'Amazon Is Playing Hardball': Home Improvement Chains Slide After Kenmore, Alexa Join Forces

With Sears Holding Corp SHLD integrating its Kenmore product line with Amazon.com, Inc. AMZN, the home improvement space has suddenly shifted.

Sears’ Kenmore appliances will now be sold on Amazon, and the line of Kenmore Smart appliances will be integrated with Amazon Alexa, Sears announced Thursday.

The partnership between the struggling department store name and the biggest player in online retail — Sears and Amazon share prices are $1,000 apart — sent home improvement stocks Home Depot Inc HD and Lowe’s Companies, Inc. LOW plunging.

Alexa, Wash My Clothes?

A selloff of Home Depot and Lowe’s based on Amazon’s link to Kenmore may not be justified, Bernstein analyst Brandon Fletcher said in a Thursday note.

“Amazon will always continue to increase its assortment and any good competitor over time will build up a line of compelling products that can’t be bought at competitors.”

The integration of Kenmore Smart appliances, though, could point to a redefining of what service means in the online age, Fletcher said.

Items that require services, like appliances, have been viewed as “more defensible against Amazon” up to this point, and home improvement names have traded higher due to the importance of appliances to their business, he said.

“For some customers, maybe the ability to adjust settings remotely or with your voice could be a more important service attribute than having someone at the store to help you decide which appliance to buy.”

Alexa, Boost My Share Price

If connectivity proves to be a factor in appliance purchases, “home improvement retailers better get out in front of it, because [Amazon] is playing hardball,” Fletcher said.

For Home Depot and Lowe’s, getting out front could mean cultivating other connected home partners, the analyst said.

Retailers must leverage their buying power to maintain exclusive and private label products, as well as online service differentiation, Fletcher said, adding that Home Depot has been more successful in this way than Lowe’s.

“Ultimately, today’s sell off may be a bit of an overreaction to [the] news,” Fletcher said Thursday, “but home improvement retailer valuations looked a bit stretched, and some Amazon risk should always be embedded in any retail valuation.”

At Time Of Publication

• Shares of Amazon were slightly down (-0.58 percent) at $1,022.73 and up over 2 percent over the last five trading days.
• Sears was down 4.48 percent at $9.17, but shares were up over 13 percent on the week.
• Home Depot was slightly down (-0.27 percent) at $146.63 and down more than 4 percent over the past five trading days.
• Lowe's was up 1.54 percent at $73.68 but down more than 3 percent on the week.

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