Sears, Whirlpool and Washer Design
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Captive Supplier or Partner? Sears,Whirlpool and Washer Design Malcolm B. Russell AndrewsUniversity Exactlyeighty years ago the founder of a strugglingmanufacturing company approachedexecutives at the prominentmail orderspecialist Sears, Roebuck to demonstratean electric washing machine. Despite the number of electricsmarketed sincethe first Thor appeared in 1908,Sears sold primarily hand-powered machines. Now LouisC. "Lou"Upton sought to listhis product. Just thirty years of age,Upton possesseda "brilliant talent for salespromotion" [1, p. 1], and likely captured Sears'interest with an air rifle producedby theUpton Machine Company that sold well in themilitaristic spirit of the age.Whether because Sears needed an electric, or becauseof Upton'spersuasive qualities, Upton won a deal to supplysome 25 machinesper month. To quotethe corporatechronicle, this was"probably the mostimportant announcementin the historyof the UptonMachine Company and the successor companies"[8, p. 18; 1, p. 7]. Thusbegan what Lou's brotherFrederick, who was secretaryof thefirm, considered"one of thefinest business relationships that was everput together, starting out in a very,very small way" [10, p. 14].The agreement pavedthe way for the WhirlpoolCorporation's long rise to dominancein the applianceindustry, and apparently contributed very significantlyto profitsat Sears as well. The EssentialRelationship Withinmonths, economic conditions imperiled the Upton-Sears agreement. Wartimeinflation forced the UptonMachine Company to requestcompensating priceincreases. A tightcontract might well have doomed the relationship. However, Searsrecognized the impact of inflation,and the relationship continued for decades, sealedby furtherhandshakes rather than contracts. Bearing the trade mark "Allen," the machineadvertised in the Sears cataloguecame in two models,a six-sheettub pricedat $54.75,with the 12-sheet capacitymodel retailing at $95.00,both expensive novelties when $50 represented a reasonablemonthly wage [8, p. 5]. Nevertheless,sales gathered strength during the wartimelabor shortages and risingincomes. In 1919 Searsordered "a good quantity"of machines,and began to extendcredit for their purchase.The 1921 Sears model, presumablyfeaturing the perforated-metaloscillating clothes container,painted metal cabinetsides, and completelyenclosed working parts, aroused such enthusiasmthat the retailer desired 15,000 machines,"more of an orderthan we'd everdreamt of havingat onetime" [8, p. 28-30; 10, p. 14-15].Far BUSINESS AND ECONOMIC HISTORY, Volumetwenty-five, no. 1, Fall 1996. Copyright¸1996 by theBusiness History Conference. ISSN 0849-6825. 143 Malcolm B. Russell / 144 exceedingthe capacityof the smallmanufacturer, the orderrequired additional productionfacilities. Sears agreed to financethe construction of a factorywith a loanof $75,000 at 6% interestfor five years[13, 1920;8, p. 30]. Thenew plant added capacity just as the post-war recession hit the appliance industry.National washer sales had almostdoubled between 1919 and 1920, encouragingthe order for 15,000machines, but then fell 60% in 1921.Upton sales rosefrom $493,000 in 1919to $957,000the next year, then declined to $361,000. At Sears, total sales fell from $245 million in 1920 to $164 million in 1921, producinga net lossof $16 million;President Julius Rosenwald even resorted to pledginghis personalfortune to reassurethe public.Sears survived, but clearly couldnot sell 15,000washers [14; 16; 7, p. 31-2]. WhenSears sought to cancelthe order, the Uptons' response reflected their personalphilosophy. According to Frederick, "We thoughtit wouldnever be good businessto forceanyone to takemerchandise that they didn't feel they could handle, andso we agreedto cancelthe order." However, without the salesto Sears,Upton MachineCompany could never repay its loan.Perhaps recognizing that its supplier facedbankruptcy, Sears extended the building loan "until such time as the business cameback" [t0, p. 15].Thus the crisis confirmed a businessrelationship based on trustrather than contracts. However, financial difficulties still remained: equaling 80% of thecompany's 1920 assets, the loan weighed heavily on any future income. In response,the directors proposed a 200% stock dividend, split the existing shares, andconverted the loan to Searsequity, at thepar valueof $10 per share[ t 3, 192t; t0, p. 15;8, p. 32]. Searsemerged holding one-third of UptonMachine Company stock,approximately three times the Upton family holding. In FrederickUpton's words,it was "that wonderfulmarriage." By 1925the Upton Machine Company became Sears' exclusive supplier for electricwashers, though it continuedto produceappliances under other labels. In part,the relationship rested on personalities: General Robert E. Wood,Vice Pres- identof Sears'own factories, liked the Upton brothers. More generally, he regarded suppliersaccording to themotto "give everybody a fair profitbut demand quality merchandise"[23; quote:t0, p. 16]. Duringthe late 1920s,washer sales soared at Sears.General Wood, when previouslyVice Presidentfor Merchandisingat MontgomeryWard, had recognized that urbanizationand the automobilewere changingAmerica's shopping habits, especiallyfor durablegoods. Ascending to the presidencyof Sears,he established thefirst Sears retail store in 1925.Others quickly followed, and by 1930retail sales accountedfor half of totalvolume. Upton washers sold so readily that production rose tenfold.Profits soared, from $42,000 in 1925 to St 17,000 two yearslater. ClearlySears had done well whenit turneda possiblyunrepayable advance into equity. Severalsources credit Louis Upton with a majorinnovation that contributed to therising sales. Dissatisfied with the performance of Sears'salesmen, in t 929 he approachedGeneral Wood to complainthat "their displaywas terrible,[their] salesmen'sknowledge of theproduct was incomplete at bestand too oftenvery wrong.As a result,they just werenot sellingthe merchandisethey shouldhave sold" [t0, p. 24]. In response,Wood offeredto let Uptonmanage sales. Thus a smallmanufacturing company with little marketingexperience took responsibility for salestechniques at America'sretail giant.Upton formed a team of capable employeesfrom both companies, assigned territories to them,and charged them to improvethe salesmen'sknowledge. New techniquesand promotionalmaterials Sears,Whirlpool and Washer Design / 145 followed, and a later brochure noted that in 1930, salesrose 35% at Sears stores underUpton's direction, while washerindustry sales fell 35% nationally.Sears reportedlyadopted similar methods to sellother household products as well. Sears' salesof homelaundry equipment reportedly jumped from 25,000 to 125,000units underthe program, but the retailer dropped it during1932. Perhaps its lessonshad alreadybeen learned [8, p. 45-6; 1, p. 7-8]. Evenbefore these marketing innovations, great demand for thewashers and theneed to cuttransport costs to Easterncities led Sears to desirea secondfactory. To summarizea lengthy and complicated process, Sears' pressures led to a merger of Upton with a Binghamton,N.Y. manufacturerand thusformed the Nineteen HundredCorporation. Although the Upton Machine Company disappeared and Lou Upton yieldedthe presidency,the Uptonsand their alliesat Searscontrolled a majorityof the company'scommon stock. In 1932,after lingeringdisputes over marketingpriorities, Upton gained control. In 1949the firm adoptedthe trademark of an earlyBinghamton washing machine as its corporateidentity and became the WhirlpoolCorporation. Supplier and Retailer During the Great Depression For mostAmerican industries, the GreatDepression followed prosperous yearsin the 1920s,and home laundry appliances proved no exception. Value added withinthe industry increased from $17.3 million to $41.6million, some 240% [16]. Uptonprofits climbed from $42,000 in 1925to anannual rate of $300,000by the first quarterof 1929.In an industrythat grew remarkably - at Maytag,the largest firm, profitsdoubled - the UptonMachine Company performed spectacularly, a consequencelargely of salesto Sears. The Depressionstruck the industry quickly after the peak of 913,000units shippedin 1928.By 1932shipments were almost exactly two-thirds the 1928 level, mirroringclosely the roughly30% declinein real GDP. In the period1931-33 nearly30% of the firmsleft the industry.Amazingly, the Nineteen Hundred Corpor- ationsuffered only minor pains. Output increased to approximately150,000 units in 1931,and despite the industry's extraordinary price cutting, the dollar value of salesrose 20%. Net profitssoared to $741,000in 1931but fell to $376,000in 1933. By contrast,industry leaders like Maytagand EasyWasher (Syracuse Washing Machine) cut or halted dividends[ 16]. Water Witches, Whirlpools, and Henry Dreyfuss Technologyand design aided the relatively successful sales. Very soonafter the 1929merger the "Water Witch," a longstandingSears nameplate, appeared with aninsulated tub as well asa newcolor, green. As imagebecame more important to the public, in 1932 Searscommissioned the notedindustrial designer Henry Dreyfussto conceivean exclusive style of wringerwasher. Dubbed the '•l'operator," it featuredsmooth styling generallyand all the controlsgrouped together convenientlynear the wringer post [8, p. 48]. Ed Geldhof,later the company's Chief Engineer and "grand old manof the industry,"described the era vividly at theSixth National Home Laundry Conference in 1952: [5] Malcolm B. Russell / 146 Many washingmachine manufacturers quickly demanded that their engineeringstaff