The Cloth Market
The output of the manufacturer finds its way to the ultimate consumer
through a variety of channels. What these are will depend upon the manner
in which the various mills are organized, and their respective policies
as to the marketing of their products. Some mills, usually very large
organizations, will have plants completely equipped, in every department,
spinning, weaving, dyeing, printing, finishing, etc., and will process
all of their goods themselves in every detail, offering them on the
market in their finished form. Some of these may make a wide variety of
fabrics suitable for one class of trade, or for many classes of trade,
while others will specialize on a few articles. A good many concerns that
are not of the largest size, but which confine their production to a few
articles, may also put the goods through every operation themselves.
Then there are a great number of cotton mills, many of them of very large
size, which do no weaving at all, but confine themselves to spinning,
finding a market for their yarns with the many weaving mills which have
no spinning plants.
Many Large Mills
Do No Finishing
Numerous mills, both large and small, manufacturing, principally, goods
of a staple grade, which may either be of fine or coarse character, sell
their entire product in the gray, or unfinished state, because they do
not wish to burden themselves with the task of putting the goods through
the various finishing treatments necessary to fit them for the market.
This method of disposing of the product appeals to many for it reduces
the manufacturing operations to the spinning of the yarn, and to the
weaving of the cloth. The owners or managers of the mills may have had no
experience outside of these branches, and if they themselves were to
attempt to finish, or "convert," the goods they would be entering strange
fields.
Whatever method of merchandising may be adopted, it is certainly obvious
that the product of large mills is so great that it must be disposed of
in a large way, and hence various channels of outlet have grown up to
satisfy the requirements of the case.
Dealing Direct With
Dry Goods Jobbers
A substantial portion of the output of the mills (but nothing like what
it was years ago, and it grows relatively smaller every year), is
disposed of directly to dry goods jobbing houses, and by them to retail
dealers, who sell it by the yard to the consumer. This practice was
formerly more widespread, but has diminished greatly in recent years. A
further enormous yardage passes eventually through the cutting-up houses,
which manufacture garments of every kind, from overalls to pajamas, or
from raincoats to shirts, and dispose of their products to distributors,
who eventually sell them to the public. Then there are retailers whose
requirements for goods of particular kinds are so considerable that their
orders are of sufficient magnitude to warrant the mills in dealing with
them direct.
Again, there are the great mail-order houses, with a gigantic annual
turnover, whose catalogues go to every part of the land, and which
handle great quantities of piece goods, as well as made-up garments, and
whose custom is eagerly sought for.
[Illustration: _Thousands of looms in a single room_]
Other mills make fabrics suitable for use in the military and naval
establishments of the country, and in other public channels, and which,
in selling these fabrics, will deal directly with the Government, or
indirectly through intermediaries.
In addition to these, and other domestic outlets, there is a great
quantity of goods produced for export, which are handled through houses
specially organized for that trade.
Merchandising by
Dry Goods Jobber
One of the oldest established agencies for handling mill products is the
dry goods jobber, and it is to be remarked that many large retail houses
do also a substantial jobbing business, though generally less so in
cottons than in other classes of fabrics. The jobber will buy finished
products from those mills which sell goods in that state, and will also
buy large amounts of gray goods. These he will sell principally to retail
distributors, but his transactions, in addition, will extend into a
multitude of channels, and, he will deal with small garment manufacturers
and makers of all kinds of wares, and will also sell considerable
quantities to the larger cutters when they are unable, for one reason or
another, to buy direct from the mills or from the converters. There are
also numerous small jobbing concerns which buy substantial quantities
from the larger jobbers as occasion may require.
One of the greatest avenues of outlet is through a class of dealers known
as converters, and there are converters operating in every kind of fabric
from cotton to silk. In the last forty or fifty years, this business has
developed into immense proportions, and the converter performs a real and
important service in the trade. He is intimately acquainted with the
needs of his customers, and possesses a fair knowledge of the kinds of
goods put out by the various mills and the different constructions in
which they are sold, and is well acquainted with all of the market
dyeing, finishing, bleaching, and printing concerns, having also a fair
understanding of the various treatments accorded to the goods. He buys
his goods in the gray from the mills, and sends them to the finishers,
printers, etc., to be treated, according to his instructions. By a
careful studying of the fabric constructions, and of the subsequent
treatments, he is able to create fabrics of a suitable and marketable
character, which are in some respects different from those offered by any
of his competitors, and which are brought out with an exact knowledge of
the requirements of the trade to which he is catering. He is able to make
a profit, and generally a very substantial one, by handling the goods in
this way.
Considerable capital is required by the converter, as goods bought in the
gray have to be paid for on practically a cash basis, and he may have to
carry them for a time before they are finally marketed. The converter
sells to the cutting-up houses, to jobbers, and to retailers, or, in
fact, to whatever trade he seeks. Large and profitable businesses have
thus been built up. Many converters have adopted their own distinctive
trade marks, and since the goods that they handle are known by these
trade marks, the identity of the mill which made them originally is often
entirely unknown to the ultimate consumer. The converter can give his
business to whatever mill, at the time, will give him the best value for
his money.
Jobbers Must Know
Status of Mills
These operations are facilitated by the services of another class of
intermediaries, the cloth brokers. If a buyer, whether he be retailer,
jobber, converter, or what not, wishes to secure goods of a certain kind,
he would have a very difficult task if he had to canvass the entire
market, and ascertain what was being offered. Hence he is likely to go to
the cloth brokers. They are in touch with all the principal manufacturing
sources of supply, and will have daily quotations of the offerings of the
different mills; he will know which mills are "sold up," and which are
open for business, and what class of goods they desire to sell.
Consequently the cloth brokers are in a position to offer to would-be
purchasers a wide variety of the different cloths which are available on
the market, and it is their business to buy from the mills as cheaply as
they can, and so get the best possible price for their customers. The
transactions are handled on a small commission, and the average buyer, in
many kinds of goods, is able to do much better by working through a
broker than by opening negotiations directly with the mill.
Most Mills Have
Offices in Chief Markets
Mills selling their products through brokers in this manner may, or may
not, have a representative stationed in the goods market, according to
circumstances. Mills, manufacturing a limited number of plain fabrics,
and which do not sell through brokers, may also be without
representatives in the primary goods market, and will dispose of their
product directly from the mills, partly by correspondence, and partly
through the efforts of their travelers. The great mass of the mills,
however, are regularly and efficiently represented in the great central
goods markets, principally New York, though also in Boston, Philadelphia,
Baltimore, and elsewhere, and their selling agencies are very highly
organized institutions.
These establishments which have sufficient capital to enable them to
finance themselves--with or without the assistance of regular bankers'
loans--may maintain their own selling offices, and market their product
in their own names directly to their customers. The amount of capital
required to handle a business in this way is proportionately very large,
for the concern must be able to keep itself sufficiently supplied with
raw materials, and then to carry the expenses as these materials pass
through the slow stages of manufacture until the goods are finally
finished, after which they may have to be kept in stock for a time until
the delivery dates, and then, after shipment, the accounts have to be
carried until the bills are paid, so that, from the time the manufacturer
pays for his raw material until he finally receives pay for his goods is
a very long period.
Loans Made Upon
Warehouse Receipts
The financing of a business conducted in this way can be assisted by
loans from warehouses upon stocks of raw material stored there, by bank
accommodation, and by facilities which certain banks give for the cashing
of a substantial percentage of those accounts on the books of the concern
which the customers have not discounted themselves. Also, in handling his
merchandise in this way, the manufacturer must have a thorough
understanding of the best means of marketing his product, and this care
of the selling end is, of course, an added burden upon his shoulders
which, in many cases, he may not feel competent to handle properly.
Therefore, the comparatively few concerns which do have sufficient
capital to sell directly, in addition to the many from great to small who
have not, will market their product through what are known as dry goods
commission houses, sometimes referred to as factors, and simply as
commercial bankers. The commission house system, as we have it here, does
not exist anywhere else, and its great growth in the United States has
been largely due to certain peculiarities in our banking methods, which
have prevented mills--even those with a reasonably sufficient supply of
capital--from obtaining the amount of direct banking accommodation
necessary for their needs.
The commission house, in its usual relations with its mills, undertakes
to conduct the sale of their products. Some commission agents insist upon
having the entire selling control of all of the goods the mill produces,
or at any rate, of all the goods of the kind which they are equipped to
sell. Others, again, will take over a partial selling control of the
product of a mill, and various lines of the same manufacturer may be
found offering through different channels. There are some obvious
disadvantages connected with this latter procedure.
If the mill is a very large one, the selling agent may handle no goods
except the product of that mill, but in the great majority of cases, the
factor will represent a considerable number of mills.
Immediately on receipt of the invoices of the goods consigned to the
selling agent, the mill can draw against them a percentage of their
value, previously agreed upon, usually about two-thirds of their net
selling price, and upon these loans interest at the rate of 6% is
charged. The difference between the rate at which the commission house
can borrow money, (in normal times perhaps 4 to 4-1/2%), and the 6% which
is usually charged to the mills, constitutes a considerable part of the
profits of the factor's business.
Factors Provide
Selling Facilities
The factor often provides a store, together with a complete selling and
office force, and every facility for receiving, storing, selling, and
shipping the goods, and for financing the business. The salesmen of the
house travel throughout the country, reaching all the important markets,
and the managers of the different departments, who thus understand the
needs of the market, are in a position to advise the mill with
intelligence and exactness as to the kind of goods which should be made
to meet the requirements of the trade. The cost of warehousing and of
insurance on the merchandise is also paid by the commission agent.
[Illustration: _Spinning room in a large mill. These are all ring
spindles_]
The prices at which the goods are to be sold are fixed by the mill, but,
of course, they will finally sell at prices determined by the market
conditions. As the goods are sold, the amounts which they bring are
credited to the mill, less whatever has been advanced against them. The
selling agent also stands ready, no matter on what time and terms the
goods may be sold, to credit the mill with the net value of the sale,
less 6% interest for the unexpired time within which the customer may
pay, and from this interest charge also he secures part of his return. Of
course if bank rates are very high, as they sometimes are for short
periods, the factor may be out of pocket on the interest account, instead
of making profit. As the goods are sold, so are the equities in them
released, and the balance is credited to the mill. If, however, the goods
sell at a loss there will be no equities coming to the mill, and, in
fact, there are not infrequently deficiencies to make up.
For these services, and according to the nature of the goods being sold,
various commissions are charged, usually ranging between the limits of 4
and 8% of the net returns of the sales. Plain unfinished goods which are
marketed in large quantities are charged for at a relatively low figure,
while fancy goods, sold in smaller quantities and requiring more effort
and expense to sell them, are charged for at a higher figure.
The selling agent also guarantees the credits of the firms to which he
sells, so that no losses for bad debts can fall upon the manufacturer,
but, at the same time, he will decline orders from any concerns except
those with whose credit he is entirely satisfied.
Not infrequently when the manufacturer conducts his own selling
operations, he will use the facilities afforded by the commission house
for the financial part of the business only, taking advances on his
goods, having his sales cashed, and his credits guaranteed, etc. For
these lesser services, of course, the commissions charged are smaller.
When goods are charged out, the bills are payable to the commission
house, and so, as far as the customer is concerned, the commission house
is the principal in the transaction. In many cases certain modified
arrangements are made, but in most instances the business is conducted as
herein described, and it may fairly be said that the bulk of the dry
goods of all kinds produced in the United States finds its way into the
market through commission house channels.
Making Plain Goods
for Future Orders
It is the policy of most cotton mills, and certainly of those making
plain goods, to run steadily all the year round, and thus the commission
agent, whether he has secured advance orders on the goods or not, has
constantly flowing into his hands an assured stream of merchandise which
must eventually, when sold, pay him a commission. Thus the securing of a
good account means an assured source of revenue to the commission agent.
There are no more important selling organizations for textiles than these
dry goods commission houses, many of them having an immense and
profitable turnover, and their businesses are conducted on a very high
plane of efficiency, and probity, although, in itself, there are many
evils attendant upon this method of the distribution of merchandise, and
which exercise at times a most adverse influence upon the well being of
the mills whose product is thus disposed of.
Strength of Agents
Makes "Paper" Acceptable
It is evident that no ordinary capital would be sufficient for the
supplying of money on call to mills in the immense quantity needed, and
it is here that the banker's capital is called into use. The commission
house is usually a concern of substantial means, sometimes very rich, and
nearly always of a financial standing, which will give it, on its own
account, an assured credit. At certain times of the year the calls for
money from the mills are greater than at other times, and as shipments
come forward, and advances are required, the commission house, in order
to put itself in funds, will issue a series of its own notes in
convenient sized amounts, $5,000 to $10,000 each, for instance, and will
offer these for sale, through its note broker.
This paper, which commands an advantageously low rate of interest, and
which is issued for convenient periods of time, averaging perhaps four
months, is much sought after by banks and other institutions in primary
markets and throughout the country wishing to invest current funds in a
safe and not unprofitable medium. This paper is so acceptable to banks
not only because the credit of the issuing firm is behind it, but also
because it is known that the money which is obtained for the notes will
be lent out to mills on ample collateral. The issuing house is in a
position so entirely safe that hardly ever can a question arise as to its
ability to take care of its borrowings.