Table II, showing cost of marketing,[1] is compiled and adapted from reports of the Harvard Bureau of Business Research, Northwestern University Bureau of Business Research, several national trades associations, and from personal studies.
Table II.—Marketing: Percentage on Sales.
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Costs of selling through mail-order houses are not officially known. They are supposed to range from 18 to 30% of sales. But the knowledge of a general figure of this kind for a large mail-order house with many departments would be of little value even if correct. Costs of selling vary from department to department in mail-order houses just as in department stores. To be of value in a comparison of selling expenses, the figures should show the cost of selling shoes, for example, by mail. All things considered, the general costs of running a large mail-order house are probably somewhat lower than those for a large department store handling similar lines and classes of goods. The mail-order establishment need not be in a shopping district, so that the rent or investment represented by its site is comparatively small; the employees who fill orders do so more rapidly and for less pay than those who sell in a store; advertising is usually confined to the less expensive publications, and in the case of the largest houses the customers are much more numerous, running into millions. Costs in the shoe department of a mail-order house should run lower than in a department store or speciality shop, because in the mail-order house there is no time and labour lost in fitting shoes. This saving is counterbalanced somewhat by the number of shoes which are probably returned. The lower costs of selling in the mail-order house, however, are offset in part at least by the costs of transportation and other expense incidental to the customer's ordering by mail.
A part of the competitive battle for trade among these various types of institutions consists in the utilization of large buying power. The dealer who buys for the lowest price, other things being equal, can sell for the least and yet make the same profit as his competitors. Large chain-store systems, mail-order houses and large department stores frequently purchase their goods direct from producers and secure the prices usually given wholesale purchasers. In some cases a part of these differences may be used in cutting the prices to consumers, but it would be a mistake to assume that the consumer gets all the benefit from purchases made at lower prices or that this entire difference is gained for the dealers. Concerns that go direct to the producers, and thereby eliminate the wholesalers, as a rule incur practically all the usual expenses of wholesaling, such as interest on the investment in the larger stock of goods, storage risks, buying expense in dealing with numerous producers instead of a few wholesalers, extra record-keeping, and in the case of chain stores, reshipments to their various stores. The only real saving which buying direct from producers insures is the eliminated profit of the wholesaler, with a possible reduction of the expense for salesmen whom wholesalers must employ. Competition in buying has forced the joint creation by small concerns of buying organizations which, united, represent as large a buying power as the chain or department stores. Coöperation in buying certain classes of goods has strong advantages both for dealers and consumers. Buying in group at one time may secure advantages, not only in price but also in transportation and handling, sufficient to cover the added expenses incurred in buying in quantity. Thus farmers find it profitable to unite in buying a carload of fertilizers once a year. On the other hand it may be exceedingly unprofitable to buy other goods in carload lots. Large purchases would be practically out of the question on such goods as shoes, clothing and most other goods.
Comparing the various methods of retailing as exemplified in the ordinary independent stores, the department stores and the mail-order house, from such facts as are available, it does not seem possible to assert positively that any one method presents decided general economic advantages over the rest. Each presents advantages in point of service, but the differences in service appear to be fully compensated in expense, that is, the public pays for what it gets and in proportion to what it gets.
To illustrate: the modern department store gives more service in connexion with its sales than any other retailing type. It offers the purchaser the advantages of buying many kinds of merchandise under one roof. The purchaser has the benefit of elevators, restrooms, wash-rooms, free delivery, credit, large stocks from which to choose, liberal policies as to examination and trial, pleasant surroundings in which to shop, courteous attendants, and so on, but department store expense of distribution includes the cost of maintaining these services. The independent store probably comes second in point of service, although there is the greatest variation in this regard. Personal acquaintance and attention to customers' wants are perhaps the most important factors of independent store service. This type of store renders fewer services, and its expenses are therefore apparently somewhat lower than those of the department stores. Chain stores have had the greatest success when giving a minimum of service. No credit, no delivery and even a minimum of packing and wrapping are common policies. The policy of minimum service is in some cases carried to the extreme of having no salesmen, so-called “self-service” stores. Because the chain store gives less service it can obviously sell its goods at a lower expense. The mail-order house offers to its customers a wide range of goods to select from through a catalogue that may be studied at leisure in the home, but the mail-order house gives less personal service and requires in some ways more from the customer than any other system so far devised. The customer must decide what he wants from the study of a catalogue or other printed matter, he must make out a written order and send it, with a remittance, by mail and await the coming of the goods; he must pay transportation charges and he must make such adjustments as are rendered necessary by the fact that he did not see the goods before purchasing. With no need for showrooms, expensive locations, salespeople and some other incidental expenses, the cost of mail-order business should normally be less than that of any other type. Under the most favourable conditions it probably reaches this position. But the consumer, to some extent at least, makes up the difference by supplying the service that other retailing establishments offer him. The customer may make a money saving by trading with the mail-order house, but he does so by contributing his own time and labour to the transaction.
Another factor needs consideration in connexion with this brief study of the mail-order business. Low costs of retailing by the mail-order methods are based on successful mail-order management. But there are really very few concerns in the United States or any other country which have made a marked success of the mail-order business, while there are scores of highly successful department stores and dozens of highly successful chain-store systems. There have been numerous attempts in the mail-order field, but the failures have also been many. One of the main drawbacks of the mail-order business is the necessity to provide for the supply of merchandise, to draw up sales plans, and to publish the catalogue or other printed matter months in advance of sales. Changes in style, development of new demands and price declines or advances cannot always be foreseen. These conditions cause difficulty in the mail-order business. In a period of consistently rising prices such as obtained during the 30 years ending in the middle of 1920, mail-order methods could be safely employed on a large scale barring difficulties with styles and eccentricities of demand. But if there should be a number of years of price decline, mail-order financial managers will find their problems more difficult than they have been in the past.
So far as the public is concerned it seems safe to say that there are large classes who prefer and who will always continue to prefer to trade in those retail establishments offering them the highest developments of service, the department stores and the independent specialty shops. Other large classes prefer and will probably always prefer to buy in stores offering less service and proportionally lower prices. Undoubtedly there are many who find their greatest satisfaction in purchasing in the stores of the self-service kind where they may look about and pick up on their own initiative whatever they may wish to buy. Institutions are built to serve people in the way that they want to be served. There is room, therefore, in the retail trade for many types of stores. Specialty shops, department stores, chain stores, and mail-order houses will all continue to exist as long
- ↑ Costs of retailing in other lines of merchandise, so far as the figures are available, show about the same relationships. The example presented may be taken as typical.
