The taming of the buyer: the retail inventory method and the early twentieth century department store

Accounting, Organizations and Society 28 (2003) 773–791 www.elsevier.com/locate/aos

The taming of the buyer: the retail inventory method and the early twentieth century department store Eamonn J. Walsha, Ingrid Jeacleb,* a Department of Accountancy, University College Dublin, Belfield, Dublin 4, Ireland Accounting Group, School of Management, University of Edinburgh, William Robertson Building, George Square, Edinburgh EH8 9JY, UK

b

Abstract This paper seeks to explore the workings of an accounting technique in an established domicile of consumption: the department store. We investigate the widespread adoption of the Retail Inventory Method by US department stores from 1920 to 1930. Our analysis reveals a constellation of events situated against a backdrop of new programmatic discourses that gave rise to the adoption of the method. The technical properties of the method created visibilities in store operations which substantiated a recasting of internal power relations. The resulting shifts facilitated the emergence of organizational arrangements familiar to the early twenty-first century consumer. # 2003 Elsevier Ltd. All rights reserved.

Introduction The purpose of this paper is to examine the forces that gave rise to the widespread adoption of the retail inventory method by US department stores during the period 1920–1930. The retail inventory method involves valuing inventory at retail price rather than the traditional cost price. Our investigations are significant for three reasons. First, department stores were large complex entities during the early 1900s. In 1904, Marshall Fields had a floor area of 1 million square feet, employed 8–10,000 and handled up to a quarter of a million customers per day.1 Despite

* Corresponding author.Tel.: +44-131-650-8339; fax: +44131-6508337. E-mail address: [email protected] (I. Jeacle). 1 By contrast, Ford’s Highland Park plant in 1914 was 0.25 million square feet and employed 13,000. Macys employed about 3000 in 1898 (Benson, 1986, p. 34). By 1914, Whiteleys of London employed 4000 while Harrods employed 6000 (Fraser, 1981, p. 132).

the scale of these operations, accounting methods have received scant attention from accounting historians. Second, department stores during this period represent a key point of intersection between the worlds of production and consumption. In common with other social scientists, studies of accounting and the social have all too frequently been dominated by the metaphor of production. Until recently, consumption occupied a marginal role in the social sciences, a mere derivative of production. Amongst economists, needs were an exogenous determinant of demand while sociologists appeared to treat consumption as an exercise in conformity (Goldthorpe & Lockwood, 1969; Whyte, 1957). As such the sphere of production largely determined consumption and social structure. At the extreme, consumption simply became the manufacture of needs by the corporate sector: Were it so that a man on arising each morning was assailed by demons which instilled in

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him a passion sometimes for silk shirts, sometimes for kitchenware, sometimes for orange squash, there would be every reason to applaud the effort to find the goods, however odd, that quenched this flame. But should it be that his passion was the result of his first having cultivated the demons, and should it also be that effort to allay it stirred the demons to ever greater and greater effort, there would be question as to how rational was his solution. Unless restrained by conventional attitudes, he might wonder if the solution lay with more goods or fewer demons. (Galbraith, 1959, p.144) In contrast to this focus upon (conditioned) needs, a variety of contemporary scholars have sought to identify a more central role for consumption and its relation to the social. Despite these efforts, the nature of this role is contested. Positions range from consumption as a reflection of social order to consumption as an abstract system of signs. Veblen (1899) is an early observer of the role of goods as a status marker, and the cultural role of emulation based upon existing hierarchies. At a more fundamental level, goods may be part of a symbolic system that is intertwined with social contexts, relations and practices (Douglas & Isherwood, 1979). Other analysts have examined the constitutive role of consumption in class formation (notably, Bourdieu, 1984). An alternative approach treats consumption as a system of signs almost to the exclusion of a system of needs (Baudrillard, 1970). Irrespective of the theoretical framework to which one ascribes, it appears evident that the world of consumption occupies a determining role in the definition of the person—‘I consume, therefore I am’. If so, an understanding of accounting and the social requires an appreciation of the manners in which accounting operates within this consumer world. Finally, our method involves a focus upon a single accounting technique: the retail inventory method. This method avoids defining accounting as a generic amalgam of calculative technologies and provides an understanding of how

a calculative technique becomes an accounting technique.2 The remainder of this paper is organized as follows. In order to fully appreciate the broader contextual milieu of our analysis we begin by exploring the immediate site of our investigations: the department store. An organizational form not commonly examined by accounting academics, it is a useful first exercise to gain some insights into the role which the department store has come to occupy as an established icon of consumer culture. Consequently, we consider in The department store the nature and organizational arrangements of the Victorian department store as a basis for understanding subsequent changes. The retail inventory method provides an overview of the basic operating principles of the retail inventory method and explores the perceived advantages of its application. The following two sections examine other simultaneous developments of the era (1900–1920) and the forces which may have prompted their subsequent coalescence. It was against this backdrop that the retail inventory method achieved widespread adoption. The retail inventory method and the control of the buyer then explores the deployment of the method as a disciplinary technique by store management. Visibilities revealed by this accounting technique recast power relations in the organizational structure. We adopt a Foucauldian (Foucault, 1979) concept of disciplinary power to theoretically underpin our analysis within this section. This stance has been proficiently documented and successfully employed elsewhere.3 A contribution of this paper is to supplement that existing body of work with insights which further our understanding of the accounting craft. Department store management in 1930 examines the new retail management environment which had come to symbolize the ‘progressive’ store by 1930, one 2 For example, a calculative technique may be considered the domain of an accountant, a management consultant, an engineer or a human resource manager. Across space and time, professional ownership of calculative technologies appears to vary. 3 The work of Hopwood (1987), Hoskin and Macve (1986, 1988), Loft (1986), Miller and O’Leary (1987), Walsh and Stewart (1993) are prominent examples of this approach.

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informed by a discourse of scientific management principles. We conclude by suggesting how the retail inventory method, in rationalizing organizational arrangements, may have facilitated the emergence of retail innovations such as self service shopping and the accessorized ensemble.

The department store During the period 1850–1930, the Western department store represented the institutional locus of consumption and was an active participant in the shaping of consumer culture (Chaney, 1983; Glennie, 1995; Nava 1995). Rather than reflecting changing tastes, the department store was a decisive agent in the formation of the consumer as it exposed him/her to persuasion (Williams, 1982, p. 67). The department store gave material expression to bourgeois values, but also transformed culture as it constituted a primer on how one should dress and furnish one’s home (Miller, 1989). As it created and rewrote the meaning of goods, it became the agent of diffusion where individuals learnt to be consumers (Laermans, 1993; McCracken, 1988). The department store brought the individual and the commodity into close contact for the first time. Freedom to browse and touch fused a new bond between consumer and commodity (Ferguson, 1992; Finkelstein, 1991). Baudrillard (1970, p. 27) identifies the advent of the department store as the moment when ‘‘broad classes of the population were first gaining access to everyday consumer goods’’. Europe is generally credited as the birthplace of the department store. The Bon Marche´, opened in Paris in 1852, has been a subject of academic debate amongst social historians over its claim to be the first department store (Laermans, 1993). Bowlby (1997) contends that the department store arose in the US at the same time as appearing in Europe. The exact origins of department stores in the US are difficult to trace (Nystrom, 1978) however, it is generally agreed (Leach, 1984; Nystrom, 1978) that by the 1870s the idea of the department store had spread throughout America. Examples

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of such stores include: A. T. Stewart’s and Macy’s in New York, Jordan Marsh and Company in Boston, John Wanamaker’s in Philadelphia and Marshall Field’s in Chicago. The appearance of the department store as a general phenomenon resulted in a significant change in retailing on both sides of the Atlantic. Observers tend to emphasize the ‘revolutionary changes in marketing’ (Klassen, 1992, p.675) that accompanied the arrival of the department store: lowering prices to achieve high inventory turnover, adopting the one price system of clearly marking all goods, and diversifying product range (Benson, 1986; Jefferys, 1954; Moss & Turton, 1989). By the turn of the twentieth century the department store had reached its ‘golden age’. It had assumed the guise of palace, spectacle, a haven that projected luxury and lavish facilities where women could socialize freely (McBride, 1978; Nava, 1997). However, there was more at stake. This spectacle was concerned with the arousal of ‘‘free-floating desire’’ (Williams, 1982, p.67). The techniques of arousal4 included freedom of entry, a profusion of goods,5 and advertising.6 The promotion of holidays as secular events (e.g. Christmas) became commonplace. Stores included restaurants, tearooms, rest rooms, and writing rooms (Jefferys, 1954). Gordon Selfridge, the American businessman, described his new London store in 1909 as a ‘social center, not a shop’ (Moss & Turton, 1989, p.85). Stores competed with each other to provide the most entertaining in-house fashion shows and concerts (Leach, 1984). Plate glass window displays (Resseguie, 1964) gave rise to ‘window-shopping’. As such, the department store represented a combination of the spectacle of

4

That these desires became so highly aroused is reflected in the emergence of shop-lifting as an activity (Abelson, 1985; Lancaster, 1995, pp. 184–185). 5 Benson (1986, p. 50) reports that US stores in the 1930s had inventories of up to 0.25 million items. The Dry Goods Economist (6 October, 1923, p. 43), reported that one store had 150 different styles of men’s collars. 6 Department stores were the most significant advertisers in the late nineteenth century (Beniger, 1986, p. 268).

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the 1851 Great Exhibition7 and the large-scale sale of goods. This spectacle resulted in a fundamental redefinition of consumption and the creation of a world other than that of production: The separateness of the consumer world. . .helped to transform consumption somehow into the ’true realm’ of freedom and self-expression, the only refuge of comfort and pleasure, and as a place where all wishes were granted and anything was possible. If work and production offered less in the way of fulfillment for most people, then consumption—especially in this detached and floating context—surely seemed likely to fill the bill. . .All of this served to give to consumption its independent character, communicating a sense that, in the world of goods at least, men and women could find transformation, liberation, a paradise free from pain and suffering, a new eternity in time. (Leach, 1993, pp.148–149) If the store had become a spectacle and a celebration of consumption, departmental buyers were the impresarios. The department store created a new status for the heads of its numerous departments: the buyers. A ‘‘federation of buyers’’ (Emmet & Jeuck, 1950, p. 216) rather than a managerial hierarchy conducted operations. Departments generally operated as independent fiefdoms (Chandler & Daems, 1979, p. 13). For example, the Macys department buyer ‘‘enjoyed almost complete independence’’ (Hower, 1943, p. 363). This delegation of authority to buyers appeared to be deliberate:

ing their own stores. He frequently disclaimed that his was a department store, but rather an institution comprising many specialized stores, each complete in itself, although all operating under one ownership, control and policy. (Appel, 1930, pp. 365–366) The difficulty with these arrangements was the potential for destructive competition amongst departments (e.g. assistants in a department might be instructed not to recommend an alternative more suitable item in another department). It also resulted in unpredictability as the buyers ‘‘presided over their departments despotically, enlightened or not as whim dictated, treating superiors and subordinates alike to magnificent displays of artistic temperament’’ (Benson, 1986, p. 51). In conclusion, the department store represented an important institutional locus for the creation and shaping of new possibilities of consumption. In the remainder of this paper, we seek to identify the changing modes of operation of the department store and its relationship to accounting technique.

The retail inventory method

To his buyers—who were both men and women—Wanamaker [Philadelphia store owner] gave great freedom. He liked to call them merchants—and he helped to make them merchants, as though they were operat-

The retail inventory method is one example of an accounting black box. The fact that it receives little attention bears witness to its success as a black box—it has successfully kept investigators at bay (Latour, 1987, chap 1). Amongst standard setters, it receives mere lip service as a specific industry practice in SSAP 9 (ASC, 1975), IAS 2 (IASC, 1975) and ARB 43 (APC, 1953). In textbooks it is frequently ignored in the UK, but generally examined in US intermediate accounting texts. The textbook treatment of the method generally involves a brief pragmatic justification of the method8 followed by extensive numerical examples of its application. Generally, there is lit-

7 The Great Exhibition was the first World’s Fair. It was held in Crystal Palace (London) during 1851 (Botticelli, 1997). Williams (1982) notes that many of the items in the Second World Fair (Paris 1889) included price tags. This period was one of other mass spectacles including the circus, enclosed racetracks and football clubs.

8 For example, ‘‘imagine attempting to use such an approach [specific identification of inventory] with K-Mart, True Value Hardware or Sears—retailers that have many different types of merchandise at low unit costs and also have a large volume of transactions’’. (Kieso & Weygandt, 1989, p. 411).

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tle discussion of the properties of the method, Hendriksen (1982, pp. 328–333) being a notable exception. Larson (1991) notes that although the advent of retail computer systems makes the use of the method increasingly difficult to justify, its institutionalization continues. The retail inventory method appears to be a self-evident truth—so much so that its conditions of production have ceased to exist. In order to fully appreciate the subsequent narrative, an understanding of the technical properties of the retail inventory method of valuation is necessary. A simple numerical explanation of the method in operation is included in the Appendix. An obvious advantage of valuing inventory at retail rather than cost price is that it provides an estimate of ending inventory without the need for a time-consuming physical count. Ending inventory at cost is established by calculating a mark-up percentage to adjust ending inventory at retail. If all price revisions during the period (mark-ups and mark-downs) are correctly recorded then any difference between the estimated inventory at retail and a physical count of inventory at selling prices should be due to theft and/or spoilage. This difference is known as ‘shrinkage’ and acts as an important control device. In practice, the application of the method can be quite complex. Wingate and Schaller (1956) contains a comprehensive analysis of these problems. The retail inventory method would appear to have been fully developed as a technique by 1890 in Germany (Freudenthal, 1925, p. 84). Despite isolated incidences of its use in the US, widespread adoption does not appear to have occurred until the 1920s and somewhat later in the UK. Friedman (1929) reports that adoption of the retail method in US department stores took place during the period 1920–1925. The rate of adoption was rapid, increasing from a handful of stores in 1920 to almost 70% by 1927. The intensity of these events is best captured by a survey of US department store managers (NRDGA, 1936) that singled out retail inventory accounting and control as the single most significant management advance in the previous 25 years. It is useful at this stage to summarize the perceived advantages of the retail inventory method

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over the cost method to store management. Four main advantages arising from the adoption of the retail method are present in the literature. One important advantage of an efficient retail inventory system (as illustrated in the appendix example) was that it provided, at any point in time, an estimate of stock on hand without the necessity of a time-consuming physical count. Madden (1927, p. 159) for example, remarks upon the merchant’s ability to ‘‘approximate inventory with very little trouble or time’’. A natural consequence of a less-time consuming inventory valuation method is the ability to produce departmental operating statements on a more regular basis. Regular report production gave store management the ability to identify at an early stage, in comparison with a semi-annual or annual basis under the cost method, the profitability of every department. The retail inventory method could become a useful tool in revealing to management each buyer’s success or failure to achieve certain gross profit targets. Essentially, it formed a disciplinary apparatus ‘‘that coerces by means of observation’’ (Foucault, 1979, p. 170). The facts developed and exposed by analyses under the Retail Method make it possible to place one’s fingers on weak spots early enough to influence the gross profit of a period. (Vogt, 1932, p. 18) A second advantage of implementing the retail price inventory method was that when the need for an inventory count arose, it was achieved more conveniently than under the cost method. The annual physical inventory count taken at retail prices allowed easy listing of stock direct from the price tags. This eliminated the time consuming process of translating the retail value of the goods into the original cost price, inherent in the cost method (Eggleston, 1931, p. 221; Greene, 1924, pp. 97–98). Also, a simple listing of the marked retail price allowed the count to be taken by staff not familiar with the merchandise (Katz, 1920, p. 7). In addition to its time saving advantages, the use of retail rather than cost prices during the count was perceived as a more scientific method of valuation. Estimation of an appropriate cost price

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for an item, a common feature of the cost method, was seen to be based on erratic guesswork, often prone to error (Kleinhaus, 1932, p. 1; Steinhauser, 1926, p. 96). A third advantage of the retail method proposed by the literature was the control it provided over mark-downs (a reduction in the selling price of an item). If implemented correctly, the retail method required an immediate reporting of all price changes (mark-ups and mark-downs) to the controllers office, therefore instantly highlighting to management the consequences of good and bad merchandising decisions respectively (Vogt, 1932, p. 19). A final advantage of the retail method was its detection of losses arising from theft and/or spoilage: ’shrinkage’. If all mark-ups and mark-downs were correctly recorded, then theoretically any difference between the inventory count at retail and the book records at retail should accurately reflect shrinkage (Freudenthal, 1925, p. 85; Vogt, 1932, p. 19). The earlier two advantages again resonate with Foucauldian undertones. The retail inventory method bestowed on store management the power of hierarchical observation. An all encompassing gaze rendered knowledgeable each buyer’s contribution to profitability, price revisions and spoilage. A distribution of each buyer’s results was revealed facilitating normalizing judgment and ultimately punishment or reward (Foucault, 1979, pp. 177–184).

Dispersed developments Our purpose in this section is to further an understanding of two issues. First, given that the retail inventory technique had been fully resolved, why did the deployment of the technique in the US occur in the 1920s rather than the 1890s? Second, to what extent did the circumstances giving rise to its deployment determine the organizational consequences of the technique? Essentially, our explanation involves a number of dispersed developments that were occurring during the period 1900–1920 against the backdrop of the programmatic discourses identified by McCraw (1981) and Miller and O’Leary (1987). These developments are the adoption of the retail inventory

method in individual stores, the advent of scientific management, the development of merchandising techniques in individual stores and the emergence of retailing as a subject of investigation in business schools. McNair (1925) argues that the retail inventory method developed simultaneously in various parts of the US during the early years of this century, and that no one store can claim the credit for its origination. Macys department store (New York) would appear to be one of the earliest adopters9 of the method and also to have had a concern with accounting control. Archival records10 include letters from two competitors seeking advice from Macy’s management on the operation of the retail method of inventory,11 the first in 1904. Evidence that, managers were concerned with the proper operation of the system include memoranda to buyers concerning purchase invoice control in 1903 and markdown control in 1905.12 This interest in the retail inventory method was accompanied by a more general emergence of accounting within the store: Perhaps the most fundamental accounting change during this period was the rise in the importance of the controller, in Macy’s as well as in other stores. Before 1900 bookkeeping had been largely considered a necessary but nonproductive operation—the maintenance of a record of past events. By 1919 it had become accounting and control, a device for analyzing current operations and planning the future- an important adjunct of top management in making the business produce satisfactory results. (Hower, 1943, pp. 365–372) A certain amount of this development was attributable to an accountant, Ernest Katz, appointed to Macys in 1905 to ‘‘to devise methods which would yield a more detailed and useful 9 The retail inventory method was also used by Selfridge’s London store by 1915. Source: Stock Control Book for Department No. 965, Box 008-B, Selfridge’s Archives, London. 10 Held at the Historical Collections Department, Baker Library, Harvard Business School. 11 R. H. Macy Files, Box 4, Folder 3, p. 3137, 3139, 3140. 12 R. H. Macy Files, Box 1, Folder 4, p. 362; R. H. Macy Files, Box 1, Folder 9, p. 853.

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accounting picture of the business, department by department’’ (Hower, 1943, p. 365). However, despite the deployment of the technique at this single site, the retail method did not diffuse as general practice. A leading textbook (Nystrom, 1913) does not mention the method, and the earliest text we could identify was Ernst (1913) who advocated the method as a technique to relieve firms from the burden of stocktaking: It is practical for stores that are operating under the retail inventory method to discontinue the general annual or semi-annual inventories that are customary at present, which are always a heavy expense and often result in considerable loss of business. Under this new method the perpetual or book inventories are used in reports, financial statements, etc., and are kept constantly checked up by the inventory-taking department. (Ernst, 1913, p. 3) While the retail inventory method was slowly coming into the light, an interest was also emerging in the application of scientific management (Taylor, 1911), one of the hallmarks of the US in the early twentieth century (Miller & O’Leary, 1987). During this period a concern with the operational management of department stores begins to appear in the US. However, despite the appearance of System in 1900, a journal concerned with scientific management in department stores, there appears to have been a lag between the exposition and the implementation of these techniques. Articles concerned with Lost Motions in Retail Selling13 (Wooley, 1912) and the application of scientific management in the retail store (Thompson, 1915) appear to have had little immediate impact. For example, progressive stores such as Filenes of Boston, do not appear to have identified the potential advantages of scientific management methods until the 1920s (Filene, 1924). Merchandising techniques were closely related to the notion of scientific management and 13

The article noted that rather than selling, sales assistants spent much of their time attempting to locate items due to the poor arrangement of stocks.

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involved an attempt to rationalize the variety of goods in inventories. This rationalization might involve reducing the range of 150 men’s collars to a limited range of the most demanded items at different price points and stocking only the most common sizes. This form of rationalization was known as a model stock plan. Filenes appears to have been one of the leading proponents of these methods and the Retail Research Association was founded in 1916 on the initiation of Lincoln Filene ‘‘for the study of the problems of merchandising and store operation’’ (Mahoney, 1955, p. 88). However, the diffusion of these techniques does not appear to have occurred until the 1920s (Filene, 1923a, 1923b, 1923c). The final development was the study of retailing in the newly created Business Schools. Department store owners began to actively encourage and sponsor the development of retailing programs in US universities. Examples include the finance of graduate programs in retailing at Simmons College and the Carnegie Institute of Technology (Leach, 1993). Other initiatives included the creation of the School of Retailing at New York University (a significant sponsor being Macys New York) and the endowment of a Lincoln Filene (Filenes Boston) Professorship of Retailing at Harvard Business School (Mahoney, 1955). In 1909 Wanamaker’s in-house Commercial Institute applied for a charter for the American University of Commerce and Trade (Wanamaker, 1909). All four of these developments had a dispersed character, as such they involved relatively autonomous knowledge claims in the making—accountants concerned with the retail inventory method, time and motion men seeking to deploy scientific management, store owners considering the rationalization of product variety and newly formed Business Schools seeking to legitimate themselves. Between 1920 and 1922, we suggest, these dispersed knowledge claims would coalesce.

An assemblage of terrains Whilst we are reluctant to attach great import to specific dates, a number of unrelated events occurred during 1920 that were of some significance.

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These events were changes in the tax code, the introduction of surveys of operating performance, changes in the National Retail Dry Goods Association (NRDGA), competition from the newly established chain stores and an unanticipated recession. In August 1920, the Internal Revenue Service modified the rules regarding the recently introduced income tax to allow department stores to use the retail inventory method in the determination of taxable income.14 While this may appear to be a relatively technical modification, it did create a possible rationale for the introduction of the method by accountants.15 This rationale could be based upon the additional flexibility that would arise from discretionary adjustments to mark-ups and mark-downs. The introduction of surveys of retailers’ operating results may have acted as a second impetus for coalescence. The new business schools engaged in surveys of retailers to determine profitability. These included Northwestern University and the Bureau of Business Research at Harvard. The latter conducted annual surveys of 4332 department stores throughout the US in order ‘‘to obtain information on the cost of doing business in department stores’’ (Copeland, 1921, p. 68). From these schedules the profitability of stores was computed and a capital charge deducted to reflect investment in inventory and fixed assets—a measure now known as residual income—to demonstrate the poor profitability of department stores (Guernsey, 1929). These surveys in themselves were interesting as they resulted in the diffusion of a standardized classification of operating expenses and the encouragement of the retail inventory method. The NRDGA was a third possible force for change. Founded in 1911 by a group of 34 of the 14 Treasury Decision No. 3058, issued 16 August 1920, whereby Regulations 45, Section 203 of the Revenue Act of 1918 was amended by inserting Article 1588 (David, 1922, p. 71). 15 The number of ‘accountants and auditors’ in the US increased sevenfold during the period 1900–1930. While much of this increase occurred during 1910–1920, there was a 60% increase during the 1930s (US Census Bureau, 1975, pp. 140– 142).

larger department stores (Pasermadjian, 1954, p. 69), it rapidly displaced the Buyers Association as the main forum for communication between department stores (Benson, 1986, pp. 48–49). Two important events occurred in 1920. First, its membership doubled to 1362 stores between 1919 and 1920.16 Second, between 1920 and 1925, it adopted a policy of creating functional groups. The Controllers Congress, a gathering of store controllers, was the first functional group and held its first convention in July 1920. The creation of this network would appear to have created a powerful impetus for the spread of standardized accounting techniques. A similar trend became apparent in merchandising when the NRDGA created a similar network for Merchandise Men in 1923. Another force for change during this period may have presented itself in the form of the newly created chain stores (e.g. Woolworth, J.C. Penny). Once the dominant retail establishment, the department store now faced keen competition from the new chains. The degree of growth experienced by the chain stores during this period is captured in a number of sources. The Dartnell Corporation, commissioned to survey retail practices, found that chain stores grew threefold during the 1920s and their market value increased nine fold (Dartnell, 1931, p. 15). The profitability and economies of operation enjoyed by the chain stores relative to the department store also emerged as an issue (Recent economic changes in the US, 1929). Department stores reacted to the threat of the chain store in two ways. First, they engaged in a wave of ‘‘Mergermania’’ during the 1920s (Leach, 1993, p. 275). The object of such combinations or mergers was not to disrupt existing ownership and control of the individual stores, but rather to share vital trading information and avail of the benefits of group buying. Second, they sought to impose new controls over operating expenses. This concern with expense control is

16 An examination of the reasons for this rapid expansion is beyond the scope of this study. Potential reasons could include the appointment of a new executive secretary in 1919, the threat of competition from chain stores and the need for effective lobbying in favour of anti-chain store legislation, and a more general concern with Associationalism during this period.

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manifest in Holiner’s (1920, p. 34) address to the Controllers Congress in 1920. I regard the control of expenses as one of the most vital functions of a department store, or a dry goods store. I don’t know of anything that is more important to the welfare of the store. My friends, if you will look at the failures in the last few years of large institutions, why did they fail? It wasn’t because their sales were inadequate. Other concerns doing less business were prosperous and making good. It was because they didn’t properly watch their overhead. They didn’t control expenses properly and permitted leaks to creep in until it sunk the ship, and I don’t know of anything, of any function of your work that is more important for you to watch and watch monthly, daily, for that matter, than the control of the expenses of your business. The final force for change, we suggest, was an unanticipated recession. Following the post-war boom and the inflation that accompanied it, firms had accumulated significant inventories in anticipation of further economic expansion and the prospect of holding gains. The subsequent recession (1920–1921) had a tremendous impact upon US business17 and led to a general concern with the problem of inventories. Department stores were especially hit. Between May 1919 and April 1920, department store inventories increased by 50% (Kuznets, 1938, p. 40; Samuelson & Hagen, 1943, p. 33). Between May 1920 and June 1921, prices decreased by 44% (Friedman & Schartz, 1963, pp. 225–228). Taken together, the dispersed developments of the 1900–1920 period and the events that occurred in 1920, could be characterized as an assemblage of institutional discursive terrains out of which emerged inter alia a significant discourse on the retail inventory method. Other discourses may also have emerged. However, the discourse on 17 For example, the advent of divisional structures and segmentation at Sloane’s General Motors has been attributed to this problem of inventory (Beniger, 1986, p. 309; Rothschild, 1973).

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retail inventory accounting, as we examine in the following section, proved particularly popular with store controllers. Indeed, it is possible that the method thrived primarily due to the controllers’ intervention and that the events discussed above merely provided a justification for their ardent support. What appears evident, however, is the central role which the method played in the subsequent shifting power relations between store buyer and controller.

The retail inventory method and the control of the buyer Ernest Katz of Macys presented the first paper at the first meeting of the NRDGA Controllers Congress. It was devoted to retail inventory accounting. Echoing Ernst (1913), his address emphasized the simplicity and ease with which inventory could be valued under the method and the benefits of using staff with no knowledge of the merchandise to compile the stock-list (Katz, 1920, p. 7). However, the remarks of one delegate after the presentation were an important indicator of the controller’s contempt for buyers and the role of the retail method in circumventing local knowledge: Each of you in the old days, and probably some of you do it still, go through your ready-to-wear stock and pick out the items, for example, that cost you ten, to sell for fifteen dollars, and you decide that now they are only worth twelve. It is now selling at fifteen. You immediately put it down on your books at eight or seven fifty, and when you have five or ten or fifteen buyers, each buyer will do that with his stock in accordance with the state of his liver, or the way he happens to come down on that particular morning, and one buyer is essentially very conservative, and another always values goods accurately. Still another may be always optimistic, and always thinks goods are worth one hundred cents on the dollar. In the end, you have an inventory that doesn’t represent any accuracy basis; it represents the composite thought of as many

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buyers as are in your establishment. When you go to the retail method and have percentages based entirely on facts, when you reduce your inventory, you get a valuation, not dependent on the idiosyncrasies of the individual buyer. (Cited in Katz, 1920, p. 10)

because no man, or at least very few men, have enough stamina in them when things are not going right and they are up against it, that they will not change their prices.’ I have known, unfortunately, too many such incidents. (Katz, 1923, p. 23)

By the 1921 NRDGA meeting, a significant shift in emphasis had taken place. The prominence of the retail method had shifted from its valuation properties to the importance of adequate supervision of buyer markdowns (Ruffner, 1921, p. 66). The controllers’ antipathy towards buyers could be articulated as an outcome of the problem of inventories arising from the 1920–1921 recession— markdowns had become synonymous with poor decision making by buyers (Eggleston, 1931, p. 229) rather than a symptom of the general decline in prices during the period. This new emphasis on curbing the buyer and his inherent dishonesty was a feature of a speech by Ernest Katz to the 1923 Controllers Congress:

Another delegate at the 1923 Congress reported ‘‘It took us seven or eight years to try to get the inventory system installed. The buyers were all fighting for cost figures’’ (Kaskell, 1923, p. 126). The deployment of the retail inventory method as a means of curbing the buyer became a recurrent theme throughout the decade. Rather than a method concerned with convenient stocktaking (Ernst, 1913), or the possibility of producing departmental operating statements on a more regular basis (Freudenthal, 1925, p. 85; Greene, 1924, p. 99), there was now a concern with performance assessments of individual buyers.

I realise that even among controllers there are, as a matter of controversy, differences of opinion regarding methods of marking merchandise, and mark-down controls. But I, for one, cannot see that if we have the interest of our stores at heart we can let the buyers put over—if buyers mark merchandise, if buyers make mark-downs, if buyers make mark-ups, if buyers can and do change prices as it suits them. There is no finer method of covering up shortcomings of a buyer than by giving him free rein, and allowing him to do what he pleases. Any buyer who has ever been in a store that is well controlled by controller and management in reference to the marking of its merchandise and to the control of its markdown cancellations, and in its price reductions–any buyer coming into another store will feel that he is lost, because he will say, as one man who left our establishment said to me, ’I went to Blank’—I won’t mention the name of the store—it is one of the biggest stores, and he said, ’I want to tell you it is a cinch, it is hard to be honest in an organization where you can change your own prices,

Under the retail system of inventory, it is a matter of the simplest arithmetic to know the cost of sales for any department at any time period and the merchandise profit on operations for that period ... The retail system of inventory shows where the buyer is, in the operation of his department and reveals his weak merchandising positions. (Godley & Kaylin, 1930, pp. 392–393) Despite this apparently overt concern with control of the buyers’ activities, a discourse of technique quickly emerged to eliminate these social dimensions. For example, Freudenthal (1925, p. 85) claims that stocktaking under the retail method is ‘‘not a matter of discretion. It is as automatic and can be as accurate as a sum in mathematics’’. Similarly, Brisco and Wingate (1925, p. 117) express a concern with the accuracy of the office figures: There is no doubt that some buyers in large stores do mark the invoice one thing and the goods another. The office figures, then, are no longer a correct mirror of the truth. Where the retail method of inventory is used, especially, it is evident that the frequent practice

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of mismarking merchandise would make the office figures meaningless. Therefore, in the name of the accuracy of the office figures, it was necessary to create a separate department (the checking and marking department) responsible for putting price tickets on inventory. All price revisions (mark-ups and mark-downs) were implemented by this separate marking unit (Godley & Kaylin, 1930, p. 134). It was essential that the markdown department was a completely independent unit and not under the supervision of the buyer (Friedman, 1929, p. 111). Eggleston’s (1931, p. 231) manual on Department Store Accounting provides an insight into the rigors of the new system of control. No longer were markdowns made in secret or by whim. Requests were now made to outside parties, authorization sought, rationales provided and forms completed. Every markdown was registered, documented and classified by the accounting department (Figs. 1 and 2). The buyers could be in no doubt that their pricing actions were subject to total observation. The Foucauldian concept of disciplinary power provides some useful insights here (Foucault,

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1979). The retail inventory method provided management with a tool to unravel the mysteries formerly associated with the buying function. A vigorous and systematic reporting of price changes revealed the monetary consequences of buyers’ purchasing decisions. Such visibility yielded an intimate knowledge of that most valuable of retail assets, inventory. Applying Foucault’s principle of ‘‘elementary location or partitioning’’ (Foucault, 1979, p. 143), each buyer became instantly associated with key indicators within the departmental review of operating performance. Norms (Foucault, 1979, p. 183) of buyer behaviour could then be established around the spread of documented gross profitability and price revisions. In consequence, management now had timely and accurate data to justify a punishment or reward of the departmental buyer as appropriate. The method essentially operated as a disciplinary apparatus ‘‘in which the techniques that made it possible to see induce effects of power, an in which, conversely, the means of coercion make those on whom they are applied clearly visible’’ (Foucault, 1979, p. 171). This power of observation allowed management a degree control, never previously enjoyed,

Fig. 1. Example of a markdown order form. Source: Reproduced from Eggleston (1931, p. 230).

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It became clear that the controller could provide management with a regular and accurate knowledge of store operations. His rising status from lowly bookkeeper to an active participant in future organizational control is consistently documented (Brown, 1922; Godley & Kaylin, 1930; Mazur, 1927). As Hower (1943, p. 372) remarks on the changing scope of the controller function in Macys New York: Before 1900 bookkeeping had been largely considered a necessary but nonproductive operation—the maintenance of a record of past events. By 1919 it had become accounting and control, a device for analyzing current operations and planning the future—an important adjunct of top management in making the business produce satisfactory results. However, as the next section reveals, the controller was not the only rising star of what had become a consorted assault on the departmental buyer.

Merchandising and the further demotion of the buyer Fig. 2. Example of a register of mark downs. Source: Reproduced from Eggleston (1931, p. 232).

over the prima donna of departmental trading, the buyer. Alongside the taming of the buyer came the rise to prominence of the controller. The controller had a new role: The real Controller should be the motive power to start things going in his store. The Controller who allows himself to be merely a recorder of the dead past is not doing justice either to himself or to his firm. The progressive Controller should look to the future and make use of the enormous volume of data in his possession to forecast as best he can the probabilities for the future. (Katz, 1921, pp. 40–41)

While the failure to anticipate the recession permitted managers to question the expertise of buyers, the retail inventory method was one means of providing the objective evidence that buyers made mistakes. This fallibility was then extended to the nature of the purchasing function. Two examples of this are particularly insightful. First, Dibrell (1925, pp. 63–64) narrates an experience within his own store which illustrated the efficiency of the controller’s statistical facts over buyer guesswork. The accounting records furnished by the Controller’s Office are the mirrors which accurately reflect the efficiency or inefficiency of our work ... Reports conveying the facts about costs, mark-downs and sales in merchandise families will aid the Buyer tremendously in buying the right thing at the

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right time, as well as help in quickly reducing lumps as they become apparent. To illustrate this, I would like to quote the experience we have had in some of our departments: Some time ago in our Rug Department, our Rug Buyer stated the largest part of our volume was done in 912 size rugs. This was some time after we had installed our Monthly Classified Sales and Stock Report, and upon study of this we found the greater part of our volume was, as a matter of fact, in small 35 throw size rugs. Whereas formerly most of our business was done in 912 size rugs, conditions had changed, due to the increasing number of small apartments creating a demand for small size rugs. What I wish to point out in this particular case is that the Buyer of Rugs was one of the most successful we had ever had and his opinion was probably as good as anyone’s, yet the actual facts were directly opposite to his opinion—which only goes to prove that often the best and most skilful of us, if we simply rely on observations alone, may make mistakes which the study of facts prevents us from committing. . .The foregoing instances are a few examples showing the superior value of working from adequate figures furnished by a good Controller’s Office in practical merchandising over the old method of relying too much on memory. They bring out most clearly the outstanding importance of this particular office and the wisdom of buying by new thoughts and correct information rather than old habits. Second, Guernsey (1929, p. 22) argues: For further substantiation, check the records of any dress house in New York and you will find that when a season is over 500 buyers from 500 stores have painstakingly and mysteriously selected only the particular garments which in their expert opinion will go in their particular cities, the same identical numbers will have been shipped to practically every city in the country. Also that the very numbers which one buyer turns down as not sui-

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table for her trade will have been bought and sold successfully by the store next door. The mystery of all fashion merchandise is pure bunk and is one of the things which must be brought out into the light and faced. Just as the buyer’s autonomy over inventory had been curbed by the retail inventory method, his freedom over the purchasing function was to come under similar attack from a new managerial cadre: the Merchandise Manager. The introduction of merchandising followed the process established by the retail inventory method. In 1924, the NRDGA created a Merchandise Managers Division. The Merchandise Managers were another emergent professional group that successfully exploited the weakened credibility of buyers. Essentially, the Merchandise Men sought to coordinate and limit the activities of buyers with new claims to knowledge: Only by substituting facts for guesswork, by applying the accepted principles of merchandising on the basis of actual facts is it possible to increase the chances for net profit. (NRDGA, 1931, pp.132–3) One popular approach to a scientific merchandising plan was the implementation of the Model Stock Plan. Filene (1923a, 1923b, 1923c; 1930) was a credible advocate for the plan as it had permitted his store (Filenes Boston) to avoid the worst ravages of the 1920–1921 recession. Aside from the application of a scientific approach to purchasing, such as the model stock plan, the merchandise managers were concerned with the creation of a coherent store image and a unified vision of fashion and service. Rather than allowing purchases by individual departments, there was now an emphasis upon fashion and an ensemble of clothing and accessories. This potentially contributed to a further elimination of the plenipotentiary powers of the buyers and their subordination to the Merchandise Manager (Lancaster, 1995, p.73). This phenomenon is illustrated in Fig. 3. These trends facilitated the ‘‘destruction of the unity of buying and selling’’ (Mazur, 1927, p. 66). The buyer was nudged towards the inferior

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The buyer has been compelled to make his purchases with scientific analyses of customer wants and to look on his stock as so much actual investment that must be made to pay. Guesswork has been taken out of operations and exact knowledge substituted. There are specialists today in every division of the progressive department store—stylists, research operatives, comparison workers, budget advisors, economists, psychologists, and even psychiatrists—whose duties are to furnish the management and the merchandising staff with the facts it needs to do a successful job. At the first Special Program for Alumni at Harvard Business School, McNair (1931, pp. 30–31) describes the surge of interest in scientific methods in the distributive trades: Fig. 3. The buyer. Source: Journal of Retailing (October 1928, p. 13).

position of selling (Twyman, 1954) and suffered the irony of no longer being concerned with buying (recent economic changes in the US, 1929; Neal, 1932).

Department store management in 1930 A comparison of Nystrom (1913) and Nystrom (1936) is insightful. The first text is unrationalized and concerned with the spontaneity of the retailing art. Chapter titles include How Instincts aid in Selling and Arousing Interest, Desire and Determination. Buyers are lauded for their ‘‘rules of thumb’’ and ‘‘wisdom’’ and the author confesses that ‘‘buyers have not reduced their estimates of demand to a scientific basis in most cases’’ (Nystrom, 1913, p. 233). The later text is far more concerned with a calculative and scientific approach to the problems of retailing. It would appear that by 1930 or so a remarkable change had occurred in the internal organization of department stores. Godley and Kaylin (1930, p. 6) report:

There has taken place during the last ten years a remarkable growth of might be crudely termed scientific methods in distributive business. One cannot examine the voluminous literature of retail associations, controllers’ congresses, merchandise managers’ groups, and what not, without encountering repeatedly such terms as ’merchandise budget,’ ’unit control,’ ’open-to-buy,’ ’retail inventory method,’ ’quota-bonus plan,’ ’expense classification,’ ’expense budget,’ and so on. All these are evidence of the general effort to get away from rule-of-thumb, expediency, hunch, guess work, and to develop some sounder methods of approach to the solution of business problems. . .the recognition that the old-time rule-of-thumb methods no longer are adequate to meet the problems of an increasingly complex distributive system. Similarly, the Recent economic changes in the US (1929, pp. 539–540) remarked ‘‘The past ten years have witnessed a definite trend toward greater funtionalization in department store organization’’ that has justified ‘‘giving greater power to such men as the comptroller. . .[and]. . .to decrease the variety of responsibilities hitherto assigned to the buyer’’. A director of Harrods (London) observed, the ‘‘chief significance [of

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these new methods] lies in the fact that they resulted in the gradual removal of the Buyer from the position of dominance he had acquired during the previous forty or fifty years’’.18 In a single decade the dispersed practices of the retail inventory method, merchandising, business schools and scientific management had been forged into a unitary scientific approach to the management of the department store. This new technology of management had succeeded in excluding the determining social feature of its eventual form, the buyer.

Conclusions The inter-relations between the world of consumption and accounting has been generally ignored. In this paper, we have sought to explore the workings of an accounting technique in a bastion of consumer culture: the department store. In so doing, we seek to augment existing analyses of accounting and the social. Our approach acknowledges a broader conception of the individual beyond that of producer. A concern of this paper is with the two faces of generic man (producer and consumer). At best we have demonstrated a potential for further examination of these two faces, and scope for examining the distributive sector as a series of institutions where both faces are visible. It is then that the analytical benefits of this approach become apparent. It results in the relegation of productive efficiency to a marginal rather than a central role. Productive activity ceases to be autonomous. A seamless web emerges between centres of production, distribution and consumption. Perturbations in one sphere cause ripples in the other spheres. The analysis highlights the importance of a holistic approach to an understanding of accounting technique rather than an emphasis upon particular elements of the world of work (technologies of production or techniques of managing the work 18 Chitham, F. 1938. London department stores: Their organization and the effect of competition on their present position and future prospects. Private report by Harrods director— Harrods Archive ref. HS9.1.17.

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force). To view the social as the realm of production alone is to underestimate the nature of the modern achievement. By incorporating the individual as a construction which has two faces, that of consumer and producer, and viewing the department store as one institutional site where both faces are visible one can then begin to appreciate a new potential for analysis. Our approach involves an examination of department store accounting as the department store represented a key locus in the elaboration of consumer culture during the period 1850–1930. We focus upon a single accounting technique, the retail inventory method and we trace the circumstances surrounding its widespread adoption. The method’s obvious advantage to the mass retailer over the cost method was that it enabled the easy estimation of closing inventory without the need for a time consuming count of a vast inventory holding. This in turn facilitated a regular departmental operating review. However, we find that an alternative aspect to the method’s implementation is a more convincing rationale for its widespread adoption. In revealing a buyer’s markdowns the new method of inventory valuation provided management with a power of observation not previously experienced. A review of departmental markdowns made visible the consequences of a buyer’s purchasing decisions; decisions previously shrouded in mystery. The retail inventory method therefore, represented the first assault on the leading actors in department stores, buyers. Subsequent assaults resulted in the functionalization of department store management, and the rise of the merchandise manager and the accountant. These new prominent roles were based upon claims to scientific expertise and the deployment of techniques, including the retail inventory method. In addition to furthering our understanding of the disciplinary power of accounting technique, our analysis may also be suggestive of a broader role for accounting’s interaction with the social. In terms of an elaboration of consumer culture, the developments outlined in this paper were potentially important for two reasons, self-selection and the ensemble. Self-selection involves the customer selecting and comparing goods without the intervention of a sales assistant. The retail inventory method facilitated

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self-selection in department stores as it permitted a calculus of the costs of shoplifting (shrinkage). The use of the retail method also eliminated the need for a record of the cost of individual items to appear with the item, inherent with the cost method of inventory valuation. As inventory was counted and valued at retail price, under the retail method, only that one price was shown on the price ticket. This avoided unnecessary price confusion on the part of the customer when engaging in self selection. The ensemble is also an important phenomenon. The creation of a coherent store image moves the store beyond the realm of provider of economic goods to an active participant in molding consumer wants. A unified approach to the construction of a package of complimentary fashions and accessories (an ensemble) could only be achieved by curtailing the autonomy of the department buyers. The retail inventory method was an important tool amongst an array of calculative devices which displaced the traditional power of the buyer into the hands of the controller and merchandise manager. By eliminating the idiosyncratic tastes of individual department buyers, it was possible to create relations between items in different departments. By offering objects in the context of other objects, an opportunity is created for the consumer’s relation to the object to become a relation to a chain of signifiers or a network of objects Baudrillard (1970, pp. 26–27).

Acknowledgements The paper has greatly benefited from comments and suggestions of two anonymous reviewers and participants at the Interdisciplinary Perspectives on Accounting Conference 2000. The financial assistance of the Irish Accountancy Educational Trust, the Royal Irish Academy and the J. F. Kennedy Memorial Fund is gratefully acknowledged.

Appendix. Retail Price Inventory Method Example In its first month of operations, a store purchased 1000 sweaters at £10 per sweater. These

sweaters were marked up by 100% on cost (i.e. the selling price was £20 per sweater). By the second week of the month, some of the patterns appeared especially popular and this prompted the store to markup 200 sweaters by £3. Other patterns appeared to be moving very slowly and this gave rise to a markdown of 200 sweaters by £4 per sweater. Sales for the month were £16,000. A computation of ending inventory at selling prices is given below:

Beginning Inventory Purchases Add: Mark-ups Less: Mark-downs Sub-Total Less: Sales Ending Inventory at Retail

At Cost 0 10,000

10,000

At Retail 0 20,000 600 (800) 19,800 (16,000) 3800

Ending inventory at cost is established by calculating a mark-up percentage to adjust ending inventory at retail. In the earlier example, one variant involves calculating the average mark up on cost as 98% [(19,800/10,000)-1] resulting in an ending inventory at cost of £1919 (3800/1.98).

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