Monday, October 30, 2006

Guns and Games: supply problems

This week the World of Warcraft Collectible card game came out. Stores and distributors under ordered as the customers for this product are new, coming from the PC game, so the store owners (and distributors) had no way to gauge interest. Looks like the restock/reprint will be in Jan '07.

The FN FS2000, a Bullpup .223 rifle is out, but not available everywhere. I see it on gunsamerica, but the gun store I've ordered it from has no idea when they'll get it. I'm willing to wait, as I get a good price from them.

Two hot products, two supply problems. This results in hype for the product, inflated prices, and a possible overreaction in ordering leading to a glut of dead product. Oh, and a lot of annoyed stores and customers who want the product.

In the 3 tier model (manufacturer, distributor, retailer) the question is where the burden of risk should be. Manufacturers presell most new products to distributors. They may make extra, usually to take advantage of economies of scale (it's less expensive to make one run of 5000 than two runs of 2500). They've taken the risk of time and money creating the product, and if they make extra, they risk not selling it.
Distributors get preorders from retailers and may order extra as many stores don't preorder product. They also order extra as they want to be able to provide product after a maker is sold out. They risk this extra product not selling, and retailers not honoring their preorders. Distributors are like superstores as they carry a lot of product, very deep. Think of a distributor as like Sams Club, but with better selection.
Retails are the contact with the end consumer. They preorder based on gut instinct as few customers preorder. They want to carry product, but don't want to carry deeply, expecting to reorder weekly from the distributor if it sells. They want a wide selection, or at least the appearance of having a wide selection. There's a business axiom "You get 80% of your sales from 20% of your inventory". I may carry the whole Glock line, but sell few Glock 32 compared to the 17. New products sell better than old product. New products that don't sell well are dropped from any of the three tiers, good selling product stay in production and become evergreen.
The bottom line of risk IS the Bottom Line. In return for their respective risk, how much money are they making? Supermarkets make little on each item but sell many items often. Car dealers are the other end: they sell little, but make a lot on each. They both make a lot of money doing this. If you don't believe this, look at advertising. It's expensive. Who's doing a lot of it? Non-Electronic Games and guns are both industries where the retailers aren't chains. I'm not sure exactly what this means, but I assume if there was good money to be made a chain would exist to maximize it.

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