DieHard with a Vengeance: Sears Deal Risks Brand Backlash
Sears Holding (SHLD) built a reputation for tending its brands, such as Kenmore and Craftsman, over many years. Now the company is building on this idea, by licensing its DieHard label to Schumacher Electric Corp.
The agreement allows Schumacher to sell battery chargers, jump starters and power inverters to retailers in the U.S., Puerto Rico and Mexico.
For Sears, the new deal allows them to make more money from its brands, something that CEO Eddie Lambert has promised. But the concern is that by making a brand like DieHard less exclusive, Sears may be diluting its private labels.
These days, private labels are a key reason people go to Sears. In a years-long study of retail private label reputation among consumers, Sears brands consistently ranked at the very top. If consumers can get Sears products elsewhere, or believe there is a decline in quality as a product becomes more widely available, consumers have less reason to shop the stores. That is why some observers were concerned when Sears moved some of its signature brands into Kmart, for example.
Sears is surely aware of the issue, but it appears to be proceeding with the partnership with Schumacher with real enthusiasm. DieHard is serving as the primary sponsor of the Don Schumacher Racing Dodge Funny Car driven by Matt Hagan in the 2010 National Hot Rod Association Full Throttle Drag Racing Series, which began its season last week.
Sears also is boosting promotion of DieHard online. It recently relaunched DieHard.com and a companion site at mobile.diehard.com. The sites feature a help center, battery selector, maintenance guide, store locator and a series of videos documenting DieHard's performance inside the DieHard Torture Labs. In the site, the retailer links its battery with all sorts of things including a bikini-clad blond, comedian/musician Reggie Watts and a power saw that carries the Sears' Craftsman brand.
It's fair to wonder about what the DieHard move says about Sears and the plans the company's chairman Edward Lampert holds for it.
Other retailers also are licensors or even suppliers. Safeway (SWY) sells some of its private labels to other non-competing retailers. Recently, Delhaize America's Hannaford supermarket chain began to license its Guiding Stars nutritional labeling system to non-competing stores. But few are willing to license brands they consider critical.
Sears has made some operational progress of late, establishing several interesting initiatives online--the DieHard website among them--and paying down debt. But it seems as if the original speculation about Lampert's interest in Sears and Kmart, which revolved around the value of their real estate, may be rekindled. The recession and the subsequent decline in commercial property values, as well as the effect of retailer consolidation, was a blow to any strategy that involved selling real estate. By making the company's brands a more diverse business and loosening ties to the stores, though, the company certainly is providing itself with a way to continue generating cash from brands in circumstances where it is operating fewer stores.