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The Chickens Have Finally Come Home To Roost At Sears
In January of 2009 (nearly three years ago, which is ironic), I went bearish on Sears due to a variety of reasons, the least of which was less than competent management (hedge fund managers don't necessarily make good department store managers), macro conditions and fundamentals sloped towards hell. Although this was initially a very profitable trade, the rip roaring bear market rally of 2009 shredded the short profits - turning them into losses if uncovered, and simutaneously disguised the many issues that we brought up in our initiail short analysis. Well, you can run but you can't hide, and the truth will ultimately rear its head. On that note...
CNBC Reports In the Wake of Poor Sales, Sears to Close Stores
Sears Holdings plans to close between 100 and 120 Sears and Kmart stores after poor sales during the holidays, the most crucial time of year for retailers.
In an internal memo Tuesday to employees, CEO and President Lou D'Ambrosio said that the retailer had not "generated the results we were seeking during the holiday."The closings are the latest and most visible in a long series of moves to try to fix a retailer that has struggled with falling sales and shabby stores.
Sears Holdings Corp. said it has yet to determine which stores will close but said it will post on the list online when it's compiled. Sears would not discuss how many, if any, jobs would be cut.
The news sent shares of Sears [SHLD 36.50 
-9.35 (-20.39%) 
] to their lowest point in more than three years, and it was posting the biggest percentage decline in the S&P 500 Index.
As does Bloomberg: Sears Plunges on Plans to Close as Many as 120 Stores
Sears Holdings Corp., the retailer controlled by hedge-fund manager Edward Lampert, tumbled the most in... Sears fell (SHLD) 18 percent to $37.65 at 9: 42 a.m. in New York,...
As shoppers may realize, the retail store is at a disadvantage this year for sales activity has simply been weak. Thus, U.S. Stores Ramp Up Bargains as Sales Lag. I discussed the effects of this on retail malls last week in The Greatest Risk To Retail Commercial Real Estate Is? Sovereign Debt! Macro Headwinds! Popping Bubbles! Busted Banks! No, It's The Internet! The kicker is the effect on Sears will be most exaggerated since it has real estate, fundamental, macro, industry induced and management issues to deal with as well as the paradigm shift towards internet shopping (which it should have been able to hedge with Sears.com and Kmart.com, alas this brings us back to the management issues, doesn't it?. BoomBustBlog subscribers, please refresh your memories by downloading the following...
Sears Holdings Research Report - Retail 2009-01-27 01:13:07 50.42 Kb
Sears Holdings Research Report - Pro 2009-01-27 01:11:41 313.25 Kb
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The Gap closed 189 stores in October, about one-fifth of its US real estate. In a depression, the customers go away, then the stores go away!
Tribe member Eddie Lampert is a real POS. I went into a Sears about 2 years ago. It was months after Christmas and they were still stuck with endless amounts of clothes that were marked down. Endless racks.
If you go into other stores like Target - you can see inflation and dollar devaulation. The cost of cotton clothing like underwear, khakis and shorts is up about 30% due to higher cotton prices and fiat dollar devaulation. The new sales price for nicer khakis is $20 and it was $15 less than 18 months ago.
The tribe wanted the muslim in the white hut. they love him.
The cost of cotton clothing like underwear, khakis and shorts is up about 30% due to higher cotton prices and fiat dollar devaulation. .... oh yes. over a year ago i told my friends & family to go out there & STOCK UP ON TOWELS, BED SHEETS & UNDERWEAR ! a chest of drawers filled with all cottons is BETTER THAN MONEY IN THE BANK ! a linen closet filled with towels & bedding is better than a 401k ! I know, i've been keeping house for 40 years. The worst part, tho, is that I'm seeing a resurgence of POLY/COTTON blends ....... oh god, you know it's bad when you pick up a t-shirt & see that it's 60%polyester & 40% cotton = crap clothing. STOCK UP, PEOPLE !
You could get a men's 3 or bonus 4 pack of briefs on sale either Hanes or Buffett's Fruit of the Loom for $5 to 6. Now they are $8 to 9. Sometimes $7 or weird off brands at bargain stores a bit cheaper.
Poly/cotton is crap especially in bedding and towels plus clothing. I tried the breathable poly golf shirts and really like them. I never ever wore any poly but I love these very breathable golf shirts. It feels like you almost have no shirt on and they hold up very well. I was shocked.
Bedding? 300 or more thread count cotton sheets are a luxury now. Wasn't some of the better stuff Egyptian cotton - now that we turned that into a Islamic/shariah state for dear leader hussein.
I think Sears and the others are just getting crushed with the depression and inflation/fiat dollar devaluation. Couldn't happen to a more deserving guy then Eddie Lamprey.
Stuff at Lowes, HD and elsewhere just keeps going up and up. Little hardware stuff, sprinkler heads, bird seed, wood, Christmas lights and the list goes on. Fertilizer in the past few years has doubled. Prices at the grocery store keep going up.
Poly has a way of melting into your flesh when it burns.
Cotton burns off and hurts like hell, but gives you a fighting chance.
Hmmm.... not really sure I've seen anyone catch fire on the golf course... But thanks for the tip.
adr is correct in description of retailer run around. Importers are also subject to same run around with demands for accepting items not sold, threats to import direct etc. Not as bad as K-Mart days when you had to contribute to Christmas bonus fund. In any case major retailers killing jobs in US which eventually will kill consumer demand ---it's called economic suicide
I don't think the land is worth all that much. Especially with an empty big box sitting on it. Now Mcd's have smaller commercial footprint in desirable high traffic areas with high turnover is another story.
I know of a Super center being built quietly. The property owner had to be purchased and made to sign over the place and lands to Walmart at a pretty hefty price.
They have already started clearing woods and laying gas.water mains as I type this. The section of the city is unaware as of yet (Still rumors) what will happen in terms of traffic by the hundreds of cars crushing the intersection, highway and the local roads to and from it.
60% of retail is king, have you got a Whole sale license?
all those empty kmart buildings are turning into liqour barns and burkes clothing stores.ps most of the stores were rented com property. the tools at sears lost thier tools
Hedge fund manager types can only make a business work in a bull market. When it comes to creating or building a company that lasts, these kinds of people just don't have the appropriate DNA.
Because: Making a business work leaves too much on the table for workers, customers, stock holders, the IRS and other riff-raff. It just isn't cricket!!
The Efficient Business Model(tm) is to leverage the revenue stream via debt, then borrow more against the (inflated!) property values and then borrow against the potential value stream from capitalising the brand value.
The capital raised is then extracted via stock options, preferred shares, perhaps exorbitant dividends or even via controlling interests in upstream suppliers.
This creates a Win-Win situation: The first win is the extraction of all value, the second win is the Golden Parachute (the third win is the secret option deal betting against the stock or the debt).
PS: The Golden Parachute will then carry the parasite to a new host, where the process repeats .
Parasites are seldom good builders, or good custodians. Vampires aren't nurturing creatures.
they are all dead. whoever can survive the longest on the thinnest margins wins.
They all have to compete with the internet right within their own four walls these days now that people can go online with their phone right in the store.
Malls and stores are nothing but a window shop for the internet
TGT JWN JCP M and all the rest are a bunch of dead ducks in a few more years. You cannot sit there in a big box with huge leases, huge heat, huge advertising, huge staffing costs, multiple rooftops, and compete with low cost internet operations that use consolidated shippers.
You do not have to be a genius or a Reggie to see this.
Unlike Reggie, I won't be back to say I said it first and that I told you so
"Unlike Reggie, I won't be back to say I said it first and that I told you so"
Which is why you're not making money by publishing a newsletter. Sorry you hate marketing yourself. I get it, I don't like to do this either. That has an opportunity cost though. I agree that nothing he publishes is earth shattering, but he does do a lot of grunt work that those of us with day jobs don't have time to do (in order to validate his investment thesis), and his research is frankly a lot more worthy of purchasing than your typical sellside analyst.
I like Reggie's analysis. He does his homework.
I make money trading.
The last thing in the world I want is a blog or an audience.
I am kind of misanthropy anyways
I was right, WOO ME, BLAH, BLAH, BUY MY NEWSLETTER I WAS RIGHT, BLAH, BLAH, BLAH...Here's a sneak peak, I WAS RIGHT, BLAH BLAH BLAH buy my newsletter.
Some people like to brag about being right. Personally, I don't mind if people give credit to themselves. In my opinion, there are much worse qualities in the world. At least, in Reggie's case, he is constantly sharing very good and well researched information with many of us for free.
Reggie is the Terrell Owens of financial analysts.
Hate the playa but still a hall of famer
You risk life and limb shopping at these malls now ... pass. An entire economy based on crazed consumers.. great. Going into a convenience store, drug store, 7-11? First check to see if its being robbed.
i'm massively more worried my bank, broker, exchange product, Govt and Police, secret service, tax inspector, health a safety inspector will rob, defraud or incarcerate me than the million to 1 chance of a street criminal in a retail store
Sign of the Times
Retail is fucked because it doesn't support anything real. It only exists to support publicly traded companies to extract wealth in the form of granted stock options.
I'll give you a quick short story on how retail works.
You decide you want to start a company and make a product. You work hard to produce a good product, perhaps even in the USA. You generate some good buzz and get your first appointment with a big box retail buyer. This is very exciting because you know this could be your big break and you head there with the sales rep you hired because he guaranteed you an appointment for the paltry sum of 6% of sales to the big box store. You walk in a sit down, the next half hour or so is a dissertation in hell as you realize how fucked up the retail environment is.
The first thing that is asked is what the wholesale price will be and what retail you were thinking of. We'll put your cost at $5 to make it easy. You decided you want to wholesale the product at $15 with a retail of $25. You think $10 profit for you and the retailer is fair, boy you couldn't be more wrong. You kind of think in the back of your head that selling something to a consumer for $25 that cost you $5 to make is a little out of whack. The retail buyer flat out tells you, "I'm thinking more like a $19.95 retail and $15 isn't even close. We start at 60% margin and go from there. For your product we won't pay a dime over $5. It's a $5 wholesale item and nothing more. We'll give you a little more because it is made in the USA but we know the cost from China would be around $.75. In fact we suggest you make it in China."
Stunned you don't know what to say. The buyer won't pay more than $5 and the product costs you $5 to make, with commission, shipping and everything else you would lose money if you sell the product to this buyer. So you negotiate and say that you won't take less than $10. The buyer responds with a final offer of $8.50. You reluctantly agree because there isn't anywhere else to go. You have a base profit of $3.50 and the retailer makes $11.50. Triple what you make even though it is your product.
A few weeks later you get a vondor agreement you must sign with a whole bunch of terms; returned product, advertising allowance, defective allowance. They total almost 7% and you must agree or the buy is cancelled. Then you remember you owe your sales rep 6%. Your profit shrinks by 13% and all of a sudden your $3.50 goes away pretty fast.
THIS IS THE RETAIL LANDSCAPE EXACTLY HOW IT WORKS. WALMART, BEST BUY, SEARS AND ALL THE REST. THEY CAN'T FUCKING MAKE IT WORK WHEN THEY DESTROY VENDORS AND WORK ON MARGINS THAT CAN REACH 80% OF RETAIL. FUCK THEM ALL!!!!
ADR - you nailed it but forgot two things. The buyer will then ask for markdown money. They also get 60 or 90 pay terms which they drag out to 180 or 270 days or more. The rep often has to go to the A/P department to try to make sure the invoices get paid.
Yep been there, we manufactured a line of Terrarium Coffee tables. We were approached by a Chain store, after listening to their list of conditions and the cherry on the top was ninety days credit. The look on the guys face when I told him to nick off was classic...Never regreted the decision....
Sears (and 'big retail' in general) started as a catalog store, I believe. ...And now, back to the catalog (Internet) it shall return.
It's The Circle of Life, Simba!
ADR - your 80% of RRP consumed by the Big Retailer is about right although 1,000-2,000% mark-ups is what really get these diseased dinosaurs out of bed in the US and UK
compared to the 'Take it or Nothing' offered to small retailers the big stores get their nappies changed twice a day plus these fatuous bleating babies demand money upfront to stock new products from new producers and get shelf space
our entire retail environment like every other part of the economy is rigged for big pampered brats sucking the life out of productive progress ...we so need an economic asteroid attack to rid ourselves of these bloated repugnent monopolists
i don't think anyone has a clue just how sick, perverse and stagnant our economies are
Goddamn, what an arrogrant prick...
Sooo, in 2009 you wrote how Sears, blah blah blah, was going down or something like, somewhere in this 80,000 word bragfest..
Of course, were supposed to have sold Shld at that point..? Luckily noone did, since it ran from $50 to $125 in 2009 thru 2010...
Reggie, you snake oil salesman, sorry but it's the nicest thing i could call you off the top of my head...
I love you 'i told you so' clowns, reggie. Lets see thta short you put on Shld to back up that article. I won't hold my breath because i'll be dead long before you ever put up, because i know you;'re never gonna SHUT up..
Pompous bastard..
Hey CMON now!!! He was wrong once.... I think...
Sears can't afford chickens, and the KMart roost fell apart right out of the box.
Come on, an idiot could figure out what is going on, I did, when the scumbag first bought in to Sears.
The LAND!
All those stores are sitting on fabulous land. Why deal with old legacy when you can bleed it dry, say oh well, and sell the land at a fabulous profit. Not a lot of dealing with grubby people.
Had the CRE bubble continued on for another, say, 15 years, this would certainly have been a winning strategy.
OOPS!
Under previous circumstances that would make sense, but retail land is selling at a whopping premium right now. You'll see...
True. We're coming off a bubble and the internet is killing the malls wher Sears lives. These two factors are killing Sears. No traffic, no money.
IYR and the REITs continuing their unexplainable market-smashing rise.
Wierd...
No, not weird. I'm not a buyer, but I can explain- the components of IYR recapitalized themselves like the banks should have. They sold shares and used the money to pay down mortgages. Today they are lean & mean, look at Ventas' purchase today. They are also thinly traded stocks, some companies are 90+% institutionally held, with low outstanding share totals. PLUS they pay a nice dividend 3.84% (MCD breaking 100 is unrelated- or is it?).
OH FUCK, you're right! I have to really start to ask the question..."How can I get some additional exposure to commercial real estate". Since, they are all "lean and mean", whatever the fuck that means, it must be a good value now. Who gives a shit about the valuation? SwingForce says this is a bad mofo of a stock.
These statements really mean a bunch to me. These are honest Joes and pillars of their communities...
All I need to do is really really lever up on this shit and I'll be retired by Friday.
REITs are up with people chasing yield because they get nothing at the bank. I am not sure how long this can last because a lot of the REIT loans probably are adjustible. IF rates go up - a lot of REITs and their shareholders will get crunched.
I'm at 40000 feet I see little wrong from up here. BO ... I went into a Sears store last yr as a last resort to buy a pair of shoes, I found some I liked and wanted to pay at another register since I had some other items to pay for.. The moron at the register said the shoes had to be paid at the shoe dept.. I just left the items and walked out.
Kmart as a goof sometimes.. they ask you fifty questions at the register.. name, dob, addresss, discount member? and on and on..lol no wonder they are bankrupt.
Years ago @ Kmart I went to buy a car battery. When I went to exchange my old one for the $5 credit, they sent me to the service counter. After waiting for them to struggle through three other customers, the semi-literate (and likely social-promotion victim) couldn't understand what I was talking about and rung up the battery for $5. I asked "are you sure?", she got irritated and said "Yeah I'm sure!".
Who am I to argue...
Store went OOB recently and sold off all their inventory. I went to the vulture-fest and picked up... Another car battery, but this time for a whopping $40.00.
...I'll sure miss that store! XD
KMart sealed their fate when they 86ed all firearms and ammo sales but Walmart continued to sell ammo. Whenever a gun owner has a choice and it has to be one or the other they will choose Wally mart because at least WM did not insult gun owners with a PC statement that guns-r-bad...mmmmmkay?
The Internet has delivered to me to fire about 6000 rounds of various sources for the last several years. On time, good pricing etc. (No tax) and usually the good stuff, none of that crappy 20 round box for 50 round pricing.
Our sears opened one year and I went in only to get 2 dollar oil or 5 dollar belt as most everyone else did.
They finally had a big sale about 40% off combined when you open a credit card account that day. I did, and returned the next morning cash in hand and paid it off.
I suppose when Sears finally sinks, the credit reports will take them off eventually. That store is closed. Bankrupt.
There was a time several generations back when going to Sears was the absolute red carpet experience anyone from the lower class could have, at least for a while.
As far as Kmart, I don't bother. You can see the dollar store type mess and smell the fear among the staff. And the million questions at the register (Don't fuck with me lady, just take this goddamn money..._
No more.
Am I prepared at this point to say no more Retail>? Yes. I am reminded occasionally when the police fall out to respond to a shots fired call at the mall down the road.
There was a riot at the Mall of America yesterday. It is probably not making big news, but people took videos with their phones and they were all over the internet. My granddaughter showed me. Young men were throwing chairs at each other in the food court, for crying out loud. I saw a video of one kid getting attacked by a whole group and they stole the sweater right off his back and ran. People were screaming and running for cover. Someone got stabbed. The police came with guns drawn. The stores had to go to lock down. It was like a war zone. What a pleasant afternoon outing for the family.
http://www.dailymail.co.uk/news/article-2078978/Mall-America-200-rampage-rumours-Drake-Lil-Wayne-visiting.html?ito=feeds-newsxml
Hmm, an armed society is a polite society.
So people behave nicely only through fear of violence and death? That's a horrible indictment of American society, so maybe it's true.
On the other hand, the two could be mutually exclusive, imo. Impolite violent assholes will always be impolite violent assholes whether armed or not. Guns just make folks over-confident and cocky, perhaps to hide their inner fears and paranoia. I don't have any problems with responsible adults having guns - every home should have a fully automatic assault rifle just like the Swiss, but the argument that armed people prevent shootouts, murder, robberies, and assault in public places falls flat when you look at the stats for States that allow ccw. They mostly seem to shoot themselves or innocents or run away.
40 states have unrestricted and shall issue, 8 have may-issue, and only two do not allow ccw, although you can still open-carry it on your hips (Wisconsin and Illinois). Proliferation of guns have no impact on criminal mentality, imo, just makes it much more likely for them to be used.
Culture and education defines a society, not guns.
But Jimmy Bob Cramer said that Eddie Lambert is going to turn Sears in to the next BerkshireHathaway.
Cramer is a funny, funny guy
...such a great sense of humour him and Steve Liesman
...every sentence loaded with farce... like CNBC, the renowned comedy channel
Craftsman tools at Ace Hardware was one sign that the spirit was gone.
Craftsman tools at Costco was probably the last one.
That little auto-hammer is pretty nifty though, no matter where you get it or whose brand is on it.
Reggie, my arogant friend. How's that Apple plan working out for you? you know, the one where you continually bash Apple, yet their profits and stock price keep going up?
Apple is 'dead man walking.'
Centauri, invest in Apple, prove us wrong.
What is wrong with arrogance? The NY Jets do it well. HA!