Written by John Hwang, CEO of Rainier Arms
After the tragic events in Newtown CT, Feinstein and Gun control supporters fueled by the media machine, turned our industry into a craze overnight. Starting Friday the 14th, sales of Lowers, high capacity Magazines and Rifles have sky rocketed leaving our showroom walls and saferooms empty. This particular rush easily eclipses the 2008 rush for “assault weapons” by 2-3 fold.
The average reader will think how great it is (financially) for gun dealers. In the short term, you are absolutely right. In the next month to 3 (I project less time), sales will be at record numbers. What happens when supply dries out? (Which already happened for us on many products). We’ll just get more right? Actually, it doesn’t quite work that way. Starting Friday, not only did consumer sales go up, all the dealers & distributors across the county put in orders to larger distributors and directly to manufacturers. It wasn’t just AR15 dealers but any dealer, pawn shop, etc jumped in and ordered as much as they possibly could. Our industry was already producing at max capacity before the scare so what do you think will happen if demand increased by 10 fold overnight? If things hold true to 2008 standards, product deliveries will greatly slow down. Instead of receiving products, say every month, dealers be lucky to see it every 3 months.
To give you some reflection, let’s talk about what happened in 2008. After November’s election, sales doubled overnight and went on for several months to the peak in April and started fading about as fast as it started. About June or July, demand completely completely turned off. The heavy products we ordered during the scare in November started hitting our stores in June, July, August. At first we were so happy to finally get some products in to our bare warehouse but soon happiness turned into a nightmare when the products started flooding in by the truckload. As purchase orders to manufacturers started getting canceled by dealers across the country, manufacturers were double, triple shipping to dealers that would take the orders. We honored nearly all our open POs but even we had to ultimately cancel a few. Manufacturers bought new equipment, hired new staff to run the new equipment, etc and when demand fell, it crippled our industry. There are countless stories of layoffs by industry leaders.
What you may not have heard were stories about the dealers. Dealers across the country work on a NET 30 payment plan which means you have 30 days to pay for your products. Manufacturers entice dealers to take the product and pay them back in 30 days. When the demand is high, dealers can take $10,000 in product, sell it for $12,000 in a few days pocketing $2000 without ever spending their own money. This sounds awesome but only is helpful if demand is high and you use your credit wisely. As businesses grow, so does inventory and monthly payables. Soon payables stack up on products sold 2 months ago. Also imagine what happens, when the monthly sales stop instantly. Many dealers couldn’t pay on their NET 30 payments. Unlike consumer debt where the bank raises your interest rate to 24% (which can hurt), in our industry, you get cut off (which means death). If you don’t have product to sell, how can you pay your payables? You see the ruthless cycle that can creep up on you if you don’t manage your finances properly. You might be asking yourself, what about all of the profits made during the boom? You’d be surprised. With all the inventory, high taxes, tiny margins, there are a lot less profits than the media make it out to be. If you’ve been in the industry for many years, you have seen some small and even larger players go out of business even in this booming market.
Fortunately for Rainier Arms, we have always been a cash business. We only purchase product if we have cash in the bank to cover it. So when demand fell overnight, we didn’t have any payables that drowned so many small businesses. Much like personal finances, if you have zero debt and money in the bank, you can lose your job (income) for several months to several years and you can still survive. After 2009, many gun dealers shut their doors forever.
So what does this mean in 2013? Rainier Arms is the Master dealer of the Year for Daniel Defense and Distributor of the year for Noveske and many others. These relationships will allow us to receive product on a more consistent basis compared to our competition. We have zero debt so we are in a position to look at alternative ways from production to finding other sources for product. We will look at new emerging companies and new ways to bring you products and services you’ve grown to expect from us. Even when the demand crashes, whether by law or the fear dies down, we’ll be here to serve you.
Rainier Arms was started by enthusiasts for enthusiasts. Rainier Arms specializes in high end AR15s/M16s, parts & accessories. “If we won’t use it, we won’t sell it.” Founded in 2005, Rainierarms.com already has more than 1997 unique products, and growing. Learn more about Rainier Arms at http://rainierarms.com.