The Consumer And Distribution Costs
( Originally Published 1939 )
Consumers have been both the victims and the cause of higher distribution costs. The urbanization of the population, higher standards of living and the consequent refinement and elaboration of consumer tastes have been accompanied by a demand for new and costly services and a wider range of choice. Producers and distributors feel that they must cater to this demand or go out of business. On the other hand, it was some enterprising producer or dealer, perceiving the possibilities of increased sales, who first offered each one of these innovations to the public. The increasing cost of distribution which results from them cannot be set down as wholly the fault of either consumers or distributors.
a. NEW DEMANDS AND SERVICES
Consumer insistence on purchasing small amounts of staple commodities, for example, increases the cost of packaging and selling. In part this insistence on small sanitary packages is the result of national advertising and sales promotion, which aim to attach to staple commodities intangible and often imaginary values in the form of sanitation, convenience, and so on. In part the consumer's insistence on small orders is due to changes in our housing habits. We live in smaller apartments and have less storage space than even a quarter of a century ago. As a result consumers-whether because of sales pressure, changing habits or both-have shifted to producers and distributors a service which they formerly performed for themselves-the storage and preservation of commodities.
Illustrations of higher costs of distribution due to new commodities and new services, as well as to consumer caprice fostered by modern advertising, can be found in women's apparel. Thirty or forty years ago women bought piece goods by the yard at the store and had them made up into clothes at home. Today the typical woman consumer expects to buy a finished dress suited to her own taste and conforming to prevailing styles. This change obviously burdens distribution and increases the price of the finished product. It is more costly to distribute thousands of dresses, often with only one of a model or pattern to be sold within a given locality, than it is to sell staple yard goods. By shifting the making of dresses from the home to the factory, production costs have undoubtedly been reduced; but by making it necessary to distribute a more highly finished and individualized product through the regular channels of trade the cost of distribution has been greatly increased.
The Cost of Variety
The consumer who has been made style conscious feels compelled to buy more articles and to discard them or trade them in sooner than he otherwise would. Women's apparel no longer wears out before being thrown away, and the cycle of obsolescence has likewise been shortened for many other kinds of goods. The in-creased emphasis on color harmony as an element in style is another trend in the same direction.
Consumers demand more variety today than before. A woman who buys a dress from a department store and sees another dress like it at the next party she goes to feels outraged. The result is that manufacturers of medium- or high-priced dresses find it hazardous to sell more than one dress of a kind in each small town, and sales in larger towns are also limited. Clearly, distinction is a larger element in style goods than inherent quality. Or the consumer may want to "keep up with the Joneses." He buys a new automobile because the man next door has bought one; he wants something to boast about, if possible-more gadgets, more miles per gallon, more speed. His wife may buy things for the home with the same motive-desire to keep up with the neighbors or better still, to excel them.
Of course producers and distributors welcome this psychology and do all they can to promote it. They exercise every ingenuity to invent new sales appeals-frequently irrelevant to the value of the product-which provide the appearance of individuality and originality.
The tremendous variety of styles and their rapid obsolescence raises costs all along the line. Manufacturers must carry a wider assortment of raw materials, purchase them in smaller quantities and provide increased factory capacity to fill rush orders. Whole-sale and retail distributors must incur greater operating expenses in carrying larger and more varied stocks of goods and run a much greater risk of inventory loss through failure to clear stock before a style change necessitates a mark-down.
The Department of Commerce notes color obsolescence as "one of the principal factors slowing down turnover" in the women's silk and rayon hosiery field. The Holeproof Hosiery Company carried 480 items in 1920 and 6,006 in 1927. Leverett S. Lyon reports that a leading Chicago retailer of shoes increased the number of styles of men's shoes carried from 175 in 1920 to 375 in 1928 and in women's shoes, from 500 in 1920 to 1,000 in 1928. A large middle-western wholesale dry-goods house estimated that "20 per cent of all its items become obsolete before they can be sold."
Another cause of higher costs created by consumers' buying habits is the return privilege of department and other stores. A customer who orders several articles on approval with the intention of buying only one, or who returns an article three or four times because it does not suit, adds to the costs of distribution. Moreover, she penalizes the customer who does not return goods, but who must nevertheless pay the increased retail price necessary to cover the cost of this service. Returns and allowances constitute on the average the equivalent of one day's sales out of every eight in department stores.
A recent writer has said about this problem: One cannot be sure of tracing down all the costs that enter into the return of merchandise . . . the cost of making these adjustments, which includes the cost of handling goods at no profit, is nothing compared with the losses accompanying unsalable goods or merchandise that has to be resold at drastic mark-downs. The economic waste involved runs into millions of dollars.
In a comprehensive survey conducted by the Department of Commerce consumers who were questioned blamed themselves largely for the returned goods evil. Nearly 48 per cent of the women questioned in the city of Washington reported that they were at fault, about 26 per cent said the retailer was responsible, and not quite 16 per cent laid the blame on the manufacturer of the goods. Women reported that over 56 per cent of the articles returned were intended for their own use. In most cases, therefore, greater care at the time of the sale in selecting and fitting the article would have avoided the necessity for the return. Obviously this is as much the retailer's as the buyer's responsibility.
"Wrong size" accounted for over 30 per cent of the returns and of these nearly 90 per cent were attributed to "wrong size asked for by customer," according to a study made by the Bureau of Business Research of Ohio State University in 1926. This study states that for the routine handling of a typical return transaction it required not less than 23 persons to perform the necessary operations involved. The cost of each transaction varied from 31.8 cents for a "charge-take sale" to 61.6 cents for a "charge-send sale."