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New Business Year 2014

New Business Year 2014
In Search Of “New Norm” Strategy.

The firearms industry has closed the books on one of the more “interesting” business years in recent history. All-out anti-gun attacks following the tragic shooting in Newtown, Conn., in December 2012, catapulted the industry into the nation’s headlines, and ignited a surge of unprecedented sales.

Consumers converged on gun stores and ranges in huge, continuous waves, making purchases in large quantities. Dealers scrambled to find inventory, and manufacturers, importers and distributors struggled to satisfy the demand.
In a word, the 2013 business year was “crazy.”

Record numbers of background checks were conducted by NICS during Dec. 2012 and from January through July 2013.

In November, ATK reported its 2014 second-quarter, year-over-year sales were up 7 percent to $1.1 billion due to increased sales in its Sporting Group. Ruger reported its 2013 third quarter sales were $170.9 million, a 45 percent increase compared to the same quarter in 2012. Smith & Wesson reported sales during its first quarter of 2014 were $171 million, an increase of 25 percent over the same quarter in 2012.

While firearm sales cooled by the middle of 2013, the extraordinary number of firearms sold during last year will likely be difficult to exceed. Ammunition continues to be the product most sought-after throughout the industry.

What does this mean for 2014? Beyond the “crazy” business year, what is the “new norm” strategy?

We Have To Go Back To Work

“The ‘new norm,’ that’s definitely the buzzword,” said Tom Taylor, Mossberg VP of sales and marketing. “Obviously, 2013 was crazy. Now, our customers are asking, ‘Where do I set the bar? Where do I start? How much can I grow from 2013?’”
At the NASGW Annual Meeting and Expo in November, Taylor said distributors were also asking manufacturers for growth products.

“People are definitely saying black guns will still sell, but that market is very crowded with inventory, and consumers are looking for something else they can shoot,” Taylor said. “So distributors are asking, ‘What is the new norm, and if I am going to grow, what am I going to grow with?’ That was a real key theme with a lot of customers who came into our meeting room at NASGW.”

Taylor and his team asked every distributor visiting the Mossberg booth at the NASGW event where they thought the market was going in 2014, based on the impact of last year.

“Everyone believes last year wasn’t normal. Our biggest job was allocating product to our customers to keep them as happy as possible. There really wasn’t any selling to be done,” Taylor said. “As the summer wore on, we were getting some cancellations. We were hearing there were still people in the stores buying guns, but the market began to slow down.”
This resulted, Taylor said, in an overage of modern sporting rifles, pistols and defensive shotguns.

“Going into 2014, our customers are very diverse in their planning. Some say they are setting 2012 as their new base — basically taking 2013 out of the equation. That isn’t all bad, because 2012 was a pretty good year,” Taylor said. “Others said they are looking at growth above 2012.”

Taylor said there are some customers who are looking at strong growth in 2014.

“They believe the market is still robust, that people are still buying guns and that a lot of people who bought guns in 2012 and 2013 are now looking for alternatives within the shooting sports, including hunting and more target shooting,” Taylor said. “These consumers may have bought their first gun for personal-defense, but now they’re looking for other ways to participate in the shooting sports.”

The ‘new norm’ — regardless of how it is defined — will require another shift, Taylor said.

“Another big theme that came out of NASGW: We’re going to have to sell again. At Mossberg, we went into NASGW thinking, we are going to have to go back to work, and we have three or four pretty significant programs, mostly geared around categories where we haven’t focused in the past couple of years,” Taylor said.

How is Mossberg addressing 2014?

“While defensive shotguns continue to be very important to us, the big headline for Mossberg is our new contract with Duck Commander,” Taylor said. “At NASGW, I looked at our display of new guns and about 60 to 75 percent of them were in camo. That’s not something you’ve seen over the past several years from hardly any gun makers, and most certainly not from Mossberg.”

Where Is The Ammo?

— and consumers — searching for ammunition. While firearm levels returned to mostly normal levels, that was not the situation with ammunition, which remained in short supply throughout the year. And, Jason Hornady, Hornady VP, says that won’t change in the new business year.

“We believe 2014 will be very similar to 2013 in regards to ammunition, reloading and components,” Hornady said. “The fact is, more guns were sold in 2013 than ever before, but folks didn’t have ‘gas for the engines,’ so they’re still waiting to either load or buy ammo [for those engines].”
What is driving the shortage? Are customers, every time they see a box of ammo, buying it?

“Yep,” Hornady said. “The magic question, which none of us can answer — and it burned everybody in ’95, ’96 — is: That guy who bought a case, and his friend who bought a case, how long is it going to be before they need another case? It does have the potential to back up rapidly; it is certainly something we watch. But, I don’t seeing it happening in 2014.”

For the dealer, will there be a return to more stable inventory this year?

“It’s already flowing extremely well. I see there being a good constant flow, but I still don’t see there being on-demand inventory on the shelf when a customer walks in,” Hornady said.

The second question most heard from dealers (beyond, “Where is the ammo?”) is, “Why can’t manufacturers just make more?”

“You have a math problem, in that the demand for ammo was up 200 percent in 2013, and the ability to increase capacity cannot accelerate at that percentage,” Hornady said. “One of my best friends, who owns a big gun shop, calls and is on me about inventory. It’s like, ‘I don’t have anything. I’m out.’ He was clear in his message: We obviously were not doing our part. I pulled up his numbers and we shipped him 240 percent more than we did in 2012. He said, ‘You wouldn’t know it looking at my shelf.’ I don’t see that changing in 2014.”

Hornady has increased its number of employees, machinery and space — and increased its production capacity substantially, according to Hornady.

“We all were already at full-tilt before this wave began. The fact is every manufacturer is shipping it as fast as we can make it. No one wants to ship more ammo than those of us in the ammunition business. No one!” Hornady said.

Anti-Gun Battles Continue

The key event that impacted the industry during 2013 was the tragic shooting at Sandy Hook Elementary School in December 2012, said Steve Sanetti, NSSF president and CEO.

“That shadow cast long over the industry throughout 2013 for a variety of reasons,” he said. “The most significant, of course, was the anti-gun push it engendered.

We were fortunate enough to bring the industry together. Anytime there is a significant threat to our industry, it has the effect of not dividing us, not fracturing us, not making us less effective — but brings us together, making us more effective as a group.”

Sanetti said, in addition to NSSF’s efforts, there was significant participation by manufacturers, range owners and dealers in addressing anti-gun measures.

“They went to their respective state houses and to Washington and really participated, to show the world we are a legitimate, respectful, law-abiding business. Their message: We should not be singled out for punishment or punitive measures based on the actions of either unfortunately insane people or just lawless, crazy people,” Sanetti said.

Will there be a renewal of anti-gun legislation at the national level in 2014?

“It does not seem that is likely to happen in this Congress. As each month goes by, we get closer to the mid-term election in November. The appetite for gun control during election years, generally, is not very strong,” Sanetti said. “Then, of course, we have the presidential election year to look forward to. I think they thought the Newtown tragedy was the appropriate time [to push gun control]. They marshaled all their forces to get their legislation passed; it did not happen, to their consternation,” Sanetti said.

What are the industry’s biggest challenges as we enter the new year?

“The first is, the most popular product is the one the media and gun control people and opportunists in Congress love to demonize. The media is fighting us on this, they are willfully ignorant. We as an industry need to keep reinforcing that message and educate the public of the legitimacy of the modern sporting rifle.”
As significant as that challenge is, Sanetti says the shift in the country’s demographics is the industry’s “single, biggest challenge.”

“Hispanics, as a group, tend to be averse to firearm ownership. That’s a gross generalization, I understand, but the surveys we have done and others have shown, Hispanics tend to be big supporters of gun control. We have to help educate Hispanics, Asians and other demographic groups of the legitimacy of responsible, lawful firearm owners, and the enjoyment of an American tradition,” Sanetti said.

Sanetti says the industry must actively “recruit groups we have not seen before.”

“If we don’t do that, and we become an increasingly small, increasingly irrelevant minority, as the country becomes more urbanized, I think we’re in serous jeopardy of not keeping this tradition alive. So, as we publicize the legitimacy of what we do, and we bring in more people who might be averse to it initially — those two things, I think members of our industry can do both as individuals and businesses to help maintain our traditions and way of life,” Sanetti said.

Consumers More In-Tune With Value

Rob Southwick, president of Southwick Associates, has more than 20 years of experience in tracking consumer trends. How does he see 2014, based on the “interesting” 2013 business year?

“The latter part of 2013 saw the growth rate ease, regarding new firearms and associated accessories. Barring some sort of political change, sales should stabilize compared to the growth rates seen in recent years,” Southwick said. “I don’t think we’ll see a drop, as enthusiasm for recreational shooting and hunting remains strong, but growth rates may have peaked.

“Sales growth may be more likely in accessories and in upgrades, as our new shooters discover their personal shooting and product preferences.”

What is the most significant challenge to increased growth in 2014?

“The biggest roadblock to greater participation and sales — barring any political storms — is access to places to shoot. Indoor, outdoor, informal and formal ranges are needed nearly everywhere,” Southwick said. “There appears to be significant unmet demand, but without a place to shoot, why would potential customers buy product? Even those consumers who already own firearms are limited, because of the lack of ranges.

“Every company that makes a living from recreational shooting and hunting needs to support efforts to expand shooting opportunities. Everything the trade can do to encourage new locations, from site selection to financing to promotion, will help protect and grow future business.”

Southwick points out that dealers are the first to benefit when new shooting and hunting opportunities arise.

“Those dealers who are able to open new ranges may see significant profits, if done smartly,” Southwick said. “Dealers not in position to develop a privately-owned range may benefit by working with county planners and various local and state agencies to identify and fund new public ranges.

“Recognizing most growth has occurred as a result of friends taking friends to the range, any promotions or programs dealers can initiate to encourage their customers to take a friend will help boost growth.”

What does Southwick forecast for consumer spending in 2014?

“It won’t be gangbusters as in recent years, but spending on firearms and related products should be comparable to 2013. Overall spending in the U.S. economy should be better than in 2013. Consumers are starting to feel more secure, and are acclimated to the new economy that emerged after the ‘Great Recession,’” Southwick said.
Southwick does offer a caution to manufacturers.

“Consumers are more in-tune to value in their buying decisions than before, including recreational shooting and hunting products. Companies need to make sure their products’ ‘value proposition’ is clearly communicated compared to competing products, which can often be other SKUs within a company’s offerings,” Southwick said.
By Russ Thurman

For additional insight and data from Southwick Associates, visit
www.southwickassociates.com

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