October, 2000

Pricing ­ How NAA Plays the Game.

Shortly, you may begin to notice at retail the effect of a price increase NAA announced (effective 09/15/00). This is our first increase in nearly two years and averages approx. 5% across all models. I'd like to say a word about our pricing practices.

First and foremost - the only prices which NAA can control are those we charge to our immediate customers, the distributors/wholesalers. While we can 'suggest' what the dealer and retail pricing should be thereafter, we cannot set or enforce these 'guidelines' (we publish MSRP price lists ­ Manufacturers Suggested Retail Prices) and we know that they are frequently disregarded. Our pricing tiers typically include +20% margins to both the wholesaler and dealer, which allow these sales intermediaries the opportunity to make a profit in their own business. If either/both elect to discount these suggestions, that is their business.

Some people have suggested that we eliminate one of these selling partners. While we could deal directly with dealers and eliminate one tier of margins/profits, we choose not to; we feel that our distributors provide us a valuable level of service which we're happy to 'pay' for. By using a traditional (for this industry) two-step selling system (first to the distributors, second to the dealers), our direct customer base remains very (and necessarily) small (approx. 30 accounts) and manageable for a business like NAA. Distributors deal with a team of salesmen (we have one) who have contact with and make shipments to thousands of customers, and bear substantial expenses in marketing, inventory, shipping, administrative and credit costs. Were we to attempt that ourselves, our expenses and staffing would increase astronomically (well beyond what we currently 'pay' and our coverage would shrink to a fraction of what it is presently). Similarly, dealers provide a valuable service but require a profit margin for themselves so that they can remain in business.

Not unlike other retail environments, some outlets run more efficiently than others, or have lesser costs (rent, labor, furnishing/fixtures, other overhead, etc.) or enjoy greater volume, or deliver a lesser degree of 'service' (like the giant X-marts). When goods are widely available these factors enable some to sell products at a discount to MSRP and work with smaller margins, which is a great benefit to the end consumer in many cases, assuming a free supply of goods. Conversely, in times of restricted supply and great demand, selling partners may charge a premium over the suggested prices, knowing that someone is willing to pay top dollar. Such was the case when the Guardian was originally introduced, and such will probably also be the case with the Guardian II/(.380). As this illustrates, the retail price of our products can range widely and is well beyond our ability to control.

While management of costs is very important to us and something we believe we do reasonably well, some are ­ again ­ beyond our control. These include not only increases from other vendors (including health insurance underwriters) but to our own workforce who understandably are trying to improve (or at least halt the deterioration in) their lifestyle as they, like you, see ordinary living costs increase. While NAA has been able to some degree hold the line on our costs and our prices by making continuous improvements in productivity (doing more for less), we, too, are stretched. This is typical to most business/industries.

What is not typical are the slew of additional, new extraordinary costs which are now being incurred that have a tremendous impact on our business. These include the costs of new processes (such as collecting spent casings for MD and NY, for starters, and a litany of testing and labeling requirements). Further is the cost of defending lawsuits which, to this early point has amounted for NAA (and others) hundreds of thousands of dollars. Do not assume that insurance is available for these, either. In any event, if NAA is to remain a viable business and provide product to the marketplace and jobs for our employees, these expenses must be met.

While I would rather not raise prices, I am unapologetic about the necessity of doing so. If anyone believes, as some have been foolish enough to suggest, that this simply further lines the pockets of manufacturers and is a good, easy way to make a lot of money, I've got a gun company I'd like to sell you.

Senator Orrin G. Hatch (R-UT) checks out the latest edition of the North American Arms catalog. He mentioned that he regularly carries two of the firm's firearm products after receiving death threats several years ago. ASSC's 1996 Congressional Leader of the Year Award was presented to Sen. Hatch "in appreciation of his leadership and commitment in defense of our heritage, our industry and our life"


Photo & caption by Robert M. Hausman - used with permission.