Tuesday, April 24, 2018

Dominant

The weekend brought with it the prerelease for Magic's newest expansion, Dominaria, a throwback to the game's original setting with plenty of retro flavor and reasonable card power levels.

Yeah, it was a success.

Just about everything related to this release worked as intended.  Players were enthusiastic and the typical YouTube Pundits(Tm) weren't sh!tting all over the set yet, so turnout was at its highest level in two years.  In fact, our relatively large allocation sold out entirely.  A good time was had by many.  If Ixalan hadn't fallen right in the lap of our store move, we'd likely have been allocated even more and sold those out too.  Our Sunday events were less than 12 players each because that's all the product we had left.

Wizards of the Coast tried a pilot program by which stores could sell booster boxes, up to a quantity limit (60 boxes for our store), during the prerelease.  To make matters better, each box came with a store-exclusive promo foil card not found in booster packs.  The promo card, Firesong and Sunspeaker, looked well-tailored for the new Brawl format, a Standard-ized version of Commander.  Many local stores raced to the bottom as usual on price, looking this gift horse right in the mouth, but we held firm at our everyday price and sold out anyway.

I liked in particular that the early box offering helped local game stores as a direct leg up against the mass market and online dumpers alike.  Mass doesn't discount (usually), but they break the street date with regularity.  The optics are awful: local game stores look like chumps while players naturally buy early packs from Wal-Mart and Target when they can get them, because the new shiny is very compelling.  The Pokemon Company ships a week early to local game stores that hold prereleases, and that helps address the street date breakage.  Rather than copying that, Wizards tried something in line with their existing programming, and it proved out.

We'll be waiting eagerly to see what Wizards does in July with the Core Set 2019.  There are some internecine releases: Battleborn Battlebond in early June, a Conspiracy-esque ancillary booster release geared toward Two-Headed-Giant gameplay, as well as Commander Anthology II: This Set Had Better Include The Breed Lethality Deck, the Global Series set, From the Vaults: Jace, and probably another I'm overlooking at the moment.  Plus an Unstable reprint due in any week now.

Magic: the Gathering isn't the only thing going on right now.  But I've written at length about how I think diversification underperformed back when Magic was so hot that we'd have been better off committing deeply to it and not worrying about everything else.  I have real business going on in the other games and categories, so I'm not going to move away from those in favor of Magic, but I'm definitely going to be increasing stock depth for Magic moving into the summer.  Magic is about to have a dominant run, and Domin-aria started it.  I'm banking on that being the case.

After Core 2019, we get Commander 2018, which is sure to be another hit, and sometime in June we'll learn what's coming later after that.  Gen Con will be the grand finale of Magic's 25th Anniversary celebration -- the sky is the limit as to what they might do, and I really hope they don't undershoot the mark like Iconic Masters and Masters 25 did.  We're long overdue for a Collector's Edition 25, a.k.a. "Reserved List But Not Tournament Legal: The Set."  Or if you prefer, Proxy Party 25.  Whatever.  Print it.  Kitchen table players everywhere will take out second mortgages to buy it out.  In the fall?  In Keeping Secrets of Silent Ravnica 3 is my guess.

If you like tapping mana and playing spells and turning creatures sideways, 2018 is looking more and more like your year.

Tuesday, April 17, 2018

Convention-al Wisdom

It's about time for convention season again, and I'm seriously unsure whether or how much we want to participate moving forward.  I mostly pulled the plug on this business component after last year's Phoenix Comicon debacle, but opportunity continues to knock at our door.

Three years ago conventions were like free money for us.  The cost to deploy, staff, and depart, plus venue fees, was within the range where there was still plenty of meat on the bone after selling our stuff.  But in 2016 and 2017 we mostly saw that get worse.  Phoenix Comic Con (or Comic Fest, or whatever they have to call it now because of the San Diego Comicon trademark ruling) kept pushing table fees up into unsustainable territory.  PCF's sister show, Fan Fest, wasn't cheaper enough to account for the lower level of attendance we saw, which was reflected in lower sales.  And last year's PCC was a disaster due to the threat incident.  We ended up passing on Fan Fest entirely.

This year we were offered a chance to participate extensively in PCF as they rebuild the show in the wake of 2017's trouble.  Unfortunately, we didn't see it as economically feasible in the short term, and our long game right now is focused on maximizing our one mega-location.

We were given a second option to be present at PCF 2018 and vend our booth in a different part of the convention at a lower cost up front, a chance to cooperate with a longtime competitor for mutual benefit and maybe build some more positive history into that relationship.  We're still working out the details for that, as of this writing.

But mostly, the large comic conventions are getting to a point where we would need to have a specific, tailored, home-produced asset of some sort to feature, in order to cut through the noise and leave a lasting impression, and most of all to make money.  There's so much saturation and so much shovelware merch that even our eclectic curated offering doesn't quite cut the mustard.  So options like Salt Lake Comic Con are just not really on our itinerary at this stage.  Those shows don't really need yet another table full of Funko POPs and Pokemon booster packs.

Smaller festivals are much better on the base economics and staffing time needed, though sales are a greater gamble based on footfall.  Six years ago, Wes Cleveland and a group of arcade enthusiasts started Zapcon as an annual April convention, which I've enjoyed as an attendee multiple times.  In 2017, Wes opened up vendor offerings beyond the arcade collecting category, and I jumped at the chance to take part.  DSG's booth performed reasonably well and most of all we were in front of a more focused audience, so outreach actually had some traction.  At PPC we were just one more tchotchke dealer, but at Zapcon we were the main vendor of pop culture and tabletop goods, in addition to video game licensed merch and actual video games themselves.  We return to Zapcon this coming weekend for the 2018 installment and I am excited.


There's another medium-scale local convention in the video game space, console expert John Lester's Game On Expo in August.  It's fundamentally a good show.  Two years ago it didn't go well for us as their tabletop offering had some logistical problems and we couldn't exactly pivot to video games because 80% of the dealers in the room were highly focused there.  This may be a situation where we can participate again once we figure out the right mix of product, programming, and presentation.

We have a few microvending options, including a great local theater chain that lets us run a pop-up shop in their lobby when a major comic book or video game movie opens.  For them it just adds to the party and is a marketing tool.  For me, low venue fees and bounded hours of operation mean that my main cost exposure is low, and my worst case scenario is akin to handing out flyers at a sidewalk art festival.  I also get plenty of contact from area schools and churches asking if we'd like to vend.  It would be great to scale up offsite operations to the point where it makes sense to have a staff that works on that specifically.

That ties into the X-factor, which is: I will not be running the booth.  As an autistic person I find it tremendously difficult and exhausting to do that kind of work, meeting people in an endless chaos and retailing on the fly.  Some people thrive on that.  Not me.  Yes, in a moment of need I can step in, but it's foolish to put myself in that position in advance when other staff are going to do better at it... once I've developed personnel to that purpose, which means scaling to that level.  I've been fortunate to have one particular manager who is great at this work, but he's about to relocate for his day job and I won't be able to feature him in this role after that.

I'll look back on this article at the end of the year.  I wonder how things will unfold.  DSG can reach an audience in this channel, but I'm not going to do it in a half-assed manner if the same amount of time and resources spent in the main storefront will provide a better ROI.

Tuesday, April 10, 2018

Push Decay

Basic supply and demand tells us that there is a "sweet spot" for price at which it's low enough that the product meets its needed turn rate, but high enough that it's worth it for the seller to stock the item at all.  For a lot of merchandise, this "sweet spot" has an uncanny knack for converging with the market price of the item.  In the case of aftermarket (used) goods, it's typically exactly the market price of the item, to the extent that there's enough information symmetry that both buyer and seller know what that value is.

What many don't know is that the "sweet spot" depends on initiative, so to speak.  It's the market rate at which, offered and open, an acceptable number of people will answer "yes" and make the buy.  The sweet spot for a seller who is at leisure to wait is higher; they are content to get their price from the 5th or 10th or whatever buyer, who perhaps seizes upon convenience or needs the item faster or what have you.  Or else the seller is willing to let the two or three people underneath him on eBay sell their copies first, and then if no more of the item are posted for sale, he will be the lowest available price without having to make less than he wanted for the sale.  So clearly the seller who is operationally at leisure to defer the sale until later has the advantage.  The sweet spot for a seller who needs the item gone faster is lower.  The sweet spot for a seller who is going out of business and needs everything gone is low indeed, it's however low it takes to induce even an unwilling buyer to act.

In the case of durable goods, prices won't move much no matter what else is going on.  That Trane 4-ton HVAC system is going to cost you seven grand pretty much no matter what you do.  They don't need to sell it for less, because anyone who needs one is going to be motivated to shop on factors other than price, such as availability, reliability, and longevity.  If you need a cheaper air conditioner, there are off brands that Trane doesn't bother competing with.  The market for decent air conditioners is incredibly robust, it's an appliance people depend on and use heavily every day.  For these and other reasons, that price is basically firm.

In the case of indulgent luxury goods like, you know, tabletop games and collectibles, especially on the "ornaments" side of the business like artwork, statues, shelf decor, and so on, a seller trying to clear merch quickly often has to reduce the price a lot.  (And don't let yourself be led on that collectibles are robust investments.  They're not.  They're entertainment, and if you get anything out of them other than that, it's frosting on the cake, not a certainty, no matter what the clickbait tells you.)

This high degree of price volatility as a coefficient of turn rate is something that yours truly, an economic layperson, is dubbing "Push Decay."  I'm sure there's some real term for it that explains just how severe it gets the less of a staple good you're pushing.  But when you learn this concept as "push decay," it paints the exact picture of what happens to the goods when you do that thing.

The harder you have to push that merch out the door, the greater its value decays.

Now, the more staple or demanded a good is, the less push decay you'll observe.  This can even happen for indulgence goods.  The reason behind that, of course, is that once your price creeps down sufficiently far below the sweet spot, other dealers will buy you out.  Price memory can be a sticky thing and sellers don't want people thinking of good resilient brands as being low-value, so they'll buy your 15% off iPhone and flip it on a narrow margin at 95%, rather than reducing the price of all their own stock to match the new floor you've de facto proposed, whether you meant to or not.

Conversely, take an item that's almost pure fluff, especially one whose fifteen minutes are over, and especially one that's strictly ornamental... and look out below.  For example, I am overstocked at the moment on BoJack Horseman Funko POP figures.  BoJack is an excellent show, but it has already passed its mainstream popularity peak, and Funko's extremely odd knick-knack figures of the characters from that show appeal to a very narrow (and now diminishing) audience.  At full price, I get an occasional sale of BoJack himself, but no other characters.  At 20% to 25% off, there might be no change in movement.  At buy-one-get-one-free, they'll probably run out in an orderly fashion.  If I knock them down 75% and actually get the word out about it, they'll be gone in an hour.  Another dealer will come buy me out even if no collectors do.  A dealer whose branding is "we have ALL the POPs" will get a different benefit out of having those BoJack figures on the shelves, whereas DSG features POPs purely as a pop-culture garnish and not a central part of our product mix.  That dealer's bread and butter is POP figures and he won't want me getting people used to the idea that POPs ought to be 75% off, ever.

So it stands to reason that I don't really want to hold sales in general, which is consistent with advice I have been giving here in the past.  And in the event that I do put merchandise on sale, I want to figure out the point at which the sale will consummate reasonably quickly, but I won't lose too much value to push decay.

Over the weekend (and continuing until I feel like ending it), we ran a Spring Cleaning sale of a handful of things we just wanted off the shelves and turned back into money:

Apparel, which we're throwing in the towel on for now -- everyone says they'll shop quirky nerd t-shirts, but clothing is available very cheaply from a litany of other sources and unless we make a deep foray into it, we won't be competitive.  (And perhaps not even then.)

Funko POPs, as described above... sometimes it's just time to churn that stuff through.

We had a crate full of surplus playmats from various sources and it was time to convert those.

Finally, we got wind that a full-line restock of X-Wing was coming our way this summer, and that timing worked for some of our internal inventory-building goals, so we took this opportunity to empty the fridge and deep-clean the interior in anticipation of that.

The discount levels I offered in the sale reflected the amount of push decay we were willing to tolerate for each product subset.  For the shirts and playmats, not too worried -- deep discounts, come what may.  The Funko POPs went to half off, which is enough to move them with a bit of speed but won't ruin the punchbowl.  And X-Wing is 20% off, which we wouldn't have changed even if the MAP restriction had allowed it; we don't want to push the stuff into a lake, we just wanted to ensure it would attrit away in time for the reload wave.  Low discount, minimal push decay.

A final note on the concept of push decay is that a hobby game or comic store that is closing involuntarily or unexpectedly is in such a bad position in terms of being able to wait to get its price that the expectation should be well below wholesale prices on all the remaindered merch.  Anything with robust market value will sell for at least that much, but the back catalog is going to be in a deeply devalued state until a dispositive outcome occurs.

I've been approached by closing stores asking if I want mid-list merch for wholesale and it's like, buddy, sorry to have to tell you this, but if I wanted the mid-list stuff at wholesale, I'd just order it from a distributor.  Half the time there's one distributor or another offering that stuff on incentive, too.  And the purchase would help us maintain or increase our distribution volume tier.

When Critical Threat Comics closed and we were unable to acquire it outright last spring, the closing auction was a bloodbath on everything store-centric, but they got pretty decent money on the merch because ordinary members of the public were invited and they didn't have wholesale access otherwise.  Inviting the public seems like a great way to go about a liquidation auction, except that the store is way better off having a closing sale and getting those "better" prices sooner.  At that point the goal is merely to slow the push decay.  There is no stopping it, because the business body is already dead.

Tuesday, April 3, 2018

Why We Do Pre-Orders The Way We Do

The new shiny is even newer and shinier when it's not here yet.  I assure you, I know this anticipation very well.  I cannot think of a product in recent memory that I am as eager to purchase as the forthcoming Ori and the Will of the Wisps for the Xbox One.  My entire family is looking forward to playing.  From nothing but a teaser and our deep enjoyment of the original, Ori and the Blind Forest, we are completely in the tank for this new game and will pay whatever plausible price it may cost, and as soon as we're allowed to do so.

The mechanism for placing mass-media pre-orders like this, especially now in the digital age, is as seamless and frictionless as the deployment channel can make it.  I recently pre-ordered Star Wars: The Last Jedi from the iTunes store, for example.  The movie was nicely locked in for an automatic download at midnight Eastern the day of release, whereupon it magically appeared on my AppleTV and my children watched it.  I was out of town at the time, it was that seamless, we didn't have to do anything, it Just Worked.  Any time I am logged into the iTunes store, I can see my pre-orders on my dashboard, and I can modify or cancel them by pressing buttons.  (I don't typically cancel pre-orders of physical goods on principle, but I'll cancel a digital pre-order if I absolutely don't want the thing anymore, since it's near-zero impact to do so.)  I paid this time with store credit (gift card balance) but if it were a direct purchase they'd just ding my VISA as soon as the title went live.  It's tough to imagine it being any easier.

Here in the world of brick-and-mortar small specialty retail stores, our mechanism isn't quite that polished or quite that frictionless.  But it has come a long, long way since DSG opened in 2012, and an eon further than it was when I had earlier stores in place.

People often ask why I do pre-orders the way I do: why I take payment in full up front or there's no pre-order, why the pre-order opens when it does, why we deliver in the manner we do, and so on.  Fair questions all, since these processes are not common to all stores like mine.  Indeed, a mere five miles north of me is a store that has such a vastly different policy they may as well not be engaging in the same kind of transaction.

This is an instance in which our point-of-sale software, Crystal Commerce, actually shines.  From the customer-facing side, a pre-ordered product is clearly marked as such throughout the ordering process (online or in-store) and they will see the release date we entered for the item.  Once the purchase comes in, it resides in a special Preorders tab where we can reference those invoices at any time.  The day before release, we print up all the invoices in that tab, since they will automatically move to the regular orders ledger on that appropriate day.  The customer arrives, shows ID, signs the invoice, and takes their stuff.  (Their original receipt from when they bought it is their for-keeps receipt.)

That's the mechanical explanation.  Every part of the pre-order process has a policy explanation too.

Due to the rules in place from Square and PayPal, we can't take a credit card payment for an item that's more than 30 days before release.  Sometimes for especially anticipated merch, we'll open pre-orders earlier than that on a cash-or-store-credit-only basis, but usually we don't.  I'm not a fan of telling someone their money's no good here, even if it amounts to parsing payment types.  So for practical purposes we start taking money for high-profile stuff a month before the announced street date.  There are some publishers, Fantasy Flight Games I'm looking at you, who let us get a lot closer to release before finally locking that date in, while their devoted player base is champing at the bit to pre-order right on announcement.  I really don't like making them wait.  But once the floodgates open, those players are happy.

You might ask, but why take payment up front at all?  Isn't "No Money Down" an attractive marketing pitch?  Do you need the money first that badly that you can't buy the product otherwise?

The reality is, we're not yet at scale where it makes sense to take no-money-down pre-orders, even though we're well past the scale where the pre-order is absolutely necessary for us to buy the product.

For a very small store on all but the most obvious of core products, a pre-order might be the only way that a given item even gets ordered at all.  This is more likely to happen on board games or miniatures core games, because a TCG booster box was likely going to get stocked even at the smallest of stores.  If I had a 1200-square-foot microboutique focused on card games and video games, the only way a new release like Pandemic: The Clap gets ordered at all is if I have a pre-order in advance for it.  In practice, at DSG's size and scale, we order basically all TCG releases, most major-publisher board game releases, and most Warhammer model or accessory offerings.  So that stuff was coming in anyway.  Pre-orders only help us decide how much of it to buy.

So why take money at all?  Well, there is still substantial hedging.  If a product gets really hot on hype and we take a pile of "request only" pre-orders that have no payment and are thus not really binding in any way, as soon as the hype cools down, a lot of customers might not ever be back to pick up that pre-order, so we may have gone behind the slingshot for 70, 80, maybe 100 units that now suddenly won't sell.  Or there turns out to be some ridiculous Amazon rebate offer or something and they just buy it that way and forget about the pre-order they "placed" with us.  Given enough scale to where we'd be expecting to sell through that volume anyway, it might not be a problem.  For the time being, the only things we sell through at that scale are Magic releases, and the market expectation on those is pre-paid pre-orders anyway.

A casual pre-order for a copy of a board game that we'd have ordered two or three units anyway, and grows our pre-order to four units?  That would not be a concern for us in terms of taking money up front.  I would not be worried in the slightest about that buyer no-showing and being stuck with a whopping one surplus copy of a $40-$50 retail box on the shelf.  In such a case the main reason we take payment with their pre-order is because we're already using that process for everything else.

How do we price pre-orders?  For white-hot unobtainium, we'll typically be at MSRP when the market price is somewhat higher.  It's not a hard-and-fast rule, but in an expected scarcity situation, we're able to achieve normal margin and make a customer happy that they didn't have to fight all of Craigslist to get theirs at who knows what price.  Typically if we're at a market-based price on a pre-order, the underlying reason is we know in advance that we can only get some tiny number of units from allocation.  From the Vaults sets for Magic were often like this.  The reality is, if we're going to sell out almost instantly, it's irresponsible of us not to build in some sort of premium.  Often we'll come in over MSRP but under market price, so that our local players are better off buying from us than online.  If we stay at MSRP on those types of products, it incentivizes the backpack flippers to stake a bunch of scarecrows to buy us out so they can resell, and then our local players still miss out.

For products that are going to be popular and sold ever after at MSRP, we tend to offer a modest discount purely for the "we appreciate you committing to this purchase with us" factor.  For products we expect to be discounted, it's case-by-case.  Magic's "Masters 25," a product that ended up a little shallower than expected in customer demand, we knew where we wanted to be on everyday price and stock level moving forward, and the pre-order was far enough below that to present an attractive option to local buyers.  We didn't worry about fighting the entire internet to make a nickel over wholesale.  We're better off just missing the sale than trying to line up with the likes of Massdrop.  Those same inventory dollars can be devoted to other things instead.

We sometimes offer pre-orders on eBay.  This usually happens when we want to make some purchasing increment and be sure we're going to get it.  For example, Game X gets $4 cheaper per unit if we order at least 100 count, or we're trying to advance to a higher purchasing tier with distribution (this just happened because the quarter ended on Saturday) so we want to pack an extra couple thousand dollars onto that week's orders.  But mostly I don't like taking pre-orders in general on eBay.  The only operands of competition are price and, to a FAR lesser extent, our high feedback rating making us appear as an attractive low-risk source to buyers.  That's not a lot of basis to compete.

There are also far more cancellations of pre-orders on eBay, which is a huge inconvenience for us and is something we can't stop.  We have not delivered the goods so we must permit the cancel and refund the buyer, and thus we do.  Anyone who cancels an order on eBay gets added to our blocked list.  It's nothing personal, just filtering for the customer tendencies we want to cater to, which is those people who don't, for whatever reason, ever bother to cancel pre-orders.  We are at liberty to do this without missing out on sales volume because eBay is such an enormous overall buyer population, and we prioritize our local clientele first and foremost anyway.  Every time I finish a pre-order fulfillment cycle on eBay, I tell myself I'm not going to bother with the hassle and the fees and so on in the future, but it's such easy money that I can't stop dipping back into that well.

TCGPlayer offers pre-order capability natively in their system, but I cannot take full advantage because it doesn't work the same way for Crystal Commerce "sync" accounts.  If the "sync" system changes in the future or if I end up moving to TCG Pro or another front-end, then I'll probably end up offering pre-orders through that channel, but it's going to end up being 1:1 with the regular price of the item because mechanically it's cumbersome to make it work any other way.  It's probably still worth doing.  If you list your singles early enough, TCG Direct themselves buys them from you in order to fulfill Direct orders.  It's not a high-margin play but the volume is tough to beat.

Well, there it is.  Concepts, mechanics, policies, and connections, all the juicy details on why we do pre-orders the way we do.  I hope this has been informative, and hey, if you're a customer reading this, please feel welcome to pre-order all your Magic the Gathering: Dominaria goodies today, in-store or on our website at www.desertskygames.com!  Have a great week!