With the new company planning to convert some Kmarts to Sears stores, or simply sell Sears products in Kmart locations, sales could jump for such well-known brands as Kenmore appliances, DieHard car batteries, and Craftsman tools and lawn and garden products.
"Both of these implications should be positive for Sears' vendors, as there likely will be increased inventory requirements of 'Sears stuff,"' Raymond James & Associates analyst Budd Bugatch said in a research note.
Among the companies who stand to benefit are Danaher Corp., which makes many of the Craftsman tools; Briggs and Stratton Corp., which makes engines for lawn care products, and appliance maker Whirlpool Corp., analysts said.
The deal, expected to close by March 2005, will create the third-largest U.S. retailer with nearly 3,500 stores, allowing the new company to cut costs and boost sales by selling or closing under performing locations while selling the strongest brands from each chain in the other's stores.
Sears boasts sales double that of Kmart despite both having roughly the same amount of square footage, said Bugatch, who expects a one-time inventory build-up, probably beginning in early 2005 at the earliest.
However, Sears could close some locations after the deal is closed, minimizing some of the gains for its suppliers, he added.
Sears supplier list also includes Electrolux AB and Maytag Corp., both of which make Kenmore appliances, and Johnson Controls Inc., which makes Sears' DieHard car batteries. Other suppliers such as Stanley Works, Black & Decker Corp., Toro Co. and Newell Rubbermaid Inc. could see a more modest positive bump, analysts said.
Sears represents at least 20 percent of Briggs' engine sales (about $320 million) and probably makes up about 20 percent of total sales when snow throwers, generators and pressure washers are included, according to Raymond James. In fiscal 2003, Sears represented 18 and 15 percent, respectively, of Whirlpool's and Maytag's total sales.
Danaher could see sales of its tools rise $50 million to $100 million conservatively, and possibly more, according to J.P. Morgan analyst Stephen Tusa. Although the larger customer could then squeeze its suppliers, he added.
"Danaher could have less bargaining power with the increased size of this customer, although we believe the pure volume benefits would offset potential pricing pressure," Tusa said in a research note.