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November 1, 2018

Elections Have Consequences

By Josh Fiorini

Elections in the United States today have far-reaching consequences. What was once a small ideological divide between the Republican and Democrat parties is increasingly widening with every election cycle as our population, and by extension, our politicians, are becoming more polarized on issues across the economic and social spectrums. When power shifts between parties, businesses in all industries must be on their guard for changes in tax policy, labor laws and regulatory changes.

The shooting sports industry, perhaps more than most, must prepare for how elections affect not just future government interactions with our businesses, but demand levels for products as well. It is no secret that, for the past two decades, macro cyclical demand trends for commercial firearms have been driven almost exclusively by politics. An increase in realized power or even just rhetoric from anti-gun politicians can drive product demand to dizzying heights, as retail consumers develop a “get ’em while you can” mentality.

The demand boom following the spate of state-level firearms law changes (and federal rhetoric) in early 2013 was an extreme example of this, but we saw similar demand booms following both Democrat-dominated federal elections in 2008 and 2012. Conversely, an unexpected political win by parties or candidates in support of the Second Amendment can quickly take the steam out of a sales boom. This exact circumstance, counter to conventional non-industry wisdom, led to the slower sales cycle experienced by our industry in 2017, one that is just now returning to normalcy as high inventory levels driven by anticipation of a Hillary Clinton win have dissipated.

While it is true that the highest office in the land is safely in Second Amendment-friendly hands for the next two years, the House of Representatives is in play, as is one-third of the Senate and several key governorships. Historically, with very few exceptions, the midterm elections nearly always go against a first-term sitting President. Many of you will recall the 1994 Republican sweep so fundamental it became referred to in political science circles as a “realignment,” one of only five in U.S. political history. ABC News currently predicts a 75.2-percent chance Democrats will regain control of the House. The Senate contest is looking more friendly to Republicans, with fewer seats in play (as constitutionally designed), but a shift in power to the left at a national level, potentially amplified by similar results in statehouses, could lead to a return to the spotlight by anti-gun crusaders — and a very real increase in the threat to constitutional gun ownership to which consumers may respond.

With midterm elections around the corner, what can you do to prepare your business and help navigate the politically driven demand cycle? Quite a few things, it turns out.

1. Don’t Panic

As with most things in life, sudden reactions are usually overreactions. Panic also has a tendency to become contagious.

You will not be able to control consumer behavior, but you can control your reaction to it. The industry as a whole has gotten better at professionally tempering exuberance in these cycles, but it is still something that requires discipline. Keep a clear head and keep things in perspective. If numbers and demand seem too good to be true, they probably are. As a businessperson, part of your job is, of course, to seize the opportunities offered by cyclical demand increases, but at the same time, you can’t forget to manage your risk. Watch your inventory levels with a keener eye and keep close track of turn rates. Beware of making long-term investment decisions based on temporary demand. If you are considering an investment in response to cyclically driven demand that will take more than six to nine months to implement, reconsider it, because more than likely you will miss the cycle.

2. Discipline Ordering/Production

In a previous article, I discussed applying “lean methodology” to retail ordering and management. At no time is that more important than during the peaks and valleys of demand cycles. As the elections conclude and the consequences become known, carve out extra time in your schedule to analyze your ratios more accurately. Lean practices are based on pulling inventory when you need it, but the timing of that need is based partly on your typical lead or cycle time with a product, partly by that product’s availability. You may not be able to rely on your typical turn time numbers or delivery time numbers that inform your process normally. If you tightly monitor your actual results on a daily or weekly basis, update your formulas accordingly and discipline your ordering to be based only on hard numbers, you can navigate the demand cycle in such a way that you will capitalize on the opportunity while minimizing your inventory on the downslope.

3. Communicate

There are many steps in the process from the creation of a firearm to getting it into the customer’s hands. All those people involved in those various steps need to communicate effectively in order to deftly navigate a demand cycle.

If you are a retailer, talk to your distributors and find out what they are seeing on the ordering front. Call manufacturers to find out what their backorder logs look like (and do this even if you don’t order direct). If you’re a manufacturer or distributor, likewise, talk to retailers. The more information you have from all levels the better your decision making can be. When product is scarce it can lead to competitive circumstances in which some of these relationships may feel adverse, but they are not necessarily and they do not have to be. Remember that the competition for limited product exists for a limited time. Good communication can help all parties in the supply chain come out healthy when that competition is over.

Politics, like death and taxes, is a fact of life. We can’t fight consumer behavior, but we can learn from experience how best to react to it and plan accordingly.

Note: Remember the NSSF’s is the firearms industry’s top resource for information about the candidates running in the upcoming midterm elections, polling places, voter registration and early and absentee ballot voting for all 50 states.

About the Author
Josh Fiorini is the former CEO of PTR Industries, Inc. He spent the first decade of his career in finance, holding positions as an equity analyst and portfolio manager before starting his own hedge fund. This experience, along with a deep background in manufacturing, banking and private equity, has made him a sought-after contributor on numerous boards and discussion groups on political and economic issues for media outlets, corporations and community organizations. Fiorini currently invests his time and resources with non-profit initiatives and acts as a contributor and management consultant to various firms in the firearms industry as the founding and Managing Partner in the firm Narrow Gate Management.

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