The Great Glut of Gaming Guides at "Go away" prices...

bento said:

No - my assumption is the retailer pays 75% of what it costs MSRP, so they get 25% off.

I think in real life it's really about 40% discount, but I wanted the math to be easier.

BTW, went by a HPB on the way home and saw the glut of Eberron and other WoTC 3.5 books on their shelves that other posters talked about, and I still couldn't bring myself to buy any of them.

I must really have all the 3.5 books I want.

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But as soon as you change the math, the whole discount thing kinda goes out the window no? I mean honestly, no hobby store is going to be able to compete on price compared to Amazon, Buy, Books A Million, Overstock, and the almighty E-Bay in terms of e-stores.

A 40% discount means an instant lose if they 50% the item.

Still imporant to free up shelf space, etc... but far more costly no?

DreadPirateMurphy said:

In the United States, at least, I don't think you pay taxes on inventory, per se. You pay taxes on the income generated from its sale, and you pay property taxes on the land where it is kept (either directly or indirectly through rent). I could be mistaken...

The real cost is the opportunity cost of not using your shelf space for something that makes you a profit. Every square inch of your store is an investment, and your goal should be to maximize the return on that investment.

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Trust me on this, you do indeed get taxed on inventory. Federal as well as State - unlike the tax on profits (quarterly for businesses) the inventory is taxed on a yearly basis.

The Auld Grump, one of the major forces behind After Christmas sales.....

TheAuldGrump said:

Trust me on this, you do indeed get taxed on inventory. Federal as well as State - unlike the tax on profits (quarterly for businesses) the inventory is taxed on a yearly basis.

The Auld Grump, one of the major forces behind After Christmas sales.....

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I frequently go to stores just to check on their Clearance items. You can pick up things very cheap that way. Sometimes for as little as 20% of the original price.

Can't wait for the 3.5 books to start hitting the bargain bins...

bento said:

No - my assumption is the retailer pays 75% of what it costs MSRP, so they get 25% off.

I think in real life it's really about 40% discount, but I wanted the math to be easier.

BTW, went by a HPB on the way home and saw the glut of Eberron and other WoTC 3.5 books on their shelves that other posters talked about, and I still couldn't bring myself to buy any of them.

I must really have all the 3.5 books I want.

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It's more like a 40% to 47% discount off MSRP depending on the distributor and how much you order from them.

JoeGKushner said:

But as soon as you change the math, the whole discount thing kinda goes out the window no? I mean honestly, no hobby store is going to be able to compete on price compared to Amazon, Buy, Books A Million, Overstock, and the almighty E-Bay in terms of e-stores.

A 40% discount means an instant lose if they 50% the item.

Still imporant to free up shelf space, etc... but far more costly no?

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That's the vicious cycle for the FLGS owner. Been there, done that. You slash the prices too much (just to get rid of it) and the sales have not contributed to your rent, utilities and other overhead costs. It's just a wash and you are no closer to paying this month's or even last month's rent. You don't slash them enough and folks are buying the stuff on line and you have dead stock.

I did seriously discount some stuff when it was clear it would never ever sell at 100% MSRP or 90% MSRP. I did a 10% discount on everything through most of the time I had the store.

The key for any would-be FLGS owner is to be more than a retail outlet. You need gaming tables, and events to keep folks coming to your store as opposed to buying on line or at the big box book store. I took this one step further and set up a painting station in the back where folks could paint their minis (I provided the GW paint for this.) This worked well. Besides my regulars who played in the store and painted what they bought from me, I had several others who made it a family outing every 2 weeks. They would come in on a Saturday, buy minis and paint them all afternoon.

Of course you still get the heroes who come in, never buy a thing from you, use your gaming tables and then tell other customers about the great 40% discount he got on line for a product the other customers just paid 90% of MSRP to me. That's always fun.

Thanks,
Rich

PS: alot of my store's stuff is now on line at the link in my sig and here:

Stuff on Ebay: http://stores.ebay.com/Blue-Star-Games

A simplified practical example:

Let's say you have $1000 (MSRP) of dead stock. For the purpose of this example, we will assume that the dead stock will sell through in 2 years. (In many cases, this is wildly optimistic.) So, after two years, if you don't reinvest the money, or use it for rent, or whatever, you'll have $1000 in cash.

Now, let's say that you decide to discount that stock to move it the heck out of your store and put the money into something that will actually sell. To do this, you mark it down, on average, by 60% and have a big sale. So now you have $400 that you can reinvest in stock. We'll assume that you mostly get stock that will sell through 4 times a year. (This is a pretty normal assumption in retail, BTW.) Since you'll make some mistakes, we will only assume that you can average a discount of 40%. So your $400 will get you stock worth $400/.6 = $666 MSRP. After 3 months, you'll have sold that and reinvested the $666 in stock worth $1111. You continue this for the rest of the same two years, at the end of which you'll have $14,289.

For comparison, let's see what happens if you have to discount it by 90% to move it: After 2 years you have $5953.

That's why it makes sense to sell your stock for whatever you can get for it once it becomes apparent that it's dead. Understanding cash flow, sunk costs, and stock turns is critical to successful retail. It also seems to be pretty uncommon among game stores.

ps. This is hugely simplified to remove as many variables as possible. Those complications don't really change this analysis.

TheAuldGrump said:

Trust me on this, you do indeed get taxed on inventory. Federal as well as State - unlike the tax on profits (quarterly for businesses) the inventory is taxed on a yearly basis.

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This I disagree with. The only thing I've personally filled out are returns for a Partnership (Form 1065), but I can't see how it could be different for other kinds of businesses.

Inventory is an expense, something you've paid out-of-pocket for. In figuring your profit, other kinds of expenses can be subtracted from income, but inventory cannot. So the value you paid is tracked each year (Form 1065, attached, Schedule A -- top of page 2). The value only kicks in when you sell some of that inventory, and then it's actually subtracted from your income (reducing your taxes -- it feeds into page 1, lines 2 and 3).

The only thing I can see that someone could cheat on their taxes would be to act like their inventory had moved out faster than it had, and so take that deduction sooner than they should. What part of the tax code or return are you looking at that requires paying taxes for inventory on hand?

Doug Sundseth said:

Now, let's say that you decide to discount that stock to move it the heck out of your store and put the money into something that will actually sell.

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Your example works...just remember though that when the retailer ordered the original stock he/she thought that would sell as well. Being able to identify the stuff that 'will actually sell' is the hard part, not the decision to flog the dead stuff at below what you paid for it...at least it was for me.

Thanks,
Rich

Delta said:

This I disagree with. The only thing I've personally filled out are returns for a Partnership (Form 1065), but I can't see how it could be different for other kinds of businesses.

Inventory is an expense, something you've paid out-of-pocket for. In figuring your profit, other kinds of expenses can be subtracted from income, but inventory cannot. So the value you paid is tracked each year (Form 1065, attached, Schedule A -- top of page 2). The value only kicks in when you sell some of that inventory, and then it's actually subtracted from your income (reducing your taxes -- it feeds into page 1, lines 2 and 3).

The only thing I can see that someone could cheat on their taxes would be to act like their inventory had moved out faster than it had, and so take that deduction sooner than they should. What part of the tax code or return are you looking at that requires paying taxes for inventory on hand?

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Talk to the IRS. As far as they are concerned inventory is simply profit that has not happened yet.

The Auld Grump

Greylock said:

*sigh*

I've said this so many times, but the FLGS does not have the ability to deep discount those books. For most of them, the price generally reflects what they truly paid for it. Paid. Money is gone. The books can't be returned for credit and reissued to them as remainders. If they mark the books down, it's money out of their pockets. And if the customers don't want them now, they aren't losing anything. Someday, someone will buy them.

Someone like me, digging through bins for 2Edition books.

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It's money IN their pockets if they sell them versus not. Saying you can't discount unwanted product is an investment fallacy.