Killing Your Darling - Inventory Turnover and When to Let Products Die

I attempted to play competitive Magic for quite some time, before and during working for a game store, and when I would be getting ready for a tournament and have some "homebrew" deck I came up with or a dated deck list that wasn't very good in the current metagame but was something I really liked playing, my friend John would often tell me "If you want to win sometimes you have to kill your darlings," which continues to be one of my favorite sayings and is applicable to every situation where your judgement is skewed by your passions. 

There are lots of games that are the motivating force for people wanting to start their own game shop. Magic is a big one, followed by the Game Workshop brands, sometimes Warmachine and Yu-gi-oh!, and rarely other, smaller games. Regardless of what got you to open your store, if you want to keep it open, you have to cater to the market you get. I'll use a recent local store in Springfield as an example. A good friend of mine opened up a Magic shop and LAN center. His store is literally split down the middle with gaming tables and singles on one side, and 14 gaming PCs on the other. After a few months of business trying to get Magic tournaments and sales going, he realized that the market in Springfield was saturated already with what he was trying to do, but realized that he was selling out his LAN center on most of the busy nights and even had waiting lists. While the solution to his problem was extremely easy, and he sold his Magic stock to expand on his LAN center, most gaming stores aren't going to have this as cut and dry. Monitoring inventory turnover (ITO) is going to be your best tool for figuring out if things are worth your effort or not.

Calculating ITO

Inventory Turnover is figured out by taking the total sales of a certain item (or product category) and dividing it by the average amount of inventory you keep in stock of that item (in dollars). For example, if you were calculating ITO for Yu-gi-oh, you would take your sales in Yu-gi-oh! for a time period (say, for the year 2012) and divide it by the average dollar amount of Yu-gi-oh! inventory you keep in stock (if you have good numbers, you can figure this out easy, if you only take inventory so often, just use your beginning of year inventory averaged with your current level), and you'll get a ratio. This number is, theoretically, how many times you sell that given item over the course of a year. Hopefully this concept isn't too complicated, I may edit this a few times and add an example later, but its a fairly simple financial ratio and I'd imagine a Google search can probably help you understand it further.

Interpreting ITO

So now that you have your ITO ratio....what does it do? Well what I've done with it at Meta-Games is used it to compare our product lines to see what was slacking and what was not. I would never publish any of our private financial data anywhere, but when we first looked at these numbers (about six months ago), we were very shocked that one of our "most popular" lines, which sold "pretty well" required a huge inventory investment to get its sales, where unsuprising brands like Magic, Yu-gi-oh! and board games like Small World and Munchkin would turn over dozens and dozens of times in a year based on their average inventory levels. We since have re-evaluated our spending on this line and have seen the ITO ratio for that line fall more in line with what we want our products at.

Using ITO

I'll make a quick hypothetical list of ITO ratios for a couple brands

Yugioh - 12.8

Magic - 18.4

Warhammer - 1.8

Munchkin - 10.3

Well we see that Magic is super high compared to our average, while Warhammer is terribly low. How do we use this information to better run our business? Well trying to fix Warhammer is clearly our most important goal. We have entirely too much inventory compared to the sales that inventory is generating. We can do two things 1) promote Warhammer or 2) order less Warhammer. These things aren't mutually exclusive, and doing a combination of both is going to yield you the best results. Maybe run a sale on items that have been in your inventory over 180 days, or maybe cut your inventory levels on some units from 2 box sets to 1, and have more controlled stocking on new orders using pre-orders and moderation. 

While it may not seem like it at first glance, Magic could also be a problem. Extremely high ITO ratios can sometimes mean you aren't stocking enough product to meet certain unexpected rushes (although more often than not its just safe to say Magic sales aren't comparable to your other product lines). You can fix this by trying to keep a deeper back stock of the most current products. Keep an eye on high ratios in board games, as sometimes having what seems like an unreasonable number of copies of a game in stock can still not last you a week. 

If you try to promote or discount a product line, and its ITO is still bad...sometimes you just have to clearance it and let it go. There have been lots of products that I've loved over the years that have come through and had faith in and...well...just didn't pan out. Just let them die. You don't have to keep everything in stock. If people have the option of special ordering from you or from Amazon, and you can compete with the price point, they'll always chose you(even if you just make a couple dollars above cost, if all the effort you have to extend is a phone call or a mouse click, you better do it every time). Once you make sure you are only carrying product lines worth carrying, your efforts will become much more focused and your profits will be much easier to earn. 

The Importance of a Clean Store

I've traveled around to several other game stores around the Midwest and one thing that is very consistent is most of them are dirty and smelly. We go through a lot of measures to make sure Meta is as clean and stink-free as it can be, but sometimes one or two unkempt customers can undo any amount of work you put into your store. What is interesting to me is that all of the other retail jobs I've worked growing up have you constantly facing, sweeping, wiping things down, cleaning public fixtures, and all of the other things that keep a store and merchandise looking good, but all of this goes out the window in game stores. I've seen everything from disgusting bathrooms to dirt covering an entire carpet of a game room.

Its always great when people travel to Meta for larger events and let the staff know how impressed they are by the cleanliness of our store. It feel nice...but at the same time its pretty embarrassing for our community to have such a stigma that even moderate efforts to keep a store clean get acclaim (I've never gone into a Wal-Mart, Best Buy, grocery store, or any other store and complimented them on how clean their store was, even though at any given time those stores are probably much cleaner than ours). So, even though it seems like it should be completely unnecessary to explain this, I'm going to make a quick list of things to know about store upkeep.

Get Your Staff Working
Most stores have at least one or two part time employees, and these are going to be your guys who you'll want cleaning. When their shifts start, they should know what is expected of them. If you want John to dust, clean the bathrooms, and straighten the displays, make sure you show him exactly how you want it done and tell him that he needs to do it. Lots of managers just expect part timers to know they should be kept busy, but keep in mind that your staff consist of people who want to work part time at a game store...they probably have a different view of what their job is than you do, so make sure its clear.

Stock Cleaning Supplies
Never run out of Windex, Lysol, air fresheners, paper towels, toilet bowl cleaner, Swiffers and all the other stuff you need to keep your store looking good. Its easy to put off cleaning when you don't have the supplies, then once you get them its easy to put off cleaning because you are so far behind in doing it, and then you will inevitably fall into the "well, other game stores are like this, so my customers won't mind."

Let Messy/Smelly Customers Know They're Messy/Smelly
Now...this doesn't apply to that guy who smells bad, comes in your store, buys some packs, and leaves. That isn't a long term impact on your business. This applies more to the guys who come in to play games and put their stuff all over your sales counter as storage, or the guy in your store playing games for several hours who has clearly not showered recently, or the blue collar worker who tracks mud all over your store every time he comes in after his shift on Tuesdays. Yes, you can clean up after them every time...and if they spend enough money in your store, maybe that is just the service you are going to choose to provide to them, and that is okay. Customers like these will eventually wear down your staff though, and the smelly ones will wear out your regular customers and begin scaring away potential new ones. Just having a very polite, very well-planned out conversation about their body odor or mess making with them might embarrass them a little bit, but odds are it will embarrass them into bathing/deodorizing/kicking dirt off their shoes after work and not embarrass them into going to eBay for their gaming. Your other customers will appreciate it enough to make up for the loss of one problem customers if it does happen to go bad.

There is literally an endless (and fairly obvious) list of things to do to keep your store clean, but these three I listed are ones that are going to help you the most and are the most specific to hobby game stores. You don't want to scare off potential customers are be responsible for perpetuating one of hobby gamings hardest stereotypes to overcome.

Welcome to Game Store 101

Starting a blog is something I've needed to do for the longest time and I'm finally pulling the trigger. My name is Jeff Winters and I've worked at Meta-Games Unlimited for the last 9ish years, about six of which have been in management. I mostly run events, do other small marketing activities and study sales data. I'm also a marketing research student at Missouri State University and about a year away from (finally...)graduating.

For those unfamiliar with Meta-Games Unlimited (MGU, or Meta from here on out), we are a store that specializes in hobby gaming, which includes games such as Magic: The Gathering, Yu-gi-oh!, Warhammer 40K and Euro-style board games like Settlers of Catan and Ticket to Ride. We have been open in Springfield, Missouri for the last 15 years. If you are unfamiliar with these products then the information I provide in this blog will probably be useless to you, or will require some pretty broad applications. For those who are familiar with these types of games, I would imagine that one thought has probably crossed your mind a few times; "Hey, I could run a store like this!"

Gamers trying to run game stores is the reason I wanted to start this blog. There is an extremely high failure rate in our industry because people get so passionate about the hobby that they love that they lose site of basic business principals...or perhaps never knew these principals in the first place. To prevent my first post from solely being introductory, I'm going to lay out a few things to consider before diving into a hobby gaming store and a couple that may help if you are already up and running.

Is there a demand?
 As simple as this question sounds, the reason a lot of these stores fail is because there simply is no need for one to exist in your market. Maybe the market is too small to support a store or perhaps there is already a saturation given your population. Make sure that if there is a demand, its a real demand. It cannot just be your group of 5-10 friends saying that you should run a store because more often than not friends don't make the best customers, and even if they did, few businesses can get back with that few clients. You can work on creating a demand for hobby gaming in your area as well, but that requires a certain type of person with a lot of time and resources.

Do not run a club house
If you've frequented gaming stores before, you are probably aware of what I mean. Customers hanging out behind the sales counter, some of the staff getting paid in "store credit", opening and closing at the discretion of the owner or manager's mood, and many other things can prevent the public at large from taking you seriously as a business. If you aren't prepared to run a business that is going to be open at set hours, then don't open. If you can't pay your staff money, then don't hire a staff. While you may think its insane that I would even need to mention paying your staff, I can think of at least three stores that have been opened in the last year around Springfield that had unpaid staff, and there were serious (shrinkage) issues.

Conservation is Key
Many people are familiar with the 80/20 rule and its near infinite applications, but it certainly fits with hobby stores in that 80% of your sales are going to come from 20% of your inventory. This shouldn't discredit that other 80% of your inventory that isn't going to turn over quite as fast, as variety and supplementary items are very important as well, but you will learn very quickly what is hot in your area and what is not. Sometimes you just have to let product lines go to pasture even if they are the reason you got into the business. Keep in your "evergreen" items as best you can, but also remember that almost all of your best sellers are going to be easy to reorder, and if you have a reputable distributor they'l let you know when something is going to be scarce or out of stock for awhile.

Don't Fear the Internet
You are going to  have customers come in and tell you about how they can buy a game on Amazon for $1 above your cost. You are going to have customers tell you they can buy a certain Magic card for half as much on StarCityGames. Miniature Market, Troll and Toad, Funagain....you will probably get a sour look on your face every time someone mentions these, because you know there is only one thing on that customers mind; price. My philosophy on this has always been to offer them the game at a price that is close to but not exactly as low as online. Make them pay for the convenience or the game space if that is something your store has. Every time I've made an effort to meet a customer over half way they've always at least appreciated it, and it usually leads to a sale. If they found an item below cost, I always tell them that they are getting a literally unbeatable price and they should buy it before I do. Being transparent with these customers is always the right move, because they've done their research and showing them that you respect their price-conscience position is going to do you more good than telling them something snarky like "well go buy it online then" or "have fun playing that game in Amazon.com's game space." (For the uninformed: hobby gaming stores traditionally have gaming tables for people to play games on, and usually play host to events and tournaments around games)

There are about a thousand other faux pas that take place regularly in hobby shops but those are four of the biggest ones I see. I hope that if you are reading this you found it useful and I look forward to my next entry.

-Jeff