Firearm industry in chaos

[RockyMtnTactical]

http://www.gunsandammo.com/2013/01/30/industry-report-rise-in-gun-sales-prompting-industry-chaos/

 

[wooly bugger]

I don't see how this could be a long term disaster for the industry, as mentioned in the last paragraph?

From what I understand, after the '08 panic, the market wasn't flooded with cheap used but never fired rifles. I don't see how this will be much different.

And even if it is, with major manufacturers having a 2 year backup, by the time they actually have something to sell, things should have normalized.

I think this can only be good. With more AR's out there, there will be more people who can't stop at just one, more market for accessories, and a permanently higher demand for .223/5.56.

 

[silicosys4]

Every five years or so there is a crop of last gen police and security surplus pistols that come onto the market.
Glock is still chugging along selling a few brand new G22's, along with plenty of brand new G17's and 19's despite the huge surplus glock market...and I'm constantly amazed at how a used G22 keeps its value despite there being literally tens if not hundreds of thousands of surplus G22's out there.
S&W still sells plenty of brand new revolvers, despite the cheap as heck used m64's and m10's out there.

 

[Old Dog]

S&W still sells plenty of brand new revolvers, despite the cheap as heck used m64's and m10's out there

Agree with the first part ... but not the second ... Last night, local gun sale forum reflected a $500 10-5 (no mention of condition, but photo wasn't that impressive) ... stainless Smiths seem to be collecting a premium. Another newsflash: used S&W revolvers AIN'T cheap as heck anymore, at least up here in the Pacific Northwest (perhaps there's just more of us who appreciate 'em up this way?).

As far as Glocks go, before the panic, there was a huge glut in this region, prices were reasonable, and guys who tried to sell 'em used at MSRP caught a lot of flack ... Best I can tell -- at least in my part of the country -- the only firearms that consistently hold their value are the better [production] 1911s, ARs, S&W revolvers and anything with a rampant Colt on it ...

Only thing that I agree with, as far as the article goes, is Fjestad's comment: "We'll see how the next six months go." The gun industry rebounded robustly from the last couple panics and (true) values re-asserted themselves. If there's one thing we should take away from all this, it's only that we can't predict the future.

 

[Cosmoline]

Maybe it's because I'm not an MBA, but how can a huge increase in demand be a bad thing?

 

[Phatty]

Maybe it's because I'm not an MBA, but how can a huge increase in demand be a bad thing?

Think about the last housing bubble we had in this country. Once the bubble burst, tons of home developers went out of business because they were constructing new houses as fast as they could possibly build them. They were hoping to take advantage of the huge demand and high prices, but were left holding the bag when demand tanked and there was an oversupply of homes on the market.

 

[silicosys4]

Agree with the first part ... but not the second ... Last night, local gun sale forum reflected a $500 10-5 (no mention of condition, but photo wasn't that impressive) ... stainless Smiths seem to be collecting a premium. Another newsflash: used S&W revolvers AIN'T cheap as heck anymore, at least up here in the Pacific Northwest (perhaps there's just more of us who appreciate 'em up this way?).

As far as Glocks go, before the panic, there was a huge glut in this region, prices were reasonable, and guys who tried to sell 'em used at MSRP caught a lot of flack ... Best I can tell -- at least in my part of the country -- the only firearms that consistently hold their value are the better [production] 1911s, ARs, S&W revolvers and anything with a rampant Colt on it ...

Only thing that I agree with, as far as the article goes, is Fjestad's comment: "We'll see how the next six months go." The gun industry rebounded robustly from the last couple panics and (true) values re-asserted themselves. If there's one thing we should take away from all this, it's only that we can't predict the future.

Not trying to argue, but I was at Cabela's up north of Everette a few weeks back, looking at used trade in G22's at $469 each....Online they are about $500...not including shipping or transfers. As a percentage of MSRP, Yea...glocks are holding their value better than a colt right now...and even prior, I was primed to pull the trigger on any G19 or G17 that I could get for less than $400...never saw one on the used market for less than $400...and bought multiple colts and S&W's for bargains during that time.

The revolvers...They are around, and you can still find them cheap if you look. I don't consider anything newer than about 1995, and I forget that others do...so I don't even consider the prices of new S&W revolvers, they don't exist to me....For good deals on used S&W's though, look online, where the market is more even....the local market in the PNW is high for revolvers, that's true.
The last 3 months price increases do not reflect overall value of S&W revolvers increasing, they reflect the overall panic in the market bleeding over, imo....they will go back down in price.

OP, if by "chaos"..you mean raking in money hand over foot, selling every item before it comes in as raw material let alone before it goes out as product, and not having to worry about excess inventory for....well...ever,
I think they will do Ok.

 

[gossamer]

Are people financing their gun purchases and going to default on the loans, because that's the only way I could see a comparison between the two.

Could excess inventory be a bad thing for gun mfgs if the bottom falls out? Yes. But excess inventory of guns is different than excess inventory of houses.

For starters, if I'm a home developer with a few hundred extra houses sitting around Colorado, I can't very well ship those houses to South America to sell them there.

Not every country is feeling the hit in gun sales that we are because they don't share our political climate. The world is a big place, and other countries buy guns too. The excess inventory problem you site is a real one, but I don't see it being nearly as debilitating to the industry as houses were.

Guns aren't real estate. The barriers to entry for buying them are not - despite what many would like to believe - as insurmountable as they are for a home, car, etc..

 

[rbernie]

Think about the last housing bubble we had in this country. Once the bubble burst, tons of home developers went out of business because they were constructing new houses as fast as they could possibly build them. They were hoping to take advantage of the huge demand and high prices, but were left holding the bag when demand tanked and there was an oversupply of homes on the market.

The real issue with he housing bubble was that the expansion of supply (new construction of end user items) was financed. Without the demand keeping pace with construction, an awful lot of builders wound up not paying on loans and a lot of folk who bought speculatively wound up tens/hundreds of thousands of dollars upside down.

I don't think that is analogous to either the firearms industry or consumer base, excepting perhaps a gun manufacturer who heavily finances a production expansion.

 

[mgmorden]

If what I've heard about the actual costs of producing some modern firearms is true, I don't think they have much to worry about.

IIRC correctly it costs Glock about $75 to make one of their pistols. I'm sure many others aren't too much above that (I say above as typically the larger the company the more automated and refined their production process, and hence the cheaper the price).

They (rightly) sell it for a lot more than that because its worth a lot more to consumers, but the perceived value could PLUMMET and they'll still have more than enough wiggle room the price them competitively and still profit.

Same with magazines. I can't imagine that it takes more than a couple dollars to mold a polymer AR magazine. They charge whatever the market will bear and if it turns out in a few years that it will bear less my guess is that they'll still be able to sell them at a profit.

I don't see the current situation as being anything but positive for the industry.

 

[Bubbles]

I don't think that is analogous to either the firearms industry or consumer base, excepting perhaps a gun manufacturer who heavily finances a production expansion.

Which is exactly why no firearm or ammunition manufacturer is expanding in the face of this artificial spike in demand. That spike will go away overnight, and backorders will quickly become cancelled orders, once gun control legislation dies in Congress.

 

[mrvco]

Maybe it's because I'm not an MBA, but how can a huge increase in demand be a bad thing?

Ramping up infrastructure and staffing to meet a short-term spike in demand is problematic when the spike subsides (and it will, probably before you are done with the expansion). You invested a bunch of money (bank loan or otherwise) so you are able to produce 1,000 widgets a month instead of 100, but it is hard to pay the bank loan, salaries, etc. on a 1000-widget-a-month factory when you go back to selling 100 widgets-a-month.

You also have to deal with the expectations from your debt and/or equity investors who are all excited about selling 1,000 widgets-a-month and anything less is now unacceptable.

 

[Ryanxia]

Think about the last housing bubble we had in this country. Once the bubble burst, tons of home developers went out of business because they were constructing new houses as fast as they could possibly build them. They were hoping to take advantage of the huge demand and high prices, but were left holding the bag when demand tanked and there was an oversupply of homes on the market.

While you're right I don't think this insanely high demand will last longer than the time it will take to catch up with what's already been ordered (even if 1/4 of them are cancelled because they were ordered by speculators).

 

[va1911]

If the firearms mfg's went out and acquired new plant and equipment assets as a result of this panic, yes, they could end up in a lot of trouble. I don't know of one who has done that, and instead they are writing huge backlogs. Completely different from the construction industry.

 

[mrvco]

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. This can create a window of opportunity for new competitors to enter the market and add capacity to the industry.

 

[Cosmoline]

Remember back in the days when there were warehouses actually full of things people might buy? And the vendors didn't try to keep every bit of inventory in transit?

I think the solution is a lot simpler than building a bunch of new factories. Just quit trying to roll out firearms on a just-in-time basis like bread loafs. Get some back stock of them. In fact this is a problem that comes up ALL THE TIME, not just during these panic periods. Vendors from Midway to Track are constantly short of everything from components to firearms. With a return to the old style of actual warehousing, there could be a lot more flexibility in responding to market flux. Because trying to predict exactly what's going to be bought when appears to be impossible. I realize nobody likes to actually warehouse anything anymore, but it's not going to break anyone's bank to rent storage space and put up some racks.

 

[Owen]

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

 

[Ken70]

From the article it's obvious the gun makers are using the Harley-Davidson, Mercedes, Porsche marketing model by not making enough to fill 100% of demand. Always be 5-10% short of demand. That way there is no/very little discounting, the factories most important customer, the retail dealers, can make good money. Gun companies have seen the yo-yoing of demand, so they run at a level that works most of the time. They could put on a second shift and run the machinery they all ready own, but they don't know what the govt is going to do, so they probably don't.

 

[Cypress]

It was interesting with the last panic to see what might be described as almost "Wartime Production". Instead of large companies buying more tooling and equipment. They simply contracted out some parts to small companies not usually connected to the firearms industry. Especially in the AR market anyone with a good CNC and the programming can make these parts. I heard of several companies down here in the south doing this with great success. After the demand subsides the smaller company can go back to making widgets instead of gun parts or they can get liscensed and rebadge their lower and we have another company to choose from. I can't see where any of this is bad for us. On top of all that the more little companies that crop up in TX the more I will have to choose from if the Feds force themselves on the rest of the nation with their BS bans!

 

[Sam1911]

I think the solution is a lot simpler than building a bunch of new factories. Just quit trying to roll out firearms on a just-in-time basis like bread loafs. Get some back stock of them. In fact this is a problem that comes up ALL THE TIME, not just during these panic periods. Vendors from Midway to Track are constantly short of everything from components to firearms. With a return to the old style of actual warehousing, there could be a lot more flexibility in responding to market flux. Because trying to predict exactly what's going to be bought when appears to be impossible. I realize nobody likes to actually warehouse anything anymore, but it's not going to break anyone's bank to rent storage space and put up some racks.

Actually, it sure does. Without getting too far off our main focus here, I've been doing some studying of globalization and supply chain issues recently, and the benefits of just-in-time inventory are crucial to firms succeeding in a competitive market in the modern world. Inventory is wasted money, warehouse space is profit going up in smoke. I don't know how many manufacturers are operating in a JIT supply chain model (or if it would even matter if they were, these days) but if not, they SHOULD BE. They'll bank more profits and guns will be less expensive if they can.

As Bubbles and others pointed out, there is no problem for manufacturers if they just keep rolling those production lines. Sure there's a backlog. That's awesome! There's really no benefit to them in sitting on thousands of guns (especially LAST year's guns...or the years' before) waiting to fill some rush. Take the orders and fill them when you can. If you can get a 3rd shift up and running without too much investment, that's great, but the better bet is just to use market price and your price point to maximize profit at your maximum production rate.

 

[joeschmoe]

Temporary instabilty causes shakeup, and makes the pencil pushers squirm. Now is the time for the aggressive players to take thier chances and the timid to get eaten. Some will win, some will lose.

Welcome to capitalism. Overall, too much demand is a problem most businesses/industries would kill for.

The market will correct itself. No one knows who will be the big winners and the big losers. Most will do fine.

 

[GEM]

That's what I've heard from store owners. It's cash flow. If the guns don't exist you don't get customers in to buy other things. Those others can be the big money support of the store.

Since it seems that an AWB or mag ban isn't going to happen (I think ), there will be dump of more expensive guns that will deter new sales in the future. Getting a lightly used AR, mags, Glocks, etc. will be nice for us but not stores.

But - hey - if they make NICS mandatory for private sales - maybe the guns will flow back to stores as used items for resale - Unintended Consequence.

 

[wooly bugger]

Think about the last housing bubble we had in this country. Once the bubble burst, tons of home developers went out of business because they were constructing new houses as fast as they could possibly build them. They were hoping to take advantage of the huge demand and high prices, but were left holding the bag when demand tanked and there was an oversupply of homes on the market.

I think there are a couple of differences from the housing market:
1) Home purchases are largely financed, leading to large market distortions in the form of manipulated and subsidized interest rates and tax incentives.
2) Most people own only one or possibly two homes. Each of these has significant carrying costs. Compare this with those of us who own >10 firearms, each of which sits quietly in the safe not demanding taxes, upkeep, or interest.

I think there will be a bunch of buyers' remorse among people who really need the money and will try to offload them later, but a lot of us will end up with guns we might not have bought otherwise, but once we have them... oh well. Might as well keep them.

 

[wooly bugger]

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. This can create a window of opportunity for new competitors to enter the market and add capacity to the industry.

That would be awesome, and great for the industry as a whole

 

[Cosmoline]

Since it seems that an AWB or mag ban isn't going to happen (I think ), there will be dump of more expensive guns that will deter new sales in the future. Getting a lightly used AR, mags, Glocks, etc. will be nice for us but not stores.

Well maybe. But nobody really knows who's buying. I can tell it's not me or my gun nut buddies around town. We universally scoff at $2500 AR's. Which makes me suspect this isn't a hoarding by the usual suspects but rather a dramatic expansion of the market. People who have always thought about buying an AR but put it off. Now they have one. They'll shoot it and do you think they'll just try to sell it off at a loss because Dianne's bill fails? I don't think so. I think they'll want more.