SALE OF FLANNEL

Dominion, Volume 12, Issue 299, 13 September 1919, Page 9

SALE OF FLANNEL

' ALLEGED PROFITEERING

CHARGE AGAINST GEORGE ANDKERSLEY.

BOARD OF TRADE ACTION

In the Magistrate's' Court yesterday afternoon, before Mr. E. Page, S.AI., the case of the Board of Trade v. George and. Kersley, Ltd.; was heard. Mr. P. S. K. Macassey, of the Crown, Law Office, appeared for the Department, and Sir John Findlay, K.C., with him Mr. M. Myers, for the defendants. " • George and Kersley were charged that on September 3 they sold to liua Audrey Bethel flannel known as No. 5 Shetland at a price which was unreasonably high, the opportunity of obtaining such price in New Zealand having arisen by reason of a scarcity of such goods in New Zealand caused by war conditions-, Mr. Macassey, in opening,. said that, this was tie first case of the kind in New Zealand. The information was laid under section 21 of the War Regulations Act, 1918. Under this section it was an offence to sell goods at a price that was unreasonably high. . For some timo . past there had been numerous complaints made to the Board of Trade in reference to the high prices Tilling, especially in the j drapery trade. The Board of Trade had been in a difficult position. The special legislation did not give it authority to fully investigate the complaints, and the board was therefore helpless. In respect to goods manufactured in New Zealand, the Act allowed a fair and reasonable price, but when the price was unreasonably high that could only be ascertained by finding out the cost price, and comparing it with the price charged to the public. ■ The board further found great trouble in getting witnesses to come for- \ ward and give evidence. The subject of the present charge was flannel known ag No. 5 Shetland flannel, and waq manufactured by the Wellington Woollen Company at Petone. - It .was the practice of drapers to add 50 per cent, to the cost' price of goods, which would give a ,return of 33 l-3rd per cent, on the turnover. He illustrated this point, and said that if. the cost of an article was 405., , the retailer would add 205., making the selling price 605., and that would yield o, profit of one-third, or' S3 l-3rd per ccnt. In the present case. Miss Bethel purchased from George and 1 Kersley, Ltd., two yards of the flannel at 3s. 3d. a yard. The wholer sale pre-war price to the distributors was IOJd., and'the selling price ito the public was Is. 2d., showing a profit of nearly '4d. a yard. The reason why the retailers were not.then able to add 50 per cent, was because there was an English flannel known as "Doctor" flannel that was selling at about tho same.figure. The flannel referred to in tho charge was a cheap flannel, and/was known to the''trade as ,a "bread and butter line." The wholesale, price of this flannel to-day was Is. ■Tld. a yard, Jess S| per cent., and tho retail price of it at the D.I.G. and Te Aro House was 2s. 3d. a yard, the price at James Smith's was 2s. Gd., and at Veitch and Allan's 2s. 4<l. The eliarw made by George and Kersley was 3s. 3d., whioh showed a gross profit of Is.' Sd., as against 4d. prior to the war, and approximately 103 per cent on the cost price. There had been a-very great scarcity of this flannel because the English flannel that was in competition prior to the war could not be imported at 6s. to 6s. Gd. a yard, and tho local mills, which have been fully occupied with war work, have not been able to make much of this flannel. It was a readily saleabse article, and there was, no reason why this excessive profit should lave "been charged. Mr. Macassey pointed out that a roll of this flannel contained 55 yards. to 56 yards, and the ■wholesale value of the roll was about ! Si 9s. Ltd., and the profit made by George and Kersley was about ,£1 lis. 4d. per roll. If this was turned over three times during the year the profit would b'e ; i£s Ss. on a yearly capital of ,£f 9s. dd., or over 100 • per cent." on the outlay. The penalty prescribed by' the Act was .£2OO in the case, of an individual and ,£IOOO ii the case of an incorporated company.'/ Jlr. 'Macassey then proceeded to call evidence.' 1 >

Hua Audrey Bethel, employed by the Board of Tra'de, said that she made the puTchas.e of 2 yards of No. a Shetland flannel, and paid 3s. 33. a yard for it. There was a tab on the bolt of flannel, find it was marked No. 5. A. E. Donne, secretary of the Wellington Woollen Company, said that the price of No, 5 Shetland flannel before the war was. less 33 per cent. An invoice of the sale of flannel in Ju/v, 1919, to George and Kersley at Is. 7{d., find another of a sale in August, were produced. On October 9, 1918. an order was received for 8 pieces of flannel and other goods, and tho price of tho flannel •was Is. 4jd.- On August 15, 1919, there was another order for flannel, tho price then being Is. 7£d. Out of tlie two orders for flannel only two rolls could be supplied by the company. There vas.ll general shortage of flannel; the company jluwl 'been engaged on war work ind the domestic trade was shut off. prior to the waT they were ablo to supply all demands and they had ft reserve-stuck. The pre-war price was IOJd., and they just cleared expenses at that price. To Sir John Findlay: 111 the retail trade he knew it was quite common to sell one article at a low price and recover on another. The company sold this flannel''to -25 customers in Wellington. Tha.-e had-been additions made Affecting the cosl of production during the war period. Nearly all the general branches of business had' increased in expense. The increase was most on articles where labour was employed. Alfred John Mullins, manager Sf tho Manchester department of the D.1.C., 'said that No. .5 Shetland flannel was. tho cheapest flannel made,, and was a hou-o-hold flannel, and was regarded as a "bread and butter line." Prior to the war the cost of the flannel was IOJcU and the selling' price Is. 2d. Witness hud no General rule.as to adding a percentagu to he cost price; he was asked to show a certain percentage on his turnover, and he arranged his prices accordingly. Prior to the war there was no English flannel sold at Is. 2d. "Doctor" flannel was sold at Is. 6d. per yard. There' was always a ready eale for Shetland flannel (locally made),' and prior to the war they would turn over the stock of flannol about three times in the year., To Mr. Myers: He had 110 uniform, increase on'the cost price of the various goods in his department. 'The' ratio of expenses to turnover in 1914 was not known to him, and he did not know what it was now. The actual expenses since the ; war had increased considerably. Mr. Myers: I am. afraid I must ask you this question, for we want to bring evidence on the subject. What is the gross profit that you have, to get on your turnover? . . Mr.' Macassey protested,, and there was Borne argument. The Magistrate: On what ground do yon object',to the question being asked? Mr. Macassey: Because it is irrelevant. The Magistrate: I am afraid I must allow the question to be asked. Witness, in reply, said that the gro=s profit thai he was expected to show was 27J per cent. His department waß divided into sections, and the gross profits varied from 27}. per cent, to 31 per cent, on the turnover. Mr. Myers: What is the highest and what is the lowest profit that you make on cost price? : . Witness: I do not understand you. Mr. Myers: What'is the highest yon 'add to cost? Is it 100 per cent.? Witness: No, not 100 per cent., but it may hava gone to 00 per cent.. Witness did 'hot know what 'discount was allowed to "clubs," that is, to an agent buying for several households. Mr. Jfyers: If the retailer did "not make his profit on flannel, he would lave-to make it up on something else? Witness: Yes. otherwise he could not pay' his . expenses. Continuing, witness said that if . a department made only 6 per cent. 011 capital he would regard it as a poor department. In fixing the price of an article he considered its value as well as the cost price. If several retailers were stocking tho same article and it was a "bread and butter line," it was competition that kept the price down. Mr. Myers: It is only fair to the retail drapery trade to aslc you this question: Is there any combination in tho trade in respect bo fixing prices? Witness: Nohe whatever. Tp the Magistrate; The lowest percent-

age tlidt he added to the cost price of a "bread and butter line" was 13 por cent. Thomas Forsyth, manager of To Aro House, Ltd., said that the general rule in fixing prices was to give an average return of 33 1-3 per cent, on turnover, which would bo about 50 per cent;' on cost. On flannel 50 per cent, would bo added to cost price. Tho overhead expenses might amount to 22 pea 1 cent, to 271 per cent, and the balance would represent interest and profits. Their selling price of No. 5 Shetland flannel at To Aro House was 2s. 3d. The expenses had increased in proportion to tR" turnover, The increase in expenses was about 15 to 55 per cent., but he could not say what ratio it bore to turnoverit depended upon the turnover. iTo Mr. Myers; The averago gross profits and tho average expenses bore the same ratio now as before the war. He would say that an average net profit oi 5 8 per cent', over a period of five years was a" very low proht. He would not call a gross profit of 34.41 per cent, on , cost in tho Manchester department over i five of the war years an unfair profit if the goods were well bought. The iso. ( 5 Shetland flannel' was a cut line before the war and was sold unreasonably low. His present price of 2s. 3d. a yard was low according to the Act. Mr. Myers read the elauso which showed that something had to be i added to the pre-war profit for war conditions. , Witness said thero were some articles | on which only 20 par cent, was added | to cost, and consequently on other lines : thoy had to go 'higher. Sometimes it - was necessaTy to -add 100 per ceut. Taeio ! was no uniformity and there could bo no uniformity. The head of a depart- ' uient had to average his profits, and it i could not be done otherwise. There wasno advantage, indeed, it was a disadvantage, to overcharge on a "bread ana butter line." , Alfred Horaco Wheatley, manager of the Manchester department at Te Aro House, said that in fixing the selling j prices there was no jgeuwal rule, it de-. pended upon the article. On a bread i and butter line" they Avould put on 50 per cent., or if it were a out line tlie lowest percentage allowed by the house. It would be folly to average up losses on a "bread ami butter line. He would •not bo justified in selling this flannel 3s. 3d. a yard. It wouid be folly to average on this line, for it was the lowest number made and was a out line. To Sir John Findlay: A cut" lino itos one on which. they did not get their full profit. The folly in averaging on a "cut" line was that in time one would drivo away customers. It was not a profitable kind of profiteering. They could not take a singlo item and asses the profit on that, becauso they averaged on all their good/ 1 . He would not think it fair for a person to take a single article on which thero was 100 per cent, proht ana say that therefore he was charging ex- | co3sivo profit. They had to average on , tho whole of the goods m tlio depart- j m Wiiliam E. Nicol, accountant to James J Smith, Ltd., said that the proportion of expenses on turnover .on a percentage basis had decreased as compared with tho pre-war period. Then- expenses had increased by 00 per cent., but the turnover had increased .more largely, .me deorsase in the ratio of expenses was 5.7 per cent. . „ \ , , ■ To Mr. Myers: Their gross profit had decreased by 5 per cent. In the Manchester department they sold some lines at below cost; they aimed at aO per cent, on cost and 33 1-3 per cent, on turnover. On some lines they made a loss, on 60ine they made a small proht, and on 6ome isolated lines the addition might bo as much as 200 per cent, on the cost. A line of linoleum that prior to tlio war cost , 3s. lid. was now costing Bs. 9d., and they were retailing it at 95., 60. It was not a paying profit, but they averaged on other lines. This closed the case, for tho Crown. In opening for tho defence, Sir John Findlay said that the' Crown had not made out a case for tho defence to answer. It had been recognised for some years past that any tribunal that had "to decide what was a fair commercial 'profit had a difficult problem to solve, ■ and no rough-and-ready method would serve. The legislation that His Yi orslup was called upon to administer was passed without sufficient consideration, and was .defective, and.this was recognised, for a measure was how Before 1 ailiament to remedy the defects. His Worship was asked to decide what was a fair and reasonablo price and what was a fair commercial profit. It had got to be a "rate" of commercial profit, in this case the Court was asked to view tlio profit on one article, and if every article in a sliop were to' bo taken separately retailers would be crushed The Act did not intend the Court to dccido upon the profit of every article in a shop. In this case two yards of flannel were sold to the lady at a price, and the flannel was a negligible part of the'firms business, for . they bould .only get two rolls of the flannel iii' two years. ' He undertook to prove that taken over a period of five years the profit made in,this department of the firm was 5.8 ; per cent. Jihcli department' was run as a separate business, and each department must l ely oii itself for its profits', and could not expect to average on the goods of other departments. There wero 25 firms selling this flannel in Wellington, and a thrifty housewife, on being asked an excessive price, would inuned'ately say: "Your price is too high, I will get tho flannel at the'other shop." There was no scarcity at all. Tho flannel could •have been purchased at the D.f.C. or at several other shops. The Act was never intended to apply to a case of this kind; it was aimed at a monopoly by a number or a monopoly in the hands qf one man which would enable him to charge his own price. They would bo able to show by evidence that the prices in this department were fixed by the head of the deportment, and fixed by hini in Telation.. to the other goods, and fixed to provide just that measure of profit which his department should show. There was no 'uniformity' in the prices charged by retailers, and' it was absurd to say that because one firm charged more than another that therefore that firm was profiteering. The Court had to alluw a fair and reasonable addition for war. conditions, and how was the Court to arrive at that? The; Act was defective, for it did not give the Court the criteria upon which it could judge. At the close of Sir John Findlay's address the further hearing of tho cass was adjourned lo Monday aftsrnoon.