Since its inception in 1886, has Until that time the large companies issued many glossy publications filled raising money on the equity markets with numbers and descriptions. Most were industrial concerns with large of those have been catalogues, with capital demands: railroads, shipping dazzling copy written by Richard lines, mining and manufacturing oper- Sears himself. But exactly 100 years ations. All dozen companies on the ago the firm issued a different kind of Dow Jones Industrial Average at the publication filled with numbers and time were heavy industries (table, p. descriptions: its first annual report. 22), and it would not be until 1924 that a retail firm was added to the That 1907 annual report was a DJIA: Sears Roebuck, on May 12. result of the company’s initial public So the 1906 Sears IPO marked the

offering the previous year, which first time a retail concern got off the s e v i raised $40 million, and was under- porch to run with the big dogs on Wall h c r A

written by Goldman Sachs with help Street. The fact that it was able to l a c i from Lehman Brothers. It was the do that reflected dramatic sea changes r o t s first major retail IPO in American in the body politic. The rise of the con- i H

s history and marked an important sumer economy was marked by g n i d l

inflection point in the American volume buying to reduce costs, and o H

s

economy. It was the point where the volume selling, driven by advertising. r a e S consumer economy rose to equal “Department stores were the sur- footing with the industrial one. It face foamings of a tectonic reshaping © was also one of the high points in an of American social and economic Julius Rosenwald, president epic entrepreneurial saga. arrangements that was gaining speed of Sears from 1908–1924.

Financial History ~ Spring 200720 www.financialhistory.org Around the same time in the U.S. ing to the company’s own history, Alexander Turney Stewart, an ex-min- Richard Sears was an entrepreneurial ister and school teacher lent money to fellow without much capital, working a friend to open a store. When it as a railway express agent in North failed, Stewart took it over, and was Redwood, MN. One day in 1886 he successful. So much so that in 1848 he received a shipment of watches that opened the Marble Dry Goods Palace were refused by the addressee. He catering to women at and bought them from the shipper and Chambers Street in . Four resold them to other agents.

s years later he built the even larger Within the year he opened the e v i

h Cast Iron Palace at Broadway and 9th R. W. Sears Watch Company of c r A

Street, serving men and women with a Minneapolis. The next year he l a c i

r staff of 2,000 in 19 departments on moved to Chicago, and placed an ad o t s i eight floors. for a watchmaker. In walked Alvah H

s

g In 1858 Rowland Hussey Macy, a C. Roebuck, and a new company n i d l seaman, opened a “fancy dry goods” was born. o H

s store in New York. According to That is where the tale turns r a e

S Schoennherr, the red star he had tat- strange. The official version is that

© tooed on his hand as a boy aboard a Julius Rosenwald joined the com- The cover of the first whaler became the symbol for the new pany in 1895 and took over the Sears annual report, June 30, 1907. store. New York became a center of operations that were bogging down. the trade, but every major city had its But according to a privately pub- in the 1870s and ’80s,” writes Charles own magnate: Mar- lished history in the archives of R. Morris in The Tycoons (Holt, New shall Field and Aaron Montgomery Goldman Sachs, there was a fourth York, 2005; reviewed in issue 86). Ward in Chicago, John Wannamaker principal: Aaron Nusbaum. He made “Not many years before farm wives in Philadelphia, and a host of others his first fortune at Chicago’s made their soap and candles from vats (table, p. 36). Columbian Exposition in 1893, and of animal fat, one of the nastiest of a Every one of them has a founding called upon Sears two years later to woman’s duties. By the 1840s and story, but none is as dramatic or indica- sell a pneumatic-tube system. ’50s better-off farmwomen bought tive of the best and worst of free-market That was the same year Roebuck, their soap and candles from regional capitalism as the story of Sears. Accord- a craftsman not an entrapper, bailed manufacturers like Cincinnati’s Proc- ter & Gamble.” The Tycoons also quotes Walt Whitman saying in 1858 that “the most valuable class in any commu- nity is the middle class — the men of moderate means living at the rate of a thousand dollars a year or so.” To serve that burgeoning demand, s e

dry-goods stores were expanding and v i h c evolving. According to a survey pub- r A

l lished by Steven Schoenherr, profes- a c i r o sor of history at the University of San t s i H

Diego, the world’s first department s g n store was the Bon Marche in Paris. i d l o

Proprietor Aristide Boucicaut opened H

s r his first “bargain store” in 1838, and a e S

by 1852 it had become what today © would be recognized as a department 1906 certificate for preferred stock in Sears, Roebuck store: wide variety, fixed prices, and issued to Richard Sears and signed by Julius Rosenwald. large volumes.

www.financialhistory.org21 Financial History ~ Spring 2007 Two years later the company was again struggling, and Rosenwald approached his friend Henry Sachs for a loan of $5 million. Sachs thought that the figure was inadequate, and suggested a public offering. Goldman Sachs and Lehman Brothers under- wrote $10 million in preferred shares floated at $97.50, and $30 million of common shares floated at $50. Sears and Rosenwald each got $4.5 million for their previous stock, four times what Nusbaum had been paid,

s and 180 times what Alvah Roebuck e v i

h got just four years earlier. But the esca- c r A

lation had only just begun. l a c i

r As a result of the IPO the company o t s i was strong enough to survive the H

s

g Panic of 1907. But the following year n i d l Rosenwald advised cost controls as a o H

s precaution. Sears advocated continued r a e

S spending on advertising in particular.

© Most senior company officials sided Certificate for 20,000 shares of Sears stock issued to with Rosenwald, and Sears resigned as Julius Rosenwald in 1904 — a year and a half before the company’s IPO. president, although he remained chair- man of the board until 1912. out of the troubled company. Sears handled fulfillment, and Sears went Rosenwald continued to run the bought him out for $25,000. Remem- back to writing ad copy and work- company profitably, and became a ber that number. Seeking new capital, ing suppliers. philanthropist donating many millions Sears invited Nusbaum to buy a half But clashes of style soon devel- to public schools, universities and interest for $75,000. Unable to raise oped between Sears, the free spirit, the full amount himself, Nusbaum and the Nusbaum, the disciplinarian. Dow Jones Industrial Average brought in his brother-in-law, Julius Early in 1901, with Nusbaum on a April 1, 1905 Rosenwald. health leave in Florida, Sears gave Amalgamated Copper Rosenwald, a clothier, was friends Rosenwald an ultimatum: either the with Henry Goldman, and already a two would buy out Nusbaum, or American Car & Foundry supplier to Sears. Indeed, Sears Roe- Rosenwald and Nusbaum could buy American Smelting & Refining buck owed Rosenwald’s company out Sears. Again, the details are money. How the exact payment was murky, but Nusbaum resigned as sec- American Sugar arranged is not clear, but Nusbaum retary and treasurer in February. Colorado Fuel & Iron and Rosenwald each bought a quarter Rosenwald assumed complete oper- interest in Sears Roebuck for $37,500. ating control, but negotiations for a National Lead According to a balance sheet from buyout did not begin until later in August 1895, signed by all three, the the year. Peoples Gas company’s net worth was reported Nusbaum felt he had been Tennessee Coal & Iron at $54,570.76. Four days later the betrayed, but Sears and Rosenwald company was re-incorporated in Illi- felt the company had to be saved from U.S. Rubber nois with a capital of $150,000. Sears the friction in the executive suite. U.S. Rubber first pfd. held 800 shares each worth $100; Negotiations dragged, but by the end Nusbaum and Rosenwald each held of 1903 company records showed U.S. Steel 350 shares. Recapitalized but still Nusbaum had been paid off in full, a U.S. Steel pfd. floundering, Nusbaum tackled the total of $1,349,752.46 for what was operational problems, Rosenwald by then a one-third share. Source: Dow Jones

continued on page 36

Financial History ~ Spring 200722 www.financialhistory.org Attention Shoppers: Sears IPO Heralds the Triumph of the Consumer Economy continued from page 22

museums, as well as Jewish and black Notable Department Store Foundings charities. The Julius Rosenwald Foun- 1838: Aristide Boucicaut’s Bon Marche in Paris dation was established in 1917, and his donations to the foundations came 1848: A. T. Stewart’s Marble Palace in New York to $63 million by 1929. The founda- tion has built more than 5,000 schools 1858: R. H. Macy’s in New York and associated buildings primarily in black neighborhoods around the 1862: Stewart’s Cast Iron Palace country with capacity for more than 1865: Marshall Field and Levi Leiter buy Potter Palmer’s store in Chicago, 663,000 students. promising to “give the lady what she wants.” When Sears retired as president in 1868: Strawbridge & Clothier in Philadelphia 1908, he sold his shares to Goldman Sachs for $10 million. Twenty years 1869: Zion’s Cooperative Mercantile Institution in Salt Lake City later, and one year before the Great Crash, those shares were worth $200 1872: Lyman and Joseph Bloomingdale’s in New York million. That could buy a lot of retail 1872: A. mails first catalogue from Chicago consumer goods at any department store. FH 1874: Harrod’s in London

1876: John Wannamaker’s Oak Hall Clothing Bazaar in Philadelphia

1877: David May’s Great Western Auction House & Clothing Store in Leadville, CO Gregory DL Morris is an independent business journalist based in New York. He is principal and editorial 1879: Frank Winfield Woolworth’s “five-and-ten-cent store” in Lancaster, PA director of Enterprise & Industry 1881: Joseph Lowthian Hudson’s in Detroit Historic Research, and is an active member of the Museum’s editorial 1887: Adam Gimbel’s Palace of Trade in Vincennes, IN, soon expanded to Milwaukee board. He can be contacted at [email protected].

Creative Financing of a Planned Community: Frederick Law Olmsted and the Riverside Improvement Company continued from page 27 hold a series of lot sales to satisfy River- settle his legal affairs, Gage moved to Chicago, and president-elect of the side’s creditors. Litigation dragged on Denver in 1877, where he maintained Riverside Historical Commission. She is for 17 years, with the final foreclosure interests in several hotels. currently writing a book on the RIC and sale occurring in 1891. The last credi- The village of Riverside was devel- the financial effects of the Chicago Fire. tors to be satisfied were the Peck estate, oped much along the lines originally and “Eastern parties.” planned by Olmsted, and remains an All but two of the original RIC oft-cited example of Olmsted’s vision Notes directors remained in the Chicago for a planned community. More than (Unless otherwise stated below, informa- area, and two of them, Allen and 100 years later, the improvements still tion and quotes are taken from concurrent Seelye, lived in Riverside until their function, the water works stand, and articles in the Chicago Tribune. deaths. Childs, however, moved to the gas lamps still glow along the Brooklyn in 1879, after the fall of the curved parkways. FH RIC but before judgment, where he i Childs’ original proposal to Gage was continued in real estate. After trans- an individual developer. The Riverside ferring what is now 30 acres of North Joan Junkus is an Associate Professor of Improvement Company was incorpo- Riverside to the City of Chicago to Finance at DePaul University in rated a year later. continued on next page

Financial History ~ Spring 200736 www.financialhistory.org