as there are numbers of people who want the services each institution
offers. It seems impossible to believe that any one type will monopolize
the retail business or crowd out all the others.
Any discussion of coöperation in distribution is purposely omitted at this point, for, as has already been pointed out, coöperation does not introduce any novelty in distribution method. It merely changes the type of ownership and control from that of investor-interest to consumer- or producer-interest, depending on whether the coöperators are consumers or producers. Obviously, coöperative ownership and control can be applied to specialty shops, department stores, chain stores or mail-order houses. Any degree of service now offered or refused by any type of store can be offered or refused by coöperative institutions. Most of the savings proposed under coöperative management, other than the profit which the coöperators as owners of the business hope to secure in the form of dividends or in lower prices, come definitely from reduced service. Incidentally that has been the cause of the failure of many coöperative enterprises. Their customers withdrew because they desired more service and were willing to pay for it.
(b) Individual Expenses that may be Reduced.—There is another method of attacking the problem of the high costs of distribution, one that is not spectacular, nor revolutionary, nor necessarily drastic, but which has already given promise of results proportionate to efforts to be applied. This method is merely to apply scientific methods to the improvement of the present systems of distribution, step by step, detail by detail.
In the table already given showing costs of selling in wholesale and retail stores, it may be noted that there is a wide range between the low-cost and the high-cost stores. This range is due, in part, to differences in lines of goods handled and differences in service; but a part of the range is due to differences in operating efficiency. That some stores should be able to show a high efficiency measured in low costs over other stores gives great hope of cutting distribution costs generally, by extending to all the methods now used by the best stores. The first step in a scientific approach to reducing costs of distribution is to determine by survey, investigation and actual measurement what the present difficulties are and what stands in the way of improvement. Although considerable work has already been done in this direction, much more must be undertaken, but it is possible even at present to indicate roughly some of the details in the distribution system which may be profitably studied.
The following statements outline briefly a few of the details of distribution which it seems certain must receive attention in order to secure more economical distribution. No doubt many more could be added. Poor roads greatly increase the costs of bringing the farmers' crops and produce to market, costs that must be added to the price that consumers eventually pay. Inadequate railway transportation is another element that makes a considerable addition to the costs. Car shortages at crop-moving time, cars unsuited to the products to be hauled, excessive delays in forwarding, at terminals, on the way, and at transfer points, are common sources of expense. Every day added to the time required for transportation adds not only to the transportation charges but also directly to the cost of the goods themselves in interest charges on the capital invested in the goods, and in an additional burden of other overhead expense due to lengthening of the period of turnover. Delay in transportation as a factor of expense in distribution has not been given the attention that it deserves. Poor location of terminals makes a great deal of expensive cartage necessary. Congestion of traffic in city thoroughfares is a growing cause of increased costs in distributing goods. Inadequate, inefficient, poorly located storage facilities cause huge losses. Inadequate, unauthoritative and inaccurate collection and dissemination of market information such as is needed by producers, distributors and consumers is responsible for great wastes. Through lack of such information business in many lines now passes constantly from glut to famine and back again. Poor packing of merchandise, inefficient loading, rough handling and uneconomical methods of handling are causes of waste and therefore of higher costs of distribution.
To refer more specifically to the activities of marketing through wholesalers and retailers, there is a startling loss of the wholesale salesman's time in finding customers, in making appointments, in fruitless interviews. The time of both salesmen and buyers is lost. Probably less than a sixth of a salesman's time, averaging salesmen of all classes, is actually employed in selling or even in displaying and describing merchandise. Anything that can be done to improve this deplorable economic condition will increase efficiency and decrease costs. No one can even begin to estimate the losses resulting from poorly trained salespeople, who fail to sell and who waste the time of their purchasers through lack of knowledge of their goods, their customers' wants, and their business, or through lack of ability to use their knowledge properly. Another source of loss that adds to the high level of sales expense is that the rank and file of salespeople of most classes, but more particularly in retail stores, lack interest in their work. The fundamental incentives of profit in proportion to effort expended and of self-expression in management, such as the owners or managers feel, is for the most part totally lacking. For this reason most employees give but a fraction of their ability to their work.
Advertising is or should be an invaluable aid to marketing. In the list of expenses of distribution it occupies a prominent place. There is certainly room for improvement in its administration. Much study has been given in some organizations to such problems as the proper selection of mediums and the right use of the space taken. No doubt much greater progress can and will be made in the future in these directions, but the greatest loss in advertising seems to be in the lack of faith of the public in the advertising. If people gave more credence to advertising, much less of it would be needed to secure the same result. The remedy, of course, lies in the direction of raising the standards and shutting out the dishonest advertiser.
Duplication in delivery organizations by retail stores is a source of economic waste. A beginning has been made towards eliminating some of this waste through coöperative delivery and by utilization of the parcels post. In a few cities a good share of all retail deliveries was in 1921 being made through the post-office with a considerable saving in money and no reduction in efficiency. Poor buying, imperfect realization of public demand, duplication of stocks of goods in too many styles, brands and makes, tying up too much capital, slowing up turnover and increasing overhead expense are causes of high costs of distribution chargeable to buyers of goods both in wholesale and retail stores. There are many who think that there are too many retail stores. Would goods be sold for less if there were fewer? Probably not, because a large part of the competitive losses now occurring because of the number are borne by the dealers themselves in unpaid services. It may be argued that if their number were reduced the rentals for the locations that would be eliminated could be saved. This cannot be definitely checked by such experience as has been recorded in any public way. Concentration of retailing seems invariably to result in increasing rents. In fact, rents tend to increase faster than sales, so that the fewer the stores the higher the share of the landlord. More studies are needed to determine the exact effects of restriction of the number of stores on costs of distribution.
There is another matter that needs consideration in connexion with any attempt to reduce rents, and that is the fact that the store plant is unused for a large part of the time. It seems impossible to secure the high degree of use that may be had in a factory or shop where, when there is plenty of work to be done, the plant can be kept working both night and day by means of two or three labour shifts. Store hours are by custom and legislation steadily growing shorter. This means that the capital invested in stock and plant has fewer hours in which to produce.
Finally, there is undoubtedly an enormous loss due to unfairness and dishonesty, a loss that is now carried in large part if not wholly as an expense of distribution, being added to the price paid by the consumer. Failure to return containers lent by distributors seems a small item, but in such a business as milk distribution in large cities the loss to milk distributors due to non-return of empty bottles is enormous. Uncollectable debts and the cost of collecting delayed payments are important items in the expenses of distribution. Disregard of contracts in such matters as refusal of goods after placing orders, failure to deliver goods after orders are placed, abuse of the privilege to return goods, claims for adjustment, and many other similar items make up large losses in money, time, labour and thought that should be made available for the public good. Unfair competition, efforts made not to increase legitimate business but to impede or even to destroy competitors, commercial bribery, “graft,” and the exercise of monopoly, all burden distribution expense far too much. A source of considerable loss is theft by employees, burglars and shoplifters. Some retail establishments count upon a fixed percentage on their sales representing losses due to this cause, a percentage that is added to the gross expenses which form part of the selling prices. Many of the losses of the distributive business, including theft, breakage, fire, and so on, are covered by insurance. In this way the individual distributor saves himself against exceptional loss, but the cost of the insurance is carried as an expense against the distributing process. Hence the public must pay a price for its goods that will cover these losses. Anything that can be done to reduce them will by that much reduce the expenses of distribution and the prices of goods.
Education in Marketing.—The leaks and wastes enumerated above are certainly responsible for at least a quarter of the present costs of marketing. They may be responsible for a third or even more. Here, then, is a great field for reducing costs by improving present methods. The first general step towards such improvement is education. Trained minds are the means through which the improvements may be devised and trained workers are needed to carry the improvements into effect. A beginning has been made. Before 1860 the apprenticeship system was
