By Suzanne Kapner and Laura Stevens
Sears Holdings Corp. said Thursday it will start selling its
Kenmore appliances on Amazon, loosening its grip on one of its
historic product lines and becoming the latest big American brand
to capitulate to the online-retail giant.
News of Amazon's move into appliances, one of the categories it
hasn't deeply penetrated, rippled through the industry. Investors
dumped shares of big appliance sellers that have been benefiting
from Sears's retreat. Lowe's Cos. tumbled; Home Depot Inc. and Best
Buy Co. fell 4% apiece.
Amazon's rapid growth has displaced traditional stores and left
even powerful brands unable to ignore it. Nike Inc., one of the
biggest holdouts, recently decided to start selling directly to
Amazon.
For Sears, selling Kenmore outside its own stores or websites
could give it a boost in sales, which have declined every year
since 2007. "This will give the Kenmore brand access to a new set
of customers who aren't necessarily shopping at Sears," said Dev
Mukherjee, a former president of Sears home appliances, who now
works at a private-equity firm.
But also it gives shoppers one less reason to visit a Sears
department store. "We believe most Amazon sales will simply
cannibalize Sears stores," said Loop Capital analyst Anthony
Chukumba, since other major retailers don't currently sell
Kenmore.
Sears's long-battered shares jumped 11% to $9.60, while Amazon,
based in Seattle, closed at an all-time high of $1,028.70. Amazon's
market value is closing in on $500 billion, Sears's hovers near $1
billion.
Kenmore is Amazon's first retail offering in major appliances.
Previously, most major appliances available on Amazon were via
third-party sellers on its marketplace.
"Amazon is a continual improvement machine, and Kenmore is a
brand with extraordinary heritage and awareness," something that
could transform it into a major winner in an online category
currently lacking a dominant player, said Ken Seiff, a venture
capitalist at Beanstalk Ventures and a former retail executive.
"There's no positive outcome" for brick-and-mortar competitors.
While major appliances are a fraction of Home Depot and Best
Buy's sales, Amazon is now increasingly targeting their
bread-and-butter business of services, says Forrester Research
analyst Brendan Witcher. "For years we believed the defensible
margins were those in services, because it's not easy to do
online," he said. But as Amazon's artificial intelligence assistant
Alexa is installed in more devices -- including Kenmore's -- that's
changing.
A Home Depot spokesman said: "We're comfortable with our
competitive positioning from both a brand and service perspective."
Best Buy declined to comment.
Amazon, which started selling books online more than two decades
ago, is now gaining ground in a number of categories, from office
supplies to home goods. After a serious push into apparel a decade
ago, it is now one of the biggest clothing retailers, according to
a recent Morgan Stanley survey, second only to Wal-Mart Stores
Inc.
More than half of product searches now start at Amazon,
according to personalization platform company BloomReach, versus
28% on search engines and even fewer at other retail sites. The
company's Prime subscription program, which according to UBS has an
estimated 63 million North American members, also offers companies
broad access to customers.
Amazon has bigger ambitions than selling Kenmore products. The
company plans to expand its reach in both furniture and appliances,
according to people familiar with the matter. It is also building
at least four massive warehouses focused on handling bulky items,
the people said.
Under the Kenmore deal, Amazon will own the inventory but Sears
will ship orders from its warehouses, a Sears spokesman said.
Innovel Solutions, a unit of Sears, will deliver the goods to
customers' homes and provide installation services, he said. The
companies didn't disclose the terms of the deal.
"We're constantly working to expand our selection," said Matt
Furlong, general manager of home improvement and appliances at
Amazon.
The Kenmore name first appeared in 1913 on a sewing machine. The
first Kenmore washing machine was introduced in 1927 and business
boomed after World War II. And for years, the only place Americans
could buy a Kenmore stove or washing machine was at their local
Sears or Kmart.
But there are fewer of those sprawling stores these days --
nearly 1,000 have closed since 2009 -- and people aren't buying as
much from them.
The brand is now produced by Whirlpool Corp., Electrolux AB and
other manufacturers.
Sears's share of major-appliance sales in the U.S. fell to 22%
in the 12 months ended March, down from 30% four years earlier,
according to TraQline, a market research firm. In addition to
Kenmore, Sears sells other brands. The Kenmore brand's share of the
market fell to 10.3% from 16.7% during that same period.
Sears CEO Eddie Lampert, a hedge-fund manager who took control
of Kmart out of bankruptcy and merged it with Sears in 2005, had
been looking at strategic options for the company's top brands for
more than a year, as the parent company's losses have mounted.
Earlier this year, he agreed to sell the Craftsman tool brand to
Stanley Black & Decker Inc. for $900 million, helping to pay
down debt and pension costs. Sears is still exploring options for
its DieHard brand, Sears Auto Centers and its Home Services
unit.
"The launch of Kenmore on Amazon.com will NOT significantly
boost Sears's liquidity," wrote Bill Dreher, an analyst with
Susquehanna Financial Group in a note to clients. "We suspect this
is a move to beautify the Kenmore brand for divestiture and help
alleviate some pressure, temporarily, of Sears as a going
concern."
Mr. Lampert, who owns more than half of Sears's shares and is a
large creditor, wrote in a blog post Thursday that the Amazon deal
"is a testament to our commitment to unlocking value from our
various assets."
The CEO has also been cutting spending and selling real estate
to help the company fund its operations. He has also been financing
the company, including a $200 million short-term credit line that
Sears announced Monday.
Although that line was marketed to others, only entities
affiliated with Mr. Lampert participated in the financing,
according to one investor. The Sears spokesman said the company is
in ongoing discussions with various parties with respect to the
loan facility.
Andrew Scurria and Imani Morse contributed to this article.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Laura
Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
July 20, 2017 20:53 ET (00:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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