While the closure of hundreds of Sears stores will drive a new stake through the heart of the CMBS market, potentially renewing calls for CMBX BBB- as being the “big short” trade, not everyone will be a loser. And, according to new analysts by Morgan Stanley, Best Buy, Off-price, and Old Navy could be the greatest beneficiaries from the Sears Chapter 11 filing, based on on geographical overlap, hypothetical comp lift assuming full liquidation, and historical trends.
According to MS’ analysis, while SHLD’s market share is dwindling, the bank estimates ~$2.8b in Apparel sales, ~$2.7b in Appliance sales, ~$2b in Consumer Electronics sales, and ~$0.6b in Home Improvement sales up for grabs, with one caveat: “if liquidation sales occur as proposed, competitors will likely face a near term headwind, before having an opportunity to capture SHLD’s former market share in the following 12 months.”
Additionally, the analysis by analyst Simeon Gumtan notes the dynamic nature of the situation, as store closures could range from the incremental 142 closures proposed today, to a full scale shutdown.
We are not updating our store overlap analysis but based on our previous analysis, mall-centric retailers JCP, M, and Old Navy have the highest store overlap across all companies we looked at. Beyond these mallcentric retailers, BBY and TGT have the next greatest proximities.
Within Hardline/Broadline Retail, BBY stands to potentially benefit the most from SHLD’s Chapter 11 filing. This is based on high physical store overlap and potential comp lift assuming full liquidation. Geographically, BBY, along with TGT, has the highest overlap of stores using a ¼ mile, ½ mile, and 1 mile radius. Expanding the radius to 2 miles, TGT, BBY, HD, and WMT all have 60%+ overlap each. In terms of comp, BBY could experience the highest benefit (~70 bps) from gains in appliances and consumer electronics. The next biggest beneficiaries are HD and LOW who could see a ~30-40 bps lift to comps by capturing sales in appliance and home improvement categories.
Separately, WMT and TGT would experience a negligible benefit from incremental apparel sales as the SHLD’s market share in the category has fallen to only 1% (~$2.8b). Given such small market share, dollar gains should be modest and spread across many competitors.
In estimating potential market share gains by company, MS calculates that BBY would be the biggest winner in consumer electronics and appliances, HD/LOW in appliances and home improvement, and Off-price in apparel could see the greatest sales lift.
Meanwhile, history suggests Off-price retailers and Old Navy are best positioned to benefit from SHLD store closures: JCP and M have the highest percentage of stores within a ¼ mile, ½ mile, and 1 mile radius to a Sears store.
However, department stores, including JCP, KSS, and M, have historically been unable to grow apparel revenue despite numerous, ongoing SHLD store closures and $3.8b in SHLD lost apparel sales since 2012.
As a result, Morgan Stanley concludes that Sears’ Chapter 11 filing and corresponding store closures will boost apparel revenue for ROST, BURL, TJX and Old Navy.