The talking machine world (July-Dec 1927)

/ The Talking Machine World Vol. 23. No. 7 New York, July, J 927 Price Twenty-five Cents Survey of Profits and Overhead in Talking Machine Stores Investigation Showed That Many Retail Talking Machine and Radio Dealers Are Operating Without Cost Finding Systems and Have Little Knowledge of Condition of Their Businesses — Costs Analyzed WHAT is the cost of doing a retail business in the talking machine and radio fields — in other words, how much is the overhead? It is a question the importance of which is not apparently fully realized by a great many dealers, some of whom seem to know nothing at all about it, while those who have an appreciation of overhead as a factor do not take it as seriously as they might. Fortunately there are a substantial number of dealers who handle their business systematically and as a result are able to tell just how much it costs to handle each department. By this means they know what products are bringing a profit, what are being sold at a loss, and just what net income or profit they can expect at the end of a given period. Survey Brings to Light Interesting Facts As a result of a recent survey conducted among several hundred representative talking machine and radio retailers throughout the country by The Talking Machine World, it was found that a surprising number were not in a position to give accurate information regarding overhead costs, either as they affected the general business or as they applied to different departments, although there were a sufficient number familiar with the subject to provide some accurate and valuable information regarding an average cost of doing business. The fact that when accurate figures were available those offered by one dealer were comparable in a general way with those offered by another gives the assurance that business costs can be kept within reasonable limits when they are fully understood. Of course tliere are some differences in items. For instance, in some sections rents are higher than in others, although the maximum under this heading was given as 13 per cent. Salesmen's salaries also vary, although the highest percentage was given as 20 per cent and the next highest as 17.5 per cent with the average much lower. There was some slight difference in the amounts allowed for advertising, although the maximum was only 6 per cent, the minimum 1 per cent, and the average 3.2 per cent. There were also variations in allowances for depreciation of fixtures, but this is of course governed by the character of the fixtures and their newness. That only 4.6 per cent of the overhead on an average was charged off for miscellaneous indicates how thoroughly those who understand the subject are able to check up on their business items. These averages are naturally based upon figures that are frankly unfavorable as well as on those that show a healthy business condition, for a number of dealers in submitting information emphasized the point that they were not doing business profitably. Other investigations have shown, for instance, that, properly handled, the general overhead in the talking machine or radio store under normal conditions can be kept down to about 27 per cent, or even to a slightly lower point. Information was sought regarding overhead in the talking machine, record, radio and musical merchandise departments, and in practically all reports the overhead in the musical merchandise department proved the lowest. In some cases the overhead in the talking machine department was lower than that in the radio section, but in the majority of instances radio costs were the lower of the two, probably because of increased turnover. The low radio overhead incidentally may be accepted as indicating a more general solution of the service problem and the elimination of that cost factor Average Overhead of Talking Machine and Radio Retail Stores Rent, light, etc 7.3 per cent Salaries 13.6 per cent Advertising 3.2 per cent Depreciation 2.6 per cent Miscellaneous — including repairs, financing, delivery charges, etc 4.6 per cent Average overhead for all departments 31.3 per cent These figures were compiled from answers to questionnaires sent to representative dealers throughout the country by The Talking Machine World. from many stores. Some two years ago the overhead story in this department was considerably different. Relation of Turnover to Profit Regarding turnover, too, some interesting figures were obtained, and it is noteworthy that those companies enjoying the most rapid turnover in various departments also reported the lowest percentage of overhead and, consequently, the largest percentage of net profits. While it is true that in the talking machine, record, and radio departments the average turnover of stock was three times annually and in the musical merchandise department two and a half times, it must be remembered that this is the general average and does not detract from the credit due the substantial number of dealers who enjoy a much more rapid turnover in various departments. There are those who turn over talking machine stock four times in the year and radio stock five times within the period, but run behind on record and musical merchandise sales. Others turn over talking machine and radio stocks less than twice a year, as compared with three times in the musical merchandise and radio departments. One dealer with a small stock of talking machines turns it over ten times annually, and following the same limited stock policy in radio enjoys seven turnovers a year in that department, although his record stock turns over only twice. Then there is the dealer who specializes in records and turns over his record stock eighteen times a year, as compared to a four-time turnover for talking machines. In a store featuring several, departments the question of turnover rests largely with the individual efforts of department managers, or the greater interest that the dealer himself shows in one line of products as compared with another. In the case of turnover, therefore, the average of three times annually might well be considered as minimum for successful business. Understanding of Costs Necessary A thorough understanding of overhead costs, that is, the expense of doing business, is one of the fundamentals that may be described properly as the fundamental in modern merchandising success. It is only through the ability to understand what overhead means and to figure the items under that head systematically and accurately that the merchant to-day can be really sure whether or not he is actually making money. The cost of the goods can be easily gauged, as can the business volume, but in between the two lie the vital business factors, overhead and net profit, and if there is not margin enough for the two, then profit gives way to loss. It has been charged on frequent occasions that many members of the talking machine and radio trades, in the retail divisions at least, have no proper conception of what it actually costs them to do business, and as a result frequently go through the year with a loss, or with one profitable department carrying the burden of an unprofitable one, while fondly believing that they are making substantial progress. It is not sufficient to compare the inventory, the list of bills receivable and payable and the bank balance at the end of one year with the corresponding figures at the end of the next, for those figures give no indication of what has happened in between, or what may happen unless certain wastes are checked or eliminated. An understanding of what overhead means will keep the dealer informed constantly as to just how his business stands, whether his payroll, his rent, his advertising or any other item are out of proportion to his business volume. The overhead figures are what guard the business treasury. Lack of Knowledge Evident It is surprising and, in a sense, highly regrettable that so many members of the retail branch of the industry are apparently not interested in overhead or, being interested, are lacking in fundamental knowledge regarding the meaning of the term and how accurate figures may be arrived at. That such indifference to this basic factor in merchandising exists has been made particularly evident as a result of The Talking Machine World survey. Some there were who displayed a thorough understanding of the subject, but a surprisingly large percentage were unable, as indicated by their answers, to tell just how much it was costing them to do busi{Contimied on page 11) See second last page for Index of Articles of Interest in this issue of The World