Wal-Mart takes #1 spot in retail as Sears drops

I wrote almost a month ago about the direction Sears is headed. The once-powerful national retailer has been combined with Kmart and continues to operate its retail stores in many malls and other locations around the country. While Sear Holdings(NYSE:SHLD) shares sit just under $200 these days, it is not because of excellent sales, growth and profit. In fact, my perspective on Sears is that it is tired, laggard and doing very little to innovate in the retail space. Add Target Corp.(NYSE:TGT), Dillards(NYSE:DDS) and Wal-Mart Inc.(NYSE:WMT)into the mix and you can get the picture. But, hey, Eddie Lampert has all that real estate, right?

Moving on, we have another industry pundit that also wonders where Sears is headed. While sales did indeed climb at a 7.9% rate in fiscal 2006, sales at Target jumped 13.1% and Costco's(NASDAQ:COST) lept 13.6%. Wal-Mart continued to climb at a rapid pace (even as sales disappointed the market) by becoming larger in sales alone than the next five largest retailer combined. Wal-Mart's $348 billion in sales for 2006 is way, way beyond large. It's stratospheric and quite a bit ahead of #2 Home Depot (NYSE:HD) and #3 Kroger(NYSE:KR).

It's true that Wal-Mart and The Home Depot have had problems in recent quarters, but the retailers continue to chug along -- no surprise there. I disagree that both retailers "continue to innovate and still continue to address customer needs," but I surmise that lies in the eyes of the beholder. In terms of customer-facing strategies, I don't think any innovation is really at the forefront of the two largest retailers. Which brings us back to Sears. This retailer is stagnant without churning the retail butter too much. Why? What can Sears do to make itself relevant again even in the face of decent growth last year? From my seat, Wal-Mart, The Home Depot and Sears have many things in common, and they're not all good.