Smith & Wesson booming again
By John Berthelsen

Smith & Wesson, perhaps America's oldest and most respected maker of handguns, has learned the secret that a flock of tobacco manufacturers learned in Asia as long ago as the 1980s: There is a fortune to be made in licensing a powerful name.

Cigarette brands such as Dunhill, Kent and Camel long ago branched out into safaris, clothing shops and travel agencies as a new way to evade the ban on cigarette advertising that spread across global television. For Smith & Wesson, however, it has been at least partly an attempt to claw back profitability. Pro-gun advocates boycotted the brand in March 2000 when it became the only US gun maker to agree to restrict the marketing of its handguns in exchange for settling lawsuits brought against gun manufacturers by the administration of president Bill Clinton. The agreement nearly destroyed the company.

It is a story that wraps up much that is unsettling about US society - its love affair with guns, its love affair with advertising and the capacity of advertising to extend a brand name beyond its original limits; and the LBO (leveraged buyout) craze of the 1980s that took long-stable companies out of the hands of their original owners and delivered them to corporate entities that did not heed or were unaware of the community mores that governed them in the first place. Certainly, it tells how dangerous it can be to cross gun owners and gun manufacturers.

To be sure, Smith & Wesson has recovered handsomely. In addition to selling handguns, the company in 2002 earned US$115 million from licensing its name to other manufacturers for products ranging from lambskin jackets ($149.98) to carabiner watches ($39.55) to "Black Power Glide open and close knives" ($79.55), or Smith & Wesson Bourbon Peppercorn Steak Slather ($7.95). Or perhaps a T-shirt in black or navy, bearing the slogan "Insured by Smith & Wesson" ($19.95)? Police at the California State Capitol now ride sturdy mountain bikes, made by Cycle Source Group of New York, but bearing the distinctive Smith & Wesson logo. They range in price from $350-$1,200. A civilian model is due out in the third quarter of the year.

In fact, Smith & Wesson, in the space of seven years, has risen into the top 50 largest brand-name licensors in the world and is moving up fast, a secret that other gun manufacturers have not yet cottoned to. Its wares include a wide variety of other products including quality cutlery and gift sets, binoculars and other optical equipment, sunglasses and more. The name is licensed to 25 different companies located throughout the world. Ten more agreements are under current consideration, according to John Steele, vice president of marketing for Smith & Wesson Holding Corp, headquartered in Prescott, Arizona.

Soon to come will be safety and security protection equipment including car and boat alarms and security kits for children as well. The company intends to market an entire residential burglar alarm package. Smith & Wesson, after all, manufactured the .44-caliber Magnum wielded so famously by Clint Eastwood in the 1971 movie Dirty Harry.

"Revenues derived from licensing are a tidy little sum," Steele said. "The licensing division returns about 80 percent of revenue to the bottom line."

The 2000 decision to go along with the Clinton administration’s gun restrictions nearly spelled the end of the company, founded in 1852 by Horace Smith and Daniel Wesson, and long considered America’s premier gun manufacturer. It was the first to manufacture a lever action pistol incorporating a tubular magazine and firing a fully self-contained cartridge. It supplied weapons to the US government for the Civil War, World War I and World War II. It continued to be mostly family-owned until 1965, when its near downfall came after a series of corporate arabesques in which it was sold and resold until it ended up in the hands of a British conglomerate, Tomkins Plc of London.

America's gun culture reigns
Its near-ruin illustrates just how ingrained America's pervasive gun culture is, and how jealous of its prerogatives. It is a culture that believes any deviation from the absolute right to keep a weapon of infinite firepower is the slippery first step on the slope to perdition. There are an estimated 250 million guns of all types in private hands in the United States.

Guns are inarguably responsible for a devastating toll on human life, both in the United States and across the world. Pro-gun advocates make various arguments about how these deaths would have occurred anyway from other weapons and that violence is a regrettable feature of America's culture - although the US is not nearly as violent as South Africa, say, with 75 homicides per 100,000 of population, or Colombia, with 64.6.

But for whatever reason, the last global measurement, by the Centers for Disease Control in the United States on gun deaths for the world's 36 richest countries, found that the US, with about 3 percent of the world's population, accounted for 45 percent of all gun deaths in those countries. The US toll was 14.24 gun deaths - from accidents, suicides and homicides - per 100,000 residents. The National Rifle Association (NRA), which is funded mostly by the United States' 191 gun manufacturers, argued that the study was shoddy because it didn't include all causes of violent death.

Asia's tight controls
In Asia, where guns and bullets are mostly strictly controlled, gun deaths were minuscule. Japan's death rate was 0.05 per 100,000. South Korea's was 0.12, Hong Kong's 0.14, Singapore's 0.21 and Taiwan's 0.37. Only the Philippines, noted to have spent 400 years in a convent (under Spanish rule) and 100 years in Hollywood (under US influence), breaks the Asian mold. While its gun homicides are much higher, it wasn't included in the CDC study.

In any case, Tomkins made a horrendous strategic mistake, from a commercial standpoint, when it gave in to the Clinton administration's agreement. The NRA and a variety of other gun manufacturers charged that Smith & Wesson had committed what amounted to treason. They pointedly referred to the fact that it was a "British-owned company" and kicked off an e-mail chain letter that repeated the words "Smith & Wesson must die" 13 times within it.

"There is an on going boycott against Smith & Wesson for giving into the enemy (I.E. Clinton and his companions, other gun banning, rights violating scum) and signing an agreement that will forever damage our rights to freely keep and bear arms. I received this from The 2ndAmendmentNews Team which is a list I belong too. You can sign up to the list at the bottom," read one e-mail petition.

Other gun owners bombarded the company with hate mail. Gun shows across the United States were alive with anti-S&W slogans and booths. Other gun manufacturers leaped in to take advantage of the company's difficulty.

The effect was dramatic. By the third quarter of 2000, Smith & Wesson's retail sales had plummeted between 40 and 60 percent, Steele says. In October, the company's chief executive officer resigned. It was one of the most effective consumer boycotts ever, and astonishing testimony to the clout of America's gun culture.

Tomkins calls it quits
By early 2001, Tomkins was willing to throw in the towel. It had paid an estimated $112 million for Smith & Wesson in 1987. The British conglomerate sold it to Arizona interests in early 2001 for a minuscule $15 million - only $5 million of that up front, and that financed through a $5 million loan. The new ownership also entered into a guaranty of a $30 million unsecured note from S&W to Tomkins.

The new owners immediately set out for the NRA's annual convention in Kansas City, Missouri, to kowtow to gun-owning America. They wore lapel buttons saying that Smith & Wesson was now "American Made, American Owned". They traipsed from gun show to gun show, pointing out that they were abandoning the Clinton agreement.

"After the [George W] Bush administration took over, the [Clinton agreement] basically became null and void, and we went on a campaign to tell customers that we were American-made, American-owned, and we continue with that mantra to this day," Steele said.

The move toward licensing began under Tomkins ownership seven years ago. But under the new ownership, it has grown enormously. While two other manufacturers - Remington and Winchester - also do some marketing, they pale against Smith & Wesson's effort and are largely concentrated in weapons-related items.

"Licensing has made a huge difference," Steele said. The items the company licenses are carefully selected and geared toward key images developed in a major marketing survey that identified three "clusters" of identifiable characteristics. The first cluster, the marketers found, revolved around safety, security and protection, the second quality, durability and craftsmanship, and the third was heritage and tradition. Every product licensed to carry the Smith & Wesson name, Steele said, must fall within these clusters.

"We are really keyed into finding licensees that could distribute products and lines of trade denoted in those key areas," Steele said. What the company also discovered is that "the negatives [generated by the Clinton agreement] almost immediately vanished. We are no longer the pariahs of the industry. We are now the darlings."

Recovery from disaster
Indeed. Smith & Wesson's shares had fallen to $1 per share, but that more than doubled before falling back recently to about $1.70. For the nine months ended January 31, company revenues were up 31 percent to $69 million. Net income was a modest $197,000, still a decisive turnaround from a $5.3 million loss.

"We were very aware, and still are, that our core product is handguns," Steele said. "It has been and it will be. But my goal, and the goal of the company, is to build the equity of the brand, to project brand awareness and build it into new lines of trade."

And, as the industry's darling, it has again begun selling handguns at a feverish clip. Working with new metals, the company has developed new weapons. In 2000, Smith & Wesson began working with a new lightweight metal to create the Scandium series of .357 Magnums. Weighing only 340 grams, the company says, "these lightweight, full-featured .357 Magnums offered shooters all the power of a .357 with only a fraction of the weight". The company showed nine new models of handgun at gun shows in February. Each of the nine, Steele said, has a backlog in excess of 5,000 units.

And the biggest weapon of all? That is a .50-caliber revolver with a barrel that is 21.3 centimeters long, announced at the Shooting, Hunting, Outdoor Trade Show (SHOTS) in Orlando, Florida, in February by the company's post-Tomkins chairman, Bob Shaw. Its total length is more than 38cm. It weighs 2.7 kilograms and has double the power of most assault rifles in the US. It is said to be able to drop a grizzly bear with a single round. It will cost nearly $1,000, and, according to Steele, there are 12,000 customers lined up to buy them as fast as Smith & Wesson can build them.

And will Dirty Harry point it at anyone and ask them to make his day? Maybe not. At 73, Dirty Harry could be getting a little old for this line of work. But someone will probably turn up wielding it in a movie, and that will be a godsend for Smith & Wesson's licensing program.

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