Sears

Mail order catalog

Richard Warren Sears was a railroad station agent in North Redwood, Minnesota, when he received from a Chicago jeweler an impressive shipment of watches which were unwanted by a local jeweler. Sears purchased them, then sold the watches for a considerable profit to other station agents, then ordered more for resale. Soon he started a business selling watches through mail order catalogs. The next year, he moved to Chicago, Illinois, where he met Alvah C. Roebuck, who joined him in the business.

Farmers did business in small rural towns. Before the Sears catalog, farmers typically bought supplies (often at high prices and on credit) from local general stores with narrow selections of goods. Prices were negotiated, and depended on the storekeeper's estimate of a customer's creditworthiness. Sears took advantage of this by publishing catalogs offering customers a wider selection of products at clearly stated prices. The business grew quickly. The first Sears catalog was published in 1888.

In 1893, Richard Sears and Alvah Roebuck renamed their watch company Sears, Roebuck & Company and began to diversify. By 1894, the Sears catalog had grown to 322 pages, featuring sewing machines, bicycles, sporting goods, automobiles (produced from 1905 to 1915 by Lincoln Motor Car Works of Chicago, no relation to the current Ford line), and a host of other new items. By 1895, the company was producing a 532-page catalog. Sales were greater than $400,000 in 1893 and more than $750,000 two years later. By 1896, dolls, stoves and groceries had been added to the catalog.

The company had sales of $800,000 in 1895, but the national Panic of 1893—a full scale depression—caused a cash squeeze and large quantities of unsold merchandise. Roebuck decided to quit (though he later returned in a publicity role). Sears offered Roebuck's half of the company to Chicago businessman Aaron Nusbaum, who in turn brought in his brother-in-law Julius Rosenwald, to whom Sears owed money. In August 1895, they bought Roebuck's half of the company for $75,000. The new Sears, Roebuck and Company was re-incorporated in Illinois with a capital stock of $150,000 in August 1895.

The transaction was handled by Albert Henry Loeb of the Chicago Law Firm of Loeb & Adler (now known as Arnstein & Lehr, LLP). Copies of the transaction documents are now displayed on the walls of the Law Firm. Sears and Rosenwald got along well with each other, but not with Nusbaum. Sears and Rosenwald bought him out for $1.3 million in 1903. Rosenwald brought to the mail order firm a rational management philosophy and diversified product lines: dry goods, consumer durables, drugs, hardware, furniture, and nearly anything else a farm household could desire. From 1895 to 1907, under Rosenwald's leadership as Vice President and Treasurer, annual sales of the company climbed from $750,000 to upwards of $50 million.

The prosperity of the company and their vision for greater expansion led Sears and Rosenwald to take the company public in 1906, with $40 million in stock. After Sears resigned the presidency in 1908 due to declining health, Rosenwald was named president and chairman of the board and had full control. Sears's successful 1906 initial public offering (IPO) marks the first major retail IPO in American financial history and represented a coming of age, financially, of the consumer sector.

In 1906, Sears opened its catalog plant and the Sears Merchandise Building Tower in Chicago. Also, by that time, the Sears catalog had become known in the industry as "the Consumers' Bible". In 1933, Sears issued the first of its famous Christmas catalogs known as the "Sears Wishbook", a catalog featuring toys and gifts, separate from the annual Christmas Catalog. The catalog also entered the language, particularly of rural dwellers, as a euphemism for toilet paper. From 1908 to 1940, the catalog even included ready-to-assemble kit houses. Novelists and story writers often portrayed the importance of the catalog in the emotional lives of rural folk.

For children and their parents, the catalog was a "wish book" that was eagerly flipped through. It was not a question of purchasing but of dreaming; they made up stories about the lives of the models on the pages. The catalog was a means of entertainment, though much of its magic wore off with the passing of childhood. The company was badly hurt during 1919–21 as a severe depression hit the nation's farms after farmers had overexpanded their holdings. To bail out the company, Rosenwald pledged $21 million of his personal wealth.

By 1922, Sears had regained financial stability. First he oversaw the design and construction of the company's first department store within Sears, Roebuck's massive 16-hectare (40-acre) headquarters complex of offices, laboratories and mail-order operations at Homan Ave. and Arthington St. on Chicago's West Side. The store opened in 1925. In 1924, Rosenwald resigned the presidency, but remained as chairman until his death in 1932; his goal was to devote more time to philanthropy.

Retail stores and diversification

The mail order market was based on rural America, with a slow-growing population and far less spending power than urban America. Rosenwald decided to shift emphasis to urban America, and brought in Robert E. Wood to take charge. The first Sears retail stores were opened in conjunction with the company's mail order offices, typically in working-class neighborhoods far from the main shopping center. Sears was a pioneer in creating department stores that catered to men as well as women, especially with lines of hardware and building materials. It deemphasized the latest fashions in favor of practicality and durability, and allowed customers to select goods without the aid of a clerk. Its stores were oriented to motorists—set apart from existing business districts amid residential areas occupied by their target audience; had ample, free, off-street parking; and communicated a clear corporate identity. In the 1930s, the company designed fully air-conditioned, "windowless" stores whose layout was driven wholly by merchandising concerns.

From the 1920s to the 1950s, Sears built many urban department stores (apart from, but not far from, existing central business districts), and they overshadowed the mail-order business. Starting in the 1950s, the company expanded into suburban markets, and malls in the 1960s and 1970s. In 1959, it had formed the Homart Development Company for developing malls. Many of the company's stores have undergone major renovations or replacement since the 1980s. Sears began to diversify in the 1930s, adding Allstate Insurance Company in 1931 and placing Allstate representatives in its stores in 1934. Over the decades it established major national brands, such as Kenmore, Craftsman, DieHard, Silvertone, Supertone, and Toughskins. The company became a conglomerate during the mid-20th century, adding Dean Witter and Coldwell Banker real estate in 1981, starting Prodigy as a joint venture with IBM in 1984, and introducing the Discover credit card in 1985. In March 2009, Sears purchased the social search engine Delver.

Sears made history in 1974 when it completed the 110-story Sears Tower in Chicago. The tower became the world's tallest building upon its completion, a title it took from the former World Trade Center towers in New York. Sears moved to the new Prairie Stone Business Park in Hoffman Estates, Illinois, between 1993 and 1995. The Sears Centre is a 10,001-seat multi-purpose arena located in Hoffman Estates adjacent to the Prairie Stone campus. Even though its naming rights to the building expired in 2003 it remained the Sears Tower through early 2009. In March 2009 London-based insurer Willis Group Holdings, Ltd., was given the building's naming rights to entice the occupancy of the building. The official renaming as the Willis Tower took place on Thursday, July 16, 2009, during a public ceremony hosted by Willis Group Holdings.

In the 1990s, the company began divesting itself of many non-retail entities, which were detrimental to the company's bottom line. Sears spun off its financial services arm which included brokerage business Dean Witter Reynolds and Discover Card. It sold its mall building subsidiary Homart to General Growth Properties in 1995. Sears later acquired hardware chain Orchard Supply Hardware in 1996 and started home improvement store The Great Indoors in 1997.

Decline and Sears Holdings

In 1993, Sears terminated its famous general merchandise catalog because of sinking sales and profits. Sears Holdings continues to produce specialty catalogs and reintroduced a smaller version of the Holiday Wish Book in 2007. In 2003, Sears sold its retail credit card operation to Citibank. The remaining card operations were sold to JPMorgan Chase in August 2005. In 2003, Sears opened a new concept store called Sears Grand. Sears Grand stores carry everything that a regular Sears carries, and more. Sears Grand stores are about 175,000 to 225,000 square feet (16,300 to 20,900 m²). On November 17, 2004, Sears announced it was being acquired by Kmart. As a part of the acquisition, Kmart Holdings Corporation would change its name to Sears Holdings. The new corporation announced that it would continue to operate stores under both the Sears and Kmart brands. In 2005, the company began renovating some Kmart stores and converting them to the Sears Essentials format, only to change them later to Sears Grands. Sears has spent much of 2014 and 2015 selling off portions of its balance sheet; namely Lands' End and its stake in Sears Canada. Sears Canada is one of the biggest e-commerce players in Canada, with $505 million in sales in 2015—more than Walmart and others who have begun pushing aggressively into online sales, such as Canadian Tire. Sears states that the company is looking to focus on becoming a more tech-driven retailer. Sears' CEO and top shareholder said the sell-off of key assets in the last year has given the retailer the money it needs to speed up its transformation. Sears Holdings has lost a total of $7 billion in the last four years. In part, the retailer is trying to curb losses by using a loyalty program called Shop Your Way. Sears believes the membership scheme will be a long-term play for the company, and it will enhance repeat business and customer loyalty.

Seritage Growth Properties is the REIT spinoff of some of the holding company's Sears and Kmart stores. The REIT announced in October 2016 that it was terminating 17 store leases. All of the locations are associated with Kmart locations. It is estimated that as many as 60 Kmart stores will be closed by year end 2016. Also in October 2016, Moody's Investor Services downgraded Sears to speculative grade liquidity rating. The speculative grade liquidity means that Sears is expected to have to rely on external financing and monetization of its alternative assets according to Moody's VP Christina Boni.

In late 2016 and early 2017, some significant steps were taken by Edward Lampert, president, chief executive officer and top shareholder of Sears Holding Corp. Lampert, with personal assets estimated at $2 billion, is also the founder and manager of the hedge fund ESL Investments Inc. He provided an additional loan of $500 million to the company and said he would provide letters of credit to Sears for additional amounts, reportedly totaling $200 million and possibly increasing to a half billion dollars in the future. Lampert also concluded an arrangement that sold the Craftsman brand to Stanley Black & Decker Inc. for approximately $900 million. During this period, the company also announced that it would close 150 stores (109 Kmart and 41 Sears outlets), in an attempt to cut its losses after a decline in sales of 12 to 13 percent during the holiday shopping season and the largest quarterly loss since 2013. These steps will buy time for the retailer, but Matt McGinley, an analyst at Evercore ISI, was quoted by Bloomberg Markets as being bearish. "In the long run, the cash isn't likely to change the company's course. ... I don't think there is any viable path to any sort of profitability."

In February 2017, Sears announced a restructuring plan that is hoped to cut costs by $1 billion via selling more stores, cutting jobs and selling brands. During the second quarter of 2017, 42 Sears stores in 40 states will close.

Since 2010, Sears has gone from more than 3,500 physical stores to fewer than 1,500 stores. Sales at Sears and Kmart stores dropped 10.3 percent in the final quarter of 2016 when compared to the same period in 2015.

Current

Former

Employee relations

Sears has struggled with employee relations. One notable example was the shift in 1992 from an hourly wage based on longevity to a base wage (usually between $3.50 and $6 per hour) and commissions ranging from 0.5% to 11%. Sears claimed the new base wage, often constituting a substantial (up to 40%) cut in pay, was done "to be successful in this highly competitive environment."

In early October 2007, Sears cut commission rates for employees in select departments to anywhere from 0.5% to 4% but equalized the base wage across all Home Improvement and Electronics departments. In 2011, commission rates on non-base items were cut by 2% in the electronics department. In late 2009, the commission on sales of "base items" from the electronic department was cut to 1%. Appliances, vacuums, and mattresses are the only remaining departments where compensation is based entirely on commission. In many stores, jewelry department associates receive a low base salary with 1% commission on their sales.

Sears' profits dropped by 13% during the fourth quarter of 2010 but still had total assets of $26.05 billion as of the first quarter of 2011.