The Perils Of Success
Sewell Avery was a careful student of business history—but he learned the wrong lesson
May/June 1994 | Volume 45, Issue 3
It was an exhilarating time at Montgomery Ward. “I never saw such a mass movement forward in a business,” one employee remembered. “Avery turned the place inside out, even to the fixtures and decorations. All the fellows were bustling and hustling to make the grade.” Small wonder: In the first three years of the Avery regime, twenty-two thousand out of a total of thirty-five thousand employees left the company.
But Montgomery Ward was once again profitable, and its stock recovered sharply from its Depression low. Sewell Avery, who had been granted large stock options as an inducement to take the job, became very rich.
As the company slowly recovered after 1933, Avery could have borrowed money at very advantageous terms to begin a cautious expansion. Interest rates were very low, and corporate income taxes were very high, generously subsidizing interest costs. But Avery would have none of it. He regarded the New Deal and all it stood for as an abomination that would destroy the American economy in the long term. He especially hated labor unions. After one union won an election to represent seven thousand Montgomery Ward employees, only two direct orders from President Roosevelt himself got Avery to sign a union contract.
Avery had become a sort of reverse Herbert Hoover, insisting that depression was just around the corner.
When a strike hit the company in 1944, Roosevelt seized Montgomery Ward under a wartime emergency measure after Avery refused to settle.
“To hell with the government,” Avery yelled at Attorney General Francis Biddle, who had flown to Chicago in hopes of placating him. “I want none of your damned advice.”
Prepared for this, Biddle had numerous National Guardsmen at his disposal and ordered two of them to lift the chairman out of his chair and haul him out of the building.
Not only did Avery have words with which to respond, but he used the most contemptuous ones he could think of as he was carried away. “You … New Dealer !” he bellowed.
Avery was soon back in control and fully prepared to meet what he saw as the greatest challenge of the postwar economy: renewed depression. Avery, widely read, knew that one had followed every previous major war and was utterly sure that this one would be no different, especially with New Deal Democrats still in power.
But the war had put large sums into the bank accounts of millions of citizens, while virtually no durable goods had been produced in the previous three and a half years, as war production had monopolized the nation’s factories. So the pent-up demand was enormous while the supply was, at least initially, very limited. The result, of course, was boom, not depression, and a lot of inflation to boot.
Most companies soon responded, including Montgomery Ward’s archrival, Sears, Roebuck. But Avery, now in his seventies, had become a sort of reverse Herbert Hoover, insisting that depression was just around the corner. He kept his company’s money in the bank. There would be no expansion at Montgomery Ward.
The results were disastrous. Sears’s sales doubled in the ten years following the war, while Montgomery Ward’s shrank 10 percent.
In 1954 the stock market, after a quarter of a century, finally topped the highs it had reached in the early fall of 1929. Even Wall Street thought the Great Depression was over. A few months later Avery, who still did not, decided to resign.
Montgomery Ward stock jumped nearly 6 percent on the news, but the company would never again be in the top ranks of American retailing.