As recently as 2003, Kenmore -- a private brand owned by Sears Holdings (NASDAQ: SHLD) -- held a 27% share of the U.S. appliance market. However, with customer traffic and sales in a long-term downward spiral at Sears, Kenmore's market share has plunged. Kenmore's very limited distribution outside of Sears stores has clearly had a dramatic impact on its sales.
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In this episode of Industry Focus: Consumer Goods, the team discusses Sears Holdings' recent decision to start selling Kenmore appliances through Amazon.com (NASDAQ: AMZN). This desperation move will introduce the Kenmore brand to a new set of consumers, which could boost sales. However, in the long run, it will further undermine the viability of Sears' struggling retail franchise.
A full transcript follows the video.
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This video was recorded on Aug. 1, 2017.
Vincent Shen: A couple of weeks ago, Sears announced that it would make its Kenmore appliances available through Amazon. Kenmore is one of the last remaining high-value brands propping the company up at this point. They used to have a leading share of the appliance market, but it's deteriorated quite a bit along with the department-store chain. Even then, I think it's still one of the biggest and most popular brands in the industry. This is a pretty strange partnership here between Sears and the company that a lot of people would say is most responsible for its woes over the last decade. What's your take, Adam? The word you mentioned to me before the show was "surrender," and I thought that was interesting.
Adam Levine-Weinberg: Yeah, I really do see this as surrender on the part of Sears to Amazon. And to be honest, I think it's actually rational for Sears to be surrendering to Amazon.com at this point. I think it's been proven over many, many years that Sears does not have what it takes as a standalone company to compete with Amazon.com, or with other department-store chains, even the ones that are struggling a bit themselves. If you look at Sears' results, their revenue has plunged in recent years. Right now, they've been posting pretty steady high-single-digit to even double-digit comparable store sales declines regularly, and that's even while closing hundreds of stores. If you look at their total sales line, it's down 20% in a lot of quarters.
They're floundering. They don't have much of a future as a retailer. At that point, their main assets are really their real estate, which they've been selling off, and their house brands that are still popular. They were able to get about $900 million of value for Craftsman, their tool brand, earlier this year. And Kenmore is probably the next most valuable brand they have still remaining with the company. I think selling Kenmore appliances on Amazon.com is going to be good for the Kenmore brand, because it's something that's been done a disservice by being stuck in Sears and Kmart stores only, because it was a great brand not even that long ago, 20 years ago, when people still went to Sears sometimes. Kenmore was a top appliance brand. A big reason why it's lost market share is because people simply aren't going to Sears. They're not seeing it.
Shen: It's a limited-distribution issue.
Levine-Weinberg: So getting distribution out to Amazon.com will definitely get it in front of more people. However, millennials might not even know the Kenmore brand as much as their parents do, just because they haven't been shopping in Sears and so they don't see it in the same way that, maybe if they're walking through Home Depot, they see other brands of appliances. So that's definitely a concern. But better late than never to get this broader distribution.
Now, the problem for Sears is, once you can go buy Kenmore appliances on Amazon.com, why would you go to Sears for anything? So that's really the issue. To some extent, they'll win some market share for Kenmore against other appliance makers. But really, what they're going to do is drive more share of Kenmore sales out of the Sears stores and into Amazon.com, which is going to make the lack of profitability for the Sears stores get even worse, forcing more store closures. In my opinion, this story is going to end with Sears going bankrupt. At the end of the day, they can still sell or keep the Kenmore brand, and that may actually be one of their most valuable assets. And getting out of the retail industry entirely might be the best play in the long run for Sears Holdings.
Adam Levine-Weinberg has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.