The sharpest tool in the shed: How Lee Valley built a cult-like following: The quirky retailer, run by family scion Robin Lee, has a devoted fan base. But can it lure in a new batch of DIY enthusiasts?

Susan Krashinsky Robertson

The Globe and Mail (Online), Toronto: The Globe and Mail. May 25, 2023.

 

Robin Lee knows what you're thinking as he plucks an item from the shelf of his family-owned store in suburban Ottawa: This product seems a bit, well, stupid.

The CEO of Lee ValleyTools goes one step further: "Stupidest thing ever" is how he describes his first impression of the Wingman, a plastic dragonfly on a wire that's designed to be clipped to your hat, wobbling absurdly overhead and purportedly repelling deer flies and horseflies. It seems fishy; it looks ridiculous.

But Lee Valley will sell it to you (for $13.90 plus tax) because it's one of several oddball gadgets whose unexpected utility the retailer swears by. Its catalogue—highly anticipated by many customers for its articulate copy and surprising array of products—describes the Wingman as "a simple, effective alternative to the arm-flailing method of shooing away" the pests, assuring readers it was "tested in Ontario cottage country." Lee is the unnamed tester; his is the cottage.

The Wingman is a perfect example of how Lee Valley has evolved over its 45 years, branching out from its origins as a mail-order purveyor of woodworking tools. The company still sells thousands of those tools, many of which it manufactures through its Veritas brand, a cornerstone of the business. But as time has passed, the product assortment has expanded—into other work-with-your-hands categories such as gardening and cooking, but also in some surprising ways. If you're in the market for a box-maker's plow plane or a mortise chisel, LeeValley has it. Also, there's a doohickey for squeezing toothpaste out of its tube.

On paper, this should not work.

"If you walked in cold off the street, you'd go, 'What the heck are these people about?'" Lee acknowledges.

Lee Valley is part serious tool shop—catering to the kind of folks who appreciate having the choice of more than two dozen varieties of sharpening stone—part high-end cooking and gardening store, and part random potpourri of SkyMall-ish merchandise. In many of its product categories, it's not the biggest, the fastest or the cheapest option. And it's positively dwarfed by competitors like Home Depot, Canadian Tire and Amazon.

But Lee Valley has built itself a niche, with 18 stores across the country, an e-commerce operation that accounts for roughly 50% of its sales, and more than $100 million in annual revenue from the retail operations alone, not counting its manufacturing business.

Significant challenges still lie ahead, however. Lee Valley's leadership is evaluating the future of its store network, which has gaps—including in Canada's largest city, where skyrocketing rents forced the closure of two of its three locations in the past couple of years. The company must make sizable investments to modernize its manufacturing operations. And it's grappling with how to remain relevant, not just as people's shopping habits change, but as it seeks to appeal to newer, greener customers who may find the array of tools more intimidating than inspiring.

"We are an editor for the customer," Lee says, referring both to how the company selects products and the tone it uses to recommend them to the right users. He references the friendly neighbour on the '90s sitcom Home Improvement, who dispensed advice and a bit of philosophy to Tim "The Tool Man" Taylor over the fence. "We're Wilson."

Lee Valley sells roughly 24,000 products—and many of them have to pass muster with Robin Lee himself, whether they come from the company's own tool-making operation or from other manufacturers. The retailer adds new items every couple of weeks, which the product team pitches to Lee in a process the company's president and chief operating officer, Jason Tasse, compares to Dragons' Den.

Lee, 60, has spent most of his life refining his understanding of what works for LeeValley. In 1976, his parents, Leonard and Lorraine, decided to try selling cast-iron stove kits out of their home in Ottawa's Westboro neighbourhood. For Leonard, a civil servant looking to strike out on his own, it was a test run to gauge the viability of a mail-order business. Robin, then still a teenager, would grind the castings to remove excess bits of metal and then pack the stoves for shipping.

Lee Valley was launched in 1978 as a catalogue selling woodworking tools. Leonard got his start by partnering with Garrett Wade, a New York-based purveyor of similar catalogues. Owner Garry Chinn shared artwork for print and wrote to his product suppliers guaranteeing the fledgling company's invoices. (Mr. Chinn still owns a small percentage of Lee Valley and sits on the advisory board.)

But from the start, the operation was a family affair. Whenever someone called the company number, a phone in the Lee kitchen rang. After the 1981 postal strike just about put them out of business, demonstrating the necessity of brick-and-mortar stores, Robin built the very first showroom. (It was his summer job.) "The showroom model kind of mirrored the catalogue," says Tasse, a 25-year veteran of the company who started out working in the warehouse. It remains the same today: Stores mostly display product samples, which customers can purchase by filling out an order—either on paper, by mobile phone or at a computer station. A staffer then fetches their items from the back.

As Lee Valley grew, Leonard Lee wanted to be more involved in the design of its tools and to incorporate customers' feedback. The company launched a manufacturing arm, now called Veritas, in 1985, which operates in a facility just down the road from its Ottawa store and makes about 1,200 tools, hardware and gardening products both for Lee Valley stores and for export to more than 90 countries. About one-quarter of the products the stores sell are manufactured in-house. Veritas launches new items all the time; Robin Lee estimates there are currently more than 200 products in the queue waiting to be introduced, including a new set of bench rules, a hacking knife, a dowelling jig and a saw for cutting the fret slots on a guitar neck. "It's a very tight connection between the retail arm and the manufacturing," he says. "Let's say you buy an electric drill from Home Depot, and you go back and say, 'Here's what's wrong with it.' The drill manufacturer never hears it. There's no effective feedback loop...Whether they outsource, or they do it internally, I think that's a good strategy for many retailers—to have not just a house brand, to not just put your name on somebody else's product, but to do the design work."

When it comes to products sourced from outside the company—whether it's a new garden pail or a quirky gift item—staff must convince Lee that the product solves a problem, represents good value and quality, and is something shoppers can't find everywhere. (The Wingman is an exception to the latter rule: Amazon, Canadian Tire and a number of outdoor-supply stores will also sell you this backcountry fascinator.)

Still, it's a delicate balance between solving problems and needing a tool for absolutely everything. While the serendipity of the product selection can be entertaining, it also begs the question: Does one really need tongs specifically for fishing toast out of the toaster? Or a paper plane launcher? Or a reflective sheet to warm your rear end while sitting around a campfire?

"We want you using this stuff," Lee says. "These are tools that are going to be good. They have a utility and a value, which we will make clear to you. And you decide whether it applies to you or not."

here's a story behind the rasp. Of course there is—for a catalogue company like Lee Valley that prides itself on good copy, there's always a story to be told. The microplane that does a real number on your lemon zest and your parmesan cheese, wouldn't you know it, started off as a surgical tool for shaving bone (appetizing!) and for woodworking. After Robin Lee found it at a trade show in Chicago in the 1980s, his mother picked it up, figuring it might do the trick for zesting oranges. It became a kitchen favourite. The catalogue told the story—with Lorraine making an appearance as "a Lee Valley woodworker's wife"—and soon the manufacturer called to ask what the heck was going on: Lee Valley was selling tens of thousands of the things.

The tone of the Lee Valley catalogue began with Leonard Lee, whose salesmanship included a tongue-in-cheek blurb casting the user of a long-handled trowel as the "lord of the manor." Robin is particular about carrying on that legacy and still edits every bit of copy before it hits the page. "I ban words," he says. (Recent outcasts that were hammered into semantic saturation with overuse: "exceptional" and "essential.")

The voice Lee Valley has cultivated over more than four decades is deliberate: knowledgeable, not know-it-all. "Conservative but modest advice," Tasse says.

"But also to be literate and not talk down to people," Lee says.

The people Lee Valley speaks to are changing. The company's core customers like working with their hands. Management has even given them personas: Earl, an old shop teacher, and Heather, a middle-aged gardener. But its newer customers fit a different profile. "We've got to be more about teaching gateway skills to different customers—not the 50-year-old woodworker, but somebody who never took shop class in high school or grade school, as most people don't," Lee says. "Now, a beginner isn't 16 years old. A beginner is 35 or 40."

Lee Valley has responded by focusing more on inspiring beginners, including with an ad campaign that emphasized failure as part of the learning process. It has also introduced "Make it Yourself" boxes inspired by meal kits, giving customers all the tools and materials to try out carving a wooden spoon, for example, or building a bird feeder.

There are other ways Lee Valley is seeking to modernize. A few years ago, it began overhauling its digital operations, including making a major investment in its website. E-commerce became a lifeline when the pandemic hit, and digital sales became everything. But Lee Valley still took a major blow, with store closures eliminating half its sales at the worst possible time. It had just placed all its Christmas orders in January and February, and found itself in a cash crunch, forced to lay off 7% of its workforce across the retail and manufacturing operations. "We just had the rug pulled out from under us. And when you go to the bank, they say, 'Retail—that's going to be a big problem. We don't want to invest in you,'" Lee says. "It's as if the previous 40 years didn't count."

The company was able to recover by leaning on digital sales and benefitted greatly when locked-down Canadians began spending money on home improvement projects and hobbies to stay busy. Having always done store pickups for online orders—and with staff already fully trained in retrieving product from the back—Lee Valley was able to pivot quickly to curbside service, staying closed out of caution (or opening by appointment only) for some time even after hardware stores were categorized as essential retail.

Those online sales, and customers' loyalty, "saved our bacon," Lee says. For a time, though, he feared the second generation running Lee Valley might be its last. "We were closer than anybody knows to closing the doors permanently," he says.

Lee Valley doesn't work like other companies. Leonard Lee used to tout the fact that over the decades, the business had never had layoffs. Because of the pandemic, that's no longer true. "It was tough," Robin Lee says. "But there was some learning in there, too."

For example, management realized that its resistance to layoffs wasn't always a good thing. While employees appreciate loyalty, Tasse says, some were frustrated by the retailer's tendency to hold on even to non-performers. With staffing levels now back up to pre-pandemic norms—about 1,000 employees—Lee and his team are working on managing their people differently. That means shedding the less formal approach of the past and introducing more career development discussions; skip-level meetings where staff have the chance to meet with managers above their direct supervisor; and better succession planning across roles, to ensure they're identifying talent to take over when others leave. That also means better record keeping so that long-time staff don't take all their institutional knowledge with them into retirement.

Some of the old ideas still apply, however. The founder always had a policy that the highest-paid employee at LeeValley would never earn more than 10 times the wage of the lowest-paid person on staff, a rule that remains in place today. To put that in context, the 100 highest-paid CEOs in Canada took home 243 times the pay of the average Canadian worker in 2021, according to research by the Canadian Centre for Policy Alternatives—a gap that has widened considerably in recent years.

Other core tenets have changed. LeeValley used to distribute one-quarter of its pre-tax profit among the staff. During his time as a warehouse worker, Tasse remembers that if a worker dropped something, the joke was to call out, "profit share"—as in, the cost of that broken item is coming out of our pockets. As the business got bigger, though, that message got lost, the executives say. They made the decision to increase core salaries rather than pay out bonuses tagged to profits, which left staff not knowing how much they could rely on. (Lee says there were some lean years when he fudged the number to make it look better.)

"We're now tracking progress to a living wage," Tasse says, adding the company pays a premium over minimum wage. It used to be about 30%, but that has narrowed slightly as provinces have raised their minimum wage levels. Still, Lee adds, "We don't want it to be a little bit above minimum; we want it to be significantly above." These efforts have helped the company build a workforce filled with long-timers. "I hand out 25-year certificates and awards every week," he says.

With the turbulence of the pandemic behind it, Lee Valley is evaluating what its future should look like. A big part of that is its store network. "When they started back in the '70s, the market was not as urbanized," says Wendy Evans, a retail expert and president of Evans & Co. Consultants. "As the market has evolved, they'll have to rethink their location strategy."

Many of Lee Valley's stores are in suburban, and in some cases industrial, areas. The assumption was the customer would drive to them, so they went where the rent was cheap. Now, Lee says, the customer is changing, and the retailer is analyzing where there are gaps. One of them is in Toronto, where management is looking hard for new locations after shuttering two stores. (The last one left is in the suburb of Vaughan—a great stopping point for people on their way to cottage country, but hardly a lure for downtowners.)

As they look to more central locations, stores will likely become smaller, with a more selective number of items. But if customers want endless choice, they're probably picking up their phones rather than driving to Lee Valley anyway—Lee himself says he turned to Amazon recently when he needed a specific size of bolt. It took a few clicks, the price was good, and he had it the next day.

"The trick is, why do people want to come to our store?" he says. It might be to take a woodworking class, to get that neighbourly Wilson advice, or to get a kick from browsing through bug catchers, an old-timey mariner's weather glass or etched-steel plates for measuring butter. One thing is clear: "It's not going to be for the bolt."

It's not just the stores LeeValley is trying to modernize. Next door to its Ottawa headquarters, in the Veritas machine shop, a senior manufacturing employee named Rob is standing next to a bright-yellow robot arm, training it to pick up tenon cutters and put them into a lathe. "I've worked on equipment like this since 1993, but this is the first time I'm using it with a robot," Rob says, adding the training process can be a bit of a challenge. "This guy has a bit of an attitude. He will only do one thing—or she will only do... Anyway, they do their job very well."

Investing in this kind of efficiency is a priority for Veritas. Those tenon cutters are frequently on back order, Lee says, and this is exactly the kind of unskilled, repetitive job he wants to automate, freeing up humans for tasks that require judgment and flexibility. "Continuing to make more products in Canada, and continuing to employ more people, not fewer—that's critical," he says.

Lee Valley is also saddled with machinery that's now 25 or 30 years old and on its last legs—and running at half the speed of new models. The company has poured $12 million into the machine shop in the past three years and recently converted a building next door into a second machine shop to accommodate newer equipment and growing operations. "Our big, audacious goal is over 100 years of sustainable growth," Lee says.

But to get to a century, Lee will have to ensure the business successfully changes hands from one generation to the next. The company has already done it once. Robin Lee took over as CEO in 2002, after more than two decades in a variety of roles (interrupted only by his time at the University of Waterloo, where he earned a degree in systems design engineering and worked as a co-op student at IBM). As technology became a bigger part of the business—"Dad was not an internet guy"—and Leonard decided he wanted to focus more on the medical instruments company he launched in 1998, he decided to hand over the reins. Leonard remained involved in designing new tools, and he also ran a hardware store in the town of Almonte, Ont., as vascular dementia reduced the work he could take on. He died in 2016. (Lorraine still lives on their 75-acre spread, cutting the grass and driving the tractors at the age of 84. Do-it-yourselfing clearly runs in the family.)

Lee stepped into the CEO role with a vast array of experience across the company, and he has a background in product design and tool development his children don't have. "But they will be skilled at other things," he says. The Lees are very much a presence at Lee Valley: Robin's wife, Lucie Robitaille, is chief customer officer. Daughter Annick Robitaille-Lee is divisional merchandising manager in charge of gardening, and son Philippe Robitaille-Lee is marketing content manager. (Tasse, 49, also worked closely with the senior Mr. Lee and has been around so long that Robin sometimes jokingly calls him "one more Lee.")

What Lee Valley faces in the coming years is something many Canadian companies are grappling with: Six out of 10 businesses will change hands in the next decade as boomers retire, and keeping family businesses in the family is getting increasingly difficult. Lee Valley recently acquired two U.S. tool manufacturers when the second generation didn't want to take over.

Robin Lee says he's committed to passing the family business on to the third generation. "We could sell it a million times over, but I wouldn't want to watch what it became," he says, adding that he receives offers regularly. "I could see XYZ accounting firm coming in here and saying, 'Cut this and this, and change this,' and kill the golden goose."

And he's not stepping away any time soon—Lee jokes that his retirement plan is Freedom 85. "It's not about money; it's about your life and what you enjoy doing," he says. "Also, when your name is on the building, it matters what happens under your name."

He smiles.

"There's a little bit of a trap there."

 

21. What is Lee Valley's generic strategy (low cost, differentiation, niche, focus). Cite evidence from the case. How successful is this strategy? 

 

 

22  a) Describe, with reference to the case, the profile of Lee Valley's original target customer segment as mentioned in the case? How has this changed?

 

 

22 b) Assess  how the front line staff interacts with the customer at "the moment of truth".

 

 

23. Describe the human resource policies of Lee Valley. Can their approach be described as "servant leadership" ?

 

 

24. List the major ways (as described in this course) Lee Valley has used customer service in its business success.  Can you suggest any other ways to improve their service quality?