CASH ORDER TRADING

Dominion, Volume 22, Issue 138, 7 March 1929, Page 12

CASH ORDER TRADING

GOVERNMENT INQUIRY CONTINUED - ■ I “SYSTEM SHOULD BE ABOLISHED” VIEWS OF DRAPERS, CLOTHIERS AND BOOT RETAILERS “Could a plebiscite be taken of the retail traders of the Dominion on the question of cash order trading it is a certainty that its abolition would be carried by an overwhelming majority, and if the public knew of its many ramifications they would not hesitate to boycott it.” This statement was made by Mr. T. O. Bishop on behalf of the New Zealand Federation of Drapers, Clothiers and Boot Retailers on Tuesday at the inquiry into the cash order trading system conducted by the Minister of Industries and Commerce (Hon. J. G. Cobbe). No evidence was tendered yesterday, but the Minister proposes to give' a further opportunity for those desiring to give evidence to submit it on his return from the south about the middle of the month.

“Cash order trading,” said Mr. ' Bishop before the inquiry, according to an officially supplied report, “is a vexed question with traders, and strenuously opposed by the vast majority. Many of them who have adopted the system have done so under competitive compulsion, and would gladly discontinue it if their competitors would do likewise. The system is in opposition to sound business principles, as it is not legitimate trading. It is quite as unfair as the trading stamp system which the Government made illegal many years ago. By the system, the public are’duped in that they are misled into the belief that they are buying the goods at the lowest cash prices, whereas the system adds considerably to the selling prices and materially increases the cost of living. The system encourages over-buying and debt, and is opposed to cash buying and thrift. The system is denounced by ail economists and the majority of those who have inquired into or have had experience of its working. It is bringing into existence a class of middlemen who make large profits at the expense of the legitimate traders and the general public. It is a clever scheme for enriching the originator at the expense of established businesses without calling for any service in exchange. “A Disguised Credit System.” “The title 'cash order trading’ is a misnomer and misleading. It beguiles people into thinking that they are receiving a benefit by cash trading, but in reality It is not cash trading at all, but is merely a disguised credit system. ‘Coupon trading’ would be a more appropriate term and less' likely to mislead the public. The system is a social evil. We are gratified that the Government is examining it, and we believe the examination will afford convincing proof that it is against the interests of the public. It is a ‘money lending’ system, and the rates of interest charged by the cash order traders are in keeping with the high rates of the regular money lender. “The ramifications of the system are' spreading throughout the towns of New Zealand at a somewhat alarming rate, and if anything is to be done it should he done now, before it getsa strangle hold on New Zealand trade as it has done in parts of Australia, Britain',' and America. “In proof of the contention that the trade cannot afford to pay for cash order trading without passiing on the cost to the customers, we have the fact that many of our branches during the last two years have lost members of long standing through their failure in business. Further, the number of assistants has been considerably reduced, as shown by our subscriptions, which are based on the number of sales hands employed. Our returns show a reduction of 584 sales hands for 1928, as compared with 1927. An allround increase in selling prices from 7} per cent, to 10 per cent, would be necessary to provide for cut prices on some line's, and ‘sale’ prices on others, and show the usual average profit on the returns. It may be argued, in fact, it is urged, that the extra business more than makes up for the deficiency in profit, and that the extra business is found money. The argument, however, is fallacious, and does not work out in practice, as some traders have already found out to first instance, in the event of a firm taking on the cash order system, a fair proportion of the firm’s own customers would be induced by clever advertising and plausible canvassers to go over to the new system. For every customer that did so, it would mean a direct loss of profit amounting to 12} per cent., or 15 per cent., as the ease may be. Secondly, if the system caught on, as it has in two or three centres in New Zealand, and in most parts of Australia and Britain, it is only a matter of time when all traders in, that particular line of business will be compelled to adopt the system in self-defence, or see their businesses gradually leaving them, and going to their rivals. They would be compelled to adopt the system however much they might be opposed to it. “Compelled to Follow Suit.” “If one or two firms only in a trade adopted the system, and the others held aloof they would undoubtedly, for the time being, increase their trade at very little extra cost, and the extra money would be found money, but business people nowadays are not so conservative or so stupid as to stand idly by and allow their trade to be filched by their opponents in the manner described. If one or two adopt the system, cithers are compelled to follow suit. In the end, all are in it to their detriment, unless the public can be made to pity the piper, and even then they are no better off. The purchasing power of the public is limitedcash order trading certainly cannot increase it. The community has a certain amount of money to spend, this amount is' divided among, the traders, in accordance with custom, and if all the traders adopt a new method of trade, and all go together the same distribution of trade will remain; no one firm will be the gainel ‘The system is not so fair as the old ‘‘trading stamp system’ which the Government of New Zealand put down by legislation before it got a strangle hold on trade. Could a plebiscite be taken of the retail traders of the Dominion it is a certainty that its abolition would be carried by an overwhelming majority, and if the public knew of its many ramifications they would not hesitate to boycott it. That the system encourages people to overbuy and run themselves into debt cannot be gainsaid. It encourages extravagance and the buying of more expensive articles than many of the purchasers can afford. “A retail clothier, writing from a town in England, states that ‘if a customer comes in for a suit of clothes for which he is prepared to pay cash he is willing to pay up to 50s. or 60s. for it, but if he has a ‘cash order’ he will go up to £5 or £6 for it.’ This illustration can be taken as typical of the system. The most unfair feature of the system is that the chreful, thrifty buyer who pays cash is penalised in that no differentiation can be made in his favour as against the person who seeks credit and payment by instalments through the cash order system. This is opposed to all the principles of fair trading, and should, if possible, be put a stop to. It is largely on this ac-

count that the system is so roundly denounced by economists all over the world. Exploiting the Public.

“The system is also building up a class of undesirable middlemen who, unrestricted, live as parasites on the traders to exploit the public. They charge the customer from 5 per cent, to 7} per cent, on the money lent, which is, of course, an increase on the selling price; they then demand another 12} per cent, to 15 per cent, discount from the trader, who, unable to give it on bis ordinary prices, is compelled to advance them as mentioned in the foregoing to make good the deficiency, the whole community paying alike the increased cost. It is estimated that in towns where the system is in full swing that the ordinary public pay on account of the system from 5 to 10 per cent, more than they would otherwise do, and the clients of the system the 5 to 7} per cent, commission charged by the cash order company over and above the trade discount. In other works the cash buyers are mulcted by the system to the extent of from 5 to 10 per cent., and the cash order patrons to the extent of from 10 to 17} per cent. “As stated before the term ‘cash order trading’ is a misnomer, as it leads the* public to believe that they are buying the goods at cash prices, whereas they are paying the prices of a credit or moneylending system. Legislation should be enacted making it a punishable offence to use the name in respect of that kind of trading. ‘Coupon trading’ would be a fairer term and not so misleading. The system is a credit system of an iniquitous character. “When the ‘Cash Order Regulation Bill’ was before the Victorian Parliament a few months ago, it was stated on authority that some of the cash order traders in Australia compelled their clients who happened to fall in arrears with their payments to sign a loan contract for the balance, for which they charged the usual terms of the regular moneylender, and this, be it it noted, over and above the excessive rates charged in the first instance. It was also stated during the debate on the Bill that in a few instances cash order companies were combining moneylending with cash order trading. If this kind of trading becomes general it will be a sorry day for the country that permits it. "As showing the rapidity of the growth of the system it is stated in one of the Australian papers that in Australia the number of eash order companies in 1925 was ten. with a turnover of £1,000,000. In June, 1928,, the number of companies had grown, it is estimated, to seventy? with a turnover of £10,000,000. He would be a bold man who would say that this huge amount represented new . business, A proportion of the increased trade would "be accounted for by increased population, but then it must be remembered that increased population brings with It an increase in the number of traders. The greater proportion of the ten millions must he ordinary trade done at . a discount and commission for which the public hare to pay. "Should be Abolished by Law.”

“In some parts of the Dominion the loeal traders have got together and by resolution have agreed among themselves not to accept cash order coupons and have for the time being prevented the system from being put into operation in their districts. This is only a temporary remedy, however, “as . sooner or later "the system will creep in in spite of their resolutions. If the evil is to be remedied it can only be done by legislation.

Those who are favourable to the system are those who in the meantime have secured extra business which they are naturally loth to risk losing by the demise of the system. The concensus of opinion to economists, traders and those who have studied the ‘system’ is that it is an iniquitous system and should be abolished by law.’ Evidence of Effect. The statement was supported by four witnesses, who gave detailed evidence qs to the effect of the cash orders on their particular businesses. The head of a well-known established drapery house stated that his firm had definitely decided years ago not to accept the orders, and this policy had been strictly observed. Another witness doing a large trade in men’s clothing, testified that he had had long experience with the orders, but had not realised until recently the effect of the heavy discounts granted, namely, 12} per cent., until his auditors had revised his yearly accounts. Despite the increased turnover due to the orders, his'net returns had not been increased. The investigation had clearly shown that this large discount to the cash order trader was unwarranted in view of the essential overhead charges required to be met. With the growth of the system., and more cash order companies and individuals coming into the business, the trade m the orders had been spread over a wider area, and the volume of business per «hon had decreased. In his case it had fallen fgpm several hundreds of pounds a month to a few pounds. This witness stated that the system tended to extravagant buying. In this view he was supported by four others. Possessing an order for £5 a purchaser, after securing some essential lines, would spend the balance on goods he did not actually need, and to this extent the system was against the principles of thrift. Another witness conducting a very large family trade in soft goods, stated that it was impossible in these days of competition to give the large discount allowed, and in times of sales, when goods were marked at specially loy- prices, and even at cost, and below cost, the drapers lost on every article sold. This witness was definitely of the opinion that any firm doing any material amount of business in cash orders would necessarily be -forced to charge higher prices than in the case of a business which did not deal In cash orders. . Another draper witness examined, informed the Minister that he was definitely opposed to the system, and would be glad to sever his connection with the cash order forms but he was practically compelled to take the orders as long as his competitors did so. What an Analysis of Costs Showed. Another witness dealing largely in drapery further stated that after fourteen vears’ experience his firm had definitely decided on a policy to discontinue the practice during the course of the next few months, and notification had been given of this changce K of policy. The effect of this system of business on a large footwear house was also explained. This firm had carefully analysed its costs, and was able to say that any material ex-

tension of the system of cash order tradjng would mfcan such a burden of discount that prices would have to bo raised to the buying public. t . One witness (a cash order trader) presented, a petition signed by over <OO i of his clients, residing in all parts of Wellington and suburbs, asking that fee sy»tem be not disturbed, and claiming that the orders bad been of benefit. Over 80 per cent, of the signatures were those of married women. . The Minister left for the South last night, and proposes to take evidence in Christchurch to-day and to-morrow, and in Dunedin on Monday and Wednesday of next week,