“After years spent driving many conventional retailers into bankruptcy, Amazon just announced plans to open its own physical ‘department stores’ that would sell both its own private-label good as well as brand-name apparel, housewares and other items.
“The move may seem counterintuitive, even self-defeating. But in pursuing this strategy, Amazon is merely following a playbook developed by its forerunners, particularly Montgomery Ward and Sears-Roebuck. From the beginning, Amazon’s strategy has been nothing more than a digital reboot of the innovations first developed by those iconic companies. This latest move only underscores that point.
“Consider the retail landscape after the Civil War. If you wanted to buy something, you visited a store: a general store, a department store, a grocery store. Aaron Montgomery Ward changed all that. A marketing whiz who spent his early years working as a traveling salesman, Ward recognized that rural customers often paid significantly higher prices for consumer goods because of the markup of countless middle men.
“He set out to change this. In 1872, Ward sent out his first mail-order catalog, which offered a selection of coveted consumer goods at rock-bottom prices. As the historian William Cronon has observed, this strategy relied on several interrelated innovations. But the most important one circumvented the need for conventional storefronts by embracing the post office. With no retail footprint and no sales forces, Ward didn’t need to pay rents or salaries. Instead, he sunk the savings into building massive distribution centers in major cities.
“His innovations did not stop there. When consumers purchased goods, they didn’t pay for them until they had arrived in the mail. If the customer decided they didn’t like, say, the canned ham they had ordered — or the baby carriage, paint brush, milking machine or girl’s dress — they could simply send the goods back, no questions asked.
“These novel approaches to retailing proved wildly popular. Soon, the company known as Montgomery Ward was circulating a massive catalog containing a cornucopia of consumer goods — and so were two other entrepreneurs named Richard Sears and Alvah Roebuck. By the end of the 19th century, these Chicago companies distributed catalogs that ran well over a thousand pages.
“It’s hard to understate the ambition of these two companies, which quickly became the largest retailers in the world. They went into manufacturing, offering goods under their own label. And they offered a breadth of items that exceeded Amazon’s seemingly endless inventories. Sears-Roebuck, for example, began selling house kits, using railroad boxcars to ship all the components of a modern home. These would then be assembled on site by the buyer.
“At a certain point, though, the catalog sales of both these companies began to plateau: There was a limit to what you could sell by mail. Having driven many conventional retailers out of business, these companies now launched an ambitious plan to colonize conventional retail as well. They already had the goods, the pricing power, and the distribution network.
“Ever the cutting-edge innovator, Sears pioneered other novel approaches in these stores. In 1934, it again broke with conventional wisdom when it opened its first windowless store. The design sought to create a hermetic shopping experience that drew shoppers into the store – and kept them there. These and other innovations anticipated many of the key retail revolutions of the postwar era, including the much-maligned mall.
“In the process, the two companies revolutionized retail not once, but twice: first as mail-order companies, and later, as brick-and-mortar chain stores. Amazon clearly intends to pull the same trick. Given how well Amazon’s strategy of repurposing 19th-century strategies for the digital age has worked out, there’s no reason to think they won’t succeed yet again.” (Mihm, Crain’s Chicago Business, 8/22/21)