Friday, July 9, 2010

About Your Junk

One area of the store that I rarely discuss is our used section. It's a significant portion of our sales, and the higher margins offset a lot of purchasing mistakes, along with programs like our Paladin Club. Buying and selling used games is a big factor in our success and a key to our survival. Lets take a look at how we acquire this stuff, mostly used role-playing games that were probably worth upwards of $50,000 when they were new.

When we buy new games, we have a budget. From this budget, we choose to buy new or older games that we think have a good chance of selling within a finite period of time, mostly the period before the bill is due. This is usually 30-45 days, but no later than 90 days based on our turn rate goals (4 turns/year would be every 90 days). The margin on these products is generally keystone, meaning we get twice what we paid for the item as a gross margin. This is required for the game store brick and mortar business model. If we deviate too far away from this margin, we fail.

The budget, the timing, the margin, combined with decisions not to re-order merchandise and incentives to make bad merchandise go away are the fundamentals of a retail operation. It's a zero sum game with a ticking clock. If you were to peek behind the curtain, Matrix style, you wouldn't see zeroes and ones across the screen, you would see a cash flow diagram. I often measure success as how long before we run out of money. Exciting.

Used games are outside of this structure. When we agree to buy used games, it means a few things: a) We'll take whatever quantity you have for us, regardless of our budget, b) We'll take your games any time, and c) We'll take your games with few exceptions. All criteria we use to buy new games, budget, timing and selection are thrown out the window for used games. This is why you will always get a lower price for your games when you sell them to a store. It's a big wildcard that requires different math.

The amount we pay for used games is directly determined by the demand. If you come in to sell me a copy of Ptolus, and there happens to be a guy in the same room who wants a copy of Ptolus, I'm willing to make a smaller profit margin. The going rate for the book is $250 and I would be happy to buy it from you for $200 and hold onto it for five minutes. There is a small risk the buyer won't buy it, but the reward is worth it. Without that guy in the room, the price I would pay is around $85 (a third of the cover price). If it's not Ptolus, just some dingy old hardcover role-playing book, it's worth $4 to me. The buyer and the time it will take to sell it are complete unknowns.

Likewise, if you sell me your entire collection of Rifts, a regular occurrence, I will give you our standard $2/softcover, $4/hardcover guideline, as it's likely they'll sit on the shelf for up to a year before someone buys them. That I know someone will eventually buy them is why I'll take them from you. We've stopped buying D20 products that aren't Wizards of the Coast (the only RPGs we won't buy) because there is zero demand for them. The Rifts collection will sell for $6-8/softcover and $8-12/hardcover. This higher margin offsets the fact that I don't have a buyer for this stuff, along with the likelihood that one or more of your collection will never find a home and will end up in the recycling bin. Everything will eventually end up in the recycle bin.  I just want it to end up in your recycle bin and not mine. Welcome to RPG hot potato.

So what about Ebay? What about the secondary market? You will always get more for your games by selling them yourself and finding that buyer in the worldwide market. You are now a retailer. Enjoy! You will take responsibility for the product, do a bunch of work, answer idiotic questions, ship it, ensure it arrives, and eat it if it doesn't. I use Ebay to get a general impression of desirability of your games, although often after the purchase. If a game seems highly desirable, we'll price it at the low Ebay price and put it on the shelf. We don't have a worldwide market, so we can't be as picky. Likewise, you can often find a book cheaper with us. I very rarely Ebay items myself unless I have them in quantity or they're highly valuable, like that Ptolus.

Likewise, you can usually get a better deal with a vintage collection through a company like Troll and Toad, and I'll recommend this the two or three times I've seen a collection of such high quality. I'll take a crack at it, but if you really know what your stuff is worth, you should do it yourself. These online guys buy vintage games, have a vintage game clientele and generally only want the good stuff.

Also, I'm not in the business of ripping people off, so if you have a particularly good collection or one very rare book, I'll often let you know. Sometimes I can't stop myself from gushing over it. I might say, this giant stack here is junk, but these two are good, which makes this collection worth "X" to me. I don't want you to cherry pick the good stuff out, but I'm happy to add the value to the rest of the pile. If I happen to be busy and I buy your entire collection with our $2/softcover, $4/hardcover (in store credit), and I later find a rare book, I don't lose sleep over it. Having a flat system like this in place avoids making any of this personal or making me feel like Fred Sanford. I tell you what I think your collection is worth and I invite you to say no if you want. I very much want you to be happy and feel no pressure from me, as this transaction is likely a small part of our business relationship. I would say 95% of people take the offer.

So that is the risk-reward structure of buying used books. It works well for us because we have a critical mass of product, a clientele we've built up over years, and methods for disposing dead inventory. There is very little we can't sell at any price (see the aforementioned D20 books). Buying used games is playing the long game, but it's worth it. People drive hours to peruse our used game section. It's what differentiates us from every other store. Some customers only buy used games, while others use the savings on used books to offset new book purchases. Because we're up front and honest about it, everyone seems to think it's a pretty good deal.

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