A later and even more direct response to the new transportation and communication infrastructure than the department store was the mail-order house. Both relied, of course, on the railroad and telegraph for the effective operation of their purchasing organizations, but the department store customers came to their counters largely by horse car, carriage, or on foot. If the buyers did not carry off their purchases, the store delivered them by messenger or wagon. In the rural areas, however, mass retailers could reach their customers only by mail and could deliver their goods only by rail, first by express and then by parcel post.
The antecedents of the mail-order house appeared as soon as the new communication and transportation systems began to be integrated. The wholesalers themselves—especially those in hardware and drugs—sold many products through catalogues carried by salesmen and mailed to stores between salesmen’s visits. After the Civil War other merchants began to retail goods by mail, for instance, jewelry, tea and foods, books, and implements. However, they sold only single lines of goods in small quantities. The first enterprise to market a wide variety of goods exclu- sively by mail was formed in 1872 by Aaron Montgomery Ward and his brother-in-law George A. Thorne.05 Their Chicago company, which was supported by the Grange, the largest and most powerful farmers’ asso- ciation in the country, grew as rapidly as any of the department stores in the same decade. By the 1880s Montgomery Ward was doing a nationwide business. In 1887 its catalogue of 540 pages listed over 24,000 items.
Although specialized retailers and even department stores continued to sell through catalogues, the first serious challenge to Montgomery Ward came in the 1890s, when Sears, Roebuck & Company began to expand.60 Sears had its beginning when Richard W. Sears and Alvah C. Roebuck joined forces in 1887 to sell watches by mail. Soon they were also marketing jewelry and silverware and, in 1893, added sewing machines, bicycles, and cream separators to their lines. Then in 1895, with Roebuck’s retirement, Aaron E. Nusbaum and Julius Rosenwald, experienced Chicago clothing merchants, entered the firm as partners. With this new influx of talent and capital the company grew phenomenally. Dry goods and clothing lines were added. Then, following the example of Montgomery Ward, Sears took on a number of consumer durables, drugs, and, for a short time, even groceries. By 1899 the company had twenty-four merchandising departments. They included dry goods, men’s clothing, men’s furnishings, cloaks, shoes, notions, jewelry, groceries, drugs, hardware, carriage hard- ware, stoves, furniture and baby carriages, sewing machines, bicycles, buggies, vehicles, saddlery, sporting goods (including guns), musical instruments, gramaphones, optical goods, stereopticons, and books.67 In other words, Sears and his new partners decided to sell nearly every product that was being retailed through the existing full-line wholesalers and some (such as sewing machines, bicycles, buggies, and musical instru- ments) that were being sold directly by the manufacturer. The results of this decision were phenomenal. Sales, which were $138,000 in 1891, soared from $745,000 in 1895 to $10,637,000 in 1900, and to $37,789,000 in 1905; and profits from $68,000 in 1895 to $776,000 in 1900, and $2,868,000 in 1905.68
Such astonishing success almost overwhelmed the enterprise. The greatest challenge did not come in creating a purchasing organization. Here the partners merely added new buyers for the new lines, closely following the pattern set a generation earlier by the wholesalers and department stores. Rather it came in building an operating organization that could administer the velocity of flow through the enterprise required by this huge volume of sales.
As in the case of other large-scale marketers, the buyers at Sears had full autonomy. In the words of the company’s historians, Boris Emmet and John E. Jeuck: “Each merchandise department was a separate dynasty, and the buyer was in complete charge.”69 He set the specifications, prices paid, volume required, and then decided the price at which the goods would be listed in the catalogue. He even provided the necessary copy to describe and advertise his lines. Each department handled the complaints about its goods and all other correspondence involved in the purchasing and sale of its line. Each set its own wage scales and disciplined its employees. “Company officers were unlikely to interfere so long as the department prospered.”
The buyers used the company’s purchasing network as well as contact- ing manufacturers direct. Like the other mass marketers, Sears had a New York branch that concentrated on dry goods and clothing, and agencies abroad. Because it had a greater number and variety of lines than jobbers or department stores, Sears moved into manufacturing on a larger scale than did the other mass marketers. It did so in order to have an assured supply of goods at the volume, specification, and prices desired. By 1906 Sears owned wholly or in part sixteen manufacturing plants which produced safes, stoves, firearms, furniture, saws, farm implements, wire fence, wallpaper, cameras, shoes, vehicles, organs, furniture, plumbing goods, and cream separators.70 Nevertheless, the Rosenwalds and their associates preferred to buy rather than to manufacture. When they did obtain a factory they made little attempt to go beyond providing necessary capital; they paid little attention to its day-to-day management.
The primary responsibility for coordinating the actual flow of goods from the manufacturer’s door to the customer’s mailbox belonged to the company’s “operating organization.” And it was this organization that fell into chaos and had to be drastically reorganized as the sales generated by mailing catalogues rose in geometric proportions. The operating department was “responsible for the receipt of all incoming shipments, storage of goods, filling of all orders, and shipment of all merchandise and catalogues.”71 Under the guidance of Otto Doering, an improved system for handling the massive volume of orders was worked out during the first years of the new century.
Increased speed in handling orders was made possible by the use of machinery and mechanical devices and the creation of an intricate sched- uling system. The first was well described in the 1905 catalogue:
Miles of railroad tracks run lengthwise through, in and around this building for the receiving, moving and forwarding of merchandise; 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.72
The heart of the new processes was, however, the scheduling system based on a complex rigidly enforced timetable which made it possible to fill a steady stream of orders from a number of different departments. Each department was given a fifteen-minute period in which to send to the assembling room items listed on a specific order. If those items failed to appear in that time period the order was shipped without them. The delayed part of the order was mailed as soon as it was ready by prepaid express, with the negligent department being charged for the extra express costs and paying a fine of 50^ per item. The new system permitted the filling of over 100,000 orders a day. That involved as many transactions as most traditional merchants in prerailroad days handled in a lifetime.
This kind of organization made possible coordination of the swift growth of the business that recorded annual sales of close to $40 million within a decade of its initial expansion.73 By then, Sears’ volume of sales more than doubled that of Macy’s $15 million, and was substantially ahead of the wholesale and retail volume of Marshall Field ($28,480,000). Moreover, Sears’ profits of $2,868,000 compared favorably with the $960,000 for Macy’s and $1,450,000 for Fields. By 1900 Sears’ sales already exceeded Ward’s. Since that time, “Sears has been the leader and Ward’s the chief competitor.”74
The ability of Sears and its chief competitor to lower margins and prices by increasing the velocity of flow brought a resounding protest from rural retailers and wholesalers who served them—a protest similar to that raised against the department stores in the 1880s and 1890s.75 As those stores had concentrated on handling lines in only a few major trades such as dry goods, clothing, and household furnishings, and as they had come early in the fast-growing urban market, the outcry remained local and sporadic. On the other hand, the mail-order houses carried all the goods handled by the country retailers and wholesale jobbers and their great expansion had come at the moment when the growth of the rural market was dropping off. The protest of the country retailers and the wholesale jobbers against the mail-order houses became nationwide during the middle of the first decade of the twentieth century. It reached a crescendo during the debate over the bill to extend parcel post service. Congress finally passed this bill in the summer of 1912. Its opponents fought the proposal bitterly, emphasizing how it would bring ruin to jobbers, retailers, and traveling salesmen. Farm, labor, and consumer groups (spokesmen for catalogue users) pressed for the legislation, while Sears and Montgomery Ward remained discreetly quiet. As the arguments in this debate emphasized, the efficiency of the mass retailing enterprises in reducing margins and prices was one reason for the loud outcry of small businessmen against big business in the Progressive period of American history.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.