My initial title for this post was ‘market failures’ but I realised that that wasn’t entirely accurate, even if it is a better sounding title. What I wanted to talk about was the increasing fragmentation of the market and the complicating of the supply chain that we are seeing.
Exclusive Distribution & Monopolies
Exclusive distribution agreements aren’t new, I’ve written about them previously. Right now, the vast majority of our products (a good 70% of game sales I’d say) are under exclusive distribution agreements. Our biggest problem with exclusive agreements is the fact that it can be often difficult to locate who has the exclusive agreement in a country and just as importantly, be able to purchase the product in sufficient quantity to make it worthwhile. A few great examples?
- Qwirkle is the only game that sells for us from their distributor in Canada.
- Celestia and Haru Ichiban are carried by Le Valet who at least have some other ‘good’ games, albeit at a higher markup
As many of you know, shipping in Canada is expensive. Most places cost us at least $30-40 to ship a parcel at any ‘size’, sometimes much more. Excluding any minimum’s that a publisher might have (and some sell by case quantities only!), that means to keep shipping cost at only 5% of an order, we’d need to put a $600 order with the publisher. However, many of these publishers have maybe 5 to 6 items (sometimes even less!) which would sell in our business. When this happens, we often end up deciding to either / or /and :
- restock very, very slowly
- not carry the product / product line
- increase the price of the product to save on our margin
Geographic boundary restrictions (essentially stopping us from purchasing from the USA) is another extremely frustrating restriction. It used to be that we could purchase almost our entire catalog from the US. Over the years, it’s now slipped to about 30% of the gaming catalog. This can often lead to some extremely frustrating instances such as:
- Monikers which signed an exclusive agreement with On the Right Track. Who don’t carry the expansion but we can’t purchase the expansion as the publisher can’t sell it to us due to geographic restrictions.
- Forbidden Island whose US MSRP is $19. The lowest Canadian price we can get from a wholesaler? CAD$18.
This one amuses me and frustrates me. For a while, CV was only purchasable from Pierre Belvedere as they had an exclsusive agreement for it in Canada. Their main business? Selling calendars from what I recall and various kitchen ware items. They were a distributor, but there was literally nothing else that was worth buying from them.
We recently had a request from Raincoast Books to buy Osprey Games from them. At least, in this case, they are in Vancouver so we’d save on shipping; but really? Again, see above about hitting minimums and shipping costs for why we generally try to stay away from this. When a game ends up with a non-gaming distributor, it often becomes dead to us because there’s no way to hit a minimum threshold.
Direct from Publisher
I don’t categorise direct from publisher sales as onerous just by existing, mostly because in many cases, these publishers might not have a choice. Unable to get into ‘normal’ distribution, they’ve decided to sell direct to retailers who are interested. What I do find frustrating are publishers who don’t understand the normal discount thresholds for sales. A recent trend has been for publishers to offer discounts of 25-30% off MSRP and charge for shipping. At those levels, not surprisingly, most retailers would not bother carrying these products. If a game is selling at $30, then a 30% discount indicates a gross profit of $9. Add in shipping cost, our gateway processing fees and the time taken to handle the order and we barely make anything on such an order. No surprise that in those cases, we often decide to not carry those products at all.
The current discount rates seem to vary between 45-50% with some particularly aggressive groups as low as 40%. Not surprisingly, most retailers don’t even both with those at 40% so if you are offering discount rates at 30%, expect that we won’t be purchasing from you at all unless you hold an extremely, extremely in-demand game (see Cards Against Humanity).
Direct to Consumer Sales
Firstly, let’s be clear – a publisher has the right to decide who to sell to or not. If a publisher decides to go direct to consumer (via Amazon and their own sites) or Kickstarter only, that’s their choice. It’s not our area to decide their business model. In fact, when you have a product that is in such demand, it makes sense to keep more of the profit for yourselves.
However, there are numerous publishers who don’t just sell direct to consumers exclusively, they also sell it at a discount from their own MSRP. Tasty Minstrel Games is an example of a publisher whose games we have had to cut back on significantly due to regular periods of them running regular sales on their own products. Kickstarter’s that roll previous games into the current promotion fall into the same annoyance area if they provide a discount on those games. If they don’t, it’s not a huge problem normally.
Big Box Store Exclusives
I doubt I have to expand on this much. The major issue about such exclusives is the perception that it creates that we aren’t ‘real’ stores because we don’t carry X. When the question becomes ‘Why don’t you have X’, and our answer is ‘because they won’t sell it to us’, it rarely ends up being a good conversation.
Over the years, we’ve grown the number of distributors we’ve had to work with from a small 4 distributors to now, over 12+ major distributors who we order from once a quarter. That’s not including the occasionally publishers who we order a single game from. This business has grown in complexity significantly it seems and I sometimes wonder how someone who is new to the business keeps up. At least we’ve had a few years worth of experience to help us.