Sears is selling its Craftsman hardware brand to Stanley Black & Decker in a deal that will change the way the iconic brand is manufactured, marketed, and sold.
While the sale was announced on January 5, those changes won't go into effect right away. When the deal closes, the only immediate change is that Stanley Black & Decker will own Craftsman sales in non-Sears retailers.
But significant changes lie ahead for Craftsman, including those that could cause warranty issues and affect where your tools are made.
Soon, Not All Craftsman Tools Will Be Alike
Sears gets $525 million when the deal closes, another $250 million three years later, and roughly 3% of all Stanley Black & Decker Craftsman sales for the next 15 years. Sears will also score a royalty-free license to source and sell Craftsman products for 15 years, essentially maintaining Sears' Craftsman status quo.
Stanley Black & Decker, meanwhile, gains the Craftsman brand and the existing revenue from non-Sears retailers, like Ace Hardware. Sears' royalty-free license expires in 2032, and Sears will owe Stanley Black & Decker 3% of any subsequent Craftsman sales.
The deal is expected to close in 2017, and is subject to regulatory approval.
Remember, Sears Never Actually Manufactured Craftsman
One thing is critical to understanding the deal: Sears does not own any Craftsman factories. Instead, like many companies, Sears works with dozens of manufacturing partners to create Craftsman-branded products. Tool enthusiasts have devoted countless hours to deciphering date codes and manufacturing codes, as country of origin is a concern for many customers.
Many of Craftsman's suppliers — particularly the hand tool manufacturers — were once based in the U.S., but much of the production has moved overseas in the last decade.
Made in the USA (Again)
Craftsman customers disappointed by Sears' overseas manufacturing may be happy to learn that Stanley Black & Decker intends to invest heavily in making Craftsman tools in the states again.
Stanley Black & Decker CEO and President Jim Loree told investors that while the "very short-term" likely won't see a supplier change, the company intends to invest $80 million in Craftsman production.
"For new outlets and retail outlets outside of Sears, Stanley Black & Decker plans to expand our manufacturing capacity in the U.S., specifically to support the growth of the Craftsman brand," said Shannon Lapierre, vice president of communications at Stanley Black & Decker, in an interview with DealNews.
That expansion includes $35 million to open a new Craftsman production facility in the United States, although Lapierre said specifics were still being worked out, and no location for the plant had yet been announced. The remaining $45 million is planned for "capacity increases," Loree told investors.
Possible Warranty Complications Ahead
While Stanley Black & Decker intends to make many Craftsman products in the U.S., both Stanley Black & Decker representatives and Howard Riefs, corporate communications director at Sears Holdings, confirmed to DealNews that Sears will continue to use its existing suppliers.
"Sears Holdings will continue to offer Craftsman-branded products that we source from our existing suppliers for sale at Sears, Kmart, and Sears Hometown Outlets," Riefs wrote in an email.
As the two companies start to produce tools in different countries and factories, warranty replacement concerns could emerge.
According to Riefs, a customer would still redeem other warranties at "the retailer where they purchased the product, or at the Craftsman Customer Service online and phone support." However, the "lifetime warranty will be honored at all locations that sell Craftsman."
In fact, Sears and Stanley Black & Decker representatives both told DealNews their companies intend to honor the Craftsman lifetime warranty.
Thus, a customer who goes to Sears seeking replacement of a faulty U.S.-made Stanley Black & Decker Craftsman wrench will get warranty service — but may receive a tool made by a different supplier in a different country.
The agreement between the two companies states that Sears' Craftsman products must meet minimum quality standards, Don Allan, Stanley Black & Decker's Executive Vice President and CFO, told investors. But many consumers value country of origin, especially in the tool market.
Competitive Retail Expansion on the Horizon
In the investor call announcing the transaction, Loree stated that Stanley Black & Decker will be expanding the number of channels in which it sells Craftsman. Lapierre told DealNews there weren't any specific plans to announce right now, but that plans included big-box retailers, online sales, and "mobile," referring to the tool trucks that visit professional mechanics.
There isn't a pricing agreement or minimum-advertised-pricing deal in place between Sears and Stanley Black & Decker, according to Loree, so expect to find Craftsman products at varying prices at different retail outlets.
That pricing flexibility will likely be important in the fiercely competitive tool and hardware landscape. The Craftsman lifetime warranty once set this brand apart, but competitors like Harbor Freight Tools, Home Depot's Husky brand, and Lowe's Kobalt brand offer similar warranties, often at lower prices and with competitive features.
More Than Just Hand Tools
Craftsman is known for its hand tools, but its lineup contains much more. Per the Stanley Black & Decker investor presentation, roughly 40% of Craftsman sales are lawn and garden items, and another 25% are storage and related products — toolboxes, garage door openers, and so on.
Readers, what do you think? Are you excited about Stanley Black & Decker bringing Craftsman back to the states? Do the potential warranty issues concern you? Let us know in the comments!