Thursday, March 17, 2016

Higher Turn Rates (Tradecraft)

I'm doing inventory management seminars this week at the GAMA Trade Show and one of my discussions is about turn rates. There is no hard data on turns rates, just generally accepted views of how inventory should perform in the trade, often compared to mass market turns.

That number has been taught to be in the 3-4 range when I started 12 years ago. I heard it from many veteran retailers and I based my business on this. Mass market was twice that number, needing, we were told, around 8 turns a year. If you're unfamiliar with this number, it's your retail sales divided by your inventory value at retail price. You can perform turn rate analysis on items, departments or entire stores.

As I've seen my turns grow over this 3-4 accepted range, I grew concerned. There's not much you can do about high turn concern except throw more money at inventory to hopefully stop losing sales from stock outages, because that's what we were taught was happening when you hit turn numbers like six or eight. In theory, it means your stock is too lean and when customers arrived to buy it, you're out. Even just-in-time inventory management isn't enough to avoid outages at the highest turn levels.

This year at GAMA, the thinking has clearly changed, with veterans teaching 4-6 turns or even higher as a good baseline. Larger stores can see turns in the 7-8 range. So what does this mean? The most obvious thing is game stores, with the same amount of capital as ten years ago, can easily achieve twice the revenue. That's a big deal.

I think these overall higher turns comes from a couple sources. The most obvious is Magic. Magic is a mainstay of almost all game stores at this point, and Magic and other CCGs boost turns dramatically. Our CCG turns are around 11, and with CCGs estimated to be double what they were ten years ago, that high performance department sees itself reflected in higher overall turns.

I also think higher overall industry turns has resulted from an increased mainstream acceptance of hobby games in general. Board games, especially, have seen a huge influx of new customers who weren't previously hobby gamers. When you can boost sales 400% by demoing board games to people off the street, conventional turn numbers start to fall apart.

The implications of higher overall turns is what we're beginning to experience in the industry. We've got a huge increase in hobby game stores. We see our top games reflected in mass market, at least until they lose their bloom and are dropped. We see national chains beginning to emerge, either home grown or imported. All the implications of a mainstreamization of hobby gaming are reflected in this higher turn rate indicator. Some are good, but it will likely mean consolidation and increased competition and not everyone will survive.

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