Richard Warren Sears was born in Stewartville, Minnesota in 1863 to a wealthy family, which moved to nearby Spring Valley. In 1879, Sears' father died shortly after losing the family fortune in a speculative stock deal. Sears moved across the state to work as a railroad station agent in North Redwood, as well as in Minneapolis. While in North Redwood, a jeweler received an impressive shipment of watches which were unwanted. Sears purchased them, then sold the watches at a low price to the station agents and made a considerable profit.
In Minneapolis, he started a mail order watch business in 1886, calling it "R.W. Sears Watch Company." Within the first year he met Alvah C Roebuck, a watch repairman. The next year, they relocated the business to Chicago. In 1887, R.W. Sears Watch Company published Richard Sears' first mail-order catalog – in this case, offering watches, diamonds, and jewelry. In 1889, Sears sold his business for $100,000 ($2.7 million today) and relocated to Iowa, intending to be a rural banker.
Restless, Sears returned to Chicago in 1892 and established a new mail-order firm, again selling watches and jewelry, with Roebuck as his partner, operating as the A. C. Roebuck watch company. In 1893, they renamed the company to Sears, Roebuck & Company and began to diversify the product lines offered in their catalogs. Before the Sears catalog, farmers near small rural towns usually purchased supplies – often at high prices and on credit – from local general stores with narrow selections of goods. Prices were negotiated, and relied on the storekeeper's estimate of a customer's creditworthiness. Sears took advantage of this by publishing catalogs offering customers a wider selection of products at clearly stated prices. By 1894, the Sears catalog had grown to 322 pages, featuring sewing machines, bicycles, sporting goods, automobiles (later produced, from 1905 to 1915, by Lincoln Motor Car Works of Chicago, no relation to the current Ford line), and a host of other new items. By 1895, the company was producing a 532-page catalog. Sales were greater than $400,000 ($10.9 million today) in 1893 and more than $750,000 ($22.1 million today) two years later. By 1896, dolls, stoves and groceries had been added to the catalog.
Despite the strong and growing sales, the national Panic of 1893 led to a full scale recession, causing a cash squeeze and large quantities of unsold merchandise by 1895. Roebuck decided to quit, returning later in a publicity role. Sears offered Roebuck's half of the company to Chicago businessman Aaron Nusbaum, who in turn brought in his brother-in-law Julius Rosenwald, to whom Sears owed money. In August 1895, they bought Roebuck's half of the company for $75,000 ($2.2 million today). The company was reincorporated in Illinois with a capital stock of $150,000 ($4.4 million today) in August 1895. The 1895 transaction was handled by Albert Henry Loeb of the Chicago Law Firm of Loeb & Adler (now known as Arnstein & Lehr, LLP). Copies of the transaction documents are now displayed on the walls of the law firm.
Sears and Rosenwald got along well with each other, but not with Nusbaum. The pair bought Nusbaum out for $1.3 million in 1903 ($35.4 million today). Rosenwald brought to the mail order firm a rational management philosophy and diversified product lines: dry goods, consumer durables, drugs, hardware, furniture, and nearly anything else a farm household could desire. Sales continued to grow rapidly, and the prosperity of the company and their vision for greater expansion led Sears and Rosenwald to take the company public in 1906, with a stock placement of $40 million ($1.1 billion today). However, they had to incorporate a new company in order to bring the operation public. Sears and Rosenwald established Sears, Roebuck and Company with the legal name Sears, Roebuck and Co., in the state of New York, which effectively replaced the original company. The current company inherits the history of the old company, celebrating the original 1892 incorporation, rather than the 1906 revision, as the start of the company.