Montgomery Ward & Co., Incorporated

Product Details

Historical Context

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Montgomery Ward was founded by Aaron Montgomery Ward in 1872. Ward had conceived of the idea of a dry goods mail-order business in Chicago, Illinois, after several years of working as a traveling salesman among rural customers. He observed that rural customers often wanted "city" goods, but their only access to them was through rural retailers who had little competition and did not offer any guarantee of quality. Ward also believed that by eliminating intermediaries, he could cut costs and make a wide variety of goods available to rural customers, who could purchase goods by mail and pick them up at the nearest train station.

Ward started his business at his first office, either in a single room at 825 North Clark Street, or in a loft above a livery stable on Kinzie Street between Rush and State Streets. He and two partners used $1,600 they had raised in capital and issued their first catalog in August 1872. It consisted of an 8 in × 12 in single-sheet price list, listing 163 items for sale with ordering instructions for which Ward had written the copy. His two partners left the following year, but he continued the struggling business and was joined by his future brother-in-law, George Robinson Thorne.

In the first few years, the business was not well received by rural retailers. Considering Ward a threat, they sometimes publicly burned his catalog. Despite the opposition, however, the business grew at a fast pace over the next several decades, fueled by demand primarily from rural customers who were inspired by the wide selection of items that were unavailable to them locally. Customers were also inspired by the innovative company policy of "satisfaction guaranteed or your money back", which Ward began in 1875. Ward turned the copy writing over to department heads, but he continued poring over every detail in the catalog for accuracy.

In 1883, the company's catalog, which became popularly known as the "Wish Book", had grown to 240 pages and 10,000 items. In 1896, Wards encountered its first serious competition in the mail order business, when Richard Warren Sears introduced his first general catalog. In 1900, Wards had total sales of $8.7 million, compared to $10 million for Sears, and both companies would struggle for dominance during much of the 20th century. By 1904, the company had expanded such that it mailed three million catalogs, weighing 4 lb each, to customers.

In 1908, the company opened a 1.25-million-square-foot building stretching along nearly one-quarter mile of the Chicago River, north of downtown Chicago. The building, known as the Montgomery Ward & Co. Catalog House, served as the company headquarters until 1974, when the offices moved across the street to a new tower designed by Minoru Yamasaki. The catalog house was declared a National Historic Landmark in 1978 and a Chicago historic landmark in May 2000. In the decades before 1930, Montgomery Ward built a network of large distribution centers across the country in Baltimore, Fort Worth, Kansas City, St. Paul, Portland, and Oakland. In most cases, these reinforced concrete structures were the largest industrial structures in their respective locations. The Baltimore Montgomery Ward Warehouse and Retail Store was added to the National Register of Historic Places in 2000.

Expansion into Retail Outlets

Ward died in 1913, after 41 years running the catalog business. The company president, William C. Thorne (the eldest son of the co-founder), died in 1917, and was succeeded by Robert J. Thorne. Robert Thorne retired in 1920 due to ill health.

In 1926, the company broke with its mail-order-only tradition when it opened its first retail outlet store in Plymouth, Indiana. It continued to operate its catalog business while pursuing an aggressive campaign to build retail outlets in the late-1920s. In 1928, two years after opening its first outlet, it had opened 244 stores. By 1929, it had more than doubled its number of outlets to 531. Its flagship retail store in Chicago was located on Michigan Avenue between Madison and Washington streets.

In 1930, the company declined a merger offer from its rival chain Sears. Losing money during the Great Depression, the company alarmed its major investors, including J. P. Morgan. In 1931, Morgan hired Sewell Avery as president who cut staff levels and stores, changed lines, hired store rather than catalog managers and refurbished stores. These actions caused the company to become profitable before the end of the 1930s.

Wards was very successful in its retail business. "Green awning" stores dotted hundreds of small towns across the country. Larger stores were built in the major cities. By the end of the 1930s, Montgomery Ward had become the country's largest retailer and Sewell Avery became the company's chief executive officer.

In 1939, as part of a Christmas promotional campaign, staff copywriter Robert L. May created the character and illustrated poem of "Rudolph, the Red-Nosed Reindeer." The store distributed six-million copies of the storybook in 1946 and actor and singer Gene Autry popularized the song nationally.

In 1946, the Grolier Club, a society of bibliophiles in New York City, exhibited the Wards catalog alongside Webster's Dictionary as one of 100 American books chosen for their influence on life and culture of the people. The brand name of the store became embedded in the popular American consciousness and was often called by the nickname Monkey Ward (a corruption of Mont'gy Ward), both affectionately and derisively.

Government Seizure

In April 1944, four months into a nationwide strike by the company's 12,000 workers, U.S. Army troops seized the Chicago offices of Montgomery Ward & Company. The seizure was ordered because Avery refused to settle the strike as requested by the Roosevelt administration because of its adverse effect on the delivery of needed goods in wartime. Avery had refused to comply with a War Labor Board order to recognize the unions and institute the terms of a collective bargaining agreement. Eight months later, with Montgomery Ward continuing to refuse to recognize the unions, President Roosevelt issued an executive order seizing all of Montgomery Ward's property nationwide, citing the War Labor Disputes Act as well as his power under the Constitution as commander-in-chief. In 1945, Truman ended the seizure and the Supreme Court ended the pending appeal as moot.

Decline

After World War II, Sewell Avery believed the country would fall back into a recession or even a depression. He decided to not open any new stores, and did not even permit expenditure for paint to freshen the existing stores. His plan was to bank profits to preserve liquidity when the recession or depression hit, and then buy up his retail competition. However, without new stores or any investment back into the business, Montgomery Ward declined in sales volume compared to Sears; many have blamed the conservative decisions of Avery, who seemed to not understand the changing economy of the postwar years. As new shopping centers were built after the war, it was Sears that got the best locations, and Wards was shut out of any opportunity to expand. Nonetheless, for many years Wards was still the nation's third-largest department store chain.

In 1955, investor Louis Wolfson waged a high-profile proxy fight to obtain control of the board of Montgomery Ward. The new board forced the resignation of Avery. This fight led to a state court decision that Illinois corporations are not entitled to stagger election of their board members under that state's laws, as well as to tax litigation over whether the costs of a proxy fight are an "ordinary and necessary business expense." In time, it helped inspire new Securities and Exchange Commission rules concerning proxies.

Meanwhile, throughout the 1950s, the company was slow to respond to the general movement of the American middle class to suburbia. While its competitors Sears, JCPenney, Macy's, Gimbels, and Dillard's established new anchor outlets in the growing number of suburban shopping malls, Avery and succeeding top executives had been reluctant to pursue such expansion. They stuck to their downtown and main street stores until the company had lost too much market share to compete with its rivals. After Avery's departure in 1955, it took two years before the first new store since the 1930s was opened in 1957. Wards tried to become more aggressive with store opening, but it was too late: competition had already taken the best locations. As the existing stores looked worn and disheveled, malls would often not allow Wards to build there. Its catalog business had also begun to slip by the 1960s.

In 1961 then president John Barr hired Robert Elton Brooker to lead Montgomery Ward as president in its turnaround. Brooker brought with him a number of key new management people, including Edward Donnell, former manager of Sears' Los Angeles stores. Wards new management team achieved the turnaround reducing the number of suppliers from 15,000 to 7,000 and the number of brands being carried dropped from 168 to 16. Ward's private brands were given 95 percent of the volume compared with 40 percent in 1960. The results of these changes were lower handling costs and higher quality standards. Buying was centralized but store operations were decentralized, under a new territory system modeled after Sears. In 1966, Ed Donnell was named President of Montgomery Ward. Brooker continued as Chairman and Chief Executive Officer until the mid 1970s. In 1968 as Brooker helped engineer a friendly merger with the Container Corporation of America; the new company was named MARCOR. In 1974, Mobil oil company bought MARCOR.

During the 1970s, the company continued to struggle. In 1973, its 102nd year in business, it purchased a small discount store chain, the Miami-based Jefferson Stores, Inc. It renamed the stores Jefferson Ward. In 1976 Mobil, flush with cash from the recent rise in oil prices, acquired Montgomery Ward. By 1980, Mobil realized that the Montgomery Ward stores were doing poorly in comparison to the Jefferson stores, and decided that high quality discount units, along the lines of Dayton Hudson Company's Target stores, would be the retailer's future. Within 18 months, management quintupled the size of the operation, now called Jefferson Ward, to more than 40 units and planned to convert one-third of Montgomery Ward's existing stores to the Jefferson Ward model. The burden of servicing the new stores fell to the tiny Jefferson staff, who were overwhelmed by the increased store count, had no experience in dealing with some of the product lines they now carried, and were unfamiliar with buying for northern markets. Almost immediately, Jefferson had turned from a small moneymaker into a large drain on profits. The company sold the chain's 18-store northern division to Bradlees, a division of Stop & Shop, in 1985. The remaining stores closed.

In 1985, the company closed its catalog business after 113 years and began an aggressive policy of renovating its remaining stores. It restructured many of the store layouts in the downtown areas of larger cities and affluent neighborhoods into boutique-like specialty stores, as these were drawing business from traditional department stores. In 1988, the company management undertook a successful $3.8 billion leveraged buyout, making Montgomery Ward a privately held company.

In 1987, the company began a push into consumer electronics, using the "Electric Avenue" name. Montgomery Ward greatly expanded its electronics presence by shifting from a predominantly private label mix to an assortment dominated by major brands such as Sony, Toshiba, Hitachi, Panasonic, JVC, and others. Vice President Vic Sholis, later president of the Tandy Name Brand Retail Group (McDuff, VideoConcepts, and Incredible Universe), led this strategy. In 1994, revenues increased 94% largely due to Montgomery Ward's tremendously successful direct-marketing arms. For a short period, the company reentered the mail-order business, through "Montgomery Ward Direct", a mail order business licensed to the catalog giant Fingerhut. However, by the mid-1990s, sales margins eroded in the competitive electronics and appliance hardlines, which traditionally were Montgomery Ward's strongest lines.

In 1989, Jim Hamilton who headed the Small Electronics department (later known as the Father of Computer Retailing) ran an aggressively priced PC in Montgomery Ward advertising. The low promotional price was $1499, unheard of at the time. The computer promotion was a huge success. (Hamilton, with the cooperation of Packard Bell, later, for the first time ever, broke the $999 PC price point floor for a "back to school" promotion.) After the successful promotion, Hamilton developed a business plan to launch the first National Branded Computer Product Department in the world. Executives approved the plan and allocated space in three Sacramento stores to create the SOHO (Small Office Home Office) department. Since many of the brands, like Hewlett Packard and Panasonic would not disrupt their dealer channel and sell direct to Montgomery Ward, Hamilton had to create relationships with many distributors to pull together the branded department. When the Sacramento stores opened the shelves included items like Hewlett Packard printers, OkiData printers and other brands that had never been in a national retailer. The test was a major success and the SOHO department was rolled out to all Montgomery Ward locations. Montgomery Ward was one of the first retailers to carry consumer products from IBM, Apple, Compaq, Hewlett Packard, Western Digital and many others. The SOHO Department was carved into a separate division of the company and quickly became Montgomery Ward's largest revenue producing division, with over $4 billion in revenues.

Bankruptcy, Restructuring, and Liquidation

By the 1990s, however, even its rivals began to lose ground to low-price competition from Kmart, Wal-Mart, and especially Target, which eroded even more of Montgomery Ward's traditional customer base. In 1997, it filed for Chapter 11 bankruptcy, emerging from protection by the United States Bankruptcy Court for the Northern District of Illinois in August 1999 as a wholly owned subsidiary of GE Capital, which was by then its largest shareholder. As part of a last-ditch effort to remain competitive, the company closed over 100 retail locations in 30 U.S. states (including all the Lechmere stores), abandoned the specialty store strategy, renamed and rebranded the chain as simply Wards (although unrelated, Wards was the original name for the now-defunct Circuit City), and spent millions of dollars to renovate its remaining outlets to be flashier and more consumer-friendly. However, GE Capital reneged on promises of further financial support of Montgomery Ward's restructuring plans.

On December 28, 2000, after lower-than-expected sales during the Christmas season, the company announced it would cease operating, close its remaining 250 retail outlets, and lay off its 37,000 employees. All stores closed within weeks of the announcement. The subsequent liquidation was at the time the largest retail Chapter 7 bankruptcy liquidation in American history (this would be later surpassed by the 2009 and 2018 store closures of Circuit City and Toys 'R' Us). Roger Goddu, Montgomery Ward's CEO, received an offer from JCPenney to become CEO, but he declined under pressure from GE Capital. One of the last stores to close was the Salem, Oregon, location in which the human resources division was located. All of Montgomery Ward was liquidated by the end of May 2001, ending a 129-year enterprise.

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