On Oct 15, after a long battle in efforts to revamp sales, traditional brick-and-mortar retailer Sears Holds Corp. (SHLD) filed for bankruptcy protection.
While the a potential liquidation spells bad news for the troubled retailer, who has seen its stock fall from over $90 before the financial crisis to just $0.47 on Wednesday, its rivals could see a boost in same-store sales as customers seek out other places to do their shopping. According to a report from analysts at Cowen & Co., Sears' competitors including Walmart Inc. (WMT), the world's largest retailer, as well as J.C. Penney Company Inc. (JCP), Kohl's Corp (KSS), Macy's, Inc. (M) and Target Corp (TGT), have the most to gain out of Sear's troubles, as outlined in a recent Barron's story.
5 Retailers Will Feast On Sears' Downfall
|Company||Shopper Overlap with Sears|
Fight for Share Gains Will Be Competitive
The magnitude of market share gains from hundreds of Sears' store closings relies on a variety of factors, noted Cowen analyst Oliver Chen. Variables include distance, shopper overlap, product and brand similarities, and promotions. Cowen's research shows that 92% of Sears shoppers also buy from Walmart, following by 75% at Target, 56% at J.C. Penney, and 54% at Macy's.
However, rivals cannot assume customers will just fall into their laps, wrote Chen.
"We believe the fight for share gains will be highly competitive, shares will be likely somewhat fragmented, and prior Sears shoppers could also just stay home and not shop for items that were more discretionary in nature," said the Cowen analyst.
Sears Liquidation Poses Long-Term Risk to Industry
Moving forward in the long term, Credit Suisse analyst Michael Binetti warns that Sears' liquidation could serve as a "very negative industry data point," accelerating the closure of C- and D-level malls, which are less financially stable than A-level malls. This could force a number of other traditional retailers into bankruptcy, potentially translating into rewards for off-price retailers such as TJX (TJX), Ross Stores (ROST) and Burlington Stores (BURL). Chen echoed this sentiment, indicating that the closure of more stores from other beaten down retailers such as Stage Stores (SSI), Stein Mart (SMRT) and J.C. Penney could free up $3 billion to $6 billion of sales for the discount players. (For more, see also: Who Killed Sears? 50 Years on the Road to Ruin.)
3 Other Retailers at Risk
|Company||YTD Stock Performance|
Ultimately, while Sears' closure may offer short-term gains for investors, it doesn't change the depressed long-term outlook for an industry facing widespread disruption. Moving forward, we can be sure that the retail space will experience more upheavals, closures and attacks from burgeoning online commerce players led by Amazon.com Inc. (AMZN).