Leatherman Tool Group, Inc. Business Information, Profile, and History

Company Perspectives:

To lead the high-quality compact multi-purpose tool market by providing the best value for our customers, being the most innovative, and continuously improving while meeting our financial goals, providing a rewarding work environment and operating legally and ethically.

History of Leatherman Tool Group, Inc.

Leatherman Tool Group, Inc. originated the multipurpose tool and a new market niche when it began catalog sales of its Pocket Survival Tool in 1983. Since that time, the company has expanded its offerings to include nearly two dozen different hand-held multi-tools that sell in 70 countries around the world.

Marketing a Multipurpose Tool: 1976-83

The idea that led to the formation of the Leatherman Tool Group occurred to Tim Leatherman during his honeymoon. After leaving Saigon, where he married in 1975, Leatherman and his wife spent ten months touring Europe in a used 1968 Fiat that they bought for three hundred dollars. Staying in ramshackle lodgings and working on his sometimes temperamental car, Leatherman conceived of what later became the Pocket Survival Tool and, in a Tehran hotel, he made his first cardboard model. "At times the faucets didn't have handles and there was no way to turn the water on with the Boy Scout knife I carried," Leatherman was quoted in a 1985 Oregonian article.

A native of Oregon, Leatherman had received a bachelors degree in mechanical engineering from Oregon State University in 1970, after which he held a variety of jobs, including positions as an English teacher and a helicopter mechanic. He returned to Portland, Oregon, with his wife in June 1976 after researching how to develop, patent, and market a new product at the Library of Congress. The two agreed that he would spend the next three months designing the tool and calling on potential customers.

Instead of months, it took Leatherman until late 1978 to develop the tool he wanted, a five-ounce, four-inch stainless steel tool that came with large and small screwdrivers, a file, scissors, a can opener, punch, ruler, knife blades, and pliers that popped out when the tool was opened. He began by modifying pliers, working with basic hand tools in his garage. In 1980, he received a patent on his "Mr. Crunch." Leatherman took a job selling welding supplies by day while he wrote and visited companies all over the United States, introducing them to his tool. He even pitched his idea to 23 of the largest purchasing organizations in the country, from the U.S. Army to AT&T. No one was interested. "Unfortunately, nobody wanted to buy my invention. The knife companies thought it was a tool; the tool companies thought it was a knife," he is quoted as saying on the company's Web site.

Leatherman continued to refine his design with the help of Steve Berliner, a college friend whose father owned and operated a machine shop, Simplicity Tool Co. The two originally saw their invention as an industrial product to be sold directly to large companies--standard equipment to be carried by telephone technicians, for example. That vision changed during a sales call to Early Winters catalogue, where someone advised Leatherman fortuitously to simplify and refine the tool to emphasize only its most widely useful features.

Berliner and Leatherman reduced the tool's complexity, cutting its wholesale cost from $40 to $20. They incorporated as the Leatherman Tool Group and set up production in Simplicity's plant, shipping their first tools right before Christmas 1983. Early Winters Ltd. of Seattle, Washington, placed an order for 500 of Leatherman's tools; so, too, did Cabela's of Sidney, Nebraska.

Creating a New Market Niche: Mid-1980s to the Mid-1990s

Three days after its catalog was out, Early Winters had sold 250 of Leatherman's tools and asked for more. Two weeks later, they came back with a request for another 1,000. The new company now faced a problem: it did not have the capacity to keep up with the orders that kept pouring in. By June 1984, Leatherman had shipped 4,000, but was about three months behind on deliveries. By Christmas 1984, close to 30,000 knives had been shipped. All knives came with a 25-year, no-questions-asked warranty.

Growth continued at a rapid pace. In late 1985, ten U.S. catalog companies sold the knife, including Spiegel, Neiman-Marcus, and L.L. Bean. In 1992, the 100-employee company moved into a new building with 24,000 square feet of production space--more than twice the size of its former factory. By 1993, Leatherman Tool Group dominated one of the hottest and newest niches in the cutlery business--that of the multi-purpose folding pocket tool--selling more than one million of its Pocket Survival Tools and generating upwards of $30 million in revenue. By 1994, sales had increased 45 percent since the debut of the Pocket Survival Tool. The $45 million company employed 200 people and sold more than a million tools for the second year in a row. Still, Leatherman continued to face issues of product backlog; as late as 1993, the year Berliner left the company to join Simplicity Tool, the company had been unable to reduce its five-month backlog.

Through the remainder of the 1980s, the Pocket Survival Tool was alone in the multipurpose tool market. Then, in the early 1990s, Leatherman began to face competition. Portland-based Gerber Legendary Blades, one of the companies that had shown no interest in Tim Leatherman's prototype, introduced its own pocket tool, the Multi-Plier. So did SOG Specialty Knives of Edmonds, Washington, with its Paratool. Coast Cutlery of Portland brought out the Pocket Mechanic. Buck Knives of El Cajon, California, teamed up with the manufacturer of the Swiss Army knife, Wegner, to make the Swissbuck. Competition brought lawsuits. In 1991, Leatherman won a $50,000 judgment--the first of many--in a trademark infringement case against Starcrest Products of California. By 1993, the company had successfully sued 13 companies for trademark infringement--among them Sears, Roebuck & Co. and JC Penney. By 1996, it had initiated 20 lawsuits and won 17 of them.

Competition drove Leatherman to shift away from being a "limited-product" company and to reevaluate its marketing strategy. It attempted to stay ahead of newcomers by producing a larger product with more features and locking blades, its Super Tool, which it added to its offerings in fall 1994. It also attempted to broaden its potential market base. Into the mid-1990s, the Pocket Survival Tool appealed mostly to outdoors enthusiasts. Then Keanu Reeves used a Leatherman to pry open elevator doors in the 1994 film Speed. The Leatherman tool also began to make appearances on shows such as NBC's The Profiler, where a character used it to defuse a bomb, and Mad About You, where characters came across a Leatherman in a hardware store. In 1996, the company began a series of full-page ads in magazines such as Outside, Outdoor Life, and Men's Journal. In these ads, users described how their Leatherman had gotten them out of trouble at home and in the field. The company also its increased distribution to large consumer chains, including Wal-Mart, Home Depot, and Sports Authority.

Appealing to a Broader Market: Late 1990s and Beyond

Leatherman posted sales of about $91 million in 1996. It had 11 consecutive years of annual sales growth of 50 percent or more to its name. Still, as popular as the new tools were--by 1996, their total market was between $100 million and $150 million--the number of American households with a multipurpose tool was fewer than one in ten. In 1997, with sales in 50 countries, Leatherman addressed the challenge of potential sales by attempting to broaden the appeal of its tools. "We looked at how people use these tools and decided that concept-driven tools were the right direction," according to the company's marketing vice-president in a 1997 Brandweek article.

Leatherman continued to introduce newly designed tools to keep ahead of competitors: a miniature model, the Micra, which was brought out in 1997, was named editor's choice by Backpacker Magazine. In 1998, the company introduced another new addition, the Wave, a tool designed with more features than any other Leatherman. This product was recognized by Workbench magazine in 1999 and Technical Rescue in 2000. While the Wave was a success, sales of multipurpose tools had flattened by this time. From 1993 to 1998, Leatherman sales had increased 35 to 45 percent a year; by 1999, however, the growth rate had stabilized at around 10 to 12 percent. Also in that year, the U.S. Circuit Court of Appeals dealt Leatherman a blow when it ruled that competitors could faithfully copy Leatherman's tool without violating trademark laws because its appearance was a function of use rather than an element of style.

In 2001, Leatherman brought out the Juice in five versions and colors, bringing its total product offering to about two dozen. As Leatherman's designer, Ben Rivera, was quoted in a 2001 Design News article: "With the Juice, an appealing appearance was one of our top design priorities." So, too, was maximum portability. The more streamlined, less industrial looking Juice was 3.25 inches in length and contoured in shape to fit in a pocket. The Juice, which was the editor's pick of Backcountry Magazine in 2001, was followed by its miniaturized version, the Squirt, in 2002.

By the end of 2001, the company had sold more than 20 million tools. It had a computerized drawing program in-house to design new tools, 450 workers, and sales of $100 million annually, with some of this income deriving from Leatherman fans who faithfully bought updates to the traditional models. The company's success notwithstanding, Tim Leatherman continued to pursue his goal: to get a Leatherman-brand tool into the hands of 20 percent of world's population. He also held to his four business fundamentals: provide on-time delivery, meet specs, increase value, and provide a pleasant work environment.

Principal Competitors: Buck Knives Inc.; Coast Cutlery Co.; Gerber Legendary Blades; Gutmann Cutlery Inc.; Swiss Army Brands, Inc.; Wenger North America.

Chronology

• Key Dates:
• 1980: Tim Leatherman receives a patent for his "Mr. Crunch."
• 1983: Early Winters and Cabela's catalogs begin selling Leatherman's Pocket Survival Tool.
• 1991: Leatherman wins the first of many trademark infringement cases.
• 1999: The U.S. Circuit Court of Appeals rules that competitors can faithfully copy Leatherman's tool without violating trademark laws.