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Behind the Counter

On Discounting

by Marcus King
Dec 15,2005

 

On Discounting

This Week's Column is about DISCOUNTING on the internet, and how it effects our industry. Most of this is comes from a conversation I recently had with another reputable online retailer, and a couple of distributor reps. What precipitated this conversation was the other retailer asking how we, he and I and the distributors, could combat discounting online.

Personally, I know that I could make a LOT more money by selling things at a discount - and I have both the infrastructure and personnel to ship maybe 500 packages a day, instead of 125-150 a day. Titan Games is well staffed, and has a large facility. We run our packing station 4 hours a day, and could easily do 10 hours - additionally, we use one packer, though our station will hold 2, and we have 4 qualified packers on call.

So, I look at those discounters with a jealous eye. Knowing I have a better facility, team, and infrastructure than they, and also knowing I like money - it is hard to resist.

How to combat discounters? Okay, let me first say this: I am taking off my GAMA Vice President's hat, and putting it in a drawer, in the other room. What I say now, I say ONLY as Marcus King, Owner of Titan Games.

Distributors have no obligation to combat discounters. Distributors make money selling stuff to re-sellers, and that doesn't matter if it is a Brick and Mortar retailer, or an internet retailer like you or I, or a discounter. Distributors make money selling stuff to resellers. Some distributors have a policy, publicly, about selling ONLY to B&M stores, that - privately - they don't really adhere to. I speak first hand, knowing that when my retail store went out of business, and I was running from my house, I was able to order from 5 distributors; one even went so far as to tell me they would not ship to my house, but to just pick up my packages at the UPS Hub, that was fine. I don't find fault with this, by the way - it is business. I am not certain it is legal to refuse to sell to someone who has a business license just because they don't have a retail location, or to refuse to sell to someone because they discount online.

However, some distributors do take strides to only sell to established B&M (Brick and Mortar) retail stores. I admire that, applaud that, appreciate that - but you cannot really expect it of all distributors.

Next: It is also not in the interest of MOST publishers to differentiate between who gets their products - or more simply put: A publisher needs to sell stuff to distributors, or resellers - and it doesn't make financial sense for them to limit who can buy their items. They sell more items, they make a better living.

So, retailers like me and others that don't discount are stuck. Some are "industry luminaries" I suppose, and are expected to set an example for others to follow - I don't think I could have been elected the Vice President of GAMA (The Game Manufacturers Association) if I were a deep discounting internet seller. We, the other online non-discounters and I, make less money because of our non-discounting model of internet sales. I lose customers because I won't sell a Settlers of Catan for $29, or throw in free shipping, and it can be bought elsewhere for that. Customers are driven, trained, educated to be skeptical of MSRP's - WalMart rolls back prices, they say, every day (why isn't everything $.01 each by now, I ponder) and from Breakfast Cereal to SUV's, consumers are told to save, buy at special discounts, and be smart (which means DON'T PAY RETAIL).

ONLY CHUMPS PAY RETAIL - they are told; it is insinuated; it is inferred; many have come to believe.

What do I get from it all? I get some publishers who will sell direct to me at 60% off. I get some distributors who will give me a flat 50% off on every item I buy. I get other retailers who will sell OUT to me, or sell off overstock to me, because I don't steal sales from them online (by discounting). Is it enough? Not sure.

Does it pay off? I am not certain.

But I think that the mere idea that discounting can be combated, and defeated, is ill informed. Discounters are here to stay, the INTERNET is not going to fade away like CB Radios (it is not a fad). Consumers are not going to come around to realize that they should pay MSRP because the good guys are charging MSRP.

In fact, SOME Consumers think we, non discounting internet sellers, even non discounting retailers, are greedy. WE are the BAD GUYS in their opinions. They do not care that we pay a living wage to employees, or pay our sales taxes, or take special care with packaging or anything else. They expect that those things ARE being done, and don't care if they really aren't. They want to pay less, and receive more, and stretch their dollars and be told what smart shoppers they are for saving money.

And, I am not saying they are wrong. I am saying that for years, I have chased the non-discounting model, and that doing so has caused me to sell less stuff, and make less money.

I look at Radio Controlled Cars, Paintball Guns, and Trains. These three hobbies are ruined for (most) retailers. RC and Trains have been discounted by the manufacturers, and the major distributors (direct to consumers at both levels) to the point that over 90% of the hobby stores in the USA do not carry the top products in either category - cause they can't afford to bring in a $500 item, and sell it, eventually, perhaps at $550.00. Paintball guns are also available direct from every major manufacturer to the point that NOBODY buys a top competition level gun from a retailer - only "newbie junk" is sold at Dunhams, or other sporting good stores. (I say this from the point of view of having competed at paintball at the top levels, and having owned paintball guns and rigs that cost me more than a good car) And, as a result, these hobby markets have faltered (Paintball was the number one growth sport for 5 years running in the late 90's, and is now actually shrinking for 4 consecutive years - from what market research I have read, having previously owned a paintball store that sold nothing but paintball related items).

What can non-discounting retailers do to combat discounting, to stop the erosion of profits and margins? I dunno. I am not sure there is an answer to that. For Titan Games retail store, we started to shift from GAMES as our primary product line, to ENTERTAINMENT - selling DVD's, Music CD's, Video Games and Systems, and more. The results have been tremendously positive.

For Titan Games online, I have had to hire in eBay sellers to push the products that we buy second hand - as eBay has become the defacto PLACE to buy used, rare or collectible ANYTHING.

For titangames.com we formed a new online store, to supplement out primary site, which is threefreegames.com - where you buy one item, and get 3 items of equal or lessor value for FREE. (These items are usually items we buy in bulk, but sometimes we include new releases, though when we do, you can only get ONE copy of that item, in your 4-item deal).

Personally, I have expected to see a major distributor go direct to consumer for quite some time now, and am surprised it has not happened - I thought for SURE that a distributor who went out of business earlier this year was going to just say "screw it" about distribution, and put ads in every major publication to sell direct to consumers. Yes, many publishers would have dropped them - but most that mattered already had. Should they have become "THE DISCOUNTER" of the industry, selling every major release for 90 days, then dropping it - they might have caused the downfall of the 3-tier system (which is the system which the game industry now uses, which is that publishers sell to distributors, distributors sell to retailers, and retailer sell to the general public). The Three Tier System, which admittedly I know very little about, strikes me as fragile from the center tier perspective of the distributor. A publisher makes a book, lets say, and it costs $40 MSRP, and costs $5 to print. They sell it at 60% off (generally speaking) to the distributor ($16 per unit) and the publisher triples their cost. The distributor sells at about 50% off to the retailer, thus making $20 on the sale, and netting $4 (to cover labor, rent, etc - this is not much of a margin, about 25% markup). The retailer then has to stock it and show it and provide a space for it, and makes about 100% markup if he sells it at full MSRP. So, the distribution tier seems fragile, but that's just my take on it - distributors make up for it, in theory, by selling a LOT of every item initially to many customers (retailers, resellers, etc).

(NOTE: This explanation is very simplistic, and doesn't take much into account. Such as the publisher has to pay someone to write and lay out the books or games they publish, I only say the cost of PRINTING is $5 on this, fictitious, book. The distributors have to guess how many to order, and they need to guess right 90% of the time, or they lose out. Buy too many, and you cannot sell enough to make a profit - buy too few, and you lose sales. The retailer has to stock a LOT of items (in my case, usually 2 deep on stock, over 800 RPG titles). Each tier has their own difficulty, and hurdles.)

In our industry right now, things will either eventually go the way of comics (one major player in distribution), or RC Cars (no major distributors who don't also sell direct to consumers) or something unexpected will occur.

Magic was unexpected. D&D was unexpected. What could come next? Don't know, but I am fearful of what might occur.

For my company, things are good - but could be better.

I make a decision each day NOT to close my retail store. I make a decision every day NOT to become a 30% off online discounter, and just push the envelope with my staff and beat the other discounters with better service, for a slightly lower discount (meaning I could do a LOT at 30% off, rather than go to 35% off like everyone else).

I don't know how long I will be able to continue to make those decisions. It is hard on the psyche to be "THE GOOD GUY" for the industry, and be looked at as "THE BAD GUY" by some of my customers.

My Only Certainty: I have the last job I will ever hold. I love what I do for a living, I enjoy most of my retail customers, most of my online customers, and most of my discount hunters. I love going to GenCon, Origins and DragonCon as a vendor - and I love having my own office, my own desk, and my staff. The are a great team, and I feel a little like Mal of the Firefly series, and Serenity Movie - a seasoned veteran who never rose above the rank of SSG in the service, but who now Captains his own ship, so to speak.

I love what I do. I love the people I work with, and those I know in the industry. I just wish I wasn't the bad-guy to some folks. (Awww, listen to me whine!).

Discounting, however, does not seem like something that is going away. I hope I never had to decide that since I cannot beat em', that I gotta join em. But, it is a decision I struggle with continuously.

Good Gaming, ya'll

Marcus King
Titan Games - Commander
http://www.titangames.com
http://www.threefreegames.com
titangamesinc@aol.com personal email address

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What do you think?

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All Counter Talk columns by Marcus King

  • On Discounting by Marcus King, 15dec05
  • Think Different by Marcus King, 11oct05
  • GENCON, August, and TitanGames by Marcus King, 29aug05
  • Another Month at Titan Games by Marcus King, 06jul05
  • The Past Week at TitanGames by Marcus King, 10may05
  • The GAMA Trade Show by Marcus King, 13apr05
  • Con Jobs by Marcus King, 08mar05
  • Don't Skip The Retailer by Marcus King, 11feb05
  • How To Open Your Own Game Store by Marcus King, 14jan05
  • The Christmas Crunch by Marcus King, 22dec04
  • Light at the End of the Convention Tunnel by Marcus King, 15nov04
  • What It Takes To Open a Game Store by Marcus King, 15oct04
  • The Big 3 by Marcus King, 13sep04
  • Discoveries by Marcus King, 11aug04
  • Con-Man by Marcus King, 19jul04
  • Turmoil by Marcus King, 16jun04
  • Business is Business by Marcus King, 12may04
  • GAMA On! by Marcus King, 09mar04
  • On A Serious Note by Marcus King, 10feb04
  • Predictions for 2004 by Marcus King, 20jan04
  • Game Retailer or Game Club? by Marcus King, 11dec03
  • The Weather Changes... by Marcus King, 11nov03
  • The Deluge of Dead Products by Marcus King, 14oct03
  • The Conventional by Marcus King, 11sep03
  • Solutions to Problems and Good Feelings by Marcus King, 11aug03
  • Two weeks in the life of a retailer by Marcus King, 16jul03
  • In Store Gaming, and our love-hate relationship with it by Marcus King, 12jun03
  • Raising a Good Retailer by Marcus King, 28apr03
  • The customer is always right (right?) by Marcus King, 02apr03
  • Introductions by Marcus King, 24mar03
  • Jumping the Grand Canyon with Pikachu and Friends December 20, 1999
  • GTS'99 April 20, 1999

    Other columns at RPGnet

    TQo0~^DҒt< ek&Ǿ$\۵ZFȃuwݝIŃU QYir2HR2.u3MFoعq]4#A`pP5(b& )b)ⰾp7(i<[-2gL#5[f g?*rVGf8*)s'+20ϟ̑F}KB<7wSL\gbvm9WiRބYŜvd y0'p2I_Fc2>#o A )VL[Qk?3`)<У[(*W.JH ?tXCt谙 X:@ \0w ~LqĤE-rFkYœj4q 5AQ6[AxG [>w|?( fХθY䝛$c=_qNĦoǸ>O_|&/_Mi7"宥CЧk0dӷLh;TmuCGU-!Ul{ h<\bQX.~"O2*yPcz!ŠGg