salers seeking retailers' trade. It has also resulted, in part, from the aggressive merchandising of cement and other competing materials. The greatest actual competition is among yard dealers, but other sources of lumber or substitute materials exert a large influence, particularly in arousing local dealers to use more modern methods of merchandising.

As pointed out previously, the actual amount of material sold in a local community from outside sources is small, but the possibility of such sales is always present, as is the factor of comparative service in deliveries, credits, etc. The amount of lumber sold by farmers' cooperative yards is a small part of the aggregate volume retailed in the Middle West, but the great increase in the number of such yards in the farming districts and the competition which they offer is a powerful factor which dealers in such communities must consider. An illustration of the effect of the intrusion of a farmers' cooperative yard upon the prices of an established dealer is shown below:

Comparison of average annual prices per thousand feet received by a Minnesota line yard company from sales of lumber at all yards and at four individual points.

From yard at a 3-yard point.

From yard in competition with a farmers' cooperative yard at the same point....

NOTE.-Average prices determined by dividing total sales of lumber by total footage sold.

At the point at which a farmers' cooperative company was recently established, it will be noted that during a period of three years the line yard prices have been forced down approximately $6 per thousand feet. The same possibilities exist between different line yard companies or individual dealers at a given point, although probably not of so extreme a nature.

Local competitive conflicts carried to the point of eliminating one or more of the dealers are not so disastrous to the line yard company as to the individual dealer whose entire interests are centered in one yard, or to the farmers' cooperative or stock company. This obviously is due to the fact that a strong line yard company can operate several yards at cost or even at a loss for a year or more without disastrous effects upon its profits as a whole. For this reason, as well as because of its advantages in buying, it is a competitive factor which the small individual dealer may have difficulty in meeting.

PARTICIPATION OF MAUFACTURERS IN RETAILING.

Recent consideration of the retail distribution of lumber on the part of many manufacturers is undoubtedly a potential influence of a competitive nature because of the actual competition which it may develop. There have been frequent cases of interlocking directorates and still closer business connections between retailers, wholesalers, and manufacturers. In some instances a single firm has engaged in very branch of the industry. Of late, however, the increasing pressure of timberland investments and other manufacturing conditions

have stimulated effort among lumber producers to participate more actively in its distribution. One of the largest lumber manufacturing companies in the country has recently acquired lines of retail yards in the Northwest, adopting a very progressive and aggressive merchandising campaign. It is already a strong influence toward more modern methods of merchandising in the territory in which it operates. The control of retail yards generally by manufacturers, even in country communities, will be held back by the financial resources required and by the diversified nature of lumber and its sources of manufacture. From a public standpoint it is questionable whether any larger advantages would be gained. It is merely the same system under different and more centralized management and capital. The very fact that retail lumber yards in the country districts can not exist on lumber alone makes the manufacturing and distributing operations two more or less distinct businesses.

While certain economies could undoubtedly be effected by centralized control, it may be questioned whether men hired as retail dealers to advance the sale of lumber primarily can serve the public as effectively as men whose own money is in their business and who develop and apply an expert knowledge of the most economical uses of all building materials. Furthermore, a general move on the part of manufacturers to enter the distributing field by the establishment of new, competing yards rather than by the acquirement of existing yards might involve an added burden to the already heavy charges on the distribution of lumber.

On the other hand, lumber manufacturers obviously have a direct interest in the distribution of their product, which forms the bulk of the retail dealer's trade. This interest has not been applied as effectively in the past as progressive merchandising has demanded. If retailers in certain regions are charging excessive prices for lumber, or if manufacturers can develop more efficient merchandising than can independent capital, both the industry and the public will be benefited to the extent to which these conditions are bettered. Manufacturers also have an entirely legitimate interest for entering the retail field, in seeking to increase the sale of lumber. The independent dealer may have no incentive to push the sale of wood if he can make equal or larger profits on the sale of other building materials. In the nature of things, it rests upon the manufacturer to supply this incentive-by forceful participation in merchandising. This does not require necessarily the ownership of retail establishments, but may be accomplished by cooperation with independent distributing agencies through furnishing expert salesmen, demonstrations of lumber uses, advertising, and the manufacture of special products adapted to the requirements of particular sections.

As has been indicated, recent activities on the part of manufacturers to develop more progressive methods of merchandising, whether accomplished through direct competition with existing retailers or through cooperation with them, which is the preferable policy in the judgment of many lumbermen, are undoubtedly wholesome influences from the standpoint of efficiency in the retail trade and greater service to the users of lumber. The extent to which the general consumption of lumber will be actually increased thereby is, of course, problematical.

4049°-18- -7

SUMMARY OF PRINCIPAL CONCLUSIONS.

(1) For the regions and species studied, the gross cost of distribution, including wholesaling, transportation, and retailing, is between 40 and 50 per cent of the retail price of lumber. Of this final price to the consumer the manufacturer takes from 50 to 60 per cent, exclusive of any wholesaling by his own organization; the wholesaler from 2 to 4 per cent; the railroad from 20 to 25 per cent; and the retailer from 20 to 25 per cent. Of the gross amount covering all distributing processes, 6 to 8 per cent is absorbed by wholesaling, 44 to 48 per cent by transportation, and 44 to 48 per cent by retailing.

These figures are broad averages and subject to wide variations as between specific sections, species, and grades. Southern yellow pine exercises by far the greatest weight in the averages, and the figures apply more closely to the distribution of this species in Mississippi Valley markets than to lumber shipped into these States from the West. In the case of Douglas fir common boards and dimensions from the Coast, for example, distribution absorbs a relatively greater per cent of the retail price. This is due primarily to heavy freight costs which absorb from 25 to 50 per cent of the price paid by the consumer.

Expressed in dollars per thousand feet and in percentages of the average retail prices prevailing in city and country trade, the distribution of the final price is approximately as shown in Table 31: TABLE 31.-Showing distribution of final price per 1,000 feet.

The higher price prevailing in the country trade is due in part to the higher average quality and transportation cost of the lumber handled and in part to higher average profits obtained by rural distributors.

(2) The data obtained indicate that lumber retailers are netting between 6 and 7 per cent on their investments in city operations, as shown by the yards studied in Chicago, Kansas City, and Minneapolis; and from 7 to 12 per cent in country operations through Missouri, Oklahoma, Kansas, Iowa, Nebraska, Minnesota, and the Dakotas. These ranges are averages for groups of companies and not for individual dealers.

(3) The high cost of lumber to-day as compared with 25 or 30 years ago is due primarily to economic changes which have increased costs in both the manufacture and distribution of this product. In the distributive process, the following contributing conditions may be mentioned.

(a) Increased transportation costs due to the increasing distances between lumber producing regions and the principal consuming

markets and to the necessary substitution in the great bulk of lumber traffic of rail for the cheaper water transportation formerly used to a large extent.

(b) The increased investments required in the retail distribution of lumber, due to the greater variety of stock and service demanded by consumers, to the greater equipment needed for handling and properly caring for lumber stocks, and to the longer periods during which stocks must be held.

(c) The development of specialized service as a feature of lumber retailing, especially in the city trade, and the extension of the credit system.

(d) The duplication of investments in retail distribution resulting from the multiplication of yards in excess of increases in the consumption of lumber.

(e) The decrease in the purchasing power of money with the resulting increases in the cost of labor, taxes, supplies, etc.

While these economic causes explain the general increase in lumber prices, they have undoubtedly been accentuated at various times and in various localities by cooperative activities on the part of manufacturers and distributors, which sought in one way or another to control the lumber trade. Data regarding the specific effect of such attempted restraints of competition upon actual lumber prices are not available. But in the 11 States covered by this study the evidence goes to show that they have been almost wholly localized and to have had an unimportant part in the regional movement of lumber prices.

(4) Retail prices in the city trade fluctuate in close conformity with wholesale prices, especially on grades moving in heavy volume. In the country trade fluctuations in retail prices follow changes in wholesale prices much more slowly, as a rule, but are often extreme as the result of local competitive conditions. The data reflect consistently higher prices in small sales than in the larger, or bill, sales. The grade price of lumber per thousand feet largely disappears in bill sales, as far as the consumer is concerned. In this class of trade the entire amount, including different grades and products, is commonly sold under one aggregate price. The average price received by dealers for particular grades is therefore often assumed erroneously to be the price charged in small sales.

Competition was in evidence in the retail trade at most of the points studied, and is reflected in recent trade tendencies and changes through the Middle West. Lumber sold in large bills is subject to the keenest competition. Less keen competition or lack of competition is reflected in the small sales, which are made on a much wider margin as a rule, although in this trade also some fluctuations in price indicate the practice on the part of dealers to adjust their prices to special conditions of competition, credit, etc. Competition in the retail trade is mainly between local dealers. This is especially true in the larger cities. In the smaller cities, towns, and country communities, competition from outside sources, such as mail-order concerns, mills selling direct to the consumer, and wholesalers and retailers at nearby points, is a desirable and often a potent factor. Although the amount sold by these outside competitors is relatively small, their tendency is to develop more aggressive merchandising on the part of local dealers.

(5) Considering the location of the producing mills in relation to retail markets and the relatively small and diversified amounts in which a large percentage of lumber and other building supplies are required by many consumers, the local retail yard which assembles stock and provides expert service for the buyer has an essential place in distribution. Economies in lumber distribution may be brought about in part by developing direct trade in the classes of use for which it is practicable, and in part by greater efficiency in all distributing processes. Competition is a force always working in this direction on the one hand, but tending to levy increases in cost on the other. More effective participation in lumber distribution by manufacturers, whether through direct connections with retail yards or otherwise, should likewise be a factor in attaining greater efficiency.

(6) A very apparent weakness of the retail lumber trade is its accounting practice. The absence of standard accounting systems through which more intelligent prices may be made and sounder finance practiced is conspicuous. The development of more standardized and efficient accounting is believed to be the first necessary step to regional economies and to the initiation of scientific studies, not only of retailing but of the two other major steps in lumber distribution-wholesaling and transportation.

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