m n ^ m s ^

This dissertation has been microfilmed exactly as received 67-2481 LOWRY, James Rolf, 1930- AN EVALUATION OF THE CURRENT STATUS AND FUTURE OUTLOOK OF LEASED DEPARTMENTS AS AN IMPORTANT ASPECT OF DISCOUNT MERCHANDISING. The Ohio State University, Ph.D., 1966 Economics, commerce-business

University Microfilms, Inc., Ann Arbor, Michigan C Copyright by

James Rolf Lowry

1967 AN EVALUATION OF THE CURRENT STATUS AND

FUTURE OUTLOOK OF LEASED DEPARTMENTS AS

AN IMPORTANT ASPECT OF DISCOUNT MERCHANDISING

DISSERTATION

Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University

By

James Rolf Lowry, B.S. in Comm., B.S. in Bus. Ed., M.B.A.

*******

The Ohio State University

1966

Approved by:

Adviser Department of Business Organization ACKNOWLEDGMENTS

Several years ago this writer was seeking an area of research that would be a suitable topic for a dissertation. An investigation into the utilization of leased departments by discount store merchants was initially suggested by this writer's adviser, Dr. William R.

Davidson. A preliminary study of the field showed that this was an area where a contribution to marketing knowledge could be made.

The assistance given by Dr. Davidson in the form of guidance, patience, cooperation, and grant provider is deeply and sincerely appreciated. His firm support made this comprehensive study possible.

Dr. James C. Yocum, Director, Bureau of Business Research, carefully and thoughtfully directed and scrutinized the research design and methodology of this investigation. His constructive supervision was highly valued. Mr. Omar S. Goode of the Bureau of Business Research

spent many hours of his personal and professional time assisting this writer in the tabulation and analysis of the research data. He pro­

vided an invaluable contribution to this project. Further acknowledg­

ment is made to Dr. Alton Doody for his effective evaluations of out­

lines and his suggestions for direction of approach.

My wife, Margaret, who efficiently managed a growing family

during the period of this study, was a catalyst in the research mix.

Her stoic understanding and encouragement allowed this project to

progress and to be concluded.

Those leased department operators who responded to the appeal

ii by Dr. Davidson for grants of funds to support this work must be parti­ cularly thanked. Without their gracious participation this endeavor would not have been possible.

The efforts of all the leased department operators in discount stores who participated in the survey are appreciated. The worth of information and research was recognized by these capable businessmen who took their valuable time to complete the survey questionnaire.

Appreciation is also expressed for the interest shown and materials furnished by Richard Groberg, editor, Discount Store News,

William Duvel, Vice President, Dun & Bradstreet, and the research staff of Fairchild Publications. An expression of gratitude goes to many others who remain unnamed for their cooperation in this endeavor. VITA

October 16, 1930 Born - Fort Wayne, Indiana

1952 ...... B.S. in Comm., The Ohio State University, Columbus, Ohio

1953 ...... B.S. in Bus. Ed., The Ohio State University, Columbus, Ohio

1954 ...... M.B.A,, The Ohio State University, Columbus, Ohio

1954-195 5 ...... Westinghouse Electric Graduate Student Training Program, Pittsburgh, Pennsylvania

1955-195 8 ...... Procurement Officer, United States Air Force, Eielson, Air Force Base, Alaska

1958-1960...... Assistant to Sales Planning Mgr., Westinghouse Electric Corp., Mansfield, Ohio

1960-1962. .... Assistant, Business Organization Department, The Ohio State University, Columbus, Ohio

1962-1966...... Instructor, Business Administration, Bowling Green State University, Bowling Green, Ohio

1966 ...... Assistant Professor, Marketing, Ball State University, Muncie, Indiana

FIELDS OF STUDY

Major Field: Marketing

Studies in Marketing. Professors William R. Davidson, Theodore N. Beckman, Robert B. Miner, and Robert Bartels

Studies in Finance. Professors Elvin Donaldson, John Pfahl, Leo Stone, and George Goodell

Studies in Insurance. Professors David Bickelhaupt and James Hammond

Studies in Economics. Professors Clifford James and Robert Patton

iv CONTENTS

Chapter Page

I. INTRODUCTION ...... 1

Statement of the problem ...... 1

Objectives of the study...... 3

Definitions and scope...... 7

Secondary research ...... 9

Primary research ...... 10

II. DEVELOPMENT AND USE OF LEASED DEPARTMENTS...... 21

Earliest origins ...... 21

Origin in the United States...... 24

Present use in department stores ...... 30

Leased department characteristics...... 35

Organizations operationally similar to

leased departments ...... 37

Establishment of lessee - lessor rapport ...... 44

III. HISTORICAL DEVELOPMENT OF DISCOUNT STORES...... 47

Closed door discount store ...... 49

Promotional discount store ...... 53

Soft goods ...... 55

Integration of discount store types...... 58

Present utilization of leased departments

by the discount store...... 60

v Chapter Page

IV. FINANCIAL CONDITION OF LEASED DEPARTMENTS IN

DISCOUNT STORES...... 65

Failures of discounters...... 65

Financial ratios ...... 66

V. PROFILE OF THE TYPICAL LEASED DEPARTMENT IN

DISCOUNT STORES...... 73

Location...... 73

Number of leased departments ...... 82

Measurements of the leased departments ...... 86

VI. PERSONNEL PRACTICES OF LEASED DEPARTMENTS

IN DISCOUNT S T O R E S ...... 104

Number of employees...... 104

Training programs...... 112

Unionization ...... 115

Payroll expense...... 122

Dollar sales per employee...... 125

VII. SERVICE CHARGES PAID TO THE DISCOUNT STORE BY THE

LEASED DEPARTMENT OPERATORS...... 133

R e n t ...... 133

Advertising...... 137

Combined rent and advertising...... 137

Credit service ...... 141

Warehouse service...... 141

Checkout service ...... 144

vi Chapter Page

VIII. OPERATING PRACTICES OF LEASED DEPARTMENTS IN

DISCOUNT STORES...... 145

Sources of purchases ...... 145

Methods of supplying merchandise to departments. . . . 151

Methods of Inventory control ...... 155

Rate of Inventory t u r n o v e r...... 159

IX. DEVELOPMENT AND GROWTH OF THE LEASED DEPARTMENT

IN DISCOUNT STORES ...... 163

Business of origin ...... 163

Operation of other businesses...... 170

Expansion plans...... 173

Growth from 1958 to 1965 ...... 184

X. ATTITUDES OF THE LEASED DEPARTMENT OPERATORS

IN DISCOUNT STORES TOWARDS LEASING ...... 189

Factors to investigate ...... 189

Advantages of operating leased departments ...... 196

Disadvantages of operating leased departments...... 202

XI. SUMMARY AND CONCLUSIONS...... 210

Historical development ...... 210

Financial condition of leased departments...... 212

Major conclusions from the survey...... 212

Significance of the study...... 224

Recommendations for further research ...... 225

vii Page

APPENDIX

A. Supplemental Tables...... 230

B. Questionnaire and Letters sent to Operators of

Leased Departments in Discount Stores...... 241

C. Values of Chi-Square for Differences in Response

Between Lessees Completing Mail Questionnaire

and Lessees Personally Interviewed ...... 246

D. Selected Comments from Leased Department Operators

in Discount Stores Regarding the Role of the

Lessee in Discount Stores...... 252

BIBLIOGRAPHY...... 260

viii LIST OF TABLES

Table Page

2.1 Lessees In Department Stores ...... 34

3.1 Number of Merchandise Lines Leased by Selected Soft Goods , 1958...... 59

3.2 Per Cent of Departments in Discount Stores that are Leased Departments, Comparison Among the Years 1965, 1964, and 1963, by Merchandise Line...... 62

3.3 Per Cent of Departments Owned by the Discount Stores and Leased by the Discount Stores, Comparison Between 1964 and 1962, by Merchandise L i n e ...... 64

4.1 Financial Ratios ...... 67

4.2 Financial Ratios ...... 70

5.1 Headquarters Location...... 74

5.2 Geographic Operation ...... 77

5.3 Geographic Operation ...... 79

5.4 Preferred Location ...... 81

5.5 Departments Operated ...... 83

5.6 Departments Operated ...... 84

5.7 Typical Department Size...... 88

5.8 Optimum Department Size...... 89

5.9 Typical Department Sales...... 91

5.10 Optimum Department Sales...... 92

5.11 Typical Sales Per Square Foot...... 94

5.12 Optimum Sales Per Square Foot...... 95

5.13 Typical Transaction S i z e ...... 97

5.14 Optimum Transaction S i z e ...... 99

5.15 Typical Items Stocked...... 101

ix Table Page

5.16 Optimum Items Stocked...... 102

6.1 Number of Employees...... 105

6.2 Full-Time Employees...... 108

6.3 Total Employees...... 109

6.4 Part-Time and Nonselling Jobs...... Ill

6.5 Training Programs...... 114

6.6 Training Programs...... 116

6.7 Union Contracts...... 117

6.8 Union Contracts...... 120

6.9 Union Contracts...... 121

6.10 Payroll Expense...... 123

6.11 Payroll Expense...... 124

6.12 Sales per (Full-Time and Part-Time) Employee ...... 126

6.13 Sales per Employee...... 128

6.14 Sales per Full-Time Employee ...... 130

6.15 Sales per Full-Time Employee ...... 132

7.1 Rental Charge...... 134

7.2 Advertising Charge ...... 138

7.3 Rental and Advertising Charge...... 139

7.4 Credit Service Charge...... 142

7.5 Warehouse Space Charge...... 143

7.6 Checkout Service Charge...... 144

8.1 Sources of Supply...... 147

8.2 Methods of Supply...... 132

x Table Page

8.3 Methods of Supply...... 154

8.4 Inventory Control ...... 156

8.5 Rate of Tu r n o v e r ...... 160

9.1 Previous Operations...... 164

9.2 Previous Operations...... 167

9.3 Year of O r i g i n ...... 169

9.4 Other Businesses Operated...... 171

9.5 Other Businesses Operated...... 172

9.6 Sales by Other Businesses...... 174

9.7 Expansion...... 175

9.8 Expansion...... 179

9.9 Future U s e ...... 181

9.10 Sales Growth ...... 185

10.1 Factors to Investigate...... • 191

10.2 Factors to Investigate...... 194

10.3 Advantages of Leased Departments ...... 197

10.4 Advantages of Leased Departments ...... 200

10.5 Disadvantages of Leased Departments...... 204

10.6 Disadvantages of Leased Departments...... 207

Appendix

A.l Typical Sales Per Square Foot...... 231

A.2 Rental and Advertising Charge...... 232

A.3 Rental and Advertising Charge...... 233

A.4 Sources of Supply...... 234

xi Table Page

A.5 Inventory Control...... 235

A.6 Future U s e ...... 236

A.7 Sales Gr o w t h ...... 237

A.8 Sales Gr o w t h ...... 238

A.9 Sales Gr o w t h ...... 239

A. 10 Sales Gr o w t h ...... 240

xll CHAPTER I

INTRODUCTION

The vigorous growth of discount merchandising in the United

States since the mid-1950's has given rise to separate retailing en­ tities that sell to their clientele at a price which is discounted from the normal list price. These discount stores, often called either discount houses, self-service department stores, or mass merchandisers, have presented practitioners and academicians with new vistas for study and problem solving. The modus operandi of discount stores has many aspects distinctive from traditional retailing. This study focuses on only one characteristic of a typical discount store— the utilization of leased departments.

Statement Of The Problem

The utilization of leased departments is not exclusive to dis­ count stores. In the United States there has been a limited use of leased departments by some conventional retailers, namely, department stores and food stores. Some discount stores are truly like the ancient bazaars of Persia because all of their departments are leased.*- The store name reflects only a shell occupied by a conglomeration of lessees. For all merchandise lines in discount stores it has been

^Frank Meissner, "Closed Door Discount Stores," Journal of Retailing, Vol. 28, No. 30 (Fall, 1962), p. 22.

1 estimated a median 27 per cent of the departments are leased. This varies from a low of 10 per cent for traffic appliances to a high of 2 75 per cent for millinery.

There has been a brisk growth in the discount store segment of the retail industry. In 1960 discount store sales were estimated to 3 be $2.9 billion. Five years later in 1965 the sales of discount 4 stores escalated to $13.2 billion. The sales volume of the leased departments increased as the sales of the discount stores increased.

Dun & Bradstreet, Incorporated reported in 1964 that sales of $2.1 billion were achieved by over 460 leased department operators it listed

Although selling at low retail prices is not a new phenomenon, certainly the modern discount store with its usage of leased depart­ ments is. Until the present there has been no definitive exploration made into the policies, practices, and attitudes of the leased depart­ ment operators in discount stores. Much of the discussion in trade papers and other retailing publications about the lessee in discount stores is based on conjecture rather than fact. An examination of the literature in the leased department field indicates there have been no comprehensive studies of leased departments in any type of retail opera

2"The True Look of the Discount Industry-1965," The Discount Merchandiser (June, 1966) » P- 48.

3"The True Look of the Discount Industry: 1961:'" The Discount Merchandiser (July, 1962) , P- 30.

4"The True Look of the Discount Industry-1965," op. cit. , p. ;

^"improved Profits and Debt Positions Highlight 1964 Ratio Study of Leased Department Operators," Discounters Digest (New York: Dun & Bradstreet, Incorporated, September 28, 1965), p. 1. tion from the standpoint of the lessee. Several excellent studies of

leased departments in department stores have been completed, but the

information was based upon surveys of lessors. Thus, for this primary

research it was thought that the research design and the methodology

should be directed to the leased department organizations in discount

stores.

Suppliers, discount store operators, other retailers, and the various interested publics need extensive and accurate information upon which to base their business decisions regarding the lessee in discount

stores. It is believed that the information in this study will provide

a foundation for making better-informed decisions. Overall, the con­

clusions of this research should provide new perspectives into the rapid

growth and development of leased departments in discount stores, the present status of leased departments, and the attitudes held by the

lessees.

Objectives Of The Study

The overall objective of this study is an evaluation of the

current status and future outlook of the leased department in discount

^Stanley F. Teele, Department Leasing in Department Stores (Boston: Bureau of Business Research, Harvard University, October, 1933). Leased Departments, Rates, Policies, and Expenses in Department and Specialty Stores (New York: Controllers^ Congress, National Retail Dry Goods Association, 1952). Leased Departments, Rates, Policies and Expenses in Department and Specialty Stores (New York: Controllers' Congress, National Retail Merchants Association, 1958). Leased Departments, Rates, Policies and Expenses in Department and Specialty Stores (New York: Controllers' Congress, National Retail Merchants Association, 1965). stores. In order to accomplish this central purpose, it is necessary to verify a series of propositions formulated to establish a systematic and analytical framework of inquiry. An objective evaluation of the information compiled in an effort to test the hypotheses is more im­ portant than whether the propositions are correct or incorrect. The following 21 hypotheses were formulated:

Location

1. The region of operations for leased department organizations is

mainly in a single metropolitan area.

2. Leased department organizations prefer to locate their leased

departments in either independent or local discount store chains.

Number of leased departments

3. The small businessman operating from one to four leased departments

has an opportunity to develop and to grow as a leased department

operator in a discount store.

Measurements of the leased departments

4. The size of the typical leased department in any one merchandise

line is less than the optimum size desired by the leased depart­

ment operators.

5. The dollar sales of the typical leased department in any one mer­

chandise line are less than the optimum dollar sales desired by

the leased department operators.

6. The median dollar transaction size of the typical department in

any one merchandise line is less than the median dollar trans­

action size for the optimum department desired by the leased

department operators. 7. The number of items stocked in a typical leased department in any

one merchandise line is more than the number of items stocked in

the optimum leased department desired by the leased department

operators.

Training programs

8. An informal introductory training program for new employees is the

only training the leased department employees receive from most

leased department organizations.

Leased departments with union contracts

9. The majority of all leased department employees belong to a

labor union.

Payroll expense

10. The payroll as a per cent of sales for leased department organiza­

tions is similar for all organizations regardless of the mer­

chandise line handled.

Service charges paid

11. A rental fee and a charge for advertising are the only signifi­

cant expenses assessed against the leased department operator by

the discount store.

12. The rental commission and the advertising charge paid by leased

department operators differ according to merchandise lines.

Sources of purchases

13. The proportion of purchases made directly from manufacturers by

lessee firms is dependent upon the merchandise line handled by

the lessee operation. 14. For any given merchandise line, the larger the number of depart­

ments operated by the leased department firm, the greater is the

proportion of purchases made directly from manufacturers.

Methods of Inventory Control

15. For different type merchandise departments, the sophistication

of the inventory controls varies.

16. For any given merchandise line, the greater the number of depart­

ments operated by the leased department organization, the more

sophisticated the inventory controls become.

Business of origin

17. The majority of the firms operating leased departments have their

origin as operators of conventional stores.

Operation of other businesses

18. The majority of the firms operating leased departments are engaged

in other businesses which represent the greatest per cent of their

total company sales volume.

Factors to investigate

19. The factor that leased department organizations believe most im­

portant to investigate before determining in which discount store

to operate is the caliber of management of the discount store.

Advantages of operating leased departments

20. The dominant advantage of operating leased departments in discount

stores versus owning and operating stores of one's own is the

greater amount of customer traffic generated.

Disadvantages of operating leased departments

21. The greatest disadvantage of operating leased departments in 7

discount stores versus owning and operating stores of one's own is

the difficulty of coordinating merchandising policies such as pric­

ing and promotion.

Definitions and Scope

Since this research has been delimited to leased departments in discount stores, it is necessary to have a working definition of leased departments and discount stores. For purposes of this study a discount store is defined as

A departmentized retail establishment of at least 10,000 square feet that sells a reasonable mix of hard and soft goods, prices merchandise at a relatively low markup above costs, ad­ vertises extensively, minimizes free customer service, maximizes use of self-service, utilizes relatively inexpensive facilities, provides ample parking, and can be distinguished from other retailers by its emphasis upon "discount prices."

Conversations with discount store merchants and leased depart- 7 ment operators aided in the formulation of this definition.

A leased department refers to a unit which is not wholly owned

by the discount store in which it is located. Such a department is

sometimes called a licensed department since the legal aspects of a

licensing agreement rather than a leasing agreement may reserve to the

Q store a greater amount of control.

Considerable thought and attention in developing the definition were given to the criteria set forth for a discount store in the follow­ ing authoritative Marketing textbooks: Theodore N. Beckman and William R. Davidson, Marketing (New York: The Ronald Press Company, 1962), pp. 246-247; and Charles F. Phillips and Delbert J. Duncan, Marketing Prin­ ciples and Methods (Homewood, Illinois: Richard D. Irwin, Incorporated, 1964), pp. 240-241. ^Leased Departments, Rates, Policies and Expenses in Department and Specialty Stores, 1958, op. cit., p. 38. Professor Stanley F. Teele of Harvard cited four major charac­ teristics of the leased department which tend to differentiate it from other types of arrangements:

1) The lessee is an independent businessman or firm. 2) The lessee has control of all merchandising activities. 3) The lessee deals with the public under the firm name of the lessor. 4) The lessee has a personal representative in the store.

The first characteristic should not be implied as a restriction as to the type of organization which may be a lessee. The lessee could be a chain organization as long as it is corporately independent of the lessor.

For purposes of this study Professor Teele's four point desig­ nation of a leased department is accepted. In the survey of leased department organizations conducted by this writer, a few lessees in­ dicated they had leased departments without personal representatives being continuously present in the store. Since these lessees denoted their units as leased departments, an exception was made to the defini­ tion and they were classified as leased departments in the research.

Grocery supermarket leased operations in discount stores and operations of personal service departments such as dry cleaning and snack bars are excluded from the scope of the study. The grocery operations present merchandising policies and physical display problems unique from soft goods and hard goods merchandising. Discounters gen­ erally attempt to separate the store into food and nonfood sections.

g Teele, op. cit., p. 1. Since the personal service departments have different operating policies and practices than merchandise departments, they are excluded from the research, too.

The contractual provisions of the leasing arrangement are not studied in this dissertation. It was felt that the details of the lease would only be minutia and not add significantly to the general objective this research proposes to accomplish. The functional opera­ tions of a department such as buying and advertising have not been intensively researched, nor has any one type of merchandise department been singled out for a thorough analysis of its operations. Intensive functional and merchandise line studies were not appropriate to the research objective.

Secondary Research

The secondary research was centered around publications and organizations which serve the discount field. A valuable publication for this study was Modern Retailer, a monthly periodical for discount and self-service department stores. Annually, usually in the summer, this paper devotes one copy to a leased department listing. Each issue contains news articles, editorials, and descriptive comments on lessees' operations.

Another productive source of information was The Discount Mer­ chandiser. Each spring, this monthly magazine carries a statistical report on discounters entitled, "The True Look of the Discount Indus­ try." Interviews with discount store proprietors and a revelation of 10 their endeavors is a common reporting technique in this periodical.

Discount Store News is a third important publication in the field.

In a summer edition, the "Discount Census," is printed which details facts and figures on the industry. This journal proved a useful secondary data source.

Fairchild Publications cited this writer with several articles on leased departments. Mr. William Duvel, Vice-President, Dun &

Bradstreet, Incorporated aided in uncovering source material, and he made copies of Dun & Bradstreet's Discounters Digest available. Sam

Flanel, General Manager, Controller's Congress, National Retail Mer­ chants Association, provided this writer with information which his organization had gathered on leased departments.

The Journal of Marketing, Journal of Retailing, Harvard Business

Review, Fortune, Barron's, Financial World, Stores, Department Store

Economist, and many other publications contributed to building depth for this writer in discount merchandising. College textbook^ research monographs, association studies, doctoral and master's theses, annual reports, and corporate research accounts were other sources studied.

Primary Research

The primary research has been directed to the operators of leased departments in discount stores. Discount store lessees were deemed to be the best source of information regarding their own prac­ tices, policies, and attitudes.

In order to achieve the objectives of the study the primary 11 research was necessary. The validation or invalidation of the 21 hypo­ theses could not have been accomplished without the empirical research.

Methods of collecting data

The research was made an Ohio State University Bureau of Business

Research project and questionnaires were sent by and returned to the

Bureau. The mail questionnaire provided the primary source of infor­ mation although some nonrespondents to the mail inquiry did reply to personal interviews and long distance telephone calls.

The first mailing returned 132 usable queries. Another 75 were processed after the first follow-up, and the second follow-up yielded

68 responses. During August and September, 1965, 50 usable personal interviews were conducted by the author with leased department opera­ tors in the tri-state region of Ohio, Indiana, and Michigan. In

October, 1965, six women's wear lessees returned their questionnaires after receiving a telephone plea to reply. Thus, the total responses came to 331.

The personal interviews lasted from fifteen minutes to an hour.

The usual time was about twenty to thirty minutes. The topics of the mail questionnaires were used in the conduct of the personal inquiries.

Some difficulties in interpreting certain questions and some irregu­ larity in the answers to these questions were detected during the inter­ views. These deviations from the normal responses and their meaning are cited when applicable in the following chapters.

Development of schedule

Before the questionnaire was developed, a familiarization with 12 the policies and practices as well as the problems of leased departments

in discount stores was necessary. Numerous articles in business, financial, and other publications on discount stores and leased depart­ ments were read for perspective. Leased department operators and discount store merchants were not only contacted in the formulation of the hypotheses, but their aid was also sought in properly struc­ turing the proposed questionnaire.

After a pilot-form questionnaire was developed, twelve leased department operators were interviewed either by telephone or in person to perceive their critical reactions to the proposed inquiry. The constructive evaluations received from these lessees were incorporated into the final draft of the questionnaire. The final questionnaire and the letters of transmittal are exhibited in Appendix B.

Sources of respondents

After eliminating duplicate names and unwanted merchandise

lines, listings in three separate trade directories produced 1,441 names of leased department organizations for this study. The 1964

Directory of Discount Centers, the 1964 edition of Directory of

Discount Houses and Self-Service Department Stores, and the annual

leased department listing of Modern Retailer were the references for

the questionnaire mailing.1® For the personal interviews the Dun &

1®1964 Directory of Discount Centers (New York: Business Guides, Incorporated, 1964); Directory of Discount Houses and Self-Service Department Stores (Chicago: National Research Bureau, Incorporated, 1964); and '^Annual Leased Department Listing," Modern Retailer (May, 1965), pp. 64-66, 68-74, 76-80, 82-87. 13

Bradstreet, Incorporated Market Guide of Discounters and Mass Merchan­ disers supplemented the other three publications.^^

Amount of response

In order to more readily comprehend the ensuing paragraphs, the following tabulation of the preliminary leased department organization universe, the revised universe, and of the responses to the mail ques­ tionnaires, personal interviews, and the long distance telephone calls has been included:

Sub Capable Usable Totals Totals of Responses Responding Mail Questionnaire

Total Mailed 1,441 (Preliminary Universe)

Returned by P.O. as Undeliverable 102

Uncompleted question­ naires returned by nonlessees 109

Total unqualified as lessees 211 211

Total capable of responding 1,230 1,230

Usable responses 275 275

Nonusable responses 15

Total response 290 290

Total no response 940

*^Market Guide of Discounters and Mass Merchandisers (New York: Appraisal Service, Dun & Bradstreet, Incorporated, March, 1965). 14

Sub Capable Usable Totals Totals of Responses Responding Personal interviews with no response group

Total interviewed 108

Qualified as lessee and usable responses 50 50

Qualified as lessee but no response 14

Total qualified as lessee 64 64

Total unqualified as lessee 44 44

Total capable of responding 1,186

Telephone calls to women1s wear lessees

Total telephone calls

Qualified as lessee and usable response 6

Qualified as lessee and nonusable response

Qualified as lessee and response

Qualified as lessee but no response

Total qualified as lessee 15 15

Total unqualified as lessee

Total capable of responding (revised universe) 1,180

Total usable responses 331 15

Of the total 1,441 questionnaires sent, 102 were returned by the

Post Office as being undeliverable. Another 109 businesses returned the questionnaire, but they had not completed it. Most of these 109 indicated they were out of the leased department business, or they had never operated as a lessee. Deducting the 211 nonapplicable firms from 1,441 left 1,230 lessees capable of responding. There were 290 lessees who responded to the inquiry, but an edit of the questionnaires produced only 275 usable ones. There was no reply of any kind from

940 organizations.

The personal interviews with lessees were conducted in the metropolitan areas of Cleveland, Akron, Canton, Columbus, Dayton,

Cincinnati, and Toledo, Ohio; Indianapolis and Anderson, Indiana;

Flint and Detroit, Michigan. From the 940 nonrespondents 108 were contacted personally in the previously identified cities. Of the

108 addressees, 64 concerns were presently lessees in discount stores,

but 44 had either never been in this business or else they had dis­

continued their lessee activities. From the 64 organizations eligible

to respond, 50 replied orally to the questionnaire. Deducting the 44

nonlessee firms from the 1,230 addresses produces 1,186 possible

respondents.

A comparison of the number of women's wear lessees listed in

the directories to the number that replied to the survey indicated a

need for a greater number of responses in this merchandise line. Con­

sequently, in early October, 1965, 21 women's wear leased department

operators were selected from the nonrespondents and called by telephone. 16

The conversation stressed the impact of their responses upon the total

survey. In order to minimize the cost of the calls only organizations

east of the Rocky Mountains were contacted. Of the 21 firms called, 15 were active lessees while 6 were not engaged in leased department

operations. The final tally from the telephone calls resulted in 8

questionnaires of which 6 were usable. Reducing the previous total

of 1,186 by 6 left 1,180 presumptive leased department organizations—

the universe— who were potential respondents.

The mailings, personal interviews, and the telephone contacts

indicated the addresses provided by the directories were not wholly

accurate. As the discounting industry develops and matures, it remains

in a state of flux with a flow of firms in and out of business. Un­

doubtedly, of the 849 nonrespondents (1180-331 respondents) numerous

ones were not bonafide leased department operators. On the other hand,

it is very probable that the addresses of other small lessees were not

recorded in the directories. The personal interviews showed 41 per cent

of the listed organizations not to be in the leased department field.

Contact by telephone revealed nearly 29 per cent of the firms listed

as lessees were not engaged in leased department operations. Relating

the 331 usable replies to a field of 1,180 possible respondents yields

a return of 28 per cent. If 41 per cent of the 1,180 remaining ad­

dresses were incorrect, then the responses to the total universe would

have been 48 per cent, or after applying a corrective factor of 29

per cent to the 1,180 firms, a 40 per cent response would have resulted. 17 12 In any case, the survey produced substantial returns.

Tabulation

As each returned questionnaire was received in the Bureau of

Business Research, the firm's response was recorded on a card for placement in a card file identifying the status of all addressees.

Then, the questionnaire was edited in order to determine its usabi­ lity within the framework of the survey. The information taken from all applicable questionnaires was coded for a later transfer to punched cards.

At this point a decision was made on how to set up the classi­ fication of merchandise lines. The most logical grouping of merchandise departments was assembled together in an effort to produce merchandise categories adequate for analysis. Because of their unique product characteristics, some lines were not susceptible to combination.

The resulting major merchandise lines and their component departments follow:

Major merchandise line Component departments

Women's and children's Women's, children's, millinery and handbags, and hosiery

Men's Men's and boys'

Domestics and linens Domestics, yard goods, and yarn

Shoes Men's, women's, and children's shoes

^ A n article on research, citing a survey response by business­ men, stated: "30% of those polled is a high rate of return." The Editors, "Businessmen Re Advertising: 'Yes, but . . Harvard Business Review (May-June 1962), p. 21. 18

Major merchandise line Component departments

Health and beauty aids Health and beauty aids, drugs, and stationery

Pharmacy Pharmacy

Records Phonograph records

Sporting goods and toys Sporting goods and toys

Bakery Bakery

Hard lines Hardware, housewares, traffic appliances, wallpaper and paints, plumbing supplies, electrical supplies, and garden center

Auto accessories Auto parts and accessories

Furniture and floor covering Furniture and floor covering

Appliances Major appliances, sewing machines and vacuums, and stereo components

Jewelry Jewelry and optical

Camera Camera and photographic supplies

Pet supplies Pets and pet supplies

Miscellaneous Home improvements, liquor, and gasoline.

Once the information from the respondents had been punched on

cards the various entries were tabulated and frequency distributions were made on the basis of merchandise lines. The completed question­

naires were physically grouped by merchandise lines so the tabulation

results could be quickly referenced to the questionnaire in an effort

to locate any seemingly spurious entries made on the punched cards.

Such entries were then corrected. 19

Analysis

Sophisticated statistical procedures were not deemed necessary or appropriate for the analysis and interpretation of the research data.

Frequency distributions and the median, mean, mode, and range were ex­

tensively used. The median was the most frequently utilized measure

in the interpretation of the tables.

The survey information is presented in the tables by merchan­ dise lines. In addition, suitable basic data are analyzed by either rate of inventory turnover or number of leased departments operated, or by both of these categories for selected merchandise lines. The tables of major interest are presented within the chapters while the tables of lesser importance are placed in Appendix A.

For analyzing certain data by either rate of inventory turnover or number of leased departments operated or both the merchandise lines selected represented a diversity of consumer goods. It was felt that these categories would be representative of all merchandise lines. The lines were also ones in which there were a large number of respondents.

However, the reader is cautioned that the comparisons are only signifi­ cant when the cells in the tables contain numerous responses. Where only a small number of respondents appear in each cell, the conclusions must be limited. In the case of few responses differences in the data are greatly influenced by a small number of firms and variations of a random character do not appear. The lines chosen were: health and beauty aids, women's and children's, shoes, furniture and floor cover­

ing, hard lines, and jewelry. 20

The magnitude of the study can be comprehended by a disclosure of some aggregate figures compiled from the 331 respondents. The 331 respondents operated over 3,413 leased departments in discount stores.

Total employment for the leased department operations was greater than

16,800 persons. Taking the median sales for the typical department and multiplying the figure by the total number of departments operated produced a sales volume of $767,925,000. This was 0.27 per cent of an estimated 1965 retail sales of $283.9 billion.Since discount store sales totaled an estimated $13.2 billion, the responding lessees represented 5.8 per cent of this volume.

Test for nonresponse bias

The personal interviews and the telephone calls were made to lessees who did not reply to the mail questionnaire. This was the test for the existence of possible nonresponse bias. A group of nonrespon­ dents was selected on a random basis who could be compared with the mail respondents to the survey. In order to see if the difference between the responses of the two classifications was statistically significant, or only what would be expected from random sampling error, the chi-square test was utilized. This procedure revealed no signifi­ cant difference between the replies from the respondents and the non­ respondents. A detailed presentation of the chi-square test for this

survey is found in Appendix C.

13Source of 1965 estimated retail sales was: "1965-Another Banner Year in Sales for Discounters," Discounters Digest (New York: Dun & Bradstreet, Incorporated, April 26, 1966), p. 1. CHAPTER II

DEVELOPMENT AND USE OF LEASED DEPARTMENTS

In attempting to ascertain the origin of the leased department

it becomes apparent that the lessee type of operation has had a ubi­

quitous existence. The following paragraphs will chronicle a few of

the endeavors that were predecessors to the leased department in dis­

count stores.

Earliest Origins

Rape1os

During the Periclean Age in Greece, roughly the third quarter

of the fifth century B.C., Athenian imports were sold by the kapelos

who was a retailer with stalls in -place or near a temple.

The State rented the stalls to the kapelos. Since the government

furnished the sites, it evidently felt a compassion to protect the

consumer against any wrongdoings. In any case the state established

an agency to guard the public from fraud in its negotiations with the

kapelos.

A narrative of the kapelos concludes:

Their tongues were rude and fluent, their honesty was more than suspect, and the state subjected them to rigorous regulation. A board of market wardens regulated buying and selling, maintained a certain degree of order in the market, and strove to prevent the sale of poor-quality goods. A board of inspectors of weights and measures undertook to see that purchasers got as much as they paid for. Each commodity was sold in a separate part of the market and at an hour

21 22

determined by the Wardens. Interspersed with the shoppers were loafers whose object was entertainment, gossip, and discussion.1

Bazaars

The bazaars of the Persian Empire from 550 to 323 B.C. were similar in concept to modern leased departments. The royal bazaars crowned with vaults and domes contained long lanes of shops selling a wide variety of goods. The concept of a bazaar in the United States today is where different individuals bring their own goods to a common market for sale.

One account of the bazaar states:

In this area "are sold the richest stuffs and goods that are found in all the realm and it is so full of shops for all kinds of merchandise that there is nothing in the world so rare that it may not be found there." This bazaar remains a magnet for visitors to Isfahan: separate sections are given over to coppersmiths, to the jewelers, and to the rug dealers, while numerous, crowded shops display the characteristic hand- blocked cotton prints of Isfahan, colorful local pottery, hand-loomed silks and wools, and mounds of nuts, raisins, and sticky sweets.2

Markets

About 1100 A.D. in England those who brought their produce to be sold in the markets of the boroughs and towns made various payments to the king or to the local lord for the privilege to enter the walls, to stand in a fixed spot or on a particular street where buyers would know where to find them, to rent stalls; and for fines should they

. E . Van Sickle, A Political and Cultural History of the Ancient World (New York: Houghton Mifflin Company, 1947), pp. 391- 392. 2 Donald N. Wilber, Persian Gardens and Garden (Rutland, Vermont: Charles E. Tuttle Company, 1962), pp. 85-86. 23 break the rules of the market. All of the preceding levies added to a considerable sum which enhanced the value of the market right. As mar­ kets became important to the country towns, as well as to the boroughs and cities, they increased in number. This growth was in spite of the tolls imposed by the owners, lords of manors, abbots, bishops, and 3 royal officers in an attempt to boom their private coffers.

Market law and market rules were established which governed the English merchants. Below are some excerpts from these rules:

For bread, wine, and ale the prices had to be fixed once a week by the mayor bailiff, according to a regular scale, so that in this respect there was no opportunity for hag­ gling; but there might be room for fraud in the quality and in the weight. In the 'Usages of Winchester' . . . rules are laid down as to the sale of fish and poultry. They shall not be bought wholesale before nine in the morning; a board on which fish is shown for sale pays rent a farthing a day; every cart-load of fish on the board pays a half-penny; tolls are paid besides for cart-loads, horse-loads, and man­ loads of fish brought in by nonburgesses— salmon, lampreys, and herrings sold in Lent, for each kind a special toll. Butchers pay for their stalls, and merchants of unslaughtered goats, sheep, and swine are registered. Bakers in the town are well looked after. They must keep the assize with good bread of full weight; those from outside who sell their bread in the High Street pay more rent than those who stand in the other streets, and every baker must put his seal upon his loaves

Fairs

Fairs, too, were prevalent in England in the eleventh and twelfth centuries. Actually, fairs date from time immemorial, and the term was evidently derived from the Latin feria which meant a pagan festival.

O H. W. C. Davis, Editor, Medieval England (London: Oxford University Press, 1924), pp. 312-313.

^Ibid., p. 314. 24

Fairs in medieval days were often held at the feast of some saint.

A fair was a periodical gathering of buyers and sellers, in a place and at a time ordained by charter or statute or by ancient custom. They were usually held once a year, or every six months, or at most every quarter. Most of the famous fairs of medieval times were grants to abbots, bishops, or other ecclesiastical dignitaries from the king. Generally the fair was held in a wide field or meadow near a town. Just before the opening the owner of the fair took possession of the meadow. Wooden booths were erected for rent, or ground set aside for those who wished to put up their own tents or to sell their wares in the open. When the fair was opened no merchant could buy or sell in the district except at the fair. 'No manner of man or womanj ' said a town council, 'shall keep open shop in the town on that day, or shall show their goods in the street, but shall resort unto the fair there as it is wont to be kept.' Thus, within the limits of the prescribed time and place, there was a monopoly of trade; and the owner made his profit from the tools and other revenues.®

The Kapelos, bazaars, markets, and fairs all contained rudi­ ments of the present day leased department operation.

Origin In The United States

Farmers' markets

Although the complete ancestral lineage of leased departments

is difficult to trace, their immediate forebearers in twentieth century

America are easier to distinguish. The two most important lessee

arrangements precluding the discount store were those in the depart­

ment stores and the farmers' markets. Supermarkets, drug stores,

variety stores, departmentized specialty stores, and many other kinds

of operations in the sporting and amusement fields have utilized

®Edward Maslin Hulme, The Middle Ages (New York: Henry Holt and Company, 1929), pp. 609-610. 25 leased departments, too. The department store lessee can be charac­ terized as the type found in conventional stores who offers complement­ ary and specialized talents to a well financed and capable merchant.

Leased departments in department stores contributed only 5.75 per cent of all sales among the stores doing one million dollars or more an- nually in 1963.

On the other hand, the lessee in a farmers' market envisages a leased department operation who assumes a major portion of the lessor's financing and merchandising functions. In this latter case the store owner is merely a landlord who performs perfunctory house­ keeping tasks for a bevy of tenants.

The farmers' markets that evolved in the late 1940's were an outgrowth of the central retail markets for farm products which had dominated rural America prior to the Civil War. Before 1941 these markets were located for the most part in the farming regions of the

South and the Midwest selling mainly farm produce. But the depression,

World War II, and the ensuing demand for inexpensive merchandise by the masses gave rise to new markets. In addition to handling agricultural products many of these new markets merchandised some or all of the following lines: appliances, furniture, rugs, jewelry, shoes, and clothing.7 By 1955 it was estimated there were 1,000 farmers' markets

6Leased Departments, Rates, Policies, and Expenses in Department and Specialty Stores.(New York: Controllers' Congress, National Retail Merchants Association, 1965), p. 7.

7Robert K. Otterbourg, "The Farmers' Markets," Journal of Retailing (Winter, 1954), p. 169. 26 Q in the United States with sales of over a billion dollars.

In the mid-1960's the discount house overshadows the farmers' market. Trade publications indicate that in recent years numerous farmers' markets have either become full fledged discount stores or else they have closed their doors forever. In retrospect a brief review of the operations of the farmers' market yields some inter­ esting insights that are applicable in the 1960's to leased depart­ ment operations in discount stores.

The owners of farmers' markets adopted rakish personalities for their establishments. They used pitchmen, auctioneers, flood­ lights, and brass bands to attract customers. In many cases their methods were quite successful. At the Quakertown Farmers' Market and '

Auction, Quakertown, Pennsylvania, 25,000 people would come during an eighteen hour period on Friday and Saturday.

The markets were often housed in huge hanger or quonset-like structures sometimes containing 100,000 square foot or more of floor space. Some markets consisted of an arrangement of low interconnected wooden buildings. Each market was composed of 50 to 150 booths and counters which were rented to merchants on either a nightly or a monthly basis. Outside the market would be a parking area for several thousand cars. The market owner supplied the utilities, paid the local taxes, supervised the operation, and did some institutional type advertising

8Morris L. Sweet, "Will Today's Farmers* Markets Become Tomor­ row's Super Markets?," Printers' Ink (October 12, 1956), p. 28.

9Ibid. 27

in the newspapers. The amount allocated for advertising either came

from a portion of the rental payment, or else the lessee was charged

an additional sum.10

Generally, the stall operator paid rent of seven to ten dollars

a night, or if leasing on a monthly basis, one hundred dollars a month.

Many tenants were charged a percentage of their sales along with a min­

imum dollar guarantee. Sometimes the dealers traveled a fifty mile

circuit to a number of markets each week. They were able to do this

because the various markets in a region stayed open different days and

nights.11

The itinerant merchant of the farmers' markets was the focus of much criticism. It was stated that he foisted inferior goods on cus­

tomers, and duped others through falsification of brands, and deceptive

packaging and promotion. The market owners, who were local citizens

and subject to local pressures, generally attempted to keep control of

12 their lessees and maintain some semblance of standards.

The market usually operated on a cash and carry basis. An

exchange policy for goods was honored. If the individual concession­

aire refused to make exchanges on defective merchandise, the market

operator would cancel the lessee's agreement. Since overhead expense

would only run 10 to 15 per cent, less than one-half the expenses

10"Farmers' Markets Offer Retailers and Discounters New Competition," Tide (September 11, 1954), p.24.

11Ibid.

1^0tterbourg, op. cit., p. 172. 28 experienced in department stores, prices were cut and consumer savings were large. On the other hand the customer's choice of merchandise was

somewhat limited. Distress items, rejects, records, unbranded goods,

and a few name brand goods constituted the merchandise assortments 13 strewn misshapenly on counters.

In one New York state community a survey was taken of the

lessees active in the local farmers' market. It was revealed that the majority of the leased departments were run by independent merchants in

the nearby city. These dealers stated that their market outlets gave

them a greater ability to buy while still not overstocking their free

standing units, and they could utilize their leased facilities to get 14 rid of slow moving surplus inventory.

After visiting a farmers' market in New Jersey, one observer wrote about the clientele and their buying habits:

The average buyer at Frankie's is in the lower income group, drives to the market on Saturday with his wife and children, parks in the vast lot and approaches the selling area with a mixed desire for merchandise and entertainment.

His first stop is usually the food stalls which stock low cost, medium quality groceries and produce. Here the family spends most of its budget. After the basics are bought, the family usually stops to listen to a chorus of pitchmen demonstrating patent medicines. Then they eat ice cream, pizza, hot dogs, cotton candy, and soft drinks.

The next step is the general merchandise area where

13Otterbourg, op. cit. , p. 171.

l4Ibid., p. 171. 29

business takes on the complexion of a middle east bazaar, 90% shopping, 10% buying.*5

At the Quakertown market it was found that trading habits varied with the season. Some customers came from a radius of fifty miles, but the majority of them journeyed to the store from within a twenty 16 mile area.

Early use in department stores

Leased department arrangements were found in the earliest depart­ ment stores in this country. Macy's in March, 1874, installed separate china and glassware, and silver departments with the expectation of rivaling the assortment of any specialized store in New York. These two areas were stocked by L. Straus & Sons, wholesale dealers in china 17 and glass. The agreement with Straus was similar to a lessee-lessor relationship.

Straus not only replenished the inventory in the departments but the firm also retained ownership of the merchandise. Macy's was relieved from the consequences of any stock losses. The goods were charged to Macy's at the net cost of the wholesale firm. The floor space and fixtures were supplied by the department store. The Straus merchandise was received, marked, inventoried, advertised, sold, packed, and delivered by the store. Periodically, the two firms divided equally

*5"Farmers' Markets Offer Retailers and Discounters New Competition," op. cit., p. 24.

16 Sweet, op. cit., p. 31.

^Ralph M. Hower, History of Macy1 s of New York 1858-1919 (Cambridge, Massachusetts: Harvard University Press, 1943), p. 104. 30 the gross margin received from the sales of the leased departments.

Macy's share went for the space provided, use of store facilities, and the selling services. Straus's portion paid for expertise in buying, purchasing facilities and supervision, and an inventory investment.^

A few years after the Macy venture the Strauses developed other similar arrangements with John Wanamaker in Philadelphia,

R. H. White in Boston, Woodward & Lothrop in Washington, D. C.,

Wachsler and Abraham (later Abraham & Straus) in Brooklyn, and

J. H. Walker in Chicago. Straus's only major disagreement with a lessor came after a fifteen year stint with Wanamaker's. The store attempted to revise the agreement to its own monetary advantage, so the Strauses counteracted by carrying the case all the way to the 19 Pennsylvania Supreme Court.

Present Use in Department Stores

A more recent source on the status of leased departments in department stores is the Controllers' Congress of the National Retail

Merchants Association which periodically has published surveys on the 20 rates, policies, and expenses of lessees. Stores, the magazine of

■^Hower, op. c i t . , p. 220.

19Ibid., p. 221.

20 Leased Departments, Rates, Policies, and Expenses in Depart­ ment and Specialty Stores (New York: Controllers' Congress, National Retail Dry Goods Association, 1946); Leased Departments, Rates, Policies, and Expenses in Department and Specialty Stores (New York: the National Retail Merchants Association, has provided additional 21 factual data on lessees in department stores.

Two separate surveys covering the operations of leased depart­ ments in department stores were taken in 1959 and in 1961 by the Stores 22 publication. The two studies were essentially in agreement that in both years about 20 per cent of the stores had begun leasing depart­ ments which had been formerly store operated. Another nearly 20 per cent of the stores resumed operating some departments which had been previously leased. The statistic most at variance between the two surveys related to the use of a leased department as a method of add­ ing new departments to the store. In 1959 and 1961 the figures were

42 and 28 per cent, respectively. This discrepancy could have occurred because the two questionnaires were not necessarily answered by the same department store respondents. Different stores had different experiences. Another explanation revolves around the increase in department store sales as a per cent of total retail sales between

1954 and 1958. Department store sales as a per cent of total retail sales were 6.2 per cent in 1954, but increased to 6.7 per cent by 1958.

Controllers' Congress, National Retail Dry Goods Association, 1952); Leased Departments, Rates, Policies, and Expenses in Department and Specialty Stores (New York: Controllers' Congress, National Retail Merchants Association, 1958); and Leased Departments, Rates, Policies, and Expenses in Department and Specialty Stores (New York: Con­ trollers ' Congress, National Retail Merchants Association, 1965).

^"Top Management Looks at Leased Departments," Stores (January, 1959), pp. 23-26; and "Leased Departments," Stores (October, 1961), pp. 8-12, 46-52. 32

During this four year period, department stores participated in many innovating features. These included revitalizing their main stores, building branches, adding telephone and mail order services, and ex­ tending their inventory of merchandise into lines which they had not previously handled. The lessees aided in this latter move. Possibly by 1961 the greatest growth period for new merchandise departments in department stores had passed. The 1961 survey indicated, too, that the department store executives did not expect any spectacular develop­ ments to occur in the sphere of leasing by 1965. Perhaps, this response indicated that the lessee had already played his strongest role in developing new merchandise lines in department stores.

In the 1958 Controllers' Congress report the department store executives indicated the advantages of leased departments. The pre­ dominant advantage listed by 93 per cent of the merchants was the specialized skills possessed by the lessee. The wider range of mer­ chandise and services that can be offered by the store was an advantage named by 36 per cent of the respondents. The benefit of having capital freed for other uses was named by 25 per cent of the store operators.

Cost of close contact is prohibitive to store, net profit is better, and administrative load is lightened, were advantages identified by 23 13, 11, and 10 per cent of the stores, respectively.

Only 66 per cent of the department stores participating in the

1958 research named any disadvantages to leasing. The most often iden­ tified disadvantage by those reporting was that the leased department

23"Top Management Look at Leased Departments,” op. cit., p. 24. 33 produces a lower net profit, or a smaller contribution to the store's expense than an owned department. Lower profit or contribution was

identified by 35 per cent of the stores as a drawback. Indicated by

23 per cent of the respondents was the possibility of poor control

of the department's merchandise and services. Other less frequently mentioned disadvantages were: lack of a storewide viewpoint in the

leased departments, difficulties in the timing and coordination of promotions, lower standards, poor management, the loss of direct customer contact and the possible danger to good will, and the need

for more attention from management than would be given an owned department.* 24

The following information is a summary of the pertinent service

charge data taken from the 1965 Controllers’ Congress study. Most

rentals paid by the leased departments to the stores were based on a

per cent of net sales. The usual rental was between 12 and 18 per

cent. A specialized dollar rental was very rare; but numerous instances

of a yearly minimum guaranteed dollar amount were reported. The most

common advertising charge was 3 per cent, but the figures ranged from 25 2 per cent to 6.5 per cent.

Table 2.1 shows the ten most frequently leased departments in

department stores. The 1959 Stores study reveals that nearly 50 per

^"Top Management Look at Leased Departments," op. cit., p. 25.

OC Leased Departments, Rates, Policies, and Expenses in Depart­ ment and Specialty Stores, 1965, op. cit., 12-13. 34

TABLE 2.1-Lessees In Department Stores: The Per Cent of Departments Which are Leased in the Ten Most Commonly Leased Merchandise Lines In Department Stores for 1957 and 1963

Per Cent to Total Reporting Merchandise Line Department Stores

1957 1963

Beauty Salon 55.2 75.4 Photographic Studio 44.3 48.4 Better & lower priced Millinery 37.9 43.4 Women's & Children's Shoes (Main) 31.5 37.7 Better Millinery 23.2 33.6 Jewelry and watch repair 36.9 28.7 Shoe repair 39.9 27.0 Women's, Children's, Men's Shoes N/A 25.4 Books 20.7 23.8 Sewing Machines 34.0 20.5

Source: Leased Departments, Rates, Policies and Expenses in Department and Specialty Stores (New York: Controllers' Congress, National Retail Merchants Association, 1965), p. 2. 35 cent of the surveyed department stores leased 10 per cent or more of 26 their departments.

Leased Department Characteristics

As the previous discussion has indicated, the leased depart- I ment is not a new retailing concept nor one that has fallen into disuse. On a functional basis lessee operations should not be limited to merchants who operate separate departments within larger establishments. But, before examining the various types of organiza­ tions operationally similar to the lessee, it is well to consider the major characteristics which a leased department should possess. In

1933, Stanley E. Teele of the Harvard Business School laid down four major features that a leased department should have. His analysis is nearly as appropos now as it was then. As was indicated in Chapter I, the four features are:

1. The lessee is an independent businessman or firm. 2. The lessee has control of all merchandising activities. 3. The lessee deals with the public under the firm name of the lessor. 27 4. The lessee has a personal representative in the store.

As an independent merchant, the lessee holds title to the goods he sells. All the risks of merchandising are embodied in the lessee.

All profits accrue to the lessee, but he must also bear the opprobrium of loss. The lessor receives his compensation from the lessee in the

26"Top Management Looks at Leased Departments," op. cit., p. 23.

2?stanley F. Teele, Department Leasing in Department Stores (Boston: Bureau of Business Research, Harvard University, October, 1933), p. 1. - - J

36 form of rent. Although the lessee is truly a merchant, perhaps, the term independent is erroneously used. Independent in this instance does not necessarily refer to a retailer who operates a single store; it refers to the specialist who buys and sells goods for his own account within the confines of the lessor organization. The lessee's operational policies are basically independent of the lessor’s dictation. Since there are many chain enterprises engaged as lessees, it is important to establish the proper terminology. Enterprises organized as sole proprietorships, partnerships, and corporations all serve as lessees. Also, manufacturers, wholesalers, and retailers, regardless of their level in the channel of distribution, may operate leased departments.

Control of all merchandising activities rests with the lessee.

As stated by the Committee on Definitions, American Marketing Assoc­

iation, merchandising is "the planning involved in marketing the right merchandise, at the right place, at the right time, in the right quan­ tities, and at the right price.” The lessee control does not imply unlimited freedom in merchandising. The lessee is still circum­

scribed by the contract provisions negotiated between himself and

the lessor.

The lessee has no identity of his own. The consumer looks at

the store as a whole, and he assumes that all the departments are

owned and operated by the store. In the customer's vocabulary there

is no such thing as a leased department. If the store has a good

location, effective management, and a bulwark of strong departments— 37 leased or owned, the lessor succeeds and the lessee succeeds. If not, they both fall. The fortunes of the anonymous lessee depend upon the character of the named lessor. Of course, an interdependency does exist, since a lessor operation with many lessees is beholden to the image created by its conglomeration of lessees. Some lessees have developed their own private brands. However, this in no way detracts from the basic characteristic of lessee anonymity since the customer establishes brand identification with the entirety of a particular store and not to a segmented part of the store.

Today, with the advent of self-service merchandising the impor­ tance of a personal representative in the store may not be as important as it was in 1933. Although the supervision of sales personnel by this representative may be no longer of prime concern, he still asserts control over the activities of the leased department. For the purpose of defining a leased department the inclusion of lessee personnel in the lessor's establishment tends to preclude such organizations as the vending machine operator and the rack jobber from calling themselves leased departments.

Organizations Operationally Similar to Leased Departments

Rather than defining a leased department operation strictly along the lines suggested by Teele, one may utilize three major charac­ teristics of a leased department for a further examination and study of lessees and operations similar to lessees. Factors to be considered include merchandise control, title to goods, and rental payments. 38

Merchandising control is the most important activity assumed by the lessee although, as previously noted, the lessee-lessor con­ tract may somewhat abridge the lessee's overall control. Besides having control of the merchandise, the lessee takes title to the mer­ chandise. He is a merchant and as a merchant he assumes all the in­ herent risks of ownership. The inventory ownership feature will be placed in a subordinate position since it does not appear as important as control. A final characteristic of the leased department is the payment of rent to a landlord. Rent is determined in one of three ways: fixed fee, per cent of lessee sales, or a combination of mini­ mum guaranteed amount and per cent of sales whichever is the largest.

In the ensuing discussion rent will take the form of either an explicit cost or an implicit amount contained in the cost of goods sold.

If a continuum were drawn to show the types of merchandising arrangements functionally like the leased department, initially those operations most similar to the lessee would be shown. At the far end of the continuum would be those forms least similar and in between would be various gradients of similarity. The vending machine operator would be the first on the continuum adjacent to the leased department.

Vending machine operator

The vending machine owner solicits locations for the placement of his units. Once he obtains positions for the machines he keeps them supplied with fresh merchandise. The vendor purchases and controls the items to be sold through the vending machine. A rental fee is paid to the owner of the area where a machine is stationed. The rental 39

amount is commonly based on a percentage of sales or on the basis of an established sum per unit sold. 28

Rack jobber

The rack jobber can qualify as being functionally similar to the concessionaire. The rack jobber commonly places his own display racks inside a store, and then he supplies the store with the goods to keep the racks filled. The merchandise is sold on a credit or consign­ ment basis, and the jobber takes back all unsold goods. Although an explicit fee is not paid by the jobber to the merchant in the form of rent, the merchant may consider his cost of goods sold from the jobber

as being an acknowledgment of an implicit rental payment.

If the jobber were to pay rent to the merchant for the space encompassed by the racks, the jobber would charge the retailer a higher

price for his merchandise. This action would allow the jobber to re­

coup his rental costs. The retailer would have bartered a lower cost

of goods sold for a higher cost of goods sold plus a rental payment.

Thus, it may be reasonably stated that the retailer may view his net

cost of goods sold as containing an implicit rental payment from the

jobber.

Rack jobbers are particularly important in servicing grocery

supermarkets with nonfood items. In the discount store field there

is one rack jobber who is the dominant supplier of pet supplies, and

there are many phonograph record rack jobbers servicing this trade.

2®Theodore N. Beckman and William R. Davidson, Marketing (New York: The Ronald Press Company, 1962), p. 265. 40

Consignor

Consignment selling has some aspects of a lessee operation, too. When consignment selling is used, shipments are made to retailers while the title to the goods remains with the seller until the mer­ chandise is sold. The retailer reimburses his supplier only for what is sold allowing the consignee to carry a large inventory without

OQ incurring a commensurate financial obligation. Since the stock on hand is not actually owned by the retail merchant, a situation ana­ logous to the lessee develops. By retaining ownership of the inventory, the consignor possesses many aspects of control over the goods. The implicit rental payment may be viewed the same as it was in the case of the rack jobber.

Franchiser

If the concept of similarity to a leased operation is broadened to include all arrangements that circumscribe the control of merchan­ dising while relegating the ownership of merchandise by the supplier

to a much lesser position, then the franchise agreement should be con­

sidered. When a franchise is utilized, the franchiser grants the dis­

tribution privilege to a restricted number of firms. A franchise may

be given for one product, for a line of products, or for an entire

business enterprise. Where an entire business is franchised and to

a lesser degree a line or a product, franchisers may insist that cer­

tain items be purchased only from them. Within legal limitations they

29paul H. Nystrom, Marketing Handbook (New York: The Ronald Press Company, 1948), p. 207. 41 may also effectively dictate the line of goods which will be sold by the retailer. Other merchandising controls used by franchisers include sales goals, uniform store layouts, and standards of maintenance to be 30 followed. Again, the rental payment must be considered implicit.

In fact a negative type of rental payment may exist where the retailer pays a franchise fee for the privilege of obtaining the franchiser’s services.

Voluntary chain operator

The retail voluntary chain either organized by a wholesaler or organized by a retailer cooperative group may be considered func­ tionally as an example of franchising a total business. The fran­ chisees gain the superior planning of the sponsoring organization.

Adherence of the members to rigid physical and merchandising standards is insisted upon. Although the retailer cooperative voluntary chains are organized by the retailers for the purpose of operating their own wholesale establishment, they are included in this study. Function­ ally, they are similar to the wholesaler sponsored chain. In both cases the wholesale establishment attempts to achieve efficiency and economy of operation through the control over activities that quasi­

integration allows.

Equipment lessor

A more remote likeness to the lessee operation is where a piece of specialized equipment is given or leased by a supplier to another

30E. H. Lewis and R. S. Hancock, "The Franchise System of Dis­ tribution,” Management Research Summary (Washington, D.C.: Small Business Administration, 1963), pp. 1-2. 42

enterprise with the agreement that only the products of the supplier

will be merchandised from this equipment. For example, in the petro­

leum field refineries lease gasoline pumps to independent stations and

then require these stations to purchase their gasoline from them for 31 use in the pumps. The gasoline supplier retains control over his

product although the dealer has formal ownership. In some states

dairies can lease nonrefrigerated equipment; and if state rates are

adhered to, refrigerated equipment to their customers. The use of 32 such equipment is specifically confined to the products of the renter.

The retailer's investment is in the product to be sold, but not in the

vehicle that aids its sale. Like the rack jobber it is possible to

resolve a portion of the dealer's cost of goods sold to be the receipt

of an implicit rental fee from the supplier. In instances where the

retailer pays a rental fee for the equipment to a supplier, a reverse

rental payment analogous to the franchise fee develops.

Demonstrator

The hidden demonstrator in a retail store is operationally

aligned to the lessee. The demonstrator is employed by the manufac­

turer to exhibit and sell the manufacturer's products in retail outlets

on a temporary basis. The store pays no wages to the demonstrator, and

the retailer reaps all the profits made from the demonstrator's sales.

Of course, the demonstrator is much more likely to be concerned with

the interests of his employer rather than the interests of the store.

^Beckman and Davidson, op. cit., p. 668.

“^"independent Grocery Stores," Small Business Reporter (: Bank of America National Trust and Savings Association, 1964), p. 7. 43

Customers may be readily switched from a competing line to the demon­ strator's line; thus, exerting the manufacturer's temporary dominance over a phase of the retailer's merchandising operation. The manu­ facturer could conceivably consider the demonstrator's salary as a payment justified and rationalized in lieu of rent which would be paid if he were a lessee and had to purchase space within the store.

Application

An indication that at least some of the above classifications are compared and weighed for alternative use, is shown by a question posed at a national conclave of discount merchants. The inquiry re­ lated the size of the store to the merchandising control technique. A lessee who operated in both large and small stores asked if it were fair to be a lessee in the large organizations and to rack job or book merchandise on consignment at cost basis in the small stores. 33

In other cases the alternatives to the use of lessees in department stores were fractionated or composite arrangements of the previously mentioned types of organizations. One setup was con­ cluded by a book specialist who operated leased departments in large stores. In smaller establishments he supplied a balanced stock, aided in advertising and promotion, and trained an employee to pro­ vide daily reports for reordering purposes. The merchandise inventory and the management of the department remained otherwise in the hands of the store.

Another possibility cited was the consignment arrangement

33Harold S. Larkin and Sidney L. Davis, editors, Seminar Pro­ ceedings of the first Discount Operators National Show (Boston: Modern Retailer Publishing, August, 1961), p. 16. 44 particularly in departments carrying high priced items. The vendor managed department was listed as an option, too, and greeting cards were used as an example. The major resource determined the stock on hand, laid out the department, and trained the sales people. This type of operation is feasible where there are so many low turnover items to be handled that the buyer cannot follow them all.

A wholesaler operated department was considered as another substitute. Where a large number of items is carried it is suitable for the wholesaler to stock and service the department. A final alter­ native was in reality a leased department where no monetary rental payment was made. Instead the store is paid in customer goodwill and other intangibles when departments such as a travel bureau are allowed to operate on a rent-free basis. 34

Establishment Of Lessee-Lessor Rapport

The development and use of leased departments in retail stores have been mentioned. The characteristics of leased departments and of the organizations operationally similar to the leased departments have been examined. The purpose of this section is to determine the elements of managerial control which will produce a mutually advanta­ geous working relationship between lessee and lessor. The character­ istics of leased department operations make certain managerial policies necessary on the part of the lessor in order to obtain optimum per­ formance from lessees.

34"Leased Departments," op. cit., p. 50. 45

Integration of objectives

In order to achieve complete understanding between the lessee and the lessor a compatibility of their images, policies, and oper­

ating procedures must occur. The leased departments should be granted the same treatment as is accorded the store operated departments. To the customer the operations of all departments must blend into a single

integrated store image.

One authority has stated that the mutuality of interests means that the leased department meet the tests of:

1. Character-as to similarity of objectives. 2. Compatibility-as to similarity of personnel policies, fringe benefits, employee discounts, pay, and so on. 3. Customer interests-as to similarity of operating policies with regard to refunds, complaints and services. 4. Merchandise and promotion policies-with respect to the handling of co-ordinated lines and prices and full, pro rata participation in storewide events.

Management

The lessees role must be an active and participative one in the management of the lessor's establishment. The store should consider

the lessees as members of its executive staff. In the 1958 study of

leased departments in department stores one store operator commented:

"Make them an integral part of the management team; have them attend

policy and planning meetings so they are familiar with day-to-day 36 goings-on in the store."

^Robert D. Entenberg, "Leased Departments Can Be a Sound Investment," Department Store Economist (April, 1962), p. 34.

^6"Top Management Looks at Leased Departments," op. cit. , p. 26. 46

It is not enough for store management to be accessible to the lessees. The leased department operator should be con­ sulted on all long range merchandising and promotional plans. Too often the lessee is contacted about the day-to-day store activities, but the long range goals of the lessor are never communicated to the lessee.

Contract

A clear, concise contract with all points of probable alterca­ tions completely defined should be the embodiment of the lessee-lessor agreement. The above statement is a sound legal tenet; but the proper rapport between the store and the leased department can be created only through abiding by the spirit of the contract. Open-mindedness and understanding should supercede the letter of the contract.

One lessor has affirmed:

The cornerstone of a licensor/licensee relationship is the formal agreement between the parties. However, it must be recognized, that while the contract is vitally im­ portant, it is still only the framework of the working rela­ tionship. It cannot realistically anticipate all of the problems that might arise.

The really important components that convert the legal document into a smooth, mutually beneficial association are hard work, a sense of fair play, maximum flexibility, and the confidence and trust of one party in the other. '

^Henry Goldsmith, "Store Should Manage Leased Department," Discount Store News (September 21, 1964), p. 19. CHAPTER III

HISTORICAL DEVELOPMENT OF DISCOUNT STORES

The objective of this chapter is to trace the historical development of discount stores and to gain an understanding of the role of the lessee in the early discount stores.

In the 1950's conventional retailers decried the general mer­ chandise discount organizations founded after World War II were illegitimate offsprings which flourished in a heady atmosphere of loss leaders and low quality. Without digressing on the merits and demerits of illegitimacy it may be observed that Alexander Hamilton allegedly fell into this ancestral designation; but this did not deter him from making an impact upon our history.

The discount store, too, is exerting a moving and powerful influence in society. It would seem unequivocally correct to view the discounter as a permanent institution on the retailing scope rather than one of a transitory nature. In 1965, discount store sales were

$13.2 billion, an increase of 35.5 per cent over 1960, and the sales volume of the average store rose nearly 17.6 per cent to $4,089,000.^

After World War II, the United States had an archaic prewar distribution system to meet the needs of a dynamic postwar economy.

This untenable situation demanded new retailing outlets.

l"The True Look of the Discount Industry-1965," The Discount Merchandiser (June, 1966), pp. 37 and 41.

47 48

Over the years department stores took on a particular image which their customers expected. Only a forceful countermovement to the pattern of department store development would have caused the 2 consumer to notice an innovating department store. Thus, while the department stores languished in their historical image, the factors mentioned below permitted the development of discount stores.

Social, economic and political conditions can be ascribed as causes molding the development of the discount store. Since the end of World War II, the rise of a large middle class in the United States has created a new mass market which is being exploited by mass mer­ chandisers. The graduated income taxes, extensive inheritance, and large estate taxes have resulted in a more equitable distribution of wealth. Union led negotiations for higher wages, greater number of working wives, moonlighting, and a better educated populace are addi­ tional factors that have broadened the American mass market.

The state Pair Trade Laws by disrupting normal economic com­ petition sowed the seeds for the advent and growth of discount stores.

Consumer acceptance of supermarket merchandising permitted the dis­ counter to use self-service techniques allowing the customer to make unsupervised purchase decisions. Innovators such as Eugene Ferkauf, founder of E. J. Korvette, Incorporated, the nation's largest discount organization, have served as catalysts to mold form and substance from a fomenting retail environment. Professor Malcolm P. McNair of Harvard

2Alton F. Doody, "Historical Patterns of Marketing Innovation," (Chicago: Proceedings of the American Marketing Association Winter Conference, Pittsburgh, 1962), pp. 251-253. 49 has called Ferkauf one of the six greatest merchants in the history 3 of this country.

Other factors such as the desire for one stop shopping, and the inclination of the family to shop together after working hours in a retailing atmosphere that welcomes customers in leisure attire aided the growth of the discount industry.

To speak of a discount store immediately infers there is a single set of criteria which can be utilized to separate this unit from all other types of establishments. A closer examination of the discount venture reveals that the term, discount store, represents at least three uniquely differing kinds of organizations which evolved from the changing socio-economic conditions. In much of the litera­ ture on the subject, there has been no attempt to distill the essential elements nor to elucidate on the origins of each discount group. The following discussion will attempt to identify the development of the three differing types of discounters and how each type made use of leased departments.

Closed Door Discount Store

Closed door retail stores are known to have been in existence over fifty years ago. In the 1930's during the great depression, they achieved some fame as a means of reducing consumer prices. However,

it was only after World War II that the contemporary closed-door

^Charles E. Silberman, "Discount Houses-A Revolution in Retailing," Fortune (April, 1962), p. 99. 50 discount house came into being.

The rudiments of these postwar stores and their membership requirements can be traced back to the Ship Stores, Air Force Base

Exchanges, and Army Post Exchanges. These Armed Services outlets sold merchandise at less than the established retail price to service­ men. The buyers were required to show their Armed Forces Identifica­ tion Card. Customers of the closed door establishments must similarly display a membership card before they are allowed in.

Membership requirements were ordinarily not overly restrictive.

If the establishment was located near a group of Armed Forces instal­ lations, possibly membership included serviceman and their families, federal, state, and municipal government employees, and employees in industries doing government work. In industrialized areas without the

Serviceman element, the membership requirements may be even more broadly interpreted and include workers and families of union men, or perhaps, all factory workers who can meet the nominal cost of a mem- 4 bership fee.

An observer of the closed-door discount scene has recorded its early beginnings by writing:

The trend started in Los Angeles about ten years ago'. In 1952 a group of government employees decided to try to save money by shopping at wholesale prices directly from distributor catalogues. The venture proved so popular that the group de­ cided to go into the store business and set up Fedco (Federal Employees Distributing Company). By mid-1961 Fedco has become

^A Survey of Discount Department Stores. Dayton, Ohio: Marketing Research Department, The National Cash Register Company, July, 1960, p. 21. 51

a five-unit Southern California chain with three stores in Los Angeles, and one each in San Diego and San Bernadino.®

The closed door stores were moving eastward while the soft-goods supermarkets, which will be discussed later, were wending their way westward. Fed-Mart was organized in San Diego and it moved into

Arizona and Texas. SAGE started stores in Houston, Dallas, and Austin while GEX, a subsidiary of National Bellas Hess, established units in

Oklahoma City; Atlanta; Norfolk, Virginia; Albany, New York; New York g City; and Philadelphia.

One closed door operation, GEM International, identifies itself as an international organization. It entered into the retailing stream in 1956 with 35,000 members and over $400,000 in sales. By the end of

1962 it claimed nearly 1.5 million membership cards outstanding in 30 stores with a total revenue of $175 million.^ GEM International has stores all the way from Hilo, Hawaii; to Nottingham, England.

The names of the various closed door outfits are an indication of the customer types they serve. The titles also provide a quasi­ cooperative overture to the entire operation. The designation of the stores are commonly given in initial form. These letters often stand for their proper name. For example, AGE means Affiliated Government

Employees; CAL, Consumer Associates; ECO, Employees Consumer Organiza­ tion; FAIM, Federal and Industrial Mutual; GEM, Government Employees

5Frank Meissner, "Closed-Door Discount Stores," Journal of Retailing, Vol. 38, No. 3 (Fall, 1962), pp. 19-20.

6Ibid., p. 22.

^"Where the Customer Pays to Shop," Business Week (November 10, 1962), p. 162. 52

Mutual; GEX, Government Employees Exchange; and MGE, Military and

Government Employees Purchasing House.

In contrast to the soft-goods stores which were founded by mer­ chants who had been formerly in other retail fields, the closed door establishments were frequently originated by men with backgrounds in O either finance, real estate, law, or accounting. Their dependence on leasing signified the limited merchandising ability they initially possessed.

Many of the closed door operators leased nearly every depart­ ment. Since the land and buildings of the closed-door store were generally procured on a leased basis, the corporation operated mainly as a financial shell which only serviced and coordinated the activities of its lessees.

Since the early 1960's, the ranks of the closed door discount store have been thinning. In 1964 these membership organizations had less than 10 per cent of the total floor space occupied by discounters.

Since the average closed door operation had a 90,000 square foot store compared to 59,000 square feet for the average open door unit, the per cent of establishments represented by the membership stores in the dis- g count industry was considerably less than 10.

8Joseph Lehrman, "Operation of Leased Women's Ready-to-Wear Departments in Discount Department Stores," (unpublished Master's thesis, The City College of the City University of New York, 1962), p. 7.

9"The True Look of the Discount Industry 1964," op. cit., p. 49. 53

Promotional Discount Store

It may appear incongruous to call any discount operation established within the last two decades traditional. But this term

is applicable to the units founded in the New York City area in the

late 1940's and the early 1950's. Today the nature and operation of many of these early discount houses has evolved to the point where they are better known as promotional discount stores. Many of the first discount establishments in New York City were in reality a type of specialty discount center. They carried name brand appliances but little else. In 1954 one observer stated that nearly 90 per cent of all appliances in America's largest city were being sold at less than 10 the list price. Housewares, radio and television sets, jewelry, cameras, hardware, and other easily carried nationally branded hard goods were also handled by these first discounters.

The definition of a discount house prepared by the American

Marketing Association's Committee on Definitions in 1960 best ex­ presses the entity which this writer is calling the traditional dis­ count store. The A.M.A. Committee defined the discount house as follows:

DISCOUNT HOUSE - A retailing business unit, featuring consumer durable items, competing on a basis of price appeal and operating on a relatively low mark-up, and with a minimum of customer service.

■*-®"Adventures in Shopping — The Discount Houses," Sales Management (June 15, 1954), p. 42.

•^Ralph S. Alexander and the Committee on Definitions of the American Marketing Association, Marketing Definitions (Chicago: American Marketing Association, 1960), p. 12. 54

A basic difference between the traditional discount house and the promotional store was that an abundance of nondurables or soft goods was added to the durable goods inventory.

Some of the initiators of the promotional discount stores had little prior experience in retailing. Consequently, these individuals proceeded to lease much of their floor space to knowledgeable special­ ists. Since these promotional discounters could operate with minimum capital outlays, through leasing, it was to their advantage to develop as many different departments for their stores as possible. The end effect was the construction of a massive store with a floor area 12 accommodating multitudinous lessees.

Other promotional stores were established by individuals who were strong merchants in one area particularly hard goods; but they needed the services of leased operators to handle additional offer­ ings. Many of these hard-good merchants were traditional discounters who found it lucrative to expand their merchandise horizons. Most of the traditional stores have gradually changed into the promotional discount form.

There are several reasons why these units are called promo­ tional stores. One explanation is that the term describes the promoting entrepenuer who saw the compatability of gaining profit while serving the needs of middle income consumers. In many cases the lessees and store operators offered special leader promotions to draw in the

12A Survey of Discount Department Stores, op. cit., p. 16. 55 crowds. This merchandising technique presented further justification for calling these establishments promotional stores. Of course, the promotional operators contended that their designation implied every day, low promotional prices on all items. Today, the promotional discount store with its sheer size and mass tends to completely over­ shadow its traditional predecessor.

E. B. Weiss, Vice-President of Doyle, Dane, and Bernbach, comments on this changing emphasis from traditional to promotional units when he writes:

The older discount chains will probably start leasing departments covering some of their newer merchandise classi­ fications. In this connection it is essential to remember that the original discount chains were primarily hard-goods outlets. Today, they are primarily soft-goods outlets (plus food). The founders knew hard goods. Their knowledge of soft goods has not been equally competent. Consequently, with the keen ability of the newer closed-door and parti­ cularly the newer mill chains to merchandise soft goods, it is probable that the older discount chains will find it competitively compelling to turn to soft goods leased de­ partment operators. .1*3

Soft Goods Supermarket

A third discount store type developed in the New England area during the middle 1950*s. Ever since the early 1920ts, the New England 14 region has been declining as a cotton and wool textile center.

•^E. B. Weiss, The Coming Era of Giant Leased-Department Chains (New York: Doyle, Dane, Bernbach, Inc., 1961), p. 17.

14E. B. Alderfer and H. E. Michl, Economics of American Industry (New York: McGraw-Hill Book Company, Inc., 1950), p. 361. 56

As the cotton and woolen mills deployed their resources into the South, they left many large abandoned buildings in their wake. In the 1950's a group of New England soft good merchants arrived on the scene to convert some of these vacant mills into soft goods supermarkets.

Near the city of Providence, Rhode Island, in 1954, the soft goods discount establishment of Martin Chase was founded which is generally acknowledged to be the unit from which others copied. By

1959 over 110 such stores were crusading for the consumers' dollars in the Northeast. Their estimated sales in that year were placed at

$300 million.15

After once establishing a firm regional footing in retail­ ing, the soft goods supermarket moved into other areas of the country.

As early as 1959 one writer listed fifty-nine cities away from New

1 C England where these stores had propagated. The attraction which these institutions offered was not limited by geographic or ethnic boundaries. The common denominators of low prices and ease and con­ venience of shopping appeals to many American shoppers.

The original self-service supermarkets were located in the old mill buildings and warehouses; however, the newer units have been situated in modern one story structures, laid out and designed for the continuous flows of traffic which are drawn to them.

■*-®Gerald B. Tallman and Bruce Blumstrom, "Soft Goods Join the Retail Revolution," Harvard Business Review, Vol. 38, No. 5 (September- October, 1960), p. 133.

*®Sam Gottesfeld, "Self-Service Discounters Mushrooming Over Nation," Women's Wear Daily (June 29, 1959), p. 1. The Atlantic Mills Thrift Center is a case in point. In the

fall of 1954, the company established the desirability of operating

a low mark-up self-service soft-goods supermarket. The management

believed this type of operation could exist outside the downtown retail district in a low rental area as long as adequate parking was avail­

able. After an investigation, a suitable building was located in New

Bedford, Massachusetts. The structure was renovated, and reopened as

a retailing center in March, 1955. The building had been an old mill known in the community as Fairhaven Mills; consequently, the name

17 adopted for this store was Fairhaven Mills Bargain Center. Since

1957 practically all the other Atlantic Mills Thrift Centers have gone

into new buildings especially constructed for the company.

Since the first locations for this new kind of retail outlet were in abandoned textile mills, many of the early stores included

the word "mill" in their identification; thus, they were called mill 18 t outlet stores. Another factor leading to the use of the "mill out­

let" terminology is that the original merchandise handled was generally

mill-end and/or close-out goods. The mill concept is still reflected

in the names of many soft-goods establishments. There are the Atlantic

Mills, Broadway Mill Outlet, Mammoth Mills, Midway Mills, Mill Outlet

Stores, and Sawyer Mills to indicate a few.

17yjrgjnia Dare Stores Corporation, Prospectus. (New York: Virginia Dare Stores Corporation, January 30, 1962} p. 5.

18"Discount Supermarkets-Dynamic New Factor in Retailing," NCR Points (Dayton, Ohio: National Cash Register Company, July, 1959^ p. 1.. . 58

All of the early soft goods supermarkets used leased depart­ ments to some degree. Some establishments had nearly half of their departments leased while other stores had less than 10 per cent

leased. The shoe and millinery lines were the most leased departments while the cosmetics, domestics, housewares, and hardware departments were frequently leased, too. Since the store operators were knowledge­ able merchants in the field of soft goods, they generally retained control over these departments preferring to lease the others.1®

Table 3.1 displays a partial list of the departments leased by this type of store in 1958.

Integration of Discount Store Types

In the middle 1960's it has been hard to discern between the three types of discount operations: soft goods supermarkets, closed door discount stores, and promotional discount stores. The tradi­ tional hard-line discount house has tended to evolve into a huge pro­ motional discount store, but the sales of appliances, television, and other hard goods generally remain their most important lines. Today,

the soft-goods supermarket is housed in a building resembling the

promotional-type market, and the operating policies of the soft goods

units are nearly identical to those of the promotional outlets. The main distinction between the two is that the soft-goods stores still do not handle as many major appliances and related durables. The

19 Tallman and Blumstrom, op', cit., p. 135. 59

TABLE 3.1-Number of Merchandise Lines Leased by Selected Soft Goods Supermarkets, 1958

Merchandise Company Line Fields King's Zayre Forest Ann Turn- Sandy's Midway Total Hills and Style Compan­ Hope ies Leasing

Shoes X XX X X X X 7 Millinery XX X X X 5 Cosmetics XX X X 4 Domestics X XX X 4 Hardware X X X X 4 Housewares XX X 3 Candy and/or Pastry X X 2 Infants' Wear X X 2 Toys X X 2 Stationery X 1 Jewelry X 1 Tires X 1 Total Depart­ ments Leased 1 3 10 5 1 6 5 5 36

Source: Gerald B. Tallman and Bruce Blumstrom, "Soft Goods Join the Retail Revolution," Harvard Business Review, Vol. 38, No. 5 {September-October, 1960), p. 135. 60 chief difference between the membership stores and the other two is the card carrying requirement. The other dissimilarities have begun to pale into insignificance. Undoubtedly this blending process is why many current writers and commentators on the discount frontier con­ sider all types of discount operations under one generic guise.

Present Utilization of Leased Departments by the Discount Store

Since discounters generally leased their buildings and some­ times the display fixtures, too, an enterprising individual could start a new store for as little as $250,000. When the organization utilized mainly leased departments, a $30,000 initial capital outlay was adequate to commence operations. Real estate promoters sometimes developed a leased center without regard to the sales potential and without ade­ quate cash reserves. In 1962 there were at least 125 real estate or lease-holding organizations whose only function was to secure the master lease and perform certain overhead and management services for 20 their department lessees. These stores were among the first to fall when intratrade battle caused some discounters to experience a volume decline in 1962 and 1963.^

Numerous smaller discount store organizations were merged into

^^William A. Duvel, "What the Credit Executive Should Know About the Discount House," Talk at 66th Annual Congress of the National Association of Credit Management, for Manufacturer Division in Phila­ delphia (New York: Dun & Bradstreet, Incorporated, May, 1962), p. 5.

^"Discounters Strive to Ride Out Storm," Business Week (December 1, 1962), pp. 78, 80, and 85. 61 financially stronger enterprises during the early 1960's. This merger trend has been continuing in the middle 1960's. The resulting larger chain operations have the financial and managerial capabilities to operate their own departments. This greater concentration of discount store power portends a decrease in the future use of leased departments.

The specter of the leased departments being taken over by the discount stores in an effort to strengthen the stores' financial structures has caused a degree of apprehension to the leased depart­ ment operators. Table 3.2 and Table 3.3 should allay some of the lessees' fears regarding their immediate future. Table 3.2 is a comparison among the years 1965, 1964, and 1963 of the proportion of departments that are leased in the various merchandise lines. Although eighteen lines had the same or less leased departments in 1965 than in

1963, nine merchandise areas experienced an increase in leased units.

Housewares, men’s-boys', infants-children, shoes, auto accessories, records, millinery, tobacco and supermarket composed the nine. The

floor covering line had an 8 point decrease in leased department use;

furniture, 6 points; candy, 6 points; stationery, 5 points; toys,

5 points; and appliances-TV, 4 points. An 8 point increase was ex­

perienced in the supermarket area while the shoe line had a 5 point

growth, and the auto accessories line had a 4 point rise. A median

27 per cent of all the departments in discount stores were leased ones.

Table 3.3 presents a contrast between the merchandise lines

leased in 1964 and 1962. Table 3.3 is the culmination of a study of

1,000 operators of both specialty and full line discount stores. In 62

TABLE 3.2-Per Cent of Departments in Discount Stores that are Leased Departments, Comparison Among the Years 1965, 1964, and 1963, by Merchandise Line

Merchandise Line Per Cent of Departments Leased by Stores* 1965 1964 1963

Housewares 22 21 21 Ladies 19 20 18 Toys 18 20 23 Men's-Boys' 23 20 20 Infants-Children 18 18 17 Drugs 39 39 40 Linen-Domesties 25 25 25 Sporting Goods 25 25 25 Hardware 25 25 26 Shoes 65 60 60 Auto Accessories 34 33 30 Jewelry 46 42 46 Garden 17 17 18 Records 27 23 24 Stationery 26 28 31 Appliances-TV 27 30 31 Paint-Wallpaper 31 30 31 Camera 32 34 33 Luggage 23 24 25 Snack Bar 64 63 66 Furniture 30 32 36 Floor Covering 33 34 41 Millinery 72 75 71 Candy 20 20 26 Hosiery 9 8 9 Tobacco 44 36 41 Superraarket 55 58 47

*The 1965 figures are based on all United States discount stores while the comparative 1964 and 1963 base figures are taken from only open-door units. The open-door stores generally have a lower incidence of major departments than membership operations. For most departments the 1965 figures which include closed door stores would be .1 or .2 percentage points higher than 1964 and 1963 even without any increase in frequency.

Source: "l965/'66 Discount Census,” Discount Store News, (August 23, 1965), p. 11; "Discount Census/64," Discount Store News, (August 24, 1965), p. 9; and "Census 1963," Discount Store News, (August 26, 1963), p. 39. 63

fourteen merchandise lines a moderate takeover trend was evident, but

in seven lines the lessees either increased or held their share of department operation. Children's and infants' wear, women’s ready- to-wear, women's accessories, family clothing, men's and boyi* cloth­ ing, paints, glass and wallpaper, and stationery constituted the seven lines displaying leased department growth. The women's areas, and children’s and infants' wear lines added the most leased depart­ ments during this two year period. A highly competitive situation and the requirement of specialized merchandising talent could account for the rise in use of lessees in these particular merchandise lines. 64

TABLE 3.3-Per Cent of Departments Owned by the Discount Stores and Leased by the Discount Stores, Comparison Between 1964 and 1962, by Merchandise Line.

Merchandise Line Per Cent of Departments

Owned Leased 1962 1964 1962 1964

Paint, Glass & Wallpaper 72.8 71.4 27.2 28.6 Electrical Supplies 75.6 77.8 24.4 22.2 Hardware 76.2 79.3 23.8 20.7 Dry Goods & General Merchandise 81.6 82.6 18.4 17.4 Groceries-Food 48.2 57.6 51.7 42.4 Tires, Batteries & Accessories 67.5 74.3 32.5 25.7 Men's & Boys' Clothing 76.8 76.4 23.2 23.6 Women's Ready-To-Wear 78.5 73.3 21.5 26.7 Women's Accessories 78.2 77.0 21.8 23.0 Children's & Infants Wear 79.8 72.6 20.2 27.4 Family Clothing 79.4 78.2 20.6 21.8 Shoes 59.2 66.1 40.8 33.9 Furniture & House Furnishings 80.5 83.5 19.5 16.5 Household Appliances 83.1 87.8 16.9 12.2 Radio, TV, Appliances 83.7 86.1 16.3 13.9 Drugs 69.4 73.0 30.6 27.0 Books & Stationery 74.7 74.7 25.3 25.3 Sporting Goods, Bicycles 78.9 82.7 21.1 17.3 Farm & Garden Supplies 76.3 87.5 23.7 12.5 Jewelry 72.3 79.1 27.7 20.9 Toys, Luggage, Cameras, Gifts, Other 80.2 82.6 19.8 17.4

Source: "What is the Leased Takeover Trend," Discounters Digest (New York: Dun & Bradstreet, Incorporated, October 26, 1964), p. 1. CHAPTER IV

FINANCIAL CONDITION OF LEASED DEPARTMENTS IN DISCOUNT STORES

The years 1962 and 1963 saw a major shake-out develop in the discount field. It seems inevitable in any growth industry that suc­ cess and profit always attract many individuals who lack the acuity of management needed for success. Particularly, when competition thickens or sales begin to slowdown, the marginal operator falters.

Bankruptcy, liquidation, or merger follow. In 1962 the intra-trade competition between discounters began in earnest and a period of shake­ out ensued. This competition was in addition to the ever present inter-trade rivalry.

Failures of Discounters

Dun & Bradstreet, Incorporated listed 146 discount firms that

failed during 1962 with total liabilities of $74 million. For pur­ poses of computing failures a discounter was defined as an organization with a sizable dollar volume of sales or an important part of its busi­ ness from discount store operations or from leased departments. Dis­

counters made up only 2 per cent of the total number of retail failures

in 1962; but they accounted for a significant 21 per cent of total retail liabilities. Of the discount failures, 63 per cent had liabili­

ties ranging from $150,000 to $1,000,000 and 7 per cent indicated

liabilities exceeding $1,000,000. Inadequate sales volume was the

65 66 greatest stated cause of insolvency while poor location was listed

i second.

In August 1962, a significant Chapter XI bankruptcy resulted when Grayson-Robinson experienced financial troubles. The company was a major lessee of women's apparel departments in discount stores. In

1962 the corporation's discount operations accounted for 40 per cent of its total volume. Management blamed the failure on its inability to liquidate a major bank loan and on the May 1962 stock market tumble 2 which made a proposed debenture issue unfeasible to market.

The year 1964 marked a turn around in the financial hiatus.

In 1963 discounters' bankruptcies totaled 158 with liabilities of nearly $60 million, but in 1964 there were only 94 bankruptcies with a combined liability of $21.8 million. The 94 failures accounted for

1.5 per cent of the 6,241 retail bankruptcies in that year, and this 3 amounted to only 7.8 per cent of all retail liabilities.

Financial Ratios

Leased department organizations

As shown in Table 4.1 the net profits to sales position of the

leased departments in discount stores improved considerably over 1963.

-*■"1962 Discount Liabilities Were Steep," Modern Retailer (February 8, 1963), pp. 1 and 9.

^"Roth Claims Grayson-Robinson Will Operate at Profit From Now On," Modern Retailer (February 1, 1963), pp. 1 and 24.

3,,Discount Bankruptcies Dropped Sharply in 1964, Says D & B Letter," Modern Retailer (April, 1965), p. 3. 67

TABLE 4.1-Financial Ratios: Key Financial Ratios of the Companies Operating Leased Departments in Discount Stores for the Years 1961, 1962, 1963, and 1964a

Financial Ratios Leased Department Operators

1961 1962 1963 1964 Number of Reporting Org. (39) (37) (49) Upper (36) Lower Median Median Median Quartile Median Quartile

Current Assets to Current Debt 1.44 1.47 1.64 2.01 1.75 1.37 Net Profits on Net Sales (%) 1.83 0.92 0.73 2.26 1.69 0.86 Net Profits on Tangible Net Worth (%) 16.76 12.19 7.93 27.20 10.64 3.30 Net Profits on Net Working Capital (%) 24.89 13.64 9.22 27.98 11.72 4.43 Net Sales to Tangible Net Worth 8.95 10.49 8.39 18.35 9.25 4.51 Net Sales to Net Working Capital 10.47 13.58 11.33 21.29 9.88 5.42 Net Sales to Inventory 4.6 5.8 6.21 7.4 5.9 3.2 Fixed Assets to Tangible Net Worth (%) 25.6 26.9 22.6 9.4 17.0 40.1 Current Debt to Tangible Net Worth (%) 172.1 137.6 122.2 79.8 115.1 214.6 Total Debt to Tangible Net Worth (%) 313.8 201.3 184.9 115.8 171.5 259.7 Inventory to Net Working Capital (%) 284.9 203.1 167.2 111.6 168.8 276.1 Current Debt to Inventory (%) 97.0 90.9 90.6 67.4 86.9 124.2 Funded Debt to Net Working Capital (%) 72.3 42.1 40.2 12.1 34.5 40.7

aNo proprietorships or partnerships are included in this tabulation.

Source: "improved Profits and Debt Positions Highlight 1964 Ratio Study of Leased Department Operators," Discounters Digest (New York: Dun & Bradstreet, Incorporated, September 28, 1965), p. 1. 68

The profit figure for 1964 was still below the high of 1.83 per cent obtained in the less competitive year of 1961. Net profits on tangible net worth and on net working capital declined from 1961, but were higher than in 1963. A decrease from 1961 would have been expected since the lessees in 1964 were financing their assets with less debt and more equity. The debt to net worth ratios were down indicating the greater reliance on the equity of the owners in the firms.

The higher current assets to current debt ratio indicated a trend toward greater solvency in the organization. Since 1962, the net sales to net working capital ratio had decreased. This contraction of the ratio indicated a small reduction in the turnover of working capi­ tal and a shrinking of the margin for operating funds. Net sales to inventory, which is the measure of inventory turnover, dropped slightly from 1963 but it was still well above the 1961 level. For all leased departments nearly six turns a year was a gratifying performance.

The fixed assets to tangible net worth ratio had decreased from

1961 to 1964. Perhaps, this lower figure indicated the extent to which the leased department operators had begun using more of their own equity in financing.

Improvement occurred in the inventory to net working capital position between 1961 and 1963, but the relationship remained the same for 1964 as in 1963. As a measure of inventory balance, this ratio was higher than desired.

The current debt to inventory relationship in 1964 was only 10 points below the 1961 figure. The purpose of this ratio is to show the 69 extent that an organization can satisfy current debt from funds yielded by the disposal of unsold goods. Trending downward since 1961 was the funded debt to net working capital relationship. This ratio is used to indicate if the long term debt is in proper proportion to the net working capital of a firm.

As a whole, the leased departments appeared to be on a better financial footing in 1964 than in any of the previous three years, but additional financial improvement was warranted.

Comparison among leased departments, discount stores, and department stores

Table 4.2 reveals that the net profits on sales for the leased departments in 1964 were the same as the discount stores experienced, but slightly below the performance of department stores. The lessees1 profits have been subject to more variation than in the other two types of establishments. The discount store shows the highest profit on tangible net worth and on net working capital. For each reporting year these profit figures were greater for both discount stores and

leased departments than for department stores. This condition should

have been anticipated since department stores have utilized equity

financing to a greater extent than the other two forms of organizations.

Through the years the leased department has had the highest debt

to net worth ratios, followed by the discount stores. The department

stores1 debt position has been much lower reflecting their use of

owner1s equity.

The current assets to current debt ratio progressively increased 70

TABLE 4.2-Financial Ratios: Median Financial Ratios of Leased Departments in Discount Stores, Complete Discount Stores, and Department Stores for the Years 1961, 1963, and 1964a

Median Ratios Financial Ratios 1961 1963 1964 Leased Discount Dept, Leased Discount Dept. Leased Discount Dept. Depts, Store Store Dept, Store Store Dept, Store Store Number of Reporting Org, (39) (204) (416) (49) (196) (266) (36) (186) (196)

Current Assets to Current Debt 1,44 1.49 3.49 1.64 1.67 3.48 1.75 1.79 3.13 Net Profits on Net Sales {%) 1.83 1.42 2.00 0.73 1.14 1.60 1.69 1,68 1.80 Net Profits on Tangible Net Worth (%) 16.76 14.98 5.30 7.92 10.62 4.59 10.64 13.00 5.27 Net Profits on Net Working Capital (%) 24,89 18.63 6.98 9.22 12.85 5.91 11.72 17.61 6.85 Net Sales to Tangible Net Worth 8.95 9.94 2.76 8.39 8.13 3.33 9.25 7,79 3,57 Net Sales to Net Working Capital 10.47 14.85 3.66 11.33 11.25 3.97 9.88 9.46 4.35 Net Sales to Inventory 4,6 6.5 5.3 6,2 6.1 5.4 5.9 5.9 5.4 Fixed Assets to Tangible Net Worth (%) 25.6 28.7 26.4 22.6 27.3 25.9 17.0 23.2 22.5 Current Debt to Tangible Net Worth (%) 172.1 145.7 29.4 122.2 115.6 31.8 115.1 94,3 34,9 Total Debt to Tangible Net Worth {%) 313.8 182.1 69.5 184.9 160.1 63.2 171.5 146.7 71.6 Inventory to Net Working Capital (%) 284.9 208.5 66.2 167.2 165.4 75.2 168.8 153,5 79.0 Current Debt to Inventory (%) 97,0 95.1 61.5 90.6 83.7 61.1 86.9 78.6 62,5 Funded Debts to Net Working Capital (%) 72,3 43.5 31.3 40.2 45.0 30.8 34,5 37,8 34.6

aNo proprietorships or partnerships are included in this tabulation,

Sources: "The Leased Department-A Financial Look," Discounters Digest (New York: Dun & Bradstreet, Incorporated, February 18, 1963), p, 1; Key Business Ratios in 125 Lines-1963 (New York: Dun & Bradstreet, Incorporated, 1963), p, 2; Key Business Ratios in 125 Lines-1964 (New York: Dun & Bradstreet, Incorporated, 1964), p. 2. from 1961 to 1964 for both types of discounters. This indicated an increasingly solvent position. Department stores have consistently maintained a much higher degree of solvency. Leased departments and discount stores had over twice as high a net sales to net working capital ratio as did the department stores. These latter establish­ ments were doing the best job of turning over their working capital and of providing a margin for operating funds. The rate of inventory turnover was a half turn better for the lessees and the discount stores than for the department stores. From 1963 to 1964 the discount­ ing organizations had reduced their number of stock turns, but the department stores had been able to firm their turnover.

The fixed assets to tangible net worth ratio remained about the same for all three types of operations. Only in 1964 did the position of the leased department operator drop below the other two classes.

The inventory to net working capital relationship produced a figure nearly twice as high for the two discounting businesses than for the department store. This is an indication that the department store had a much better balance of inventory to net working capital than the other two types.

The highest current debt to inventory position was experienced by the leased department. The lowest current debt to inventory ratio was attained by the department store. In comparison with the other two classes through the years the leased department operator was the most dependent upon funds from the sale of his inventories to meet his current debts. 72

Since 1961, the leased department to a greater extent and the discount store to a lesser extent have decreased their funded debt to net working capital in an effort to match the department store. In

1964 the long term liabilities of the discounting organizations were in a much better balance with the net working capital than in any previous year.

In conclusion it appears that both the leased departments and the discount stores have considerably improved their financial posi­ tions since 1961. For 1964 there were some ratios where the discount stores were strongest and other relationships where the leased depart­ ments excelled. Overall the discount store presented a slightly better financial picture than the lessee. The department stores maintained a conservative financial structure in 1961 and it was still preserved in

1964. The leased departments and the discount stores must continue to strengthen their financial bases in an effort to meet the stronger position of department stores. CHAPTER V

PROFILE OF THE TYPICAL LEASED DEPARTMENT IN DISCOUNT STORES

A profile of the vital statistics for a typical leased depart­ ment in a discount store is recorded in this chapter. The geographic location of the leased department operators is examined. The number of leased departments operated by the typical organization in each merchandise line is reported. A large section of the chapter is devoted to the measurements of the leased departments which include size in square feet, dollar sales, sales per square foot, transaction size, and number of items stocked.

Location

Headquarter's location

Of the leased department organizations participating in the research the largest number of reporting firms were from the East North

Central states followed by the Middle Atlantic, New England, and

Pacific regions, respectively. Since fifty personal interviews were

limited to operators of leased departments in only the East North

Central states, it could be anticipated that from a total of 331 respon­ dents a large proportion would come from this one region.

Table 5.1, showing the organizational headquarters of the leased department organizations, can be compared to a report on discount

stores indicating the areas of greatest store concentration. In order

-73 74

TABLE 5 .1-Headquarters Location: Number of Leased Department Organizations Reporting Their Organizational Headquarters Location by Census Region, by Merchandise Line, 1965

Merchandise Total New Middle South East East West West Mountain Pacific Canada Line Reporting Org.a England Atlantic Atlantic North South North South States No. Per Cent Central Central Central Central

0 2 0 Women's & Children^ 29 8.8 5 9 2 6 1 2 0 2 0 1 5 1 Men's Wear 22 6.7 4 3 2 4 0 0 3 0 Domestics & Linens 21 6.3 9 2 1 4 1 1 0 2 0 1 7 0 Shoes 29 8.8 5 5 0 8 1 2 0 0 1 1 Health & Beauty 30 9.1 5 8 1 12' 0 0 0 5 3 Pharmacy 12 3.6 0 1 0 3 0 0 2 0 0 0 1 Records 16 4.8 1 6 2 3 1 2 1 5 0 Sporting Gds. & Toys 22 6.7 0 3 3 7 0 1 2 0 0 0 0 Bakery 5 1.5 0 2 0 1 0 1 2 0 1 1 Hard Lines 40 12,1 12 10 2 11 0 1 0 6 0 Auto Accessories 19 5.7 0 3 1 5 0 3 2 0 2 0 Furn. & Fir, Covrg. 24 7.3 0 4 4 10 1 1 0 0 2 0 Appliances 13 3.9 0 2 4 4 0 1 1 0 2 0 Jewelry 26 7.8 5 4 0 8 1 5 0 2 0 Camera 14 4.2 3 4 3 2 0 0 0 0 0 0 1 Pet Supplies 5 1.5 0 2 0 2 0 0 0 1 0 1 0 Misc, 4 1.2 0 1 0 1 0 3 44 8 All Mdse. Lines 331 100.0 49 69 25 93 6 25 9

Per Cent of Total Reporting Org. List­ 0.9 13.3 2,‘ ing Each Region 100.0 100.0 14.8 20.8 7.6 28.1 1.8 7.6 2.7

aAll organizations reported. 75

to simplify this comparison the following tabular presentation is made:

Per cent found in census region

Census Region Discount Leased dept, Stores* org. hqtrs.2

New England 10.8 14.8 Middle Atlantic 20.6 20.8 South Atlantic 9.4 7.6 East North Central 25.9 28.1 East South Central 4.2 1.8 West North Central 6.6 7.6 West South Central 7.8 2.7 Mountain States 3.9 0.9 Pacific 10.8 13.3 Canada 0.0 2.4

Total 100.0 100.0 1. Source: "1965/66 Discount Census, Facts and Figures," Discount Store News (August 23, 1965), p. 7.

2. Source: Table 5.1 of this research.

The locations of the leased department organizational headquarters do not differ perceptibly from the locations of discount stores.

Similarity of location was to be expected since the leased department organizations operated departments within the discount stores.

Area of operation

A hypothesis of this study is that the region of operations for

leased department organizations is mainly in a single metropolitan area.

The survey data did not completely justify the hypothesis. Of the 330

reporting organizations, approximately one-third operate in a single

metropolitan area while another one-third operate only in a local region.

Nearly one-sixth consider themselves regional in scope and a second sixth

consider their organization national in scope. 76

Table 5.2 indicates that the furniture and the appliance leased department organizations were mainly of the single metropolitan type.

The bulkiness, large unit price, purchase of only one or a few dis­ tinctive units at a time, and the need for trained sales personnel may have precluded the economies of large scale operation in these lines.

A large proportion of the health and beauty aids, the hard lines, and the jewelry organizations also were single metropolitan in charac­ ter. These lines also had numerous leased department organizations operating on a broader scale. There is often an opportunity for con­ ventional retailers and wholesalers in a given merchandise field to expand at a minimum cost into local discount stores with a leased de­ partment. This could account for many small leased department operations

in all merchandise lines.

The women's and children's, the sporting goods and toys, the

auto accessories, and the camera organizations indicated they operated mainly local region chains. Because of either style, seasonal, or

technical factors relating to their products, these businesses may

have desired to keep their lines of logistics short and their managerial

control close by.

Of all the different merchandise lines reporting, domestics and

linens had the greatest proportion of operations at the regional and

national level. The women's and children's, men's wear, shoes, health

and beauty aids, hard lines, and jewelry leased department organiza­

tions experienced some strength on a regional and national level. For 77 TABLE 5.2- Geographic Operation: Number and Per Cent of Leased Department Organizations Identifying Their Primary Area of Geographic Operation, by Merchandise Line, 1965

Total Total Single Local® Merchandise Line Org. Reporting Metropolitan Region Regional** National® Org. Number of Organizations Reporting

Women's & Children's 29 28 4 12 5 7 Men's Wear 22 22 7 8 2 5 Domestics & Linens 21 21 1 7 9 4 Shoes 29 29 7 9 6 7 Health & Beauty 30 30 13 5 4 8 Pharmacy 12 12 4 6 1 1 Records 16 16 5 6 1 4 Sporting Gds. & Toys 22 22 5 11 4 2 Bakery 5 5 4 1 0 0 Hard Lines 40 40 19 3 12 6 Auto Accessories 19 19 4 12 1 2 Furn. & Fir. Covrg. 24 24 16 6 1 1 Appliances 13 13 8 3 1 1 Jewelry 26 26 9 9 3 5 Camera 14 14 2 8 3 1 Pets 5 5 2 2 1 0 Misc. 4 4 2 1 1 0 All Mdse. Lines 331 330 112 109 55 54

Per Cent of Organizations Reporting

Women's & Children's 100.0 14.3 42.8 17.9 25.0 Men's Wear 100.0 31.8 36.4 9.1 22.7 Domestics & Linens 100.0 4.8 33.3 42.9 19.0 Shoes 100.0 24.1 31.1 20.7 24.1 Health & Beauty 100.0 43.3 16.7 13.3 26.7 Pharmacy 100.0 33.3 50.0 8.4 8.3 Records 100.0 31.3 37.5 6.2 25.0 Sporting Gds. & Toys 100.0 22.7 50.0 18.2 9.1 Bakery 100.0 80.0 20.0 0.0 0.0 Hard Lines 100.0 47.5 7.5 30.0 15.0 Auto Accessories 100.0 21.1 63.1 5.3 10.5 Furn. & Fir. Covrg. 100.0 66.7 25,0 4.1 4.2 Appliances 100.0 61.5 23.1 7.7 7.7 Jewelry 100.0 34.6 34.6 11.6 19.2 Camera 100.0 14.3 57.1 21.5 7.1 Pets 100.0 40.0 40.0 20.0 0.0 Misc. 100.0 50.0 25.0 25.0 0.0 All Mdse. Lines 100.0 33.9 33.0 16.7 16.4

aOne state or adjacent portions of two or three states; e.g., Eastern Ohio and Western Pennsylvania; **A geographic region composed of several adjacent states; e.g., New England states, Southwestern states; cIn two or more regions. 78 some merchandise lines involving personal selling and service, perish­ ability, and purchasing in small quantities, such as pharmacy, bakery, furniture and floor covering, appliance, and pet supplies, a large chain organization would seem to be more difficult to achieve than in other lines.

Table 5.3 indicates the primary area of geographic operation for selected leased department organizations based upon the number of departments operated by each organization. In most cases those org­ anizations operating a single department identified themselves with a single metropolitan area. Of those organizations operating two to four departments the majority of the firms indicated they operated mainly in a single metropolitan area and a slightly lesser number of firms stated they were a local region enterprise.

Businesses managing 5 to 10 units were predominantly local region or larger in their scope of operations. However, in the furni­ ture and floor covering and the hard lines departments these size organizations were mainly of a single metropolitan type. The health and beauty aids line had several organizations in this category, too.

Since the hard lines and the health and beauty aids departments do not require any distinctive merchandising treatment, it is possible to set up several departments in the same trading area carrying branded con­ venience goods.

As shown in Table 5.3, for all the other size of organizations there is a definite relationship between the number of departments operated and the geographical area of operations. The greater the num- 79 p 3 3 > 0 rl rl ft 3 n o o in o o o o o o h n o n 8 3 o to n oo o t> 0 H 0 0 0 oo oonoonoct oooo i 3 0 • I I i • « I o o to n o i i» 3 P 0 00 81 N 0 I I ffl o oi o o o i o n oofoonotf oooooo i in h n 0 p NHfO N in o 0 * ct" h o n o m H h n in o H H P rl H H rl rt H ID 3 0 01 ft ft 0 ft 3 H 3 0) 3 0 M 0 0 0 I 0 0) OOOOOC-Ol> 0 0 0 0 1 I I Ct 0 0 to 0 0 0 I 0 0 to 0-01 I in n e 3 o o id to o i in I I I ft ft 0 * * • • • i i • 0 0 0 0 0 0 P 0 0 0 o to o o o 3 3 P o o oo oo o n 0 to Ct 0 0 0 t- OOOOOlDOO n n fl in P ID St n ct h p fl rl 00 (0 Ct in 3) 3 3 HI 3 0 0 p ft ft so fl o in 3 tl (D H 3 o o p o o i o« onflooooo N 0 0 0 I I 10 oonoooim o to co o o i i to ft E 3 0) 3 0 o n to to o i i s III' I I P 0) H 0 P • .... I ...... o to n o o * 0 fl 00 OO 0 to 0 flf00 ON OppOOOOh 00 0 0 0 o o in o o o 3 o 0 SO p n n rl ID 00 8 is e * 3 8 ft Ct N P in in in fl nc^ct n Z ft 3 10 01 z c 0 0 !>> ft •OiP 0) 3 01 » N P Si ( rl 8 P ONOooion oonoooop oooooiijto o o 8 o o ® | ® ^ ° ® ® j | ® tl 0 3 H rl 0 p to o o i in I I I i ft 3 SO 0 ii • ONflOOOOfl P 0 0 0 0 0 N 0 0 0 0 (0 0 0 0 P SI' 3 ft o t- oo o o n o to o o o 0 fl 0 to flfl 0 P fl 8 3 P 0 o in n fl o P rl 0 to P N oo to 0 p p 3 3 0 B 3 rl H P p S&ft P 3 0 3 A 3 3 0 E bap 3 3 • P ft ft 8 SO 3 00000 00 00000000 0 0 0 0 0 OOOOOO 0 00000 0 3 ft 3 8 0 0 0 0 0 0 I I I I I I 3 3 0 0 ... I I I I • ..... I • • 0 0 0 0 1 I OOOOOO10 0 0 0 0 0 1 I P SOO 0 0 0 0 0 1 10 00000 100 00000000 0 0 0 0 OOOOOO 0 0 0 0 0 0 3 0 H SO 3 0 0 0 0 0 0 00000 00 00000000 p p p p p p p ppppp 3 3 fl 3 3 8 p p p p p p ppppp pp pppppppp p p p p 0 0 3 P P ft 3 01 0 P 8 3 P 3 H 3 > 3 0 3 8 a. ooiotonnooto 3 ft J Ct[*[t[tNOOO N p r» fl n o n oo p » tr in fl n p 0 popnOooa to o 0 in n p o o n P N ct P P N p p fl N ft 3 3 3 n 0 0 < P P fl P >, 13 • p nnnnooooo oiflpcooiooio uncmcflO ooc»Nnoooo in o in in o in o o cooptoinooo 8 3 3 3 SO 3 3 (DPflntooioo mc.fl[rnono inpflcooooo C'int'NinNOO onnppooo 3 3 3 3 3 3 nnnmoooo flfl o N fl P 0 n N n P p o 0 3 E fl 0 ft 0 N N N N 0 fl N P o nnppp o rl rl H ft ftp 3 rl 6 0 3 P 0 ft 3 0 3 3 P 3 8 popnoooa noaiinNPOO oo to to n n o o to 3 3 P ft P 0 (•t«l»t*0SOOO N N l» fl N 0 N 3) p 00 (r in fl n P 0) 0 ft 8 0 n P N N P P N p p fl N p I* so SOIt 0 s o 0 > $5 p a 1 3 8 n o fl p n in p > 0 3 0 E 0 3 A p n in p 8 fl p n in p £ 8 fl p n in p £ ® I tt p 0 N ft 0 8 3 8 It 3 N •rlit dl 0 0 0 0 0 P i 0 0 0 0 0 P 3 0 0 0 0 0 S Z ft 0 0 0 0 0 •H " 0 0 0 0 0 P 0 0 0 0 0 p p ft A fl fl <3 Hflftftflft^apP fl ft ft 4) ft 0 8 ft fl fl 4) fl d 3 p +> +j +»+> +j

ber of units operated, the larger the geographical area encompassed.

As an example, all firms operating 100 and more departments designated

themselves as national chains.

Type of discount store organization preferred

In order to achieve closer contact with the owners and managers

of discount stores and in order to operate in discount establishments which could rapidly adjust to local conditions, it was felt that the majority of the leased department firms would prefer to locate their

departments in either independent or local discount store chains. Thus,

the following hypothesis was evolved: leased department organizations

prefer to locate their leased departments in either independent or

local discount store chains. The preceding statement is only weakly

supported by the data in Table 5.4. The table shows that the same number

of leased department organizations prefer a local region discount store

chain as preferred an independent or local chain. These two discount

store groupings account for 52.4 per cent of all leased department

organizations expressing a preference. The remaining lessees spread

their choices fairly evenly among the regional chains, national chains,

and the no preference grouping. Many leased department operators evi­

dently felt that smaller discount store chains with localized management

could be more sympathetic to their needs and more flexible to their

requirements. Although the financial strength of large chains may have

been appealing to some lessees, the problem of absentee management may

have been offsetting.

In the personal interviews conducted for this research it was 81

TABLE 5,4-Preferred Location: Number and Per Cent of Leased Department Organizations, by Type of Discount Store Organization Preferred, by Merchandise Line, 1965

Merchandise Line Total Total Independent Local Region Regional National No Other Org. Reporting or Chain Chain Chain Preference Org. Local Chain

Number of Organizations Reporting Women's & Children's 29 27 5 8 4 5 5 0 Men's Wear 22 22 6 7 5 3 1 0 Domestics & Linens 21 21 4 6 2 6 3 0 Shoes 29 29 9 4 6 8 2 0 Health & Beauty 30 30 10 6 5 4 4 1 Pharmacy 12 12 2 5 2 0 3 0 Records 16 16 4 6 2 1 3 0 Sporting Gds. & Toys 22 22 4 10 4 2 2 0 Bakery 5 5 1 1 0 1 2 0 Hard Lines 40 40 14 5 5 10 6 0 Auto Accessories 19 19 2 10 2 3 1 1 Furn. & Fir. Covrg, 24 22 6 5 2 4 4 1 Appliances 13 12 4 2 0 4 2 0 Jewelry 26 25 8 4 2 4 6 1 Camera 14 14 3 4 2 1 3 1 Pets 5 5 2 1 2 0 0 0 Misc. 4 4 1 1 0 1 1 0 All Mdse. Lines 331 325 85 85 45 57 48 5 Per Cent o: Organizations Reporting Women's & Children^ 100.0 18.5 29.7 14.8 18.5 18.5 0.0 Men's Wear 100.0 27.3 31.8 22.8 13.6 4.5 0.0 Domestics & Linens 100.0 19.0 28.6 9.5 28.6 14.3 0.0 Shoes 100.0 31.0 13.8 20.7 27.6 6.9 0.0 Health & Beauty 100.0 33.3 20.0 16.6 13.4 13.4 3.3 Pharmacy 100.0 16.7 41.6 16.7 0.0 25.0 0.0 Records 100.0 25.0 37.5 12.5 6.2 18.8 0.0 Sporting Gds. & Toys 100.0 18.2 45.4 18.2 9.1 9.1 0.0 Bakery 100.0 20.0 20.0 0.0 20.0 40.0 0.0 Hard Lines 100.0 35.0 12.5 12,5 25.0 15.0 0.0 Auto Accessories 100.0 10.5 52.6 10.5 15.8 5.3 5.3 Furn. & Fir. Covrg. 100.0 27.3 22.7 9.1 18.2 18.2 4.5 Appliances 100.0 33.3 16.7 0.0 33.3 16.7 0.0 Jewelry 100.0 32.0 16.0 8.0 16.0 24.0 4.0 Camera 100.0 21.5 28.5 14.3 7.2 21.4 7.1 Pets 100.0 40.0 20.0 40.0 0.0 0.0 0.0 Misc. 100.0 25.0 25.0 0.0 25.0 25.0 0.0 All Mdse. Lines 100.0 26.2 26.2 13.8 17.5 14.8 1.5 82 noted that most leased department operators when asked the question,

in which type of discount store organization do you prefer to locate, actually answered with the type of store organization in which they presently operated. Thus, Table 5.4 has additional significance when viewed with this in mind.

Number of Leased Departments

As has been previously stated, this research covered 3,413 2 leased departments operated by 330 organizations. As shown in Table

5.5 for all leased department organizations the median number of departments operated was 4.0 and the mean was 10.3. The men's wear, domestics and linens, shoes, records, and pet supplies lines all had their median organization operating 6 or more departments. The women's and children's, the shoes, and the auto accessory leased department businesses had a mean of over 12.6 departments per organization.

A hypothesis of this study is: the small businessman operating

from one to four leased departments has an opportunity to develop and to grow as a leased department operator in a discount store. Table 5.6 is a viable demonstration that the preceding proposition was true. Almost

50 per cent of all leased department organizations operated from one to

^Total reporting organizations for the entire study were 331, but one respondent did not report the number of departments operated. One organization in the women's and children's merchandise line re­ ported it operated 240 departments. Since the 240 may have included other departments than leased departments in discount stores, it may be desirable to deduct this figure from the total. 83

TABLE 5.5-Departments Operated: Number of Leased Department Organizations Reporting the Total Number of Leased Departments Operated, and the Average Number of Leased Departments Operated per Organization, by Merchandise Line, 1965

Merchandise Total Total Average No. of Depts. Line Reporting Departments Org. Operated Median Mean Range

Women's & Children's 29 574b 5.0 19.8b 1/240 Men's Wear 22 169 6.0 7.7 1/31 Domestics & Linens 21 229 6.0 10.9 1/71 Shoes 29 602 7.0 20.8 1/107 Health & Beauty 30 265 5.5 8.8 1/35 Pharmacy 12 68 4.0 5.7 1/16 Records 16 165 7.0 10.3 1/35 Sporting Gds. & Toys 21a 198 5.0 9.4 1/36 Bakery 5 25 2.0 5.0 1/15 Hard Lines 40 376 5.5 9.4 1/80 Auto Accessories 19 239 5.0 12.6 2/65 Furn. & Fir. Covrg. 24 72 2.0 3.0 1/16 Appliances 13 51 2.0 3.9 1/17 Jewelry 26 269 3.5 10.3 1/50 Camera 14 64 2.5 4.6 1/12 Pets 5 40 6.0 8.0 2/20 Misc. 4 7 1.5 1.8 1/3 All Mdse. Lines 330 3,413° 4.0 10.3C 1/240

aAl1 organizations with appropriate data responded except one in this category.

^One organization accounts for 240 departments. Without this entry the total would be 334 and the mean would be 11.9.

cExcluding the one organization that accounts for 240 depart­ ments, the total would be 3r173 and the mean would be 9.6. 84

TABLE 5.6-Departments Operated; Number and Per Cent of Leased Department Organizations Classifying the Number of Leased Departments Each Organization Operated, by Merchandise Line, 1965

Total Total 1 2 to 4 5 to 10 11 to 25 26 to 50 51 to 100 101 & Over Merchandise Line Org. Reporting Dept. Depts. Depts. Depts. Depts. Depts. Depts. Org.

Number of Organizations Reporting Women's 8t Children's 29 29 2 12 7 4 2 0 2 Men's Wear 22 22 4 6 7 4 1 0 0 Domestics & Linens 21 21 1 6 8 4 1 1 0 Shoes 29 29 1 8 7 5 4 3 1 Health & Beauty 30 30 7 7 7 7 2 0 0 Pharmacy 12 12 1 6 3 2 0 0 0 Records 16 16 1 5 4 5 1 0 0 Sporting Gds. & Toys 22 21 1 9 5 3 3 0 0 Bakery 5 5 2 1 1 1 0 0 0 Hard Lines 40 40 3 10 19 5 2 1 0 Auto Accessories 19 19 0 9 5 1 3 1 0 Furn. & Fir. Covrg. 24 24 11 10 1 2 0 0 0 Appliances 13 13 2 8 2 1 0 0 0 Jewelry 26 26 8 6 6 3 3 0 0 Camera 14 14 2 8 3 1 0 0 0 Pets 5 5 0 2 2 1 0 0 0 Misc. 4 4 2 2 0 0 0 0 0 All Mdse. Lines 331 330 48 115 87 49 22 6 3 Per Cent of Organizations Reporting Women's & Children's 100.0 6.9 41.4 24.1 13.8 6.9 0.0 6.9 Men's Wear 100.0 18.2 27.3 31.8 18.2 4.5 0.0 0.0 Domestics & Linens 100.0 4.8 28.5 38.1 19.0 4.8 4.8 0.0 Shoes 100.0 3.4 27.6 24.2 17.2 13.8 10.4 3,4 Health & Beauty 100.0 23.3 23.3 23.3 23.3 6.8 0.0 0.0 Pharmacy 100.0 8.3 50.0 25.0 16.7 0.0 0,0 0.0 Records 100.0 6.3 31.2 25.0 31.2 6.3 0.0 0.0 Sporting Gds. 8t Toys 100.0 4.8 42.8 23.8 14.3 14.3 0.0 0.0 Bakery 100.0 40.0 20.0 20.0 20.0 0.0 0.0 0.0 Hard Lines 100.0 7.5 25.0 47.5 12.5 5.0 2.5 0.0 Auto Accessories 100.0 0.0 47.4 26.3 5.2 15.8 5.3 0.0 Furn. & Fir. Covrg. 100.0 45.8 41.7 4.2 8.3 0.0 0.0 0.0 Appliances 100.0 15.4 61.5 15.4 7.7 0.0 0.0 0.0 Jewelry 100.0 30.8 23.0 23.1 11.6 11.5 0.0 0.0 Camera 100.0 14.3 57.1 21,5 7.1 0.0 0.0 0.0 Pets 100.0 0.0 40.0, 40.0 20.0 0.0 0.0 0.0 Misc. 100.0 50.0 50.0 0.0 0.0 0.0 0.0 0.0 All Mdse. Lines 100.0 14.5 34.8 26.4 14.8 6.7 1.8 1.0 85 four departments. And, another 26 per cent operated five to ten departments. Only 24 per cent of all leased department organizations operated over ten leased departments. Evidently, as the number of huge discount stores in the United States increased many small mer­ chants turned to leased department operations as either a profitable opportunity or an adaptation for survival.

It was noted before in Table 5.3 that the smaller leased department organizations tend to operate in a single metropolitan area and in a local region while the larger organizations are regional and national in scope. The merchandise lines which tend to have their leased department organizations confined to a limited metropolitan or local region are practically the same lines in which the leased depart­ ment organizations operated four or less departments. Women's and children's, pharmacy, sporting goods and toys, bakery, auto accessor­ ies, furniture and floor covering, camera, and pet supplies, fall into this category.

The merchandise lines in which at least 25 per cent of the leased department organizations reported operating over ten depart­ ments included women's and children's, domestics and linens, shoes, health and beauty aids, records, sporting goods and toys, and auto accessories. Generally, the above listing of merchandise lines for the larger leased department organizations followed the lines which had the most regional and national operations as developed in Table 5.1.

Perhaps, somewhat of an anomaly were the hard lines businesses where

47.5 per cent of the organizations were located in single metropolitan 86 areas while on the basis of size 47.5 per cent operated from five to ten departments.

A comparison of the number of stores operated by all retail multi-unit businesses with the number of departments operated by the reporting leased department organizations was made.

In order to facilitate the comparison the following tabulation was made:

No. of stores Per cent of total multiunit organizations or depts. All retail multi- Leased Dept, operated unit org.*> multiunit org.^*

2 to 10 51.6 71.6 11 to 25 8.0 17.4 26 to 50 6.5 7.8 51 to 100 6.4 2.1 101 & over 27.5 1.1

1. Source for all retail multiunit businesses for 1958 was: United States Census of Business: 1958 - Retail Trade.

2. Source for the size of the multiunit organizations of leased departments in discount stores was a special compilation of Table 5.6 of this research.

A large difference arose in the comparison between all retail chains and the leased department chains operating 101 or more esta­ blishments. While 27.5 per cent of all retail chains operated 101 or more establishments, only 1.1 per cent of the lessee firms reported they operated 101 or more departments.

Measurements of the Leased Departments

Size in square feet

The size of the typical leased department in any one merchandise line is less than the optimum size desired by the leased department 87 operators. The above hypothesis for this research was nearly con­ firmed by Table 5.7 and Table 5.8. Only in the jewelry line did the median for the typical leased department remain the same as for the optimum desired department. The mode for the furniture and floor covering departments was less for the typical department than for the optimum desired department. However, in this line, the median for the optimum desired department was 25 per cent greater than for the typical department.

The median size for the typical department was 2,500 square feet while for the optimum desired department it was 2,900 square feet.

For all merchandise lines the median size for the optimum desired department was 16 per cent greater than the median for the typical department. Leased department organizations desiring a 20 per cent increase or more in their median department size included women's and children's, men's wear, domestics and linens, health and beauty aids, hard lines, furniture and floor covering, and pet supplies.

The largest typical departments, all 4,000 square feet or more, were in the women's and children's, sporting goods and toys, hard lines, and furniture and floor covering departments. The smallest typical departments, all below 1,200 square feet, were in pharmacy, records, bakery, jewelry, camera, and pet supplies.

Dollar sales

Another hypothesis for this project is that the dollar sales of the typical leased department in any one merchandise line are less than the optimum dollar sales desired by the leased department operators. TABLE 5,7-Typical Department Size: Number of Leased Department Organizations Reporting the Size in Square Feet of the Typical Leased Department, by Merchandise Line, 1965

Total Total Number of Organizations Classifying Department Size as: Merchandise Line Org. Reporting 0 to 1,200 1,201 to 2,400 2,401 to 4,800 4,801 & over Median Mode Org. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.

Women's it Children's 29 27 5 1 5 16 5,000 5,000 Men's Wear 22 20 0 3 11 6 3,500 3,500 Domestics It Linens 21 21 3 6 12 0 2,500 2,500 Shoes 29 28 3 3 22 0 3,000 3,000 Health & Beauty 30 28 3 8 16 1 2,625 2,000 Pharmacy 12 11 7 2 0 2 1,100 600;1,100;6,000 Records 16 14 11 3 0 0 900 1,000 Sporting Gds. & Toys 22 20 0 5 8 7 4,250 1,500 h 3,000 Bakery 5 5 4 1 0 0 200 — Hard Lines 40 37 4 11 9 16 4,000 4,000 Auto Accessories 19 18 1 11 3 3 2,000 2,000 Furn. & Flr.Covrg. 24 19 0 2 3 14 8,000 10,000 Appliances 13 13 2 3 6 2 3,000 3,000 Jewelry 26 25 18 7 0 0 1,000 1,500 Camera 14 14 13 1 0 0 850 1,000 Pets 5 5 5 0 0 0 1,000 1,000 Misc. 4 3 1 0 1 1 4,000 - All Mdse. Lines 331 308 79 65 96 68 2,500 3,000 fe 4,000 89

TABLE 5.8— Optimum Department Size: Number of Leased Department Organizations Reporting the Size in Square Feet of the Optimum Desired Leased Department, by Merchandise Line, 1965

Total Total Number of Organizations Classifying Department Size As: Merchandise Line Org. Reporting 0 to 1,200 1,201 to 2,400 2,401 to 4,800 4,801 and over Median Mode Org. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.

Women's & Children's 29 23 4 1 2 16 6,000 6,000 Men's Wear 22 19 0 1 7 11 5,000 5,000 Domestics & Linens 21 19 3 4 8 4 3,000 5,000 Shoes 29 25 0 3 20 2 3,500 3,000 Health & Beauty 30 25 2 3 15 5 3,500 2,500 Pharmacy 12 10 5 1 2 2 1,350 — Records 16 13 9 3 1 0 1,000 1,000 Sporting Gds. & Toys 22 15 0 2 7 6 4,250 — Bakery 5 5 4 1 0 0 200 ” Hard Lines 40 31 2 9 1 19 6,000 2,000 & 6,000 Auto Accessories 19 15 0 8 4 3 2,200 2,000 Furn. & Fir. CtfVfg. 24 17 0 0 4 13 10,000 3,000 Appliances 13 9 2 1 4 2 3,000 — Jewelry 26 20 14 4 1 1 1,000 1,000 Camera 14 10 8 2 0 0 950 800 & 1,200 Pets 5 4 3 1 0 0 1,200 1,200 Misc. 4 2 0 0 0 2 10,812 6,000 & 15,625 All Mdse. Lines 331 262 56 44 76 86 2,900 3,000 & 6,000 As revealed by Table 5.9 and Table 5.10, in all cases the median and the modal sales for the optimum desired departments are greater than for the actual typical department. For all merchandise lines the median dollar sales for the typical department was $225,000 while the optimum desired department sales was $300,000. This represented a desired sales increase of 33.3 per cent. A large proportion of the leased departments organizations in some merchandise lines desired a sales increment of 50 per cent or better in the optimum desired depart­ ment contrasted to their current sales. This possibly reflected dis­ content with the present sales being generated in the leased depart­ ments. The women's and children's, men's wear, domestic and linens, health and beauty aids, sporting goods and toys, auto accessories, and camera leased department organizations all desired a 50 per cent or greater increase in sales for their typical department.

Leased department organizations with typical department sales of $300,000 or over included women's and children's, men's wear, health and beauty aids, sporting goods and toys, auto accessories, and appli­ ances. Organizations with typical department sales of $200,000 or less comprised the merchandise lines of domestics and linens, shoes, records, bakery, jewelry, camera, and pet supplies.

Sales per square foot

The effort to secure more dollar sales per square foot and at least the same or greater total sales volume in a leased department ties together the measurement of floor space and the magnitude of dollar sales. One of three alternatives are usually considered by leased 91

TABLE 5.9— Typical Department Sales: Number of Leased Department Organizations Reporting the Dollar Sales for the Typical Leased Department, by Merchandise Line, 1965

Number of Organizations Classifying Merchandise Line Total Total Department Dollar Sales as: Dollar Sales Org. Reporting Org. 0 to 120,000 120,001 to 240,001 to 480,001 240,000 480,000 & Over Median Mode

Women's & Children's 29 26 5 3 11 7 300,000 300,000 Men's Wear 22 20 2 3 12 3 300,000 300,000 Domestics & Linens 21 18 7 10 1 0 150,000 200,000 Shoes 29 27 5 16 5 1 200,000 150,000 Health & Beauty 30 25 2 5 11 7 300,000 250,000;300,000;5 00,000 Pharmacy 12 11 2 4 2 3 220,000 — Records 16 12 8 3 1 0 100,000 100,000 Sporting Gds. & Toys 22 18 1 4 9 4 300,000 300,000 Bakery 5 3 3 0 :0 0 48,000 — Hard Lines 40 37 9 8 13 7 250,000 250,000;400,000;550,000 Auto Accessories 19 17 1 3 9 4 350,000 200,000;350,000;400,000 Furn. i Fir. Covrg. 24 19 2 5 10 2 250,000 250,000 Appliances 13 8 0 3 1 4 450,000 150,000 & 500,000 Jewelry 26 23 14 9 0 0 120,000 120,000 & 125,000 Camera 14 12 6 3 3 0 113,500 100,000 Pets 5 5 5 0 0 0 60,000 — Misc. 4 3 1 1 0 1 240,000 — All Mdse. Lines 331 284 73 80 88 43 225,000 300,000 92

TABLE 5.10-0ptimum Department Sales: Number of Leased Department Organizations Reporting the Dollar Sales for the Optimum Desired Leased Department, by Merchandise Line, 1965

S Number of Organizations Classifying Merchandise Line Total Total Department Dollar Sales as: Dollar Sales Reporting Org. 0 to 120,000 120,001 to 240,001 to 480,001 Org. 240,000 480,000 Si Over Median Mode

Women's & Children's 29 23 4 1 4 14 500,000 500,000 Men's Wear 22 15 1 1 4 9 500,000 500,000 Domestics & Linens 21 17 5 3 8 1 300,000 300,000 Shoes 29 19 2 5 12 0 275,000 300,000 Health St Beauty 30 22 0 3 7 12 500,000 500,000 St 750,000 Pharmacy 12 9 0 3 3 3 300,000 -- Records 16 10 5 3 2 0 125,000 100,000 Sporting Gds. Si Toys 22 14 0 2 5 7 475,000 500,000 Bakery 5 3 3 0 0 0 65,000 16,800;65,000;90,000 Hard Lines 40 31 5 3 13 10 350,000 350,000 Auto Accessories 19 13 1 0 5 7 600,000 300,000;750,000; 1,000,000 Furn. St Fir, Covrg. 24 16 0 2 7 7 362,500 300,000 St 1,000,000 Appliances 13 7 0 2 1 4 500,000 200,000 St 800,000 Jewelry 26 18 6 10 2 0 150,000 150,000 Camera 14 9 0 5 4 0 200,000 200,000 Pets 5 4 4 0 0 0 77,500 75,000 Misc. 4 1 0 0 1 0 480,000 480,000 All Mdse. Lines 331 231 36 43 78 74 300,000 500,000 93 department operators in an attempt to achieve the desired sales increase.

One method is to increase the overall department sales leaving floor space the same. A second procedure is to produce the same sales but in a reduced number of square feet. A third alternative is to in­ crease both sales and floor space, but to increase sales more than in proportion to the increase in floor space.

In total the median dollar sales per square foot for one year in the typical leased department was $84.50 while the mean was $107,46.

For the optimum desired leased department the median dollar sales per square foot for one year was $100.00 and the mean was $129.36. This represented an 18 per cent increase desired for the median department and a 20 per cent increase desired for the mean department. A com­ parison of the sales per square foot between the typical department and the optimum desired department for individual merchandise lines is made in Table 5.11 and Table 5.12.

Merchandise lines with the typical department's median sales over $100.00 per square foot embraced the health and beauty aids, pharmacy, records, bakery, auto accessories, appliances, jewelry, and camera lines. The typical departments with median sales per square foot under $75.00 included women's and children's, domestics and linens, shoes, hard lines, and furniture and floor covering.

Table A.l relates the sales per square foot to the number of departments operated by leased department organizations in selected merchandise lines. There does not appear to be any significant rela­ tionship between the scale of operations and the sales per square foot in any line except jewelry. In this line a direct relationship occurred TABLE 5.11-Typical Sales Per Square Foot: Number of Leased Department Organizations Reporting the Dollar Sales per Square Foot for the Typical Leased Department, by Merchandise Line, 1965

Merchandise Lines Total Total Dollar Sales Org. Reporting t Org. Median Mean Range

Women's & Children's 29 26 60.76 66.64 40.00/156.25 Men's Wear 22 20 80.00 88.60 27.78/300.00 Domestics & Linens 21 18 57.53 65.31 39.39/133.33 Shoes 29 27 63.33 71 .30 29.41/157.89 Health & Beauty 30 25 125.00 138.20 62.50/333.33 Pharmacy 12 11 220.00 267.62 116.67/600.00 Records 16 12 101.54 108.10 77 .50/200.00 Sporting Gds. & Toys 22 18 87.96 90.92 50.00/200.00 Bakery 5 3 400.00 348.83 84.00/562.50 Hard Lines 40 37 60.00 68.00 24.00/130.95 Auto Accessories 19 17 125.00 156.66 50.00/400.00 Furn. & Fir. Cvrg. 24 19 40.00 53.07 14.28/160.00 Appliances 13 8 154.76 160.00 62.50/320.00 Jewelry 26 23 114.28 106.12 37.50/281.25 Camera 14 12 173.66 205.40 70.00/400.00 Pets 5 5 81 .82 77.96 58.00/100.00 Misc. 4 3 121.53 149.80 15.36/312.50 All Mdse. Lines 331 284 84 .50 107.46 14.28/600.00

to TABLE 5.12-Optimum Sales Per Square Foot: Number of Leased Department Organizations Reporting the Dollar Sales per Square Foot for the Optimum Desired Leased Department, by Merchandise Line, 1965

Merchandise Lines Total Total Dollar Sales Org. Reporting Org. Median Mean Range

Women's & Children's 29 23 71.43 77.93 46.15/187.50 Men's Wear 22 15 100.00 92.23 30.00/150.00 Domestics & Linens 21 17 77.77 84.41 43.94/142.86 Shoes 29 19 75.00 78.29 31.25/136.36 Health & Beauty 30 21 150.00 176.20 57.14/500.00 Pharmacy 12 9 213.33 317.90 166.67/1,000.00 Records 16 10 151.00 151.78 100.00/200.00 Sporting Gds. & Toys 22 14 91.67 100.19 51.43/200.00 Bakery 5 3 433.33 359.94 84.00/562.50 Hard Lines 40 31 75.00 100.03 33.33/600.00 Auto Accessories 19 13 175.00 212.26 63.15/500.00 Furn. & Fir, Covrg. 24 16 50.00 63.14 12.50/140.00 Appliances 13 7 208.33 173.44 83.33/250.00 Jewelry 26 18 150.00 152.40 32.14/333.33 Camera 14 9 200.00 243.32 100.00/400.00 Pets 5 4 71.64 76.44 62.50/100.00 Misc. 4 1 30.72 30.72 — All Organizations 331 230 100.00 129.36 12.50/1,000.00 96 between the sales per square foot and the number of departments operated by the leased department organizations.

Transaction size

The figures for the average dollar transaction size in the typical leased department may be somewhat spurious. Many of the leased department organizations did not have their own checkout facilities, but they used the central checkout facilities of the store.

This resulted in the goods from one merchandise department becoming commingled with the goods from other departments in the transaction process. Even departments with their own cash registers did not always determine their average transaction size. The personal interviews with the leased department operators revealed that management felt the value to be gained from analyzing the transaction size was not worth the cost involved.

A thoughtful study of the department transaction sizes could result in a change in product sizes, product display, pricing, promo­ tions, and other marketing tactics all designed to increase the average transaction size. However, the figures for the average transaction size represented in many cases only what the leased department operator believed to be true. Regardless, this was significant information be­ cause it was this knowledge that the operator used in his decision making processes.

The dollar transaction size followed the unit value of the mer­ chandise carried in the department. This condition is displayed in

Table 5.13. Auto accessories, furniture and floor covering, appliances, TABLE 5.13-Typical Transaction Size: Number of Leased Department Organizations Reporting the Transaction Size in Dollars for the Typical Leased Department, by Merchandise Line, 1965

Number of Organizations Classifying Dollar Dollar Transaction Size Merchandise Line Total Total Transaction Size as: Org, Reporting Org. 0 to 2.75 2.76 to 3.75 3.76 to 6.75 6.76 & Median Mode Over

Women's & Children's 29 10 2 4 4 0 3.00 3.00 Men's Wear 22 14 1 5 4 4 4.62 3.50 Domestics & Linens 21 9 3 2 3 1 3.50 2.00 Shoes 29 21 2 7 12 0 4,00 5.00 Health & Beauty 30 9 7 2 0 0 2.50 2.50 Pharmacy 12 5 1 2 2 0 3.25 — Records 16 7 2 1 4 0 4.00 4.00 Sporting Gds. & Toys 22 14 4 3 4 3 3.57 1 .50;2.00;6.00 Bakery 5 3 3 0 0 0 .65 — Hard Lines 40 13 6 4 2 1 3.00 3.00 & 3.50 Auto Accessories 19 11 1 2 5 3 6.00 — Furn. & Fir. Covrg, 24 11 0 0 0 11 40.00 35,00 Appliances 13 7 0 0 0 7 100.00 100.00 & 200.00 Jewelry 26 15 3 2 3 7 5.00 — Camera 14 7 0 1 4 2 5.00 4.00 Pets 5 4 4 0 0 0 1.70 — Misc. 4 2 0 1 0 1 5.45 3.00 & 7.90 All Mdse. Lines 331 162 39 36 47 40 4.00 3.00 98 jewelry, and cameras are all departments with the median transaction size $5.00 and above. Median transactions of $3.00 or less are recorded by departments in the women’s and children's, health and beauty aids, bakery, hard lines, and pet supplies departments.

A hypothesis of the research is: the median dollar transaction size of the typical department in any one merchandise line is less than the median dollar transaction size for the optimum department desired by the leased department operators. A comparison of Table 5.13 and

Table 5.14 reveals the above statement is accurate although the bakery and the pet supplies departments have a median transaction size for their optimum desired department slightly less than for their typical departments.

Most leased department merchants seemed to realize that the expectation of a large increase in transaction size was completely unreasonable. For all merchandise lines the increase in median trans­ action size between the typical department and the optimum desired department was 25 per cent. The median transaction size for the typical leased department was $4.00, and for the optimum desired department, it was $5.00. Women's and children's, sporting goods and toys, furniture and floors, and jewelry were merchandise lines that desired over a 60 per cent increase in the average sale. The greater majority of departments did not express much dissatisfaction with their present transaction size, and they were content with minor increases.

Number of items stocked

The number of items stocked for the typical leased department 99

TABLE 5,14-Optimum Transaction Size: Number of Leased Department Organizations Reporting the Transaction Size in Dollars for the Optimum Desired Leased Departments by Merchandise Line, 1965

Number of Organizations Classifying Dollar Transaction Size as; Dollar Transaction Size: Merchandise Line Total Total Org. Reporting 0 to 2.75 2.76 to 3.75 3.76 to 6.75 6.76 and Org. Over Median Mode

Women's & Children's 29 9 1 2 5 1 5.00 5.00 Men's Wear 22 8 0 2 3 3 4,75 — Domestics & Linens 21 8 1 3 3 1 3.75 3.00 Shoes 29 13 1 3 7 2 4.00 5.CO Health b Beauty 30 8 4 1 3 0 2.88 1.50 b 4.00 Pharmacy 12 4 1 1 2 0 4.50 6.00 Records 16 5 1 0 4 0 5,00 5.00 Sporting Gds, b Toys 22 9 1 2 4 2 6.00 6.00 Bakery 5 2 0 0 0 .58 .50 b .65 Hard Lines 40 12 4 5 1 2 3.00 3.00 Auto Accessories 19 9 1 0 3 5 7.00 — Furn. b Fir, Covrg, 24 10 0 0 0 10 100.00 100.00 Appliances 13 7 0 0 0 7 125.00 125.00 b 200.00 Jewelry 26 3 2 1 0 8 10.00 10.00 Camera 14 4 0 0 3 1 5.50 — Pets 5 2 2 0 0 0 1.57 — Misc. 4 1 0 1 0 0 3.00 3.00 All Mdse. Lines 331 122 21 21 38 42 5.00 5.00 100 was as difficult to determine as it was to define items. For purposes of the study an "item” should be defined as a good containing certain unique characteristics which allows it to be separated from all other merchandise for purposes of identification. The validity of Table 5.15 may be questioned since some respondents considered the term "item" synonymous with major categories of merchandise, and they listed less than a hundred items. The use of the median somewhat obviated the respondents' misinterpretations since only the middle value in the item array was used. Nevertheless, the number of items stocked was lower than if all the respondents had interpreted "item” correctly.

Another problem was that the leased department operator generally had no accurate count as to the number of items he had in inventory. In the personal interviews with leased department operators only one merchant knew exactly how many items were in inventory, and he knew only because he utilized the services of a computer for inventory control purposes.

A hypothesis is that the number of items stocked in a typical leased department in any one merchandise line is more than the number of items stocked in the optimum leased department desired by the leased department operators. It was felt that the leased department operators would desire to pare their merchandise lines in order to gain a faster turnover and to achieve better stock control over the remaining inven­ tory. This proposition was not substantiated by Table 5.15 and Table

5.16. Only the jewelry leased department organizations wanted less items in the optimum desired department than in the typical department, 101

TABLE 5.15-Typical Items Stocked: Number of Leased Department Organizations Reporting the Number of Items Stocked in the Typical Leased Department, by Merchandise Line, 1965

Number of Organizations Reporting the Number of Items Stocked: Merchandise Line Total Total Number of Items Stocked as: Org. Reporting Org. 0 to 500 501 to 2,000 2,001 to 4,001 Median Mode 4,000 b Over

Women’s & Children’s 29 9 5 3 0 1 250 200 Men's Wear 22 4 3 1 0 0 345 — Domestics b Linens 21 7 3 2 1 1 800 500 Shoes 29 22 4 8 4 6 1,625 1,000 Health b Beauty 30 20 0 1 9 10 4,250 3,000;3,500;4,000 Pharmacy 12 7 1 0 4 2 4,000 4,000 Records 16 6 0 2 0 4 5,250 2,000 Sporting Gds. & Toys 22 13 0 4 4 5 2,500 5,000 Bakery 5 3 3 0 0 0 150 93;150;200 Hard Lines 40 23 4 5 4 10 3,500 1,000 b 5,000 Auto Accessories 19 14 1 3 7 3 3,000 3,000 Furn. b Fir. Covrg. 24 11 5 6 0 0 650 — Appliances 13 8 7 1 0 0 250 300 Jewelry 26 10 4 3 1 2 1,150 — Camera 14 11 3 7 1 0 900 -- Pets 5 5 0 2 2 1 3,000 — Misc. 4 1 0 1 0 0 640 640 All Mdse. Lines 331 174 43 49 37 45 2,000 3,000 102

TABLE 5.16-Optimum Items Stocked: Number of Leased Department Organizations Reporting the Number of Items Stocked in the Optimum Desired Leased Department, by Merchandise Line, 1965

Number of Organizations Reporting the Merchandise Line Total Total Number of Items Stocked as: Number of Items Stocked: Org. Reporting Org. 0 to 500 501 to 2,000 2,001 to 4,001 Median Mode 4,000 & Over

Women's & Children's 29 7 4 2 0 1 350 __ Men's Wear 22 1 0 1 0 0 750 750 Domestics & Linens 21 6 0 4 2 0 1,000 — Shoes 29 13 1 5 1 6 3,000 600 & 1,000 Health & Beauty 30 19 0 1 8 10 4,500 4,000 Pharmacy 12 4 0 0 1 3 5,500 — Records 16 5 0 0 1 4 6,000 6,000 Sporting Gds. & Toys 22 9 0 3 2 4 2,800 5,000 Bakery 5 3 3 0 0 0 150 60;150;200 Hard Lines 40 18 3 4 2 9 5,000 6,000 & 10,000 Auto Accessories 19 10 1 2 6 1 3,000 3,000 & 4,000 Furn. & Fir, Covrg, 24 9 3 5 1 0 1,200 1,200 Appliances 13 7 6 1 0 0 300 300 Jewelry 26 8 3 4 0 1 700 -- Camera 14 6 1 4 1 0 945 — Pets 5 4 0 1 2 1 3,300 — Misc. 4 0 0 0 0 0 0 0 All Mdse. Lines 331 129 25 37 27 40 2,500 4,000 103

and the auto accessories organizations were satisfied to keep the same

number of items in the optimum desired department as in the typical department. All other merchandise lines desired an increase in the number of items stocked. The underlying assumption for this occur­

rence may have been the belief that sales volume is directly pro­ portional to the number of items stocked. This finding tends to affirm the desire by the leased department operator for departments with greater sales volume and larger physical size. A median 25 per cent increase in items was desired for all merchandise lines. The median number of items stocked for the typical leased department was

2,000 and for the optimum desired department the number was 2,500.

Leased department organizations indicating their typical department handled 2,500 or more items included health and beauty aids, pharmacy, records, sporting goods and toys, hard lines, auto accessories, and pet supplies. The typical record department listed 5,250 items for the greatest number of items while the department with the lowest number was the bakery with only 150. CHAPTER VI

PERSONNEL PRACTICES OF LEASED DEPARTMENTS

IN DISCOUNT STORES

Several important aspects of the relationships between the leased department organizations and their personnel are developed in this chapter. The number of both full-time and part-time employees for the average department is determined. An evaluation is made of the types of training programs organized by the lessees for their employees. A section of the chapter is devoted to the leased depart­ ment employees' affiliation with the unions. The employees' payroll expense as a per cent of sales is analyzed in several ways. A final portion of the chapter is devoted to a tabulation of the dollar sales per employee.

Number of Employees

Employees of the leased department organizations

Over 16,800 individuals were employed by the 294 leased depart­ ment organizations submitting this information. Thirty-two of the total

331 respondents to the survey did not reply to the question about the number of employees. Five responses were not included after a deter­ mination that the five were including employees from operations in addition to leased departments.

According to Table 6.1 the firms operating either shoe or hard

104 105

TABLE 6.1-Number of Employees: Number of Leased Department Organizations Reporting Total Number of Employees and Average Number of Employees per Leased Department Organization, by Merchandise Line, 1965

Average Number Merchandise Line Total Reporting Total Employees Per Organizations Organizations Employees Organization Median Mean

Women's & Children's 29 23 1485 30.0 64.6 Men's Wear 22 20 1525 45.0 76.2 Domestics & Linens 21 20 967 17.5 48.3 Shoes 29 23 2806 50.0 122.0 Health & Beauty 30 28 1559 22.0 55.7 Pharmacy 12 10 323 29.5 32.3 Records 16 16 437 18.5 27.3 Sporting Gds. & Toys 22 18 1271 24.0 70.6 Bakery 5 5 90 19.0 18.0 Hard Lines 40 37 2545 31.0 68.8 Auto Accessories 19 19 1871 40.0 98.5 Furn. & Fir. Covrg. 24 23 347 10.0 15.1 Appliances 13 11 249 12.0 22.6 Jewelry 26 21 960 20.0 45.7 Camera 14 12 232 15.0 19.3 Pets 5 4 156 33.0 39.0 Misc. 4 4 26 10.0 6.5 All Mdse. Lines 331 294s 16,839b 22.5C 57.3d

aThis figure was adjusted to 294 after a determination was made that five leased department organizations were including employees from all operations in the data. Before the adjustment, the total was 299.

bThis figure was adjusted to 16,839 after a determination was made that five leased department organizations were including employees from all opera­ tions in the data. Before the adjustment, the total was 20,840.

cBefore adjustment, the median was 24.

dBefore adjustment, the mean was 69.7. 106

lines departments employed the largest number of individuals. The greatest aggregation of lessee organizations replying to this survey were hard line firms. But, there were four other lines in which as many or more leased department organizations responded as in the shoe line. On this basis one could conclude that the typical leased depart­ ment organization in the shoe field must have had a large number of employees. Table 6.1 gives credence to the above statement. The typical shoe operation supervised a median of 50 and a mean of 122 employees. For all merchandise lines the typical organization had a median of 22.5 and a mean of 57.3 employees.

In the majority of the leased department merchandise lines the mean number of employees was considerably greater than the median number. This indicates a skewed distribution with a small number of leased department organizations in each merchandise line containing a large number of employees.

Merchandise lines where the leased department organizations employed a median of thirty or more and a mean of sixty or more employees embraced women's and children's, men's wear, shoes, hard lines, and auto accessories. The smaller organizations where the median number of employees was twenty or less and the mean was thirty or less comprised the merchandise lines of records, bakery, furniture and floor covering, appliances, and camera.

Without considering the number of departments an organization operated and relating this information to the number of employees per department a judicial interpretation of the above data would have been 107 difficult. The number of both full-time, and full-time and part-time employees for each organization, were divided by the number of depart­ ments operated by each leased department organization. The resulting

figure was the average number of full-time employees, and the average number of full-time and part-time employees in the typical leased

department.

Number of full-time, and total (full-time and part-time) employees

in the typical leased department

As depicted in Table 6.2, the median and the mean number of full­

time employees in the typical leased departments for all merchandise

lines were 3.6 and 4.4, respectively. Those organizations in merchan­

dise lines supporting a median of five or more full-time employees in

their typical departments included women's and children's, men's wear,

and sporting goods and toys. Merchandise lines with typical leased

departments containing less than a median of four employees were found

in shoes, pharmacy, records, bakery, hard lines, appliances, jewelry,

cameras, and pet supplies. The range column in Table 6.2 revealed

that in some merchandise lines there were departments that operated

without any full-time employees. Women's and children's, domestics

and linens, health and beauty aids, records, and bakery lines had

departments that fell into this grouping. Inspection of the range

column in Table 6.3 covering both full-time and part-time employees

showed that all the merchandise lines except records relied on part-

time help to have at least one person in a department. There were

some leased departments in the record field which had no full-time or

part-time employees. These units functioned similarly to rack jobbers 108

TABLE 6 .2-Full-Time Employees: Number of Leased Department Organizations Reporting the Average Number of Full-Time Employees in the Typical Leased Department, by Merchandise Line, 1965

Total Total Full-Time Employees Merchandise Line Org. Reporting P**" Pfipart.me Org. Median Mean Range

Women's & Children's 29 23 5.0 5.5 0.0/14.7 Men's Wear 22 18 5.5 5.7 1.5/11.0 Domestics & Linens 21 20 4.0 4.4 0.0/13.8 Shoes 29 22 2.8 3.5 1.2/10.0 Health & Beauty 30 27 4.2 4.6 0.0/11.0 Pharmacy 12 11 3.5 5.3 1.0/15.0 Records 16 14 1.5 1.6 0.3/2.7 Sporting Gds. & Toys 22 17 5.0 4.8 1.4/9.9 Bakery 5 5 3.0 4.6 0.0/11.0 Hard Lines 40 33 3.2 4.7 1.1/13.3 Auto Accessories 19 16 4.6 5.6 1.7/13.6 Furn. 8i Fir. Covrg. 24 17 4.3 4.7 1.2/9.0 Appliances 13 7 3.0 3.5 2.0/6.6 Jewelry 26 17 2.0 2.3 1.0/4.7 Camera 14 12 2.8 3.2 0.9/9.0 Pets 5 4 2.9 2.8 2.0/3.6 Misc. 4 3 3.3 3.6 2.0/5.4 All Mdse. Lines 331 266 3.6 4.4 0.0/15.0 109

TABLE 6.3-Total Employees: Number of Leased Department Organizations Reporting the Average Number of Total Employees (Full-Time and Part-Time) in the Typical Leased Department, by Merchandise Line, 1965

Total Total Full- Time and Merchandise Line Org. Reporting Part- Time Employees Org. Median Mean Range

Women's & Children's 29 26 6.1 7.7 1.0/19.6 Men's Wear 22 21 7.1 8.8 1.0/20.0 Domestics & Linens 21 21 5.3 6.4 1.1/25.0 Shoes 29 23 4.9 6.2 1.8/20.0 Health & Beauty 30 28 5.2 6.3 1.5/13.8 Pharmacy 12 11 5.0 7.9 2.5/16.8 Records 16 16 3.4 3.2 0.3/6.2 Sporting Gds. & Toys 22 18 6.9 5.5 2.0/11.7 Bakery 5 5 5.0 4.4 1.3/20.0 Hard Lines 40 38 6.0 7.6 1.4/20.0 Auto Accessories 19 19 5.5 6.8 2.3/15.0 Furn, & Fir. Covrg. 24 23 5.0 5.5 3.0/11.0 Appliances 13 11 4.0 5.3 2.0/15.0 Jewelry 26 21 4.0 4.2 2.0/7.2 Camera 14 12 3.0 4.6 1.3/10.0 Pets 5 4 4.5 4.3 3.0/5.2 Misc. 4 4 5.0 5.6 3.7/9.0 All Mdse. Lines 331 301 5.0 6.4 0.3/25 110 since the discount store personnel had to administer to the daily requirements of the departments.

The median and the mean number of total (full-time and part- time) employees for the typical leased department encompassing all merchandise lines was 5 and 6.4, respectively. Merchandise lines which had a median six or more full-time and part-time employees in a typical department were women's and children's, men's wear, sport­ ing goods and toys, and hard lines. Typical leased departments with less than a median five employees were found in the shoes, records, appliances, jewelry, camera, and pet supplies lines.

Proportion of part-time employees

Table 6.4 identifies the per cent of employees in part-time employment. For all merchandise lines the median proportion of employees in part-time jobs in a typical leased department was 30 per cent. Several lines had a median of 40 per cent or more of their department employees in part-time positions. Women's and children's, shoes, bakery, jewelry, and pet supplies were the lines with this heavy proportion of part-time employees. Organizations in merchandise categories where the typical department had a median 20 per cent or less part-time employees included pharmacy, auto accessories, furni­ ture and floor covering, and appliances.

Those departments, with a low proportion of part-time workers appeared to be in areas where some degree of skill was required to service the line. The pharmacy departments must employ trained pharmacists while the furniture and floor covering, appliance, and Ill

TABLE 6.4-Part-Time and Nonselling Jobs: Number of Leased Department Organizations Reporting Proportion of Employees in Part-Time Jobs, and Proportion of Employees in Nonselling Jobs, by Merchandise Line, 1965

Per Cent of Employees in Part- Per Cent of Employees in Time Jobs Nonselling Nobs Merchandise Line Total Total Total Org. Reporting Median Mode Range Reporting Median Mode Range Org. Org.

Women's & Children's 29 23 42.9 50 0/100 23 5.0 0 0/57 Men's Wear 22 18 35.0 50 0/60 17 10.0 10 0/30 Domestics & Linens 21 20 25.0 20 0/100 14 7.7 0 0/21 Shoes 29 23 40.0 50 & 60 10/60 15 10.0 0 0/75 Health & Beauty 30 27 25.0 20 0/60 22 8.2 0 0/60 Pharmacy 12 11 20.0 10 & 20 0/90 9 0.0 0 0/96 Records 16 14 36.7 33 0/80 11 6.0 0 0/100 Sporting Gds. & Toys 22 18 22.9 15 0/60 15 7.2 0 0/50 Bakery 5 5 45.0 — 27/100 3 18.0 - 0/30 Hard Lines 40 33 35.0 50 0/65 27 9.7 0 0/35 Auto Accessories 19 16 18.4 20 & 30 5/39 15 10.0 0 0/90 Furn. & Fir. Covrg. 24 17 20.0 20 0/38 18 14.5 10 0/40 Appliances 13 8 12.5 0 0/60 7 10.0 0 0/50 Jewelry 26 19 40.8 50 0/75 18 10.0 0 0/33 Camera 14 12 23.4 40 0/50 5 10.0 0 0/15 Pets 5 4 40.0 — 0/65 3 0.0 0 0 Misc. 4 4 25.0 — 0/50 3 0.0 0 0 All Mdse. Lines 331 272 30.0 20 0/100 225 10.0 10 0/100 112

possibly even the auto accessories departments must have individuals

with some training in sales and product knowledge. More than just a

stocking and clerking function was required of employees in these

areas. This precluded to a great degree the use of untrained part-

time help.

Proportion of employees in nonselling jobs

Overall, the leased department organizations have a low pro­

portion of employees in nonselling assignments. Table 6.4 verifies

this assertion. For all merchandise lines the typical leased depart­ ment had a median 10 per cent of the employees in nonselling jobs.

The bakery, and furniture and floor covering organizations had the

largest nonselling forces while the pharmacy and pet supplies firms

disclosed they had no nonselling positions. It is quite obvious that

pharmacists were classified in selling positions.

The nature of the merchandise line tends to dictate the

requirements for nonselling personnel. The bakery departments need

bakers, and the furniture and floor covering departments need men to

work in the stockroom and to deliver. In other lines where there is

no delivery, no large stockroom area, minimum marking and pricing,

and nearly all merchandise is displayed to the public, there is little

need for individuals in nonselling tasks.

Training Programs

A hypothesis of the study is that an informal introductory

training program for new employees is the only training the leased 113 department employees receive from most leased department organizations.

Table 6.5 shows there was a dearth of training programs for new employees in a leased department. For all merchandise lines only

8.3 per cent of the leased department organizations responded that they had a formal introductory training program. Informal intro­ ductory training programs were conducted by 66 per cent of all organizations, and 20 per cent admitted to having no training program for new employees. In many cases the informal introductory training program was probably only a few degrees removed from no training program.

In both the furniture and floor covering, and the appliance lines several respondents mentioned for other types of training given that they administered sales training to their employees. Some other organizations indicated that they attempted to hire only trained individuals. Retail training programs usually consist of three phases: company, product, and sales. In a self service discount store, it is possible to see how the product and the sales training could be abbre­ viated, but it is difficult to understand how training sessions on the company policies and practices could be omitted.

The majority of leased department organizations did not have any type of management development training. Only 9.5 per cent of all businesses had formal management development sessions while 32.2 per cent stated they had an informal management development program. Among the merchandise lines the appliance followed by the auto accessories, shoes, pharmacy, and women's and children's, had the largest proportion 114 TABLE 6.5-Training Programs: Number and Per Cent of Leased Department Organizations Reporting the Types of Training Programs Maintained for Their Employees, by Merchandise Line, 1965

Total Total No Training Informal Formal Informal Formal Other Merchandise Line Org. Reporting Program Introductory Introductory Management Management Training Org. Training Training Development Development

Number of Organizations Reporting3 Women's & Children's 29 27 7 17 1 9 4 0 Men's Wear 22 22 5 14 2 10 2 0 Domestics & Linens 21 20 4 15 1 3 1 0 Shoes 29 29 4 19 5 13 5 0 Health & Beauty 30 29 10 15 4 9 1 0 Pharmacy 12 12 4 6 0 6 2 1 Records 16 16 3 14 0 4 0 0 Sporting Gds. & Toys 22 22 3 17 0 11 1 0 Bakery 5 5 0 5 0 1 0 0 Hard Lines 40 40 6 29 3 11 2 0 Auto Accessories 19 19 2 9 7 5 6 0 Furn. & Fir. Covrg. 24 24 7 14 1 3 0 2 Appliances 13 13 0 8 2 6 5 4 Jewelry 26 25 6 18 1 5 1 0 Camera 14 14 4 9 0 6 1 0 Pets 5 5 1 3 0 1 0 0 Misc. 4 4 0 4 0 2 0 0 All Mdse. Lines 331 326 66 216 27 105 31 7 Per Cent of Organizations Reportinga

Women's & Children's 100,0 25.9 63.0 3.7 33.3 14.8 0.0 Men's Wear 100.0 22.7 63.6 9.1 45.4 9.1 0.0 Domestics & Linens 100.0 20.0 75.0 5.0 15.0 5,0 0.0 Shoes 100.0 13.8 65.5 17.2 44.8 17.2 0.0 Health & Beauty 100,0 34.4 51.7 13.8 31,0 3.4 0.0 Pharmacy 100.0 33.3 50.0 0.0 50.0 16.7 8,3 Records 100.0 18.8 87.5 0.0 25.0 0.0 0.0 Sporting Gds. k Toys 100.0 13.6 77.3 0.0 50.0 4.5 0.0 Bakery 100.0 0.0 100.0 0.0 20.0 0.0 0.0 Hard Lines 100.0 15.0 72.5 7.5 27.5 5.0 0.0 Auto Accessories 100.0 10.5 47.4 36.8 26.3 31.6 0.0 Furn. 81 Fir. Covrg. 100.0 29.2 58.3 4.2 12.5 0.0 8.3 Appliances 100.0 0.0 61.5 15.4 46.2 38.5 30.8 Jewelry 1()0.0 24.0 72.0 4.0 20.0 4.0 0.0 Camera 100.0 28.6 64.3 0.0 42.8 7.1 0.0 Pets 100,0 20.0 60.0 0.0 20.0 0.0 0.0 Misc. 100.0 0.0 100.0 0.0 50.0 0.0 0.0 All Mdse. Lines 100.0 20.2 66.2 8,3 32.2 9.5 2.1

aThe number and per cent of departments using different types of training programs for their employees will total more than in the total reporting organizations column since some departments used more than one method. of formal programs to develop department management.

The smaller organizations with no plans to expand had no need for management training programs. Table 6.6 points out quite suc­ cinctly the direct relationship between the number of departments operated by the leased department organizations in selected mer­ chandise lines and the proportion of leased department organizations administering both informal and formal management development training.

In general a larger proportion of the smaller firms had no training program while a greater proportion of the bigger organizations had both introductory training and management development sessions.

In the personal interviews with leased department operators several stated that the lack of an effective training program was an

Achille's heel for their organization. One individual who had been drastically reducing the number of leased departments he operated indicated his employees had been trained to run conventional stores, but the employees had failed to receive any indoctrination into the operation of mass merchandising units.

Unionization

Leased departments with union contracts

A hypothesis for this section of the research is: the majority of all leased department employees belong to a labor union. Table 6.7 does not disclose that a majority of all the reporting leased depart­ ments were unionized, but an impressive 40 per cent was. The degree of unionization found in leased departments often depended upon whether CO > H S > H i t > H a > h > H s ‘ 0 O' to H H o 3 to H 3 H o 01 to H 0 H o OltO H pi IP H 0 01 M H P H ^HHHJIHOIM 4 H H H ffl H 01 tO H H H fl) H O' PO 0 H H H fl) H 01 tO 3 HHH31H01PO << IP H IP | a IP P rt rt rt rt rt H BlPrtrtrtrtrtH UtjPrtrtrtrtrtH OtnPrtrtrtrtitl rt ft rt rt rt rt rt H W (P rt rt rt rt ft H 0 H 0 0 0 0 0 H 0 0 0 0 0 H 0 0 0 0 0 • H 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 H N PI rt IP N 0 < H 01 tO H P H 01 PP H ifc H 01 to H P 4 H (fl CO W iP H 01 to H iP 3 IP H 01 PO H p IP IP p) pi 0 0 01 0 0 0 01 0 4 0 0 0 01 o IP 41 IP 0 0 01 o h H ip o o cn o 0 0 01 0 0 rt Hi 0 0 H 0 4 0 0 0 V 4 0 (0 4 3 IP 4 4 s ■ OP 3 IP (I 0 H • 3 1 1) H ft 0 ' IP IP a in 0 » H 4 4 IP > < rt IP 4 U B v o IP 3 0 0 p ip 4 B 3 3 01 ft rt 0 H ffl H Hi 3 • 0 0 IP ffl 0 Mi to H to 550 0 I to * H H (0 H H (0 (OPOOtOP^tOtO OOOtO^-J-J-3 0 rt OOHtOOilOOU (POOOPOHQH IOHU iPOMBH (P It H fl 0 oioouuflim® ’0 3 4 IP 4 4 IP H H 3 o H to P o to to to to 0 H H P0 PO 0) 0 H A to 0 iP iP 0 H H H tO M n d o S $ 3 0 3 OfllOOIUPHfli o o o m u u i o u (I (I 4 3 > H OOOHHUUO O0t00it0'10l«l O O O O B P H O l OUOWHfcHM IP H' 3 4 IP IP 3 3 3 N OOlOOlfflHO® 000100101001 OOOOWM>lffl OPPPPlOtOffiP OfflOlBBHPtO OOOfflUUUCJ ft . IP IP ft 3 ft 0 4) 111 H to H H PI to H Hi 4 H 0 PO P H H IflHUPOMOOH •ItOONU*JHtO IDOOtiM'l'Pffl 0 OlOOUUOiffl® OOHNCJilfiOU P O O O t O H O H 3 3 H IP 0 IP 04! 4 4 IP 4) 4 3 3 HHHHHHHH h h h h h h h h HHHHHHHH IP IP 3 H B h h h h h h h h HHHHHHHH HHHHHHHH in in 00000000 o o o o o o o o o o o o o o o o rt 3 rt 3 0 H 00000000 00000000 00000000 00000000 00000000 oooooooo o o o o o o o o OOOOOOOO H H IP H " 3 3 00000000 3 IP V) 11 3 _ OOOOOOOO OOOOOOOO OOOOOOOO oooooooo OOOOOOOO OOOOOOOO IP IP 41 cr ip o a X! 4) 4 4 H- 4 IP Hi rt 0 0 P Hi CO H P 10 to P 31 3IP IP H to H to PO u u H H to to 3 IP 10 U U U to 31 0 I 0 CO P ffl 0 IP 4 3 cn | o 0 0 ai 0 0 <0 I I 0 0 0 ffl « 0 0 0 0 P * P 0 I 0 00 ffl PO 0 H 4 PI I UUOUtl I I I N IP I I . I ...... ■ III OOOP ffloooococno 00 OWtOPO P o ffl ffl to 0 0 3 P 3 U U 0 U 0 0 0 0 0*00 IP 3 rt ft H 3 3 0 ft IP 3 B 3 XI a h ip (n 4) 3 H (P 0 rt IP 3 » H H IP 3 0 H H H H H H in H 4) H rt 31 fl) 31 0 ffl 31 31 31 0 P P CO IP 0 •J U 0) 0 ffl 'I <0 0 ffl *J 00 0 31 0 0 ffl P ffl 0 0 *1 ffl “I ffl I I I 0 0 0 31 OIOOOIOHOO CO 0 I 0 ffl H P 0 H I I o to H to CO 3 3 IP a Hi to I I 10 ffl 0 ffl w U I 0 00(000 I I 4 (t a I I I I I I I rt a U-OO'IO 31 OOOfflOO CO OOOP 31 0 0 0 0 p 0 0 00 0 -JP310 *P OOPOO 3 0 IP Hi IP 3 0 3 IP H rt 4 I) 3 IP ft H H H 4 H H ? 3 H H to H H 3 0 4 ° ^ CO 0. P H H 0 P OP CO 0 O O P O O CO I I 0 ffl 0 P rt 4 IP (P 0 PIIC0OOOO >010003100 I 0 000 *OOOOOPNO ffl 3 I I 4 g 3 H IP ■8 I I ...... I...... I I I 0 0 0 0 to 0 0 0 0 W 31 0 >10 0 0 CO 0 0 0 ffl 0 to >0 0 - 3 4 4) 0 4 tOOOOO 31 0003)00 H 3 S 0 N B 4 ip ip 3 3 rt 4 rt 4) 3 H H (I 1 s H H H (P 3 CO cn 31 CO 31 31 (0 P to P H 0 3 3 0 0 3 CO PO CO H tO 0 31 P H CO CO 0 POffl>ltOPtOO rt in PO HI I 0 to ffl PO ffl It ip Hi 3 ^ 4 CO o 0 CO PO >t I 0 0 0 31 0 CO I I 0 0 0 ffl Poffltnotocno CO 0 I 0 (0 >J to 0 3 0 I I I I < 3 0 3 IP 0 Hi I I • I...... I I I OOOH 00 0 *000000 loo 0 CO H H 0 0 0 IS ffl ID >0 • rt 4 » IP 0 a o CO 0 0 CO 31 cn 0 0 0 ffl 0 CO • B 3 4 • 4 H« IP (0 3 rt ffl cr s 3 cn^ H IP N H1 4 jj p 4 H PO P H H H 31 CO H H 0 3 0 3 rt POIOCOPISO CO I I 0 P 0 0 o (PIP 4 B H I CO 0 0 0 0 3110003100 0 I I I 0 0 0 0 *OQ03lOPtOO I <1 B 3 I I I I I I 0 0 0 0 POOOOOCOCHO ffl 0 0 CO CO H o p OC0OOO • rt 3 H (0 O O O O 0 0 0 0 CO 0 0 0 . H 4 3

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911 117

TABLE 6.7-Union Contracts: Number and Per Cent of Leased Departments that have Union Contracts, and the Average Number of Departments per Organization with Union Contracts, by Merchandise Line, 1965

Total Total Total Departments with Per Cent of Average Number of Merchandise Line Org. Reporting Departments Union Contracts Departments Depts. per Organization Org. Operated Unionized with Union Contracts Median Mean

Women's & Children's 29 25 324 102 31.5 2.0 4.1 Men's Wear 22 22 169 45 26.6 0.5 2.0 Domestics & Linens 21 20 227 40 17.6 0.0 2.0 Shoes 29 27 514 235 45.7 4.0 8.7 Health St Beauty 30 29 265 131 49.4 0,5 4.5 Pharmacy 12 11 68 34 50.0 1.0 3.1 Records 16 15 255 59 23.1 0.0 3.9 Sporting Gds. & Toys 22 22 198 88 44.4 3.0 4.0 Bakery 5 . 5 25 19 76.0 1.0 3.8 Hard Lines 40 38 356 173 48.6 1.5 4.6 Auto Accessories 19 19 239 108 45,2 3.0 5.7 Furn. St Fir. Covrg. 24 24 72 40 55.6 0.0 1.7 Appliances 13 13 51 21 41.2 1.0 1.6 Jewelry 26 25 260 93 35.8 0.0 3.7 Camera 14 14 64 33 51.6 1.5 2,4 Pets 5 4 38 35 92,1 6.5 8.8 Mi sc, 4 4 7 3 42.8 1.0 0.8 All Mdse. Lines 331 317 3132 1259 40.2 1.0 4.2 118 the discount stores in which the leased departments were located were unionized stores. Many lessee-lessor contracts contained a clause mak­ ing it mandatory that the leased department operator have his employees join the same union as the store employees.

The amount of unionization in leased departments may seem high since it had been estimated that only 10 per cent of the total number of retail nonmanagerial full— timo employees in conventional retail stores were unionized.* The discount stores in which the leased departments flourished were generally located in large metropolitan areas where unionization thrived. The East North Central, Middle

Atlantic, New England, and Pacific regions in which the largest portion of the leased department organizations were located were also areas of intense union activity. Other factors conducive to unionization were the large size of the discount store and the utilization of nonskilled, untrained employees.

A total of 1,259 departments from 3,132 departments in 317 reporting organizations had union contracts. For all merchandise lines the median number of departments per organization with union contracts was one, and the mean number of departments per organization unionized was 4.2. The per cent of departments unionized in the dif­ ferent merchandise lines varied from 18 per cent in domestics and linens to 92 per cent in pet supplies.

^■William R. Davidson and Paul L. Brown, Retailing Management (New York: The Ronald Press Company, 1960), p. 238. 119

Union with most contracts

The leased department operators were asked to rank one and two the two unions most often involved in the union contracts. The responses are recorded in Table 6.8 and Table 6.9. From all organizations the

Retail Clerks International Association received first ranking 45 per cent of the time while the Teamsters garnered 6 per cent, the Amal­ gamated Clothing Workers of America tallied 5 per cent, and the Women's

Apparel Sales People received only a fraction of one per cent. The percentage figures were relative to all union and nonunion leased de­ partment organizations reporting. If only the organizations reporting union contracts were considered as 100 per cent, then the Retail

Clerks International Association share of the response would have been

78 per cent.

As can be seen in Table 6.9, a large proportion of the organiza­ tions did not have a contract with a second union. Since it was pre­ viously noted that nearly 50 per cent of the leased department organizations were quite small, operating four or less departments,

the existence of only one union contract within the organization was

to be expected. Some leased department operations limited their

activities to one discount store chain. Thus, the lessee had a union

contract with only the union representing the employees of the chain.

Less than 20 per cent of the leased department operators stated

they had a second union contract. Of all leased department operators

6 per cent had a second union contract with the Teamsters, not quite

6 per cent with the Amalgamated Clothing Workers of America, and only

4 per cent with the Retail Clerks International Association. 120

TABLE 6.8-Union Contracts: Number and Per Cent of Leased Department Organizations Indicating the Union with Which They had the Greatest Number of Union Contracts, by Merchandise Line, 1965

Merchandise Line Total Total Retail Clerks Amalgamated Teamsters Women's Other No Union Org. Reporting Int'l. Assoc. Clothing Apparel Union Contract Org. Workers of Am. Sales People

Number of Organizations Reporting Women's & Children's 29 26 15 1 1 0 0 9 Men's Wear 22 22 9 0 2 0 0 11 Domestics & Linens 21 21 9 1 0 0 0 11 Shoes 29 27 15 2 4 0 0 6 Health & Beauty 30 28 12 1 0 0 1 14 Pharmacy 12 11 3 0 2 0 1 5 Records 16 15 2 1 3 0 0 9 Sporting Gds. & Toys 22 22 11 3 0 0 1 7 Bakery 5 5 4 0 0 0 0 1 Hard Lines 40 38 21 1 2 0 1 13 Auto Accessories 19 18 8 0 4 0 0 6 Furn. & Fir. Covrg. 24 23 7 2 0 0 0 14 Appliances 13 12 6 0 0 0 0 6 Jewelry 26 25 9 2 0 0 0 14 Camera 14 13 7 1 0 0 0 5 Pets 5 4 2 0 1 1 0 0 Misc, 4 4 1 0 1 0 0 2 All Mdse. Lines 331 314 141 15 20 1 4 133 Per Cent of Organizations Reporting Women's & Children's 100.0 57,7 3.9 3.8 0.0 0.0 34.6 Men's Wear 100.0 40.9 0.0 9.1 0.0 0.0 50.0 Domestics & Linens 100.0 42.8 4.8 0,0 0.0 0.0 52.4 Shoes 100.0 55.6 7.4 14,8 0.0 0.0 22.2 Health & Beauty 100.0 42.9 3.5 0.0 0.0 3.6 50.0 Pharmacy 100.0 27.3 0.0 18.2 0.0 9.1 45.4 Records 100,0 13,3 6.7 20,0 0.0 0.0 60.0 Sporting Gds. & Toys 100.0 50.0 13.7 0.0 0.0 4.5 31.8 Bakery 100,0 80.0 0.0 0.0 0.0 0.0 20.0 Hard Lines 100,0 55.3 2.6 5.3 0.0 2.6 34.2 Auto Accessories 100.0 44.5 0.0 22.2 0.0 0.0 33.3 Furn. & Fir. Covrg. 100.0 30.4 8.7 0.0 0.0 0.0 60.9 Appliances 100.0 50,0 0.0 0.0 0.0 0.0 50.0 Jewelry 100.0 36.0 8.0 0.0 0.0 0.0 56.0 Camera 100.0 53.8 7.7 0.0 0.0 0.0 38.5 Pets 100.0 50.0 0.0 25.0 25.0 0.0 0.0 Misc. 100,0 25.0 0.0 25.0 0.0 0.0 50.0 All Mdse. Lines 100.0 44.9 4.8 6.4 0.3 1.3 42.3 121

TABLE 6,9-Union Contracts: Number and Per Cent of Leased Department Organizations Indicating the Union with Which They had the Second Greatest Number of Union Contracts, by Merchandise Line, 1965

Merchandise Line Total Total Retail Clerks Amalgamated Teamsters Amalgamated Bakery Retail Men's Jewelry Other No Union Org, Reporting Int'l. Assoc. Clothing Meat Cutters Workers Wear and Workers Unions Contract Org. Workers of Am, Sporting Gds.

Number of Organizations Reporting Women's & Children's 29 25 0 3 2 0 0 0 0 0 20 Men's Wear 22 22 0 1 0 0 0 0 0 0 21 Domestics & Linens 21 21 0 0 0 0 0 0 0 0 21 Shoes 29 27 3 4 2 0 0 0 0 0 18 Health Si Beauty 30 26 0 2 2 0 0 0 1 0 21 Pharmacy 12 11 1 0 0 0 0 0 0 0 10 Records 16 15 0 0 1 0 0 0 0 0 14 Sporting Gds. & Toys 22 22 1 0 3 0 0 0 0 1 17 Bakery 5 5 0 1 0 0 2 0 0 0 2 Hard Lines 40 38 1 3 0 0 0 0 0 1 33 Auto Accessories 19 18 4 0 3 1 0 0 0 0 10 Furn, Si Fir, Covrg, 24 23 0 0 4 0 0 0 0 1 18 Appliances 13 12 0 0 1 0 0 0 0 0 11 Jewelry 26 25 1 0 0 2 0 0 0 1 21 Camera 14 13 0 2 1 0 0 0 0 0 10 Pets 5 4 0 1 0 0 0 1 0 0 2 Misc. 4 4 1 0 0 0 0 0 0 0 3 All Mdse, Lines 331 311 12 17 19 3 2 1 1 4 252 Per Cent of Organizations Reporting Women's 81 Children's 100.0 0.0 12.0 8.0 0.0 0.0 0.0 0.0 0.0 80.0 Men's Wear 100.0 0.0 4,5 0.0 0.0 0,0 0.0 0.0 0,0 95.5 Domestics Si Linens 100.0 0.0 0.0 0.0 0.0 0,0 0.0 0.0 0.0 100.0 Shoes 100.0 11.1 14,8 7,4 0.0 0.0 0.0 0.0 0.0 66.7 Health Si Beauty 100.0 0.0 7.7 7.7 0.0 0.0 0.0 3.8 0.0 80.8 Pharmacy 100.0 9.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 90.9 Records 100.0 0.0 0.0 6.7 0.0 0.0 0,0 0,0 0,0 93.3 Sporting Gds, 8t Toys 100,0 4.5 0.0 13,7 0,0 0.0 0,0 0.0 4.5 77.3 Bakery 100,0 0.0 20.0 0,0 0.0 40.0 0.0 0.0 0.0 40.0 Hard Lines 100,0 2.7 7,9 0.0 0.0 0,0 0.0 0.0 2.6 86.8 Auto Accessories 100,0 22.2 0.0 16.6 5.6 0.0 0.0 0.0 0.0 55,6 Furn, Si Fir. Covrg. 100.0 0.0 0,0 17.4 0.0 0.0 0.0 0.0 4,3 783 Appliances 100.0 0.0 0,0 8.3 0.0 0.0 0,0 0.0 0,0 91.7 Jewelry 100.0 4.0 0.0 0,0 8.0 0.0 0.0 0.0 4,0 84.0 Camera 100,0 0.0 15,4 7.7 0.0 0.0 0.0 0.0 0.0 76.9 Pets 100,0 0.0 25.0 0.0 0.0 0.0 25.0 0.0 0.0 50.0 Misc. 100.0 25.0 0.0 0.0 0.0 0.0 0.0 0.0 0,0 75,0 All Mdse. Lines 100.0 3.9 5.5 6.1 1,0 0.6 0.3 0.3 1.3 81,0 122

Payroll Expense

A hypothesis of the research states: the payroll as a per cent of sales for leased department organizations is similar for all organ­ izations regardless of the merchandise line handled. Since the median payroll expense as a per cent of sales ranged from 8 per cent for the women's and children's, men's wear, health and beauty aids, records, and hard lines departments to 15 per cent for pet supplies, the above hypothesis did not accurately reflect the empirical conditions. As presented in Table 6.10, for all merchandise lines the median payroll expense as a per cent of sales was 9 per cent and the mean was 8 per cent.

Some variation in payroll expense between the merchandise lines and within a specific merchandise line could have occurred because of differences in computing the expense. Employee payroll as a per cent of sales should embrace the salaries of managerial as well as operating employees. In the personal interviews with the leased department operators some individuals had their accounting statements available to accurately assess payroll expense while others could only produce a rough calculation.

In ascertaining the association between payroll expense as a per cent of sales and the number of departments operated by leased department organizations in selected merchandise lines, an inverse relationship was noted in the health and beauty aids, shoes, and hard lines areas. As shown in Table 6.11, no such relationship was 123

TABLE 6.10-Payroll Expense: Number of Leased Department Organizations Reporting Employee Payroll Expense as a Per Cent of Sales, by Merchandise Line, 1965

Total Total Per Cent of Sales Merchandise Line Org. Reporting Org. Median Mode Range

Women's & Children's 29 23 8.0 8.0 3.5/18.0 Men's Wear 22 20 8.0 6.0 5.0/18.0 Domestics & Linens 21 16 10.0 10.0 5.9/12.0 Shoes 29 22 9.5 6.0;8.0;10. 0 6.0/20.0 Health & Beauty 30 23 8.0 9.0 5.0/15.0 Pharmacy 12 11 12.0 8 . 0; 12 . 0; 17 .0 6.7/18.0 Records 16 12 8.0 8.0 5.0/12.0 Sporting Gds. & Toys 22 14 8.5 10.0 6.0/15.0 Bakery 5 4 14.0 -- 4.1/34.0 Hard Lines 40 31 8.0 8.0 5.0/15.5 Auto Accessories 19 14 10.5 10.2 7.0/22.3 Furn. & Fir. Covrg. 24 16 10.0 10.0 6.0/15.0 Appliances 13 6 9.0 -- 3.0/12.0 Jewelry 26 18 13.0 -- 5.0/20.0 Camera 14 7 9.0 8.0 7.0/13.0 Pets 5 4 15.0 -- 12.0/17.5 -- Misc. 4 3 7.0 4.0/8.3 All Mdse. Lines 331 244 9.0 8.0 3.0/34.0 > H H X > H W > H K > H H S3 F 0 01 M H (Dif 16H 0 01 M H pi H o 0) M d H o 01 M H ff H 0 01 M H 0 0) M F It H H H ffl H 01 M « F H H ffl H 01 M 3 H H H ffl M 3 H F F ffl H 01 N 0 F H H ffl F F F fflF 01 M 3 0 Di ft H 1 rt rt ft rt rt I P rt rt rt rt ft H ID P rt rt rt H • ID PftftftftftH 0) (0 P ft ft ft P ft rt rtrtrt ft ooooo OOOOO ft 0 0 0 0 0 H OOOOO F 0 0 0 0 0 - H' 0 0 0 0 0 3 0 H N 0 PN 0 N 0 ID N 0 F 01 M H lb < H 0) M H A 3 (0

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ni 125 discernible in the women's and children's, furniture and floor covering, and jewelry lines.

Logically, the merchandise lines with the highest payroll expense as a per cent of sales should be those lines where the employ­ ment of skilled help was necessary such as pharmacy and bakery.

Organizations with a large proportion of highly paid managerial help rather than unskilled operating employees should have higher payroll expenses. Businesses with high sales per employee and rapid inventory turnover would be expected to have lower payroll expenses as a per cent of sales than organizations with low sales per employee and slower inventory turnover. The prevailing wage in a geographic region would also effect payroll expense. Since the above factors are not mutually exclusive, but may operate in concert, the proper interpretation of

Table 6.10 and Table 6.11 becomes very difficult.

Dollar Sales Per Employee

Dollar sales per full-time and part-time employees

Table 5.11, Chapter V, measures the productivity of the leased department organizations in different merchandise lines on the basis of sales per square foot of department space. Table 6.12 presents another measure of productivity. The dollar sales per full-time and part-time employees in the various merchandise lines are presented.

For all merchandise lines the median dollar sales per full-time and part-time employee in the typical leased department was $38,432.50 and the mean dollar sales was $44,712.69. The highest median dollar sales TABLE 6.12-Sales per (Full-Time and Part-Time) Employee: Number of Leased Department Organizations Reporting the Dollar Sales per (Full-Time and Part-Time) Employee in the Typical Leased Department, by Merchandise Line, 1965

Total Total Dollar Sales Merchandise Line Org. Reporting Org. Median Mean Range

Women's & Children's 29 21 36,667.00 40,442.55 11,000.00/83,333.00 Men's Wear 22 18 41,005.50 40,625,33 8,000.00/77,500.00 Domestics & Linens 21 18 27,518.00 28,765.44 13,333.00/53,004.00 Shoes 29 21 42,261.00 42,120.24 12,005.00/75,000.00 Health & Beauty 30 23 48,662.00 54,266.95 16,667.00/114,286.00 Pharmacy 12 9 44,444.00 46,019.22 20,492.00/100,000.00 Records 16 12 28,304.00 4,389.92 20,601.00/117,647.00 Sporting Gds. & Toys 22 15 45,396.00 50,464.67 25,000.00/92,308.00 Bakery 5 3 9,600.00 27,942.00 3,360.00/70,866.00 Hard Lines 40 35 35,587.00 40,731.42 8,000.00/116,667.00 Auto Accessories 19 16 47,603.00 56,518.87 25,122.00/118,613.00 Furn. & Fir. Covrg. 24 17 50,000.00 55,163.18 24,000.00/147,992.00 Appliances 13 8 94,643.00 96,306.62 32,000.00/166,667.00 Jewelry 26 19 27,800.00 26,175.95 10,667.00/60,000.00 Camera 14 10 39,114.00 48,768.60 28,571.00/101,504.00 Pets 5 4 16,154.00 15,160.25 9,000.00/19,333.00 Misc. 4 3 65,395.00 71,011.33 8,750.00/13,889.00 All Mdse. Lines 331 252 38,432.50 44,712.69 3,360.00/166,667.00 127 was attained by the appliance leased department employees with

$94,643.00, and the lowest median dollar sales was recorded by the bakery leased department personnel with $9,600.00. These employee sales figures were derived for each leased department organization by dividing the number of full-time and part-time employees for each organization into the sales for that firm.

In Table 6.13 the dollar sales per full-time and part-time employees in the typical leased department in selected merchandise lines are compared to the number of departments operated by leased department organizations. Table 6.13 shows some evidence that the smaller organizations had the highest sales per full-time and part- time employee while the largest organizations had the smallest sales.

The above relationship is particularly true when comparing the smallest organizations with the largest ones.

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821 129

Dollar sales per full-time employees

Table 6.14 displays another measure of employee productivity; but this presentation considers the dollar sales of solely the full­ time employees in the typical leased department. The employee sales figures were calculated for each leased department organization by dividing the sales for each organization by only the number of the full-time employees in each firm. The sales per full-time employee would be larger than the sales per full-time and part-time employee.

How much larger would be determined by the extent of part-time help utilized by the leased department organizations in the various merchandise lines.

Table 6.4 revealed the merchandise lines with the largest pro­ portion of employees in part-time positions. These lines included women's and children's, men's wear, shoes, records, bakery, hard lines, jewelry, and pet supplies. As was to be expected, a comparison of

Table 6.12 and Table 6.14 shows that generally the lines just mentioned were those where the sales per employee increased the most after the part-time employees were deducted from the measurement. In Table 6.14 a distortion of the median sales per full-time employee occurred in the women's and children's, domestics and linens, and bakery lines because there were organizations in those areas that reported they had no full-time employees.

For all merchandise lines the median dollar sales per full­ time employee in the typical leased department was $48,368.00 and the mean was $67,321.19. The appliance line reported the highest median TABLE 6.14-Sales per Full-Time Employees: Number of Leased Department Organizations Reporting the Dollar Sales per Full-Time Employee in the Typical Leased Department, by Merchandise Line, 1965

Total Total Dollar Sales Merchandise Line Org. Reporting Org. Median Mean Range

Women's & Children's 29 18 54,143.00 67,348.10 0.00/190,840.00 Men's Wear 22 17 66,397.00 66,119.50 28,125.00/160,000.00 Domestics & Linens 21 17 37,037.00 39,771.88 0.00/75,000.00 Shoes 29 20 71,388.50 71,276.65 15,015.00/140,449.00 Health & Beauty 30 22 60,395.00 74,243.54 23,810.00/165,017.00 Pharmacy 12 10 60,873.00 132,182.20 33,003.00/466,667.00 Records 16 11 62,500.00 61,710.54 34,444.00/117,647.00 Sporting Gds. & Toys 22 14 64,324.50 67,811.70 37,500.00/108,696.00 Bakery 5 3 5,600.00 17,866.00 0.00/48,000.00 Hard Lines 40 31 57,692.00 58,352.80 12,303.00/149,893.00 Auto Accessories 19 14 59,962.50 78,876.10 26,451.00/133,495.00 Furn. & Fir. Covrg. 24 13 50,000.00 77,196.20 30,000.00/184,697.00 Appliances 13 6 106,666.50 108,155.00 46,875.00/166,667.00 Jewelry 26 15 40,984.00 52,598.80 15,000.00/125,000.00 Camera 14 10 54,240.00 66,042.10 34,002.00/151,685.00 Pets 5 3 19,333.00 20,118.00 16,364.00/30,000.00 Misc. 4 2 45,113.50 45,113.50 17,500.00/72,727.00 All Mdse. Lines 331 226 58,368.00 67,321.19 0.00/466,667.00 131 dollar sales of $106,666.50. The bakery department had the lowest median sales of $5,600.00.

When the dollar sales per full-time employee in the typical leased department in selected merchandise lines was analyzed by the number of departments operated by the leased department organizations as shown in Table 6.15, a visible relationship could be noted. The association was not as pronounced as in Table 6.13, but it was dis­ played. In general the sales per full-time employee decreased as the number of departments operated by leased department organizations increased. The explanation for Table 6.13 would be applicable in this case. TABLE 6.X©—Sales pe r Full-Time Employee: Per Cent of Selected Leased Department Organizations Reporting the Dollar Sales per Full~Time Employee in the Typical Leased Department, toy Number of Departments Operated toy the Leased Department: Organizations, 1965

Numtoer Total Org. Total Per Cent of Organizations Clas s ify i ng Do11ar Sales per of No . Pe r Reporting Ful 1— Time Employee as: De part me nts Cent Org . 19,999 20,OOO 40,OOO 60,OOO 80,OOO lOO,OOO N o . Per and to t o t o to and Cent Be 1 ow 39,999 59,999 79,999 99,999 Over

Heal til 8c Beauty 1 7 23 . 3 5 lOO . O O . o O . O 40 . O 20 . O O . O 40 . O 2 to 4 7 23 . 3 5 lOO . O O . O 40 . O 20 . O O . O O . O 40 . O 5 to io 7 23 . 3 6 lOO . O 0.0 16.7 33 . 3 33 . 3 O _ O 16 .7 11 to 25 7 23 . 3 4 lOO . O O . O O . O 50 . O 50 . O O . O O . O 26 to 50 2 6 . 8 2 1 OO . O O . O O . O O . O O . O 50 . O 50 . O 51 to lOO O O . O O — ------— ------lOl 8c over O o . o O ------All size org. 30 lOO . o 22 1 OO . O O . O 13 . 7 31 . 8 22 . 7 4 . 5 27 . 3 Women’s Sc Children’s 1 2 6 . 9 1 lOO . o o . o O . O lOO . O O . O O . O O . O 2 to 4 12 41 . 4 8 lOO . O 12.5 O . O 12 . 5 25 . O 25 . O 25 . O 5 to IO 7 24 . 1 2 lOO . O O . O O . O 50 . O O . O O . O 50 . O 11 to 25 4 13 . 8 3 lOO . O O. O 66 . 7 O . O O. O O. O 33 . 3 26 to 50 2 6 . 9 2 lOO . o O _ O 50 . O 50 . O O . O O . O O . O 51 to lOO O O . O O — ------— lOl 8c over 2 6 . 9 2 lOO . o O . O 50 . O 50 . O o . o O. O o . o All s ize org. 29 lOO . O 18 lOO . O 5 . © 22 . 2 27 . 8 11.1 11.1 22 . 2 Shoe s 1 1 3 . 4 1 lOO . O O . O o . o O . O lOO . o O . O O . O 2 to 4 8 27 . 6 6 lOO . o o . o 16 . 7 O . O 33 . 3 16.7 33 . 3 5 to IO 7 24 . 2 5 lOO . o 20 . O 20 . O 20 . O 20 . O O. O 20 . O 11 to 25 5 17 . 2 3 lOO . o O . O O . O 33 . 3 33 . 3 O. O 33 . 4 26 to 50 4 13 . 8 2 lOO . o O . O 50 . O O . O 50 . O 0.0 o . o 51 to lOO 3 IO . 4 2 lOO . o o . o O . O 50 . O O . O 50 . O o . o lOl 8c ove r 1 3 . 4 1 lOO . o o . o O . O O . O O . O lOO . O o . o All s ize org. 29 lOO . O 20 lOO . o 5 . O 15 . O 15 . O 30 . O 15 . O 20 . O Furn . Sc Fir. Covrg. 1 11 45 . 8 4 lOO . o O . O O . O 25 . O O . O 50 . O 25 . O 2 to 4 IO 41 . 7 6 lOO . o o . o 33 . 3 50 . O O . O 16 . 7 O . O 5 to IO 1 4 . 2 1 1 OO . o o . O O . O lOO . O O . O 0.0 O . O 11 to 25 2 8 . 3 2 lOO . o O . O O . O O . O O . O O. O lOO . O 26 to 50 O O . O O ------— ------— 51 to lOO O O . O O —— ------— --- lOl 8c ove r O O . O O ------All s ize org 24 lOO . O 13 lOO . o O . O 15 . 4 38 . 5 O . o 23 . 1 23 . 1 Hard Lines 1 3 7 . 5 1 lOO . o O . O lOO . o O . O o . o O. O o . O 2 to 4 IO 25 . O 8 lOO . o O . O 25 . O 37 . 5 25 . O O . O 12 . 5 5 to IO 19 47 . 5 14 lOO . o 7 . 1 7 . 1 35 . 8 28 _ 6 14 . 3 7 . 1 11 to 25 5 12 . 5 5 lOO . o O o O . O 60 . O 20 . O 20 . O O . O 26 t o 50 2 5 . O 2 lOO . o O . o 50 . O O . O 50 . O o . o O . O 51 to lOO 1 2.5 1 lOO . o O O O . O O . O lOO. O o . o O . o lOl 8c ove r O O . O O ------— ------—— All s ize org. 40 lOO . o 31 lOO. o 3 2 16 . 1 35 . 5 29.0 9 .7 © . 5 Jewelry 1 S 30 . 8 4 lOO. o O O 25 . O 25 . O O . O O . O 50 . O 2 to 4 6 23 . O 3 lOO . o 33 3 33 . 3 33 . 3 0.0 O . O O . O 5 to IO 6 23 . 1 4 lOO . o O O 25 . O 25 . O 25 . O 0.0 25 . O 11 to 25 3 11.6 2 lOO . o O O 50 . O 50 . O O . O 0.0 O . O 26 to 50 3 11.5 2 lOO . o 50 O O . O 50 . O O . O O . o O . O 51 to lOO O O . O O — ------— ------— lOl 8c ove r O O . O O — ------All s ize org. 26 lOO . O 15 lOO . o 13.3 26 . 7 33 . 3 6.7 o . o 20 . O CHAPTER VII

SERVICE CHARGES PAID TO THE DISCOUNT STORE

BY THE LEASED DEPARTMENT OPERATORS

Two hypotheses of this study were associated with the service charges that the leased department operator paid to the discount store owner. One hypothesis is that a rental fee and a charge for advertising are the only significant expenses assessed against the leased department operator by the discount store. The other is that the rental commission and the advertising charge paid by leased department operators differ according to merchandise lines. The testing of these twopropositions will be more thoroughly developed in this chapter.

Rent

Rent as a per cent of sales

For all merchandise lines the median rent as a per cent of sales paid to the discount store was 7 per cent and the mode was 8 per cent.

The three merchandise lines in which the leased department operators paid the lowest median rent were appliance, camera, and health and beauty aids, respectively. The pet supplies organizations paid the highest median rent of 9.5 per cent. A median rental of 8 per cent was charged the women's and children's, men's wear, shoes, bakery, and jewelry lines. The aforementioned data is detailed in Table 7.1.

The rental commission on sales for leased department organizations in discount stores was considerably lower than the charges paid by leased

133 134

TABLE 7.1-Rental Charge: Number of Leased Department Organizations Reporting the Discount Store Charge for Rent as a Per Cent of Sales, and the Number of Leased Department Organizations Reporting the Minimum Rent Guaranteed to the Discount Store on the Basis of Dollars per Square Foot, by Merchandise Line, 1965

Rent as a Per Cent of Sales® Minimum Rent Guaranteed on the Basis of Dollars per Sq. Ft. Merchandise Line Total Total Median Mode Range Total Median Range Org. Reporting Reporting Org. Org.

Women's 81 Children's 29 2 0 8.0 8,0 5.0/10.0 5 4.00 1.50/7.00 Men's Wear 22 10 8.0 8.0 6 .0/1 0 .0 11 4.50 1 .2 0/6 . 0 0 Domestics & Linens 21 14 7.0 6 .0 ; 7.0 6 .0/1 0 .0 7 4.10 2.50/6.25 Shoes 29 18 8.0 8.0 4.5/16.0 6 4; 50 2.00/9.00 Health & Beauty 30 2 0 6.5 7.0 2 .0 /1 1 .0 9 4.50 3.00/10.00 Pharmacy 12 7 7.0 10.0 4.3/10.0 3 6 . 0 0 3.50/10.00 Records 16 8 7,5 8 .0 0 ;1 0 . 0 3.5/10.0 3 4.00 3.50/4.00 Sporting Gds. & Toys 22 12 7.5 8.0 5.0/9.0 8 3.00 1.20/5.00 Bakery 5 4 8 . 0 8.0 6 .0 /10.8 0 0 . 0 0 0 . 0 0 Hard Lines 40 22 7.0 7.0 4.0/10.0 11 4.00 0.15/12.00 Auto Accessories 19 10 7.0 6.0 5.0/10.0 6 2.63 2,00/4.00 Furn. & Fir. Covrg. 24 12 7.5 7.0;8.0;10.0 3.0/10.0 3 3.35 1.20/5.00 Appliances 13 8 4.5 4.0 3.0/6.8 3 2.50 2.00/4.50 Jewelry 26 16 8. 0 8.0 2.0/12.5 9 5.00 3.00/5.00 Camera 14 8 4.8 3.0;4.5;5.0 3.0/8.0 3 4.00 2.64/6.00 Pets 5 4 9.5 9.0 6 .0 /1 0 .0 0 0 . 0 0 0 . 0 0 Misc. 4 1 7.0 7.0 7.0 0 0 . 0 0 0 . 0 0 All Mdse. Lines 331 194 7.0 8.0 2.0/16.0 87 4.00 0.15/12.00

£ These amounts are the refined data reported by respondents after an adjustment was made to eliminate advertising expense from certain responses. 135 department organizations operating in conventional department stores.

A National Retail Merchants Association study indicated that for all merchandise departments the median rental charge by a department store was about 15 per cent.^ The 8 point difference between the two charges can be traced to the lower operating expenses of discount stores as contrasted with department stores. The emphasis on limited customer services by discount stores enables the discounters to charge the lessees a lower rent than they would be charged in department stores where the expense of providing full customer services would be much higher.

Many of the factors which caused variations in the rental charges paid to landlords by conventional stores would also cause variations in the payments made by the leased department operators to discount stores. When rent is based on per cent of sales, a leased department in a merchandise line with a high sales-space productivity ratio would return to the landlord a greater amount of rent than a department in a merchandise line where the sales-space productivity 2 ratio was low. Therefore, the leased departments with high sales-space productivity ratios could be charged a lower rent as a per cent of sales and the discount store operator would still receive a reasonable dollar

1Leased Departments, Rates, Policies and Expenses in Department and Specialty Stores (New York: Controllers' Congress, National Retail Merchants Association, 1965), p. 7.

p The following discussion on rent variation is taken from: William R. Davidson and Paul L. Brown, Retailing Management (New York: The Ronald Press Company, 1960), pp. 86-88. 136 income. A comparison of Table 5.11, Chapter V, which lists the dollar sales per square foot for the typical leased departments with Table 7.1 which shows rent as a per cent of sales tends to substantiate the above explanation. The health and beauty aids, appliances, and camera lines had the lowest rent as a per cent of sales, and they also had the highest sales per square foot. Exceptions were the bakery and pharmacy departments.

An additional explanation why some leased departments in certain merchandise lines had lower rental costs than others may hinge on com- i petitive circumstances. In order for the lessee to maintain some semblance of profit in the face of intense competition the discount stores may have been forced to lower the rental rates.

The value of the location in the store and the availability of O competing leased department organizations seeking the store location may have affected the rental charge. The services provided by the store to the lessee and the conduct of the contract negotiations were other rent determining factors. Some discount stores had only one rental rate for lessees; thus, charging each leased department, regardless of mer­ chandise line, the same per cent.

Minimum rent guaranteed

Table 7.1 also indicates the minimum rent guaranteed on the basis of dollars per square foot. This is a specified amount which should be paid to the store if the department sales are not sufficient to provide an income to the store above this amount. Only eighty-seven organiza­ tions reported the use of a minimum rent. For all merchandise lines the 137 median minimum rent guaranteed on the basis of dollars per square foot was $4.00. The highest minimum guarantee was $6.00 per square foot in the pharmacy line while the bakery and pet supplies lines recorded no minimum guarantees.

Advertising

As illustrated by Table 7.2, the discount store charge for ad­ vertising as a per cent of sales did not show any prominent differences between merchandise lines. For all merchandise lines both the median and the modal charge for advertising as a per cent of sales was 2 per cent. The advertising charge appears to be "institutionalized" at this amount for all lines.

Table 7.2 also displays the advertising charges listed as yearly dollar amounts by leased department organizations. Only six organiza­ tions reported a charge for advertising on this basis. The payments ranged from $1,000 to $3,840 a year.

Combined Rent and Advertising

When queried about their rental and advertising charges, some respondents combined the two charges into one figure rather than list each charge separately. These leased department organizations evidently paid the two charges as one sum, and they were either unaware or un­ willing to divide the amount for this study. Table 7.3 was prepared to reflect the above situation. TABLE 7.2-Advertising Charge: Number of Leased Department Organizations Reporting the Discount Store Charge for Advertising as a Per Cent of Sales or as a Yearly Dollar Charge, by Merchandise Line, 1965

Total Total Per Cent of Sales Yearly Dollar Charge for Merchandise Line Org. Reporting Advertising Org. Median Mode Range Reporting Range Org.

Women's & Children's 29 16 2.0 2.0 1.0/3.0 1 2,400 Men's Wear 22 10 2.0 2.0 1.5/3.0 0 0 Domestics & Linens 21 10 2.0 2.0 2.0/3.0 2 2,400/3,750 Shoes 29 14 2.0 2.0 1.0/3.0 0 0 Health & Beauty 30 18 2.0 2^0 1.0/3.0 0 0 Pharmacy 12 4 2.0 — 1.0/3.0 1 3,840 Records 16 7 2.0 2.0 1.0/9.0 0 0 Sporting Gds. & Toys 22 11 2.0 2.0 1.0/4.0 0 0 Bakery 5 2 — 1.0;3. 0 1.0/3.0 0 0 Hard Lines 40 20 2.5 2.0 1.0/4.0 1 1,500 Auto Accessories 19 9 2.0 2.0 1.0/3.0 0 0 Furn. & Fir. Covrg. 24 7 2.0 2.0 2.0/3.0 0 0 Appliances 13 5 2.0 2.0 2.0/3.0 0 0 Jewelry 26 14 2.0 2.0 1.0/3.0 0 0 Camera 14 5 1.0 1.0;2. 0 0.5/2.0 1 1,000 Pets 5 5 2.0 2.0 2.0/3.0 0 0 Mi sc. 4 1 3.0 3.0 — 0 0 All Mdse. Lines 331 158 2.0 2.0 0.5/9.0 6 1,000/3,840 139

TABLE 7,3-Rental and Advertising Charge: Number of Leased Department Organizations Reporting the Discount Store Charge for Combined Rent and Advertising Expense As: A Per Cent of Sales, Minimum Rent Guaranteed on the Basis of Dollars per Square Foot, and the Yearly Dollar Charge for Advertising, by Merchandise Line, 1965

Total Rental and Advertising Charge Min Rent Guaranteed on the Yearly Dollar Charge for Merchandise Line Org. as a Per Cent of Sales3 Basis of Dollar per Sq, Ft, Advertising Total Median Mode Range Total Total Range Reporting Reporting Median Range Reporting Org, Org. Org.

Women's Si Children's 29 27 9.5 10,0 7.0/13.0 5 4,00 1.50/7.00 1 2,400 Men's Wear 22 19 10.0 10.0 7.0/13.0 11 4.50 1.20/6.00 0 0 Domestics 81 Linens 21 18 8.8 10,0 7.0/10.5 7 4.10 2.50/6.25 2 2,400/3,750 Shoes 29 25 10,0 10.0 7,0/10.5 6 4,50 2,00/9.00 0 0 Health Si Beauty 30 26 9,0 9.0 4.0/14.0 9 4.50 3.00/10.0 0 0 Pharmacy 12 11 9,0 10.0[11.0 5.0/12.0 3 6.00 3.50/10.0 1 3,840 Records 16 13 8.0 10.0 7,0/15.0 3 4,00 3.50/4,00 0 0 Sporting Gds, & Toys 22 17 9.0 7.0;8.0;9,0 6.5/11.0 8 3,00 1,20/5.00 0 0 Bakery 5 4 9.0 9.0 8.0/10.0 0 0.00 0.00 0 0 Hard Lines 40 38 9.5 10.0 6.0/12.0 11 4,00 0.15/12.00 1 1,500 Auto Accessories 19 16 9.5 10,0 6.0/11.0 6 2.63 2.00/4,00 0 0 Furn. 81 Fir. Covrg, 24 17 9.0 10.0 7.0/12.0 3 3.35 1.20/5.00 0 0 Appliances 13 9 6.0 6.0 2.0/8,0 3 2.50 2.00/4.50 0 0 Jewelry 26 22 10.0 10,0 8.0/13.0 9 5.00 3.00/5,00 0 0 Camera 14 11 5.0 5.0 3.0/9.0 3 4.00 2.64/6.00 1 1,000 Pets 5 4 11,5 12,0 9.0/12.0 0 0.00 0.00 0 0 Misc. 4 3 6.0 6.0 6,0/10.0 0 0,00 0.00 0 0 All Mdse, Lines 331 279 9.0 10.0 2,0/15,0 87 4,00 0.15/12.00 6 1,000/3,840 140

Actually the totals from combining Table 7.1 and Table 7.2 were

not too much different from Table 7.3. For all merchandise lines the median rental and advertising charge as a per cent of sales was 9 per cent and the mode was 10 per cent. The pet supplies line showed an

11.5 per cent combined charge which was the highest. Other high median charges of 10 per cent were recorded by the men's wear, shoes, and

jewelry lines. The lowest median charges were reported by the camera

and appliance organizations with expenses of 5 and 6 per cent, respectively.

When the combined charge for rent and advertising was related to

the number of departments operated in selected merchandise lines as displayed in Table A.2, Appendix A, the charges showed no significant variation. Evidently, the scale of operations of the leased department

organization has little bearing upon the charge made for rent and adver­

tising in an individual department.

Table A.3, Appendix A, compares the combined charge for rent and

advertising as a per cent of sales to the rate of inventory turnover in

selected merchandise lines. No overall relationship could be established

between the combined charges and the rate of inventory turnover. In the

health and beauty aids line the charge for rent and advertising declined

as the rate of inventory turnover increased. For the women's and child­

ren's, and the jewelry lines, the rental and advertising charges and the

stock turnover rate tend to move together. No precise relationship could

be shown between the two variables for the shoe, furniture and floor

covering, and hard lines. 141

Credit Service

Table 7.4 exhibits the discount store charge for credit service

as a per cent of credit sales for the leased department organizations.

For all merchandise lines the median and the modal charge for credit

service was 2 per cent. There was little variance in this payment by merchandise line. The range for the charge for credit service as a per

cent of credit sales extended from 0.3 to 6 per cent.

Warehouse Service

Only four leased department organizations in Table 7.5 stated

they paid for warehouse space on the basis of a per cent of sales. The per cent paid for warehouse space by these four businesses was between

0.1 and 3 per cent. There were 105 organizations specifying that they

paid for warehouse space based on a charge per square foot of warehouse

space utilized. In this case the median charge was $1.25 per square foot

and the modal charge was $1,50. There were no important variations in

payments between the different merchandise lines.

Warehouse space referred to a site separate from the leased

department that was used by the lessee for storing merchandise. A

stock area within the department or adjacent to the department was not

generally considered within the domain of warehouse space. 142

TABLE 7.4-Credit Service Charge: Number of Leased Department Organizations Reporting the Discount Store Charge for Credit Service as a Per Cent of Credit Sales, by Merchandise Line, 1965

Total Total Per Cent of Credit Sales Merchandise Line Org. Reporting Org. Median Mode Range

Women's & Children's 29 7 2.0 3.0 1.5/3.0 Me n ’s Wear 22 9 2.5 2 . 5; 3 . 0 1.5/4.0 Domestics & Linens 21 10a 3.0 3.0 1.5/6.0 Shoes 29 8 2.0 2.0 1.5/3.0 Health & Beauty 30 11 2.0 3.0 0.3/4.0 Pharmacy 12 6 2.5 2.0;3 .0 0.5/4.0 Records 16 3 2.0 1. 0; 2 . 0; 3.0 1.0/3.0 Sporting Gds. & Toys 22 13 3.0 3.0 1.0/5.5 Bakery 5 0 0.0 0.0 0.0 Hard Lines 40 14 2.0 2.0 0.5/4.0 Auto Accessories 19 8 2.5 3.0 1.0/3.0 Furn. & Fir. Covrg. 24 11 1.0 1.0 1.0/3.0 Appliances 13 5 2.0 2.0 1.0/2.0 Jewelry 26 8 3.0 3.0 2.0/4.0 Camera 14 7 2.0 2.0 2.0/3.0 Pets 5 2 4.0 3.0;5.0 3.0/5.0 Misc. 4 1 2.0 2.0 — All Mdse. Lines 331 204 2.0 2.0 0.3/6.0

aAn additional charge not recorded was 0.06 sq. ft./year or 0.01 1/4 per cent whichever is higher; evidently this is of total sales. 143

TABLE 7.5-Warehouse Space Charge: Number of Leased Department Organizations Reporting the Discount Store Charge for Warehouse Space Either Based on Per Cent of Sales or on Dollars per Square Foot of Warehouse Space Utilized, by Merchandise Line, 1965

Total Warehouse Space Charge Warehouse Space Charge Based on Dollars per Merchandise Line Org. as a Per Cent of Sales Square Foot of Warehouse Space Utilized Total Range in Total Dollars per Square Foot Reporting Per Cent Reporting Median Mode Range Org. Org.

Women's & Children's 29 1 3.0 10 1.10 1.00 0.15/3.00 Men's Wear 22 0 0.0 9 1.25 1.50 0.50/1.50 Domestics & Linens 21 0 0.0 7 1.00 1.00;1.50 0.15/1.50 Shoes 29 0 0.0 7 1.20 1.20;1.50 1.00/2.00 Health & Beauty 30 0 0.0 11 1.25 1.50 0.15/3.00 Pharmacy 12 0 0.0 4 1.31 — 1.00/1.80 Records 16 0 0.0 2 1.63 1.25,-2.00 1.25/2.00 Sporting Gds. 8i Toys 22 la 0.1 9 1.25 1.25 0.10/2.00 Bakery 5 0 0.0 0 0.00 0.00 0.00 Hard Lines 40 1 1.0 12 1.35 1.00;1.50 0.10/3.00 Auto Accessories 19 0 0.0 8 1.10 1.00 1.00/1.50 Furn. & Fir. Covrg. 24 0 0.0 13 1.25 1.50 0.10/1.50 Appliances 13 1 0.2 3 1.50 — 0,75/3.50 Jewelry 26 0 0.0 3 1.00 1.00 1.00/2.00 Camera 14 0 0.0 5 1.00 1.00 0.96/12.00 Pets 5 0 0.0 2 2.75 1 .50;4.00 1.50/4.00 Misc. 4 0 0.0 0 0.00 0.00 0.00 All Mdse. Lines 331 4 0.1/3.0 105 1.25 1.50 0.10/12.00

aAn additional charge was a dollar charge of $1,200 a year. 144

Checkout Service

Table 7.6 shows only twenty-four leased department organizations paying a charge to the discount store for checkout service. The median and the modal charge for this service as a per cent of sales was 2 per cent. Numerous firms indicated they utilized only their own depart­ mental checkouts. And, for many other organizations, evidently the charge for checkout service was included within the overall rental fee.

TABLE 7.6-Checkout Service Charge: Number of Leased Department Organizations Reporting the Discount Store Charge for Checkout Service as a Per Cent of Sales, 1965

Number of Charge as a Operators Per Cent Paying Charge of Sales

1 0.5 1 0.8 3 1.0 4 1.5 1 1.8 12 2 . 0a 2 3.0 Reporting Organizations 24 No Charge Reported 307 Total Organizations 331

aOne of the charges is 0.975 sq.ft./yr. or 2 per cent whichever is higher. CHAPTER VIII

OPERATING PRACTICES OF LEASED DEPARTMENTS

IN DISCOUNT STORES

The purpose of this chapter is fourfold: to show the lessees' sources of merchandise; to indicate the methods of supplying stock to departments; to determine the methods of inventory control utilized; and to discover the rate of inventory turnover for each merchandise line.

Sources of Purchases

Two hypotheses of this research were related to the sources of supply for the leased department organizations.

One hypothesis is: the proportion of purchases made directly from manufacturers by lessee firms is dependent upon the merchandise line handled by the lessee operation.

A second hypothesis is: for any given merchandise line, the larger the number of departments operated by the leased department firm, the greater is the proportion of purchases made directly from manufacturers.

Table 8.1 lists the major sources of supply to leased department organizations. The prime sources of goods were as follows: (1) purchases directly from: manufacturers' own salesmen; (2) manufacturers' representa­ tives or sales agents; (3) jobbers, wholesalers, or distributors;

(4) brokers or commission merchants; (5) goods produced in the lessees’ own plants. Other sources of purchaseswas another category set up in

145 146

Table 8.1. To a few respondents the other sources of purchases meant the use of a central warehouse. The Identification of a central ware­ house as a major source of purchases was a misinterpretation of the question.

Perhaps, the proportion of purchases made from Independent whole­ sale suppliers was overstated. Some leased department firms organized wholesaling subsidiaries in order to receive the maximum trade discount from suppliers. Other lessees had originated as wholesalers and they had remained in this business. Consequently, some organizations may have reported that they purchased from their own wholesaling subsidiary.

When this reporting occurred, the proportion of purchases made from in­ dependent wholesalers would have been distorted. Personal interviews with the respondents suggested that in most cases the desired figures from wholesale suppliexs independent of the lessee organization were given.

The personal interviews uncovered another possible misinterpreta­ tion of the question on supply. A few respondents were unable to ascer­ tain whether their suppliers were employees of a manufacturer or in­ dependent agents such as manufacturers* representatives. The error produced in the table from this confusion was probably minor. The great­ est distortion occurring in the table was produced by the judgment of the leased department operator in estimating the proportion of purchases he received from the various sources.

For all merchandise lines a median and a mean 45 per cent of the purchases for the leased department organizations were made directly from manufacturers. Women's and children's, men's wear, domestics and linens, 147

of Purchases H e Froi Various Sources of Supply by Merchandise Line, 1365

Per Cent of Purchases Made Froi: Total Total Merchandise Line Org, Reporting Manufacturer's Manufacturer's Wholesalers Brokers Manufactured Other Org, Sales Force Reps, In Own Plant Sources Median Mean Range Median Mean Range Median Mean Range Median Mean Range Median Mean Range Median Mean Range

Women's It Children's 29 28 72,5 70,8 5,00/100,0 8,5 18,8 0,0/60,0 2,5 6,7 0,0/50.0 0,0 0,2 0,0/5 0,0 0,3 0,0/10,0 0,0 3,2 0,0/50,0 Hen's fear 22 22 70,0 61,0 15,0/90,0 22,0 27,0 0,0/70,0 9,0 9,0 0,0/20,0 0,0 1,0 0,0/10 0,0 2,0 0,0/30,0 0,0 0,0 0,0 Domestics & Linens 21 20 82,5 67,0 0,0/100,0 1,0 16,0 0,0/80,0 4,5 12,0 0,0/60,0 0,0 0,0 0,0/10 0,0 1,0 0,0/10,0 0,0 4,0 0,0/80,0 Shoes 29 29 90,0 75,0 0,0/100,0 1,0 16,0 0,0/100,0 1.0 5,0 0,0/47,0 0,0 1,0 0,0/10 0,0 2,0 0,0/40,0 0,0 1,0 0,0/22,0 Health 1 Beauty 30 29 42,0 44,0 0,0/95,0 10,0 18,0 0,0/80,0 15,0 26,0 0,0/90,0 0,0 2,0 0,0/20 0,0 0,0 0,0 0,0 0,0 0,0/100,0 Phariacy 12 10 27,5 26,0 0,0/70,0 12,5 28,0 0,0/100,0 50,0 41,0 0,0/80,0 0,0 0,0 0,0/5 0,0 0,0 0,0 0.0 5,0 0,0/50,0 Records 16 16 22,5 29,8 0,0/95,0 0,0 2,9 0,0/99,0 55,0 61,0 0,0/100,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 6,3 0,0/10/0 Sporting Gds, h Toys 22 22 37,5 30,6 0,0/80,0 37,5 40,0 0,0/95,0 20,0 28,4 0,0/100,0 0,0 1,0 0,0/10 0,0 0,0 0,0 0.0 0,0 0,0 Bakery 5 5 0,4 15,0 0,0/50,0 0.0 15,0 0,0/50,0 0,0 29,0 0,0/75,0 0,0 0,0 0,0 15,0 42,0 0,0/100,0 0,0 0,0 0,0 Hard Lines 40 38 20,0 29,0 0,0/85,0 36,5 39,0 0,0/99,0 20,0 25.0 0,0/75,0 0,0 1,0 3,0/30 0,0 6,0 0,0/65,0 0,0 0,0 0.0/10,d Auto Accessories 19 19 25,0 30,0 0,0/90,0 60,0 56,0 0,0/90,0 10,0 13,0 0,0/50,0 0,0 0,0 0,0/5 0,0 0,0 0,0/5,0 0.0 1,0 0,0/20,0 Furn, it Fir, Covrg, 24 24 50,0 44,0 0,0/100,0 35,0 37,0 0.0/100,0 10,0 19,0 0,0/100,0 0,0 0,0 0,0/10 0,0 0,0 0,0 0,0 0,0 0,0 Appliances 13 12 11,0 28,0 0,0/85,0 10.0 14,0 0.0/80,0 75,0 56,0 0.0/95,0 0,0 2,0 0,0/15 0,0 0,0 0,0 0,0 0,0 0,0 Jewelry 26 24 40,0 41,0 0,0/95.0 40,0 34,0 0,0/90,0 10,0 16,0 0,0/50.0 0.0 1,0 0.0/10 0,0 5,0 0,0/70,0 0,0 3,0 0,0/50,0 Camera 14 13 55,0 53,0 10/80,0 15,0 16,0 0,0/50,0 25.0 28,0 5,0/56,0 0,0 2.0 0,0/10 0,0 0,0 0,0 0,0 1,0 0,0/10,0 Pets 5 5 15,0 29,0 0,0/80,0 15,0 14,0 0,0/30,0 70,0 54,0 0,0/80.0 0,0 0,0 0,0 0,0 3,0 0,0/15.0 0,0 0,0 0,0 Misc, 4 4 0,0 0,0 0,0 5,0 12,5 0,0/40,0 70,0 60,0 0,0/100,0 0,0 15,0 0,0/60 0.0 12,5 0,0/50,0 0,0 0,0 0,0 All Mdse. Lines 331 320 45,0 45,2 0,0/100,0 15,0 26,5 0,0/100,0 10,0 22,4 0,0/100,0 0,0 1,2 0,0/60 0,0 2,4 0,0/100,0 0,0 2,3 0,0/100,0 148 and shoes were all lines that had a median 70 per cent or more of their purchases come from the manufacturers' sales forces. Manufacturers supplied a median 30 per cent or less of the purchases made by the phar­ macy, records, bakery, hard lines, auto accessories, appliances, and pet supplies organizations.

Manufacturers' representatives accounted for a 15 per cent median and a 26.5 per cent mean of all purchases made by leased department organizations. Men's wear, sporting goods and toys, hard lines, auto accessories, furniture and floor covering, and jewelry lines specified a median 20 per cent or more of their purchases were made from manufac­ turers' representatives. Lines with purchases of a median 10 per cent or less from manufacturers' representatives embodied women's and child­ ren's, domestics and linens, shoes, health and beauty aids, records, bakery and appliances.

In total a median 10 per cent and a mean 22.4 per cent of pur­ chases came from wholesale businesses. Wholesalers' activities accounted for a median 50 per cent or more of the purchases in the pharmacy, records, appliances, and pet supplies lines. In the women's and children's, domestics and linens, shoes, and bakery departments wholesalers supplied less than 5 per cent of the needs.

Brokers and commission merchants did not register as a source of supply in the median purchase column of any merchandise department. Only in the health and beauty aids, appliances, and camera lines did the brokers supply a mean 2 per cent of purchases. Overall the brokers were a source of a mean 1.2 per cent of the purchases made by leased department 149 organizations. As previously indicated, leased grocery departments were excluded from this study. If the grocery supermarket departments had been included, the importance of brokers would have been greater.

The bakery leased department organizations indicated that the goods they manufactured themselves were the source of a median 15 per cent of their inventory. No other merchandise line had any per cent recorded in the median purchase column. The men's wear, shoes, hard lines, jewelry, and pet supplies organizations disclosed that a mean

2 per cent or more of their goods came from their own factories. For all merchandise lines the mean proportion of all products manufactured in the lessees own facilities was 2.4 per cent.

In the other sources of purchases column for all merchandise lines there was no per cent recorded for the median purchases and mean purchases were only 2.3 per cent. For the soft goods lines resident buying offices were identified as being the main other source. In the jewelry field importers and distress merchandise sales organizations were mentioned as other sources of purchases.

The sources of supply for the different merchandise lines of the leased department organizations conformed to the supply sources from which conventional stores in the same merchandise lines purchased their goods. For shopping type goods, where the merchandise is purchased infrequently but in large quantities and seasonal and style factors are

important, direct purchases from manufacturers were made. For conven­

ience goods, which carry a small unit price, require frequent purchases 150

in small quantities, wholesalers were used. For products manufactured by small companies with a limited sales force, manufacturers' represen­ tatives were a source of supply. The types of organizations marketing

the various merchandise lines have evolved through the years. Although the leased department businesses represented a new and vigorous market

for many merchandise groupings, the presence of the lessee firms did not greatly change the established sources of merchandise. In a later chapter it will be shown that 73 per cent of all leased department org­ anizations operated other businesses. Many lessee organizations achieve buying economies by making joint purchases for all their operations at the same time from the same resources.

Table A.4, Appendix A, collates the proportion of purchases made

from the various sources of supply with the number of departments operated by the leased department organizations in selected merchandise lines. The hypothesis that for any given merchandise line, the larger the number of departments operated by the leased department firm, the greater is the proportion of purchases made directly from manufacturers is not wholly

substantiated by Table A.4, Appendix A, In only the hard lines area is

the hypothesis affirmed.

It is commonly believed that smaller organizations purchase more

from wholesalers while larger organizations make a greater number of their

procurements from manufacturers. Table A.4, Appendix A, does not give

credence to the above statement for leased department organizations. Only

in the jewelry line did the smaller organizations make proportionately more purchases from wholesalers. Evidently, the merchandise line is more 151

Important than size in determining the sources of supply for lessees.

Methods of Supplying Merchandise to Departments

The methods of supplying merchandise to the leased departments are examined in Table 8.2. The ways of distributing goods to the departments included: shipment from a central warehouse of the leased department organization, drop shipment by manufacturer, and distribution by whole­ salers to department location. Table 8.2 included a classification for other means of shipping, too.

In comparing Table 8.1 to Table 8.2 it is noted that the lines where the firms purchased from wholesalers to a great extent were gener­ ally the lines which had the wholesalers ship directly to the department location. Those leased department operators that indicated they bought mainly from manufacturers' sales forces and manufacturers' representa­ tives supplied merchandise to departments either by shipments from the lessee organizations' own central warehouses or by drop shipments directly

from the manufacturers.

For all merchandise lines a median 60 per cent and a mean 53 per cent of the shipments to the leased departments were made from the

lessees' own central warehouses. Those merchandise lines in which the

firms indicated they distributed a median 80 per cent and over of their

goods through their own central warehouse included women's and children's,

shoes, health and beauty aids, records, bakery, auto accessories, appli­

ances, and jewelry. Merchandise lines in which a median 20 per cent or

less of the shipments went through a central warehouse in the distribution 152

TABLE 8.2-Methods of Supply: Number of Leased Department Organizations, by Method of Supplying Merchandise to Department,8 by Merchandise Line, 1965

Per Cent of Dollar Value of Merchandise Supplied From: Total Merchandise Line Total Reporting Our Own Central Drop Shipment by Wholesalers to Other Means Org. Org. Warehouse Manufacturer Department Location Median Mean Range Median Mean Range Median Mean Range Median Mean Range

Women's & Children's 29 28 90.0 58.0 0.0/100.0 10.0 38.0 0.0/100.0 0.0 4.0 0.0/50.0 0,0 0,0 0,0/15.0 Men's Wear 22 22 7,5 25.5 0.0/100.0 75.0 70,0 0,0/100.0 0.0 4.5 0,0/25.0 0.0 0.0 0,0 Domestics Si Linens 21 20 45.0 47.0 0,0/100,0 32,5 44.0 0.0/100.0 0.0 9,0 0.0/60.0 0.0 0.0 0.0 Shoes 29 29 95,0 75.0 0,0/100,0 5.0 23,0 0,0/100.0 0.0 2.0 0.0/20.0 0.0 0.0 0.0/1.0 Health Si Beauty 30 30 80.0 62.1 0.0/100.0 7.5 18.3 0.0/80.0 7.0 19.3 0.0/80.0 0,0 0.3 0.0/4.0 Pharmacy 12 12 15.0 25.1 0.0/90.0 40.5 41.1 0.0/70.0 30.0 33.8 0,0/100.0 0,0 0.0 0.0 Records 16 16 100,0 81.0 0,0/100.0 0.0 3.0 0.0/50.0 0.0 16.0 0,0/100.0 0.0 0.0 0.0 Sporting Gds. Si Toys 22 22 47.5 41.0 0,0/95.0 22.5 32,0 0.0/100.0 17.5 27.0 0.0/95.0 0.0 0.0 0.0 Bakery 5 4 100.0 79.0 15.0/100.0 0.0 5.0 0.0/20.0 0.0 16.0 0.0/65.0 0,0 0,0 0.0 Hard Lines 40 38 15.0 29.0 0.0/100.0 40,0 49.0 0.0/100.0 17,5 22.0 0.0/100.0 0,0 0.0 0.0 Auto Accessories 19 19 80,0 61.1 0.0/100.0 15.0 29.2 0.0/90,0 10.0 9.6 0,0/70.0 0,0 0.) 0.0/2,0 Furn. Si Fir. Covrg, 24 22 65.0 59.0 0.0/100,0 15.0 35,0 0.0/100.0 0.0 6.0 0.0/30.0 0.0 0,0 0,0 Appliances 13 13 80.0 62,0 0.0/100.0 5.0 13,0 0,0/50.0 5.0 25,0 0.0/90.0 0,0 0.0 0.0 Jewelry 26 25 85,0 67.0 0,0/100.0 10,0 22,0 0,0/90,0 0.0 11.0 0.0/50.0 0.0 0.0 0.0 Camera 14 14 72,5 66,0 0,0/100.0 15,0 27,0 0.0/80.0 2.5 7.0 0.0/25.0 0.0 0.0 0.0 Pets 5 5 50.0 38,0 0.0/75.0 22.5 31.0 0.0/85,0 20.0 28.0 0.0/85.0 0.0 3.0 0.0/15,0 Misc. 4 4 0,0 25,0 0,0/100,0 0,0 6,0 0,0/25.0 87.5 69.0 0.0/100.0 0.0 0.0 0.0 All Mdse. Lines 331 323 60.0 53.0 0.0/100.0 20,0 32,0 0,0/100.0 2,0 15.0 0,0/100.0 0.0 0.0 0.0/15.0

aAs measured by proportion of dollar value of total merchandise supplied. 153 process comprised men's wear, pharmacy, and hard lines.

Drop shipments by manufacturers directly to the leased depart­ ments were reported a median 20 per cent and a mean 32 per cent of the time by all merchandise lines. Men's wear, domestics and linens, phar­ macy, and hard lines organizations stated that a median 30 per cent or more of the shipments to their departments were drop shipments by manu­ facturers. Drop shipments by manufacturers were made a median 10 per cent or less in the women's and children's, shoes, health and beauty aids, records, bakery, appliances, and jewelry lines.

Overall a median 2 per cent and a mean 15 per cent of the lessees' shipments came from wholesalers who distributed directly to department locations. The pharmacy, sporting goods and toys, hard lines, and pet supplies organizations reported a median of over 17 per cent of their merchandise was moved to the departments by wholesalers. The typical operations in the women's and children's, men's wear, domestics and linens, shoes, records, bakery, furniture and floor covering, and jewelry lines did not utilize any direct shipments from wholesalers to depart­ ments. Other means of supplying merchandise to leased departments were

inconsequential.

Table 8.3 compares the methods of supplying merchandise to depart­ ments with the number of departments operated by the leased department organizations in selected merchandise lines. As the number of depart­ ments operated by the leased department organizations increased, the per

cent of merchandise supplied from the organizations' central warehouse

increased. The furniture and floor covering line was an exception to

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3 o > measured by proportion f dollar value o f total merchandise supplied . MI 155 the above statement. There was some indication in the selected mer­ chandise lines that for goods supplied by wholesalers to department locations the proportion of merchandise supplied in this manner varied inversely with the size of the leased department organizations. Again, the furniture and floor covering lines did not conform to the above relationship. Collation of the per cent of drop shipments made by manufacturers with the number of departments operated by leased depart­ ment organizations did not disclose anything conclusive.

Table 8.3 reveals that the large leased department organizations attempted to get the economies of large scale buying and central dis­ tribution by utilizing a central warehouse. On the other hand the smaller operations had to rely more heavily on wholesalers to ship directly to the store location. If this study had been an analysis of conventional retail stores, a similar outcome would have been expected.

Methods of Inventory Control

Table 8.4 identifies the most common methods utilized by retailers for controlling inventory. These control devices included dollar invent­ ory control, unit stock control, model stock plan, basic stock list, and the never out list. Dollar inventory control aids management not only in controlling the total investment in stock; but, also, in seeing that this investment is allocated to the proper merchandise classification.

Unit stock control is a supervisory procedure designed to establish the proper balance of merchandise in the various product categories. The model stock plan lists the inventory in terms of general characteristics 156

TABLE 8,4-Inventory Control; Number and Per Cent of Leased Departments Using Various Methods of Inventory Control, by Merchandise Line, 1965

Total Total Total Depts. Operated Use Dollar Use Unit Use Model Use Basic Use Never Use Merchandise Line Org. Reporting by Reporting Org, Inventory Control Stock Control Stock Plan Stock List Out List Other Org. 0 Number of Departments Reporting

Women's St Children's 29 28 570b 202 496 2 225 9 2 Men's Wear 22 22 169 141 132 0 107 21 0 Domestics Si Linens 21 20 226 184 46 36 147 8 6 Shoes 29 29 602 453 421 126 78 187 6 Health & Beauty 30 29 230 154 54 0 65 8 7 Pharmacy 12 12 68 36 8 0 27 16 0 Records 16 16 165 87 98 0 59 20 0 Sporting Gds. Si Toys 22 20 187 141 54 10 93 16 34 Bakery 5 5 25 9 17 15 0 1 0 Hard Lines 40 38 369 155 185 4 53 37 13 Auto Accessories 19 18 239 218 74 0 76 3 0 Furn. St Fir. Covrg, 24 24 72 24 35 13 1 4 2 Appliances 13 13 51 13 38 1 2 0 2 Jewelry 26 23 258 114 177 25 150 0 13 Camera 14 14 64 51 29 0 25 8 1 Pets 5 5 40 32 6 0 2 0 0 Misc. 4 3 5 4 3 0 0 0 1 All Mdse. Lines 331 319 3340 2018 1873 232 1137 338 87 a Per Cent of Departments Reporting Women's St Children's 100.0 35.4 87.0 0.4 39.5 1,6 0.4 Men's Wear 100.0 83.4 78.1 0.0 63.3 12.4 0.0 Domestics Si Linens 100.0 81.4 20.4 15.9 65.0 3,5 2,6 Shoes 100.0 75.2 69.9 20,9 13.0 31.1 10,0 Health Si Beauty 100.0 67.0 23.5 0.0 28,3 3,5 3,0 Pharmacy 100,0 52,9 11.8 0,0 39.7 23.5 0,0 Records 100,0 52,7 59,4 0.0 35,8 12.1 0,0 Sporting Gds, Si Toys 100.0 75.4 28.9 5.3 49.7 8.6 18.2 Bakery 100.0 36.0 68.0 60.0 0.0 40,0 0.0 Hard Lines 100,0 42,0 50,1 1.1 14,3 10,0 3.5 Auto Accessories 100.0 91.2 31,0 0.0 31.8 1.2 0.0 Furn. fc Fir, Covrg, 100.0 33,3 48.6 18.0 1.4 5.6 2.8 Appliances 100.0 25,5 74.5 2.0 3,9 0,0 3.9 Jewelry 100.0 44.2 68.6 9.7 58.1 0.0 5,0 Camera 100.0 79.7 45.3 0.0 39,0 12.5 1.6 Pets 100.0 80.0 15.0 0.0 5,0 0.0 0.0 Misc. 100.0 80.0 60,0 0.0 0.0 0.0 20,0 All Mdse. Lines 100.0 60.4 56,1 6.9 34.0 10.1 2,6

aThe number and per cent of departments using different inventory control methods will total more than in the total departments operated column since some departments used more than one method,

bIf one organization of 240 units is subtracted from the total 570 and the other columns adjusted, the adjusted entries in the row would be: Dollar Control, Number 202, Per cent 61,2; Unit Stock Control, Number 296, Per cent 89,7; Model Stock Plan, Number 2, Per cent 0.6; Basic Stock List, Number 150, Per cent 45,4; Never Out List, Number 9, Per cent 2,7; and Other, Number 2, Per cent 0,6. 157 that should be found in a model department. The basic stock list is a cataloging of the quantity and kinds of goods that should be continuously maintained in stock for at least one year. The never out list consists of an identification of the best selling items which should be always in stock.

A hypothesis of the research is that for different type merchan­ dise departments, the sophistication of the inventory controls varies.

Table 8.4 shows how the leased departments in the different merchandise lines used the various types of inventory controls. Since some depart­ ments employed several methods of control, the number and per cent of departments using the different inventory control methods totaled more than in the total reporting departments column of Table 8.4. Overall

60.4 per cent of the leased departments utilized dollar inventory con­ trols. Men's wear, domestics and linens, shoes, sporting goods and toys, auto accessories, cameras, and pets were all lines that had 75 per cent and over of their leased departments using dollar inventory control.

Less than 40 per cent of the departments in the women's and children's, bakery, furniture and floor covering, and appliance lines employed formal dollar inventory control procedures.

Unit stock control was found in 56.1 per cent of all leased depart­ ments. Merchandise categories with 65 per cent or over of their leased departments using unit stock control were reported in the women's and children's, men's wear, shoes, bakery, appliances, and jewelry lines.

Merchandise groupings with 30 per cent or less of their departments utilizing unit stock control included the domestics and linens, health 158 and beauty aids, pharmacy, sporting goods and toys, and pet supplies

lines.

Only 6.9 per cent of the leased departments had any type of model

stock plan. The model stock plan is generally used for merchandise that has some fashion and seasonal elements to it, and the merchandise often

falls into the shopping goods classification. A look at the type of

leased department employing the model stock plan generally tended to verify the above statement. The major leased department users of model

stock plan were the domestics and linens, shoes, bakery, furniture and

floor covering, and the jewelry lines. Surprisingly, the women's and

children's, and men's wear departments did not use the model stock plan extensively. Possibly, this was because in discount stores these lines

are more of a staple than a fashion nature. Another factor was that numerous leased department operations are merchandised on the basis of market opportunities rather than buying to a planned assortment.

Basic stock lists were used by 34 per cent of the leased depart­ ments. Basic stock lists are generally used by departments carrying

staple convenience goods which are unaffected by fashion and season.

The lessees in the types of merchandise lines detailed above used the

basic stock list, but other departments ordinarily considered as handling

shopping goods utilized the basic stock list, too. Lines where over 34

per cent of the departments used a basic stock list were women's and

children's, men's wear, domestics and linens, pharmacy, records, sporting

goods and toys, jewelry, and cameras. The basic stock list was utilized

by 15 per cent or less of the departments in the shoes, bakery, hard 159 lines, furniture and floor covering, appliances, and pet supplies lines.

The never out list is employed for only the most staple mer­ chandise. In total, 10.1 per cent of the lessees used this list. The men's wear, shoes, pharmacy, records, bakery, hard lines, and camera lines reported 10 per cent or more of their departments availed them­ selves of this control.

Only 2.6 per cent of the departments used some other means of control. Practically all of the 2.6 per cent came from the personal interviews where the lessees who did not employ one or more of the five formal controls and some who did stated they used eye-ball control— the informal periodic inspection of shelf stock.

Table A.5, Appendix A, associates the various methods of in­ ventory control with the number of departments operated by the leased department organizations in selected merchandise lines. A hypothesis of this paper is: for any given merchandise line the greater the number of departments operated by the leased department organization, the more sophisticated the inventory controls become. Table A.5, Appendix A, does not reveal any greater use of inventory control methods by the larger organizations than by the smaller organizations. Evidently the degree of use depended much more upon the merchandise line handled than upon size of operation.

Rate of Inventory Turnover

The rate of inventory turnover for each merchandise line is dis­ played in Table 8.5. For all organizations the median rate of turnover TABLE 8.5-Rate of Turnover: Number and Per Cent of Leased Department Organizations Classifying Their Rate of Inventory Turnover and Reporting Average Rate of Inventory Turnover, by Merchandise Line, 1965

Total Total Rate of Inventory Turnover Merchandise Line Org. Reporting Org. 0 to 3.9 4,0 to 4.9 5.0 to 5.9 6.0 to 7.9 8.0 Si Over Median Mode Range Number of Organizations Reporting Women's & Children's 29 28 3 6 5 8 6 5.5 6,0 2,5/13.0 Men's Wear 22 22 6 11 3 2 0 4.0 4.0 2.5/7.0 Domestics & Linens 21 20 5 7 7 0 1 4,5 5.0 2.5/9,0 Shoes 29 29 14 9 4 1 1 3,8 4,0 2,0/7,0 Health Si Beauty 30 29 0 3 5 10 11 7.0 8.0 4,0/12,0 Pharmacy 12 10 0 2 2 3 3 6.0 6,0 4,0/12,0 Records 16 16 0 3 4 7 2 6.0 5,0;6,0 4.0/10.0 Sporting Gds. & Toys 22 22 5 5 5 5 2 5,0 4.0 0,5/11.0 Bakery 5 5 0 0 0 0 5 52.0 12,0 12,0/312.0 Hard Lines 40 39 4 12 10 9 4 5.0 5.0 2,2/10,0 Auto Accessories 19 17 2 6 3 2 4 5,0 4,0 3,0/10,0 Furn, & Fir, Covrg. 24 22 3 11 4 1 3 4.0 4.0 1.8/12.0 Appliances 13 12 1 3 3 3 2 5,5 — 3,5/8.0 Jewelry 26 24 17 3 2 0 2 3,0 2.0 1.0/11.0 Camera 14 14 2 3 2 3 4 6.0 — 3.2/12.0 Pets 5 5 1 1 0 0 3 8.0 8.0 3.8/10,0 Misc. 4 3 0 0 0 0 3 35,0 ... 10.0/120,0 All Mdse. Lines 331 317 63 85 59 54 56 5.0 4.0 0,5/312,0 Per Cent of Organizations Reporting Women's Si Children's 100.0 10.7 21.4 17.9 28.6 21.4 Men's Wear 100.0 27.3 50.0 13.6 9.1 0,0 Domestics & Linens 100,0 25.0 35.0 35.0 0.0 5.0 Shoes 100.0 48.3 31.0 13.8 3.5 3.4 Health Si Beauty 100.0 0.0 10.3 17.3 34.5 37.9 Pharmacy 100,0 0.0 20.0 20.0 30,0 30,0 Records 100.0 0.0 18.8 25,0 43,7 12,5 Sporting Gds. Si Toys 100.0 22.7 22.7 22,7 22.7 9.1 Bakery 100.0 0.0 0.0 0,0 0.0 100.0 Hard Lines 100.0 10,3 30.7 25.7 23.0 10.3 Auto Accessories 100.0 11.8 35.3 17,6 11.8 23.5 Furn, & Fir. Covrg, 100,0 13.6 50.0 18.2 4,6 13,6 Appliances 100.0 8.3 25.0 25.0 25.0 16.7 Jewelry 100.0 70.8 12.5 8.4 0.0 8.3 Camera 100,0 14.3 21,4 14.3 21.4 28.6 Pets 100.0 20.0 20,0 0,0 0.0 60,0 Misc. 100.0 0.0 0.0 0,0 0.0 100.0 All Mdse. Lines 100.0 19,9 26.8 18.6 17.0 17.7 161 was five and the modal rate was four. Lines with six or more turns included health and beauty aids, pharmacy, records, bakery, camera, and pet supplies. A comparison with Table 5.11, Chapter V, indicated that the foregoing departments with the exception of pet supplies had among the highest sales per square foot of any of the leased departments.

Although the turnover is high for pet supplies, Table 5.13, Chapter V, shows the median transaction size is low keeping the sales per square foot down. The bakery organizations displayed a median turnover rate of 52 which was the highest for any line. Organizations with a median inventory turnover rate of four or less were found in the men's wear, shoes, furniture and floor covering, and jewelry lines. The latter line posted the lowest rate of inventory turnover, only a median three times a year.

Table 8.5 divides the leased department organizations into classifications determined by the rate of inventory turnover. Five

categories of turnover rates were set up. In the first grouping all organizations were placed that had a rate of turnover of 3.9 or less.

Jewelry was the dominant line placing over 70 per cent of their organ­

izations in this category. When the rate of turnover reached 4.0 to

4.9, the men's wear and the furniture lines both had 50 per cent of

their organizations listed here. With the inventory turnover rate

between 5.0 and 5.9 the domestics and linens line placed 35 per cent of

their businesses in this classification. When the turnover rate moved

up to 6.0 to 7.9, the record line placed nearly 44 per cent of all their organizations In this grouping. For the highest turnover rate classi­ fication, 8.0 and over, the bakery line reported 100 per cent of their businesses fell here; pet supplies, 60 per cent; and health and beauty aids, 38 per cent. CHAPTER IX

DEVELOPMENT AND GROWTH OF THE LEASED

DEPARTMENT IN DISCOUNT STORES

The past business history of the leased department organizations is reviewed in this chapter. The operations of lessees in businesses outside the discount stores are examined, and the proportion of sales done in these other businesses is disclosed. A look at the expansion plans of leased department organizations gives some insight into the operators' satisfaction or dissatisfaction with their present role as lessees. The leased department merchants contemplate their own ultimate status when they report on their belief as to the future use of leased departments in discount stores. A final section in the chapter traces the growth of leased department organizations from 1958 to 1965.

Business of Origin

Previous Operations

A hypothesis of this study is that the majority of the firms operating leased departments have their origin as operators of conven­ tional stores. Table 9.1 shows that 62.8 per cent of all leased depart­ ment organizations had their inception as conventional retailers. Service wholesalers were the next most important source of leased department operators. Nearly 13 per cent of the lessees developed from prior whole­

sale businesses. In only 4.4 per cent of the cases did leased department organizations operating in other type stores go into discount stores as

163 164 TABLE 9.1-Previous Operations: Number and Per Cent of Leased Department Organizations, by Kind of Business of Origin or of Previous Operation, by Merchandise Line, 1965

Total Total Originated Firm or Its Founder Previously Operated As: Merchandise Line Org. Reporting as Leased Leased Dept, Conventional Complete Service Rack Manufacturer Department Other Org. Department in Other Retailer Discount Wholesaler Jobber Store in Discount Type Store Store Merchandiser Store Number of Organizations Reporting Women's & Children's 29 27 3 5 18 0 1 0 0 0 0 Men's Wear 22 22 2 0 13 1 1 0 3 2 0 Domestics & Linens 21 20 2 1 13 0 3 0 0 1 0 Shoes 29 29 0 3 20 0 3 0 1 0 2 Health & Beauty 30 29 1 0 19 3 4 1 0 0 1 Pharmacy 12 11 0 0 9 0 1 0 0 0 1 Records 16 15 0 0 7 0 3 4 0 0 1 Sporting Gds. & Toys 22 20 3 0 7 0 6 0 1 0 3 Bakery 5 5 1 0 2 0 0 0 2 0 0 Hard Lines 40 35 1 0 19 3 6 0 3 2 1 Auto Accessories 19 19 1 0 9 0 5 1 1 0 2 Furn. 4 Fir. Covrg. 24 23 0 0 23 0 0 0 0 0 0 Appliances 13 13 0 1 9 0 2 0 0 0 1 Jewelry 26 26 2 2 18 0 3 0 0 0 1 Camera 14 14 1 0 6 2 3 0 0 0 2 Pets 5 5 0 2 3 0 0 0 0 0 0 Misc. 4 4 0 0 4 0 0 0 0 0 0 All Mdse, Lines 331 317 17 14 199 9 41 6 11 5 15 Per Cent of Organizations Reporting Women's 4 Children's 100,0 11.1 18,5 66.7 0.0 3.7 0,0 0.0 0.0 0.0 Men's Wear 100,0 9.1 0.0 59.2 4,5 4.5 0.0 13.6 9,1 0,0 Domestics 4 Linens 100.0 10.0 5,0 65.0 0.0 15.0 0,0 0.0 5.0 0.0 Shoes 100.0 0,0 10.3 69.0 0.0 10,3 0.0 3.5 0,0 6.9 Health 4 Beauty 100.0 3.5 0,0 65.5 10,3 13.8 3,5 0,0 0.0 3.4 Pharmacy 100.0 0,0 0.0 81.8 0,0 9.1 0.0 0.0 0.0 9.1 Records 100.0 0,0 0.0 46.6 0.0 20,0 26,7 0.0 0.0 6.7 Sporting Gds, 4 Toys 100.0 15,0 0.0 35.0 0.0 30.0 0,0 5.0 0.0 15.0 Bakery 100,0 20,0 0.0 40.0 0.0 0,0 0.0 40.0 0,0 0.0 Hard Lines 100,0 2,9 0,0 54.3 8,6 17.1 0,0 8,6 5,7 2.8 Auto Accessories 100.0 5.2 0,0 47.4 0,0 26.3 5,3 5.3 0,0 10.5 Furn. 4 Fir. Covrg. 100,0 0.0 0,0 100,0 0.0 0.0 0.0 0.0 0,0 0.0 Appliances 100,0 0.0 7.7 69.2 0,0 15.4 0,0 0.0 0.0 7.7 Jewelry 100.0 7,7 7.7 69.2 0.0 11.5 0.0 0.0 0.0 3,9 Camera 100.0 7.1 0.0 42.9 14.3 21.4 0.0 0,0 0,0 14.3 Pets 100.0 0.0 40,0 60.0 0.0 0,0 0.0 0.0 0.0 0,0 Misc. 100.0 0.0 0.0 100.0 0.0 0.0 0.0 0,0 0.0 0.0 All Mdse. Lines 100.0 5.4 4.4 62.8 2.8 12.9 1.9 3,5 1.6 4.7 165

lessees. Previous experience as a manufacturer accounted for 3.5 per

cent of the leased department operations. History as a complete dis­

count store was present in the background of 2.8 per cent of all leased

department organizations. Almost 2 per cent of the leased department

operators had a genesis of rack jobbing. Some 1.6 per cent of all

lessees stated the founder of the business had some prior experience in

the merchandising operation of a department store. Miscellaneous origins were the source of 4.7 per cent of the remaining leased department organi­

zations. No other previous business history was reported by 5.4 per cent

of the firms.

The miscellaneous occupations in which the leased department firms were active before entering discount stores as a lessee included: dis­

count mail order house, surplus retailer, operator of franchised chain,

manufacturer's representative, discount specialty store, industrial

selling, buying service for independent stores, management leasing com­

pany, advertising specialties and premiums distributor, and carnival

supplier.

In all merchandise lines prior operation as a conventional re­

tailer overshadowed any other business of origin. Those lines indicat­

ing 65 per cent or more of their organizations began as conventional

retailers included women's and children's, domestics and linens, shoes,

health and beauty aids, pharmacy, furniture and floor covering, appliances,

and jewelry.

The domestics and linens, records, sporting goods and toys, hard

lines, auto accessories, appliances, and camera lines had 15 per cent

or more of their businesses originate in the wholesaling field. Firms 166 originally operating leased departments in retail establishments other than discount units were the precursors of very few lessees in discount stores. Merchandise lines in which at least 5 per cent of the organiza­ tions had their origin as leased department operators in other retail stores included the following: women's and children's, domestics and linens, shoes, appliances, jewelry, and pet supplies. Of the depart­ ments listed above millinery, shoes, and jewelry were among the most frequently leased departments in conventional department stores.*

The only lines reporting that manufacturers initiated leased department operations occurred in the men's wear, shoes, sporting goods and toys, bakery, hard lines, and auto accessories areas. Merchants with complete discount stores were the founders of leased department organizations in the following lines: men's wear, health and beauty aids, hard lines, and camera. Rack jobbers originated leased depart­ ments in the health and beauty aids, records, and auto accessory fields.

These were generally lines coincidently where the rack jobbers were strong in merchandising conventional stores. In a few cases a department store merchandising background preceded the formation of leased department organizations. This was true of operators in the men's wear, domestics and linens, and hard lines areas.

Years in Previous Operation

Table 9.2 discloses the average number of years the businesses that conceived the leased departments were in operation before leasing

*Leased Departments, Rates, Policies and Expenses in Department and Specialty Stores (New York: Controllers' Congress, National Retail Merchants Association, 1965), p. 8. 167 TABLE 9.2-Previous Operations; Number of Leased Department Organizations, by Kind of Business of Origin or of Previous Operation, and by Average Number of Years in Business of Origin Prior to Leasing Departments in Discount Stores, by Merchandise Line, 1965

Total Total Originated Firm or Its Founder Previously Operated As: Merchandise Line Org. Reporting as Leased Leased Dept, Conventional Complete Service Rack Manufacturer Department Other Average No. Org. Department in Other Retailer Discount Wholesalers Jobber Store Years of Organization Type Store Store Merchandiser Prior Operation Number of Organizations Reporting Women's Si Children's 29 23 1 5 16 0 1 0 0 0 0 Men's Wear 22 19 1 0 13 0 1 0 3 1 0 Domestics Si Linens 21 18 0 1 13 0 3 0 0 1 0 Shoes 29 26 0 3 20 0 2 0 1 0 0 Health Si Beauty 30 27 1 0 18 3 4 1 0 0 0 Pharmacy 12 10 0 0 9 0 0 0 0 0 1 Records 16 12 0 0 6 0 2 4 0 0 0 Sporting Gds. Si Toys 22 17 0 0 7 0 6 0 1 0 3 Bakery 5 5 1 0 2 0 0 0 2 0 0 Hard Lines 40 32 0 0 18 3 6 0 3 2 0 Auto Accessories 19 16 0 0 9 0 4 1 1 0 1 Furn, Si Fir, Covrg. 24 23 0 0 23 0 0 0 0 0 0 Appliances 13 12 0 1 8 0 2 0 0 0 1 Jewelry 26 22 0 2 17 0 3 0 0 0 0 Camera 14 9 0 0 4 2 3 0 0 0 0 Pets 5 5 0 2 3 0 0 0 0 0 0 Misc. 4 4 0 0 4 0 0 0 0 0 0 All Mdse. Lines 331 280 4 14 190 8 37 6 11 4 6 Average Number of Years in Indicated Kind of Business Women's & Children's 0,0 31.0 25.5 0.0 70.0 0.0 0.0 0.0 0.0 27.9 Men's Wear 0.0 0,0 29.8 0.0 40,0 0.0 58.0 40,0 0.0 34.4 Domestics Si Linens 0,0 4.0 19.7 0.0 41.7 0.0 0.0 30,0 0.0 23,0 Shoes 0.0 15.3 30.8 0.0 35.0 0,0 60.0 0.0 0.0 30,5 Health & Beauty 0,0 0.0 29.5 12.3 18.8 15.0 0.0 0.0 0,0 24,6 Pharmacy 0,0 0.0 16.6 0.0 0.0 0.0 0.0 0.0 15.0 16,4 Records 0,0 0.0 13.3 0,0 10.5 6,0 0.0 0.0 0.0 10.4 Sporting Gds, Si Toys 0,0 0.0 16,3 0.0 24,3 6.0 30.0 0.0 34.3 23.1 Bakery 0,0 0.0 39.0 0.0 0.0 0.0 22.5 0,0 0.0 25.0 Hard Lines 0,0 0.0 22.5 14.3 26.8 0,0 41.7 7.0 0,0 23,4 Auto Accessories 0.0 0.0 20.7 0.0 18.2 1.0 50.0 0.0 6.0 19,8 Furn, & Fir, Covrg, 0,0 0.0 23.9 0,0 0.0 0.0 0.0 0,0 0,0 23.9 Appliances 0,0 40,0 22,6 0.0 30.0 0,0 0,0 0,0 30.0 25.9 Jewelry 0.0 17.0 27.5 0.0 21.3 0,0 0.0 0,0 0,0 25.7 Camera 0.0 0.0 32,2 6.0 23,7 0.0 0.0 0.0 0.0 23,6 Pets 0.0 6.5 40,3 0,0 0.0 0.0 0.0 0.0 0.0 26,8 Misc, 0.0 0,0 17.0 0.0 0,0 0.0 0,0 0.0 0,0 17,0 All Mdse, Lines 0.0 20.8 24.9 11.5 26.4 6.7 44,0 21,0 25,7 24,6 168

departments in discount stores. For all lines the average number of

years of prior operation was 24.6. Manufacturers had been in business

the longest, an average of 44 years. Service wholesalers recorded an

average 26.4 years of prior operation, and the conventional retailers were close behind with 24.9 years. Those individuals who had worked

in department stores reported an average of 21 years experience. Those complete discount stores that also operated leased departments had been

in business for an average 11.5 years. The rack jobbers had the least previous experience with only 6.7 years. The firms in the other or miscellaneous business of origin classification yielded an average 25.7 years of previous operation.

Year of Origin

Table 9.3 shows the years in which the leased department opera­

tions originated. For all merchandise lines the median year for start­

ing a leased department business was in 1960. The most mentioned period by lessees as to when they began operations was between 1958 and 1963.

Three quarters of all leased department organizations began leasing in discount stores after 1957. The organizations in the men's wear and shoe

lines had the earliest median date of origin, 1958. Overall, it appeared

that the leased departments in the soft lines were formed before those in

the durable lines. Possibly this situation is reflective of the fact that

the discount house handling mainly hard goods began leasing their soft

lines departments somewhat before the soft goods supermarkets began leasing their durable lines. TABLE 9.3-Year of Origin: Number of Leased Department Organizations Reporting the Year in Which They Began Operating in Discount Stores, by Merchandise Line, 1965

Merchandise Line Total Total Median Number of Organizations Reporting Year of Origin Org. Reporting Year 1954 and 1955 to 1958 to 1961 to 1964 and Org. Before 1957 1960 1963 after

Women's & Children's 29 27 1959 2 5 9 11 0 Men's Wear 22 22 1958 3 4 10 5 0 Domestics & Linens 21 21 1959 0 4 8 8 1 Shoes 29 29 1958 3 10 8 8 0 Health & Beauty 30 30 1960 2 5 8 15 0 Pharmacy 12 12 1961 0 0 5 7 0 Records 16 16 1960 0 5 3 8 0 Sporting Gds. & Toys 22 22 1959 2 3 8 9 0 Bakery 5 5 1961 0 0 2 3 0 Hard Lines 40 39 1959 1 14 15 9 0 Auto Accessories 19 19 1959 1 2 9 7 0 Furn. & Fir. Covrg. 24 24 1961 0 1 6 16 1 Appliances 13 13 1962 0 1 3 8 1 Jewelry 26 25 1959 1 3 12 9 0 Camera 14 14 1959 1 3 5 5 0 Pets 5 5 1960 0 1 2 2 0 Misc. 4 4 1961 0 0 1 3 0 All Mdse. Lines 331 327 1960 16 61 114 133 3 169 170

Operation of Other Businesses

The majority of leased department organizations remained engaged in other businesses in addition to the leased department operation.

Table 9.4 shows 73 per cent of the lessee organizations were active in other business ventures. Of the total reporting organizations conven­ tional stores were operated by 48.7 per cent. Wholesaling was a field of additional endeavor for 18.5 per cent of all reporting firms. Nearly

10 per cent of the leased department merchants in discount stores ran leased departments in other type stores. Complete discount stores were operated by 7 per cent of all reporting organizations, and another 6.7 per cent of the businesses did rack jobbing. Almost 5 per cent of the reporting organizations were engaged in the field of manufacturing. The operation of discount specialty stores was undertaken by 3.2 per cent of the leased department organizations. A miscellaneous conglomeration of businesses were run by 4.1 per cent of the reporting lessees. A compari­ son of Table 9.1 with Table 9.4 revealed that in general the particular type of business that was prominent as an originator of leased depart­ ments in a given merchandise line continued to remain prominent as a type of undertaking operated in conjunction with the leased departments.

Table 9.5 collates the types of other businesses operated by the leased department firms in selected merchandise lines with the number of departments belonging to the lessee organizations. The conclusion from

Table 9.5 is that except for the smallest leased department organiza­ tions, there is no particular relationship between size of the organization 371 TABLE 9.4-Other Businesses Operated: Number and Per Cent of Leased Department Organizations Presently Engaged in Other Businesses, In Addition to the Operation of Leased Departments in Discount Stores, by Merchandise Line, 1965

Merchandise Line Total Total Does Not Operates Type of Other Business Operated Org. Reporting Operate Other Leased Dept, Complete Conventional Service Rack Manufacturer Discount Other Org. Other Businesses in Other Discount Stores Wholesaler Jobber Specialty Businesses Type Stores Stores Stores Number of Organizations Reporting1 Women's & Children's 29 29 9 20 7 4 13 1 0 0 1 1 Men's Wear 22 21 8 13 1 2 8 3 1 3 0 0 Domestics b Linens 21 20 9 11 0 0 10 3 0 0 0 0 Shoes 29 28 3 25 11 1 18 3 0 2 2 1 Health b Beauty 30 29 2 27 2 9 17 8 8 1 1 2 Pharmacy 12 11 3 8 0 1 7 0 0 0 1 0 Records 16 15 2 13 0 0 2 5 8 0 1 Sporting Gds. & Toys 22 22 7 15 1 0 10 7 1 0 1 3 Bakery 5 5 1 4 2 0 3 0 0 4 1 Hard Lines 40 35 14 21 1 5 10 6 1 2 1 2 Auto Accessories 19 19 6 13 0 0 6 6 1 2 1 0 Furn, b Fir. Covrg. 24 22 5 17 0 0 17 0 0 0 0 Appliances 13 13 2 11 1 0 10 4 0 0 1 0 Jewelry 26 25 9 16 2 0 12 5 1 1 1 Camera 14 11 2 9 1 0 6 4 0 1 1 1 Pets 5 5 1 4 2 0 2 1 0 0 0 0 Misc. 4 4 1 3 0 0 2 2 0 0 0 0 All Mdse. Lines 331 314 84 230 31 22 153 58 21 16 10 13 Per Cent of Organizations Reporting1 Women's b Children's 100.0 31.0 69.0 24.1 13,8 44.8 3,4 0.0 0,0 ' 3.4 3.4 Men's Wear 100,0 38,1 61,9 4.8 9.5 38.1 14.3 4.8 14.3 0.0 0.0 Domestics b Linens 100.0 45.0 .55,0 0,0 0,0 50.0 15.0 0,0 0,0 0,0 0,0 Shoes 100.0 10,7 89,3 39.3 3,6 64.3 10.7 0.0 7,1 7.1 3,6 Health b Beauty 100.0 6,9 93,1 6.9 31,0 58,6 27,6 27.6 3.4 3,4 6,9 Pharmacy 100,0 27.3 72.7 0.0 9.1 63,6 0,0 0.0 0,0 9.1 0,0 Records 100,0 13,3 86.7 0.0 0.0 13,3 33.3 53,3 0.0 0.0 6,7 Sporting Gds, b Toys 100.0 31.8 68.2 4,5 0.0 45,4 31.8 4.5 0,0 4.5 13.6 Bakery 100,0 20,0 80,0 40,0 0,0 60,0 0.0 0.0 80.0 0,0 20.0 Hard Lines 100,0 40.0 60,0 2,8 14,3 28,6 17,1 2.8 5,7 2,8 5.7 Auto Accessories 100,0 31,6 68,4 0.0 0,0 31,6 31,6 5.3 10,5 5.3 0.0 Furn. b Fir, Covrg. 100,0 22.7 77,3 0.0 0,0 77,3 0,0 0,0 0.0 0.0 0,0 Appliances 100,0 15.4 84.6 7,7 0,0 76,9 30.8 0.0 0.0 7,7 0,0 Jewelry 100.0 36.0 64.0 8.0 0.0 48,0 20,0 4.0 4.0 0.0 4.0 Camera 100.0 18.2 81.8 9,1 0.0 54.5 36,4 0.0 9.1 9.1 9.1 Pets 100,0 20.0 80.0 40,0 0,0 40.0 20.0 0,0 0.0 0,0 0.0 Misc. 100,0 25.0 75,0 0,0 0,0 50.0 50.0 0,0 0.0 0,0 0,0 All Mdse. Lines 100.0 26.8 73.2 9,9 7,0 48.7 18.5 6.7 5.1 3,2 4.1

aThe number and per cent in the type of other business operated columns may total more than in the operates other business column since some leased department organizations operated more than one other type of business. TABLE 9,5-Other Businesses Operated: Per Cent of Selected Leased Department Organizations Presently Engaged in Other Businesses in Addition to the Operation of Leased Departments in Discount Stores, by Number of Departments Operated by the Leased Department Organizations, 1965

Number Total Org. Total Per Cent of Reporting Organizations’ of No. Per Reporting Org. Leased Depts. Complete Conventional Service Rack Manufacturer Discount Other Departments Cent No. Per Cent in Other Discount Stores Wholesaler Jobber Specialty Type Stores Stores Stores

Health 8t Beauty 1 " 7 23.3 7 100.0 0.0 28.6 57.1 28.6 14.3 0.0 0.0 0.0 2 to 4 7 23.3 6 100.0 33.3 0.0 66,7 0.0 0.0 0.0 0,0 16.7 5 to 10 7 23.3 7 100.0 0.0 42.9 71,4 28.6 42,9 14.3 0.0 14.3 11 to 25 7 23.3 7 100.0 0.0 28.6 42,9 57.1 42.9 0.0 14.3 0.0 26 to 50 2 6.8 2 100.0 0.0 100.0 50.0 0,0 50,0 0.0 0.0 0.0 51 to 100 0 0.0 0 100,0 ------— 101 & over 0 0.0 0 100.0 - - -- - — -- ... — All size org. 30 100,0 29 100.0 6.9 31.0 58.6 27.6 27,6 3.4 3.4 6.9 Women's !i Children's 1 2 6.9 2 100.0 0.0 0.0 50.0 0.0 0,0 0.0 0.0 0.0 2 to 4 12 41.4 12 100.0 16.7 8.3 66.7 8.3 0.0 0,0 0.0 8.3 5 to 10 7 24.1 7 100.0 14.3 42.9 14.3 0.0 0,0 0.0 14.3 0.0 11 to 25 4 13.8 4 100.0 50.0 0.0 50.0 0.0 0.0 0.0 0.0 0.0 26 to 50 2 6,9 2 100.0 50.0 0.0 50.0 0.0 0,0 0,0 0.0 0,0 51 to 100 0 0,0 0 100.0 — ------101 & over 2 6.9 2 100.0 50,0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 All size org. 29 100,0 29 100,0 24,1 13.8 44.8 3,4 0.0 0,0 3.4 3.4 Shoes 1 1 3.4 1 100.0 100.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 2 to 4 8 27,6 8 100.0 37.5 0,0 62,5 12,5 0.0 0.0 0,0 12.5 5 to 10 7 24,2 7 100,0 28,6 0.0 85.7 0.0 0.0 0.0 14.3 0.0 11 to 25 5 17.2 5 100.0 100.0 0.0 80.0 0.0 0.0 0.0 0.0 0.0 26 to 50 4 13.8 3 100.0 0.0 33,3 33.3 0.0 0.0 0.0 0.0 0.0 51 to 100 3 10.4 3 100.0 0.0 0.0 33.3 0,0 0.0 33.3 33.3 0.0 101 & over 1 3.4 1 100.0 0.0 0.0 0.0 0.0 0.0 100.0 0,0 0.0 All size org. 29 100.0 28 100.0 39.3 3.6 64.3 10,7 0,0 7.1 7,1 3.6 Furn. & Fir. Covrg. 1 11 45.8 9 100.0 0.0 0.0 88.9 0.0 0,0 0.0 0.0 0.0 2 to 4 10 41,7 10 100.0 0.0 0.0 70.0 0.0 0,0 0.0 0.0 0.0 5 to 10 1 4.2 1 100.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 11 to 25 2 8.3 2 100.0 0,0 0.0 50,0 0.0 0.0 0.0 0.0 0.0 26 to 50 0 0.0 0 100.0 — -— .. -- - - 51 to 100 0 0,0 0 100.0 -— ------101 & over 0 0.0 0 100.0 -- -- — ------All size org, 24 100.0 22 100.0 0.0 0,0 77.3 0.0 0.0 0.0 0.0 0,0 Hard Lines 1 3 7,5 3 100.0 0,0 0,0 33.3 0,0 0.0 0.0 33,3 33.3 2 to 4 10 25.0 9 100.0 0.0 22,2 55.6 11.1 11.1 11.1 0.0 0.0 5 to 10 19 47.5 15 100.0 6,7 13.3 26.7 26.7 0.0 0.0 0,0 6.7 11 to 25 5 12.5 5 100.0 0,0 20.0 0.0 20.0 0.0 0.0 0.0 0.0 26 to 50 2 5.0 2 100.0 0.0 0.0 0.0 0,0 0,0 50.0 0,0 0.0 51 to 100 1 2.5 1 100.0 0,0 0.0 0.0 0.0 0,0 0,0 0,0 0.0 101 Si over 0 0.0 0 100,0 172a

TABLE 9.5 (Contd.)

Number Total Org. Total Per Cent of Renorting Organizations of No. Per Reporting Org, Leased Depts, Complete Conventional Service Rack Manufacturer Discount Other Departments Cent No. Per Cent in Other Discount Stores Wholesaler Jobber Specialty Type Stores Stores Stores

All size org, 40 100.0 35 100.0 2.8 14.3 28.6 17,1 2.8 5.7 2,8 5,7 Jewelry 1 8 30.8 7 100,0 0.0 0.0 42.9 28.6 14.3 14,3 0,0 14.3 2 to 4 6 23,0 6 100,0 16.7 0.0 66.7 16.7 0.0 0.0 0.0 0,0 5 to 10 6 23.1 6 100,0 0,0 0.0 66.7 33.3 0.0 0.0 0,0 0,0 11 to 25 3 11.6 3 100,0 33.3 0,0 0.0 0.0 0.0 0,0 0,0 0.0 26 to 50 3 11.5 3 100.0 0.0 0.0 33.3 0.0 0.0 0.0 0.0 0,0 51 to 100 0 0.0 0 100.0 ------10J & over 0 0.0 0 100.0 ------— -- — — All size org. 26 100.0 25 100.0 8.0 0,0 48.0 20.0 4.0 4.0 0.0 4.0

aPer cent of organizations operating other types of businesses may total more than 100 per cent since some organizations operated more than one other type of business. 173 and kind of other business operated. The medium-sized and large organiza­ tions operate a diversity of other businesses. For the smallest leased department organizations the pattern of other business ownership centers around the operation of conventional retail stores. Many small retailers who expanded their operations by leasing a department in a local discount store continue to operate these leased departments.

A hypothesis for this project is: the majority of the firms operating leased departments are engaged in other businesses which represent the greatest per cent of their total company sales volume.

The foregoing discussion supported the first part of the hypothesis.

However, the following commentary does not sustain the latter part of the proposition. Table 9.6 discloses that for lessee firms engaged in other operations a median 50 per cent and a mean 48.3 per cent of sales came from the other businesses. Organizations that had a median 50 per cent or more of their sales in other business operations included the health and beauty aids, bakery, hard lines, furniture and floor covering, appliances, and jewelry groupings. Lines with a median 40 per cent or less of their sales in other type businesses comprised men's wear, records, sporting goods and toys, camera, and pet supplies.

Expansion Plans

Leased department organization

The plans of leased department organizations to expand into addi­ tional leased departments and into other fields of business are examined in Table 9.7. Expansion into additional leased departments was indicated by 71.2 per cent of all lessee organizations, 27.6 per cent had no 174

TABLE 9.6-Sales by Other Businesses: Number of Leased Department Organizations that Operate Other Businesses Reporting the Proportion of Their Dollar Sales Accounted for by the Other Businesses

Total Total Proportion of Dollar Sales Merchandise Line Org. Reporting in Other Businesses Org. Median Mean Range

Women's 8c Children's 29 14 47.5 43.7 10.0/75.0 Men's Wear 22 9 20.0 39.0 30.0/80.0 Domestics & Linens 21 10 42.5 42.8 18.0/70.0 Shoes 29 20 47.5 44.4 3.0/95.0 Health & Beauty 30 20 51.0 55.2 20.0/95.0 Pharmacy 12 6 47.5 48.3 10.0/95.0 Records 16 10 35.0 38.2 5.0/80.0 Sporting Gds. 8c Toys 22 12 31.5 37.2 5.0/85.0 Bake ry 5 4 75.0 76.2 66.0/90.0 Hard Lines 40 16 50.0 48.2 3.5/95.0 Auto Accessories 19 10 45.0 46.0 10.0/80.0 Furn. 8c Fir. Covrg. 24 15 65.0 57.3 6.4/95.0 Appliances 13 8 60.0 62.5 10.0/95.0 Jewelry 26 11 50.0 54.6 10.0/90.0 Camera 14 9 33.3 40.3 5.0/99.0 Pets 5 3 30.0 36.5 29.5/50.0 Misc. 4 3 75.0 75.6 67.0/85.0 All Mdse. Lines 331 180 50.0 48.3 20.0/99.0 175

TABLE 9.7-Expansion: Number and Per Cent of Leased Department Organizations That Plan to Expand Into Additional Leased Departments in Discount Stores, and in Other Fields of Business, by Merchandise Line, 1965

Total Total Expansion into Additional Expansion in Other Merchandise Line Org. Reporting Leased Departments Fields of Business Org. Yes No Indefinite Total Yes No Reporting Org. Number of Organizations Reporting Women's & Children's 29 29 21 8 0 29 20 9 Men's Wear 22 22 19 3 0 22 8 14 Domestics & Linens 21 21 14 6 1 21 8 13 Shoes 29 29 23 6 0 29 20 9 Health & Beauty 30 29 21 8 0 29 21 8 Pharmacy 12 11 10 1 0 11 5 6 Records 16 16 11 5 0 16 13 3 Sporting Gds. & Toys 22 21 15 5 1 22 13 9 Bakery 5 5 2 3 0 5 3 2 Hard Lines 40 40 31 9 0 39 22 17 Auto Accessories 19 18 13 5 0 18 15 3 Furn. & Fir. Covrg. 24 24 12 12 0 23 14 9 Appliances 13 13 8 4 1 12 9 3 Jewelry 25 25 16 8 1 24 13 11 Camera 14 14 9 5 0 13 7 6 Pets 5 5 5 0 0 5 1 4 Misc. 4 4 2 2 0 4 2 2 All Mdse. Lines 331 326 232 90 4 322 194 128 Per Cent of Organizations Reporting Women's fc Children's 100.0 72.4 27.6 0.0 100.0 69.0 31.0 Men's Wear 100.0 86.4 13.6 0.0 100.0 36.4 63.6 Domestics & Linens 100.0 66.7 28.5 4.8 100.0 38.1 61.9 Shoes 100.0 79.3 20.7 0.0 100.0 69.0 31.0 Health & Beauty 100.0 72.4 27.6 0.0 100.0 72.4 27.6 Pharmacy 100.0 90.9 9.1 0.0 100.0 45.5 54.5 Records 100.0 68.8 31.2 0.0 100.0 81.3 18.7 Sporting Gds. & Toys 100.0 71.4 23.8 4.8 100.0 59.1 40.9 Bakery 100.0 40.0 60.0 0.0 100.0 60.0 40.0 Hard Lines 100.0 77.5 22.5 0.0 100.0 56.4 43.6 Auto Accessories 100.0 72.2 27.8 0.0 100.0 83.3 16.7 Furn. h Fir. Covrg. 100.0 50.0 50.0 0.0 100.0 60.9 39.1 Appliances 100.0 61.5 30.8 7.7 100.0 75.0 25.0 Jewelry 100.0 64.0 32.0 4.0 100.0 54.2 45.8 Camera 100.0 64.3 35.7 0.0 100.0 53.8 46.2 Pets 100.0 100.0 0.0 0.0 100.0 20.0 80.0 Misc. 100.0 50.0 50.0 0.0 100.0 50.0 50.0 All Mdse. Lines 100,0 71.2 27.6 1.2 100.0 60.2 39.8 176 expansion plans, and 1.2 per cent were indefinite. Merchandise lines which had greater than average plans for expansion were found in women's and children's, men's wear, shoes, health and beauty aids, pharmacy, sporting goods and toys, hard lines, auto accessories, and pet supplies.

Lines that had a greater than average number of organizations with no plans for expansion included domestics and linens, records, bakery, furniture and floor covering, appliances, jewelry, and camera.

After the lessees were asked about their plans to expand their leased department operation in discount stores, they were queried as to the nature of this planned expansion. The comments that follow were summarized directly from the returned questionnaires.

A large number of firms indicated they would expand within their present discount store chains. A much lesser number stated they would expand with other landlords. A few organizations planned to expand only with the major chains, but one operator stated he would expand only with independent stores.

Numerous firms desired to grow within their present locale.

Others were willing to move into regional expansions, and a few businesses just wanted to go into any areas in which they had not previously been.

In order to achieve growth several firms planned to merge with other lessees. Some organizations were considering the diversification of their merchandise line either through merger or internal expansion. A single operator mentioned he was going to take over several departments not presently leased in the stores in which he had leased departments.

The number of new units each leased department business planned to open 177 within the next year ranged from one to twelve with two to three being mentioned most frequently.

Other businesses

There was almost a 60-40 split between the percentage of leased department organizations desiring to expand in fields other than leased departments in discount stores and those not desiring to expand in that manner. Since Table 9.4 showed that 73.2 per cent of the lessee organi­ zations were already in other operations, in many cases the expansion in other areas by lessees just meant increasing the role of the present non-leased department business. Women's and children's, shoes, health and beauty aids, records, auto accessories, and appliances were all lines where 65 per cent or more of the organizations desired greater expansion into other business fields. Lines where 45 per cent or more of the organizations did not plan any expansion into other types of businesses embraced men's wear, domestics and linens, pharmacy, jewelry, camera, and pet supplies.

Leased department operators gave a myriad of answers to the question asking them to describe the nature of their planned expansion in fields other than leased departments in discount stores. Many leased depart­ ment organizations planned to expand the other type of businesses in which they were currently engaged. The greatest expansion would be in

conventional stores where a firm could develop its own store image. Ex­ pansion in the wholesaling segment of business was going to be practiced

by a sizable group of lessees. Other leased department firms were seek­

ing growth by entering conventional department stores with leased units. 178

Several organizations citing the advantages of private ownership were going to franchise single line stores. Smaller discount specialty stores and even complete discount stores figured into the expansion plans of some leased department operators. Rack merchandising had growth possi­ bilities for a few, and others were going to expand their manufacturing facilities. Real estate operations drew the attention of several lessees as an outlet for growth.

Some of the other types of activities or fields of business in which one or more firms desired to expand were: cooperative buying organizations, any type of business other than discount houses, conven­ tional department stores, shopping center developer, junior department stores, related promotions such as giveaways with national companies, and consultant for stores operating own departments.

Table 9.8 associates the expansion plans of the leased department firms with the number of departments operated by the lessee organiza­ tions in selected merchandise lines. It appeared that organizations of all sizes— both small and large— were willing to expand in other fields of business. The operators of only one department expressed the least desire to expand into additional leased departments while the larger organizations desired such an expansion. Possibly the operator of the

single department was disillusioned with his enterprise and he sought opportunities in other fields. On the other hand the larger merchants may have desired to benefit from the greater economies of chain organiza­ tion through continued expansion of their leased departments. Another reason for expanding the leased departments would be if the lessee had ainciiso is onoioo oo oooooooo oooo h o n h o o o is m t'O n n a 0 i i i i i i I I I 3 ft Cl J) 1< « 0 II ft 0 CO tl 0 0 I 0 h O d d O O O O H o o o o i I I 0) o ci ci o o o i n ci is o n n i i o ■o tSHd o co h 1 11 o o n 110 n 0 ( 1 1 it o rf 1 Ifi 1 0 0 H H H H H 3 p h ci V ft 3 o t« n o o oo o o h o o o o o oooo a ooosiooo ii n o i* c* 6 3 I I i i i i i i i A h ft ft is n h o i i n 0 rl Is 0 0 I 0 01 Oft-OOOCJ 0 0 0 0 I i o C (> f- 0 0 0 I 10 n o to is i i i a 3 3 in 'i # c o c> in » m in o IS o oo n is n o is IS IS 0 IS h m ii >n o n in n is is is in x - fi 3 rl H rl rl H w in P 3 n 0 fi • P 0 t) P a ti 0 000000 0 OOOOO p a o C 3 h 3 ooooo 0 OOOOO 00 00000000 oooo I I I rl IS * 2 0 0 I I I I I o o o o o I 0 0 0 0 0 ! 0 0 00000000 OOOOI I 0 0 0 0 0 0 0 I OOOOOI I 0 A m 3) 0 I 0 0 0 0 0 0 0 OOOOO 0 3 3 rl ci p a ti ooooo 0 O O O O O 0 0 00000000 OOOO 0 rl H H H H rl a 0 ft 3 fi 3 rl rl H rl H H H H H H H H H H H H H H H r ! rt rt H r4 rl rl rl rl H rl ft * p 0 P P ft ih in 3 0 P ft 0 fi e H Ci 3 0 3 0 n u n ft ft ' fisinnnooi1 *i t p X 3 0 M 6M>(|0 0 # N N M N O m ri»t*iniinHffl ooriciooon maioiociHoai 01 rl (t ft « ft £1 h Cl N n in tl N fi rl rl 0 ft fi 3 rl It P p ci a p 3 tl Ci fi Nfi 0 p O O O O O 0 O O O O O 0 0 00000000 0000 o 0 0 0 0 0 0 0 o o o o o o . . . . i i i ...... I • ..... ii ■ rl +1 u ft .... II • ...... I • • SOU 3 3 0 0 0 0 0 I 10 0 0 0 0 0 I 0 0 0 0 0 0 0 0 0 0 00001 I 10 0 0 0 0 0 0 I 0 0 0 0 0 0 1 II1 3 fi 3 V N a fi ti 3 fi Cl n a 3 H 0 ft A tl c. o honooo n 0 |r 0 0 0 0 ft fi s H H I- IS 0 0 IS o o is o o ois oonoooot> tsooo .... II • fi 3 ft 3 0 ..... II • I III...... I ' in is o o o i i ci t) tl S 3ft N IS 00 0 0 I I ft o in oo in o i 0 d 001100000 noooiiio loonooo I N EDO 0 P in n n in ci 0 N (1 Cl N o in h ci is i in in is ci ci n 01 t» h n n ft tl P fi rl rl Cl Ih t) P 3 3 0 3 p a ftp in tj p a»ioo i 00100 Oil oo t> oooo n 1000 o n o oi o o o m ooooo 3 35 3 •0 Cl3 i i I I I I i I I C 3 < 3 ei n H o o i i oi o in h in o i 0 oi oomooooo IS 0 0 0 I I 10 n o oo o o o i t» in n o o o i i 1 fi ci oo is o o IS ft J ftft i* oo Is o in c- M-l<0 0 Is n oo o o o o t» n id o in in oi oo t* o m o ft V fi 0 3 H H H H rl rl rl H rl rl 3 3 3 P P 3 0 fi fi SOP p ' P 3 3 a fi O O O O O 0 A rl ft fi Ci 3 o o o o o o OOOOO 00 00000000 oooo 0 0 0 0 0 0 0 0 I .....II • fi 0 ii ■ I III' Q 0 0 0 0 0 0 0 1 10 TJ p 0 0 0 0 0 110 O O O O O 1 0 0 0 0 0 0 0 0 0 0 O O O O I I 1 0 0 0 0 0 0 0 I 0 3 h a ti O O O O O 0 0 0 0 0 0 0 0 0 0 o o o o o 0 0 0 0 0 0 0 o o o o o o 3 fi tl OOOOO 0 H rl rl rl rl H P ft 3 fi 3 fi 3 HHHHH H rl rl rl rl rl rl rl rlHHrlHrlrlH rl rl rl rl H rl rl rl rl rl rl rl 3 P 3 p p ft 3 3 3 ft 0 p rl P Ci X b h 3 fi 3 ft 0 0! 3 ft ft • B 0 3 0 M d M i o o # ci ci ft i 1 ci o ci 3i h oo i» in i n h oi h o h ti o o o i ci o ji o ci h o o oo is in ci n o o in ft P 01 rl 01 (1 rl rl Cl H H 1 Cl 0 Ci 3 « ft 3 P P ft fi fi 3 3 p n n n n o o o o o siiihoobiocio ihbcinooiiiio oot»cimoooo in o in in o in o o ® ® ^ ® ®, tQ E a h fi 0 P h 3 3 ci ci ci ci 10 o o o is n i co id o is o nc*i| crciocio in h i oo o o o o t« m t« ci o ci o o ® 2 H [1 0 0 n ■fi Ci 0 ft 0 Cl N Cl Cl 0 NNHHH 0 1 1 0 P) N N H rl Ii 3 3 H H H 3 3ft ft 3 3 3 Q rl " J 3 • fi ft P 0 t'C'f'C'ClOOO Cl 01 ft 1 Cl 0 Cl ® H OO ft in I1 CO h OI h O H N O O O I <1 0 <51 in Cl h 0 0 00 IS ID CO CO 0 0 is OHO 0 ft CO rl Cl Cl rl rl Cl H H « d P 3 H 3 fi Ci fi 0 3 3 P fi ftp B X P 3 U H 0 J5 Cl 1 tl c< > ® < ft 13 0 ■ fi 3 H t 0 9) 0 p • tl a p s ten 00 OO . a Ci W fi Ct Ci Ci Ci h 3 0 Ci o 0 o 0 H 0 0 m 0 A ,H a 0 Ii 0 o o o o ti fi ft P o in o o o m o o o o in o o o o o o o o o o ft Tf rl Dl 10 rl > tl ti 1 rl ci in rt 1) 1 H Cfl U5 rl ti a 1 rl Cl 0 rl 0 N >. 0 N H 3 3 s « 0 N ■jJl N ft ft Tl * O O O O O P ooooo OOOOO ft fi OOOOO n Ci OOOOO rl ft OOOOO rt+j+jp+J4J,8 w H +1 *1 P +1 +1 # to fiHtDHIIIICIII r n n n m n . H +J +J +J +J U d3 H ft P P ft ft jj in h ■o tl a Cl 0 H ID rl rl rl 0| lO H IS H H H $ NWHISHrlrllt CIOHIDrlHHCl CIlOrllDrlrlrl it ClinnlDHHrtg rl Cl 0 0 rl h ci in o h o ri ci in o h 6 H Cl W 0 rl 3 rl Cl 0 0 rl 3 H Cl 0 0 H tl rl < H < 05 H < ft rl < S rl < 1 180

an agreement with a discount store chain to enter all the new units that

the discount store group built.

Future use of leased departments

The lessee organizations report on the predicted future use of

leased departments in discount stores in Table 9.9. From the personal

interviews with the leased department operators there was some indica­

tion that when responding to the question about the future use of leased departments in discount stores, the lessees were implying what they be­

lieved would be the condition in their particular merchandise line. The

following discussion should be understood with the above comment in mind.

Overall 25.1 per cent of the leased department organizations

forecasted increased use of the lessee operation. About the same accept­ ance in the future as at present for the lessee in discount stores was prognosticated by 33.8 per cent of the leased department operators. A predicted decrease in the use of the lessee in discount stores was manifested by 41.1 per cent of the leased department organizations.

Merchants in the domestics and linens, pharmacy, bakery, auto

accessories, and jewelry lines indicated that 30 per cent or more of

their organizations thought the use of leased departments in discount

stores would increase. Over 35 per cent of the organizations in health

and beauty aids, records, sporting goods and toys, hard lines, furniture

and floor covering, appliances, and cameras felt the future use of the

leased department would remain about the same as the present use. De­

creased use of the leased department in discount stores was predicted

by over 45 per cent of the firms in the women's and children's, men's 181

TABLE 9.9-Future Use: Number and Per Cent of Leased Department Organizations Reporting on the Predicted Future Use of Leased Departments in Discount Stores, by Merchandise Line, 1965

Total Total Increased About Decreased Merchandise Line Org. Reporting Use Same Use Org. Use Number of Organizations Reporting Women's & Children's 29 28 4 9 15 Men’s Wear 22 22 5 7 10 Domestics & Linens 21 21 7 5 9 Shoes 29 28 4 9 15 Health & Beauty 30 28 4 11 13 Pharmacy 12 11 5 2 4 Records 16 16 4 9 3 Sporting Gds. & Toys 22 22 5 10 7 Bakery 5 5 2 0 3 Hard Lines 40 36 6 13 17 Auto Accessories 19 19 10 4 5 Furn. & Fir. Covrg. 24 23 6 9 8 Appliances 13 13 2 5 6 Jewelry 26 24 11 6 7 Camera 14 14 4 7 3 Pets 5 5 1 1 3 Misc. 4 4 0 1 3 All Mdse. Lines 331 319 80 108 131 Per Cent of Organizations Reporting Women's & Children's 100.0 14.3 32.1 53.6 Men's Wear 100.0 22.7 31.8 45.5 Domestics & Linens 100.0 33.3 23.8 42.9 Shoes 100.0 14.3 32.1 53.6 Health & Beauty 100.0 14.3 39.3 46.4 Pharmacy 100.0 45.5 18.1 36.4 Records 100.0 25.0 56.3 18.7 Sporting Gds. & Toys 100.0 22.7 45.5 31.8 Bakery 100.0 40.0 0.0 60.0 Hard Lines 100.0 16.7 36.1 47.2 Auto Accessories 100.0 52.6 21.1 26.3 Furn. & Fir. Covrg. 100.0 26.1 39.1 34.8 Appliances 100.0 15.4 38.4 46.2 Jewelry 100.0 45.8 25.0 29.2 Camera 100.0 28.6 50.0 21.4 Pets 100.0 20.0 20.0 60.0 Misc. 100.0 0.0 25.0 75.0 All Mdse. Lines 100.0 25.1 33.8 41.1 182 wear, shoes, health and beauty aids, bakery, hard lines, appliances, and pet supplies.

Table A.6, Appendix A, associates the replies on the predicted future use of leased departments in discount stores with the number of departments operated by the leased department organizations in selected merchandise lines. An examination of the table reveals that the operators of a single leased department were the least inclined to predict any increased use of leased departments in discount stores. For the other organizations the size of the leased department operation was not a significant factor in determining how the lessee felt about the future use of leased departments.

The respondents were asked to explain what they thought would be the role of the leased department in discount stores in the future*

The following explanations given by the leased department operators could be ranked on a scale beginning with "increased" and ending with

"decreased" use of lessees. One group of leased department firms be­ lieved an increase in the use of lessees would occur since the organiza­ tions are experts in their fields.

A larger number of leased department businesses believed that specialized merchandise lines such as shoes, millinery, drugs, records, and jewelry would continue to have leased department organizations operating in discount stores keeping the role of the lessee about the same as it was. Some operators felt that the leased department firms that were taken over by the discount stores would be balanced by the use of lessees in new stores. A few leased department organizations 183 declared that those discount store operators who decided on a take-over of the leased departments have made their fait accompli. Another small segment of leased department businesses concluded that although the trend is for the lessors to learn all phases of the business and to take-over the leased department, in time most specialized departments will revert back to the lessees.

The greatest mass of leased department organizations indicated the discount store take-over of the lessee firms would reduce the role of the leased department in discount stores. Another large category of leased department operators pointed out that the newer stores in the major chains do not extensively utilize leased departments. Still others mentioned the lessors were going vertical and only the large, well financed discount stores would survive. Perhaps, at the very end of the scale would be the lessees who explained that the stronger financial strength and the increased know-how of the discount store entrepreneurs precluded the leased departments from playing any further role in the development of discount stores.

Various other explanations of respondents relating to the future role of the leased departments in discount stores included the following: some departments must be operated as subsidized departments of the store and used as a traffic draw; growth of discount stores to chains will call for an increase in the use of lessees; there is a lack of operators to go into the stores; competitive pricing is forcing lower rental leases and raising leased department costs; future growth will be stagnant due to competition; smaller lessees will fold or merge with the bigger and 184 better operators; certain departments are too technical and too regional to be operated on other than a local scale; difficult relationships between the lessee and his landlord; leased operation must offer better service through purchasing power and competence in its line; difficult for leased operator to get good locations; and average sales per unit will decline making leased departments more difficult to operate.

Growth From 1958 to 1965

The growth of the leased department organizations in selected years from 1958 to 1965 is chronicled in Table 9.10 and in the follow­ ing tables in Appendix A: Table A.7, Table A.8, Table A.9, and Table

A.10. The respondents were asked to take their estimated leased depart­ ment sales in discount stores in 1965 as 100 per cent and then state what their relative sales were in 1958, 1960, 1963, and 1964, respectively.

Both the sales growth in individual departments and any change in the number of departments operated would have been reflected in the relative

sales figure for each year.

Relative sales in 1958

For all merchandise lines 1958 sales of the leased department organizations were a median 40 per cent and a mean 48.7 per cent of the

1965 sales. In 7.5 per cent of the leased department businesses the

sales in 1958 were actually equal to or greater than in 1965. Total

retail sales in the United States for 1958 compared to the estimated 185

TABLE 9.10-Sales Growth: Leased Department Organizations Classified by Size of the Index of 1958, 1960, 1963, and 1964 Sales to 1965 Sales, by Merchandise Line, 1965a

Merchandise Line Total Median Index of Each Year's Sales Org. to 1965 Sales (1965=100)a 1958 1960 1963 1964

Women's & Children's 29 45 50 71 83 Men's Wear 22 29 50 76 90 Domestics & Linens 21 20 45 74 83 Shoes 29 35 40 70 90 Health & Beauty 30 68 50 70 90 Pharmacy 12 0 40 55 90 Records 16 38 50 60 80 Sporting Gds. & Toys 22 47 72 79 88 Bakery 5 85 90 87 94 Hard Lines 40 40 60 72 85 Auto Accessories 19 10 45 70 85 Furniture & Fir. Covrg. 24 90 80 75 88 Appliances 13 75 57 75 85 Jewelry 26 40 50 75 90 Camera 14 75 80 70 88 Pets 5 33 43 68 85 Misc. 4 0 115 101 107 All Mdse. Lines 331 40 50 72 85 Total Number of Reporting Organizations Women's & Children's 29 10 14 26 26 Men's Wear 22 10 14 17 17 Domestics & Linens 21 6 8 13 15 Shoes 29 8 14 24 25 Health & Beauty 30 4 11 21 22 Pharmacy 12 0 3 8 8 Records 16 2 5 11 11 Sporting Gds. & Toys 22 6 10 16 16 Bakery 5 1 1 4 4 Hard Lines 40 13 23 32 33 Auto Accessories 19 7 10 15 15 Furniture & Fir. Covrg. 24 3 7 19 18 Appliances 13 1 6 11 12 Jewelry 26 4 11 20 20 Camera 14 4 6 12 12 Pets 5 1 2 4 4 Misc. 4 0 2 4 4 All Mdse. Lines 331 80 147 257 262

aBy placing estimated leased department sales in discount stores for 1965 equivalent to 100 per cent, the relative sales for each of the other years established the index. 188 o 1965 retail sales was 70.3 per cent.

Only 80 leased department organizations made a response on 1958 relative sales. This small number of replies contrasted to the total response for the survey was indicative of the nonexistence in 1958 of many of the lessee organizations.

Relative sales in 1960

For all lines the median relative 1960 sales was 50 per cent of the 1965 sales while the mean was 57.9 per cent. Sales in 1960 were as high or higher than in 1965 for 9.5 per cent of the leased department organizations. Total retail sales in the United States for 1960 rela­ tive to 1965 was 77.3 per cent.3

There were 147 lessee firms that responded with 1960 sales figures.

Relative sales in 1963

Tne relative sales of 1963 compared to 1965 for leased department organizations was a median 72 per cent and a mean 75.6 per cent. The

1963 sales was as great or greater than 1965 sales for 9.7 per cent of the organizations. Total retail sales in 1963 was 86.9 per cent of the

^Source of 1958 retail sales for the United States was: United States Census of Business, Retail Trade-Summary Statistics, Volume 1. Source of 1965 retail sales for the United States was: "1965-Another Banner Year in Sales for Discounters," Discounters Digest (New York: Dun & Bradstreet, Incorporated, April 26, 1966), p. 1.

^Source of 1960 retail sales for the United States was: U. S. Bureau of the Census^ Statistical Abstract of the United States: 1965. (86 edition.) Washington, D.C., 1965, p. 824, Source of 1965 retail sales for the United States the same as in Footnote 2. 187 4 estimated total retail sales in 1865.

Responding to this inquiry on 1963 sales were 257 leased depart­ ment businesses.

Relative sales in 1964

For all merchandise lines a comparison of the relative 1964

sales to the 1965 sales showed that 1964 volume was a median 85 per cent and a mean 88.1 per cent of 1965 volume. Relating total retail sales

for 1964 to 1965 disclosed the 1964 sales to be 92.1 per cent of the

1965 volume.

A total of 262 lessee responses were tabulated in determining

the relative 1964 sales.

The sales for 1964 were higher than for 1965 in 11.8 per cent of the cases. Numerous factors can be cited to show why some lessees experienced a decline in sales from one period to another. Since the early 1960's, trade papers began reporting the take-over of leased 0 departments by the discount stores. Between 1962 and 1964 a financial

4 Source of 1963 retail sales for the United States was: Economic Indicators (Washington, D.C.: United States Department of Commerce, January 1964), p. 21. Source of 1965 retail sales for the United States was the same as in Footnote 2.

^Source of both 1964 and 1965 retail sales for the United States was: "1965-Another Banner Year in Sales for Discounters," Discounters Digest (New York: Dun & Bradstreet, Incorporated, April 26, 1966), p. 1.

®"What is the Leased Department Takeover Trend?," Discounters Digest, (New York: Dun & Bradstreet, Incorporated, October 26, 1964), p. 1. 188

shakeout of both discount stores and organizations operating leased departments occurred.

Those leased department firms that failed prior to 1965 would not have participated in this survey; so their effect on the results would have been negligible. However, possibly some of the respondents had leased departments in the discount stores that failed.

This loss of departments and the consequent loss of sales would have been reflected in the survey. CHAPTER X

ATTITUDES OF THE LEASED DEPARTMENT OPERATORS

IN DISCOUNT STORES TOWARDS LEASING

The leased department organizations should establish some criteria for evaluating the discount stores in which they consider locating. This chapter examines the factors which lessees investigated before determin­ ing in which discount store to locate. There are advantages and disad­ vantages to a leased department operation as contrasted with operating complete stores. The pros and cons of operating leased departments are identified in the latter part of the chapter.

Factors to Investigate

In order to ascertain the most important criteria which lessee organizations should examine before determining in which discount store to locate, the leased department operators were asked to evaluate a list of factors. Table 10.1 displays the factors ranked first in importance by the lessees. A weighted ranking of the factors is evidenced in Table

10.2. The weighted ranking was achieved by asking the respondents to

rank the factors one, two, and three in order of importance. Then, the

rankings were weighted three, two, and one, respectively. Derived from

the weighted suras was the weighted ranking showing the importance of each

factor in per cent terms to the total weighted sum for each merchandise

line. The following tabulation shows the weighted rankings of the

189 190 various factors that the lessees should investigate:

Factor Score Rank

(1) Serving same market 12.9 3 (2) Good management 25.5 1 (3) Adequacy of capital 13.6 2 (4) Record of operations 7.1 7 (5) Favorable contract terms 9.7 4 (6) Compatibility of personnel 1.3 11 (7) Image of store 6.9 8 (8) Operation of chain 2.3 10 (9) Operate own departments 8.2 5 (10) Growth potential for store 7.2 6 (11) Growth potential for chain 4.0 9 (12) Store traffic 0.3 13 (13) Lessee profit potential 0.0 — (14) Location in store 0.0 — (15) Wholly owned subsidiary 0.0 — (16) Other 1.0 12

Factors ranked first

A hypothesis of the study is: the factor that leased department organizations believe most important to investigate before determining in which discount store to operate is the "caliber of store management available". Table 10.1 reveals that the greatest proportion of leased department organizations listed "good store management" as the most important factor. Almost 30 per cent listed "good management" and another 15 per cent indicated the "adequacy of the store's capital and facilities" as being most important. These two factors are very com­ patible. Another factor closely allied to these two was the "past record of operations and earnings". Nearly 8 per cent of the respon­ dents rated it the prime factor to investigate.

"is the store serving the same market you can serve" was a factor ranked first in Importance by 17 per cent of the lessee firms. A factor TABLE 10.1-Factors to Investigate: Number of Leased Department Organizations Ranking in Order of First Preference the Factors Wnich Leased Department Operators Consider to be the Most Important to Investigate Before Determining in Which Discount Store to Locate, by Merchandise Line, 1965

Total Total la 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Merchandise Line Org. Reporting Org. Number of Organizations

Women's & Children's 29 27 8 5 1 1 4 0 2 1 3 2 0 0 0 0 0 Men's Wear 22 22 2 9 6 0 0 0 0 0 4 1 0 0 0 0 0 Domestics Si Linens 21 20 3 8 3 1 1 0 1 1 1 0 0 1 0 0 0 Shoes 29 29 6 10 3 1 1 1 1 1 1 2 1 0 0 0 1 Health Si Beauty 30 27 3 10 3 0 1 0 3 1 3 2 1 0 0 0 0 Pharmacy 12 11 4 2 2 0 0 0 0 1 1 0 1 0 0 0 0 Records 16 15 2 4 2 1 3 0 1 0 0 1 0 1 0 0 0 Sporting Gds. Si Toys 22 21 4 7 3 3 2 0 1 0 0 1 0 0 0 0 0 Bakery 5 5 1 0 1 0 0 0 1 0 0 1 0 0 0 1 0 Hard Lines 40 35 3 8 6 4 1 0 0 2 6 5 0 0 0 0 0 Auto Accessories 19 19 3 6 5 2 0 0 0 0 0 2 1 0 0 0 0 Furn, Si Fir. Covrg. 24 24 8 6 1 5 1 0 0 0 2 0 0 0 1 0 0 Appliances 13 13 1 6 1 2 2 0 1 0 0 0 0 0 0 0 0 Jewelry 26 25 3 9 6 4 0 0 1 1 1 0 0 0 0 0 0 Camera 14 14 2 2 2 1 1 0 1 0 0 4 1 0 0 0 0 Pets 5 5 1 1 1 0 1 0 0 0 0 0 1 0 0 0 0 Misc. 4 4 0 1 1 0 1 0 0 0 0 0 1 0 0 0 0 Total all Mdse. Lines 331 316 54 94 47 25 19 1 13 8 22 21 7 2 1 1 1 Per Cent of Total Reporting Organiza­ tions Listing Each Factor 100 17.2 29.8 14.9 7.9 6.0 0.3 4.1 2.5 7.0 6.6 2.2 0.6 0.3 0.3 0.3

aFactors listed on following page. Factors to investigate

1. Is the store serving same market you serve.

2. Does store have good management.

3. Adequacy of store's capital and facilities.

4. Past record of operations and earnings.

5. Favorable contract terms.

6. Compatibility of store personnel with lessee personnel

7. Does store create the image your department desires.

8. Does lessor operate a chain rather than just one store

9. Does lessor operate his own departments in the store.

10. Future growth potential for the store.

11. Future growth potential for the chain.

12. Does store generate traffic.

13. Can lessee make a profit.

14. Location of department in store.

15. Wholly owned subsidiary.

16. Other. 193 considered most significant by 7 per cent of the leased department businesses was the "presence of the lessor's own departments in the discount store". The "future growth potential" of the store was alluded to by 6.6 per cent of the operators as being the most important consider­ ation. "Favorable contract terms" were posed as the item of prime im­ portance to investigate by 6 per cent of the lessee businesses. Other factors receiving over 1 per cent of the lessee responses included:

"does the store create the image your department desires," "does the lessor operate a chain rather than just one store," and the "future growth potential for the chain".

Weighted ranking

The weighted ranking for all factors in Table 10.2 (and the pre­ ceding tabulation) revealed the overall importance of several of the factors that received only cursory consideration in Table 10.1. Gen­ erally, the weighted ranking for all factors did not greatly affect the order of factor importance indicated in Table 10.1.

"Does the store have good management" was the most important factor with a weighted ranking of 25.5 per cent. Next in importance was "ade­ quacy of the store's capital and facilities" followed by "whether the

store is serving the same market you serve", accounting for a weighted

13.6 and 12.9 per cent, respectively. "Favorable contract terms,"

"does the lessor operate his own departments in the store", "future growth potential for the chain", "past record of operations and earnings",

and "does the store create the image your department desires” were the weighted factors that followed in order of importance. 194

TABLE 10.2-Factors to Investigate: A Weighted Ranking of the Factors Which Leased Department Operators Considered to be the Most Important to Investigate Before Determining in Which Discount Store to Operate, by Merchandise Line, 1965

Total Total 1» 2 3 4 5 6 7 8 9 10 11 12 Merchandise Line Org. Reporting Org, No. Per Cent Per Cent of Organizations

Women's & Children's 29 27 100.0 17.9 21.0 13.0 5.6 11.1 0.0 6.8 1.8 12.3 5.6 4.9 0.0 0.0 Men's Wear 22 22 100.0 11.4 32.6 20.4 0.8 4.5 0.0 9.0 0.0 13.7 3.8 3.8 0,0 0.0 Domestics & Linens 21 20 100.0 10.8 30.0 12.5 6.7 11.7 4.2 2.5 3.3 10.8 3.3 1.7 2.5 0.0 Shoes 29 29 100.0 18,7 28.1 11.7 2.9 3.5 1.8 5.3 2.3 11.1 5.9 6.4 0.0 2.3 Health & Beauty 30 27 100.0 9.2 28.4 12.3 3.7 9.2 1.3 12.3 1.9 9.9 8.0 2.5 0.0 1.3 Pharmacy 12 11 100.0 21.2 18.1 19.7 0.0 9.1 0.0 0.0 4.5 12.2 3.0 12.2 0.0 0.0 Records 16 15 100.0 16.7 16.7 12.2 3,3 20.0 3.3 7.8 0.0 5.6 7.8 2.2 3.3 1.1 Sporting Gds. St Toys 22 21 100.0 10.3 27.8 15.1 10.3 15.9 0.0 8.6 2.4 2.4 5.6 1.6 0.0 0.0 Bakery 5 5 100.0 16.7 10.0 13.2 6,7 0.0 6.7 16.7 0.0 0.0 20.0 0.0 0.0 10.0 Hard Lines 40 35 100.0 9.8 25,8 14.1 9,4 6.6 0.0 5.2 3.8 11.3 10.8 3.2 0.0 0.0 Auto Accessories 19 19 100.0 10.5 30.7 18.4 11.4 5.3 0.0 5.3 1.8 3.5 7.9 4.4 0.0 0.8 Furn. & Fir. Covrg, 24 24 100.0 19.6 20.3 3.5 11.2 14.7 1.4 7.0 2.1 6.3 9.7 0.7 0.0 3.5 Appliances 13 13 100.0 5.2 29.9 9.1 10.4 15.6 5.2 14.3 1.3 1.3 3.8 1.3 0.0 2.6 Jewelry 26 25 100.0 8.7 26.0 18.7 12.7 4.7 2.0 5.3 4.7 10.0 6.6 0.6 0.0 0.0 Camera 14 14 100.0 12.6 22.8 8.9 10.1 11.4 0.0 6.4 2.5 0.0 16.4 8.9 0.0 0.0 Pets 5 5 100.0 10.3 17.3 10.3 10.3 17.3 0.0 0.0 0.0 0.0 0.0 27.6 0.0 6.9 Misc. 4 4 100.0 8.3 25.0 25.0 0.0 25.0 0.0 4.2 0.0 0.0 0.0 12.5 0.0 0.0 All Mdse. Lines 331 316 100.0 12.9 25.5 13.6 7.1 9.7 1.3 6.9 2.3 8.2 7.2 4.0 0.3 1.0

Respondents were asked to rank 1, 2, and 3 the three factors they believed to be the most important to investigate. The rankings were then weighted 3, 2, and 1, respectively, and the percentages in the table were derived from the weighted sums for each merchandise line.

^Factors listed on following page. Factors to Investigate

1. Is the store serving same market you serve.

2. Does store have good management.

3. Adequacy of store's capital and facilities.

4. Past record of operations and earnings.

5. Favorable contract terms.

6. Compatibility of store personnel with lessee personnel

7. Does store create the image your department desires.

8. Does lessor operate a chain rather than just one store

9. Does lessor operate his own departments in the store.

10. Future growth potential for the store.

11. Future growth potential for the chain.

12. Does store generate traffic.

13. Can lessee make a profit.

14. Location of department in store.

15. Wholly owned subsidiary.

16. Other. 196

"Good management" and the "adequacy of capital requirements" which stems from enlightened management were the most important factors the leased department organizations believed should be investigated before determining in which discount store to locate. In the personal interviews with the leased department operators several individuals stated all the listed factors were equally important considerations when establishing a leased department.

Advantages of Operating Leased Departments

Table 10.3 shows the factors ranked first by the leased depart­ ment organizations as being the most important advantages of operating leased departments in discount stores versus owning and operating stores of their own. Table 10.4 is a weighted ranking of these most important advantages. The weighted ranking was determined in the same manner as in Table 10.2. The following tabulation shows the weighted rankings of the advantages of leasing departments:

Factor Score Rank

(1) Greater Customer Traffic 42.6 1 (2) Ease of Pulling Out 7.6 5 (3) Economies of Scale on Expenses 8.5 4 (4) More Time for Merchandising 5.5 7 (5) Range of Customer Services 2.3 9 (6) Prestige of store 7.4 6 (7) Smaller Investment 12.4 2 (8) Immediate Return on Investment 10.0 3 (9) Lower Payroll Expense 3.4 8 (10) Good Locations 0.0 (11) Other 0.3 10 197

TABLE 10.3-Advantages of Leased Departments: Number of Leased Department Organizations Ranking in Order of First Preference the Factors Which Leased Department Operators Considered to be the Most Important Advantages of Operating Leased Departments in Discount Stores Versus Owning and Operating Stores of Their Own, by Merchandise Line, 1965

Total Total la 2 3 4 5 6 7 8 9 Merchandise Line Org. Reporting Org. Number of Organizations

Women's & Children's 29 27 16 2 0 1 0 2 3 2 1 Men's Wear 22 22 15 1 1 1 0 0 2 2 0 Domestics & Linens 21 21 16 3 0 0 0 1 1 0 0 Shoes 29 29 25 1 0 0 0 0 2 1 0 Health & Beauty 30 26 12 4 1 0 2 1 1 4 1 Pharmacy 12 11 9 0 0 0 0 0 2 0 0 Records 16 16 14 0 0 0 0 0 0 1 1 Sporting Gds. & Toys 22 22 18 0 0 0 0 0 1 3 0 Bakery 5 5 5 0 0 0 0 0 0 0 0 Hard Lines 40 35 23 0 2 0 0 0 4 6 0 Auto Accessories 19 19 18 0 0 0 0 0 1 0 0 Furn. & Fir. Covrg. 24 23 14 1 2 1 0 1 2 1 1 Appliances 13 12 10 0 1 1 0 0 0 0 0 Jewelry 26 24 19 2 0 0 0 0 2 0 1 Camera 14 14 12 1 0 0 0 0 0 1 0 Pets 5 5 5 0 0 0 0 0 0 0 0 Misc. 4 4 4 0 0 0 0 0 0 0 0 Total all Mdse. Lines 331 315 235 15 7 4 2 5 21 21 5 Per Cent of Total Reporting Org. Listing each Factor 100.0 74.6 4.7 2.2 1.3 0.6 1.6 6.7 6.7 1.6

aFactors listed on following page. 198

Factors - Advantages

1. Greater amount of customer traffic is generated.

2. Greater ease of pulling out if department and location are not profitable.

3. Economies of scale can be secured on expenses.

4. Personnel can devote more time to merchandising activities than storekeeping activities.

5. Greater range of customer services is feasible.

6. Prestige of store is enjoyed by lessee.

7. Smaller capital investment.

8. More immediate return on capital investment.

9. Lower payroll expense.

10. Good locations easier to get than your own.

11. Other. 199

Advantages ranked first

A hypothesis of this research is that the dominant advantage of operatize leased departments in discount stores versus owning and operating stores of one's own is the "greater amount of customer traffic generated". As indicated in Table 10.3, 74.6 per cent of the leased department organizations stated the most important advantage of being a lessee in a discount store was the "greater amount of customer traffic that was generated". The two advantages of "smaller capital investment" and "more immediate return on capital" each received first place list­ ings from 6.7 per cent of the lessee organizations.

"Greater ease of pulling out if department and location are not profitable" was listed by 4.7 per cent of the lessee firms. None of the other advantages had over 3 per cent of the leased department businesses giving them first ranking.

Weighted ranking

In the weighted ranking of Table 10.4 (and the preceding tabula­ tion) the "greater amount of customer traffic generated" was readily

identified as the main advantage of operating leased departments in dis­ count stores. This advantage had a weighted 42.6 per cent of the organ­

izations listing it. The advantage of "a smaller capital investment" was next with a weighted 12.4 per cent, and the factors of "more

immediate return on capital investment" had a slightly less weight of

10 per cent. The fact that "economies of scale can be secured on expenses of operation" was reported by a weighted 8.5 per cent of all organizations.

Cited as a significant advantage by a weighted 7.6 per cent of the 200

TABLE 10,4-Advantages of Leased Departments: A Weighted Ranking of the Factors Which Leased Department Operators Considered to be the Host Important Advantages of Operating Leased Departments in Discount Stores Versus Owning and Operating Stores of Their Own, by Merchandise Line, 1965a

Total Total lb 2 3 4 5 6 7 8 9 10 11 Merchandise Line Org. RanAW+4nrr fiw/w No. Per Cent Per Cent of Organizations

Women's & Children's 29 27 100.0 36.6 14.3 6.8 4.3 1.2 7.4 14.3 9.3 5.1 0.7 0.0 Men's Wear 22 22 100.0 36.4 6.1 10.6 9.8 0.0 8.3 12.9 11.4 4.5 0.0 0.0 Domestics & Linens 21 21 100.0 43.9 11.4 9.8 3.2 0.8 9.8 14.6 4.9 1.6 0.0 0.0 Shoes 29 29 100.0 47.1 10.0 7.6 2.9 1.2 9.4 12.4 5.9 2.9 0.0 0.6 Health & Beauty 30 26 100.0 31.0 12.9 12.2 3.2 5.9 4.5 12.2 12.2 5.9 0.0 0.0 Pharmacy 12 11 100.0 43.8 1.5 6.1 6,1 6.1 7.6 16.6 6.1 6.1 0.0 0.0 Records 16 16 100,0 46.3 4.2 7.3 7.3 3.2 7.3 9.5 11.7 3.2 0.0 0.0 Sporting Gds, & Toys 22 22 100.0 48.4 4.8 5.6 6.4 1.6 4.0 10.5 14.5 3.3 0.0 0.9 Bakery 5 5 100.0 50.0 0.0 13.3 6.8 10.0 0.0 3.3 3.3 13.3 0.0 0.0 Hard Lines 40 35 100.0 39.2 2.4 9.3 7.4 2.4 6.9 13.7 18.2 0.5 0.0 0.0 Auto Accessories 19 19 100.0 50.4 2.7 3.6 7.2 0.9 9.0 13.5 10.8 1.9 0.0 0.0 Furn. & Fir. Covrg. 24 23 100.0 39.8 8.3 9.8 6.0 0.0 9.8 15.0 7.5 3.8 0.0 0.0 Appliances 13 12 100.0 47.2 9.7 16.7 6.9 2.8 5.6 2.8 4.2 2.8 0.0 1.3 Jewelry 26 24 100.0 45.4 7.8 7.8 5.7 3.5 1.4 12.0 11.4 5.0 0.0 0.0 Camera 14 14 100.0 45.8 10.8 3.6 2.4 2.4 12.1 8.4 8.4 2.4 0.0 3.7 Pets 5 5 100.0 50.0 0.0 10.0 3.3 3.3 13.3 13.3 6.8 0.0 0.0 0.0 Misc. 4 4 100.0 50.0 8.3 4.2 0.0 0.0 20.8 16.7 0.0 0.0 0.0 0.0 Per Cent of Total Reporting Org. Listing Each Factor 331 315 100.0 42.6 7.6 8.5 5.5 2.3 7.4 12.4 10.0 3.4 0.0 0.3

aRespondents were asked to rank 1, 2, and 3 the three factors they believed to be the most important to investigate. The rankings were then weighted 3, 2, and 1, respectively, and the percentages in the table were derived from the weighted sums for each merchandise line.

^Factors listed on following page. 201

Factors - Advantages

1. Greater amount of customer traffic is generated.

2. Greater ease of pulling out if department and location are not profitable.

3. Economies of scale can be secured on expenses.

4. Personnel can devote more time to merchandising activities than storekeeping activities.

5. Greater range of customer services is feasible.

6. Prestige of store is enjoyed by lessee.

7. Smaller capital investment.

8. More immediate return on capital investment.

9. Lower payroll expense.

10. Good locations easier to get than your own.

11. Other. 202

operations was the "greater ease of pulling out if the department and

the location are not profitable". "Prestige of the store being enjoyed by

the lessee" was a factor indicated by a weighted 7.4 per cent of the

leased department firms. The advantage of having "personnel devote more

time to merchandising activities than storekeeping activities" was mentioned by a weighted 5.5 per cent of the organizations. No other advantage received a weighted 5 per cent or more of the responses. Some

individuals in the personal interviews found it difficult to rank the

three most important advantages because they felt all the factors were equally important. On the other hand a few operators refused to dis­

tinguish any advantages to a leased department because of the sorry experiences they had incurred with discount store management.

Disadvantages of Operating Leased Departments

The disadvantages of operating leased departments in discount

stores versus owning and operating stores of their own were cited by

the leased department operators in Table 10.5 and Table 10.6. Table

10.6 indicates the factors ranked first by the lessee organizations

as being the most important disadvantages of operating leased depart­

ments in discount stores. A weighted ranking of the disadvantages is

given in Table 10.6. Table 10.2 served as a guide for the preparation

of Table 10.6. The following tabulation shows the weighted rankings

of the disadvantages of leasing departments: 203

Factor Score Rank

(1) Take-over by Store 25.7 2 (2) Poor Store Management 30.2 1 (3) Rental too High 6.0 6 (4) Many Incidental Charges 2.7 9 (5) No Unified Store Image 3.1 7 (6) Coordinating Promotions 9.2 4 (7) Pricing in Other Departments 6.3 5 (8) Disagreements with Store Personnel 3.0 8 (9) Contract Interpretations 1.6 11 (10) Loss of Security Control 10.3 3 (11) Wholly Owned Subsidiary 0.0 — (12) Lack of Customer Traffic 0.0 — (13) Only Strong as Store 0.0 — (14) Inadequate Store Personnel 0.0 — (15) Other 1.9 10

Disadvantages ranked first

A hypothesis of the research is that the greatest disadvantage of operating leased departments in discount stores versus owning and operating stores of one's own is the "difficulty of coordinating mer­ chandising policies such as pricing and promotion". This hypothesis was rejected by the organizations reporting in Table 10.5. In Table 10.1 the prime factor to investigate before locating in a discount store was

"if the store had good management". The opposite of good management is bad management, and nearly 40 per cent of the leased department organiza­ tions indicated "poor store management" was the greatest disadvantage of operating within a discount store. Evidently not all prior investigations by the lessees to obtain lessors with adequate store management have yielded accurate results. The disadvantages to lessees of the "difficulty of coordinating promotions" and the "difficulty of controlling pricing in other departments" were ranked as the most unfavorable factors by only 3.8 and 2.2 per cent of the respondents, respectively. TABLE 10.5-Disadvantages of Leased Departments: Number of Leased Department Organization Ranking in Order of First Preference the Factors Which Leased Department Operators Considered to be the Most Important Disadvantages of Operating Leased Departments in Discount Stores Versus Owning and Operating Stores of Their Own, by Merchandise Line, 1965

Total Total la 2 3 4 5 6 7 8 9 10 11 12 14 15 Merchandise Line Org. Reporting Org. Number of Organizations

Women's & Children's 29 27 13 12 0 0 0 1 0 0 0 0 0 0 0 1 Men's Wear 22 22 10 7 0 0 0 1 2 0 0 2 0 0 0 0 Domestics & Linens 21 21 14 2 0 1 1 0 0 0 0 3 0 0 0 0 Shoes 29 29 7 12 0 0 0 1 1 1 1 5 1 0 0 0 Health it Beauty 30 28 14 0 0 1 1 1 1 1 1 0 0 0 0 Pharmacy 12 11 4 3 1 0 0 0 0 1 1 1 0 0 0 0 Records 16 16 4 8 1 0 0 1 0 0 0 2 0 0 0 0 Sporting Gds. & Toys 22 22 7 12 0 1 0 0 0 0 0 2 0 0 0 0 Bakery 5 5 3 1 1 0 0 0 0 0 0 0 0 0 0 0 Hard Lines 40 37 17 12 1 0 0 3 0 0 0 1 0 0 1 2 Auto Accessories 19 19 5 1 0 0 0 1 0 0 2 0 1 0 0 Furn. & Fir, Covrg. 24 23 7 9 3 0 1 1 1 0 0 1 0 0 0 0 Appliances 13 13 3 7 1 0 1 0 0 0 0 0 0 0 0 0 Jewelry 26 23 6 11 0 0 0 0 1 2 0 3 0 0 0 0 Camera 14 14 5 6 1 0 0 1 0 0 1 0 0 0 0 0 Pets 5 5 2 2 0 0 0 1 0 0 0 0 0 0 0 0 Misc. 4 4 1 2 0 0 0 1 0 0 0 0 0 0 0 0 Total all Mdse. Lines 331 319 120 125 10 2 4 12 7 5 4 23 1 1 1 4 Per Cent of Total Reporting Org, Listing Each Factor 100.0 37.6 39.2 3.1 0.6 1.3 3.8 2.2 1.6 1,3 7,2 0.3 0.3 0.3 1.2

aFactors listed on following page. Factors - Disadvantages

1. Possible take-over of department by store.

2. Poor store management.

3. Rental charge is too high or may rise directly with sales.

4. Too many incidental charges.

5. Difficult to present unified store image to customers.

6. Difficulty of coordinating promotions.

7. Can't control pricing in other departments.

8. Disagreements between lessee personnel and store personnel.

9. Difficulties of contract interpretations.

10. Loss of security control.

11. Wholly owned subsidiary.

12. Lack of customer traffic.

13. You are only as strong as the store.

14. Inadequate personnel coverage of other departments.

15. Other. 206

The lessees harbored a sense of insecurity. This insecurity was reflected by the 37.6 per cent of the leased department businesses that rated a "possible take-over of the department by the discount store" as the prime disadvantage. Possibly some of the lessees had felt the sting of take-over while others had succumbed to the fear of take-over.

A "forfeiture of security control to the discount store" which may result in inventory stealing, loss of security of cash from discount store management, and other similar losses was cited as a critical dis­ advantage of leasing departments by 7.2 per cent of the organizations.

None of the other disadvantages were mentioned by more than 5 per cent of the lessee firms.

Weighted ranking

A display of the weighted ranking of the factors which leased department operators considered to be the most important disadvantages of operating leased departments in discount stores is shown in Table 10.6

(and the preceding tabulation). Overall the order of importance for the disadvantages was not changed much from Table 10.5. "Poor store manage­ ment" was indicated as a major disadvantage by a weighted 30.2 per cent of all organizations. Nearly a weighted 26 per cent indicated the

"possible take-over of the leased departments by the discount store" as

being an important disadvantage. The disadvantage, "loss of security

control to the discount store," accounted for a weighted 10.3 per cent

of the replies. 207

TABLE 10.6-Disadvantages of Leased Departments: A Weighted Ranking of the Factors Which Leased Department Operators Considered to be the Most Important Disadvantages of Operating Leased Departments in Discount Stores Versus Owning and Operating Stores of Their Own, by Merchandise Line, 1965a

Total Total lb 2 3 4 5 6 7 8 9 10 12 13 15 Merchandise Line Org. Reporting Org. No. Per Cent Per Cent of Organizations

Women's & Children's 29 27 100.0 27.8 30.2 6.2 1.2 6.8 9.9 5.6 2.4 2.4 5.6 0.0 0.0 1.9 Men's Wear 22 22 100,0 32.8 29,0 0.8 3.0 3.8 7.7 8.4 0.0 0.0 14,5 0.0 0.0 0.0 Domestics Si Linens 21 21 100.0 39.0 18.7 3.3 5.7 2.4 10.6 4.1 3.3 0.0 11.3 0.0 0.0 1.6 Shoes 29 29 100.0 20.6 34.1 3.5 1.2 5.9 6.5 5.9 4.1 1.8 13.5 0.0 .6 2.3 Health & Beauty 30 28 100.0 23.2 35.7 4.8 2.4 2.4 8.3 7.7 3.0 2.4 8.9 0.0 0.0 1.2 Pharmacy 12 11 100,0 20.0 18.5 18.5 7.6 0.0 9.2 7.6 6.2 6.2 6.2 0.0 0.0 0.0 Records 16 16 100.0 23.2 36.8 7.4 2.1 0.0 12.6 4.3 0.0 1.0 12.6 0.0 0.0 0.0 Sporting Gds. & Toys 22 22 100.0 22.0 34.8 8.4 4.5 1.5 4.5 4.5 4.5 0.0 15.3 0.0 0.0 0.0 Bakery 5 5 100.0 31.0 17.2 20.7 0.0 0.0 3.4 0.0 13.9 6.9 0.0 0.0 6.9 0.0 Hard Lines 40 37 100.0 31.4 30.5 3.3 1.4 1.9 12.7 5.2 1.9 1.4 6.1 0.0 0.0 4.2 Auto Accessories 19 19 100.0 31.8 25.4 6.4 0.0 0.9 10.9 5.4 2.8 0.9 11.8 2.8 0.0 0.9 Furn. & Fir. Covrg. 24 23 100.0 19.4 30.6 9.7 5.2 6.6 9.0 9.0 1.5 1.5 6.0 0.0 0.0 1.5 Appliances 13 13 100.0 13.0 35.0 7.8 6.5 6.5 5.2 6.5 6.5 1.3 6.5 0,0 0,0 5.2 Jewelry 26 23 100.0 21.6 30.6 4.5 1.5 3.0 9.0 11.2 5.2 0.0 11.2 0.7 0.0 1.5 Camera 14 14 100.0 23.8 29.8 7.1 0.0 0.0 8.3 2.4 0.0 4.8 17.8 0.0 0.0 6.0 Pets 5 5 100.0 20.0 20.0 0.0 3.3 3.3 13.4 13.4 3.3 3.3 20.0 0.0 0.0 0.0 Misc. 4 4 100.0 26.0 34.8 8.7 0.0 0.0 21.8 0.0 0.0 0.0 0.0 0.0 0.0 8.7 All Mdse. Lines 331 319 100.0 25.7 30.2 6.0 2.7 3.1 9.2 6.3 3.0 1.6 10.3 0.0 0.0 1.9

Respondents were asked to rank 1, 2, and 3, the three factors they believed to be the most important disadvantages. The rankings were then weighted 3, 2, and 1, respectively, and the percentages in the table were derived from the weighted sums.

^Factors listed on following page. 208

Factors - Disadvantages

1. Possible take-over of department by store.

2. Poor store management.

3. Rental charge is too high or may rise directly with sales.

4. Too many incidental charges.

5. Difficult to present unified store image to customers.

6. Difficulty of coordinating promotions.

7. Can't control pricing in other departments.

8. Disagreements between lessee personnel and store personnel.

9. Difficulties of contract interpretations.

10. Loss of security control.

11. Wholly owned subsidiary.

12. Lack of customer traffic.

13. You are only as strong as the store.

14. Inadequate personnel coverage of other departments.

15. Other. 209

The "difficulty of coordinating promotions" and the "lack of

control over pricing in other departments" were cited as disadvantages

by a weighted 9.2 and 6.3 per cent of all lessee organizations, respectively. Only a weighted 6 per cent of the lessee operations

thought that the "rental charge was too high or having it rise directly with sales" was a disadvantage. All of the other factors

had less than a weighted 5 per cent of the firms citing them as disadvantages.

Some leased department merchants in the personal interviews were most adamant about poor discount store management. These

individuals refused to identify a second and a third ranked disadvan­

tage. They felt so strongly that poor store management was such a

strong disadvantage that any other considerations were inconsequential.

Problems of lessees

Appendix D is a presentation of selected verbatim responses

by the lessees concerning their relationship with discount stores.

These comments were the result of asking the leased department operator

to express himself on any problems or issues that were of particular

concern to him, or of the future directions as he envisioned them of

leased department merchandising in United States discount stores. The

ensuing commentary generally stressed the need for greater respect by

the lessor of the lessees' role in the discount store, and the desire

for more enlightened and communicable store management. CHAPTER XI

SUMMARY AND CONCLUSIONS

In the 1950's a new retailing entity called the discount store made its appearance upon the American retailing scene. One of the dis­ tinctive characteristics of this new establishment was its extensive reliance upon leased departments. Estimates have indicated that a median 27 per cent of all departments in discount stores were leased.

Until the present there was no definitive study of the origins, development, and operations of the lessee in discount stores.

In the past replies to questions concerning the policies, prac­ tices , and attitudes of leased department operators have been more a declaration of opinion than a designation of fact. Information was needed on the lessees' locations, service charges, operating practices, personnel practices, attitudes toward leasing, origin of firm, growth, and productivity of operation. This study was an endeavor to provide such information.

Historical Development

Research into the existing retailing literature provided in­ formation on the history of the leased department and on the development of the discount store. Rudiments of the leased department operations can be traced back to the kapelos of the Periclean Age in Greece, the bazaars of Persia, and the markets and the fairs of England about

1100 A.D. In this country the farmers' markets and the conventional

910 211 department stores were users of leased departments prior to the develop­ ment of the discount store.

When the discounting movement was gaining a foothold on the

American retailing scene in the early 1950's, at least three different types of discount stores could be identified as follows: (1) closed door discount store; (2) promotional discount store; and (3) the soft goods supermarket. Some membership retail stores were in operation during the depression of the 1930's. After World War II, the closed door discount establishment achieved especial prominence in the retail­ ing field. Frequently, this type of operation was initiated by individ­ uals who had backgrounds in either finance, real estate, law, or accounting. Many of these closed door merchants leased nearly every department in the store. The limited merchandising ability they possessed created an extensive need for skilled lessees.

In the late 1940's and early 1950's a second type of discount institution called the promotional discount store evolved. Initially these stores carried mainly hard lines, but later they added soft goods.

Leasing in these enterprises occurred because some of the developers had no prior retailing training while others had a background in only hard goods merchandising.

During the middle 1950's a third kind of discount store developed.

It was known as the soft goods supermarket in deference to the goods handled. Since the founding merchants of this type of store generally had an apparel and soft goods background, they frequently leased from

10 to 50 per cent of their hard lines to specialists. 212

Financial Condition of Leased Departments

According to secondary sources in 1964 the financial outlook for

leased departments in discount stores was much better than in 1961.

Between 1963 and 1964 the net profits to sales ratio of the leased departments experienced a satisfying increase. During this same period

the proportion of liabilities to net worth decreased indicating a greater reliance on the owners' equity in the firms.

A comparison among lessees in discount stores, discount stores, and department stores revealed that the department stores had a much more conservative financial structure than the other two types of operations. Department stores had less debt and a better inventory position than the lessees and the discount store operators. The depart­ ment store is a mature organization. Many of the operational problems

remaining for the discounting industry to solve have already been remedied

by the department store. Discount stores had a slightly better financial

position than the leased departments. Neither type of organization, how­ ever, possesses the financial stability of the department stores.

Major Conclusions from the Survey

Hypotheses

Throughout the study certain hypotheses have been examined for

their affirmation or refutation. A survey of leased department organi­

zations provided data for testing each proposition. The present dis­

cussion summarizes the comments in regard to each of the twenty-one

hypotheses. 213

Location

1. The region of operations for leased department organizations Is mainly in a single metropolitan area. (Chapter V, page 75.)

Only one-third of the surveyed organizations operated in a single metropolitan area. Another one-third limited their sphere of business to a local region. Nearly one-sixth considered themselves regional in nature while a second sixth considered themselves national organizations.

2. Leased department organizations prefer to locate their leased departments in either independent or local discount store chains. (Chapter V, page 80).

The same number of leased department organizations preferred a local region discount store chain as preferred an independent or local chain. These two discount store categories accounted for 26 per cent each of all leased department organizations expressing a choice. The preferences of the remaining lessees were dispersed fairly evenly among the regional chains, national chains, and the no preference grouping.

Number of leased departments

3. The small businessman operating from one to four leased departments has an opportunity to develop and to grow as a leased department operator in a discount store. (Chapter V, page 82.)

Nearly half of all leased department organizations operated from one to four departments. Another 26 per cent operated five to ten depart­ ments. There were only 24 per cent of all leased department organizations that operated over ten leased units.

Measurements of the leased departments

4. The size of the typical leased department in any one merchandise line is less than the optimum size desired by the leased department operators. (Chapter V, page 86.) 214

For all merchandise lines the median size for the optimum

desired department was 16 per cent greater than the median for the

typical department. The median size for the typical leased department was 2,500 square feet while for the optimum desired department the area

was 2,900 square feet. « 5. The dollar sales of the typical leased department in any one mer­ chandise line are less than the optimum dollar sales desired by the leased department operators. (Chapter V, page 87.)

As shewn by the survey, in all cases the median and the modal

sales for the optimum desired departments are greater than for the

typical department. For all merchandise lines the median dollar sales

for the typical department was $225,000 while the analogous figure for

the optimum desired department was $300,000.

6. The median dollar transaction size of the typical department in any one merchandise line is less than the median dollar transaction size for the optimum department desired by the leased department opera­ tors. (Chapter V, page 98.)

For all merchandise lines the increase in median transaction size

between the typical department and the optimum desired department was

25 per cent. The median transaction size for the typical leased depart­

ment was $4.00, and for the optimum desired department the size of the

transaction was $5.00.

7. The number of items stocked in a typical leased department in any one merchandise line is more than the number of items stocked in the optimum leased department desired by the leased department operators. (Chapter V, page 100.)

Most merchandise lines desired an increase in the number of dif­

ferent items in inventory rather than a decrease. A median 25 per cent

increase in items was desired for all merchandise lines. The median 215 number of items stocked for the typical leased department was 2,000 and for the optimum desired department the number was 2,500.

Training programs

8. An informal introductory training program for new employees is the only training the leased department employees receive from most leased department organizations. (Chapter VI, page 113.)

Informal introductory training programs were conducted by 66 per cent of all organizations, and 20 per cent of all firms admitted having no training program for new employees. Only 9.5 per cent of all businesses had formal management development programs, and a meager 32 per cent mentioned having informal management development training.

Leased departments with union contracts

9. The majority of all leased department employees belong to a labor union. (Chapter VI, page 115.)

Although a majority of all reporting leased departments were not unionized, still an impressive 40 per cent was. The per cent of depart­ ments unionized in the different merchandise lines varied from 18 per cent in domestics and linens to 92 per cent in pet supplies.

Payroll expense

10. The payroll as a per cent of sales for leased department organiza­ tions is similar for all organizations regardless of the merchandise line handled. (Chapter VI, page 122 . )

For all merchandise lines the median payroll expense as a per

cent of sales was 9 per cent and the mean was 8 per cent. The above

hypothesis did not quite reflect the actual situation since the median

payroll expense as a per cent of sales ranged from 8 per cent for the women's and children's, men's wear, health and beauty aids, records,

and hard lines departments to 15 per cent for pet supplies. 213

Service charges paid

11. A rental fee and a charge for advertising are the only significant expenses assessed against the leased department operator by the discount store. (Chapter VII, page 133.)

A median 9 per cent combined rental and advertising charge was the major expense paid by the lessee to the lessor. A fee for use of the discount store's credit service was paid by nearly two-thirds of the respondents on their credit sales. This charge was apparently institutionalized at two per cent. Charges for warehouse service and checkout service were found infrequently. The median charge for ware­ house space was $1.25 per square foot, and the median fee for checkout service was 2 per cent of sales.

12. The rental commission and the advertising charge paid by leased department operators differ according to merchandise lines. (Chapter VII, page 133.)

For all merchandise lines the median rent as a per cent of sales paid to the discount store was 7 per cent and the mode was 8 per cent. Rental charges varied by lines with the appliance departments paying the lowest median rent of 4.5 per cent. The pet supplies organ­ izations paid the most, a 9.5 per cent charge. An advertising charge of 2 per cent of sales was quite common for all lines.

Sources of purchases

13. The proportion of purchases made directly from manufacturers by lessee firms is dependent upon the merchandise line handled by the lessee operation. (Chapter VIII, page 145.)

Women's and children's, men's wear, domestics and linens, and shoes were all lines that had a median 70 per cent or more of their purchases come from the manufacturers' sales forces. Generally, direct 217 purchases from manufacturers were made In lines where the merchandise

is purchased infrequently but in large quantities and seasonal and style factors are important.

For all organizations a median and mean 45 per cent of pur­ chases were made directly from the manufacturers. Manufacturers' representatives accounted for a 15 per cent median and a 26.5 per cent mean of all purchases made by leased department organizations.

Wholesalers were the source of a 10 per cent median and a 22.4 per cent mean of all lessee purchases. All other sources supplied only minimal purchases.

14. For any given merchandise line, the larger the number of departments operated by the leased department firm, the greater is the propor­ tion of purchases made directly from manufacturers. (Chapter VIII, page 145.)

The hypothesis was not substantiated when the proportion of purchases made directly from manufacturers was analyzed by the number of departments operated. Evidently for leased department organizations the merchandise line more so than the size of the organization is apparently the factor that determines the sources of purchases.

Methods of inventory control

15. For different type merchandise departments, the sophistication of the inventory controls varies. (Chapter VIII, page 157).

The above hypothesis was proven by the research which showed there was a great variation in the use of the different inventory con­ trol procedures between merchandise lines. Overall 60,4 per cent of the leased departments utilized formal dollar inventory control methods.

Unit stock control was found in 56.1 per cent of all leased departments. 218

Only 6.9 per cent had any model stock plan. Basic stock lists were used by 34 per cent of the leased departments. In total 10.1 per cent of the lessees used the never out list. Only 2.6 per cent of the departments used some other means of control.

16. For any given merchandise line, the greater the number of depart­ ments operated by the leased department organization, the more sophisticated the inventory controls become. (Chapter VIII, page 195).

No greater use of inventory control methods by the larger organizations than by the smaller organizations was revealed by the research. The degree of use of inventory control methods depended much more upon the merchandise line handled than upon size of operation.

Business of origin

17. The majority of the firms operating leased departments have their origin as operators of conventional stores. (Chapter IX, page 163.)

The study indicates that 62.8 per cent of all leased department organizations had their inception as conventional retailers. Nearly 13 per cent of the lessees developed from prior wholesale businesses. All other types of businesses were rather insignificant as founders of lessee organizations although in a particular merchandise line a certain type firm may have been very important. For example, almost 27 per cent of the leased department organizations in the record line originated as rack jobbers.

Operation of other businesses

18. The majority of the firms operating leased departments are engaged in other businesses which represent the greatest per cent of their total company sales volume. (Chapter IX, page 173.) 219

The research shows 73 per cent of the lessee organizations were active in other business ventures. The two most important addi­ tional endeavors were operating conventional stores and operating wholesaling facilities. Conventional stores were run by 48.7 per cent of the lessee organizations while 18.5 per cent operated wholesaling businesses. For leased department firms engaged in other activities a median 50 per cent and a mean 48.3 per cent of sales came from the other businesses.

Factors to investigate

19. The factor that leased department organizations believe most important to investigate before determining in which discount store to operate is the "caliber of store management available." (Chapter X, page 189.)

This hypothesis was substantiated since almost 30 per cent of the respondents listed "good management" as the most important factor.

Another 15 per cent indicated the "adequacy of the store's capital and facilities," and nearly 8 per cent stated the "past record of operations and earnings' were the key factors to investigate.

Advantages of operating leased departments

20. The dominant advantage of operating leased departments in discount stores versus owning and operating stores of one's own is the "greater amount of customer traffic generated." (Chapter X, page 198).

Almost 75 per cent of the leased department organizations

indicated the most important advantage of being a lessee in a discount

store was the "greater amount of customer traffic that was generated."

The two factors of "smaller capital investment" and "more immediate return on capital" each garnered 6.7 per cent of the respondents who 220

considered these the prime advantages of operating leased departments

in discount stores.

Disadvantages of operating leased departments

21. The greatest disadvantage of operating leased departments in dis­ count stores versus owning and operating stores of one's own is the "difficulty of coordinating merchandising policies such as pricing and promotion." (Chapter X, Page 202).

This hypothesis was rejected by the reporting leased department organizations. Nearly 40 per cent of the lessees indicated "poor store management was the greatest disadvantage. The factors of "difficulty of coordinating promotions" and the "difficulty of controlling pricing in other departments" were ranked as the greatest drawbacks by only

3.8 and 2.2 per cent of the respondents, respectively.

Other findings

Leased department organizations employing over 16,800 individ­ uals were represented by the survey. For all merchandise lines the typical leased department organization had a median of 22.5 and a mean of 57.3 employees. For all merchandise lines the typical leased depart­ ment had a median of 3.6 and a mean of 4.4 full-time employees. A study was made of the number of total (full-time and part-time) employees for the typical leased department in each merchandise line. The median number of total employees was 5.0 and the mean was 6,4 for all merchandise lines.

Additional information was gleaned on the per cent of employees in part-time employment. The median proportion of employees in part-time positions in a typical leased department was 30 per cent. A low propor­ tion of the employees of lessee organizations were engaged in nonselling jobs. A median of 10 per cent of the employees of the typical leased 221 department were engaged in nonselling assignments.

For all merchandise lines the median dollar sales per total (full­ time and part-time) employee in the typical leased department was

$38,432.50 and the mean dollar sales was $44,315.37. When contemplating the median and mean dollar sales for only the full-time employees the figures rose to $58,368.00 and $56,435.23, respectively.

A comparison of rental payments made by leased department firms to conventional department stores and to discount stores revealed that overall the lessees in discount stores paid less than half the rental charge paid by the lessees in department stores. Departments with high sales-space productivity ratios can be charged a lower rent as a per cent of sales and the discount store operator will still receive a satis­

factory return. Some evidence that the above concept was being followed

by discount stores was that the health and beauty aids, appliances, and

camera departments had the lowest rent as a per cent of sales, and these

same departments also exhibited some of the highest sales per square foot.

In examining the methods of supplying merchandise to the individual departments it was ascertained that overall a median 60 per cent and a mean 53 per cent of the leased department organizations indicated they

shipped merchandise to the departments from their own central warehouse.

Drop shipments by manufacturers directly to the leased departments were

reported as a method of supplying departments by a median 20 per cent and

a mean 32 per cent of the lessees. Wholesalers distributed directly to

the leased department location a median 2 per cent and a mean 15 per cent

of all purchases. 222

For all leased department organizations the median rate of inventory turnover was five and the modal rate was four. When the rates of Inventory turnover were divided into classifications, the jewelry line placed over 70 per cent of its organizations in the lowest classi­ fication of 3.9 or less turns a year. All of the bakery leased depart­ ments were placed in the highest classification of stock turns, 8.0 and over turns a year. Pet supplies and health and beauty aids had 60 per cent and 38 per cent of their departments, respectively, with stock turns of 8.0 or more.

For all merchandise lines the average number of years of prior business operation for the firms currently operating leased departments in discount stores was 24.6 years. Manufacturers who were now operating leased departments had been in business the longest, an average of 44 years. The rack jobbers had the shortest period of previous history, only 6.7 years of operation.

For all merchandise lines the median year for starting a leased department business was in 1960. Three quarters of all leased depart­ ment organizations began leasing in discount stores after 1957.

When queried about expansion into additional leased departments,

71.2 per cent of all leased department organizations planned such

growth. No expansion plans into additional leased departments were mentioned by 27.6 per cent of the firms and 1.2 per cent of the opera­

tors were indefinite. There was nearly a 60-40 division between the percentage of leased department organizations desiring to expand in

fields other than lessee operations in discount stores and those not 223 desiring to expand. Since over 70 per cent of the lessee organiza­ tions were already operating in other businesses, the expansion in other areas by the leased department firms meant mainly increasing the role of the present non-lessee business.

Increased use of the leased department in discount stores was forecasted by 25.1 per cent of the lessee organizations. About the same use as now for the leased department in discount stores was pre­ dicted by 33,8 per cent of the leased department operators. A decrease in the use of the lessee in discount stores was prognosticated by 41.1 per cent of the lessee firms. The overall growth in the sales of leased department organizations have been considerably greater than the growth in sales for retail establishments in the United States. The sales growth of the leased department organizations from 1958 to 1965 was quite rapid. For firms in existence during 1958 the 1958 sales were a median 40 per cent and a mean 48.7 per cent of 1965 sales. Total retail sales in the United States for 1958 compared to the estimated

1965 retail sales was 70,3 per cent. The relative sales of 1960 to

1965 for leased departments were a median 50 per cent and a mean 57.9 per cent. For all lessee merchandise lines the median 1963 sales com­

pared to 1965 was 72 per cent and the mean was 75.6 per cent. The

relationship between 1964 and 1965 leased department sales indicated

1964 volume was an 85 per cent median and an 88.1 per cent mean of

1965 volume. Relating total retail sales in the United States for

1964 to 1965 showed that 1964 sales were 92.1 per cent of the 1965

volume. 224

Significance of the Study

The general objective of this study was an evaluation of the current status and future outlook of the leased department in discount

stores. This overall objective has been ascertained by the research.

More specifically discount store owners, suppliers, leased department operators and other interested parties now have information recorded

in an objective manner for making decisions regarding lessee operations.

For the first time in any comprehensive study of leased department organizations the lessees have supplied the information and their view­ point and attitudes have been sought.

The study has demonstrated that lessees are seriously concerned

about the takeover of their departments by discount store operators.

Comments by the trade press about the leased department takeover is

not idle speculation. This research has revealed the directions of

future development for organizations that control leased departments.

The lessees feel that leased departments in specialized merchandise lines

will flourish while others will languish. Thus, many lessees are gearing

their planning to new business vistas outside the scope of leased

departments.

Productivity ratios such as sales per square foot and sales per

employee are factually recorded for the leased departments. Comparative

studies of these ratios and other statistics can be made among leased

departments and other types of retailing activities. To the extent

that this data becomes guide lines for more efficient operations, the

consumer can conceivably benefit through lower prices. 225

Where this research has alluded to areas of weakness that need attention in the policies and practices of the lessees, this study has rendered a valuable service to the trade. The minimal number of employee training programs conducted by lessees and the lack of lessee- lessor trust and respect are two cases in point.

By showing the small businessman that he may survive in a world of large scale operation by becoming a lessee in a discount store this study contributes to the continuity of small business. Large chain organizations do exist in the leased department field; but they are not the dominant type of firm. The small businessman can find sus­ tenance within the domain of a discount store.

Recommendations for Further Research

On the basis of what was learned and what was reported in this study of leased department operations in discount stores, additional knowledge from the viewpoint of society and of the managerial enter­ prise Is needed.

One significant research project is the development of criteria which would contribute to fewer lessee failures. Such a research project would aid in determining the merchandise lines best qualified for continued leased department operation in discount stores. An under­ standing of the merchandising problems in a particular merchandise line would be greatly facilitated by studying each generic line separately and intensively. Both the lessee and the lessor in con­ templating the future use of leased departments would be assisted by this analysis. 226

Functional integration of leased department operations with other businesses under the same ownership is a topic not well under­ stood. A study in this area would illustrate the economies of scale that may be achieved when such marketing functions as buying and storage are performed by one firm for two or more types of operations.

In order to acquire comprehensive data on all lessees in dis­ count stores a study of the practices and policies of the grocery supermarket lessees and the leased department operators in the personal services departments, lines omitted in the current research, is neces­ sary. A comparison of the study of the above lines to this research will show the merchandising and operational distinctions among the various types of merchandise and service leased departments.

The clarification and resolution of various facets of a legal nature which are unique to leased department operations will aid the lessee-lessor relationship. To determine if the employee of the

lessee is obligated to belong to the labor union that represents the discount store employees an examination of the legal relationship of the leased department employee to the discount store is necessary.

Another such study is an inquiry into the legal implication and con­

tractual obligation of using either a licensee-licensor or a lessee-

lessor contract. Two other research topics with legal significance

are the following: the extent of the possible personal and product

liability assumed by the lessee and the lessor as a result of their

contract, and the effect of the lessee-lessor relationship on the minimum wage to be paid the lessee employees. Cases and decisions 227 from both judicial and governmental bodies comprise the background information needed for the aforementioned studies.

The development of standard financial ratios and statements for leased department operations allowing individual organizations to make comparisons with industry averages will serve lessee manage­ ment as guides in decision making. The University of Massachusetts

School of Business Administration has initiated a financial analysis of the operating results of discount stores whereby all participating stores utilize similar operating statements and uniform terminology.

An analogous study for leased department operations will provide the firms with financial benchmarks. The compilation of accounting in­ formation from the leased department firms will assist in establishing standards for financial comparisons by size of operation and mer­ chandise line.

Information about the impact of lessee operations upon the customer image of a discount store is sparse. An investigation in this

field would indicate consumer reaction or inaction to leased depart­ ments. Such a project would compare and contrast the attitudes of the consumer toward two types of discount stores, namely, one with few

lessees and one with many lessees. To determine their effect on image development factors such as the physical layout and the advertising

of the two types of stores would be examined.

Finally, to show the evolving nature of the leased department

operation in discount stores a study similar to this one should be

completed periodically, for example, every five years. A particularly interesting comparison could be made between the departmental pro­ ductivity ratios, attitudes of lessees, and the expansion or con­ traction of the leased department operations in discount stores over a period of time. APPENDIXES

229 APPENDIX A

230 231

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TABLE A*3-Rental and Advertising Charge: Per Cent of Selected Leased Department Organizations Reporting the Discount Store Combined Charge for Rent and Advertising as a Per Cent of Sales, by Rate of Inventory Turnover for the Leased Department Organizations, 1965

Total Org. Total Per Cent of Organizations Classifying the Number No. Per Cent Reporting Org. Combined Charge for Rent and Advertising as: of No. Per Cent 6.9 7.0 8.0 9.0 10.0 11.0 Departments and to to to to and Below 7.9 8.9 9.9 10.9 Over

Health 8c Beauty O . O to 3.9 O O . O O 100.0 0.0 0.0 0.0 o . o 0.0 0.0 4 .O to 4.9 3 IO . 3 2 100.0 0.0 0.0 0.0 0.0 100.0 0.0 5 .O to 5.9 5 17 .3 5 100.0 0.0 0.0 40.0 20 . O 20.0 20 . O 6 .O to 7.9 IO 34 .5 IO 100.0 20 . O 20 . O 20.0 20. O 10.0 10.0 8 .O & over­ 11 37 .9 9 100. O 22 .2 22 .2 0.0 33 . 3 11.1 11.1 All size org. 29 100 . O 26 100.0 15.4 15.4 15 .4 23 . 1 19.2 11.5 Women s 8c Children ' s 0.0 to 3.9 3 10.7 2 100. O O . O 0.0 50 . O 0.0 50 . O 0.0 4.0 to 4.9 6 21 .4 6 100.0 O . O 16.7 33 . 3 33 . 3 16.7 O . O 5.0 to 5.9 5 17 .9 4 100.0 0.0 0.0 25 . O O . O 75.0 0.0 6 . O to 7.9 8 28 . 6 8 100.0 0.0 0.0 25 . O 25 .O 50.0 0.0 8.0 & over 6 21 .4 6 100.0 O . O 0.0 0.0 O . O 83 .3 16 .7 All size org. 28 100 . O 26 100.0 O . O 3 . 8 23 . 1 15 .4 53 .8 38 .5 Shoes 0.0 to 3.9 14 48 .4 12 100.0 0.0 16.7 25 . O 8 . 3 50. O 0.0 4.0 to 4.9 9 31 .O 7 100.0 0.0 28 .6 0.0 0.0 71 .4 O . O 5.0 to 5.9 4 13 .8 4 100.0 0.0 25.0 25 . O 0.0 50.0 0.0 6.0 to 7.9 1 3.4 1 100.0 0.0 lOO . o 0.0 0.0 0.0 O . O 8.0 & over 1 3.4 1 100.0 0.0 0.0 O . O 100.0 0.0 0.0 All size org . 29 1 0 0 . O 25 100.0 0.0 24 .O 16.0 8 . O 52.0 0.0 Furn . & Fir-. Covrg. 0.0 to 3.9 3 13.6 2 100.0 0.0 O . O 50 . O 0.0 50.0 0.0 4.0 to 4.9 11 50.0 7 100.0 0.0 0.0 14 .3 42 .8 28 .5 14 .3 5.0 to 5 .9 4 18.3 2 100.0 0.0 0.0 0.0 0.0 100.0 0.0 6.0 to 7.9 1 4.5 1 100.0 0.0 100.0 0.0 0.0 0.0 0.0 8.0 & over 3 13.6 3 100.0 0.0 66 .7 O . O 0.0 33 .3 O . O All size org. 22 100.0 15 100.0 0.0 20.0 13.3 20.0 40.0 6.7 Haz'd Lines 0.0 to 3.9 4 10.3 4 100.0 25.0 0.0 25.0 25.0 25 . O 0.0 4.0 to 4.9 12 30.7 11 100. 0 9.1 O . O 27 . 3 9.1 36 . 4 18.2 5.0 to 5.9 IO 25.6 IO 100.0 0.0 10.0 20.0 0.0 60 . O 10.0 6 .O to 7.9 9 23 . 1 9 100.0 0.0 11 .1 33 .3 33 .3 11 .1 11.1 8 .O 8c over 4 10.3 4 100.0 0.0 o . o 25.0 0.0 75 . O 0.0 All size org. 39 100.0 38 100.0 5.3 5 . 3 26.3 13.2 39 .5 10.5 Jewelry O .O to 3.9 17 70.9 13 100.0 0.0 0.0 15.4 15 .4 53 .8 15.4 4 .0 to 4.9 3 12.5 3 100.0 0.0 0.0 33.3 0.0 0.0 66 .7 5 . O to 5.9 2 8.3 2 100.0 0.0 0.0 0.0 0.0 50.0 50.0 6 .O to 7.9 O 0.0 O — ------8 . O 8c over 2 8 . 3 2 100.0 0.0 0.0 0.0 50.0 0.0 50.0 All size org. 24 100.0 20 100.0 0.0 0.0 15.0 15.0 40.0 30.0 to COco 234

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N B 0 0M P o s * ft ii OOOOO P - 0 N ipppppjjtnc OOOOO p ooooo ooooo p ft OOOOO P ft OOOOO p « 9 rtpfppfjl B rtpppppj rt p p p p p jj rtpppppjj n rt rlPPPPPjj B a ® 11 B ® Ct 9 rt9 rtrt rt B Cl 9 rt 9 rt rt rt 0 ft 9 „rt 9 rt rt rt ft f)9rl9rlrtrth ft9rt9rtrlrt £ f] 9 rt 9 rt rt rt 0 rt Cl 9 0 rt 0 rt Cl 9 0 rt ft rt Ct'■ 91 0 rt 2 rt Cl 9 0 rt d rt ft 9 0 rt ® rt fl 9 0 rt 0 rt< s rt < 9 rt < rt < IS rt < fl rt < rt 236

u ■o B ft V 0 3 3 3 0 0 Cl A t* 0 0 3 Cl ■H 0 A o b b a o a 0 3 0 0 0 0 3 OiAOOOOt»O(0 0 0 0 0 3 1 | ...... II * P A B • • 1 * 1 ' P P V A o n a h o i i o 0 0) 01 3 0 1o n OflflOOGOfl 0 0 0 0 1 1 1 A 0 3 3 3 0 0 1 C> H 3 0 0 3 1 1 0) 0 B ft 3 in n h t> o a1 0 3 A 3 3 3 3 ONNOifi iO H fr n 3 3 3 3 A |r H 3 Cl ftd U rl H rl rl B B B K 3 Q Z in in to B >,01 0 ft H B 6 A nOAfio b 0 01 rl 0 0 0 H oincioonon 0 0 0 0 H [» A 3 0 0 0 rl 0 3 0 0 0 0 MBS 3 I I i • ...... II . ft P 0 B fi 0 H pi A fl 0 rl A 0 1 1 01 0 B 0 3 0 10 Cl ohcioonoci 0 0 0 0 1 1 1 01 3AI-000 1 3 0 3 0 0 0 1 13 « +i P 3 3 01 03 (r rl b H 3 01 3 3 0) baa n n A Cl 0 0 fl 3 A Cl 3 0 3 3 3 0 3 1KM fl 0 H H HH P N ft OM < fl B P 3 I SOU BOP S 01 0 P rl P Q fl A B A 0 01 0 0 0 o n o o b o o o o b 0 0 0 0 H 3 0 l> > 0 0 t" 3 0 0 0 > * fi, B t* t» fl 3 0 01 • • • t » | | • V rl A B ...... II • 1 • Q B A 3 3 A A 0 1 1 A 0 3 0 0 0 10 A OOAOOOOA 0 0 0 0 1 1 1 3 3 0 3 3 0 0 I 3 3 0 0 0 3 1 13 ft 3 rl rl rl H rl rl 3 H HA OH 3 H Cl 3 H 3 H 3 3 3 3 A TJ +1 O H B B B 01 ® H A S A +1 iJ hO • ft B 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O O O 0 A B M O O O O O 0 OOOOO 0 0 (•••*|| • fl ft a fl B 1 ' 1 ' VBA O U 0 0 0 0 0 1 10 O O O O O 10 0 0 0 0 0 0 0 0 0 o’ 0 0 0 1 1 1 0 0 0 0 0 0 0 I 0 0 0 0 0 0 1 10 OOOOO 0 OOOOO 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OOOOO 0 HUh H H H H H H H H H H H H H HHHHHHHH H H H H H r* r\ r\ r4 iV H H H H H H H v fl ABB rl B V PI H ft 0 Pi m o H ft 0 ft 3 ft ft • 0 d B 0 BBOI'NQOB 3H|rA303B HBtrftneiHB oohciooow B0133C1HO3 MCBBBOOl AO»ono 3HA30000 M3PCI3W00 OBBHHOOO 3 ft 3 3 3 3 0 A 01 rl 0 N 01 H H H 0 A A 0 N A H 0 3 3 3 H H 0 .. +i * H B rl H H H H H «3P A ft 0! ft B pi 3 V 0 • fl B H 0 NOOONOOO 33[»A30fl® HBOBABH# HOHNOOOA 3O013NHOO oouttconoo® • )P Z 01 H fl 01 H H Cl H H VP fl P ft ft B O A ft H ft S fl V B B O 1 ft A 3 ft > B u < ® B p ft ft > U pi >, fl 0 A p H 0 8 fl PI 3 • rl »• * * B A ttft Mi M • bo to to 2° ft B 9 P 0 u p p p u B B a 0 P 0 0 h 0 0 P 0 H 0 P 0 A 0 u 0 0 b 0 ft ft p o in o o b (it 0 3 0 0 0 0 3 0 0 B ft 0 3 0 0 B B 0 3 0 0 o 0 0 0 0 V BOP a A H 0 1 in rl > B A rl 0) 3 rl > 0 A H 01 3 H > B A H Cl 3 H > B 5 A H 3 3 H > 0 VP H fl ifl H {> 0 3 A 0 N a 0 N 0 M ~!l 0 N H 0 N >1 0 N OOOOO rl OOOOO H j OOOOO H p OOOOO *H Z ft ft O O O O O P * OOOOO •H H p p p p p $ prlPPPPPJIlB H P p pi pi +1j 01 91HPPPPPeSj A • £ A HPPPPP aiH a H B 1> fl fl V OllOrllDrlrlrl B C10H0HHH p Cl 3 H 3 HH H p 3 3 H 3 HH H i NflrllfiHHH A 01 3 H 3 rlrl H 0 HNiftOn B H 01 in 0 rl 0 H 01 3 0 H A H Cl 3 0 h 3 H Cl 3 0 H A H 3 3 0 H B 8 H < i H < « H < ft H < X h < b H < 237

TABLE A.7-Sales Growth: Number of Leased Department Organizations Classified by Size of the Index of 19S8 Sales to 1965 Sales, by Merchandise Line, 1965a

Total Total Number of Organizations Recording Indexes of: Index of 1958 Sales Merchandise Line Org. Reporting to 1965 Sales Org. 0 to 24 25 to 49 50 to 74 75 to 99 100 & over Median Mode Mean

Women's & Children's 29 10 3 2 3 1 1 45 40; 50 51.3 Men's Wear 22 10 4 2 0 2 2 29 12 49.9 Domestics & Linens 21 6 4 0 1 0 1 20 20 36.5 Shoes 29 8 2 3 3 0 0 35 - 37.8 Health & Beauty 30 4 1 0 1 2 0 68 -- 58.8 Pharmacy 12 0 0 0 0 0 0 0 0 0.0 Records 16 2 1 0 1 0 0 38 — 37.5 Sporting Gds. b Toys 22 6 1 2 1 2 0 47 — 53.3 Bakery 5 1 0 0 0 1 0 85 85 85.0 Hard Lines 40 13 3 5 2 2 1 40 30; 40 46.9 Auto Accessories 19 7 5 0 1 1 0 10 10 28.3 Furn. & Fir. Covrg. 24 3 0 0 0 2 1 90 — 106.7 Appliances 13 1 0 0 0 1 0 75 75 75.0 Jewelry 26 4 2 0 1 1 0 40 — 41.5 Camera 14 4 1 0 0 3 0 75 75 43.5 Pets 5 1 0 1 0 0 0 33 33 33.0 Misc. 4 0 0 0 0 0 0 0 0 0.0 All Mdse, Lines 331 80 27 15 14 18 6 40 20 48.7 Proportion of all orgs. recording per cent ratios — 100.0 33.8 18.7 17.5 22.5 7.5 -- —

aBy placing estimated leased department sales in discount stores for 1965 equivalent to 100 per cent, the relative sales for 1958 established the index. 238

TABLE A.8- Sales Growth: Number of Leased Department Organizations Classified by Size of the Index of 1960 Sales to 1965 Sales, by Merchandise Line, 1965a

Total Total Number of Organizations Recording Indexes of: Index of 1960 Sales Merchandise Line Org. Reporting tn 1QfiS Qalno Org. 0 to 24 25 to 49 50 to 74 75 to 99 100 & over Median Mode Mean

Women's & Children's 29 14 2 3 5 3 1 50 50 51.4 Men's Wear 22 14 4 1 4 2 3 50 50 57.1 Domestics & Linens 21 8 2 2 1 1 2 45 — 68.0 Shoes 29 14 2 6 4 2 0 40 40 44.8 Health & Beauty 30 11 4 1 4 1 1 50 50 46.2 Pharmacy 12 3 1 1 0 1 0 40 — 45.0 Records 16 5 0 2 3 0 0 50 — 50.2 Sporting Gds. k Toys 22 10 1 3 1 4 1 72 25 63.7 M e r y 5 1 0 0 0 1 0 90 . 90 90.0 Hard Lines 40 23 2 5 9 6 1 60 50 56.4 Auto Accessories 19 10 2 3 3 0 2 45 30 61.5 Furn. & Fir. Covrg. 24 7 0 1 1 4 1 80 80; 90 80.0 Appliances 13 6 2 0 3 1 0 57 10 47.8 Jewelry 26 11 0 5 4 2 0 50 70 55.0 Camera 14 6 0 1 1 4 0 80 — 53.5 Pets 5 2 0 1 1 0 0 43 — 42.5 Misc. 4 2 0 0 0 0 2 115 — 115.0 All Mdse. Lines 331 147 22 35 44 32 14 50 50 57.9 Proportion of all orgs. recording per cent ratios 100.0 15.0 23.8 29,9 21.8 9.5 — — —

aBy placing estimated leased department sales in discount stores for 1965 equivalent to 100 per cent, the relative sales for 1960 established the index. 239

TABLE A,9-Sales Growth: Number of Leased Department Organizations Classified by Size of the Index of 1963 Sales to 1965 Sales, by Merchandise Line, 1965a

Total Total Number of Organizations Recording Indexes of: Index of 1963 Sales Merchandise Line Org. Reporting tn lQfiR Spins Org. 0 to 24 25 to 49 50 to 74 75 to 99 100 4 over Median Mode Mean

Women's & Children's 29 26 0 4 10 9 3 71 70 72.2 Men's Wear 22 17 0 1 7 7 2 76 50;90 72.7 Domestics & Linens 21 13 0 2 5 4 2 74 90 94.7 Shoes 29 24 0 4 10 9 1 70 70 69.6 Health & Beauty 30 21 1 2 11 7 0 70 50; 80 64.0 Pharmacy 12 8 0 2 4 2 0 55 40; 50 58.6 Records 16 11 0 0 8 3 0 60 60 63.9 Sporting Gds. & Toys 22 16 0 1 5 7 3 79 60 78.2 Bakery 5 4 0 0 0 3 1 87 — 89.2 Hard Lines 40 32 0 6 10 12 4 72 70 68.0 Auto Accessories 19 15 0 1 8 5 1 70 60;70 79.9 Furn. 4 Fir. Covrg. 24 19 0 2 7 9 1 75 70; 90 76.2 Appliances 13 11 1 1 3 5 1 75 80 69.5 Jewelry 26 20 0 4 4 9 3 75 80 70,8 Camera 14 12 0 0 7 4 1 70 70 103,2 Pets 5 4 0 0 2 2 0 68 75 65.0 Misc. 4 4 0 0 0 2 2 101 — 133.8 All Mdse. Lines 331 257 2 30 101 99 25 72 70 75.6 Proportion of all orgs. recording per cent ratios 100.0 0.8 11.7 39.3 38.5 9.7 --

aBy placing estimated leased department sales in discount stores for 1965 equivalent to 100 per cent, the relative sales for 1963 established the index. 240

TABLE A.10-Sales Growth: Number of Leased Department Organizations Classified by Size of the Index of 1964 Sales to 1965 Sales, by Merchandise Line, 1965a

Total Total Number of Organizations Recording Indexes of: Index of 1964 Sales Merchandise Line Org. Reporting to 1965 Sales Org. 0 to 24 25 to 49 50 to 74 75 to 99 100 Si over Median Mode Mean

Women's & Children's 29 26 0 1 2 21 2 83 80 83.8 Men's Wear 22 17 0 0 1 12 4 90 80;100 89.8 Domestics & Linens 21 15 0 0 3 10 2 83 50;80;90 101.5 Shoes 29 25 0 1 4 17 3 90 90 87.6 Health & Beauty 30 22 0 0 3 18 1 90 90 83.2 Pharmacy 12 8 0 0 2 6 0 90 95 82.9 Records 16 11 0 0 0 11 0 80 80 80,0 Sporting Gds, U Toys 22 16 0 0 1 11 4 88 85 89.5 Bakery 5 4 0 0 0 3 1 94 — 93.2 Hard Lines 40 33 0 0 2 28 3 85 90 85.2 Auto Accessories 19 15 0 0 2 12 1 85 80;85;90 86.3 Furn. & Fir. Covrg. 24 18 0 0 2 12 4 88 80 90.0 Appliances 13 12 1 0 1 9 1 85 90 79,5 Jewelry 26 20 0 0 4 14 2 90 95 84.3 Camera 14 12 0 0 0 11 1 88 90 99.8 Pets 5 4 0 0 1 3 0 85 95 84.0 Misc. 4 4 1 0 0 1 2 107 — 146.8 All Mdse. Lines 331 262 2 2 28 199 31 85 90 88.1 Proportion of all Orgs. recording per cent ratios 100.0 0.8 0.8 10.7 75.9 11.8 — -- —

aBy placing estimated leased department sales in discount stores for 1965 equivalent to 100 per cent, the relative sales in 1964 established the index. APPENDIX B Operations of Leased-Departmei t Organizations in

Discount St< res BUREAU OF BUSINESS RESEARCH Division of Research, College of Commerce and Administration THE OHIO STATE UNIVERSITY 2 4 2

Study of Characteristics of OPERATIONS OF LEASED-DEPARTMENT ORGANIZATIONS IN DISCOUNT STORES

This inquiry is focused primarily on your leased-department operations in discount stores. If you operate leased departments in more than one merchandise line, please give answers in terms of your dominant merchandise line.

A discount store is defined for purposes of this study as a departmentized retail establishment of at least 10,000 square feet that sells a reasonable mix of hard and soft goods, prices merchandise at a relativelylow markup above costs, advertises extensively, minimizes free cus­ tomer service, maximizes use of self-service, utilizes relatively inexpensive facilities, provides ample parking, and can be distinguished from other retailers by its emphasis upon "discount prices."

Please try to answer all questions completely, but please return the questionnaire even if incomplete so that our sample will not be distorted.

CONFIDENTIAL: All inform ation will be held in strict confidence; it will be used only to com bine with th a t from o th er firms to obtain aggre­ gate experience. This form is identified only by a code number to assure anonymity even in our data processing.

DOMINANT MERCHANDISE LINE

1. We began operating leased departments in discount stores in ______(year).

2. In our leased departments in discount stores our dominant merchandise line i s ______

3. In this dominant merchandise line we operate ____ (number) of leased departments in discount stores (as of April 1, 1965).

LOCATION

4. Our primary area of operation is of the following type: (Check only one.) □ Single metropolitan area — e.g., Detroit. □ Local region — e.g., Eastern Ohio and Western Pennsylvania, (one state, or adjacent portions of two or three states) □ Regional— e.g., New England states, Southwestern states, (a geographic region composed of several adjacent states) □ National — e.g., In two or more regions.

5. If all other conditions are equal, we prefer to locate our leased departments in the following type of discount store: (Check only one.) □ Independent, or local chain — e.g., Detroit. □ Local region chain — e.g., Eastern Ohio and WesternPennsylvania, (one state, oradjacent portions of two or threestates) □ Regional chain — e.g., New England states, Southwestern states,(a geographic regioncomposed of severaladjacent states) □ National chain — e.g., In two or more regions. □ No preference. □ Other (Specify)______For dominant merchandise line, in discount store leased departments:

SERVICE CHARGE 6. a. For each type of charge made by discount stores for the expense items listed, please indicate the per cent and/or amount usually paid, whether included in rental payment or paid in addition to rent.

b. If rental payment includes amounts allocated for other expenses, please indicate. No Charge, Minimum Fee either in Per Cent Fixed or % of sales, rent or of Sales Fee whichever is higher separately Rent

a. Per cent or amount usuallypaid -% _sq. ft./yr. sq. ft./yr. or _ -% XXX

General Advertising a. Per cent or amount usually paid % $ ______p ag es/y r. ____ $______pages/yr. o r ------% □

b. □ Included in rent Q Paid 'n addition to rent

Checkout Service a. Per cent or amount usually paid % $ sq. ft./yr. $ sq. ft./yr. or % □

b. n Included in ren t □ Paid in addition to rent

Credit Service a. Per cent or amount usually paid % $ ______sq. ft./yr. $------sq. ft./yr. o r ------% □

b. □ Included in rent □ Paid in addition to rent

Warehouse Space a. Per cent or amount usually paid % $ ______sq. ft./yr. $------sq. ft./yr. o r ------% □

b. □ Included in rent □ Paid in addition to rent

OPERATING PRACTICES

7. What proportion of your purchases do you make from the following sources?

Per cent of Total Sources

______% Manufacturer's own sales force ------Manufacturers’ reps, or sales agents % Jobbers, wholesalers, or distributors % Brokers or commission merchants ______% Goods manufactured in our own plant ______% Other (Specify)______100 % = Total purchases For dominant merchandising line, in discount store leased departments:

8. Our average rate of inventory turnover is ______(number) stock turns per year.

9. The approximate number of our leased departments in which each of the following types of inventory control systems is used is: (Note: To the extent that more than one system is used for different merchandise, the total willbe more than the number of your leased departments.)

______(number) use dollar inventory control.

(number) use unit stock control.

______(number) use model stock plan.

______(number) use basic stock list.

______(number) use "never out" list.

______(number) use other (specify) ______

10. What proportion of the dollar value of merchandise supplied to departments is stored and distributed by the following methods?

Per cent of total Method of storage and distribution

% From our own central warehouse or factories

______% Drop shipped by manufacturer to store location

______% Supplied by wholesalers to store location

______% Other (specify)______

100 % = Total value of merchandise supplied to departments

PERSONNEL PRACTICES

11. We maintain the following types of training programs for our employees: (Check each one that applies.)

□ No training program

□ Informal introductory training program for new employees.

□ Formal introductory training program for new employees.

□ Informal management development training.

□ Formal management development training.

□ Other (specify______For dominant merchandise line, in discount store leased departments;

12. a. Our employees have a union contract in ______(num ber) of our leased departments.

b. Please rank 1 and 2 the two unions most often involved in the union contracts:

(Number 1 and 2) Union

______Retail Clerks InternationalAssociation

______Amalgamated ClothingWorkers of America

______T eam sters

______Other (specify)______

13. The following information about the employees in our leased departments is provided as of April 1, 1965:

a ------(no.) Total number of employees (including full and part time). (Part time is less than 40 hours, or as specified by your union contract.)

b------(% ) Proportion of employees engaged in part time work.

c------(% ) Proportion of employees engaged in nonselling jobs.

d ------(% ) Employee payroll as a per cent of sales.

ATTITUDES 14. Please rank 1, 2, and 3 the three factors that you believe most important for leased-department operators to investigate before determining in which discount store to operate:

(Number 1, 2, and 3) Factors to Investigate

______Is the store serving the same market you can serve.

______Does the store have good management.

______Adequacy of store’s capital and facilities.

______Past record of operations and earnings.

______Favorable contract terms.

______Compatibility of store personnel with lessee personnel.

______Do other lessees and the store-owned departments create the image your department desires.

______Does lessor operate a chain rather than just one store.

______Does the lessor operate his own departments in the store.

______:______Future growth potential for the store.

______Future growth potential for the chain.

______Other (specify)______For dominant merchandise line, in discount store leased departments:

15. Please rank 1, 2, and 3 the three factors that you consider to be the most important advantagesof operating leased departments in discount stores versus owning and operating stores of your own:

(Number 1,2, and 3) Advantages

______Greater amount of customer traffic is generated.

______Greater ease of pulling out if department and location are not profitable.

______Economies of scale can be secured on expenses of operation; e.g., light, heat, occupancy.

______Personnel can devote more time to merchandising activities than storekeeping activities.

______Greater range of customer services is economically feasible.

______Prestige of store is enjoyed by lessee.

______Smaller capital investment.

______More immediate return on capital investment.

______Lower payroll expense.

______Other (specify)______

16. Please rank 1, 2, and 3 the three factors that you consider to be the most important disadvantagesof operating leased departments in discount stores versus owning and operating stores of your own:

(Number 1,2, and 3) Disadvantages

______Possible take-over of department by discount store,

______Poor store management.

______Rental charge is too high or may rise directly withsales.

______Too many incidental charges.

______Difficult to present unified store image to customers.

______. Difficulty of co-ordinating promotions and advertising.

______Can’t control pricing in other departments.

------Disagreements between lessee personnel and store personnel.

—-______Difficulties of contract interpretations.

______Loss of security control — e.g., inventory stealing and security of cash from management.

------Other (specify)______— — ■ For dominant merchandise line, in discount store leased departments:

ORIGIN OF PRESENT FIRM

17. 'Before our firm (or its founder) began leasing departments in discount stores, it operated as:

(Check each one that applies) □ Leased department organization in other than discount stores for ______years.

□ Complete discount store for ______years.

□ Conventional stores other than discount stores for ______years.

□ Service wholesaler for ______years.

□ Rack jobber for years.

□ Manufacturer for ______years.

□ Other (specify type and years in operation) ______

GROWTH

18. a. Do you plan to expand your leased-department operation in discount stores?

□ Yes □ No If yes, what is the nature of the planned expansion: ______

b. Do you plan to expand your business in activities and fields other than leased departments in discount stores?

□ Yes □ No If yes, what is the nature of the planned expansion: ______

19. Taking your estimated leased-department sales in discount stores in 1965 as 100%, approximately what were your relative sales in:

Year Relative sales

1965 ...... 100%

1964 ...... % of 1965

1 963 ...... % of 1965

1960 ...... % of 1965

1958 ...... % of 1965

20. In your view, what will be the role of the leased department in discount stores in the future?

a. □ Increased use □ About same use as present □ Decreased use

b. Please explain:______CLASSIFICATION INFORMATION

21. LEASED-DEPARTMENT OPERATION IN DISCOUNT STORES, DOMINANT MERCHANDISE LINE: Please indicate th e approxim ate size, n e t sales, transaction size, and number of items stocked for your typical department, and for the optimum department you desire (NOTE: This is the only operating information requested (other than turnover) and is especially important. Please answer completely; give best estimates if actual figures are not available.) Size N et S ales Transaction Size No. of Items Type of Department (sq. fL) (dollars) (Sales -f- No. Trans.) Stocked

Typical department _sq. ft. $______

Optimum desired department _sq. ft.

22. ALL LEASED-DEPARTMENT OPERATIONS IN ALL TYPES OF STORES: Please indicate the following about the type and scope of your firm’s leased department operations in all types of stores, and only in discount stores, as of April 1, 1965.

VOLUME: NUMBER of Leased Departments in Each Line: Proportion of total leased- IN ALL IN Merchandise line department volume TYPES DISCOUNT done in each line of Stores STORES only List dominant merchandise line:

1______-% (name of line) (Sam e as Que. # 3 )

List other important merchandise lines:

2______-% (name of line)

3._ (name of line)

4_ -% (name of line)

5. All other merchandise lines: -% Total ) " 1 number v o f d e p ts.) Total leased department volume 100 %

23. OPERATIONS OTHER THAN LEASED DEPARTMENTS: Is your firm engaged in other business, in addition to the operation of leased depart­ ments? □ Yes □ No

a. If yes, please indicate the type of such business: (Check each one that applies) □ Operates leased departments in other than discount stores. □ Operates complete discount stores. □ Operates conventional stores other than discount stores. □ Service wholesaler. □ Rack jobber. □ Manufacturer. □ Other (specify) ______— _ . - ...... b. The volume represented by this non leased-department business represents ______% of total company volume. COMMENTS

Any comments in explanation of any of the foregoing answers; or, especially, in elaboration of any problems or issues of leased-department merchandising in U. S. discount stores that are of particular concern to you, or of future directions as you envision them, will be very much appreciated.

Preparing Officer Title Firm Number

Please return in the attached self-addressed envelope to BUREAU OF BUSINESS RESEARCH OS II College of Commerce and Administration ■V^ /J The Ohio State University BUMNf f‘»!i bs r;p a r c h 1775 S. College Road Columbus, Ohio 43210 THE OHIO STATE UNIVERSITY 177J SOUTH COLLBOB ROAD COLUMBUS, OHIO 43210 243 COLLEGE OF COMMERCE AND ADMINISTRATION ) u a i R. M cO ar, D m

BUREAU OF BUSINESS RESEARCH l u u s C Y o c u m , Director May 24, 1965 G i u u t N u t u , Statirtial Amolyiii M um* Stutdw. Bmriocu Sututies

To Operators of Leased Departments in Discount Stores:

A number of major leased-department operating firms and major discount store organizations have made grants to enable The Ohio State University to conduct a comprehensive study in depth of the leased de­ partment in U.S. discount stores. As you know, the growth of the dis­ count store has been chronicled, but its indispensable component, the leased department, has not had the attention and analytic study that its vigorous rise and significance in American retailing merit.

The Ohio State research is being conducted in the Bureau of Busi­ ness Research by Mr. James Lowry, Instructor in Marketing, Bowling Green University (Ohio), under the direction of Dr. William R. Davidson, Professor of Marketing, The Ohio State University, and a recent Past President of the American Marketing Association, and an author and consultant in the field of retailing.

The purpose of this study is to assemble and analyze representative information on leased-department merchandising in U.S. discount stores -- its growth and future directions, operating practices and standards, costs and productivity. The focus of the study is especially on the main problems and issues now current and indicated for the future.

The enclosed questionnaire has been designed to assemble this essential information with a minimum of effort on the part of the respond­ ing firm. Your assistance in providing answers to the questions as they apply to your firm will be very much appreciated.

You may be assured that the figures supplied by your firm will be held in complete confidence. The form is identified only by a firm code number to assure anonymity even in our data processing; only broad ag­ gregates of data, under rules preventing disclosure of individual firm figures in any way, will be developed.

Sincerely,

JCY/bjs Enclosure THE OHIO STATE UNIVERSITY 1 m SOUTH COLLBOB BOAD 244 COLUMBUS, OHIO 4321*

COLLEGE OF COMMERCE AND ADMINISTRATION J a m u R. M cCdt, Dm

BUREAU OF BUSINESS RESEARCH June 2 8 , 1 9 6 5 Iam uC. Yocum, Dincior R a u b U . I n n u , Orgaaimutoa F u m u c k d . S to c k ia , Etmmmio G ucrr Nunc, ItmlitUc* Ammliiii M ak tm a S t t a t t d k . Bmimcji Statistics

TO OPERATORS OF LEASED DEPARTMENTS IN DISCOUNT STORES:

A short time ago we asked the cooperation of leased-department operators in a comprehensive study of leased-department merchandising in U. S. discount stores that is being undertaken by The Ohio State University.

The response to the first request has been substantial; many firms in responding have expressed their appreciation that a thoroughgoing study of this dynamic segment of American retailing is under way. The cooperation of many more leased-department operators is necessary, however -- in fact, indispensable -- if this study is to achieve its objec­ tive.

Since your firm is one of those that has not yet responded, a second copy of the questionnaire being used in the study is enclosed. Your assis­ tance in providing answers as they apply to your firm is urgently needed.

The information sought can come only from leased-department businesses and from the experience of executives in these firms; the analysis that will be made of the composite of this information will contrib ute valuable insight into leased-department operations in discount stores - its growth and future directions, operating practices and standards, costs and productivity.

You may be assured that the information supplied by your firm will be held in strict confidence. Only broad aggregates of data will be devel­ oped; individual companies will not be identified in the final report.

Your early reply will be very much appreciated. A self-addressed return envelope is enclosed for your convenience.

Sincerely,

afnes C. Yocum 'irector JCYtlw Enclosures THE OHIO STATE UNIVERSITY 1775 SOUTH COLLEGE ROAD COLUMBUS, OHIO 43210 245 COLLEGE OF COMMERCE AND ADMINISTRATION James R. McCoy, Dean

BUREAU OF BUSINESS RESEARCH J a m e s C. Y o c u m , Director Ralph M. Stogdill, Organization F r e d e r i c k D. S t o c k e r , Economics G ilbert N bstel, Statistical Analysis M artha Stratton, Business Statistics

September 16, 196$

Mr. D. H. Sigal, General Manager Si-Berg Corporation 8271 Melrose Avenue Los Angeles, California 900L6

Dear Mr. Sigal:

This is a personal appeal to you and to a selected number of other leased-department operators for cooperation in our comprehensive study of leased-department merchandising in U. S. discount stores.

Nearly 300 firms have already given usable information, providing the basis for a successful analysis for most kinds of leased-department business. For your kind of business. however, response is not yet large enough to provide a satisfactory sample.

Your response is urgently needed, therefore, to assure that analy­ sis of typical operations for your principal merchandise line and size group will be included in the final results of the study.

Won't you please fill out the enclosed questionnaire as completely as possible and return it promptly? It will take only a few minutes of your time, and you will be contributing to a composite of information which when analyzed will provide valuable insights into leased-department operations in discount stores — its growth and future directions... operating practices and standards... costs and productivity.

You may be assured that the information supplied by your firm will be held in strict confidence. Only broad aggregates of data will be developed; individual firms will not be identified in the final report.

Your early reply will be appreciated. A self-addressed envelope is enclosed for your convenience.

Sincerely,

ntes {Q/ Yocum JCIjdal rector Enclosures APPENDIX C APPENDIX C

VALUES OF CHI-SQUARE FOR DIFFERENCES IN RESPONSE BETWEEN

LESSEES COMPLETING MAIL QUESTIONNAIRE AND LESSEES

PERSONALLY INTERVIEWED

Since the leased department operators who were personally inter­ viewed and contacted by telephone were the ones that had not responded to the mail questionnaire, a nonresponse sample was available. For several questions in the questionnaire the replies given by the indi­ viduals answering the mall query were compared to the replies given by the nonrespondents. The chi-square test was applied to the mail respondents and the nonrespondents to see if the difference in replies between the two groups was statistically significant, or only what one might expect normally due to random sampling error.

As shown below, in all cases the values received from the chi- square test were not statistically significant. It may be concluded with a reasonable degree of confidence that there was no difference in the tendencies of the mail respondents and the nonrespondents to reply to the questionnaire.

A. Chi-square test of question 3 in the survey. Question: In this dominant merchandise line we operate ______(number) of leased departments in discount stores (as of April 1, 1965).

247 248

FREQUENCY COUNT TABLE

Row Number of Departments Operated_____ Total 1 2 to 4 5 to 10 11 to 25 26 & over

Respondents 274 39 93 71 42 29 Nonre spondent s 56 9 22 16 7 3 Column Total 330 48 115 86 49 32

Chi-square = 1.675 at four degrees of freedom.

Chi-square at four degrees of freedom and 80 per cent confidence level equals 1.65 which is slightly smaller than 1.675. Therefore, the hypothesis that there is a significant difference between the respondents and the nonrespondents is rejected.

B. Chi-square test of question 8 in the survey. Question: Our average rate of inventory turnover is ______(number) stock turns per year.

FREQUENCY COUNT TABLE

Row Rate of Inventory Turnover_____ Total 0 to 4.0 to 5.0 to 6.0 to 8.0 & 3.9 4.9 5.9 7.9 over

Respondents 266 52 74 51 43 46 Nonrespondents 51 11 11 8 11 10 Column Total 317 63 85 59 54 56

Chi-square = 1.8542 at four degrees of freedom.

Chi-square at four degrees of freedom and 80 per cent confidence level equals 1.65 which is smaller than 1.8542. Chi-square at four degrees of freedom and 70 per cent confidence level equals 2.20 which is larger than 1.8542. Therefore, the hypothesis that there is a significant difference between the respondents and the nonrespondents is rejected.

C. Chi-square test of question 14 in the survey. Question: Please rank 1, 2, and 3 the three factors that you believe most important for leased department operators to investigate before determining in which discount store to operate: 249

FREQUENCY COUNT TABLE

Most Important Factors to Investigate Row Others Total One Two Three Four Combined

Respondents 268 202 12 18 18 18 Nonre spondent s 47 33 3 3 3 5 Column Total 315 235 15 21 21 23

Chi-square = 1.013 at four degrees of freedom.

Chi-square at four degrees of freedom and 90 per cent confidence level equals 1.06 which is slightly larger than 1.013. Therefore, the hypothesis that there is a significant difference between the respondents and the nonrespondents is rejected.

D. Chi-square test of question 18a. in the survey. Question: Do you plan to expand your leased department operation in discount stores?

FREQUENCY COUNT TABLE

Row Plans to Expand Total Yes No and Indefinite

Respondents 272 198 74 Nonrespondents 54 34 20 Column Total 326 232 94

Chi-square = 1.708 at one degree of freedom.

Chi-square at one degree of freedom and 20 per cent confidence level equals 1.64 which is slightly less than 1.708. Therefore, the hypothesis that there is a significant difference between the respondents and the nonrespondents is rejected.

E. Chi-square test of question 18b. in the survey. Question: Do you plan to expand your business in activities and fields other than leased departments in discount stores?

FREQUENCY COUNT TABLE

Row Plans to Expand Total Yes No

Respondents 269 162 107 Nonrespondents 53 32 21 Column Total 322 194 128 250

Chi-square = .00046 at one degree of freedom.

Chi-square at one degree of freedom and 98 per cent confidence level equals .00063 which is slightly larger than .00046. Therefore, the hypothesis that there is a significant difference between the respondents and the nonrespondents is rejected. APPENDIX D

251 252

APPENDIX D

SELECTED COMMENTS FROM LEASED DEPARTMENT OPERATORS IN DISCOUNT STORES REGARDING THE ROLE OF THE LESSEE IN DISCOUNT STORES

Comment 1^

Leased department operators are faced with two major problems:

A. Obtaining lease with growing chains. (Landlords are local or not capitalized enough.)

B. Over expansion of discount units. (Saturation of com­ munities)— side effects are: 1. Loss of volume and a national loss of profitability. 2. Ads meaning less with the resultant loss of traffic.

Leased operators are:

A. Completely flexible (merchandise, capital, mobility).

B. Extremely specialized and knowledgeable in their field.

C. Usually well financed because of their ability to expand without great expenditures.

D. Very eager to please because of difficulty to obtain good departments and because we realize the competitive situation.

E. Bring better people and are anxious to supervise, manage, and buy better than ever before, also, because of competition.

Comment 2

The future of discount retailing will be dominated by those firms that have developed excellence in retailing logistics; e.g., price and quality merchandising, distribution, financing, management development research in terms of marketing site planning and development. The parent firms that have developed this excellence will correspondingly develop the facilities to handle all types of merchandise with the exception of traditional specialty areas such as jewelry, millinery, footwear, or areas in which the fabricator of the product can do his own retail distribution. 253

Comment 3

There will be in 10 years no little operator. By mergers, con­ solidations, and stock take-overs the little operator will be gone. Our economy is leading to an era of either all big or mamma and pappa store operators with the economic squeeze on all those in the middle. The dis­ count store will soon become a 33% and up markup free standing or shop­ ping center department store. Among the bigs will be additional mergers so that those in on the know will materially profit by stock deals and by 1975 it will level out to the way it was in the 40*s.

Comment 4

Management agreements aren't very good for the lessees. The discount store chains do not look at the local town events for promotion. There's no prior promotion planning and consultation. The discount store organization doesn't spend any money to enhance their building. The store expects the leased department to be too liberal in adjustments. The store operators add on additional hours without consulting the lessees.

Comment

Leased departments will be based on discount stores in substantial growing areas, confined to medium to better quality merchandise only, family type trade, and credit expansion.

Comment 6

I sincerely believe the strong independent chains will always need well financed and properly run leased departments. Departments like millinery, shoes, jewelry, and photo will continue to be leased for a long time. Others will always be needed by small independent store owners, but the larger chains have to take over departments they now lease.

Comment 7

The basic problem is security. If the business is profitable, a new lease arrangement will whittle down that profit. If the lessor de­ cided to take-over the department, the leases are so arranged that he may do it with very little trouble. I have been unable to arrange a "buy-out" agreement to protect our interest.

Comment 8

Discount houses in California are burdened by extremely high wages (union demands double most anywhere else), high taxes and too much com­ petition. I foresee only the giants remaining. Independents have to go out since there's no chance for them. 254

Comment 9

It is my opinion that the one area a discounter knows the least is in shoes. It is for this reason that I feel shoe lessees will not be taken over as easily as others. If store management would be more co­ operative, I feel a better relationship could exist. Store management interferes too much in the lessee operation.

Comment 10

We are primarily interested in discount stores that feature medium and better grade merchandise as opposed to low end merchandise. We feel that intelligent "on the ground" management is essential, and that the owners have a direct stake in the store in form of ownership of at least 50% of the departments in the store.

Comment 11

We have experienced a great number of problems in operating with the discount stores. Generally, we have worked with the smaller local organizations. This may be a contributing factor in their lack of management perspective and lack of cooperation.

In observing discount store operators over the past 5 years, I have come to the conclusion that they are probably the most narrow minded group on the merchandising scene. They are not flexible in their approach to problems. Scientific, objective reasoning seems remote from their operational methods. They completely fail to grasp the basic philosophy stated above concerning the welfare of the other person, and they base their entire business thinking on "how much is there in it for me." Most of the first discount leased operators succeeded, not because of what they did, but jji spite of what they did. However, they were suc­ cessful . . . and much of their thinking "froze" back in the dark ages of discounting.

Not too many years ago the discount "hot-shots" were laughing at the department store operators and bragging about their own genius. Now, after the shake-out period, we find mark-ups in discount stores averaging close to department store levels. . . . without any of the finesse or service available that department stores have always fur­ nished. The big leased department operators grow bigger. . . not because they are "better," but because they are capitalized heavily and the bigger discount chains must, of necessity, stay with the large leased operator. This is why the dreary sameness of discount stores.

We honestly know (not just feel) that our discount departments could easily increase from 25% to 50% per year in sales with the complete cooperation and active assistance from our discount store people. How­ ever, it is a constant struggle to communicate with them. . . so we do 255 the best we can as long as we maintain a respectable return on our investment. In order to do this; however, we have had to compensate by increasing the markup on our merchandise approximately 4% in the past two years.

Comment 12

One of the predominant factors which caused the consumer to shift from the conventional "downtown" stores to the discount store was the more organized and unified theme of the discount store than that of "downtown". This might be viewed as the lack of adjacent competition for the consumer goods offered by the discount store. In other words, the upsurge of the discount store is an expression of the potency of marketing management as compared to the intuitive small businessman. However, quality marketing management must first have the virility to obtain a systematic, Integrated, and yet central set of objectives, programs to satisfy those objectives, and policies by which to complete those programs. The leased departmentalized discount store cannot effectively execute that concept, because all policies, programs, and objectives can not be best integrated without omnipotency of one management. It is my projection that the department store will annihilate the leased department discount store within less than 15-20 years unless complete and absolute sovereignty is given to one management for all marketing aspects.

Comment 13

Frankly, we have no basic problems in our leased departments. They have to be watched closely as far as the landlords policies rather than ours. You must "jump him" immediately to correct problems. The average landlord is engaged in a milking process and attempts to not spend on Improvements, or face liftings. There is also the problem of seeing that they advertise regularly to maintain the image. We find our shrinkage rates higher in leased departments. Also, management as a rule does not consult its tenants enough— or in some cases— there are no meetings. Our feeling is strictly for independent locations with the door open for a live-wire landlord only.

Comment 14

The organization that you have the lease with and the local store manager is most important. You must get along with the local manager and personnel. Absentee management is a problem. Lessor takes the experience of his best unit, and he wants you to emulate it.

Comment 15

Our feelings about the expansion of our type of leased department are very positive. Our landlords both have plans for expansion. At 256 this time their plans include our operating the departments. It is our feeling that as long as the leased department is a credit to the store and is showing the landlord a profit from the space occupied there is no danger of a take-over from the landlord. The only lessees who are open to this type of take-over are those who try and run departments in a shoddy and "cut the corners" manner.

Our relationships with our landlords have always been pleasant and we find that our present landlords can appreciate our problems and in many instances will lend their support in solving some of them. There have been very few instances when the landlords have been un­ reasonable and if this does happen we have found that the only way to solve this type of problem is to back down for the moment. We have always found that top management will help us in any way that they can.

We have run the gamut of landlords and will now only place our departments in well financed, well managed stores, We have had two landlords go bankrupt under us, and we have tried to steer clear of any potential such as this. We find that this type of operation demands more from the operator than a free standing store since not only do you have to satisfy yourself but you have to keep the store management happy at the same time. We do not find this situation to be unworkable, and we have found that in some instances the demands of our landlord has made us better operators.

Comment 16

There’s greater room for smaller operations. It's hard for smaller companies to grow making it advantageous to use small leased department operators. The decline of small business hurts the economic position of the country. The large companies use loss leaders, and they have a tendency toward monopoly.

Comment 17

In most cases the lessor owns 50 per cent of the departments he has in the store. The main disadvantage is that the lessor uses the basic operation of the store to sell his own product at a greater margin of profit than the leased department operator can realize. The lessor wants to advertise your department as a loss leader rather than his depart­ ments. You have only one line you are selling. Lessors are not oriented to your line of merchandise. The central New York office of the lessor does not know local conditions.

Comment 18

I believe too many major operations that are totally unfamiliar with our product close their eyes to the advantages of leasing. They prefer to handle this department using rack jobbers to supply them. The 257 result is a lower volume due to poor selection, poor service, poor pro­ motion (they pay too high a price for the product). A leased department in a specialized field can offer a complete department service, timely stocking of new merchandise, lower prices, better promotions, and above all, a good customer relationship.

Comment 19

Our major problem is the competitive discount stores that own and operate their own departments in our merchandise line at a loss in order to bring in traffic. They make up the losses in our line in the other departments they own and operate.

Comment 20

I believe that we are presently in a great state of flux. By this 1 mean that there are at least five times as many discount houses now in operation as compared to 1960 and they are battling harder for the consumer dollar. On the surface this looks like the coming trend in merchandising. However, I believe we will come to see a distinct reversal of this trend as the pie gets thinner and the profit margin gets slimmer. The discount house will be here for a good long time. However, the weaker, underfinanced or poorly managed ones will fall by the way or be absorbed by the better ones. The poorer and weaker departments in the better discount houses will be replaced slowly and soundly by stronger chains or local operators from around the country.

The biggest single problem from the lessees point of view is that the rental percentage is not flexible and/or adjustable. Our con­ ventional type stores are becoming discount conscious and the public is more aware of price than ever before. The stigma of second rate mer­ chandise still lingers on.

Comment 21

The objection to being a lessee in a discount store is that the nature of the business is ruthless; you are at the mercy of the lessor and you can not control your own destiny. Solution is: (1) get out or (2) become a larger factor in the total business.

Comment 22

Being a leased department is bad in many ways because it seems that we are always last to find out new store policy and rules. Many times we are left out on the advertising.

One good point is that we are always busy since we are located near the only main entrance. The store should have better employee facilities, and a closer relationship with the employees and manager. It seems like the top 3 or 4 guys are always too busy to talk shop and answer any questions that we smaller people want to have answered. 258

Comment 23

We have decided to go out of the leased department program. We find that the only profits remaining are in vertical integration as the manufacturer of the key products sold. We are reluctant to invest any more additional capital in leased departments.

Comment 24

For the most part management of the more successful store has an arrogant attitude and a complete lack of respect for the leased department owners who for the most part are competent and responsible businessmen. There is no feeling of security. The better you do your job the more management covets your department. There is no apprecia­ tion for a job well done, or for the lessees' having taught management how to operate departments in fields with which they are unfamiliar.

Comment 25

After successfully starting in conventional retailing in 1955, we had five stores in operation by 1959. We were approached to become a licensee in a new membership store being planned. We felt it was expedient, defensive, and prudent to "try" our hand at this type of merchandising. The immediate results were fantastic. This encouraged us to search out more. We found a chain where we put in seven depart­ ments in five weeks time. Volume was good, but shrinkage horrible, store operation worse, and conditions were bad. The store chain bought back all the departments but two by mutual agreement. Today, we are being forced to sell these two units to a big supplier in this mer­ chandise line.

Comment 26

Discount operations under proper management could be the most successful retail operations. Too many of the lessees as well as the lessors do not want to build an image, but they want to make a profit immediately. Also, because of the fact that a lot of the lessees hire so called cheap help the departments do not get or stay properly mer­ chandised. When selection is not adequate, then volume suffers. Also, too many lessors are under financed and they fail when the quick profit does not show up.

Comment 27

Stores sometimes duplicate merchandise being handled by the leased department without any regard to the fact that it is in the leased de­ partment category and has been sold for sometime by the leased department prior to the main store having it. Thus, the store is direct competition to the leased department. The leased department is considered by some 259 management as a competitive rather than an integral part of the Store. This usually stems from the district manager echelon and sifts itself down to local store management. The top echelon at the home office does not have this attitude, but it seems to condone it in the district managers or else they are not aware of it.

Comment 28

Cut throat competition resulting in the next five years by the survival of only the large giants. The older stores must change their establishments. They need fancier fixtures and better grade merchandise since consumer tastes are going up.

Comment 29

Prices should be more uniform among the discount stores and among the departments within a particular discount store. There’s too much price cutting.

Comment 30

There’s a lag in capital for leased department operators as the discount chains rapidly expand their own operations.

Comment 31

In the beginning the lessee gets full cooperation from the store personnel; later the store gets new top management and the close rela­ tionships are lost. The new people don't know you. We like the smaller operations because the big operations lose close contact. Absentee ownership for leased departments is not too good. A local man is best to have as a lessee because he is close to the scene, and he can do 20 to 25 per cent more volume at a close viewpoint.

Comment 32

Profit margins are shrinking as promotions increase to get more business. The increase in inventory required to make a small net profit on gigantic sales makes one wonder if certain types of concessions such as in our merchandise line can be classified as successful investments. When a return of less than 15 per cent on invested capital is reached, changes will be in order. BIBLIOGRAPHY

26.0 BIBLIOGRAPHY

A . Books

Alderfer, E. B. , and H. E. Michl. Economics of American Industry. New York: McGraw-Hill Book Company, Inc., 1950. 716 pp.

Beckman, Theodore N., and William R. Davidson, Marketing. New York: Ronald Press Company, 1962. 873 pp.

Davidson, William R., and Paul L. Brown. Retailing Management. New York: The Ronald Press Company, 1960. 809 pp.

Davis, H. W. C., Editor. Medieval England. London: Oxford University Press, 1924. 632 pp.

Hower, Ralph M. History of Macy's of New York 1858-1919. Cambridge, Massachusetts: Harvard University Press, 1943. 500 pp.

1964 Directory of Discount Centers. New York: Business Guides, Incorporated, 1964. 720 pp.

Nystrom, Paul H. Marketing Handbook. New York: The Ronald Press Company, 1948. 1321 pp.

Phillips, Charles F., and Delbert J. Duncan. Marketing Principles and Methods. Homewood, Illinois: Richard D. Irwin, Inc., 1964. 865 pp.

Van Sickle, C. E. A Political and Cultural History of the Ancient World. New York: Houghton Mifflin Company, 1947. 630 pp.

Wilber, Donald N. Persian Gardens and Garden Pavilions. Rutland, Vermont: Charles E. Tuttle Company, 1962. 239 pp.

B. Publications of the Government, Trade Associations, Businesses and Other Organizations

Alexander, Ralph S., and the Committee on Definitions of the American Marketing Association, Marketing Definitions. Chicago: American Marketing Association, 1960. 23 pp.

A Survey of Discount Department Stores. Dayton, Ohio: Marketing Research Department, The National Cash Register Company, July, 1960. 53 pp.

261 262

Directory of Discount Houses and Self-Service Department Stores. Chicago: National Research Bureau, Incorporated, 1964. 421 pp.

"Discount Supermarkets - Dynamic New Factor in Retailing," NCR Points. Dayton, Ohio: National Cash Register Company, July, 1959, 1-4 pp.

Doody, Alton F., "Historical Patterns of Marketing Innovation." Chicago: Proceedings of the American Marketing Association Winter Conference, Pittsburgh, 1962. 537 pp.

"improved Profits and Debt Positions Highlight 1964 Ratio Study of Leased Department Operators," Discounters Digest. New York: Dun & Bradstreet, Incorporated, September 28, 1965. p. 1.

"independent Grocery Stores," Small Business Reporter. San Francisco: Bank of America National Trust and Savings Association, 1964. 10 pp.

Leased Departments, Rates, Policies, and Expenses in Department and Specialty Stores. New York: Controller's Congress, National Dry Goods Association, 1946. 36 pp.

Leased Departments, Rates, Policies, and Expenses in Department and Specialty Stores. New York: Controller's Congress, National Retail Dry Goods Association, 1952. 51 pp.

Leased Departments, Rates, Policies and Expenses in Department and Specialty Stores. New York: Controller's Congress, National Retail Merchants Association, 1958. 47 pp.

Leased Departments, Rates, Policies and Expenses in Department and Specialty Stores. New York: Controller's Congress, National Retail Merchants Association, 1965. 64 pp.

Lewis, E. H., and R. S. Hancock. "The Franchise System of Distribution,’ Management Research Summary. Washington, D. C.: Small Business Administration, 1963. 4 pp.

Market Guide of Discounters and Mass Merchandisers. New York: Appraisal Service, Dun & Bradstreet, Incorporated, March, 1965. 190 pp.

"1965-Another Banner Year in Sales for Discounters," Discounters Digest. New York: Dun & Bradstreet, Incorporated, April 26, 1966. pp. 1-2.

Teele, Stanley F. Department Leasing in Department Stores. Boston: Bureau of Business Research, Harvard University, October, 1933. 39 pp. 263

U. S. Bureau of the Census, Statistical Abstract of the United States; 1965. (86 edition.) Washington, D. C . , 1965. p. 824.

"Virginia Dare Stores'Corporation, Prospectus." New York; Virginia Dare Stores Corporation, January 30, 1962. 25 pp.

Weiss, E. B. The Coming Era of Giant Leased-Department Chains. New York: Doyle, Dane, Bernbach, Inc., 1961. 50 pp.

"What is the Leased Department Takeover Trend?," Discounters Digest. New York: Dun & Bradstreet, Incorporated, October 26, 1964. p. 1.

C. Periodicals

"Adventures in Shopping - The Discount Houses," Sales Management (June 15, 1954), p. 42.

"Annual Leased Department Listing," Modern Retailer (May, 1965), pp. 64-66, 68-74, 76-80, 82-87.

"Census 1963," Discount Store News (August 26, 1963), pp. 35-53.

"Discount Bankruptcies Dropped Sharply in 1964, Says D & B Letter," Modern Retailer (April, 1965), p. 3.

"Discount Census, 1964," Discount Store News (August 24, 1964), pp. 5-57.

"Discounters Strive to Ride Out Storm," Business Week (December 1, 1962), pp. 78-80, 85-86.

Entenberg, Robert D. "Leased Departments Can Be a Sound Investment," Department Store Economist (April, 1962), pp. 34-36.

"Farmers’ Markets Offer Retailers and Discounters New Competition," Tide (September 11, 1954), pp. 24-25.

Goldsmith, Henry. "Store Should Manage Leased Department," Discount Store News (September 21, 1964), p. 19.

Gottesfeld, Sam. "Self-Service Discounters Mushrooming Over Nation," Women1s Wear Daily (June 29, 1959), pp. 1 and 11.

"Leased Departments," Stores (October, 1961), pp. 8-12, 46-52.

Meissner, Frank, "Closed-Door Discount Stores," Journal of Retailing, Vol. 38, No. 3 (Fall, 1962), pp. 17-29, 56. 264

"1962 Discount Liabilities Were Steep," Modern Retailer (February 8, 1963), pp. 1 and 9.

"1965/'66 Discount Census, Facts and Figures," Discount Store News (August 23, 1965), pp. 7-69.

Otterbourg, Robert K. "The Farmers' Markets," Journal of Retailing (Winter, 1954), pp. 169-174, 182, 186.

"Roth Claims Grayson-Robinson Will Operate at Profit From Now On," Modern Retailer (February 1, 1963), pp. 1 and 24.

Silberman, Charles E. "Discount Houses - A Revolution in Retailing," Fortune (April, 1962), pp. 99-102, 254-265.

Sweet, Morris L. "Will Today's Farmers' Markets Become Tomorrow's Super Markets?," Printers' Ink (October 12, 1956), pp. 28-31.

Tallman, Gerald B. and Bruce Blumstrom, "Soft Goods Join the Retail Revolution," Harvard Business Review, Vol. 38, No. 5 (Septeraber-October, 1960), pp. 133-143.

The Editors. "Businessmen Re Advertising: 'Yes, but . . . '," Harvard Business Review (May-June 1962), pp. 20-46.

"The True Look of the Discount Industry 1964," The Discount Merchandiser (May, 1965), pp. 41-70.

"The True Look of the Discount Industry: 1961," The Discount Mer­ chandiser (July, 1962), pp. 32-40.

"The True Look of the Discount Industry: 1965," The Discount Mer­ chandiser (June, 1966), pp. 35-113.

"Top Management Looks at Leased Departments," Stores (January, 1959), pp. 23-26.

"Where the Customer Pays to Shop," Business Week (November 10, 1962), pp. 162-168. 265

D. Unpublished Materials

Duvel, William A. "What the Credit Executive Should Know About the Discount House," Talk at 66th Annual Congress of the National Association of Credit Management, for Manufacturer Division in Philadelphia (New York: Dun & Bradstreet, Incorporated, May, 1962), 9 pp.

Lehrman, Joseph. "Operation of Leased Women's Ready-to-Wear Depart­ ments in Discount Department Stores." Unpublished Master's thesis, The City College of the City University of New York, 1962.