I have been an investor in Sears Holding for some time now as there are a lot of different sources of value there. I recently got into a deeper conversation with my father in law about Sears and what they did in the past to capture the market. My thought was that Sears used to be the best catalog business in the country and now... Amazon is the best catalog business in the country. Amazon has a better reach, better technology, better shipping, and so on. He offered an interesting insight though. It wasn't that Sears had a great catalog with every product that everyone wanted, it was that they offered credit at a time when credit wasn't the norm in our society. Their lay away program for a new washing machine was a huge financial innovation, especially due to the fact that after you finished making all of your washing machine payments and had your new high end washing machine delivered, you now had a revolving credit line with the company. Why would you go to some other store at that point?
Fast forward to today... Sears doesn't have this financial foothold on society. Wal-Mart has taken over middle America, is getting deep into financial innovation as they attack the un-banked America and Western Union's cash transfer business, and Amazon leads the catalog business. That doesn't leave Sears out in the cold though. They have a growing loyalty program and catalog business that can eventually be competitive (provided they get the virtual connections to their in-store associate right and the in-store/same-day delivery right). What can set them apart as a retailer though is a captive audience like they had before credit was a consumer product.
How could they create a more captive audience? Here are a few ideas...
- Start accepting bitcoin at all of their stores and online locations. This is essentially the equivalent of the same sort of direct financial innovation credit had on our society and Sears was a leader in that first change in credit. The implications credit has had on society and the implications virtual currencies will have on our society are somewhat equivalent.
- Partner with online only retailers (such as Overstock.com) to provide physical locations. This is more along the lines of their existing strategy; however, it extends it much further into the online space.
- Offer product sharing and product storage at cost to consumers. Higher ticket items (such as lawn mowers, bikes, tools) that the younger sharing economy would prefer not to own/store could be offered at cost vs. profit. This is a loss leader of sorts, but also open the doors to a new generation. In difference to pure 'rental' businesses, this would be at the fully loaded cost vs. at outrageous premiums
Regardless of whether they get retail perfect, the monetization strategy of their brands and real estate is a huge value to the business and there is still a lot of upside in that part of the business alone. Perhaps they do figure out retail as well and are the first to launch Pepper in the US to help in-store customers while their real associates are busy with online customers.