Business Week reports what TTAG flagged earlier: Smith & Wesson’s product diversification and expansion has hurt the brand’s bottom line. Oh wait; that’s not the official explanation. “Gun maker Smith & Wesson Holding Corp. said on Thursday that its first-quarter net income was half of what it earned a year earlier, when gun buyers stocked up because of worries about potential new regulations. The company said it earned $6.2 million, or 10 cents per share, during the quarter that ended July 31. That was down from almost $12.4 million, or 21 cents per share, during the same period last year . . . Revenue fell 6.7 percent to $94.9 million, from $101.7 million a year earlier.” So what exactly IS happening here?
Smith & Wesson said sales in its firearm division fell 21.9 percent to $77.8 million, after setting a record during the same period last year.
In fact, the picture would have been MUCH worse for the firearms makers’ ledger if not for good things going down on the company’s Perimeter.
Smith & Wesson’s new Perimeter Security business, which it bought on July 20, 2009, reported sales of $17.1 million for the most recent quarter, up 60 percent from a year earlier.
So, you ask, why would I rail against product diversification when diversification helped save S&W’s behind?
Ask the average gun buyer “What does Smith & Wesson make?” Do you think they’ll say “the world’s best hunting AR?” Smith’s decision to chase the boom and bust AR market was short-term thinking that ran counter to the “tighter is always better” school of branding. Remember: the brand exists inside the consumer’s mind, not the company’s.
But it’s not just an external/marketing issue. When a company diversifies into seemingly related but fundamentally different businesses, it tends to lose its mojo for the main enterprise. Ambitious execs within the firm are drawn to the new, sexy business likes moths to a flame. Although Smith is doing this . . .
It said it began shipping its new “Bodyguard” pistols in July, which are designed for people with a permit to carry a concealed handgun. It said the new guns are sold out through December.
it’s late into a market exploited by Ruger’s LCP and now LCR. It’s no coincidence that Ruger recently overtook Smith in total U.S. sales.
Bottom line: Smith & Wesson is spreading itself too thin. Anyone want to guess how many products they make? Some of them are the best in the world. Some of them aren’t even close.
No premium brand built on product excellence can afford to build anything less than the best, in any given category. By doing so, Smith’s diluting the brand and sowing the seeds for its long-term decline. Given the strength of the Smith & Wesson brand, it could take decades for the company to really hit the skids. (Again.) But mark my words, Smith & Wesson needs fewer products, not more; and more marketing for each of those products, not less.
And I say this from a place of love.
How many full size, double action .357 revolvers does Ruger make? One, the GP100. Now ask the same question about S&W. There are so many models with hard-to-remember designations (the model 28, 627, 686, 686 plus, 386, etc.). They have the Champion Series, Performance Center Series, Classic Series it goes on and on.
I'm a fairly well versed, knowledable gun enthusiast and I can't even come close to keeping track of their various models. I shouldn't need a crib sheet in order to anylize my options and make an informed purchase. No other manufacturer comes to mind with this same level of dizzying complexity in their product line. Oh one other company does in a different industry; General Motors. But they're doing fine aren't they?
Beyond that, what's S&W's identitiy in the market? Ruger is "built like a tank", Taurus is the affordable option. Sure they're the grandaddy of American gun makers and their fit and finish is outstanding but for $100 more than a Ruger I should be able to shoot as many magnum rounds as I want. I think the average gun buyer wants a gun, not an heirloom (with an internal lock).
What gets me is when I see S&W / Browning / Colt branded knives that are "made in China"! I'm sorry, but I'm not supporting a major American manufacturer who chooses to devalue their brand with Chinese junk. It's one thing for Walmart to offer a no-name cheapo Chinese knife – maybe I'd get one for the tackle box. But not if it says Colt on it. The sad part is, I'd pay good money for a high end, American made Ruger Bowie to go with my Blackhawk.
Smith and Wesson revolvers are the stuff of history. They aren't just recognized, they're iconic. From Barney Fife's Model 10 to Dirty Harry Callahan's Model 29 to Barney Miller's Model 36, everybody knows that if you're looking at a revolver (and you're not watching a cowboy movie) it's probably a Smith and Wesson.
It's nice to see that S&W has finally settled on a solid, modern, reliable semi-automatic design, but I think the M&P series is as far as they should get from the basic revolver market. Remember, S&W sold poor-quality rifles and shotguns (usually made on worn-out machinery by Howa) in the 1970s and 1980s, shortly before the nadir of their existence during the Clinton years.
S&W faces very tough competition from Taurus and Ruger. Both of them use advanced manufacturing methods which lets them sell their guns for less. Rugers use alloys and investment-castings for many revolver components instead of hammer-forged steel, and Taurus makes heavy use of automation (and lower-cost Brazilian labor) to reduce production costs. Smiths will never be cheaper than Tauruses, but buyers will subconsciously be willing to pay a premium for an American-made gun, made of steel. I'm glad I got one back when they were cheap.
RF, is this the start of a new "S&W Deathwatch" series? It may seem a little early to play Cassandra to S&W's Caesar, but you were dead-on when you called GM's decline and collapse years before it happened. S&W would do well to pay attention.
If they offered their revolvers without safety locks I'd start buying their products again.
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