APPENDIX 7 Comparison of corporate profit rates and average hourly earnings of production workers in specified nonmanufacturing industries, 1951 Sources: Profit ratios computed from Internal Revenue Service Data: Average hourly earnings, Bureau of Labor Statistics. APPENDIX 7-A1 There is little relation between profit rates and average wages in American industries. The contention that the low-wage industries operate on narrow profit margins— and are therefore not in a financial position to absorbe a substantial increase in the minimum wage-is not borne out by a study of available industry profit-andwage data. Comparison of individual profit rates and average hourly earnings for manufacturing and nonmanufacturing industries reveals that there is no consistent relationship between rates of profit and wages. Many low-wage industries have above-average profit rates and, conversely, many high-wage industries have below-average profit rates. The latter have been stabilized at these higher wage levels. 1 Source: Barkin, Solomon, Statement on Amending the FLSA of 1938, presented before Senate Labor Subcommittee, April 21, 1955, fact sheet No. 20. APPENDIX 7-B 1 Median net profits of retailers of apparel and household textiles as proportions of net sales and of tangible net worth, by kind products, United States, 1939–50 1 NET PROFITS AS PROPORTION OF NET SALES 3 1 The number of concerns reported for 1950 ranged from 51 for men's furnishings to 367 for department stores. 2 Profit after depreciation on buildings, machinery, equipment, furniture, and other assets of a fixed nature; after reserves for Federal income and excess-profit taxes; after reductions in the lower value of inventory to cost or market, whichever is lower; after chargeoff for bad debts; after all miscellaneous reserves and adjustments; but before dividends or withdrawals. Dollar volume of business transacted for 365 days net after deductions for returns, allowances, and discounts from gross sales. The sum of all outstanding preferred or preference stocks (if any) and outstanding common stocks, surplus, and undivided profits, less any intangible items in the assets, such as goodwill, trademarks, patents, copyrights, leaseholds, mailing lists, treasury stock, organization expenses, and underwriting discounts and expenses. Clothing, men's and women's. Source U. S. Department of Agriculture Tech. Bulletin No. 1062, September 1952, "Marketing and Manufacturing Services and Margins for Textiles,' p. 279. APPENDIX 7-C1 CHARGES OR COST INVOLVED IN RETAILING TEXTILE PRODUCTS Gross margins, or the spread between merchandise costs and net sales, for department and specialty stores increased from 35.5 percent of net sales in 1935 to 38.9 percent during World War II, decreased to 35.3 percent in 1949, then increased to 36.9 percent in 1950. These margins represent typical performance of department and specialty stores, as reported by the National Retail Dry Goods Association. In arriving at these margins, adjustments were made in the cumulative markon, for markdowns, stock shortages, workroom costs, and cash discounts. Data relating to the operating results of department stores, as reported by the Harvard Bureau of Business Research, show that gross margins increased from about 33 percent of sales in 1932 to about 38 percent during World War II, decreased to 35 percent in 1949, then increased to more than 36 percent in 1950. Total operating expenses decreased from almost 40 percent of sales in 1932 to about 28 percent in 1945, then increased to more than 32 percent in 1949 and 1950. Payroll expense, which compromises salaries, wages, and bonuses for all employees, including executives, but excludes pensions and payroll taxes, was by far the largest single item of expense for department stores. The proportion of net sales accounted for by payroll expenses decreased from 18.7 percent in 1932 to 15.4 percent in 1945. It was more than 17.5 percent in 1945 and in 1950. Real-estate costs, advertising, and other expenses, as proportions of net sales, have also increased in recent years. Net operating results show improvements from losses of more than 6 percent of net sales in 1932 to profit of almost 10 1 Source: U. S. Department of Agriculture, Technical Bulletin No. 1062, September 1952, Marketing and Manufacturing Services and Margins for Textiles, p. 262. percent of net sales in 1945. In the postwar period profits decreased and in 1950 they averaged 4,3 percent of sales. APPENDIX 7-D1 GROSS MARGIN For 1953, the gross margin rate achieved the same advance as in 1952, onehalf of 1 percent of sales, going from 35.8 percent to a typical figure of 36.3 percent, just under the 1950 figure of 36.5 percent. The best figure appeared for the top-volume stores, 36.6 percent in the $50-million-plus classification, although over the wide range from $500,000 up to $20 million, the typical figures varied only between 35.2 percent and 35.9 percent. In terms of dollars and cents per gross sales transaction, a group of larger stores typically obtained a gross margin of $1.47 out of $4.09 net sales income as compared with $1.435 out of $4.04 in 1952. In other words they carried through to gross margin 70 percent of the increase in net sales income received from the average gross sales transaction, i. e., 32 cents out of a nickel. EARNINGS After taxes the final net earnings of department stores in 1953 amounted to 2.6 percent of sales, as compared with 2.4 percent in the preceding year. This 1953 earnings ratio applied to the slightly higher sales volume (plus 1.2 percent) yielded dollar earnings 9.5 percent greater than in 1952. To be noted, however, is the fact that this final "net net" was 29 percent below 1950, and 8 percent below the readjustment year 1949. It will be recalled from table 5 that out of the 5 percent larger average salescheck in 1953, 31⁄2 cents was the amount carried through to gross margin. This table also shows that of this 32 cents higher operating expenses in 1953 absorbed 3 cents, and so only one-half percent came through to raise the final earnings from 91⁄2 cents to 10 cents per sales transaction. Because of variations in the impact of taxes among the several volume classes, the best final profit showing was made not by the $50-million-plus group but by the concerns with sales between $2 million $5 million, 2.8 percent of sales as against the low figure of 2 percent in the $500,000 to $1 million bracket. RETURN ON INVESTED CAPITAL IMPROVED It is important also to look at earnings in relation to invested capital. When the 1953 final profits after taxes were figured as percentages on capital stock and surplus, the typical figures ranged from 5.5 percent in the $500,000 to $1 million bracket to 7.5 percent, which figure appeared not only in the topvolume group but also in the $2 million to $5 million and $10 million to $20 million classes. Although these rates of return are still below normal in the light of past experience, they represent a perceptible improvement over 1952, since at least three of the volume groups achieved better figures. 1 Source: McNair, Malcolm P., Operating Results of Department and Speciality Stores in 1953, Bureau of Business Research, Bulletin No. 141, Harvard University, pp. 7 and 13. |