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Sears' Deal With Amazon.com Isn't Going to Save the Company

Sears Holdings Corporation's (NASDAQ: SHLD) deal to sell its Kenmore appliances on Amazon.com (NASDAQ: AMZN) gives it a huge new distribution partner. The company noted the significance of the agreement in a press release by saying that it was the broadest distribution of Kenmore products, outside of its Sears branded stores and related online platforms.

The struggling retailer has also decided to integrate Amazon's Alexa voice assistant across all of its new Kenmore smart appliances. The company said this means users can now give Alexa voice commands, for instance, they could ask Alexa to change the temperature on their Kenmore smart air conditioner.

"The launch of Kenmore products on Amazon.com will significantly expand the distribution and availability of the Kenmore brand in the U.S.," Sears Chairman and CEO Eddie Lampert said in a company press release

Image source: Sears Holdings.

The deal immediately boosted Sears' stock price, but despite the seemingly good news, there's not much evidence that selling Kenmore appliances on Amazon's e-commerce platform will be enough to spark a turnaround for Sears.

The problem is much bigger than this

Sears has made a slew of store closing announcements this year, which now total to more than 300 Sears and Kmart locations, all due to poor sales. The bad news started at the end of January when Sears said in a Securities and Exchange Commission (SEC) filing that, "Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern." Since the filing and store closings, rumors have swirled that Sears may eventually file for bankruptcy protection.

Appliance sales have been one of the company's key businesses and Sears is trying to prop this up as much as possible. Just last month it said it would open some smaller stores that only sell mattresses and appliances -- two of the company's most lucrative products.

There are likely two problems with the Amazon deal though. The first is that Sears could actually hurt its own efforts to sell appliances in its new, smaller locations once the same appliances go on sale on Amazon. It seems a bit counterproductive to both launch a new type of appliance store and at the same time try to boost appliance sales on a competitor's website -- which has already put so many retail locations out of business.

Second, there is increasing competition in the appliance sales business, with Lowe's, Home Depot, Best Buy, and others gaining ground. Lowes has been the No. 1 appliance retailer for several years, after unseating Sears, and Home Depot currently holds the No. 2 spot. It's unlikely that Sears could make any significant gains in the competitive space through pricing cuts, especially since the company saw a $2.2 billion net loss in 2016.

To make matters worse, the Kenmore brand doesn't have the same clout with consumers that it once did. Kenmore appliances once held about 40% of the U.S. appliance market, but that's fallen to less than 13% now. 

Possibly the right move at the wrong time

It's understandable that Sears is pursuing new avenues for growth in the appliance space. The company earns a good chunk of its revenue -- 15% for the past three years -- from its appliance sales. Additionally, the U.S. consumer appliance market is growing and sales improved 5.6% last year to $69 billion. But the newly announced deal with Amazon is likely a little too late.

Sears is shedding retail spaces left and right and trying to claw its way back into the consumer appliance space that it once dominated. Sears may be able to add some sales by selling Kenmore appliances on Amazon's site, but the move is at best a band-aid to the company's ongoing losses.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Home Depot and Lowe's. The Motley Fool has a disclosure policy.