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Craftsman Deal: Sears Throws Monkey Wrench in Room

Last week, Stanley Black & Decker announced it will purchase the Craftsman brand from Sears, allowing it to manufacture and sell Craftsman-branded products in non-Sears sales channels.

The $900 million deal comes on the heels of Stanley Black & Decker's planned acquisition of the Newell Tools business, announced in October 2016, which includes the Lenox and Irwin brands. The Craftsman deal expands its tools and storage products business portfolio.

The company already sells Stanley and Black & Decker brands to retailers, including The Home Depot and Lowe's, as well as Amazon. It sees an opportunity to expand Craftsman into these retail channels and to e-commerce retailers – and to drive professional channel sales. Stanley Black & Decker expects Craftsman to contribute $100 million in average annual revenue growth over the next 10 years.

Retail annual sales of Craftsman tools, lawn & garden and storage products today are $1.9 billion, with hand tools accounting for $475 million and power tools $190 million. About 90 percent of Craftsman’s retail sales today are through Sears and Sears-related channels; 10 percent of sales are through external accounts, mainly Ace Hardware.

In 2003, Sears handed over nonretail channel marketing – industrial, construction and government – to Danaher Corp. At the time, the Sears Industrial Sales unit had roughly $180 million in annual sales, about half from mechanics hand tools. Sources tell MDM the annual sales of nonretail may be half that now.

Competitive Impacts

The Craftsman deal, on top of Stanley Black & Decker’s addition of Lenox and Irwin, shakes up an increasingly compressed tool market that has seen an accelerating migration from good-better-best to two-tier. Private-label imports have increasingly filled in the bottom of the market. With Snap-on dominating professional markets by what some estimate as a two-to-one factor over Proto (No. 2) and Apex Tool Group (No. 3), this deal poses some interesting competitive scenarios with soon-to-be suppliers.

Top of the list: Apex competes with Stanley Proto across professional market tiers with its Armstrong, GearWrench and a few dozen complementary brands. Craftsman covers top- and mid-market with its Craftsman Industrial and standard lines. But the competitive complexity doesn’t stop there; Apex and Stanley Black & Decker are also among a group of hand tool manufacturers for The Home Depot’s Husky brand.

Stanley Black & Decker gets supplier contracts across the portfolio of mechanics hand tools, storage and other hand tools, with manufacturing capacity in both the U.S. as well as Taiwan and China. While the U.S.-made designation remains important for specific niches, including government and vo-tech education sales, that brand distinction has eroded in recent years. As a result, production of the Craftsman standard line moved overseas.

Rebuild a Legacy?

Stanley Black & Decker faces an uphill climb to jumpstart growth of the Craftsman line through industrial and construction distribution channels. Distributor reviews of the deal are mixed at best. Channel support by Sears gets low marks in recent years for lack of catalog support and a retail mindset that has made some distributors feel handcuffed and wondering about the ROI where customers aren’t driving brand preference like they used to. The exception, of course, is at the very top of the market, where Snap-On has effectively developed lock-in strategies for niches, including RFID technology for individual tool tracking.

Overall, national distributors have focused more on building their own private-label brands with greater margin opportunity. Independents have carried the load of driving growth into niche markets. That’s been the case for Craftsman sales programs into vocational education programs around the country, where Snap-On and others also compete. Those programs, however, require resources to support, and distributors have had challenges to retain and grow that business.

Another trend that factors in here is that independent industrial distributors have been building their service and support value, while decreasing specific brand loyalty as a defining factor in their best customer relationships.

What Craftsman distributors look forward to, once the deal closes, is a growth strategy from Stanley Black & Decker. The industry is waiting to hear a compelling story for how SB&D plans to manage the competitive tangle it gets with this deal, along with the power of one of the strongest consumer brands for nearly 100 years.

The question is whether customers in professional markets have moved on to clearer choices on quality and value. Will distributors see a compelling margin opportunity to switch or invest in increasingly tighter niches with established preferences?

The consensus is that Stanley Black & Decker probably needs to serve up this offering with a lot of sweetener to get distributors on board.

© 2017 Gale Media, Inc.

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