Why selling Craftsman sounds the death knell for Sears
The embattled retailer unloaded its signature tool brand to Stanley Black & Decker for $900 million — and, experts say, lost something that money can't buy in the process.
The sale of Sears’ venerable Craftsman tool brand could represent the final nail in the retailer’s coffin.
Sears Holdings, parent of the long-suffering Sears chain, recently unloaded the Craftsman line for $900 million to tools and hardware maker Stanley Black & Decker, which will develop, manufacture and sell the branded products in non-Sears Holdings channels. Sears will continue to source and sell Craftsman-branded products per the terms of a perpetual license agreement. The deal also includes a $525 million cash payment at closing, $250 million at end of year three and annual payments to Sears Holdings of between 2.5% and 3.5% on new Stanley Black & Decker sales of Craftsman products through year 15.
The Craftsman sale is far from the only grim news out of the Sears Holdings camp: The company is shuttering an additional 150 unprofitable stores, including 108 Kmart and 42 Sears stores, in an effort to curtail losses. The closures would leave Sears with fewer than 1,500 stores, down about 60% from 2011 totals. Sears Holdings also has entered into a $500 million committed secured loan facility with Seritage, its subsidiary real estate investment trust. The loan follows on the heels of a December filing stating the company obtained a $200 million secured standby letter of credit facility to support its operations — financing provided by Sears Holdings’ CEO Edward Lampert’s ESL Investments hedge fund.
But the Craftsman sale resonates on a far deeper level. Not only is Craftsman one of the best known American brands ever — Sears first registered the trademark in 1927 — but it has stood the test of time, remaining a fixture of Sears stores and a staple of American workshops and garages into the 21st century. While sales have slipped of late, Craftsman still ranks among Sears’ best-selling categories. Though it seems likely that Crafstman will continue to thrive under the Stanley Black & Decker aegis, Sears’ own chances for survival seem increasingly remote.
Following the Craftsman deal, discussion forum RetailWire asked its BrainTrust panel of retail experts the following questions:
- What will the sale of Craftsman mean for Sears Holdings?
- What will it mean for Stanley Black & Decker?
- Did one company get the better end of the bargain?
Here are eight of the most provocative and insightful comments from that discussion. Comments have been edited by Retail Dive for content and length.
1. Desperate times
Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive: Craftsman is Sears’ crown jewel brand. Mortgaging its future to cover current hemorrhages is a clear indication that times are desperate for the retailer. Sure, they may use the influx of cash to make changes for the better, but once you start chipping away at the bedrock of the company, the structure is seriously weakened. This is definitely a milestone we will look back upon regrettably in the (not too distant?) future.
2. Avoidance strategy
W. Frank Dell II, President, Dellmart & Company: Sears will be a loser in this deal and consumers will be the winner. Now consumers will not have to go to a Sears store to buy Craftsman tools. For me, there has been a Sears store around for years, yet the chain continues its death march. This sale just gives customers another reason not to shop at Sears.
The Stanley and Craftsman brands represented great quality, so they are unlikely to mess that up. I predict Stanley Black & Decker will do just fine with the Craftsman brand.
3. Painful loss
Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University: Sadly, this latest removal of a strong Sears asset is analogous to the painful loss of extremities suffered by diabetes patients. The only remaining question is, how much more suffering will the Sears patient be made to endure?
For Stanley Black & Decker, this acquisition gives them another quality brand in their portfolio. A win for them and a debilitating loss for Sears.
4. No other options
Ben Ball, Senior Vice President, Dechert-Hampe: Am I the only one old enough to remember when A&P sold off the Eight O’Clock Coffee brand? That certainly foretold the last gasp of that chain. Note I said “last gasp,” not the death. That’s because we could see the death coming long before that.
Will this be the same for Sears? Probably.
Having said that, is this a good idea? Again, probably. We actually evaluated the “license or distribute” model for another major tool retailer with a strong brand over a decade ago. The strategic pitfall is the inability to separate the brand from the retail brand identity.
“If it’s Craftsman, I must be at Sears.”
Or: “If it’s not at Sears, then it can’t really be Craftsman.”
Or: “If Sears made Craftsman tools so great, then Craftsman tools at [retailer of your choice] can’t be as good.”
So selling the brand is the only real choice.
Somebody just play “Taps” and let’s get this over with.
5. Risk management
Phil Masiello, Founder and CEO, ClicBlox: Very smart and low-risk approach for Stanley Black & Decker, providing them with a brand with the potential to add some growth for them over the next few years.
The way Stanley Black & Decker structured this deal is very smart. The Craftsman brand is strong, but the risk is the close affiliation of sales with the Sears stores and no real market share outside. It is a fair deal for both sides. If Sears holds on to the brand for too much longer and ends up filing for bankruptcy, the Craftsman brand value will be greatly diminished. If Stanley Black & Decker can build the sales outside of Sears, then Sears Holdings will benefit from the percentage payout over time.
At this point, I think Sears Holdings has to begin to look at shedding anything of value and getting as much for it as possible. Management has destroyed the retailer to the point of no return. They failed to engage with their core customer base and allowed it to deteriorate over the last 20 years, they failed to invest in technology, failed to embrace e-commerce and failed to take advantage of the strengths they had in durable goods and capitalize on that outside of their own stores.
It is a shame, but one that could have been prevented.
6. Three's a crowd
Doug Garnett, Founder & CEO, Atomic Direct: I’m a bit skeptical of how well Stanley can succeed with this. Certainly Craftsman retains tremendous power with consumers. But now Stanley has three powerhouse brands when their existing two had the market pretty well saturated. Within the U.S., it’s not clear to me that this is a win. This is more complicated since the two big players (Lowe’s and Home Depot) have private label brands (Kobalt and Husky) that are already strong. Doesn’t make much sense for either of them to welcome Craftsman into their stores on a large scale. It will be interesting to see how it plays out.
7. Little to offer
Peter Charness, SVP America, Global CMO TXT Group: Perhaps [Sears] can sell the rest of the chain to Amazon as blimp refill stations. Well-run department stores are struggling to find their place in today’s new retail landscape. Sears has little left to offer.
8. Broken promise
Cathy Hotka, Principal, Cathy Hotka & Associates: The proud tradition that was Sears, Roebuck & Co. is now officially over. The one compelling reason to go to a Sears store was the Craftsman promise. Mr. Lampert’s mission is now accomplished.
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