NEW YORK (CNN/Money) - The very first Sears Roebuck & Co. catalog, dating from the 1890s, sold only watches and jewelry.

Thirty years later, the company launched its signature Kenmore brand, a step that helped make it the place for Americans to buy their home appliances.

Now, more than 75 years after that, Sears' once untouchable dominance in the appliance business is threatened. But the nation's No. 5 retailer -- recently eclipsed by discounter Target, which moved to No. 4 -- is fighting back.

Yes, Sears still is the leader in home appliance sales, with 38.6 percent of the $36 billion market, but that's down from 41 percent in 2001. Home improvement retailer Lowe's (LOW: Research, Estimates) ranks second with 13.8 percent of the market while Home Depot (HD: Research, Estimates) has 5.3 percent, according to Stevenson Group, a Louisville, Ky.-based market research firm.

"Sears is an American institution that's getting beaten up," said Howard Davidowitz, chairman of New York-based national retail consulting firm Davidowitz & Associates Inc. "The company is trying everything it can to stay in business but it's still losing market share everywhere."

Hoffman Estates, Ill.-based Sears (S: up $1.13 to $34.88, Research, Estimates) already has been battling fierce competition from discounters such as Wal-Mart (WMT: Research, Estimates) and Target (TGT: Research, Estimates).

And even though Sears' stock has jumped 81 percent this year, some investors may be starting to question the gains. Short-selling activity recently crept back near its second-highest level of the year. Shorts typically borrow stock and sell it, hoping to buy it back and profit if the stock declines.

Sears revamped in-store appliances display. (Courtesy: Sears)

"The company has remodeled its stores several times and is also trying to sell its credit business," Davidowitz said. "But when the smoke clears, it's anyone's guess as to how many more years Sears can go on like this."

Still, while Sears same-store sales fell in May, the 1.9 percent drop was much smaller than Wall Street forecasts for a 5.3 percent decline, due mainly to strength in its home appliance business.

No one sells more home appliances than Sears, which carries the six top brands: its own Kenmore and Kenmore Elite names, as well as Bosch, Frigidaire, General Electric and Maytag.

"Sears gets five times more demand for its home appliances than Lowe's and Home Depot," said Britt Beemer, retail consultant and head of America's Research Group, a Charleston, S.C.-based research firm.

"This is a core product category that generates a lot of profit from sales of products and the extended service warrantees. Sears needs to protect this business at all costs."

With its market share slipping and the home improvement chains getting more aggressive in appliances, Sears recently announced a major overhaul of its appliance business.

The biggest changes include cutting prices and a policy whereby Sears will match a competitor's lower price and give the customer 10 percent of the difference.

The company also hopes to entice shoppers to take home half of the appliances sold on the day of purchase, rather than waiting for delivery, cutting warehousing and financing costs, up from about 30 percent currently. Sears sells 260 models of major appliances in its 870 mall-based stores.

Spokesman Larry Costello said Sears also is testing new floor displays, grouping products together by brand rather than by price.

"We want to make the appliance section easier to shop and match the right appliance with the right customer," he said. "We want to grow our market share."

For its part, Lowe's isn't too worried.

"We're surprised that Sears would elect to compete aggressively on the low-priced end in appliances," said Bruce Ballard, vice president of appliances at Lowe's. "We think it runs counter to what seemingly has brought Sears to the dance. Consumers go to Sears for a mix of products and prices."

Ballard said Lowe's strategy is to boost sales of its mid- to upper-priced appliances, adding that its appliance business is one of its fastest growing product lines. Lowe's carries major appliances in just about all of its 850 stores.

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A spokesman for Home Depot said the company is looking to boost its home appliance displays to more than 800 of its stores by year-end. The No. 1 home improvement retailer, with over 1,500 stores nationwide, already sells appliances in about 770 stores.

Davidowitz, however, isn't convinced about Sears' latest efforts.

"Just cutting prices isn't the only issue. Getting to Sears is an inconvenience. Most stores are located in malls as opposed to a Lowe's or Home Depot. It takes 20 minutes to park the car and just get to the store."

"Sears is a shaken-up company, and who knows when it will recover," said Davidowitz. But for appliance shoppers, he said, the latest changes "are wonderful."