Click here to read gurufocus.com’s analysis of Smith & Wesson’s prospects. Here’s the money shot (IMHO): “The company was showing progress in its pursuit to diversify away from revolvers which constituted 41 percent of net product and services sales in 2006. By 2010, this number was at 19 percent.” The guru sees this as a good thing. I see it as a bad thing, as the company has lost its core focus and weakened one of the world’s best brand names by diversifying away from revolvers . . .

As we reported earlier, if not for Smith’s security business, they’d be you-know-whated. And this despite the surge in concealed carry weapon purchases, which propelled Ruger and its LCP ahead of Smith & Wesson in the U.S. sales charts. Smith & Wesson took its eye off the ball, making a range of not-so-wonderful not revolvers. They even chased and rode the AR-15 Obama boomlet—and got hit when the bottom fell out of the black gun market.

“Sales continued to decline and the management kept lowering its guidance and on January 22, 2008, it finally suspended providing financial guidance,” Mariusz Skonieczny writes.Golden explained it by saying, ‘We, like many other companies doing business today, find ourselves now in an uncertain business environment.'” With an uncertain plan to grow areas away from their core competency. Read ’em and weep. That’s their plan.

Smith continues to focus on growing their product range to cover every niche extent, putting sales turnover ahead of branding. This strategy misses the point: Smith should grow the gun market in general and the market for revolvers in specific. In other words, Smith should concentrate on converting non-gun owners to Smith & Wesson revolvers, rather than chasing existing gun owners with new Smith products.

The situation is eerily reminiscent of Coca-Cola. The world’s best known soft drink maker developed over a dozen new deeply cannibalistic products to protect market share—while neglecting to sell the idea of cola in general. They ended up spending big bucks to protect a big piece of a shrinking market, and bought non-cola companies to cover their mistake.

One Response to Smith & Wesson Headed for a Turnaround?

  1. I love these lines from the article: “It was no surprise that Smith and Wesson ranked first in the revolver and pistol categories [in a survey] but what amazed the management was that the company was rated third or fourth in shotguns, bolt-action hunting rifles, ammunition, and alarm systems for homes. The reason why this was such a surprise was because Smith and Wesson was not involved in any of these markets at all.”

    If somebody ranks me #4 in tap-dancing and submarine operations, I think I’ll stay aside.

    That said, S&W’s rescue knives look decent enough.

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