The artists got the glory; the manufacturers counted the profits. But it wouldn't have been possible without the foot soldiers of the industry: the dealers.
There were big dealers such as Babson Brothers of Chicago who once ordered a trainload of Edison phonographs. There were dealers on smalltown Main Streets who served up a menu of two machines.
But big or humble, the dealer worked hard. Even a crackerjack salesman was squeezed by the unequal bargaining power of the factories, as enforced by Fair Trade laws, and by the competitiveness of the mail order houses.
In the 19th century you haggled over the price of a bag of beans with the local grocer, who badgered you into buying it. By 1900, things had changed.
American retailing had evolved into a system dominated by jobbers and middlemen. Jobbers were wholesalers who had paid in full for the goods they resold.
Jobbers sent salesmen out all over the country by horse, train and even bobsled. Jobbers verified credit references, collected bad debts, handled loss and damage claims.
A buffer between the dealer and the manufacturer, jobbers in a sense subsidized inventory and administrative costs for the factories. The local Edison or Victor merchant never dealt directly with the factory, he dealt with the jobber or "distributor," as the Victor jobber was known.
In a widespread practice originating from the patent medicine industry, jobbers and manufacturers co-operated to enforce Fair Trade. Manufacturers sold only to wholesalers who maintained established wholesale prices and wholesalers sold only to retailers who maintained established retail prices.
Ostensibly argued as a mechanism to protect the small dealer, Fair Trade was a euphemism for price fixing. It saw repeated legal attack.
It wasn't particularly difficult to set up as a dealer. The prospective merchant usually had to furnish references and had to purchase a minimum number of machines and records, as little as two machines and 100 discs.
The factories seemed only too eager to sign up everyone in sight. In 1908 a man named McLean sent Columbia an inquiry from Womelsdorf, Pennsylvania. "We have been intending to open up an agency in Womelsdorf and you seem to be the man," replied Columbia. One can imagine the Columbia executives fretting all night about the Womelsdorf problem.
It didn't take much money to start up, either. Around 1915 the average capitalization of a small business in a place like Johnstown, Pennsylvania was under $500. Many small businessmen had little experience, but jobbers would extend credit, as the dealer would extend credit to farmers and workers on paychecks.
The factories offered generous profit margins, typically 30%-40%. They could affford deep discounts because demand was intense and the cost of manufacture was low.
The cost of Johnson's motor in Berliner's Gramophone, offered to the public for $25, was under $4. By the late teens, when Victor sales were over $30 million per annum and fancy Victrolas sold for hundred of dollars, factory profits exceeded windfall proportions.
Here are a few examples of dealer profit margins:
|U-S Phonograph Company, 1911|
|2 min record||35cents||45%|
|National Phonograph Company, 1904|
Records, a recurring purchase, were more lucrative than machines. One present day collector tells the story of unearthing a closed Edison dealership atop an unrelated business in a small New England town when the collector was a young man.
His eyes hypnotized by an array of wooden horns, the collector asked the ancient dealer how much he wanted for everything. Ten thousand dollars, replied the old man.
The collector didn't have ten thousand dollars. He couldn't buy the machines, but maybe he could buy the records. How much did the old man want for the records?
Why, ten thousand dollars replied the old man, astonished. The machines were worthless, they went with the records. Edison had indelibly trained the dealer to sell the records!
Dealerships weren't required to be exclusive. Most small towns couldn't support more than one outlet. Victor and Edison lived a congenial marriage in many shops for years until Edison introduced his disc phonograph, a move which prompted a famous letter to Edison from his erstwhile friend Eldridge Johnson, calling it the biggest mistake Edison had ever made.
Nor were dealerships assigned territorial rights. At one point, Edison had over 10,000 dealers.
In 1911, phonograph sales had soared to sixty million dollars, but only one out of fifteen families as yet owned a phonograph. In the factories' eyes, the market wasn't even close to saturated.
Prior to 1923 over two thirds of the businesses in the United States were mom and pop operations. Over fifty per cent of new businesses failed within the first few years.
The phonograph was a seasonal business: strong in the winter, lazy in the summer. It wasn't uncommon to append a complementary product. Bicycles were the favorite choice, but almost anything else was likely to be sold by the dealer, including pianos, firearms, and cigars.
Breakage, exacerbated by a primitive transportation system, was a repetitive theme. Edison allowed his dealer two per cent for breakage, a figure which seems unreasonable in light of the fragility of the wax records. In an epic struggle to receive credit for one defective record, an Alabama Victor dealer wrote his jobber in 1913, "I am sorry for any Factory who loves a dollar so much they would like to take them from their agents."
Dealers were subject to the whims of the business cycle. The recession of 1908, in which industry sales dropped almost in half, put a lot of dealers out of business. So severe was that recession that it probably spurred the suicide attempt of Edward Easton, president of Columbia, who according to witnesses nonchalantly stepped off a speeding train.
The manufacturers exerted powerful leverage over the dealers, large and small. One instrument of control was the blacklist, or suspended list, usually associated with the Fair Trade laws.
In 1908 when Edison learned that the Indestructible Company had perfected an unbreakable cylinder and was offering it to his dealers he issued an edict that any dealer who sold the new cylinders would be placed on the suspended list. (Edison's pique drove Indestructible into the arms of Columbia, who agreed to buy 100% of Indestructible's output, which soon reached 200,000 cylinders per month.
The Fair Trade decisions gave the original manufacturer or patent holder the legal ability to establish the retail selling price just about anywhere, anytime.
In one incredible instance, in 1908, Victor went after a man in Buffalo who had bought some records and machines at a bankruptcy sale and was selling them at a discount. The Victor attorneys were whisked off to New York, the unlucky merchant was promptly enjoined, and news of the legal victory was trumpeted in a stern letter to Victor dealers.
In 1914 Macy's department store wanted to sell some Victor records at a small discount.
Perhaps Macy's felt that the time was ripe for an attack on Fair Trade. In 1911 the Supreme Court had ruled that price maintenance agreements were invalid, except on items involving patents or copyrights. Macy's had moved out some records from the defunct Star record company at a discount and had observed how well they sold.
The Victor legal tigers were unleashed, the case was appealed to the U.S. Supreme Court--and when it was over in 1917 Victor was defeated. (That's why all the legal language about a "lease" disappears from the record labels at this time.) Despite the temporary demise of Fair Trade, phonograph prices still remained very high.
Many dealers just earned a living, but a few became models of capitalistic entrepreneurship.
Babson Brothers, recipient of the trainload of phonographs, operated a store in downtown Chicago and issued a mail order catalogue. Harger and Blish, a dealer in Iowa, amassed enough money to purchase 10,000 Victor Ps when Victor exited the premium business. The machines popped up in the oddest places for years, even as a beer company giveaway.
Hawthorne and Sheble, the forgottten giant of the phonograph industry, began as an Edison jobber and dealer in Philadelphia. The firm, which said it kept four factories humming, made a large percentage of aftermarket horns and attachments and the Star talking machine.
Factories talked to the dealers via slick factory publications. These were some of the house organs:
In the house organs you could browse the new releases, hire an experienced salesman, order a spectacular Easter window display, learn whose name had been added to the suspended list, and more.
All the posters and ephemera so coveted by collectors appear in the house organs where they were made available to dealers at nominal or no cost. The Victor jigsaw puzzle, for instance, was promoted at $15 per thousand.
Talking Machine World was an independent publication geared to the trade. Here's a digested version of what people were talking about in 1925.
Gossip: Caruso's widow is suing the U.S. government for an income tax refund. She claims he was an Italian citizen.
Promotions: Brunswick is offering a 75 cent credit towards four new Brunswick records to anyone who turns in four old records.
Tricks of the trade:A salesman in Texas tries to sell a machine to two maiden ladies who plant vegetables for a living. He loans them the machine for three days. The women protest they can't afford it. He shows them how to plant a different mix of vegetables, and makes the sale.
The house publications often contained elaborate instructions on how to construct floats. Today we associate parades with the Fourth of July, but in an earlier era parades were important traditional entertainment, and with parades came floats. There were parades for every conceivable occasion and holiday. Enormous busts of Edison, of the Columbia lady, Nipper and entire product lines cascaded down Main Street.
Dealers attended conventions, regional and national; the national convention was held in Atlantic City. At one Edison dealers' convention in 1906, in honor of the new gold molded records, the dealers presented Edison at dinner with a solid gold cylinder cut by artist Len Spencer.
Many dealers had to offer credit. Credit in a town like Ada, Massachusetts, for a small merchant in 1912 could reach sixty per cent of sales. The dealer competed against mail order giants like Sears, Ward and Spiegel, who could purchase in volume and sold only for cash.
As early as the turn of the century local newspapers were bitterly denouncing the mail order houses as a foreign interest inimical to local business. Things could turn so ugly in small communities that in 1906-07 Sears shipped its goods from Chicago in plain wrappers with no return address.
The same local interests contentiously resisted the introduction of parcel post, finally adopted in 1914, which allowed the post office to handle packages over four pounds. No longer did the farmer need to journey to the nearest railroad freight station. It was a boon for the mail order houses, another bludgeon to the rural dealer.
By the 1920s, changes were menacing urban dealers as well. Chain stores were sprouting on the horizons of American cities.
Sources: Benson, Susan Porter. Counter
Koenigsberg, Allen. Patent History of the Phonograph.
Lebhar, Godfrey. Chain Stores in America.
Strasser, Susan. Satisfaction Guaranteed.
Copyright 2016 Lynn Bilton
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