Monday, April 24, 2017

Ptolemaic Retailing (Tradecraft)

Everyone is trying to get the best deal, be they retailers, distributors or consumers. In the game trade, we go through this twisted psychology of denial where we pretend Amazon doesn't exist, since our trade is so fundamentally devalued. It's clear something like half the market, half the people in our area playing games, are buying online. It's such a dominant force, it's amazing we have conflicts with other brick and mortar store owners.

A retailer, not a "game store owner" would look at this and pivot. Pivoting means selling something not devalued. There are plenty of areas of commerce where the manufacturer takes responsibility for their product value. They don't allow it to be dragged through the mud for short term gain.

If I want to buy a Smittybilt bumper for my Jeep, it's a free for all and the market has no bottom. Smittybilt gives zero effs and retailers will race to the bottom with ridiculously low prices on Amazon, along with every off road shop in America. If I want to buy an AEV bumper, I must choose from several approved retailers, all of whom will charge me exactly the same price, and it won't be cheap. AEV can do this because they protect their reputation and their brand value. People complain, they claim AEV is overpriced, but customers enjoy a quality, prestigious product with superior engineering, because the company has the extra cash to do their job. The off road equipment market is mature enough to have both types of manufacturers.

The game trade has very little brand value protection. Just about everyone allows their product to be sold online for less, especially the 500 pound gorilla, Wizards of the Coast. It's a choice they make. Consumers have identified the Amazon price with the MSRP, claiming retailers charging over this price are "gouging." 

Getting back to retailers, what we have is a constant mental crisis as we wrap our heads around the equations necessary to make it all make sense. The game trade is what I call Ptolemaic Retailing. Ptolemy was an astronomer who created this incredibly complex, convoluted theory of how the Sun rotated around the Earth. His math was complex, but entirely correct in describing what he saw. However, the underlying reality of what was actually happening was entirely wrong. Ptolemaic Retailing is attempting to stuff our complex set of wrong observations and assumptions into a business model that works from sheer force of will. 

We guilt customers. We entice them to shop with us with Things Not Retail. We have arguments and worries about authenticity and reputation and even issues of love. We squabble amongst ourselves for the crumbs that fall under the table. We build exotic edifices to the pursuit of ancillary reasoning. We're told the game trade penetrating mass market is good for us, as sales of affected games evaporate. It's madness and it wears you down, let me tell you. A retailer, a dyed in the wool retailer (to paraphrase Jean-Baptiste Emanuel Zorg ), would look at the trade, a sea of Smittybilts, and look for the AEVs in the rough. Perhaps it's specific product lines. Perhaps it's moving on to a different line of business altogether.

Friday, April 7, 2017

Magic Formula vs. Pump & Dump

There is a magic formula to board game sales. It assumes you do everything right as a retailer. It goes something like this. You become the primary source on what's good in board games. That means playing these games before most of the public, attending shows, reading forums and knowing, not just hearing, that a board game is solid before release. This is the traditional role of game store taste maker. You will figure out first hand what is good and you will provide that to your customers.

Next, you go deep. You have properly capitalized your game store because you're a damn professional. You don't buy one and wait and see if it sells. You buy fifty or a hundred. You're not going to stock it and hope people notice it. No, you will demo this game. You will own this experience and sell it with you and your employees with the enthusiasm that comes with being a true believer. You know it's good because you did the work to gain the knowledge. This will result in selling all those copies. Maybe not right away, and that's OK, because we're not buying in hopes of clearing inventory by the bill due date. No, we're in this game for the long haul. Just in time is for chumps. One and done is for chumps. Wait and see? Yes, for chumps.

The problem with this model is the pump and dump. Not only are you being pro active in your choice of games, but online retailers are also out there, possibly standing next to you, with dollar signs in their eyes. They have deep pockets, often enough to achieve discount levels undreamed of by retailers. They will buy deep too, just like you. That's where their work ends, however. They'll discount that game on release and sell it deep, way deeper than dozens of game stores combined could manage. That's the pump.

Next comes the dump. Once sales begin to slow and they need to regain that capital, they dump that game hard. The market price plummets (or spirals) and it's now a game of hot potato. Stores not using the magic formula watch sales dry up. I might order six copies and when the dump occurs, I might sit on two for an extra few months or even a year. Those using the magic formula? Oh man, are they in trouble. They've got twenty five or fifty or more of this hot game. They've done everything right. They're model retailers. They're also screwed.

The pump and dump online folks are clear cutting the forest. Rather than evergreens, we have rotten stumps. The publisher suffers. The other retailers suffer. The distributors? They feel it as a weakened ecosystem, but there are known suppliers to the pump and dumpers. When we talk pump and dump, we're talking a deliberate strategy involving new games. We know many retailers accidentally over order. We know online retailers are stuck with large quantities of end of life stock. That's not what we're talking about. I'm talking about pump and dump as a business model. It's legal. It's also reprehensible.

Now lets look at a retailer like myself. I sell hundreds of thousands of dollars of board games a year. I'm a prime candidate for the magic formula. Will I drink the potion? Hell, no. The risk is too high. The opportunity costs are far more expensive than other, easier to deploy options. The formula is beautiful in that it requires me to be a model retailer. It requires I do so many things right. By it's nature I'm growing the hobby! The problem is the handful of pump and dumpers who ruin it for everyone else. It's going to be up to publishers to decide they want a future, some evergreens rather than rotten stumps.