Consumer behavior

How Amazon ate Sears' lunch

January 9, 2012: 12:04 PM ET

In the Sears of old, you could mail order just about anything you wanted, even a house. Consumers came full circle in the late 90s, but the department store chain didn't catch on.

By Elizabeth G. Olson, contributor

FORTUNE -- As recently as your grandparents' generation, Sears was the household goods icon for middle class Americans. The thick Sears catalog was the family go-to source for mail ordering anything from eyeglasses to bicycles, and, in earlier decades, even patent medicines and pre-cut houses complete with kitchen sinks.

Sears, which opened for business in the late 19th century, called itself "The Cheapest Supply House on Earth," and, in its heyday, dominated home delivery with 75 million catalogs distributed each year, bringing goods to far flung farms, towns and other locations. But today's customer, who can browse the Sears website but not order from its catalog service, which was dropped in the early 1990s, is likely to be ordering from Amazon's marketplace instead.

"Amazon is the new Sears," says Robert Spector, a retail historian who wrote Amazon.com: Get Big Fast, and other books on retailers. "It's also the new Walmart, the new Barnes & Noble and the new Best Buy."

Sears (SHLD) has not retooled its venerable brand for the technology age, which was underscored this past holiday season when retail sales rose, and Internet sales soared, but the venerable store racked up such poor sales that it announced that it will close 120 stores, and projected that its earnings are likely to sink more than 50% for the most recent three months -- usually the time of the year that retailers rake in their biggest revenues.

Sears, says Spector, "tried to hold onto what they were rather than trying to invent themselves. Like Kodak, Sears did not leap forward when it needed to do so."

Yet Sears still has a loyal customer base, attracted by its sturdy Kenmore appliances, reliable Craftsman tools and well-made Lands' End clothing. It totaled more than $40 billion in sales last year, but that amount is down more than $10 billion from its annual totals only a few years ago.

Amazon (AMZN), on the other hand, had healthy sales during the holiday season, although no specific figures have been released. Consumers spent more than $37.2 billion on overall Internet ordering in November and December -- up 15% over last year, according to figures released by comScore, which tracks such spending.

The Seattle-based Amazon launched in 1994, one year after Sears dropped its mail order catalog operation, which department store historian Michael Lisicky believes could have been Sears' foundation to capitalize on its reliable reputation and to build a Web operation that could have cemented its place in the American home. More

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