Music Trade Review -- © mbsi.org, arcade-museum.com -- digitized with support from namm.org
THE MUSIC TRADE
REVIEW
JULY 26,
1924
THE POINT OF REVIEW
all the discussion which has followed the recent convention
I N regarding
the topic of overhead in the retail piano store, the nub
of the question has been somewhat blurred because of the way in
which mark-up and overhead have been discussed conjointly and
together. Now, as a matter of fact, it is quite impossible to talk
intelligently on the subject of retail mark-up on pianos without hav-
ing definitely established, to some degree at least, the percentage of
overhead that appears in each sale of an instrument. So far as
The Review knows, there has only been one investigation of this
important subject ever conducted in the retail music trade, and that
was by The Review itself, the results of which are available in
pamphlet form. They developed the fact beyond argument that
overhead in the individual music store varied but slightly where the
dealer had an accounting system which told him exactly how much
it cost him to sell a piano, but they also showed that there were
many dealers—a surprisingly large number, in fact—whose knowl-
edge regarding their overhead costs was hazy and by no manner of
means as complete as it should be.
Ut
MS
%
ERE is a condition that should be reformed within the shortest
possible space of time. A dealer can never know his proper
percentage of mark-up unless he knows his percentage of expense.
That is one reason why such low net profits appear on many piano
dealers' books. That is one reason why pianos are sometimes sold
at ridiculous prices, taking into consideration their wholesale cost
and the overhead selling expense involved, and which leads to that
ruinous: competition in price, which at recurring periods is such a
marked condition in the trade. In fact, as in all other lines of retail
selling, lack of knowledge regarding overhead is essentially the
greatest evil confronting the retail merchant.
H
piano dealers' accounting is admittedly somewhat of a
R ETAIL
complex problem, involving as it does the handling of a large
number of instalment accounts, and these on average longer time
than exists in any other retail trade. But this complexity is no
excuse. The Music Industries Chamber of Commerce has even
gone so far as to issue a publication which takes up these problems
in detail and which gives the basis of an accounting system which
is simple and direct. This is but one solution for this problem;
there are any number of other ways in which a proper system can
be worked out.
J»
«f
M?
NCE a merchant has concrete knowledge of his overhead, the
question of mark-up can be given consideration. It is claimed
that the present-day mark-up is not sufficient to cover costs, over-
head and yield a good profit in the business. Judging by the results
of The Review's investigation, there is perhaps truth in this state-
ment, as the net profits reported by merchants therein were small
and, in a majority of cases, below the 10 per cent which those fur-
nishing the facts on which the investigation was based agreed with
practical unanimity was a fair net profit in the business. But there
is another alternative besides an increased mark-up for the solution
of this problem. That is a lower overhead. Piano dealers are not
noted for their economy. Too many of them, seduced by the ap-
parently wide margin between selling price and cost, spend money
recklessly in their selling work, and spend it without an eye to the
results it brings, which is infinitely worse than direct extravagance.
It is probably true that a majority of the retail piano merchants,
if they knew their overhead exactly, could reduce it considerably by
wise economy without in the least impairing the efficiency of their
organizations or lowering their gross sales.
&
$
#
HE great trouble with the average retail piano merchant in this
entire question is that mark-ups have largely been left to his
own individual action in the trade, the national one-price being a
development of comparatively recent years. The speaker on this
subject in the convention, in fact, went so far as to declare that a
national one price was nearly impossible, due largely to the fact
that freight costs varied so widely that dealers could not maintain it.
O
T
There is really no basis for this statement. If he would investigate
the selling policy of one of the leading player manufacturers, and
one who was a pioneer in successfully maintaining a national one
price, he would discover the remedy for this freight problem in the
fact that this manufacturer ships f. o. b. the dealer's city, no matter
whether that be Portland, Me., or Portland, Ore. Prorating freight
costs is an old business policy and a successful one Or, if this
policy is not followed, it is a simple enough matter to sell to the
customer either; f. o. b. factory, as is done in the automobile in-
dustry, or to add a certain percentage for distant shipping points,
as is done in other industries whose problems are very similar to
those existing in the piano industry.
A S a matter of fact, the national one price would seem to be the
*• *• eventual solution for the retail merchant's mark-up problem.
Granted the manufacturers' discounts from the ultimate selling
prices are liberal enough, and in the piano industry there is no ques-
tion that they would be, he would be forced to bring his overhead
costs in line with his discounts. That is the policy pursued in the
talking machine industry, so practically every music merchant is
familiar with it. It would put an end, practically speaking, to price
competition which is caused largely by varying mark-ups, and would
bring a degree of stability to the retail piano business which it has
only had in accordance with the advance of this policy in the trade.
It would do away with the careless methods of accounting which
lead to extravagant overheads and would in fact simplify the whole
problem which confronts the merchant. Only a casual study of this
question would give the proof of these statements.
MI
M?
M?
O business can be conducted if the mark-up is not sufficient.
That goes without saying. But at the same time mark-ups
should not be increased unless it is established beyond a doubt that
they are not sufficient. For a high-mark-up means a higher price
to the ultimate buyer and a higher price to that important person
means a curtailment in volume with a consequent curtailment in
turnover. And if this takes place the advantage of the increased
mark-up is at once lost and the retail merchant is, to all intents
and purposes, worse off than he was before. The piano industry
to-day cannot afford a curtailment of its market; what it really
needs is an expansion of it, for it is unquestionable that, consider-
ing the wealth and population of this country, the number of in-
struments sold annually is not in accordance with its potentialities.
And with conditions as they are to-day, the reform here must come
from within the industry, not from without it in a change in its
relations with the people who buy its products.
M?
M?
M?
facts must be taken into consideration in discussing
A LL the these
problems of overhead and mark-up. The entire problem
has only been! scratched so far in the consideration that has been
given it. It would seem that if the present mark-up is not sufficient
to give the average dealer a fair profit, granted he runs his business
efficiently, the real facts of the matter could be easily discovered.
Retail merchants in general are not usually silent when they are not
getting a fair return. This is so with a good many houses in the
retail piano business. But there are a good many others who are
making money. It is probably a question of relative efficiency, but
that cannot be decided entirely until the general facts of the situa-
tion have been discovered. What we need more than anything else
at the present time is exact knowledge of the dealers' overheads,
and that cannot be had until the dealer himself knows what they
are. Better accounting systems are needed, especially with the
medium-sized and smaller dealers who constitute the bulk of the
outlets for the products of the industry's factories. Until that is
done the question of mark-up will remain without a real solution.
It requires more capital to-day to run a retail business than ever
before; the expense is higher for all factors in that have gone up;
the profit, relatively speaking, has remained the same. What is
wrong? Lack of exact knowledge of the overhead in nine cases
out of ten.
T H E REVIEWER.