buys goods in large quantities, performs part of the marketing function of storage; but the tendency has been for the consumer to shift this function back more and more to middlemen.

III. The assumption of risks.

Inasmuch as commission merchants, brokers, and agents do not take title to goods, they assume very few of the merchandising risks; but practically every other middleman, as well as the manufacturer, especially when he produces for stock, has to consider the element of risk. The principal kinds of merchandising risks may be enumerated as follows: (1) price fluctuation, (2) destruction by fire, (3) deterioration in quality, (4) style changes, and (5) financial risks.

Perhaps the most important risk is that of price fluctuation; but its importance varies for different commodities. Branded and advertised articles are relatively stable in price, though during war times they too suffer somewhat from price changes. The risk of price fluctuation is greater to wholesalers than to retailers because of the smaller margins on which the former carry on business. Many articles handled by wholesale grocers, such as flour and sugar, fluctuate in price very frequently and are handled on extremely small margins, and the merchandising risk accordingly becomes great. When one buys or sells with the idea of making a profit from mere price fluctuations, he becomes a speculator. In this sense wholesale grocers often speculate in flour and sugar and some other commodities, and oftentimes a large part of their net profits (or losses) is due to this feature of their activities. In the case of a few raw products-wheat, corn, oats, flaxseed, cotton, sugar, and coffee price changes are frequent, merchandising risks are great, and speculation becomes an important factor. Much of the merchandising risk is shifted through the hedging process to professional speculators, a specialized class of risk

assumers.

The risk of destruction by fire is largely shifted to insurance companies. Deterioration in quality is a danger affecting principally perishable articles, but to some extent is also a risk factor for general merchandise, which may become shopworn. Many articles need special facilities for their handling-warm rooms, dry rooms, refrigerated rooms, etc.; and the storage houses, as well as the railroads, help in the prevention of deterioration. Style changes in manufactured goods are analogous to perish

ability of farm products. They constitute an important risk factor in men's and women's wear, especially the latter; and the frequency of style changes appears to be increasing, as exemplified recently in eye glasses and women's footwear. Financial risk appears in loss from uncollectible accounts, but may be largely overcome by the maintenance of credit departments. Financial risk is also involved in the other forms of financing described below.

IV. Financing.

As explained by Shaw, middlemen were formerly merchandise bankers. This function has been largely taken over by banks, which in this sense are middlemen of a specialized kind. And yet we should not lose sight of the fact that middlemen still perform extremely important financing functions, and in a variety of ways. Perhaps the most important is the granting of creditretailers to consumers, jobbers to retailers, and sometimes manufacturers to jobbers. In many cases, however, the manufacturer has to be financed: as in the cotton trade, where commission houses make advances or endorse the mill's paper; or in the silk trade, where raw silk dealers furnish the raw material on six-months' time. Furthermore, manufacturers are commonly financed by being allowed to draw drafts on day of shipment, a method also common in financing shippers of farm products.

The financing function involves the tying up of capital, with resulting interest charges, also a line of credit with banks and the expenses connected with accounts and collections. On the whole, the brunt of the financing burden is borne by the wholesale trades, or sometimes by commission merchants. Retailers and consumers are generally weak so far as accumulation of capital is concerned, and on the other end of the marketing chain, manufacturers generally find it difficult to finance their own undertakings; so that the financing function of the wholesale intermediaries commonly extends in both directions. This is especially true in the marketing of farm products. Furthermore, the wholesalers, because they are located in trade centers and have quick assets, are the ones who are in the best position to obtain credit from banks.

V. Rearrangement.

Rearrangement of commodities involves sorting, grading, breaking up large quantities into small units, packing, etc. This is one of the principal functions performed by many merchants in

raw materials. Wool dealers, for example, in addition to their assembling and financing functions, are practically indispensable to manufacturers on account of the fact that they are important as graders and classifiers, and stand ready to furnish the particular quality of wool desired at any time. In the farm-products trade, sorting and grading are of supreme importance; further more, these commodities reach large cities in carloads, and have to be split up into small quantities, according to the demands of individual retailers. This function is important even in the marketing of standardized and non-perishable commodities; wholesalers often receive goods in bulk, and have to weigh them out and package them. Goods that are already packaged when they reach wholesalers are usually put up in cases or cartons, but owing to the tendency among retailers to buy in smaller quantities, cases have to be broken open, goods in one third or one sixth of a dozen lots collected from the different cases, and repacked for shipment. This is becoming a serious problem in the drug trade, for example, where each retailer has to handle such a large variety of proprietary medicines. A wholesale grocer recently told the writer that his "broken-package room," was "the most expensive room in the building." Some wholesalers charge their retail customers higher prices for broken-package or broken-case lots. Even retailers have the function of rearrangement to perform to a certain extent. They have to weigh out sugar, coffee, nails, wire, etc., and measure and cut cloth; then they have to wrap for presentation to customers. Thus it is seen that breaking up large quantities into smaller units, sorting out according to quality, and packing and wrapping are functions that have to be performed by middlemen all along the line.

VI. Selling.

Selling is the most important of the marketing functions, as well as the most costly one to perform. Salaries of salesmen (plus traveling expenses in many cases) constitute generally the most important single item in a merchant's expense account. Selling involves both creating a demand for the goods and getting the goods into the hands of the purchaser. Though both of these phases of selling are performed largely by personal salesmen, demand creation is being accomplished more and more by means of advertising. Advertising is used either because it is the only possible way of creating a large consumer demand, or because it is

the cheapest way of arousing such a demand. When a manufacturer advertises, he turns over the actual work of preparing copy, selecting mediums, etc., to another functional specialist-the advertising agency.

It is still necessary for most manufacturers, jobbers, and retailers to employ personal salesmen, but because of the great expense attached to this method, it is only natural that many of the important recent attempts to reduce merchandising costs should have been along the line of eliminating salesmen's salaries as much as possible. The mail-order houses, both wholesale and retail, do away with salesmen altogether; local buying syndicates among retail druggists effect their principal saving by substituting the telephone for salesmen; the slot-machine does away with salesmen, and the slot-machine type of retail store, like the Horn and Hardart restaurants and the "all-package" grocery stores, seems to be gaining ground.

The employment of salesmen involves the maintenance of a sales organization (sometimes an extensive one), the determination of the best way to pay salesmen, their selection and training, the control of their traveling expenses, the use of samples, etc., all of which means expense to the manufacturer or middleman performing the selling function.

VII. Transportation.

As explained by Shaw, merchandise middlemen formerly attended to the actual carriage of goods from one place to another more than they do now; but this function has been largely taken over by railroads and other transportation agencies that are specialized middlemen in this field. Transportation, however, is still an important function of merchants. Wholesalers and retailers frequently use their own trucks for hauling goods from freight stations to their stores, though more commonly drayage companies are employed.

The principal transportation function still performed by merchandise middlemen is that of delivering goods from store to customer. Delivery expenses form a considerable item for most jobbers and retailers, as well as for manufacturers who sell direct to the retail trade. For such middlemen as milk distributors, the delivery function becomes an exceedingly expensive one to perform. Some department stores and grocery stores carry their delivery services to an almost absurd degree—a situation brought

about by the unreasonable demands of shoppers and by keen competition among the stores for business.

There appears to be a tendency in some directions to curtail delivery expense by asking customers to take goods home with them, by making only a certain number of deliveries per day, or even per week, and by giving a special discount to customers who carry goods home. Many stores save by making no deliveries at all. The carriage of goods from store to consumer's residence has to be performed, and it is simply a question whether the consumer is willing to perform this function, or pay to have it performed for him. The five-and-ten-cent stores deliver only purchases exceeding a certain minimum value. In some cases retail stores located in the same city turn over the delivery function to specialized delivery companies, or even have their own coöperative delivery companies, thus eliminating wastes due to duplication of equipment, and to covering and re-covering of the same territory.

As already stated, a clear conception of the marketing functions is fundamental to a proper understanding of the mercantile structure. The splitting up of the marketing process among successive middlemen is merely a case of specialization in marketing functions. The organization of any trade is characterized by the extent to which the functions are divided among several middlemen or are "integrated" in the hands of few middlemen or in the hands of the producer himself, just as any industry is characterized by the extent to which the "manufacturing functions" are specialized among several independent plants, or are integrated or consolidated in one plant or under one ownership. The tendency in modern merchandising appears to be for the manufacturer to assume more and more of the marketing functions, and the problem of how far he should go in this matter is one that is bothering many a manufacturer today. In some cases, the manufacturer performs practically none of the marketing functions; he employs a commission merchant (as in the textile trade), a "manufacturer's agent" (as in the hardware trade), or a broker (as in the sugar trade). He then needs no sales organization, not even for reaching jobbers. The agency that he employs becomes the equivalent of the manufacturer's selling organization; and when a manufacturer uses this method it is for the simple reason that such an agency can perform the marketing functions more cheaply than he himself can perform them, which is especially true