Gary Ray: Mastering The Art of Inventory Management
Gary Ray is the owner of Black Diamond Games and the author of an upcoming book on the hobby game industry. Catch his inventory management seminar at the 2018 GAMA Trade Show.
Inventory management can be broken down into two broad categories: the head and the heart.
The head is analytical. It’s crunching numbers and coming to difficult conclusions that allow you to make difficult decisions. The heart is understanding human behavior, knowing your customer base, making decisions about what stays and what goes, based on your gut.
If you're a mass market store, your model relies on the former, discarding games once the turn rates dip. If you're a gamer den with acres of card tables, you may rely too hard on the latter.
If you're successful, you probably balance the two.
There's a freedom in being analytical, a sense that the numbers don’t lie.
Turn rate analysis, sales-per-square-foot analysis, Gross Margin Return on Investment—tools like these help make difficult choices about games you love, and confirm your feelings about games you don't.
It's about opportunity costs. It assumes there are better things you can do with your money, areas that are expanding while others are contracting, and it helps identify those opportunities. But to take advantage of them, you need diversification and a market big enough to support many product lines.
Diversification requires proper capitalization. If you started your store with a few dozen Magic boxes (high turns), and you decide to diversify into board games (average turns), you may discover that you're vastly undercapitalized. You may discover you lack the capital to take advantage of new opportunities.
If you recognize your store in that description, you will simply need to up your game. Buy fixtures. Stock your shelves. Change your marketing to attract a different clientele—knowing they may never come.
But that's not to say you should abandon heart-based thinking.
The danger of "head" thinking is that it doesn’t acknowledge human psychology.
People are not machines and hobby games are not widgets. So we need to work with the heart.
The holy grail of heart-based inventory management is top of mind marketing, in which the goal is for customers to think of your store when they think of their game.
You don’t reach top of mind status by turning their game into a series of disposable widgets. You do it by having the entire product line (or at least more than anyone else) and having it displayed in a way that makes shopping for it a special experience. You do it by having organized play.
Turn rates and other analytics don’t matter on a top of mind product line. If I cut parts of it because the metrics say I should, I risk losing that psychological edge.
Or if I fail to carry a cohesive collection—enough of a line for customers to recognize me as a valid carrier. Maybe seven RPG supplements is the magic number. If I drop adventures in an RPG line because my analytics tell me to, my collection may fail to register as valid in the mind of customers.
Obviously, there's a lot to know.
So how do you know when to use your head and when to use your heart?
How do you manage inventory, taking advantage of opportunities, without losing your brand position in the mind of customers?
It’s trial and error. It’s what makes inventory management maddeningly complex, yet delightful when you succeed. It’s the art of inventory management.