If there is one thing everyone can agree on it’s that President Trump is firmly in the pro-gun column. Even if it wasn’t clear before, it became so in his April speech to the National Rifle Association when he became the first president after Ronald Reagan to directly address the NRA.
Yet, in an ironic twist, gun sales have steadily dropped in 2017, causing many to scratch their heads and dubbing the phenomenon the “Trump Slump”.
But how true is it really that the gun industry is under threat?
While it is true that gun sales spiked with the announcement of Hilary Clinton’s candidacy, as well as during the Obama administration, as both democrats pushed for stronger gun control legislation and marketing executives made smart decisions-playing on customer fears of being “left defenseless”; it doesn’t mean that the Trump administration will hurt the gun industry by having a gun-tolerant attitude.
Where is the fear for the gun industry coming from?
Gun producers like Sturm Ruger & Company and former Smith & Weston (now American Outdoor Brands) have reported lower net sales. The former reported a July 1 drop of 22% or around $132 million in sales, and the latter a close to 40% decline in sales in the second fiscal quarter, which amounts to $78 million in overall sales.
Additionally, the number of FBI’s National Instant Criminal Background Checks was roughly 24.5 million in 2017, making it the first year since 2003 not to surpass the number of the previous year (a record breaking 27.5 million in 2016).
Why are sales dropping?
The gun industry has been reliant on fear-based purchases for quite some time. Under the Obama administration and with the Clinton candidacy, there was a chance that gun laws will become stricter, which led to people purchasing weapons while they’re still available to them.
This explains the surge of gun sales in 2016, an all time record for the industry.
A lot of gun producers explained the drop in sales in the first part of 2017 with the large quantities sold at the end of 2016.
But now, with the pro-gun Trump administration in the lead, the gun industry needs to regroup. Fear-based purchases are no longer, and a hunt for a good bargain has begun.
The Effects of the Bargain Hunt
With no fear of guns being banned, customers can think on their decisions and can take their time choosing the best option for them. Now, with no fear as an igniter of purchases, discounts are what counts.
Companies are now trying to outbid each other and attract customers with lowered prices, incentives and unprecedented deals. The price war is just starting, while sales and profits drop.
As gun and accessory makers, like manufacturers of red dot scopes, are not reducing production in order to meet the lower demand and the inventories of independent dealers are full, it’s leading to somewhat unsustainable level of discounting.
That isn’t to say that there is no demand. The demand is there, but there is overproduction and too much supply. This leads to baffling discounts, aimed at maintaining the customer base. Some dealers are offering $150 deals on sport rifles, a figure not allowing any room for profit.
The ultimate goals is to achieve a balance between production and demand, but it will take some adjustment time for everyone involved- and especially the gun industry coming down from an eight year boom.
The Stock Market Impact
Sometimes stock value is the best indicator of an industry’s standing.
Stocks of American Outdoor Brands (former Smith & Weston) plunged 30% since the election, reaching the lowest intraday in years. Their main rival, Sturm Ruger & Company’s stocks suffered a 17% decline.
It’s not only gun producers that are suffering, Vista Outdoor, an ammunition provider, suffered a staggering 41% decline of stock value. Sales of home security systems too seem to be underperforming this year relative to last.
As stock value is dropping, so are the projected profits. The companies need to reduce prices in order to keep their market share, which means they also need to lower their expected earnings.
What is the likely outcome?
Overall, the gun culture in the US is strong enough not to ignite worry in the gun producers. The only reason people were buying more weapons in previous years is because they were afraid that right will be taken away from them. With that fear taken away instead, there is some adjustment to be done on all sides.
The industry will need to learn to thrive under administration which is on their side, starting with matching production to demand and stabilizing the prices.
The trick to remaining relevant will most likely become innovation, just like in the tech industry, and gun producers will have to re-invent their marketing and sales branches.
Since registered gun producers rose by 362% from 2005 to 2015, and there are around 10.500 gun makers currently operating in the US, there is no question about whether the industry will persevere.
What could happen is that the gun makers focus more on long guns, or hunting rifles, as shooting sports could rise in popularity.
At this point it’s a matter of coming out of the shell of complacency gun companies were in. Some would say Obama was the best gun salesman in the world, but he’s no longer there to drive the fear of gun legislation, and many companies are left scrambling for what to do.
The Bottom Line
The gun industry is going through a temporary slump, just like all other industries in capitalistic societies do from time to time. There is no way to deny the current downsizing of profits margins and economic effects, yet it is most likely that the industry will recover as soon as it learns to operate under an administration that’s on its side.
While the slump is there, it’s something that will pass, as soon as the supply lowers enough to match the demand. It could even start growing again in the upcoming years, as less gun control could encourage people to take up shooting sports.
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