Is it possible that this down and out retailer has a game plan to take on Amazon.com (NASDAQ:AMZN)? Amazon is by far the leading online retailer, but it might surprise most investors that Sears Holdings (NASDAQ: SHLD) is considerably along the path toward being a leading online retailer.
No matter what investors think of the plans that CEO Eddie Lampert has undertaken by limiting spending on sprucing up stores, the company has made plans to become a leading online retailer. Sears has even recently advanced fulfillment services to include same-day delivery or in-store pickup that might offer a compelling advantage over Amazon.
Over the last few years, Sears has seen strong growth in online sales even as the in-store sales have faltered. In addition, the company has obtained high rankings for online-shopping experience and has advanced commerce services for merchants to use the platform similar to Amazon. The question is whether Sears can use its dual presence to bounce back in a way reminiscent of Best Buy's that was all the more impressive given that Best Buy was virtually left for dead at the end of 2012. Best Buy is now prospering from store-in-a-store offerings and same-day pickup.
Leading Online Retailer
With online sales surging 20% in its most recent quarter, Sears investors should glean a glimmer of hope that Sears is transitioning away from a store-based retail approach that will allow it to lease out space in valuable mall locations. By treating the collection of discrete assets individually, Sears can sell valuable brands via online and third-party sellers, as opposed to relying on its dying store locations.
A recent report by Web-research group Baymard Institute ranked Sears eighth out of 100 big e-commerce sites for the quality of its online-shopping "checkout experience." For 2012, the company was the number three mass-merchant retailer behind Amazon and Wal-Mart and the number eight overall retailer.
Sears.com has an incredible 60 million items from marketplace sellers only (marketplace for third-party sellers to use the Sears.com website and checkout process for selling products) and was generating 15 million unique visits a month. At only an estimated $4.2 billion in annual sales, it still remains a far cry from the $61 billion in sales generated by Amazon last year.
Fulfilled by Sears
Earlier this year, Sears launched a turnkey fulfillment service that offers businesses a simple, cost-effective solution for getting seller orders from Sears Marketplace to customers. Fulfilled by Sears, as the program is called, allows sellers to have their inventory at Sears and allow Sears to pick, pack, and fulfill their orders.
A major advantage is that customers can buy from sellers online and pick up in- store at Sears the same day or opt for same-day delivery. Sellers are able to leverage the vast 2,000 store base in order to get customer orders to them quicker. Suddenly those supposedly dying stores become the ideal distribution locations for online shopping.
Best Buy Turnaround
While Best Buy has struggled as a retailer over the last few years due to the encroachment of Amazon on electronics, the company still has one thing that Sears hasn't produced lately. Best Buy is back to reporting solid profits that make all the difference to any stock. Consequently, it has bounced off the bottom to soar around 230% this year.
A big reason for the success has been Best Buy setting up Samsung Experience Shops and Windows Stores to improve the in-store experience and rationalize the square footage with sales of commodity electronic products increasingly moving toward online.
In that area, the company saw online sales increase 14.2% in the latest quarter. The improvements in online pricing are helping the company maintain market share while providing solutions such as same-day, in-store pickup provides itself and Sears an advantage over Amazon, which only has an online presence.
While Sears may not be directly gunning for Amazon, the company is clearly focused on using the Internet to sell its products so that it can redevelop valuable real estate into leased space. In this way, the historic retailer isn't throwing away established brands and valuable customers, but at the same time it can generate higher returns on premium mall space.
In addition, it can use existing distribution centers and under-utilized stores to make the online offering not only more attractive to consumers but also to sellers interested in the fulfillment and marketplace offerings that sit alongside the sales and existing operations of the mass-merchant retailer.
The stock may not duplicate the past returns of Best Buy, but the company appears poised to rebound just as much. Neither company appears headed to the graveyard as both have found ways to use the store base to compete more effectively against the all-mighty Amazon.
Mark Holder and Stone Fox Capital Advisors' clients own shares of Sears Holdings. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.