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3 Impressive Retailers That Stand to Benefit from Sears Canada’s Demise

With $2.6 billion in revenue in 2016, Sears Canada will leave a significant amount of sales that are now up for grabs in the Canadian retail market.

Surely, some of this will be taken by U.S. giants Wal-Mart Stores Inc. (NYSE:WMT) and Amazon.com Inc. (NASDAQ:AMZN), but here is a list of three top impressive Canadian retailers that will reap the rewards of Sears’s demise this holiday season and in the future.

As the only specialty mattress retailer in Canada, Sleep Country Canada Holdings Inc. (TSX:ZZZ), with an above-industry ROE of 20% and a 57% increase in revenue since 2012, looks like a real contender in the retail world.

And while retailers like Sears have been struggling to achieve same-store sales growth and even a bottom-line profit, Sleep Country has been doing both very successfully.

The second quarter of 2017 saw a same-store sales increase of 7.5%, which follows last year’s second quarter same-store sales increase of 12.2%. For the first six months of the year, same-store sales increased 9.5%.

Sleep Country has 25% market share in a market that is highly fragmented, so there is a real opportunity for consolidation.

The company continues to open new stores, and with Sears out of the picture, Sleep Country should receive a boost to its already booming business.

Groupe BMTC Inc. (TSX:GBT), a holding company that operates furniture and appliance retailers, has a clean balance sheet and strong returns on equity, and it also stands to benefit big from Sears’s demise.

The public float is small, and its shares are thinly traded, but the stock’s valuation certainly reflects this, and the company’s results have been top notch. Earnings in the latest quarter increased 22%, and the company has been free cash flow positive for many years now, giving me confidence in the strength of the business model.

Lastly, Indigo Books and Music Inc. (TSX:IDG), which is better known but probably not as big of a beneficiary, will certainly see some increase in business, as shoppers look for a new place to find gifts, accessories, and miscellaneous products.

And contrary to Sears, this retailer has been successful in reaching its target customers, as shown by continued same-store sales increases and a very healthy online business.

In the latest quarter, same-store sales increased 5%, which is respectable given the retail environment in general and follows last year’s same-store sales growth of 7.5%.

The strongest retail channel was, once again, the company’s online channel, which saw a 20.5% increase in sales in the quarter. As a point of comparison, Amazon posted a 25% increase in sales in the latest quarter.

Online sales now represent 14.6% of total sales compared to 12.9% of sales in the same period last year — a reflection of the continued outperformance of the company’s online segment.

In closing, the company’s CEO has stated in the past that she has a vision for Indigo to be the department store of the future. Now that we are seeing the disappearance of Sears, that is, an “old” department store, maybe this can slowly come to fruition.

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Fool contributor Karen Thomas owns shares of Indigo Books and Music.David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon.

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