Power Tools of the Retail Apocalypse

A few days before retail shopping's 'Black Friday' celebration, I reluctantly purchased a 'Porter-Cable' thickness planer at one of our "big box" home improvement stores. I was reluctant because I was afraid the planer was going to be badly made, difficult to adjust, impossible to repair; I've been down this road before. There are tools availlable for sale that are convincing simulcra, built to be sold to someone who has never used the real thing at an attractive price. Reader: the planer worked! But, if it stops working I doubt I will be able to repair it and I won't be able to complain that it was cheaply made because that was half of the reason I bought it in the first place. It is a disposable tool, although it may take a while for me to dispose of it.

Porter-Cable tools date back to the beginning of the 20th century when Porter and Porter and Cable set up a garage shop in Syracuse, NY to build lathes and achieved lasting fame in 1929 for inventing the "circular saw." Today, Porter-Cable is a brand name owned by the corporation known as "Stanley Black&Decker" (two words) and attached to power tools manufactured in Shenzhen, Guangdong, China. The original Porter-Cable company was sold to Rockwell International in 1960, builders of the B1 bomber and the space shuttle and a line of woodworking tools. Rockwell relocated Porter-Cables operations to Jackson, TN and sold tools under the Rockwell brand, including a line tools of dubious quality aimed at competing with the similar products from Black and Decker. In 1981 Rockwell sold it's power tools division, incuding Porter-Cable and Delta Machines, to Pentair, Inc. Pentair's CEO was from Minnesota but the company was headquartered in Switzerland. If you can believe their corporate history, they started out making high-altitude weather balloons before buying up old paper-mills in the 1970s, dabbling in meat rendering before going into the tool business. Pentair moved Delta from Pittsburgh to Tennessee and brought back the Porter-Cable name for a line of "professional" quality tools. However, by 1989 they had returned to the mass-market, selling cheap tools made in Guangdong at the rapidly expanding Home Depot and Lowes chains of home improvement superstores. In 2004 Pentair sold it's power tools division to Black&Decker (one word) in order to become a "global leader in water, fluid, thermal management and equipment protection" and recently celebrated 42 years of consecutive increases in shareholder dividends. Finally, in 2010 Black&Decker merged with The Stanley Works to form Stanley Black&Decker, which continued to sell Porter-Cable and Delta branded tools but sold Delta to the Chang Type Industrial Company in 2011, who opened a factory in South Carolina.

Home Depot was born fully-formed as a Wall Street financed chain of "superstores" in 1979, just after the rise in housing starts that began after the 1974 economic recession and ended, well, in 1979. Lowes followed after with this supermarket model, capitalizing on it's prexisting chain of hardware stores. The Great Atlantic and Pacific Tea Company, better known as A&P, invented the "supermarket" in the 1920s. Like Amazon.com today, A&P used money from a booming Wall Street to subsidize stores that sold "everything" in order to monopolize shoppers. With this monopoly, the supermarket can charge low prices for desireable products while making it's profit on whatever else you throw in your basket. Further, the high volume of sales meant prices from suppliers that were lower than smaller competitors. The relationship between the home improvement superstore and the tools they sell is that between chicken and egg. The superstore uses it's control of the market for to negotiate with the suppliers of a tool in order to obtain that brand at the quantity, features, and price desired. But, without this large supply of low-price yet desireable products they wouldn't control the market. It is this relationship between retailer and supplier that was pioneered by Walmart. Incorporated in 1969, Walmart grew rapidly in the 1980s by improving on the supermarket by negotiating directly with suppliers of brand name items to obtain products for exclusive sale with features and price specified by Walmart itself. The supplier became integrated with the retailer without any change of ownership, exchanging the value of the brand for a high volume of sales.

If the disposable tool is born from the superstore, the superstore comes from the mid-70s boom in house building, particularly single family homes. However, the superstores struggled through the 1980s as the single-family housing market remained quiet. This struggle may also have come in part from the fact that the 1980s were the era of self-contained retail "mall" development but the home improvement superstores were located in shopping strips, "strip malls" versus the upscale "regional mall." By the end of the 80s, vacancy rates at strip malls had soared. This changed with the election of Bill Clinton in 1992, inaugurating an epoch of continuous growth in single-family housing "starts" which didn't end until 2007. The market for home improvement is driven by the market for homes, leading to long period of expansion for the home improvement chains. This was part of general growth in "big box" retailers in shopping strips. Coincidentally, the recession of 1990, which brought the Reagan era to an end, also brought a crash in investment in malls. The subsequent long housing boom led to "exurban" development which pushed suburban consumers farther away from the regional malls. Finally, the great recession of 2007 marked the end of consumption based on expanding home equity, upon which so much of the retail industry had been sustained. Observers began noting the appearence of "dead malls" where the "anchor stores" had closed leading to a cascade of empty store fronts locked into multi-year leases facing empty internal courtyards: a retail mall with open doors but without any customers or stores. With past debts looming and stagnant wages, consumer spending never recovered after the 2007 recession technically ended. So, in 2016 a "retail apocalypse" was declared after a wave of bankruptcies hit retail chains, 'Toys 'Я' Us' being the largest: see the 'retail apocalypse' wikipedia page. Many causes were attributed for these apocalyptic conditions, from the anemic economy to competition from Amazon.com and other online retailers. However, some noticed that there was a common thread among the bankrupt retailers of "private equity" involved "leveraged buyouts." The term "leveraged buyout" should be familiar to fans of 1980's Wall Street finance, the golden era of Michael Milken and KKR (Kohlberg, Kravis, & Roberts). Investors buy a business using loans based on the equity of the business itself, promising lenders that there are hidden profits the previous management couldn't realize. Alternately, and perhaps quietly, investors may be told that the return on liquidating the assets of the business will be more valuable than running the business itself. Assets may involve machinery or real estate or simply well-known brands, like Porter-Cable. This is the situation for Sears, Roebuck and Company, venerable retailer of the great 20th century American economic expansion. Sears was purchased in a buyout originating in the management team of, then bankrupt, Kmart. However, the buyout was financed (in part) by hedge fund billionaire Edward Lampert who became CEO and chief shareholder. As a sign of things to come, the 'Craftsman' brand was sold this year to Stanley Black&Decker. This path was set when the real estate holdings of Sears were spun off into a real estate trust called "Seritage Growth Properties" and then rented back to the retail company. This was structured so that significant fees acrued back to Lambert, as financier of the split. Long-time followers of the career of Governor Romney will, no doubt, be familiar with the array of schemes available to financiers in order to collect fees from the business they are attached to. The shareholders of Sears are trying to time the liquidation of the company to obtain maximum value for the assets. The coming year will see the sale of Kenmore, and other brands, and finally the official bankruptcy of Sears. The newspapers will declare the end of an era and, behind the scenes, various investors will collect on their bets.

However, Craftsman tools were already being made by a variety of contracted manufacturers in China, mostly by the same factories that produce Ryobi tools. When 'Craftsman' was sold, the primary asset was just the name and the value of the name comes from the demonstrated willingness of consumers to purchase 'Craftsman' tools regardless of their manufacture. If you wander into a Home Depot or Lowes store today you will see power tools being sold under a variety of brands: Bosch, Dewalt, Hitachi, Kobalt, Makita, Milwaukee, Porter-Cable, Ridgid, Ryobi, and Skil. If you are used to thinking about these brand-name machines as being the product of a particular factory with a fixed location and culture this is a misconception. Dewalt originally just made a radial saw. In the 1960s Black and Decker used the 'Dewalt' name for their line of professional tools. Now, the Dewalt and Porter-Cable are brands belonging to Stanley Black&Decker. Milwaukee and Ryobi belong to a Hong Kong based holding-company called "Techtronic." The Kobalt brand is owned by Lowes with production subcontracted to a variety of manufacturers including Chervon Ltd., owners of Skil. Robert Bosch Gmbh, based in Germany, is a multinational manufacturer of a variet of products, including 'Vermont American' drill bits and blades. However, the Bosch power tools you see in Home Depot are contracted production from anonymous Chinese factories in much the same manner as Craftsman or Kobalt. Makita is still a Japanese company that specializes mainly in power tools. But, they have diversified production globally, sourcing the components for their tools from factories in China and moving assembly to factories across the world. Lastly, Hitachi Koki, the power tools division of the giant Japanese conglomerate 'Hitachi', was recently sold to KKR, the investment bank currently extracting "value" from Sears.

My thickness planer exists because of a boom in house building in the middle 70s, the success of the Walmart-model, and the collapse of the financial economy in 2007. If you are familiar with the history of the Millers Falls (Tool) Company, you will see an essential pattern that is the result of forces much larger than Franklin county. Perhaps, you have to "think locally, act globally."

Published: The Montague Reporter, Dec. 21, 2017
Date: Dec 1, 2017
Author: George Shapiro