Wednesday, July 18, 2007

Game Store Buying

People have been curious about the nuts & bolts of running a game store, especially if they've thought about running their own store. One of the topics I enjoy, and that nobody ever explained to me properly when I started, is purchasing. Most game stores buys $100,000-$200,000 of games each year from distributors and manufacturers. When you're starting out, there's no guide for doing this. Retail isn't taught in schools. You can't take classes in it. The few retailing books vaguely describe it and often in language that doesn't match the game industry. Yet, buying is something that's been done by merchants for thousands of years.

Here's how I do it.

First, I need to have available money in my budget to buy stuff. I know this based on a spreadsheet that's called "Open to Buy" in the retail industry. This is a simple spreadsheet that adds my cost of goods and money I've already spent to come up with an available balance. If you don't know retail, that $29.95 D&D Player's Handbook costs me $15. That $15 is my gross cost of goods. When everything is said and done, there will be another $3 in various costs associated with selling that book, such as theft, credit card fees, etc.

After I sell that book, I have $15 to buy another one or to spend on something else. My end-of-day "Z-Report," from my Point-of-Sale machine, provides me these numbers. I enter those numbers into my spreadsheet. The spreadsheet looks like this:

So on the 17th I overspent by $50 but by the 18th I had a surplus of $75 to spend.

Second, I determine what I'm going to buy. My point-of-sale system tracks everything I sell and it's cost of goods based on distributor pricing. Every item is set to remind me to re-order it at a certain point, or to ignore it if I tell it I'm through with that item. For example, I always want 3 copies of the D&D Player's Handbook, so when the stock falls below 3, it adds copies when I generate a purchase order.

Although creation of the purchase order is automated, I still have to go through most items to see if I really want to order them again. Some items sold well at first, but may have petered out and need to be dropped. This is really important, because unless you're adding money to the inventory budget, there's no way to afford new items unless you drop old ones. It's especially difficult during the Summer months and before Christmas, when everything new is coming out. It's not uncommon for me to run huge deficits and slowly "burn" them off with holiday sales.

Third, I decide what I want that's new. Hopefully I've chosen enough items to drop, or even better, budgeted money for a new release. Hopefully I've done some research and listened to my customers so I know what to buy. If I don't have enough money, I may need to forgo an item. Stores learn about new releases from what's called "The Daily." Every big game distributor as well as Diamond (comics) sends out a daily on every week day. Manufacturers usually send out a new product listing once a week. This is all the new stuff, and even more importantly, all the items that are back in stock. Each new item that you want to buy must be manually entered into the point-of-sale system or, if it's old, its entry modified to be re-ordered.

Fourth, after all the new items from the daily are entered into the POS (point-of-sale) system and my budget has been checked, I finely craft a purchase order (PO), save it to PDF and email it to my distributor. My POS system can electronically submit PO's, but no distributor has the system to read it. Instead, someone pounds out my beautiful PO into their order system and they call me. This is the call where they tell me "how they're going to save me money." In other words, they don't have everything I want. They'll also tell me "how they're gonna make me happy," with some last minute items that got pulled off a truck and will likely break my budget. So my budget gets all wobbly with these pluses and minuses, but it works out in the long run.There are three types of interesting inventory problems that happen when you order incorrectly. One is when you expand or are just lazy with your purchasing. Your inventory bloats and the money you were supposed to use for rent and your salary are instead sitting on your shelves.

The second is the "inventory death spiral." You realize you can't pay your rent, so you stop restocking and buying new games. Because you stop buying, your sales fall. Because you're sales have fallen, you continue to stop buying. Your inventory shrinks as you spend your shrinking inventory dollars to cover your costs. This can also happen if you buy the wrong inventory in a big way.The third problem is managing categories. If you've got a big category that accounts for a good portion of your sales, like Games Workshop, comics or toys, you need to track them separately. If you don't, you can have problems balancing your inventory. Say you sell $2000 in Games Workshop over the weekend and don't re-order. You have $900 in your purchasing budget, but rather than re-order GW, you buy the new Magic release. You no longer have that Games Workshop money until you sell all your Magic (although you may have planned it this way).

Unless you track your inventory dollars by department, you'll slowly see a shift in your store inventory. I find this to be organic, but some people might find it undesirable. For example, our inventory slowly moved from card games and role-playing games to miniature games. The miniature games were doing well, there were many new releases and new product lines, RPG and CCG releases were sparse, and eventually miniature games sucked up all the inventory dollars. We didn't plan this! Luckily, we're happy with it, but it could have been a bad situation. For example, if my toy inventory dollars started creeping into my game inventory because it wasn't toy season, I could find myself needing thousands of dollars to bring my toy inventory back to normal for the holidays.

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