Discounting as a Game Retail Strategy

I started writing this as a post for a Facebook group full of great retailers I’ve become acquainted with over the past few months and realized I had so much to say that I should blog about it instead. It was brought on by some reactions to some comments I made about running events at a loss and some general comments I (and others) made about discounting being a poor business strategy. It snowballed into a few deep discounters stating that retailers selling boxes of Magic Cards for more than they do are wrong to do so. They said some other things about buying business, incentivizing customers with discounts, and that “some profit is better than none” while simultaneously not understanding that gross profit doesn’t actually mean that you made any money.

In beginning to write the post I found myself stating unilaterally that undercutting your competition doesn’t work in the game trade. Of course that’s a bit presumptuous so I’ve decided to discuss the experience Tracey and I have had the past 6+ years. That said, it’s not going to work pretty much ever. If it works for you, you’re the exception and you may have still done irreparable damage to your business. If you’re reading this and saying “but all my online sales!”, you’re  a retailer that has a B&M because you can’t get the access to product you need otherwise and would make more net profit if you could dump your retail location and switch to selling exclusively online. Or maybe you just love it. Because let’s face it, you’re not getting rich owning a comic or game store and filling TCGPlayer orders in a warehouse is a whole lot less effort than hand selling.

I’m getting to a point, I promise.  In 2017, game retailers generally agree that most markets are saturated with game (CCG) stores. Opening up a new store in one of these markets and dropping your prices to undercut all the existing businesses doesn’t work. Your competitors have customers and you don’t. They’ve built communities and you haven’t. In building communities they’ve cultivated meaningful relationships that you don’t have. If you’re the one doing doing the undercutting, your best case scenario is it causes a price war and starves all the businesses of cash until someone closes. This opens space in the market to pick up those existing, most likely disgruntled, customers. For your sake, hopefully they don’t blame you (they probably will).  Unfortunately, in this best case, the newer store without the established base is the one that closes most often. Savvy competitors will essentially ignore you and let you starve yourself out. They also know that once you start to fail you’ll do any number of financially irresponsible or ethically questionable things in an effort to right your ship. You’re not operating in a vacuum, your competitors will react to the things you do. You’re probably not smarter than the last guy and they can probably tell you what you’re going to do next before you do it.

idiotSomething a wiser man than me once said.

We deal with on average 1 new store per year opening up in our market. They always go with beating our prices as their primary strategy. I don’t know why this is the tactic that everyone thinks is best, but it’s what they all do. They don’t do enough investigation about their competition and why they’re successful, they just look at the prices and say, “I can beat that!”

There have been clubhouses, chains, and well funded start-ups and they’ve all gone belly up. The first time it happened to us we weren’t sure what to do about it. We’d been in business less than a year and were genuinely afraid. This store opened up half a mile down the street and most of our customers had to drive past it to get to us. We ended up doing 2 things after gaining as much information we could about our soon to be competitor; one was a great idea and the other was terrible. First, we worked really hard to make our store better by expanding and adding additional dedicated play space. We weren’t certain we could afford it yet but we felt we had to accelerate our plans and add it a year before we originally intended to. Second, we matched their $2.99 price on Magic boosters. Adding the space was a huge success, price matching probably cost us $10,000 in gross profit. What of this new competitor? No one played there. No one cared about it. Half or more of our players didn’t know it existed. The ones that did disliked the manager and the less than ethical way he ran the store. To our surprise, we’d successfully built a loyal following because of how we ran our business and treated our customers. They didn’t care what we charged for a pack of cards. We gradually increased our price back to $3.99 and we haven’t looked back. I will caveat that by saying that we do offer special pricing by the box or by the case, not crazy lowest common denominator pricing, but fair pricing that allows us to continue supporting our community and stay healthy as a business.

There have been several others to open since our first experience. All of them nice people following their dream of owning a game store. The common thread between them seems to have been a lack of understanding of the market they entered. It’s a well served market and there’s not a lot of room. There are stores 30 minutes to the east, west, and south and sparse population to the north. The best option (and still not great) to open a store in the area is to find an under-served area of Greater New Orleans. What those might be I’m not sure. Logistically it would be a nightmare for us to open on the South Shore so I’ve never looked into it (plus we’ve made some great friends with stores of their own). I highly recommend not marrying yourself to a particular geography. If you want to own a game or comic store then find an under-served market and open there or buy a store that’s already open. You’ll be much happier with the path of least resistance. You might also find that long time retailers you considered making your competition can become your biggest cheerleaders.  We all want a strong healthy game trade after all.

If you do plan to open in a place with competition then you’d better be able to identify an opening in your market or understand from day one that it’s going to be you or them and plan accordingly (shitty, I know). Then you win by operating ethically and being a better store that adds more value to the customer experience (deeper pockets don’t hurt either). Customers aren’t stupid. They’ve seen it all before. Most stores don’t make it 2 years and they know it. They’re not going to make an investment in a new one just because you can save them a couple bucks.

Winning on price does not create customers that will be loyal to you. It drives consumers that are loyal to price to you. If your competitor is doing it right then you’re not going to pry very many customers away from them with a low price strategy.

As always – thanks for reading!
-Steve