Sears, Roebuck and Co. is the nation's largest seller of appliances by a wide measure, but two strong new competitors have jumped into the market at a time when the market itself is getting dicier.
Wal-Mart Stores Inc., the world's largest retailer, announced last week that it will begin selling major appliances in a few stores in a test program with General Electric Co. And over the past year, rapidly growing Home Depot Inc. has been rolling out appliances that are now available in about 75 percent of its stores.
The shuffle occurs as rising interest rates are slowing home sales, which are a major driver of appliance purchases. As a result, appliance sales are showing signs of weakening.
That could mean headaches for Sears, which has 38 percent of the market for large home appliances -- and bargains for consumers.
One major appliance retailer already has thrown in the towel. Circuit City Stores Inc., which vied with Lowe's Home Improvement Warehouse for the market's No. 2 spot, announced in July that it was getting out of the business to concentrate on consumer electronics. The Richmond, Va.-based chain, which had 5 percent to 6 percent of the market, is liquidating its stock of appliances so it can revamp its stores for the Christmas selling season.
And Best Buy Co. may follow, some industry analysts believe. Best Buy reported last week that same-store sales during the second quarter fell short of estimates. While the company blamed the weakness on slow demand for air conditioners during a summer that was unseasonably cool in many parts of the country, some investors said they believed interest rates were a factor, too.
Sears spokesman Tom Nicholson noted other would-be competitors have come and gone. "Home Depot is not yet up to 1 percent of the market, and Wal-Mart isn't on the screen" in terms of appliance market share, he said.
At the same time, "5 percent of the market is up for grabs," he said, referring to the Circuit City share. Nicholson said Sears has found that its market share has grown faster since the Circuit City announcement in markets where the two competed. In other words, Sears has gained market share even when facing competition from Circuit City liquidation sales.
"The home-appliance business is a much more complicated market to enter than some retailers presume," said Bill Dreher, research analyst for Robertson Stephens. Sears' Kenmore brand (made by Whirlpool Corp.) is the nation's No. 1 appliance brand, he noted. But Sears also carries Whirlpool, General Electric, Maytag, Frigidaire and Amana, giving it a broader product assortment than other retailers, he said. Sears also has a policy of matching competitors' prices and an extensive service network.
The appliance market is tough for both manufacturers and retailers, said Lawrence Horan, a manufacturing analyst with Parker/Hunter Inc. in Pittsburgh. On the manufacturing side there is "trench warfare" between leader Whirlpool and close competitor General Electric, he said.
Last week, Whirlpool reduced its profit forecast for the year for the second time in six weeks, in part because of Circuit City's exit from the business. Circuit City had sold Whirlpool appliances, while Wal-Mart and Home Depot do not. Wal-Mart is selling GE products, while Home Depot will carry both GE and higher-end Maytag appliances.
Both Wal-Mart and Home Depot will limit the number of appliances in stores, selling most of their stock through computer kiosks that will send orders to the manufacturers for shipment.
"The question here is whether there is a shift in the way appliances are sold," said Daniel D. Barry, a retail analyst at Merrill Lynch Global Securities. If consumers decide to buy on the Web, it may benefit Sears, too. About 13 percent of appliance customers have searched for information on the Internet before they come into Sears to see the appliances, Sears spokesman Nicholson said.
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