2nd UPDATE: Sears Begins Franchising Of Its Auto Centers
February 18 2010 - 5:35PM
Dow Jones News
For the second time in the past week, Sears Holdings Corp.
(SHLD) is turning to outsiders to help expand its business as the
company said Thursday it is allowing franchisees to open Sears Auto
Centers.
Sears said it is offering auto dealers that recently lost their
new-car franchises a new use for their space: Sears Auto Centers
offering parts and services; over-the-counter merchandise; and
previously owned vehicle sales.
The franchises will have the same products and services
available at about 850 company-owned Sears Auto Centers, including
DieHard batteries. They will offer similar services as other
auto-repair chains such as Pep Boys-Manny Moe & Jack (PBY),
Meineke Car Care Centers Inc. and Monro Muffler Brake Inc.
(MNRO).
In some cases, Sears Auto Center franchises will be allowed to
carry other Sears products, such as Craftsman tools, said Bill
Jackson, senior vice president of Sears Holdings Corp. and
president of Sears Authorized Independent Auto Centers LLC. Sears
will help line up financing for car purchases, and it hopes
eventually to offer Sears-backed warranties on the vehicles,
Jackson said in an interview.
Last week, Sears's brand-management business announced a
trademark licensing deal with a manufacturer of battery accessories
to sell DieHard brand battery chargers, jump starters and other
accessories to outside retailers. That agreement with Schumacher
Electric Corp. didn't include DieHard batteries themselves.
While the two deals are unrelated and structured very
differently, they show the company is going in new directions.
"The retail landscape has changed, with new concepts and
opportunities," said Guenther Trieb, president of brands at Sears,
last week. "We need to explore alternative distribution than we
have."
As for expanding the company's sales of other well-known brands
such as Kenmore appliances, Craftsman tools and Lands' End apparel,
Trieb said. "We are not ruling anything in or anything out. For all
our own brands we are looking at ways to increase their value."
Sears should move carefully, analysts said. The retailer should
look to sell in areas of "very low cannibalization" with existing
Sears stores, said Michael Dart, senior partner in the retail
practice of Kurt Salmon Associates.
The retailer will broaden its brand recognition, but could lose
store customers and sales, by putting the merchandise in other
channels, Dart said. "These products draw people to Sears."
Department-store sales at Sears' namesake stores have continued
to struggle, despite strong brand names in Craftsman, Kenmore and
other products. Sears will report its fiscal fourth-quarter results
Tuesday.
The first auto center franchise, in East Windsor, N.J., is
targeting an April 1 opening, and Jackson said Sears has several
other new centers in the works. "We're looking right now,
initially, for 20," he said. "Once we define the model and get it
to work perfectly, we think it could be hundreds.
"Sears has got a great auto business today," he said, declining
to offer specific financial details. "This was a great opportunity
to expand our model."
Franchisees must pay an initial fee of $30,000 for the franchise
and $3,000 a month in brand license fees for the first year and
$2,000 monthly thereafter. A service license fee of 2% of prior
year revenue is charged after the first year, and franchisees
contribute 3% of net revenue to a marketing fund to support
national advertising and activities.
Several thousand auto dealerships in the U.S. have lost their
franchises as auto makers have consolidated amid efforts to become
profitable.
"There is a lot of very good talent in rejected Jeep, Chrysler,
Dodge, Saturn, Pontiac and Saab dealers that already have the
facilities in place, the manpower and years of experience to help
Sears sell their products," said Bruce Coleman, president of the
Coleman Auto Group dealership in East Windsor, N.J., and a partner
in what will be the first Sears Auto Center franchise.
Coleman Auto Group will turn its former Chrysler and Jeep store
into the Sears Auto Center, converting the former new-car showroom
into a shop selling Sears auto accessories, rooftop carriers,
battery chargers and other items.
Shares in Sears closed down 92 cents, or 0.97%, at $94.40. The
stock has more than doubled in value in the past year.
-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145;
maryellen.lloyd@dowjones.com
(Karen Talley and Nathan Becker contributed to this
article.)
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