This situation, if allowed to go unchecked, will result in thousands of independents throughout the country going out of business. Members of Independent Shoemen, are not afraid of good clean competition; we welcome it—it makes for a healthy business climate in all communities, and the country prospers by it. We are afraid that our good name and integrity, which we have worked hard to build through the years, is being badly damaged through so-called bait advertising, which is nothing more than a cheap gimmick to lure customers into their stores (with our brands) and then as a result sell them something else in place of what they originally advertised.

I have personally shopped these stores and can testify that many advertisements are causing independents, as well as the American public a great injustice. As chairman of the quality stabilization bill committee I do not intend to let this situation increase as the days roll into months and the months into years. I do not want to see many thousands of my fellow independents become victims of this unbusinesslike way of doing business.

America is a wonderful country, the best in the world. We have all helped make it the envy of the world by good, clean competition and free enterprise. Many of us independents wore Uncle Sam's uniform and helped preserve this wonderful system.

I urge all members of Congress to give their full support to this bill, the need is vital, the time is now. I ask each and every one of you to act now and legislate in favor of this bill on behalf of the countless thousands of independents from not only our organization, but all Americans who are earnestly trying to make an honest living in their own small communities throughout the country.

This is part of the American way of life, let's help keep it that way, and most of all let's preserve it, and with the help of God I know we will succeed.

STATEMENT BY EDWARD EWELL, PRESIDENT OF THE LAUNDRY AND CLEANERS ALLIED TRADES ASSOCIATION, NEWARK 2, N.J., APRIL 15, 1963

The quality stabilization bill has been carefully reviewed by a number of our leading members, and we wish to respectfully transmit the recommendation of our board of directors that it be favorably acted upon by the House Interstate and Foreign Commerce Committee. We do sincerely hope that the committee will favorably report it out of the committee as soon as possible for the early consideration of the House of Representatives.

Members of this national trade association composed of over 500 manufacturers and distributors represent the majority in the field of commercial laundry and drycleaning machinery, supplies, and affiliated lines in the United States.

It is the considered judgment of many that this fair-trade bill would help correct a number of unsound business practices which have sprung up around the country due to lack of legislative guidance in this direction.

We wish to thank the members of the committee in advance for careful consideration of this legislation which would be constructive in the long run in maintaining a healthy economy in the best interests of the public, business, and government.

STATEMENT OF MR. JOHN D. GRAY, PRESIDENT OF HART SCHAFFNER & MARX, CHICAGO, ILL.

The quality stabilization bill is urgently needed to protect consumers against the alarming spread of sharp and deceptive practices by unscrupulous retailers, and to strengthen the position of reputable retailers.

Manufacturers and most resellers of high-quality and respected brands of merchandise want the public to choose such brands for their dependable quality and value. As one of such manufacturers, we favor the objectives of the proposed quality stabilization bill and we hope your committee and the Congress will take prompt action on this bill to help protect quality brands and quality stores in which the public has confidence.

STATEMENT BY JOHN W. HUBBELL, SIMMONS CO., IN SUPPORT OF QUALITY

STABILIZATION BILL

My name is John W. Hubbell. I am vice president of Simmons Co., a national concern with regional manufacturing plants in the States of Georgia, New Jersey, Massachusetts, California, Indiana, Florida, Ohio, Texas, and Kansas.

By way of qualification may I say that I am a former chairman of the board of the Brand Names Foundation, and a lifetime director. I am a past president of the Sales Executives Club of New York and a current director, and I have served as a vice president of the International Sales Executives. Both in my daily tasks and in extracurricular activities I associate with other marketing men who are very concerned about the best interests of the consumer, the retailer, the wholesaler, and the manufacturer as we face the tremendous expansion of our distribution system. I share this deep concern. I'm concerned with the problems that face us in the marketing of all of Simmons' products. And I am particularly concerned with the future marketing of our well-known, trademarked Beautyrest mattresses.

I mention Beautyrest at the risk of appearing commercial because it is this trademark which involves our greatest research efforts, our most extensive advertising compaigns, our most consistent sales promotion program, our most thorough sales training, our most enthusiastic sales effort, that is by far the greatest target of those who wish to prey on our good name. Some merchants who have contributed nothing to the development and the establishment of Beautyrest go all out in their attempt to use unethical practices that tear down this honored trademark.

The quality stabilization bill, when enacted, will

(1) Protect the consumer from deceptive retail selling practices.

(2) Protect the ethical retailer from sharp pricing practices, practices not in the public interest.

(3) Protect the manufacturer from individual retailers who do not hesitate to destroy the manufacturer's reputation to further the reputation of the retailer.

The only losers under quality stabilization will be the predatory price cutters and dishonest merchants who will be deprived of the opportunity of abusing and tearing down famous names.

No retailer cuts a price as an act of kindness or as a matter of generosity. Retailers cut prices to attract trade. Some stores offer to sell an article below the going price to create an impression in the consumer's mind that this is a bargain price. And beyond that there is the hope that the consumer will believe that all of their prices are lower. The initial price cutter of an item enjoys a temporary advantage by leading the public to believe that he has lower prices generally--with the special price-cut item as an example.

Other stores are put in an unfavorable position unless they meet the price, which they are obliged to do to avoid the embarrassment of seeming to be overpriced on the famous article, and presumably on all other articles. Meeting the price establishes a new going price which will subsequently be cut for the same reason that the original price was cut. This process will continue to a point where the merchandise is so unprofitable that the advantages of extra traffic do not offset the losses incurred.

The retail price is now lowered to a point where many reputable dealers will be unwilling to sell the merchandise. This in itself can be undesirable for those consumers who have used the product, are satisfied with it, and would like to be able to buy it again.

This chain reaction is particularly important with retail stores that sell items regarded as major purchases. These are items infrequently bought that represent an investment, such as furniture, appliances, and other "big ticket" merchandise.

In these cases, the salesperson in the store is an important factor, because the consumer looks to salespeople for honest and objective information about the merchandise that they are buying, particularly in reputable retail stores. This salesperson will dissuade the customer from buying the cut price item because the store cannot afford to sell it at a loss. In discouraging the purchase, the salesperson will make unfavorable and derogatory remarks directly, or indirectly about the cut price item. Simultaneously, the salesperson will make extravagant statements about a substitute product although the substitute product was not considered as good before the competitive loss leader item became

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unprofitable. This sales misrepresentation is a distinct disservice to the consuming public who expect and are entitled to fairplay and honest representation of the true values of the merchandise. In the long run, and short run, the consuming public cannot benefit from any system which breeds sales misrepresentation. Even an honorable store would be compelled to do everything possible to discourage the sale of a famous product which they are forced to sell at a loss.

This chain of events is not theoretical.

A case in point is a large discount house in New York which advertised the fact that it had Simmons Beautyrest mattresses at cut prices, despite the fact that it was not an authorized sales outlet for the Simmons Co. Many consumers told us that our merchandise was maligned in this discount house. This was no surprise, because the store found it necessary to degrade our merchandise to avoid selling it. (It was difficult for the store to get a supply on one hand, and they had to sell it at a loss on the other hand.)

One of our employees and his wife went to this discount house as shoppers and were exposed to a tirade of untruths about the Beautyrest mattress. This discount house advertised the Beautyrest because it wanted to attract trade. It felt that it would be able to cope with the situation by sales manipulation (polite word for misrepresentation). The store switched customers to an inferior prod uct which it could buy at a cheaper wholesale price. A fictitious price label on the cheaper mattress led the public to think that the mattress was worth $20 more than its real value. This inflated price label was a device to aid the discounter.

Price cutting normally resuls in a cheapening of merchandise. In the first stage, there is a drive by retailers for a lower wholesale price to offset the reduced gross margin of profit. The lower wholesale price leads to a general cheapening by the manufacturer in the quality to meet the lower wholesale price. Many manufacturers have substantial appropriations for research and development of new products. These manufacturers are disinclined to invest money in research if the products which are developed are going to be torpedoed by price cutters at the very outset. Our national economy is strengthened by the injection of new products and it is weakened when predatory price cutting obstructs the natural development of markets for these new products. Honorable retailers are entitled to protection from merchants who desire to exploit the maker's brand and reputation for the purpose of leading their customers into thinking that they sell all merchandise at lower prices. If a manufacturer establishes a quality stabilized price, and this is too high, he will be at a competitive disadvantage with other manufacturers who established a lower price for their goods. In the final analysis, there is no reward to overpricing merchandise.

This statement, up to this point, has been focused on the consuming public and retailers and the desirability of protecting these two groups from predatory price cutters and their unfair tactics of "bait and swiching" and of misrepresentation.

The manufacturer is also entitled to protection. He owns the trademark and the goodwill that he has built into it down through the years. His ability to employ labor and to make capital investments is challenged when irresponsible forces in the marketplace tear down his good name and endanger the sale of the end products. His property rights in his brand name must be protected so that his long-range contribution in the fields of research, quality control, supervision, and market development can continue.

A system which weakens the markets for the manufacturer is going to have unfavorable effects on the national economy.

When a manufacturer builds a good product, advertises it, distributes it. establishes a reputation for it, services it, if necessary, his position should not be jeopardized by some opportunistic retailers who have no interest in the manufacturer's goodwill and are perfectly willing to abuse it for the purposes of their own gain.

A manufacturer has property rights based on his product research, quality control, and distribution efforts. Morally and legally, he should be protected from the wiles of predatory price cutters whose sole interest is the development of their own business.

The widely read columnist, Ray Reed, of Home Furnishings Daily, a Fairchild_publication, summed it up so well in his column of February 14, 1962. Ray Reed said:

"The quality stabilization bill aims to protect the manufacturer from those cutthroats who would despoil his name and brand acceptance; to protect the independent, service minded retailer from unethical competition which 'cons' instead of considers the consumer and his best, personal interests.

"The quality stabilization bill enables the manufacturer to keep his hard-won product birthright, not give it away on every resale order he ships. The bill provides that a manufacturer who has built a brand name retains a property right in that brand name, can specify the conditions under which the brand name may be used, can take legal action and revoke the right to use the brand name if those conditions are violated.

"Let's quit shadowboxing on the discount facts of life. Which brand name lines are the discounters most hellbent to get, to desoil, to hang on their barn door of cut price? Isn't it those lines whose birthright and market right have been most scrupulously protected through clean, strictly administered distribution, by sales executives who have had the guts, fight, and foresight, to protect their highly desirable franchises which took them years to build?

"We don't have to name names. If you've been around in the home goods business for a few years, you should know by now, should be able to separate the determined men, who have made their franchise mean something, from the weak-willed boys who swap it for a mess of pottage.

"The quality stabilization bill is not slanted to put the discounter out of business, but is honestly aimed to keep the independent, service retailer in business-keep our national distributive economy in healthy, balanced condition. It encourages rather than discourages free enterprise. But it does penalize the ruthless wrecking of established brand names, established brand qualities and consumer confidence in those two buying standards.

"It will affect discounters or other retailers only to the extent that they engage in deceptive and unfair practices involving those products which manufacturers elect to place under quality stabilization. It provides the manufacturer with the legal and equitable right to protect his product, trademark, birthright and market acceptance, which have taken him years of integrity, determination, retailer/consumer loyality to establish."

Enactment of the quality stabilization bill and its broadened protection against deceptive pricing practices, against "baiting and switching" and against misrepresenation will be a pronounced positive effect upon our economy.

STATEMENT OF PHILIP CORTNEY, JAMES LLOYD FRI, AND RICHARD N. SEARS IN SUPPORT OF H.R. 3669

The volume and nature of testimony presented on the quality stabilization bill by both opponents and proponents gives convincing evidence that there is deep and widespread concern regarding the seriousness of problems in important areas of the distribution system. This testimony also clearly indicated substantial disagreement on the type of legislation needed to improve the competitive business environment and, at the same time, protest the fundamental rights of the consumer.

Our opinion, based on marketing experience and objective study of relevant data, is that, under the quality stabilization bill, competition would not be lessened and prices to the consumer would not rise.

These are the two basic issues raised by this bill and the ones most intensively debated. They relate primarily to the competitive environment of the market.

In addition to the voluminous testimony on both issues, members of the committee now have available in the marketplace concrete examples of two widely divergent forms of marketing that give not theoretical but tangible and realistic aid in answering these two important questions.

One is the orderly form of controlled brand name marketing which has been used for many years by large distributors. The other is discount merchandising, in which price comparisons with well-known trademarked products are used primarily for promotional and traffic building purposes.

Since this bill is intended to give manufacturers of trademarked products essentially the same rights and protection that have been enjoyed and effectively utilized by large distributors, we will discuss first what actually happens under this orderly form of merchandising.

Large distributors such as chainstores, mail order houses, and cooperative buying organizations are now selling under their own house names more than one-third of all trademarked goods sold in America. Under this system, commonly referred to as controlled house brands, the distributor fully controls the price and the merchandising policy from the manufacturer to the retail customer. Under this bill, the consumer would receive essentially the same benefit and protection on nationally trademarked goods. There is intensive competition with house brands and with other nationally branded products, and this competition would most certainly control the consumer price as it does today.

Admittedly, one of the major purposes of this act is to decrease intrabrand competition at the retail level-the strictly "price war" form of selling between dealers in which products bearing the same identity are offered on a price basis only, as in the "discount" form of merchandising.

In our opinion, the discount form of merchandising, in total, has not contributed to improved quality of product, to the convenience of customers in shopping, or to lowering the cost of the retailing in relation to services rendered. Conversely, because of its predatory nature, it has increased the ratio of lowquality products and, more importantly, it has caused manufacturers to decrease their investments in long-range programs of research and informational advertising.

In brief, it can be demonsitrated not only by logic, but by examples drawn from innumerable experiences in actual merchandising that for the long range the consumer gets more real value for her money when the manufacturer and retailer are encouraged to compete in building up to a quality, rather than down to a price. In the controlled brand form of merchandising, the incentive is to build value into the product.

This is the basic concept which motivates and governs policy in all effective brand name production and distrbiution. Under such a system of creative merchandising, there is effective competition at all levels of trade. The consumer thus receives the full benefits of unhampered competition to build real value into the product.

There is no mystery in regard to the technique of discount selling. In order to stay in business, this type of store must realize a minimum gross margin on its total sales just the same as any other retailer. Thus, for every dollar he sells below his required percentage markup, he must sell an equal volume above this markup. In brief, the formula for operating under a discounting policy is simply to surround every deeply discounted item (loss leader) with three or four profit boosters.

Most estimates of huge savings to the consumer in discount stores are based on the faulty premise that the differences between suggested price of branded products and the discounters' loss-leading price can be totaled and projected on a nationwide basis as the increased price the consumers would have to pay if the quality stabilization bill were passed. One witness estimated that this increase might be as much as $14 billion. In the opinion of responsible and widely experienced marketing men, this type of contention and estimate of saving to the consumer is either based on a faulty premise or is a deliberate hoax.

CONCLUSIONS

One of the most persistent contentions of those opposing this bill is that there would be no free and open competition if prices were stabilized at the retail level. Certainly this contention is clearly disproved by what actually happens under the controlled brand form of selling. Here, there is competition between retailers of the most rugged type, and the same competitive forces would be in action on national brands under the provision of this bill.

The controlled brand form of marketing has satisfactorily demonstrated that competition has not decreased; that there has been no increase in prices to the consumer, and that this type of market stabilization is not violative of law.

It is strongly urged that what is actually happening in the markets be carefully weighed against theoretical arguments and contentions so that what might be outmoded concepts will not prevent the rapidly changing distributive system from freely adjusting itself to present-day consumer needs.

Philip Cortney, president of the Coty Co. and a student of economics, studied engineering and economics at the University of Nancy, France, where he graduated in 1916. He also studied political sciences and international law for 2 years at Columbia University, preparing for a Ph. D. Mr. Cortney has an hon