My wife sent me out to
on Thursday after work to pick up a bunch of things that we needed for the onslaught of in-laws. She didn't exactly tell me to go to King's; I went there because it was the closest supermarket. If there had been a closer one, I would have gone to that one. And if I could have gone online and just had the stuff appear in the fridge, that would have been best of all. I could care less about which supermarket I go to for products. I would never go back to one -- no matter how nice, and my King's is the nicest supermarket in the world -- if somehow I could have the goods transferred right to my kitchen. Especially if it is cheaper!
Supermarkets don't have to worry about that now. But brokerages? That's another story. Brokerages are confronting this analogy right now, and the winners, the
, are putting the stuff right in your fridge. Get this: They do it for less than the full-service guys! And, as my friend David Owen, who deserves 100% credit for this analogy -- and could nab me for plagiarism any minute --
is like a grocery store and Schwab is like a straight-to-your-fridge food-shopping service.
The supermarket system exists not because I need grocery-store owners to help me make food-buying decisions or to introduce me to new products. It exists because we haven't yet found a way to move those goods right into the fridge. But why does the brokerage system exist? Do the clients really need brokerages to introduce new products with them, given the long-term lack of success of most IPOs? Do we need the supermarkets' high prices? Do we need their guidance about what to buy when we have done the research ourselves and know what we like?
Frightening isn't it? Sure, one could argue that we need a broker because some transactions are very complex. I think about the things I did as a full-service broker for people at
, and I sure as heck wouldn't want that stuff done online. You needed an individual to work some of that stuff through the system and make suggestions for asset classes and diversification. But the vast majority of stock decisions are no different from my trip to the store last Thursday. We know what we want. We don't need the mark-up or the inconvenience. Which is why the brokerage stocks have a hard time fitting into the new Internet world. And it will only get harder.
James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At time of publication, his fund had no positions in the stocks mentioned, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com at