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PUBLICATION OF THE GRADUATE SCHOOL OF
BUSINESS ADMmiSTRATIONTHA^^

VOL. VII, NO. 4 CAMBRIDGE, MASS. DECEMBER, 1921

BUL LETIN NO. 28
BUREAU OF BUSINESS RESEARCH



Operating Expenses in
Retail Shoe Stores in 1920




Price $1.00



CAMBRIDGE
HARVARD UNIVERSITY PRESS

1921



BULLETINS OF THE BUREAU OF BUSINESS RESEARCH

1. Object and History of the Bureau, with Some Preliminary Figures
on the Retailing of Shoes Out of Print

2. Harvard System of Accounts for Shoe Retailers 50 cents

3. Harvard System of Accounts for Retail Grocers 50 cents

4. Depreciation in the Retail Shoe Business 50 cents

5. Expenses in Operating Retail Grocery Stores — 1914 Out of Print

6. Harvard System of Accounts for Shoe Wholesalers 60 cents

7. Harvard System of Stock-keeping for Shoe Retailers Out of Print

8. Operating Accounts for Wholesale Grocers $1.00

9. Operating Expenses in the Wholesale Grocery Business — 1916

50 cents

10. Management Problems in Retail Shoe Stores —1913-17 60 cents

11. System of Operating Accounts for Hardware Retailers 50 cents

12. Operating Expenses in Retail Hardware Stores — 1917-18

50 cents

13. Management Problems in Retail Grocery Stores — 1918 $1.00

14. Methods of Paying Salesmen and Operating Expenses in the
Wholesale Grocery Business in 1918 $1.00

15. Operating Accounts for Retail Jewelry Stores $1.00

16. Operating Accounts for Retail Drug Stores $1.00

17. International Comparisons of Prices of Cotton Cloth, January,

1919 to March, 1920 $1.00

18. Operating Expenses in Retail Grocery Stores in 1919 $1.00

19. Operating Expenses in the Wholesale Grocery Business in 1919

$1.00

20. Operating Expenses in Retail Shoe Stores in 1919 $1.00

21. Operating Expenses in Retail Hardware Stores in 1919 $1.00

22. Operating Expenses in Retail Drug Stores in 1919 $1.00

23. Operating Expenses in Retail Jewelry Stores in 1919 $1.00

24. The Wholesale Grocery Business in January, 1921 Out of Print

25. Labor Terminology In cloth $2.00

26. Operating Expenses in the Wholesale Grocery Business in

1920 $1.00

27. Operating Expenses in Retail Jewelry Stores in 1920 $1.00

28. Operating Expenses in Retail Shoe Stores in 1920 $1 00



BULLETIN NO. 28
BUREAU OF BUSINESS RESEARCH



OPERATING EXPENSES IN
RETAIL SHOE STORES IN 1920




CAMBRIDGE
HARVARD UNIVERSITY PRESS
1921



COPYRIGHT, 1921
HARVARD UNIVERSITY PRESS



PRINTED AT THE HARVARD UNIVERSITY PRESS
CAMBRIDGE, MASS., U.S.A.



FOREWORD

This bulletin is the seventh that the Harvard Bureau of
Business Research has published on the retail shoe business.
The series has included bulletins on the classification of ac-
counts, depreciation of merchandise, stock-keeping methods,
management problems, and operating expenses. During the
present year this study of the problems of the retail shoe
business has been carried on with the financial assistance of
the National Shoe Retailers' Association and the National
Association of Shoe Manufacturers. The National Shoe Re-
tailers' Association also has sought actively to encourage its
members to submit figures, thereby increasing the number of
reports received.

Circulars were sent out to 9,565 stores in the summer and
early fall of 1921. A second circular also was sent to a sub-
stantial number of these stores. A total of four hundred
nineteen reports was received, three hundred ninety -seven of
which it was possible for the Bureau to adjust to its standard
accounting system for inclusion in the summary published in
this bulletin.

When the study of the retail shoe trade was first under-
taken, it was not expected to compile these reports annually.
In 1911 and 1912 the likelihood of war conditions was of
course not anticipated, and furthermore the usefulness of
these data from the trade standpoint was not appreciated.
Although the figures may show comparatively slight changes
from year to year, nevertheless it now appears that, for the
present and immediate future at least, it is worth while to
have such annual summaries compiled. From the Bureau's
standpoint these annual reports are of value in furnishing a
larger fund of information regarding current business methods

3



4

and costs. This information is directly useful for teaching
purposes in the Harvard Graduate School of Business Ad-
ministration, of which the Bureau is a part. The annual
summaries also furnish the trade with up-to-date figures
which can be used for general trade purposes, if occasion
arises. They provide the individual retailer each year with a
standard with which he can compare his own figures. The
collection of these reports and the checking of the statements
also have an educational advantage in that occasionally cases
are found in which retailers are losing money without knowing
it; obviously there is a permanent gain from the improve-
ments in accounting and management methods that usually
result from revealing unknown losses.

At the present time perhaps the greatest significance of
these compilations, however, is the foundation that they are
providing for a history of the trade, showing what has hap-
pened in good years and in poor years. Recent studies of the
ups and downs of business prosperity indicate that it may be
possible for business men to lessen the severity of the fluctua-
tions. To do this, a thorough understanding of what has hap-
pened in various trades is essential. The value of these
annual reports, therefore, will become greater and greater as
the series increases in length.

The reports that were included in the preparation of the
summaries published in this bulletin are a sample of condi-
tions in the trade. From its experience in dealing with such
data, the Bureau believes that this sample is fairly representa-
tive of typical conditions in the retail shoe trade in 1920.

Melvin T. Copeland,

Director.



OPERATING EXPENSES
IN RETAIL SHOE STORES IN 1920

INTRODUCTION

Complete reports on the cost of doing business in 1920, ad-
justed to the Bureau's standard profit and loss form, were
received from three hundred ninety-seven retail shoe stores.
These stores were located in forty-three states, in Canada,
and one in Hawaii. Of these stores two hundred four were
located in cities with a population less than 50,000; fifty -two
stores were in cities with a population between 50,000 and
99,000; ninety -nine in cities with a population from 100,000
to 699,000; and forty-two in cities with over 700,000 popula-
tion. The aggregate sales of the entire group in 1920 were
$76,489,000. The net sales of the individual firms ranged
from $11,700 to $3,489,000, the largest firm operating several
branches in one city.

In this bulletin high, low, and common figures for operating
expenses in 1920 are summarized for the trade as a whole and
also for the stores grouped according to the Federal Reserve
districts, and according to their volume of net sales. Similar
comparisons are made for gross and net profit and for stock-
turn. The changes that took place in the ratio of operating
expenses and profits to sales in the year of depression 1920 as
compared with the year of prosperity 1919 are pointed out.
Finally, several tables are given on such subjects as cash dis-
counts, returns and allowances, and financial figures.

The average cost of doing business, as indicated by the
common figure for total expense in the detailed tables that
follow, was 26 % of net sales in 1920. This was about 2 %
higher in percentage of net sales than total expense in 1919;

.5



6

this conclusion is substantiated not only by the comparison of
the common figures for all the stores reporting in both years
but also by the separate tabulation of the figures for one
hundred thirty identical stores that furnished fully compar-
able reports for 1919 and for 1920.

The common figure for gross profit in 1920 was 27.2 % of
net sales, a decline of approximately 6 % in percentage of net
sales from the figures for 1919. The common figure for net
profit, which was 9 % in 1919, was 1.2 % of net sales in 1920.
The stores that showed a net loss in 1920, slightly over one-
third the total number reporting, had a common figure of 1.8
times for stock-turn, whereas the stores that showed a net
profit in 1920 had an average stock- turn of 2.1 times in that
year.

VOLUME OF BUSINESS

The majority of the stores that reported for 1920, as shown
in Table 1, had net sales between $30,000 and $250,000. The
number of stores in each sales group is shown in this table.
Forty-seven stores, for example, each had net sales of less

TABLE 1
Volume of Business in 1920

Net Sales Number of Stores

Less than $30,000 47

$30,000-$49,000 85

$50,000-$99,000 99

$100,000-$249,000 102

$250,000 and over 64

Total number of stores .397

than $30,000, ninety-nine stores each had net sales between
$50,000 and $99,000. Net sales as used in this tabulation and
throughout this bulletin include both cash sales and charge
sales and represent the real volume of business done. To
determine net sales such items as returns and allowances to



customers are deducted from gross sales, and the amounts
collected for the Federal luxury tax are also deducted, if they
have been included in gross sales.

In Table 2 the volume of business done by one hundred
thirty stores in 1920 is compared with the volume of these
same stores in 1919. Although the last half-year in 1920 was
a period of depression and prices had begun to fall, it is to be
noted that the volume of sales in dollars and cents on the whole
tended to be higher in 1920 than in 1919. The aggregate sales
of these stores were $24,238,000 in 1919, and $25,507,000 in
1920.

TABLE 2

Volume of Business in 1919-1920

Number of Stores
Net Sales 1919 1920

Less than $30,000 17 17

$30,000-$49,000 26 23

$50,000-$99,000 37 38

$100,000-$249,000 30 33

$250,000 and over 20 19

Total number of stores 130 130

The changes in the volume of sales are of course affected by
changes in prices. From the standpoint of general business
prosperity the number of pairs of shoes sold is a more sig-
nificant index to conditions in the shoe trade -than the sales
measured in dollars and cents. To aid in interpreting the net
sales figures, the Bureau made an inquiry regarding the num-
ber of pairs of shoes sold in both years. Only seventy-two of
the three hundred ninety-seven firms submitting 1920
figures had records of the number of pairs of shoes sold in
these two 3^ears. In these seventy-two stores, the aggregate
number of pairs sold in 1919 was 2,298,527; in 1920, 2,264,057.
Thus in these stores the number of pairs sold decreased 1.5 %
in 1920. In so far as this small sample is indicative of condi-



8

tions in the trade generally, the much discussed " buyers 7
strike" of 1920 apparently did not result in any substantial
reduction in the number of pairs of footwear sold.

OPERATING EXPENSES

Table 3 shows the lowest, highest, and common figures in
percentage of net sales for each item of expense that was in-
cluded in the total cost of doing business in the three hundred
ninety-seven retail shoe stores on whose reports this bulletin
is based. As defined in the standard classification of accounts,
to which all the reports are adjusted, the figure for total ex-
pense includes not only the expenditures for such items as
wages, salaries, insurance, and taxes, but also a fair salary for
the proprietor or partners, interest both on borrowed money
and on the net investment in the business, and a charge for
rent whether the store is owned or leased.

Percentage figures for each item in each store were worked
out independently, using the net sales figure for that store as
100%. The lowest figures are not all from one store nor are
the highest, but each is the lowest or highest figure for the
respective item shown by any store. The sub-totals for the
groups of expense, such as total selling expense or total fixed
charges and upkeep expense, also are worked out inde-
pendently. Thus, the lowest figure for total selling expense is
the lowest found on any of the reports. Inasmuch as no one
store showed the lowest figure for all the individual items, the
lowest figure for total selling expense is greater than the sum
of the individual entries for lowest expenses in the selling
group.

The common figures in the tables given in this bulletin are
the ones that ordinarily will be most serviceable to the in-
dividual shoe retailer in applying the results of this research
to his own business. By comparing the percentages for the
various items of expense shown on his own statement with



the common figures in Table 3, he can see immediately where
his expenses may be tending to be higher than those of the
other stores reporting. The supplementary tables will en-
able him to carry out this analysis in greater detail according
to the volume of business done. The common figure in each
case is the one around which the figures from all stores tend to
center. It is the predominant, typical, most representative
figure, and is determined by statistical means which eliminate
any influence of extremely high or low figures.

For nearly every important item of expense it has been
found that a particularly well-managed group of stores has a
figure that is less than the common figure for all stores.
Hence, when a merchant finds that his figures are as high as
the common figures, even though no higher, the comparison
shows that he is only reaching average conditions; to reach
the standard of the stores that are operated most economi-
cally, he should undertake to bring his own figures below the
average. •



10



TABLE 3

Operating Expenses in Retail Shoe Stores in
1920 — 397 Stores

Net Sales = 100 %

Lowest Highest Common

Wages of Salesforce 4.3 % 17.7 % 9.7 %

PM's 4.2 0.5

Advertising 6.5 1.9

Wrappings and Other Selling 0.05 2.1 0.2

Total Selling 5.0 21.8 12.3

Delivery 3.4 0.3

Buying, Management, and Office Sala-
ries 0.4 12.8 3.9

Office Supplies, Postage, and Other

Management 0.03 3.1 0.3

Total Buying and Management. ...>.. 0.9 13.1 4.2

Rent 0.4 15.9 2.6

Heat, Light, and Power 0.08 2.8 0.5

Taxes (except on buildings, income, and

profits) 0.01 3.4 0.5

Insurance (except on buildings) 0.07 1.5 0.5

Repairs of Store Equipment 0.01 2.2 0.2

Depreciation of Store Equipment 0.03 2.2 0.3

Total Interest 0.5 7.4 3.0

Total Fixed Charges and Upkeep 2.8 18.1 7.6

Miscellaneous 0.01 8.0 1.4

Losses from Bad Debts 3.8 0.2

Total Expense 12.5 48.9 26.0

Table 3 indicates that the average cost of doing business in

retail shoe stores was 26 % of net sales in 1920. The largest
single item, as in previous years, was wages of salesforce,
9.7 %. The second largest item was buying, management, and
office salaries, 3.9 %. Total interest was 3.0 %, rent 2.6 %, and



11

advertising 1.9% of net sales. Taken together these five
items constituted more than three-fourths the total expense.
The common figures for the five items just referred to and
also for losses from bad debts and total expense in one hun-
dred thirty stores in 1919 and 1920 are given in Table 4.
These stores furnished fully comparable reports for the two
years. For each year the common figures for this selected
group differ but slightly from the common figures for the
larger groups used in the general summaries.

TABLE 4
Operating Expenses 1919-1920 — 130 Stores

Net Sales = 100 %

1919 1920

Wages of Salesforce 8.3 % 9.6 %

Advertising 1.3 1.9

Buying, Management, and Office Sala-
ries 4:2 3.9

Rent 2.3 2.5

Total Interest 2.9 3.0

Losses from Bad Debts 0.2 0.2

Total Expense 24.2 26.3

From Table 4 it appears that wages of salesforce were sub-
stantially higher in percentage of net sales in 1920 than in

1919. This indicates that wages of salesforce reached their
peak at just the time that the business depression started.
Advertising expense and rent also were slightly higher in

1920. Total interest and losses from bad debts were prac-
tically the same in both years, and buying, management, and
office salaries showed a slight decline in percentage of net
sales. These figures emphasize the problems of readjusting
operating expenses during a period of rapidly changing bus-
iness conditions.

The cost of doing business in 1920 apparently^was lowest,
in percentage of net sales, in the stores with volume ranging
from $50,000 to $99,000. All the stores for which reports were



12

tabulated for 1920 are grouped according to their volume of
sales, and the common figures for the important items of ex-
pense are given in Table 5. The number of stores included in
each group also is indicated.

TABLE 5

Operating Expenses in 1920 According to
Volume op Sales

. Net Sales = 100 %

Net Sales less $30,000- $50,000- $100,000- $250,000
than $30,000 49,000 99,000 249,000 and over
Number of Stores 47 85 99 102 64

Wages of Salesforce 10.1% 9.7% 8.7% 9.4% 8.8%

Advertising 1.0 1.2 1.6 2.1 3.4

Buying, Management,

and Office Salaries ... 3.6 3.3 2.9 3.8 4.6

Rent 2.7 2.3 2.2 2.9 2.9

Total Interest 3.9 3.5 3.2 ' 2.5 2.4

Losses from Bad Debts . 0.3 0.2 0.2 0.1 0.1

Total Expense 25.0 24.3 23.5 26.6 29.6

The common figures for wages of salesforce, buying, man-
agement, and office salaries, and rent, as well as for total
expense, were lowest in the group with annual sales of $50,000-
$99,000. It is to be noted that advertising expense increased
gradually from the group with the smallest average volume of
sales, reaching its highest figure in percentage of net sales in
the group with a volume of $250,000 and over. Total interest,
on the other hand, showed a constant tendency to decline as
the volume of sales increased. This can be accounted for
largely by the tendency for the rate of stock-turn to be higher
in stores with a large volume of sales. The losses from bad
debts were highest in the small stores. The common figure for
total expense, in percentage of net sales, was highest in the
group with sales of $250,000 and over, this same group also
having the highest percentage for buying, management, and
office salaries.



13

The reports on the cost of doing business from stores with
small volume of net sales tended in 1920 to be comparable
whether the stores were operated in small towns or in large
cities and irrespective of the sections of the country in which
they were located. This substantiates the Bureau's expe-
rience as shown by the results of previous studies. Thus it ap-
pears that comparisons of operating expenses between stores
with similar volume, as shown in Table 5, are more significant
than comparisons based on the size of the city or on the
section of the country in which the firms are situated.

Because of numerous requests for information regarding
operating expenses for particular localities, the reports have
been grouped in Table 6 according to the Federal Reserve
districts in which the stores were located. Inasmuch as only
seventeen reports were received from the Philadelphia dis-
trict, fourteen from the Richmond district, fifteen from the
Atlanta district, twelve from the Minneapolis district, and
eleven from the Dallas district, separate tabulations of the
figures for these districts are not given. The number of re-
ports received from each of these districts was not large
enough to give common figures that could be relied upon as
significant. It is also possible that in at least two of the dis-
tricts for which summaries are given in Table 6 the common
figures might be changed substantially by the addition of
more reports. It should also be explained that in the case
of the San Francisco district, where the total expense was
highest, a large majority of the stores reporting had sales of
over $100,000 a year, the group which, as previously noted,
tended to have the highest operating expense. The figures
for several small items of expense are not included in this
table. For these items the common figures in Table 3 for the
trade as a whole are adequate for making comparisons for
practical purposes; no substantial differences between the
districts were apparent.



14



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15

Although conclusions drawn from Table 6 must be tenta-
tive because of the relatively small number of stores reporting
in some of the districts, there are a few points to which atten-
tion may well be called. Advertising expense was highest in
the Kansas City and San Francisco districts; this may be
accounted for in the latter district by the predominance of the
large stores among those reporting. The common figure for
buying, management, and office salaries was lowest in the
Cleveland district and highest in the St. Louis and San
Francisco districts. The rent percentages were highest in the
Boston and New York districts. Total interest, on the other
hand, was lowest in percentage of net sales in the Boston and
St. Louis districts and highest in the San Francisco district.
These comparisons suggest differences in local conditions, but
further investigation will be necessary to determine whether
or not the differences are really as marked as these figures may
imply.

STOCK-TURN

The rate of stock-turn indicates the frequency with which
merchandise is sold and replaced. The lower the amount of
stock carried in proportion to the quantity of goods sold, the
higher is the rate of stock-turn and usually the lower are the
operating expenses. Inasmuch as the only figures that are
available in most stores for determining the rate of stock-turn
are the inventories at the beginning and end of the year and
the cost of the goods sold, these data have been used here in
the analysis of the rate of stoGk-turn. As has been explained
in previous bulletins, average monthly figures of stock on
hand would provide a better index, but up to the present time
such figures have not been generally available. For the pur-
poses of this summary, stock-turn has been determined by
dividing the average of the inventories at the beginning and
end of the year into the cost of the goods sold.



16

The lowest rate of stock-turn in any of the retail shoe
stores that furnished reports for 1920 was 0.72 times — sub-
stantially less than once a year. The shoe store that turned
its stock most rapidly in 1920 had a stock-turn of 7.6 times in
that year. The common figure was 2.0 times. Although the
common figure for stock-turn was only twice a year in 1920,
nevertheless approximately one-fourth the total number of
stores reporting turned their stock more than 2.5 times in
1920, and, as has been pointed out in previous bulletins, there
is definite evidence that in a majority of the stores the rate of
stock-turn could be increased substantially beyond the com-
mon figure. The increase in the rate of stock-turn can be
accomplished through better methods of stock-keeping and
more care in buying, in order to avoid the accumulation of
end sizes and narrow widths and of other slow-moving
merchandise.

The reports for 1920 substantiate the Bureau's previous
observations, that in the individual stores that have a high
rate of stock-turn the operating expenses ordinarily are lower
than in the stores that turn their stock more slowly. For
example, in stores having a rate of stock-turn of less than 1.5
times a year, total interest in 1920 amounted to 4.4 % of net
sales and total expense to 28.8 %. In stores with a rate of
stock-turn of 2.5 times a year and over, on the other hand,
total interest in 1920 was only 2.1 % of net sales and total ex-
pense 24.3 %. This indicates that a store with a high rate of
stock-turn suffers less depreciation on its merchandise and
also secures more economical use of its capital.

In the stores that showed a net profit in 1920, about two-
thirds the total number reporting, the common figure for
stock-turn was 2.1 times. In the stores that showed a net loss
in 1920, the common figure for the rate of stock-turn was 1.8


1

Online LibraryUnited States. Congress. Senate. Committee on IndiOperating expenses in retail shoe stores in 1920 → online text (page 1 of 2)