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many may be too young to remember but Eddie Lampert did this with Sears in the 80s and 90s as a thinly veiled attempt to turn the company into some kind of obsc

many may be too young to remember but Eddie Lampert did this with Sears in the 80s and 90s as a thinly veiled attempt to turn the company into some kind of obscure land broker. It did not end well, and serves to this day as a textbook example of ideology eclipsing principled, well researched business decisions. in the article Bloomberg attempts to invent reasons this practice is dicey for Amazon that dont involve "you arent a real estate company" but fall short. the regulatory landscape they paint simply doesnt exist in the places (texas) they want to buy land. the real reason is likely to prevent competitors from setting up their own warehouses, as Lampert frequently did the same thing by buying out anchors and real estate in an attempt to funnel customers back into sears during its declining era as it was being bled dry by VC style profit chicanery that doesnt involve store refreshes or new markets.

Judgmentality 4y ago
> being bled dry by VC style profit chicanery Don't you mean PE, not VC?
- nimbius 4y ago
  correct! PE was more of a fever dream at sears as well. capex and opex was the most visible and agonizing part of his "vision" but certainly the 5bn in stock buyback he instituted makes harley davidson look like a food truck in comparison. under Eddie, sears made money by selling the idea and concept of sears on paper, not tangible products at the malls it occupied. the whole thing devolved from a value trap to many people outright calling Lampert a thief who orchestrated the downfall of Sears intentionally. three years ago he even threatened to stop payment of sears and kmart pensions during bankruptcy proceedings.
  - Spooky23 4y ago
    I recall and interview where they spoke of returns as a profit center. I’m sure there was some sort of accounting bullshit that make 1+1=5, but in the end it’s bullshit.
motbob 4y ago
Amazon is buying land piecemeal, lot by lot—probably roughly at market value, then. I don't think it's really comparable to someone buying Sears because they think Sears's land holdings are undervalued. At worst, they're exposing themselves to the whims of the commercial real estate market as a whole. Not like Sears, where the value of their holdings depended on a pretty niche market—the value of malls.
- supertrope 4y ago
  A lot of businesses sell and lease back their real estate. That way their capital isn’t tied down in non core competencies. Also they can insulate themselves from real estate booms and busts.
  - bradleyjg 4y ago
    Another advantage is real estate investment trusts have favorable taxation so it makes sense to disaggregate.
    - asdff 4y ago
      But in a place like california why would you do it? You have movie studios who have owned their lots for almost a hundred years now. Tax on those assets are probably pocket change a year thanks to proposition 13. Now when you sell those backlots back to the holding companies to lease back for your own use, they get reassessed at todays market rate, and who knows how favorable of leasing terms the holding companies will offer you when there is a demand for soundstages from every production company in socal?
  - Closi 4y ago
    Eh, if you are cash rich you might as well. Owning land isn’t something that requires a great deal of skill/competence compared to leasing land - in fact if you want to stay in a property for a long time, there is more complexity in managing a lease if you have capital tied to it once the lease period is up and you are forced to renegotiate the deal. IMO this idea that a giant logistics operation shouldn’t own it’s own warehouses just because owning warehouses isn’t a “core competency” is questionable. In reality this decision just depends on your corporate perspective on the cost of capital (eg the WACC).
TuringNYC 4y ago
...or like a business intelligence and reporting software vendor buying up Bitcoin
- jkaptur 4y ago
  Is this a reference to something? I don't see how they're similar.
  - madars 4y ago
    Reference to https://en.wikipedia.org/wiki/MicroStrategy https://en.wikipedia.org/wiki/MicroStrategy
    - justinclift 4y ago
      Ouch: On the company’s quarterly earnings call on May 3, 2022, MicroStrategy CFO Phong Le stated that the company would face a margin call if bitcoin’s price fell to about $21,000. According to Coindesk, the price for Bitcoin dropped to $20,087.90 last night: https://www.coindesk.com/price/bitcoin/ https://www.coindesk.com/price/bitcoin/ Wonder how that's playing out for them...
dudus 4y ago
As a counter argument McDonald's does the same thing and is quite successful at it. When you open a franchise you have to build on the main corp land and pay for rent on it in perpetuity, on top of franchise fees .
- bluGill 4y ago
  McDonalds is also careful to ensure all their franchises are in locations that will make the owner a ton of money (if they run the business well) and so it is a good deal. Not all companies work this way though.
  - TechBro8615 4y ago
    Surely any successful company, and even most any failing company, has a system for identifying and quantifying optimal locations for new builds. It’s not like Amazon is just taking whatever real estate it can get. There are at least some parameters.
  - nceasy 4y ago
    in my city we had the first closed store of McDonald's in the world! great achievement
    - SoftTalker 4y ago
      Yes it is very rare. In most cases it is probably due to general economic decline of the area, but every once in a while they were just wrong about the potential of the location.
    - hamburglar 4y ago
      What town, and when was this? I remember noting that two closed in seattle in the early 2000’s and thinking that was pretty unusual.
      - nceasy 4y ago
        It was in the early 90s
EGreg 4y ago
Bill Gates bought tons of farmland in the USA and he’s doing just fine https://amp.theguardian.com/commentisfree/2021/apr/05/bill-gates-climate-crisis-farmland https://amp.theguardian.com/commentisfree/2021/apr/05/bill-g... Also, McDonalds became a real estate play long ago https://www.wallstreetsurvivor.com/mcdonalds-beyond-the-burger/ https://www.wallstreetsurvivor.com/mcdonalds-beyond-the-burg...
rootsudo 4y ago
Meanwhile, every grocery chain does it, Walmart does it (Successfully!), Mcdonalds does it, and more. The later is more interesting because it's a franchise model, and if a franchisee is successful, there's usually nothing in the franchise agreement to stop corporate from setting up shop nearby. Maybe not across the street or a block down the road, but yes. Also quite common w/ lapsing leases with walmart and such, they take out 15-25 year leases, and if it fits their margins, they will build nearby and ride the lease out.
- JCharante 4y ago
  I'm not sure how to investigate who owns lots of lands, but I think the Walmart near me did the same. They used to be in a big building, but then after some time cut down the forest literally nextdoor and built a bigger Walmart there. The original building still stands but is leased by another brand.
  - rootsudo 4y ago
    Property apprisor office, look up owner/who pays the tax bill. Very simple. Google your county name + property apprisor website and have fun!
zeruch 4y ago
"serves to this day as a textbook example of ideology eclipsing principled, well researched business decisions." ...sounds satirically like a lesson the Vatican is learning harshly right now.
R0b0t1 4y ago
What happened with Sears is very different. Somehow, Eddie Lampert got Sears to divest itself of its real assets and was then going to lease them. Some other company of Eddie Lampert's ended up owning the real estate. That company never had issues.
Melatonic 4y ago
I don't think buying of real estate was their downfall - it was the other practices - as you point out. The real estate portion may have actually delayed the inevitable downfall.
somedudetbh 4y ago
> many may be too young to remember but Eddie Lampert did this with Sears in the 80s and 90s Eddie Lampert didn't start ESL Investments until 1988 (and he was only 25 then). ESL didn't start destroying Sears / itself until 2004 (https://www.investopedia.com/news/downfall-of-sears/ https://www.investopedia.com/news/downfall-of-sears/ "Kmart announced it would buy Sears for $11 billion in Nov. 2004..." It was via the Kmart merger that ESL came to control Sears, ESL having taken control of Kmart after Kmart's bankruptcy in 2002). Anyway, you might be remembering a different company or different "business genius"?
maxerickson 4y ago
Lampert bought Kmart out of bankruptcy (or so) in 2002-2003 and then bought Sears a couple years later. The flameout of those companies under his direction has been much more spectacular than a grinding down since the 80s!
DigiDigiorno 4y ago
I use to work in a conglomerate that I did not associate with real estate. After working there for a few years and becoming friends with some people in the corporate real property division, I realized they randomly own a ton of land everywhere and that real estate is just a useful core part of any conglomerate. It's a nice place to park assets, obtain rent, and to rent for offices yourself. I imagine a lot of conglomerates and large companies do this, because at a certain scale, it's more of a "why not?" question.

Judgmentality 4y ago

> being bled dry by VC style profit chicanery Don't you mean PE, not VC?

nimbius 4y ago
correct! PE was more of a fever dream at sears as well. capex and opex was the most visible and agonizing part of his "vision" but certainly the 5bn in stock buyback he instituted makes harley davidson look like a food truck in comparison. under Eddie, sears made money by selling the idea and concept of sears on paper, not tangible products at the malls it occupied. the whole thing devolved from a value trap to many people outright calling Lampert a thief who orchestrated the downfall of Sears intentionally. three years ago he even threatened to stop payment of sears and kmart pensions during bankruptcy proceedings.
- Spooky23 4y ago
  I recall and interview where they spoke of returns as a profit center. I’m sure there was some sort of accounting bullshit that make 1+1=5, but in the end it’s bullshit.

motbob 4y ago

Amazon is buying land piecemeal, lot by lot—probably roughly at market value, then. I don't think it's really comparable to someone buying Sears because they think Sears's land holdings are undervalued. At worst, they're exposing themselves to the whims of the commercial real estate market as a whole. Not like Sears, where the value of their holdings depended on a pretty niche market—the value of malls.

supertrope 4y ago
A lot of businesses sell and lease back their real estate. That way their capital isn’t tied down in non core competencies. Also they can insulate themselves from real estate booms and busts.
- bradleyjg 4y ago
  Another advantage is real estate investment trusts have favorable taxation so it makes sense to disaggregate.
  - asdff 4y ago
    But in a place like california why would you do it? You have movie studios who have owned their lots for almost a hundred years now. Tax on those assets are probably pocket change a year thanks to proposition 13. Now when you sell those backlots back to the holding companies to lease back for your own use, they get reassessed at todays market rate, and who knows how favorable of leasing terms the holding companies will offer you when there is a demand for soundstages from every production company in socal?
- Closi 4y ago
  Eh, if you are cash rich you might as well. Owning land isn’t something that requires a great deal of skill/competence compared to leasing land - in fact if you want to stay in a property for a long time, there is more complexity in managing a lease if you have capital tied to it once the lease period is up and you are forced to renegotiate the deal. IMO this idea that a giant logistics operation shouldn’t own it’s own warehouses just because owning warehouses isn’t a “core competency” is questionable. In reality this decision just depends on your corporate perspective on the cost of capital (eg the WACC).

TuringNYC 4y ago

...or like a business intelligence and reporting software vendor buying up Bitcoin

jkaptur 4y ago
Is this a reference to something? I don't see how they're similar.
- madars 4y ago
  Reference to https://en.wikipedia.org/wiki/MicroStrategy https://en.wikipedia.org/wiki/MicroStrategy
  - justinclift 4y ago
    Ouch: On the company’s quarterly earnings call on May 3, 2022, MicroStrategy CFO Phong Le stated that the company would face a margin call if bitcoin’s price fell to about $21,000. According to Coindesk, the price for Bitcoin dropped to $20,087.90 last night: https://www.coindesk.com/price/bitcoin/ https://www.coindesk.com/price/bitcoin/ Wonder how that's playing out for them...

dudus 4y ago

As a counter argument McDonald's does the same thing and is quite successful at it. When you open a franchise you have to build on the main corp land and pay for rent on it in perpetuity, on top of franchise fees .

bluGill 4y ago
McDonalds is also careful to ensure all their franchises are in locations that will make the owner a ton of money (if they run the business well) and so it is a good deal. Not all companies work this way though.
- TechBro8615 4y ago
  Surely any successful company, and even most any failing company, has a system for identifying and quantifying optimal locations for new builds. It’s not like Amazon is just taking whatever real estate it can get. There are at least some parameters.
- nceasy 4y ago
  in my city we had the first closed store of McDonald's in the world! great achievement
  - SoftTalker 4y ago
    Yes it is very rare. In most cases it is probably due to general economic decline of the area, but every once in a while they were just wrong about the potential of the location.
  - hamburglar 4y ago
    What town, and when was this? I remember noting that two closed in seattle in the early 2000’s and thinking that was pretty unusual.
    - nceasy 4y ago
      It was in the early 90s

EGreg 4y ago

Bill Gates bought tons of farmland in the USA and he’s doing just fine https://amp.theguardian.com/commentisfree/2021/apr/05/bill-gates-climate-crisis-farmland https://amp.theguardian.com/commentisfree/2021/apr/05/bill-g... Also, McDonalds became a real estate play long ago https://www.wallstreetsurvivor.com/mcdonalds-beyond-the-burger/ https://www.wallstreetsurvivor.com/mcdonalds-beyond-the-burg...

rootsudo 4y ago

Meanwhile, every grocery chain does it, Walmart does it (Successfully!), Mcdonalds does it, and more. The later is more interesting because it's a franchise model, and if a franchisee is successful, there's usually nothing in the franchise agreement to stop corporate from setting up shop nearby. Maybe not across the street or a block down the road, but yes. Also quite common w/ lapsing leases with walmart and such, they take out 15-25 year leases, and if it fits their margins, they will build nearby and ride the lease out.

JCharante 4y ago
I'm not sure how to investigate who owns lots of lands, but I think the Walmart near me did the same. They used to be in a big building, but then after some time cut down the forest literally nextdoor and built a bigger Walmart there. The original building still stands but is leased by another brand.
- rootsudo 4y ago
  Property apprisor office, look up owner/who pays the tax bill. Very simple. Google your county name + property apprisor website and have fun!

zeruch 4y ago

"serves to this day as a textbook example of ideology eclipsing principled, well researched business decisions." ...sounds satirically like a lesson the Vatican is learning harshly right now.

R0b0t1 4y ago

What happened with Sears is very different. Somehow, Eddie Lampert got Sears to divest itself of its real assets and was then going to lease them. Some other company of Eddie Lampert's ended up owning the real estate. That company never had issues.

Melatonic 4y ago

I don't think buying of real estate was their downfall - it was the other practices - as you point out. The real estate portion may have actually delayed the inevitable downfall.

somedudetbh 4y ago

> many may be too young to remember but Eddie Lampert did this with Sears in the 80s and 90s Eddie Lampert didn't start ESL Investments until 1988 (and he was only 25 then). ESL didn't start destroying Sears / itself until 2004 (https://www.investopedia.com/news/downfall-of-sears/ https://www.investopedia.com/news/downfall-of-sears/ "Kmart announced it would buy Sears for $11 billion in Nov. 2004..." It was via the Kmart merger that ESL came to control Sears, ESL having taken control of Kmart after Kmart's bankruptcy in 2002). Anyway, you might be remembering a different company or different "business genius"?

maxerickson 4y ago

Lampert bought Kmart out of bankruptcy (or so) in 2002-2003 and then bought Sears a couple years later. The flameout of those companies under his direction has been much more spectacular than a grinding down since the 80s!

DigiDigiorno 4y ago

I use to work in a conglomerate that I did not associate with real estate. After working there for a few years and becoming friends with some people in the corporate real property division, I realized they randomly own a ton of land everywhere and that real estate is just a useful core part of any conglomerate. It's a nice place to park assets, obtain rent, and to rent for offices yourself. I imagine a lot of conglomerates and large companies do this, because at a certain scale, it's more of a "why not?" question.