Every company I deal with that sells products to retailers and to you has an e-commerce strategy. Their e-commerce businesses are growing by leaps and bounds, much faster than their traditional channels, and it always sounds like they've got an Amazon (AMZN) going back there -- something that's not only fantastic, but ready to take over in a moment's notice if the old-fashioned distribution system breaks down.
Except it doesn't work.
It's not predictable.
It's not ready for prime time.
In fact, it's not ready for anything other than something to say to Wall Street to show investors that it isn't being left behind and antediluvian.
I keep seeing this happen. We saw it in the shoe and apparel business when Sports Authority went under overnight. We thought so what, these companies that sell these products are ready with all new channels -- direct to the consumer -- and they would skip a beat, but then recover.
Except they didn't. The business that was lost to Sports Authority seemed to vanish into the ether, or at least into the space that was occupied by eBay EBAY and Amazon and other places where inventory could hang out and hurt the unspoiled channels.
Something happened post Sports Authority that pretty much gaffed the entire chain of remaining players and hurt the price points of everything sold in them. You could argue that Nike (NKE) and Under Armour (UA) still haven't recovered from the sinking of Sports Authority.
Last night, I listened to Brian Goldner, the brilliant CEO who rebuilt Hasbro (HAS) into an experiential/entertainment company and has made so much money for shareholders in so many ways. He's built up a terrific direct-to-consumer business and he's ready wherever the consumer is. But he could not be ready for the bankruptcy filing of Toys R Us, because it wasn't done when it was supposed to be, if it were supposed to be, which is after the holiday.
That caused a tremendous disruption in the traditional channel that could not be made up by the new channel, the direct-to-consumer channel, in time. So there you go again, with inventory all over the place and displaced merchandise and hard-to-forecast numbers.
When things have to be done on the fly, as was the case with Sports Authority and Toys R Us and could be the case again after the holiday season, you can't really forecast what will happen to your numbers. But you know they aren't going up, because right now the direct-to-consumer business has margins all over the place and you can't monitor the business well or you may have to turn it over to Amazon web services. If you do that, you lose control over what was always a hard thing to figure out anyway: how much merchandise should be "out there" to be sure that you aren't saturating and causing close-outs.
Right now, with the challenge to bricks and mortar, I think it's just too difficult to call.
I first saw this with the disaster that was Newell Brands (NWL) . The company's well run -- Michael Polk's a seasoned pro -- and we made some decent money in it for the Action Alerts PLUS trust, but we kept some on because we had a low basis and felt we could navigate the channel with Polk. He was way ahead of the game when it came to the direct-to-consumer trade.
But then Sports Authority happened, and he got caught with some rods and reels, and that business crushed him. Then, retailers like Target (TGT) and Kohl's (KSS) and Walmart (WMT) started to be disrupted with weaker numbers, not to mention Sears (SHLD) and Kmart.
Then the storms hit and the resin prices rose -- something that Procter PG could deal with a lot better than Newell could. Next thing you know, Polk's direct-to-consumer business couldn't make up for whatever wasn't being sold at brick and mortar and a shortfall and guide-down quickly followed, and a gain went to a loss.
That's not what can happen to you in a red-hot bull market.
This whole chain leads me to believe that if you are selling into a brick-and-mortar business but developing an e-commerce strategy, chances are you are playing a form of defense that hurts your margins in ways that investors just aren't ready for.
Unless you are a company like V.F. Corp (VFC) , where your sales are so strong overseas, your company can't sustain the hit that e-commerce is giving you while it is growing by leaps and bounds. It is too untested and too mercurial and, in the end, too unpredictable to ignore for portfolio managers who want to sleep at night -- or deal with the day.
Join Jim Cramer, CNBC's Jon Najarian and Other Experts Oct. 28 in New York
Jim Cramer will host CNBC's Jon Najarian, TD Ameritrade's JJ Kinahan, famed analytics expert Marc Chaikin and other market mavens on Oct. 28 in New York City to share successful strategies for active investors.
You can join them as they discuss how smart investors can make the most of options trading, futures contracts, fundamental and quantitative analysis and great ETFs to buy right now. Participants will also get a chance to meet Jim and other panelists and take photos.
When: Saturday, Oct. 28, 8 a.m.-3 p.m.
Where: The Harvard Club of New York, 35 West 44th St., New York, N.Y.
Cost: $250 per person.
Click here for the full conference agenda or to reserve your seat now.