Home Depot and Lowe’s are ready to roll out the red carpet to Sears and Kmart customers — and profit big-time from doing so.
The now-bankrupt owner of Sears (SHLD) and Kmart stores racked up $5.7 billion and $1.6 billion in sales, respectively, last year in home appliances, consumer electronics, lawn and garden equipment, tools and hardware, automotive parts, housewares and sporting goods, Jefferies analyst Jonathan Matuszewski estimates in a new report. Taking into account Sears’s plan to close 142 namesake and Kmart stores as part of its recent bankruptcy, Matuszewski thinks there is $650 million and $200 million in annual sales from hard goods merchandise up for grabs from Sears and Kmart, respectively.
With high overlap in home appliances, lawn and garden equipment and tools, Home Depot (HD) and Lowe’s (LOW) are poised to pull in a sizable chunk of Sears’s business. The closures could mean $157 million in new sales annually for Home Depot and $129 million for Lowe’s. Each could see a slight boost to same-store sales, a key retail metric that measures sales at stores open longer than a year.
Helping each home improvement retailer is their proximity to Sears and Kmart stores.
Jefferies found that 116 of the new Sears/Kmart closures are within a five-mile radius of Home Depot. Similarly, 104 are within five miles of Lowe’s.
“Importantly, Home Depot and Lowe’s not only have proximity to closing Sears and Kmarts, but also have improved assortments to woo customers, with appliances just one great example,” says Matuszewki.
Home Depot has been planning for the downfall of Sears for some time. The company has expanded its home appliance section and made a big push into various smart-home offerings. Home Depot’s chief financial officer Carol Tome went so far as to tell me earlier this year it may bring on laid off Sears or Kmart workers.
Meanwhile, Lowe’s has scored a win in that it’s the exclusive supplier of former Sears-owned tool brand Craftsman. One of the most legendary brands in tools, Sears sold it to Stanley Black & Decker in 2017 for $900 million.
The 125-year-old former retail icon filed for Chapter 11 bankruptcy protection on Oct. 15, crippled from years of losses and mounting debt. Sears plans to close about 142 money-losing stores by year-end. The company operates about 700 Sears and Kmart stores.
Former CEO-turned-chairman Eddie Lampert’s investment company, ESL Investments, plans to make a stalking horse bid for 400 profitable Sears and Kmart locations in the hopes of running them as a going concern.
The sales jolt to Home Depot and Lowe’s may be even greater if Sears and Kmart are completely liquidated. Most experts Yahoo Finance have talked with suggest that is the most likely outcome for Sears.
“The story isn’t over, but it’s entering the final chapters,” MoffettNathanson retail analyst Greg Melich tells Yahoo Finance. In a full Sears liquidation scenario, Melich believes Home Depot and Lowe’s could pull in $1.6 billion and $1.3 billion in extra sales annually, respectively. Best Buy will also net its fair share of Sears business, about $485 million in sales, based on Melich’s calculations.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi