Sears, Roebuck and Co.

Sears, Roebuck and Co.

Sears Tower
Chicago, Illinois 60684
U.S.A.
(312) 875-2500

Public Company
Incorporated: 1906
Employees: 460,000
Sales: $55.97 billion
Stock Exchanges: New York Midwest Pacific London Basel Geneva Lausanne Zürich Amsterdam Tokyo Paris Frankfurt

Sears, Roebuck and Co. is one of the few U.S. corporations whose name is virtually synonymous with an entire business: retail. Sears sells insurance, residential real estate, and financial services through its Allstate, Coldwell Banker, and Dean Witter subsidiaries, respectively, but retailing has always been the source of its fame. For decades, Sears has prided itself on being the U.S. middle class’s primary general goods merchant, the place where average people could get everything from clothes to auto supplies, sporting goods to refrigerators, at an affordable price.

Sears bears the name of Richard W. Sears, who was working as the 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, he had 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 locate himself 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 his 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 catalogs. It was 80 pages long and advertised watches and jewelery. Thanks to Richard Sears’s restless search for new merchandise, within two years the catalog had grown to 322 pages, selling clothes, jewelry, and durable goods like sewing machines, bicycles, and even keyboard instruments. In 1894 the catalog 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 partners to replace him: local entrepreneur Aaron Nusbaum and Nus-baum’s brother-in-law, haberdasher Julius Rosenwald. The company recapitalized at $150,000, with each man taking a one-third share. It 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 catalog and advertising copy. Had the Federal Trade Commission existed then, some of Sears’s advertising practices would probably not have passed muster, and Rosenwald preferred a reputation of trustworthiness; it should be said in Sears’s defense, though, 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 that would consolidate all of the company’s functions. To help raise the necessary capital, Sears went public in 1906. Wall Street was leery of the incautious Richard Sears, however, 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 without ever 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 thus: “Honesty is the best policy. I know, I’ve tried it both ways.”

Sears was now Julius Rosenwald ’s company to run, and he did it with such skill and success as to make himself 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 would not 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 also was 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 new stores followed that year, and by the end of the decade 324 outlets were in operation. Retailing would become so successful for Sears so quickly that by 1931, the stores would top the catalog 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 would always be known as “the General” for having been 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 would earn 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—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 the automobile would soon make urban centers more accessible to outlying areas, broadening the customer base for retail outlets. Thwarted by 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 catalog, but they soon began to offer a full range of goods. Sears also became the first chain to put free parking lots next to their stores. More than anyone else, it was Robert Wood who turned Sears into a leviathan.

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 would change its name to Whirlpool in 1950. Somewhat against its intentions, Sears was becoming 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 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 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 United States entered World War II and publicly supported the war effort, but remained a strong critic in private ever after.

As war loomed, Sears benefited from increases in military spending and a consumer buying panic. In 1941 sales reached an all-time high of $975 million, a 30% 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 could not be filled. Military procurement helped make up for the shortfall. During the war, Sears supplied the armed forces with just about everything that did not need gunpowder to make it work, and even a few things that did; 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 it opened a store in Havana, nationalized by the Castro government in 1960, and in 1947 it opened stores in Mexico.

Once the war ended, Sears flourished. Sales edged up to $1 billion in 1945, and doubled the next year. Anticipating an economic boom, Wood launched the company on an aggressive expansion program. Concentrating on the Sun Belt states, in which the most population growth would occur, he located many of the new stores in the path of suburban expansion before the areas built up. One store in California was built 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 it posted sales of $3 billion while Ward, which had been slower to anticipate postwar trends, could muster 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 catalog.

At the same time, Sears was becoming a widely hailed living experiment in corporate management. Wood had long had it in mind 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, in fact buyers were 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 had bought their first homes had already filled them with all the Sears appliances they needed. At about this time, the company also 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 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 number-one retailer in the United States, 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 it had formed in 1960.

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 that had been formed in 1960, acquired Metropolitan Savings and Loan Association, the first of several savings and loans it would purchase over the next two decades. Also in 1970, construction began in Chicago on the 110-story Sears Tower. Completed in 1974, the Sears Tower is the tallest building in the world 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 would be the last of the General’s proteges 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 that it was ignoring some real problems.

The competition was getting serious. The 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 K mart 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 that 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 he proceeded to do the same for the parent company, centralizing all buying and merchandising operations. The 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 were not 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.

Telling also saw the burgeoning financial services industry as one in which Sears should get involved. In 1981 Sears acquired Los Angeles-based Coldwell Banker Company, the nation’s largest real estate brokerage, and securities firm Dean Witter Reynolds Inc. When he retired at the end of 1985, Telling left Sears 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 with the size and capital to take on the industry’s leaders.

He 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 would also offer savings accounts through Greenwood Trust Company, a bank that Allstate Enterprises, Inc., a Sears subsidiary, had acquired earlier that year. 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. Sears acquired Eye Care Centers of America, and added Pinstripes Petites and Western Auto Supply the next year.

The company’s financial performance was disappointing. Dean Witter and Coldwell Banker failed to show immediate benefits from their relationship with Sears. As Sears’s stock price lagged, takeover rumors circulated and the company pondered ways to increase shareholder value and stave off any possible attempt. In October 1988 Sears announced that it would sell Coldwell Banker’s commercial real estate unit, buy back 10% of its own stock, and put the Sears Tower up for sale. Brennan, who had become company chairman in 1986, also announced a new, everyday low prices retail strategy that would reduce the number of sales and promotions, slashing everyday prices across the board instead.

These new moves, however, provided unsatisfactory solutions. The Sears Tower went on the block during a commercial real estate glut in downtown Chicago and no buyer could be found. Everyday low 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. That year, the resurgent financial services divisions contributed the bulk of earnings, with Dean Witter posting its best year ever. In July 1990 Brennan added his old job as Merchandise Group chairman to his responsibilities. By the first quarter of 1991, however, layoffs and other cost-cutting measures had begun to take hold. Sears posted a $202.7 million profit, which included improved earnings for the Merchandise Group despite sluggish sales.

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. It is also true that the outcry over Sears’s decline had been so sharp only because Sears started from such a great height. For decades, Sears has carved out its place in U.S. life. In the mid-1980s it was estimated that one in 30 living Americans had worked for the company in some way at some time. It had made many of those members of the U.S. work force comfortable retirees through its profit-sharing plan. It was their return for their service and belief in a cause that the company had embodied since the days of Richard Sears: the material prosperity of working people.

Principal Subsidiaries

Sears Roebuck Acceptance Corp.; Sears Overseas Finance N.V. (Netherlands Antilles); Allstate Insurance Company; Sears Consumer Financial Corporation; Cold well, Banker & Company; Cold well Banker Real Estate Group, Inc.; Dean Witter Financial Services Group Inc.; Sears Consumer Financial Corporation; Sears Canada Inc.

Further Reading

“Sears’s War,” Fortune, September, 1942; McDonald, John, “Sears Makes It Look Easy,” Fortune, May, 1964; Emmet, Boris, and John E. Jeuck, Catalogues & Counters: A History of Sears, Roebuck & Company, Chicago, University of Chicago Press, 1965; Weil, Gordon L., Sears, Roebuck, U.S.A., New York, Stein and Day, 1977; Loomis, Carol J., “The Leaning Tower of Sears,” Fortune, July 2, 1979; Katz, Donald R., The Big Store, New York, Viking, 1987; Oneal, Michael, “Sears Faces a Tall Task,” Business Week, November 14, 1988; Bremner, Brian, and Michael Oneal, “The Big Store’s Big Trauma,” Business Week, July 10, 1989; Siler, Julia Flynn, Laura Zinn, and John Finotti, “Are the Lights Dimming for Ed Brennan?” Business Week, February 11, 1991.

—Douglas Sun