Sears: Cocaine Wine, Shotguns, and the World’s Tallest Tower

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1:40Pushkit. Too quick? No, it was perfect. Pushkit, stop. You got it.

1:59Okay, Robert. Let's say it's 1897, and you live on a farm in America, wherever. Where do you want your farm to be? Nebraska. Nebraska. Classic, classic farm state. It's a little cold, but we're mostly farmers. And for your farm, you want to buy the following things. A set of encyclopedias, a buggy, like a horse and buggy, a shotgun, and a bottle of Peruvian wine of coca, which is actually wine mixed with cocaine. Essential for a Nebraska winner. I don't know what you're going to do with these things, but I know that there's one place in 1898 that you're going to buy. Only one place, and that is the Sears catalog that has come to my home where I can order all of these things.

2:47The big book, the book that is like 800 pages long, that is this essential phenomenon in American life in the late 19th, early 20th century. It's probably one of only two books you've got in your house. The other one's the Bible. And after you order your gun and your cocaine, maybe you'll, you know, ball up a few pages and stick them in the holes in your cabin to keep the wind out. Maybe you'll hang it up in the outhouse. It's a little reading for the toilet and in a pinch, toilet paper. All real uses of the Sears catalog. And, you know, one of the things that's amazing about Sears, the subject of today's show, is how long it was so central and so huge in American life.

3:28It had this rise, this meteoric rise, as they say, in the late 1800s. But then it had kind of another rise in the 20th century, and it became by far the biggest retailer in America, like well into our lifetimes, right? I don't know. You must remember going to Sears as a kid. Yeah, in the 80s and 90s, you'd go to the mall, and Sears was one of the anchor tenants, and you could get, at the time, that's where you'd go to get hardware, right? You'd go to get a hammer or tires for your car. Yeah, clothes. I got tough skin jeans there when I was a kid. And like there is a way in which I don't quite want to say Sears was America, but kind of, right?

4:05Like during the Cold War, people used to say we should drop the Sears catalog over the Soviet Union to show them what they're missing, right? You want to end communism, just show them the Sears catalog. Hundreds of pages of capitalism. And so, you know, the history of Sears, it goes from farmers and railroads to the Cold War to the mall out on the edge of town. Right. So like basically it's a John Cougar Mellencamp song. Right. Like I'm going to say the story of Sears is the story of the American century. I'm Jacob Goldstein. I'm Robert Smith. And this is a little ditty about business history.

4:43It's the history of business. It's everything you see. Okay. Okay. Acceptable. I appreciate the commitment. Today on the show, the rise and rise and fall of Sears. Sears was the Amazon of its day. It was started by a guy who was a born salesman flipping watches. And then it was reinvented by a general, an actual general in the 20th century. At one point would build the tallest building in the United States? In the world, I think. I think so too. Yeah. What else would it have been? Big Ben? Dubai wasn't even a thing. Robert, you like to point out how in every obituary, there's like the exciting top, and then they jump back and tell the story of the person's life.

5:26And so I want to say to you that Richard Warren Sears was born in Stewartville, Minnesota in 1863. Small town, I imagine. Small town. Father was a blacksmith. Doesn't get any more old-timey than that. And Sears, when he was a teenager, he got a job that is already becoming familiar to us on business history. Telegraph operator. You know, I've been thinking about that, right? Because Thomas Edison was a telegraph operator, Andrew Carnegie, telegraph operator. I think at the time, these were the people who saw the entire world, saw how big and exciting the world was. And so I think they were natural for business.

6:02Yeah. And I mean, also, if you were like an ambitious, smart kid, it was it was a good job for a hustler. Right. So so Sears, the man, gets this job. And like a lot of telegraph operators, he's also a station agent, a railroad station agent. Right. Because the telegraph wires often run next to the train tracks. It's a natural combo. And he winds up running the station in North Redwood, Minnesota. Not even Redwood, Minnesota. Right. Like way out there. This job in the middle of nowhere is key for him because being a rural station agent at the time meant you were a trader, basically, a trader in goods, right?

6:38The farmers have extra produce. There's stuff coming in on the trains. They're often going out empty. So it's good for the railroad if you're kind of wheeling and dealing, getting stuff on the train. Yeah, matching buyers and sellers. So this key moment comes for Sears when he's 23 years old and a watch company in Chicago sells a shipment of gold pocket watches to a jeweler out in rural Minnesota. Goes out to the end of the line. There it is. And the jeweler looks at the watches like, I don't want them. So now the watch company is going to have to pay for return shipping. Right. The jeweler is not paying for the watches and they don't want a deal.

7:15And so they say to Sears, the local station agent, they say, look, these watches, they retail for$25 each. We'll sell them to you wholesale for$12. And Sears says, OK, let me get back to you on that. And he gets in touch with, I guess he telegraphs a bunch of other station agents and says, I got some$25 watches. I'll sell them to you for$14 a piece. Oh, he was getting them for$12. Already, yeah. And they say, sure, we'll take them. And so he buys the watches, immediately flips them. It's like free money, essentially. He's not taking any risk. He's making easy money. And this is the one place where you really needed a watch.

7:54Yes. In this day and age, right, with the timetables of the trains. Yeah. In fact, in fact, side note, trains were the reason Standard Time was created. Like, until not that long before this, every town could have its own time, right? Whenever the church bell rang, whenever the sun was overhead. Because who cared? Like nobody's going fast. But once you have trains going fast over long distances, this is when you actually need precise time. Timetable world. Timetable world. So good time to be in the watch business. And Sears basically gets into the watch business. He keeps buying and selling watches.

8:28And he's buying low and selling high, to be precise. Indeed, yes. Always a good move. And he structures these side hustles in a really smart way, which is basically similar to what he did the first time. He does it so that the people buying from him pay him before he pays for the watches. So basically, he's selling the watches before he has to buy them. They teach this in business school. They call it the negative cash conversion cycle. I didn't know it had a name. There is a reason for this, which is in typical business, say I run a chair company, I have to go out and buy a bunch of chairs and then a warehouse to store them in.

9:06I probably have to borrow money to get the chairs. And then I have to sit there and wait for somebody to buy my chairs, right? Which they might not do. And it's costing you money the whole time, right? There's a cost of capital. But if you can sell something and get the cash before you have to buy the product and deliver it to them, then that's like the buyers become your investors. You don't need any money. And if you do it right and keep growing, you can create this flywheel, essentially, where the money keeps coming in. Use that to fund your growth, which brings in more customers, which brings in more money.

9:38And you never have to really put out any of your own cash. Yeah, Costco, amazingly, Costco is often able to do this with their terms, basically. They can sell before they buy. Amazon grew this way. Yeah. So this is what Sears is doing. He's able to quit his station agent job. He's just in the watch business now. He starts the R.W. Sears Watch Company. And according to Catalogs and Counters, which is the 1950 book, that's the classic history of early Sears, at this point, the R.W. Sears Watch Company consisted of a kitchen table, a 50-cent chair, and some record books and stationery. And the rest of it is just the mental logistics.

10:18Just hustle. So Sears is getting bigger now. He's still out in Minnesota. and of course all of his watches are coming and going via the railroad, right? That's the way everything's moving at the time. And so he needs to be more central, right? His business is growing. He doesn't want to be out at the end of the line anymore. So there's one place really for him to move, Chicago, right? It's the center. A town that was built because it is the center of the rail lines. Yeah. So I'm going to say a name here just for our older listeners, Alva Roebuck. For like a minute, Sears partners with a watchmaker named Alva Roebuck, which I say because if you're over the age of 45, you may know that Sears was called Sears Roebuck.

10:59But Roebuck disappears pretty soon, leaves his name on the company. And they keep the name for 100 years. Amazing. And Sears, the man, C.R.W. Sears, is expanding his business slowly. He goes from watches to jewelry. He's selling direct to consumers now, not just wholesale. sale. And he's sending out this little booklet with the watches and the jewelry. And the booklet is sort of getting bigger and bigger as he adds more things. And you see what I'm doing here, right? He's getting into the catalog business, which is a new thing at the time. He's not inventing the catalog business. Montgomery Ward, another company that stayed around for a long time, they were already sending out catalogs.

11:39But the key thing is, I think, it's a really good time to be getting into the catalog business. It reminds me, you mentioned Amazon, it reminds me of Amazon getting into e-commerce in the late 90s, right? In both cases, there are these sort of technological and demographic tailwinds that are just blowing the business forward. We're seeing industrialization, we're seeing the railroads, mail delivery, and, you know, with a catalog, it's like getting someone into the store, right? You come for the watches, but as you're flipping the pages, You're like, oh, I can get some dungarees. Yes, yes. And people are getting richer, right?

12:16People are getting richer. There's more literacy. Like, there's all these reasons it's a good time to be starting a catalog. Rural delivery is getting better. And so you can actually see a lot of these dynamics in the catalog itself. So let's actually look at the catalog because it's incredibly revealing about the way the business worked, the way the American economy worked at the time. So I actually bought, you can buy a reproduction of the catalog, which I have here. It's a few hundred pages. It's like many hundreds of pages. Let's see. The last page is 786. Love it. Let's just look at the cover.

12:51It's a lot. It's a lot, right? Sears Roebuck and Company cheapest supply house on earth. On earth. You know what I thought of when I saw that? The greatest show on earth. P.T. Barnum. He had his circus going around around this time. And just in case you thought that perhaps Sears Roebuck were some sort of hucksters or something, they have all sorts of fine prints here authorized and incorporated under the laws of Illinois. And it says, we can just do this part now, it says also at the top, with a capital of$150 ,000 paid in full, referenced by special permission, and then a bunch of banks. It lists the banks where the money is.

13:29Yeah. And if you flip a few pages into the book, you actually see there's like a letter on bank letterhead essentially saying this company is legit. They're in Chicago. They have hundreds of employees. And so what is this doing? What this is doing is speaking to the farmer, right? The farmer is the customer for Sears, right? People who live in town don't need Sears. They don't order mail order. They just go to the store. And, you know, the farmer has been ripped off by people all his life, right? By the way, there's like a picture of an idyllic farm with a woman and a cornucopia of commerce basically descending upon the farm saying, look at all the stuff I can bring you.

14:08So this is – it's like the cornucopia is dumping stuff onto the farm. That is what Sears is doing. And so this reference to the bankers is telling the farmer, you can trust us. You can trust the company. Look, banks say we're legit. We're not just some made-up thing. And when you go through the book, the catalog, you actually see all these ways he's trying to get farmers to trust him. And it says, like, send just 50 cents deposit. Return it if you don't like it. Satisfaction guaranteed. And, you know, Sears was good. It was cheap. Also, that cheapest supply house on Earth. Like, was it the cheapest supply house on Earth?

14:44I don't know. What does that even mean? But it was cheap. And if you think about the farmer living on this idealized farm out in the middle of nowhere, like they were way in the middle of nowhere, right? Like there were no cars. There was nowhere. They couldn't drive to town. They would walk to town maybe hours or maybe go on a horse. And there'd be like one store. And that store was expensive, A, because they didn't have any competition and B, because their costs were high, right? It was highly intermediated. There was no economy of scale. Yeah. I mean, if you wanted to order cocaine wine, like you'd have to stock it, get it there, keep it in the storeroom at the proper cocaine wine temperature.

15:20So, you know, you're that farmer in 1897 and you want to buy your shotgun and your cocaine wine and whatever else. You know, the celebrated Acme galvanized steel mill? Acme. There is an actual Acme. You're like the Wile E. Coyote, but you're going to use it for the little propeller on your plane or something when you go off the cliff. And to make this clear, the way you ordered was like a form? Yeah, it was like a form. You would like fill it out and then put a stamp on it and send it back. Put it in the mail, yeah. And they have all these instructions for how to order, like for your clothing.

15:49You like measure yourself and tell them your size. They're teaching people how to use a catalog also. Here's a funny one. I actually printed out the index as well just so we could look at it. This is the last page. It's page, what is it, page 786. and it says in like big letters, big kind of circusy letters at the bottom here. Do you want to read a little bit of it? Read a little bit of it. If you don't find it under the name you are looking for, you may find the article indexed under another name. Don't say it isn't in the catalog. It's like it's yelling at you here. It really is yelling. It's in big type.

16:24Look carefully through the index under every name the article could possibly be listed. Yeah. And if you look even here, so this is what you're reading. is on the last half of a page of the index. And if you look, there's a bunch of wiffletree-related goods. Where did those go? Yeah, wiffletree couplings, wiffletree hooks, wiffletree plates. I looked it up. A wiffletree is like something that goes to put hook horses to your buggy, basically. Yeast, yellow paper. Also a lot of zither-related things. Not just zithers, but zither brushes. Zither's a stringed instrument. Understand that it's very popular at the time.

17:02Yeah, the zither, yeah. It's like the PlayStation 5 of 1897. You had to wait in line for a zither, right? Not if you ordered from Sears, apparently. Zither picks, right? Sears is selling, by this point, everything, right? Like, he's selling this cornucopia, like in the picture, that people could not have imagined, you know, a generation before. This is the, like, consumer miracle of its day. So this is what it's like from the farmer's point of view. Let's go back to Chicago. Let's talk about what's happening at headquarters in Chicago. Yeah, because it's one thing to create the demand, and they're clearly good at doing that.

17:36But to be an effective business, you also have to establish the supply. You have to actually get these products to send to the people, right? Yeah, and Sears is starting to have this problem that is a classic problem of a sales-driven business, right? Sears, the man, is very much a salesman. He just wants to write catalog copy that'll make farmers buy stuff, and he is gifted at doing that. But they don't always have the stuff. They do not have a warehouse full of zithers. Not always. And so he's running around like there's a bike boom. He's investing in bike factories so that the suppliers can make more bikes.

18:10He's selling suits for$10, gets all these$10 suit orders in. And then it's like, wait a minute, where are we going to get a bunch of$10 suits? And this suit thing is real. And it ends up being important for the whole life of the company because one day you need suits. and in his frantic way, he goes into the shop of this guy named Julius Rosenwald, a guy who manufactures suits in Chicago. Normally, when people come into Rosenwald's shop and they're wholesale buyers, they'll, you know, look at one, they'll examine it, they'll think for a long time. And Sears are just like, suits! I need suits! Give me suits!

18:45Hundreds of suits. And by the way, I need them at a good price because I'm buying hundreds of them. That's right. And I need them now. And Rosenwald gets interested, actually. He's like, oh, there's some action here. and winds up working more and more with Sears, selling him a lot of suits, and eventually joins the company as vice president. And he's a really good kind of compliment to Sears' kind of manic salesmanship. Rosenwald is the much more sort of plodding, like, let's turn this into a real business. Oh, this is like when you bring in the grownups into a startup. Literally, you're bringing in the suit.

19:20The suit maker is coming in, wearing a suit, I assume, to make sure that the books balance and that you have logistics and all of this. That's right. And the company is growing so fast, right? It's a classic challenge at a rocket ship company. Sales have gone from under$500 ,000 in 1895 to$10 million in 1900. Wow. To$38 million by 1905. So that's more than a billion dollars in today's money. It's like 80x growth in 10 years. And, you know, it is still, despite Rosenwald's best efforts, chaos, right? Like they got this headquarters in Chicago where there's like huge bags of mail with the orders.

20:01Obviously there's no computers or anything and like returns are piling up and there's like horse-drawn buggy traffic jams outside the office. And so Rosenwald decides we need to get our logistics in order. And to do that, now we do need capital. Now we need real investors. And so he sets up an IPO for the company. They go public in 1906, ticker symbol S. What were they, like 26 companies at the time, right? S. The IPO itself, I'm mentioning it because I think it's actually an important moment in business history. I think it's an important milestone for the American economy. Because if you think of big publicly traded companies at this time, I mean, first there was the railroads, right?

20:47There was U.S. Steel. There's National Lead. These are all companies that have big factories. They make heavy things. They make things that, you know, are physical. If you drop them on your foot, they hurt. And they have these huge assets, right? If something should go wrong with the company, well, you own part of a factory, right? You own part of a railroad. But at this point, Sears is more of a—it's a brand, definitely. And it's more of a network of relationships, right? Maybe a mailing list. The mailing list is not a business at this time, right? But it is now, I guess, right? Yeah. They're a conduit for the buyers and the sellers.

21:22Yeah, yeah. And it's a sign of increasing wealth in America, increasing consumer wealth, right? It means this is not just heavy industry selling to other heavy industry so that trains can move, you know, food and cotton. It means people are buying zithers and cocaine. So now Sears, Rosenwald, they have this influx of capital from the IPO, and they're able to build out a new headquarters. And it is, again, Amazon-like, this incredible logistics facility. Biggest logistics facility in the world, 40 acres out on the west side of Chicago. Wow. And, of course, of course, Sears wrote about it in the catalog.

22:03Give us what he wrote. Okay, here we go. This is describing what they have in this logistics facility. Elevators, mechanical conveyors, endless chains, moving sidewalks, gravity chutes, apparatus and conveyors, pneumatic tubes, and every known mechanical appliance for reducing labor for the working out of economy and dispatch is to be utilized here in our great works. This is amazing because it's doing something that I don't think companies really did back in those days, which is to give you an insight into the company in order to say, look at all we're doing to make your life better, to make your products cheaper and to get them to you faster.

22:44Yes, yes. They are advertising themselves in a very direct and appealing way, I'm going to say. And in fact, it works, right? They are able in this new facility to get orders out the door within 48 hours of the time the order comes in. It doesn't mean they get to you in 48 hours. Yes, of course. But it is kind of the 19th century Amazon Prime, right? It has a really Amazon Prime vibe. So revenues keep going up. Sears the company is doing great. Sears the man, not so great. His health is failing. He retires in 1908. And in 1914, at age 50, he dies of kidney disease. But Rosenwald is a steady hand.

23:29He's running the company at this point, growing, selling more. This is the point when you can actually buy a whole house from Sears, which was a thing for a while. They ship it to you and you put it together. You can still see them. You can still see them. And in the 1920s, a few years later, Rosenwald makes a brilliant move, the next key move for the future of the company. He hires this guy who is going to fundamentally change the business and will set Sears up to grow for the next, like, 50 years. After the break, here comes the general, General Robert Wood.

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