Why Stanley Security Changed Gears



Business model

Stanley Black & Decker (SWK) sold products and services under mechanical access solutions (or MAS) directly to consumers until 2013 when it opted for a shift in business model. The company now sells to distributors who bring products to the market through various channels like retailers and home depots. The shift in its business model had a substantial contribution to the sales decline in 2014. However, by 2015, the company had reverted to peer level growth and has currently established a trusted distribution network.

For the convergent security solutions (or CSS) business, the company predominantly adopts a direct sales strategy. Most CSS customers such as banks, healthcare, and educational institutions are commercial. Therefore, it’s best to deal with them on a direct basis.

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Recurring revenues

The company follows a model of installed base plus service contracts for revenue generation. Sales in the segment include attractive service and monitoring contracts that offer a recurring revenue stream. A third of security solutions sales come from these contracts. Among end markets, banking (IYF) customers such as Wells Fargo (WFC) prefer an in-house system for monitoring. Customers in other end markets such as retail (XRT) are more likely to hire a provider like Stanley due to headcount requirements and challenges in developing a comparable systems expertise.

Stanley Security margins

Profit margins in Stanley Security increased from 10.2% in 2013 to 11.4% in 2015. Among major competitors, Tyco International (TYC) increased margins from 7% in 2013 to 8.9% in 2015. Operating margins for Assa Abloy (ASAZY) were 16.3% in 2014 as well as 2015. Assa Abloy is the global leader in door opening solutions and mechanical locks but has a negligible presence in the electronic security market.


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