Pushing The Easy Button: Staples Sold To Sycamore

The sale of office supply retail giant, Staples to a private equity firm, Sycamore Partners, is the most recent in a string of merger activity in the retail sector. It is no secret that Staples has had difficulties recently competing with online retailing behemoth, Amazon, who has taken quite a significant chunk of the market share away from Staples.

This transaction represents yet another major American retail brand taking the first of many options along the “decision tree” to retail survival. The key to this sale is that Staples will transition from a publicly traded company on the stock exchange into a privately held enterprise.

This is a huge distinction because, quite often, companies make decisions on any number of matters based upon how it will potentially impact the valuation of their stock, or how it will “play” with the analysts on Wall Street, or their shareholders perception of the decision.

Conversely, a privately held company has none of those same considerations. These types of enterprises can make decisions based upon what is good for the overall health of their business. In this case, with Staples, the company that once touted the “easy button” for solutions to home office or small business needs; the company pressed the button to solve their overall issues.

Staples initially attempted the “get bigger” strategy by attempting to purchase one of their largest competitors, Office Depot, but the proposed acquisition was rejected by regulatory anti-trust officials.

Staples remains the largest brick and mortar retailer of office supplies in the United States, and this is after shutting down hundreds of underperforming locations to free up more cash flow. That is the advantage they have over Amazon and other retail competition, is the in-store option. They have to play that to their advantage and refocus their brand on what they do very well particularly in the service area of copy and print.

The investment from the perspective of Sycamore is a reasonable one at face value because they obtain a recognizable brand with a huge network of retail stores that could own that space if they recalibrate themselves correctly.

Staples could weather the storm here by going into private hands, it is certainly going to make the transition to fighting Amazon easier without having to answer to “The Street”. It remains to be seen whether they make the correct course adjustments to their business to stay relevant in an extremely price sensitive marketplace with much more savvy and well informed consumers.

Sears Sells Craftsman to Stanley Black & Decker

In a follow up to a recent story on the overall business structure of Sears, the company was in the headlines again on Thursday. The news of the official announcement of the sale of the Craftsman brand was made today to Stanley Black & Decker for an estimated $900 million.

I had reported weeks ago that this move was certainly possible and that Black & Decker was probably the best suitor for such a transaction. The sale of this iconic American brand of tools provides Sears with an infusion of capital at a time that it desperately needs cash. The company, as I wrote last week, needs about a billion dollars to stay in operation through 2017, some estimates have it as more like $1.5 or $1.6 billion which means that Sears has some more credit line borrowing to secure.

The detractors have been quick to jump into the discussion today and make projections that Sears will be in bankruptcy proceedings before the end of the year. In fact, this question was posed to the Stanley Black & Decker executives during the announcement of the Craftsman deal. They acknowledged that if Sears is in bankruptcy proceedings that will have a detrimental effect on the Craftsman purchase being fully completed.

In related news, Stanley Black & Decker also announced that they were planning to open a new factory at a site yet to be determined to manufacture the Craftsman products in America. The new factory would employ around 3,000 and would return an iconic American brand to being “made in the USA” after being made overseas for many years in the current scenario with Sears.

The potential bankruptcy of Sears is an added issue when consideration is given to the fact that those stores are the primary channel for sales of Craftsman tools and other products. The Stanley Black & Decker side explained that they plan on marketing Craftsman in many new channels and to distribute to new retail partners (Home Depot and Lowes jump to mind) to offset the loss of business from Sears in the short term.

Sears gains the injection of cash it needs but it sacrifices the sales revenue it would receive if they owned the brand, it is a real “catch 22” scenario for companies, who like Sears, also own the rights to other very recognizable brands. The retailer gets to the point in their life cycle where some hard decisions need to be made to save a sinking ship.

The announcement from Sears also came with a side note regarding some of their Kmart branded stores. Sears will be closing 41 of their store locations as well as 109 Kmart store locations will be shuttered. The company did not disclose how many jobs would be impacted by the closings, but most of them are part time positions which the company is still concerned about in their release today. The company acknowledged that the stores were underperforming for a long time but that they essentially kept them open to keep local jobs in those communities intact for as long as possible.

This news comes on the heels of Macy’s announcement yesterday of store closings and layoffs of thousands of employees. It is a sad time for some iconic American brands. The sale of the Craftsman brand was something I wrote about weeks ago as well as the potential sale of Kenmore and Die Hard, but Craftsman was always viewed by industry experts to be the most important of those three Sears brands.

The question then becomes: without Craftsman, is Sears really viable? The answer sadly is no, and the outlook for their survival past 2017 is pretty grim. The Sears stock did jump 5% today but they and many of their competitors are being devoured by Amazon. The terrain has changed and Sears may not be a part of it any longer.

The silver lining in this mess is that Craftsman products will live on and will be made in America in the years to come.

The Inevitable Demise of An American Icon: Sears

Sears has been in the news again this week with news regarding the potential sale of one of their iconic brands. I wrote a post for another site a few months ago when Sears first decided to put three of their mainstay brands up for sale: Craftsman tools, Kenmore, and Die Hard. This is most certainly an effort to increase cash flow through both the sale of the brands and through the almost certain jump in Sears stock as a result.

The news that an as yet unnamed bidder (rumor has it the bidder is Black & Decker) is interested in paying a significant amount of money for the Craftsman name with some estimates in the $2 billion range; has Sears stock trading at an increased level in the past two days. Craftsman is a symbol of uncompromising quality in tools and related hardware products that is well established in the consumer marketplace.

The unfortunate other side to this transaction is that many industry experts and financial market insiders with great knowledge of the situation indicate that even if Sears divests Craftsman in this deal, the cash flow is not enough to make a reversal of the outlook for the company.

In fact, those same experts as well as some other reports I reviewed state that even if Sears sold all three of those brands at a premium it still would not help their cause. This is where the Sears merger and acquisition of Kmart stores again looms large in the negative outlook for the company.

In my understanding of the situation having covered this as well as other failing retail brands in the past is this: essentially while the sale of the brand, in this case it is Craftsman, may help Sears in the short term; Sears will lose the profit generated by the sale of those branded products which it currently owns outright.

The mere fact that Sears put these three well established brands on the block to be sold is (if some of you remember my previous work on this subject) an indication that the times are desperate there. It is an indication that the company is definitely preparing for “reorganization” (i.e. bankruptcy) in the near future.

Sears also owns a great deal of real estate between the buildings of their brick and mortar retail stores and the land that those stores are situated on which contributes to their profit and loss situation. It is expensive to maintain both buildings and land, so Sears has either been divesting itself of one or both, as well as determining some other methods of cost reducing those components of their business model.

A couple of prime examples of these strategies are right in my backyard in New Jersey. Sears owns the building that is home to their Freehold Raceway Mall location, in order to control some of the costs the company consolidated their inventory from multiple levels of the store onto one level. They subsequently rented out the other two levels to an Ireland based company called Primark, a retailer of discounted products, mostly clothing brands.

In Middletown, the Sears location and the large piece of land it sits upon was sold to Investors Bank. The bank is now constructing a new branch location at that site, and most certainly has some kind of long range plan for the development of that land in the future. Most retail and financial market experts put the time frame for the bankruptcy and demise of Sears at 18 to 24 months from now.

It still boggles my mind that Sears, such an iconic retailer will cease to exist in potentially that short a period of time. I always think of those employees who will be out of work, some of whom have undoubtedly served the company for many years. These same workers have a set of skills and experience in the retail field which is shrinking and may have a difficult time finding new employment.

Conversely, Sears could not seem to get it right, they were missing that connection with the consumer. They were the retailer that was an afterthought in the minds of the average consumer. Sears is thought of as a place where you get tools or tires or a dishwasher; and not where you would get a television, a jacket, or a pair of sneakers. They could not seem to connect the value of their full complement of products to the consumer in the way that Wal-Mart and Target most certainly have accomplished.

The management at Sears keeps telling Wall Street that they are in the middle of a “turnaround” but that has not seemed to materialize. I liken it to the professional sports team that is in seemingly a constant rebuilding mode and never seems to turn that corner where the results manifest themselves tangibly.

Sears CEO, Eddie Lampert, has stated again this week that the company will not close down the Kmart division of the business, which is seen as an anchor around the neck of the entire business operation. They will continue to close Kmart stores that are “underperforming” as they recently closed my local Kmart here in New Jersey. They will not shutter the entire division. I think that this is a mistake and that there is a point where you have to start bailing the water out of the ship before it sinks further.

The business model for Sears in this turnaround phase is a case of “too little, too late” as the saying goes. The damage has already been done. The executive team is now focusing on selling off the brands that are most profitable, closing down lapsed consumer credit lines, and whittling down their overhead costs through the sale of real estate holdings or through sublet type agreements as I mentioned similar to the location in Freehold.
Those are all signs that the executives are trying to maintain what little profitability remains in the business. Therefore they can divide up those revenues when it comes time for them to take the “golden parachute” ride before the operation shutters the doors for good.

The demise of Sears is inevitable it seems, and it is sad because I am sure that most of us at a certain age have memories of shopping there, or of our parents bringing home a picture of the new Kenmore refrigerator. I remember going in the garage and seeing all of my father’s Craftsman tools or getting a Die Hard battery for one of the cars during a harsh winter. My mother would take me to Sears to get clothes for an athletic team I had joined.

All of those instances and so many more will remain memories that other generations of American children will never have. That is due to poor business decisions by Sears, marketing campaigns that consistently missed the target, and the societal shift towards online shopping and away from traditional retailers. It is a scenario where it is essentially “adapt or fail” and Sears failed to adapt in time to save an iconic American retail brand from joining the long list of other retailers who no longer exist. It is a sad trend overall, but one that is a harsh new reality.