Amazon Won't Touch This Real Estate With a 10-Foot Pole

NEW YORK (TheStreet) -- There are 400 more empty stores to add to the empty billion square feet of vacant American retail space on the market, much of it formerly Sears (SHLD), J.C. Penney (JCP), Wal-Mart (WMT) and RadioShack (RSH). What happened? Dots, a discount women's retailer, recently filed for bankruptcy. Now there will be over 400 stores in 28 states looking for a new owner.

Based on the revealed preference shown by Amazon (AMZN) and others, there is little demand for these stores.

"Revealed preference" is economist Paul Samuelson's term. He posited that the preferences of consumers are revealed by what they buy. And companies can have revealed preferences too.  For example, Amazon is spending over $13.9 billion for warehouses across the United States to expedite delivery. The Internet retailer now has fulfillment centers in 14 American states.

If Amazon spent such a large amount of money on existing real estate, that could lift the stock prices of companies with vacant stores that could be used as warehouses or for other Amazon needs.

At present, the market cap of Sears is under $4 billion. For J.C. Penney, it is just under $1.5 billion. The market cap of Radio Shack is under $250 million. Compare that to Amazon's warehouse budget of nearly $14 billion.

The empty storefronts owned by Sears, RadioShack, Wal-Mart and others are centrally located. Sears claims that 71% of Americans live within 10 miles of a Sears building. It has plenty for sale, too: 120 buildings, according to SHC Realty, which administers Sears' bulging real estate portfolio. Wal-Mart Realty, which takes care of Wal-Mart properties, lists 24 buildings for sale that range in size from 33,360 square feet to 142,129 square feet. RadioShack's properties have also been mentioned as an attractive bricks-and-mortar base from which Amazon might push its Kindle E-Reader or other items.

But the revealed preference of Amazon is to build rather than buy existing structures.

For about 40% of the over $13.9 billion invested in constructing its chain of warehouses, Amazon could write a check to cover the combined market cap of Sears, RadioShack and J.C. Penney.

But Amazon has apparently ignored the analysis of Bruce Berkowitz of Fairholme Fund, who claimed in a Fortune interview in November 2012 that Sears' real estate was worth at least $160 a share. That would put the market cap of Sears closer to $14 billion than the current $4 billion.

But with one billion square feet of vacant commercial retail space across the United States, Amazon and the rest of the market clearly do not agree about the hidden value.

That should also keep investors away from retail stocks touting undervalued property. Location is critical in real estate.

If a store has failed, that is a good indicator that the setting is not alluring for either shoppers or investors. The revealed preference of consumers is obviously not to patronize that store in that locale. It's a glaring economic indicator that should keep investors away from failing retail chains like Sears, RadioShack and J.C. Penney.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Jonathan Yates has written for numerous publications including Newsweek and The Washington Post. He is a former general counsel for a publicly traded corporation. Much of his career was spent working on Capitol Hill for Members of Congress in both the House and Senate. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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