Music Trade Review -- © mbsi.org, arcade-museum.com -- digitized with support from namm.org
MARCH J,
1923
THE
MUSIC
TRADE
REVIEW
9
Financing a Retail Piano Business
The Third of a Series of Articles on the Financing Problems That Confront the Retail Piano Merchants—
The Discount Company's Plan and the Basis on Which the Retail Merchant Should Con-
sider it—The Proportion of Outstanding Paper Available for Discount
The question of primary importance which
confronts the dealer who is considering utiliz-
ing the financing company as a means of ob-
taining cash for use in his business and thus
securing a more rapid turnover of his capital
and extending his operations is that of cost.
The problem that confronts him, sketched in a
few words, is this: Will the cost of obtaining
this cash on his paper be more than compen-
sated by th^ profit he obtains from its use, not
only the net profit on the sales he makes, but
the increase in his turnover which the use of
a greater proportion of his invested capital gives
him, as well as the return derived from the
buying advantages he enjoys by moving into the
position of a cash purchaser? All these consider-
ations must be given thought, and thus not let
cost of obtaining the cash crowd out the other
essential parts of the problem to their detri-
ment.
What the Answer Requires
To answer this question definitely would re-
quire too close a knowledge of any given re-
tail piano warerooms, but, unquestionably, the
percentage of profit returned on more rapid
turnover which is thus made possible more
than outweighs the discount costs. The great
difficulty which has always confronted the re-
tail dealer has been the long periods involved
in a single turnover, this through the instalment
nature of his sales. Despite the margin of
profit which he apparently enjoys, what he ac-
tually nets on the sale of a piano or player-
piano is not great, considering the first cost and
the overhead involved in its sale. Many a deal-
er has deceived himself continually on this
score, with the result that he has worked for
a salary, rather than for a return on his invested
capital and the responsibility involved in direct-
ing an independent business.
To the industry there are many plans offered
by some of the largest discount companies in the
country and endorsed and recommended to their
dealers by some of the foremost piano manufac-
turers in the industry. The cost of financing
piano or player-piano retail sales contracts is
shown there in detail, together with the terms of
payment which the discount companies expect
the retail dealer to meet. A dealer who is con-
sidering this method of financing would do well
to apply these terms to his own paper and to the
general financial condition of his business, and
in this way he could easily arrive at direct con-
clusions as to whether or not this method of
financing would prove profitable to him. But, in
doing so, he must remember one thing. The
actual cost of obtaining the cash should not be
considered independently. What must be done
is to place this cost alongside of the profit he
figures he can make by using the cash in his
business. That is the only way in which he can
arrive at a conclusion which does justice to his
own affairs and to the actual merits of the plan.
When all is taken into consideration, however,
it will be seen that a dealer, financing under
the plan outlined with this article, receives the
cost of his instruments—that is, what he must
pay the manufacturer—back immediately, which
permits him to meet the manufacturers' bills
within their terms, take advantage of his dis-
counts and finally restock his warerooms with-
out the further investment of new capital. In
other words, what he pays for the cash in-
creases his turnover.
The Proportion of Paper
If a piano dealer decides to utilize the dis-
count company method of financing the second
consideration which comes up before him is
what proportion of his retail paper he can afford
to turn into cash by this method. There are
two main expenditures in any business. The
first is the money that is paid out for goods to
be sold. The second is the constant overhead
charge, such as rent, payroll and the myriad
small expenses that make up this element, which
must be met currently and with cash.
With a retail piano dealer these expenses
must be met from what his collection depart-
ment brings in from his outstanding paper. For
probably more than 90 per cent of his sales are
made on instalments.
The paper he hypothecates naturally takes up
the loan through its current collections and,
until the cash received lis paid back this money
is not available for current expenses. This,
again, is a matter which the dealer can only de-
cide for himself, for its entire solution depends
on the amount of his outstanding paper, the
average term for which it has been written and
the average monthly collections, in relation to
his current liabilities and his total of quick as-
sets. But it is something which is not hard to
discover, if the dealer will apply this formula
to his condition.
It has been said that the reason for most fail-
ures in retail merchandising is lack of capital.
Perhaps this statement should be modified to
read improper utilization of capital. This is
especially so in the retail piano business. The
dealer who carries his own paper hinders his
own progress. His gross volume of business
bears no proper relation to his invested capital
and his profits shrink accordingly. He requires
a large sum of money to do a small business.
He pays for this slow turnover in a decreased
net profit. That is the fundamental problem in
retail piano financing.
Expansion Through Proper Financing
The expansion of retail automobile selling has
been largely due to the part the financing com-
panies have played in its development in the
past five years. They have made possible instal-
ment automobile selling. Without their aid the
average dealer could never have assumed the
burden. Without their aid his possible mar-
ket would have been confined to comparatively
narrow limits. But utilizing their resources and
financing soundly, he has constantly expanded
his market and his gross volume of business
has grown far more rapidly than has the gross
of his invested capital.
There is no question that lack of such a de-
velopment in the retail piano trade can be traced
to a considerable degree to improper financing.
The industry is not growing in comparison to
the growth of the country in population and
wealth. The industry has not the capital with-
in its confines to expand even to a relative de-
gree in accordance with these two factors. It
must come from outside sources. The question
is from what source and at what cost. The dis-
count company offers one way. It has played
a large part in building up many striking re-
tail successes where it has been properly used.
Dealers who have started on the traditional
shoe-string have taken it and built up ware-
rooms that rank among the highest in point of
sales among those in the country.
It is a plan that merits careful and unpreju-
diced investigation and the application of its
principles to every dealer's individual financing
problem. For if dealers are to sell more in-
struments they must have a sound financing
plan. If they are to cover their territory in-
tensively the best selling plans in the world and
the most experienced salesmen and producers
possible to obtain are of but little use, unless
the dealer can obtain adequate capital at rea-
sonable cost to swing the business which these
two factors will create and thus permit him to
handle a growing business.
NEW BUILDINGJJOR HECHT CO.
At present this department is housed in a sepa-
rate building, known as the Music Building, on
I" street, but it is planned to give it exception-
ally well-situated and adequate space in the
new structure.
Washington Department Store to Erect Fine
New Home—Music Department to Be Housed
in the Main Building
WASHINGTON, D. C, March 12.—A modern,
seven-story building, embodying all the latest
improvements in retail merchandising, is to be
erected in the near future by the Hecht Co. at
Seventh and F streets, northwest, to be an an-
nex to the present store. It is expected that
the building will cost approximately $2,000,000
and will give the company, all told, a frontage
of 225 feet on Seventh street and 100 feet on F
street.
The erection of the building necessitated an
amendment in the local building regulations, as
the height limit at that point is eighty-five feet,
while the proposed structure will be 110 feet,
but this was secured without opposition and
with very little difficulty, following a hearing
before the District Commissioners.
The plans of the firm call for a fire-proof
building of modern construction. The exterior
will be of semi-glazed terra cotta with poly-
chrome decorations; wide show windows for
display purposes will occupy the street sides
and there will be one entrance on F street and
two on Seventh street. The building will be
mechanically ventilated and stairways will be of
steel and iron construction. The fixtures to be
installed will be of the most modern type avail'
able.
The music department of the store is one of
the most important, a full line of pianos, talking
machines and other instruments being carried.
THE LATEST BALDWIN "KEYNOTE"
Baldwin Piano Co. House Organ Full of Live
and Interesting Material for Dealers
The latest issue of the Baldwin Keynote, the
house organ of the Baldwin Piano Co., is, as
usual, an imposing little magazine full of matter
of interest and value to Baldwin dealers and
particularly rich in illustrations of stores and
special displays of the retailers responsible for
Baldwin distribution. The cover bears a por-
trait of DePachman and the first page shows
the Style K Baldwin grand recently installed
in the Governor's mansion at Frankfort, Ky.
Views of the departments of the Baldwin plant
devoted to the manufacture of hardware serves
to interest the dealer as does a large picture
showing Chaliapin, famous Russian basso, se-
lecting a Baldwin grand for his home in London.
The editor of the Keynote evidently believes in
the slogan, "Tell It With Pictures," judging
from the general appearance of the latest issue
of tlie magazine.
TO MAKE MUSIC ROLL SUPPLIES
The La Belle Specialty Co. has been incorpo-
rated under the laws of Delaware to manufac-
ture music roll fasteners, roll ties, etc. The in-
corporators are: J. Schirra and John'Purucker.