The Richmond Virginian. (Richmond, Va.) 1910-1920, 1917-08-12
TAKING PROFITS BY
DISCOUNT METHOD

DISCGUNI MtIhUD
Why This Is Deemed Preferable to
Obtaining Them BY Means
OF Mark-Ups.
In the discount controversy be-
tween the retailers and the various
women's wear manufacturers, an
argument which the store owners con-
slider one of their strongest Is taken
very lightly by the wholesalers. 1t
is that profit control in the modern
department store Is to be gained only
by turning over q certain fixed per-
centage on all purchases to the office
in the form OF a discount to the of
flee" Why profits should be taken
In this way passes the understanding
of the manufacturers who, as = rule.
consider the office" merely a device
to mulct the departments.
Various explanations have been Of
fered from time to time by store
executives OF why It Is necessary to
take discounts as profits, charging or
crediting the department with the diff
ference between the discount obtain
ed and the stipulated percentage for
the office, as the case might be. AS
the manufacturers still refuse to see
any good reason for the system the
explanations so far reaching their
notice must be put down as unsatis-
factory. The merchandise manager
of leading department store OF the
city was asked to throw light on the
operations of the office and was ques-
toned concerning the reason for the
present method of profit -taking and
why stores use and prefer this
method to gaining profits entirely
through the mark-up plan.
In starting hts explanation OF the
existing system OF proflt-taking he
brought out point that may not
have occurred TO the wholesalers in
their consideration OF the matter.
This point was that certain large
manufa cturers in the cutting up trade
have used the very method with
which they are now finding fault
AS far as ! know" he said mo
one has brought out the fact that the
department stores are not the only
concerns TO rely upon the discount
for profit. and yet this very system
OF profit control. as we call ii. has
been used by some very large manu-
facturers In the clothing and gar
ment trades, ! have gone to one of
the biggest clothing manufacturers
in the country to purchase a large
quantity Of boys suits. His price was
$3.T0, and together we went over
every item that entered into the cost
OF making that suit When we had
figured up every charge the total
was 1870. the asking price which OF
course included no profit I asked
/, the manufacturer where he got his
profit as il was reasonable to believe
he wasn't in business as philan-
thropist. He told me that by making
1, up my order for thousands of these
suits he would use up enough ma
terial 10 bring his seasons purchases
OF woolens up to a certain figure, at
which the mill would allow him a
rebate amounting to thousands of
dollars. In other words. for taking
stipulated amount ut the mflfs pro-
duct. a rebate or discount was given
him that would constitute his profit
, on the seasons operations. With this
mill organization alone. he told me
his rebate would be close to $4,000
BY operating on a cost basis and
taking his profit from these rebates
he was assured of a fxed income.
This has by no means" he con-
tinued. been an uncom' .on practice
IN the cutting up industry. although
the method has been confined. OF
course, to the manufa cturers who
consumed very large quantities of
material.
The system of profit taking we
use Is similar in many ways The dis
count however, Is substituted for the
rebate. Our yearly sales volume
amounts to approximately 10000
900. Our purchases run somewhat
over 100000. Our discounts fig
has DF
yield us an income of about $780,
900 year. That IL our fixed profit.
profit we can be certain Of The
reason why this method of profit
taking is employed IL chiefly because
of it's certainty. We feel sure that
this is the only means of securing
control of profits. and II is for that
reason that profit-taking through the
office is preferred to a system OF get
ting our profits through the mark up.
which would make our control very
unsteady and variable
The question that Immediately
comes up in discussion of profit
control through discounts versus pro-
fits from mark-ups Is how the buyers
adjust themselves to the two methods
There seems to be only one way of
meeting the situation created by re-
duction in discount rates to a point
where they won't yield the accustom-
ed income. That way is to all every
buyers position with men who know
how to figure out the intricate prob
lens Of mark-up. figure in the same
way. buy in the same way and sell
in the SANG way. This is obviously
an impossibility because, where you
may get a man who can handle his
figures accurately. his method may be
to sell on small margins and get
quick turnovers. Another man NAV
be able to figure Just as accurately
and prefer a method of merchandise
ing that calls for larger profits and
slower turnover. The point ! am
trying to make is that every buyer
has his own way Of doing things. and
his method may prove successful one
season and unsuccessful the next.
That means his profits may be very
satisfactory during one period and
below the mark at some other time.
II have to admit that our buyers
as a general rule are not as well in
formed concerning the calculations
they must make in figuring prices on
merchandise as they could be. The
system that has gradually grown up
In the stores. of controlling their pro-
fits through discount taking. has in a
large way contributed to their ignor-