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- [00:00]
Aflac Representative
Many employees can't afford a hefty medical bill that pops up out of the blue. But it happens. And employees who are financially stressed are understandably more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, Aflac plans help with out of pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more@aflac.com Frumarkets that's aflac.com Frumarkets For
- [00:26]
John Curteau
Friday, June 26th it's Brew Markets daily and is on holiday back next week. I'm John Curteau. The Retail turnaround Macy's is finding some success of late, pushing forward with its bold new chapter plan, which has returned the store to consecutive quarters of growth and sent shares up 133% year over year. Other retailers are earlier in their process. Victoria's Secret is endeavoring to bring Sexy back with its new ticker vsxy, and Lululemon is fighting to restore its premium reputation and fend off Athleisure copycats. The question all these companies have faced is how do you survive the next wave of disruption when you are the incumbent? For insight and a cautionary tale, we're going to take a look back at the company that wrote the retail playbook and then lost it, Sears. It was the Amazon of its day, and by the 1960s, 2/3 of Americans shopped at Sears, rather roughly the same share of Americans who today have Amazon Prime. Sears built the tallest building in the world, it invented Allstate insurance, it launched the Discover card, and then it all but disappeared. To talk about why and what it tells us about retail today, I sat down with Jacob Goldstein. Jacob spent more than a decade as co host of NPR's Planet Money and now hosts the podcasts Business History and what's yous Problem? He explains how Sears rose to the moment and then missed the next one when the interstate highway system and the rise of computer allowed Walmart to eat its lunch. We also get into the current three way fight between Amazon, Walmart and Costco and what each one is getting right and what they're all getting wrong. It's a different kind of Brew Markets conversation fitting for a summer Friday, and it's coming up right after this. But first, this episode is brought to you by Aflac.
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Aflac Representative
John, how do you help your fellow employees?
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John Curteau
Well, I work hard and I'm not judgmental about what my colleagues bring in for lunch.
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Aflac Representative
Have you thought about helping them cover a sudden thousand dollars expense? That'd really help a lot of people out.
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John Curteau
I'm going to be honest. No, because that's a lot of money.
- [02:22]
Aflac Representative
Well, Aflac helps employees deal with the sudden out of pocket medical expense so they can stay better focused. They aim to pay claims fast, accurately and fairly. And their plans come at no direct cost to businesses.
- [02:33]
John Curteau
Plus, some Aflac plans may be eligible for pre tax deductions and that could provide potential tax savings. And a large majority of businesses who offer Aflac stay with them. To learn more, head to aflac.com brewmarkets that's aflac.com brewmarkets and now my conversation with Jacob Goldstein on Brewmarkets. We love covering retail. Yeah. Especially the idea of turnarounds. We've been talking about Macy's, Victoria's Secret, Lululemon. So one company that couldn't quite turn it around was Sears.
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Jacob Goldstein
Yeah. Yeah.
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John Curteau
And the idea that a company can just go away, essentially. Which it has.
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Jacob Goldstein
Yeah. It's an amazing story. I mean it was the biggest retailer in the world. Right. I'm, I'm old enough to sort of barely remember it.
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John Curteau
Sure.
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Jacob Goldstein
When I was a kid, it was still a big deal. You go to the mal and it had a couple. It was sort of not just a rise and fall, but a rise and rise and fall. And it really traces like america in the 20th century in a really robust way. So it starts in the late 1800s. There's this guy, Richard Sears, who is a telegraph operator, works at a railroad station, like very late 19th century bread and butter kind of stuff. And he starts basically flipping watches. He gets like wholesale watches that are unsold and sells them to other guys at other railroad stations and, and gets into watch retail, starts sending out a little booklet about the watches.
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John Curteau
Sure.
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Jacob Goldstein
And this becomes the Sears catalog. Right. And the Sears catalog was the Amazon of its day. Right. Like in many ways it grows really quickly. It allows people everywhere to buy everything. Right. Like, and really everything, like, you know, shotguns and encyclopedias and cocaine, wine. A personal favorite. You could just order it from Sears and get it shipped to your farm.
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John Curteau
And the population is spread out. Right. There's farmers, there's people all over the country.
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Aflac Representative
Yeah.
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Jacob Goldstein
And so it's incredible for them, Right. Like if you live in a rural place, as most Americans, many Americans still did, you have one store, it's expensive and Sears is really miraculous. So Sears is like this rocket ship and it becomes this institution. You know, they said at a lot of like farmhouses they'd have two books, the Bible and the Sears catalog. Right. And then after you shop from it, you might like Ball it up and like chink up the holes in your log cabin. You, you might use it as toilet paper in the outhouse. It's like the everything look, fuel. Sure. And so this is kind of Sears 1.0, right? And this is through into the 20th century. And then this kind of second beat of the story is really interesting. So in the 1920s, there's this guy, a former general, a quartermaster, a logistics guy, had helped build the Panama Canal. His name's Robert Wood. And he, he's working at Montgomery Ward, Sears arch rival Pepsi to Sears Coke. And he is sort of a, sort of a quant before the term. He reads the statistical abstract of the United States, tries to understand at a macro level what's going on. And he sees in the 1920s that, I mean, obviously urbanization is happening. We know that. But the subtler thing he sees is more people are getting cars. And this is a moment when you go downtown to shop. All the stores are downtown. And he thinks, well, people have cars now, they don't have to go downtown. We'll buy land out where it's cheap out at the edge of town, and we'll put ample parking. We put what we'd call a parking lot next to the store. And so he is sort of inventing what's gonna become the mall, right? He's making this very, what we think of as a post war move, right? This is a very kind of 1950s, 60s suburbs, malls, anchor department stores. But he's doing it in the twenties, so it's brilliant.
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John Curteau
But he's not at Sears.
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Jacob Goldstein
He is not at Sears. And Montgomery Ward is like, we don't wanna do this because it's gonna cannibalize our business. Right. It's a classic kind of innovator's dilemma, right? They're a catalog company. They're like, why would we build stores that are going to erode our catalog business? And obviously the answer is somebody's going to eat our business. Best it be us. And Sears is smart enough to hire him to realize that it's a good idea. So they hire him and they start building stores wildly, quickly, like hundreds a year. They just run at this idea. And it works great, obviously. And so this propels Sears into its golden era. And not only are they a department store selling clothes and sort of soft goods like traditional stores did, but they sell tools, right? They sell Craftsman tools, right?
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John Curteau
Hard goods. You can get an appliance, you can put it in your vehicle and take it home.
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Jacob Goldstein
Yes, yes. And tires, you can put it on your vehicle. Right. They actually, they sell insurance. They start out selling Allstate tires and then they're like, oh, you know what people need when they're driving away on our tires? They need insurance. And that's actually the beginning of Allstate insurance. So Sears is going amazing 50s, 60s into the 70s, still has a catalog. They do still have the catalog. The stores are really the core. But by the 60s, something like 2 thirds of Americans shop at Sears every quarter. So that's, I looked it up and that's about the share of Americans who have Amazon prime.
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Aflac Representative
Right?
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Jacob Goldstein
So if you think of the ubiquity of Amazon, that's what Sears was. They build the biggest building in the
- [07:38]
John Curteau
world, the Sears Tower.
- [07:39]
Jacob Goldstein
The Sears Tower in Chicago. And you know, when they build it, it's like late 60s, early 70s, I think it's completed early 70s, they're going to occupy a few floors, but they sort of extrapolate out their growth and they're like, by the end of the 20th century, this, whatever it is, hundred and something story building, it's going to be all Sears employees top to bottom.
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John Curteau
The year 2000 will be selling tires at our local Sears.
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Jacob Goldstein
Yes, all around the world. The blimps will be bringing them from the headquarters. No, but interestingly, by this point, in a sort of narrative sense, like the seeds of their destruction have been zone. If I'm overstated a little, be a little bit purple in my prose because. So there's a couple of new technologies that Sears is not at the forefront of. There are changes now in American society that they're not reacting to as quickly like they did in the 20s with the car. Namely two things. One, computers, the obvious one, a slightly less obvious but really interesting one, is the interstate highways.
- [08:35]
John Curteau
Right? Not that they were selling them, but
- [08:37]
Jacob Goldstein
they weren't selling them. But they were a new. They were a new transportation, a new mode of transportation, essentially. And the guy who saw what those two things meant was Sam Walton founded Walmart in the 60s. And the interstate, and Walmart is a really interesting story. Walmart's realization was in the same way that Sears could go out to the edge of town once there's an interstate, you can build a store in the middle of nowhere where there is no edge of town. Just put it next to the freeway exit and people drive there on the freeway. And also they would put these giant, basically warehouses, logistics centers way in the middle of nowhere next to a freeway. And then you put Walmart stores in a day's drive on the freeway from There and I don't know.
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John Curteau
So it's not just shopping, it's logistics.
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Jacob Goldstein
It's logistics, yeah, yeah, it's logistics. And furthermore, Walmart invested early and heavily in computers. Like Walmart as tech company is a delightful story. Right. So they have early on satellite network so that all the stores are tracking inventory in a way you can only do with computers. You know, every day, every sale and uploading it to the satellite back to Walmart before, you know, before everybody has the Internet, they're doing that and that is allowing them to merchandise more intelligently and more efficiently. And so because wasn't at the time
- [09:58]
John Curteau
Sears was allowing its store managers to decide what they were going to stock and what they were going to sell based on what they were seeing on the ground. But there was no real network.
- [10:06]
Jacob Goldstein
That's right. And in fact, I mean, it's really interesting that point that actually goes back to this general, the guy who sort of created modern Sears. He actually had this very ideological reason for creating the company that way. This was, you know, there was like a red scare, a communist scare in the 20s, a very kind of proto Cold war mentality. And he was like, we don't want to be a command and control economy within this company. We want weirdly a kind of free market within the company. So the buyers at headquarters could buy what they wanted, but then they had to sell it internally to the stores and the stores could choose what to buy, which is a smart way to run a store because it is solving this sort of Hayekian knowledge problem. It's why command and control isn't bad in the free market. It's good and it worked for a long time. But it turns out when you can track every sale at every store, centralized flattening could actually work. It solves the knowledge problem. Yeah. So Walmart starts gaining on Sears and you also have the kind of category killer stores coming along using some of the same technologies. Right. Home Depot for tools and Circuit City rip, Best Buy for electronics. And those are also competing against Sears. And So it's around 1990 that Walmart passes Sears. And in a kind of unfortunate bit of timing, Sears stopped sending out its catalog in the early 90s. Just a few years before the web comes along. Right, Just before online commerce comes along. And so Sears in the late 90s has started to fade. They see dotcom coming, they're not dumb. It's interesting, when companies fail, it's really hard for a big company not to fail. And they see online coming, they actually are early to buy Online, pick up at the store. Great idea. We do it now. But they've gotten rid of their catalog, which is unfortunate because having that mailing list would have been amazing. When the web comes along, all the
- [12:04]
John Curteau
data, all the customers.
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Jacob Goldstein
Yeah, right, right, the data, exactly. And so in the early 2000s, a finance guy basically named Eddie Lampert, who has also bought Kmart by Sears and he's going to try and save it. And people argue that Eddie Lampert killed Sears. Right? That is a common argument. I mean, it looks to me like they were already dying. And it's hard to imagine, you know, they were a department store. And like we see now, like department store was a beautiful technology for the 20th century. And like they just don't seem to be working very well now. Right.
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John Curteau
Was it really just distribution? Because I think of Walmart, you're talking about the segment killers. You've got Best Buy doing computers or you've got Home Depot doing this. Walmart has all those things as well, but they thrive. So is it just on a scale and pinching pennies?
- [12:53]
Jacob Goldstein
I mean, pinching pennies is a big deal, right? Like pinching pennies sounds small, but I think Walmart's use of technology and intelligent distribution and wanting everything to be as cheap as it could be. Right. Like low prices. That is Walmart's thing. Everyday low prices. Sears thing was the middle class. Right. And one narrative you can tell about Sears is like the 20th century was like the great era of the American middle class. You could have a factory job and a good life and the kind of, you know, Midwestern blue collar worker goes to Sears to buy his tools. That's like the canonical Sears experience.
- [13:35]
John Curteau
Especially those tools, the craftsmen. I remember when I was a kid, they were guaranteed for life.
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Jacob Goldstein
Yeah.
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John Curteau
You would hand them down from generation to generation.
- [13:42]
Jacob Goldstein
Broke a Craftsman drill like two weeks ago that I bought before Sears went bankrupt.
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John Curteau
We can go to one of the last three Sears, I'm sure there's one around to Boston.
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Jacob Goldstein
Right. And they'll give me another one. So, you know, you can tell a story like Sears wasn't that interested in the low end of the market that Walmart was in. And so one version of the Sears story is like the kind of bifurcation of the American economy where you have a high and a low, but not so much in the middle.
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John Curteau
Always talking about the K shape.
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Jacob Goldstein
Yeah, the K shape. So Sears is like the middle of the K where there is nothing.
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John Curteau
Let's take a break. When we come back, more of my conversation with Jacob Goldstein. So good, so good, so good.
- [14:15]
Aflac Representative
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- [14:40]
John Curteau
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- [14:46]
Jacob Goldstein
get the best of both worlds.
- [14:50]
John Curteau
Get the unreal college deal, everything you need to study and play with select Windows 11 PCs. Eligible students get a year of Microsoft 365 Premium and a year of Xbox game. Pass ultimate with a custom color Xbox wireless controller. Learn more@windows.com studentoffer while supplies last ends June 30th terms at aka mscollegepc. And now back to my conversation with Jacob Goldstein.
- [15:13]
Jacob Goldstein
It would have been amazing if Sears could have been Walmart or Amazon, but it would have been kind of surprising in a way. It's kind of surprising that they had the second act, right, to go from catalog to department store. That's already one time making a big shift. That's hard for big incumbents to make.
- [15:29]
John Curteau
I just wanted to add this one thing that Sears went into finance. You mentioned the, well, insurance. They also launched the Discover Card.
- [15:35]
Jacob Goldstein
Oh, yeah. So in the 80s. So in the 80s, they're like, what are we going to do? What are we going to do? We're getting beat. They see Walmart coming, they're like, well, we got still half of America or something coming into the store every quarter. Let's sell them other stuff. And like, in retrospect, it didn't work. But if you think of what's happening in America in the 80s, it is the era of financialization. Right. And so they already had Allstate insurance. They'd had that for a long time. They launched the Discover Card. They buy real estate, a big real estate agency. They buy Dean Witter a broker. And I don't know, it doesn't seem like a bad idea to me. You know what I mean? Like, it's easy to look back and be like, diversify, focused on retail, but like America was financializing. It turned out, you know, the people who worked at Dean Witter did not want to work at the Dean Witter inside the Sears. Right. There's like a kind of a class thing, frankly going on there. Yeah. And so they spun out Allstate eventually, which is obviously still a successful going concern. They spun out The Discover card. But it was. They knew they needed to do something and they tried a thing and it didn't work.
- [16:46]
John Curteau
It's interesting with the disruption of retail because you talk about Amazon coming in and sort of talk about Walmart coming in and supplanting Sears and I remember Walmart. It was that they're killing the mom and pop. That was the narrative when I was younger. And then there was a time when Amazon launched and then comparing Amazon's online presence obviously to Walmart. Walmart sort of looked sad 10 or 12 years ago. You know, like the shipping wasn't figured out. It took a while, the selection wasn't all there. And now Walmart has become is a tech company. They're branding themselves as a tech company, moved over to the nasdaq. So are you keeping an eye on the Walmart v Amazon in light of what you know about Sirius?
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Jacob Goldstein
Costco is actually quite interesting in that set of companies. I will occasionally order from Costco but they don't really care about you ordering from Costco that much.
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John Curteau
I'll say this, the Costco experience is now that they've introduced Instacart, when I go to Costco there's lots of shoppers there and it makes the shopping experience negative. And so this idea that Costco is going to get things to you in two hours and trying to compete with now I live in Manhattan and you can get something from Amazon in hours. It's amazing, it's wild. And so I don't think that's the way for Costco to go. I like that Costco's just stay with.
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Jacob Goldstein
Do you think that's like particular to New York City though? I suspect the sort of medium Costco experience is not so Instagram Instacart heavy as Manhattan.
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John Curteau
It's possible but I've seen it around like they're getting more, they're getting more and more crowded.
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Jacob Goldstein
Yeah.
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John Curteau
I just think the race to getting you something we see headlines all the time where it's Amazon can get this to you in 90 minutes at 80% of the country or something like that.
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Jacob Goldstein
An asymptote, right? The asymptote is zero minutes. They can't get that much faster from 90 minutes.
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John Curteau
Right, exactly. So I, I think they should stay with what works. I think Costco should work. It's in store experience. It's not a great experience.
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Jacob Goldstein
But you go, I mean I love it. Yes, it's a particular experience. I mean groceries, when you Talk about Amazon vs Walmart, groceries is an interesting piece.
- [18:49]
John Curteau
Right.
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Jacob Goldstein
Like There was that big. Was it about the turn of the 21st century when Walmart got into groceries. Right. Super Walmarts. And I guess part of the thing with groceries is it's what everybody buys all the time, right? So it gets you into the store. And of course, then Amazon bought Whole
- [19:03]
John Curteau
Foods, and I think they've rebranded Fresh and they're trying all these different things. But I think that the, you know, the thing with Costco, I understand, is they don't want it to be a good shopping experience. Like, the cement floors are hard. They don't want you to come in after work and grab something. They want you to say, okay, I'm going once a month. I'm going to plan this like a military exercise. And it leads to higher carts. Like, people are like, if I'm only going once, I'm going to really fill up and make sure I get everything on this trip.
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Jacob Goldstein
So I actually, a long time ago, I interviewed the son of. Of the founder, actually the founder of Price Club, who amazingly was named Saul Price.
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John Curteau
Yes, exactly.
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Jacob Goldstein
Who's sort of the progenitor of Costco. Did I use Progenitor? Right. And he was saying some of the store is like theater. Like when I said, like, why? Why do I have to get like the old pre used box, you know, Right. And he's like, well, we want to communicate to you, the shopper, that it's bare bones because that's how you know you're getting a good deal. Like, it's classic for dads. Like, my dad loves Costco, right? And my dad hates, like a fancy store. You know, like when you into a fancy store and like, all the employees have iPads and there's something. And you're like, well, I'm paying for those iPads with this thing that I'm buying. But you go into Costco and there's a cement floor and it's a warehouse and everything's on pallets. And you're like, they are selling it to me for as cheap as they can. And they really are. Like, if you look at, you know, you know how Costco works. If you look at their, whatever, their annual reports, in fact, their margins are low.
- [20:27]
John Curteau
Jacob Goldstein, thank you so much for joining us. Everyone. Check out what's yous Problem and Business History and we'd love to have you back.
- [20:34]
Jacob Goldstein
Yeah, thanks. It was a delight to be here. I'll come back anytime.
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John Curteau
And that is it for Brew Markets Daily. Brew Markets Daily is hosted by Anne Barry and produced by John Gratteau. Tarka Delatif Avneroya and Emily Milian. Our technical director is Lonnie Fiskus. Brittany Dotako is our audio engineer, Booking by AB Silver Catering by the Kmart Food Court and the president of Morning Brew Inc. Is Devin Emery. Have a great weekend. We'll see you back here on Monday. Same time, same place.
- [21:05]
Jacob Goldstein
This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50 page restoration block. Or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it, ready to make anything online make sense. There's no place like Chrome. Check responses, set up, required compatibility and availability various 18.