Sears Holdings (NASDAQ:SHLD) has been the poster child for retailers that failed to adapt to the age of online shopping, aka the age of Amazon.com (NASDAQ: AMZN).
The stock has been dying a slow death since early 2015, taking out loan after loan to stay afloat while reporting an erosion in sales. Most experts say it's not if Sears will file for bankruptcy, but when. The stock has dropped about 90% in the past five years.
Can Amazon save Sears like it saved Whole Foods?
In June 2017, the investing world was shocked when Amazon suddenly scooped up Whole Foods and began transforming its nearly 470 grocery stores, even adding in mini electronics display sections to allow customers to test and buy its Echo devices.
So what's keeping the company from doing the same with Sears and Kmart stores?
"Sears is nationwide, but it's in bad shape so the best option for it is to get acquired by Amazon," said Brittain Ladd, a global strategy and supply chain consultant based in Seattle.
Sears will have closed over 300 Kmart and Sears stores by the end of 2017. However, the company said in its last earnings call that it had nearly 900 leased stores and 350 owned stores, with many in "prominent locations," according to CFO Rob Riecker. "We have a valuable real estate portfolio. ... We are committed to evaluating strategic options across our real estate portfolio to unlock value from these assets," he claimed.
If Amazon acquired Sears, it could transform the dying brand by changing the product assortment in its stores and leveraging its Prime membership program, where customers pay $99 per year for perks like free two-day shipping, Ladd said. He went on to say that Amazon could even make Sears the sole carrier of smart appliances that have Amazon's voice assistant Alexa built into them.
Amazon and Sears aren't strangers to each other. In July, Sears said it would start selling Kenmore-branded smart appliances enabled by Alexa on Amazon's website. While news of a partnership with Amazon gave Sears stock a nice boost this summer, investors soon realized that Amazon doesn't have a large footing in the appliance market yet and that this deal alone was unlikely to save Sears.
Here's what an Amazon-Sears combo would look like
If you look at how Amazon has already transformed Whole Foods into a more enjoyable experience for customers, you will understand what this potential takeover would mean for Sears. Amazon has centralized buying at Whole Foods, decreased food prices that were often the butt of jokes prior to the takeover, set up Echo device testing stations, and minimized the focus on organics. "Amazon acquired Whole Foods because it wanted to shape Whole Foods," Ladd said. "And they've already doubled the foot traffic."
With Sears under its wings, Amazon could open up the stores with a glass storefront, add virtual reality (VR) stations where people can test products, and even utilize Sears automotive locations to its benefit. For example, Amazon Prime members could be enticed with a discount on car repairs if they go to a Sears Auto Center. "No one likes going to Sears now, but in a few years you might be saying, 'I love going to Sears,'" Ladd claimed.
This type of deal isn't as far off as it might seem. Ladd said he would expect Sears to have a buyer in the next 18 to 24 months, especially if it has a bad holiday season.
But it's important to note that if Amazon bought Sears, it wouldn't keep all of its Sears and Kmart stores open. The company would divest the stores that don't fit into its ecosystem, Ladd said. "Amazon is good at evaluating the retail landscape and picking winners," he explained.
What are you waiting for, Amazon?
Like Whole Foods, Sears would give Amazon hundreds of brick-and-mortar locations that it could reshape into a retail experience that would delight and excite customers. Buying up these struggling brands comes at a much lower cost than if Amazon were to build its own physical locations from scratch -- plus Amazon gets to capitalize on the brand recognition of the companies. According to Ladd, Sears is probably worth about $800 million, which is a bargain compared to the $13.7 billion it paid for Whole Foods.
Ladd concluded with this: "There's no doubt Amazon is evaluating Sears and wondering if it goes out of business, what's our best option?"