Will Sears' More Intensive Online Strategy Be Enough?

Facing a much tighter financial picture (the latest quarterly report saw comparable net income almost cut in half), Sears has turned to online operations as its best hope for better margins.

Sears on May 15 announced "a large-scale expansion of its online store" with a "nearly quadrupling (of) the number of products available on sears.com."

Sears is in a fascinating online position. On the one hand, the $50 billion 3,800-store-chain says its online numbers are soaring, with the number of unique visitors in February 2008 reportedly rising 20 percent in that month. But Sears.com has also run into quite a few speedbumps, such as a pair of privacy-related disasters back in January.

Its in-store efforts—despite some truly cutting-edge technology trials such as it being the first retailer to test 2-D barcodes—have been the biggest problem.

The chain has recently tried bolstering its online team with talent grabbed from Wal-Mart and Microsoft, a move that is becoming increasingly essential, as the latest earnings figures show a $2.3 billion drop in revenue for the fiscal year.

Imran Jooma, Sears vice president of e-commerce, has been pushing the company's multi-channel approach, without specifying whether the company has any creative plans for merging those channels down the road.

"As a multi-channel retailer, we want every customer's experience with
us to be seamless," Jooma said in a statement. "For example, if a customer is in a Sears store and is looking to buy a DVD, and the product is not available, the customer can order the DVD from a computer kiosk in-store and the shipping fees are waived."

But this raises the question of priorities. Is in-store the best channel to distribute movie videos, which can be more easily ordered online with a potentially much larger inventory? Better yet, downloads make far more sense, but that's assuming Sears is willing to let the products be sold in the more efficient channel, which means it must overcome decades of store-centric thinking.

In the entertainment world that Sears is pushing, they're not alone. Blockbuster.com is pushing online but is resisting the much-more-logical video download tactic. Indeed, Blockbuster is preparing a kiosk trial in June with NCR.

Netflix is more comfortable with the online video approach, but its efforts are limited to watching movies as a stream—which impacts the experience if the laptop or PC isn't integrated with a surround-sound entertainment system. Even worse, the number of films available to be seen on their stream is extremely limited, killing much of the intended value-add. If the consumer's desired film is virtually never available, what's the point?

The Netflix and Blockbuster examples speak to the challenges that Sears will be facing. Blockbuster's approach is more easily understood because of its expensive infrastructure. One would like to think that Netflix would be more flexible, but it also has an extensive infrastructure (based on snailmail) that its executives will try and protect. The devil you know.

True change usually comes from either visionaries (usually with deep-pockets they mostly control) or from established players who are facing financial disaster. In today's world, the threat of bankruptcy is truly the mother of corporate invention. Sears has some very serious decisions to make.