Which Companies Could Be the Next ICO Candidate?

With the hype around Bitcoins and other cryptocurrencies in the last few months, several sizable public companies in the US have benefited significantly from partaking in the new technology. For example, both Overstock.com and Kodak have experienced a significant increase in their stock prices since they announced their plans for an initial coin offering (ICO), though whether these ICOs will succeed is still in question. While an increasing number of companies may be eager to turn to ICOs as a legitimate source of funding, companies could also utilize digital currencies to improve their business operations as well. In particular, struggling consumer retail brands could leverage cryptocurrencies to renew their consumer appeal.

Retail's Challenge: Amazon

For the past several years, Amazon has dominated the retail industry. The Amazon Prime program combined low pricing and convenient e-commerce experience, which proved to be an insurmountable challenge for other more traditional retailers. As consumers shifted their shopping habits online, Amazon became one of the most valuable companies in the world, while traditional retailers suffered loss in foot traffic, revenue and market value.

Potential Solution for Retail Companies: Cryptocurrency Tokens as Loyalty Program

Retail brands should consider issuing their own cryptocurrency tokens as part of their customer loyalty program. This change would increase perceived attractiveness and the loyalty of their customers. Cryptocurrencies are products of decentralized, public ledgers that record and validate all transactions in the system—also known as blockchain. By encrypting and assigning monetary value to them, people have begun to trade these digital tokens as a form of virtual currency. By employing a similar mechanism, companies can create their own customer loyalty programs by issuing tokens on top of other blockchains such as Bitcoin.

For example, Sears could begin a loyalty program where it provides 1 "Sears Token" per every dollar spent at one of its stores. It can then make tokens exchangeable for products and services at its stores. This example would operate similarly to popular rewards programs like Chase Ultimate Rewards Points or Starwood Preferred Guests (SPG) Rewards. Sears could also hold an ICO to issue these coins to the public, which would allow these tokens to be traded with other tokens and cryptocurrencies.

Better Loyalty Program Than Existing Options

Issuing blockchain-based tokens could help to create a loyalty program that is potentially more valuable than the current options for consumers. Normally, rewards programs limit how members can redeem their points. Loyalty points also tend to depreciate in value over time due to inflation. These tokens have the potential to address both issues by allowing people to trade them with other digital currencies, programs, or money. The market could decide the value of these tokens, which would create the potential for value appreciation.

The excitement around Bitcoin and cryptocurrencies may drive customer traffic to stores if retailers introduced a token based loyalty program. Combined with the aforementioned benefits of these loyalty tokens, the lure of earning a free "altcoin" while shopping at these stores could attract consumer attention.

Why Sears Could Be the Next ICO Candidate: Comparison with Kodak

Most recently, Kodak announced its plans for an ICO to launch a platform to track digital rights ownership of photos, sending its stock up 210%. While the business benefits for Kodak are still in question, a successful ICO could certainly help the company raise millions of dollars it needs. For Sears, an even stronger case can be made for both its business and its finances as it stands out as the best candidate for an ICO for several reasons, making strengthening the case for its ICO.

CompaniesICO AnnouncementStock Price Before AnnouncementStock Price Jan 29% Change
Overstock.comSept 27 201723.4577.55231%
KodakJan 9 20183.19.6210%

First, the parent company of Sears and Kmart has been shedding hundreds of millions of losses in the past few years among series of store closings, asset sales and declining revenue. If successful, an ICO-financed loyalty program could help alleviate its decline by driving more customers to the brand with the lure of cryptocurrency, which many often view as a form of alternative investments. Not only that, the loyalty program would be funded by the traders of its tokens, meaning Sears would effectively be getting a discount marketing campaign for free. For example, if a customer redeems 50,000 Sears tokens for a microwave, Sears could then sell the tokens in the market for an equivalent amount of cash.

Secondly, Sears has been treading dangerously close to a financial catastrophe—the company owes hundreds of millions in debt due in the next 12 months. Currently, the company does not seem to have sufficient cash or income to meet its commitments. A successful ICO could help Sears raise the capital it needs by either selling its own tokens after the ICO, or by issuing more stocks if and when its stock price rebounds.

A successful ICO may not be the panacea that can solve all of Sears's problems, but it can certainly be the lifeline the company needs while it turns its business around. Given the serious circumstances the company is facing, an ICO could be a viable option that might be on the list of considerations for Sears' management team and board of directors.

Other Consumer Brands With ICO Potential

In our opinion, consumer brands listed below could benefit significantly from an ICO—and therefore should consider one. These are well-known brands that have been struggling to grow their businesses and stock prices. For instance, the average revenue growth of these companies was a mere -7% over the last year, while their stocks have declined by -56% on average over the last 12 months. These companies are also suffering from an overwhelming amount of debt. An ICO could help alleviate these problems if they were successful in creating a differentiated and popular loyalty program as well as raising a meaningful amount of capital.

CompanyMarket Cap ($ mn)Total Debt ($ mn)1 Yr Price Chg1 Yr Rev Growth
Vitamin Shoppe107.9137.0-78.82%-8.48%
Ascena Retail (Ann Taylor & Loft)427.41,885.7-53.89%-5.28%
J.C. Penney1,187.14,271.0-43.36%-1.75%

Disclosure: The author has no position in the stocks that are mentioned in this article, and has no intention of initiating positions in the mentioned stocks in the next 24 hours. The reports on this website have been prepared by ValueChampion Inc. and are for informational purposes only. Under no circumstances should any of these reports or any information herein be construed as investment advice, or as an offer to sell or the solicitation of an offer to buy any securities or other financial instruments.

Duckju Kang

Duckju (DJ) is the founder and CEO of ValueChampion. He covers the financial services industry, consumer finance products, budgeting and investing. He previously worked at hedge funds such as Tiger Asia and Cadian Capital. He graduated from Yale University with a Bachelor of Arts degree in Economics with honors, Magna Cum Laude. His work has been featured on major international media such as CNBC, Bloomberg, CNN, the Straits Times, Today and more.

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