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As Sears seeks to shed assets, its Home Services business could be a hidden gem

  • Sears has been scaling back its store fleet as sales decline and is looking for ways to monetize other assets.
  • The Sears Home Services division is considered one of the retailer's valuable holdings.
  • The company hopes to position the services business as a leader in smart homes.
  • Sears is planning to deepen its partnership with Amazon, rolling out more appliances and other products with voice-enabled (Alexa) capabilities.
Kenmore Elite® SMART Dishwasher
Source: Kenmore Smart appliances
Kenmore Elite® SMART Dishwasher

Sears Home Services got its start in the 1950s, as more homes were being furnished with life-changing appliances such as refrigerators, vacuums and televisions. Now, more than half a century later, the business is still a valuable piece of Sears Holdings and could gain more clout in an era of homes rigged with smart devices.

As was the case decades ago, consumers still need washing machines repaired and carpets cleaned, and they find comfort in turning to specialists when installing new gadgets. Sears Home Services, which offers maids and handymen, is looking to become the "smart home expert" across the country.

The trend comes at an opportune time for the department store owner, which has been looking for ways to grow as its debts mushroom and sales decline. In search of profit, Sears is pouring resources into its home platform, staffing up and potentially readying the division to be acquired.

More retailers today are adding service components to their businesses — if one can imagine something customers will always have a need for, these services can be largely profitable. (Nordstrom and Saks' owner Hudson's Bay have nail salons in their stores, and J.C. Penney has hair stylists, for example.)

"We want to be a trusted advisor of smart devices in the home," Mitch Bowling, the CEO of Sears Home Services, told CNBC. A former vice president of Comcast's Xfinity Home, one of the country's first smart home services, Bowling just started working for the department store chain about three months ago.

"In the smart home space there is not one provider that has everything — it's usually a collection of items from different providers (i.e., August Home, Ring and Google) and we want to be a trusted advisor of all that space," he said. "That goes back to training technicians and getting everyone up to speed ... that's the vision for us."

In an unlikely matchup, Sears has been getting a little help from Amazon along the way.

Sears' Kenmore appliances and DieHard car batteries are now being sold on Amazon.com. In working with the e-commerce behemoth, Sears has equipped a slew of its products with connected capabilities and voice navigation, via Amazon's Alexa platform, thereby positioning itself in the smart home category.

CEO Eddie Lampert recently said Sears has been looking for ways to "unlock value" from several of its brands, including Sears Home Services and Sears Auto Services. However, Lampert cautioned at the time that doing so would require "a more stable environment and more cooperative partners."

The company was successful in selling its iconic tool division, Craftsman, to Stanley Black & Decker for $900 million early last year. A partnership with Amazon has helped Kenmore and DieHard gain more exposure, but Sears said it's still seeking "additional alternatives" for its holdings like Home Services.

"Home Services is a lucrative business and demand for the segment will only grow over the next 10 or so years as our houses become smarter and increasingly driven by technology," said Neil Saunders of GlobalData Retail.

"As one of the largest suppliers of appliances, Sears arguably has an advantage here," Saunders said. "Not only can it build smart technology into its products, but it is also in an ideal position to help monitor and service them when something goes wrong."

Sears Home Services employs more than 4,000 technicians who make over 6 million service calls annually throughout the U.S., a spokesman told CNBC. And the company plans to hire "a significant number of new technicians" in the first quarter of 2018.

"We're just getting started," Tom Park, the president of Sears' Kenmore, Craftsman and DieHard brands, told CNBC about the Amazon partnership in particular. "Amazon was very cautious to make sure our experience for their customers was top notch ... and so we rolled out a couple markets at a time, exceeding customer service metrics, and got that component down."

"2018 is the year of rolling this out" and marketing Sears' brands to Amazon's more millennial customers, Park added. The company is also looking for the "next big thing" in tech, he said. "What is the next Alexa integration that makes sense in the home?"

Scathing reviews

Sears' latest ambitions in the smart home category won't come without a few challenges — there are already a fair share of competitors in this space, one being Amazon, which markets its own smart home services online.

And then there's the fear that serving customers' homes is too onerous a task in itself, Oppenheimer & Co. analyst Brian Nagel said. "A bunch or retailers from time to time have tried to do this. ... Generally speaking, it doesn't work."

Home Depot and Lowe's, for example, tend to refer their shoppers to a trusted third-party service technician to install appliances or look into other malfunctions around the house. But Sears has been making moves to poach talent and ideas from some of the best in the business, including from Amazon's Jeff Bezos himself.

Ryan Ciovacco used to work for Amazon's smart home division before he joined Sears in 2014 and headed up the retailer's connected solutions business.

Ciovacco then helped Sears in 2015 through its acquisition of WallyHome, a Seattle-based start-up that designed technology to monitor changes in moisture, temperature and humidity, thereby alerting homeowners to atypical conditions. In buying WallyHome, Sears also set up another technology office in Seattle, right in Amazon's backyard.

"Home services [providers] just in general have been very reactive," Ciovacco told CNBC. "We are trying to be proactive."

In being proactive, Sears must also defy a message portrayed by handfuls of reviews on Facebook and Yelp that its Home Service business is in shambles, just like Sears' department stores. Reviews of WallyHome products, however, skew more positive online. The name of the division (Sears Home Services) could be one of the biggest drawbacks for the company, as it forges ahead with these investments.

"As the retail side declines, [Sears] may want to consider how it brands the home services segment lest it should be tainted by the retail woes," GlobalData Retail's Saunders said. "This is especially so if the retail business goes into administration; that could be very damaging for the image and perception of Sears' home services."

For now, the company has no plans to change the division's name, a spokesman said.

"People are looking for solutions but also expertise," Chip Smith, the chief marketing officer of Sears Home Services, told CNBC about the retailer's ambitions. "'House experts for homeowners' is a position we've taken on."

Having sold appliances for more than a century, Sears has a wealth of data on its shoppers and performance metrics that it can leverage to grow its Home Services business, Smith said. "We have something unique in the marketplace that nobody else has."

Some would say Sears is making moves to get back to profitability: ditching underperforming stores, sticking to smaller locations and capitalizing on its proprietary brands, which still have some value apart from the overarching business.

Others don't see a way out.

"Despite ongoing pronouncements by management of their intention to return to profitability ... we find it incredibly unlikely that Sears will ever be able to right the course on its underlying business, particularly as it's nearly impossible to reduce expenses at the same rate as sales plummet," Susquehanna analyst Bill Dreher said.

Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.