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Show HAND-TO-MOUTH BUYING CONDEMNED liiibson Shows Kliect on Business mid Scrurllifs. Bu;bson Park, .Mass., July 10, 1925 During the past weuk Roger W. Bub-son Bub-son has 'been studying the apparet iiiconalsteiHles existing today between be-tween the high bank clearings and slow business; between the record breaking car loadings and the ilack of ,0,-deis. Never before in his-toiy his-toiy have .thwse "opposite conditions been witnessed at the same time and differ greatly as to the causes of this business paradox. Mr. Babson's an'swer is as follows: "Tho apparent inconsistency in the present business sttuiation is due primarily to t'he fact that a majority of 'inanufanturers and 'merchants have tjone on a hand-ito-mouth buying buy-ing basis. There aire many reasons for this change. The primary one Is the fact that so many businessmen business-men lost such great sums on their inventories in 1921 thai they are no! going to be ca'uight'iin such a predicament predica-ment again. Furthermore, as the Babson Organization has 'been constantly con-stantly forecasting, most commodities commodi-ties have been declining for some time so that those manufacturers and -merchants who have been buying on a hand-to-miouth basis have thus far 'been the most successful. -In most cases it has -been easy enough to get goodg and usually the longer one waited the lower he could buy. This has encouraged hand-to-mouth buy ing' the same as falling stock market encourages short selling. It is pqr'feotly safe at times to sell the. stock, market short provided you .;he only 'One who is doing it! The more people, howeven, who indulge in-dulge in this short selling, the more ri;,ky it -becomes. If too -many persons per-sons sell tile stock market short, thc-ie devfunps a corner and all are f ur. a tniiOtile licking. The same pr'nciple applies to hand-to-mouth bii?:ng. In a gradually declining ci.uvmctlitv market, such as we have been for some time, a certaiin number of manufacturers and merchants can do well by following a hand-to-niou.'.h policy. If, however, to many people indulge in this policy, thci 'e may be trouble. Hand-to mouth buying is safe provided no unforeseen un-foreseen event happens to distrub the ei;'.::lib:ium by suddenly either cufUinfr off the supply or increasing the demand. But if such an un-foreseeun un-foreseeun event suddenly occurs, then there is trouble. Among these' unforeseen events that at once come to ':ny mind -aire the following three :-Sudden :-Sudden AVeathcr and Style Changes "As I have said many times, the weather is a great factor in retail trade and hence a great factor in all industries. Ninety-five percent of the merchants today prepare for only normal weather. They count on a certain number of warm days and a certain number of cold days; a certain number of rainy days and a cil tain number of fair clays. They buy their goods, either consciously o: unconsciously, according to the normal weather conditions with no reserve at all on hand. This was always more or less tiote, -Vat under the hand-to -mouth system -me: chants carry almost no reserve whatever. Hen-ce, when an abrupt change . comes in the weather, such as an early or abnormally hot summer, or an eairly or severe winter, they are caut.ht with no stock and are obliged to turn customers away. The same general p iuciple applies to style changes. The public thinks that the -manufacturers make and .change the styles. Of course they do attempt to do this but they often fail. In practice they send samples -around to jobbers as sort of tests. The jobbers send oil; their sa'esmen, with the samples to try out the merchants, mer-chants, and the merchants in turn try out the consumers. Thus they find out what styles and colors can best be sold and plan accordinely Heretofore merchants , have ordered enough to carry them through -the entire season-;, bit! . now they aTe not doing this. Instead they ars depending upen the jobber to replenish their stock in the middle of the season if neccessary. ITnder normal conditions this might be all right but any marked Increase, j in the demand would cause a stampede stam-pede in the market for such goods. I'jiforeswn Foreign Complications "Affairs In our country are pretty .iiuch settled, but conditions abroad are still very unsettled. This applies ap-plies not only to Europe, but to other countries as well. Conditions in China aire very chaotic; the French tire at war with the Mohammedan-; in Northern Africa; Russia is still in the hands of the anarchists; aiid we may have a severe break with Mexico at any time. Upon all of these1 Countries we are absolutely dependent depend-ent for cti: tain products. We are dependent upon Japan for silks, on China for tea, on the Far East fori rubber, and on Mexico for sisal and .nany oilier products. In past man-! lfacturcirs bought big stocks of these products sufficient for one or two 'ears, if necessary, without further 'm-poralions. Today, ho-wever, if he supply of certain fctreagn products pro-ducts were to be suddenly decreased there would be a famine in the market mar-ket in a few months. "Events to cause a stampede in certain cer-tain imported goods are liable to happen at any time, and indications t the moment are that this is especially es-pecially true in the cases of Mexico, 'rherefoce I strongly advise manufacturers manu-facturers and merchants to keep in tock a good supply of imported -'.oods. Npt only is it a good policy o prepare against fore'ijn political '.roubles, but there is not the same tendency for imparted goods to' decline de-cline in price as for domestic goods, '.wing to the steady decline in ex-' ex-' hange and unemployment aDroad, 1 meivcan buyers have thus far been ible continuMy to force down foreign ..rices. . This, however, will not continue forever and the time is fast tpproachin.g when exchange may urn in the opposite direction and 'vhen there may be more unemployment unemploy-ment in the United States than in liuirope. Prep, re For Lrbor Troubles "The United States has been very ree fro'm laboa troubles during the a st two years. There were fewer i i "ickes and fewer men out on ' trickes during 1924 than during ny of thee past teen or fifteen years. Manufacturer are even beginning o get eace-less ahd omit that red inkj ' arning which we used to see on' uir order acceptances and letter-' .eads -disavowing any liability in; 'ise of strickes, etc. Either these' 'manufacturers are planning on tikes as regular pa.nt of their rou-tie rou-tie of tusinn-ess or else they have eached the time when they think there will be no more labor troubles. don't want to be a crepe hanger. - ut because labor is quiet is a pret- sure sign that something in brew--.g. The very fact that we have 'civ labor disturbances at the present me is one of the .best reasons why hey -may be expected to develop be fore the year is over. "Under the old system, when b'usi-r b'usi-r ess men bought a supply of raw; naterials and merchandise covering i yea.r or -more in advance, strikes . ere not a -serious price factor. If, however, strikes should occur today ;n certain , in-dustiries, prices of certain cer-tain raw materials and products would shoot up to high figures be-, i-ause manufacturers have not on1 liand sufficient supplies to carry their trade over a period of prolonged la bor trouble. The supply of suich ( i'odul.ts would rapidly deminish;j jobbers would be cleared out, and' I ;;ei-chants would be unabJe to get ;oods except at very high price?. This i ; a reason why 'manufacturers and i-.ierchant3 should carry sufficient re-j . erves of domestic raw materials nd manufactured roods, as well as sported raw materials and merchan-Ive. merchan-Ive. As above stated a certain a-aount a-aount of hand-to-mouth buying is ' nod, but too n.'.i- h of it is dangerous c -cause some unforseen event is al-l 1 ays liable to happen and business ten shouid be prepared for such. Don't Crush Out the Jobbers "If we are to continue hand-to-aouth buying, the jobber is absolute-'y absolute-'y essential to trade and commerce oecause he forms sort of a cushion between the -manfacturer and the ; c-taller. Yet the tendency today is j c eliminate the jobber. Manu j !ctui:ers are trying to- reach the re j - Tilers and the consumers, direct; while consumers are endeavoring to j buy products direct from the factory j or from the mine. I am not dishorning dis-horning -this practice, as it has its ' good features; but I must sound a wli ning note against eliminating the jobber. If a merchant is to get on w ithout the jobber, he must take th? jobber's place and carry a bis stock of good;. If he is to do a hand-to-mcuth business, the jobber is absolutely abso-lutely essential. I am not makinj an appeal for speculative buying. I .'-i rot be kve in speculation at ail. as it is dangerous if not unethical. On the other hand, I see the dangei of the present tendency of ail busi-r.e?i busi-r.e?i going on a hand-to-mouth ba-ls. I appeal for a middle road policy. Manufacturers and merchants should t?ke a medial position between that' of the speculator and that of -the .hand-to-imouth buyer. Of course ;his needs an understanding of fun-lamental fun-lamental conditions and the trend ot commodities, prices, supply and demand, amount produced and consumed, con-sumed, etc. There are, however, several reliable statistical services which-furnish this information making mak-ing it available to all at a small cost. Money so spent is well spent. "In conclusion let me say that this hand-to-mouth policy must bt : riost carefully watchad by every in-v?-:or, especially while money raies pre now so easy. The declaration of peace a few years . ago caused j lousiness men to be caught with grea;. .nvcntories'due to which corporations1 and investors lost gireat sums of, fnuney. Today an unforseen event' may tause almost as great losses' when these same people find themselves them-selves with no reserve supply of rav.- i materials or merchandise. There-1 fore, this policy of hand-to-mouth ' buying is becoming a dangerous fac-' .tor in the stock market as well as in general business. Of cours; :nohe of these things have yet begun to show on the surface. Business ccr.inues around normal, the Bab-' sonchart showin,; it at 2 per cent above normal." |