SHLDQ - Sears Holdings Corp

[wisdom]

Not sure what it means.

 

I am just saying there is some value for all the assets combined. And obviously, I may be biased as this is  a large position for me now, but, I still believe it to be far higher than the $4B.

[AZ_Value]

 

So maybe LE spin off is the first initiative to monetize the brands.

 

I figure that if this is working, then monetize others brands. and then monetize the real estate.

 

This way you get the most value out of this thing. Monetize the brand, and  then the RE.

 

I'm actually confused when people here talk about monetizing LE. LE is not being sold. As a SHLD shareholder you will receive shares in a new publicly traded LE company and you can monetize that on your own if you want, i.e. sell the shares yourself.

 

I think it was Chad (Peridotcapital) who has said many times that we say these things as if they were easy. Eddie is a smart guy, very smart guy (exponentially smarter than me). And if any of those things were easy and obvious he would have done them. It's not like he doesn't have an incentive to see this thing work out.

 

You guys are SHLD shareholders, and many of those actions would continue to kill SHLD. Like the LE spin off, the direct result will be that a lot of money in EBITDA will stop showing up in SHLD as LE is (so far) EBITDA positive, all this while the rest of the company is continuing to burn cash at an accelerating rate and Eddie seems to be spending a lot trying to turn this thing around.

 

 

 

[ERICOPOLY]

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.

[stahleyp]

Eric, is your avatar change a sign (no longer sliding down the quality curve) that you're no longer in sears? :P

 

I know you wrote the puts recently, so I'm guessing not.

[ERICOPOLY]

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?

 

[ERICOPOLY]

Eric, is your avatar change a sign (no longer sliding down the quality curve) that you're no longer in sears? :P

 

I know you wrote the puts recently, so I'm guessing not.

 

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.

[gary17]

I am wondering if anyone has thought about who would buy the real estate sears owns. Their spaces are big. Do we have buyers in the US and Canada? If there are no buyers this could be a difficult one to realize the value even if management wants to

[ERICOPOLY]

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?

[stahleyp]

Eric, is your avatar change a sign (no longer sliding down the quality curve) that you're no longer in sears? :P

 

I know you wrote the puts recently, so I'm guessing not.

 

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.

[ERICOPOLY]

Eric, is your avatar change a sign (no longer sliding down the quality curve) that you're no longer in sears? :P

 

I know you wrote the puts recently, so I'm guessing not.

 

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".

[Mephistopheles]

Some people mentioned activism. It's not going to work in this case. Ackman tried it some years ago against Lampert, but failed.

[ERICOPOLY]

So Shop Your Way is built in a way that is quite generic... you won't know it's from Sears. I wonder if this can potentially be a spin off asset down the road.

 

Also, it looks like the site is designed to scale, you can add more brands, stores, departments etc.. wonder if the longer term plan is to scale this out other companies and brands and carry more non-traditional products. Once you have the members and infrastructure, scaling up on revenue will turn to profit (OSTK like cycle)

 

You can also see their have built a social network features around the site.

 

But I check their facebook and twtr followers, number is dismal even when compare to Sears itself. Long way to go but just a thought as billions of dollar will be put in to build it.

 

Thoughts?

 

 

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?

[plato1976]

SYW is still too small

, and Sears is already burning at such a fast rate

No idea how this strategy can work out before all the values are burned

 

Also, currently Sears is really not competitive against home depot etc. for the same kind of appliance

Really no reason to shop at Sears. SYW won't change that

 

 

So Shop Your Way is built in a way that is quite generic... you won't know it's from Sears. I wonder if this can potentially be a spin off asset down the road.

 

Also, it looks like the site is designed to scale, you can add more brands, stores, departments etc.. wonder if the longer term plan is to scale this out other companies and brands and carry more non-traditional products. Once you have the members and infrastructure, scaling up on revenue will turn to profit (OSTK like cycle)

 

You can also see their have built a social network features around the site.

 

But I check their facebook and twtr followers, number is dismal even when compare to Sears itself. Long way to go but just a thought as billions of dollar will be put in to build it.

 

Thoughts?

 

 

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?

[finetrader]

Crazy?

 

That's the closest explanation I have seen so far that might explain what is Eddie's master plan.

 

[finetrader]

I would not go as far as saying that he wants to take on amazon, but having a distribution channel ( locations all around the US) is certainly in the plan to keep this thing as a going concern.

[compoundinglife]

I don't think this has been posted yet but it seems like the SYW product is primarily maintained by a team in Israel that was originally a failed social networking startup he purchased in 09. I am guessing purely as a talent acquisition.

 

http://team.sears.co.il/

 

https://www.facebook.com/SearsIsrael

 

Team was originally a startup called Delver: http://en.wikipedia.org/wiki/Delver_(search_engine)

 

I would suspect that most of the hoffman estates based openings are for the Sears.com store or corporate IT and SYW appears to be exclusively developed and maintained by the ex-delver team. Sear's Israel has the gambit of of team members, devs, PMs, data center/ops people. It appears to be operating with its autonomy . Reiterates that SYW is a strategy he is banking on longer term.

 

 

[ERICOPOLY]

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.

[compoundinglife]

Another potentially interesting connection is Malone's LINT company commerce hub who lists Sears and Kmart as customers. Basically a large scale drop ship fulfilment company connecting retailers/suppliers. I could see commerce hub scaling up quite a bit and using scale to enable traditional retailers to keep up or catch up with Amazon.

[compoundinglife]

http://www.mercent.com/webinars/sell-on-sears-access-millions-of-loyal-online-shoppers

 

In the context of leveraging the RE as show rooms I thought this was interesting just because the following (in bold) had not crossed my mind before:

 

 

So now why should you sell on Sears? Well three things:

 

You’re going to diversify your selling strategy, so sell on multiple platforms. Why just sell on one or two, add Sears to the mix and earn more revenue.

You’re going to tap into our loyal customer base and traffic and unlock uncapped earning potential.

The number one asset our competition can’t touch – our stores.

Eventually our sellers will be able to leverage our 800+ full line stores across the nature.

 

If the stores end up becoming small footprint show rooms or pick up locations and marketplace sellers can have their goods displayed there then this gives sellers something they can't get in other online market places.

 

 

[mcliu]

Does anyone have the “The Softer Hard Asset Side of Sears” real estate valuation presentation that Baker Street Capital mentioned in their Sears Presentation? I think it would be interesting to see their store-by-store analysis.

[sswan11]

What I don't get is why SHLD went up after the last (dismal) earnings report.  Was it just a short squeeze? 

[ERICOPOLY]

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.

 

 

[compoundinglife]

Can you see a future other than the one where the brands lease space in showrooms?

 

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.

[ERICOPOLY]

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.

[ERICOPOLY]

Can you see a future other than the one where the brands lease space in showrooms?

 

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.