An Evaluation of the Current Status and Future Outlook of Leased Departments As an Important Aspect of Discount Merchandising
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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 supermarket ............................. 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 Supermarkets, 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