The Winston-Salem (NC) Journal had an interesting article today questioning whether the new Ruger plant would turn out to be a bust for Mayodan like the Dell Computer plant was for Winston-Salem.
Dell Computer brought a $110 million plant to Winston-Salem in 2004 in order to keep up with demand for their personal computers. At its peak, the plant employed over 1,100 workers. Dell is now in the process of shutting that plant down.
At the time that the Dell plant was announced in 2004, the article states that stock analysts were questioning the need for a new plant when the market for PCs was becoming saturated and Dell faced strong competition. The Journal sees similar parallels with the Ruger expansion to Mayodan.
Still, there are analysts who question whether opening a third Ruger plant is prudent. They wonder how many firearms gun buyers want or need before feeling fully stocked.
“While most industry executives believe this surge in demand should still have some steam left in the tank, it’s safe to say it certainly won’t last forever,” said Steve Symington, an analyst with The Motley Fool.
“From an investor’s standpoint, we can’t forget there’s risk involved” with Ruger’s expansion plans,” Symington said.” Ruger could be overbuilding its manufacturing facilities only to watch demand for its products taper off.”
There are a few problems with the Journal’s attempt to make the comparison between the Dell plant and the new Ruger expansion in North Carolina.
First, the stock analysts who criticized the Dell expansion in 2004 were Wall Street professionals with an intimate knowledge of both the market and Dell’s finances. By contrast, Steve Symington who writes for The Motley Fool is an amateur writing on an investment website. There is a qualitative difference between the two.
Second, the firearms industry is much more regulated than the computer industry as well as more mature. There is no Bureau of Alcohol, Tobacco, and Computers, no special licenses are needed to make a computer, and you don’t see the United Nations passing a CTT – Computer Trade Treaty. A computer company can move production of personal computers offshore to a China or a Taiwan quite quickly and quite easily. While there are a number of overseas firearms manufacturers, due to both regulation and the nature of the product you just can’t move production offshore at the drop of a hat.
Third, there is a whole new cohort of firearms owners coming into the market which is driving its expansion. What Michael Bane calls Gun Culture v.2.0 is concerned with personal protection. A recent study of new gun owners by the National Shooting Sports Foundation confirms this interest in personal protection. These new gun owners also tend to be more active and shoot at least once a month.
Fourth, gun owners who are active in shooting and personal protection tend to own more than one firearm. What you can do with a laptop PC is virtually the same as what you can do with a desktop PC. It is not the same with firearms. Firearms are much more specialized as to task than are computers. While your Ruger 10-22 could be used for personal protection, you can’t use it for carrying concealed.
Fifth, Ruger is at capacity. Both the Prescott and Newport plants are at full production and have no more room for expansion. New product introductions currently account for 35% of the company’s sales growth. If Ruger is to continue to grow, they must expand. Even if overall market demand for firearms does begin to slow which it will sometime, the stronger companies such as Ruger should continue to grow their market share.
Finally, building a plant in North Carolina is a hedge against the political risk that is growing in New England. While it hasn’t spread to New Hampshire yet, the political culture of that state is rapidly changing due to in-migration from Massachusetts. If things get bad enough in New Hampshire, Ruger could move that production to North Carolina.
Thus, for the reasons I’ve outlined, I don’t see a Ruger plant in Mayodan going the way of a Dell plant in Winston-Salem. I’m sure the author thought it made for an interesting comparison but his premises were all wrong.
UPDATE: The Captain at Captain’s Journal has his take on this article here. He concludes:
If firearms manufacturers stay in the North, they will become obsolete
and eventually go out of business. If they relocate to the South, a welcome party awaits. So much for the “experts.” Ruger knows what they’re doing.