Sears Holdings drills into Costco clubs with Craftsman tool offerings, hopes to tap new customers
Hand, power and storage tool units to appear on warehouse store shelves as Sears expands distribution of brands
By Sandra M. Jones, Tribune reporter
August 31, 2011
Sears Holdings Corp. has agreed to sell its Craftsman tool line through Costco clubs nationwide, marking the Hoffman Estates-based retailer's boldest step yet in distributing exclusive in-house brands outside its namesake stores.
Craftsman hand tools, power tools and tool storage units will start appearing on Costco shelves as early as Saturday, Sears told the Chicago Tribune in an interview Tuesday. The Craftsman tools are slated to roll out to all of Costco Wholesale Corp.'s roughly 430 U.S. stores this year, with the assortment varying by location.
Sears is betting the Costco deal will attract new customers to Craftsman as many Costco shoppers don't shop at Sears or Kmart, said Kris Malkoski, vice president and general manager of the Craftsman brand at Sears Holdings.
"As we externalize the brand, we're trying to be thoughtful about reaching shoppers we aren't reaching at Sears today," said Malkoski. "It's an opportunity to bring the equity of this product to households that aren't going to Sears."
Sears' chairman and majority shareholder, Edward Lampert, first raised the prospect of selling Sears marquee brands through rival retailers three years ago as a way to boost sales. The strategy had been talked about at Sears for decades but never implemented for fear it would cannibalize store sales and take away a key reason shoppers visit a Sears store in the first place.
One of the first steps Lampert took after gaining control of Sears by merging it with Kmart in 2005 was to introduce Craftsman at 120 Kmart stores. By 2006, all 1,400 Kmart stores carried Craftsman. Two years later, Lampert created a separate business unit grouped around Sears' Kenmore appliance, Craftsman tool and DieHard car battery brands, distancing the brands from the retail operations and charging the unit's leaders to seek growth.
In spring 2010, Sears began distributing Craftsman tools through 100 Ace Hardware stores, the first time in Craftsman' 83-year history that shoppers could purchase Craftsman somewhere other than a Sears-owned store. The pilot expanded to 960 Ace Hardware stores this summer and is on track to reach 1,000 stores by September, Malkoski said.
To help Costco stand out from the Ace Hardware deal, Sears is bundling some Craftsman tools in unique combinations, a common retail practice. Costco shoppers, for example, can find a drill packaged with a light for fixing hard-to-see spots under the kitchen sink or a package of wrenches and sockets ideal for tinkering on cars.
Costco officials declined to comment on the deal.
At the same time, Sears is selling a limited selection of its signature Craftsman tools at Menards home improvement stores throughout the Midwest. The sale is being used to liquidate discontinued items but could expand in the future.
Sears' brand strategy runs counter to what most retailers are doing these days. Stores from Macy's to Home Depot are expanding their in-house brands as a way to attract shoppers, stand out from competitors and pad their profit margins. Selling Sears' proprietary brands through other retailers could raise cash in the short run but over time give shoppers fewer reasons to visit its stores and exacerbate the retailer's decline, critics contend.
Sears has watched its sales fall for five consecutive years as it lost market share to Wal-Mart, Kohl's, Home Depot and Amazon, among others. In 2011, Sears has posted losses for two consecutive quarters, cut hundreds of jobs and closed scores of stores.
"The Sears retail format is one that is substantially challenged by competitors and too much square footage," said Michael Dart, a retail strategist at Kurt Salmon. "Separating the brands outside of Sears recognizes there is probably a lot more value in the brand names than in the destination of Sears."
While Craftsman still leads the market in hand tools and power tools for home use, its share has been shrinking. Craftsman's consumer hand tool market share dropped to 33 percent for the 12 months ended June 30, from 35 percent a year earlier, according to Louisville, Ky.-based Stevenson TraQline's quarterly market survey. Likewise, Craftsman consumer power tools fell to 14 percent from 16 percent in the same time frame. (Craftsman is a small player in the professional tool market.)
As for Sears stores, more shoppers still buy a hammer or wrench at Sears than any other retailer by far. Sears dominates the hand tool market with a 35 percent share, followed by Home Depot with 15 percent and Lowe's with 13 percent, said Stevenson TraQline. In power tools, Home Depot leads with 26 percent, followed by Lowe's at 20 percent and Sears at 17 percent.
Sears has been carrying Craftsman tools since 1927, when it paid $500 for the rights to the name from the Marion-Craftsman tool company. Craftsman's power historically has been in drawing shoppers to Sears stores, rather than in contributing to the bottom line. Craftsman tools generated about $3 billion of Sears Holdings' $43 billion in revenue last year, analysts estimate.
Sears has taken similar steps with DieHard, licensing out the brand name on some products. But so far Sears has been loath to part with its Kenmore franchise, the core of its retail operation.
If Sears' plan is to find a way to get out from under the cost of owning and operating its own stores, running the brands as a separate business makes sense and could help the company survive, said William Brandt, CEO of Development Specialists Inc., a Chicago-based turnaround firm.
"If it turns out the brands sell through in huge numbers in other outlets, it may well be that the return on value is far better for the broader Sears entity than keeping them as drivers for the stores," Brandt said.
http://www.chicagotribune.com/business/ct-biz-0831-sears-costco-20110831,0,5310790,print.story
Hand, power and storage tool units to appear on warehouse store shelves as Sears expands distribution of brands
By Sandra M. Jones, Tribune reporter
August 31, 2011
Sears Holdings Corp. has agreed to sell its Craftsman tool line through Costco clubs nationwide, marking the Hoffman Estates-based retailer's boldest step yet in distributing exclusive in-house brands outside its namesake stores.
Craftsman hand tools, power tools and tool storage units will start appearing on Costco shelves as early as Saturday, Sears told the Chicago Tribune in an interview Tuesday. The Craftsman tools are slated to roll out to all of Costco Wholesale Corp.'s roughly 430 U.S. stores this year, with the assortment varying by location.
Sears is betting the Costco deal will attract new customers to Craftsman as many Costco shoppers don't shop at Sears or Kmart, said Kris Malkoski, vice president and general manager of the Craftsman brand at Sears Holdings.
"As we externalize the brand, we're trying to be thoughtful about reaching shoppers we aren't reaching at Sears today," said Malkoski. "It's an opportunity to bring the equity of this product to households that aren't going to Sears."
Sears' chairman and majority shareholder, Edward Lampert, first raised the prospect of selling Sears marquee brands through rival retailers three years ago as a way to boost sales. The strategy had been talked about at Sears for decades but never implemented for fear it would cannibalize store sales and take away a key reason shoppers visit a Sears store in the first place.
One of the first steps Lampert took after gaining control of Sears by merging it with Kmart in 2005 was to introduce Craftsman at 120 Kmart stores. By 2006, all 1,400 Kmart stores carried Craftsman. Two years later, Lampert created a separate business unit grouped around Sears' Kenmore appliance, Craftsman tool and DieHard car battery brands, distancing the brands from the retail operations and charging the unit's leaders to seek growth.
In spring 2010, Sears began distributing Craftsman tools through 100 Ace Hardware stores, the first time in Craftsman' 83-year history that shoppers could purchase Craftsman somewhere other than a Sears-owned store. The pilot expanded to 960 Ace Hardware stores this summer and is on track to reach 1,000 stores by September, Malkoski said.
To help Costco stand out from the Ace Hardware deal, Sears is bundling some Craftsman tools in unique combinations, a common retail practice. Costco shoppers, for example, can find a drill packaged with a light for fixing hard-to-see spots under the kitchen sink or a package of wrenches and sockets ideal for tinkering on cars.
Costco officials declined to comment on the deal.
At the same time, Sears is selling a limited selection of its signature Craftsman tools at Menards home improvement stores throughout the Midwest. The sale is being used to liquidate discontinued items but could expand in the future.
Sears' brand strategy runs counter to what most retailers are doing these days. Stores from Macy's to Home Depot are expanding their in-house brands as a way to attract shoppers, stand out from competitors and pad their profit margins. Selling Sears' proprietary brands through other retailers could raise cash in the short run but over time give shoppers fewer reasons to visit its stores and exacerbate the retailer's decline, critics contend.
Sears has watched its sales fall for five consecutive years as it lost market share to Wal-Mart, Kohl's, Home Depot and Amazon, among others. In 2011, Sears has posted losses for two consecutive quarters, cut hundreds of jobs and closed scores of stores.
"The Sears retail format is one that is substantially challenged by competitors and too much square footage," said Michael Dart, a retail strategist at Kurt Salmon. "Separating the brands outside of Sears recognizes there is probably a lot more value in the brand names than in the destination of Sears."
While Craftsman still leads the market in hand tools and power tools for home use, its share has been shrinking. Craftsman's consumer hand tool market share dropped to 33 percent for the 12 months ended June 30, from 35 percent a year earlier, according to Louisville, Ky.-based Stevenson TraQline's quarterly market survey. Likewise, Craftsman consumer power tools fell to 14 percent from 16 percent in the same time frame. (Craftsman is a small player in the professional tool market.)
As for Sears stores, more shoppers still buy a hammer or wrench at Sears than any other retailer by far. Sears dominates the hand tool market with a 35 percent share, followed by Home Depot with 15 percent and Lowe's with 13 percent, said Stevenson TraQline. In power tools, Home Depot leads with 26 percent, followed by Lowe's at 20 percent and Sears at 17 percent.
Sears has been carrying Craftsman tools since 1927, when it paid $500 for the rights to the name from the Marion-Craftsman tool company. Craftsman's power historically has been in drawing shoppers to Sears stores, rather than in contributing to the bottom line. Craftsman tools generated about $3 billion of Sears Holdings' $43 billion in revenue last year, analysts estimate.
Sears has taken similar steps with DieHard, licensing out the brand name on some products. But so far Sears has been loath to part with its Kenmore franchise, the core of its retail operation.
If Sears' plan is to find a way to get out from under the cost of owning and operating its own stores, running the brands as a separate business makes sense and could help the company survive, said William Brandt, CEO of Development Specialists Inc., a Chicago-based turnaround firm.
"If it turns out the brands sell through in huge numbers in other outlets, it may well be that the return on value is far better for the broader Sears entity than keeping them as drivers for the stores," Brandt said.
http://www.chicagotribune.com/business/ct-biz-0831-sears-costco-20110831,0,5310790,print.story
