed, addressed and stamped for reshipment from Ann Arbor to local and nearby points by parcel post. The saving in expense is not important, but the merchandise reaches the customer in much better condition than if it had been sent as a single package by express or parcel post from New York. As has been previously remarked, the systems and particularly the machinery used, have been exceed- ingly well worked out in each large house. But after all, there must be the human element. It is estimated that the average order passes thru fifty-five or sixty hands in its schedule. If anyone blunders badly the whole machine is tied up. Therefore, there must be constant supervision to see that each task is done cor- MAIL-ORDER HOUSE , 333 rectly as well as on schedule time, for there is no ad- vantage in getting an order thru the entry department within the particular ten minutes allotted to it if it is not properly entered. Consequently each large or- ganization maintains an efficiency staff to study the system and develop improvements, a great corps of department and section heads — the latter having on an average only a dozen workers to supervise — and in addition an elaborate educational system for the train- ing of both old and new employes. REVIEW What are the chief advantages of the mail-order house in re- tail selling? How does the choice of a location and building for a mail-order house differ from that of a department store? Describe the usual development of the mail-order house. How does the buying policy of a mail-order house diifer from that of a department store? How do prices compare with those of other stores? How are they fixed and how are overstocks disposed of? Why have mail-order houses done little general advertising or sales promotion? What are the requirements of the catalog, and how is it pre- pared? Describe the operations of filling an order. CHAPTER XII THE COOPERATIVE STORE 1. Reason for the cooperative movement. — The big idea behind the cooperative store movement is to sub- stitute the "pull" of the customer for the "push" of the profit-maker. The "cooperators" — the men who are interested in this cooperative store movement — may roughly be divided, according to their reasons for joining this movement, into three classes. 1. Small consumers who are forced by necessity to economize as much as possible on the necessities of life. 2. A group of high-minded men who as customers of retail stores feel there is considerable waste in the present system of distribution, and who wish to bring about more social efficiency, 3. A group of men, mainly large employers of the working classes, who are trying to advance the coop- erative movement, thru propaganda work, for future betterment and social reconstruction. If a cooperative store is to succeed, a good deal of missionary work is necessary. Contrary to the usual impression, it is far more important to select the members and to make them understand the co- operative movement, its ideals, the difficulties that will be encountered, and the kind and amount of coopera- 334 COOPERATIVE STORE 335 tion required of each member than to pick a manager. Generally in small communities, this work is done without pay by volunteers interested in the cause. In larger communities, however, trained organizers or "missionaries" are engaged for the work. Probably the oldest and best known cooperative store is that organized among the weavers of Roch- dale, England. Its success is probably due largely to the class consciousness in England, which bands closely together the people of one station in life. As we have little of this spirit in America it is not so easy to hold the members together. The moment they see an independent dealer cut prices on an article, they are inclined to desert the cooperative store, even if they know the cut is only a bait, or a "loss leader," to break up the trade of the cooperative store. There- fore it is very necessary in America to impress new members thoroly with the cooperative idea. Most failures in cooperative storekeeping in this country have resulted from a lack of the conviction among members that they should give the store undivided support. 2. Starting a cooperative store. — In America many successful cooperative stores started as small buying clubs consisting of about a dozen members. In such an organization the members get their first taste of the difficulties to come, but in such small doses that their enthusiasm is not dampened. Usually the prof- its on the purchases, instead of being returned to the purchasing members, are allowed to remain in the 336 - RETAIL MERCHANDISING treasury and accumulate. A small reserve is soon built up, which is very helpful when the group decides to open a store. This trial stage is most advantageous; in fact no cooperative society should attempt to advance beyond the preliminary or buying-club stage until it has or- ganized its market — in other words, its membership. Occasional trade and the trade of those who will de- sert the movement in the first storm, cannot be counted. Therefore the members of the first little group, usually a dozen or so, are selected one by one, in order that they uiaj form a strong nucleus around wliich the larger society may be built. Generally the buying club does not open a store until there are from fifty to one hundred members. Each signer agrees to take stock to the value of from $5 to $100, paying what he can at the time and the balance in instalments. At least $500 should be paid in before the store is opened. One of the most suc- cessful cooperative societies, that of INIontclair, New Jersey, waited until it had over $6,000 paid-in capital. Its rapid development is probably due partly to this fact. The capital required, however, will vary with the type of store; of course, efforts are constantly made to bring in new members of the right sort, in order that the working capital may be increased. In some cases, there are two classes of members, one con- sisting of stockholders, and the other consisting of those who pay only a small initiation fee, or who agree to buy a certain amount of goods monthly. COOPERATIVE STORE 337 3. Organizing the store. — As soon as possible an organization meeting is held and a lawyer is retained to assist in the incorporation. Valuable aid in the whole development can be obtained from the officers of other cooperative societies. The usual officers — president, secretary and treasurer, as well as a board of directors or an executive committee — are elected. Naturally the board of directors will select the store manager and keep a close watch on the store's busi- ness. There is usually also an auditing committee that goes over the books of the store manager at regu- lar intervals. The store should not develop too rapidly, for with it must develop pubhc opinion, and that is always slow in crystallizing. The percentage of failures is high at best, but the great majority of them are among stores that have grown faster than a membership of the right kind and a public opinion of the sort neces- sary to success could be built up. The gradual de- velopment, the first stage of which is represented by the buying club, is the best. A somewhat different method of organization is found in the Nelson Cooperative Association of New Orleans. A few years ago Mr. Nelson decided that there was need for a cooperative store ; he tried to get others interested in the idea but failed. Then he de- cided to organize a store first, and make it cooperative afterward. He started one little store and gradu- ally added several more. In 1914 he organized the group into a cooperative society, with shares of $5.00 338 RETAIL MERCHANDISING par value which pay seven per cent dividends. By September, 1916, there were sixty groceries and four meat markets, and the volume of business transacted during the year ending that month was over a million dollars. 4. Store manager. — About the first thing the board of directors must do is to select a thoroly competent store manager. The manager must not only know how to run a retail store, but he must also be very tact- ful, in order that he may be able to work harmoniously with the members of the association. He must be an enthusiastic cooperator himself, and must be thoroly familiar with the cooperative movement, in order that he may advise with the directors and the members when the time comes to outhne the business policies. 5. Budget. — At this point the directors should work over the preliminary estimates of working capi- tal, sales and profits, and from them develop a budget for operating. In a cooperative grocery store the run- ning expense should not amount to more than 10 to 14 per cent of the gross sales. The experience of other cooperative societies is always of value in figur- ing out the business policies, and in checking up the corresponding budget for operating. For instance, many cooperative stores get along at the beginning with a store in the home of a member or in a cheap basement. Under such circumstances the budget for rent can be kept down to the minimum ; it can be in- creased later, as business grows and better accommo- dations are needed and can be afforded. Some stores COOPERATIVE STORE 339 keep their rent down to one or two per cent of their gross sales. 6. Business policies — location and equipment.— As a matter of fact, the general business policies and the budget must be w^orked out at the same time, since each may change the other. The Montclair Coopera- tive Society opened with a fine store because its work- ing capital warranted its doing so, and because its class of trade could not be appealed to except thru the medium of a modern and attractive store in one of the best retail sections of the city. In general, how- ever, the expense for rent and fixtures is kept very low. In developing a cooperative store it is more im- portant to operate a very neat and clean store than to have a select location and fine equipment. 7. Buying and stochheeping. — Cooperative stores generally begin with a grocery line, and add meat and other lines as they become estabhshed. The store manager analyzes his market as carefully as if he were an independent merchant just starting in business. He has a great advantage over the independent dealer because he can readily estimate the exact qualities of merchandise desired by every family among his pa- trons, as well as the amount purchased monthly by each. Profits in cooperative storekeeping, as in every other kind, depend much on keeping the investment in stock down to a minimum and in turning over the stock as frequently as possible. There is no way to compete with chain groceries that turn over their stock 340 RETAIL MERCHANDISING nearly every week except by doing the same thing. Therefore the store manager must buy in small quan- tities so far as this kind of buying permits him to give fair prices and to keep complete stocks of standard articles. Most managers of cooperative stores buy from the regular jobbers at first, as the manager of any other store does ; but sometimes they are unable to do so, for some jobbers refuse to sell to cooperative stores. Other managers have succeeded in going over the heads of the jobbers altogether and buying direct from the manufacturer, in many cases, as chain and depart- ment stores do. The method, however, is not so im- portant as the price, the quality and the service that the manager obtains from his source of supply, whether it be manufacturer, jobber or broker. In Illinois a wholesale society was recently organized by the cooperative stores in order that they might be able to buy in large quantities. They estimate that the 43 local cooperative stores in that state sell at least $2,000,000 worth of goods a year, and that they can save over $100,000 a year by pooling their pur- chases. Such buying is the next step in the evolution of the cooperative store method. Only recently a number of stores in New York State have also formed a wholesale society in order to secure the large dis- counts that chain stores have been able to secure from manufacturers. A few cooperative stores do some manufacturing. The Nelson Cooperative Association now have a COOPERATIVE STORE 341 creamery of their own, and they are also building a big bakery, which will supply bread to all of their sixty stores. Other cooperative stores also are establishing their own bakeries, and some are even planning to op- erate farms that shall supply the stores with dairy products and vegetables. The activities of a coopera- tive store can be extended indefinitely. The original cooperative store in Rochdale, England, has now its own fleet of steamships for the importation of coffee, tea and other products not grown in England. 8. Sales policies. — Most cooperative stores plan to sell at the regular retail prices, and then pay the mem- bers substantial dividends on their purchases. The Montclair Cooperative Society, however, plans to meet the chain stores at their own prices, and sells everything at just as low a price as possible. It hopes to attract in this way a larger volume of outside trade and to cut down the overhead expenses by in- creasing the volume of sales. It has found that the chain stores are cutting prices very low on only about fifteen or twenty articles, and since these articles constitute only five per cent of the business of this co- operative store, it feels that it can well afford to meet the chain's prices. One cooperative store cuts prices on all advertised goods, except those in regard to which they are bound by a definite contract, which, of course, they respect. Many cooperative stores, how- ever, do not handle any advertised brands. 9. Deliveiies. — The members of a new cooperative society are usually recruited from one locality, and 342 RETAIL MERCHANDISING from within a small radius, so that they can conven- iently either come or send for the goods. It is gen- erally wise not to operate any delivery system at first. Some cooperative stores continue on this plan, and never deliver goods; such a policy, of course, cuts down the expense greatly. Other stores, however, operate a delivery system, but try to keep down the expense as much as possible in other ways. People have become so accustomed to having goods delivered that it is very hard to get them actually to come to the store with a market basket. Sometimes enthusi- astic cooperators do this at first, but after the novelty of this method has worn off, they get tired of it and demand a delivery service. A number of cooperative societies have made an effort to distribute the expense of the delivery service equally among those who benefit by it. One coopera- tive store keeps track of the number of deliveries made to each of its customers, and deducts seven cents for each delivery from the dividends paid at the end of the quarter. 10. Credit 'policy. — It is generally assumed that if the members of the cooperative society are really in earnest in their effort to reduce the cost of their pur- chases, they will not ask for credit privileges. Any credit system is bound to add from one to three per cent to the cost of doing business. Moreover, it also requires a great deal of discretion on the part of the manager. Therefore cooperators usually consider it unwise to adopt a credit policy in any new store. COOPERATIVE STORE 343 Some cooperative stores, however, allow their members to rim a charge accomit, which must never exceed the amomit of the paid-up shares of capital to which they have subscribed. This qualification, of course, safe- guards the store. Sometimes it is necessary to grant credit for a week at a time — when, for instance, the members are mainly working men, who usually have money only on pay day. In the ordinary store, the chief value of a credit sj^stem is that it attracts cus- tomers to the store and leads them to buy everything at the one store. The cooperative feature removes the need of such a motive for credit. One ver\' successful cooperative store actually re- fuses to allow anyone to charge goods. One member of this cooperative society, the wife of a millionaire, once stopped at the store to bu}^ a few things for din- ner. She found she had left her money at home, and one can imagine her chagrin when she realized that she could not charge the things she wanted. She had to go out to her automobile and borrow the money from her chauffeur in order to buy the goods. This store maintains a system of cash deposits ; a customer can deposit from ten to fifty dollars at the store, and then have small purchases charged until the amount is exhausted. A statement of purchases and of the amount of deposit on hand is sent to each customer every Monday. The same store does a large business in telephone orders, which are delivered "cash on de- liver5\" The goods are brought back to the store if the money is not paid to the driver. About one-third 344 RETAIL MERCHANDISING of this store's business is done over the counter on a cash basis, one-third by telephone orders and cash on delivery; the remainder by the system of cash de- posit. 11. Advertising. — Whether or not the cooperative store shall advertise depends on whether the store in- tends to sell to members only, or to outsiders as well. A number of cooperative stores believe in advertising, since in this way they can increase the volume of their business and thus decrease the overhead charges. It is very often possible to double the volume of the busi- ness by advertising without making any material in- crease in the overhead. Other cooperative stores, which do not use newspaper advertising, publish a little price list of their own and distribute it among their members. 12. Salesmen and salaries. — The success of the co- operative store will depend largely upon the selection and training of the salesmen. Courteous, well-trained salesmen will always be a big help in keeping the members enthusiastic about the store. The manager of the grocery store must insist that the clerks always be very neat and clean, and that they wear clean white uniforms whenever possible. The men in the meat department of the grocery store should be especially careful in regard to cleanliness. There is much that the manager can do to show the clerks how to sell more merchandise ; he can also teach them a great deal about the goods they are selling. Of course, his problem is COOPERATIVE STORE 345 the same as that which the manager of any retail store lias to handle. ]\lost cooperative stores feel it necessary to pay their salesmen on a straight salary basis, altho they try to treat them as liberally as possible in regard to the amomit of salary, their vacations, the working- hours and the like. A few stores follow the example of the cooperative stores in Scotland, in making a regular practice of dividing the profits wuth the em- ployes. For instance, IVIr. Nelson, in New Orleans, divides twenty per cent of the profits of the stores with his employes, giving each a share proportionate to his wages. Thus the employes receive a good divi- dend, and have an incentive to avoid waste, to prac- tice economy and to increase trade by being honest and courteous. They have the saving on the cost of goods which they purchase, as customers, and the in- terest on salary, as employes. This plan could un- doubtedly be adopted very successfully in other co- operative stores. 13. Accounting system. — It is a costly policy for a cooperative store to try to economize too much on accounting. A good accounting system will in almost every instance more than pay for itself, not only by furnishing facts and figures in regard to the busi- ness that is being done every day, but also by indicating tendencies in the business. In short, it will enable the manager to make the store even more profitable in the future. Naturally the co- XIX-24 346 RETAIL MERCHANDISING operative store needs practically the same kind of accounting system as any other kind of retail store, altho it is not necessary to have an elaborate system, inasmuch as most cooperative stores do not have charge customers. 14. Keeping track of members' purchases. — If div- idends are to be paid on the purchases it is, of course, necessary to keep careful record of the purchases made by each member, and the total made by all members. The Cornell Cooperative Society, which maintains a cooperative store for the benefit of the Cornell University students, has worked out a very interesting plan for doing this. They have a cash- register system, which prints little receipts with the amount of the sale, tlie date, and the name, "Cornell Cooperative Society," stamped at tlie top. A receipt is given to the student, who signs his name across it in ink, and then deposits it in a box placed near the cash register for that purpose. These receipts are allowed to accumulate in this box until summer. Two extra clerks are employed to sort the receipts and figure up the amount of each student's purchases. When the student comes back in the fall, he simply has to call and get the eight per cent dividend that the store pays on his purchases. Other cooperative stores maintain a system whereby the purchases of each customer are recorded in two books — one kept by the manager, and the other by the customer himself. Then, at the end of the quar- ter, the customer brings his book in and has it audited COOPERATIVE STORE 34T and checked with the books of the manager. This system, of course, involves a little more trouble and expense than the one described immediately above. A third system requires that each sales ticket be made out in duplicate. The original is given to the customer, and the duplicate is turned in by the clerk to the manager's office at the end of the day. After the manager has checked up the tickets, he turns them over, with his tabulated statement of the day's sales and his receipt from the bank for money deposited, to the treasurer or the financial secretary of the society. The latter makes up the dividend statement of each member quarterly, and this the member can verify by checking against it the sales tickets that he re- ceived with his purchases. 15. Distribution of ijrofits. — All cooperative stores that have a shrewd management try to accumulate a surplus as soon as possible. They usually do this by setting aside a good part — say, ten per cent — of the profits each year until a comfortable surplus is built up. Of course, in some years it will be necessary to put a part of the profits back into the business, but ordinarily the profits will be divided up between the owners of the stock and the customers. The big difference between the financial plan of co- operative stores and that of other stores is that in a co- operative store capital is simply paid a small, rea- sonable rate of return, and after that all profits are divided pro rata among the purchasers. In private business all profits, of course, go to tlie stockholders. 848 RETAIL MERCHANDISING The amount of the profits to be divided can be easily determined, as well as the total sales for the quarter or the half year. It is then very easy to determine the amount of the dividend that can be paid on the purchases. This dividend is usually paid in cash. Members are usually allowed to buy stock on the partial-payment plan. In such cases their dividends on purchases are, of course, credited as a payment on the stock until the stock is fully paid for. Thus a member can pay for his stock out of the dividend on his purchases. REVIEW What persons usually undertake the establishment of coopera- tive stores? What is the nature of the "missionary" work which should precede the founding of the stores ? Why should care be exercised in the selection of members? Of a manager? What principles should be followed as to buying and stock- keeping? As to deliveries? As to credit? As to advertising? Explain the special requirements for the accounting of a co- operative store. Describe methods followed in the distribution of profits. INDEX Accountiug, Stock keei*ing systems aid retailers, 94-95; Operating division, 103, 114-19; Cashier's office, 119: Jobbers who manufacture, 127- 28; Semi jobbing, 132; Retail merchants' accounts, 221; Rela- tion to stock keeping, 221-22; Harvard System of Accounts, 293 ; Prominent companies' free information on, 294; Chain-store system, 316-18; Cooperative stores, 345-46 Advertising, Jobbing houses, 80-89; Develop- ment, 81; Jobber, functions of, 81-82; Service illustrated, 83; Manufacturing and semi-jobbers, M3-84; Department organization, 84-85; Selling appeal, 85-87; Figuring the appropriation, 87; Mediums to select, 87-88; Mis- cellaneous types, 88; Direct meth- ods, 88; Catalogs, specialists for, 88-89; Manufacturing jobbers, 127; Various mediums, 269; Fac- tors that promote, 270; Store service must be right, 270-71; Newspapers, 271; Continual ver- sus intermittent, 271-72; Dis- crimination in, 272 : Ineffective methods, 273-74; Copy that in- terests, 274-75; Individuality and distinction, 275-76; Circu- lars and letters, 276-77: Store papers, 277; Mediums that help, 277-78; Dealer helps and win- dow disi)lays, 278-79, 281-82; Interior display methods, 279— 81 ; Department store practice, 288-89; Specialty stores, 296- 97; Chain stores, 312-13; Mail- order houses, 329; Coo])prative stores, 344 Agriculture, Crops affect business conditions, 8-9: Bureau of Crop Estimates, 9 349 Billing Department, Operation of, 115-16 Brokers, Functions of, 168; Relation to com- mission merchants, 169; Extent of operations, 169; Contract, 170; Commissions, 170: Organi- zation and operation, 170-71 Budgets, Estimating a basis, 39—40; Com- pilation by W. P. Hunger, 40; Checking the sections, 41-42; Summary of a general store, 205— 07; Merchandise plan, 236-38; Cooperative stores, 338 Buyers, Buying-control system, 49-52 ; Mer- chandise manager selects, 52— 53; Essential qualifications, 53; Reviewing the market, 54; Pur- chasing piethods, 54—56; Scope of authority, 56; Cash discount, 56-57; Sales price fixed by, 57- 58; Branch offices, 58-59; Branded and unbrandcd goods, 190-91; Retail merchandising methods for, 231-52; Act as merihauts, 251-52 See also Cooperative Jobbing Buying, Judgment needed, 231; Organiza- tion for, 231-32; Merchandise analyses, 232 ; Lines of goods con- sidered, 233-34; Apportioning stock investments, 234-30; Price and style range determined, 235; Community needs met, 235-30; Merchandise plan, 236-38: Turn over, how determined, 2:i8-39; Gross profit, how figured, 239- 40; Turn over a merchandise fac- tor, 240-43; Allotment for, 243; Study of market and wholesal- ers, 243—44; Purchases concen- trated, 245: Interviews, courtesy in, 246; Quality tests, 246-47; Price and values, 247; Cash dis- counts, 247-49; Style element, 249; Stocking new lines, 249— 350 INDEX Buying — continued 50; Estimating sales price, 250; Profit defined, 251 ; Buyer as a merchant, 251-52 Chain Stores, Competition, and advantages from, 184-85; Selling field analyzed, 298-99; Merchandising policies, 299-300; Store manuals and booklets, 300; Service economies and prices, 300 ; Partnership plan, 301-04; Financing new stores, 301-02; Organization and operation, 302-04 ; Corporation type, 304-05; General plan of business, 305; Real estate divi- sion, 305-06; Buying practice, 306-07; Supply department, 307; Warehouse service, 307-09; Special sales planned, 309; Se- lection and training of salesmen, 309-11; Promoting interest, 311 ; Power of district managers, 311- 12; Department manager's re- sponsibility, 312; Advertising and displays, 312-13; Mail-order and agency business, 313-14; Store manager's duties, 314; Stockkeeping, 314-16; Meat mar- kets, system illustrated, 315—16: Turnover, 316 : Store accounts, 316—17; Central organization ac- counting plan, 317-18 Commission Merchants, Extensive employment of, 158-59; Activities and compensation, 159; Contrasted with sales agents, 159-60; Relation to factors, 160; Commission rates, 160-61; Con- tract, items in, 161—64; Organ- ization, 164-65; Operations of, l<;5-67; Cotton-goods trade, 166- 67: Export commission houses, 167-68; Merchandise brokers, 168 Competition, Jobbing methods analyzed, 3—5, 17— 21; Trade data and cooperation, 18-20; Price policies, 25; Re- tailer's territory, 176; Analyz- ing the selling field, 181-83; Large department stores, 183- 84; Chain stores, 184-85; Mail- order houses, 185-86; Advan- tages of, 186; Specialty stores, 289-91 Contract Department, Record keeping, 114—15; Back or- Contract Department — continued ders, 114—15; Future deliveries, 115; Sales agent's authority, 149 Cooperation, Marketing data, sources of, 16—21; Credit information promotes, 18- 19; Sales policies, 23-24; Sales- man methods of, 78—79 ; Retailer and jobber, 90-102; Basis of good business, 104; Promoting merchandising methods, 175—76 See also Dealer Cooperation Cooperative Jobbing, Group-purchasing plan, 134—35; Profit distribution, 135; Buying syndicate, 135-36; Types of co- operative organizations, 136; Representative concerns, 137; Organization, 137; Stock sub- scription methods, 137-39; Vot- ing power, 139; Dividends, 139- 40; One-man control, 140; Ad vantages in buying, 140-41; Pur chase problems, 141 ; Commodi ties handled, 141-42; Stock keeping, 142; Sales methods 142-43; Returned goods and ex changes, 143; Prices, 143—44 Credits, 144; Delivery, 144 Cooperative Stores, Cooperators' reasons for promot- ing, 334; American standards, 335; Initial difficulties, 335-36; Selecting members, 336; Organ- ization methods, 337-38; Man- ager's duties, 338; Budget, 338; Location and equipment, 339; Buying plan, 339-40; Extent of activities, 340-41; Sales policies, 341; Delivery, 341-42; Credit, 342-43; Advertising, 344; Sales- man types, 344; Salary, and profit-sharing, 345; Accounting, 345—46; Dividends on purchases, 346-47; Profit distribution, 347- 48 Credits, Uniform basis essential, 30; Serv- ice fee for, 31; Dating of in- voices, 31—32; Trade acceptances, 32; Returned goods, 33-34; Function of credit department, 45; Past-due accounts, 45—46; Credit man's service, 92; Claims for, 116; Crediting accounts, 119; Terms of manufacturing job- ber, 127; Cooperative organiza- tions, 144; Factor's form of agreement, 154; Returned goods INDEX 351 Credits — continued and refunds, 193-95; Retailer's policy of, 195; Cooperative stores, :i42-44 Cycles of Trade, Business readjustments, 7—8 Dealer Cooperation, Jobber's service. 90-91; Kinds of, 91; Problems to solve, 91; Credit department helps, 92 ; Dealer aids, 92-94; Advertising clubs, 93-94; Accounting and store sys- tems, 94—95; Advertising service, 95-96; House organs, 96, 98; Helping the retailer, methods of, 97; Correspondence courses, 97; Sales demonstrations, 97-98; Soles contents, 98; Dealer litera- ture, 98; Merchandise informa- tion, 99; Trade excursions, 99: Merchants' weeks, 99-100; Check- ing service, 100-01; Report cards, 101 Deliveries, Advertising value, 197; Problems of, 197; Inspectors and wrappers, 219; System needed. 220: De partment stores, 286; Coopera- tive store plan, 342 Departmental Organisation, ^lilitary type, 36; Marshall Field and Company, 36-37; Functional organization, 37-38: Tendency toward, 202-03 Department Stores, Marshall Field and Company's or ganization, 36-37; Advantages of functional organization, 37-38: Buying-control system, 49-51 : Stock room supervision, 59—60 : ^lodern merchandising, intro- duced by. 175; Competitors of general stores, 183-84; Wana- maker's policies, 198-99; Devel opment, from general store meth- ods, 283; Selling field analysis, 284; Organization and financing. 284-85; Problems in operating, 285-86; Delivery systems, 286; Mailorder department, 287; Mer ehandise office a necessity, 287- 88; Advertising, how apportioned, 288-89; Specialty shops, 295 Discounts, Uniform policy, 26-27; Primary purposes of, 27; Wide variations. 27; Cash discount, 28; Trade abuses, 28; Extra discounts on Discounts — continued large orders, 29; Drop shij)- ments, 29-30; Invoice dating, 31-32; Price book changes, 73; Retail buyers' profits, 247-48; Credit practice for, 248-49 Displays, Advertising helps, 278-82; Impor- tance of, 278-79; Interior, guid- ance for, 279-80; Attractive store methods, 280-82; Window displays, 281-82; Chain stores, 313 Drop Shipments, Discount policy of, 29—30; Cooper- ative warerooms, 144 Economics, Production of iron a guide to busi- ness, 9 ; Consumption capacity, 10—11; Studying the consumer, 12-13 Educational Training, Retail salesmen, 223—24; Store sys- tem taught, 225-26; Efficiency bulletins, 227; Junior courses, 228; Public schools cooperate, 229; Successful results, 230 Efficiency, Meaning of. in organizations, 200— 01; Training systems for sales- people, 224-26; Efficiency bul- letins, 227 Employment, Problems of operating divisions, 104-05; Promotion methods, 105; Wage standards, 106 Export Commission Houses, Number of, 167; Related activities, 168 First National Stores, Dry-goods chain. 182 Functional Organization, Outgrowth of departmental system, 37; Apportionment of functions, 38-39; Financial division, 39 House Manager, Supervises operating divisions. 103- 04 House Organs, Service to retailer, 96, 98; Dealer literature, 98 Inventories, PeriH-tual system, 61-62; Physical inventory methods, 62—63 352 INDEX Invoices, Policy of dating, 31-32; Profit and cost statistics, 116; Packing clerk's duties, 120-21; Retail buying, 256 Jobbers, Analysis and revision of methods, 3-4; Selling field, 4-7; Freight and transportation, 5—6 ; Radius for efficient service, 6—7 ; Read- justment periods. 7-8; Crops af- fect, 8-9; Guides and reports, 9-10; Commodity consumption, 10-14; Judging the market, 11; Commercial surveys, 12—16; Retailers, classification of, 13- 16; Reports from salesmen, 17; Cooperation and competition, 17- 21; Business policies, 22-34; Sales supervision, 65-79 ; Adver- tising practice, 80-89; Preparing the catalog, 88-89; Cooperation with retailers, 90-102 See also Manufacturing Jobber See also Semi-Jobbers Loss Leaders, Questionable sales policy, 25-26 Mail-Order Houses, Activities of, 175, 176; Competi- tion from, and advantages, 185— 86; Selling field analyzed, 319- 20; House policies for service, 320-21; Suitable locations, 321- 22; Labor problems, 322; Organ ization, 323; Financing and au diting, 323-24; Buying plan 324; Profits, 325; Creating de mand, 325-26; Prices, 326 Stockkeeping, 327 ; Promoting sales, 328; Advertising, 329 Building the catalog, 329-30; Mail and order department, 330- 33; Routing shipments, 331-32; Efficiency systems, 333 Manufacture, Market analysis, 3-7; Estimating consumption, 10-13; Information on retailers. 16; Competition studied, 17-21; Jobber advertis- ing, 80-89; Dealer aids, 90-102; Jobbers who manufacture, 122- 28; Selling agent and distribu- tion. 146-53; Factor's method of financing, 153-57 Manufacturing Jobber, Definition of, 122 ; Reasons for manufacturing, 122-24; Organ- ization plans, 124-25; Separate factory system, 125; Production methods, 126; Stockkeeping. 126; Advertising and sales, 12