ABSTRACT A CASE STUDY INVESTIGATION OF CHANGES IN DEPARTMENT STORE MERCHANDISING STRATEGIES by Louis H. Grossman This research examined how and why traditional department stores adjusted merchandising strategies in response to changes in demography of demand (population and income) and in competition (discount stores, shopping cen- ters and rival traditional stores). It was hypothesized that the traditional department store would respond by trading up in its merchandise and advertising price-lining. I conducted an intensive study of four department stores by means of personal interviews. In addition, I searched trade journal and newspaper files. To validate interview data, I initiated a second investigation among interviewees and their colleagues by means of a mail ques- tionnaire and also secured newspaper advertising price- lining data measured by the Neustadt Research Organization. Major Findings of the Study 1. Changes in demography of demand and in competi- tion occurred in all four cases, but the magnitude of change for each external variable differed in each case. The most Louis H. Grossman intensive changes in competition were in the community which had the least relative changes in demography of demand; and, conversely, the least intensive changes in competition were in the community which enjoyed the most pronounced relative changes in demography of demand. 2. .Stores did not perceive changes in demography of demand and changes in competition as being equally signifi— cant. Three of the stores paid more attention to competi- tive changes; the fourth was especially responsive to demand changes. Nor did the significance placed by each store on the changes vary in accordance with either the direction or the magnitude of change. 3. The changes in merchandising strategy were not due solely to external change; the changes were traced to internal conditions as well. In all four cases the merchan- dising strategy decisions were traced to managerial assump- tions about how profits were to be achieved and also to managerial perception of its market. 4. By 1965, all firms partially adjusted their merchandising strategies as hypothesized; over the entire twenty-year period, however, only one firm consistently adjusted its merchandising strategy as hypothesized. This firm, Mayfield's, segmented from its former total trading area a particular geographical portion in which it found sufficient demand to which it could profitably offer a revised merchandise mix. The other three firms did not Louis H. Grossman respond initially as hypothesized because of differences in managerial perception of environmental changes, and also because of variations in managerial assumptions about strat— egy implementation. 5. All stores realigned resource relationships and these changes were traced to internal as well as external causes. Even when a firm correctly "read the customer mar- ket," it had to look at the other channel end—-the supply side of the trade relationship——in order to adjust profitably. 6. Two firms modified their sales promotion tactics. One reallocated half of its newspaper advertising for physi- cal rehabilitation and display. Another dramatically aban- doned comparative pricing in all promotional efforts. 7. Stores lack merchandise and advertising price- lining information. There is a wide chasm between the lit- erature and department store behavior concerning the signif— icance of price-lining information. A CASE STUDY INVESTIGATION OF CHANGES IN DEPARTMENT STORE MERCHANDISING STRATEGIES BY Louis H. Grossman A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Marketing 1968 Copyright by LOUIS H. GROSSMAN 1968 ACKNOWLEDGMENTS A by-line designates who is responsible for a written expression; but it scarcely begins to name all who contributed by their work, wisdom, and encouragement to the final draft of a dissertation. I am unable to designate many who deserve acknowledgment because of an agreement to use only fictitious names and disguised sources of information. I trust I accurately reflected their thoughts and properly used what they disclosed or transmitted to me. I thank all of them. For their patience and perseverance I wish to thank the faculty dissertation committee: Dr. Stanley C. Hollander, Chairman; Dr. William J. E. Crissy, and Dr. Paul E. Smith. During the past few years each of these men has, by personal guidance and aid, enabled me to build a bridge from the business realm to the academic world. They continued in this servide throughout the dissertation preparation and completion. I also wish to acknowledge the assistance of Dr. Anne C. Garrison. Personal acknowledgments are very much in order. My children--Jeff, Laurie, and Rachel--can all right- fully claim some credit for efforts in typing, clerical, and other services, including maintenance of quietude. No married man can pass through the gates of the academy and arrive at this juncture without the unstinting, selfless, and constant aid of his wife. I dedicate this ‘work to Gloria. ***** ii TABLE OF CONTENTS Chapter I. INTRODUCTION . . . . . . . . II. Purpose of the Study . . . . . . . . Definitions . . . . . . . . . Department Store . . . . . . . . . Discount Store . . . . . . . . . . Merchandising . . . . . . . . . . Strategy . . . . . . . . . . . . . Price-Lining . . . . . . . . . . . Trade Up . . . . . . . . . . . . . Advertising . . . . . . . . . . . Demand . . . . . . . . . . . . . Demography of Demand . . . . . . . Competition . . . . . . . . . . . Influential External Forces . . . . . Demography of Demand . . . . . . . Competition . . . . . . . . . . . Explanation of Merchandising Strategy Strategy . . . . . . . . . . . . . Reasons for Investigation of Merchandising . . . . . . . . Relationship of Merchandising Strategy External Conditions . . . . . . . . Hypothesis Formulated . . . . . . . . METHODS OF INFESTIGATION . . . . . . . . Selection of Method . . . . . . . . . Selection of Time Period . . . . . . . Selection of Firms . . . . . . . . . . Firms Selected . . . . . . . . . . . . Procedure . . . . . . . . . . . . . . Interviews . . . . . . . . . . . . Corroboration of Interview Data . EXplanation of Terms Used in Neustadt Tables . . . . . . . . Classifications and Codes . . . . Measurement . . . . . . . . . . . EXplanation of Questionnaire . . . Limitations . . . . . . . . . . . Organization of the Thesis . . . . Footnotes . . . . . . . . . . . . iii to Page H 26 35 36 36 38 39 39 4O 41 42 47 48 49 53 57 6O 61 Chapter III. STAPLINGER'S . . . . . . . . . . . . . . History of the Firm to 1945 . . . Managerial Decisions Prior to 1945 Merchandising Prior to 1945 . . . Changes in Monroeville Environment: 1945- 1965 . . . . . . . . . . . . Changes in Demography of Demand . Changes in Competition . . . . The Traditional Department Stores The ShOpping Center . . . . . . Discount Stores . . . . . . . . Changes in Merchandising Strategies: 1945-1955 . . . . . . . . . . . . . Alternatives . . . . . . . . . . . Management Succession . . . . Definition of Market . . . . . . . Sales Promotion Changes . . . . . Location Decisions . . . . . . . . Summary: 1945—1955 . . . . . Changes in Merchandising Strategy: 1955-1965 . . . . . . . . . . . . . Management Succession . . . . . . Definition of Market . . . . . . . Sales Promotion . . . . . . . . . Resource Changes . . . . . . . . . Location and EXpansion Decisions . Midstate Department Stores Merger Diversification . . . . . . . . . Summary . . . . . . . . . . . Price—Lining Investigation and Results Analysis of Table III- 4 through Table III- 21 . . . . . . . . . Chapter Summary . . . . . . . . . . . IV. THE FAIR . . . . . . . . . . . . . . . . History of Firm to 1945 . . . . . . . Changes in Keelim Environment: 1945-1965 . . . . . . . . . . . . . Changes in Demography of Demand . Changes in Traditional Department Stores . . . . . . . . . . . . . ShOpping Centers . . . . . . . . . Discount Department Stores . . . . Interim Summary . . . . . . . . . Ownership Change at the Fair: 1949 . iv Page 62 62 64 66 69 69 71 71 75 75 79 79 82 84 91 92 98 99 101 102 103 106 108 109 115 120 120 121 129 150 150 155 156 160 163 164 166 167 Chapter Page Merchandising Strategy Changes: 1949-1963 . . . . . . . . . . . . . . . . 169 Merchandising Planning: Cargo . . . . . 171 Merchandise Planning: Fashion . . . . . 177 EXpansion . . . . . . . . . . . . . . . 179 Classification Merchandising . . . . . . 185 Resources . . . . . . . . . . . . 189 Merchandising Strategy Changes After 1963 . 192 Questionnaire and Price-Lining Analysis . . 205 Questionnaire Responses About External Environment . . . . . . . . . 205 Interim Summary . . . . . . . . . . 213 Price-Lining Data from The Fair Executives . . . . . . . . . . . . 214 Comparison of Eighteen Commodities . . . 216 Chapter Summary . . . . . . . . . . . . . . 220 V. MAYFIELD BROTHERS . . . . . . . . . . . . . . 252 History to 1945 . . . . . . . . . . . . . . 252 External Environmental Changes: 1945-1965 . . . . . . . . . . . . . . . . 260 Changes in Merchandising Strategy: 1945-1965 . . . . . . . . . . . . . . . . 264 Work Address . . . . . . . . . . . . . . 271 Transportation to Store . . . . . . . . 271 Customer ShOpping Preferences . . . . . 272 Economic Significance . . . . . . . . . 272 Internal Variables . . . . . . . . . . . 272 Organization . . . . . . . . . 273 Management Alternatives and Decisions . 274 Target Market . . . . . . . . . . . . . 274 Implementation of Merchandising Strategy . . 278 Reorganization . . . . . . . . . . . . . 278 Merchandising Changes: "Defensive" Moves . . . . . . . . . . . . . . . . 282 Merchandising Changes: "Offensive" Moves . . . . . . . . . . . . . . . . 289 Corroboration of Interview Data . . . . . . 300 Answers to Questions in Tables V, 1-17 . 305 Chapter Summary . . . . . . . . . . . . . . 307 VI. THE L. H. KANE COMPANY . . . . . . . . . . . . 330 History of the Firm to 1945 . . . . . . . . 330 Changes in the Haverford Environment: 1945-1965 . . . . . . . . . . . . . . . . 333 Changes in Competition . . . . . . . . . 336 Chapter Changes in Merchandising Strategies: 1945-1965 . . . . . . . . . . . . . . Alternatives . . . . . . . . . . Decisions . . . . . . . . . . . . Physical EXpansion . . . . . . . . Sales Promotion . . . . . . . . . Questionnaire Responses . . . . . External Environment: Demography of Demand . . . . . . . . . . . . Relationship of Environmental Events Upon Price-Lining . . . . . . External Environment--Competition Price-Lining Adjustments . . . Chapter Summary . . . . . . . . VII. SUMMARY OF FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS FOR ADDITIONAL INVESTIGATIONS . . . . . . . . . . . . Changes in Demography of Demand . . Changes in Competition . . . . . . . Changes in Competition . . . . . . ShOpping Centers . . . . . . . . Traditional Department Stores . . . L. H. Kane Company . . . . . . . . . Conclusions . . . . . . . . . . . . . . Recommendation for Additional Research . BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . vi Page . . 343 . . 348 . 350 . . 357 . . 367 . 374 . . 374 . 378 . . 379 . . 382 . 385 . . 398 . . 399 . . 401 . . 406 . . 408 . . 409 . . 427 . . 434 . . 436 . 438 Table LIST OF TABLES Page Chapter II Analysis of advertising price-lining in 1960 and 1965 . . . . . . . . . . . . . . . . . 58 Chapter III Comparison of Staplinger's sales and profit performance with other department store firms, 1946-1965 0 o o o o o o o o o o o o o o 74 Discount department store shOpping in Monroeville in 1963 by traditional department store customers . . . . . . . . . . 78 Non-white shOppers in Central Business District units and branch store units of major depart— -ment stores in Monroeville . . . . . . . . . . 119 Analysis of advertising price-lining in 1960 and 1965, Women's and Misses' Dresses, 9-Cities, Monroeville, and Staplinger's . . . . 132 Analysis of advertising price-lining in 1960 and 1965, Junior Dresses, 9—Cities, Monroeville, and Staplinger's . . . . . . . . . 133 Analysis of advertising price-lining in 1960 and 1965, Women's and Misses' Untrimmed Cloth Coats, 9-Cities, Monroeville, and Staplinger's . . . . . . . . . . . . . . . . . 134 Analysis of advertising price-lining in 1960 and 1965, WOmen's and Misses' Sweaters, 9-Cities, Monroeville, and Staplinger's . . . . 135 Analysis of advertising price-lining in 1960 and 1965, Women's Skirts, 9-Cities, Monroeville, and Staplinger's . . . . . . . . . 136 vii Table 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Analysis of advertising price-lining in 1960 and 1965, Women's and Misses' Blouses, 9-Cities, Monroeville, and Staplinger's . . Analysis of advertising price-lining in 1960 and 1965, Men's Dress Shirts, 9-Cities, Monroeville, and Staplinger's . . . . . . . Analysis of advertising price-lining in 1960 and 1965, Men's Suits, 9-Cities, Monroeville and Staplinger's . . . . . . . . . . . . . Analysis of advertising price—lining in 1960 and 1965, Men's Slacks, 9—Cities, Monroe- ville, and Staplinger's . . . . . . . . . . Analysis of advertising price-lining in 1960 and 1965, Men's Sport Coats, 9—Cities, Monroeville, and Staplinger's . . . . . . . Analysis of advertising price-lining in 1960 and 1965, Mattresses, 9—Cities, Monroeville, and Staplinger's . . . . . . . . . . . . . Analysis of advertising price-lining in 1960 and 1965, Sofas, 9-Cities, Monroeville, and Staplinger's . . . . . . . . . . . . . . Analysis of advertising price-lining in 1960 and 1965, Bedroom Suites, 9-Cities, Monroe- ville, and Staplinger's . . . . . . . . . . Analysis of advertising price-lining in 1960 and 1965, Drapes, 9-Cities, Monroeville, and -Staplinger's . . . . . . . . . . . . . . . Analysis of advertising price-lining in 1960 and 1965, Towels, 9—Cities, Monroeville, and Staplinger's . . . . . . . . . . . . . . . Analysis of advertising price-lining in 1960 and 1965, Blankets, 9-Cities, Monroeville, and Staplinger's . . . . . . . . . . . . . Analysis of advertising price-lining in 1960 and 1965, BedSpreads, 9—Cities, Monroeville, and Staplinger' S o o o o 6 o o o o o o o 0 viii I Page 137 138 139 140 141 142 143 144 145 146 147 148 _-u Table 21. 10. 11. 12. Summary of reSponses to questions concerning data in Table III-4 to Table III—20 . . . . Chapter IV Analysis of advertising price—lining in 1960, Women's and Misses' Dresses, for 9—Cities and.The Fair . . . . . . . . . . . . . . . Analysis of advertising price—lining in 1960, Junior Dresses, for 9-Cities and The Fair . Analysis of advertising price—lining in 1960, Women's and Misses' Untrimmed Cloth Coats, for 9-Cities and The Fair . . . . . . . . . Analysis of advertising price-lining in 1960, Sweaters (Women's and Misses'--a11 sizes), for 9—Cities and The Fair . . . . . . . . . Analysis of advertising price-lining in 1960, Skirts, for 9—Cities and The Fair . . . . . Analysis of advertising price—lining in 1960, Blouses, for 9-Cities and The Fair . . . . Analysis of merchandising and advertising price-lining in 1960 and 1965, Men's Dress Shirts, for 9—Cities and The Fair . . . . . Analysis of merchandising and advertising price—lining in 1960 and 1965, Men's Suits, for 9-Cities and The Fair . . . . . . . . . Analysis of advertising price—lining in 1960, Men's Slacks, for 9—Cities and The Fair . . Analysis of advertising price-lining in 1960, Men's Sports Coats, for 9—Cities and The Fair Analysis of merchandising and advertising price-lining in 1960 and 1965, Mattresses, for 9—Cities and The Fair . . . . . . . . . Analysis of merchandising and advertising price-lining in 1960 and 1965, Sofas, for 9-Cities and The Fair . . . . . . . . . . . ix Page 149 224 225 226 227 228 229 230 231 232 233 234 235 \~‘ Table 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. Analysis of merchandising and advertising price-lining in 1960 and 1965, Bedroom .Suites, for 9-Cities and The Fair . . . . . . Analysis of merchandising and advertising price-lining in 1960 and 1965, Drapes, for 9—Cities and The Fair . . . . . . . . . Analysis of merchandising and advertising price-lining in 1960 and 1965, Occasional Living Room Chairs, for 9-Cities and The Fair Analysis of advertising price—lining in 1960, Towels, for 9-Cities and The Fair . . . . . . Analysis of advertising price-lining in 1960, Blankets, for 9-Cities and The Fair . . . . . Analysis of advertising price-lining in 1960, BedSpreads, for 9-Cities and The Fair . . . Statistical summary of six major shOpping centers in Keelim, 1945-1965 . . . . . . . . Selfeservice department stores in Keelim, Northstate, 1966 . . . . . . . . . . . . . .Summary of selected economic measurements for Keelim, Northstate, 1950-1965 . . . . . . . . .Summary of 1960 total advertising indexes for 9—City group, Freeport and Mayfield's, Monroeville and Staplinger's, and The Fair . Selected operating data of The Fair and Keelim . . . . . . . . . . . . . . . . . . . Questionnaire . . . . . . . . . . . . . . . . Chapter V Analysis of advertising price-lining in 1960 and 1965, Women's and Misses' Dresses, 9-Cities, Freeport, and Mayfield's . . . . . Analysis of advertising price-lining in 1960 and 1965, Junior Dresses, 9-Cities, Freeport, and Mayfield's . . . . . . . . . . . . . . . Page 236 237 238 239 240 241 242 243 244 245 246 247 309 310 cl. Table 10. 11. 12. 13. 14. Analysis of advertising price-lining in and 1965, Women's and Misses' Untrimmed Cloth Coats, 9—Cities, Freeport, and Mayfield's . . . . . . . . . . . . . Analysis of advertising price-lining in and 1965, WOmen's and Misses' Sweaters, 9-Cities, Freeport, and Mayfield's . . Analysis of advertising price-lining in and 1965, Women's and Misses' Skirts, 9—Cities, Freeport, and Mayfield's . Analysis of advertising price-lining in and 1965, Women's and Misses' Blouses, 9-Cities, Freeport, and Mayfield's . Analysis of advertising price-lining in and 1965, Men's Dress Shirts, 9—Cities, Freeport, and Mayfield's . . . . . . . Analysis of advertising price—lining in Page 1960 . . . . 311 . . . . 312 . . . . 313 . . . . 314 . . . . 315 1960 and 1965, Men's Suits, 9-Cities, Freeport, and Mayfield's . . . . . . . . . . . . Analysis of advertising price-lining in . . . . 316 1960 and 1965, Men's Slacks, 9-Cities, Freeport, and Mayfield's . . . . . . . . . . . . Analysis of advertising price-lining in . . . . 317 1960 and 1965, Mattresses, 9—Cities, Freeport, and Mayfield's . . . . . . . . . . . . Analysis of advertising price—lining in and 1965, Sofas, 9—Cities, Freeport, and Mayfield's . . . . . . . . . . . . . . Analysis of advertising price—lining in . . . . 318 1960 . . . . 319 1960 and 1965, Bedroom Suites, 9-Cities, Freeport, and Mayfield's . . . . . . . . . . . . Analysis of advertising price—lining in and 1965, Occasional Living Room Chairs, 9—Cities, Freeport, and Mayfield's . . Analysis of advertising price-lining in . . . . 320 1960 . . . . 321 1960 and 1965, Drapes, 9—Cities, Freeport, and Mayfield's . . . . . . . . . . . . . . xi . . . . 322 Table 15. 16. 17. 18. 19. 20. 21. Page Analysis of advertising price-lining in 1960 and 1965, Towels, 9—Cities, Freeport, and Mayfield's . . . . . . . . . . . . . . . . . . 323 .Analysis of advertising price-lining in 1960 and 1965, Blankets, 9—Cities, Freeport, and Mayfield's . . . . . . . . . . . . . . . . . . 324 Analysis of advertising price-lining in 1960 and 1965, Bedspreads, 9-Cities, Freeport, and Mayfield's . . . . . . . . . . . . . . . . 325 Summary of reSponses to Questions concerning data in Tables V-l through V-17 . . . . . . . . 326 Comparison of Mayfield sales and profits with selected industry performances . . . . . . . . 327 Summary of total advertising indexes for 9-City group, Freeport, and Mayfield's, 1960 and 1965 for selected classifications . . . . . 328 .Summary of percentages of advertising eXpended in price zones 1-3 by 9—Cities, Freeport, and Mayfield's in 1960 and 1965 . . . 329 Chapter VI .Major competitive changes among department stores in Haverford as indicated by gross Space occupied, 1954—1965 . . . . . . . . . . . 337 Selected operating ratios of the L. H. Kane Company . . . . . . . . . . . . . . . . . . . . 344 Comparison of Agnew and Kane customer traffic count, 1954-1965 . . . . . . . . . . . . . . . 346 Traffic count of Agnew's eXpressed as per- centage of L. H. Kane Company traffic count, 1954-1965 0 o o o o o o o o o o o o o o o o o o 347 Trend in advertising linage of L. H. Kane Company and advertising linage of Sears and Agnew Company eXpressed as percentage of L. H. Kane Company, 1955-1965 . . . . . . . . . 368 xii -'-.. Table 6. 10. 11. Analysis of merchandising and advertising price-lining in 1960 and 1965, Women's and Misses' Dresses, 9-Cities and L. H. Kane Company . . . . . . . . . . . . . . . . . . Analysis of merchandising and advertising price-lining in 1960 and 1965, Men's Slacks, 9—Cities and L. H. Kane Company . . . . . . Analysis of merchandising and advertising price-lining in 1960 and 1965, Men's Suits, 9-Cities and L. H. Kane Company . . . . . . Analysis of merchandising and advertising price-lining in 1960 and 1965, Men's Sport Coats, 9-Cities and L. H. Kane Company . Analysis of merchandising and advertising price-lining in 1960 and 1965, Men's Dress Shirts, 9-Cities and L. H. Kane Company . Questionnaire . . . . . . . . . . . . . . . . Chapter VII Comparison of selected external variables in four cities in 1965 as shown in Tables 1-5, Appendix . . . . . . . . . . . . . . . . . AppendiX.C Changes in population in major trading area of stores studied as compared with United States 0 O O O O O O O O O O O O O O O O O 0 Changes in total net effective buying income of trading areas studied as compared with United States . . . . . . . . . . . . . . . Changes in retail sales in major trading areas of stores studied as compared with ‘United-States o o o o o o o o o o o o o o o 0 Changes in general merchandise sales in major trading areas of stores studied . . . . . . . Changes in income distribution among families in major trading areas of stores studied com- pared with total U.S. as measured by changes in percentage of households by income groups xiii Page 388 389 390 391 392 393 400 460 461 462 463 464 u.- LIST OF APPENDICES Appendix Page A. Departments/Classifications for Which Questionnaires Were Dispatched . . . . . . . 450 B. Questionnaire . . . . . . . . . . . . . . . 451 C. Tables: Demographic and Economic Data . . . 460 xiv CHAPTER ONE INTRODUCTION For more than one hundred years the department store has been an institution fundamental to the American distribu- tion system. The basic principle of the department store is the assembly of an enormous variety of consumer goods and services under one roof for the convenience of the one-stop shopper. Such traditional stores as Macy's, Bloomingdale's, Hudson's, Rich's, Dayton's, Lazarus', Marshall Field, and thousands of others, flourised as they developed on this principle.1 Two environmental changes in the last twenty years have significantly influenced traditional department stores. In the first instance, increasing pOpulation, improvements in family income, and changes in income distribution have brought about an escalation in the quality of products demanded. The National Industrial Conference Board uses the term "demography of demand" to describe changes in pOpula- tion, family incomes, patterns of income distribution, and lMalcolm P. McNair, "Change and Challenge in the Department Store Industry," Speech delivered at testimonial dinner in his honor, October 5, 1964, New YOrk City. to reflect generally the effects of demographic differences and economic changes on consumer buying habits.1 The second change concerns competition. POpulation and income increases, as well as suburban growth, impelled traditional department stores to Open branches in shOpping centers and in outlying communities. As a result they com- peted more intensively with their own main stores as well as with traditional rivals who also eXpanded. Simultaneously, the same underlying conditions of demography of demand pro— vided the opportunity for many innovative retail firms, such as discount stores, to enter the market. In addition, sev- eral different kinds of retailers offered commodities which traditionally had been sold only or primarily in department stores. Marketing theory suggests that when two such signif- icant external variables change, the firm must respond by adjusting some or all of the components of its marketing mix in order to survive and grow. In the marketing literature both retail practitioners and authors deem merchandising a key management function. Presumably, then, if a firm were to adjust to these two changes it would alter the merchan- dising strategy decisions. This study centers equally on how and why department stores adjusted certain merchandising 1Fabian Linden, ed., Expenditure Patterns of the American Family (New York: The National Industrial Confer- ence Board, 1965), p. 7. 10" ...a a p-. c. ..l ". .‘. - strategies in response to particular changes in their external environment . Purpose of the Study Consumers in America eXpend approximately 65.1 per- cent of their personal disposable income for retail pur— chases. Sales in 1963 amounted to $244.2 billionsl and by 1966 were estimated to be $303.6 billions.2 Department stores ranked third in sales (after food stores and automo- tive dealers) among retail institutions and accounted for approximately $20.5 billions in sales in 1963, or 8.4 per— cent of the total.3 1Robert D. Entenberg, Effective Retail and Market Eistribution (New YOrk: The World Publishing Company, 1966), Pp. 19-23. Based on U.S. Census and Survey of Current Busi— ness data, he estimates that in 1965 consumer eXpenditures were divided as follows: 44.1% were allocated to nondura- bles; and 41.7% to services. Although he offers no eXplana- tion*why the total exceeds 100%, it can be assumed this is f'Pittsburgh Press, 1958), p. 5. a .- -‘ the aforementioned environmental forces bearing upon tradi— tional department stores and details the managerial forces Mmich implement merchandising strategy. Finally, it sets ferth how this strategy is brought to bear. From considera- tion of this strategy, the hypothesis is evolved. Definitions erartment Store The Bureau of the Census (SIC 531) defines "depart- ment store" as "an establishment normally employing 25 or more people and engaged in selling some items in each of these three merchandise lines: furniture, home furnishings, appliances, radio and television sets; apparel for men, women, and children; and household linens and dry goods."1 The famous stores cited earlier are typical of this Category. Some are independently owned and managed by the (mmers or owning families; others are publicly owned and Hanaged as a part of a larger Operating firm, such as Federated Department Stores, Inc., or Allied Stores Corpora— tion. For the purpose of this thesis the term excludes such ifirms as Sears, Roebuck and Company and the J. C. Penney (RMpany. Operating results from such firms are not included hireportsof the National Retail Merchants Association nor hithe aggregate reports of Sixteen department store groups 1Bureau of Census definitions, 1963. I‘- . ..:\ ~§~ which are used for comparative purposes in this study. During most of the 1945-1965 period the Penney Company did not carry furniture or major appliances. Further, these firms, as well as Montgomery Ward and Company, are regarded by trade associations as national department store chains, rather than as traditional department stores. The latter usually confine their retailing to a metrOpolitan or re- gional area. Discount Store The Bureau of the Census does not identify the dis- count department store as a separate type of retail store. cme authority identifies a discount store "as a retail store that is called such because of the fact, belief, or claim that it sells at a discount off the list, 'usual,' or 'regu- lar' price."1 A trade publication defines a discount store as: "a departmentalized retail establishment utilizing many Self-service techniques to sell hard goods, apparel, soft goods, health and beauty aids, and other general merchandise. 1Jones, op. cit., pp. 6-7. Also, see William R. Davidson, "The End of The Discount House," Department Store Economist, December, 1961, pp. 24-28. Also see Stanley C. Hollander, "The One-Price System--Fact or Fiction," Journal SégRetailing, Fall, 1955, for explanation of definitions of OQ¢: mEuOu on» mo COAumcmHme am new .Qm mom .mu0um >9 uwuswo modem tam xwch Hmnmen uowmxm OHDOB mco mump 3OH>HODCH so ommmm muoE moms Godumoewemmmau was» mmwueUIO CH .lem¢ .mummmuomm xueolm no sonuwo cmnu mmcou uo3OH Cw pmomuu we use mammufl ou m>eumamu as pwomuu muoum «mucmfieoo nonuo .x_m.h an mmcmnu HmHmQ can» Aumummumv mm3 mmcmno muH .02 “wow x was moan» m.ummcwammum pep .mmxmpca .>om s30 mus pcm HmHmQ CH momsmco m>aumamu .QEOU .02 1mm» x maam>eumHmu .ds momuu m.ummsfladmum two .mmeueolm £ue3 .QEOU .02 “wow x mxam>wumHmu .ds momma m.ummsfiadmum pep maaw>moucoz nuMB .mEoo .02 1mm» x was moms» m.ummcwammum can .moxmoce .>ow :30 muw .meoo .02 “now x was moan» m.uom:waamum pep .mmxmpcfl .>om S30 mud .QEOU .02 1mm» x was momma dsoum Madonm can .moxmosw .>om :30 uHmnu .mEoo .moma cw nonmw: xawumcofluuomoum mm3 umucoo modem mus boson» sm>o mummx neon mmwuwolm cans mmwa pcm OHHH>OOHCOS smcu .Ooma a“ cone mood as nonmen xamumSOAuuoaOud usn memo» neon mmauflolm can» mmma mHHw>moucoz mama m.uwmswammum .039 umuamnu .umcuo was smnu amazed .mmmcmu mounu Home: sacufl3 Omepcmzoume pwoaumlumcmwc Ou omuwenm uH onmm zoemm aoemm soemm oo.m~ m oo.¢~ » "uwucmo modem H.0HH o.ooe m.moe .xmcae oome\mome mam ooa mam ooH mmm ooH «mm ooH mom ooH mam ooH masses owe Hm om me mme mm Noe as sea em ems om oo.omw um>o om we ow m om we om oH on we om NH 00.0mm ou Ho.mm» aw m we «a we NH me me we me we we oo.mm» 0» Ho.m~w om oH mo AN we me me am «a we me me oo.m~» 0» Ho.maw 66 mm me am mm mm mm am we mm mm mm oo.mem 0» Ho.oaw me me me me me me He as we we me me oo.oa» Hopes .>pm meow .>o< ocQMl .>p¢ OCON .>c¢ mcou .>o¢ OSON .>p4 OSON mo \.>pa mo \.>6¢ «0 \.>p< mo \.>6< mo \.>p< mo \.>pa meGH No X xmvcH mo X. xmocH mo 8 xOUCH NO X XOGCH mo 8. xmch mo X mmcmm wcou moeum meme come moms come moms come m.ummSMH1mum "mHmNHmcm OHHH>wOHcOE umflmxamcm mmauflolm "mammwwcd m.NOH "ooma\mwma .xmocH CH mmcmno m>flumawm .02 .ude azmz Aooeneemel m.~aaumoma Aooeueemel m.mme.oome xH Henna .xmch HmHmo .xwp:H Hanna "macho HmHmo .pmpsHoxm mmnam OHH. .mmmmmualummz m.smeoz .pmpsHocw umm3 mcwcm>m can .h .0 .m .v .m .N .H 161 Ame Ave Ame 1N1 'ON suoz aatzd "newumwuomon HmHmo .coocumuwm .um03 umwuum qu mommmua .mmnwm .mmmmwz can m.:0§03 cw nswdooz .nowumnuchm Hanuo tam comma .mmmmmufl xawm "SOAuQHuOme upmumswz mmmmOHQ mood paw coma ca mewcwalmowum mcwmwuuo>om Mo mamaamsd OH .mommwz osm n.so§o3 .HIHH mqmda .oz @000 unnumsmz .mmmao .mmpz no oEmz 59 The second limitation pertains to the methodology of investigations. The researcher must reckon with what one philOSOpher called the "egocentric predicament," the inabil- ity of a person to get outside or beyond his own eXperience. When asking an official to recall the business situation before, during, and after change, the following risks exist: the error or distortion of memory; the self—judgment which the incumbent or the successor renders; and the subjective process of retrOSpective selection of facts and relating these to strategies which existed or were created ten or twenty years previously. And, of course, I, as the investi- gator, was also subject to the same circumscriptions during interviews and, again, later when I selected from the data what I deemed most relevant. The third limitation is the very few firms included in the study. The question arises whether these are Special cases or whether they are representative of the industry. The answer will determine if any generalizations can be drawn. Again, the limitation is an assumption that I could secure and contribute more knowledge by means of a smaller number of intensive case studies. The degree of the first and third limitations could be ascertained only after conducting the research. To diminish the effect of the second limitation, I conducted a second investigation to seek corroborative evidence. These 60 limitations, however, did not appear to be so severe as to preclude a study by the proposed method. Organization of the Thesis For each of the four case reports which comprise the thesis, the findings are presented in Chapters Three through Six in the following sequence: 1. History of the firm to 1945. This includes data about the founding and the founders; demographic and eco- nomic characteristics of the market until 1945; and changes in merchandising strategies from founding until 1945. 2. The 1945-1965 period. This includes statements Of demographic and economic characteristics of the market from 1945 to 1965; managerial evaluation of those character- istics for that period based upon interview data and as reported in questionnaire reSponses. 3. Managerial decisions regarding merchandising strategies for the 1945-1965 period. Again, this is based upon interview and questionnaire data. In addition, sources outside the firm were used in this section, including the Neustadt data and the trade press and other publications. 4. Comparisons between hypothesis and findings. This includes an explanation of the congruence or variance between the hypothesis and findings. 61 Chapter Seven consists of a comparison of the four cases. The presentation follows the same pattern as indi— cated for the individual cases. This chapter also sets forth conclusions of the investigation and proposes areas for additional research. Footnotes A great deal of interview information was secured On the basis of a pledge that names of individual stores, and cities would be concealed. It has been necessary, therefore, to disguise all names of individuals interviewed as well as names of pertinent publications. Other litera- ture sources, however, are cited as published. A complete identification of interviewees and dates has been placed on file with the dissertation committee. CHAPTER THREE STAPL INGER' S History of the Firm to 1945 Throughout its ninety—year history the retail firm of Staplinger and Rausch (hereafter referred to as Stap- linger's) has earned several distinctions in the distribu- tion trades. Its long business life is to be noted, of course. At times, Staplinger's led both the retail and wholesale industries with merchandising innovations and cur- rently it Operates in these and other segments of the market— place. Thus, diversification has characterized its business life. The firm is also distinct by virtue of the continuity of family management and ownership. The current board chair- man, Amos P. Rausch, represents the third generation engaged in active management. Families of the founders retain a controlling financial interest in the firm whose stock is traded publicly. In 1873 two immigrants, Harry Staplinger and Robert Rausch, after serving an apprenticeship in a New YOrk dry goods store, traveled westward and secured employment in a small Midstate community. Within two years they accumulated 62 —__ __ —_ s .. ‘ v . l. A. o \ \ A 's . .‘ . 63 sufficient capital and credit to purchase a dry goods store in Beardon, Midstate. During the next four years they Opened three additional stores located in comparably small Midstate communities, thereby creating one of the earliest chain store Operations. Another dry goods merchant, Alexander Belmont, sought their counsel on whether or not he should Open a store of his own in Monroeville, a leading city in Midstate. Staplinger and Rausch persuaded Belmont to join them as a partner instead. The triumvirate agreed that Belmont would Open the fourth and largest store in Monroe- ville and also would organize a wholesale dry goods firm to supply themselves and other merchants in the state. As the retail division grew in the flourishing Monroeville community, the wholesale division eXpanded by Opening branch offices in other states. The new business combination engrossed the partners' attention so extensively that they liquidated the smaller stores and moved to the larger city. Subsequently, they physically separated the two businesses. On land adjacent to the downtown section, Staplinger's erected a warehouse for the wholesale business. Simultaneously, it secured a leasehold on one of the city's choicest corners for the enlarged retail store. A better understanding of the events after 1945 can be gained by noting some of the problems which Staplinger's faced, and some of the decisions reached, prior to 1945. _. - .‘. 64 These will be discussed as two tOpics: managerial decisions prior to 1945; and, merchandising prior to 1945. Managerial Decisions Prior to 1945 One decision pertained to the development of branch stores. As early as the 1920's several rival department stores Opened branches in central business districts of Monroeville's booming suburbs. Staplinger's did not partic- ipate in such eXpansion. Many years later, in 1954, the president of the company said: I agree that the management in the 1920's apparently erred on the conservative side. Staplinger's did not move, as did a number of others, to Open branches in the heart of the big suburbs. The only compensation now is that we don't have the headache of Operating branches in the center of suburban cities where park- ing is almost as much a problem as it is in downtown Monroeville. Our expansion now, and in the future, will be in ShOpping centers. A second problem which affected merchandising strat- egy prior to 1945 can be traced to the firm's dual role in distribution as a wholesaler and as a retailer. For many years Staplinger's was a retailer whose main interest was wholesaling. In retrOSpect it becomes apparent that one of America's Oldest, best-known department stores has, almost since its founding, never devoted itself solely to the C O 2 l O 0 retail bus1ness. One execut1ve who started his career In lMarket Publication, No. 1, March 8, 1954, p. 36. .._ ___. .u—F—— l" 65 the wholesale division but who is now a corporate vice- president in the retail division said: Prior to World‘War I we expanded the wholesale business by Opening offices and branch warehouses in major cities throughout America. After the World‘War I boom, how- ever, the wholesale segment of our business declined. Successive presidents of the firm continued to head— quarter at the wholesale distribution center. The wholesale division did less business and generated less profit than the retail, but, nonetheless, the tail wagged the dog. Investigation confirmed this executive's appraisal. During the last seventeen years of its existence as a full— line wholesale business, from approximately 1925 to 1942, this division lost money in all except two years.2 A third major problem arose from the real estate lease governing the main downtown location. Mr. Parrish, the general merchandise manager, pointed out that the high occupancy cost handicapped the firm both before and after 1945. A news report on the company's 80th Anniversary in 1955 elaborated: There were times when the store earned a profit equal to 3 percent of sales. It appears the firm is defi- nitely headed in that direction again. Until 1960, however, it will be hobbled by total occupancy costs of perhaps 4.5 percent of sales whereas the average is about half that figure. 1Interview with Mr. Harold McBride, corporate vice— president for Personnel, Staplinger's, April 19, 1966. 2Monroeville Gazette, Staplinger file, 1944. No Specific date given. 3Interview with Mr. Harry Parrish, vice-president, General Merchandise Manager, Staplinger's, May 12, 1966. 66 These conditions——fai1ure to develop branch stores, the burdens of the wholesale division, and the real estate lease--influenced merchandising strategy before 1945 and again after 1945. Merchandising Prior to 1945 Asked to describe Staplinger's merchandising prior to 1945, one executive responded: We tried to be, and we were, a carriage-trade store, catering to upper—income groups. Quality-wise, I think we had a higher trade than we have today. We stayed in downtown Monroeville even as some of our customers moved to the suburbs. And we didn't make the kinds of profits needed to refixture and adequately maintain our plant. While reviewing the store's history, several execu- tives (but not all) emphasized that Staplinger's pioneered in a number of personalized services which enhanced the store's image and also rang the cash register profitably. One of these was a bridal service. Brides were invited to register their gift desires and pattern preferences in china and silver. Staplinger's also conceived the idea of hiring and training professional bridal attendants to go to weddings. By 1960 the store was reputed to cater to 5,000 weddings a year. 1Interview with Mrs. Harriet Grimes, vice-president, Staplinger's, May 13, 1966. 2American Family_News, no date given, extracted from Staplinger file, Monroeville Gazette. —_‘_I— 67 Staplinger's also claimed a first in personalized service when it organized a ShOp for men only during the Christmas Shopping season. In 1936, it reputedly transacted $250,000 in Sales, an impressive sum in that year. The store was one of the first in the 1930's to transform a portion of its ready-to-wear division into a College ShOp. Supplementing this organization of merchan- dise classification in terms of customer needs and desires, the store selected a college board from among students. Prior to 1927, home furnishings was limited in stor— age and display Space. Confined chiefly to linens and domestics, draperies, and a few furniture items, categories which were carried in the wholesale business, the home fur- nishings division nonetheless managed to garner large-size contracts for convention halls, hotels, and other enter- prises requiring complete interior decoration services. Impressed by this performance, the management constructed an addition to the retail store to house home furnishings departments. The depression thwarted major inventory eXpan— sion, however. Staplinger's was one of the first to recognize pos- sibilities of modern furniture after several merchandisers visited Sweden in 1935. Soon thereafter the buyers discov- ered that the California market could supply "simplicity of line and design" which epitomized what the division meant by Inodern design. 68 The Monroeville store earned national attention of the decorative home goods trade in 1938 when it launched an ensemble called the Wishmaker House, a coordination of color and design in the home furnishings field. A trade journal reported: The decorative home goods trade is impressed with this new coordinated idea Staplinger's has brought together. Many other stores signified their interest when a total of 20 other department stores asked to be franchised in their own cities to sell the ensembles made up by various producers according to Staplinger's specifications as to design and color. Subsequently, 75 department stores were licensed and the participating manufacturers developed a home furnishings volume of several million dollars. The program continued until halted by the war in 1942.2 These ideas are commonplace today. However, the innovative quality at the particular time of introduction tends to belie some disparaging estimates, including those by its own executives, of the firm's force as an independent department store. An explanation for the less-than-favor— able appraisal may lie in a general attitude concerning the store's management which can best be summarized by the following: 1Market Publication No. 4, February 23, 1954, p. 6. 2Ibid. 69 Prior to 1945 we didn't integrate plans. We drifted through the 30's and even partially through the 40's. It was a family-owned, family-managed business, insu- lated and isolated, not quite alert to the need to develOp a distinctive personality. Rather we tended to be a pale Shadow of Smith's, who did a better job of getting trade from higher income groups. Changes in Monroeville Environment: 1945-1965 Some of the oldest and most famous traditional department stores are located in Monroeville. In this same market, several local and regional discount department store chains Opened their original stores. In the period before 1945 the department stores of this city were among the first in the nation to establish branches in central business dis- tricts of suburban communities. Yet, these same stores hesitated to participate in the ShOpping center movement after 1945. As income distribution widened considerably and residential relocation proceeded rapidly among both white and non—white groups after 1945, many traditional department stores in Monroeville couldn't make up their minds what to do about it. This next section describes some of the impor- tant changes in Monroeville from 1945 to 1965. (Shanges in Dempgraphy of Demand Monroeville pOpulation, total net effective income sued total retail sales increased during each five-year 1 . . Gr1mes, Op. Cit. 70 period measured, as seen in Table A-1 through Table A-3. General merchandise sales declined by 1950 but increased thereafter, as Table A-4 shows. More specifically, pOpulation did not increase pro- portionately as much as in the nation. The Monroeville index (l946= 100) rose to 127.5 in 1965, while the United States index reached 137.0 in that year. Among the cities compared in this study, Monroeville's total net effective income ranked second, but the magnitude of change was less than in the nation. AS eXpected, the change in total retail sales and in general merchandise sales (except for 1950 for the latter) followed income patterns and the rankings were the same as for net effective income. Table A-5 shows the changes in income distribution among families as measured by changes in percentage Of house- holds in each income group. The data reflect trends. They do not necessarily indicate that the percentage of house- holds in each income bracket is actually more or less than in another city. The purpose of the data, in the case of Monroeville, is to indicate that the percentage of house— holds at each end of the income scale increased. Despite the rise of the median family income in the nation from 1955 to 1965, the percentage of households in Monroeville with incomes of $0,000 to $2,499 rose from 1960 to 1965, but the Apercentage remained less than in 1955. The change in the 71 income group of $7,000 and over in Monroeville was, of course, more favorable for retailers. Changes in Competition Chapter One of the thesis emphasized the role of the discount department store as a focal point for analyzing changes in merchandising strategy. It is also necessary, particularly in the Staplinger case, to account for two other changes. The first is the competition of three depart- ment store rivals. The second is the advent and growth of ShOpping centers. The Traditional Department Stores During discussions concerning competitors the Stap- linger interviewees frequently referred to their neighbor, Smith and Company, the Oldest retail establishment in Monroe- ville. One executive remarked: A preponderance Of our customers were older than the average ShOpper. They were in the tOp income brackets, engaged in white collar occupations. But we had tol- erated ourselves as a second-best competitor to Smith's for this so—called better business. In retrOSpect I am sure this influenced our decision of where we should go in our merchandising. Historically, Smith and Company balanced its appeal by offering in one portion of its store elegance, high fash- ion, quality, and the best of service. By merchandising its Basement Store as a store within a store, it also appealed 1Interview with Mr. Ed. Strong, vice-president, £3ales Promotion, Staplinger's, April 19, 1966. 72 to value-seeking customers. During both depression and prOSperity the company pursued this policy. Smith and Company had established branch stores in the 1920's and thus was one of the first department store retailers to recognize the Opportunities outside of its own central business district. Fortunately for Staplinger's, the rival management did not resume this practice until 1950, when Smith Opened its first branch store in a plaza ShOpping center. Aggregating 500,000 square feet of retail selling area, this giant ShOpping center was the largest constructed in Midstate to that date. During the next fif- teen years Smith and Company Opened as the dominant store in three additional Monroeville ShOpping centers. A second traditional department store rival, Werner's, had, until 1945, emphasized its convenient neigh— borhood locations and moderate—priced assortments of branded merchandise. The firm featured home furnishings as its mer— chandising forte and in its newspaper advertising placed considerable emphasis on sales events. From 1945 to 1960 the firm followed, first, a trading—down policy and then turned toward a trading-up policy. One handicap was that in its Older locations Werner's could not provide adequate park- ing. From 1950 to 1962 the firm vacillated between a direct confrontation with discounters and an attempt to Ixecome a fashion store. Its erratic sales performance can ll. 73 be seen in Table III-l. After 1962 the firm eXpanded into shopping centers and became, as a Staplinger executive remarked, "a very formidable competitor who now knows where it belongs and what it is doing."1 A third department store rival, Coulder Brothers, adjusted to a similar set of problems. For thirty years before World War II it had grown Spectacularly as a price- cutting, unbranded merchandise firm located in neighborhood ShOpping districts, in central business districts of subur- ban and neighboring communities, and in Monroeville's cen— tral business district. As in the Werner instance, the neighborhoods had changed. Price-cutting brought neither sales nor profit gains. From 1950 to 1960 Coulder Brothers altered its mer- chandising strategy. It traded up and emphasized branded merchandise in all classifications. However, before suf- ficient investment in time and inventory could bring about the desired impact, a declining sales and profit performance precipitated a change in merchandising policy. The firm reverted to a price-emphasis appeal in both merchandise assortment and sales promotion. One competitor observed: Coulder Brothers did not know itself. One day it was trading up; the next, down. It is very difficult to overcome a Specific reputation or image you have established so positively with the public.2 lParrish, Op. cit. 2Interview with Mr. Carl Trine, Assistant Merchandise Iuarnager, Home Furnishings Div., Staplinger's, May 13, 1966. 711 puntsmum m mm ammoco mm3 mmuOOm owumumpmm .umommH uHuoum ppm moHMm muoum unusuummmo «nu mH 0H mmsmomn .xmnm cmm3uon >um> >HHmsms unaum noose ooHumm umo>no~ may now mmXQOGH w:u.pmms mH AhcmH .Hm huwssmb msHpcmv mamH umm> Hmumww‘mnu mo xmpcm cm SO£3 umnu m3onm muauwHumum mcHumuwmo no much 03» Omega :003umn sonHummeou d .mwlfiw ..uHu .ao .ooaHuomaH NwwOum usmEuuwmoo :moHu0E< are .hmz can uHszz Scum oouumuaxm mum mwusmHu oum>umm one .mumoh anon» How OHQMHHm>m no: wumz muse mumqmummm mucumIOH mmsmoon can: oum3 nousmHm Hoonum mnmcHusm oum>umma "mopsHocH .253 one .OOMUHSO .xsmm mmsH>am can undue mHuumm on» mH meadow auMEESm cucumIOH one .mOOH mcHuso mmHmm mucum uGOEuumaoo SH GOHHHHQ me mumeonumma on» no aha nH mHne .OOOH .Hm auMSGMO OGHOSO Ham» HmomHu on» msHuso mmOH>umm can nooom SH OO0.00>.Ohh.Ow OHOm uEuHu anon» ovum Iwuvmm SH .mwuoum upHoanS can ..osH n.50Hm .mwuoum wHHucmouwz .mmuOum unoeuummoo an: .pHlo HHmnuumx ..00 a was: .m .m ..noum HonEHo .mououm .ummo Omumumomm ..oo HHo3amo esHuomem .umuoum huHo ..00 can uuoom OHHHA conuno .muuoum «Hamlhmsomoum .moooo >HQ OOuMHUOmm< ..muoo monouw OOHHHd .hHuumusuom whoa Ho .umuOun OH Ho kunou .numma m>Huummm0u new .Hassm: HmHocmsHm OHHnuuHmm .nHmHuumSOsH m.wwooz mm Loam noncomu UHHQSQ .mEuHH HmsoH>Hch mo musmeuumuu HMHosmsHu oozmHHnsm unwouSOm O.¢m O.mm m.wom h.OO~ «.mmH H.mmH 0.00N «.mon OOmH m.Oh ¢.vv H.mHm h.mv~ ~.~vH m.hhH v.omH 0.00N momH h.OO O.m~ m.mmm m.mm~ m.OMH 0.0mH O.mmH ~.Oh~ eomH m.¢m m.o~ O.mmm m.mom H.m~H H.5VH H.HmH m.mm~ mOOH H.mm O.h~ O.mOm h.mmH h.OHH O.mmH O.hOH h.m¢~ «OOH 0.5m m.m~ m.mmm m.mmH m.mHH m.m~H H.mmH O.Nmm HOOH v.No O.o¢ o.v~m m.mmH o.mHH N.mNH ¢.mMH m.mNN ooaH v.0m ¢.vM o.mnm m.m®H b.0HH H.MMH ¢.NMH m.NmH mmmH m.hm 0.0m m.He~ ¢.mOH m.HHH m.NMH m.-H h.mmH mmmH h.OO H.mm 0.0mm m.mmH N.>OH H.m~H h.~HH m.mmH hmmH h.mo e.Om h.m- ¢.¢vH N.NOH h.m~H H.ONH «.mcH ommH m.mm m.m~ m.MHm m.OmH n.vOH 0.0~H m.hHH m.OmH mmmH «N.mm ¢.m~ m.¢o~ h.HMH n.0HH m.mHH b.0NH H.0NH ¢mmH H.Hm N.ON m.HmH 0.0MH O.¢HH H.0HH N.hNH ¢.mHH mmmH h.Ov 0.5m O.¢hH m.m~H O.¢HH m.¢HH «.mmH ¢.hHH «mmH «m.om m.mv N.N©H .¢.z H.MHH h.m0H o.mHH «.mHH HmmH O.¢m ~.HH O.mmH .¢.z o.mOH H.mOH N.¢HH m.mOH ommH «N.mo H.o¢ o.m¢H .¢.z m.MHH 0.0HH m.mHH m.NHH memH H.HOH m.mm 0.0mH h.OOH m.>OH m.hOH O.hOH ¢.nOH memH 0.00H 0.00H 0.00H 0.00H 0.00H 0.00H 0.00H 0.00H hva Hm. Ave Am. Am. AH. OOH u OemH OOH u osmH OOH u 3.3 OOH I OemH OOH n 2.2 00.?» 35H OOH I 03H OOH I ocmH Hm\H «xOOSH uonm “noosH mmHmm uxmosH mmHmm «xmocn nonm uxmocH moHnm «KQOSH moHnm «aspen umHmm «xoOSH umHmm new 0» unwound Ou usoouom mquum .umoa mummoumma n.£uHam .mOum nooHsou u.uocu03 hammeoo .uw uHu0um umz uHuoum uoz pouauuoom ouOumIOH ucmsHHmnum mummoumm< HOOGHHdmum ouOumIOH mOOHlovOH .nEuHu ououm unusuummao nonuo nuH3 oUSoEHOHHUQ uHuoum can mOHan u.u0mSHHmuum mo SOmHundeoo .HIHHH mqmdh nu' 75 After suffering a loss in 1963, the board of direc- tors changed the management. Pursuing a policy of "appeal- ing to those whose desire for value is limited by a budget," the management located new branch stores in ShOpping centers and balanced its price appeal with merchandise lines, includ- ing national brands, which offered a higher gross margin. Banner sales and profit results were reported for 1964 and 1965. Relative sales for these three firms, and for Stap- linger's, are shown in Table III-l. The ShOpping Center DevelOpment of the plaza type ShOpping center also intensified competition. The first of these Opened in 1950, as noted, and then the number and size of centers and the variety of tenants increased until, by 1963, over fifty— eight such shopping opportunities were located throughout Monroeville. Each of the three largest contained over 1,000,000 square feet of retail Selling Space. In aggregate, these fifty-eight comprised well over 12,000,000 feet of retail selling Space.l Discount Stores In addition to adjusting to the aforementioned changes by traditional department store rivals, the Stap- linger management also faced the competitive thrust of l"Plaza Type ShOpping Centers in Monroeville? Research Division, Monroeville Gazette. 0 . n q I . | n 76 discounters. Definitional problems and lack of authorita- tive data preclude precise measurement of discount depart- ment store growth in Monroeville from 1945 to 1965. Indeed, by 1961, one noted writer in retailing claimed that the dis- count house had already lost its identity as a distinctive type of retailing.1 While no precise figures for discount stores in Monroeville could be obtained, one source estimated that 132 stores Operating there at the end of 1964 accounted for 3.07 percent of total retail sales.2 It should be made clear that discounting as a mer- chandise strategy did not suddenly develOp after 1945.3 Monroeville illustrated this contention. Indeed, the execu- tive vice-president of Coulder Brothers was one of the first after 1945 to decry "discounting," even though his firm had invaded and successfully built a profitable regional chain 1William R. Davidson, "The End of the Discount House," Department Store Economist, December, 1961, pp. 24—28. Also see Stanley C. Hollander, "The One-Price System-~Fact or Fiction," Journal of Retailipg, Fall, 1955, for eXplanation of definitions of discounting and examples of discounting prior to 1950. 2Discounters Digest, April 26, 1966, p. 1, published by Dun and Bradstreet, New York, claimed 900 stores and $2.9 billions in sales for 1960, andJL341 stores and $13.3 bil— lions in sales for 1965. In a Special report entitled, "Census Report of the Discount Store Market," no date, p. 2, published by Chain Store Age, New York, the claim is 1,116 and 2,347 stores, $2.75 billions and $8.75 billions in sales, for 1960 and 1965, respectively. 3See Davidson, Hollander, Op. cit. 77 of department stores during the 1920-1940 period precisely on this pricing strategy.1 In this same market one of the most successful trading area chains of home furnishing specialty stores flourished on discounting strategy.2 To what extent did these discount stores draw cus- tomers from traditional department stores? Many studies Show customers today patronize both kinds of retailers. One survey conducted in Monroeville revealed evidence that at least 75 percent of those customers who patronized Stapling- er's also visited some discount stores. Based upon the median number of visits to discount department stores by ShOppers of department stores, as seen in Table III-2, one can assume these customers also patronized discount stores. The survey revealed two other significant facts. First, Staplinger's customers who had heard of the listed discount stores mentioned most frequently two local discount chains which Opened for business after 1950. Staplinger's customers also stated that, among all discount stores, these two were the easiest to reach. Second, the list of discount department stores shown to Staplinger customers did not in- clude specialty discount store organizations, thus excluding 1Market Publication No. 3., September 27, 1954, g). 37, Speech by Henry Coulder. Discounting is viewed as a Inorrible menace . . . "taking American business back to the Dark Ages of Merchandising." 2"The Mart-—Discount House or Supermarket?" Market ‘Ptflolication No. 3, November 1, 1954, p. 56, quoted in rhollander, Op. cit., p. 130. \ :s "~. - u s .‘y'. a \‘. s ~ ‘~ TABLE III-2. Discount department store shopping in Monroe— ville in 1963 by traditional department store customers Dept. Store Percent of Each Dept. Store's Customers Who ShOpped at Discount Median Number of Visits to Discount Dept. Stores by Shoppers of Each Dept. Store During Total Family Income Reported by ShOppers of Listed Dept. Firm Stores Preceding Yr. Stores Coulder Bros. 81% 7.9 $6,524 Sears, Roebuck & Company 80% 7.5 6,780 Montgomery Ward 79% 7.5 7,082 Werner's 78% 7.1 6,779 Staplinger's _Z§% §;2_ 7,277 Smith & Co. 74% 5.6 7,399 Source: Monroeville Gazette, (Febr uary, 1963). weighted interviews in Monroeville. drawn from systematic probability sample in Monroeville by an independent research organization. Two national discount department store chains had announced intentions to Open stores in Monroeville but were not included in this survey. "How Monroeville ShOps," IV Based on a total of 2,000 Interviewees uv as: He. 79 from the survey discount stores Specializing in such classi- fications as home furnishings, appliance, toys, housewares, drugs, and health and beauty aids. Further, two nationally famous discount department store chains had not yet opened in Monroeville. Presumably, if the survey had been repeated in 1965, the percentage of those who visited discount stores would have been higher. Changes in Merchandisipg Strategies: 1945-1955 In addition to the foregoing external changes the Staplinger management also had to consider internal factors. Interview responses suggested that these internal pressures were as compelling as the external forces. Three of these internal factors deserve brief mention. One factor, the inhibiting real estate contract, was cited previously. Another was family management-—its capacity to manage, its appraisal and response to external change, and its succession. A third concerned the total interests of the firm, whether it should concentrate solely on retailing. A lternatives Within constraints imposed by both external and iJiternal conditions the management chose from among the ftrllowing alternatives. 80 First, it could continue its high-fashion, Specialty- shOp appeal to a limited market segment. Second, it could broaden its appeal to an increas- ingly affluent segment who were seeking moderate- to better— priced merchandise. Third, it could continue to compete with Smith and Company on terms which would be determined more by Smith than by itself. Fourth, it could seek its own niche in the market- place. Fifth, it could continue to concentrate its Opera- tion at the Central Business District location and plan for branch stpres eventually. Sixth, it could diminish downtown Operations, con- tinue to pay the high rent, and immediately invade suburban or neighborhood ShOpping districts or suburban central busi— ness districts. The firm also needed to consider these additional internal alternatives. Should it continue management suc— cession within the family or should it groom others for these responsibilities? Should it remain completely inde- pendent regarding its resource and buying office affilia- tions or should it seek the advantages of some form of confederation? Should it continue to be a corporation of many businesses or should it allocate its resources solely for retailing? ‘ s ’-.. H ll’)’ l” (- 81 From interview data and from evidence garnered from external sources the decisions and reasons for those deci- sions appear to be as follows: First, the management abandoned its dependence upon family for succession. It sought, found, and developed_out— Side talent. Together with some of the Older management, these newer executives formulated different merchandising policies. Second, Staplinger's decided to devote considerable effort to its merchandising activities within the Monroe- ville Central Business District while simultaneously plan- ning for future suburban ShOpping center eXpansion. Four additional retail outlets were Opened between 1950 and 1955. Third, Staplinger's decided to appeal to an increas- ingly affluent middle-class group. This appeared to be the most feasible basis by which the firm could build a suffi- cient sales volume per square foot in its only store and thereby overcome the leasehold handicap. By directing the merchandising toward Monroeville's broadest concentration of buying power the management foresaw an Opportunity to build a more lasting profit structure. Fourth, it decided to continue as a corporation with many interests. For example, it became a real estate firm in order to relieve the pressure of an onerous lease and to laedge against an obdurate landlord, a step that was neces- :sary if it was to execute its basic merchandising strategies. 82 These four major decisions established the guide- lines for the next 20 years. They were not reached simulta- neously nor were they necessarily implemented in that order. They are set forth, rather, for convenience of reporting and analysis. The pattern of change during each decade from 1945 to 1965 will be discussed in terms of these decisions. Management Succession Two financial develOpments undoubtedly caused Stap- linger's to resolve the management question as it did. First, in l946,several directors, who also constituted the management and who were descendants of the founders, regis- tered with the SEC and sold to the public 100,000 shares of cumulative preferred stock. This marked the first time families of the original founders had disclosed actual ownership. In this instance it also indicated that the company required additional capital for eventual eXpansion.l More than ever before, management became aware of the need to generate sales. Second, as reported by one executive, the post-war performance was not reassuring to either new participants in ownership or to the financial community. Commenting on the 1945 to 1950 period, Mr. Strong, the vice-president and sales promotion director, Said: 1Monroeville Gazette, May 8, 1946. 83 Though we increased our volume the first few years after the war we did not increase our profits. In fact, for fiscal 1949, our profits measured as a percent of sales declined 89 percent from our first post-war (1946) per- formance. We still had only one store.1 The entire department store industry profit-to—sales ratios declined after 1945. As shown in Table III-1, Stap- linger's performance was considerably poorer than average. By 1950, the firm declined dangerously close to its 1946 fiscal sales volume and perilously close to a loss. On a sales volume in excess of $50,000,000 it earned less than $50,000.00 after taxes. In later years the president of the firm (then its general manager) referred to this "as an O 2 occa31on when we nearly went broke." One of the corporate officers described the decision about management succession: In 1947, the real change occurred. We went from family to professional management. Mr. Amos P. Rausch, then president, went outside and hired as general manager Austin Worth with the intention of grooming him to become the chief executive officer. (Mr. Worth is now president of Staplinger's.) Mr. Rausch realized we didn't have the management team nor manpower reserve necessary to grow. I think, too, he realized there was room for new leadership needed for a changing market. Mr. Worth's background consisted of considerable eXpe— rience in personnel both in and outside of the retail industry. .Also, because of previous eXperience, he had a prOpensity to emphasize the financial perspective in all of his thinking. Further, he seemed willing to delegate to others what we normally considered merchan- dising; that is, the essentials and techniques of buying lStrong, interview, May 12, 1966. 2Market Publication No. 2, August 3, 1964. nl' 84 and selling. The result was that we broadened merchan- dising to include men and money as well as merchandise itself.1 This concept of merchandising as the management of "the three M'S--men, money, merchandise"--became the central technique of merchandising right to the present time. This technique was employed to reach one Objective, profit. Mr. Worth has repeatedly referred to this strategy. In 1957, for example, he remarked at a professional meeting: Many retailers are unaware that they did not improve their services or their facilities because they did not pay attention to their cash flow . . . but this is only one phase of Operations which heads up to a fundamental belief . . . that everything we do goes back to a very simple "How can I use my money best?" . . . that is why you will see a much greater emphasis in total mer- chandising on the use of space, the amount of dollars you have invested in space . . . after all, the cost of real estate in retailing is basic . . . if the real estate cost goes up to $2 a square foot annually, we have to decide how we are going to merchandise so that we get the same rate of return on the $2 cost space that we get on a lesser cost, say, $1.20. And this cannot be done overnight. Definition of Market The "sleeping giant of Monroeville,"3 as the trade press tagged the store, attempted during the 1945-1950 period to redefine its market and the store's future. lMcBride, interview, Op. cit. 2Austin Worth, "Current Changes in Retailing) before The Retailers of America, Monroeville, 1957. speech 3Market Publication No. 2, Staplinger file. Publica- tion undated. 85 A merchandising vice-president who participated in management throughout this adjustment period described both the needs of the store and the alternatives available: We were not obtaining business from a sufficiently broad income segment by which we could increase both volume and profit. The economic and social forces had already changed both our traditional customers and those who might become ours. A newspaper survey showed that customers under 30 years of age comprised only 19 percent of our total sales,L less than Smith's or some of our other competitors. Guided by a strategy requiring increased sales volume per square foot, aiming at a middle rather than an upper class Segment, demanding profit as well as volume, Staplinger's strove to attract customers to its sale loca- tion. To do this, it increased emphasis on lower price lines both in goods stocked and in the advertising. Ten years later, Mr. Worth commented on these attempts to dis- cover just where the merchandising effort had to be placed in order to establish a new identity: We had to find out where the price line was for the customer, where the customer stops being appealed to by a good, friendly, aggressive, middle-class store, and that fis what we are if we really want to be honest about it. These claims of seeking a new market segment and implementing a new strategy apparently faced internal Oppo- sition as well as the usual external competition. Though President Rausch had brought Mr. Worth and others into the 1 . . Trine, op. c1t. 2Worth, Op. cit. 86 company, some stockholder-management members in the first post-war recession year, 1949, favored a return to past events as a guide. The board chairman, for example, regarded 1949-1950 as a period in which consumer buying would return to "normalcy," i.e., the prewar pattern. He predicted: Customers are now buying when they want merchandise and not because they fear scarcities. Our store is taking its cue from our 1939 pace, a typically normal year. This trend will affect our own buying pattern, too. We will buy closer to our needs. However, both the board chairman and the president approved, and one year later lauded, a major change to implement the new strategy. This change concerned resources. Change in resources.--To execute this major change in its merchandising strategy, Staplinger's decided to change its residential buying organization. If it was to appeal to middle class segments as well as retain the upper class trade it had cultivated throughout its history, the manage— ment needed to reassess and alter its resource relationships. A merchandising executive explained: It is paradoxical that with all of the corporate eXpe- rience as a wholesale resource and our partial involve- ment in manufacturing we didn't do a more effective job in our relationship between the retail division and market resources. We also knew that we could only be as strong as our resources. But how could we know what was best in the market? How could we learn how success- ful retail firms merchandised what they found or devel— Oped in the markets? Should we continue to Operate our own separate buying office in New YOrk, abroad, and on lMarket Publication NO. 2, April 12, 1949. «II II‘ 87 the West Coast? These were questions we had to answer as we went about the task of changing our offering. Staplinger's decided to discontinue its own resident buying organization and to affiliate with Consolidated Retailers, a confederation of large department stores which had formed their own buying syndicate. This also provided a communication link for ideas and standards. One merchan- dising executive who was a buyer at the time of change eXplained the impact: I was buying ladies' shoes in our Basement Store at the time. We were operating only one store. Somehow the store had permitted the Basement to become a dumping ground for all the mistakes upstairs. Our gross margin was low, of course. We were behind the season because of a poor showing. We had actually reached the point where we were ready to eliminate the department. Our displays resembled a discount house. Our stocks looked more like distressed goods. And, of course, some of them were. After we changed our buying organization and joined a merchants confederation we discovered some mer— chandising facts of life which altered our planning. First, we learned that other stores in our volume class ran very successful, profitable basement shoe depart- ments. But they were on their own. Each department or classification was accountable for its own profitability. We had found a standard, a basis for comparison, a pat— tern for emulation. It provided me with a basis for planned merchandising, gave me access to other stores, and of course gave me entree into market resources I might not have used otherwise. Personally, I regard this as one of the most significant moves during the twenty years I have associated with the store. This basic decision enhanced Staplinger's position among market resources for several reasons. It became a member of a combine with enormous total buying power, lParrish, Op. cit. 2 . . Trine, Op. c1t. .a. Div, - n. , a... a .— u... 88 providing more adequate access to moderate-to—medium priced markets. And very importantly, as several executives stressed, it exposed Staplinger executives to the Operations and Operating figures of several successful American depart- ment stores. It also, of course, revealed Staplinger's per- formance to the remaining affiliates. One interviewee remarked: For some time it was a joke around the New York Office. Whenever another firm's performance Slipped the buyer or merchandiser was told he would be sent to Stapling- er's. Th1s 1nd1cated our standing at that t1me. This decision proved providential for additional reasons. For many years Consolidated Retailers had repre— sented Smith and Company in foreign markets but the latter refused to join the association on a full membership basis. Hence, Staplinger's actually supplanted Smith and Company.2 During the next fifteen years many department stores differentiated their offering from competition and increased their profits by staging coordinated promotions of imported merchandise. The reference here is not to low-priced, mass- produced merchandise in such classifications as Sportswear for women, girls, men and boys, nor to electronic or photo- genic goods. Rather the reference is to better quality, Often custom-made, merchandise featuring excellent design and the finest materials. These coordinated promotions 1 . . Gr1mes, Op. c1t. 2Market Publications No. 1, April 26, 1949. 89 tended to concentrate in the home furnishings classifica- tions and in some women's apparel and accessories classi- fications. AS will be evident by review of Staplinger's merchan- dising program, especially after 1955, these foreign "import promotions" and the inclusion in the inventory of these kinds of goods, proved to be significant contributions to the strategy changes. I could not find any evidence that either Smith and Company or Staplinger's foresaw this up- surge in merchandising of imports. Suffice it to say that Staplinger's did not seek the affiliation primarily for that reason. Rather the Objective seemed to be, as stated, to aid management in establishing internal controls as well as to broaden its domestic resource base. For example, five months after affiliation, the firm's chairman of the board was quoted in the trade press: I feel this move was one of the most important in our long history. This association with other large stores, particularly with the retail research division, will be very helpful.1 The 1949 fiscal report reflected this search for standards and guidance. The Chairman pointed out advantages the firm had already obtained by its new residential buying office affiliation. With help from the association, lIbid., November 11, 1949. 90 Staplinger's installed a new system of work center eXpense accounting about which the Chairman said: . . . it gave us by far the most effective means of eXpense control we have ever had. This has helped us to locate and identify where the responsibilities for profit are. We are beginning to delegate that respon- sibility downward. Apparently, these guideposts provided a basis for Optimism even though the Chairman reported a decline in such measurements of activity as sales per square foot and the amount of the average sales check. On the other hand, he stated that the number of transactions during the year had increased. While this may indicate that the company had already traded down somewhat, the most meaningful fact is that the Chairman and the management dwelt on those merchan- dising activities which bear on profitability.2 By replacing Smith and Company the Staplinger manage- ment served notice it intended to compete vigorously to become a distinctive retail enterprise, and as one official eXpressed it, "to anticipate rather than wait for change." In the 1951 fiscal statement, company officials again . acknowledged the merits of this decision: This has helped in the exchange Of figures and in obtaining merchandise. We initiated several research projects of our own and modified our cost accounting system as a result of this. lMarket Publication NO. 2, May 3, 1950. 2Market Publication No. 1, April 1, 1952. 3Ibid. 91 Sales Promotion Changes The drive for Sales volume and the need to procure results immediately caused the firm to modify its sales pro- motion strategy, particularly its newspaper advertising. Two buyers eXpressed their recollections of this change. In the late 1940's we took double shots of adrenalin. We went very promotional. Some peOple thought we damaged our image. We extended Anniversary Sales from a week to ten days to three weeks. As a result we were competing with Smith's Basement Store and Werner's and Coulder's. At a later date when we attempted to re- establish our image as a fashion leader it became very costly in terms of extra effort in personal selling, in advertising eXpenditures, and in extra mark-downs we had to take.1 Store records to relate advertising price-lining to merchandise price-lining for this period (1945-1955) are not available. The consensus of those interviewed was that the store had advertised below its volume selling price in a given range. This represented a departure from pre-war and wartime policies of advertising at or above the volume sell- ing point in a given price range. Emphasis on credit selling represents another change in the strategy, a logical extension of the merchandising concept. The company campaigned to sell credit as a means of purchasing at Staplinger's. It encouraged people to use this service and promoted the new, liberal program at 1Interview with Mrs. Roberta Bollen, Merchandise Manager, women's Sportswear and budget dresses, Stapling- er's, May 12, 1966, and Trine, Op. cit. _ w...— _‘-‘.—= 1n...— 9‘. .,L .- h .u- .~ ‘I.‘ ’n. 92 Staplinger's. By 1950, credit volume reached 48 percent of total transactions compared with an average industry per- formance of 45 percent. Handicapped in securing suburban business because of its lack of branch locations, the store encouraged customers to use their credit by more frequent telephone purchase. By inaugurating an "Enterprise" telephone service to some sixty suburban communities considered a part of the Monroeville trading area, the store invited the suburban customer to call the store without incurring a toll charge to herself.1 The store also established a mail-order campaign to its credit customers. It dispatched card inserts and mail- ers different from monthly charge enclosures. The messages included announcements about physical improvements, Special events, and Specific merchandise offerings. Location Decisions Real estate decisions significantly affected and reflected merchandising decisions during 1946-1955. They can be summed up as branch store and main store decisions and will be discussed in that order. lMarket Publication No. 1, May 4, 1949. 2Ibid., February 26, 1952. '0., m,- s.- 93 Branch stores.--It was surprising to learn of the initial eXpanSion program. While constructing a new ware- house in the far north side of Monroeville, the management decided to utilize a portion of the 350,000 square feet building for a branch store. Staplinger's Opened this branch in 1950 as a 75,000 square foot "Warehouse Store.” It featured "low prices, self-selection, evening and Sunday shopping, ample space for free parking." That same year the firm Opened a specialty appliance and hard home goods (excluding furniture) store in a subur— ban Monroeville community. A trade press reported this event: Subsequent to its affiliation with Consolidated Retail- ers in 1949 Staplinger's developed a tidy volume in such fields as major appliances, and housewares, where previously an appreciably smaller effort was made. This has given the store a complete personality in home goods retailing. However, these classifications were among the most competitively priced in Monroeville. Despite the optimistic report cited, the venture was not successful and closed within the year. One eXplanation may be that the temporary advantage in procurement Staplinger's gained by its new buy- ing Office affiliation was quickly offset by an increase in total supply of consumers' durables. lMarket Publication No. 4, February 23, 1954. 94 Staplinger's did not succeed in either venture in which it aped discount retailing. Inventory investment for both instances was in lower zones of the normal price range the store stocked. I could not determine if the store actually extended the normal range downward. But by empha- sizing lower price points within its normal range, it can be said the store traded down in these classifications. Accord- ing to interviewees, the store supported both efforts with newsPaper advertising. It is reasonable to eXpect that the advertising price—lining also emphasized these lower price points. In eXplaining why merchandising was so important a function, the statement was made that the inventory repre— sented the largest or second largest investment for the department store. Since 1945 the administration and promo- tion of credit as a means of obtaining patronage has become of extreme importance to retailers. For some department stores the investment in accounts receivable has become the largest asset in the business. By 1950 many large and small retailers learned they were, indeed, merchants of money as well as of goods, and that they could profit from their accounts receivable as much as they could from inventory turnover. In view of the foregoing, it was surprising to learn from an examination of the records that Staplinger's in 1950 sold to the Monroeville Bank its conditional sales contracts ..¢ 0 95 for an amount in excess of $1,500,000. One eXplanation may be that Staplinger's chose liquidity in preference to the interest income from sales contracts. The action to hasten liquidity under such circumstances can be a Sign of strin- gent financial constraints and tends to confirm interview data concerning the firm's financial capacity as it affected merchandising strategy. More Specifically, as will be related Shortly, a tight financial conditional may cause loss of discounts, delay the taking of markdowns when needed, and.may cause the store to forego Opportune purchases. During the following year the company announced it would Open its first branch store in a ShOpping center. This 50,000 square foot unit Opened on schedule in 1952 and occupied 10 percent of the ShOpping center's total sell- ing area. The store stocked merchandise primarily in the apparel and textile classifications. Simultaneously, the firm announced plans to Open a second branch in Northside ShOpping Center within a year. Before this materialized, Staplinger's reversed its field. It Opened, instead, another warehouse store, a 33,000 square foot unit selling primarily home goods, which would help Staplinger's put up a stronger fight against dis- count house competition. Located five miles from its first shopping center branch, the unit was designed as "strictly warehouse." The trade press reported: - H . ‘ \ .- l‘ 'v .“ . '- .,‘ 'Q . ~ 7. ‘n s s . \ s . a ‘1. ‘. .1 96 The basic reasons for this Opening are the unusually enthusiastic responses of the public to the two week- end events staged last year. Three general types of merchandise will be sold at this store: Special pur- chases of unusual values which are also available down- town, overstocks from the parent store, and items reduced because of soiling. Eight months later, Staplinger's introduced its second ShOpping center branch store. This center included 28 stores in 220,000 square feet of retail selling Space. The Staplinger Store occupied 64,000 square feet. Main store.-—In 1948, to hedge against a possible loss of lease on its main downtown location (the leasehold was to be renewed or renegotiated by 1955), Staplinger's purchased the real estate adjacent to the main store, which housed a portion of its downtown retail business. This prOperty did not front on the main street, however. Because it did not require additional retail Space at that time, the company leased all but the ground and first three floors as prime downtown Office space. This obligation, as well as the uncertainty about the main store, may have delayed com- pany branch eXpansion. The capital to Open the first shopping center branch was obtained from the sale in 1951 of its share in a down- town delivery garage. When the firm started leasehold nego- tiations in 1952 on the downtown location building, it 1Ibid., February 15, 1954. 97 believed itself better fortified than ever before to deal with the onerous real estate situation. Even by 1954 the downtown store accounted for 85 percent of the firm's retail sales. But to renew the lease on the old terms was untenable. A merchandising vice—president commented: Simply put, we weren't doing enough business for the size of tent we had leased. We had to merchandise the space either by increasing the dollar volume per square foot or reduce the Space used for selling goods and serv1ces. Local neWSpapers and the trade press reported in 1955 that Staplinger's had been unable to renegotiate its lease satisfactorily under the terms of the trust agreement controlling the rental of its site. Consequently, it planned to vacate the premises it had occupied for 50 years. Rather than leave downtown Monroeville, the firm decided to build a new store on the site acquired in 1948. However, the Probate Judge of Monroeville finally consented to the trustee's request to sell the original land and building to Stapling- er's. In late 1955 the store concluded this multi-million dollar purchase. TO finance this acquisition the company issued promissory notes due within the next fourteen years, bearing 3-3/4 percent to 4 percent interest. Staplinger's used part of the proceeds to remodel a portion of the Main Street build- ing. Subsequently, it leased a portion of this Space to two lParrish, Op. cit. . . a s ~ .~\ h n .. ... . . . . . . H s: s a . . . e x L. a . q. ... ..— a. a . .. .e u a e e . H .\5 .s. 1 v u s . A -, us.‘ s . e . .. . .sa . ..a .H. a .u- . . u. .. . . ..- .~. . .. . .\~ ~ .. . . . ... .. .. ... t s .H w x .. ... . ... .. , 98 Specialty stores which brought additional traffic, despite the fact that they were competitive, with Openings into the Staplinger street floor. The company also used a part of monies received from the notes to help finance the construc- tion of a ShOpping center in which it Opened its third and largest branch store in 1956. Becoming a landlord to other retailers seems conso- nant with the company's historic pattern of diversification and was repeated in the following decade. Too, the steps outlined may underscore the management contention that the retailer must be a merchant of money as well as of goods. Summagy: 1945-1955 In reSponse to external change, the.Staplinger firm was guided, if not constrained, by internal factors. The most notable of these was change of management, which brought about a different concept of merchandising strategy. In one of its first major decisions, management identified a new market segment. The strategy required additional sales volume in broader price-line ranges and more aggressive Sales promotion in order to reach the designated market seg— ment. Management sanctioned competition with discounters and permitted both sales promotion and location decisions which either encouraged or required trading—down to accom— plish the mission. Resource changes were made which would help management become internally profit-minded and enable 99 it to secure merchandise consonant with its new strategy. The logic of merchandising, the interview data, and litera— ture sources all tend to support the prOposition that Stap- linger's traded down during this period. Changes in Merchandisimg Strategy: 1955-1965 Recapitulating previous observations concerning internal factors which might affect merchandising strategy, the data in Tables A, 1-5, show that general trends in pop— ulation, income, and retail sales continued to increase in Monroeville from 1956 to 1966. One demographic change which proved advantageous to Staplinger's was the resurgence of residential construction for middle-to-better income groups in locations very near the Central Business District. Another development during this decade was the increasing intensity of Negro and non-white population growth within Monroeville, which partially accounts for the variance of income distribution, as seen in Table A-5. Severity of competition also increased. Approx— imately 20,000,000 square feet of retail area were added. Three-fourths, it is estimated, were constructed in plaza- type ShOpping centers in which such traditional competitors as Werner's and Coulder Brothers occupied sites. Smith and (Company became the largest tenant in Midstate's largest ShOpping center. II III III (I) 'I' 1 .l‘) (I) y ‘ 100 Discount stores occupied approximately 5,000,000 square feet of retail area in Monroeville by 1965. Two local discount department store chains, which started in business after 1950, reached a collective sales volume of $63,000,000 by 1965. In addition, such national chains as Korvette, Interstate, Zayre, and others, deemed the giants of the discount store industry, established branches in Monroeville. Internally, the management did not reduce its empha- sis on merchandising strategy. The eXperiences of the previous decade intensified its desire to develOp apprOpri- ate merchandising tactics. For example, regarding discount stores, Mr. Strong remarked: As discounting increased, we recognized that our quest for volume brought our merchandise and advertising price-lining closer to this kind of competition than we should have been. We were trading down too far. Be— sides, this program was not providing the profit and return on investment we had to secure. So we attempted to change. Certain internal constraints continued to inhibit merchandising, however. Failure to generate sufficient profit and constant pursuit of sales volume affected liquid— ity. One buyer succinctly eXpressed the effects: We wanted sales volume. We were always short of working capital. We weren't taking our discounts. We held back on markdowns. Under these conditions you always have a tendency to trade down in quality and pricing. lStrong, Op. cit., April 19, 1966. 2Bollen, Op. cit. 101 Ten years later, Mr. Worth, in Speaking about the need for long—range planning, reminded his audience of Staplinger's eXperiences: We started our long-range planning 10 years ago because we were a deficit corporation and had to be able to Offer some hOpe to our stockholders and directors. We built carefully over the years--our sales by classifications, our cash flow program, our profit projections. Management Succession Both Rausch and Worth continued as the chief archi— tects and executives of the merchandising strategy and cur- rently serve as board chairman, and president, respectively. They claimed they had succeeded in developing a reservoir of management talent. In 1966, before a professional associa— tion, Mr. Worth declared: We have a group of 25 younger executives who can and will manage this corporation in 1980. They cur— rently serve as store managers and merchandise and administrative managers. Each has been transferred from one middle management line promotion to another at almost regular three-year periods. The younger members run in age from 26 to 35. Some merchandise managers are in their 40's and have been with us now for 15 to 20 years.2 These executives are encouraged to attend business administration courses at nearby universities. The company lWorth, speech delivered at management conferece at Inonroeville College, as reported in Market Publication NO. 1, March 10, 1966, p. 10. 2Worth, reported in Market Publication No. 1, .June 16, 1966, p. 18. ‘V: v. ..\ 102 brings academic eXperts to the main store headquarters for executive seminars. For its employees the management demonstrated and conducted schools and training sessions on the need to eXploit its long—established reputation as a friendly store. The general training program did not appear to be different from that encountered throughout the industry nor in other stores studied. Staplinger's instituted a profit-sharing plan in 1954 to reward its veteran employees. As a result of the relatively poor profit performance, as can be in— ferred from the data in Table III-l, the contributions to the pension fund were not as large as anticipated. Nonethe- less, throughout this period, the management regularly attempted to communicate to its employees, particularly sales personnel, the need and desire to draw patronage from a wider segment of the public. Definition of Market During the 1956—1960 period Staplinger's attempted to reverse its trading-down strategy but did not succeed. Interviewees stated that the company recognized it had traded down too far but that the turnabout did not occur until 1959, when the company expanded beyond Monroeville. Strategies of sales promotion and resource develOpment appear to conflict rather than complement each other during this period. : q.— -\. 103 Sales Promotion, 1955-1960 Despite its desire to trade up in the advertising price-lining as well as in its merchandiSe price—lining, Staplinger's found it necessary to prime the pump for sales volume. During 1957, for example, it staged a gigantic extra-hours, one-day, store-wide sales promotion event in its Central Business District location. For this event, Staplinger's purchased the largest amount of retail news- paper advertising Space ever used by a single Monroeville store in a single day. The store succeeded in "setting a peak in sales for any day in its history, surpassing even the Christmas season."1 "Staplinger's One-Day-Sale" was repeated later in the year, but the firm barely managed to equal the previous years' sales and declined in profits, as Table III-l indicates. This conflict between sales volume and gross margin continued for the next two years. The One—Day—Sale increased in frequency to five such events in a given year. The com— pany had already eXpanded its Anniversary Sale to three weeks. By apportioning this much advertising eXpenditure to price promotion events, and by diverting inventory invest— ments to support them, the company was impeded in its effort to trade up. 1Monroeville Gazette files on Staplinger's, 1957. .. «‘7 —--_r_' . . .,“ H s .‘u ~ “ .4 -s v. ‘\ -s a q i q u u ‘5 h n .s 1 s ‘. a n. ‘ “I. u... 104 Yet, especially in its downtown location, Stap- linger's accompanied these thrusts for volume with a number of merchandising and sales promotion events designed to secure day-in, day-out business and to establish itself once again as a fashion leader. For example, in one of the first attempts by a retail store in Midstate to sell art, the main store, in 1957, staged a double-feature art show. It included a one-man exhibition by a contemporary French artist. In addition, the store sold fifty original paint- ings by great masters. Imported merchandise, as noted, had become an impor- tant part Of Staplinger's assortment. For the first time in Midstate, a department store coordinated and assembled in one specific location items from all countries and all clas- sifications for a two-week event. Sufficient interest and patronage justified extension into a third week. Some large department store affiliates of Consoli- dated Retailers devised a merchandising technique called "Customer Preference." This analytic technique helped a retailer to concentrate on characteristics of the item rather than on the item itself in order to detect what the customer preferred. The primary analytic effort was to identify the attributes of an item--with respect to mate- rial, color design, and price, for example--which the consumer preferred as evidenced by her purchasing behavior. n...- -o- H. ..o a.“ 105 Stores that used the techniques claimed they could gauge demand more accurately and, therefore, could respond more profitably. However, both store timing and customer demand could, and did in some cases, wreck havoc among departments within stores. Interviewees reported that buyers, in their zeal to capitalize on a trend, overstocked on certain features which customers decided they no longer desired. Or, in other instances, buyers neglected basic stock aSSortments in order to eXploit a momentary upsurge in demand for a particular item or idea. Customer preference also required an orientation based upon consumer habits and desires rather than store buyer habit and preference. For example, in 1958, Stap— linger's reorganized the dress departments to provide increased ShOpping ease and customer convenience. The president reported: We found out that the average customer buys dresses more on impulse than by careful calculation. Now she can find anything in dresses she wants on our Third Floor of Fashion. More significantly from her vieWpoint and ours, too, the same salesperson can wait on a customer ShOpping for an entire wardrobe Of dresses from better priced casuals, town types, afternoon frocks, and she can select and try on in the same fitting room. 1Market Publication No. 1, June 23, 1958. i. :. .H. 106 Resource Changes While Staplinger's attempted to secure volume and yet attract customers interested in fashion and quality it also strove to increase its merchandise gross margin. A buyer summarized the situation: After we achieved volume, and after we began to build branch stores resembling our main store and not discount houses, we started a drive for increased gross margin. We had to get that in order to increase our profits so that we could continue our SXpansion program. Our instructions were to make money on goods, including Sale merchandise. The press for additional gross margin affected mer— chandising of home furnishings and housewares during this period. The previously cited attempts to secure profitable volume and to simultaneously compete with discount stores had not improved the company's performance. Indeed, one company official was quoted as saying: We decided we would eliminate any fringe efforts to try to serve all segments of the pOpulation and would instead establish an unmistakable personality of our own 0 One major effort was to reduce the total number of resources supplying the company. A buyer discussed the resource problem as it relates to branch stores: We started this move to reduce the number of resources in 1956. We pinpointed this problem as we eXpanded 1Trine, Op. cit. 2Market Publication No. 1, January 22, 1959. 107 into branch Operations. When you stock branches it is easier to work with fewer lines but carry a wide selec- tion from each.1 The company reduced the number of television and electronic equipment lines from seven to three, the number of houseware resources by 30 percent, and, in furniture, the number of upholstered resources from fifteen to five, case goods from fifteen to five, and occasional tables from twenty to five. The home furnishings merchandiser added: We aim to concentrate on medium-to—upper merchandise. This does not mean the store will discard price pro— motions. But such promotions will be deemphasized and we will use our regular sources for these events. During this 1955-1959 period, Staplinger's, again, seemed to be ahead or behind the times. In several of the merchandising techniques cited, such as customer orientation, coordinated stocking and ShOpping, it presaged the current emphasis on classification merchandising, boutiques and the shOp concept. It eXpanded its appeal to one segment by means of individualized, personalized, Specialty-store type of merchandise assortments and presentation. In other tech— niques, however, Staplinger's more closely resembled dis- counters as it supported homogenized, massive, store—wide price promotions aimed to "buy volume the next day." lBollen, Op. cit. 2 . . Trine, Op. c1t. n. -5 ‘0 h» o - -\~ .. r.\ .e . 108 This last phrase signifies changes in emphasis. First, it means the store seeks only a proximate goal of achieving a given sales volume for the next immediate period, usually a day or a week, or even a month. It subordinates long-range goals which may be more difficult to define and which may require a different allocation of resources. Second, it usually implies a willingness to eXpend funds on a short-range basis in order to achieve these results. Thus, a store may reduce eXpenses for maintenance and shift the difference to advertising, expending a diSproportionate share for that activity, in the eXpectation that this will stimulate immediate consumer response. Every merchant must constantly allocate resources on a basis of priorities which includes a time consideration. The significance of this decision will become more apparent in this as well as in the other case reports. Location and Expansion Decisions Staplinger's continued its branch eXpansion program, Opening three additional shopping center stores by the end of 1958. However, none of these were as large as the branches Opened by Smith and Company nor those by Sears, for example. By the end of fiscal 1958 the firm obtained 31 per- <:ent of its retail sales volume from branch stores and re- ;ported that for the first time in five years the main store ggained in sales. Table III—l shows that profit did not Lincrease proportionately, however. 109 When Staplinger's opened its third branch store the management announced that it planned to encircle Monroeville eventually with two rings of branches. The closer one would be the group of regular branch department stores in ShOpping centers. The more distant one would consist of department stores to be Opened in ShOpping centers in other population centers which surrounded Midstate. However, the first acquisition in the outer circle was a traditional department store located in the central business district of a neighboring community. Originally a branch of Smith and.Company, this store was sold to an inde— pendent merchant, whose family in turn sold to Staplinger's. This presented an Opportunity to acquire immediate sales volume in a medium-to—better price store. While this acqui- sition did not fit the prOposed pattern, it was in line with the long-range strategy of the firm. Midstate Department Stores Merger The largest single eXpansion of the twenty year period occurred in 1959, when Staplinger's acquired Midstate Department Stores, a regional chain. These retail firms ‘were either first or second in sales in their respective communities. Executives offered several eXplanations for ‘this unusual amalgamation. They can be summarized as follows: 110 These were reliable, quality stores which would add immediately to our volume. This acquisition really made a mature corporation out of us. It increased our assets. Because we paid for this principally with convertible debentures we did not have to deplete our cash or liquidate other assets. We gained consid- erable leverage which enabled us to borrow more readily. This really financed our eXpansion.l InSpection of data in Table III—l confirms these estimates. The substantial increase in sales in fiscal 1959 (year ending January 31, 1960), indicated by a rise in the index from 162.8 to 229.8, can be attributed only to this acquisition. The increased net profit index figure (from 34.4 to 40.0) applied, Of course, to a substantially higher sales volume which soared above $lO0,000,000,again resulting primarily from the acquisition. Further, the 1959 profit—to— sale ratio was the highest since fiscal 1950. Financial circles eXpected that this acquisition would lay the foundation for appreciable eXpansion. Net worth increased 43 percent; working capital, 53 percent. Trade spokesmen estimated "it would have taken Staplinger's ten to fifteen years to build up the volume in the reSpec- tive areas where these stores are located."2 The acquired company bore some blemishes, however. Its management had failed to develop new leadership from lMonroeville Gazette, Staplinger file, 1966. This same kind of statement was reiterated by several inter- viewees. 2 Market Publication No.2, April 13, 1965. 111 within or to bring in new vigorous aspirants from other retail firms. Also, it had failed to modernize its physical plant and merchandising equipment and methods. Hence, the Staplinger management inherited those kinds of problems with which it was familiar--family management, aging inventory, real estate deterioration, and personality difficulties. But, for the acquired company, the opportunity to sell out the entire prOperty at one time to one buyer was unusual and served well its desire to liquidate. And, for Staplinger's, the opportunity was at hand to eXpand outstate, immediately boost its corporate sales volume, and carry out moderniza- tion plans as well as those plans relating to shopping center expansion. This acquisition proved to be an engrossing test of what merchandising meant at Staplinger's. Questions about merchandise, money, and men abounded both before and after the transaction. Five years later, after Shakedown experi— ences with the acquired stores and with other acquisitions, the company's president remarked: Our 1964 results highlight the culmination of a five- year eXpansion program which placed severe pressure on both working capital and management. This is the first year in which our Operation reflected the full effect of this program, of increased and modernized store facilities, of our management objectives, of aggressive- merchandising and promotional actiyities, and a con- stantly improving eXpense control. lIbid. 112 EXpansion during l96l-l966 period.—-After acquisi- tion of Midstate Department Stores in 1959, Staplinger's announced it would construct a new ten—story addition to its Main Store. In this structure it leased out the main floor, mezzanine and basement floors and used the upper eight stories for its own merchandising. A company official eXplained that the cash flow from depreciation and income would enable the company to eXpand even faster in the future. Several demographic changes in the early 1960's bolstered Staplinger's confidence in the Monroeville Central Business District. An 896—unit, upper-middle-class apart— ment house project was constructed near the downtown shOp— ping district. The University Of Midstate relocated its campus and facilities, including faculty and student housing, at the other end of the downtown district. Three new super— highways from different suburbs and construction of two additional 600-unit apartment houses nearby encouraged and justified the management investment in downtown real estate. Two develOpments in 1962 absorbed both Staplinger's capital and its attention. The first was a Staplinger— financed construction of a 200,000 square foot ShOpping center in Monroeville. This included a restaurant and the first basement store to be operated in a store branch. A second development, also financed by Staplinger's, consisted Of a 100,000 square foot department store and an 85-home subdivision in the $15,000-$22,000 price range. These were 113 located in a community which included one of the Midstate Department Store's units.l Although it had not engaged in the food service business prior to 1960, the company apparently believed its merchandising strategy could include this segment of the retail industry. Therefore, it bid for, and won, the con- tract to provide food and beverage service at the Monroe- ville Transportation Center. Commercial and residential activity in the vicinity of its second branch, built nine years earlier, had in- creased substantially by 1965. Staplinger's decided to double the size of its store there and to construct a 105,000 square-foot office building. The president ex- plained that this would "localize commercial activity in the Center and increase the attraction of the ShOpping project."2 The physical eXpansion and the management of capital affected other elements of the merchandising strategy, par- ticularly sales promotion and resource develOpment. Refer- fing to the 1961-1966 period, the sales promotion director defined the objectives: We tried to emphasize the difference between discounters and our kind of retailing. We planned and staged more Special events, more intensive fashion promotion, traded up in our advertising. We used our downtown store to 1A. B. Markson, "Staplinger's Opinion on Discounters in.Its Midst," Market Publication No. 1, September 27, 1961. 2Market Publication No. 1, June 2, 1966. 5| 114 project an image of a friendly institution and a demon— stration of the quality and assortment of goods. The branches were to imitate this. Despite these statements, Staplinger's continued to promote sales volume events. It was not until 1965, after returning to its promised profit performance, that the com— pany diminished the One—Day-Sale events from five per year to two per year. The Anniversary Sale was also reduced from three weeks to one week that year.2 The program of resource selection and partnership continued during the various eXpansion and volume drives. Mr. Parrish, the general merchandise manager, cited an example: In our affluent economy, what is important is the idea, not the price, not even the item. When bonded jersey dresses came on the market it was the idea which was important. Ten years ago each dress department in our firm would have tried individually to promote the item. Today, we coordinate everyone's efforts to promote the idea for all size and price ranges. You can only do this, however, when you work with a limited number of resources to whom you are important and who have a stake in your success. Another Staplinger merchant, Mr. Trine, Associate Merchandise Manager of home furnishings,-illustrated the importance of resources by referring to the electric house- hold knife. lStrong, Op. cit., May 12, 1966. 21bid. 3Parrish, op. cit. 115 I think ten years ago we would have handled it differ- ently in two reSpects. First, we probably would have attempted to compete with everyone, discounters included. We would have advertised that we have the lowest price on all makes. Second, we would have bought from every and all resources so we could represent every line. In short, we aimed at volume. Today, in fact, right now, we are merchandising this differently. We aim to handle in depth those kinds of goods and those price-lines where we can make some gross margin. To do this, we cut down the number of lines handled and became important to fewer resources. We also use our national buying office brand of electric knife so that we can alter the price to suit our objectives. Diversification By 1965 Staplinger's merchandising Operation in- cluded six divisions. Trade sources estimated that two retail divisions, Monroeville, and Midstate Department Stores, accounted for 80 percent of corporate sales. The main downtown store contributed 50 percent of total retail volume or about 40 percent of corporate sales. The Specialty wholesale division generated approx- imately 12 percent of corporate sales. Remaining divisions-- food service, contract sales, and real estate--contributed the balance. In 1965, the food service was growing faster than the others.2 By 1945, the first year of the period studied, Staplinger's had divested itself of all non—retail businesses except for a Specialized portion of its wholesale division. l . . Trine, Op. c1t. 2Market Publication No. 6, August 30, 1965. -5 -. .u. .- 116 Twenty years later, the company had eXpanded and included a chain of retail stores, a flourishing specialized wholesale business, a food business, a contract decorator and furnish- ings business, and a substantial portion of an insurance company as a result of its successful pioneering in the distribution of insurance to its credit customers. There are additional measurements of the strategy. Financially, Staplinger's resurgence in fiscal 1959 was followed by sales volume gains at a declining rate and pro— portionately poor profit performances. Indeed, by the end of fiscal 1962, the profit-tO-sales ratio had dropped to the second lowest point in the twenty-year period and the actual dollar profit was less than that of fiscal 1958. A vice-president claimed that earnings between 1960 and 1962 were adversely affected by a number of largely non- recurring factors. We bought some markdowns, in stores and goods, when we acquired Midstate Department Stores. We had some start- up eXpenses for two major suburban units, we modernized our downtown store; we were delayed in our construction at the city transportation terminal. We eXpect earnings to rebound in fiscal 1963. The prediction proved correct. As he reported on the company performance for fiscal 1964, Amos Worth, the company president, referred to the effects of some of these previous years on the immediate past: lMcBride, Op. cit. *a ‘5 117 We will report substantially better profits after the lean year of 1962 and after the 1960 growing pains. Our institutional banking friends tell us that 1962 to 1964 was the hump-—and that we're over that hump. We think this trend will continue. We are on the threshold of a radical change in retailing, the Shift in emphasis in assets from inventories to receivables. We're in the banking business. The single greatest asset is not inventory; it is accounts receivable. Our accounts receivable are currently 130 percent of our inventories.l In terms of its market targets, two attempts can be gauged. One attempt was to attract younger customers. The trade press reported: Customers under 30 years of age now comprise about 30 percent Of Staplinger's total sales. Just 15 years ago this group accounted for 19 percent of the store's business. In the home furnishings division, for example, the company accented its home planning center called "Interiors For You." It also hired more young decora- tors who "talk the language of the under-20 customer." The firm also made this service available in all of the Monroeville branch stores. One of the significant demographic changes through— out these twenty years was the rapid.increase of the Negro pOpulation in Monroeville. Staplinger's was one of the foremost among retailers to Open its sales and supervisory employee ranks to this minority group. As a pioneer in public as well as personnel relations, it sent executives to various Negro neighborhoods to communicate the firm's desire to hire members as well as seek their patronage. lMarket Publication No. 1, February 25, 1965. 2Market Publication No. 7, June 17, 1965. .t. 118 Did these efforts help Staplinger's to secure patronage from this segment of the market? There is some evidence which suggests that despite its obvious appeal, in terms of personnel policies and practices, merchandise allegedly stocked, sales promotion and public relations programs, the total effort as measured by Negro patronage has not been eSpecially successful. During this period both the non-white prOportion of the total population and the income level of that segment increased. The results of an intensive personal survey conducted among Monroeville shop- pers indicate that Staplinger's has not fared any better than has its traditional rival, Smith and Company, which purportedly had not eXpended Similar efforts to influence buying behavior among the non-white community. As shown in Table III-3, of 2,000 interviewees, 1,208 said they were customers of Staplinger's, while 1,171 claimed to be custom— ers of Smith and.Company. Of these latter two groups of customers, 8 percent and 7 percent, respectively, were non- ‘white. And of the non—white patrons who traded at Stap— linger's, the majority shopped only at the main store in the Central Business District. The non—white patronage of Sears, INerner's, and Coulder Brothers, is also shown. TABLE III-3. 119 Non-white ShOppers in Central Business District units and branch store units of major depart- ment stores in Monroeville Sears Coulder Bros. Werner's Smith & CO. Stap- linger's Total shoppers Non-white shoppers % non-white ShOppers to total Non-white who shop Central Business District only % of total non- white Non-white who ShOp branch stores only % of total non-white Non-white who shop Central Business District and branch stores % of total non-white 1,465 203 13.8 48 23.6 82 40.5 73 35.9 1,270 182 14.3 60 32.9 48 26.4 74 40.7 1,153 136 11.8 49 36.0 36 26.4 51 37.6 1,171 78 79 89.7 7.7 1,208 102 8.4 78 76.4 18 17.6 Source: Monroeville Gazette Research, 1964. weighted personal interviews in Monroeville. Based on 2,000 120 Summary During this second decade Staplinger's reached a new sales volume peak and achieved the best profit-to-sales per- formance since fiscal 1947. The company believed it had the best prepared management personnel reserves in its history. It was contributing the largest sums ever to the profit— sharing fund. It had reached the trading level sought for 20 years, having traded up in merchandise and advertising price-lining to the tastes and capacities of a broad middle- income group. Executives interviewed believe the company had succeeded in changing its merchandising strategy. Price-Lining,Investigation and Results As detailed in Chapter Two, I attempted to verify interview data by two different methods. The first con— sisted of sending a questionnaire to interviewees and other executives at Staplinger's. The objective was to obtain numerical data pertinent to merchandise and advertising price—lining for two years, 1960 and 1965, for the eighteen classifications listed in Appendix A. Several executives stated orally and by written communication that they did not have the records to answer the questions. That is to say, they could convey neither merchandise nor advertising price-lining information. They reiterated their general claims that Staplinger's had 121 traded up during the 1960 to 1965 period. Further, they emphasized that during 1960 and even more in 1965, they allocated advertising at or above their volume selling price points. Consequently, the questionnaire technique could not be used in this case. A second method of corroboration was to obtain measurements of Staplinger's neWSpaper advertising by price— line and to compare the actual allocations for two years. I was able to Obtain such data for Staplinger's for 1960 and 1965. In addition I was able to ascertain how other retail— ers in Monroeville allocated their newspaper linage by price lines. Finally, I obtained similar data for 9 major cities. Analyses of Table III-4 through Table III-21 In Chapter Two, page 58, a table of data concerning Women's and Misses' Dresses illustrated the Neustadt adver- tising price-lining analysis. As such, it was labeled Table II-l. The reader will recognize this in the present chapter as Table III-4. AS noted in the illustration, the questions at the bottom of the table provide a basis for comparing data for individual classifications in the 9—City group and in the subject city and store. In this chapter, a summary of that information is contained in Table III-21. .gpestion 1.--Comparing their own advertising indexes, did the 9-City group trade up? The 9-City group traded up in fourteen of the seventeen classifications. More 122 Specifically, within the women's group, Tables III, 4-9, the cities traded up in all except the Blouse classification. Retailers increased the linage percentage in both the upper and lower zones of the range for the Blouse classification. By coincidence, the Neustadt Indexes of Advertising for Blouses for each year were equal. Since the 1965—1960 ratio thus was 100.0, less than the relative change in the DSIPI (the Department Store Inventory Price Index), the conclusion was negative. Of the four men's classifications, Tables III, 10-13, the 9-City group traded up in three, the exception being Men's Slacks. In furniture, Tables III, 14-16, the 9-City group traded up in all classifications. Tables III, 17-21, indicate that the 9—City group traded up in three of the four home furnishings classifications. The exception was Towels. In this classification the price zone range extended upward from 1960 to 1965. Based on such comparative measure- ments the 1965/1960 Index was less than 100.0. Question 2.--Comparing its own advertising indexes, did Monroeville trade up? Monroeville retail firms traded up in eleven of the seventeen commodities. Tables III, 4-9, show that the city traded up in all women's categories except Junior Dresses. In that classification in 1965 the retailers in the city of Monroeville increased their linage in both the lower and the higher price zones. However, the ~- l . 123 increase in the lower zones caused the Index of Advertising to decline. In two of the four menswear classifications, Monroe- ville traded down. These were Men's Dress Shirts and Men's Slacks. Monroeville stores traded up in two of the three furniture classifications studied. Sofas, Table III-15, was the exception. Although the city's advertising price-center in 1960 was above the 9-City price center, the magnitude of change for the Monroeville was not as great as in the 9-City group for 1965. In two of the four home furnishings classifications, Monroeville did not trade up. In Drapes, Table III-17, the Monroeville stores emphasized the lower price zones more in 1965 than the stores in the 9-Cities or Staplinger's did. In Towels, Table III-18, the Index for Monroeville stores, measured by a modified price-zone range, declined, as did all the other groups measured. However, the Monroeville stores declined relatively more than the others did. Relative to the DSIPI change, the Monroeville stores appeared to trade up in only ten of the seventeen classifica- tions. As seen in Tables III, 5, 10, 11, 12, 15, 17, and 18, the 1965/1960 Index was less than the DSIPI change. That is to say, in seven of the seventeen classifications, the anroeville retailers traded down more than is indicated by the advertising index comparison. a \1 N 124 Question 3.--Comparing its own advertising indexes, did Staplinger's trade up? It did so in thirteen of the seventeen classifications. In women's wear it traded up in all categories. Among these, Untrimmed Coats had the highest index, somewhat surprisingly Since store executives, when discussing women's wear, had stressed dresses and sportswear. In menswear, Tables III, 10-13, Staplinger's traded up in three of the four categories. As in both the 9-City and the Monroeville instances, the exception was Men's Slacks. The trade-up in Suits, Table III-11, resulted from a major linage shift upward to zones 5 and 6. A more pro- nounced shift upward occurred in Men's Sportscoats, Table III-l3. In all three furniture categories, Staplinger's traded up. The largest index increase occurred in Bedroom Suites, Table III-l6. The domestics and drapes division, seen in Tables III, 17-20, reflected a trading-down process at Staplinger's. The index increase for Blankets, Table III-19, probably was due to the decline in the Neustadt price-zone range for that classification. This judgment is based on the Staplinger index change from 1960 to 1965, which was virtually the same as for the other groups com— pared. In Drapes, Table III-l7, where the price-zone range remained the same, the company shifted substantially 125 downward to price zone 3 from a concentration in zones 4, 5, and 6 in 1960. This resulted in the lower index figure. Question 4.--Compared with Monroeville, did Stap- linger's trade up? Relative to Monroeville, the Staplinger firm traded up in ten of the seventeen classifications. As can be seen in Tables III-8 and III-9, the firm did not trade up in Skirts and Blouses relatively as much as the aggregate Monroeville market did. In menswear, the store traded up relatively more than the city with the exception of Men's Slacks. Table III-12 shows an index of 85.3 for Monroeville. This was deemed a negative response. Surpris- ingly, in the furniture group, the store traded down rela- tively in Mattresses, Table III-l4. In the other two, it traded up. Only in one category of domestics and drapes did Staplinger's trade up relative to the city. That occurred in the Towel classification, Table III-18. For reasons already mentioned, the index for Blankets was deemed nega— tive relative to the city. Qpestion 5.——Compared with 9-Cities did Staplinger's trade up, relatively? Staplinger's did trade up in eleven of the seventeen categories. Again, in the Skirt classifica- tion, Table III-8, the index changes were equal and this was deemed a negative response to the question. Slacks provided the one instance wherein Staplinger's response was negative for the menswear group. Mattresses, as in Question 4, was the one category in furniture in which Staplinger's, 126 comparatively, traded down. The 9-City group traded up in three of the four domestics and drape group. Towels was the exception. Qpestion 6.--Comparing relative changes in DSIPI and its own advertising indexes, did Staplinger's trade up? In eleven of the seventeen classifications Staplinger's traded up when its index was compared with the relative DSIPI change. There were positive comparisons in five Of the six women's wear categories, the exception being Skirts; in three of the four in menswear; two of three in furniture; and only one of three in domestics. One uneXpected index comparison was that between DSIPI and Sofas, Table III—15. Interview data suggested that Staplinger's had increased its emphasis upon better quality furniture from 1960 to 1965. Since the price level change was 104.1 and that of advertis- ing price-lining was only 104.2, I deemed this a negative response. In domestics and drapes, Staplinger's traded down in three of the four commodities. Question 7.--Individual commodities whose analyses revealed unanticipated behavior will be noted briefly. Then general comments about the survey will be made. As seen in Table III-9, Staplinger's index for the Blouse classification was less than the Monroeville index and only 3.7 percent higher than the relative DSIPI change. 'Phroughout the interviews the impression was given that the firm had traded up decidedly in fashion and style merchandise, 127 and that personal selling effort, too, had been increased for these kinds of merchandise. Since women are eSpecially prone to upgrading for this classification, a much higher index was anticipated. AS seen in Table III-8, Skirts, Staplinger's had a much higher index in both 1960 and 1965 than either of the other two groups. Nonetheless, when allowance is made for change in the price level, it appears that the store traded up virtually not at all in this important category. During the past fifteen years the Women's and Misses' Dresses classification, seen in Table III-4, has been the most heavily advertised classification in department stores except for the years 1950 and 1951 when Television Sets registered more linage. (These data are based upon the 9-City advertising records.) For example, in 1965, of the total 216,094,300 lines of advertising by retailers in the 9-City group, approximately 5.3 percent, or 11,381,000 lines, was eXpended for Women's and Misses' Dresses. If Staplinger's had embarked on a trading up program, one would eXpect to find the advertising price-lining in this classification reflecting this thrust of merchandising strategy. Yet the firm did not increase the amount of lin- age proportionately any more than all of Monroeville did. From 1960 to 1965, Staplinger's increased its linage 72.7 percent while all of Monroeville increased 72.0 percent. Although its price-center for this classification in 1965 128 was closer to the 9-City price center, the Staplinger price center was still below that of the 9-City. Despite this one obvious deviation, Staplinger's Index of Advertising in 1960 in total exceeded that of Monroeville in twelve of seventeen cases; and, in 1965, fifteen of seventeen. In 1960, Staplinger's exceeded 9— Cities in fourteen cases; and, in 1965, fifteen of seven— teen cases. In 1960, Monroeville's Index of Advertising exceeded 9-Cities in eleven cases; and, in 1965, ten of the seventeen cases. Staplinger's ranked among the first thirty—five in total store Index of Advertising when compared with depart- ment stores in the 9-City group in 1960. By the end of 1965 it had become one of the first twenty. A total store index is a weighted average of all the Indexes of Advertising for the ninety commodities measured for all stores in the 9-City group. In 1960, the highest index rating of any store exceeded 550. This means that on the average the particular store eXpended its advertising linage for those price points which fall between zone 5 and zone 6. By the end of 1965 the topmost rating earned by any store exceeded 575. The conclusions of advertising price-lining analysis are threefold. First, Staplinger's started at a substan- tially higher price-lining level than the other two groups measured. Second, despite the sales promotion events revealed in the interview data, and deSpite the drive for 129 sales volume, Staplinger's not only started at a higher price level but it succeeded in reaching an even higher one, both relatively and absolutely. Third, this case illustrates that trading up and trading down are relative. The attempt of a store with higher-priced assortments to reach a newly affluent group at a lower level of the income distribution scale is somewhat different from a general trading down by all stores. Chapter Summagy Staplinger's has always fulfilled the mission of a traditional department store--to assemble an enormous vari- ety of consumer goods and services under one roof. During the last twenty years it has extended this Offering through many branch stores in Monroeville and to many Midstate communities. In addition to providing the basic merchandise lines eXpected in a department store, this venerable firm has eXpanded its merchandising to include other kinds of goods and services. Further, it entered many activities related to retailing, in some instances to achieve retailing objectives and in other instances to earn a profit, by applying merchandising principles to that particular enter- prise. Indeed, even in its concept and function of merchan- dising, Staplinger's has, from its inception, differed from both text descriptions and classic definitions of this industry. 130 During the period studied the external environment changed. Trends in demographic conditions and in economic factors favored retailing in Monroeville. The city enjoyed pOpulation and income increases and responded by demanding both better quality and lower-priced merchandise. There were changes in competition as traditional department store rivals, eSpecially after 1950, eXpanded into suburban and ShOpping center locations. Amidst these changes the dis- count department stores flourished as well. In response to these changes the Staplinger Company attempted to redefine its marketplace position. Essentially, it decided to increase its Share of the growing middle- income demand for department store types of merchandise. Initially, the store traded down. Later, in order to more adequately meet demand and also to differentiate itself from discount, low-margin, and promotional price stores, it attempted to trade up. During the last ten years, as the firm expanded by Opening new stores and by acquisitions, as it became more financially stable, it tended to trade up toward the price-lining level it had established prior to 1945. These responses, different from those hypothesized, can be traced as well to internal influences. Management succession and develOpment, financial requirements, lease- hold contracts, among others, were major limitations and constraints which determined the course of action. 131 Evaluation of Staplinger's strategy requires acknowl- edgement of where it stood at the beginning of the period as well as at the end. For all the reasons cited, the manage- ment perceived a different opportunity in a different market than ever before in its long history. The means of seizing the Opportunity were remarkably Similar to the Staplinger historical pattern. Based upon data derived from interviews, publica- tions, research agencies, and Neustadt analysis, I con- cluded: In response to an upward shift in demography of demand and increasing low-margin (discount) store competi- tion, Staplinger's, during the first decade of the period studied, initially traded down from its former level. It attempted to secure a marketplace gap it perceived to exist among traditional department stores. During the second decade it faltered during the 1955 to 1960 period as it attempted to trade up to a level below its traditional pat- tern. The impact Of discount department stores caused it to reevaluate and redefine its market target. Thereafter, from 1960 to 1965, Staplinger's succeeded in trading up to a level it intended to reach when it redefined its merchan- dising strategy after 1945. 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CHAPTER FOUR THE FAIR History of Firm to 1945 A recent account of the history and development of department stores points out: "single-unit department stores generally originated from two sources: specialty stores which eXpanded the breadth of types of merchandise and vari- ety of lines carried; or a joining together of formerly inde- pendent merchants.”l Often the latter group consisted of lessees who operated under the Sponsorship or management of an outside party or under the sponsorship of a fellow lessee. The Fair, subject of this chapter, originated in this classic pattern. The Fair was organized as a department store in 1900 in Keelim, Northstate. It began as a confederation of leased departments, most of which traded in low-quality merchandise. Managers or individual owners Operated their businesses as if they were sole prOprietors who had rented single store Spaces. A merchant acquainted with The Fair said: 1"Study of Organization in Multi-Unit Department and Specialty Stores," 0p. cit., p. 7 (footnote 1, p. 8). 150 151 The result was a hodge-podge. Some departments carried low—grade merchandise; some, high grade. There was no definite policy; hence, there was really no basis by which customers could establish an opinion of the store. Three lessees were more successful than others. William Delzer, Sanford Lipson, and Stanley Tanner leased and Operated the notions, hosiery, and underwear departments reSpectively, and managed them profitably. These three men were road salesmen for wholesalers and manufacturers, and had invested in these departments to assure themselves of retail outlets in the booming Keelim market. As the business and profits increased, the three salesmen-retailers formed a partnership headed by Delzer. All three moved to Keelim and gradually purchased the assets of less successful lessees. By 1906 the partnership con- trolled the entire store and its real estate. The merchandising policy that evolved was undoubt- edly influenced by the salesmanship-resource eXperiences of the three partners. Management insisted that buyers seek strong resources, eSpecially national brand manufacturers, if possible. A bulletin issued in 1925 by The Fair on the subject of image is as current today as it apparently was then. Marketing and retailing literature today includes 1Statement by Mr. Richard P. Delzer, former pres- ident of The Fair, at a meeting of Credit Management Group, Keelim, Northstate, as reported in Market Publication No. 2, ,May 20, 1941. 152 many articles concerned with image and with the need to cultivate consumer belief in a firm, a label, or a partic- ular product. In 1925, The Fair admonished its buyers: The image of a store is the total impression it makes on the community. Given a favorable image of our store, the franchise you have to do business in your department is a very valuable thing. Given a less favorable image, your franchise would be much less valuable. One department isolated from the rest of the store is not likely to get the customers in the door. Just remember that the only thing you offer that is unique is the store's image or reputation. The merchan- dise you carry, the credit you provide are all available in other places in town. They should be important when you offer them.1 Neither the trade press nor any of the interviewees could provide information about the company's progress dur— ing its first twenty years. During the third and fourth decades of its history, The Fair, as portrayed by interview- ees, was a medium-to-better priced store. While always com- petitive in its pricing, it was not necessarily a price- leader. Rather than seeking volume leadership, The Fair stressed profitable volume by means of excellent customer service and quality merchandise procured from strong re- sources. To achieve that end, The Fair in 1934 applied for membership in and was accepted by the Department Store Buy- ing Syndicate, a group of independent department stores 1Excerpted from statement by Mr. Carl Delzer, "What The Fair Means," 1925, from files of Keelim News. 153 organized for wholesale, resident buying, and research func- tions. A store secures several advantages by such affilia- tion as was exemplified by the Staplinger case. For The Fair, this new association brought the management into con- tact with executives from many of America's best-known and most successful department stores, most of which were larger than the Keelim store. The Fair benefited by the greater amount of information and buying assistance it could command. Also, this association became the contact through which the store was sold in 1949. Only one of the executives interviewed had been associated with The Fair prior to 1945. Mr. Gilbert Moran, personnel director, reiterated the claim that the store had always inclined toward customer service and community par- ticipation and attempted to stress quality and fashion. A review of trade press and local news files tends to confirm these generalizations. For example, as early as 1933, The Fair purchased property in back of the store to use for customer parking.l In 1936 it sponsored a Special exhibition on science, diSplaying two sets of television— telephones. Again, it won the bid to furnish a home con— structed and Sponsored by Life Magazine, to serve as a model for Keelim.2 However, inSpection of the files disclosed lKeelim News, Jan. 15, 1933. ZKeelim News, Dec. 13, 1938. 154 that The Fair was perhaps more price competitive than inter- viewees indicated: for example, in December, 1936, a local liquor distributor filed suit in circuit court to restrain The Fair from selling Schenley liquor products at less than the minimum prices set by Schenley.l A brief review of the Keelim demographic and eco- nomic develOpment can help eXplain the retail market struc— ture prior to and after 1945. Until 1930, Northstate's economy had been predominantly agricultural. As industrial— ization increased, the city of Keelim became the manufactur- ing and distribution-trade center. Heavy industry in Keelim attracted and then employed large numbers of immigrants from 1875 to 1925. The community could never boast of the busi- ness—government-education combination which will be noted in the L. H. Kane Company case, for example, nor of Spectacular growth prior to 1945, as in Monroeville. Hence, Keelim tended to be a "feast or famine" town, one in which mer— chants, according to one interviewee, develOped a strategy of price appeal. He added: Schmidt's and Samuelson's (the two other traditional department stores in.Kee1im) and The Fair, too, taught the people to wait for sales and to judge by price. These "Big Three of Keelim" fought for years for volume supremacy and they all acted as if a middle class didn't exist in Keelim. Every time The Fair started to mer- chandise the better price-lines it would run into an 1Keelim News, Dec. 18, 1936. 155 economic reversal in the town, and, boom, the store would run a sale. Apparently no one of the three major department stores had established a clear position as a fashion and quality leader. Indeed, no one of the three achieved a dominant volume position. Most interviewees credited The Fair, however, with being the quality and brand-name re- source store in Keelim. Changes in Keelim Environment: 1945-1965 Earlier in the thesis it was stated that strategy formulation requires thorough analysis by management of the marketplace, of its competitors, and of itself. For example, the merchant must select that part of the income Spectrum toward which he will direct his efforts. Strategy formula- tion will also depend upon a retailer's perception of his competition. A third factor in this decision concerns self- knowledge: an appreciation of the kind of merchant a man is or wants to be. The Fair's merchandising strategy reflects this triple analysis. In this section, the discussion cen- ters on the second factor, the changes in demographic and economic conditions in Keelim and among competitors. It then relates how executives at The Fair perceived these fac- tors during the period from 1945 to 1965. lInterview, Mr. Delbert Richman, divisional merchan- dise manager, home furnishings, May 3, 1966. 156 Merchandising strategy changes among all retailers in Keelim, including those who entered this market after 1945, seemed to depend on who interpreted what demographic and economic developments. For example, it is ironic that while local retailers, including The Fair, remained unde- cided about their plans for eXpansion, two nationally famous retail firms entered the Keelim market and by diverse strat- egies exPloited opportunities the home town stores over- looked. Changes in Demggraphy of Demand Tables A, 1-5, Appendix, Show that the overall changes in demographic and economic conditions in Keelim from 1945 to 1965 were positive. Its pOpulation increase was gradual, Second to Haverford's (another city in this study), and almost at the same pace as recorded for the nation. Table A—2 shows that the relative changes in Keelim's total net effective buying income were greater than in Freeport. But they were less than those experienced in Monroeville, Haverford, or in the nation as a whole. Based on an index of 1946==100, Tables IV-23 and A-3 Show the uneven growth in Keelim retail sales. Although the total retail sales and the general merchandise sales increased from 1945 to 1948, at which time the index figures reached 140.1 and 144.3, reSpectively (as seen in Table IV-23), the two figures declined by 1950 to 121.4 and 128.6, 157 respectively. Nonetheless, the interview data suggested that the initial increases helped to attract the interest of the company which purchased The Fair in 1949. Income distribution changes also eXplain why various retailers invested in Keelim. As seen in Table A-5, not only did the "$7,000 and Over" income group increase sub- stantially from 1950 to 1965, but the "$10,000 and Over" group increased proportionately even more. In the first category, the Keelim index in 1965 equalled the United States index. In the second category the Keelim index in 1965 reached 175.9, exceeding the national index of 148.3. Also, the Keelim index ranked second among the four cities compared. The percentage of families with incomes of less than $7,000 annually was not substantially different from the national figure. In 1955, more than three-quarters of Keelim households had incomes of less than $7,000, while the national figure for the same year was 80.9 percent. Executives at The Fair in the 1950's continued to view Keelim as a factory town, a beans and beer, a meat and potatoes, town, according to statements made by interviewees. Reading the economic data furnished by the Keelim News, and recalling the city's periodic unemployment in the past, The Fair's management concluded it Should merchandise to factory workers whose wages were approximately $66.00 per week in 158 l 1950, $77.00 in 1952, and $82.00 in 1954. Or, again, in 1955 these executives focused on data showing that more than one-third of the Keelim households had diSposable incomes of $3,999.00 or 1ess.2 The reader should bear in mind that Keelim, like other heavy-industry towns, had known many periods of feast and famine. As could be eXpected, these conditions influ- enced retailers as they assayed their market. One official at The Fair summarized the perspective which prevailed until the 1960's: I think a depression psychology typified Keelim. Historically, the peOple had always been a penurious group and thrift was a way of life. PeOple always lived in the shadow of unemployment. Strong ethnic and religious mores governed the style of life here. Retailers were always scrambling to stay alive. other executives, but not all, reiterated a similar theme--that business conditions in Keelim were either depressed or suffered by comparison with other metropolitan areas in Middle United States. They attributed many mer- chandising strategy decisions on assortments, pricing, pro- motions, or eXpenses to these external conditions. 1Interview, Mr. Tom Lee, publicity director, The Fair, May 2, 1966, and May 3, 1966, and the Research Divi- sion, The Keelim News. 21bid. 3Lee, Richman, op. cit. 159 Since the data in Tables A, 1-5, Appendix, do not suggest such unfavorable conditions for retailing, I ana- lyzed these same variables in greater detail. The Keelim News has records relevant to employment, factory earnings, gross personal income, retail, general merchandise, and department store sales from 1950 to 1965. Data sources include Federal Reserve Bank, U.S. Department of Commerce, Keelim News Research Department, and Sales Management Survey of Buying Power. Table IV—21 summarizes those findings. Generally, the data do not support the aforementioned claims. Except for the 1956-1958 period, the total employ- ment increased steadily. While the number of factory produc— tion workers fluctuated, the decline was never more than 9 percent of the numbers employed in 1950. Indeed, from 1950 to 1965, the number of factory workers employed had in- creased proportionately more than the total employment. Retail, general merchandise, and department store sales in- creased, as might be eXpected in light of the 82.5 percent increase in gross personal income from 1950 to 1965. General merchandise sales increased proportionately more than total retail sales. Despite this favorable factor, however, Keelim department stores failed to increase their portion. That is to say, using 1950 as an index of 100, retail sales increased 51.4 percent by 1962; general merchandise sales, by 73.5 per- cent; and department stores, by only 23.7 percent. 160 During the 1945—1965 period, management executives at The Fair did not agree on what this market was or on what it Should mean to the company. However, other retailers, representing different kinds of retail institutions, foresaw potential in Keelim's various market segments. Changes in Traditional Department Stores In 1955, executives at Dean and Company, a nation- ally famous quality department store, began to investigate Keelim. They had discovered that, although their store was located at some distance from Keelim, they drew both per- sonal shopping and mail patronage from that city. Further, they too read the data relevant to demography of demand. What they noticed was that an increasing percentage of Keelim households were becoming more proSperouS, that Keelim was steadily growing, and that diversified industries had located there. They hypothesized that if more than 25 per- cent of the households reached an annual income level of "$7,000 and Over" there would be sufficient buying power to support a quality department store offering wide assortments at moderate prices. Subsequently, they decided these condi- tions would develop, and committed themselves to build a 293,000 square foot department store in a 1,000,000 square foot Shopping center called Keelim Park, eight miles from the Keelim Central Business District. This store has been successful ever since it opened in 1958. 161 The Dean Company's success can be attributed to several positive factors. The store was located in an area where 50 percent Of the households had annual incomes exceed- ing $8,000. The company offered, in Keelim's largest retail structure, very broad assortments of merchandise in all traditional department store classifications. Its prestige also proved to be a valuable asset. The Fair's two traditional rivals—-Samuelson's and Schmidt'S--continued tO emphasize price and also tO eXpand into ShOpping centers. Each eXplOited its respective strengths. Samuelson's business in hard gOOdS--app1iance, furniture, and hard home furnishings--was eSpecially large and well established among three generations of Keelim families. It did not operate a downtown location, having established a reputation with its four neighborhood stores. Schmidt's built a business on "value" (which in this instance meant "low price"), wide assortments in lower price ranges, heavy sales promotion efforts, and a very successful Bargain Basement in the downtown store. It Opened two branch stores after 1945 but had not earned more than an average reputation for its fashion appeal. Both Samuelson's and Schmidt's eXpanded into ShOp- ping centers, although neither altered its basic merchandis— ing strategy. Each Operated two stores in separate shopping centers. Rather than continue the rivalry, the two manage- ments decided, in 1962, to merge into Samuelson's-Schmidt's, 162 thus enabling a single firm to clearly claim and hold sales volume dominance in the Keelim market for the first time. Also, the merger enabled one firm to Offer its merchandise in the three most patronized ShOpping locations--downtown, established neighborhood shopping districts, and newly con- structed Shopping centers. Samuelson's-Schmidt's sales volume as a merged enter- prise was now twice as much as that of its nearest rival, The Fair. Despite some legal difficulties, including Fed- eral Trade Commission and National Labor Relations Board charges and suits, the new retail giant managed to accelerate its sales volume faster than other stores as revealed by Fed- eral Reserve figures for the area.1 The combined management faced some sales volume losses in two declining neighborhood areas. As in the Staplinger case, the management converted the upper three floors of a neighborhood store tO its own real estate purposes, using them for bookkeeping and other Operations, gaining Space it would otherwise have had tO lease from outside sources. Some trade Observers claimed that the combination Of a department store eminently successful in hard-goods classi- fications with one whose success lay in lower-priced promo- tional merchandise would make it difficult to emphasize the fashion elements Of merchandising. For instance, the lMarket Publication NO. 1, Jan. 12, 1966, p. 24. 163 Samuelson-Schmidt combination ranks among the tOp ten retail advertisers in the country (excluding Sears, Ward's, and Penney's). Observers pointed out that the firm's giant size became both its strength and its weakness. For instance: A consumer here finds it not unusual to pick up an issue Of the Keelim News and see a sequence Of Samuelson— Schmidt ads something like this: One or two fashion pages, a couple of pages of housewares, furniture, white goods, a page or two Of clearance or Special Sale, fol- lowed by a couple Of pages of "economy basement" Offer- ings. Despite these criticisms the firm increased fashion emphasis in three steps. First, it added to the assortments Of fashion merchandise. Second, it constructed boutiques and shops within the stores to provide an atmOSphere condu- cive to fashion selling. This program did not apply tO apparel alone but included the home furnishings divisions as well. Third, the firm sponsored a consumers panel composed Of leading women in the Keelim area. The activities Of the panel received wide and effective publicity. Shopping Centers ShOpping center construction and occupancy also con- stituted a major external change in the Keelim environment. Six major shopping centers were Opened between 1945 and 1965, as shown in Table IV-l9. lIbid. 164 Obviously The Fair did not Spearhead these expan- sions and when it became a tenant the firm did not lease Spaces as large as its rivals did. The largest single occupancy was by Dean and Company, an "outside" traditional department store. One advantage which Samuelson-Schmidt enjoyed isapparentjmlthis summary. The combined firm was the dominant store in four of the Six centers. Sears and Penney's did not participate in ShOpping center development during the period studied. However, both announced they would occupy major Spaces in Keelim's largest ShOpping center, to be Opened in 1967. This 1,250,000 square feet air conditioned ShOpping mall will include four depart— ment stores: Sears, 225,000 sq. ft.; Penney, 225,000 sq. ft.; Wier CO. (a Specialty store in Keelim), 50,000 sq. ft.; and The Fair, 175,000 sq. ft.1 Discount Department Stores AS noted at the beginning Of this section, two out— side firms eyed Keelim as a potential market. The first was Dean and Company. The second was a national mercantile com— pany which decided to organize a chain Of low-margin, par- tial self-service, department stores. In these new stores it planned to include a complete assortment of traditional department store classifications. The basic strategy was to lMarket Publication NO. 2, Jan. 26, 1966; also, "The Keelim Market," published by Keelim News, 1967, p. 30. 165 design a "promotional, low-margin store" which would provide pleasant, comfortable, accessible ShOpping at prices below the level the chain charged in its other stores but slightly above the prevailing discount store level. In 1960 it Opened Consumers World, a pilot store Of 125,000 square feet. Why had this eminently successful firm selected Keelim? Some Observers pointed out the firm had always Operated successfully in Northstate, including Keelim, where it knew the market. This would seem to substantiate inter— view data that "Keelim is a bargain town, reSponds to price, and you have to promote sales and prices if you want to gO ahead." The judgment proved correct. Within four years, by 1964, the firm constructed two additional Consumers World stores, thereby merchandising 375,000 square feet Of selling area in Keelim. While traditional department store firms added 1,500,000 square feet as tenants in ShOpping centers (Table IV-l9), their new rivals, the discount department stores, added 1,160,000 square feet to Keelim retailing in the same period. Table IV-20 Shows that these enterprises found Keelim a worthwhile market. Both the Consumers World firm, as noted, and Lander's, the two largest discount firms, are divisions Of national mercantile chains. None Of the dis- count stores located in the six major shopping centers. A census report Of the discount market stated that in 1964 166 there were fourteen discount stores in Keelim, occupying 1,100,000 Square feet Of retail Space.1 The discount department stores, ig_tgtg, supplied a wide range Of prices and assortments to Keelim. Two of these firms, Lander's and Allison Brothers, had established national reputations primarily as distributors Of low-end apparel and soft home furnishings, but they eXpanded their Operations in Keelim and elsewhere tO include hard goods. True-Value Stores was a local firm which included hard and soft goods from its beginning and also emphasized lower- priced merchandise. Consumers World, as stated, was a pilot Operation by a national retailing firm to see if it could successfully offer medium-tO-low-priced goods on a self- service basis. The background Of the merchants placed in charge Of Consumers World indicated that they would pay close attention to such fundamentals as basic stock mainte- nance, excellent housekeeping, signing and display. Interim Summary Both pOpulation and income changes in Keelim from 1945 to 1965 were favorable tO the retailing industry. Traditional and discount department store firms eXpanded. One national firm launched a pilot chain of discount stores in this market. A traditional department store from another 1Keelim News, Federal Trade Commission, and Market Publication NO. 1, Aug. 28, 1963. 167 area invaded Keelim with the largest single store in the area. Management's "reading Of the market map," or inter— pretation of these external changes, partially accounts for changes in merchandising strategy. Ownership_Change at The Fair: 1949 AS World War II closed, The Fair eXpanded by acquir- ing two department stores in smaller Northstate communities. One year later it Opened a new electrical appliance and housewares Specialty store in West Keelim. Aided by long- established resource relationships and the strong market positions Of the Department Store Buying Syndicate, The Fair generated one Of the largest sales volume increases in its history, to which the three additional stores contributed substantially. The Fair, during the 1945-1948 period, solidified resource relationships and enlarged the stock assortments Of higher price lines. Neither the sales nor the profit perfor- mance, as shown in Table IV-23, were favorable when compared with the Keelim market, as noted earlier in this chapter, or with industry performance, as seen in Table III-1. However, two factors warranted the increasing attention manufacturers and retailers paid tO this store. It appeared that The Fair would emerge as the quality and fashion store in Keelim, which itself was growing. In addition, the net profit on a large sales volume became attractive when measured as a 4.. ~' .'. 168 return on investment rather than as a percentage Of Sales only. For both Of these reasons, the United States Depart- ment Stores, Inc., a nationwide retail firm and also an affiliate in the Department Store Buying Syndicate, began an investigation which led tO its purchase Of The Fair in 1949. What kind Of a store was The Fair prior tO its sale? What was its merchandising strategy then? Interviewees offered varying Opinions. The executive with the longest tenure stated: The image before the United acquisition was good. The Fair was well accepted, strong in home furnishings, perhaps weaker in ready-tO-wear and accessories. But it was a quality store and since 1936 had recaptured leadership in department store merchandising.l A buyer who started with the store's training squad after college graduation eXplained that "The Fair was really 'two stores.'" He elaborated: When United purchased the store it had the best lines Of merchandise. PeOple in the upper 10 percent Of the income range definitely considered The Fair as Ehg_department store Of Keelim. But the store also appealed to those whose incomes were in the lower 50 percent Of the range. Perhaps it was the Basement Operation. I would say the weakness lay in failing to Offer assortments to the middle-income groups. Yet, the store apparently repeated the same mistake just six years ago. In the home furnishings division, for example, we had $1.00 towels in great strength. Then we had a gap. And then we Offered the city's largest assortment Of $5.00 towels. But we were weak in between. er. Gilbert Moran, personnel director, The Fair, interview, May 2, 1966. 2Mr. Alfred Reden, buyer, linens and domestics, The Fair, interview, May 3, 1966. 169 The present president retrospectively appraised the store more favorably: At one time The Fair must have had the fine reputa— tion in town for good—to—better goods. Otherwise, why have peOple accepted what we have tried to do and tried to Offer? NO, I think United bought the store because it was that kind Of fashion store which it could help to grow. Or, at least, it thought it was that kind Of store. Merchandising_Strategy Changes: 1949-1963 Interviewees and other sources indicated that from 1949 to 1963 The Fair management pursued a seemingly contra— dictory, two—directional, merchandising strategy requiring antithetical tactics. One executive succinctly summarized these: It is difficult to precisely evaluate what occurred after the United purchase. I think we were the leading fashion outlet among department stores in Keelim. But we were probably trying to combine a genuine concern about a long-run fashion business and an immediate scramble to stay alive. In pursuing that Objective we did not hesitate tO use any eXpedient.2 A buyer eXpressed the reaction Of those executives responsible for implementing these two-directional Objec— tives: It was helter-skelter; one day we aimed in a fashion direction; the next, toward value, which meant price. Sale time was excitement time. Then everyone, from the tOp down, became excited. That was the big emphasis. er. Mark Sanders, president, The Fair, interview, May 2, and May 4, 1966. 2Lee, Op. cit. u.. fin.~ a “v. .v., 170 Run a successful sale and you were a hero: The result was that at the buyer level you didn't really know what the store wanted. Executives at The Fair Often used prosaic trade terms to describe the two—directional strategy. One Of these words is "cargo." It means that the merchant strives for sales volume-at-any-price. More eXplicitly, the term implies the merchant will sacrifice quality of merchandise and gross margin and will tend to trade at lower price levels in order to sell ever increasing amounts Of goods. The standard becomes sales volume rather than a quality level. The second term used, "fashion," meant, in this instance, discrimination in selection of merchandise so that the quality level becomes the standard and the decision—rule for assortments, even in determining the composition Of a basic stock. Interviewees referred tO a retailer as a "cargo Operator; or as a "fashion merchant." The two-directional strategy manifested itself, according tO executives interviewed, in four activities. They were identified as: planning, eXpansion, classifica- tion merchandising, and resource relationships. 1Reden, Op. cit. ‘V *- An.» - ,. J’l . I. \F‘ . 171 Merchandise Planning: Cargo Interpretation by The Fair Of United States Depart- ment Store policies influenced merchandise planning. One United policy was to encourage each store to achieve domi— nance in its reSpective community by supporting all efforts to sustain and enlarge the anchor store located downtown. A management could eXpect to be judged in terms of the success Of the downtown Operation. Another way to gain dominance was to feature both lower priced and middle- bracket merchandise, and to make sure that the store was not undersold. Perhaps more basic than all of these was a con- viction by United that the key to long-range success was to stress return on investment to the management in each store. By insisting that every dollar produce a profit, the United headquarters encouraged a store management to find merchan— dise that would meet demand and sell quickly. Conceivably, these policies could be interpreted to discourage establish- ment of large, complete branch stores which might reduce downtown volume. This may account for strategy Of branch store Operations at The Fair. But at The Fair this admonition to dominate was also taken to mean "dominate at any cost, get volume at any cost." One merchandiser remarked: We dynamited for business, adding almost two million dollars' volume in one year. We still had a reputation, at least the best of 3 bad ones in town. We started to sell toys at 40-50 percent Off regular retail even ._. ”- 172 before the discounters came. We forgot assortments, prestige, resources. If the public wants button-down oxford shirts, then be sure you have the largest selec- tion of button—down oxford Shirts in Keelim. Better still, try to find a resource, any resource, who can give you a $5.00 shirt for $3.50. But it should not have meant that the rest Of the stocks were to suffer. And all this worked, for a couple Of years. The volume and profits increased. EXpenses lagged behind these volume Spurts. But then they caught up. Soon you required assistant department managers and more help. And other eXpenses, such as advertising and merchandise handling, increased. The result was that profits hit the skids.l Several merchants at The Fair reiterated the view that the local consumer market had changed. Granted that perhaps at one time this had been a factory town, the emerg- ing demand was different, they claimed. One buyer stated that "the emerging market arose from the Taste Revolution." Asked to elaborate, he added: There is a new middle market, one which demands or at least desires self-eXpression. These customers are tired Of Old kinds Of goods and since neither we nor our competitors provided this individuality our custom- ers progressed beyond us. When we finally changed after 1964, consumer response indicated this demand already existed. So far as our industry is concerned I think this was thg major shift in retailing during the 1940's and 1950's. But cargo merchandising prevailed. In stocking Of the last branch Opened in 1962, The Fair Village Store, the 1Richman, Op. cit. 2Richman, Op. cit., Mr. Jack Gelier, department man- ager and buyer, Dresses, interview, May 3, 1966; and Mrs. Betty Harper, store fashion coordinator, interview, May 3, 1966. 173 management inclined toward budget merchandise. A dress buyer commented: They just didn't believe in this kind Of merchandis— ing, whether downtown or in the branches. It was diffi- cult to launch and sustain volume in better dresses. And when it didn't take Off they felt justified in adding more budget ready-tO-wear. Of course, as you diminished stocks Of better goods, the volume in those ranges declined even more. Dominance also required that The Fair never be under— sold. TO emphasize its pricing policy the store eXpended considerable advertising for a tactic called "an island Of loss in a sea Of profit" merchandising. For example, the General Electric Company sued The Fair in 1955 for illegal price-cutting. The counsel for General Electric showed that during the first five months Of 1955 The Fair promoted its own private brand of steam iron at a price varying from $9.99 to $12.99, claiming a $17.95 valuation. The counsel declared that the $17.95 comparison was fictitious and that this quality had never sold for more than $12.99 anywhere in the country. He forced The Fair's vice—president tO admit that the store had sold only 297 steam irons during the period and had advertised it at least six times. He also produced records to Show that a General Electric steam iron price-maintained at $17.95 had not been advertised by The Fair but had still accounted for 22 percent of the sales in that classification. During the sixth month, The Fair cut lGelier, Op. cit. 174 the General Electric steam iron to $13.99 and SOld 333 irons on the basis Of two ads.l Cargo merchandising did not pro- duce profitable volume or effective resource relationships or customer belief in merchandise or promotion. In their discussions of merchandising planning, interviewees frequently referred again to recession periods, depression psychology and the nature Of demand in Keelim. However, one executive partially blamed the department stores themselves for their plight. All three Of the major stores were strong in home furnishings. But they were always underfinanced, always looking for cash. You could always tell when the 10th of the month was by the size of the sale each store staged. They taught the peOple Of Keelim to ShOp by comparative price, to ask themselves how much they saved before they bought. Yes, there were some fine Specialty ShOpS here but the general taste level was low because the stores never sought to tell or sell or lead in qual- ity or fashion or new goods. The attitude seemed to be that we shouldn't tell the customer what they might want; rather, we should find a common or ayerage and try to dominate the market for that demand. Another buyer suggested that "cargo merchandising" was not the role Of the department store. PeOple don't need us for meat and potatoes. When they want taste, fashion, the better goods, we should be able to supply such goods because that is the mis- sion Of the department store. lMarket Publication No. 4, Nov. 27, 1955. 2Richman, Op. cit. 3Reden, Op. cit. 175 This merchandising strategy resulted in a roller- coaster sales curve and required recurring drives to beat last year's figures. Any prolonged failure triggered a batch of new sales promotion plans. The failure, as one executive said, "was that we couldn't secure a day—in, day- Out business. The fear was always present that you might be called on the carpet to eXplain why 'you didn't beat yester- day.'"l Cargo merchandising, according to interviewees, was based on the hOpe that sales volume increases would outdis- tance eXpense increases. In an environment where volume is king there is a tendency to favor those eXpenditures likely to bring immediate results. By the same token there is also a tendency to postpone those eXpenditures which are essen- tially an investment. Under such conditions the firm might willingly increase its neWSpaper advertising for a limited period, say, for a store-wide sales event. Again, however, that same store might delay the eXpenditure, even of a like amount, to repaint a floor or department. Interviewees contrasted the different approaches utilized by the new managements before and after 1963. Before 1963, in order to gain additional volume, The Fair had Opened the Basement floor only of the downtown store for ShOpping six evenings a week and Opened the remainder Of the lGelier, Op. cit. 176 store for business only two evenings a week. When the new president assumed his office in 1964 one of the first acts was to eliminate the six night Openings. "This was a smirch on the entire Main Store as well as a very costly search for sales volume."1 A veteran executive eXplained that the massive refurbishing in the 1955—1958 period, to be noted Shortly, was necessitated by a penny-wise, pound-foolish eXpense con- trol program in the late 1940's and early 1950's. "We didn't take care of all the problems and let the physical plant run down. We cut back every time there was a Sign Of volume decline."2 He added: The environment in which the employee works affects how she handles the customer as well as the goods. Also, the wrong physical layout not only causes deficient cus- tomer service but it also increases eXpenses by the same token. Therefore, you can reduce eXpenses by constantly studying and modifying the environment in which you bring the customer, the clerk, and the goods together.3 Some executives advocated what might be termed "a creative approach to merchandising eXpense control." One proposal was: [to] do what's hard for our competition to dO--tO in- crease our costs by wider assortments for discriminat- ing customers; to increase display costs to Show Off more effectively our best goods; to increase payroll costs in order to Obtain the employment Of quality salespeople who can be trained tO sell $150.00 worth of coordinated home furnishings instead Of seconds in lSanders, Op. cit. 2Moran, Op. cit. 3Ibid. 177 towels by the pound; increase advertising eXpenses by not demanding an immediate turnover of goods; by in- creasing our mark-downs SO we won't be afraid to Offer a selection Of several colors and pot just the one that happens to be "hot" at the moment. The management did not accept these kinds of pro- posals. My conclusion is that the management was unwilling to invest in this kind Of a strategy over time, for at least a period Of one or two years. Also, the management was un- willing to invest the resources required to effectively penetrate the prOposed market segment. Merchandise Planning: Fashion A veteran ready-tO-wear merchandiser who received his training in the East at one of America's most renowned Specialty stores pointed out that the strategy prevailing in a store affected a buyer's behavior: When price, sales, pushing for volume dominates, an attitude permeates throughout the store. You begin to look at goods differently than when you push for style. In the latter case you look at goods more carefully. When you continually buy Off-price you look at goods as units or dollars rather than as some kind Of intrinsic value. It takes inventory in either case. But when the pressure is to get volume you don't look for that extra mark-up, that extra amount Of gross margin dollars; you just buy for volume. And it becomes a never—ending treadmill. You begin to bring in lower-priced resources and you actually begin to change stock composition and quality as this process continues. Despite the foregoing internal environmental condi- tions, some merchants at The Fair guided themselves by lRichman, Op. cit. 2 . Wenger, Op. c1t. 178 fashion merchandising objectives. The executive most sympa- thetic to the deposed administration acknowledged that: whenever we had a strong individual divisional merchant with firm convictions we found ourselves apace with the consumer. For example, we were ahead or abreast of the consumer in decorative home furnishings and in furniture. The advertising price-lining data in Tables IV, 11-15, tend to support this claim. Generally, this division advertised price lines at or above the 9-City averages. These data will be analyzed in greater detail in the section "Questionnaire and Price-Lining Analysis" Of this chapter. An executive in another division also claimed that a strong individual could countervail with fashion merchandis- ing. The merchant in the women's and misses' budget coat department demonstrated that upgrading in both quality and price could be successful. Starting in 1961 he gradually increased the gross margin from 37 percent of sales to a high Of 42 percent by 1965, simultaneously increasing the sales volume in successive years. He eXplained: At the beginning they said-—"don't change this department. It is too good." They were satisfied with the volume at 37 percent mark-up. I wasn't. I knew that more could be done, that customers would reSpond favorably to better goods. I started to use branded resources and changed the mix Of goods. We l . Lee, op. c1t. 179 cut down the number of sales. Sure, we missed the day but we seldom missed the week. Again, the evidence in Table IV-3 suggests that The Fair, at least in this ready-tO-wear classification, eXpended its advertising at higher price levels than the average store in the 9-City group. EXpansion The second activity in which the two-directional strategy became apparent was in the program Of eXpansion pursued by The Fair. Again, both cargo and fashion are appropriate terms by which these actions from 1949 to 1963 can be analyzed. Expansion: "cargp."—-The Fair appeared to follow two guidelines regarding branch stores. The first, which can be traced to the parent company, was that subsidiaries such as The Fair should concentrate on continued develOpment and refurbishing of the "mother" store downtown. The sec- ond was a conviction that branch stores should not mirror the main store. However, this can only be attributed to The Fair management itself, since there is no basis for ascribing such a policy to the United corporation. 1Wenger, Op. cit. The interviewee would not dis- close sales figures. But he did provide the gross margin dollars generated from 1961-1965 ($38,000 to $90,000) and the scale Of maintained mark-up percentages (ranging from 37 percent to 42 percent), both rather positive indications that he had increased sales volume and had traded up. 180 In 1949, The Fair converted the West Keelim branch, Opened in 1946 as an electrical appliance, radio and house— wares store, tO a Youth and Fashion Center. The immediate post-war demand for consumer hard goods had partially sub- sided and increasing competition had reduced gross margins. Retailers were allocating additional space and investments to the world Of youth classifications. The significant decision was not the reallocation of inventory nor choice Of classifications. Rather, it was the decision to carry children's wear in basement price ranges in this branch store although the income and demographic data of that area supported a proposal to include, if not feature, merchandise from the upstairs departments.l Northgate ShOpping center opened in 1954 with Sears and Wier and Company as major tenants. But The Fair did not Open its branch there until 1958. The center was located in one of the three highest-income residential areas Of Keelim. Yet one Observer noted the store did not have all downtown departments nor all classifications within each department LA survey shows that in the West Keelim district, location of this first branch, income distribution compared reSpectively with Keelim was: Under $4,999: 19.2%.and 28.4%; $5,000-$9,999: 46.6% and 54.1%q and $10,000 and over: 24.2% and 17.5%. Source: Keelim News, "The Keelim Market," Op. cit., 1967, (supplement). The reader should note, however, that this data pertains to an area about which a decision was rendered 20 years earlier. Yet, so many Similar decisions were made that this seemed relevant. 181 represented. "Some fringe items such as handkerchiefs were missing in the men's section.”1 The reader will recall that Dean and Company Opened its huge store in 1958 with complete assortments. At a later date, The Fair did change its merchandising at this location. In 1965, the new management persuaded the North- gate owners to "take steps to get the price tenants out and get quality tenants in, stores that will appeal to the wealthy suburbs."2 Soon after Opening the branch at Northgate, The Fair management confirmed plans to Open a "twig" unit in the Beacon Point ShOpping center. This would Open as a basement branch store. The president at that time was quoted as say- ing: The reasons for constructing a basement store are that eXperience has shown that the best selling merchan- dise in outlying branches is pOpular-priced convenience goods, exactly the sort Of a thing a basement store carries. Also, this prOposed branch exactly matches the Space used by our basement store downtown. For uneXplained reasons the store Opening was delayed until 1959. It finally Opened as a department store supermarket, using checkout counters and ShOpping carts. With the exception of shoes, hosiery, jewelry, and cosmetics, 1Market Publication NO. 2, March 26, 1958. 2Market Publication NO. 1, Feb. 9, 1966, p. l. 3 Ibid., March 16, 1958. II: I I. 182 it was essentially a self-service store. The store high- lighted basement and budget price lines. An Observer noted that "it featured dresses, for example, going as high as $14.95."1 The reader can note from the Neustadt tables that this would place the highest price dress in Price Zone 2, even though incomes in this residential area were higher than the city average. (The Neustadt price zone range in 1959 was the same as for 1960.) These techniques were successful in attracting cus— tomers to this branch store. Sales volume increased and, in 1961, The Fair announced plans to double the space and eXpand lines Offered. Self-Service and check-out systems would continue. At that time the trade press noted that store "representatives from all over the nation came to see this new phenomenon in retailing. Store Officials are highly enthusiastic about the success of the self—service Operation."2 RetrOSpectively, one executive, who manifested a sympathetic understanding of the previous management of which he had been a part,evaluatedtjmeresults: There were unfortunate effects. We disappointed and angered many customers. For years, The Fair had been a quality store. Customers anticipated branches, wanted them, but ours shocked them3 And these branches con- fused Our own organization. lIbid., March 21, 1960. 2Ibid., July 7, 1961. 3 . Lee, Op. Cit. 183 The Fair Opened its third branch in 1962 at a site it called "The Fair Village Store." Containing as much selling Space as the Northgate store, it Opened largely as a self-service store with sales help in some departments such as men's clothing. The Fair Village store shared its building and common entrances with a national grocery super- market unit. Over a longer period, however, this attempt to "cargo" merchandise did not succeed, as will be eXplained. Those who innovate may be hailed as heroic one day and ignored or even severely criticized shortly thereafter. Called "great innovators" by industry Observers, praised for daring, applauded for "correctly reading its market" at the time, the management at a later date could also read: The Fair had to fight the discount image. In the early 1960's, the height of the discount mania, the management in power took the discount bait hook, line and sinker. The branches were hailed as the first self- service branches by a traditional department store. The whole organization went "modern," in this way. Competi- tion claims the stores were doing a lot Of buiiness. Unfortunately, they weren't making any money. The Fair was not alone. Several soundly-managed department store firms eXperimented with discount merchan- dising. Famous-Barr tried the "discount, self-service" concept in 1961 and failed. L. S. Ayres, a prestige tradi— tional department store in Indianapolis, acknowledged to its 1Market Publication No. 1, Feb. 9, 1966, p. l. 184 customers that it initiated, owned and managed Ayr—Way, a successful, self-service, discount store in Indianapolis. Both the parent company and the offSpring thrived not only in that city but in other Indiana communities as well. Others, such as J. L. Hudson, eXperimented with basement branches, succeeded in some, miscalculated the market in others. Dayton's of Minneapolis succeeded in launching a discount chain tO its own market under the name Of Target Stores. The point here is that The Fair merchandising strat- egy in branches apparently ran counter to the total expecta- tion by customers and was misaligned with the market Oppor- tunity. However, not all Of The Fair's eXpansion was in this direction. EXpansion: fashion.—-In the downtown store, The Fair attempted tO sustain its position as a quality firm. It transformed its Basement Store merchandising in 1955 from a promotional and price leadership basis to one emphasizing competitively priced basic stock assortments. Later, after the supermarket technique and cargo merchandising appeared to be successful, The Fair transformed the Basement Store into a "branch Operation." In that same year (1955) it started a $2,000,000 refurbishing and remodeling investment in the downtown store. The Objectives were to provide a more suitable environment for better merchandise, to empha- size the fashion elements, and tO gain additional selling space. Included was a complete remodeling Of the main floor, 185 especially in the fashion accessories, Shoes, and menswear divisions. The second floor was redesigned tO include individual shops for separate customer groups and merchan- dise classifications. Rearranged traffic aisles and re— grouped departments encouraged coordinated selling. There is reason to believe that both The Fair and its customers were Satisfied. The store continued this kind Of invest- ment in its physical plant until the middle of 1960. In 1959 The Fair sold the two branch stores it had acquired in 1945 in two communities outside the immediate Keelim trading area. Apparently the management believed it had develOped a potentially more profitable strategy for branches within the immediate Keelim trading area. Classification Merchandisipg Amidst the contradictory merchandising policies already described I found at The Fair a fundamental idea struggling for expression. Executives called it "Classifi— cation Of Goods by Customer Preference." The concept is essentially one which is consumer-oriented. Records and correspondence disclose that two mer- chandisers at The Fair prepared detailed eXpositions on this process in 1953. They presented their papers and demonstra— tions to store principals at national conferences of the United States Department Stores. Many Of these ideas are similar tO those promulgated by the National Retail Merchants' 186 Association at conventions during the past two years.1 Classification merchandising is a dissection process within merchandising whereby a store can more profitably match its offering to consumer demand. In the Staplinger case, inter- viewees referred tO this process as "Customer Preference." In the Mayfield case (Chapter Five) the reader will note that management also required dissection of departments into classifications and sub—classifications. The reader will learn that one Of the purposes there was to ascertain both gross margin contributions and expenses attributable to every class Of commodity. The president exhorted every merchant at The Fair to study and develop practices in accordance with the concepts eXpressed in the classification and customer preference pro- gram. The following extracts from intra—store communication and interview data indicate the importance of this subject.2 The important elements Of the program are, first, the customer VieWpOint as a simplifier Of the complex retail business. Customer desire for merchandise is stimulated by the physical characteristics Of the mer- chandise, by such features as style, color, material, pattern, and use benefits. Customer preferences in these features change and it is, therefore, practical to analyze the degree Of change SO that stocks can be corrected, realistically, for the selling period ahead. 1See "NRMA'S Standard Classification," New York, The National Retail Merchants Association, 1967, p. 2. 2Derived from interviews and from various corres- pondence files at The Fair. 187 The second important principle involves the classify- ing technique. Classifying a business divides it into the customer demand areas. As the separate little busi- nesses in a category Of merchandise can be isolated, and separately analyzed and planned for, these separate little businesses can be maximized. Then, after segre- gating customer demand areas into classifications and sub-classifications, the task is to determine for each segment Of the area which customer features need contin- uing analysis. These features become the basis of the record-keeping procedures and there should be just enough formal record-keeping to provide the degree of customer feature analysis that supervision agrees will be productive. The third step is to conduct a semi—annual review in order to isolate strengths and weaknesses. Such indenti— fication should become the basis for long-range planning. The fourth step is to place in writing every bit of timing information that can be developed. One Of the major Objectives of this program is the prOper flow Of goods because we believe that buying, or liquidation action, at the right times can be scheduled. The fifth step is to aggregate all the information. If a business is as intensely classified as is recom- mended, it is possible to miss the forest through de- tailed study Of the trees. Therefore, it is essential that the regularly scheduled Total Look Of a classifica- tion of goods becomes a part Of the decision-making pro- cedures. The result should be the identification Of duplicating assortments and Of customer demand areas or features that need accelerated or diminished support, in the selling period for which buying and liquidating deci- sions are being made. In a bulletin to the buyers, the merchandise manager cited an example of Classification by Customer Preference merchandising: What we want to do is to identify the features that attract customers to certain items and represent these same features widely in the stock, at different quality levels and at different price lines. For instance, if a polka dot cotton voile dress at $10.99 sold out quickly on the first shipment, should we represent polka dot cot- ton voiles in several price lines in several styles? 188 And what other features about that cotton voile dress, attracted customers?--was it the mandarin collar, the full skirt, the rhinestone buttons, or what? Perhaps Classification By Customer Preference was ahead of its time at The Fair. Intra-store communications dated in the 1950's certainly evidenced interest and enthu- siasm and direction. According to interviewees, it did not succeed. Some claimed that management employed the technique to the extreme. One executive commented: There was no fluidity. If C. P. Showed that black and white would be the number one preference at the peak of demand, we were supposed to stock 300 pieces, have it in depth, ready to power the item. But you can't always buy major resources that way; and you can't produce a stock which the market itself doesn't have. And the president was absolutely sure he was right and the reason the idea didn't work was that his subordi- nates were wrong or didn't know how to work the system. I believe that perhaps a more searching appraisal is that offered by a merchandiser, no longer associated with The Fair, who was an executive there during the 1950's: I think they were tops in merchandising but they forgot to be merchants. They fought branches until they couldn't continue without them. Then they Selected secondary locations and ultimately imitated discounters. The technique and system kick showed up in the Classifi— cation by Customer Preference program. Everything was run by the book. The way they administered it was more like the Big Item, the runner item technique of the 1930's. But the Big Item didn't solve the problem Of how to provide broad and right assortments for custom- ers who wanted something a bit better or a little lCorrespondence files, The Fair, op. cit. 2 . Wenger, Op. Cit. 189 different. The C.P. Program really was aimed, pre- sumably, at assuring the customer Of this style—right assortment. Resources The two—directional strategy also manifested itself in the selection and cultivation of, and in the continuity with, resources. Conflicts concerning resources arose, first, because each divisional merchandise manager inter- preted differently, as already noted, what the strategy was; and, second, because in the selection of resources the buy— ers often competed among themselves as a result of these individual interpretations. That is to say, buyers within the same division might seek merchandise from the same resource because, despite their nominal assignment, they pursued the same mission. The retailer-resource relationship can be viewed as existing between two choices. On one hand the retailer selects resources in accordance with what he believes his store should represent and in accordance with the retail market segment from which he seeks patronage. On the other hand, because he is a re-seller, he is usually constrained to choose from what the resource market Offers. Conflicts about resources within a store organization will intensify if the merchandising strategy is not distinctly eXpressed. er. Harold Spieser, accessories merchandiser, the Hanover Department Store, Hanover, Northstate. Mr. Spieser was coat buyer at The Fair from 1949-1956. 190 Executives pointed out that when an organization Ipearmits every merchandise manager to be a king unto himself, 23 conflict about resources is likely to ensue. These dis- aagyreements resulted in loosely defined price lines, and such rnjrxed merchandise presentations that a l6—year-Old girl nanght be encouraged or required to ShOp in the Same depart- Ineent as a 55-year-old woman. Obviously, they added, they czcyuld not plan to maximize department store attributes Of faishion, service, and individuality, under such circum- sstnances. A buyer at The Fair contrasted the merchandising 013 a Specific dress department before and after 1964: Resource selection affects presentation of the store itself to the public because, hopefully, what the cus- tomer sees is the merchandise itself. Consider our Avenue Dress Shop. It is defined now as a place in the store which caters to the career girl. We range in price from $12.00 to $25.00 with our strength at $15.00 to $18.00. We evaluate every resource in terms of its capacity to provide strength to the merchandising idea, to the market segment, we have selected for this depart- ment. We now use fewer resources. We have favorable positions with them. NO other department uses these same resources. There is consistency in the assortment and in the presentation. Before this, however, I might have found that some other dress department used or was using the same resource and may have worked with it differently. Resource policy and related merchandising conflicts (iealitied The Fair profit Opportunities. Department and Spe- C:jLEiZLty stores in 1960 were already taking notice Of The ‘71~J—JLager, a relatively new resource in ladies' sportswear. \ lGelier, Op. cit. 191 (:clncentrating on classic styling and design Of silhouette, cxn.fabric selection, and on the use of conservative color :rtanges, this resource supplied to the market basic merchan- éiise whose simplicity appealed immediately to a wide segment rwanging from teen-agers to career women. The Fair merchan- diiser described the resource and his eXperience in obtaining jut: This resource stood for a distinct level—-in price, in look, in quality. In 1960 I wanted to put this line into the store. But "upstairs" blocked it. I had to fight for two years. Finally, in 1962, we put the Villager line in the store. It has been one of the best profit-makers in the entire division.1 This statement conflicted, however, with previous arssertions that merchandise managers were kings in their own w1;Ls success, continuing demand, and concurrent shortage. C)171.:1.y those who had sensed the trend apparently were in a POS ition to capitalize on the consumer demand which devel- C>];>~ea=d.2 Sales promotion.—-During the first eighteen months aif‘tZHer the management changeover, The Fair tried three differ— ‘a3r13t: styles of newspaper advertising layouts. One Objective Vvea_53 to inform Keelim customers of the new Fair store. A1710 ther was to distinguish the advertising from The Samuel- SOJ:‘).—-Schmidt massive advertising, estimated to consist of two and one-half times as much linage as published by The Fair. Trklei third was to institutionalize the merchandise and the Store rather than aim solely to produce results the next day. ZEII :response to the fact that they were continually outspaced, \ lIbid. 2Market Publication NO. 1, May 16, 1966, p. l. 202 officials eXperimented with both television and radio adver- t ising. Taking a lesson from the experiences Of many national advertisers, The Fair attempted to increase the nurnber of impressions it made on customers by means Of both 8 ound and sight. The publicity department develOped four electronic pr ograms: first, a sustaining "talk Show"; second, a format for use of Spot radio to provide massive support for an event or to sell a particular item; third, a radio program wr itten expressly for the station with the largest teenage IL 1 stening audience; and fourth, a program consisting of a thrice—weekly television news Show which the store increased shortly thereafter to four telecasts per week. In order to re duce expenses the advertising department produced its own Commercials in the store, using the store as the background and store personnel and merchandise, Of course, to communi— cate the commercial message. The Fair executives claimed that the Show had been successful and had elicited many f av orable customer comments . Pricing.--Generally, The Fair decreased its emphasis and number Of Offerings at lower priced lines. Most inter- vieVNees stated that in their departments they had extended the price-lining upwards. The elimination Of lower price lines depended upon the particular department, what the - trend had been, and what the resource markets, in turn, Offered. In towels, for example, the buyer stated that in 203 1961 the ensemble groups included 20 different selections. Of these, he recalled, 12 were in the $1.00 range. In 1965 the inventory had been increased and invested as follows: 1 number at $1.00; 2 at $2.00; 5 at $3.00; 2 at $6.00; 2 at $7.50; and 1 at $10.00.1 Another buyer compared differences in pricing: Before, we almost always marked $15.75 per dozen goods at $1.98 each, or even less, depending upon competition. Now, I think we have a tendency tO mark the goods at what we think it is worth to the customer. The other way, you let the manufacturer or the competi— tion price your invoices. When the store stages a sale everyone is expected to Offer superior money-saving specials which will establish in the customer's mind an unquestioning acceptance of The Fair's advertising and merchandising integrity. For example, during a store-wide Anniversary Sale conducted two weeks prior to the interview, the linen department Offered seconds Of a basic, always—in—stock national brand towel regularly priced at $2.00 each, for 99 cents. The buyer explained that he purchased 150 dozen at $8.50 per dozen and sold out in four days. "Customers believe our ads and we deliver the value," he stated. Results.--The strategy after 1963 was to bring about a turnaround, and to do this quickly. I could not Obtain reliable estimates Of sales volume trends. The president lReden, op. cit. 2Ibid. 204 stated that the Basement Store now accounted for 7 percent of the total volume, a decline from 18 percent, but that the total store, including branches, had increased in absolute terms. The new branch to Open in 1967 will be a complete, full-service, traditional department store, resembling the downtown establishment. Several Of those merchandising executives who tried to upgrade the store during the 1949-1963 period continued their retail careers with The Fair. Others who also con- tributed during that period accepted more attractive posi- tions recently. One Of America's largest department store chains induced the fashion coordinator to leave The Fair and tO accept a corporatewide assignment involving essentially the same technique that She used at The Fair. The sales prO— motion director has been promoted to the United States Department Store headquarters staff. According to trade press articles, the president is to be rewarded with the presidency Of a much larger and more significant United States Department Stores unit, one in which two past pres— idents of the corporation itself served. One can only assume from this that the mission at The Fair was accom- plished. 205 Questionnaire and Price-Lining Analysis Analysis of corroborative data is somewhat different 9 Fair case than in the Staplinger case for two reasons. , in the present case, I received seven questionnaire nses about external events and their effects on price- 3. Second, because Neustadt discontinued measurement vertising in Keelim after 1960, it was not possible to a comparable data for 1965. However, the combination Of questionnaire responses 1e Neustadt data provides a basis for analysis in three . The first compares perception Of environmental 3 by The Fair executives with objective measurements. so reports on how, if at all, these events affected -lining. The second part compares estimates about -lining, as received in the questionnaires, with adt data and then proceeds to answer seven questions each classification for which I received a response. 1ird part compares advertising indexes for eighteen iities, as measured by Neustadt, for The Fair, the { group, Monroeville and Staplinger's, and Freeport :yfield's, the latter the subject of Chapter Five. -Onnaire Responses About 1al Environment Five Of the seven responses came from one merchan- ; division, the other two from another division. This luces a bias into the limited aggregate reSponse. The 206 division which supplied most Of the questionnaire responses (hereinafter referred to as Division One) appeared on the basis Of interviews to be the forerunner in fashion merchan- dising and the most Optimistic regarding such a merchandis- ing strategy. Demography of demand.-—According to the seven responses the pOpulation and geographical trading areas increased. Data in Table A-1 supports the statement con— cerning pOpulation increase. All agreed that the average household income in— creased. Division One accurately stated that the percentage Of household incomes from $7,000—$9,999 declined while those Of $10,000 and over increased. Table A-5 reflects these changes in Keelim. The other division (Division Two) stated that the percentage Of households in both tOp income groups remained the same. As pointed out earlier in this chapter, one Of the favorable conditions for retailing in Keelim was the decided increase in the percentage Of households in the upper income groups. The percentage of households in the lowest income group also increased, eSpecially during the 1960 to 1965 period. Only six of the seven responses concerned occupa— tional changes. These answers were not as accurate as the foregoing. They are summarized in Table IV—24. Five of the Six responses stated that both the percentage of manual wn 6. In two of the five classifications, the buyers both a‘dc‘ied and drOpped categories of merchandise; and the re- sIDQnses indicated that the buyers attributed differences between Charts I-IV to this competitive event. In two other 212 classifications, the buyers dropped categories and in both cases attributed differences in Charts I-IV to these deci- sions. In only one Of the five classifications did The Fair answer negatively to Question 6—a. Again, this was the classification in which The Fair had already reached a high price-level. The buyer's response was consistent in that he claimed that he had neither lengthened nor Shortened the price-range but had shifted emphasis within the range. In response tO Question 7, only one buyer stated that he Shifted advertising emphasis to lower price—zones within the range in terms Of merchandise price—lining. But he did not respond in the same manner regarding advertising price-lining. His eXplanation was that he had to meet com- petitive pricing in actual selling but elected to increase the advertising emphasis in higher—priced goods. All responses to Question 8 were that the number Of traditional department store firms stayed the same and that the number Of traditional department store units increased. Only four responses were received concerning the effect Of these competitive events upon price-lining decisions. As is evident from data set forth previously, these responses are not as accurate as would be eXpected. While the traditional rivals, Samuelson's and Schmidt's, remained and did increase the number Of their branches, the reSponses faj~:l.ed to account for the entry of Dean and Company. 213 The answers to Question 9, whether traditional diepartment stores altered their merchandise and advertising Iprice-lining, were all "yes." In four of the reSponses rreceived to the question whether The Fair attributed any Of 1:heir own changes in price-lining to actions taken by tradi— t:iona1 rivals, the answers were "yes." The eXplanation for the difference in answers when (zomparing traditional with discount department stores may lie in the fact that the actions taken by the former group inere more akin to The Fair's Own price ranges. Also, as indicated throughout, traditional rivals were undoubtedly attempting to influence customers who also patronized The Fair. _;pterim Summagy Although limited in number, the replies demonstrated awareness Of some Of the external changes and Of The Fair's cnnn adjustments in reSponse. The replies concerning demo- SJraphic and economic events appeared to be more consistent tJuan those for competitive events. It is possible, Of course, that those who did not rEESpondmay not have had the information. Another eXplana— tion is that interviewees could not take the great amount 53f? time required to ferret out the information, even if it Vvaiss available. Conceivably, interviewees could not attri- 1Chute reasons for actions taken to the limited number Of 214 p1:oposed causes. In turn, this may be due to lack Of pre— czise knowledge or quantifiable data about why action was taken . Errice-Lining Data from The Fair Executives I received price-lining estimates for seven classi- ifications. These are reported in Tables IV-7, 8, and IV—ll, 1.2, 13, 14, and 15. Questions for each classification, Sim— ilar to those asked in the Staplinger case, provide a basis for comparing The Fair's estimates with the Neustadt data. 'These will be found at the bottom of the respective tables. Question l.--Comparing their own advertising indexes, did the 9-City group trade up? In all seven classifications the 9-City group traded up in advertising price-lining, as measured by Neustadt data. Question 2.—-Comparing Neustadt measurement Of The JFair advertising price-lining in 1960 with the 9-City group le 1960, did The Fair trade up? This question relates The Ptiir index to the 9-City index. In four Of seven classifi— cfations, The Fair index was higher. Question 3.--Comparing its own estimated merchandise IPrfiice-lining indexes, did The Fair trade up? The one nega- tui‘fe response (IV-ll) was in Mattresses, where the estimated me12‘<:handise price—lining index in 1965 was 90.4 percent Of .tllei 1960 estimate. The buyer stated: "We traded down with- ;Ltj- ‘the same price range. This was a heavily promotional 215 a]: ea." Yet, according to the reSponse, the merchant traded up) in advertising price-lining. He Offered no explanation for this. Considering other home furnishings departments, he may have traded up in the advertising through use of vendor or resource advertising participation. Neustadt measures all advertising regardless Of who ultimately pays the linage costs. It is frequently the practice Of the bed- ding industry to provide cooperative advertising monies for retail accounts. The Fair underestimated the actual linage in total and by price zone. Question 4.—-Comparing its own estimated advertising price-lining indexes, did The Fair trade up? In all classi— fications The Fair estimated a higher index in 1965 than in 1960. Question 5.—-Comparing its own estimated advertising Price—lining indexes with 9-Cities, did The Fair trade up? In all classifications The Fair indexes increased upward and PrOportionately more than the 9-Cities did. The reader should recall that these are based on The Fair's own esti- Inaltes and they pertain to seven classifications only. The qu€stion arises as to the reliability Of these estimates. Using the Neustadt 1960 measurement as the basis, The Fair underestimated its own advertising indexes. The largest discrepancy was in Drapes, Table IV-l4 and the smallest in sofas, Table IV-12. If a gap Of 10 percent of the Neustadt lhdex is used as a basis for reliability Of estimate, four 216 Off the seven are judged unreliable. If a gap Of 20 percent 013 the index is allowed, then only one estimate is considered urireliable. Question 6.—-COmparing both merchandise and advertis- iJag price-lining indexes, did The Fair trade up more in its nuarchandise than in its advertising price-lining? In three c>f the seven classifications, The Fair traded up more in Inerchandise price-lining than in advertising price-lining. Iiowever, these same three also Showed the widest discrepancy loetween estimated and actual advertising price-lining. Question 7.--Comparing relative changes in DSIPI and its own advertising indexes, did The Fair trade up? In all instances The Fair traded up more than the DSIPI. Both changes in all cases were positive. gagmparison Of Eighteen Commodities A comparison Of the advertising indexes Of eighteen Cummmodities in 1960 between The Fair and the other units Stnadied—-the 9—City group, Monroeville and Staplinger's, arnd Freeport and Mayfield's——is summarized in Table IV-22. With the exception Of statements about decorative hOrne furnishings by both the merchandise manager and some buyers and also in some ready-tO-wear departments, partic- L116irlyin ladies coats, I expected to find that The Fair advertising indexes were substantially below the 9-City a‘rexages and certainly less than the indexes for the other 217 tNNO cities and the other two stores for which data could be olotained. The oft-repeated statements that The Fair had tuecome a "very promotional" store, that "advertising was always centered at or below volume price points" would lead (one to the aforementioned conclusion. Further, since the nnanagement was changed at the end Of 1963, and since Jreputedly, these decisions in United Department Stores were 110t impetuously but deliberately made, one could expect, again, that The Fair indexes would be below industry average \Mithin two or three years Of this management change. However, for ten of the eighteen commodities, The Fair index in 1960 was greater than that for the 9—City group. More particularly, six of these ten were in Home Furnishings (Tables IV-ll, 12, 13, 15, 16, and 18). In two of these classifications, mattresses and occasional living 1room chairs, The Fair index was higher than all except Dflayfield's. These favorable comparisons substantiate claims 1?y the merchandiser and several colleagues, and acknowledg- Hkant by Mr. Sanders, that this division had begun the trade Eu; process. The four other classifications in which The Fair advertising index exceeded the 9-City average were: un— tIrTmeed cloth coats, women's sweaters, ladies' skirts and InEEIl'S slacks (Tables IV-3, 4, 5, and IV-9, reSpectively). 2?}163 first Of these supports the merchandiser's claim that flee succeeded in upgrading women's coats. 218 Of the eight commodities whose advertising index was leass than the 9-City index, only three were less than 90 per- ceant Of that standard. That is to say, of the eighteen com— puared, fifteen were at least 90 percent or more Of the 9-City ilidex. These are also shown in Table IV-21. Merchandisers in women's apparel classifications had sstated that "by necessity we had to put our advertising (dollars behind the volume price-points. In the budget (dresses (upstairs departments) the 'meat' price lines were laetween $11.00 and $18.00. We were eXpected to emphasize these prices in our advertising."1 Data in Table IV—23, and IV-l and IV-2, appear to corroborate these statements. On the basis of interview data, I also eXpected to find that women's Sportswear classifications would, as in dresses, be less than the 9—City averages. However, the advertising indexes for Sweaters and skirts were above that standard while the one for blouses was below. I am unable to eXplain why certain Of these sports- “Near classifications compared more favorably than others. Close examination Of all The Fair price-lining data seems to Sungport the "Big Item" or even the "Classification Merchan- di-‘Sing by Customer Preference" merchandising programs. In Se\feral cases, there is abnormal concentration Of linage in \ lGelier, op. cit. 219 ¢:>I)e or two price zones when compared with 9-Cities. However, t:$k1e latter is an aggregate figure. The reader will note in tzflrle Mayfield case that this "high concentration” occurs easgyain at higher price points. 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MOO» :m mummM H003 ":oHumHuUm0Q uvmums0z OO .02 0UOO uvmuma0z OOINO .oz um0o czmz manm m.:0z .mmmHO .0mvz no 0amz “Hum 0:9 pcm O0HHHOIO new .OuHOO O.:0z .OOOH O:O OOOH :H OOHOHHumoHum OcHOHuH0>OO o:m OcHOHO:O:UHOE mo OHONHO:< .mu>H mHm<9 232 TABLE IV-9. Analysis of advertising price-lining in 1960, Men's Slacks, for 9-Cities and The Fair Name of Mdse. Class. Men's Slacks Neustadt Code No. 132 Neustadt Description: Includes all slacks adv. as sports- wear; also leisure jeans and denims when tailored as slacks and advertised as leisure wear. DSIPI Description: NRMA Department No. 53-11 DSIPI Group: X DSIPI Index, 1960: 216.3_L1941=100L DSIPI Index, 1965: 241.8 (1941:100) Relative Change in Index, 1965/1960: 111.9 <5 0:z Price Zone Range Adv. Analysis Adv. Analysis 3 0 9-Cities The Fair 3:8 % of Adv. Index % of Adv. Index N Per Zone of Adv. Per Zone of Adv. (1) Under $ 3.00 13 13 (2) $ 3.01 to $ 5.00 23 46 4 8 (3) $ 5.01 to $ 8.00 23 69 19 57 (4) $ 8.01 to $12.00 16 64 62 248 (5) $12.01 to $18.00 17 105 8 40 (6) Over $18.00 8 48 7 42 TOTALS 100 345 100 395 Price Center $ 6.83 Above The Fair Adv. Index. 9-City Adv. Index 114.5 Comments: With exception of Mayfield's The Fair index is higher than others compared. Concentration in Zone 4 accounts for higher P.C. 233 TABLE IV—lO. Analysis of advertising price-lining in 1960, Men's Sports Coats, for 9-Cities and The Fair Name of Mdse. Class. Men's Sport Coats Neustadt Code No. 133 Neustadt Description: Tailored sport coats in conventional sack coat styles. Made of materials similar to suiting. DSIPI Description: Men's Sport Clothing NRMA Department No. 53-11 DSIPI Group: X DSIPI Index, 1960: 216.3 (1941:100) DSIPI Index, 1965: 241.8 11941=100) Relative Change in Index, 1965/1960: 111.9 C) Price Zone Range Adv. Analysis Adv. Analysis 3 2 9—Cities The Fair “*3 % of Adv. Index % of Adv. Index Per Zone of Adv. Per Zone of Adv. (1) Under $16.00 12 12 3 3 (2) $16.01 to $22.00 17 34 26 52 (3) $22.01 to $30.00 27 81 33 99 (4) $30.01 to $38.00 10 4O 19 76 (5) $38.01 to $46.00 13 65 15 75 (6) Over .$46.00 21 126 4 24 TOTALS 100 358 100 329 Price Center $ 28.54 Below The Fair Adv. Index. 9-City Adv. Index ' 91.9 Comments: Although less than 9-Cities and less than Monroe— ville, The Fair index was higher than Staplinger's. 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:m:00 AooHnH¢0Hv O.VNN:000H .x00cH HOHmQ .0005HOCH 0:0 000%» HOH0000 :0:»0 :0 .0Hflmso :floucou 00H0 H>x "000:0 HmHmQ 0:0 0::000 H0:0H»:0>:00 ":0:»0::0000 »00»050z 0mm .02 0000 »00»000z HHIHw .oz »000 0202 0::020 5000 0:H>Hq H0:0H00UUO .000H0 .0002 no 0502 :H00 0:9 0:0 00H»H0l0 :00 :: 0:::: .0::0:0 5000 0::>:: H0:o:00ouo .000H 0:0 000H . :u00::0 0::0:»:0>00 0:0 0::0:0:0:0:05 :0 0:00:000 .m:u>: 0:00: 239 TABLE IV-l6. Analysis of advertising price—lining in 1960, Towels, for 9-Cities and The Fair Name of Mdse. Class. Towels Neustadt Code No. 165 Neustadt Description: All towels except dish towels and towels advertised in Art Goods Departments. Beach towels are not taken. DSIPI Description: Cosmetics and Draperies - household .Egextiles. DHKDGA.Department No. 15-11 DSIPI Group: II DSIPI Index, 1960: 195.4 Q94l=100) DSIPI Index, 1965: 205.7 il94l=100) Relative Change in Index, 1965/T960: 105.7 0 2 Price Zone Range Adv. Analysis Adv. Analysis 3 q, 9-Cities The Fair 3'. 8 % of Adv. Index % of Adv. Index 0 Per Zone of Adv. Per Zone of Adv. (1) Under $ 0.38 9 9 (2) s 0.39 to s 0.50 13 26 7 14 (3) s 0.51 to $ 0.70 11 33 13 39 (4) $ 0.71 to s 1.00 28 112 56 224 (5) s 1.01 to s 1.50 10 50 5 25 (6) Over s 1.50 29 174 19 114 TOTALS 100 404 100 416 Price Center $ 0.88 Indeterminate lhe Fair AdL Index. 102 9 9-City Adv. Index ‘ —°— Comments: Interview data suggested an adv. index lower than 9-City rather than one equal or slightly above, as indi- cated caused by 80 percent of linage in Zones 4-6. Price center indeterminate. The Fair index through Zone 3 less than 9-Cities but greater than 9-Cities through Zone 4. 240 TABLE IV—l7. Analysis of advertising price-lining in 1960, Blankets, for 9-Cities and The Fair Name of Mdse. Class. Blankets Neustadt Code No. 168 Neustadt Description: All wool, part wool, or all cotton, also synthetics. Electric blankets are taken. Sheet blankets are not taken. DSIPI Description: Domestics and draperies - household Eextiles. NRMA Department No. 15—12 DSIPI Group: II DSIPI Index, 1960: 194.5 (1941:100) DSIPI Index, 1965: 205.7 (19211=10U) Ralative Change in Index, 196571960: 105.7 a) :2 Price Zone Range Adv. Analysis Adv. Analysis 3 03 9-Cities The Fair at 8 % of Adv. Index % of Adv. Index N Per Zone of Adv. Per Zone of Adv. (1) Under $ 4.00 23 23 1 1 (2) $ 4.01 to $ 5.00 9 18 6 12 (3) $ 5.01 to $ 9.00 17 51 70 210 (4) $ 9.01 to $15.00 30 120 17 68 (5) $15.01 to $22.00 15 75 6 30 (6) Over $22.00 6 36 TOTALS 100 323 100 321 Price Center $ 9.18 Below The Fair Adv. Index. 99 4 9—City Adv. Index ’ . Comments: High linage eXpenditure in Zone 3 brings index to almost equal of 9-Cities even though latter has wider distribution. 241 {PZXIILE IV—18. Analysis of advertising price—lining in 1960, Bedspreads, for 9-Cities and The Fair ‘NEinme of Mdse. Class. Bedspreads Neustadt Code No. 167 Nsallstadt Description: All bedspreads for all materials for eadult beds. Spreads of ensemble groups are included. DS IPI Description: Cosmetics and draperies - household .jgextiles. BHRIflA Department No. 15-12 DS IPI Group: II DS IPI Index, 1960: 194.5 (1941:100) DSIPI Index, 1965: 205.7 1194l=100L Rerlative Change in Index, 196571960: 105.7 Price Zone Range Adv. Analysis Adw. Analysis 9—Cities The Fair % of Adv. Index % of Adv. Index Per Zone of Adv. Per Zone of Adv. (1) Under $ 4.00 l6 l6 (2) $ 4.01 to $ 5.00 9 18 (3) $ 5.01 to $ 7.00 15 45 12 36 (4) $ 7.01 to s 9.00 12 48 2 8 (5) $ 9.01 to $12.00 14 70 65 325 (6) Over $12.00 34 204 21 126 TOTALS 100 401 100 495 Price Center $ 8.66 Above The Fair Adv. Index. ‘— 9-City.Adv. Index ‘ 123.4 Comments: Interview data suggested that in decorative home furnishings The Fair had attempted to trade up by 1960. There were no indications, however, that in this classifi— cation the index would be this high. Actually, The Fair adv. index is higher than in Freeport, Monroeville, Stap- linger's as well as in 9-Cities. Yet this is a classifi— cation very susceptible to price promotion. 242 .nsncmu meme do emmmme noma .HOCHSOb Eflammx one =.umxum2 EHHOOM one: "mousom 000.com.a ooo.mmm acmmsoo w ammo oom.ma usage .9 .3 oo~.dm .OO 6 xospmom mummm ooo.HHH mammEOo umez ooa.ama amazed .O .n ooo.ana Heme was ooo.¢©o m.upflanom w m.COmHOSEmm omv.moam mmm ooo.mmv.m o mamuoe ooa.mm moccmm .0 .b . 000.00 uflmm one omh.ma mm ooo.nmm ucwom coommm mmma ooo.mmm mammaou a ammo ooo.>o~ m.upflanom oom.nm mo ooo.ooo.a xnmm EHHOOM wmma oom.ma .00 w xosbmom mummm oom.ma usage .5 .3 ooo.om m.comamsamm oom.m vm ooo.omH mumam mmuusz omma ooo.mm smcdmd .o .e ooo.hmm m.u©HE£om ooo.om sandeoo nmez oo>.em mm ooo.omo.a 00500 nmudmo Omma ooo.~oa Hflmm one ooo.om wcmdeoo umflz ooo.mm .00 w xosnmom mummm ooa.mm me 000.com mumw nuuoz dmma ooo.oma m.aomHOSEmm oom.nm w hm 000.000 0000 ummz Hmma A.um .Umv mucmcme Aooov muamame 5.0m .Umv Hmuamo Umcmmo mNHm “mucoo .»09 mo .02 ONHm. mcflmmonm “mm? mmamm m .xoummm MO 0802 wuoum ucmfiuummma Hommz .xoummé rmomaumema .Eeammx an mumucmo illl 111'" i madmmofim HOmmE xam wo wumeesm amoeumflumum .mHI>H mqmauomdwmu How .ucmauummmm noummmmm umxumz .mBmZ EHHOOM “mmousom .omma mo unmoumm ooa .mmamm mnoum .ummnxrr .Ucm “unmoumm m.om .mmamm .mmcz .me** homma mo ucmoumm N.Hm 0003 moamm Hflmumm .mfima CHr .<.z .¢.z m.HH m.NH H.NH m.ma m.~a ... o.¢a mmamm,aflmumm 0» & mmamm muoum .ume .<.z .¢.z m.vo m.mn n.0m «.mm m.mm ... o.mm .mmpz .cmo 00 x mmamm muoum .ummn .¢.z .¢.z >.mma n.mma o.moa ¢.oaa o.mm .¢.z 0.00H errmOHmm muoum,ucmfiuummmm m.h¢m H.mna m.mna ¢.mma m.Hma m.maa m.ooa .m.z 0.00H «rmmamw Omepcmcoumz Hmumcmo n.0na H.mma ¢.Hma N.Hwa m.>ma n.mma m.NHH m.HHH 0.00H rmmamm Hemumm m.mma m.mna m.moa m.nma m.m¢a o.mma m.mma o.mHH 0.00H maoucH HmsOmHOm mmouo o.nm m.mm m.>m n.m~ m.nm m.am >.mm v.4m m.mm UOMOHQEM Hmuoe Op mumxuoz ..Uoum muouomm mo X m.¢¢a m.¢ma m.¢ma H.mm O.Hm N.OOH m.vm m.noa 0.00H mumxuoz coaDOSUoum mnouowm o.o¢a o.omH o.m~a m.mma m.mHH 0.0NH m.mHH N.NHH 0.00H Ammmnm>d endgame unmemoamam Hmuoe moma mama moma coma mmma omma dmma mmma omma 83% one: . u Amme . mpcmamusmmma oaaocoom pmuomaom mo umEEsm Hm >H m momauomma .mumunrunoz seammx How .xuow 3oz .coflumwflcmmuo HmOHumflumum upmumsmz “monsom XOUCH .>U¢.%uHUIm xmnGH .>U< uflmm 059* 245 w.mmH mmw me wa amm maw ch mommummomm boa mHI>H w.mm Hum mmw mom mcw omm mmm muoxcmam ooH >HI>H m.mca oaw mom cow wcm omw wcw mHo3oa moa oHI>H o.maa Hmm mom cmm ... ... wwm muflmno .Em .>A HMGOflmmooO 0mm mHI>H m.mm cmN mow cww wmw mmw mom mommun wma wHI>H m.wca oaw cwm mow mmw Nmm mmm mmuflsm Eoouomm 0mm MHI>H m.oca mow cmm mow mww mmw Hmw mmmom Nmm NHI>H m.mcH Haw maw wcw mum mom Hmm mommmuuumz oww HHI>H m.Hm mmm ... ... mom wmm mom mumou muuomm m.cmz mma cHI>H m.waa mmm mmm com wow mmm mwm mxomam m.cmz NmH mI>H N.Om mam mww Hem hum ohm bwm muflsm m.cm2 cm mI>H w.wm Hmm hww Hmw wmw www waw muuflnm mmmnn m.cmz cmH mI>H H.55 mom mow ocw mm mmm omm momdoam mm oI>H m.aca mum mam th wow chm mum muuflxm woeomq Hm mI>H m.mca mmm oww mcw cmw Hmm mom mumumm3m .2 o .3 mm wI>H m.~ca Hom mam mum mom com mom mumoo Luoao .uucD mm mu>H O.Nm mom th oww wmw wa wow mommmum Homosb ma NI>H m.mm mam Hom mum oam Nmm mwm mommwua momma: o m.cofioz ca HI>H Haulm coma coma coma coma coma coma mEmZ Hmnadz .oz *Hmme uamh m.OHOHm unom m.ummcHH mHHH> moauflo coHuMOHmammmao upmumsmz unmno one lam: Immum Immum Imoncoz Im Hflmm one cam .m.HomcHHmmum cam oaafl>ooncoz .m.oamflm lamz cam uuomowum .msoum muHUIm Mom momeCA mcamfluuw>om Hmuou coma mo mumEEdm .NNI>H mqmfle 246 TABLE IV-23. Selected operating data of The Fair and Keelim 1945 1946 1947 1948 1963 The Fair, Total Sales, Fiscal Year End, 1/31 of year following. (Index: 1946 =100) 73.8 100.0 102.3 114.6 121.9 The Fair, Net Profit %.of Sales, Fiscal Year 2.27%. 5.60%. 3.97% 2.63% N.A. End. 1/31 of year fol- lowing. Expressed on Index: 1946==100 40.6 100.0 70.9 54.2 47.3 Keelim, Total Retail Sales, Calendar Year (l946==100) 64.9 100.0 128.1 140.1 201.5 Keelim, Gen. Mdse, Sales, Calendar Year, (1946==100) 83.6 100.0 124.5 144.3 225.3 Sources: Sales Management "Buying Power Guide," Keelim News, Federal Trade Commission; and Market Publication No. 1, August 28, 1963, and August 29, 1963. 247 .mHmHoan mcHE 0cm Eumm bmooxm mHmHOQMH 0cm mo>HumHomo >cmEmHow©cm .cmEmummuuxxx .mOH>umm umnuo cam oHozmmsoz mum>Humrr .mwamm ocm .HOOHHOHO .Hmaummmcma .Hmconmomoumx m H w H m H rermnnmxuoz {lb "ucmEEoo "ucmEEOU Hmscmz mo $.0HQ o m H m H m H *rmmumxnoz "ucwfieou «ucmEEOU moa>nom mo $.0HQ n H m - . 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His wide assortments appealed to families already established in that region and also to the large number of immigrants then settling there. He guided himself by a three—point credo: "Have what the peOple want and give them a good value; let the public know what you have and avoid misrepresentation; render good service."1 Within five years the firm exceeded $2,000,000 in.sales, a spectacular merchandising achievement. After 1905, members of lower income groups and immigrants occupied the major residential areas of Newtown, replacing many well—to-do Mayfield customers who had moved to the Bayhill section of Freeport. Despite these changes, Mayfield's continued its dynamic grofith; by 1917 it had lMarket Publications files of clipping on Mayfield's. Dates on some of these are not legible. This particular reference contained a statement of the founder's principles. 252 253 quadrupled its revenues. Throughout the World War I period and during the 1920's, the firm increased its share of the total Freeport market. In 1922 Harry Mayfield, who succeeded his father as president, sold the controlling interest in the firm to the American Mercantile Company. He remained as active president for the next ten years. Interviewees frequently suggested that the post- World War II management found it necessary and desirable to alter the merchandising direction from the one taken during the previous fifteen years. Further, interview data suggest that the present management executives at Mayfield's claim that their practices and policies were innovative. However, a historical review of the company indicates that the manage- ment of change in the 1925 to 1945 period affords a closer parallel to that of the 1945 to 1965 period than the inter- viewees realized. Profitability.--Throughout its 93-year history, Mayfield Brothers has always produced a profit. During the 1920's, when several mercantile firms merged in a pattern similar to current industry trends, the Mayfield net profits exceeded industry averages. These performances induced the American Mercantile Company to purchase control of Mayfield's, as noted. During the 1930's, despite depression conditions, the firm earned a profit. The performance in 1936, for example, when measured as a percentage of sales, approximated 254 the profits of 1946, as shown in Table IV-19.l This profit habit was to have profound effects upon the successive man- agement after 1945. Adjustment for volume.--The Mayfield family manage— ment believed that the road to profitability was called Volume Avenue. They adopted diverse merchandising tactics in order to remain on this road. At one moment the firm Sponsored innovative ideas in merchandising by means of institutional sales promotion events. At another moment Mayfield's engaged in the most intensive of price promotions to induce immediate response. It never lost its zest for new and exciting merchandising ideas. For example, in 1930 Mayfield's advertised ciga- rettes at the lowest price in Freeport. Thousands of peOple tramped through the store to reach an obscure location. Dur— ing the 1930's the store was frequently sued for its price- cutting practices, especially on such classifications as liquor and electrical appliances. In 1932, to stimulate sales, the store conducted a campaign to sell men's shirts outside of business hours. It paid its employees on a piece basis to sell the Mayfield brand of shirts at $1.00 each to friends, neighbors, and relatives. From one Sunday neWSpaper lMayfield's has been a leading profit producer since 1950. Source: Market Publication No. 1, March 9, 1966. 255 advertisement the company sold 5,000 comforters. Throughout this period customers continued to believe in Mayfield's integrity. In addition to the use of price-competitive tactics, Mayfield's also sponsored a number of institutional events. In 1934, Charles Bletter and Company, a nationally known converter and stylist of piece goods and home furnishings merchandise, selected Mayfield's as the pilot store to test a program of advertising, displaying, and selling a series of confined prints destined to be distributed on a selective basis. The store also Sponsored a "Made in America" store— wide promotion. Mayfield's also managed to stay in the public eye and earn press plaudits in 1937 for its exhibi- tion of modern American-designed, home furnishings in model room settings within the store. Mayfield's had established a paternal relationship with its employees. When union overtures were first made to Mayfield workers during the 1930's, the management had no objections: "Happy employees make it easier to secure volume." Later, the company vigorously Opposed the union which had been selected by these employees. Personnel costs resulting from unionization were to have a profound effect on merchandising strategy. As a result of these tumultous merchandising and personnel policies, always stemming from a basic quest for sales volume, the public regarded Mayfield's as a "bargain, 256 promotional, exciting store." A veteran buyer, Mr. James Reba, commenting on a branch store Opening in 1952, sum— marized how the public viewed Mayfield's: There will always be many customers who remember you as you were. When we Opened our branch in suburban Middletown, in 1952, the people there remembered us as a circus-tent, promotional store and they eXpected bal- loons, and popcorn, and door-busters. It took six months in Middletown before the customers realized we were a changed store. For a while we wondered if we had made a mistake. But now they like us because we have what they want and we have educated quite a few custom- ers who weren't accustomed to our kind of merchandise.1 Adjustment for changes in demggraphy of demand.-— Chapter One refers to the NICB finding that the escalation of quality of demand constituted the major change during the 1950-1960 period. A nationally known sales promotion direc- tor, Kenneth Collins, reached a similar conclusion about the entire 1910-1960 period. Commenting on the sweeping rever- sal of attitude toward standards of taste, he wrote: The stores of 1910 sold an astonishing amount of junk and simply reflected an appalling level of pOpular culture. Merchants didn't conceive it might be profit- able to educate peOple to want something better. They finally set out to train the public to buy better styled merchandise because competition was extremely fierce and the way to beat competition was to Show something better, somethiBg different, and incidentally, something higher priced. er. James Reba, buyer, domestics and linens, May— field's, interview, April 26, 1966. 2Market Publication No. 1, July 13, 1960. 257 The merchandising of housewares during the first two decades of this century illustrated Mayfield's attempt to trade up and to elevate taste levels. In commenting on the retirement of a veteral merchant, a 1928 trade journal reported: During his 41—year Mayfield association Alexander Lewis was a keen student of changing economic conditions and a close observer of the demands of the ever—changing clientele which, as the surrounding residential terri- tory became more exclusive, the Mayfield store attracted. In fact, it is to the anticipation of these changing demands, and the continuous maintenance of complete stocks of style and quality merchandise to meet these demands, even more than rightly priced merchandise, that Mr. Lewis attributes the success which he has been able to attain. Much of the stocks comprised imports from widely scattered regions of the worldi representing selections made by Mr. Lewis himself. The drive for fashion distinction also has historic roots at Mayfield's. In 1928 the management appointed. Winthrop Berner, a well-known advertising agency executive, as Publicity Director to increase emphasis on style and to focus public attention on the store's activities, including the lO-store addition to the main building scheduled for a 1930 Opening.2 One of his first steps was to publish a full-page advertisement informing the public about the store and indicating what the Mayfield mission was: lMarket Publication No. 1, November 10, 1928. 2Market Publication No. 1, November 5, 1928. 258 In this day and age of "new styles" we have a responsibility to offer styles based on carefully planned, advance studies. We thereby provide you with "style insurance."l Berner organized a bureau of eXperienced stylists to coordinate and develop fashion awareness among sales and dis- play personnel in the ready-to-wear, lingerie, accessories, home furnishings, and piece goods departments. The trade press, in August, 1929, commented on this campaign for fashion leadership to which the firm had allotted 10 percent of its total advertising eXpenditures: This store is seeking 100,000 style-wise patrons of comfortable means, the type concerned with fine discriminations of taste and quality and equally interested in ShOpping convenience and sensible econ- omies. This seems to be the store's aim during the present trading up movement. other events, as well, exemplify a strategy stress- ing trade up and merchandise alertness. When the Prohibi- tion Amendment was repealed, the store was one of the first to offer bar accessories, featuring exclusively designed furniture and glassware. When television was first intro- duced in 1939, Mayfield's hailed it as a practical adjunct to selling and eXperimented with it as a sales promotion medium. It also advertised sets ranging in price from $189.90 to $540.00. lIbid. 2Market Publication No. 4, August 3, 1929. 259 To assist customers in selecting home furnishings the management appointed five departmental home advisors to increase its Customer Counseling service. Each department established a private office where the customer could dis- cuss with a specialist, her needs from kitchen shelving to slip covers. In April, 1941, the store opened its All-In—One Deb ShOp, one of the first ShOpS in the country aimed at a specific age and life-cycle group. The new division, a series of shops within one department, included all outer apparel, intimate apparel, shoes, millinery and sportswear. Store policy required that all merchandise be purchased from junior merchandise makers only.2 In 1942 Mayfield's introduced the gallery diSplay technique to publicize and sell home furnishings. A group of beautiful wallpapers and fabrics, table linens and fashion accessories, all designed by a famous contemporary artist, keynoted the exhibition. The fabrics and wallpapers used in room settings complemented a new group of modern furniture in bleached birch and dark mahogany veneers, all presented for the first time at this show. Throughout its history, Mayfield's never refrained from continuously innovating and adopting new methods and 1Market Publication No. 7, February 16, 1942. 2Market Publication No. 1, April 8, 1941. 260 -deas:thoth Operations and merchandising. It was the First Freeport department store to install a passenger lrwetor or an escalator, or to use automobile delivery ser- ice; it‘was also the first to try a double—page newsPaper chmutisement. In COOperation with the city's Department of ducation it established a continuation school for junior nployees. In retrospect, these merchandising ideas and pro— :ams are seen to have been significant; they illustrate 1e innovative character and dynamic posture of this firm. Iring a later period of elegance they were to be repeated '.Mayfield's and to be eagerly imitated by other stores .roughout the nation. External Environmental Changes: 1945-1965 What were the conditions of demography of demand d of competition which management encountered from 1945 1965? The purpose of this section is threefold: to nzribe these changes in the environment external to May— :ld's, to eXplore how management evaluated these changes, limo eXplain those decisions of management which altered : Mayfield merchandising strategy. Changes in demography of demand.——Tab1es A, 1-5, enudix, summarize population and income changes in Free- t: frtxn 1945 to 1965. Although a great portion of the 261 hwyfiahianalysis concerns the Newtown section, the data for metropolitan Freeport were used as a comparison base because Dwyfiehrs continues to draw a significant share of its business from the total area.1 Freeport population increased prOportionately less than any of the four areas studied, as can be seen in Table A-1. This is partially due to the large absolute pOpulation base in 1946. Also, great numbers of people who moved to suburban and other metropolitan areas are not included in the statistical definition. During the twenty post-war (ears, large numbers of people moved from Freeport. However, aany immigrants and residents from other sections of the Iation continued to settle in Freeport, as well. This latter fact undoubtedly accounts for data evealed in Tables A-2 and A—5. These show that total net ffective buying income in the Freeport trading area in- reased proportionately less than in the others throughout he 20 years. Table A-5 shows the bimodal nature of the 1come distribution changes. This fact bears significantly 1 the Mayfield merchandising strategy. .As noted, both the Maverty range" and the "moderate—to-wealthy range" increased 1The differences in the variables are: population, IMHKNMH commenced a decline in 1955, reaching in 1965 only .2 percent of its 1946 base; net effective buying income, 0.3 percent of its 1946 base by 1965, in total retail lesn .l69.6 percent of 1946; and, in general merchandise les, 145.3 percent of the 1946 base. 262 mOpGNfiOnately more in Freeport than elsewhere, including ;heIhfiied States as a whole. The number of households eporting an income of less than $2,500 in 1965 was 76.8 ercent Of the number with similar incomes in 1955 while 52.8 percent of the number with incomes of $7,000 and over r11955 had that amount in 1965. Tables A-3 and.A-4 show that Freeport total retail 1d general merchandise sales did not increase proportion— :ely as much as in other cities or in the United States. Mayfield executive commented on the significance of both e retail sales and income increases shOwn in these tables: There was and is and will be for a long time a very large market which such people (more SOphisticated and/ or higher income customer) provide and of which we at best can get only a share. Changes in competition.--It is quite obvious from a foregoing that an upward escalation in the quality of >ds demanded did occur in Freeport. Furthermore, from the iespread population dispersion as well as the extremities change in income distribution, it is clear that both tra- Lonal and.discount department stores could flourish. (Shanges in traditional department stores.-—Within epcrt two important changes had to do with the number of res in Newtown and the develOpment of branch stores. As luau Gerald Adams, vice-president, research director, fielxi's, interview, March 21, 1966, and correspondence, fli 22, 1967. 263 to the first, three large department stores and three tradi- tional Specialty stores in the Newtown section of Freeport went out of business. Regarding the second change, the remaining nine major department stores Opened forty branch stores throughout the Freeport trading area. However, it was not until late 1965 that any retail firm challenged the supremacy of Mayfield's in its main store geographic trading area within Newtown. And then the challenger was Kleever— ing's, a Freeport promotional department store which had never before located in the Newtown section. Changes in discount department stores.-—Freeport supported several low-margin department and specialty stores it all times. By virtue of its geographical location Free- >ort was invaded by discount department stores soon after ;heir start and immediate boom in the East. During the next .wenty years virtually every member of "The One Hundred Mil- ion Dollar Club" among discount retailers had Opened at east one store in Freeport.1 By 1965 one of these trans- r an.increasing number of its customers, be dynamic and l"Census Report of the Discount Store Market," Imcount Store News, published by Lebhar—Friedman, publish— s of Chain'Store Age, New York. Undated, p. 3. 2M5; Adam Rudderham, Chairman of the Board, May- eald's, interview,.April 26, 1966. 265 :teadily improve its position, build for the future, and ~arn a good profit, particularly so that it could provide 0r investment needs. The new management challenged four asic assumptions upon which the previous strategy rested. n effect, these challenges posed alternative strategies for he new management. The first assumption it questioned was whether ncreased sales volume was the only avenue to increased rofits. What happens, it asked, when revenues fail to out- Lstance rapidly increasing expenses? Second, management wondered if Mayfield's should >ntinue to seek patronage from all income groups in all of reeport. Was it worth all the costs required to secure Isiness from the entire Freeport market? One veteran mer- .andiser, who joined Mayfield's in 1950 after a career with her retailers in Freeport, commented on the economic and mographic changes as well as the policies adopted since 45. He said: After the war Mayfield's had to decide whether to return to the 1930's and try to slug it out on a volume basis and attempt to attract customers from the entire rmetropolitan area or whether to curry the favor of the :market which surrounded its store in the Newtown sec- tion. To generalize in very broad terms our neighbor- ?hood.had changed from a slum center to a luxury area. 'The simple fact is that thelchanging customer could not find a changing Mayfield's. lReba, 0p. cit. 266 Third, the management questioned whether Mayfield's ffered a consistent assortment of merchandise to the market tynesumably served. One issue was whether it could prof- :ably continue to be both a promotional store and a fashion :ore. A corollary issue was whether it could offer wide ssortments of goods, including basic stocks and fashion and Iusual merchandise, and simultaneously continue store-wide Iles and other price-oriented promotion events. The fourth basic assumption the new management ques- Ioned was that low price necessarily constituted value. .ey asked: does value always or only mean price, and the eapest price at that? Aren't all customers interested in lue? Perhaps, the management reasoned, value includes the citement of ShOpping in a well—lighted, pleasant store ich dramatically diSplays merchandise of superior design. rhaps s0phisticated merchandise in good taste is as mean- gful to some customers as price might be to others. Inter- ewees at Mayfield's insisted that "value" is the paramount :d, whether in Freeport, Monroeville, Keelim, or any com- 1ity, large or small. "The key," they said, "was to find : what value means to the market you intend to serve." Throughout the interviews I observed that executives :untarily compared the current administration with the 1-While several executives reiterated this theme the .ct:portunities inherent in a changing demography of demand ;he resurgence of Newtown, the World War II conditions) nor .d it prepared as well as it might for the post-war oppor— Inities and competition. Also, it had failed to upgrade :rchandise and to update physical assets, to heighten yployee morale and to prepare for its own succession. lRudderham, 0p. cit. 268 The enthusiastic members of the present management tendedthpoint with pride to what has been accomplished shmx21945. It was claimed there had been many mistakes in Umzadministration of eXpenses as well as in the judgment about eXpense appropriations. For example, merit increases for wage-earning employees had been withheld unreasonably. daintenance budgets had been reduced in the face of a declin- .ng capital replacement program. The present management "ectified these past mistakes. However, in their eXplana- ion of these events, they tended to overlook some of the ccomplishments prior to 1945, including the uninterrupted rofit performance during the 1930's. The Board of Directors estimated that the organiza- ion and strategy would not sufficiently meet the demands uich retailing would require in the future. The board (pected a projection based upon a clearly defined set of >jectives, which , in turn, would be related to forces Ianging internally and externally. The board also ques- .oned.whether increased sales volume alone could provide an <:reasing profit performance. To define clearly what objectives it intended to rsue and by what means it prOposed to execute a merchan- sing program, the new management initiated an information— therdJng system which it continues to employ currently. are executives made available to me certain customer rec- is for the past fifteen years. Management used three 269 mednflb to gather information by which it could evaluate the store's market position . First, executives sought opinions of all within and.outside the store: the customer at the counter or the acquaintance at a social affair. Second, executives con- stantly examined credit sales records. They related the kinds, quantities, and price ranges of purchases to the place of residence of these customers. They also related these variables to presumed income and occupational data. Phe word "presumed" is used advisedly. The firm did not :arry out formal research to ascertain the data for all of :hese variables. Rather, it attempted to alert the execu- ;ive group to the significance of each variable and to the ray all were related. The third method was to conduct a iennial survey of customers actually ShOpping in the store. sing a simplified questionnaire, members of the executive raining squad interviewed customers in both the Upstairs ad Basement stores. Executives reasoned they could in- rease profitable volume if they could only merchandise more Efectively to those who already were their customers. giidence of Customers To find out where its customers resided, the store .vided the total Freeport trading area into eight sections. e cxf these was Newtown, which, in turn, was divided into gtn: zones. The store interviewer asked the customer in 270 whnfilsection or zone he lived and where the customer or famtuzhead worked. The store then related such data to neWSpaper circulation and merchandise delivery range. The initial survey revealed that 50 percent of the UpsUfims customers resided in the Newtown section of Free- port. In the latest (1964) survey 57 percent reported they :esided in the Newtown section. Management was impressed from the beginning by the fact that the majority (70 percent) >f the Newtown customers lived in just four of the eight .rbitrary divisions in which the management had divided ewtown; this meant that of 100 customers in Mayfield's pstairs Store, 50 resided in Newtown and that, of these, 5 lived in four zones. The most recent survey (1964) shows flat the same proportion of Newtown customers live in these ame four zones. The trends are similar among customers in Mayfield's Isement Store. Whereas in the initial survey 40 percent of Ie Basement Store customers reported they lived in Newtown, e latest survey shows 44 percent as living there. Again, ese same four zones in Newtown accounted for 28 percent of tal Basement Store customers initially. Now, 31 percent port residence in these same four zones. It is true, of course, that a current evaluation at iJuzlude the impact of branches on parent stores as well on competitors. However, as shown below, some 68 percent Mayfield's total current volume is generated in the Main 271 Shuxaeven though it has Opened an additional three branches Since the initial survey. .Also, both the population in- :rease and the mounting economic affluence have enabled more :itizens to live in the high-rent districts located in the four zones from which such a large percentage of Mayfield's :ustomers come. prk Address There has been a remarkably consistent relationship etween Mayfield's customers and their work addresses. pproximately 70 percent of the customers either live in or ork in the Newtown section of Freeport, and this proportion as persisted since the surveys began. In the latest inter— Lews, for example, of all the customers surveyed in both 1e Upstairs and Basement Stores, 52 percent said they lived I the Newtown section, while 18 percent reported they >rked in Newtown but lived elsewhere in Freeport. éanSportation to Store 'While customers report they use various methods of aansportation to arrive at Mayfield's, one fact seems to :nrelate:with many of the foregoing disclosures about the rmmgraphy of Mayfield's clientele. Since the surveys began, prrnchnately 25 percent of the customers say they walk to sa.store, an unusual circumstance for a metrOpolitan area. is provides a basis, of course, for understanding the :eedingly large percentage of total business generated 272 frmnairelatively small geographic area such as the four zones of the Newtown section. Customer Shgpping Preferences The store also learned from its research that custom— ers living in the Newtown section were ShOpping for many of their home furnishings, apparel, and children's and men's wear in other sections of the city. By analyzing where those customers ShOpped for particular merchandise, Mayfield's learned of its own merchandise deficiencies. These findings influenced the ultimate Mayfield strategy for the next 20 years: to become and to call it— self a Neighborhood Store. It is interesting to note that, except during the 1930 to 1944 period, when it attempted to :ompete on a city-wide basis for sales volume, Mayfield's Ilways had been a neighborhood store. Economic Significance Mayfield's surveys did not provide economic data. Lanagement eXplained that real estate values, taken as a Iarometer, indicated that relatively high-income or wealthy amnilies resided in zones surrounding the store. Eternal Variables The customer surveys revealed data concerning inter- :fil'variables. One of these was that customers, as previous- y'ruyted, shopped at Mayfield's only for certain classifica- irnus but were traveling to other stores, often at greater 273 dishnmes, to search for other classifications. Mayfield's Saxkednmny of these classifications, but obviously did not Offer what the customer wanted. The second variable was publicity. The Newtown sec- tQMIaccounted for approximately 10 percent of the total Freeport trading area population. .As already explained, 50 percent of Mayfield's customers lived within the Newtown section. Since neWSpaper advertising rates were based on area-wide circulation, management realized its publicity :eached many who were not or probably would not be customers. The publicity director eXplained: An important revelation was that our neWSpaper advertis— ing was very wasteful and therefore very eXpensive. We paid 100 percent rate to reach a very small percentage of those whom we regarded as our customers. Several meanings were clear. First, we would have to drasti- cally limit our advertising. We would have to find other methods to obtain business without neWSpaper eXpenditures comparable to other stores. Second, we had to use limited advertising to accomplish goals other than securing tomorrow's business. Third, we needed to find goods which would appeal to those whom we found by our survey to be our potential customers. :ganization The surveys also revealed customer complaints about mxr service and inattention by salespeOple and nonselling Exhoyees. Management concluded it must immediately insti- te za.retraining program for all personnel. Two reasons ¥Miss Sarah Alexander, publicity director, Mayfield's :erviews, March 22, 1966; and, April 26, 1966. 274 are cited. The combined payrolls were the largest item of (pense. Also, it was necessary that the employees, whether 1 selling or in delivery service, exemplify the new May- ield's and provide a level of service befitting the contem— lated level of merchandise quality. .anagement Alternatives and Decisions Faced with the revealing data obtained from customer research.and the need to devise a more profitable strategy, management perceived it would be necessary to formulate policies bearing upon three questions: what was Mayfield's target market to be? what kinds of assortments should it offer? and, on what basis should the company price these offerings? Interviewees eXpatiated on the alternatives perceived by management concerning each issue. Target Market The management decision regarding the target market differed from Joseph Mayfield's original credo. The founder intended to reach a very wide spectrum of the market--in terms of income groups, merchandise price ranges, and taste levels. The new strategy was to reach a very narrow Spec- trum of the market. The vice-president in charge of re— Sear0h,buu Gerald Adams, summarized this objective: We set a long-range trading up goal for ourselves 00000 was completely independent of outside conditions andvms in no way deflected by outside conditions). Neflflwr population changes or income changes or discount demntment store competition affected our course. Natu— raLUn we did go along with increasing resource cost changes. 275 In other words, we were aiming to get more and more business from the more sophisticated and/or higher income customer. Incidentally, not all customers who like our better taste and more SOphisticated style merchandise necessarily have higher incomes and not all families with higher incomes necessarily like our SOphisticated merchandise. We wanted a larger share of this market not because it was increasing, but because it was large enough as it already existed. And, of course, we wanted tO create a store to serve this market because if we did our job well we would be outside the price-competitive area. A few percentage points downward or upward in income or pOpulation or blue collar vs. w ite collar does not make us jump through a new hOOp. This generalization must be tempered, however. Surely the successful strategy devised by Mayfield's rested on a very accurate analysis of its external environment and a reallocation of resources and manpower in order to seize the opportunity to fill a void in the marketplace. Merchandise assortments.-—The store also had to decide whether it would offer the same variety of goods, and, also, whether to increase or decrease the assortments. In :urn, these decisions required some estimate of the effects qx 2 profitability as well as upon customer satisfaction. 0 avoid competition which could delay its march on the new rofit path, and to adjust to a changing demography of amand, Mayfield's decided to trade up and to alter its Iriety and assortments so that eventually it could stock, partment by department, what customers would want tomorrow. lAdams, op. cit. 276 This policy required emphasis on quality rather than on price. One buyer recalled: During the next ten years (1946—1956) we traded up, sought exclusive and better goods. Even when we ran a promotion, a close-out, the goods had to be the best quality available. Fifteen years ago (1950) I would have used price as the primary ingredient of value.1 In establishing a policy by which its merchants could plan for the store's inventory assortments, the man— agement decided that profit factors must become the basis for adding, subtracting, or modifying a classification. EXpenses differed with each classification. Large bulky merchandise, such as furniture, required considerable inter- nal handling and delivery to the customer. Certain domes- tics and soft home furnishings classifications, as then merchandised, required or depended upon extensive neWSpaper advertising support in order to create demand. In the face of limited physical Space, the merchandising of these kinds of classifications tended to diminish the gross margin con- :ribution per square foot. Also, these goods inhibited the Ierchandising of higher gross margin goods which often equired more room for dramatic display. On the basis of riteria formulated from this kind of analysis, Mayfield's ventually eliminated from the inventory many classifica- Lons or modified the assortment selection within the clas- fications. One of the first tactical moves by the new er. Lester Roberts, group merchandise manager, [field's, April 26, 1966. 277 management was to jettison millions of dollars worth of unprofitable volume . Pnkflngypolicies.—-Could or should Mayfield's con— tinue hagmice its merchandise solely on a competitive basis, tflwt is,:h1accordance with policies set by rivals? The man- agementckmided it could not, especially at the lower ranges, becaumatx>do so would preclude a greater gross margin. The president elaborated: Necessities dictated by community characteristics forced us to adOpt certain policies which either cut down our volume of business or made it difficult to increase the volume. But these were negative defensive moves. The constructive steps were to get more and more customers to prefer our store to our competitors. Some of the ways others did it successfully would be suicide for us. We needed to build a particular char- acter, one which said, "fashion, quality, good taste," one which would satisfy community needs while it pro- vided us with an Opportunity to build a profit. Cer— tainly, we knew that a highly promotional store built on buying the next day's business with low margin mer- chandise had neither met community desires nor satis- fied profit requirements. lRudderham, Op. cit. 278 mplementation of Merchandising Strategy The first step in changing the target market was to reorganize the peOple and the functions in the company. The second step was to reduce eXpenses, and diminish the number Of merchandising events, and eliminate some classifications In the third step, Mayfield's capitalized on of goods. The second strengths or advantages it already possessed. and third steps illustrated defensive and offensive strat- egies, respectively, as defined in Chapter One. Reorganization To improve profit performance management reorganized the talents and resources of the firm, eSpecially in three functional areas which affected merchandising strategy. and personal ['hese three areas were management, personnel, elling. .Management.--Because earnings result from the differ- the new pres- ices between gross margin and total eXpense, lent divided the merchandising and eXpense responsibilities tween a two-man leadership. He assumed the title of gen— al manager in addition to the presidency and directed all and control. :ivities relevant to personnel, operations, new associate assumed the titles of chairman of the rd and merchandise manager and directed all buying, pro- Lon, and selling functions. 279 Within the merchandising function they placed profit responsibility closer to the selling situation. The presi- dent commented : The solution lay in increasing the strength of buyers and placing merchandise men as divisional heads We believed buyers were at the vice-presidential level. they constantly interpret the people for two reasons: what the customer wants as well as what and who in the market can satisfy that want; and, the buyer is the logical executive to help us lick the eXpense problem. Both the merchandise manager and the buyer, by their decisions and activities, create a great many of the eXpenses a department store incurs. We hoped to orga- nize the functions so that both the merchandising vice- president and the buyer could act as product managers.l The firm eliminated the traditional role of divi- sional merchandise managers. Buyers reported directly to vice-presidents responsible for merchandising five groups: women's ready-to-wear, men's and boys', children's wear, hard home furnishings and soft home furnishings. The objec- tives were to delegate profit responsibility and to eXpedite and assure communications from the tOp two executives to the Eboor level, where sales were generated and eXpenses con- ;rolled. Constrained only by store objectives, buyers were to ontrol their own Open—to-buy and expense budgets. Manage— ant apportioned advertising budgets to the merchandising .ce-presidents rather than to the publicity division. lIbid. 280 Management also reorganized the staff functions to provide capable Specialists who understood retailing and who could provide assistance so that top management and buyers could accelerate sales and profit performance. The way in which this change assisted management to move toward its Objective can be illustrated by the changes in the personnel function, and, in turn, in the personal selling function. Personnel.—-Although confronted in 1945 with a mili— tant union, the management fundamentally believed it could improve the relationship between employer and employee. The president sought and found an outstanding director of person— nel whose previous career and reputation in retailing eminently prepared him for this particular challenge. The instructions to him were simple: find some basis of rapport Iith the union leadership; attempt each day to close the gap etween management and the employee by one inch; and, hrough leadership training, motivate the individual em- Loyee, particularly the salesclerk, to improve her per— Irmance. This new director of personnel reorganized the func- Dn in two directions. He combined employment (recruitment i hiring) and training functions under one administrative ‘icial. He delegated direct supervision of salesclerk ivities to the buyer, thus consistently following a rious reorganization of merchandising responsibilities. basic assumption was that the buyer, responsible for the 281 controllable salesclerk payroll eXpense, could most effi— ciently manage the function if the personnel department acted only as a supporting arm. Further, since the buyer was the closest to the salesperson, both physically and in common interest, he could best counter union attempts to enforce tight seniority provisions in the union contract which enabled some incompetent employees to retain their jobs. Commencing in 1953, members of the executive train- ing Squad attended executive round-table discussions on good leadership. The objectives were twofold: to help develop skilled conference leaders, and to eXpose potential execu- tives to realistic business conditions. These discussions employed the case method of study. Each participant, includ- ing the executive trainee, brought into the session an actual case which he was currently handling. Personal selling.--Buyers and assistants conducted both formal and informal meetings to inform salesclerks about all merchandise classifications. They emphasized [uality rather than price. One buyer commented: JFor years we taught the customer to buy towels durixn; the annual events--Anniversary Sales, White Sales, Department Promotions, Store-Wide SaleS--now we had to convince them to buy towels and Sheets and curtains on the merits of fashion and quality. But first we had to retrain our salesclerks to sell on that basis. In addition we were attracting a ser- vice conscious, service-demanding customer for these 282 betUn:goods. We think the very presence of these cushmwrs helped to raise the standards of perfor- mance . The store provided Special training classes in dic- tion, grooming, and general salesmanship for those who destnuithem. In addition, many employees responded favor— ablnyJa gradually changing internal environment--improved anuiredecorated store interiors, cleaner and brighter; mer— chandise of superior quality and fashion; customers who acted as if they came from a "gold-coast" area, which they did. In Short, these employees improved their performance by virtue of eXpectation and aspiration. To assist buyers in their managerial roles the store :ontinually ShOpped employees by means of outside profes— ;iona1 service agencies. Complete reports were filed with ,he personnel department whose officials, after review, con- erred with buyers about how to encourage employee self— nployment. Personnel and buying staffs were admonished to aud and.criticize employees as warranted.by individual shop- Lng reports. "Defensive" Moves chhandis ing Changes : and to establish a firmer 1k) solidify its position, sis of trading up, and to appeal to a newly-defined market gment, Mayfield management executed a series of "defensive" lReba, Op. cit . 283 {Muse of these were reductions in eXpenses, reduc- moves. and changes in tions in the number of merchandising events, classifications and departments. Expense reductions.-—No longer obsessed with a self— Cbmandtx>attract traffic from all of Freeport, convinced that advertising had been eXpended on wrong items to the wrong audience, management drastically limited its publicity It reduced the newspaper budget by 50 percent. eXpenseS. Is the item Monies were allocated on a twofold criterion: in good taste and distinctive? Will it help to enhance the total Mayfield Company? Allocations based on sales volume or on past performance were discontinued. The delivery expense, as noted, was unusually bur— l densome, amounting to 1 percent of sales during the 1940's In its desire to Secure volume, the firm readily delivered advertised Specials, whether they were groceries or furni— Usually these specials were merchandised at low gross ture. After 1946 the company margins, thereby depressing profits. lecided to curtail advertising eXpenditures for such merchan— lise sand to simultaneously campaign vigorously to encourage ustomers to carry their own parcels rather than request :ore delivery service, a distinguishing feature of depart- :nt stores. lmfixrket Publication files, no Specific publication date identified. 284 Thus, throughout the organization, and especially at the buyer level, Mayfield's educated all personnel to think Of the eXpenSe implication of every decision concerning procurement, potential gross margin, cost of handling and selling, and final delivery of merchandise to the customer. At the present time, there is posted in every buyer's office a diagram Showing the exact cost of various size packages and wrappings used for delivery to customers. Every two weeks a detailed profit and loss statement based on con- trollable eXpenses is given to each buyer. Special events.--Special events such as store-wide sales require large advertising eXpenditures and usually some added inventory investment. Executives claimed that :he store discontinued most of these events in order to arry out the new merchandising strategy. By 1952, a trade ournal authority confirmed that Mayfield's had gradually iminished the amount and frequency of these store—wide :cmotions. He wrote: As a result of these policies the store is con- sistently beating Federal Reserve figures for its trad- ing area and in place of a middle-of—the—road type of trade and below, Mayfield's enjoys a more profitable moderate-to-better business. But it Should also be remembered that its location in the Newtown section of Freeport enabled it to obtain a bigger portion of the "upper-crust" business available. These conditions, coupled with its eXpense-cutting drive which is in- creasingly effective, eXplain why this store is per- forming better than most in the area. lMarket Publications No. 1, September 22, 1952. 285 Merchandise classification and departmental changes.-- After 1945, Mayfield's attempted to eliminate or minimize troublesome departments, regardless of kinds of merchandise under consideration. The primary criterion was whether an executive could find a way to merchandise the classification profitably. As total profit increased the firm augmented its criteria to include taste, that is to say, merchandise was added, retained or drOpped on the basis of whether it could profitably meet the Mayfield standards of good taste. Because of the prevailing eXpense structure, as noted, it was difficult to merchandise some hard goods clas- sifications profitably. The store decided it would no longer 3e enslaved to volume and percentage of volume increases. lather, it would select merchandise which enabled the mer- hant to secure both higher dollar unit sales and higher ross margins. Mayfield's also decided "to follow simple :orekeeping methods and not to buy phony sales merchandise >r big promotions." A chronological enumeration of some classification anges and the elimination of whole departments illustrate v the firm implemented these policies. In 1947 the store lounced it would discontinue basement men's dress and work Ithing, floor coverings and furniture at the year end. n asked if sales for these categories had been unsatis- tory, the store president responded: 286 Not necessarily. It is just that we can utilize the space to eXpand other departments which are more essential to a basement operation. We will give up more than a million dollars in volume. But by utiliz— ing this Space we will be able to eXpand our ready- to—wear and related departments and we eXpect to in- crease our total basement profits as well as build a steadier business.1 In 1959 Mayfield's decided to abandon major appli— Ince categories but continue to sell and service such electronics as television and radio. The president stated -t did not make much sense to continue the big appliances since the store didn't run a promotional business. Adjusting to a recent competitive change, the firm 1ewed to its own standards and objectives. Klevering's, a strong, local price-promotional group of stores, Opened a Oranch near Mayfield's main store. It sought dominance in :hildren's wear by competing with Mayfield's Basement Store children's departments. Upon reviewing its customer surveys, census data, and its own performance in children's wear, Mayfield's learned that an increasing prOportion of resi- dents in the immediate Newtown section were childless or had already raised families. Executives reasoned they could not profitably sell basement price ranges competitively with Klevering's but could meet the demand for style distinction and quality merchandise in its Upstairs Store departments. Mayfield's decided to eliminate children's wear in the lRudderham, op. cit. 287 Isement and to divert a portion of that inventory to the )StaiJHS departments. It reallocated the abandoned basement pace tag a newly coordinated women's fashion division com- risixm; intimate fashion departments, currently one of the trongest classifications for coordination and profit. Mayfield's merchandising of electrical housewares xemplified.a policy which shifted from deemphasis to mphasis as the buyers found a method of competing on a rcfitable basis. In the annual white goods and housewares ale in Spring, 1956, the buyer deleted electrical house— Iares from the 36-page newspaper supplement. The reason 'ivenIyas that this classification was vulnerable to low— Iargin competitors. There was no gain, he pointed out, in spending good money to achieve unprofitable volume. However, .n the Spring, 1966, supplement, the buyer devoted three pages to this classification. The offerings, very competi— :ively priced at profitable gross margins, represented the purchase of a nationally-branded manufacturer's entire inventory at close—out prices or consisted of electical mer— chandise produced only for Mayfield's. (Klevering's also provided keen competition in electrical housewares.) Again, as in 1956, Mayfield's buyers avoided brands which might be found.elsewhere at lower prices. When it was deemed neces- sary to stock items such as the electric knife as soon as it first appeared on the market, the merchandising decision 288 simply was to meet the competitive price on identical merchandise. Through group buying Mayfield's could have obtained most favorable prices on many nationally branded prOprietary drugs and cosmetics. But it did not stock certain of these classifications because when competitively priced they did not yield sufficient gross margin to cover concomitant eXpenseS. Instead the company emphasized those national brands and its own exclusive brands of merchandise where it obtained adequate gross margin. Repeatedly, it secured one of the largest cosmetic volumes in the nation on a satisfac— torily profitable basis. The Basement Store paralleled the Upstairs pattern. It partially absorbed some of the lower price lines dropped by the Upstairs Store. A recent trade press report commented on this procedure: In a unique move Mayfield's will merchandise its basement division as a part of the upstairs store. This move culminates the long-range plan to trade up downstairs store merchandise to price levels often far above those of the average store's upstairs budget price levels. . . . Spokesmen feel it will make pos- sible further merchandise up-grading throughout the store, better allocation of price lines, better adver- tising coverage and professional buying abroad--where in some cases departments have been too small to do this efficiently.l lMarket Publications No. 1, November 15, 1966, p. l. 289 Two additional examples illustrate Mayfield's deci- sion to merchandise only those departments which could yield a profit or to modify a department so it could earn a profit. In its food Operation Mayfield's substituted one kind of Offering for another. It deliberately abandoned a million- dOllar grocery business and thereby jettisoned a profitless In its place Mayfield's gradually built a world- department. This sh0p now outdis— wide reputation for gourmet foods. tances the previous good Operation in profit and prestige and is consistent with the store image. After analyzing the unpainted furniture department, store executives convinced the buyer to discontinue certain :inds of merchandise which required eXpensive advertising nd handling and which, when priced competitively, yielded In their place, the buyer loss for the department. The customer ffered custom-designed unpainted furniture. »uld finish it herself or have it finished by the store's n craftsmen. In a smaller Space the firm now generates re profit and prestige than before. ghandising Changes: "Offensive" Moves Even as it compensated for and corrected weaknesses organization and high eXpenseS, Mayfield's also formu- 2d plans to capitalize on its relative strengths. One of e was its locational advantage, which had not been oited. Also, the management seized an Opportunity to 290 assert fashion leadership and to differentiate the store and its merchandise by distinctive diSplays. Fashion leadership.--Mayfield's has relentlessly Ixusuedtflm goal of fashion leadership on a store-wide basis "Fashion means good styling, good taste, and Fashion leadership depends, Since 1953. includes a bit of snob appeal." cme examfljye pointed out, on resource develOpment, coordina— tion,£nuiauthority. Buyers were trained to Seek distinc- tive merchandise for people who desired the unusual. For example, one official commented: It is not merely a question of going into the next higher, standardized, fixed price line. We do not pro- vide just the next better grade of white shirt. It could very well be the same grade, but a new and exclu— sive and more attractive style, color or fabric brings the shirt we introduce into a new price line. This is a process that is done not by science but by merchan- dising direction beginning at the tOp level and taught and permeated throughout our buying organization.l Resource development.--Many resources were reluctant .o sell Mayfield's, eSpecially during the period from 1945 (3.1952. Some famous brand resources in both apparel and ome furnishings markets, including Seventh Avenue manufac- Ibetter china and glass producers, for example, would Branded furniture irers, )t accept an order from this store. .kers anticipated price-cutting or unconfirmed orders or scontinued buying. There was fear among all these lAdams, op. cit . 291 esources that Mayfield competitors would discontinue their uyixm; if the resource sold merchandise to Mayfield's. To increase fashion emphasis buyers began to search car ideas and resources outside the domestic market. They knundjEurcpean craftsmen who could adapt Old World designs for the American consumer, thereby establishing new and .ndividual trends. They could price this merchandise on a Ioncompetitive basis and thus increase gross margins. The merchandising of imports has become a significant part of dayfield's and of other stores' assortments. Ironically, this movement arose partially as a result of domestic resource refusal to sell Mayfield's. In the president's words, "it took ten long years of struggle to achieve our present standing in the market." It is interesting to observe that Alexander's of New York is currently engaged in a Similar struggle to obtain merchandise for its new Manhattan store. A success- ful metrOpolitan price-cutter, Alexander's has invaded a wealthy area of New YOrk and hopes to establish itself as a purveyor of quality as well as price. In early 1966 the trade press reported that this aggressive firm, which had always reached projected sales goals in other metrOpolitan areas, had thus far fallen short of its planned goal. One >reason Offered was that pressure from Fifth Avenue stores upon local and national resources had precluded any 292 possibility that Alexander's could obtain apparel and other soft lines Of merchandise from those sources. AS Mayfield's fashion reputation grew with customers and as domestic makers learned that Mayfield's buyers could unhesitatingly contract for merchandise and would work unstintingly with the resource, doors previously shut began to Open. Resources wanted to sell to Mayfield's because of the prestige which accrued to them. "I knew that my business with the May Company, Gimbel, One supplier said: Allied, and Federated stores has improved because I do a big job with Mayfield's. Fashion coordination.--Management strengthened its merchandising organization by adding a specialized person called a fashion coordinator, who usually was an individual trained in the fine arts, with a business background includ- ing some merchandising eXperience. She develOped fashion ideas, as for instance, color, so that an item could be coordinated with a variety of other merchandise in a partic- ular theme. These fashion coordinators were trained to work vith a merchandising staff, to provide a fashion touch and feel, and to help the buyer find the unusual and unique, hereby increasing the customer's choice. As a result lIbid. 2Market Publications No. 1, March 23, 1965. 293 "thacushmer believed one person, not five buyers, had selaxedIflw assortment of towels and soaps, draperies and floor coverings, and had coordinated them in the bath ShOp."l Although Mayfield's was one of the first major storestx>deve10p foreign resources, it did not stage an immort:&ux until the late 1950's. The publicity director described the event: This became a total store-wide production. We printed Special boxes, wrapping paper, even a shopping bag without our name on it. The bag became a status symbol. Somehow thousands of people found out whose bag it was and the demand by shoppers from one end of the city to the other was unprecedented. Judging from both traffic and sales they stayed to see the Import Fair. When someone asked when we began to plan for this the president told them "fourteen years ago." It epitomized our point of view about a store: excitement, unusual merchandise in good taste, and of such quality that it will sell. In the home furnishings divisions the store set up completely new semi—annual exhibitions of decorative ideas, diSplayed in room models. In the ready-to-wear division, wepeating its 1941 innovation, it created a coordinated ShOp CHTEB Specific customer group. For example, for the junior- ized customer who was also a working and career woman, it )ordinated such items as coats, suits, dresses, and Sports— :ar in design features of color, Silhouette, and fabrics. llmiss Treva Ramy, merchandise coordinator, Mayfield's terview, April 25, 1966. 2Alexander, op. cit. 294 The intention was to provide accelerated service and easier ShOpping for the young career woman by collecting this fashion presentation in one location. huerviewee descriptions of buying effectiveness were corroborated by fashion press reports: .Axnsit to Mayfield's is almost as good as taking aqumu e tour of EurOpe. Imports from France, Italy, Spahm Bavaria and England range from home furnishings to flmxiand are displayed on virtually every floor of It is a highly commendable collection, the store. representimg the combined efforts of 40 buyers from 35 dufferent departments who covered more than 400,000 The biggest mules in EurOpe to make the Show possible. Helen Delaney, May- diSplay is on the eighth floor. has created room Settings field's interior designer, which, while designed for contemporary living, are inspired by ideas from the 15th to the 19th century. They include everything from a study in a villa in Tuscany to a Viennese Sitting room furnished in the Some of the furnishings on display Biedermeier manner. are antiques. Most were made eXpressly for Mayfield's in Europe. Those in the latter category are either line-for-line copies or so skillfully adapted that the change in scale is not noticeable. Fashion authorigy.—-Mayfield's attempted to estab- irfii itself as a fashion authority in all divisions, includ- Ig the basement store. As recounted previously, it re— albeit large volume, departments with aced unprofitable, nen's ready-to-wear and apparel classifications as early By 1952 the merchandising management of the Base-— 1947. each a .t Store had programmed 17 fashion promotions, lMarket Publications No. 1, June 11, 1955. 2Freeport News, September 26, 1962. 295 week-long event from 17 different departments. One year the basement division develOped an Italian-inspired "Capri" event. A merchandiser stated: We are seeking new ways to do business in our basement store. We have now made two Atlantic cross- ings, one to England, and one to Italy, to find appeal for the customer on some basis other than typical downstairs store stress on price. Mayfield merchandisers View fashion authority as a means to obtain improved markup. They regard this as one of the creative functions of their jobs. A fashion coordinator who had returned from an Asian buying trip just prior to the interview described this portion of Mayfield merchandising: We recently develOped a whole new, exciting busi- ness in emerald, sapphire and ruby fine jewelry. By buying the gems direct from a cutter and providing beautiful designs to skilled Hong Kong craftsmen, we end up with beautiful jewelry pieces on which we can take a much better markup than we could if we bought these items in the regular channels, for example, in the French and Italian jewel market. And we still can retail the items at considerably below the current retail market. Incidentally, in this price Operation *we added considerable new volume in high—priced‘mer- «:handise, which is the equivalent to adding higher price lines. By such means, we improve our markup and add to our reputation so that more customers interested in this kind of merchandiie come to our store. This is an art and not a science. The publicity director reiterated in an interview at the store reallocated its neWSpaper advertising to phasize its fashion authority. lMayfield executive (unnamed) , quoted in Market gications No. 1, October 26, 1953. 2Ramy, Op . cit . 296 We try to make our aims clearer by the items we promote. We do this by judgment, not by percentage. We will not promote the kind of item we are trying to drop regardless of the immediate sales potential. There the Side pressure of trying to sell enough is, surely, Yes, we review to justify the cost of a particular ad. our ads for a past season to see how well we have done regarding what we are aiming at. But as we shifted from the defensive to the offensive during these 20 years we diminished the sale and clearance ads. Fashion diSplay.—-Whenever they refer to "promotion Of merchandise," department store executives usually empha— notably neWSpaper advertising. DiSplay is Size publicity, At Mayfield's I found a mentioned but seldom emphasized. completely different program and utilization of display to carry out the merchandising strategy. "Taste in merchandis- ing also means how you set it before the customer" epitomizes the Mayfield belief and practice. As noted, the management determined in 1946 to reallocate monies from advertising to interior improvement. Management demonstrated its fashion leadership by skillfully integrating diSplay into the total merchandising effort. Executives were trained to look for, create, insist .pon an environment in which they could Show off merchandise 0 the best advantage. The research director reviewed the rcgress in this effort: lfle Inaintained a constant program of rebuilding and refixturing the store as well as providing the neces- sary lighting to make it match the merchandise char- acter we tried to create. To make this a practical reality, we set up a department of design which 1A lexander , op . c it . 297 participated in every physical change involving both fixtures and diSplay. We have rebuilt almost every department in the main store, and this is a constant process. We also paid great attention to display and color and design coordination. Exciting presentations enhanced our fashion reputation. It is in this area that we Spent some of the money we saved in advertising. One Objective of coordinated merchandising and dis- play was to create a gift department within each department. Each of the five merchandising groups had a fashion coordi- nator who worked as a staff specialist with buyers, public— ity and diSplay departments to create merchandise gift ideas. These diSplayS sold merchandise, enhanced the appearance of the total area by Skilled use of colors of the merchandise itself, and achieved the publicity objectives for which they were designed. A fashion report published in the Frepport News per- taining to ShOpS with unusual fashion interest Specifically referred to "Modern Place, a shop on Mayfield's fourth loor." It said: Modern Place is one of those fashion cases where a woman of moderate means can find clothes of distinction that are not on store racks all over the city. Anita Posener, the ShOp's buyer, has worked with manufacturers in New York to develOp exclusive styles and fabrics. The result is a spring and summer collection of Simply designed, well-cut dresses and costumes. l"Special Message to Executives--The Mayfield -losophy and Our Place in the Community," by Gerald Adams. 2Freeport News, Mayfield file, undated. 298 Mayfield's merchandising strategy in the housewares dbdsion illustrates the store's adjustment to external chamyh particularly to discounting, and to changing custom— enitaste and income. AS noted in the account of Mayfield's :UIthe 1920's, the housewares division had always been a \mflume and profit producer, partially responsible for its reputation as a dominant "pots and pans" store. Resource (fistribution in housewares classifications had changed, partially as a result of increased production Since 1945. Further, court decisions removed price protection and pro— hibited discriminatory practices such as discounts, adver- tising and freight allowances, which had enabled some retailers to increase their gross margins or reduce their retail prices. Nor was price-cutting the competitive tool of In New York, for example, three leading discounters only. Macy's, Gimbel's, and Abraham traditional department stores, and Straus engaged in a price war in 1951 in which they used Iousewares, particularly nationally advertised products, as Merchants in other communities, includ- ;he main ammunition . ,ng Freeport, soon imitated their New York counterparts. ayfield's reluctantly joined in the battle. Already committed to trading-up and to fashion mphasis, Mayfield's either had to transform its merchandis— 1g-aarud selling policies or delete completely or partially .n§( cxf these housewares categories in order to pursue the 299 primary Objective, increased profits. The combined decision was to pursue the trading up policy even more vigorously, deleting the most price-competitive seeking new resource S , altering ranges within a given classification and, lastly, selling methods. The basic innovation was to sell house- wares from sample items diSplayed in full view of the cus- tomer. TO assist the customer the store provided Sign cards with simple information whereby She could compare and select from the complete departmental assortment. Signing also included coded information which advised the clerk of availability and location of merchandise on display. Mayfield's approach aroused considerable attention from other retailers. A trade journal reported: It is not self-service. It is fully staffed by clerks who assist the customer. It was designed to give customers service at a minimum of selling costs. For practical purposes the housewares department is a three-dimensional catalogue which displays a complete line of items for sale. Plans began in the warehouse because it was there that the mechanics and hence the costs of house-keeping originate. After remerchandis ing every category on the basis of costs of handling and potential mark-up, the stoie redesigned the sell- ing floor fixtures and layout. The store has retained this basic layout and central chandising idea since its inception. It has met with :omer approval and patronage and has advanced the depart- toward its profit objective. 1952; also lMarket Publications No. 7, December 29, it Publications No. 1, August 15, 1952. I 300 The question of branch store Operations was consid— ered during interviews. Mayfield's Opened its first branch store in 1951 and subsequently Opened three additional stores. The largest branch accounts for 10 percent of the company sales. Remarkably, however, Mayfield's produced $110 a Square foot in its flagship store in 1965. The main store accounted for 67.7 percent of the total business. limerviewees stated the branches are Operated in the same manner, guided by the same merchandising strategy, as the main store. They also stated that if and when Mayfield's Opens additional branches they foresaw some operational problems, such as coordination and supervision, but did not anticipate any change in the policy of duplicating the main store in the branches. Corroboration of Interview Data I employed three methods to verify interview data. TTMS first comprised search of local and trade press and other publication files, as well as the literature, to learn what reports had been printed over time. These have been noted in the first four sections. Secondly, I requested interviewees and other May- ield executives to answer a questionnaire on merchandise nd advertising price-lining for two years, 1960 and 1965. he research director stated that, though they would like to ooperate as they did during the interviews, they would be 301 unable to answer the questionnaires because they do not keep price-lining figures as far back ad 1960. Further, he reit— erated the essential point that "our method is one which a determined store with a clear idea of what it wants to do has devised to take advantage of the market Opportunity as we saw it."1 The third method I used to verify the interview data was to secure Neustadt measurements of Mayfield's advertis- ing by price-line and to compare eXpenditureS of 1960 and 1965. Based upon interview data I eXpected to find several distinct characteristics in Mayfield advertising. First, I eXpected to find that a majority of adver— tising price-lining would be in the upper three zones and a The eXpectation relatively smaller percentage in zones 1-3. was based on repeated statements that the firm had dimin- clearance, and Special purchase ished the number of sale, since advertising presumably was used to events. Also, it seemed institutionalize by virtue of items promoted, reasonable to eXpect an emphasis on higher-priced items vhich would bear a larger percentage and dollar gross margin. 'hile this is not necessarily so in all cases it can be pre— umed to be so in the Mayfield case. Second, I could, by reason of the foregoing, eXpect find that Mayfield's advertising indexes would be higher D lAdams, op. cit. 302 than those Of other stores in Freeport. Also, they would certainly rank favorably with other stores in the 9-City group. Third, when comparing the relative changes from 1960 to 1965 among three groupS--Mayfield's, Freeport, and 9- Cities--I anticipated that Mayfield's would still Show a relatively higher index change, Since interviewees reported no abatement in the constant drive to trade up and to main- tain fashion leadership . The results of examining the Neustadt data on adver— tising price-lining are Shown in Tables V, 1-17, and are summarized in Table V-l8. Analysis of percentage of advertising linage by price zone for each of the 17 classifications Shows that in all but one of these the Mayfield Company eXpended a major- ity, if not a plurality, of its linage in zones 4-6. May- field's advertising frequently was about at the Opposite end of the price range from the other Freeport stores and :‘rom the 9—Cities. In 11 of the 17 classifications it did ot advertise at all in price-zones 1-3, and in 4 of the 7 instances eXpended 5 percent or less in the lower three Ines. These findings confirm interview statements on how yfield's budgeted its advertising within the price-zone nge . An array of total advertising indexes for each Of 17 classifications for 1960 and 1965 for all groups 303 examined is shown in Table V-20. In both 1960 and 1965, the Mayfield index is exceeded in only one instance, and then only by the Freeport that of Women's and Misses' Dresses, index. In all other classifications the Mayfield indexes In 1965, the exceeded those of Freeport and the 9-Cities. Mayfield index is 500 or more in 12 of the 17 classifica- tions, while there is not one index in either Freeport or the 9-Cities which exceeds 500. The Neustadt organization also constructs a compos- These are ite advertising index for all 77 classifications. measured in the same manner as were the 17 used in this In both 1960 and 1965, Mayfield's ranked among the study. The total indexes first ten department stores in the nation. Show that Mayfield's moved upward within the first 10 during the 1960 to 1965 Span. More Specifically, the total compos— ite index for Mayfield's in 1960 was 452 when the highest 503 compared with the highest and, in 1965 , index was 552; such a comparison department store index of 578. Again, supports the Mayfield interview claims of trading up in advertising price-lining; and, to the extent that this one can assume that the store e fl ects the merchandising, lso traded up in merchandising as well. These calculations confirm the Mayfield interview atements that the store had traded up higher than other ores in Freeport. Obviously, the same data support the 304 chnmtmatthe firm had traded up more than most metrOpol- itan department stores. bfiyfield's exemplified an individualistic and con- Analysis swner—oriented posture during the past ten years. For example, cf mm0<flassifications supports this claim. aflthomfllstores in the 9-City group and in Freeport tended to place as much as 50 percent of their linage in price zonestQBfOr the Blouse classification, Mayfield's has con- as seen in Table V-6. The signif- centrated in zones 4-6, icammm as pointed out in the Staplinger case, is that this classification is one of the most desirable trade up classi- fications in apparel, particularly for increased gross mar- gin potential. Table V-21 reveals that Mayfield's adver- tised very little in the lower price zones in both 1960 and Detailed data such as in Tables V-3 and V-9, for 1965. reflect the company's willingness to support instance, higher-priced lines and also to shift downward within zones warranted. when 1353 Mayfield case points out one of the limitations Table V-3 (coats) reflects a >f this method of analysis. This was .iminished advertising index from 1960 to 1965. aused by a decision to increase emphasis in zones 4 and 5. 1d while this occurred in Freeport as well it did not Yet Mayfield's adver- pify actions by stores in 9-Cities. sing index was still considerably higher than the 9-City :irxg. 305 Answers to Questions in Tables V, 1-17 Answers to Questions 1-6 will be shorter and less detailed than in the Staplinger case for two reasons: first, many comparisons have already been presented; second, the Mayfield case is exceptional in that most of the index fig- ures are greater than for any other store or group in this study. Question l.--Comparing their own advertising indexes, did the 9-City group trade up? In 14 of the 17 classifica- tions, the 9-City group traded up. By comparison with their own advertising indexes the 9—City group did not trade up in Blouses, Men's Slacks, and in Towels. Question 2.—-Comparing its own advertising indexes, did Freeport trade up? Freeport traded up in 13 of the 17 classifications. The flmnfin which the city did not trade up, on the basis of comparison with its own indexes, were: Skirts, Dress Shirts, Drapes, and Bedspreads. Question 3.--Comparing its own advertising indexes, did Mayfield's trade up? Mayfield's failed to trade up, on the basis of comparison with its own advertising indexes, in 5 of the 17 classifications examined. As was the case in Freeport, one of these was Drapes. Others were Untrimmed Cloth Coats, Men's Slacks, Towels, and Bedroom Suites. Interview data suggested that Mayfield's was as strong in home furnishings as in both mens' and womens' apparel, that fashion authority and leadership were equally 306 significant in all of these general merchandise categories. Although answers to Question 3, then, might be surprising, it must be considered that in all 5 instances the Mayfield index was more than the index for Freeport or for the 9—City group. Further, in 3 of the 5, the index was at 500 or more. In 7 of the 8 home furnishings classifications, the index was at 500 or more. Question 4.-—Compared with Freeport, did Mayfield's trade up relatively? In 6 of the 17 categories, Mayfield's did not trade up as much relatively as other Freeport stores did. In Mens' Slacks the merchandiser eXpended 100 percent of the linage in zone 5. However, the index of 500 in 1965 represented a negative change from the 1960 index of 538. The store failed to trade up as much relatively in Cloth Coats and Bedroom Suites. In the Occasional Living Room Chair category the measurement shortcoming is obvious. May- field's started at 557 in 1960, and reached the tOpmost fig- ure in 1965. However its relative change was less than the change among Freeport stores. Although the towel index declined relatively, the reader should note that Mayfield's still advertised almost one-half of its linage in zone 6, or at $2.00 and more. gpestion 5.--Compared with 9-Cities, did Mayfield's trade up relatively? In 9 of the 17 categories, Mayfield's did not trade up relatively as much as the 9—City group did. 307 The eXplanation is similar to that in Question 4. In 7 of these 9, the advertising index in 1965 remained at 500 or more. Two exceptions were Drapes and Cloth Coats. gpestion 7.--C0mparing relative changes in DSIPI and its own advertising indexes, did Mayfield's trade up? This is a comparison of the ratios between the 1965 DSIPI/ 1960 DSIPI and the Mayfield 1965/1960 Indexes of Advertising. The DSIPI increased from 1960 to 1965 among all the classifi- cations studied. There were 6 negative answers to this ques- tion. In two of these instances, Skirts and Bedroom Suites, the advertising index ratio was more than 100.0, but the change was not as large as in the DSIPI. In three other classifications, Men's Slacks, Drapes, and Towels, the advertising index ratio was less than 100.00. In the Sixth instance, Bedspreads, the two ratios were equal. This was regarded as a negative response. Chgpter Summary Until 1945 Mayfield Brothers pursued a simple strat- egy of constant promotion, whether by price emphasis or special events, in order to secure a profit believed obtain- able only by increasing its volume. In changing its merchan- dising strategy after 1945, Mayfield's responded to a pro- nounced change in demographic and economic conditions in the 'trading area immediately surrounding its store. Although cxmnpetitive conditions also changed, the Mayfield management 308 was more influenced by changes in those variables and condi- tions which have been summarized under the concept of demog- raphy of demand. Management redefined its market target and reaf— firmed its fashion authority and leadership. To implement the strategy, the Mayfield management reorganized itself, reassigning the executives, and redefining their functions and responsibilities. The management also assumed the risk inherent in both the defensive and offensive strategies formulated, including the development of new resources. Interviewees claimed that the company charted and successfully followed a new path to profits, carved out a unique niche in the Freeport market for itself, and joined the community leadership in fashion merchandising. Analysis of neWSpaper price-lining tends to substantiate these state— ments and to corroborate the general claim that in response to external changes Mayfield's altered its merchandising strategy by trading up. Again, it should be pointed out that internal stresses--demand for greater profit, managerial evaluation of these external forces, and management philos— ophy of merchandising--also account for the changes made. 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OZ m0? OZ m0? OZ mm? OZ mm? OZ mm? OZ m0? mHmuOB O .mmso m .mmso O .mmdd m .wme N .mme H .mme huHOOEEOU mHQmB OHI>..HI> mmHQmB eH mumw meHeHmoeoo meOHummso ou mmmeommmu mo OHOEESO .mHI> mqmfiB 327 TABLE V-19. Comparison of Mayfield sales and profits with selected industry performances (fiscal 1946 = 100) Federated Mayfield Dept. Industry Year Mayfield Net Profit Stores Net Profit Ending Sales % to Sales Sales % to Sales Jan. Fiscal Fiscal Fiscal Fiscal 31 1946 = 100 1946 = 100 1946 = 100 1946 = 100 1936 43.9 96.3 38.9 71.4 1938 44.8 75.1 40.5 47.2 1939 43.4 55.6 39.9 73.6 1940 45.0 76.8 41.5 80.2 1941 46.0 74.5 43.2 91.1 1942 51.1 71.8 49.5 80.2 1943 52.5 66.7 53.6 82.2 1944 59.5 63.8 61.5 80.0 1945 78.0 74.9 68.6 80.0 1946 77.9 79.0 75.6 131.1 1947 100.0 100.0 100.0 100.0 1948' 115.9 76.3 130.0 101.1 1949 122.6 105.4 148.0 69.2 1966 244.3 124.9 568.5 84.0 Sources: Mayfield data extracted from Moody's public docu— ments, and Freeport Times. Company did not pub- lish financial details after 1929. Federated Department Stores data from published records. Industry net profit based on Harvard data and l6—Store group records. 328 TABLE V-20. Summary of total advertising indexes for 9-City group, Freeport, and Mayfield's, 1960 and 1965 for selected classifications g .4 '£.. Classifica- ,3 ‘3“) tion 9-Cities Freeport Mayfield's r8 5% Name 1960 1965 1960 1965 1960 1965 E-d Z Z V—l 10 W0. & Misses' Dresses 342 362 379 403 361 395 V-2 15 Jr. Dresses 408 421 446 474 471 535 V-3 32 Cloth Coats 352 374 379 410 513 491 V-4 22 Wo. & Misses' Sweaters 368 384 409 423 480 526 V-5 21 W0. & Misses' Skirts 372 388 427 416 519 538 V-6 23 Women's Blouses 336 336 406 414 452 497 V-7 130 Men's Dress Shirts 414 424 421 417 447 485 V-8 80 Men's Wool Suits 347 418 371 450 443 593 V-9 132 Men's Slacks 345 326 360 379 538 500 V—10 240 Mattresses 381 430 404 457 415 533 V-ll 232 Sofas 431 441 468 482 520 565 V-12 220 Bedroom Suites 399 425 468 496 540 545 V-13 230 Occ. Liv. Rm Chairs 344 443 390 478 557 600 V-14 184 Drapes 363 405 440 418 469 440 V—15 165 Towels 404 384 450 454 583 540 V-16 168 Blankets 323 407 362 453 433 552 V-l7 167 BedSpreads 401 424 441 421 541 572 Source: Neustadt Statistical Organization, New YOrk. 329 TABLE V-21. Summary of percentages of advertising eXpended in price zones 1—3 by 9—Cities, Freeport, and Mayfield's, in 1960 and 1965 6 44 Z '2,4 Classifica— .3 133 tion 9—Cities Freeport Mayfield's .g 8 5 Name 1960 1965 1960 1965 1960 1965 E Z Z V-l 10 Wo. & Misses' Dresses 56 50 49 38 52 55 V-2 15 Jr. Dresses 32 30 23 19 V-3 32 Cloth Coats 50 42 43 3O 9 5 V-4 22 W0. & Misses' Sweaters 48 4O 34 35 3 3 V-5 21 Wo. & Misses' Skirts 38 36 27 31 0 0 V-6 23 Women's Blouses 48 50 27 29 3 3 V-7 130 Men's Dress Shirts 31 29 29 30 O O V-8 80 Men's Wool Suits 50 34 45 24 26 O V-9 132 Men's Slacks 59 61 48 46 O O V-1O 240 Mattresses 38 25 24 10 11 0 V-ll 232 Sofas 18 18 13 9 1 0 V-12 220 Bedroom Suites 36 27 19 26 O O V-13 230 Occ. Liv. Rm. Chairs 52 29 41 19 5 0 V-l4 184 Drapes 51 40 33 39 24 27 V—15 165 Towels 33 42 22 25 1 3 V-l6 168 Blankets 49 30 39 21 27 V-17 167 BedSpreads 40 33 33 27 12 0 Source: Neustadt Statistical Organization, New York. CHAPTER SIX THE L. H. KANE COMPANY History of the Firm to 1945 The L. H. Kane Company, like many other traditional department stores which have survived more than fifty years, began as a dry goods store. Founded in Haverford, Center- state, in 1884, as the Johnson Dry Goods House, the firm was purchased on contract by Leonard H. Kane, a local carpet salesman, in 1896. When Kane completed his payments for the stock and store in 1908, he changed the name to reflect his sole ownership. Throughout the history of this firm, Haverford has remained the largest city in a three—county area; the 1900 tri-county pOpulation was 93,000: by 1940, it was over 180,000. Approximately 45 percent of the total population then resided in Haverford, which benefited from an unusual and eXpanding economic base of business, education, and government activities. After L. H. Kane died in 1927, his heirs managed the business for two years and then sold it to the Ingham Trust, a private investment organization whose major interests were 330 331 in Centerstate. Perceiving additional opportunities in 1937, the owners constructed a modern 90,000-square-foot department store at a different downtown location. A veteran merchant described Kane's as "a promotional store seeking volume, giving good value, always making a profit, very careful about good customer relations." It did not attempt to be the "prestige" department store until after 1945. Kane's catered to the working-to—middle class groups. Indeed, upon Opening the new store in 1937 (incidentally, it contained a considerable number of "dummy" boxes on the shelves), a few executives feared the modern decor, the brightness, and the newness might offend or discourage many customers. One veteran at the store reminisced: We had quite a job to convince many of our customers that we were still the same value—giving Kane's. Some thought we had gone too high-class and that our prices would also be too high. Kane's has remained a privately owned firm. As such, it does not disclose publicly any records of sales or earn- ings. In reSponse to my requests, however, executives coop- erated during interviews by providing certain vital sales and gross margin figures pertinent to the post-1945 period. The officials pointed out that Kane's had earned a profit during the decade prior to World‘War II and in every 1Interview with Mr. George Penney, home furnishings merchandiser, February 2, 1966. 332 subsequent year and that the eXpansions had been financed out of earnings. As compared with other traditional department stores in Haverford, the subject store ranked third in sales volume, at least until 1937. The Agnew Company, regarded as both the quality store and the sales volume leader, was the old— est department store in the community. It vended many nationally branded merchandise lines and enjoyed continued patronage from middle-to-better income groups. The second major competitor was the Haverford Dry Goods Company, a very price-conscious promotional store catering to "the working class." Despite the designation this same firm also enjoyed a large trade in its fabrics, domestics and linens divisions from all income groups. One additional observation is important. After 1937, in keeping with its new "house," the Kane Company gradually increased the number of quality lines of merchandise. This narrowed the customer choice between Kane's and Agnew's as regards ShOpping environment, assortments, price ranges and merchandise quality. Several of the major executives at Kane's have worked together for 20 years or more, witnessing a changing external environment. As they advanced in reSponsibility at the firm, they increasingly influenced its merchandising strategy in response to those changes. The president of the L. H. Kane Company, Mr. Lester Henshaw, joined the company 333 in 1931 in the accounting department and eventually trans- ferred into the merchandising division, where he served in the capacities of buyer, merchandise manager, and then as general manager prior to assuming his current office. Changes in the Haverford Environment: 1945-1965 Demographic and economic changes in Haverford and in the tri—county trading area it dominated were exceedingly favorable for the retail industry during the two decades studied. Therefore, as might be eXpected, there were a number of significant competitive changes which affected Kane's merchandising strategy. Changes in demography of demand.—-As seen in Table A-1, Haverford enjoyed a pOpulation increase proportionately greater than that in the other four cities studied as well as that of the United States. All three sectors of Haver- ford's economy--manufacturing and distribution, government (both Federal and Centerstate), and education--offered in- creasing numbers of jobs and a wider diversity of employment over this twenty-year span. The foregoing conditions account for the positive changes in total net effective income seen in Table A-2. Although one of Centerstate's depressed areas during the 1930-1939 period, Haverford became a huge supplier of war material after 1939. During World‘War II, the manufacturing 334 sector of the Haverford economy eXpanded while the other two sectors--government and education-—remained relatively sta- ble. At the end of World War II, however, all three sectors attracted thousands of new residents who found employment in the widely diversified opportunities. Table A—3 reflects these conditions, since (as is usually accepted) retail sales over time are a positive function of income. Despite the encouraging increase in Haverford retail sales between 1950 and 1955, the discount stores did not invade the community until 1959. The largest relative increase of retail sales was recorded during the next period, 1960 to 1965. By that time both traditional and discount department stores had eXpanded or announced plans to open stores in Haverford. General merchandise sales include department store sales. Table A—4 shows that Haverford's increases in this classification exceeded those of general retailing. Income distribution, set forth in Table A—5, again reflects the favorable environment for retailing. The relative increase in the percentage of households in the $00.00-$2,499 group in Haverford was less than that in the other cities and less than the United States total. Its relative increase in the $7,000 and over group was the second highest. At the top end of the group incomes, the percentage of households with incomes of $10,000 and over, Haverford's change from 1955 to 1965 was, relatively the most favorable among the four cities 335 compared. Coupled with the population increases noted in Table A-1, these conditions provided a most favorable change in demography of demand for merchants in this community. The relative increase in the percentage of families receiving incomes of $10,000 and more can be traced to three conditions. First, the number and size of educational and governmental institutions and organizations increased rapidly. Those segments of the population who derived their incomes from such sources eXpanded rapidly as the compensation scale for such employment accelerated. For instance, salaries paid to teachers and college faculties underwent a great relative rise as did those paid to the technically or professionally trained personnel required to provide services by governmen— tal agencies. Second, diversification as well as increase of size of existing firms characterized industrial expansion during this period. Hence there was increased demand for specialized personnel in headquarters staffs of established firms as well as in newly formed firms. Third, all of these kinds of economic units employed an unusually large number of women, thereby affording a second income for many families. The percentage increase of families with incomes under $4,000 can be traced to the influx of non-white pOpula- tion and to the relatively large number of married students. Both of the latter groups presumably would welcome entrance of low-margin retail stores. 336 Economic Opportunities in government and industry, as well as rapid growth of educational institutions in Haverford County, undoubtedly account for the positive change in educational attainment. According to the 1960 Census the median school years completed by persons 25 years old and over in Haverford had increased from 10.1 years in 1940 to 12.1 years. This compares with 8.8 and 10.8 years, respectively, for all of Centerstate.l Changes in Competition Although Haverford was the smallest community studied, the same major competitive changes which occurred in the other cities significantly affected Kane's merchandis— ing strategy. Table VI-l summarizes the competitive changes among traditional department store and discount store firms, and those brought about by the Opening of a shopping center. Traditional department stores.--The first signifi— cant change occurred in 1949, when the long-established Haverford Dry Goods Company went out of business. This store had retained considerable patronage in the dry goods classifications but failed to keep pace in apparel for the family. Both Kane's and.Agnew's eagerly sought certain lines of merchandise which had been confined to this company. Another beneficiary of this departure was Kane's Basement Store, where many bargain—minded customers sought their needs. lU.S. Bureau of Census, U.S. Census of Population for respective years. TABLE VI-l. 337 Major competitive changes among department stores in Haverford as indicated by gross Space occupied, 1954—1965 Gross Space Date Name of Firm Action Taken (sq. ft.) 1954 Agnew's Purchased by Lincoln No immediate Investment Trust additions: major renovations 1954 Sears Abandons 15,000 sq.ft. downtown Haverford building, Opens at Eastgate ShOpping Center 200,000 1954 Union Opens at Eastgate Mercantile ShOpping Center 75,000 Company 1955 L. H. Kane Installs escalators, Loses 3,000 Company remodels sq. ft. of Space 1954 L. H. Kane Buys nearby warehouse Company building for workshOps Adds 5,000 1959 L. H. Kane Purchases prOperty for Company East Haverford branch 32,000 1959 Biff's National discount depart- ment store chain Opens in abandoned factory; 52 departments 100,000 1961 L. H. Kane Opens branch store, Company East Haverford 32,000 1961 L. H. Kane Opens Western Avenue Company store across alley from main store 31,000 1962 Bargain Fair National discount dept. store chain opens next to Eastgate 65,000 338 TABLE VI-l--Continued Gross Space Date Name of Firm Action Taken (sq. ft.) 1963 Enterprise National discount dept. Stores store chain Opens at south end of Haverford; 60 departments 75,000 1962 Adolph's National discount dept. store chain opens at west end of Haverford; 62 departments 89,000 1962 Foremost National discount dept. Discount store chain opens in Stores Haverford; 100 depts. 65,000 1963 Patriot Regional discount dept. Discount store chain Opens at Stores south end of Haverford; 57 departments 80,000 1963 Sears Adds "Seasonal Sales Center" at Eastgate 12,000 1964 L. H. Kane Opens Corner Shop, Company downtown 4,800 1964 Patriot Opens second store, Discount in East Haverford Stores 45,000 1965 L. H. Kane Opens Campus Shop in Company East Haverford, across street from Branch Store 4,600 Source: Interviews and files of the Haverford News for reSpective stores. 339 From 1945 to 1952, Agnew's, the long-established "better store in town," declined in competitive vigor and in sales volume. Interviewees and observers attributed this to the retirement of Walter Agnew, son of the founder, who had competently managed this enterprise until 1945. At that time he turned the active direction over to his son, James. His lack of interest led, after the father's death in 1952, to the second major change in this rivalry. In 1954 Lincoln Department Stores, a national retail chain, purchased Agnew's. The Kane executives anticipated a revived, intensive rivalry. They also hOped this store's resurgence would attract old and new customers to the down- town shOpping district. The new Agnew ownership initiated a three-pronged competitive thrust within the first year. It embarked upon a major reconstruction and renovation of the store building. To rebuild the strong resource relationships the store once enjoyed, the management succeeded in persuading several major manufacturers of nationally branded merchandise to distribute their products through Agnew's exclusively rather than through Kane's: or, at least, to share the distribution with Kane's. This kind of competition for resources was, however, not a new phenomenon among Haverford retailers. Indeed, during the period of Agnew's decline, the Kane Com— pany had induced these same resources to forsake Agnew's. The third prong of this drive consisted of a prolonged 340 series of sales promotion events relying primarily upon price appeal. The objective was a swift presentation of the revitalized Agnew's to an increasing number of Haverford customers. A Kane official recalled: Make no mistake about it. They hurt us at first. They drew crowds. Their claims were exaggerated. This local store became a dumping ground for the markdowns of some other stores owned by this national company. Consequently their Bargain Basement soared in volume. Shopping centers.--The second competitive change was the 1954 Opening of Eastgate, the major ShOpping center in the Fulton County trading area. Several attractions favored Eastgate merchants. The ShOpping center was located between Haverford and the adjacent East Haverford, which had quadru- pled in size from 1930 to 1950. It was eXpected that future growth would continue in that direction. As Haverford central Shopping district retailers and their reSpective city government representatives worried over the perennial problem of customer parking, Eastgate invited 2,000 customers to park free of charge. ‘The announcement that Sears would build a 200,000 square-foot full-line department store in Eastgate meant that a signif- icant competitor would attract customers from downtown to a new area. A home furnishings merchandiser at Kane's sum- marized the effects of this change. 1Interview with Mr. Frank Worthing, Western Avenue store merchandiser and manager, January 13, 1966. 341 We lost volume and customers as the entire downtown suffered. Previously, when a customer shOpped Sears for some hardware item they might often come to us for ready-to-wear or at least use us as a comparative basis for a final decision on home furnishings. Another change is directly related to the Sears move. Its large store attracted other retailers as well as custom— ers to the shOpping center. Soon, tenants occupied all 500,000 square feet of retail selling area in the center. Among these was the Union Mercantile Company, a regional department store chain. Its branch Opened in a 75,000- square-foot one-story building, offering medium—to-budget priced merchandise and evening shopping hours. Haverford customers had become familiar with the Union name through the large amount of advertising placed in metropolitan news- papers circulated in the community. A merchandiser at Kane's observed: Had this regional chain Opened its store downtown it would not have posed a serious threat to our business. They were a depression baby who built a tremendous image on price. After the war they couldn't make up their mind who they wanted to be. One minute they featured national brand shirts and the next day they were pound- ing price again. But when they opened in the same shop- ping center with Sears they gained from the traffic and offered a basis of comparison. They certainly com- pounded the reasons for customers to stOp at the shop- ping center first. lInterview, Penney, 0p. cit. 2Interview with Mr. Bernard.Sper1ing, general mer- chandise manager, February 10, 1966. 342 Discount department stores.——The third major compet- itive change began in 1959, when large-scale discount depart- ment stores invaded Haverford. It should be eXplained that three smaller stores attempted to merchandise at low margins at earlier dates. Typical of these was a locally-owned, locally-managed store opened in the former Haverford Dry Goods location. It did not attract a great number of shOp- pers. It established a local reputation as a "cheap store" rather than as a "discount store." Biff's was the first major discount store to Open occupying 100,000 square feet in an old manufacturing plant. Despite the fact that large-scale discount stores had already adopted many practices of traditional department stores (such as personal selling, adequate and convenient parking, machine-made signs, low-level displays), Biff's heaped goods on card tables, used hand-painted signs, and provided meager parking facilities. Large numbers of customers responded enthusiastically to the new outlet. This new competition affected Kane's Basement Store more than any other division. The overwhelming success of Biff's coincided with plans announced by national and regional discount chains to Open stores in Haverford. Within three years, by the end of 1962, shOppers could choose from the wares of five nationally Operated discount department stores. One year later a sixth firm, a regional "promotional discount department store" established its first branch in Haverford and in the 343 subsequent year followed with its second. Table VI—l shows that from August, 1959, through November, 1964, discount department stores added 519,000 square feet to the supply of retail selling area. Changes in Merchandising Strategies: 1945-1965 Kane's merchandising strategy until 1945 can be summarized in a five—point plan: first, to obtain at a profit an increasingly larger share of the Haverford retail business; second, to meet and thwart all competitive efforts to undersell Kane's; third, to resist competitive attempts to secure any nationally famous brand distributed by Kane's; fourth, to feature the theme of value in all sales promotion techniques to the "working class through the middle-class markets"; and, fifth, to stress quality of service as well as quality of merchandise. Interviewees pointed out that service meant and included a vigorous adherence to basic stock merchandising and referred to this as the "Filene Basic Stock Plan." Table VI-2 shows that from fiscal 1946 through fiscal 1954 the company increased sales volume in all but two years. Even though the company did not disclose profit performance, the relative changes in gross margin expressed 344 TABLE VI-2. Selected operating ratios of the L. H. Kane Company L. H. Kane CO. Year L. H. Kane 16—Store Gross Margin Fiscal Co. Sales Aggregate % of owned Ending Fiscal Sales Index: Department Sales: 1/31 l946==100 Fiscal 1946==100 Fiscal 1946==100 1947 100.0 100.0 100.0 1948 108.6 100.7 94.8 1949 103.4 N.A. 95.9 1950 108.6 N.A. 95.1 1951 108.6 N.A. 94.5 1952 110.4 125.5 91.6 1953 120.6 130.0 93.7 1954 129.3 131.7 94.0 1955 127.6 136.3 93.5 1956 132.9 144.4 93.5 1957 127.6 159.9 94.0 1958 130.2 165.4 92.7 1959 127.6 169.3 92.7 1960 139.7 183.9 92.4 1961 144.2 185.9 94.8 1962 162.4 198.7 94.5 1963 177.1 208.9 93.7 1964 191.9 238.5 92.4 1965 226.5 248.7 93.2 1966 258.4 266.7 93.2 Source: L. H. Kane Company, company records. For 16-store aggregate, see Table III-3, Staplinger Case. 345 as a percentage of owned department sales suggest that the company earned relatively favorable profits.l RetrOSpectively, we can gain some vieWpOint Of that period from the remarks of the Kane general manager, Mr. Sherman Aamondt, who joined the company initially as con— troller: There were five major department stores downtown (Kane's, Agnew's, Haverford Dry Goods, Sears, and Penney's), all competing differently for sales. This attracted a wide segment from the entire trading area. Then, after we achieved the volume leadership, a number Of competitors disappeared from downtown only to transplant their attractions elsewhere. Haverford Dry Goods went out of business. As a result we had to depend upon ourselves more than ever to draw traffic downtown and to satisfy even a wider range of needs in order to sustain and increase our volume. Kane's, Of course, was not the sole source of attrac— tion downtown. Beginning in 1954 the new Agnew management 1Interviewers would not disclose nor provide data indicating exact profit performance. Investigation of Cen- terstate Corporation Securities Commission files revealed that during each of the last four years the Kane Company added substantially to its retained surplus. Also, I pieced together such data a payroll costs, payroll as a percentage Of total cost, and advertising linage, whereby I could rea- sonably calculate that Kane's profits approximated those of the l6-firm aggregate figure, as shown in Table III-3. In the gross margin calculations shown in Table VI-2, the com— parisons are based upon an index Of 1946==100. In that year Kane's gross margin percentage of sales exceeded the Harvard average by 1.1 percent. Also, the reader must recall that although Kane's never failed to use this measurement as a merchandising yardstick it did, after 1955, emphasize gross margin dollars as well as gross margin percentage as a basis for merchandising decisions. 2Interview with Mr. Sherman Aamondt, general manager, L. H. Kane Company, January 11, 1966. 346 campaigned to draw shoppers to the central business district and from Kane's as well. Initially, as shown in Tables VI-3 and VI-4, Agnew's increased its share of traffic compared with Kane's. TABLE VI-3. Comparison of Agnew and Kane customer traffic count, 1954-1965 (index: 1954 =100) Year L. H. Kane CO. Agnew's 1954 100 100 1955 96 119 1956 90 102 1957 96 99 1958 97 103 1959 102 106 1960 106 112 1961 102 108 1962 102 102 1963 101 91 1964 112 92 1965 112 77 Source: L. H. Kane Company records. 347 TABLE VI—4. Traffic count of Agnew's eXpressed as percent- age of L. H. Kane Company traffic count, 1954- 1965 13-Week Periods Ending Approx. Total Year 4-30 7-31 10—31 1-31 Year 1954 47 52 60 65 57 1955 68 68 72 73 71 1956 64 64 65 65 65 1957 55 55 58 63 59 1958 58 60 62 61 60 1959 51 59 61 64 59 1960 60 62 61 59 60 1961 59 64 68 56 61 1962 57 59 64 52 57 1963 53 47 58 49 51 1964 47 55 47 41 47 1965 36 40 42 39 39 Source: L. H. Kane Company records. Both national and regional discount department stores had opened units in other major Centerstate cities. Hence, by 1956, the Kane Company witnessed these changes: on the favorable side, a total increase in pOpulation and income, fewer downtown rivals, increasing acceptance of Kane's as a quality and famous-brand store; on the unfavor— able side, a disturbing diversion of traffic, both vehicular 348 and pedestrian, to Eastgate Shopping Center; a powerful rival (Agnew's) threatening price warfare and resource raids; eventual entry of discount stores in locations outside the central Shopping district; and a general reliance by retail- ers in Haverford upon sale and bazaar merchandising, more reminiscent of depression than prosperity. In determining whether to undertake any departures in merchandising strategy the Kane executives considered several alternatives. The interview data yield the follow— ing summaries. Alternatives Should Kane's emphasize the quality and famous brand and style characteristics of its store and merchandise or should it increasingly emphasize its value (price-competi— tive) characteristics? Should Kane's meet and try to beat competitive promotional tactics or should it chart an indi- vidual sales promotion course? Should it increase the num- ber of classifications carried so as to fill a void for downtown shoppers left by the Sears relocation or should it widen the selection within the classifications already carried and increase its price ranges upward to appeal to additional market segments? In anticipation of discount stores and shrinking gross margins due to increased price competition, should Kane's increase or decrease personal selling and services? Finally, should Kane's remain downtown, 349 in the same size building, enlarge downtown, or Open branch stores? Mr. Henshaw emphasized that a successful retail firm must have a philOSOphy, or, as he stated, "the tOp must know its own mind." Regarding the alternatives set forth, he said: We saw no need to change Objectives. But we had to change the means to remain a volume leader and a profit producer and to represent something to our customers. I think I made the most difficult and important business decisions in my business career during those years, from 1954 to 1957. Some of our own peOple wanted to fight fire with fire, to merchandise the same kind of goods competitors carried. We tried to consider what was good for the store and also what would be good for our cus- tomers. How did these Officials relate profit to the costs Of these various alternatives? Mr. Aamondt recalled: We decided that if we competed on a basis and pat- tern established by these other firms Our profits would be adversely affected. There were four conditions we regarded negatively. First, we would have to continue to buy tomorrow's business, which would require increased advertising cost. Second, we would then have to spend an increasingly greater proportion of our advertising on merchandise which bore a lower gross margin. Third, this in turn presented a problem: How to finance an inventory which on the one hand emphasized basic stocks and fashion goods in order to achieve reliability and quality, and on the other hand an inventory of promotional goods in order to demonstrate value. A fourth compounding problem was that you couldn't keep good, branded resources unless you were a steady user. But if you flood your stocks with promotional and price goods you find yourself squeezing the basics and fashions and you end up holding back or diminishing the size of orders from your best resources. 1Interview with Mr. Lester Henshaw, president, L. H. Kane Company, January 11, 1966. 2Aadmondt, interview, Op. cit. 350 Decisions The fundamental decision during the 20-year period was to increasingly emphasize Kane's as both a quality store and a value store. From 1945 to 1955, for instance, the firm perceived its opportunity to lie in capitalizing on its traditional rival's declining managerial strengths and, therefore, Kane's assiduously cultivated and increased the store's family of nationally famous branded resources. From 1955 to 1960 L. H. Kane shifted to the value emphasis. The 1960 to 1965 period was one Of physical eXpansion to thwart competition, to extend the store to enlarged residential areas, and to broaden the range of merchandise classifica- tions Offered. Brandwagon program: 1945-1955.—-During this period the store campaigned in advertisements and window displays, featured the appearances of manufacturer's representatives, and staged exclusive showings of merchandise offerings to dramatize Kane's as the "Brandwagon Store," as the store for dependable quality and "style-right" merchandise. In many promotional events the exclusive distribution provided Kane's with a pricing advantage or additional gross margin. 1955-1960 period.--During this period the management was beset by a barrage of "sale," "savings," "value" events in which all the aforementioned rivals competed on a compara- tive-price basis. In response, Kane's shifted to what the president termed "a plan to demonstrate that we were a value 351 as well as a quality store." Commenting on this period, he said: This was the period of the "big lie." Everyone, and we must be included, engaged in an exaggeration contest. The only certainty was that one of these competitors would use a larger comparative price than the next. Everyone "saled" the town to death. The result was that customers simply didn't respond unless you ran a sale. In 1956 Kane's radically changed the sales promotion program. Essentially, it abandoned use of comparative prices, totally and absolutely. Sales promotion personnel could not quote nor use comparative prices in neWSpaper advertising cu? display messages. The management eXpected the store would lose some volume. Table VI-2 shows a decline in sales volume during fiscal 1956. DeSpite this pressure and the disagreement voiced by some Kane executives, the president insisted that the program continue. A national news bulletin published an admiring comment at a later date: Two years ago the president of a store in a smaller city dared to throw his crutches away. He dropped com- parative prices. This store is develOping a new charac- ter and is winning a position Of public confidence. A new spirit permeates the organization from the boss man down . . . but this decision was only the trigger. . . . When store people could no longer depend on cut prices and sales as crutches they had to do a better merchan- dising job . . . buyers became better advertising peOple. lHenshaw, interview, February 10, 1966. 2 undated. Enterprise Advertising Agency, "Ad.Clinic Bulletin," 352 This decision affected the buying function as well. It turned the efforts Of all toward non-price features of the total retail mix. Buyers were constrained to demon- strate value without resort to comparative prices. Execu- tives claimed the public response demonstrated greater con— fidence in Kane's advertisements. Based on the sales decline which coincidentally followed this decision, one might question the preceding judgment. However, as seen in Table VI-2, the company, by fiscal 1959, regained and sur- passed its previous record of sales volume and also managed to arrest a decline in its gross margin performance. During this interim period when sales declined, the company improved its basic stock composition. The general merchandise manager noted that "while this is indeed prosaic, and everyone says they do a good basis stock job, not every- one adds more inventory in face of a declining sales picture. But we did. We reiterated our 'never out' program to sell down to and not through the stock levels required in the program." When these sales promotion and merchandising pol- icies had been integrated into the daily Operation there arose "a desire to do something to put an additional punch into the sales promotion program." The Objective was to build a sales campaign whose cumulative effect, month after month, would increase customer traffic to Kane's. The sales promotion manager described this planning: 353 We gave a great deal Of thought to what it would take to do this. Finally, it occurred to us that rarely is the quality store the value store. Our ques— tion became: what could be done to make the quality store the value store? And could we do this within our advertising rules? In August, 1958, Kane's embarked upon a promotional merchandising plan to achieve the aforementioned objective. The president explained: A store seldom obtains anywhere near the total per— centage it should get on any one item. And there's a reason for that. The budget is rarely sufficient to permit a department to realize the maximum potential on an item. And even if the budget were sufficient the average buyer does not attempt to do this. The riSk would be too great. Also, he's caught in the middle. Here I am, on the one hand constantly harping on basic stocks, always aware of the inventory levels, and then asking the buyer to commit himself on a promotion which the weather, alone, could kill.2 The store decided to overcome such Objections by adopting the following guidelines. First, a department would take certain items and operate on a dollar gross mar- gin basis rather than a mark-up basis. They hoped that most of the competition would not challenge these Special Offer- ings. This proved true even though the campaign was coordi- nated in 1958, just prior to the discount store invasion of the community. Second, no departmental Open-to—buy was to be affected by any special promotion purchase. That is to say, a buyer would not have to diminish his planned purchases, 1Interview with Mr. William Westin, sales promotion director, L. H. Kane Company, January 11, 1966. 2 I I O Henshaw, interV1ew, Op. Cit. 354 especially for basic stocks, in order to fulfill the plan. Third, no basic store inventory was to be penalized due to investment in heavy inventories for these so-called "super- feature" items. Fourth, as long as the item represented a true, unusual value for the customer and yet met Kane's quality standards, the department would receive ample news- paper advertising and in-store display support. TO encourage public interest in the forthcoming campaign, Kane's sponsored an essay contest, offering a $1,000 first prize for the best answer to the question: "What is a value?" In announcing the contest the company pointed out that the wideSpread use of deceptive pricing and misleading advertising practices threatened America's stan- dards of value. Since the subject of value was of vital concern to the public as well as to Kane's, the firm wanted to know what the public concept of value was. The contest drew nearly 5,000 entries from persons 15 years of age and Older. Kane's announced the names of 68 prize winners in a full page advertisement and simulta- neously urged the public to look for the following Thurs- day's advertisements which would demonstrate what Kane's considered a value to be. Subsequently, Kane's advertised a series of 42 "super—feature" items. Each advertisement featured a clear, identifiable picture Of the merchandise, an institutional message about what constituted a "super feature" and a 355 simple statement of the reason for the sale. The deliberate understatement was part of the appeal. This gave the ads an impact that overstating could not provide. Customers demonstrated increasing confidence in the promotion. Some items were oversold within 30 to 50 minutes after the store Opened. In all, the 42 promotions generated more than 3 percent of the 1958 sales volume. Encouraged by the stimulation to traffic and sales and profit (when measured in gross margin dollars and direct costs), the store repeated this program in 1959 under the title: "Kane's Certified Values." Through its close and steady working relationships with many of the nation's branded resources, the store procured necessary values and was able to boast to the public that it was indeed a quality as well as a value store. The timing proved prOpitious, since Kane's was already aware that the first major discount store was about to Open. Kane's also paid heed to the fOre- cast that during the latter half of 1959 Fulton County would face turbulent economic weather, as proved to be the case. In 1960, however, the firm did not repeat this pro- gram. It had served the purpose for which it was designed, to reestablish Kane's as a value and quality store, to anticipate new competition, and to heighten public confidence. We might note that while Kane's frequently reverted to what it deemed the fundamentals of merchandising, such as its branded resource or basic stock programs, it also 356 abandoned traditional concepts and practices when necessary. For example, it did not hesitate to adopt a basic tenet of discount merchandising, namely, to price merchandise on the basis of potential gross margin dollars rather than on a basis of mark-on percentage. The suggestion here is that Kane's was not so much unique as adaptive in its merchandis— ing strategy. Increase of resource brandwagon_program.--As Kane's drew away from the need or desire to "buy tomorrow's busi- ness," it reiterated the theme that nationally known brands Of merchandise represent both quality and value in which the customer could place her confidence. Kane's entered its merchandising and sales promotion program in a national name brand contest in 1959. Favorable comments encouraged con- tinued participation and in 1960 it received a certificate from the Brand Names Foundation as one of the ten best name brand stores in the nation. More recently, competing with 278 other finalists in the nation contest, the Kane Company was awarded a Certificate of Distinction in the department store category. Kane's COOperated with a national magazine in the promotion of a coordinated teen-age merchandise wardrobe and grooming program. Due to the Kane success in Haverford the magazine urged the store to enter its plan and report of Operation in the nationwide contest for department stores 357 sponsored by the National Retail Merchants Association. This effort earned an Honorable Mention for the store. Both external and internal conditions influenced these decisions. One representative of management stated: "We recognize the need to go after the great moderate market, to go after the affluent society, for peOple are not as price-minded as they were five years ago."1 In effect, the merchandising was adjusted to a demand already existing. Furthermore, he added: "Although such a program increased the risk, we believed we had to step up to where we thought our customers were going and where we would be able to offer something different."2 Internally, the limited Space in one store downtown inhibited some eXpansion plans related to the brand resource merchandising program. Further, this lack of Space pre— cluded expansion of the number of classifications as well as adding to price-lines within existing classifications. How Kane's resolved the Space problems is discussed next. Physical Expansion Both alteration of existing Space and eXpansion of downtown and outlying areas enabled Kane's to alter the merchandising strategy from 1945 to 1965. The major phys- ical alteration of the main store building occurred in 1950 1Sperling, interview, Op. cit. 2Haverford News, L. H. Kane Company file, spokesman is not identified. 358 when the company completed a remodeling program costing in excess of $500,000. Installation of escalators and air condition enabled the company to "offer the public the most modern shopping environment in Haverford." In 1954 the company compensated for the loss of space involved in this remodeling by acquiring an adjacent building of 5,000 square feet, in which it placed workshops for the drapery, Slipcover, and upholstery departments. As a result, it could more adequately stock and diSplay home furnishings merchandise in the main building. In response to the Eastgate opening, Kane's, in 1955, acquired a dairy plant one block from the main store, intending to use this site for a private parking ramp. Eventually it sold this prOperty to the city for a parking lot but thereby assured nearby parking for its customers. 1961-1965.--Although the first actual physical eXpan— sion after 1955 did not occur until 1961, the research, land purchase, and general planning began in 1958. The eXpansion took place in four stages between 1961 and 1965. Stage one: branch store.—~A change in demography of demand and in competition resulted in the first eXpansion, a branch store in East Haverford, which was not only the fast- est growing community in the trading area but also included the Eastgate ShOpping center. Residents in this city of homes were employed primarily by government agencies, a nearby educational institution, and a huge producer of 359 consumer durable goods. The pOpulation also included a fast-growing sector of faculty and students, who of neces— sity were interested in price as well as quality merchandise. By locating its branch in East Haverford the company could appeal to these groups as well as offer a ShOpping alterna- tive to Eastgate. A store official remarked, "The branch store will be a quality center representing what our downtown store stands for and the branch emphasis will be upon apparel for the entire family and furnishings for the home."1 This first branch provided an ineXpensive lesson for store officials. Successful market segmentation requires an accurate reading of the market, of the particular desires and life—styles of a particular portion of the market. Kane's estimated that 70 percent of its customers would pre- fer merchandise Similar to that stocked in the downtown main store, and that 30 percent would prefer the younger, more collegiate types of apparel and furnishings. Sales, custom- er comments, and salespeople's want slips demonstrated that demand was just the reverse. Fortunately, proximity to the main store enabled the branch store to rectify the deficien- cies in stock assortments. Three months after the Opening, the store offered an array of merchandise more closely lHaverford News, L. H. Kane Company file, spokesman is not identified. 360 approximating demand. By the end of the first year the store earned the profit projected for that period. There were several reasons for this desirable per- formance. One was, of course, the fact that the store stocked relatively higher mark-up and higher priced merchan- dise; the response to style emphasis, once the initial mis— take was rectified, was most positive. Customers wanted and were pleased to find competent sales help offered in this full-service store. Moreover, the advantage of the Kane name accrued to the branch store, the largest in East Haverford. Customers found at the branch all of the main store's facilities and conveniences, such as credit and delivery. One final comment is in order. The branch manager reported the store received very few calls for the lower—priced lines carried in some of the main store departments or for the price lines carried in Kane's Basement Store. Apparently, this store did not appeal to lower-income or married student patronage. It did, as indi- cated, appeal to those who desired quality and fashion. Stage two: Western Avenue Store.-—Sears' departure from dOwntown created a merchandising problem for Kane's: many customers seeking goods in hard home furnishings, sporting goods, housewares, hardware, and automotive classi— fications went to Eastgate, thereby decreasing the total downtown demand. The problem was complicated by the fact that Kane's lacked sufficient physical Space to feature and 361 diSplay assortments consistent with the other merchandising criteria the firm had established. In 1959, the first major discount store opened its doors and drew thousands of Shoppers to the very departments in which Kane's was weak. In addition, Sears announced an eXpansion to handle a burgeoning business. Finally, as if to make the handicap greater, the local city council failed to reach a decision on parking for downtown shoppers. Despite these changes the Kane Company did not solve its downtown merchandising problem. It had to concentrate upon the branch store Opening early in 1961. But a final precipitating circumstance occurred almost simultaneously with the branch store opening when an automobile agency vacated its building at the rear of the main Kane store. This remained vacant for approximately two months. Mr. Henshaw, the Kane president, learned that a national discount chain intended to establish a downtown Haverford store in the vacant automobile agency building. Kane's commenced negotiations at once and soon leased the site for 40 years. Ninety-five days later, the doors Opened to a completely remodeled, redecorated and departmentalized store. It included 40,000 square feet of selling and stor- age Space and housed nine new departments and five others transferred from the main Kane building. 362 The present merchandiser and manager of this Western Avenue store recalled the first planning meeting: Mr. Henshaw believed the city was ready for a store which would feature price and promotion, quality and service, and which would also supply certain kinds of goods downtown. The general idea was to turn the entire Kane Operation into a downtown ShOpping center. We would take out of the main store and place into the Western Avenue store all kinds of goods vulnerable to discount merchandising. We would promote as if we were running a three-ring circus most of the time, staging a major event once a month. But the format would be different from the main store. While competing promotionally with discount stores and Sears, we would meet Kane quality standards. We would have to stand for both quality and value. The Western.Avenue store included departments for hardward, custom kitchens, home improvements, paints, auto accessories, sewing machines, occasional furniture items, housewares and toys. Transferred from the main store were departments for Sporting goods, appliances, vacuum cleaners and applicance services. These transfers enabled the better furniture and bedding departments to eXpand and to display more effectively the better lines of merchandise from branded resources. Kane's constructed model rooms in the added Space and assem- bled in separate ShOpS the various classifications of furni- ture. The Western Avenue manager attributes the store success partially to resource relationships. By narrowing O the number of resources to a few nationally branded lines lWorthing, Op. cit. 363 and featuring broad assortments within those lines, the store always had on hand a quality assortment competitively priced. The store offered its customers adequate service on whatever it sold. By assuring its resources of continuity and adequate representation the store negotiated for larger gross margins. Kane's was particularly sensitive to the market segment attracted to the Western Avenue store. The manager commented: We knew we were hitting right. Customers told us so. Of course the real Sign is the amount of their purchases and that we could measure every day. But we were drawing a different kind of customer, one we judged did not usually come to a department store for these kinds of goods. Also, the layout was better than the main store for those customers. Perhaps they felt more at home. Now fortunately they use the main store. The data presented in Table VI-2 reveal that the impact of the Western Avenue store must have been favorable, and the data tend to support the claims eXpressed by that store's general manager. By the end of its second full year of Operation the Western Avenue store contributed approxi- mately 18 percent of the total Kane sales volume, which included the East Haverford branch store. The reader will note that the gross margin percentage of owned department sales declined in the three fiscal years ending January 31, 1962, 1963, and 1964. These declines can be attributed to lIbid. 364 the Western Avenue store, which had been merchandised on a gross margin dollar rather than a percentage basis. By the end of fiscal 1965 (seen in Table VI-2 as ending January 31, 1966), when it was estimated that Western Avenue accounted for approximately 23 percent of total corporate sales volume, the gross margin percentage decline had been arrested. The unusual consideration is that the percentage had declined so {A very little! The sales index rise, also seen in Table VI-2, suggests that Western Avenue sales increased both absolutely L and relatively more than any other division. The inference is clear: Western Avenue must have generated its volume at a very high gross margin percentage when measured against industry standards. But the significant result for Kane's is that it achieved its objectives: immediate acceleration of a large sales volume, formidable competition in the selected classifications, and attraction for and retention Of customers whom Kane's might otherwise have lost. Stage three: the Corner Shgp.--During the decade from 1950 to 1960, women's and misses' Sportswear as well as junior Sportswear eXpanded relatively faster than many other department store merchandise classifications. This encour- aged development of "a store within a store," that is, a ShOp featuring a particular kind of fashion, such as knitted suits or dresses, or devoted to a particular age group, such as a Young Modern Miss Shop. 365 Although Kane's rearranged stocks to match these Specialized demands, it was not until early in 1964 that additional space became available. Approximately 4,800 square feet of ground floor Space downtown, located in the northwest corner of the block housing its main building, had been leased to a group of small Specialty shops. When the leases eXpired in 1964, Kane's arranged to join this area with the main building. After considerable renovation the "Corner ShOp" Opened in August, 1964. Kane's merchandise manager appraised the results thus far: We regard this eXpansion rather hopefully. With a street door entry and its proximity to the parking lot we aimed this primarily at the career women who works in various downtown buildings and who needs to ShOp in a hurry. It has attracted many from this par- ticular group of customers and has produced volume which exceeds national averages on the basis of dollars per square foot and gross margin. It has not hindered the growth of our regular Sportswear departments. Stage four: The Campus Corner.--Again in response to a changing demography Of demand, Kane's recently carried out its fourth eXpansion since 1961. During the years sub- sequent to the branch Opening, two groups of customers within the East Haverford area changed. Increasing co—ed enrollment at the educational institution increased the demand for sportswear and casual ready-tO-wear. Management had to decide whether to eXpand the casual ready-to-wear departments. From another group of East Haverford customers, lSperling, Op. cit. 366 the store received requests for wider assortments of "styled home furnishings." These would supplement the basic stock assortments constituting the greater part of the branch store inventories in such classifications. The problem was how to satisfy both groups without sacrificing diSplay and stock space for either group of mer- chandise classifications. The problem was further compli- cated by the general merchandising strategy that the store must always maintain adequate stocks of whatever was deemed to be a basic in any given classification. Through its many resource contacts the Kane manage- ment learned that a corner dress shop located across the street from its branch store, containing 4,200 square feet of selling Space, had not developed the volume of business the owner anticipated or needed to sustain his investment. Upon hearing that other mercantile firms, including three national chains, were interested in acquiring the leasehold rights in return for purchase of the business, the Kane man- agement outbid all others and acquired both the stock and leasehold. This separate ShOp, renamed "The Campus Corner," currently features pOpular clothes and shoes for university and teen—age groups. AS a result Kane's main branch store now has adequate room to display and merchandise its better styled lines of soft home furnishings in the vacated space. 367 Sales Promotion The sales promotion function at Kane's encompasses the planning and execution of advertising and diSplay pro- grams and those customer relations activities which serve to bring the customer and the store together on an informal, personal, and more intimate basis. Five aSpects of its sales promotion activity warrant attention here. Newspgpers.--Kane's, until 1955, had been the larg— est neWSpaper advertiser in Haverford, as measured by the linage published. The management wished to retain this position, if at all possible, in order to combat the Sears relocation and the Agnew resurgence. Both rivals, it was surmised, would increase substantially their outlays for this medium. In addition, the population increases and dispersion encouraged Kane's to sustain or increase its budget. The fOregoing is stated to indicate how much impor- tance the firm attached to neWSpaper advertising and partial— ly explains why the campaigns pertaining to comparative pricing merited SO much attention from the management. Table VI-5, however, shows that Sears exceeded Kane's advertising from 1955 to 1958, exclusive. Since its total linage decreased until 1962 and Since Kane's had devoted considerable linage to value demonstrations, it can be assumed that the store eXpended proportionately more of the total linage on 1OWer price zones. TABLE VI-5 . 368 Trend in advertising linage of L. H. Kane Com- pany and advertising linage of Sears and Agnew Company eXpressed as percentage of L. H. Kane Company, 1955-1965 L. H. Kane Agnew Co. Adv. Sears Adv. CO. Linage Linage as % of Linage as % Changes L. H. Kane CO. of L. H. Kane Year 1955=100 Linage Co. Linage 1955 100.0 79.1 107.0 1956 96.0 67.7 100.7 1957 86.6 57.9 102.4 1958 85.1 59.5 104.1 1959 86.9 59.8 98.5 1960 80.3 66.9 92.3 1961 90.3 62.6 72.4 1962 105.0 50.7 69.9 1963 106.9 48.8 73.8 1964 114.5 41.6 69.2 1965 127.2 33.7 66.3 Source: Haverford News Advertising Department. 369 Subsequent to the value demonstration program and particularly after the first eXpansionS in 1961, the store adopted as a criterion for neWSpaper advertising what is known as the ABC scale. The sales promotion director eXplained: We prefer to use the Hudson scheme, where an item is classified as A if the intent of the advertisement is to secure immediate sales; B, if for the purpose of depart- mental institutional value; and C, if for store—wide institutional value. We are not there yet. We are leading into that, recognizing that on the one hand we must help to build sales, as in the Western Avenue Store, for example, and that on the other hand we must build the store as well as sales. Currently we are allocating about 55 percent for A, about 35 percent for B, and 10 percent for C. Some indication of what such a program can mean to a store is attested by what happened to Hudson's during a recent neWSpaper strike. That store was affected less than others because without neWSpaper guidance to persuade or influence the customer the tre- mendous institutional investment paid Off for Hudson's. 1 1.4 6.3-2! ' uifi—fiffl Kane's style emphasis.—-During the 1959-1965 period, Kane's increased its total merchandising emphasis on style in all divisions by means of sales promotion methods other than by neWSpaper advertising. To project Kane's as the style leader in the community, the store conducted shows and special events for the general public both inside and outside the store. For example, Kane's highlighted 33 different room exhibits at the Civic Center to demonstrate "gracious living for 1960." Each diSplay presented a portion or area of a room as the starting point or idea base for the entire lWestin, op. cit. 370 room's decor. The project featured items seldom Offered for sale or exhibited in the Haverford area. Kane's had staged a bridal fashion show at irregular intervals throughout the period from 1945 to 1961. In the latter year the merchandise manager coordinated store efforts with Brides Magazine and staged the event at the Civic Center. By securing the cosponsorship of a local junior women's organization, to which it donated the pro— ceeds, the store attracted a capacity audience of 6,000 and gained wide publicity. This event has been repeated each year. A third type of event illustrating Kane's emphasis on style was an international Festival of Fashion, which featured imports selected by the store's resident buying Office staff. Although this type of event had become common- place in large metropolitan areas, very few smaller indepen— dent stores could afford either the cost of procurement or the risk in inventory investment attendant upon such a mer— chandising program. Kane's management initiated a program within its New York buying Office syndicate to share the costs and risks of purchasing abroad groups of merchandise especially suitable for members of the syndicate. Buyers were sent to the European market to select items which would be likely to sell in communities such as Haverford and in such stores as Kanes. The success of the total program more than met the 371 «expectations of the stores which underwrote the initial czosts; as a result, both the buying office and Kane's have repeated the promotion several times. Youth theme.-—Kane's encouraged youth group activ- jgties. The personnel director reported on a typical episode: We formed a YOung American Board comprising girls who were juniors and seniors in high school. It was really their idea, organized by themselves in a series Of parties. They asked to use our auditorium as a meet- ing place. Of course, we obliged. Now they are plan- ning a school—wide program Of participation for hundreds of girls at Haverford High School. The purpose is to help unfortunate children in the community. Our cost is my time and the auditorium maintenance. We are happy because we truly see this as one of our roles. And, of course, I need not tell you the value of this kind of institutional publicity. Local home economic and sewing classes, 4-H groups, arui Girl Scouts have accustomed themselves to count on lfinne's for use of their auditorium for exhibitions or meet— ings. Twice a year, the store-sponsored charm school for prey—teen girls fills the auditorium to capacity for five weeks. Parents are drawn to the store for registration and for‘ the grand finale, a fashion Show. Kane's has identified itself with youth in several sales promotion activities. The director eXplained that "tuaday, youth is an idea, not an age, a Ponce de Leon image, (Jne all customer segments seek." The store develOped 1Interview with Mrs. Nancy Brewster, personnel director, L. H. Kane Company, January 13, 1966. «“7791; FM“ 372 Slogans; "The Wonderful World of Kane's," and "The Wonderful VVorld of Youth at Kane's." It used these themes in all rnedia and commissioned music for them; it published the zsczore in a neWSpaper advertisement and broadcast the music cpxrer the local radio stations. While it is difficult to trlrace any change in sales to such efforts, still they do ea:x:emplify the methods Kane's used to implement its merchan- d i sing strategy . Kane's civic orientation.-—Kane's, especially during ‘tzlrlee past ten years, has established itself as the community- 111Hngr1ded, civic-oriented store in the trading area. The man— agement has pursued this as vigorously as its program on <:=<:>111;>arative pricing, physical eXpansion, and merchandising C>lf5 laasics. Nor has the firm overlooked the publicity value 51:53 .Eittested by the following descriptions extracted from L DC a 1 press publications: Sightless students from the State School for the lBlind eXpressed a desire to model in a fashion show. ‘When asked to participate, the officials at Kane's immediately offered to outfit the boys and girls and ‘to provide instruction. The program drew a large audi- 1ence in the auditorium of the local Lions Club and the :store received a very generous amount of publicity. Kane's Sponsors and stages style shows at the civic iauditorium in conjunction with some large, local women's (organization. Further, it COOperates with both Of the Ilarge community hOSpitals by offering on a day set aside :for each, a percentage of all sales attributed to the "saleslady hostesses," members Of the various hospital Eauxiliary groups. \ Ea]: lHaverford News, in order of event cited, Febru- Y 10, 1960; November 18, 1960; November 3, 1957. 373 Big—city lOOk.--Local real estate agents reported in 1963 and 1964 to the Kane management that a regional depart- Jnent store giant planned to open a store in downtown Haver- :Eomd, or perhaps in an outlying area. In either event the srtructure purportedly would be the largest retail building in the trading area. During this same period the Centerstate jr1:ighway department completed a freeway enabling Haverford c: Lnstomers to travel in 75 minutes to one of the nation's j1_zargest ShOpping centers. Always attuned to competitive possibilities, the Kane management decided to act as if the rumors had become JC7¢EBEility. Sales promotion director Westin recounted the S tory of the decision: We decided that we needed to present an image of ourselves as a "big-city" store with the big-city look and particularly an image of wide assortments and fashion-right goods. Our Objective was to create a series of impacts in publicity to make people aware of Kane's. If we used the COOperative contributions from resources in the usual way we would end up with a series of smaller ads and these would not be as distinctive as we believed our advertising should be. Consequently we planned five double-truck advertisements during the Christmas season, 1964, using original art work. Actually we combined several smaller ads on the same classifications of goods. But through the integration Of outstanding art work and a common theme we created the image and impression of bigness. It represented a tremendous investment for us in art work. But there is no question in our mind that it set us apart not only from the local competition but, judging from customer reaction and sales results, ready to take on whatever :metrOpolitan store might construct here. \ lWestin, interview, February 10, 1966. 374 During the Christmas Season of 1965, the firm enlarged upon this theme, increasing the number of impacts to ten, two Of which were published in color. Again, the sales promotion director commented: We began to think that it was wrong to say we're a little store. We aSpired to be big. By letting people know, by planning for Six months rather than deciding on a day—to-day basis we could become big-city in looks and results. Questionnaire Response Analysis of the seven responses from the L. H. Kane Company (summarized in Table VI-ll) centers first upon exter- ereil environmental factors and second upon the apprOpriate 1;)1rice—lining adjustments. Of the 7 responses, 4 came from ‘tlejxe Menswear division (Tables VI, 7-10), the other 3 came JEFJETcmlcompany Officials, including the president and con— t:;3=?<311er. This latter group (hereinafter referred to as the ‘15::><:€ecutive division) provided data pertaining to Women's 1:):1zreasses, summarized in Table VI—7. D\ :Mernal Environment: “‘~J§§ilflgography of Demand All seven Kane respondents agreed that both the DQZEulation and geographic trading area for the firm had :i‘lr7L<:=reased from 1960 to 1965. All except one correctly §h3wered questions concerning changes in income distribution. \ lWestin, Op. cit. 375 The one executive thought the percentage of household in- comes under $3,000 stayed the same. It actually increased from 1960 to 1965. The respondents agreed that both the percentage of vehite collar workers and the percentage of women in the work iforce as well as the percentage of married women in the work 15cmce increased. However, 4 out of 7 thought the percentage (:>f farm workers stayed the same, while 3 recognized the decrease. Four estimated that the percentage Of service ‘tarcorkers stayed the same; one, that it declined; and only 2 I}<:Iuew that it increased. Five stated that the percentage of .Itiéadaual workers stayed the same. Kane executives were aware of some of the major 'tZJITGands in occupational changes and agreed on some signifi- ‘:=4Eanr1t changes, eSpecially those pertaining to white collar, :EFSEBJnlale, and.married female workers. But they did not agree, ‘E3.:E; noted, regarding the other occupational categories. In answer to Question 4-a, all 7 Kane responses were 1:;171vEEi't resource (market-wholesale) prices for comparable qual- :i“::432" merchandise had increased. .Although it is true that the ‘Arlr)“::>£lesale price level for all commodities "remained virtu- E3h':]L":I--:y unchanged throughout the five years, 1960-1964," the ‘A7}T] <:>Zlesale price indexes for the specific classifications for 376 l which responses were received increased, if but slightly. The wholesale price index for "apparel" advanced from 101.3 in 1960 to 102.8 in 1965 (1957-1959:100) .2 The data in Tables VI, 6-10, Show that the responses from Kane executives concerning retail prices (Question 4-b) correctly reflected marketplace activity. Respondents answered that retail prices increased from 1960 to 1965. The aggregate DSIPI rose from 197.7 in 1960 to 206.8 in 1965 ( .1941 =100), a positive change Of 4.5 percent in five years. More Specifically, in each of the five classifications for which Kane estimates were received, the merchandise price- :L ining change from 1960 to 1965 was relatively greater than the comparable DSIPI change. The DSIPI changed least for Men's Dress Shirts (Table VI-lO), from 198.7 in 1960 to -2 O2 .4 in 1965 (1941 =100), an increase of 1.8 percent. The Kane Index of Merchandise for this classification also reg- is t ered the least change, an increase of 6 percent from 1960 to 3.965 (Table VI-lO) . The largest increase in the DSIPI ce- tegories was in Men's Clothing, Category X, as seen in Pa b les VI, 6—8: the Index rose for each classification from 2 l 6 -3 in 1960 to 241.8 in 1965 (1941= 100), an increase of —\ Bu): 1Dr. Arthur M. Ross, "The Price Statistics of the Q11 Qau of Labor Statistics," Statement before Subcommittee QE Economic Statistics, Joint Economic Committee, Congress the United States, May 25, 1966, p. 2. 2Business Statistics, 1965: Biennial Edition, U.S. b QDartment of Commerce. 377 11.9 percent. Kane's largest increase in the Index of Merchandise was registered for Men's Suits, Table VI-8, which rose from 250 in 1960 to 440 in 1965, an increase of 76 percent. While this is extraordinarily large, the buyer Iaoted that "the store used this classification eSpecially to sshow a change in the merchandise stocked." In answer to Question 4—c, 6 Of the 7 responses were tzhat the "cumulative markron.% for comparable quality mer- <::handise in your classification" had increased. The dis— £3~enting response pertained to Dresses and was eXpressed by 55111 executive who also stated that, in his Opinion, "the =E=1tore continued to trade in Dress price ranges below the S tore's potential." This may account for his response that the store "stayed the same" regarding cumulative mark-on pe rcentage . Responses about cumulative mark—on percentage were j—¢I_21<20nsistent with total store behavior. According to the ‘51E5i.1:a in Table VI—2, the aggregate gross margin percentage 13 (:Dfil: owned department sales actually declined during this :5: ‘5333::iod. Admittedly, the two measurements of mark-on and E3.n:: (:oss margin are different. Yet it is quite plausible that ‘:']bjL"'::a1 store gross margin declined. The eXplanation is one Eiclsl:eady proffered, namely, that the aggregate figure after ‘1‘S3€51 is diSprOportionately weighted by the Western Avenue 378 Store. In this latter division, it will be recalled, gross margin dollars rather than cumulative mark—on percentage became the guideline in pricing of merchandise as well as the standard for performance measurement. Belationshigg of Environmental Events Upgn Price—Lining The reSponses to questions concerning the effect Of these environmental events upon price-lining decisions were inconclusive. Except for Question 1 (Page 1), for which 4 responses were received, only 3 of the Kane executives provided answers to the inquiries about effects of envirOn- mental events (Table VI-ll, pages 1 and 2). Yet, some Of these replies can be related to the merchandising strategy. For example, one executive stated that the positive changes in household incomes affected price—lining decisions regard— ing the dress department as well as the total store. How- ever, concerning the changes in the income group under $ 3 a 000, he replied that the percentage of households had Ge Q :reased, indicating that the strategy was keyed to changes in higher income groups. All three members of the executive gr QUP replied that the occupational changes in white collar an Q female categories affected both merchandise and advertis— in g price-lining. But they did not agree that other occupa— t - lQhal changes affected such decisions. Also, these three $3: . QQutives concurred in answering that resource prices E1 13 is acted price-lining decisions . 379 Answers to questions pertinent to changes in demog— raphy of demand confirm that Kane executives were aware Of environmental events and that the attempt to trade up was <:Onsistent with their perception of these changes. It will toe recalled that upon Several occasions these Officials or meet, Eicknowledged they "were attempting to catch up with, Nonetheless, the Kane eXperience Ciemand already existing." .j_n the Opening of the East Haverford branch store indicates 1t:hat comprehension of demand requires knowledge of kinds of «ngoods wanted as well as awareness of change in income levels. JEBJKternal Environment-—Competition a-c, Table VI-ll, page 3, In answering Questions 2, EEL£1h1.7 respondents stated that discount department stores did In addition, 6 of LI11<2>1Z shift the entire price range upward. 'tZ-Ifilee 7 stated that discount stores neither shifted emphasis L1.‘p‘award within the range nor did these stores lower prices In response ESLil'lwcfladd other prices to the top of the range. Questions 4 and 5, Table VI-ll, page 4, however, 5 Of the t:-<::> lrmesi =E=ponses were that discount stores did change merchandise Ea. . . . . . . . :tflw1ul3t1 in.the analysis of questionnaire responses from The Fair ‘1‘]:1 'Chapter Four, there are indications that discount 380 department stores traded up within price ranges and extended price ranges upward. In answering Question 6—a (Table VI-ll, page 4), 5 of the 7 responses were that Kane's dropped categories of Inerchandise as a reaction to discount department store com- including 4 from the Menswear divi- Ipetition. These same 5, ssion and 1 from the Executive division, that Kane's lengthened its Own price All also stated, in .eanswering Question 6-b, :zrange. The answers to Question 6—c differed slightly. :3 from the Executive group stated that Kane's did not shift ieeznphasis from one price-zone to another within the range. CITIIe 4 responses from the Menswear division contradicted this View and the evidence in Tables VI, 7—10, supports the con- 1:lfiarntion that these buyers did Shift emphasis from one price- £==<:>Ine to another within the range. It is interesting to note that the 3 executives who ialltfilsswered "no" to Question 6-c did.show on Charts I and II t:‘lbjL£Elt the firm, nonetheless, increased its sales in higher LED;1:7 :i_ce—zones within the range. One explanation may be that 1::lfldese reSponse was not to discount store competition but to <2) . . . . . 31:1:lfiler stimuli or to Opportunity perceived in the market. The response to Question 7-a was the Same as for 6-c. P1 Q . . ‘BVVever, all seven responses were negative to Question 7-b, ‘\ serve its customers by simply accepting the prevailing Jrsetail price as its standard in order to retain the customer eexreu1though it resulted in lower mark—on. In other cases, ESIchh as major appliances and Sporting goods, Kane merchan- <3cirsers modified the pricing assumptions and accepted the EIITCDSS margin rather than percentage margin basis of determin— j—I‘IC_3"retai1 price. That is to say that in terms Of defensive St1:1:‘ategy, they retained the classification and price range Eixidéi met competition; and in terms of offensive strategy, tlflfiayrretained classification and price range and priced on a; c'iollar gross margin rather than a percentage gross margin batSSis on both branded and non-branded, including private :LailDel, merchandise. 382 Price-Lining Agjustments All data for price—lining comparisons are estimates. Further, executives eXplained that data for the five classi- fications refer to regular priced merchandise and do not include sales or mark-down merchandise for either merchan- dise or advertising price-lining figures. Also, in compar- ing tables in this chapter with those in the other cases, the reader should remember that this store is in the $10—$20 'n—uuu u: . Inillion dollar volume class, while the other tables pertain 1:0 stores whose annual sales volumes exceed $40,000,000. Iklthough Neustadt data were not available so that Kane's <:c>u1d be compared with the other stores, 6 questions were 13<>rmulated in order to evaluate the estimates which were Ireeceived. They will be found at the bottom of the reSpec- tleve Tables VI, 6-10. gppstion l.—-Comparing their own advertising indexes, (adind the 9-City group trade up? In 4 of the 5 classifica— 1351-ions, the exception being Men's Slacks (Table VI-7), the $3‘-<3ity group did trade up. gppstion 2.--Comparing its own merchandise price- JLlidning indexes, did the L. H. Kane Company trade up? In all 55 <21assifications for which answers were received, the L. H. I(axle Company did trade up. ngstion 3.--Comparing its own advertising price- lfiining indexes, did the L. H. Kane Company trade up? Again, tdle answer was positive for all 5 classifications. 383 Question 4.-—Compared with 9—Cities, did the L. H. Kane Company trade up, relatively? In all 5 classifications the company traded up more, relatively, in its advertising price-lining than the 9—City group did. Qpestion 5.--Comparing both merchandising and adver- tising price-lining indexes, did the L. H. Kane Company trade up more in its merchandising than in its advertising? Kane's traded up more in merchandise price-lining than in advertising price-lining in 4 of the 5 classifica— tions for which data could be Obtained, as seen in Tables ‘VI, 6-10. The exception was Men's Suits, Table VI-8. The response stated that a new buyer was employed after 1960 and, apparently, he decided to emphasize the higher price :zones in his advertising, perhaps to convey the idea that lKane's had decidedly traded up. This becomes more evident VVhen the Kane indexes of 1960 are compared with those of the Ei—City group for that year. Question 6.--Comparing the relative changes in DSIPI Eirid its own advertising indexes, did the L. H. Kane Company ‘tlfade up? In all instances the index change of advertising was greater than the DSIPI change. One additional Observation based on the data in Tables VI, 6-10, deserves comment: The Kane Index of Adver- tliming in 1960 was less than the 9-Cities group in 3 of the ES (Elassifications.(Tables VI, 6-8, Women's and Misses' IDINEsseS, Men's Slacks, and Men's Suits, respectively). 384 By 1965, however, Kane's estimated Index of Advertising was greater than the 9-Cities group in four of the five, the exception being Dresses. ' I inquired why the indexes for Women's and Misses' Dresses were less than the 9-Cities. Two answers were given. First, in this store the data for dresses are not comparable, because Kane's includes a wider variety Of categories in this classification. More specifically, the Kane data in- cluded Washable and Play Dresses, a category within Neustadt Code Number 13, with a price zone extending from under $3.00 to over $18.00. Hence, when the total dress classification is calculated on the same price zone range as for the other three stores studied, it would be likely that the percent- ages in Zones 1 and 2 would be greater than in the 9-City scale.i Two major executives at Kane's provided the second Einswer. They stated that while the firm, generally, had tzraded up, it had not offered a sufficient dress assortment c>f style merchandise above $28.00. They also agreed that —the volume point and the price—center in dresses did not JEWaflect the merchandise which should be eXpected in a commu- rlity's leading department store. An additional observation about the total dress mer- ‘zllandising was offered by a Kane executive: 385 When we use NRMA figures as a standard we realize we do twice as much business in our daytime dress department as the average store whose sales volume is comparable to ours. Based on that, we should generate twice as much total store business and we Should do substantially more business in our better dress depart- ment. By better dresses, I mean those priced at around $50.00 and more. These eXplanations of the data in Table VI-6 do not support the claim that Kane's traded up, at least in such an important ready—to—wear classification as dresses. However, they do tend to support the Kane executives' claim that they 'were aware of a change in demand. Chapter Summary Analysis of the L. H. Kane merchandising strategy reveals that this company was more oriented toward competi- ‘tive than toward consumer behavior. Though the management vvas aware of increased consumer affluence and suburban Ckevelopment, the primary and compelling reasons for change Vvsere impending or actual competitive activity. In altering :it:s merchandising strategy Kane's discovered some inner and ()11tward strengths. The no-comparative price policy brought Seaveral benefits to the company: one, it demonstrated that ii ibold program persistently carried out could secure an Objective; and, two, that public reSponse manifested a large reservoir of consumer confidence. \ lAamondt, Op. cit. 386 Kane's attempted to broaden rather than to segment its market. Through the Basement Store, the Western Avenue Store, and its store-wide events, it attracted the "value- customer"; through augmented fashion stress in apparel for the family and in home furnishings, and through its East Haverford eXpansion, it attracted the "quality-customer." .And for the customer seeking dependability above all, Kane's Offered basic stock and brand name merchandise. Location and size were significant factors in mer- chandising strategy changes. Kane's turned the presumed liability of a downtown location into an asset by increasing its size so that it could then offer an eXpanded merchandise line. By Opening a branch store in East Haverford, Kane's lorought its wares closer to the customer. In both instances .it was aided by keen market intelligence. Had the company riot Obtained these additional locations and increased its saize in both, it is doubtful if it could have gained the ‘Jtolume of sales and been able to assume the big-city look VVIiich the management believed necessary to either forestall <31? meet anticipated competition. On the basis of interview data and available ques- tlionnaires, I came to the following conclusions: 1. In response to low-margin (discount) department SStare competition Kane's altered its merchandising strategy 133' both trading up and trading down in its merchandise p1Tice-lining. It accomplished the former by escalating the 387 price-zone range of basic stock and branded assortments. But it also substituted gross margin dollars for gross mar- gin percentage concepts in order to effectively compete in certain classifications which it elected to retain rather than eliminate. To compete, therefore, the firm had to trade down in both merchandising and advertising. Kane's was equally influenced by how its traditional rivals behaved, particularly until 1959. Regarding both kinds of competi- tors, Kane's repeatedly demonstrated a superior capacity for reaction rather than innovation. 2. In response to an upward shift in demography of demand Kane's traded up, thus emphasizing its position as the Haverford quality department store. The interview data strongly suggest, however, that this trading up occurred more within established ranges than in upwardly increased ranges. 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In regard to the first con? dition, the study focused on the factors of pOpulation and income; in regard to the second, while it focused on discount department stores, the investigation also took account of development of shopping centers and changes by traditional department store rivals. It was hypothesized that, in reSponse to changes in these conditions, the traditional department store would trade up in its merchandise price-lining and that the firm would act similarly with regard to its advertising price— lining. I conducted an intensive study Of four department stores by means of personal interviews. In addition, I searched trade journal and neWSpaper files. To corroborate or contradict interview data, I also conducted a second investigation among interviewees and their colleagues by means of a mail questionnaire. 398 399 Each company has passed its 65th birthday, the Oldest being Mayfield's, which Opened in 1872. Three of the firms--Staplinger's, Kane's, and Mayfield's-—started as dry goods stores. The Fair was organized as a confederation of leased departments or "stores." Staplinger's is unique in two respects: first, it is the only one in which ownership remains with the founders' descendants, one of whom is an active chairman of the board; and, second, it is the only one which has sold in both wholesale and retail markets. This closing chapter comprises the nine findings of the study, the conclusions, and recommendations for addi- tional research. The findings of the study are; 1. Changes in demography Of demand and in competi- tion occurred in all four cases, but the magnitude of change for each external variable differed in each case. Changes in Demography of Demand Table VII-1 ranks the four communities of this study--Monroeville, Haverford, Keelim, and Freeport--in terms Of the five variables considered in Tables A-l through A-5: population, net effective income, retail sales, gen- eral merchandise sales, and income distribution. Although pOpulation increased in all instances, the relative changes in Monroeville and Freeport were less than the relative pOpulation change in the entire United States. 400 .xHoemeee .NIH OmHemm "momeom .moumam OOOHOO Hmaoa mea mom mmemHm xmoeH mea emea mmmH mm3 e3oem mmemHm xmoeH mea amea mmamOHoeHe OOO.NN ou O0.00 HOOHnuNNOHO H e.oe e 0.0N N N.OO N O.HO H 0.0NH O O.OOH N 0.0NH N 0.00H no>o oem OO0.0HO HOOHHHOOOHO N O.OoN H O.NNN Ne H.NNN em N.HHN em>o oem OOO.NN HOOHHHNNOHO OOH "NNOH .eHeomHe oeooeHuuN OHeoe H H.ONO em O.OOH N N.OON Ne N.NHN HOOH.quOH "mooemv OmHmO .mmoz .emwlle mHQmB H e.ONN em N.NON Ne N.NHN Ne N.OeN HOOHHHOOOH "xooeHv mmHmm HHmammIIm mHnt H O.eNN Om N.NNN Ne N.NNN Ne N.OON HOOHnuonH "xooemv mEOOeH aommmm amZIIN mHQmB H N.NNH em N.NOH N O.NNH Ne N.NNH HOOHnuOOOH "xooeHO eOHamHsmomllH mHQmB Memm xmoeH Memm xmoeH xemm xmoeH xemm xmoeH omommm>mm amommmmm EHHmmM mHHH>mOmeOS ll llli xHoemmmm .mIH mmHQmB eH eSOem mm mOOH eH mmHaHo meow eH mmHQmHmm> HmemmaxO omaomHmm mo eOOHmmmEOU .HIHH> mqmdfi 401 Total net effective buying income and total retail sales increased in all four communities as well as in the total United States. The relative change for both variables was greater in the nation than in three of the four communities, the exception being Haverford. In relative terms the general merchandise sales increased more in both Haverford and Keelim than in the total nation. Again, in relative terms, the impact of the change in the percentage of households with annual incomes of less than $2,500 was less in Haverford than in the other cities. 0n the same comparative basis, Haverford is to be singled out as the city where the percentage of households with incomes of $10,000 and over increased the most. Further study of the data summarized in Table VII-1 Shows that the most favorable changes in demography of demand, relatively, were in Haverford; the least favorable, in Freeport. Changes in Competition Three kinds Of change in competition developed in each community. The magnitude of change for each kind dif— fered in each case. Discount competition.--National, regional and local discount department stores developed and flourished in three of the four markets. In Haverford, however, only national and regional firms succeeded; no local discount department store succeeded in Haverford. Discount stores appeared 402 earliest in Freeport and latest in Haverford. The most numerous as well as largest-Sized of the discount stores were found in Freeport. ShOpping center competition.—-The ShOpping center development constituted a second kind of competition in the four cities. The largest number of, and the largest-sized, ShOpping centers were constructed in Freeport and they preceded similar developments in the other three cities. In Haverford, the first ShOpping center, and the only one in excess of 500,000 square feet, Opened in 1955. In all cases major department store rivals occupied ShOpping center sites before the subject stores expanded to these new locations. Thus, competition intensified not only because rivals acted sooner but also because the Shopping centers themselves proved to be such a powerful force of attraction for all customers. Traditional department stores.--Competition among traditional department stores also changed during this twenty—year period. In Monroeville two traditional depart— ment store firms floundered during the first decade but then successfully redirected their merchandising strategies dur- ing the second. .Several stores which opened branch stores in suburbs prior to 1945 eventually entered shopping centers. Only one major firm in this market, Smith and Company, appears to have continued the same strategy throughout the period studied. 403 In Keelim, competition from traditional department stores increased when two long-time rivals eXpanded into shopping centers and then merged. Another change occurred when a traditional store from another community Opened Keelim's largest retail store. In Freeport, several tradi- tional stores went out of business. Many others, however, eXpanded as they opened branches in burgeoning suburban com- munities and in ShOpping centers. In Haverford, one tradi- tional rival went out Of business and a second became a vigorous competitor after being acquired by a national dis- tributing firm. The finding for changes in competition is the con— verse of that for demography of demand. The most intense changes in all three kinds of competition--discount depart- ment stores, shopping centers, and traditional department stores-—occurred in Freeport; the least intensive, in Haverford. Two caveats are necessary regarding this last con- clusion, however. The first is that Haverford, as noted, is the smallest of the cities compared; this may account for the fact that it was the last to attract both discount firms and ShOpping center developers. Further, the major competi— tive changes in Haverford occurred after 1954 when the Sears store moved from downtown to the shopping center and when a financially strong company purchased Agnew's, the only tradi- tional department store remaining in Haverford. 404 The second limitation is that the changes in demog- raphy of demand were compared on a relative and not on an absolute basis. On the other hand, comparison of changes in competition was based on absolute, although admittedly incom— plete, data. 2. Stores did not regard changes in demggrgphy of demand and changes in competition as beingegpallysignif— icant. The significance placed by each store on the changes in these external variables did not vary in accordance with either the direction or the magnitude of change. For example, although relative changes in the demog- raphy of demand in Freeport were less than in the other three communities, Mayfield's was more influenced than the others by the changes in this variable. On the other hand, in Haverford, where relative changes in demography of demand were the most favorable, the Kane Company moved with greater alacrity and creativity in response to competitive changes than to changes in demand. In the first instance, Mayfield's perceived an Opportunity existing in its "Old neighborhood," which had changed demographically and economically. As a result it paid least attention to competition, although the changes among both traditional and discount stores as well as in the Shopping centers were very intense and rapid in Freeport. 405 By such behavior it altered a strategy which historically had been oriented toward competitive behavior. In the second instance, Kane's dramatic abandonment of comparative pricing, for example, was traced more to reaction tO competition than to awareness of change in demand. Its physical expansion occurred as a result of com— petitive changes or such impending changes rather than as a result of any changes in demand. However, it should be noted that in merchandising for these additional spaces, in both the Western Avenue store and in the branch units, Kane's was influenced by changes in demand as well as those in competition. At The Fair, executives, although sensitive to these conditions, did not agree either about the magnitude of change or about which of these were more significant. For example, the conflict in merchandising strategy was traced to the ambivalence about changes in income distribution and the effect of this change upon demand. Until 1963, The Fair's strategy was influenced more by competition than by demand. After 1963, a different interpretation of the same data resulted in a one-directional strategy which utilized the firm's resources more successfully. The change in strategy was also traced to a reversed orientation toward these two variables. Staplinger executives were aware of changes in demography of demand. They knew their customers were moving 406 to the suburbs. These executives recognized the changes in income distribution and perceived that newly—formed demand resulting from this change offered the greatest opportunity for profitable merchandising. Nonetheless, Staplinger's reacted more to competition than to demand during the first decade of the period studied. Later, eSpecially after 1955, this firm redefined its merchandising more toward a changing demand than in reSponse to changing competition. Regarding these factors Of demography of demand, there is an interesting difference between the Staplinger and The Fair management of marketing intelligence. In both communities the dominant newspaper conducts extensive re- search for retail clients and supplies a constant stream of data concerning both demand and competition. Staplinger's digested it, acted on it, and acknowledged that it influ- enced strategy. The Fair, on the other hand, ignored the data at its diSposal. After 1963, the new management based its decision to change the merchandising strategy upon this same information. Changes in Competition Responses to discount competition were highly indi- vidual and cannot be traced to number Of discount units or size of these units or timing of their entry. The largest number and largest-sized discount stores were established in Freeport earlier than in the other three cities. However, 407 Mayfield's strategy centered on demand analysis arising from pOpulation and income changes. Further, the Mayfield execu- tives had been through other retail revolutions and had decided they could not Operate profitably if they competed on a low-margin basis. It is reasonable to conclude, there- fore, that the store in a city with the most intense dis- count store competition seemed to be the least concerned with it. The last of the four cities studied to feel the impact of discount retailing was Haverford. However, it has been shown that once these competitors entered that commu- nity, the L. H. Kane Company responded directly, in both merchandising and advertising. One of Kane's most signif- icant eXpansions, the Western Avenue store, was attributed to the threat that a discount department store might occupy a downtown retail location. Kane's responded by seizing the location for itself and Opening its own "promotional" store therein. Staplinger's reacted to discount retailing initially by imitating it in the branch Operations. This merchandis- ing strategy appeared to be one way to increase volume rapidly in locations outside the Monroeville Central Busi- ness District. The strategy also bore promise of satisfying certain merchandising constraints, such as turnover and gross margin contribution per square foot, which fundamen- tally arose from financial conditions within the company. 408 Contrary to Mayfield's response, The Fair reacted to discounting by imitating its methods in branch stores and even in the Basement Store of the Main Store location. As long as The Fair considered one of its primary market tar- gets tO be those families whose incomes were in the lower ranges of the total Keelim income scale, the merchandising strategy paralleled that of discount retailers. Shopping Centers This study showed that one competitive change to which all four stores reSponded similarly was the shopping center. However, in all four cases, the stores were late, very late, in responding to this external develOpment. When the subject stores discovered that their customers had not only moved away physically but were diSposed to patronize more convenient and, Often, better stocked stores located in ShOpping centers, all four firms Opened in shopping centers. On the basis of assortments, personal service, and conve- nience, competition from traditional department stores and Specialty stores located in ShOpping centers was Often more intense than from discount stores. In the study I found that these stores were not always aware of the magnitude of the demographic trend which made ShOpping centers possible. Again, each reaction differed. 409 Staplinger's could not extricate itself from an inhibiting lease. But even if it could have obtained a release it is doubtful that management would have substi- tuted shopping center locations for downtown: the older Staplinger management was tradition-bound in its belief that downtown would resurge as the primary center of retail activity. This study also disclosed that Staplinger's was financially unable to participate in some ShOpping centers offered to it, notably to join Smith and Company as major tenants in what became the largest ShOpping center in Mid- state. The Fair misinterpreted a parent company policy, and, like Staplinger's, settled for secondary locations. Mayfield's stubbornly clung to its main store location, believing it must perfect this unit first. The L. H. Kane Company, despite the lesson Offered by the Sears eXperience in Haverford, waited until 1962 to Open its first branch store. Traditional Department Stores Monroeville illustrates the competitive vigor of traditional department stores as they, too, attempted to adjust to all of the foregoing conditions. The literature often concentrates on changes in demand and on discount retailing, but fails to consider what other traditional stores do, except to note, of course, their entry into or sponsorship of Shopping centers. 410 Other traditional department stores also changed and offered competition which must be considered in an analysis of merchandising strategy changes among the subject stores. These kinds of competitive changes in Freeport were not as significant to Mayfield's as they were to, say, Kane's in Haverford. In the former instance, the management decided to concentrate on a single market segment and to cease to compete on a citywide basis for patronage from a broader income group. In two of the four stores, particularly, executives imaginatively interpreted what would be the effects of these changes on their customers. Interviewees at Mayfield's reiterated that they attempted to upgrade their merchandise to what they deemed to be the taste level of their customers, or, again, to educate their customers to this taste level. At The Fair, it will be recalled, one major executive ex— pressed the belief that the most profound change in retail- ing was not discounting, nor scrambled merchandising, but what he called "the taste revolution." It was not until 1964, however, that a strategy based on these perceptions of external change was formulated. In the other two stores, the executives were aware Of the changing demands. Officials at Kane's acknowledged a demand for better quality merchandise, while at Staplinger's the merchants knew that an increasing number of customers 411 with much larger income also wanted better quality merchan- dise than they had purchased before. 3. The changes in merchandising strategy were not due solely to external change; the changes were traced to internal conditions as well. To find out how and why a firm responded to external change it was necessary to analyze internal conditions which influenced response. I found in all four cases that merchan- dising strategy decisions could be traced to managerial assumptions about how profits were to be achieved and also to how management perceived its market. Management in each case prOposed a different means to achieve an ultimate end--profit. In the Staplinger case, the initial Objective was to survive. This does not imply that it was a failing company. But it was not a profitable one. Financial variables significantly influenced those merchandising decisions which helped to restore the company's financial health. After Staplinger's realized it could not make profits by virtue of its venerableness, or goodness, that is to say after it ceased to take profitability for granted, it began to formulate a strategy to survive and grow. When it no longer assumed it could generate profits by appealing to the upper income class, it cast about for a market segment to which it could merchandise profitably. 412 The Fair assumed that the necessary and sufficient condition for sustained or increased profitability was to achieve market sales dominance. In the Mayfield case, how- ever, management realized that pursuit of sales volume had not resulted in satisfactory profits. Mayfield's objective was to serve those customers who resided in the neighborhood and who, coincidentally, were financially able to purchase better quality merchandise. Mayfield management assumed it could eventually increase profits by reducing sales of those classifications whose inherent transaction costs or vulner- ability tO competition make it unlikely that the firm might produce a profit for those kinds of merchandise. Kane's objective was to secure an increasing share of the market and to become and remain the leading sales volume department store in Haverford. Its detailed record on store traffic and sales per capita indicates how signif— icantly Kane's considered this objective to be. In all endeavors, the merchandisers at Kane's were reminded of the profit-and-loss variables Operating in every transaction. The willingness to alter the assumptions concerning gross margin at the Western Avenue store attests Kane's flexibil- ity. A second set of assumptions which management made and which influenced merchandising strategy concerned the composition of the store's market-—who the customers were and how the store could find out about them. "Reading the market" was a decisive step in strategy formulation. 413 Staplinger's recognized that it had to cater to a new market segment, one far broader than ever before in its history. It knew this not only from general awareness of post-war circumstances but from the excellent research studies conducted by the Monroeville Gazette. Even at first Observation, it appears The Fair mis- read its market. There was and is a large Keelim market for popular-to—budget-priced merchandise. But the mistaken assumption was that this represented an Opportunity for the kind of enterprise The Fair wanted to be. The Fair could not build a satisfactory profit by acting on this assumption. Further, from the evidence seen, it appears the management ignored or failed to analyze the statistical profiles and other economic and demographic data provided by the Keelim Neyp, The management simply assumed Keelim was "still the same old Keelim," if it ever was. Mayfield's Obviously "read its market" correctly. It should be noted again that the company employed very simple, very ineXpensive research, to determine some basic facts upon which to build a strategy. The Mayfield case tends to confirm the statements in the literature, eSpe- cially one by Alderson, that a department store, in order to survive, must "renounce the universal marketing task of matching all goods with all people,"1 lWroe Alderson, gynamic Marketing Behavior (Homewood, Illinois: Richard D. Irwin, Inc., 1965), p. 234. 414 Kane's interpreted its market both successfully and unsuccessfully. As to the former, it correctly assumed, for example, that customers wanted and would respond to a Western Avenue type of store. (Of course, one could conjecture that this decision by Kane's resulted as much from reaction to competitive conditions as it did to recognition of merchan- dising Opportunities.) Kane's initial merchandising of the East Haverford branch store represented a false assumption about the market. There is also a need to know the mind of management. Without knowledge Of the financial orientation of Stapling- er's management after 1949, one cannot understand its drive for sales volume. Or, in The Fair case, one needs some acquaintance with the background of the men who read the market one way while simultaneously an outside firm, also a traditional store, perceived an entirely different Opportu- nity. Naturally, all managements agreed that the ultimate Objective was profit. In View of the foregoing account of internal assumptions and perceptions, it would be most unlikely to find that the stores would rank the remaining Objectives or subordinate means in the same order. And even if they did agree on the ranking, this study shows that it is unlikely that the implementation or behavior would be alike, due to the different backgrounds and perspectives of the different merchants. 415 The emphasis on financial factors by the firms would seem to support several recent suggestions in the retailing literature which stressed the significance of accounting or financial principles in formulating a successful merchandis- ing strategy. Kibarian, as noted, urged adoption of a con- tributions-tO-profits approach.l Entenberg emphasized the importance of return on investment.2 Trade organizations have begun to use gross margin dollars generated per square foot of selling area as a standard for measuring merchandis- ing performance. All of these are adding to or supplement— ing such traditional decision-rules as sales volume, per se, or gross margin percentage, in developing a strategy. These additional standards were adopted early by Mayfield's in its strategy formulation, and they were devel- Oped into precise guidelines for buyers, eSpecially through the period studied. It is also interesting to note, again, that Kane's adopted the gross margin dollar contribution and abandoned the gross margin percentage as a standard in devising a strategy for the Western Avenue store. The financial perSpective pervaded all of the Staplinger deci- sions. The Fair, until 1964, appeared to heed these sugges— tions the least of the stores studied. However, after 1963, lBarkev Kibarian, "Why Department Stores Can Meet Discount—House Competition," Journal of Retailing, XXXVI, NO. 4 (Winter, 1960-1961), 201—204, and 224. 2Robert D. Entenberg, Effective Retail and Market Distribution (New York: World Publishing Company, 1966), p. 215. ‘1: ll . ,VIII {III 416 these financial criteria became a prime concern of the executive policy board. In Chapter Two I set forth three limitations to this study. One of these inhered in the subject, namely, a basic assumption that the external environment acted as the trig- gering agent, the cause, the reason for action to be taken. It was then pointed out that the firm could adjust, could change its merchandising strategy for other reasons. One of these might be internal necessities, such as demand for larger profits. Another might be a change in managerial perspective or interpretation of the same or similar set of external conditions. Also, in Chapter Two, I stated that the degree of this limitation could be ascertained only after conducting the research. This third finding, that the change in mer- chandising strategy could be traced to internal conditions, and the second finding, that managements differed in their perceptions of the external changes, suggest that the limi— tation was not an imposing one. Indeed, the awareness Of this limitation undoubtedly influenced the investigation, causing me to ferret out evidence indicating the signifi— cance of internal causes. It may be well to restate another limitation, as already mentioned in Chapter Two: whether these very firms are special cases or whether they are representative of the 417 industry. The justification was that I could secure and contribute more knowledge by means of a smaller number of intensive case studies. As noted previously, the degree of this limitation could be ascertained only after conducting the research. The first finding, already cited, was that external conditions varied in each market and that the magnitude of change in the subject cities were both greater and smaller than those in the nation. The investigation considered com— petitive changes beyond the original SCOpe, namely, that in addition to analysis of the impact of discount stores, the study also encompassed changes in ShOpping centers and in traditional department stores. However, a comparison between Haverford, a smaller-sized trading area, and the other three communities, each regarded as a metrOpolis, suggests that it would be difficult to generalize about the department store industry from this limited number of cases. Certain charac- teristics of external change--timing, extent, intensity--dif- fered as between the three metrOpolitan areas and the smaller community of Haverford. Also to be noted is the fact that both of the external conditions--demography of demand and low-margin (discount) store competition--increased. The study did reveal that the percentage of households with lower income groups increased and that other competitive institutions in retailing--traditional department store 418 rivals and ShOpping centers-—had to be considered in testing the hypothesis. Nonetheless, the study did not encompass any of the other three possible sets of conditions which conceivably might obtain: for example, an increase in demography of demand and a decrease in low-margin store com- petition. Hence, it is doubtful if one can draw conclusions about the industry from this study. On the~other hand, I believe I did obtain more knowledge about the how and the why of the behavior of these firms than if alternative means Of investigation had been employed. 4. By_1965, all firms had partiallypagjusted their merchandising strategies as hypothesized; throughout the twentyeyea£_period, however, only one firm adjusted ips merchandising strategy as hypothesized. Throughout the period studied one firm, Mayfield's, consistently implemented a merchandising strategy which had been formulated in reSponse to external environmental changes. The management of this firm segmented from its former total trading area a particular geographical portion in which it found sufficient demand so that a revised merchandise mix could be profitably offered there. Once the new strategy had been accepted, Mayfield's consistently traded up in the merchandise and advertising price-lining. The Mayfield strategy confirms several statements from the literature which were cited in Chapters One and Two. The decision to formulate a strategy based upon patronage 419 motives and market segmentation in response to a change in demography of demand is akin to Bucklin's proposals.l Also, Portis and Rich suggested that in response to discount store competition a traditional department store might trade up, drop some of the more competitive hard—goods lines, empha— size fashion and Offer more services.2 Essentially, this is the strategem which Mayfield's devised. It succeeded. The other three firms, however, did not respond ini- tially as hypothesized. Staplinger's, frOm 1945 to 1955, traded down. In merchandise price-lining it sought sales volume in lower price ranges and it advertised these lower ranges to influence a market segment larger than it had cultivated heretofore. Later, as the firm realized it had traded down almost to discount-store ranges, Staplinger's traded up to the level originally defined, during the period from 1946 to 1950, as its target. NeWSpaper price-lining reflected these policies. Again referring to Portis and Rich, it will be recalled that they pointed out, as one alternative to dis- count competition that a traditional store might convert to self—service, drop other services, and feature discount 1Louis P. Bucklin, "Retail Strategy and the Classi- fication Of Consumer Goods," Journal of Marketing, XXVII, NO. 1 (January, 1963), 50. 2Stuart U. Rich and Bernard Portis, "Clues for Action from Shopper Preferences," Harvard Business Review, XLI, No. 2 (March—April, 1963), 132-49. 420 prices. During those years when Staplinger's appeared to follow this strategy the firm failed to progress. However, when Staplinger's followed the second alternative (as noted in the preceding comments on Mayfield's), the Monroeville store did improve. The Fair, from 1949 to 1963, traded down in its branches and, at times, in its main store Basement, as it imitated the discount department store. Again, as pointed out in Chapter One, one of the alternative strategies sug- gested in the literature was that a store might convert to self—service, drOp other services, and feature discount prices. The authors did not advocate this strategy either for a department store which already was a leading retailer in a community or for a store which aspired to be one. This study showed that one core of The Fair's dual-core strategic reSponse was to execute such a stragety. This merchandising did not result in a satisfactory profit. After 1963, The Fair reversed this strategy and emphasized traditional department store characteristics. During the period from 1949 to 1963, however, the advertis- ing price-lining did not always reflect the merchandise price-lining. The L. H. Kane Company responded to the external environmental changes by both trading up and trading down. It traded up in furniture, some home furnishings, and apparel groups, but traded down in appliances and hard home 421 furnishings, as it sought to retain customers and sales volume leadership. The trend in neWSpaper advertising was indeterminate: the store at one time emphasized its brand resource program and at another time stressed its competi- tive price position. In formulating its merchandising strategy, espe- cially after 1960, Kane's actions coincide with another sug- gestion found in the literature. This was to upgrade mer- chandise lines and emphasize fashion, but, at the same time, to add certain features of the discounters on a limited basis. When the L. H. Kane Company followed this pattern, it succeeded. 5. Each firm expanded or modified thephysical facilities of the downtown store and Opened branch stores. However, execution of either or both of these physical changes did not alwayg result in a successful revision of merchandising strategy. Stgplinger's did not increase sales volume commensu- rate with external Opportunities until it opened branch stores. But this did not result in a profitable adjustment because the strategy in the branches was dissimilar to that of the main store, both historically and as proposed for the future. In the main store, Staplinger's did not rehabili- tate for two reasons: first, it did not have the financial resources or the profit performance to warrant such 422 investment; second, it was constrained from such risk by a high-cost lease. Later, these conditions necessitated Stap- linger's diversification into real estate. In the period from 1959 to 1965, in order to assure itself of a market, Staplinger's developed a real estate complex wherein peOple could live, work, and ShOp. It should be recalled, too, that this firm develOped branches later than most stores. The reasons were primarily financial. After overcoming that handicap, Staplinger's launched its major branch and ShOpping center eXpansions and concentrated on those price ranges and kinds of assortments which it sighted for itself during the 1945-1950 period. The Fair initially used branches to "pump volume" because it assumed the branch operations should be different from the main store in their merchandising. Its late start in Opening branches was traced to guidelines issued by the parent company. When The Fair did eXpand, it selected secondary locations, even though its parent company certainly possessed the financial resources to compete with Dean and Company or any other mercantile firm for prime locations. Further, it constructed or leased small spaces because it conceived of branches as "twigs," because of its primary assumption that "the downtown store must be the key to area dominance." 423 When The Fair altered these assumptions and acted on different premises, it really modified a merchandising strategy which had been unrealistic relative to the market. The prOposed new ShOpping center in 1967 attests this last statement. Mayfield's formulated a strategy to eXplOit a unique opportunity of location. One way to achieve success was to continually add to, and refurbish, its old structures. Also, it concentrated on diSplay and dramatization of fashion- right merchandise in all classifications which it believed would appeal to the particular market segment it decided to capture. Mayfield's also was late in establishing branches. Then it attempted to include the features of the "mother store," that is, a customer would find the same kind of atmosphere and assortment within a classification as in the Newtown store. Mayfield's was late because it believed that only by constantly perfecting the main store could it devise a pattern, a strategy, a reputation, strong enough to sus- tain the branches. L. H. Kane was able to execute a revised strategy as a result of physical eXpansion and additional locations. I believe, however, that Kane's was late in all instances and this may account partially for the fact that Kane's, despite its volume spurt in the 1962 and 1965 period, did not in- crease its volume commensurate with market demand. In this 424 case the size of location affected strategy implementation. To display and sell better quality merchandise (and thus generate more gross margin dollars per square foot) the store required a certain minimum physical area. By Opening the Western Avenue addition, for example, Kane's gained this additional area in the main store in which it featured dis- plays of better quality home furnishings. 6. During_the period studied all stores realigned resource relationships. In adjusting their merchandising strategies all stores realigned resource relationships. This occurred whether the firm was influenced more by one external vari- able or another. Changes in resource relationships did not occur only because of external variables, however. Again, changes in internal conditions, including management philos- ophy, also account for the resource relationship. Even when a firm correctly "read the market" it then had to look at the other channel end--the supply side of the trade relation- ship-~in order to adjust profitably. Staplinger's required an alignment with a different set of resources in order to reach and appeal to the select; ed market target after 1945. The basic decision was to change the residential buying organization. There were other reasons for this decision. From the experiences, records, and research talents of department stores already 425 affiliated in the buying organization, Staplinger's hoped to find the guidance it needed to change strategies. Another objective was to seek assistance in eXpense controls which the management believed were necessary if the firm was to realize a profit. Staplinger's achieved both objectives. The Fair also illustrates the Significance of resource relationships. During the 1945 to 1965 period,’ despite a change in ownership, The Fair maintained its affiliation with the same buying group. Prior to this change in ownership many manufacturers regarded The Fair as the prestige outlet in Keelim. During the 1949 to 1963 turbulence, however, The Fair's own merchandisers fought among themselves for several Of these sources. And there was a general tendency to purchase from among the lower price ranges of these manufacturers. But the reason lay in lack Of direction by top management in defining what partic- ular task in a total strategy each department was to perform. Yet not all merchandisers at The Fair viewed resources in this manner: several placed great confidence in resource stability and capacity to innovate. Hence, while one group perceived manufacturers as sources for profits and ideas as well as goods, others regarded them as units in the bucket brigade of passing goods in a process from raw materials to consumers. After 1963, the management enforced a policy of seeking and COOperating with resources who could provide those goods and ideas by which The Fair could implement its 426 altered strategy. Simultaneously, the management eliminated internal conflicts regarding resources. Mayfield's develOped its own sources of supply for many classifications in order to trade up and procure the merchandise it sensed was demanded, or for which it believed it could create a demand. Domestic manufacturers hesitated, soon after 1945, to deal with Mayfield's because they feared Mayfield's might either resume price-cutting practices or fail to confirm orders. In addition, these resources feared reprisals from Mayfield's competitors. As a result, buyers and merchandisers develOped both foreign and domestic sources out of necessity as well as from a desire to Offer a unique array of merchandise. Resources COOperated superb- ly, after a time, because dealing with Mayfield's meant con- firmed, large orders, and work with creative, enthusiastic buyers. Once Mayfield's had become a prestige account, the affiliation was a means to secure new accounts and firmer relationships with other retailers. Mayfield's viewed resources as a key means to profits, not so much by price reductions as by creation of a new and unique Offering Of goods which the store could merchandise at gross margins considerably greater than average. 427 L. H. Kane Compapy Development of what it called the "Brandwagon Pro- gram" was fundamental to the Kane merchandising strategy. This assured stability and dependability to the customer. Alone, or even with its buying syndicate associates, Kane's could not actually launch a style, a design, a new product, or a new resource. Accordingly, Kane's depended on re- sources, especially manufacturers of nationally advertised brands, for fashion guidance, and Kane's protected these affiliations. In turn, Kane's proved a dependable customer and this COOperation enabled Kane's to secure adequate sup- plies of merchandise whereby it could substitute several successful value events for comparative-price promotional sales. The forces causing change for retailers were de— scribed in Chapter One. The eXperiences of these four stores tend to support Alderson's claim that "the retailer must adjust to his environment, few having the power to change it . . . and no matter how impressive innovations may be in such adaptation the retailer's Operation continues to be that of moving merchandise which someone else has designed or invented."l However, Mayfield's eXperience suggests that, as a middleman, a retailer can decidedly influence the sup- ply side of his market. lAlderson, op. cit., pp. 237, 214. 428 7. In repponse to external chapge the stores tended to be late rather than early in altering their merchandising strategies. The importance Of timing was described in Chapter One. Gross claimed that those who adopted a successful strategy in response to low-margin retailers did so early in the rivalry, anticipating the entry of innovators.l Similarly, the factor of timing can be used to compare the reactions of the four subject stores with regard to branch stores and ShOpping center occupancy. Mayfield's abandoned the rivalry with low—margin competition early in the contest. Both Staplinger's and The Fair either failed to anticipate these competitors or ignored them until it was too late. Both then finally tried to imitate the low-margin stores. L. H. Kane anticipated their advent, adopted a portion of their strategy to join issue with them, and later, in its Western Avenue store, succeeded in sharing a portion of the low—margin market. Regarding branch stores, however, these four cases illustrate tardiness and error. All four were late in estab- lishing branch store operations, and in developing ShOpping centers or locating branches in ShOpping centers lWalter Gross, "Strategies Used by Major Department Stores to Compete with Low-Margin Retailers" (unpublished Ph.D. dissertation, New YOrk University, 1963). An article based upon this appeared in The Journal of Retailipg, XL, NO. 2 (Summer, 1964), 11-13. 429 8. In changing their merchandising strategies two of the four firms modified the sales_promotion tactics. To implement their strategies, Mayfield's and Kane's revised their sales promotion tactics. Mayfield's reallo- cated monies from neWSpaper advertising to display; Kane's eliminated comparative prices in both advertising and dis- play. Both knowingly accepted the inherent risks of chang- ing identities, an objective both achieved. Mayfield's reduced neWSpaper advertising and in- creased diSplay allocations because it found the former an inefficient eXpenditure and it needed the latter to sell more goods to the traffic it already had. This store also reduced allocations for low-margin goods, Sales, and clear- ances, because it decided to stress its best quality and value and not its mark—downs. It is interesting to note that when Joseph Mayfield founded his store he selected a building which had the largest plate glass windows in all of Freeport, because he believed he could differentiate his offering by utilizing ample display Space both "outside and inside" the store. Kane's abandoned comparative pricing in advertising and display in order to differentiate itself from competi— tion and to concentrate on the quality rather than on the price attributes of merchandise. While I judged this deci— sion to be a defensive measure against competitive pricing, I can say, with the advantageous perSpective of time, that 430 it also was an Offensive measure in that it set Kane's apart from all other retailers in the area. AS stated in Chapter Two, an Offensive strategy is that by which a firm capital- izes fully on the relative strengths or advantages it enjoys or can create. One departure from the eXpected concentration Of advertising in neWSpapers was the finding that three of the firms (Mayfield's is the exception) are experimenting with electronic media, particularly television, on a sustained basis. In order to reduce costs, two of these (The Fair and Kane's) are using their main store physical Plants and store personnel in the production of televised advertising messages. 9. Stores do not have information pertaining to merchandise or advertising pgice-lining, There is a wide chasm between the literature and department store behavior concerning the significance of price-lining information. As noted in Chapters One and Two, all textbooks on retailing include a section on price-lining and claim it to be a necessary technique for successful mer- chandising. The NRMA's recent study on classification mer— chandising leads one to believe a store (of the size in cluded in this study) would maintain price—lining data.l lNRMA's (National Retail Merchants Association) Standard Classifications (New York: The National Retail Merchants Association, 1967). In commenting on the work of a Special committee which prepared the NRMA report, Mr. J. J. Bliss, Executive Vice-President and Treasurer of the NRMA, 431 Although the subject stores record myriad details about many Operating eXpenses and merchandising events, they did not maintain data by which price—lining for merchandising or advertising could be measured. The literature repeats, trade associations reiterate, and interviewees stressed the merit of maintaining sound basic stocks. Since price is a crucial variable at all times, and since the DSIPI data indicated that department store prices from 1960 to 1965 were stable, I eXpected at least to find in these stores price-lining information about basic stocks. However, even for such a classification as Men's Dress Shirts, I was unable to secure either merchan- dise or advertising price-lining data for the period under study. An effort was made to determine whether this paucity of information was peculiar only to these stores or whether it was prevalent throughout the industry. Inquiries were directed to large COOperative buying associations and to said: ". . . we now have a means of increasing customer in-stock service; a vehicle for improving volume, turnover, and profit; a merchandising tool that both the smaller and largest retailers can effectively use." p. 2. The committee Observed that "at the classification level where dollar and unit controls overlap, information acts as the communica— tions link between the two controls. If unit records are extended by actual price line data or by estimated average prices, they will sum up to dollars for the class." P. 25. Mr. Sam Flanel, general manager, Controllers Congress, NRMA, remarked: "The intensification of retail competition makes it increasingly important that merchants really know what is and is not selling gp§_whether coordinated sales potential is being realized in the fullest." P. 44. 432 other individual stores.1 Respondents Offered two general answers. The first was that the eXpense required first to ferret out, then to record and analyze such data was not justified by the benefits which might be derived. The respondents did add, however, that electronic data process- ing might make price—lining investigation and analysis more feasible.2 The second answer was that knowledge of "what we did five years ago will not help us for tomorrow. Styles, tastes, resource offerings change too fast. Price changes from one year to the next can make even last year's data obsolete." One reSpondent did acknowledge that if the condi- tions underlying demand were to become less favorable, the lCorreSpondence with Mr. A. B. Parker, president, Parker Brothers, famous department store in Midwestern United States, dated June 20, 1967. ". . . it would be impossible to obtain any sales percentages by merchandise category for 1960, and the other data is so incomplete that I am afraid the information would just be inaccurate. . . ." Also correspondence with M. M. Heyward, Associate Director, Planning and Research Division, Consolidated Mercantile Company, July 12, 1967. ". . . records of sales by certain merchandise classes, by price lines, are prepared and exchanged, usually by relatively few of our stores. What is more, the universe of those reporting is anything but constant . . . as to the future, the proliferation of computer usage by retailers is certainly increasing the practicality of collecting, maintaining, and using such records." Individual executives who had been interviewed dur- ing case research also contributed responses to the investi— gator's inquiry of why the paucity existed. Names used in Footnote 9 are fictitious, as are all names Of interviewees. Actual names and dates are on file with the dissertation committee. 21bid. 433 knowledge about price-lining might become more valuable. When asked what the store would do if employment in the community declined, or if sales slackened, the buyer stated, "We would diminish some emphasis on fashion, watch the top price lines, and go back to greater basic stock emphasis."l The paradox about information is more apparent when one realizes that the NRMA has devoted considerable time and eXpense to develOp a classification code in which price- lining, as noted in Chapter One, is a significant and neces- sary datum for increased merchandising efficiency. Indeed, the NRMA committee asseverates that "price-lining acts as the communications link between dollar and unit controls and helps to monitor consumer demand."2 When queried about my finding a member of the NRMA Committee commented: "AS a marketing institution, department stores do not take advan— tage Of available data, mechanization, and theory."3 In Chapter Two, again, another limitation was cited. This pertained to the methodology of investigation, more Specifically, the limitation of the "egocentric predicament," ers. Roberta Bollen Merchandise Manager, women's sportswear and budget dresses, Staplinger's. 2NRMA'S Standard Classifications," Op. cit., pp. 6—7. 3Interview with Mr. Basil E. Adamy, management consultant, Phoenix, Arizona. Mr. Adamy is a member of the NRMA Merchandise Classification Standardization Committee. 434 imposed by virtue of personal interviews. To diminish the effect of this limitation, I conducted a second investiga- tion to seek corroborative evidence. One facet of this latter inquiry was to seek specific price—lining data for each of 18 classifications. It was as a result of this effort to find corroborative evidence that I learned of the dearth of information stores possessed about merchandise and advertising price-lining. The limitation, it appears, does not arise so much from the method of investigation as it does from the failure of firms in this industry to generate and maintain records about major, if not primary, investment, the inventory, and, as well, about its second largest con— trollable expense, advertising. Conclusions 1. To ascertain both how and why a firm alters its merchandising strategy in response to external change it is also necessary to study the internal variables of the com— pany. 2. TO successfully alter a merchandising strategy in reSponse to external change it is necessary that the man- agement of an intermediary institution (such as a department store) take account of its storehouse of knowledge about it- self as well as the knowledge it possesses about the exter- nal environment. 435 Knowledge about itself includes awareness of those assumptions which underlie managerial selection of an over- all plan or concept for carrying on the firm's business, including the guidelines or decision—rules employed to reach the goals. Knowledge about its external environment encom— passes both the resource of supply Side as well as the customer or demand side of the market. 3. To successfully alter a merchandising strategy, a firm need not necessarily respond to all external changes cited in this study. The response may be only to demography Of demand or only to competition; or it may be to a newly perceived Opportunity in the marketplace (which in turn may have resulted from a change in either or both of the afore- mentioned conditions). 4. Marketing theory suggests that advertising price-lining should reflect merchandise price—lining. The lack of information about this relationship casts some doubt on the efficiency of industry—wide proposals such as the NRMA classification program. 5. Trading-up is a relative term. Self-comparison rather than industry comparison was the only standard by which the hypothesis could be tested. The Mayfield case demonstrated that where management secured knowledge about its market and about itself, where it closely aligned merchandise and advertising price-lining, for instance, it also clearly defined and designed a strategy 436 which, when implemented, resulted in a satisfactory profit. This case also demonstrated that to alter a merchandising strategy successfully, the managerial conception of value must be congruent with that of the consumer. Recommendation for Additional Research We need to know more about the relationship between merchandise and advertising price-lining. Historically, advertising has been a large perennial expense in department store Operations. Investment in inventories is usually the largest or second largest asset in a department store. This study showed there is a lack Of information about the relationship. Marketing theory suggests that advertising strategy should follow a merchandising strategy. One hypothesis warranting study is that the department store which most clearly aligns its merchandise and advertising price-lining, regardless of the level at which it trades, will be the most profitable. One source of information used in the present study, the Neustadt Research Organization, possesses both historical and current data pertinent to advertising price-lining. Perhaps there is no significant difference between those stores which advertise price points comparable to best— selling merchandise price points and those stores which do not. There may be many advantages in always advertising in 437 Price Zones 1—3, even when the inventory investments are made in Price Zones 4-6. We don't know. I am convinced that merchants do not know. The proposal here is that the same eXpenditure in advertising may be more effective--in terms of cost-to—sales ratio, or in terms of customer impression, or in terms of immediate traffic attraction—-if the advertising price- lining reflects the merchandise price—lining. Again, mar- keting theory says this should be the case. We don't know if this is the case. BIBLIOGRAPHY Books Adams, Richard N., and Jack J. Preiss. 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Sprague, Richard E. "The Retail Store of 1970," address to the Store Presidents Conference, The National Retail Merchants Association, 1965. 448 Symons, Violet. "Successful Sales Planning," address to the National Retail Dry Goods Association, New York, January, 1954. Tannenbaum, Louis. Institutional Advertising Can Build a Better Business for Retailers," address at National Retail Merchants Association, May 13, 1964. APPENDICES APPENDIX A DEPARTMENTS/CLASSIFICATIONS FOR WHICH QUESTIONNAIRES WERE DISPATCHED % Vol. % Total Total Main NRMA Main Store _§p;. Merchandise Classification Store Advertisipg 42-11 Women's & Misses' Dresses . 3.6 42—12 Junior Dresses . 1.3 41-11 Women's & Misses' Untrimmed Cloth Coats 2.0 2.0 43—00 Women's Skirts (incl. all sizes) 43-00 Blouses (all sizes) I 3.4 3.6 43-00 Women's Sweaters (all sizes) 51—11 Men's Dress Shirts 3.2 2.7 52—00 Men's Suits 52—00 Men's Sport Coats 2.3 2.7 53-11 Men's Slacks 61-11 Mattresses . 1.8 61—22 Bed Room Suites . . 61-21 Sofas . . 61-23 Occ. & Living Room Chairs . . 15-11 Towels . . 15-12 Bedspreads 15-12 Blankets 0.9 1.2 64-12 Made-up Drapes _Q;p_ _Q;Z. Totals 22.8 27.2 Source: Operating Results of Department and Specialpy Stores in 1964 (New York: Controllers' Congress, National Retail Merchants Association, 1965). 450 APPENDIX B: QUESTIONNAIRE EXPLANATION OF TERMS Merchandise Price-Lining: refers to establishing a range of regularly stocked retail prices for a merchandise classifica— tion. For example, in price—lining women's dresses, a store could establish a range extending from $10.00 to $50.00. Advertising Price-Lining: refers to the range of retail prices usually advertised in newspapers for that merchandise classifiCation. It may or may not be as extensive as the merchandise price-lining. For Charts I—IV, which follow, each price range is divided into six, continuous zones. Price-zones for each classification have been derived from national research on price-lining for 1960 and 1965. For example, within the aforementioned women's dress classification, the total range is divided as follows: zone (1): under $10.00; zone (2): $10.01-$18.00; zone (3): $18.01-$28.00; zone (4): $28.01- $38.00; zone (5) $38.01-$50.00; zone (6): over $50.00. More specifically, the retail price of $14.95 would be in price-zone (2), $10.01-$18.00. In Charts I and II the Percentage of Total Dollar Sales for the particular classification has been divided into multiples of ten. In Charts III and IV the Percentage of Total NeWSpeper Advertising (either by dollars eXpended or by linage used) has also been divided into multiples of ten. V For all charts the percentages are continuous. Thus 10% includes any ratio from zero to 10%; 20% includes any ratio from 10.01% to 20%; 30% includes any ratio from 20.01% to 30%; etc. More specifically, a ratio of 14.&% would be placed in the 20%.column. What You Are Reqpested To DO for Charts I and II: 1. For the two years, 1960 and 1965, please state the percentage of total dollar sales secured at the various price-zones. ‘ 2. If you do not have records, or if you were not associated with the store at the time periods for which inquiry is made, please do the following: inquire from your associates in your division or within the organization who 451 452 may be able to reflect upon the trends within the department, or, estimate what you believe might have been the case. 3. Please indicate source Of information at the bottom of the chart. For Charts III and IV: 1. State the percentage of total neWSpaper adver- tising eXpended for each of the applicable price-points for 1960 and 1965. NOTE: If your percentage figures represent linage rather than dollar measurements, use the former. Please note this change, however. 2. Please see directions for Charts I-II, number 2, above. 3. Please indicate source of information at the bottom of the chart. CHART I: 453 Analysis of Total Dollar Sales by Price-Range Name of Merchandise Classification: Your Dept. Number: NRMA Equivalent . Information for year 1965. a g Emice Zone Range Percentage of Total Dollar Sales A O N 10 20 30 40 50 60 70 80 90 100 (1) Under $ (2) $ to $ (3) $ to $ (4) $ to $ (5) $ to $ (6) Over S Source: (Check) Store Records Other Execs. Estimate DO percentages checked total 100%? . Thank You. CHART II: Analysis Of Total Dollar Sales py Price-Range Name of Merchandise Classification: Your Dept. Number: NRMA Equivalent O Information for year 1960. 82 -dg§ Price Zone Range Percentage of Total Dollar Sales H O O N 10 20 30 40 50 60 70 80 90 100 (1) Under $ (2) $ to $ (3) $ to $ (4) $ to $ (5) $ to $ (6) Over $ Source: (Check) Store Records Other Execs. Estimate Do percentages checked total 100%? Thank You. CHART III. CHART IV. 454 Analysis of Total Newspaper Advertising by Price- Range Name of Merchandise Classification: Your Dept. Number: NRMA Equivalent: Information for year 1965. ~ O E3: Price Zone Range Percentage of Total Newspeper.Advertising Sig 10 20 30 40 50 60 70 80 90 100 (1) Under $ (2) $__ to $ (3) $______t0 $ (4) $_ to $ (5) $ to $ (6) Over $ Source: (Check) Store Records Other Execs. Estimate_____ DO percentages checked total 100%? Thank YOu. Analysis of Total Newspeper Advertising bngrice- Range Name of Merchandise Classification: Your Dept. Number: NRMA Equivalent: — Information for year 1960. Price Zone Range, Percentage of Total NeWSpaper.Advertising 10 20 30 40 50 60 70 80 90. 100 (1) Under $ (2) $______ to s (3) $___ ”(20$ (4) $___ to $ (5) $ to $ (6) Over S Source: (Check) Store Records____ Other Execs. Estimate____ Do percentages checked total 100%? Thank YOu. It'll. 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Nem maeQHmaam so» on hem madQHmaam so» on aem>m m>HaHammEOO W omseHueoo Oszm>m m>HaHemmsoo mo sommmm 459 NosHsHH Imonm meHmHamm>om "aemeeoo "aemeaou mHmea mmaHm One oHe Q NmeHeHHIOOHmm mmHoemeo “aemEEOO "aemeeoo ImmE mHmea mmaHm One oHQ m ZOHBHBmmSOU mmOBO BZMZBmdme BZDOUOHQ OB mmzommmm ZH O .Hommmmmomo .ommmmmoeH .mEmm omamamv "aemEEOO "anEEOO maHee ODE mo mmmese mes n .Hommmmmomo .ommmmmOeH .mEmm ommmamv “aemEEOO "aemEEOO mammm One mo meEee mee m uOO.H. mo mmesez O Nmmemm mea eHeaHB mmeOwImOHmm mmBOH "aemEEOU “aemEEOU oa OHOmnmEm aMHem 50> oHQ Q Nmmemm mea eHeaH3 mmeOwImOHmm mmemHe "aemEEOO “aemEEOO Oa mHmmemEm aMHem so» oHQ m NmeHeHHImOHmm meHmHa Imm>om meow mmaHm so» oHO 5 Nmmemm mea eHeaHB mmeaoem Oa meOwImonm meO Eomm ”aemEEOO "aemEEOO mHmmemEm aMHem so» oHQ o N .x N x N A HO 0 % Naem>m m>HaHammEOO 0 % Naem>m m>HaHammEOU o w m mHea om >HIHHH mammeo mHea on HHuH mammeo s emmBamn mmoemmmOMHo emm3ame mmoemmmOMHo . hem maeoHHmaam so» on Nem maeNHHmaam so» on aem>m m>HaHamQEOO W CODGHPQOO OBZm>m m>HBHBmm200 m0 Bommmm APPENDIX C TABLE A-l. Changes in population in major trading area of stores studied as compared with United States 1950 1955 1960 1965 Index No. Index NO. Index NO. Index No. 1946 = 100 1946 = 100 1946 = 100 1946 = 100 Monroeville 107.6 115.2 122.2 127.5 Haverford 117.4 134.7 143.0 153.9 Keelim 107.8 118.9 128.9 137.6 Freeport 106.9 107.3 104.2 107.4 U.S. Total: l946==100 107.2 116.9 127.2 137.0 U.S. Actual: l946==141,936 (000,000) 152,271 165,931 180,584 194,572 Source: For United States total figures, The Statistical Abstract, 1966, Bureau of Census, U.S. Dept. of Commerce. For pOpulation bases for trading area, Sales Management Buyipg Power Guide, for reSpective years. Such data will always be found in the year subsequent to the year stated in this chart. Popu- lation for 1946 is estimate of population as of 1/1/47, as stated in May, 1947, issue; pOpulation for 1950, May, 1951, issue as of l/l/Sl; pOpulation for 1955, May, 1956, issue as of 1/1/56; pOpulation for 1960, May, 1961, as of 1/1/61; pOpulation for 1965, June, 1966, as of 12/31/65. 460 461 TABLE A-2. Changes in total net effective buying income in trading areas studied as compared with United States 1950 1955 1960 1965 Index No. Index NO. Index NO. Index NO. 1946 = 100 1946 = 100 1946 = 100 1946 = 100 Monroeville 140.1 185.3 231.1 289.1 Haverford 154.8 213.8 265.8 334.8 Keelim 119.7 160.7 203.2 252.5 Freeport 140.4 154.5 197.7 227.7 U.S. Total: 1946 = 100 141.7 188.5 254.1 327.9 U.S. Actual 1946=$140,968 (000,000) $199,680 $265,683 $358,122 $462,050 Source: Sales Management pripngower Guide for reSpective years. See Table1¥él.Totals for United States Obtained by multiplying Monroeville area percentage of U.S. for respective years by absolute figure for that area. The term "Effective Buying Income" is defined by Sales Management as "the equivalent of the U.S. Government definition of diSposable income avail— able for Spending in the various states." (1966 edition, Buying Power Guide, p. 224.) 462 TABLE A—3. Changes in retail sales in major trading areas of stores studied as compared with United States 1950 1955 1960 1965 Index NO. Index NO. Index NO. Index NO. 1946 = 100 1946 = 100 1946 = 100 1946 =100 Monroeville 132.9 170.7 190.2 246.7 Haverford 153.0 211.1 244.4 330.4 Keelim 121.4 155.8 180.0 217.5 Freeport 153.4 168.5 184.6 205.3 U.S. Total: 1946= 100 140.2 179.4 214.3 277.2 U.S. Actual: l946=102,488 (000,000) 143,689 183,851 219,529 283,950 Source: For U.S. totals, Historical Statistics of the United States, U.S. Department Of Commerce, Series T 23—48. For trading areas studied, Sales Manage- ment Buying Power Guide for year following Speci- fied date. See Sources for Table A-1. 463 TABLE A-4. Changes in general merchandise sales in major trading areas of stores studied 1950 1955 1960 1965 Index NO. Index NO. Index NO. Index NO. 1946: 100 l946= 100 1946==100 l946==100 Monroeville 94.9 120.4 148.2 217.3 Haverford 119.5 203.8 249.7 429.1 Keelim 128.6 168.3 196.7 309.7 Freeport 95.3 125.8 148.0 188.6 U.S. Total: l946==100 113.1 162.5 202.8 299.7 U.S. Actual: 1946 = $14,792,350 (000) $16,729,130 $24,036,102 $30,008,302 $44,336,966 Source: Sales Management Buying Power Guide for year follow- ing specified date. See sources for Table A-1. 464 TABLE A—5. Changes in income distribution among families in major trading areas of stores studied compared with total United States as measured by changes in percentage of households by income groups 1955 1960 1965 $0,000 - $2,499 _ Monroeville 100 41.0 61.0 Haverford 100 38.5 49.4 Keelim 100 37.5 60.2 Freeport 100 31.1 76.8 U.S. Total* 100 75.8 61.5 *U.S. Total figure is for $0,000 - $2,999. $2,500 - $3,999 Monroeville 100 66.9 46.1 Haverford 100 66.8 52.4 Keelim 100 77.9 49.7 Freeport 100 51.2 51.2 $4,000 - $6,999 Monroeville 100 107.5 77.6 Haverford 100 114.4 86.3 Keelim 100 101.9 81.5 Freeport 100 123.8 93.1 U.S. Total* 100 84.1 70.5 *U.S. Total figure is for $3,000 - $6,999. $2,000 and Over Monroeville 100 162.6 211.7 Haverford 100 191.7 249.4 Keelim 100 171.9 222.1 Freeport 100 201.0 252.8 U.S. Total 100 179.5 222.5 §10,000 and Over Monroeville N.A. 100 168.6 Haverford N.A. 100 176.8 Keelim N.A. 100 175.9 Freeport N.A. 100 144.6 U.S. Total 43.4 100 157.2 Median Family Income 100.0 127.3 148.3 Median Family Income $4,420 $5,625 $6,556 Sources: 465 Figures for U.S. totals extracted from Pocket Data Book, Bureau of Census, U.S. Department of Com— merce, December, 1966, p. 191, Table 233. Median income figures from Statistical Abstract, 1966, p. 336, Table 472. The figures under column headed "1965" are for 1964. Figures for trading areas studied are from Sales Management pring Power Guide for 1955, 1960, and 1965 (published in editions one year later). Actual percentages of households by income groups were converted to an index Of l955==100. This source does not delin- eate $7,000 and over for 1955 as it does for 1960 and 1965, as seen. In the case Of Monroeville the chart indicates that the percentage of households in the $0,000 - $2,499 group in 1960 was 41% Of the percentage of 1955; that, in 1965 the percent- age Of households in this income group had risen to 61% of the percentage in 1955. The signifi- cance is, of course, related to the increased pOpulation as shown in Table 1. By the same token, in this case, the percentage of households in the $7,000 and over group in 1960 had risen to 211.7% Of the percentage with that income in 1955. Sales Manegement offers this additional explana- tion: "Net Cash Incomes of Households: measure of cash income available to households after taxes, . . . it differs from Effective Buying Income in that it excludes all non-cash items such as imputed rentals, imputed value of food and fuel, etc." Sales Management has consolidated and re- fined the Bureau Of Census 13 classes of gross income into 5 net cash income classes, projected to the year 1965. The percentage figure is cash income only and thus understates real income in farmareas; the percentage is for number of house- holds and not for number of dollars. The new Statistics testify that we are becoming more and more affluent at the high end of the income scale. Nationally, households earning over $10,000 now account for 51.3%.Of total cash income.