Reply about Margin from the multi source thread

[guildofblades]

Hi Lloyd,

>>First, how many Best Retailers do you have?  That's a fairly significant buy-in for most stores.  Your regular discount is 55%, not 60%, and the retailer pays shipping--probably bringing the total bill to the equivalent of 50% discount--the same as I get on everything non-Wizards from Premier Hobby Distribution. <<

Well, actually, the majority of retailers who order from us are on our Point of Purchase program, and that program does get 60% discount and free shipping. There is a reasonable uy in ($350 net), but that is set at a level where the retailer HAS to either carry a number of titles deep, or can order quantities of "1" across the majority of the line. After the initial buy in, retailers can place orders of any size (including just 1 of 1 SKU) and get the same terms. We do have a 55% discount, where the retailer pays shipping, but that is justfor spot ordering. Special ordering from retailers trying to service just one or two titles. Its a service we offer, but is not the ideal business relationship format we seek and truthfully, it is not used very often. So, no, our usual direct to retail discount (for easily 95% of our direct to retail volume), is 60% off with free shipping. Though stores ordering volume (possiblyfor a chain buy in), can get up to 65% discount.

>>Second, you forgot to factor in that loss number you so gratuitously threw out, so let's knock another 5% off (that's the same number, you'll notice).  Your "greater margin" is now 5% less. <<

Nope. I figured it in. Buying at a 60% discount, but then factoring in 5% loss due to shrinkage and returns, does in deed bring it down to 55% off. Or a COGS of 45%.

>>concentrating ordering with one distributor for best volume discount) can buy SJG, for example, at 50% off.  Gross profit margin on GURPS is 50%.  If gross profit margin on Heroes Forever is 45% or even 60%, it isn't 4 times as much.<<

You are correct. Compared to Gurps bought at 50% off, its not 4 times. But while Gurps is pretty successful, Gurps is a perfect example of a non leading brand that stores should absolutely be stocking and working to sell. Exactly because is not sold in every book chain and every mass market chain. It is a unique item that an indie retailer can stock to help differentiate their store from all the other competitors that exist for the leading brands.

To bring my comparison back on target,  the best discount a store will get out of GW is 45%. And that is before factoring shrinkage (which tends to run hogh on GW), and discounted sales. Figuring only a 5% additional COGS there is probably being generous, but we will stick with that. Also, I know that the Guild is a bit unusual in offering a 60% discount to store, so lets not discuss that. Lets look at the 55% discount discount many indie companies are willing to offer. That extra 10% margin makes those indie games 3 times as profitable, per sales volume. Yes, I know the sales volumes are not at great, nor does the retailer carry as much inventory for that one indie game, so GW will obviously gross them more money and net more total product. But the point is, if your store works to encourage indie games in general, the types of consumers who will tendto buy one indie game willoften buy many indie games, so you almost have to look at your entire indie games selection as a single product line unto itself. You will add SKUs and not restock SKUs to the line pretty much the same you would with GW, based on sales and availability. So, for the square footage being taken, and for the amount of money invested, those indie games are still 3 times as profitable.

I'm not saying it is abolutely better to stock all indie games and dump that GW section (well, I can make some pretty good cases for dumping GW, but thats a different issue). All I am saying is by buying indie games direct and promoting them, there is a greater potential for solid profits there than most stores are willing to recognize. Thats a hidden profit center suddenly found. And thats a product exclusive, effectively, because that hobby store will NOT be competing with Walmart on those titles, nor most of the internet discounters. If utilized and promoted, thats a competitive advantage.

A true story. A few years back, when Walmart directed attached the pet supply market and its market leader, Petsmart, Walmart stocked all those same leading brands and at great discounts. Petsmart couldn't compete. So they didn't even try. Petsmart dumpled most of those leading brands, then differentiated their store a couple different ways. They stocked the quality non leading brands, then trained their sales staff to know more about those brands and why they were good. They then sold those non leading brands with the same velocity as they once sold the leading brands. Coupled with this more knowledable sales approach, Petsmark also focussed on grooming and other knowledge based services and thus, by maintaining the perception that they were still the absolute #1 experts for those kinds of products and services, they created a whole new set of leading brands. All because they dared to stock, sell, and promote those brands. All retailers, including game retailers, have this potential. I have no sympathy for a retailer who complains that Walmart is selling gameX cheaper, or they can't get game Y while the mass market store down the street has an entire isle full. Not when there are so many quality games currently going ignored by those same retailers; games for which there is no major local competition for.

Ryan S. Johnson
Guild of Blades Publishing Group
http://www.guildofblades.com

[LloydBrown]

Stripped down the math to get to the point:

[regarding GoB products in particular and indie in general, Ryan said] It is a unique item that an indie retailer can stock to help differentiate their store from all the other competitors that exist for the leading brands.

I agree that the whole benefit of this type of product is competitive advantage, not sales volume.  That's the point I've been making all along.  Small volume stores, cash-flow borderline stores, and new stores (in most cases) don't have the *immediate* need for it--and thus it never happens, because that priority never floats to the top.  Unfortunately, those Venn diagrams cover up almost all of the bigger circle that is "game retailers."