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Oslo company prepared the following contribution format income statement

13/12/2021 Client: muhammad11 Deadline: 2 Day

bridges, etc.) and company assembly lines (e.g., automobile plants). In this segment, distributors (of which W.W. Grainger of Skokie, Illinois, with over 300 branch offices, was by far the largest) played an important role in providing technical expertise and service. For a given job, the distributor could both specify the contractor’s tool requirements and recommend specific brands. Grainger stocked more than 32,000 items to provide prompt delivery. In the Professional-Industrial segment, tools were typically purchased and owned by the company rather than the individual users.

The Professional-Tradesmen segment was targeted largely at tradesmen such as electricians, plumbers, carpenters, framers, roofers, and general remodelers working in residential construction. These tradespeople were expected to show up at the job site with their own necessary tools of the trade in working condition. These buyers tended to patronize newly emerging retail distribution channels including home centers such as The Home Depot and Lowe’s, in addition to the traditional hardware stores, such as Ace. While the smallest of the three segments in 1990, at $420 million (28%), Professional-Tradesmen was growing fastest at 9% compared with a 7% growth rate for Consumer and no growth for Professional-Industrial. Some “heavy do-it-yourselfers” bought tools in the Professional-Tradesmen segment, but this segment primarily comprised people who made a living with their tools.

B&D participated in all three segments. Black & Decker®-brand power tools held nearly a 30% share of the U.S. market overall.2 To serve these segments, B&D offered three separate lines and brand designations all under the Black & Decker family name, as follows:

Approximate

U.S. Market Segment Brand Logo Product Color

B&D Segment

Share 1990

B&D Segment

Revenues 1990

Professional-Industrial

• Size = $550MM

Charcoal Grey 20% $110 MM

Professional-Tradesmen

• Size = $420MM

Charcoal Grey 9% $35 MM

Consumer

• Size = $530MM

Black 45% $250 MM

In the Professional-Industrial segment, B&D’s share was near parity with Milwaukee Electric of Brookfield, Wisconsin. Founded in 1924, Milwaukee was a privately held firm, selling only in the high end of the market at a rate of approximately $200 million per year worldwide. The second tier suppliers in the Professional-Industrial segment were Bosch, Porter Cable, and Makita. The very knowledgeable purchase decision influencers in the Professional-Industrial segment viewed B&D as offering high-quality, differentiated products and excellent service. At the other end of the performance spectrum, in the Consumer segment, B&D’s brand recognition and image helped it attain the #1 position in the marketplace with nearly a 50% share over suppliers such as Skil, Craftsman, Wen, and various private label products.

2In addition, it manufactured some professional power tools under the Craftsman label for Sears, which held an additional 4% of the Professional-Tradesmen segment.

For the exclusive use of M. Vyas, 2019.

This document is authorized for use only by Megha Vyas in MBA646-AP-2019-02B taught by SHIRLEY YE SHENG, Barry University from Jun 2019 to Aug 2019.

The Black & Decker Corporation (A): Power Tools Division 595-057

5

B&D’s strengths in the Professional-Industrial and Consumer segments did not transfer to the Professional-Tradesmen segment, where the approximate share positions in 1990 were as shown in Table A.

Table A Power Tools, Professional-Tradesmen Approximate Segment Shares, 1990

Makita ~50%

Milwaukee ~10%

Black & Decker ~9%

Ryobi ~9%

Skil ~5%

Craftsmana ~5%

Porter-Cable ~3%

Bosch ~3%

aManufactured in part by B&D and marketed by Sears.

Three product types—drills, saws, and sanders—represented nearly 80% of the total sales in the Professional-Tradesmen segment. The top three manufacturers offered broad product lines at approximately 175 SKUs each. Since its entry into the market in 1978, Makita had staked out leadership positions in virtually all products and distribution types within the Professional- Tradesmen segment. Exhibit 1 shows approximate shares for Makita, Milwaukee, and B&D for the largest categories in the segment. Exhibit 2 shows shares of Makita and B&D by the five major outlet types: (i) Two-Step (sales through distributors to independent retailers, such as Ace and ServiStar), (ii) Home Centers, (iii) Warehouse Home Centers, (iv) Membership Clubs, and (v) Farm Outlets.

Professional-Tradesmen revenues of approximately $35 million in 1990 for B&D translated into about $3 million in operating income. Gross margins ran about 35%, but SG+A costs were about 25%.

These numbers had become even more vivid for Galli in a recent Monday morning conversation with his boss, Gary DiCamillo, B&D’s president of Power Tools for the United States, who recounted this story:

Joe, yesterday, I stopped by that new Home Depot. It was a nice afternoon; lots of people around. They had one of those woodworking guys out on the sidewalk giving demonstrations for a couple of hours. He was using all Skil saws, and he was just packing up to go home when I came by at about 4 o’clock.

I said to him “What do you think of the Skil saws?” “Pretty good,” he said. So, I said, “Who else do you like?” He said “Oh, Milwaukee makes a nice reciprocating saw; Ryobi’s got some okay things.” “What about Makita?” I said. He said, “Oh, they’re okay—they’re all pretty good really—you just have to stay away from that Black & Decker!”

For the exclusive use of M. Vyas, 2019.

This document is authorized for use only by Megha Vyas in MBA646-AP-2019-02B taught by SHIRLEY YE SHENG, Barry University from Jun 2019 to Aug 2019.

595-057 The Black & Decker Corporation (A): Power Tools Division

6

Black & Decker and the Professional Segment Buyer

While the “just got to stay away from that Black & Decker” view was perhaps extreme, Galli understood that B&D’s strength as a consumer brand was not necessarily beneficial for the Professional-Tradesmen segment. Some tradespeople viewed all B&D products as for use at home rather than on the job; and, conversely, there had been instances of a B&D product designed for at home use being subjected to the demands of the job site and failing.

The typical plumber, electrician, or general remodeler working in residential construction had about $3,000 invested in 10 or so “tools-of-the-trade.” He or she bought tools when a replacement was needed, spending on average $1,000 per year. Tools and their performance were a constant topic of conversation at the job site. Generally, tradespeople were satisfied with the tools available—the perception being that Makita provided a good baseline option in all major categories, and other suppliers had particular product strengths, e.g., Skil in circular saws.

As noted above in Exhibit 2, this buyer bought most frequently in independently owned stores served by distributors, i.e., the Two-Step in Exhibit 2. However, the Home Ce

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