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Why Sears Soared Today and Best Buy, Lowe's, and Home Depot Fell

What happened

Shares of Sears Holding Corp. (NASDAQ: SHLD) were surging today after the retailer made a deal with Amazon.com (NASDAQ: AMZN) to sell Alexa-enabled appliances including the Kenmore brand on Amazon. 

As a result, Sears stock jumped 15.2% as of 11:43 a.m. EDT, while the news weighed on several rivals. Best Buy (NYSE: BBY) stock was down 3.9% after falling as much as 5.7%. Lowe's Companies (NYSE: LOW) was down 6.3%, and Home Depot (NYSE: HD) was off 4.5%, after dropping 5% earlier in the session. Amazon stock barely moved, rising 0.3% on the news.

Image source: Sears Holding.

So what

The deal surprised much of Wall Street as it's essentially a tie-up between the best- and worst-regarded retailers in the country. The effect on Sears' closest rivals, however, shows that investors are taking the partnership seriously, and that it could have far-reaching effects.

In a statement, Sears said the agreement to sell on Amazon marks the broadest distribution of Kenmore outside of Sears' own stores. It also said the agreement would be expanded to the full line of Kenmore appliances, including Sears Home Services and Innovel Solutions.

With the help of Alexa, Amazon's voice-activated technology, Sears said customers will be able to do things like adjust the temperature of their air conditioning just by speaking. 

It was a canny move for Sears even as it underscores the weakness of its own retail network of thousands of stores as the decision is essentially an admission that it needs to rely on a competitor for online distribution. Still, Kenmore is the most valuable of Sears' remaining private brands, after selling or spinning off brands like Craftsman and Lands' End, so it makes sense for the company to unlock as much of its value as it can.

The collaboration between Sears and Amazon weighed on the stocks of their big-box rivals. Despite its woes, Sears is still one of the biggest appliance sellers in the U.S., and Kenmore remains a respected brand. As of last year, Sears was the No. 3 appliance seller, behind Lowe's at No. 1 and Home Depot behind it. The partnership between Sears and Amazon could take market share away from the home-improvement leaders, and also elevates Amazon in the category as it shows a growing interest in home goods and services.

Best Buy, on the other hand, tends to focus more on electronics and entertainment but it does sell appliances like refrigerators, dishwashers, and air conditioners. In fact, it looks set to pass Sears in appliance market share this year. It is also considered a more direct competitor to Amazon and may be more threatened by the partnership.

Now what 

Prior to this arrangement, there'd been plenty of speculation about a potential deal between Amazon and Sears. Analysts have suggested before that Amazon should buy Sears as the ailing retailer is cheap at a market cap of $1 billion and it would give Amazon a national real estate footprint as well as several valuable brands. The market may be fearing that this is a first step in a growing partnership between Amazon and Sears as the e-commerce giant could potentially use Sears cavernous stores as staging areas for fast delivery, for example.

However, as the deal stands, it seems like the market is overreacting, much like it did when food retail stocks plummeted after Amazon acquired Whole Foods.

Sears' own revenue was $22 billion last year and is falling fast, down 20% in the first quarter. It doesn't break out Kenmore sales, but the appliance brand represents a relatively small percentage of sales. Hardlines, which included appliances, electronics, and home-improvement products, contributed 43% of the company's sales last year. 

In other words, the effect of today's announcement alone shouldn't be a big concern for the big-box giants. Home Depot's loss of about $8 billion in market value today, for example, seems hard to justify.

However, investors should keep an eye out to see if the Amazon-Sears partnership develops further. With its endless ambition, Amazon remains the biggest threat to worry about here.

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John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Whole Foods Market. The Motley Fool recommends Home Depot and Lowe's. The Motley Fool has a disclosure policy.