Investors reacted quite favorably to the news that Kenmore appliances will soon be sold through Amazon. For Amazon, it's clearly an interesting opportunity. While online sales of major appliances are currently comparatively small, being able to offer a leading brand on a semi-exclusive basis gives Amazon a jump start in a large category where they have virtually no presence. On the other hand, for Sears, it smacks of desperation.
First, some context. Way back in 2003 I was Sears' VP of Strategy and my team was exploring options for our major private brands. Despite years of dominance in appliances and tools, our position was eroding. Our analysis clearly showed that not only would we continue to lose share (and profitability) to Home Depot, Lowe's and Best Buy, but those declines would accelerate without dramatic action. Unfortunately, it was also clear that very little could be done within our mostly mall-based stores to respond to shifting consumer preferences and the growing store footprints of our competitors. Kenmore, Craftsman and Diehard's deteriorating positions were fundamentally distribution problems. And to make a long story a bit shorter, a number of recommendations were made, none of which were implemented in any significant way.
Flash forward to today, and Sears leadership in appliances and tools is gone. While in the interim some minor distribution expansion occurred, it was not material enough to offset traffic declines in Sears stores and the shuttering of hundreds of locations. More important is the fact that Kenmore and Craftsman still aren't sold in the channels where consumers prefer to shop--and that train has left the station.
So last week's announcement does expand distribution, but it does little, if anything, to fundamentally alter the course that Sears is on. Simply stated, making Kenmore available on Amazon will not generate enough volume to offset continuing sales declines in core Sears outlets, particularly as more store closings are surely on the horizon. Selling Kenmore on Amazon does not in any way make Sears a more relevant brand for US consumers. In fact, it will give many folks one more reason not to traffic a Sears store or sears.com.
Since 2013 I have referred to Sears as "the world's slowest liquidation sale", owing to Eddie Lampert's failure to execute anything that looks remotely like a going-concern turnaround strategy, while he does yeoman's work jettisoning valuable assets to offset massive operating losses. Earlier this year, Sears fetched $900 million by selling the Craftsman brand to Stanley Black & Decker, one of the leading manufacturers and marketers of hand and power tools. So it's hard to imagine that Sears did not try to do a similar deal with either a manufacturer of appliances (e.g. Whirlpool or GE) or one of the now leading appliance retailers. The Kenmore partnership with Amazon appears to have far less value than the Craftsman deal, despite being done just six months later--which speaks volumes to how far Sears has fallen and for how weak Sears' bargaining position has become.
The cash flow from the Amazon transaction will do little to mitigate Sears operating losses and downward trajectory. In fact, it seems to be mostly the best way, under desperate circumstances, to extract the remaining value of the Kenmore brand given that no high dollar suitors emerged and Sears continues its march toward oblivion. Amazon, however, is able to take advantage of fire-sale pricing and create the valuable option to have Kenmore as a potentially powerful future private brand to build its presence in the home category.
Advantage Bezos.
