Bubbles again???!!!

It's very satisfying to make predictions and then be proven right. I mean, my predictions are based on long experience.

Sabrina and I talked about how we would need to limit Pokemon sales on the new wave. I wanted to limit to 3, she thought 5 would be better. We settled on 4.

So yesterday she said, "You were right. I've been getting phone calls and drop-in's all day wanting the new Pokemon." Then last night, she said, "Even though we were really late about getting it out, I sold at least $200 worth of Pokemon...and could have sold more."

Fads and bubbles are hard to understand until you have actually experienced them. What most people think of as a fad is a simple increase in demand. But that isn't it.

No, a bubble is a crazy, crazy demand, over-the-top behavior, stuff you can't believe is happening. Once you've experienced one first hand, you can start to recognize the signs. Once you've experienced several of them, you can start to see the patterns. 

There's lots of new speculative behavior taking place right now. Sports cards (which I'm not doing and you would have to shoot me) and Marvel cards and comics and Pokemon are all exhibiting the danger signs. This after about 20 years of not popping up. From an article I read in the New York Times, this kind of speculative fever is happening all over the place and is probably due to people being home and having a little extra time and cash.

I was pretty sure I wouldn't see this behavior again in my career, so I'm a bit surprised. When the sports card bubble was at it's peak, the "old, experienced guy," who owned the trade magazines about cards and coins and stamps told us that when the sports card mania collapsed, it might never come back--for which he used coins and stamps as an example. 

So I'm surprised.

Nevertheless, we have to deal with it. We can't ignore it.  

Economist John Maynard Keynes said, “The stock market can remain irrational longer than you can remain solvent.”

This is true of all bubbles. If we ignore the bubble in comics or Pokemon or anything else that is essential to our business, then our customers will go elsewhere. We may be right about it being "irrational" but that is farther down the road than we can survive. So we have to deal with the reality. 

Basically, the way you handle it is by enforcing allocations, not putting everything out at the same time. Trying to spread the in-demand product out as long and as thin as you can, keeping your regulars happy. You have to be willing to take smaller profit margins by buying from those who have the product for sale at higher than wholesale. You do have to adjust pricing to cool the demand. 

What no one ever understands is that if we raise the price slightly, it isn't to make more money but to slow down the trajectory and to give us enough of a margin to buy more product at higher prices than normal wholesale. Counter-intuitively, even with slightly higher prices we are usually making slightly less profit. (If the differences are too extreme, we let them go.)

The good thing about speculative bubbles isn't the stuff that's super hot, it's the way it helps sales in all the normal product. So it's important to keep people coming in.

A good rule of thumb is: It's better to have the product at a higher price than to not have the product at all. 

We warn people off as much as possible, but we do have to play the game at least long enough to survive until the bubble bursts. 

At the same time, we have to be careful not to get sucked into the dynamic of ordering far more product than we actually need at normal times and then watch the bubble collapse with us holding the bag. 

It's a very tricky process and almost impossible to get through without suffering some damage. 

At least I've been through it before--a bunch of times. The last time this experience was useful was during the housing bubble. I saw it a mile away and spent a full year preparing for the collapse. In the end, I made the right decisions and we weathered the storm without much harm.

So now we get to try to thread the needle again.