The Origin, Reinvention, and Fall of Sears
Today Sears’ impending bankruptcy is a placeholder for the decline of brick and mortar retail. The company’s fall is staggering. In the late 1970s, the company’s gross sales neared 1 percent of America’s GDP. In 2017, sales sagged below $16 billion — over $30 billion less than ten years before. At the end of 2018, it will have fewer than 940 stores; down from 3,510 six years ago. The cause of Sears’ failure is complex; a mixture of mismanagement, failed financial engineering, and consumer trends. Those looking to understand how it once dominated retail can read Sears, Roebuck, U.S.A, a book that examines the origins of an American institution.
Published in 1977, the central theme of the book is reinvention. First, how Sears reinvented the mail-order business. Then how Sears turned itself into a retailing giant. Lastly, how Sears entered the 1980s needing to reinvent its core customer.
Origin: Sears as the post-war Amazon
All but extinct today, the Sears’ mail order catalog was the Amazon storefront of the early 20th century. With circulation reaching 66 million, the catalog offered rural consumers an opportunity to purchase quality products at low prices. For those that were skeptical of its quality, Sears offered a money back guarantee. Outside of the obvious similarities, many of Amazon’s famous tactics were found 80 years ago.
Like Amazon, Sears benefited from subsidized shipping courtesy of the US taxpayer. Before the introduction of Parcel Post in 1913, bulky items were shipped through private carriers — resulting in high shipping costs. After the law went into effect, Sears could now connect to consumers across America — for cheap. By 1918 Sears doubled its revenues. Today, an argument can be made that the US Postal Service provides a $1.49 subsidy for every package Amazon ships.
Sears introduced free shipping…in 1929.
Today’s Amazon’s free shipping is considered a game changer within retail. Legacy manufacturers and retailers struggle to transition their operations to fulfill online orders cheaply. It turns out; Sears beat them to it. Facing competition from Montgomery Ward, Sears offered free shipping on any order. This was until the Great Depression reduced volume and the company quietly ended the offer.
Sears had two-day delivery…in 1934.
In 1934, Sears launched telephone ordering, and two-day delivery in select cities. It sounds strikingly familiar.
Reinvention: Sears’ move to the storefront.
Like Amazon is attempting today, Sears transitioned to brick and mortar retail. Combined with its mail order business, it conquered America. Sears utilized government data to predict and capitalize on America’s post-war population boom. I won’t recap it, but you can read more about that transition here.
Fall: Unable to reinvent the Consumer
The core customer of Sears was the American middle class, and it rose to dominance with its emergence. Sears aggressively expanded around the suburban boom and offered an opportunity to purchase the American dream. But what happens when every neighborhood that needs a Sears has one? What happens when the American middle class stops rising? How does a company grow? That was the central issue facing Sears at the end of the 1970s. The post-war prosperity boom slowed, and Sears’ core consumer slipped from the middle-class to the working-class. With tightening budgets, discounters like K-Mart made more sense for most Americans. Consumers who entered the upper middle class migrated towards upscale retailers. Sears found itself as a company that had a footprint to offer everything but wasn’t sure who it wanted to target.
The book ends without a solution — partly because Sears never developed a solution. It spent the 1980s and 1990s generating growth by entering adjacencies like financial services — instead of reinventing its retail business. It famously revolutionized retail through census data but missed retails’ IT revolution. It had famously strong hardware and automotive brands, but wanted to be everything to everyone. It ended up without a customer.
Today, Sears is as a casualty of modern disruption. Sears, Roebuck, U.S.A. reminds us that it was once the harbinger of disruption.
