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Sears Just Stopped Carrying the No. 1 Appliance Brand

By Adam Levine-Weinberg – Updated Oct 26, 2017 at 3:45PM

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Sears will stop selling Whirlpool, KitchenAid, Maytag, and Jenn-Air appliances after it couldn't reach a deal on pricing with Whirlpool. This gives J.C. Penney another opportunity to gain market share at Sears' expense.

For many years, Whirlpool (WHR 0.38%) was the top appliance brand in the U.S. while Sears Holdings (SHLDQ) was the top appliance retailer. Recently, both companies have experienced stiff competition and steady market share losses.

Rather than banding together in an effort to fight back, Whirlpool and Sears Holdings are parting ways. Both companies have confirmed that Sears and Kmart stores will stop carrying Whirlpool, Maytag, KitchenAid, and Jenn-Air branded major appliances. The only part of their century-old partnership remaining intact is that Whirlpool will continue to manufacture appliances for Sears' private-label Kenmore brand.

Pricing becomes an issue

During 2017, it has become apparent that vendors are finally getting spooked by Sears Holdings' dreadful financial results. Sears Holdings CEO Eddie Lampert complained earlier this year about vendors trying to take advantage of the company's weak position to extract better terms.

The exterior of a Sears store, with a cloudy sky in the background

Vendors have started to lose faith in Sears this year. Image source: Sears Holdings.

It now seems that Whirlpool may have been one of those vendors. In the face of rising material costs that are pressuring its profitability, Whirlpool is determined to pass along price increases to its customers. Ultimately, it was unable to reach an acceptable agreement with Sears.

As a result, Whirlpool will stop shipping new branded appliances to Sears and Kmart. The two retailers have removed hundreds of items from their websites, and they will stop selling branded appliances from Whirlpool in stores as they run out of stock.

Bad news for Sears Holdings

Sears has framed the decision to part ways with Whirlpool as another case of standing up to an unreasonable supplier. "Whirlpool has sought to use its dominant position in the marketplace to make demands that would have prohibited us from offering Whirlpool products to our members at a reasonable price," wrote the company in an internal memo (via the Wall Street Journal).

Nevertheless, it's still bad news for Sears. The major appliance business has been one of Sears' last remaining strengths. Despite years of market share losses, the company is still No. 3 in the U.S. major appliance market.

One of Sears' big selling points has been that it is the only retailer to carry all of the top 10 major appliance brands. (The company's Kenmore store brand is one of the top 10, which is why other retailers can't match this claim.) However, it is now losing several major brands, including the No. 1 brand by volume in the U.S.: Whirlpool.

This will give consumers even fewer reasons to bother shopping at Sears in the future. That could accelerate Sears' demise, which already seems like a foregone conclusion.

Good news for J.C. Penney?

In the past couple of years, it has become apparent that bad news for Sears is typically good news for J.C. Penney (JCPN.Q). Sears and J.C. Penney are the only major mall-based department stores focusing on moderate-income consumers -- and recent sales trends indicate that there's only room for one of them to survive (at best).

Since 2016, J.C. Penney has embarked on a deliberate strategy of stealing market share from Sears. Most notably, it has reentered the major appliance market after an absence of more than three decades. So far, it has had considerable success there. During the second quarter of fiscal 2017, appliances boosted J.C. Penney's comp sales trends by almost 3 percentage points.

A J.C. Penney appliance showroom

J.C. Penney is quickly gaining share in the appliance market. Image source: J.C. Penney.

Sears' loss of the Whirlpool brands should help J.C. Penney accelerate its growth at the expense of its longtime rival. To be fair, J.C. Penney doesn't carry Whirlpool products either. However, it is steadily narrowing the competitive gap with Sears in the major appliance market. For example, J.C. Penney added the Frigidaire brand to its appliance assortment earlier this month.

J.C. Penney still has significant problems to sort out in its core apparel business, but it is making progress there. If it can stabilize its apparel sales while continuing its growth in the appliance market at Sears' expense, J.C. Penney stock could be primed for a big recovery in the next few years.

Adam Levine-Weinberg owns shares of J.C. Penney. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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