e-commerce store - part II

Ok, last I posted about this, I said we'll be talking about some profit margins on games, consoles, and how we use ebay to figure out what's hot and watch teh sux.

To keep this short I'm just going to discuss profit margins today.

So, we received confirmation (and login information) for are first distributor. Now, it must be understood, that we must use a distributor for companies (and cannot go directly to them) because we don't buy enough volume..and because Microsoft doesn't work with retailers directly (or so they say on their website).

So, we get into our first distributor. My wife Jen found the contact information for many of Microsoft's distributors on their website somewhere (she probably could expand on that section). We have others that we've signed up with, or want to, but for now it's this one distro.

So, knowing game profit margins were fairly low, we planned to attempt to sell big volumes of them. Perhaps knocking a few bucks off to make people use us over somebody like Ebgames.  Seemed simple enough, right?

Wrong.

Why? Because the distributor sells most games for roughly 52.80 or a bit more. Now, consider the stock price of $59.99 and the cost to ship a game. Granted, if we buy enough product from a distributor they wave shipping (to us anyway), that means we cannot always make "free shipping" an option on our e-commerce site (as we hoped). If a game costs between $3.00 and $5.00 to ship (its roughly 4lbs with packaging and all that) we're looking at 57.80 for the game while selling for 59.99. If you do the math, that's roughly 2.20 cents profit on a single sale. So, we'd have to sell MUCH VOLUME to see any type of profit.

So how do the big boys do it? Well, consider this: Gamestop had 40% of its sales last year in pre-owned games. They feel the hurt as well.

So, what do they do to drive you in? They push pre-owned games, now they even have a "would you like to insure your new purchase for a year for just $1.00 more?"

You get that spiel? I have. This is almost 100% profit margin increase for them. Given a game may net them $1.00 and your giving them $1.00 to insure a game that will not break unless you're super careless. That's one way to increase your profit margin.

The other? They take in a pre-owned Xbox 360 game for somewhere between $25.00 and $30.00 and sell it for $54.99. Imagine, if you could buy from a distro for 25 bucks and mark it up $30.00? If you make even $2.00 on a new game you are getting 12.5 games worth of sales by selling one single pre-owned game.

Second way to make money? Anyone want to guess where strategy guides go in the store? The cash register. Why? Because the profit margins are much better on the books then the games themselves. So, if you walk in and buy a new game WITH a strategy guide they're actually making a few dollars.

Third method? Accessories! One can probably make $14.00 on a single wireless xbox 360 controller selling at MSRP. So, if you go in and buy a controller it is as if (margin wise) you went in and bought 7 new games.

Now, consoles... oh my. My distributor sells an xbox 360 core console for $301.00. I can then turn around and sell it for $299.99. A Nintendo DS hand-held? 128.99, turn around and sell it for 129.99. So, on certain consoles I can make a dollar, on others I'm losing a dollar. The catch-22 is, most companies want new customers and want to have all the options, what type of game retailer sells games but no console to play them on?

So, to summarize, I can sell you a core 360 and take a dollar loss, and sell you a new game and make a few dollars (minus the loss). If I sell you a joystick I'll be happy because I might make a few dollars to help recover from the losses I'm incurring selling you the system to play it on.

I'm not saying to feel bad for gamestop, ebgames and the rest of its monopolies because I still disagree with their tactics. But, when you go into a retail outlet that has a ton of games and you notice they're doing pre-owned sales too - you know why. That is where the money is and thankfully a pre-owned game usually works just like a new so returns are low (not the same can be said for consoles).

Because of these revelations we're working our store to sell pre-owned games, new games, new consoles, pre-owned (qualified by hours of play ourselves) consoles, and other products like HDTV's, PC upgrades, gamer keyboards, gamer mice, DVD Players, etc. This would be more like how bestbuy or walmart do business (but a much smaller scale). By selling other products you can be ok with small profit margins on games as long as your other products sell.

Now, the trick will be to drive customers to buy accessories and pre-owned titles with discount coupons, benefits, and other desirable reasons to buy things that sell at a positive gain. Wal-Mart can sell a game under its profit margins and take a loss because they also sell a billion other products at a great profit thus getting you INTO the store to buy a game on sale, but you leave with a lawn chair, mailbox, a six pack of soda, and a candybar. So goes the cycle of "loss leader" and bringing customers into the place.

Our only advantage, right now, over eb and such, is that we've got less employee's and no rent to pay on a store (since the internet is big).

Ok, enough for now.

CodeMonkey