March 30th, 2009

Smith & Wesson Takes a Shot at Security
By Scott Goldfine

Smith & Wesson Takes a Shot at Security By Scott Goldfine While millions of systems can be found in homes coast to coast the number of household names in the electronic security industry — particularly on the installation and monitoring side — can be counted on one hand … with some fingers left over! That is radically changing this year, however, with the official launch of Smith & Wesson Security Services.

Like a shot that resonated throughout the industry, the famed firearms maker announced last spring it was entering the electronic security business by partnering with Freeport, N.Y.-based NationWide Digital Monitoring, a division of New York Merchants Protective Co. Inc. The licensing agreement allows NationWide to establish an authorized North American program that exclusively provides dealers with wholesale monitoring services plus Smith & Wesson’s iconic branding on products and supporting materials.

This means independent installing security companies now have an opportunity to affiliate themselves with one of the most trusted and renowned brand names that exists today, and leverage that to compete with larger rivals and grow their businesses. Furthermore, when a name like Smith & Wesson — which shipped its first revolver products way back in 1852 — enters a marketplace it serves to strengthen, fortify and expand the scope of the entire industry.

How powerful is the Smith & Wesson brand? The Springfield, Mass.-headquartered company conducted a survey and discovered it was the third-most recognizable brand after ADT and Brink’s in the security category — that’s before Smith & Wesson was even in this business.

“Dealers need to separate themselves from the competition in order to show the prospective customer why this purchase makes sense. The best way to do that is to be associated with a brand that is known for protection,” says Wayne Wahrsager, president of New York Merchants and Nationwide. “The marketing plan is simple: Develop a group of traditional dealers who seek to grow their business. Then provide them with sound marketing principles, top quality literature and a superior infrastructure and support.”

To ensure its legendary name was in good hands, Smith & Wesson selected a partner with nearly as long and respected a history as its own. Founded nearly 100 years ago, New York Merchants Protective is one of the nation’s largest security providers — protecting more than $100 billion in property and assets, and in excess of 100,000 families. The company established Nationwide, its third-party monitoring entity, 30 years ago.

Exclusive interviews with Smith & Wesson president/CEO Michael Golden and Wahrsager uncover why the gun-maker decided to enter the security industry, how the partnership with Nationwide was forged, all the specifics of the new authorized dealer program and much more.

Why did Smith & Wesson decide to get involved with electronic security?
Michael Golden: Smith & Wesson has been a trusted brand in the security industry since the company’s inception over 150 years ago. Smith & Wesson revolvers and pistols have been used by security forces around the world, and were for years virtually the only weapons carried by U.S. law enforcement personnel.

In fact, we are so synonymous with security that, in a recent national survey conducted by Smith & Wesson, our brand was named No. 3 in recognition rankings for home security behind ADT and Brink’s! As we expand our brand into categories that align with our mission, electronic security naturally seemed an excellent fit for us.

When did the company first begin seriously looking into entering the electronic security industry?
Golden: We began evaluating the security industry several years ago. Once we determined that Smith & Wesson would be accepted into the electronic security business, we evaluated how best to enter the market. We had the choice of acquiring a business, entering into a joint venture, or licensing our brand to an already successful and qualified company — we choose the last option. We then began interviewing and evaluating likely candidates. We engaged in significant research, and had the luxury of having several significant partnering opportunities.

Why did S&W decide to partner with NationWide Digital Monitoring?
Golden: We knew we wanted a company with the background, scope and capabilities to create and sustain a major national program, and a company with experience and success in both installation and monitoring. We also wanted a partner that already had processes in place, yet was nimble enough to tailor a program that suited our brand equities. Our evaluation focused on concrete capabilities and stability. Then we assessed which potential partner would fit our style.

Can you please describe the agreement with NationWide in detail?
Golden: The relationship with NationWide is a standard licensing relationship. That is, we have granted them certain rights and sublicenses to use our most important asset, our brand, and they pay us a negotiated royalty commission based on the revenue generated by this activity. NationWide is responsible for soliciting and signing up experienced dealers. They also supply the program and marketing materials that enable the dealers to maintain a consistent and high-quality image, commensurate with the reputation that Smith & Wesson has enjoyed for over 150 years.

We provide both insight and oversight of every facet of the program. We also provide information about our industry, customers and brand that facilitate the work done by NationWide. We see and provide input on every item NationWide issues that features the S&W brand. What seems to me to go beyond the standard licensing relationship is the coordination and degree of interaction between us and NationWide.

What value do you believe the S&W name brings to the equation and how will that be leveraged?
Golden: The value and equity of our brand name is very evident in security products and we will leverage that together with NationWide. In addition, Smith & Wesson has a network of dealers who sell our products every day and who really know the pulse within their communities. We are working with NationWide to structure marketing referral programs and other initiatives that will involve the approximately 2,500 “authorized dealers” that comprise our most active selling relationships. This will give our new Smith & Wesson Security System dealers geographically relevant distribution points for their marketing materials that are unique in their marketplaces.

How does the security industry business model match and contrast with S&W’s traditional businesses? What are the opportunities for cross-promoting to sell security through the firearms channel and firearms through the security channel?
Golden: Interestingly, both industries utilize dealers to reach the final customer, rather than selling directly. That means that communication to, and education of, the dealer network is critical. The marketing materials produced by NationWide for the dealers are very thorough and clear, and will support the dealers well when they are selling the system.

In terms of cross-marketing, I mentioned one opportunity already — having our authorized firearms dealers pass out applications for the security systems. We also have great synergy available to provide gifts with purchase since Smith & Wesson has a number of products under license, including flashlights, knives, bicycles, etc. Many of these could be used as incentives.

In addition, we can offer unique opportunities, such as training at local ranges and visits to our main factory, as promotional incentives for homeowners. The program is new and we are still developing marketing options. We believe, however, that this will be one of the most dynamic programs in the monitored security business.

Do you think this deal has the potential to improve the sometimes strained relationships between law enforcement and the alarm industry in that the S&W name has a positive connotation to them?
Golden: Our name certainly has a positive association with law enforcement, and I think this will attract the interest of law enforcement agencies around the country. The Smith & Wesson Security System that will be offered has certain components that will help reduce false calls and I think that reduced rate will also appeal to law enforcement.

How is S&W being affected by the recession? What effects do you believe the recession will have on the security piece?
Golden: We have two major components of our business. Our hunting business has suffered in this economic environment, as it has throughout the entire industry.

The handgun and tactical side of the business, however, has held strong, so we are very fortunate. Obviously, no one can predict what effect the economy will have on the security industry, but I would expect that people may be more interested in personal protection given the current, stressful environment.

How long is the deal with NationWide for and how exclusive is it? Do you envision further expansion of S&W into the security industry?
Golden: We don’t release the terms of our licensing agreements, but I can say we will not license any other company in the arena of professionally installed and monitored security systems. As I mentioned earlier, we regularly evaluate companies in the security space that are not involved in security system installation and monitoring, and we assess whether to enter into those businesses on a case-by-case basis.

What do you especially like in what you have seen of the electronic security/alarm industry?
Golden: The size of the industry is impressive, and the fact that there are relatively few brand names that stand out like the Smith & Wesson brand. That is also very appealing to us. We also think the technological advances in the security industry are a good match for our own continued work in bringing technological advances to our industry. We are confident NationWide is an excellent steward of our brand, and we look forward to a successful working relationship.

How did NationWide get involved in S&W’s plans?
Wayne Wahrsager: We were contacted about our interest in formulating and executing a Smith & Wesson-branded security dealer program. After deliberation about resources and what it would truly take to make this program successful, we decided put our hat in the ring.

First, we took the time to look at the dealer programs past and present. We then took the attributes that previously had a positive impact on dealers and then added items we knew dealers were looking for to enhance the program.

We came up with a dealer program that made sense, and that became the Smith & Wesson Authorized Security Dealer Network. We were ultimately selected as the choice for the Smith & Wesson name and logo in the security industry. A key reason Smith & Wesson chose us was because of New York Merchant’s long-standing history as a traditional alarm dealer, and our clear understanding of how to grow and build a company of value.

Can you please describe the agreement with S&W in full detail: what each party’s responsibilities are, and the opportunities, benefits and challenges on each side?
Wahrsager: Smith & Wesson has the opportunity to capitalize on its reputation for safety and security by becoming a well-regarded name in the electronic security industry. For NationWide, we have the opportunity to formulate and successfully implement a dealer program that would rival that of ADT and Brink’s.

For Smith & Wesson, the benefits include expanding the company’s brand recognition into many more homes and to be recognized not only as a premier firearms manufacturer but also as a company that protects families in their homes through security systems. The benefit for NationWide is our ability to capture more market share by offering a trusted and recognized brand that is new to this industry.

For Smith & Wesson, the challenge is building a working relationship with a licensee that is providing not just a simple product, but a service as well. This is new for the company. For NationWide, the challenge is to “think out of the box.” Helping alarm dealers become more proactive in marketing and sales is not an easy task. Allowing them to simply wait for the phone to ring for their next sales opportunity is not the right tact, especially in today’s marketplace. Dealers must proactively make the phone ring. That task becomes easier when you associate yourself with a national brand, like Smith & Wesson, that is already recognized by the homeowner.

What are the specifics of the dealer program? Who qualifies, what are the requirements and expectations on each side? What advantages does participation afford a dealer?
Wahrsager: We are looking for traditional dealers who have been in business for at least three years and want to grow their business, but need to develop a working strategy. In order to qualify, the dealer must have all licenses needed in their locality, the proper insurance and the resources needed to implement this new dealer program. They should also be installing at least 10 systems a month.

The expectation is that their business will grow at a moderate, healthy rate by using the resources we are affording them. The advantage to the dealer is being associated with a well-regarded name. NationWide can help drive success of the program because we deliver an infrastructure with 100 years of industry experience. In addition to marketing materials to support the dealer’s efforts, we provide the collective knowledge of personnel within our organization. These professionals have been successful, proactive marketers for decades.

Combine all of this with the plan to limit the amount of dealers in a specific marketing area, and we believe this is the formula for long-term success. When we add the product offerings from companies such as DMP and Visonic, along with the capabilities of a monitoring station that has 30 years of experience, the proposition just gets better.

In what ways does this program differ from others available to independent alarm dealers?
Wahrsager: Other programs have been known to overcrowd a marketing area. We plan to avoid that, and we will limit the amount of dealers so the investment they make in advertising and growing their business is realized. While other programs make dealers sell the new account to the service provider, we do not. We actually want the dealer to keep the accounts and enjoy the recurring revenue.

Probably the most important aspect is the fact that we listen to our dealers. They have significant knowledge of their markets and customers that is instrumental in building our program so that it is second to none.

Do you think this deal has the potential to improve the sometimes strained relationships between law enforcement and the alarm industry in that the S&W name has a positive connotation to them?
Wahrsager: The Smith & Wesson brand name is one that is well regarded in law enforcement and many agencies currently carry the company’s firearms as duty weapons. That fact certainly opens the door to improved relationships. We must take that benefit, and work to show law enforcement how we will reduce false dispatches.

We believe that a concentrated effort by our dealers to train the end user and make the alarm system part of their everyday routine will minimize those false dispatches, and help improve relationships between law enforcement and security agencies.

How does NationWide manage false alarms and what do you have to do in this area to avoid blemishing the S&W name? Do you now have to perform at a higher standard than ever?
Wahrsager: The first line of defense against false alarms is to train the alarm users. The majority of false alarms are generated because the user does not know how to operate the system. In the Smith & Wesson program, we have chosen equipment that contains features that help reduce false alarms. We offer codeless entry and exit so users will not have to remember keypad codes, two-way voice verification to reduce false dispatches and the ability of the customer to abort the false alarm right from the keypad.

We also train all dealers on the equipment so they can properly instruct customers. Dealers also provide customers with easy-to-understand user guides and quick reference guides. We also require alarm dealers to meet high standards for installation quality. If a system is installed properly and neatly, that will reduce false alarms due to equipment malfunction or accidental activation by customers and their pets. We know that protecting the brand is crucial to Smith & Wesson, and we intend to work with law enforcement to reduce false dispatching with enhanced or dual call verification.

Have any companies signed up thus far? Any feedback yet? How many dealers are you shooting for? How will you support that growth?
Wahrsager: We’ve only just started the program, but already have 10 dealers on board as we speak, and the list is growing. Our dealers are giving us regular feedback on how we can improve the program and make things run more smoothly. We listen; then we adjust. Our objective is to grow our dealer base to approximately 150 nationwide. As we grow that base, our own infrastructure grows to accommodate the new dealers and the new customers that are joining us.