Discounting, MAPs and distribution

I was recently at a distributor’s event and was chatting with a few retailers as you do. As always, the talk returned to things like MAP, discounting and sales. Not surprisingly, most retailers are against discounting from MAP (whatever that is in Canada) for any reason.  Since we started as an online retailer, we’ve got a bit more of a nuanced view on this.

Let’s be clear here:

  • Many of our customers purchase from us without ever using our available game space and/or game library
  • A small percentage of customers use our game space, but most do so to play RPGs (our smallest ‘main’ category, even including miniatures)
  • In terms of revenue per square foot, board games are horrible.  We make more sales per sq foot in terms of dice or sleeves or (nearly) CCGs.  The only product line we hold that does worst for us is clothing (and we’re slowly getting out of that line).
  • MAP programs are a one-size fits all solution. What is a ‘good’ price for one market might not be great for another (see different costs for different cities).
  • Retail space is expensive. Especially in Vancouver.  A nearby location on Main & 12th on the corner is currently asking for $60 per sq ft per annum.  If we paid that, we’d be looking at over $16,500 per month.  At our current 50% markup, we’d need to make CAD$50,000 a month just to cover rent.  If we did a 25% markup (what the US does for many online stores), we’d need to be doing $66,000 a month to cover rent. If you assume rent is 1/3 of your expenses, you’re looking at needing to do nearly CAD$2 million annually to just breakeven at 25% markup.

These numbers are why most retailers balk at the idea of ‘discounting’ to match US online store pricing. To just make a little bit of money, you’d need to work incredibly hard.  Now I’ll admit, our numbers are high because we’re in Vancouver, but when the generic call is to ‘discount or we won’t buy from you’, you can see why retailers get upset.

It’s also why many retailers switch focus to CCGs. Margins might not be great (at least in terms of booster boxes) but regular sales of booster packs and great margins on singles mean that it’s significantly better for them to concentrate there.  It’s why we’ve focused development of our sales / events to CCGs in-store at this time (it’s easy to grow from $0…).

However, MAPs also create their own problems (outside of their legality in Canada). If we want to sell / discard old stock (like Android Netrunner’s chapter packs that are no longer going to be in rotation), we can’t.  So we’re stuck with dead stock which any good retailer would want to get rid but can’t.  Worse, it hits online & hybrid stores significantly more – after all, if we just kept the sales in-store, it’s not as if most publishers would ever know.

On the other hand, without MAPs, businesses like Amazon who sell the D&D Core Books for cents over our cost can destroy entire product lines.

If we do have to have MAPs (and it seems like the way this is going), it’d be nice to have them on a rotating basis.  Since the entire industry is front-list driven anyway, keep the MAPs up for the first 3 months or so. After that, games should be taken off it.  This breaks up purchasing by customers who want / need it now and allows businesses to dump bad / old stock without issue.

 

Attrition Rate

One of my major concerns is the increasing rate of releases for board games in Canada.  It struck me one way to look at how often a ‘hit’ product might appear (or at least a decent product) would be to look at our release dates and what we kept in-stock.

The Methodology

I proceeded to pull from our database all the products that had a ‘Year’ indicated in its product information.  For the vast majority of products, this would indicate the year it was published (or re-published in a few cases).    I then figured out the total number of such products (No. of products added on the chart) and the number of those products still in-stock with us at the time of analysis (late-June 2013) as indicated by the bar graph (no. of products in-stock).

Now, note that the years used is the year the product was published / released generally (as drawn from BGG datasets).  So you’ll see items like 1935 and 1947 (Monopoly, etc) in there too – products that were released long before we ever existed.

Once the data was plotted, I also added a ‘Percentage still in-stock’ line graph which gave a % of items that were still in-stock compared to the number of items released in that year and plotted it all.  I’ve also added a second data line (the purple) for adjusting for ‘dead stock’. That is, items that are only in-stock because we couldn’t sell them off (or intend to get rid off once they do sell).

The Chart

Attrition Rate of Board Games Released

Analysis

If you look at products that we ‘cherry picked’ from 2006 backwards, you’ll see that even though these products were in-demand when we launched in 2007; many have now been dropped from inventory. If you look only at 2007, the year when we started adding products based off what we guessed could sell, that’s 15% or so and likely to continue to drop as demand wanes.   Whether it’s because the product is no longer available or because the product no longer has demand, about 15 – 20% of products released a year manage to have any staying power.  Within that, probably only 2 or 3 products are consistently good sellers (selling more than 1 copy a year).

Secondly, my concerns about a spike in products seems justified.  There’s a huge spike in the amount of products added in the last 3 years (we are only 7 months in for 2013 with the slew of GenCon releases still to be added!).   From bringing in 521 products in 2010 in-total, we now have 476 products already in-stock for 2013 and more than 600 added for the year.  Just using 2012 numbers, that’s a 57% growth in products.  Now, mind you – we’ve added RPGs and miniatures to the site since then; but most miniatures don’t have a year (model years just don’t make sense to add) and our RPG selection while large was also backdated in some cases (e.g. Pathfinder modules that were released before we started adding the line).   It’s also worthwhile to note that these aren’t even all the products available – just the one’s we’ve picked to add to the site / bring-in / sell.

Thirdly, the ‘demand’ for products takes a steep fall within 1 year.  We drop 50% of products we bring in within 1 year, 60% in 2 years and within 3 75% of all products are dropped.  As a publisher, if you haven’t sold off a significant % of your products in a year, you should seriously be considering adjusting your price / having sales because by year 3, you’re not likely to be able to sell it at all.

Curiously, this is by % so in 2007 we have 32 SKUs we feel are wortwhile.  For 2008, we have 68 SKUs and 2009 we have 127.  If we expect that in 2 years time to see roughly the same number of SKUs being worthwhile, we’d see about a 75% drop in SKUs or us dropping over 90 items.

Limitations of the Data

Firstly and most importantly, while I’ve tried to clean the data; I have to admit I didn’t spend a whole lot of time doing it. I’d guess the % numbers used could be 2 – 3% higher / lower easily.

Secondly, the increasing number of SKUs added and sold can be attributed to:

  • our increasing number of RPGs & miniatures
  • the increasing size of the market
  • the increasing size of our business (i.e. our ability to bring in more stock)
  • the necessity to keep whole lines in-stock (e.g. LCG products, minis, etc)

Thirdly, this data is a snapshot in time. It’d be really useful to see the changes over-time which this cannot provide unfortunately. Perhaps next year, since I have the datasets saved now.

Lastly, some might want to draw conclusions that the ‘quality’ of product has gotten better since our % of items and raw count of items are higher than in previous years.  I’d be hesistant about drawing that conclusion – it’s too early to tell and moreover, this does not show turn rates; just whether we have an item in-stock.  In addition, we often keep products in-stock that might sell 1