This is great news for Sears Holdings (SHLD) shareholders
By Mary Ellen Lloyd Of DOW JONES NEWSWIRES
Sears Holdings Corp. (SHLD) increased its share of the U.S. retail market for major appliances in 2008 – its first increase after years of declines – as new marketing programs and price discounts helped sales.
The department-store holding company plans to build on its momentum in 2009 through a new rebate-finder program, consumer credit offers and an ongoing rollout of appliances to more stores in its Kmart chain, executives said in a recent interview with Dow Jones Newswires.
“We’re not doing any victory laps yet, but we’re encouraged,” said Doug Moore, Sears’ president of home appliances.
Indeed, Sears isn’t completely out of the woods. Weak appliance sales contributed to an 11% drop in comparable-store sales at the entire Sears chain in the fourth quarter. Even so, Sears picked up a larger share of the overall appliance market.
Moore wouldn’t share dollar or unit sales but said third-party research shows Sears maintained market share in the first quarter of 2008, then gained in each of the remaining quarters to capture a full-year increase.
With its top-ranked Kenmore brand, Sears has long been the top U.S. seller of refrigerators, washers and other major appliances. Lowe’s Cos. (LOW) in the late 1990s and Home Depot Inc. (HD) around 2001 began pushing harder to take market share, expanding selling space and adding brands.
Sears saw its market share decline from about 40% in 2001 to 29.5% in 2007, according to trade magazine This Week in Consumer Electronics, in conjunction with market research firm The Stevenson Co. of Louisville, Ky.
Second-ranked Lowe’s had 15.3% of the $28.1 billion retail appliance market, Home Depot ranked third with 13.8%, and Best Buy Inc. (BBY) was next with 6.8%.
TWICE typically updates appliance rankings in June. Bob Tancula, Stevenson’s vice president of research, declined to release 2008 numbers, citing the confidentiality of paying clients such as Sears. But he confirmed the company had stemmed market-share losses.
“Sears is still the No. 1 by a long shot,” he said.
The gains didn’t come from Lowe’s or Home Depot but were likely taken from smaller local or regional players. “Home Depot and Lowe’s market share in 2008 did not drop off,” Tancula said.
Category Hit By Economy, Discounting
Like automobiles and other big-ticket categories, major home appliance sales have been hit hard by the weakening U.S. economy, tighter credit and the collapse of the housing market. Industrywide unit shipments in the U.S. fell 8.9% to 68.2 million units in 2008, according to the Association of Home
Appliance Manufacturers.
And pricing has been very competitive. Sears regularly offered 15% to 20% off
appliances around the holidays. Home Depot gave up appliance sales rather than sacrifice profit margins in the latest quarter, said Chief Financial Officer Carol Tome. “It was a highly promoted category and we elected not to promote it,” she said.Lowe’s spokeswoman Chris Ahearn said the retailer’s fourth-quarter unit market share was 18.1%, up 1.4 percentage points from a year earlier. But matching some of the promotions at Sears and others hurt gross margins. Moore, the Sears executive, said it’s taking share “in a financially responsible way.”
“We are not abandoning principles of profitability in how we go to market,” he
said, declining to provide specifics.Customers have responded favorably to Sears’ “Blue Appliance Crew” marketing
campaign launched last fall, Moore said. As part of that, Sears’ blue-shirted
employees use Web kiosks to show customers other retailers’ prices on the spot,
potentially removing one obstacle to completing a sale.The campaign also touts Sears’ delivery, variety of brands and financing offers. Sears has been able to offer no-payments and no-interest financing for 12 months on major purchases more frequently than some of its competitors, said Kevin Brown, chief marketing officer for appliances.
Sears’ competitors and some analysts don’t expect appliance discounting to accelerate. Moore said the company plans to capture more business by touting its repair services and by expanding retail space devoted to the category through Sears Home Appliance Showrooms and other newer formats. It also expects to add appliances to more of its 1,400 Kmart stores after putting them in about 286 stores in recent years.
New customer service programs could help, too. For example, Sears recently launched a rebate-finder service. Store employees can determine whether a specific appliance qualifies for a state, federal or utility company rebate through the “Energy Star” program, and they can walk customers through applying for the rebate when they make a purchase.
Sears is working to expand the program to manufacturers’ rebates.
Such conveniences may help close the sale, but the big issue facing Sears and others will be folks like Nick McCoy, who recently waited to replace his washing machine “until the puddle got too big to live with.”
McCoy, who is a senior consultant following home goods for market-research firm Retail Forward, said price and having the key brands are the key issues for most customers these days.
“It’s going to continue to be a battle,” he said.
This will not get much press because its effect now is negligible. This is the same story (too a slightly lesser degree) as Lampert’s other investment, AutoNation (AN). Picking up market share gains in downturns. When the appliance market turns, and like auto’s it will (they break and wear out) Sear’s will see out-sized gains from the increases.
For a retailer there are plenty of ancillary gains. People in the store shopping for appliances will spend money while there on other items increasing overall sales.
Here is the best part. What this does is begin to put Sears higher on the list in people’s minds as a place they can stretch their dollars. We are clearly entering a prolonged period in which people are thinking hard about every dollar they spend. We can see this easily in results at Wal-Mart(WMT) as perceived value drives customer behavior.
The fact that a customer can go to Sears, find and appliance and then be sure they are paying the lowest price for it saves a huge amount of time AND assures the customer they have made a wise buying decision. There is a great long term value to this.
Disclosure (“none” means no position):Long SHLD
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