Although some Craftsman tools have been available to buy at smaller hardware store chains like Ace Hardware, Atwood Ranch & Home, and Blain's, they've largely been items exclusive to Sears Holdings (NASDAQOTH:SHLDQ).
However, earlier this year, the retailer sold the Craftsman brand to Stanley Black & Decker (NYSE:SWK), and in the first major expansion of the tools' availability, they'll soon begin appearing at Lowe's (NYSE:LOW). Perhaps if Sears not been so proprietary about how it markets its brands, it might not be in the financial straits it finds itself, and maybe wouldn't have had to sell Craftsman in the first place. The Stanley deal with Lowe's shows Sears what could have been.
A necessary evil
Sears sold Craftsman to Stanley for $900 million because it had to raise cash. In a testament to Chairman and CEO Eddie Lampert's financial prowess, he structured the deal to allow Sears to also retain rights to manufacture and sell Craftsman tools in its stores, too, for a period of 15 years, plus receive annual payments of 2.5% to 3.5% on any sales Stanley makes for a period of three years.
So on one hand, Sears will still be able to realize some benefit from Stanley's decision to expand availability to Lowe's, but on the other, Sears could have been reaping all the benefits for itself.
Certainly, Lampert seems to have come to that realization himself at last. He's finally allowed his Kenmore brand of appliances to be sold on Amazon.com (of all places), as well as having Kenmore vacuums and DieHard batteries sold at stores other than Sears and Kmart after signing deals with manufacturers and distributors Cleva North America and Dorcy this past summer.
But the Kenmore deals might not matter as much as they once could have. Along with Sears itself, the Kenmore brand has seen its star tarnished. It once represented 40% of all appliance sales, but that figure has since slipped to less than 13%. And where Sears was the top spot to buy appliances, it has fallen to third behind Lowe's and Home Depot (NYSE:HD), and Best Buy is likely to supplant it for third place this year.
And when Stanley does finally place the Craftsman tools in Lowe's 2,370 stores nationwide, it will give customers yet one more reason to not shop at Sears. Even though Sears has the right to make and sell Craftsman tools for 15 years it probably won't be a big enough pull. Customers have been abandoning its stores in droves, pretty much ever since Lampert merged Sears and Kmart together.
A still valuable nameplate
For Lowe's though, the Craftsman deal with Stanley gives it a potential competitive advantage over rival Home Depot.
Despite the neglect of the Craftsman brand at Sears, its reputation largely remains intact with consumers. The Kenmore, Craftsman, and Diehard (KCD) brands were and are among the company's most prized assets. As of the end of last year, Sears listed the value of trade names and other intangible assets on its balance sheet at $1.5 billion, and where it recorded a $381 million impairment against the Sears trade name, it didn't have to write down any of the value associated with the KCD brands.
So having the tools at Lowe's could give it a boost with consumers looking for another brand to shop beyond those already available, such as DeWalt, Bosch, Kobalt, and more. Home Depot, of course, has its own portfolio of brand name tools, including DeWalt and Milwaukee.
Coincidentally, Milwaukee is owned by Techtronic Industries, which also happens to be the Craftsman tools manufacturer for Sears. Earlier this year, Techtronic tried to break its contract with the retailer and get out of having to supply it with the tools because of the financial difficulties Sears faces, forcing Sears to take Techtronic to court to get it to abide by its agreement.
No doubt as Stanley Black & Decker expands the Craftsman brand (it and Lowe's can also make exclusive Craftsman tools for the retailer), it will serve to hasten Sears' demise. While that will be delayed slightly because Lampert was smart enough to earn a cut of every sale Stanley makes, it still undermines the business. It also shows what could have been had Sears been proactive and not proprietary from the beginning.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has the following options: long January 2018 $170 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot and Lowe's. The Motley Fool has a disclosure policy.