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David Neis
BPS4305.001
Sturm, Ruger & Co.
Executive Summary
This report is a look into the company Sturm, Ruger & Co to develop a plan of action for
the coming years to provide a strategic plan for their future success. The introduction will
provide some background history on the company, what problems they have, and what analysis
can discover a solution to those problems. An external analysis will be provided to determine the
current condition of the firearms or shooting market, a stakeholders analysis will be given to
show how those connected to the company are affected, and a use of Porter's five forces to see if
they are fit for continuation in the market. The internal analysis will provide the financial
numbers to how profitable they are, SWOT & VRIO analysis to provide a view of their strengths
along with weaknesses, a value chain analysis that shows how well the wholesalers, retailers, and
consumers are connected to their product, and an id of what is currently being done in the
company. Recommendations will be provided at the end to give a plan for future growth.
Introduction
Ruger is an American firearm company in Southport, Connecticut founded in 1949. Their
legacy started with creation of the Ruger Standard 22 pistol, a combination of a German Luger
pistol and a Colt Woodsman pistol. Since then, Ruger has established themselves as one of the
most popular firearm manufacturer's not only in the US, but the world market as well. Ruger
offers 30 different product lines that expand into more than 400 gun variations. This consists of
four lines of bolt action rifles, one line of falling block rifles, four lines of semi-automatic rifles,
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eight lines of centerfire pistols, four lines of rimfire pistols, five lines of double action revolvers,
five lines of single action revolvers, and one shotgun line. Some of these guns are completely
unique to them, but one of the things that Ruger does well is imitation and combination. Some
lines are almost straight copies of other products on the market, while some are a combination of
other products, think of the Ruger Standard mentioned previously. They do this very well and
while there are many companies who replicate there are few who combine favoring attributes.
All lines are made and assembled in America at the Newport, NH and Prescott, AZ factory.
These lines are primarily sold to the public consumers, though there are law enforcement sales as
well.
Ruger for the last 60 years has been able to hold strong with the majority of
manufacturers out there. Though their success has not reached its limit, they do need to look into
what can be done to be better. Some factors that could lead to a potentially higher market share
are development of a law enforcement program, expansion of value chain activities, increased
production capabilities, and development of unique products not just imitation of others. The
following categories will help lead to a decision in what Ruger should focus on to reach a higher
market share. Externally, this will review how the shooting industry is doing currently, how
current changes effect the stakeholders, and if they should continue according to Porter's Five
Forces. Internally, this will demonstrate their financial ability to change, provide a SWOT
analysis and VRIO analysis, take a look into value chain activities, and a detailed view of their
current business strategy. Finally there will be three recommendations that Ruger will take into
consideration, what will be considered the best potential strategy to change or continue, and an
outline of the plan to further the business's success.
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Eternal Analysis
The current state of the shooting industry is a strong yet weakened mess due to the events
of December 14, 2012. In the shooting industry one could easily forecast a busy season due to
politics, but what happened on that day could not have been foreseen in any way. That Friday a
school shooting in Newtown, Connecticut would start a rampage of political discussion as to
what should, could, or would happen to guns. From that day forward consumers were in a panic
to get a hold of any gun, ammo, magazine, or accessory they could find. Somehow the general
consensus was that our president was going to outlaw all forms of firearms and shooting, so if
you want it you should buy it now. This is where the industry became strong, people buying
what they would in a year in one sitting, multiple times over a couple weeks. The problem that
became of this is it was the industry year end. Most if not all manufacturers', distributors, and
retailers had let their inventory dwindle to reduce their taxes at the end of the year. On top of that
if you were a manufacturer you had stopped production almost completely for people to take
their holiday and prepare the new year's orders. In a two week period our store had sold the
amount that we do in an entire month, and for the next two months there was very little to
reorder. Our ability to sell had become weak in the supply of products, but demand was stronger
than ever. This wasn't just for our area, but it was nationwide. FBI statistics on the National
Instant Criminal Background Check System (NICS) show how the first two months of the year
accounted for more than five million sales, which had the highest recorded checks in the last 15
years. Since then the demand for product has decreased, but the amount of people who joined the
industry has increased the number of buyers and sellers. The industry has been slowly making a
recovery in the supply, and while some companies struggle to return to normal Ruger has almost
made a full recovery to the supply.
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The past year has proven to be mix of strong and weak points for Ruger stakeholders.
Due to the increased sales there will be a third plant location to be created in Mayodan, North
Carolina. It is estimated that Ruger will be bringing 450 new jobs to the plant with a $26 million
investment. Between January and November of 2013 Ruger's share price has increased $34.
Those who hold ownership can only look forward to higher shares with the increased demand.
There aren't very many firearm companies in the shooting industry who are publicly owned, but
those who were in Ruger got their money's worth this year. Those most affected by Ruger's
actions, the employees, will be looking forward to the changes ahead. Given the amount of
demand needing to be filled, the current employees have minimal worries as they can't afford to
reduce production at this time. Information shows that while the amount of buying has
decreased, the demand is still higher than their ability to produce. The introduction of new lines
has created a need to take over slower selling lines on the production. When there is a limited
amount of space in the factory whichever product can't keep up in sales gets discontinued or set
aside for limited production. Last year the goal of their production was to sell a million units, and
they were able to do so before year end. This year they were able to hit that number so fast they
took too many orders and had to cancel orders. Now this has created problems among the
wholesaler and retailer networks. For example, my store had placed orders with Ruger through a
distributor. We had been receiving from our orders throughout the year until summer. Our sales
representative for the distributor LM Burney in Waco, TX told us that all their Ruger orders were
canceled. For us it wasn't a horrible problem since we received the majority of our order, but let's
imagine it from their viewpoint. There was 20 or so units that still hadn't been delivered to us,
and because of the cancellation LM Burney wasn't able to sell us those 20 units. If LM Burney
has 100 customers they just lost a huge amount of sales. Then retailers take their business to a
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distributor who had their product delivered before the cancellation. While wholesalers and
retailers do not want to drop the brand it does create problems for both parties. This also creates
problems for the consumer. If the product is not available to get they do get tired of waiting and
move on to a product that is available. This issue has only positively affected the suppliers for
Ruger as it means they have ordered to maximum production capabilities. The addition of the
third plant will help bring the stakeholders closer to symbiosis instead of hurting on another like
in zero sum.
Porter's Five Forces let us take a look into the attributes that determine if Ruger is well
suited to continue in the industry. The first stepping stone is rivalry in the industry.
Unfortunately Ruger has lots of competitors here in the US and overseas. As mentioned earlier
Ruger does imitate some of the products out there, but why this doesn't affect the negatively is
they have a better means of production. All production is done in house so while some of their
products might not differentiate from the others it does sit in the lower cost corner. Second is the
threat of new entrants. Under normal circumstances the shooting industry requires something
unique and functional or inexpensive and quality to be able to survive entry. the high demands
of this year has allowed easy entry to the market. Any new company who is able to deliver their
product right now has an easy gain to the consumer base. Third is the threat of substitute
products. For some of the their lines there are equivalent if not better products out on the market.
At the same time there are lines that are the top choice of their category that consumers cannot be
easily drawn away from as they are such a popular item among users. Fourth is the bargaining
power of buyers, which was very strong this year. High demand and inability to keep with that
demand put Ruger's customers in a position to get what could be gotten. While there is no issue
in the immediate foreseeable future, they could see supply problems again by next election. Fifth
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and last is the bargaining power of suppliers. Their biggest problems lies in the labor force.
There are plenty of companies out there who will sell steel, aluminum, and plastic to Ruger, but
the machinists and gunsmiths needed to run the plant is low. If there is another event that leads to
the increased demand of firearms the laborers might use that knowledge to demand a raise. If
Ruger doesn't allow the raise then we might see less workers and another issue with keeping
supply up.
Internal Analysis
In the last few years we've seen major increases in firearm sales across the country.
Ruger's revenue has gone from $324 million in 2011 to $484 million in 2012. This sales change
estimates to about 50% increase in their total product line, not including their casting business.
$182 million of total sales was contributed by introduction of five new products, which includes
two new product lines. If this could be repeated with the introduction of a new product line
Ruger should see additional revenues like it had this previous year.
SWOT, Strength/Weakness/Opportunity/Threat, Analysis gives an insight as to what
Ruger is doing right and what can be done to keep them in a right direction. Each attribute of
SWOT shall be addressed individually.
Strengths:
American made. Rugged firearms that will provide reliable and durable performance. Parts are casts in its own metal casting plant in Newport, NH. Less expensive than competing manufacturer's in the market while keeping equal
quality. Lifetime warrantee. Has a large market share with over 1.7 million firearms produced in 2012 alone. Able to release new products that combine favorable attributes of other products on
the market and/or are unique to the current market
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Ruger has many strengths in the firearm market as seen above. With the job market being in a
slump since 2008 one of the largest trends in some markets has been support of American
made products from American companies. Ruger being in that category gets a big consumer
draw to their product instead of foreign competitors. All the firearms are created with high
quality cast steel giving them very strong durable structures that will not break or fail under
pressure. Lifetime warrantee that is given to every firearm produced in the rare case that there
is a problem for ease on the consumer mind. Lastly we see a large demand for their products
with a sale of over 1.7 million firearms, which could have been more if they hadn't stopped
taking orders.
Weaknesses:
A lack of strong law enforcement and military presence. Not a strong leader in the centerfire rifle and handgun market. Little presence in the shotgun market. Production capacity is capped and needs to be increased
There are only 2 major weaknesses in the company to be considered. There is only a small
presence of Ruger firearms in law enforcement use. Majority of law enforcement (LE) use
foreign made firearms. Additionally, the lack of a LE presence doesn't give them as strong of a
name in the handgun market as one strong selling point for any gun company is that military or
LE use their firearm. A limited production capability also holds them back from knowing their
cap on market share.
Opportunities:
Would not be put out of business by proposed legislation in 2013. With increased sales revenues production capacity is being increased. Trends in support of American made products puts it in favorable standings with the
public. Development of Law Enforcement Program.
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Firearm manufacture and use is a large political subject, and 2012 has brought large concerns
to the public with a democratic president being re-elected. A large potential opportunity for
Ruger is that only a few products would be dropped in the case of legislation on certain
firearm types, which would allow Ruger to the take the place of the companies that would
lose their business completely. As seen in strengths, the trends in support of "Made in USA."
If Ruger took the time to develop a distribution program for their pistols to be used by law
enforcement they could see a large increase in sales of that product. Consumers typically look
at what LE use as a guideline, and if Ruger could put get that secondary market their primary
market sales would increase.
Threats Legislation in 2013 could cause a drop of 2-3 product lines from their 30 total.
The largest threat to Ruger's revenue would be legislation that could eliminate some of their most
popular product lines and reducing their revenue and market share.
VRIO analysis allows us to decide if the plan we're looking to implement will create a
valuable, rare, imitable, and organized change to the company as well as the market. Will a
reliable, affordable service weapon bring value? Yes, one thing that the LE market lacks is an
affordable, American made service firearm to compete with that of the Austrian Glock and the
German Sig Sauer. Additionally, this would help motivate the need for increased production that
would help that consumer market get what they want. Are these actions something that is hard to
find in the market? Smith & Wesson, the only other publicly traded firearm company in the US,
has attempted to take the spot of a US made LE firearm, but has not proven to be able to replace
the foreign competition. Can their product and actions be replicated? Technically Ruger is doing
the replicating in this situation. They are attempting to do what Smith & Wesson failed at, but
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where Ruger may succeed is not only in their lower price for equal quality, but their potential to
deliver in much higher quantity than Smith & Wesson could. Is Ruger readily organized to take
on such a feat? Not yet, while they are on the path to increase production and provide the public
with what they want their motives show little interest in putting themselves out there as number
one choice for law enforcement. It seems their interest more lie in the consumer than sectors of
government. The past two years the motive has been to reach sales numbers of one million units.
They have reached well over those numbers, but are unable to deliver the amount demanded by
consumers let alone the number required for law enforcement if they received a large contract.
Ruger doesn't spend equal amount of resources in value chain on both sides of the
market. Ruger makes it very motivating to invest in their product to sell. The past two years
involved a new program called the million gun challenge, which provided incentives (buy 10 get
1 free) for distributors and retailers to purchase more Ruger than had been done in the past. For
each unit sold there would be $1 donated to the National Rifle Association. That number was
reached fairly quick and has since been increased to the 1.2 million gun challenge. The
incentives were not only business friendly, but also gave a purpose to donate to the organization
the fights for their right to stay in business. Every year they will go to different trade shows and
provide the opportunity for sellers to test the product free of charge. From my viewpoint as a
retailer, to get free product or being able to experience a product to help my customers is great
value for me. What lacks in the consumer chain that other companies have are activities and
products that mix with their products. Glock and Smith & Wesson offer armorer classes for those
consumers who would like to learn about their new purchase. They also work with other
companies to provide safety equipment, cleaning supplies, travel cases, and more that is
represented by their name. Ruger has a few after market partnerships, but when it comes to the
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frequent purchases there aren't products that can relate to the name. What consumers want is the
ability to buy the main unit, purchase a maintenance product that the company suggests, be safe
with the glasses they suggest, and more. Where they lose value that can be an easy addition to
their chain is that they don't allow all accessories for their products. Companies like Volquartsen
and Tactical Solutions have their entire product line based on Ruger products, but if the unit
makes its way to the factory it will be removed for factory parts. Consumers want to have fun
with their purchases, but don't want to worry about the value they add themselves being taken
away.
Ruger doesn't have a single strategy for their business. There is a combination of cost
leadership and differentiation. Their ability to be a cost leader comes from two key factors. One
is their casting plant, which allows them to keep production of parts all in house, purchase of
larger quantities of material that can be divided among all lines, and save on money that would
other be used in contract labor. Not only do they save money by doing their work in house, but
they also provide contract work. Their casting company provided almost $7 million in revenue
last year. Many of their competitors, including Smith & Wesson, use their contract services for
their products. Going back to what created Ruger in the first place, they are able to differentiate
themselves in two ways. First is their ability to mix the best attributes of other products to create
a single good product and the second is use of imitation. They started by the mixing of a popular
American handgun and a popular German handgun to become the Ruger Standard. Just last year
they released a new economical rifle that has been a popular seller, American Rifle. At a low
price point, due to their casting company, that is $100-$200 below their competitors they
released a combination of two popular rifle companies Tikka (Finnish) and Savage (American).
One of their most popular products is the Vaquero, a single action revolver. It takes the aspects
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of the old west, the six shooters that Colt originally created and combines them with their
modern revolvers to make a nicer feeling, more durable cowboy handgun. For the past 5 years
one of their top sellers, LCP, was a copy from the company Kel-Tec. One year prior, Kel-Tec
released the P3AT which only was surpassed by the LCP which was the same gun in all ways
except that cosmetically the LCP was more appealing. While not their most popular line their
Hawkeye rifles have taken a design discontinued since 1964 and revived it. The design originally
was used by Winchester from 1936-1964. Between the two strategies Ruger is a major contender
on the firearms market. It is easy to decipher how they make quality products at a low price, it is
fair to see how they create one from two, and they save resources by not only bringing back old
designs but improving current ones.
Recommendations
There are three potential directions that can be taken for the following years to better
improve Ruger's position on the shooting market. The four discussed previous were the
introduction of a law enforcement program, expansion of value chain activities, increased
production capabilities, and development of more unique products. At this time it is not
reasonable for an attempt at a law enforcement program. There are tests that need to be passed,
demonstrations that need to be provided to major cities across the nation, and production
capabilities to meet the additional demand. Meeting requirements of departments across the
nation can be simple as it only takes a little time to prove if it qualifies. Demonstrations and
marketing to LE across the nation would take immense resources and time. That is 48 states to
do a one day demonstration and if each demonstration is on a weekend it could take an entire
year to accomplish get their product across. If they can't keep up with demand of their consumer
base how will they ever keep up with the additional demand from the LE. They are not prepared
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to meet the plan yet. Next is how they could expand the value of their product. There are two
ways to approach it. One is to implement programs that could allow for teachers to instruct
consumers on their product, and two is to create connections with different companies to show
favored accessories in different areas of the market. The first part of that is resource and time
consuming. They would need multiple employees to solely take the role of providing instruction
to consumers and it could take an entire year to hit all parts of the country with minimal gain.
The second part requires asking companies they already work with to provide cleaning products,
safety equipment, and more to attach the Ruger name to their product and vice versa. A much
easier simpler method to providing value. Then is their attempts to meet total demand by
increasing production. Creating new plants and splitting up product lines to each plant to make
production more efficient. It is both very resource and time consuming, but creates an
opportunity to fulfill total demand. Last would be to push research and development to produce
more unique products. Unique is always a better thing, but it isn't the thing that they are best at.
Mixing and imitating put them where they are today and a single failure could lose all that.
The best choice to be implemented are changes to production capabilities and their
efficiency. My estimates, based on observations from this year, is that they are capable of
supplying at least two million units to the market without sitting on overstock. The first year they
attempted for one million they stopped taking orders by march, 11 months after they started. This
year they stopped and cancelled orders at summer time, 3 months after they started. New plants
would allow for larger orders, a more fulfilled consumer demand, and product lines to stay
longer and become more efficient.
There has been a realization that they are not meeting their full demand potential at their
current production quantities. It seems like it would take a lot, but there are few steps to
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implement this plan. First choice would be whether to expand current plants or build a new one.
Expansion allows for the use of property already owned at two location. Where this becomes
problematic is the need to shutdown production and further halt certain sectors of plants to
reconstruct the current plants. Since building may take a year or more the choice that would be
best suited for their situation is to make a new facility. The new plant would not get in the way of
current production until it is completed for the need of moving equipment in. While there would
be a slow period during the move it would open up space in one of the plants that would
normally be occupied by unused equipment. This would not only provide the opportunity to meet
total demand, but allows for the company to be more efficient in their product lines. Currently
the two plants are split between handguns (pistols and revolvers) and long guns (rifles and
shotguns). The moving of equipment from product lines in either plant would allow for a more
efficient production rate in the new factory and the factory where the equipment was taken from.
From there on the new plant would allow them to test their new capabilities with a two million
challenge. If actions are done according to my plans Ruger could see itself in a position to not
only obtain higher market share, but provide a new programs to LE and to better value their
products for consumers.
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Citations
Autry, J. K. (2012, September). Ruger’s rapid retail rewards program returns. Retrieved from http://www.shootingindustry.com/rugers-rapid-retail-rewards-program-returns/
Dineen, T. (2013, February 27). Form 10-k. Retrieved from http://www.ruger.com/corporate/PDF/10K-2012.pdf
Federal Bureau of Investigation, NICS. (2013). Nics firearms checks: Top 10 highest days/weeks. Retrieved from website: http://www.fbi.gov/about-us/cjis/nics/reports/obsolete-reports/nics-firearms-checks-top-10-highest-days-weeks
Fifer, M. (n.d.). 1 million gun challenge. Retrieved from http://www.ruger.com/micros/million/index.html
Johson, S. (2012, March 23). Ruger can’t meet demand, suspends acceptance of new orders. Retrieved from http://www.thefirearmblog.com/blog/2012/03/23/ruger-cant-need-demand-suspends-acceptance-of-new-orders/
McCarthy, E. (2012, January 12). Why the glock became america’s handgun. Retrieved from http://www.popularmechanics.com/technology/military/weapons/why-the-glock-became-americas-handgun
Ruger. (n.d.). Ruger history. Retrieved from http://www.ruger.com/corporate/history.html
Ruger. (n.d.). Pine tree casting. Retrieved from http://www.ruger.com/casting/index.html
Ruger. (n.d.). Ruger website. Retrieved from http://www.ruger.com/index.html
Sturm, ruger to open new plant in north carolina. (2013, Auguest 13). The Associated Press. Retrieved from http://www.cbsnews.com/news/sturm-ruger-to-open-new-plant-in-north-carolina/
Sturm, ruger & company. (n.d.). Retrieved from https://www.google.com/finance?q=NYSE:RGR&sa=X&ei=hP6XUvDMF5iEoQTB0oCADQ&ved=0CC4Q2AEwAA