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Here’s What Investors Are Missing About The Sears-Amazon Partnership




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(AP Photo / Winslow Townson)


Sears Holdings
arrived today with the news that the abused retailer extended his partnership with Amazon . Once again, the optimism & nbsp; – or is it pure credulity? – & nbsp; of some investors amazes me.

More than four years ago, I wrote (I admit more than provocatively) that Sears investors would have done much better with a liquidation of the company & nbsp; that with a perpetuation of the charade there was some hope for a real turnaround. More recently, & nbsp; I expressed an opinion on the 2017 Amazon-Kenmore affair & nbsp; and & nbsp; on the initial Amazon-Sears tire association announced in May. My point of view was that these agreements do little, if nothing else, to avoid the inevitable for Sears. Furthermore, I believe they ultimately have greater value for Amazon.

For what it's worth, when I wrote (and appeared on CNBC) with my "liquidated ASAP" thesis the Sears title was at the minimum $ 40 S. When I released Kenmore's piece, Sears's shares were down to about $ 9. My first tire article was written about three months ago, when the shares had an inexplicable recoil, reaching almost $ 4. At the close of today, the SHLD increased by 12% for the day, closing at $ 1.24. & Nbsp; Draw your conclusions, but certainly do not say I did not warn you.

While on a level I appreciate the audacity of hope shown by some curious investors, I believe that those who show exuberance in the face of this type of business are missing three essential things.

Dead brand walking. & nbsp; The overwhelming question is that there is no plausible scenario in which Sears remains a viable national retailer. In fact, with Sears who closed hundreds of stores, with many others to follow after the holidays (if not before), one could argue that today it is no longer a real force on the national stage. The only thing that keeps Sears afloat is Eddie Lampert and ESL's willingness to finance a seemingly endless stream of massive operational losses. The idea that Sears can be reduced to prosperity is ridiculous. In all respects, they are liquidating the business. The particular relevance for the Amazon-Sears tire agreement is that distribution points will continue to contract, perhaps dramatically.

Difficult to move the dial. & Nbsp; It is difficult to see the contribution of material profit from this agreement. First of all, tire installation is minimal in Sears' overall business scheme. This particular offer focuses exclusively on customers who are willing to buy their tires online and have them shipped to a nearby Sears store so they can have them installed a couple of days later. So to be significantly relevant to customers, first & nbsp; the customer must be willing to wait. Given that much of the tire replacement market is driven by an emergency (ie, a flat tire), a large portion of the available market is not addressable. Secondly, even if waiting is not a big deal, it is likely that there are many local competitors, many of which will be positioned in a more convenient position (particularly because Sears continues to occupy positions) and have the stocks available, ready to install right away. Thirdly, Sears actually has a lot of tires, so if you're willing to have your tires installed at Sears, it's more sensible for most people to step out of the process and see if Sears has the tires in stock . In many cases it will. This is a long way to say that market opportunities seem rather small. When you further calculate the lower margin given to the Amazon cut, it is difficult to find a scenario in which this moves the dial in a profound way.

Amazon Trojan Horse . Sears is desperate. Amazon is patient, intelligent and willing to try many things. Sears has few arrows left in his quiver. Amazon can use this partnership to explore the convergence between digital and physical in a broad category, gain new customers and continue to explore potential private brand opportunities with DieHard and other Sears brands. Sears must show on Wall Street that he still has some life. Amazon needs to learn how to delve into undersized categories (auto and installed services) to help sustain a solid growth story. For Sears, every little part seems to count. For Amazon, this is a rounding error even if it turns out to be a disaster. & Nbsp; So who is likely to be getting the best deal?

To be sure, as is true of the potential sale of Kenmore, Sears has very few decent options left. So there is nothing intrinsically wrong at this point in the decidedly lacerated history of the company in performing this particular transaction. But the idea that this materially improves the value of the Sears brand seems simply silly for me.

See you on the other side of $ 1.

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(AP Photo / Winslow Townson) [19659014]
Sears Holdings
arrived today with the news that the abused retailer has expanded his partnership with Amazon. Again, the optimism – or is it pure credulity? of some investors amazes me.

More than four years ago, I wrote (let's face it more than provocatively) that Sears investors would do much better with a liquidation of the company than with a perpetuation of the charade that there was some hope for a real reversal trendy. More recently, I have expressed my opinion about the 2017 Amazon-Kenmore affair and the initial Amazon-Sears tire association announced in May. My point of view was that these agreements do little, if nothing else, to avoid the inevitable for Sears. Furthermore, I believe they are ultimately more valuable for Amazon.

For what it's worth, when I wrote (and appeared on CNBC) with my "liquidate ASAP" thesis, Sears' title was at $ 40 low. When I released Kenmore's piece, Sears's shares had dropped to about $ 9. My first tire article was written about three months ago, when the shares had an inexplicable recoil, reaching nearly $ 4. today, the SHLD rose 12% for the day, closing at $ 1.24. Draw your conclusions, but certainly do not say I did not warn you.

While on a level I appreciate the audacity of hope shown by some eager investors, I believe that those who show exuberance in the face of these types of business are missing three essential things.

Dead brand walking. The overwhelming question is that there is no plausible scenario in which Sears remains a viable national retailer. In fact, with Sears who closed hundreds of stores, with many others to follow after the holidays (if not before), one could argue that today it is no longer a real force on the national stage. The only thing that keeps Sears afloat is Eddie Lampert and ESL's willingness to finance a seemingly endless stream of massive operational losses. The idea that Sears can be reduced to prosperity is ridiculous. In all respects, they are liquidating the business. The particular relevance for the Amazon-Sears tire agreement is that distribution points will continue to contract, perhaps dramatically.

Difficult to move the dial. It is difficult to see the contribution to material profit from this agreement. First of all, tire installation is minimal in Sears' overall business scheme. This particular offer focuses exclusively on customers who are willing to buy their tires online and have them shipped to a nearby Sears store so they can have them installed a couple of days later. So, to be significantly relevant to customers, first the customer must be willing to wait. Given that much of the tire replacement market is driven by an emergency (ie, a flat tire), a large portion of the available market is not addressable. Secondly, even if waiting is not a big deal, it is likely that there are still many competing local points of sale, many of which will be positioned in a more convenient position (particularly when Sears continues to occupy positions) and have tires in stock, ready to install immediately. Thirdly, Sears actually has a lot of tires, so if you're willing to have your tires installed at Sears, it's more sensible for most people to step out of the process and see if Sears has the tires in stock . In many cases it will. This is a long way to say that market opportunities seem rather small. When you further calculate the lower margin given to the Amazon cut, it is difficult to find a scenario in which this moves the dial in a profound way.

Amazon Trojan Horse . Sears is desperate. Amazon is patient, intelligent and willing to try many things. Sears has few arrows left in his quiver. Amazon can use this partnership to explore the convergence between digital and physical in a broad category, gain new customers and continue to explore potential private brand opportunities with DieHard and other Sears brands. Sears must show on Wall Street that he still has some life. Amazon needs to learn how to delve into undersized categories (auto and installed services) to help sustain a solid growth story. For Sears, every little part seems to count. For Amazon, this is a rounding error even if it turns out to be a disaster. So, who could get the best offer?

Actually, as is true of Kenmore's potential sale, Sears has a few decent options left. So there is nothing intrinsically wrong at this point in the decidedly lacerated history of the company in performing this particular transaction. But the idea that this materially enhances the value of the Sears brand seems simply silly.

See you on the other side of $ 1.


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