Herb's Hotline: Why Retail Is Its Own Worst Enemy

Hotline hailstones: Over the weekend they were complainin' about the weather in Sun Diego. Too humid. Too humid! You call this humid?!? Humid is relative, and relative to almost anywhere else (I'm from Miamuh) humid this ain't! ... Enough chitchat about the weather: The real story is retail. We hammered it pretty well in the Columnist Conversation this morning. I had wondered aloud (after huddling with one of my sources) whether the trouble with retail is that we're simply overstored (a question raised in the Aug. 12 issue of The Economist). I mean, a Gap(GPS Quote - Cramer on GPS - Stock Picks) on every corner. A Home Depot(HD Quote - Cramer on HD - Stock Picks) at every turn. A Starbucks (SBUX Quote - Cramer on SBUX - Stock Picks) in every aisle.

Yet this is really nothing new. Retail is always its own worst enemy. Always overexpanding. What choice does it have? None, if it's public. The downside of going public for a retailer (or restaurant operator, for that matter) is that to satisfy Wall Street's insatiable appetite for growth, they have to open more stores. The more stores, the better the growth. The better the growth, the higher the stock -- until there are so many stores that there are too many to be properly managed, or they start cannibalizing one another. Great Harvard B-School study will certainly be Restoration Hardware (RSTO Quote - Cramer on RSTO - Stock Picks) (which is public and grew too quickly) compared with Crate & Barrel (which is private and grew at its own pace ... something about which I've written way too much).

Speaking of overstored, that struck a chord with reader Chris Chester, who wonders why Gateway (GTW Quote - Cramer on GTW - Stock Picks) is opening a new store 2 1/2 miles away from his home in Buffalo, N.Y., when there's already one five miles away. "Every Gateway sells the same stuff, so is this not overexpanding?" he asks. Sure seems that way to me, which reminds me: Gateway's 12% gain in sales and 37% gain in operating income had short-sellers wondering what's up with that?!? The recent 10-Q gave them their answer: Lots of front-loading of fat margin, non-PC-related sales from things such as Internet access, financing and warranties ... the kind o' pattern that gets the shorts lickin' their chops. (Think any of those Gateway execs are my neighbors?!? No wonder nobody's talkin' to us! Word came that a journalist was moving in and, well, there went the neighborhood!!!) ... And there goes another edition of The Hotline.