Inventory : the Guessing Game

Stocking inventory for Starlit is always an interesting guessing game.  Sure, we have past data and industry knowledge of what might sell – certain designers and certain publishers do very well.  In addition of course there’s BGG and ‘buzz’ on specific games that help us get an idea of how much demand there might be for a game.  However, it’s all educated guesses at best and sometimes you guess wrong and there are real costs involved.

Let’s Do Some Maths

Let’s have some fun with maths.  Say, on average 50 games come out a month (are solicited to us).  Of those 50 games, a certain percentage will not sell in the store.  Let’s say 80% of the games will sell a copy, 20% are low demand.  So, of those 50 games, 40 games will sell, another 10 won’t at full price.

If we brought in every single game, ignoring our knowledge of the business, and assume an average cost of $20 per game; total inventory outlay would be $1000.  40 of those games sell, which means we are looking at $200 of ‘dead’ inventory which will not sell at a profit.  Let’s further say that half of those games (10%) will sell at cost and the other 10% won’t sell ever.  So, you will have sold $900 of the inventory that you bring in at any one time, with $100 of dead inventory.   Now, on the $800 at our regular profit margins, we would generate $400 in gross profit. Actually, much less since there are shipping costs, interchange, labour costs – so we’ll call it $300.  Now, with $100 of ‘dead’ stock, you have instead $200 of profit and $100 of stock that won’t ever move in your warehouse.

Let’s say instead that you bring in 40 games, and assume that your actual guessing ups your sale rate to 90%. So, you sell 36 games for a profit of $360. Your dead stock in this case is actually $40, so your profit is $230 ($90 additional COGs). By bringing in less stock, even though you have ‘missed’ out on the other 4 games that could have sold; you’ve made more.

More Complications

Another thing to note is that dead stock has a cost.  It takes up space in your storage, has to be counted and cleaned once in a while and eventually has to be discarded.  Add to the initial out-lay of funds to purchase the stock and the opportunity cost of dead stock and keeping lower stock is better than not (to a certain extent).  After a few years, those 5 or 6 games start piling up.

So if you are ever wondering why we don’t hold all the games that are coming out, well, here you go.  A simple, simple explanation.

Managing Inventory & Databases

One aspect of running an online store is inventory – specifically, the fact that we have a huge database of games, accessories etc but only a small percentage of them are actually active at any one time.  There are a lot of games and items that either go out of print or just aren’t worth bringing back into stock.   Many of those we let go down to 0 and put it on special order status.

The problem of course is that if you have every single item that could be pre-ordered up on the site, it’d fat become extremely hard to browse.  It also slows the entire site down since we aren’t Amazon and have multiple servers running the site.

So, the question then becomes managing the database and listings, by turning some off and leaving others on.  That seems fine to start, but you also start seeing a new problem where old URLs which Google has cached become 404’s.  That’s not a good thing, especially if too many of your pages go offline.

So, the next question is what to do – do you manually remove the links from Google or create 301 reroutes to other pages? Or do you keep all those pages up instead, making your entire site much more difficult to browse but definitely more prominent on Google for these obscure / less demanded games?

It’s an interesting question on a business perspective but it certainly does create its own set of problem whichever way you go.