Sears seen losing appliance-sales leadership to Lowe's

Hoffman Estates-based Sears Holdings Corp., America's top appliance seller for decades, may lose that title in about two years, another casualty of Chief Executive Officer Eddie Lampert's plan to remake the department-store chain.

Sears had 28 percent of the major appliance market in the U.S. last year, and that share may plummet to 10 percent by the end of 2016, Gary Balter, an analyst at Credit Suisse Group AG in New York, said in a report. If Lowe's Cos. picks up a quarter of the share Sears loses, it would be the top appliance seller by the end of 2016, Balter said.

"Investors shouldn't underestimate the opportunity that market-share gains from Sears represent," wrote Balter, who recommends selling Sears shares while buying Lowe's and Home Depot Inc.

Sears, known for brands such as Kenmore appliances and Craftsman tools, has been shutting stores while focusing on strengthening its online operations and loyalty program. The chain has posted just one gain in quarterly same-store sales since Lampert, also the company's largest shareholder, merged the retailer with Kmart in 2005. More recently, Lampert has been selling Sears's assets to generate cash amid persistent losses.

The decline at Sears has benefited Home Depot and Lowe's, which both report third-quarter results this week. Lowe's share of U.S. appliance sales may expand to 23 percent by the end of 2016 from 18 percent now, Balter said. Atlanta-based Home Depot may increase its take of that market to about 16 percent from 11 percent.

Chris Brathwaite and Howard Riefs, spokesmen for Hoffman Estates, Illinois-based Sears, didn't immediately return e- mailed requests for comment.

Sears also is ceding sales in tools, with its market share expected to fall to 10 percent by 2016 from 25 percent last year, Balter wrote.

By 2016, Sears's loss of market share in appliances and tools may boost annual same-store sales at Mooresville, North Carolina-based Lowe's by 1.15 percentage points and at Home Depot by 0.79 percentage points, Balter said.

Sears, which led the appliance market with a 42 percent share as of 2002, also has lost sales to Best Buy Co., said Matt McGinley, an analyst at Evercore ISI in New York. While McGinley recommends selling Sears shares, he said he doesn't expect its appliance-market share to plunge as much as Balter does.

"There is a customer who still values the Kenmore brand," McGinley said in a phone interview. "That just tells you that they're not completely irrelevant in this particular category."

He estimates Sears's appliance-sales share may decline to a range of about 17 percent to 21 percent in the next two years, depending on how many stores it closes.

Home Depot

Home Depot, which reports results tomorrow, has been expanding its assortment of washers and dryers, helping same- store sales of appliances gain at a double-digit percentage rate in the second quarter, exceeding the company's expectations.

Sears fell 4.8 percent to $35.52 at 11:32 a.m. in New York. The shares gained 0.9 percent this year through Nov. 14. Home Depot advanced 19 percent during the same period while Lowe's, which reports third-quarter results on Nov. 19, rose 18 percent.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9bloomberg.net; Lauren Coleman-Lochner in New York at llochnerbloomberg.net To contact the editors responsible for this story: Nick Turner at nturner7bloomberg.net Kevin Orland, James Callan