2 Numbers You Should See Before Investing in This Retailer
Marie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Kodak, Blockbuster, RadioShack. Think back to the last time you purchased a product from one of these companies. If you see yourself with crazy hair, denim shorts, and a turtle neck sweater, it’s because you haven’t visited these companies since the 90's.
Give your past purchases some more thought, and you will recall one of America’s hallmark retailers: Sears Holdings (NASDAQ: SHLD). While Sears hasn’t been relegated to the nineties, it’s quickly being neglected by consumers. Its revenue has fallen significantly from $53 billion in 2006 to $39.9 billion in 2012, a drop of 24%.
In an effort to revitalize sales, Sears launched its online marketplace in 2010. Here customers can by goods from Sears or third-party retailers. The store has grown 20% year-over-year and today is the third largest online retailer by visits. The company touted its growth at its annual meeting, but I’m not buying in. Here are two numbers that will haunt this retailer’s future.
The number of unique visitors that visited the Sears online marketplace last month.
That number sounds pretty good standing alone, but let’s compare it to two other online vendors: Amazon.com (NASDAQ: AMZN) and eBay (NASDAQ: EBAY). According to comScore, those two retailers attracted 98 and 69 million unique visitors over the same time period. While Sears isn’t beating the competition in unique visitors, maybe it can beat them in price.
The Wall Street Journal asked the same question, and used a head-to-head comparison of Sears and Amazon.com to determine who offered the lowest prices. They searched for the GS10 Conair Deluxe Model Fabric Steamer and found it selling for $138.66 on Sears’ website, and $74.95 on Amazon’s marketplace. I found the same product on eBay listed as “new” from $60 to $115 under the “Buy it Now" section.
Obviously one product isn’t representative of the entire marketplace, but I think it effectively illustrates consumer perceptions of these companies. Amazon has notoriously low margins in order to have the lowest prices. eBay auctions allow consumer supply and demand to set prices. What does Sears have? Right now, they have 18 million unique visitors. That’s it. Until they differentiate themselves, they won’t be taking a larger slice of the E-commerce pie.
The percentage of sales generated from Sears’ brick and mortar stores. Growth has come from Sears’ online store, but it needs tangible growth if the company wants to rebound. In a continuation of its downward trend, sales at its physical stores fell 2.4% last quarter.
At Sears’ annual meeting in May, CEO Edward Lampert said “We believe we can win through service, but service powered through technology.” In order to achieve that goal, the company unveiled a new application called Member Assist. The app allows users to text in-store employees to ask for assistance. The employees can respond in real time via their company issued iPads, and either direct the customer to the product, or if the store doesn’t have the item, give them a link to purchase it in Sears’ online store.
Sears needs something to revitalize its brick and mortar units. The company’s technology is innovative, but it’s also untested. This move could rejuvenate sales, but I would wait until the company reports better numbers before buying.
Crunching the numbers
Here’s a bonus statistic: -13%. That’s Sears’ stock performance over the past year. Over the same period the market has returned over 20%. Other retailers (ie: Amazon.com and eBay) have used the recovering economy to report near-record revenue.
Source: Author's calculations
To sum up
Sears became America’s hallmark retailer through its mail order catalogs. Today, that goes by a different name: the Internet. Without any differentiating characteristics, I doubt Sears will be able to significantly grow its business in that segment.
Worse yet, I fear that Sears might focus too much on its online store and lose sight of its revenue-driving retail stores. Unless Sears can reinvent its online sales, this retailer is headed towards a different number: 11. As in Chapter 11.
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Joshua Sauer has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!