Music Trade Review

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MAY
9, 1925
THE MUSIC TRADE
REVIEW
The Trade-in and Its Effect on the
Net Profit of Piano Dealers
The Third of a Series of Articles Based on an Exhaustive Survey Recently Concluded by The Music Trade
Review of the Part Which the Trade-in Plays on the Net Profit of the Retail Piano Merchant
Together With a Study of the Methods Which Will Remedy Its Evil Effects
HE most important element in the en-
tire trade-in problem is the method which
is used by the retail piano merchant in
making the allowance on the second-hand in-
strument. As has been pointed out earlier in
this series of articles, the same attention should
be given this factor as is given the entire buy-
ing problem in the retail piano warerooms.
This manner of approaching a trade-in solution
can not be too often emphasized, for it is there
that most of the evils which lead to eventual
losses take their origin. Too often those who
make the allowance assume the attitude of
buying in a short market, bidding against each
other, neglecting intrinsic values and, of course,
ultimate resale prices.
Bases of Allowances
The leases on which allowance figures are
compiled vary widely with the individual retail
piano merchant, according to the survey con-
ducted by The Review. No analysis of the
questionnaires returned can establish any uni-
formity of procedure in this direction. In fact,
judging from the replies, even within many or-
ganizations this uniformity does not exist. It
would appear that with such piano merchants
each case is considered individually, with the
result that there is a constant tendency to ex-
pand the allowance figure. The replies show
beyond the shadow of a doubt that such a pol-
icy needs reformation and that a greater meas-
ure of control is essential. They show that
some definite policy must be developed at this
point before any measurable progress can be
made in making the trade-in a profit-maker in-
stead of a source of loss as it too often is at
the present time.
Nine General Classifications
A rough classification of the replies to The
Review's questionnaires shows that, broadly
speaking, the bases upon which allowance fig-
ures are made are nine. Each one of these
classifications has variations, but largely in mat-
ters of detail. A close examination shows that
a majority of them are defective in bringing the
merchant a net profit in the resale of his trade-
ins.
An Effective Plan
1. The most effective plan reported came
from a dealer in the Southwest, most effective
in the fact that every element in the situation
had evidently been given careful consideration
in formulating it. The plan follows: (a) resale
price of the used instrument, minus 40 per cent,
and minus estimate of cost for putting in good
playing order without case refinishing; (b) re-
sale price minus 40 per- cent, representing cost
of putting in playing order and cost of refinish-
ing case; (c) the two costs arrived at above
are averaged as the trade-in allowance.
This plan protects the merchant from every
angle, and, in the case where refinishing is re-
quired, which, of course, is an expensive opera-
tion and which raises the cost of the instrument,
the averaging brings it within a good resale
price. It is the most effective plan which was
presented. A number of other merchants re-
ported that they based the allowance figure by
giving 60 per cent of the estimated resale value,
thus covering overhead and net profit, but a
number of them did not specify whether or not
they included the cost of repairs in this 40 per
cent. If they did this, unquestionably they
would make no profit on the resale, as the ayer-
T
age cost of putting the instrument in resale con-
dition would more than eliminate the net mar-
gin. To charge repair cost to overhead is a
basic fallacy, since this is essentially a cost and
should be charged to the merchandise account.
Different Margin
2. A number reported that the allowance with
them was set at resale price less 50 per cent.
This is a variation of the above plan, the only
objection that can be found to it being that the
cost system evidently takes merchandise at
its invoice cost and does not allow for addi-
tional cost involved in handling merchandise.
The General Estimate
3. The third plan, and which was reported in
a majority of returns, was a general statement
that allowances were based on age, condition
and name. Of course these are all basic ele-
ments in setting the price and naturally over-
head and profit should be added to set the re-
sale price. A number of dealers reported that,
in making these estimates, the style and finish
of the case exercised an important influence,
which is continually increasing. Both these
factors should be given more attention than is
usually the case to-day, since they are playing
a more and more important part in the purchase
of pianos.
Here the element of name value is also an
important one. A well-known name on a used
instrument, which through reputation consti-
tutes itself a guarantee of quality, makes the
ultimate resale a much easier proposition and
consequently should be influential in setting the
allowance. A good proportion of dealers re-
ported that this fact was always given, careful
consideration and that the allowances made on
name value pianos were proportionately higher
than those carrying stencil names, even though
the grades of both instruments were approxi-
mately identical.
Stock Costs
4. Several dealers reported that their basis
for the allowance was the price at which they
would have purchased similar instruments for
stock and resale. This system is good provid-
ed the proper margin is added to the. cost in
order to take care of repair work, overhead and
net profit.
Short-Time Turnover
5. A number reported that the allowance was
set at a figure which would permit the dealer
to set a resale price that would permit a short-
time turnover. They evidently make no at-
tempt to show a profit on the resale of. trade-
ins, but simply aim to clear their warerooms of
used pianos as soon as possible. This plan,
provided it is rigidly adhered to, can find no
objection, but unfortunately there is always a
possibility of going wrong and sustaining a loss
on the resale.
The Guess System
6. Several dealers reported that they guessed
at the allowance. Nothing can be said here ex-
cept to quote the old proverb, "An open confes-
sion is good for the soul." All guessing in
business means eventual loss.
The Worst System
. .
7. One dealer reported that the allowance was
what the customer asked for or else there was
no sale. Again the same proverb applies, but
with greater force.
25 Per Cent Margin
8. Several dealers; reported that .they . based
their allowances on a figure 25- per cent less
than a fair resale price. This is not sufficient
to cover cost of repairs, overhead and net profit.
As a matter of fact, judging by previous inves-
tigations, it is not sufficient to cover the over-
head alone. Under this classification also come
a number who reported that they based allow-
ances on a figure a little lower than the resale
price. The same may be said of these.
Loss Through Overhead
9. Another group reported that in their pol-
icy the maximum allowance made was the re-
sale price without the cost of repairs. Here
again no allowance appears to be made for the
overhead and the margin of profit, and conse-
quently every sale of a used piano means an
ultimate loss.
Worthy of Study
These various plans are all worthy of a close
study. What appears from this is that a good
many dealers, in setting allowances, consider
only the physical values of the instruments and
neglect the questions of both overhead and net
profit. Now overhead is as much a physical
cost as is the actual price of any merchan-
dise and must be constantly taken care of. It
costs as much to sell a used piano as it does
a new instrument, and, in many cases, where
trade-ins have been permitted to accumulate,
a greater percentage of overhead since extra
exploitation, which costs extra money, must be
put behind them to move them. The dealer
who habitually neglects these elements habitu-
ally loses money on his trade-ins, a loss which
makes its appearance, on his annual statements,
not in the red ink of losses, but in a lower net
profit on his year's business. It is one of those
hidden losses which in business are hard to dis-
cover, for they are not apparent until the books
are carefully audited and the policy of the house
in its operations as carefully scrutinized.
Costing Systems
The whole problem of setting the allowance
on the trade-in is simply a matter of setting
proper costs on the merchandise which the
trade-ins represent. As has been pointed out
previously, if the entire problem is approached
from this angle, its solution is a matter of com-
parative simplicity. But until it is visualized
in this manner little progress may be made in
its Solution. Setting an allowance is buying an
instrument for eventual resale; it is not making
a concession in price to a prospective customer
in order to make a present sale. That is the
nub of the problem.
To Use Hardman in Recital
Mine. Thalia Sabanieeva, Metropolitan Opera
Co. soprano, will appear in a song recital in
Aeolian Hall, New York, Saturday evening,
May 9, using a Hardman concert grand. Mme.
Sabanieeva has created a sensation in the past
two seasons in New York in her singing of the
part of the Princess in Rimsky-Korsakoff's "Le
Coq d'Or," as well as her interpretations in
"Madame Butterfly," "Boheme" and other popu-
lar, operas.
Paul Burling, who some time ago severed his
connection with the Bush & Gerts Piano Co.,
of Dallas, Tex., as vice-president and manager
of the piano department, has returned to the
firm in his .old.capacity.