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November 24, 2014

Gun Shy: Firearm makers anchored to CT

Photo Illustration c!; Sources | Africa Studio & Prapann,
PHOTO | Contributed Handgun sales are expected to rise, even as rifle sales drop off.
PHOTO | Pablo Robles Colt's West Hartford manufacturing facility continues the company's 167 year tradition in Connecticut.
PHOTO | Pablo Robles Scott Wilson, president of the Connecticut Citizens Defense League, says small gun dealers suffer more.

Connecticut gun makers and dealers say they want to leave the state but actually pulling the trigger on a move has been easier said than done.

Nearly two years after threatening to leave Connecticut entirely after lawmakers passed comprehensive gun control laws following the Sandy Hook Elementary School massacre, only one gun manufacturer has made a public show of leaving the state; the others — particularly the largest industry players — remain tied here by history and/or tough financials.

“If it weren't for the large amount of capital they have in Connecticut, the gun companies would be gone,” said Brian Ruttenbur, a gun industry analyst for Stamford investment research firm CRT Capital. “But I don't see any time in the near future that any of the big Connecticut gun makers are going to move. It is just too expensive.”

Gun makers like Colt Manufacturing of West Hartford, Sturm Ruger of the Southport section of Fairfield, O.F. Mossberg & Sons of North Haven, and Stag Arms of New Britain — some of which can trace their Connecticut roots to before the Civil War — face the same pros (highly trained workforce, established supply chain and proximity to New York and Boston) and cons (high energy costs and property taxes, a unionized workforce and a tough regulatory environment) as other manufacturers when considering an out-of-state move.

But the big difference between the firearms industry and all other Connecticut manufacturers is the highly charged political nature of the gun business. Even though selling guns to Connecticut residents makes up a sliver of their global sales, being headquartered in a state known for being unfriendly to their core product gives gun makers extra incentive to want to be elsewhere.

“Nobody in the gun business wants to be associated with Connecticut,” said Scott Hoffman, president of Hoffman Gun Center & Indoor Shooting Range in Newington, which sells guns and ammunition.

Hoffman said revenues at his business have dropped 25 percent since the post-Sandy Hook gun control laws that ban assault weapons, limit the capacity of bullet magazines, and require more permitting of people to carry guns.

“My family has been in business in Connecticut since 1919, and I can't wait to get … out of this state,” Hoffman said. “There are a lot of states in the union that love what I do.”

Moving On

Of the companies that had their feathers ruffled during the 2013 gun control debate, PTR Industries was the only gun manufacturer that moved entirely out of Connecticut.

In April 2013, following passage of the law that banned its only product, PTR left Bristol for a small town near Myrtle Beach, S.C. As part of the move, the company took 24 of its Connecticut employees and hired an additional 120 in South Carolina.

PTR — like Colt, Ruger, Mossberg, and Stag — declined to comment for this story.

While PTR outright left Connecticut, other gun makers instead have opted to curb their Connecticut footprint.

Ruger remains headquartered in Southport but does all it's manufacturing in New Hampshire, North Carolina, and Arizona. Mossberg in July significantly ramped up its manufacturing at its Texas plant, installing a 116,000-square-foot addition, while lowering — but not eliminating — production at its North Haven facility.

There's also the case of the Freedom Group, the North Carolina manufacturer of gun brands like Remington and Bushmaster. Eight days before the Sandy Hook shooting, the state Department of Economic and Community Development offered Freedom Group a $1 million low-interest loan to move its headquarters and 25 employees to Stamford.

Less than a week after Sandy Hook, that deal fell through and the company never came to Connecticut.

“In the wake of these very restrictive gun control laws, they have to deal with the consumer reaction,” said Mike Bazinet, director of public affairs for the firearms industry trade association National Shooting Sport Foundation, which is headquartered in Newtown. “There is no question that some damage was done to the brand equity of these companies because their products have a 'Made in Connecticut' stamp on them.”

Gun dealers are in an even more dire situation, particularly smaller shops, said Scott Wilson, president of the Connecticut Citizens Defense League, which advocates for gun rights.

While the Connecticut market only makes up a sliver of a manufacturer's global reach, local firearm dealers rely exclusively on people buying guns in Connecticut. While large retailers like Cabela's and Dick's Sporting Goods can absorb the losses easier because they sell a larger variety of non-firearm products, Wilson said smaller shops like Hoffman Gun Center that are more reliant on gun and ammunition sales have had to shoulder sales reductions as high as 25 percent.

Fall deer gun hunting season started Wednesday.

Political Perception

Despite firearm makers and sellers dissatisfaction, the gun control measures enacted by Malloy and the state legislature following Sandy Hook were supported by the majority of the state's residents and didn't outright ban people from owning weapons, said Andrew Doba, spokesman for the governor's office.

The measures that were passed — elimination of high-capacity magazines, background checks for all gun purchases, and banning assault weapons — don't restrict law-abiding citizens from owning or using guns in a responsible way, Doba said.

“The measures we passed have made the state safer and are supported by the vast, vast majority of residents,” Doba said.

Ultimately, gun makers are businesses, and despite political perceptions, the decisions they make are driven by whether it helps the bottom line, said Andrea James, vice president and senior research analyst for Minnesota brokerage firm Dougherty & Co., who specializes in the firearm industry and tracks Ruger's financials closely.

“Although firearms sales are down quite a bit in 2014, the industry in general is well-situated,” James said. “Americans are still buying firearms at near record-high rates, and that is attributable to demographic shifts, more new shooters, and the growing appeal of shooting as a hobby.”

Down year in a growing market

Gun sales, particularly military-style rifles, reached record-high levels following Sandy Hook, as fear of state and federal gun control measures drove up demand. At Ruger, firearm sales reached $679 million in 2013, an increase of 40 percent from 2012 and more than double the total annual sales in 2011, 2010, and 2009.

“If someone said, 'You couldn't buy anymore cakes,' everyone would rush out and buy all the cakes they could,” Ruttenbur said. “It is the same thing here.”

Because of that spike in late 2012 and all of 2013, gun sales slowing this year.

Sturm Ruger said its third quarter sales fell 42 percent to $98 million from the third quarter of 2013, financial filings show.

Meantime, Colt's sales fell 22 percent during the first six months of this year, dropping to $100 million from $128 million a year earlier. Amid the ups and downs of the market in 2013, Colt also went through a restructuring, combining its sporting/civilian and military/law enforcement divisions into one entity as part of a $61 million merger.

On Nov. 13, Colt disclosed it was at risk of defaulting on $10.9 million in interest payments, but was able to secure a $70 million loan last week from Morgan Stanley to stave off delinquency.

Recent revenue declines, however, are more of an aberration than trend because of the spikes that came post-Sandy Hook, Ruttenbur said.

Even though military rifle sales will continue to drop as the U.S. winds down its foreign wars, the demand for guns — particularly handguns — will increase.

The FBI's National Instant Criminal Background Check System — which gun dealer's call to check on potential buyers before selling them guns — shows demand for fire arms has had a 9 percent growth rate over the past decade, said James, the industry analyst from Dougherty & Co.

“Gun sales are on a long-term upturn, with a lot of peaks and troughs in between,” James said.

Staying home

For an eight-year-old company like PTR with less than 150 employees, moving completely out of Connecticut is going to be a lot easier than for a 167-year-old company like Colt with more than $275 million in annual sales.

“If it wanted to leave, Colt would have left in 1993 or 1994 right after the first assault weapons ban,” Wilson said. “They were founded here, and they feel like it is their heritage.”

All sentiment aside, the money it takes to completely relocate is significant, Ruttenbur said. Colt, for example, had $302 million in debt and capital lease obligations last year, so even despite the large spike in post-Sandy Hook gun sales, the company ran a $137 million deficit in 2013.

Sturm Ruger, on the flip side, turned a $111 million profit in 2013. But most of its large manufacturing facilities are located out of state; its only Connecticut properties are 10,000 square feet of office space in Enfield and 25,000 square feet for its Southport corporate headquarters.

Despite the relative ease or difficulty a gun maker faces leaving Connecticut, the fact of the matter is after their long-fought battle over gun control, nearly all of them remain in the Nutmeg State. Whether that continues to be the case in the future is unknown.

“Firearms manufacturers are really simple businesses. They cut metal into widgets and sell those widgets,” James said. “If the dominant political stance in the state is to be wary of those widgets for an extended period of time … I can see where the manufacturers might want to go someplace that feels more welcoming.

“That would not surprise me; it makes good business sense,” James said.

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