There is a mystery. I wrote yesterday about the disaster that is Magic the Gathering, however that is half the story. The other half of the story is the success of the product SKU expansion. From a sales perspective, this should be hugely successful, and the numbers say it is. Overall sales of sealed product, according to most of my peers, and Wizards of the Coast, is up. Looking at my chart below, on the surface, there's not much to complain about.
Looking at the chart, you'll see some pretty boring Magic years, a dip in 2020 because of a COVID shutdown and then 2021-2023. 2021-2023 represents the new era of Magic, strategy of expanding SKUs. We see rapidly rising sales and gross profits (although that's faltering a bit). Looking at this chart, we appear to have a win!
The Mystery: Many stores have a similar chart. However, this is only half the story. This is a report of what sold, but it is not a report of what didn't sell. So basically, if you had perfect information, and knew precisely what to buy, there would be no complaints, no overstock, no unsellable product. The chart would tell the whole story. Data like this is all that Wizards of the Coast has from stores.
The metric that best tells me how I'm doing with money I'm investing in product is called Gross Margin Return on Investment. GMROI for Magic is pretty bad for me. My GMROI is 1.6, which means for every dollar I spent on Magic, I made $1.61 back, which is not very good. Last year Magic was at 1.2! I've been grappling with this for a while now.
A good GMROI is about 3.2 and my overall store is at 2.9 right now, no doubt pulled down by the low GMROI of my top brand. My store is fine, with Magic at around 30% of sales, but imagine if Magic is most of your sales. You might be looking for a job, while sitting on a stockpile of what would have been your retirement just five years ago. With the exception of the legendary Fallen Empires, nobody ever lost money with too much Magic, until now (Fallen Empires is at $550 a box, btw).
As a side note, My Lorcana GMROI, a game in which I possess not a single piece of stock, is the best in the entire store at 323. It would be nice if these two companies could find some middle ground when it comes to production.
The Solution: With a low GMROI for Magic, and high sales, you have large sales numbers, but you need all that money to pay the inventory bills for the (near worthless) product you have in the back. Rather than just complain about this, you can see there's an opportunity in the numbers. If retailers can crack the code of buying the correct amount of inventory, we'll see the same sales levels but better GMROI numbers. That means more profit, rather than great sales, but layoffs. I can imagine where bean counters at WOTC might not understand this, because they only have the sales data. They can't see the overstock as they don't collect that data from stores.
The solution is obvious, you order the correct amount of product. Easier said than done. The problem is it's a moving target and the sales dynamics have changed. I can order less, but customers are becoming shy at around the same time. Prices are falling instantaneously, making them unwilling to take a chance. Devalued products don't sell at near any price, at least in brick and mortar, which is why they don't show up in reports as reduced profits. Usually you can see a clearance sale in the data, but there's no data if you can't clearance anything.
It would be best if Wizards of the Coast took the initiative and did this themselves by printing less product, which they may have done with the upcoming Doctor Who set. Magic is lucrative and it's tough for many small stores, relying on a large amount of their income from Magic, to take the steps to forego potential income for the sake of a stable supply. WOTC should do it for us, sad to say. But they're no white knight in this battle, having been guilty of dumping themselves. Solve this mystery and we'll have a historical blip to look back on as this strategy of expanded SKUs pays off into the future.