.ilM.tJ liiil: 'lii iJl'llI'lll'lllllHllIIIIIIllUllMl-)' Cornell University Library HF 5429.S4 A business barometer for retailers 3 1924 013 885 771 NORTHWESTERN UNIVERSITY SCHOOL OF COMMERCE i the bureau of Business research Horace Secrist, director SERIES II NUMBER 3 A BUSINESS BAROMETER FOR RETAILERS BY HORACE SECRIST, PH.D. PRICE FIFTY CENTS CHICAGO, ILLINOIS 1922 CJ Copyright 19S3 NOETHWESTEBN TTNIVERSITY SCBOOL OF COMMERCE BUHEAU OF BUSINESS RESEABCH HnU (50UB90 of J^griculture m flfntncU IntnetBttj} 3t^ara, N. f . Sjtbrarji A Business Barometer for Retailers THE services and profits of retail- ers are subject to a variety of uncertainties and contingencies. For convenience, they may be classified under two headings: Those which have to do with the problems of the future and those which pertain to the condi- tions of operation in the present. Ee- tailers like other business men are "speculators." That is, on the basis of their knowledge, their beliefs, "hunches," etc., they attempt to fore- tell as nearly as possible what the future has in store for them as a result of the conditions which they themselves may determine and from others over which they have no control, and to guess at the conditions under which their competitors are doing business. The retailer's service and his profit, so far as the future is concerned, de- pend, among other things, upon the prices which he has to pay for the services, supplies and materials which he uses and sells; upon the availability of credit; they depend upon the mar- kets which are open to him; upon his customers' whims, fancies and psycho- logical reactions ; and upon other haz- ards to which he is subjected. More- over, they depend upon his costs of operation. Some of these are fixed by forces beyond his control, others depend upon his business judgment and man- agement. It is his particular function to distinguish between them. The un- certainties of the future are ever present in every phase of human activity. Prevision is a capacity de- voutly to be cultivated. There is some satisfaction in knowing that progress is being made in forecasting and deter- mining the business future and of dis- counting the conditions in advance. But there are uncertainties beyond those which have to do with the future by which the retailer is confronted. He is uncertain as to the conditions under which his competitors are operating; as to standards by which he may judge his own operating efficiency, as to the amount of his profit, etc. Indeed, not infrequently he has been uncertain as to whether he had a profit at all. If the uncertainties which surround the retailer's profits be summarized, they might be grouped under the fol- lowing headings: First, those which have to do with his securing goods in the quantities desired, at the time most appropriate, and of qualities suitable to the tastes of his customers. Second, those with respect to the proper way to display his merchandise so as to satisfy present demand and create new demand. Third, those affecting his ex- penses and their distribution. In disposing of his goods, the re- tailer is often in doubt as to the rea- sonableness of his own expenses and their relationship to those of his com- petitors. What is said below about a barometer for retailers bears specifically upon such doubts and speculations. c,l .^ Ohaft I REMTIOH OP PURCHASES TO SALES FOR STORES OF WPEEREMT SIZE ■ ! • / Veara ClasBlflad Total Net Sales (la ooo'b) Humber of Store- yeara purcbAses per $100 of Total Net Salea far Cent Average ^Imount 9 sjs ^ fs 190 AmoTuta for 50^ of the stores fell between »lthln a ran^e of 1919, 1918j 1914, combined Total 941 $72.05 $64.86 and $79.37 $14.51 i Ohder $40 $40 to $80 $80 to $180 $180 & over 295 345 220 80 75,64 74.26 71.04 'i'0.48 65,11 and 82.20 65.51 and 79.86 64.42 and 78.11 63.31 and 76.58 17.09 14.33 13.69 13.27 ^^^^^M^^^ : 1914 Total 209 73.34 66.84 aM 61.86 15.02 Itader $40 $40 to $80 $80 to $180 $180 & over 109 65 29 6 77.22 74.40 71.43 69.42 €7^7 and 85.28 . 68.75 and 80.45 65.00 atd 79.58 58i75 and 77.50 18.21 11.70 14.58 18.75 : : Bur. of Bug. Rea. - -Jlortliweateru Univ. Averagea So far as my knowledge goes, there is but one fundamental way by which retailers and others as a class may re- move the uncertainties associated with competitive effort, arrive at standards of operation against which they may judge the relative efficiency of their business methods and be guaranteed a reasonable and competitive profit. This involves first, an analysis of mass in- formation, in order to determine underlying business facts and princi- ples, and second, merchandising in the light of such principles. The first re- quires group diagnosis; the second, a study of individual store methods. By "mass information" is meant informa- tion of similar character, standardized in form and growing out of the experi- ence of groups similarly situated and rendering similar service. Behind in- dividual business operations, as re- flected in individual accounts, there are master facts, common to an industry, trade, or economic service. Analysis of group data will reveal them. They then become norms or standards against which individual business operations may be measured, appraised and their economic justification determined. A recent writer has said that, in a half-century of experience of a society of chartered accountants, not a single fundamental economic principle has been determined. His explanation of this astounding fact is that attention has been too much focused upon in- dividual business operations and experi- ences and not enough upon the underly- ing principles of which these are but tangible expressions. And yet, he adds, it is only in the hands of accountants that the necessary information for determining such truths faU and it is only by the use of statistical methods that they may be determined. It is but recently that trade associations have come to the realization that mass ex- perience is of a different character and in many instances more fundamental than individual experience, and that after all, under our competitive system, relative methods and business activities are the things which in the last instance are most significant. eiikrt tl REIAIIOU OP mVEKIORV 10 SAIES FOB STORES OF DJFFEREHI SIZE Xeers Classified Total net Seles (In 000' 8 ) Nujntier of Store- years Inventory per SlOO of Total Ket Sales Average Amount 66 75 100 1£S _l 1 I I Amounts foi* 50^ of tlie stores fell within a range ;f Total $38.00 f>:2.59 and 0S6.44 iss.es 1919, 1918, 1914, combined Under C40 (40 to See .$80. to $160 J180 & over SS5 218 78 64,97 45.74 39,24 27.24 41.55 and 68.33 34.46 and 55.31 30.10 and 47.36 22.35 and 34.91 27.28 .^20.85 17.26 12.56 Total 43.37 36.36 and 60.42 24.06 1914 Under 440 t40 to C80 CSO to C180 1^180 tt over 118 71 32 6 55.52 44,67 38,96 30.97 42.09 and 68.28 34.12 and 55.38 32.05 and 47.75 25.83 and 37.50 26. IS 21.26 15,70 11.67 Bur. fiuB. Res. Northwestern Univ. Averages It has been the good fortune of the Bureau of Business Research of North- western University, through the courtesy of the members of the National Association of Retail Clothiers, to have had placed at its disposal during the last two years, a great mass of business data drawn from a single retail field. These data have been subjected to a scientific analysis for the purposes of discovering the master facts behind the individual facts in this important field, and of expressing them as principles or fundamental tendencies. It is these master facts or principles which are discussed imder the heading, "A Busi- ness Barometer for Retailers." RATES OF Chart III CAPITAL AND STOCK TURNOVER FOR STORES OP DIPPERENI SIZE, 1919 Turnover Class Itlad Total Not SaloB (In coo's) Number of Stores Rates of Turnover* 1919 far Cent Actual 25 SO 78 100 125 Rates for 50^ of the stores fell between within a range of Capital Total 138 3.4 2.2 and 3.8 1.6 \ Under }4o i40 to $80 S.80 to J180 viiao a; over 82 SS 36 Zi 2.0 2.5 2.9 4.4 1.5 and 2.9 2.1 aid 3.3 2.5 and S.S 3.4 and 5.1 1.4 1.2 1.0 1.7 stock Total 314 2.1 1.5 and 2.6 1.1 Ondor v40 i40 to ;.80 iBo to iiao ISO & ovgr 46 1S5 101 45 1.4 J..O 1.9 2.7 1.2 and 2.3 1.4 snd 2.4 1.6 am 2.6 2.2 and 3.3 1.1 1.0 1.0 1.1 tJiar. Bus. h Nortiuvester 33. 1 unlv. Averages And what is meant by a barometer? A barometer as currently understood is a device or measure for indicating rela- tive position or change. It may be with respect to time, to place, or business activity. The most familiar barometers, undoubtedly, are those which are being constructed by business and other agencies for measuring industrial ac- tivity and business conditions generally. They have to do with banking, specula- tive and production data and aim to indicate or forecast business conditions. Barometric data now crowd our business and statistical publications, and "serv- ices" of a variety of types are clamor- ing for recognition. Work of this char- acter when undertaken scientifically, has great possibilities for business men, and it cannot too strongly be urged that such services be expanded and per- fected. But to be of the greatest value they must be intelligently adapted to particular business problems. Prophesy in business, as in other fields, is a haz- ardous undertaking and such services should not be taken as unmistakable guides to the changes of the future. After all, the business future is de- pendent in large measure upon the activities of the business present, and this to an extent not yet fully realized may be controlled. It is the business present which is being discussed. Chart IV RELATIOll OP REHT TO lOTAl HET SAlEa'POR STORES OP BIPFEREKT SIZE Years Classified Total Net Sales (in OOO's) Nuniber of St ore - years Rent per $100 of Total Met Sales Average Per Cent Amount 25 SO 75 100 Expenditures for 50^ of the stores fell betv/een within a ranee of 1919, 1918, 1914, combined Total 981 i2.E4 ! il.63 and $3.66 1.93 tinder 540 $40 to S80 S80 to $180 $180 & over 308 362 227 84 3.02 2. ,63 2.78 2.41 1.84 and 3.74 1.51 and 3.35 1.65 and 3.54 1.40 and 3.63 1.90 1.84 1.99 2.43 1914 Total 229 3.57 2, S3 and 4.45 2.22 Under $40 $40 to $80 $80 to 3180 $180 4 over 116 75 32 6 3.40 3 58 3.84 3 33 2.28 and 5.31 2.09 and 4.50 2 53 and 4.69 2. 98 and 6.25 2.03 2.41 2 16 3.37 Averages Bur. Bus. Rea. Northwestern Univ Let us for a moment consider the idea of a barometer which indicates at a single time the relative positions occupied by different retail units in the matter of purchases, inventories, stock turnover, and expense distribution. If it is reasonable to characterize by a horizontal concept a barometer and a forecaster which are addressed to the future, it is equally sound, for purposes of analogy, to think of a barometer which refers to a cross section of in- dustry or trade by a vertical concept. From the latter point of view, how do retail merchants in the competitive task of rendering reasonable service for rea- sonable profits stand relatively one to the other? What positions do they occupy on different competitive levels, and by what principles are their costs of selling governed in passing from level to level.'' It is believed that by the study of mass experience in any field, it is possible to determine facts of this type, and to formulate, within a small margin of error, the laws by which business units of different size, location and operating conditions are governed. Indeed, on a basis of mass information, much of the uncertainty which now is associated with competi- tive business may be removed, and un- derlying principles and tendencies be reduced to quantitative expressions and made tangible guides for merchandising and business methods. That is, a busi- ness barometer may be constructed. Such an -one is now available for one class of retailers. To illustrate the nature of the barom- eter, certain retail data are presented from two points of view. First, when the size of the store is taken as a variable, and second, when for a given group of stores — treated as identical in than size and the operating conditions si^c — ^the conditions of operation vary, discussed help to determine business re- in presenting the data in this form, the suits. They, however, may be ignored fact is not forgotten that factors other for present purposes. CBart V RELATION OP REHT TO SAISS POR. STORES OP DaTERElII SI!E, eUSSIPIED K SIZE OP OITX. 1919 size or city Classified Total Hot Sales (in OOO's) Number of Stores Bent per 8100 of Total JTet Sales '| Average Amount Per £ent 1 2p 6,0 lp IIJO 1?5 156 175 2p0 Expenditures for 50^ of f the stores fell - 1 between within a ranee of Total Total 393 $2,20 $1.32 and W2.76 tl.44 Dhdor C40 ^40 to ^0 SSO to 4180 Sieo S: over 68 162 121 52 2.34 2.14 2.23 2.19 l.ei and 2.88 1.28 and 2.57 1.32 and 2.83 1.33 and 3.39 1.S7 1.29 l.Sl 2.06 Under 40,000 Total £95 1.74 1.24 end 2.25 1.01 Itoder 4-40 S40 to ^ 5SQ to tl80 iieo & over 6^ 133 84 15 2.17 1.80 1.71 1.51 1.46 and 2.63 1.23 and 2.25 1.17 and 2.14 1.17 and 1.90 1.17 1.02 0.97 0.7S 40,000 and over Total 98 2.68 2.17 and 4.33 2.16 Under diO i40 to $80 480 to 5180 $180 £c over S 19 57 37 4.66 4.29 3.39 2.34 2.76 and 6.75 2.70 end 6.60 2.44 and 4.10 1.63 and 3.92 4.00 3.80 1.66 . 2.29 . GUI'. Bua. R Northweeter ea. n Unlv Average In order to get a sufficient period of time through which to observe underly- ing trade and expense tendencies, where store size has been taken as the variable, the period 1914, 1918 and 1919, com- ibined, has been used, wherever possible, and in contrast to it the conditions obtaining in 1914 — a year which in many respects was not unlike 1921 — are also given. Creographical differ- ences have been merged not because they are unimportant, but because they cannot be discussed in this paper. With the exception of stock turnover, all amounts are expressed in terms of net sales in hundreds, that is, as percents. Moreover, the limits within which 50 per cent of the instances (stores) fall, as well as the range covered within these limits, are also supplied. If Charts I to VIII and Table I are summarized, it may be concluded that as stores increase in size, purchases per $100 of total net sales decrease; inventories per $100 total net sales de- crease; stock turnover and "capital"* *Capital turnover is secured by divid- ing yearly net sales by the average of ,'the inventories at the beginning and at the close of the year. turnover increase; rent per $100 of total net sales, when stores are classified by location, decreases; wages and sal- aries per $100 total net sales increase; advertising per $100 total net sales increases; and total operating ex- penses per $100 of total net sales increase. RELATIOH Chart VI OP V.'AOSS ADD SALARIES TO TOTAL HET SALES STORES OP BlTTERfliT SIZS FOR You-a ClMBiritil Tot«l K«t Salsa (Id OOO'a) Krnnber or Stora- yeara Wagaa & Salarlaa per $100 of Total not Sales Average Amount Per Cent 3 25 SO 75 100 Ejpendtturea for 50^ of the stores fell between within a range of 1919, 1918, 1914, eonblned Ototal 929 $12.48 $8.79 and £14.59 $5.80 Dnilor S40 $40 to i 80 iSO to (ISO $180 t ffvar 292 S44 216 77 11.77 11.26 12.55 13.49 8.67 and 14.78 8.34 and 13.37 9.50 and 15.54 10.56 and 16.10 6.11 5.03 6.04 5.52 1914 Total 208 12.91 9.84 and 15.31 5.47 Under $40 $40 to $ 80 $80 to «180 $180 4 ovar 108 65 50 5 12.40 '13.09 12.35 14.46 9.ei and 15.84 10.17 and 14.45 10.27 and 15.52 13.13 and 19.38 6.63 4.28 0.25 6.25 Bur, B Northvf IB. Res. satem Univ. Average a Are these tendencies erratic? Do they occur simply by chance? Or do they represent underlying tendencies so persistent, pervasive and universal that they may be taken for granted as fund- amentally characteristic of retailing and be used by merchants not only to compare their own experience with, but also to determine their positions relative to those of their competitors? If it is remembered in considering these ques- tions that the data are drawn from stores in 36 states of the union, located in cities of varying size; that they are adequate as a statistical sample for the range of stores included; that they ap- ply to a pre-war, a war, and a post-war year combined, as well as to a pre-war year alone; that the tendencies when measured by the average, and the first and the third quartiles are strikingly regular and consistent, then it appears that something more than chance rela- tionships have been discovered. Indeed, underlying trade and expense tendencies out of mass data have emerged. A barometer has been established. Chart VII REiATIOM'fiP ADV&TISIHG TO TOTAL HET SALES FOR STORES OP DDTEREMT SIZE tatu*e 1919, 191S, 1914, 1914 ClB8Slfl«d Total Net Sales (in 000' a) Total Ib&er iiO t40 to tSO iao to {ISO $18d & over Total Iteder $40 $40 to $eo $80 toSLSO ^180 & over llumber of Store" years 881 264 $1S 219 80 19S 96 61 SI 6 Advertising per $100 of Total Het Sales Average Amount g 88 it) 7,S loo 1?5 $2.0T 1.S2 1.67 8.03 2.57 2.51 1.85 2.26 2.66 3.25 Expenditures for SOf of the Btores fell $0.93 end $2.39 0.81 and 2,04 0.82 and 2.13 1.19 and 2.60 1.61 and 3.28 1.19 and 3.03 0.91 and 2.76 1.33 and 2,97 1.90 and 3. SO 2.75 and 4.60 within a range of $1.46 ,1.23 1.31 1.41 1.67 1.84 I'.St 1.64 1.60 1.76 Bur. Bus. Res. Northwestern Univ. Averages To determine the relative positions of each store-group, averages have been used. That is, a single position or amount has been chosen. But averages may be deceptive. Accordingly, for each group, the limits within which the middle 60 per cent of the stores fall have been calculated for each expense or trade item. This area may be called, for convenience, the region of typical performance. It represents the con- servative middle class to exceed which may be called radical or exceptional, ' and to fall in defect of, ultra conserva- tive, or in some instances remarkable. In the averages and the limits within which this 50 per cent fall, yard sticks or standards are determined. The foregoing discussion, with the accompanying charts and table, rep- resents the conditions obtaining for stores of different size — that is, where stores stand on different competitive levels with respect to total net sales. A barometer for retailers is also available from another point of view. Relatively, how do retailers of a class homogeneous, according to size, stand competitively to each other under dif- ferent conditions of store operation? An analysis of mass data answers this question also. In what follows, so far as selling expenses in retail clothing stores are concerned, the question is answered in an unmistakable and sig- nificant manner. It is believed, more- over, that similar results would have been secured had the data been drawn from other fields of retail distribution. Chart VIII REMTIOM OP TOTAL EXPEHSE TO TOTAL BET RAT.KR FOR STORES- OP DIPPEREMT SIZE Yeara Clasalfled Total Mot Sales (In 000' 8) Mxanber of Store- years • Total Expense per ilOO at Total Not Sales Average Per Cent Anoxmt 25 50 75 100 Expenditures for bO% of the stores fell between Tltbln a range of 1919, 191S, 1914, COBtblnQd 4otal 995 J22.69 1 $16.63 and $25.61 i.9.18 Itodar S40 i4o to Jeo $80 to $180 SlSO t over 313 370 287 85 21.15 20.43 ' 22.46 24.84 16.42 and 25.71 15.86 and 24.67 17.46 and 26.67 20.09 and 28.45 9.29 8.81 9.21 : 1914 Total 233 24.56 18.73 onS 28.26 9.53 under $40 540 to $80 4ao to 4180 018O & over 119 76 32 6 22.56 23.88 25.92 26.59 17.96 and 27.50 18.69 end 28.44 21.63 and 31.25 22.92 and 36.25 9.54 9.85 9.62 13.33 Bur. Bus. Res. Nortliweatem Oniv. Averages The point of view from ■which this study was approached may be described briefly as follows: What are the con- ditions, for stores operating as inde- pendent units, which seem to control selling expenses ?* Working hypotheses were developed and later tested out on the basis of data available. The pur- pose in the analysis, like the one de- *"Selling expenses" include the wages and salaries of the selling force, advertising expenditures, busheling ex- penses, and expenses for such miscel- laneous things and services as wrap- pings and containers, delivery, etc. scribed above, was to discover the {master facts behind the individual facts. In this excursion into the region of the unknown, the results are strikingly significant. In what follows, an at- tempt is made briefly to describe them under a few major headings. For purposes of summary, the factors which control the amounts of selling expense in retail distribution may be grouped under three major headings. First, those which have to do with the goods purchased and held. Second, those which involve the equipment and space used. Third, those which have a bearing upon the effort exerted to dis- pose of the goods. Tabl9 I tlUDS tSD BOBHSB TElOIliHOIES FOR RETAIL CLIHSIMa STORKS OP mCREASIHO SIZg Itou (ExpMBBSd por ftioo Year* Direction of Clianee for Stores of In- creasing Size Range of Amounts | Por storea of Differ gflnnil on the ent Size nithln which 50^ of 1 the stores Pell 1 Average Mrat Suartlle Third Qaartlle AU Stores Smallest Stores Largest Stores FuroheiBea 1919, '18, '14 Decrease SS.16 $2.20 $6.62 $14.51 $17.09 $13.27 1914 Decrease $7.eo $10.00 $7.78 $15.02 $18.21 $18.73 Inventor? L919,'1B,'14 combined Decrease $27.78 $19.20 $33.92 $23.85 $27.28 $12.56 1914 Decrease $24.55 $16.26 $30.78 $24.06 $26.19 $U.67 Raidtal Inrnovop» • Stock 1919 Increase 2.4 1.9 2.2 l.S 1.4 1.7 1919 Increase l.S 1.0 1.0 2.1 1.1 1.1 AU Cities Rent Smsll cities large Cities L919,'18,'14 combined Doubtful $0.61 $0.44 $0.48 $1.93 $1.90 $2.43 1914 Doubtful $0.51 $0.79 $1.94 $2.22 $2.03 $3.37 1919 Decrease $0.66 $0.29 $0.73 $1.01 Sl.17 $0.73 1919 Decrease $2.32 $1.12 $2.83 $2.16 $4.00 $2.29 Wages & Salaries L919, '18,'14 coinblnsd Increase .S2.SS $2.24 $2.73 $5.80 $6.11 $6.52 1914 Increase is.u $3.92 44.93 $5.47 $6.63 $6.25 Advertising 1919, '18, '14 Increase $1.0S $0.80 ii.e4 $1.46 $1.23 tl.67^ 1914 Increase Jl.40 51.84 $1.75 $1.84 $1.&4 $1.75 total Expense 1919, '18, '14 Increase $4.41 t4.23 $(5.78 $9.18 $9.29 $8.36 1914 IncreaeO (4.03 i4.96 $e,7s $9.53 $9.54 $13.33 rth?SIte?rihlv. »Sotl«t«™ofS.l,. In the analysis of these influences, the problem is approached statistically. It is necessary to reduce, so far as is possible, the measures of comparison to standard or unit form. The different variables must be reduced to a common denominator. To do this requires that the amounts of selling expense be ex- pressed in terms of sales and also in the terms of the units of variation, such as inventory, turnover, sales per full- time sales-person, etc. For the combined years, 1919, 1918 and 1914, for stores having sales of $40,000 to $80,000 per year, it cost $9.37 to sell one hundred dollars worth of goods. When this group of stores is further classified by the amounts of their inventories in relation to their sales the selling expenses varied between $7.37 and $9.61 for each hundred dol- lars of sales. The amounts increased irregularly from the stores having the smallest to those having the largest relative inventory. When the expendi- tures are shown for each one hundred dollars of sales for the amount sold per dollar of inventory, that is, when ac- count is taken of varying sales and inventories, the selling expense in- creased consistently from $1.29, for those with the least inventories, to $6.69 for those having the highest inven- tories. That is, selling expense ex- pressed in this unit strikingly increases as the size of inventories increases. This tendency is graphically illustrated in Chart IX. 10 Another barometer of change is shown in the amounts of selling expense per hundred dollars of sales for stores having different rates of stock turnover. This is reflected in Chart X. While it cost on the average $10.16 in this group of stores to sell one hundred dollars worth of goods, it cost $4.62 per $100 Chart EC REDUCE SEIXIHG EXFEKSE THROUOH UW IHVSITORIES Data baaed on storsa with aalea from $40,000 to $60,000 for 1919,1913, and 1914, ooniblnsd Amount ot Inwntory Mufflbar of Stopa-Yaars Sailing Expenao of Total Nat per $100 Salea .par SIOO of Total Hat Salsa Amount Far Cant Avaraga 165 S9.S7 100.0 Vnitr $20 e 7.57 78.7 •«0 to $40 52 8.21 93.5 «40 to $60 82 9.61 102.9 $60 & over 25 9.57 102.1 SoUlne ^xp^nao per $100 of Amount Per Cent $4.26 100.0 1.29 50.3 2.76 64.8 4.S1 112.9 6.69 157.0 Par Cant Tar Cant .25 50 'ts IQO Avwags tJBdar $20 $20 to $40 $40 to $60 $60 8c over Bur. Bus. Res. ■Northwaatem Dtalv. 25 5p 7fi K)0 1?5 1?0 SO 75 100 125 ISO Per Cent total net sales per turnover. For those turning their goods less than once dur- ing the year, the expense per hundred of sales per stock turnover was $10.21, and from this as a maximum, the ex- penses when expressed in this unit, de- creased to $1.73 for stores which turned their stock four times and over. That is, when selling expenses are expressed in terms of a hundred dollars of sales and also on a unit turn basis, there is a clear advantage in more rapid stock turns. While data were not available for years other than 1919, it is believed that a similar condition would have held for any year. 11 Ouxt X WD^ICS SELLHIO EXPBISls TUROUGH IMCIUiASIl.'G RAPIDITY OF STOCK vmOVm Sate for 1919 Rates of Stock Turnover Average Osder 1 1 to S 2 to 3 S to 4 4 bover Number of Soiling axpense per CIDO of Total Hat Sales Stores Amount Per Cent 282 $10.16 100.0 9 136 100 ■ 23 14 7.66 9.60 10.60 11.47 8.64 75.4 94.5 .104.3 112.9 85.0 Selling Expense per VIOO of Total Set Sales per stook Turnover Amount For Cant $4.62 100.0 10. SI 221.0 6.40 1S8.S 4.24 91.8 3.13 67.7 1.73 S7.4 Per Cent p 2p Sp 7^ VfO Average tsder 1 1 to a 2 to 3 3 to 4 4 & over Burt Bos. Res. Northwestern Univ. 7p 100 Per Cent 5|0 IS IgO 1?S 1?0 175 apo 75 ii}o ij5 igo 175. ago Per Cent A somewhat different approach to a barometer or measure of selling, ex- pense under different conditions of store operation is illustrated in Chart XI. It shows certain ratios of operation for stores having sales of $40,000 to $80,- 000 per year, located in cities with population under 40,000, when classi- fied by the amounts of rent paid per one hundred square feet of floor space. Some of the graphic features of this chart are as follows : Increased rentals, per 100 square feet of floor space, are accompanied by a decrease in the amount of floor space used, increased total expense and selling expense per hundred dollars of sales, decreased total net sales per salesman, decreased rates pf stock turnover, and decreased net profits per hundred dollars of sales. This chart, although based upon com- paratively few stores, seems to indicate that it is costly not only in expense, but also in net profits per $100 of net sales seriously to restrict the amount of floor space in the face of high rentals. - It should be remembered that a group of stores with not widely different sales is used and that the stores are selected from cities of moderate size. 12 43 1 s •3 P ...■ 1 s 1 a •■ 1 I 1 s- 1" ■0 P4 11 •a. 01 '*4> 8 **• s o- 1 ® ¥ w ■p £i (O 01 CO -<• to 0> to H 1 S ti 3 ■<*< «J r- 01 1 1 S <0 (O CO O) ?s p lO in iH oi 3 d 2 ''* '^ r^ r-i r^ r^ a t- lO CO H 01 H r^ M (H s H O O t3 B to ^4.0 s- s- §11. 5iS CO 1 a 1 s 5 lO 01- P H ■ m t ,. 1 Sfi'g ^ % " »4 1. 5 la » S- Oi S ■ ■ to i-» fa bp io CO CM to 01 1 « 03 in w c- (O lO t- ■* CO > OJ « a tn to ■* lO ^ to 00 to in in rt r-l H (-1 H ** s b w I'l t- lO 10 t- ^ p P » 0) t- to ¥> t- -^ s H -^ ri ri CO r4 ^ H H . u ^ > 9 s & (1 • op d s §■ S •p n a 1 ma 49 1 ^ 5 S ^ 1 ,1 .?> S S fa- •" ■" •* 1 I ^ ^ 13 For the purpose of determming the relation, if any, between the amounts of selling expense per hundred of sales and the amount invested in the fixtures, similarly expressed, a group of stores for 1919 was classified by amounts in- vested in fixtures in relation to sales. The graphic part of Chart XII shows that selling expense in terms of sales increases as the amounts invested in fixtures similarly expressed increase. It also shows that this expense per hundred of sales per stock turnover increases. It suggests the conclusion if it does not prove that there is a direct relationship between the amounts of selling expense and investment in fixtures when both are expressed in sales. Is there not a suggestion in these figures that in the effort to control sell- ing expenses, attention should be given to the relation of fixture investment to sales ? Chart XII REDUCE SEILIHO EXTSHSE THROUaa LOV; FDCTURB IKVESTHENIS Data for 1919 Amount of Fixturo Invoatmant per ilOO of Total Not Sales Average Under $8 SZ to a $4 to $6 $6 & over Number of Storo-yearo Selling Expense Total Net per $100 of Sales Anormt Per Cent 282 $10.16 100.0 75 9.40 92.5 121 9. S3 91.8 49 10.20 100.4 S9 12.32 121.3 Selling Expanse per $100 of Total Net Sales per Stook Turnover Amount Per Cent $4.62 100.0 3.92 84.8 4.44 9B.1 4.86 lOS.S 6.60 121.2 Per Cent as SO 7,5 100 125 Average Under i2 is to $4 $4 to C6 $6 & over Bur. Bus. Res. northwestern Univ. Far Cent 2^ Sp 7,5 IQO IgS SO 75 190 lg5 50 75 IQQ IgB What are the possibilities of reduc- ing selling expenses in relation to sales through increasing the amounts sold per full-time sales-person.^ Chart XIII furnishes a striking answer to this ques- tion. For the combined years 1919, 1918 and 1914, for a group of stores having sales of $40,000 to $80,000 per year, it cost $9.20 to sell $100 worth of goods. For the stores in which the amount sold per full-time salesman was less than $12,000, the corresponding cost was $10.82, while for those in which the amount sold was $32,000 and over, the expense was $4.03. Between these limits, the cost of selling goods rapidly falls as the amount sold per person increases. This, however, does 14 not tell the whole story. Inasmuch as the number of salesmen involved and the amounts sold per person vary in the different stores, it is necessary to ex- press the expenses in such a form as to take account of these facts. Accord- ingly, when the amounts of selling ex- pense are expressed in terms of sales for each thousand dollars sold per full- time sales-person, the reduction of expenses with increased sales per per- son is much more rapid. The expenses expressed in this manner vary from $1.08, where the sales per person are least, to $.09 where the sales per person are greatest. Chart Xltl REDDCB nUna KZnXSE BOtOtNa ncnSUm BALB flB «'tgiiwi» 0«t« buad oa itorM Atb ■•!•■ trvm $40,000 to ^,000 for 191S.19U, ud 1914. eonbiiua (IB OOO's) AT4r*4B lu to Ue 116 to tt4 tM to |3C t3S k ■ or nor«-«oUi •^-Tot-S- fot Sal*a Jixnnt F«p Cant 1«3 «»>«) 100.0 «S lO.BS 117.6 8 46 B.4£ 102.7 1 sa 7.eE es.e 9 T 7.16 77.7 p 7 4.03 45.8 Awnrnt Pot Cant •0.69 lOO.O 1.08 166.6 0.68 08.6 0.4« 60.9 0.26 S7.7 0.0» IS.O Husbor of erfo^lot ISoB pu- 6teok TwTusTor AMunt . P«r Cact lOS ♦4.17 100.0 16 6.03 144.6 S4 6.07 1C1.6 31 3.66 87.8 9 3.42 ■f.O IS t.ee 63.8 r«r Coat M 60 "78 ipo Undu- $12 $12 to $16 616 to €«4 $24 te;)3S 63£ ft OTtr - P«r C«at Sfi tfi 75 IQO ifi UP For Cant tfi ep ifi iQo 19a ifiO 76 100 1£8 is. Moreover, the influence of increased sales per person may be shown by ex- pressing the amounts of selling expense in terms of sales per stock turn. This is done in Chart XIII. The data apply to the year 1919. They show that it cost $6.08 per hundred dollars of sales per stock turn in stores where salesmen sold less than $12,000, while the cor- responding expense was $2.66 in the stores in which salesmen sold $S2,000 and over per year. An effective method of reducing sell- ing expense measured in terms of sales is found in increased sales per person. The figures supply a barometer or meas- ure of the savings which are possible in this respect. It should be observed that the data apply to a group of stores not strikingly different in size. Similar results occur in every other group of stores which the Bureau of Business Research analyzed for this purpose. Needless to say that it is impossible in this paper to indicate the precise amoimts for each group of stores. In the discussion of this phase of a barometer for retailers it should be re- mem:bered that hypothetical conditions are not under discussion. The data are based upon the actual experiences of stores and represent a condition which is currently being realized. There are stores in which salesmen on the aver- 15 age sold as little as $12,000 worth of goods and there are others in which they sold on the average more than $32,000. If such are the results which are being realized, the figures suggest the relative savings which occur in stores which operate most successfully in this respect. Moreover, they supply a measure of what in reason may be expected under conditions of superior management. Another approach to a barometer for retailers may be made through an analysis of the effect which advertising has upon the amounts of selling ex- pense in clothing stores. For purpose of illustrating this approach. Chart XIV is supplied. Two groups of stores are used, one in which sales in 1918 range between $40,000 and $60,000, and an- other in which stores of aU sizes in 1914 available for study are included. In the first group, the stores are classified according to the amounts spent for ad- vertising per $100 of sales in 1918. The chart indicates that the larger the amount spent for advertising in rela- tion to sales in 1918, the greater the per cent of decrease in selling expense per hundred dollars of total net sales in 1919. For those which spent least, the decrease between the two years is 3.0 per cent, while those who spent most, it is 8.9 per cent. 16 •as B80 »4 c o q c-p a o .1 o 1 •3 5 O 01 0» to CO CO a a 3 ©•CO ^ ^ 3 M 3 5 01 in in IT When all stores the records of which are available for 1914 are classified by the amounts spent for advertising per $100 of total net sales in that year, it is found that selling expenses expressed in sales decreased in 1919 over 1914 by 6.8 per cent, for those which spent least for advertising, and by 13.7 per cent for those which spent most for this purpose. Without assigning a causal relation- ship between the decrease in selling ex- pense and the increase in advertising expenditures, it is safe to conclude from the chart that a direct relationship obtains between these two factors. Obviously, there is a limit beyond which one can hope to reduce his selling ex- pense through increasing his advertis- ing. What this limit is the chart does not show. It does, however, indicate from the experience available an inter- esting association between selling ex- pense and advertising and suggests to merchants the wisdom of closely scrutin- izing their advertising expenditures and of observing in the light of these data their own experience from year to year. Table II SELLIHG EXPENSE TEHDEIICIES POH RETAH CIOTHIHO STORES WDSR DIFFEREST COMDITIONS OP STORE OPHiATION Itene Unit Limits of Itejna Years Size of Store Direction and Amount of Change in Selling 1 Expense in Terms of Total Net Sales 1 Total Net Sales alone For Amount Sold per $1 Qf Inventory Per Turnover For e«cli '1 $1000 Sold 1 per SaleamanI Direc- tion Am't Direc- tion Am'.t Dlreo- Am't Olrec- An't Inventories per $100 of Total Ket Sales Under $S0 to C60 & over L919, 1918 1914 combined 440, 000 to 480,000 In- crease C2.24 In- crease i^S,«0 Stock Turnover per year Under 1 to 4 &■ over 1919 All Sizes Xn- .crease es.si Ce- orease $6.48 Rent per 100 aquare Feet Under iS20 ^ ■ to 560 & over 1919 £40,000 to C-80,000 In- crease 51.82 Fixture Investment per 4100 of Total Ket Sales under '^2 to $6 & over 1019 All'- Sizes In- crease 02.99 In- crease 51.66 Sales par Ftai- tlino Sales -person Under il2,00C t6 ,32,000 & over 1919, 1916 1914 combined 040,00? to $80,000 De- crease CS.TO De- crease is.ii De- crease vO.es Advertising per $100 o: Total Net Sales Under $1 . to $2 & ovor 1919 from 1918 $40,000 to ^60,000 De- crease ^.'T Diider Cl . to $3 & over 1919 from 1914 All Sizes De- crease 7.V S^ihSSi,"rS°6nlv. 4D??f""=S"S-!S Of. decrease Charts IX to XIV and Table II sum- marize briefly the data available on methods of reducing selling expenses and the extent to which they may be controlled through reduced inventories, more rapid stock turnovers, appropriate utilization of floor space, conservative investment in fixtures, larger sales per full-time sales-person, and increased advertising. It is not claimed that the actual amounts shown in these charts will be duplicated under other condi- tions and other years. It is maintained, however, that the directions of change in selling expense under the conditions of operation named are so persistent as to suggest if not demonstrate the rela- tive positions which competing units 18 occupy, and to establish beyond reason- able doubt the presence of underlying and controlling trade principles. From these tendencies it should be possible for merchants to secure standards and guides to business practices and to com- pare their own positions relative to those of their competitors. In other words, they furnish a barometer or measure of competitive merchandising levels and constitute tangible measures of the positions occupied by competing units. Chart JCV IIHDEX BUMBEES OF RATIOS OP OPERATION, 1919, FOR STORES CLASSIFIED BT /bWi ''^'^'^^^ ^''^^ °^ "ET PROFITS PER 8100 OP TOTAL WET SALES, 1919 200 180 t of )lerohandis« Sold S8 Uargin 160 140 120 100 80 60 40 "*""■**""—* Total operating fixpenso ^•■'* \ '"», «1 Selling Expense --. '"••^^ N- '»~^. -\ V ....-- "^^ '-■-: * *-* ' IZ ^-^ ^ .-' ,^'-' ^^ ,- ^^^ "^ r .-"" — - 20 — f^ to 10 • 10 to 20 20 to ■^30 30 to 40 40- to 50 60 to 60 60 & over IHDE3C HDMBERS OF HET PROFITS PER $100 OF TOTAL SET SALES, 1919 Bur. 'Baa. Pos. Northwestern Univ. It only remains briefly to summarize the relative positions of stores in the matter of gross margins and expenses which are found when different net profits are secured. This is done in Chart XV which shows net profits as index numbers with the amounts for the stores having rates of 60 or more per cent of the highest rate being taken as 100, and the operating condi- tions as ratios based on the superior stores as 100 per cent. As the amounts 19 of profit in relation to sales increase, cost of merchandise sold, total operat- ing expenses and selling expenses rela- tively decrease while gross margins relatively increase. The nature of the increase and decreases is indicated by the direction of the curves. The hope for reasonable profits lies in better merchandising, and better merchandising is dependent upon a con- trol of expense. The cost of business failure is tremendous. Sooner or later, the public will refuse to bear a burden due to ignorance, to business misman- agement and to the failure to subscribe to and to be guided by the underlying principles which govern expense distri- bution in the retail field. Is it too much to say that out of an analysis of mass information, trade and expense ten- dencies have been discovered and their operation measured for at least one group of retailers, and to claim that similar results can be secured for others ? Cannot such principles be made the groundwork out of which a science of retailing can be built ? 20 Publications of Northwestern University School of Commerce Bureau of Business Research Series I No. 1. Survey of the Book and Job Printing Industry, Chicago (1920, pp. 66, $1.00). (In co-operation with the Franklin Typothetae, Chicago.) No. 2. Paper Prices in Chicago, 1913 to 1922 (in press). Series II No. 1. Costs, Merchandising Practices, Advertising and Sales in the Retail Distribution of Clothing (1921, pp. 622, $15.00 net). (In co-operation with the National Association of Retail Clothiers.) Vol. I. Sales and Sales Ratios in Retail Clothing Stores, 1919, 1918 and 1914. Vol. II. Expenses and Expense Ratios — Rent and Wages and Salaries, 1919, 1918 and 1914. Vol. III. Expenses and Expense Ratios — General, Busheling, and Total Expenses, 1919, 1918 and 1914. Vol. IV, Advertising Methods, Expenses and Expense Ratios, 1919, 1918 and 1914. Vol. V. Purchases, Inventories, Purchase Discounts, Stock Turnover, and Capital Turnover, 1919, 1918 and 1914, Vol. VI. Buildings and Store Equipment, Merchandise Sold, Store Meth- ods and Accounting Practices, 1919 — Summary of Expense- and Trade- Tendencies, Questionnaire, and Index. No. 2. Selling Expenses and their Control — a Study in the Retail Distribution of Clothing, 1922, pp. 450 (in press). No. 3. A Business Barometer for Retailers (1922, $0. 50). No. 4. Stock Turnover in Retail Clothing Stores — a Barometer of Expense- and Trade- Tendencies (1922, $0.50). Series III No. 1. Systems of Accounts for Retail Meat Dealers (in press). (In co-operation with the United States Department of Agriculture.) Pressboard Pamphlet Binder Gaylord Bros. Makers Syracuse, N. Y MT, m IL ISM III 1 '< < I Hill i wf •ili