The sun. [volume] (New York [N.Y.]) 1833-1916, 1914-06-27
"DRY GOODS ECONOMIST" ANALYZES CAUSES
LEADING TO FAILURE OF CLAFLIN COMPANY

unit, then a thorough analysis OF the
financial position Of each unit would have
to be determined, together with its re-
lation to the other units clearly defined,
before any accurate statement Of Its
technical strength could be made.
Some of these retail stores are very
favorably situated and have enjoyed a
long and successful career. But as every
good merchant knows, the past history
of n retail business IL n most intangible
factor in determining its present day eff
cheney. The important changes that have
been made In the locations of certain OF
the affiliated stores In New York city
indicate that the management was alive
to the necessity of preserving equities
by following the trend of trade.
The closing of the MoCreery store on
Twenty third street and it's consolidation
with the Thirty fourth street establish
ment Ia one proof Of this recognition.
Relations with the Retail stores
Many OF the other retail establishments
closely connected with the Clafiin interests
have felt the increasing force OF local In
dependent competition one OF the execu-
tives OF the Clafin business In discussing
the relations of the Clafiin AFFILIATED stores
to the wholesale enterprise said to the
writer some years ago when questioned
as to the Importance OF the distribution
OF merchandise from the wholesale busi-
} ness TO the concerns
About the hardest people we have to do
business with are the buyers of the So
called Clafln stores. although we want TO
deal with them fairly and give them every
possible advantage to be derived In utiliz-
Ing our great resources"
This was SO because n buyer for a large
store desires at all times perfect free
dom and independence of action. He feels
| that he must be on n competitive parity
with the other stores In his community,
and Is naturally in opposition to any at
tempt to divert his purchase to a single
affiliated wholesale interest. And he does
not neglect any opportunity to demon
| strate the advantages to be enjoyed In
free market. This very natural attitude
has direct bearing on the value OF an
affiliated stores connection to the II. H.
Clahin Company.
On the other hand, n buyer who allowed
! himself TO be dominated by the whole
sale connection. subordinsting TO 1t his
| judgment as to quantities or styles might
| fail In his functions as an impartial judge
| OF what his store was capable of dis
tributing and would be likely to accu-
muate excessive stocks This In the
end would mean that the burden had
merely been transferred from one interest
TO another closely AFFILIATED with II and
that no Roadway had been made in oh.
tanning that final distribution TO the con-
sumer which would provide the funds to
liquidate the sequence Of transactions.
1t Is possible that in some of the situd-
tons developed In connection with this
important insolvency this will be found
to have been one OF the weaknesses Of
the situation and to a considerable de-
gree responsible for the disaster.
The Last Balance sheet.
The early reports OF the failure which
claim liabilities ranging from s3o.O0o.O 900
to 000.0o0-largely represented by
notes payable scattered throughout thou
sands of banks In the United States-in-
Innate the primary cause of the Clafiin
company's embarrassment the inability
Of the makers of this paper to take It
up at maturity. An analysis of the bal
ance sheet OF the II. Ii. Claim Company
as OF December 81. 1918. the last COM
plete statement available does not indorse
this assertion.
According to these figures the cash on
hand at that time was s2.7s+,562. The
total assets represented by cash. notes
. receivable and open accounts, merchAn-
disc. store property. &C.. totalled 49,
7ls,7l5. with total liabilities on open ac-
counts. foreign exchange. &c, OF si.770.-
. 900. This left an apparent surplus and
net worth OF $1,000. 000--represented by
capital stock $4,000 900 and surplus re-
serve and profits OF approximately $1,000,
600.
That a business with assets fixed anC
liquid. In excess OF sl5.700.00O and cur
: rent liabilities of less than one-third o.
this total had to go into receivers hands
within six months makes necessary &
closer examination into tho situation
Otherwise the policy of our bankers IL
freely buying commercial paper based OF
statements of this character may be ques
toned.
The figures disclosed in it's annual bal
ance sheet have no doubt been the basi
on which the company has APPARENT!
been able to secure unlimited and widel!
= distributed credit. The Claflin Endorsed
Q bills receivable have been accepted freel.
' by commercial banks all over the Unite
Y States 1t would seem that even whe
= the makers of the notes were probabl
j not we'll known to the lending instituto
r the Endorsement OF tho IT. d. Clafi
1 Company being all the certification tina
: the purchasing bank needed to sssur
r itself that this was prime" paper
I In the balance sheet, as printed, how
d ever, there Is apparently no statement q
. the contingent liabilities OF the corpora
d ton by Endorsement should 10 be di,
& closed that the bank liabilities represente
h in this Insolvency are in the form OF 50
g called customers paper--made direct
the II. b. Claim Company and indOrse
d by II or bearer notes Endorsed by III
e maker and then Reimbursed by the u.
Is CIafin Company-the banks, II woul
e seem. have been supplying the capital
e support transactions, which though nom
X nally representing a specific transactio
In the sale and purchase OF merchandi'
from the II. Il. Clanin Company to reta
store were apparently n shifting OF me-
chandise from the wholesale end to u
70 retail end Of closely affiliated concern
lie which operated under different names m
5. organizations, but could not be classed 4
~ separate and distinct businesses In Il
r. ordinary sense.
y Independent merchants dealing with
jobbing house on a large scale would m
ly be Offering their notes to the jobber to
~ degree which would pile up such an emo
In nous mass OF paper. II their credit wi
good such concerns would anticipate Il
10 sale of the merchandise by borrowir
IN from their local bankers and pay Il
n jobbing house In cash. thus obtaining Il
D. discount advantages which are absolute
10 necessary under modern competitive met
y ODDS. Should 1t be found that "a large VIC
y ume of paper was created In the mann
suggested, then the ability OF each OF the
~ afiiliatd retail stores to take care of
he obligations independently will largely d
termine the final outcome OF this e
y. ceedingly complicated situation. with
10 wide ramifcations into the banking al
.o mercantile interests OF the country.
"a h... lit,