Upfront: Legendary American brand sold

By Steve Noe

An iconic American brand recently changed hands and created quite a buzz based on a Chicago Tribune article that I shared on OPE’s Facebook page @OutdoorPowerEquipmentMag. At last check, the post had generated 40 shares and seven comments with people offering their thoughts on what led to Sears selling the Craftsman brand. Personally, I never thought I’d see the day that would happen.

However, the unthinkable did occur on January 5 as Sears Holdings Corporation and Stanley Black & Decker entered into a definitive agreement under which Stanley Black & Decker will purchase the Craftsman brand from Sears Holdings for a net present value of approximately $900 million paid over the course of 15 years. Stanley Black & Decker will pay Sears Holdings $525 million at closing, $250 million at the end of year three, and annual payments on new Stanley Black & Decker Craftsman sales through year 15. (On the same day, Sears announced plans to close 150 non-profitable stores, including 108 Kmart and 42 Sears stores.)

The Craftsman transaction, which was approved by the boards of directors of both companies and is expected to close during 2017, provides Stanley Black & Decker with the rights to develop, manufacture, and sell Craftsman-branded products in non-Sears Holdings retail, industrial and online sales channels across the U.S. and in other countries. As part of the agreement, Sears Holdings will continue to offer Craftsman-branded products, sourced from existing suppliers, through its current retail channels via a perpetual license from Stanley Black & Decker, which will be royalty-free for the first 15 years after closing and royalty-bearing thereafter. At the time of the transaction, only approximately 10 percent of Craftsman-branded products were sold outside of Sears Holdings, so the agreement will enable Stanley Black & Decker to significantly increase Craftsman sales in these untapped channels.

“Craftsman is a legendary American brand with tremendous consumer awareness built on a legacy of producing quality products at a great value,” said James M. Loree, president and CEO, Stanley Black & Decker. “This agreement represents a significant opportunity to grow the market by increasing the availability of Craftsman products to consumers in previously underpenetrated channels. We intend to invest in the brand and rapidly increase sales through these new channels, including retail, industrial, mobile and online. To accommodate the future growth of Craftsman, we intend to expand our manufacturing footprint in the U.S. This will add jobs in the U.S., where we have increased our manufacturing headcount by 40 percent in the past three years.

“As we continue our growth trajectory as a diversified industrial company, we continue to look at opportunities to build upon our world-class portfolio of franchises and brands to create shareholder value. This transaction, which aligns squarely with this strategy, also reflects an effective allocation of capital particularly when viewed in the context of the recently announced Mechanical Security sale. We’ve essentially freed up capital trapped in a low-growth business to invest in organic growth and EPS accretion.”

Edward S. Lampert, Sears Holdings’ chairman and CEO, stated, “We are pleased to reach this agreement, after determining that externalizing the Craftsman brand would accomplish our goals of driving value for Sears Holdings and positioning Craftsman for future growth. This transaction represents a significant step in our ongoing transformation to a membership-focused business model. Craftsman has a storied history as an iconic American brand, and in Stanley Black & Decker we have found a great owner that is committed to expanding Craftsman and helping it to reach its potential outside of its current channels. It’s important for our members to know that we will continue to sell Craftsman in-store and online at Kmart and Sears, and Sears Hometown, and the structure of the transaction will provide Sears Holdings with a significant upfront payment, another payment in three years and an opportunity to participate in the growth of the Craftsman brand in both our stores and at other retailers selected and managed by Stanley Black & Decker. Looking ahead, we will continue to take actions to adjust our capital structure, meet our financial obligations, and manage our business to better position Sears Holdings to create long-term value by focusing on our best members, our best stores and our best categories.”

OPE Editor Steve Noe