Best Buy could gain in appliance sales with Sears' bankruptcy

In the dog-eat-dog world of retail, Monday's Chapter 11 bankruptcy filing by Sears Holding Co. means competitors will jockey mightily to pick up some customers.

Among the potential winners is Best Buy, which for years has been picking up market share in home appliances from Sears, along with Home Depot and Lowe's.

While still a small part of overall sales, appliances have been a lucrative and growing part of Best Buy's business since 2013.

Three-quarters of the Richfield-based company's revenue comes from computing, mobile and consumer electronics. But sales of appliances have grown from 6 percent of the total mix five years ago to 10 percent in the last fiscal year, contributing $3.5 billion in revenue.

Best Buy now sells everything from major appliances — such as stoves, refrigerators and dishwashers — to countertop items such as coffeemakers, pressure cookers and popcorn poppers.

While its appliance offerings once were aimed at middle-market buyers, Best Buy has added more high-end brands, including Viking and Wolf, and added more floor space for showroom displays. It has accelerated the pace since purchasing California-based Pacific Kitchen and Home in 2006, with more than 200 locations now showcasing premium brands in a store-within-a-store setting.

With more products and well-known brands, Best Buy has reported 31 consecutive quarters of sales growth in appliances.

Big-ticket appliances provide higher margins and more stability than the volatile nature of consumer electronics, where one season's hot seller can quickly become a mass-market commodity.

Best Buy also has a chance to deepen its strategy to use specialty trained employees and Geek Squad staff to help consumers simplify the technology in their lives.

"The next big opportunity for the smart home is the kitchen," said Stephen Baker, who specializes in consumer electronics for the market research firm NPD Group. "All of these devices, whether big appliances or small appliances, are going to get a heck of a lot smarter. That plays to Best Buy's strengths versus other retailers who are trying to gain market share."

Monday's decision not to liquidate Sears' stores likely had many mass merchants breathing a bit easier heading into a competitive holiday season.

The lure of fire-sale prices at 800 Sears locations would have forced others to lower their own prices and diverted spending, retail analyst Neil Saunders of GlobalData said in a research report.

But Best Buy and other sellers of big-ticket appliances could see a more immediate upside.

"Consumers will now be nervous about buying bigger-ticket items from [Sears] for fear that it may not be around to back guarantees or fix problems come the new year," Saunders said.

A Chapter 11 filing means that Sears will gain some time to try to resolve some of its financial issues, perhaps carve off more of its brands, as it has done with its Craftsman tools label and Land's End line.

Credit Suisse analyst Michael Binetti said in a research note last week that it's "unlikely" Sears will be able to avoid liquidation given its deep financial hole.

That means an immediate but possibly short-term lift to such retailers as J.C. Penney, Macy's, Burlington Coat Factory and other mall-based stores in proximity, Binetti said.

Even Target, which isn't considered a strong competitor, could stand to gain.

"If Sears goes away, that's $25 billion that's up for grabs," Baker said. "That's a big chunk of sales volume that will go to a lot of big retailers. Best Buy and Target will gain something they wouldn't have been able to get previously."

Staff writer Patrick Kennedy contributed to this report. Jackie Crosby • 612-673-7335 @JackieCrosby