The Great Recession lives in the memories of all CEOs whose businesses survived it. Though it technically lasted two years, from 2007 to 2009, its impacts are still vivid, even if only seen when company leaders look in their rearview mirrors.
Cornwell Quality Tools President and CEO Bob Studenic says the recession had a profound effect on the tool maker. Purchasing all but froze as consumers stopped buying cars and automotive dealerships contracted, leading to the jettisoning of automotive technicians — Cornwell Tools’ main end users.
The company went from record sales in 2006 of around $83 million to a low of $68 million in just a few years. Its number of franchisees — the independent dealers who sell Cornwell tools to automotive technicians from Cornwell-branded trucks — dropped from 600 to around 519, and Cornwell’s W-2 workforce decreased from 225 to 150.
“That was a very painful period,” says Studenic, who had a front-row seat to the balance sheet as the company’s treasurer at the time.
The cuts reached across the entire organization — its headquarters in Wadsworth, its manufacturing site in Mogadore, its Western Distribution Center in Utah, its small forging operation in Western Pennsylvania and across its field salesforce.
As endless as the gray cloud of the recession seemed, there was, however, a silver lining.
Opportunity and necessity
With new automobile purchasing paused, commuters were left with aging vehicles that they were eager to repair and preserve. That brought the average age of an on-the-road vehicle to 10 or more years.
“That’s good for us from a business standpoint,” Studenic says. “People are keeping their cars. They’re repairing them. That means technicians and repair facilities and body shops and all that have got a pretty good business going. Those businesses require tools. We have franchisees who drive around with trucks that are able to provide those tools to them.”
Around 2010, business picked up. The company’s revenue climbed to $100 million in the three years that followed, building back what was lost and then some. The growth of its workforce, however, didn’t follow the same rapid pace. Cornwell called back some of the people it had laid off, then moved forward judiciously in where, how and when to add more.
A few years later, with its financial footing underneath it and Studenic fully transitioned up through a succession plan into the lead role at the (mostly) family-owned company, Cornwell began to feel confident enough as an organization and took advantage of its strong position when opportunity and necessity intersected.
Making an acquisition
In 2016, Cornwell closed a deal for Kennedy Manufacturing in Van Wert, Ohio, a maker of tool storage equipment of which Cornwell had been a customer for years.
“That facility made fantastic boxes that were very well received, and we were able to bring to market,” Studenic says. “Unfortunately, when we left them in 2004, Kennedy was in a pretty bad situation. At that point, there were conversations about, ‘Well, maybe we should just buy Kennedy.’”
But they didn’t. Instead, the company shifted its purchasing dollars to another storage equipment manufacturer. When that box maker was spun off of its larger conglomerate years later, it affected production. Cornwell wanted control over its own destiny, and its thoughts went immediately back to Kennedy, which, now backed by a private equity firm, was in a bit of a stumble.
Studenic, an accountant by training, eagerly rolled up his sleeves and, alongside an accounting firm with M&A experience, dug into the details, which gave him greater confidence at the negotiating table. The deal was signed in October 2016.
Cornwell has since invested $3 million to $5 million in new machinery and equipment for that business, while working to instill Cornwell culture, changing workflow and setting expectations. Kennedy, which was doing $14 million in business at the time of the acquisition, had revenue of about $18 million this past year. While that may not be what Cornwell wants from that part of its business long term, Studenic expects the purchase will pay off as projected.
Around the same time as the acquisition, Cornwell built a 107,000-square-foot warehouse near its Wadsworth headquarters to replace the bursting-at-the-seams 33,000-square-foot warehouse that still sits adjacent to its headquarters. The move enables it to more efficiently and safely move product, the volume of which has grown in the past decade from a franchisee purchase average of around $2,500 per week to $6,000 per week.
A microcosm of Cornwell
Some 690 independent franchisees are currently crisscrossing the lower 48 in Cornwell-branded trucks packed with tools, pulling into the parking lots of auto technicians to sell them whatever they need to keep cars running. They are Cornwell’s No. 1 customers, representing about 99.5 percent of the toolmaker’s business.
Cornwell needs its customers to buy tools, but also needs them to sell those tools and keep their independent businesses operational to generate revenue for their supplier, which is also their franchisor. That puts Cornwell in a unique managerial position.
“The dealers are truly independent business folks,” Studenic says “They went into business for themselves for a reason, because they didn’t want to be managed anymore. They didn’t want to be told what to do. They wanted to make their own way in the world.”
Studenic says there’s not much Cornwell can do to exert traditional managerial pressure on its franchisees. So instead it coaches and mentors its dealers via field managers who, through experience, know the tricks and traps, what works and what doesn’t.
“It’s really the district managers’ job to try to help build the franchisees’ basic understanding of business and business discipline,” he says. “As a microcosm of us, they are responsible for ordering, stocking the shelves, making sales, collecting cash, doing all the various cycles of business that we do, just on a smaller scale. So the district managers have to help them understand, ‘Yeah, that’s a really cool box. I want 10 of those. How are you going to pay for it?’”
Cornwell also spends a significant amount of time investing in the training of its franchisees on the front end. And through its Ironman Business Network, the software on which franchisees run their business, franchisees and district managers have information that measures performance on a week-to-week basis — whether they have enough cash, too much inventory, how well they’re managing their receivables, etc.
And there’s a healthy feedback loop from customers back to Cornwell. Some comments come casually through the company’s social media, while others are more formal to the company’s product management team, which fields requests or comments and funnels them to the appropriate Cornwell contact for a response. Franchisees also have a chance to talk with the company at its annual national tool rally, a two-day event with educational seminars, meetings and product exhibits.
The company’s product management group also meets with vendors virtually on a daily basis, where they pitch new wares — an important component to the automotive market, where new cars bring new tool challenges to be overcome. Studenic says Cornwell can introduce as many as 50 new items every week.
Try not to think about it
Looking ahead, Studenic says the next 10 years present particular challenges for Cornwell.
“I’m not so much worried about how the business is going to continue to grow,” he says. “It’s finding good people to fill the gaps.”
Particularly, Cornwell struggles at all of its locations to gain traction with its entry-level positions, even though Studenic says the company promotes employees from warehouse positions into administrative duties, and then into management roles when the right fit is found.
“We attract good people, they do a good job, and we’re able to let them shine and advance,” he says. “It’s a unique opportunity. We pulled probably a dozen people out of a warehouse over the last year and a half, two years, who have rolled into not only product management but customer service, purchasing, sales administration. And we really try to promote from within wherever possible because they already have a unique understanding of our business, and they’re able to bring that and continue to grow.”
Succession and passing the baton to the next leader has been important to Cornwell. With its 100-year history in the rearview mirror and the baton firmly in Studenic’s hands, whether it will survive future recessions to be in busines for another century is largely up to him.
“We have a great organization. We have great employees. We will just continue to work our plan, not get distracted by the periphery and keep doing what we do best, which is work together, sell tools, train our customers and just have a good time,” Studenic says. “I don’t try to think about, ‘Well, am I going to be the guy that screws up 100 years?’ No. Failure is not an option.”
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