Nobody likes being the bearer of bad tidings. King Tigranes the Great of Armenia was so displeased to hear that Lucullus’ legions were marching on him that he executed the man and listened only to advisors who flattered him. This is because nobody likes to hear bad tidings. And we lash out, desperate to cling onto the illusion of power when confronted with powerlessness.
The Pound continues to slide inexorably into the abyss.
Most businesses hold the line as long as possible. We have these things called price points – places where customers feel something has intrinsic worth at that price. As a quantum retailer, I didn’t peg my currency fluctuations to the dollar or euro or the gold standard.
No. My economy is based on Coca Cola.
Everyone knows how much a can of the world’s most popular carbonated caffeinated fizzy beverage costs. It’s both a supermarket and a corner shop staple. Because it’s a luxury but also a lifestyle choice, when the price of Coke goes up we sort of make a mental accommodation to other prices going up. Little lifestyle luxuries.
This is the territory we colonise as quantum retailers.
Coke was 50p a can when we opened Fan Boy Three in 2004. Now it’s £1. Chocolate was 40p and now its 80p. But during that doubling of price there have been certain points when this manufacturer or that decided to hold the line on price at my expense and price mark their products. This allows them to appear to be ‘the good guys’ while simultaneously reducing my margin.
Margin is what keeps retailers in business. It’s the pool of money we use to pay our staff, our landlords, our taxes, our utilities and hopefully feed our families. Most people don’t begrudge a retailer a margin to live on… HA, WHO AM I KIDDING!!! Literally everyone begrudges a retailer margin.
In Britain, our retail margin is usually around 35%. It’s 50% in the US. Our tax – VAT – is 20%. That’s not a lot to play with. Fortunately for many products if we buy more we get a better deal.
This week Yugioh joined Magic in having a substantial price rise of almost 10%. It had risen a couple of times before – during the crash of 2007 – but had been static at £3.59 for a while.
The first thing I check when I hear of a dramatic price rise is whether or not the MSRP will rise. Because if the MSRP does not, it’s like those price marked Cokes. Konami and Asmodee feel pretty good at keeping my customers happy, but I lose margin. I watched margin creep go from the 40% I used to get to 35%, and I literally cannot afford the creep to colonise 30%.
Can I be honest? That margin creep is worth more than twice my salary across a year. And that’s not something I can absorb.
Look out your door. You see the world. Tariffs on China. Brexit. Dark clouds gathering over Iran and North Korea. Chaos makes money for some people – arms dealers, currency speculators – Opportunity for others and misery to the rest. To us, chaos only means higher prices and a falling standard of living.
If we are lucky.
There were plenty of shopkeepers in Syria too.
Nobody wants to put prices up, but if we must, that has to come from the top. It has to be clearly signposted by distro and publishing. My customers will respect that. I can sell the price rises along with the product if I have a clear and concise message in terms of an MSRP I can point to.
To manage price point expectations.
In 2004 a Coke would cost you 50p and a Dairy Milk 40p. It’s now double that. A Yugioh booster was £2 and a Magic booster £2.50. And if we hold the line on price in troubling times, it’s because as a retailer I WANT To. I want to make a stand, to buffer the slings and arrows of outrageous fortune. I’ll take a short term hit on margin in extremis, not a long term margin erosion because a publisher wants to appear generous with other people’s money.
Asmodee agreed.
The uncomfortable fact is that it’s easier to soak margin creep on a more expensive game, because to a quantum retailer there are two ways of looking at a sale.
Let’s say you do 100 transactions a day. The price ranges from £1 to £100. Your margin was 35% on each transaction and your operating costs were 20% of that turnover. Lets break it down further. Let’s say I sold:
1 x £100
2 x £70
4 x £50
6 x £40
10 x £20
12 x £10
15 x £5
50 x £1
I’m in Britain so I’m going to have to pay tax. I did £1125 turnover. After tax I made £937.50. After margin I generated £328.12 and my operating costs were £187.50. My operating costs stay the same whether I lose margin or not. In fact, they are so static I can say that over a hundred sales, each transaction costs me £1.87 (£187.50/100).
This is coincidentally why a bums on seats and soda strategy doesn’t work. You would need an infinite number of bums to drag the per transaction fee down – I’d need to sell 1125 sodas to keep my operating costs from overwhelming my cashflow.
Now, on a £100 MSRP sale I make about £30. Margin creep here is less perceptually problematic – if I assume my operating costs are fixed at £1.87 then I have £28 profit to play with, right? Only I don’t, because all those soda sales are actually costing me money on a fixed transaction cost model.
Still, this is the reason that car dealership is willing to haggle when that lemonade salesperson is not.
This became relevant when I was seeking a new credit card processor. The per transaction fee makes small purchases problematic. No transaction fee but a higher rate makes large purchases less attractive. And with prices rising on boardgames all the time, an additional 1% adds up over that time.
This is the economic juggling act of the quantum retailer.
At Fan Boy Three we are constantly attempting to mitigate price rises and expenses while still covering our overheads. If a boardgame goes over the £50 price point we’ll have knocked a bit off to show willing, and we run a perpetual ‘buy three boardgames get 10% off’ deal. A lot of the time people will have ended up saving 20%, but on bigger ticket items where I can absorb it.
The high end items are where internet deep discounters hit you the most, because there’s an argument that when you operate on a large enough scale you CAN fix your operating costs, then price everything £1 more and still generate profit. But unless you are Amazon, the first return or missing order wipes out hundreds of successful ones and leaves you zero sum. That’s why it’s hard to start a deep discounter without large reserves of other peoples money.
And like I mentioned before, I’m not big on self aggrandisement using other peoples money.
We had a guy who used to steal Yugioh boxes off us, sell them and live large gambling in casinos. Maybe dicking other people over is a smart business strategy. I mean, it got Trump to the White House and Boris Johnson to 10 Downing Street. And it dumped me in the mess where Yugioh has to rise in price.
Sorry everyone. I’ve been the quantum retailer.
Don’t shoot the messenger!
The Quantum Retailer 