Tariffs and the Sixty Dollar Board Game

With 25% Chinese tariffs taking effect this month, I'm already seeing solicitations for board games with significantly higher prices. The $60+ board game is likely to be the norm, up from an average of $45-50. I wrote on my Facebook author page I thought my board game sales were likely to drop by 40%. That's a really high number and it's complete speculation, but let's take a look at what we know.

We know very little. If we try to read the tea leaves of market forecasts, they're concerned with publicly traded companies, most of whom can absorb some or all of a 25% tariff. Best Buy sources enough Chinese products with high margins, they may not even raise prices, just take the hit. For us small retailers, sellers of speciality goods without enough margin to absorb tariffs and no cushion to absorb higher costs, they just predict doom and gloom. A 25% tariff is a necessary 25% price increase.

One example of how price increases directly affect sales from comes from the auto industry. When vehicles rise in price, for every dollar of price increase, demand drops by .87%. With a 25% increase in price, we should expect a 22% decrease in sales using the auto industry numbers. That's our baseline though, a starting point. Buying a vehicle is different than a board game.

If you don't like Chevy dealer A, Chevy dealer B isn't going to have a significantly different price. That's because vehicles are sold through a closed dealer network and gross margin on board games is about 45% compared to 8-10% on vehicles. There's no wiggle room to sell you a Chevy Colorado for 25% off, even if dealer B wanted to. And there's no online clearinghouse for a third party to devalue a new Colorado. If you don't want to spend $60 for a board game at my store, there will always be someone selling that game for 20-30% off online, even in the age of MAP price protection. There is someone selling that same game with an MSRP of $45, right now for $30-35, which is probably half the regional sales of that game. It's more complicated than that though.

As the price of an item increases over psychological thresholds, the pressure to buy it online increases dramatically. Most store owners will tell you once a game hits a certain price plateau, sales drop off considerably as customers seek better value. It's why many of us sell so many little card games and so few $100 board games. The impulse purchase, in which calculations don't play much of a role, is probably around $30-40 nowadays. At $40-50, there's some thinking and we lose a lot of sales to discounters, and at over $50, there's a lot of thought into how to acquire that item most efficiently.  We are certainly earning that business in some fashion. And that's where board games will go, breaking that price ceiling (the one I artificially created for this example).

If you think this will be business as usual, we're going from a strong economy to where, "Markets are pricing in rate cuts in September and December." Markets are already signaling they expect pain in the second half of the year with interest rate increases up a quarter percent. My store sales for 2019 are up a staggering 20%, due to a number of factors. I'm predicting I end the year up 4% due to tariffs. It's a complicated bit of bistro math, but I'm expecting a lot of pain. I know I'll be doing a lot of dancing, I just don't know the tune.