Some home improvement trends never change, like the fact that 90% of homeowners prefer hardwood or tile floors in their kitchen. However, the home improvement industry itself is undergoing some major changes this year.
Case in point: online retail giant Amazon is officially entering the home improvement world.
This July shares of Home Depot and Lowe’s were hit hard after Amazon announced a new deal with Sears Holdings. The total market loss for Home Depot, Lowe’s, Whirlpool, and Best Buy amounted to $12.5 billion after a single day of trading.
At the same time, Amazon experienced only a slight gain, but Sears shot up 10% at closing. Best Buy, who was already battling Amazon in the electronics sector, ended the day 4% lower.
Sears has been struggling to sell appliances for years now, but investors have discovered new confidence in the department store after news broke that Sears will start selling Kenmore-branded appliances on Amazon.com.
There are even plans to make these products compatible with Amazon’s Alexa platform, which could be attractive to consumers with smart home systems.
Ultimately, despite the modest stock gains for Amazon itself, Bob Wetenhall at RBC (Royal Bank of Canada) thinks Amazon will eventually be the biggest winner in the new partnership.
“The net takeout is it’s a potential negative for pricing and profitability for white box appliances. I don’t think Alexa is the big deal here…It’s more the fact that Amazon is going to sell Kenmore-branded appliances,” said Wetenhall.
Bernstein analyst Brandon Fletcher disagreed with this assessment, and he believes the Alexa feature could be a major selling point for the appliances.
“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,” said Fletcher.
That could have major implications for the way appliances are bought and sold in the future. The analyst believes that Lowe’s and Home Depot will have to cultivate their own smart home products to compete with Amazon in the future.
“Ultimately, today’s sell off may be a bit of an overreaction to [the] news,” Fletcher said at the time the deal was announced, “but home improvement retailer valuations looked a bit stretched, and some Amazon risk should always be embedded in any retail valuation.”