THE CHAIN STORE

Evening Post, Volume CXXII, Issue 18, 19 October 1936, Page 12

THE CHAIN STORE

ESSENTIALS TO SUCCESS

SCIENTIFIC SELLING

"Evening Post," October 19.

Mr. Stanley McMichael, an American writer on specialised retailing, enumerates some of the advantages enioyed.by the chain store over the individual retail trader. These advantages include standardisation of goods; increased buying power and lower prices, with larger discounts; standardised management, leading to many economies; specialisation, securing a vast turnover of goods; standardisation of arrangement of stock, shop windows, and fronts, office forms, and practices and sales policies; ranging the world in search of novelties and aei-ter-grade goods. "These are only a few of the advantages which the chain store operator has," stated Mr. McMichael. "So apparent have they become that many groups of individual grocers, druggists, and department store owners band into chains of tneir owp to secure the advantages enumerated above. These chains differ but little from the others, except that the ownership rests in several hands instead of in.a single large concern. COLES'S EXPERIENCE. Mr. K. F. Coles, dne of the directors of G. J. Coles. Ltd., Melbourne, in a recent address published in the Wild Cat," Sydney, described the development of the chain store, instancing Sir Thomas Lipton's proof of, the soundness of the method of retailing as applied to groceries. He also referred to the great English firm of Marks and Spencer, pioneers of the variety store, which, by the way, has registered in New • Zealand with its office in Wellington. In America, the Great Atlantic and Pacific Tea Co. was established by George H. Hartford in 1859. This company now controls over 21,000 stores, a marvel of scientific organisation and management. The F. W. Woolworth Co., the leader in the variety field, has been trading for 55 years, and now operates over 3000 stores in U.S.A., Canada, Cuba, England, and Germany. Great as has been the development of this form of distribution in America, it has been even greater in proportion •to population in England, where a more concentrated population and shorter lines of communication made central control simpler. On the Continent, chains have developed more slowly. The French department, store "Galeries La Fayette" in Paris has branches in the main Fren,ch cities and.in London, and one German hosiery chain has extended to England. Generally ■ speaking, the development has not been fast; one of the main reasons is that the Continental system of purchase- and payment is made, . . CHAIN STORE PROBLEMS. The department store has its own problems, said Mr. Cole. (1) As it crows and increases its service to the public overhead mounts up. (2) Its operating system is apt to cause delay in completing a sale. (3) Its stocks become immense, making control difficult, with inevitable losses from markdowns and slow turnover. These weak-; nesses allowed the small retailer, wha specialised in a few lines, opportunity to compete on a price basis. Other things being equal, a pur-, chaser always buys in the cheapest market. By keeping down his expenses and restricting his stpek within ,cer-: tain ilimits, the small trader soon fdund that there ,was plenty of scope for his activities. Instead of enlarging his pre-; mises, he opened a second store in- another locality, and stocked it exactly the-'same as his first store. : From this idea, chain stores came into existence. A chain store was described by Mr. Coles ■as a collection of not • less than four stores dealing in the same merchandise, and centrally controlled in all matters of finance and purchasing and trading policy. The first principle of a chain or of any successful business should be adherence to an ideal. Dealing in a specialised trade, the ideal of the variety chain is to supply at the lowest expense all the small necessities of life. To do this, it is necessary to bear in mind four, factors: (a) A reasonable return on capital; (b) a fair profit to the manufacturer; (c) adequate reward to the staff; (d) the customer. Thus the business naturally falls into four main departments; finance, buying, staff control, sales. CASH TRADING ESSENTIAL. The method of financing a well-run chain is based on the principle of "trading within the limits of available capital." One store should show a profit before others are opened. The ideal method would be to open successive stores from the profits of those already trading. A strictly limited capital for preparation, fittings, and stock should be used for the first store. This should not exceed one-fifth of the anticipated annual turnover. A bank ' overdraft places the trader in a position where he may ,be called upon to reduce it when he requires extra cash for purchases. Coles's find it necessary to use overdraft accommodation from about the end of July to the beginning of December to buy their Christmas stocks. By the end of the year, these goods have all been sold, the overdraft wiped put, and a cash position attained sufficient for normal business.

Sales are made for cash, and purchases are made by cash; the average period an invoice remains. unpaid by Coles's is six days. Financial essentials are: (a) Business planned within the capacity of available capital, (b) Capital subscribed or owned by the company; it must not be of a kind: that has a prior claim that makes it an expense, (c) Temporary accommodation should be used for seasonal purchases. This reduces the-necessary fixed capital, (d) Capital must be turned about: five or six times a year, (c) All sales and purchases are for cash, so that lull discounts are obtained.

It is a definite principle of chain stores to buy direct frorri the manufacturer. The department stores were the first to attempt this, and many of them have gone so far with it as to control their own mills. Chains have mostly restricted themselves to distribution.

The English firm of F. W. Woolworth, Ltd., warehouses no goods but buys direct from manufacturers, as required. A chain store company must at all times- be competitive. Chains have been conspicuously successful in groceries and provisions, fancy goods and drugs, shoes and clothing, tobacco and meat; but not so much in music and furnishings. They exist because of their quick turnover and cash sales. Locally-made goods have the advantage ■with buying for chain stores because they permit the holding of small stocks and are available immediately they are wanted.