avatar_48x48
Contact BSI
Derrick Daye
888.706.5489 Email us
Brand Licensing Branding: Just Ask...

Brand Licensing: The Answer For Sears?

by

Sears Brand Licensing Strategy Die Hard Battery

Regular readers of Branding Strategy Insider know we welcome and answer marketing questions of all types. Today's question comes from Ryan, a senior analyst with a private investment fund in New York City, New York. He writes:

"First question: I read today that Sears is thinking about licensing its Kenmore, Craftsman and Die Hard brands. Could you hazard a guess as to (i) the range in licensing fees such brands might generate, and (ii) the prospects that someone of substance would be interested in licensing those brands given their present distribution?"

Ryan, thanks for your question. My thoughts as a brand licensing strategist…

(i) Range of fees would go from $7.5 MM – $45 MM over three years (after commercialization commenced).

(ii) Prospects of someone interested – I think interest could be high based on my assumptions below.  The key is how to not compete with the parent brand. After all, those brands are why people go to Sears.

Kenmore, Craftsman and Die Hard are mid tier brands that have a long history and substantial brand equity.  Moreover, the brands are closely tied to the Sears name.  While there may be some confusion generated in consumers’ minds if these brands were licensed for distribution in other channels, I still believe they would perform well.

Royalty rate: These brands should command somewhere between 5% – 10% depending on the product category, the channel and the region.

Products/categories: I see two routes here –

· existing products licensed and sold into new channels and regions and

· new categories licensed into Sears/Kmart and new channels like Home Improvement, Automotive, Mass, etc.

Licensing Fees: Base assumption is each brand extends into 5 new categories/channels

Aggressive: Sales per new category or channel averages $5 MM in Yr 1, $10 MM in Yr 2 and $15 MM in Yr 3. Under this scenario, there would be $150 MM cumulative sales for each brand or $450 MM total revenue. Based on 10% royalty rate, the royalties earned would be $45 MM over the three year period. 

Conservative:  Sales per channel average one-third of the total revenue or $150 MM. At 5% royalty, the fees earned would be $7.5 MM over three years. 

"Second question: It strikes me that Sears would have first attempted to license the brands to the companies who manufacture the product or to obvious other major manufacturers of similar products before casting about via a brand licensing agent. I’d be interested in your thoughts on that as well, if possible."

Agreed. Their best route is to go with known and trusted suppliers to sell their existing products across multiple channels. This could still be under a private label arrangement as well as under a licensed arrangement. That said, there are probably a significant number of new categories that they could enter that may require new manufacturers or service providers. Don’t forget service providers. This could be a market with great opportunity.

On a related note, we explored a new brand strategy for Sears and Kmart here.

Have a question related to branding? Just Ask…

Sponsored byThe Brand Licensing Workshop

Recommend this story

Subscribe, Follow and Stay Connected to BSI

Submit

3 Comments

Tom Mangan on October 14th, 2011 said

I can see the upside — getting a Craftsman wrench in every store beyond easy driving distance of a Sears store.

What’s the downside risk for Sears if they do this? It almost sounds like an admission that their brick-and-mortar model doesn’t really work anymore.

Chloe on October 17th, 2011 said

Re ” Sales per new category or channel averages $5 MM in Yr 1, $10 MM in Yr 2 and $15 MM in Yr 3. Under this scenario, there would be $150 MM cumulative sales for each brand”. Can you shed some light how this $150MM is arrived?

Pete Canalichio on October 19th, 2011 said

Chloe,

Thank you for your question. Let’s use Diehard as an example of how I arrived at this projection.

Example Brand: Diehard

Number of Extensions: 5

Sales/Extension: $5MM (Yr 1) + $10MM (Yr 2) + $15MM (Yr 3) = $30MM

Cumulative Diehard Sales: 5 Extensions x $30MM = $150MM

Under this “aggressive” scenario the total cumulative sales for Craftsman and Kenmore are $150MM each. That is how I arrived at $450MM total cumulative sales for all three brands.

At a 10% royalty rate, the total royalties equal $450MM x 10% which comes to $45MM in cumulative royalties.

I hope this helps. Please let me know if you have any other questions.

Pete

Leave a Reply

Submit your comment

More posts in Brand Licensing Branding: Just Ask...

Brand Licensing Strategy

Brand Licensing: How To License A Brand Name

Brand Licensing: The Answer For Sears?