The magic formula.
Of course, there is no magic formula for small business, and if there was, it would completely change six months later. That doesn't keep me from trying.
Since the day I bought Pegasus Books, in April, 1984, comic books have been my mainstay. My identity. But comic books have always only brought about 65% of the revenues needed for viability, and probably 55% of the revenues needed for true profitability.
This has never really changed, through all the vicissitudes of the market, the rise and fall of other product lines, or the rise and fall of comics themselves. As Bend grows, the comic market shrinks; or the comic market grows, but the cost of doing business goes up, and so on.
The other statistic that has never really changed is that, as a specialty store, I need about a 40% gross profit margin to stay in business.
I'll combine these two statistics, later.
Realizing very early that comics weren't going to pay me a living wage, I cast about for some other product lines. My first attempt was games, but I just didn't have the monies to get in enough inventory fast enough, and the arrive of the store Book and Game in the Mt. View Mall blew me out of the water. New and used books also failed to fill the gap. New book distribution was in the dark ages -- I'd see books at Waldenbooks that I wouldn't get for another month, if then.
Finally, I lucked upon sports cards. Good luck...and as it turned out, really bad luck. Card fueled my growth, but I also put every dime I had back into more cards, and eventually I got left holding a burst balloon in my hands.
Early on, though, I heard the idea of three legged stool; it's more stable than a one legged stool, or a two legged stool, or even a four legged stool. This made so much sense to me, that it became my magic formula. But I could never find that third leg of the stool after comics and sports cards, and after sports cards self-destructed, I had a hard time finding even a second leg.
At some point I gave up on the analogy. I decided that the best model would be to have comics be 50% of my business, and the other 50% would be everything else.
I brought in anime and manga, and toys, and roleplaying games, and card games, and used books, and so on. Each brought us a little closer, squeezed me for room, made inventory the most important facet of my business. But not quite there.
Finally, I realize that turnover rate really didn't matter to me. As long as I was paying for the product within my cash flow, it didn't hurt me. I started doing a 'long-tail' business before I ever heard the term.
I also became more sophisticated about COG's; Cost of Goods.
Notice, if you will, that some product has a Suggested Retail Price, and other product does not. Almost without fail, the product that doesn't include a SRP on the packaging has very low margins. Product that does list the price, such as comics, books, graphic novels and games usually have adequate profit margins (i.e. 40% or so.)
The reason that most toys, cards and anime doesn't have SRP on the packaging is that the manufacturer knows the margins suck and is allowing the retailer to chose the price.
Interestingly, the same product tends to be suicidally competitive. So the pressure is on to lower the price on product that you already have lousy margins.
I discovered that if I set my price as close to my own profitability as possible, and stuck to that price, that most of this product was profitable. That is, I might not sell huge amounts, but what I did sell was profitable.
So, realizing that I could carry low margin material, and realizing that I could carry slow moving product, and still make them profitable, freed me to try many different product lines.
Over the past couple of years, I added new games, board games, and new books. My current sales are roughly; 30% comics, 20% graphic novels (50%); and 5% RPG's and Boardgames, 15% CCG's and miniatures (20%); and 10% books (probably more since many of these get lumped into graphic novels); 10% toys and anime; and 10% sports cards.
The magic formula, for now, that seems to be working.
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5 comments:
Ah, a peak behind the veil. My girlfriend and I were (for whatever reason) ruminating on what you made most of your money on. Believe it or not, I didn't guess comics.
*peek* Ugh. Forgive me, I went to public school. It was mandatory to attend English class, but not to learn it.
From industrial organization class we learned that Suggested Retail Price was a tool used by the manufacturer to maintain higher profits. So I'm surprised to hear that you, as a retailer (who probably often has opposing interests vis-a-vis the manufacturer) also seems to favor Suggested Retail Price. I guess it prevents a race to the bottom with your fellow retail stores.
I prefer SRP if there is sufficient margin. I prefer no SRP if the margin is less than sufficient. So, a MARKED SRP with low margins is the worst of both worlds.
I would not say that the manufacturer has opposing interests than the retailer. After all the retailer is part of the distribution chain. Increased sales, while maintaining reasonable margin is a key to success for both. A manufacturer maintaining margin at the expense of the retailer is generally not in a good situation. Often margin reduction impacts both.
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