The General's General Store
(See Cover)
As chairman of the board of Sears, Roebuck & Co., Robert Elkington Wood, 72, runs the biggest general store in the world. Last year Sears, Roebuck sold the astronomical number of 500,000,000 separate items--everything from a one-ounce sewing bobbin to a 2,200-lb.brooder house. But the biggest mail-order seller of all was, as usual, diapers. To Merchandiser Wood, this fact is significant. It illustrates his motto that a "business, to stay healthy, must grow with the nation."*
To keep abreast of the soaring U.S. birth rate, Wood took a cool and calculated gamble six years ago. While other merchandisers pulled in their horns in fear of the "inevitable" postwar recession, Wood launched the greatest expansion in merchandising history. He blueprinted the spending of $300 million out of earnings to open 92 new Sears stores in the U.S. and Latin America, and enlarged and shifted the locations of 212 more. If the recession had come, Sears would have been in deep trouble. But Wood's faith in the expanding American economy--aided by the backlog of demand for goods built up during World War II--was more than justified. Last year Sears sold $2,777,277,096 worth of goods, more than twice as much as its closest rival, Montgomery Ward. Its estimated net profit was $113 million. Sears is now the sixth biggest corporation, in dollar volume of sales, in the U.S.* Besides its mail-order business, which is run from eleven plants, Sears has 691 stores in 47 states, Hawaii and four foreign countries.
A West Point graduate and a brigadier general in World War I, Wood has a favorite phrase: "Let's charge." (He means it in the military, not the merchandising, sense.) Yet he vehemently castigates the "military mind" in business, which he defines as thinking from the top down instead of the bottom up. "The military mind," says Old Soldier Wood, "doesn't know what makes our country tick." Bob Wood is sure he does know: free enterprise, whose "basic purpose is providing people with the things they require, at the lowest possible prices."
The Wishbook. Last week Wood and Sears passed another notable milestone. Sears sent out the biggest spring and summer catalogue (1,298 pages) in its history to the biggest mailing list in ten years (7,200,000). Each catalogue was crammed with 100,000 items, at prices down an average of 3 1/2% from last fall.
Sears' catalogue has been known on farms for half a century as the Wishbook, or the farmer's best friend. A scrapbook of America, it has mirrored the country's changing manners and habits. In the early days, Sears' ultimate in sophistication was a solid gold toothpick with earspoon combined, its recommendation for an evening's entertainment a stereoscope with "twelve splendid views portraying in the most vivid manner the story of our Savior's life before & after Crucifixion." Sickly Sears customers were urged to wear a "Heidelberg Electric Belt" for nervous diseases, headaches or backaches. There were "liquor cures" (i.e., knockout drops), and Sears' remedy for the "morphine and opium" habit. Pajamas were first carried for men only and its rouge would "never be noticed."
Eyelashes & Hors d'Oeuvres. The 1952 spring and summer catalogue still offers such farm necessities as horse collars, castration clamps and animal feed (now reinforced with antibiotics). But there is also a choice of hors d'oeuvres dishes, television lamps and artificial eyelashes. The flamboyant old descriptions ("Astonishing Offer," "Biggest Bargain Ever," "The Best Cream Separator made in the World") have been toned down, and patent medicines virtually abolished. Instead of ads for rubber and celluloid collars and mustache cups, there are now lists of lipstick, perfume and hormone creams --plus 37 pages of foundation garments ("I dreamed I went shopping at Sears for more Maidenform bras"). Most expensive item: diamonds (up to $1,795) --on the cheaper rings, "magic reflector settings make diamonds seem larger."
The customers who pore over the catalogue have changed as much as the ads. Now city folk account for 64% of Sears' mail-order sales, and the company runs a 24-hour telephone service in four cities to take orders.
Air for Sale. The man who started cataloguing this cavalcade of America was Richard Warren Sears, a tall and dark promoter who, in the words of one admiring contemporary, "could sell a breath of air." Sears was a railroad telegrapher in tiny North Redwood, Minn, in the '80s--a time when shady manufacturers unloaded their stocks by shipping them C.O.D. to unsuspecting small-town merchants, then offered them cut-rate prices "to avoid return shipping costs." When a shipment of men's "yellow watches," hunting-case type, and gold-filled (value of the gold: 27-c-) was refused by a local merchant, Sears got them for $12 apiece and sold them for $14. In six months Sears, then 22, cleared $5,000, moved to Minneapolis and then on to the rail center.of Chicago, and started a mail-order business.
Before long, so many defective watches were returned that Sears advertised for a repairman. Alvah Curtis Roebuck, 23, who had been earning $3.50 a week fixing watches in the corner of a delicatessen shop in Hammond, Ind., got the job. In 1891, Sears set up a partnership with Roebuck (Sears kept two-thirds control) and rapidly expanded sales by filling his catalogue with every come-on known to the sharp retailers of the day.
"Send No Money." "FREE, FREE, FREE!" cried Sears' catalogue in big bold letters--then added, in small type at the bottom of the page: "to see and examine at the Express office." Once he advertised a sofa and two chairs for 95-c-; buyers were flabbergasted to get doll's furniture.
Despite such tricks, Sears, Roebuck built a solid reputation for supplying high-quality goods at low prices. Its cream separators sold for $39.50 v. $125 for competing brands. A farmer could buy a Sunday suit for $4.98, a couch for $5.45, a stove for $11.96, a six-room house ("machine-made, ready-cut") for $972, and a "single dog power churn" for $14.70. Sears was indeed the farmer's friend--to the end and sometimes beyond. Once a woman returned some medicine intended for her husband, because he had died before it arrived. By return mail she received Sears' condolences--along with "our special tombstone catalogue."
Sears' rapid rise brought down the wrath of local merchants. They offered prizes to those who collected the most Sears catalogues, and then made public bonfires of them in village squares. They spread rumors that Sears' watches were not only half price, but would also run twice as fast as a good watch.
The Swagger Suit. Richard Sears got into other troubles. Because he neglected his supply department, he was often unable to fill orders for merchandise he had advertised. Once, he angrily dumped a bundle of unfilled orders into the stove. Another time he impulsively advertised a "swagger suit" which he had admired in a Chicago department-store ad. When 5,000 orders poured in, he frantically looked for someone to make it. The man who helped Sears fill the orders was Julius Rosenwald, a small clothing manufacturer, who soon became one of the company's big suppliers.
Rosenwald came to the rescue again in 1895. The company was floundering and Alvah Roebuck, tired of the whirlwind, sold out to Sears for $25,000.* Rosenwald canceled some of Sears' debts to him and became a partner. He used his financial and merchandising talents to start putting Sears on its feet, and raised $40 million for expansion in a public stock issue. Then Rosenwald and Sears quarreled over Sears' selling methods. Rosenwald won out, and in 1908. Sears sold out his interest for $10 million to Goldman, Sachs, investment bankers. Sears retired and died six years later.
Under Rosenwald's guidance, Sears, Roebuck became a less flamboyant but far more prosperous company. Rosenwald made it a rule that the advertising copy should accurately describe the merchandise, laid down rigid standards for suppliers, set up his own testing bureau and started factories to make goods he couldn't buy. By 1919 sales were up to $258 million.
In 1921, during the disastrous postwar farm price break, Rosenwald saved Sears by lending it $21 million in cash & pledges to tide it over. He made another big contribution to the company's future three years later. That was when he hired General Robert Wood, who had started on a merchandising career at Montgomery Ward.
Old-Fashioned Pioneer. Bob Wood runs his far-flung empire and 199,700 employees with furious energy. He stores away facts like an electronic thinker and concentrates on problems with the intensity of a stargazer. When concentrating, he often pops caramels into his mouth without thinking to take off the wrappers, has been known to eat the paper frills off lamb chops. Once, in a comparatively relaxed mood, Wood was playing cards with his son when the carpet caught fire from a live coal. Wood never noticed the flames, though they were right before his eyes.
On lightning trips around his empire, he thinks nothing of flying 7,000 miles in four days, starting his sessions with Sears store managers at 5:45 a.m. sharp, and whirling through stores, speeches, conferences, until everyone else is ready to drop. His clothes are often rumpled, his shoes unshined, his collar open and his tie askew. He wears a battered hat atop his silvery head and a topcoat that looks as if it came off the pile at Sears--which it did. He munches, instead of smokes, cigarettes. Despite his breakneck pace, Wood is still pink-cheeked and healthy; his 180 lb., 5 ft. 9 1/2-in. frame is tough as rawhide. His simple formula: "A good night's sleep, a good appetite and sound elimination are a man's chief concern."
His GHQ is a small office in Sears' block-long home in Chicago, which, in 1905, when it was opened, was the "world's largest office building." Wood still uses the same walnut desk that Rosenwald used, sits in the same leather chair, keeps extra papers in another traditional rolltop desk in the corner. But there is nothing old-fashioned about Wood's business philosophy; he runs Sears "in terms of the democratic spirit." Says Wood: "We put our faith in men, not systems. I like to let a man learn by making a few mistakes, as long as they don't cost too much."
Wood's conferences with his department heads seldom last more than five minutes and Wood often ends them abruptly by standing up. From his memory he can summon facts & figures on Sears' operation 20 years ago, and he expects his subordinates to do the same. His opinions are strong, but they can be changed if enough facts are marshaled against him. "To get along with the general," says one lieutenant, "you don't have to be supine. He doesn't like that. But it helps to be flexible." He is brisk but not brusque. Once, at an evening meeting, a lawyer handed Wood a complicated report on a project. Wood leafed through it in a matter of seconds, then mumbled that they'd better get started on a game of bridge. Next day, when Wood was asked why he hadn't even read the report, he said in honest surprise, "Why, I've already taken care of the matter."
On another occasion, Senator William Benton, then a vice president of the University of Chicago, had lunch with Wood to try to persuade him to turn over Sears' Encyclopaedia Britannica (which Sears bought in 1920) to the university as a philanthropic gesture. When Wood didn't say anything, Benton thought his persistence had annoyed the general. After lunch, as he was getting into his car, Wood drew back and said: "All right." (The gift has since earned some $2,000,000 in royalties for the university.)
Wood doesn't believe that "one fellow or a small group of fellows can envision the problems of the whole country and make all the decisions at the top level." He has divided Sears' empire into five satrapies and put a vice president in charge of each. Day-to-day operating problems are left entirely to store managers. They plan their own advertising, price their own goods, pick what they want from Sears' vast supplies. They run their own show--as long as they are getting results. The general can quickly tell when they aren't; each store turns in a monthly box score. As one top aide explained: "The general learned that wet-nursing isn't what develops merchants--and merchants are what he wants in his stores."
"Artillery, Charge!" Wood concentrates just as hard in his off hours, whether at bridge (10-c- a point), hunting, riding, or reading in his 14-room white brick house in suburban Lake Forest. A voracious reader, he races through three or four volumes a week, mostly history and biography. For years he took an early-morning canter on his chestnut-colored Arabian horse Kebar, but has recently been forced to take up golf because all his friends "got too old" to ride. A hunter who used to go after mountain goats, moose and grizzlies, he now limits himself to smaller game such as pheasant and quail. He gets a lot of excitement out of it. When the birds rise, the general is likely to shoot all over the lot, yelling, "Artillery on the left flank, charge!" Farmers who let him hunt on their property are often rewarded; their children get a choice of toys from the Sears catalogue.
Wood's generosity to his own family goes far beyond the covers of the catalogue. He has already given his wife, children, grandchildren and great-granddaughter 57,000 shares of Sears stock, now owns only 52,000 shares himself (worth about $2,800,000).*
"Awful Discipline." Wood's vigorous way of life is the result of a rigorous youth. Born in Kansas City, Mo. in 1879, he was the first of five children of Robert Whitney Wood, an ex-Union Army captain who settled down to run a coal and ice business. When he was 16, Wood was so small (5' 4") that his father gave him $10, sent him off to earn his living and toughen up. After nearly a year with a railroad surveying gang in Texas, Wood returned to Kansas City and won a competitive examination for West Point.
At first, he didn't like the Point, and still recalls that "the discipline was awful." He was among the smallest in his class, and perhaps the sloppiest cadet the Point had ever seen. Once, when the cadets were ordered to wear side arms to chapel, Wood forgetfully marched in with a rifle. Another time, he showed up for guard duty with his shirttail hanging out, and was saved by a friend who threw a raincoat around him. Eventually he put on enough muscle and height so that he was twice selected to represent his class in bare-knuckle bouts with plebes. According to the code of the Point, the plebes could escape hazing if they won. Wood licked both his plebes. He graduated 13th in a class of 54, and was shipped off to the Philippines as a cavalry lieutenant in charge of 100 men and horses, to help clean up Aguinaldo's insurrectos.
After the job was done, he was sent to a fort in Montana, later was ordered to the Point as an instructor. But life there was too dull. Work was about to start on the Panama Canal, and Wood, scenting excitement and opportunity, got himself shifted to the job. A week after he arrived, yellow fever downed most of the Canal Commission's top men. Lieut. Wood, then 26, who had "no idea of letting myself come down with yellow fever," was put in charge of several hundred men to build barracks for 10,000 laborers.
First Ideas. When General George Washington Goethals was put in charge of the canal project in 1907, he made Wood a captain and boss of all recruiting, housing, and distribution of labor. Later Goethals gave him the job of requisition & purchase of supplies. He had to make good. "The day we run out of cement," growled General Goethals, "you're fired." Wood drove his men as hard as himself, and got a reputation for never speaking to a man except to fire him. He worked such long hours that "everything I've done since has seemed easy." He also learned a lot. "The commissaries," says he, "were actually a chain of small department stores. My first ideas of the nature and problems of mass purchasing came from that experience."
Wood took time off to hustle to Manhattan and marry Mary Butler Hardwick, a Southern belle who had shocked her family by moving north to become a nurse. "I took her straight from the rectory of St. Thomas," says Wood, "to a jungle-edge birdcage house at Culebra."
When the canal was finished, Major Wood--and other canal officers--were rewarded by Congress; they were permitted to retire at three-quarter pay. Wood got a job with Du Pont at $6,000 a year, and within five months was making $9,000. But he quit then anyway, explaining to Pierre du Pont that "there are so many of you able people around at the top, it will be too long before there's room for me."
"Profound Contempt." When the U.S. entered World War I, Wood signed up, sailed with the Rainbow Division under Douglas MacArthur, who was chief of staff and is still a close friend. Before long, Wood was ordered from France to Washington as acting quartermaster general, and promoted to brigadier general. In a short time, he reorganized the chaotic Army procurement. At war's end, Julius Thorne, a Wood aide who in civilian life was president of Montgomery Ward, took the general back there with him.
As general merchandise manager for Ward, Wood spent the first few months merely asking questions. "It was an uncomfortably long time," he says, "before I ran into a young man who could answer straightaway, just like that, and with figures to support his answers." The young man was 24-year-old Theodore Houser, a merchandise controller; Wood made him his assistant. As a team, Wood and Houser concentrated on the tire division. In five years, sales increased tenfold, to twice as many tires as Sears, their archcompetitor.
In the recession of 1920-21, when Ward was caught with top-heavy inventories, Wood found a way out. He persuaded the management to open retail stores, and within a year cleared out the inventories. That was enough to convince Wood that the real future for mail-order houses lay in expanding into the retail field. But Ward's management couldn't see it. "[They] regarded the retail outlets as funnels through which to drop the lemons from the mail-order inventory," Wood says. "I'm afraid I developed a profound contempt for [them]." Apparently, the contempt was mutual. In 1924, Wood was fired.
From $30,000 to $300,000. Julius Rosenwald, whom Wood had met in wartime Washington, promptly grabbed him. At Ward, Wood had been making $30,000 a year; at Sears, his salary and bonuses as vice president soon totaled $300,000. But Wood was not satisfied; he wanted to revolutionize Sears so that it could mesh gears with the revolution the auto had brought to the U.S. "Imagine it!" he says. "The country was filled with talk about the automobile, Henry Ford was making shopping mobile, yet not a single retailer saw what the impact of the automobile would be." Wood persuaded Rosenwald to open stores along the main highways of the nation and in the cities and states where Wood's census studies showed there would be the biggest increases in population.
The stores were a success from the start. As a reward, Wood was made Sears' president in 1928. He opened more stores, and by 1931 Sears' store sales topped its mail-order business.
Key to Success. Wood then built up the strong central buying system from 20,000 suppliers which is the core of Sears' operation and the key to its mass-merchandising success. He bought control or stock interest in 95 companies to get the goods he wanted at the prices he wanted. This bulk buying at lower prices gives Sears an average net profit of 6% on sales v. 3% for most department stores.
In the '20s, small companies had justly complained that the take-it-or-leave-it attitude of big mail-order houses was squeezing them out of business. Wood went to work to correct this. He encouraged small companies to become Sears suppliers. "Squeeze a producer," says General Wood, "and he'll take it out on the product. But help him . . . and the result is not only advantageous to the distributor but advantageous to the most important person in the picture, the consumer."
He set up a 200-man technical laboratory to help suppliers, hired industrial designers to improve products, spent millions redesigning products and helping manufacturers produce them. For example, a small slipcover manufacturer didn't have enough money to buy his raw materials when prices were low and deliver the big volume Sears wanted (Sears does 20% of all U.S. slipcover business). Sears volunteered to purchase raw materials for the supplier and store them, charging him only as he needed the materials. Later, Sears helped the manufacturer find a new plant in a small town and recruit a work force of 75, laid out year-round production schedules for him, and gave him a five-year-purchase contract which was enough to get him a bank loan to finance the new plant. Sears profits by such deals by getting low-cost goods made to its own specifications at bottom prices.
Every Man a Capitalist. Sears does more than help small capitalists. Says Wood: "The best way to make capitalism work is to make more capitalists. That's what we're doing at Sears." In the low-paying retailing industry, Sears pays clerks an average of $60 a week, considerably above the retail average. But the real device for making capitalists is Sears' profit-sharing plan, which was started by Rosenwald in 1916 and has become the wonder of the pension world. Thousands of Sears employees have retired with small fortunes. Sample: a woman clerk who never made more than $3,900 a year and contributed only $3,400 to the retirement fund in 35 years retired last year with $117,580 in cash and securities.
Since the fund began, employee and company contributions and earnings have totaled $377 million. Currently, 80% of the fund is invested in Sears stock, of which it holds by far the biggest block. In effect, the employees, through their trustees, have working control of the company. Outside pension experts sometimes view this with alarm; if Sears goes broke, the employees would lose heavily though cash and Government bonds protect the employees' own contributions. But Wood thinks that it makes employees work hard for Sears, and is thus the best insurance against the company's going broke.
Wood's policy of promoting from within the company has also boosted morale and given Sears a strong team ready to run the company when he retires. The two top men: 1) Fowler McConnell, 57, a University of Chicago graduate who joined Sears as a stock boy in 1916, worked his way up through both the mail-order and retail ends of the business, and has been president since 1946; and 2) Merchandising Vice President Theodore Houser, now 57, Wood's old assistant at Montgomery Ward, who moved to Sears when Wood became president and is regarded by him as "the greatest master of mass merchandising in the U.S."
Southward Ho. For all his business statesmanship, General Wood has not shown the same insight and judgment in political ventures. As boss of the America First Committee in the early days of World War II, Wood gathered together some sincere men who thought they could keep the U.S. out of the war. But the committee also attracted a rag, tag & bobtail of anti-Semites, pro-Nazis and others whom Wood now sadly recalls as "crackpots." Since those days, Wood has tempered his economic nationalism and is no longer sure that the Americas can let the rest of the world go hang. He is still a bear on Europe. He thinks Europe is about finished unless it exports "10,000,000 or 15,000,000 people." For that reason Sears expansion plans call for no stores there.
But he is a roaring bull on Latin America, where he has spent $24 million exporting Sears' own methods of production and distribution, to the benefit of the masses. In Mexico, where Sears opened its first store in 1947, the company has freely lent money and technical advice to encourage manufacturing, and now buys 80% of its merchandise locally. In Venezuela, where it found few manufacturers geared to its high volume and rigid specifications when it opened its first store two years ago, Sears now buys 30% of its goods. In Brazil, Sears lost money in 1950 but last year Wood said it made a "nice profit." In the whole Latin American operation Sears expects to make $5,000,000 this year.
Throughout Latin America, Sears' policy is to hire and train local workers; in Mexico only 14 of its 2,000 employees are North Americans. "All we want is loyalty, honesty and hard work," says Sears' Venezuelan boss. "We'll teach them the rest." One thing that Sears has already taught its competitors in Latin America is the basic tenet of all U.S. retailers--big volume, not high markups, is the key to profits. And Sears stores have already caused general price reductions in their localities.
Next week Wood will take off for Latin America to open two new stores in Venezuela, and check up on plans for Sears' first store in Colombia. Next month, in Chicago, Sears will open its biggest postwar store, a $4,000,000 air-conditioned building with a supermarket and an 1,100-car parking lot.
When Sears finishes its expansion program in Latin America and the U.S., Wood will probably be ready with new plans. A business, he likes to say, is like a man; when it stops moving it dies. No one thinks that General Wood or Sears will stop moving--not while the diaper market is growing the way it is.
* Wood has his own way of encouraging national expansion. He promised each of his four daughters a mink coat when she had her third child. To date, three of the daughters have collected. Wood has 15 grandchildren and one great-grandchild.
* The top five: General Motors, American Telephone & Telegraph Co., Atlantic & Pacific Tea Co., Standard Oil (N.J.), U.S. Steel.
* Roebuck went on to develop the Woodstock typewriter, and later started his own movie projector company, sold out for $150,000 but lost his money in Florida real estate. He returned to Sears in 1933, at $5,000 a year, and toured the nation as a glorified publicity man until 1940, when he retired to California. He died, eight years later, at the age of 84.
* The Rosenwald family holdings in Sears have dwindled to 4%.
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