Fall River, Massachusetts
Fall River, Massachusetts
The Home MarketCreated An Industry
The chief factor in the growth of the American industry was probably not the nearness of the source of supply, cheap fuel or labor, nor any of these factors which operated in the case of England, such as climate, geographical position, and shipping control, but more than anything14else the presence of a market close at hand which grew so rapidly, more rapidly indeed than the industry could grow to meet it. Aided to some extent by an import tariff, the manufacturers have weathered some short periods of depression, but in the main the industry has grown in direct ratio to the growth of the country.
A typical Southern mill
A typical Southern mill
New England As HomeOf American Spinning
The cotton mill, as we have seen, early chose New England as its domicile. Mills are scattered more or less throughout the entire region, but there are several localities which stand out beyond all others, and almost deserve the title they have acquired as the centers of the industry. Premier place for a long time was held by Fall River, and even now the race between that city and New Bedford is strong, with the lead slightly in favor of the former city.
Bristol County, Mass., in which these two centers, and Taunton, are located, Providence, R. I., and Middlesex County, Mass., together contained 10,086,686 spindles in 1917, or 29.5% of the country’s total of 34,221,252.
The growth in this one locality is due probably to the advantages which come with centralization, as well as to the natural advantages they possessed. These latter, which include particularly water power and a moist climate, are not as important now, With steam power and mechanical humidifiers as they were a generation ago.
In the Middle Atlantic States, the number of plants and the spindlage have remained about stationary over a long period of years, and are even showing a tendency to decrease. Small weaving establishments which buy their yarn are particularly numerous around Philadelphia, and there are large cotton duck mills in and near Baltimore.
Mills in the Midst ofCotton Plantations
It has been in the South, however, that the growth of the cotton manufacturing industry in the last few decades has been most phenomenal. In 1860 there were 324,052 spindles in the cotton growing States compared with 8,632,087 in New England. In 1917, the figures were: Northern15States (including Connecticut, Illinois, Indiana, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont), 19,835,662 spindles devoted to the spinning of cotton exclusively; Southern States (including Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Virginia), 14,292,918 spindles devoted to cotton exclusively.
The census figures do not give the number of spindles in each city except when the confines of the city and of the county happen to coincide. But the appended table is presented as showing the spindlage of counties having more than 100,000 spindles devoted to the spinning of cotton.
About 1880, the Southerner saw the opportunity that awaited him when he should manufacture his own cotton. At that time he was consuming only 188,748 bales, while New England took 1,129,498. In ten years, he was utilizing more than half a million bales, while New England had just passed the million and a half figure. In 1905, the South consumed 2,140,151 bales, while New England had climbed to only 1,753,282. The figures are Scherer’s, who points out that the race was won in twenty-five years. However, as competition with the South increased,16New England, following the earlier lead of Old England, has tended always to produce a finer and finer quality of cloth, leaving the coarser grades of sheeting, drills and ducks to the Southern mills. Thus, while the South is consuming an ever larger proportion of the cotton crop, she is still far from receiving for her product the money that comes to the New Englander, who with a higher grade of labor and greater variation of output is constantly catering, with dress fabrics and fine stuffs of various kinds, to a discriminating well-to-do patronage.
The wealth of the world—at least up to the time of the Great War—was constantly increasing and while there is little likelihood that the demand for the coarser grades of goods will fall off, the need for finer stuffs, not only in the United States, but abroad, is constantly growing. The greatest development of the South is probably still to come.
The locations of the world’s cotton markets have been dictated by the location of the growing fields and the manufacturing centers. Thus we find that the great raw cotton markets of the United States are in New York and New Orleans. In Europe they are at Liverpool, Bremen and Havre. Because of conditions imposed by the German government, the Bremen market is largely dependent upon New York and Liverpool. The other great world market is that of Alexandria, which, although it handles but a comparatively small part of the world’s crop, is important on account of the quality of the staple which makes up the Egyptian bale.
The two chief American markets, New York and New Orleans, are sharply differentiated. The New Orleans market is a true trader’s market. The great bulk of the sales made on the New Orleans floor are bona-fide sales, in which cotton actually changes hands. The New York market on the other hand is a merchants’ and manufacturers’ market, in which business transactions are protected against loss by the purchase or sale of "futures", though, of course, there is always a large amount of speculating. Delivery is rarely demanded. The function of the exchange, therefore, is largely that of insurance. The intricacies of this market will be discussed later.
17CHAPTER IIIThe Raw Cotton Market
BECAUSEof the ramifications of the cotton industry, the cotton itself, on its devious way from planter to consumer, is successively the concern of a series of individuals and corporations. The immense value of the product, the expense of growing, handling, manufacturing, and selling it all mean that great quantities of capital are utilized in bringing it at last to its final consumer. At any stage of the process, cotton represents no inconsiderable part of the nation’s wealth, and to expedite its journey, merchandising and financial methods of a highly specialized technique have been developed. There are two very clearly marked stages in this process. The first has to do with the raw cotton, as it goes from planter to mill. The second has to do with the journey from mill to consumer. The first is usually called the Raw Cotton Market, and the second the Cloth Market.
The planter begins his work early in the spring. His crop is dependent upon his ability to secure and pay for the labor to work it, for the tools and machinery which are used, and his own expenses. Small planters are rarely sufficiently in funds to enable them to go through the growing season without financial assistance. They must borrow money, and they usually borrow it with the growing crop as a basis.
The Local GrowerAnd the Charge Account
They may borrow from the country merchant in the town near which their plantations are located. Credit here is usually furnished through the "charge account" system, whereby the merchant supplies the planter’s wants for the growing season, even to the extent of giving credit to his farm hands. Tenant farmers live almost entirely on credit furnished by the store-keepers of the vicinity. When the picking season begins, in July, August, or September, according to the region concerned, the merchant, in lieu of money, may take the cotton as it comes from the gins, crediting the grower thereof at the market price. The cotton thus accumulated is sold to local buyers, or, occasionally, to shippers or exporters. In the case of the larger plantations, or groups of plantations operated by syndicates or corporations, the cotton is frequently shipped direct to the mill or, more often, to a warehouse. The larger producers, instead of getting their credit from the local stores, as their tenant farmers do, are financed either by their banks, or by their buyers, who in turn are financed by their bankers.
The Street BuyersOf Texas Towns
In some districts, particularly in Texas, there is the small or local buyer, usually called a "street buyer," who operates in the smaller towns, buying his cotton at the gins in lots of from one to ten bales, either from the small planters, or from the country merchants. This buying gives a certain concentration to the crop, and enables the larger buyers to deal in lots of comparatively uniform quality from certain regions, the general type of whose product is known.
18Street buyer in a Southern town
Street buyer in a Southern town
Cotton bought from the planters or from the country merchants is almost invariably paid for in cash.
Cotton is frequently sold at the compress point, rather than at the gin, this course being pursued in the case of large producers, or when the original buyer is a mere local operator. One of the most important operations, commercially as well as industrially, is the grading of cotton, which takes place as a rule at the compress point under the supervision of the buyer, who employs experts for this purpose. Cotton mills as a rule operate on certain specified grades of cotton, and any deviation from this grade means either a readjustment of machinery or disgruntled and dissatisfied employes, or, perhaps, an inability to fill an order for cloth of certain types. The manufacturer will usually refuse to accept any grades save those he has specifically commissioned the buyer to obtain for him. The actual grades, and the terms describing them have been established by the United States Government, and are rigidly adhered to by the trade. Prices are established on the grade known as "middling" as a basis, and variation from this basis is taken up in the price.
Standardization ofAmerican Cotton Grades
The grades, for white cotton, as established by usage and confirmed by Governmental standardization are:
For yellow tinged stock the grades are:
For yellow stained and blue stained there are only three grades quoted, good middling, strict middling, and middling, the inference here being that stained cotton below the basic grade, is unsuited for most commercial purposes.
With cotton selling around thirty cents a pound, the difference between the cost per pound of middling fair, the highest market grade of white cotton, and good ordinary, the lowest market grade, may19amount to twelve or thirteen cents. The value of the shipment, and its use as a basis for credit, is dependent upon its proper classification.
The large cotton buyers purchase for the account of mills, for exporters, or for clients abroad. They are usually firms of strong financial standing, and as we have seen, they are bankers or factors themselves, financing growers or small buyers during the growing of the crop, and the first concentration of the cotton. But when the large movement of cotton is on, it is frequently necessary that they, like the local banks, must be financed in order that they may execute their orders, or, as is frequently the case, accept cotton sent to them on consignment. Cotton sent on consignment must be stored until a market is found for it, and in order that proper storage facilities may be supplied, the provision of suitable warehouse facilities is an important matter.
Warehousing asIndustry’s Great Need
Until recently, warehousing in its relations to the textile trade, had not been developed to the extent which might have been expected in those methods which would make it of the greatest use and advantage to textile interests. By means of the facilities which could properly be afforded by warehouses, manufacturers, or merchants should be able, at times of favorable markets, to lay in large stocks of materials, and to finance them safely and easily.
Today, this need is being met in constantly increasing measure by the Independent Warehouses, Inc., affiliated with the Textile Banking Co., and having, like the latter, the support of the Guaranty Trust Company of New York, and the Liberty National Bank of New York.
Modern warehouses of approved type, with all requisite facilities, will be established by this company at various ports of entry throughout the country, as well as at the important concentration points in the cotton belt, and also in the great textile manufacturing centers.
Weighing cotton on the compress platform
Weighing cotton on the compress platform
Thus it is seen that the cotton merchant has an important economic function to perform. His is the duty of gathering up the great aggregate of cotton, from all parts of the cotton belt, and distributing it in exactly the quantity and grade needed to the cotton manufacturers of the world. In the performance of this function, and in order that the supply of cotton may be fed out exactly as it is needed by the manufacturers, the cotton merchants have found it convenient, and even necessary to establish great common markets where they may meet and enter into the transactions with each other and the whole world which are necessary to bring the cotton into the channels of commerce and keep it moving to its multitudinous destinations. These markets are in addition to the numerous local markets where the preliminary concentration takes place, and to some extent they are subsidiary to the latter, where the cotton of the actual quantity and quality they are seeking is to be had in the first instance. Yet it is the great markets which establish the20prices, for it is they which are in close and immediate touch with all the other markets of the world, and it is on their floors that the merchants and brokers meet who deal in great quantities. It is their connection with the numerous sources of information which gives these great markets their importance, for it is they which register immediately and most accurately the resultant of the sum total of all the21economic forces which determine the price.
The New York Cotton Exchange
The New York Cotton Exchange
The great cotton markets of the world are those of New York and New Orleans, in the United States; Liverpool, in England; Bremen, in Germany; Havre, in France; Alexandria, in Egypt; and Bombay, in India. There are differences between these markets which give a greater importance to some of them. Bremen, which serves a large territory, operates under governmental restrictions which make it necessary for Bremen merchants to deal in other markets as well. Havre serves chiefly the needs of France, which is not one of the large cotton consuming countries. Alexandria deals only in Egyptian cottons, and Bombay, whose dealings are confined mostly to the native staples, has neither the responsiveness nor the completeness of the remaining markets. Thus, by elimination, the three great markets of the world, wherein cotton of all kinds is dealt in, and all forms of transactions in it are common are those of New York, New Orleans, and Liverpool. To these, the cotton world looks for guidance from day to day. The prices established on their several floors are the prices of the world.
Cotton train going from gin to compress
Cotton train going from gin to compress
The Liverpool Exchange, under different names, has existed since 1841, having taken approximately its present form in 1870, in the attempts to stabilize conditions after the great speculative period which resulted from the American Civil War. The New York and New Orleans Exchanges were both organized the following year. The uniformity of rules and practices in the trade which resulted from the establishment of the exchanges have been of inestimable benefit to the industry and to the world, and this despite occasional abuses, which have usually been corrected as methods for correction have been evolved.
Spot Markets and ThoseWhich Deal in "Futures"
The New Orleans Cotton Market, and those of lesser cities, are largely spot markets, that is, the dealings which takes place in the Exchanges at those points involve the actual transferring of cotton which is on hand, or, at least, contracted for. The New York market deals preponderantly22in what are known as contracts for future delivery, or, in the language of the Exchange, "futures." The Liverpool Cotton Market is both a great "spot" cotton market, and a great "futures" market. The striking thing about these "futures" contracts is that but few of them are fulfilled by actual delivery.
The question then arises, what function is fulfilled by the New York Exchange that it should have such an important place in the cotton market? To the uninitiated the speculative features of the market have often served to condemn it, and at times of speculative fever, or of manipulation such as has occurred on one or two occasions, there has been public agitation calling for legislation against dealing in futures. Yet the New York Exchange performs a very definite and valuable service, and its trading methods have served to stabilize the whole industry, and to remove from it much of that very speculation which is frequently charged against the Exchange itself.
The justification of the Exchange is found in the fact that the futures contracts common on its floor afford the cotton merchant and manufacturer a chance to insure themselves against losses occasioned by fluctuations in the market. The method by which this is done is called hedging.
Why the MerchantMust Hedge His Sales
For the cotton merchant, the situation as it develops is approximately this: buying, as he must, all grades and quantities of cotton, he may have an immediate market with the spinners whom he serves for only certain of these grades, and thus may have left on his hands a large supply of cotton of other grades which came to him in his purchases which he has no call for at the time. These "overs" are subject to the risk of a decline in value unless the merchant can find some way to protect himself. Nor is this risk the only one run by the cotton merchant. The spinners frequently contract for months ahead for the output of their mills, and it is part of the merchant’s task to see that the cotton is available at a contract price when the spinners are in need of it. Such contracts for future deliveries are not only common but customary. If it were impossible for the spinner to make such contracts, it would, of course, be impossible for the weaver to make future contracts for the delivery of cloth. Such a condition unsettling the distributing markets, would be intolerable. Hence, the necessity of future contracts between merchants and spinners. The situation would otherwise be a very difficult one for the merchant whose supply of cotton, and the price he must pay for it, are subject to the vagaries of nature, which may grant a bountiful crop one year, and a short and inferior one the next, with consequent fluctuations in price sufficient not alone to wipe out his profit but his capital as well.
The Hedge As aCredit Transaction
Hedging, as has been said, affords the protection, against serious loss which these varying conditions make probable.
"It may almost be said," observes Arthur R. Marsh, former President of the New York Cotton Exchange, "that as the main business of banks today is not dealing in money, but in credits, so the main business of the cotton exchanges is now in credit transactions in cotton, toward which the actual cotton ’on the spot’ stands in much the same relation as the money in the banks to the sum total of their transactions in credit. It serves as a reserve at once for the satisfaction of unliquidated credit balances and for the maintenance of sound credit values in all the credit operations."
Elsewhere, Mr. Marsh describes the hedging process in these words: "A hedge23is the purchase or sale of contracts for one hundred or more bales of cotton for future delivery, made not for the purpose of receiving or delivering the actual cotton, but as an insurance against fluctuations in the market that might unfavorably affect other ventures in which the buyer or seller of the hedge is actually engaged."
The floor of the New York Cotton Exchange
The floor of the New York Cotton Exchange
How Merchants SecureProtection by Hedging
The cotton merchant, in making a hedge, would proceed in this fashion. Having made an actual sale of cotton to a spinner for future delivery, the price being fixed according to current quotations in New York for deliveries to be made in the month specified in the contract, he would buy futures for a corresponding amount of cotton on the New York Cotton Exchange.
If the price of cotton should have advanced when the time for the delivery of the actual cotton comes, he will be able to sell his futures contract at a higher price, thus offsetting the loss sustained upon the deal in actual cotton. Or, if he prefers, he may hold the "futures" contract until its maturity and sell it at the then prevailing figure. The first course would be the customary one for a bona-fide merchant, whose sole concern is protecting himself against loss by fluctuations in price.
If, on the other hand, cotton should fall before the merchant bought to fulfill his actual contract, he would make a profit upon his sales to the spinner. He would, however, suffer a loss upon his futures contract, for the seller would be able to purchase the cotton to fulfill the contract at a lower point than the contract called for, and would consequently be able to deliver to the merchant who made the hedge, cotton which the latter would be forced to accept at a price higher than the then prevailing one, and thus again24the profit and loss would balance each other. The usual custom is, not for the merchant to accept delivery, but to pay over to the seller of the futures contract the difference between the contract price and that prevailing. This would be just the difference between his own purchasing and selling price in his actual dealing with the spinner, and so would eliminate the profit, due to change in price, made in that transaction. Thus, by the hedging process, the merchant loses a possible profit on a falling market, but at the same time fails to suffer a loss when the market is against him.
Hedging as PracticedBy Cotton Manufacturers
The manufacturer’s hedging is necessarily somewhat different in practice, though the same in principle. If he accepts orders for cloth requiring more cotton than is being held in his warehouse, he may buy futures contracts to the amount of the additional cotton he will need. Then in the event that his actual purchase of cotton may be at a figure which would tend to reduce or eliminate his profits on the sale of the cloth, already fixed by contract, he may sell his futures contract at a corresponding profit, thereby preventing loss. Should the price of cotton fall in the interim, his profit on the sale of the cloth will be larger, but the settlement of his futures contract will be expensive to the same extent. Thus he sacrifices the chance of a greater possible profit in order to be insured against loss.
Compress bales bound for New Orleans
Compress bales bound for New Orleans
It is probably more common for the cotton merchant to hedge than for the manufacturer to adopt that proceeding. The manufacturer, as a rule, has been accustomed to buy his cotton during the buying season, that is, in October, November, December, and January, and he makes his arrangements with his selling agents on the basis of the price paid, trusting to his own judgment, and the25comparatively small fluctuations in the price of cloth in normal times, to protect him against loss. It is usually believed that the Southern mills, being newer, and frequently of a different financial standing, have found it more desirable to have recourse to this form of insurance than their older competitors in the North. Then, too, the rapid development of the cotton warehousing system has made it less necessary for the manufacturers to tie their money up in great quantities of cotton, as they can buy when the market appears favorable.
Protection for MillsRunning for Stock
A very important point, however, and one which all manufacturers would do well to consider carefully is the protection which a "futures" market gives to a manufacturer making plain goods for stock, particularly on a falling raw material market, which, of course, would also mean a falling goods market. To stop the mill because values were falling would be impossible without utter disorganization, and its attendant heavy loss, while to keep on manufacturing stock goods with a certainty that they would be worth less each succeeding month is a disheartening prospect for the mill.
If, however, the manufacturer sells "futures" for the succeeding months to the extent of the cotton which he would require each month to manufacture the goods, he can run his machinery as usual and have a perfectly free mind, as he has safeguarded himself against any loss due to a falling value of the raw material. Suppose, for instance, the cotton market fell off, say one cent a pound each month, with a corresponding fall in the value of the woven goods. In such an event, the manufacturer could, as each month arrived, buy a contract for an amount corresponding to what he had sold, and at a proportionately less price, thus making a profit on the "futures" which he had sold to an extent which would correspond, approximately, to the smaller value which his manufactured goods would then have in the market. Thus the profit on the one side would take care of the loss on the other. If the market rose instead of falling, he would make a loss in replacing his futures contract, but his goods would then command a higher value, and again no loss would be experienced.
This method of hedging is the regular and standard practice of the English cotton mills, and, of course, of many of our domestic mills, but there are some manufacturers who, through their unfamiliarity with the operations of the futures market, are quite unaware of the protection which they thus have at hand.
The Responsiveness ofthe Great Exchanges
The great exchanges, and the New York Exchange in particular, are thus used by cotton merchants and manufacturers in every part of the world to protect themselves in their buying and selling operations. The value of middling cotton in New York is kept upon par with the value of the same cotton in any growing or manufacturing point, such factors as freight, insurance, brokerage, etc., being allowed for in the quoted price. Quotations on the Liverpool Exchange are thus higher than quotations in New York by the difference between the amount it costs to deliver cotton in Liverpool and to deliver it in New York. Thus the merchant and manufacturer is able to buy and sell hedge contracts on the New York Exchange, knowing that operations at the New York price in New York are on a parity with operations at the Liverpool price in Liverpool, or at the Havre price in Havre. Thus the hedge contract which a Southern merchant sells in Atlanta, through his broker on the New York Exchange, may be bought by a spinner in26Tokyo or Manchester, anxious to insure his supply of cotton at a price which would make his contracts profitable.
In normal times the selling of merchants and the buying of manufacturing engaged in actual and bona fide hedging transaction has been estimated by competent authorities to make up fully seventy-five per cent. of the trading done on the New York Exchange. The remaining twenty-five per cent. may thus be attributed to speculative operations, that is operations entered into by outsiders through brokers, on the chance of a rise or a fall in the market. Nor is such speculation without its value. It is the speculators, as a rule, who are the first to take advantage of crop reports or weather conditions, or news likely to affect the market favorably or unfavorably, and buy or sell as their judgment dictates. Their operations serve to discount such changes to some extent, or at least to make the breaks and rises more gradual than they would otherwise be.
In abnormal times, that is times of great scarcity and great demand, or bumper crops and small demand, the speculative element plays a larger part, for it is in such times that the greatest fluctuations in price take place. Merchants or manufacturers holding hedging contracts are under a greater incentive to buy or sell, as they see their opportunities for profit growing greater or less, as the case may be, and in consequence more contracts are made, and they pass from hand to hand with greater rapidity, the gain or loss thus being distributed among a greater number of persons than would otherwise be the case. It is the operations of speculators, and the manipulation that once or twice during its history has been possible by unscrupulous traders which has brought about at such times public agitation for the abolition of the Exchange. Recent changes in the form of the cotton contract have made it almost impossible for such operations, if repeated, to be successful, and thus there is little likelihood that the very important economic function of the Exchange will be interfered with by legislation.
27CHAPTER IVThe Cloth Market
THEoutput of the manufacturer finds its way to the ultimate consumer through a variety of channels. What these are will depend upon the manner in which the various mills are organized, and their respective policies as to the marketing of their products. Some mills, usually very large organizations, will have plants completely equipped, in every department, spinning, weaving, dyeing, printing, finishing, etc., and will process all of their goods themselves in every detail, offering them on the market in their finished form. Some of these may make a wide variety of fabrics suitable for one class of trade, or for many classes of trade, while others will specialize on a few articles. A good many concerns that are not of the largest size, but which confine their production to a few articles, may also put the goods through every operation themselves.
Then there are a great number of cotton mills, many of them of very large size, which do no weaving at all, but confine themselves to spinning, finding a market for their yarns with the many weaving mills which have no spinning plants.
Many Large MillsDo No Finishing
Numerous mills, both large and small, manufacturing, principally, goods of a staple grade, which may either be of fine or coarse character, sell their entire product in the gray, or unfinished state, because they do not wish to burden themselves with the task of putting the goods through the various finishing treatments necessary to fit them for the market. This method of disposing of the product appeals to many for it reduces the manufacturing operations to the spinning of the yarn, and to the weaving of the cloth. The owners or managers of the mills may have had no experience outside of these branches, and if they themselves were to attempt to finish, or "convert," the goods they would be entering strange fields.
Whatever method of merchandising may be adopted, it is certainly obvious that the product of large mills is so great that it must be disposed of in a large way, and hence various channels of outlet have grown up to satisfy the requirements of the case.
Dealing Direct WithDry Goods Jobbers
A substantial portion of the output of the mills (but nothing like what it was years ago, and it grows relatively smaller every year), is disposed of directly to dry goods jobbing houses, and by them to retail dealers, who sell it by the yard to the consumer. This practice was formerly more widespread, but has diminished greatly in recent years. A further enormous yardage passes eventually through the cutting-up houses, which manufacture garments of every kind, from overalls to pajamas, or from raincoats to shirts, and dispose of their products to distributors, who eventually sell them to the public. Then there are retailers whose requirements for goods of particular kinds are so considerable that their orders are of sufficient magnitude to warrant the mills in dealing with them direct.
Again, there are the great mail-order houses, with a gigantic annual turnover,28whose catalogues go to every part of the land, and which handle great quantities of piece goods, as well as made-up garments, and whose custom is eagerly sought for.
Thousands of looms in a single room
Thousands of looms in a single room
Other mills make fabrics suitable for use in the military and naval establishments of the country, and in other public channels, and which, in selling these fabrics, will deal directly with the Government, or indirectly through intermediaries.
In addition to these, and other domestic outlets, there is a great quantity of goods produced for export, which are handled through houses specially organized for that trade.
Merchandising byDry Goods Jobber
One of the oldest established agencies for handling mill products is the dry goods jobber, and it is to be remarked that many large retail houses do also a substantial jobbing business, though generally less so in cottons than in other classes of fabrics. The jobber will buy finished products from those mills which sell goods in that state, and will also buy large amounts of gray goods. These he will sell principally to retail distributors, but his transactions, in addition, will extend into a multitude of channels, and, he will deal with small garment manufacturers and makers of all kinds of wares, and will also sell considerable quantities to the larger cutters when they are unable, for one reason or another, to buy direct from the mills or from the converters. There are also numerous small jobbing concerns which buy substantial quantities from the larger jobbers as occasion may require.
One of the greatest avenues of outlet is through a class of dealers known as converters, and there are converters operating in every kind of fabric from cotton to silk. In the last forty or fifty years, this business has developed into immense proportions, and the converter performs a real and important service in the trade. He is intimately acquainted with the needs of his customers, and possesses a fair knowledge of the kinds of goods put out by the various mills and the different constructions in which they are sold, and is well acquainted with all of the market dyeing, finishing, bleaching, and printing concerns, having29also a fair understanding of the various treatments accorded to the goods. He buys his goods in the gray from the mills, and sends them to the finishers, printers, etc., to be treated, according to his instructions. By a careful studying of the fabric constructions, and of the subsequent treatments, he is able to create fabrics of a suitable and marketable character, which are in some respects different from those offered by any of his competitors, and which are brought out with an exact knowledge of the requirements of the trade to which he is catering. He is able to make a profit, and generally a very substantial one, by handling the goods in this way.
Considerable capital is required by the converter, as goods bought in the gray have to be paid for on practically a cash basis, and he may have to carry them for a time before they are finally marketed. The converter sells to the cutting-up houses, to jobbers, and to retailers, or, in fact, to whatever trade he seeks. Large and profitable businesses have thus been built up. Many converters have adopted their own distinctive trade marks, and since the goods that they handle are known by these trade marks, the identity of the mill which made them originally is often entirely unknown to the ultimate consumer. The converter can give his business to whatever mill, at the time, will give him the best value for his money.
Jobbers Must KnowStatus of Mills
These operations are facilitated by the services of another class of intermediaries, the cloth brokers. If a buyer, whether he be retailer, jobber, converter, or what not, wishes to secure goods of a certain kind, he would have a very difficult task if he had to canvass the entire market, and ascertain what was being offered. Hence he is likely to go to the cloth brokers. They are in touch with all the principal manufacturing sources of supply, and will have daily quotations of the offerings of the different mills; he will know which mills are "sold up," and which are open for business, and what class of goods they desire to sell. Consequently the cloth brokers are in a position to offer to would-be purchasers a wide variety of the different cloths which are available on the market, and it is their business to buy from the mills as cheaply as they can, and so get the best possible price for their customers. The transactions are handled on a small commission, and the average buyer, in many kinds of goods, is able to do much better by working through a broker than by opening negotiations directly with the mill.
Most Mills HaveOffices in Chief Markets
Mills selling their products through brokers in this manner may, or may not, have a representative stationed in the goods market, according to circumstances. Mills, manufacturing a limited number of plain fabrics, and which do not sell through brokers, may also be without representatives in the primary goods market, and will dispose of their product directly from the mills, partly by correspondence, and partly through the efforts of their travelers. The great mass of the mills, however, are regularly and efficiently represented in the great central goods markets, principally New York, though also in Boston, Philadelphia, Baltimore, and elsewhere, and their selling agencies are very highly organized institutions.
These establishments which have sufficient capital to enable them to finance themselves—with or without the assistance of regular bankers’ loans—may maintain their own selling offices, and market their product in their own names directly to their customers. The amount of capital required to handle a business in this way is proportionately very large, for the concern must be able to keep itself sufficiently30supplied with raw materials, and then to carry the expenses as these materials pass through the slow stages of manufacture until the goods are finally finished, after which they may have to be kept in stock for a time until the delivery dates, and then, after shipment, the accounts have to be carried until the bills are paid, so that, from the time the manufacturer pays for his raw material until he finally receives pay for his goods is a very long period.
Loans Made UponWarehouse Receipts
The financing of a business conducted in this way can be assisted by loans from warehouses upon stocks of raw material stored there, by bank accommodation, and by facilities which certain banks give for the cashing of a substantial percentage of those accounts on the books of the concern which the customers have not discounted themselves. Also, in handling his merchandise in this way, the manufacturer must have a thorough understanding of the best means of marketing his product, and this care of the selling end is, of course, an added burden upon his shoulders which, in many cases, he may not feel competent to handle properly.
Therefore, the comparatively few concerns which do have sufficient capital to sell directly, in addition to the many from great to small who have not, will market their product through what are known as dry goods commission houses, sometimes referred to as factors, and simply as commercial bankers. The commission house system, as we have it here, does not exist anywhere else, and its great growth in the United States has been largely due to certain peculiarities in our banking methods, which have prevented mills—even those with a reasonably sufficient supply of capital—from obtaining the amount of direct banking accommodation necessary for their needs.
The commission house, in its usual relations with its mills, undertakes to conduct the sale of their products. Some commission agents insist upon having the entire selling control of all of the goods the mill produces, or at any rate, of all the goods of the kind which they are equipped to sell. Others, again, will take over a partial selling control of the product of a mill, and various lines of the same manufacturer may be found offering through different channels. There are some obvious disadvantages connected with this latter procedure.
If the mill is a very large one, the selling agent may handle no goods except the product of that mill, but in the great majority of cases, the factor will represent a considerable number of mills.
Immediately on receipt of the invoices of the goods consigned to the selling agent, the mill can draw against them a percentage of their value, previously agreed upon, usually about two-thirds of their net selling price, and upon these loans interest at the rate of 6% is charged. The difference between the rate at which the commission house can borrow money, (in normal times perhaps 4 to 4-1/2%), and the 6% which is usually charged to the mills, constitutes a considerable part of the profits of the factor’s business.
Factors ProvideSelling Facilities
The factor often provides a store, together with a complete selling and office force, and every facility for receiving, storing, selling, and shipping the goods, and for financing the business. The salesmen of the house travel throughout the country, reaching all the important markets, and the managers of the different departments, who thus understand the needs of the market, are in a position to advise the mill with intelligence and exactness as to the kind of goods which should be made to meet the requirements of the trade. The cost of warehousing and of31insurance on the merchandise is also paid by the commission agent.