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Small assault-style rifle firms thriving under activists’ radar

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A decade ago, Kentucky’s Anderson Manufacturing was a small machine shop that didn’t make firearms.

By 2016, it was making more rifles than Smith & Wesson, according to the latest available data from the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). Anderson’s big seller: assault-style rifles that cost up to $2,100 and require no lubrication. Anderson says it made nearly 454,000 rifles that year, or about 57,000 more than Smith & Wesson.

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Anderson is the leader among a cluster of small, private companies that are taking market share from America’s biggest gun makers. They are doing so with catchy marketing or weapons that have, for example, more knockdown power for hunting wild pigs.

Some rifles made by companies such as Patriot Ordnance Factory and Daniel Defense fire larger .308-caliber rounds instead of the .223-caliber rounds more commonly used in AR-15s. Another firm, Kel-Tec CNC Industries Inc, makes the hot-selling Sub-2000 rifle – which folds up small enough to fit into a backpack. It costs $500 and fires popular 9mm handgun ammunition.

“It’s easy to conceal in some sort of bag that is not screaming, ‘Gun,’” said Cape Gun Works owner Toby Leary in Hyannis, Massachusetts. “People like it for the discreetness.”

By contrast, America’s leading gun makers have struggled over the past two years, with the three biggest seeing their rifle market share slip to 44 percent in 2016 from 57 percent in 2011, according to ATF data. Over the same period, a cluster of about 30 small companies combined for 51 percent of overall rifle production, up from 37 percent.

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Top rifle maker Remington Outdoor Company emerged from bankruptcy in May. Net firearms sales at Sturm Ruger & Company Inc fell 7 percent during the nine-month period that ended Sept. 30. And American Outdoor Brands Corp, parent of Smith & Wesson, saw shipments of long guns, including rifles, fall 32 percent in fiscal 2018, compared to the previous year.

Gun sales surged to historic highs during the Obama administration amid fears of more restrictive gun laws with a Democrat in the White House. But since Republican Donald Trump became president gun sales have fallen. The adjusted number of criminal background checks, a proxy for guns sales, fell 10 percent in November from the year-ago period, according to the FBI.

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The biggest three companies – Remington, Ruger and American Outdoor – did not comment for this report, nor did the smaller manufacturers Anderson, Patriot, Daniel and Kel-tec.

Smaller players largely have sidestepped scrutiny about their products or their financing because activists have mostly focused on pressuring big retailers and gun makers with publicly traded stock or debt held by mutual funds. Excluding the big three, there were 28 companies that made 10,000 or more rifles in 2016, up from 20 companies in 2011, according to ATF data.

“The number of manufacturers was shocking to me,” said Christopher Ailman, chief investment officer for the $219 billion California State Teachers’ Retirement system, which this fall started a new effort to press gun makers and retailers on safety.

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Surging sales of assault-style rifles under the Obama administration paved the way for smaller gun makers to enter the market. Larger manufacturers have in recent years had trouble meeting a spike in demand for rifles like the semi-automatic AR-15, leaving room for Anderson and others, said Stefanie Zanders, chief operating officer of gun distributor Zanders Sporting Goods in Illinois.

“The ARs just took off, and some manufacturers couldn’t keep up,” she said in a telephone interview.

Overall, rifles accounted for 2.7 percent of the weapons used on U.S. murder victims in 2017, FBI data show. But assault-style rifles are at the center of America’s gun-policy debate because they have been used in deadly mass shootings, including last year’s sniper attack that killed 58 at a Las Vegas music festival.

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The shooter used weapons made by small and large companies when he fired more than 1,000 rounds into a crowded music festival. Those included ones manufactured by Daniel Defense, FN America LLC, LWRC International, Patriot Ordnance Factory and Sturm Ruger, according to a report from the Las Vegas Metropolitan Police Department.

FREE-FLOWING CAPITAL

This year, lenders including Citigroup Inc and Bank of America Corp outlined new restrictions on lending to gun makers and retailers after a gunman killed 17 people at Marjory Stoneman Douglas High School in Parkland, Florida, with an assault-style rifle.

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Also in the wake of that shooting, top fund firms BlackRock Inc and Vanguard Group backed a shareholder resolution calling for Sturm Ruger to report on the safety of its products.

But small gun makers have plenty of options for capital outside of public markets. Smaller rifle makers get financing from community banks, credit unions and makers of metal-cutting machines, according to a Reuters analysis of firearms financial disclosures filed with more than a dozen secretaries of state.

“We’re not going to starve any of these companies of capital because there’s always someone” willing to lend gun makers money, said John Streur, chief executive of Calvert Research and Management. The Calvert unit, part of Eaton Vance Corp, has pressed big retailers to restrict gun sales.

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Windham Weaponry in Maine received an $8 million revolving credit line and a $3 million term loan last year from Bar Harbor Bank & Trust, according to local real estate records. The company and the bank did not respond to requests for comment.

Anderson Manufacturing received financing in 2013 from The Bank of Kentucky as its rifle sales began to surge, according to financing reports filed with the Kentucky secretary of state. The bank has since been acquired by North Carolina-based BB&T Corp, which did not respond to a request for comment.

At the Cape Gun Works in Massachusetts, owners Leary and Brendon Bricklin said they borrowed several million dollars from Wisconsin-based First Bank Financial Centre to create what is now a 20,000-square-foot building that includes a retail store and firing range.

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They said area banks initially were reluctant to get involved with their firearms business. But some have expressed new interest now that they are up and running.

“Nature abhors a vacuum,” Leary said.

RIFLES WITH ‘PERSONALITY’
Anderson and its smaller peers are winning customers with innovation and marketing messages that can be patriotic and provocative.

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“People buy their guns because they want to buy some personality in it,” said Angela Register, co-owner of Spike’s Tactical LLC of Apopka, Florida. Her company is known for its Crusader rifle and details like a safety setting marked “Full Libturd,” an insult aimed at political liberals.

Some of the other upstarts have focused on more powerful guns like the .450 caliber “Thumper” from Windham Weaponry, founded by Richard Dyke, best known as the creator of the Bushmaster assault-style rifle.

FN America LLC, a unit of Belgium-based FN Herstal SA, sells an assault-style rifle costing $8,499 that comes with a bipod and the ability to fire a belt-fed magazine with 200 rounds.

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Not all the marketing highlights brute force. This year, CMMG Inc, based in Boonville, Missouri, released a special edition pink assault-style rifle for breast cancer awareness. Rifles made by Phoenix-based Patriot Ordnance Factory come with American flags and “God Bless America” on their ejection port covers.

Also helping smaller gun makers is how AR-15 parts can be fitted to create firearms for a myriad of uses, whether it be for target shooting or hunting, said Glen Zediker, a gun enthusiast and author of “America’s Gun: The Practical AR15.”

“I call it ‘Mr. Potato Head’: choosing and assembling specialized components from even smaller shops to create a truly custom gun,” he said.

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Chris Monhof, director of shooting operations for Jager Pro Hog Control Systems in Fortson, Georgia, said some smaller rifle makers have a reputation for slightly better quality than mainstream companies.

“It might be the difference between having a 50-cent spring versus a 25-cent spring,” Monhof said. “The smaller companies will do a lot of customization, too, for people who say, ‘I want to look like a special ops guy.’”

Reporting by Ross Kerber and Tim McLaughlin; Editing by Neal Templin and Brian Thevenot

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