New Costs o[ Doing Business

(Continued from Page 13)

1934, and called Division B, it would be 23.9y'o, lr is my bpiniom that the industry's figures could be compiled for the boom years ot 1920 to 1924 lnclusive, and that they *ould be 23.2y'o; and that then the industry could take the figures for the depression years of 1930 to 1934 and the gross profrt would be 24.2Vo. Irrespective of the fact that the sales in the five-year period from l93O to 1934 were only 40 to 4sqo of what they were in the period trom.l920 to 1924, and the percentage of cost of doing business was Zll5 times what it was in 1920 ro 1924, yet the gross profit on sales would remain practically the same. Proper cost accounting could certainly change this sort of a condition if there coutd be cooperation on the part of all dealers in the industry. The period from January l,1932, to May 31, 1933, was the most destructive price and gross profit time that Southern California has ever had; the monthly gross profit statistics of that period are appalling. The pre-code and code period from June 1, 1933, to December 31, 1934, was the highest gross profit period Southern California ever had, and yet if the industry added the two periods together from January l, L932, to December 31, 1934, the gross profit would be 23.lVo.

So unless there is a decided change of method in the industry' 23 to 24Vo' on Sales is what you can expect for gFoss margin of profit, and my opinion is that expenses on the average Ior several years to come witl be 23 to 24Vo of. Sales. Well, you ask, what is there to do about it? The only answer to that question is that the industry must simply stick a pin in itself and raise its sights on the pricing of its goods. Statistics show that, except for the period from January l, 1932, to May 31, 1933, lumber has of itself carried a sufficient margin to pay its proportion of the expenses and have a profit left over. But the lumbel dealer today is selling proportionally less and less lumber and- more items other than lumber. Twerrty years ago the ordinary lumber dealer sotd abott 90Vo lumber and, l0Vo items other than lumber. This has gradually increased until in the last five years 55o/o ol our sales has been lumber and 45% commodities other than lumber. In the old days commodities other than lumber were considered a sideline, and whatever the gross profit obtained was just that much more than he would have had if he hadn't sold it. And in spite of the fact that these commodities are now 45 to SOVI of the yards' business, the mode of thought is etill the same. Twenty years ago we used to sell Sash and Doors on a margin of l0Vo on Sales, and today the most any lumber dealer can expect or hope for is l5%, and with breakage arid errors, he's lucky to make that. Statistics on many hundreds of thousands of dollars' worth of Sash and Door Sales at retail cvver a certain period shows a gross profit of 15,6% on Sales, and these goods were all bought in carload lots and larger than carfoad. Statistics on many hundreds of thousands of dollars' worth of Cement, Lime and Plaster and such masonary materials at retail show a gross profit of li.lVo on Sales. Roofing was once a very profitabte item for lumber dealers, but it is falling into the same category with the items just mentioned, and on many hundreds of thousands of dollars' worth of Sales at retail over a certain period, the pross profit on it has been l8.l%. The statistics on Hardwood Flooring are so terrible I don't eren want to discuss them. There are a few items left upon which there is a {air profit, such as wallboards and certain hardware items, and now that I have advertised this fact, I suppose they will follow suit. Statistics on a total of several millions of dollars' worth of all commodities other than lumber over a certain period shows a gross piofit of l87o even, and in that same period thi cost of doing business was 24/o.

But, someone answers, the "turnover" on some of these commodity items is three, four and fir'e times a year. The answer to that is that if you are selling a commodity that turns a hundred times in ono year, and when the end of the year comes and your gross profit on Sales is 18% and your cost of doing business on Sales ii 24qo, yov are just 6% on Sales out of luck. I would not stand here and say theie is nothing to "turnover" because there is. But there is a whole lot of fallacious ideas concerning it. Where most of the confusion of thought concerning it comes in is that so many made the error of considering increased volume of sales and rate - of turnovelrs synonymous. For instance, Cement, Lime and Plaster and such masonry materials may have a rate of turnover of ten times in one year, but that does not mean that your sales of the commodity have increased ten times; your volume of sales on the other hand remains just the same, irrespbctive of rate of turnover. The only important expense factors to be considered in figuring "turnover" is the interest on the money invested in, the year's avirage stock, the taxes and insurance on such stock, the interest, taxes and insurance on the land and buildings used, the depreciation on the buildings used; all other expenses are practically the same, and just a little simple arithmetic using these factors will show you that on the same volume of sales, if you have or cafl obtain the caoital. vou are dollars dhead to sell lumber that bears 25y'o gtoss prbnt iria turns once in one year, than to sell a commodity that bears l2rl7o gross profit and turns 100 times in one year. However, if the percentage of gross profit on sales is,greater-than- the percbntage of expense on sales then the rate of turnover does have in imporlant effect on the rate of net return on'net capital invested.

Theh there is the familiar reason for selling a commdity at practically no profit, because "you don't touch it." A good example of that is placing a $200.00 order for Roll Roofing with a manufacturer or jobbir and telling them to deliver it direct to the job and making S to l0% gross profit. You can judge for yourself the meager saving this would be to you over taking it out of your own stock and handling it yourself. Any dealer knows that it- costs him just as much in time, effort, loss of accounts and practically all other exDenses to sell .commodities other than lumber, and there is no quesiion that commodity sales simply must bear a percentage of profit in keeping with the expense of doing business.

Persbnallly, I was and still am a firm believer in the principle and efficacy of the Lumber Codes. Statistics of our industry and not theory or sentiment have forced me tb believe in them. Actual records on lumber, based on the average cost per M' method, and eliminating the erroneous results caused by inventory price "writeuos" and i'write-downs" at end of each year will show that in the piriod from January l,1932, to lvIay 31, 1933, the gross.profit on Sales of lumber in Southern California was right at 7rA76 over on the pile cost. Other commodity items were about in the same category, especiallj' Sash and Doors. When you consider that the averige-expinse frbm the pile out was somewhere around 307o-on Sale-s, if is e-asy enough to see that thc industry was destroying itsetf. Using exactly the same basis and method, the g199s profit on lumb-er in the pre-code and code period from June 1, 1933, to December 31, 1934. i,as 4-1,/3 times what it was in previous period, and gross orofit on commodities other than lumber was greatly increased. A rcreat deal of the credit for the operation of the Code in our diviiion is due to the broadminded, intelligent and resourceful management on the part of its executive heads. And what is happening since the Codes became inefiective nine months ago? Statistics show that the margin of gross profit is on a steady slide down hilt. Using the same method exactly as explained before, the gross profit on lumber for the nine months ending September 30, 1935, is just 26y'o less on lumber than it was for the same period in 1934 which means that our sales this year on lumber must be 35/o more than tast year to make the same .gtoss profit in dollars. If the Codes had been declared constitutional, the enforcement of them could then have been better maintained; in time objectionable features of them could have been eliminated, and with experience; the administration of them would have been much smoother. My personal opinion is now that some such modified and simplified- system or obficv. with an abeyance of the Anti-Trust laws, will have to be iut i-nio efiect befor-e our industry can bc stabilized for over a few months at a time and our investments made secure. In the meantime. the only hope that I can see is for those of us of the 904lo to cooDerate to tlie fullest with our local trade association, which local tiade association is in turn cooperating with and receiving advice from some larger association which has the facilities to obtain and disseminate information. These associations can, through iofluence and constant eftort, abate some of the competitive abuses which increase our expenses. All lumber dealers. should be willin-g to prepare and send to a proper. body-facts -relative to gross- profit maici;s and exDenses. so that the stabilization committee of these assoiiations can- have ihe facts upon which to base a proper stabilization olan. If ever there was an industry which needs the help of " proper trade association, it is the lumber dealer, selling lumber and cbmmodities which are difficult to cost at any time, due to re-manufacturing problems, mixing oJ difierent priced lots, etc. Many of us havlng a long lumber estimate, or sash and door estimati thrown on our deski by a salesman, and not knowing what the real cost of the bill really is, are prone to say: Well, if so-and-so can sell it for less than my figure, I can' too.

It is encouraging to note that trade associations are taking a more active interest in the cost of doing business. The Los Angeles Lumber and Allied Products Institute, under its able management, has in the Dast few months been hammering on costs and could do a lot more-if dealers could be made to realize how important it is for some central group to have combinedrstatistics so that stabilization orograms cin be planned to take care of changing volume levels'an-d costs of operition. Various associations are also emphasizine the need of standard trade practices and trying to restrict com;etitive abuses. The California Retail Lumbermen's Association is to be commended on its policy and action whereby sales and costs of doing business of cooperating yards are to. be sent to Dunn & Bradstreet and by them compiled and returned to us' There is no more important function that this association can perform- than to constantly stress and reiterate. the importance of his subject, and take all iteps necessary to assist and cooperate in the se-curing of such information by some competent body, so that the whole industry can actually benefit by the facts so obtained.

\(/ood Framed Buildinss Stand Earthquake Shockg

The Western Pine Association of Portland, Ore., has issued a leaflet which describes the condition of buildings at Helena, Mont., in the area recently damaged by earthquake shocks. The photographs show the splendid performance of wood frame buildings during the earthquakes.

The leaflet says: ".It is difiicult to estimate with any degree of accuracy the total damage done, but some facts are painfully self-evident to the most casual of visitors. A {ew hours spent in driving or walking through the hardest hit areas would show most strikingly the fine perforrnance of frame construction in comparison with all types of building. No stru,ctural damage to any frame house can be seen. Generally, the damage, if. any, is limited to the loss of chimneys and minor roof injury due to impact of the falling, unreinforced brick flues. On the other hand, other types of building show clearly, and in case after case, the agony of geing shaken, not to-but by-their foundations."

Northwest Visitors See Big Game

Northwest lumbermen who were recent visitors to San Francisco, and who attended the Big Game between Stanford and California at Palo Alto, November 23, included the following: G. A. Kingsley, West Oregon Lumber Co.., Linnton, Ore.; H. W. Aldrich and H. B. Cooper, Aldrich-Cooper Lumber Co., Portland; Harold Miller, Stimson Lumber Co., Forest Grove, Ore., and Clay Brown, M & M Plywood Co., Portland.