By ANN ZIMMERMAN
The housing market remains sluggish and many consumers still aren’t splurging, but a growing number of retailers are trying to lure shoppers into stores with restaurant-grade stove tops and ruby-red washing machines.
Store chains are escalating their competition to sell appliances because many shoppers still prefer to buy the bulky products in person, making them somewhat immune from showrooming, the trend of consumers trying out merchandise in shops only to purchase it online.
Rivals also perceive opportunity in the struggles of Sears Holdings Corp., long the U.S. leader in appliances, which has closed more than 100 large stores this year.
Home Depot Inc. is expanding the space devoted to appliances in some of its stores to carry dishwashers and ovens from Whirlpool Corp.’s Whirlpool line and Electrolux AB, popular brands long carried by rivals Sears and Lowe’s Cos.
Best Buy Co. is offering higher-end brands of stoves and refrigerators, such as Viking and Thermador, in more stores in hopes of offsetting slumping sales of TV sets and computers.
Wal-Mart Stores Inc. has been testing selling refrigerators and washing machines in 45 Texas stores for the last year as it looks for new ways to increase sales in its cavernous U.S. Supercenters.
The added competition could bode well for consumers if retailers resort to slashing prices to move merchandise. But it could also further commoditize appliance sales, similar to what occurred with flat-screen TVs, eroding the higher profit margins that helped attract retailers in the first place.
That could be especially troublesome for Sears, which suffered steep losses last year when it tried to undercut rivals’ discounts on major appliances to preserve market share. Sears lost $3.1 billion last year.
Sears remains the largest major appliance seller in the U.S., but its share of all U.S. appliance purchases has dropped to 31% from 40% a decade ago.
“It’s a very simple equation for why, despite the competitive nature of retailing, Sears has maintained its very strong lead in the appliance business,” said Steve Haber, home appliances president at Sears. “We carry all 10 of the top 10 appliance brands and have the largest dedicated team of 8,500 service technicians to stand behind the purchase. We will continue to work hard to earn and keep these customers’ trust.”
Stocking up on $7,000 refrigerators and $1,200 washing machines might seem like a sucker’s bet given the overall headwinds facing the appliance market, which actually sank 5.1% last year to $19.1 billion, according to NPD Group Inc., as the housing market woes and tightened consumer spending continued to affect big-ticket purchases. Goldman Sachs recently estimated that sales of large appliances will fall 1% this year.
But unlike prices for TVs and computers, which have plunged in recent years, appliance prices have remained steady and are beginning to rise, as manufacturers begin passing on higher raw-material costs. While retailers typically offer moderate discounts on appliances to drive traffic to their stores, the companies say they are still able to turn profits on the sales.
“Promotions are a large part of the appliance industry, but it is a great margin category that will continue to hold its margins,” said Kevin Balon, vice president of Best Buy’s home merchandising group.
Appliances were one of the few sales categories that increased for Best Buy last year, as it posted a $1.23 billion annual loss. So about 30 Best Buy stores in the country now house an expanded appliance area marketed under the name Pacific Sales, a higher-end appliance retailer Best Buy bought six years ago. It is planning similar expansions in more stores this year.
In a weak economy, most customers buy appliances when the ones they already own break down, so they need quick delivery, said Electrolux Chief Executive Keith McLoughlin. Only about 8% of major appliances were bought on the Web last year, compared with 18% of TVs and half of all tablets and e-readers, according to market researcher Traqline.
Sales of large appliances currently make up only 6% of Home Depot’s revenue compared with 11% at Lowe’s, according to Goldman Sachs. So in a bid to expand its share, Home Depot is planning to offer the enhanced appliance assortments in 100 of its approximately 2,000 U.S. stores as well as online.
To limit its capital spending, Home Depot won’t stock all the appliances in its warehouses but get them through a special order arrangement with manufacturers, who will deliver the products to Home Depot’s recently expanded network of distribution centers.
Home Depot figures it now carries about 70% of the appliance brands customers seek out, up from 40%, said Gordon Erickson, the company’s senior vice president of merchandise services. But with shoppers’ discretionary dollars still scarce, “We will have to earn those sales,” he said. —James R. Hagerty contributed to this article. Write to Ann Zimmerman at [email protected]
A version of this article appeared August 1, 2012, on page B7 in the U.S. edition of The Wall Street Journal, with the headline: Stores Bulk Up on Appliances.