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Catalogues and Counters, Boris Emmett and John E. Jeuck, 1950
The activity from which “Modern Homes” developed came into existence between 1895 and 1900 when a (Sears) department was established to handle such building materials such as composition roofing, gutters, downspouts, doors, windows, moldings, stair materials, porch work, wood mantels, etc. The first millwork catalogue was issued in 1902. Sales were satisfactory, but operating expenses were high, and with the exception of roofing, service was unsatisfactory and resulted in complaints, cancellations, and allowances. As as a result, the department suffered consistent losses. In 1906, for example, sales were $1,194,000, but the department sustained a net loss of $35,000.
It was decided that the “Modern Home” department should be closed out, and the liquidation process was assigned to one Frank W. Kushel. After several months of studying how best to discontinue the department, Kushel became convinced that the department could be made efficient and profitable. He obtained authorization to reorganize the department and continue it. Sales were stimulated, service improved, and expenses brought under control. In 1908 the first “Modern Homes” catalogue was issued. By 1912 departmental losses had been wiped out. and the net profit for the preceding seven years totaled $630,000 on total sales of $10,967,000.1
Sears Roebuck and Company, Spring 1908 Catalog
The first Sears catalogue to announce the Modern Home.
In 1909 a lumber mill in Mansfield, Ohio, was purchased as a part of the campaign to improve service and stimulate sales. In 1911 a lumber yard was built at Cairo, Illinois, and in the following year a millwork plant was purchased in Norwood, Ohio. Paralleling these moves, the first bill of materials for a complete “Modern Home” was sold in 1909, and two years later the first mortgage loan was made. By the end of 1912 an annual sales volume of $2,595,000 was reached, with a departmental net profit of $176,000 (in 1906, a sales volume of $1,194,000 had returned a net loss of $35,000.
Also by the end of 1912, $649,000 in mortgage loans had been written, of which $225,000 was cash, and $432,000 represented materials. While a start had been made toward the sale and financing of complete house units, the great bulk of the business in those years lay in assorted building materials handled on a straight mail-order basis. This pattern was to continue largely intact through 1920, despite the growing emphasis on homes as such instead of solely on building materials.
The acquisition of the Norwood millwork plant and the lumber mill and yard put the company in position to furnish a complete line of building materials from its own sources. “Modern Home” catalogues were enlarged to include greater variety of houses, and their circulation was multiplied many times. The practice of mortgage financing of complete house purchases gradually increased. The eagerness of the “Modern Home” department to increase sales apparently led, however, to an abuse of the handling of mortgage loan applications, with resultant losses. This function was transferred in 1913 to the credit committee, but later that same year Rosenwald ordered discontinuation of mortgage financing (which was received in 1916 and by 1920 became an important factor in sales).
Ready-cut production lumber for “Modern Homes” was instituted in 1916. This made possible three savings:
① The company bought lumber in the most economical lengths rather than longer lengths selling at higher rates per 1,000 board feet.
② The company was also able to use second-grade lumber, converting it into first-grade by cutting out the knotted parts and using the lengths thus obtained in appropriate parts of the house.
③ With the wastage of lumber so removed, freight charges were considerably reduced.
Also in 1916 the first applied roofing office was opened in Dayton, Ohio. Three years later the first “Modern Homes” sales office was opened, at Akron, to take advantage of the building boom which followed the rapid expansion of the rubber industry (and the end of wartime restrictions on building). This was the first step in a program which eventually largely removed the sale of “Modern Homes” from the catalogue vested it instead in sales offices. By 1920 the combined annual sales of the building materials department reached $6,000,000, with total net profits of $900,000. Total sales for the eight-year period since 1912 amounted to $29,160,100; total profits were $3,377,000. In the same period a total of $3,876,000 in mortgage loans was written, consisting of $310,000 in cash and $3,566,000 (or some 12 per cent of the total sales) in materials.
1926 “Modern Home” Catalogue
Front and Back Covers
The 1926 “Modern Homes” catalogue, a book of 144 pages, provides a sample of “Modern Homes” promotion at its height. That book was printed almost entirely in color, from one-color rotogravure to four-color letterpress printing. The cover referred to the easy-payment plan, which was also mentioned throughout the book; the text of the book promised the reader almost everything but a cash bonus if he would but allow the company to construct for him one of its “Honor Bilt Modern Homes.” Every angle of the advantage of homeownership was cited, abetted by illustrations and tables. Tables compared monthly payments on “Modern Homes” with what purported to be typical rentals at various levels to show how low payments on Sears’s homes were and sought to show that one could complete payment for a “Modern Home” in a few years, whereas he would continue paying rent as long as he occupied a rental dwelling.
1926 “Modern Home” Catalogue
Own Your Home (Page 3)
Modern Homes Index (Page 5)
The illustrations showed everything from “Give the Kiddies a Chance” (children romping joyously on their own grounds) to “Have Real Friends and Neighbors” (the friendly handshake). There was also a note addressed to employers, telling how Sears’s “Modern Homes” for their employees would reduce absenteeism and labor turnover and mitigate “unrest.” And there was a letter from the Standard Oil Company of Indiana expressing its entire satisfaction with two hundred homes built for it by Sears, which Standard said, “we are able to offer…to our workmen at very low prices.” (A check for $1,000,000 tendered by Standard Oil of Indiana for “Modern Homes” was reputedly the largest ever received by the company from any purchaser.) The catalogue listed seventy-three “Honor Bilt Modern Homes” by their several names, from “The Albany” to the “Woodland.” eight “Standard Built” low-priced homes (from “The Estes” to “The Selby”, as well as sunrooms, garages, summer cottages, outhouses, and miscellaneous items.
1926 “Modern Home” Catalogue
“Skyscrapers Are Ready Cut—Why Not Your Home?”
The book repeated incessantly that “skyscrapers are ready-cut—why not your home?” Cut-away illustrations showed how each piece of lumber was “ready cut” at the factory and numbered for easy construction. A 40 per cent saving in carpenter labor (backed by an affidavit) was claimed for the Sears homes. The homes sold by the company were complete with hardware, various interior items such as closets, etc., and three coats of exterior paint. Prices ranged from $474 for the Hudson (two bedrooms, living room, kitchen, bath, and porch) to $4,9319 for the Lexington (an elaborate two-story structure). Garages started at $82.50.
The solid page devoted to the easy-payment plan and containing an application blank stated:
By 1927 the “Modern Homes” department had actually very nearly reached its maximum development. Sales offices scattered throughout the East were headed up in the Philadelphia headquarters; throughout the Midwest, in the Chicago headquarters. This organization sought an ever increasing sales volume. By this time, however, country-wide building activity had receded, and it became more difficult and expensive to maintain much less increase, volume in a declining market. In 1928, therefore, the 75 per cent fifteen-year mortgage plan was introduced, and in 1929 the company adopted the policy of construction of homes in addition to the sale of materials. More expensive dwellings and special designs constituted more and more of the volume, with resultant increases in architectural and service expense. The profit margin for the “Modern Home” department dropped to less than 5 per cent in the years 1928, 1929, and 1930 from a high of 15 per cent in 1919 and 1920, and average of more than 10 per cent for the period from 1921 to 1926.
A sales office had been opened in Kansas City in 1927 (and closed in 1928) and another in St. Louis in 1929. The peak point in sales came in 1929 with a volume of $12,050,000, $5,622,000 of which was on a mortgage-loan basis. Sales for the next year declined to $10,858,000, of which $6,854,000 was om a mortgage-loan basis. The total mortgage loans for that year, including cash furnished in the amount of $4,160,000, was $11,014,000 and actually exceeded sales by over $350,000. For the next four years from 1927 through 1930, sales amounted to $42,112,000, of which $24,702,000, or 59 per cent, was on a mortgage basis. Mortgage-loan accounts receivables had reached a total of $37,000,000, and increasing difficulty was encountered in collections. Foreclosure and resale of houses was to become a real problem.
Business Week, in its issue of Mach 26, 1930, used Sears’s policy of constructing homes as peg on which to hang a résumé of home selling and building operations of both Sears and Montgomery Ward:
For several years mail order houses have been selling ready-cut houses delivered at the building site. Now both Sears, Roebuck and Co. and Montgomery Ward Co. have gone two steps farther. They not only sell and deliver the houses, with every stick and timber cut and numbered, but they also finance and supervise construction.
About all the customer has to do is to say “Build me such-and-such a house on such-and-such a lot.” The company does the rest and collects over an installment period of 14 years, 8 months. The purchaser pays $8.56 a thousand a month, which is 6% interest and payment in full of principal in 15 years, including carrying charges amounting to 1% a year on material, or about ½% on the entire loan. Savings over time-hallowed methods of building are said to be 18% in materials, 30%-40% in labor costs.
The new plan of home building has been in operation only a few months, but both companies have found it exceedingly popular. Before its adoption, Sears, Roebuck and Co. sold about 3,000 houses a year; since the new system of finance and construction went into effect, this total has been greatly increase.
Sears, Roebuck’s annual report for 1932 stated:
The “Modern Home” department had a continuous record of profitable operation for nineteen years.
Since September, 1931, this department has operated at a loss. Its sales declined over 40% in our fiscal year, with resulting losses of $1,154,984 during the year. With the reorganization and the reduction of expenses that have been effected, it is believed that in 1933 this branch of the business can be operated without loss, even if we should encounter a further reduction of 20% in volume of sales.
Beginning with the summer of 1931, there has been a large increase in the number of properties reacquired. In the period September, 1931 to November, 1932, the number reacquired exceeded the the total of the preceding ten years. Since November, this number has begun to decline.
The above mentioned 219 properties, with a book value of $830,921 were sold for $695,191, or for 83% of their book value.
In November, 1931, we began renting some of the properties. As of January 28, 1933, there were rented 503 properties on an annual basis of $127,248.
From 1934 on the company moved vigorously to reduce the value of its mortgage-loan accounts receivable. By far the largest single factor contributing to the reduction was the sale, at a loss of 17½ per cent, to the Home Owners Loan Corporation in 1934 and 1935 of 4,137 accounts whose ledger balances aggregated $15,902,000. Mortgage-loan accounts aggregating $5,000,000 were sold to the Metropolitan Life Insurance Company in 1935 on a nonrecourse basis. Further reduction (down to $28,133,000 by the sixth period of 1936) was accomplished through cash received and write-offs taken in the sale of repossessed property, mortgage loans refinanced by mortgagors, and, of course, regular installment payments.
The company’s annual reports spelled out the dreary details of the liquidation of the “Modern Homes” department. In 1934 this statement appeared:
About $11,000,000 in mortgages was liquidated during the year and the Modern Homes Department was discontinued. The losses, amounting to $1,637,000, incident to the liquidation of mortgages, closing of the department, and the reacquiring of properties, were charged to surplus even though the reserve available would probably have been ample to cover both this write-off and the future remaining liquidation base.
From 1906 to 1934 the building material sales amounted to $69,255,000 and returned profit of 8.9 per cent, or $6,142,000. For the same period sales of homes as such amounted to $87,052,000 and returned a profit of 4.9 per cent, or $4,295,000. After applying the subsequent mortgage-loan losses of $6,912,000, the profit was converted into a loss of $2,617,000 on “Modern Homes” (as homes). The entire “Modern Homes” operation (as apart from sale of building materials) was interred and summarized in A. W. Clark’s report as follows:
Over a twenty-five year span, close to $90,000,000 of business was done, and a loss of over $2,500,000 was incurred in order that the building material factories might make a corresponding profit.
Sears, Roebuck was to enter the prefabricated housing field in 1935, but not on the same basis upon which “Modern Homes” had collapsed. In the words of the Wall Street Journal of August 26, 1935:
Sears will not erect or directly finance purchases of prefabricated homes, but states that by the time the first home is completed this Fall, it expects to have financing arrangements worked out ‘with an outside source’ that will permit purchase of homes in the Chicago area on an easy payment plan.
The Sears 1935 Fall Catalogue (left) and the 1936 Spring Catalogue (right) were the last books to promote the Sears Modern Home program.
Chicago Tribune, August 25, 1935
Sears, Roebuck & Co. yesterday announced plans for placing on the market completely prefabricated steel and wood one story homes to cost approximately $2,900 to $4,200, plus the site. The plan provides that the cost be entirely amortized over a 15 year term. Planned by General Houses, Inc., with 30 designs available shortly, the first unit, a display home, shown above, will be erected soon in a suburb. The initial unit display house will contain five rooms:
13×16 Living Room
10×10 Dining Room
All will be on one floor. In addition there will be a bath, a 13×20 garage (an integral part of the house) and a utility storage unit in which will be kept the heating equipment and laundry tubs.
1Information on the “Modern Homes” department is gleamed from A. W. Clark’s undated “Report on Modern Home, Norwood Sash and Door Manufacturing Company,” prepared for Sears, Roebuck apparently in 1936. The Norwood Company was the Sears subsidiary handling the “Modern Homes” operation.