Sears 3Q: Bad as Expected, but Positive Implications for Other Retailers

Sears reported 3Q results this morning that were optically better than expected, but still very bad. The important takeaway is not that Sears is doing badly (which is well understood by investors), but the positive market share implications for other retailers, including HD, LOW, HGG, and BBY.

The Implications:

While Sears has posted bad results for some time, it's still one of the largest retailers in the US with $32 billion in domestic sales last year. That's been declining by about $2-3 billion each year, which means that there's $2-3 billion in retail sales that are up for grabs each year. 

Who are the big beneficiaries? Sears is a mass merchant, so their sales are bleeding out to many other retailers. Specifically though, Sears holds the largest market share of appliances. That means that their appliance competitors -- Home Depot, Lowe's, Best Buy, and hhgregg - are reaping the rewards. Competitor appliance sales results further support this contention. Below I show HGG's appliance comps. While not mind-blowing, their appliance category has been a bright spot within the context of their overall results.

Sears recently announced another 235 stores that they'll be closing. This will continue to be a benefit for its competitors in those markets, as Sears customers will be looking for a new appliance store to shop at.