Snap-on Tools Corporation
Snap-on Tools Corporation
2801 80th Street
Kenosha, Wisconsin 53141-1410
Fax: (414) 656-5577
Incorporated: 1920 as Snap-on Wrench Company
Sales: $983.8 million
Stock Exchanges: New York
SICs: 3423 Hand & Edge Tools Nee; 3546 Power-Driven Handtools; 3825 Instruments for Electrical Signal Measurement; 3559 Special Industry Machinery Not elsewhere classified
Snap-on Tool Corporation manufactures and distributes a line of approximately 14,000 hand tools and equipment. Snap-on tools are sold and distributed directly to end-users in over 100 countries via a network of approximately 5,100 franchised and nonfranchised dealers and employee sales representatives who visit prospective customers in an assigned territory on a regular basis. The corporation considers itself the originator of the mobile van method of marketing hand tools.
Snap-on was founded in 1920 by Joe Johnson and William A. Seidemann. Prior to Johnson’s idea for “interchangeable sockets,” the socket wrenches used by mechanics were one-piece units. Professional auto mechanics quickly recognized the efficiency and flexibility that resulted from pairing many sockets with few handles. From the beginning, sales were generated by demonstrating the benefits of the novel tool sets directly to the customers. New tools were added to the line, and a catalog was published in 1923. By 1925, 165 salesmen were demonstrating and distributing Snap-on tools.
Stanton Palmer, a former factory sales representative, served as president of the corporation from 1921 until his death ten years later. At that time, Snap-on sought financial help from one of its principal creditors, Forged Steel Products Company, whose owner, William E. Myers, became Snap-on’s new president. When Myers died in 1939, Joe Johnson, the corporation’s conceptual founder, became the president of both Snap-on and Forged Steel.
Under Johnson’s leadership the sales force continued to grow. During World War II, when supplying the military’s needs caused tool shortages in the civilian market, Snap-on began releasing available stock to its sales force, in an attempt to maintain goodwill with the civilian customer base. By 1945, all salesmen were carrying stock and making immediate deliveries to their customers. Shortly thereafter, Snap-on made each seller an independent businessperson in an assigned territory.
Subsidiaries in Canada and Mexico aided growth in the 1950s. The Snap-on product line was also expanded. Corporate acquisitions of specialized companies brought products which addressed the mechanic’s need for increasingly complex diagnostic tune-up and maintenance equipment. During this period, Snap-on also acquired its system of branches (which had operated previously as independent outlets). Branch acquisitions permitted Snap-on greater control over the marketing and distribution systems.
Victor M. Cain became president upon Johnson’s retirement in 1959. In 1965, a Snap-on branch was opened in the United Kingdom. An important patent on the “flank drive” design of wrenches was also awarded in 1965, after years of legal debate. The “flank drive” design produced wrenches with a superior grip, less likely to round the corners of 12-point fasteners under high torque conditions.
Snap-on’s growth was dramatic in the period that followed. Sales increased from $66.2 million in 1969 to $373.6 million in 1979, while profits increased from $6 million to $42.6 million. Norman E. Lutz became president in 1974, overseeing growth in the worldwide sales force to over 3,000. In 1978, Lutz became chair and chief executive officer (CEO), and Edwin C. Schindler became president. That year Snap-on stock was first listed on the New York Stock Exchange.
The early 1980s saw rapid changes in the company’s management. In 1982, Lutz retired and was replaced by Schindler as chairperson, while William B. Rayburn became president; the following year Schindler died, and Rayburn became the company’s chairperson and CEO. A slight decrease in both revenue and earnings in 1982 was attributed to that year’s recession. Snap-on examined operations and took measures to improve profitability through reducing expenses as well as marketing more aggressively. Even in this disappointing year, however, net earnings were significant at $37.3 million on $430.5 million in net sales, or 8.7 percent of sales.
Snap-on continued to cultivate its image as the foremost supplier of well crafted products and customer oriented service. During the 1980’s, Snap-on became the sole supplier of tools to NASA for the space shuttles. In 1984, Snap-on acquired an equity stake of approximately 34 percent in Balco, Inc., a developer of engine diagnostic and wheel service equipment. The frequency of visits to customers had increased to weekly in some cases, and the vans carried $50,000 to $200,000 of hand tools and equipment inventory. Additional services provided by dealers, such as cleaning previously purchased Snap-on tools every six months, allowed dealers to identify and recommend replacement of worn out tools.
While Snap-on was beginning to face competition from a variety of sources, including Sears, Roebuck and Co., the Mac Tools subsidiary of Stanley Works, the Matco Tools subsidiary of Chicago Pneumatic, and various Japanese companies, Snap-on was able to maintain its premium prices because of the services it offered and the customer relationships in place.
Snap-on has stated that its market share cannot be determined, but in October 1986, Forbes estimated that “with its long head start and 49 percent of the market, Snap-on has as many dealers tooling about as all of its competitors combined.” At this time, Snap-on was distributing two million catalogs each year. The 350-page catalogs were considered Snap-on’s “most valuable single marketing tool” by Rayburn, who told Forbes that “our industrial people leave them with buyers, purchasing agents and requisition people. Our dealers leave them with shop owners and mechanics. When there is a mechanical problem, they look in the catalog for a tool that can solve it.”
In 1988, new chairperson Marion Gregory faced a new challenge for Snap-on. An increasing number of lawsuits were filed by former and current dealers in state courts around the United States. The claims included allegations of misrepresentation, contract violations, and causing emotional distress. In an early case, George Owens, a former dealer, claimed that he was pressured to divide his territory with another dealer. A California jury awarded $6.9 million in damages, an amount later reduced in settlement. Other lawsuits claimed misrepresentation of potential profits to dealers, automatic billing of dealers by Snap-on for certain tools provided to the dealers for promotional purposes, and pressure to extend credit.
Snap-on’s general policy was to consider settlement as preferable to litigation; the company accrued or paid a total of $7.9 million, $16.6 million, and $16.2 million for litigation-related costs in 1989, 1990, and 1991, respectively, before “determining to pursue more cases to final determination and apply a more stringent policy toward settlement,” per Snap-on’s 1991 Annual Report. Snap-on also asserted claims of its own against its insurance carriers with respect to coverage on certain dealer claims.
In 1991 Robert A. Cornog, formerly the president of Macwhyte Company, became chairperson, president, and CEO of Snap-on, ending a long tradition of filling these positions from within the company. Also that year, Snap-on began to enroll all new U.S. dealers as franchisees and offered the option of applying for a franchise to existing dealers. Snap-on viewed the conversion to a franchise program as an opportunity to establish greater control over the marketing and business activities of its dealers. The program was not designed to increase revenues, and costs in new group insurance programs, stock purchase programs, and special volume-purchase discounts were expected to offset franchise fees. As an inducement to convert, Snap-on waived initial and some recurring franchise fees for existing dealers. Nonetheless, most existing dealers did not elect to apply for franchises.
Snap-on issued common stock valued at approximately $21.2 million to acquire the remaining interest in Balco, Inc. in 1991. The corporation also announced its intention to consolidate product inventories from 51 branch warehouses to four regional distribution centers. By this time, operations were conducted in subsidiaries located in Canada, the United Kingdom, Mexico, Germany, Australia, Japan and the Netherlands. Sales in other countries accounted for 17 percent of total revenue, though only 5 percent of operating income.
Net earnings, which had been down from earlier levels for three years in a row, were still $34.3 million on net revenue of $881.7 million or 8.3 percent of net revenue in 1991, despite the recession in the United States and Canada. This translated to an after-tax return on average shareholders’ equity of 11.4 percent, considerably below the 18-23 percent level that Snap-on had enjoyed in the years 1983-89. In response, Snap-on reorganized its management structure to allow separate accountability for its three business areas: Finance, Manufacturing and Technology, and Marketing and Distribution.
As Snap-on management looked to the end of the twentieth century, management recognized that the corporation would have to adjust to fundamental changes in its business in order to achieve the high levels of return it sought. Believing that improved automotive quality and warranty programs had caused slower repair volume growth and had shifted work to the auto dealers, Snap-on determined to develop new products and services for existing customers while reaching out to the new markets as well.
Snap-on management began to consider whether other services, such as a credit card for general use, might profitably be offered to its credit-proven customers, who were in weekly contact with Snap-on dealers. Outside sourcing of products, which already accounted for 35 percent of Snap-on’s manufacturing, was considered an opportunity for cost savings. International and industrial markets were seen as offering a possible means toward the growth to which Snap-on had always been accustomed.
With over 200 patents and 80 pending patent applications, Snap-on was also encouraging its research and development team to challenge the ordinary way of doing things. One of those young researchers might one day produce as powerful an idea as that of young Joe Johnson, who wondered in 1919 why a mechanic had to buy a different handle for every socket he used.
Snap-on Tools of Canada Ltd.; Snap-on Tools Limited; Snap-on Tools International, Ltd. (F.S.C.); Herramientas Snap-on de Mexico, S.A.; Snap-on Tools GmbH; Snap-on Tools Import and Wholesale Pty. Ltd.; Snap-on Tools Netherlands B.V.; Snap-on Tools Japan, K.K.; Snap-on Tools (Europe) Limited; Snap-on AG; ATI Industries, Inc.; Balco, Inc.; Sun Electric Corp.
Smith, Geoffrey N., “Snap-on’s Proprietary Ingredient,” Forbes, October 6, 1986; Fanning, Deirdre, “Monkey Wrench at Snap-on Tools,” Forbes, June 27, 1988.