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.