Title: The World Is Changing, To Survive You Must Change Too
Author: Andrew Molchan
Date: Mon August 15th, 2005
(Feb.12th 2005 Ft. Lauderdale) The recent 2005 SHOT Show was a lot of fun. I'm mathematically literate so I don't gamble in casinos. I do enjoy the shows and the food. What I love about Vegas is that I sometimes get up at 5:00 AM, and in Vegas there is something to do at that hour.
Over 95% of the advertising clients in American Firearms Industry (AFI) told me they have been receiving excellent results from AFI magazine. Usually, I and the AFI staff go to the shows and except a certain degree of complaining because people like to complain, but this year our clients said both the number and quality of new dealer business coming out of AFI is excellent.
American Firearms Industry is the one and only publication in the world that rotates through the total FFL list (now, about 58,000). AFI has its PGRA and NAFLFD members who receive all the issues. The biggest stocking firearms dealers also qualify for all the issues. With the remaining FFL holders, AFI rotates though them. January is a super special issue.
The other “trades" are fine. They have some nice people working for them. In another life many decades ago I used to be the sales manager for Shooting Industry (SI). Also, for Guns Magazine and all the girly magazines that PDC had at the time. PDC was once America's biggest publisher of girly magazines. That was back in the 1960s. For those with long and good memories, it was a different world. Back in the late 60s, the big thing was Hollywood scriptwriters being able to put the word “damn" into a script without the movie being banning. I used to hang out in the editorial department. That area was covered with sacks of photos of nude models that hadn't yet been airbrushed. That was totally unique in those days. Today, as we all know, everything is everywhere and nothing is left to the imagination.
Back in the old days, SI's and Gun's chief editor, Jerry Rakusan, like the good editor he was, noticed that I saw the world differently from most people. My “day job" at Gun's and SI was sales and marketing, but Jerry gave me a political/social column to write for Guns Magazine in my spare time. I wrote under the pseudonym of Col. Becker. When I started writing the column, I also started talking to the recently deceased Neal Knox, and we became good friends. Neal at that time was the editor of Rifle and Handloader magazines in Prescott, Arizona. Neal, in those days, was a light in the dark woods of gun industry political naivety. Most of the industry was convinced that all we had to do was talk about the joys of deer and duck hunting and everyone would understand us.
I apologies, I'm running on, one of the drawbacks of a long and interesting life is that there's a lot to look back over. The firearms business is after all a business. We were talking about AFI, and why it works for its advertisers. The other “trades" are nice but they have a static unchanging circulation of 14,000 to 18,000. Regular advertisers in AFI cover everything the other “trades" cover, plus an additional 40,000 FFL holders the other “trades: never cover. AFI, also during the year, rotates tough the 14,000 police departments.
Back in 1994 we had 260,000 FFLs, so the number of FFLs over the last 10 years has decreased by over 200,000. It's not easy or cheap to qualify for an FFL today. Almost all of the 200,000 FFL holders who are now gone, didn't want to give up their FFL. The remaining 58,000 are a good group. Yes, there are only about 9000 “gun stores," but there are a lot of rural hardware stores, general stores (yes, they still exist in the country), fishing and tackle stores with firearms, etc. Going past that group to the next group, the FFLs who don't have some kind of business or another are almost universally wealthy collectors and hunters. The so-called “hobby FFL holders" are today the same people who are at the annual Safari Club International Show, The Antique Dealers Show, and all the other high end events connected to hunting and shooting. They are the kind of people who are buying a $750,000 Mercedes-Benz. The advertisers in AFI who have upper end products do especially well in AFI because AFI is the only “trade" that covers the golden core Safari Club FFL holders.
Advertising is basically simple. The two biggest considerations are quantity and quality of the audience. AFI during the year covers 58,000 FFL holders, three times or more for most of them. The 58,000 buy and pay for 10 billions dollars worth of firearms, ammo, hunting, shooting, camping and outdoor products.
Those with long memories will recall by fight with the late Bill Bridgewater during the early 1990s. Bill and I started as good friends, and we were never really enemies. However, Bill got off on his zero-sum view of business and the world. A zero-sum philosophy says that if one person has something then they had to take it away from somebody else.
I don't want to sound nasty, but Bill spent most of his life in the military and in my opinion never really understood economics, business history or much of anything else outside of basic military tactics. His fatal mistake was he didn't want to learn anything new. On a battlefield if one side wins, that means the other side has to lose. However, in business markets are created. I have spend almost 40 years studying both military and business history. In business you can grow a market and everyone can win. Building a healthy society, and/or industry, is almost the exact opposite of wining military battles. The society/business builder needs a totally different mindset from a military tactician. This is why only 1 in a 100 generals ever becomes a big success in business.
Back in 1993 Bill said to me, “When the 200,000 basement bandits are gone the gun industry will be on easy street. The incomes of the stocking gun dealers will double and triple." At the same time, in 1993, I told Bill, “The 200,000 hobby FFL holders are market creators. They are creating new customers. There are many stocking firearms dealers today who are making well over $100,000 a year take home. When the market creating hobby FFL holders are gone the number of stocking dealers taking home over a $100,000 a year will be cut in half. Longer term, the profits of the distributors will be whacked, and that will push back up the line to the manufacturers."
The basics of business are not that complicated. The more dealers you have the more you'll sell. Why do companies like McDonalds and Wal-Mart keep opening stores every week, year after year, decade after decade? Very simple, the more floor space you have the more you sell. The more product you have out in front of the customers the more you'll sell. Some manufactures forget that customers are not on the floor of the distributor's warehouse. The manufacturer's product setting in the warehouse might as well be on the moon. Product has to be out in front of the customer.
Another very important point with AFI is immediacy. AFI buys current FFL lists. The total number of FFLs has almost stabilized at around 58,000, but that 58,000 is NOT static. Every month about 1000 FFL holders discontinue their license, and about 1000 new FFLs are issued a license. There is an almost 20% turn over of FFLs every year. Because AFI buys the FFL lists, and rotates though the list, that means AFI's advertisers are the first ones to contact the brand new FFL holders. There is no way to know which new FFLs will become big stores. You have to cover all of them, and that's exactly what AFI does. Being first to contact the yearly 12,000 new FFL holders is a major marketing advantage for AFI's advertisers.
Bill Bridgewater is gone but his ghost is alive and well. I talk to some companies who's sales are so-so, and I say. “Well, why don't you take command of your business and talk to the dealers via AFI. Tell them you want their business, and put more of your product out on the shelves. You know, firearms dealers have a lot to think about, just like everyone else. If you want to do business with them, you have to ask them. You may think your company communicates by divine enlightenment, but it doesn't. Out of sight really is out of mind. The more product you have out there the more you'll sell."
Some manufacturers confuse dealers with end users. If the end user buys a shotgun, the shotgun manufacturer might never see that customer again. If a firearms retailer likes your programs and starts buying you might still be doing a significant amount of sales with him ten years latter. The magic number seems to be about 2000 dealers. If you have a base of 2000 dealers you are viable. If you have a base of 5000 dealers, and can keep them, you are a big company in the firearms industry.
At this year's SHOT Show, every company with products manufactured out of the U.S.A. complained to me about the exchange rate of the dollar. Once again, AFI has been why ahead of the curve. AFI has been writing about the dollar's future fall (now current fall) for six years. I'm usually correct about the big issues, and I am absolutely sure that the U.S. dollar in this century will lose 99% of its value. Most things do not go in a straight line, and there will be wobbles up and down in the value of the dollar, but the long-term trend will be down.
The continuing fall of the dollar has significant marketing and sales implications for everyone. For years I've repeatedly said, “The gun industry is infected with the idea of we have to have it for less. There are many people in our industry who are convinced they can't sell anything unless they get it a few dollars less than anyone else. Their day of reckoning has arrived."
What the firearms industry needs are salesmen. Real salesmen who can sell on something other then price. How many times a day does some stocking gun dealer spend an hour on the phone. Dialing up several distributor 800 numbers to find a particular gun for $5 less then anyone else? The dealer destroys $40 in phone and distributor sales person time to save $5 on a gun. Not to mention his time. That dealer thinks that somebody else, besides himself and all the other dealers, are paying for those 800 phone calls, and the salaries of the sales people at the other end of the line. The distribution costs all come out of the dealer's pocket. There is no free lunch.
I am not saying don't stock or sell “value" products. There will always be a big market for products that do their job and are at the lower end of the price range. As we've said several times over the last few years, all markets in the U.S.A. will be good at both the lower end, and the premium quality end. Our point is you need to change mental gears when selling one or the other. For example, all my friends over at Hi-Point Firearms, their guns are not expensive, but they work, and they do their job. The Hi-Point Carbine is as much fun as Carbines costing 300% more. However, some firearms dealers and distributors think they have to sell a SIG, or STI .45, like they sell a Hi-Point.
Let's look at it this way, suppose 30 years ago Mercedes-Benz, Porsche and BMW all said, “We can't sell $60,000 cars." Where would they be today? It's a person's mental attitude. If you change our mind you've changed the world. If you believe you can do it, you can do it. But if you believe you can't, then you'll certainly fail.
Yes, the world is changing, but don't see problems, see opportunity. America manufacturers have an opening door of opportunity. One of our clients, American Ammunition, a few weeks ago secured another big contract with another police department. The department had been buying Brazilian ammunition for their target practice. American Ammunition significantly beat the Brazilian manufacturer's increased prices, because of the raise in the Real, Brazil's currency, compared to the dollar. Even though American Ammo beat the Brazilian prices, American Ammo is still making a nice profit margin on what should be another long-term client.
Many foreign manufacturers are making the mistake of eating their exchange rate loses at the factory end, while hoping the dollar will go up in value. I know the firearms industry, and I'm sure many of their sales people in America are telling the foreign manufacturers that they can't raise prices. The Americans who are giving that advice are sincere. They are sincere but they are wrong. The factories overseas can't eat loses forever. Salesmanship and good marketing must come to the forefront. American managers have to start saying, “We'll find a way."
What the American firearms industry needs is a rebirth of good old- fashioned salesmanship. Our industry needs creative and imaginative marketing, and a can-do hands-on attitude. Starbucks sells coffee for $4 a cup, Godiva sells chocolate for $20 a pound, many magazines on the newsstand are $6 each, here in Fort Lauderdale a glass of wine is $5 to $30. Yesterday I came out of the restaurant on Las Olas Street, by our office in Fort Lauderdale. There was a Mercedes-Benz Formula One SLR parked in the street. The suggested list price is $465,000, but I know the local Mercedes dealership is selling them for $750,000, around $285,000 above suggested retail! And, the buyers are glade to get them. Look at the French, they sell water for $3 a bottle! Many people in the gun business would have said, “It's impossible to sell water for the same price as Coca Cola." The French went out and did it. Attitude, it all comes down to a winning attitude.
The SHOT Show was marred by a robbery of a few dozen semi and full auto weapons. BATF doesn't want details given out. In another lifetime I used to work for the Daley political machine, and I was also a member of the Teamsters Union. I never resigned from the Union, I only went on inactive status, so I guess I'm still a member. Back in Chicago some Teamsters use to refer to conventions at McCormick Place and the Chicago Lake Calumet shipping docks as the shopping mall. My guess is that since this is the second to the last SHOT Show in the Vegas Convention Center somebody decided it was time to start collecting. I'd bet the guns never left the Hall until after the SHOT Show was packed up and gone.
Remember, in July we have our special article. What the Pentagon and CIA are not thinking about, how to conquer America without using a single firearm. Probably in May, I'll have another article on your personal finances. What your lawyer, CPA and friendly banker are not telling you, but what you must know.
If you want to help us fight the good fight please take out a membership or subscription. The forms are on the protective cover of this issue. Thank you.
Andrew Molchan, PGRA, & NAFLFD