Amazon conquered Sears. He is also following in his footsteps.
Consider the post-Civil War retail landscape. If you wanted to buy something, you would visit a store: a general store, a department store, a grocery store. Aaron Montgomery Ward changed all that. A marketing ace who spent his early years working as an itinerant salesperson, Ward recognized that rural customers often paid significantly higher prices for consumer goods due to mark-ups from countless middlemen.
He decided to change that. In 1872, Ward sent out his first mail order catalog, which offered a selection of coveted consumer goods at bargain prices. As historian William Cronon observed, this strategy relied on several interrelated innovations. But most importantly bypassed the need for conventional storefronts by embracing the post office. Without a commercial footprint or a sales force, Ward did not need to pay rents or salaries. Instead, he invested the savings in building massive distribution centers in major cities.
Its innovations do not stop there. When consumers bought goods, they only paid for them when they arrived by mail. If the customer decided they didn’t like, say, the canned ham they ordered – or the stroller, brush, milking machine, or girl’s dress – they could just send the merchandise back, without asking. of questions.
These new approaches to retail have proven to be extremely popular. Soon the company known as Montgomery Ward was circulating a massive catalog containing a cornucopia of consumer goods – just like two other entrepreneurs named Richard Sears and Alvah Roebuck. By the end of the 19th century, these Chicago companies were distributing catalogs of over a thousand pages.
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It’s hard to underestimate the ambition of these two companies, which quickly became the world’s largest retailers. They went into manufacturing, offering products under their own label. And they offered a range of items that exceeded Amazon’s seemingly endless inventory. Sears-Roebuck, for example, began selling house kits, using railroad cars to ship all the components of a modern house. These would then be assembled on site by the buyer.
At some point, however, the catalog sales of these two companies started to level off: there was a limit to what you could sell by mail. After driving many conventional retailers out of business, these companies have now embarked on an ambitious plan to colonize conventional retail as well. They already had the goods, the pricing power and the distribution network.
The new strategy evolved in the early 1920s, when one of Montgomery Ward’s vice-presidents, Robert Wood, began to push the idea. A military man, Wood had a knack for logistics and supply, becoming acting quartermaster general of the United States during World War I.
In 1920 and 1921 he began opening modest factory outlets in the company’s distribution centers, apparently to liquidate surplus merchandise that had accumulated during a recent recession. These proved to be very profitable, but his fellow executives resisted Wood’s plans for vast expansion. He was fired in the fall of 1924 for his zeal.
Two months later, he was hired at Sears-Roebuck, which had overtaken Montgomery-Ward as the all-time biggest retailer. Wood quickly opened a new store in Chicago that would go by the Sears-Roebuck name. The Wall Street Journal described the business as “a whole new start” for the business, but also predicting success.
It was an understatement. Rather than competing with existing department stores and chain stores located in urban shopping districts, Wood instead opened its first stores to complement existing distribution centers located on the outskirts of cities.
Architectural historian Richard Longstreth described the move as a radical departure from conventional wisdom. Would buyers make a separate trip to a Sears store? Absolutely, as it turned out. Consumers already loyal to the Sears brand flocked to the new establishments, attracted by the low prices and the huge range of products.
Soon Wood began buying land on the outskirts of other towns, opening dozens of additional stores that are no longer coupled with distribution centers. This strategy of building “lone wolf stores,” observed Longstreth, seemed to “defy logic.”
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Wood’s triumph is easy to understand in retrospect. He invariably located new stores where land was cheap and plentiful, but still accessible to cars and public transportation. Thanks to the excess space, Sears was able to construct the massive and distinctive buildings that defined the Sears brand: elegant Art Deco structures of two or three stories (plus a basement), adorned with a tower of Mark. Unlike conventional department stores, which often occupied several discontinuous buildings, each Sears store was a stand-alone department store, catering to both men and women considered the mainstay of retail.
Montgomery-Ward, realizing his mistake, quickly followed suit a few years after the first Sears store. Although the Great Depression put a dent in the companies’ plans, the two eventually resumed their expansion, building hundreds of stores across the country that gradually overtook the mail order business.
Always at the forefront of innovation, Sears has introduced other innovative approaches in these stores. In 1934, he broke again with received ideas by opening his first windowless store. The design aimed to create an airtight shopping experience that draws shoppers into the store – and keeps them there. These and other innovations anticipated many of the major post-war retail revolutions, including the much-maligned mall.
In the process, the two companies revolutionized retail not once, but twice: first as mail order companies, and later as physical store chains. Amazon clearly intends to pull the same trick. Considering the effectiveness of Amazon’s strategy of repurposing 19th century strategies for the digital age, there’s no reason to think they won’t succeed once again.
Stephen mihm, professor of history at the University of Georgia, contributes to Bloomberg Opinion.
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