Modern Merchandising Distribution
( Originally Published 1918 )
Pioneers Self-Producers.—From the beginning of time the production of merchandise has been the tangible evidence of the development of civilization. Throughout the coming years it will bear witness to the progress of the human race.
In the early days of our country's history, the pioneers, by force of circumstances, were compelled to produce practically everything they needed. They had pushed out into the wilderness, remote from any other human habitation, and so were under the necessity of tilling the soil, raising their own stock, grinding their own grain, weaving their own cloth, burning their own fuel, being their own blacksmith, carpenter, mason, painter, tailor, doctor.
Beginning of Merchandising.—As others in ever increasing numbers followed the paths of the pioneers through the forests, over the mountains and down the rivers, settlements began to take root and flourish. Here men worked not only for themselves but for others. Here was felt the demand for more of the conveniences of life and of the implements of agriculture and the tools of trade. Then it was that men began to specialize, becoming store keepers, blacksmiths, millers, carpenters, painters, doctors, and the like, each following his chosen line. Thus began among us the service of others in the supplying of the things that go to make up the necessities and the comforts of life.
Demand for Manufacturing. All this made insistent calls for the production of increased quantities of manufactured goods, and back in the more thickly settled portions of the land factories came into being, whose products, coupled with those brought from other lands, followed the footsteps of the settlers and found places on the shelves of the store-keepers.
Beginnings of Specialization. -- The rapid growth of the country taxed the factories to their utmost, and the urge of larger production made evident the economic fact that great quantities of a few or even a single article could be produced more accurately and at a lower cost than where the production was divided among a number of different kinds of classes of merchandise.
Specialization to Stay. Among the manufacturers of the land, and of the world, for that matter, specialization has come to stay. In business; the iron rule of the survival of the fittest always has and always will control. The weak, the inefficient, the slothful, the non-progressive, must to-day, as they always have, give place to those who are alert, aggressive, progressive, seeking how to make goods better, cheaper, faster than their rivals.
How firmly the age of specialization in manufacturing has taken root is to be seen on every hand. Great factories devote their entire energies often to the production of a single class of goods or even a single article. Take, for example, the automobile field, and there instances will be found on every hand. More goods, better goods and cheaper prices without the sacrifice of ultimate profit, are the considerations that have made the age of specialization and will continue it.
Effect on Merchandising. It was not to be wondered that the contagion of specialization should spread from manufacturing to merchandising. At first blush it would seem that those economic forces that had wrought such wonders in production should work equally well in distribution. And eager to grasp the new thought, to participate in its advantages, the retailers, un-thoughtful of their true function as servants and ministers to the wants of the public, turned to the selling of one line merchandise. It is difficult to get out of a rut, once one is in it. That is why we have the grocer, the butcher, the baker, the shoe store, the dry goods store, the notion store, the clothing store for men and boys, the cloak and suit store for women, the men's furnishing store, the custom tailor, the men's hat store, the millinery store, the drug store, the book and stationery store, the candy store, the cigar store, the furniture store, the house furnishing goods store, the china and glassware store, the jewelry store, the paint store, the electrical store, the plumber's shop, the automotive accessory store, and next door, the waiting, expectant, sad-visaged under-taker.
"General Store" the Exception. Doubtless due more to the force of circumstances than any deep appreciation of the great aim of all merchandising service to the people in the providing of material things for their business, social and communal activities—the little "general store" alone stood out, steadfast against the rush towards specialization in merchandising. Yet in this humble store, so frequently tucked away in some obscure village, lingered the germ of the modern conception of successful merchandising methods, carried into full realization in the great depart-ment stores of the larger cities, and reflected to-day, in varying degrees, in almost every line of wholesaling and retailing.
Problems of Distribution.—As the number of retail stores began to grow and multiply, keeping step with the onward movement of the frontiers and rapid increase in population, the manufacturers in their various lines found it more difficult year by year to sell their goods direct to the retail trade.
Their territories were ever expanding, which meant the employment of more men to cover the trade. These men had to travel greater distances and that meant higher sales cost. It also meant greater delay in the receipt of goods, as in the earlier times transportation moved at snail's pace and by uncertain means of conveyance. Freight rates even then entered into their problems, and the same as today, these charges had to be added to the cost of their goods, and of a truth, the public paid the freight.
As the factories were more or less limited in the character of their output, so were the number of calls a salesman could make in any city or town. This involved a tremendous wastage of time in waiting for trains, slowed up the volume of sales each man could make, and piled still higher the cost of selling and retarded the profits that other-wise might have been made, had the price been lower to the ultimate consumer.
Prices As Affecting Sales.—Business is governed just as much by economic laws whose violations bring financial disaster, as the natural world is governed by natural laws, infractions of which also bring their own punishment, unerring and swift. Hence the successful business man is ever intent upon discovering what those laws are and shaping his affairs in conformity thereto. That is why the schools and colleges are devoting so much time and attention to the departments of busi- commerce and the like. That is why hundreds of thousands of men and women, young, middle-aged and elderly, are availing themselves of every opportunity to study the laws that under-lie business that their efforts may run in harmony with them instead of bucking the game of business blindfolded.
One of these laws is that as price advances the volume of business decreases.
The reason is plain to see. The ever-mounting price takes the article affected by it out of the range of more and more possible customers at each advance. This presupposes normal times. In times of unexampled national or even localized prosperity, such as those when the World War was at its height, when workers in every field even remotely connected with the production of war material or supplies were receiving in a week more than they ever made in a month, then the operation of the law is seemingly relaxed, but not actually. All that happened was that the number of persons having the price to pay had also increased as fast or faster than the increasing price. But as to those who did not share in the war time prosperity, the rigidity of the rule was not changed or modified.
The converse of the above law is that as price declines the volume of business increases.
The basis for this law is, naturally, just the opposite of that for the former—the decreasing price brings the article affected by it within the range of more and more possible customers at each de-cline. Here again this presupposes normal times. In times of business depression, when money is tight and great numbers of men and women are out of work, such as during the panic of 1907 and the reconstruction period following the close of the World War, the law seems to fail as lowering prices are not always able to create increased sales. But the law stands, nevertheless. What has happened in such cases has been simply that the public suffered even a more acute contraction of their income, so that the number of persons able to pay the decreased price was lessened in a greater proportion than the price reduction.
Supply and Demand As Affecting Price: As we all know, the law of supply and demand is the controlling factor in price variations. In great apple years, the price is so low that many farmers allow their crop to rot on the ground, because the cost of gathering and marketing exceeds any sum that could be realized. On the other hand, when the apple crop is short, the farmer or grower whose trees are bearing can market his yield at most at-tractive prices. Then the public is willing to pay a premium over and above the usual price in order to get the goods. This single illustration will suffice, as it embodies fully the principles involved.
While the law of supply and demand is well recognized and mankind accepts its influence on price, yet there is a revolt at the manipulation of supply in order to create an apparent shortage that will serve to make a plausible reason for a price advance. This is called "cornering the market" where the product involved is brought within the control of one man or a group of men, who store or warehouse the goods and refuse to let them out save at the fictitious prices arbitrarily fixed. This procedure is just as honest as that of the highwayman who shoves a gun in your face and orders you to hold your hands over your head while he relieves you of your valuables.
Jobbers As Economical Distributors. It was because the manufacturers recognized these laws of business that have just been adverted to that they welcomed the advent of the jobber, located in the centers of population, who could handle not only their own line, but those of other manufacturers as well. The advantages of this arrange-ment were two-fold: the jobber covered a relatively restricted territory and his sales force made frequent calls on all the trade, coming to know the retailers intimately, and once gaining their confidence, were looked upon virtually as merchandising advisers, while on the other hand, the large orders placed by the jobber operated both to his advantage and that of the manufacturer, who was saved the expense of going to the retail trade, the saving in freight rates to a central distributing point yielding economy plus prompt delivery to the various retailers scattered throughout the jobber's territory. This promptness in deliveries had the effect of virtually placing all of the goods carried by the jobber at the instant command of the retailer, who was thereby enabled to render his own customers a much more complete service than would be possible if he had to order each and every article direct from distant manufacturers.
Another and very important factor connected with the jobber is the matter of credits. Where the manufacturer deals with the retailer direct, the transactions are more or less cold and impersonal, softened only by the semi-occasional visits of the salesman, who cannot become as well acquainted with his customers in two years as the salesman of the jobber does in three months. Knowledge, intimate knowledge, of the customer is, after all, one of the most essential elements in establishing a credit basis. With the manufacturer, reliance must generally be placed in the published ratings of some one of the big commercial agencies. All of the many little side lights that reflect the real man behind the retail store fail to stand forth, and the red tape of the credit department begins to un-wind and the account is either opened or rejected on this often unsatisfactory manner of trying to get at real facts at arm's length.
On the other hand, the jobber knows the trade intimately. He has virtually become the retailer's financial godfather. Too often for the jobber's own good he has carried the account much longer than prudence would have dictated, and all because he knew Jones to be honest, industrious, and ready to pay at the earliest possible moment, in fact had known him when he was clerking for Silas Town-send, and had, by a line of credit extended largely on the high quality of the moral risk, made it possible for him to set us his own store.
Specialization Among Jobbers. With specialization taking such deep root among both manufacturers and retailers, it was small wonder that the jobbers followed in their footsteps. So many of the jobbers had in their earlier days been retailers, that they naturally carried into the wholesale side of buying and selling the same ideas and practices, and confined their activities as nearly to one class of merchandise as possible.
Such was their conception of the service they were able to render to the trade, and they felt that in thus limiting their lines closely, they would come to be recognized as leaders, as specialists in their chosen field of activities, and so be able to gain the lion's share of the business from their territory.
Thus came about as many specialized lines of jobbers as there were of retailers, and almost a complete ignoring of the question as to whether or not there were not other and even allied lines of merchandise that might be properly and profit-ably carried by the very retailers who constituted their own customers, and in the so doing, be able to extend to their respective communities even a wider merchandising service.
Duplicating Sales Cost.—One of the most serious phases of specialization among jobbers has been the unnecessary and prodigal waste and multiplication of both sales effort and expense in the never-ending fight for business and then more business. As we have seen that increased costs operate to reduce the volume of sales, in the very interest of the business the jobbers are in the field to secure, every unnecessary expense that adds to the ultimate retail price should be avoided like a plague.
Let us see, then, how this specialization in jobbing affects the price tag.
Like the manufacturer, the jobber, whether his lines be few or many, must go out and get the business. His house sales are relatively unimportant, except in certain periods of the year. On the contrary, the retailer is closely confined to his store, and so in the spirit of service, the jobbers come to him, with their sample lines by case or trunk, and enable the retailer to do the larger part of his buying with the minimum of interference with his daily duties.
The narrower the lines carried by the jobber, it follows that there must, of necessity, be more jobbers operating in a given territory, in order to supply the needs of the population. The more jobbers, the more salesmen covering the same territory, each man selling a limited line, and finding his calls also limited in the same proportion that the range of what he has to offer is restricted. This also adversely affects the volume of business he can do, but his traveling expenses are just the same as those of the salesman carrying the broad lines, who finds six opportunities to make sales to his one, and who has therefore decidedly the advantage both for himself and his house.
From what has been said it can readily be. seen that the cost of selling a limited, specialized line is far higher than a broad line. By the same token, if one salesman can sell a retailer as wide a range of goods as six men from as many different houses, the sales cost of the broad line house is much less and that there is no reason why that reduced selling cost should not be reflected in the jobbing price.
The retailer is just as much interested in lower prices as the consumer, and the house that can sell the same goods at less money because of its more efficient organization and its cutting off of every unnecessary sales expense, is the house that is going to get the lion's share of the trade.
Taking the Retailers' Time.—Few, probably, have ever considered that there is a buying cost that is entirely outside of the price paid for the merchandise, and which must be added to that price in determining the resale figure. It is the cost or value of the time consumed on the part of the buyer himself, and which is thus taken away from selling or the performance of other duties, be he proprietor or not. To make this more clear, take the case of the large stores that maintain one or more professional buyers. These command attractive salaries, and the sum paid them for their services are just as much a part of the cost of the merchandise as the price paid the manufacturer or the jobber, as the case may be, and consequently must be taken into account in fixing the resale price, which of necessity, must be inclusive of every expense plus the margin of profit. This situation is not varied in the small store, where the proprietor is his own buyer. The time he spends in buying is costing the business just what that time could be made to earn. Hence we see another instance where in the handling of limited lines by the jobber and the consequent in. crease in the number of salesmen calling upon the retailer in order to supply all his needs, there is a further multiplication of expense which must ultimately be borne by the consumer.
But the jobber is not wholly to blame for this situation. There are manufacturers, who selling to the jobbers, maintain their own field force, calling upon the retail trade and soliciting orders from them, not direct, but through the retailers' own jobbers. This "working the trade" for the job-bers is often necessary in connection with the introduction of a new article, but is cited merely to show how the system of distribution of merchandise is burdened with duplication of sales effort, all adding to the ultimate cost of the articles sold.
The great problem of merchandising and the regulation of costs has its roots deep in the means of distribution, and it is commanding the attention of the best brains of our time.
The seriousness of the situation is reflected in the rules made and enforced by many concerns, and by jobbers as well, that visiting salesmen can be seen only during certain hours of the day or in some instances only on certain days, in order that as much time as possible can be saved and devoted to the business of selling what has already been bought.
Making the Consumer Pay.—It does not need to be argued that every expense, necessary as well as unnecessary, entering into the cost of both production and distribution of merchandise, is carriedalong and at the end, loaded upon the consumer.
If it takes one manufacturer longer to turn out a given quantity of merchandise than it does another, he is bound to add to his cost the value of the extra time—plus his profit on it.
If it takes the salesman of the jobber whose lines are limited, two or three times as long to sell a thousand dollars' worth of goods as it does the salesman of the house which handles a broad and varied line, then the cost of doing business is proportionately higher and the selling price must either be advanced to cover that increased cost or be satisfied with smaller profits. It is the former that takes place and the salesmen are ordered to "put it over."
With the retailer. If the many salesmen calling upon him, day by day, make such inroads on his time that he is required to employ extra help, his cost of doing business is increased just that much, and he, too, must either mark his prices up or pay the extra cost out of his own pocket—and where is the retailer who will?
Business must yield its fixed percentage of profit based on the total cost. That includes the manufacturer, the jobber and the retailer. As the consumer must have the goods, he must pay the price.
The Consumer's Rights.—It is coming to be recognized that the consumer has an undeniable right to buy goods at the lowest possible price consistent with fair profits to the manufacturer and those who form the necessary links in the chain of distribution but based on thoroughly efficient and scientific handling, eliminating every unnecessary expense that might affect the ulti-mate price to his detriment.
Recent times have demonstrated that the consumer is not the helpless worm he was supposed to be, for at last he turned and crawled out of the market, to such a degree that his exit was called a "buyers' strike" that shut up factory after factory, kept an army of salesmen off the road and brought merchandising down to the lowest level in volume of business that it had known in years.
The result of this was a prompt readjustment of prices all down the line, slashes by manufacturer, jobber and retailer. As prices went down, the volume of business began to go up, but slowly, for the public was suspicious and wanted to know whether the cut was deep enough to get down to the bone of fair profits based on economical production and distribution, or just an easing off cast as a bait to a waiting, hungry fish. It was not till prices had in fact reached as near their former level as manufacturing and distributing costs would permit, that the public re-entered the market in any appreciable degree.
The right of the consumer begins with the pur-chase of the raw material by the manufacturer, and attaches to every step in the process of manu-facture, insisting upon economy and efficiency, and while willing to grant a fair, yes, even liberal profit, denies the right of extortion. This right of the consumer follows the goods through the hands of the jobber, and is concerned intimately with the whole problem of distribution and its cost, as well as the toll the jobber takes for his services. It is when the goods reach the shelves of the retailer that the consumer comes into closest contact with the elements that he is battling. Here, as in the case of the jobber, business methods and policies as they affect the convenient and economical handling of merchandise, concern him more intimately. He can see and understand the forces that make for high prices at retail but his remedies are vague and uncertain. He does know, however, that he is paying for all of the modern frills that are attached to the business of retailing, and that add nothing to the value of the merchandise. But would he support the store that did not garnish its daily transactions in this way? Everybody wants to know, and the retailer is afraid to find the answer in actual experience.
It can be readily seen that there is a strong undercurrent that is stirring and will eventually mould public opinion as regards the present system of production and distribution, and it is most important that every person devote himself and herself to the careful study of the things that are involved, for out of such general application to the task will come the remedy and the relief.