The ease of ordering from a catalog and of mak ing up an order in the quiet of the home is a factor in obtaining trade of those people who are unable or unwilling to take the time, and to put themselves to the inconvenience of going to stores to inspect stock and to place their orders.
6. Low people think that the chief strength of the mail-order house in competition is its ability to quote low prices on its goods. The general opinion seems to be that there is some inherent connection between the mail-order method of selling and the ability to sell at low figures. Some catalog houses offer many articles at very attractive figures, but other houses make no attempt to get trade on a price basis. It is worth while to analyze the price situation. Are low prices always possible in selling by mail, or, when they are offered, are they due to good management, size, or to some other considera tion of which the catalog houses have no monopoly? 7. Is profit iota—There are three fact ors which enter into the selling price of any dealer— first, the cost of goods laid down in his warehouse ; sec ond, his expense of doing business ; third, his profit. We shall consider these factors in inverse order. Good mail-order houses operate on a basis of low profits and quick turnovers, but so also do the good retail stores. There is nothing in the-nature of either kind of establishment which enables it to take a lower profit than the other and therefore to quote lower sell ing prices.
8. Expense of doing business.—The factor which is most within the power of the dealer to control is the expense of doing business. If Ile is careful of expenditures, if his business is run with the maximum of efficiency, and if he is expert in increasing sales without equally increasing expenses of operation, he ought to be able to undersell less efficient competitors.
There are certain obvious savings of the mail-or der house which should reduce its expenses of opera tion. For instance, its business is usually (altho not necessarily) on a cash basis. This means reduced bookkeeping costs, no expense of collection and no loss from bad debts. The catalog house has no house to-house delivery problem, an item that runs as high as three per cent of total sales in some retail stores.
There is no expense for elaborate store display and no necessity for expensive store location. The majority of the employes do not come into contact with the pub lic, and therefore it may be possible to utilize cheaper labor than the retail stores require. It should be remembered, too, that the catalog house ordinarily makes larger unit sales than the retail store, which means a minimum of certain overhead charges for each dollar of sales. With all these savings, and perhaps others, one might expect the expense factor in the catalog house's selling price to be lower than the ex pense factor in the selling price of the retail store. But to offset these many savings, the catalog house has a tremendous expense for advertising—so tremendous, in fact, that the total mail-order house expense is not infrequently considerably above the average retail. store expense.
Exact figures to show expense of doing business are not available; but it may reasonably be estimated that in the ordinary country store (with which the catalog house is chiefly in competition) the expense of operation runs from sixteen per cent to twenty per cent of sales. Perhaps eighteen per cent is a fair average for stores of this class.
Mail-order expense is variously estimated. It is necessary to divide catalog houses into two classes : first, there are the great houses, selling immense quan tities of goods and doing a country-wide business. The vice-president of Montgomery Ward and Com pany, some years ago, testified that it costs the mail order house anywhere from sixteen per cent to twenty .six per cent of its sales to do business. A recent in vestigation of seven large mail-order establishments indicated that twenty-two per cent is probably the average proportion of sales in relation to expenses. A writer in the Outlook (January 26, 1916) estimated mail-order expense at twenty per cent of sales.
In the second class of catalog houses are the smaller mail-order dealers and the many direct-selling manu facturers. Their selling expenses are often very high, tho definite figures are not available. It is cer tain, however, that many dealers and manufacturers in this class are glad to buy a dollar's worth of busi ness for twenty-five cents or even for more.