Why are some gun companies going out of business?

Why are some gun companies going out of business?

In the age of COVID, there are a variety of reasons why businesses are going out of business. Generally, there are lack of materials, supply lines are congested; customer access is minimized and state mandates are crushing in some sectors. 

Consolidation and changes in ownership

But there are other issues at play within the firearms industry and related industries.  There has been a lot of consolidation by VC firms, and other private Equity players, especially since the run-up in gun industry interest over the past several years – now pushing into 15 years or so. This means that some companies are cut loose for under-performance or to achieve other larger goals by the companies that run them. When all gun companies (or most of them at least), were run by the original founders, or people who were passionate about keeping them in business, this might have had a different result, even in times of consolidation, but with these types of buyouts and corporate ownership schemes, the likelihood of keeping an under-performing asset afloat is low. It’s just business. 

Political, legislative and gun control pressure

Some companies come under extreme scrutiny or are targeted by politicians, banks, or other institutions like material suppliers or lobbying groups and non-profit entities. This can lead to public outcry and a company could be negatively affected by this. In January 2021, the NRA, by all accounts a well-heeled, well-funded organization declared bankruptcy due (allegedly) to the court cases against the organization in New York.

Several companies have been targeted by internet service providers and domain registrars of late and suffered major losses because they have been taken offline. 

Even more than that, banking institutions and new Fin-Tech Companies have put restrictions on how firearms, ammunition and related products can be handled as transactions. This includes difficulty for gun industry companies when working with financial heavyweights like Bank of America and PayPal to name a few. There are more than a few politicians pushing this strict reality for banking with gun companies and other legislative pushes, even if now new laws are being enacted by congress.

Poor business practices by the companies

Some businesses have viable ideas, good technology, or even a popular product, but fail because they mismanaged the money, or were overzealous in predictions with employee needs, lenders or in their internal models. Sometimes, the business can be sound, without the business management being sound. Several companies in the past few years have failed to deliver on promises, poorly handled funding, or had bad luck when coming to market and were subsequently not viable companies soon after. 

Lack of supplies in the supply line

Some things are much harder to get right now. And if you cannot find items to sell, you won’t be able to sell them. Ammunition, lead, even certain steels and alloys are next to impossible to find right now. Those companies that do not have redundancy or full control over their supply lines have taken massive hits. 

Poor customer support

In the age of Yelp and google reviews, one cannot afford to alienate customers when it comes to servicing their needs. The gun industry has long been plagued with accusations of poor customer service, or a generally apathetic feeling towards customers. The strongest companies understand the importance of doing right by their customers. 

State laws are increasingly prohibitive

In certain states it’s near impossible to do business in the gun industry. California is a good example. Extra fees, considerable extra compliance, and difficulty in keeping up with the changes that happen nearly monthly make it very hard to transact in a gun-related business in California, despite the market in California being one of the largest in any state for firearms related gear and equipment. 

It could be because taxes went higher. Or because city or county restrictions don’t favor gun-related companies. It could just be the constant increases in laws on the books that make sales harder to transact, or customer education costs too prohibitive to allow for reasonable profits. It’s also a combination of these things. A lot of California businesses in the gun industry just cannot make money anymore. And California is a single state example – there are plenty of others, New York, New Jersey and others come to mind. 

Changes in the industry mean companies have to be agile, willing to pivot, and have backup plans

Most companies that enter the market are run by people who are following a passion, but don’t have the other skills necessary to thrive in an ever-evolving marketplace, and a brave new world for business in general. A lot of the companies that could have been successful, go the way of the Dodo because they put all their eggs in one basket; had a product and not a company, were branding as a novelty or just weren’t able to anticipate market needs in real time. Countless companies jumped on the AR-15 bandwagon only to be mauled by the oversupply, and subsequent price markdowns that came with the boom and bust of that component market in the past few years. Not everyone who has access to the financing for CNC machinery should be producing a highly regulated item. 

A lot of businesses fail

Labor costs, compliance costs, administrative costs, and a lot of other ancillary costs means that running a business is more complex than a lot of people think. Outside of the gun industry, a lot of businesses fail thanks to these costs, and other input factors. Add this to the fact that the gun industry sees a lot of political and public pressure and is a controversial industry generally, and the stage is set for failure at an even higher rate than mainstream businesses. 

Technology is rapidly advancing

Tech is changing daily, and there are smart people everywhere that take advantage of this fact – the big conglomerates can afford to corner a market in a new technology if they get a whiff of what the small guy is up to and it has some good commercial applications. There is a lot of competition, and with small teams, small budgets and an already difficult set of circumstances with the gun industry, it can be very hard to keep up with the market, or be competitive without the ability to engage with new technologies. It can also be hard to protect intellectual property and hard to enforce trade rights for smaller companies given the landscape. 

Changes in the way we fight wars

We are currently engaged in pre-cold-wars with multiple countries. That means we aren’t actively even engaged in war. Our “peacekeeping” missions don’t focus on mass military campaigns but rather more coordinated smaller missions by special operators in elite units, and even then, it’s much less common than even 10 years ago. We don’t see nearly the importance of small arms in military operations that was prevalent in the past, and therefore there are fewer needed components and suppliers and even fewer solicitations for new weaponry in the small arms market.

It’s drones and big commercial entities that get the headlines whether that is in the way we fight the war or arm the troops. That means less money in the market for the smaller companies focused on man-carried equipment generally. 

Conclusions

If we had to pick one, it’d be a tie between a bad political scenario for guns, and poor management by companies that are newcomers to the market. You have to be able to turn a profit, please a customer, offer breadth and depth and credibility, and withstand the political barbs that are being aimed at you. Without a nearly perfect business model, this is a landscape that has new businesses struggling as soon as they step foot into the industry. Being that the materials and manufacturing technologies are also quite expensive relative to other industries, that too, weighs on a company. Ultimately, there is a secret formula to running a successful company in the gun industry, but many gun companies have failed to figure it out – look to some of the biggest gun names in history for that obvious lesson (Remington, Smith & Wesson, Colt, etc.).