DISQUS

James · 6 months ago

Eric - I followed you during the Yahoo B Plan days... that was well played. In the SHLD situation, I suggest you do a bit more research first:

1. Eddie isn't reclusive. At all. If you work at SHLD (which I did for 7 years), you will find that Eddie is highly visible as is his entire ESL team. Video conferences to Greenwich are common.
2. Sears already offers buy online / pick-up in store. They pioneered the concept in 2001. They're expanding to Kmart later this year. The idea - convenience. Save time starved consumers time.
3. MyGofer isn't "within Sears". Instead, they are taking an existing Kmart location and turning it into a new concept called MyGofer. Think Service Merchandise = small show room, big distribution center on the back, drive thru pick-up. It failed 20 years ago; this too will fail. However, Eddie is committed to making the concept work and has been tinkering with it since he combined Sears and Kmart 5 years ago.
4. Yes, SHLD is stuck in the middle. But they have brands that are worth billions. They have the largest service and support network in the US - that's worth billions. They have a website that garners 15m visitors a mo and generates $1b+ in sales. That's worth a billion or so. They have a real estate portfolio that, while it can't get capitalized in today's market, is still worth billions. Add it all together and the sum of the parts are worth more than the current market cap. Oh, and they make money, giving ESL plenty of time to test and learn into a new business model.

Everyone thinks Eddie wants SHLD to be something it's not. He doesn't want biggest. He wants a profitable, relevant, expansive business model with various hedges against the market. That's what he has, but the potential is there for much more.

Please do more research on the stock before posting.

ericjackson · 6 months ago

Hi James:

Thanks for your comment. I don't like sloppy work either. I am happy to be called out on mistakes. Here are my responses to your points.

1. I meant Eddie is reclusive from the media - not necessarily from SHLD employees. I am not saying it's bad to be a recluse from the media. However, I believe management by walking around is better than by videoconference.

2. & 3. I stand corrected. You sound better informed than me. I have heard (who knows if it's true or not) that Eddie has tinkered with a number of concepts. Again, nothing wrong with tinkering, but over-tinkering can be distracting internally. My observation is that none of the ideas they've tried yet has been a real game-changer to get people back to SHLD in droves. I don't think either of these 2 concepts will be embraced either.

4. I agree that their brands have value (Craftsman & Kenmore). I think ESL bought out (or is trying to buy out if Ackman sells) Sears Canada -- also a smart move, I believe. You're right that there are parts of the business that have value and that the market has yet to see that and might over time. My observation would be that the Sears brand itself has diminished over the last 5 years and ESL would see a better return on its investment if it was somehow able to better define its brand in the market (pick one: low cost or niche).

James · 6 months ago

Great points. Thanks, Eric. Again, I enjoy your columns and your activist investor stance...

For the most part, ESL combined the companies because of all the wonderful assets which we've discussed (forgot Sears Canada, which provides almost 2/3 of company cash flow). The problem is that the combined assets do not add up to a compelling business model. In fact, all of them separated seem like a much more interesting and palatable solution.

But ESL has a chip on his shoulder. He hasn't got the credit for combining two non-relevant companies and keeping them afloat. He doesn't want to be an activist investor; he wants to be an active business owner, building something of relevance for the long-term. Pop-psychologists would say it is a direct result of losing his dad early in life.

Be that as it may, ESL is incredibly impatient on one hand (needs results from his investment), but incredibly patient on the other (he's in no hurry to fully capitalize the assets). He can afford to wait as a.) the company generates profit today, b.) he has limited debt overhang, c.) the external markets stink. So, he continues to test and learn trying to find something that works.

The reality is that store-based retail isn't very hard. Good location. Right product. Right price. Right service. Ecommerce retail is incredibly hard, though, as evidenced by Amazon. ESL and SHLD are in the proposed middle ground not from a positioning standpoint, but more from a business model standpoint. They aren't terribly good at any one thing. To get better, he's investing in ecommerce to change brand perception and pull the business forward. But when the largest pure-play invests $1b+ in IT spend and SHLD is spending, best case scenario, $50m, your are fighting a losing battle.

ESL's test and learn strategy is prolonging the inevitable - Sears as a retailer will survive in some form or fashion, but the reason to invest is in the assets, not the business model

ericjackson · 6 months ago

Hi James: Good points. Thanks. (I especially liked the pop psychology stuff :). Best, Eric