Business: Shoes Up

For 17 years big Melville Shoe Corp. (No. 1 U. S. shoe retailer; sales: 10,000,000 pairs of shoes, 12,000,000 pairs of socks) and J. F. McElwain Co., Nashua, N. H., shoemaker, have got along fine. The arrangement between them has been that Melville contracts to take most (now 92%) of McElwain’s yearly output, to be sold through its 652 Thom McAn chain stores. Under the plan the factory sold shoes to the distributor at cost, took a percentage of net profits from sales. This streamlined combine, which eliminated all conflict between the two main branches of an industry, did away with the expense of changing over machines, putting new models of shoes into production. It never failed to show a profit. Its boast was that neither half of the partnership had any control over the other. Last week that boast was liquidated.

To their stockholders the two firms proposed that they would merge. Reason: to make their cooperative enterprise permanent, remove any possibility of a bust-up. The deal: 1) Melville to acquire all of McElwain’s outstanding 16,966 7% preferred and 104,726 common shares; 2) Melville stockholders to submit to reclassification of their 99,992 6% preferred, 404,722 common shares, take shares of the new company in return.

To show that the merger was not born of necessity, both companies released their nine months’ earnings. On $27,019,958 sales Melville showed a net profit of $1,453,556 (a shade under its profit for all of 1938). McElwain’s net of $641,250 was well on the way toward topping its 1938 profit of $811,473.

That done, dark, horsy Melville President Ward Melville, son of the late Founder Frank (who fathered the idea of selling cheap, standard shoes at a fixed price), upped the price of his Thom McAn men’s shoes 15¢ to $3.30 a pair. He intimated he was doing so for the good of the industry.

Forced to import some 70,000,000 hides (15% of its cattle hides, 25% of its calf, 50% of its sheep, all of its goat skins) a year, the industry has seen hide prices jump 10 to 30% since the advent of World War II. But shoe prices are only 12% above their Depression I low, are fully 30% under 1929. That, say U. S. shoemakers, is giving the U. S. pedestrian a lot of shoe for his money. To the shoe industry, that also means a lot of business for its prices: 1936 and 1937 sales topped the 400,000,000-pair mark (an all-time record, 60% over 1929), and 1939 is expected to do it again.

Shoemaker Melville can afford to help the industry out. With his warehouses full of leather, the price increase should give him a nice inventory profit. Price boosts may work quite satisfactorily until they begin to set consumption back to the 1929 level.