Firearms And Ammunition Manufacturers Don’t Want To Get Burned

BY Herschel Smith
4 years, 2 months ago

Forbes.

Gun and ammo makers are staying cautious ahead of the election despite surging sales, because they remember all too well the crash that happened after the election of President Trump.

Gunmakers can barely keep up with demand. Sales have been booming since the start of the pandemic, fueled by fears of coronavirus and civil unrest. FBI background checks have been breaking records. Makers of guns and ammo are reporting double-digit increases in revenue. Handguns are flying off the shelves and ammo is selling out and getting scarce.

“It’s the 2013 shortage all over again,” said Brian Rafn, a gun industry analyst who recently retired from Morgan Dempsey, referring to the run on ammo during the Obama administration. Rafn, whose family owns shares in Sturm, Ruger, said that nowadays buyers of popular ammo like 9 mm have to hunt for it from store to store like “the guy who’s buying milk during the hurricane.”

But gun and ammo makers are hyper-cautious about ramping up manufacturing capacity. They don’t want to get burned like in 2016, when sales surged to record levels only to implode on Election Day. Sales then were driven by fears of gun control fueled by mass shootings, but those fears evaporated with the election of President Trump, a Republican endorsed by the National Rifle Association. Gun sales plunged immediately after his election, resulting in layoffs and sliding stocks for Sturm, Ruger and Smith & Wesson.

Gun makers fear that fickle consumers could slow down spending, depending on election results, the severity of the pandemic, or the persistence of clashes between police and protesters.

“Firearm manufacturers are making prudent decisions to keep up with extraordinary demand during these past few months,” said Mark Oliva, director of public affairs for the National Shooting Sports Foundation, a gun industry group. “Manufacturers are producing firearms and ammunition as quickly as they can to meet customer demand.” But he said that gunmakers must meet the skyrocketing demand, which has outstripped production, “in a way that is going to ensure sustained participation in tomorrow’s market.”

Spikes in demand result in bullet shortages because the ammo manufacturing industry, dominated by Vista Outdoor and Olin’s Winchester, is less flexible than guns. Dionisio said bullet makers manufacture huge batches of ammo with massive machines to maximize efficiency, with no wiggle room to match fluctuations in demand.

“That’s an industry that has less of an ability to max up or max down,” he said. “You’re not going to buy this expensive machine just because demand is going to be up for six months.”

Manufacturers are trying to forecast the future for firearms. Will the election results increase sales or trigger a decline?  Will civil unrest and coronavirus continue to drive sales?

“Like any other manufacturing base, firearm and ammunition makers forecast their best analysis for what the demand will be for their products in the coming year,” said Oliva of the NSSF. “That includes placing orders for raw materials, including bar stock to make barrels, component materials to make ammunition and predicting labor, warehousing and shipping costs, distribution channels and retail demand.”

Logistics is everything.  Warehouse min-max must be adjusted, the upstream supply must match the adjustments, transportation must follow, machinery must be procured, machinery operators must be trained, QA inspectors must be trained, and on the list goes.

As with any industry, it can’t make these switches in an instant.  Moreover, even if they could simply hire a lot of folks, with the time and investment in training, the demand might have gone away at that point.

That would mean a drop in stock prices, the sunk costs of idle machinery, warehouse min-max that needed to be readjusted, and potential layoffs and the corollary severance packages for those manufacturers who want a good reputation for the future.

I know we’ve discussed primers as being the logistical sticking point right now, but this explanation makes the most sense of anything I’ve heard yet.  A fluctuation in demand is difficult to deal with for companies that rely on logistics networks outside of their control and who use complex CNC machinery.

It would be best if you already had what you needed.  I have actually ordered 5.56mm and .45 ACP ammunition for the last size months, even up through last week, at regular cost or perhaps slightly above (10%).  I had to search long and hard for it, but it was there.  But that ammunition was in the pipeline – the availability has basically gone away at the moment.

There may be deals in the future, keep your eyes open.  One thing I have found, for instance, is that the cost of personal defense ammunition has decreased even as the cost of ball range ammunition has increased while it also became unavailable.

If you’re willing to purchase reman ammo (re-manufactured), the deals are a little better.  I’ve found reman ammo to be quite reliable, e.g., through Freedom Munitions.

In the end, it makes no sense for the manufacturers to drop a lot of capital in expansion when their own polls are telling them that they won’t need it in the future.


Comments

  1. On August 19, 2020 at 5:30 am, Nosmo said:

    “Two” is a pair of data points, not a trend, but 2013 and 2020 – slightly- indicate that the firearms and ammunition industries are prone to extreme peaks and valleys.

    There’s an opportunity for some very high level planning in both industries; neither is going to heavily invest in capital projects for a potential blip that may or may not occur, but some flexibility in capacity is warranted. For example, meeting routine demand with 2 shifts and having the capacity to expand operations into 3 shifts to meet sudden, and probably temporary, demands may be a prudent choice, but it does require additional resorces in raw materials, personnel, and, of course, manufacturing equipment.

    Amortized over X years machinery is affordable; stockpiling of materials quite a bit less so, but things like bullets and brass cases don’t go bad sitting on shelves, and proper storage of powder and primers.

    Given that the 2nd Amendment is an enumerated Constitutional right, it would not be untoward for Congress to fashion a limited financial benefit to gun and ammo manufacturers to encourage the addition, and preservation, of capacity.

  2. On August 19, 2020 at 9:05 am, Arthur Sido said:

    I can’t fault these manufacturers. It is easy to complain and wonder why they don’t just magically hire people and buy expensive machinery but things are very unsettled right now and with the very real possibility of Biden being elected, this is a very sketchy time to invest heavily in ammunition manufacturing. Biden (or more accurately whoever writes for Biden) is promising to ban the online sales of ammo (and guns and gun parts) and reduce liability protection.

    You better already have what you think you are going to need, not for the next three months but the next three years.

  3. On August 19, 2020 at 11:27 am, X said:

    I don’t think demand for guns and ammo will subside in November. If the Dems win, there will be major panic-buying before the coming Democrat gun and ammo bans.

    If Trump wins, the Democrats will refuse to accept the election result and will riot in the streets for another four years.

  4. On August 19, 2020 at 12:20 pm, Ned2 said:

    Manufacturers have to plan ahead. They’re not going to add tooling and personnel to the factory floor for a sudden spike in demand.
    Their production has most likely been calculated and decided on for the next one or two years.

    I’ll say it again. If you don’t already have a substantial amount of ammo for all your primary calibers you’re way behind and at this point unlikely to catch up. The current situation has been staring us in the face for a decade at least.

  5. On August 19, 2020 at 1:07 pm, J J said:

    I got into reloading last year and haven’t ramped up stocks of primers, powder and bullets. The non-availability of small pistol primers is horrible. I’m still able to get powder and bullets so far. Been saving brass for years and have a neighbor who picks it up for me as well at the range he works at.

  6. On August 19, 2020 at 1:13 pm, Paul said:

    I plan on being a good citizen. I will buy nothing now, during the crunch. But when the bottom falls out after The Donald is elected, I will buy some more.

  7. On August 20, 2020 at 10:14 am, s said:

    Nosmo,
    I agree with your statement about Congress and the 2nd being enumerated and all. In reality, they’ve already taken a dump on the Constitution, and it seems most are hostile to guns and ammo being in the hands of the common man for the original intent of the amendment. I wouldn’t expect them to help the shooting industry in any way.

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You are currently reading "Firearms And Ammunition Manufacturers Don’t Want To Get Burned", entry #25216 on The Captain's Journal.

This article is filed under the category(s) Ammunition,Firearms,Guns and was published August 18th, 2020 by Herschel Smith.

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