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In 2018, AcuSport — one of the country’s largest gun wholesalers — filed for bankruptcy. Two years before, the company had bet big on a Hillary Clinton victory, stocking up on inventory in the hope that simmering anxieties about tighter gun laws would drive record sales. Instead, Donald Trump was elected president and fears about gun confiscation cooled. AcuSport, saddled with more guns than it was able to sell, couldn’t turn a profit. The company struck a deal with an even bigger wholesaler, Ellett Brothers, to offload its remaining stock at reduced prices. But a year later, Ellett announced its own bankruptcy.
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Ellett then sold off the rest of its inventory, and at closeout prices. This undercut the sales of smaller, regional wholesalers, and forced them to discount their own guns. Before the end of 2019, four more wholesalers — L.M Burney, Williams Shooters Supply, Green Supply, and Lew Horton — announced that they would close down.
Amid this turbulence, a very different narrative of the industry was taking shape. In 2019, the FBI was on track to set a new record for instant background checks, seen as the strongest indication of firearm sales. Larry Keane, general counsel for the National Shooting Sports Foundation, the industry’s trade group, told TheWashington Examiner that the gun business had “reason to celebrate in 2019.”
The cause for the apparent incongruity? Top executives from shuttered wholesalers say that despite record sales, many companies have stopped making money on individual transactions. “It wasn’t so much a lack of sales, because we were doing enough sales volume to run our businesses OK. But it was the profitability,” said Kent Williams, the last CEO of Williams Shooters Supply, which announced its closure last November.
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He said Ellett’s massive closeout sales compounded an already out-of-date sales strategy: A growing number of customers were turning to the internet for their guns and gun accessories, and Williams had no presence there. Specialist manufacturers had also begun selling directly to local dealers, which lowered prices. His company couldn’t compete. “We lost money three out of the last four years,” Williams said.
Firearms distributors operate much like wholesalers in other industries, buying guns in bulk from brand-name manufacturers like Glock or Smith & Wesson, and then selling those guns to local dealers at a markup. The dealers do the same, so that a product, by the time it reaches a consumer, has seen three price increases, made by the manufacturer, the wholesaler, and the dealer.
In theory, the system ensures that everybody makes a profit, and prevents manufacturers from having to maintain relationships with each individual store that carries their products. (As of January 2020, there were more than twice as many registered firearms dealers in the United States as there were McDonald’s and Starbucks combined.)
When manufacturers sell directly to dealers, or distributors sell directly to consumers, one of those price increases is avoided. The result is a lower price, one that few companies operating under the traditional model can match.
“I’ll give you an example,” said Paul Connolly, manager at the Rhode Island gun store Bullseye Shooting Supplies Inc. “A customer came in the other day and asked for a quote on a Ruger AR pistol. Based on what I have to pay for it from the distributor, my price was $779. The minimum cost on that gun for me” — that is, the price from the wholesaler — “is $669. But this customer goes online, and he buys that same gun for $579.”
Connolly couldn’t recover this lost profit. He said last year’s record American firearm sales, which might have kept business thriving despite lowered prices, were not evenly distributed across the country. Bullseye sold 9 percent fewer guns than its average year in 2019. Connolly surmised that this was because Rhode Island experienced neither a high-profile mass shooting nor the prospect of new gun reforms.
A Trace review of FBI background check data from 2018 and 2019 supports Connolly’s suspicion. Rhode Island, along with every other Northeastern state, saw a decline in reported background checks for gun sales between 2018 and 2019, even as the national total increased.
The CEO of one recently closed wholesaler also based in the Northeast, who asked us not to use his name, took Connolly’s argument one step further. He contended that high-profile gun violence across the country — which typically intensifies demand for guns — had actually hurt sales in his part of the country. “No one wants to buy guns in light of all these horrific mass shootings that keep happening,” he said. “I was in business for [over 50] years and we always made money until the last two. There’s just no business left.”
Manufacturers, too, seem to be aware of the market’s weakness. In a December 2019 issue of Shooting Industry, a popular trade publication, Kenyon Gleason, the president of the National Association of Sporting Goods Wholesalers, wrote that most manufacturers with whom he spoke in 2019 called the year “very slow,” despite increased background checks.
“I’d pay a lot of money,” he wrote, “to understand the dichotomy between those [background check] numbers and what I hear every day out on the street and in the boardrooms of gun makers and distributors alike.”