Seeking to protect its fragile spot as the No. 1 appliance retailer in the United States, Sears (SHLD) is testing a new, smaller-format specialty store that is roughly one-tenth the size of its big-box department stores and could roll it out more quickly if the pilot works.
In a blog post on Thursday, Sears said it was opening the first such location, a 10,000 square foot Sears Appliances store on Tuesday. The location, in Fort Collins, Colorado, is the first of a handful expected to open this year ahead of a potentially much larger rollout if the test works. Sears Appliances will offer the top 10 brands of refrigerators, dishwashers, washers, dryers, ranges, wall ovens, and vacuum cleaners. It will also will offer in-store consultations, as full sized Sears locations do.
The move, first outlined at Sears Holdings’ annual meeting earlier this week, could help Sears push back arch-rival J.C. Penney’s (JCP) recent return to selling appliances after 33 years. Penney said earlier this week it would start selling home appliances like refrigerators and washing machines by General Electric, Hotpoint, LG, and Samsung at 500 of its roughly 1,000 stores after a 22-store pilot proved successful. That retailer, enjoying something of a comeback, is clearly betting it can scoop up appliance-shoppers heading to malls where Sears has closed stores or attracting fewer shoppers. Sears and Penney co-anchor about 456 malls.
Despite its problems, Sears remains the top retailer of home appliances in the United States, with sales of more than $4 billion last fiscal year, helped by leading brands including its own Kenmore line. And though that business has been pressured by the store closings, the industry is expected to keep growing: Euromonitor International estimates the U.S. Home appliance industry had $29 billion in revenue in 2015, on the way to $38 billion by 2020.
So Sears can scarcely afford to lose any of its appliances business, a rare bright spot for a retailer whose parent company (it also owns Kmart) has lost more than $8 billion in the last five years. Sales in other categories such as apparel have been abysmal. In February, Sears Holdings reported its 11th straight year of comparable sales declines.
The company has also closed hundreds of stores, recently announcing the shuttering of another 78 Sears and Kmart stores. The latest closing will leave Sears with fewer than 700 namesake department stores, compared to 860 in 2008. The appliance stores will help Sears maintain a retail presence for its appliance business even as it pares its big-box fleet. The strategy echoes that of Kohl’s (KSS), which recently launched a chain of 35,000 square-foot stores to head off weak sales, and of Target (TGT), which is also diversifying away from big boxes.
Amid the sales bleed of the last years, Sears has shed assets and leasing space in poor stores to raise billions in much-needed cash as it tries to turn itself into a retailer that is less reliant on its physical locations. It is deploying new online services and a loyalty program called Shop Your Way. But so far, it has little to show for its efforts.