Steve Granger, Suzanne and Joseph Verdecchia bought a Sears dealer store four years ago in Chester on Maryland's Eastern Shore with the intention of growing the business.
Now, they wonder about the future of their store because a Kmart less than two miles away sells the same Craftsman products they do, after Kmart Corp. and Sears, Roebuck and Co. merged this spring.
"I don't feel like I have a business that's salable," said Joseph Verdecchia, 63, who had planned to sell the shop by the end of next year. "Selling the business was going to be a substantial part of retirement for me and my wife."
Now, he's joining a lawsuit with about 200 other franchisees of Sears' dealer stores. The Dealer Store Owners Association, which represents nearly a quarter of the more than 800 Sears dealer stores, filed suit yesterday in federal court in Minnesota against Hoffman Estates, Ill.-based Sears.
It cited "unfair internal competition" through the sale of Sears products, such as Kenmore and Craftsman brands, at Kmart stores. The lawsuit requests damages for dealers whose territories have been encroached.
Dealer stores call themselves "the harder side of Sears" - a play on the retailer's "softer side" slogan of years back - because they sell home appliances, electronics and tools but not clothes or furniture. The stores, which began 12 years ago, helped Sears reach customers in rural areas far from its department stores.
But within a few years, the rise of the Internet, another outlet for Sears goods, and the parent company's own struggles and eventual merger with Kmart created unforeseen tensions. The lawsuit also takes issue with the conversion of some Kmart stores into Sears Essentials stores, another potential source of competition with the dealer stores.
Typically family-owned, the dealer stores are responsible for their own employees and buildings, which range from 5,000 to 20,000 square feet. The six such stores in Maryland are in California and Prince Frederick in Southern Maryland; Oakland in Western Maryland, and in Easton, Chestertown and the Verdecchias' Chester store in Queen Anne's County, according to Verdecchia.
Sales called test
Sears said yesterday that it began selling Craftsman products through 300 Kmart stores nationwide in May as a test. It remains committed to its dealer stores, company spokesman Larry Costello said, and offered three-year contract extensions to about 200 whose contracts were due to expire.
"Any changes that are made to Sears and Kmart are being made to enhance the shopping experience," said Costello, who added that Sears has maintained communications with dealer store owners. To honor its contract with the dealer stores, Sears has maintained a promise not to sell Kenmore-brand products in the same ZIP code where a dealer store is located, Costello said.
But some dealer store owners say they still feel vulnerable about other Sears products sold in their markets.
"Sears encroached upon the market through Internet catalog sales and now through the merger with Sears products in Kmart stores," said Steve Granger, president of the dealers association and owner of a dealer store in Harrisonburg, Va.
"We're the ones doing the work, providing the blood, sweat and tears with our presence," said Granger, who is spearheading the legal action. "This has been going on for some time and it's been increasing. It's unbearable."
Dealer store owners are asking to be "treated fairly, honorably and equally," said Granger, who formed the association in March to deal with their concerns.
About a year ago, Granger said he was alarmed when he stopped receiving Internet referrals to his store. He later learned that Sears began delivering products to 80 percent of his market. He was losing potential sales, he said, but still responsible for servicing Sears products.
"They expected us to service the customer without compensation," he said. When he contacted Sears for a meeting to talk about his concerns, he was at first refused and later ignored, Granger said.
In general, franchisee associations and their parent companies are often able to negotiate and resolve conflicts, said Carl Zwisler, a lawyer for Haynes and Boone in Washington, who has practiced franchise law for 30 years. However, Zwisler said, he doesn't always see increased competition as a negative.
"Sometimes, there's more fear about impact than actual impact," said Zwisler, general counsel to the International Franchise Association, a Washington-based trade group.
"When there are more points of sale and advertising, it helps to increase awareness and increase consumer demand," said Zwisler, pointing to Seattle-based Starbucks Corp., which clusters its coffee shops to boost visibility.
Joseph Verdecchia agrees that the conflict can be worked out, but said he believes that Sears needs to do a better job of keeping the dealer stores as partners by making "three-sided decisions" to benefit the customers, the dealer stores and Sears.
"I don't look at this problem as insurmountable," he said, adding that Sears should offer "the protection we were promised and deserve."