I know that the Chairman and members of this Commission do not want to put small business under a long shadow or put them in a disadvantageous competitive position.

We thank you for your testimony, and we hope that you will give further consideration to making some recommendations on constructive legislation.

We thank you, Mr. Chairman.

Mr. DIXON. Thank you very much.

Mr. DINGELL. Mr. Chairman, very briefly, I would just like to say this to Chairman Dixon.

I am a long-time admirer of his. I have observed his work at the Federal Trade Commission with a great deal of approbation insofar as his integrity and insofar as his stout and devoted service to the public interest is concerned.

I recognize, Mr. Chairman, that this opinion has caused some measure of difficulty and dislocation in the industry, but I am sure, Mr. Chairman, it was caused through your dedication to the law as you read it, as you understand it, and carrying out your responsibility and high duty down there.

I wish to have that view placed upon the record.

Mr. DIXON. Thank you very much for those kind words.

The CHAIRMAN. Thank you, Mr. Dixon.

Mr. DIXON. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you gentlemen. Without objection, all of the additional material submitted by Chairman Dixon is received into the record and will be printed in the appendix.

The Chair will call Mr. Hunter R. Rawlings, Jr., of Watters & Martin, Inc., of Norfolk, Va. You may come around to the table, Mr. Rawlings.

Please be seated. Give your name to the reporter and whom you represent. The committee will be pleased to hear you.

TESTIMONY OF HUNTER R. RAWLINGS, JR., WATTERS & MARTIN, INC., NORFOLK, VA.

Mr. RAWLINGS. I am Hunter R. Rawlings, Jr. I am with Watters & Martin, Inc., of Norfolk, Va.

Mr. Chairman, I had sent copies of these to your committee, but, through an error, or, really, an oversight, may I ask that the following be deleted, and that is up at the top, just delete that part that says "On behalf of the National Wholesale Hardware Association."

We did not discover that until after it had been mailed.
The CHAIRMAN. Do you wish to read your statement?

Mr. RAWLINGS. Yes, sir.

The CHAIRMAN. You may proceed.

Mr. RAWLINGS. Chairman Evins and gentlemen of the Small Business Committee, I very much appreciate the opportunity of appearing before you on the matter of joint advertisements containing sales prices that I think is of great importance to the small, independent hardware stores.

What I would like to do is to present to you a brief and specific case history of what actually happened to a group of retailers in tidewater Virginia within the past 6 weeks. With your permission, I will take

a few seconds to tell you why we, as a wholesaler, suggested the formation of a group of the retailers. We had tried this some years back, but to no avail.

The retail hardware image has faded badly in comparison with chain stores, and discount houses, and the like. You, gentlemen, very probably know better than I that the net profit in the retail hardware, as well as in the wholesale hardware stores, is alarmingly low. Time after time, in the past year or so, we have been approached with the question of what we might do as a wholesaler to help the retailer assume his proper place in the community. The advertising that can be done by the small, independent hardware stores is negligible so we got together a group representing 47 companies. Any retail hardware store was eligible to join, and there was no fee, or obligation of any kind.

This type of store is really one of the last strongholds of independent business, and, in the past, they valued independence so highly that they have been unwilling to get together in any group to present a better picture to the public and to better meet competition from the larger chains and businesses. Please understand that we find no fault with chains and companies of that type, but meeting their competition is most difficult for the individual store.

These retail stores have been, actually, taking such a licking in the past few years that it was not surprising to find them highly enthusiastic about forming a group, and we were ready, and all set to go, when the Federal Trade Commission gave its ruling on joint advertisements containing sales prices. Our primary purpose in this joint advertising was to create a much better image of the retail hardware store through emphasizing courtesy, individual attention, service, and quality, and to keep that image in its proper place by consistent advertising primarily in newspapers. This would help considerably in bolstering and bringing back yesterday's customers. Secondly, but also essential, was to put across, and to keep across, the message that these retail stores could sell goods as inexpensively as the others, and that they, too, would have such items as "loss leaders" and "promotions". Institutional advertising is good, but it simply won't get the same image across as specials and promotions showing prices will. The once-aweek ad, of course, was only for the weekend and not for week-in and week-out prices.

The small, independent store simply does not have the financial status to do this individually, nor does it have the know-how. The cost to the individual store in our group would not have exceeded $40 per month. Even this would not be confined in 1 paper as 13 of the 47 stores would advertise in the Newport News paper and the balance in the Norfolk papers. The total amount that could be devoted to advertising, therefore, would not approximate that of the larger chains. What we intended doing was to let the retailers select the items themselves and advertise these items at specials for that particular weekend. We would make special prices available to these retailers, as well as to all other retailers not in the group. They, in turn, would retail at special prices. The group, also, would have used advertising allowances available from manufacturers which, the great chances are, they otherwise never could have used. The gross volume of the average retail hardware store is between $75,000 and $100,000 a year, and, if I may say so, sir, there are some with much less volume

than that, too, and these stores do not have the advantage of highly trained and educated personnel, such as the larger businesses can and do employ.

Our particular wholesale firm does a volume of $2,559,227. You gentlemen might wonder why we have gone to all of the expense and detail in working up a group such as this, and I would like to pass on the thoughts of one of the retailers who asked why we were going to so much expense, and trouble, and detail. He answered his own question by saying, in general, that if it wasn't for the retail hardware stores, there would be no wholesale hardware store.

Should you gentlemen have any questions, I will be very happy to answer, if I can. We will certainly deeply appreciate any possible help that you gentlemen may extend.

The CHAIRMAN. Your purpose and your desire was to show an image of your individual stores, that you're competitive, that you can meet competition, that you may be in a better competitive position to meet competition, and that it is your desire to do cooperative advertising?

Mr. RAWLINGS. Yes, sir.

Now, I have, if it is all right, sir, a statement of Mr. Thomas Fernley, who is the managing director of the National Wholesale Hardware Association, and if I could read that on their behalf, I would appreciate it.

It is very short, and I have copies here for everyone.

The CHAIRMAN. You may present this statement, also.
Mr. RAWLINGS. Thank you, sir.

STATEMENT OF THOMAS A. FERNLEY, MANAGING DIRECTOR, NATIONAL
WHOLESALE HARDWARE ASSOCIATION, PHILADELPHIA, PA.

The National Wholesale Hardware Association of which I am managing director includes approximately 350 wholesalers of hardware and kindred items. These wholesalers serve over 250,000 independent merchants including hardware retailers, lumber and building supply retailers with hardware departments, farm and garden supply dealers, department stores, mail-order houses and many other retailers of hardware.

The independent retailers they serve are representative of the American economic system which affords an opportunity, not available anywhere else, for a man to enter business for himself. This is a heritage which should never be denied.

To aid the smaller independent retailer in his struggle against the giants, many wholesalers and some manufacturers have helped groups of retailers in their advertising efforts by coordinating it for them so that these retailers could take impressive and attention-arresting advertisements, no one of them being in a position as individuals to do so. The Kennedy administration has expressed an interest in and concern for the independent retailer who is the backbone of this great Nation of ours.

The Federal Trade Commission has issued an advisory opinion which indicates that the Commission is concerned as to the attitude of the Department of Justice where independent retailers advertise together either through cooperative efforts, through the aid of a coordinating wholesaler or manufacturer.

The possibility of legal action by the Department of Justice for such cooperative advertising could result in the elimination of this aid to small business. This is indeed a most unfair and inequitable situation. It places the chainstore, catalog house, drug chain, supermarket and other multistore operations at a distinct advantage. It smothers the efforts of the independent, small operator who cannot afford large display advertising.

This unfair situation can be corrected by legislation which would recognize group advertising mentioning the price of the articles by small, independently owned businesses. There is no question of monopoly or consumer gouging involved. If too high a price were advertised, the advertising would go for naught. The independent stores who want to create a good consumer image

would be giving excellent value to lead the buyer to their stores. A high-priced offering would defeat the purpose of the cooperative endeavor.

Congress should recognize the situation which confronts small businesses and pass legislation which would allow them, either among themselves or with the assistance of a wholesaler or manufacturer, to advertise as a group to the consuming public with the prices of the merchandise offered. This would enable these smaller retailers to exhibit their strength in the marketplace, and maintain their rightful place in our economy.

The CHAIRMAN. I think that is a very fine statement.

Mr. RAWLINGS. Thank you, sir.

The CHAIRMAN. It is your view that this ruling would have a very serious and damaging competitive effect upon small, independent hardware merchants?

Mr. RAWLINGS. Yes.

The CHAIRMAN. And as an individual hardware retailer, you interpret it and view it, for all intents and purposes, as eliminating any type of cooperation or coordination among local retail stores? Mr. RAWLINGS. Yes, sir.

The CHAIRMAN. Mr. Robison?

Mr. ROBISON. Mr. Chairman, here we have an opportunity to deal with some facts, instead of just philosophy, because here is a man who had at least a proposed plan in the tidewater area of Virginia which he has since had to abandon.

Let me ask you, sir, if you are the proper person to ask, in that proposed plan among these independent hardware merchants, was there any agreement, any binding agreement or any contractual arrangement, by which these merchants were obligated, each individually, to sell these items for the advertised price?

Mr. RAWLINGS. No, sir.

Mr. ROBISON. There was not!

Mr. RAWLINGS. No, sir.

Mr. ROBISON. The only thing that would happen if they did not, I suppose, is that if a customer came in, looking for the 59-cent hammer and the merchant said, "I am sorry, it is 79 cents instead," the customer would go away mad, right?

Mr. RAWLINGS. Yes, sir.

May I tell how we did it, so that you would know?

Mr. ROBISON. I would appreciate knowing.

The CHAIRMAN. You may proceed.

Mr. RAWLINGS. We did get a committee of the retailers, we had to do that. After all, this is for the retailer. That would have been on a basis of three on and three off, you might say, so that three would stay on who had the experience.

In other words, then, we changed the committee every 6 months, or whatever they wanted to do. It was left to the retailer.

The way we submitted it to them, 50 to 100 items that they could pick that would be seasonal. The way we worked it out; we had a regular roundtable, and each man would say, "I think this would go good," and he would put a price on it. We would let him. We had no get-together, or anything else. Insofar as there being any binding price; no, sir.

Mr. McCULLOCH. Mr. Chairman, will the gentleman yield?

Mr. ROBISON. I yield.

Mr. McCULLOCH. If there were no binding price on all the people who were participating in this ad, what was the purpose of the ad?

Was it not deceptive, if that was not the purpose?

Mr. RAWLINGS. No, sir; or I hope not.

Mr. McCULLOCH. If your group-and then you may explain it after I ask this series of questions-if the people of your organization sat down around the table and agreed on 90 items or 10 items, was it not the intention of creating in the mind of the reader of that advertisement that every person who participated would sell hammers or shoes or ships or sealing wax for the price set forth in the ad?

Mr. RAWLINGS. Yes, sir, but, if I may say so, sir, I think there are, perhaps, two things involved. There was no agreement that no one would raise the price or that no one would lower the price, but from the standpoint of in the paper, yes, sir.

That price would be in the paper for a hammer, $1.50 or $2 or whatever it happens to be.

The CHAIRMAN. Was this a matter of follow the leader?
Mr. RAWLINGS. Yes, sir.

As I said, we were in a roundtable. One man on the committee would say we would just let him pick. We did it by individual. One man would say-take a 20-gallon can. One of them selected that to go in the first ad. He selected the price, I believe, of $1-none of this went through, I am sorry to say-I believe it was $1.85. That is what it was. Now, when it gets to the paper, yes, sir. From a practical standpoint, I mean it does show. But that is not the intent of what we are trying to do.

The CHAIRMAN. If the gentleman will let me read his statement and ask if this is his true intent:

Our primary purpose in this joint advertising was to create a much better image of the retail hardware store through emphasizing courtesy, individual attention and service and quality, and to keep that image in the proper place by consistent advertising in the newspaper.

Mr. RAWLINGS. That is absolutely correct, sir.

Mr. McCULLOCH. Mr. Chairman, I would like to continue to be the Devil's advocate, yet a friendly one all the while.

Mr. RAWLINGS. Yes, sir.

Mr. McCULLOCH. If a person participated in an advertisement in which a hammer was sold or to be sold for a dollar and a dime, and I came in there on repeated Saturdays and could not get the hammer or the screwdriver or the sickle or the cutting knife, the public image of that retailer would not be improved in my view.

Mr. RAWLINGS. I can see exactly what you mean, yes, sir.

Mr. McCULLOCH. Unless there was an intention to be bound by the price on the individual items, Mr. Chairman, I think the advertising would be deceptive.

That is my view.

Mr. RAWLINGS. Of course, that was the farthest thing from our mind. We thought since about institutional advertising, sir, but there is no way in the world that we could do that, you might say, and compete. There would have to be prices showing that we could meet the prices of the larger concerns; that we could have what is known as flyers and could have what is known as the loss leaders and promotion. Now, I can see exactly what you mean, sir. But our primary purpose is to better the image of the retail hardware store.

The CHAIRMAN. You had no plan of fixing prices, but, rather, a consensus, maybe, as to adjusting prices.