Is This Retailer Gunning For Amazon?

October 7 -- Is it possible that this down and out retailer has a game plan to take on Amazon.com?  Amazon is by far the leading online retailer, but it might surprise most investors that Sears Holdings 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.

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.

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.

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.

Bottom Line

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            www.fool.com    

How U.S. Retailers are Building Up Their Online Muscle

MARTINSBURG, West Virginia – December 24 - The brave new world for U.S. retailers can be found in small cities like Martinsburg, West Virginia.

That's where department store chain Macy's Inc recently opened a facility the size of 43 football fields - big enough to stock 1 million pairs of shoes - just to fulfill orders made online.

The $150 million building, its third one dedicated primarily to supporting macys.com, has already been handling 60,000 orders on a busy day this holiday season. Macy's expects that figure to triple in two years.

"The customer is increasingly voting that she wants to shop both ways," said RB Harrison, Macy's executive vice president in charge of integrating e-commerce and store operations.

From Macy's to Home Depot Inc and Best Buy Co Inc, retail executives are racing to speed up order delivery and improve inventory management, which if done well, can help profit margins.

Many chains are also hiring staff, or even buying firms in Silicon Valley, to get the edge in technology.

"Today, tomorrow and going forward, you are comparing the experience in our store to the experience of sitting in your living room, in the comfort of your home, ordering something on your laptop, your smart phone or your iPad," Home Depot Chief Executive Frank Blake told Reuters.

"Your willingness to put up with rude associates, dirty stores and out of stocks is just going to go down and down and down. Our bar on performance in our stores is going to go up and up and up," he said.

To be sure, online sales to date account for just 7 percent of retail sales, according to Forrester Research. But the firm expects online sales growth to rise 45 percent to $327 billion and account for 9 percent of overall sales by 2016.

Retailers are realizing they must respond to that kind of growth.

"When I was meeting with brick-and-mortar retailers 24 months ago they weren't thinking about online," said Carlo Bronzini Vender, a senior partner at New York-based investment bank Sonenshine Partners who helped advise Drugstore.com when it was bought by Walgreen Co in 2011. "Now people are being more proactive about it."

Even if some retailers like Macy's are less exposed to the threat from e-commerce's 800-pound gorilla Amazon.com Inc than a company like electronics chain Best Buy Inc, they are all under enormous pressure to offer faster delivery times, better service and an array of products.

Already armed with 40 e-commerce fulfillment facilities, Amazon is set to open another 7 centers next year.

And by next year, Amazon could offer cost-efficient same-day shipping to every customer in the 10 largest U.S. cities, according to RBC Capital Markets.

This year, Saks Inc, Dillard's Inc and Kohl's Corp are among retailers that opened the biggest online fulfillment centers they have ever had.

And those without much of an online presence are moving quickly to get one. For example, T.J. Maxx parent TJX Cos Inc, which sells designer clothing and home goods at discounted prices, said on Friday it bought off-price Internet retailer Sierra Trading Post for about $200 million.

NOT-SO-SECRET WEAPON

Most national retailers have largely stopped opening new stores as same-store sales growth has slowed compared to online.

But the stores can be a major weapon for companies like Macy's and Home Depot as they fight Amazon.

Since this summer, 292 of Macy's 800 stores have been doing double-duty as mini-fulfillment centers that assemble, pack and ship online orders, up from 23 stores a year ago. It plans to add this function to 200 more stores next year.

Nordstrom Inc has been doing this for years, giving it a big lead over other department stores.

At Macy's, already 10 percent of orders placed online have been dispatched through stores this holiday season.

"It's a natural extension for us because of our ability to leverage the 800 stores' inventory," said Harrison of Macy's. He noted that the cost for equipping a store for e-commerce is relatively small, requiring a small space in the docking area for tables, scales, and room to pack boxes.

Saks is testing "ship-from-store" and expects to roll it out next fall. Wal-Mart Stores Inc and Kohl's are also testing it.

"Fulfilling online orders from the store is the most important thing that will change physical retailers over the next five years," said Matt Nemer, an e-commerce analyst at Wells Fargo.

The strategy is aimed squarely at boosting profit margins.

Saks CEO Stephen Sadove envisions a scenario in which a pair of shoes sitting unsold at his Saks Fifth Avenue flagship could be used to fill an online order and sold at full price, instead of ending up being sold at a discount, hurting profit.

Macy's computers have complex algorithms that scour companywide inventory, factor in distance and shipping costs to come up with an optimal way to assemble and ship an order.

Despite higher shipping costs, Macy's shipments are often split between locations if a computer determines that the benefit to margins from selling an item that a store doesn't need or has too much of outweighs the extra expenses.

Stores are also serving as pick-up spots for online orders, and many retailers are finding this a boon.Wal-Mart says customers spend about $60 in a store when they pick up items ordered online.

In November, Best Buy decided to assign additional employees to deal with in-store pick-ups since 40 percent of bestbuy.com orders are now picked up.

DANGER OF MISSTEPS

Even Amazon sees the benefits of a physical presence. Staples Inc said last month it will install "Amazon Lockers" at its stores, allowing customers to have packages sent to Staples stores to avoid delivery hassles.

The biggest reason many retailers are only now offering 'ship-from store' and in-store pick-up is that the traditionally managed store and e-commerce inventory had been handled separately.

That is changing rapidly. Saks is spending about $40 million this year to update its computer systems in part to integrate databases. Industry experts say Nordstrom's e-commerce lead over department store rivals stems in large part to technology investments it made years ago.

But there are risks.

Computer systems and staff have to be ready or else retailers can face disaster, said Forrester Research analyst Sucharita Mulpuru. The use of stores is pointless if, for example, an inventory system gives the stockroom person collecting an order incorrect information about where a coat is located, leading to wasted time.

There is also a big risk of an item in store being "shopworn," or unsuitable to be sold.

"It's smart to fulfill from stores if you can figure out a way to get your operations right," Mulpuru said, noting the potential for human error is another concern. Such problems are limited at fulfillment centers because the systems are highly automated.

Executives agree. Harrison said stores are not meant to replace fulfillment centers, with their much greater breadth and quantity of products, but are there to supplement them.

"It's always going to be more efficient to ship from a fulfillment center," Saks' Sadove told Reuters. "You're never going to be perfect in 'ship-from-store'."

SILICON VALLEY APPEAL

To support its e-commerce strategy, retailers are aggressively hiring in Silicon Valley. Nordstrom took on more than 400 new employees with software engineering and website development experience, including Kirk Beardsley, an e-commerce executive from Microsoft Corp who had been a director of business development at Amazon for over seven years.

Retailers hope to take this even further by analyzing online data. Macy's executive Harrison said data collected this holiday season will help prepare for the next steps in its online push.

Last year, Wal-Mart acquired California-based start-up Kosmix, which developed technology to filter data from social media networks. As a result, Wal-Mart's San Bruno, California-based e-commerce offices now house more than 1,000 staff.

Getting hold of the technology to back up these efforts is driving acquisitions. They are frequently small ones, driven by retailers' attempts to master the online sales process, rather than immediately boost sales.

Home Depot, which bought tech start-up Redbeacon earlier this year, is looking to acquire or partner with more companies in the Valley, according to CEO Blake.

Redbeacon, founded by a trio of Google Inc veterans, matches homeowners with the best contractors for jobs such as cleaning and home repair. That kind of innovation will send shock waves through the sector, Blake said.

"I think there is going to be as much change over the next 10 years in retail as in the last 50 years. So if you're prioritizing where you put your best people, your best resources and all the rest, for us it's on inter-connective retail," said Blake.

 Reuters