8. Wrong buying.—It has already been pointed out that overbuying is one of the most frequent causes of failure among retailers. For this, however, the re tailers are perhaps not wholly or solely to blame. Some manufacturers and jobbers conduct business on the principle of selling a retailer as large a bill of goods as he can be induced to buy. This is, of course, a short-sighted policy, and one that must prove injurious to both seller and buyer. No dealer should buy, and no wholesaler should sell him, more goods than he can readily dispose of in the normal course of the season's trade. The dealer who buys in ex cess of normal demand needlessly ties up capital in stock upon his shelves, and therefore weakens—at times even cripples—his paying ability.
Not only with regard to quantity, however, but also in the matter of quality, style, patterns, color and various other factors may the buying be at fault. In the credit man's opinion, it is a strong point in a credit-seeker's favor, that he is known to be a "careful buyer." By careful buying is meant buying in ac cord with the needs of the classes of persons who con stitute the customers of his store. Goods that are readily salable in one store may not "move" in a store on the next street. It all depends upon the class of people who come to buy. Moreover, each season in troduces a number of specialties—new goods regard ing which no previous experience is available, but on which a larger profit is generally made than on staples. An error induced by too strong a desire for gain, in connection with the stocking of such specialties, may at the end of the season leave on the dealer's hands a quantity of goods that cannot be sold at any price, since the demand for them was created by a mere short-lived fad.
A few seasons' mistakes in buying, especially where the business is conducted with only a small amount of working capital, may readily exhaust both capital and credit, and leave the dealer in the bankruptcy court.
9. Slow peddler on the street who makes a living out of a capital of twenty-five or fifty dollars, must turn his capital a great many times in a year if he is to make a satisfactory profit. The greater the number of his turnovers, the larger his year's earnings. Similarly, a retail storekeeper's turnover is an important factor in gauging the per manence of his business, since the ratio of turnover di rectly affects the size of the capital invested. If the turnover is slow in a business where with proper man agement it ought to be rapid, it shows that too much capital is invested. It may be that when interest on
capital is deducted from the year's earnings, the mer chandising profit will be nil.
It will be seen that a slow turnover is directly con nected with the manner of buying. If a merchant buys in large quantities when by buying oftener he can buy conveniently and economically in smaller quantities, he is clearly tying up capital and reduc ing the rate of his turnover. This is why the an nual turnover must always be ascertained if we are to know accurately whether the business is earning a profit, standing still, or losing money. In some lines of business where profits on individual sales are small, as for example in the grocery business, the capital should normally be turned about ten times a year, while in others, where profits on each sale are rela tively large, as in the case of specialties, one or two turnovers a year may afford a very satisfactory rate of profit.
A slow rate of turnover, considering the character of the business, helps to pave the way for delinquency and for subsequent insolvency. This condition, there fore, sounds a warning for the creditor house.
10. Liberal credits and poor ma jority of retail stores sell on credit; even so-called "cash stores" frequently extend credit to a certain number of customers whose trade is desirable and who are in the habit of paying their bills once a month or at other regular intervals. Moreover, competition in nearly all lines of trade is such that it is necessary to make it as easy as possible for customers to buy. Yet between extending credit wisely and unwisely, there is always a wide gulf, as usually becomes evident when attempts are made to collect the outstanding ac counts.
Many retailers grant credit with a very free hand, apparently forgetting that no profit is made on a sales transaction until the goods sold are fully paid for. When to such liberal credit policy is added a poor and unmethodical collection practice, we have a com bination that is capable of consuming all the profits in sight and of leaving a deficit at the end of the year.
11. Inappropriate efficacy of ad vertising is today generally recognized. Fortunes have been made thru judicious advertising; but for tunes have also been lost thru ill-conceived publicity. A business may suffer for lack of advertising or for lack of suitable advertising. It may also suffer on account of excessive, too expensive, or unsuitable ad vertising.