(7 of 9)
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.