Pro Active Price Increases

 Consumers see retailers raising prices ahead of tariffs as something unethical. It seems to depend on whether they like your store. If the retailer is dealing with other issues, such as Target, the criticism tends to be much harsher.

However, If I had to absorb the full cost of expected tariff increases up front, it would put me out of business. The added costs are about twice my annual profits. Prices need to go up on existing inventory before you restock your shelves.

When I hear about an upcoming price increase, it is essential that I adjust my prices before I sell out of the current stock and have to restock at higher costs. If I can do this for about half my inventory, I estimate I can neutralize the initial cost impact of the tariffs. If I wait and take a "power to the people" approach, my business will not survive.

There is a downside, of course. Higher prices lead to lower sales. As we have discussed before, a ten percent price increase typically results in a twelve percent drop in sales. Larger increases are even worse, which means many products may need to be cut entirely.

To give a specific example, I sell Pathfinder, a roleplaying game published by Paizo and manufactured in China. If those imports continue, I expect to see a fifty-eight percent price increase and a sixty-nine percent decline in demand. That would be enough to make the product unsustainable in my store. In a case like that, I may keep prices the same but stop reordering altogether. Paizo is currently one of my top 20 publishers, so I'm hoping they move production.

Right now, I am stocking up as if it were the holiday season. We have just come off a post-election sales boom, likely fueled by just such an uncertainty. Trust the "wisdom of crowds" I guess. Among my investors, there is ongoing debate about whether to hold back spending or go all in on products most likely to be affected.

My approach is somewhere in the middle. I do not have enough capital to buy with the holidays in mind, but I do have enough to build a small cushion. That might help me weather a short-term disruption. I would not be surprised to see a surge in national wholesale spending in the second quarter as others try to get ahead of these changes. If you don't have the cash, spending close attention to price increases and long term viability of product lines, should be enough to survive unscathed.

Whatever your strategy, you need to be pro active with these price increases. Your customers may appreciate you being the last person standing at the low price, but you're probably not going to have enough money to survive.

Trump Tariffs and the Flight to Quality

My first impression is that the new tariffs will increase my store’s cost of goods by around 23 percent, most of which will be passed on to consumers. I already had the spreadsheet made.

There will be a big attempt to pivot away from problematic products. This 23 percent amounts to hundreds of thousands of dollars in what amounts to a tax, just pushed down the chain to the end user.

Here’s what I expect to happen:

• Some games will become clearly untenable because they’re simply too expensive to carry. An $80 Catan? Sure, we'll keep carrying it, but we won’t be selling nearly as many.

• Other games may seem viable at first, but as customer behavior shifts, we’ll end up stuck with them. That means we need to be more cautious. This always happens during a recession, and...

• There will likely be a recession.

• Inflation is likely to spike.

• Unemployment could double, over 7%. That’s what economists are predicting.

We’ll probably see a “flight to quality,” where people adjust their spending habits. Big purchases like cars and vacations might get postponed. But hobby games? People will still buy them—even more so, even at 23 percent higher prices. Hopefully from me still.

This will definitely change our product mix. Board games and non–Games Workshop miniature lines could start to disappear from our shelves.

If I had to guess, I’d go through our best-selling board games, cut projected sales in half, and keep only the ones that still meet our metrics. I think about 20 percent of our current lineup will make the cut. We carry a lot of marginal board games. We carry a lot of marginal everything.

It’s possible we no longer carry marginal things—anything I wouldn't order by the case. That’s not good news for the game trade.

We’ll probably survive. We might even prosper. We’re selling life preservers on the Titanic. Great! Until your socks get wet.

This is not madness. It’s simply a regressive tax that helps fund tax cuts for the wealthy. There was nothing wrong with the previous economic order. Nobody was getting taken advantage of. Manufacturing isn’t going to change locations. The job market won’t fundamentally shift. We certainly won’t be hiring for a while.