Sears’ Latest Hail Mary: Movie Downloads

Though it has been a happy holiday for many retail stocks — sales data Tuesday confirmed retailers are on track for their best December in three years — one battered big box operator that can’t seem to get it right is Sears Holdings (NYSE: SHLD). The operator of Sears and Kmart stores says sales are projected to slide about -4% in the current quarter year-over-year.

Poor sales have sparked an air of near-desperation at Sears and Kmart across 2010 —  from testing Sears grocery delivery in urban markets to relinquishing its retail monopoly on the Craftsman brand via a partnership with ACE Hardware. Then there’s its online Sears Marketplace that is meant to rival (NASDAQ: AMZN) with outside vendors selling wares on the site for a nominal fee.

The latest ill- gambit from the once-dominant department store? An online movie download service.

To those who think the criticism of Sears is a bit harsh, just look at the numbers. The parent company’s collective revenue has dropped over -10% from 2005, the year the buyout of merger with Kmart was executed, through its most recent fiscal year of 2009.  (Editor’s note: Thanks to Daryl for pointing out the error)

Sales projections for fiscal 2010 are also grim, projected to slide -2.5% — and looking ahead for fiscal 2011 there’s another -2% drop predicted by Wall Street experts. That pretty much tracks the average annual slide in sales since the 2005 merger with Kmart.

Other retailers like Walmart (NYSE: WMT) and Target (NYSE: TGT), meanwhile, are posting gains in 2010 and looking optimistically at 2011.

Looking at this dark trend, it’s no surprise that Sears is trying to right the ship somehow. The company closed nearly 60 stores in a year’s time amid the recession of 2009 and subsequent weak consumer spending. Now that costs have been cut, the only solution is to find new revenue streams.

Enter Sonic Solutions (NASDAQ: SNIC), which has parterned with Sears on an online movie download service, Alphaline Entertainment. The service enables Sears and Kmart customers to buy digital copies of their favorite flicks the same day they are released on DVD and Blu-ray Disc. Sonic is allegedly working with Sears to bring the service to mobile device as well, a very profitable move that should happen sooner rather than later.

However, the problem that Sears faces is not the launch of a new website but its already stale image and lack of relevancy with consumes. Folks who want to go to a cheap department store choose Walmart, not Kmart. Folks who want hardware and appliances forgo Sears and its flagship Craftsman and Kenmore brands for Home Depot (NYSE: HD). And folks who shop online for movies are likely already loyal to Apple (NASDAQ: AAPL) iTunes or

Sears has long been an iconic brand in America, but Wall Street is littered with names of companies that didn’t stay relevant and didn’t stick around. If Sears can’t come up with something better than Alphaline downloads, it could suffer the same fate.

Jeff Reeves is editor of As of this writing, he did not own a position in any of the stocks named here. Follow Jeff on Twitter at

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