Saturday, September 23, 2023

Why Turn Rates Lie (Tradecraft)

A friend noticed my comment yesterday about how my CCG turn rates went from 18 to 4, over the last several years. He lamented that must have been difficult to deal with. Yes and no. The problem with talking about turn rates is in the name, it is a measure of something happening. But what's happening?

Turn rates are the number of times in a year you turn over, or sell through your inventory. So we're dealing with two numbers here. We have the inventory value and the sales velocity. It's fine if your inventory is stable, but what happens when your inventory is expanding or shrinking? 

My inventory value of CCGs in 2023 is roughly three times what it was in 2020 (my sales are not three times higher, and we'll get into that). So maybe my 2023 turns should be a COVID adjusted 6, instead of 4 (18 divided by three). A turn rate is a nice data point, something to keep in mind, one variable among several. It can be deceptive though. 

I should mention we sell almost twice as much CCG product in 2023 than in 2020, which has transformed the store and my life. But as I mentioned we have three times the inventory, which is way too much.

Rather than look at turn rates, a more accurate view of what's going on is Gross Margin Return on Investment. GMROI was something I would rarely calculate before my new POS system, because it was cumbersome. However, my new reporting package crunches those numbers for me, without having to ask. GMROI says that for every dollar you spent, you got X dollars in return. 

The first time I crunched the GMROI numbers myself, I realized I was getting a 65 cent return on every dollar I spent on chess sets. That was a much clearer reason to dump that category from my store than say, a turn rate of 1.5. I now carry just a handful of chess sets. GMROI is a much clearer lost opportunity. 

My overall store GMROI is 2.92. This is alright, but not great. A good GMROI, according to articles I've found (because we don't talk about this number in the game trade) is 3.2 or higher. I don't know of a game trade specific value. 2.92 means we have room for improvement, and the biggest area for room is ... you guessed it, CCGs. 

My GMROI score for CCGs is a sad 2.17. Basically, all the same categories with poor margin (calculated in the last post) showed up with below average GMROI scores. However, CCGs is by far, the worst offender. Like a lot of stores (and distributors), I'm sitting on a ton of CCG product from the last three years. 

Because we're all in the same boat, with the same CCG product that needs to be dumped, there is little opportunity to quickly liquidate that product. It is often sold well below cost online. I'm primarily talking about Magic: The Gathering. The game has seen a shift in strategy, production volume, and product variety. Many stores are trying to unwind this experiment. 

What this means for a purchasing budget, meaning how stores spend, how distributors spend, and what happens to people trying to sell to stores and distributors games, is a slowdown. We will all slowly unwind this product, because there is no quick selling of a universally dead product, other than a dumpster fire. It is broadly recognized as trash (even when it's objectively good). 

Those of us who can't unwind their inventory might fail, and I'm certain some already have. It's one thing to personally over order and make a mistake, but when an industry over orders and makes a mistake, the effects will ripple outwards and it will gum up the works. I will buy less, distribution will buy less, and publishers of games, who having nothing to do with Magic: The Gathering, will feel the effect as orders decline. Even if we did get rid of this stuff, we have been left a little impoverished and gun shy as a result. And that's how the post COVID boom ended. 

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