Adjusting To A New Market

After 2017 Correction, Positives Exist In 2018

By Rob Southwick K & Nancy Bacon

Image Courtesy of Howard Communications

The 2017 business year was certainly a “different” year, bringing new challenges and a whole new business climate. After an eight-year run of significant annual growth, demand softened. With the surprise outcome of the election, the public was not as concerned about new federal firearm restrictions — causing sales to fall. Based on recent Southwick Associates consumer segmentation research, roughly 15 percent of sales in 2016 can be attributed to concerns about potential firearm restrictions. From January through August, NICS checks for sales of new firearms were down 11 percent over the same months in 2016. To a degree, as firearm sales go up and down, so do sales of ammunition, accessories and related services.

While a decrease of 11 percent in firearm sales may not seem so bad for an industry that experienced significant annual increases for years, the impact on firearm manufacturers was worse. Heading into the final months of the election, polls pointed to a Hillary Clinton victory — giving gun control advocates a greater chance to affect new firearm restrictions. Considering manufacturers need to plan production well in advance of shipments, orders were placed in expectation of the Democrats capturing the White House. When the Republicans won, the percentage of the U.S. market based on concern of future restrictions shrank rapidly — but the large factory orders were already on their way. Inventory levels throughout the channel increased significantly, and with demand lower (for the first time in a long time), incentives and discounts were introduced and promoted to move product.

Reduced sales, coupled with discounting, caused net revenues to fall even faster than unit sales. Many of the late entries into the firearms and ammo markets have likely struggled the most.

Based on feedback from the trade, MSR sales, followed by semi-auto handgun sales, fared worse. These were the markets that had the greatest percentage of sales based on concerns about future firearm restrictions, and therefore had the most to lose in this market correction. Hunting and shotgun sports performed better. During the big sales run-up, bolt-action rifles, shotguns and related accessories did not experience sales gains as large as MSRs and many handguns, but they now sit in a safer spot.

Recently, the U.S. Fish and Wildlife Service (USFWS) reported a 16 percent drop in hunting participation since 2011. This trend comes from a major survey conducted every five years by the U.S. Census Bureau. This survey has been an important data source for our industry, assisting with planning and wildlife management for decades.

However, due to fiscal concerns, changes in methodology were necessary, meaning the results from the recent 2016 survey may not be fully comparable to the previous 2011 version. A special task force assembled by state fish and wildlife agencies is looking at this issue, and until then, remain skeptical on this number.

For now, a better gauge of long term trends would be state hunting license sales, which increased almost 5 percent from 2011 through 2016, according to data from the USFWS and a monthly survey of states by Southwick Associates for the NSSF.

Growth Opportunities In 2018?

Going forward, the firearms market may contract by another few percentage points through early 2018 — but then should find its new balance point. Of course, any shocks generated by unexpected political actions and events can change this assessment (such as recent tragic events in Las Vegas and Sutherland Springs, Texas). Even at this level, the trade will be significantly larger and stronger than it was in 2008, when rapid growth began. Firearm sales will likely contract, but not nearly as much as seen in 2017. Many of our industry’s consumers are now looking at improving their shooting experience versus acquiring a new firearm. On-gun and off-gun accessories sales should remain steady, as will services such as ranges. Despite some inventory and retail issues, the industry remains strong.

If more suburban and urban ranges could be opened, there would be more opportunities for growth. Demand is under-served in these areas, based on recent Southwick Associates market research. Also, the communities showing the greatest growth in hunting and firearms interest appear to lie within the suburban-urban fringe — not traditional markets. Previous research by Responsive Management showed most target shooters won’t travel more than 30 minutes to visit a range. We speculate a significant percentage of the U.S. population lives further than 30 minutes from an available range. Until such opportunities become available, we expect growth to be constrained.

Hunting will remain steady. As mentioned earlier, many public voices will discuss the reported 16 percent decline in hunting, but we don’t see this. State hunting license sales over this time period have increased, and newer, younger hunters are entering our ranks. Granted, we need more new hunters to replace the aging baby boomer hunters, but the new hunters are identifying with the hunting lifestyle — wanting not just hunting gear, but clothes, camo and other items to promote their outdoor interests every day. Our outdoor media research shows these younger hunters are avid users of online and social media, so don’t hesitate to expand and mix-up your marketing and advertising to reach this growing audience.

A growth area for target shooting and hunting are the newcomers in their late 20s to mid-30s. Mostly from the millennial generation, they value new experiences and trying creative activities. Through multiple factors over the past eight years, they have discovered the fun and excitement of the shooting sports. For them, target shooting is largely a social activity, a way to have fun with friends while developing a skill, according to our recent consumer segmentation research.

However, as is common with their generation, they’re quick to move on to new experiences. Whether MSRs, shotgun sports or handguns, it’s important for the industry to constantly market to these new customers — reminding them of the fun to be had and of new shooting experiences to try. For long-gun users, we should encourage them to try 3-Gun, for example. For indoor ranges, consider more virtual shooting simulations and moving targets to keep it fun. The closer our industry can come to offering some form of “Top Golf” experiences for our customers, the more sales we will experience. If we don’t, we’ll lose these new customers and some of our 2008–2016 growth to other recreational activities.

Meet Their Needs Today

Moving forward, dealers will need to work smarter for each sale. Recent research Southwick Associates conducted for the NSSF shows high levels of interest from communities we too often overlook: Hispanics, African-Americans, millennials, women and more. Catering products, messaging and special events to these often-urban communities will help boost sales. Be sure your sales staff is welcoming, and understands these customers may not have a background in firearm ownership and will have many reasonable questions. Market to them in their preferred media, provide basic instruction and emphasize safety, which was shown in recent Southwick Associates’ research to be the top concern of these new customers.

An online presence is critical. As our older customers age out, the replacements are younger and internet-dependent. They gather information online prior to visiting a store, if they visit a traditional store at all. Will they find your store or brand online when doing their background research? Even if they’re aware of your business, if you’re not online, many of these younger consumers will not consider you relevant and take their business elsewhere. It’s just as important to keep your web and social media presence fresh and up-to-date or you also risk being seen as irrelevant, regardless of how good your offering and in-store presence may be — especially among first-time firearm purchasers.

As for particular products, accessories should do well. Promote rail accessories to MSR and tactical handgun owners. Many of these owners spent much of the past eight years buying multiple firearms, and are now ready to add accessories. Have sales staff ready to educate the benefits of various accessories such as red dot sights, night vision and more. The majority of them may sell their second or third MSR on the used market, which will depress new sales, but will also free up cash for accessory purchases. We expect hunting and shotgun sports sales to remain steady.

Parting Thoughts

For dealers and manufacturers, the market is more competitive than ever. Rapid growth in recent years encouraged new competitors to enter the market. To grow, you need to know the distinct consumer segments that make up the market. Relating to the needs and motivations of each major firearms consumer segment will generate greater response and sales, and pushing one-size-fits-all products and marketing won’t be as effective. Southwick Associates and the NSSF recently produced information describing the eight distinct segments of the firearms and accessories market, what they want from firearm ownership, how they shop, preferred products, annual spend and more.

Visit www.southwickassociates.com for additional information.

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