by Alecia Mouhanna
January 18, 2017
Sears has come a long way since its 1886 founding, when it operated as Sears, Roebuck & Company, a mail-order merchant that predominantly catered to rural farmers. From the 1925 opening of its first urban retail store, to the shopping mall boom of the late 20th century, to an ill-advised 2005 merger with KMart, no living American has ever known life without Sears.
Unfortunately, more than a century removed from its founding, it appears that happy days may never be here again for the company that is now the 18th largest retailer in the US. In January, amidst sinking sales and store traffic, Sears agreed to sell its Craftsman brand of power and hand tools to Stanley Black & Decker for $900 million.
In many ways, the move is shocking: Craftsman is the crown jewel of Sears’ ever-shrinking collection of products, and arguably the company’s most valuable commodity. A mere ten percent of Craftsman tool sales are generated outside of Sears’ retail stores and website, a circumstance that Stanley Black & Decker plans to change once it assumes control of the product line sometime in 2017.
However, the divestiture makes sense if, as it’s been speculated, Sears is approaching the end of its 131-year run. With share prices tanking and 150 Sears and Kmart stores slated for closure by April, it makes sense for the company to liquidate its most valuable assets while it can still maximize gains.
And make no mistake, the Craftsman brand is quite valuable -- the transaction will net Sears an immediate $525 million in cash, with the balance to be paid out over a post-acquisition period of 15 years. During that time, Sears stores will also be allowed to sell Craftsman products royalty-free. However, it’s hard to say whether or not the immediate cash infusion is more than a stay-of-execution for the struggling retailer.
For Stanley Black & Decker, the deal represents yet another opportunity to consolidate its market leading positions as the top US producer of power tools, and a top five producer of hand tools. The company plans to honor Craftsman’s lifetime warranty, and annual sales are expected to bump up by about $100 million.
Following the close of the transaction, Stanley Black & Decker intends to immediately expand Craftsman’s footprint, marketing products through retail, industrial, mobile, and online channels that remained untapped while the brand was under Sears’ ownership. Furthermore, the company anticipates an expansion of its US production capabilities to accommodate future growth of the Craftsman brand. Currently, Sears outsources the production of Craftsman tools to contract manufacturers in the Asia/Pacific region.
Learn More about the Tool Market
To learn more about the US market for tools, check out Power Tools and Hand Tools, two new comprehensive studies from the Freedonia Group, which provide analysis on the following:
Alecia Mouhanna is a Corporate Analyst at The Freedonia Group, where she researches and writes about a diverse range of topics, including construction and building materials, chemicals, packaging, and more.
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