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See what investors miss about the Sears-Amazon partnership




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(AP Photo / Winslow Townson)

Shares of

Sears Holdings
today spurred news that the besieged retailer had expanded its tire partnership with Amazon. Again, the optimism – or is it simply credulity? of some investors amazes me.

More than four years ago, I wrote (admittedly more than provocatively) that Sears' investors would be much better at liquidating the firm than by persevering from the charade, that there was hope for a real turnaround. I recently reached an agreement on the 2017 Amazon Kenmore deal and the first Amazon Sears tire partnership announced in May. I think these deals do little or nothing to avert the inevitable for Sears. In addition, I believe that ultimately they are of greater value to Amazon.

For what it's worth when I wrote (and appeared on CNBC) with my "liquidate ASAP" thesis, Sears' stock was in the low $ 40s. When I released the Kenmore piece, Sears' stock had dropped to about $ 9. My first tire article was written about three months ago, when the stock went up a bit inexplicably, reaching nearly $ 4. Today, SHLD closed 12%, closing at $ 1.24. Draw your own conclusions, but do not say that I did not warn you.

While I appreciate on one level the boldness of the hopes of some keen investors, I believe that those who exuberate in the face of this kind of business, miss three essentials.

Dead branding. The overwhelming problem is that there is no plausible scenario where Sears remains a viable national retailer. In fact, with Sears closed hundreds of stores, with many more to follow after the holidays (if not earlier), one could argue that it is no longer a real force on the national stage today. The only thing keeping Sears afloat is Eddie Lampert and ESL's willingness to fund a seemingly endless stream of massive operating losses. The idea that Sears can shrink to prosperity is ridiculous. In every sense, the shops are being dismantled. The particular importance for the tire business of Amazon Sears is that the distribution points may shrink dramatically.

Hardly the dial moves. It's hard to see a material contribution from this deal. First, the installation of tires in the overall Sears project is very low. This special offer is aimed exclusively at customers who are willing to buy their tires online and send them to a nearby Sears store so they can be installed a few days later. To be relevant to the customer, the customer must first be prepared to wait. Since much of the tire replacement market is driven by an emergency (i.e., a flat tire), much of the available market is unaddressable. Second, even if the wait is not a big deal, there will probably still be many local competing outlets, many of which will be cheaper (especially as Sears keeps closing the stores) and have the tires in stock right away. Third, Sears actually has many tires on offer. So, if you want to have your tires fitted to Sears, it makes more sense for most people to step out of the process and see if Sears has the tire in stock. In many cases it will. This is a long way to say that the market opportunity seems quite small. Considering the lower edge of Amazon's cut, it is difficult to develop a scenario that moves the dial in a profound way.

Amazonian Trojan Horse . Sears is desperate. Amazon is patient, smart and ready to try many things. Sears has only a few arrows left in his quiver. Amazon can leverage this partnership to explore the convergence of digital and physical products in a large category, attract new customers and continue exploring potential private market opportunities with DieHard and other Sears brands. Sears has to show Wall Street that it still has a little life left. Amazon needs to learn how to move deeper into low-traffic categories (automated and installed services) to sustain a robust growth story. For Sears, every bit seems to count. For Amazon, this is a rounding error, even if it's a disaster. So who will probably get the better deal?

Of course, as with the potential sale of Kenmore, Sears has few decent options left. There is nothing wrong with the history of the company in question to carry out this particular transaction. But the idea that this significantly improves the value of the Sears brand seems silly to me.

See you on the other side of $ 1.

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(AP Photo / Winslow Townson)

Stocks of

Sears Holdings
today spurred news that the besieged retailer had expanded its tire partnership with Amazon. Again, the optimism – or is it simply credulity? of some investors amazes me.

More than four years ago, I wrote (admittedly more than provocatively) that Sears' investors would be much better at liquidating the firm than by persevering from the charade, that there was hope for a real turnaround. I recently reached an agreement on the 2017 Amazon Kenmore deal and the first Amazon Sears tire partnership announced in May. I think these deals do little or nothing to avert the inevitable for Sears. In addition, I believe that ultimately they are of greater value to Amazon.

For what it's worth when I wrote (and appeared on CNBC) with my "liquidate ASAP" thesis, Sears' stock was in the low $ 40s. When I released the Kenmore piece, Sears' stock had dropped to about $ 9. My first tire article was written about three months ago, when the stock went up a bit inexplicably, reaching nearly $ 4. Today, SHLD closed 12%, closing at $ 1.24. Draw your own conclusions, but do not say that I did not warn you.

While I appreciate the boldness of the hopes of some keen investors on one level, I believe there are three essentials missing from those who show up in the face of this kind of exuberance.

Dead branding. The overwhelming problem is that there is no plausible scenario where Sears remains a viable national retailer. In fact, with Sears closed hundreds of stores, with many more to follow after the holidays (if not earlier), one could argue that it is no longer a real force on the national stage today. The only thing keeping Sears afloat is Eddie Lampert and ESL's willingness to fund a seemingly endless stream of massive operating losses. The idea that Sears can shrink to prosperity is ridiculous. In every sense, the shops are being dismantled. Of particular importance to the Amazon Sears tire deal is that the distribution points will continue to contract, perhaps dramatically.

Hardly the dial moves. It's hard to see a material contribution from this deal. First, the installation of tires in the overall Sears project is very low. This special offer is aimed exclusively at customers who are willing to buy their tires online and send them to a nearby Sears store so they can be installed a few days later. To be relevant to the customer, the customer must first be prepared to wait. Since much of the tire replacement market is driven by an emergency (i.e., a flat tire), much of the available market is unaddressable. Second, even if the wait is not a big deal, there will probably still be many local competing outlets, many of which will be cheaper (especially as Sears keeps closing the stores) and have the tires in stock right away. Third, Sears actually has many tires on offer. So, if you want to have your tires fitted to Sears, it makes more sense for most people to step out of the process and see if Sears has the tire in stock. In many cases it will. This is a long way to say that the market opportunity seems quite small. Considering the lower edge of Amazon's cut, it is difficult to develop a scenario that moves the dial in a profound way.

Amazonian Trojan Horse . Sears is desperate. Amazon is patient, smart and ready to try many things. Sears has only a few arrows left in his quiver. Amazon can leverage this partnership to explore the convergence of digital and physical products in a large category, attract new customers and continue exploring potential private market opportunities with DieHard and other Sears brands. Sears has to show Wall Street that it still has a little life left. Amazon needs to learn how to move deeper into low-traffic categories (automated and installed services) to sustain a robust growth story. For Sears, every bit seems to count. For Amazon, this is a rounding error, even if it's a disaster. So who will probably get the better deal?

Of course, as with the potential sale of Kenmore, Sears has few decent options left. There is nothing wrong with the history of the company in question to carry out this particular transaction. But the idea that this significantly improves the value of the Sears brand seems silly to me.

See you on the other side of $ 1.


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