Evening star., 1925-07-11
NEW BUYING PLAN
SCORED BY BABSON
Hand to Mouth Method
Would Not Cover Needs
in Emergencies.
BY ROGER w. BABSON
Dispatch to The Star


the present business situation is due
primarily to the fact that a majority
of manufacturers and merchants have
gone on a hand to mouth buying basis.
There are many reasons for this
change.
The primary one is the fact that so
many business men lost such great
sums on their inventories in 1921 that
they are not going to be caught in
such a predicament again. Further
more, most commodities have been
declining for some time, so that those
manufacturers and merchants who
have been buying on a hand-to-mouth
basis have thus far been the most
successful. In most cases it has been
easy enough TO get goods. and usually
the longer one waited the lower he
could buy. This has encouraged hand
to-mouth buying the same as falling
stock market encourages short selling.
Thinks Method Risky.
1t is perfectly safe at times to sell
the stock market short, provided YOU
are the only one who is doing it! The
more people, however, who indulge in
this short selling, the more risky 1t
becomes. Ii too many persons sell
the stock market short, there devel-
ops a corner, and all are given a ter
rible licking. The same principle ap-
plies to hand-to-mouth buying. In q
gradually declining commodity mar
ket, such as we have been in for
some time, a certain number of manu-
facturers and merchants can do well
by following a hand-to-mouth policy.
If, however, too many people indulge
in this policy there may be trouble.
Hand-to-mouth buying is safe. pro
vided no unforeseen event happens
to disturb the equilibrium by suddenly
either cutting off the supply or in
creasing the demand. But if such an
unforeseen events that at once come
then there is trouble Among these
unforeseen events that at once come
to my mind are the following three.
Weather and Style Changes.
AS I have said many times, the
weather is a great factor in retail
trade. and hence a great factor in all
industries. Ninety-five per cent of
the merchants today prepare for only
normal weather. They count on a
certain number of warm days and a
certain number of cold days; certain
number Of rainy days and certain
number of fair days.
They buy their goods, either con-
SciouSly or unconsciously. according
to the normal weather conditions with
no reserves at all on hand This was
always more or less true. but under
the hand-to-mouth system merchants
carry almost no reserve whatever.
Hence, when an abrupt change comes
in the weather. such as an early or
abnormally hot Summer or an early
or severe Winter. they are caught
with no stock and are obliged TO turn
customers away.
Market Stampede Possible.
The same general principle applies
to style changes. The public thinks
that the manufacturers make and
change the styles. OF course, they
do attempt to do this. but they often
fail In practice they send samples
around TO the jobbers as sort of tests.
The jobbers send out their statesmen
with the samples TO try out the mer-
chants, and the merhantS in turn try
out the consumers. Thus they find
out what styles and colors can best
be sold and plan accordingly Here
tofore merchants have ordered enough
to carry them through the entire sea
son, but now they are not doing this.
Instead they are depending upon
the jobber to replenish their stock in
Under normal conditions this might
be all right, but any marked increase
in the demand would cause a STAN
pede in the market for such goods.
Unforeseen Complications.
Affairs in our country are pretty
much settled, but conditions abroad
are still very unsettled. This applies
not only TO Europe. but to other coun.
ls.s
very chaotic: the French are at war
with the Mohammedans in Northern
Africa; Russia is still in the hands of
the anarchists. Upon all of these
countries we are absolutely dependent
for certain products.
We are dependent upon Japan for
silks, on China for tea on the Far
East for rubber. In past days manu-.
facturers bought big stocks of these
products. sufficient for one or two
years, if necessary. without further
importauons. Today. however. if the
supply of certain foreign products
were TO be suddenly decreased, there
would be famine in the market in
a few months.
Urges Buying of More Goods.
Events to cause a stampede in Ger
tain imported goods are liable tc
happen at any time. Therefore, !
strongly advise manufacturers and
merchants to keep in stock good
supply of imported goods. Not only
is 1t a good policy to prepare against
foreign political trousebles, but
there is not the same tendency foI
imported goods to decline in price as
for domestic goods.
Owing to the steady decline in ex
change and unemployment abroad
American buyers have thus far beer
able continually to force down foreign
prices. This, however. will not con
tinue forever, and the time is fast
approaching when exchange may turn
in the opposite direction and wher
there may be more Unemployment in
the United States than in Europe
Medal Position Advised.
Manufacturers and merchant.
should take medal position between
that of the speculator and that of the
hand-to-mouth buyer. OF course, this
needs an understanding of funda
mental conditions and the trend OF
commodities, prices, supply and de
mand, amount produced and con
sumed. There are, however, several
reliable statistical services which fur
nish this information, making it avail
able to all at a small cost.
In conclusion let me say that this
hand-to-mouth policy must be most
carefully watched by every investor
especially while money rates are now
so easy. The declaration of peace a
few years ago caused business men tC
be caught with great inventories, due
to which corporations and investors
lost great sums of money. Today an
unforeseen event may cause almost as
great losses when these same people
find themselves with no reserve sup
ply of raw materials or merchandise
Therefore this policy of hand-to
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