After the windfalls of the Obama firearms sales spree, gun and accessory makers are huge declines in demand and its costing some of them dearly.
Just 10 days ago, Colt filed for chapter 11 bankruptcy after struggling to make payments on its $250 million in debt.
On June 22nd, tactical flashlight maker Surefire announced layoffs company-wide in response to declining demand and over-dependence on the military market.
This week, it’s firearms manufacturer Sabre Defense that is feeling the pinch. Sabre filed for Article 9 liquidation as announced in this press release:
Sabre Defence Industries, Inc. in cooperation with its secured creditors seek buyers for manufacturing assets in Spindale, NC. Spindale, North Carolina – Sabre Defence Industries, Inc. and its subsidiary Manroy USA, LLC have, in agreement with their secured creditors, agreed to work together to find a new buyer for the assets of the company. The Sabre’s manufacturing operation is located in Spindale, North Carolina. Manroy USA, LLC purchased the assets of the old Sabre Defence Industries, LLC of Nashville, Tennessee in 2011 and relocated to the operation to a 135,000 sq/ft facility in Spindale, North Carolina. The current, and new, Sabre Defence Industries, Inc. purchased Manroy USA, LLC at the beginning of 2014, which proved to be tough timing for such a purchase. Sabre Defence is best known in defense contractor circles for its production of the Stellite™ lined M-2 50 Caliber Barrels, as well as, M-2 bolts, M-10 charging handles, M-4 carbines and M-16 rifles. The civilian market once also held their MSR’s in high regard, many of which were hand fit with accurate barrels that were made in house. Michael H Blank who will be handling the deal on behalf of the company and its creditors said, “It’s definitely an operation that never realized its potential. The decision to not participate in the civilian market during the boom proved to be a mistake by the previous ownership and the present owners came in just as that marked ended. This left the current owners with a contracting market and no open market channels when no one wanted to add more vendors. On the military side they had to re-clear first article which takes time. At the end of the day it was just a matter of tough timing and not enough time to get this operation to sustainability.” All parties interested in making an offer on this companies assets are asked to go to www.GunFunder.com and on the Sabre page fill out the SDI interested parties form. All parties will be contacted and verified parties will be given access the online documents and an extensive photographic database.
The “contracting market” statement is one that is become more prevalent in the firearms industry. Firearms have gone from an emergency “get it before they ban them” buy to a luxury item purchase. Gas, groceries, obamacare and housing come first – that new pistol or rifle is being put on hold until consumers have more money in their pockets.
While over-committing to military contracts certainly hurt Colt, Surefire and Sabre, firearms manufacturers that are entirely civilian market-driven are also struggling.
PTR Industries, makers of find HK clones like the PTR 91 (HK91/G3 clone), has been notified that it is in default on the rent for its facilities.
In December, CNBC posted an article illustrating the softening demand and its impacts on Smith & Wesson which may have overbuilt heading into another recession:
The company also said it plans to offer “aggressive promotions” in coming months to protect market share. It acknowledged that gross margins could take a hit as a result.
Unfortunately, margins are already looking depressed. Gross margin for the quarter was 32.1 percent, the lowest level since the quarter ended in January 2012.
Sturm Ruger also reported declines in demand while inventories piled-up:
The strong demand experienced in 2013 remained through the first quarter of 2014 and much of the second quarter of 2014. However, during the latter half of 2014 demand for our products declined significantly, as a result of the following: the reduction in overall consumer demand, high inventory levels at retail, which encouraged retailers to buy fewer firearms than they were selling, in an effort to reduce their inventories and generate cash, aggressive price discounting by many of our competitors, and the lack of significant new product introductions from the Company. In 2014, sales to the independent distributors and the estimated sell-through of the Company’s products from the independent distributors to retailers decreased 21% and 20%, respectively, from 2013. The National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation) decreased 12% in 2014 from 2013. Demand for higher-margin firearms accessories, especially magazines, which was very strong in 2013, softened in the first half of 2014 and then decreased significantly in the latter half of 2014.
If there is any good news out of this, consumers will find amazing deals on firearms and accessories as retailers and distributors who have over-bought need to sell through the inventory glut quickly or risk their cash flow.
The economy as a whole is softening and the fear of gun-grabbing from this president is subsiding. Add in a huge decrease in military spending and things look dark. The firearms industry is settling into a new normal that will likely leave a few dead companies in its wake.