The Gun Industry's Deadly Addiction

By Tim Dickinson, Rolling Stone

08 March 13

 

Firearms manufacturers are betting their future on the military-style weapons used in Newtown and Aurora

or gunmakers, the political fight over assault rifles and high-capacity pistols is about more than just profits - it's about the militarization of the marketplace and represents a desperate bid by gunmakers to prop up a decaying business. The once-dependable market for traditional hunting guns has fallen off a cliff. To adapt, the firearms industry has embraced a business strategy that requires it to place the weapons of war favored by deranged killers like Adam Lanza and Jared Loughner into the homes and holsters of as many Americans as possible. "They're not selling your dad's hunting rifle or shotgun," says Josh Sugarmann, executive director of the Violence Policy Center, a top industry watchdog. "They're selling military-bred weaponry."

As recently as 2008, shotguns, rifles and other traditional hunting weapons made up half of all new civilian gun sales in America, according to SEC documents - a brisk billion-dollar business. Today, hunting guns account for less than a quarter of the market, and the hunting industry is forecasting a 24 percent drop in revenue by 2025. Gunmakers are on the wrong side of the same demographic curves that haunt the modern Republican Party. Its customer base is too old, too white, too male and too Southern. According to Gallup, 61 percent of white males in the South own guns today. Nationwide, just 18 percent of Latinos do. "The white males are aging and dying off," says Sugarmann. Flooding the market with battle-ready guns, he says, "is an effort to find one new, shiny thing to sell them."

For the moment, that strategy is paying handsome dividends. Handgun sales have jumped 70 percent since 2008, racking up an estimated $1.5 billion in sales last year. Powerful pistols - sold under brands like Beretta, Glock and Ruger - have replaced traditional hunting guns as the industry's cash cow. Revenue from assault rifles is growing at an even faster clip - having doubled in the past five years, to $489 million. Gaudy profit margins have become the norm: Top gunmakers enjoy gross profits of 30 percent or more. Ammunition manufacturers, too, boast of being fat and happy. And it's no wonder: AR-15 enthusiasts brag they can fire up to 400 rounds in 60 seconds. Paying roughly 50 cents a bullet, such shooters are blowing through $200 worth of ammo in a hot minute.

Much of the industry's recent success is linked to politics - in particular, to the gun-buying public's anxiety about the first black man in the White House. The phenomenon is reflected in Smith & Wesson's SEC filings, which trumpeted "strong consumer demand for our firearm products following a new administration taking office in Washington, D.C., in 2009." Sen. Mark Pryor of Arkansas has joked that Barack Obama is "his own stimulus plan for the gun industry."

Trade magazines used to fret that the "Barack Boom" would be a short-term spike in revenues. Instead, the Obama presidency appears to have catalyzed durable growth. "Everyone was concerned that consumers were hoarding, hoarding and hoarding," Steve Hornady, president of ammunition-maker Hornady Manufacturing, said recently. "Well, if they've been hoarding, they've been hoarding for the last four years, because...business has never been better for all of us." The FBI background checks that the industry looks to as a proxy for gun sales have been rising year over year for more than 30 months. And the president's re-election appears to be driving a new boom even bigger than the first. Background checks for November 2012 jumped by 400,000 - surpassing 2 million for the first time.

Perversely, the Newtown massacre has only added to the wave of panic buying - as consumers stockpile weapons that could be outlawed. The FBI performed an astonishing 2.78 million checks in December. January dipped to 2.5 million, but that may only be because industry can't keep up with demand. "Currently we are over 1 year back ordered on rifles," reads an online notice posted by AR-15 maker Stag Arms. "We are not taking orders at this time."

This sales boom papers over a perilous trajectory for the industry. A generation ago, more than half of American households owned a gun. Today it's barely one in three. Millennials, in particular, do not share their parents' love of firearms: Less than 20 percent of Americans born after 1980 report having a gun in the home. "For the industry, the problem is 'Who is going to buy the guns?'" says Sugarmann. "To borrow the language of the tobacco industry," he says, "they need to find 'replacement shooters.'"

To survive, much less thrive, gunmakers are feverishly seeking to break into unconventional demographics; to con existing gun owners into expanding their arsenals; and to capitalize on the demand of black markets. You can learn a lot about an industry by looking at whom they target for profit.

1. Hook the Kids

To goose future growth, the gun industry is aggressively marketing guns to children as young as the first-graders slaughtered in Newtown. "By the time kids are in fifth grade, or even before, they're already being pulled away by the allure of video games, organized sports or other activities," said Bud Pidgeon, president of the U.S. Sportsmen's Alliance, which along with the National Rifle Association and three other prominent gun groups oversees Families Afield. In less than a decade, Families Afield has pushed more than 30 states to jettison regulations that protect kids from guns - removing age restrictions on hunting licenses or no longer requiring that children take a gun-safety course before going hunting with Dad.

The seduction of youth goes far beyond hunting. Online ammo superstore MidwayUSA is particularly aggressive in promoting youth shooting, sponsoring events like National Take Your Daughter to the Range Day, for "girls six and up." A photo posted on the event's website under the heading "Shoot Like a Girl" shows a dad helping his daughter, perhaps eight years old, aim an AR-15 with a collapsible stock and a monster clip.

Top industry players also support a magazine called Junior Shooters - gun porn for children as young as eight; a recent edition featured a photo of a Rock River LAR-15 assault rifle under the headline awesome! The magazine entices advertisers with the promise of reaching "the next generation of shooters and voters!" And many of its articles are written "for kids, by kids" like the piece by "Winchester" Reed Harrison titled "I Love Cowboy Action Shooting" - a sport in which shooters pretend to be Wyatt Earp by firing real-life rifles, pistols and shotguns. The nine-year-old columnist writes fondly of learning to shoot at age four, adding, "I love my guns because they are cool in every way."

2. Seduce the Ladies

Gunmakers are acutely concerned about the gender gap. Just 15 percent of women nationwide personally own a gun - a third of male gun ownership. For the industry, women are seen not only as lucrative customers in their own right, but also as gatekeepers to the coveted child market. The hunting industry lives by the motto "If you teach a man to hunt, he goes hunting. If you teach a woman to hunt, the entire family goes hunting."

To target urban and suburban women, gunmakers have adopted a two-pronged marketing strategy. One: Feminizing the weapons by dressing them up in hot pink. Two: Marketing powerful guns to women as the only surefire protection against sexual and violent predators. Shooting Industry Magazine publishes a column called "Arms and the Woman," which advises that "every gun store should have at least one pink gun on display." This is a crowded field: Sig Sauer offers a ladies' version of its conceal-carry "Mosquito" pistol with a "pink-coated polymer frame" that it calls "the ideal choice for hours of shooting fun." In a similar vein, GunGoddess.com sells a kit to trick out an assault weapon with a pink hand guard, pistol grip and butt stock - transforming an AR-15 into something that looks like it belongs at a Hello Kitty convention. (The same retailer also offers a wide array of conceal-carry couture, from purses with hidden gun compartments to the Flashbang "bra holster.")

When it's not making guns cuter for women, the industry is preying on their fears. Laura Browder, author of Her Best Shot: Women and Guns in America, has described the archetypal gun ad: "The police are nowhere to be found; it is up to a woman alone to ward off the sexually threatening 'predators' of the city." Only with a gun, the industry tells women, can they defend themselves "against anonymous violence, a task that the government is clearly not up to." Gunmaker FN Herstal designed its Five-seveN pistol to fire rounds that can pierce body armor on the battlefield. Back in 2000, a leading gun magazine deemed it "obvious" that "neither the gun nor the ammunition will ever be sold to civilians." Today, it's marketed as a "Ladies' Home Companion."

To understand the face of the modern women's gun market, look no further than Adam Lanza's mother, Nancy, says Tom Diaz, author of a new book about the industry, The Last Gun. Nancy was an upscale suburban mom and lifelong gun enthusiast who reportedly lived in fear of economic and social collapse. To protect herself from the faceless evil that might break into her home, she didn't just buy a single gun - she compiled an arsenal worth thousands of dollars and trained with her son at local shooting ranges. "She was the perfect customer," says Diaz, "the perfect manifestation of how they want to sell guns."

3. Turn Shooting Ranges into Live-Action Video Games

For a younger generation raised on graphic video games, shooting at paper targets or "plinking" bottles and tin cans doesn't carry much appeal. So the industry has come up with some new ways to make shooting more like playtime. A firm called Zombie Industries manufactures life-size mannequins for target practice. Some models "bleed" fluorescent goo when shot. Others respond to gunfire in a more lifelike fashion, opening up gaping chest wounds and "bursting into little pieces of blood-soaked zombie matter when you shoot them." The manufacturer offers a wide line of "zombie" targets, including "the Terrorist" - an undead bin Laden - and, more troubling, a blood-soaked, buxom woman-target called "The Ex."

Firing ranges now offer zombie-themed hunts. "Shooters must battle their way through a Zombie Assault Course to save us all from these undead people eaters," advertises one Florida range. The industry itself is also cashing in on the craze, selling zombie-branded accessories, including sights that use a biohazard hologram instead of cross hairs for aim. Ammunitions giant Hornady has even rebranded its Critical Defense line of bullets as Zombie Max. "This is an incredible marketing strategy," one dealer told Shooting Industry. "If you set Hornady Critical Defense next to Zombie Max ammunition, a young customer is going to grab the Zombie ammo. The old-timers don't care much for it, but the younger shooters love it."

Obama and Romney Both Failed the Gun Control Question

Zombie shooting is part of a broader trend described in the trade magazine: "Gun dealers are rebranding themselves and marketing their businesses as part of the entertainment industry." Nowhere is this more in evidence than Las Vegas. Tourists at the Range 702 can plunk down on the "Prohibition" package - which promises a "great experience of the mob days," including shooting a tommy gun - or the "Black Ops" package, which was "created for all you Call of Duty fans" and offers "high adrenaline guns," including a military SAW machine gun, to "bring out the inner Special Ops in you!"

4. Prep the Preppers

If zombie hunters train for apocalyptic scenarios as entertainment, there's another dedicated breed of buyer who is stockpiling weapons out of true fear of social collapse driven by dark forces outside of their control - whether it's a superstorm, rampant inflation or an out-of-control government. Through the end of 2012, Stag Arms sold an "Executive Survivors Kit" - a wheeled briefcase containing an AR-15, two high-capacity magazines, 60 rounds of ammo, a first-aid kit and even a military field ration - all for the Mayan-apocalypse-worthy price of $2,012.

If some in the gun industry just want to profiteer from the fear of preppers, a few gun figures themselves have joined this subculture. Take James Yeager, the CEO of Tactical Response, a Tennessee company dedicated to "providing the highest-end firearms and tactical training" to civilians who believe they require battlefield readiness.

As the gun-control debate heated up in Washington this winter, Yeager took to YouTube with a call to arms about the coming "civil war." He told his fellow "patriots" to "load your damn mags, make sure your rifle's clean, pack a backpack with some food in it and get ready to fight." Yeager ended his rant with a call to violence. "I'm not letting my country be ruled by a dictator. I'm not letting anybody take my guns! If it goes one inch further, I'm going to start killing people."

5. Supply Cartels and Criminals

The gun industry's dirtiest - and most open - secret is that it is profiting from the sale of guns that are illegally trafficked into Mexico to arm the drug cartels responsible for the deaths of tens of thousands of civilians. "Nobody has a clue how big that market is," says Diaz. "It's like drugs in reverse."

"Military-style weapons are arming Mexico's brutal drug trafficking organizations at an alarming rate," Dianne Feinstein wrote in a 2011 letter to her Senate colleagues. Nearly 90 percent of weapons seized in Mexico are trafficked from the U.S. "Many of these firearms came from gun shops and gun shows in Southwest border states," the GAO reported, decrying the "increasingly lethal weapons," specifically "high-caliber and high-powered" guns such as "AR-15-type semiautomatic rifles, which fire ammunition that can pierce armor often used by Mexican police." For the industry itself, the violent deaths of tens of thousands of Mexicans are of no greater concern than the mock executions of zombie dummies. In 2005, Congress granted gunmakers and gun dealers blanket immunity from civil damages resulting from the misuse of their products. The National Shooting Sports Federation has even gone to court attempting to block modest ATF efforts to track sales of assault rifles. In January 2012, a federal judge dismissed the industry's complaint - leading the NRA to grumble that this was just "more proof that the Obama administration is intent on blaming gun owners and the Second Amendment for a problem that is rooted in Mexico."

The industry is also fueling violence closer to home. Gunmakers reap money from a shadowy network of gun dealers that supply weapons to criminals and gangs that terrorize our neighborhoods and kill cops. An ATF report found that nearly 58 percent of crime guns traced in 1998 had been sold by just 1.2 percent of gun dealers. Thanks to the NRA and Congress, ATF is now prohibited from publishing such data.

With gun-control legislation facing an uncertain path in Washington, advocates determined to end the industry's bloodiest practices are pursuing reform through the free market.

Following the Newtown massacre, investor activism by the California teacher's pension fund spurred the private equity firm Cerberus Capital Management to exit the gun business. Cerberus has a broad ownership stake in the Freedom Group, the parent company of Bushmaster. "We have determined to immediately engage in a formal process to sell our investment in Freedom Group," Cerberus said in a statement just days after the killings.

Divestment from the gun industry is gaining momentum: Following Cerberus' lead, the hedge fund Tiger Global Management sold off the estimated 800,000 shares it owned in gunmaker Ruger and has vowed to steer clear of the industry. In February, California Public Employees' Retirement System voted to sell off $5 million in gun equities. Pension funds from the nation's biggest cities are joining the rush to exit the market: New York, Los Angeles, Philadelphia and Chicago have each committed to withdraw investments from gunmakers who profit from assault weapons and high-capacity magazines.

From Chicago, Mayor Rahm Emanuel is calling in chits from the world of finance, pressuring the CEOs of Bank of America and TD Bank - which extend credit to gunmakers - to use financial leverage to demand companies like Smith & Wesson and Ruger back an assault-weapons ban and universal background checks. Emanuel is also ratcheting up pressure on mutual funds like Vanguard and BlackRock to divest from gunmakers who oppose gun control in an effort to stop "military-style guns and magazines from ending up on the street and putting families, children and police officers at risk."

Purchases by police departments may provide a creative form of leverage. Minneapolis' mayor, R.T. Rybak, announced in January that he's in talks with mayors of about 60 cities to withhold police firearm and ammunition purchases from gunmakers that lobby against gun control. "We all ought to have a conversation as taxpayers," he said, "about whether our dollars should be used for people who are not working to reduce gun violence."

But even divestment is easier said than done. As of February, Cerberus was still scrambling to find a buyer for the Freedom Group - a horizontally integrated business that includes makers of handguns, hunting guns, assault rifles and even ammunition. Its sales volume is nearly double that of its top publicly traded competitors, and that's a problem. "There's not some 800-pound gorilla to buy it all," a top analyst told The Wall Street Journal.

If history is any guide, even the most restrictive political outcome now being considered in Washington could leave the industry laughing all the way to the bank. The assault-weapons ban now being proposed in the Senate repeats the cardinal sin of the 1994 ban - namely, it grandfathers all assault weapons "lawfully possessed" on the date of passage.

Under the 1994 ban, lawful possession included the inventories of dealers and manufacturers. By the time the law had worked its way through the legislative process, some had stockpiled up to 10 years' worth of supplies and magazines that were destined to become, in effect, legal contraband, which could then be sold at two and three times the previous price. Richard Feldman, a top industry lobbyist at the time, recalls his advice to manufacturers in the early 1990s - counsel that today's gunmakers are surely heeding: "Make as many guns and high-capacity magazines as you possibly can," he said. "Put your plants on three shifts, seven days a week. You won't get stuck with unsold product."