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Lock and load, guns and ammunition industry in the US

  • What are the reasons behind the volatility in the sector?
  • The two major factors that drive the industry
  • Three key players

 

The guns and ammunition industry comprises establishments specialising in the retail of guns (shotguns, revolvers, rifles, machine guns, pistols and grenade launchers) and ammunition. The firms operating in this space might also retail a wide range of accessories as well as apparel in conjunction with main products. Their primary customers include numerous government security organisations, law and order agencies, retailers and private security vendors.

The United States continue to dominate the industry and according to the ‘Small Arms Survey’, the US is the global leader in ‘privately owned (civilian) guns’ and retain its prominent spot of exporting more than 50% of the international weaponry in the industry.

In the US, the industry is presently valued at approx. $16 billion (Source: IBISWorld) with a CAGR of 4.7% (2016-21). This impressive growth is attributable to the rise in the per capita disposable income coupled with the heightened interest in game hunting. There has been a rise in the volatility in the industry in the past five years. It experienced aggressive revenue spikes post-recession due to terrorist attacks and anticipation of restrictive gun control laws. Moreover, despite a stiff competition from outdoor stores, sporting goods, online retailers, gun show vendors, etc., the number of gun shops have risen. The growth trajectory in the upcoming years will majorly depend on the US military spending and perception forming on the outcome of firearms legislation.

The guns and ammunition industry is one of the most unstable industries in the US, apart from being subjected to financial meltdowns and economic cycles, its health is also directly impacted by current events. This makes it next to impossible to project the future demand from this industry as this sector is vulnerable to even a sole event, which can significantly impact the performance of the industry.

Additionally, two factors that drive this industry include people’s interest in self-protection and the fear of government’s intrusion on Second Amendment. For instance, as seen in the above chart, the production shot up in 2013 as gun makers attempted to match the demand in response to a call for strict gun control by Barrack Obama following the ‘Sandy Hook shootings’, which saw a stable but steadily growing base. Thus, fearing restrictions on weapons, potential buyers stockpiled arms to beat a prospective ban. The mass shooting in an Orlando nightclub (June 2016) spurred record sales. In addition, the nomination of Hilary Clinton, the Democratic Presidential candidate and  also a gun control advocate (2016) skyrocketed the sales with 27.5 million firearm background checks for gun transactions processed in the year. This was a rise of four million from 2015 and a twofold increase from 2008. On the contrary, the election of President Donald Trump, a gun rights supporter, saw a drastic fall in demand this year and was termed as ‘Trump slump’.

Furthermore, Televisory examined the US firearms and ammunition market and the major players that manufacture c. 40% of the firearms in the nation. 

Although Remington Outdoor Company is at the number one spot in terms of modern sporting rifle and long gun sales, it holds a number three spot in total ammunition sales (as shown in the above table). The company’s total sales were $808.9 million (2015), this was a decline from $939.3 million (2014) as a result of restructuring and start-up costs of $7.8 million and $9.9 million (recognised for 2015). This translated into average revenue per unit produced at c. $1,950. The firm is the largest employer in the domestic firearm market with around 2,600 employees and nearly 3,000 international staff. The company’s average cash OPEX amounted to c. $1,900 in 2015.

Secondly, for Smith & Wesson, the revenue decreased by 15.2% (2014) and amounted to $552 million or on an average the revenue per unit sold was $376. In the firearms division, the sale of handguns registered a drop of 6.5% (2014), while long guns and Walther products registered a decline of 41.9% and 91.0% respectively. This drop is attributed to the excess channel inventory that was used to satiate the demand for products of the firm. Smith & Wesson employ nearly 1,600 people in America. Its average cash OPEX per unit produced translated to almost $292 (as of 2015).

Sturm Ruger, the biggest gun-maker in the country, serves only the domestic market with its revenues registering an increase of c. 0.5% (2015) over the previous year and volume to the tune of c.1.6 million products. The average revenue per unit produced, thus, translated to $316, while average cash OPEX totalled c. $200. The company claims to employ over 1,230 full-time staff with approx. 49% of its workers are in the firm for over 10 years.

The National Instant Criminal Background Check System (NICS) reported that background checks [as adjusted by the National Shooting Sports Foundation (NSSF)] increased by 10%, suggesting a jump in the demand for firearms for the period 2015-16. This increase in demand is attributable to reasons such as stronger-than-usual-seasonal industry demand due to the political campaigns for elections, increased production catering to products in demand, strong demand for newly launched products, etc. Therefore, all three manufacturers registered a growth in their revenues in 2016 (as shown in the above infographic).

In conclusion, it can be stated that the firearms industry in the United States is a $16 billion enterprise that offers employment to thousands of people and contributes billions in tax revenue. Although it is yet to be seen if more stringent gun control measures will be implemented in the future, with an approx. 300 million firearms possessed by people in the US, it is more than apparent that a gun control regulation in the industry will be met with resistance. Presently, guns are a norm in the US as is the debate pertaining to the Second Amendment and both will remain a salient feature of the American culture.

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