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WD-40 Company

WD-40 Company

1953: THE BIRTH OF WD-40

ONE PRODUCT TRANSFORMS A COMPANY

GOING PUBLIC, NEW GROWTH

INTERNATIONAL EXPANSION

FROM ONE-PRODUCT FIRM TO FORTRESS OF BRANDS

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

FURTHER READING

1061 Cudahy Place
San Diego, California 92110-3929
U.S.A.
Telephone: (619) 275-1400
Toll Free: (800) 448-9340
Fax: (619) 275-5823
Web site: http://www.wd40.com

Public Company
Incorporated:
1952 as Rocket Chemical Company
Employees: 244
Sales: $286.9 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: WDFC
NAIC: 324191 Petroleum Lubricating Oil and Grease Manufacturing; 325611 Soap and Other Detergent Manufacturing; 325612 Polish and Other Sanitation Good Manufacturing; 325613 Surface Active Agent Manufacturing; 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing

Since the 1950s, the San Diego-based WD-40 Company has dominated the U.S. market for its namesake multipurpose lubricant. The WD-40 substance is a petroleum-based lubricant, moisture retardant, cleaner, and rust preventative. It is used in around 80 percent of American households and is one of the best-known brands in the country. One of the products strengths is its versatility: it has been found to improve the performance of sewing machines, attract fish, loosen rusted nuts and bolts, and unfreeze door locks and handles. Sold through mass merchandisers, hardware stores, home improvement centers, warehouse club stores, automotive stores, and industrial distributors and suppliers, WD-40 is sold in more than 160 countries worldwide. A one-product company until 1995, WD-40 Company also produces 3-in-One Oil, a lower-priced general purpose lubricant; Lava and Solvol heavy-duty hand cleaners; and several household cleaning product brands2000 Flushes, X-14, Carpet Fresh, Spot Shot, and 1001. An increasingly global firm, WD-40 generates around 44 percent of its revenues outside the United States, with Europe responsible for 28 percent and 7 percent originating in the Asia-Pacific region. The companys lubricants franchise accounts for about two-thirds of overall revenues, with household products bringing in 31 percent and hand cleaners the remaining 2 percent.

1953: THE BIRTH OF WD-40

Although WD-40 has been a household name for several decades, it did not begin as a household product. In 1953 Norm Larsen of Rocket Chemical Company developed WD-40 as a corrosion protector for missile covers for the San Diego-based Convair, an aerospace and defense contractor and a division of General Dynamics Corporation. Eventually, WD-40 was intended for use on the National Aeronautics and Space Administrations Atlas missile. The name WD-40 stands for water displacement, formulation successful in 40th attempt, because it was on the 40th try that Larsen perfected the product. Employees at General Dynamics discovered that WD-40 was perfect for a variety of home uses, and they began sneaking the lubricant home from work. By 1955, Larsen began experimenting with putting WD-40 in aerosol cans, and in 1958, Rocket Chemical Company responded to the consumer market for a home lubricant by contracting with an aerosol packager and preparing WD-40 for commercial sales.

Rocket Chemical Company, which was founded in 1952 by Larsen and three investors, was a one-room operation with a three-person staff. (One of the three investors was Sam Crivello, who was on the company board for many years, and whose son Mario continues to hold a seat on the board and also maintains a stake in the company totaling more than 5 percent.) In addition to WD-40, the company produced rust resistors and removers for metal parts and tools for the aerospace industry. In 1960 the company grew to include seven employees with sales of about 45 cases per day. Rocket Chemical Company sales representatives sold the product out of their cars to San Diego sporting goods and hardware stores. A slight recipe change in 1961adding a dose of mineral spirits to the original formula to cover the petroleum scentwas the only adjustment ever made to Larsens original formula as of the early 21st century. Hurricane Carla, which ravaged the Florida coast in 1961, increased WD-40s business dramatically, as it was used by hurricane victims to recondition water-damaged vehicles and machinery.

ONE PRODUCT TRANSFORMS A COMPANY

By 1965, WD-40 sales were so successful that Rocket Chemical Company ceased production of all other products to focus solely on the lubricant. Sales surpassed $1 million in 1968, and when John Barry became president the next year, the firm officially changed its name to WD-40 Company. In 1969 sales reached $2 million.

With a mandate to accelerate both revenues and earnings, Barry piloted WD-40 to a position of prominence as an untouchable one-product company. The brother-in-law of one of the three original investors in Rocket Chemical Company, Barry garnered his marketing know-how working at companies including 3M, Avery Label, and Adams Rite. With a virtually unknown product and no working capital, Barrys marketing strategies were straightforward and simple, emphasizing free samples (including 10,000 WD-40 samples each month sent to soldiers in the Vietnam War to keep their weapons dry), trade shows, and magazine advertising. Product awareness was built through manufacturers representatives, who worked on commission and sold the product to wholesalers only. No written contracts were held between WD-40 and the manufacturers representatives, and the relationship could be terminated with 30-day notice. The underlying philosophy behind these strategies was to market the companys one product to its full potential, diversifying the uses of the product, not the product itself, while keeping costs down.

GOING PUBLIC, NEW GROWTH

In January 1973 WD-40 went public. Prior to this first offering, the company was a Subchapter-S corporation. Shareholders gave up this election by going public, receiving looser restrictions on their estates and tax benefits in exchange. Heavy demand escalated the initial price of a 40,000 share offering to $16.50 from the originally intended $15 a share, and later in the year shares surged to $34, before dropping again to $15 at the end of the year. The initial offering generated net proceeds of approximately $590,000, of which $350,000 was used for a new plant, with the remainder added to working capital. The company paid half its earnings in dividends, increasing dividends with earnings growth. The next year, the company moved its headquarters to its present location on Cudahy Place in San Diego. Prices in 1974 were raised by 10.6 percent.

COMPANY PERSPECTIVES

Our mission is to leverage and build the brand fortress of WD-40 Company by developing and acquiring brands that deliver a unique high value to end users and that can be distributed across multiple trade channels in one or more areas of the world.

We strive to cultivate a learning culture based on our corporate values. We have a healthy discomfort with the status quo. We reward those who take personal responsibility in getting results to increase the profitability and growth of our business.

In 1978, after 25 years of business, sales reached $25 million. The following year, sales increased to $34 million, with earnings of $5 million. Sales and earnings had increased at a ten-year compounded rate of approximately 35 percent. The company remained tightly held, with over half of the stock held by officers, directors, and relatives of the original three Rocket Chemical Company investors. The wholesale price of the companys product rose 43 percent between 1969 and 1981, while the U.S. wholesale price index increased 132 percent during this period. Costs at WD-40 had always been low, because the focus on one product meant there were no research and development costs. The company at this time had only 32 employees, with a sales force of 65 manufacturers representatives selling the product to about 14,000 wholesalers. The entire manufacturing operation was staffed by one part-time employee, who created the WD-40 concentrate from a mixture of off-the-shelf chemicals. About 28 percent of sales were spent on sales, marketing, and administration. Also, because the company had no debt, minimal overhead, and rented its office space, WD-40 paid about 5 percent back to investors.

By 1979, 35 million cans of WD-40 were being sold, with 55 percent purchased by homeowners and sporting enthusiasts and the remainder purchased by commercial and industrial users. The first price increase since 1974 raised the cost of the cans by 15 to 16 percent. Half of the companys total assets were held in cash, with after-tax net earnings around 16 percent. In 1981 the company was selected by Forbes as one of the small, emerging growth companies on its Up-and-Comers List. Continuing to experiment with innovative sampling as a marketing strategy, WD-40 entered into a partnership that year with Wagner Spray Tech, a spray gun manufacturer in Minneapolis. WD-40 samples were included in spray gun packages, along with instructional brochures. Both companies shared equally in the costs and profits of the sample program.

INTERNATIONAL EXPANSION

By 1985, sales had increased to $57.3 million, with a 21 percent increase the following year to $69.4 million. Earnings in 1986 were $11.6 million, and shares were sold at a new all-time high of $33.50, a 44 percent gain. Having already achieved great success with its one product in the United States in the 1980s, it was time for WD-40 Company to expand its presence in the world market. International sales at this time represented less than 5 percent of total sales (not including Canada). In 1986, rather than renewing its contract with its U.K. distributor, the company built its own plant in Milton Keyes (near London). The next year an official U.K. subsidiary, WD-40 Company Limited, was established to manufacture, produce, and oversee distribution of WD-40 in Europe, the Middle East, and Africa. Since that year, when sales for the United Kingdom and Europe were $10 million, earnings grew rapidly. By 1992, sales attributed to France, Spain, and the Middle East had reached $17.5 million. Continuing to emphasize overseas expansion, the company bolstered its sales force in Europe by adding new sales representatives in France, Spain, and Italy. Shortly thereafter, Barry began sales expansion to Australia and the Pacific Rim. By 1988, European, Australian, and Asian markets accounted for 21 percent of revenues.

Sales reached $71 million in 1987, and company stock hit a high of $46. However, the October 19, 1987, crash of the stock market, resulting in a 508-point drop in the Dow Jones Industrial Average, caused WD-40s stock to drop to the mid-$20s in November. With fewer than 100 employees, the company was still able to net $11 million in 1987. Every dollar of that $11 million was paid in dividends. At this time, the company had no debt and $18 million in cash, with a market value of $231 million.

KEY DATES

1953:
Norm Larsen of Rocket Chemical Company develops WD-40 as a corrosion protector for missile covers.
1958:
Rocket Chemical begins packaging WD-40 for the consumer market in aerosol cans.
1969:
Name of firm is changed to WD-40 Company.
1973:
WD-40 goes public.
1993:
Sales reach the $100 million mark.
1995:
Era as one-product company ends with the acquisition of 3-in-One Oil.
1999:
WD-40 acquires the Lava brand of heavy-duty hand cleaners.
2001:
Global Household Brands is acquired, adding the X-14, Carpet Fresh, and 2000 Flushes brands to the company stable.
2002:
Company acquires Spot Shot carpet stain remover.
2005:
WD-40 Smart Straw and WD-40 No-Mess Pen make their debuts.

In 1988 WD-40 changed its sales strategy, shifting from salesperson commissions to direct sales. This policy was implemented as a means to increase business with large retailers, who formed a significant portion of the companys sales, with 40 percent of sales originating in 50 of the companys 12,000 accounts. Large retailers preferred the elimination of intermediary distributors, as a cost-cutting factor. Responding to this desire, WD-40, using a contract clause allowing the termination of the hiring agreement on either side with 90 days notice, decided to eliminate 12 distributors and instead hire direct salespersons to cater to the large accounts. Good earnings prospects and an increased dividend brought WD-40s stock to an October high of $33.25, and sales rose to $80 million, with net income increasing 40 percent to $25.4 million. The new sales strategy, however, proved dangerous to the companys earnings in the long run.

Eight of the 12 distributors sued WD-40, claiming that the company had promised them job security in exchange for company loyalty. In 1992 the distributors were granted a $10.3 million settlement. WD-40 appealed the decision. In the meantime, two additional distributors, who had not joined the original suit, filed a separate lawsuit in 1992, using the same lawyers. In 1993 this second suit was settled, granting the distributors $2.5 million. In 1994 the original case was again decided in favor of the distributors, costing the company $12.6 million. Perhaps, because sales had skyrocketed from $80 million in 1988 to $100 million in 1992, due in part to the new sales strategy, the settlement fee may not actually have presented a real loss to the company. The year 1994 was the first in a decade in which WD-40 had flat earnings, but profits still totaled $12.6 million on record sales of $112 million.

Competition had never presented a challenge to WD-40. Though the formula for the lubricant was a guarded secret, the company had chosen never to patent it. Although WD-40 was physically indistinguishable from other productssuch as 3Ms Q4, Bordens Ten*4, and Valvolines 1-2-99no contender had presented even a minor challenge, and WD-40 has buried over 200 competing products over the years. This included, as of 1988, 14 billion-dollar companies, whose economic clout was unable to unseat WD-40s blue-and-yellow can.

After over two decades of leadership, Barry retired to become chairman of the board in 1990, replaced by Gerald Schleif as president and CEO. Schleif was previously WD-40s executive vice-president and CFO and had served the company for 21 years. In 1990 WD-40 increased the price of its product for the first time in nine years, raising it by 9 percent. The company was named among 100 of Americas Best Companies by Fortune magazine in 1991. A new international subsidiary, WD-40 Ltd. (Australia), was established that year, to market the product in New Zealand, Southeast Asia, and the Far East, and a sales manager was employed to handle Hong Kong in 1992.

By that year, WD-40 had an 83 percent share of the multipurpose lubricant market, with sales of $99.9 million (an 11.3 percent increase over the previous years sales of $89.8 million). Stock was trading at $52. Two-thirds of those sales were generated in the United States, and WD-40 Company targeted international expansion as the key to increased growth, setting a goal of a 50:50 ratio.

WD-40 celebrated its 40th anniversary in 1993, breaking the $100 million sales mark with revenues of $104.4 million. Plans for the anniversary bash included a commemorative anniversary can. The company was featured among the top ten most profitable companies on the NASDAQ in 1993. Statistics revealed that four out of every five American households used WD-40, and that 81 percent of industrial and trade consumers also chose the product. Weekly sales in the United States amounted to more than one million cans of the petroleum-based lubricant.

FROM ONE-PRODUCT FIRM TO FORTRESS OF BRANDS

A major new direction was implemented in December 1995. After more than 40 years as a successful single-product company, WD-40 acquired 3-in-One Oil from the U.K. firm Reckitt & Colman plc for $15.4 million. 3-in-Ones history dated back to 1894 when George W. Cole of Asbury Park, New Jersey, invented it as a product with three uses in the care and maintenance of bicycles: lubrication, rust prevention, and cleaning. It eventually developed into a well-established, low-priced, general purpose lubricant. Its positioning as a multiuse product meshed well with that of WD-40, and the two products had carved out specific niches in their method of delivery: 3-in-Ones precise applicator drip spout versus WD-40s aerosol spray. At the time of its acquisition by WD-40 Company, 3-in-One was generating annual sales of $14.4 million.

In 1996 WD-40 developed and launched a new product, T.A.L. 5, a premium, extra-strength lubricant (the initials standing for triple additive lubricant). A new corporate logo was designed to reflect the integration of the two new products. In that same year, WD-40 changed its propellant from hydrocarbon to CO2, reducing its volatile organic compounds content to comply with new environmental regulations. WD-40 continued its growth that year, with sales of $131 million and income of $21.3 million. International sales grew to $51.4 million, a 28 percent increase over the previous year, with international business accounting for 44 percent of sales, and with WD-40 marketed in over 135 countries and 30 different languages.

Following Schleifs retirement in 1997, Garry O. Ridge was named president and CEO of WD-40. Hailing from Australia, Ridge had joined the firm ten years earlier to head its Australian subsidiary. Later, he was placed in charge of all international operations. Under Ridges leadership, WD-40 quickened both its new product development efforts and its pace of acquisition, concentrating in the latter case on brands already ranking either number one or two in their respective categories. He greatly expanded the firms portfolio of brands, widening it outside of lubricants; Ridge eventually liked to tell people that WD-40 was in the squeak, smell, and dirt business. The leader also conveyed the firms strategy during this period as expanding from a brand fortress focusing on one product to a fortress of brands.

The dirt side entered the picture in April 1999 when WD-40 acquired the Lava brand of heavy-duty hand cleaners from Block Drug Company, Inc., for $23.3 million. Lava, another venerable brand dating back to 1893, was generating a little more than $9 million in annual sales; users of Lava soaps overlapped quite a bit with the users of WD-40 lubricants, making for a complementary fit. At the time Lava was principally available as a bar soap, although a liquid version had been developed but not fully marketed. WD-40 quickly unveiled larger versions of liquid Lava and successfully introduced them into hardware stores. Also in 1999, the company discontinued sales of T.A.L. 5 as the product fell far short of attaining annual sales of $20 millionRidges threshold for a product to be considered a success. In the meantime, sales of 3-in-One increased smartly in 1999 when the product was repackaged to include a telescoping applicator spout. With a resemblance to an old-fashioned oilcan, the new 3-in-One packaging featured an extendable spout designed for poking into hard-to-reach places. In 2000 WD-40 followed up its acquisition of Lava with the purchase of Solvol from Unilever. Solvol was the leading brand of heavy-duty soap in Australia, New Zealand, and the Pacific Islands. Revenues passed the $150 million mark in 2000.

In April 2001 WD-40 completed its largest acquisition yet, buying Global Household Brands for a total of $72.9 million, including $66.8 million in cash. WD-40 thereby moved into the household cleaning products sector (encompassing both the smell and the dirt of Ridges formulation), picking up X-14 brand mildew stain removers and bathroom cleaners, Carpet Fresh rug deodorizer, and 2000 Flushes, a long-duration automatic toilet bowl cleaner. Collectively, these brands were generating $70.5 million in revenues at the time they were purchased. To fund the deal, WD-40 had to break with tradition. Known historically for paying out most of its earnings in dividends and for having a very low debt load, the company slashed its dividend by 20 percent while its long-term debt ballooned from $10.9 million to $76.6 million.

The debt load was increased further to $96.6 million and the dividend cut again to help fund the May 2002 acquisition of Heartland Corporation for $47.2 million. Via this deal, WD-40 gained Spot Shot carpet stain remover, a neat fit alongside Carpet Fresh. The addition of Spot Shot, a brand generating nearly $33 million in annual sales, helped company sales jump 32 percent in fiscal 2002, to well over $200 million. Despite the dividend cuts, WD-40 was still paying out about 50 percent of its earnings to shareholders in the form of dividends, a rate much higher than that of other consumer products companies.

During 2003, as it worked to integrate and expand the marketing reach of its newer brands and also celebrated its 50th birthday, WD-40 was also active in extending its two oldest brands. The firm introduced the WD-40 Big Blast can, which featured a wide-area spray nozzle for faster and more efficient deliveries of the product over larger areas. Also debuting in 2003 was the 3-in-One Professional line of specialty lubricating products, which included a silicone spray, a white lithium grease, and a high-performance penetrant. This line was expanded the following year with several new formulations, including an engine starter and conditioner. The entire Professional line was introduced in an aerosol format, while the high-performance penetrant was also available in 3-in-Ones familiar drip form.

WD-40 also continued its acquisition spree in 2004, completing in April an $11.4 million purchase of the 1001 brand of carpet and household cleaning products from PZ Cussons Plc, and thereby expanding into the U.K. market. Later in the year the Lava brand was extended via the launch of the Lava Pro line of solvent-based heavy-duty hand cleaners. WD-40s most significant line extensions, however, involved the company flagship. Debuting in mid-2005 were the WD-40 Smart Straw and the WD-40 No-Mess Pen. The former addressed a longstanding issueWD-40 users complaining about losing the thin plastic straw attached to the cans with tape. Market research had revealed that 80 percent of WD-40 users had lost one of the straws. The company responded with Smart Straw, which featured two spraying options: a stream through a newly designed, permanently attached straw or, with the straw folded down, a wide-area spray. The No-Mess Pen, meanwhile, stored a low-odor version of the WD-40 formula in a pen-shaped applicator that offered portability and the ability to precisely apply the product. While WD-40 was a product more typically used by men than women, the company hoped the No-Mess Pen might win over more female customers. In their first year on store shelves, the two new WD-40 products helped push the brands sales up nearly 10 percent.

WD-40s unbroken record of growth continued in fiscal 2006, when sales increased 9 percent to $286.9 million. Net income, however, rose only 1 percent to $28.1 million in part because of the rising costs of components and raw materials. In addition to the acquisitions and new products, efforts to pursue growth overseas were also paying off, particularly in Europe, and Russia and China were being targeted as two markets with especially high growth potential. During fiscal 2007 WD-40 launched a new phase in its penetration of the Chinese market by opening up a direct sales office in Shanghai. As it continued to develop and expand its fortress of brands and pursue global growth, WD-40 Company set ambitious financial goals for itself, including reaching around $400 million in sales and more than $40 million in net income by fiscal 2010.

Heidi Feldman Updated, David E. Salamie

PRINCIPAL SUBSIDIARIES

WD-40 Manufacturing Company; WD-40 Products (Canada) Ltd.; WD-40 Holdings Limited (U.K.); WD-40 Company Limited (U.K.); WD-40 Company (Australia) Pty. Limited; HPD Holdings Corp.; HPD Laboratories, Inc.; HPD Properties, LLC; Heartland Corporation; Shanghai Wu Di Trading Company Limited (China).

PRINCIPAL COMPETITORS

Radiator Specialty Company; CRC Industries, Inc.; The Clorox Company; Church & Dwight Co., Inc.

FURTHER READING

Barrett, William P., Johnny One-Note, Forbes, March 8, 1999, pp. 7677.

Bauder, Don, WD-40 Eases Its Way into Wall Streets Heart, San Diego Union-Tribune, November 29, 1998, p. I2.

Bounds, Gwendolyn, More Than Squeaking By: WD-40 CEO Garry Ridge Repackages a Core Product, Wall Street Journal, May 23, 2006, p. B1.

Carnes, Kathryn, WD-40 Co.: Building on Demonstrable Value, Lubricants World, June 2001, pp. 1617.

Cone, Edward, WD-40: Small Companies, Big Returns, Baseline, October 1, 2003, p. 32.

Cowan, Alison Leigh, Terminating Outside Sales Staff Proves Costly to WD-40, New York Times, July 23, 1993, p. C4.

Freeman, Adam L., WD-40 Looks to Do Lots More Than Squeak By, Wall Street Journal, January 22, 2003, p. B4B.

Freeman, Mike, WD-40 to Purchase Australian Soap Maker Solvol, San Diego Union-Tribune, September 9, 2000, p. C1.

Green, Frank, Not Just Squeaking By: WD-40s Garry Ridge Promotes Teamwork over Traditional CEO Approach, San Diego Union-Tribune, October 4, 2005, p. C1.

, WD-40 Buys Household Products Firm, San Diego Union-Tribune, March 27, 2001, p. C1.

, WD-40: Going Smoothly, San Diego Union-Tribune, October 9, 1997, p. C1.

, WD-40 to Add 3 Products to Its Inventory, San Diego Union-Tribune, September 30, 1999, p. C1.

How to Be Happy in One Act, Fortune, December 19, 1988, p. 179.

Ignelzi, R. J., WD-40 @ 50, San Diego Union-Tribune, November 10, 2003, p. D1.

Kichen, Steve, and Jon Schriber, Life in the Fast Lane, Forbes, November 9, 1981, pp. 18889.

Kinsman, Michael, WD-40 Acquires Carpet Spot Remover, San Diego Union-Tribune, May 10, 2002, p. C2.

Lazo, Shirley A., WD-40 Does It Again, Barrons, July 3, 1995, p. 38.

Murray, Thomas, The 5 Best-Managed Companies, Business Month, December 1989, pp. 27, 4343.

Now 35 Million Consumers Push WD-40s Profit Button, Inc., October 1979, pp. 6468.

Palmer, Jay, The Cult of WD-40, Barrons, December 3, 2001, pp. 1920.

Perry, Tony, This Company Is No Squeaky Wheel When It Comes to Self-Promotion, Los Angeles Times, December 16, 1992, p. B1.

Repaci, Louis, Sampling Program Meets Marketing Objectives of 2 Different Companies, Marketing News, April 16, 1982, p. 3.

Richman, Louis S., What America Makes Best, Fortune, Spring/Summer 1991, pp. 7887.

Riggs, Rod, Success Builds England Plant for WD-40 Co., San Diego Union, August 17, 1985, p. E1.

Schleif Named to Two WD-40 Executive Posts, Los Angeles Times, September 26, 1990, p. D7.

Tivenan, William, WD-40, in Encyclopedia of Consumer Brands, Vol. 2, edited by Janice Jorgensen, Detroit: St. James Press, 1994, pp. 57274.

Vezina, Meredith, Still Slick After 40 Years, WD-40 Keeps Sliding Along, San Diego Business Journal, September 13, 1993, p. 16.

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WD-40 Company

WD-40 Company

1061 Cudahy Place
San Diego, California 92110
U.S.A.
(619) 275-1400
Fax: (619) 275-5823

Public Company
Incorporated:
1953
Employees: 149
Sales: $130.9 million (1996)
Stock Exchanges: NASDAQ
SICs: 2992 Oils & Greases, Lubricating Type

Since the 1950s, the San Diego-based WD-40 Company has dominated the U.S. market for its namesake multipurpose lubricant. The WD-40 substance is a petroleum-based lubricant, moisture retardant, and rust preventative. It is used in over 75 percent of American households, and is ranked in the top three percent of all brands in consumer awareness by Landor Associates. One of the products strengths is its versatility: it has been found to improve the performance of sewing machines, attract fish, loosen rusted nuts and bolts, and unfreeze door locks and handles. Sold through industrial distributors, automotive stores, mass merchandisers, hardware and home improvement centers, WD-40 is found in over 148 countries worldwide. A one-product company until the early 1990s, WD-40 Company now also produces 3-In-One Oil and T.A.L. 5, a premium heavy-duty lubricant aimed at the industrial market.

The Birth of WD-40, 1953

Although WD-40 has been a household name for several decades, it did not begin as a household product. In 1953, Norm Larson of Rocket Chemical Company developed WD-40 as a corrosion protector for missile covers for the San Diego-based Convair, an aerospace and defense contractor and a division of General Dynamics. Eventually, WD-40 was intended for use on NASAs Atlas missile. The name WD-40 stands for water displacement, formulation successful in 40th attempt, because it was on the 40th try that Larson perfected the product. Employees at General Dynamics discovered that WD-40 was perfect for a variety of home uses, and they began sneaking the lubricant home from work. By 1955, Larson began experimenting with putting WD-40 in aerosol cans, and in 1959, Rocket Chemical Company responded to the consumer market for a home lubricant by contracting with an aerosol packager and preparing WD-40 for commercial sales.

Rocket Chemical Company, which was founded in 1952 by Larson and three investors, was a one-room operation with a three-person staff. In addition to WD-40, the company produced rust resistors and removers for metal parts and tools for the aerospace industry. In 1960, the company grew to include 7 employees with sales of about 45 cases per day. Rocket Chemical Company sales representatives sold the product out of their cars to San Diego sporting goods and hardware stores. A slight recipe change in 1961adding a dose of mineral spirits to the original formula to cover the petroleum scentis the only adjustment ever made to Larsons original formula as of the late 1990s. Hurricane Carla, which ravaged the Florida coast in 1961, increased WD-40s business dramatically, as it was used by hurricane victims to recondition water-damaged vehicles and machinery.

One Product Transforms a Company, 1960s

By 1965, WD-40 sales were so successful that Rocket Chemical Company ceased production of all other products to focus solely on the lubricant. Sales surpassed $1 million in 1968, and when John Barry became president the next year, the company officially changed its name to WD-40. In 1969, sales reached $2 million. Between 1969 and the 1990s, sales growth has been continuous.

With a mandate to accelerate both revenues and earnings, John Barry would pilot WD-40 to a position of prominence as an untouchable one-product company. The brother-in-law of one of the three original investors in Rocket Chemical Company, Barry garnered his marketing know-how working at companies including 3M, A very Label, and Adams Rite. With a virtually unknown product and no working capital, Barrys marketing strategies were straightforward and simple, emphasizing free samples (including 10,000 WD-40 samples each month sent to soldiers in the Vietnam War to keep their weapons dry), trade shows, and magazine advertising. Product awareness was built through manufacturers representatives, who worked on commission and sold the product to wholesalers only. No written contracts were held between WD-40 and the manufacturers representatives, and the relationship could be terminated with 30-day notice. The underlying philosophy behind these strategies was to market the companys one product to its full potential, diversifying the uses of the product, not the product itself, while keeping costs down.

Going Public, New Growth, the 1970s

In 1973, WD-40 went public. Prior to this first offering, the company was a Subchapter-S corporation. Shareholders gave up this election by going public, receiving looser restrictions on their estates and tax benefits in exchange. Heavy demand escalated the initial price of a 40,000 share offering to $16.5 from the originally intended $15 a share, and later in the year shares surged at $34, dropping again to $15 at the end of the year. The initial offering generated net proceeds of approximately $590,000, of which $350,000 was used for a new plant, with the remainder added to working capital. The company paid half its earnings in dividends, increasing dividends with earnings growth. The next year, the company moved its headquarters to its present location on Cudahy Place in San Diego. Prices in 1974 were raised by 10.6 percent.

In 1978, after 25 years of business, sales reached $25 million. The following year, sales increased to $34 million, with earnings of $5 million. Sales and earnings had increased at a 10-year compounded rate of approximately 35 percent. The company remained tightly held, with over half of the stock held by officers, directors, and relatives of the original three Rocket Chemical Company investors. The wholesale price of the companys product rose 43 percent between 1969 and 1981, while the U.S. wholesale price index increased 132 percent during this period. Costs at WD-40 had always been low, since the focus on one product meant there were no research and development costs. The company at this time had only 32 employees, with a sales force of 65 manufacturers representatives selling the product to about 14,000 wholesalers. The entire manufacturing operation was staffed by one part-time employee, who created the WD-40 concentrate from a mixture of off-the-shelf chemicals. About 28 percent of sales were spent on selling, marketing, and administration. Also, because the company had no debt, minimal overhead, and rented its office space, WD-40 paid about five percent back to investors.

In 1979, 35 million cans of WD-40 were said to reach consumers each year, with 55 percent sold to homeowners and sportsmen and the remainder purchased by commercial and industrial users. The first price increase since 1974 raised the cost of the cans by 15 to 16 percent. Half of the companys total assets were held in cash, with after-tax net earnings around 16 percent. In 1981, the company was selected by Forbes as one of the small, emerging growth companies on its Up-and-Comers List. Continuing to experiment with innovative sampling as a marketing strategy, WD-40 entered into a partnership that year with Wagner Spray Tech, a spray gun manufacturer in Minneapolis. WD-40 samples were included in spray gun packages, along with instructional brochures. Both companies shared equally in the costs and profits of the sample program.

International Expansion, Mid-1980s

By 1985, sales had increased to $57.3 million, with a 21 percent increase the following year to $69.4 million. Earnings in 1986 were $11.6 million, and shares were sold at a new all-time high of $33½, a 44 percent gain. Having already achieved great success with its one product in the U.S. in the 1980s, it was time for WD-40 Company to expand its presence in the world market. International sales at this time represented less than 5 percent of total sales (not including Canada). In 1986, rather than renewing its contract with its United Kingdom Distributor, the company built its own plant in Milton Keyes (near London). The next year an official subsidiary, WD-40 Company Ltd. (United Kingdom), was established to manufacture, produce, and oversee distribution of WD-40 in Europe, the Middle East, and Africa. Since that year, when sales for the United Kingdom and Europe were $10 million, earnings have grown rapidly. By 1992, sales attributed to France, Spain, and the Middle East had reached $17.5 million. Continuing to emphasize overseas expansion, the company bolstered its sales force in Europe by adding new sales representatives in France, Spain, and Italy. Shortly thereafter, Barry began sales expansion to Australia and the Pacific Rim. By 1988, European, Australian, and Asian markets would account for 21 percent of revenues.

Sales reached $71 million in 1987, and stock hit a high of 46. However, the October 19, 1987 crash of the stock market, causing a 508-point drop in the Dow Jones Industrial Average, caused WD-40s stock to drop to the mid-20s in November. With fewer than 100 employees, the company was still able to net $11 million in 1987. Every dollar of that $11 million was paid in dividends. At this time, the company had no debt and $18 million in cash, with a market value of $231 million.

Company Perspectives:

WD-40 Company, with headquarters in San Diego, produces a variety of lubricants, including the familiar multipurpose product WD-40. WD-40, with its hundreds of uses, is distributed through industrial distributors, automotive stores, mass merchandisers, hardware and home improvement centers, and other retail outlets around the world. WD-40 Company markets its products in more than 148 countries worldwide and recorded sales of $130.9 million in 1996. WD-40 Company also produces 3-IN-ONE Oil and T.A.L. 5, a premium heavy-duty lubricant aimed at the industrial market. WD-40s goal, at the beginning of 1997, is to achieve a dominant market share of the entire category worldwide.

In 1988, WD-40 changed its sales strategy, shifting from salesperson commissions to direct sales. This policy was implemented as a means to increase business with large retailers, who now formed a significant portion of the companys sales, with 40 percent of sales originating in 50 of the companys 12,000 accounts. Large retailers preferred the elimination of intermediary distributors, as a cost-cutting factor. Responding to this desire, WD-40, using a contract clause allowing the termination of the hiring agreement on either side with 90 days notice, decided to eliminate twelve distributors and instead hire direct salespersons to cater to the large accounts. Good earnings prospects and an increased dividend brought WD-40s stock to an October high of 33.25, and sales rose to $80 million, with net income increasing 40 percent to $25.4 million. However, the new sales strategy would prove dangerous to the companys earnings in the long run.

Eight of the 12 distributors sued WD-40, claiming that the company had promised them job security in exchange for company loyalty. In 1992, the distributors were granted a $10.3 million settlement. WD-40 appealed the decision. In the meantime, two additional distributorswho had not joined the original suitfiled a separate lawsuit in 1992, using the same lawyers. In 1993, this second suit was settled, granting the distributors $2.5 million. In 1994, the original case was again decided in favor of the distributors, costing the company $12.6 million. It is possible, since sales had skyrocketed from $80 million in 1988 to $100 million in 1992, due in part to the new sales strategy, the settlement fee may not actually have presented a real loss to the company. 1994 was the first year in a decade in which WD-40 had flat earnings, but profits still totaled $12.6 million on record sales of $112 million.

Competition has never presented a challenge to WD-40. Though the formula for the lubricant is a guarded secret, the company has chosen never to patent it. Although WD-40 is physically indistinguishable from other productssuch as 3Ms Q4, Bordens Ten*4, and Valvolines 1-2-99no contender has presented even a minor challenge, and WD-40 has buried over 200 competing products over the years. This included, as of 1988, 14 billion-dollar companies, whose economic clout was unable to unseat WD-40s blue-and-yellow can.

After over two decades of leadership, John Barry retired to become chairman of the board in 1990, replaced by Gerald Schleif as president and CEO. Schleif was previously WD-40s executive vice president and CFO and had served the company for 21 years. In 1990, WD-40 increased the price of its product for the first time in 9 years, raising it by nine percent. The company was named among 100 of Americas Best Companies by Fortune magazine in 1991. A new international subsidiary, WD-40 Ltd. (Australia), was established that year, to market the product in New Zealand, Southeast Asia, and the Far East, and a sales manager was employed to handle Hong Kong in 1992.

By 1992, WD-40 had an 83 percent share of the multipurpose lubricant market, with sales of $99.9 million (an 11.3 percent increase over the previous years sales of $89.8 million). Stock was trading at 52. Two-thirds of those sales were generated in the United States, and WD-40 Company targeted international expansion as the key to increased growth, setting a goal of a 50:50 ratio.

The 1990s, Cause for Celebration

WD-40 celebrated its 40th anniversary in 1993, breaking the $100 million sales mark with sales of over $108 million. Plans for the anniversary bash included a commemorative anniversary can. The company was featured among the Top Ten Most Profitable companies on the 1993 NASDAQ exchange. Statistics revealed that 4 out of every 5 American households used WD-40, and that 81 percent of industrial and trade consumers also chose the product. Weekly sales in the U.S. amounted to over one million cans of the petroleum-based lubricant.

A major new direction was implemented in December 1995. After over 30 years as a successful single-product company, WD-40 acquired 3-In-One Oil from Reckitt & Coleman (UK). The following year a new product, T.A.L. 5 (a premium, extrastrength lubricant), was developed and launched. A new corporate logo was designed, to reflect the integration of two new products. In that same year, WD-40 changed its propellant from hydrocarbon to CO2, reducing Volatile Organic Compounds content to comply with new environmental regulations. In 1996, WD-40 continued its growth, with sales of $131 million and income of $21.3 million. International sales grew in 1996 to $51.4 million, a 28 percent increase over the previous year, with international business accounting for 44 percent of sales, and with WD-40 marketed in over 135 countries and 30 different languages.

The WD-40 Company, then, has achieved practically unparalleled success in the first two phases of its executive identity: first, as a one-product company on the domestic sphere, and second, peddling the same multipurpose lubricant to world markets. In the late 1990s, the company is launching Phase Three in what it intends to be an uninterrupted story of growth. The integration of new products ends over 30 years in which WD-40s success was routinely linked with its status as a one-product company, and its colossal standing as the generic brand in its market. WD-40s stated goal, at the beginning of 1997, is to achieve a dominant market share of the entire category worldwide. This juncture, then, is a major turning point for the San Diego-based company, requiring an overhaul of long-trusted marketing formulas and strategies. The companys leadership has been cautious over the years, not prone to risk-taking in sales and marketing. It is unlikely, therefore, that the new product lines will destabilize the continued reign of WD-40 as the leading multipurpose lubricant. Whether the WD-40 Company will achieve further growth through the acquisition of new products, however, remains to be seen.

Principal Subsidiaries

WD-40 Company Ltd. (U.K.); WD-40 Products (Canada) Ltd.; WD-40 Company (Australia) Pty. Ltd.

Further Reading

Cowan, Alison Leigh, Terminating Outside Sales Staff Proves Costly to WD-40, The New York Times, July 23, 1993, p. C4 (N).

How to Be Happy in One Act, Fortune, December 19, 1988, p. 179.

Johnson, Greg, Some San Diego Firms Join Rush to Buy Back Stock After Market Dive, Los Angeles Times, November 3, 1987, p. 42A.

Katz, Irving, How San Diego Firms Handled the Ups and Downs, Los Angeles Times, January 13, 1987, p. 42A.

Kichen, Steve, and Jon Schriber, Life in the Fast Lane, Forbes, November 9, 1981, pp. 188189.

Lazo, Shirley A. WD-40 Does It Again, Barrons, July 3, 1995, p. 38.

Murray, Thomas, The 5 Best-Managed Companies, Business Month, December 1989, pp. 27, 4343.

Now 35 Million Consumers Push WD-40s Profit Button, Inc., October, 1979, pp. 6468.

Perry, Tony, This Company is No Squeaky Wheel When It Comes to Self-Promotion, Los Angeles Times, December 16, 1992, p. B-1.

Repaci, Louis, Sampling Program Meets Marketing Objectives of 2 Different Companies, Marketing News, April 16, 1982, p. 3.

Richman, Louis S., What America Makes Best, Fortune, Spring/Summer, 1991, pp. 7887.

Ritter, Bill, WD-40 Announces Record $11.6 Million Earnings, Los Angeles Times, October 17, 1986, p. 43.

Schleif Named to Two WD-40 Executive Posts, Los Angeles Times, September 26, 1990, p. D7.

Tivenan, William, WD-40, in Encyclopedia of Consumer Brands, Vol. 2, edited by Janice Jorgensen, Detroit: St. James Press, 1994, pp. 572574.

Heidi Feldman

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