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With its network of more than 800 full-line department stores and 1,500 off-the-mall stores, Sears is a leading retailer of apparel, home and automotive products, and related services for families throughout North America, and is the nation's number one credit card provider among retailers, serving more than 50 million households.
Sears, Roebuck and Co. is one of the few U.S. corporations whose name is virtually synonymous with an entire business segment: retail. Although Sears formerly sold insurance (Allstate), real estate (Coldwell Banker), and financial services (Dean Witter), the company sold or spun off its nonretail assets (including the famed Sears Tower) in the 1990s to concentrate on the original source of its fame. For decades, Sears prided itself on being the U.S. middle class's primary general goods merchant, the place where average people bought everything from clothes and auto supplies to sporting goods and refrigerators at an affordable price. This changed forever during Sears's overhaul, as hard goods were moved from mall-based stores to free-standing facilities, and the "softer side" of Sears was pumped up with better women's clothing, a new line of cosmetics and beauty products, and family denimwear under the Canyon River Blues label.
Humble Beginnings, Late 1800s to 1914
Sears bears the name of Richard W. Sears, who was working as a North Redwood, Minnesota, freight agent for the Minneapolis and St. Louis Railroad in 1886 when a local jeweler gave him an unwanted shipment of pocket watches rather than return them to the manufacturer. Sears sold them to agents down the line, who resold them at the retail level. He ordered and sold more watches, and within six months made $5,000. He quit the railroad and founded the R.W. Sears Watch Company in Minneapolis.
Sears's business expanded so quickly that he moved to Chicago in 1887 to be in a more convenient communications and shipping center. Soon customers began to bring in watches for repairs. Since he knew nothing about fixing them, Sears hired Alvah Roebuck, a watch repairman from Indiana, in 1887. A shrewd and aggressive salesman--a colleague once said of him, "He could probably sell a breath of air"--Sears undersold his competition by buying up discontinued lines from manufacturers and passing on the discounts to customers. At various times from 1888 to 1891, thinking himself bored with the business, he sold out to Roebuck, but came back each time.
In 1888 Sears published the first of its famous mail-order catalogues. It was 80 pages long and advertised watches and jewelry. Thanks to Richard Sears's restless search for new merchandise, within two years the catalogue had grown to 322 pages, selling clothes, jewelry, and such durable goods as sewing machines, bicycles, and even keyboard instruments. In 1894 the catalogue cover proclaimed that Sears was the "Cheapest Supply House on Earth."
The company changed its name to its current form in 1893, but Alvah Roebuck, uncomfortable with Sears's financial gambles, sold out his share two years later and remained with the firm as a repairman. Sears promptly found two new partners to replace him: local entrepreneur Aaron Nusbaum and Nusbaum's brother-in-law, haberdasher Julius Rosenwald. The company recapitalized at $150,000, with each man taking a one-third share. The company continued to prosper, so much so that when the cantankerous Nusbaum was forced to sell out in 1901 after clashing with Sears, his interest was worth $1.25 million.
There was little harmony between the two remaining partners, however. Sears believed in continuous expansion and risk-taking, while Rosenwald advocated consolidation and caution. He also objected to Sears's fondness for the hard sell in his catalogue and advertising copy. Had the Federal Trade Commission existed then, some of Sears's advertising practices probably would not have passed muster; it should be said in Sears's defense, however, that he invented the unconditional money-back guarantee and stood by it.
In 1905 construction began on a new headquarters plant on Chicago's west side to consolidate all of the company's functions. To help raise the necessary capital, Sears went public in 1906. Yet Wall Street was leery of the incautious Richard Sears, and he resigned as president in 1908 when it became clear that he was obstructing the company's way in the capital markets. He was appointed chairman, but his heart was never in that job. He retired in 1913, never having presided over a board meeting and died the following year at the age of 50. Near the end of his life, he summarized his career as a merchant: "Honesty is the best policy. I know, I've tried it both ways."
New Leadership and Growth, 1915 to the Late 1920s
Sears was now Julius Rosenwald's company to run, and he did it with such skill and success he became one of the richest men in the world. Sales rose sixfold between 1908 and 1920, and in 1911 Sears began offering credit to its customers at a time when banks wouldn't even consider lending to consumers. During this time the company grew to the point where its network of suppliers, combined with its own financing and distribution operations, constituted a full-fledged economic system in itself. Rosenwald's personal fortune allowed him to become a noted philanthropist--he gave away $63 million over the course of his life, much of it to Jewish causes and to improve the education of Southern blacks. As a result of the latter, he became a trustee of the Tuskegee Institute and a good friend of its founder, Booker T. Washington.
The depression of the early 1920s dealt Sears a sharp blow. In 1921 the company posted a loss of $16.4 million and omitted its quarterly dividend for the first time. Rosenwald responded by slashing executive salaries and even eliminated his own. He was also persuaded to donate 50,000 shares from his personal holdings to the company treasury to reduce outstanding capital stock and restore Sears's standing with its creditors. Sears thus weathered the crisis and benefited from the general prosperity that followed.
Rosenwald retired as president in 1924, retaining the chairmanship he had inherited from Richard Sears. He was succeeded by Charles Kittle, a former Illinois Central Railroad executive. In 1925 Sears began to take on its current shape when it opened its first retail outlet in Chicago. Seven more stores followed that year, and by the end of the decade 324 outlets were in operation. Retailing became so successful for Sears that by 1931, the stores topped the catalogue in sales. Sears's entry into retailing was the brainchild of vice president Robert Wood, who was an executive at archrival Montgomery Ward before Rosenwald hired him in 1924. Wood was always known as "the General" after serving as the U.S. Army's Quartermaster General during World War I. He had also been chief quartermaster for the construction of the Panama Canal. He much preferred business to the military, however, and his long career in merchandising earned him a reputation for genius.
For its first 40 years, Sears had targeted the U.S. farmer as its main customer, luring him with a combination of down-home earthiness and the tantalizing prospect of material luxury. Two postal service innovations--the rural free delivery system in 1891 and the parcel post rate in 1913--had helped target this consumer by making it affordable to reach remote locations by mail. Sears quickly became parcel post's largest single customer. Then Wood saw that automobiles would soon make urban centers more accessible to outlying areas, broadening the customer base for retail outlets. Thwarted by the conservative top management at Ward's, he wasted no time in implementing his vision at Sears. At first, the stores simply absorbed surpluses from the catalogue, but they soon began to offer a full range of goods. Sears also became the first chain to put free parking lots next to its stores. More than anyone else, it was Robert Wood who turned Sears into a leviathan.
Robert Wood Takes the Helm, 1929 to the Mid-1940s
Charles Kittle died suddenly in 1928, and Wood succeeded him. In 1929 Sears arranged a merger between two of its suppliers, Upton Machine and Nineteen Hundred Washer Company, to form Nineteen Hundred Corporation, which changed its name to Whirlpool in 1950. Somewhat against its intentions, Sears became increasingly involved in the affairs of its suppliers, many of which were small companies whose outputs were almost entirely geared to its needs. Another leadership change occurred in 1932, when Julius Rosenwald died at the age of 69 and was succeeded as chairman by his son Lessing.
The onset of the Great Depression hurt sales badly from 1930 to 1934, but thanks to cost-cutting measures, Sears posted a loss only in 1932. The company, in fact, diversified in 1931 when it created its Allstate subsidiary (named after the company's own Allstate tires) to sell auto insurance. Wood saw it as another way to capitalize on the growing popularity of the automobile. He installed as general manager insurance agent Carl Odell, an acquaintance who had suggested the idea as they commuted to work one day.
Lessing Rosenwald retired in 1939. Preoccupied with running his father's estate, he had never attended a board meeting. Wood succeeded him, and the power of chief executive passed from the presidency to the chairmanship. At about this time, however, Wood also became controversial because of his prominent support for America First, an isolationist organization that was the vehicle through which Charles Lindbergh made his notorious anti-Semitic speeches. Wood dropped his backing once the U.S. entered World War II and publicly supported the war effort, but remained a strong critic in private ever after.
As war loomed, Sears benefitted from increases in military spending and a consumer buying panic. In 1941 sales reached an all-time high of $975 million, a 30 percent increase over the previous year. Sales then leveled off, however, and raw material shortages made durable goods hard to come by. Even as late as 1946, it had to refund $250 million in orders that couldn't be filled. Military procurement helped make up for the shortfall. During the war, Sears supplied the Armed Forces with just about everything that didn't need gunpowder to make it work, and even a few things that did&mdash some factories belonging to Sears suppliers were converted into munitions plants by the War Department. Sears also began its first foreign ventures during and immediately after the war. In 1942 a store opened in Havana (later nationalized by the Castro government in 1960), and several opened in Mexico in 1947.
Wood's Postwar Expansion, Mid-1940s to 1960s
Once the war ended, Sears flourished with sales up to $1 billion in 1945, and doubled the next year. Anticipating an economic boom, Wood launched an aggressive expansion program. Concentrating on the Sun Belt states, he located many of the new stores in the path of suburban expansion before the areas built up. One store in California was established on a dairy farm and had cows roaming around the parking lot when it opened. Thanks to the General's prescience, Sears left its rivals in its wake. In 1946 it held a small sales advantage over Montgomery Ward, but in 1954 posted sales of $3 billion while Ward, which had been slower to anticipate postwar trends, mustered only $1 billion. Sears also became a symbol of U.S. prosperity. In the late 1940s the Associated Press's Moscow bureau chief reported that the most effective piece of foreign propaganda in the Soviet Union was the Sears catalogue.
At the same time, Sears became a widely hailed living experiment in corporate management. Wood had long wanted to decentralize the company, and its postwar success gave him the luxury to remold it in his image of "corporate democracy." The merchandising operations were carved up into five regional "territories," with each given a high degree of autonomy. Although buying operations remained centralized in theory, buyers were in fact allowed substantial independence. To its employees, many of them returned veterans (the company hired 50,000 people between 1946 and 1949 alone), Sears became, as author Donald Katz put it in The Big Store, "a place where country boys and infantrymen could speak their minds and still roam free."
During the early 1950s, Sears began to stock more clothing as durable goods sales slackened. The new postwar suburbanites who bought their first homes had already filled them with all the Sears appliances they needed. At about this time, the company strengthened its ties with its suppliers even further. Between 1951 and 1960, it acquired virtually complete control of Warwick Electronics, which made Sears televisions, radios, phonographs, and tape players. In 1961 it effected a merger between 15 of its soft goods suppliers and created the Kellwood Company.
Robert Wood retired in 1954 at the age of 75, but retained power over appointment of his successors until shortly before his death (in 1969). A series of caretaker chairmen followed him, all of whom were favorites of his. None of them served more than six years. The first was Theodore Houser, who retired in 1958 and was succeeded by Fowler McConnell. McConnell was followed in 1960 by Charles Kellstadt, who served for two years and after whom the Kellwood Company was named. Austin Cushman succeeded Kellstadt and served until 1967.
In 1963 the company posted sales of $5.1 billion, and an executive with the discount chain Korvette quipped that Sears was not only the No. 1 retailer in the U.S., but also numbers two, three, four, and five. Surveys showed that one in five U.S. consumers shopped at Sears regularly; its sales volume was greater than that of some entire industries. The company had become big enough to justify its own shopping center development subsidiary, Homart Development, which had been formed in 1960.
The Retailing Giant Begins to Falter, Late 1960s to 1980
In 1967 Sears posted $1 billion in monthly sales for the first time. Gordon Metcalf succeeded Cushman as chairman that year. In 1970 Allstate Enterprises, a subsidiary formed in 1960, acquired Metropolitan Savings and Loan Association, the first of several savings and loans it purchased over the next two decades. Also in 1970, construction began in Chicago on the 110-story Sears Tower. Completed in 1974, the Sears Tower was the tallest building in the world for many years and a symbol of corporate pride at a time when Sears's dominance of U.S. retailing was unchallenged.
That era was fading, however, even as its monument rose above the Chicago skyline. Arthur Wood (no relation to Robert Wood) succeeded Metcalf in 1973, and he was the last of the General's protégés to serve as chairman. Recession caused by skyrocketing oil prices led to a $170 million drop in profits in 1974 on only a modest sales increase, and financial performance remained flat through the middle of the decade. It became apparent to Wood and others that success had made Sears complacent and the company had long ignored some real problems.
Competition was getting serious. Specialty shops that filled the very malls anchored by Sears stores were cutting into market share, as were discounters like the resurgent S.S. Kresge Co., which changed its name to Kmart Corporation in 1977. Robert Wood's vaunted corporate democracy had turned into an ungainly feudal state. The buyers, given complete freedom, operated an internal economy of their own. Terrible inefficiencies and intramural rivalries resulted. Yet this system had become enshrined as the "Sears way," and those who had flocked to the General's banner believed in it. Decentralization peaked under Gordon Metcalf; he was known to consult with his territorial chiefs on problems, then leave the solution to them, saying, "You boys just work it out."
Hard times meant these shortcomings could no longer be obscured by success or justified in the name of tradition. Sears had to be shaken up, and it fell to Edward Telling, a company veteran who succeeded Arthur Wood in 1978, to do it. As head of the eastern territory, Telling had smashed local concentrations of power in the name of efficiency and proceeded to do the same for the parent company, centralizing all buying and merchandising operations. Territorial bureaucracies were slowly eliminated.
The General's ghost took a while to exorcise. Income declined from 1978 to 1980 and was subjected to intense scrutiny by Wall Street. Outsiders weren't always impressed by Telling, a downstate Illinois native whose homespun manner tended to conceal--often by choice--his erudition and keen intellect. It was through his guidance that Sears undertook a major corporate reorganization in 1981. This involved the formation of an overall holding company for its three business groups: the buying and merchandising operations, Allstate, and Seraco Group (which included Homart and other commercial real estate and residential real estate finance units).
Diversification and Its Consequences, 1981-91
Telling also saw the burgeoning financial services industry as one in which Sears should get involved. In 1981 Sears acquired the Los Angeles-based Coldwell Banker Company, the nation's largest real estate brokerage, and securities firm Dean Witter Reynolds Inc. Three years later, Sears launched Prodigy, an online service, with IBM and CBS. At the end of 1985, Telling retired and left a radically different company from the one he had inherited. He had reined in Sears's sprawling bureaucracy and taken the first steps toward complementing the company's store with a diversified financial services company having the size and capital to take on the industry's leaders.
Telling was succeeded by Edward Brennan, who, as chairman of the Merchandise Group under Telling, liked to preach that Sears was "one big store" and had labored tirelessly to centralize merchandising operations. In 1985 Sears unveiled its Discover Card, a combined credit and financial services card that also offered savings accounts through Greenwood Trust Company, a bank Allstate Enterprises had acquired earlier that year. By this time it was estimated that one in every 30 living Americans had worked for the company in some way at some time. In 1987, perhaps conceding that the era of the big general merchant was over, the Merchandise Group launched a new strategy to turn Sears into a collection of specialty superstores. The next year Sears acquired Eye Care Centers of America, Pinstripes Petites, and Western Auto Supply as its workforce reached an all-time high of 520,000. Yet the surge of adrenaline anticipated by Coldwell Banker and Dean Witter failed to materialize.
As Sears's stock price lagged, takeover rumors circulated and management pondered ways to increase shareholder value and stave off possible attempts. In late 1988 Sears announced plans to sell Coldwell Banker's commercial real estate unit, the Sears Tower, and a 10 percent buyback of its own stock. Further, Brennan, who had become company chairman in 1986, announced a new retail strategy of "everyday low prices" to reduce the number of sales and promotions. These new moves, however, provided unsatisfactory solutions. The Sears Tower went on the block during a commercial real estate glut in Chicago and no buyer was found. Lower prices squeezed profit margins because of the company's still-bloated cost structure. Merchandise Group profits fell from more than $700 million in 1986 to $257 million in 1990, as overall profits slid from over $1.3 billion to $892 million during the same period.
In 1990 the financial services divisions contributed the bulk of earnings, with Dean Witter posting its best year ever. By the first quarter of 1991, layoffs and other cost-cutting measures had begun to take hold and at year's end overall profit was back up to nearly $1.3 billion.
A Slimmer, Resurgent Sears, 1992 to Late 1990s
Whether or not Sears could sustain financial improvement through growing sales remained to be seen in the early 1990s. Brennan, representing the third generation of his family to work for Sears, was under considerable pressure from investors and the financial press to turn the company around and increase outsider representation on the board of directors. In 1992 the company slashed 47,000 jobs and suffered a shocking year-end loss of almost $2.3 billion on sales of $53.1 billion.
To stave further losses and concentrate on Sears's department store roots, Brennan began what became the largest restructuring ever: he sold the Eye Care Centers, the remainder of Coldwell Banker (residential real estate), and spun off Dean Witter and the Discover card services. The Automotive Group, under siege after a service fraud scandal and 20 percent sales dive, quit repairs to concentrate on selling tires and batteries, then filled vacant bays through a deal with Pennzoil's Jiffy Lube. Over in Merchandise, Brennan's new hand-picked successor, Arthur C. Martinez, moved quickly and decisively to put a shine to Sears's tarnished image. Catering to the company's female consumers (estimated at 70 percent of sales), Martinez launched a far-reaching advertising campaign on the "softer side of Sears," brought in more famous-name clothing items, and put the company's former mainstay--the 101-year-old catalogue--out to pasture (smaller, specialized catalogues were revived in 1994).
Year-end figures for 1993 supported the streamlining efforts and a $4 billion renovation program with lesser sales ($30.4 billion) but a return to profitability at $2.4 billion. By 1994 Sears's half-million-plus workforce had been whittled to less than 361,000, underperforming stores were closed, and others enlarged by a total of 3.4 million square feet to include national brand names other than its own eponymous label. The company was also finally relieved of the Sears Tower (put in trust for transfer in 2003) and freed of $850 million of debt. The next 12 months marked a year filled with more immense change--Brennan retired and was succeeded by Martinez, the Homart division was sold, and Allstate, the country's largest publicly-held property and casualty insurance carrier with over $20 billion in sales, was spun off.
In 1995 Martinez added further feminine touches to Sears with 152 Circle of Beauty cosmetics boutiques, a joint venture providing skin care, fragrance, bath, makeup, and stress-relieving products. To make way for the beauty lines, appliances, hardware and furniture were moved out of mall-based stores and into their own free-standing buildings (as Sears Hardware, Sears HomeLife and Sears franchise stores) to help serve the rural segment previously handled by the catalogue. Additionally, Sears followed rival J.C. Penney's lead and introduced its own line of denim sportswear under the Canyon River Blues label. Although Lee and Levi's jeans were big sellers at Sears, the private label ran about $10 less and debuted with a splashy media campaign in late 1995.
Sears's ongoing turnaround was a rousing success. Canyon River Blues rang up $100 million in just seven months, newly upgraded jewelry and shoe departments perked up 28 percent and 13 percent respectively, and Western Auto, the company's stalwart auto titan, spawned a line of aftermarket merchandise stores called Parts America, opening 30 stores in 1995 and 60 in 1996. When 1995 closed, Sears had bounced back with a vengeance: sales climbed a notch to $34.9 billion but net income was a sturdy $1.8 billion, with retail profits hitting $1 billion for the first time.
Another secret of Sears's success, its credit card, had contributed mightily to the company's revenue by signing up 6.4 million new cardholders in 1996 alone. With over 55 million cardholders nationwide, Sears's credit services pumped in mounds of profit (most recent figures were from 1993, with income of $706 million). Wall Street had also taken notice, as stock rose from $15 in 1992 to $51 in early 1996, about the time Martinez was named Financial World's 22nd annual CEO of the Year. But Martinez had yet to slow down, and plans for the future were already firmly in place: adding another 285 to 350 mall-based department stores during the remainder of 1996, while 500 Sears Hardware stores, 250 HomeLife stores, and 800 independently-owned Sears dealers were planned by the year 2000.
As Sears headed into the next century its founders would undoubtedly have been proud of the company bearing their names. Though it slipped into an identity crisis (was it a department store, a discounter, a specialty store, or a bizarre combination of one or more?) and corporate disarray, perhaps the outcry over Sears's decline was so sharp because the company had carved out a special niche in both U.S. retailing and life in general. Called the "ultimate Sears repairman" by Financial World, Martinez's efforts have been lauded worldwide--but most especially by U.S. consumers who hoped his efforts wouldn't be the last on behalf of this American icon.
Principal Divisions: Sears; Sears Auto Centers; Sears Brand Central; Sears Canada; Sears Consumer Financial Corp.; Sears Hardware; Sears HomeLife; Sears Mexico; Sears Overseas Finance N.V. (Netherlands); Sears Roebuck Acceptance Corp.; National Tire Wholesale (NTW); Parts America; Tire America; Western Auto.
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