The History of Sears Predicts Nearly Everything Amazon Is Doing

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From The Atlantic:

Amazon comes to conquer brick-and-mortar retail, not to bury it. In the last two years, the company has opened 11 physical bookstores. This summer, it bought Whole Foods and its 400 grocery locations. And last week, the company announced a partnership with Kohl’s to allow returns at the physical retailer’s stores.

Why is Amazon looking more and more like an old-fashioned retailer? The company’s do-it-all corporate strategy adheres to a familiar playbook — that of Sears, Roebuck & Company. Sears might seem like a zombie today, but it’s easy to forget how transformative the company was exactly 100 years ago, when it, too, was capitalizing on a mail-to-consumer business to establish a physical retail presence.

. . . .

Mail was an internet before the internet. After the Civil War, several new communications and transportations systems — the telegraph, rail, and parcel delivery — made it possible to shop at home and have items delivered to your door. Americans browsed catalogues on their couches for jewelry, food, and books. Merchants sent the parcels by rail.

From its founding in the late 19th century to its world-famous catalog, the history of Sears, Roebuck & Company is well known. Less storied is its magnificently successful transition from a mailing company to a brick-and-mortar giant. Like Amazon among its online-shopping rivals, Sears was not the country’s first mail-order retailer, but it became the largest of its kind. Like Amazon, it started with a single product category — watches, rather than books. But, like Amazon, the company grew to include a range of products, including guns, gramophones, cars, and even groceries.

From the start, Sears’s genius was to market itself to consumers as an everything store, with an unrivaled range of products, often sold for minuscule profits. The company’s feel for consumer demand was so uncanny, and its operations so efficient, that it became, for many of its diehard customers, not just the best retail option, but the only one worth considering.

By building a large base of fiercely loyal consumers, Sears was able to buy more cheaply from manufacturers and wholesalers. It managed its deluge of orders with massive warehouses, like its central facility in Chicago, in which messages to various departments and assembly workers were sent through pneumatic tubes. In the decade between 1895 and 1905, Sears’s revenue grew by a factor of 50, from about $750,000 to about $38 million, according to Alfred D. Chandler Jr.’s 1977 book The Visible Hand: The Managerial Revolution in American Business. (By comparison, in the last decade, Amazon’s revenue has grown by a factor of 10.)

Then, after one of the most successful half-centuries in U.S. corporate history, Sears did something really crazy. It opened a store.

In the early 1920s, Sears found itself in an economy that was coming off a harsh post-World War recession, according to Daniel M. G. Graff and Peter Temin’s essay “Sears, Roebuck in the Twentieth Century.” The company was also dealing with a more lasting challenge: the rise of chain stores. To guide their corporate makeover, the company tapped a retired World War I general named Robert Wood, who turned to the U.S. Census and Statistical Abstract of the United States as a fount of marketing wisdom. In federally tabulated figures, he saw the country moving from farm to city, and then from city to suburb. His plan: Follow them with stores.

. . . .

Sears was not content to be a one-stop-shop for durable goods. Like Amazon today, the company used its position to enter adjacent businesses. To supplement its huge auto-parts business, Sears started selling car insurance under the Allstate brand. One might say the shift from selling products to services is analogous to the creation of Amazon Web Services—or even Amazon’s television shows. Analysts have wondered, why would Amazon want to sell books, diapers, and TV? But even the company’s seemingly eccentric decisions are centered on Sears’s old expertise: becoming an inextricable part of consumers’ lives.

It’s remarkable how Sears’s rise anticipates Amazon’s. The growth of both companies was the result of a focus on operations efficiency, low prices, and a keen eye on the future of American demographics.

Link to the rest at The Atlantic

14 thoughts on “The History of Sears Predicts Nearly Everything Amazon Is Doing”

  1. Returns via Kohl’s would mean more, not less, inconvenience for me. UPS is a tad farther from my house, but there’s no wait. Just pop in, leave a package on the counter, and I’m done. No need to use a parking spot; just leave the car by the front door. At Kohl’s they’ll be reserving a couple of parking spaces for returns, but that convenience would be moot once you step inside the store. There’s *always* a line waiting to get to the returns desk. That desk used to be at the back of the store. I wonder how many Kohl’s have moved it to the front.

      • No … no 7-Elevens and, as far as I know, no lockers. I live in a relatively small town. UPS is quite convenient, though. One of their storefronts is about 5 minutes away, and it’s in a commercial area I visit regularly.

    • They shut down their catalog operation just as the internet was poised to enter the mainstream: spectacularly bad timing!

  2. This is, almost word for word, what I’ve been saying for some years now.

    Sears’ downfall was that the stores, mostly on expensive shopping real estate, had tremendous fixed operational costs plus labor. I can’t come up with any scenario that would make the stores more profitable than the mail order arm, but the stores certainly had the bulk of capital, and I suspect internal politicking is what caused them to de-emphasize mail order.

    I used to use Sears’ mail order a lot, and I remember when delay times went from “about as fast as it took USPS to move a letter there and my package back” to an additional week or more of “getting around to it.” And then shipping prices went up. And then they not only added a hefty charge for store pickup, they added a further surcharge if you ordered at a store instead of by mail. And then the stores stopped handling catalog transactions entirely.

    Then the stores decided they were going to go upscale, and went to “premium” pricing to reflect that. Then when sales tanked, they went back to downscale merchandise… but the premium pricing remained. Sears’ business policies couldn’t have been worse if they’d been put in place by their competition… except JC Penney and Montgomery Ward were already sprinting for Chapter 7.

    • That lack of speedy responsiveness is something I’m seeing with three online sellers I’d buy from more often if I didn’t have to wait so long for them to get around to shipping the order, then the wait for delivery: Kohl’s, Bed Bath & Beyond, and Crate & Barrel. But Crate & Barrel helps make up for the lack of speed by the care they take in packaging the shipment.

    • The Amazon stores are certainly utilizing top dollar real estate. In NYC, they’ve opened in Columbus Circle and in midtown Manhattan. But, I don’t think Amazon is concerned about making a profit from these stores; in fact, I think it would be near impossible to do so with the smaller selection of books, high overhead and low prices.

      • Anyone know the the ratio of book sales to gadget sales in those stores? Books? Kindles? Tablets? Prime memberships? Prime TV controllers? And whatever they call that talking coffee can?

  3. Amazon will undoubtedly rise and fall like Sears, everything rises and falls eventually, but I am not sure all of the analogy presented in the OP holds.

    AWS is not similar to Sears launching Allstate. AWS sells the infrastructure that supports Amazon’s success. AWS subsidizes Amazon’s own infrastructure as well as providing another profit center. One of the consequences is that Amazon can afford an infrastructure that is the best of the best, which gives it another advantage over its competition. That’s at least a triple whammy.

    If Sears had invented railroads and developed them for exclusive use by Sears, then when Sears became successful, Sears began to profitably sell space on the railroad to all comers, that would be a valid analogy. Allstate was just another line of business.

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