A year ago I wrote about the demise of Sears and how it’s history relates to Amazon. Both companies were unconventional innovators that terrified small businesses and generated stunning returns for their investors. After over 100 years Sears is now rumored to be prepping for bankruptcy.
Over the last year Amazon has waged wars, set new records, and has grown horizontally to compete in more industries. In that time Sears has closed stores, sold off key assets, and entered into a partnership with Amazon. It’s interesting to think that the original everything store — a company that even sold it’s customers homes and the products they needed to fill it with — could be so overshadowed today.
Below is a lightly edited version of my original story from a year ago.
Long ago, when brick and mortar was king there was a company that got it’s start by flying in the face of accepted retail norms. When almost everyone were buying products in person they thought it trivial of the human experience. Just as you might expect they didn’t open stores but instead decided to create a new channel for commerce. This meant relying on centralized warehouses sprinkled throughout the contiguous United States. Their rise was quick and although they started with one type of product in one industry, before you knew it you could purchase anything through this new retail giant.
I’m speaking of course about Sears.
Sears and Roebuck got it’s start as a mail order catalog. Initially they only sold watches but quickly expanded into every product segment of the time. Although people were used to shopping in person at local stores this was made difficult by the lack of well paved roads and unstable access to automobiles.
While consumers of the time would still buy groceries from their local market there was no reason to buy non-perishable goods near home. Sure you could get them faster and you could tinker with them in person, but Sears was cheaper. As the automobile age came to term Sears found a new product segment to sink it’s teeth into, auto parts. Within a few years auto parts was one of the fastest growing and most important product segments for the mail order retailer. To supplement this growth they created their own auto insurance arm, Allstate.
Their thinking was simple. Cars were a big ticket items and there was no better way to make sure that people bought cars and continued to service them than by providing a safety net. Their plan worked and the auto parts division along with their profits soared.
Over the years Sears continued to innovate. They had pneumatic tube systems at all their warehouses that would deliver orders quickly and safely to fulfillment and they were even selling groceries. Then in the 1920s and 30s their own brick and mortar stores started to pop up. Initially these stores had a shared space with their distribution warehouses similar to Costco. Eventually these storefronts grew to become their own stand alone locations.
1985 Sears created the Discover card to much success. Their thinking was similar to Allstate — enter an adjacent market to give consumers a service they need in order to lock them in and get them to spend more at their core retail business. People needed credit and Sears, through Discover would give them that credit instantly if it meant they’d purchase more products.
However, their success was short lived. Sears had spent so much time (and money) focusing on its non-core products that it’s retail business began to wither away. Shareholders upon seeing the demise of the flagship company began to advocate for the spinoff of non-core assets. Allstate was spun off in 1993 along with Dean Witter and Discover card.
Today AWS can be considered to Amazon what Allstate was to Sears. Amazon is also beginning to open stores, which goes counter to its centralized distribution model, in exchange for greater sales at lower margins. They’ve begun to break into the shipping and logistics industry to little success and have a penchant for burning through cash with the assumption that they’ll turn up the margins for shareholders one day.
The part I intentionally left out was the panic Sears caused amongst brick and mortar retailers. The assumption was that Sears would be unstoppable and retail was doomed to a life subservient to Sears. While they were no friend of local mom and pop shops that prediction doesn’t seem to have played out. I guess the question going forward is, how many retailers will Amazon bring down on their spectacular rise and equally breathtaking fall?