The other big problem at Sears Holdings

The precipitous drop in holiday sales at Sears Holdings (SHLD -13.8%) during the holiday period wasn't wholly unanticipated, but a small erosion in the bull theory on the value of the company's real estate holdings might be a different matter.

Some analysts think that if more department stores follow the Macy's recipe to shed under-performing stores, then at some point asset valuations for Sears will feel a shiver.

Though the number of malls in the U.S. isn't completely out of whack, the abysmal reads on mall traffic across the U.S. point to a systemic issue.

Previous: Sears Holdings sales report

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Comments (28)
  • ppk721
    , contributor
    Comments (46) | Send Message
    problem at Sears is Eddie Lambert--end of story, so much for wonder boy...
    10 Jan 2014, 01:13 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11357) | Send Message
    Eddie Lampert would have fired Eddie Lampert CEO if it were some other person at the helm.


    Billionaire ego destroying value at SHLD.
    10 Jan 2014, 02:01 PM Reply Like
  • Danny K.
    , contributor
    Comments (193) | Send Message
    Eddie is similar to a scrapyard owner. A scrapyard owner takes a junk car, parts it out and makes money on junk. Eddie flipped that concept on his side. Eddie took a perfectly good asset in Sears (maybe not the best retailer, but still an average company), scrapped it and turned it into junk.


    Eddie still makes money doing this because he is at the top of the pyramid. He's into Sears at $11 a share and he owns 70% of it.


    But those who came after him? I wouldn't hold my breath thinking I'm going to see any money back.
    10 Jan 2014, 02:20 PM Reply Like
  • Danny K.
    , contributor
    Comments (193) | Send Message
    Disagree. Eddie isn't so stupid that he doesn't know you have to invest in your stores. From day one, Eddie Lampert had a fixation on the real estate an eye on liquidation. That can be the ONLY explanation for not spending money on capital expenditures.


    Now, where Eddie being a moron comes in: He didn't realize that all that real estate only had value when it has an operating retail store operating there and that he needed to keep Sears alive because there were few other takers for the space.
    10 Jan 2014, 02:12 PM Reply Like
  • Stone Fox Capital
    , contributor
    Comments (10110) | Send Message
    Well the last reads at all the mall REITs was a scenario where demand far outstripped supply.
    10 Jan 2014, 02:15 PM Reply Like
  • Danny K.
    , contributor
    Comments (193) | Send Message
    Maybe at those "A" malls, but for every "A" mall, there are 4 or 5 B, C and D malls. Check out how many malls have been foreclosed on .... Parmatown Mall in Cleveland (Sears store nearby in Middleburg Heights). Closed department store buildings have virtually zero use .... there are only so many call centers. Dark buildings sell for anywhere from $275,000 to $2 million in these sub-prime locations.


    Even in "A" malls, the market isn't so hot unless it's a landlocked mall and the developer really, really, really, really wants your space. Lexington/Fayette sold for $30 million, but that was a unique situation as you have to go through Sears to get from one end of the mall to get to the other. Other big box locations come back to the developers through expiring leases.


    IOW, not clear there is any money to be made on these buildings except for A malls where the developer is landlocked.
    10 Jan 2014, 02:25 PM Reply Like
  • Danny K.
    , contributor
    Comments (193) | Send Message
    The Wall Street Journal says it best in it's article today about retailers and how their public pronouncements can no longer be trusted:


    " bullish argument for Sears is that underlying assets such as real estate potentially have value to others. But if they are so desirable, it is odd that Sears continues running them just so it can burn hundreds of millions of dollars a year.


    There must be a good reason for that, though. Right?"
    10 Jan 2014, 02:15 PM Reply Like
  • Bouchart
    , contributor
    Comments (1166) | Send Message
    If Sears's real estate was so valuable, why can't Sears sell its products in that real estate?
    10 Jan 2014, 02:51 PM Reply Like
  • LetsGoPSU
    , contributor
    Comments (166) | Send Message
    As e-commerce grows, A mall real estate is becoming more valuable as showrooming space, and B/C/D is becoming less valuable. The question is, what does Sears have more of? I'd be willing to bet B/C/D
    10 Jan 2014, 03:08 PM Reply Like
  • Ldlake
    , contributor
    Comment (1) | Send Message
    I worked for Sears for 42 years and finally retired last year. The collapse of the store's infrastructure, following Lambert's direction to promote online sales , and the intensity thinking that the ShopYourWay is the answer are the main reasons Customer loyalty continues to decline daily. The main priority is not sales anymore which is crazy for a retail company.
    10 Jan 2014, 04:48 PM Reply Like
  • User 19714041
    , contributor
    Comment (1) | Send Message
    if there was a way to change the company they 1 have to bring the prices down to other company's prices and sell stuff people want more people want things as cheap a possible I know money is tight but if the prices were not as high maybe people will buy from sears Eddie needs to hear what the costumers want and see not guess well we will get this stock and market it and see if they will buy the items they need to go back to the old ways of running sears and get back to where sears was not a bad place to shop
    10 Jan 2014, 04:49 PM Reply Like
  • mobyss
    , contributor
    Comments (2641) | Send Message
    "get back to where sears was not a bad place to shop"


    The 1980's?
    10 Jan 2014, 06:39 PM Reply Like
    , contributor
    Comments (296) | Send Message
    I do not think Eddie cares what Sears customers want, virtually no ads on tv or print in December or November, the two months that make the year....says it all.
    11 Jan 2014, 11:47 AM Reply Like
  • brucetbo
    , contributor
    Comment (1) | Send Message
    I recently did some appliance comp shopping in my area. Nine of the top ten brands as rated by Consumer Reports carried the same prices at Lowes, Home Depot, and Sears. The price difference on the tenth item was less than fifty dollars and the Sears associate offered to price match. Best Buy offered lower pricing on two items but again the price difference was less than fifty dollars and Sears offered to price match. Best Buys earliest delivery date was also six days beyond the earliest Sears date.


    All stores were offering a 5% discount for customers who used the respective store credit cards while Lowes, Best Buy, and Sears offered 0% financing for 18 months and Home Depot offered only 12 months.


    Sears competitors almost scored a win with their free delivery but the Sears ShopYourWay program gave me $70 in rewards points plus 3% in base points. Haul away of old appliances was free at competitors and $10 at Sears but that 3% in points more than made up the difference. Installation charges for dishwashers and gas ranges were identical at all stores and all offered free installation of items that didnt require licensed installers.


    In the end, regardless of how the different stores arrived at their final price the total cost difference was around $100 in favor of Sears.


    Everyone knows SHLD has some serious problems but in my area at least, pricing simply isnt one of them.
    11 Jan 2014, 12:57 PM Reply Like
  • User 4542301
    , contributor
    Comments (3854) | Send Message
    In my area, customer service is a problem. Bought a Kenmore washer in about
    2010. We've always bought appliances at Sears. In years past, they had employees who would come out and hook everything up and insure the appliance was in good working order.


    Fast forward to 2010. It was probably 12 years, if not 15, since we bought an appliance from Sears. They delivered the washer, but didn't test it to be sure it was working. It wasn't. It was DOA. We called Sears and they said it would be 2 weeks before they could fix it. That ended our long term relationship with the company. Will never return with that kind of customer disrespect.


    Anyone remember Tom Peters? Have a look. Customer service pays off, period. It seems many companies today believe they can cut corners in this area. Its pretty simple. Take good care of your customers, and they will take care of you, with repeat business. The opposite is also true. Store loyalty is not dead.

    11 Jan 2014, 03:55 PM Reply Like
  • Dan H.
    , contributor
    Comments (17) | Send Message
    How'd that delivery go? I hope there wasn't a problem because trying to solve a problem at Sears sends you straight to a new place... To some extent, Sears still operates the appliance portion of their business with some respect. The entire store experience is something quite different. Maybe I'm prejudging when I walk in, but I have no desire to hang out and even look for clothing at Sears. I shopped for electronics with my son at one but the display and selectionwere sub par. It's just my experience but I suspect it is similar for many others.
    13 Jan 2014, 12:00 AM Reply Like
  • Kyle Spencer
    , contributor
    Comments (1244) | Send Message
    *This* real estate?
    10 Jan 2014, 06:30 PM Reply Like
  • Danny K.
    , contributor
    Comments (193) | Send Message
    Just look at what happened to all the dark Kmart sites for a guide as to what will happen to most of the Sears sites. There were eight Kmart stores in the county I live in.


    -Two Kmarts are still open; one of them is tiny and competes with Meijer, Walmart and Target.
    -Two are dark, with no prospect of any tenants ... ever.
    -Three were demolished, one became a Lowe's, the other one was demolished and became a Kroger Marketplace. The last one was demolished and senior assisted living is being built on the site.
    -One became a motorcycle store.
    -One is positioned sideways and became a flea market with a strip of stores in the auto center fronting the street.


    In other words, only two of those sites were re-used for national chain store use, and neither one involved a big premium being paid for those sites.


    If you want to add Kmart-affiliated companies to the mix, there are also several underused/vacant Hechinger/HQ and Builder's Square stores in the area.


    There are still vacant Montgomery Ward sites!


    Bottom line is that some of these locations will be of value to other retailers. I seriously doubt, however, that anybody will be willing to pay a huge premium for the overwhelming majority of these sites. A large number of these sites will be sold at fire sale prices or will stay vacant.
    11 Jan 2014, 01:13 AM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (13559) | Send Message
    Old malls and department stores that haven't been upgraded are vastly overvalued in the minds of those that cling to them. Mega malls with lots of key brand names and strong anchor stores are the future. The malls using JC Pennys and Sears as anchors will continue to slide in real value.


    Don't use real estate prices as the metric for determining the worth of retail brands and stores and be skeptical of those that do. McDonalds is even sketchy in my book since the selling point of McDonalds has often been touted as a real estate rental play rather than a fast food growth story. Given they are stagnating in the US, I can understand why they argue this, I just don't buy into it.
    11 Jan 2014, 12:08 AM Reply Like
  • ChknCusCus
    , contributor
    Comments (19) | Send Message
    Eddie is not an idiot - he's transforming Sears retail into Sears Re-Insurance. Read the fine print. Do your homework and look past the retail and real estate at hand.
    11 Jan 2014, 01:19 PM Reply Like
  • Danny K.
    , contributor
    Comments (193) | Send Message
    You numbers guys are frequently "too smart by half". This makes absolutely zero sense. Why take a valuable asset like Sears and trash it just to create a re-insurer when you can just collect a bunch of money and start one from scratch? Or maybe buy a company with the operations in place to become a re-insurer without reinventing the wheel? Duh!


    The real answer here is that Eddie simply thought he could make more money liquidating it than by operating it. Or maybe Eddie simply doesn't have the stomach to invest what it takes to make/keep Sears viable.


    No knock on Eddie. He controls 75% of the company and it's his to play with as he sees fit. It's not that much different than deciding to put major repairs into a house or a 12 year old car.


    I personally think there is more money to be made with an appropriate execution of Sears Grand (not the el cheapo Kmart conversions - the real thing). If nothing else, the buzz would lift the stock to speculative levels and that would give him the opportunity to sell out at a far greater profit.
    11 Jan 2014, 02:04 PM Reply Like
  • TAS
    , contributor
    Comments (3996) | Send Message
    Why are we (myself included) wasting time on SHLD?


    We know what the outcome will be:


    Lampert walks away with what has been a tens of millions of dollars annuity for him since he placed himself in charge.


    Shareholders are left with nil.
    11 Jan 2014, 03:29 PM Reply Like
  • Danny K.
    , contributor
    Comments (193) | Send Message
    1. Rainy day in the midwest - nothing else to do.


    2. Hoping to dissuade others who might believe the hype. I benefit from the internet, time to do my part.


    3. Even if I cost Eddie $1,000, in additional money he could have scavenged from Sears, it is still worth it to me.
    11 Jan 2014, 03:55 PM Reply Like
  • NightRaider
    , contributor
    Comments (39) | Send Message
    So much bashing for Eddie that it appears he is a bigger problem than SHLD's business model. IMO, If he leaves/kicked, SHLD should soar high.
    11 Jan 2014, 04:29 PM Reply Like
  • creloans
    , contributor
    Comments (117) | Send Message
    So guys, who is going to move into all those Sears stores that get closed. I have been financing major retail across the US for 25 years and I have never seen the prospects to replace the anchor tenants in Malls worse than they are today. I also have been a faithful Sears appliance and home and garden customer for even longer. This is dead money except for maybe some short term pops if Eddie maybe spins off something else.
    11 Jan 2014, 05:08 PM Reply Like
  • Danny K.
    , contributor
    Comments (193) | Send Message
    I gave the rough estimates for what these mall anchors are worth based on ACTUAL SALES in a midwestern metro.


    Dark Building in an "A" Mall - $5 to $8 million. Eddie is getting some $30 million dollar deals, but these are the exceptions.


    Dark Buildings in B/C Malls - $1.5 to $2.5 million, that is if anybody wants them. I can give you an old $300,000 square foot Lazarus store in a C-Mall with decent occupancy that sold for $500,000.


    Dark Big Box Buildings - 200,000 square foot Meijer, $1 million (still dark); 200,000 square foot Meijer, $1.7 million (sold to U-Haul); 130,000 square foot ex-Kohl's less than $2 million; 130,000 square foot ex-Ontario/Phar-Mor/Se... Merchandise/Marshall's $275,000


    1 million square foot Lazarus building in Downtown Columbus - $5 million (sold for land value only)


    Don't forget ...... asbestos removal, demolition costs, interest costs, etc.


    Don't forget ..... lots and lots of vacant mall anchors that have been vacant for 15 years or more.


    That's what urinates me off about these numbers guys and quant jocks!!!
    12 Jan 2014, 12:54 AM Reply Like
  • creloans
    , contributor
    Comments (117) | Send Message
    Danny K, You hit it right on the head! The glory days of Mall anchors has long since passed along with Malls in general. It could be a blood bath when reality finaly sets in.
    13 Jan 2014, 09:33 AM Reply Like
  • PortaFi
    , contributor
    Comments (11) | Send Message
    $SHLD Company has strengths and all tools to lead the e-commerce market.
    12 Jan 2014, 11:51 PM Reply Like
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