You know times are good when Sears moves upscale.

As evidence I offer "the great indoors", the gigantic, category killer stores that are setting new standards of luxury for almost anything in your home.

While two others opened earlier--- one in Denver, the other in Scottsdale--- the most recent opening was in far north Dallas, in direct competition with a nearby Home Expo, Restoration Hardware, Williams Sonoma, and Crate and Barrel. A Detroit opening is scheduled for November.

Since the north Dallas opening I've been to 'the great indoors' twice. Each time the parking lot was jammed, filled with luxury cars and eager customers.

This is yet more evidence the economy is not about to slow down just to please some fuddy duddies at the Federal Reserve Bank. It's also evidence that price inflation--- the increase in what we pay for lettuce, gasoline, or dry cleaning--- may not be the biggest worry consumers face. The real worry may be Improvement Inflation, the cavernous gap between the price level of familiar products and the price of their updated and improved replacements.

Examples of Improvement Inflation abound at 'the great indoors.' Once you've been inside, you know we're on our way to the Next Level in home luxury.

Hunger for a $10,000 digital flat panel TV? It's here.

Looking for a stove with enough power to roast an entire herd of cattle in 30 minutes? It's here. Choose whether you want to spend $4,000 for four burners, $6,000 for five, or still more for an added grill.

To be sure, 'the great indoors' also offers products at familiar prices. Indeed, scattered like subliminal advertising among the Viking ranges, the Bosch dishwashers, and the Sub-Zero refrigerators, you'll find Kenmore, the Sears store brand.

You see them because 'the great indoors' is part of Sears.

Elsewhere in the store you can gaze at $5,000 bathtubs, $400 faucets, and an entire sealed room filled with showerheads that would reduce Louis XIV to envious tears.

From there you can move on to samples of magnificent tile, incredible marble, cabinet fittings from post-modern to baroque, and--- well, you get the idea, this is One-Stop Power Shopping for the home.

To understand the sociology, get yourself a copy of David Brooks' "BoBos in Paradise: The New Upper Class and How They Got There." It's easily one of the most telling and entertaining books written about social change in the last ten years.

To understand the economics, think about income, lots and lots of income. While there is debate about whether the rising tide has lifted all the boats, there is no doubt that the top 20 percent of households has done very well in the last ten years. The result? Near mass markets for things only the very rich could afford less than a generation ago.

Which brings us to an interesting investment question.

Will "the great indoors" ever be important enough to and pull Sears out of the sinking loss of identity that afflicts virtually all the traditional department stores? Does our new affluence have such depth that it will transform Sears Roebuck?

This is no small task. With 860 traditional department stores in the Sears chain, 'the great indoors' will have to move a lot of Viking ranges to be more than a footnote. More important, Home Depot and Lowe's are "pure play" competitors--- stores devoted entirely to home improvement, with over 1,700 stores combined.

Again, it will take a long time before 'the great indoor' becomes visible.

Will Upscale Home Improvement Mean Stock Improvement for Sears?

Stock Recent Price P/E on 20 00 eps 2000 estimated eps 2001 estimated eps 5 year estimated growth
Home Depot $54.25 42.50x $1.25 $1.54 23.60 percent
Lowe's $49.75 21.30x $2.23 $2.73 21.30 percent
Sears $34.58 7.30x $4.58 $5.05 10.60 percent

Source: Microsoft; Morningstar Principia

Then again, consider the price. Sears sells at 7.3 times estimated earnings, one-sixth the multiple of Home Depot (42.5x) and one-third the multiple of Lowe's (23.3x). If the New Economy is as powerful as some believe, Sears could be a major winner in the spread of affluence.