Firearm industry in chaos

[Mayo]

They WERE profitable last time too...and then they weren't. We can learn alot from history.
It's not the "raising" of prices that bothers me----based on their model of business costs will rise. Again, pass on those costs to the consumer and maintain a reasonable profit margin---not pass on thoses costs to the consumer and JACK your profit margin. A $650 dollar gun with a 20% profit margin is $130. By simply adding the added cost(say $170 dollars) and keeping a 20% profit you now made $164(instead of $130) without any added expense. However, you take that same gun($820) added cost included, and charge $1800---you now have passed on a 110% profit for the same work. That's what I call JACKING the consumer and there's no excuse for it!

 

[larryh1108]

However, you take that same gun($820) added cost included, and charge $1800---you now have passed on a 110% profit for the same work. That's what I call JACKING the consumer and there's no excuse for it!

Ok, but who is doing the gouging? The mfgr? The distributor? Or the retailer? Who do we direct our ire to?

 

[Sam1911]

They WERE profitable last time too...and then they weren't. We can learn alot from history.

I guess I could. How many AR-15 makers went non-profitable and closed their doors in the last 20 years when the market fell? Must be quite a few, right?

Who do we direct our ire to?

You direct your ire to the evil nasty guy in line next to you who WILL pay what you won't.

He is the ONLY culprit here. Well, him and the 37 guys behind him who will each pay more than the last.

The manufacturers, distributors, and dealers just respond to the market, they don't set it.

All this ire is just shaking your fist at the wind and tide.

 

[Mayo]

Most of the blame goes to the retailers, but not all. While I agree with you about the guy in line paying more, that doesn't take the sellers off the hook. The olny economics they are dealing in is greed. As far as AR makers closing their doors--no that would fall to the local gun store owners. There is a middle scale, not just jacking and non profit. Many struggled financially but it was brought on by the same tactics of overpricing in times like these and then the market flooding after the ban falls thru.

 

[Sam1911]

The olny economics they are dealing in is greed.

LOL!

Most successful businesses being charities?

It is always mighty good of us to point out to others when they've made enough money.

 

[Zak Smith]

Calling it "chaos" is a little overboard. Lines like this are laughable,

“It’s like a gun’s value is almost forgotten about, and price becomes the only consideration.”

As for this one,

Long term, Fjestad said, this could spell disaster for gun companies, which could see the value of its products drop dramatically.

Well, yes, with a stroke of a pen, whole classes of the industry could be effectively eliminated. That would be disaster for companies.

However, I disagree with the idea that all this "panic buying" is going to create a glut that will cause death stagnation when there's the "all clear."

First of all, there isn't going to be an "all clear." Even if we get through 2013 without any significant bannings, 2017 is a long way away. And who's to say it will be "safe" then.

Second of all, it is my opinion that most people who buy up guns during a "panic season", rarely try to move them in the proximate future.

Third, if they bought at inflated prices, they will be even less likely to sell, and if they do, it will be much, much later.

Cosmoline,

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.

And put what on those racks exactly? The surplus that the industry is creating today above and beyond what there are orders for? Yeah, no problem...

I, for one, would love to stuff 6 months of product in a warehouse before selling it.

+1 what Sam1911 said.

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.

You can't "maintain" a lower cost when the demand far, far exceeds supply at the lower cost. You can't maintain it because they will all be bought and someone else may just then resell them for a competitive price.

 

[Kynoch]

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

The gun companies do need to be careful about how much they pump-out right now. After both WWI and WWII, gunmakers went from boom to bust. When the surplus guns (of many nations) hit the US market it further depressed sales of new sporting arms.

Some suggest the demand has "permanently" changed. I suspect gun prices will ultimately plummet well below their pre-Newtown Massacred prices.

 

[Kynoch]

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.

An extra shift is not "O/T." It's another shift of regular time. Electricity is also cheaper at night in many regions. The absorption of overhead is also spread over the production of far more product. All else being equal, production costs/unit actually drop.

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.

The more they make without paying OT premiums or making investments in capital equipment will actually reduce their cost/unit.

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.

Not at all. The smartest way would be to hire temp workers on contract if their length of employment was estimated to be fairly short. A company could even go through a job-shopper and simply buy hours with is extremely competitive in many markets.

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.

Gotta be careful about that cost accounting stuff...

 

[Kynoch]

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.

True. And the longer the backlogs become, the more orders that are booked, stretching the backlog out even further, causing even more orders to be booked and on and on and on.

It will be interesting to see how much of this backlog ends-up getting DE-BOOKED. It's not as if they are paid-for orders...

 

[Kynoch]

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.

There's a lot more to it than that...

In addition to the warehousing space and racks, there is the huge cost of your finished goods inventory sitting there. Not only are you not selling it and making money, you're investment is tied-up and you're paying to warehouse it.

Further, should a quality problem become known from a field report, your entire warehouse of goods will need to be retrofitted/repaired.

Enterprise planning is very sophisticated. The manufacturers have booked orders from their distributors that are constantly being updated with planned orders running even further out. Many individual gun shops are required to book orders well in advance with their distributors now.

In most cases the current panic would easily be dealt with except that the gun manufacturers are already pretty much at plant capacity. In many cases adding additional capacity would require capital spending which is fairly scary not only because of possible gun control but because they are satiating the market slowly but surely with their already tremendous output.

 

[goon]

Vendors from Midway to Track are constantly short of everything from components to firearms...

When I saw the reference to "Track" I immediately knew what you meant and without looking at the author, I knew you had typed that. I have been on this forum for too many years...

I wonder though if demand is high enough that gun manufacturers can't get ahead on production under normal circumstances.

Anyhow, I also don't think the gun industry is going to have any problem weathering this storm. Imagine a parallel universe where beautiful women want to track you down and squeeze you, then pay you for the awesomeness that you naturally emit... That's where gun manufacturers are right now.

To those wishing to direct ire, why be angry? A gun manufacturer with more profit is healthier and better able to contribute to defense of the Second Amendment. Why are you mad about that? If you can't afford the coin, buy an old Winchester to shoot until you can afford an AR.

 

[Mayo]

Sam1911----it's 1 extreme or the other with you----no middle ground huh? Charities. There is a huge void between greed and charity. You seem to think going from a 20% profit to 200% profit is not greedy. I believe differently. I think you would be 1 of those people selling water for $20 a bottle when a hurricane hit. Not being a charity you would want to maximize your profit while the guy next to me in line offers $20 for what you paid $1 for.:banghead:

 

[larryh1108]

Not the same thing. Food and water are necessities. It this example of gun and ammo prices running rampant, these items are a luxury at this time. Right now, this isn't like Katrina or the L.A. riots or a natural disaster, it's people trying to buy all they can before any potential bans come to place. Huge difference.

 

[Zak Smith]

The beauty of the free market capitalism is that it matches supply and demand through transaction price.

What a lot of people apparently do not understand is that holding price low creates shortages; whereas if the transaction price is adjusted so supply meets demand, those people who have a particular poignant need can obtain the items, just at a higher price. The alternative is nothing left in the marketplace.

 

[Sam1911]

I believe differently. I think you would be 1 of those people selling water for $20 a bottle when a hurricane hit. Not being a charity you would want to maximize your profit while the guy next to me in line offers $20 for what you paid $1 for.

Look I'm not sure I quite buy that there's a legitimate "gouging" ethical conflict when life necessities are involved. There could be a whole lot said about whether it is ethical -- or moral -- to raise prices on food and water when people really need food and water.

However, we are NOT talking about life necessities here! So that thorny question is completely irrelevant.

This is a LUXURY item. Just like a Rolex or a big bottle of Moët & Chandon, or a 60" HDTV, or an extra dollop of whipped cream on your sundae, or a new Corvette, or a Grande double-extra-soy-latte. You aren't owed those things. You have no inherent right to them. If you can't afford to purchase one, that's YOUR tough luck. If there are only 2 in the store and the guy next to you will pay $1 more than you will -- you lose. No fault in it, no harm. You've decided that your money is more valuable to you than that item. Someone who makes a thing, or who owns a thing, is utterly and completely within his/her rights (and acting perfectly ethically) in asking whatever amount of compensation s/he desires to give up that item. If two (or two thousand!) people want the item you have, you find out who will give you the most compensation for that item and they get it.

Add competing similar products and producers into the system and you have a market.

There may be pragmatic reasons why you don't ask whatever is the top of the market for your goods, but they all depend in the end on how they affect your ability to make the most PROFIT for the goods you sell.

But again, this is a luxury item. No person is about to DIE because they can't afford an AR-15 rifle this month. When you conflate "want one" with "need one" you fall into the trap of confusing following the market with being unethical and "greedy." No one is being coerced. No one is having their money pulled out of their pockets. The folks who are making fairly common rifles cost $3,000 right now are WILLING customers who have decided on their own to give up their cash (or credit!) for that item at that price.

People who have $1,800 or $2,200 or $4,000 or whatever sitting in their pocket are walking out of gun shops as satisfied customers with their new rifles. The sales go on. The market works. Maybe that means YOU aren't able to tap into that market right now. (I certainly can't!) But that's no fault of the makers, distributors, and retailers.

That's the "fault" of the guy in line next to you. And even hating HIM for being able to afford a rifle you can't afford is silly. Let alone hating the maker who is willing to sell it to him for that higher than usual price.

 

[Sam1911]

What a lot of people apparently do not understand is that holding price low creates shortages; whereas if the transaction price is adjusted so supply meets demand, those people who have a particular poignant need can obtain the items, just at a higher price. The alternative is nothing left in the marketplace.

Very, very true!

One great reality of a free market is if you are selling every single unit you produce immediately, you NEED to raise your price.

Just like we say in practical shooting, if you are hitting all "As" or "Down 0s" you are shooting TOO SLOW.

When your product is priced right, there's still one or two on the shelf, almost every day, for folks to see when they get to the store. If you sell out every day, you should be asking more. If your product piles up on the shelves unsold, you should be asking less.

By that token, the market seems to be working just fine. If by some chance you simply MUST have an AR right this minute, you can have one, but it has to be worth a lot to you because you'll pay quite a bit for it. If you can wait, you can buy when the price is more comfortable for your budget.

Right now, if you put AR-15s out on the shelves for ~$1,800, your shelves will be bare by lunch. Ergo, that price is too low. Juggle the price until you can keep about ONE still on the rack until your next shipment and you're probably about right.

 

[rtz]

If anyone here has any free time; fly over to eastern Europe or Russia and buy ALL their weapons and ammo and ship it all back over here ASAP!


http://www.sarcoinc.com/

 

[larryh1108]

fly over to eastern Europe or Russia and buy ALL their weapons and ammo and ship it all back over here

On this note, does anyone know if there has been a halt to importing firearms?
Can an EO be used to stop the import of firearms?
We do get a lot of firearms from overseas. If Obama does not get his way with these bills and bans, can he just shut the door to companies like CZ, Taurus and Glock (even though Glock has a plant here)?

 

[Mayo]

Sam1911----fine, let's play semantics. Let's say a generator then. Certainly not life or death--more of a luxury while power is out 1 week. Are you still 1 of those buying 10 at $200 and then selling for $1000 each? How about a store owner who sees a hurricane coming and raises gas prices $2 per gallon? Just because you CAN take advantage of people doesn't mean you should!

 

[Rancher5]

Sounds like the Occupy folks hating Corporations for making a profit, Its Free Market Capitalism, Really though how many guns sell at MSRP , none except maybe limited runs or Yes harder to find though those high prices usually come from middleman. Woulldn't want anyone telling me how to run my business

 

[Rancher5]

Take in account that this biggest push for restrictions came after OBama won in Nov, than Sandy shooting , Christmas came and wow what an excuse to buy a firearm at all cost.

 

[BullfrogKen]

Both Walter Williams and Thomas Sowell have pointed out - over and over and over again - how rising prices draws more production and more product to a region in scarcity.

Just like the freeze on gas prices in the 70's led to shortages and rationing - constant shortages - the only thing constant pricing of ARs guarantees is long shortages. Want more product? When prices rise production will shift towards producing the product with the best margin, the market will satisfy demand and prices will stabilize.

 

[Sam1911]

Sam1911----fine, let's play semantics. Let's say a generator then. Certainly not life or death--more of a luxury while power is out 1 week. Are you still 1 of those buying 10 at $200 and then selling for $1000 each? How about a store owner who sees a hurricane coming and raises gas prices $2 per gallon? Just because you CAN take advantage of people doesn't mean you should!

I'm not going to go off into the weeds about other items that MAY or MAY NOT be conceivably some kind of "life giving staple" item. That's a discussion that is far outside of THR's scope and gets off track of what we're discussing here.

Namely, a few variants of one type of modern rifle. And that's a LUXURY purchase for the folks out panic buying. There is no insurrection going on. There is no statistically significant increase in crime or terrorism they must face down with force. The only thing that has changed for any of them is a bit of worry that the government might shut down the supply and they might have to find any of the hundreds of other kinds of rifles with which to meet ... whatever need it is they didn't realize they had a month ago!

So, they're buying. They want it (they don't need it to live...they just WANT it), they've apparently got the money for it, and so they're buying. The market hums along just fine.

If someone will offer them $3,000 for that (what you think is somehow inherently a) $600 rifle, then they should and will sell it to that buyer for that price. If they can only make 3,000 units and there are 4,000 buyers willing to pay $3,000 a piece for them, then they'll sell every one they make for $3,000. And they'd be UTTER FOOLS not to.

 

[-v-]

Sam1911 is spouting a lot of wisdom. The biggest peril I do see for manufacturers is when the bottom falls out of this, or micro-economics catches up with people, we will see a large glut of used but never fired rifles on the market for cheap. This flood of lower-priced goods is going to make it very hard for manufacturers to sell newly produced items when there is a multitude of equivalent but cheaper priced alternatives on the market. Basically, why buy a new DD defense carbine for $1600 when you can buy a never been fired one for $1000.

This disruption in cash flow can be fairly damaging to a company, as they go from a very high cash flow to almost none. Even when they aren't selling rifles like hot cakes, these manufacturers still have to make payroll and overhead. With no inventory moving, making payroll and overhead starts to become increasing difficult proposition. That is the real long term concern for gun makers.

Also, guns are luxury items. Complaining about a $700 bushmaster selling for $1800 is akin to griping that you can't afford a $600,000 turboprop private plane. At the end of the day, both are more or less luxury items, unlike food, water, gas or electricity.

The only thing I do fault the manufacturers for is not raising their prices. Does it hurt the consumer? Again, this is a luxury item, so I say that's a definite NO. If many companies have such a demand that they have a 1-2 year backlog, that means they are undervaluing their goods, which means they are missing out on potential profit they could be making to either expand their business or more importantly prepare for lean times that will come after this mess. The last part is the most important, I'd say.

 

[Zak Smith]

I disagree that there will be a glut after the "panic". "New buyers" who realized they didn't have the firearms they wanted that they thought would be banned are not likely to get rid of them. Established buyers who wanted to lay in a little extra "supply" are not likely to get rid of them. Manufacturers are not likely to see lean times as a result unless we see bans that eliminate parts of the market.