ERICOPOLY

Well, retailers are trying to change the problem of clothing. I can't find a link off the top of my head, but there are services here in NYC that will take a 3-D image of your body shape and have clothing fitted to you. So for a one time appointment you get fitted clothes at a reasonable price. I agree though, the physical world of retail won't die. People like to go and shop. We've been doing it since the early days of civilization. What else, are we all just going to sit home all day? Work from home, shop from home, watch movies at home, watch sports at home, interact with your friends at home, etc. etc.? At some point, human nature wants to go out and be social. And no, by social I don't mean facebook and twitter! :D That helps dramatically to quickly sort which brands/size will fit you -- less time in the dressing room. However I still think you want to try them on to see how the fabric feels. It is soft? Scratchy? Does it stretch? I don't know, the tactile thing. Well anyhow, aside from the 3d modeling thing look at it like this... if I'm wrong then people don't currently go to the malls to demo products and then buy them online. Online is here today, yet people still go to the "showroom" at the mall. It is unproven that Amazon can survive without a showroom -- for some products at least. Or perhaps it is unproven that some brands can maintain an edge without a showroom. The showroom reduces the number of online orders that get returned. That's one of it's advantages to today's Amazon model. Costs aside, it's also a hassle for the customer to return things that don't fit or work as expected. So some of the convenience of Amazon goes away if you can't try on or demo the product at a physical store before ordering it from Amazon.

On that note this is why I mentioned the commerce-hub connection earlier. Amazon offers the best prices by relentlessly focusing on efficiency and scale which is something that most brick and mortars (except maybe Costco and Walmart??) have struggled with because they have legacy operations that are harder to change vs building a hyper efficient operation from scratch (Amazon). Take a company like commerce hub, a startup that is focused on supply chain and fulfilment efficiency from the get go but providing it as a service to existing retailers. If they can get the top 20 retailers on board for some % of sales then they could have considerably more purchasing power than Amazon and potentially enable more traditional retailers to compete with Amazon on price. At which point the pricing spread could go away. This is all just wild ass speculation on my part but I don't think its outside the realm of possibility. Add on to that your points about Amazon being dependent on brick & mortar to provide free showrooms for their products. Thanks for mentioning commerce hub.

Home Depot has a lot more to offer than just the appliance sale. They'll sell you the entire kitchen upgrade (cabinets, sinks, flooring, and all). So Sears really has a long-term uphill battle there with appliance sales. Makes sense to spin off Kenmore as the battle is lost.

Right, it's not Amazon that is beating Sears in the tools/appliances department. It's Home Depot, etc... They have showrooms too, and the staff is better at helping you with questions. Plus, you point out that the price is better -- I'll take your word on that. The showrooms line of thought I followed was to think about whether the square footage in the malls has any value in the future. However on the other hand as someone pointed out SYW is not there yet and the cash bleed from the stores is getting severe. It might be that SHLD is the pioneer -- you can always spot a pioneer because of the arrows in his back.

If/When things like 3d projection and imaging get better and cheaper I can see people not needing to visit a showroom because they can see a 3d hologram of themselves in clothing rather than having to try it on. I was thinking about this a few months ago when I heard about IndoChino ( http://www.forbes.com/sites/edzitron/2012/05/15/indochino/ ) a company that imports tailored suits from China. With the right technology your computer or mobile device could measure you for your suit and show you a 3d projection what it looks like on you all without leaving your home. If this happens and when it happens is anyones guess. But yes I could see a future different than brands leasing spaces in showrooms or at least I think there are other options long term. And you can probably have sex with women in virtual reality too. So pick-up bars will go away. Malls are a social experience that have no replacement. Bored women like to shop. Brands benefit from this behavior, but there needs to be a setup where the showrooms don't go bust (Amazon getting all the revenue). The brands will get the sale -- if Amazon fulfills the sale, so what. In this sense, Amazon becomes a fulfillment commodity. However, due to their scale they might be able to do it at the lowest cost and thus have a moat anyhow. People who are into fashion like to see and be seen. It's part of the brick and mortar experience. It is entertaining to have an ice cream in the mall and watch the fashion jeans walk by -- it just is. People watching is what people do in malls. And people like to dress up and be seen.

This idea that brick and mortar malls will go away is complete BS -- or at least I am biased enough from love of the physical world. Maybe I'm just to old to get it. Everything will be available from Amazon only? Where do you go to look at furniture, sit on it, feel the texture? Where do you try on the Hugo Boss shirt to see if it fits your shoulders? You can just buy everything from Amazon and if it doesn't fit then return it free of charge. That would kill Amazon in shipping charges. Currently Amazon sells you the Hugo Boss shirt that you tried on in Nordstrom and you know it already fits you. That only works for Amazon so long as the mall retail stores survive in their present form. They are starving their showrooms to death. Amazon's model effectively depends to some degree on dying retail models to continue to struggle and not die. Let's say every single retail store was gone. You'd really be buying things sight-unseen from Amazon and not be returning a lot of the stuff? I don't believe it -- I think return charges would come back to bite them. There has to be showrooms.

Amazon for the moment is the ultimate "asset light" business because their showrooms are today's failing brick and mortar traditional retailers that customers treat as a place to try out the product before they order it for less from Amazon. So there is going to come a time when the mall wises up to this. And brands will always have an edge if people can physically browse the merchandise. Can you see a future other than the one where the brands lease space in showrooms? So at some point Amazon is going to see somewhat less demand -- this will come when a person can just pick it up from the store for the same price as they could get it from Amazon. For that to happen the brand really needs to be accountable for the showroom -- no more free ride on the physical mall retailer's dime.

Yeah, it's a stretch to say that he'll take down Amazon. And Amazon is doing quite fine without a storefront. I do find it hard to buy some things through Amazon because I need to try them on first. So people will often try on the product in a mall, then buy it for less through Amazon. Well, that will only work until there are no more mall stores left (they lose too much revenue to Amazon). Or, more likely, until each storefront in the mall is actually just a small showroom owned by a brand. So if you order that item online, the brand still gets the revenue. So you chop up the Sears big box store square footage into maybe 30 or 40 different sections. Each section is a showroom for a brand -- the brand leases the space. That way, a customer can buy it from Amazon and the brand still gets revenue for the sale. I go downtown in Santa Barbara and I see a Sketchers store, and a Van's store, and I think... I can go in there try on the shoe, and order it from Amazon -- the brand doesn't care, either way it's a sale of their shoe. People still want to shop downtown in physical stores for the people watching (see the cute girls) and social experience, and the practical matter of trying on clothes. And they often want to order it online from their phone. So I can only see this working longer term if there are "showroom" stores for brands. That still means that mall space is necessary.

You might actually be right. Eddie is crazy like a fox perhaps. On the one hand, he says SYW is working and keeps repeating the growth in members and how they're doing more shopping online. He says this while same-store-sales are collapsing. He also says they are pursuing an "asset light" strategy. He is actually a fairly humble guy too. I guess it's fairly obvious that if SYW succeeds, it is actually eating out of the revenues of the retail stores. I mean, you can buy Craftsman now without setting foot in a store. Suppose a person does actually set foot in a Sears store. What do they do? They try as hard as possible to get that person to sign up for SYW. That only decreases the likelihood that they'll come back into the store again if they can fulfill their shopping for KCD products online. So it's like he recognizes that he has to shut down all these big stores, but can't stand missing out on the chance to build a very valuable online retailer. So he needs to keep the stores open long enough to strip them of their customers (converting them to SYW loyal members). Then he can start closing stores once he's stripped them of customers for SYW. That gives him cash as well as stems the store operating losses. Now, if he succeeds in building up SYW large enough, he can then use a lot of his big-box retail stores as online fulfillment centers. And he can scale it up to other brands that want to join his SYW network, so that people can return their online purchases to a physical location (instead of having to mail it back to Amazon, for example). Plus he can use some of the space as showroom -- sometimes you want to try the jacket on before you buy it. Or you want to physically see it. But you only need a few demo items for this, so not much space. So then like you said, SYW could be spun off once successful. They have all the retail locations (that they can't sell) to make it a fabulous grand slam hit. They need to grow their membership to make the SYW network more valuable, then they need to bring other brands online, and they need to have all the online fulfillment centers physical space (which they already have). But in the meantime, they continue to operate Sears to strip it of customers and build up the SYW network. Only it's really expensive as all startups are, and he has a lot of assets to fund it. So this is his grand strategy and you are going to have to watch more burn in order to pull it off. But it could be a hit. He has been hiring all kinds of IT people to work on that website, so it might really be that he wants to take on Amazon -- or at least be a respectable competitor that makes money. So he doesn't really need to liquidate all those stores -- some of them are essential as online fulfillment centers with a brick-and-mortar face that the customer can interact with. Try on clothes, return items, etc... Crazy?

I actually got tired of looking at that shoe. I don't know how Palantir can take it. I wish this site had a feature where you could block his Avatar selectively. Then I would block Muscleman's next. Perhaps the aversion is due to your time at Microsoft. I totally agree about muscle's though! ;D ;D ;D Oh by the way guys, my mom went to Sears the other day. It's two stories and she said that there were about 3 or 4 people in the store. She also said that she had to walk around the store for a long time just to find someone to check things out. I wonder how much of the inventory is stolen if there is no one there to stop it. SYW is working then. He has used SYW to salvage every customer off that store/ship. They have abandoned the store for online shopping. The technology he has been installing in stores was actually developed in a secret government laboratory for counting migratory fish moving upriver past a dam. Once the technology determines that customer passage through the store has fallen below a given threshold (presumably less than 3 or 4 people given this store is not yet closed) he will scuttle/close the store. The reason for the iPads on the scarce employees is to track their movements in the store, so as not to count them as "fish".

Also, and I think somebody else raised this point. Doesn't SYW drive same-store-sales lower? He seems to be trying as hard as he can to get people to buy the KCD brands online. This means they don't need to come to the stores any longer. And so they don't. They aren't walking past the aisles making impulsive buys. Then he spins off Lands' End. Then it becomes even more obvious that the losses in SHLD are bigger than they appear. That helps strengthen the political case to shut more stores down, or massively downsize them, which he needs because he's going to have a lot of screaming employees fired and he doesn't want to be the bad guy. Hopefully he has stripped the retail operations of it's loyal customer base via SYW first. So when he is saying that it is working (despite the losses), perhaps all he means is that SYW is salvaging some of the customers before he sinks the retail ships. How else could mounting losses be deemed a success? Shutting the stores down completely means the customers are lost -- they have some value, just not enough to keep big box retail profitable?

I actually got tired of looking at that shoe. I don't know how Palantir can take it. I wish this site had a feature where you could block his Avatar selectively. Then I would block Muscleman's next.

So in his strategy do the KMarts with cheap long term leases become online sales fulfillment centers with a small amount of Sears storefront where customers can return items in person and see a showroom of products to demo and kick the tires?

Okay, so you have: retail stores need to stay open or brand value will collapse brands need to stay with Sears or store traffic will collapse retail stores need to stay open long enough to convert loyal customers to SYW before shutting down retail meanwhile store traffic is collapsing... brands are selling less (and thus losing mindshare). So brand value is slowly collapsing stores are losing tons of money, which is eating away the value of the real estate bit by bit (being sold for cash to fuel the stores that lose money) the pace of this is quickening This looks pretty damned aweful! McNamara was extremely intelligent too. He was among The Best and the Brightest. They brought him in from Ford because he was intently numbers driven and loved statistics. But he didn't understand something key because his strategy failed.

You're right about that. The 5 year waiting period is only for money that was "converted" to RothIRA.

I appreciate your feedback. In your opinion, why is the leading brand, Kenmore, seeing declining sales during a period of increased housing activity. Even though it can be sold online? Aren't appliance sales of the non-leading brands rising year over year? So what does it mean to be a market leader?

I'm actually curious how much a company like Home Depot would bid for the Craftsman brand. They already have tools on their shelves that their customers show up to buy. What is Craftsman going to do for them? Perhaps it would help differentiate themselves from Lowes, but do the customers at those two stores really need Craftsman at this point?

That's easy. The brands are losing their grip on customer mindshare. They lose their value year over year. This started to happen when Home Depot and Lowes cropped up. People now are becoming familiar with the brands sold at Lowes and Home Depot. And yes, they sell appliances too. And yes, you can buy online and pick up in store. So once you've realized that you can buy solid tools from Home Depot or Lowes (and also buy your lumber at the same time), you don't need to spend the extra 45 minutes driving across town to Sears to get the tool you want just because it says "Craftsman" on it. Plus, when you don't know what tools you need for a particular project, will you get better advice from the staff at: A) Sears B) Home Depot C) Loews Didn't one just sent they need those brands to keep people to go to their stores... But why can't Kenmore be more like Whirlpool then, I remember Whirlpool spent a fortune to get Maytag years ago. Kenmore is a still a strong brand. Somewhere along the line the brands become less valuable as they keep closing down stores and losing customers. Meanwhile, people get familiar with using other brands. Look, if there are only 100 Sears stores left and Kenmore is exclusively available at Sears, then it's worth a hell of a lot less as a brand since those 100 remaining stores serve a lot fewer customers. You can look at home much cash is being generated by store closures, but how much intangible value is being lost from those brands?

That's easy. The brands are losing their grip on customer mindshare. They lose their value year over year. This started to happen when Home Depot and Lowes cropped up. People now are becoming familiar with the brands sold at Lowes and Home Depot. And yes, they sell appliances too. And yes, you can buy online and pick up in store. So once you've realized that you can buy solid tools from Home Depot or Lowes (and also buy your lumber at the same time), you don't need to spend the extra 45 minutes driving across town to Sears to get the tool you want just because it says "Craftsman" on it. Plus, when you don't know what tools you need for a particular project, will you get better advice from the staff at: A) Sears B) Home Depot C) Loews

But that's also one benefit of Roth conversion. If you do want to take it out early (without paying that 10% penalty), then do a full Roth conversion and wait 5 years. Then you can take the "day of conversion" value out of the account without penalties (leaving behind whatever gains are left since conversion). You are allowed to take out the already-taxed contributions and already-taxed conversion money first. That's sort of nice. So you can cherry pick some of it for a completely tax-free withdrawal before 59.5 -- but as long as you've waited 5 years.

It only becomes tax-free when you are 59.5. Any gains withdrawn from the account before 59.5 is a taxable gain (secondary taxation). Until you are 59.5, you can only withdraw tax-free the amount that you contributed or the value at time of Roth conversion. Even if you try to withdraw that already-taxed money, they'll still hit you with an early withdrawal penalty if you attempt this within 5 years of Roth conversion or after-tax contribution (I think the penalty is 10%).

How about you put a "lunch with Sanjeev" on EBay. The winning bidder gets your stock tip.

Suppose you see a guy in a warehouse burning priceless antiques to heat the place with the air conditioner turned on. An auctioneer announces that the bidding for the remaining antiques has begun. You have been screaming at him for a while now trying to tell him that the air conditioner is on. He ignores you and keeps trying to heat the place. How much are you going to bid for the remaining antiques? That's what is scaring me.

You also don't start posting articles on your blog about this kind of thing when you are "finally liquidating the real estate". So the theories that he is accelerating and finally getting out of retail seem incorrect. I got out of MBI when the settlement looked like it would never happen -- it was because mules' piss kept coming out of Jay Brown's mouth. It wasn't until he was silenced that I thought a settlement was possible (actually, somebody else pointed out his silence and the relevance of it). To use that as a model, Lampert is still fighting the good fight, looking at his SYW metrics which he seems to view as successful despite the horrific losses. I am trying to stretch a metaphor out to Robert McNamara who was brought in from Ford. He tried to fight the Vietnam War with numbers and it didn't work out because he underestimated the ability of the North to keep sending replacements into the field. Well, I can't quite get the analogy to work but I think that Lampert is somehow making a similar mistake with his metrics, because the results are aweful. Somehow he is underestimating the human emotions that one feels when walking into a Sears store. McNamara underestimated the effect carpet bombing would have on enemy resolve.

Look at his wordpress blog. He posted links to two articles about leadership stuff. The "Do vs Can't Do Cultures" article really struck me. He even highlighted a paragraph out of that with the line "truly innovative ideas often look like bad ideas at the time". This is Eddie getting defensive to outside criticism. Being defensive is when you shut down to critics. Not a sign that he is moving in the right direction. In his mind he is truly innovative and the critics are just the people who say it is a bad idea at the time. So he is dismissing criticism this way, digging in. Quoting an article on great leadership to defend what he is doing... doesn't look good.