INDUSTRY INSIGHTS

(October 23rd 2008) I appreciated Remington’s hospitality at the recent seminar held at Buck Ridge Plantation (Columbia, South Carolina) October 12th through the 16th.  It was a first-rate conference center and hunting lodge that everyone enjoyed.There were 21
writers at the seminar.

During the seminar, Scott Blackwell,Al Russo, and Eddie asked for my opinions and impressions. Here are some of my
thoughts.They’re not in any particular order, and mainly a "stream of consciousness" covering both small and big issues.
"How am I doing?" Everyone asked everyone this question at meeting. I said, "I’m doing just great.

2008 has a few more months to go, but for me 2008 is on-track to be one of the top ten best years of my life, and I’ve had some pretty good years." In late 2007, in the pages of American Firearms Industry (AFI), I advised everyone to
get out of long-stocks, and buy into ProShares and Rydex long-term shorts. Starting in late 2007, I advised many
times in the pages of AFI: "Take every Dow upturn as a sucker rally and a selling opportunity, NOT a buying opportunity." I
took my own excellent advice, and I’ve made money in the 2008 stock market. I’m sincerely very sorry for those
that did not follow this advice. I put out MANY warnings starting in late 2006 when I said that the recession would
start in 2007.

"How is AFI doing?" Everyone asked this question too, and in a word, "Excellent." Once again, I took my own good
advice. Starting five years ago, several times in the pages of AFI, I advised, "Get out of debt because America will pass
through a nasty period of deflation." Going into 2006,AFI had ZERO long-term debts; 100% of AFI’s "payables" were (are)
under 70 days. We own all of our equipment, cars, office, everything.We lease nothing. We have zero loans of any kind –
everything is 100% current.We use our credit cards ONLY when absolutely necessary, and they are all current.We have large cash reserves, but we don’t need the cash because AFI pays for itself.

I was unfortunately wrong on one big issue. Back in 2006, in the pages of AFI, I said the recession would start in 2007, and that was half correct. However, now in October of 2008, I’m unfortunately convinced that it will be a depression that
will drag on for three years, and be followed by a "sunset recovery." The sucker rallies will continue to be there, and my advice of late 2007 stands, take the sucker rallies as selling opportunities of long stocks. Do NOT listen to the idiots on the financial TV shows that keep saying over and over, "Things are really cheap – buy now!" We’re a long way from the bottom.
If you’re holding first-rate companies: GE, Exxon, etc. don’t sell, but don’t be a long buyer.

In the next three years many magazines are going to be in deep trouble. Most publications are eyeball deep in debt.
Primedia (i.e. Guns & Ammo, Shooting Times, etc.) had $1.3 BILLION in long-term debts and was forced to sell its outdoor
titles to InterMedia Outdoors. Who knows how much debt privately owned InterMedia Outdoors is carrying? It could be a lot
of debt, and at a time when advertising for 90% of all print media will decline for years. Decreasing circulation has already happened. For example, Guns Magazine might "claim" a "readership" of 400,000, but in reality
there are only 100,000 issues sold. As a publisher, I’m highly suspicious of "claimed readership." Particularly in light of the fact that most newsstand gun publications are bought by old men. People under 30 years of age are NOT buying newsstand gun magazines – they use the Internet.A 55 year old male who buys a copy of Guns Magazine, and has a wife that isn’t interested in guns, and his kids have moved out… that issue only has a readership of ONE.When I was the sales manager for Guns Magazine in 1969, there were about 140,000 copies sold each month. In the last 39 years the population of the USA has increase by 100 million people, but the paid circulation of Guns Magazine has gone down by 29%! On the other hand, for 2008 America’s collected 56,000 FFL holders are on track to sell 12,500,000 firearms.
Who are the gun buyers? The "hot gun market" is the under-the-age-30 group, and 100% of the under-the-age-30 new-gun buyers MUST BE in contact with an FFL holder. ONLY an FFL holder can sell a new gun. Manufactures, do you remember the old saying "Catch them at the pass?" The "pass" is the gun store, the only place in our industry with true profits.

Here are the facts: there are no profits in a firearms factory, only expenses.The are NO profits at distributorships, only expenses.The are NO profits at rep companies, only expenses.There are NO profits at the SHOT Show, unless you’re selling things for cash. The ONLY place you find real profits is in the retailer’s store. With a depression barreling down the road, the manufacturers should trust me and get close to their retailers.

A good idea. Remington’s seminar cost a ton of money, and the Remington staff people asked, "Was it a good idea?” I’d say, "Definitely yes." Having the writers on your side is a big plus. Some writers are transitioning into electronic media and some of the writers Remington had are already doing electronic media. However, nobody can kiss off the old print media until they are already strong in the new areas. The trick is that you cannot be either too early or too late. My advice is DO NOT destroy tons of money trying to make yesterday work. Think of the media world as a world in transition, and your media objective is to be on the upside of the future bell curves. Mr. Scott Blackwell, Remington’s president of global sales, had anexcellent idea in regards to cutting back on the SHOT Show wastage, and using that money to work more closely with retailers.

Basic Business. There are hundreds of text books on marketing that say, "Go where you’re competition isn’t, and do what
your competition is not doing." EVERY manufacturer is at the SHOT Show. Paradoxically, after the SHOT Show, it seems like
most of the exhibitors spend the rest of the year hiding from the retailers. Companies like Glock, Ruger, Savage, etc. have booths that are 1/3 to 1/5 the size of Remington’s booth. Glock’s SHOT Show booth must be about 1/8th the size of Remington’s yet Glock has set all time high sales records for the last five years in a row. Mr. Blackwell agreed, and told me that it was too late to downsize for 2009, but Remington will have a much smaller footprint starting with the 2010 SHOT Show. The saved money will be used to directly help their retailers be more effective and profitable in the challenging years ahead.

President Obama. Many times I wish that I was wrong. I deeply and passionately wanted to be wrong on one prediction. I’m writing his article two weeks before the election, but I knew the outcome of the Presidential election 1 and 1/2 years ago. In the April 2007 issue of American Firearms Industry, (that’s 18 months ago – April of 07), I wrote on page 12, "I am highly talented at the big issues, and I am 100% sure that McCain running for President is a guaranteed loss. If he’s the Republican’s choice than we are DOA for next year’s election."

Questions. I was at one of the lunches at the Remington seminar, and Larry Teague from Buckmaster Magazine was sitting
across from me. He stopped eating and looked into my eyes and asked, "Andy, are you psychic?" That came as a surprise. "Why do you ask?" I replied. Larry answered, "I was cleaning out my desk and came across your February issue of AFI. I read it and everything you said came true!" Some of the things I said in the February 2008 issue was, on page 20, "I keep hearing people on the TV talk shows saying,‘The market is oversold, you should buy now.’…In the last six months when people have asked my advice about stocks, I told them that I’d sold my long stocks…We are going into a deflation stage that could last for some time, perhaps years… Americans are looking at a period of real estate and commodity deflation… In the short term (one year) the markets will be highly volatile, but overall they will wobble downwards for things like gold and oil." Once again, I took my own first-rate advice and bought long-term shorts on oil and gold.At this point oil is down by 50% and gold is down by 25%, and they’re going lower.The long term shorts I recommend almost a year ago probably still have a little upside.HOWEVER, there will come a time in the future when deflation will change over to inflation. Then your investment will have to be turned around. Inflation might be three years away, but keep reading the pages of AFI and I’ll give you enough warning to be out in front of the curve. If we catch the change at the right time, we’ll make a lot of money.

What about AFI and young people? I was genuinely surprised by a phone call that I received a day before coming to the seminar. A dealer called in and said, "Andy, I love reading your articles, but you should stop using swear words." I said, "Thanks for the kind words about my articles, but I don’t use that many swear words – a little slip now and then. Beside, this is a controlled circulation business publication to gun dealers – we’re not the florist industry." He clarified his request. "A few salty words don’t bother me, but I keep your magazine out in my shop’s little sitting area. Some of the local kids come in, they’re like fourteen to sixteen, and they read your articles and discuss them.""Okay, no more swear words – they’re gone. I’ll change in light of market feedback. In future articles, I’ll start to bring up some ideas that young people should be thinking about because young Americans who actually want to work are facing a profound survival problem."

Was the four day Remington seminar too long? Eddie from Remington asked, "Is the seminar too long – can we do something different?" I’m a professional and my job is to spend time with my clients. My client’s are paying me for my time; I’m not paying them. If Remington is a client, the seminar wasn’t too long. If Remington was not my client, then two hours would have been too long and I wouldn’t have been there.This is the way all professionals operate.

My opinions and impressions of the seminar. Remington has six companies, with a strong hint of more to follow.With the
coming hard times, I believe that buying firearms companies is a lot smarter than buying some other kinds of companies. I look at business this way;America’s collected FFLs will sell over 12,000,000 guns in 2008, and probably 10 to 11,000,000 in 2009.That says it all – there will be billions of dollars in CASH in the retailer’s stores. Firearms sales are a staple. The arms business is the oldest business in the world.Two hundred years from when, when Homo sapiens have been totally replaced, we’ll still have an arms industry. I’m sure that the world market for firearms will hold steady even in the face of the worldwide economic slowdown. There never was a debt-driven "bubble" in the gun business so there can’t be a big crash. I like Remington’s brand new shotgun, the M887 Nitro. As soon as I saw it, I thought, this is the kind of
gun that’s going to appeal to anyone who likes Glock-type guns. If I were doing the ads for the M887 I’d put it in a very techno setting, not a classic hunting background.

Turning a negative into a positive. President Obama’s reparations-economics is going to be a national disaster. President
Obama is going to sell a lot of guns, ammunition and accessories for a lot of FFL holders.

Product or system? In the 19th Century the product was 90% of the ball game. If you had the factory, you had the ball game. Today, product is at best secondary. Everyone has product. If you want product, take something you like, go to China, tell them to reverse engineer it and have it on the boat in six weeks. Why does Wal-Mart work? Does Wal-Mart work because it’s a big box store that peddles toilet paper and Coca Cola, etc? No! Anyone can sell toilet paper and Coca Cola.Wal-Mart has a computer and sales system second to none, and that’s the
fountainhead of its power and profits.

Here is the number one issue of the Remington Family. The bitter truth is that conglomerates of companies in our industry
have a very sad history. I don’t even have to read the history books on this one – I lived it. Periodically a group buys up different firearms/shooting manufacturers, and then after five or six years it all starts to flounder.When I came into the industry it was the Leisure Group. High Standard Firearms was their main "anchor." At that time High Standard was a major shotgun manufacturer in the USA. My old friend, the pirate Don Mitchell was the president of High Standard.That sad trail leads all the way to the present with Armor Holdings/BAE Systems. Armor Holdings, in my opinion, took a lot of great products that had nice sales "buzzes" and momentum, and in my opinion they turned a lot of them into "who cares." Here’s a fundamental truth, if the dealers are NOT excited about a product, nobody else will be either. If the manufacturer is NOT excited about their products, and transfers that excitement to the dealers, then why would the dealers care? In other words, if you’re not excited about your product nobody else will be either. Remember, "communication" in the real world is NOT divine enlightenment.

Mistakes to Avoid. In my view, here are some of the mistakes that past conglomerates have made.They are not necessarily in order of detriment. 1. Being big is NOT an end in itself. Being big gives you the means to a meaningful and profitable end, but it is NOT the end itself.
2. The advantage of being big is that you can spend $250,000 on something like Remington’s seminar. But if a company
does NOT leverage their size, than in the real world they are NOT big no matter how many factories they own.
3.The fatal mistake was relying on somebody else to do their sales.
4.The current "weak time" will last for years. However, our overall gun business will be one of the better industries.The collected FFLs will still be selling 9,000,000 guns a year in 2011 when almost every other industry is really hurting. Remington’s objective should be to NOT have a lot of weak people between them and the money in the dealer’s cash register.
5. At the Marlin part of the Remington seminar, Bill Schirmacher mentioned the name of Vince Shields and Outdoor Sports
Headquarters. Frankly, I was caught totally flatfooted and can’t remember the context of why Vince was mentioned. However, for those that don’t know,Vince cost everyone millions of lost dollars when Outdoor Sports Headquarters (OSH) pulled the plug. After OSH went under, a dozen manufacturers said to me, "I couldn’t believe it, I thought of myself as a good friend of Vince.We went out to dinners, got drunk together, went hunting together, and he shafted me!" I too thought of myself as a friend of Vince, and up to the end he kept insisting that everything was perfect. My prediction is that this horror movie will have squeals in the next few years. Manufacturers, don’t make the mistakes the banks made, you should have "cash reserves" set aside for some distributors going under.
6. In our industry there is a massive bias toward the manufacturing process.Yes, manufacturing is important.You cannot have an outdated facility like the old "New England firearms plant" (recently replaced by Remington.) However, you MUST understand that the battle is going to be won or lost with the sales staff and its organization, and NOT the production line and factory.
7.The name on the product? My advice to Remington was that they can have different brand names, Marling, DPMS, H&R, New England Firearms, Bushmaster, EOTAC, and so forth, that’s not important.The argument for NOT losing many years of good will is a correct argument. However,YOU MUST HAVE one sales force, and one computer system for everything you own because that’s the only way to make "big" really pay. Remember,Wal Mart’s totally integrated computer system is what keeps their profits ticking away.
8. My advice to Remington was that they should be clear in their minds that it’s going to be Scott Blackwell’s sales force, and not the factories that either make or break their expansion.
9. I suggested putting together an "information profile report" for FFL holders. Remington already has a sales staff on the road. For each client or prospect, their roadmen will fill out a report: size of store in sq. feet, approximate number of products, and mix of inventory? Gunsmithing? Range? Owner and/or who buys? Get the owners/buyers email and a signed form that it’s okay to email them information.This keeps you legal with the FCC.The sales staff can ask the owner for their approximate gross sales – most retailers will give you a number.
10.All of the above goes into the master computer database. I suggested that Remington tell each salesman that they have to add the information for five new FFL holders into the database each week.That’s only one per day.After two years Remington would have the best firearms retailer database in the USA.
11. Do the same as above for international dealers, distributors, police agency buyers, and military buyers. Do the same as above for America’s 12,000 police departments and America’s military buyers.
12. I suggested that Remington have as their objective a billion dollars in gross sales. As an international manufacturer, with THEIR OWN SALES STAFF AND DATABASE UNDER THEIR CONTROL, a billion dollars in sales is doable.
An inconvenient management truth. So, Remington has five main companies now, with the strong hint of more to come. For argument, lets say that Remington’s five companies have collectively 30 different distributors. I pointed out to Remington that their real world company organization chart is what’s listed below:
• 35 presidents on the payroll
• 35 vice-presidents on the payroll
• 35 sales managers on the payroll
• 35 separate accounting systems
• 35 separate billing systems
• 35 accounts receivable systems
• 35 accounts payable systems
• 35 separate CPA’s
• 35 separate corporate lawyers
• 35 separate offices
• 35 separate sales staffs
• Several different ad agencies
• 35 ways to find new retailers
• 35 separate retailer programs
• 35 separate inventory systems
• 5 separate bar coding systems
• Different tax year closings
• Different corporate structures
• Different and sometimes
non-comparable account systems
• Different "credit lines" at
many different banks.
• 35 different insurance polices, from
different insurance companies
• 35 separate UPS accounts
• Different employee benefits
• 35 separate real estate tax bills
on separate offices/warehouses.
• 35 separate phone systems
• 35 separate fax systems
• 35 separate email systems
• 35 separate computer systems
• 35 separate database systems.
• Bad to non-existent computer
compatibility
• Bad to non-existent website
interconnection
• Monumental sales effort wastage
as the 35 separate entities call
many of the same retailers.
I could go on, but do you get my point? To make it a winning structure most of the above "35’s" have to be changed to ONES.

"The Butterfly Effect." Three years ago I was at the Remington seminar.The President of Remington,Tommy Millner, and I took a long walk in the woods.We were discussing how to get Remington moving. How Remington could break the old logjam. I suggested getting together with a relatively small but highly aggressive company.That was a leap of faith suggestion, however,Tommy had the courage to do it. He pushed it through, and it significantly changed Remington’s image. Remington went from just another "living in yesterday" company, to a company that could clearly make significant, and unexpected changes. Remington became a company that demonstrated the courage to break the old molds and free itself from the past. In my opinion, this made Remington much more attractive in the eyes of Cerberus Capital Management, who purchased Remington.

Today’s advice. My recent advice was to keep doing the same. Keep challenging the old ways of doing things. Don’t wait for history and the markets to push you – you push the markets.Above all, do NOT wait for yesterday to work, don’t follow the old crowd. Find the courage and imagination to create markets, and seize the future.

WE PAUSE FOR OUR
COMMERCIAL MESSAGE
Manufacturers need retailers. The SHOT Show issue that’s closing right now is the super circulation issue. Back in 1994 we had 260,000 FFL’s and a page in the big circulation issue of AFI was $11,500.Today a page in the big circulation issue is only $5,740. The regular issues of AFI rotate through the entire FFL list, with the exception of our PGRA members who receive all of the issues. If used correctly, AFI is the ideal low-cost birddog asset. AFI will give your sales staff an on-going flow of sales leads for your computer base.

Remember, there is a coming depression and I am profoundly unhappy about the unfolding events. For the last five years
I’ve been screaming about the mistakes America has been making. I’ve said over and over, "Big mistakes are NOT cost free!" The depression will cause massive suffering and if giving up every dollar I ever made would stop it, I’d gladly say, "Yes." However, I am a realist and what’s going to happen is going to happen. We cannot control the arrogant idiots in Washington D.C. but we have some control over our own businesses. In the next five years manufacturers will need any and all retailers they can find. Manufacturers should remember that 80% of your net profits are in the last 20% of your sales. By maximizing your retailers you can increase your net even though your gross might not increase greatly.
The correct strategy. Manufacturers should run in every issue of AFI. Use every device to get the dealer’s attention: contests, give a ways, special time-limit offers, put the dealers on your website for free, – there’s a long list of things that work.Two pages in four-color on frequency, in the regular issues of AFI, are only $3400 per page.That’s almost nothing, and in return you would always be in the face of 100% of the FFL holders who in 2009 are going to sell at 10 to 11,000,000 firearms.

The Big Circulation SHOT Show Issue Is Closing Right Now. Because SHOT is early this year, the "Show" issue is December. Pages in this issue for are only $4,800 (all prices are commissionable). Only around 5,000 FFL holders are going to be at the SHOT Show where Remington’s family of five companies will spend…two million dollars? For an extra $9,600 you can cover the 50,000 + FFL holders who will NOT be at the SHOT Show.To me, that’s a smart move. Send Kathy or myself an email, kathy@amfire.com, or andrew@amfire.com, tell us what you want and we’ll email back a specific agreement.

A person at the seminar asked why it seemed like I was anti-SHOT Show. There are two sides to that story.When the
SHOT Show was first proposed back in 1977 and 1978, I was one of its most enthusiastic backers. I put the full weight of
AFI in back of the SHOT Show. Then, the NSSF/Reed decided to start SHOT Business. Like the world needed another gun publication. At that time I knew there was a ton of better uses for the time and money other than one more magazine. In 1998, the sales manager for AFI was Ms. Dawne Severino. During the week of May 1st to the 7th, 1998, I the AFI’s staff were at the Firearms Trade Show (FTE) in Columbus, Ohio. We left only one receptionist in our Fort Lauderdale office. At the last second, Dawne said she was sick and could not go to the show. What I did not know at the time was that SHOT Business had secretly hired her. The day after most of the AFI staff had left for Columbus, Dawne came back into the office and told the receptionist that she "Felt a little better and had decided to come in." Since Dawne was in the office, the receptionist went to lunch, leaving Dawne alone in the office. When the receptionist returned from lunch, Dawne was gone. The receptionist assumed that Dawne had become sick and left. When everyone returned from the FTE Show, we discovered that all of our sales records, advertiser client information, and our billing information had been stolen. On Friday,May 8th 1989, I called Dawne and she answered her phone as the sales office for SHOT Business.
Robert Delfay was listed as the publisher of SHOT Business, but the work was actually done by the Petersen Company. I called Ken Elliott, the executive publisher at Petersen and he admitted that they had our records, and offered to return
them, (like nobody had a copy machine, and nobody had taken down the data). I filed a Florida police report, File# 98-73-079, and sent a detailed complaint letter to the FBI (which I’m sure they still have), about the Industrial Espionage, and Fraud. I also mentioned the facts in AFI. Mr. Delfay was replaced by Mr. Doug Painter as NSSF president, BUT kept on the NSSF payroll – humm. I could have sued the NSSF for Industrial Espionage, asked for $20 million in punitive damages, and I would have had an excellent case. Every company on the Board of Directors of the NSSF would have been liable for the payment. However, that would have been a public relations nightmare for our industry, so I put our industry before my personal gain and let things drop. In a certain sense, I’m the biggest contributor to the NSSF for not suing.
It’s strange, but whenever you dig deep into things connected to the SHOT Show things end up being owned by some foreign company. By law, magazines have to state their ownership on their mastheads.The Bonnier Corporation publishes the current SHOT Business, but Bonnier is NOT an America company. It’s a Swedish owned company. Anyway, what’s important is not the past, but what’s going to happen in 2009, and in the next ten years. It’s going to be tough going, and we all need to work together, co-operate, and solve our mutual problems.

All the best,
Andrew Molchan