The shopping center is another postwar development. The growth of suburbs made some sort of suburban central shopping inevitable. By 1960, the shopping center was no longer a phenomenon, but a large majority of those in operation were less than five years old.
The total number of shopping centers in operation in the United States and Canada has been estimated at between 4,000 and 5,000. Indeed, in 1960, the city of Portland, Oregon, announced the opening of a downtown shopping center with 82 stores, parking space for 8,000 cars, covered malls, escalators carrying shoppers from door to door, restaurants and recreation areas. This concept goes far beyond the earlier shopping centers which brought together from four to ten stores of different kinds.
Based on the kind of market for which the shopping center was designed, shopping centers fall into different types. These are regional, community and neighborhood shopping centers. The regional center services a fairly wide region, pulling customers from many miles around. Some regional shopping centers serve areas from 20 to 40 miles away. The community shopping center serves a community. Shoppers will come from three to ten miles away. The neighborhood shopping center draws most of its customers from a relatively compact neighborhood.
While there are some indications that shopping centers may not fulfill all the optimistic claims made for them by their proponents, it is certain that, as a type of retail merchandising, the shopping center will continue to grow and assume greater importance in the American consumer shopping picture. Some warnings have been posted that they have grown too fast and too big. But the shopping center definitely has pleased the consumer with its wide one-stop type of shopping facilities. Most department stores, and the more important chain stores, especially food, drug and clothing, as well as the variety chain, vie vigorously for space in new shopping centers. This competition is good and the consumer is the likely beneficiary.
Friday, November 12, 2010
Non-store retailing
Non-store retailers include mail-order houses, vending-machine operators, and direct house-to-house selling organizations. Mail-order retailers are particularly prominent in department- store-type merchandise such as shopping goods and women's and children's clothing. Some 77 per cent of all mail-order sales are in this department-store-type merchandise. Mail-order retailers also sell automotive merchandise, books, stationery, and even furniture and food. Total mail-order sales represent about 1 per cent of all retail sales.
Vending machines have become big business in recent years. They are destined to grow as more and more merchandise is developed specifically for vending machines. In 1958, the volume of vending-machine sales was only about $750 million. Now, it is over the three- billion-dollar mark.
In the last years of the decade of the 1950's there was a great proliferation of items sold in vending machines. Many manufacturers are making special products and special package sizes for vending machines. Shortly, it is estimated that sales from vending machines will reach $4 billion.
House-to-house selling is another form of retailing that has gained momentum in recent years. The Census of 1958 showed total volume of sales at $2.5 billion. Building materials, farm equipment, groceries, milk, apparel, household appliances, books, stationery, general merchandise and cosmetics all have found ready out¬lets in house-to-house selling. It should be noted, however, that the total volume of sales in 1958 was not very much larger than in 1954. House-to-house selling has certain natural disadvantages such as consumer resistance and cost. Some cities and towns have ordinances against peddlers.
In truth, house-to-house selling is a direct descendant of methods used by the old "Yankee peddler." But unlike the Yankee peddler, the modern house-to-house salesman often offers specialties not available elsewhere. There are many marketing people who believe this type of retailing will become increasingly important. Much will depend on the aggressiveness of local store merchants and their ability to serve the consumer better.
House-to-house selling has the advantage that the dealer or salesman has little capital invested in merchandise. His type of operation gives him flexibility and a home-service convenience that the retail store cannot offer. Also, as shopping areas become more congested, the house-to-house retailer is in a position to offer the consumer greater convenience by shopping in her own living room. It also offers manufacturers an opportunity of introducing new products directly to consumers, and of making sure that consumers get the product by the simple expedient of delivering it to their homes.
The greatest single obstacle to house-to-house retailing is the problem of recruiting, training and holding salesmen. The turnover among such salesmen is often 100 per cent and higher in one year. While some salesmen make a very comfortable living out of such retailing activity, many others, who are often only part- time workers, get discouraged easily. It is not easy to take direct rebuffs day after day and come back for more. Direct house-to-house selling is much more difficult than in-store selling. From the point of view of the manufacturer, house-to-house selling is also costly because of the high commissions needed to attract and hold specialty salesmen.
Many observers believe that the growth of self- service in supermarkets, which has spread to almost every other type of retail store, will give house-to-house selling a great impetus. The competition for shelf-space is tending to limit the selection available to the consumer. Shopping in the suburbs entails certain difficulties, such as lack of adequate parking place, and the cost of getting baby sitters. Also, better advertising has acquainted the consumer with products by name, so that much of the peddler's stigma is eliminated.
The volume of house-to-house selling has reached the $3 billion mark, with some 3,000 houses selling direct to consumers. Despite the relatively high cost of selling in this manner, profits from such sales are reported to be above those of sales through conventional channels.
House-to-house selling has proved especially effective in opening up new territories and in introducing new products. Effective demonstration is virtually assured. And if the quality is as good as prevailing products, a greater consumer interest is almost certain.
Vending machines have become big business in recent years. They are destined to grow as more and more merchandise is developed specifically for vending machines. In 1958, the volume of vending-machine sales was only about $750 million. Now, it is over the three- billion-dollar mark.
In the last years of the decade of the 1950's there was a great proliferation of items sold in vending machines. Many manufacturers are making special products and special package sizes for vending machines. Shortly, it is estimated that sales from vending machines will reach $4 billion.
House-to-house selling is another form of retailing that has gained momentum in recent years. The Census of 1958 showed total volume of sales at $2.5 billion. Building materials, farm equipment, groceries, milk, apparel, household appliances, books, stationery, general merchandise and cosmetics all have found ready out¬lets in house-to-house selling. It should be noted, however, that the total volume of sales in 1958 was not very much larger than in 1954. House-to-house selling has certain natural disadvantages such as consumer resistance and cost. Some cities and towns have ordinances against peddlers.
In truth, house-to-house selling is a direct descendant of methods used by the old "Yankee peddler." But unlike the Yankee peddler, the modern house-to-house salesman often offers specialties not available elsewhere. There are many marketing people who believe this type of retailing will become increasingly important. Much will depend on the aggressiveness of local store merchants and their ability to serve the consumer better.
House-to-house selling has the advantage that the dealer or salesman has little capital invested in merchandise. His type of operation gives him flexibility and a home-service convenience that the retail store cannot offer. Also, as shopping areas become more congested, the house-to-house retailer is in a position to offer the consumer greater convenience by shopping in her own living room. It also offers manufacturers an opportunity of introducing new products directly to consumers, and of making sure that consumers get the product by the simple expedient of delivering it to their homes.
The greatest single obstacle to house-to-house retailing is the problem of recruiting, training and holding salesmen. The turnover among such salesmen is often 100 per cent and higher in one year. While some salesmen make a very comfortable living out of such retailing activity, many others, who are often only part- time workers, get discouraged easily. It is not easy to take direct rebuffs day after day and come back for more. Direct house-to-house selling is much more difficult than in-store selling. From the point of view of the manufacturer, house-to-house selling is also costly because of the high commissions needed to attract and hold specialty salesmen.
Many observers believe that the growth of self- service in supermarkets, which has spread to almost every other type of retail store, will give house-to-house selling a great impetus. The competition for shelf-space is tending to limit the selection available to the consumer. Shopping in the suburbs entails certain difficulties, such as lack of adequate parking place, and the cost of getting baby sitters. Also, better advertising has acquainted the consumer with products by name, so that much of the peddler's stigma is eliminated.
The volume of house-to-house selling has reached the $3 billion mark, with some 3,000 houses selling direct to consumers. Despite the relatively high cost of selling in this manner, profits from such sales are reported to be above those of sales through conventional channels.
House-to-house selling has proved especially effective in opening up new territories and in introducing new products. Effective demonstration is virtually assured. And if the quality is as good as prevailing products, a greater consumer interest is almost certain.
The Discount House
One postwar phenomenon in retailing has been the development of the discount house. Originally, those running a discount house were often referred to as "the upstairs boys," because they often did business in upper floors of loft buildings, and admission into their stores was by card only. Members recommended the store to others, and the membership grew. The discount house operated in household appliances, silverware, jewelry, and similar merchandise. It was, of course, vigorously opposed by the regular merchants.
The discount house grew out of the practice of manufacturers giving large discounts to retailers on certain types of goods. Jewelry, household silverware, household appliances, and similar merchandise often carried as much as 45 per cent margin for the retailers. By adopting the minimum service principle, discount operators could sell this merchandise at discounts ranging from 15 to 30 per cent, a substantial savings to consumers.
Most manufacturers, concerned because of increasing complaints, attempted in various ways to prevent discount houses from selling their goods at a discount. Manufacturers resorted to such practices as refusing to sell to them, placing rigid resale prices on merchandise, and attempting to enforce resale price maintenance, more generally known as fair trade.
Some manufacturers were more successful than others in enforcing full price merchandising. But eventually, as will be discussed in another section of this book, fair trade lost much of its power. One after another of the manufacturers abandoned the practice of enforcing fixed prices. Household electrical-appliance manufacturers were among the last to give in. Thus, it became possible for discount houses to offer a wide variety of well-known brands at substantial discounts, thus forcing department stores and electrical-appliance dealers to reduce prices or lose sales.
By 1960, discount houses were not only generally accepted by the public, but even had been accepted into membership in the retail merchants' associations. In other words, they had attained full status as accepted merchants in most communities. They had also grown. Several of the larger discount houses are, in effect, discount department stores, offering a wide variety of merchandise at savings ranging from 5 to 25 per cent.
Most consumers do not recognize the term syndicate stores. The student of marketing should, however, be familiar with the term. It indicates a special kind of chain-store operation such as Sears, Roebuck and Company and Montgomery Ward, stores which operate chains of department stores as outgrowths of original mail-order business.
One of the chief characteristics of syndicate stores is that, while they offer a wide variety of merchandise to consumers, they seldom sell well-known brands. Most of the merchandise they sell is their own. They do very large volumes of business.
Syndicate stores are, for all practical purposes, retail chains. They buy only merchandise unbranded or under their own private brand. Syndicate stores are large customers for certain types of merchandise such as automobile tires, batteries, garden equipment, and large household appliances which are made for them by well-known manufacturers who also sell their own brands.
The discount house grew out of the practice of manufacturers giving large discounts to retailers on certain types of goods. Jewelry, household silverware, household appliances, and similar merchandise often carried as much as 45 per cent margin for the retailers. By adopting the minimum service principle, discount operators could sell this merchandise at discounts ranging from 15 to 30 per cent, a substantial savings to consumers.
Most manufacturers, concerned because of increasing complaints, attempted in various ways to prevent discount houses from selling their goods at a discount. Manufacturers resorted to such practices as refusing to sell to them, placing rigid resale prices on merchandise, and attempting to enforce resale price maintenance, more generally known as fair trade.
Some manufacturers were more successful than others in enforcing full price merchandising. But eventually, as will be discussed in another section of this book, fair trade lost much of its power. One after another of the manufacturers abandoned the practice of enforcing fixed prices. Household electrical-appliance manufacturers were among the last to give in. Thus, it became possible for discount houses to offer a wide variety of well-known brands at substantial discounts, thus forcing department stores and electrical-appliance dealers to reduce prices or lose sales.
By 1960, discount houses were not only generally accepted by the public, but even had been accepted into membership in the retail merchants' associations. In other words, they had attained full status as accepted merchants in most communities. They had also grown. Several of the larger discount houses are, in effect, discount department stores, offering a wide variety of merchandise at savings ranging from 5 to 25 per cent.
Most consumers do not recognize the term syndicate stores. The student of marketing should, however, be familiar with the term. It indicates a special kind of chain-store operation such as Sears, Roebuck and Company and Montgomery Ward, stores which operate chains of department stores as outgrowths of original mail-order business.
One of the chief characteristics of syndicate stores is that, while they offer a wide variety of merchandise to consumers, they seldom sell well-known brands. Most of the merchandise they sell is their own. They do very large volumes of business.
Syndicate stores are, for all practical purposes, retail chains. They buy only merchandise unbranded or under their own private brand. Syndicate stores are large customers for certain types of merchandise such as automobile tires, batteries, garden equipment, and large household appliances which are made for them by well-known manufacturers who also sell their own brands.
Why we have large-scale retailing
The type of large-scale storekeeping that has developed is properly described as horizontal integration of merchandising. Its chief advantages are that large-scale economies can be made in buying, in specialization of manpower and skills, in joint advertising and merchandising promotions, and in wider assortments for consumers.
Horizontal integrations, generally referred to as chains, would not have been possible if they had not, through a greater assortment of merchandise, lower prices and convenient locations, given the consuming public better service than that provided by small stores. It is true that the growth of chains has, to a degree, destroyed the personal relationship often existing between the storekeeper and the consumer. But the verdict of the consuming public, which in the end must determine what services the public is willing to buy, has still been overwhelmingly for bigger stores, bigger assortments, greater convenience and lower prices.
Department stores are also horizontal integrations. In essence, a department store is a variety of small stores grouped together under one roof. Department stores cater to people buying shopping goods. As a rule, they are not neighborhood but downtown shopping stores, and they depend, to a large extent, on transportation facilities for store traffic. With the development of shopping centers, department stores have tended to move out into these centers with branch stores, so that, in effect, many department stores have also become chain stores.
In a recent year, sales of each department store on the average amounted to about $4.2 million. Some stores, like Macy's in New York, had much higher sales. There are approximately 3,200 department stores in the United States. Although this is a very small number relative to the total of 1,800,000 retail stores in the country, department store sales account for 7 per cent of the total retail sales.
One development in department stores, not usually found in chain or independent supermarkets, is that many of the departments inside the store are actually independent, leased concessions. The practice of leas¬ing departments inside of large units is growing. It will probably spread, in the years ahead, into all types of large-scale retail operations. Leasing makes possible a wider variety of offerings to the consuming public without tying up greater amounts of capital on the part of the store owner.
One point about the size of retail establishments deserves mention. Size can become a handicap as well as an asset. The larger a unit of operation, the more rigid the operating policies tend to be. Fixed expenses have a way of becoming fixed at a high level. Some consumer buying concessions, such as the practices of accepting returned merchandise, of delivering free, and of giving extended credit, have cost department stores considerable in the past, and have proven hard to discontinue.
The movement of populations to the suburbs has also cut heavily into department store profits, particularly those which remained downtown establishments. In many cities, the downtown area has suffered, and while there are some indications of partial comebacks, the scattering of the population into the suburbs has meant that department stores have had either to build branches or to accept a smaller share of the market.
Again, the student will do well to remember that the only reason for the existence of retail establishments is to serve the consumer. Convenience to the consumer is therefore the first requisite of success for any retail store. Department stores are no exception.
Horizontal integrations, generally referred to as chains, would not have been possible if they had not, through a greater assortment of merchandise, lower prices and convenient locations, given the consuming public better service than that provided by small stores. It is true that the growth of chains has, to a degree, destroyed the personal relationship often existing between the storekeeper and the consumer. But the verdict of the consuming public, which in the end must determine what services the public is willing to buy, has still been overwhelmingly for bigger stores, bigger assortments, greater convenience and lower prices.
Department stores are also horizontal integrations. In essence, a department store is a variety of small stores grouped together under one roof. Department stores cater to people buying shopping goods. As a rule, they are not neighborhood but downtown shopping stores, and they depend, to a large extent, on transportation facilities for store traffic. With the development of shopping centers, department stores have tended to move out into these centers with branch stores, so that, in effect, many department stores have also become chain stores.
In a recent year, sales of each department store on the average amounted to about $4.2 million. Some stores, like Macy's in New York, had much higher sales. There are approximately 3,200 department stores in the United States. Although this is a very small number relative to the total of 1,800,000 retail stores in the country, department store sales account for 7 per cent of the total retail sales.
One development in department stores, not usually found in chain or independent supermarkets, is that many of the departments inside the store are actually independent, leased concessions. The practice of leas¬ing departments inside of large units is growing. It will probably spread, in the years ahead, into all types of large-scale retail operations. Leasing makes possible a wider variety of offerings to the consuming public without tying up greater amounts of capital on the part of the store owner.
One point about the size of retail establishments deserves mention. Size can become a handicap as well as an asset. The larger a unit of operation, the more rigid the operating policies tend to be. Fixed expenses have a way of becoming fixed at a high level. Some consumer buying concessions, such as the practices of accepting returned merchandise, of delivering free, and of giving extended credit, have cost department stores considerable in the past, and have proven hard to discontinue.
The movement of populations to the suburbs has also cut heavily into department store profits, particularly those which remained downtown establishments. In many cities, the downtown area has suffered, and while there are some indications of partial comebacks, the scattering of the population into the suburbs has meant that department stores have had either to build branches or to accept a smaller share of the market.
Again, the student will do well to remember that the only reason for the existence of retail establishments is to serve the consumer. Convenience to the consumer is therefore the first requisite of success for any retail store. Department stores are no exception.
The role of the retailer
The retailer is the last link in the chain of distribution between the manufacturer and the ultimate consumer. When people speak of middlemen, they mostly think of the retail store because this is the business establishment most consumers know best. They know their favorite department store, grocery store, drugstore, hardware store, clothing store and candy store.
Without retail stores to make the goods of industry conveniently available to millions of consumers, there could be no mass production. The country would never have experienced an industrial revolution. The retail shop is one of the oldest and most universally-used business establishments not only in the United States and Canada but the world over.
The function of the retail store is to bring the correct assortment of goods for consumers to use, and to make them available in the most economical and convenient form. The only reason for retail establishments is that household consumers need to purchase frequently, in small amounts, a variety of things needed in the home: food, clothing, gasoline, hardware, drugs, and many other items that enter into the daily lives of the people.
The development of large-scale retailing has been a phenomenon of the twentieth century. Even department stores, many of which have become giants in their own right, were a development of the early 1900's. Postal service aided the growth of retail mail order houses, which in turn evolved into the present-day syndicate stores such as the great retail chain establishments of Sears, Roebuck and Company, and Montgomery Ward. Changing consumer habits and buying patterns favored the growth of large retail establishments, especially for shopping goods. Consumers found convenience in the "one-stop" shopping facilities of the modern department store.
From this, it was inevitable that giant convenience goods stores should also develop. The supermarket, a product of the early days of the depression and the need for lowering the price of necessities, has today become the most successful single type of large-scale retail merchandising. The shopping center, outgrowth of the movement of population to the suburbs, and of vastly increased mobility because of improved transportation facilities, has truly made one-stop shopping possible.
Shopping centers require a large volume of business. This makes for bigness, and the big independents and chain stores are mushrooming everywhere. The reason, again, is consumer convenience and consumer service at low cost.
Without retail stores to make the goods of industry conveniently available to millions of consumers, there could be no mass production. The country would never have experienced an industrial revolution. The retail shop is one of the oldest and most universally-used business establishments not only in the United States and Canada but the world over.
The function of the retail store is to bring the correct assortment of goods for consumers to use, and to make them available in the most economical and convenient form. The only reason for retail establishments is that household consumers need to purchase frequently, in small amounts, a variety of things needed in the home: food, clothing, gasoline, hardware, drugs, and many other items that enter into the daily lives of the people.
The development of large-scale retailing has been a phenomenon of the twentieth century. Even department stores, many of which have become giants in their own right, were a development of the early 1900's. Postal service aided the growth of retail mail order houses, which in turn evolved into the present-day syndicate stores such as the great retail chain establishments of Sears, Roebuck and Company, and Montgomery Ward. Changing consumer habits and buying patterns favored the growth of large retail establishments, especially for shopping goods. Consumers found convenience in the "one-stop" shopping facilities of the modern department store.
From this, it was inevitable that giant convenience goods stores should also develop. The supermarket, a product of the early days of the depression and the need for lowering the price of necessities, has today become the most successful single type of large-scale retail merchandising. The shopping center, outgrowth of the movement of population to the suburbs, and of vastly increased mobility because of improved transportation facilities, has truly made one-stop shopping possible.
Shopping centers require a large volume of business. This makes for bigness, and the big independents and chain stores are mushrooming everywhere. The reason, again, is consumer convenience and consumer service at low cost.
Specific kinds of wholesalers
There are two specific kinds of wholesalers who deserve mention in this discussion: (1) petroleum bulk stations, and (2) assemblers of farm products.
Petroleum bulk stations are wholesalers who distribute petroleum products. These products require special handling and special installations. The services performed, however, are similar to those of other wholesalers.
Assemblers of farm products pick up the products of these farms, assemble them, grade them, and ship them to wholesale markets. For fresh fruits and vegetables, this is a costly operation because of the spoilage and special handling necessary.
In spite of gloomy forebodings which used to be common a few years ago, the wholesaler has managed to hold his own because of the very real services he renders. But the wholesaler today, as compared with one hundred years ago, is a much less important member of the business fraternity. One hundred years ago, there were no such things as chain stores, department stores, supermarkets, discount houses, and large retailers found now in every community in the land.
For a long time, many producers have used various means to bypass the wholesaler. As retailers grew larger, they, too, began buying direct. When groups of retail merchants started forming cooperative wholesale distributing houses, remaining wholesalers adopted modern cost-cutting methods in order to compete successfully although, in many instances, they were to serve only the smaller retailers.
The reader should keep in mind that the function of wholesaling is vital to any widespread economy. By modernizing establishments, merchant wholesalers have been able to hold their own and, in some instances, to make spectacular comebacks. By adopting newer techniques of the integrated distributors, wholesalers have been able to regain some of the ground lost to manufacturers' branches, sales offices and agent middlemen. By providing rapid, low-cost and efficient service to the retailers who depend upon them, such wholesalers have adapted themselves to changing conditions.
We are not implying that marginal and inefficient wholesalers will be able to survive. They are likely to be driven out of business in many lines in the years ahead. Small wholesalers, with annual sales of one-half million dollars and less, appear to face serious trouble ahead. Some of these wholesale merchants show operating costs as high as 30 per cent of sales. The modern consumer is in no mood to pay for such high distribution costs. The large, full-service merchant wholesaler can operate on 6 per cent or less, while the average for all merchant wholesalers is 13.2 per cent.
The push is on for lowering the cost of distribution, and a wholesaler who cannot meet the demands of retailers and their customers is likely to drop out of the competitive race in the next decade. Obviously, larger operators have a decided advantage in effecting economies which will permit them to remain in business.
It is natural, therefore, to expect that wholesale establishments, like their counterparts in retail marketing, will grow bigger and will reduce the cost of operations through more volume, more efficient merchandise handling, and the use of electronic data processing for inventory controls, order processing, and similar operations which, in the past, have been done by hand labor.
It should be kept in mind that the function of wholesaling will be maintained as long as there is a small number of producers, concentrated in a few localities, and a very large number of consumers or customers, spread out over large areas. The function cannot be eliminated, although it can be integrated with other functions: manufacturing on the one hand, or retailing on the other.
Petroleum bulk stations are wholesalers who distribute petroleum products. These products require special handling and special installations. The services performed, however, are similar to those of other wholesalers.
Assemblers of farm products pick up the products of these farms, assemble them, grade them, and ship them to wholesale markets. For fresh fruits and vegetables, this is a costly operation because of the spoilage and special handling necessary.
In spite of gloomy forebodings which used to be common a few years ago, the wholesaler has managed to hold his own because of the very real services he renders. But the wholesaler today, as compared with one hundred years ago, is a much less important member of the business fraternity. One hundred years ago, there were no such things as chain stores, department stores, supermarkets, discount houses, and large retailers found now in every community in the land.
For a long time, many producers have used various means to bypass the wholesaler. As retailers grew larger, they, too, began buying direct. When groups of retail merchants started forming cooperative wholesale distributing houses, remaining wholesalers adopted modern cost-cutting methods in order to compete successfully although, in many instances, they were to serve only the smaller retailers.
The reader should keep in mind that the function of wholesaling is vital to any widespread economy. By modernizing establishments, merchant wholesalers have been able to hold their own and, in some instances, to make spectacular comebacks. By adopting newer techniques of the integrated distributors, wholesalers have been able to regain some of the ground lost to manufacturers' branches, sales offices and agent middlemen. By providing rapid, low-cost and efficient service to the retailers who depend upon them, such wholesalers have adapted themselves to changing conditions.
We are not implying that marginal and inefficient wholesalers will be able to survive. They are likely to be driven out of business in many lines in the years ahead. Small wholesalers, with annual sales of one-half million dollars and less, appear to face serious trouble ahead. Some of these wholesale merchants show operating costs as high as 30 per cent of sales. The modern consumer is in no mood to pay for such high distribution costs. The large, full-service merchant wholesaler can operate on 6 per cent or less, while the average for all merchant wholesalers is 13.2 per cent.
The push is on for lowering the cost of distribution, and a wholesaler who cannot meet the demands of retailers and their customers is likely to drop out of the competitive race in the next decade. Obviously, larger operators have a decided advantage in effecting economies which will permit them to remain in business.
It is natural, therefore, to expect that wholesale establishments, like their counterparts in retail marketing, will grow bigger and will reduce the cost of operations through more volume, more efficient merchandise handling, and the use of electronic data processing for inventory controls, order processing, and similar operations which, in the past, have been done by hand labor.
It should be kept in mind that the function of wholesaling will be maintained as long as there is a small number of producers, concentrated in a few localities, and a very large number of consumers or customers, spread out over large areas. The function cannot be eliminated, although it can be integrated with other functions: manufacturing on the one hand, or retailing on the other.
Saturday, November 6, 2010
Manufacturers' sales branches
In an effort to integrate the distribution services which have to be performed, manufacturers have, for many years, operated their own sales branches wherever the volume of business or the type of products warranted such distribution. By numbers, less than 10 per cent of all the wholesale establishments in the country are manufacturers' branches, but these do more than 30 per cent of the total business.
Almost every kind of merchandise is sold through manufacturers' branches, with and without stock. It should be noted, however, that certain lines lend themselves more than others to sales through manufacturers' branches and sales offices. Food, for example, is ideal to sell through manufacturers' branches or sales offices because large chain stores and supermarkets buy direct and are serviced through the manufacturers' warehouses in the field.
Among the most recent developments in manufacturers' branches are the manufacturers' distributing or mixing centers. These, in effect, are large-scale manufacturers' warehouses or branches with stock, strategically located, which receive carload lots of merchandise from the various decentralized factories of the manufacturer. In turn, they mix and assort the goods for carload or truckload shipments to other branches owned by the same manufacturer, or to large direct- buying retail customers.
This development has been especially swift in the food and drug fields, but already the economies noted have led other types of manufacturers to view these distributing centers as possible additions in the near future. Substantial freight savings can be effected by these mixing centers.
To keep clear the difference between wholesale middlemen and functional middlemen, it should be kept in mind that functional middlemen do not take title to merchandise. They seldom see the goods they sell, and their earnings are a percentage of the total net sales price (a commission). Their main function is to facilitate selling, although there are some buying functional middlemen.
These functional middlemen are classified variously, but there are five groups which may be considered the most important. These are as follows:
(a)Brokers: This group operates to bring buyer and seller together. Brokers are especially important in the food, textile, used machinery and real estate markets. Primarily, brokers sell information—information of products available for sale or purchase.
(b)Commission merchants: This group, which is prominent in the agricultural products fields, handles the selling function for large numbers of producers. Like the broker, a commission merchant finds markets for the products for sale, but unlike the broker, he generally handles the goods he sells but does not own them. The
importance of the farm products commission merchants has declined in recent years as more and more direct-buying chains and other large retailers have supplanted them.
(c)Manufacturers' agents: These agents work for several non-competing manufacturers and act as sales representatives for such manufacturers in a territory. The main job of manufacturers' agents is to call on and sell to wholesale and industrial buyers. As a rule, the manufacturer's agent does not handle goods. He sends the orders to the manufacturer who, in turn, ships purchases direct to buyers. Some manufacturers' agents carry limited stocks. These agents work in products that have large volume sales and rapid turnover. Their commission runs around 2 per cent; but with new items and items of limited sales, their commissions may run as high as 15 per cent.
(d)Selling agents: Like the manufacturers' agents, selling agents sell for the manufacturer, but usually handle the entire output of such manufacturers. They take over the entire marketing job, for a commission. The selling agent is prominent in the textile industry, where many small producers have to sell products fast and at the lowest possible cost.
Almost every kind of merchandise is sold through manufacturers' branches, with and without stock. It should be noted, however, that certain lines lend themselves more than others to sales through manufacturers' branches and sales offices. Food, for example, is ideal to sell through manufacturers' branches or sales offices because large chain stores and supermarkets buy direct and are serviced through the manufacturers' warehouses in the field.
Among the most recent developments in manufacturers' branches are the manufacturers' distributing or mixing centers. These, in effect, are large-scale manufacturers' warehouses or branches with stock, strategically located, which receive carload lots of merchandise from the various decentralized factories of the manufacturer. In turn, they mix and assort the goods for carload or truckload shipments to other branches owned by the same manufacturer, or to large direct- buying retail customers.
This development has been especially swift in the food and drug fields, but already the economies noted have led other types of manufacturers to view these distributing centers as possible additions in the near future. Substantial freight savings can be effected by these mixing centers.
To keep clear the difference between wholesale middlemen and functional middlemen, it should be kept in mind that functional middlemen do not take title to merchandise. They seldom see the goods they sell, and their earnings are a percentage of the total net sales price (a commission). Their main function is to facilitate selling, although there are some buying functional middlemen.
These functional middlemen are classified variously, but there are five groups which may be considered the most important. These are as follows:
(a)Brokers: This group operates to bring buyer and seller together. Brokers are especially important in the food, textile, used machinery and real estate markets. Primarily, brokers sell information—information of products available for sale or purchase.
(b)Commission merchants: This group, which is prominent in the agricultural products fields, handles the selling function for large numbers of producers. Like the broker, a commission merchant finds markets for the products for sale, but unlike the broker, he generally handles the goods he sells but does not own them. The
importance of the farm products commission merchants has declined in recent years as more and more direct-buying chains and other large retailers have supplanted them.
(c)Manufacturers' agents: These agents work for several non-competing manufacturers and act as sales representatives for such manufacturers in a territory. The main job of manufacturers' agents is to call on and sell to wholesale and industrial buyers. As a rule, the manufacturer's agent does not handle goods. He sends the orders to the manufacturer who, in turn, ships purchases direct to buyers. Some manufacturers' agents carry limited stocks. These agents work in products that have large volume sales and rapid turnover. Their commission runs around 2 per cent; but with new items and items of limited sales, their commissions may run as high as 15 per cent.
(d)Selling agents: Like the manufacturers' agents, selling agents sell for the manufacturer, but usually handle the entire output of such manufacturers. They take over the entire marketing job, for a commission. The selling agent is prominent in the textile industry, where many small producers have to sell products fast and at the lowest possible cost.
Friday, November 5, 2010
Independent and voluntary group and cooperative wholesalers
Among the merchant wholesalers, there is still another distinction that must be made if the student is to get a rounded picture of this type of operation: the distinction between independent and voluntary group and cooperative wholesalers.
Purely independent wholesalers are merchants who buy for their own account from many manufacturers, and resell the goods in different forms and quantities to retail merchants wherever they can find retail buyers. The relationship between wholesaler and retailer is simply that of supplier and buyer. Both operate independently of each other. While these independent wholesalers far outnumber the other two types discussed, they do, on the average, less business per establishment.
Independent wholesalers have decreased in number materially over the years. Between 1929 and 1954, they decreased 42 per cent. While this has serious implications, the student of marketing must remember that the wholesaler exists because of the services he renders to the retail customers. One of the important services obviously is making it possible for the retailer to survive in competition with other forms of distribution, such as corporate chains, supermarkets, and discount houses. Obviously, these independent wholesalers have not been able to provide this service. Voluntary group wholesalers operate primarily in the grocery field. As the name implies, the association between wholesaler and retailers is voluntary. The wholesaler buys in large quantities as economically as possible, obtains advertising and other promotional allowances, and in turn obtains from retailers a pledge that the retailers will purchase stated quantities of sup¬plies from the wholesaler.
Sometimes, the wholesale house extends management services to the retailers, such as accounting and advertising. The kind and amount of services rendered to retailers differ, and will influence cost. Many voluntary group wholesalers own and sell their own branded merchandise in competition with nationally advertised brands. This gives retailers affiliated with them an extra exclusive which makes such affiliation even more attractive.
Small retail stores predominate in the voluntary group movement, some 86 per cent of them doing less than the accepted minimum of established supermarkets (under $375,000 a year sales). And less than 3 per cent of the stores affiliated in voluntary groups do $1,000,000 or more a year. But their ability, through voluntary cooperation, to buy as cheaply as the chains, and to do certain group advertising and merchandising jointly, places them, despite their small size, in a position to compete with other retail food merchants on a more or less equal basis.
Cooperative wholesalers or retail-owned wholesale distributing houses are, as the name implies, wholesale houses, owned by the retailers who are joined together in the venture.
The number of retailers who normally join together to own their own wholesale house averages about 200. This kind of wholesale house has an annual revenue averaging $14,000,000. These retailer-owned groups are in a position to buy advantageously, to do joint advertising and merchandising and, in other ways, to compete on fairly even terms with the corporate chains. Retailer-owned cooperatives have grown consistently over the years, in spite of the natural turnover of member stores. Currently 20 per cent of the total food business is done through them. The number of $1,000,- 000-volume retail stores affiliated in retailer-owned cooperatives has increased over 550 per cent in the past ten years.
Again, the reason for the existence of these retailer- owned wholesale houses is service to the retailers at economical cost. Purchasing, advertising, warehousing, delivery, store engineering, managerial advice, floor displays and other services are regularly rendered to member retailers.
The average cost of doing business is considerably lower for retailer-owned wholesalers than for either voluntary group or totally independent full service wholesalers. Through national organizations, they, too, sponsor private or distributor-owned brands. And profits, if any, are distributed as dividends to the members
Purely independent wholesalers are merchants who buy for their own account from many manufacturers, and resell the goods in different forms and quantities to retail merchants wherever they can find retail buyers. The relationship between wholesaler and retailer is simply that of supplier and buyer. Both operate independently of each other. While these independent wholesalers far outnumber the other two types discussed, they do, on the average, less business per establishment.
Independent wholesalers have decreased in number materially over the years. Between 1929 and 1954, they decreased 42 per cent. While this has serious implications, the student of marketing must remember that the wholesaler exists because of the services he renders to the retail customers. One of the important services obviously is making it possible for the retailer to survive in competition with other forms of distribution, such as corporate chains, supermarkets, and discount houses. Obviously, these independent wholesalers have not been able to provide this service. Voluntary group wholesalers operate primarily in the grocery field. As the name implies, the association between wholesaler and retailers is voluntary. The wholesaler buys in large quantities as economically as possible, obtains advertising and other promotional allowances, and in turn obtains from retailers a pledge that the retailers will purchase stated quantities of sup¬plies from the wholesaler.
Sometimes, the wholesale house extends management services to the retailers, such as accounting and advertising. The kind and amount of services rendered to retailers differ, and will influence cost. Many voluntary group wholesalers own and sell their own branded merchandise in competition with nationally advertised brands. This gives retailers affiliated with them an extra exclusive which makes such affiliation even more attractive.
Small retail stores predominate in the voluntary group movement, some 86 per cent of them doing less than the accepted minimum of established supermarkets (under $375,000 a year sales). And less than 3 per cent of the stores affiliated in voluntary groups do $1,000,000 or more a year. But their ability, through voluntary cooperation, to buy as cheaply as the chains, and to do certain group advertising and merchandising jointly, places them, despite their small size, in a position to compete with other retail food merchants on a more or less equal basis.
Cooperative wholesalers or retail-owned wholesale distributing houses are, as the name implies, wholesale houses, owned by the retailers who are joined together in the venture.
The number of retailers who normally join together to own their own wholesale house averages about 200. This kind of wholesale house has an annual revenue averaging $14,000,000. These retailer-owned groups are in a position to buy advantageously, to do joint advertising and merchandising and, in other ways, to compete on fairly even terms with the corporate chains. Retailer-owned cooperatives have grown consistently over the years, in spite of the natural turnover of member stores. Currently 20 per cent of the total food business is done through them. The number of $1,000,- 000-volume retail stores affiliated in retailer-owned cooperatives has increased over 550 per cent in the past ten years.
Again, the reason for the existence of these retailer- owned wholesale houses is service to the retailers at economical cost. Purchasing, advertising, warehousing, delivery, store engineering, managerial advice, floor displays and other services are regularly rendered to member retailers.
The average cost of doing business is considerably lower for retailer-owned wholesalers than for either voluntary group or totally independent full service wholesalers. Through national organizations, they, too, sponsor private or distributor-owned brands. And profits, if any, are distributed as dividends to the members
Thursday, November 4, 2010
Why we have wholesale merchants
Wholesalers exist because there are close to 1,800,000 retail estab¬lishments, the majority of which have neither the capital nor storage facilities to buy direct from the manufacturer.
As we have seen, there are 38,000 manufacturers whose products eventually reach the consumer through 1,800,000 retail establishments. It is the job of the 308,- 000 wholesalers to see that the 1,800,000 retailers are stocked with merchandise to accommodate the millions of consumers.
In round numbers, 1,800,000 retail stores serve the needs of 200,000,000 consumers, or an average of 111 consumers per retail store. The enormous volume of re tail sales, which in a recent year ran to something like $304 billion, would be impossible to attain on a direct factory-to-consumer basis. Nor could a relatively small number (38,000) of manufacturers of consumer goods attempt to sell direct to 1,800,000 retail merchants, many of whom are small. That is why we have merchant wholesalers.
The primary function of the wholesale merchant is to assemble merchandise from many sources, warehouse it, regroup the goods for convenient buying by retailers, and then deliver the goods to retail customers. Traditionally, the wholesale merchant has extended credit to his retail customers. This practice is referred to in the trade as carrying his customers, sometimes for a period of many months.
Naturally, it is the small merchant who benefits from this practice because it enables him to obtain goods on time. Often, he is able to sell the goods to consumers before he has to pay his bill to the wholesaler. For the small merchant with limited capital, this is often the only means of staying in business.
Despite the growth of the so-called cash-and-carry wholesaler, who neither extends credit nor delivers merchandise-the retailer calls for his own purchases and pays cash-most wholesale merchants do extend credit to retail customers.
Most modern wholesale merchants provide information and advisory service to retailers, and they are often in a position to provide local market information to manufacturers as well. And since wholesale merchants send their own salesmen into the retail establishments of their customers, they also supply merchandising advice and other selling aids to retailers. Their most important service, of course, is that of making it possible for the manufacturer to sell to thousands of smaller retailers who cannot be sold direct from the factory because of their remote location, their small buying power, or their lack of storage space to purchase in large enough quantities to make such direct shipments economically feasible.
As we have seen, there are 38,000 manufacturers whose products eventually reach the consumer through 1,800,000 retail establishments. It is the job of the 308,- 000 wholesalers to see that the 1,800,000 retailers are stocked with merchandise to accommodate the millions of consumers.
In round numbers, 1,800,000 retail stores serve the needs of 200,000,000 consumers, or an average of 111 consumers per retail store. The enormous volume of re tail sales, which in a recent year ran to something like $304 billion, would be impossible to attain on a direct factory-to-consumer basis. Nor could a relatively small number (38,000) of manufacturers of consumer goods attempt to sell direct to 1,800,000 retail merchants, many of whom are small. That is why we have merchant wholesalers.
The primary function of the wholesale merchant is to assemble merchandise from many sources, warehouse it, regroup the goods for convenient buying by retailers, and then deliver the goods to retail customers. Traditionally, the wholesale merchant has extended credit to his retail customers. This practice is referred to in the trade as carrying his customers, sometimes for a period of many months.
Naturally, it is the small merchant who benefits from this practice because it enables him to obtain goods on time. Often, he is able to sell the goods to consumers before he has to pay his bill to the wholesaler. For the small merchant with limited capital, this is often the only means of staying in business.
Despite the growth of the so-called cash-and-carry wholesaler, who neither extends credit nor delivers merchandise-the retailer calls for his own purchases and pays cash-most wholesale merchants do extend credit to retail customers.
Most modern wholesale merchants provide information and advisory service to retailers, and they are often in a position to provide local market information to manufacturers as well. And since wholesale merchants send their own salesmen into the retail establishments of their customers, they also supply merchandising advice and other selling aids to retailers. Their most important service, of course, is that of making it possible for the manufacturer to sell to thousands of smaller retailers who cannot be sold direct from the factory because of their remote location, their small buying power, or their lack of storage space to purchase in large enough quantities to make such direct shipments economically feasible.
Tuesday, November 2, 2010
The wholesale trade in the United States
Despite all the services which wholesalers provide, merchant wholesalers do less than half the business done at wholesale in the United States today. The pattern in Canada is pretty much the same, and for the same reasons. These services cost money, and in the constant push towards reducing the cost of distribution, many different methods and channels are tried by manufacturers seeking to reach the consumer in the most efficient manner possible. This does not always mean the least cost, as we know, because such considerations as the control of merchandising practices, quicker and more efficient service to retailers, and service to ultimate buyers often enter into the picture.
Merchant wholesalers are wholesalers who take title to goods they bring into their establishment, break bulk, reassemble and resell.
There are many different types of merchant wholesalers. Some handle general merchandise, and are known as general merchandise wholesalers. Others handle a single line, such as dry goods, groceries or building materials. A third type is known as a specialty wholesale merchant, who handles only a narrow range of products and caters to specialty shops in the con¬sumer goods field, or to special buyers in the industrial field where a high degree of technical knowledge is necessary.
Limited function wholesalers are merchant wholesalers who do not provide full services and often provide only a minimum. Among the limited service wholesalers, certain types stand out and have become trade institutions. We can cite the following as the most important ones:
Wagon or truck jobbers. As the name implies, a wagon and truck jobber sells from his wagon. His main contribution is that he covers wide rural territories and delivers perishable or semi- perishable merchandise to small and often out- of-the-way retail customers. The cost of operating a truck-jobbing business is relatively high (14 per cent of sales or higher, equivalent to the cost of the full-service wholesaler). But he renders a real service to out-of-the-way retailers and their customers.
Per markets, a new type of wholesaler has developed to take care of these retail customers. The rack jobber specializes in such products as beauty aids, small items of clothing, and household items, often displayed in wire racks inside supermarkets, hence, the rack-jobber designation. His main function is that he keeps stocks and displays filled and properly price-marked. He usually sells for cash and is paid for the amount of merchandise he sells and delivers to each customer. Cash and carry jobbers. A cash and carry jobber sells only for cash, and sells only at his place of business. The retail customer comes to the wholesaler's warehouse, selects and buys what he wants, pays cash for it, and carries it away. Cash and carry jobbers are found in all lines of business. It is not the type of merchandise handled, but the method of operation that makes them different. Mail-order wholesalers. Many of the earlier distributors were mail-order houses, once more prominent than today. In the days of poor communications and scattered rural populations, mail ordering (especially retail) was often the only way consumers could purchase during winter months. Mail-order wholesale houses service retailers, both mail-order retailers and others, usually through catalog sales. Often lower prices are possible because the amount of service rendered is reduced to a minimum.
Merchant wholesalers are wholesalers who take title to goods they bring into their establishment, break bulk, reassemble and resell.
There are many different types of merchant wholesalers. Some handle general merchandise, and are known as general merchandise wholesalers. Others handle a single line, such as dry goods, groceries or building materials. A third type is known as a specialty wholesale merchant, who handles only a narrow range of products and caters to specialty shops in the con¬sumer goods field, or to special buyers in the industrial field where a high degree of technical knowledge is necessary.
Limited function wholesalers are merchant wholesalers who do not provide full services and often provide only a minimum. Among the limited service wholesalers, certain types stand out and have become trade institutions. We can cite the following as the most important ones:
Wagon or truck jobbers. As the name implies, a wagon and truck jobber sells from his wagon. His main contribution is that he covers wide rural territories and delivers perishable or semi- perishable merchandise to small and often out- of-the-way retail customers. The cost of operating a truck-jobbing business is relatively high (14 per cent of sales or higher, equivalent to the cost of the full-service wholesaler). But he renders a real service to out-of-the-way retailers and their customers.
Per markets, a new type of wholesaler has developed to take care of these retail customers. The rack jobber specializes in such products as beauty aids, small items of clothing, and household items, often displayed in wire racks inside supermarkets, hence, the rack-jobber designation. His main function is that he keeps stocks and displays filled and properly price-marked. He usually sells for cash and is paid for the amount of merchandise he sells and delivers to each customer. Cash and carry jobbers. A cash and carry jobber sells only for cash, and sells only at his place of business. The retail customer comes to the wholesaler's warehouse, selects and buys what he wants, pays cash for it, and carries it away. Cash and carry jobbers are found in all lines of business. It is not the type of merchandise handled, but the method of operation that makes them different. Mail-order wholesalers. Many of the earlier distributors were mail-order houses, once more prominent than today. In the days of poor communications and scattered rural populations, mail ordering (especially retail) was often the only way consumers could purchase during winter months. Mail-order wholesale houses service retailers, both mail-order retailers and others, usually through catalog sales. Often lower prices are possible because the amount of service rendered is reduced to a minimum.
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