You may find yourself with higher sales but that sinking feeling something is wrong with your store. It's like the money is coming in, but there's still no cash at the end of the day to pay bills. It's not that people are stealing from you, but you've seen an increase in sales of corrosive products that erode your margin. Or perhaps you run poorly thought out events under the umbrella of a "marketing expense." Marketing expenses are where bad ideas go to die. This is when you need a GMROI checkup.
We work on a lot of assumptions about how our stores work. We do the work, we hit sales targets, things are well. When you invest in low margin product, or low margin activities, assumptions are no longer enough to keep you afloat. Some examples of this are Ultra Pro with their "net" pricing that leaves you with a 35% margin. For a long time, CCGs like Pokemon and Yugioh were at a 40% margin, although you can boost that with the right distributor.
The proper functioning of a traditional game store historically required a 50% gross margin, but that has been slipping for years. My impression is it hovers around 45% for a diversified store and perhaps down to 40% for a more card centric model. Besides product problems, you may also be running "customer appreciation" events that rewards "butts in seats" but erode your margin. The margin of your traditional $15 Friday Night Magic event is pretty poor if you're in a state with sales tax and you're including it in your event fee. Our FNM hovers around 25%.
The solution to this is fewer customer appreciation events. If you have to have them, boost your game center sales by monetizing space. We do this by requiring a buy in to play, a $5 for $5 of store credit model. Every scheduled event uses this model, with free play only when nothing is scheduled. This won't change your margins, but it will increase your sales as freeloaders are now required to become customers. Your event won't support pay to play? Appreciation goes both ways and it sounds like you are the one not being appreciated. Drop the event. You don't owe them anything.
When it comes to inventory, you have several options. First, use just in time inventory for low margin items. An extra box of Pokemon or a month supply of Ultra Pro sleeves is an opportunity cost you can't afford. Go lean on these products. Order more often if need be, provided you can avoid freight. Also be ruthless with these inventory categories. We used to carry every play mat. I never met a play mat I didn't like. Just last week I decided there were just too many low performers to treat it like the "product pyramid" as we do with dice, especially at low margins. As Magic had tanked over the last year, so had play mats. It turned out a third weren't performing to my liking. Goodbye.
You can also mark up low margin items. Many stores see CCG supplies as a profit center making up for lower prices on their cards. If you've got low CCG prices and low CCG supply prices, you should definitely be balancing this out. Even if you aren't in the balancing game, who is Ultra Pro to decide you will carry their stuff at the worst margin in the game trade? Mark it up.
Finally, get out of some of these lines altogether by diversifying. If you have more than three lines of card sleeves, you probably have too many. Drop the lowest performer. Card players have a tendency to fetishize their sleeves and they need to get over it. Of course, if you raise the price, you can have a wall of card sleeves a mile long. An Ultra Pro example would be to lean out your stock, raise your prices and take that money and invest it in just about anything else. If you have the market for high margin items, go there.
Our jigsaw puzzles aren't great sellers but they're the highest margin item in the store. If you're going into board games, seek the brand value protected product. Look to Asmodee right now as they've changed their MAP on their core line to no more than a 10% discount. Seek value with product over 50% margin.
There are also categories that have price elasticity that will allow you to go over MSRP, such as dice, miniatures, and even some of those aforementioned card supplies. An extra quarter for a miniature won't be noticed by the customer, but it might keep you in business. Take advantage of any opportunity to balance your margins by exceeding that 50% line in the sand. Look for sales of things you actually need. Buy direct from China. Embrace publishers who provide such opportunities.
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