Do you remember Sears, America’s one-stop shop?
It was a household name for decades.
Sears soared to prominence in the late 19th century as the pioneer of mail-order catalog sales. Its brick-and-mortar stores became cornerstones of 20th-century suburban America.
At its peak, you could shop at Sears stores for nearly everything. If you couldn’t find it in the stores, you could order it from Sears’ massive catalog.
That catalog was a masterpiece of marketing. If you were like many Americans, you might have even done your holiday shopping there.
But Sears was caught off guard by the internet. It failed to adapt its business model to the digital age. By 2010, Sears was closing stores and laying off employees.
Sears Made the Wrong Bet
What happened?
Amazon.
Back in 1998 – while Sears’ stock was soaring – Amazon was still a tiny online bookstore.
But then, just a couple years later, Amazon revolutionized the retail industry by shipping books to customers online.
It quickly expanded its offerings to include movies, music, home improvement products, toys, office supplies, clothing, toiletries, gourmet foods, electronics, sporting goods, and more.
By 2003, when the internet was really starting to take off, Amazon had become the go-to place for online shopping. And it helped define the e-commerce industry.
With Amazon, thousands of products – from retail to home goods – became available at your fingertips without stepping out of your house.
And Sears?
It failed to keep up with the changing times. It couldn’t compete with Amazon’s low prices, wide selection, and convenient online shopping experience.
Now, Amazon wasn’t the only factor that contributed to Sears’ downfall.
Sears also made a number of missteps, such as closing its catalog business in 1993 and investing in unprofitable businesses like Lands’ End and Kmart.
Plus, Sears was plagued by a series of poor management decisions, including the sale of valuable assets (such as its Craftsman brand). It then used that to pay itself exorbitant salaries and bonuses.
But Amazon was the final nail in the coffin. It’s likely that Sears would still be in business today if it hadn’t been for the online retail giant.
So, how did this play out in Sears’ stock price?
Sears shares were trading at around $50 in 2013. But the company’s financial situation began to deteriorate, and the stock price plummeted.
You can see this in the chart below…
By 2018, the stock price had fallen to just $2.42 per share – a 95% plunge.
Sears filed for bankruptcy in October 2018.
Amazon Took a Chance… And It Paid Off
What about Amazon?
Today, Amazon is the undisputed heavyweight champion of U.S. retail.
But it’s more than that. It’s also a technology conglomerate with interests in online retail, cloud computing, streaming media, and artificial intelligence (AI).
It seems like Amazon has its fingers in every pot.
But this only happened because Amazon was right to bet on e-commerce and the internet, and it was able to execute its vision.
Today, online shopping is more popular than ever. And more than half of all online shoppers go to Amazon first to search for a product.
To get a sense of the returns on Amazon’s “bet” on e-commerce, here’s a chart of the company’s stock price (adjusted for its many share splits)…
The infamous dot-com bust is almost unnoticeable on the company’s long-term price chart.
And here’s what this kind of performance means…
Suppose you invested $1,000 in Amazon stock in the early 2000s and let it ride. Your investment could be worth nearly $500,000 today.
And if you had seized the opportunity to invest $1,000 in Amazon at its 1997 initial public offering price, you could be looking at a return of about $1.8 million. That’s an extraordinary 179,900% gain.
But if you had put that $1,000 in Sears, you could have lost 95% of your investment, reducing it to just $50.
The “Sears vs. Amazon” Moment for AI Is Now
The 1990s and 2000s were times of growth and innovation for the retail industry.
Investments in technology and e-commerce enabled retailers to monitor inventory and customer behavior more effectively.
They also fundamentally transformed the industry.
And yet, you could have lost your shirt by following the crowd into the wrong names.
Sears and Amazon illustrate this perfectly. Sears was a powerhouse, but it failed to adapt and went out of business. Amazon made a bet on the right trend at the right time, and it’s now a $1.1 trillion business.
And today, the race is on again. Except this time, companies face a new existential threat: AI.
If they fall behind in the race to develop AI, they’re at risk of being left behind – like Sears was when it missed the e-commerce trend in the internet boom.
But for companies that move early to adapt – like Amazon did back then… the fruits of AI’s advantages could deliver windfall profits.
That’s why I put together an investigative briefing, The AI Ultimatum, where I share details about my favorite AI company today.
It’s a micro-cap that’s trading for only about $0.33. But a major announcement could come at any point and send its price soaring.
See, one of the biggest organizations in the world missed the AI frenzy. And now, it’s scrambling to catch up… to the tune of a recently announced $826 billion spending spree. To learn more, watch my briefing, The AI Ultimatum, right here.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins