By guest author Deborah Weinswig from Coresight Research
In seeking bankruptcy protection this week, Sears Holdings outlined plans to continue operating with a smaller network of profitable stores. Many commentators do not share the company’s confidence, and there is a common expectation that it will be liquidated in the near future. In this week’s note, we look at which rivals could gain should the Sears chain close completely.
Sears Holdings’ revenues have been falling fast, but the company still turned over a substantial USD 16.7 billion in the year ended February 3, 2018. That figure fell to USD 14.3 billion on a trailing-12-month basis for the period ended August 4, 2018, according to S&P Capital IQ. In the year ended February, the Sears banner accounted for USD 11.1 billion of total revenues (Kmart accounted for the rest). Merchandise accounted for USD 7.8 billion of those Sears banner sales, with the remainder coming from services and other sales. The table below shows Sears’ merchandise sales breakdown.
Mass Merchandisers
Should the Sears chain close for good, low-price, mass-market chains such as Walmart and Target are positioned to mop up the greatest share of the company’s apparel sales. Our own data on apparel cross-shopping show that Walmart is the top alternative destination for Sears apparel shoppers while Target is in third place. The strength of Walmart and Target in this scenario is relatively unsurprising: Walmart is America’s leading apparel retailer in terms of total clothing and footwear sales and our own data indicate that Walmart and Target are the most-shopped retailers for apparel among the general population. These retailers would stand to gain in nonapparel categories such as appliances, electronics, household goods and toys, too, and they are also among the best placed to capture sales from Kmart, if that chain were to close.
Store-proximity data show a very high overlap between Walmart store locations and Sears stores, as the table at the end of this note details. Target stores overlap with Sears stores to a lesser degree, although the overlap is still high relative to that between Sears and other retailers.
Any boost to Walmart and Target from a Sears closure would come on top of anticipated gains from the closure of Toys“R”Us. As we have noted previously, our own data show that Walmart and Target are likely to capture the lion’s share of store-based sales that would have gone to Toys“R”Us.
- However, even if Walmart were to capture 10% of Sears’ USD 7.8 billion in total merchandise sales, that would equate to just a 0.2% uplift in revenues, based on the revenues reported by Walmart US for the year ended January 31.
- Similarly, if Target were to capture 10% of Sears’ merchandise sales, that would equate to just a 1.1% increase in Target’s total sales, based on the company’s reported revenues for the year ended February 3. (These numbers do not factor in any gains that might result from a Kmart closure.)
Department Stores
Our research suggests that, among the department stores, JCPenney is best placed to capture shopper dollars in the event of a total Sears closure. JCPenney registers disproportionately high apparel cross-shopping rates among Sears shoppers, jumping from the seventh-most-shopped retailer for apparel among the general population to the second-most-shopped among Sears apparel shoppers. Our consumer data also show that the company’s shopper demographics are similar to Sears’, as measured by age and affluence. Moreover, almost half of Sears stores have a JCPenney store located nearby. Finally, JCPenney has pushed into appliances since 2016, which would support its bid for transferred shopper dollars.
Macy’s would likely gain, too, but to a lesser extent. It is the fourth-most-shopped retailer for apparel among Sears shoppers and approximately 44 % of Sears stores have a Macy’s store nearby.
- If JCPenney were to capture 10 % of Sears’ USD 7.8 billion in merchandise sales, that would equate to a sizeable, 6.3 % uplift in revenues, based on the sales figures JCPenney reported for the year ended February 3.
- For Macy’s, the same assumption equates to a 3.2 % uplift in total revenues (which include Bloomingdale’s and Bluemercury revenues).
Off-Pricers
TJX Companies, whose banners include T.J. Maxx, Marshalls and HomeGoods, shows a relatively high level of store proximity to Sears stores, and the company’s apparel banners fall within the top 10 most-shopped apparel stores among Sears shoppers. However, our data show that TJX and other off-pricers attract a significantly younger average apparel shopper than Sears does, which may limit the proportion of dollars they could capture in the event of a Sears closure.
Home Improvement Retailers and Warehouse Clubs
Home Depot and Lowe’s stand ready to capture some appliance sales in the event of a Sears closure, and 40 % or more of Sears stores are located within two miles of one of these rivals’ stores. Home Depot strengthened its appliances offering through a distribution deal with Bosch in August this year.
The major warehouse clubs see a much lower geographical overlap with Sears stores, and this may limit their gains if Sears closes. One caveat is that we expect consumers to be willing to travel further to shop for big-ticket purchases such as appliances or electronics than they would be to shop for everyday apparel.
