Tuesday, October 10, 2023

Magic: The Supply Problem

How did we get to such a severely devalued situation with Magic the Gathering? There are a number of factors. I think we had a unique set of circumstances, a perfect storm of product expansion, COVID fear leading to a flight to quality, and an inability to calibrate supply and demand because of all the noise. It was exacerbated by a publisher who not only pumped out a tremendous amount of product SKUs, but likewise dumped it alongside frantic retailers. It is a closed loop system, unable to self correct, because of a publisher likely grappling with the same issues. Let's look at each issue individually:

  1. Massive Product Expansion. By looking at the chart above, this seems to have started well before 2020, when COVID made Magic a safe harbor. We've seen a huge number of sets, with an expansion of formats and specialty offerings. The end result, I think most retailers would agree, is overall higher sales across many more products. The problem came from how we ordered those sets.

  • Past Performance is Not Indicative of Future Results. Retailers ordered their typical amount of product based on very steady past sales. However, what we discovered were sales were split over a variety of products, with overall higher sales, while leaving us with overstock of nearly everything, as the average SKU underperformed. We were in new territory. We figured this would all work out eventually, so it was allowed to linger on.
  • COVID Money. In 2020 and 2021, many of us were in pretty desperate straights. We had restrictions on customers coming into the store, no or reduced organized play, and there were few sure things to pay the rent. Magic was pretty sure. In 2020, with my store closed, I made personal deliveries of Magic product to my customers homes. It was astounding they were willing to work with us and I'm grateful. Because Magic was a safe harbor, it was easy to not only spend money on it, but to buy deep. 
  • Safe Harbor. Nobody ever lost money on buying too much Magic, if you waited long enough. This is similar to the IT phrase, nobody ever gets fired for buying IBM. In troubled times, when things are chaotic, there are some safe bets out there, and Magic was a pretty safe bet. If you had the aforementioned COVID money, you could simply sit on any slow moving inventory and consider it a retirement account. Unfortunately, this situation continued well past 2020. I think it culminated last month with the near instant price collapse of Commander Masters. COVID money is mostly gone, both for retailers and consumers. Magic is no longer a safe harbor, but more of a boat anchor.
  • Variety Impeded Purchase Reductions. When Magic is a huge percentage of your sales, perhaps the majority, a reduction in Magic sales is a big reduction in overall store sales. Retailers have been attempting to fine tune purchases, rather than just stop them, because as you can see from my chart, overall sales are up. If you could predict the demand for each item, you could crack the code! Unfortunately, there was too much noise in the data, too many Magic releases of different styles and formats to get a foothold on purchasing. You could reduce your orders multiple times and still lose as the bottom fell out. Those years of steady growth had a very simple product makeup, and we're now seeing a lot of expensive experimentaiton.
  • Wizards of the Coast Was/Is Dumping. What hurt sales and the ability to get rid of overstock was WOTC on Amazon. The Amazon price becomes a benchmark. Some customers see it as a de facto MSRP, since it's the only place that has Wizards of the Coast is listed as the seller. Yesterday they were dumping Ravnica Remastered at below cost on Amazon, a set that releases in January that retailers haven't even been solicited on! There will be some who will argue that it's not WOTC on Amazon, it's Amazon itself, but it's happening on Wizards of the Coast's watch. They are responsible. It has their signature on it. When the publisher is devaluing product, selling at retailer costs, there is nowhere for the price to go but down. It's why the market price of so many products online are at below cost. In the race to the bottom, Wizard's of the Coast is the 500 pound gorilla shoving everyone out of the way to the finish line.
So what's the solution? Retailers will continue to attempt to fine tune, to order less. Wizards of the Coast is dumping product before its release, which is perhaps a sign that we are beyond pumping the brakes. I'm at the stage of just slamming on the brake pedal and letting the car go where it must. My holiday profits may be about weathering a much reduced Magic sales environment. If this were the stock market, I think my advice would be to sit on the sidelines with your cash in the short run, focus on your growing non Magic investments in the long run. 

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