Wednesday, November 12, 2008

Evergreen Dilemma

In a recession, people cut back on purchasing, saving their money for essentials. In a grocery store, this means more purchases of raw, unprocessed foods. For example, customers buy lettuce and tomatoes rather than a pre-packaged salad. In a game store, people buy the entertainment equivalent of lettuce and tomatoes. If you talk frankly about what hobbyists buy in a game store, the percentage of impulse buys, including stuff that never gets read or played, is somewhere between 30-70%. The more money you have for your hobby, the higher the percentage. In a recession, customers, true gaming hobbyists, don't stop buying games, they just cut out the excess. This excess is the processed foods of the game world. Unfortunately, it's also built into the business model of the game trade.

The evergreen dilemma is what I call the purchasing problem related to this essentials-only buying pattern. Evergreen is a retail term defined by reliable products that will always sell and never go stale: D&D Player's Handbooks, most Space Marines for 40K, and games like Munchkin. These are products you always want in the store and you can't buy too many. They're safe gaming entertainment bets and safe retailer profits bets. Most stores try to retain these products, while cycling out dead inventory and rotating good games that are not quite Evergreen material.

White you always want evergreen products on the shelf, stock rotation allows you to let things go for a while, but bring them back in occasionally, kind of like the McDonald's McRib sandwich. It generates interest and excitement, but you don't have to deal with the hassle (and expense) all the time. Most importantly, rotation allows you to bring in a wider breadth of games throughout the year, rather than continually re-stocking the same old so-so titles. With my all or nothing personality I find this strategy very difficult. The important thing to remember here is that new products are bought with money recovered from products that will no longer be purchased. Sometimes this comes from magazines, or overstock of new stuff, but mostly it comes from products that will no longer be carried in the store through a natural product life cycle.

The dilemma is that if customers cut out the fat in their gaming diet, and only buy evergreen product, there is no money in the purchasing budget to buy new product. The product life cycle is cut short as marginal games begin gathering dust. There is no fat in the purchasing budget to cut out. What happens is the good "rotated" product gets sacrificed for the new, questionable product. This is risky and can dilute your store in the long run if the new stuff is not popular. The new buying pattern reinforces the problem, as people are only buying tried and true evergreen product. They're far more resistant to buying new games. The end result is a store either blows their purchasing budget, or they stop buying new stock, both of which are long term recipes for failure.

The first retail instinct is to have an old fashioned sale to recover the money in the dead product. Sales of listless product can be a purchasing lubricant which can allow a store to continue making new purchases. Unfortunately, sales work best when people have money. A sale when customers are poor results in their spending what little money they have on stuff that makes you no profit. This is why you'll sometimes see record sales figures at large stores but with an ominous profit warning for the future; they had a huge sale and made no money! If you have $50 to spend, am I better off if you spent it on a $50 game at full price or on a $100 game at 5o% off? The store is always better off with the first option, assuming the plan is to put the cost of goods back into purchasing. That $50 no profit game means I can't pay employees or the landlord. The other option is the inventory death spiral, where a store liquidates product to pay the bills, putting all the money into expenses. Small stores tend to make this mistake more often. Anyway, the sales dilemma is just as vexing as the evergreen dilemma and it's not a solution. What's the solution? Beats me, which is why retail is in so much trouble right now.


  1. Kinda related, but mostly not:

    Why the Hell do these big companies want to keep being bailed out (re: The Big Three auto companies)? Their failure might cause economic issues? Aren't we there?

    I don't see the stock market stopping it's downward spiral. It hits a speed bump every now and then on the way down but it ain't stopping.

    Maybe you should appeal to the Feds, get some phat lewt. Tell them your local economy depends upon you and it would be a disaster to let you fail.

    I iz so angree at dis farkin crap!

  2. My bank is now modifying home loans, so that might take some of the personal pressure off.

    Anyway, things have improved since the election, it's now about trying to make up for bad times.