Business: Codes for Counters

(See front cover)

Having waved over mine, shop and factory, the magic wand of the NRA was last week poised for its last big sweep, over the retail stores of the land. After public incantations which began in August and backstage sorcery continued all through September, the Retail Code was nearly ready for the President to approve and invoke.

Nearly, but not quite, for besides being the biggest of all codes in point of persons affected, it involved consequences even more far-reaching, politically as well as economically, than the codes for basic coal, cotton, oil, steel, motors, lumber, leather, wool. It touched 1,000,000 stores, 5,000,000 employes and $30,000,000,000 of yearly trade by each & every U. S. citizen who can afford to buy so much as a pin. Upon it depended the Cost of Living.

Awaiting the settlement of the Retail Code, governing department stores, mail order houses and general retailers of all sorts large & small, were two collateral codes, the Drug Code and the Food Code. For into them was to go the Retail Code’s key clause—or the principle it laid down —on price-cutting. The question of hours & wages was no issue; that had been settled by the President’s blanket code. Labor was no problem. The nation’s salespeople are wholly unorganized. The essence of the proposed magic was to end forever the blight of cutthroat competition which always reacts balefully upon merchant, manufacturer, laborer and ultimately consumer. In Article VIII Section I of the Retail Code resided its prime significance:

“In order to check predatory and destructive price-cutting and to minimize retail operating losses resulting therefrom … no retailer shall offer for sale, sell, exchange or give away any merchandise . . . below a minimum price which shall not be less than 10% above the manufacturer’s net invoice delivered price to the retailer on all purchases direct from the manufacturer and not less than 7% above the net wholesale invoice delivered price on all purchases made through intermediary channels performing wholesaling functions. It is provided, however, that any retailer may meet any competitor’s price on identical articles in his trade area which is set in conformity with the foregoing provision.”

This was the way it would work: if a merchant bought a. lamp from a manufacturer for $1 he might not retail it for less than $1.10. If any other store in that merchant’s trade area was able to get that lamp for 90¢ from a manufacturer, however, the merchant was permitted to use 90¢ as his base price and retail the lamp for 99¢. even though that meant selling 1¢ below his own wholesale cost.

If the merchant bought the lamp from a wholesale house (which would presumably take a profit of at least 3% for itself) for $1. he must mark it up to $1.07. The price would nevertheless be stabilized within narrow limits. So that a store’s stocks might not become frozen through the operation of this provision, bona fide clearance sales, disposal of perishable goods and discontinued lines, genuine liquidation, were permitted at any prices a merchant chose to fix.

This principle of price-control was as vital to the Drug Code and the Food Code as it was to the Retail Code. Solidly behind it were six national associations of retailers, the nation’s dealers in drygoods, furniture, hardware, clothes, shoes and the Mail Order Association of America. Their voice during the two-month wrangle over the controversial “stop-loss” section has been the curly-headed owner of Brooklyn’s Namm Store.

As chairman of the Fair Practice Committee of the combined retail trade associations, Major Benjamin Harrison Namm has constantly on his tongue the phrase “predatory price-cutting.” Major Namm was dead intent on stopping the practice of cutting prices on a few articles (“loss leaders”) to give the impression that all articles in the store are priced on the same basis. The “price-control clause of the retail code, argued Major Namm & friends. would end vicious price wars which do nobody any good, often drive retailers bankrupt and always dry up the market for months afterwards. The 10% mark-up would not cover the overhead of even the most efficient retailer ; its only purpose was to stabilize gyrating retail prices, perhaps lengthen the life of the average retailer, now only seven years. In the last four years 400,000 retailers have gone to the wall.

But there were several conspicuous breaks in the solid rank of U. S. merchants who had written into the heart of the Retail Code this article which they believed would be their salvation. There were Kauffmann’s of Pittsburgh, Marshall Field of Chicago and the biggest store in all the world, R. H. Macy & Co. The voice of the opposition was the voice of Macy’s President Percy Selden Straus. who took a stand reminiscent of Henry Ford’s embattled stand against the Automobile Code. But Mr. Straus’s stand was not quite such rugged individualism as Henry Ford’s. Rather, it was an inherited shrewdness.

“We Do Our Very Prettiest” From the day in 1858 when a hard-bitten shipmaster from Nantucket became a “dealer in Dry Goods. Carpets. Oil Cloths, Matting, etc.,” Macy’s has been a cash store. By 1859 Captain Rowland Hussey Macy was publishing such sprightly advertisements as this:

Ladies, ladies,

We want your money!

You Want Our Goods!

We Keep the Very Best!

We Do Our Very Prettiest

To Buy Low and Sell Cheap.

Clever publicity men have highly developed Captain Macy’s technique of talking brightly to the-masses, but Macy’s fundamental policies were well solidified before Lazarus Straus and his three sons moved up from Georgia at the end of the Civil War to start a crockery store in Chambers Street.

Lazarus Straus & sons entered Macy’s through the basement, into which they moved their crockery in 1874. Grandsons of that shrewd Bavarian emigrant are now doing their “very prettiest to buy low and sell cheap”—always for cash only—and telling the world so in such a way that every other big Manhattan store would dearly love to see them gagged. For years their slogan was. “6% less than elsewhere.” until harried by the Better Business Bureau to qualify it thus: “We endeavor (though we are not infallible) to sell our merchandise for at least 6% less than we could if we did not sell exclusively for cash.” Macy’s competitors saw to it that the Retail Code says: “No retailer shall use advertising which refers inaccurately … to any competitor or his merchandise, prices, values, credit terms, policies or services.” When Macy’s observed, “Subdivisions 4 and 5 are aimed at Macy’s and everybody knows it,” nobody took the trouble to deny it.

Mister Percy-Only one of Lazarus Straus’s three sons stayed with Macy’s— Isidor. Nathan branched out for himself. Oscar was thrice Minister to Turkey and Theodore Roosevelt’s Secretary of Commerce & Labor—first Jew to sit in the Cabinet. It was Isidor’s three sons who pushed Macy’s sales to nearly $100,000,000 in 1929 and held them to $80,000,000 last year. The eldest grandson, Jesse Isidor, who insists on having his middle name spelled out and who contributed heavily to the Democratic campaign, resigned as president to serve another Roosevelt, as Ambassador to France. Herbert, who died last spring, was Macy’s treasurer and president of Macy-owned L. Bamberger & Co. in Newark. The middle brother, Percy Selden. a precise, courteous, slightly nervous gentleman with thinning hair, is now in full command. Generally credited with being the brains of Macy’s merchandising, he is always known to Macy’s 8,000 employes as Mister Percy.

For his fight against the “stop-loss” provision of the code. Brother Percy has the sage counsel of Brother Jesse Isidor, who returned to the U. S. for an. operation last month.

Straus on “Fixing.” At the Washington hearings, Mr. Percy first asked why the retailers did not submit a simple code which could be put through quickly and which would accomplish precisely what President Roosevelt wanted—raise wages, shorten hours, increase employment. Next he demanded some assurance that there would be labor and consumer representatives on the Retail Code’s administrative board and its local committees. Neglect of consumers, he warned, was likely to be disastrous. And then Mr. Percy took a look at the disputed Article VIII: “If retail groups can fix prices at … cost plus 10%,” reasoned Mr. Percy, “they may logically raise the margin to 15%, 25% or even higher. The adoption of such a principle . . . will choke the free flow of commerce and shrink volume. . . . Sugar coating the price-fixing pill by the phrase ‘to insure that labor costs shall be at least partially covered’ does not alter the economic fact nor the bad social consequences.”

The chief consequence, said Mr. Percy, would be to penalize the efficient merchant, who would no longer be able to pass on savings in any way he saw fit, and therefore to penalize the public.

Inconsistency? Another Macy’s rebuttal to Major Namm and the National Retail Dry Goods Association was to ask why they were thumping for “price-control” in the Retail Code at the same time that they were fighting price-fixing provisions of the Drug Code.

The Drug Code said that no branded drug product or cosmetic might be sold at less than 21% below the retail price fixed by the manufacturer. Thus if E. R. Squibb & Sons stamped $1 on a bottle of mouthwash, no one could sell it below 79¢. Most big department stores sell branded drugs and cosmetics, many of them as “loss-leaders.” Because of the heavy, steady demand, they are willing to sell them at little or no profit or even a loss simply to bring people into their stores. Under their own code the department stores could not sell them for less than cost plus 10%, but that in most cases would establish prices below those permitted by the 21% clause of the Drug Code.

Disclaiming any inconsistency, Major Namm & friends stoutly retorted that the Drug Code was out & out price-fixing, that theirs was no more than a limitation of loss. But when the N. R. D. G. A. suddenly realized that the manufacturers under cover of the retailers’ hullabaloo were quietly passing codes containing similar restrictions against selling below cost, it was highly indignant. Last week it announced that representatives would henceforth attend all hearings on manufacturers’ codes to see that nothing was put over on the retailer.

Consumers to Arms-The price-fixing squabble grew so noisy that the din passed beyond conference-room walls. Percy Straus’s sidelong argument that retail selling should be a balanced function which, when efficiently performed, passes along price benefits to the consumer, reached the ears of Mrs. Mary Harriman Rumsey, head of NRA’s Consumers’ Advisory Committee. She perked up her ears and flatly denounced the whole fair practice section of the Retail Code. It was learned that Dr. Alexander Sachs of NRA’s Research Division had confidentially reported to General Johnson that “stop-loss” was price-fixing and nothing more. Consumers’ leagues, Granges, the American Farm Bureau Federation sniffed a rat and began to howl. To these groups price-fixing in any form meant only one thing: a deliberate attempt to gouge the public.

Agricultural Adjustment Administrator Peek, who is responsible for the Food & Grocery Wholesale & Retail Trades Code, was also alarmed. Retail price-fixing would make it more difficult for him to bring farm prices up to parity with manufactured goods. Though the Food Code went into hearings last week with a price-fixing clause—a 10% mark-up like the Retail Code but split 2¢% to the wholesaler and 7¢% to the retailer—few observers believed that it would get by Mr. Peek.

“Crack for Everybody.” When this organized opposition popped up, Administrator Whiteside and General Johnson decided to do what had been done with few other codes—publish it in its final form before it was sent to the White House. “I want everybody to have a crack at it,” said the General. Mr. Whiteside recommended that the price-fixing clause be approved. Onetime member of the War Industries Board and now president of Dun & Bradstreet, Mr. Whiteside is a pillar of the NRA and in line for head of one of the four permanent divisions. A sallow, bristle-haired credit man of 50, he handled the shipbuilding, woolen goods and underwear codes.

So except for phraseology, the Retail Code emerged from the back-room stage in much the same form that it went in. Wages & hours were changed so that a store might elect to operate in one of three groups, classified by number of hours per week that it remained open. But no store might operate less than 52 hours a week (except those that did so prior to June i). Maximum hours in each group ranged from 40 to 48, minimum wages in big cities from $14 to $15 a week. Lowest wage allowed was $9 for villages in the South.*

Publication of the code brought a new shower of protests. The mail order houses abruptly reversed their position when they discovered that NRA economists had changed “invoice price” to “wholesale price.” That would mean that Sears, Roebuck or Montgomery, Ward would not get the full benefit of their huge-scale buying. When “invoice price” was reinstated and the rest of the section simplified, they fell back into rank—but grumbling that the whole thing was unworkable.

Buyers’ Strike? Individual retailers (but not their trade associations) began to have misgivings. Perhaps price-fixing was not the Godsend they believed. Though it was estimated that September dollar sales were 8% to 10% above a year ago, the rise was more than accounted for by increased prices—proof that the volume of trade was off. Merchants talked nervously of a Buyers’ Strike. Consumers feared that retailers would use the code as an excuse for general price-upping, particularly in communities where competition was slack. The NRA had been used as an excuse before. In July the price of cotton sheets was 85¢wholesale, 99¢ retail. By September though the wholesale price was still 85¢, the retail price was $1.23. Excuse : cotton processing tax, which amounts to but less than 8¢ per sheet. In six weeks overalls jumped 38¢ a pair though raw cotton had declined and the processing tax per pair amounted to only 8¢.

“Buy Now.” With President Roosevelt impatient to get his last major code out of the way, General Johnson gave his off-hand opinion of Article VIII: “Economists say this invoice cost plus 10% is pyramiding, but I can’t see that. We want to stop widespread price-cutting. There isn’t a business that can make a retail turnover on less than 10%. There are some esoteric arguments made against the plan, but I can’t see them.”

Thus it appeared that the retail and drug codes would go to President Roosevelt with the price-fixing sections intact, but Washington believed that he would await the findings of A. A. A.’s Peek on the Food Code before he made them the law of the land. Meanwhile NRA rushed to nearly every U. S. industry and to all magazines and newspapers, sample advertising copy to start its consumer campaign with the slogan: NOW IS THE TIME TO BUY.

*Great Atlantic & Pacific Tea Co. testified in the Food Code hearing that the temporary blanket code had forced them to add 12,000 employes, the yearly payroll by $10,000,000. . . Woolworth last week was reported it was beginning to hire smarter, wage-worthy salesgirls who would actually sell, notsimply make change, wrap packages.