Sunday, August 2, 2009

Feel the Magic

July was a stellar month for the store. It was our best sales month, besides the last two Decembers. Miniatures, role-playing games (especially used one) and board games were way up, but the stand out was collectible card games, especially Magic.

Wizards of the Coast under-printed the new Magic 2010 core set and supplies ran dry within a few days of release. It's hard to say how much of this was demand and how much was supply. My purchasing goal is to have a 30 day supply of product. 30 days is when the bill comes due and it's a safe margin of error from product blackouts and runs on hot items. Sometimes my projections are off, like the Magic Alara Reborn set, where we finally ran out of our initial order a week before the 2010 release (a 90 day supply). That's a painful hit on cash flow. It's also possible to miss it in the other direction, like with Shards of Alara, which sold out the release weekend. We scrambled to get more, and there was a plentiful supply; crisis averted. I'm happy to say, in Goldilocks fashion, we got Magic 2010 just right.

Most Bay Area stores ran out within a few days. Now my 30 days of product needed to last for my customers and theirs. Customers I hadn't seen for a while came in to buy boxes. People drove long distances to get their hands on the stuff. Customers from other stores drafted with us Friday night because we had it. Still, our 30 day supply held and today we have about four boxes left, with an East Coast restock arriving mid-week. The rest of the stores will be waiting another two weeks for a restock, and even then, I'm told it will be in short supply.

What did we learn? We learned that supply and demand can "fix" Magic. Reduce the supply of Magic, an experiment that Wizards of the Coast has been deviously attempting, and demand brings this commodity priced item back in line with MSRP. Sometimes it pushes prices over MSRP if you seriously restrict supply (From the Vault, Duel Decks, etc.). I had this carefully worded discussion at a trade show last year with the Magic brand manager. Games Workshop can attempt artificial price controls, while Wizards controls the market through market forces. Brilliant when it works, but counter-intuitive. Don't they make less money?

Customers hate these kinds of games, while brick & mortar stores can actually survive on these kinds of margins. Last Sunday we were selling boxes at $99.99, a price that took a long time to figure out. It's the magic number were we sell the most boxes while making the most money. At $110, box sales fall off dramatically. Anything less than $100 and sales don't increase. It's the convenience price that people who buy online are willing to pay.

We've always sold booster packs at full retail, a fact that astonished another local store owner when he visited recently. Price wars in the East Bay have driven some stores completely out of Magic. Nationally, game stores are divided on whether to hold the MSRP line, but every store owner has to decide if they want the sales, or the retail high ground. Internet discounters are also playing the supply and demand game, with those who still have 2010 selling it for $110/box (the new $85).

Come Monday morning, demand caught up with our dwindling supply and we set Magic 2010 boxes at full retail: $145.00, and they continued to sell, albeit not as fast. Magic is such a depressed product, that overall, including events, it brings us a dismal 25% margin. This is in an industry where game stores average a 45% margin and can barely survive (they need around 50%). Now tell me how you want to start a card shop. All this effort and poor profit margin for a game that's 7% of my sales. If you're a Magic player, you should know it's the success of the other games we sell that allows us to continue selling yours.