Sears's Demise Has Best Buy, J.C. Penney Licking Their Chops

(Bloomberg) -- The increasing pain at Sears Holdings Corp. could mean big gains for competitors, with appliances the biggest moneymaker up for grabs.

The struggling retailer has been giving away market share for years, but its Kmart and Sears chains still generate about $14 billion in annual sales. And if the company ultimately files for bankruptcy and liquidates its roughly 800 locations, companies like J.C. Penney Co., Best Buy Co. and Lowe’s Cos. will reap the rewards.

One of the biggest prizes is appliances, a category where Sears was still a major player and was on pace to generate $3.5 billion in sales this year, according to UBS Securities. That could boost same-store sales at many chains, including a gain of 2.5 percentage points at Best Buy. Home goods and sporting goods retailers are likely to benefit, too, UBS said.

Sears's Demise Has Best Buy, J.C. Penney Licking Their Chops

“Sears’s sales have declined precipitously,” UBS analyst Michael Lasser said in a note earlier this year. “Still, there’s meaningful share up for grabs.”

Best Buy has already pounced by ramping up its assortment of home appliances, including high-end Viking ovens and Bosch refrigerators. The consumer-electronics retailer is not known for appliances, but it now has more than 200 stores that feature expanded displays of the items under its Pacific Kitchen & Home banner. That’s helped boost same-store sales in the appliance category, which have risen for 24 consecutive quarters.

“Sears is consistently giving away market share, but there still is a lot to be taken,” Best Buy Chief Executive Officer Hubert Joly said in an interview earlier this year. “So we have a big push in appliances.”

Sears and Kmart also sell a lot of clothing and home goods. That sets up J.C. Penney, which also re-introduced major appliances in 2016. The department-store chain’s stores are located closer to Sears’s stores than other big retailers, according to Chuck Grom, an analyst for Gordon Haskett.

J.C. Penney, which is facing its own struggles, has a location in the same mall as 47 percent of Sears stores, followed by Macy’s Inc. at 40 percent, Grom said in a research note. That could allow the Dallas-based retailer to capture more Sears shoppers than its peers and boost the chain’s same-store sales by 1.8 percentage points, he said.

Since the first reports of an impending Sears bankruptcy late Tuesday, J.C. Penney’s shares have gained more than 10 percent -- in spite of a global selloff in stocks that’s pushed the S&P 500 down. Most other large retailers have declined during the period.

The fight for Sears shoppers will be fierce, and factors such as store locations, pricing and product offerings will dictate which retailer benefits most, according to Cowen & Co.

“The fight for share gains will be highly competitive, shares will be likely somewhat fragmented,” Cowen analyst Oliver Chen said in a note. Of course, there’s the possibility that “Sears shoppers could also just stay home.”

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