Dick’s Bold Move on Assault Rifles Is Also Good Business
Dick’s Sporting Goods (DKS) is getting credit from many quarters for announcing on Wednesday that it will no longer sell assault-style rifles like the AR-15, and is raising the minimum age to buy firearms to 21.
The decision comes, of course, in the wake of the massacre at a high school in Parkland, Florida earlier this month that killed 17 people and sparked demonstrations and renewed debate that has raged for days. That has been a sharp contrast to other recent mass shootings where public debate quickly moved on after the perfunctory “thoughts and prayers” offered by many Republican politicians and outrage expressed by Democrats.
Such has the public clamor been for steps to finally address the mass shooting scourge in the United State that a number of corporations, including Delta Airlines (DAL) and Hertz (HTZ), distanced themselves from the National Rifle Association by ending rebates offered to members.
Companies have long resisted getting pulled into the gun debate for fear of offending a large part of their clientele. Remember the blowback Starbucks (SBUX) and Target (TGT) faced in 2014 for asking people not to bring guns into stores, and not banning them?
But on Tuesday, Dick’s CEO Ed Stack plunged right in and spoke out forcefully and in a heartfelt manner. “Thoughts and prayers are not enough,” he said in a statement. “We recognize and appreciate that the vast majority of gun owners in this country are responsible, law-abiding citizens. But we have to help solve the problem that’s in front of us.” Nikolas Cruz, the perpetrator in the Florida shooting, bought a shotgun (not the weapon used) at a Dick’s store in November 2017.
Not to take away from Dick’s move, but the business risk is relatively low. The company only sells assault-style weapons at the 35 stores in its Field & Stream chain. (The company operates 715 namesake stores. Dick’s removed assault-style weapons from those stores in 2012 after the Sandy Hook elementary school massacre and shifted that part of its business to Field & Stream.) Indeed, Wall Street doesn’t seem to be worried: Dick’s shares are up 2%.
What’s more, Dick’s is reducing its exposure to a business that is shrinking anyway: its overall hunting business, which encompasses firearms, has been declining with sales down by a double-digit percentage for a few quarters now. And it’s not just Dick’s; industry wide, sales are flagging in the absence of fear among gun owners that President Trump and Republicans will push for new laws. For the full year in 2017, background checks by the FBI, a proxy for gun sales fell 8.4% to 25.3 million. Earlier this month, Remington Outdoor, a major manufacturer of firearms, filed for Chapter 11 bankruptcy protection after an extended sales slide.
In Dick’s case, Wedbush Securities estimates that the whole hunting segment, not just firearms, make up only 10% of company sales and that the moves announced by Dick’s would have at most a small impact on sales, with the biggest threat coming from a hit to store traffic. What’s more, even if there is a backlash, it might not be that big: a new POLITICO/Morning Consult poll shows support for stricter gun laws among registered voters at 68%, well above the 25% who oppose such laws. (To be sure, such support typically soars after a mass shooting.)
One can draw a loose parallel with CVS Health’s (CVS) decision in 2014 to remove tobacco products. It gave up $2 billion in sales and lost a lot of shopper traffic, a problem that plagues it still. But tobacco sales were in decline, so it was exiting a weak business. And the move helped CVS’ other business, its Caremark pharmacy benefits manager line up new contracts, by helping CVS position itself more as a health company.
As for Dick’s, downplaying a business that is slipping at a time it is trying to build up its online sales and its own brands, an effort that could benefit from this halo, could also prove to be a sound business move.