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IT is retailing which is, according to the advocates of high pressure distribution, the real neck to the distribution bottle. Manufacturers anxious to force their products into distribution find this neck so choked up that it is impossible for them to secure retail outlets in every community in which they wish to place their products on sale. The fact that the choking up of the neck of the bottle might indicate that the retailers were already amply stocked with merchandise, or that generally they were so overstocked that additional lines would simply increase their stock of goods without a corresponding increase in volume of business is, of course, an explanation of the retailers' resistance to the addition of the manufacturers' lines, but it is no solution of the dilemma in which the manufacturer seeking high pressure distribution finds himself.
How are these manufacturers trying to escape from this dilemma?
Exactly as in the case of the sales resistance presented by independent wholesaling--either by re-making the retailer into a mere slot-machine, or by abandoning distribution through the regular retailer altogether.
In certain lines of retailing--groceries and drugs are the most conspicuous--the manufacturers have pretty well succeeded in making the old time food merchants and the old time pharmacists into slot machines that vend indiscriminately the products which they are persuaded to distribute.
In other lines, they have abandoned distribution through retail stores altogether to sell direct by mail, through canvassers, or through chains of retail stores of their own.
The country is dotted with innumerable warehouses--established by manufacturers so as to eliminate or to coerce independent wholesalers--and by an even greater number of manufacturers' retail stores established to give manufacturers retail outlets where otherwise they would have none.
Stores of his own enable such a manufacturer to get "his" share of each community's business. The business in his product is then divided between the stores already in existence and the stores established by the manufacturer. There is, of course, no substantial increase in the volume of merchandise moved into each community, and the fact that it has to carry the cost of maintaining an additional store is a matter of indifference to the manufacturer if only he is able to get "his" share of the total consumption of his product in the community.
It is possible to clothe the opening of retail stores and wholesale branches by manufacturers with an atmosphere of academic repute and scientific efficiency by calling it the integration of industry. The facts of the matter, however, are not altered by the change in nomenclature. The manufacturer simply takes on himself the performance of additional parts of the process of distribution. Only in exceptional cases can he perform it as economically as it can be performed by the independent wholesaler and retailer. Nevertheless he justifies it to himself fully and sufficiently if it enables him to meet the imperious necessity of distributing the volume of goods which he must sell in order to operate profitably.
An article in Printers' Ink (S. C. Lambert, Printers' Ink, February 3, 1921.) discussing this subject, enumerates eleven advantages and six disadvantages in connection with the opening of retail stores by manufacturers. The advantages are the following:
1. The manufacturers' stores cooperate 100 per cent in backing up his national advertising.
2. Retail prices can sometimes be lowered.
3. Special service and adjustments can be rendered to customers more easily.
4. Substitution of other manufacturers' brands for his own is entirely avoided.
5. The consumers' taste can be studied at first hand.
6. The product itself can be frequently improved as a result of direct contact with the user.
7. New and strong sales arguments can be developed.
8. A knowledge of retail costs and management is obtained which can be turned to account in dealing with independent retailers.
9. Advertising and display material can be studied and improved.
10. Commercial travelers can be trained in these stores.
11. Independent dealers can be persuaded to handle the line through the force of example.
This is a formidable list of advantages. To it must be added one which the writer of the article omitted. That reason is to secure an outlet for the manufacturer's line in a community where it is not possible to interest any existing retailer, or, in other words, to force his line of goods into the town.
The six disadvantages mentioned are in startling contrast to the glowing picture of service to the consumer and profit to the manufacturer, which a reading of the advantages seems to indicate. The disadvantages are:
1. Most of the stores have been operated at an actual financial loss. In nearly every instance it has taken years to get them on a paying basis.
2. There is great danger in trying to compete with the manufacturer's own retailers. If the manufacturer aims to sell his entire output through his own stores, this disadvantage does not exist. However, in most cases the manufacturer who opens retail stores does so primarily as a lever for action upon independent retailers and when he tries to carry water on both shoulders, he often spills either one bucket or the other before he gets very far.
3. When independent retailers do handle the line, despite the competition of the manufacturer's stores, they do so grudgingly. They "back shelve" it and "knock" it at every opportunity. As a result, while the manufacturer's own stores may be successful, the antagonism of the independent retailers is so great that the distribution through outside channels is of very little benefit to the manufacturer.
4. A manufacturer operating his own stores is obliged to maintain very high standards. The stores must be operated on what might be called a luxurious scale in order to make a sufficient impression upon independent retailers. The overhead is so high that this is one of the reasons why these stores are so often financially unprofitable.
5. As is the case with all chain stores, it is important to have a high class store manager and these are very difficult to secure unless they are given more than a salaried interest in the enterprise.
6. The manufacturer's store is of necessity so occupied in trying to sell its own goods that it does not often respond quickly enough to popular demand. Consequently the independent retailer who has a more varied line is often at an advantage in competing with the manufacturer's chain store.
No statement which I might make of the philosophy underlying this form of high pressure marketing would be half as vivid as some extracts from an address by R. T. Devlin, of the agency of Charles H. Fuller Company, Chicago, made to the Engineering Association (National Advertising, January, 1925.) While the illustration used by Mr. Devlin dealt with industrial marketing, in deference to the fact that he was addressing a gathering of engineering advertisers, what he said is equally descriptive of methods used in creating outlets for merchandise sold in retail stores.
Crashing the Gate. We have considered our problem in selling . . . the buyer already in business, but how about broadening the market? In order to illustrate how, with the use of general publicity, an indirect selling plan can be worked out to meet almost any problem we may have to face, I shall use as my example, a line of business where the manufacturers using our product are all assembled in one town. Here we have five manufacturers who can use our machinery and equipment. The manufacturers have not all the same buying power and one is more desirable than the others, because of the volume of business he does. It so happens that in this community we do not sell a single firm of the five. The town already has its quota of manufacturers. In fact, the last one is barely existing. Our salesman makes this town every other trip--it seems hopeless, and he is concentrating his time in productive territory.
We need a customer. We don't want No. 5--he's too small. No. 4 may not be any too prompt about paying bills. Our . . . advertising has just appeared once or twice. Our man calls on Numbers 1, 2, and 3, and in each case he is met with comments on the advertising. It gets a rise, and our man is instructed what to do to take advantage of these comments. To make the problem more difficult, these firms do not change because of our . . . advertising. We have given them plenty of opportunity--now to get that customer.
Making a Customer. Our salesman goes to the Chamber of Commerce or the local bank--usually there are men who have saved some money and are anxious to go into business for themselves. The Chamber of Commerce and bank know of these men. As a result of our . . . advertising, they also know of our company and think they know all about the product we make. We are a recognized leader in our industry. A conference takes place with the men with the money. These men must also possess some intellect, in addition to the money. Our plan is laid before them--every step--the possibility of the market has been analyzed by us and the opportunity is there. These men accept.
Careful guidance on our part and in this market, which was already crowded, we have, in a few years, a picture slightly different from the first and very favorable to us because our new firm has taken its place as second in the community, and where we had no business before, we now have the second-best account in the city and with well-defined effort should have the leader with us because such a service cannot be ignored.
What a picture of the ruthlessness with which manufacturers operate--partly because they are tempted to exploit the ignorance of the business community generally, and partly because conditions drive them to create new outlets or die. Just because a manufacturer insists upon an outlet in the community, a new firm is added to a field already so crowded by the existing five firms that two can barely subsist. The business of the community has to be thereafter divided among six firms instead of five, or the community must suffer the losses involved in the liquidation or failure of some of the original firms.
In a pioneer country in which stores are few and trading centers far between, the peddler and canvasser may perform a truly economic function in distribution. High as may be the cost of distributing goods through him, he has to be used because no other method less costly than that which he represents can exist. But in a densely populated and well organized country, house to house retailing represents, except in the case of very unusual products, the diversion of distribution from less costly distribution channels to more costly ones.
An amazing number of products are now being sold through canvassers. In addition to such things as books and sewing machines, which have been sold through canvassers from the very beginning, they include commodities so various as aluminum ware, coffee and tea, women's silk hosiery, lingerie, gas fixtures, electrical appliances, raincoats, men's clothing, brooms and brushes.
An equally amazing number of men and women are employed in this particular form of high pressure retailing. Each manufacturer who distributes through house to house selling employs an army of these canvassers.
The activities of these armies of canvassers constitute a nation-wide duplication of the work of the regular wholesale and retail channels for distributing merchandise. Hundreds of manufacturers, some of them on a gigantic scale, are marshalling these armies and creating these duplications and reduplications of our channels of distribution.
The Fuller Brush Company, which makes a line of house brushes--a class of merchandise sold in practically every grocery, hardware, furniture, and general store in the country--employs over 2,000 canvassers, each one assigned to a territory containing a population of approximately 15,000, whose work is directed from over one hundred branch offices.
But the story of the Real Silk Hosiery Mills is even more interesting. More stores and more kinds of stores are engaged in distributing hosiery than any other product which men and women wear. It is sold in hundreds of thousands of stores--general stores, men's clothing stores, women's apparel stores, dry goods stores, department stores, haberdasheries, shoe stores, and hosiery stores. No other article of apparel is quite so accessible to the consumer, and few articles of any kind sold at retail are the subject of keener competition in assortment, quality, and price. Yet in spite of all these facts, the Real Silk Hosiery Mills, of Indianapolis, Indiana, who claim that they have risen "in less than five years to undisputed world leadership in the manufacture of silk hosiery," (Saturday Evening Post, January 16, 1926, pp. 48-49.) and who sell exclusively through house to house canvassers, employ 10,000 canvassers operating from 250 branch offices for the purpose of making "Real Silk Hosiery Service almost indispensable to the efficient conduct of the American Home."
The support of these canvassers and the expenses of the men who recruit and direct them represent in very large part an entirely unnecessary addition to the cost of distribution. Every item of merchandise they distribute through their canvassers could be distributed through the ordinary channels of distribution with hardly any additional burden of overhead upon regular wholesaling and retailing. On the contrary, it would lower the cost of distributing all merchandise by spreading the existing overhead on a greater aggregate volume of sales.
An immense army of workers is thus diverted by this form of high pressure selling from more useful service in production, or in professional, public, or other service.
The President of the Fuller Brush Company, which did a business of 18 million dollars in brooms and brushes in the year 1924, and which has been growing at the rate of over three million dollars per year, all of their products sold through house to house canvassing, admits that his cost of distribution is not as low as the cost of selling through retailers. (Printers' Ink, November 29, 1923.) In effect, he admits that as a result of his life work, every year over 18 million dollars worth of brooms and brushes, which in the normal course of events would have been distributed less expensively through retail and wholesale channels, are now distributed more expensively through the medium of house to house canvassing.
The possible growth of house to house retailing is limited only by the difficulty of securing and holding salesmen. The margin for profit is so large that the manufacturers employing it can indulge in all kinds of extravagances in order to speed up their business. Fortunately they cannot manufacture canvassers to order. No matter how effective their recruiting may be, even the most successful canvassing organizations lose their salesmen so rapidly that the total number of canvassers in the country increases rather slowly from year to year.
Mr. Bruce Barton, the author, editor, and advertising man, was at one time the manager of an extensive force of men engaged in selling books from house to house. In an article describing his work he said: "I used to figure that two men out of a hundred were worth spending time on; but the percentage of men who actually stayed in our business and became permanent factors in it was far smaller than that. The process of sifting is fearfully expensive; the final salesman who is left represents a considerable investment in newspaper advertising and expensive drill. And once drilled, he may on the following morning desert to the opposition, or sink into the quicksands of life insurance or patent window shades. Men fail for various reasons--lack of courage, lack of endurance, dishonesty, drink--all these play their part, of course, and a sales manager must combat them as best he can. Thousands of men are advertised for every day in the city newspapers, given a quick canvass and turned out on the streets to fail, who might be saved if they were properly prepared. There grows up in our cities, therefore, a shifting, spineless company of professional applicants, their self-reliance and capacity utterly destroyed by repeated failures." (Printers' Ink, February 4, 1915, p. 3.)
According to Mr. Barton, one of the best small canvassing forces ever gathered together consisted of thirty-five men, and these were the final fit survivors of no less than five thousand applicants.
If only thirty-five men out of five thousand finally succeeded, it must be that 4965 men tried and failed. While it may be true that not all of these 4965 men worked for so long a time as to permanently injure their working morale, there can be no question about the fact that very few of them were benefited by their failure to make good.
The commission, salaries, bonuses, and prizes paid to canvassers make this method of selling expensive enough, but to this must be added the tremendous cost of recruiting such a force, keeping it at work, and replacing those who drop out of the ranks. Since it is not unusual to have an annual turnover of five hundred per cent. in a canvassing force, the arduous nature of the task before the sales managers of manufacturers who retail their product in this manner can be imagined.
One claim put forth by manufacturers who market their products in this expensive way deserves special consideration. Many manufacturers of specialties claim that unless consumers were persuaded to buy through house to house canvassing, there would be no market at all for their products. An executive of a concern selling vacuum cleaners said when asked about the costliness of introducing their product through canvassers, "Yes, this costs money. These men are able sales people and must be paid accordingly. Our cleaner sells for less than $75. If it were not for this system of selling, enabling us to obtain our present huge volume, our selling price would be $200." (Printers' Ink.)
But as a matter of fact is a price of $200 really the alternative to a price of $75? According to this official, with a smaller production it would cost $125 more to manufacture the cleaner.
Large scale production, presumably, is made possible by the high pressure marketing thus reducing cost of production $125 on each cleaner.
As a matter of fact, really large scale production is made impossible by the high prices which have to be charged to cover the cost of high pressure marketing.
The principal reason that suction sweepers and similar appliances are high in price--and $75 is a high price--is because of the costly methods used in marketing them. The actual cost of fabricating them is only a fractional part of $75. But vacuum sweepers belong to that class of merchandise which lends itself to extremely high powered selling. So long as manufacturers believe that greater profits are to be made by adding to the cost of distribution rather than by securing volume through economical marketing, those using this costly method of retailing will try to put a flavor of public service into their methods by claiming that their products would cost much more if they sold them through regular wholesalers and retailers.
Most products which are sold by a campaign of house to house canvassing, installment credit and national advertising, as is the case with the vacuum cleaners, represent a factory cost of only from one-fifth to one-tenth of the price paid for them by the ultimate consumer. All the rest represents various kinds of distribution costs. If vacuum cleaners were to be sold through the normal channels of distribution with a normal advance over their manufacturing costs, an enormously greater market for them would develop. As it is, the very fact that consumers are asked to pay from five to ten times the manufacturing cost creates tremendous resistance to their sale.
Consumers who believe that the manufacturer who sells through house to house canvassers undersells the local retailer, base that belief upon the cleverness of the national advertising of manufacturers using this method of distribution and upon the silvery sales talk of their canvassers. The average consumer who buys from canvassers does have a vague feeling that by buying "direct" he is saving money. But in the very nature of the case, the manufacturer who sells direct cannot actually undersell the average retailer. It costs far too much to operate his complicated organization. With such a costly method of retailing, it is only natural that most of the products sold by canvassers cost the consumer more than he would pay for them to his local dealer.
There remains for final consideration only that justification made for house to house retailing which is symbolized by the word "service." But does the house to house canvasser better serve the consumer than does the local retailer? Certainly the retail store with its stock of merchandise within reasonable distance of the consumer thus making it possible for the consumer to promptly secure the merchandise which he may want whenever he desires to buy it, serves the average man or woman much better than does any other method of retailing. Not only does it render superior service in most cases, but it also renders it at a lower cost. But unfortunately for retailers--both retailers and retail sales clerks usually lack the eloquence of the proponents of canvassing and so have less success in presenting the merits of their service.
Costly methods of retailing survive principally because the relative cost of distribution through the regular channels of wholesaler-retailer-consumer and through the various so-called "direct" channels have not been investigated. Such investigations would very quickly establish, not the perfection, but certainly the overwhelming superiority in efficiency and economy of over-the-counter retailing.