Tuesday, September 29, 2009

Magic: The Shortage

If you didn't believe Wizards of the Coast was intentionally manipulating supplies of Magic when I speculated about it previously, you're probably starting to suspect it now. Zendikar is on the way to retailers this week, and for most, it's a smaller quantity than what they would like. The horse trading has begun, with retailers looking to trade or buy up as much Zendikar as they can get. Some distributors have shorted retailers on their pre-orders, and those who haven't pre-ordered are being rudely awakened this week, as they learn the well is dry.

I've upped our order of Zendikar twice now, including second sourcing a few extra cases. At the same time, we've pre-sold 13 boxes of Zendikar, about 10 more boxes than we've ever sold before. Wizards has done everything in their power to make this set desirable, including new mechanics as well as "treasure" cards, cool older cards that are pulled from their file cabinets and randomly placed in booster packs. What they haven't done is print enough cards. They'll be taking back orders starting next week, but limiting stores to a case each. Magic 2010 is also allocated, in case you thought that was over.

So is this a horrible thing? It depends on who you are. Magic customers are aghast at the incredibly high price of Magic boxes, AKA retail price. Online-only game purchasers have come to expect the online discount price to be "the" price, as opposed to MSRP. On products like Magic, with enormous demand, it's not uncommon to find "case flippers" selling cards for $5 over cost on what is normally a $145 box. That is over as long as supply is limited and demand is high. As a customer, you will pay more, and you're likely to buy more from a brick & mortar store as the price differential becomes irrelevant. We're actually pegging our Zendikar pre-order box prices to Star City Games, an online discounter.

I think Wizards of the Coast has come to an understanding that brick & mortar stores are vital to collectible card games. You can buy as many discount boxes of cards you want online, but the game store provides a steady stream of new opponents. However, when Magic becomes less profitable for a retailer (we know our customers buy the bulk of their product online), the hoops to run Magic events become onerous and cumbersome.

When events decline, there's no new blood in the Magic world, something needed to maintain the frantic treadmill of Magic releases. Sales of Magic have been steady over the last decade, it's just not the same people! There is massive customer churn in the Magic community. Everyone who works at the store, including me, was once heavily into Magic. Now we all view it as something akin to heroin. You can criticize me on this comment after you've played Magic for 10 years. Find me that guy.

Price supports, through limiting supply, makes Magic profitable for retailers again. For some stores, like us, this is a level of profitability we've never seen from this game. Other stores have found it to be troublesome. Some stores find the new Magic paradigm too difficult to navigate. They choose not to pre-order. They have not set themselves up to second or third source products. They can't budget multiple cases of product at a time. In other words, they don't want to work too hard for this product or they haven't developed their own infrastructure to allow themselves to be flexible. What is an incredible opportunity is instead viewed as an obstacle. That's alright though, other stores are happy to eat their lunch and make the best out of a very good situation.

Will this continue? Wizards of the Coast makes $83/box whether it's sold for $145 or $88. The deciding factor will be whether controlling supply greatly diminishes their volume of sales. There's also a savings in not having a lot of unsold product on their shelves; an inventory cost. Finally, there's the question of whether the brick & mortar support argument holds sway. At least those are the obvious questions I imagine they're asking themselves. Of course, they still deny any of this is intentional.