The Impact of Firearms eCommerce to the Distribution Channel

Posted by Orchid Advisors on 9/28/20 1:32 PM

orchid-logo-2020Many, if not most, US firearm distributors have live data feeds connecting their on-hand inventory and one or more eCommerce platforms. Those online shopping destinations become more popular every day, especially with the increase in drop ship capabilities reducing the time from order submission to product receipt. But connecting distribution facilities to an eCommerce provider involves various state and local laws that have direct and indirect considerations. The following is a fresh look at how those laws affect the distribution channel.

The old model of firearms sales – and retail in general – saw retail owners attempting to manually forecast consumer demand. Although late to the party, the firearms industry is increasingly utilizing the internet to drive sales. While auction sites and secondhand sales may have been movers, the past few years have seen a flood of brick and mortar retailers and home-based businesses creating a web presence to capitalize on increases in consumer demand. Electronic connectivity between distribution and retail has permitted firearms dealers to represent essentially an unlimited variety of inventory increasing the shop and price search capability of consumers. Under Federal law online firearm sales are still required to be shipped to and transferred by an FFL to the consumer.

Although online shopping imposes some price pressure on retail, there are still benefits to be had. Retailers who receive in-bound firearms for purposes of transfer usually charge a fee for those services that can cover cost only or include a markup. Additionally, the receipt and transfer of inventory increases in-store foot traffic providing opportunities for product and range upsells. That might include ammunition, accessories, apparel, or otherwise.

An online destination that is feeding distributor inventory purchase options to consumers may bear additional regulations from several states or municipalities throughout the country. Absent online product classification or restriction warnings, consumers may have little knowledge about increased regulations pertaining to their locality at the time of checkout. For example, various “assault weapon” prohibitions, firearm “rosters”, magazine capacity limitations, and other restrictions may prohibit the legal transfer of product despite the fact that it was purchased online and arrived at the FFL location. The implication to distribution can result in unnecessary labor, inventory held at distribution, returns / chargebacks and potential legal implications if the illegal transfer were to transpire.

Let’s assume a consumer is unaware of a certain restriction in their location. Or perhaps a consumer lives in a city where there are firearm restrictions and makes a purchase online and has a firearm shipped to another city in the same state that contains no such restrictions. Multiple outcomes are possible. Worst case scenario; the distributor ships the firearm to the retailer and the retailer is unaware of the restrictions and transfers the firearm to the consumer without hesitation. The retailer has unknowingly violated the law. Best case scenario, the distributor has someone reviewing every sales transaction (what a sunk cost!) and they identify the consumer’s residence as a restricted jurisdiction and prevents the sale. 

What about a very common middle of the road scenario? Distributor allocates labor to process the sales order. Further labor prepares the item for shipment. Distributor pays the shipping fee to ship the firearm across the country. Retailer receives the firearm. Upon receipt, retailer realizes that the firearm cannot be transferred to the purchaser (whether the retailer’s or purchaser’s jurisdiction prohibits the transfer is immaterial). Thankfully the retailer does not transfer the item to the purchaser, but what now? Very often the retailer contacts the distributor to arrange for the firearm’s return. So again, distributor allocates labor to answer the phone, enter an order into the system to take the firearm back in. Distributor again pays shipping costs to return the firearm. Distributor allocates more labor to receive the item back in and stock the order. Perhaps most significant is the presence of inventory at a retail location where it may not be deemed legal in that local, regardless of transfer.

While one occurrence of the above is certainly not a great amount, these situations can (and do) occur regularly, and costs and legal risk do add up over time. So, what is a solution for the distributor in a time when these internet sales will become even more common, as well as a time when firearms restrictions are only likely to increase? As with anything, there are multiple ways to skin the cat.

A distributor could allocate a resource or resources to evaluate every sale prior to shipment against the sales order. Whether sales personnel, compliance personnel, or legal personnel, that is a lot of time for review that is eating into profit margin. Not to mention, it’s not always practical.

Another solution for distributors is to classify all firearm material numbers in their ERP or WMS. If and when a sales order is entered for a certain material to a certain location, if the system is correctly configured it can prevent the sale from moving forward. To set up such a system would see an entity have to go through and classify the entire category of their parts. Every new part that is created would also have to be so classified. Beyond that, the entity would have to monitor legislative developments across the country to stay abreast of all pending and passed legislation to update their system. This is a viable option to pursue that others have done in the past. A final solution could be for the distributor to integrate their ERP or WMS with a 3rd party UPC database that has already categorized firearm UPCs and configured a restrictions matrix to prevent the execution of sales orders to restricted locations and avoiding all the wasted labor summarized above.  

eCommerce in firearms will continue to rise at increased rates. With perhaps the singular exception of the sunset of the Federal Assault Weapon Ban, firearms restrictions generally tend to move one way – more restrictive. The complications will thus increase for the industry as a whole and distributors and manufacturers are wise to invest in a system or process to avoid tens of thousands of dollars in wasted labor.

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