Broader & Easier

Circulating uninvited through Manhattan business offices last week were pleasant, well-groomed young women representing James McCreery & Co., big old TIME, fame 21, 1937 Manhattan department store. Among other young women on moderate salaries the McCreery solicitors were seeking applications for "membership" in McCreery's "Junior Club." Stripped of merchandising hocuspocus, McCreery's "Junior Club" was merely a drive for new charge accounts. The application blanks requested the usual vital statistics, the applicant's name was turned over to a credit agency for the usual check.

In some offices, on the theory that it was better for the help to have department store credit than to be burdened with various installment plans, the managements cooperated to the extent of allowing McCreery representatives to address employes in groups. Most applicants are in the $25-to-$50-per-week salary bracket, and their charge accounts are strictly limited, generally to an amount equal to one week's salary.

What McCreery's is doing is currently being done in one form or another by many & many a U. S. retailer--broadening and easing the base of installment selling. McCreery's demands regular payments on its accounts, usually in ten weekly installments. Another version is the "Letter of Credit," developed by Philadelphia's Lit Brothers and now widely emulated. The letter of credit, issued by the store's credit department, is given to the sales clerk, who notes on the letter the amount of each purchase, the customer being able to buy up to the limit of the letter but no more. Also widely used are "budget plans," varying in detail but all alike on one prime point--any type of merchandise can be bought on credit, paid for in installments.

Even Manhattan's vast R. H. (for cash) Macy & Co. has had to make concessions to the Installment Plan. No one is in debt to Macy's but some of Macy's customers are in debt to a Morris Plan Bank with a representative right in the store. A competitive measure, the Morris Plan tie-up is not advertised by Macy's, but if a customer hesitates for lack of ready cash, he is likely to be steered to the Morris Plan "fellow on the ninth floor."

Both in terms of the contract and the type of goods sold, however, installment selling in the 1930's differs from that of the 1920's. Reared to respectability by the automobile, the installment plan before Depression had spread to refrigerators, pianos, radios, oil burners and similar relatively durable goods. It had always been possible to buy a diamond solitaire, or a suite of overstuffed furniture or an encyclopedia on a deferred payment plan, but installment selling as a major factor in U. S. economics developed after the War. Even in those exciting days a substantial down payment was required and terms for the balance seldom exceeded twelve months. Moreover, the goods covered by the contract were supposed to have a considerable repossession value.

Under the press of Depression, the Installment Plan was asked to move a type of merchandise which could not be repossessed or was worn out before it was paid for. Among credit men this merchandise has the name "soft goods." Department store installments may cover anything from tires to toilet articles. Oddest use of installment selling is for services, ranging from steamship passage to permanent waves.

The terms of the installment contract have been steadily eased. Where they have not been eliminated entirely, down payments have been sharply reduced. To make it easier to go into debt, payments have been lowered by extending the term from ten or twelve months to two or three years, sometimes as much as five years. Installment credit has also been eased quantitatively. Sears, Roebuck and Montgomery Ward now sell mail-order merchandise for deferred payment in amounts as low as $10.

This easing and broadening of installment credit has already brought cries of alarm from the National Retail Dry Goods Association, will undoubtedly call for further alarm when the Association meets for a mid-year convention in Chicago this week. So far N.R.D.G.A. does not consider the actual volume of installment credit ominous. Installment sales last year probably ran about $4,500,000,000, may run as high as $5,000,000,000 this year-- still considerably under the 1929 total.

However, the relative gain in installment selling is astonishing. Last year the volume of deferred payment merchandise sold by department stores was nearly 35% ahead of 1935, while charge account sales were up only 12 1/2% (total department store sales were up 11.8%). Cried Joseph Anton Hagios, N.R.D.G.A.'s bright young German-born credit manager, fortnight ago: "With a growing segment of the buying public mortgaging its future income in installment obligations which will in all likelihood amount to close to 10% of our national income this year, it must be anticipated that the resulting installment debt is certain to have a retarding effect on the future purchasing power of these consumers.* The situation calls for a new orientation in credit thinking. . . ."

Whatever the psychological effect of the New Deal's borrowing and spending may have been, the New Deal's easy money policy has certainly given the Installment Plan a big push. With a plethora of bank credit available, the big finance companies have been able to cut carrying charges to more attractive levels. Many commercial banks are now interested in installment paper not only indirectly through loans to merchants and finance companies but also directly in their own installment departments.

Some economists believe that the next great credit expansion will blow out in installment paper, just as in the last boom it blew out in stock market loans. Pointing out the political problem involved in any future effort to restrict consumer credit, the New York Stock Exchange firm of Biggs, Mohrman & Co. lately observed in a thoughtful little pamphlet called The Next. Boom & Collapse:

"The vast number of people who will be buying on credit will, of course, not recognize the danger and they and the affected businessmen will resent interference. Many soothsayers will arise to lull any fears. It will be pointed out that an overexpansion of credit cannot be near at hand because brokers' loans are low and security credit under strict control. (This will be the same type of argument as the 1929 one that inventories were not over-extended and therefore no great danger existed.) It will be pointed out with great pride how well installment selling fared in the recent Depression. This will probably be one of the greatest arguments against restrictions. . . . All those interested in being prepared for the next collapse will do well to watch the expansion of installment credit."

*Released last week was the Department of Commerce's estimate of national income for 1936 --$63,800,000,000 as against $54,900,000,000-- in 1935, $39,500,000,000 in 1932.

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