Founded in 1886 by a Railroad Station Agent who decided to sell a shipment of unwanted watches, Sears Roebuck & Company would go on to become America’s largest retailer. In a time when very few American’s had access to a telephone, Sear’s catalog revolutionized American retail. Through the 20th century Sears was a component of the Dow Jones Industrial Average and in the eyes of many, “too big to fail”. Over the last few years Sears seems to have taken a heck of a crack at it though.
Each quarter the news seems to get worse and worse. In addition to losing a reported $6.4 billon in the last 3-1/2 years and $1 billion in the first half of 2014 alone, in September the company reportedly borrowed $400 million from CEO Eddie Lampert to get it through this Christmas season offering $500 million worth of collateral in return. Yesterday morning the Wall Street Journal reported that Sears shares fell 17% after a report last week that Euler Hermes Group, a firm that insures suppliers against nonpayment, is canceling policyholder coverage on Sears and that several such providers for Sears suppliers are reducing their coverage limits. I don’t pretend to be a finance guy, but it certainly doesn’t look good for Sears.
So the big question to us is, in the seemingly inevitable scenario that Sears fails, what happens to Craftsman? It’s hard to say for sure, but it appears extremely unlikely Craftsman will go down with the ship. Craftsman, along with the Die Hard and Kenmore brands are owned by KCD IP, LLC, a special purpose entity created by Sears Holdings for securitization purposes, which according to Forbes, shields the brands from the failure of Sears Holdings Corp.
All that being said, we can feel pretty confident Craftsman isn’t going anywhere. The Craftsman brand alone is extremely valuable and with the right management, could easily stand on it’s own on the shelves at Cosco, Ace, and potentially many other retailers. As for warranty concerns, I can’t speculate as to how current tools would be handled but I would have to assume that in the same fashion as Ideal honored warranty on previous era tools after purchasing SK back in 2010, Craftsman’s warranty would remain.
All this is merely speculation, but it appears the time to start thinking about it may be upon us.