Sears and Wal-Mart Go Online

Includes: SHLD, WMT
by: Jim Delaney

The French have contributed much to society over the years: art, music, architecture, literature and the wonderful things that happen inside of a kitchen have all been irrevocably changed by the Gauls. It would appear they continue to do so but now in more practical ways. The latest is more mundane than the feeling you get standing in front of Rodin’s “The Kiss” but what it lacks in artistic verve it more than makes up for in frugal efficiency.

Chronodrive supermarkets offers the convenience of shopping online for groceries but leaves out the expense of delivery. Chronodrive customers still order on line but they then drive to the company’s warehouse and pick up the pre-packed order themselves. “We don’t have to go grocery shopping anymore” said an overjoyed 42-year old father of two, Maurice Berrayah, in Toulouse, France recently, adding, “There are many other things to do in life rather than fill a shopping basket.”

We have all heard that necessity is the mother of invention and it has proven true once again as delivery fees of E12-E17 ($16.50-$23.50) did not sit well in a country where shopping usually consists of multiple stops during the week vs. one big trip as is the custom other places. The delivery process was made more complicated in France as it was only available during normal business hours.

All of this has not been lost on us Yanks either as Sears Holding Corp. (NASDAQ:SHLD) opened its first MyGofer drive through store in Illinois in May of last year and Wal-Mart (NYSE:WMT) now lets customers buy anything but groceries on line and then pick up that order at local store.

“People want to save time on grocery shopping and the drive through offers a very original solution,” was how Martin Toulemonde and Ludovic Duprez described the concept behind their Chronodrive experience in France and it appears, from SHLD’s and WMT’s cloning of the idea, that sentiment is a global one.

Eddie Lampert, CEO of SHLD, has become so enamored with the online idea that he hired Jim Barr away from Microsoft Corp. (NASDAQ:MSFT) in 2008 to become the company’s online president which now boasts a Sears 2.0 initiative. As a result, teams of designers and engineers are working on ways to enhance the on-line shopping experience including mobile apps that use GPS technology to offer Yankees’ gear in New York while those in L.A. see apparel emblazoned with the Dodgers logo.

“There is a sea change happening in retail right now and it is not clear what stores are going to look like in 10 years,” was how Maggie Gilliam, president of the retail consulting firm, Gilliam & Co. put it. Maggie and other think that the 5%-7% of retail spending that e-commerce represents today could grow to as much as 20% in the years to come.

The interesting part of SHLD’s “new” initiative is that it is not new at all for the 124-year old company as besides the catalog mail order business, a pre-cursor to today’s on-line experience, that put Sears on the map in its early years; offering everything including the kitchen sink as well as the house the kitchen was in, the company through its Service Merchandise division, allowed customers to order from the catalog and then pick up their purchases from the store as far back as the 1960s.

So the question becomes, are we being influenced by France or for Sears and other retailers in the states, is everything old new again?

CDS for Sears trades under the Sears Roebuck Acceptance Corp. name. Levels for default protection got as low as 278bps last August and 274bps in January of this year. They closed last night at 245bps. The stock reached 52-week high ($105.95) on 1/19, in line with the 274bps low in the CDS and closed last night at $92.93.

WMT’s CDS/equity combo also reached its nadir/zenith around the 19th (38bps/$55.01) corrected to 51bps/$52.88 and is now heading lower/higher again closing last night at 46bps/$54.27.