The Mathematics of Stock Growth

I continuously struggle with two opposing factors of the business:

  • Growing the variety of board games available
  • Removing ‘Dead-Weight’ Games

We generate a vast amount of our revenue from games outside the top 10.  In fact, we generate quite a bit of revenue from games that sell only once every 3 to 4 months.  A look at the numbers indicated that we generate about 80% of our revenue from the top 20% of our SKUs (about 300).  The remainder 20% of our SKUs generate the remainder of our revenue.

It might seem like a simple choice then – just don’t carry the other 1,200 SKUs.  However, losing that 20% of our revenue would actually mean making a loss.  And that’s not counting the fact that often, we receive large orders that include one of those ‘less-important’ 1,200 games.  So it’s important, if nothing more than to have customers look to us to be complete, to carry a lot of stock.

While I set aside a portion of our net profit to purchase the new board games that are released each month, it is quite often insufficient to deal with sheer volume of new releases. So I need to trim dead weight – board games that just haven’t sold sufficiently to make them worthwhile.

Currently my criteria runs roughly along these lines.  This criteria is used for games in that calendar year:

  • if a game has sold 2 copies; we keep 1 copy in-stock and review at end of year.
    • at 4 or more sold copies, we are definitely keeping at a minimum  1 copy in-stock
  • if it sells from 0 to 1 copy in the year, it gets put on the review list

The review list is what we look at just before Boxing Day.  That’s when we work to trim our inventory down. Games on the review list are checked for their :

  • past sales history.  If it’s sold more than 4 copies at full price (in its entire history with us), we’ll be keeping the game in-stock.  This generally indicates that the game has had some good, continuing interest.
    • if it just released that year, that level is dropped to 2
    • this works for us since we’re only 3 years old.  Later on, that’ll likely be adjusted
  • below those levels, we look to see if it’s part of a ‘set’ of games – either as an expansion or line extension.  If so, we normally try to keep at least one copy in-stock if the base game sells well
  • if the board game fails to meet either of these criteria, it’s sale time!

Games that don’t reach the above, lax criteria generally have generated very little interest.  I don’t mind holding ‘older’ stock that once sold well, but is now selling slowly; but games that have just not sold at all need to go to ‘make way’ for new games.

This method currently means we continue to grow our inventory levels at a somewhat frightening pace.   However, since we’re committed to being one of the largest retailers for board games, that is the point of increasing stock levels.   If we can carry a game that no one else does, that still has some demand, then we have a definite advantage.   It just means that for the next few years, most of our ‘profits’ have to be dedicated to stock growth.