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the least costly method that you can.
You are going to be in competition
with all kinds of commodities for the
consumer's dollar. You are going to
have to give that consumer the maxi-
mum value that you conceivably can.
The OPA may be rendering a serv-
ice to the music merchants of America
in keeping the ceiling prices of pianos
low. Without our knowing it. they
may be forcing us to become better
business men. The maximum margin
that they allow under the present pro-
posed ceiling prices gives us a gross
of 43.98%, all the way down to
40.22 r f—and, gentlemen, if you are
going to survive in this music busi-
ness at margins of that kind in one of
your major departments, you are go-
ing to have to be good business men.
We might just as well begin to recog-
nize it, and we might just as well begin
telling the piano merchants and the
music merchants of this country that
these are the conditions that are con-
fronting us, because if we don't realize
it, we are going to go broke, and there
is no fun doing that.
More Capital Will Be Needed
The other subject that I would like
to call to your attention might be re-
garded as a division of the other.
That is the amount of capital you are
going to need to run your business.
In surveying the probable require-
ments of our own business, we pro-
ceeded on the assumption that we
would do the same proportionate
amount of business in our various de-
partments that we did in 1939, '40 and
'41, in cash, charge and installment.
By "charge" I mean thirty or sixty-
day payments. We assumed that our
merchandise would cost us 15 per cent
more, and then we projected our an-
ticipated capital requirements over a
two-year experience, and I don't mind
telling you it was quite a jolt.
Most of us in the music business
have liquidated our installment ac-
counts down to the point where they
are almost non-existent. Most of us
have substantially liquidated our in-
ventory of merchandise. But the time
is going to come, within the next year,
the next two, three, five years, when a
normal supply of merchandise is
available, when we will have to once
more indulge in that happy practice
of trying to sell merchandise. To the
extent that we are successful, we are
going to increase our investment in
our business, and we are going to do
it quite rapidly.
Keep Money Liquid
We might counsel members of our
Association to give some thought to
that. I was talking with a merchant
within the past two months, who heads
a long-established business. His com-
pany normally did from a hundred to
a hundred and fifty thousand dollars'
worth of business. They carried an in-
ventory, normally, of about fifty thou-
sand dollars at cost. Their current
inventory was between five and ten
thousand dollars. Their accounts re-
ceivable were practically liquidated.
I said, "Well, where's the money?"
He said, "We put it in real estate."
I said, "Well, how are you going
to go back into the music business
when they start shipping new band in-
struments, pianos and radios, etc.
He said he was getting to the point
where he too was beginning to wonder
about that.
Now, that is an actual case; it is
not a figment of my imagination. I
hope that the backbone of our music
industry, our retail merchants from
one end of the country, to the other,
haven't done that.
Sooner or later we are all going to
be confronted with the necessity of
getting more capital invested in our
business, temporarily borrowing it if
necessary. If we can't do that, we are
going to have to curtail our operations
so that the volume of business we do
is voluntarily kept within the limits of
the capital we employ in the business.
Guaranteed Serurit'es
Mr. Edmund Gram. Milwaukee,
then asked, "We have put our surplus
money into Government Bonds, not
into real estate. What do you think
the banks will do after we need the
capital for our business, to buy goods?
Do you think we can cash in on the
bonds through the banks?"
Mr. LaMair: "The Government it-
self has told you they can be cashed
on sixty day's notice. The point I
am trying to make is that if you have
been able to do business in the past
on, for instance, a hundred thousand
dollars in capital, to do an equal
physical volume of business in the
future, you are going to require a
substantially larger amount of money.
Survey your own requirements on
some such plan as I suggested, and
find out approximately how much ad-
ditional capital is required, remember-
ing that you may be selling pianos
again that will carry over two or three
years, as they did in the old days."
When asked if there will be a ten-
dency of forcing dealers into that
method of selling, Mr. LaMair said:
"If you buy a piano for five hun-
dred dollars and put a list price of a
thousand on it, with a 10% down
payment—one hundred dollars down
payment—in order to replace that
piano you have to obtain from some
place four hundred dollars, plus the
expense of doing business, plus the
tax on the profit you have made, so
that you are actually financing as
much as 96% of your volume of busi-
ness and getting as little as 10% of
the proceeds of your sale in cash."
Regarding Regulation "W"
To the question, "Would the con-
tinuance of Regulation W, say, of the
eighteen-month regulation, be of any
benefit?" he replied:
"Not materially. We made two
studies, one, of our business under the
regulation, and the other, of our busi-
ness under the free and easy method
where we did what we pleased. The
difference is not as great as it might
appear to be on the surface. Of
course, there is a lower capital re-
quirement under the terms of Regula-
tion W than under two- and three-year
time payments. Where most people err
is that they think they have to replace
only the merchandise and that the
Qost of merchandise is the end of the
capital requirements. But it isn't. You
have to pay your sales clerks' commis-
sion; your rent to the landlord; your
newspaper advertising expense; your
income tax on your corporation profit,
so that the only party you don't have
to finance is the amount that you
lease in your earned surplus. If you
pay your stockholders dividends, you
even have to provide cash for that.
(Turn to page TU
THE MUSIC TRADE REVIEW, MARCH, 1945