Smith & Wesson CEO James Debney Targets Strong Growth
“I just thought it was something I ought to do; I’m not really sure why,” he recalled, admitting freely that he didn’t really know much of anything about firearms then, and thought some target practice might somehow be of help. “I borrowed a friend’s gun, went out in the woods, and did some shooting.”
As it turned out, fluency with a handgun, or, in this case, lack thereof, wasn’t a factor in Debney’s getting the job — he believes it was his experience in business operations, manufacturing, and branding, especially a lengthy stint with a Canadian-based subsidiary of aluminum giant Alcoa, that impressed his interviewers — and it hasn’t had any perceptible impact on his job performance to date.
But his ability to learn quickly about the gun business and read what’s between the lines on charts indicating what people are buying, in what quantities, when, and perhaps why … well, that’s another story.
“It takes a while to understand the business, especially if you’re British and have a limited knowledge of firearms to begin with,” said Debney, who was promoted to president, CEO, and board member for the parent company, Smith & Wesson Holding Corp., in 2011. He noted that he considers himself a quick learner, and believes he’s become quite proficient at analyzing such data and putting it to use setting a strategic course.
What the numbers — such as those in the charts on pages 7 and 9 — are telling him is that there is a strong and steady interest in guns, especially handguns. Theories on this range from recent (and lingering) fear that the Obama administration will push through tougher restrictions on gun ownership to greater acceptance of firearms in general, a trend that shows no real signs of slowing down.
They also reveal some changes in taste, particularly a swing away from revolvers (long a Smith & Wesson strong suit) in favor of pistols, especially a polymer S&W product called the M&P (short for Military and Police) that is proving popular with police, military organizations, and consumers alike.
Effective use of available data — and there is quite a bit of it in the gun industry — is a big part of a fundamental and very significant change in philosophy that Debney is leading at S&W. This is a shift from being what he called an “engineering-led” or “engineering-centric” company to a consumer-products company led by its marketing team.
“We’re looking externally, doing the market analytics, doing the consumer research, consumer-segmentation studies, and attitude-and-usage studies,” he explained, “so that we understand the market and the most powerful force that drives our business, which is the consumer.
“We can then tailor and leverage our high-product portfolio to meet the needs and desires of those consumers,” he continued, adding that he believes this shift — still a work in progress — has no doubt played a large role in the company’s strong numbers across the board in 2012, for everything from sales figures to stock price.
Concerning the former, net sales for the most recent quarter were a record $136 million, up nearly 50% from the same period a year ago. Early projections for fiscal year 2013 forecast between $530 million and $540 million in sales, up more than 25% from the $412 million for FY 2012. As for the latter, S&W stock ended trading Oct. 16 at $10.31, roughly four times the price a year ago.
And Debney told BusinessWest that he fully expects this stronger emphasis on consumers and their corresponding wants and needs will lead the company to larger market share among the many constituencies it serves.
For this issue, BusinessWest talked at length with Debney about his plans for Smith & Wesson and how he plans to get the company where he wants to take it. This was a wide-ranging interview, and with all topics concerned, Debney proved to be a straight shooter, figuratively speaking.
Taking His Best Shot
Debney said the U.S. military has been looking at replacing the M9 Beretta full- metal pistol that has been essentially standard issue for many years now with what he called an “off-the-shelf, tried-and-tested polymer pistol.” And one of the products it is looking strongly at, or at least testing, according to published reports in such publications as Army Times, is S&W’s M&P polymer model.
While he didn’t have hard numbers, Debney estimates that the contract with the military could amount to something on the order of 550,000 units over a seven-year period.
“We’re waiting until they’re ready to finally start the process — this has been going on a long time,” he said, adding that talk, speculation, and testing of various weapons has been constant since long before he took the job at Smith & Wesson. “It would be a very proud moment for Smith & Wesson to be selected to provide the U.S. military with a sidearm.”
But Debney and other leaders at S&W are certainly not waiting on the military when it comes to strategic initiatives and plotting a future course for the 160-year-old company. That’s because the numbers on the consumer side of the ledger are much larger — over that same seven-year period, there might by 15 million to 18 million units sold — and this is where the primary focus must be, he noted.
“The consumer channel here in the U.S. is by far the biggest — it dwarfs anything else in the world,” he said, referring to military, law enforcement, and international markets. “There’s no market like it, so in terms of our channel focus, it’s obvious where we’re looking, and it comes back to what I was saying: you have to behave like a consumer-products business if you’re operating in a consumer environment.”
This more consumer-oriented focus has been the primary strategic directive for Debney since he was successfully recruited to Smith & Wesson from his position as president of Pesto Products Company, a $500 million plastic-products business unit formerly of Alcoa Consumer Products. At Pesto, Debney focused on manufacturing and supply-chain aspects of the company, or what he called the “operations side” of the business.
“I’ve spent all of my career with consumer products, both branded and store-branded products,” he said, mentioning Pesto-produced, store-branded household wraps and plastic bags as just one example, and noting that he wants to take the many lessons he’s learned at previous career stops with him to S&W.
He told BusinessWest that what attracted him to the Smith & Wesson job — one of many he’s been asked to consider over the years — was the iconic brand.
“That was a huge attraction for me, and it’s a match with my background because we’re very much a manufacturing company as well as a consumer-products company,” he explained. “There’s a huge level of awareness of the brand; it’s 92% amongst a population that either owns a handgun or intends to purchase a handgun.”
And when asked to identify his primary objective at Smith & Wesson, he said it is to fully leverage that historic brand and gain market share across the board. To accomplish this, the company has to look hard at the data at hand and respond to what it’s showing.
For example, statistics reveal that sales of handguns have, for the most part, been steadily rising over the past several years; they were at 3.14 million in 2008 (just before Obama was elected), 4.44 million in 2009, 4.35 million in 2010, and 4.49 million in 2011. Breaking down those numbers further, pistol sales have moved steadily higher, from 2.51 million in 2008 to 3.69 million in 2011, while revolver sales have gone in the other direction, from 930,000 in 2009 to 890,000 in 2010 to 800,000 in 2011.
The reasons for the trend are many — pistols offer everything from greater shooting capacity (six shots as opposed to 12, 15, or 20 in a clip) to rate of fire, said Debney, adding that there is nothing to show that this trend, especially among younger consumers, will not continue.
Looking at the hard numbers, the leadership team at S&W quickly understood that its resources were not being put in the right area. There was what Debney called a “misalignment” in the company’s direction and focus.
“As a revolver company — and the essence of Smith & Wesson is the revolver — we learned that, with that product, there was a little bit of growth, but over time, it was very flat,” he explained. “What we were finding was that polymer pistols, an area where we had some success starting about 2006, was the area where all the growth was coming from.
“Polymer pistols were outselling revolvers four to one,” he went on, “yet a large, impressive chunk of revenue for us was still coming from revolvers. We were not excelling in the product category that’s really driving growth in the market.”
Setting His Sights
Responding to such data and then realigning direction and focus with a greater emphasis on production, sales, and marketing of polymer pistols, as well as other models, is just one example of how Smith & Wesson is making that aforementioned transition, said Debney, adding that the three words that perhaps sum up what the company is trying to do are ‘focus,’ ‘simplify,’ and ‘execute.’
As he noted, pistol-sales growth is perhaps the company’s top priority, with initiatives ranging from increased consumer advertising to strong merchandising and store programs; from increased manufacturing capacity to satisfy growing orders to broad efforts to make it easier for dealers to support the M&P platform.
And while the consumer market is the obvious primary target given those aforementioned sales numbers, there are ample opportunities in both the military and law-enforcement realms, said Debney. He noted that, in recent years, Smith & Wesson, which once owned perhaps 98% the law-enforcement market (or what he called the “professional market”) and lost a good share of it to Austrian gun maker Glock and Swiss maker SIG Sauer starting in the ’80s, has been steadily regaining market share with significant promise that it can pick up that pace.
“We’ve had some big wins recently,” he said, citing new contracts with the Massachusetts State Police and police departments in Milwaukee and San Antonio, among others. “But it’s going to take some time for us to win back that market; our product [the polymer M&P] is six years old, while Glock has been at it for 25 years. It takes a number years to gain traction, because there has to be a high level of trust with a law-enforcement agency in a firearm before they will adopt it.”
Meanwhile, the focus on the professional market and its demanding standards essentially holds the company to a higher standard, which will ultimately help it gain market share in the huge consumer market.
“In that field [law enforcement], a gun is a tool for the job — failure is simply not an option,” he explained. “So we like that, because it raises the bar on everything we do, and then we leverage that type of product performance and service level back to the consumer channel, and that really enhances the formula for success that you’re trying to create.”
And while most of the focus will be on handguns, the company will also work to improve market share in the long-gun category, where it has had some success in recent years, especially with products for the professional market.
Smith & Wesson acquired Thompson/Center Arms, a maker of sporting arms, three years ago, and successfully relocated that business into the company’s expanded Roosevelt Avenue facility, adding roughly 225 jobs in the process, said Debney, adding that the sporting-arms segment of the corporation is relatively small but steady.
Growing it, and all other areas of the company, will be a function of the same kind of consumer-focused work that is defining efforts with the handgun realm, he told BusinessWest, adding that, overall, the company is committed to allocating energy and resources in those areas that show the most growth potential, as determined by consumer needs — and demands.
“We have a very crowded space when it comes to the number of brands that are out there,” Debney said of the firearms market in general. “And many of the brands have good products to offer; that’s why the consumer has choice. And that’s why it’s even more demanding on us, and challenging for us, to get it right if we’re going to continue to grow and be successful.”
As he said earlier, the simple, yet in many ways complex, mission for the company is to focus, simplify, and, above all, execute.
Hitting the Mark
Debney told BusinessWest that he’s still not very proficient when it comes to shooting, not that he’s had much practice.
He’s been singularly focused on getting Smith & Wesson dialed in when it comes to that aforementioned “most powerful force that drives our business” — the consumer. There has been considerable progress to date, as the revenue figures and current stock price show, and the potiential for much more in the years to come.
Debney and the rest of the leadership team at Smith & Wesson are aiming high, and thus far, their strategic initiatives seem to be right on target.
George O’Brien can be reached at [email protected]