INDUSTRY INSIGHTS

There are no profits in the factory...

there are no profits in the distributor's warehouse...

there are ONLY profits at the  dealer/customer level.

by Andrew Molchan

(SEPTEMBER 25TH 2008) The current financial crisis reminds me of our gun industry. I look at the now closed down Bear Stearns and Lehman Brothers and ask, "What were all of those thousands of people doing?" One of things they were NOT doing is keeping their companies alive.

OVER STAFFED

After years of studying corporations, I get the impression of, "Too many people." A good example is the up coming SHOT® Show.  Reed, the colonial power that controls the SHOT® Show's contracts, has sold the SHOT® Show attendance/pre-registration list for 20 years. For the past eight years there's been only about 5,000 holders of FFL's on Reed's attendance list of for the Show.  If there were more FFL holders why wouldn't Reed sell them?

WHO ARE THESE PEOPLE?

I go to the SHOT® Show year after year. When SHOT® is in Las Vegas, it's always mobbed.  In the main firearms section, at noon on the first day, I can hardly move because of the mass of human flesh. For years, at the SHOT® Show, I've been standing in the middle of those swarming hordes asking myself, "Who the hell are all of these people?" I don't know who they are, but according to Reed's (for sale) attendance list, they are NOT gun selling FFL holders. Reed's SHOT® Show list of FFL "registrants" has been for sale for years, and there are only around 5,000 for any given year, and a lot of "registrants" who pre-register never attend.

WHERE'S THE PROFITS?

Clearly, 95%-plus of the people on the floor of the SHOT® Show do NOT sell firearms to consumers. Is that important?  The answer is, "yes." It's important because there are ZERO profits in a firearms manufacturing plant, there are only expenses and costs.  There are ZERO profits in a distributor's warehouse, only expenses and costs. There are ZERO profits in a rep company, only expenses and costs. The ONLY place where true "profits" are made is when the retailer meets the end user customer.  If you do not have dealers, then you do not have profits.

OUR INDUSTRY'S CORE FLAW

The oversupply of middlemen in our gun industry has destroyed marketing. What passes for "marketing" and "salesmanship" in the gun industry is usually, "I've got a lower price."

FIREARMS DEALERS HAVE TO RETRAIN THEMSELVES

The majority of firearms dealers are caught in the "lower price" mental trap. For example, some middleman calls up a gun retailer,  all excited and out of breath, and almost screams, "I can get you the Blunderbuss XX for 10% below dealer!!!  How many do you want?" The vital factor isn't the discount, it's if the product fits YOUR selling area.

FIREARMS DEALERS HAVE TO IMPROVE THEIR INDEPENDENT THINKING

Every working day thousands of gun industry middlemen call thousands of gun dealers and try to tell the retailer what the retailer should buy. Most of the middlemen are hundreds, or sometimes thousands of miles away. Most of the middlemen, including the rep companies, never analyzed the retailer's specific sales area and customer base. Firearms retailers have to take responsibility for managing their own business.

FIREARMS RETAILERS, I'M GOING TO START TEACHING YO HOW TO ANALYZE YOUR BUSINESS.

Be sure to read all of the issues of AFI because it will take some time, but let's start now.

(1) Find a map of your area.  As big as reasonably possible, and out to at least a hundred miles in every direction from your store's location.

(2) If you have a son or daughter in business school you could give this project to them, and/or hire a college marketing student. However, it would be best if the storeowner did it himself.

(3) Put your map in the area where you have your 4473 firearms sales information. If you use our association's big oversized record books, the work area could be anywhere in the store.

(4) You, or your helper, take the records of the last 500 guns you've sold (if you have a large business take the last 1,000 gun sales). Put a pin, or mark a dot at the location of each firearms buyer as per the 4473 sales forms.

(5) When #4 above is completed, tie a pencil to the end of a string, put the open end of the string on you store location, and draw a circle on the map that takes in 90% of the dots. This gives you YOUR sales area. What this means is that what's happening OUTSIDE of your sales area is of little importance.  Some dealers go crazy because another dealer 1,000 miles away got a gun for $5 less then they did, but that MAKES NO DIFFERENCE TO YOU AND YOUR CUSTOMERS.

(6) Do an income analysis of the areas inside of your circle. The Federal Bureau of Statistics has massive data on neighborhoods and income levels. Many States also have excellent information of neighborhoods, plus social and income levels. If you're not comfortable doing this, then find a marketing research college student to help.

(7) Mark your area's income level information, in different colors on the map.

(8) Also acquire the general information about the area within your circle: (a) Is the population increasing or decreasing?  You can get this information from the Sensuous Bureau, but you'll need somebody who can navigate the web. (b) Is the income in your area going up or down? (c) Is the average age going up or down? (d) Is racial/cultural demographics changing, like White to Latino or Asian? Are young professionals moving into areas that were once farmland?  This gives you a better picture of YOUR market, and YOUR sales area.  What's happening in other areas is secondary to what's happening within YOUR circle. Local retail stores are LOCAL.

(9) Periodically, you'll stand back and look at the map.  After the income areas are filled in, stop and look for patterns. Are most of your firearms sales coming from blue collar working family areas? Are most from poor neighborhoods?  Rich neighborhoods?

(10) If there are rich neighborhoods within your circle, but you're not getting many sales, you should look at your inventory. Are you stocking the very best guns? Or the other way around, if you have poor neighborhoods in your circle, but no sales there. Stock up on some Hi-Point handguns and carbines.

(11) After doing the above, go back to your 4473 forms and do an analysis by age, and sex. Even though you are in the store, you might be surprised to see the number of younger customers, or not. Or the number of women, or not. If you have almost no female customers (50% of the population), and you have sales people, you should hire a woman firearms salesperson. If you have a significant number of younger people within your circle, hire a young salesperson.

(12) The under age 30 buyers are "hot." The under age 30  customers are driving the AR-15 sales, handguns sales, and the accessory sales related to self defense firearms. Most do not have large incomes, but they ARE buying expensive guns with all the add-ons. If you do not have many under age 30 buyers, but the demographics for inside your circle has young people, then you're going to have to change your store and marketing to attract them. Find some friends with college students in marketing. Have a beer party at the store, and just ask them, "What do I need to do to make this place young people friendly?" Most manufacturers should be asking the same question, "How do I make my company image young-people friendly?" There are those that object, but a hot looking girl, in a bikini, will get the attention of a 22-year old guy.  Companies like European American Armory who hand out posters with pretty women holding their EAA guns know it's guys in their 20's who have been, and are, the hottest part of the booming gun market.

(13) Hopefully, you're gathering and keeping information about your customers. The above analysis of age, and sex becomes especially valuable over time because then you can compare data. For example, if the figures showed a shift in one direction or another,  you'd have to start asking, "Why," and "How can I make it better?"

Remember, changes can happen slowly so many times people don't see them on a week-to-week basis, but over say two years, your customer base of women, or young people, etc. could be taken over by another retailer overlapping your circle, without you noticing.

(14) If you see a "dead area" within your circle, and there's no apparent reason, the cause might be a competitor that's overlapping your circle, and he's doing something you're not doing to win customers. You'd have to find out whom, and analyze his business.

(15) Several states have carry permits. A few states make that information available, and/or they have state "Freedom of Information Laws." Make a request in the proper form and you can get the information. If you're lucky enough to be in such a state,  get the firearms carry permit information for your area, then put a pin into the address of everyone within you circle that has a carry permit.

(16) If you can do #15 above, stand back and look at the pattern. Do your customers more or less match the carry permits, or are there discrepancies? If there are discrepancies you have to ask yourself, "Why?" And what you can do about it.

(17) You can find the address of FFL holders. Several times a year we post that information on the amfire.com website. You can also buy the entire FFL list from us on disc for $49.95.  Within your circle, put a pin at the address of everyone who has an FFL. If some FFL holders are only buying for themselves and friends, talk to them about becoming a sales agent. They only get paid for what they sell.

(18) If you do not currently maintain a computer based file of your customers, YOU SHOULD START. With all of your customers in a data base, you could do all of the above for scope sales. You could see where your customers are, and where the "opportunity open spaces" are within your circle.

(19)  The hardest part of analysis is also the most valuable. Tastes are always changing. If you have a customer base, and you can compare data for a year of two, then you can spot changes in your area's buying patterns. For example, your customers might be going for cheaper scopes and guns to more expensive, or the other way around. Your used guns sales might be going up, or maybe only one or two kinds of used guns are going up in sales. This type of information is golden, and translates directly into more sales and higher profits.

(20) You want "custom information" for YOU and your area. If some other store a thousand miles away is having a nice increase in side-by-side shotguns, that information by itself tells you NOTHING about what's happening inside of your circle. Or,  the other way around. If national side-by-side sales are flat, but good inside of your circle, you act on what's happening in YOUR area.

There will be much more on how to run your gun store, for YOUR area, in future issues of AFI.

KNOWLEDGE IS POWER

It's going to be a wild ride for a long time, and there's going to be a big turn one why or the other in the next year. Keep on reading my columns in AFI, and I'll keep you out in front of the big issues.

A MUST READ

The PGRA Association has a "White Paper" on how to organize our business and assets to financially protect them. There's nothing like this anywhere. If you're still in your 30's or 40's this report is must reading. If you're still in your 20's and just starting a business, it's vital. It's free to current PGRA members. Call 954-467-9994, give us your name (to check membership) and email address and we'll send it out, or we can send a disc. For non PGRA members it's $17.95 on disc. Trust me, the report will change your entire way of looking at your assets and business. Its potential value to you is enormous.

Andrew Molchan