TABLE 118.-Payroll as percent of sales for various classifications in department stores with sales of $1 million and up. 1954-Continued

Source: Operating Results of Department and Specialty Stores in 1954, op. cit., pp. 25 and 31.

The relative share of the labor cost of this group in total sales first declined (from 12.3 percent for department stores with sales from 1 to 2 million dollars to 11.4 percent for stores with sales from 2 to 5 million dollars yearly). The payroll percentage then increased slightly but steadily to a high of 12.55 percent of sales for stores with annual sales from 20 to 50 million and declined to 12.35 percent for stores with sales of 50 million or more.

The most important group within merchandising is the "salespeople" subgroup. Their relative significance has a steady tendency to decline from 8.3 percent for stores with annual sales from 1 to 2 million dollars to 6.6 percent for stores with annual sales of 50 million

or more.

The third group mentioned above is the personnel office group. It was of relatively minor importance with a steadily increasing relative significance as we move from stores with annual sales of 1 to 2 million dollars (0.05 percent of sales) to stores with annual sales of 50 million or more (0.3 percent of sales).

These data show that sales personnel, which is, generally speaking, the major low-wage group of employees, accounted for less than onehalf of total payrolls. An extension of the coverage of the Fair Labor Standards Act to retailing would, therefore, have its greatest impact on a group of employees which constitute a rather small cost item (between 6.6 and 8.3 percent of the sales dollar).

This conclusion and the general statements contained in the preceding paragraphs are likely to be challenged on the ground that the most significant labor cost ratios are not the ratios of payrolls to sales but the ratios of payrolls to value added. The following section dealing with margins and profits will throw light on this issue.

Retail trade

MARGINS AND PROFITS

There are different types of "margins" in retail trade. We will first discuss the margin concept which is identical with "value added" or "cost of distribution," namely, "the difference between the value of commodities leaving the distributive system and their value when they entered the system."

As table 119 shows, cost of distribution thus conceived increased from 23.2 percent in 1869 to 28.9 percent in 1929. These percentages show the value added by retailing as a percentage of the total sales volume. A rise in the percentage does, however, not necessarily indicate an increase in the cost of the identical service rendered, but may mean a new or a better service rendered.

TABLE 119.-Value added by retailers, 1869-1929

These relationships will become clearer as we examine margins in the value-added sense by line of retailing. There are only 2 branches of retail trade for which this margin exceeded 40 percent (in restaurants the margin is 58 percent and in chain furniture stores 44 percent).

Table 120 shows the retail margins by kind of store from 1869 to 1947. These retail margins are identical with "value added," or cost of distribution. The figures do not indicate a clear-cut trend for the various branches of retail trade. In some lines the relative cost of distribution showed a long-run tendency to increase, in others it showed a long-run tendency to decline.

* See Harold Barger, Distribution's Place in the American Economy Since 1869, Princeton, 1955, p. 55.

TABLE 120.-Retail margins by kind of store, 1869–1947

Jewelry...

22.5
33.0 33.0
31.8 30.4 29.0
31.7 31.7 31.8 31.9 33.8

24.2

26.5

29.6

32.8

35.3

35.3

27.4 26.0

24.5

24.5

38.2 43.0

41.7

Cameras, luggage, toys, and sporting goods. 38.6 38.0 37.2 36.5 35.8 35.2 34.4 33.6
Musical instruments.1

40.0 33.0

Other.

17.5 17.5 17.8 18.1 18.7 19.0 18.4 17.9 17.9

1 Same as furniture.

Source: Harold Barger: Distribution's Place in the American Economy Since 1869, Princeton University Press, Princeton, 1955, p. 81.

Among branches of retailing with an increasing long-run trend in the relative cost of distribution were: Department stores (margin of 22.2 percent in 1889 and 35.6 percent in 1947); dry goods (18.7 percent in 1869 and 28 percent in 1947); limited-price variety stores (31 percent in 1899 and 36 percent in 1947); apparel (21.1 percent in 1869 and 37.7 percent in 1947); shoes, independent stores (21.4 percent in 1869 and 34.5 percent in 1947); independent furniture stores (30 percent in 1869 and 40 percent in 1947); drugstores (28.4 percent in 1869 and 33 percent in 1947).

For all these fields the trend has been steadily increasing with the exception of department stores where it declined after 1939 (from 36.4 percent in 1939 to 35.6 percent in 1947) and independent furniture stores which also showed a decline (from 41.2 percent in 1939 to 40 percent in 1947). Dry goods maintained their average of 28 percent since 1929 and drugstores maintained their ratio of 33 percent since 1939.

In the following branches of retailing the relative cost of distribution showed a long-run declining trend: Chain shoe stores (from 33.5 percent in 1909 to 27.6 percent in 1947); liquor stores (from 35 percent in 1869 to 29 percent in 1947); cigar stores (from 33 percent in 1869 to 24.5 percent in 1947); cameras, luggage, toys and sporting goods (from 38.6 percent in 1869 to 33 percent in 1947).

There are a number of branches of retailing without any clear-cut, long-run trend. Among them are independent groceries (18 percent in 1869 and 18 percent in 1947); grocery chains (17 percent in 1909

and 17.5 percent in 1947); furniture chain stores (44 percent, 1909, 44 percent in 1947); farm implements (23 percent in 1869 and 23 percent in 1947).

Harold Barger comments on these data as follows:

The noticeable variation both in level and in movement among the margins for different types of store calls for comment. A few suggestions only will be offered here. Relatively high margins are found where the product is varied and large stocks must be carried (e. g., furniture stores), or where the commodity is sold in conjunction with services (restaurants), or the outlet is specially taxed (bars). Relatively low margins result where the turnover is rapid and little or no free service is furnished (e. g., filling stations and grocery stores) or where a high price tag makes selling costs low percentagewise (automobiles).

The trend in margins can sometimes be explained by a change in the character of retailing. Among those few cases that we have been able to document may be mentioned the following. The increase in department-store margins has been much discussed; the rise prior to World War I seems to have been connected with the assumption of wholesaling functions and the more recent rise with the extension of some services, such as return privileges. The rise in mail-order margins is due, in part at least, to "trading up" (i. e., a switch in emphasis from price to quality), to the advent of testing laboratories, and to the trend toward orthodox store distribution by the mail-order companies. Again, the rise in variety-store margins was certainly influenced by the introduction of prepared food around 1909. The rise in jewelry-store margins may perhaps be due to the trend toward more liberai credit.9

Among those few types of retailing in which margins have declined, we may note meat markets, chain shoe stores, cigar stores, and the camera, luggage, toy, and sporting-goods group. Only for meat markets and cigar stores can we offer an explanation; in both cases a change would seem to have occurred in the retailer's function. Butchers did not give up slaughtering and the manufacture of their own meat products until well into our period, and their transfer to the factory was not completed until after 1900.10 The progressive restriction of the butcher's function to the distribution of products already prepared, and even packaged, at the packinghouse naturally allowed a cut in margins. To what extent retailers manufactured their own cigars at the opening of our period we have been unable to form any definite opinion. Certainly the variety of goods sold by cigar stores was greater (it included snuff and a wider variety of imported products) and fewer of them were packaged by the manufacturer. Moreover, chain cigar stores entered the field about 1900 and doubtless effected economies."1

We have not separated chain and independent cigar stores in our analysis because, at least recently, they seem to have had similar margins. This fact would not prevent the advent of chains from having lowered the margins of independents, but the suggestion cannot be documented.12

Limited-price variety stores

We have data for limited-price variety stores showing the relationship between margins in the sense of value added (which will be called "gross margins") and margins in the sense of net profits (before and after taxes).

Table 121 shows the changes in gross margins between 1929 and 1954 for 50 limited-price variety chains.13 From 32.7 percent of sales in 1929 margins increased to 37 percent in 1946. Since 1950 margins fluctuated between 37 and 38 percent ofsales,14

See Boris Emmet and John E. Jeuck, Catalogues and Counters, University of Chicago Press, 1950. especially chs. XIV, XXI. These observations are mostly based upon opinions in the trade.

10 New York butchers, for instance, established a cooperative abattoir as recently as 1904 (Butchers' Adzocate, June 1, 1904, p. 23).

American Grocer, December 10, 1902, p. 5; December 17, 1902, p. 7. Smokers' Magazine, April 1903, p. 126 12 See Harold Barger, op. cit. pp. 82, 83.

13 The total sales volume (exclusive of leased department sales) of the 50 firms was $2,421 million. It is estimated that this amount is about 86 percent of the total sales of variety chains in the United States in 1954. See Lawrence R. Robinson, Operating Results of Limited Price Variety Chains in 1954, Harvard Business School, Division of Research, Boston, 1955, p. 36.

14 These percentages do not coincide exactly with the percentages given in table 120 for limited-price variety stores as a whole. The most recent percentages, however, show only a small difference (1947 data on table 120, 36 percent; on table 121, 36.4 percent).