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Some Notes on the Distributive Trades in Canada1

Published online by Cambridge University Press:  07 November 2014

Lloyd G. Reynolds
Lloyd G. Reynolds*
Affiliation:
Harvard University
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Extract

The past few decades have witnessed a steady growth in the importance of marketing activity in the Canadian economy and rapid alterations in marketing methods. These developments have posed new problems of economic efficiency and of public policy. The rapid multiplication of retail stores, for example, has raised the question whether there are not too many stores to permit of the greatest efficiency of each, and whether high over-head costs due to “excess capacity” is not a more serious problem in this field than in manufacturing industry. The rise of large distributors has presented the issue whether their buying and selling policies are not so oppressive as to call for legislation to protect the independent merchant, the manufacturer, and the wage-earner. Discussion of these issues has been for the most part cursory. Few attempts have been made to apply to them the methods of economic analysis which have been used in the study of manufacturing and other industries. It is essential, however, that such attempts should be made. The price of a finished good to consumers does not depend merely upon the manufacturer's price-policy, but upon a succession of price-determinations made in a series of markets, running from the farmer or miner at one end of the chain to the final purchaser at the other. Monopoly elements in any one of these markets may affect the final price quite as much as that monopolistic competition among manufacturers to which so much attention has recently been devoted. It is therefore necessary to study commodity distribution, not as an isolated, descriptive, and barely respectable “subject”, but as an integral part of the theory of prices.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 4 , Issue 4 , November 1938 , pp. 533 - 548
Copyright
Copyright © Canadian Political Science Association 1938

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Footnotes

1

This paper is part of a larger study of the structure of Canadian industry which the writer is carrying on under a grant from the A. W. Shaw Fund.

References

2 Our knowledge has been greatly increased, however, by the first Census of Merchandising in Canada. See Dominion Bureau of Statistics, Census of Merchandising and Service Establishments: Retail Merchandise Trade (1934)Google Scholar; Distribution of Sales by Manufacturing Plants in Canada (1934); Wholesale Trade in Canada (1936). The figures relate to the calendar year 1930. It is interesting that the United States took its first Census of Distribution in 1930, covering the operations of 1929. The leading features of the United States census data have been analysed by Black, J. D. and Galbraith, J. K. (Quarterly Journal of Economics, 05, 1935)Google Scholar and by J. M. Cassels (ibid., Aug., 1936). The results of the Canadian census are so similar as to suggest a practical identity of distributive methods in the two countries; for this reason few comparisons have been drawn here. For a detailed comparison as regards retail trade, see Whiteley, A. S. in Journal of Political Economy, 02, 1936.Google Scholar

3 The census data do not give an accurate measure of total cost, since they do not include profits on inventory adjustments. Many firms, too, did not report their costs and those reporting may have made inaccurate estimates. It is thus only possible to obtain a first approximation to the true figure.

4 More exactly, the following assumptions were made: in the case of wholesalers: (1) that the ratio of salaries plus wages to total expenses was the same for reporting and non-reporting establishments; (2) that proprietors not receiving fixed salaries received the same average compensation as proprietors reporting salaries (Wholesale Trade in Canada, pp. 6, 22). In the case of retailers, it was assumed that non-reporting stores had expenses averaging 20 per cent of their total sales. The non-reporting stores seem to have been largely country general stores and small groceries, and both of these classes report relatively low expense-ratios (Retail Merchandise Trade, pp. 2-7, 22-3).

5 On this assumption, manufacturers' selling expenses were estimated as follows:

*Dominion Bureau of Statistics, Distribution of Sales by Manufacturing Plants in Canada, p. 3. Expenses of manufacturers' general and district sales officers, however, were included in Wholesale Trade in Canada, and must be deducted here to avoid double-counting. After deducting some 20 million dollars on this account, 195 millions may be taken as a reasonable estimate of manufacturers' selling costs.

6 The coverage of the census of manufactures is probably more complete because of its lengthier history. The method of obtaining value added by manufacture (deducting cost of materials from gross value of sales) is by no means accurate for any given period, and will, moreover, yield a different result from the method employed in the census of merchandising.

7 Canada Year Book, 1933, p. 406.

8 Census of 1931, bull. XXXI.

9 This is the average number of full-time workers employed during the year. There were in addition 36,776 part-time workers in retail trade. Their average annual earnings were so low, however, as to indicate that most of them were errand boys and seasonal workers, and they have been omitted in the following estimate.

10 The 1931 census lists 631,201 persons under manufacturing in the industrial classification, and only 442,759 persons in the occupational classification. This indicates that some 190,000 manufacturing employees were not actually engaged in manufacturing activities. Clerical workers formed perhaps 75,000 of this total, and it is probably safe to take half the clerical force of most establishments as engaged directly or indirectly in marketing activity; packers, shippers, etc., would bring the total of those engaged in marketing to at least 50,000.

11 The marketing figure, of course, relates to 1930. It is not likely that the number of persons engaged in marketing changed sufficiently between 1930 and 1931 to affect the comparison substantially.

12 Census of 1931, vol. VI, p. 346.Google Scholar

13 Chamberlin, E. H., Theory of Monopolistic Competition (Harvard, 1933), pp. 104–9.Google Scholar

14 The distinction drawn here between primary and final manufacturers is, of course, not the same as that commonly drawn between manufacturers of producers' goods and consumers' goods. Primary manufacturers are those which turn out goods not yet ready for use, e.g., the tanning factory or the rolling mill.

15 Wholesalers still predominate, however, in the sale of groceries, food products, dry goods, and hardware. Manufacturers' branches clearly predominate in automotive products, petroleum products, and electrical equipment. Lumber, paper and paper products, drugs and chemicals, and machinery are almost evenly divided. In general, wholesalers prevail in the sale of consumers' goods in relatively small lots. Where the unit of sale is large, however, requiring a considerable capital, and where most of the sales are to industrial consumers, sale by manufacturers' branches is the rule.

16 For detailed information concerning the growth of chain stores in Canada, see Qominion Bureau of Statistics, A Decade of Retail Trade, 1923-33, pp. 6-7, 28-31. See also Report of the Royal Commission on Price Spreads, 1935, ch. vii.

17 In 1930 department stores had 60 per cent of the trade in home furnishings, 52 per cent of dry goods, 42 per cent of women's clothing, 46 per cent of furniture, 32 per cent of shoes, and 27 per cent of men's clothing (Price Spreads Report, p. 206).

18 The conclusions concerning retail trade appear at pp. 119-24 and 200-33 of the report. Supplementary statistics will be found at pp. 400-24 and 434-8.

19 A similar inquiry into chain stores in the United States was recently completed by the Federal Trade Commission (Final Report on the Chain Store Investigation, Senate Document no. 4, 74th Congress, 1st session). Little evidence of systematic local price-cutting was found (pp. 33-8), and selling below cost was found to be rarer than commonly supposed (pp. 38-42). Wages were found to be lower than in independent stores, however (pp. 71-4), and short-weighing was slightly more prevalent in chain stores (pp. 46-9).

20 Price-discrimination exists only when the concession to the chain exceeds any savings in selling or production costs made by the manufacturer in filling the order. The measurement of these savings, of course, is extremely difficult in practice.

21 In the baking industry, for example, there is evidence that the chains have tended to break down the price structure established by the manufacturers. See in this connection an article by the writer, “The Canadian Baking Industry: A Study of an Imperfect Market” (Quarterly Journal of Economics, 08, 1938).Google Scholar

22 See volume I of the evidence before the Price Spreads Commission for testimony of H. M. Cassidy with respect to clothing (pp. 125-6), and of O. J. Kerr with respect to furniture (pp. 174-6).

23 This situation has many interesting parallels in economic history. Compare, for example, the situation of English spinners and weavers under the “putting-out system”, or of the shoemakers in the United States after the rise of the merchant capitalist.

24 A parallel may be found in the history of s. 498 of the Criminal Code, which forbids combinations operating against the public interest. This section has been on the statute book in its present form since 1900. Little action was obtained under it, however, until the appointment of an administrative staff by the Combines Investigation Act of 1923.

25 Some chains already manufacture a considerable part of their merchandise. In the United States in 1830, 7 per cent of the goods sold by chains was manufactured by them (Report on the Chain Store Investigation, p. 14). The proportion is probably even higher for department stores.

26 The Federal Trade Commission found that chain buying economies accounted for only a small part of the difference between chain and independent selling prices in four United States cities. Less than one-fifth of the chains' selling advantage in groceries, and less than one-tenth of the advantage in drugs, could be attributed to buying advantages (ibid., pp. 53-7).

27 Nova Scotia in 1934 added a new section (16A) to the Provincial Revenue Act (c. 16, Acts of 1934, s. 27). This section imposes a tax of $15 on each of the first five stores of a chain, a tax of $40 on the sixth to the tenth store, and a tax of $100 on each store in excess of ten. An additional clause, evidently designed to cover the case of department stores, provides that a store with an annual gross revenue of $150,000 shall be counted as three stores; each additional $150,000 of gross revenue counts as one store until a total of $750,000 is reached; above this, each $250,000 of gross revenue counts as an additional store.