P5429 
 S18h s - 
 
 Southern Branch 
 of the 
 
 University of California 
 
 Los Angeles 
 
 Form L-l 
 
 54R3 
 
 I
 
 This book is DUT 
 
 R m 

 
 HOW TO RUN 
 
 A RETAIL BUSINESS 
 
 AT GREATER PROFIT 
 
 (KEEPING UP WITH RISING COSTS) 
 
 By WHEELER SAMMONS 
 
 CHAIRMAN OF THE EDITORIAL BOARD. 
 THE SHAW PUBLICATIONS 
 
 Mh Edition, 1919 
 
 A. W. SHAW COMPANY 
 
 CHICAGO NEW YORK 
 
 LONDON 
 
 4G&46
 
 ABOUT THE COST FIGURES IN THIS BOOK 
 
 YOU will find a great many cost-of-doing business figures in this 
 book. These figures were collected during a period affected by 
 abnormal changes, and naturally the question of whether or not they 
 nevertheless hold good will occur to you, because you will have in 
 mind the radical influences on prices during and after the Great War. 
 This note is inserted here to answer any questions you may have on 
 this point. 
 
 The Bureau of Business Standards of the Shaw Publications has 
 been constantly watching the effect of current economic changes on 
 the figures. As a result of this observation, the Bureau has decided 
 that the figures remain indicative and that you will find them as useful 
 now as when they were first collected. Otherwise the Bureau would 
 have supplied new figures from its current studies. 
 
 The explanation is that the cost figures are expressed as percent- 
 ages of the sales. The recent increases in store costs have been ac- 
 companied by greatly increased sales, in part at least springing from 
 the higher prices at which the usual articles in stock must be sold. 
 So, as it costs more to run a store, the percentages of cost (ex- 
 pressed as percentages of the sales) have held about the same. As 
 a matter of fact, in stores of a certain type, particularly department 
 or "general" stores in cities of around 30,000 to 50,000, increases in 
 the cost of doing business expressed as percentages of the stores' sales 
 have been very small indeed. 
 
 Here is an instance which indicates how accurate the Bureau has 
 been in its conclusion that these cost figures still serve the pur- 
 pose for which they were collected. The Bureau of Business Re- 
 search of the Harvard Graduate School of Business Administration 
 recently announced the results of an investigation into the current 
 cost of selling hardware at retail. It placed the common cost at 
 20.6% of the sales. On another page, you will find the figures in this 
 book place it at 20.4%. You see, the percentages have remained 
 about the same while the actual costs changed under them. 
 
 Of course, because the cost percentages in this book remain indica- 
 tive is no reason to conclude that rising costs are no longer a prob- 
 lem. Of course, it really costs more to sell — much more. The 
 explanation is merely that the percentages figured on the sales cloak 
 the higher costs. In other words, this book should be just what you 
 want now — it will help you ferret out the hidden cost increases and 
 suggest ways to meet them. 
 
 Copyright 1915, as 
 
 KEEPING UP WITH RISING COSTS 
 
 By A. W. Shaw Company 
 
 PBINTED IN n. 8. i.
 
 
 
 i 
 
 KEEPING UP WITH 
 RISING COSTS 
 
 Ci I— HIGHER COSTS AND HOW TO 
 
 <t) MEET THEM 
 
 I The Rising Cost op Doing Business ... 9 
 
 T\ Why are profits dwindling because of rising costs ? — 
 
 • Cost information and standards with which to 
 
 rt fight higher costs 
 
 II Cost Figures from 1560 Stores .... 17 
 
 Where the merchant's money goes — Cost averages 
 . and expenses that locate store leaks 
 
 II— WHAT IT COSTS TO SELL 
 THE GOODS 
 
 III The Cost of Making Sales ..... 37 
 
 How much a clerk can waste — Ways to net more 
 money through each salesman 
 
 IV How Much to Pay for Rent .... 55 
 
 What is rent? — How to make increased rentals pay 
 for themselves — Five plans that reduce rent 
 
 V The Cost of Getting Trade .... 71 
 
 Advertising costs against which to check for losses 
 — What show windows are worth — Tested methods 
 that cut advertising bills 
 
 III— WHAT IT COSTS TO KEEP 
 STORE 
 
 VI Delivery Costs and Methods .... 93 
 
 Maintaining profits when competitors give more 
 service— Five successful ways to reduce delivery 
 expenses — Is a motor trHck better than a horse? 
 
 VII Bad Debts and Hidden Losses .... 109 
 
 How much does it cost to give credit? — How to 
 cover losses with reserve accounts — Hidden losses 
 that weaken the business
 
 CONTENTS 
 
 VIII Keeping Down Miscellaneous Expenses 
 
 How 91 merchants in 14 states handle "overhead" — 
 Store practice that controls general expenses, light, 
 heat, supplies, depreciation and shrinkage 
 
 123 
 
 IV— MAKING MONEY ON HIGHER 
 COSTS 
 
 IX Policies in Retail Cost Keeping . . . 141 
 
 Fixing the value of a cost system in dollars and 
 cents — Successful methods that get results with- 
 out red-tape 
 
 X Standing Up for Your Profit .... 156 
 When is a merchant making a net profit and when 
 is he not? — Four elements that fix profits after a 
 living wage is paid — Typical profits from 80 lines 
 
 XI More Turnovers, the Answer to Higher Costs . 175 
 Taking two profits instead of one — Four methods 
 that speed up the rate of turnover 
 
 FIGURES 
 
 I HOW costs have gone up .... 13 
 
 ii costs and profits from 579 concerns ... 31 
 
 III average costs of doing business .... 33 
 
 IV WHERE THE MONET GOES ...... 39 
 
 V WHAT SIX LINES SPEND FOR RENT .... 58 
 
 VI COSTS IN A RETAIL CLOTHING BUSINESS ... 63 
 
 VII ADVERTISING COSTS IN TWELVE LINES ... 77 
 
 VIII ITEMIZED COSTS FOR FIVE LINES .... 97 
 
 IX PROFITS, COSTS AND DISCOUNTS, BY LINES . . . Ill 
 
 X PROFITS, COSTS AND DISCOUNTS, BY TRADES . . 119 
 
 XI HOW MANY TURNOVERS TO MAKE A PROFIT? . . 127 
 
 XII STANDARDS FOR CHECKING COSTS . . . . 128 
 
 XIII HOW MORE ORDERS INCREASE EXPENSES . . . 131 
 
 XIV- A HANDBILL THAT HOLDS CUSTOMERS . . . 159 
 
 XV HOW RETAILERS' AND MANUFACTURERS' PROFITS COMPARE 161 
 
 XVI DETERMINING, FIGURING AND SECURING PROFITS . . 167 
 
 XVII TURNOVERS IN NINE STORES ..... 177 
 
 XVIII TURNOVERS IN ELEVEN LINES ..... 189 
 
 FORMS 
 
 I A CARD HISTORY OF TURNOVERS .... 143 
 
 II STOCK PLAN FOR SIX MONTHS ..... 143 
 
 III AND IV COMPARING ESTIMATED AND ACTUAL PAYROLLS 146 
 
 V HOW A BUDGET HELPS TO CHECK EXPENSES . . 147 
 
 VI APPROPRIATIONS FOR SUNDRIES ..... 147 
 
 VII AND VIII LISTING DAILY SALES AND PROFITS . . 148 
 
 IX TO XXII COST COMPARISONS THAT CONTROL . . 153
 
 AVERAGE cost of doing business figures from over one 
 thousand five hundred distributive concerns make this book 
 different from any other ever published. Never before has 
 it been possible to obtain figures of this sort from American mer- 
 chants, for they have been jealously guarded "trade secrets." It 
 has been a blind race against rising costs with "the devil take the 
 hindmost." If business is actually growing into a new pro- 
 fession — the greatest of all the professions — then the fifteen hun - 
 dred-odd men who forgot the "trade secret" bogey and made 
 this book possible belong among the founders of that profession. 
 
 There is not space for the one thousand five hundred names, 
 otherwise they would be printed here as fully as the confidential 
 conditions under rvhich the figures were collected would permit, 
 for each merchant deserves as much commendation as the next. 
 They are therefore referred to in a group— a group that binds 
 together by a high ideal men with both large and small material 
 interests: John Wanamaker and John Bellaire; Edward A. 
 Filene and Edward P. Russell, and so on through the long list. 
 
 Although it is not possible to mention individually all who 
 contributed figures and methods to the book, reference must be 
 made to a number of the private, public and semi-public organi- 
 zations that have given generous assistance. These have labori- 
 ously collected cost figures, and their results, when correlated with 
 the other costs obtained in the field by Systems investigators, 
 in no small degree give the book its authority. They also are 
 too numerous for mention in full, but the following particularly 
 deserve the thanks of those who find use for the hundreds of 
 tested means of expense control given in the pages that follow: 
 
 The National Dry Goods Association; The National Associa- 
 tion of Commissary Managers; The National Pipe and Supply 
 Association; The Electric Vehicle Association of America 
 {William P. Kennedy s delivery costs); The National Shoe 
 Wholesalers' Association; The National Association of Retail 
 Grocers of America; The Bureau of Business Research; Harvard 
 Graduate School of Business Administration; The Extension 
 D-ivision, University of Wisconsin; The National Hardware 
 Association of the United States; The National Boot and Shoe 
 Manufacturers' Association; The National Shoe Retailers' 
 Association; The National Wholesale Grocers' Association; The 
 National Retail Hardware Association; The Harvard Cooper- 
 ative Society; The General Fire Extinguisher Company; Robert 
 H. Ingersoll and Brother; Marshall Field and Company; The 
 Curtis Publishing Company; and Wilson Brothers. 
 
 To these and to all who have helped to make this volume 
 poss-ible, grateful recognition is now extended. 
 
 The Publishers
 
 PART I 
 
 HIGHER COSTS 
 
 AND 
 
 HOW TO MEET THEM
 
 THE RISING COST OF DOING 
 BUSINESS 
 
 COSTS are greater," says the manufacturer. ' "Net 
 earnings are lower," states the shipper. "Margin 
 of net profit is closer," the wholesaler and retailer re- 
 spond. "Prices are higher," adds the consumer. 
 
 Cross-section any record of accounts, from cost of 
 making to household budget, and you find the same 
 slowly shrinking percentage left over for profits. It 
 is a big problem. Reasons given are as unsatisfactory 
 as they are many — politics, scarcity of gold, rapid devel- 
 opment of new wants, extravagance, wild financing. 
 Many theories are advanced, few facts. 
 
 Business mtn face facts, not theories. So out of busi- 
 ness has come a nation-wide questioning. 
 
 National bodies of manufacturers, wholesalers, re- 
 tailers, bankers, shippers, are asking not only why profits 
 are dwindling in many lines, but, with conditions as they 
 exist, how to stop this steady gain of costs upon selling 
 prices which constantly threatens to narrow profits 
 down to nothing. . 
 
 Several years ago System presented the results of 
 a cost investigation beginning with these words : ' ' Fif- 
 teen years it takes to make a business man — five to 
 know what goods and clerk hire total ; five to know the 
 cost to keep store-, five to recognize profit and stand up
 
 10 HOW COSTS ARE RISING 
 
 for it." In the interval, this investigation has been 
 widely extended and conditions have improved. Na- 
 tional associations have taken up the work of assembling 
 average costs in this and that line; wholesalers and 
 manufacturers have gathered statistics ; universities like 
 Harvard and Wisconsin have collected figures from 
 many concerns. Special investigators have covered a 
 wide territory and even audited the books of many con- 
 cerns for totals that permit the soundest comparison. 
 A summary of these figures, at first representing the cost 
 of doing business in 579 establishments and gradually 
 extending to include more than 1,500 stores, after repro- 
 duction in System, is in the following chapters pre- 
 sented in fully revised form and with figures most care- 
 fully verified. 
 
 The assembling of this material is one sign of a 
 new era — that of cooperation between manufacturer, 
 distributor and retailer — in which the old-fashioned 
 secrecy that put the average store at the mercy of cut 
 price competition and "shaded" qualities is giving way 
 to the helpful interchange of data. Early in the investi- 
 gation it was found that the more progressive merchants 
 in almost every town selected for study were keenly 
 interested in determining average standards of costs. 
 The investigators worked out a method of tabulating 
 accurate returns in cipher, so as to take care of the 
 merchant's legitimate interest in keeping his figures 
 from his immediate competitors. The result was and 
 still is gratifying, for the investigation has continued 
 successfully and many merchants are still volunteering 
 figures which make the averages on hand constantly of 
 greater value. The readiness of manufacturers, jobbers 
 and dealers to help, their quick recognition of their 
 need and of the value of more definite knowledge of the
 
 COSTS AND PROFITS 11 
 
 proportionate items of costs, indicate a fundamental 
 advance in methods of doing business. 
 
 Magic percentages based on no foundation except 
 legend are constantly cropping out in business. If the 
 manufacturer wants to charge depreciation on a ma- 
 chine — he writes off ten per cent. A wholesaler is at- 
 tempting to fix a price that will protect the retailer — 
 he adds ten per cent. The dealer feels his need of a 
 sum to cover incidentals — again the ten per cent. Busi- 
 ness men are finding, however, that traditional stand- 
 ards no longer hold; that they must know, first, the 
 items which constitute their cost of doing business; 
 second, how these items vary. 
 
 No magic figure for all lines is to be expected. But just 
 as all men are very close to the average man, so out of the 
 investigation of many men's efforts to do business at 
 low cost and with high profit merge reasonable standards 
 for single expense items and fair averages for the total 
 cost of doing business in one and another line, above or 
 below which the average dealer in that line is unwise 
 to go. 
 
 COST standards enable the merchant to match his dis- 
 advantages with his advantages so accurately thai 
 he can easily pick the top-heavy items. 
 
 Rent is, for example, unusually heavy with the furni- 
 ture store, clerk hire with the shoe store ; turnover slow 
 or investment per sale heavy with the jeweler, and ex- 
 actly the opposite with the variety store owner. Even 
 within the same line there are interesting variations 
 which not only explain the success and failure of various 
 concerns, but also indicate how any store can develop an 
 individuality. Where, for example, advertising expense 
 is held down, show-window expense or rent for a central
 
 12 HOW COSTS ARE RISING 
 
 location may be correspondingly high in the cost of doing 
 business. The two factors balance against each other 
 and two merchants having different retail costs succeed, 
 each by making the most of his position. 
 
 Out of comparative figures there is nothing more 
 vital for the merchant to get than a definite realization 
 of his advantages and disadvantages, so that he can 
 economize where necessary and throw the weight of his 
 outlay into that phase of selling or service which counts 
 most in the net result. 
 
 Twelve general lines of business have been chosen for 
 the grouping of the cost figures. These percentages 
 cover an average of something over one thousand con- 
 cerns. What these standard figures are and how to 
 put them to work in your store is the subject matter 
 of the first chapter. In the following three chapters, the 
 subject covered is, roughly, direct selling expense. This 
 is taken to include salaries, with efficiency methods for 
 cutting down the ratio clerk hire bears to sales and to 
 profits; rents and their relation to the store location 
 and the floor space which yields the most profit; adver- 
 tising forces and their effective use by the retailer. 
 
 Operating expenses, including averages and cost-cut- 
 ting methods, occupy the next three chapters. The first 
 deals with delivery costs and cost-cutting; the second, 
 with losses through depreciation, bad debts and so on ; 
 the third with upkeep, supply and miscellaneous 
 expenses. 
 
 In the third section of the book are presented the cost 
 and merchandising policies which the investigation has 
 shown to be the keys to success in some of the most 
 prosperous concerns with which System has come in 
 touch. In this part of the book these resourceful mer- 
 chants give their proved solutions of the problem of
 
 COSTS AND PROFITS 
 
 keeping up with rising costs and strengthening dwindling 
 profits. The establishment of a cost policy and system 
 intended to give you your own figures and enable you to 
 compare them with standards is discussed in the first 
 chapter; mark-ups and profits which, going bej'ond the 
 interest on capital and the manager 's wages, insure him 
 a true profit in return for the extra initiative he has 
 shown and the risks he takes, in the second; turnover, 
 the all important factor of use of investment, in the 
 third and last. 
 
 /o 
 27 
 
 24 
 21 
 18 
 15 
 12 
 "9 
 6 
 
 ,3 
 
 [ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 .' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ,/ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 S 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 '* 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 y 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 .-- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 v 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 jy 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 — 
 
 Department Store (Annual Sales 517,000,000 in 1912) 
 
 
 
 
 
 
 
 
 
 
 
 C 
 
 ) 
 
 O Small Store ( »> '• $25,000" •• ) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 '«8 
 
 W> 1895 1900 1905. 1910 1915. 
 
 FIGURE I: Rising costs of doing business are shovm to be advancing 
 
 with equal rapidity in both large and small stores, for the three lines, each 
 
 representing an actual retml concern, are all but parallel
 
 14 HOW COSTS ARE RISING 
 
 COSTS and PROFITS from TWENTY-FOUR STATES 
 
 Costs of doing business and profits from thirty-eight stores in cities 
 ranging in population from 7,500 to 300,000 or over in twenty-four states 
 are here analyzed. These facts were collected by the National Dry Goods 
 Association. It is exceedingly significant that the average cost of doing 
 business is set at 23.8 per cent of the sales, while SYSTEM'S national 
 investigation, made both independently and previously, fixed the average at 
 23.05 per cent, as detailed on page 20. 
 
 GROSS PROFITS (STATES WITH. FIVE HIGHEST PERCENTAGES): 
 
 Kentucky 33.86% Alabama 30.50% 
 
 Minnesota 33.30% Virginia 31.41% 
 
 Tennessee 33. 12% 
 
 AVERAGE COSTS OF DOING BUSINESS (STATES WITH SIX 
 HIGHEST AVERAGE PERCENTAGES): 
 
 Tennessee 27.34% Nebraska 26.83% 
 
 Indiana 27.00% Alabama 25.94% 
 
 Minnesota 27.00% Texas 25.58% 
 
 AVERAGE NET PROFITS (STATES WITH SIX HIGHEST AVERAGE 
 PERCENTAGES): 
 
 Utah 11.00% Louisiana 9.40% 
 
 Kentucky 10.66% Michigan 8.00% 
 
 West Virginia 9.80% New York 6.00% 
 
 AVERAGE GROSS PROFITS (BY POPULATION AND LOCALITY): 
 
 75.000-100,000 population 33.23% 
 
 15,000-25,000 population 31 .29% 
 
 100,000, and over, population 31 . 07% 
 
 50,000-75,000 population 30 . 20% 
 
 25,000-50,000 population 30.00% 
 
 Farming districts 31 .80% 
 
 Manufacturing and farming localities 30.00% 
 
 Resorts 29 .95% 
 
 Manufacturing centers 29 . 88% 
 
 AVERAGE COSTS OF DOING BUSINESS (BY POPULATION AND 
 LOCALITY): 
 
 300,000, and over, population (lowest) 21 .25% 
 
 75,000-100,000 population (highest) 27 .03% 
 
 Shipping centers 24.88% 
 
 Farming districts 24 . 52% 
 
 Resorts 24 .00% 
 
 Manufacturing centers 23 . 22% 
 
 AVERAGE NET PROFITS (BY POPULATION AND LOCALITY): 
 
 300.000, and over, population (highest) 8.40% 
 
 100,000, and over, population (lowest) 5.91% 
 
 Farming districts 7.5 
 
 Manufacturing centers 6.1 
 
 Manufacturing and farming localities 6.25% 
 
 Resorts 5.95% 
 
 Shipping centers 5 .50% 
 
 A number of interesting facts will be brought out by a few moments' 
 study of these figures. Notice, for instance, that the lowest costs join with 
 the highest net profits in the larger cities. The averages for all of the stores 
 in the twenty-four states are: gross profit, 30.^5 per cent; net profit, 6.Jf5 
 per cent; cost of doing business, 23.8 per cent. It should be understood 
 that these percentages only refer to dry goods stores. The figures that 
 established these averages were carefully audited by experts.
 
 COSTS AND PROFITS 15 
 
 It is fortunately coming to be recognized as the most 
 imperative fact in business that an article costs more, 
 and probably is worth less, every day it lies on your 
 shelves. Against the plan of taking a ten or twenty 
 per cent net profit fifteen years ago, the modern mer- 
 chant matches the plan of taking three or four or five 
 per cent as many times in a year as his father turned 
 his stock in half a decade. 
 
 Before this alert merchandising, the methods of 
 Grandfather's Chair can not stand. The whole process 
 of distribution seems, therefore, to be shifting into line 
 with small stocks and quick turns. 
 
 Fixtures that help the customer decide quickly and 
 for himself have the call over equipment, however costly, 
 that retards turnover. Better appraisal of depreciation 
 and shrinkage, with its accompaniment of frequent 
 clearance sales, is an essential of fast-turn storekeeping, 
 except as buyers grow in skill at balancing stocks ac- 
 curately against standard price demand. The manu- 
 facturer, commission man and wholesaler sometimes 
 complain that they have become large scale retailers to 
 dealers who order small lots incessantly. But those who 
 are making the most money have accepted the situation ; 
 regulated their plants and shipping facilities to this 
 flow of trade ; adopted the policy of short stocks for them- 
 selves ; and thrown t|ie weight of their influence for sound 
 profits, permanent regular trade and short credits. 
 Where the manufacturer has failed to do these things, 
 large retailers have in several instances taken over 
 factories in order that demand might make supply 
 keep step. 
 
 With this period of necessary service and cooperation 
 at hand, no enterprise at any point in the chain of dis- 
 tribution can afford not to know what cost items should
 
 16 HOW COSTS ARE RISING 
 
 be and how to keep the retailer on a sound profit basis. 
 This fact, already sensed by thousands of merchants 
 and manufacturers, is the reason for this book. 
 
 System 's investigations and studies of cost standards 
 and cost control are still going on. These present figures 
 make no pretense to being final, but instead merely at- 
 tempt to offer averages of everyday practices which 
 should help any merchant who studies them to better 
 almost all departments of his storekeeping. More de- 
 tailed figures will be presented and discussed in System 
 from time to time; and as knowledge of costs becomes 
 more general, such standards of expense will, the pub- 
 lishers believe, very greatly improve the balance, sta- 
 bility and general prosperity of American business.
 
 II 
 
 COST FIGURES FROM 1560 
 STORES 
 
 RISING costs all but closed, within the past year, 
 the doors of a department store which counts its 
 annual sales in tens of millions. A month after moving 
 to a new building, the cost of doing business increased 
 from twenty-four and five-tenths per cent of the sales 
 until it reached thirty-three and three-tenths. The 
 president called his directors to a special meeting. ' ' We 
 face ruin," he said to them. "I know that, because our 
 expenses are eating up exactly one-third of our sales. 
 In the old store they never exceeded twenty-six and five- 
 tenths per cent. You know as well as I do that retailing 
 drives ahead under terrific speed nowadays, depending 
 for safety on rapid turnovers at a net profit so small 
 that an increase of a per cent or two means failure. 
 We're seven per cent too high. The fact that we can 
 borrow five hundred thousand within half an hour tem- 
 porarily saves us. But there's a limit to our credit. 
 Therefore, I leave it to you to cut our expense into the 
 twenties before the end of this month. If you don't, 
 we 're going under, taking with us a factory or two. ' ' 
 
 Three directors were at once appointed a committee 
 to reduce expenses. By going through the store, depart- 
 ment by department, they quickly discovered that under 
 the enthusiasm of expanding to the new building,
 
 18 HOW COSTS ARE RISING 
 
 "luxuries" had been allowed to creep into equipment 
 and payroll. These they located and weeded out. A 
 reference library was abandoned, a stenographer dis- 
 charged here and a clerk there, the lights over the mar- 
 quees no longer burned all night, store guides were set 
 to helping behind the counters, the head electrician was 
 assigned to detail work and one of his subordinates 
 released. By the end of the month expenses were twenty- 
 six and two-tenths per cent of the sales. The store is 
 making a satisfactory net profit today. 
 
 A retailer of men's furnishings in an Indiana town 
 was rescued from a corresponding situation by taking a 
 traveling salesman into his confidence. ' ' I sold twenty- 
 nine thousand last year — after taking out thirty-five 
 dollars a week for my work, I had left about two hundred 
 dollars net," he explained. 
 
 The manufacturer had given his selling force rough 
 cost averages for clothing stores and had instructed them 
 to protect future business by helping storekeepers who 
 could not "spot" the expenses which drove their costs 
 too high. The salesman offered to classify the retailer's 
 expenditures. "You're too high on your selling 
 expense," he declared, after figuring out percentages 
 for the more important items. "The sales were 
 $29,030.19 and you paid out, including what you drew 
 yourself, $3,556.57 for wages. That's exactly twelve and 
 a quarter per cent of your sales, and it should be about 
 ten. On that one item alone you're six hundred dollars 
 above the average." 
 
 "That backs up what I've been thinking," replied 
 the retailer. "One of my men asked for a raise just 
 when I was buying out my former partner, and I gave 
 it to him because he knows people about town and I 
 thought I needed his influence. Since then he has
 
 FIGURES FROM 1560 STORES 19 
 
 lain down on the job and I 've had to hire a young fellow 
 from Chicago to help us. I guess that is why I am 
 spending too much, but I had no way of telling. Now 
 he's got to make more sales, stand a reduction, or get 
 out" 
 
 FAILURE or success depends on the exactness of the 
 merchant's knowledge of his costs and gross profit 
 margins because slight variations frequently mean losses. 
 
 Variations in the expense account as slight as these 
 point success or failure today because the cost of doing 
 business, rising with the advance in rentals, wages and 
 supplies, has cut down the net profit on sales. Manu- 
 facturer, middleman, and retailer, you are all three 
 straining with equal power to keep up with your costs. 
 And the consumer, he calls his struggle the high cost 
 of living. Are not net profits in many great manufac- 
 turing businesses dwindling, although the sales volumes 
 were never so large ? Do not the railroads report record 
 breaking gross earnings, but net profits that disappoint 
 their stockholders? Have not those sellers at retail and 
 wholesale who are making money, changed their methods 
 from receiving rooms to counters in the effort to equal 
 with numerous slim profits the single generous profit 
 they took fifteen years ago? 
 
 This uphill climb which retail costs are taking parallels 
 an apparent increase in manufacturing and jobbing 
 expenses of operation. When the cost of doing business 
 goes up one per cent, profits net that same per cent less. 
 The chart on page 13 shows where costs have been 
 going for the past twenty years. Without a halt, they 
 have increased until doubled. For instance, retailers 
 whose memories run back a quarter century recall eight 
 and ten per cent as a normal cost of doing business. A
 
 20 
 
 HOW COSTS ARE RISING 
 
 COST AVERAGES and EXPENSES 
 
 "Costs of doing business" in these tables exclude freight and cartage, 
 losses from mark-downs, and gains through discounts. "Salaries" indicates 
 direct sales payrolls, in some instances including the time spent by the 
 proprietor in selling. "Delivery" and "light, heat and power" include 
 payroll and upkeep charges. All irregular stock losses and all depreciation 
 are listed under "depreciation and shrinkage." Items which cannot be 
 
 DRY GOODS STORE COSTS 
 
 The cost of doing business itemized 
 above is the average for the United States 
 as found by the investigation. Note (1) 
 that stores handling the cheaper stocks 
 have been eliminated; (2) that annual 
 sales volumes of over five hundred thou- 
 sand dollars were not included; (3) that 
 freight and cartage charges are not in- 
 cluded. 
 
 Rent 3.24% 
 
 Salaries 9.65% 
 
 Advertising 1 .67 % 
 
 Heat and light 54% 
 
 Delivery 1.02% 
 
 Supplies 38% 
 
 Insurance and Taxes 1.08% 
 
 General Expenses 4.15% 
 
 Depreciation and Shrinkage 1.11% 
 
 Bad Debts 21% 
 
 Total Percentage of Expenses to 
 
 Sales 23.05% 
 
 AVERAGE DRY GOODS STORE 
 
 This store is in the Southwest. The 
 owner reports that he secures four turn- 
 overs a year through the store at a net 
 mark-up of 28.9 per cent. Note how 
 closely these actual figures check with the 
 averages for the United States given on 
 the left. 
 
 Rent $ 1,550.06 or 3.1% 
 
 Salaries 4,800.19 or 9.6% 
 
 Advertising 750.03 or 1.5% 
 
 Heat and Light 200.01 or .4% 
 
 Delivery 450.02 or .9% 
 
 Supplies 200.01 or .4% 
 
 Insurance and Taxes 550.02 or 1.1% 
 General Expenses . . . 2,200.09 or 4.4% 
 Depreciation and 
 
 Shrinkage 700.03 or 1.4% 
 
 Bad Debts 150.01 or .3% 
 
 Total Expense $11,550.47 or 23.1% 
 
 A SMALL DRY GOODS STORE 
 
 Investigation showed that on the 
 average, small dry goods stores pay out 
 again for expenses 16.21 per cent of their 
 sales. Note that this typical middle- 
 western small store: (1) makes no de- 
 liveries; (2) does not use expensive selling 
 space. 
 
 Rent $ 731.12 or 2.9% 
 
 Salaries 2,546.31 or 10.1 % 
 
 Advertising 302.53 or 1.2% 
 
 Heat and Light 100.84 or .4% 
 
 Delivery 
 
 Supplies 50.42 or .2% 
 
 Insurance and Taxes . 201.69 or .8% 
 General Expenses .... 50.42 or .2% 
 Depreciation and 
 
 Shrinkage 100.S4 or .4% 
 
 Bad Debts 25.21 or .1% 
 
 Total Expense $4,109.38 or 16.3% 
 
 A LARGE DRY GOODS STORE 
 
 Average dry goods stores securing 
 annual sales above two hundred thousand 
 dollars pay, the investigation established, 
 expenses of 24.76 per cent when in com- 
 petition with department stores in the 
 larger cities. This Indiana store typifies 
 them. Note (1) the high advertising per- 
 centage; (2) the rent. 
 
 Rent $ 7,650.37 or 3.4% 
 
 Salaries 22,276.09 or 9.9% 
 
 Advertising 6,975.34 or 3.1% 
 
 Heat and Light 2,025.10 or .9% 
 
 Delivery 3,150.15 or 1.4% 
 
 Supplies 1,575.08 or .7% 
 
 Insurance and Taxes. 2,700.13 or 1.2% 
 General Expenses . . . 4,950.24 or 2.2% 
 Depreciation and 
 
 Shrinkage 3450.15 or 1.4% 
 
 Bad Debts 450.02 or .2% 
 
 Total Expense $64,902.67 or 24.4%
 
 FIGURES FROM 1560 STORES 
 
 21 
 
 from the BOOKS of 1560 CONCERNS 
 
 allocated, administrative and buying salaries, indirect payrolls and invest- 
 ment charges make up "general expense.'' All figures refer to net sales. 
 Add 1.5 per cent for Pacific Coast, southern and mountain states; and 2 per 
 cent for cities over 1+00,000. Deduct .5 per cent for Atlantic Coast and 
 3 per cent for rural districts. Annual sales exceeding $5,000,000, readjust- 
 ments for smaller volumes, and size of packages are not considered. 
 
 GROCERY STORE COSTS 
 
 Analyses of the expenses of groceries 
 scattered from New York to Oregon fixed 
 this average cost of doing business. Note 
 (1) that groceries drawing trade from 
 customers with either small or large 
 incomes are not included; (2) that, since 
 the average mark-up is 19.91 per cent of 
 the selling prices, the turnovers are of 
 necessity rapid and carry a low net profit 
 
 Rent 3.07% 
 
 Salaries 8.46% 
 
 Advertising 83% 
 
 Heat and Light 39% 
 
 Delivery 2.53% 
 
 Supplies 37% 
 
 Insurance and Taxes 58% 
 
 General Expenses 45% 
 
 Depreciation and Shrinkage 76% 
 
 Bad Debts 47% 
 
 Total Percentage of Expenses 
 
 to Sales 17.91% 
 
 AN AVERAGE GROCERY STORE 
 
 In a middle-western town of forty-three 
 thousand this grocery handles annual 
 sales of fifty thousand dollars at an ex- 
 pense close to the average. Note (1) 
 that advertising costs less than in other 
 lines; (2) that delivery expenses amount 
 to almost as much as the rent. 
 
 Rent $2,256.95 or 3.3% 
 
 Salaries 4,067.09 or 8.1% 
 
 Advertising 351 .48 or .7 % 
 
 Heat and Light 251.05 or .5% 
 
 Delivery 954.01 or 1.9% 
 
 Supplies 150.63 or .3% 
 
 Insurance and Taxes . 200.84 or .4% 
 General Expenses .... 150.63 or .3% 
 Depreciation and 
 
 Shrinkage 301 .27 or .6% 
 
 Bad Debts 150.63 or Z% 
 
 Total Expense S8.834.58 or 16.4% 
 
 A SMALL CASH GROCERY 
 
 It is natural that among groceries 
 handling for_ cash only a trade drawn 
 from modest incomes investigation should 
 fix an expense percentage - 14.77 per 
 cent - below the average. These figures 
 from a city store represent this type of 
 grocery. Note (1) that there is no de- 
 livery expense or loss from bad debts; 
 (2) that a good location is, however, 
 rented. 
 
 Rent $ 291.92 or 2.7% 
 
 Salaries 1,048.76 or 9.7% 
 
 Advertising 21.62 or .2% 
 
 Heat and Light 32.44 or .3% 
 
 Delivery 
 
 Supplies 21.62 or .2% 
 
 Insurance and Taxes . . 43.25 or .4% 
 General Expenses ... . 21.62 or .2% 
 Depreciation and 
 
 Shrinkage 86.50 or .8% 
 
 Bad Debts 
 
 Total Expense $1,567.73 or 14.5% 
 
 LARGE CREDIT GROCERY 
 
 Investigation also supported the ac- 
 cepted conclusion that, when groceries sell 
 on credit to an exclusive trade, their ex- 
 penses run above usual levels. These 
 expenses, paid by a city store, typify the 
 average - 18.97 per cent - found for this 
 class of groceries. Note (1) the rent; 
 (2) the wage total; (3) the delivery ex- 
 pense. 
 
 Rent $ 2,009.10 or 2.7% 
 
 Salaries 6,771.40 or 9.1% 
 
 Advertising 595.29 or .8% 
 
 Heat and Light 223.23 or .3% 
 
 Delivery 2,232.33 or 3.0% 
 
 Supplies 297.64 or .4% 
 
 Insurance and Taxes. 223.23 or .3% 
 General Expenses . . . 595.29 or .8% 
 Depreciation and 
 
 Shrinkage 744.11 or 1.0% 
 
 Bad Debts 595.29 or .8% 
 
 Total Expense $14,286.91 or 19.2%
 
 22 HOW COSTS ARE RISING 
 
 VEHICLE STORE COSTS AN AVERAGE VEHICLE STORE 
 
 Here is the percentage pointed by the These figures are from the books of a 
 
 investigation as the average cost of doing store selling $57,600 worth of vehicles and 
 
 a vehicle and implement business in the implements annually in an eastern city of 
 
 United States. Note (1) that this cost is thirty-three thousand. They total to 
 
 second above the lowest fixed - the aver- within one per cent of the average for the 
 
 age for mail order houses (1.5.02 per cent); country given to the left. 
 
 (2) that salaries are proportionately high Rent SI 094 63 or 1 9% 
 
 because sales are not large enough, indi- Salaries'. '. '.'.'.'.'.'.'.'.'.'. '. 531&81 or loil % 
 
 vidually, to counterbalance their inire- Advertising 633.73 or 1.1% 
 
 quency. Heat and Light.'.' '.'.'.'. 345^67 or .6% 
 
 Rent 2.12% Delivery 518.51 or .9% 
 
 Salaries 9.41 % Supplies 230.45 or .4% 
 
 Advertising 1.22% Insurance and Taxes. . 460.90 or .8% 
 
 Heat and Light 51 % General Expenses .... 230.45 or .4% 
 
 Delivery 1.06% Depreciation and 
 
 Supplies 42% Shrinkage 403.28 or .7% 
 
 Insurance and Taxes 1.04% Bad Debts 115.22 or .2% 
 
 General Expenses 71 % 
 
 Depreciation and Shrinkage 62% 
 
 Bad Debts 33% 
 
 Total Percentage of Expenses to 
 
 Sales 17.44% Total Expense $9,851.65 or 17.1% 
 
 girl who could satisfactorily trim hats would work for 
 three dollars a week then. Purchases were wrapped in 
 old newspapers, costing ten cents a package, and cus- 
 tomers not only were willing to wait their turn to buy, 
 but carried home what they bought. Two dollars spent 
 for printing and circulating an annual announcement 
 card covered advertising expenses ; coal could be had for 
 two dollars and a half a ton. 
 
 Eben Jordan, founder of Jordan, Marsh and Com- 
 pany, could have recalled an expense percentage of six- 
 teen per cent in his department store, which is now prob- 
 ably glad to handle the largest retail volume in New 
 England at more than one and a half times that cost. 
 About fifteen years ago grocers thought ten to twelve 
 per cent a reasonable expense percentage. Today fifteen 
 to twenty per cent is a fair average. Reports from over 
 seventy per cent of the members of a large association 
 of shoe wholesalers show that their average cost of doing 
 business has risen from eleven per cent in 1905 to thir- 
 teen per cent in 1912.
 
 FIGURES FROM 1560 STORES 
 
 23 
 
 VARIETY STORE COSTS 
 
 Typical variety stores in the United 
 States were found to be paying, when av- 
 eraged, these expenses. Note (1) that 
 rents rank high because good locations are 
 usually demanded; (2) that the advertis- 
 ing expenditure includes "leaders" put on 
 the counters at a loss to attract trade; (3) 
 that, since the turnover is rapid and the 
 cost of doing business low, this line is 
 profitable under a suitable volume and 
 mark-up. 
 
 Rent 4.41% 
 
 Salaries 8.86% 
 
 Advertising 1.52% 
 
 Heat and Light 81% 
 
 Delivery 
 
 Supplies 21% 
 
 Insurance and Taxes 98% 
 
 General Expenses 91 % 
 
 Depreciation and Shrinkage 06% 
 
 Bad Debts 
 
 Total Percentage of Expense to 
 
 Sales 17.76% 
 
 AN AVERAGE VARIETY STORE 
 
 These figures from a variety store in a 
 town of two thousand check well with the 
 average for the country. The sales total 
 about eleven thousand dollars a year. 
 Note (1 ) that there are no delivery charges 
 and no losses from defaulted debts; (2) 
 that this store can net fifty per cent on the 
 i nvestment under a net mark-up of twenty- 
 three per cent through ten turnovers. 
 
 Rent $ 451.49 or 4.1% 
 
 Salaries 980.07 or 8.9% 
 
 Advertising 165.18 or 1.5% 
 
 Heat and Light 19.11 or .9% 
 
 Delivery 
 
 Supplies 22.02 or .2% 
 
 Insurance and Taxes. . 99.11 or .9% 
 General Expenses .... 55.06 or .5% 
 Depreciation and 
 
 Shrinkage 11.01 or .1% 
 
 Bad Debts 
 
 Total Expense $1,803.05 or 17.1% 
 
 Here is a comparison of the costs of doing business 
 during 1883 and 1913 in a small department store which 
 has made money for over thirty years in a city now 
 rapidly growing out of the twenty-five thousand class: 
 
 1883 1913 
 
 Rent 1.9% 3.2% 
 
 Salaries 5.3% 9.1% 
 
 Advertising 9% 1.5% 
 
 Heat and Light 3% .5% 
 
 Delivery 1.6% 
 
 Supplies 2% .4% 
 
 Insurance and Taxes 5% 1.1% 
 
 General Expenses 2% .4% 
 
 Depreciation and Shrinkage 6% .9% 
 
 Bad Debts .2% 
 
 9.9% 18.9% 
 
 Many reasons may be assigned to explain these rising 
 costs — competition, constant changes in styles, diversi- 
 fied stocks and dozens of other causes. Whatever the 
 reason, the method whereby any merchant ttiav crgf-. cm »
 
 24 
 
 HOW COSTS ARE RISING 
 
 HARDWARE STORE COSTS 
 
 This is the standard cost of retailing 
 hardware in America as fixed by analyses 
 of typical stores in Canada and the United 
 States. Note that the business takes 
 healthy net profits but does not secure as 
 many sales as stores handling lines in- 
 volving lower average costs. Reports 
 indicate that often concentration on 
 profitable repairs results in dingy hard- 
 ware selling floors and lost sales. 
 
 Rent 3.41% 
 
 Salaries 10.11% 
 
 Advertising 1.12% 
 
 Heat and Light 43% 
 
 Delivery 91% 
 
 Supplies 60% 
 
 Insurance and Taxes 99% 
 
 General Expenses 2.01 % 
 
 Depreciation and Shrinkage 52% 
 
 Bad Debts 31% 
 
 Total Percentage of Expenses to 
 
 Sales 20.41% 
 
 AN AVERAGE HARDWARE STORE 
 
 In an Indiana town of about five 
 thousand a hardware store with sales of 
 forty -five thousand dollars a year pays 
 these expenses, which are remarkably 
 close to the standard. Note (1) that 
 salaries are excessive because sons of the 
 owners work in the store at abnormal 
 wages; (2) that the losses from bad debts 
 are unusually high. 
 
 Rent $1,305.61 or 2.9% 
 
 Salaries 5,042.35 or 11.2% 
 
 Advertising 405.20 or .9% 
 
 Heat and Light 225.10 or Jb% 
 
 Delivery 270.13 or .6% 
 
 Supplies 180.08 or .4% 
 
 Insurance and Taxes . . 495.23 or 1.1 % 
 
 General Expenses 360.17 or .8% 
 
 Depreciation and 
 
 Shrinkage 225.10 or .5% 
 
 Bad Debts 180.08 or .4% 
 
 Total Expense $8,689.05 or 19.3% 
 
 firm foundation and keep ahead of rising costs is clear. 
 Each individual must know accurately his costs of doing 
 business. He must find, by such carefully collected and 
 averaged figures as are here given, just what these 
 standards of cost may be expected to be under present 
 conditions. Not until then can he work intelligently 
 with the reasons. 
 
 The charts given in these pages are typical of condi- 
 tions which affect today every distributor of a product — 
 manufacturer, jobber, retailer. Here are average costs. 
 What is to be done about them? How do they grow — 
 can they be reduced? 
 
 They grow because the entire course of distribution is 
 changing. Producers, jobbers and retailers are making 
 over their methods in the effort to keep up with busi- 
 ness expenses. The retailer attempts to sell out his stock 
 a number of times at the dwindling net profit in order 
 to secure the one long profit which could be taken twenty- 
 five years ago on a single turnover. To do this he must
 
 FIGURES FROM 1560 STORES 25 
 
 CLOTHING STORE COSTS AN AVERAGE CLOTHING STORE 
 
 This average cost of selling clothes at This cost of doing business is paid by 
 
 retail in the United States was set by the a clothier in the middle-west who secures 
 
 investigation's analyses of actual figures annual sales of sixty thousand dollars, 
 
 from all sections of the country. Note Note (1) that the rent is low because an 
 
 that stores in large cities, for which a entire building was leased and improved 
 
 separate cost standard of 30.12 per cent until space not needed for selling could be 
 
 was fixed, are not included; (2) that the subleased at a profit; (2) that the cost of 
 
 advertising expenditure is the highest heating is reduced by supplying tenants; 
 
 scheduled in the standards, if furniture (3) that these savings are thrown into the 
 
 and department stores are excepted. advertising appropriation. 
 
 Rent 3.04% Rent $ 1,322.24 or 2.2% 
 
 Salaries 9.49% Salaries 5,469.29 or 9.1% 
 
 Advertising 3.16% Advertising 2,043.47 or 3.4% 
 
 Heat and Light 62% Heat and Light 180.31 or .3% 
 
 Delivery 65% Delivery 360.61 or .6% 
 
 Supplies 43% Supplies 120.20 or .2% 
 
 Insurance and Taxes 1.07% Insurance and Taxes . 661.12 or 1.1% 
 
 General Expenses 2.31% General Expenses . . . 1,081.84 or 1.8% 
 
 Depreciation and Shrinkage 2.16% Depreciation and 
 
 Bad Debts 34% Shrinkage 1.322.24 or 2.2% 
 
 Bad Debts 240.41 or .4% 
 
 Total Percentage of Expenses to 
 
 Sales 23.27% Total Expense $12,801.73 or 21.3% 
 
 buy frequently in small quantities, instead of once or 
 twice a year. Wholesalers are forced to become prac- 
 ticaDy retailers on a large scale. "The druggists are 
 now sending in orders for dozens in lines which they 
 formerly bought by the case, ' ' says a partner in a middle- 
 western wholesale house. "We, therefore, have to carry 
 our stock in a different way and go to considerable added 
 expense for rehandling. If this development continues, 
 our concern will be nothing more than a large retail 
 drug store." The manufacturer, warned of changing 
 conditions by the jobbers, no longer makes goods far 
 ahead to store them for demand, but fits his production 
 to the call for frequent small orders. 
 
 Fixtures, service and increased stocks add to the 
 retailer's cost. Behind him are the manufacturer and 
 jobber. In many lines the manufacturers have turned 
 to styles as a competitive weapon and constantly bid for 
 trade with new designs. This means more machinery, 
 more labor, more overhead. And the jobbers, as has been
 
 26 HOW COSTS ARE RISING 
 
 DRUG STORE COSTS AN AVERAGE DRUG STORE 
 
 Costs of doing a retail drug business The expenses here itemized are paid by 
 were averaged to this standard. Note(l) a druggist who handles annual sales of 
 that, if department, furniture and jewelry twenty thousand dollars in a middle- 
 stores are not considered, higher rents western city. They are close to the 
 are paid than in any other standard retail average for the country, given to the 
 activity; (2) that soda fountain profits right. Net gains from the soda profit are 
 normally make it possible to pay the sufficient to care for the 3924.65 spent 
 high rents; (3) that many specialties not for rent. 
 
 connected with old line drug stocks are Rent $ 924.65 or 4.6% 
 
 now used to build net returns above the Salaries 2,191.01 or 10.9% 
 
 rising expenses. Advertising 522.64 or 2.6% 
 
 Rent 4.02% Heat and Light 160.81 or .8% 
 
 Salaries 10.95% Delivery 80.40 or .4% 
 
 Advertising 1.76% Supplies 60.30 or .3% 
 
 Heat and Light 69% Insurance and Taxes . . 281.41 or 1.4% 
 
 Delivery 51% General Expenses 482.42 or 2.4% 
 
 Supplies 36% Depreciation and 
 
 Insurance and Taxes 121% Shrinkage 100.50 or .5% 
 
 General Expenses 4.49% Bad Debts 40.20 or .2% 
 
 Depreciation and Shrinkage 47% 
 
 Bad Debts 19% 
 
 Total Percentage of Expenses to 
 
 Sales 24.65% Total Expense $4,844.34 or 24.1% 
 
 shown, now carry stocks so diversified that their total 
 purchases in 1880 would not fill out some single lines 
 bought to present standards. 
 
 So much for the way in which costs are increasing 
 and the changes in trade which follow in the wake of 
 rising costs. More important to the man who is paying 
 rent and hiring clerks is the question of how to reduce 
 the cost of doing business. 
 
 First, all must agree — stop guessing. 
 
 Retailers go to the sheriff at the rate of thirty a day 
 because they guess. Here are the proportions of the 
 retailers in three places who are actually guessing today 
 about their cost of doing business : 
 
 Town of 5,000 (Indiana) 95% 
 
 City of 30,000 (Illinois) 39% 
 
 City of 26,000 (Illinois) 29% 
 
 Dealers in towns and cities of this size sell over two 
 billion dollars' worth of merchandise every year; and 
 their competition, a large percentage of it based on
 
 FIGURES FROM 1560 STORES 
 
 27 
 
 FURNITURE STORE COSTS 
 
 The standard here given is the average 
 found after analyzing the cost of retailing 
 furniture in the United States. Note (1) 
 that the bulky nature of the stocks drives 
 rent higher than in any other itemized 
 national average, those for department 
 and jewelry stores excepted ; (2) that gener- 
 al expenses are unusually heavy, partly on 
 account of the incidental repairing neces- 
 sitated by poor packing. 
 
 Rent 5.04% 
 
 Salaries 9.73% 
 
 Advertising 2.72% 
 
 Heat and Light 92% 
 
 Delivery 94% 
 
 Supplies 41 % 
 
 Insurance and Taxes 1.57% 
 
 General Expenses 1.10% 
 
 Depreciation and Shrinkage 2.14% 
 
 Bad Debts 1.94% 
 
 Total Percentage of Expenses to 
 Sales 26.51% 
 
 AVERAGE FURNITURE STORE 
 
 These figures from a store which sells 
 one hundred thousand dollars' worth of 
 furniture a year in the south are typical 
 of the average established for the line in 
 this country. Note that the loss from bad 
 debts is the heaviest encountered among 
 the costs here assembled from stores 
 operating under normal conditions. 
 
 Rent $ 5,511.56 or 5.5% 
 
 Salaries 8,317.60 or 8.3% 
 
 Advertising 2,906.15 or 2.9% 
 
 Heat and Light 801.70 or .8% 
 
 Delivery 1,102.33 or 1.1% 
 
 Supplies 501.06 or .5% 
 
 Insurance and Taxes . 1,402.97 or 1.4% 
 General Expenses . . . 1,803.82 or 1.8% 
 Depreciation and 
 
 Shrinkage 1,904.03 or 1.9% 
 
 Bad Debts 1,202.54 or 1.2% 
 
 Total Expense S25.453.76 or 25.4% 
 
 guesswork, helps set prices. If they sell a shirt for two 
 dollars and guess they make a dime, but really lose three 
 cents, every other retailer has to meet their price and 
 attempt to make up the loss elsewhere. The owner of 
 one of the most extensive shoe factories in this country 
 believes that a majority of the dealers in shoes at retail 
 would be found insolvent if expert accountants were to go 
 over their books. 
 
 GUESSING at costs partly explains why merchants 
 complain that, when the year is over and the balance 
 struck, profits are smaller than they anticipated. 
 
 There are two reasons for this continued guesswork 
 which endangers the retailers' profits and leaves the 
 jobbers or manufacturers in the dark about the dis- 
 tribution expenses to be covered in over-the-counter 
 prices. First, nine retailers out of ten refuse to talk 
 freely about their sales and expenses. Second, the run 
 of retailers find it difficult to figure overhead charges
 
 £8 
 
 HOW COSTS ARE RISING 
 
 JEWELRY STORE COSTS 
 
 Jewelers, investigation showed, pay the 
 highest average retail expenses, if some 
 of the largest department stores are over- 
 looked. The standard is here given. 
 Note (1) that the turnovers secured under 
 these high costs are slow; (2) that, there- 
 fore, net profits are often unsatisfactory, 
 even when heavy net mark-ups are real- 
 ized; (3) that, hence, safe novelties and 
 healthier returns from repairs are needed. 
 
 Rent 4.98% 
 
 Salaries 10.96% 
 
 Advertising 2.85% 
 
 Heat and Light 61 % 
 
 Delivery 09% 
 
 Supplies 89% 
 
 Insurance and Taxes 1 .32% 
 
 General Expenses 3.95% 
 
 Depreciation and Shrinkage 95% 
 
 Bad Debts 21 % 
 
 Total Percentage of Expenses to 
 Sales 26.81% 
 
 AN AVERAGE JEWELRY STORE 
 
 In Kansas one jeweler's books show 
 these expense payments. There is not 
 an item in which they vary from the na- 
 tional average by more than two per cent. 
 An Indiana jeweler has cut his payroll to 
 five per cent by advertising his repair 
 bench and dividing the clerks' time be- 
 tween it and the counters. 
 
 Rent $1,080.40 or 3.6% 
 
 Salaries 3,361.23 or 11.2% 
 
 Advertising 1,050.38 or 3.5% 
 
 Heat and Light 180.07 or .6% 
 
 Delivery 30.01 or .1% 
 
 Supplies 270.10 or .9% 
 
 Insurance and Taxes. 540.20 or 1.8% 
 
 General Expenses 630.23 or 2.1 % 
 
 Depreciation and 
 
 Shrinkage 369.13 or 1.2% 
 
 Bad Debts 90.03 or .3% 
 
 Total Expense $7,592.78 or 25.3% 
 
 and apportion them among lines. They know the invoice 
 cost, the freight charges, and the clerk hire total, but 
 get into trouble when it comes to calculating general 
 expenses and figuring charges to capital. 
 
 If to stop guessing is the first step in the way to reduce 
 the cost of doing business, the second is to make com- 
 parisons with standards. A mass of statistics is pre- 
 sented in table form in this chapter. Retailers in the 
 several lines may compare their costs with the averages 
 and with the actual costs in the stores chosen. 
 
 In making any of these comparisons it is of course 
 necessary that each retailer know his own expenses. The 
 stock he buys probably all comes in through the back 
 door of the store ; there is one entrance for it and one 
 place for sorting and checking it. He must put the same 
 degree of restriction around the money he handles in 
 the store. He must see that it gets out of the cash 
 drawer in but one way — through an expense account 
 carefully classified. By thus scheduling his costs and
 
 FIGURES FROM 1560 STORES 29 
 
 COSTS FROM A JEWELRY DE- COSTS FROM A WHOLESALE 
 
 PARTMENT JEWELRY STORE 
 
 This is a department in a large depart- This is a prosperous wholesale jewelry 
 raent store in the east. The rate of turn- business situated west of the Mississippi 
 over is about twice as high as any repotted river. It is probable that this cost of 
 from individual stores. The net profit on doing business is higher than in the ma- 
 each turn is lower, however, and the costs jority of lines at wholesale. 
 
 higher. Rent $ 3,600.99 .9% 
 
 Rent $20,184.64 5.6% Salaries 36,410.01 9.1% 
 
 Salaries 35,683.56 9.9% Advertising 1,600.44 .4% 
 
 Advertising 14,778.04 4.1 % Heat and Light 3 600.99 .9% 
 
 Heat and Light 3,243.96 .9% Delivery 3,200.88 .8% 
 
 Delivery 3,964.84 1.1% Supplies 6,401.76 1.6% 
 
 Supplies 5,046.16 1.4% Insurance and Taxes. . 2,800.77 .7% 
 
 Insurance and Taxes. . 2,883.52 .8% General Expenses fc,402.31 2.1% 
 
 General Expenses .... 15,498.92 4.3% Depreciation and 
 
 Depreciation and Shrinkage 3.200.8S .8% 
 
 Shrinkage 6.127.48 1.7% Bad Debts 3,600.99 .9% 
 
 Bad Debts 360.44 .1% 
 
 Tota Expenses $107,771.56 29.9% Total Expenses $72,820.02 18.2% 
 
 thinking out the conditions under which he sells goods, 
 he will strike upon the one paying way to get quality, 
 volume and profits pulling together in his locality. The 
 lines which yield the most will become evident. One 
 retailer, when he got these facts, discovered that he could 
 put his business to work on an ' ' allowance. ' ' He treated 
 it like a son going away to school, and permitted it to 
 spend for expenses only a reasonable amount. Most 
 important of all, he saw that it accounted to him regu- 
 larly and accurately for its expenditures. 
 
 After the figuring of these detailed costs of doing 
 business becomes a part of his routine work, the retailer 
 will find that the keeping of them is more than a mere 
 policy. The use of accurate costs is in fact a principle — 
 a necessary doctrine which if avoided either retards 
 normal growth or brings about bankruptcy. John 
 Bellaire of Blaney says that the lack of accurate knowl- 
 edge of this sort cost him thirty thousand dollars. He 
 paid the price and now his store nets a fat profit every 
 year. Use the averages here given to find where you
 
 30 
 
 HOW COSTS ARE RISING 
 
 SHOE STORE COSTS 
 
 This is the itemized average cost of 
 retailing shoes set for the country by the 
 investigation. Note (1) that rents are 
 high; (2) that salaries are also heavy, pro- 
 portionately. These conclusions, there- 
 fore, follow: (1) that, under normal mark- 
 ups, net profits are weak; (2) that, hence, 
 your success demands closer buying in 
 styles, frequent re-ordering of in-stock 
 lines, and less idle time. 
 
 Rent 3.21% 
 
 Salaries 10.51 % 
 
 Advertising 1.65% 
 
 Heat and Light 1.10% 
 
 Delivery 46% 
 
 Supplies 30% 
 
 Insurance and Taxes 1.03% 
 
 General Expenses 4.36% 
 
 Depreciation and Shrinkage 50% 
 
 Bad Debts 10% 
 
 Total Percentage of Expenses to 
 
 Sales 23.22% 
 
 AN AVERAGE SHOE STORE 
 
 These figures from a New England shoe 
 store fit the average closely. Three and 
 one-half turnovers are made under a 
 mark-down loss of about nine per cent. 
 Therefore, the owner is forced to realize 
 through the stock a mark-up close to 
 thirty -five per cent in order to get a sound 
 net profit. 
 
 Rent $ 778.13 or 3.1% 
 
 Salaries 2,786.21 or 1 1.1% 
 
 Advertising 376.51 or 1.5% 
 
 Heat and Light 225.91 or .9% 
 
 Delivery 75.30 or .3% 
 
 Supplies 100.40 or .4% 
 
 Insurance and Taxes . . 301.21 or 1.2% 
 General Expenses ... . 1,029.14 or 4.1% 
 Depreciation and 
 
 Shrinkage 150.61 or .6% 
 
 Bad Debts 25.10 or .1 % 
 
 Total Expense $5,848.52 or 23.3% 
 
 stand, next fix percentages for your business and then 
 get it into the running. If possible cooperate with the 
 other dealers in your town and see that they are not sap- 
 ping common gross profits by using mark-ups which do 
 not make a fair allowance for the rising cost of doing 
 business. C. J. Ricker, in Emporia, and Gorton Rush- 
 mer, in Pueblo, for example, have interested their fellow 
 retailers in cooperation to the benefit of the profits of all. 
 The averages that are given on pages 20 to 30, when 
 studied in connection with the chart on page 31, en- 
 able the manufacturer also to cross-section the dis- 
 tribution of his product. Since rising costs are lead- 
 ing the retailer to buy small lots, manufacturers are 
 faced with new equipment and supply problems in their 
 efforts to handle orders smoothly. Deliveries become 
 of the greatest importance. In order to secure quicker 
 shipments, the larger stores are either building factories 
 or guaranteeing entire capacities. Marshall Field and 
 Company, Wanamaker and Filene are making many of
 
 FIGURES FROM 1560 STORES 
 
 31 
 
 the lines they sell. The small retailer can be shown 
 through salesmen that quicker deliveries mean more 
 equipment and be told of the manufacturers' efforts to 
 adjust their plans to the new demands. As one manu- 
 
 RETAIL MARK-UPS, COSTS AND PROFITS 
 
 50- 
 
 tt- 
 
 '< * 
 
 I— Cost of Doing Business 
 
 ^vV^£-;>t*V"""*»j == Nb» ProCt (Single Turnover) 
 
 FIGURE II: This chart shows gross mark-ups, the averages of figures 
 from 579 concerns, divided into costs and net gains. Since only one turn- 
 over is represented, the net profits on the retailers' investments are not included 
 
 facturer puts it, ask the retailer to buy only the styles * 
 his market demands; guard him against overstocking. . 
 
 Another manufacturer finds it profitable to send a 
 cost accountant once a year to each retailer represented
 
 32 HOW COSTS ARE RISING 
 
 on his books. In this way he anticipates conditions 
 typified by the experience of an Indiana clothier who 
 had been buying a standard line of hats direct from the 
 maker, usually about two thousand dollars' worth at the 
 beginning of a season. A strike closed the factory 
 recently and deliveries could not be made. Therefore, 
 this retailer placed a small hat order — $256.25, to be 
 exact — with a jobber. To his surprise, he found that 
 this supply handled his demand nicely, until, the strike 
 continuing, he could duplicate it from the jobbing house. 
 He then saw eight turnovers where he had secured one 
 before and eight times his former profit on the invest- 
 ment. Now the manufacturer, to hold his trade, is 
 forced to handle his business in small lots. 
 
 Further, if it is agreed that prices are to be wisely 
 set for the counters at the factories, manufacturers can 
 protect their interests by knowing what it costs to retail 
 their products. Salesmen may help retailers who are 
 guessing. It is the man with his expenses well in hand 
 who safely takes up the precarious game of price cutting, 
 for his profits are partly possible because some of his 
 competitors are guessing in their costs on lines and 
 taking too heavy a profit on those which turn quickest. 
 He, often seeing that a narrow profit will still give a net 
 gain because of the rapid turnover, cuts a fixed price. 
 Many a small retailer has lost his savings and destroyed 
 one of a manufacturer's outlets for the want of standards 
 against which to check his expenses, or the advice of a 
 man able to take a trial balance. 
 
 Many a wholesaler, too, will profit by a closer knowl- 
 edge of exact costs of doing business in his trade. One 
 large Chicago jobbing house recently met a retailer's 
 demand for small shipments by rearranging the stock 
 rooms for quick order filling. They also explained to the
 
 FIGURES FROM 1.560 STORES 
 
 33 
 
 merchants through their salesmen that small orders cost 
 them, more to handle and that returns resulting from 
 poor buying are expensive. 
 Ask the retailer to know his cost so that your lines 
 
 AVERAGE COSTS OF DOING BUSINESS 
 
 % 
 
 
 
 
 
 
 
 26_ 
 24 _ 
 22_ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 20 _ 
 
 
 
 
 
 
 
 
 
 
 
 
 18_ 
 16 _ 
 14 _ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 12 _ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 10 _ 
 
 . 
 
 
 
 
 
 
 
 
 
 
 
 
 8 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 '.■'?•:•':':.' 
 
 
 
 
 
 
 
 
 
 
 «_j 
 
 
 
 
 
 
 
 
 
 
 
 
 
 2_ 
 
 ■-£■.'' 
 
 
 v-Jj ••'•.'■ 
 
 
 
 
 
 
 
 
 
 
 
 
 f, NS 
 
 
 
 : |^ 
 
 M 
 
 » 
 
 a 6?' 
 
 
 3 *£■ 
 
 '.' : £ : *iO-'. 
 
 I 
 
 
 
 '■'•IS •<£ ' 
 
 'c S 
 
 ■£-i& 
 
 o £ 
 
 K* 
 
 <v 
 
 i' ■■■?■•. 
 
 . 
 
 Ch £ 
 
 
 £■&• 
 
 (32 
 
 .; & 
 
 > Si 
 
 D S 
 
 :#«i 
 
 «> r« 
 
 ■;r 8?. 
 
 as 
 
 -^ .-^ 
 
 q4 
 
 
 
 :•;•:■/ '•:•;■• 
 
 
 
 
 
 
 
 
 
 
 ■.-:/:•:•:- 
 
 
 FIGURE III: Comparison of this chart of costs with that on page 31 
 demonstrates that department stores, purchasing for rapid clearances, profit- 
 ably overcome high costs by taking small net gains on numerous turnovers 
 
 can have a fair showing when profit-figuring time comes 
 round. Credits may be protected by helping the retailer 
 to a knowledge of what they cost. Several manufac- 
 turers have cost bureaus, and there is no reason why the
 
 34 HOW COSTS ARE RISING 
 
 work cannot profitably be undertaken by the wholesaler. 
 He can assist the storekeepers who order from him by 
 placing at their service the advice and knowledge of his 
 staff for working out profits or costs. One of the largest 
 wholesalers in the country has an office given over 
 entirely to work of this nature. 
 
 Finally, the keenest weapon at hand for use against 
 rising costs is cooperation of manufacturer, middleman 
 and retailer. The prosperity of one is impossible if the 
 other two are not making a fair profit. The conditions 
 which are continually driving costs upward demand 
 common consideration until an adjustment fair to all 
 is reached. The sellers of groceries at wholesale and 
 retail are already in consultation, and the manufacturers, 
 wholesalers and retailers of shoes have come together 
 through their national organizations. By such affilia- 
 tions for the interchange of opinions and facilities within 
 reasonable limits will the business men of the country 
 who make or handle goods be able to adjust themselves 
 more quickly to the difficult present-day task of securing 
 fair gains with reduced net sales' profits »
 
 PART II 
 
 WHAT IT COSTS TO SELL 
 THE GOODS
 
 Ill 
 
 THE COST OF MAKING 
 SALES 
 
 READJUSTMENTS are taking place in policies and 
 methods of distributing goods. In certain direc- 
 tions the wholesaler sees his importance diminishing. 
 Just as evident is the tendency on the part of the metro- 
 politan merchant to make his own goods. And in 
 another field some retailers think they are losing out 
 against the chain store or direct selling. 
 
 Every owner and manager realizes these conditions. 
 The wholesaler gets small lot orders, the manufacturer 
 with private brands confronts substitution and price- 
 cutting, and the retailer struggles with style changes. 
 The problem is broader than business. It touches the 
 pocket book of the individual consumer. It is inter- 
 woven with standards of living and the economic develop- 
 ment of the United States. 
 
 The one big, tangible fact underlying all this unrest in 
 distribution is rising costs. Everyone knew costs were 
 rising. Many had records within their own concerns 
 which helped them hold down their costs. But few could 
 see these standards in comparison with those of other 
 owners and managers in the same and different lines. 
 Now that a group of such standards has for the first 
 time been brought together, salaries and wages show as 
 the highest single items in every line covered by an
 
 38 SELLING EXPENSE 
 
 investigation which has tabulated the actual costs in 
 nearly one thousand retail establishments. Naturally, 
 therefore, examination of this item of help, as compared 
 with reasonable averages, has been fruitful of savings 
 and increased sales effectiveness in many stores. 
 
 Losses of supplies and stock worth $439.34 from each 
 clerk's routine work were recently discovered by John 
 I. Bellaire after he had carefully tabulated a year's leaks 
 in his store at Blaney, Michigan. By re-weighing typical 
 sales without warning, and establishing the most econom- 
 ical standards for the use of supplies, he found that an 
 eighteen-dollar-a-week man was destroying profits equal 
 to forty-five per cent of his wages. Overweights in the 
 everyday grocery lines had cost Mr. Bellaire $375.38. 
 For instance, his average salesman, according to esti- 
 mates based on the losses fixed by the re-weighings made 
 at random, gave away sugar invoiced at $19.50, tea 
 worth $78.00 and coffee valued at $58.40. Each man 
 also used about a pound more of wrapping paper a day 
 than was necessary. This loss cost, at three and one-half 
 cents a pound, $10.92 during the year. The use of paper 
 bags too large for purchases took $21.84, and excessive 
 generosity with twine added $31.20 to the total. 
 
 That by actual count in this going store wasted twine 
 and extra half ounces should bulk into hundreds of dol- 
 lars within a year, demonstrates that after all profits 
 depend largely upon the cooperation of employees. The 
 pay of salesmen in over a thousand stores marketing 
 twelve standard classes of products averages 8.87 per 
 cent of the sales — the largest single item in the cost of 
 doing business at retail. More important than this, how- 
 ever, is the fact that the salesmen handle the goods and 
 put them into the customers' hands. They work with 
 the four storekeeping requirements which measure the
 
 SALES WAGES AND QUOTAS 
 
 39 
 
 'Where the Money Goes 
 
 
 
 
 Groceries 
 
 
 
 
 
 
 
 «%- 
 
 '3%- 
 
 
 
 Furniture , 
 
 
 
 
 
 
 
 
 
 
 Drugs 
 
 ■ 
 
 
 
 
 
 
 
 • 
 
 3%- 
 
 
 1 
 
 I9%r. 
 
 
 
 
 
 .Hardware 
 
 
 
 
 ; 
 
 
 
 
 %%- 
 
 
 
 
 
 
 
 
 Clothing 
 
 
 
 
 
 
 
 
 
 
 
 
 
 • Jewelry- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Rent 
 
 Salaries 
 
 Advertis- 
 ing 
 
 Delivery 
 
 Heat 
 J-ight 
 
 and 
 .Taxes 
 
 .General 
 Expense 
 
 Depreci- 
 ation and 
 Shrinkage 
 
 Supplies 
 
 Bad Debts 
 
 FIGURE IV: That businesses are all very much alike is shown by this 
 
 chart of itemized average costs in six standard lines. Rent, salaries, and 
 
 advertising i?i every case take the major portion of the expenditures 
 
 retailer's profits — stock, supplies, time and service. 
 
 The salesman who stands behind a counter and hands 
 customers what they ask for may often be replaced to 
 advantage by a mechanical contrivance; the man who
 
 40 SELLING EXPENSE 
 
 THE EIGHT INTRODUCTION 
 
 Saleswoman (turning from her 
 last customer to the woman 
 who should be served next) : 
 "Good morning" (waits for 
 customer to speak). 
 
 Customer: "I want a suit." 
 
 capably advises the purchaser, actually merchandises the 
 small bit of the store's stock placed in his control, and 
 in other ways gives life to the service which his employer 
 advertises, cannot safely be displaced. 
 
 Which of these two types his store is to have rests 
 largely with the retailer himself. He hires his men and 
 is responsible for their training. He may either freely 
 use the experience of others who have studied the 
 handling of men, or check his clerks against actual losses 
 like those discovered by Mr. Bellaire. 
 
 Investigations recently made among retailers in four 
 states show that they are using, either consciously or 
 unconsciously, common methods in working out this 
 responsibility for getting more profit out of their sales- 
 men. Men employing thousands and men paying off 
 only one or two on Saturday night agree that to secure 
 the best results from a salesman he needs to be given 
 the right attitude toward three fundamental conditions. 
 These merchants expressed their ideas in different words, 
 but the underlying thoughts always centered on the same 
 three conditions. 
 
 The first condition, giving the salesman an idea of 
 what is going on in the store, was strongly emphasized
 
 SALES WAGES AND QUOTAS 
 
 41 
 
 THE WRONG INTRODUCTION 
 
 Salesman ; ' ' What may I do 
 for you today?" 
 
 Customer: "Nothing in par- 
 ticular — I '11 just look around. ' ' 
 
 by one of four brothers who have made an Indiana store 
 pay well for over half a century. "I take everybody 
 in the store into my confidence in regard to sales and 
 profits, ' ' he says. ' ' Of course, I only do it in a general 
 way, but I go far enough to make each one understand 
 that I want to make a manager of him some day. I 
 tell them about the store policy and in that way stir 
 their ambition. I also tell them about the advertising 
 and ways to meet mail-order competition. 
 
 ' ' Every human being has a desire to accomplish some- 
 thing and I make use of that desire. My clerks are 
 just, naturally careful when I explain the effect losses 
 will have on their own wages, if carried too far, and 
 demonstrate that I am ready to overlook mistakes not 
 of the heart. If I make changes I talk over the condi- 
 tions with them. They always help me buy and mark 
 the goods. Therefore, they know about the stocks and 
 why the prices are right. They pass along part of this 
 knowledge to my customers. Only the other day I 
 overheard the clerk at the far counter explaining to a 
 customer that because there are ten picks in our carpets 
 they will wear longer than usual. He got hold of that 
 fact when I had him in to talk to the wholesale carpet
 
 42 
 
 SELLING EXPENSE 
 
 THE EIGHT DISPLAY 
 
 Salesman : ' ' Have you any particu- 
 lar desires — say in color, style or 
 material?" (Studies character of 
 customer and secures size with tape 
 measure, so as to avoid stocks 
 which do not include the size.) 
 
 Customer: "I haven't decided, but 
 I like blues with pencil stripes. ' ' 
 
 salesman. Our selling wages are under five and a half 
 per cent of our sales and it's largely because we get 
 close to our people and let them know what's going on 
 in the store. ' ' 
 
 That the clerks need to understand their responsibility 
 is the second condition declared to be fundamental. 
 The owner of one of the largest stores in Indianapolis 
 noticed some imported match safes in his bargain base- 
 ment. He had Last seen them in the jewelry department. 
 He examined one of the safes and failed to find a place 
 for striking matches. 
 
 "Where do you suppose they scratch the matches?" 
 he asked the girl at the counter. 
 
 "I don't know," she admitted. "Anyway, they do 
 not sell very well." 
 
 The assistant merchandise manager, when called to 
 the counter, was himself unable to show how matches 
 could be struck on the imported safe. Finally, the pro- 
 prietor found a catch which opened a vise-like attach- 
 ment designed to make striking the matches less trouble- 
 some. 
 
 "Later at a meeting I told our entire sales force about 
 that match safe," he says. "I explained that the selling
 
 SALES WAGES AND QUOTAS 
 
 43 
 
 THE WKONG DISPLAY 
 
 Salesman: "Here are some of 
 the newest coats." 
 
 Customer: (After trying on sev- 
 eral coats.) "Have you any- 
 thing in blue with stripes?" 
 
 point had not been discovered and thereby mark-downs 
 resulted, until finally the goods landed in the bargain 
 basement. 
 
 "The incident gave me an opportunity to impress on 
 the clerks their responsibility. I think no retailer should 
 overlook a chance to do likewise. I tell my people that 
 they practically control the fate of the store ; that a lost 
 sale often means the loss of many future sales that might 
 be made to the customer. I put just as much responsi- 
 bility on the clerks as they can carry and try to increase 
 their capacity for it. 
 
 ' ' I make them understand that I expect them to keep 
 our mailing lists live and add customers to our books. 
 I show them that they are valuable distributing agents, 
 personally representing me. Every now and then I 
 recall to them that Marshall Field once worked behind 
 a counter. I give them cards carrying a motto like : 
 'Don't wait to be told — think.' Of course I remember 
 that most of my clerks have not the same point of view 
 on my business that I have, but I make it clear that it is 
 to their advantage to represent the house in every way. ' ' 
 
 The third of the conditions found helpful in making 
 clerks worth more prescribes that they be materially
 
 44 
 
 SELLING EXPENSE 
 
 THE EIGHT CLOSE 
 
 Saleswoman: (Customer has purchased.) 
 "Would you prefer to have the hat de- 
 livered, or would you like to have it at 
 once, by taking it with you?" (Empha- 
 sizes last seven words in order, if possible, 
 to reduce delivery expenses and still sat- 
 isfy the customer.) "There are some 
 new suits which go well with this hat. 
 If you like, I'll go with you to the suit 
 department. ' ' 
 
 Customer : ' ' Thanks, I '11 take a glance at 
 them. ' ' 
 
 interested in the store's profits. This is usually done 
 by giving them some of the profits in forms other than 
 wages, such as bonuses, percentages and commissions, 
 or a direct share of the net profits. An Iowa shoe store 
 has cut 1.7 per cent off the cost of doing business by 
 paying the salesmen ten dollars a week and a commis- 
 sion of from five to ten per cent on their sales, instead 
 of from fifteen to twenty-five dollars a week as straight 
 wages. A Minnesota dealer raises the pay of his men 
 arbitrarily until they have been with him five years and 
 after that gives them one per cent of their sales. He 
 has the veterans out to his home on Christmas day to 
 get their percentage checks. One of the largest stores 
 in Boston divides half of the net profits among the 
 employees and Frank M. Low is working out the same 
 plan in his shop at Portland, Maine. 
 
 Getting the most out of clerks, after the three funda- 
 mentals of store knowledge, responsibility and profit 
 have been cared for, becomes largely a matter of fair 
 dealing. The canvass of retailers in several states showed 
 that they consider it wise carefully to avoid any appear- 
 ance of paternalism. They tell their employees that 
 they are glad to hire them and want them to be glad
 
 SALES WAGES AND QUOTAS 
 
 45 
 
 THE WRONG CLOSE 
 
 Salesman; (Gives his atten- 
 tion to rearranging the stock, 
 rather than to the customer 
 who has purchased.) ''Any- 
 thing else today?" 
 
 Customer: (Who is waiting to 
 have the purchase wrapped.) 
 ' ' No, I guess not. ' ' 
 
 to take the work. They use every opportunity to 
 encourage clerks to hand in suggestions or come to an 
 executive with complaints. They avoid discouraging 
 employees or reprimanding them before others. Eighty- 
 six per cent of these merchants stated that they prefer, 
 when possible, to mold their men instead of hiring them 
 "ready made," because previous experience may have 
 been secured from one or another of the generous pro- 
 portion of retailers who fail. "Without an exception they 
 familiarize themselves closely with the work they expect 
 the clerks to do; treat their selling force with the con- 
 sideration they themselves would desire from superiors ; 
 and make the work of the cheapest employees largely 
 routine. 
 
 Is it possible to figure what percentage of his sales 
 a clerk should cost, handled according to these successful 
 methods 1 Not unless individual conditions are carefully 
 considered. For instance, a shoe salesman is known to 
 have sold thirty thousand dollars' worth of shoes a year 
 at a very expensive location in New York. Yet two men 
 and a boy sold at the rate of $194,000 a year, one half 
 on charge accounts, in a little "woods store." But it 
 took them from fourteen to sixteen hours a day. Another
 
 46 
 
 SELLING EXPENSE 
 
 THE RIGHT LEAVE-TAKING 
 
 Salesman: (Customer has purchased 
 a flashlight.) "You will probably 
 be interested in our new sporting 
 goods department. If you '11 give 
 my card to one of the sporting 
 goods salesmen, he'll be glad to 
 show you about. If you'll just 
 let me, I '11 be glad to 'phone you 
 a day or so before new attractions 
 arrive." (Obtains 'phone number.) 
 
 Customer : 
 
 ' Thanks. ' ' 
 
 country store by keeping open until eight at night sells 
 $65,000 worth of stock a year with one girl to help the 
 owner, while it requires six men to handle trade worth 
 $120,000 in a neighboring city. A thousand miles from 
 the city where these six men work, two men are selling 
 within five thousand dollars of their record at a sales 
 expense of only 5.5 per cent. 
 
 Therefore, it is impossible to say that a certain silk 
 salesman should be paid, let us say, seven per cent of 
 his sales. But it is possible to fix general averages for 
 the selling expense in various lines and to find for com- 
 parison the cost of handling a yard of silk in any par- 
 ticular store. It is possible to show that the most meagre 
 salary may be the most expensive on the payroll and 
 that the salesman who is paid heaviest in proportion to 
 sales is doing the most to guard the store's reputation, 
 watch its stock and preserve neatness. A New England 
 department store owner paid until last year only $35 a 
 week to a buyer in charge of an investment of $35,000. 
 At the suggestion of a shoe manufacturer he hired a man 
 worth the $50 a week he asked. The sales increased 16.5 
 per cent. 
 
 The comparison of entire store payrolls from all over
 
 SALES WAGES AND QUOTAS 
 
 47 
 
 THE WKONG LEAVE-TAKING 
 
 Saleswoman: (Customer has purchased 
 and given directions for delivery.) 
 ' ' Good day. Drop in again. ' ' 
 
 Customer: "Good day." 
 
 the country with resulting sales may usually be relied 
 upon to counteract individual circumstances. Standards 
 secured in this way, for instance, supply a basis upon 
 which it is possible to estimate the direct cost of selling 
 under normal conditions. To take an example, investiga- 
 tion establishes six per cent of the sales as a standard 
 selling payroll for large stores in New York, Chicago 
 and Boston. However, it would be unfair to discharge 
 a clerk in one of these cities as too expensive because his 
 wages took ten per cent of his sales unless a close exam- 
 ination of his record had been made. He might be 
 selling a small amount of stock but a great deal of serv- 
 ice leading to repeat orders. Again, he may not have 
 been handled according to the three fundamental condi- 
 tions believed by the merchants in four states to underlie 
 the most satisfactory results from a selling force. Never- 
 theless, at least one merchant has determined that if the 
 entire sales payroll in his store runs over eight per 
 cent, danger is ahead in nine cases out of ten. 
 
 Investigation indicates that this six per cent standard 
 direct selling expense applies to the department stores 
 of the country as a general class, although the smaller 
 sales volumes encountered in the more modest firms drive
 
 48 SELLING EXPENSE 
 
 the average up to 6.52 per cent. This is the lowest 
 percentage set for retail sales payrolls, if mail order 
 houses doing most of their selling through catalogs are 
 excepted. Mail order concerns average their selling 
 expense at 3.32 per cent of their sales. 
 
 In department stores the relation between sales and 
 the wages paid to clerks varies with the size of the cities 
 and the nature of the stocks. For instance, here are per- 
 centages for an annual sales volume of $225,000 in a city 
 of twenty thousand compared with corresponding facts 
 from a store selling over $18,000,000 worth of merchan- 
 dise a year in one of the three largest cities in the 
 country : 
 
 Small Large 
 
 Department City City 
 
 Carpets 16% 8% 
 
 Corsets 5.5% 5% 
 
 Hosiery 6.5% 6% 
 
 Toilet goods 6% 7% 
 
 Gloves 6% 6% 
 
 Jewelry and leather goods 9% 7.5% 
 
 Notions 10% 9% 
 
 Dress goods 10% 9% 
 
 Millinery 11% 9% 
 
 It is natural that wages for selling should also be low 
 in proportion to sales in grocery stores and variety 
 shops because these lines are characterized by very fre- 
 quent small sales. Wages of clerks in groceries, investi- 
 gation showed, average 8.46 per cent of the sales and 
 8.86 in variety shops. 
 
 In the southwest, for instance, there is a variety store 
 owner who averages sales amounting to $60 a working 
 day and hires only three helpers. Girls earning from 
 three to five dollars a week in his store regularly average 
 daily sales of from twelve to sixteen dollars a day. 
 
 For implements, vehicles, clothing and dry goods, the
 
 SALES WAGES AND QUOTAS 49 
 
 direct selling expense runs higher. The standards which 
 investigation set for these three lines — 9.41 per cent for 
 vehicles and implements, 9.49 for clothing and 9.65 per 
 cent for dry goods — are neither notably high nor low. 
 Local conditions, of course, frequently make it possible 
 to secure percentages below these standards. There is a 
 small dry goods store in an Indiana town of five thousand 
 which annually markets close to $25,000 worth of mer- 
 chandise with a wage expense of 7.5 per cent. The 
 owner draws twenty dollars a week for his share in the 
 selling and pays a man six dollars a week and two girls 
 five dollars each. 
 
 WHEN the payroll grows too large the merchant 
 needs to know two things: how much too large it 
 is and just how other men have overcome the difficulty. 
 
 The cost of the sales force exceeds ten per cent of 
 the sales in four lines comprising a group which includes 
 the highest retail selling wages in proportion to the 
 trade secured. Retailers of hardware, investigation 
 established, spend 10.11 per cent of their sales to pay 
 salespeople; shoe distributors 10.51 per cent; druggists 
 10.95; and jewelers 10.96 per cent. The unusual rela- 
 tion of behind-the-counter wages to sales in these lines 
 is in part explained by the fact that purchases of hard- 
 ware, shoes and jewelry are comparatively infrequent. 
 The druggist, on the other hand, makes numerous sales 
 but pays his prescription men more than a usual retail 
 wage. There are many jewelers who spend above the 
 average for store help. They probably shoulder the 
 record retail sales costs. For instance, wages alone cost 
 a jeweler in a town of nine thousand fifteen per cent 
 of his sales. 
 
 When the relation of wages to the sales volume
 
 50 SELLING EXPENSE 
 
 becomes abnormal, as in this jeweler's shop, careful 
 retailers investigate for causes and attempt to secure 
 normal conditions. Since the profitable salesman 
 markets both service and stock, reductions in the pro- 
 portion of his sales taken by pay are possible either 
 through these two values, which he sells, or the two 
 equivalents of money used by him in making any trade — 
 time and supplies. The retailer, therefore, who finds 
 it necessary to reduce the amount of his sales taken by 
 the payroll, watches goods, time, supplies and service. 
 
 He may, as Mr. Bellaire did, check carefully on over- 
 weights and the handling of paper or twine. In any but 
 the most carefully made mechanical scales, there is fric- 
 tion at the pivot points when a sale is weighed. Natu- 
 rally, this friction increases as the load becomes heavier, 
 and must finally be surmounted by the last ounce. 
 Therefore, in order to overcome the friction quickly, 
 there is a temptation to be over generous. "When ttie 
 operating expense mounts far into the gross profits 
 a slight overweight will swallow the entire net profit. 
 For instance, an overweight of one half an ounce on 
 each pound sale made out of a hundred-pound purchase 
 of sugar would reduce to four cents an anticipated net 
 profit of twenty-five cents. Loss of half an ounce on a 
 half pound weighing is equivalent to 6.25 per cent, or 
 very close to the average retailer's profit. 
 
 Over measures are overweights applied to yard goods. 
 The majority of retailers instruct their sales forces to 
 pull a thread when cutting valuable bolts, in order to 
 avoid leaks through uneven edges. If there is time, 
 losses as great as those common in pound sales may be 
 saved by requiring precautions when measuring from 
 the cheaper bolts, for cutting by the eye usually means 
 a loss of an eighth of an inch or more. Also, without
 
 SALES WAGES AND QUOTAS 51 
 
 the assistance of some means of mechanical computa- 
 tion, there is danger of error in making the hundreds 
 of calculations involving fractions which occur in ordi- 
 nary price ranges. For instance, between one and six- 
 teen ounces there are eight hundred computations, if 
 the prices range from one to fifty cents a pound or 
 yard, and all but forty-eight of these involve a fraction. 
 
 Although watchfulness along these lines often helps 
 the retailer to keep up with rising costs by getting better 
 returns from the sales force, time is frequently more 
 valuable than stock. Furthermore, many merchants 
 believe that the only way left for reducing expenses 
 is to get more done in the same time. In an effort to stop 
 leaks of minutes as well as of goods, they apply to 
 retailing the time and fatigue studies made for the 
 manufacturer. First of all, they eliminate from the 
 clerk's duties all detail that can be handled by cheaper 
 hands. So that attention may be concentrated on mov- 
 ing stock, porters and stock boys do a heavy portion of 
 the work customarily handled by retail salesmen forty 
 years ago. This leaves the clerk free to get new argu- 
 ments from advertisements, traveling salesmen, study 
 courses conducted by buyers, and inspections of com- 
 peting stocks. Retailers who plan to eliminate wasted 
 moments explain to their clerks that this freedom from 
 detail places upon the selling force a responsibility for 
 a knowledge of profitable lines, mailing lists, mark-ups, 
 methods for offsetting poor buying, and advanced plans 
 for handling customers. 
 
 Time is also frequently conserved by a rearrangement 
 of fixtures or stock. "All you can save on nowadays 
 is time," says a wholesale druggist. "I am fixing over 
 my stockrooms so that the order fillers can sit at desks 
 and direct a lot of boys hired at low rates. Before, they
 
 52 SELLING EXPENSE 
 
 did the running around themselves. It's up to the mer- 
 chant to keep his stock arranged so that the salesman 
 can get goods quickly and to supply fixtures which make 
 selling as easy as possible. ' ' One eastern clothing house 
 saves salesmen 's time by maintaining a card rack which 
 shows the sizes in stock by colors, and a western firm 
 trains the clothing clerks to work in the neighboring 
 shoe section when it is over-crowded. 
 
 TIME and supplies are probably the most important 
 of the equivalents for money handled by employees 
 These methods show how to better the returns from them 
 
 Although it is possible to use successfully these in- 
 direct methods for saving valuable moments, it has 
 seldom been found advisable directly to dock clerks 
 for errors or lost time. A New Jersey retailer who 
 has strong views on the advisability of charging em- 
 ployees for wasting time says, "We do not fine our 
 salespeople under any circumstances. They are required 
 to fill out a 'blunder slip' when they make mistakes or 
 arrive late with no reasonable excuse. These slips are 
 tabulated by the employment office for each clerk in 
 such a way that the number of faults of each kind can 
 be shown. We also print in the store paper the numbers 
 of the clerks who have made errors and tabulate mis- 
 takes for the entire store. When a clerk goes too far, 
 discharge of course follows if reprimands are not 
 heeded." 
 
 Supplies, the third money equivalent handled by the 
 sales force, are usually wasted because clerks do not 
 understand values. To get the most out of salesmen who 
 are wasteful with supplies generally requires only that 
 they be shown the loss, supplied with standards which 
 fix the most economical quantities and offered an incen-
 
 SALES WAGES AND QUOTAS 53 
 
 tive for watchfulness. For instance, wrapping paper 
 bills have been reduced 5.4 per cent in a large depart- 
 ment store by cutting the paper into standardized 
 lengths and specifying definite sizes for the different 
 lines. In the same store prizes of from thirty to fifty 
 dollars are annually awarded to those of the delivery 
 automobile drivers who show the least expensive repairs. 
 The manager of a small commissary offers attractive 
 pocket knives as prizes for the discovery of new 
 economies, and several hundred stores now maintain sug- 
 gestion boxes through which clerks may compete for 
 dollar rewards. 
 
 Since it frequently costs five dollars to get a new cus- 
 tomer through the doors of a store, the clerk is valuable 
 who obtains favorable attention for the service attrac- 
 tions which bring repeat orders when competition is 
 close. In order that better returns may result from 
 the selling payroll, many merchants instruct their clerks 
 in the value of service and urge them to sell it as they 
 would stock. One store in New England, for instance, 
 found that salesmen frequently sold rubbers unsuitable 
 for the customers' shoes. An expert was immediately 
 engaged to analyze the stock and show the clerks which 
 styles of rubbers wore the longest with the various lasts. 
 The salesmen in their turn passed this knowledge on to 
 the customer by explaining that the rubbers could not 
 be expected to wear well if frequently shifted from one 
 style of last to another. 
 
 The best reward for efforts to improve the service 
 offered customers often comes, however, through care- 
 fully instructing clerks about the goods so that they 
 may offer valuable advice to customers. A large eastern 
 store requires the buyers to hold classes for the clerks 
 in their departments and outline the manufacturing
 
 54 SELLING EXPENSE 
 
 process and the quality behind each article in stock. 
 When paper felt and asphaltum linoleum came on the 
 market at a new price, the clerks in this store were told 
 how the two grades are made. Thus having at their 
 fingers' ends the processes underlying the construction 
 of the two lines, they were able to advise customers 
 carefully. 
 
 Although more attractive returns may be obtained from 
 the total clerk hire by the various methods described, 
 after all the most satisfactory economies result from get- 
 ting close to the salesmen's ambitions. If clerks are 
 given the same rewards, in proportion to their positions, 
 which satisfy their superiors, loyalty will result. Loyalty 
 brings savings as a matter of course; it gets better 
 returns out of the clerks through unasked efforts. There 
 are more people engaged in selling than in making, more 
 behind the counters than in the factories, and individual 
 economies cheerfully practiced by each would supply 
 savings beneficial, in the aggregate, to the nation. C. C. 
 Jackson, who runs a commissary in Arkansas, has the 
 right idea — he says, "Let your clerks grow. If they 
 can grow to be managers you are that much better off, 
 for you have that much more power in your hands. ' '
 
 IV 
 
 HOW MUCH TO PAY 
 FOR RENT 
 
 LAND values increase two hundred dollars a square 
 foot between a point about half way down Winter 
 Street in Boston and the crowded corner at Washington 
 Street — only a moment's walk. A chair added to the 
 counter equipment of the corner store uses space worth 
 over a thousand dollars. 
 
 During the fall of 1912 a manufacturer of billiard 
 tables took a short lease on this shop, subject to can- 
 cellation. His friends believed the rent would swamp 
 him, because comparatively few people are on the market 
 for billiard tables. 
 
 He argued that if one passerby out of ten thousand 
 came in, he could make money. Within a week he had 
 taken more orders than the factory could handle con- 
 veniently; after two weeks he was forced to cancel the 
 lease because his plant could not fill the orders fast 
 enough. 
 
 Rentals supply two needs, a roof and a location. 
 High rents undertake to give a good roof and an un- 
 usually favorable location. They justify themselves by 
 duplicating for one line or another this manufacturer's 
 experience with his billiard tables. 
 
 Dense crowds are tapped and if among half a million 
 one in a thousand buys, sales are heavier than if a pur-
 
 56 SELLING EXPENSE 
 
 chaser came from every dozen in a crowd of five thou- 
 sand. By carrying comparatively small stocks and 
 quickly selling them out clean to large crowds, an aver- 
 age of seven or eight turnovers a year through hundreds 
 of departments may be secured. 
 
 When a small net profit is taken on each of these 
 turns a fair net profit on the entire volume is possible 
 at low prices. It is a case of building a big profit with a 
 number of small profits. 
 
 Therefore, manufacturers looking for distributing 
 stations or branch house locations and retailers who 
 rent the most expensive locations pit against the high 
 rentals their ability to intensify merchandising until 
 stocks turn quickly. One of them may work with a 
 half million in cash, sell three millions and a half a year, 
 pay the landlord a rent that averages four hundred dol- 
 lars a business day, and take four per cent net on a 
 turnover. He makes a net profit of twenty-eight per 
 cent, which is more satisfactory than two turnovers at 
 ten per cent. 
 
 Since crowds may or may not contain purchasers for 
 certain stocks, these retailers who pay heavily for loca- 
 tion run abnormal risks. They undertake to buy for 
 quick turnovers, which is the most difficult task in 
 merchandising, and also to judge the purposes of the 
 thousands passing the store they select. 
 
 When a premium is paid to reach crowds that are not 
 prospects, disaster usually follows. A retailer, investi- 
 gation shows, goes to the wall every other day because 
 his rent does not attract a paying trade. 
 
 Within a few blocks of the Boston corner which sold 
 billiard tables faster than four salesmen could fill out 
 contracts, a large department store has not made money. 
 It is off the shoppers' path by less than two thousand
 
 LOCATION AND RENT 57 
 
 feet. A jeweler who failed to study the crowds passing 
 a busy corner in New York, signed a lease for it at a 
 rental which is one-tenth for roof and nine-tenths for 
 location. "Within a week after moving in his stock he 
 found ninety per cent of the passing thousands to be 
 hurried business men, uninterested in jewelry. He is 
 keeping open nights now until ten o'clock in a vain 
 effort to pay his rent, and watching for an opportunity 
 to sublease. 
 
 SELECTING a location is a vital problem. By the 
 methods here described some succeed in low-priced 
 sections while others make good on expensive sites. 
 
 To avoid like blunders, those who make high rentals 
 pay study and number the crowds surging by the stores 
 they plan to rent. The United Cigar Stores Company 
 desires to be near thousands of men; Mr. Childs, who 
 controls a great many restaurants, wants to reach hun- 
 dreds of hungry people. Both a vice-president of the 
 United Cigar Stores Company and Mr. Childs considered 
 the crowded Boston corner, but decided that the risk 
 was too great for their businesses. Thousands passed, 
 but they were in the majority of instances shoppers, 
 and shoppers may or may not be hungry or smokers. 
 Therefore the corner was cut into a number of small 
 shops which can handle goods interesting to many 
 shoppers. 
 
 Now between this corner and the store that has not 
 made money there is a block which rents for much 
 less than the corner and yet taps the stream of pur- 
 chasers. The man who picked this block for his store 
 quickly made a fortune, bought the first large steam 
 yacht to fly the flag of a Boston club, and continues to 
 secure exceedingly attractive net profits. There are
 
 58 
 
 SELLING EXPENSE 
 
 Percentage of Sales Spent on Rent 
 
 3 
 1-4 
 
 
 | 
 
 BBB 
 
 ! 
 
 
 i 
 
 , 
 
 ! 
 
 
 ~j 
 
 
 -} 
 
 Drugs 
 
 Jewelry 
 
 Furniture 
 
 FIGURE V: The stores, when matched against the percentage scales at 
 each end of this figure, represent the average rentals paid the landlord by 
 
 corresponding locations in each city or town — stores 
 close to the shopping center which rent at a fair charge 
 for a roof and less than the maximum rate for an 
 opportunity to reach the right crowds. 
 
 These shops offer a happy medium between the rapid 
 stock turns required to pay the highest rentals and 
 the sluggish sales volumes obtained at locations that pro- 
 vide little more than roofs. 
 
 Therefore, retailers who plan partly to keep up with 
 rising costs by locating favorable rents watch for a 
 chance to lease them. After studying the industries 
 in the vicinity, the resources of the surrounding country, 
 the wealth represented by the banks, the appearance of 
 the streets and the prosperity of possible competition, 
 they figure the advantages of the community itself. 
 Next, after talking with bankers or credit men, they 
 pick locations, and where there is a favorable answer 
 to the question they ask about each vacant shop, "How 
 many have failed here?" bargains are not driven too 
 closely, for they do not believe a slight variation one
 
 LOCATION AND RENT 
 
 50 
 
 by Six Representative Groups 
 
 [mm 
 
 BBB 
 
 mm 
 
 BBI 
 
 E— 5 
 
 4 
 
 E— 3 
 2 
 
 r 1 
 
 Hardware 
 
 Clothing 
 
 retailers in the six lines. The merchants handling furniture, jewelry and 
 drugs pay heavy rent, the first for space and the other two for location 
 
 way or the other to be important, if the right store is 
 involved. 
 
 The manufacturers' and the jobbers' rents also buy 
 the use of roofs and locations. However, transporta- 
 tion and labor costs usually decide the value of the prop- 
 erty they rent, instead of the desires controlling those 
 who pass the door. A southern manufacturer who has 
 heavy sales in two large cities found the rental best 
 suited to his desires in a town midway between the 
 two main markets and on the connecting railway. An 
 eastern dealer in groceries at wholesale recently moved 
 to a building near two railroads, a canal and a new sub- 
 way extension, because he wanted good transportation 
 coupled with facilities which made it easy for out-of- 
 town buyers to reach his display rooms quickly. 
 
 What is a fair percentage of sales to pay for these 
 locations which reach the right crowds and avoid extreme 
 rentals ? What have other men in your line paid ? How 
 does the kind of goods handled affect the rent? Manu- 
 facturers and jobbers desire to know what the average
 
 60 SELLING EXPENSE 
 
 successful retailer pays for his store in order that they 
 may help customers who pay too much or too little. 
 Retailers want to know so that they may adjust their 
 expenditures to standards and find the rent which builds 
 the sales volume at a profit. 
 
 The size of the stocks carried and the class of trade 
 handled fix the averages for the different lines within 
 wide limits which leave individual cases to be decided 
 by local conditions. Mail order houses naturally pay 
 low rents, for they need only a satisfactory roof near 
 favorable transportation facilities. They are not in- 
 terested in expensive locations. Investigation shows that 
 mail order concerns secure satisfactory light, space and 
 transportation for very slightly over one-half of one per 
 cent of their sales. 
 
 Groceries and vehicle or implement stores are also 
 able to avoid the highest rents because they, too, do not 
 demand choice locations. Investigations established the 
 fact that vehicle and implement stores pay, on an aver- 
 age, 2.12 per cent of their sales for rent, and groceries 
 3.07 per cent. The retailers of vehicles or implements 
 usually hold close to the average, but grocers often vary 
 one per cent from the standard for their line. A grocery 
 in an exclusive residential section of a large city, with 
 sales of $74,400, for instance, pays 3.7 per cent; and a 
 small country store in California spends but 1.2 per cent 
 to secure sales of $45,620. Small cash groceries in the 
 large cities pay heavy rents in proportion to their sales, 
 however. Figures from the middle-west for sales volumes 
 under $10,800 point 3.5 per cent as an average for this 
 class. 
 
 Clothing, shoe, dry goods and hardware stores as a 
 rule lease more expensive shops. They hire a good loca- 
 tion in addition to the building. Clothing stores in the
 
 LOCATION AND RENT 61 
 
 large cities pay rentals which equal five per cent of their 
 sales, but figures from all sections of the country set 3.04 
 per cent as an average. Several hundred shoe stores 
 reported rents which fixed a standard of 3.21 per cent, 
 although one very exclusive shop spends four times as 
 much. Dry goods stores were found to center about 
 3.24 per cent, and only two rents exceeding four per 
 cent appeared. Hardware uses large stores and retailers 
 of this line, investigators showed, on the average pay 
 3.41 per cent of their sales. The lowest rent percentage 
 for this line, 1.2, came with figures from British 
 Columbia, and no hardware dealer reported payments 
 exceeding five per cent. 
 
 Furniture stores, which demand a large amount of 
 display space, and department stores leasing the most 
 expensive locations, pay still higher rents. Investiga- 
 tion failed to find a furniture store paying one per cent 
 more or less than 5.04 per cent, the national average 
 figured for this line. Department stores pay rents which, 
 when averaged, equal 3.91 per cent of their sales. Sev- 
 eral concerns doing a very large business in New York 
 and Chicago manage to rank about one per cent lower, 
 but it is also true that at least two big stores are paying 
 slightly over four per cent. 
 
 The highest retail rents are carried by furniture, 
 jewelry, drug and variety stores. They search out the 
 choice locations and pay well for them. The buildings 
 become a secondary matter and the sites all important. 
 No jeweler reported payments for rent which exceeded 
 the average set for this line, 4.98 per cent, by more than 
 one per cent, and the Indiana store which showed the 
 lowest percentage, 2.2, explained that its lease was 
 unusually favorable. The drug stores averaged 4.02 per 
 cent, and even in the small towns rents were not found
 
 62 SELLING EXPENSE 
 
 to range below two per cent. The record rent is paid by 
 a druggist in a large city who spends 6.1 per cent of his 
 sales volume of $350,000 to the landlord. Investigators 
 did not encounter a single variety store which varied 
 one per cent from the standard they set for this line, 
 4.41 per cent. One variety store in Chicago, a member 
 of the Woolworth syndicate, pays $5,416 a month for 
 its quarters. 
 
 FIVE ways for getting more out of the rent bill are 
 here analyzed in detail, with instances from the ex- 
 periences of successful merchants. 
 
 Since rent is one of the heaviest items in the cost of 
 doing business, in his struggle to keep up with rising 
 expenses the progressive retailer watches for opportuni- 
 ties to reduce it in one or more of five ways — rearrange- 
 ment, building, moving, buying or advertising. Because 
 rents purchase two distinct needs, a roof and a location, 
 there are two directions in which to guide these five 
 methods for economizing on rentals. Rearrangement 
 involves making the most of the roof, regardless of where 
 it is located, and often opens the way to profitable sub- 
 leases. 
 
 A clothing firm in Seattle has a long lease on the 
 ground and second floors of a building occupying one 
 of the most valuable corners in the city. Recently this 
 concern found that by crowding stocks together and buy- 
 ing new fixtures it could release the entire second floor. 
 This space was remodeled into small shops which more 
 than paid the entire rent for the two floors. Not only 
 does this company thereby secure a store free of charge, 
 but by subleasing to retailers whose stocks are asso- 
 ciated with its displays, it wins new trade. 
 
 Frequently a rearrangement of entrances results in
 
 LOCATION AND RENT 
 
 63 
 
 better returns from the rent. A southern druggist 
 observed that although a great many people used the 
 street beside the blind wall of his store, very few of them 
 apparently noticed his entrance around the corner. They 
 were usually in a hurry to reach an interurban station 
 
 fr^ 
 
 ft.OfcAR&OSM 
 
 lffifff^TWfr 1 cyrn*| 
 
 <?<ftlar 
 
 ■& 
 
 •S* 49463 c j£* 
 
 
 TUIS PURCHASE FROM 52 E. MONROE (Near Wabash) 
 
 1 
 
 RENT 
 
 3.04%- 
 
 M9St 
 
 Advert rsrng 
 
 2.16% 
 
 Heat and light 
 
 M% 
 
 Delivery 
 
 Supplies 
 
 .43% 
 
 Insurance and Taxes 
 
 "1.07% 
 
 General Expenses 
 
 vast 
 
 Depreciation and Shrinkage 1-16% 
 
 FIGURE VI: This sale of a tie for fifty cents is placed beside the aver- 
 age itemized cost of doing a retail clothing business, which sets the actual 
 cost of selling the tie at ten cents 
 
 a block below and in no mood to search out shop en- 
 trances in order to make purchases left until the last 
 moment. The druggist put a wide doorway through 
 the blind wall, flanked it with display cases, and adver- 
 tised for transient trade. The new business which 
 resulted could not be accurately figured, but in eleven 
 months his sales increased twenty-eight per cent and his 
 rent percentage dropped from 4.01 to 3.6 per cent. The 
 magazine and newspaper counter, shifted to the new
 
 64 SELLING EXPENSE 
 
 side entrance, showed an increase of sixty-seven per 
 cent, probably almost entirely due to the rearrange- 
 ments. 
 
 Remodeled interiors supply a possible way for avoid- 
 ing increased rentals. Mezzanine balconies are now a 
 common method for handling growing stocks. C. J. 
 Ricker of Emporia warded off the cost of new space by 
 putting his phonograph department on the balcony in 
 his jewelry store, for example. A wholesale firm did 
 not notice until new lines required additional space that 
 the ground floor ceilings were unusually high. A bal- 
 cony was built over the rear of this floor and the account- 
 ing department moved to it. The new stocks were then 
 easily handled. 
 
 It is also often practicable to hold space in grocery 
 stores to the lowest limit by fitting the fixtures closely 
 to the stock handled. A Chicago grocer who faced a 
 demand for more space went over his stock, sorted it into 
 sizes, and rebuilt his wall shelves into corresponding com- 
 partments. He found that the new fixtures increased 
 capacity one-third. 
 
 When the rent mounts high more than one retailer 
 has economized on window space. A western jeweler 
 narrowed his windows to shelf width and put the dis- 
 plays on boards which slide into grooves. This enables 
 him to use two new counters and arrange displays on 
 extra slides. At night he slips out the valuable display 
 and guards against heavy losses from burglary by 
 replacing it with inexpensive stock. 
 
 Manufacturers are constantly getting more out of 
 that portion of their rentals which hires the buildings 
 by studying to secure compactness. One maker of 
 notions monthly marks off in colors on a floor diagram 
 the space used by his departments and in this way
 
 LOCATION AND RENT 65 
 
 secures a graphic representation of changes. The dia- 
 grams suggest ways for economizing on space and pre- 
 vented the building of one extension which was at first 
 thought to be an absolute necessity. 
 
 WHEN to move, when to remodel — these decisions 
 often make or break the merchant. How a number 
 of successful men have solved them is here described' 
 
 The four ways of reducing rent in addition to rear- 
 ranging — moving, buying, building or advertising — deal 
 primarily with location. For instance, half the battle 
 against rents may frequently be won by keeping on the 
 watch for a chance to move advantageously. One va- 
 riety store trebled its sales by changing to a shop which 
 increased the rental from fifty to sixty-five dollars. 
 However, moving is profitable to the retailer only after 
 he has made a careful study of conditions. 
 
 At times the natural advance of rentals in a popular 
 district, or the shifting of retail centers, make moving 
 absolutely necessary. One solution is to take extra 
 space and sublease. A clothier in a small Indiana city, 
 when he found larger quarters imperative, took an entire 
 building and remodeled the upper floors into offices. He 
 also installed a central heating plant. The convenient 
 offices were eagerly taken at figures which reduced his 
 rent percentage from 3.1 per cent to 2.25 and cut heat- 
 ing bills in half. With the savings he buys additional 
 advertising which is building sales at a faster rate than 
 he could normally have expected. 
 
 Stores above the ground floor are also a possibility 
 under like circumstances. In several large cities shops 
 are prospering on even the twelfth floors of large build- 
 ings. Where choice ground floor rentals in these cities 
 run to twenty dollars a square foot, second floor space
 
 66 SELLING EXPENSE 
 
 in the same buildings may be had for about three dollars 
 a square foot. A clothier on the third floor of a Chi- 
 cago building has built a losing business into one 
 handling four thousand dollars' worth of profitable sales 
 a day by advertising that the saving between his five- 
 thousand-dollar rent and the fifty-thousand charge for 
 corresponding ground floor space will be given to cus- 
 tomers who take a three-second elevator ride. 
 
 To buy or build may also solve the rent problem. A 
 well-known Boston merchant says that if his father had 
 bought ten years ago the land occupied by their store 
 the net annual saving would now be one hundred and 
 twenty-five thousand dollars. Once a favorable site is 
 found which has not been suitably improved, owners 
 or capitalists will usually put up a satisfactory building 
 on a long lease. It is also possible for companies which 
 do not need choice retail locations to purchase or lease 
 old buildings and remodel them into attractive business 
 homes. 
 
 A few retailers have successfully turned to advertis- 
 ing in their efforts to secure reduced rents. They hire 
 stores on side streets and spend more than usual for 
 advertising, but not enough to make their total pay- 
 ments equal the highest rents. A Boston store which 
 uses this method has a slogan for explaining the situa- 
 tion to prospects: "A bit farther, but it pays to walk." 
 There is undoubtedly a close relation between high rents 
 and the advertising value of a favorable, expensive loca- 
 tion. Variety stores take advantage of this fact and 
 secure small shops near the big stores which spend large 
 amounts on advertising. Careful investigation has failed 
 to. prove, however, that a high rent as a rule reduces the 
 advertising appropriation. 
 
 But rentals, even if they do not uniformly offset adver-
 
 LOCATION AND RENT 67 
 
 tising, are closely bound to insurance and taxes. By its 
 location and structure the building absolutely decides 
 the taxes and helps as well to fix the insurance rate on 
 your stock. The taxes, if shown to be fairly assessed 
 by the public officials, are difficult to reduce, and fre- 
 quently they are placed beyond the retailer's reach 
 through direct payment by the landlord. Insurance, 
 however, is at least to some extent controlled by the 
 maker or distributor who rents his business home. 
 
 INSURANCE, although one of the smaller items in tlie 
 cost of doing business, frequently offers an opportunity 
 to make savings if these precautions are carefully studied. 
 
 First of all, there are certain precautions to be ob- 
 served if the closest economy is desired. When the 
 insurance carried falls below a certain proportion of the 
 replacement value, insurance companies are able to 
 enforce so-called co-insurance clauses and pay only a 
 portion of the loss suffered. Even when you feel that 
 full insurance is being carried, a total loss may show 
 that discarded dies, patterns or fixtures which you had 
 not thought worth covering would, if replaced, cost 
 enough to make these co-insurance clauses effective, for 
 the insurance companies figure replacement values on 
 everything. Therefore, it is wise to note in the policy 
 that discarded equipment is excepted. 
 
 Furthermore, depreciation should be carried as a sep- 
 arate account or merely jotted down on a memorandum 
 blank, for if fixtures or stocks are actually reduced in 
 value on the books, it will be difficult to convince the 
 insurance adjuster of the actual replacement value. 
 Records of cartage and setting up charges are also of 
 value in establishing fair replacement figures, and if 
 co-partnership insurance is carried, the clauses which
 
 68 SELLING EXPENSE 
 
 direct payment to the company instead of the heirs 
 deserve careful inspection by a lawyer. As a rule, insur- 
 ance on retail stocks and fixtures should not be allowed 
 to fall below four-fifths of the replacement value. 
 
 It is to be expected that valuable furniture and jew- 
 elry stocks, and drug inventories containing highly 
 inflammable goods, cost more than usual to insure, and 
 make the insurance percentages paid by retailers of these 
 lines heavy. Clothing, department store and dry goods 
 stocks are also large, and frequently valuable. There- 
 fore, insurance charges on them naturally average 
 higher than among the bulky or less expensive goods 
 handled by grocery, hardware, vehicle, variety, and 
 implement stores. These conditions are substantiated 
 by the following percentages of retail sales spent for 
 insurance and taxes : 
 
 Groceries 58% 
 
 Mail order houses 98% 
 
 Variety goods 98% 
 
 Hardware 99% 
 
 Department stores 1.01% 
 
 Shoes 1.03% 
 
 Implements and vehicles 1.04% 
 
 Clothing 1.07% 
 
 Dry goods 1.08% 
 
 Drugs 1.21% 
 
 Jewelry 1.32% 
 
 Furniture 1.57% 
 
 The most favorable opportunity for securing perma- 
 nent reductions in these insurance costs occurs when the 
 building is being erected or remodeled. The local insur- 
 ance board may then be requested to offer suggestions 
 for obtaining low rates. A retailer who recently remod- 
 eled a store in Maine found that the insurance man gave
 
 LOCATION AND RENT 69 
 
 advice which resulted in reducing the rate from five to 
 two and a half dollars. 
 
 A million dollars' worth of property is daily lost 
 through fires. The resulting hazard in part sets your 
 insurance premium, but local conditions within your 
 control also influence the rate. Therefore, reductions 
 can frequently be obtained by either installing fire-fight- 
 ing equipment or using safer lighting and power facili- 
 ties. A bookbinding plant found that the use of elec- 
 tricity for heating the glue pots, at a higher cost than 
 charcoal, reduced the insurance enough to secure a net 
 saving. The owner of a small office building in a middle- 
 western city cut the insurance rate two cents a hundred 
 by putting an extra fire hose on each floor. If you are 
 near a hotel or some other building which increases the 
 premium you pay, when moving it may be possible to 
 locate less hazardous surroundings and combine a lower 
 rent with reduced insurance rates. 
 
 In general, the way to reduce the cost of doing busi- 
 ness through rent, taxes and insurance is continually to 
 watch for a more favorable location, if you have arranged 
 your present space to the best advantage. There are 
 men who allow pride to stand in the way of reductions 
 in these items. They have more than enough space but 
 fear that their reputations will suffer if they move to a 
 more modest building actually fitted to their require- 
 ments. They hesitate to give the business a fair chance. 
 Others know they are enjoying exceptionally favorable 
 leases but neglect to plan for the future. 
 
 A clothier in an Indiana town had until recently a 
 lease at a very low rate on a building erected for his 
 use by a friend. The friend died in 1910 and the heirs 
 increased the rent fifty per cent when the lease expired. 
 The clothier, because he had not prepared for this con-
 
 70 SELLING EXPENSE 
 
 tingency, found a year's profits entirely taken by the 
 increase during the four months given over to a search 
 for a new location. 
 
 Some retailers who rent adjoining properties from 
 several landlords endanger their stores by failing to 
 have the leases expire simultaneously. An eastern mer- 
 chant who uses five connected buildings was recently 
 forced to pay fifty thousand dollars a year for one of 
 them, instead of twenty-nine thousand, because the lease 
 on it expired before those on the other four. He could 
 not sublease all of the stores and the landlord of the sin- 
 gle building took advantage of the situation. 
 
 The change in business sections brought by trends in 
 city development are above all else important to the 
 maker or distributor. Little cities are growing within 
 the big cities. Their advances, unless anticipated, may 
 unexpectedly force the manufacturer to move miles or 
 drive the retailer's rent a hundred fold higher. These 
 contingencies, which may mean life or death to your 
 business, can be turned from disasters to profitable hap- 
 penings only by keeping watch constantly on the growth 
 of your section.
 
 THE COST OF GETTING 
 TRADE 
 
 ADVERTISING not long ago sold in one day seven 
 alarm clocks out of a stock of twelve on the shelves 
 of James McCloskey's jewelry store in Shelby ville, 
 Indiana. Year in and year out for decades alarm clocks 
 have been stocked and advertised in Shelbyville without 
 equaling this day's sales. Moreover, the successful copy 
 was written by a man who has probably never heard of 
 Shelbyville, and printed in a magazine published hun- 
 dreds of miles away. Still it accomplished a task at 
 which the publications nearest to Shelbyville, and the 
 retailers best acquainted with every man, woman or 
 child in the town, have ignominiously failed. 
 
 No wonder McCloskey talks of the event in astonish- 
 ment. An intangible force urged people to come to his 
 store ; they responded ; he took in cold cash ; his profits 
 benefited. The same force is at his own finger tips, but 
 he has not been able to make it sell alarm clocks. Adver- 
 tisement after advertisement addressed to the good peo- 
 ple of Shelbyville, telling them about alarm clocks 
 through their own papers in the words of McCloskey 
 himself, does not move many timepieces. Nevertheless 
 a factory in the West and a publishing firm in the East 
 succeeded in marketing clocks over McCloskey's coun- 
 ters.
 
 72 SELLING EXPENSE 
 
 It is quite safe to say that McCloskey would not believe 
 this if he had not questioned every one of the seven who 
 purchased alarm clocks that day. He let the first sale 
 pass without particular notice, but the second aroused 
 his curiosity. The third astounded him. He asked this 
 customer what prompted her to buy. When she men- 
 tioned the advertisement, he called the first two pur- 
 chasers by telephone. The same advertisement had 
 interested them. The last four to seek alarm clocks 
 went through a rigid catechism by McCloskey before 
 they were even able to spend their money. They spoke 
 of the advertisement. McCloskey today stands con- 
 vinced not only that advertising is a mighty selling force, 
 but that he can take advantage of it himself. 
 
 Definite results like these in Shelbyville enable those 
 who watch advertising carefully to set up standards that 
 tentatively measure its efficiency. The spread of adver- 
 tising until it became a six-hundred-million-dollar-a-year 
 national selling force not so long ago — in the nineteenth 
 century — put it on trial as a new, broad, distributive 
 method. For years many checked its work. 
 
 Hence we today probably have more standards and 
 recorded results for advertising than for the majority 
 of the items in the rising costs of doing business. To 
 take an example, many merchants probably know more 
 closely what to spend for advertising than for rent. No 
 doubt if we were in a position to bring together the 
 scattered data that lies unassembled on advertising, we 
 could judge from wider recorded past experience in buy- 
 ing advertising than in leasing a new location. 
 
 The larger department stores, for instance, spend 
 from two to four per cent of their sales for advertising. 
 A new store, or one enlarging its activities rapidly, may 
 use five per cent, allotting two per cent of this to news-
 
 ADVERTISING COSTS 73 
 
 COST of ADVERTISING a SALE of 
 WOMEN'S and MISSES' COATS 
 
 THE ADVERTISING 
 Advertisements placed in four morning and even- 
 ing newspapers $1,321.20 
 
 Post card announcements mailed to a list — not 
 used for previous coat sales — of 4,900 cus- 
 tomers 198.00 
 
 $1,519.20 
 THE RESULTS 
 
 Women 's coats sold $5,536.00 
 
 Girls' and misses' coats sold 3,355.00 
 
 $8,891.00 
 Sales by hours during one day of this sale in the misses' 
 coats departments: 9:30, $207.50; 10:30, $317.75; 11:30, 
 $503.75; 12:30, $657.25; 1:30, $854.00; 2:30, $1,153.75; 
 3:30, $1,312.75; 4:30, $1,511.75; 5:30, $1,705.60. It 
 will be noticed that there was a small early response 
 which soon fell off and at 12:30 only one-third of the 
 day 's total was registered. The largest gain came be- 
 tween 1:30 and 2:30. 
 
 THE LESSONS 
 
 Since the $1,519 spent for advertising are 19% of the 
 sales secured, and the planned sales were $18,414 (the 
 total value of the stocks placed on sale) these results 
 are not promising. However, the weather was bad dur- 
 ing the beginning of the sale and the planned sales were 
 evidently far too high. 
 
 Next time the post card announcement should be dis- 
 continued and more window space devoted to the sale. 
 
 This was a mid-week sale. Next time it should be held 
 on Monday, Tuesday and Wednesday or on Thursday, 
 Friday and Saturday. If it is held on Thursday, Friday 
 and Saturday an announcement should be made the pre- 
 vious Sunday, so as to get the advantage of the greater 
 radius of circulation of the Sunday papers. Much of the 
 trade comes from environs which are not reached by the 
 week-day papers. Mid-week advertising is not best for 
 girls' departments. Many reasons back this up — the most 
 important is the objection to taking the child out of 
 school. 
 
 Only six sales were lost and the prices appeared to be 
 at the proper levels.
 
 74 SELLING EXPENSE 
 
 papers. Those in New York City average about two or 
 three per cent and the Boston stores range approx- 
 imately one per cent higher. A prosperous Texas 
 department store, on the other hand, allows only 1.32 
 per cent of its sales for advertising. R. H. White and 
 Company of Boston buy regularly every Sunday, in one 
 paper alone, space worth $1,500. The actual depart- 
 ment store campaigns described on pages 73, 81, 84 and 
 85 indicate typical advertising costs on specific offers. 
 
 Gas and electric light companies of considerable size 
 customarily appropriate from two and a half to four per 
 cent of their gross receipts for advertising purposes. 
 The wholesale druggists, however, do not usually spend 
 over one per cent, and confine their space to trade pub- 
 lications. Through their national association the retail- 
 ers of hardware advise in their line an advertising 
 expenditure equal to two and a half per cent of the 
 sales. The variety stores do not use more than two per 
 cent for advertising and include in this appropriation 
 not only printers' ink, but as well the loss on "leaders" 
 sold below cost to attract trade and a portion of the high 
 rentals shouldered in order to reach large crowds. 
 
 Figures from the manufacturers are also available. 
 The American Keyless Lock Company made a $472.57 
 advertisement draw inquiries at a cost of from 2.5 to 
 9.6 cents each, with an average at 6.3 cents; sell 4,287 
 locks ; and bring in cash amounting to $3,620.46. Four 
 makers of hoisting equipment put, on the average, 2.25 
 per cent of their gross sales into trade paper advertis- 
 ing ; four manufacturers of excavators and shovels, 2.13 
 per cent; and one firm handling contractors" equipment, 
 seven per cent. A stationary engine offer secures sales 
 at a cost of eight per cent — one $140 advertisement 
 pulled 259 inquiries which resulted in fifteen sales total-
 
 ADVERTISING COSTS 75 
 
 ing $1,132.47. The owners of a nationally advertised 
 line of corsets invest from three to four and a half per 
 cent of the sales in advertising. 
 
 ADVERTISING bills can rarely appear in the light. 
 of so much money lost when it is possible to check 
 them against standards such as these and predict returns. 
 
 Retail advertising comprehends all methods of getting 
 customers into the store — newspapers, circulars and show 
 windows. Even the most difficult of these to trace, the 
 cost of advertising through show windows, may be 
 checked against known values. Hundreds of druggists 
 outside the Chicago down-town business district have 
 agreed that their windows are worth from three to fifteen 
 dollars a week, and some of those in the heart of the city 
 consider one hundred dollars conservative. A New 
 England store charges the departments using its win- 
 dows over three hundred dollars a day, and one Chicago 
 firm annually spends $80,000 decorating windows. A 
 real estate expert who has intensively studied the value 
 of show windows strikes an average for the country at 
 ten dollars a week. Since the show windows occupy the 
 choice space in a store — the front part of the main floor 
 is the portion most used by customers — their value is 
 anything but trivial. 
 
 Statistics of a broader character supplement these 
 detailed costs. Thirty thousand nine hundred and 
 twenty-seven reports from Chicago consumers show that 
 fifty-five per cent were influenced by the dealer to buy 
 nationally advertised brands, thirty-six per cent by ad- 
 vertisements, and six per cent by friends. Sixty-one 
 per cent of them bought cocoa and chocolate because of 
 the advertisements, sixty per cent cereals, forty-eight 
 per cent non-intoxicating beverages, forty-six per cent
 
 7G SELLING EXPENSE 
 
 flavoring extracts, and forty-five per cent meat products. 
 
 Several investigations tend to show that possibly news- 
 paper advertising campaigns may be repeated with 
 safety after six or twelve months have elapsed. Full 
 pages in newspapers frequently pull six or eight times 
 as much as half pages. An advertisement is rarely 
 effective in the Sunday editions of large dailies for 
 more than six weeks. Circularization, on the average, 
 is more expensive than newspaper advertising. 
 
 The man who wrote the copy which sold McCloskey's 
 clocks in Shelbyville doubtless knew these indicated, if 
 not fully established, standards, and probably many 
 more. "With them he partly guided his ability to write 
 paying copy. Now the majority of the standards 
 McCloskey and the seven hundred and fifty thousand 
 odd other retailers in the United States can pick right 
 out of this chapter and use. This of course assumes 
 that they want to advertise in one way or another in 
 order to obtain the larger sales volumes demanded by 
 the narrow margins of today. There are some retailers 
 Avho do not advertise, but a large wholesale firm has col- 
 lected statistics which signify that about eighty-four per 
 cent of the failures in this country centers among those 
 who spend nothing on advertising. 
 
 The standards already given, and those in the table on 
 page 78, although they furnish a general idea of normal 
 advertising expenditures, cannot be relied upon to show 
 exactly how much to spend. Local competitive condi- 
 tions determine the actual amounts in each case. Some- 
 times an expensive location lowers the advertising expen- 
 diture; at others it works the opposite way. The man 
 who has a high-priced location can usually match the 
 sales volumes of rivals in cheaper stores at a lower direct 
 advertising cost. However, in nine cases out of ten he
 
 ADVERTISING COSTS 
 
 wants to better their records. Then his advertising 
 bills often exceed theirs, both on account of this desire 
 and because he understands that it is frequently moie 
 profitable to advertise a good location extensively than 
 a poor one. 
 
 Factors of this nature cause wide variations,, Indeed, 
 
 FIGURE VII: These comparisons indicate that lines which turn quickly 
 under low costs spend the least for advertising. Department stores, how- 
 ever, strive for large volumes in order to cover heavy expenses 
 
 the statistics in this article are almost valueless unless 
 it is remembered that different cases require different 
 treatment and that the important point is less how much 
 to spend than how to spend in order to make every 
 medium pull its utmost in line with other sales forces.
 
 78 SELLING EXPENSE 
 
 Here are a few cases in point: A New England mer- 
 chant selling annually $40,000 worth of goods spends 
 $3,000 for advertising and a man in the Middle West 
 secures about the same volume for only $1,200 ; one firm 
 in the East has held its advertising bills to an average of 
 two per cent of the sales for fifteen years, while a chain 
 of ten small western stores, each handling a volume 
 between twelve and fifty thousand dollars, fixes two and 
 a half per cent as normal ; and in the Northwest a chain 
 of five stores figures three per cent a fair appropriation. 
 Expenditures as .divergent as these, from all sections 
 of the country, when averaged, nevertheless give stand- 
 ards which will immediately detect abnormal advertising 
 expenses. Investigators have taken figures drawn from 
 over one thousand stores and compared them to secure 
 the following averages, which are percentages of the 
 net sales and include all types of advertising normally 
 paid for by retailers. — letters, catalogs, decorating win- 
 dows, newspaper space, time used, and so forth : 
 
 Groceries 83% 
 
 Hardware 1.12% 
 
 Vehicles and implements 1.22% 
 
 Variety goods . , 1.52% 
 
 Shoes 1.65% 
 
 Dry goods L67% 
 
 Drugs 1.76% 
 
 Furniture 2.72% 
 
 Jewelry 2.85% 
 
 Clothing 3.16% 
 
 Department stores 4.01% 
 
 Mail order houses 7.21% 
 
 These standards represent average expenditures. The 
 returns they bring are horses of another color. C. C. 
 Brown writes copy for his store in Cawker City, Kansas, 
 which pulls a twenty-five-per-cent increase in sales, but
 
 ADVERTISING COSTS 71) 
 
 the retailers in Canajoharie, New York, may not do as 
 well. The "how" of the methods of men like Brown 
 are worth study. A careful analysis of the advertising 
 of sixty-two merchants who are known to be making good 
 in twelve states with sales volumes ranging from twenty 
 million to eleven thousand dollars a year shows that they 
 use five methods : ( 1 ) placing right merchandise behind 
 the advertising; (2) telling nothing but the truth; (3) 
 building up individuality and personality through all 
 the advertising; (4) getting store or other news into 
 the copy; and, (5) keeping everlastingly at it. 
 
 Let us discuss these five methods by which the sixty- 
 two merchants build trade through advertising. First 
 comes the necessity of having the right goods behind the 
 advertising. The root of all advertising is in the mer- 
 chandise it describes. Stocks, service and store environ- 
 ment build sales just as surely as printed words. Leo 
 Kahn of Connersville, Indiana, does not spend a cent on 
 newspaper space, preferring to advertise with service, 
 unusually attractive equipment, exclusive stocks and 
 down-to-bed-rock prices. A misrepresented sale brings 
 ruin if it is often duplicated. The consumers are becom- 
 ing better posted on values. Ninety-nine per cent of our 
 successful merchants put the right goods back of their 
 prices as a matter of second nature. The first method 
 of the five favored by the sixty-two merchants is, there- 
 fore, all important. 
 
 Another incident to illustrate the importance of hav- 
 ing sound goods back of the advertising. One of the 
 dozen or so eastern retailers who handle sales running 
 into the millions grades the elements in his advertising 
 as follows: (1) style; (2) fit; (3) completeness of 
 stocks; (4) service; (5) profit. He pays his advertising 
 manager fifteen thousand dollars a year to plan his
 
 80 SELLING EXPENSE 
 
 copy, but sees to it himself that this copy ranks merchan- 
 dise first and profit last. No doubt his doing so helps 
 to explain why he is a millionaire. 
 
 The second method of the five we are analyzing pre- 
 scribes truthful copy. Apparently every retailer is 
 agreed on this point. Still, this label continues to be 
 used: "Fresh gathered eggs — 35 cents a dozen." And 
 a Chicago store advertises: "Get a $25 suit for $17, 
 with two pairs of trousers. You can do it here because 
 you don 't have to pay for an enormous ' Loop ' rent. We 
 don't pax any rent at all. We own our own building. 
 We save $100,000 on that item alone ; we save thousands 
 more on other expenses — and you save on those, too." 
 
 If the poor knowledge of accounting indicated by 
 failing to charge himself rent is an indication of this 
 man 's methods, his store will soon be in difficulties. 
 
 MERCHANTS have built fortunes by advertising 
 and merchants have lost fortunes by not knowing how 
 to advertise. These 'policies are followed by the former. 
 
 It is true that it is difficult to hold to the "one price 
 to all" principle in some towns of small population, 
 especially if many of the customers are farmers who 
 themselves contend with varying prices. However, mer- 
 chants who insist on holding to their prices under these 
 circumstances are winning out when they freely adver- 
 tise the justness of their attitude. 
 
 Now if it amounts to anything at all, advertising is a 
 window through which you invite consumers to look at 
 your offerings. If this window is blemished with fake 
 statements and half-truths and crooked ideals, some con- 
 sumer notices it sooner or later. He will tell others; 
 they still others — such news radiates like ripples from
 
 ADVERTISING COSTS 81 
 
 RESULTS of ADVERTISING a SALE 
 of MEN'S SHIRTS 
 
 THE ADVERTISING 
 
 4617 lines in six morning and evening papers. . . $695.94 
 
 Circulars in the monthly statements sent to 
 
 charge customers on the first of the month. . 84.20 
 
 Post cards to the men's shirt department's spe- 
 cial list of cash customers 41.82 
 
 Circulars describing the other men 's depart- 
 ments and distributed at the doors 106.14 
 
 Circulars telling how the shirts were secured in 
 large lots enabling low prices to be set for 
 this sale 241.16 
 
 $1,169.26 
 
 THE RESULTS 
 
 The first day (a rainy Friday) 2,849 shirts were sold for 
 85 cents each, 987 at $1.65, and 302 at $2.85. Saturday 
 962 went at 85 cents, 763 at $1.65, and 228 at $2.85. 
 Small advertisements were placed in the Sunday papers 
 and on Monday shirts worth $1,003 were sold. 
 
 THE LESSONS 
 
 The sale started slowly owing to very rainy weather. 
 Sales increased slowly until noon. At noon there was brisk 
 selling which extended until shortly after two o'clock. It 
 appears fair to assume that during this period many peo- 
 ple used their lunch hours to take advantage of the sale. 
 In the afternoon a great many women and middle-aged 
 men shopped until shortly after four o'clock. From about 
 4:30 until closing time (5:30) every counter was again 
 thronged with customers, presumably clerks and others. 
 
 Because of the confusion that existed in some sections 
 of the department, it would seem wise for the next sale to 
 place shirts of the same price together — that is, to arrange 
 an 85-cent aisle, a $1.65 aisle, and so on. The argument 
 against this arrangement is that sometimes people would 
 buy $1.65 shirts if shirts at that price were in the 85-cent 
 aisle, even though they had come to purchase the lower 
 priced merchandise. This, however, would not appear to 
 offset the manifest advantage of having shirts of one grade 
 arranged by sizes in one place. 
 
 At the next sale it would also be wise to consider 
 whether or not it would be advisable to have the sale at 
 only one price — 85 cents.
 
 82 SELLING EXPENSE 
 
 the splash of a stone in still waters. Then comes ruin 
 and disgrace, for severe laws against untruthful adver- 
 tising are rapidly being enacted. 
 
 A man who sits high in the trade councils of the United 
 States and of the world, a man who has built a great 
 business from a room you could span with outstretched 
 arms, has the following opinions about putting nothing 
 but truth into advertising — he is not talking for publica- 
 tion, but for the benefit of a group of his own executives 
 gathered in conference after closing time : 
 
 "We say, for instance, that in advertising the basic 
 principle is to tell the truth and only the truth. That 
 sounds a good deal like copy book ethics and not like 
 business. You would expect to be told that from the 
 pulpit. This basic principle of advertising is not com- 
 monly believed in or else a great deal of advertising, 
 which is not based on that factor, would be changed. 
 
 "Why is it good business in advertising to tell only 
 the truth? Why should we always come back to that 
 if we are in doubt as to what to do? Because if by 
 eloquence or technical skill in advertising we are able to 
 make customers come into our store and buy goods 
 instead of buying them because they are better, cheaper 
 and more desirable than those of our competitors, then 
 we are at the mercy of words, and the man who can lie 
 most can beat us out. 
 
 "None of us will aspire to be the biggest liar in the 
 city, and on that basis somebody who is willing to be a 
 bigger liar than we are, can get the trade. All the cor- 
 rection of methods, all the building up of scientific sys- 
 tems, comes to naught unless we have that fundamental 
 from which nothing can stir us and to which, when we 
 are involved in the intricacies of advertising, we can 
 always go back — to tell nothing but the truth. I want
 
 ADVERTISING COSTS 83 
 
 you clearly to emphasize in your own minds, that while 
 this is good ethics, it is better business. ' ' 
 
 So much for right merchandise and truthful copy — 
 the third advertising method standardized by the sixty- 
 two merchants is individuality and store personality. 
 Psychologists would tell you that we all swarm around 
 a great average — a norm, they call it — millions of us. 
 It only takes an infinitesimal advance to raise a man 
 above this norm. As soon as the top of his head goes 
 over the norm, he is marked by thousands in his imme- 
 diate vicinity. Let him push one shoulder up, and a 
 state notices him. Just a shade more and he is world 
 known — a Wanamaker or a Field or a Ford. Still his 
 complete advance is so small that the psychologists watch- 
 ing the norm scarcely notice. The stores which reflect 
 the men who own them naturally mass on a great norm, 
 too. A bit of individuality puts a firm far enough 
 above the norm to secure wide and profitable attention 
 for it. Hence, it is worth money and effort to secure 
 store personality. 
 
 There are many and varied ways of creating individ- 
 uality for the store. Herbert A. Ballou of Worcester, 
 Massachusetts, painted his store blue. C. J. Ricker uses 
 a white tile front for a like purpose. Mr. Ricker has, 
 in addition, a little slogan which he advertises exten- 
 sively : ' ' Watch, clock and jewelry work done by Ricker 
 and Son is always well done." 
 
 Then of course there are a thousand and one little 
 plans that have a touch of individuality. Some mer- 
 chants send picture post cards to their customers from 
 trade conventions — that's more than the president of a 
 mail order house boasting several million customers can 
 do, at any rate! Others use birth cards to announce 
 seasonal changes in their stocks. An insurance company
 
 84 SELLING EXPENSE 
 
 sends policyholders "perpetual pencils" on their birth- 
 days. A laundry sells advertising space on the "shape 
 
 A SAMPLE RECORD from a 
 SALE of DRESSES 
 
 THE ADVERTISING 
 
 Advertisements placed in four morning and 
 
 evening newspapers $1,183.60 
 
 Post card announcements to a special list of the 
 
 department 's cash customers 172.40 
 
 $ 1,356.00 
 THE RESULTS 
 
 Women 's dresses sold $9,990.00 
 
 Misses' dresses sold 4,011.00 
 
 $14,001.00 
 THE LESSONS 
 
 Since the planned sales totaled $12,000, a good record 
 vras made, the cost of the advertising being 9% of the 
 sales. 
 
 Mid-week sales of this type are valuable because they 
 tend to make the daily sales volumes uniform during the 
 week. 
 
 Some of the lots were in insufficient quantities and this 
 fault should be remedied next time. Only about 100 of a 
 particularly attractive corduroy dress featured in the ad- 
 vertising were on hand. They were all gone a half hour 
 after the store opened for the sale. 
 
 Sales of this kind are unusually worth while because 
 often manufacturers can be found who are practically idle 
 at the time and therefore willing to sell almost at cost. 
 
 holders" it puts in shirts and paints the sides of its 
 wagons like checker boards so that the housewives, recog- 
 nizing them quickly, will have their bundles ready. 
 
 A wholesale paper house prints a catchy business 
 axiom on a cover of its house organ heavy enough to be 
 torn off and stuck over a desk. Many retailers wisely 
 connect their window displays with local events — when
 
 ADVERTISING COSTS 85 
 
 the normal school has a May pole party, their windows 
 show miniature poles; after a local ball team is organ- 
 ized, the windows attract many to clay models of the 
 diamond, and so on through hundreds of events. Cata- 
 logs frequently help to draw trade. Wrapping paper, 
 unused space on sales slips or bags, and stationery sup- 
 ply other ways for securing individuality. 
 
 Elaborate sales ideas of the right kind often build 
 
 A GENERAL SALE THAT BROUGHT 
 $90,000 in a DAY 
 
 THE ADVERTISING 
 Space in newspapers for women's departments. $1,789.10 
 Space in newspapers for men's departments. . . 383.60 
 
 $2,172.70 
 
 THE RESULTS 
 
 Sales in all departments $92,671.40 
 
 THE LESSONS 
 
 This is a one-day sale at which all stocks must show 
 prices from one-half to one-third lower than usual. 
 
 This sale shows the value of persistency and good stock 
 — the sale is an annual event during which great care is 
 taken to offer exceptional values. Hence customers come 
 to have confidence in the sale, and therefore little more 
 than a detailed announcement is needed — in this instance 
 at a cost of but 0.02 per cent of the sales. 
 
 A careful study of previous records and growths estab- 
 lished an estimated volume of $90,000 for this sale — a 
 remarkably close figure, for the actual volume totaled 
 exactly $92,671.40. 
 
 The advertising is most effective when run in large 
 space, one-fourth of which vividly explains the sale and 
 three-fourths catalogs items from seventy-eight depart- 
 ments set solid in type as small as six point. Smaller ad- 
 vertisements, in scattered mediums, do little more than 
 announce the sale. 
 
 personality. C. J. Ricker secretly gave five men gold 
 watches and then advertised that they were, instructed
 
 86 SELLING EXPENSE 
 
 to hand them to the first people asking them, "Do you 
 trade at Ricker's?" Emporia, Kansas, bustled about 
 for days shouting, "Do you trade at Rieker's?" C. C. 
 Brown awards the woman in his city who receives 
 the most votes from coupons, obtained with purchases at 
 his store, a five-passenger automobile. He first adver- 
 tised this contest on a March fourteenth and by April 
 fourth fifty-two candidates were after the car. A. J. 
 Aronson, of Canisteo, New York, gave the school chil- 
 dren bags of marbles, and coupons good for fifty cents 
 in shoe trade at a specified time during the first day of 
 the marble season. He attracted a lot of new customers 
 — it pays to remember the young folks. 
 
 It would not be difficult to assemble a hundred addi- 
 tional advertising ideas that bring a store individuality. 
 They are used by merchants who make their copy pay 
 by concentrating each argument on a single point that 
 unearths an impulse, by following the seasonal changes 
 closely, and by remembering that a hundred million dol- 
 lars was recently disposed of by a hundred-word will. 
 Above all they write their copy as they would talk to 
 customers over the counter — one of them even makes 
 rough drawings of barrels or crates containing repre- 
 sentations of his special offerings and has them zinced 
 for publication. 
 
 THESE five simple metlwds for making advertising 
 more profitable are worih careful study — %>arlictt- 
 larly the plan used by John Wanamaker. 
 
 Such methods broadly apply to all types of advertis- 
 ing — newspaper layouts, telephone calls, letters, show 
 windows, catalogs, booklets, circulars, cards, service, 
 dodgers, premiums, blotters, signs and circulars. It has 
 been shown that windows are worth certain amounts, in
 
 ADVERTISING COSTS 87 
 
 dollars and cents, a week. Therefore they warrant close 
 attention — sparkling glass; clean sidewalls and floors; 
 seasonable displays, changed at least weekly; color 
 schemes; no over-crowding; concentration on one offer 
 at a time; and a connection with national advertising 
 when possible. Letters, too, pull better if given a touch 
 of individuality. 
 
 We have yet to consider two of the five tested meth- 
 ods : the use of news items and the value of persistency. 
 After all, we only advertise as a matter of information, 
 in order to sell by description. The newspaper report- 
 ers write their stories to carry information, too. But 
 do you for one second suppose that a real live news- 
 paper reporter would write, if instructed to compose an 
 advertisement for salt sifters: "Extra values in salt 
 sifters 1 ' ' More probably he would hand in this : l ' Salt 
 sifters that shake from the left hand while the right is 
 busy. ' ' 
 
 Notice just two sentences from a John "Wanamaker 
 advertisement: "The sturdy rompers of cotton crepe 
 which so many small boys and girls wore last summer 
 came from the hands of an energetic little woman who 
 lives in a bleak seacoast village, and many of our finer 
 things are made by individuals. We buy wherever we 
 can find goods up to our standard. ' ' Hundreds of facts 
 as interesting range themselves along the distributive 
 and productive channels which bring staples to every 
 store in the country. The news to be found in all stores 
 of any size is welcomed by consumers. 
 
 We write advertisements to get, first, attention; sec- 
 ond, a reading; third, a decision. Live news assures us 
 the first two of these three objects and a fighting chance 
 for the third. Surely the sixty-two merchants are right
 
 88 SELLING EXPENSE 
 
 when they rank news interest with the five factors that 
 make their advertisements pay. 
 
 Persistency — keeping everlastingly at it — comes next. 
 At this point it is timely to call to mind the good woman 
 who declared, "I don't believe in nagging my husband, 
 but I feel it is my duty to keep some things before him. ' ' 
 There are facts which must be kept before consumers — 
 otherwise, no excuse exists for their remembering your 
 business. Advertising in one form or another, from 
 exceptional service to printed words, is the only way to 
 spread these facts. Further, advertising has a cumula- 
 tive effect which can be crystallized by persistency and 
 nothing else. 
 
 Examples that carry lessons over into the local field 
 are plentiful among national campaigns no longer 
 recalled — Apitezo, Force, Egg-O-See, and a thousand 
 more. Jordan Marsh and Company of Boston, on the 
 other hand, have for years advertised their annual birth- 
 day sale. Recently they sold $500,000 worth of mer- 
 chandise in two days by merely listing items and prices 
 under a heading descriptive of this birthday sale. The 
 cumulative results of good advertising do not fall much 
 short of being as solid as government bonds. Certainly 
 they spring from several of the bonds' characteristics — 
 concentration, consistency and continuity. 
 
 LESS than five per cent of the merchants in America 
 know how to advertise, according to one manager. 
 These tested methods should help better this record. 
 
 This completes an analysis of the five methods used 
 by the sixty-two merchants in bettering returns from 
 their advertising — right merchandise, truth, individual- 
 ity, news, and persistence. The standards from over a 
 thousand stores offer an opportunity roughly to judge
 
 ADVERTISING COSTS 89 
 
 how much to spend. Yet these tested methods and the 
 carefully gathered costs will not assist to the full extent 
 of their possibilities, unless the man who puts them to 
 work is fired by enthusiasm for his task. Advertising 
 that pulls is only written by those who live for, fight 
 for, the attractions it describes or helps. 
 
 And a place in the distributive chain which supports 
 the country, either as a producer, a jobber or a retailer, 
 is well worth existence and struggle. The retailers, 
 every wise manufacturer understands, are uncertain 
 when cajoled, unproductive when driven, and helpful 
 when appreciated. They can practically ruin a cam- 
 paign involving thousands of dollars by using substitu- 
 tion. The makers and the wholesalers feed, clothe and 
 shelter the nation. Work of this importance warrants 
 loyal efforts and good advertising. 
 
 Still the advertising manager of one of the largest 
 wholesale houses in the United States says that less than 
 five per cent of our retailers know how to advertise. If 
 this is true, it may come about because the attraction in 
 most work — particularly retailing — tarnishes a bit with 
 close contact. Nevertheless the good and the power in 
 distributive tasks well done exists, furnishing a strong 
 appeal for strong enthusiasm. 
 
 Couple this enthusiasm, the five successful methods 
 and the cost standards together — then good advertising 
 comes easily. Two men express this fundamental idea — 
 the reason for writing this article — clearly. One is a 
 jeweler in a small middle-western town, the other mer- 
 chandise manager of the largest store of its kind in the 
 world. 
 
 The jeweler says : ' { Enthusiasm in your own business 
 is one of the big foundation stones of success that comes 
 to a man. This only means the ability to recognize
 
 90 SELLING EXPENSE 
 
 business possibilities or opportunities; the capacity to 
 see chances to get business in the everyday contacts and 
 events of your own neighborhood; and the strength to 
 hold yourself in your own field and not look beyond to 
 the improbabilities." 
 
 This is what the merchandise manager thinks of his 
 job: "We believe that the function of retail distribu- 
 tion should be undertaken as a social service equal in 
 dignity and responsibility with the function of produc- 
 tion, and studied with equal intensity in order that the 
 service may be performed with the highest efficiency, 
 greatest economy, and with nothing more than a fair 
 profit to the retailer."
 
 PART III 
 
 WHAT IT COSTS TO RUN 
 THE STORE
 
 VI 
 
 THE COST OF DELIVERIES 
 
 DELIVERY wagons, forty or fifty miles from the 
 big New York stores operating them, dot long 
 stretches of the old post road to Boston every morning 
 as the sun tops the horizon. They carry purchases, big 
 and little, rushed overnight in high powered trucks to 
 suburban distributive stations. Before daylight, smaller 
 vehicles swarm away from these branches by the hun- 
 dred; the sun finds them among the farms. This far 
 flung convenience, the big stores' supreme effort to serve 
 the consumer, levies, on the average, two cents from 
 every dollar spent in New York city's larger retail con- 
 cerns. 
 
 One New York department store delivers over an area 
 equal to one-third the state of Massachusetts at a cost 
 exceeding one million dollars a year. A Philadelphia 
 company sends some of its trucks to Atlantic City. Less 
 important firms supporting delivery facilities propor- 
 tionately extensive, usually, on account of their small 
 sales volumes, spend more out of each dollar for deliv- 
 eries than the large stores. 
 
 These expenditures are factors of consequence in the 
 rise of costs to do business. Twenty years ago purchasers 
 did not expect deliveries. They then spent on one shop- 
 ping trip the seventy-five dollars they today divide over
 
 94 MERCHANDISING EXPENSES 
 
 fifteen or twenty. During the eighties, a retailer who 
 occasionally hitched up the family horse to deliver a 
 large order was considered exceptionally accommodating. 
 
 In 1883, 14.5 per cent of the sales amply satisfied the 
 combined net profits and costs to do business of Alex- 
 ander Findlay's store in Madison, "Wisconsin. By 1905 
 it took 21.5 per cent of the receipts to secure a smaller 
 net profit and cover the rising costs. By that year costs 
 alone amounted to 14.5 per cent. Three cents out of 
 every dollar went for deliveries. Last year saw the 
 expenses increase to 18 per cent and the gross profits 
 to 22.5 per cent. Paul Findlay says that he could cut 
 the selling price on one staple 20 per cent, if his cus- 
 tomers would be satisfied with delivery facilities half as 
 expensive. 
 
 This rapid multiplication of the conveniences offered 
 by the seller to the buyer changed competition to its very 
 foundations. The goods alone no longer limit the com- 
 petitive issue, for the buyer may now be equally inter- 
 ested in the attractiveness of the service supplied with 
 the wares. As surely as accurate deliveries form the 
 most desired share of the seller's service, delivery of 
 some sort has become practically a condition of sale. 
 The seller is obliged to meet competitors' facilities. 
 When one concern makes free deliveries, consumers feel 
 justified in expecting equivalent service from rivals. 
 
 Thus delivery is all but automatically forced upon the 
 distributors, who soon find their markets actually 
 depending upon it. Size offers no escape, for, except in 
 certain lines, the little distributor must deliver if he 
 expects to grow into a big distributor. The man with a 
 small sales volume often finds his delivery costs a ruin- 
 ous burden; the man with a large trade discovers that, 
 unless he is continually watchful, pressure stakes his
 
 CUTTING DELIVERY BILLS 95 
 
 deliveries irregular. The long and short of this situa- 
 tion is that the average distributor either delivers his 
 sales or goes under. True, a few break away and suc- 
 ceed in holding their trade. Some control special prod- 
 ucts so famous that they can successfully withstand the 
 demand for free delivery. Others pick a definite trade 
 class which willingly carries home what it buys. 
 
 Harry Whittelsey, one of the owners of a chain of 
 Kansas " no- free-delivery " stores, handles an annual 
 volume of $250,000 on a ten-per-cent mark-up. Duke 
 Bowers, who runs thirty-two successful stores in the 
 South, refuses to deliver a single order which does not 
 total five dollars. He makes money on a fourteen per 
 cent mark-up. Cooperative stores often profitably 
 eliminate delivery expenses — Frank W. Chase, who 
 organized a cooperative store for Boston bank employees, 
 believes that the large cooperative enterprise can save 
 three per cent by eliminating deliveries, and the smaller 
 stores from eight to ten per cent. 
 
 JOHN WANAMAKER is reducing his delivery costs. 
 Thousands of men with smaller stores are puzzling 
 over the same problem. Here are several tested solutions. 
 
 Many retailers wedged between the horns of a delivery 
 dilemma compromise with their customers. They either 
 secure the acceptance of a definite delivery schedule 
 which necessitates the placing of orders between certain 
 hours, or offer discounts and better store service in return 
 for a total release from delivery expenses. E. W. Dar- 
 rell in New England delivers to schedule, and Abraham 
 Roberts in the West only sends wagons daily to cus- 
 tomers within three miles of his store. In Akron, Ohio, 
 a paying market declines to deliver, but maintains a 
 special counter for quick wrapping and attempts to make
 
 96 MERCHANDISING EXPENSES 
 
 its prices unusually attractive. Another middle-western 
 store with no delivery equipment gives attractive pre- 
 miums frequently and advertises "non-delivery" sales 
 at cut prices. An eastern laundry which offers a ten 
 per cent discount to those who bring and take bundles, 
 reports a three per cent reduction in its delivery costs. 
 
 Losses, however, face the average distributor who tells 
 his customers, "Hereafter you'll have to do your own 
 carting.' ' The consumer forced by circumstances to 
 content himself with crude distributive service, including 
 a "no-free-deliveries" policy, usually puts up with what 
 the market offers. He has no alternative. But as soon 
 as circumstances brighten, he, of course, desires the best 
 service his money can buy. There is no happy medium. 
 The consumer either says: "I'll do the lugging," or, 
 "you do the lugging, and see that you do it right." 
 Experience shows that the distributor selling to con- 
 sumers who feel they can afford to have purchases 
 delivered, is beckoning trouble when he fires the delivery 
 force. 
 
 "Witness the case of P. Braastad and Company at Ish- 
 peming, Michigan. They put their prosperous business 
 on a "no-credit-no-free-delivery" basis last September. 
 They wanted to find out just how much of today's rising 
 costs and soaring living expenses belong at the distribu- 
 tor's door. Therefore, they cut prices ten per cent 
 throughout the store and in return asked purchasers to 
 release them from carrying accounts and delivering 
 goods. The cash rule was accepted by their customers, 
 but thumbs went down with great emphasis on the "no- 
 free-delivery" regulation. The owners of the Braastad 
 concern discovered what they desired to unearth — deliv- 
 eries were resumed. Today they have this to say about 
 their little tiff with rising costs and the consumer's
 
 CUTTING DELIVERY BILLS 
 
 97 
 
 ideas about service : ' ' Our cash system has been an 
 unqualified success. But there were so many objections 
 to no delivery that we finally had to go back to the deliv- 
 ery system, although we are now making less frequent 
 
 
 Itemized Costs of Doing Business in Representative Lines 
 
 % 
 
 it. 
 u 
 
 21 
 
 N 
 
 Jfi 
 it 
 
 14 
 
 u 
 
 JO 
 8 
 6 
 
 4 
 2 
 
 D 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 I 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 J, v.- ( i.-v 
 Furnitut 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 I 
 
 
 
 
 Clothirt 
 
 ,| 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Mail Order Houses) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^-~ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 '/ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 I 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 t 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 // 
 
 
 J 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 7/ 
 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 7/ 
 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 // 
 
 / 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 t 
 
 / 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 / 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 7 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Ren. 
 
 Sll "" S 
 
 Advertis- 
 ing 
 
 lint tad 
 Light 
 
 °^"" 
 
 SotfUt* 
 
 IoHn&ce 
 
 General 
 
 Deyreci- 
 
 Bad Debts 
 
 Tot-1 
 
 
 
 FIGURE VIII: Each line in this chart represents itemized costs of do- 
 ing business. As the lines progress to the right, the items, including 
 delivery expenses, are added, until total costs appear at the extreme right 
 
 deliveries than before. It seems that the majority of the 
 people want their goods delivered and are willing to pay 
 for it." 
 
 So much for evidence that making deliveries has evi- 
 dently crystallized into a sort of distributive law of the 
 Medes and Persians. Under these circumstances it is 
 
 7
 
 98 MERCHANDISING EXPENSES 
 
 necessary to establish two sets of facts — first, how much 
 it costs to deliver representative stocks; secondly, how 
 these costs may be reduced. From well over a thousand 
 stores, scattered through every state in the Union, Sys- 
 tem has collected figures on the cost of making deliv- 
 eries. These figures, whether from horse, electric or 
 gasoline equipment, and without regard to the size of 
 the stores tabulated, when averaged, give national stand- 
 ards from which it is possible to judge the cost of carry- 
 ing purchases to the doorstep of the American consumer. 
 These national delivery cost standards, which include 
 wages and all items directly connected with deliveries, 
 follow : 
 
 Percentage 
 of Sales 
 
 Groceries 2.53% 
 
 Department stores 2.01% 
 
 Vehicles and implements 1.06% 
 
 Dry goods 1.02% 
 
 Furniture 94% 
 
 Hardware 91% 
 
 Clothing 65% 
 
 Drugs 51% 
 
 Shoes 46% 
 
 Jewelry 09% 
 
 Variety goods No deliveries 
 
 These standards give an average for the country 
 against which individual figures may be checked for 
 extreme variations from normal conditions. An abso- 
 lute check on individual delivery expenditures is of 
 course impossible without allowance for widely varied 
 local factors and conditions. 
 
 In Shelbyville, Indiana, one retailer says he pays no 
 delivery expenses because he combines recreation with 
 rising costs and delivers in his touring car! A young 
 man, who for exactly two months had his name on a shop 
 door facing the main street of a Chicago suburb, favored
 
 CUTTING DELIVERY BILLS 99 
 
 the same idea, but unfortunately lacked the touring car. 
 He was so frequently away from his store making 
 deliveries that one night the sheriff locked up shop for 
 him. In a medium-sized middle-western city a depart- 
 ment store delivers annual sales of $225,000 for $3,433.46, 
 spent to hire a wagon, two horses, a man and two boys. 
 A few miles away a dry goods store delivers sales of 
 $16,000 for about $32 invested in the time of the boy 
 who does the sweeping. 
 
 Although pavements, grades and other physical con- 
 ditions increase the delivery cost variations caused by 
 corresponding individual circumstances, it is possible 
 accurately to fix the range over which the usual cost per 
 package delivered will vary. Department stores find it 
 costs them from five to eight cents to deliver the average 
 package, regardless of size. The run of distributors pay 
 from five to eleven cents. A St. Louis department store 
 found that it cost four cents to deliver a package by 
 gasoline ; five to five and a half cents by electricity ; and 
 seven to seven and a half cents by short team hauls. 
 These costs, however, do not include depreciation. 
 
 One of the largest department stores in the Middle 
 West makes deliveries by gasoline and electric trucks at 
 a cost of about 3.75 cents a package within the city 
 limits and 5.25 cents in the suburban sections. A small 
 eastern store makes a record of 3.75 cents a package on 
 account of the numerous level streets in its delivery area. 
 A New York store delivered 1,168,511 packages, at an 
 average cost of 6.43 cents each, by gasoline, and 1,376,- 
 030, by horses, for 8.46 cents. A clothier in the same 
 city makes his deliveries for 7.4 cents a package by two 
 gasoline automobiles which average sixty miles a day. 
 
 It is also possible to secure comparisons through aver- 
 age costs of typical equipment. For instance, the aver-
 
 100 MERCHANDISING EXPENSES 
 
 age team and wagon, with horses and men in reserve, 
 will cost about six dollars and a half a day, and a three- 
 ton gasoline truck, from nine to ten dollars. 
 
 It is to be expected that concerns delivering every sale 
 stand heavier delivery expenses than those handling 
 stocks which are, at least in part, carried away by pur- 
 chasers. Coal and ice companies, for example, count 
 delivery one of their heaviest expenses. The largest 
 coal company in Chicago spends over 36 per cent of its 
 gross profit for teaming and cartage. Wholesalers usu- 
 ally pay more than the retailer for deliveries. One 
 wholesale firm recently found that its average cost to 
 deliver each of 3,214 packages to be 11.5 cents. Another 
 wholesale concern delivers its packages for 9.7 cents each. 
 One Chicago jobber figures that it costs 18 cents to 
 deliver each package he sells. 
 
 SAVINGS in the delivery department defend in most 
 instances on these principles and detailed methods 
 which have been tested out by going concerns. 
 
 With these standards available for checking up deliv- 
 ery costs, the second problem is to find ways for securing 
 reductions. Economies in all types of delivery systems 
 first of all depend on care in routing. The delivery 
 area is usually divided into sections which enable the 
 heaviest loads to be routed over the best roadbeds, and 
 the lighter runs through the poorer streets. One store 
 superintendent finds it profitable to make a tour of his 
 delivery routes at regular intervals, in order to pick 
 the best roads and check on street improvements. It is 
 also important to find the hours when the main thorough- 
 fares and the most congested bridges are least in demand. 
 Whether a distributor handles a small or a large sales
 
 CUTTING DELIVERY BILLS 101 
 
 volume, a careful study of routing schedules from time 
 to time is worth while. 
 
 But the most carefully selected routes may prove 
 expensive if shipping facilities are not adequate. A 
 delivery begins from the moment the package is wrapped, 
 not from the moment it is put on a wagon or truck. 
 Abnormal delivery expenses may start on the shipping 
 floor as well as on the road. A rapid and accurate sort- 
 ing of packages in the delivery room permits movable 
 equipment to hold down costs. A western grocer who 
 understands this fact has his shipping room divided 
 into bins. Each order is given a bin number by the 
 cashier before it is filled. The clerks send the goods to 
 the proper bin to be checked over for errors and placed 
 in baskets colored to designate the routes. Bulk staples 
 — on hand, wrapped, in the delivery room — are assem- 
 bled by the shipping clerks. The drivers simply pick 
 out baskets of the proper color, the clerks stay in the 
 front of the store ready for sales, and every order is 
 checked twice. 
 
 Reductions in delivery costs, once routes and shipping 
 facilities test up satisfactorily, probably most frequently 
 result from better ways for handling the delivery force. 
 The drivers have it in their power either to conserve 
 time and equipment or to overlook wastes. The driver 
 of a valuable truck is in a position to save his employer 
 money or deluge him with repair bills. The men out on 
 the road with deliveries are exactly like other men — 
 they need incentive to keep down expenses. Their 
 wages are usually not an incentive, but just the ordinary, 
 expected remuneration. Therefore, distributors often 
 find it profitable to reward the drivers with either 
 bonuses or prizes.
 
 102 MERCHANDISING EXPENSES 
 
 The three ways for reducing delivery costs detailed 
 above — a better handling of routes, men and shipping 
 facilities — do not involve the customer, except as a pas- 
 sive recipient of packages. There are, however, two 
 methods which do concern the purchaser — fewer returns 
 and more "take withs. " Returns and exchanges worry 
 the big merchants at both retail and wholesale about as 
 much as any single item listed with the rising costs. The 
 smaller stores, on the other hand, find returns less of a 
 problem. One of the largest stores in New England, 
 for instance, reports about 28 per cent of its charge 
 packages returned and nearly 30 per cent of the C. O. D. 
 orders. 
 
 Returns necessitating a rehandling of goods in equally 
 large percentages of the sales trouble most of the larger 
 stores. They have been reduced in many concerns by 
 strictly enforcing return dates and declining to re-stock 
 goods on which special lead tags have been broken. Since 
 there is no profit until a customer is found for wrapped 
 goods, some concerns hire a ' ' send again ' ' clerk to watch 
 returns. This clerk checks on the drivers with return 
 post cards, corrects wrong addresses, and secures com- 
 parative prices when a customer refuses goods on the 
 ground that they are offered cheaper elsewhere. If 
 members of the sales force fall into the habit of sending 
 C. O. D. packages to addresses selected at random out 
 of the directory, in order to swell their sales records, the 
 "S A" clerk calls a halt. 
 
 In short, no returned order is put back into stock until 
 an effort has been made to trace causes. But the privi- 
 lege to return packages, like delivery service, is today 
 practically a condition of competition. A marked reduc- 
 tion in the percentage of returned orders to completed
 
 CUTTING DELIVERY BILLS 103 
 
 WHAT IT COSTS to DELIVER by ELECTRICITY 
 
 "The assumed price" includes a complete vehicle with the average type 
 
 of body. Increases or decreases in these prices which are not radical will 
 not seriously alter the operation charges. These figures were presented be' 
 fore the Electric Vehicle Association of America by William P. Kennedy. 
 
 VEHICLES 
 
 Capacity, lbs 700 1,000 2,000 3,000 
 
 Assumed price $1,500 $2,200 $2,600 $3,000 
 
 Fixed charges — 
 
 Interest at 6% $90 $132 $156 $180 
 
 Depreciation at 10% 150 220 260 300 
 
 Fire insurance at 1% 15 22 28 30 
 
 Liability insurance 100 100 100 100 
 
 $355 $474 $544 $610 
 Maintenance — ■ 
 
 Battery upkeep $170 $180 $200 $240 
 
 Tire upkeep 119 158 212 225 
 
 Mechanical parts upkeep 50 60 80 90 
 
 $339 $398 $492 $555 
 Garaging — 
 
 Electric power $120 $140 $170 $240 
 
 Storage and washing 180 180 180 180 
 
 Garage labor 100 120 160 180 
 
 $400 $440 $510 $600 
 
 Annual operating cost $1,094 $1,312 $1,546 $1,765 
 
 Daily cost (312 days) $3 51 $4 20 $4 85 $5 66 
 
 Drivers, dafly pay 2 00 2 00 2 50 2 50 
 
 Total daily cost $5 51 $6 20 $7 35 $8 16 
 
 Capacity, lbs ." 4,000 7,000 10,000 
 
 Assumed price $3,400 $4,000 $4,500 
 
 Fixed charges — 
 
 Interest at 6% $204 $240 $270 
 
 Depreciation at 10% 340 400 450 
 
 Fire insurance at 1 % 34 40 45 
 
 Liability insurance 100 100 100 
 
 $67S $780 $865 
 Maintenance — 
 
 Battery upkeep $285 $365 $415 
 
 Tire upkeep 306 340 575 
 
 Mechanical parts upkeep 100 125 150 
 
 $691 $830 $1,140 
 Garaging — 
 
 Electric power $300 $360 $400 
 
 Storage and washing 180 180 180 
 
 Garage labor 200 250 300 
 
 S6S0 $790 $880 
 
 Annual operating cost $2,049 $2,500 $2,885 
 
 Daily cost (312 days) $6 57 $8 01 $9 25 
 
 Drivers, daily pay 2 50 3 00 3 00 
 
 Total daily cost $9 07 $1101 $12 25
 
 104 MERCHANDISING EXPENSES 
 
 sales is not to be expected. It is, however, worth the 
 expense to scrutinize and check wrong addressing and lax 
 delivery methods. 
 
 Cutting delivery costs by getting customers to carry 
 away packages is largely a question of wits. Since a 
 customer with a labeled package becomes a walking 
 advertisement, and as well because it is more expensive, 
 on account of the numerous "shif tings" and losses 
 encountered, to deliver a small package than a large one, 
 profits result when purchasers do their own delivering. 
 A customer with money to spend is, however, a privi- 
 leged character — he knows it and you know it. Use 
 anything short of ambassadorial diplomacy in suggest- 
 ing to him that you, as a distributor beset with high 
 costs, would appreciate his carrying home a two-ounce 
 package, and your counters will, as likely as not, never 
 see him again. 
 
 ONE way to reduce delivery bills is to persuade cus- 
 tomers to carry away more packages themselves. 
 It is a delicate task, but these methods have succeeded. 
 
 A famous store once thought it had a plan which would 
 entice customers into taking home the lighter parcels. 
 The superintendent of this store decided that purchasers 
 rightly enough objected to carrying packages bearing 
 the firm's label. So he had a paper, distinctively ruled 
 but without a letter of type, placed at the bundle coun- 
 ters. "They won't know it," he explained to the presi- 
 dent, "but that ruled paper will be more of an adver- 
 tisement than a label in red letters a foot high." Just 
 there he fooled himself. The purchasers soon discovered 
 that the unusual paper practically shouted the source of 
 their purchases. They rebelled. 
 
 Successful methods for increasing the number of
 
 CUTTING DELIVERY BILLS 
 
 105 
 
 ' ' take withs ' ' exist, however. For example, ' ' take with ' ' 
 packages are wrapped in particularly attractive holiday- 
 paper at Christmas time by some stores. Customers 
 want the paper keenly enough to carry home small pur- 
 chases. The most successful plan of all, however, is to 
 say nothing at all about delivering the smaller packages. 
 
 TYPICAL MOTOR TRUCK DELIVERY COSTS 
 
 In the upper portion of this table appear the savings actually secured by 
 
 distributors who have replaced horses with trucks. Below is given the cost 
 
 of a typical day's work by a power wagon and a team 
 
 Location and Business 
 
 Type oi 
 Truck 
 
 Miles 
 
 per Day 
 
 (av.) 
 
 Loads or 
 Stops 
 
 (pkes.) 
 
 Cost 
 
 Horses 
 
 Re- 
 placed 
 
 Saving 
 % 
 
 East — heavy hardware. . 
 
 East — dry goods 
 
 East — dry goods 
 
 Middle West — coal 
 
 Middle West — furniture. 
 Middle West — dry goods 
 Middle West — dry goods 
 New England — dry goods 
 
 West — dept. store 
 
 West — groceries 
 
 1 ,000-lb. el. 
 3-ton gas. 
 1 ,500 lb. gas. 
 5-ton gas. 
 2-ton el. 
 1 ,000-lb. gas. 
 2,000-lb. gas. 
 
 750 gas. 
 1,000-lb. el. 
 3,000-lb. gas. 
 
 32 
 
 46 
 
 55 
 
 27.92 
 
 38 
 
 53 
 
 53 
 
 62 
 
 40 
 
 75t 
 
 205 
 
 310 
 25.13* 
 
 195 
 195 
 130 
 135 
 
 $90.00 mo. 
 
 9.74 day 
 
 .05 pkg. 
 
 11.09 day 
 
 .05 pkg. 
 .05 pkg. 
 .08 pkg. 
 
 2 
 
 12 
 4 
 
 8 
 4 
 
 30 
 
 45 
 24 
 
 33$ 
 
 
 
 40 
 $14.26* 
 
 
 t for 11 hours 
 
 X a day 
 
 THE HORSE w. THE POWER WAGON 
 
 Wagon and Team 
 Original cost. $910.00 
 
 Interest at 5 per cent 
 Depreciation at 15 per cent. 
 
 Repairs 
 
 Insurance 
 
 License' 
 
 Feed 
 
 Shoeing 
 
 Miscellaneous 
 
 Wages (driver and jumper) . . 
 Rent 
 
 3.79 
 
 11.37 
 
 9.20 
 
 1.00 
 
 .80 
 
 25.00 
 
 3.00 
 
 9.00 
 
 93.00 
 
 10.00 
 
 (at 20%) 
 
 Thiee-ton Truck 
 
 $3,500.00 
 
 14.58 
 58.33 
 14.10 
 12.90 
 2.00 
 31.10 
 31.66 
 5.80 
 98.68 
 10.00 
 
 (tires) 
 
 (gas.) 
 
 (oil) 
 
 (driver and jumper) 
 (garage; 
 
 Cost per day (27) $ 6.15 
 
 $ 10.34 
 
 Simply wrap up the purchase and hand it to the cus- 
 tomer with the usual pleasant word or two about other 
 goods. This is sound psychology, for if you ask a cus- 
 tomer, "Do you want this delivered?" he will answer, 
 nine times out of ten, ' ' Please. ' ' His attitude is reason-
 
 106 MERCHANDISING EXPENSES 
 
 able enough — he says to himself, "It does not cost any- 
 thing and everybody has things delivered." But say 
 nothing, suggest nothing, and he is not tempted to object 
 to carrying a package of pocket size. Naturally, clerks 
 need to use ordinary discretion. They should not expect 
 customers to take home large packages. 
 
 There is still another successful plan for making deliv- 
 eries less expensive — cooperative delivery systems. Two 
 types have been tested: independent companies which 
 charge the distributor in proportion to the number of 
 packages handled for him, and cooperative arrangements 
 between the retailers themselves. 
 
 In Boston a delivery company is making money and 
 reducing delivery costs for several stores. E. W. Varde- 
 man controls a company that makes a business of deliver- 
 ing for western retailers. Since deliveries are made in 
 all directions at once, goods get to customers quicker, 
 and the retailers can close up for the night earlier, than 
 when they deliver individually. The savings made by 
 this method have cut individual delivery costs anywhere 
 from 25 to 40 per cent. 
 
 The retailers in twenty-nine towns and cities in Mis- 
 souri and Kansas use such a system. Here are some 
 figures on the equipment savings which result — in three 
 towns fifty-nine wagons and one truck have been dis- 
 carded : 
 
 
 
 Wagons 
 
 Wagons 
 
 
 Stores 
 
 Now 
 
 Formerly 
 
 
 Using 
 
 Used 
 
 Used 
 
 Independence, Mo. 
 
 . . 22 
 
 11 
 
 35 
 
 
 16 
 
 10 
 
 32 
 
 
 11 
 
 6 
 
 19 
 
 Equally worthwhile savings appear when retailers 
 cooperate among themselves, although individual inter- 
 ests and desires frequently wreck arrangements of this
 
 CUTTING DELIVERY BILLS 107 
 
 type. In Geneseo, New York, seven groceries, three dry- 
 goods stores and one meat market handle their deliv- 
 eries cooperatively at a sixty per cent saving over 
 previous costs. 
 
 Capably managed gasoline and electric trucks reduce 
 delivery costs when they handle a suitable volume of 
 business. A power wagon will lose money if managed 
 like a team, however. Because it represents a much 
 larger investment it involves a serious loss when idle. 
 Therefore, quick loading and long hauls underlie motor 
 truck delivery systems, for a fully loaded power wagon 
 on the move is usually a money maker. Trucks have as 
 yet failed to replace horseflesh on short hauls with numer- 
 ous stops, except in the case of loads quickly handled in 
 bulk, like coal. Horses also prove more profitable over 
 the worst roads. With these restrictions understood, the 
 power truck may be relied upon to offer speed, distance, 
 capacity, extended service, advertising and immunity to 
 weather conditions, if there is enough work to supply 
 capacity loads. The ideal conditions for its use are long 
 hauls, infrequent stops and large loads. 
 
 Careful routing, adequate shipping facilities, a well 
 selected personnel, cooperative arrangements, fewer 
 "returns," more over-the-counter deliveries, and motor 
 trucks — these, then, are seven tested methods for cutting 
 delivery costs. They include, as described in this article, 
 the most widely used plans. Many distributors, how- 
 ever, have tried out plans of their own for getting better 
 profits from the details of handling orders. During 
 slack hours an Indiana retailer of men's furnishings 
 sends his clerks on delivery trips. Ice and milk com- 
 panies supply their customers with large placards which 
 designate the quantity desired, so that the drivers need 
 not leave their wagons to make inquiries. Others get
 
 108 MER CHANDISING EXPENSES 
 
 more than an ordinary amount of advertising out of their 
 delivery wagons by placing on the sides bulletin boards 
 announcing sales or by painting on the tops advertise- 
 ments which attract attention from upper floors. 
 
 Taken by and large, the delivery problem is one of 
 watchfulness for useless motions. When a wagon 
 breaks down that has needed repairs for a long time, 
 wasted motions result. When an order gets to the 
 wrong door, useless motions redirect it. 
 
 So it is with all of distribution, whether at wholesale 
 or retail. A sheriff's sale stands for hundreds of wasted 
 motions. Therefore, in delivering their sales, as in mak- 
 ing them and preparing for them, the men who run 
 stores find their most attractive savings in seeing that 
 every motion counts.
 
 VII 
 
 BAD DEBTS AND HIDDEN 
 LOSSES 
 
 BAD debts sent one business man on the rocks every 
 twenty-four hours last year. These failures cost 
 us forty thousand dollars a day — enough to hire five 
 hundred million dollars of capital. And 1913 was not 
 an abnormal year. 
 
 Add these fourteen millions to the cost of supervision, 
 plus the interest charges, and you have the price we pay 
 for credit. It is not an unreasonable amount, either, 
 when matched with the advantages secured. Take the 
 retailer as a typical user of credit in satisfying the con- 
 sumer's wants. His credit connections are two-sided: 
 he receives datings from manufacturers or wholesalers 
 and probably gives his customers accommodations. This 
 means that the firms in the primary markets have some 
 of their assets on the retailers' shelves and that the retail- 
 ers transfer a portion of their stocks from their own 
 shelves to customers' homes. 
 
 It is evident enough that an increase in these goods at 
 customers' homes causes smaller net profits, for larger 
 stocks, whether held within the stores, at warehouses, or 
 in customers' hands, slow down the turnover rate. Sup- 
 pose, for the sake of illustration, that a store is selling 
 one thousand dollars' worth of merchandise a day at a 
 cost of doing business equal to twenty per cent of these
 
 110 MERCHANDISING EXPENSES 
 
 sales and at a gross profit of twenty-fire per cent. 
 
 Assume the average stock on hand to be worth thirty 
 
 thousand dollars at retail, or enough to care for thirty 
 
 da}^s' sales. Now, if this store also allows charge 
 
 account customers to keep additional stock worth twenty 
 
 thousand dollars — twenty days' sales — at their homes, 
 
 25 20 
 
 on credit, its net profits will be : on ion X360, or 36%. 
 
 Next assume that the manager of the store allows the 
 total of the accounts due from customers to climb until 
 it equals thirty thousand dollars — thirty days' sales — 
 
 25 20 
 
 and see what happens to his net profit : „. -. X360, or 
 
 30%. A drop of six per cent. 
 
 Thus credit is demonstrated to be a merchandising 
 problem, in principle exactly like the rest of the activi- 
 ties of the factory or store. It requires capital — and 
 the man who has capital enough to keep some of his 
 stock in customers' cupboards will probably in the long 
 run interest a more profitable trade than his competitor 
 who cannot secure money enough to offer this con- 
 venience. 
 
 Since the capital taken by the credit end of a concern 
 adds interest charges to the costs, in addition to the 
 supervisory expenses and losses from defaulted debts, 
 business men ask: "Why not sell for cash?" Twenty- 
 five years ago the retailers agitated this "Cash or 
 credit?" question; today, with rising costs pressing 
 down net profits, they again turn to it. Certain classes 
 of trade — willing to carry home purchases and forego 
 expensive service — buy for cash. Stores stocked and 
 managed to meet their demands succeed on a cash basis. 
 But when consumers able and willing to pay for free 
 delivery, varied service, and charge account facilities are
 
 LOSSES AND BAD DEBTS 
 
 111 
 
 handled, an attempt to sell exclusively for cash usually 
 falls flat. It is admittedly more convenient to charge 
 
 ES;;»5;| tist Profits "(One Turnover) 
 p-;':: : :.;V5 Cast) Discounts 
 
 Costs of Doingjiusiness 
 
 PROFITS, COSTS, and DISCOUNTS 
 
 gy Lines 
 
 FIGURE IX: This and the chart on page 119 graphically average cost 
 figures by System, various organizations and individual investi- 
 
 gators. The lines A, B and C join the profits, costs and discounts 
 
 purchases ; the standard of living has advanced until it 
 apparently includes credit as a matter of course. The
 
 112 
 
 MERCHANDISING EXPENSES 
 
 LOSS IN WRAPPING 
 
 Shrinkage and losses in supplies like 
 paper come from lack of instruction 
 for clerks in right methods of wrap- 
 ping. Modern equipment automatically 
 prevents many of these wastes. 
 
 practice of ordering by telephone almost automatically 
 increases credit transactions. 
 
 As a result, credit has become "cheap" and accounts 
 are frequently solicited. The average merchant finds 
 that he is practically forced to either act as banker for 
 a large portion of the community's transactions or lose 
 trade. 
 
 HOW much do you lose a year through bad debts? 
 If you sell on credit, it is probably a noticeable 
 item. Here are ways by which others have reduced it. 
 
 It, therefore, becomes increasingly difficult to hold to 
 a safe balance — sane credits and a maximum sales vol- 
 ume. The danger signal for unwise credits is the loss 
 from bad debts, provided the capital involved and the 
 supervisory charges do not overtax the resources of the 
 particular business considered. The individual mer- 
 chant's resources determine how much he may safely 
 invest in credit or stock in customers' homes; the aver- 
 age credit department costs from four-tenths to six- 
 tenths of one per cent of the net charge sales. 
 
 The amount of loss which can safely be taken from 
 bad debts also varies with the type of trade handled and
 
 LOSSES AND BAD DEBTS llf? 
 
 LOSS IN TYING 
 
 There is a wrong and right way to wrap 
 and tie a parcel. At a common wrapping 
 counter much waste could be reduced by 
 making the most skillful packer the in- 
 structor for a group. 
 
 the class of goods stocked. P. A. Pruitt of Edinburgh 
 says that he lost five thousand dollars in twenty years 
 through bad debts and cut his losses one hundred dollars 
 a year by dropping one-half of his credit accounts. John 
 Harvey, secretary of the Retail Grocers' Association of 
 Kansas City, figures that a one per cent loss is normal 
 for an eighteen-thousand-dollars-a-year grocery business. 
 John A. Green, secretary of the National Retail Grocers ' 
 Association, believes a lower figure is attainable. He 
 says: "We, as an organization, have done wonderful 
 things along educational lines. No longer do the losses 
 from accounts figure in the cost of doing business. Re- 
 ports from all over the country tell us that the loss from 
 this source is from one-tenth of one per cent to one- 
 quarter of one per cent." 
 
 Evidently, then, practically everybody agrees that a 
 credit business brings about losses from bad debts. How 
 much this loss will be in individual cases depends on 
 local conditions and whether a generous or a close credit 
 policy is followed. But loss is to be expected. Careful 
 business men anticipate this loss and build a reserve in 
 cash to take care of it by laying aside some of the money 
 from sales. Further, when the loss goes beyond normal
 
 114 
 
 MERCHANDISING EXPENSES 
 
 LOSS IN WEIGHING 
 
 Prepackaging of goods reduces losses from 
 overweights. Accuracy should be the in- 
 flexible rule in measuring. Modern seales 
 go a long way in eliminating the "per- 
 sonal equation." 
 
 limits, they recognize that something is wrong with their 
 credit policy and take in sail. 
 
 To fix the amount to put away as a reserve and the 
 figure that will measure normal losses requires standards 
 which cross section hundreds of going stores. Averages 
 that merge individual characteristics into normal 
 percentages then appear. Careful investigators have 
 analyzed credit figures from the books of about one 
 thousand stores. The resulting standards, after allow- 
 ance has been made for unusual local factors, supply a 
 rough check for gauging retail credit methods and deter- 
 mining the proper reserves. These standards follow — 
 they represent percentages of the net total sales and only 
 refer to totals of accounts actually written off the books 
 as worthless: 
 
 Furniture 1.94% 
 
 Groceries 47% 
 
 Clothing 34% 
 
 Vehicles and implements 33% 
 
 Hardware 31% 
 
 Jewelry 21% 
 
 Dry goods 21% 
 
 Department stores 19% 
 
 Drugs 19% 
 
 Shoes 10% 
 
 Variety goods no loss
 
 LOSSES AND BAD DEBTS 
 
 115 
 
 ^* 
 
 LOSS IN CUTTING 
 
 The salesman who delivers more than 
 thirty-six inehes for every yard sold robs 
 his employer 's profit account. ' ' Good 
 measure" is the easiest and most dan- 
 gerous of store habits. 
 
 When losses from bad debts mount above these stand- 
 ards, and there are no explanatory local conditions, it is 
 at least reasonable to cast about for ways of reducing 
 them. Keeping up with rising costs is a disheartening 
 grind unless all avoidable losses have been carefully cut 
 from your cost of doing business. Eliminating unneces- 
 sary leaks opens the way for using broader plans that 
 build profits in spite of higher costs. 
 
 The best way to reduce costs through checking losses 
 is to study the methods of others who have been success- 
 ful in meeting corresponding situations. In addition 
 to these specific figures on losses, investigation has devel- 
 oped the most successful methods for reducing this 
 expense used by two hundred and eighty-six merchants. 
 These tested methods, with but three exceptions, group 
 under six broad policies: (1) securing a distinct under- 
 standing of terms and limits; (2) handling customers 
 according to their individual situations ; (3) cooperating 
 with fellow merchants; (4) making collections monthly; 
 (5) being impartial; and (6) securing new accounts on 
 the basis of the additional convenience, instead of the 
 unusual ease, with which goods may be purchased.
 
 116 MERCHANDISING EXPENSES 
 
 It will prove profitable to discuss in detail each of 
 these six plans which help control rising costs by lower- 
 ing the number of accounts that go bad. Take the first 
 — seeing that the proposition is clearly understood when 
 the account is opened. After deciding whether your 
 credit policy is going to be generous or restricted, the 
 next step is to impress upon customers rules which will 
 carry out these plans. When a man asks for credit, he 
 is more often than not in the position of seeking a favor 
 • — you can "talk turkey" to him if you use ordinary 
 tact. 
 
 Credit should not be given if it does not mean an 
 advantage to the merchant; and if extended to a con- 
 sumer who has neither the restraint nor the funds to 
 use a charge account properly, trouble is ahead. Not 
 long ago a man failed for thirty cents on the dollar in 
 Rushville because he was so anxious to do business at 
 any cost that he lost ten thousand dollars through unwise 
 credits in two years. 
 
 It is harmful, of course, unless the capital in the busi- 
 ness is being overtaxed, to go too far in refusing credit, 
 once it has been decided to grant terms. The average man 
 is honest, and the law of averages would be favorable to 
 granting credit after a single glance, provided investiga- 
 tions were made later. But a careful, pleasant, tactful 
 and clean cut explanation that credit means keeping a 
 certain amount of stock outside the business, that only a 
 limited amount of capital is available for such use, and 
 that it is therefore necessary to receive money on charge 
 accounts regularly according to definite rules, will help 
 the new credit purchaser to live up to his intention to 
 pay promptly. 
 
 The second method of the six that reduced credit 
 losses prescribes that the personalities of consumers be
 
 LOSSES AND BAD DEBTS 117 
 
 considered. There is danger in relying too strongly on 
 postage stamps. It is quite possible for the merchant 
 with a small trade to know every customer on his books, 
 and the larger firms can at least keep card records detail- 
 ing characteristics and previous relations. Both prac- 
 tices make it possible to adapt collection methods to the 
 delinquent, once it becomes necessary to use them. The 
 man behind with his bills must be brought to the paying 
 mood, encouraged to exert effort enough to hand over 
 money, and shown that the merchant is willing to help 
 him keep his promises to pay, even to the extent of 
 arranging for instalment payments. 
 
 SIX methods are here given for reducing losses from 
 bad debts. They have been tried out by two hundred 
 and eighty-five merchants and found valuable. 
 
 Cooperating with fellow merchants is the third method. 
 Local credit bureaus, either as independent organiza- 
 tions or branches of associations of commerce, offer a 
 means of bringing together every merchant's experience 
 with the credit applicant. A capable secretary to handle 
 the reports, a simple code for reporting results, card 
 files for the data, loose-leaf books for the ratings, a 
 determination to deny credit when the ratings are 
 adverse, and an earnest interest in sending informa- 
 tion to the secretary, will make a success of a bureau 
 of this type. When the bureau is opened slow pays 
 may be given a jogging up by writing them that a list of 
 delinquents must be sent to the secretary. Often, too, 
 the bureau can bring troublesome accounts to time by 
 sending out impartial letters on its letterhead. Dealers 
 in several lines are now organized nationally to handle 
 collections and catch "skips." 
 
 President McGlasson of the National Wholesale
 
 118 MERCHANDISING EXPENSES 
 
 Grocers' Association says that when he asks retailers, 
 "When did you send a statement to this party?" more 
 than a few answer, "Oh, three or four months ago — 
 he don't pay any attention to statements." The fourth 
 method of the successful six has to do with just such 
 a situation — the distributor who is inattentive to the 
 overdue money on his books has little reason to expect 
 that he will get it. Prompt collections promote the 
 habit of paying, and an absolutely definite program well 
 understood by all concerned, will do a world of good 
 in checking credit losses. 
 
 Customers who are allowed to think they do mer- 
 chants a favor by paying bills make poor risks. When 
 their bills become heavy they as like as not shift to 
 a competitor or start buying from catalog houses. Many 
 investigators feel that slack retail collection methods 
 often turn well intentioned consumers into the deadbeat 
 class. 
 
 When a customer falls behind, an immediate in- 
 vestigation may uncover the all-important information 
 needed — why he did not pay. If a courteous personal 
 call can not be made, a short series — say four* — of cumu- 
 lative letters, which make it plain that they are leading 
 up to more radical action if indifference continues, 
 should go out promptly and the radical action follow 
 absolutely on schedule, if necessary. The two hundred 
 and eighty-six merchants find that promptness of this 
 sort keeps accounts out of agencies and guides consumers 
 toward frank, business-like credit transactions. 
 
 Fifth is the elimination of all partiality. Favoritism 
 makes for trouble in credit affairs exactly as in all others. 
 The small retailer who carries "pets" on his books, as 
 he calls them, will find that the competitor who treats 
 everybody alike gets more trade at a better net profit.
 
 LOSSES AND BAD DEBTS 
 
 119 
 
 Last of the six methods is the admonition to secure 
 credit accounts on the basis that they afford greater 
 convenience and not by urging how easy it is to get goods 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 mm 
 
 Net Profits (Oni Turnover) PROFITS 
 
 COSTS, arm Disuuums 
 
 % 
 
 40- 
 
 
 lash Discounts 
 
 Costs of Doing Business 
 
 By Trades 
 
 9i 
 40 
 
 1 
 
 
 ■ 
 
 — 
 
 I:::-:--:- 
 
 
 38- 
 
 
 
 
 33 
 
 36- 
 
 
 
 
 'J 5, 
 
 34- 
 
 
 
 5?n 
 
 
 
 
 
 
 
 34 
 
 32- 
 
 
 
 7?A 
 
 
 
 
 / 
 
 
 V 
 
 
 
 1 
 
 ;;;;i^^ 
 
 •32 
 
 8 s * 1 
 
 
 A 
 
 ■l''\ 
 
 
 
 
 / 
 
 
 \ 
 
 
 
 v£"j 
 
 
 
 3C 
 
 TO 
 
 W23- 
 
 
 
 
 1/ 
 
 
 
 
 / 
 
 
 \ 
 
 &? 
 
 \ 
 
 1/ 
 
 P 
 
 
 
 -28 
 
 £26- 
 
 fijl 
 
 I 
 
 1 
 
 
 
 
 
 
 \ 
 
 
 \ t*1j 
 
 
 
 •/3 
 
 ■s 
 
 £24- 
 
 §22— 
 
 a. 
 20- 
 
 1 
 
 f 
 
 7 
 
 
 
 — 
 
 
 
 / 
 
 
 
 
 \ 
 
 
 / 
 
 | 
 
 A 
 
 
 \ 
 
 | 
 
 ■\ 
 
 
 ■ 34 
 22 
 
 39 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 \ 
 
 
 
 
 18- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 \ 
 
 
 
 
 18 
 
 18- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■13 
 
 14- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 s 
 
 
 
 i: 
 
 12- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 « 
 
 
 
 
 
 •12 
 
 10- 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ;i 
 
 
 1 
 
 
 
 •10 
 
 8- 
 
 » 
 
 
 i 
 
 
 u 
 
 
 1 
 
 
 1 
 
 
 <* 
 
 
 * 
 
 
 5, 
 
 
 e 
 
 
 
 
 I 
 
 -3 
 
 
 i 
 
 
 .s, 
 
 
 1 
 
 
 1 
 
 
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 i 
 
 
 i 
 
 
 
 5 
 
 
 1 
 
 
 (3 
 
 
 6- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 " r ' 
 
 4- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 -4 
 
 2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■3 
 
 
 FIGURE X: It will b? noticed that the department store figures are un- 
 usual. This is because i», large stores the cash discounts pay a portion of 
 the costs and all of the let profits. (See the cha~i on page 111) 
 
 through them. There is no doubt but that carefully 
 handled credit facilities are worth advertising. They
 
 120 MERCHANDISING EXPENSES 
 
 supply the small retailer with one of his keenest weapons 
 against mail-order competition. Still, stating openly 
 that a credit account makes the gratification of wishes 
 a matter of words is sure to lead to defaulted debts and 
 slow collections. 
 
 Thus the two hundred odd retailers check credit losses 
 with these six proved methods — clean-cut understandings ; 
 personality ; cooperation ; promptness ; impartiality ; and 
 just selling arguments. Now how about the houses in 
 the primary markets selling to these retailers? There 
 are experienced business men who feel that the jobbers 
 give the retailers too much credit, thus allowing them 
 to go into business with assets far too weak. 
 
 Nevertheless, investigation shows that the makers and 
 the wholesale distributors who are holding their credit 
 losses below the average for their lines rigidly enforce 
 four practices. They instruct their customers in the 
 value of rapid turnovers ; keep in close touch with pur- 
 chasers; explain the value of accurate statements of 
 assets and liabilities; and point out the better credit 
 standing which will result from a concentration of 
 purchases. 
 
 With the first of these methods in mind, John G. 
 Shedd, president of Marshall Field and Company, states 
 that his firm has done, in his opinion, considerable bene- 
 fit to the average credit standing in the Middle West by 
 holding their accounts to thirty days when competition 
 offers sixty. Mr. Shedd 's wholesale selling organization 
 shows retailers the dollars-and-cents value of turning 
 stocks fast. 
 
 Knowledge of the risk is nothing more than a broader 
 treatment of the second method used by the two hundred 
 and eighty-six retailers. When a retailer is acquainted
 
 LOSSES AND BAD DEBTS 121 
 
 with the credit managers for his sources, he will secure 
 much helpful advice from them and not wait for in- 
 quiries about causes if he has to let bills run over. 
 
 Next is emphasized the importance of winning re- 
 tailers over to the reasonableness of making accurate 
 reports on their enterprise. 
 
 Concentrating purchases brings advantages to all in- 
 volved. The wholesalers or manufacturers get larger 
 and steadier volumes and the retailers secure more atten- 
 tion because their accounts are worth while. 
 
 So much for standards that measure credit losses and 
 tried-out methods for reducing them. Bad debts are not 
 the only losses that help to make costs rise. Hidden 
 leaks abound in any business — they range from incorrect 
 freight classifications down through tardy employees, 
 bad checks, poor packing, fires and shrinkage, to neg- 
 lected discounts. The illustrations accompanying this 
 chapter show how careful employees can reduce the com- 
 monest repeated losses that amount to important sums 
 during a year. 
 
 Neglected discounts are probably as important as any 
 of these hidden losses. Exactly as the retailer is willing 
 to invest some of his capital in merchandise held by 
 customers who owe him on charge accounts, the whole- 
 saler or manufacturer usually arranges to keep some 
 of his assets in the stores of the retailers on his books. 
 If a retailer will relieve him of this practice, and agree 
 to carry these stocks himself, the supplier quite nat- 
 urally is glad to pay for the capital released — to give a 
 discount, in other words. 
 
 Losses from fires amount to five times the cost of all 
 the failures in the entire country, but fortunately they 
 can be covered at a small cost by combining with hun- 
 dreds of others through a fire insurance company.
 
 182 MERCHANDISING EXPENSES 
 
 Every careful business man, therefore, keeps his tangible 
 assets safely covered — usually well above the co-insur- 
 ance limit — in one or more sound companies. If they 
 are watchful, those who have extended credit to a care- 
 less merchant will see that he follows the same plan. 
 
 Still more economical from the social standpoint — 
 since over-the-counter prices must finally pay for losses 
 in the factories and stores — are devices which may now 
 be secured for checking fires before they spread. These 
 inventions not only reduce the fire risk and, therefore, 
 bring a dollars-and-cents saving in insurance premiums, 
 but — which is still more important — they also protect 
 the regular flow of trade from expensive interruptions. 
 
 All these ways for reducing the varied hidden losses 
 that weaken every business to some extent, as well as 
 the ten specific methods used by successful retailers, 
 wholesalers, and manufacturers in warding off an ex- 
 cessive expense from defaulted accounts, rest on the 
 fact that waste, when eliminated, becomes a saving. 
 The rise in costs of doing business is narrowing the 
 profit margin. Many firms find that a volume hereto- 
 fore satisfactory now fails to net a worth-while profit. 
 Their very existence depends, partially at least, on 
 checking expenses against standard costs of doing busi- 
 ness and using the methods of those who are making 
 their regular profits in spite of rising costs to turn into 
 savings the losses which are indicated by the averages.
 
 VIII 
 
 KEEPING DOWN MISCELLANEOUS 
 EXPENSE 
 
 EXPENSES are abnormal at your branch ; you spend 
 too much for solder ' ' — this is the gist of a message 
 sent by the Standard Oil Company to its offices in New 
 England. Solder is a small item, relatively, in the 
 Standard Oil budget — a large budget, one of the largest 
 in this country. But nevertheless the home office had 
 records of solder costs that caught the excessive expense 
 in New England. The local manager reported that he 
 x as unable to locate the cause. Then the home office, 
 sure of its records, sent an expert investigator who 
 discovered that the openings through which the solder 
 poured were a fraction of an inch larger than they 
 should have been. 
 
 Doubtless the Standard Oil makes money for a number 
 of reasons in addition to the exceptionally good one 
 that it watches the smallest expense items carefully. 
 Still the fact that its officials know accurately what the 
 solder bills should amount to, indicates a care in man- 
 agement to which might probably be assigned a majority 
 of the reasons that back its success. Profits have been 
 long in this country; possibly on that account we are 
 generous about the small items in the cost of doing 
 business: the supply bills, the light bills, the general 
 expense bills, and the shrinkage losses.
 
 124 MERCHANDISING EXPENSES 
 
 Now costs are rising. They cut into the profits. "We 
 find that the profits cannot be increased to satisfy these 
 rising costs. We discover that the days of long profits 
 are gone and that they will not return. This all means 
 that we must tighten up on the small items, run our 
 enterprises with the careful economy practiced in the 
 older countries, and push for larger volumes or faster 
 turnovers that will make the gains from the narrower 
 profits attractive. 
 
 Years ago, before competition concentrated, there was 
 more than trade enough for everybody. The undevel- 
 oped condition of our transportation facilities often 
 made it necessary to be content with exceedingly slow 
 stock turns. Then there was an excuse for long profits. 
 We face new conditions today. 
 
 Average costs for the main items in the cost of doing 
 business, as shown by wide investigation, have already 
 been discussed. With these averages have appeared 
 those methods for meeting rising costs which investiga- 
 tors found the most successful merchants used. This 
 chapter gives averages for the remaining items in 
 the cost of doing business and tells how ninety-one mer- 
 chants with going concerns in fourteen states handle 
 them. These items are : (1) general expenses; (2) heat, 
 light and power; (3) supplies; and, (4) depreciation 
 and shrinkage. 
 
 General expenses, the first of these items which, al- 
 though often but small percentages of the sales vol- 
 umes, frequently turn the balance between profit and 
 loss, include under the classification here used the buy- 
 ing expenses, interest on the investment, salaries which 
 cannot be definitely allocated, and miscellaneous general 
 cost, such as the returned goods expense or freight over- 
 charges. The interest on the investment is figured on
 
 MISCELLANEOUS SAVINGS 125 
 
 the average amount of capital actively used in the busi- 
 ness. The cost of these charges, averaged from a thou- 
 sand odd stores, is the following percentage of the total 
 net sales volume in the twelve lines investigated : 
 
 Percentage of Net 
 Line Sales Volume 
 
 Department stores 6.38% 
 
 Drugs 4.49% 
 
 Shoes 4.36% 
 
 Dry goods 4.15% 
 
 Jewelry 3.95% 
 
 Mail order houses 2.42% 
 
 Clothing 2.31% 
 
 Hardware 2.01% 
 
 Furniture 1.10% 
 
 Variety goods .91% 
 
 Vehicles and implements .71% 
 
 Groceries .45% 
 
 Although the general expenses will vary with the local 
 conditions encountered in each competitive field, these 
 averages offer standards against which roughly to check 
 the expenses remaining after dealing with the main 
 items. Administrative, unallocated and buying salaries 
 vary with each store, however, and are not adaptable 
 to definite or widely applicable methods. But inter- 
 est on the investment appears in the same phases 
 in all the stores contributing to the averages. "With- 
 out a single exception the ninety-one merchants par- 
 ticularly consulted on this problem by the investigators 
 charge interest at market rates for every dollar of their 
 investments before they count a net profit. They figure 
 exactly how much they put into the business, multiply 
 it by the usual interest rate, and charge the business 
 with the resulting amount. Some of them build up 
 reserves with this interest money, others re-invest it in 
 the business, and not a few put it into their personal 
 bank accounts. But not one of them makes the mistake
 
 126 MERCHANDISING EXPENSES 
 
 of neglecting to secure ordinary workaday hire for his 
 money in addition to reasonable profits. 
 
 Freight overcharges form another item among the 
 general expenses in the handling of which the successful 
 merchants use methods that can be standardized. Sixty- 
 four of the ninety-one merchants check over all freight 
 charges against official classification sheets and apply to 
 the railroads for allowances when mistakes are dis- 
 covered. Since freight classifications are complicated, a 
 majority of those with small stores turn their bills over 
 to agencies which make a business of detecting mis- 
 takes in freight bills. One merchant secured $273.45 
 from the railroads for errors in a batch of old bills sent 
 to an agency of this type managed by a trade paper. 
 The railroads take the classifications most advantageous 
 to them, of course, but they are always prepared to rec- 
 tify errors backed by reasonable proof. 
 
 HARRIMAN saved siray paper clips; Wanamaker 
 made scratch paper from, old envelopes. These in- 
 stances emphasize the little economies in retailing. 
 
 In charging the actual freight bills, with but five ex- 
 ceptions, these merchants include them in the cost of the 
 goods and not in the cost of doing business. They quite 
 rightly consider the freight charges as part of their 
 investment in goods. "Whenever possible they charge the 
 freight directly to the goods concerned and never pro- 
 rate or average the freight when they can avoid doing 
 so. Their object is to prorate according to the resulting 
 benefits. 
 
 The eost of rehandling returned goods is a general 
 expense encountered by most distributors. The jobbers 
 and wholesalers usually urge the retailers to write for 
 instructions before returning goods — possibly a satisfac-
 
 MISCELLANEOUS SAVINGS 
 
 127 
 
 tory allowance or delivery to another customer can be 
 arranged. There is no objection from the retailer to 
 
 \ r 
 
 Maintain Profits Against Rising Costs 
 One Turnover 
 
 tf~S5£-- Cost 
 
 oTDoio^ 9 * 669 
 
 FIGURE XI: This chart analyzes the tendency that apparently dominates 
 
 modern merchandising . Distributors now strive to equal with a number of 
 
 small profits the single generous gain that could be taken years ago 
 
 doing this so long as the jobber has not made needless 
 substitutions without instructions or taken a chance on 
 shipping undesired goods because his salesmen were 
 oversampled. 
 
 "With retailers, returned goods are more of a prob- 
 lem. The department stores are particularly troubled. 
 One large store in the East reports that on the average 
 29.5 per cent of its C. 0. D. purchases are returned 
 and 28.5 per cent of the orders from customers with
 
 128 
 
 MERCHANDISING EXPENSES 
 
 rrrrrr rn 
 
 r| l_ rrr 
 
 rrrrr 
 
 rrrrrr r [~rrrrrrr 
 
 ^rrrrrrl i- rrrrrr 
 
 DRUGS 
 
 24.65% 
 
 4.49% 
 
 .69% 
 
 •47% 
 
 .36% 
 
 5-25c GOODS 
 
 17.76% 
 
 .in'-; 
 
 •81% 
 .06% 
 
 ■21% 
 
 FURNITURI 
 
 26.51% 
 1.10% 
 
 •92% 
 2.14% 
 
 •41% 
 
 DRY GOODS LINES 
 
 23.05% .Total Cost to Do Business 
 4.15% . . .General Expenses 
 .54% . . . Heat, Light, Power 
 1.11% ...Shrinkage. Depreciation 
 .38% .. .Supplies 
 
 FIGURE IX: These percentages are averaged from figures secured by 
 studying the books and records of more than a thousand stores. The con- 
 cerns selected typify conditions prevailing in the various lines, being both big 
 
 charge accounts. Since the privilege of returning goods 
 without question is now widely extended to consumers, 
 about all that can be done by the merchant who desires 
 to meet his competition is to prevent the return of 
 valuable goods after they have been used and to decline 
 to receive returned goods when he is satisfied the cus- 
 tomer is repeatedly taking advantage of him. The re- 
 turns resulting from careless addresses and deliveries 
 may be properly charged to delivery costs and their 
 number reduced by checking on the delivery methods. 
 The cost of repair departments is usually charged 
 among the general expenses. Only twenty-eight of the 
 merchants whose methods are analyzed in this chapter 
 have repair departments. Twenty of the twenty-eight 
 report that their repair departments just about take care 
 of themselves and that they do not expect much more 
 of them. The other eight take an opposite view and 
 declare that they make money on repairs. Several go
 
 MISCELLANEOUS SAVINGS 
 
 129 
 
 LINES HARDWARE 
 
 Total Cost to Do Business 20.41 % 
 
 General Expenses 2.01% 
 
 Heat, Light, Power 43% 
 
 Shrinkage, Depreciation .52' , 
 Supplies 60% 
 
 GROCERIES 
 
 17.91% 
 .45% 
 •39% 
 •76% 
 •37% 
 
 CLOTHING 
 
 23.27% 
 
 2.31% 
 
 ■62% 
 
 •43% 
 
 SHOES 
 
 23.22% 
 
 4.36% 
 
 1.10% 
 
 .50% 
 
 .30% 
 
 and little, and located in cities large and small. The percentages give the 
 retailer approximate standards against which to check corresponding items 
 in order to find out in a general way whether or not his costs are unduly large 
 
 further and state that they find the repair departments 
 active trade-building forces. These facts apparently in- 
 dicate that in some lines, like jewelry, shoes, and hard- 
 ware, there is an opportunity in vigorously pushing and 
 advertising the repair department. One jeweler, who is 
 particularly confident this is true, sends out the follow- 
 ing letter in the interests of his repair department: 
 "On (insert date) we repaired your watch. We do not 
 remember having repaired it since. A watch is a most 
 delicate piece of mechanism and in the performance of 
 its severe duties deserves good care — cleaning, adjust- 
 ing, oiling, and so on. It may seem impossible, but it 
 is nevertheless a fact, that the balance wheel of a 
 watch travels over three thousand five hundred and fifty 
 miles a year and makes over a hundred and fifty million 
 beats during that time. 
 
 ' ' The entire works are not a moment without friction 
 and this little watch has to bear — proportionate with.
 
 130 MERCHANDISING EXPENSES 
 
 its weight — more than any wagon can possibly stand. Is 
 it any wonder that a watch needs cleaning every twelve 
 or eighteen months? 
 
 "You know us, you know our methods. You know 
 that work done at this store is well done. To the best 
 of our knowledge your watch gave satisfaction. We 
 want it to do so, and in case that a watch is not satis- 
 factory, we will thank you to return it so that we can 
 make it perfectly satisfactory. Wouldn't it be a good 
 plan to bring your watch in ? " 
 
 Heat, light, and power is the second of the four 
 expense items listed. It is worth noticing that in but 
 a few instances was this item found to be in excess 
 of one per cent of the net sales. Below this one per 
 cent, because the different stocks require varying 
 amounts of light, a wide range of percentages appeared. 
 Averaged for the various lines, these percentages give 
 the following norms against which similar expenses may 
 be advantageously checked in a general way : 
 
 Percentage of Net 
 Line Sales Volume 
 
 Shoes 1.10% 
 
 Furniture .92% 
 
 Variety goods .81% 
 
 Drugs 69% 
 
 Clothing 62% 
 
 Jewelry .61% 
 
 Dry goods .54% 
 
 Vehicles and implements .51% 
 
 Hardware .43% 
 
 Groceries .39% 
 
 Department stores .22% 
 
 Mail order houses .11% 
 
 Although the lighting bills take but a small portion 
 of the total operating costs they offer attractive oppor- 
 tunities to secure economies. The power and heating
 
 MISCELLANEOUS SAVINGS 
 
 131 
 
 costs, on the other hand, are more nearly standardized, 
 and there is a smaller leeway for economies after using 
 careful management and standard equipment. The 
 advance in lighting efficiency is constant — what was eco- 
 
 Manufacturers 
 
 z 
 
 -i 
 
 Equips to Manufacture to Stock 
 
 Establishes an "In Stock" Department 
 
 Gives Wholesaler Selling Poinrs 
 
 ri 
 
 Wholesalers 
 
 Equips to Sell in Broken Lots 
 
 Trains Staff to Handle Many Small Orders 
 
 Seeks Manufacturers with "In Stock" Departments 
 
 Gives Retailer Manufacturers' Selling Points 
 
 Instructs Salesmen to Help Dealers Buy Right 
 
 Retailers 
 
 i{ 
 
 Fixes Minimum Limits for Stocks 
 
 Holds Stocks to Minimum Limits 
 
 Locates and Pushes Fast Selling Lines 
 
 Weeds Out Slow Selling Lines 
 
 *— Concentrates Buying with a Few Wholesalers 
 
 FIGURE XIII: Miscellaneous expenses possibly hold more dangers 
 
 today than ever before because there are more orders. Frequent orders t as 
 
 here illustrated, result from the universal desire to turn stocks faster 
 
 nomical yesterday may be extravagant tomorrow because 
 of new discoveries. Electric lights are only about thirty- 
 four years old and the lights now distributed test to 
 results fifty thousand times better than those obtained 
 from the first produced. And still the lights we have 
 today are not over twenty-five per cent efficient.
 
 132 
 
 MERCHANDISING EXPENSES 
 
 Carbon lamps, formerly widely used, were generally 
 purchased according to their candle power. That is not 
 an exact method, since the lamps cannot be expected to 
 give their rated candle power after they have been 
 used for a time. As they age, they use more electricity 
 per candle power and gradually give less and less light. 
 
 It is more accurate to purchase electric lamps accord- 
 ing to the amount of electricity they actually consume. 
 This consumption is given in watts, which are the 
 units used in measuring electricity, just as gallons are 
 the units for gauging water. Since a watt is a small 
 quantity of electricity, the kilowatt, or 1,000 watts, is 
 more widely used in actual practice. 
 
 The newer so-called "tungsten lamps" are generally 
 rated according to the amount of electricity they con- 
 sume in watts. One of the improvements these lamps 
 are intended to embody is, moreover, a rate of consump- 
 tion which varies only slightly during the life of the 
 lamps. They consume about 1.2 watts per candle power, 
 and carbon lamps, 3.1 watts per candle power. 
 
 The following table shows the normal relation between 
 watts and candle power for standard tungsten lamps 
 and the number of watts that would be used in carbon 
 lamps to produce the same amount of light : 
 
 Approximate 
 Type candle power 
 
 Regular 11.5 
 
 Regular 16.0 
 
 Regular 21.4 
 
 Regular 34.2 
 
 Regular 53.6 
 
 Regula- 92 6 
 
 Round bulb 11.5 
 
 Round bulb 21.4 
 
 Round bulb 34.2 
 
 Round bulb 53 . 6 
 
 Tubular 21.4 
 
 
 Wal 
 
 ;ts a carbon 
 
 
 lamp 
 
 would use 
 
 Size of tungsten 
 
 to 
 
 give same 
 
 lamp, watts 
 
 amount of light 
 
 15 
 
 
 35.65 
 
 20 
 
 
 49.60 
 
 25 
 
 
 66.34 
 
 40 
 
 
 106.02 
 
 60 
 
 
 166.16 
 
 100 
 
 
 237.06 
 
 15 
 
 
 35.65 
 
 25 
 
 
 66.34 
 
 40 
 
 
 106.02 
 
 60 
 
 
 166.16 
 
 25 
 
 
 66.34
 
 MISCELLANEOUS SAVINGS 133 
 
 Therefore the merchant who watches for the develop- 
 ment of more efficient lighting facilities frequently se- 
 cures attractive savings. The tungsten filament electric 
 lamps with which carbon equipment may now be re- 
 placed offer a worthwhile saving, and as soon as the 
 nitrogen gas filled lamps now available for large in- 
 stallations are widely distributed in the small sizes, still 
 further reductions in lighting bills will result. Nitro- 
 gen filled tungsten electric lights have already been 
 tested by several stores for outside illumination and 
 lighting large areas at savings which approach eighty 
 per cent of the former costs. 
 
 In addition to the savings possible through using the 
 most economical equipment, it is often practicable to 
 economize by rearranging installations and bettering re- 
 lated factors. Sears, Roebuck and Company, for ex- 
 ample, thought the lighting item in their cost of doing 
 business important enough to warrant a careful study 
 of the reflecting qualities of the walls and ceilings in 
 their Chicago headquarters. They found that the effi- 
 ciency of the lights in one room increased fifty per cent 
 after the walls and the ceiling were repainted from a 
 dark color to a cream tint. It is also frequently possible 
 to reduce lighting bills by eliminating a few lamps. 
 
 Seventy-eight out of ninety-one merchants reported 
 that they do not clean their electric or gas lighting 
 equipment every two months. Sears, Roebuck and Com- 
 pany have, on the other hand, made investigations which 
 establish that a two months' accumulation of dust de- 
 creases the efficiency of tbeir lights between 22.5 per 
 cent and 23.2 per cent. They clean their lamps six 
 times a year without fail, at an average cost of two cents 
 for each fixture, whether direct or indirect. It is their 
 belief that it is worth twelve cents a lamp a year to
 
 134 MERCHANDISING EXPENSES 
 
 avoid losing more than twenty-four per cent of the 
 equipment's efficiency. 
 
 As this small detailed practice of the world's largest 
 mail order house indicates, to secure the highest pos- 
 sible efficiency from lighting equipment is only second 
 in importance to managing it in the most economical 
 manner. Years ago the question was merely how to get 
 light, now it is how to get the light that gives the cus- 
 tomer^and the employee — the most satisfaction and the 
 least fatigue. Where before there was but one method 
 of lighting, the merchant may now select from among a 
 variety: the orange of gas and oil, the yellow of incan- 
 descent gas and electric lights; the blue white of car- 
 bons; the deep yellow of the flaming arc; and others. 
 Direct, indirect, and semi-direct systems are available 
 and have their individual characteristics. 
 
 Although daylight cannot yet be closely simulated in 
 equipment suitable for extended installations, screen 
 filters and special diffusing globes make it possible to 
 better the results of yesterday. All of these various 
 technical problems related to proper store illumination 
 have been carefully studied and proper modifications 
 for the store sizes accurately summarized. Many public 
 utility companies gladly place knowledge of this type 
 at the disposal of merchants. 
 
 Supplies — third of the four items here considered — 
 seldom exceed one per cent of the net sales and in the 
 majority of stores they are below one-half of one per 
 cent. The following averages for the twelve lines offer 
 standards that make tentative comparisons possible — 
 they include incidentals like paper, twine, boxes, water, 
 and all the additional costs needed to keep the busi- 
 ness going, but which are neither covered in the other 
 expense classifications discussed elsewhere in this book,
 
 MISCELLANEOUS SAVINGS 135 
 
 nor used for purposes the nature of which makes it pos- 
 sible to allocate them under one or another of the main 
 items customarily found in expense accounts : 
 
 Percentage of Total 
 Line Net Sales 
 
 Jewelry 89% 
 
 Hardware .60% 
 
 Clothing 43% 
 
 Vehicles and implements .42% 
 
 Furniture 41% 
 
 Dry goods 38% 
 
 Groceries 37% 
 
 Drugs 36% 
 
 Mail order houses .34% 
 
 Department stores .32% 
 
 Boots and shoes .30% 
 
 Variety goods .21% 
 
 Less than one-half of one per cent of the net sales 
 in most lines — as shown above — and scattered over many- 
 items, the supply bills offer a temptation to spend un- 
 necessarily. Even though the amount of money involved 
 in each instance may be small, the aggregate is worth 
 attention. No general methods for saving on supplies, 
 other than watchfulness and wide-awake adaptability, 
 were found in use. 
 
 "With very few exceptions this watchfulness resulted 
 in individual plans and short cuts that save a little each 
 day. One merchant's bookkeeper makes ink from dis- 
 carded typewriter ribbons; an office manager saved 
 $615.00 a year by purchasing a seventeen-dollar filter 
 that made it possible to replace special bottled water 
 with city water in his offices ; a treasurer economized by 
 re-directing letters intended for branch offices, instead 
 of remailing them; a secretary devised large envelopes, 
 perforated with large holes that assured the removal 
 of all the contents, for speeding up the circulation of 
 interhouse papers; and the president of a large mail
 
 136 MERCHANDISING EXPENSES 
 
 order house made an economy worth seventy-five 
 thousand dollars annually by usiug a shade smaller type 
 in his huge catalog. So in all lines — the reward of 
 watching the small expenses carefully, with an eye for 
 better ways, is larger profits. 
 
 DEPRECIATION is figured by most merchants, but 
 some make the mistake of disregarding it. These 
 methods will suggest ideas to both groups. 
 
 Last among the four .items discussed are losses from 
 depreciation and shrinkage. These include deprecia- 
 tion on all equipment, irregular losses from stock, and 
 stock depreciation not regularly covered by routine 
 mark-downs. Averaged for lines and through the figures 
 secured by the investigation, they give the following 
 standards helpful in approximating the reasonableness 
 of individual losses: 
 
 Percentage of Total 
 Line Net Sales 
 
 Clothing 2.16% 
 
 Furniture 2.14% 
 
 Department stores 1.61% 
 
 Dry goods 1.11% 
 
 Jewelry .95% 
 
 Groceries .76% 
 
 Vehicles and implements .62% 
 
 Hardware .52% 
 
 Shoes 50% 
 
 Drugs 47% 
 
 Mail order houses .12% 
 
 Variety goods .06% 
 
 No agreement appeared among the ninety-one mer- 
 chants on methods for figuring depreciation. They all 
 check direct shrinkage by watchfulness at the counters 
 and in the receiving rooms, and by handling stock sub- 
 ject to rapid depreciation with unusual care supple- 
 mented with the advice of manufacturers. They also
 
 MISCELLANEOUS SAVINGS 137 
 
 uniformly charge repairs caused by general wear or tear 
 to ordinary operating accounts and keep the reserves 
 resulting from depreciation free for use in making re- 
 placements. Some of them use the reserves in taking 
 discounts. "Without an exception they keep mark-down 
 records as regular accounts so that from them they can 
 predict the amount of the mark-downs normally taken 
 during any season and cover it in their mark-ups. They 
 hold that goods are only worth what they will bring and 
 inventory at actual selling values, not original mark-ups. 
 
 But they do not figure the actual depreciation written 
 off in any uniform way, although they agree three factors 
 are involved: general decay; the probability of more 
 efficient types developing, or obsolescence; and the pos- 
 sibility of the type becoming inadequate on account of 
 the business expanding. Under these conditions they 
 predict the period of probable usefulness, taking into 
 consideration quality, task and management. 
 
 The next step is to spread the depreciation over this 
 period of usefulness — and in doing this their methods 
 vary. Some simply divide the original capital outlay 
 by the number of years in the estimated period of use- 
 fulness and write off the result each year. Others take 
 an unusually heavy depreciation the first year and then 
 figure the remaining depreciation by the first group's 
 method. 
 
 A third group uses what is probably the most prac- 
 tical and accurate plan. They first subtract from the 
 original capital investment what they figure will be the 
 scrap or second-hand value after the period of useful- 
 ness has elapsed and divide this remainder by the number 
 of years of expected life. The result is written off 
 each year until the original cost less the estimated resid- 
 ual value is covered. Many merely take an arbitrary
 
 138 MERCHANDISING EXPENSES 
 
 figure. But, though their methods differ, not one neg- 
 lects to build up depreciation reserves. 
 
 These four items (general expenses; heat, lighting and 
 power; supplies; and depreciation and shrinkage) are 
 the small expenses — the costs too often passed over with 
 scant or hasty consideration. Yet actual instances 
 demonstrate that the Standard Oil Company and Sears, 
 Roebuck and Company — concerns together handling tens 
 of millions of dollars each week — find the little expenses 
 worth attention. This is a straw that indicates the trend 
 of business development — it is becoming necessary to 
 watch more carefully the dollars and cents at work in 
 distribution. And as a matter of fact it is frequently 
 possible to make dollars by saving them.
 
 PART IV 
 
 MAKING MONEY IN SPITE OF 
 HIGHER COSTS
 
 IX 
 
 POLICIES IN RETAIL COST 
 KEEPING 
 
 ALTMAN — although he is dead, his big retail busi- 
 ness keeps his name alive — worked out systems 
 which tell at a glance the yardage left in the bolts on 
 shelves floors below. Altman incessantly used figures, 
 facts, records and statistics. Wanamaker has figures, 
 too, but he centers on merchandising — sales plans, ad- 
 vertising, stocks and buying. 
 
 And so it is among merchants. There is but one end — 
 profits — and many different means. Some — the an- 
 alyzers — use records as means; others — the salesmen — 
 make selling the means and rely on records for no more 
 than a varying amount of guidance. Between these 
 extremes is the average American merchant. 
 
 For him it is obviously impossible to lay down a cut 
 and dried system. That would be attempting to fit his 
 business to a cost system, while he may either rely on 
 costs extensively, consult them only for rough and 
 ready guidance, or make good on a sheer knack for sell- 
 ing. The cost system must be shaped to the merchant, 
 not the merchant to the cost system. And, to say the 
 same thing another way, the type of cost system a mer- 
 chant will pick depends on his business characteristics. 
 
 Of course there are certain accounting principles which 
 should be present in every cost system if it is to prove
 
 142 HOW MERCHANTS GET AHEAD 
 
 worth while, just as there are certain principles which a 
 man must uphold if he is to succeed in the long run 
 under average conditions. ' f 1 irst of all, a cost system 
 is not worth much if it does not work through the entire 
 set of books in connection with which it is used. If it 
 stops half way or fails to take into consideration items 
 such as depreciation and leakage, there is considerable 
 danger of its doing more harm than good. 
 
 Secondly, a cost system will work itself to usath, eat 
 off its own head, if it is not simple. Probably the worth 
 of a cost system is measured more by the cheapness with 
 which it gets needed facts quite truthfully than by any 
 other factor. Simplicity prescribes a certain amount of 
 give and take in the working of a cost system — figures 
 need not be absolutely exact when there is no necessity 
 of absolute exactness. A good many merchants are said 
 to have spent — and there is probably more than a grain 
 of truth to it — the better years of their lives scratching 
 pen against paper in order to achieve the round about 
 and needless exactness required by their cost systems. 
 
 There is of course a point at which the virtue of rough- 
 and-readiness in cost system facts may become an ex- 
 ceedingly disastrous characteristic. This is a question 
 tor everyday logic to settle — or, possibly, the advice of 
 a broad minded expert. 
 
 Perhaps an instance will help to explain. On the way 
 from the elevator to the private office of a merchant who 
 is rapidly making himself and his three sons millionaires 
 in an important middle-western city, I passed the desk 
 of his credit manager. The credit manager was taking 
 cash from a customer. 
 
 One of the first subjects this merchant and I hap- 
 pened to discuss was the cost of delivering packages by 
 a combined fast heavy gasoline truck and light electric
 
 SOUND COST KEEPING 
 
 143 
 
 wagon service. He showed sheet after sheet of costs con- 
 cerning the delivery of packages by this system, arranged 
 from varied angles. Although these figures were in- 
 
 
 
 Stnck V) . Htr^iw) 
 
 
 
 
 
 o 
 
 
 
 Month 
 
 Sales 
 
 I'AV I; 
 
 Turns 
 
 Mku. 
 
 Month 
 
 fatal 
 
 Inventory 
 
 Tarns 
 
 Mku. 
 
 
 J^m.^13 
 
 /foaft 
 
 J3o./7i 
 
 S.f 
 
 .3:2./ 
 
 
 
 
 
 
 
 e ~fcjr. 
 
 /7S0./7 
 
 400-04 
 
 2.f 
 
 31- 5 
 
 
 
 
 
 
 
 TKa**J\ 
 
 
 
 
 
 
 
 
 
 
 
 4<«.. 
 
 
 
 
 
 
 
 
 
 
 
 \*^y 
 
 
 
 
 
 
 
 
 
 
 
 y^~-°- 
 
 
 
 
 
 
 
 
 
 
 
 ,<M-tf 
 
 
 
 
 
 
 
 
 
 
 
 £W«" 
 
 
 Stock ( «U^ofc (At Host) 
 Stack Plan From Vx^o-oW 1 ** To V^ ' ^ 
 
 ?w-<-. 
 
 
 J^jt. 
 
 
 VVjtTvr 
 
 
 'tw*. 
 
 
 . « . i,- ■■■■■— 
 
 \-0^*\ 
 
 
 
 
 
 
 
 3-et 
 
 
 Tea Fcr Cent Estimated Incrcas 
 
 
 
 
 
 [ Ivwou k. 
 
 
 Estimated Stock On . j ^J^Y,_ L" „J!?0O 
 
 
 
 Jmrentory On 
 Sunjktsfor. 
 
 vw 1 " v 
 
 V SO 
 
 
 
 
 
 ?oo /340 
 
 
 
 j£ 6 50 
 
 £> SO 
 
 
 
 
 090 
 
 
 
 
 
 
 
 
 
 Approximate Stock limit (Open to Bur.?-? 3.°- Phis Average Stock On HanA^ ?.?&.) =$45? 
 
 
 
 
 
 FORMS I and 11: These forms are from the cost system of a merchant 
 
 who depends on figures for an unusual amount of assistance. The larger 
 
 supplies turnover facts. The smaller assembles a six months' stock plan 
 
 teresting, it was evident that a good many of them satis- 
 fied no earthly practical use under ordinary circum- 
 stances. 
 
 So I said, "You have a very detailed cost system." 
 "Yes," he replied, "it is a wonder. But I guess it 
 takes about all the time of my younger son — you see he 
 is specializing on that side of the business." 
 
 The credit manager and the cash were in my mind. 
 I could not resist the need of mentioning it, and said : 
 "Your cost system is certainly specific, but I find my 
 opinion of all these delivery figures, no matter how de- 
 tailed they are, considerably lowered by the fact that
 
 144 HOW MERCHANTS GET AHEAD 
 
 your statistics of bad accounts depend on the honesty 
 of a man who does not deserve to be put under tempta- 
 tion. Half your doubtful accounts, although perfectly 
 good, could be turned into dead losses through no cause 
 of your customers. Your system would report these 
 facts in minute detail — except the single fact that the 
 customers were not to blame. I noticed your credit 
 manager taking cash. Of course, he is also writing 
 off accounts." 
 
 He was all attention at once and took statistics on 
 overdue accounts out of the top drawer of his desk, 
 where they were ready at hand. He had been worrying 
 about the situation himself, but hesitated to question 
 the elaborate cost system worked out by his son. His 
 figures on bad debt losses showed that the credit manager 
 controlled over twenty thousand dollars in that way, 
 yet gave no bond and received fifty dollars a week. It 
 happened that the credit manager, like nine out of ten 
 men in business, was absolutely honest. "Without doubt 
 the thought of taking money from a customer and then 
 writing off the account had never entered his mind. 
 Yet here was a definite policy need confused with the 
 detail of a system of accounting. 
 
 COST systems are somewhat of a mystery to most of 
 us. But these simple characteristics of all of them 
 make it easy to analyze your cost accounting needs. 
 
 In addition to thoroughness and simplicity, a third 
 basic need of cost systems is comparisons. Facts by 
 themselves are helpful to a greater or less degree — de- 
 pending upon the amount of experience with which the 
 merchant is able to consider them — but in the end it is 
 comparisons that count. A cost system may take the 
 entire time of ten experts to collect figures from every
 
 SOUND COST KEEPING 145 
 
 conceivable angle and from every conceivable source — 
 and still fall short of its purposes if it fails to supply 
 comparisons. 
 
 I know of a store that boasts a fifteen-thousand-dollar 
 a year treasurer, a five-thousand-dollar a year assistant 
 treasurer, a four-thousand-dollar a year head accountant, 
 and eight people who give all their time to operating 
 its cost system. One man spends the eight hours of an 
 eight hour day copying on a typewriter the figures un- 
 earthed by this indefatigable band. Another young man 
 sits the day through before a huge glass-covered ex- 
 pense classification, fitting bills around the skeleton of 
 this remarkable cost system. 
 
 And yet this system fell absolutely flat when the store 
 needed it most. It had been industriously squeezing 
 figures out of the money spent and taken in by that 
 company — squeezing them out in every ingenious way 
 that the cost accountants could conjure up — but it was 
 not getting the right sort of simple fundamental com- 
 parisons. It did not show the relation of the stocks on 
 the shelves to the sales for the current periods in com- 
 parison with earlier periods. 
 
 The store put up a new building, designed to handle 
 many additional lines, stocked heavily, and moved. The 
 sales at the new location, particularly in the added lines 
 with which the managers had but little experience, soon 
 behaved disastrously. They held up beyond expecta- 
 tions, but the bills began to swamp them. For each 
 incoming dollar, over one hundred and fifteen cents went 
 out. 
 
 The store was on the way to going broke. The owners 
 borrowed money — one million four hundred thousand 
 dollars of it, to be exact — but it was like throwing good 
 American money away. The cost system corps worked 
 
 10
 
 146 
 
 HOW MERCHANTS GET AHEAD 
 
 faithfully and hard during this extremity — far into the 
 i ight, piling up figures upon figures. But the figures 
 still neglected the needed comparisons. Finally an as- 
 sistant to one of the higher officials started out of his 
 
 aCTU/1. 
 
 wrgnauaa nromor? pataou. 
 
 'U1J-1W4 
 
 
 
 
 t-j 
 
 4-2 
 
 4-a 
 
 4-3 
 
 M 
 
 M 
 
 1-1 
 
 
 1-2 
 
 t-3 
 
 44 
 
 4-1 
 
 
 
 
 Rat* 
 
 Jal, 
 
 i-e- 
 
 tan, 
 
 Got. 
 
 oo. 
 
 rw. 
 
 Jao. 
 
 Too. 
 
 mr. 
 
 If'. 
 
 »■• 
 
 (am* 
 
 
 
 •> 
 
 Tbaaa* 
 
 
 
 
 
 
 
 
 
 eo.op 
 
 ».f- 
 
 
 
 
 
 
 Mr 
 
 •Ula 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Mr 
 
 rert.r 
 
 12.00 
 
 M.00 
 
 52. OC 
 
 *..Ou 
 
 
 
 
 
 
 
 
 
 
 
 
 Mr 
 
 Mara* 
 
 0.00 
 
 HJU 
 
 14.67 
 
 n.-i 
 
 «. DO 
 
 loll 
 
 15. a 
 
 •5.'". 
 
 ♦0.00 
 
 13.33 
 
 
 
 
 
 
 m 
 
 Doanl* 
 
 s.to 
 
 4.17 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Mr 
 
 MoCaU 
 
 i.. ■ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Mr 
 
 ■9W 
 
 10.00 
 
 
 (BTUurr) 
 
 Mr 
 
 Cola* 
 
 10.00 
 
 
 «T«nnKsrr or un>mvi utmu 
 
 Mr 
 
 kmr. 
 
 e.oo 
 
 
 1713-1914 
 
 Mr 
 
 Bran 
 
 a.oo 
 
 
 
 ♦-3 
 
 «-; 
 
 4-2 
 
 4.3 
 
 4-1 
 
 4-3 
 
 4-1 
 
 4 
 
 4-2 
 
 4-2 
 
 4-2 
 
 4-2 
 
 
 
 
 ku 
 
 J"ir 
 
 !"«• 
 
 •apt. 
 
 Got. 
 
 Mar, 
 
 Oae. 
 
 Jaa. 
 
 r.o. 
 
 fcf. 
 
 a*T. 
 
 »-, 
 
 Jta. 
 
 
 m 
 
 tart 
 
 10.00 
 
 
 U » Bacbai 
 
 e.oo 
 
 Mr. Taaaa. 
 
 I..'. 
 
 70. « 
 
 «.«" 
 
 M.f 
 
 tcux 
 
 w.^ 
 
 MUM 
 
 10. DC 
 
 so. 00 
 
 &.<-- 
 
 a<.«-r 
 
 at.M 
 
 Ma«| 
 
 10*3.33 
 
 
 
 
 r. tUkaa 
 
 11. GC 
 
 67. V 
 
 «.r. 
 
 fS.O" 
 
 :7.K 
 
 ti.v 
 
 67. V 
 
 C7.5C 
 
 
 
 
 
 
 782 .SO 
 
 m 
 
 .Coa* 
 
 e.oo 
 
 1 
 
 
 Mr. Tartar 
 
 1S.K 
 
 54-ct 
 
 BCUOE 
 
 52. DO 
 
 !«.rt 
 
 5^.:<: 
 
 54. U 
 
 54. « 
 
 4J..- 
 
 ».a 
 
 *-..'C 
 
 stuo 
 
 ttjH 
 
 42&.00 
 
 
 
 
 
 Mr. Marabj 
 
 
 
 
 
 
 
 
 
 
 
 
 34.6* 
 
 HM 
 
 411' .30 
 
 Total ty aaa. 
 
 
 Oaa Man 
 
 11. Gt 
 
 
 
 S3. 00 11. a 
 
 
 
 
 
 
 
 
 
 44.00 
 
 
 
 Four Maa 
 
 IUC 
 
 
 
 77. 00 
 
 11.0c 
 
 
 
 
 
 
 
 
 
 ee.oo 
 
 Mr. Caarr 
 
 15.00 
 
 
 
 ■OwOO 
 
 
 
 
 
 
 
 
 
 
 30.no 
 
 Mr. Craban 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Mr. (Kara 
 
 
 
 
 otal by aaa. 
 
 
 247V. 
 
 23«J4 
 
 3TB33 2CT5C 
 
 atni 
 
 MBC 
 
 2475C 
 
 DOOO 
 
 MM 
 
 23634 
 
 23&ZZ 
 
 L;e3* 
 
 3031.15 
 
 
 
 T 
 
 Total by aos. 
 
 
 
 
 l 
 
 
 
 Mr. Craaaa 
 
 
 14166 14167 
 
 14166 '1416" 
 
 1416* 14167: 14167 1 14167 J 14167; 14167! 14167 |l4167|l700.0C 
 
 Mr. HrCar* 
 
 
 ZS.Xl2S.0C 
 
 25.00 .25 .00 
 
 2S.O0.2S.0Ol2S.00.25.O0i23.O0 25.00 2S.OOl.2S.00 
 
 30O.tX 
 
 
 
 It 11 
 
 
 
 
 
 Total tj aaa. 
 
 il*666.l665T, 16666 luw> 
 
 16666 11666T 
 
 16667 [l£667Ll£667iU667 l 1666T 11666 7+SOX.OC 
 
 FORMS III and IV: These tables and those on page lift belong to the 
 
 cost system of a store that uses the budget system. The fundamental idea 
 
 of such a system is the setting up of estimates for the year ahead 
 
 own initiative to locate the trouble. He did not know 
 a great deal about accounting, but he did have a bit of 
 a knack for analyzing. 
 
 He mulled over the cost system 's great mass of figures, 
 looking for loopholes. Matching these figures one
 
 SOUND COST KEEPING 
 
 147 
 
 against another, he made the startling discovery that 
 in the new departments, added on moving to the larger 
 building, stocks were seventy-five per cent larger, for 
 corresponding sales volumes, than in the sections handled 
 
 0MUS3 CT DPBSt ITOB 
 
 
 
 ao 
 
 90 
 
 H 
 
 ■WlM*** 
 
 CwtMW 
 
 <«• • *«- **•** 
 
 W.oj «■!■■■■ 
 
 C. I. C«fT. 1« 
 MnrtMnf 
 
 mm* 
 
 twrvts 
 
 Trf-^j'©™ 
 
 •M., 
 
 "■W- 
 
 
 1900.00 
 
 a«y?.*.i 
 
 ii/%.J0 
 
 1OW.O0 
 
 3*0i.CO 
 
 •oo.op 
 
 IMM1 
 
 "" 
 
 20.M 
 
 tCT.no 
 lto.00 
 
 IWUO 
 
 
 nu-jn* 
 
 a. r. D»r"t 
 
 Ml 
 
 ** 
 
 ..,- 
 
 .. 
 
 
 
 r. 
 
 H 
 
 ■*• «M. 
 
 •"» 
 
 ta 
 
 Tmt 
 
 
 .1 
 
 
 
 0/-.1 
 
 e.*> 
 
 
 
 .» 
 
 
 
 
 MVfJ 
 
 e. r. &• ■ 
 
 
 
 
 
 
 
 .so 
 
 
 
 .IT 
 
 
 
 Jl 
 
 Krt l*T 't 
 
 .> 
 
 .,.). 
 
 
 
 
 
 
 
 1..J, 
 
 4.1* 
 
 !.TO 
 
 UO 
 
 1U.A1 
 
 r,.«. • 
 
 -JO 
 
 U.T 
 
 1.31 
 
 S.JO 
 
 .» 
 
 !»..» 
 
 2.VI 
 
 
 .10 
 
 1.15 
 
 
 ij» 
 
 M.W 
 
 | U „. • 
 
 
 
 11.0C 
 
 .01 
 
 
 '.to 
 
 J.!" 
 
 
 1.00 
 
 l.nc 
 
 
 
 M.M 
 
 Ml, ■ 
 
 
 
 .*T 
 
 iO.00 
 
 Ma 
 
 i.u, 
 
 .J? 
 
 .d 
 
 ■St] 
 
 ..*> 
 
 
 U.21 
 
 aippim 
 
 l.r. 
 
 Ml 
 
 ».«1 
 
 ..« 
 
 \.. • U.o, 
 
 
 
 «,..!, .1 
 
 
 
 
 »~«b 
 
 
 
 uo 
 
 ..>* 
 
 >.t» 
 
 7.SO 
 
 ;.>', 
 
 l.CO 
 
 l».«l *.co 
 
 ».» 
 
 •.n 
 
 UJ» 
 
 iNMltal 
 
 TJ6 
 
 .«t 
 
 J.« 
 
 1.6V 
 
 ... 
 
 Ml 
 
 .X' 
 
 1.<1 
 
 i.M 
 
 .09 
 
 IT JO 
 
 ■h ml 
 
 T.» 
 
 
 
 
 
 
 
 
 
 
 v/.-i 
 
 Ortftta-U «pr<«>rt«tl<» 1a Ken. 
 
 
 C(««rJ»^ IM drlM 
 
 
 
 
 
 
 
 
 
 
 
 »* 
 
 T.tol fc, —. 
 
 =l..x 
 
 .-...-. 
 
 «:.« 
 
 aw 
 
 MM 
 
 n«. 
 
 
 
 
 
 
 n»~t. 
 
 bpw4.a 
 
 o... 
 
 lkl.r 
 
 »-•»'. 
 
 
 
 
 
 
 
 
 
 
 
 
 Tot*l A 
 
 is»l S«*4 
 
 
 hi 
 
 a 
 
 > .'V 
 
 
 
 10K. 
 
 
 
 M 
 
 
 
 
 11*.* 
 
 
 
 100.00 
 
 FORMS V and VI: As explained on page 14.6 and further illustrated 
 
 by these tables, the appropriations in a budget system afford the managers 
 
 a constant check on expenses and give the departments tangible, reasonable 
 
 records against which to compare efforts 
 
 by buyers trained under the store's excellent merchan- 
 dising system. The new buyers were at once Galled 
 together, instructed to reduce their stocks, and the 
 store put on an exceedingly profitable basis within a 
 very short time. "
 
 148 
 
 HOW MERCHANTS GET AHEAD 
 
 DAILY SALES AND GROSS PROFIT STATEMENT BY CLERKS 
 
 LAST 
 
 TICKET 
 USED 
 
 COST Of 
 GOODS 
 SOLO 
 
 UJT 
 
 TICKET 
 USES 
 
 rem 
 
 SAVES 
 
 cost a 
 MOM 
 
 soiof 
 
 Monti 
 
 3 
 
 Goods Re- 
 turned by 
 Added to | Ctntcmoc De- 
 Stock Idoct from Salts 
 
 2 
 
 New Goods 
 
 4 
 Cast of Goods 
 Returned ; De- 
 duct from Co>t 
 of Goods Sole 
 
 s 
 
 Goods 
 
 Returned to 
 Manufacturers I, 
 
 
 R Saturday 
 
 
 -~ 
 
 
 
 
 
 
 
 
 
 
 
 Total for week 
 
 
 
 
 
 
 
 
 
 
 21 
 
 22 
 
 5 Monr*3y 
 
 
 
 
 
 
 
 
 
 
 T Tuesisy 
 
 
 
 
 
 
 | 
 
 
 
 
 
 U Wednesday 
 
 
 
 
 
 
 
 
 
 
 
 
 23 
 
 
 V Ttorsdiy 
 
 
 
 
 
 
 
 
 
 
 
 
 24 
 
 W Friday 
 
 
 
 
 
 
 
 
 
 
 
 25 
 
 X Saturday 
 
 
 
 
 
 
 
 
 
 
 
 
 Trtal tor week 
 
 
 
 
 
 
 
 
 
 
 
 
 28 
 
 Y Monday 
 
 
 
 
 
 
 
 
 
 
 
 
 27 
 
 2 Tuesday 
 
 
 
 
 
 
 
 
 
 
 
 
 AA Wednesday 
 
 
 
 
 
 
 
 
 
 
 
 
 28 
 
 
 BB Tnorsday 
 
 
 
 
 
 
 
 
 
 
 
 
 23 
 
 CC Friday 
 
 
 
 
 
 
 
 
 
 
 
 
 30 
 
 Df) Saturday 
 
 
 
 
 
 
 
 
 
 
 
 / 
 
 Total for week 
 
 
 
 
 
 
 
 
 
 
 
 
 31 
 
 
 EE Monday 
 
 
 
 
 
 
 
 
 
 
 \ 
 
 TOTALS 
 
 FT Total for month 
 
 
 
 
 
 
 
 
 
 
 ) 
 
 SAME MOKTH 
 LAST TEAR 
 
 CAIK OS LOSS 
 
 GG Total tor yc3T to date 
 
 
 
 
 
 
 
 
 
 
 
 I 
 
 HH Tot. last y'r to this date 
 
 
 
 
 
 
 
 
 . 
 
 
 
 t 
 
 
 \ 
 
 THIS YEAR 
 TO DATE 
 
 / 
 
 Memorandum of Shrinkage (or Excess) of Inventory j Amount Owing Lost Day of the Month / 
 
 LAST YEAR 
 TOOATE 
 
 
 
 ThhYear 
 
 last Year 
 
 Today 
 
 Same Da 
 Last Yea 
 
 e 
 
 r 
 
 
 Actual Inventory 
 
 
 
 
 
 Accounts Payable 
 
 
 
 
 Mdse. on Hand -umsihim 
 
 
 
 
 Notes Payee* 
 
 
 
 
 Shrinkage (or Excess) 
 
 
 
 Total 
 
 
 
 
 1 
 
 
 
 
 
 
 FORMS VII and VIII: These two forms (spread across both pages) are 
 from accounting systems of progressive manufacturers — the upper from R. 
 II. Ingcrsoll and Brother's jewelry system, the lower from Hart, Schaffner
 
 SOUND COST KEEPING 
 
 149 
 
 
 w 
 
 
 
 
 
 
 
 
 
 
 
 
 
 191 
 
 
 
 / 
 
 
 
 
 
 KANE OF CLER 
 
 ( 
 
 
 
 
 
 i 
 
 GROSS 
 SALES 
 
 &6.P. 
 
 ON 
 SALES 
 
 MO OF 
 
 SALES 
 
 LAST 
 TICKET 
 USED 
 
 CASH 
 SALES 
 
 CREDIT 
 SALES 
 
 TOTAL 
 SALES 
 
 COST OF 
 I000S 
 
 SOLO 
 
 GROSS 
 
 PROFIT 
 
 %6-P. 
 
 ON 
 SALES 
 
 
 
 1 
 
 
 
 
 
 
 
 
 i ~ 
 
 
 ' 
 
 I 
 
 6 
 
 Goods Sold, 
 I Less Goods 
 1 Returned 
 
 7 
 
 Cost of Goods 
 
 Sold, Less Co;. 
 
 of Goods 
 
 R ;...- '.■;.; 
 
 8 
 
 Sross Profit 
 
 9 
 
 % on 
 Se'as 
 
 10 
 
 Weather 
 
 11 
 
 EVent 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ( 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 / 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 J 
 
 
 
 
 
 
 
 
 
 
 \ 
 
 
 
 
 
 
 
 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 J 
 
 
 
 
 
 
 
 
 Summary 
 11 
 
 Month 
 
 Year to Date jLast Tear to Data 
 UN lOO 
 
 
 
 
 
 
 
 M__ 
 
 
 
 Amoun, |L s n j *"*'■"* I Ste" 
 
 
 
 
 
 
 
 Amount jg 
 
 \ 
 
 Gross Profits on Sales 
 
 
 
 
 
 
 
 1 
 
 Deduct Expenses 
 
 
 
 
 
 
 
 
 
 Rent 
 
 
 
 
 
 
 
 
 1 
 
 Advertising 
 
 
 
 
 
 
 
 
 ( 
 
 General 
 
 
 
 
 
 
 
 
 \m 
 
 Salaries, JjggJ* 
 
 
 
 
 
 
 
 
 Freight and Express 
 
 
 
 
 
 
 
 
 J 
 
 Tnts Season 
 
 Con. Season 
 Last Tear 
 
 Total Expenses 
 
 
 
 
 
 
 
 
 1 Bought, Entire Season 
 
 
 
 
 
 Net Profit on Sales 
 
 
 
 
 
 
 
 \Delhrtred to Date 
 
 
 
 
 
 Adit Discount Received 
 
 
 
 
 
 
 
 
 Balance Urn 
 
 •tOMd 
 
 
 
 
 
 Total Net Profits 
 
 
 
 
 
 
 
 
 L 
 
 
 
 
 
 
 
 
 II 
 
 
 
 
 
 
 & Marx's men's furnishings system. Depreciation facts, liabilities, ad- 
 vance orders, and operating costs are assembled with a record of daily 
 activities; and the salesmen's results compared to secure fair standards
 
 150 HOW MERCHANTS GET AHEAD 
 
 Not the least peculiar side of this incident is that 
 when the cost system experts were shown the assistant's 
 comparisons, they depreciated the value of some of 
 them which discarded or lumped into totals small 
 amounts properly belonging elsewhere. Still these sums 
 were tens merged into hundreds of thousands — they 
 could not in any way, shape or manner affect the broad 
 truth brought out by the comparisons in time to save 
 the store. The trouble with the cost accountants was 
 that accuracy had become their bugbear. 
 
 This incident points to something in addition to the 
 value of comparisons — the part imagination plays in cost 
 accounting. This is our fourth factor. The accountants 
 were faithful and earnest and capable — but they lacked 
 imagination, lacked the scope to look beyond the details 
 and locate the big guiding facts which their system 
 should pick out even at the cost of dropping off the- cents, 
 or, when the sums grew larger, even anything below 
 forty-nine dollars. 
 
 It would not be by any means sound to suggest that 
 accuracy is not a factor in cost accounting. It is — 
 call it the fifth and place it on a par with the four we 
 have already discussed. But detail accuracy, at the cost 
 of neglecting big business-saving facts, is tommy rot. 
 
 ACCOUNTING ia a means to an end — knowledge 
 of the standing and needs of the business. Some- 
 thing is wrong when the means becomes the end. 
 
 As the sixth determining factor in cost systems, we 
 shall not go far wrong in selecting the setting up of 
 standards. One of the most important objects a first 
 rate cost system accomplishes is finding goals towards 
 which the various departments can strive. It is always 
 half the game to be fighting for a definite end, and this
 
 SOUND COST KEEPING 151 
 
 is true of business, as well as of the rest of life. But 
 the goals — or standards — must be just, and neither too 
 far away nor too easy of attainment, for if they are 
 not just, there will not be sufficient urge to strive for 
 them. It is an important share of the cost system's 
 work to assure accurate and frequent standards. 
 
 A seventh factor and our analysis of cost system re- 
 quirements is completed. This seventh factor is that of 
 cooperation. The worthwhile cost system furnishes 
 figures which, if properly arranged, can be used to pull 
 the entire organization into the each-for-all, cooperate- 
 with-one-another kind of a body it should be. Prob- 
 ably the delivery man is given only the record of bundles 
 handled ; the collector, the fall in accounts outstanding ; 
 the cashier, a tabulation of cash errors; and the sales- 
 men, a record of their sales. But this is sufficient to 
 awaken a livelier interest in the company, to bring 
 "the firm" and "the boys" nearer better relations. 
 And, of course, the information given the buyers and 
 higher executives by the cost system can stir up coopera- 
 tion that may prove little short of invaluable. 
 
 So much for the seven factors that count for most in 
 a cost system : thoroughness ; simplicity ; comparability ; 
 imagination ; sane accuracy ; standards ; and cooperation. 
 There are three other influences that practically amount 
 to determining factors: arrangement; frequency; and 
 sense of direction. The necessity of a helpful arrange- 
 ment prescribes that figures be presented to the executive 
 with the more important facts massed at the top of the 
 pages and the details collected below. The frequency 
 with which the figures are tabulated for comparison is 
 important, but must be varied to fit the individual re- 
 quirements of either the business or the line. Sense of 
 direction is more intangible but not less vital — it is
 
 152 HOW MERCHANTS GET AHEAD 
 
 the result of the owner's instinct for practical business 
 and prevents the cost routine from going moss gathering 
 in search of useless facts or tangling itself in unneces- 
 sary red-tape until it strangles to death. 
 
 If all these characteristics belong in a cost system, 
 how are they to be secured? Assistance is now avail- 
 able from many sources. In practically every line some 
 pioneer has worked out a system intended to care for its 
 particular needs. A number of the large manufacturers 
 have spent liberally to secure cost-keeping methods fitted 
 to the requirements of their retailers — R. H. Ingersoll 
 and Brother, and Hart, Schaffner and Marx, for ex- 
 ample — and not a few of the universities are taking up 
 the same work, notably Harvard, through the Bureau 
 of Business Research of the Harvard Graduate School 
 of Business Administration. 
 
 The most important precaution is a patient search 
 among these sources to secure a method directly planned 
 for your business. This article, for instance, might have 
 given a complete cost system, but it would then have been 
 helpful to only a few lines — and possibly harmful, or 
 at least bothersome, to merchants attempting to use it 
 in other lines. Policies and detail sources, on the other 
 hand, are constructive for all. 
 
 INSTALLING a cost system is a difficult task', upon 
 which much depends. These five steps show how both 
 business men and experts plan out successful cost systems. 
 
 In installing a cost system for practically any line, 
 however, the first steps are to list the expense items 
 and group them under broad classifications. These 
 classifications will vary, but usually include: (1) addi- 
 tions to the capital expenditures — outlays that increase 
 the value of the plant; (2) payments connected with
 
 SOUND COST KEEPING 
 
 153 
 
 merchandise; (3) costs that can be charged directly 
 to the departments; (4) items specifically affecting the 
 6tocks or the customers, but which cannot be allocated 
 to particular departments; and, (5) other indirect items 
 which go to make up the administrative expense. 
 
 DAILY SALES 
 
 
 
 
 CQH 
 
 OAJtCE 
 
 
 MUT j TOTAL 
 
 DMLT 1 tVTI 
 
 
 
 
 
 DAILY SALES BY CLERK! 
 
 I 
 
 — 
 
 DAILY SALES BY DEPARTMENTS I 
 
 MONTHLY SALES BY CLERKS 
 
 1 
 
 
 -L 
 
 BS 
 
 MOTTHLY SALES BY DEPARTMENTS 
 
 1 
 
 1 
 
 
 
 
 PAYROLL 
 
 
 "uT 
 
 
 _1" -1 
 
 m 
 
 CLHiUtS .CLERKS 
 iMTJUSmOTULS 
 
 ueksIoir 
 
 KiJlAi^NIT.l 
 
 3 CLERKS GURUS TOT 
 
 ^1 
 
 ~zT 
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 2: 
 
 n 
 :: 
 
 r ; - 
 
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 IT 
 
 — 
 
 
 m 
 
 rso* ' 
 
 . 1 
 
 
 T1« 
 
 
 
 f'i'C 
 
 EXPENSES 
 
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 n 
 
 M 
 
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 MVENTQRY 
 
 
 
 '?5 
 
 :s 
 
 a 
 
 '-.■ 
 
 n 
 
 7v-- 
 
 ■% 1 
 
 ''"■'La 1 
 
 
 db mn 
 
 AMOUIIT 
 
 
 «T | S ^e B 
 
 
 BANKACCODNT 
 
 
 
 TS CHECKS 
 
 nuwcE 
 
 
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 J : 
 
 
 
 
 
 
 
 
 -2 
 
 
 
 
 
 
 
 
 
 .' 
 
 
 
 
 
 
 
 
 
 4 
 
 
 
 
 
 
 
 
 
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 7 
 
 
 
 1 i 
 
 
 
 
 
 
 B 
 
 
 
 
 
 
 
 
 
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 OEC. 
 
 
 
 
 
 
 
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 r« 
 
 
 
 
 
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 !: 
 
 
 
 
 
 :± 
 
 
 
 
 M 
 
 
 
 
 
 i 
 
 
 
 
 
 -a 
 
 
 
 
 
 ht 
 
 
 
 
 " a - 
 
 
 
 
 
 i i 
 
 
 
 
 
 
 lil_L 
 
 
 .i 
 
 
 
 OUTSTANDING ACCOUNTS 
 
 CfiWSlSAUS 
 
 icSTtSw 
 
 B.-.UUCf 
 
 mn 
 
 Mill 
 
 nun 
 
 NOTES PAYABLE 
 
 OUTT MHE 
 
 mem. 
 
 n .«»m. 
 
 
 
 MM 
 
 NOTES RECEIVABLE 
 
 - OATt UME 
 
 unto*. 
 
 due unim 
 
 
 
 < 
 
 _ 
 
 
 
 
 
 
 MONEY OWED 
 
 _ _ «VQIC« RfCIWED 
 
 ■gq 
 
 B " S*SS 
 
 mn 
 
 1 1 1 
 
 II llllll 
 
 
 
 
 r-; HOKTHLY PROFITS 
 
 -p _ ius E 
 
 vasts 
 
 ST "ISEr" «L 
 
 
 
 L 
 
 
 — !AM 
 
 1 
 
 
 
 "- 
 
 
 
 
 fm 
 
 
 
 
 j; 
 
 
 
 J_ 1 
 
 ~ HAR 
 
 
 
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 - " 
 
 
 >T 
 
 
 " UPH. 
 
 
 
 
 
 
 
 
 
 
 
 
 Tn-rTT 
 
 - 
 
 
 
 it 4 
 
 
 
 
 it -J 
 
 
 
 
 it I 
 
 KOV 
 
 
 
 it -i 
 
 
 
 
 it -i 
 
 "M 1 
 
 .J_ 
 
 
 it .1 
 
 FORMS IX-XXI1: Every well-planned cost system endeavors to empha- 
 size comparisons. These forms, which illustrate this fact, come from a 
 system offered to retail merchants by the Burroughs Adding Machine Com- 
 pany. In practically every instance there is a daily or a monthly comparison 
 
 After the classifications are set up, the rather vague 
 administrative items are least troublesome when rigidly 
 held in check by apportioning costs, whenever possible, 
 directly to departments according to benefits received. 
 The apportionments are, of course, worthless unless made 
 with scrupulous care.
 
 154 HOW MERCHANTS GET AHEAD 
 
 Insurance, for example, should be prorated according 
 to stock values; stockroom charges according to supply 
 quotas; delivery expenses according to the number of 
 parcels delivered; window dressing according to the 
 window space used ; rental, heating, lighting, ventilation, 
 power, general repair, janitor service, general fire sprink- 
 ling and floor walking charges according to the floor 
 space used for selling, after allowing for location in the 
 store; and so on through all the items. 
 
 Some charges will remain after these apportionments 
 are decided upon — such as general advertising items, 
 shipping costs, accounting expenses and bills for legal 
 services. These can safely be either divided equally 
 among departments, or split up according to sales, but 
 only after they have been stripped by an acid test of 
 every charge open to direct apportionment. 
 
 These steps taken, the average cost system attempts 
 to show: (1) net sales; (2) gross profit; (3) purchase 
 costs to the point of delivery; (4) net profit; (5) the 
 operating expense; and, (6) statistics. The nature of 
 the statistics will vary according to the type of business 
 involved. But in many instances they include depart- 
 ment sales ; net profit and loss ; sales by salesmen ; sales 
 by territories; sales by advertising mediums; and the 
 turnovers secured by departments, lines or bulk stocks. 
 
 To secure these facts the cost system will probably use 
 a trial balance; inventories, handling purchases, sales 
 and the cost of sales; expense accounts; a cost book; 
 an invoice register subject to correction from the inven- 
 tories ; a mark-down book ; a detailed list of all expense 
 classifications; accounts for departmental expenses; a 
 voucher register; sales slips; outlay, cash drawer and 
 cash on account slips ; order records ; want slips for catch- 
 ing calls for items out of stock; summaries for outgo
 
 SOUND COST KEEPING 155 
 
 and income by varying periods; checks that detail the 
 purpose of the payments; and "budget" blanks that 
 enable the merchant to estimate his stocks and expenses 
 six months or more ahead in the light of past records. 
 
 These are the tools, then. You may not need all of 
 them, only a selection, or additional ones especially 
 fitted to your work. This task of assembling your par- 
 ticular kit of cost-keeping tools properly rests with the 
 assistance you secure either from the sources enumerated 
 a few paragraphs above, or from your own adaptability 
 guided by a study of the subject, and a careful analysis 
 of your business. 
 
 But from whatever source your cost system finally 
 comes, it is worth remembering that simply listing ex- 
 periences neither shows how to control them, nor estab- 
 lishes where you stand. And one tool at work is worth 
 a thousand idle ones.
 
 X 
 
 STANDING UP FOR YOUR 
 PROFIT 
 
 PROFITS large enough to cover the time, the rent, 
 and the other charges I have spent keeping 
 those goods make them too expensive for my trade. " The 
 owner of a small New Hampshire store was explaining 
 the shelf-worn appearance of some stock to an alert 
 man whose chauffeur wanted gasoline. The two men, 
 both nearly sixty, had started in business with stores of 
 about the same size. After forty years, one worries over 
 stickers in a town of three thousand ; the other controls 
 a string of big New York department stores and takes 
 long vacations during the summer. 
 
 "Here's my card," the tourist laughed as his driver 
 signaled. "Maybe you'll recognize my name. I also 
 keep shop — that's why I asked so many questions. I 
 sympathize with you. Perhaps you '11 take a bit of advice 
 from me. Get rid of that old stock at any cost. I fire 
 out everything that stops moving. Hereafter, take losses 
 as soon as stock drags. 
 
 ' ' Today success depends on rapid trading. Remember 
 that you must make six sales in order to carry stock and 
 secure a single profit. Shelf profits are not worth a red 
 cent when it comes to counting net gains. 
 
 "I started with a store the size of this. The biggest 
 lesson I ever learned is to consider January the im-
 
 MAKING SURE OF A PROFIT 15fl 
 
 portant month and see that it doesn 't show an inventory- 
 soggy with shelf profits. If these ideas help, you're wel- 
 come to them, for that remarkable explanation of why 
 some of your stock is musty will hereafter serve as a 
 horrible example to my department managers. ' ' 
 
 Here were two ideas of profit — one of a storekeeper 
 who really does not know what the word means; the 
 other of a merchant who stands up for a sound profit. 
 The New England retailer who adds running expenses to 
 the cost of stickers, until they approximate the value of 
 their weight in radium, partly typifies many distribu- 
 tors. All in this class hesitate about marking down stock 
 until too late ; a few agree absolutely with him and main- 
 tain that consumers owe them a profit on whatever they 
 place on their shelves. The New Yorker's success came 
 because he knew that a distributor is only entitled to a 
 profit in return for the risk he shoulders and the talent 
 he puts into his business. He undertakes, by using his 
 abilities, to relieve consumers of the risk of not finding 
 what they want when they want it. 
 
 If you have money in the bank, it does not require 
 unusual ability to fill a building with goods, or a factory 
 with raw material, irrespective of demand. That is all 
 the man who simply carries dead stock does ; consumers 
 are generous when they pay him a fair wage plus bank 
 interest on his money. He may, it is true, control an 
 exceptional location or face weak competition, and, on 
 account of these circumstances, secure a profit even 
 without demonstrating that he has ability. But profit is 
 the public's pay for risk, and sooner or later a skilful 
 rival will appear. Then what the inefficient man had 
 thought were his profits shift to the man who actually 
 shows capacity for his business. 
 
 What is a sound profit, if it results, as economists
 
 158 HOW MERCHANTS GET AHEAD 
 
 tell us, only from talents? In business profit comes as 
 a return over and above fair pay for the routine work 
 involved in keeping a shop, office or factory open. It 
 is not rent for a building owned by the business. It is 
 not interest on the investment. It is not money sufficient 
 to pay all the running expenses and the usual mark- 
 down losses. This is what a profit is: the amount con- 
 sumers gladly pay the business man doing a more or less 
 risky job unusually well. 
 
 The manufacturer who secures a profit in a competi- 
 tive market controls an organization so well that his costs 
 leave him a margin after meeting competitors' selling 
 prices. The head of a successful insurance agency 
 makes money because he handles his staff with more than 
 average ability. A retailer finds a. surplus in his bank 
 account when he merchandises stocks instead of going 
 ahead blindly. 
 
 WHAT is profit? Many merchants have answered 
 this question in a way that spelled ruin. Here 
 is an explanation of exactly what true profit is. 
 
 The man who shows no capacity either goes under or 
 merely gets a wage — there is no profit if the customers 
 buy at a price which only takes care of costs to do 
 business and fills at market rates a pay envelope for the 
 distributor. 
 
 The successful business man justly demands, and gets, 
 something more as compensation for the satisfactory way 
 he handles his risk. He is entitled to a percentage over 
 and above all the items of his running expenses, plus 
 salary, plus bank interest. 
 
 Profit is not interest on investment ; it is not a salary 
 paid for managing the business. Both these are items 
 which the proprietor should properly pay himself as
 
 MAKING SURE OF A PROFIT 159 
 
 RANDLEV & SON 
 
 1028 Central Street 
 
 Telephones: Evanston 4567 
 Wilmette 220 
 
 WE HAVE spent liberally of time and effort, also of money, to bring 
 home the fact that cooperation between consumer and distributor, 
 based upon an intelligent understanding of each other's wants, would 
 prove mutually profitable. We have also endeavored to show that the 
 true merchant is not only a business-doer, but also a business-builder, one 
 whose chief effort is to give the people he serves the best possible goods 
 and service at the least possible cost, trusting to them in turn to be fair- 
 minded and give him such patronage as will afford him a just compensa- 
 tion for service rendered. Said one woman: "Mr. Randlev, you give me 
 good service and I am willing to give you a just pay for it, but what 
 assurance have I that you do not exact more?" What constitutes a just 
 conlpensation anyway ? Let us figure it out : 
 
 6% interest on $10,000.00 invested capital 80% 
 
 Salary to manager 2.00 
 
 Salary to store and office help 6.32 
 
 Salary to delivery help 2.80 
 
 Upkeep of horses, wagons, etc 1.95 
 
 Rent 1.36 
 
 Depreciation of fixtures 14 
 
 Losses, bad debts 50 
 
 Telephone IS 
 
 Ice 24 
 
 Heat 06 
 
 Light 18 
 
 Insurance 07 
 
 Taxes and license 14 
 
 Advertising 36 
 
 Benevolence 15 
 
 Paper, bags, stationery, stamps, etc 1.12 
 
 Miscellaneous 13 
 
 18*% 
 This constitutes the so-called overhead or fixed charges. 
 Add to that a net profit of 4 % 
 
 And we have a gross profit of 22£% 
 
 An intelligent study of these figures will help to determine the merit 
 or demerit of many statements and assertions now running amuck in the 
 public prints, and proves: 
 
 1st. Our gross profit on your monthly bill of $25.00 is $5.62. Our 
 net profit on your monthly bill of $25.00 is $1.00. 
 
 FIGURE XIV: This is a handbill circulated by a grocery firm. They 
 find that their explanation of the narrow margin between rising costs and 
 over-the-counter quotations holds customers when competitors slash prices
 
 160 HOW MERCHANTS GET AHEAD 
 
 investor in and manager of his own business. Whether 
 he receives a profit above this depends, in the long run, 
 on his ability as a business man to earn that profit from 
 the people he serves. For profit is the owner's return 
 for risk taken in providing for the wants of his cus- 
 tomers and community. The essential phases of this 
 vital side of merchandising are, first, how gross and 
 net profits average in different lines and trades ; second, 
 how to mark-up on costs to secure a sound net profit; 
 and, third, how successful men recognize the meaning of 
 profit and justly stand up for it. 
 
 How is the business man to fix the amount of this 
 profit and his other charges? His ability, the nature 
 of his goods or service, the strength of the consumers' 
 demand, and the intensity of competition are the deter- 
 mining factors. Let us consider each in turn — ability 
 comes first. Business men, like all human beings, vary 
 in ability. Otherwise there would be a standard salary 
 for business men. But some make millions, others thou- 
 sands. All degrees of business talents exist above the 
 low limit set by those who get no more than bank interest 
 and a wage out of their enterprises. So ability de- 
 termines how much a man will make under the condi- 
 tions set by the three other profit factors. Just as 
 faces differ, so ability seldom duplicates. 
 
 Whether of small or great abilities, however, every 
 man in business encounters the three remaining profit 
 factors, among which the nature of the goods or service 
 is next in order. Stocks are only worth what they will 
 bring — costs to do business may be disregarded except 
 as a cheek to prevent losses. Take fifty cents' worth 
 of straw, a dollar and a half invested in labor, a two 
 dollar ribbon — add desired style — and a woman may 
 cheerfully pay twenty-five dollars for the finished hat.
 
 MAKING SURE OF A PROFIT 
 
 161 
 
 A man's straw hat often contains raw material costing 
 about a dollar and sells for five dollars. Therefore, the 
 distributor is able to measure his gains against the na- 
 ture of his goods, provided he has avoided unprofitable 
 lines by keeping his cost of doing business in mind when 
 buying. 
 
 COMPARISONS OF AVERAGE PROFITS 
 
 % 
 40- 
 38- 
 36- 
 
 »- 
 
 32- 
 30- 
 28- 
 
 tm 28- 
 
 CQ 
 
 c 24- 
 
 CD 
 
 £27- 
 °-20- 
 18- 
 16- 
 14- 
 12- 
 10- 
 8- 
 6- 
 4- 
 2- 
 
 f~ 
 
 Average Net Profits on Capital Invested (Manufacturers) 
 
 Average Net Profits, One Turnover (Retailers) 
 
 Average Costs of Doing Business (Retailers) Cash Discounts 
 Included and Mark-downs Deducted 
 
 ~ 1 
 
 FIGURE XV: The averages here corn-pared demonstrate that distributors 
 
 must stand up for fair profits in order to secure gains equal to those with 
 
 which the consumer rewards the manufacturer 
 
 Suppose that Carl J. Ricker takes a trip to Chicago 
 
 from his jewelry store in Emporia, Kansas, and finds 
 
 ' ' blue bird of happiness ' ' pins popular there. He carries 
 
 a stock of them back to Emporia; offers a section of 
 
 Kansas something attractive it might never have been 
 li
 
 162 HOW MERCHANTS GET AHEAD 
 
 able to secure if he had not shown get up and go enough 
 to visit Chicago in order to widen the scope of his buy- 
 ing ability. If his cost of doing business happens to 
 be eighteen per cent, including a fair manager's salary 
 for himself, and ten per cent his idea of a net profit, 
 is his correct mark-up on the "blue bird of happiness" 
 pins twenty-eight per cent? Not for a moment. He 
 has a novelty, a bit of jewelry consumers desire. They 
 will gladly pay him a high profit in return for his 
 progressiveness and ability in locating it. He may 
 justly take a hundred per cent mark-up, or even more. 
 "That reads very nicely," you may question, "but 
 how about actual practice?" As a matter of fact the 
 incident is true of actual practice. Ricker came to 
 Chicago, found the pins, and took them to Emporia. 
 Though his cost of doing business may not be eighteen 
 per cent, his net profit ten, or his mark-up on these 
 pins one hundred, since he is a wise merchant, he doubt- 
 less secured a higher gross profit than usual. 
 
 ONE item is a staple, another a novelty. How shall 
 I mark them up? Here is an answer of interest 
 to manufacturers, jobbers, wholesalers and retailers. 
 
 Today distributors who secure attractive profits disre- 
 gard blanket mark-ups, and take a gross profit on each 
 line according to what it will bring. They find ac- 
 curately the costs to sell a line, and stand up for a 
 reasonable profit, adding a greater return whenever 
 possible. They are justified, for business men always 
 go a long ways for long profits. Styles or novelties, the 
 carriers of high profit possibilities, usually involve 
 extraordinary risks and abnormal selling expenses. 
 
 Round figure mark-ups are relics of the days when 
 jobbers educated retailers to "buy at eighty cents, sell
 
 MAKING SURE OF A PROFIT 163 
 
 at one-twenty-five; buy at one-twenty, sell at one-fifty; 
 buy at one-sixty, sell at two." Today progressive re- 
 tailers know that the nature of the goods, not the out- 
 of-date advice of jobbers seeking to assure them a pro- 
 tecting margin through rule-of-thumb methods, fixes 
 gross profits. Where would the retail grocer be if he 
 marked up staples and fancy lines with the same margin ? 
 Or the distributor at wholesale who tried to get as much 
 on sugar as on roasted coffee, teas, spices and dried 
 fruits? 
 
 A Michigan retailer died recently after working thirty- 
 eight years behind counters. He left $250. They found 
 he had used a general mark-up — lines that cost $2.00 
 a dozen he sold for twenty-two cents each; five-dollar 
 purchases brought him fifty-five cents a piece ; and 
 eleven-dollar lots, one dollar and twenty cents an article. 
 The shoe business of the country is in a bad way, at 
 least as far as retailers are concerned, because the dis- 
 tributors fail to secure a suitable return for the style 
 changes which now disturb their stocks. Many use fixed 
 prices, pity the customer when he does not pity himself, 
 and hesitate to stand up for style prices on style stocks. 
 However, the National Boot and Shoe Manufacturers' 
 Association and the National Shoe Retailers' Association 
 now advise the discontinuance of fixed mark-ups. 
 
 Too large a profit is, however, dangerous. The great 
 concerns of tomorrow will undoubtedly build on small 
 profits, rapid stock turns, and large volumes which pro- 
 portionately lessen expenses. R. H. Macey and Com- 
 pany grew for several reasons, but one of the most im- 
 portant is their reputation for taking only a twenty per 
 cent mark-up. Nevertheless, round-figure marks-ups 
 usually bring ruin in this day of closely figured costs.
 
 164 
 
 HOW MERCHANTS GET AHEAD 
 
 TYPICAL PROFITS and 
 
 These figures sup-ply only net gains on sales, but the profits on the invest- 
 ments may easily be figured from the data given. The simple method of ar- 
 riving at the net profit here used covers roughly all losses from mark-downs 
 and unlcnown sources. The approximate number of > turns secured 
 
 FOR A GROCERY STORE 
 
 A grocery in the South submitted these 
 figures - they are reasonably typical of a 
 prosperous grocery business. The small 
 stock investment is the most marked char- 
 acteristic of the line. Of course the 
 average grocer is not even approximating 
 these earnings. 
 Advertising and donations . . . .$ 1,275.50 
 
 Bad debts 492.66 
 
 Delivery 3,410.85 
 
 Depreciation and shrinkage . . . 961.10 
 
 General expenses 942. 75 
 
 Heat and light 475.20 
 
 Insurance and taxes 844 .56 
 
 Interest on investment at 6% . 630.00 
 
 Rent 2,865.00 
 
 Salaries (including owner's) . . . 7.S42.94 
 Supplies 385.61 
 
 Stock, first of year, at cost S 7,341.60 
 
 Purchases for year, at cost. . . . 73,021.45 
 
 SS0.363.05 
 End of year stock, at cost 6,998.11 
 
 Sales, at cost $73,364.94 
 
 Actual income from sales 96,243.75 
 
 Gross profit S22.878.81 
 
 Expenses, as detailed above . . . 20,126.17 
 
 Net profit $ 2,752.64 
 
 FOR A DRUG STORE 
 
 This is an actual store - in New Eng- 
 land. The owner thought he was mak- 
 ing a pretty nice thing out of it until a 
 representative of a commercial agency 
 asked him to take out the interest on his 
 investment, and a salary for himself, 
 before reporting his net profit. 
 Advertising and donations . . . .$ 1,204.81 
 
 Bad debts 106.15 
 
 Delivery 299.06 
 
 Depreciation and shrinkage . . . 210.62 
 
 General expenses 587.44 
 
 Heat andlight 462.25 
 
 Insurance and taxes 492.14 
 
 Interest on investment at 6% . . 900.00 
 
 Rent 2,400.00 
 
 Salaries (including owner's) . . . 4,952.70 
 Supplies 241.11 
 
 Stock, first of year, at cost $ 8,120.16 
 
 Purchases for year, at cost. . . . 29,711.02 
 
 $37,831.18 
 End of year stock, at cost 7,902.10 
 
 Sales, at cost $29,929.08 
 
 Actual income from sales 42,106.52 
 
 Gross profit $12,177.44 
 
 Expenses, as detailed above .. . 11,856.28 
 
 Net profit $ 321.1 
 
 FOR A JEWELRY STORE 
 
 It is interesting to compare these fig- 
 ures from the books of a middle-western 
 jeweler with those epitomizing conditions 
 in the shoe store - table opposite, to the 
 right - securing approximately the same 
 sales volume. 
 
 Advertising and donations $ 2,400.91 
 
 Bad debts 171.54 
 
 Delivery 2S9.25 
 
 Depreciation and shrinkage . . . 821.22 
 
 General expenses 405.25 
 
 Heat and light 592.61 
 
 Insurance and taxes 1,185.16 
 
 Interest on investment at 6%. 2,962.85 
 Rent 3,500.00 
 
 Salaries (including owner's) 
 Supplies 
 
 Stock, first of year, at cost. 
 Purchases for year, at cost . 
 
 End of year stock, at cost. 
 
 9,872.91 
 738.50 
 
 , . . 38,210.90 
 .. 54,782.45 
 
 $92,993.35 
 .. 37,466.21 
 
 Sales, at cost 
 
 Actual income from sales 
 
 .$55,527.14 
 . 80,942.56 
 
 ...$25,415.42 
 . . 22,940.20 
 
 Gross profit 
 
 Expenses, as detailed above 
 
 Net profit $ 2,475.22
 
 MAKING SURE OF A PROFIT 
 
 165 
 
 COSTS by TRADES 
 
 becomes apparent when the averages of the two inventories are divided into 
 
 the sales at cost. In figuring rates of turnover from figures representative 
 
 of manufacturing concerns, the average of the amount of capital invested 
 
 during a period is usually divided into the net sales for that period 
 
 FOR A DEPARTMENT STORE 
 
 These figures are slightly disguised. 
 They clearly illustrate the characteristics 
 of department store merchandising. 
 Advertising and donations. .$ 113.209.25 
 
 Bad debts 5.691.05 
 
 Delivery 81,211.01 
 
 Depreciation and shrinkage. 20,319.12 
 
 General expenses 60,904.88 
 
 Heat and light 31 ,843.60 
 
 Insurance and taxes 23,191.40 
 
 Interest on investm't (6%) 37,210.84 
 
 Rent 121,670.80 
 
 Salaries (including owner's) . 241,625.61 
 Supplies 27,204.51 
 
 Stock, first of year, at cost . 309,750.12 
 Purchases for year, at cost . 2,167,101.40 
 
 $2,476,851.52 
 End of year stock, at cost . 310,461.83 
 
 Sales, at cost $2,166,389.69 
 
 Actual income from sales. . . 2,881,246.17 
 
 Gross profit $ 714,856.48 
 
 Expense, as detailed above . . 764,082.97 
 
 Apparent loss % 49,226.49 
 
 Discounts 231,216.45 
 
 Net profit $ 181,989.90 
 
 FOR A HARDWARE STORE 
 
 This is an ideal store made up from 
 figures presented before many conven- 
 tions, the opinions of several credit man- 
 agers, and facts submitted by scores of 
 individual stores. The figures are in- 
 tended to be obtainable averages. 
 Advertising and donations . . . .$ 210.80 
 
 Bad debts 208.00 
 
 Delivery 156.50 
 
 Depreciation and shrinkage . . . 180.00 
 
 General expenses 110.00 
 
 Heat and light 100.50 
 
 Insurance and taxes 180.50 
 
 Interest on investment at 6% . 720.00 
 
 Rent 720.00 
 
 Salaries (including owner's) . . . 2,748.00 
 Supplies 56.10 
 
 Stock, first of year, at cost. . . . 7,810.60 
 Purchases for year, at cost. . . . 26,410.20 
 
 $34,220.80 
 End of year stock, at cost 8,010.10 
 
 Sales, at cost $26,210.70 
 
 Actual income from sales 34,073.91 
 
 Gross profit $ 7,863.21 
 
 Expenses, as detailed above . . . 5,391.00 
 
 Net profit $ 2,472.21 
 
 FOR A SHOE STORE 
 
 That expenses in this New York state 
 shoe store are about normal is estab- 
 lished by investigations made by the 
 Harvard Graduate School of Business 
 Administration, trade organizations and 
 System. 
 
 Advertising and donations . . . .$ 2,008.41 
 
 Bad debts 98.60 
 
 Delivery 264.82 
 
 Depreciation and shrinkage . . . 401.14 
 
 General expenses 1,645.75 
 
 Heat and light 402.S8 
 
 Insurance and taxes 892.15 
 
 Interest on investment at 6% . 1,740.00 
 
 Rent 2,400.00 
 
 Salaries (including owner's) . . . 8,106.50 
 
 Supplies 371.25 
 
 Stock, first of year, at cost 24,680.42 
 
 Purchases for year, at cost. . . . 51,414.55 
 
 $76,094.97 
 End of year stock, at cost 22,365.86 
 
 Sales, at cost $53,729.1 1 
 
 Actual income from sales 72,498.24 
 
 Gross profit $18,769.13 
 
 Expenses, as detailed above . . . 18,331.50 
 
 Net profit $ 437.63
 
 166 HOW MERCHANTS GET AHEAD 
 
 Consumers do not demand round-figure prices; they 
 willingly pay a profit on the service they desire when 
 shown that it costs the distributor money. The customer 
 gauges prices by the satisfaction he secures, not by the 
 distributor's profits. All the consumer asks is plainly 
 marked prices. These he has had for several centuries — 
 the Spectator for November 26, 1712, says of John 
 Morton, a merchant, "He imposes upon himself a rule of 
 affixing the value of each piece he sells, to the piece 
 itself; so that the most ignorant servant or child will 
 be as good a buyer at his shop, as the most skilful in 
 the trade. ' ' Every merchant is a John Morton today as 
 a matter of course; but not all know costs plus mark- 
 downs by lines, and not all mark-up more than that 
 percentage according to the nature of each line. Still 
 John Wanamaker would face ruin in a day if he did 
 not. 
 
 TAKE a few hours off some day and list the problems 
 your business faces under these factors that shape 
 profits. It is by such analysis that stores grow. 
 
 The strength of the consumers' demand follows the 
 nature of the goods in our list of profit determining 
 factors. It is not possible to consider any one of these 
 factors without regard to the effect of the others upon 
 it. Demand may not be profitable if competitors supply 
 it easily. As surely as nothing sells without demand, the 
 highest profits occur when a distributor secures the 
 means of satisfying, almost exclusively, a portion of a 
 general demand. Therefore, style changes and novelties 
 often bring attractive returns if they touch a strong 
 demand. These facts explain the attention successful dis- 
 tributors give to locating fast selling lines and surround- 
 ing them with attractive equipment or service.
 
 MAKING SURE O* A PROFIT 
 
 167 
 
 I THREE VIEWPOINTS OH PROFITS { 
 
 
 | U> Oetemamng [ 
 
 These Economy Fatlws Hi the Net | 
 GatowLocs 
 
 4 Owlet's Capacity 
 
 
 | Store ("t'Wttntol 1 
 
 
 future o* the Goods | 
 
 
 \ Staple Lines f' 
 
 
 1 Novelty or Style Ural f 
 
 
 
 
 J 1 '■■ ■ lw« 3 
 
 
 | lines Owned cr Controlled } 
 
 
 
 J Consumers' Demand 
 
 
 Strength 
 
 
 \ Ctanciemilci \ 
 
 1 J Competition 
 
 
 Stunt* 
 
 
 | tlMiHanrJW | 
 
 
 1 ■ W-P-*. | 
 
 
 
 1 Rfck 
 
 [ 01) fip ifirig"! 
 
 l~ 
 
 FIGURE XVI: 
 
 Economists show 
 that net profit is 
 set by the business 
 man's ability and 
 the risk pitted 
 against capability, 
 after the nature of 
 the goods, com peti- 
 ticns strength 
 and the consum- 
 er s demand have 
 been con sidered . 
 This point of view 
 — that centered on 
 the economic fac- 
 tors involved — is 
 charted above in 
 Column I. 
 
 The next column (II) analyzes a second 
 viewpoint — the accounting and statistical 
 ■problem. With the figures here suggested 
 regularly reported, there are established 
 checks at the entrances or exits for money 
 and for goods. 
 
 However, both tested theories (Column I), 
 and practical ways for figuring, (Column 
 II), depend almost entirely on the methods 
 behind the business, (Column III) . 
 
 (F)Het Protit | 
 
 c 
 
 ««i«WMk«« 
 
 1 
 
 | kw. « >«»■•• •" /*.««. 
 
 c 
 
 
 1
 
 168 HOW MERCHANTS GET AHEAD 
 
 The fourth, and last, profit factor is this intensity of 
 competition. Since very few distributors market mo- 
 nopolies, they find their profits in part determined by 
 the strength of the competition in their territories. They 
 consequently face the difficulty of deciding between a 
 few long profits and many narrow margins. The entire 
 make-up of their enterprises may be affected by the 
 course they select. Moreover, since a decision to propor- 
 tionately lessen expenses by expanding the sales volume 
 often falls short of its object, many make this factor 
 their "Waterloo. 
 
 Exactly as important as business capability, stock 
 characteristics, demand and competition — these four 
 profit factors — are sound accounting and mathematical 
 methods for figuring mark-ups. Because custom has at- 
 tempted to fit elaborate bookkeeping practices to the 
 exceedingly simple plus and minus accounting problems 
 involved in ninety per cent of our stores, many distrib- 
 utors go ahead blindly. 
 
 Two types of facts — inventory figures and accurate 
 costs of doing business — are necessary. They can, so we 
 have seen, be kept on sets of cards without reference 
 to the traditional ledgers, journals, cash books or trial 
 balances. The relation of costs to profits are summarized 
 in the chart on page 167. 
 
 The earnest distributor keeps at least figures which 
 enable him, (1) to add purchases to an inventory taken 
 at the beginning of a period, (2) subtract the stock on 
 hand at the end of this period, (3) and subtract the 
 remainder, (4) in addition to every cent he has paid 
 out during the period, (5) including a fair wage for 
 himself plus interest on the money invested in his busi- 
 ness, from his sales. This remainder is net profit. 
 
 Once he finds how easy it is to get in this way some
 
 MAKING SURE OF A PROFIT 16? 
 
 idea of his net profits, the value of going deeper into his 
 business becomes evident. He then discovers that after 
 all it is not so much of a task to follow the net and 
 gross profits on each line; to pick the slow and fast 
 movers; to apportion the overhead correctly, even by 
 lines; to demonstrate how many lines he can safely 
 carry ; to establish the quickest way to move stickers ; to 
 show what form of advertising brings him the most 
 money, and to fix his losses from bad debts. In short, he 
 pulls himself, without any trouble whatsoever, away 
 from the greatest danger indicated by failure statistics 
 — incompetence. 
 
 Once he has adequate facts and cost figures at hand, 
 still another difficulty confronts the distributor — the 
 actual calculation of selling prices. For several years 
 those anxious to help the retailer have earnestly ad- 
 monished : ' ' Don 't fool yourself by marking up on the 
 cost price." 
 
 HOW to figure mark-ups is an old problem which 
 has been discussed pro and con more than the 
 simplicity of the solution warrants. Here is the solution. 
 
 Although many merchants forget that a percentage 
 of the cost price is smaller than the same percentage 
 of the selling price, it is absolutely incorrect arbitrarily 
 to state that mark-ups from cost figures mislead. It is 
 quite sound to calculate from cost prices if all the per- 
 centages used relate to cost figures. As a matter of 
 fact, many progressive concerns maintain both cost and 
 selling price mark-up records. But most merchants, 
 quite naturally, think of expenses as so much of their 
 sales. If expenses expressed as percentages of sales are 
 figured on costs — smaller amounts than the sales, of 
 course — mistakes result. To avoid this blunder, it is
 
 170 HOW MERCHANTS GET AHEAD 
 
 PROFIT in EIGHTY LINES and TRADES 
 
 Each of the percentages assembled below gives either net or gross profits for 
 an actual line, store, or manufacturing plant. For instance, the grocery 
 store mentioned in the column is near Kimbark Avenue and Fifty-third 
 Street, Chicago. All the distributive channels are included. By combining 
 the figures it is, in several instances, possible to obtain a rough estimate of 
 the cost of getting certain lines from the factories to the consumers' doors 
 
 TYPICAL GROSS PROFITS (ON SALES) 
 
 Per cent 
 
 American Family Soap (at full price) 16.36 
 
 Barington Hall Coffee (at full price) 20 
 
 Borden's Eagle Milk (at full price) 13.33 
 
 Campbell's Soup (at full price) 25 
 
 Chain grocery stores (three) (49J^% reported by the Asso- 
 ciation for Improving Conditions of the Poor) 15 to 49.5 
 
 Clothing stock (southern store; range is from 3 to 37%) ... 20 (average) 
 Collar stock (men's), New York City (cost to do business, 
 
 29%) 26 
 
 Cotton dress goods stock 32 to 41 
 
 Cream of Wheat (at full price) 16.66 
 
 Dr. Price's Baking Powder (at full price) 23.33 
 
 Fels' Naphtha Soap (at full price) 20 
 
 Furniture store (cost of doing business, 31 %) 49 
 
 Grocery store (cost of doing business, 20%) (Sales, 
 
 $101,877.00) 25 (average) 
 
 Hat stock (men's) 39 (average) 
 
 Hardware (large store) 33.33 (average) 
 
 Hardware line (jobber made 17%) 31 
 
 Hardware store (town of 2,000) (cost to do business, 25%) 37.5 (average) 
 
 Instalment hardware line 62 
 
 Ivory Soap (at full price) 20 
 
 Kellogg's Toasted Corn Flakes (at full price) 22.33 
 
 Large department store (average for seven years) 24.5 
 
 Malt Breakfast Food (at full price) 16.66 
 
 Mail order house (largest in the world) 25 (average) 
 
 Meat line (No. 2 loin) 33.33 
 
 Meat line (ribs) 40 
 
 Meat line (500 lb. steer — cost 13^c. per lb.; sold for 14}^ 
 
 to 16c. per lb.) 12 
 
 Neckwear stock (New York City — used as a '"loss leader") 26 
 
 Pet Milk (at full price) 13.33 
 
 Pillsbury's Best Breakfast Food (at full price) 16.66 
 
 Quaker Oats (at full price) 21.7 
 
 Ralston Breakfast Food (at full price) 16.66 
 
 Ready-made clothing lines (Tariff Board) 33.33 
 
 Restaurant menu (highest profits taken on salads and 
 
 pastries; lowest on meats) to 300 
 
 Royal Baking Powder (at full price) 20.84 
 
 Rumford Baking Powder (at full price) 23.31 
 
 Shredded Wheat Biscuits (at full price) 20 
 
 Shoe store ($5— $6 lines— at retail) 25 to 33.33 
 
 Shoe store ($6 — 815 lines— at retail) 45 (average) 
 
 Shoe store ($4.50 shoes cost $2.40 and $2.65; $5.00 shoes 
 
 cost $2.85 and $3.25) 40 [(average) 
 
 Syrup line (at full price) 18 
 
 Uneeda Biscuits (at full price) 16.66 
 
 Variety goods bargain basement 15 to 25 
 
 Variety goods store (average cost 5c. articles, 40c. a doz.; 
 
 average cost 10c. articles, 80c. a doz.; average cost 25c. 
 
 articles, $2.00 a doz.) 25 to 33.33 
 
 Wesson Salad OU (at full price) 20
 
 MAKING SURE OF A PROFIT 
 
 171 
 
 TYPICAL NET PROFITS (ON SALES) 
 
 RETAIL Per cent 
 
 Cash grocery 3 to 5 
 
 Clothing stock (southern store) 4 
 Commissary and general store . 8 to 10 
 Dry goods store (small town) ... 10 to 12 
 Dry goods store (large city) .... 5 to 7 
 
 Furniture stock 18 
 
 Grocery 4 to 5 
 
 Hardware store (town of 5,000) . 12.5 
 Large department store (average 
 
 for seven years) 3.1 
 
 Mail order houses (average three 
 years; two of the largest con- 
 cerns; cost of doing business of 
 
 the largest, 15%) 6.8 
 
 Variety goods store 10 to 12 
 
 Variety goods bargain basement. 5 to 10 
 
 WHOLESALE 
 Wholesale cotton dress goods 
 
 concern 3 
 
 Wholesale grocery concern (cost 
 
 of doing business, 8%) 2 
 
 Wholesale shoe concern 4.5 
 
 MANUFACTURING 
 Cotton manufacturers (50 South 
 Carolina mills, on the capital) . 10 
 
 Cotton manufacturers (thirty- 
 year average, 100 English 
 companies, on the capital) .... 5.33 
 
 Packing concern (also sells at 
 wholesale) 2.5 
 
 Shoe manufacturer 5 
 
 TYPICAL LARGE DEPARTMENT 
 STORE GROSS PROFITS 
 
 Per cent 
 
 Art goods or needlework 28 
 
 Blankets, comforters, pillows, sheets, 
 
 etc 27 
 
 Cameras 26 
 
 China or glass ware 32 
 
 Clocks and watches 28 
 
 Colored dress goods 28 
 
 Harness 31 
 
 Infants' clothing 30 
 
 Leather goods 32 
 
 Linings 32 
 
 Neckwear (women's) 29 
 
 Notions 31 
 
 Trimmings 28 
 
 Upholstery 33 
 
 Wrappers 26 
 
 only necessary to keep clearly in mind what your per- 
 centages actually tie up with — sales or costs. This table 
 shows the difference between percentages on sales and 
 costs — marking up an article 50% of its cost price is 
 exactly the same as adding 33%% of its selling price: 
 
 Corresponding 
 Selling Price Expressed Cost Price 
 
 Percentages as Fractions Percentages 
 
 50 1/2 
 
 33 1/3 1/3 
 
 28 4/7 2/7 
 
 25 1/4 
 
 20 1/5 
 
 12% 1/8 
 
 10 1/10 
 
 1/1 100 
 
 1/2 50 
 
 2/5 40 
 
 1/3 33 1/3 
 
 1/4 25 
 
 1/7 14 2/7 
 
 1/9 111/9 
 
 Here is an example to illustrate these facts. Suppose 
 a merchant who finds it costs him 25% of his sales to do 
 business and wants a net profit equal to 10% of his sales,
 
 172 HOW MERCHANTS GET AHEAD 
 
 desires to secure a sound profit on an article which cost 
 him $10.00. He knows that the selling price represents 
 all, or 100%, of his income, and since the costs and 
 the profit amount to 35% of this, the cost — in Jiis case 
 $10.00 — can be nothing more or less than 65%. If $10.00 
 are 65% of the selling price of this particular article, 
 then 1% is 1/65 of $10.00 or $0.1538. If $0.1538 are 
 one hundredth, the entire selling price will then become 
 100X$0.1538, or $15.38. 
 
 But now consider that this merchant records his ex- 
 penses and net profits as percentages of the cost of his 
 stocks. He would find them to be 53%%. To get his 
 selling price on the same $10.00 item he would simply 
 add 53%% to it and get, as before, a selling price of 
 $15.38. But if — this is the nigger in the woodpile they 
 talk so much about — but if he became confused, took 
 the 35% selling price mark-up as a cost percentage, and 
 added only $3.50, he would get a. very unsound, ruinous 
 selling price — $13.50. This is the type of mistake re- 
 sponsible for the agitation about marking up on the sell- 
 ing price — quite evidently, one that is easily avoided. 
 
 BIG, easy-going profits were possible fifteen or twenty 
 years ago. But today it is necessary to build up 
 equivalent gains with a number of small profits. 
 
 This confusion of profit figuring methods, combined 
 with the variable nature of the factors that shape net 
 returns, makes the setting up of hard and fast standards 
 impossible. Recently the Philadelphia grocers cut prices 
 to a certain trade class eight per cent ; St. Louis retailers 
 at once declared that somebody had made a disastrous 
 mistake, since five per cent, in their opinion, measures 
 the average net gain on groceries. 
 
 Some believe that a $2.25 shoe retailed for $3.50 gives
 
 MAKING SURE OF A PROFIT 173 
 
 a good value,, still others regularly market a $3.00 shoe 
 for $5.00. One investigator reports finding that retail 
 distributive gross profits range from 24% to 35%; an- 
 other fixes upon from 9%% to 30%, with an average at 
 23%% ; and a third considers 33%% a fair average sell- 
 ing price mark-up for all lines, with normal costs be- 
 tween 22% and 26%, and reasonable net gains over 
 71/3%, but under liy 3 %. 
 
 Nevertheless, typical gross and net profits are valuable, 
 if for no other reason than that they point the fast 
 turning, narrow-margin lines. They fix just when to 
 stand up for ° profit. At least they show what the other 
 man is doing — mighty helpful knowledge, now that the 
 days of big, easy-going profits have faded. 
 
 There can be no doubt about this dwindling of profits. 
 In 1899 the average grocer marked up his stocks eighteen 
 or twenty per cent ; today twenty-five is more usual. 
 The By-Products Coke Corporation of Chicago finds 
 that rising costs, combined with other conditions, cut 
 its net profits exactly 2.42% during 1913. 
 
 This chapter brings together several hundred typical 
 profits. Since the low man usually sets the market's 
 price within his trade radius, it is well worth the time 
 to study these normal figures. But a sufficient array of 
 modifying restrictions has been brought forward to pre- 
 vent their receiving consideration as absolute standards. 
 The charts on pages 111, 120 and 161, collect and averagre 
 typical cost, discount and net profit figures. System's 
 investigators secured some of these facts, trade organiza- 
 tions worked out others, and a few only recently came 
 before congressional committees handling legislation 
 touching business. With all these typical profit facts 
 the percentages refer to selling prices. 
 
 Business is no stronger than the weakest function—*
 
 174 HOW MERCHANTS GET AHEAD 
 
 if these averages indicate waste motions in distribution, 
 this weakness will be felt all over the land. Distributors 
 already sense the danger — dwindling bank balances 
 supply exceedingly effective barometers. They first of 
 all turn to costs of doing business — find out exactly where 
 they stand. The next precaution is to prune these costs 
 to the lowest figures possible — for cutting off a bit from 
 the expense total means widening the profit margin. 
 And the profit margin supplies the wherewithal for 
 keeping up with rising costs. 
 
 Not until all of this is done can a business man turn 
 to consumers goaded to insistence by the high cost of liv- 
 ing and confidently say : ' ' The conditions start beyond 
 my control — I understand that it was up to me to help 
 myself out first, and without assistance from anyone, 
 without being forced to it, I've eliminated every false 
 motion, every waste — over and above these rock-bottom 
 costs of mine you've got to allow me to stand up for a 
 sound profit."
 
 XI 
 
 MORE TURNOVERS, 
 THE ANSWER TO HIGHER COSTS 
 
 TURNOVER is the measure of the work each dollar 
 in your business does for you. It is at once the 
 way to profits and a check on your results. The world's 
 largest manufacturing house in one line, for instance, 
 has all the brain-power of its organization concentrated 
 just now on an effort to do better than turn its capital 
 once in two years. Prices are so standardized in its 
 field that they literally can not be raised, though the 
 cost of doing business is constantly increasing. The 
 only way this company 's capital can make a living wage, 
 therefore, is to spend less time on each job — to make 
 quicker turnovers. 
 
 With this end in view, the management is trying 
 to cut down its ordinary supply of raw materials with- 
 out hampering production, to speed up factory processes 
 without adding expense, to carry smaller stocks of 
 finished goods without sacrificing sales, and to short- 
 cut collections without making payments too hard for 
 prospects or customers. In wholesaling and retailing 
 the same trend is evident. 
 
 Turn your capital oftener, then, is the answer heads of 
 concerns, large and small, are making to rising costs. 
 Money in a business must earn more than bank interest. 
 It buys raw material or stocks and pays running ex-
 
 176 HOW MERCHANTS GET AHEAD 
 
 penses. When costs rise with selling prices fixed, makers 
 and distributors must buy and sell on narrower margins 
 of profit. But turn stock quickly and the little profits, 
 totaled for a year, may equal or exceed a net gain 
 based on wider margins over a longer time. 
 
 Standards for judging just how hard other men have 
 made their capital work and the methods by which 
 they have made more turnovers, drawn from the capital 
 investment figures and the stock and sales reports of 
 more than seven hundred going concerns, are here as- 
 sembled. They are as important as any of the facts a 
 merchant should have in his struggle against rising 
 costs. 
 
 Rapid turnovers, for example, are today securing the 
 trade of a new five-story department store in a small 
 Indiana city for a less pretentious shop diagonally across 
 the street. Its quick turns allow the smaller store, 
 which is run by three brothers still in their thirties, to 
 make money on margins so narrow that it repeatedly 
 cuts under the prices set by the big rival's slow turn- 
 overs. The owners of the larger store, who bought their 
 first stock in 1850, know bankruptcy is ahead if rising 
 costs continue to mount into their dwindling profits. 
 Bewildered for the first time in sixty years, they are 
 fighting to save their sinking business. They have put in 
 an accurate cost-keeping system, purchased new fixtures, 
 and advertised heavily, still each January of the last 
 three years has seen them meet deficits by reducing the 
 savings set aside for their families. 
 
 The young brothers, also faced by rising costs, clearly 
 understand why they are winning — they divide the 
 high costs over many turns, a remedy for diminishing 
 profits perfected since their older rivals learned to 
 merchandise. These figures, which were taken from
 
 MORE TURNOVERS 
 
 177 
 
 Turnovers In Representative Stores 
 = One Turnover 
 
 FIGURE XVII: The circles vary in size roughly according to the rela- 
 tive net profits. When two sizes appear for the same line, the smaller 
 represents fractions of turnovers. This is also true of the chart on page 189 
 
 the books of the two stores during last October, epitomize 
 the situation : average stock, at cost, in the three brothers' 
 ready-to-wear section, which sells annually clothes worth 
 
 12
 
 178 HOW MERCHANTS GET AHEAD 
 
 about $145,670 at wholesale, $14,481 ; corresponding facts 
 from the big store — sales, $125,820 ; stock, $24,899. Since 
 they are securing twice as many turnovers, the brothers 
 make money on mark-ups which would not pay the larger 
 store a cent. 
 
 ' ' Quick sales at small profits is the modern idea, ' ' the 
 elder of these three brothers says. ' ' My brothers and I 
 got our training under one of the most successful mer- 
 chants in New England. Then we came west to try 
 out his methods. We picked this city because the 
 heaviest competition is controlled by two elderly men 
 who learned the business in the days when the jobbers 
 regularly gave six months' credit, and the retailers four 
 or six. Theirs is the old idea — selling slow, at a good 
 profit. We have in mind the Greek banana man who 
 puts his money into fruit in the morning and has it back 
 again by night, plus two or three per cent net profit. 
 He makes over six hundred per cent on his capital 
 annually, if he is out every working day. 
 
 "We succeed in turning our money seven times a year 
 now. I don't believe our rivals do better than three. 
 We are quite satisfied with five per cent net on a turn — 
 or thirty-five on our investment in stock. They have 
 to net over eleven per cent in order to equal our showing 
 at the end of the year. We believe that it is better to get 
 three sales at five per cent net, as long as you cover your 
 costs, than it is to make one at ten. We build our big 
 profit from a number of little profits — I think it's some- 
 what like carrying into merchandising a saying of 
 Franklin 's which father made me learn by heart : ' Five 
 shillings turned is six, turned again is seven and three 
 pence, and so on till it becomes a hundred pounds.' : 
 
 These ideas and methods are not unique. In prac- 
 tically every city and town some retailer or wholesaler
 
 MORE TURNOVERS 179 
 
 is using them to overcome competition and master rising 
 costs. In Logansport, Indiana, for example, H. S. Sey- 
 boid, of the Seyboid Dry Goods Company, cut $5,000 
 from his linoleum inventory and handled more sales. In 
 Columbus, Indiana, A. R. Rosenbush reduced his hat 
 stock over $800 and satisfactorily cared for his usual 
 trade. Numerous like instances show that shrewd mer- 
 chandising on small stocks is enabling distributors to 
 pay rising costs profitably. 
 
 MORE turnovers enable you to meet rising costs and 
 new competition. They also secure absolute savings 
 of several sorts but must be based on sound profits. 
 
 In much the same manner automatic machinery, new 
 office appliances and scientific management have helped 
 manufacturers and office men turn their capital quicker. 
 When management finds a better way for handling men, 
 money invested in wages yields higher returns; when 
 an inventor perfects an office appliance that shortens 
 tasks, again capital may be placed more advantageously ; 
 and when an automatic machine cuts factory work, the 
 money spent for it gives larger dividends than resulted 
 before the invention. More turnovers come from these 
 advances, bringing new profits for meeting rising costs. 
 Net gains nevertheless diminish in many industries be- 
 cause costs increase faster than the gross profits. Of 
 course, the large sales volumes of today, when they pro- 
 portionately lessen expenses, also make it possible for 
 manufacturers and distributors to declare satisfactory 
 dividends on lower net returns. But increasing the stock 
 turn, usually a far more adaptable means, accomplishes 
 the same object — higher profits with no advance in price. 
 
 If, then, more turnovers is the business man's answer 
 to rising costs, why have they been neglected ? It is not
 
 180 HOW MERCHANTS GET AHEAD 
 
 difficult to explain. More than ordinary knowledge is 
 required to secure a rapid stock turn and it has taken 
 time for merchants to learn. Some got the knack quickly 
 — our largest department stores, prospering on rapid 
 turns at exceedingly narrow profit margins, resulted. 
 The majority, however, saw no need for careful mer- 
 chandising, since profits were long and costs low. But 
 the rise in costs which has marked the last ten years — 
 over three per cent in retail lines — forced them to either 
 learn or go out of business. "When profits were generous, 
 competition scattered, credits long, and transportation 
 slow, it was safe, or even necessary, to buy a year or six 
 months ahead. Today, following the rise in costs, mar- 
 gins are not generous enough to allow the holding of 
 profits on the shelves in merchandise. The hand-to- 
 mouth buying which results when failure is avoided, 
 demands a careful gauging of demand and a compre- 
 hensive stock-keeping system. Since these restrictions 
 set no easy task, the commercial agencies tell us that 
 ninety per cent of the retailers in America over-buy. 
 Further, the reports of retail failures from the three 
 causes which reflect the severity of the work — incom- 
 petence, neglect and inexperience — grow heavier: 33.3 
 per cent of all the bankruptcies in 1911, 36.8 in 1912. 
 This situation is of importance to all business, for it 
 touches the profits of every enterprise. The happiness 
 and prosperity of the homes are concerned, since over- 
 the-counter prices must finally pay the cost of disasters 
 in the factories and stores. To improve conditions 
 enough to overcome the reduction in net profits, it is 
 necessary that the merchants be given two types of 
 assistance in their fight against rising costs and tighten- 
 ing competition — first, national standards against which
 
 MORE TURNOVERS 181 
 
 to cheek their stock turns; second, tested methods for 
 speeding up the rates of turnover. 
 
 National stock turn averages from over seven hundred 
 American stores have been figured from System's in- 
 vestigations to give the averages for the ten standard 
 types shown in the following list. The turnovers are 
 for the complete stocks and have no reference to either 
 the character or the number of the lines carried. 
 
 Average Number of 
 Turnovers Obtained 
 Type of Store Annually 
 
 Grocery 10 
 
 Department 7 
 
 Variety goods 6 
 
 Drug 4.5 
 
 Dry goods 4 
 
 Hardware 3.5 
 
 Furniture 3 
 
 Shoe 2.1 
 
 Clothing 2 
 
 Jewelry 1.5 
 
 From the books of several hundred stores carrying 
 departmentalized stocks averages for twelve standard 
 lines were obtained as shown below. 
 
 Average Number of 
 Turno'vers Obtained 
 Line Annually 
 
 Notions 9 
 
 Corsets 8 
 
 Women 's ready-to-wear 6 
 
 Wall paper 4.2 
 
 Men 's furnishings 4.2 
 
 Underwear 4.1 
 
 Hosiery 4 
 
 Gloves 3.5 
 
 Dress goods 3.2 
 
 Silks 3.1 
 
 Domestics 3 
 
 Carpets 1.5 
 
 These average turnovers are for typical lines and bear 
 no relation to the turns normally obtained through com- 
 plete store stocks.
 
 182 HOW MERCHANTS GET AHEAD 
 
 "With these averages to check against, retailers are in 
 a position to decide if their stock turns rank above or 
 below the results secured in other stores. Turns are 
 easily figured by dividing the sales for any period, at 
 cost, by the cost of the average stock on hand during 
 the period. Once he has secured turnover and cost 
 figures for his store, it is not difficult for the retailer 
 to demonstrate the added profit which an extra turn 
 will bring. The net gains climb when the expenses are 
 cut, the turnovers increased, the totals owing from cus- 
 tomers reduced, or the gross profits lengthened. As soon 
 as larger stocks accumulate, customers neglect to pay, 
 or expenses increase, the net profits dwindle. To show 
 these conditions, it is only necessary to express the cus- 
 tomers' balances and the stocks as equal to so many 
 average days' sales. Your sales, at cost, reach $360,000 
 a year, or $1,000 a day, let us suppose. Then, if your 
 average stock costs $30,000, it equals thirty days' sales, 
 and the total due from customers, fifteen days', if we 
 take it as $15,000. Also, if your gross profit is twenty- 
 five per cent and your cost of doing business twenty, 
 the net profit for the period will equal the difference 
 between these two percentages divided by the sum of 
 the stock and the customers' accounts due, expressed in 
 days, and multiplied by 360. Or, in figures : 
 
 25 20 
 
 Net profit on your capital for the year = qqiic x 360, 
 
 or 40%. 
 
 If the stock is increased to a sixty days' supply, 
 
 the turnover lessens, and the net profit at once falls : 
 
 25 20 
 
 Net profit on your capital for the year = „.,.. x 360, 
 
 or 24%. i ~ 
 
 But if you buy closer and push the goods on the shelves
 
 MORE TURNOVERS 1S3 
 
 down to a fifteen days' stock, the increased turnover 
 
 carries the net profit upward : 
 
 25 20 
 
 Net profit on your capital for the year — x 360, 
 
 or 60%. 15+1 ° 
 
 Although these relations of profits to turnovers are 
 universal, individual conditions vary the number of 
 turns secured in specific stores. The standards given in 
 this chapter therefore require modification when local 
 influences are unusual. The turns obtained in a large 
 department store and in a country general store will 
 differ because of the heavy buying power touched by the 
 city store and its managers' skill. The turnover aver- 
 ages which follow are from several large department 
 stores and a score or more departmentalized concerns in 
 country districts: 
 
 Number of Turns Obtained 
 
 Annually: 
 City Depart- Country Gen- 
 Stock ment Stores eral Stores 
 
 Books 4 1.5 
 
 Candy 15 9 
 
 Clocks 2.5 1 
 
 Embroideries 3.5 3 
 
 Furs 5 3 
 
 Infants' clothing 5 3 
 
 Laces 4 2 
 
 Linens 3.5 2 
 
 Men 's hats 7 4 
 
 Pianos 9 4 
 
 Ribbons 6 ■ 2 
 
 Stationery 5 2 
 
 Umbrellas and canes 11 3 
 
 Trunks 5 1.5 
 
 Veilings 5.5 2 
 
 Wash goods and flannels.. 5 3.2 
 
 The National Dry Goods Association has collected 
 still another group of turnover facts which refers exclu- 
 sively to the dry goods trade. This set of figures is
 
 184 HOW MERCHANTS GET AHEAD 
 
 given below and should be considered under the re- 
 strictions mentioned on page 14 in connection with 
 related statistics: 
 
 Average Number of 
 Turnovers Obtained 
 
 Line • Annually 
 
 Candy 13.27 
 
 Skirts and petticoats 7.22 
 
 Millinery 6.63 
 
 Coats, suits and dresses 5.5 
 
 Stoves, refrigerators and cookers 5.45 
 
 Shirtwaists 5.14 
 
 Patterns 5.05 
 
 Furs 4.55 
 
 Children 's wear 4.45 
 
 Corsets 4.43 
 
 Toys and books 4.42 
 
 Umbrellas 4.38 
 
 Sewing machines 4.37 
 
 Neckwear and handkerchiefs 4.26 
 
 Wash goods 4.17 
 
 Notions 3.97 
 
 Linings 3.77 
 
 White goods 3.76 
 
 Hosiery 3.65 
 
 Furniture 3.65 
 
 Jewelry, toilet goods, bags and belts 3.45 
 
 Linens 3.4 
 
 Trunks and bags 3.39 
 
 Hair goods 3.22 
 
 Muslin underwear 3.20 
 
 Table linen and towels 3.09 
 
 Eibbons 3.01 
 
 Gloves and veilings 2.96 
 
 Silks 2.91 
 
 Dress goods 2.9 
 
 Knit underwear 2.89 
 
 Wall paper and decorations 2.88 
 
 Men 's furnishings 2.73 
 
 Boys ' clothing 2.56 
 
 Men 's clothing 2.53 
 
 Laces 2.50 
 
 Infants ' wear 2.41 
 
 Art goods and needlework 2.34 
 
 Embroideries and trimmings 2.26 
 
 Hugs, carpets and linoleums 2.18 
 
 Shoes and rubbers 2.18 
 
 China, glass and house furnishings 2.03-
 
 MORE TURNOVERS 185 
 
 There are variations as marked in the number of turns 
 obtained by stores selling single lines. The average turn- 
 over made by the groceries investigated was ten, but 
 before competition tightened, John Harvey, vice-presi- 
 dent of the Kansas Retailers' Association, handled sales 
 averaging $100 a day with a two-thousand-dollar stock. 
 Many a grocer is today carrying a stock equal to Mr. 
 Harvey's for a fifty-dollar-a-day trade. Again, one of 
 the largest concerns in Boston is making eighteen turns 
 a year in its women 's ready-to-wear sections — a Chicago 
 store reporting an equal volume of sales fails to make 
 fourteen turns in the corresponding departments. 
 
 FIVE methods of quickening tvrns are here described. 
 It is by plans such as these that success comes, 
 for faster turns enable the merchant to fight harder. 
 
 Investigations among drug stores set 4.5 as the national 
 annual rate of turnover for the line. Nevertheless, one 
 store in Chicago makes a turnover every twenty 
 business days, and another, a few blocks down the same 
 street, counts seventy days to a turn. Naturally, stores 
 in cities report quicker turns than those near demands 
 less dense, but expenses are usually lower outside of the 
 urban sections. Even though they average similar varia- 
 tions, the standards here given enable retailers to check 
 up their turns in a general way and to place 
 their stocks in relation with other lines. When the stand- 
 ards are studied in connection with the charts on pages 
 177 and 189, which show rates of turnovers and costs, 
 it is possible to pick the lines that should rightfully pay 
 the heaviest expenses. 
 
 With such average turnover records available, it is not 
 difficult intelligently to try out methods used by others 
 for speeding up stock turns. Investigation of the mer-
 
 186 HOW MERCHANTS GET AHEAD 
 
 chandising plans successfully used by merchants in five 
 states shows that they are getting more turns in four 
 ways: locating lines which move rapidly; weeding out 
 the slow lines; setting stock limits; concentrating pur- 
 chases with a few manufacturers or wholesalers. Some 
 of these merchants are using only one or two of these 
 methods, others all of them, but not one has discovered 
 and tested a fifth plan. 
 
 The first method for obtaining more turnovers — locat- 
 ing the lines which turn quickly — is, according to one of 
 the most successful merchants in New England, at the 
 foundation of good merchandising. Still President Me- 
 Glasson of the National "Wholesale Grocers' Association 
 says that when he asks retailers merely how much stock 
 they have, without reference to the turns secured by 
 lines, many reply, ' ' Oh, I don 't know. ' ' Locating the fast 
 turning lines only requires that stock be taken frequently 
 and the inventories compared with sales recorded by 
 lines. Once the fast turning, profitable lines are known, 
 they are pushed and the stock on the shelves cut to the 
 lowest limit. The quicker the stocks in these lines change, 
 the simpler it is definitely to satisfy customers and to 
 merchandise on a small investment. Manufacturers fre- 
 quently maintain in-stock departments for their fast 
 turning lines, and thereby enable retailers to buy day- 
 to-day supplies. 
 
 1 ' We would not know where we were coming out if we 
 didn't find the lines which turn quickly," declares a 
 middle-western retailer who has made money out of 
 hardware for thirty-two years. "Turnover and volume 
 are in a way more important than profit — the success 
 of K. H. Maeey and Company in New York proves my 
 statement. We — or anybody else, for that matter — could 
 make money by selling everything on the shelves over-
 
 MORE TURNOVERS 187 
 
 #■ ■ — — — -__ . _____ 
 
 night for three-fourths of the cost, if the next morning 
 we could buy at full price what we knew was wanted. 
 The fast turning lines are the wanted lines. If you 
 know them, you have the makings of a good merchandiser 
 — and a good merchandiser will succeed, even if he is 
 a poor buyer. We simply keep our sales and inventories 
 by lines. It helps at inventory time if the retail prices 
 are put on each invoice." 
 
 The second plan for increasing turnovers is to weed 
 out the lines which move slowly. Once the fast turning 
 stocks are tabulated, the less profitable lines immediately 
 become evident. If these slow goods will not stand 
 heavier mark-ups than the rapid lines, they are usually 
 unworthy of shelf room. Eliminating unprofitable lines 
 overcomes a cause of retail failure mentioned by 84 per 
 cent of the successful merchants reached by the investi- 
 gation in four states — carrying too many lines. There 
 are many lines which do not turn fast enough to warrant 
 the retailer's investment, for depreciation gradually eats 
 up the slender profit margins they offer. A huge sales 
 volume might be built around these lines, and not a 
 penny of net profit result. The stores which frequently 
 go under when all is apparently prosperous are making 
 this type of sales — their owners have not weeded out 
 the slow lines. 
 
 A jeweler who built a business given up by his father 
 as worthless into a going concern netting him five thou- 
 sand dollars a year, has definite views about this danger 
 springing from slow turning lines. "If you don't know 
 the weak lines, you're bound to hold stocks from season 
 to season, and that's the shortest road to failure," he 
 says. "It's all very well to have a bargain sale or call 
 a job man or start a bargain store under your uncle's 
 name, but it is much more profitable to know the stickers
 
 188 HOW MERCHANTS GET AHEAD ■ 
 
 ahead of time. Then you can go easy on weak lines; or, 
 if you do get caught, persuade the clerks to help you with 
 extra efforts before it is necessary to take mark-downs. 
 ' ' Don 't stop at merely knowing the turns by lines, but 
 know the goods. How many men who sell them every 
 day know how clothespins are made ? Close acquaintance 
 with your stock will probably enable you to widen your 
 appeal to customers by selecting new lines — and to do so 
 brings new profits. When you get that sort of a grip 
 on your stocks it's only a question of stock-keeping to 
 weed out profitless lines. Once you get the rapid turn- 
 ing lines going well, you will be in a position to aim for 
 big gross sales and less profit — that is the type of busi- 
 ness which makes money. I sell a certain novelty pin, 
 for instance, from a ten-dollar stock, by re-ordering 
 daily. I don't invest more than twenty dollars at a 
 time and I turn it twice a week at three per cent net on 
 each turnover. My friend down the street sells at a 
 twenty per cent net profit a farm implement which cost 
 him one hundred dollars. It took him six months to 
 make the sale. Against his forty per cent — counting 
 that he repeats the sale in a like time — I make three hun- 
 dred and twelve per cent on the investment and have 
 eighty dollars less tied up. That eighty I put into 
 other fast lines." 
 
 CLOSE buying, from a restricted number of sources, 
 with a careful eye to the stockkeeping standards of 
 your line, is the reply to tht problem of rising costs. 
 
 Third among the tested methods used by the mer- 
 chants working in four states for rapid turns are definite 
 stock limits and plans. The best way to prevent over- 
 buying, in the opinion of these merchants, is to fix the 
 lowest stock which will satisfy demand and then place
 
 MORE TURNOVERS 
 
 189 
 
 Turnovers In Representative Lines 
 
 5=One Turnover 
 
 FIGURE XV III: To -pull what is considered a fair profit for the lines 
 and stores up the grade of the cost of doing business or making sales 
 requires on the average the number of turnovers here represented by circles 
 
 orders accordingly. This, again, is a stock-keeping prob- 
 lem. Sales and purchases kept by lines give turnovers. 
 From several years' records of turnovers, sales and pur-
 
 190 HOW MERCHANTS GET AHEAD 
 
 chases are next estimated three, or even six, months 
 ahead. A reasonable increase in sales is figured and 
 leeway left so that attractive "snaps" may be purchased. 
 It is then possible to hold the stock to limits fixed by 
 weekly, monthly and semi-annual reports. The facts 
 for these reports are taken directly from the sales slips 
 and account books. 
 
 A system of this nature is maintained in the store of 
 every one of the successful merchants whose methods 
 were investigated. Some of the stores have elaborate 
 records, others only a cash book and a few cards for 
 recording sales and inventories. They all, however, 
 know limits beyond which it is unsafe to buy. 
 This overcomes the constant temptation to buy for 
 a discount, to let the stocks grow faster than the turns, 
 or to allow the buying to get ahead of the selling. The 
 investments in stocks are automatically held to profitable 
 figures, the orders restricted to small quantities, and the 
 fast turning lines pushed. In these stores new stock is 
 arriving every day — fresh goods which the salesmen like 
 to handle — and very little of the profit is on the shelves. 
 
 There is one danger in buying too close, however. An 
 Iowa variety store owner, who averages eight turnovers 
 a year, mentioned it specifically, although the ma- 
 jority of the merchants seen by the investigators 
 referred to it. "Your profits are in buying close," he 
 said, "but you are tempted to cut down your assort- 
 ments, and that costs trade. Butler Brothers, the whole- 
 sale house, tell me that all of the failures reported to 
 them in my line during the last thirty-five years were 
 caused either by too much stock or too few lines. So 
 we are between fires. There is only one object, however 
 — to get what the customers want, in the quantity they 
 need, at prices they are willing to pay. I find that a
 
 MORE TURNOVERS 191 
 
 want book and a simple perpetual inventory increased 
 the turns in one of my departments from one to four 
 and a half. I keep four daily records — charge and cash 
 sales by departments or divisions of merchandise: daily 
 sales by clerks ; money due from customers ; and money 
 owed by me and my bank balance — and six monthly rec- 
 ords — clerks' wages and sales; charge and cash sales by 
 departments or divisions of merchandise; net profits; 
 expenses ; inventories ; and notes outstanding. 
 
 ' ' But, after all, records are valueless unless you learn 
 to say no, when you're properly stocked, to the type of 
 salesman who talks about sales prospects, loads you up 
 with more than you need, and then helps out your rival 
 when you can't buy any more. My advice is to be as 
 careful about the buying as you were the first year in 
 business and to care for it yourself as long as your time 
 is not exceedingly valuable doing something else." 
 
 The fourth method for obtaining more turnovers is to 
 concentrate the buying with a few wholesalers or manu- 
 facturers. To do so is helpful in two specific ways. 
 First, there is less danger to the retailer of over-buying" 
 through duplication, and bookkeeping troubles are 
 reduced. Second, the manufacturer or wholesaler is 
 naturally unusually interested in the retailers who buy 
 heavily from him. Especially in lines where style 
 changes are important, cooperation between the retailer 
 and the manufacturer is valuable to both. The style 
 points which the manufacturer is able to supply help to 
 increase over-the-counter sales when passed on to the 
 retail selling forces. Small stores are assisted in their 
 buying, and guarded from over-stocking, by the manu- 
 facturers' or the wholesalers' salesmen, when the orders 
 are large. On the other hand, most traveling salesmen 
 attempt to over-load the man who unnecessarily scatters
 
 192 HOW MERCHANTS GET AHEAD 
 
 his buying. Furthermore, the best "snaps," and the 
 most favorable service, go to the retailer who has con- 
 centrated his buying. 
 
 Standards against which to check the times invested 
 capital should turn, and plans like these tested methods 
 for handling stocks, supply more turnovers — the business 
 man's answer to mounting costs — not only to the retailer, 
 but to all business. In office and factory the stocks are not 
 usually retailed. Still they respond to improved meth- 
 ods for getting more from business investments. Stand- 
 ards for office work are being established, and turnover 
 averages in some manufacturing industries are already 
 known. Alex. Legge, general manager of the Interna- 
 tional Harvester Company, has called the attention of 
 his men to the increased turnover which will result from 
 holding dow r n the materials on hand, the goods on dis- 
 play, and the credits extended to customers. His 
 immense organization is faced by increasing costs — so 
 are most enterprises; the effects and results of efforts 
 to meet these higher expenses will influence makers and 
 distributors alike. When the retailer buys in smaller 
 lots, wholesalers must ship with greater frequency. 
 Manufacturers, in their turn, establish in-stock depart- 
 ments or supply the jobbers with smaller units. In 
 other words, the broad answer to rising costs prescribes, 
 first, strong cooperation between the makers and the dis- 
 tributors; second, an earnest spirit among enterprises 
 to help one another make money yield larger returns 
 by turning it more rapidly.
 
 
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