A lot has been written lately about the designs Sears Holding (NASDAQ:SHLD) chairman Edward Lampert has for both the discount retailer and his hedge fund, ESL Investments. Following in his tracks with auto parts and dealerships, will Lampert try to rebuild Home Depot (NYSE:HD)? Will he bridge Gap (NYSE:GPS)?
Fellow Fool David Meier thinks Lampert has the tools to change Sears. The decision to expand Craftsman tools to Kmart stores, for example, is generally seen as a positive development designed to actually expand shareholder value, rather than simply wringing as much cash as possible from the company's real estate.
Yet as someone who has written a word or two on the Sears saga over the past year or so, I'm not convinced that the company is a good investment based on the retail story, whatever else it may hold as a leverage vehicle for Lampert's other designs.
As a new homeowner hard at work restoring my chateau, I've been purchasing tools, appliances, fixtures, and furnishings at all the major retailers. As much as I dislike the experience of shopping at The Big Orange Apron, its big blue counterpart Lowe's (NYSE:LOW) hasn't been any more pleasant. Lack of assistance, let alone knowledgeable assistance, has been a primary sticking point. Lowe's lost out on a $700 table saw because an associate would not respond to numerous pages to assist me in loading it into my truck. Home Depot has lost out on a number of purchases, because no one was around to whom I could ask questions; if they were present, they had no idea what I wanted and couldn't be bothered to help me find it. However, for the purchases I could accomplish on my own, I found the prices unbeatably low.
That's why I have trouble reconciling Sears as a successful retailer, and a supposed discount one at that. From back in the days when my Dad exclusively bought Craftsman hand tools, they have carried a premium to those you can get elsewhere -- not just in hand tools, but also power tools. As a weekend woodworking hobbyist, I like quality tools, but they don't have to be professional-grade. There's a bit of price sensitivity here, and while Craftsman tools are indeed good, I don't think they're good enough to justify their premium prices.
Craftsman hand tools compete against Husky, MAC, Proto, Kobalt, Stanley (NYSE:SWK), and Snap-on (NYSE:SNA), among others. Yet those brands are sold at the main warehouse chains. What many consumers probably don't realize is that Stanley owns National Hand Tools, which makes Husky, MAC, and Proto. Kobalt used to be made by a division of Snap-on (and Lowe's, the exclusive seller of Kobalt tools, still markets them as such), but now they're made by Danaher.
In power tools, the Craftsman brand competes against Home Depot's Rigid line -- made by Emerson (interestingly, Rigid also makes some Craftsman tools) -- as well as the name brands like Delta, Porter-Cable, Oldham, DeVilbiss, and others. Again, most consumers probably don't realize that all of those names are now owned by Black & Decker (NYSE:BDK), yet they also carry a stamp of quality on them. Not to mention Makita, DeWalt, Milwaukee, Bosch, or Hitachi. The list is long, which is also my point. Consumers have a lot of high-quality choices, which means that simply expanding the places where a customer can buy a tool won't necessarily translate into greater sales.
And it's not just the Craftsman brand. Many products sold in Sears have much higher price points than elsewhere. Home Depot sells a one-gallon bucket of acrylic tile mastic for about $11; Sears has the exact same brand selling for $20. Name-brand appliances can run upwards of several hundred dollars higher at Sears, for identical products. As much as I like the convenience of my local Sears store, Home Depot isn't that much further, and Lowe's is only a little beyond that.
Still, I find myself turning to my local hardware store even more these days, precisely because of those bad shopping experiences at the big-box stores. Yes, prices are generally a little higher, as they are at Sears, but the service you get there is unparalleled, and they sometimes have items in stock that would be a special order elsewhere. I was able to pick up a pallet of cultured stone for my breakfast nook at the hardware store that I couldn't conveniently get anywhere else.
Maybe as I get older and more crotchety, I'm placing more importance on superior service than a low price. Home Depot and Lowe's may have a lock on price, but they can't touch service. Sears and Kmart seem to have neither. For my money, that's a long-term death knell for any retailer, and certainly not worth a premium price tag. It's said that to a man with a hammer, everything looks like a nail. If that were true for Sears, I wouldn't be driving this nail home.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
