Who's Hurt Worse By the Whirlpool-Sears Breakup?
It was an interesting week of finger pointing as appliance manufacturer Whirlpool and struggling retailer Sears both tried to explain why their 101-year-old relationship came to a sudden and abrupt end this week. Basically what it boiled down to is an inability of the two sides to come to an agreement on pricing of Whirlpool products.
During a recent earnings call, Whirlpool chief executive Marc Bitzer said as much, saying that they “could not reach terms that were acceptable to both parties.”
For some context, Whirlpool recently announced that it was raising its prices in order to make up for rising costs for parts. Slumping sales and those rising prices for raw materials resulted in its decision. Sears, under the banner of customer loyalty, said it wouldn’t put up with being bullied on price, and thus we are where we are.
What that now means is that shoppers looking for any appliances under the Whirlpool umbrella—including Whirlpool, KitchenAid, and Maytag appliances—will no longer be able to find them at Sears. The company will stop supplying the retailer with new product starting October 27. So whatever stock Sears has right now is basically it. Once it’s gone, it won’t be replenished.
Whirlpool will continue to manufacturer some Kenmore appliances for Sears, but that’s all.
“Whirlpool has sought to use its dominant position in the marketplace to make demands that would have prohibited us from offering Whirlpool products to our members at a reasonable price,” Sears said in a memo to employees last week, first reported on by the Wall Street Journal. “Associates should continue to sell with confidence our Kenmore brand.”
Both brands saw their stocks tumble at percentages in the double digits in the hours and days after the announcement, which isn’t good news for either.
But I’m pretty convinced that there’s one brand here who’s sure to suffer more in the long run because of the two sides’ irreconcilable differences—and it’s not the appliance manufacturer that also reported worse-than-expected third-quarter earnings and lowered its stock outlook.
Who Needs Who?
Given the current state of affairs for Sears, the last thing they need is to have a big name brand take their ball and go home. Sure, Samsung and LG account for the majority of home appliances by sheer market share, but until this year, Whirlpool was a solid number-two in terms of overall market share—LG just took that spot this year. And if you’re talking about just brand recognition, Whirlpool, KitchenAid, and Maytag are some of the most well-known names in the home appliances space, especially here in the U.S.
KitchenAid in particular is a big name to lose. In 2016, they were named a Harris Poll EquiTrend Brand of the Year in three separate categories: Household Major Appliance, Household Small Kitchen Appliance, and Household Cookware.
And if we’re speaking bluntly, it’s not like Whirlpool truly needs Sears in order to continue selling product. According to Bitzer, the Sears business accounts for about 3 percent of the company’s global revenue base.
Whirlpool, at least for the time being, will be just fine without Sears in its life.
I’m not so sure the same can be said about the vastly shrunken brick and mortar retailer. Of course, it’ll still have big name appliance brands to push, including Samsung, LG, Bosch, and others. And there’s the deal the company struck in July to being selling its Kenmore-branded appliances on Amazon. But consider what has happened to Sears in just the past 10 months. The company’s stock is down more than 30 percent since the start of 2017.
As for physical store closings, it’s not a pretty picture—though the same could be said for retail in general right now. Sears, who operates its own department stores in addition to Kmart locations, has closed more than 350 stores (from both brands) in 2017 with more likely coming before the end of the year.
That sounds like a brand that needs every bit of help it can get, even if that means sacrificing a few points on appliance sales just to get people in their stores.
It’d be the understatement of the century to say that it’s been a tough year for all brick and mortar locations, especially department stores. So why one would put its pride above its bottom line is beyond me.