Monday, May 11, 2015

Inventory Categories (Tradecraft)

Managing inventory is a difficult process. It's a mix of objective criteria with your subjective feel for your store. It's what happens after purchasing, and as you know, purchasing is about being able to predict the future. So it's no wonder subjectivity plays a role in inventory.

Most of my posts about inventory management are about nuts and bolts, tactical deployment for finding value and recycling capital. Turn rates, sales per square foot, and similar metrics are about squeezing out value. But what about inventory strategy? Inventory strategy tells you when to apply those tactical tools. We're attempting to win the war (making money), by picking our battles. 

That led me to inventory categories, a classification that allows me to pick and choose where to deploy metrics. Not every game or game system gets inventory tactics applied to it. Here are my inventory categories. You can see there are many exceptions to the rules. The solution is to build rules about exceptions.


Full Line Exempt: Games in this category are exempt from the rules. Inventory metrics are ignored. If it's in print, I have it. I reserve this category for the top game in a department, like Pathfinder, 40K or Chessex dice. There are large, psychological advantages, "top of mind" marketing, to exempt categories that go beyond metrics. 

In the mind of the customer, I want them to associate these top brands with my store. In the case of a game like Pathfinder, that means I'm going head to head with Paizo direct for customer sales, so I have their novels, every flip mat and map pack, and all those fiddly little card packs that nobody ever buys. I want customers to know that if it's in print, we've got it.

Full Line Managed: Similar to full line exempt, except I take a very liberal view of inventory metrics. For example, Pathfinder recently moved from full line exempt to full line managed, meaning I drop products that haven't sold in a long time, even though they are still in print. In our case, it was 18 months. Our overall Pathfinder turns are around 5 a year, so an item that sells every 18 months is at .75 turns. Garbage. Moving from full line exempt to full line managed usually represents a major shift in customer behavior.

Managed: Inventory metrics are applied, usually with a minimum of 3 turns a year. The vast majority of items are in this category. Very rarely I'll move a Full Line category into managed, often talking to staff about how it lost its "amnesty." Sometimes this is jarring to customers. D&D 4 went from full line exempt to Managed overnight with a slash and burn approach to poor sellers, some of which hadn't sold in years. Some of which still reside on our clearance shelf today

Exempt: Inventory metrics don't apply. This is reserved for games deemed "merchandising" or the rare game that I carry for personal reasons. This category has gotten smaller over time. Exempt also includes new lines that you're testing out or building up. A new miniature game, for example, requires a critical mass of inventory before it begins to turn. You give that game an exemption, at least for a while. How long is up to you and hotly debated.

As an aside, living in earthquake country, everyone is encouraged to have a 72-hour bag, in case you have to get out of Dodge in a hurry. These carefully crafted bags contain enough food, shelter and equipment to keep you alive for three days, but most experts recommend you bring one comfort item. It might be a Bible, a deck of cards, or your favorite book. That is your one exempt item. If you're going to have a personal exempt item for your store, try to limit it to one, if you can. 

Seasonal: This is a tough one to manage in our field, but we definitely have seasonal items. For example, we sell the vast majority of jigsaw puzzles between November and March. We still sell puzzles throughout the year, but we make sure we stock up strongly for the season, and let inventory draw down towards the end. Classic games, toys, and holiday themed items also fall into this category. During the Summer we try to stock up on travel games. Before big Magic releases, we stock up on card supplies. Seasonal inventory gets a pass as you build it up and generally doesn't get scrutiny until the season is over. Then it gets dumped as fast as possible. Our store on December 24th only vaguely resembles our store on December 26th.

There you have it. Thanks to Jim Crocker and Ryan Johnson for pointing out areas I overlooked.





12 comments:

  1. Where do you currently have D&D 5E?

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  2. D&D 5 is full line exempt. The problem with D&D 5 is the product line is far too light with few products planned.

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  3. What is the one "comfort" item you carry in the store?

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  4. It *was* the board game Tikal, but I recently got rid of it after it hadn't sold in years. I'm probably between comfort items at the moment.

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  5. On the opposite end of the 'comfort' spectrum, how do you deal with items you personally don't like, but sell well? (eg: Cards Against Humanity being a contemporary example)

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  6. CAH is a box we bring in and sell in record numbers. I don't really need to think too much about it. I've never had a single customer or staff complaint (other than "why don't you carry it?"). It doesn't stink up the store or result in theft. It's not devalued, superseded or upgraded in a way that makes me nervous. It's a pretty stable property compared to many games.

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  8. Can CAH be bought from distribution now or is it still an exclusive direct from CAH/Amazon? If it's still exclusive and you have to pay MSRP to stock it in your store, how do you justify carrying the product and does it pay for the space it uses?

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  9. The distributor is Amazon and they sell it at a 0% discount to retailers. It's easier to think about that way.

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  10. That makes sense, but leads me back to the second question in justifying selling the product at all. It sells in records numbers, but does it draw people only looking to buy CAH or does it bring in other sales to justify the space used? I mainly ask because at the couple of shops that I frequently visit, they place it right in front of you as you walk in the door and it's the first thing customers see. I feel like that's potentially valuable space wasted on a zero margin product.

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  11. It's a product bought in great numbers by people who care nothing for your store and are unlikely to return. It needs to be up front to get their attention, since they have no knowledge, understanding or desire to plunge through what's a typical game store. It's the most profitable game for most stores that carry it, so it's entirely justified.

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