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Amazon-Sears Deal Impacts Home Improvement Retailers

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Amazon effect

On July 20, 2017, Sears Holdings (SHLD) announced that it would start selling its Kenmore-branded appliances through Amazon.com (AMZN). Sears also added that its Kenmore Smart appliances would be integrated with Amazon’s Alexa platform. The deal is expected to expand the Kenmore brand’s distribution and availability. The announcement caused Sears Holdings’ stock price to rise 10.6% by the end of the day.

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Amazon’s entry into the appliances sector is expected to have a negative impact on retailers’ pricing power, which will lower their profitability. So, the deal’s announcement led to a decline in home improvement retailers’ stock price. Home Depot’s (HD) stock price, a market leader in the home improvement sector, fell 4.1% on July 20. On the same day, Lowe’s (LOW), Whirlpool (WHR), and Best Buy’s (BBY) stock prices fell 5.6%, 4.3%, and 3.9%, respectively.

However, analysts expect that the sellout of Home Depot and Lowe’s was an overreaction. Both companies enjoy a greater percentage of their business coming from pro customers who require specialized services. For Home Depot, 40% of its online sales were picked up in stores. Analysts expect that the services provided by Home Depot and Lowe’s will be difficult for Amazon to replicate. Some of the analysts think that yesterday’s fall in Home Depot and Lowe’s stock prices provide a “buy” opportunity.

YTD performance

Despite the recent fall in its stock price, Home Depot stock has returned 9.7% since the beginning of 2017. During the same period, Lowe’s, Whirlpool, and Best Buy’s stock prices have returned 2.0%, 4.4%, and 26.5%, respectively.

The SPDR S&P Homebuilders ETF (XHB) and the S&P 500 INDEX (SPX) have returned 13.6% and 10.5%, YTD (year-to-date), respectively. XHB has invested more than 23.5% of its holdings in home improvement retailers.

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