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Industry News: July 2002

By Robert M. Hausman

Crucial Retailer Issues Covered in Seminars

Some of the most important issues facing Class 3 firearms retailers comprised the topics presented during the various seminars held during the 2002 S.H.O.T. Show. These included security issues, business insurance and customer target marketing. All of this made for one of the best professional development programs for firearms retailers ever offered in the S.H.O.T. Show’s entire history.

Loss Prevention

The most heavily-attended seminar was entitled, “Loss Prevention Techniques for Today’s Retailer.” The presenters, which included Benjamin Hayes, special agent/program manager of the Bureau of Alcohol, Tobacco & Firearms’ Stolen Firearms Program, began by advising retailers to determine how secure their businesses are.

“The presence of firearms increases your risk of burglary, theft and losses,” Hayes said. “As a federal firearms licensee, you have a responsibility to keep firearms out of the hands of criminals, but firearms theft is not your only risk. (General merchandise) retailers lost $32.3 billion last year. According to the 2001 National Retail Security Survey, 46% of losses were attributed to employees, 31% to shoplifters, 17% to paperwork errors and 6% to problems with vendors.”

To increase the physical security of their business premises, Hayes advised retailers to: make an analysis of the business site and determine the types of security issues that could arise; harden the perimeter of the building; install vehicle barriers at entrances and large windows to prevent “drive-in” burglaries; install burglar bars, protective glass film, or roll down or curtain style gates at all windows; reinforce all roof openings; put heavy locks on all doors; install shatter-proof display cases to prevent “smash and grab” thefts; install a burglar alarm as well as fixture and display alarms; and, install both public view closed circuit television cameras as well as covert units.

All doors should be heavy duty or reinforced models installed on a heavy-duty frame with high-security hinges, retailers were advised. Industrial grade hardware should be chosen for all locksets. Doors and locking hardware can be purchased with anti-pry and anti-spread designs and mechanisms with a minimum of hardware exposed on the exterior side. The installation of door viewers in solid doors was also suggested.

Display cases should have their glass tops secured to prevent lifting and have tight-fitting doors that cannot be lifted or removed. Customers should never be shown more than one firearm at a time. Make certain your employees understand that they cannot show another firearm until after the first gun handled by a customer has been safely replaced within the display case.

When reviewing site security, consider such issues as: parking and building access; proximity to freeways and escape routes; outside lighting; the presence of trees, foliage and other concealment; the proximity of adjacent buildings (oftentimes burglars will break into one building in order to gain access to an adjacent structure); the amount of reported crime in the area; and, average police response time.

Signage can often prevent theft. Some stores post signs on their premises advising customers that all firearms are placed in locked storage after business hours. Stockrooms and vaults should be of reinforced wall construction and be inaccessible through roof openings. Heavy-duty hardware should be used on the stockroom doors along with alarm protection.

The use of burglar alarm systems was called “a must” for every firearms retailer. It was advised that complete protection should include: central station monitoring; line security or cellular back-up; interior motion detection; glass break devices; door contacts; motion detectors for the roof or perimeter openings; and, an audible local alarm.

Employee Monitoring

Since employee theft problems are a major source of retailer losses, attendees were advised to: institute key control and alarm access procedures; be careful of who they hire by running background checks on prospective employees; have a clear separation of responsibilities for all employees; conduct regular firearms inventories; institute cash control systems; review trash removal procedures to insure merchandise is not leaving the store with “the trash”; monitor the employee parking area; and, check packages leaving your store.

In reviewing key control and alarm access procedures, retailers were advised to: minimize the number of key holders; issue showcase or stockroom keys daily and to not let these keys leave the store; never share alarm codes - set up unique pass codes for each employee; review your store’s opening and closing procedures with employees weekly.

The best way to prevent firearms thefts by employees is to conduct regular inventories, it was explained. Inventories should be conducted at least once per quarter year, but monthly would be even better. Verify the presence of firearms by matching the serial number to the acquisitions and disposition log of your bound book; and, don’t just read the serial numbers off the end of the gun boxes, open the boxes to ensure the firearms are really there.

Finally, retailers were advised to “inspect what they expect” by conducting self-audits. This will allow you to make sure the controls you have developed are being followed. The self-audits can also be used to train your supervisors and employees. Firearms retailers have a unique responsibility to society at large, their local communities and their employees. With the proper analysis and choices, you will find the path to better profits and safer workplaces and communities.

Insurance

Since concerns over the need for, and the cost of, insurance, is on the minds of most retailers in today’s litigious age, another presentation entitled, “A Smart Approach to Insurance,” was offered. Basic insurance principles, market conditions, loss trends, retailer risk management, as well as sources for help, were covered by Robert V. Chiarello of Joseph Chiarello & Co., Inc. and Valerie A. Lowe of AIG Consultants, Inc.

Property insurance can be purchased to provide a variety of protections against loss covering such areas as real property, personal business property, property in transit, loss due to crime, and protection against business interruption. Homeowners insurance policies usually excludes coverage for business pursuits, Chiarello noted while stressing the need for separate policies for your business.

In a review of the history of the insurance market in recent years, the presenters said that from 1985 to 1987 premiums increased as there were few willing insurers for the firearms industry. Many manufacturers during these years, operated without product liability insurance.

From 1988 to 2000, the market changed as there were many insurers competing for business. Premiums decreased as insurers became less selective of what businesses they would insure. As a result, many insurers did not require their insured to maintain loss control programs as they became more willing to accept losses.

In late 2000 to 2001, the insurance market changed again due to such factors as the crash of the dot.com stocks, unexpected severe weather related claims, an increase in asbestos case claims, the general economic recession and the events of September 11, 2001.

Currently, the insurance market is becoming increasingly restricted. New insurance companies are entering the firearms arena due to recent insurance premium rate increases. The reality of this situation, the presenters believe, is that since many insurers abandoned the firearms arena in the recent past, many of those entering the market now will not succeed. Many major carriers, such as Frontier, C.N.A., Gulf, The Home, Northland, Travelers and I.N.A. are no longer offering coverage to firearms businesses. One of the major firms that is still offering coverage is A.I.G. which is considered a stable and strong firm with an established program for firearms retailers.

Implement a Risk Management Plan

The best way retailers can position themselves for obtaining cost-effective insurance from a reliable carrier is by implementing risk management strategies, Chiarello and Lowe advised. Knowing the historical trends in retail losses can help you to devise a risk management strategy.

Using a variety of charts, Chiarello & Lowe presented a history of retail losses. Property damage, comprising 29% of total losses is the most common form of loss, followed by smash & grab thefts at 25%, falls at 9%, claims from sales and struck by (such as display cases falling on customers) at 5% each, products causing injury and accidental discharge at 4% each, and miscellaneous incidents at 15%.

Next, examples of high cost losses were detailed. These included: a $400,000 claim for the sale of black powder to an adult. The purchaser gave it to a group of children who used it to make fireworks. It exploded, and burned all three of the children. A $281,000 claim was paid in a case involving an adult who bought a firearm and ammunition. The buyer loaded the gun (which discharged) in his car. Some $164,000 was paid out by an insurance company on behalf of a retailer in a case where a child pulled a safe over onto herself in a store. A $155,000 claim was paid to a customer who slipped and fell on the sidewalk outside a retailer’s store.

Other loss scenarios involved: a dealer accused of negligence in the sale of a firearm resulting in the shooting of a third party; a dealer accused of selling incorrect ammunition; a retailer accused of not providing an owner’s manual; a retailer accused of not providing instruction on the safe handling of a firearm; and, a dealer who subcontracted work to an uninsured gunsmith.

The benefits for retailers in implementing a risk management plan, Chiarello & Lowe said, are a reduced frequency of losses, a reduction in the severity of losses, an improvement in bottom line profitability and an improvement in your insurability. The process of developing a plan involves identifying potential risk/loss sources within your business, developing risk management strategies to control those losses and implementing those strategies.

Targeting Your Customers

Tips on how hunting and shooting sports retailers can gain and retain their customers for the long term, were detailed in a seminar entitled, “An Outdoorsman For Life, Targeting Your Customers.” Presenters Vic Romano, NSSF’s vp/marketing and strategic partnerships, along with Bob McKim, president and CEO of MSDBM, a firm offering database-driven, technology-enabled marketing solutions and customer relationship management systems, detailed how and why retailers should turn shooters into lifetime customers.

Information is Key

“Knowing who your customers and prospects are, understanding where your customers are in their life-stages and purchase life-cycles, will allow you to communicate the right message at the right time,” said McKim. “Information is the new currency in today’s fiercely competitive business environment. Having the right information on your customers will allow you to give your business a competitive advantage, help you define a business strategy, increase revenues by identifying the most profitable customers and reduce costs by limiting your marketing efforts to reach targeted customers.”

Romano said that by focusing the major part of your marketing efforts on your best customers you can realize as much as 80% of your store’s income from this group. “Spending money to reach casual and first time buyers should only be done if time and money permits,” he said.

Retailers should build a database of the names and addresses of their best customers segmented by attributes and use it to create customized mailing lists, Romano advised. Customer loyalty programs can be developed to reward your best customers and you can reach them economically by taking advantage of the bulk mailing rates offered by the U.S. Postal Service.

Determining “Lifetime Value”

In determining the “lifetime value” of a customer, retailers should think in terms of “share of customer, not share of market,” Romano said. “The lifetime value of a customer is the total contribution to overhead and profit during the customer’s total relationship with your business. The total number of years times the total purchases per year, less the cost of goods and marketing expenses is equal to a customer’s lifetime value. Making the move to data base marketing will allow you to move from the idea of ‘getting a sale now at any cost’ to building and managing customer data bases that track the lifetime value of your relationship with each customer and knowing when and what they are next likely to purchase.”

In conclusion, Romano said, “loyalty marketing is the key to success in today’s more competitive and complicated marketplace. Loyalty marketing increases profits, productivity and customer lifetime value. Retailers can start anywhere in this process. The important thing is that they just get started!”

The author publishes two of the small arms industry’s most widely read trade newsletters. The International Firearms Trade covers the world firearms scene, and The New Firearms Business covers the domestic market. Visit www.FirearmsGroup.com. He may be reached at: FirearmsB@aol.com.


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