Home Depot Broadens Appliance Brands

Date : 07/05/2012 @ 4:10PM
Source : Dow Jones News
Stock : Sears Holdings Corp. (SHLD)
Quote : 3.45  -0.18 (-4.96%) @ 8:00PM

Home Depot Broadens Appliance Brands

Home Depot (NYSE:HD)
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--Home Depot adds new appliances online and to small group of stores

--Appliance sales have been weak for its main competitors in the category

--Analyst say the competitive maneuver cracks open the door to a strategic shift

Home Depot Inc. (HD) is adding more appliance brands to its online load and in a small group of stores, creating a glimmer of possibility the home-improvement retailer could shift its perfunctory stance on washers and fridges, as appliance sales have become a drain on the profits of its competitors in the category.

This week, Home Depot said it was broadening the appliance brands it offers by adding Whirlpool Corp. (WHR) and Electrolux AB's (ELUXY, ELUX-B.SK) namesake and Frigidaire lines. They will be available in about 100 brick-and mortar stores--less than 5% of its base--as well as its online store. But the new appliances can be ordered in all U.S. stores through the company's Depot Direct delivery service, which includes free delivery and haul-away.

The company says it doesn't expect the additions to have a material effect on sales, but analysts say the move reflects a competitive pounce--and could presage a shift in Home Depot's appliance strategy.

Laura Champine, an analyst for Canaccord Genuity Securities, said the move certainly had the look of a trial of an appliance strategy similar to that of its smaller rival, Lowe's Cos. (LOW). Traditionally, Home Depot has been lukewarm toward the appliance category because of its low margins.

Though Home Depot has more stores than Lowe's--2,254 to Lowe's 1,747--Home Depot's share of the appliance market is roughly 10% versus Lowe's share in the high-teens and leader Sears Holdings Corp. (SHLD) with greater than 20%, according to Ms. Champine's estimates.

But she noted that this is an expansion of brands in stores that already have strong appliance sales, so it may not represent as much of a strategy shift as one in which Home Depot tested a number of different types of stores and markets.

"It wouldn't surprise me if this is a competitive move, now that they've seen some vulnerability at Sears and Lowe's," she said.

Weak sales of appliances hamstrung Lowe's latest quarterly results. In the fiscal first quarter, Lowe's decision to throttle-down promotions on big-ticket categories, especially appliances, hurt its same-store sales performance.

Lowe's shares dropped 10% the day of that release, with the soft sales fueling a retrenchment in the stock that, like Home Depot's, had been climbing briskly for much of the year on housing recovery optimism.

Home Depot shares also cooled at that time, though so far this year they have climbed 24% compared with 8.9% for Lowe's and 9.2% for the Standard & Poor's 500-stock index. Thursday, Home Depot shares were up 1% at $52.16.

Meanwhile, Sears appliance sales have been sliding and costing it market share to the two home-improvement retailers. Plagued by declining same-stores sales for years, Sears said the flagging appliance business and consumer electronics drove its 3% same-store sales decline last year. Its appliance unit has had a revolving door of leaders, with the company appointing its third new president of the group in four years in March.

On Thursday, Home Depot spokeswoman Jean Niemi said its new appliance brands didn't represent a shift in strategy. "But the appliance expansion does position us to compete as the marketplace dynamic shifts both in store and online," she said.

She echoed comments of Home Depot executives that the retailer is content with participating in the appliance category but not leading it. In November, Chief Financial Officer Carol Tome said Home Depot, at No. 3 in appliances, was happy being No. 3.

But David Strasser, an analyst for Janney Montgomery Scott, said Home Depot's appliance-brand expansion gave him the sense it could be part of a bigger rollout. He also said it was an evolution of its assortment, nudging the appliance mix a little more to the higher end when the company had tended toward the lower end of the category.

Such an evolution would come as Home Depot has found increasing traction with bigger-ticket sales. Transactions for tickets above $900 were up 6.7% in the fiscal first quarter, outperforming the 3.9% increase in total transactions. And for a year straight, quarterly transactions for tickets above $900 have increased more than those for tickets below $50. Those two groups each represent about 20% of the company's total U.S. revenue.

Write to Joan E. Solsman at joan.solsman@dowjones.com

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