Hedge fund high-flier Eddie Lampert’s efforts to profit from his ownership stake in storied US retail outlet Sears has prompted plenty of head-scratching in financial circles over the last few years. On the face of it, the such financiers aren’t usually turned on by such low-margin, nuts-and-bolts business as selling washing machines and hammers to middle America. The conventional wisdom is that Lampert’s play for Sears amounts to something of a slow-motion liquidation, with the most prized Sears’ assets being its real estate holdings. Like the Bluth family banana stand, there would always be money in more than 3,500 Sears Holdings’ US retail outlets the company had at the end of 2011. Or so the assumption went.
But that assumption may be painfully incorrect, argued tech pioneer-turned-venture capitalist Marc Andreessen, in a Dec. 12 discussion hosted by Quartz. Andreessen’s assessment is stems from his firmly held belief that traditional retailers are increasingly going to be battered by competition from the likes of Amazon.com.
“Retail chains and retail real estate are just kind of sitting there, you know, waiting to be taken out, in a lot of different categories,” Andreessen said. “There’s a really fundamental, existential risk.”
Target. Best Buy. J.C. Penney. Wal-Mart. All US retailers will be facing the same pressures, Mr. Andreessen says, as entities such as Amazon.com focus on using massive balance sheets to push local, same-day delivery of products as quotidien as groceries over the next decade. The process is a perfect example of the type of software-focused “e-commerce 2.0 category killers” that he sees now cropping up, such as Seattle’s Zulily, a mom’s and kids retail deals site, of which Andreessen’s venture capital firm is an investor. “I think they’re just going to roll through the retail landscape and take out a lot of the retail chains in that kind of market. We love that stuff.”
The saga of Sears Holdings — and its plans to monetize its real estate holdings — offers a test case for Andreessen’s view of things. If he’s right, there will increasingly fewer bricks and mortar retailers looking to occupy the once-prime locations where Sears outlets have been sitting, in some cases, for decades. And if there are potential occupants, it’s going to be a paying rents that are substantially lower. “The next use of a Sears footprint store is not a Target store, it’s the Halloween store, for like two weeks in October,” Andreessen said, paraphrasing an unnamed hedge fund associate. “So, the real estate’s actually not valuable. Right? It’s not in a place where anybody wants to go and nothing that’s going to go there.”
For what it’s worth, investors have seemed skeptical of the Sears narrative for a while now. Lampert’s Sears Holdings — created when Lampert’s Kmart Holdings bought Sears — is down more than 65% since the the end of March 2005, when the two ailing retail icons first came together. But Andreeseen’s thesis has implication beyond shareholders in Sears. For decades, developers have wrapped US cities in belts of retail space with ample parking. A structural decline in demand for such space will make for big changes for the suburbanites who’ve built their lives amid them, as well as the municipalities which have come to depend on sales tax revenues stemming from the mall.