Friday, November 30, 2012

Cost Cutting (Tradecraft)

One of the projects I, and many, store owners perform annually is examining costs. Just because I have Internet and electricity doesn't mean I can't have Internet and electricity cheaper. Shopping around, including re-jiggering existing accounts is an important way we maintain very thin margins. With inflation at around 3% a year, and our profit margins in the 5-8% range, we need to get very creative. We can't just raise prices, like other businesses.

Games have very little "elasticity" in their pricing, meaning we rarely pass on higher costs to customers through price increases. For the most part, MSRPs are firmly established by publishers, tying our hands. Many publishers, fearing retailers will besmirch their value proposition, make a point of printing that price right on the product. They have no idea what the retailer pays for that product from distributors, as it's a sliding scale with a bewildering chart of publisher specific discounts. Our own system uses cost averaging since no product costs the same from different sources. I can buy six boxes of Magic in a week from six suppliers at six prices. But the MSRP on all those packs is $3.99.

As I've mentioned before, one of the nice things about toy stores, is toys don't have MSRP's, they just have costs, which allow for a variety of business models based on pricing structures. There's the low end toy store and the high end toy store on main street. They offer different experiences, different products and serve different demographics (remember it's parents with money, not children).  Games? Game stores generally look the same because they generally sell their goods at the same price, to the same demographic, because that's all they can do. Game prices are well known and game customers know them. So we all look the same, generally, unless we diversify away from games into more elastic areas. In the scheme of retailing, hobby games suck. Why do game stores have such a difficult time?  Why are they run by hobbyists and not professional retailers? Right here.

My cost cutting at the moment are the troublesome, potentially expensive cut overs. For example, I'm changing my AT&T service, dropping a line, and moving to their lower cost U-verse from DSL. This saves me about $50/month but it's opening a can of worms. They keep you from switching by making it difficult. They bundle services, and in the case of AT&T, simply lie about what they're offering and what they're planning to do. They charge for equipment but offer rebates for nearly the full amount if you stay. I've kept my fax line installed for two years now, despite no longer having a fax machine. Kicking that hornets nest was a headache I avoided.

Before you tell me how much better cable is, or whatever service you use, know that businesses often have little choice in the matter. I don't have a cable option as there is no cable run to my building. If I want Internet, it's through AT&T or with someone else over AT&T copper. I also generally pay higher rates for everything, some more than other, with telecom being one of the worst offenders. AT&T knows this and they treat us poorly, combined with fewer consumer protections, as businesses aren't people. If you're planning a business, don't assume costs based on personal experience, research what businesses pay for that same expense, it's almost always higher due to the rate or usage.

Next will be tackling our overpriced alarm system, which will mean canceling a contract and having expensive equipment installed, similar to what I needed to do with AT&T. This is how these companies get you to stay, by getting their tendrils into your operation and making it painful to leave. Switching credit card servicers involved five pin pads before they got it right. Five. Still, saving $25-40 a month on something as turnkey as alarm monitoring ads up.

One of the more interesting projects I'll be tackling soon is installing a pair of Nest thermostats. We already have "smarter" thermostats from PG&E, which cut costs very slightly (they were free). However, the Nest is a truly smart thermostat that learns behavior, can be managed with incredible granularity, communicates with its counterpart, and can be managed over the Internet. Most importantly, the Nest learns from behavior, meaning it works how we need it to work, not how we think we want it to work. With our electricity bills averaging around $600 a month, even a modest savings of 10% would cover the $500 cost of the two nests in less than a year. At my house, the Nest would be a neat, but pricey toy. At my business it's a potential powerhouse of savings.

This is retail. This is what we do when we're dong the thing. This is a big part of what we talk about when we talk to each other, rather than what's the hottest Planeswalker or best barbarian build for Pathfinder. Some of these projects will explode in my face, sometimes by design. Most will have an up front cost that most people, who don't run a business, would be afraid to tackle. All of these projects are simple survival for retailers. This is not extraordinary, this is mundane, day to day stuff. Tradecraft.

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