MISCELLANEOUS FINANCIAL RESULTS OF RETAIL CHAINS This report presents certain phases of chain-store studies under five principal subjects, each of which is the outgrowth of some portion of the reports on sales, costs, and profits of retail chains, and invested capital and rates of return of retail chains. The first subject has to do with the uses of capital, and application of funds of tobacco chains and illustrates forcibly to how great an extent the financial results of chain stores may be, and often are, affected by other than chain-store operations. A large proportion of the total capital was invested in outside operation and a number of tobacco chains reported operating losses on chain-store operations, but also earned substantial amounts upon outside investments. The operations of these chains were, therefore, analyzed to show the application or disposition of their funds and the sources from which they were derived. This portion of the report covers 11 companies for 5 years, 1925, 1927, 1928, 1929, and 1930. It is found that of the total average funds 41 percent were paid out in dividends and this exceeded the net income by 1.43 points percent. Twenty-nine percent of the total average was invested in outside activities such as securities in other companies and real estate. Income from operations of the business provided less than 40 percent of all funds, borrowed capital 33 percent, and profit on capital assets sold 10 percent. These sources were found to be insufficient and working capital was decreased in a substantial amount. Another section of this report has to do with the effects of wholesaling by retail stores.. This presents financial information for a group of 64 chains in 1928, 71 in 1929, and 77 in 1930 which do some wholesaling in addition to retail business. Indications are substantial that a wide difference exists between the margins or gross profits of chains doing both kinds of business as contrasted with the strictly retail organizations in about half of the commodity types although it is difficult to tell how much is attributable to wholesaling operations. Usually operating expense figures are consistent with gross profit, that is, where the combination chains have higher percentages of gross profit than the resailing chains they also show higher operating expenses and vice versa. Indications of the effect of wholesaling are less conclusive in the percentages of net operating profit. The difference in the average rate of return on investment is striking, the retail-wholesale group with a rate of 20.99 percent being nearly double that of the retail group with 11.50 percent return on its invested capital. LEGAL ASPECTS OF THE INVESTIGATION The field work of interviewing manufacturers in connection with the legal aspects of their discounts and allowances to customers, which was in progress at the end of the fiscal year 1931-32, was completed late in the summer of 1932. The work of transcribing the interviews and tabulating the information has been completed and a study made of the decisions of the Commission and the courts with a view to answering the question of whether or not the granting of quantity prices available only to chain store distributors constitutes a violation of either the Federal Trade Commission Act, the Clayton Act, or any other statute. Due to wide-spread interest in, and agitation for, State regulation and taxation of chain-store companies, some 132 chain store taxation bills have been introduced in legislatures of 42 of the 44 States which have held sessions in 1933. These have been studied and the previous work on the subject has been revised to include these later bills and laws. The investigation and study of the legal questions have been continued throughout the fiscal year 1932–33 and a report is in course of preparation in response to the resolution. COTTONSEED INDUSTRY INQUIRY COMPLETED AND ENTIRE RECORD PRINTED AS A This inquiry was made in response to Senate Resolutions 136 and 147 Seventy-first Congress, first session. Resolution 136 requested the Commission to make a thorough investigation of the activities of corporations operating cottonseed oil mills in an alleged unlawful combination to lower and fix prices in the purchase of cottonseed and to sell cottonseed meal at a fixed price under threat of boycott. Resolution 147 directed the Commission to investigate charges that certain corporations operating oil mills were acquiring by purchase or otherwise the ownership and control of cotton gins for the purpose of destroying the competitive market for cottonseed and depressing and holding down the price paid to farmers for cottonseed, and further directed that the Commission hold public hearings in connection with the inquiry under both resolutions. Preliminary to the holding of public hearings, representatives of the Commission interviewed crushers of cottonseed and officials of their trade associations. Whenever possible extensive examination was made of files of correspondence between crushers, association officials and buyers of cottonseed. Ginners, officials of ginners' associations, farmers, cottonseed brokers, cottonseed products brokers, officers of commercial exchanges, State and Government officials and others believed to have information regarding the sale of cottonseed, were also interviewed. Public hearings were held in Atlanta, Ga.; Columbia, S.C.; Montgomery, Ala.; Raleigh, N.C.; Jackson, Miss.; New Orleans and Shreveport, La.; Houston and Dallas, Tex.; Oklahoma City, Okla.; Little Rock, Ark.; Memphis, Tenn., and Washington, D.C. Under authority of Senate Resolution 292, Seventy-first Congress, second session, a stenographic record of all testimony taken and copies of all exhibits received have been printed in 12 parts as Senate Document 209, Seventy-first Congress. In direct response to the resolutions, a report summarizing the investigation was submitted to the Senate on May 19, 1933. (This is being printed as part 13 of S.Doc. 209.) This final report, after outlining the origin and scope of the inquiry, deals with: (1) The Physical Aspects, Concentration of Mill Ownership, and Trade Organizations; (2) Seed Buying Channels and Their Control by Mills; (3) Cooperative Price Activities of Cottonseed Crushing Mills; (4) Mill Spread as a Determinant of Seed Prices; (5) Competitive and Discriminatory Effects of the Association's Seed Grading System. In view of the facts disclosed by this investigation the Commission had reason to believe that certain of the activities and practices in the cottonseed industry were in violation of law. The trade practice conference rules adopted in 1928 and since widely used by the industry were abused both individually by members of the industry and cooperatively through trade association activities. Various divisions of the National Cottonseed Products Association added to and subtracted from the rules by adopting so-called "interpretations" of them. Some individual mill operators and their employees at times misrepresented the meaning and purpose of the rules in their dealings with seed sellers. These things contributed to the effectiveness of the association's price uniformity plan and of its supplemental practices which the commission had reason to believe were in undue restraint of competition. The Commission, therefore, rescinded its action of October 1, 1928, when it had accepted and approved of the tradepractice conference rules of the cottonseed industry, and ordered that complaints issue in accordance with the provisions of the Federal Trade Commission Act. PRICE BASES REPORT ON RANGE BOILER INDUSTRY IS BEING PREPARED The inquiry known as price bases was instituted at the direction of the Commission in 1927. From the beginning only a small staff has been available for its prosecution. One of its objects is to ascertain the part that transportation charges play in the making of delivered and shipping-point prices. Examination of the various methods of basing prices with respect to location is made both to show what is indicated in respect to competition and what, if any, are the actual and potential effects of such methods upon competition, price levels, and cross freighting of commodities. These methods include both the f.o.b. shipping point and the basing point and zone delivered systems of basing prices. A country-wide survey of price basing methods was made covering more than 3,500 reporting manufacturers representing practically all industries. The results of this survey together with a study of the basing-point formula as used by the cement industry were submitted in a report to Congress on March 26, 1932, which has since been printed, entitled "The Basing-Point Formula and Cement Prices." Two other industries are now being studied in an intensive waythe range boiler industry, which uses in part "postage-stamp" delivered prices, and the industrial alcohol industry, which employs basing-point delivered prices. "Postage-stamp" delivered prices are uniform for all destinations, either for the country as a whole or for some one or more zones of the country. Such prices carry disproportionate actual freight charges. Buyers at destinations freightwise near to the shipper with low freight rates will have included in their delivered prices more than the actual freight and buyers freightwise distant will have included in theirs less than the actual freight. The system eliminates the generally recognized advantage of a buyer's proximity of location in respect to the seller. In the case of commodities whose transportation costs are a considerable element of delivered price, this effects a discriminatory burden upon the nearby buyer who pays a much higher plant net price than does the distant buyer. At the close of the fiscal year ended June 30, 1933, a report on the range boiler industry was in an advanced stage of preparation. CEMENT INDUSTRY INVESTIGATION COMPLETED AND REPORT TO THE SENATE This inquiry was begun in March 1931, pursuant to a resolution adopted by the Senate February 16, 1931 (S.Res. 448, 71st. Cong., 3d sess.). The resolution directed the Commission to investigate competitive conditions in the cement industry and report to the Senate concerning the following: The facts with respect to the sale of cement, whether of foreign or domestic manufacture, and especially the price activities of trade associations composed of either manufacturers or dealers in cement, or both. The facts with respect to the distribution of cement, including a survey of the practices of manufacturers or dealers used in connection with the distribution of cement. Whether the activities in the cement industry on the part of trade associations, manufacturers of cement, or dealers in cement constitute a violation of the anti trust laws of the United States and whether such activities constitute unfair trade practices. The investigation was completed and a report submitted to the Senate on June 9, 1933. The report was ordered printed as Senate Document No. 71 (73d Cong., 1st sess.). 16326-33-5 The most interesting facts developed by the investigation relate to the methods used by manufacturers in maintaining uniform prices of portland cement. For about 30 years cement manufacturers have used what is known as the multiple basing point price method of computing and quoting delivered prices for cement. Manufacturers have steadfastly refused to quote mill prices. Delivered prices were arrived at through the application of a formula, the essential elements of which were the basing point prices at selected mills and the commercial railroad freight rate from the basing point to destination. The formula delivered price was the lowest combination of basing point price plus freight rate to the delivery point. Delivered prices were made by this formula whether used in meeting open competition or in submitting sealed bids to all classes of purchasers. Current basing point prices have been common knowledge to all cement manufacturers. Each sales manager has kept himself thoroughly posted on the base price at each basing point mill. A compilation of freight rates furnished by the Cement Institute has supplied each member with accurate information as to railway freight rates from each basing point mill to every freight station in the member's territory. The letter submitting the report contained the following statement concerning basing point prices: The multiple basing point pricing system as developed by the cement industry has a tendency to lessen price competition. The system forms the basis for arriving at uniform delivered prices of cement and destroys the value of calling for sealed bids by the Government and other large purchasers. The promptness of all other manufacturers in meeting changes in delivered prices caused by changes in basing point prices emphasizes the rigid application of the system by the industry. Certain incidental practices correcting conditions which threatened the uniform application of the system, such as uniformly adopting arbitrary prices at certain points and acting in concert with dealer organizanions in penalizing and eliminating sales of cement for truck delivery, have strengthened the effectiveness of the multiple basing point pricing system. Price competition in the cement industry might be restored in large measure if each manufacturer in submitting bids would quote an f.o.b. mill price, based on his own operations and independent of any knowledge or information as to how competitors probably will arrive at the prices they will submit. BUILDING MATERIALS LETTING OF GOVERNMENT BUILDING CONTRACTS IS INVESTIGATED This investigation was undertaken in response to Senate Resolution 493 and the Commission's order supplemental thereto which was issued April 27, 1931. Briefly, the resolution calls for all facts relating to the letting of Government building contracts and for information concerning whether or not there has been price fixing on the materials used in construction work of which there are some two hundred and fifty. |