Thursday, February 27, 2014

Discounting (Tradecraft)

If you listen to the game trade experts, you will know that discounting is a bad thing. It dooms you to your parent's basement and a life of ramen noodles. But what do they mean? I've talked to people that have taken this mantra so much to heart that they're afraid to discount anything. "But Dave said no!"

What the game store gurus are referring to is running a discount store, where everything is discounted across the board. That's a recipe for ramen, er, I mean failure. You can absolutely do it. If you want to be a game store monastic and take one for the team, by all means, it's possible. Your store won't have nice things. You certainly won't have nice things, or a future, but you can. I've got a competitor right now that does that and I'm basically waiting for them (or their mom) to lose interest.

What you should do, what you absolutely must do, is discount things to get rid of them. This assumes you run a profitable business with inventory management, payroll, and profit. Dead inventory ties up your cash flow and impedes you from paying your bills and getting all the new things, which is your recipe for success. Inventory is your economic engine and when it's full of sludge, the performance of your store will absolutely suffer. You owe nothing to anyone in this regard. Your job is to tune for high performance.

Sure, you can run a "shock and awe" store, and many do successfully. They never get rid of anything. They've got gems from a decade ago. But could a single one of them tell you how to run a shock and awe store? Could they put down on paper exactly what's required to run a one turn a year inventory hoarding business? Can they tell you why their retirement funds are tied up in sludge inventory?

The best I've gotten is "This is what we do, it works for us somehow, but I don't recommend it." There's probably a way to slog through the first decade of a shock and awe store, without making a dime, and coming out strong and safe on the other end, but why would you do that on purpose? Shock and awe is usually something that happens to you, rather than a business plan.

How you discount, where you sell your goods, and how soon is up to you. Generally, I do it like ripping off a band aid. If I get in a product I accidentally ordered and I know it has no hope of selling at full price, I discount it out of the box, and I discount it 40% to quickly get that money back (gross margins are around 45%). I don't wait because I know. That's true of anything I dump. I want it gone. I'm not going to be clever with a graduated sale, with 20% today, 30% tomorrow and 40% on Saturday. I want the money back ASAP because I don't have time with something that already has the stink of death surrounding it and I'm not putting it on sale because I want to entice customers (also dumb).

If I were concerned about image, I might put all my dead stock on Ebay or Amazon and sell it slowly. In a perfect world, I would have an upmarket store and a down market store and I would ship all my junk to the down market location (that's just fantasy though). Generally though, I have a subset of customers, my vultures, that come and pick the bones clean. They shop the clearance bin, and that's ok. Dead inventory is a thing that happens. Vultures are necessary for the ecosystem. Everything will be dead one day, it's just a question of whether the last one goes home at full price or a discount.

The game trade is front list driven. As the last two fairly crappy months of releases have shown, if you don't have the new things in the game trade, your business will suffer. Recovering inventory dollars is how you maintain that cash flow and inventory clearance is how you do it. It's just a tool in the tool box.



17 comments:

  1. My two local FLGS have very frequent sales: 10% of this product line, 25% off that product line, 40% off those other things there. One does them very frequently - I mean once a month or more, which also does the "Tuesday, all Graphic novels are 20% off" thing. He also doesn't really advertise his one off sales, it's not very tactical. He does advertise his daily deals.

    The other has less frequent "event" type sales, but again it's blanket discounts on product lines.

    And that's how I used to do my sales/discounts. Blanket discounts on product lines during events (Midnight Madness was popular with my customers).

    I have learned from your blog-tales that I needed to be more laser focused in my discounting. I was training my customers to wait for my semi-regular sales. And then they would come in and clear out the "Good" stuff at discount, which I would have to immediately have to restock. Yes, it was a quick cash infusion, but long term? Not a good strategy.

    ReplyDelete
  2. I wonder if a "Down Market" flea market shock-and-awe type store could work. Low rent, active online vending, shelves upon shelves of ancient stock, never discounted, or barely discounted. Buying others' stock. Making it up when you get that rare White box, or a set of Power 9 for cheap and turn it at high price online or locally. Also receiving a steady flow of overstock and bunk products from the upmarket store...

    Another idea is for someone in a large metro area to open a "down market" store, and set up relationships with Upmarket stores to periodically buy the upmarket store's overstock at xx% of the retail or cost price, but agree to buy it all...

    ReplyDelete
  3. Training customers for the sale is the a common term, and I've been guilty.

    ReplyDelete
  4. Down market store = convention dealer room.

    ReplyDelete
  5. Gene RiemenschneiderFebruary 27, 2014 at 10:44 AM

    Always love your business insights. Much of it goes way beyond game stores.

    ReplyDelete
  6. I did a 25% discount on MTG singles ONE WEEKEND, and it depressed sales for the rest of the year. "I can't justify that price, I'll just wait for the next sale" became a popular bargaining tactic. Never again. Either I'm stocking great stuff at a price which will cause it to sell, or I'm dumping it on eBay, starting price $1.

    ReplyDelete
  7. "Either buy into my value proposition or GTFO" is an entirely valid strategy, provided you're adding that value.

    ReplyDelete
  8. I always get a happy feeling when I see a new post in my feed reader. 2/3 of my business is used video games, which more or less manage themselves with a good pricing service, but for the often-neglected hobby/tabletop side of my business, I learn a lot here.

    ReplyDelete
  9. Your article is timely in that while we've been open close to five years we've never had a sale, but dead inventory is starting to appear(4.0 books for example) So I'm now thinking of adding a discount bin. What is the usual discount offered?

    ReplyDelete
  10. Short answer is whatever it takes to get *something* back on your investment. I try hard not to lose money in an obvious way, so I always like to get my full cost of goods back. When that's not possible, I get a bit more stubborn and let things sit for at least a convention cycle before I mark them down further. It's foolish to wait too long as that asset is costing you money sitting there unloved.


    Conventions are where a lot of our dead stock goes, sometimes with instructions like, "I don't want to see this again. If you need to throw it out the window on the way home, that's fine with me." I don't expect them to actually do that, but you get the picture.

    ReplyDelete
  11. Oh, and at some point it's fine to donate items or in the extreme, give them away or *gasp* throw them away. We have a Toys for Tots bin that will often get perfectly good games or overstock in December. We gave away $1000 worth of games a few months ago.


    We've also had a couple tables in the with RPGs where we've instructed people to come and get 'em. It's amazing how many questions we got with this free give away.


    Trash is the final option, and we very rarely do that, but we did have a garbage bag full of Redakai that was quite controversial.

    ReplyDelete
  12. Posist Technologies Point of Sale (epos) a web based point of sales system designed to help Sweet Shop POS & Fast Food Billing Software with keeping track of customers, items, sales and stock. This web pos works great for restaurant, Café, Bakery, sweet shop, food outlet, QRS businesses that use cash, check, or account numbers for their sales.

    ReplyDelete
  13. Posist Technologies Point of Sale (epos) a web based point of sales system designed to help Sweet Shop POS & Fast Food Billing Software with keeping track of customers, items, sales and stock. This web pos works great for restaurant, Café, Bakery, sweet shop, food outlet, QRS businesses that use cash, check, or account numbers for their sales.

    ReplyDelete
  14. I opened a new store in October and among the year of research was reading every one of your blog posts. They've been very helpful for me. I would like to add one type of sale that has been very successful for me. As a new store, I had an opportunity to get people playing games that other stores in town weren't offering. Over the course of my first three months, I had a weekly featured game that we demo'd in the store and sold starter product for 20% off. It significantly helped build the Netrunner and Warmachine communities here and led to an explosion of Star Trek Attack Wing players. I laser focused the sale to intro items only and only games with much deeper lines that would have more overall sales.

    ReplyDelete
  15. It's wonderful when that works out. It's kind of a perfect storm of your interest, combined with customer interest, and a solid game. I've tried this many times where one of the variables was missing. You can't make things happen, but you can arrange to be at the right place at the right time.

    ReplyDelete
  16. I can tell you how the model works at a functional level. Slower turns
    on a much broader selection of merchandise, but overall much better
    profit margins. This necessitates getting much of the product at far
    better margins than is traditionally possible to get with just new
    product sources via game industry distribution. Used merchandise can
    accomplish that. Inventory close-outs can also. Ideally what you are
    looking to accomplish is the same high turns on the current and popular
    product, but then to also net in the long tail of a broad selection of
    more fringe product. Indie stuff, out of print stuff and undiscovered
    stuff. That mass of inventory must also be stored and displayed in a
    cost effective manner when compared to the cost to carry that product
    (lease, mortgage, electric bills, etc) and a marketing system should be
    in place to help communicate the broad selection of goods to consumers.
    Just sitting back hoping a customer for a severely niche product will
    just wonder in of their own accord likely is going to see much of that
    product collecting way too much dust.

    ReplyDelete
  17. Thanks for sharing this site, it is very informative for the business personals.Keep on continuing with this.Overstock merchandise The Closeout Club(Ph:3059140154)is a leading closeouts wholesaler of overstock, surplus, liquidation, salvage and closeout merchandise

    ReplyDelete