How J.C. Penney could benefit, struggle from Sears’ Amazon partnership

With its partnership to sell Kenmore appliances on Amazon, Sears Holding Corp. hopes to rival other hard good retailers like J.C. Penney Co. Inc. (NYSE: JCP). But both companies stand to fight for more than appliance sales as they go head-to-head over hard goods.

Sears (Nasdaq: SHLD) announced July 20 an agreement to sell its Kenmore line on Amazon.com as the company struggles to bring customers into stores, and as its Canadian arm has gone into default.

The Kenmore name is more than a century old, and one of the country’s most iconic appliance brands. While selling the products on Amazon means Sears loses its exclusivity with Kenmore, the move may help bring much-needed revenue to the department store.

“The launch of Kenmore products on Amazon.com will significantly expand the distribution and availability of the Kenmore brand in the U.S.,” Sears CEO Eddie Lampert said in a prepared statement about the partnership.

Stocks of other appliance retailers stumbled the day of the Sears/Amazon announcement. Home Depot’s shares took a 4.5 percent hit, while Lowe’s Cos. Inc. declined 5.9 percent. Best Buy decreased 4.2 percent.

In comparison, shares of Sears were up 13 percent on the news.

J.C. Penney saw a much smaller impact, with its shares decreasing less than 1 percent. But the announcement has more ramifications for the Plano retailer than its stock price.

In January 2016, J.C. Penney began re-introducing appliances into its brick and mortar stores after a more than 30-year hiatus from the sales category. Since then, the company has introduced the products online and said it plans to roll out appliance showrooms to 600 stores by the end of 2017.

J.C. Penney declined to comment on how its appliance business is faring so far and does not separate appliance sales from overall revenue. In its first quarter 2017 earnings, reported May 12, the company said improvements in several departments, including appliances “ provide us with the confidence to maintain our sales guidance for the full year.”

The company’s second quarter earnings will be reported on Friday before market open.

While J.C. Penney has competed with Sears for appliance dollars since introducing the products, Sears’ Amazon partnership gives the rival company a larger platform to market its goods.

“That deal gives Sears the opportunity to remain somewhat relevant in a space where they have been completely marginalized otherwise,” said Jason Moser, an analyst with Million Dollar Portfolio at The Motley Fool. “This deal keeps Sears somewhat current, at least in the consumer’s eyes, which is a plus.”

To keep up, analysts say J.C. Penney must continue pushing its own e-commerce efforts.

And to differentiate itself, the retailer should continue improving its home department, which has been expanded to include Ashley Furniture; pilots of Empire Flooring and Trane heating, ventilation and air conditioning services; bathroom remodeling; quick-ship and installed blinds; home water solutions; awnings and smart home technology.

It also offers washers, dryers, refrigerators and microwaves to commercial and residential property groups.

“I think they can leverage their strength in home with window treatments and other things to create a back-to-front home design service that includes not only treatments and decor, but appliances and smart home features,” added Ed Fox, associate professor of marketing at the W.R. and Judy Howell director of the J.C. Penney Center for Retail Excellence at Southern Methodist University.

However, pushing appliances may hurt Sears and J.C. Penney in areas that both have been pushing to improve – in-store traffic and comparable sales. Because consumers buy appliances infrequently and usually have them delivered, they have little incentive to visit brick and mortar stores. And offering appliances online further reduces the need for a store visit.

In its first quarter earnings, J.C. Penney saw a 3.5 percent decrease in same-store sales, while Sears, which reported first quarter earnings on May 25, saw a roughly 12 percent dip.

“While they have a high-dollar value don’t bring people in stores frequently,” Fox said. “Now people can get competitive products rather than walking into a store.”

The good news for J.C. Penney is that while it continues to work on appliances other initiatives to return to profitability, analysts are unsure Sears will be able to battle store closures and lagging profits to stay in business.

“It’s becoming apparent that Sears is in what’s becoming a death spiral,” Fox said in January. “J.C. Penney will be around in three to five years, and Sears may very well not.”

That means while J.C. Penney might currently be losing customers now to the Sears/Amazon partnership, it could pick up those clients again in the case of a Sears bankruptcy.

“The core customers for the apparel and home businesses at Sears and J.C. Penney were quite similar,” Steve Dennis, president of retail strategy firm SageBerry Consulting, said earlier this year. “They were pretty price sensitive with fairly constrained incomes.”

Source:-bizjournals.

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