Is Sears Holdings the Beneficiary of Circuit City’s Demise?

Some interesting trends have emerged since February. Remember when looking at these numbers that Circuit City began the liquidation process in late January.

Here is the full month of February 2009 (click to enlarge):

Week ending 3/7: (click to enlarge)

Week ending 3/14: (click to enlarge)

Here is the most recent weeks data from 3/21 (click to enlarge):

Let’s look at numbers 2 and 3, Wal-Mart (WMT) and Target (TGT). They have remained stable since February with very little fluctuation in numbers. Best Buy (BBY), Amazon (AMZN) and Sears (SHLD) is where it gets interesting. Sears has seen a 14% jump in traffic since February, growing each week. Now, my first thought was that this is coming at the expense of Sears’ other owned site, Kmart. A quick check there however shows that Kmart has also seen growth since February albeit less at 6%.

Best Buy has seen traffic fall 15% and Amazon has seen a 22% fall in traffic.

Why?

Now, Best Buy recently reported better than expected numbers for the quarter ending Jan. 2008.
From CNN Money:

In a forecast that seemed to lift investor spirits, the company said it expects to earn $2.50 to $2.90 a share for fiscal 2010. Analysts have forecast a profit of $2.45 a share, according to FactSet.

U.S. sales of mobile phones and accessories saw a triple-digit comparable- store gain while computer repair business saw a low double-digit increase and warranty sales, a low single-digit increase as Best Buy rolled out a premium Geek Squad protection plan. They were among categories that are more profitable for the company, helping to offset less profitable products such as notebook computers, analysts have said.

While the recession, rising job losses and decreased access to credit have all hurt Best Buy, the retailer is expected to gain further market share after its smaller electronics-chain rival Circuit City Stores Inc. filed for bankruptcy protection and liquidated its stores.

It should be noted that the Circuit City liquidation would not be baked into these numbers as it began in earnest after the reported quarters numbers were finished. So, where did the Circuit City web traffic go? The general consensus of the investing community as stated in the above quote was that Best Buy and Amazon would be the main beneficiaries of the Circuit City liquidation.

Based on the above charts, it appears shoppers may have skipped Amazon and Best Buy and gone to Sears. Let’s look closer:

Now, Sears has probably garnered increased internet traffic from it recent appliance push (coupled with people getting tax return money back to buy them) but one cannot escape the oddity of the timing of its traffic increase coupled with the dramatic decreases at both electronics competitors while Wal-Mart and Target held constant.

One also could assume that lawn and garden played a role as both Lowes (LOW) and Home Depot (HD) saw gains. While some of this is surely in the numbers, Sears would not expect to see the same surge as a Home Depot or Lowes because lawn season is coming around. Sears is not as large a player in the field and have smaller offerings than they do, especially when it comes to plants and yard items. The numbers here also show Sears/Kmart outpaced both home Depot and Lowes, not what one would expect unless there was a another reason.

That still leaves us with Sears’ large gain (+20% Sears/Kmart combined) corresponding to the large declines at both Amazon (-22%) and Best Buy (-15%) that cannot be explained away easily. Had they both kept share close or above previous levels, then the Sears gain could be said to be purely appliance/lawn and garden. But they didn’t, so we can’t explain it that way. Sears must be making gains in electronics traffic.

We have essentially 7 weeks of data in these results and no definitive conclusions can be drawn from it. But, the results do seem to be running contrary to what people were expecting to happen when Circuit City finally closed the door and does mean it requires close monitoring.

Now, this all means very little if Sears is not converting this traffic into sales and we will not know this until May as Sears does not report monthly numbers. This trend does bear very close attention. Should it continue, it is is very good news for Sears shareholders as it means the effort Lampert and the rest of the folks there have put into the internet properties may be paying off.

Last weeks data will be out soon and we can check back then …

Data from Hitwise

Disclosure (“none” means no position):Long WMT, SHLD, none