Last night on "60 Minutes," Amazon CEO Jeff Bezos showed Charlie Rose a video from the future.
A drone with propellers, nicknamed "octocopter," snatched a package off a conveyer belt in an Amazon warehouse, took off through the door, flew above a grassy field, and dropped it off in a family's backyard. It's a neat clip (watch it below), and within five years, Bezos said, Amazon PrimeAir won't just be YouTube video. It will be a way to deliver packages to families within 30 minutes of their purchase click.
The project is theoretical bordering on science fiction, and five years is an eternity in Internet and mobile technology (five years before Apple introduced the phone I use, iPhone 4S, there was no iPhone). But in a way, Amazon's drone dreams fit snuggly into the sweep of retail innovation, which I reviewed for my last Atlantic column, The Amazon Mystery.
The turbulent 150-year history of American retail is one of enormous companies desperately trying to anticipate the whims of mobile shoppers and mobile technology. Amazon's stated plan to ask robots to deliver packages in cities is a perfect extension of the last century's lessons in how retail companies grow, thrive, and die.
Planes, Trains, and Octocopters
In 1890, the frontier was "closed," and for the first time it could be said that the union was united—by rail and telegraph. Although the population was still two-thirds rural, mass retailers like Sears and Montgomery Ward could respond to catalog orders, load merchandise onto outgoing trains, and accomplish something unprecedented. They brought the stores to the people.
In the early-to-mid 20th century, however, a "mobile" technology even more advanced than trains—the automobile—did something even better: It brought the people to the stores. Sears adapted to this transportation shift brilliantly. As families streamed off farms into cities, Sears followed, building 300 national stores in four years. With revenue approaching 1 percent of the entire U.S. economy, Sears was America's perfect retail company.
Until it wasn't. In the 1980s, the slow demise of manufacturing weakened Sears' core demographic. Meanwhile, new competitors were lapping Sears in the race for the best information technology, both down-market, like Walmart, and up-market, like The Gap. From their brief history of the rise and fall of Sears, Daniel Raff and Peter Temin write:
For Sears to have competed directly with Wal-Mart, it would have had to rethink from the ground up how goods passed from manufacturers to consumers. Sears managers told themselves that Wal-Mart and other low-price firms succeeded because they sold cheap goods, representing a move down-market that Sears would not follow. The focus on the goods sold obscured the innovations in the way Wal-Mart and other firms organized like it handled the products. The goods were cheap partly because Wal-Mart's costs were low.
In short, Sears lost on infrastructure.
When people think of retail companies, what comes to mind is everything we can see inside the store: the merchandise, the layout, the clientele. But more important is everything you can't see inside the store: the supply chain, the warehouse management, the software that relays sales data to the people making decisions about the next batch of orders. In the short run, shopping is about seizing on trends and stocking the most popular merchandise. In the longer run, the best retail companies turn out to be the best infrastructure companies.