Sears Holdings plans to sell its Craftsman brand to tool giant Stanley Black & Decker for $550 million cash up front, $250 million at the end of year three, plus various annual payments.
Hoffman Estates, Illinois-based Sears said the move is part of an effort to stabilize its operating performance. The struggling retailer also intends to close an additional 150 non-profitable stores – 109 of them under the Kmart banner.
Sears will continue to sell Craftsman-branded products through a perpetual license deal, which will be royalty-free for the first 15 years, and royalty-bearing after that. Stanley will make annual payments to Sears Holdings of between 2.5% and 3.5% on new Stanley sales of Craftsman products through year 15. The total price tag has been described as about $900 million.
"This agreement represents a significant opportunity to grow the market by increasing the availability of Craftsman products to consumers in previously underpenetrated channels.”Stanley sees a significant opportunity to expand what President and CEO James Loree called “a legendary, American brand with tremendous consumer awareness built on a legacy of producing quality products at a great value.”
Currently, only about 10% of Craftsman-branded products are sold outside of Sears Holdings, and Stanley says it intends to penetrate these untapped channels.
Stanley pointed to channel expansion and revenue opportunities in the industrial channel, new and existing non-Sears retail and e-commerce channels, and lawn and garden channels.
"This agreement represents a significant opportunity to grow the market by increasing the availability of Craftsman products to consumers in previously underpenetrated channels,” said Loree. “We intend to invest in the brand and rapidly increase sales through these new channels, including retail, industrial, mobile and online.”
Among the non-Sears channels where Craftsman products are already being sold are Ace Hardware, thanks to a deal struck about six years ago between the co-op and Sears for distribution of Craftsman products in the convenience hardware channel, and Orchard Supply Hardware.
For Sears, the future will focus more on the Shop Your Way membership platform and an integrated retail strategy, said Edward Lampert, CEO of Sears Holdings.
"We are taking strong, decisive actions today to stabilize the company and improve our financial flexibility in what remains a challenging retail environment," said Lampert. "We are committed to improving short-term operating performance in order to achieve our long-term transformation."
"Going forward, Sears will be more focused on our Shop Your Way membership platform, a network with tens of millions of active members, and our Integrated Retail strategy in order to be a more nimble, innovative and relevant retailer that is better able to provide value and convenience to our customers. We are confident that concentrating on these key initiatives will lay the foundation for growth over the long-term."
Same-store sales at Sears and Kmart for the first two months of the fourth quarter have declined in the range of 12% to 13%, Sears said.