Firearm industry in chaos

[Old Dog]

Very good points. If this panic got a whole bunch of fence-sitters off their butts and they bought up a butt-ton of black rifles -- well, we all know that once you go black rifle, you don't stop -- they're addictive.

Perhaps this whole scare really did create a whole lotta new gun-owners and shooters. Good for us, as pointed out, by Cosmoline.

 

[Batty67]

I think the big problem is going to be smaller stores going out of busxiness or laying off their staff, becaue they have nothing to sell.

I agree. Anecdotally: it appears one LGS that has had a sign on their door for a month "closed due to extremely low inventory" is closing shop. I revisited a once-thriving larger LGS by where I work and the inventory of firearms was pitiful. And ammuntion. I actually thought they had way too many employees on-hand. Maybe 8 in the store when 4 would have been plenty. I did ask about inventory coming back in and the employee (who showed me a Browning Buck Mark) said it is slowly getting better.

 

[LemmyCaution]

The current shortage is a market distortion engendered of panic. Manufacturers are wise not to indulge in it. There is no downside. If there isn't a ban, they haven't foolishly invested in increased capacity for a market the bottom will fall out of when the speculation gambit goes bust. If there is a ban, they haven't foolishly invested in increased capacity for products they can't legally sell.

 

[gossamer]

Even if you don't add capacity, when you run a large back-log, stop taking orders and are running at 100%+ capacity, that doesn't leave much opportunity to develop, market and manufacture new products.

Except for maybe the smallest, tiniest companies, do you think the employees manufacturing the weapons are the same ones working in Marketing, Research and Development? I've worked with only a few but I've never known a company on the scale of a Ruger, SW, Colt, or Bushmaster where this is the case.

The manufacturers I've worked with (Sony, Valspar, etc.) have R&D teams and Marketing teams who are far ahead of where manufacturing departments are. One worries about tomorrow, quite content to let the other worry about today.

 

[Mayo]

Easy fix----maintain the lower cost of selling the new guns instead of raising them during this nonsense. That way, when the flood(and there will be) of used guns hitting the market at cheap prices hits the consumer can then buy a used gun or a new gun at the same price! Which would you choose. But they won't do that. They have raised their prices sky high because of the panic. They will profit short term and suffer long term ala housing.

 

[larryh1108]

That's why the gun industry is more stable than autos or housing.... we can buy as many as we can afford (meaning 10, 20, etc) instead of 1 or 2. Like others have said, those who ran out and bought that AR they always thought about but never did anything about it are now in the grasp of the illness of guns reproducing in the safe. Consider that many paid $2500 for their AR and in 6 or 9 months they see some for $1000 or $1200. Well, their personal inventory will expand. With cars and houses we usually sell one to ge another one. Not with guns. Some will sell for a loss but a lot will buy more and these new people to the gun world will also vote our way when it comes time to put the anti-gun politicians out to pasture.

 

[BullfrogKen]

Easy fix----maintain the lower cost of selling the new guns instead of raising them during this nonsense. That way, when the flood(and there will be) of used guns hitting the market at cheap prices hits the consumer can then buy a used gun or a new gun at the same price! Which would you choose. But they won't do that. They have raised their prices sky high because of the panic. They will profit short term and suffer long term ala housing.

Not an easy fix.

When companies put on an extra shift, the O/T pay premium increases the cost. When companies stay open longer, use more energy at night, all the things that add up with increased production to churn out more product around the edges . . . . all these things increase cost.


And you're looking at small shops who have less to sell, but the overhead doesn't go away. Again, increased cost spread across a smaller amount of inventory to sell.

This is economics. And while it would be great to hire up some of these unemployed people, the cost of laying them off in a recession means they won't find another job again for a long time. Which means your company's unemployment insurance premium goes up. So, pay the overtime and mark up the product to cover the premium.

A buddy of mine opened up his shop just before AWB 1.0. He said he had a great business right up to and shortly after the ban.

Followed by several lean years where nothing sold, because people hurridly spent a few year's worth of their "gun budget" in a short period of time, and didn't start buying again for quite a while after.

And when little shops go out of business, they're hard to replace. Getting an FFL and setting up shop is not an easy thing to just go out and do. When the dust settles there will be fewer shops after all this plays out, and fewer places to buy the capacity of the manufacturer's output.

 

[Mayo]

Whoa, whoa, whoa. Are you seriously trying to tell me that their profit margin has stayed the same and the increase is simply due to added expenses? The same guns they were selling for $650 are now triple or more at $1800-$2000! If they simply passed on the added cost to the consumer to their actual cost they would be about $800-$900. But that is not what they are doing. They are feeding into the craziness and charging as much as they can get away with. After the madness goes away, the market will be flooded with guns at cheap prices causing the manufacturers to lose business. A better economic approach would be to charge the $800-$900, make a good profit with a vast increase in volume. Then when the market becomes flooded with used guns, people will then have the chance to buy a used gun at $650 or go back to the companies and buy new ones for the same price---what would you choose?

 

[Owen]

mayo, some of their expenses may have not have increased, but instead of turning the same $900 five or ten times, they are only going to be able to do it once or twice this year, but still have the same overhead.

 

[Sam1911]

Whoa, whoa, whoa. Are you seriously trying to tell me that their profit margin has stayed the same and the increase is simply due to added expenses?

Partially, but not wholly. Hopefully they are using the market to set price point in such a way as to balance/control demand. That's how market capitalism works. The price is whatever folks AGREE to pay in order to be able to acquire a limited resource. Now all of the large price increase we're seeing right now is not entirely in the hands of the manufacturers. These price "corrections" to meet the market happen at each stage in the supply chain, from materials suppliers right out to the end consumer.

After the madness goes away, the market will be flooded with guns at cheap prices causing the manufacturers to lose business.

Surely. As supply increases, demand pressure decreases and all sellers reduce prices to meet the new market levels. It's a natural phenomenon, like water rolling down hill and finding its natural level.

A better economic approach would be to charge the $800-$900, make a good profit with a vast increase in volume.

And, if they COULD drive their production to "vastly" increase volume (and they're doing all they can, without overextending in the long view) they would do so. They'd then make all the money they could make on volume alone. As it is, they can't meet demand, so price rises. With or without their input, price rises.

Then when the market becomes flooded with used guns, people will then have the chance to buy a used gun at $650 or go back to the companies and buy new ones for the same price---what would you choose?

This is an overstated point. 1st, as I said manufacturers (and distributors, retailers, etc.) won't hold these prices when the demand slacks. They wouldn't sell anything. So in a few months or by next year, you'll be able to buy a new AR-15 again for $800, and probably less. 2nd, not every -- or even very many, in truth, of the current buyers will sell off those "panic" guns. Last time this happened, everyone expected that to happen but it wasn't the flood predicted. The market was pretty saturated, but it hit a bottom around $600 or so and held there. 3rd, not everyone is willing to buy a used (even a "lightly" used) rifle when they can get a brand new one for ~$100 more.

 

[Mayo]

1. I submit to you that the great majority in price increase by the maufactureres is NOT due to extra shifts and OT. I have no problem with increases with demand and expenses as you said but not to overkill the profit. If you had a profit margin of 20% and keep the same percentage after expenses or a little higher--fine. But to get a margin of 200% when the expenses went up 25%(say) is wrong.

2. IF that were truly the case they would be better off doing the Disney approach and hire part timers to fill hours without paying benefits or OT.

3. IMO, this drive is much different in that I believe this time the majority of gun owners(and even newbies) aren't ending up with 1 AR in their collection...they are accumulating guns, ammo and mags in multiples. Therefore when there is a sell off people will be getting rid of excess instead of the 1 panic gun buy---but I could be wrong.

 

[Ragnar Danneskjold]

Seeing as I'm deploying again in about a month, I'm really hoping that the increased production met with falling demand as the AWB/Mag ban hopefully doesn't happen will mean a significant decrease in price for things like PMAGS. Just in time for me to be making some decent money for a year with no bills. I have 16 PMAGs now and 10 mags for my M&P9. If prices do drop and the mags become available, I plan on doubling or tripling those amounts. The only reason why I didn't have more before now was lack of funds. That won't be a problem soon, so I hope the mags actually become available.

 

[Sam1911]

But to get a margin of 200% when the expenses went up 25%(say) is wrong.

Why is it wrong? What is wrong about it? To whom is it wrong?

To the people who AGREE to WILLINGLY pay that much money?

No one is going to die if they can't buy an AR-15 right this week or this year. This is a discretionary, luxury purchase. Why would it be "wrong" in some universal sense (or even in a small, personal sense) to get as much money for the product as someone will willingly pay to have it?

That's the point of running a business. The only thing that holds prices down in a free market is competition and natural public demand not outpacing supply. When supply is grossly outpaced by the demand for the products of all manufacturers in a niche, the price can go as high as folks are willing to pay.

I don't see where that is wrong. If someone wants an AR-15 more than they want the $100,000 bill in their pocket, is it WRONG to sell it to them for that price? Of course not. If 10,000 people want AR-15s more than they want $3,000 they each have available to spend on it, is it WRONG to sell them all rifles for $3,000 each, even if you paid $0.30 a piece to have them made? Certainly there is no case to be made that it is.

2. IF that were truly the case they would be better off doing the Disney approach and hire part timers to fill hours without paying benefits or OT.

Many, if not most, undoubtedly are. They still can't fill the demand with the equipment they have. Buying more equipment and facilities in order to meet an obviously quite temporary demand is very bad business, so they make all they can and the market sets the price wherever it will fall based on the supply the manufacturers can provide.

3. IMO, this drive is much different in that I believe this time the majority of gun owners(and even newbies) aren't ending up with 1 AR in their collection...they are accumulating guns, ammo and mags in multiples.

Meh. Maybe. I hear that sometimes. Usually with a resounding absence of any solid data to illustrate that it is actually true.

And who cares if they're getting rid of excess? What if they're breathing a sigh of relief and socking those guns away to be ready for the NEXT crisis?

 

[BullfrogKen]

Mayo, have you tried to go buy a bolt carrier group? They've been tough to get for months.

It's not simply a matter of adding more staff to the assembly line.


This is business. And when you're looking at your raw materials, or parts, or inventory going away, but you need raw materials, parts, inventory to sell to cover your fixed costs . . .

You must make your fixed costs - which were once covered by selling 1,000 of a product - pay for themselves over a much smaller volume of product.

Ergo - prices goes up.


Lord we really need to teach economics in high school again.

 

[Mayo]

As a quite successful business owner, I think I know economics pretty well. I think your definition is different then mine though. You want it both ways for the gun and ammo industry. Sell for triple when "opportunity" knocks but they should also be able to gripe when the market gets flooded and nobody is buying from them then! Yeah, you want to sell something for $1800 that cost $650 then go ahead---not good business though(see CTD). Again, demand goes up and your costs rise--fine pass it on to the consumer and keep your profit margin. Not costs go up, pass on the consumer AND increase profit margin from 20% to 200%! Now you become the model industry for housing---great short term but cutting your own throat down the line. Tell me this----if these gun and ammo companies are so smart and "economic" savy, then how did they not(unlike most gun owners here) see these dramatic run on guns and ammo coming? Wouldn't a smart business be a leader ahead of the curve and not reacting after the fact? A smart company would have increased production ANTICIPATING what was going to happen to the market.:banghead: Plain and simple most are gouging consumers---you say fine, good for them----just don't whine when times get lean---which they inevitably do. Can't have it both ways.

 

[Sam1911]

If they could see this coming ahead of time, they should have mentioned it to the PD over at Sandy Hook.

Do they scream when prices fall? Not such that I've seen. They sell. They sell when the market hits $2000 and they sell when it drops to $600. Markets fluctuate. It isn't a matter of "having it both ways." It IS both ways whether they want it or not.

They can sell their guns at cost (which went up on them as Ken has explained) when the market says 3x cost, but that just means their buyers will rake in those markups. If the buyers don't, then the retailers will. If the retailers don't, the first consumer in line will buy 50 and sell them for profit. All of that is bad business.

 

[larryh1108]

Personally, I don't see the gun makers raping the public. Before the election, they were all at max capacity and many stopped taking orders. If they wanted to gouge they could have sent notice of a 50% price increase when they saw the backorders, but they didn't. Then the tragedy hit and talk of new laws and gun bans was all that was talked about. The gun makers were already backlogged before the tragedy so all this did for them is give them a 2 year waiting list, which they knew would drop down when the buying furor dropped. There are many FFLs here and I didn't read about any of them saying that Gun Maker XYZ doubled his prices. None.

So, who is making all this profit if not the gun makers? The small gun dealers buy from a middle man or distributor. Is this guy doubling his prices? Is Davidsons raping the public and the small gun dealers? I don't know who the big distributors are but if they've been around for a while they know what happens when the panic ends and it's back to business as usual. They are in it for the long run so they keep their margins in place and if they get a price rise of 10% then they'll mark it up to cover their profit margins and do business as usual.

What about the big gun dealers like Bud's, etc? Do they buy direct from S&W, Ruger, Colt, Kimber, etc? I don't know but if the makers aren't doubling their prices (and I doubt they are) then the retailer is making the huge profit margins. Someone is. If it isn't the maker and it isn't the distributor (although both had modest increases) then the retailer is the only one left. They probably blame the maker and middle man but they are lying.

Many do say that the small LGS needs to make his profit on what he does have to sell because his shelves are empty and he still has his fixed expenses. While that may be true, what happened to his year of sales he experienced in a month with double and triple profits? Where is that money when you consider he can't use it to buy more inventory because it's not out there. This always seems to go unaddressed. He pulled in a year's worth of inflated profits in one month and now is out of stock.

However, with all of this being said, the retailer has every right to charge what he feels is the best price for him. He is taking the gamble on running his business, his neck is on the line, his future is in our hands. There is a fine line between being a savvy businessman and raping your customers. Many retailers have been thru this enough times to know how to handle it. Retailers who are on their last legs will grab all they can and then shut down and the new guys will make good decisions and bad decisions and we'll know who they are in a year when we see who is still standing and who closed their doors. The guy who has been around the block will offer fair pricing and won't alienate his customers for a short term profit and long term dissention.

Free enterprise is also a slippery slope. They need us more than we need them but the best of both worlds is when both parties make it work. Pigs get fat and hogs get slaughtered. Always been true, always will be true.

 

[Mayo]

Sam1911...Really, Sandy Hook? I hope you aren t being serious? You know exactly what I mean. Most people here had the foresight 4 years ago to knpw another AWB under Obama would be coming. Many started buying the guns and ammo they wanted ahead of time. Doesn t seem the memo reached sme supposed smart businesses!

 

[Sam1911]

Yes, I'm completely serious. Putting themselves in a negative position to be ready for some political action that MIGHT be coming in the next ??? years really doesn't make much sense. And certainly we have evidence right here in THR of just how many folks were convinced that the current President "just wasn't interested in..." and "never did anything to promote..." real gun control measures and wasn't "coming for your guns." Probably 100 threads argued that point and how his opponent had done more to make an AWB happen than he had. So, nope. Going against your own business and production strategy because you're concerned that there might sometime be a ban & run on guns just isn't smart.

Remember, while we're all a teensy bit concerned, of course, they aren't HURTING. They're currently selling every gun they can make and have back-ordered sales for months or a year to come. That's a great thing. They might have made even more money if they built a new production line JUST at the right time to catch this trend, but doing so before might have further saturated the market and depressed the prices they were getting then.

As I said elsewhere, sitting on inventory, warehousing and so forth, is just not a good place for any modern company to be. That's not how they shave the margins to be competitive, that would be wasted money.

 

[vito]

I've often wondered how many guns the U.S. market can absorb. With approximately 280 million guns (if that number is correct), and a sizable number of people not interested in owning a gun (in addition to the reality that children will not be buying guns) maybe we are approaching real saturation. I own a number of guns, and these guns meet all of my current needs so I while I have purchased several new handguns in the last few years I doubt that I will be buying any in the foreseeable future. We have now been through two Obama based panic buying sprees, and maybe when that fully runs it course we will find that there is just not a big demand for the volume of guns that could be sold. And guns are not things that wear out like cars or TV's, so most guns, I surmise, will be around for virtually forever. Just thinking.

 

[Sam1911]

Ha ha! Maybe. It does seem that more folks (by number, if not percentage of population) are buying guns than ever before, and more of them are buying more than one gun, and a great many are getting their kids into shooting as well, which bodes well in the future. And, of course, manufacturers make shiny NEW stuff all the time, primarily to get us all to buy the latest and greatest.

Saturation? Maybe someday, but I don't expect to live to see it.

 

[larryh1108]

It seems that most new guns are designed with an eye to the CCW crowd. There are a few combat style pistols coming out but the majority are small and smaller as well as lighter. I believe the new group of gun buyers are those looking for small, SD guns for carry.

The new models introduced since the last election have been mostly small and plastic. 98% of my collection is steel but I believe the new generation will stick with the plastic line. Steel will never fall out of favor with collectors but I can see the market being satisfied with new owners having a different plastic gun for each day of the week, for each season and for each type of dress. Gun sales won't slow down but what they buy will change. Hopefully the steel guns will become cheap and plentiful when the older generation passes on and the new kids on the block sell them off for the newest tiny guns.

Of course, long guns are a different story as the AR type platform will continue to be popular and if they pass some sort of AWB, the next generation of ARs will be filled by the gun makers that will be catered to any new laws we may see. Hopefully we won't have to go that route but a lot of states feel they know what's best for us.

 

[gossamer]

As a quite successful business owner, I think I know economics pretty well. I think your definition is different then mine though. You want it both ways for the gun and ammo industry. Sell for triple when "opportunity" knocks but they should also be able to gripe when the market gets flooded and nobody is buying from them then! Yeah, you want to sell something for $1800 that cost $650 then go ahead---not good business though(see CTD). Again, demand goes up and your costs rise--fine pass it on to the consumer and keep your profit margin. Not costs go up, pass on the consumer AND increase profit margin from 20% to 200%! Now you become the model industry for housing---great short term but cutting your own throat down the line. Tell me this----if these gun and ammo companies are so smart and "economic" savy, then how did they not(unlike most gun owners here) see these dramatic run on guns and ammo coming? Wouldn't a smart business be a leader ahead of the curve and not reacting after the fact? A smart company would have increased production ANTICIPATING what was going to happen to the market.:banghead: Plain and simple most are gouging consumers---you say fine, good for them----just don't whine when times get lean---which they inevitably do. Can't have it both ways.

1) You seem to be conflating retailers, wholesalers, and mfgrs. And they are not the same. how much of this "gouging" is retail profit taking or wholesalers like Simmons (in my area) taking more profit rather than mfgrs gouging? Where is evidence that the big mfgrs are increasing their wholesale pricing? I would need to see this before I solely faulted the mfgrs of gouging.

2) how were they supposed to anticipate a mass shooting in a school? Because honestly, that's what started this run.

From the perspective of someone who's also run a successful business for 18 years, the fact is, you can't anticipate everything. You are in the position of reacting as often as you are in anticipating.

Comparing specialized commodity manufacturing (guns) to the building industry (housing) is apples and oranges.

 

[Mayo]

2. I'm not talking about anticipating Sandy Hook per se. The fact is most people(at least here) had the sense 4 years ago or more recently to start getting the guns and ammo they wanted knowing this day was coming. This day meaning Obama's 2nd term and a shooting leading into another AWB. Again, plenty of people anticipated this happening yet none of these companies did---NONE. Or is it they now have a reason to jack prices. Heck, 24 hours ahead of the election the high ups on Wall Street were moving their investments anticipating(theres that word again) what was going to happen when Obama won. At the very least increase production slightly!
A little heads up out there people---in the next 2-3 years(maybe sooner), interest rates are going to rise on mortgages, new housing contruction will increase, immigration reform is going to happen, Disney prices will increase as will Univeral and Sea World---plan accordingly and please don't say you didn't see it coming.

 

[Sam1911]

Again, plenty of people anticipated this happening yet none of these companies did---NONE. Or is it they now have a reason to jack prices.

Those companies had the same information we did and knew the odds just as well. They did what they needed to do to stay profitable to the best of their abilities.

They are profitable today -- not hurting. I can't see any reason why they'd have changed a thing. "We don't want to have to increase prices in the face of rising demand..." isn't part of most business strategies.